amount of loan granted by BPI to ALS and Litonjua was only in the principal sum of

P464,351.77, with interest at 20% plus service charge of 1% per annum, payable on equal
monthly and successive amortizations at P9,283.83 for ten (10) years or one hundred twenty
(120) months. The amortization schedule attached as Annex "A" to the "Deed of Mortgage" is
correspondingly reformed as aforestated.
The Court further finds that ALS and Litonjua suffered compensable damages when BPI caused
their publication in a newspaper of general circulation as defaulting debtors, and therefore
orders BPI to pay ALS and Litonjua the following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorneys fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being premature.
Costs against BPI.
SO ORDERED.2
Both parties appealed to the Court of Appeals. However, private respondents appeal was
dismissed for non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion
reads:
WHEREFORE, finding no error in the appealed decision the same is hereby AFFIRMED in toto.
SO ORDERED.3
In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the
delivery of the object of the contract. The contract of loan between BPIIC and ALS & Litonjua
was perfected only on September 13, 1982, the date when BPIIC released the purported
balance of the P500,000 loan after deducting therefrom the value of Roas indebtedness. Thus,
payment of the monthly amortization should commence only a month after the said date, as can
be inferred from the stipulations in the contract. This, despite the express agreement of the
parties that payment shall commence on May 1, 1981. From October 1982 to June 1984, the
total amortization due was only P194,960.43. Evidence showed that private respondents 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 BPIIC was likewise denied, hence this petition,
where BPIIC submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN THE
LIGHT OF THE RULE LAID DOWN IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES IN THE FACE OF IRREGULAR PAYMENTS MADE BY
ALS AND OPPOSED TO THE RULE LAID DOWN IN SOCIAL SECURITY SYSTEM VS.
COURT OF APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of Appeals erred in ruling that because a
simple loan is perfected upon the delivery of the object of the contract, the loan contract in this
case was perfected only on September 13, 1982. Petitioner claims that a contract of loan is a
consensual contract, and a loan contract is perfected at the time the contract of mortgage is
executed conformably with our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In the
present case, the loan contract was perfected on March 31, 1981, the date when the mortgage
deed was executed, hence, the amortization and interests on the loan should be computed from
said date.
Petitioner also argues that while the documents showed that the loan was released only on
August 1982, the loan was actually released on March 31, 1981, when BPIIC issued a
cancellation of mortgage of Frank Roas loan. This finds support in the registration on March 31,
1981 of the Deed of Absolute Sale executed by Roa in favor of ALS, transferring the title of the
property to ALS, and ALS executing the Mortgage Deed in favor of BPIIC. Moreover, petitioner
claims, the delay in the release of the loan should be attributed to private respondents. As BPIIC

G.R. No. 133632

February 15, 2002
BPI INVESTMENT CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT CORPORATION,
respondents.
DECISION
QUISUMBING, J.:
This petition for certiorari assails the decision dated February 28, 1997, of the Court of Appeals
and its resolution dated April 21, 1998, in CA-G.R. CV No. 38887. The appellate court affirmed
the judgment of the Regional Trial Court of Pasig City, Branch 151, in (a) Civil Case No. 11831,
for foreclosure of mortgage by petitioner BPI Investment Corporation (BPIIC for brevity) against
private respondents ALS Management and Development Corporation and Antonio K. Litonjua, 1
consolidated with (b) Civil Case No. 52093, for damages with prayer for the issuance of a writ of
preliminary injunction by the private respondents against said petitioner.
The trial court had held that private respondents were not in default in the payment of their
monthly amortization, hence, the extrajudicial foreclosure conducted by BPIIC was premature
and made in bad faith. It awarded private respondents the amount of P300,000 for moral
damages, P50,000 for exemplary damages, and P50,000 for attorneys fees and expenses for
litigation. It likewise dismissed the foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and
Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a
house on his lot in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to
AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to private respondents
ALS and Antonio Litonjua for P850,000. They paid P350,000 in cash and assumed the P500,000
balance of Roas indebtedness with AIDC. The latter, however, was not willing to extend the old
interest rate to private respondents and proposed to grant them a new loan of P500,000 to be
applied to Roas debt and secured by the same property, at an interest rate of 20% per annum
and service fee of 1% per annum on the outstanding principal balance payable within ten years
in equal monthly amortization of P9,996.58 and penalty interest at the rate of 21% per annum
per day from the date the amortization became due and payable.
Consequently, in March 1981, private respondents executed a mortgage deed containing the
above stipulations with the provision that payment of the monthly amortization shall commence
on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum of
P190,601.35. This reduced Roas principal balance to P457,204.90 which, in turn, was liquidated
when BPIIC applied thereto the proceeds of private respondents loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to be
what was left of their loan after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the
ground that they failed to pay the mortgage indebtedness which from May 1, 1981 to June 30,
1984, amounted to Four Hundred Seventy Five Thousand Five Hundred Eighty Five and 31/100
Pesos (P475,585.31). A notice of sheriffs sale was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They
alleged, among others, that they were not in arrears in their payment, but in fact made an
overpayment as of June 30, 1984. They maintained that they should not be made to pay
amortization before the actual release of the P500,000 loan in August and September 1982.
Further, out of the P500,000 loan, only the total amount of P464,351.77 was released to private
respondents. Hence, applying the effects of legal compensation, the balance of P35,648.23
should be applied to the initial monthly amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093,
thus:
WHEREFORE, judgment is hereby rendered in favor of ALS Management and Development
Corporation and Antonio K. Litonjua and against BPI Investment Corporation, holding that the

the latter fails, default sets in. Consequently, petitioner could only demand for the payment of the
monthly amortization after September 13, 1982 for it was only then when it complied with its
obligation under the loan contract. Therefore, in computing the amount due as of the date when
BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date is October 13,
1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the date of actual
release of the loan and whether private respondents were the cause of the delay in the release
of the loan, are factual. Since petitioner has not shown that the instant case is one of the
exceptions to the basic rule that only questions of law can be raised in a petition for review
under Rule 45 of the Rules of Court, 10 factual matters need not tarry us now. On these points we
are bound by the findings of the appellate and trial courts.

G.R. No. 160758

January 15, 2014
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,
vs.
GUARIA AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION, Respondent.
DECISION
BERSAMIN, J.:
The foreclosure of a mortgage prior to the mortgagor's default on the principal obligation is
premature, and should be undone for being void and ineffectual. The mortgagee who has been
meanwhile given possession of the mortgaged property by virtue of a writ of possession issued
to it as the purchaser at the foreclosure sale may be required to restore the possession of the
property to the mortgagor and to pay reasonable rent for the use of the property during the
intervening period.
The Case
In this appeal, Development Bank of the Philippines (DBP) seeks the reversal of the adverse
decision promulgated on March 26, 2003 in C.A.-G.R. CV No. 59491, 1 whereby the Court of
Appeals (CA) upheld the judgment rendered on January 6, 1998 2 by the Regional Trial Court,
Branch 25, in Iloilo City (RTC) annulling the extra-judicial foreclosure of the real estate and
chattel mortgages at the instance of DBP because the debtor-mortgagor, Guaria Agricultural
and Realty Development Corporation (Guaria Corporation), had not yet defaulted on its
obligations in favor of DBP.
Antecedents
In July 1976, Guaria Corporation applied for a loan from DBP to finance the development of its
resort complex situated in Trapiche, Oton, Iloilo. The loan, in the amount of P3,387,000.00, was
approved on August 5, 1976.3 Guaria Corporation executed a promissory note that would be
due on November 3, 1988.4 On October 5, 1976, Guaria Corporation executed a real estate
mortgage over several real properties in favor of DBP as security for the repayment of the loan.
On May 17, 1977, Guaria Corporation executed a chattel mortgage over the personal
properties existing at the resort complex and those yet to be acquired out of the proceeds of the
loan, also to secure the performance of the obligation. 5 Prior to the release of the loan, DBP
required Guaria Corporation to put up a cash equity of P1,470,951.00 for the construction of
the buildings and other improvements on the resort complex.
The loan was released in several instalments, and Guaria Corporation used the proceeds to
defray the cost of additional improvements in the resort complex. In all, the amount released
totalled P3,003,617.49, from which DBP withheld P148,102.98 as interest.6
Guaria Corporation demanded the release of the balance of the loan, but DBP refused.
Instead, DBP directly paid some suppliers of Guari a Corporation over the latter's objection.
DBP found upon inspection of the resort project, its developments and improvements that
Guaria Corporation had not completed the construction works. 7 In a letter dated February 27,
1978,8 and a telegram dated June 9, 1978,9 DBP thus demanded that Guaria Corporation

only agreed to extend a P500,000 loan, private respondents were required to reduce Frank
Roas loan below said amount. According to petitioner, private respondents were only able to do
so in August 1982.
In their comment, private respondents assert that based on Article 1934 of the Civil Code, 4 a
simple loan is perfected upon the delivery of the object of the contract, hence a real contract. In
this case, even though the loan contract was signed on March 31, 1981, it was perfected only on
September 13, 1982, when the full loan was released to private respondents. They submit that
petitioner misread Bonnevie. To give meaning to Article 1934, according to private respondents,
Bonnevie must be construed to mean that the contract to extend the loan was perfected on
March 31, 1981 but the contract of loan itself was only perfected upon the delivery of the full
loan to private respondents on September 13, 1982.
Private respondents further maintain that even granting, arguendo, that the loan contract was
perfected on March 31, 1981, and their payment did not start a month thereafter, still no default
took place. According to private respondents, a perfected loan agreement imposes reciprocal
obligations, where the obligation or promise of each party is the consideration of the other party.
In this case, the consideration for BPIIC in entering into the loan contract is the promise of
private respondents to pay the monthly amortization. For the latter, it is the promise of BPIIC to
deliver the money. In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon him.
Therefore, private respondents conclude, they did not incur in delay when they did not
commence paying the monthly amortization on May 1, 1981, as it was only on September 13,
1982 when petitioner fully complied with its obligation under the loan contract.
We agree with private respondents. A loan contract is not a consensual contract but a real
contract. It is perfected only upon the delivery of the object of the contract. 5 Petitioner misapplied
Bonnevie. The contract in Bonnevie declared by this Court as a perfected consensual contract
falls under the first clause of Article 1934, Civil Code. It is an accepted promise to deliver
something
by
way
of
simple
loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445,
petitioner applied for a loan of P500,000 with respondent bank. The latter approved the
application through a board resolution. Thereafter, the corresponding mortgage was executed
and registered. However, because of acts attributable to petitioner, the loan was not released.
Later, petitioner instituted an action for damages. We recognized in this case, a perfected
consensual contract which under normal circumstances could have made the bank liable for not
releasing the loan. However, since the fault was attributable to petitioner therein, the court did
not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for damages.
However, said contract does not constitute the real contract of loan which requires the delivery
of the object of the contract for its perfection and which gives rise to obligations only on the part
of the borrower.6
In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on
the other, was perfected only on September 13, 1982, the date of the second release of the
loan. Following the intentions of the parties on the commencement of the monthly amortization,
as found by the Court of Appeals, private respondents obligation to pay commenced only on
October 13, 1982, a month after the perfection of the contract.7
We also agree with private respondents that a contract of loan involves a reciprocal obligation,
wherein the obligation or promise of each party is the consideration for that of the other.8 As
averred by private respondents, the promise of BPIIC to extend and deliver the loan is upon the
consideration that ALS and Litonjua shall pay the monthly amortization commencing on May 1,
1981, one month after the supposed release of the loan. It is a basic principle in reciprocal
obligations that neither party incurs in delay, if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him.9 Only when a party has performed
his part of the contract can he demand that the other party also fulfills his own obligation and if

THE TRIAL COURT ERRED IN HOLDING THE SALES OF THE MORTGAGED PROPERTIES
TO DBP AS INVALID UNDER ARTICLES 2113 AND 2141 OF THE CIVIL CODE.
IV
THE TRIAL COURT GRAVELY ERRED AND COMMITTED [REVERSIBLE] ERROR IN
ORDERING DBP TO RETURN TO PLAINTIFF THE ACTUAL POSSESSION AND ENJOYMENT
OF ALL THE FORECLOSED PROPERTIES AND TO PAY PLAINTIFF REASONABLE RENTAL
FOR THE USE OF THE FORECLOSED BEACH RESORT.
V
THE TRIAL COURT ERRED IN AWARDING ATTORNEY'S FEES AGAINST DBP WHICH
MERELY EXERCISED ITS RIGHTS UNDER THE MORTGAGE CONTRACT.19
In its decision promulgated on March 26, 2003,20 however, the CA sustained the RTC's judgment
but deleted the award of attorney's fees, decreeing:
WHEREFORE, in view of the foregoing, the Decision dated January 6, 1998, rendered by the
Regional Trial Court of Iloilo City, Branch 25 in Civil Case No. 12707 for Specific Performance
with Preliminary Injunction is hereby AFFIRMED with MODIFICATION, in that the award for
attorney's fees is deleted.
SO ORDERED.21
DBP timely filed a motion for reconsideration, but the CA denied its motion on October 9, 2003.
Hence, this appeal by DBP.
Issues
DBP submits the following issues for consideration, namely:
WHETHER OR NOT THE DECISION OF THE COURT OF APPEALS DATED MARCH 26, 2003
AND ITS RESOLUTION DATED OCTOBER 9, DENYING PETITIONER'S MOTION FOR
RECONSIDERATION WERE ISSUED IN ACCORDANCE WITH LAW, PREVAILING
JURISPRUDENTIAL DECISION AND SUPPORTED BY EVIDENCE;
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ADHERED TO THE USUAL
COURSE OF JUDICIAL PROCEEDINGS IN DECIDING C.A.-G.R. CV NO. 59491 AND
THEREFORE IN ACCORDANCE WITH THE "LAW OF THE CASE DOCTRINE." 22
Ruling
The
appeal
lacks
merit.
1.
Findings of the CA were supported by the evidence as well as by law and jurisprudence
DBP submits that the loan had been granted under its supervised credit financing scheme for
the development of a beach resort, and the releases of the proceeds would be subject to
conditions that included the verification of the progress of works in the project to forestall
diversion of the loan proceeds; and that under Stipulation No. 26 of the mortgage contract,
further loan releases would be terminated and the account would be considered due and
demandable in the event of a deviation from the purpose of the loan, 23 including the failure to put
up the required equity and the diversion of the loan proceeds to other purposes. 24 It assails the
declaration by the CA that Guaria Corporation had not yet been in default in its obligations
despite violations of the terms of the mortgage contract securing the promissory note.
Guaria Corporation counters that it did not violate the terms of the promissory note and the
mortgage contracts because DBP had fully collected the interest notwithstanding that the
principal obligation did not yet fall due and become demandable.25
The submissions of DBP lack merit and substance.
The agreement between DBP and Guaria Corporation was a loan. Under the law, a loan
requires the delivery of money or any other consumable object by one party to another who
acquires ownership thereof, on the condition that the same amount or quality shall be paid.26
Loan is a reciprocal obligation, as it arises from the same cause where one party is the creditor,
and the other the debtor.27 The obligation of one party in a reciprocal obligation is dependent
upon the obligation of the other, and the performance should ideally be simultaneous. This
means that in a loan, the creditor should release the full loan amount and the debtor repays it
when it becomes due and demandable.2

expedite the completion of the project, and warned that it would initiate foreclosure proceedings
should Guaria Corporation not do so.10
Unsatisfied with the non-action and objection of Guaria Corporation, DBP initiated extrajudicial
foreclosure proceedings. A notice of foreclosure sale was sent to Guaria Corporation. The
notice was eventually published, leading the clients and patrons of Guaria Corporation to think
that its business operation had slowed down, and that its resort had already closed.11
On January 6, 1979, Guaria Corporation sued DBP in the RTC to demand specific
performance of the latter's obligations under the loan agreement, and to stop the foreclosure of
the mortgages (Civil Case No. 12707). 12 However, DBP moved for the dismissal of the
complaint, stating that the mortgaged properties had already been sold to satisfy the obligation
of Guaria Corporation at a public auction held on January 15, 1979 at the Costa Mario Resort
Beach Resort in Oton, Iloilo. 13 Due to this, Guaria Corporation amended the complaint on
February 6, 197914 to seek the nullification of the foreclosure proceedings and the cancellation of
the certificate of sale. DBP filed its answer on December 17, 1979, 15 and trial followed upon the
termination of the pre-trial without any agreement being reached by the parties.16
In the meantime, DBP applied for the issuance of a writ of possession by the RTC. At first, the
RTC denied the application but later granted it upon DBP's motion for reconsideration.
Aggrieved, Guaria Corporation assailed the granting of the application before the CA on
certiorari (C.A.-G.R. No. 12670-SP entitled Guaria Agricultural and Realty Development
Corporation v. Development Bank of the Philippines). After the CA dismissed the petition for
certiorari, DBP sought the implementation of the order for the issuance of the writ of possession.
Over Guaria Corporation's opposition, the RTC issued the writ of possession on June 16,
1982.17
Judgment of the RTC
On January 6, 1998, the RTC rendered its judgment in Civil Case No. 12707, disposing as
follows:
WHEREFORE, premises considered, the court hereby resolves that the extra-judicial sales of
the mortgaged properties of the plaintiff by the Office of the Provincial Sheriff of Iloilo on January
15, 1979 are null and void, so with the consequent issuance of certificates of sale to the
defendant of said properties, the registration thereof with the Registry of Deeds and the
issuance of the transfer certificates of title involving the real property in its name.
It is also resolved that defendant give back to the plaintiff or its representative the actual
possession and enjoyment of all the properties foreclosed and possessed by it. To pay the
plaintiff the reasonable rental for the use of its beach resort during the period starting from the
time it (defendant) took over its occupation and use up to the time possession is actually
restored to the plaintiff.
And, on the part of the plaintiff, to pay the defendant the loan it obtained as soon as it takes
possession and management of the beach resort and resume its business operation.
Furthermore, defendant is ordered to pay plaintiff's attorney's fee of P50,000.00.
So ORDERED.18
Decision of the CA
On appeal (C.A.-G.R. CV No. 59491), DBP challenged the judgment of the RTC, and insisted
that:
I
THE TRIAL COURT ERRED AND COMMITTED REVERSIBLE ERROR IN DECLARING DBP'S
FORECLOSURE OF THE MORTGAGED PROPERTIES AS INVALID AND UNCALLED FOR.
II
THE TRIAL COURT GRIEVOUSLY ERRED IN HOLDING THE GROUNDS INVOKED BY DBP
TO JUSTIFY FORECLOSURE AS "NOT SUFFICIENT." ON THE CONTRARY, THE
MORTGAGE WAS FORECLOSED BY EXPRESS AUTHORITY OF PARAGRAPH NO. 4 OF
THE MORTGAGE CONTRACT AND SECTION 2 OF P.D. 385 IN ADDITION TO THE
QUESTIONED PAR. NO. 26 PRINTED AT THE BACK OF THE FIRST PAGE OF THE
MORTGAGE CONRACT.
III

To start with, considering that the CA thereby affirmed the factual findings of the RTC, the Court
is bound to uphold such findings, for it is axiomatic that the trial court's factual findings as
affirmed by the CA are binding on appeal due to the Court not being a trier of facts.
Secondly, by its failure to release the proceeds of the loan in their entirety, DBP had no right yet
to exact on Guaria Corporation the latter's compliance with its own obligation under the loan.
Indeed, if a party in a reciprocal contract like a loan does not perform its obligation, the other
party cannot be obliged to perform what is expected of it while the other's obligation remains
unfulfilled.30 In other words, the latter party does not incur delay.31
Still, DBP called upon Guaria Corporation to make good on the construction works pursuant to
the acceleration clause written in the mortgage contract (i.e., Stipulation No. 26), 32 or else it
would foreclose the mortgages.
DBP's actuations were legally unfounded. It is true that loans are often secured by a mortgage
constituted on real or personal property to protect the creditor's interest in case of the default of
the debtor. By its nature, however, a mortgage remains an accessory contract dependent on the
principal obligation,33 such that enforcement of the mortgage contract will depend on whether or
not there has been a violation of the principal obligation. While a creditor and a debtor could
regulate the order in which they should comply with their reciprocal obligations, it is presupposed
that in a loan the lender should perform its obligation - the release of the full loan amount before it could demand that the borrower repay the loaned amount. In other words, Guaria
Corporation would not incur in delay before DBP fully performed its reciprocal obligation. 34
Considering that it had yet to release the entire proceeds of the loan, DBP could not yet make an
effective demand for payment upon Guaria Corporation to perform its obligation under the loan.
According to Development Bank of the Philippines v. Licuanan, 35 it would only be when a
demand to pay had been made and was subsequently refused that a borrower could be
considered in default, and the lender could obtain the right to collect the debt or to foreclose the
mortgage.1wphi1 Hence, Guaria Corporation would not be in default without the demand.
Assuming that DBP could already exact from the latter its compliance with the loan agreement,
the letter dated February 27, 1978 that DBP sent would still not be regarded as a demand to
render Guaria Corporation in default under the principal contract because DBP was only
thereby requesting the latter "to put up the deficiency in the value of improvements."36
Under the circumstances, DBP's foreclosure of the mortgage and the sale of the mortgaged
properties at its instance were premature, and, therefore, void and ineffectual.37
Being a banking institution, DBP owed it to Guaria Corporation to exercise the highest degree
of diligence, as well as to observe the high standards of integrity and performance in all its
transactions because its business was imbued with public interest. 38 The high standards were
also necessary to ensure public confidence in the banking system, for, according to Philippine
National Bank v. Pike:39 "The stability of banks largely depends on the confidence of the people
in the honesty and efficiency of banks." Thus, DBP had to act with great care in applying the
stipulations of its agreement with Guaria Corporation, lest it erodes such public confidence. Yet,
DBP failed in its duty to exercise the highest degree of diligence by prematurely foreclosing the
mortgages and unwarrantedly causing the foreclosure sale of the mortgaged properties despite
Guaria Corporation not being yet in default. DBP wrongly relied on Stipulation No. 26 as its
basis to accelerate the obligation of Guaria Corporation, for the stipulation was relevant to an
Omnibus Agricultural Loan, to Guaria Corporation's loan which was intended for a project other
than agricultural in nature.
Even so, Guaria Corporation did not elevate the actionability of DBP's negligence to the CA,
and did not also appeal the CA's deletion of the award of attorney's fees allowed by the
RTC.1wphi1 With the decision of the CA consequently becoming final and immutable as to
Guaria Corporation, we will not delve any further on DBP's actionable actuations.

G.R. No. 146364

June 3, 2004
COLITO T. PAJUYO, petitioner,

In its assailed decision, the CA found and held thusly:

xxxx
x x x It is undisputed that appellee obtained a loan from appellant, and as security, executed real
estate and chattel mortgages. However, it was never established that appellee was already in
default. Appellant, in a telegram to the appellee reminded the latter to make good on its
construction works, otherwise, it would foreclose the mortgage it executed. It did not mention
that appellee was already in default. The records show that appellant did not make any demand
for payment of the promissory note. It appears that the basis of the foreclosure was not a default
on the loan but appellee's failure to complete the project in accordance with appellant's
standards. In fact, appellant refused to release the remaining balance of the approved loan after
it found that the improvements introduced by appellee were below appellant's expectations.
The loan agreement between the parties is a reciprocal obligation. Appellant in the instant case
bound itself to grant appellee the loan amount of P3,387,000.00 condition on appellee's payment
of the amount when it falls due. Furthermore, the loan was evidenced by the promissory note
which was secured by real estate mortgage over several properties and additional chattel
mortgage. Reciprocal obligations are those which arise from the same cause, and in which each
party is a debtor and a creditor of the other, such that the obligation of one is dependent upon
the obligation of the other (Areola vs. Court of Appeals, 236 SCRA 643). They are to be
performed simultaneously such that the performance of one is conditioned upon the
simultaneous fulfilment of the other (Jaime Ong vs. Court of Appeals, 310 SCRA 1). The promise
of appellee to pay the loan upon due date as well as to execute sufficient security for said loan
by way of mortgage gave rise to a reciprocal obligation on the part of appellant to release the
entire approved loan amount. Thus, appellees are entitled to receive the total loan amount as
agreed upon and not an incomplete amount.
The appellant did not release the total amount of the approved loan. Appellant therefore could
not have made a demand for payment of the loan since it had yet to fulfil its own obligation .
Moreover, the fact that appellee was not yet in default rendered the foreclosure
proceedings
premature
and
improper.
The properties which stood as security for the loan were foreclosed without any demand having
been made on the principal obligation. For an obligation to become due, there must generally
be a demand. Default generally begins from the moment the creditor demands the performance
of the obligation. Without such demand, judicial or extrajudicial, the effects of default will not
arise (Namarco vs. Federation of United Namarco Distributors, Inc., 49 SCRA 238; Borje vs. CFI
of Misamis Occidental, 88 SCRA 576).
xxxx
Appellant also admitted in its brief that it indeed failed to release the full amount of the approved
loan. As a consequence, the real estate mortgage of appellee becomes unenforceable, as it
cannot be entirely foreclosed to satisfy appellee's total debt to appellant (Central Bank of the
Philippines vs. Court of Appeals, 139 SCRA 46).
Since the foreclosure proceedings were premature and unenforceable, it only follows that
appellee is still entitled to possession of the foreclosed properties. However, appellant took
possession of the same by virtue of a writ of possession issued in its favor during the pendency
of the case. Thus, the trial court correctly ruled when it ordered appellant to return actual
possession of the subject properties to appellee or its representative and to pay appellee
reasonable
rents.
However, the award for attorney's fees is deleted. As a rule, the award of attorney's fees is the
exception rather than the rule and counsel's fees are not to be awarded every time a party wins
a suit. Attorney's fees cannot be recovered as part of damages because of the policy that no
premium should be placed on the right to litigate (Pimentel vs. Court of Appeals, et al., 307
SCRA 38).29
xxxx
We uphold the CA.

case presented no special and important matter for the Supreme Court to take cognizance of at
the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution 10
granting the motion for extension conditioned on the timeliness of the filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras petition
for review. On 11 April 1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. The
dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No.
Q-96-26943 is REVERSED and SET ASIDE; and it is hereby declared that the ejectment case
filed against defendant-appellant is without factual and legal basis.
SO ORDERED.11
Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of
Appeals should have dismissed outright Guevarras petition for review because it was filed out of
time. Moreover, it was Guevarras counsel and not Guevarra who signed the certification against
forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyo s motion for
reconsideration. The dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.
SO ORDERED.12
The Ruling of the MTC
The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the house
and not the lot. Pajuyo is the owner of the house, and he allowed Guevarra to use the house
only by tolerance. Thus, Guevarras refusal to vacate the house on Pajuyos demand made
Guevarras continued possession of the house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord and tenant relationship between
Pajuyo and Guevarra. The terms of the Kasunduan bound Guevarra to return possession of the
house on demand.
The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the Revised
National Government Center Housing Project Code of Policies and other pertinent laws. In an
ejectment suit, the RTC has no power to decide Guevarras rights under these laws. The RTC
declared that in an ejectment case, the only issue for resolution is material or physical
possession, not ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and Guevarra
illegally occupied the contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had no right
or title over the lot because it is public land. The assignment of rights between Perez and
Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did not have any legal effect. Pajuyo
and Guevarra are in pari delicto or in equal fault. The court will leave them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held that the Kasunduan
between Pajuyo and Guevarra created a legal tie akin to that of a landlord and tenant
relationship. The Court of Appeals ruled that the Kasunduan is not a lease contract but a
commodatum because the agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate court
held that Guevarra has a better right over the property under Proclamation No. 137. President
Corazon C. Aquino ("President Aquino") issued Proclamation No. 137 on 7 September 1987. At
that time, Guevarra was in physical possession of the property. Under Article VI of the Code of
Policies Beneficiary Selection and Disposition of Homelots and Structures in the National
Housing Project ("the Code"), the actual occupant or caretaker of the lot shall have first priority
as beneficiary of the project. The Court of Appeals concluded that Guevarra is first in the
hierarchy of priority.

vs.
COURT OF APPEALS and EDDIE GUEVARRA, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review1 of the 21 June 2000 Decision2 and 14 December 2000
Resolution of the Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals set aside the
11 November 1996 decision3 of the Regional Trial Court of Quezon City, Branch 81, 4 affirming
the 15 December 1995 decision5 of the Metropolitan Trial Court of Quezon City, Branch 31.6
The Antecedents
In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid P400 to a certain Pedro Perez for the
rights over a 250-square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a
house made of light materials on the lot. Pajuyo and his family lived in the house from 1979 to 7
December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra ("Guevarra") executed a
Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house
for free provided Guevarra would maintain the cleanliness and orderliness of the house.
Guevarra promised that he would voluntarily vacate the premises on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that
Guevarra vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon
City, Branch 31 ("MTC").
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot
where the house stands because the lot is within the 150 hectares set aside by Proclamation
No. 137 for socialized housing. Guevarra pointed out that from December 1985 to September
1994, Pajuyo did not show up or communicate with him. Guevarra insisted that neither he nor
Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion
of the MTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against
defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person or persons claiming
any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as reasonable
compensation for the use of the premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
D) pay the cost of suit.
SO ORDERED.7
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 ("RTC").
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the RTC
decision reads:
WHEREFORE, premises considered, the Court finds no reversible error in the decision
appealed from, being in accord with the law and evidence presented, and the same is hereby
affirmed en toto.
SO ORDERED.8
Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14
December 1996 to file his appeal with the Court of Appeals. Instead of filing his appeal with the
Court of Appeals, Guevarra filed with the Supreme Court a "Motion for Extension of Time to File
Appeal by Certiorari Based on Rule 42" ("motion for extension"). Guevarra theorized that his
appeal raised pure questions of law. The Receiving Clerk of the Supreme Court received the
motion for extension on 13 December 1996 or one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a Resolution 9 referring the
motion for extension to the Court of Appeals which has concurrent jurisdiction over the case. The

are appealable directly to this Court by petition for review.15 These modes of appeal are now
embodied in Section 2, Rule 41 of the 1997 Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of law. Guevarra
thus filed his motion for extension to file petition for review before this Court on 14 December
1996. On 3 January 1997, Guevarra then filed his petition for review with this Court. A perusal of
Guevarras petition for review gives the impression that the issues he raised were pure
questions of law. There is a question of law when the doubt or difference is on what the law is on
a certain state of facts.16 There is a question of fact when the doubt or difference is on the truth
or falsity of the facts alleged.17
In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarra s
petition for review raised these questions: (1) Do ejectment cases pertain only to possession of
a structure, and not the lot on which the structure stands? (2) Does a suit by a squatter against a
fellow squatter constitute a valid case for ejectment? (3) Should a Presidential Proclamation
governing the lot on which a squatters structure stands be considered in an ejectment suit filed
by the owner of the structure?
These questions call for the evaluation of the rights of the parties under the law on ejectment
and the Presidential Proclamation. At first glance, the questions Guevarra raised appeared
purely legal. However, some factual questions still have to be resolved because they have a
bearing on the legal questions raised in the petition for review. These factual matters refer to the
metes and bounds of the disputed property and the application of Guevarra as beneficiary of
Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition for review. In
Lacsamana v. Second Special Cases Division of the Intermediate Appellate Court,18 we
declared that the Court of Appeals could grant extension of time in appeals by petition for review.
In Liboro v. Court of Appeals,19 we clarified that the prohibition against granting an extension of
time applies only in a case where ordinary appeal is perfected by a mere notice of appeal. The
prohibition does not apply in a petition for review where the pleading needs verification. A
petition for review, unlike an ordinary appeal, requires preparation and research to present a
persuasive position.20 The drafting of the petition for review entails more time and effort than
filing a notice of appeal.21 Hence, the Court of Appeals may allow an extension of time to file a
petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,22 we held
that Liboros clarification of Lacsamana is consistent with the Revised Internal Rules of the
Court of Appeals and Supreme Court Circular No. 1-91. They all allow an extension of time for
filing petitions for review with the Court of Appeals. The extension, however, should be limited to
only fifteen days save in exceptionally meritorious cases where the Court of Appeals may grant
a longer period.
A judgment becomes "final and executory" by operation of law. Finality of judgment becomes a
fact on the lapse of the reglementary period to appeal if no appeal is perfected. 23 The RTC
decision could not have gained finality because the Court of Appeals granted the 30-day
extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved Guevarras
motion for extension. The Court of Appeals gave due course to the motion for extension because
it complied with the condition set by the appellate court in its resolution dated 28 January 1997.
The resolution stated that the Court of Appeals would only give due course to the motion for
extension if filed on time. The motion for extension met this condition.
The material dates to consider in determining the timeliness of the filing of the motion for
extension are (1) the date of receipt of the judgment or final order or resolution subject of the
petition, and (2) the date of filing of the motion for extension. 24 It is the date of the filing of the
motion or pleading, and not the date of execution, that determines the timeliness of the filing of
that motion or pleading. Thus, even if the motion for extension bears no date, the date of filing
stamped on it is the reckoning point for determining the timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed
his motion for extension before this Court on 13 December 1996, the date stamped by this

In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claim that
Guevarra filed his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for extension filed before the Supreme
Court was stamped "13 December 1996 at 4:09 PM" by the Supreme Courts Receiving Clerk.
The Court of Appeals concluded that the motion for extension bore a date, contrary to Pajuyos
claim that the motion for extension was undated. Guevarra filed the motion for extension on time
on 13 December 1996 since he filed the motion one day before the expiration of the
reglementary period on 14 December 1996. Thus, the motion for extension properly complied
with the condition imposed by the Court of Appeals in its 28 January 1997 Resolution. The Court
of Appeals explained that the thirty-day extension to file the petition for review was deemed
granted because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should have dismissed
the petition for review because it was Guevarras counsel and not Guevarra who signed the
certification against forum-shopping. The Court of Appeals pointed out that Pajuyo did not raise
this issue in his Comment. The Court of Appeals held that Pajuyo could not now seek the
dismissal of the case after he had extensively argued on the merits of the case. This technicality,
the appellate court opined, was clearly an afterthought.
The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND
DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:
1) in GRANTING, instead of denying, Private Respondents Motion for an Extension of thirty
days to file petition for review at the time when there was no more period to extend as the
decision of the Regional Trial Court had already become final and executory.
2) in giving due course, instead of dismissing, private respondents Petition for Review even
though the certification against forum-shopping was signed only by counsel instead of by
petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact a commodatum,
instead of a Contract of Lease as found by the Metropolitan Trial Court and in holding that "the
ejectment case filed against defendant-appellant is without legal and factual basis".
4) in reversing and setting aside the Decision of the Regional Trial Court in Civil Case No. Q-9626943 and in holding that the parties are in pari delicto being both squatters, therefore, illegal
occupants of the contested parcel of land.
5) in deciding the unlawful detainer case based on the so-called Code of Policies of the National
Government Center Housing Project instead of deciding the same under the Kasunduan
voluntarily executed by the parties, the terms and conditions of which are the laws between
themselves.13
The Ruling of the Court
The procedural issues Pajuyo is raising are baseless. However, we find merit in the substantive
issues Pajuyo is submitting for resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras petition for
review because the RTC decision had already become final and executory when the appellate
court acted on Guevarras motion for extension to file the petition. Pajuyo points out that
Guevarra had only one day before the expiry of his period to appeal the RTC decision. Instead
of filing the petition for review with the Court of Appeals, Guevarra filed with this Court an
undated motion for extension of 30 days to file a petition for review. This Court merely referred
the motion to the Court of Appeals. Pajuyo believes that the filing of the motion for extension
with this Court did not toll the running of the period to perfect the appeal. Hence, when the Court
of Appeals received the motion, the period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their appellate jurisdiction are appealable
to the Court of Appeals by petition for review in cases involving questions of fact or mixed
questions of fact and law.14 Decisions of the regional trial courts involving pure questions of law

the property, the party in peaceable quiet possession shall not be thrown out by a strong hand,
violence or terror.40 Neither is the unlawful withholding of property allowed. Courts will always
uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even against the
owner himself.41 Whatever may be the character of his possession, if he has in his favor prior
possession in time, he has the security that entitles him to remain on the property until a person
with a better right lawfully ejects him.42 To repeat, the only issue that the court has to settle in an
ejectment suit is the right to physical possession.
In Pitargue v. Sorilla,43 the government owned the land in dispute. The government did not
authorize either the plaintiff or the defendant in the case of forcible entry case to occupy the
land. The plaintiff had prior possession and had already introduced improvements on the public
land. The plaintiff had a pending application for the land with the Bureau of Lands when the
defendant ousted him from possession. The plaintiff filed the action of forcible entry against the
defendant. The government was not a party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of possession because
while the application of the plaintiff was still pending, title remained with the government, and the
Bureau of Public Lands had jurisdiction over the case. We disagreed with the defendant. We
ruled that courts have jurisdiction to entertain ejectment suits even before the resolution of the
application. The plaintiff, by priority of his application and of his entry, acquired prior physical
possession over the public land applied for as against other private claimants. That prior
physical possession enjoys legal protection against other private claimants because only a court
can take away such physical possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue44 as squatters, strictly
speaking, their entry into the disputed land was illegal. Both the plaintiff and defendant entered
the public land without the owners permission. Title to the land remained with the government
because it had not awarded to anyone ownership of the contested public land. Both the plaintiff
and the defendant were in effect squatting on government property. Yet, we upheld the courts
jurisdiction to resolve the issue of possession even if the plaintiff and the defendant in the
ejectment case did not have any title over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of
the public need to preserve the basic policy behind the summary actions of forcible entry and
unlawful detainer. The underlying philosophy behind ejectment suits is to prevent breach of the
peace and criminal disorder and to compel the party out of possession to respect and resort to
the law alone to obtain what he claims is his. 45 The party deprived of possession must not take
the law into his own hands. 46 Ejectment proceedings are summary in nature so the authorities
can settle speedily actions to recover possession because of the overriding need to quell social
disturbances.47
We further explained in Pitargue the greater interest that is at stake in actions for recovery of
possession. We made the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take cognizance of
possessory actions involving these public lands before final award is made by the Lands
Department, and before title is given any of the conflicting claimants? It is one of utmost
importance, as there are public lands everywhere and there are thousands of settlers, especially
in newly opened regions. It also involves a matter of policy, as it requires the determination of
the respective authorities and functions of two coordinate branches of the Government in
connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old, which was in
force in this country before the American occupation, or in the new, we have a possessory
action, the aim and purpose of which is the recovery of the physical possession of real property,
irrespective of the question as to who has the title thereto. Under the Spanish Civil Code we had
the accion interdictal, a summary proceeding which could be brought within one year from
dispossession (Roman Catholic Bishop of Cebu vs. Mangaron, 6 Phil. 286, 291); and as early as
October 1, 1901, upon the enactment of the Code of Civil Procedure (Act No. 190 of the
Philippine Commission) we implanted the common law action of forcible entry (section 80 of Act

Courts Receiving Clerk on the motion for extension. Clearly, Guevarra filed the motion for
extension exactly one day before the lapse of the reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed Guevarras appeal on technical
grounds, Pajuyo did not ask the appellate court to deny the motion for extension and dismiss the
petition for review at the earliest opportunity. Instead, Pajuyo vigorously discussed the merits of
the case. It was only when the Court of Appeals ruled in Guevarras favor that Pajuyo raised the
procedural issues against Guevarras petition for review.
A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision on
the merits, is estopped from attacking the jurisdiction of the court. 25 Estoppel sets in not because
the judgment of the court is a valid and conclusive adjudication, but because the practice of
attacking the courts jurisdiction after voluntarily submitting to it is against public policy.26
In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure to
sign the certification against forum shopping. Instead, Pajuyo harped on Guevarras counsel
signing the verification, claiming that the counsels verification is insufficient since it is based only
on "mere information."
A partys failure to sign the certification against forum shopping is different from the partys
failure to sign personally the verification. The certificate of non-forum shopping must be signed
by the party, and not by counsel.27 The certification of counsel renders the petition defective.28
On the other hand, the requirement on verification of a pleading is a formal and not a
jurisdictional requisite.29 It is intended simply to secure an assurance that what are alleged in the
pleading are true and correct and not the product of the imagination or a matter of speculation,
and that the pleading is filed in good faith.30 The party need not sign the verification. A partys
representative, lawyer or any person who personally knows the truth of the facts alleged in the
pleading may sign the verification.31
We agree with the Court of Appeals that the issue on the certificate against forum shopping was
merely an afterthought. Pajuyo did not call the Court of Appeals attention to this defect at the
early stage of the proceedings. Pajuyo raised this procedural issue too late in the proceedings.
Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to
Resolve the Issue of Possession
Settled is the rule that the defendants claim of ownership of the disputed property will not divest
the inferior court of its jurisdiction over the ejectment case. 32 Even if the pleadings raise the issue
of ownership, the court may pass on such issue to determine only the question of possession,
especially if the ownership is inseparably linked with the possession. 33 The adjudication on the
issue of ownership is only provisional and will not bar an action between the same parties
involving title to the land. 34 This doctrine is a necessary consequence of the nature of the two
summary actions of ejectment, forcible entry and unlawful detainer, where the only issue for
adjudication is the physical or material possession over the real property.35
In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners
of the contested property and that they are mere squatters. Will the defense that the parties to
the ejectment case are not the owners of the disputed lot allow the courts to renounce their
jurisdiction over the case? The Court of Appeals believed so and held that it would just leave the
parties where they are since they are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for recovery
of possession. The parties cannot present evidence to prove ownership or right to legal
possession except to prove the nature of the possession when necessary to resolve the issue of
physical possession.36 The same is true when the defendant asserts the absence of title over the
property. The absence of title over the contested lot is not a ground for the courts to withhold
relief from the parties in an ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who is entitled to
the physical possession of the premises, that is, to the possession de facto and not to the
possession de jure.37 It does not even matter if a partys title to the property is questionable,38 or
when both parties intruded into public land and their applications to own the land have yet to be
approved by the proper government agency.39 Regardless of the actual condition of the title to

possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or right to
possession is never in issue in an action of forcible entry; as a matter of fact, evidence thereof is
expressly banned, except to prove the nature of the possession. (Second 4, Rule 72, Rules of
Court.) With this nature of the action in mind, by no stretch of the imagination can conclusion be
arrived at that the use of the remedy in the courts of justice would constitute an interference with
the alienation, disposition, and control of public lands. To limit ourselves to the case at bar can it
be pretended at all that its result would in any way interfere with the manner of the alienation or
disposition of the land contested? On the contrary, it would facilitate adjudication, for the
question of priority of possession having been decided in a final manner by the courts, said
question need no longer waste the time of the land officers making the adjudication or award.
(Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code 48 embody the principle of pari delicto. We explained the
principle of pari delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari
delicto potior est conditio defedentis. The law will not aid either party to an illegal agreement. It
leaves the parties where it finds them.49
The application of the pari delicto principle is not absolute, as there are exceptions to its
application. One of these exceptions is where the application of the pari delicto rule would
violate well-established public policy.50
In Drilon v. Gaurana,51 we reiterated the basic policy behind the summary actions of forcible
entry and unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of
the actual condition of the title to the property, the party in peaceable quiet possession shall not
be turned out by strong hand, violence or terror. In affording this remedy of restitution the object
of the statute is to prevent breaches of the peace and criminal disorder which would ensue from
the withdrawal of the remedy, and the reasonable hope such withdrawal would create that some
advantage must accrue to those persons who, believing themselves entitled to the possession of
property, resort to force to gain possession rather than to some appropriate action in the courts
to assert their claims. This is the philosophy at the foundation of all these actions of forcible entry
and detainer which are designed to compel the party out of possession to respect and resort to
the law alone to obtain what he claims is his.52
Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is
fraught with danger. To shut out relief to squatters on the ground of pari delicto would openly
invite mayhem and lawlessness. A squatter would oust another squatter from possession of the
lot that the latter had illegally occupied, emboldened by the knowledge that the courts would
leave them where they are. Nothing would then stand in the way of the ousted squatter from reclaiming his prior possession at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or actions for
recovery of possession seek to prevent.53 Even the owner who has title over the disputed
property cannot take the law into his own hands to regain possession of his property. The owner
must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment suit are
squatters. The determination of priority and superiority of possession is a serious and urgent
matter that cannot be left to the squatters to decide. To do so would make squatters receive
better treatment under the law. The law restrains property owners from taking the law into their
own hands. However, the principle of pari delicto as applied by the Court of Appeals would give
squatters free rein to dispossess fellow squatters or violently retake possession of properties
usurped from them. Courts should not leave squatters to their own devices in cases involving
recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of ejectment. The Court of
Appeals refused to rule on the issue of physical possession. Nevertheless, the appellate court

No. 190), the object of which has been stated by this Court to be "to prevent breaches of the
peace and criminal disorder which would ensue from the withdrawal of the remedy, and
the reasonable hope such withdrawal would create that some advantage must accrue to
those persons who, believing themselves entitled to the possession of property, resort to
force to gain possession rather than to some appropriate action in the court to assert
their claims." (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the
enactment of the first Public Land Act (Act No. 926) the action of forcible entry was already
available in the courts of the country. So the question to be resolved is, Did the Legislature
intend, when it vested the power and authority to alienate and dispose of the public lands in the
Lands Department, to exclude the courts from entertaining the possessory action of forcible
entry between rival claimants or occupants of any land before award thereof to any of the
parties? Did Congress intend that the lands applied for, or all public lands for that matter, be
removed from the jurisdiction of the judicial Branch of the Government, so that any troubles
arising therefrom, or any breaches of the peace or disorders caused by rival claimants, could be
inquired into only by the Lands Department to the exclusion of the courts? The answer to this
question seems to us evident. The Lands Department does not have the means to police public
lands; neither does it have the means to prevent disorders arising therefrom, or contain
breaches of the peace among settlers; or to pass promptly upon conflicts of possession. Then
its power is clearly limited to disposition and alienation, and while it may decide conflicts
of possession in order to make proper award, the settlement of conflicts of possession
which is recognized in the court herein has another ultimate purpose, i.e., the protection
of actual possessors and occupants with a view to the prevention of breaches of the
peace. The power to dispose and alienate could not have been intended to include the
power to prevent or settle disorders or breaches of the peace among rival settlers or
claimants prior to the final award. As to this, therefore, the corresponding branches of the
Government must continue to exercise power and jurisdiction within the limits of their respective
functions. The vesting of the Lands Department with authority to administer, dispose, and
alienate public lands, therefore, must not be understood as depriving the other branches
of the Government of the exercise of the respective functions or powers thereon, such as
the authority to stop disorders and quell breaches of the peace by the police, the
authority on the part of the courts to take jurisdiction over possessory actions arising
therefrom not involving, directly or indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the effect that
courts have no jurisdiction to determine the rights of claimants to public lands, and that until the
disposition of the land has passed from the control of the Federal Government, the courts will
not interfere with the administration of matters concerning the same. (50 C. J. 1093-1094.) We
have no quarrel with this principle. The determination of the respective rights of rival claimants to
public lands is different from the determination of who has the actual physical possession or
occupation with a view to protecting the same and preventing disorder and breaches of the
peace. A judgment of the court ordering restitution of the possession of a parcel of land to the
actual occupant, who has been deprived thereof by another through the use of force or in any
other illegal manner, can never be "prejudicial interference" with the disposition or alienation of
public lands. On the other hand, if courts were deprived of jurisdiction of cases involving
conflicts of possession, that threat of judicial action against breaches of the peace
committed on public lands would be eliminated, and a state of lawlessness would
probably be produced between applicants, occupants or squatters, where force or might,
not right or justice, would rule.
It must be borne in mind that the action that would be used to solve conflicts of possession
between rivals or conflicting applicants or claimants would be no other than that of forcible entry.
This action, both in England and the United States and in our jurisdiction, is a summary and
expeditious remedy whereby one in peaceful and quiet possession may recover the possession
of which he has been deprived by a stronger hand, by violence or terror; its ultimate object being
to prevent breach of the peace and criminal disorder. (Supia and Batioco vs. Quintero and Ayala,
59 Phil. 312, 314.) The basis of the remedy is mere possession as a fact, of physical

These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by
a person from another of the possession of real property to which the latter is entitled after the
expiration or termination of the formers right to hold possession under a contract, express or
implied.59
Where the plaintiff allows the defendant to use his property by tolerance without any contract,
the defendant is necessarily bound by an implied promise that he will vacate on demand, failing
which, an action for unlawful detainer will lie. 60 The defendants refusal to comply with the
demand makes his continued possession of the property unlawful. 61 The status of the defendant
in such a case is similar to that of a lessee or tenant whose term of lease has expired but whose
occupancy continues by tolerance of the owner.62
This principle should apply with greater force in cases where a contract embodies the
permission or tolerance to use the property. The Kasunduan expressly articulated Pajuyos
forbearance. Pajuyo did not require Guevarra to pay any rent but only to maintain the house and
lot in good condition. Guevarra expressly vowed in the Kasunduan that he would vacate the
property on demand. Guevarras refusal to comply with Pajuyos demand to vacate made
Guevarras continued possession of the property unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to another something not consumable
so that the latter may use the same for a certain time and return it. 63 An essential feature of
commodatum is that it is gratuitous. Another feature of commodatum is that the use of the thing
belonging to another is for a certain period. 64 Thus, the bailor cannot demand the return of the
thing loaned until after expiration of the period stipulated, or after accomplishment of the use for
which the commodatum is constituted.65 If the bailor should have urgent need of the thing, he
may demand its return for temporary use.66 If the use of the thing is merely tolerated by the
bailor, he can demand the return of the thing at will, in which case the contractual relation is
called a precarium.67 Under the Civil Code, precarium is a kind of commodatum.68
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not
essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated
him to maintain the property in good condition. The imposition of this obligation makes the
Kasunduan a contract different from a commodatum. The effects of the Kasunduan are also
different from that of a commodatum. Case law on ejectment has treated relationship based on
tolerance as one that is akin to a landlord-tenant relationship where the withdrawal of permission
would result in the termination of the lease. 69 The tenants withholding of the property would then
be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum,
Guevarra as bailee would still have the duty to turn over possession of the property to Pajuyo,
the bailor. The obligation to deliver or to return the thing received attaches to contracts for
safekeeping, or contracts of commission, administration and commodatum. 70 These contracts
certainly involve the obligation to deliver or return the thing received.71
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a
squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving the land they
illegally occupy. Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra freely
entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had
benefited from it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has
a right to physical possession of the contested property. The Kasunduan is the undeniable
evidence of Guevarras recognition of Pajuyos better right of physical possession. Guevarra is
clearly a possessor in bad faith. The absence of a contract would not yield a different result, as
there would still be an implied promise to vacate.
Guevarra contends that there is "a pernicious evil that is sought to be avoided, and that is
allowing an absentee squatter who (sic) makes (sic) a profit out of his illegal act." 72 Guevarra
bases his argument on the preferential right given to the actual occupant or caretaker under
Proclamation No. 137 on socialized housing.

held that the pivotal issue in this case is who between Pajuyo and Guevarra has the "priority
right as beneficiary of the contested land under Proclamation No. 137."54 According to the Court
of Appeals, Guevarra enjoys preferential right under Proclamation No. 137 because Article VI of
the Code declares that the actual occupant or caretaker is the one qualified to apply for
socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a relocation
site under Proclamation No. 137. Proclamation No. 137 laid down the metes and bounds of the
land that it declared open for disposition to bona fide residents.
The records do not show that the contested lot is within the land specified by Proclamation No.
137. Guevarra had the burden to prove that the disputed lot is within the coverage of
Proclamation No. 137. He failed to do so.
Second. The Court of Appeals should not have given credence to Guevarras unsubstantiated
claim that he is the beneficiary of Proclamation No. 137. Guevarra merely alleged that in the
survey the project administrator conducted, he and not Pajuyo appeared as the actual occupant
of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137. Pajuyo
allowed Guevarra to occupy the disputed property in 1985. President Aquino signed
Proclamation No. 137 into law on 11 March 1986. Pajuyo made his earliest demand for
Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to the time that Proclamation No.
137 allegedly segregated the disputed lot, Guevarra never applied as beneficiary of
Proclamation No. 137. Even when Guevarra already knew that Pajuyo was reclaiming
possession of the property, Guevarra did not take any step to comply with the requirements of
Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and
Guevarra has a pending application over the lot, courts should still assume jurisdiction and
resolve the issue of possession. However, the jurisdiction of the courts would be limited to the
issue of physical possession only.
In Pitargue,55 we ruled that courts have jurisdiction over possessory actions involving public land
to determine the issue of physical possession. The determination of the respective rights of rival
claimants to public land is, however, distinct from the determination of who has the actual
physical possession or who has a better right of physical possession. 56 The administrative
disposition and alienation of public lands should be threshed out in the proper government
agency.57
The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation No.
137 was premature. Pajuyo and Guevarra were at most merely potential beneficiaries of the law.
Courts should not preempt the decision of the administrative agency mandated by law to
determine the qualifications of applicants for the acquisition of public lands. Instead, courts
should expeditiously resolve the issue of physical possession in ejectment cases to prevent
disorder and breaches of peace.58
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house built
on it. Guevarra expressly admitted the existence and due execution of the Kasunduan. The
Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay
nagbibigay pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing
bahay at lote ng "walang bayad." Kaugnay nito, kailangang panatilihin nila ang kalinisan at
kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent,
but Guevarra was under obligation to maintain the premises in good condition. Guevarra
promised to vacate the premises on Pajuyos demand but Guevarra broke his promise and
refused to heed Pajuyos demand to vacate.

The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys fees
as part of damages are awarded only in the instances enumerated in Article 2208 of the Civil
Code.83 Thus, the award of attorneys fees is the exception rather than the rule. 84 Attorneys fees
are not awarded every time a party prevails in a suit because of the policy that no premium
should be placed on the right to litigate. 85 We therefore delete the attorneys fees awarded to
Pajuyo.
We sustain the P300 monthly rentals the MTC and RTC assessed against Guevarra. Guevarra
did not dispute this factual finding of the two courts. We find the amount reasonable
compensation to Pajuyo. The P300 monthly rental is counted from the last demand to vacate,
which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution dated
14 December 2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The
Decision dated 11 November 1996 of the Regional Trial Court of Quezon City, Branch 81 in Civil
Case No. Q-96-26943, affirming the Decision dated 15 December 1995 of the Metropolitan Trial
Court of Quezon City, Branch 31 in Civil Case No. 12432, is REINSTATED with
MODIFICATION. The award of attorneys fees is deleted. No costs.
SO ORDERED.
FIRST DIVISION
G.R. No. 80294-95 September 21, 1988
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents.
Valdez, Ereso, Polido & Associates for petitioner.
Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.
Jaime G. de Leon for the Heirs of Egmidio Octaviano.
Cotabato Law Office for the Heirs of Juan Valdez.
GANCAYCO, J.:
The principal issue in this case is whether or not a decision of the Court of Appeals promulgated
a long time ago can properly be considered res judicata by respondent Court of Appeals in the
present two cases between petitioner and two private respondents.
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth
Division of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)]
and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for Recovery of Possession, which
affirmed the Decision of the Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of
Baguio and Benguet in Civil Case No. 3607 (419) and Civil Case No. 3655 (429), with the
dispositive portion as follows:
WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar Apostolic of
the Mountain Province to return and surrender Lot 2 of Plan Psu-194357 to the plaintiffs. Heirs of
Juan Valdez, and Lot 3 of the same Plan to the other set of plaintiffs, the Heirs of Egmidio
Octaviano (Leonardo Valdez, et al.). For lack or insufficiency of evidence, the plaintiffs' claim or
damages is hereby denied. Said defendant is ordered to pay costs. (p. 36, Rollo)
Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's
conclusions that the Decision of the Court of Appeals, dated May 4,1977 in CA-G.R. No. 38830R, in the two cases affirmed by the Supreme Court, touched on the ownership of lots 2 and 3 in
question; that the two lots were possessed by the predecessors-in-interest of private
respondents under claim of ownership in good faith from 1906 to 1951; that petitioner had been
in possession of the same lots as bailee in commodatum up to 1951, when petitioner repudiated
the trust and when it applied for registration in 1962; that petitioner had just been in possession
as owner for eleven years, hence there is no possibility of acquisitive prescription which requires
10 years possession with just title and 30 years of possession without; that the principle of res

We are not convinced.

Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the
property without paying any rent. There is also no proof that Pajuyo is a professional squatter
who rents out usurped properties to other squatters. Moreover, it is for the proper government
agency to decide who between Pajuyo and Guevarra qualifies for socialized housing. The only
issue that we are addressing is physical possession.
Prior possession is not always a condition sine qua non in ejectment.73 This is one of the
distinctions between forcible entry and unlawful detainer.74 In forcible entry, the plaintiff is
deprived of physical possession of his land or building by means of force, intimidation, threat,
strategy or stealth. Thus, he must allege and prove prior possession.75 But in unlawful detainer,
the defendant unlawfully withholds possession after the expiration or termination of his right to
possess under any contract, express or implied. In such a case, prior physical possession is not
required.76
Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras
transient right to possess the property ended as well. Moreover, it was Pajuyo who was in actual
possession of the property because Guevarra had to seek Pajuyos permission to temporarily
hold the property and Guevarra had to follow the conditions set by Pajuyo in the Kasunduan.
Control over the property still rested with Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property. Possession in the
eyes of the law does not mean that a man has to have his feet on every square meter of the
ground before he is deemed in possession.77 One may acquire possession not only by physical
occupation, but also by the fact that a thing is subject to the action of one s will.78 Actual or
physical occupation is not always necessary.79
Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared that "squatters and intruders
who clandestinely enter into titled government property cannot, by such act, acquire any legal
right to said property." 80 We made this declaration because the person who had title or who had
the right to legal possession over the disputed property was a party in the ejectment suit and
that party instituted the case against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the ejectment case.
This case is between squatters. Had the government participated in this case, the courts could
have evicted the contending squatters, Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded in this case, we
cannot evict on our own the parties. Such a ruling would discourage squatters from seeking the
aid of the courts in settling the issue of physical possession. Stripping both the plaintiff and the
defendant of possession just because they are squatters would have the same dangerous
implications as the application of the principle of pari delicto. Squatters would then rather settle
the issue of physical possession among themselves than seek relief from the courts if the
plaintiff and defendant in the ejectment case would both stand to lose possession of the disputed
property. This would subvert the policy underlying actions for recovery of possession.
Since Pajuyo has in his favor priority in time in holding the property, he is entitled to remain on
the property until a person who has title or a better right lawfully ejects him. Guevarra is certainly
not that person. The ruling in this case, however, does not preclude Pajuyo and Guevarra from
introducing evidence and presenting arguments before the proper administrative agency to
establish any right to which they may be entitled under the law.81
In no way should our ruling in this case be interpreted to condone squatting. The ruling on the
issue of physical possession does not affect title to the property nor constitute a binding and
conclusive adjudication on the merits on the issue of ownership. 82 The owner can still go to court
to recover lawfully the property from the person who holds the property without legal title. Our
ruling here does not diminish the power of government agencies, including local governments, to
condemn, abate, remove or demolish illegal or unauthorized structures in accordance with
existing laws.
Attorneys Fees and Rentals

Juan Valdez filed Civil Case No. 3655 (429) on September 24, 1979, likewise for recovery of
possession of Lot 2 (Decision, pp. 199-201, Orig. Rec.).
In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano presented
one (1) witness, Fructuoso Valdez, who testified on the alleged ownership of the land in question
(Lot 3) by their predecessor-in-interest, Egmidio Octaviano (Exh. C ); his written demand (Exh. B
B-4 ) to defendant Vicar for the return of the land to them; and the reasonable rentals for the
use of the land at P10,000.00 per month. On the other hand, defendant Vicar presented the
Register of Deeds for the Province of Benguet, Atty. Nicanor Sison, who testified that the land in
question is not covered by any title in the name of Egmidio Octaviano or any of the plaintiffs
(Exh. 8). The defendant dispensed with the testimony of Mons.William Brasseur when the
plaintiffs admitted that the witness if called to the witness stand, would testify that defendant
Vicar has been in possession of Lot 3, for seventy-five (75) years continuously and peacefully
and has constructed permanent structures thereon.
In Civil Case No. 3655, the parties admitting that the material facts are not in dispute, submitted
the case on the sole issue of whether or not the decisions of the Court of Appeals and the
Supreme Court touching on the ownership of Lot 2, which in effect declared the plaintiffs the
owners of the land constitute res judicata.
In these two cases , the plaintiffs arque that the defendant Vicar is barred from setting up the
defense of ownership and/or long and continuous possession of the two lots in question since
this is barred by prior judgment of the Court of Appeals in CA-G.R. No. 038830-R under the
principle of res judicata. Plaintiffs contend that the question of possession and ownership have
already been determined by the Court of Appeals (Exh. C, Decision, CA-G.R. No. 038830-R)
and affirmed by the Supreme Court (Exh. 1, Minute Resolution of the Supreme Court). On his
part, defendant Vicar maintains that the principle of res judicata would not prevent them from
litigating the issues of long possession and ownership because the dispositive portion of the
prior judgment in CA-G.R. No. 038830-R merely dismissed their application for registration and
titling of lots 2 and 3. Defendant Vicar contends that only the dispositive portion of the decision,
and not its body, is the controlling pronouncement of the Court of Appeals. 2
The alleged errors committed by respondent Court of Appeals according to petitioner are as
follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE
ACQUIRED BY PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3 FROM
VALDEZ AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER OWNERS
WERE VALDEZ AND OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE RESPONDENTS WHO
WERE IN POSSESSION OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT APPLICATIONS
AND THE PREDECESSORS OF PRIVATE RESPONDENTS ALREADY HAD FREE PATENT
APPLICATIONS SINCE 1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951 AND
JUST TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART. 1129 OF
THE CIVIL CODE FOR ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R. NO.
038830 WAS AFFIRMED BY THE SUPREME COURT;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON
OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR
PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF
OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3
MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;

judicata on these findings by the Court of Appeals will bar a reopening of these questions of
facts; and that those facts may no longer be altered.
Petitioner's motion for reconsideation of the respondent appellate court's Decision in the two
aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied.
The facts and background of these cases as narrated by the trail court are as follows
... The documents and records presented reveal that the whole controversy started when the
defendant Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed with the
Court of First Instance of Baguio Benguet on September 5, 1962 an application for registration
of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central, La Trinidad,
Benguet, docketed as LRC N-91, said Lots being the sites of the Catholic Church building,
convents, high school building, school gymnasium, school dormitories, social hall, stonewalls,
etc. On March 22, 1963 the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their
Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto.
After trial on the merits, the land registration court promulgated its Decision, dated November
17, 1965, confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the Heirs of Egmidio
Octaviano (plaintiffs in the herein Civil Case No. 3607) appealed the decision of the land
registration court to the then Court of Appeals, docketed as CA-G.R. No. 38830-R. The Court of
Appeals rendered its decision, dated May 9, 1977, reversing the decision of the land registration
court and dismissing the VICAR's application as to Lots 2 and 3, the lots claimed by the two sets
of oppositors in the land registration case (and two sets of plaintiffs in the two cases now at bar),
the first lot being presently occupied by the convent and the second by the women's dormitory
and the sister's convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration praying the Court of
Appeals to order the registration of Lot 3 in the names of the Heirs of Egmidio Octaviano, and on
May 17, 1977, the Heirs of Juan Valdez and Pacita Valdez filed their motion for reconsideration
praying that both Lots 2 and 3 be ordered registered in the names of the Heirs of Juan Valdez
and Pacita Valdez. On August 12,1977, the Court of Appeals denied the motion for
reconsideration filed by the Heirs of Juan Valdez on the ground that there was "no sufficient
merit to justify reconsideration one way or the other ...," and likewise denied that of the Heirs of
Egmidio Octaviano.
Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari of the
decision of the Court of Appeals dismissing his (its) application for registration of Lots 2 and 3,
docketed as G.R. No. L-46832, entitled 'Catholic Vicar Apostolic of the Mountain Province vs.
Court of Appeals and Heirs of Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for reconsideration the Heirs of Juan
Valdez and Pacita Valdez, on September 8, 1977, filed with the Supreme Court a petition for
review, docketed as G.R. No. L-46872, entitled, Heirs of Juan Valdez and Pacita Valdez vs.
Court of Appeals, Vicar, Heirs of Egmidio Octaviano and Annable O. Valdez.
On January 13, 1978, the Supreme Court denied in a minute resolution both petitions (of VICAR
on the one hand and the Heirs of Juan Valdez and Pacita Valdez on the other) for lack of merit.
Upon the finality of both Supreme Court resolutions in G.R. No. L-46832 and G.R. No. L- 46872,
the Heirs of Octaviano filed with the then Court of First Instance of Baguio, Branch II, a Motion
For Execution of Judgment praying that the Heirs of Octaviano be placed in possession of Lot 3.
The Court, presided over by Hon. Salvador J. Valdez, on December 7, 1978, denied the motion
on the ground that the Court of Appeals decision in CA-G.R. No. 38870 did not grant the Heirs of
Octaviano any affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a petitioner for
certiorari and mandamus, docketed as CA-G.R. No. 08890-R, entitled Heirs of Egmidio
Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar. In its decision dated May 16, 1979, the
Court of Appeals dismissed the petition.
It was at that stage that the instant cases were filed. The Heirs of Egmidio Octaviano filed Civil
Case No. 3607 (419) on July 24, 1979, for recovery of possession of Lot 3; and the Heirs of

claim could not ripen into title by way of ordinary acquisitive prescription because of the absence
of just title.
The Court of Appeals found that the predecessors-in-interest and private respondents were
possessors under claim of ownership in good faith from 1906; that petitioner Vicar was only a
bailee in commodatum; and that the adverse claim and repudiation of trust came only in 1951.
We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No.
38830-R. Its findings of fact have become incontestible. This Court declined to review said
decision, thereby in effect, affirming it. It has become final and executory a long time ago.
Respondent appellate court did not commit any reversible error, much less grave abuse of
discretion, when it held that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is
governing, under the principle of res judicata, hence the rule, in the present cases CA-G.R. No.
05148 and CA-G.R. No. 05149. The facts as supported by evidence established in that decision
may no longer be altered.
WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of
merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court
of Appeals is AFFIRMED, with costs against petitioner.
SO ORDERED
SECOND DIVISION
G.R. No. 115324
February 19, 2003
PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner,
vs.
HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision1 of the Court of Appeals dated June 25,
1991 in CA-G.R. CV No. 11791 and of its Resolution 2 dated May 5, 1994, denying the motion for
reconsideration of said decision filed by petitioner Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend
Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his
business, the Sterela Marketing and Services ("Sterela" for brevity). Specifically, Sanchez asked
private respondent to deposit in a bank a certain amount of money in the bank account of
Sterela for purposes of its incorporation. She assured private respondent that he could withdraw
his money from said account within a months time. Private respondent asked Sanchez to bring
Doronilla to their house so that they could discuss Sanchezs request.3
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi,
Doronillas private secretary, met and discussed the matter. Thereafter, relying on the
assurances and representations of Sanchez and Doronilla, private respondent issued a check in
the amount of Two Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private
respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in
opening a savings account in the name of Sterela in the Buendia, Makati branch of Producers
Bank of the Philippines. However, only Sanchez, Mrs. Vives and Dumagpi went to the bank to
deposit the check. They had with them an authorization letter from Doronilla authorizing
Sanchez and her companions, "in coordination with Mr. Rufo Atienza," to open an account for
Sterela Marketing Services in the amount of P200,000.00. In opening the account, the
authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings
Account No. 10-1567 was thereafter issued to Mrs. Vives.4
Subsequently, private respondent learned that Sterela was no longer holding office in the
address previously given to him. Alarmed, he and his wife went to the Bank to verify if their
money was still intact. The bank manager referred them to Mr. Rufo Atienza, the assistant
manager, who informed them that part of the money in Savings Account No. 10-1567 had been
withdrawn by Doronilla, and that only P90,000.00 remained therein. He likewise told them that
Mrs. Vives could not withdraw said remaining amount because it had to answer for some

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

FAITH WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED BY
THE FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3
The petition is bereft of merit.
Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and
05149, when it clearly held that it was in agreement with the findings of the trial court that the
Decision of the Court of Appeals dated May 4,1977 in CA-G.R. No. 38830-R, on the question of
ownership of Lots 2 and 3, declared that the said Court of Appeals Decision CA-G.R. No. 38830R) did not positively declare private respondents as owners of the land, neither was it declared
that they were not owners of the land, but it held that the predecessors of private respondents
were possessors of Lots 2 and 3, with claim of ownership in good faith from 1906 to 1951.
Petitioner was in possession as borrower in commodatum up to 1951, when it repudiated the
trust by declaring the properties in its name for taxation purposes. When petitioner applied for
registration of Lots 2 and 3 in 1962, it had been in possession in concept of owner only for
eleven years. Ordinary acquisitive prescription requires possession for ten years, but always
with just title. Extraordinary acquisitive prescription requires 30 years. 4
On the above findings of facts supported by evidence and evaluated by the Court of Appeals in
CA-G.R. No. 38830-R, affirmed by this Court, We see no error in respondent appellate court's
ruling that said findings are res judicata between the parties. They can no longer be altered by
presentation of evidence because those issues were resolved with finality a long time ago. To
ignore the principle of res judicata would be to open the door to endless litigations by continuous
determination of issues without end.
An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in CA-G.R.
No. 38830-R, shows that it reversed the trial court's Decision 6 finding petitioner to be entitled to
register the lands in question under its ownership, on its evaluation of evidence and conclusion
of facts.
The Court of Appeals found that petitioner did not meet the requirement of 30 years possession
for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years
possession for ordinary acquisitive prescription because of the absence of just title. The
appellate court did not believe the findings of the trial court that Lot 2 was acquired from Juan
Valdez by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by
petitioner Vicar because there was absolutely no documentary evidence to support the same
and the alleged purchases were never mentioned in the application for registration.
By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano.
Both Valdez and Octaviano had Free Patent Application for those lots since 1906. The
predecessors of private respondents, not petitioner Vicar, were in possession of the questioned
lots since 1906.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not
Lots 2 and 3, because the buildings standing thereon were only constructed after liberation in
1945. Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in 1951. The
improvements oil Lots 1, 2, 3, 4 were paid for by the Bishop but said Bishop was appointed only
in 1947, the church was constructed only in 1951 and the new convent only 2 years before the
trial in 1963.
When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the
lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner Vicar only in
1962.
Private respondents were able to prove that their predecessors' house was borrowed by
petitioner Vicar after the church and the convent were destroyed. They never asked for the
return of the house, but when they allowed its free use, they became bailors in commodatum
and the petitioner the bailee. The bailees' failure to return the subject matter of commodatum to
the bailor did not mean adverse possession on the part of the borrower. The bailee held in trust
the property subject matter of commodatum. The adverse claim of petitioner came only in 1951
when it declared the lots for taxation purposes. The action of petitioner Vicar by such adverse

THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED

DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF
AN EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE IS APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE
LOWER COURT THAT HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE
WITH THE OTHER DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING
THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR
EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND THE COSTS OF SUIT.11
Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto
on September 25, 1995. The Court then required private respondent to submit a rejoinder to the
reply. However, said rejoinder was filed only on April 21, 1997, due to petitioners delay in
furnishing private respondent with copy of the reply12 and several substitutions of counsel on the
part of private respondent.13 On January 17, 2001, the Court resolved to give due course to the
petition and required the parties to submit their respective memoranda. 14 Petitioner filed its
memorandum on April 16, 2001 while private respondent submitted his memorandum on March
22, 2001.
Petitioner contends that the transaction between private respondent and Doronilla is a simple
loan (mutuum) since all the elements of a mutuum are present: first, what was delivered by
private respondent to Doronilla was money, a consumable thing; and second, the transaction
was onerous as Doronilla was obliged to pay interest, as evidenced by the check issued by
Doronilla in the amount of P212,000.00, or P12,000 more than what private respondent
deposited in Sterelas bank account.15 Moreover, the fact that private respondent sued his good
friend Sanchez for his failure to recover his money from Doronilla shows that the transaction was
not merely gratuitous but "had a business angle" to it. Hence, petitioner argues that it cannot be
held liable for the return of private respondents P200,000.00 because it is not privy to the
transaction between the latter and Doronilla.16
It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be faulted for
allowing Doronilla to withdraw from the savings account of Sterela since the latter was the sole
proprietor of said company. Petitioner asserts that Doronillas May 8, 1979 letter addressed to
the bank, authorizing Mrs. Vives and Sanchez to open a savings account for Sterela, did not
contain any authorization for these two to withdraw from said account. Hence, the authority to
withdraw therefrom remained exclusively with Doronilla, who was the sole proprietor of Sterela,
and who alone had legal title to the savings account. 17 Petitioner points out that no evidence
other than the testimonies of private respondent and Mrs. Vives was presented during trial to
prove that private respondent deposited his P200,000.00 in Sterelas account for purposes of its
incorporation.18 Hence, petitioner should not be held liable for allowing Doronilla to withdraw
from Sterelas savings account.1a\^/phi1.net
Petitioner also asserts that the Court of Appeals erred in affirming the trial courts decision since
the findings of fact therein were not accord with the evidence presented by petitioner during trial
to prove that the transaction between private respondent and Doronilla was a mutuum, and that
it committed no wrong in allowing Doronilla to withdraw from Sterelas savings account.19
Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable
for the actual damages suffered by private respondent, and neither may it be held liable for
moral and exemplary damages as well as attorneys fees.20
Private respondent, on the other hand, argues that the transaction between him and Doronilla is
not a mutuum but an accommodation,21 since he did not actually part with the ownership of his
P200,000.00 and in fact asked his wife to deposit said amount in the account of Sterela so that a
certification can be issued to the effect that Sterela had sufficient funds for purposes of its
incorporation but at the same time, he retained some degree of control over his money through
his wife who was made a signatory to the savings account and in whose possession the savings
account passbook was given.22
He likewise asserts that the trial court did not err in finding that petitioner, Atienza s employer, is
liable for the return of his money. He insists that Atienza, petitioners assistant manager,

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 from the Bank. To cover
payment thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza
also said that Doronilla could assign or withdraw the money in Savings Account No. 10-1567
because he was the sole proprietor of Sterela.5
Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he
received a letter from Doronilla, assuring him that his money was intact and would be returned to
him. On August 13, 1979, Doronilla issued a postdated check for Two Hundred Twelve
Thousand Pesos (P212,000.00) in favor of private respondent. However, upon presentment
thereof by private respondent to the drawee bank, the check was dishonored. Doronilla
requested private respondent to present the same check on September 15, 1979 but when the
latter presented the check, it was again dishonored.6
Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla
for the return of his clients money. Doronilla issued another check for P212,000.00 in private
respondents favor but the check was again dishonored for insufficiency of funds.7
Private respondent instituted an action for recovery of sum of money in the Regional Trial Court
(RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was
docketed as Civil Case No. 44485. He also filed criminal actions against Doronilla, Sanchez and
Dumagpi in the RTC. However, Sanchez passed away on March 16, 1985 while the case was
pending before the trial court. On October 3, 1995, the RTC of Pasig, Branch 157, promulgated
its Decision in Civil Case No. 44485, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J.
Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin Vives
jointly and severally
(a) the amount of P200,000.00, representing the money deposited, with interest at the legal rate
from the filing of the complaint until the same is fully paid;
(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages;
(c) the amount of P40,000.00 for attorneys fees; and
(d) the costs of the suit.
SO ORDERED.8
Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June
25, 1991, the appellate court affirmed in toto the decision of the RTC. 9 It likewise denied with
finality petitioners motion for reconsideration in its Resolution dated May 5, 1994.10
On June 30, 1994, petitioner filed the present petition, arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION
BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF
SIMPLE LOAN AND NOT ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS
BANK MANAGER, MR. RUFO ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN
DEFRAUDING PETITIONER (Sic. Should be PRIVATE RESPONDENT) AND AS A
CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF
NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF
THE REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS
THE FINDINGS OF THE REGIONAL TRIAL COURT WERE BASED ON A
MISAPPREHENSION OF FACTS;
IV.

its fruits." Hence, it was only proper for Doronilla to remit to private respondent the interest
accruing to the latters money deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable for the
return of private respondents money because it was not privy to the transaction between
Doronilla and private respondent. The nature of said transaction, that is, whether it is a mutuum
or a commodatum, has no bearing on the question of petitioners liability for the return of private
respondents money because the factual circumstances of the case clearly show that petitioner,
through its employee Mr. Atienza, was partly responsible for the loss of private respondents
money and is liable for its restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of
Sterela for Savings Account No. 10-1567 expressly states that
"2. Deposits and withdrawals must be made by the depositor personally or upon his written
authority duly authenticated, and neither a deposit nor a withdrawal will be permitted except
upon the production of the depositor savings bank book in which will be entered by the Bank the
amount deposited or withdrawn."30
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant
Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom even without
presenting the passbook (which Atienza very well knew was in the possession of Mrs. Vives),
not just once, but several times. Both the Court of Appeals and the trial court found that Atienza
allowed said withdrawals because he was party to Doronillas "scheme" of defrauding private
respondent:
But the scheme could not have been executed successfully without the knowledge, help and
cooperation of Rufo Atienza, assistant manager and cashier of the Makati (Buendia) branch of
the defendant bank. Indeed, the evidence indicates that Atienza had not only facilitated the
commission of the fraud but he likewise helped in devising the means by which it can be done in
such manner as to make it appear that the transaction was in accordance with banking
procedure.
To begin with, the deposit was made in defendants Buendia branch precisely because Atienza
was a key officer therein. The records show that plaintiff had suggested that the P200,000.00 be
deposited in his bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that
it must be in defendants branch in Makati for "it will be easier for them to get a certification". In
fact before he was introduced to plaintiff, Doronilla had already prepared a letter addressed to
the Buendia branch manager authorizing Angeles B. Sanchez and company to open a savings
account for Sterela in the amount of P200,000.00, as "per coordination with Mr. Rufo Atienza,
Assistant Manager of the Bank x x x" (Exh. 1). This is a clear manifestation that the other
defendants had been in consultation with Atienza from the inception of the scheme. Significantly,
there were testimonies and admission that Atienza is the brother-in-law of a certain Romeo
Mirasol, a friend and business associate of Doronilla.1awphi1.nt
Then there is the matter of the ownership of the fund. Because of the "coordination" between
Doronilla and Atienza, the latter knew before hand that the money deposited did not belong to
Doronilla nor to Sterela. Aside from such foreknowledge, he was explicitly told by Inocencia
Vives that the money belonged to her and her husband and the deposit was merely to
accommodate Doronilla. Atienza even declared that the money came from Mrs. Vives.
Although the savings account was in the name of Sterela, the bank records disclose that the
only ones empowered to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In
the signature card pertaining to this account (Exh. J), the authorized signatories were Inocencia
Vives &/or Angeles B. Sanchez. Atienza stated that it is the usual banking procedure that
withdrawals of savings deposits could only be made by persons whose authorized signatures
are in the signature cards on file with the bank. He, however, said that this procedure was not
followed here because Sterela was owned by Doronilla. He explained that Doronilla had the full
authority to withdraw by virtue of such ownership. The Court is not inclined to agree with Atienza.
In the first place, he was all the time aware that the money came from Vives and did not belong
to Sterela. He was also told by Mrs. Vives that they were only accommodating Doronilla so that
a certification can be issued to the effect that Sterela had a deposit of so much amount to be

connived with Doronilla in defrauding private respondent since it was Atienza who facilitated the
opening of Sterelas current account three days after Mrs. Vives and Sanchez opened a savings
account with petitioner for said company, as well as the approval of the authority to debit
Sterelas savings account to cover any overdrawings in its current account.23
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 during trial. 24 The Courts
jurisdiction is in principle limited to reviewing errors of law that might have been committed by
the Court of Appeals.25 Moreover, factual findings of courts, when adopted and confirmed by the
Court of Appeals, are final and conclusive on this Court unless these findings are not supported
by the evidence on record.26 There is no showing of any misapprehension of facts on the part of
the Court of Appeals in the case at bar that would require this Court to review and overturn the
factual findings of that court, especially since the conclusions of fact of the Court of Appeals and
the trial court are not only consistent but are also amply supported by the evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction between
private respondent and Doronilla was a commodatum and not a mutuum. A circumspect
examination of the records reveals that the transaction between them was a commodatum.
Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either something not consumable
so that the latter may use the same for a certain time and return it, in which case the contract is
called a commodatum; or money or other consumable thing, upon the condition that the same
amount of the same kind and quality shall be paid, in which case the contract is simply called a
loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan,
ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable thing,
such as money, the contract would be a mutuum. However, there are some instances where a
commodatum may have for its object a consumable thing. Article 1936 of the Civil Code
provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is not the
consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of
the parties is to lend consumable goods and to have the very same goods returned at the end of
the period agreed upon, the loan is a commodatum and not a mutuum.
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 correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that
private respondent agreed to deposit his money in the savings account of Sterela specifically for
the purpose of making it appear "that said firm had sufficient capitalization for incorporation, with
the promise that the amount shall be returned within thirty (30) days." 29 Private respondent
merely "accommodated" Doronilla by lending his money without consideration, as a favor to his
good friend Sanchez. It was however clear to the parties to the transaction that the money would
not be removed from Sterelas savings account and would be returned to private respondent
after thirty (30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter
deposited in Sterelas account together with an additional P12,000.00, allegedly representing
interest on the mutuum, did not convert the transaction from a commodatum into a mutuum
because such was not the intent of the parties and because the additional P12,000.00
corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code
expressly states that "[t]he bailee in commodatum acquires the use of the thing loaned but not

complained of was committed.32 Case law in the United States of America has it that a
corporation that entrusts a general duty to its employee is responsible to the injured party for
damages flowing from the employees wrongful act done in the course of his general authority,
even though in doing such act, the employee may have failed in its duty to the employer and
disobeyed the latters instructions.33
There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not
deny that Atienza was acting within the scope of his authority as Assistant Branch Manager
when he assisted Doronilla in withdrawing funds from Sterelas Savings Account No. 10-1567, in
which account private respondents money was deposited, and in transferring the money
withdrawn to Sterelas Current Account with petitioner. Atienzas acts of helping Doronilla, a
customer of the petitioner, were obviously done in furtherance of petitioners interests34 even
though in the process, Atienza violated some of petitioners rules such as those stipulated in its
savings account passbook.35 It was established that the transfer of funds from Sterelas savings
account to its current account could not have been accomplished by Doronilla without the
invaluable assistance of Atienza, and that it was their connivance which was the cause of private
respondents loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil
Code, petitioner is liable for private respondents loss and is solidarily liable with Doronilla and
Dumagpi for the return of the P200,000.00 since it is clear that petitioner failed to prove that it
exercised due diligence to prevent the unauthorized withdrawals from Sterelas savings account,
and that it was not negligent in the selection and supervision of Atienza. Accordingly, no error
was committed by the appellate court in the award of actual, moral and exemplary damages,
attorneys fees and costs of suit to private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the
Court of Appeals are AFFIRMED.
SO ORDERED.

sued in the incorporation of the firm. In the second place, the signature of Doronilla was not
authorized in so far as that account is concerned inasmuch as he had not signed the signature
card provided by the bank whenever a deposit is opened. In the third place, neither Mrs. Vives
nor Sanchez had given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been presented. It is an
accepted practice that whenever a withdrawal is made in a savings deposit, the bank requires
the presentation of the passbook. In this case, such recognized practice was dispensed with.
The transfer from the savings account to the current account was without the submission of the
passbook which Atienza had given to Mrs. Vives. Instead, it was made to appear in a
certification signed by Estrella Dumagpi that a duplicate passbook was issued to Sterela
because the original passbook had been surrendered to the Makati branch in view of a loan
accommodation assigning the savings account (Exh. C). Atienza, who undoubtedly had a hand
in the execution of this certification, was aware that the contents of the same are not true. He
knew that the passbook was in the hands of Mrs. Vives for he was the one who gave it to her.
Besides, as assistant manager of the branch and the bank official servicing the savings and
current accounts in question, he also was aware that the original passbook was never
surrendered. He was also cognizant that Estrella Dumagpi was not among those authorized to
withdraw so her certification had no effect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate that
Atienzas active participation in the perpetration of the fraud and deception that caused the loss.
The records indicate that this account was opened three days later after the P200,000.00 was
deposited. In spite of his disclaimer, the Court believes that Atienza was mindful and posted
regarding the opening of the current account considering that Doronilla was all the while in
"coordination" with him. That it was he who facilitated the approval of the authority to debit the
savings account to cover any overdrawings in the current account (Exh. 2) is not hard to
comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. x
x x.31
Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for
damages caused by their employees acting within the scope of their assigned tasks. To hold the
employer liable under this provision, it must be shown that an employer-employee relationship
exists, and that the employee was acting within the scope of his assigned task when the act