Cases Commodatum and Mutuum

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-19190 November 29, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs.VENANCIO CONCEPCION, defendant-appellant.

Recaredo Ma. Calvo for appellant. Attorney-General Villa-Real for appellee.

MALCOLM, J.:

By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine National Bank, Venancio Concepcion, President of the Philippine National Bank, between April 10, 1919, and May 7, 1919, authorized an extension of credit in favor of "Puno y Concepcion, S. en C." in the amount of P300,000. This special authorization was essential in view of the memorandum order of President Concepcion dated May 17, 1918, limiting the discretional power of the local manager at Aparri, Cagayan, to grant loans and discount negotiable documents to P5,000, which, in certain cases, could be increased to P10,000. Pursuant to this authorization, credit aggregating P300,000, was granted the firm of "Puno y Concepcion, S. en C.," the only security required consisting of six demand notes. The notes, together with the interest, were taken up and paid by July 17, 1919.

"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto Concepcion contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno, P20,000; and Rosario San Agustin, "casada con Gral. Venancio Concepcion," P50,000. Member Miguel S. Concepcion was the administrator of the company.

On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank and as member of the board of directors of this bank, was charged in the Court of First Instance of Cagayan with a violation of section 35 of Act No. 2747. He was found guilty by the Honorable Enrique V. Filamor, Judge of First Instance, and was sentenced to imprisonment for one year and six months, to pay a fine of P3,000, with subsidiary imprisonment in case of insolvency, and the costs.

Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference must hereafter repeatedly be made, reads as follows: "The National Bank shall not, directly or indirectly, grant loans to any of the members of the board of directors of the bank nor to agents of the branch banks." Section 49 of the same Act provides: "Any person who shall violate any of the provisions of this Act shall be punished by a fine not to exceed ten thousand pesos, or by imprisonment not to exceed five years, or by both such fine and imprisonment." These two sections were in effect in 1919 when the alleged unlawful acts took place, but were repealed by Act No. 2938, approved on January 30, 1921.

Counsel for the defense assign ten errors as having been committed by the trial court. These errors they have argued adroitly and exhaustively in their printed brief, and again in oral argument. Attorney-General Villa-Real, in an exceptionally accurate and comprehensive brief, answers the proposition of appellant one by one.

The question presented are reduced to their simplest elements in the opinion which follows:

I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, a "loan" within the meaning of section 35 of Act No. 2747?

Counsel argue that the documents of record do not prove that authority to make a loan was given, but only show the concession of a credit. In this statement of fact, counsel is correct, for the exhibits in question speak of a "credito" (credit) and not of a " prestamo" (loan).

The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust reposed by a lender that he will pay what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.) A "loan" means the delivery by one

party and the receipt by the other party of a given sum of money, upon an agreement, express or implied, to repay the sum loaned, with or without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a "credit" necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit,"

II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.," by Venancio Concepcion, President of the Philippine National Bank, a "loan" or a "discount"?

Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it does not prohibit what is commonly known as a "discount."

In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of the Insular Auditor whether section 37 of Act No. 2612 was intended to apply to discounts as well as to loans. The ruling of the Acting Insular Auditor, dated August 11, 1916, was to the effect that said section referred to loans alone, and placed no restriction upon discount transactions. It becomes material, therefore, to discover the distinction between a "loan" and a "discount," and to ascertain if the instant transaction comes under the first or the latter denomination.

Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an actual, live, transaction. But in its last analysis, to discount a paper is only a mode of loaning money, with, however, these distinctions: (1) In a discount, interest is deducted in advance, while in a loan, interest is taken at the expiration of a credit; (2) a discount is always on double-name paper; a loan is generally on single-name paper.

Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not discounts, yet the conclusion is inevitable that the demand notes signed by the firm "Puno y Concepcion, S. en C." were not discount paper but were mere evidences of indebtedness, because (1) interest was not deducted from the face of the notes, but was paid when the notes fell due; and (2) they were single-name and not double-name paper.

The facts of the instant case having relation to this phase of the argument are not essentially different from the facts in the Binalbagan Estate case. Just as there it was declared that the operations constituted a loan and not a discount, so should we here lay down the same ruling.

III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, an "indirect loan" within the meaning of section 35 of Act No. 2747?

Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect loan." In this connection, it should be recalled that the wife of the defendant held one-half of the capital of this partnership.

In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to the intention of the Legislature. In this instance, the purpose of the Legislature is plainly to erect a wall of safety against temptation for a director of the bank. The prohibition against indirect loans is a recognition of the familiar maxim that no man may serve two masters — that where personal interest clashes with fidelity to duty the latter almost always suffers. If, therefore, it is shown that the husband is financially interested in the success or failure of his wife's business venture, a loan to partnership of which the wife of a director is a member, falls within the prohibition.

Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership. (Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a partnership of which the wife of a director of a bank is a member, is an indirect loan to such director.

That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the acknowledged fact that in this instance the defendant was tempted to mingle his personal and family affairs with his official duties, and to permit the loan P300,000 to a partnership of no established reputation and without asking for collateral security.

In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the Supreme Court of Maryland said:

What then was the purpose of the law when it declared that no director or officer should borrow of the bank, and "if any director," etc., "shall be convicted," etc., "of directly or indirectly violating this section he shall be punished by fine and imprisonment?" We say to protect the stockholders, depositors and creditors of the

bank, against the temptation to which the directors and officers might be exposed, and the power which as such they must necessarily possess in the control and management of the bank, and the legislature unwilling to rely upon the implied understanding that in assuming this relation they would not acquire any interest hostile or adverse to the most exact and faithful discharge of duty, declared in express terms that they should not borrow, etc., of the bank.

In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan Estate decision, it was said:

We are of opinion the statute forbade the loan to his copartnership firm as well as to himself directly. The loan was made indirectly to him through his firm.

IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a violation of section 35 of Act No. 2747 in relation with section 49 of the same Act, when these portions of Act No. 2747 were repealed by Act No. 2938, prior to the finding of the information and the rendition of the judgment?

As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to section 35 of the same Act, provides a punishment for any person who shall violate any of the provisions of the Act. It is contended, however, by the appellant, that the repeal of these sections of Act No. 2747 by Act No. 2938 has served to take away the basis for criminal prosecution.

This same question has been previously submitted and has received an answer adverse to such contention in the cases of United Stated vs. Cuna ([1908], 12 Phil., 241); People vs. Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and Kwong Fok vs. United States ([1910], 218 U. S., 272; 40 Phil., 1046). In other words, it has been the holding, and it must again be the holding, that where an Act of the Legislature which penalizes an offense, such repeals a former Act which penalized the same offense, such repeal does not have the effect of thereafter depriving the courts of jurisdiction to try, convict, and sentenced offenders charged with violations of the old law.

V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion, President of the Philippine National Bank, in violation of section 35 of Act No. 2747, penalized by this law?

Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank, and since section 49 of said Act provides a punishment not on the bank when it violates any provisions of the law, but on a person violating any provisions of the same, and imposing imprisonment as a part of the penalty, the prohibition contained in said section 35 is without penal sanction.lawph!l.net

The answer is that when the corporation itself is forbidden to do an act, the prohibition extends to the board of directors, and to each director separately and individually. (People vs. Concepcion, supra.)

VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank, in extending the credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." constitute a legal defense?

Counsel argue that if defendant committed the acts of which he was convicted, it was because he was misled by rulings coming from the Insular Auditor. It is furthermore stated that since the loans made to the copartnership "Puno y Concepcion, S. en C." have been paid, no loss has been suffered by the Philippine National Bank.

Neither argument, even if conceded to be true, is conclusive. Under the statute which the defendant has violated, criminal intent is not necessarily material. The doing of the inhibited act, inhibited on account of public policy and public interest, constitutes the crime. And, in this instance, as previously demonstrated, the acts of the President of the Philippine National Bank do not fall within the purview of the rulings of the Insular Auditor, even conceding that such rulings have controlling effect.

Morse, in his work, Banks and Banking, section 125, says:

It is fraud for directors to secure by means of their trust, and advantage not common to the other stockholders. The law will not allow private profit from a trust, and will not listen to any proof of honest intent.

JUDGMENT

On a review of the evidence of record, with reference to the decision of the trial court, and the errors assigned by the appellant, and with reference to previous decisions of this court on the same subject, we are irresistibly led to the conclusion that no reversible error was committed in the trial of this case, and that the defendant has been proved guilty beyond a reasonable doubt of the crime charged in the information. The penalty imposed by the trial judge falls within the limits of the punitive provisions of the law.

Judgment is affirmed, with the costs of this instance against the appellant. So ordered.

Araullo, C. J., Johnson, Street, Avanceña, Villamor, Ostrand, Johns, and Romualdez, JJ., concur. Republic of the Philippines

SUPREME COURTManila

SECOND DIVISION

G.R. No. L-66653 June 19, 1986

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.BURROUGHS LIMITED AND THE COURT OF TAX APPEALS, respondents.

Sycip, Salazar, Feliciano & Hernandez Law Office for private respondent.

PARAS, J.:

Petition for certiorari to review and set aside the Decision dated June 27, 1983 of respondent Court of Tax Appeals in its C.T.A. Case No. 3204, entitled "Burroughs Limited vs. Commissioner of Internal Revenue" which ordered petitioner Commissioner of Internal Revenue to grant in favor of private respondent Burroughs Limited, tax credit in the sum of P172,058.90, representing erroneously overpaid branch profit remittance tax.

Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines through a branch office located at De la Rosa corner Esteban Streets, Legaspi Village, Makati, Metro Manila.

Sometime in March 1979, said branch office applied with the Central Bank for authority to remit to its parent company abroad, branch profit amounting to P7,647,058.00. Thus, on March 14, 1979, it paid the 15% branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the amount of P6,499,999.30 computed as follows:

Amount applied for remittance................................ P7,647,058.00

Deduct: 15% branch profit

remittance tax ..............................................1,147,058.70

Net amount actually remitted.................................. P6,499,999.30

Claiming that the 15% profit remittance tax should have been computed on the basis of the amount actually remitted (P6,499,999.30) and not on the amount before profit remittance tax (P7,647,058.00), private respondent filed on December 24, 1980, a written claim for the refund or tax credit of the amount of P172,058.90 representing alleged overpaid branch profit remittance tax, computed as follows:

Profits actually remitted .........................................P6,499,999.30

Remittance tax rate .......................................................15%

Branch profit remittance tax-

due thereon ......................................................P 974,999.89

Branch profit remittance

tax paid .............................................................Pl,147,058.70

Less: Branch profit remittance

tax as above computed................................................. 974,999.89

Total amount refundable........................................... P172,058.81

On February 24, 1981, private respondent filed with respondent court, a petition for review, docketed as C.T.A. Case No. 3204 for the recovery of the above-mentioned amount of P172,058.81.

On June 27, 1983, respondent court rendered its Decision, the dispositive portion of which reads—

ACCORDINGLY, respondent Commission of Internal Revenue is hereby ordered to grant a tax credit in favor of petitioner Burroughs Limited the amount of P 172,058.90. Without pronouncement as to costs.

SO ORDERED.

Unable to obtain a reconsideration from the aforesaid decision, petitioner filed the instant petition before this Court with the prayers as herein earlier stated upon the sole issue of whether the tax base upon which the 15% branch profit remittance tax shall be imposed under the provisions of section 24(b) of the Tax Code, as amended, is the amount applied for remittance on the profit actually remitted after deducting the 15% profit remittance tax. Stated differently is private respondent Burroughs Limited legally entitled to a refund of the aforementioned amount of P172,058.90.

We rule in the affirmative. The pertinent provision of the National Revenue Code is Sec. 24 (b) (2) (ii) which states:

Sec. 24. Rates of tax on corporations....

(b) Tax on foreign corporations. ...

(2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent (15 %) ...

In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner of Internal Revenue Hon. Efren I. Plana the aforequoted provision had been interpreted to mean that "the tax base upon which the 15% branch profit remittance tax ... shall be imposed...(is) the profit actually remitted abroad and not on the total branch profits out of which the remittance is to be made. " The said ruling is hereinbelow quoted as follows:

In reply to your letter of November 3, 1978, relative to your query as to the tax base upon which the 15% branch profits remittance tax provided for under Section 24 (b) (2) of the 1977 Tax Code shall be imposed, please be advised that the 15% branch profit tax shall be imposed on the branch profits actually remitted abroad and not on the total branch profits out of which the remittance is to be made.

Please be guided accordingly.

Applying, therefore, the aforequoted ruling, the claim of private respondent that it made an overpayment in the amount of P172,058.90 which is the difference between the remittance tax actually paid of Pl,147,058.70 and the remittance tax that should have been paid of P974,999,89, computed as follows

Profits actually remitted......................................... P6,499,999.30

Remittance tax rate.............................................................. 15%

Remittance tax due................................................... P974,999.89

is well-taken. As correctly held by respondent Court in its assailed decision-

Respondent concedes at least that in his ruling dated January 21, 1980 he held that under Section 24 (b) (2) of the Tax Code the 15% branch profit remittance tax shall be imposed on the profit actually remitted abroad and not on the total branch profit out of which the remittance is to be made. Based on such ruling petitioner should have paid only the amount of P974,999.89 in remittance tax computed by taking the 15% of the profits of P6,499,999.89 in remittance tax actually remitted to its head office in the United States, instead of Pl,147,058.70, on its net profits of P7,647,058.00. Undoubtedly, petitioner has overpaid its branch profit remittance tax in the amount of P172,058.90.

Petitioner contends that respondent is no longer entitled to a refund because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. The said memorandum circular states—

Considering that the 15% branch profit remittance tax is imposed and collected at source, necessarily the tax base should be the amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted abroad.

Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still the Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch profit remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect in the light of Section 327 of the National Internal Revenue Code which provides-

Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shag not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayer except in the following cases (a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152)

The prejudice that would result to private respondent Burroughs Limited by a retroactive application of Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial amount of P172,058.90. And, insofar as the enumerated exceptions are concerned, admittedly, Burroughs Limited does not fall under any of them.

WHEREFORE, the assailed decision of respondent Court of Tax Appeals is hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Feria, Fernan, Alampay and Gutierrez, Jr., JJ., concur.

EN BANC

G.R. No. L-17474 October 25, 1962

REPUBLIC OF THE PHILIPPINES, Plaintiff-Appellee, vs. JOSE V. BAGTAS, defendant, FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas,

petitioner-appellant.

PADILLA, J.: chanrobles virtual law library

The Court of Appeals certified this case to this Court because only questions of law are raised.chanroblesvirtualawlibrary chanrobles virtual law library

On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a government charge of breeding fee of 10% of the book value of the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower asked for a renewal for another period of one year. However, the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950 and requested the return of the other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of Animal Industry that he would pay the value of the three bulls. On 17 October 1950 he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be approved by the Auditor General. On 19 October 1950 the Director of Animal Industry advised him that the book value of the three bulls could not be reduced and that they either be returned or their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of the three bulls or to return them. So, on 20 December 1950 in the Court of First Instance of Manila the Republic of the Philippines commenced an action against him praying that he be ordered to return the three bulls loaned to him or to pay their book value in the total sum of P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with interests, and costs; and that other just and equitable relief be granted in (civil No. 12818).chanroblesvirtualawlibrary chanrobles virtual law library

On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of the Philippines from the refusal by the Director of Animal Industry to deduct from the book value of the bulls corresponding yearly depreciation of 8% from the date of acquisition, to which depreciation the Auditor General did not object, he could not return the animals nor pay their value and prayed for the dismissal of the complaint.chanroblesvirtualawlibrary chanrobles virtual law library

After hearing, on 30 July 1956 the trial court render judgment -

. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls plus the breeding fees in the amount of P626.17 with interest on both sums of (at) the legal rate from the filing of this complaint and costs.

On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18 October and issued on 11 November 1958. On 2 December 1958 granted an ex-parte motion filed by the plaintiff on November 1958 for the appointment of a special sheriff to serve the writ outside Manila. Of this order appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23 October 1951 and as administratrix of his estate, was notified. On 7 January 1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were returned to the Bureau Animal of Industry and that sometime in November 1958 the third bull, the Sahiniwal, died from gunshot wound inflicted during a Huk raid on Hacienda Felicidad Intal, and praying that the writ of execution be quashed and that a writ of preliminary injunction be issued. On 31 January 1959 the plaintiff objected to her motion. On 6 February 1959 she filed a reply thereto. On the same day, 6 February, the Court denied her motion. Hence, this appeal certified by the Court of Appeals to this Court as stated at the beginning of this opinion.chanroblesvirtualawlibrary chanrobles virtual law library

It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter (Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's motion to quash the writ of execution the appellee prays "that another writ of execution in the sum of P859.53 be issued against the estate of defendant deceased Jose V. Bagtas." She cannot be held liable for the two bulls which already had been returned to and received by the appellee.chanroblesvirtualawlibrary chanrobles virtual law library

The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such death was due to force majeure she is relieved from the duty of returning the bull or paying its value to the appellee. The contention is without merit. The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. The appellant contends that the contract was commodatum and that, for that reason, as the appellee retained ownership or title to the bull it should suffer its loss due to force majeure. A contract of commodatum is essentially gratuitous.1 If the breeding fee be considered a compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code provides that a bailee in a contract of commodatum -

. . . is liable for loss of the things, even if it should be through a fortuitous event: chanrobles virtual law library

(2) If he keeps it longer than the period stipulated . . .chanroblesvirtualawlibrary chanrobles virtual law library

(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event;

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had each an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability.chanroblesvirtualawlibrary chanrobles virtual law library

The appellant's contention that the demand or prayer by the appellee for the return of the bull or the payment of its value being a money claim should be presented or filed in the intestate proceedings of the defendant who died on 23 October 1951, is not altogether without merit. However, the claim that his civil personality having ceased to exist the trial court lost jurisdiction over the case against him, is untenable, because section 17 of Rule 3 of the Rules of Court provides that -

After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the legal representative of the deceased to appear and to be substituted for the deceased, within a period of thirty (30) days, or within such time as may be granted. . . .

and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3 which provides that -

Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court promptly of such death . . . and to give the name and residence of the executory administrator, guardian, or other legal representative of the deceased . . . .

The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had been issue letters of administration of the estate of the late Jose Bagtas and that "all persons having claims for monopoly against the deceased Jose V. Bagtas, arising from contract express or implied, whether the same be due, not due, or contingent, for funeral expenses and expenses of the last sickness of the said decedent, and judgment for monopoly against him, to file said claims with the Clerk of this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of the first publication of this order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the said deceased," is not a notice to the court and the

appellee who were to be notified of the defendant's death in accordance with the above-quoted rule, and there was no reason for such failure to notify, because the attorney who appeared for the defendant was the same who represented the administratrix in the special proceedings instituted for the administration and settlement of his estate. The appellee or its attorney or representative could not be expected to know of the death of the defendant or of the administration proceedings of his estate instituted in another court that if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death as required by the rule.chanroblesvirtualawlibrary chanrobles virtual law library

As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is only liable for the sum of P859.63, the value of the bull which has not been returned to the appellee, because it was killed while in the custody of the administratrix of his estate. This is the amount prayed for by the appellee in its objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant for the quashing of the writ of execution.chanroblesvirtualawlibrary chanrobles virtual law library

Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the probate court for payment by the appellant, the administratrix appointed by the court.chanroblesvirtualawlibrary chanrobles virtual law library

ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.chanroblesvirtualawlibrary chanrobles virtual law library

Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ., concur.Barrera, J., concurs in the result.


Manila

EN BANC

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

SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee, vs.DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.

Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.

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

MAKALINTAL, J.:p

In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965 sentencing defendant Development Bank of the Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from the date the complaint was filed and attorney's fees in the amount of P5,000.00. The present appeal is from that judgment.

In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.

Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co., and arrived in Davao City in July 1953; and that to secure its release without first paying the draft, Saura, Inc. executed a trust receipt in favor of the said bank.

On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a first mortgage on the factory building to be constructed, the land site thereof, and the machinery and equipment to be installed. Among the other terms spelled out in the resolution were the following:

1. That the proceeds of the loan shall be utilized exclusively for the following purposes:

For construction of factory building P250,000.00

For payment of the balance of purchase

price of machinery and equipment 240,900.00

For working capital 9,100.00

T O T A L P500,000.00

4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation;

5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of funds, and as the construction of the factory buildings progresses, to be certified to by an appraiser of this Corporation;"

Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having China Engineers, Ltd. (which was willing to assume liability only to the extent of its stock

subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as one of the other co-makers, having acquired the latter's shares in Saura, Inc.

In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of its Board of Governors, for certain reasons stated in the resolution, "to reexamine all the aspects of this approved loan ... with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operations of jute mills, and to submit his findings thereon at the next meeting of the Board."

On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the loan, and asked that the necessary documents be prepared in accordance with the terms and conditions specified in Resolution No. 145. In connection with the reexamination of the project to be financed with the loan applied for, as stated in Resolution No. 736, the parties named their respective committees of engineers and technical men to meet with each other and undertake the necessary studies, although in appointing its own committee Saura, Inc. made the observation that the same "should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the agreement already) entered into," referring to its acceptance of the terms and conditions mentioned in Resolution No. 145.

On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which was duly registered on the following April 17.

It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as follows:

RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-examination of all the various aspects of the loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing the manufacture of jute sacks in Davao, with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operation of jute mills, and after having heard Ramon E. Saura and after extensive discussion on the subject the Board, upon recommendation of the Chairman, RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be authorized as may be necessary from time to time to place the factory in actual operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not inconsistent herewith, shall remain in full force and effect."

On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China Engineers Ltd. jointly and severally with the other RFC that his company no longer to of the loan and therefore considered the same as cancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC that the registration of the mortgage be withdrawn.

In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was denied by RFC, which added in its letter-reply that it was "constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ... from the China Engineers Ltd., expressing their desire to consider the loan insofar as they are concerned."

On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if RFC releases to us the P500,000.00 originally approved by you.".

On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the promissory notes jointly with the borrower-corporation," but with the following proviso:

That in view of observations made of the shortage and high cost of imported raw materials, the Department of Agriculture and Natural Resources shall certify to the following:

1. That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and

2. That there is prospect of increased production thereof to provide adequately for the requirements of the factory."

The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it was explained that the certification by the Department of Agriculture and Natural Resources was required "as the intention of the original approval (of the loan) is to develop the manufacture of sacks on the basis of locally available raw materials." This point is important, and sheds light on the subsequent actuations of the parties. Saura, Inc. does not deny that the factory he was building in Davao was for the manufacture of bags from local raw materials. The cover page of its brochure (Exh. M) describes the project as a "Joint venture by and between the Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to finance, manage and operate a Kenaf mill plant, to manufacture copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials, principal kenaf." The explanatory note on page 1 of the same brochure states that, the venture "is the first serious attempt in this country to use 100% locally grown raw materials notably kenaf which is presently grown commercially in theIsland of Mindanao where the proposed jutemill is located ..."

This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place, and to require, in its Resolution No. 9083, a certification from the Department of Agriculture and Natural Resources as to the availability of local raw materials to provide adequately for the requirements of the factory. Saura, Inc. itself confirmed the defendant's stand impliedly in its letter of January 21, 1955: (1) stating that according to a special study made by the Bureau of Forestry "kenaf will not be available in sufficient quantity this year or probably even next year;" (2) requesting "assurances (from RFC) that my company and associates will be able to bring in sufficient jute materials as may be necessary for the full operation of the jute mill;" and (3) asking that releases of the loan be made as follows:

a) For the payment of the receipt for jute mill machineries with the Prudential Bank &

Trust Company P250,000.00

(For immediate release)

b) For the purchase of materials and equip-ment per attached list to enable the jutemill to operate 182,413.91

c) For raw materials and labor 67,586.09

1) P25,000.00 to be released on the open-ing of the letter of credit for raw jutefor $25,000.00.

2) P25,000.00 to be released upon arrivalof raw jute.

3) P17,586.09 to be released as soon as themill is ready to operate.

On January 25, 1955 RFC sent to Saura, Inc. the following reply:

Dear Sirs:

This is with reference to your letter of January 21, 1955, regarding the release of your loan under consideration of P500,000. As stated in our letter of December 22, 1954, the releases of the loan, if revived, are proposed to be made from time to time, subject to availability of funds towards the end that the sack factory shall be placed in actual operating status. We shall be able to act on your request for revised purpose and manner of releases upon re-appraisal of the securities offered for the loan.

With respect to our requirement that the Department of Agriculture and Natural Resources certify that the raw materials needed are available in the immediate vicinity and that there is

prospect of increased production thereof to provide adequately the requirements of the factory, we wish to reiterate that the basis of the original approval is to develop the manufacture of sacks on the basis of the locally available raw materials. Your statement that you will have to rely on the importation of jute and your request that we give you assurance that your company will be able to bring in sufficient jute materials as may be necessary for the operation of your factory, would not be in line with our principle in approving the loan.

With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.

It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed on August 6, 1954, over the same property in favor of the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of the same year within which to pay its obligation on the trust receipt heretofore mentioned. It appears further that for failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.

On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff from completing or paying contractual commitments it had entered into, in connection with its jute mill project.

The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and that the defendant was guilty of breach thereof. The defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms thereof.

We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which provides:

ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perferted until the delivery of the object of the contract.

There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was executed and registered. But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.

It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locally grown raw materials, principally kenaf. There is no serious dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan to the original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and (2) that there is prospect of increased production thereof to provide adequately for the requirements of the factory." The imposition of those conditions was by no means a deviation from the terms of the agreement, but rather a step in its implementation. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954, namely — "that the proceeds of the loan shall be utilized exclusively for the following purposes: for construction of factory building — P250,000.00; for payment of the balance of purchase price of machinery and equipment — P240,900.00; for working capital — P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.

When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for the implementation of the agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the nature cf mutual desistance — what Manresa terms "mutuo disenso" 1 — which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment. 2

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-compliance. In 1962 it even applied with DBP for another loan to finance a rice and corn project, which application was disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at its own request, that Saura, Inc. brought this action for damages.All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual desistance — and that on the initiative of the plaintiff-appellee itself.

With this view we take of the case, we find it unnecessary to consider and resolve the other issues raised in the respective briefs of the parties.

WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the plaintiff-appellee.

Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.

Makasiar, J., took no part.

EN BANC

G.R. No. L-46240 November 3, 1939

MARGARITA QUINTOS and ANGEL A. ANSALDO, Plaintiffs-Appellants, vs. BECK, Defendant-Appellee.

IMPERIAL, J.: chanrobles virtual law library

The plaintiff brought this action to compel the defendant to return her certain furniture which she lent him for his use. She appealed from the judgment of the Court of First Instance of Manila which ordered that the defendant return to her the three has heaters and the four electric lamps found in the possession of the Sheriff of said city, that she call for the other furniture from the said sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for the deposit of the furniture be paid pro rata by both parties, without pronouncement as to the costs.chanroblesvirtualawlibrary chanrobles virtual law library

The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between the plaintiff and the defendant, the former gratuitously granted to the latter the use of the furniture described in the third paragraph of the stipulation of facts, subject to the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified the defendant of the conveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of lease. There after the plaintiff required the defendant to return all the furniture transferred to him for them in the house where they were found. On November 5, 1936, the defendant, through another person, wrote to the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On the 7th of the same month, the defendant wrote another letter to the plaintiff informing her that he could not give up the three gas heaters and the four electric lamps because he would use them until the 15th of the same month when the lease in due to expire. The plaintiff refused to get the furniture in view of the fact that the defendant had declined to make delivery of all of them. On November 15th, before vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.chanroblesvirtualawlibrary chanrobles virtual law library

In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in holding that they violated the contract by not calling for all the furniture on November 5, 1936, when the defendant placed them at their disposal; in not ordering the defendant to pay them the value of the furniture in case they are not delivered; in holding that they should get all the furniture from the Sheriff at their expenses; in ordering them to pay-half of the expenses claimed by the Sheriff for the deposit of the furniture; in ruling that both parties should pay their respective legal expenses or the costs; and in denying pay their respective legal expenses or the costs; and in denying the motions for reconsideration and new trial. To dispose of the case, it is only necessary to decide whether the defendant complied with his obligation to return the furniture upon the plaintiff's demand; whether the latter is bound to bear the deposit fees thereof, and whether she is entitled to the costs of litigation.chanroblesvirtualawlibrary chanrobles virtual law library

The contract entered into between the parties is one of commadatum, because under it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract the defendant bound himself to return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff at the latter's residence or house. The defendant did not comply with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit the three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code cited by counsel for the parties are not squarely applicable. The trial court,

therefore, erred when it came to the legal conclusion that the plaintiff failed to comply with her obligation to get the furniture when they were offered to her.chanroblesvirtualawlibrary chanrobles virtual law library

As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.chanroblesvirtualawlibrary chanrobles virtual law library

As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by the defendant in case of his inability to return some of the furniture because under paragraph 6 of the stipulation of facts, the defendant has neither agreed to nor admitted the correctness of the said value. Should the defendant fail to deliver some of the furniture, the value thereof should be latter determined by the trial Court through evidence which the parties may desire to present.chanroblesvirtualawlibrary chanrobles virtual law library

The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party (section 487 of the Code of Civil Procedure). The defendant was the one who breached the contract of commodatum, and without any reason he refused to return and deliver all the furniture upon the plaintiff's demand. In these circumstances, it is just and equitable that he pay the legal expenses and other judicial costs which the plaintiff would not have otherwise defrayed.chanroblesvirtualawlibrary chanrobles virtual law library

The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in the residence to return and deliver to the plaintiff, in the residence or house of the latter, all the furniture described in paragraph 3 of the stipulation of facts Exhibit A. The expenses which may be occasioned by the delivery to and deposit of the furniture with the Sheriff shall be for the account of the defendant. the defendant shall pay the costs in both instances. So ordered.chanroblesvirtualawlibrary chanrobles virtual law library

Avanceña, C.J., Villa-R

e

THIRD DIVISION

[G.R. No. 138677 : February 12, 2002]

TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners, vs. HON. COURT OF APPEALS & SECURITY BANK & TRUST COMPANY, Respondents.

D E C I S I O N

VITUG, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the decision and resolutions of the Court of Appeals in CA-G.R. CV No. 34594, entitled "Security Bank and Trust Co. vs. Tolomeo Ligutan, et al."

Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan in the amount of P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a promissory note binding themselves, jointly and severally, to pay the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and interest in case of default. In addition, petitioners agreed to pay 10% of the total amount due by way of attorneys fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to enforce payment. The obligation matured on 8 September 1981; the bank, however, granted an extension but only up until 29 December 1981.

Despite several demands from the bank, petitioners failed to settle the debt which, as of 20 May 1982, amounted to P114,416.10. On 30 September 1982, the bank sent a final demand letter to petitioners informing them that they had five days within which to make full payment. Since petitioners still defaulted on their obligation, the bank filed on 3 November 1982, with the Regional Trial Court of Makati, Branch 143, a complaint for recovery of the due amount.

After petitioners had filed a joint answer to the complaint, the bank presented its evidence and, on 27 March 1985, rested its case. Petitioners, instead of introducing their own evidence, had the hearing of the case reset on two consecutive occasions. In view of the absence of petitioners and their counsel on 28 August 1985, the third hearing date, the bank moved, and the trial court resolved, to consider the case submitted for decision.

Two years later, or on 23 October 1987, petitioners filed a motion for reconsideration of the order of the trial court declaring them as having waived their right to present evidence and prayed that they be allowed to prove their case. The court a quo denied the motion in an order, dated 5 September 1988, and on 20 October 1989, it rendered its decision,[1 the dispositive portion of which read:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, ordering the latter to pay, jointly and severally, to the plaintiff, as follows:

"1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum, 2% service charge and 5% per month penalty charge, commencing on 20 May 1982 until fully paid;

"2. To pay the further sum equivalent to 10% of the total amount of indebtedness for and as attorneys fees; and

"3. To pay the costs of the suit.[2

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Petitioners interposed an appeal with the Court of Appeals, questioning the rejection by the trial court of their motion to present evidence and assailing the imposition of the 2% service charge, the 5% per month penalty charge and 10% attorney's fees. In its decision[3 of 7 March 1996, the appellate court affirmed the judgment of the trial court except on the matter of the 2% service charge which was deleted pursuant to Central Bank Circular No. 783. Not fully satisfied with the decision of the appellate court, both parties filed their respective motions for reconsideration.[4 Petitioners prayed for the reduction of the 5% stipulated penalty for being unconscionable. The bank, on the other hand, asked that the payment of interest and penalty be commenced not from the date of filing of complaint but from the time of default as so stipulated in the contract of the parties.

On 28 October 1998, the Court of Appeals resolved the two motions thusly:

We find merit in plaintiff-appellees claim that the principal sum of P114,416.00 with interest thereon must commence not on the date of filing of the complaint as we have previously held in our decision but on the date when the obligation became due.

Default generally begins from the moment the creditor demands the performance of the obligation. However, demand is not necessary to render the obligor in default when the obligation or the law so provides.

In the case at bar, defendants-appellants executed a promissory note where they undertook to pay the obligation on its maturity date 'without necessity of demand.' They also agreed to pay the interest in case of non-payment from the date of default.

x x x

While we maintain that defendants-appellants must be bound by the contract which they acknowledged and signed, we take cognizance of their plea for the application of the provisions of Article 1229 x x x.

Considering that defendants-appellants partially complied with their obligation under the promissory note by the reduction of the original amount of P120,000.00 to P114,416.00 and in order that they will finally settle their obligation, it is our view and we so hold that in the interest of justice and public policy, a penalty of 3% per month or 36% per annum would suffice.

x x x

WHEREFORE, the decision sought to be reconsidered is hereby MODIFIED. The defendants-appellants Tolomeo Ligutan and Leonidas dela Llana are hereby ordered to pay the plaintiff-appellee Security Bank and Trust Company the following:

1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum and 3% per month penalty charge commencing May 20, 1982 until fully paid;

2. The sum equivalent to 10% of the total amount of the indebtedness as and for attorneys fees.[5

On 16 November 1998, petitioners filed an omnibus motion for reconsideration and to admit newly discovered evidence,[6 alleging that while the case was pending before the trial court, petitioner Tolomeo Ligutan and his wife Bienvenida Ligutan executed a real estate mortgage on 18 January 1984 to secure the existing indebtedness of petitioners Ligutan and dela Llana with the bank. Petitioners contended that the execution of the real estate mortgage had the effect of novating the contract between them and the bank. Petitioners further averred that the mortgage was extrajudicially foreclosed on 26 August 1986, that they were not informed about it, and the bank did not credit them with the proceeds of the sale. The appellate court denied the omnibus motion for reconsideration and to admit newly discovered evidence, ratiocinating that such a second motion for reconsideration cannot be entertained under Section 2, Rule 52, of the 1997 Rules of Civil Procedure. Furthermore, the appellate court said, the newly-discovered evidence being invoked by petitioners had actually been known to them when the case was brought on appeal and when the first motion for reconsideration was filed.[7

Aggrieved by the decision and resolutions of the Court of Appeals, petitioners elevated their case to this Court on 9 July 1999 via a petition for review on certiorari under Rule 45 of the Rules of Court, submitting thusly -

I. The respondent Court of Appeals seriously erred in not holding that the 15.189% interest and the penalty of three (3%) percent per month or thirty-six (36%) percent per annum






imposed by private respondent bank on petitioners loan obligation are still manifestly exorbitant, iniquitous and unconscionable.

II. The respondent Court of Appeals gravely erred in not reducing to a reasonable level the ten (10%) percent award of attorneys fees which is highly and grossly excessive, unreasonable and unconscionable.

III. The respondent Court of Appeals gravely erred in not admitting petitioners newly discovered evidence which could not have been timely produced during the trial of this case.

IV. The respondent Court of Appeals seriously erred in not holding that there was a novation of the cause of action of private respondents complaint in the instant case due to the subsequent execution of the real estate mortgage during the pendency of this case and the subsequent foreclosure of the mortgage.[8

Respondent bank, which did not take an appeal, would, however, have it that the penalty sought to be deleted by petitioners was even insufficient to fully cover and compensate for the cost of money brought about by the radical devaluation and decrease in the purchasing power of the peso, particularly vis-a-vis the U.S. dollar, taking into account the time frame of its occurrence. The Bank would stress that only the amount of P5,584.00 had been remitted out of the entire loan of P120,000.00.[9

A penalty clause, expressly recognized by law,[10 is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force of the obligation[11 and to provide, in effect, for what could be the liquidated damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach.[12 Although a court may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied with.[13

The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factors as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court. In Rizal Commercial Banking Corp. vs. Court of Appeals,[14 just an example, the Court has tempered the penalty charges after taking into account the debtors pitiful situation and its offer to settle the entire obligation with the creditor bank. The stipulated penalty might likewise be reduced when a partial or irregular performance is made by the debtor.[15 The stipulated penalty might even be deleted such as when there has been substantial performance in good faith by the obligor,[16 when the penalty clause itself suffers from fatal infirmity, or when exceptional circumstances so exist as to warrant it.[17

The Court of Appeals, exercising its good judgment in the instant case, has reduced the penalty interest from 5% a month to 3% a month which petitioner still disputes. Given the circumstances, not to mention the repeated acts of breach by petitioners of their contractual obligation, the Court sees no cogent ground to modify the ruling of the appellate court..

Anent the stipulated interest of 15.189% per annum, petitioners, for the first time, question its reasonableness and prays that the Court reduce the amount. This contention is a fresh issue that has not been raised and ventilated before the courts below. In any event, the interest stipulation, on its face, does not appear as being that excessive. The essence or rationale for the payment of interest, quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct concepts which may separately be demanded.[18 What may justify a court in not allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the non-payment or reduction of interest. Indeed, the interest prescribed in loan financing arrangements is a fundamental part of the banking business and the core of a bank's existence.[19

Petitioners next assail the award of 10% of the total amount of indebtedness by way of attorney's fees for being grossly excessive, exorbitant and unconscionable vis-a-vis the time spent and the extent of services rendered by counsel for the bank and the nature of the case. Bearing in mind that the rate of attorneys fees has been agreed to by the parties and intended to answer not only for litigation expenses but also for collection efforts as well, the Court, like the appellate court, deems the award of 10% attorneys fees to be reasonable.







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Neither can the appellate court be held to have erred in rejecting petitioners' call for a new trial or to admit newly discovered evidence. As the appellate court so held in its resolution of 14 May 1999 -

Under Section 2, Rule 52 of the 1997 Rules of Civil Procedure, no second motion for reconsideration of a judgment or final resolution by the same party shall be entertained. Considering that the instant motion is already a second motion for reconsideration, the same must therefore be denied.

Furthermore, it would appear from the records available to this court that the newly-discovered evidence being invoked by defendants-appellants have actually been existent when the case was brought on appeal to this court as well as when the first motion for reconsideration was filed. Hence, it is quite surprising why defendants-appellants raised the alleged newly-discovered evidence only at this stage when they could have done so in the earlier pleadings filed before this court.

The propriety or acceptability of such a second motion for reconsideration is not contingent upon the averment of 'new' grounds to assail the judgment, i.e., grounds other than those theretofore presented and rejected. Otherwise, attainment of finality of a judgment might be stayed off indefinitely, depending on the partys ingenuousness or cleverness in conceiving and formulating 'additional flaws' or 'newly discovered errors' therein, or thinking up some injury or prejudice to the rights of the movant for reconsideration.[20

At any rate, the subsequent execution of the real estate mortgage as security for the existing loan would not have resulted in the extinguishment of the original contract of loan because of novation. Petitioners acknowledge that the real estate mortgage contract does not contain any express stipulation by the parties intending it to supersede the existing loan agreement between the petitioners and the bank.[21 Respondent bank has correctly postulated that the mortgage is but an accessory contract to secure the loan in the promissory note.

Extinctive novation requires, first, a previous valid obligation; second, the agreement of all the parties to the new contract; third, the extinguishment of the obligation; and fourth, the validity of the new one.[22 In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligation be on every point incompatible with each other.[23 An obligation to pay a sum of money is not extinctively novated by a new instrument which merely changes the terms of payment or adding compatible covenants or where the old contract is merely supplemented by the new one.[24 When not expressed, incompatibility is required so as to ensure that the parties have indeed intended such novation despite their failure to express it in categorical terms. The incompatibility, to be sure, should take place in any of the essential elements of the obligation, i.e., (1) the juridical relation or tie, such as from a mere commodatum to lease of things, or from negotiorum gestio to agency, or from a mortgage to antichresis,[25 or from a sale to one of loan;[26 (2) the object or principal conditions, such as a change of the nature of the prestation; or (3) the subjects, such as the substitution of a debtor[27 or the subrogation of the creditor. Extinctive novation does not necessarily imply that the new agreement should be complete by itself; certain terms and conditions may be carried, expressly or by implication, over to the new obligation.

WHEREFORE, the petition is DENIED.

SO ORDERED.

Melo, (Chairman), Panganiban, Sandoval-Gutierrez, and Carpio, JJ., concur.

al, Laurel, Concepcion and Moran, JJ., concur










Manila

THIRD DIVISION

G.R. No. 132648 March 4, 1999

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner, vs.COURT OF APPEALS and ROMEO S. BELLA, respondents.

PURISIMA, J.:

At bar is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court seeking to set aside the Decision 1 of the Court of Appeals 2 dated February 12, 1998 in CA-G.R. SP NO. 44465, reversing the Decision of the Government Service Insurance System (GSIS), which affirmed the Decision of the Employees Compensation Commission (ECC) in ECC Case No. M.G. 7872 - 1295.

The antecedent facts are, as follows:

On June 10, 1964, private respondent Romeo S. Bella was employed by the Bureau of Animal Industry as a livestock inspector. He retired from the service on August 16, 1986. On July 16, 1987, he was re-employed by the Department of Agriculture as Agricultural Food Technologist and on March 1, !994, promoted to the position of Agriculturist II.

As disclosed by his records of employment, private respondent was suspended without pay from September 1, 1993 to March 1, 1994. A month after, or on April 1, 1994, to be precise, he was reinstated to his former position as Agriculturist II at the Provincial Agricultural Office in Tacurong, Sultan Kudarat. On July 1, 1995, private respondent who was then 56 3 years old, filed a terminal leave of absence due to physical disability.

The medical records of private respondent reveal that he was suffering from Acute Myocardial Infraction 4 and was confined at the Notre Dame Hospital in Cotabato City from September 13, 1988 to September 19, 1988 and at the Philippine Heart Center from September 6, 1994 to September 26, 1994.

Thus, private respondent filed with the GSIS Cotabato Branch, a claim for compensation benefits under P.D. 626, 5 as amended. Finding his application meritorious and his ailment compensable, the GSIS awarded him a Temporary Total Disability income benefit during the periods of July 16 to July 21, 1994 and August 24 to August 29, 1994, as well as reimbursement for medical expenses. Private respondent Romeo S. Bella was also granted a Permanent Partial Disability income benefit equivalent to thirty-eight (38) months for his Ischemic Cardiomayopathy.

Private respondent requested for the conversion of his benefits from Permanent Partial Disability to Permanent Total Disability, reasoning out that his ailments of Ischemic Cardiomayopathy 6 and Chronic Obstructure Pulmonary Disease 7 rendered him unable to engage in any gainful occupation for a continuous period exceeding 120 days, as certified to by his attending physicians, Dr. Romulo Uy, Dr. Anne Marie Luat, Dr. Danilo Rustia, Dr. Juanito Lastimosa and Dr. Eldefonso Maglasang. 8

But petitioner GSIS denied his request for Permanent Total Disability on the ground that the degree of private respondent's disability as evaluated by, petitioner's medical officers, did not satisfy the criteria for Permanent Total Disability. His motion for reconsideration was similarly denied. On appeal, the Employees Compensation Commission (ECC) affirmed the

Decision of the GSIS, denying private respondent's request for conversion of his Permanent Partial Disability benefit to Permanent Total Disability benefit.

Dissatisfied, private respondent went to the Court of Appeals on a Petition for Review.

On February 12, 1998, the Court of Appeals came out with its decision reversing the Decision of the Employees Compensation Commission; disposing, thus:

WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE. Accordingly, another judgment is rendered granting petitioner's claim for Permanent Total Disability (PTD) benefits.

No Pronouncements as to costs.

SO ORDERED. 9

Therefrom, petitioner GSIS found its way to this Court via the present petition, theorizing:

I

THAT THE RESPONDENT HONORABLE COURT OF APPEALS GRAVELY ERRED IN REVERSING AND SETTING ASIDE THE DECISION OF THE EMPLOYEES COMPENSATION COMMISSION WHICH AFFIRMED THE DECISION OF HEREIN PETITIONER GSIS.

II

THAT THE HONORABLE COURT OF APPEALS ERRED IN CONSIDERING THE CONVERSION OF PERMANENT PARTIAL DISABILITY (PPD) BENEFITS OF HEREIN RESPONDENT TO PERMANENT TOTAL DISABILITY UNDER P.D. 626, AS AMENDED.

III

THAT THE DECISION OF THE RESPONDENT HONORABLE COURT OF APPEALS IS CONTRARY TO LAW AND APPLICABLE JURISPRUDENCE.

The pivot of inquiry here is: whether or riot the private respondent is entitled to permanent total disability benefits.

The labor Code classifies employees' disability into three distinct categories, namely: a) temporary total disability; 10 b) permanent total disability; 11 and c) permanent partial disability. 12 Section 2, Rule VII, of the Rules and Regulation Implementing Title II, Book IV of the Labor Code defines and clarifies these categories, as follows:

Sec. 2. Disability. — (a) A total disability is temporary if as a result of the injury or sickness the employee is unable to perform any gainful occupation for a continuous period not exceeding 120 days, except as otherwise provided for in Rule X of these Rules.

(b) A disability is total and permanent if as a result of the injury or sickness the employee is unable to perform any gainful occupation for a continuous period exceeding 120 days except as otherwise provided for in Rule X 13 of these Rules.

(c) A disability is partial and permanent if as a result of the injury or sickness the employee suffers a permanent partial loss of the use of any part of his body.

In Vicente vs. Employees Compensation Commission, 14 the Court laid down the litmus test and distinction between Permanent Total Disability and Permanent Partial Disability, to wit:

. . . While "permanent total disability" invariably results in an employee's loss of work or inability to perform his usual work, "permanent partial disability," on the other hand, occurs when an employee loses the use of any particular anatomical part of his body which disables him to continue with his former work. Stated otherwise, the test of whether or not an employee suffers from "permanent total disability" is a showing of the capacity of the employee to continue performing his work notwithstanding the disability he incurred. Thus,

if by, reason of the injury or sickness he sustained, the employee is unable to perform his customary job for more than 120 days and he does not come within the coverage of Rule X of the Amended Rules on Employees Compensability (which, in a more detailed manner, describes what constitutes temporary total disability). then the said employee undoubtedly suffers from "permanent total disability" regardless of whether or not he loses the use of any part of his body. 15

To justify its finding that private respondent's disability cannot be a Permanent Total Disability, the ECC ratiocinated:

. . . Under the ECC Schedule of Compensation, appellant was already awarded the maximum benefits commensurate to the degree of his disability. Under this schedule, appellant's Ischemlc Cardiomyopathy merits a disability rating of 38 months Permanent Partial Disability (PPD), and this has already been granted him. The nature of his ailment and his present physical condition which the medical officers of the System were able to evaluate when he came to follow-up his request showed that the criteria for Permanent Total Disability (PTD) like the permanent complete paralysis of two limbs has not been satisfied. Thus, we see no reason to alter the earlier ruling of the respondent System 16

Petitioner contends that the criteria for Permanent Total Disability, like permanent complete paralysis of two, limbs have not been met 17 by private respondent's ailment and physical condition. As aptly pointed out by the Solicitor General, "total disability does not mean a state of absolute helplessness, but disablement of an employee to earn wages in the same kind of work or a work of similar nature, that he was trained or accustomed to perform, or any kind of work which a person of his mentality and attachments could do. 18 The fact that he was forced to retire at the early age of 56, due to a sickness disabling him from performing his job as Agriculturist II, qualifies his disability as a Permanent Total Disability, though he lost no use of any particular anatomical part of his body.

So also, no less than five doctors certified that private respondent's illness disabled him from performing any gainful occupation for a continuous period exceeding 120 days. Then too, even petitioner GSIS granted private respondent an income benefit amounting to the equivalent of 38 months. Well settled is the rule that a physician's report of sickness or accident substantiates the disability claim. 19 "A doctor's certification as to the nature of the claimant's disability may be given credence as he would not normally make false certification for the sake of a lowly school teacher." 20

It is then beyond cavil that the sickness of the private respondent made him unable to perform any gainful occupation for a continuous period exceeding 120 days, thus entitling him to permanent total disability benefits.

Clearly, the position taken by the GSIS and the ECC runs counter to the avowed policy of the State to construe social legislations liberally in favor of the beneficiaries. "The court takes this occasion to stress once more its abiding concern for the welfare of the government workers, especially the humble rank and file, whose patience, industry and dedication to duty have often gone unheralded, but who, in spite of every little recognition, plod on dutifully to perform their appointed tasks. It is for this reason that the sympathy of the law on social security is toward its beneficiaries, and the law, by its own terms, requires a construction of utmost liberality in their favor." 21

Sec. 18, Article II of the Constitution, provides:

Sec. 18. The State affirms labor as a primary social economic force. It shall protect the rights of workers and promote their welfare.

All things studiedly considered, we are of the ineluctable conclusion that the Court of Appeals erred not in granting private respondent's claim for Permanent Total Disability benefits.

WHEREFORE, the petition is hereby DENIED, and the assailed Decision of the Court of Appeals in CA-G.R. SP NO. 44465 AFFIRMED. No pronouncement as to costs.

SO ORDERED.

FIRST DIVISION

G.R. No. 116356. June 29, 1998

EASTERN SHIPPING LINES, INC., Petitioner, vs. COURT OF APPEALS and DAVAO PILOTS ASSOCIATION, Respondents.

D E C I S I O N

PANGANIBAN, J.

In Philippine Interisland Shipping Association of the Philippines vs. Court of Appeals,1 the Court, en banc, ruled that Executive Order 10882 was not unconstitutional. We adhere to said ruling in this case.

The Case

This is a petition for certiorari under Rule 45, assailing the Decision3 of the Court of Appeals4 in CA-GR CV No. 34487 promulgated on July 18, 1994, the dispositive portion of which reads:

WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby AFFIRMED in toto. With costs against defendant-appellant.

The Decision affirmed by Respondent Court disposed as follows:

WHEREFORE, judgment is rendered directing the defendant:

1. To pay plaintiff the sum of P602,710.04 with legal rate of interest commencing from the filing of the complaint representing unpaid pilotage fees;

2. To pay attorneys fees in the sum of P50,000.00;3. And costs.SO ORDERED.

Hence, this appeal.5

The Facts

As found by the trial court, these are the undisputed facts:

On September 25, 1989, plaintiff [herein private respondent] elevated a complaint against defendant [herein petitioner] for sum of money and attorneys fees alleging that plaintiff had rendered pilotage services to defendant between January 14, 1987 to July 22, 1989 with total unpaid fees of P703,290.18. Despite repeated demands, defendant failed to pay and prays that the latter be directed to pay P703,290.18 with legal rate of interest from the filing of the complaint; attorneys fees equivalent to 25% of the principal obligation and such other relief.On November 18, 1989 defendant answered vigorously disputing the claims of plaintiff. It assailed the constitutionality of the Executive Order 1088 upon which plaintiff bases its claims; alleged that there is a pending case before the Court of Appeals elevated by the United Harbor Pilots Association of the Philippines of which plaintiff is a member[;] whereas defendant is a member of the Chamber of Maritime Industries of the Philippine[s] which is an Intervenor in CA-G.R. SP No. 18072; that

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there therefore is lis pendens by Section 1 (e), Rule 16 of the Rules; that the subject of the complaint falls within the scope and authority of the Philippine Ports Authority by virtue of PD No. 857 dated December 23, 1975; that Executive Order No. 1088 is an unwarranted repeal or modification of the Philippine Ports Authority Charter; that the fees charged by plaintiff are arbitrary and confiscatory; and the basis of the Executive Order 1088 is offensive, sourced from Amendment No. 6 of the 1973 Constitution and rendered inoperative by the Freedom Constitution of March 25, 1986 and the present Constitution; and that the only agency vested by law to prescribe such rates, charges or fees for services rendered by any private organization like the plaintiff within a Port District is governed by Section 20 of PD 857. As regular patron of plaintiff, defendant has never been remiss in paying plaintiffs claim for pilotage fees and the present complaint under the foregoing circumstances is without legal foundation. Defendant prays that plaintiff be advised to await the final outcome of the identical issues already elevated to and pending before the Court of Appeals as CA-G.R. SP No. 18072. Defendant prays for an award of damages, attorneys fees, litigation expense and costs.At the Pre-Trial Conference, the only issue raised by plaintiff is whether the defendant is liable to the plaintiff for the money claims alleged in the complaint.

The defendant on the other hand raised the following issues:

1. Whether or not Executive Order 1088 is constitutional;2. Whether or not Executive Order 1088 is illegal;3. Whether or not the plaintiff may motu proprio and independently of the

Public Estates Authority enforce Executive Order 1088 and collect the pilotage fees prescribed thereunder;

4. Assuming Executive Order 1088 is constitutional, valid and self-executory, whether or not the defendant is liable; and if so, to what extent and for what particular items; and

5. Whether or not the plaintiff is liable under the counterclaims (p. 102, Expediente).

On September 5, 1990, plaintiff presented witness Capt. Felix N. Galope, in the course of which testimony identified among others EXHIBITS B to E-2 and J to to I-2 consisting of documents related to the collection of the unpaid pilotage fees; basis for such computations; Statement of Accounts; demand letter and official recipients of payment made.On September 6, 1990, Simplicio Barao, plaintiffs Billing Clerk testified among others on the records of plaintiffs Captains Certificate/Pilotage Chits and Bills/Statements of Accounts on the claims against defendant (EXHIBITS G to H-48-A) and the details of the outstanding accounts in favor of plaintiff. The records show defendant raised no objection thereto and by virtue of which all of plaintiffs documentary exhibits were admitted. (Order dated January 14, 1991, p. 277 Expediente).On March 14, 1991, defendant presented Celso Occidental, employee of defendant shipping company, in the course of which testimony submitted EXHIBITS 1 to 1-D which is plaintiffs Billing Rate, both old and new with a payment of P79,585.64; and 2 to 2-G representing plane ticket paid for by defendant for transportation expenses of its counsel and cost of stenographic transcripts.Defendants last witness, Capt. Jose Dubouzet, Jr. and a Harbor Pilot was briefly presented.6

After due trial, the trial court rendered its ruling, viz.:

Plaintiffs evidence as to the unpaid pilotage services due from defendant duly supported by voluminous documentary exhibits has not been refuted nor rebutted by defendant. On the contrary, when plaintiffs documentary exhibits were formally offered, defendant did not raise any objection thereby leaving the documents unchallenged and undisputed.Upon the other hand, while the records show that defendant raised no less than five (5) issues the evidence fails to show any proof to sustain defendants posture. On the contrary, neither of defendants two witnesses appear to have even grazed the outer peripheries of what could have been interesting issues with far-reaching consequences if resolved.7



The factual antecedents of the controversy are simple. Petitioner insists on paying pilotage fees prescribed under PPA circulars. Because EO 1088 sets a higher rate, petitioner now assails its constitutionality.

Public Respondents Ruling

As stated earlier, Respondent Court of Appeals affirmed the trial courts decision. Respondent Court pointed out that petitioner, during the pre-trial, limited the issues to whether: (1) EO 1088 is unconstitutional; (2) EO 1088 is illegal; (3) private respondent itself may enforce and collect fees under EO 1088; and (4) petitioner is liable and, if EO 1088 is legal, to what extent. It then affirmed the factual findings and conclusion of the trial court that petitioner fail[ed] to show any proof to support its position. Parenthetically, Respondent Court also noted two other cases decided by the Court of Appeals, upholding the constitutionality of EO 1088.8

The Issue

In sum, petitioner raises this main issue: whether Executive Order 1088 is unconstitutional.9

The Courts Ruling

The petition is unmeritorious.

EO 1088 Is Valid

Petitioner contends that EO 108810 is unconstitutional, because (1) its interpretation and application are left to private respondent, a private person,11 and (2) it constitutes an undue delegation of powers. Petitioner insists that it should pay pilotage fees in accordance with and on the basis of the memorandum circulars issued by the PPA, the administrative body vested under PD 85712 with the power to regulate and prescribe pilotage fees. In assailing the constitutionality of EO 1088, the petitioner repeatedly asks: Is the private respondent vested with power to interpret Executive Order No. 1088?13

The Court is not persuaded. The pertinent provisions of EO 1088 read:

SECTION 1. The following shall be the rate of pilotage fees or charges based on tonnage for services rendered to both foreign and coastwise vessels:

For Foreign Vessels Rate in US$ &/or its

Peso Equivalent

Less than 500GT $ 30.00500GT to 2,500GT 43.332,500GT to 5,000GT 71.335,000GT to 10,000GT 133.6710,000GT to 15,000GT 181.6715,000GT to 20,000GT 247.0020,000GT to 30,000GT 300.0030,000GT to 40,000GT 416.6740,000GT to 60,000GT 483.3360,000GT to 80,000GT 550.0080,000GT to 100,000GT 616.67100,000GT to 120,000GT 666.67120,000GT to 130,000GT 716.67

130,000GT to 140,000GT 766.67

Over 140,000 gross tonnage $0.05 or its peso equivalent every excess tonnage. Rate for docking and undocking anchorage, conduction and shifting other related special services is equal to 100%. Pilotage services shall be compulsory in government and private wharves or piers.

For Coastwise Vessels Regular

100 and under 500 gross tons P 41.70500 and under 600 gross tons 55.60600 and under 1,000 gross tons 69.601,000 and under 3,000 gross tons 139.203,000 and under 5,000 gross tons 300.005,000 and over gross tons







SEC. 2. With respect to foreign vessels, payment of pilotage services shall be made in dollars or in pesos at the prevailing exchange rate.SEC. 3. All orders, letters of instructions, rules, regulations and other issuances inconsistent with this Executive Order are hereby repealed or amended accordingly.SEC. 4. This Executive Order shall take effect immediately.

In Philippine Interisland Shipping Association of the Philippines vs. Court of Appeals,14 the Supreme Court, through Mr. Justice Vicente V. Mendoza, upheld the validity and constitutionality of Executive Order 1088 in no uncertain terms. We aptly iterate our pronouncement in said case, viz.:

It is not an answer to say that E.O. No. 1088 should not be considered a statute because that would imply the withdrawal of power from the PPA. What determines whether an act is a law or an administrative issuance is not its form but its nature. Here as we have already said, the power to fix the rates of charges for services, including pilotage service, has always been regarded as legislative in character.

x x x It is worthy to note that E.O. NO. 1088 provides for adjusted pilotage service rates without withdrawing the power of the PPA to impose, prescribe, increase or decrease rates, charges or fees. The reason is because E.O. No. 1088 is not meant simply to fix new pilotage rates. Its legislative purpose is the rationalization of pilotage service charges, through the imposition of uniform and adjusted rates for foreign and coastwise vessels in all Philippine ports.

x x x We conclude that E.O. No. 1088 is a valid statute and that the PPA is duty bound to comply with its provisions. The PPA may increase the rates but it may not decrease them below those mandated by E.O. No. 1088. x x x.15

We see no reason to depart from this ruling. The Courts holding clearly debunks petitioners insistence on paying its pilotage fees based on memorandum circulars issued by the PPA.16 Because the PPA circulars are inconsistent with EO 1088, they are void and ineffective. Administrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws or the Constitution.17 As stated by this Court in Land Bank of the Philippines vs. Court of Appeals,18 [t]he conclusive effect of administrative construction is not absolute. Action of an administrative agency may be disturbed or set aside by the judicial department if there is an error of law, a grave abuse of power or lack of jurisdiction, or grave abuse of discretion clearly conflicting with either the letter or spirit of the law.19 It is axiomatic that an administrative agency, like the PPA, has no discretion whether to implement the law or not. Its duty is to enforce it. Unarguably, therefore, if there is any conflict between the PPA circular and a law, such as EO 1088, the latter prevails.20

Based on the foregoing, petitioner has no legal basis to refuse payment of pilotage fees to private respondent, as computed according to the rates set by EO 1088. Private respondent cannot be faulted for relying on the clear and unmistakable provisions of EO 1088. In fact, EO 1088 leaves no room for interpretation, thereby unmistakably showing the duplicity of petitioners query: Is the private respondent vested with power to interpret Executive Order No. 1088?

WHEREFORE, the petition is hereby DENIED and the assailed Decision of the Court of Appeals is AFFIRMED. Costs against petitioner.

SO ORDERED.

Davide Jr. (Chairman), Bellosillo, Vitug, and Quisumbing JJ., concur.









Baguio City

THIRD DIVISION

G.R. No. 126620 April 17, 2002

PRODUCERS BANK OF THE PHILIPPINES, petitioner, vs.HONORABLE COURT OF APPEALS, ASIA TRUST DEVELOPMENT BANK, RAINELDA A. ANDREWS, SAMSON FLORES, ALFONSO LEONG, JR., RHODORA D. LANDRITO, JOSEPH CHUA, RAMON YU, EDUARDO G. ESCOBAR, MILAGROS B. NAYVE, ELIZABETH C. GARCIA, ALBERTO LIMJOCO, SR., GLORIA E. MENPIN and ESPERANZA FLORENDO, respondents.

CARPIO, J.:

The Case

In this Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, petitioner Producer’s Bank of the Philippines ("petitioner" for brevity) assails the September 19, 1996 Resolution1 of the Court of Appeals in CA-G.R. CV No. 50016 which dismissed petitioner’s appeal for being filed out of time. The Court of Appeals decreed thus:

"WHEREFORE, finding the Motion to Dismiss Appeal to be meritorious, the same is granted. The appeal is DISMISSED.

SO ORDERED."2

The Antecedent Facts

On March 29, 1988, petitioner through its former counsel, Atty. Antonio M. Pery, filed a Complaint to recover the sum of P11,420,000.00 from Asia Trust Development Bank ("Asiatrust" for brevity) and the Central Bank of the Philippines ("CBP" for brevity) before the Regional Trial Court of Makati, Branch 147 ("RTC" for brevity). Thereafter, petitioner filed an amended complaint, impleading additional defendants.3

Petitioner sought to recover the proceeds of several treasury bills amounting to P11,420,000.00. According to petitioner, said proceeds were fraudulently credited to the demand deposit account of Asiatrust with the CBP and withdrawn by Milagros B. Nayve, Elizabeth C. Garcia and Alberto Limjoco, Sr.

It appears that petitioner owned several treasury bills. On the respective maturity dates of these bills, petitioner caused these bills to be delivered to the CBP. The bills were initially received by Manuel B. Ala, petitioner’s rediscounting clerk together with a letter of transmittal and a receipt for the bills addressed to the CBP. Mr. Ala turned over the bills together with the accompanying documents to Rogelio Carrera for delivery to the CBP. Alberto Limjoco, Sr., Elizabeth C. Garcia and Milagros B. Nayve4 came into possession of these bills which they in turn delivered to Rainelda A. Andrews and Rhodora B. Landrito5. Petitioner alleged that Andrews and Landrito failed to ascertain the lawful ownership of the bills, and caused their transmittal and delivery to the CBP, through a letter signed by Eduardo G. Escobar and Alfonso Leong, Jr..6 The proceeds of the bills were credited to the account of Asiatrust which approved the manager’s check applications and facilitated payment to the bearers of the bills. Petitioner discovered that the proceeds of the bills were not credited to its demand deposit account with the CBP. Upon such discovery, petitioner informed the CBP which furnished petitioner with a copy of the acknowledgment from Asiatrust of receipt of the bills and that the proceeds were credited to the account of Asiatrust. Petitioner claimed that Rainelda A. Andrews, Samson Flores, Alfonso Leong, Jr., Rhodora D. Landrito, Joseph Chua, Ramon Yu and Eduardo G. Escobar were negligent in the performance of their duties and responsibilities as officers of Asiatrust as they failed to exercise reasonable care and caution to determine the true ownership of the bills before allowing the proceeds to be paid to Milagros B. Nayve, Elizabeth C. Garcia and Alberto

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Limjoco, Sr. Petitioner sought to hold Asiatrust solidarily liable with the other defendants for the payment of the value of the treasury bills and for damages. Subsequently, the complaint was dismissed as against the CBP on motion of petitioner on the ground that the latter had lifted petitioner’s conservatorship and allowed the return of the management and assets to petitioner’s Board of Directors. The CBP’s lifting of the conservatorship was conditioned upon petitioner’s dropping of all its cases pending against the CBP.

The defendants filed their respective Answers, after which the issues were joined and trial on the merits ensued.

On August 30, 1993, the law firm of Quisumbing, Torres and Evangelista ("QTE" for brevity) entered its appearance for petitioner in substitution of Atty. Antonio M. Pery.

Petitioner’s handling counsel, Atty. Alvin Agustin T. Ignacio ("Atty. Ignacio" for brevity) of QTE arrived late during the hearing held on May 17, 1995. On motion of Asiatrust’s counsel, the RTC issued an Order on the same day dismissing the case for lack of interest to prosecute.

On June 9, 1995, Atty. Ignacio filed a motion to reconsider the Order dated May 17, 1995, explaining that his late arrival at the hearing was due to the unexpected heavy traffic at Roxas Boulevard in front of Baclaran Church. He also offered his apologies to the RTC for his unintended tardiness. QTE received a copy of the Order dated August 1, 1995 denying the motion for reconsideration on August 11, 1995. At that time, Atty. Ignacio was indisposed for allegedly suffering from "fatigue and stress". It was only on August 25, 1995 that Atty. Ignacio found out that the Order denying the motion for reconsideration was received by the law firm on August 11, 1995. He filed a Notice of Appeal on August 25, 1995.

On November 13, 1995, Asiatrust, et al. filed a Motion to Dismiss Appeal with the Court of Appeals. On March 8, 1996, QTE filed its Comment to the Motion to Dismiss Appeal.

In the Resolution dated September 19, 1996, the Court of Appeals granted the motion to dismiss petitioner’s appeal.

Ruling of the Court of Appeals

In granting the motion to dismiss appeal, the Court of Appeals held in part:

"xxx. We hold that the failure of plaintiff-appellant to file the Notice of Appeal on time was inexcusable negligence. These are the reasons:

One. In paragraph 7.28 of the Comment (to the Motion to Dismiss), plaintiff-appellant states that –

"On 11 August 1995 at 3:00 pm., plaintiff-appellant received a copy of the Order dated 1 August 1995 denying its motion for reconsideration of the dismissed order."

Since, the last day for plaintiff-appellant to file the Notice of Appeal was August 12, 1995, why did it not file the Notice of Appeal right away considering that its preparation and mailing could not take two hours? If counsel for plaintiff-appellant did not take advantage of the two remaining office hours on August 11, 1995, why did it not file the Notice of Appeal at anytime, the following day, August 12? In failing to do that, the law firm counsel was guilty of gross and inexcusable negligence.

TWO. If the counsel for plaintiff-appellant did not know that the last day to file the Notice of Appeal was on August 12, 1995, why did it not ask the handling lawyer about it? There was no impediment to do that because the handling lawyer was not comatose. The counsel was inexcusably negligent for failing to make that inquiry.

THREE. The handling lawyer knew that if the Motion for Reconsideration would be denied – as in fact it was – he would have only a day after receipt of the order of denial to file a notice of appeal. Why did he not forewarn his law firm about such fact so that even in his absence, the latter could file said notice? Assuming that the handling lawyer was really sick, his ailment which was allegedly just "fatigue and stress" was not at all serious much less incapacitating. In fact he was not even hospitalized for he was just advised to rest for at least two weeks. With all the communication facilities in Metro-Manila, there was no reason for said counsel – even if sick – not to have gotten in touch with his law firm to check on the result of his Motion for Reconsideration. It was, therefore, inexcusable negligence for him to have failed doing that which an ordinarily prudent lawyer would have done.

The inexcusable negligence of plaintiff-appellant’s counsel is made more glaring by the fact that the Notice of Appeal was late not only by 2 or 4 days but all of 13 days.1âwphi1.nêt

We are not unaware of the rule that technicality should not smother the right of a litigant to a day in court. But the Supreme Court instructs us that strict adherence to reglementary periods fixed in the Rules of Court is necessary to ensure the efficient and orderly disposition of cases (Panes v. Court of Appeals, 120 SCRA 509). We cannot also close Our eyes to the rule that perfecting an appeal within the period permitted by law is not only mandatory but jurisdictional and the failure to perfect the appeal on time renders the judgment of the court final and executory. (Bank of America, Gerochi, Jr. 230 SCRA 9; Philippine Commercial International Bank v. Court of Appeals, 229 SCRA 560). Well rooted is the principle that once a decision becomes final the appellate court is without jurisdiction to entertain the appeal (Sumbillo v. IAC, 165 SCRA 232; Hensy Zoilo Llido v. Marquez, 166 SCRA 61)."

Hence, the instant petition.

The Issue

Petitioner now comes before us with the following assignment of error:

THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE ACTS OF PETITIONER’S PREVIOUS COUNSEL, QUISUMBING, TORRES AND EVANGELISTA, SHOULD BIND THE PETITIONER, DESPITE THE FINDINGS IN ITS RESOLUTION THAT THE LAW FIRM COUNSEL WAS GROSSLY AND INEXCUSABLY NEGLIGENT.

The threshold issue in this petition for review on certiorari is whether the Court of Appeals erred in dismissing an appeal that was filed 13 days late despite its own findings that petitioner’s counsel was grossly negligent.

Petitioner argues that a client should not be bound by counsel’s gross and inexcusable negligence. Petitioner admits that its handling counsel, Atty. Ignacio of QTE, committed two blunders: first, he failed to arrive on time during one of the hearings allegedly due to the traffic at Roxas Boulevard in front of Baclaran Church; second, he failed to file the notice of appeal within the reglementary period due to "fatigue and stress". Petitioner further admits that Atty. Ignacio offered a "flimsy excuse" for his tardiness and an "out of this world excuse" for his failure to file the notice of appeal on time. Petitioner, however, submits that such gross negligence and mistake of counsel should not bind the client in line with the case of Legarda vs. Court of Appeals.7 Petitioner enumerates the similarities between the Legarda case and its own, as follows:

"First, like the petitioner in the Legarda case, petitioner herein was not negligent in choosing a counsel to represent them in the case. The former engaged the services of former law school dean, Dean Antonio Coronel, while the latter engaged the service of the well known and reputable law firm, Quisumbing, Torres and Evangelista which is associated with Baker and McKenzie of the United States, as counsels to their respective cases.

In fact, the diligence of petitioner can be shown by the fact that it even replaced it’s first counsel, Atty. Antonio Pery in favor of Quisumbing, Torres and Evangelista, hoping that by hiring the services of that law firm the case would be handled better and would have a better chance of winning. Unfortunately, such hope was dampened by the gross negligence and blunders committed by the law firm.

Second, just like in the case of Legarda, the previous counsel of the petitioner committed two blunders. In the case of the former, counsel failed to file an answer in the trial court and failed to timely appeal the case to the appellate courts, while in the latter case, counsel caused the dismissal of the case by arriving late at the trial date and also by failing to timely perfect an appeal to the Court of Appeals.

Third, in both cases the Court of Appeals has found that both counsels committed negligence. The only difference would be that in the case of Legarda, the Court of Appeals only held that there was only pure and simple negligence on the part of Dean Antonio Coronel, while in the case at bar, the Court of Appeals found that there was gross and inexcusable negligence on the part of Quisumbing, Torres and Evangelista Law Firm.

Thus, the Court of Appeals committed an error in stating that: "The plaintiff appellant has to bite the bullet for it cannot shake itself of the inexcusable negligence of its counsel" (Alabanza. vs. Intermediate Appellate Court, 204 SCRA 304), because of it’s


own findings that there was a gross and inexcusable negligence on the part of the previous counsel. The applicable decision of the Supreme Court to the case at bar should be the case of Legarda vs. Court of Appeals. (195 SCRA 418)."

The Court’s Ruling

The petition is bereft of merit. We uphold the dismissal of the appeal by the Court of Appeals.

The general rule is that a client is bound by the acts, even mistakes, of his counsel in the realm of procedural technique. The exception to this rule is when the negligence of counsel is so gross, reckless and inexcusable that the client is deprived of his day in court. In which case, the remedy then is to reopen the case and allow the party who was denied his day in court to adduce his evidence.8 However, a thorough review of the instant case reveals that petitioner cannot seek refuge or obtain reprieve under these principles.

Legarda case is not applicable

Petitioner’s reliance on the Legarda case which was promulgated on March 18, 1991 is clearly misplaced. In said case, the Court declared that petitioner’s counsel, Atty. Antonio Coronel, a well-known practicing lawyer and dean of a law school, committed not just ordinary or simple negligence, but reckless and gross negligence which deprived his client of her property without due process of law. According to the Legarda decision-

"xxx, the negligence of the then counsel for petitioner when he failed to file the proper motion to dismiss or to draw a compromise agreement if it was true that they agreed on a settlement of the case; or in simply filing an answer; and that after having been furnished a copy of the decision by the court he failed to appeal therefrom or to file a petition for relief from the order declaring petitioner in default."9

was so gross and inexcusable that it should not bind his client. The Court declared that the counsel’s acts or omissions "consigned (the client) to penury" because "her lawyer appeared to have abandoned her case not once but repeatedly." The Court noted that counsel’s "lack of devotion to duty is so gross and palpable that this Court must come to the aid of his distraught client." Thus, the Court held as null and void the decisions of the trial and appellate courts against Atty. Coronel’s client and ordered, among other things, the reconveyance of the property in her favor.

However, the decision in said case was not yet final in 1991. The private respondent therein filed a timely motion for reconsideration. In granting the motion for reconsideration, the Court en banc held:

"Under the Gancayco ruling, the order of reconveyance was premised on the alleged gross negligence of Legarda’s counsel which should not be allowed to bind her as she was deprived of her property `without due process of law.’

It is, however, basic that as long as a party was given the opportunity to defend her interests in due course, she cannot be said to have been denied due process of law, for this opportunity to be heard is the very essence of due process. The chronology of events shows that the case took its regular course in the trial and appellate courts but Legarda’s counsel failed to act as any ordinary counsel should have acted, his negligence every step of the way amounting to "abandonment, " in the words of the Gancayco decision. Yet, it cannot be denied that the proceedings which led to the filing of this case were not attended by any irregularity. The judgment by default was valid, so was the ensuing sale at public auction. If Cabrera was adjudged highest bidder in said auction sale, it was not through any machination on his part. All of his actuations that led to the final registration of the title in his name were aboveboard, untainted by any irregularity."

x x x

Neither Cathay nor Cabrera10 should be made to suffer for the gross negligence of Legarda’s counsel. If she may be said to be "innocent" because she was ignorant of the acts of negligence of her counsel, with more reason are respondents truly "innocent." As between two parties who may lose due to the negligence or incompetence of the counsel of one, the party who was responsible for making it happen should suffer the consequences. This reflects the basic common law maxim, so succinctly stated by Justice J.B.L. Reyes, that ". . . (B)etween two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss." In this case, it was not respondents, but Legarda, who misjudged and




hired the services of the lawyer who practically abandoned her case and who continued to retain him even after his proven apathy and negligence.

The Gancayco decision makes much of the fact that Legarda is now "consigned to penury" and, therefore, this Court "must come to the aid of the distraught client." It must be remembered that this Court renders decisions, not on the basis of emotions but on its sound judgment, applying the relevant, appropriate law. Much as it may pity Legarda, or any losing litigant for that matter, it cannot play the role of a "knight in shining armor" coming to the aid of someone, who through her weakness, ignorance or misjudgment may have been bested in a legal joust which complied with all the rules of legal proceedings."

In sum, the court did not relieve the client from the consequences of her counsel’s negligence and mistakes considering that she was given an opportunity to defend her interests in due course. Certainly, it cannot be said that she was denied due process. Consequently, the Legarda case does not support petitioner’s cause.

No Denial of Due Process

Contrary to petitioner’s stance, the Legarda case supports the view that petitioner was not denied its day in court. The Constitution mandates that "(n)o person shall be deprived of life, liberty, or property without due process of law x x x ."11 The right to due process of law has been interpreted to mean as follows:

"The essence of due process is to be found in the reasonable opportunity to be heard and submit any evidence one may have in support of one’s defense. `To be heard' does not mean only verbal arguments in court; one may be heard also through pleadings. Where opportunity to be heard, either through oral arguments or pleadings, is accorded, there is no denial of due process." 12 (Emphasis supplied)

Verily, so long as a party is given the opportunity to advocate her cause or defend her interest in due course, it cannot be said that there was denial of due process. In petitioner’s case as in the Legarda case, the chronology of events shows that the case took its regular course in the trial court.

On December 8, 1992, petitioner presented its first witness, Mr. Manuel B. Ala, the Accounting Clerk of its Accounting Department. He was cross-examined by CBP, Nayve and Garcia on February 10, 1993. On March 1, 1993, petitioner presented its second witness, Ms. Josie Fernandez, the Security Custodian of its Treasury Bills. On July 5, 1993, petitioner presented its third witness, Atty. Leopoldo Cotaco, head of its Department of Security and Internal Affairs. At this hearing, only counsels of Nayve and Garcia were present. The counsels of CBP and Asiatrust were absent. On August 25, 1993, the direct testimony of Atty. Leopoldo Cotaco was terminated. On August 30, 1993, QTE entered its appearance in substitution of Atty. Antonio M. Pery. On September 8, 1993, QTE moved for the postponement of the cross-examination of Atty. Cotaco since it had only recently entered its appearance. On September 16, 1993, petitioner moved to dismiss the complaint against CBP on the ground that the latter had lifted the conservatorship and allowed the return of the management and assets to petitioner’s Board of Directors. The motion was granted in an Order dated September 28, 1993. The hearings on November 17 and 24, 1993 were postponed upon petitioner’s motion since former counsel, Atty. Antonio M. Pery, refused to turn over the records and files of the case due to a dispute over legal fees. The hearings were reset to February 21 and March 9 and 16, 1994. On February 18, 1994, petitioner again moved that the hearing scheduled on February 21, 1994 be reset for the same reason. The hearings on March 9 and 16, 1994 were likewise postponed due to former counsel’s adamant refusal to turn over the files. The hearings were reset to May 18 and 25, 1994. By May 18, 1994, petitioner’s former counsel still refused to turn over the files of the case, prompting petitioner to request for another postponement. The hearings were reset to July 6, 20 and August 15, 1994. The hearing scheduled on July 6, 1994 was postponed on the ground that there was no proof of service of the notice of hearing to counsels for the defendants. The hearing scheduled on July 20, 1994 was postponed by Asiatrust on the ground that its counsel was not available for said hearing. The hearings were reset to August 31 and September 19, 1994. The hearing scheduled on August 15, 1994 was cancelled. The hearing on August 31, 1994 was reset to September 19, 1995 because there was no proof of service of the notice of hearing on counsels. The hearing on September 19, 1994 was also reset to November 21, 1994 for lack of proof that the contending counsels received the notice of hearing for said date. On November 16, 1994, Asiatrust filed an urgent motion to postpone the hearing on November 21, 1994, due to unavailability of its counsel. Consequently, the hearings were reset to January 30 and February 15, 1995. However, the hearing on said dates were cancelled since the presiding judge was indisposed, and reset to May 17, 1995. As mentioned earlier, petitioner’s handling lawyer, Atty. Ignacio of QTE arrived late during the hearing on May 17, 1995 allegedly due to the unexpectedly heavy



traffic on Roxas Boulevard in front of Baclaran Church. On motion of Asiatrust’s counsel, the trial court issued the Order dismissing the case for lack of interest to prosecute.

Upon said dismissal, petitioner’s counsel filed a timely motion for reconsideration. The same was denied by the trial court. However, it must be emphasized that petitioner was not left without any relief. Upon the denial thereof, the situation could have been easily remedied by filling a notice of appeal within the reglementary period13 considering that a dismissal for failure to prosecute is an adjudication on the merits.14 As correctly pointed out by Asiatrust, all that is required is a singled-paged, pro forma notice of appeal, the accomplishment of which does not require a high degree of legal skill. Despite this, counsel failed to file its notice of appeal on time and the proffered excuse that he was suffering from "stress and fatigue" while highly unacceptable, does not amount to gross, palpable, pervasive and reckless negligence so as to deprive counsel’s client its day in court. As the proceedings in the trial court all the way up to the appellate court would show, petitioner was not deprived of due process.

Indeed, by failing to file its appeal within the reglementary period, it could not be successfully argued that petitioner was deprived of its day in court.

Time and again it has been held that the right to appeal is not a natural right or a part of due process, it is merely a statutory privilege, and may be exercised only in the manner and in accordance with the provisions of the law.15 The party who seeks to avail of the same must comply with the requirements of the rules.16 Failing to do so, the right to appeal is lost.17

The Court has had several occasions to hold that "rules of procedure, especially those prescribing the time within which certain acts must be done, have oft been held as absolutely indispensable to the prevention of needless delays and to the orderly and speedy discharge of business. The reason for rules of this nature is because the dispatch of business by courts would be impossible, and intolerable delays would result, without rules governing practice. Such rules are a necessary incident to the proper, efficient and orderly discharge of judicial functions. Thus, we have held that the failure to perfect an appeal within the prescribed reglementary period is not a mere technicality, but jurisdictional.18

Neither could petitioner plead leniency in the application of the rules considering that the period to appeal is prescribed not only by the Rules of Court but also by statute, particularly Sec. 39 of Batas Pambansa Blg. 129 which provides –

Sec. 39. Appeals. – The period for appeal from final orders, resolutions, awards, judgments, or decisions of any court in all cases shall be fifteen (15) days counted from the notice of the final order, resolution, award, judgment, or decision appealed from: Provided, however, That habeas corpus, the period for appeal shall be forty-eight (48) hours from the notice of the judgment appealed from x x x x

Clearly, the perfection of an appeal in the manner and within the period prescribed by law is not only mandatory but jurisdictional, and failure to perfect an appeal has the effect of rendering the judgment final and executory. Public policy and sound practice demand that judgments of courts should become final and irrevocable at some definite date fixed by law."19

Counsel for petitioner committed simple negligence

We also find that the negligence of the law firm engaged by the petitioner to litigate its cause was not gross but simple negligence. Petitioner capitalizes on the following "blunders" of the law firm to establish gross negligence: (1) arriving late during the hearing on May 17, 1995 and (2) filing the notice of appeal thirteen (13) days late. Tardiness is plain and simple negligence. On the other hand, counsel’s failure to file the notice of appeal within the reglementary period did not deprive petitioner of due process of law.1âwphi1.nêt

We also do not miss the fact that petitioners were represented by a law firm which meant that any of its members could lawfully act as their counsel during the trial."20 As such, "[w]hen a client employs the services of a law firm, he does not employ the services of the lawyer who is assigned to personally handle the case. Rather, he employs the entire law firm. In the event that the counsel appearing for the client resigns, the firm is bound to provide a replacement."21 Petitioner cannot now complain of counsel’s errors. It has been held that "[l]itigants, represented by counsel, should not expect that all they need to do is sit back, relax and await the outcome of their case. x x x22." Especially in this case, where petitioner has a legal department to monitor its pending cases and to liaise with its retained counsel. To agree with petitioner’s stance would enable every party to render inutile any adverse order or decision through the simple expedient of alleging gross negligence on the part of its counsel. The Court will not countenance such a farce which contradicts long-settled doctrines of trial and procedure.23












Hence, there is no justifiable reason to exempt petitioner from the general rule that clients should suffer the consequences of the negligence, mistake or lack of competence of the counsel whom they themselves hired and had the full authority to fire at any time and replace with another even without any justifiable reason.24

In sum, this is not a case where the negligence of counsel is one that is so gross, palpable, pervasive and reckless which is the type of negligence that deprives a party of his or her day in court. For this reason, the Court need no longer concern itself with the merits of petitioner’s causes of action nor consider the propriety of the dismissal of the case by the trial court for lack of interest to prosecute. The Court is bound by the trial court’s judgment which had become final and executory due to the simple negligence of the petitioner’s counsel in allowing the reglementary period to lapse without perfecting the appeal.

WHEREFORE, there being no reversible error committed by the Court of Appeals, the petition for review on certiorari is DENIED and the assailed Resolution dated September 19, 1996 dismissing the appeal is AFFIRMED.

SO ORDERED.

Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.Melo, J., Abroad, on official leave.


FIRST DIVISION

G.R. No. 146364. June 3, 2004

COLITO T. PAJUYO, Petitioner, v. COURT OF APPEALS and EDDIE GUEVARRA, respondents.

D E C I S I O N

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;

http://www.chanrobles.com/scdecisions/jurisprudence2004/jun2004/146364.php#_ftn6






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 Resolution9 referring the motion for extension to the Court of Appeals which has concurrent jurisdiction over the case. The case presented no special and important matter for the Supreme Court to take cognizance of at the first instance.

On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution10 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 Pajuyos motion for reconsideration. The dispositive portion of the resolution reads:

WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.

SO ORDERED.12

The Ruling of the MTC

The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the house and not the lot. Pajuyo is the owner of the house, and he allowed Guevarra to use the house only by tolerance. Thus, Guevarras refusal to vacate the house on Pajuyos demand made Guevarras continued possession of the house illegal.







The Ruling of the RTC

The RTC upheld the Kasunduan, which established the landlord and tenant relationship between Pajuyo and Guevarra. The terms of the Kasunduan bound Guevarra to return possession of the house on demand.

The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the Revised National Government Center Housing Project Code of Policies and other pertinent laws. In an ejectment suit, the RTC has no power to decide Guevarras rights under these laws.The RTC declared that in an ejectment case, the only issue for resolution is material or physical possession, not ownership.

The Ruling of the Court of Appeals

The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and Guevarra illegally occupied the contested lot which the government owned.

Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had no right or title over the lot because it is public land. The assignment of rights between Perez and Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did not have any legal effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The court will leave them where they are.

The Court of Appeals reversed the MTC and RTC rulings, which held that the Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a landlord and tenant relationship. The Court of Appeals ruled that the Kasunduan is not a lease contract but a commodatum because the agreement is not for a price certain.

Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate court held that Guevarra has a better right over the property under Proclamation No. 137. President Corazon C. Aquino (President Aquino) issued Proclamation No. 137 on 7 September 1987. At that time, Guevarra was in physical possession of the property. Under Article VI of the Code of Policies Beneficiary Selection and Disposition of Homelots and Structures in the National Housing Project (the Code), the actual occupant or caretaker of the lot shall have first priority as beneficiary of the project. The Court of Appeals concluded that Guevarra is first in the hierarchy of priority.

In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claim that Guevarra filed his motion for extension beyond the period to appeal.

The Court of Appeals pointed out that Guevarras motion for extension filed before the Supreme Court was stamped 13 December 1996 at 4:09 PM by the Supreme Courts Receiving Clerk. The Court of Appeals concluded that the motion for extension bore a date, contrary to Pajuyos claim that the motion for extension was undated. Guevarra filed the motion for extension on time on 13 December 1996 since he filed the motion one day before the expiration of the reglementary period on 14 December 1996. Thus, the motion for extension properly complied with the condition imposed by the Court of Appeals in its 28 January 1997 Resolution. The Court of Appeals explained that the thirty-day extension to file the petition for review was deemed granted because of such compliance.

The Court of Appeals rejected Pajuyos argument that the appellate court should have dismissed the petition for review because it was Guevarras counsel and not Guevarra who signed the certification against forum-shopping. The Court of Appeals pointed out that Pajuyo did not raise this issue in his Comment. The Court of Appeals held that Pajuyo could not now seek the dismissal of the case after he had extensively argued on the merits of the case.This technicality, the appellate court opined, was clearly an afterthought.

The Issues

Pajuyo raises the following issues for resolution:

WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:

1) in GRANTING, instead of denying, Private Respondents Motion for an Extension of thirty days to file petition for review at the time when there was no more period to extend as the decision of the Regional Trial Court had already become final and executory.

2) in giving due course, instead of dismissing, private respondents Petition for Review even though the certification against forum-shopping was signed only by counsel instead of by petitioner himself.3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact a commodatum, instead of a Contract of Lease as found by the Metropolitan Trial Court and in holding that the ejectment case filed against defendant-appellant is without legal and factual basis.4) in reversing and setting aside the Decision of the Regional Trial Court in Civil Case No. Q-96-26943 and in holding that the parties are in pari delicto being both squatters, therefore, illegal occupants of the contested parcel of land.5) in deciding the unlawful detainer case based on the so-called Code of Policies of the National Government Center Housing Project instead of deciding the same under the Kasunduan voluntarily executed by the parties, the terms and conditions of which are the laws between themselves.[13

The Ruling of the Court

The procedural issues Pajuyo is raising are baseless. However, we find merit in the substantive issues Pajuyo is submitting for resolution.

Procedural Issues

Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras petition for review because the RTC decision had already become final and executory when the appellate court acted on Guevarras motion for extension to file the petition. Pajuyo points out that Guevarra had only one day before the expiry of his period to appeal the RTC decision. Instead of filing the petition for review with the Court of Appeals, Guevarra filed with this Court an undated motion for extension of 30 days to file a petition for review. This Court merely referred the motion to the Court of Appeals. Pajuyo believes that the filing of the motion for extension with this Court did not toll the running of the period to perfect the appeal. Hence, when the Court of Appeals received the motion, the period to appeal had already expired.

We are not persuaded.

Decisions of the regional trial courts in the exercise of their appellate jurisdiction are appealable to the Court of Appeals by petition for review in cases involving questions of fact or mixed questions of fact and law.14 Decisions of the regional trial courts involving pure questions of law are appealable directly to this Court by petition for review.15 These modes of appeal are now embodied in Section 2, Rule 41 of the 1997 Rules of Civil Procedure.

Guevarra believed that his appeal of the RTC decision involved only questions of law. Guevarra thus filed his motion for extension to file petition for review before this Court on 14 December 1996. On 3 January 1997, Guevarra then filed his petition for review with this Court. A perusal of Guevarras petition for review gives the impression that the issues he raised were pure questions of law. There is a question of law when the doubt or difference is on what the law is on a certain state of facts.16 There is a question of fact when the doubt or difference is on the truth or falsity of the facts alleged.17

In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarras petition for review raised these questions: (1) Do ejectment cases pertain only to possession of a structure, and not the lot on which the structure stands? (2) Does a suit by a squatter against a fellow squatter constitute a valid case for ejectment?(3) Should a Presidential Proclamation governing the lot on which a squatters structure stands be considered in an ejectment suit filed by the owner of the structure?

These questions call for the evaluation of the rights of the parties under the law on ejectment and the Presidential Proclamation. At first glance, the questions Guevarra raised appeared purely legal. However, some factual questions still have to be resolved because they have a bearing on the legal questions raised in the petition for review.These factual matters refer to the metes and bounds of the disputed property and the application of Guevarra as beneficiary of Proclamation No. 137.

The Court of Appeals has the power to grant an extension of time to file a petition for review. In Lacsamana v. Second Special Cases Division of the Intermediate Appellate Court,18 we declared that the Court of Appeals could grant extension of time in appeals by petition for review. In Liboro v. Court of Appeals,19 we clarified that the prohibition against granting an extension of time applies only in a case where ordinary appeal is perfected by a








mere notice of appeal. The prohibition does not apply in a petition for review where the pleading needs verification. A petition for review, unlike an ordinary appeal, requires preparation and research to present a persuasive position.20 The drafting of the petition for review entails more time and effort than filing a notice of appeal.21 Hence, the Court of Appeals may allow an extension of time to file a petition for review.

In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,22 we held that Liboros clarification of Lacsamana is consistent with the Revised Internal Rules of the Court of Appeals and Supreme Court Circular No. 1-91. They all allow an extension of time for filing petitions for review with the Court of Appeals. The extension, however, should be limited to only fifteen days save in exceptionally meritorious cases where the Court of Appeals may grant a longer period.

A judgment becomes final and executory by operation of law. Finality of judgment becomes a fact on the lapse of the reglementary period to appeal if no appeal is perfected.23 The RTC decision could not have gained finality because the Court of Appeals granted the 30-day extension to Guevarra.

The Court of Appeals did not commit grave abuse of discretion when it approved Guevarras motion for extension. The Court of Appeals gave due course to the motion for extension because it complied with the condition set by the appellate court in its resolution dated 28 January 1997. The resolution stated that the Court of Appeals would only give due course to the motion for extension if filed on time. The motion for extension met this condition.

The material dates to consider in determining the timeliness of the filing of the motion for extension are (1) the date of receipt of the judgment or final order or resolution subject of the petition, and (2) the date of filing of the motion for extension.24 It is the date of the filing of the motion or pleading, and not the date of execution, that determines the timeliness of the filing of that motion or pleading. Thus, even if the motion for extension bears no date, the date of filing stamped on it is the reckoning point for determining the timeliness of its filing.

Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed his motion for extension before this Court on 13 December 1996, the date stamped by this Courts Receiving Clerk on the motion for extension. Clearly, Guevarra filed the motion for extension exactly one day before the lapse of the reglementary period to appeal.

Assuming that the Court of Appeals should have dismissed Guevarras appeal on technical grounds, Pajuyo did not ask the appellate court to deny the motion for extension and dismiss the petition for review at the earliest opportunity. Instead, Pajuyo vigorously discussed the merits of the case. It was only when the Court of Appeals ruled in Guevarras favor that Pajuyo raised the procedural issues against Guevarras petition for review.

A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision on the merits, is estopped from attacking the jurisdiction of the court.25 Estoppel sets in not because the judgment of the court is a valid and conclusive adjudication, but because the practice of attacking the courts jurisdiction after voluntarily submitting to it is against public policy.26

In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure to sign the certification against forum shopping. Instead, Pajuyo harped on Guevarras counsel signing the verification, claiming that the counsels verification is insufficient since it is based only on mere information.

A partys failure to sign the certification against forum shopping is different from the partys failure to sign personally the verification. The certificate of non-forum shopping must be signed by the party, and not by counsel.27 The certification of counsel renders the petition defective.28

On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional requisite.29 It is intended simply to secure an assurance that what are alleged in the pleading are true and correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in good faith.30 The party need not sign the verification. A partys representative, lawyer or any person who personally knows the truth of the facts alleged in the pleading may sign the verification.31

We agree with the Court of Appeals that the issue on the certificate against forum shopping was merely an afterthought. Pajuyo did not call the Court of Appeals attention to this defect at the early stage of the proceedings. Pajuyo raised this procedural issue too late in the proceedings.













Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve the Issue of Possession

Settled is the rule that the defendants claim of ownership of the disputed property will not divest the inferior court of its jurisdiction over the ejectment case.32 Even if the pleadings raise the issue of ownership, the court may pass on such issue to determine only the question of possession, especially if the ownership is inseparably linked with the possession.33 The adjudication on the issue of ownership is only provisional and will not bar an action between the same parties involving title to the land.34 This doctrine is a necessary consequence of the nature of the two summary actions of ejectment, forcible entry and unlawful detainer, where the only issue for adjudication is the physical or material possession over the real property.35

In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of the contested property and that they are mere squatters. Will the defense that the parties to the ejectment case are not the owners of the disputed lot allow the courts to renounce their jurisdiction over the case?The Court of Appeals believed so and held that it would just leave the parties where they are since they are in pari delicto.

We do not agree with the Court of Appeals.

Ownership or the right to possess arising from ownership is not at issue in an action for recovery of possession.The parties cannot present evidence to prove ownership or right to legal possession except to prove the nature of the possession when necessary to resolve the issue of physical possession.36 The same is true when the defendant asserts the absence of title over the property. The absence of title over the contested lot is not a ground for the courts to withhold relief from the parties in an ejectment case.

The only question that the courts must resolve in ejectment proceedings is - who is entitled to the physical possession of the premises, that is, to the possession de facto and not to the possession de jure.37 It does not even matter if a partys title to the property is questionable,38 or when both parties intruded into public land and their applications to own the land have yet to be approved by the proper government agency.39 Regardless of the actual condition of the title to the property, the party in peaceable quiet possession shall not be thrown out by a strong hand, violence or terror.40 Neither is the unlawful withholding of property allowed. Courts will always uphold respect for prior possession.

Thus, a party who can prove prior possession can recover such possession even against the owner himself.41 Whatever may be the character of his possession, if he has in his favor prior possession in time, he has the security that entitles him to remain on the property until a person with a better right lawfully ejects him.42 To repeat, the only issue that the court has to settle in an ejectment suit is the right to physical possession.

In Pitargue v. Sorilla,43 the government owned the land in dispute. The government did not authorize either the plaintiff or the defendant in the case of forcible entry case to occupy the land. The plaintiff had prior possession and had already introduced improvements on the public land.The plaintiff had a pending application for the land with the Bureau of Lands when the defendant ousted him from possession. The plaintiff filed the action of forcible entry against the defendant. The government was not a party in the case of forcible entry.

The defendant questioned the jurisdiction of the courts to settle the issue of possession because while the application of the plaintiff was still pending, title remained with the government, and the Bureau of Public Lands had jurisdiction over the case. We disagreed with the defendant. We ruled that courts have jurisdiction to entertain ejectment suits even before the resolution of the application. The plaintiff, by priority of his application and of his entry, acquired prior physical possession over the public land applied for as against other private claimants. That prior physical possession enjoys legal protection against other private claimants because only a court can take away such physical possession in an ejectment case.

While the Court did not brand the plaintiff and the defendant in 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 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 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 Code48 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 re-claiming his prior possession at all cost.

Petty warfare over possession of properties is precisely what ejectment cases or actions for recovery of possession seek to prevent.53 Even the owner who has title over the disputed property cannot take the law into his own hands to regain possession of his property. The owner must go to court.

Courts must resolve the issue of possession even if the parties to the ejectment suit are squatters. The determination of priority and superiority of possession is a serious and urgent matter that cannot be left to the squatters to decide. To do so would make squatters receive better treatment under the law. The law restrains property owners from taking the law into their own hands. However, the principle of pari delicto as applied by the Court of Appeals would give squatters free rein to dispossess fellow squatters or violently retake possession







of properties usurped from them. Courts should not leave squatters to their own devices in cases involving recovery of possession.

Possession is the only Issue for Resolution in an Ejectment Case

The case for review before the Court of Appeals was a simple case of ejectment. The Court of Appeals refused to rule on the issue of physical possession. Nevertheless, the appellate court held that the pivotal issue in this case is who between Pajuyo and Guevarra has the priority right as beneficiary of the contested land under Proclamation No. 137.54 According to the Court of Appeals, Guevarra enjoys preferential right under Proclamation No. 137 because Article VI of the Code declares that the actual occupant or caretaker is the one qualified to apply for socialized housing.

The ruling of the Court of Appeals has no factual and legal basis.

First. Guevarra did not present evidence to show that the contested lot is part of a relocation site under Proclamation No. 137. Proclamation No. 137 laid down the metes and bounds of the land that it declared open for disposition to bona fide residents.

The records do not show that the contested lot is within the land specified by Proclamation No. 137. Guevarra had the burden to prove that the disputed lot is within the coverage of Proclamation No. 137. He failed to do so.

Second. The Court of Appeals should not have given credence to Guevarras unsubstantiated claim that he is the beneficiary of Proclamation No. 137. Guevarra merely alleged that in the survey the project administrator conducted, he and not Pajuyo appeared as the actual occupant of the lot.

There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137. Pajuyo allowed Guevarra to occupy the disputed property in 1985.President Aquino signed Proclamation No. 137 into law on 11 March 1986. Pajuyo made his earliest demand for Guevarra to vacate the property in September 1994.

During the time that Guevarra temporarily held the property up to the time that Proclamation No. 137 allegedly segregated the disputed lot, Guevarra never applied as beneficiary of Proclamation No. 137. Even when Guevarra already knew that Pajuyo was reclaiming possession of the property, Guevarra did not take any step to comply with the requirements of Proclamation No. 137.

Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and Guevarra has a pending application over the lot, courts should still assume jurisdiction and resolve the issue of possession. However, the jurisdiction of the courts would be limited to the issue of physical possession only.

In Pitargue,55 we ruled that courts have jurisdiction over possessory actions involving public land to determine the issue of physical possession. The determination of the respective rights of rival claimants to public land is, however, distinct from the determination of who has the actual physical possession or who has a better right of physical possession.56 The administrative disposition and alienation of public lands should be threshed out in the proper government agency.57

The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation No. 137 was premature.Pajuyo and Guevarra were at most merely potential beneficiaries of the law. Courts should not preempt the decision of the administrative agency mandated by law to determine the qualifications of applicants for the acquisition of public lands. Instead, courts should expeditiously resolve the issue of physical possession in ejectment cases to prevent disorder and breaches of peace.58

Pajuyo is Entitled to Physical Possession of the Disputed Property

Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house built on it. Guevarra expressly admitted the existence and due execution of the Kasunduan. The Kasunduan reads:

Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing bahay at lote ng walang bayad. Kaugnay nito, kailangang panatilihin nila ang kalinisan at kaayusan ng bahay at lote.

Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.






Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent, but Guevarra was under obligation to maintain the premises in good condition. Guevarra promised to vacate the premises on Pajuyos demand but Guevarra broke his promise and refused to heed Pajuyos demand to vacate.

These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by a person from another of the possession of real property to which the latter is entitled after the expiration or termination of the formers right to hold possession under a contract, express or implied.59

Where the plaintiff allows the defendant to use his property by tolerance without any contract, the defendant is necessarily bound by an implied promise that he will vacate on demand, failing which, an action for unlawful detainer will lie.60 The defendants refusal to comply with the demand makes his continued possession of the property unlawful.61 The status of the defendant in such a case is similar to that of a lessee or tenant whose term of lease has expired but whose occupancy continues by tolerance of the owner.62

This principle should apply with greater force in cases where a contract embodies the permission or tolerance to use the property. The Kasunduan expressly articulated Pajuyos forbearance. Pajuyo did not require Guevarra to pay any rent but only to maintain the house and lot in good condition. Guevarra expressly vowed in the Kasunduan that he would vacate the property on demand. Guevarras refusal to comply with Pajuyos demand to vacate made Guevarras continued possession of the property unlawful.

We do not subscribe to the Court of Appeals theory that the Kasunduan is one of commodatum.

In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it.63 An essential feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a certain period.64 Thus, the bailor cannot demand the return of the thing loaned until after expiration of the period stipulated, or after accomplishment of the use for which the commodatum is constituted.65 If the bailor should have urgent need of the thing, he may demand its return for temporary use.66 If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the contractual relation is called a precarium.67 Under the Civil Code, precarium is a kind of commodatum.68

The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the property in good condition. The imposition of this obligation makes the Kasunduan a contract different from a commodatum.The effects of the Kasunduan are also different from that of a commodatum. Case law on ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant relationship where the withdrawal of permission would result in the termination of the lease.69 The tenants withholding of the property would then be unlawful. This is settled jurisprudence.

Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as bailee would still have the duty to turn over possession of the property to Pajuyo, the bailor. The obligation to deliver or to return the thing received attaches to contracts for safekeeping, or contracts of commission, administration and commodatum.70 These contracts certainly involve the obligation to deliver or return the thing received.71

Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving the land they illegally occupy. Guevarra insists that the contract is void.

Guevarra should know that there must be honor even between squatters. Guevarra freely entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it. The Kasunduan binds Guevarra.

The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to physical possession of the contested property. The Kasunduan is the undeniable evidence of Guevarras recognition of Pajuyos better right of physical possession. Guevarra is clearly a possessor in bad faith. The absence of a contract would not yield a different result, as there would still be an implied promise to vacate.

Guevarra contends that there is a pernicious evil that is sought to be avoided, and that is allowing an absentee squatter who (sic) makes (sic) a profit out of his illegal act.72 Guevarra bases his argument on the preferential right given to the actual occupant or caretaker under Proclamation No. 137 on socialized housing.















We are not convinced.

Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the property without paying any rent. There is also no proof that Pajuyo is a professional squatter who rents out usurped properties to other squatters. Moreover, it is for the proper government agency to decide who between Pajuyo and Guevarra qualifies for socialized housing. The only issue that we are addressing is physical possession.

Prior possession is not always a condition sine qua non in ejectment.73 This is one of the distinctions between forcible entry and unlawful detainer.74 In forcible entry, the plaintiff is deprived of physical possession of his land or building by means of force, intimidation, threat, strategy or stealth. Thus, he must allege and prove prior possession.75 But in unlawful detainer, the defendant unlawfully withholds possession after the expiration or termination of his right to possess under any contract, express or implied. In such a case, prior physical possession is not required.76

Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan.Guevarras transient right to possess the property ended as well. Moreover, it was Pajuyo who was in actual possession of the property because Guevarra had to seek Pajuyos permission to temporarily hold the property and Guevarra had to follow the conditions set by Pajuyo in 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 ones will.78 Actual or physical occupation is not always necessary.79

Ruling on Possession Does not Bind Title to the Land in Dispute

We are aware of our pronouncement in cases where we declared that squatters and intruders who clandestinely enter into titled government property cannot, by such act, acquire any legal right to said property.80 We made this declaration because the person who had title or who had the right to legal possession over the disputed property was a party in the ejectment suit and that party instituted the case against squatters or usurpers.

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

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

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

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

Attorneys Fees and Rentals

The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys fees as part of damages are awarded only in the instances enumerated in Article 2208 of the Civil Code.83 Thus, the award of attorneys fees is the exception rather than the rule.84 Attorneys fees are not awarded every time a party prevails in a suit because of the policy













that no premium should be placed on the right to litigate.85 We therefore delete the attorneys fees awarded to Pajuyo.

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

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

SO ORDERED.

Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.


Manila

FIRST DIVISION

G.R. No. 154878 March 16, 2007

CAROLYN M. GARCIA, Petitioner, vs.RICA MARIE S. THIO, Respondent.

D E C I S I O N

CORONA, J.:

Assailed in this petition for review on certiorari1 are the June 19, 2002 decision2 and August 20, 2002 resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.

Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a crossed check4 dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain Marilou Santiago.5 Thereafter, petitioner received from respondent every month (specifically, on March 24, April 26, June 26 and July 26, all in 1995) the amount of US$3,0006 and P76,5007 on July 26,8 August 26, September 26 and October 26, 1995.

In June 1995, respondent received from petitioner another crossed check9 dated June 29, 1995 in the amount of P500,000, also payable to the order of Marilou Santiago.10 Consequently, petitioner received from respondent the amount of P20,000 every month on August 5, September 5, October 5 and November 5, 1995.11

According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000 and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum of money and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and P500,000, with interest thereon at 4% a month from November 5, 1995, plus attorney’s fees and actual damages.12

Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on October 26, 1995.13 The amount of this loan was covered by the first check. On June 29, 1995, respondent again borrowed the amount of P500,000 at an agreed monthly interest of 4%, the maturity date of which was on November 5, 1995.14 The amount of this loan was covered by the second check. For both loans, no promissory note was executed since petitioner and respondent were close friends at the time.15 Respondent paid the stipulated

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monthly interest for both loans but on their maturity dates, she failed to pay the principal amounts despite repeated demands.161awphi1.nét

Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give the crossed checks to Santiago.17 She issued the checks for P76,000 and P20,000 not as payment of interest but to accommodate petitioner’s request that respondent use her own checks instead of Santiago’s.18

In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.19 It found that respondent borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% and P500,000 at a monthly interest of 4%:20

WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount of:

1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from October 26, 1995 until fully paid;

2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid.

3. P100,000.00 as and for attorney’s fees; and

4. P50,000.00 as and for actual damages.

For lack of merit, [respondent’s] counterclaim is perforce dismissed.

With costs against [respondent].

IT IS SO ORDERED.21

On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan between the parties:

A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that [respondent] indeed borrowed money from her. There is nothing in the record that shows that [respondent] received money from [petitioner]. What is evident is the fact that [respondent] received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount of P500,000.00, again payable to the order of Marilou Santiago, both of which were issued by [petitioner]. The checks received by [respondent], being crossed, may not be encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself.

It must be noted that crossing a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once—to one who has an account with the bank; (c) and the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course.

Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the payee in contemplation of law since the latter is not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither could she be deemed as an agent of Marilou Santiago with respect to the checks because she was merely facilitating the transactions between the former and [petitioner].

With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan that existed between the parties. x x x (emphasis supplied)22

Hence this petition.23

As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual findings of the CA (which held that there were no contracts of loan between petitioner and respondent) and the RTC (which held that there were contracts of loan) are contradictory.24










The petition is impressed with merit.

A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract.25 This is evident in Art. 1934 of the Civil Code which provides:

An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. (Emphasis supplied)

Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount.26

It is undisputed that the checks were delivered to respondent. However, these checks were crossed and payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main question to be answered is: who borrowed money from petitioner — respondent or Santiago?

Petitioner insists that it was upon respondent’s instruction that both checks were made payable to Santiago.27 She maintains that it was also upon respondent’s instruction that both checks were delivered to her (respondent) so that she could, in turn, deliver the same to Santiago.28 Furthermore, she argues that once respondent received the checks, the latter had possession and control of them such that she had the choice to either forward them to Santiago (who was already her debtor), to retain them or to return them to petitioner.29

We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the actual or constructive possession or control of another.30 Although respondent did not physically receive the proceeds of the checks, these instruments were placed in her control and possession under an arrangement whereby she actually re-lent the amounts to Santiago.

Several factors support this conclusion.

First, respondent admitted that petitioner did not personally know Santiago.31 It was highly improbable that petitioner would grant two loans to a complete stranger without requiring as much as promissory notes or any written acknowledgment of the debt considering that the amounts involved were quite big. Respondent, on the other hand, already had transactions with Santiago at that time.32

Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both parties’ list of witnesses) testified that respondent’s plan was for petitioner to lend her money at a monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a higher rate of 5% and realize a profit of 2%.33 This explained why respondent instructed petitioner to make the checks payable to Santiago. Respondent has not shown any reason why Ruiz’ testimony should not be believed.

Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For the P500,000 loan, she also issued her own checks in the amount of P20,000 each for four months.34 According to respondent, she merely accommodated petitioner’s request for her to issue her own checks to cover the interest payments since petitioner was not personally acquainted with Santiago.35 She claimed, however, that Santiago would replace the checks with cash.36 Her explanation is simply incredible. It is difficult to believe that respondent would put herself in a position where she would be compelled to pay interest, from her own funds, for loans she allegedly did not contract. We declared in one case that:

In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to be believed, it must not only proceed from the mouth of a credible witness, but must be credible in itself such as the common experience of mankind can approve as probable under the circumstances. We have no test of the truth of human testimony except its conformity to our knowledge, observation, and experience. Whatever is repugnant to these belongs to the miraculous, and is outside of juridical cognizance.37

Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner, who was listed as one of her (Santiago’s) creditors.38

Last, respondent inexplicably never presented Santiago as a witness to corroborate her story.39 The presumption is that "evidence willfully suppressed would be adverse if produced."40 Respondent was not able to overturn this presumption.

















We hold that the CA committed reversible error when it ruled that respondent did not borrow the amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC making respondent liable for the principal amounts of the loans.

We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the US$100,000 and P500,000 loans respectively. There was no written proof of the interest payable except for the verbal agreement that the loans would earn 3% and 4% interest per month. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has been expressly stipulated in writing."

Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article 2209 of the Civil Code. It is well-settled that:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.41

Hence, respondent is liable for the payment of legal interest per annum to be computed from November 21, 1995, the date when she received petitioner’s demand letter.42 From the finality of the decision until it is fully paid, the amount due shall earn interest at 12% per annum, the interim period being deemed equivalent to a forbearance of credit.43

The award of actual damages in the amount of P50,000 and P100,000 attorney’s fees is deleted since the RTC decision did not explain the factual bases for these damages.

WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20, 2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The February 28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266 is AFFIRMED with the MODIFICATION that respondent is directed to pay petitioner the amounts of US$100,000 and P500,000 at 12% per annum interest from November 21, 1995 until the finality of the decision. The total amount due as of the date of finality will earn interest of 12% per annum until fully paid. The award of actual damages and attorney’s fees is deleted.

SO ORDERED.

RENATO C. CORONAAssociate Justice




THIRD DIVISION

BPI FAMILY BANK,

Petitioner,

- versus -

AMADO FRANCO and COURT OF APPEALS,

Respondents.

G.R. No. 123498

Present:

YNARES-SANTIAGO, J.,Chairperson,

AUSTRIA-MARTINEZ,

CHICO-NAZARIO,

NACHURA, and

REYES, JJ.

Promulgated:

November 23, 2007

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

Banks are exhorted to treat the accounts of their depositors with meticulous care and utmost fidelity. We reiterate this exhortation in the case at bench.

Before us is a Petition for Review on Certiorari seeking the reversal of the Court of Appeals (CA) Decision1 in CA-G.R. CV No. 43424 which affirmed with modification the judgment2 of the Regional Trial Court, Branch 55, Manila (Manila RTC), in Civil Case No. 90-53295.

This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI Family Bank (BPI-FB) allegedly by respondent Amado Franco (Franco) in conspiracy with other individuals,3 some of whom opened and maintained separate accounts with BPI-FB, San Francisco del Monte (SFDM) branch, in a series of transactions.

On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and current account with BPI-FB. Soon thereafter, or on August 25, 1989, First Metro

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Investment Corporation (FMIC) also opened a time deposit account with the same branch of BPI-FB with a deposit of P100,000,000.00, to mature one year thence.

Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current,4 savings,5 and time deposit,6 with BPI-FB. The current and savings accounts were respectively funded with an initial deposit of P500,000.00 each, while the time deposit account had P1,000,000.00 with a maturity date of August 31, 1990. The total amount of P2,000,000.00 used to open these accounts is traceable to a check issued by Tevesteco allegedly in consideration of Franco’s introduction of Eladio Teves,7 who was looking for a conduit bank to facilitate Tevesteco’s business transactions, to Jaime Sebastian, who was then BPI-FB SFDM’s Branch Manager. In turn, the funding for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-FB from FMIC’s time deposit account and credited to Tevesteco’s current account pursuant to an Authority to Debit purportedly signed by FMIC’s officers.

It appears, however, that the signatures of FMIC’s officers on the Authority to Debit were forged.8 On September 4, 1989, Antonio Ong,9 upon being shown the Authority to Debit, personally declared his signature therein to be a forgery. Unfortunately, Tevesteco had already effected several withdrawals from its current account (to which had been credited the P80,000,000.00 covered by the forged Authority to Debit) amounting to P37,455,410.54, including the P2,000,000.00 paid to Franco.

On September 8, 1989, impelled by the need to protect its interests in light of FMIC’s forgery claim, BPI-FB, thru its Senior Vice-President, Severino Coronacion, instructed Jesus Arangorin10 to debit Franco’s savings and current accounts for the amounts remaining therein.11 However, Franco’s time deposit account could not be debited due to the capacity limitations of BPI-FB’s computer.12

In the meantime, two checks13 drawn by Franco against his BPI-FB current account were dishonored upon presentment for payment, and stamped with a notation "account under garnishment." Apparently, Franco’s current account was garnished by virtue of an Order of Attachment issued by the Regional Trial Court of Makati (Makati RTC) in Civil Case No. 89-4996 (Makati Case), which had been filed by BPI-FB against Franco et al.,14 to recover the P37,455,410.54 representing Tevesteco’s total withdrawals from its account.

Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to Franco’s receipt of notice that his accounts were under garnishment.15 In fact, at the time the Notice of Garnishment dated September 27, 1989 was served on BPI-FB, Franco had yet to be impleaded in the Makati case where the writ of attachment was issued.

It was only on May 15, 1990, through the service of a copy of the Second Amended Complaint in Civil Case No. 89-4996, that Franco was impleaded in the Makati case.16 Immediately, upon receipt of such copy, Franco filed a Motion to Discharge Attachment which the Makati RTC granted on May 16, 1990. The Order Lifting the Order of Attachment was served on BPI-FB on even date, with Franco demanding the release to him of the funds in his savings and current accounts. Jesus Arangorin, BPI-FB’s new manager, could not forthwith comply with the demand as the funds, as previously stated, had already been debited because of FMIC’s forgery claim. As such, BPI-FB’s computer at the SFDM Branch indicated that the current account record was "not on file."

With respect to Franco’s savings account, it appears that Franco agreed to an arrangement, as a favor to Sebastian, whereby P400,000.00 from his savings account was temporarily transferred to Domingo Quiaoit’s savings account, subject to its immediate return upon issuance of a certificate of deposit which Quiaoit needed in connection with his visa application at the Taiwan Embassy. As part of the arrangement, Sebastian retained custody of Quiaoit’s savings account passbook to ensure that no withdrawal would be effected therefrom, and to preserve Franco’s deposits.

On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount of P63,189.00 from the remaining balance of the time deposit account representing advance interest paid to him.

These transactions spawned a number of cases, some of which we had already resolved.

FMIC filed a complaint against BPI-FB for the recovery of the amount of P80,000,000.00 debited from its account.17 The case eventually reached this Court, and in BPI Family Savings Bank, Inc. v. First Metro Investment Corporation,18 we upheld the finding of the courts below that BPI-FB failed to exercise the degree of diligence required by the nature of its obligation to treat the accounts of its depositors with meticulous care. Thus, BPI-FB was found liable to FMIC for the debited amount in its time deposit. It was ordered to pay P65,332,321.99 plus interest at 17% per annum from August 29, 1989 until fully restored. In turn, the 17% shall itself earn interest at 12% from October 4, 1989 until fully paid.
















In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.),19 recipients of a P500,000.00 check proceeding from the P80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit. Buenaventura et al., as in the case of Franco, were also prevented from effecting withdrawals20 from their current account with BPI-FB, Bonifacio Market, Edsa, Caloocan City Branch. Likewise, when the case was elevated to this Court docketed as BPI Family Bank v. Buenaventura,21 we ruled that BPI-FB had no right to freeze Buenaventura, et al.’s accounts and adjudged BPI-FB liable therefor, in addition to damages.

Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the perpetrators of the multi-million peso scam.22 In the criminal case, Franco, along with the other accused, except for Manuel Bienvenida who was still at large, were acquitted of the crime of Estafa as defined and penalized under Article 351, par. 2(a) of the Revised Penal Code.23 However, the civil case24 remains under litigation and the respective rights and liabilities of the parties have yet to be adjudicated.

Consequently, in light of BPI-FB’s refusal to heed Franco’s demands to unfreeze his accounts and release his deposits therein, the latter filed on June 4, 1990 with the Manila RTC the subject suit. In his complaint, Franco prayed for the following reliefs: (1) the interest on the remaining balance25 of his current account which was eventually released to him on October 31, 1991; (2) the balance26 on his savings account, plus interest thereon; (3) the advance interest27 paid to him which had been deducted when he pre-terminated his time deposit account; and (4) the payment of actual, moral and exemplary damages, as well as attorney’s fees.

BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and refusing to release his deposits, claiming that it had a better right to the amounts which consisted of part of the money allegedly fraudulently withdrawn from it by Tevesteco and ending up in Franco’s accounts. BPI-FB asseverated that the claimed consideration of P2,000,000.00 for the introduction facilitated by Franco between George Daantos and Eladio Teves, on the one hand, and Jaime Sebastian, on the other, spoke volumes of Franco’s participation in the fraudulent transaction.

On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of which reads as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of [Franco] and against [BPI-FB], ordering the latter to pay to the former the following sums:

1. P76,500.00 representing the legal rate of interest on the amount of P450,000.00 from May 18, 1990 to October 31, 1991;

2. P498,973.23 representing the balance on [Franco’s] savings account as of May 18, 1990, together with the interest thereon in accordance with the bank’s guidelines on the payment therefor;

3. P30,000.00 by way of attorney’s fees; and

4. P10,000.00 as nominal damages.

The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.

Costs against [BPI-FB].

SO ORDERED.28

Unsatisfied with the decision, both parties filed their respective appeals before the CA. Franco confined his appeal to the Manila RTC’s denial of his claim for moral and exemplary damages, and the diminutive award of attorney’s fees. In affirming with modification the lower court’s decision, the appellate court decreed, to wit:

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification ordering [BPI-FB] to pay [Franco] P63,189.00 representing the interest deducted from the time deposit of plaintiff-appellant. P200,000.00 as moral damages and P100,000.00 as exemplary damages, deleting the award of nominal damages (in view of the award of moral and exemplary damages) and increasing the award of attorney’s fees from P30,000.00 to P75,000.00.

Cost against [BPI-FB].

SO ORDERED.29












In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a better right to the deposits in the subject accounts which are part of the proceeds of a forged Authority to Debit; (2) Franco is entitled to interest on his current account; (3) Franco can recover the P400,000.00 deposit in Quiaoit’s savings account; (4) the dishonor of Franco’s checks was not legally in order; (5) BPI-FB is liable for interest on Franco’s time deposit, and for moral and exemplary damages; and (6) BPI-FB’s counter-claim has no factual and legal anchor.

The petition is partly meritorious.

We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally freeze Franco’s accounts and preclude him from withdrawing his deposits. However, contrary to the appellate court’s ruling, we hold that Franco is not entitled to unearned interest on the time deposit as well as to moral and exemplary damages.

First. On the issue of who has a better right to the deposits in Franco’s accounts, BPI-FB urges us that the legal consequence of FMIC’s forgery claim is that the money transferred by BPI-FB to Tevesteco is its own, and considering that it was able to recover possession of the same when the money was redeposited by Franco, it had the right to set up its ownership thereon and freeze Franco’s accounts.

BPI-FB contends that its position is not unlike that of an owner of personal property who regains possession after it is stolen, and to illustrate this point, BPI-FB gives the following example: where X’s television set is stolen by Y who thereafter sells it to Z, and where Z unwittingly entrusts possession of the TV set to X, the latter would have the right to keep possession of the property and preclude Z from recovering possession thereof. To bolster its position, BPI-FB cites Article 559 of the Civil Code, which provides:

Article 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.

BPI-FB’s argument is unsound. To begin with, the movable property mentioned in Article 559 of the Civil Code pertains to a specific or determinate thing.30 A determinate or specific thing is one that is individualized and can be identified or distinguished from others of the same kind.31

In this case, the deposit in Franco’s accounts consists of money which, albeit characterized as a movable, is generic and fungible.32 The quality of being fungible depends upon the possibility of the property, because of its nature or the will of the parties, being substituted by others of the same kind, not having a distinct individuality.33

Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of a movable to recover the exact same thing from the current possessor, BPI-FB simply claims ownership of the equivalent amount of money, i.e., the value thereof, which it had mistakenly debited from FMIC’s account and credited to Tevesteco’s, and subsequently traced to Franco’s account. In fact, this is what BPI-FB did in filing the Makati Case against Franco, et al. It staked its claim on the money itself which passed from one account to another, commencing with the forged Authority to Debit.

It bears emphasizing that money bears no earmarks of peculiar ownership,34 and this characteristic is all the more manifest in the instant case which involves money in a banking transaction gone awry. Its primary function is to pass from hand to hand as a medium of exchange, without other evidence of its title.35 Money, which had passed through various transactions in the general course of banking business, even if of traceable origin, is no exception.

Thus, inasmuch as what is involved is not a specific or determinate personal property, BPI-FB’s illustrative example, ostensibly based on Article 559, is inapplicable to the instant case.

There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal consequence of its unauthorized transfer of FMIC’s deposits to Tevesteco’s account. BPI-FB conveniently forgets that the deposit of money in banks is governed by the Civil Code provisions on simple loan or mutuum.36 As there is a debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately acquired ownership of Franco’s deposits, but such ownership is coupled with a corresponding obligation to pay him an equal amount on demand.37 Although BPI-FB owns the deposits in Franco’s accounts, it cannot









prevent him from demanding payment of BPI-FB’s obligation by drawing checks against his current account, or asking for the release of the funds in his savings account. Thus, when Franco issued checks drawn against his current account, he had every right as creditor to expect that those checks would be honored by BPI-FB as debtor.

More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To grant BPI-FB, or any bank for that matter, the right to take whatever action it pleases on deposits which it supposes are derived from shady transactions, would open the floodgates of public distrust in the banking industry.

Our pronouncement in Simex International (Manila), Inc. v. Court of Appeals38 continues to resonate, thus:

The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his life’s savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. x x x.

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever directs. A blunder on the part of the bank, such as the dishonor of the check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. x x x.

Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the signatures of its customers. Having failed to detect the forgery in the Authority to Debit and in the process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to Franco and the other payees of checks issued by Tevesteco, or prevent withdrawals from their respective accounts without the appropriate court writ or a favorable final judgment.

Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the signature in the Authority to Debit, effected the transfer of P80,000,000.00 from FMIC’s to Tevesteco’s account, when FMIC’s account was a time deposit and it had already paid advance interest to FMIC. Considering that there is as yet no indubitable evidence establishing Franco’s participation in the forgery, he remains an innocent party. As between him and BPI-FB, the latter, which made possible the present predicament, must bear the resulting loss or inconvenience.

Second. With respect to its liability for interest on Franco’s current account, BPI-FB argues that its non-compliance with the Makati RTC’s Order Lifting the Order of Attachment and the legal consequences thereof, is a matter that ought to be taken up in that court.

The argument is tenuous. We agree with the succinct holding of the appellate court in this respect. The Manila RTC’s order to pay interests on Franco’s current account arose from BPI-FB’s unjustified refusal to comply with its obligation to pay Franco pursuant to their contract of mutuum. In other words, from the time BPI-FB refused Franco’s demand for the release of the deposits in his current account, specifically, from May 17, 1990, interest at the rate of 12% began to accrue thereon.39

Undeniably, the Makati RTC is vested with the authority to determine the legal consequences of BPI-FB’s non-compliance with the Order Lifting the Order of Attachment. However, such authority does not preclude the Manila RTC from ruling on BPI-FB’s liability to Franco for payment of interest based on its continued and unjustified refusal to perform a contractual obligation upon demand. After all, this was the core issue raised by Franco in his complaint before the Manila RTC.



Third. As to the award to Franco of the deposits in Quiaoit’s account, we find no reason to depart from the factual findings of both the Manila RTC and the CA.

Noteworthy is the fact that Quiaoit himself testified that the deposits in his account are actually owned by Franco who simply accommodated Jaime Sebastian’s request to temporarily transfer P400,000.00 from Franco’s savings account to Quiaoit’s account.40 His testimony cannot be characterized as hearsay as the records reveal that he had personal knowledge of the arrangement made between Franco, Sebastian and himself.41

BPI-FB makes capital of Franco’s belated allegation relative to this particular arrangement. It insists that the transaction with Quiaoit was not specifically alleged in Franco’s complaint before the Manila RTC. However, it appears that BPI-FB had impliedly consented to the trial of this issue given its extensive cross-examination of Quiaoit.

Section 5, Rule 10 of the Rules of Court provides:

Section 5. Amendment to conform to or authorize presentation of evidence.— When issues not raised by the pleadings are tried with the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is now within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so with liberality if the presentation of the merits of the action and the ends of substantial justice will be subserved thereby. The court may grant a continuance to enable the amendment to be made. (Emphasis supplied)

In all, BPI-FB’s argument that this case is not the right forum for Franco to recover the P400,000.00 begs the issue. To reiterate, Quiaoit, testifying during the trial, unequivocally disclaimed ownership of the funds in his account, and pointed to Franco as the actual owner thereof. Clearly, Franco’s action for the recovery of his deposits appropriately covers the deposits in Quiaoit’s account.

Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of Franco’s checks respectively dated September 11 and 18, 1989 was legally in order in view of the Makati RTC’s supplemental writ of attachment issued on September 14, 1989. It posits that as the party that applied for the writ of attachment before the Makati RTC, it need not be served with the Notice of Garnishment before it could place Franco’s accounts under garnishment.

The argument is specious. In this argument, we perceive BPI-FB’s clever but transparent ploy to circumvent Section 4,42 Rule 13 of the Rules of Court. It should be noted that the strict requirement on service of court papers upon the parties affected is designed to comply with the elementary requisites of due process. Franco was entitled, as a matter of right, to notice, if the requirements of due process are to be observed. Yet, he received a copy of the Notice of Garnishment only on September 27, 1989, several days after the two checks he issued were dishonored by BPI-FB on September 20 and 21, 1989. Verily, it was premature for BPI-FB to freeze Franco’s accounts without even awaiting service of the Makati RTC’s Notice of Garnishment on Franco.

Additionally, it should be remembered that the enforcement of a writ of attachment cannot be made without including in the main suit the owner of the property attached by virtue thereof. Section 5, Rule 13 of the Rules of Court specifically provides that "no levy or attachment pursuant to the writ issued x x x shall be enforced unless it is preceded, or contemporaneously accompanied, by service of summons, together with a copy of the complaint, the application for attachment, on the defendant within the Philippines."

Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC had yet to acquire jurisdiction over the person of Franco when BPI-FB garnished his accounts.43 Effectively, therefore, the Makati RTC had no authority yet to bind the deposits of Franco through the writ of attachment, and consequently, there was no legal basis for BPI-FB to dishonor the checks issued by Franco.

Fifth. Anent the CA’s finding that BPI-FB was in bad faith and as such liable for the advance interest it deducted from Franco’s time deposit account, and for moral as well as exemplary damages, we find it proper to reinstate the ruling of the trial court, and allow only the recovery of nominal damages in the amount of P10,000.00. However, we retain the CA’s award of P75,000.00 as attorney’s fees.

In granting Franco’s prayer for interest on his time deposit account and for moral and exemplary damages, the CA attributed bad faith to BPI-FB because it (1) completely





disregarded its obligation to Franco; (2) misleadingly claimed that Franco’s deposits were under garnishment; (3) misrepresented that Franco’s current account was not on file; and (4) refused to return the P400,000.00 despite the fact that the ostensible owner, Quiaoit, wanted the amount returned to Franco.

In this regard, we are guided by Article 2201 of the Civil Code which provides:

Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonable foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. (Emphasis supplied.)

We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and not out of malevolence or ill will. BPI-FB was not in the corrupt state of mind contemplated in Article 2201 and should not be held liable for all damages now being imputed to it for its breach of obligation. For the same reason, it is not liable for the unearned interest on the time deposit.

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it partakes of the nature of fraud.44 We have held that it is a breach of a known duty through some motive of interest or ill will.45 In the instant case, we cannot attribute to BPI-FB fraud or even a motive of self-enrichment. As the trial court found, there was no denial whatsoever by BPI-FB of the existence of the accounts. The computer-generated document which indicated that the current account was "not on file" resulted from the prior debit by BPI-FB of the deposits. The remedy of freezing the account, or the garnishment, or even the outright refusal to honor any transaction thereon was resorted to solely for the purpose of holding on to the funds as a security for its intended court action,46 and with no other goal but to ensure the integrity of the accounts.

We have had occasion to hold that in the absence of fraud or bad faith,47 moral damages cannot be awarded; and that the adverse result of an action does not per se make the action wrongful, or the party liable for it. One may err, but error alone is not a ground for granting such damages.48

An award of moral damages contemplates the existence of the following requisites: (1) there must be an injury clearly sustained by the claimant, whether physical, mental or psychological; (2) there must be a culpable act or omission factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award for damages is predicated on any of the cases stated in Article 2219 of the Civil Code.49

Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil Code,50 upon which to base his claim for moral damages.

Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages under Article 2220 of the Civil Code for breach of contract.51

We also deny the claim for exemplary damages. Franco should show that he is entitled to moral, temperate, or compensatory damages before the court may even consider the question of whether exemplary damages should be awarded to him.52 As there is no basis for the award of moral damages, neither can exemplary damages be granted.

While it is a sound policy not to set a premium on the right to litigate,53 we, however, find that Franco is entitled to reasonable attorney’s fees for having been compelled to go to court in order to assert his right. Thus, we affirm the CA’s grant of P75,000.00 as attorney’s fees.

Attorney’s fees may be awarded when a party is compelled to litigate or incur expenses to protect his interest,54 or when the court deems it just and equitable.55 In the case at bench, BPI-FB refused to unfreeze the deposits of Franco despite the Makati RTC’s Order Lifting the Order of Attachment and Quiaoit’s unwavering assertion that the P400,000.00 was part of Franco’s savings account. This refusal constrained Franco to incur expenses and litigate for almost two (2) decades in order to protect his interests and recover his deposits. Therefore, this Court deems it just and equitable to grant Franco P75,000.00 as attorney’s fees. The award is reasonable in view of the complexity of the issues and the time it has taken for this case to be resolved.56














Sixth. As for the dismissal of BPI-FB’s counter-claim, we uphold the Manila RTC’s ruling, as affirmed by the CA, that BPI-FB is not entitled to recover P3,800,000.00 as actual damages. BPI-FB’s alleged loss of profit as a result of Franco’s suit is, as already pointed out, of its own making. Accordingly, the denial of its counter-claim is in order.

WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated November 29, 1995 is AFFIRMED with the MODIFICATION that the award of unearned interest on the time deposit and of moral and exemplary damages is DELETED.

No pronouncement as to costs.

SO ORDERED

Republic of the Philippines

SUPREME COURTManila

THIRD DIVISION

G.R. Nos. 173654-765 August 28, 2008

PEOPLE OF THE PHILIPPINES, petitioner, vs.TERESITA PUIG and ROMEO PORRAS, respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner People of the Philippines, represented by the Office of the Solicitor General, praying for the reversal of the Orders dated 30 January 2006 and 9 June 2006 of the Regional Trial Court (RTC) of the 6th Judicial Region, Branch 68, Dumangas, Iloilo, dismissing the 112 cases of Qualified Theft filed against respondents Teresita Puig and Romeo Porras, and denying petitioner’s Motion for Reconsideration, in Criminal Cases No. 05-3054 to 05-3165.

The following are the factual antecedents:

On 7 November 2005, the Iloilo Provincial Prosecutor’s Office filed before Branch 68 of the RTC in Dumangas, Iloilo, 112 cases of Qualified Theft against respondents Teresita Puig (Puig) and Romeo Porras (Porras) who were the Cashier and Bookkeeper, respectively, of private complainant Rural Bank of Pototan, Inc. The cases were docketed as Criminal Cases No. 05-3054 to 05-3165.

The allegations in the Informations1 filed before the RTC were uniform and pro-forma, except for the amounts, date and time of commission, to wit:

INFORMATION

That on or about the 1st day of August, 2002, in the Municipality of Pototan, Province of Iloilo, Philippines, and within the jurisdiction of this Honorable Court, above-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank

http://www.lawphil.net/judjuris/juri2008/aug2008/gr_173654_2008.html#fnt1

and with intent of gain, did then and there willfully, unlawfully and feloniously take, steal and carry away the sum of FIFTEEN THOUSAND PESOS (P15,000.00), Philippine Currency, to the damage and prejudice of the said bank in the aforesaid amount.

After perusing the Informations in these cases, the trial court did not find the existence of probable cause that would have necessitated the issuance of a warrant of arrest based on the following grounds:

(1) the element of ‘taking without the consent of the owners’ was missing on the ground that it is the depositors-clients, and not the Bank, which filed the complaint in these cases, who are the owners of the money allegedly taken by respondents and hence, are the real parties-in-interest; and

(2) the Informations are bereft of the phrase alleging "dependence, guardianship or vigilance between the respondents and the offended party that would have created a high degree of confidence between them which the respondents could have abused."

It added that allowing the 112 cases for Qualified Theft filed against the respondents to push through would be violative of the right of the respondents under Section 14(2), Article III of the 1987 Constitution which states that in all criminal prosecutions, the accused shall enjoy the right to be informed of the nature and cause of the accusation against him. Following Section 6, Rule 112 of the Revised Rules of Criminal Procedure, the RTC dismissed the cases on 30 January 2006 and refused to issue a warrant of arrest against Puig and Porras.

A Motion for Reconsideration2 was filed on 17 April 2006, by the petitioner.

On 9 June 2006, an Order3 denying petitioner’s Motion for Reconsideration was issued by the RTC, finding as follows:

Accordingly, the prosecution’s Motion for Reconsideration should be, as it hereby, DENIED. The Order dated January 30, 2006 STANDS in all respects.

Petitioner went directly to this Court via Petition for Review on Certiorari under Rule 45, raising the sole legal issue of:

WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING WITHOUT THE CONSENT OF THE OWNER, AND THE QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE OF CONFIDENCE.

Petitioner prays that judgment be rendered annulling and setting aside the Orders dated 30 January 2006 and 9 June 2006 issued by the trial court, and that it be directed to proceed with Criminal Cases No. 05-3054 to 05-3165.

Petitioner explains that under Article 1980 of the New Civil Code, "fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loans." Corollary thereto, Article 1953 of the same Code provides that "a person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality." Thus, it posits that the depositors who place their money with the bank are considered creditors of the bank. The bank acquires ownership of the money deposited by its clients, making the money taken by respondents as belonging to the bank.

Petitioner also insists that the Informations sufficiently allege all the elements of the crime of qualified theft, citing that a perusal of the Informations will show that they specifically allege that the respondents were the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., respectively, and that they took various amounts of money with grave abuse of confidence, and without the knowledge and consent of the bank, to the damage and prejudice of the bank.

Parenthetically, respondents raise procedural issues. They challenge the petition on the ground that a Petition for Review on Certiorari via Rule 45 is the wrong mode of appeal because a finding of probable cause for the issuance of a warrant of arrest presupposes evaluation of facts and circumstances, which is not proper under said Rule.

Respondents further claim that the Department of Justice (DOJ), through the Secretary of Justice, is the principal party to file a Petition for Review on Certiorari, considering that the incident was indorsed by the DOJ.

We find merit in the petition.



The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the Informations and, therefore, because of this defect, there is no basis for the existence of probable cause which will justify the issuance of the warrant of arrest. Petitioner assails the dismissal contending that the Informations for Qualified Theft sufficiently state facts which constitute (a) the qualifying circumstance of grave abuse of confidence; and (b) the element of taking, with intent to gain and without the consent of the owner, which is the Bank.

In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found the allegations in the Information inadequate. He ruled that the Information failed to state facts constituting the qualifying circumstance of grave abuse of confidence and the element of taking without the consent of the owner, since the owner of the money is not the Bank, but the depositors therein. He also cites People v. Koc Song,4 in which this Court held:

There must be allegation in the information and proof of a relation, by reason of dependence, guardianship or vigilance, between the respondents and the offended party that has created a high degree of confidence between them, which the respondents abused.

At this point, it needs stressing that the RTC Judge based his conclusion that there was no probable cause simply on the insufficiency of the allegations in the Informations concerning the facts constitutive of the elements of the offense charged. This, therefore, makes the issue of sufficiency of the allegations in the Informations the focal point of discussion.

Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is committed as follows, viz:

ART. 310. Qualified Theft. – The crime of theft shall be punished by the penalties next higher by two degrees than those respectively specified in the next preceding article, if committed by a domestic servant, or with grave abuse of confidence, or if the property stolen is motor vehicle, mail matter or large cattle or consists of coconuts taken from the premises of a plantation, fish taken from a fishpond or fishery or if property is taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or any other calamity, vehicular accident or civil disturbance. (Emphasis supplied.)

Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of another’s property without violence or intimidation against persons or force upon things. The elements of the crime under this Article are:

1. Intent to gain;

2. Unlawful taking;

3. Personal property belonging to another;

4. Absence of violence or intimidation against persons or force upon things.

To fall under the crime of Qualified Theft, the following elements must concur:

1. Taking of personal property;

2. That the said property belongs to another;

3. That the said taking be done with intent to gain;

4. That it be done without the owner’s consent;

5. That it be accomplished without the use of violence or intimidation against persons, nor of force upon things;

6. That it be done with grave abuse of confidence.

On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia, that the information must state the acts or omissions complained of as constitutive of the offense.

On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court, is enlightening:

Section 9. Cause of the accusation. The acts or omissions complained of as constituting the offense and the qualifying and aggravating circumstances must be


stated in ordinary and concise language and not necessarily in the language used in the statute but in terms sufficient to enable a person of common understanding to know what offense is being charged as well as its qualifying and aggravating circumstances and for the court to pronounce judgment.

It is evident that the Information need not use the exact language of the statute in alleging the acts or omissions complained of as constituting the offense. The test is whether it enables a person of common understanding to know the charge against him, and the court to render judgment properly.5

The portion of the Information relevant to this discussion reads:

A]bove-named [respondents], conspiring, confederating, and helping one another, with

grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank x x x.

It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into possession of the monies deposited therein enjoy the confidence reposed in them by their employer. Banks, on the other hand, where monies are deposited, are considered the owners thereof. This is very clear not only from the express provisions of the law, but from established jurisprudence. The relationship between banks and depositors has been held to be that of creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide as follows:

Article 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.

Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning loan.

In a long line of cases involving Qualified Theft, this Court has firmly established the nature of possession by the Bank of the money deposits therein, and the duties being performed by its employees who have custody of the money or have come into possession of it. The Court has consistently considered the allegations in the Information that such employees acted with grave abuse of confidence, to the damage and prejudice of the Bank, without particularly referring to it as owner of the money deposits, as sufficient to make out a case of Qualified Theft. For a graphic illustration, we cite Roque v. People,6 where the accused teller was convicted for Qualified Theft based on this Information:

That on or about the 16th day of November, 1989, in the municipality of Floridablanca, province of Pampanga, Philippines and within the jurisdiction of his Honorable Court, the above-named accused ASUNCION GALANG ROQUE, being then employed as teller of the Basa Air Base Savings and Loan Association Inc. (BABSLA) with office address at Basa Air Base, Floridablanca, Pampanga, and as such was authorized and reposed with the responsibility to receive and collect capital contributions from its member/contributors of said corporation, and having collected and received in her capacity as teller of the BABSLA the sum of TEN THOUSAND PESOS (P10,000.00), said accused, with intent of gain, with

grave abuse of confidence and without the knowledge and consent of said corporation, did



then and there willfully, unlawfully and feloniously take, steal and carry away the amount of P10,000.00, Philippine currency, by making it appear that a certain depositor by the name of Antonio Salazar withdrew from his Savings Account No. 1359, when in truth and in fact said Antonio Salazar did not withdr[a]w the said amount of P10,000.00 to the damage and prejudice of BABSLA in the total amount of P10,000.00, Philippine currency.

In convicting the therein appellant, the Court held that:

[S]ince the teller occupies a position of confidence, and the bank places money in the teller’s possession due to the confidence reposed on the teller, the felony of qualified theft would be committed.7

Also in People v. Sison,8 the Branch Operations Officer was convicted of the crime of Qualified Theft based on the Information as herein cited:

That in or about and during the period compressed between January 24, 1992 and February 13, 1992, both dates inclusive, in the City of Manila, Philippines, the said accused did then and there wilfully, unlawfully and feloniously, with intent of gain and without the knowledge and consent of the owner thereof, take, steal and carry away the following, to wit:

Cash money amounting to P6,000,000.00 in different denominations belonging to the PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PCIBank for brevity), Luneta Branch, Manila represented by its Branch Manager, HELEN U. FARGAS, to the damage and prejudice of the said owner in the aforesaid amount of P6,000,000.00, Philippine Currency.

That in the commission of the said offense, herein accused acted with grave abuse of confidence and unfaithfulness, he being the Branch Operation Officer of the said complainant and as such he had free access to the place where the said amount of money was kept.

The judgment of conviction elaborated thus:

The crime perpetuated by appellant against his employer, the Philippine Commercial and Industrial Bank (PCIB), is Qualified Theft. Appellant could not have committed the crime had he not been holding the position of Luneta Branch Operation Officer which gave him not only sole access to the bank vault xxx. The management of the PCIB reposed its trust and confidence in the appellant as its Luneta Branch Operation Officer, and it was this trust and confidence which he exploited to enrich himself to the damage and prejudice of PCIB x x x.9

From another end, People v. Locson,10 in addition to People v. Sison, described the nature of possession by the Bank. The money in this case was in the possession of the defendant as receiving teller of the bank, and the possession of the defendant was the possession of the Bank. The Court held therein that when the defendant, with grave abuse of confidence, removed the money and appropriated it to his own use without the consent of the Bank, there was taking as contemplated in the crime of Qualified Theft.11

Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions of the respondents; that the crime was committed with grave abuse of confidence, with intent to gain






and without the knowledge and consent of the Bank, without necessarily stating the phrase being assiduously insisted upon by respondents, "of a relation by reason of dependence, guardianship or

vigilance, between the respondents and the offended party that has created a high degree of

confidence between them, which respondents abused,"12 and without employing the word "owner" in lieu of the "Bank" were considered to have satisfied the test of sufficiency of allegations.

As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this case, there is even no reason to quibble on the allegation in the Informations that they acted with grave abuse of confidence. In fact, the Information which alleged grave abuse of confidence by accused herein is even more precise, as this is exactly the requirement of the law in qualifying the crime of Theft.

In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of the Bank, who are entrusted with the possession of money of the Bank due to the confidence reposed in them, occupy positions of confidence. The Informations, therefore, sufficiently allege all the essential elements constituting the crime of Qualified Theft.

On the theory of the defense that the DOJ is the principal party who may file the instant petition, the ruling in Mobilia Products, Inc. v. Hajime Umezawa13 is instructive. The Court thus enunciated:

In a criminal case in which the offended party is the State, the interest of the private complainant or the offended party is limited to the civil liability arising therefrom. Hence, if a criminal case is dismissed by the trial court or if there is an acquittal, a reconsideration of the order of dismissal or acquittal may be undertaken, whenever legally feasible, insofar as the criminal aspect thereof is concerned and may be made only by the public prosecutor; or in the case of an appeal, by the State only, through the OSG. x x x.

On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is well-settled that in appeals by certiorari under Rule 45 of the Rules of Court, only errors of law may be raised,14 and herein petitioner certainly raised a question of law.

As an aside, even if we go beyond the allegations of the Informations in these cases, a closer look at the records of the preliminary investigation conducted will show that, indeed, probable cause exists for the indictment of herein respondents. Pursuant to Section 6, Rule 112 of the Rules of Court, the judge shall issue a warrant of arrest only upon a finding of probable cause after personally evaluating the resolution of the prosecutor and its supporting evidence. Soliven v. Makasiar,15 as reiterated in Allado v. Driokno,16 explained that probable cause for the issuance of a warrant of arrest is the existence of such facts and circumstances that would lead a reasonably discreet and prudent person to believe that an offense has been committed by the person sought to be arrested.17 The records reasonably indicate that the respondents may have, indeed, committed the offense charged.

Before closing, let it be stated that while it is truly imperative upon the fiscal or the judge, as the case may be, to relieve the respondents from the pain of going through a trial once it is ascertained that no probable cause exists to form a sufficient belief as to the guilt of the respondents, conversely, it is also equally imperative upon the judge to proceed with the case upon a showing that there is a prima facie case against the respondents.







WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby GRANTED. The Orders dated 30 January 2006 and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-3054 to 05-3165 are REVERSED and SET ASIDE. Let the corresponding Warrants of Arrest issue against herein respondents TERESITA PUIG and ROMEO PORRAS. The RTC Judge of Branch 68, in Dumangas, Iloilo, is directed to proceed with the trial of Criminal Cases No. 05-3054 to 05-3165, inclusive, with reasonable dispatch. No pronouncement as to costs.

SO ORDERED.

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