Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.
Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.

MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965
sentencing defendant Development Bank of the Philippines (DBP) to pay actual and consequential
damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68, plus interest at the
legal rate from the date the complaint was filed and attorney's fees in the amount of P5,000.00. The
present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance
Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as
follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks);
P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and
P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura
on the strength of a letter of credit extended by the Prudential Bank and Trust Co., and arrived in Davao
City in July 1953; and that to secure its release without first paying the draft, Saura, Inc. executed a trust
receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be
secured by a first mortgage on the factory building to be constructed, the land site thereof, and the
machinery and equipment to be installed. Among the other terms spelled out in the resolution were the
following:
1. That the proceeds of the loan shall be utilized exclusively for the following
purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China
Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to
availability of funds, and as the construction of the factory buildings progresses, to be certified to by an
appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however,
evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a
modification of the terms laid down by it, namely: that in lieu of having China Engineers, Ltd. (which was
willing to assume liability only to the extent of its stock subscription with Saura, Inc.) sign as co-maker on
the corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount
equivalent to such subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as
one of the other co-makers, having acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the
members of its Board of Governors, for certain reasons stated in the resolution, "to reexamine all the
aspects of this approved loan ... with special reference as to the advisability of financing this particular
project based on present conditions obtaining in the operations of jute mills, and to submit his findings
thereon at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer
for the loan, and asked that the necessary documents be prepared in accordance with the terms and
conditions specified in Resolution No. 145. In connection with the reexamination of the project to be
financed with the loan applied for, as stated in Resolution No. 736, the parties named their respective
committees of engineers and technical men to meet with each other and undertake the necessary
studies, although in appointing its own committee Saura, Inc. made the observation that the same
"should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the
agreement already) entered into," referring to its acceptance of the terms and conditions mentioned in
Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling,
representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage,
which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the reexamination
contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June 10,
1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the loan
from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No.
145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-
examination of all the various aspects of the loan granted the Saura Import & Export Co. under
Resolution No. 145, c.s., for the purpose of financing the manufacture of jute sacks in Davao, with special
reference as to the advisability of financing this particular project based on present conditions obtaining
in the operation of jute mills, and after having heard Ramon E. Saura and after extensive discussion on
the subject the Board, upon recommendation of the Chairman, RESOLVED that the loan granted the
Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to P100,000
may be authorized as may be necessary from time to time to place the factory in actual operation:
PROVIDED that all terms and conditions of Resolution No. 145, c.s., not inconsistent herewith, shall
remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China
Engineers Ltd. jointly and severally with the other RFC that his company no longer to of the loan and
therefore considered the same as cancelled as far as it was concerned. A follow-up letter dated July 2
requested RFC that the registration of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The
request was denied by RFC, which added in its letter-reply that it was "constrained to consider as
cancelled the loan of P300,000.00 ... in view of a notification ... from the China Engineers Ltd., expressing
their desire to consider the loan insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China
Engineers, Ltd. "will at any time reinstate their signature as co-signer of the note if RFC releases to us the
P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of
P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the promissory notes jointly
with the borrower-corporation," but with the following proviso:
That in view of observations made of the shortage and high cost of imported raw
materials, the Department of Agriculture and Natural Resources shall certify to the
following:
1. That the raw materials needed by the borrower-corporation to carry out its
operation are available in the immediate vicinity; and
2. That there is prospect of increased production thereof to provide adequately for
the requirements of the factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954,
wherein it was explained that the certification by the Department of Agriculture and Natural Resources
was required "as the intention of the original approval (of the loan) is to develop the manufacture of
sacks on the basis of locally available raw materials." This point is important, and sheds light on the
subsequent actuations of the parties. Saura, Inc. does not deny that the factory he was building in Davao
was for the manufacture of bags from local raw materials. The cover page of its brochure (Exh. M)
describes the project as a "Joint venture by and between the Mindanao Industry Corporation and the
Saura Import and Export Co., Inc. to finance, manage and operate a Kenafmill 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 jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the open-
ing of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955,
regarding the release of your loan under consideration of
P500,000. As stated in our letter of December 22, 1954, the
releases of the loan, if revived, are proposed to be made
from time to time, subject to availability of funds towards
the end that the sack factory shall be placed in actual
operating status. We shall be able to act on your request for
revised purpose and manner of releases upon re-appraisal of
the securities offered for the loan.
With respect to our requirement that the Department of
Agriculture and Natural Resources certify that the raw
materials needed are available in the immediate vicinity and
that there is prospect of increased production thereof to
provide adequately the requirements of the factory, we wish
to reiterate that the basis of the original approval is to
develop the manufacture of sacks on the basis of the locally
available raw materials. Your statement that you will have to
rely on the importation of jute and your request that we
give you assurance that your company will be able to bring
in sufficient jute materials as may be necessary for the
operation of your factory, would not be in line with our
principle in approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter
further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the
corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a mortgage contract,
executed on August 6, 1954, over the same property in favor of the Prudential Bank and Trust Co., under
which contract Saura, Inc. had up to December 31 of the same year within which to pay its obligation on
the trust receipt heretofore mentioned. It appears further that for failure to pay the said obligation the
Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of
Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC (as predecessor of
the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and
approved, thereby preventing the plaintiff from completing or paying contractual commitments it had
entered into, in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between
the parties and that the defendant was guilty of breach thereof. The defendant pleaded below, and
reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or that its claim had been
waived or abandoned; (2) that there was no perfected contract; and (3) that assuming there was, the
plaintiff itself did not comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil
Code, which provides:
ART. 1954. An accepted promise to deliver something, by way of commodatum or
simple loan is binding upon the parties, but the commodatum or simple loan itself
shall not be perferted until the delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of
P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was
executed and registered. But this fact alone falls short of resolving the basic claim that the defendant
failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the
factory to be constructed would utilize locally grown raw materials, principally kenaf. There is no serious
dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083 approved
on December 17, 1954, restored the loan to the original amount of P500,000.00. it imposed two
conditions, to wit: "(1) that the raw materials needed by the 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 utilizedexclusively 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.


I
Whether the real estate mortgage executed by the spouses Lozano in favor of
respondent bank was validly and legally executed.
II
Whether the extrajudicial foreclosure of the said mortgage was validly and legally
effected.
III
Whether petitioners had a right to redeem the foreclosed property.
IV
Granting that petitioners had such a right, whether respondent was justified in
refusing their offers to repurchase the property.
As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold. They primarily
attack the validity of the mortgage executed by the Lozano spouses in favor of respondent Bank. Next,
they attack the validity of the extrajudicial foreclosure and finally, appeal to justice and equity. In
attacking the validity of the deed of mortgage, they contended that when it was executed on December
6, 1966, there was yet no principal obligation to secure as the loan of P75,000.00 was not received by
the Lozano spouses "So much so that in the absence of a principal obligation, there is want of
consideration in the accessory contract, which consequently impairs its validity and fatally affects its very
existence." (Petitioners' Brief, par. 1, p. 7).
This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is clearly
seen that the mortgage deed was executed for and on condition of the loan granted to the Lozano
spouses. The fact that the latter did not collect from the respondent Bank the consideration of the
mortgage on the date it was executed is immaterial. A contract of loan being a consensual contract, the
herein contract of loan was perfected at the same time the contract of mortgage was executed. The
promissory note executed on December 12, 1966 is only an evidence of indebtedness and does not
indicate lack of consideration of the mortgage at the time of its execution.
Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of the
original loan, using as security the same property which the Lozano spouses had already sold to
petitioners, rendered the mortgage null and void,
This argument failed to consider the provision 2 of the contract of mortgage which prohibits the sale,
disposition of, mortgage and encumbrance of the mortgaged properties, without the written consent of
the mortgagee, as well as the additional proviso that if in spite of said stipulation, the mortgaged
property is sold, the vendee shall assume the mortgage in the terms and conditions under which it is
constituted. These provisions are expressly made part and parcel of the Deed of Sale with Assumption of
Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the sale with assumption
of mortgage. Coupled with the fact that the sale/assignment was not registered so that the title
remained in the name of the Lozano spouses, insofar as respondent Bank was concerned, the Lozano
spouses could rightfully and validly mortgage the property. Respondent Bank had every right to rely on
the certificate of title. It was not bound to go behind the same to look for flaws in the mortgagor's title,
the doctrine of innocent purchaser for value being applicable to an innocent mortgagee for value. (Roxas
vs. Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48). Another argument for the respondent
Bank is that a mortgage follows the property whoever the possessor may be and subjects the fulfillment
of the obligation for whose security it was constituted. Finally, it can also be said that petitioners
voluntarily assumed the mortgage when they entered into the Deed of Sale with Assumption of
Mortgage. They are, therefore, estopped from impugning its validity whether on the original loan or
renewals thereof.
Petitioners next assail the validity and legality of the extrajudicial foreclosure on the following grounds:
a) petitioners were never notified of the foreclosure sale.
b) The notice of auction sale was not posted for the period required by law.
c) publication of the notice of auction sale in the Luzon Weekly Courier was not in
accordance with law.
The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not being a
party to the Deed of Sale with Assumption of Mortgage, it can validly claim that it was not aware of the
same and hence, it may not be obliged to notify petitioners. Secondly, petitioner Honesto Bonnevie was
not entitled to any notice because as of May 14, 1968, he had transferred and assigned all his rights and
interests over the property in favor of intervenor Raoul Bonnevie and respondent Bank not likewise
informed of the same. For the same reason, Raoul Bonnevie is not entitled to notice. Most importantly,
Act No. 3135 does not require personal notice on the mortgagor. The requirement on notice is that:
Section 3. Notice shall be given by posting notices of the sale for not less than
twenty days in at least three public places of the municipality or city where the
property is situated, and if such property is worth more than four hundred pesos,
such notice shall also be published once a week for at least three consecutive
weeks in a newspaper of general circulation in the municipality or city
In the case at bar, the notice of sale was published in the Luzon Courier on June 30, July 7 and July 14,
1968 and notices of the sale were posted for not less than twenty days in at least three (3) public places
in the Municipality where the property is located. Petitioners were thus placed on constructive notice.
The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because said case
involved a judicial foreclosure and the sale to the vendee of the mortgaged property was duly registered
making the mortgaged privy to the sale.
As regards the claim that the period of publication of the notice of auction sale was not in accordance
with law, namely: once a week for at least three consecutive weeks, the Court of Appeals ruled that the
publication of notice on June 30, July 7 and July 14, 1968 satisfies the publication requirement under Act
No. 3135 notwithstanding the fact that June 30 to July 14 is only 14 days. We agree. Act No. 3135 merely
requires that such notice shall be published once a week for at least three consecutive weeks." Such
phrase, as interpreted by this Court in Basa vs. Mercado, 61 Phil. 632, does not mean that notice should
be published for three full weeks.
The argument that the publication of the notice in the "Luzon Weekly Courier" was not in accordance
with law as said newspaper is not of general circulation must likewise be disregarded. The affidavit of
publication, executed by the Publisher, business/advertising manager of the Luzon Weekly Courier,
stares that it is "a newspaper of general circulation in ... Rizal, and that the Notice of Sheriff's sale was
published in said paper on June 30, July 7 and July 14, 1968. This constitutes prima facie evidence of
compliance with the requisite publication. Sadang vs. GSIS, 18 SCRA 491).
To be a newspaper of general circulation, it is enough that "it is published for the dissemination of local
news and general information; that it has a bona fide subscription list of paying subscribers; that it is
published at regular intervals." (Basa vs. Mercado, 61 Phil. 632). The newspaper need not have the
largest circulation so long as it is of general circulation. Banta vs. Pacheco, 74 Phil. 67). The testimony of
three witnesses that they do read the Luzon Weekly Courier is no proof that said newspaper is not a
newspaper of general circulation in the province of Rizal.
Whether or not the notice of auction sale was posted for the period required by law is a question of fact.
It can no longer be entertained by this Court. (see Reyes, et al. vs. CA, et al., 107 SCRA 126).
Nevertheless, the records show that copies of said notice were posted in three conspicuous places in the
municipality of Pasig, Rizal namely: the Hall of Justice, the Pasig Municipal Market and Pasig Municipal
Hall. In the same manner, copies of said notice were also posted in the place where the property was
located, namely: the Municipal Building of San Juan, Rizal; the Municipal Market and on Benitez Street.
The following statement of Atty. Santiago Pastor, head of the legal department of respondent bank,
namely:
Q How many days were the notices posted in these two
places, if you know?
A We posted them only once in one day. (TSN, p. 45, July 25,
1973)
is not a sufficient countervailing evidence to prove that there was no compliance with the posting
requirement in the absence of proof or even of allegation that the notices were removed before the
expiration of the twenty- day period. A single act of posting (which may even extend beyond the period
required by law) satisfies the requirement of law. The burden of proving that the posting requirement
was not complied with is now shifted to the one who alleges non-compliance.
On the question of whether or not the petitioners had a right to redeem the property, We hold that the
Court of Appeals did not err in ruling that they had no right to redeem. No consent having been secured
from respondent Bank to the sale with assumption of mortgage by petitioners, the latter were not validly
substituted as debtors. In fact, their rights were never recorded and hence, respondent Bank is charged
with the obligation to recognize the right of redemption only of the Lozano spouses. But even granting
that as purchaser or assignee of the property, as the case may be, the petitioners had acquired a right to
redeem the property, petitioners failed to exercise said right within the period granted by law. Thru
certificate of sale in favor of appellee was registered on September 2, 1968 and the one year redemption
period expired on September 3, 1969. It was not until September 29, 1969 that petitioner Honesto
Bonnevie first wrote respondent and offered to redeem the property. Moreover, on September 29,
1969, Honesto had at that time already transferred his rights to intervenor Raoul Bonnevie.
On the question of whether or not respondent Court of Appeals erred in holding that respondent Bank
did not act in bad faith, petitioners rely on Exhibit "B" which is the letter of lose Lozano to respondent
Bank dated December 8, 1966 advising the latter that Honesto Bonnevie was authorized to make
payments for the amount secured by the mortgage on the subject property, to receive acknowledgment
of payments, obtain the Release of the Mortgage after full payment of the obligation and to take delivery
of the title of said property. On the assumption that the letter was received by respondent Bank, a
careful reading of the same shows that the plaintiff was merely authorized to do acts mentioned therein
and does not mention that petitioner is the new owner of the property nor request that all
correspondence and notice should be sent to him.
The claim of appellants that the collection of interests on the loan up to July 12, 1968 extends the
maturity of said loan up to said date and accordingly on June 10, 1968 when defendant applied for the
foreclosure of the mortgage, the loan was not yet due and demandable, is totally incorrect and
misleading. The undeniable fact is that the loan matured on December 26, 1967. On June 10, 1968, when
respondent Bank applied for foreclosure, the loan was already six months overdue. Petitioners' payment
of interest on July 12, 1968 does not thereby make the earlier act of respondent Bank inequitous nor
does it ipso facto result in the renewal of the loan. In order that a renewal of a loan may be effected, not
only the payment of the accrued interest is necessary but also the payment of interest for the proposed
period of renewal as well. Besides, whether or not a loan may be renewed does not solely depend on the
debtor but more so on the discretion of the bank. Respondent Bank may not be, therefore, charged of
bad faith.
WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
Aquino, J., concur.
Makasiar (Chairman), Abad Santos and Escolin, JJ., concurs in the result.
Concepcion J J., took no part.
De Castro, J., is on leave.
Footnotes
1 Third Division, Reyes, L.B., J., ponente; Busran and Nocon, JJ., concurring.
2 4. The MORTGAGOR shall not sell, dispose of, mortgage, nor in any manner
encumber the mortgaged properties without the written consent of MORTGAGEE.
If in spite of this stipulation, a mortgaged property is sold, the Vendee shall
assume the mortgaged in the terms and conditions under which it is constituted, it
being understood that the assumption of the Vendee (does) not release the
Vendor of his obligation to the MORTGAGEE; on the contrary, both the Vendor and
the Vendee shall be jointly and severally liable for said mortgage obligation. ...
SECOND DIVISION
[G.R. No. 133632. February 15, 2002]
BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF APPEALS and ALS MANAGEMENT &
DEVELOPMENT CORPORATION, respondents.
D E C I S I O N
QUISUMBING, J.:
This petition for certiorari assails the decision dated February 28, 1997, of the Court of Appeals
and its resolution dated April 21, 1998, in CA-G.R. CV No. 38887. The appellate court affirmed the
judgment of the Regional Trial Court of Pasig City, Branch 151, in (a) Civil Case No. 11831, for foreclosure
of mortgage by petitioner BPI Investment Corporation (BPIIC for brevity) against private respondents ALS
Management and Development Corporation and Antonio K. Litonjua,
[1]
consolidated with (b) Civil Case
No. 52093, for damages with prayer for the issuance of a writ of preliminary injunction by the private
respondents against said petitioner.
The trial court had held that private respondents were not in default in the payment of their
monthly amortization, hence, the extrajudicial foreclosure conducted by BPIIC was premature and made
in bad faith. It awarded private respondents the amount of P300,000 for moral damages, P50,000 for
exemplary damages, and P50,000 for attorneys fees and expenses for litigation. It likewise dismissed the
foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and
Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a house on
his lot in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to AIDC to secure the
loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio Litonjua
for P850,000. They paid P350,000 in cash and assumed the P500,000 balance of Roas indebtedness with
AIDC. The latter, however, was not willing to extend the old interest rate to private respondents and
proposed to grant them a new loan of P500,000 to be applied to Roas debt and secured by the same
property, at an interest rate of 20% per annum and service fee of 1% per annum on the outstanding
principal balance payable within ten years in equal monthly amortization ofP9,996.58 and penalty
interest at the rate of 21% per annum per day from the date the amortization became due and payable.
Consequently, in March 1981, private respondents executed a mortgage deed containing the
above stipulations with the provision that payment of the monthly amortization shall commence on May
1, 1981.
On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum
of P190,601.35. This reduced Roas principal balance to P457,204.90 which, in turn, was liquidated when
BPIIC applied thereto the proceeds of private respondents loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to be what
was left of their loan after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground
that they failed to pay the mortgage indebtedness which from May 1, 1981 toJune 30, 1984, amounted
to Four Hundred Seventy Five Thousand Five Hundred Eighty Five and 31/100 Pesos (P475,585.31). A
notice of sheriffs sale was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged,
among others, that they were not in arrears in their payment, but in fact made an overpayment as
of June 30, 1984. They maintained that they should not be made to pay amortization before the actual
release of the P500,000 loan in August and September 1982. Further, out of the P500,000 loan, only the
total amount of P464,351.77 was released to private respondents. Hence, applying the effects of legal
compensation, the balance ofP35,648.23 should be applied to the initial monthly amortization for the
loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093,
thus:
WHEREFORE, judgment is hereby rendered in favor of ALS Management and Development Corporation
and Antonio K. Litonjua and against BPI Investment Corporation, holding that the amount of loan
granted by BPI to ALS and Litonjua was only in the principal sum of P464,351.77, with interest at 20%
plus service charge of 1% per annum, payable on equal monthly and successive amortizations at
P9,283.83 for ten (10) years or one hundred twenty (120) months. The amortization schedule attached
as Annex A to the Deed of Mortgage is correspondingly reformed as aforestated.
The Court further finds that ALS and Litonjua suffered compensable damages when BPI caused their
publication in a newspaper of general circulation as defaulting debtors, and therefore orders BPI to pay
ALS and Litonjua the following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorneys fees and expenses of litigation.
The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being premature.
Costs against BPI.
SO ORDERED.
[2]

Both parties appealed to the Court of Appeals. However, private respondents appeal was
dismissed for non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion
reads:
WHEREFORE, finding no error in the appealed decision the same is hereby AFFIRMED in toto.
SO ORDERED.
[3]

In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the
delivery of the object of the contract. The contract of loan between BPIIC and ALS & Litonjua was
perfected only on September 13, 1982, the date when BPIIC released the purported balance of
the P500,000 loan after deducting therefrom the value of Roas indebtedness. Thus, payment of the
monthly amortization should commence only a month after the said date, as can be inferred from the
stipulations in the contract. This, despite the express agreement of the parties that payment shall
commence on May 1, 1981. From October 1982 to June 1984, the total amortization due was
only P194,960.43. Evidence showed that private respondents had an overpayment, because as of June
1984, they already paid a total amount of P201,791.96. Therefore, there was no basis for BPIIC to
extrajudicially foreclose the mortgage and cause the publication in newspapers concerning private
respondents delinquency in the payment of their loan. This fact constituted sufficient ground for moral
damages in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this petition,
where BPIIC submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN THE LIGHT OF
THE RULE LAID DOWN IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND EXEMPLARY DAMAGES
AND ATTORNEYS FEES IN THE FACE OF IRREGULAR PAYMENTS MADE BY ALS AND
OPPOSED TO THE RULE LAID DOWN IN SOCIAL SECURITY SYSTEM VS. COURT OF
APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of Appeals erred in ruling that because a
simple loan is perfected upon the delivery of the object of the contract, the loan contract in this case was
perfected only on September 13, 1982. Petitioner claims that a contract of loan is a consensual contract,
and a loan contract is perfected at the time the contract of mortgage is executed conformably with our
ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In the present case, the loan contract was
perfected on March 31, 1981, the date when the mortgage deed was executed, hence, the amortization
and interests on the loan should be computed from said date.
Petitioner also argues that while the documents showed that the loan was released only on
August 1982, the loan was actually released on March 31, 1981, when BPIIC issued a cancellation of
mortgage of Frank Roas loan. This finds support in the registration on March 31, 1981 of the Deed of
Absolute Sale executed by Roa in favor of ALS, transferring the title of the property to ALS, and ALS
executing the Mortgage Deed in favor of BPIIC. Moreover, petitioner claims, the delay in the release of
the loan should be attributed to private respondents. As BPIIC only agreed to extend a P500,000 loan,
private respondents were required to reduce Frank Roas loan below said amount. According to
petitioner, private respondents were only able to do so in August 1982.
In their comment, private respondents assert that based on Article 1934 of the Civil Code,
[4]
a
simple loan is perfected upon the delivery of the object of the contract, hence a real contract. In this
case, even though the loan contract was signed on March 31, 1981, it was perfected only on September
13, 1982, when the full loan was released to private respondents. They submit that petitioner
misread Bonnevie. To give meaning to Article 1934, according to private respondents, Bonnevie must be
construed to mean that the contract to extend the loan was perfected on March 31, 1981 but the
contract of loan itself was only perfected upon the delivery of the full loan to private respondents
on September 13, 1982.
Private respondents further maintain that even granting, arguendo, that the loan contract was
perfected on March 31, 1981, and their payment did not start a month thereafter, still no default took
place. According to private respondents, a perfected loan agreement imposes reciprocal obligations,
where the obligation or promise of each party is the consideration of the other party. In this case, the
consideration for BPIIC in entering into the loan contract is the promise of private respondents to pay
the monthly amortization. For the latter, it is the promise of BPIIC to deliver the money. In reciprocal
obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Therefore, private respondents conclude, they did
not incur in delay when they did not commence paying the monthly amortization on May 1, 1981, as it
was only on September 13, 1982 when petitioner fully complied with its obligation under the loan
contract.
We agree with private respondents. A loan contract is not a consensual contract but a real
contract. It is perfected only upon the delivery of the object of the contract.
[5]
Petitioner
misapplied Bonnevie. The contract in Bonnevie declared by this Court as a perfected consensual contract
falls under the first clause of Article 1934, Civil Code. It is an accepted promise to deliver something by
way of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445,
petitioner applied for a loan of P500,000 with respondent bank. The latter approved the application
through a board resolution. Thereafter, the corresponding mortgage was executed and
registered. However, because of acts attributable to petitioner, the loan was not released. Later,
petitioner instituted an action for damages. We recognized in this case, a perfected consensual contract
which under normal circumstances could have made the bank liable for not releasing the loan. However,
since the fault was attributable to petitioner therein, the court did not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for damages.
However, said contract does not constitute the real contract of loan which requires the delivery of the
object of the contract for its perfection and which gives rise to obligations only on the part of the
borrower.
[6]

In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the
other, was perfected only on September 13, 1982, the date of the second release of the loan. Following
the intentions of the parties on the commencement of the monthly amortization, as found by the Court
of Appeals, private respondents obligation to pay commenced only on October 13, 1982, a month after
the perfection of the contract.
[7]

We also agree with private respondents that a contract of loan involves a reciprocal obligation,
wherein the obligation or promise of each party is the consideration for that of the other.
[8]
As averred
by private respondents, the promise of BPIIC to extend and deliver the loan is upon the consideration
that ALS and Litonjua shall pay the monthly amortization commencing on May 1, 1981, one month after
the supposed release of the loan. It is a basic principle in reciprocal obligations that neither party incurs
in delay, if the other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him.
[9]
Only when a party has performed his part of the contract can he demand that
the other party also fulfills his own obligation and if the latter fails, default sets in. Consequently,
petitioner could only demand for the payment of the monthly amortization after September 13, 1982for
it was only then when it complied with its obligation under the loan contract. Therefore, in computing
the amount due as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the
starting date is October 13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the date of actual
release of the loan and whether private respondents were the cause of the delay in the release of the
loan, are factual. Since petitioner has not shown that the instant case is one of the exceptions to the
basic rule that only questions of law can be raised in a petition for review under Rule 45 of the Rules of
Court,
[10]
factual matters need not tarry us now. On these points we are bound by the findings of the
appellate and trial courts.
On the second issue, petitioner claims that it should not be held liable for moral and exemplary
damages for it did not act maliciously when it initiated the foreclosure proceedings. It merely exercised
its right under the mortgage contract because private respondents were irregular in their monthly
amortization. It invoked our ruling in Social Security System vs. Court of Appeals, 120 SCRA 707, where
we said:
Nor can the SSS be held liable for moral and temperate damages. As concluded by the Court of Appeals
the negligence of the appellant is not so gross as to warrant moral and temperate damages, except
that, said Court reduced those damages by only P5,000.00 instead of eliminating them. Neither can we
agree with the findings of both the Trial Court and respondent Court that the SSS had acted maliciously
or in bad faith. The SSS was of the belief that it was acting in the legitimate exercise of its right under the
mortgage contract in the face of irregular payments made by private respondents and placed reliance on
the automatic acceleration clause in the contract. The filing alone of the foreclosure application should
not be a ground for an award of moral damages in the same way that a clearly unfounded civil action is
not among the grounds for moral damages.
Private respondents counter that BPIIC was guilty of bad faith and should be liable for said
damages because it insisted on the payment of amortization on the loan even before it was
released. Further, it did not make the corresponding deduction in the monthly amortization to conform
to the actual amount of loan released, and it immediately initiated foreclosure proceedings when private
respondents failed to make timely payment.
But as admitted by private respondents themselves, they were irregular in their payment of
monthly amortization. Conformably with our ruling in SSS, we can not properly declare BPIIC in bad
faith. Consequently, we should rule out the award of moral and exemplary damages.
[11]

However, in our view, BPIIC was negligent in relying merely on the entries found in the deed of
mortgage, without checking and correspondingly adjusting its records on the amount actually released
to private respondents and the date when it was released. Such negligence resulted in damage to
private respondents, for which an award of nominal damages should be given in recognition of their
rights which were violated by BPIIC.
[12]
For this purpose, the amount of P25,000 is sufficient.
Lastly, as in SSS where we awarded attorneys fees because private respondents were compelled
to litigate, we sustain the award of P50,000 in favor of private respondents as attorneys fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its resolution
dated April 21, 1998, are AFFIRMED WITH MODIFICATION as to the award of damages. The award of
moral and exemplary damages in favor of private respondents is DELETED, but the award to them of
attorneys fees in the amount of P50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private
respondents P25,000 as nominal damages. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

SECOND DIVISION
[G.R. No. 118375. October 3, 2003]
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA QUEAO, respondents.
D E C I S I O N
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the
Sixteenth Division of the respondent Court of Appeals promulgated on 21 December 1994
[1]
, which
affirmed in toto the decision handed down by the Regional Trial Court (RTC) of Pasay City.
[2]

The case arose when on 11 August 1981, private respondent Aurora Queao (Queao) filed a
complaint before the Pasay City RTC for cancellation of a Real Estate Mortgageshe had entered into with
petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision, declaring the questioned Real
Estate Mortgage void, which Naguiat appealed to the Court of Appeals. After the Court of Appeals
upheld the RTC decision, Naguiat instituted the present petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos
(P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to Queao Associated Bank
Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five Thousand Pesos (P95,000.00),
which was earlier issued to Naguiat by the Corporate Resources Financing Corporation. She also issued
her own Filmanbank Check No. 065314, to the order of Queao, also dated 11 August 1980 and for the
amount of Ninety Five Thousand Pesos (P95,000.00). The proceeds of these checks were to constitute
the loan granted by Naguiat to Queao.
[3]

To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August 1980 in
favor of Naguiat, and surrendered to the latter the owners duplicates of the titles covering the
mortgaged properties.
[4]
On the same day, the mortgage deed was notarized, and Queao issued to
Naguiat a promissory note for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00), with
interest at 12% per annum, payable on 11 September 1980.
[5]
Queao also issued a Security Bank and
Trust Company check, postdated 11 September 1980, for the amount of TWO HUNDRED THOUSAND
PESOS (P200,000.00) and payable to the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency
of funds. On the following day, 12 September 1980, Queao requested Security Bank to stop payment of
her postdated check, but the bank rejected the request pursuant to its policy not to honor such requests
if the check is drawn against insufficient funds.
[6]

On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding settlement of
the loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the
meeting, Queao told Naguiat that she did not receive the proceeds of the loan, adding that the checks
were retained by Ruebenfeldt, who purportedly was Naguiats agent.
[7]

Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province,
who then scheduled the foreclosure sale on 14 August 1981. Three days before the scheduled sale,
Queao filed the case before the Pasay City RTC,
[8]
seeking the annulment of the mortgage deed. The
trial court eventually stopped the auction sale.
[9]

On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate Mortgage null
and void, and ordering Naguiat to return to Queao the owners duplicates of her titles to the mortgaged
lots.
[10]
Naguiat appealed the decision before the Court of Appeals, making no less than eleven
assignments of error. The Court of Appeals promulgated the decision now assailed before us that
affirmed in toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of
whether Queao had actually received the loan proceeds which were supposed to be covered by the
two checks Naguiat had issued or indorsed. Naguiat claims that being a notarial instrument or public
document, the mortgage deed enjoys the presumption that the recitals therein are true. Naguiat also
questions the admissibility of various representations and pronouncements of Ruebenfeldt, invoking the
rule on the non-binding effect of the admissions of third persons.
[11]

The resolution of the issues presented before this Court by Naguiat involves the determination of
facts, a function which this Court does not exercise in an appeal by certiorari. Under Rule 45 which
governs appeal by certiorari, only questions of law may be raised
[12]
as the Supreme Court is not a trier of
facts.
[13]
The resolution of factual issues is the function of lower courts, whose findings on these matters
are received with respect and are in fact generally binding on the Supreme Court.
[14]
A question of law
which the Court may pass upon must not involve an examination of the probative value of the evidence
presented by the litigants.
[15]
There is a question of law in a given case when the doubt or difference
arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or
difference arises as to the truth or the falsehood of alleged facts.
[16]

Surely, there are established exceptions to the rule on the conclusiveness of the findings of facts
of the lower courts.
[17]
But Naguiats case does not fall under any of the exceptions. In any event, both
the decisions of the appellate and trial courts are supported by the evidence on record and the
applicable laws.
Against the common finding of the courts below, Naguiat vigorously insists that Queao received
the loan proceeds. Capitalizing on the status of the mortgage deed as a public document, she cites the
rule that a public document enjoys the presumption of validity and truthfulness of its contents. The
Court of Appeals, however, is correct in ruling that the presumption of truthfulness of the recitals in a
public document was defeated by the clear and convincing evidence in this case that pointed to the
absence of consideration.
[18]
This Court has held that the presumption of truthfulness engendered by
notarized documents is rebuttable, yielding as it does to clear and convincing evidence to the contrary,
as in this case.
[19]

On the other hand, absolutely no evidence was submitted by Naguiat that the checks she issued
or endorsed were actually encashed or deposited. The mere issuance of the checks did not result in the
perfection of the contract of loan. For the Civil Code provides that the delivery of bills of exchange and
mercantile documents such as checks shall produce the effect of payment only when they have been
cashed.
[20]
It is only after the checks have produced the effect of payment that the contract of loan may
be deemed perfected. Art. 1934 of the Civil Code provides:
An accepted promise to deliver 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.
A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery
of the object of the contract.
[21]
In this case, the objects of the contract are the loan proceeds which
Queao would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If indeed
the checks were encashed or deposited, Naguiat would have certainly presented the corresponding
documentary evidence, such as the returned checks and the pertinent bank records. Since Naguiat
presented no such proof, it follows that the checks were not encashed or credited to Queaos account.
Naguiat questions the admissibility of the various written representations made by Ruebenfeldt
on the ground that they could not bind her following the res inter alia acta alteri nocere non
debet rule. The Court of Appeals rejected the argument, holding that since Ruebenfeldt was an
authorized representative or agent of Naguiat the situation falls under a recognized exception to the
rule.
[22]
Still, Naguiat insists that Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency relationship between Naguiat and Ruebenfeldt
is supported by ample evidence. As correctly pointed out by the Court of Appeals, Ruebenfeldt was not
a stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queao the
checks she issued or indorsed to Queao, pending delivery by the latter of additional
collateral. Ruebenfeldt served as agent of Naguiat on the loan application of Queaos friend, Marilou
Farralese, and it was in connection with that transaction that Queao came to know Naguiat.
[23]
It was
also Ruebenfeldt who accompanied Queao in her meeting with Naguiat and on that occasion, on her
own and without Queao asking for it, Reubenfeldt actually drew a check for the sum of P220,000.00
payable to Naguiat, to cover for Queaos alleged liability to Naguiat under the loan agreement.
[24]

The Court of Appeals recognized the existence of an agency by estoppel
[25]
citing Article 1873 of
the Civil Code.
[26]
Apparently, it considered that at the very least, as a consequence of the interaction
between Naguiat and Ruebenfeldt, Queao got the impression that Ruebenfeldt was the agent of
Naguiat, but Naguiat did nothing to correct Queaos impression. In that situation, the rule is clear. One
who clothes another with apparent authority as his agent, and holds him out to the public as such,
cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of
innocent third parties dealing with such person in good faith, and in the honest belief that he is what he
appears to be.
[27]
The Court of Appeals is correct in invoking the said rule on agency by estoppel.
More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt is
irrelevant in the face of the fact that the checks issued or indorsed to Queao were never encashed or
deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the courts a quo that the lender did
not remit and the borrower did not receive the proceeds of the loan. That being the case, it follows that
the mortgage which is supposed to secure the loan is null and void. The consideration of the mortgage
contract is the same as that of the principal contract from which it receives life, and without which it
cannot exist as an independent contract.
[28]
A mortgage contract being a mere accessory contract, its
validity would depend on the validity of the loan secured by it.
[29]

WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.

Republic of the Philippines
SUPREME COURT
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 certiorari
1
are the June 19, 2002 decision
2
and August 20, 2002
resolution
3
of the Court of Appeals (CA) in CA-G.R. CV No. 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 check
4
dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain
Marilou Santiago.
5
Thereafter, petitioner received from respondent every month (specifically, on March
24, April 26, June 26 and July 26, all in 1995) the amount of US$3,000
6
and P76,500
7
on July 26,
8
August
26, September 26 and October 26, 1995.
In June 1995, respondent received from petitioner another crossed check
9
dated June 29, 1995 in the
amount ofP500,000, also payable to the order of Marilou Santiago.
10
Consequently, petitioner received
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 attorneys 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 monthly interest for both loans but on their maturity dates, she failed to pay the principal
amounts despite repeated demands.
16
1awphi1.nt
Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou
Santiago to 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 petitioners request that respondent use her own checks instead of Santiagos.
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 attorneys fees; and
4. P50,000.00 as and for actual damages.
For lack of merit, *respondents+ 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 onceto 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 werecontracts of loan) are contradictory.
24

The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected only upon the 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 respondents instruction that both checks were made payable to
Santiago.
27
She maintains that it was also upon respondents instruction that both checks were delivered
to her (respondent) so that she could, in turn, deliver the same to Santiago.
28
Furthermore, she argues
that once respondent received the checks, the latter had possession and control of 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 respondents plan was for petitioner to lend her money at a
monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a higher
rate of 5% and realize a profit of 2%.
33
This explained why respondent instructed petitioner to make the
checks payable to Santiago. Respondent has not shown any reason 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 petitioners request for her to issue her own checks to cover the
interest payments since petitioner was not personally acquainted with Santiago.
35
She claimed, however,
that Santiago would replace the checks with cash.
36
Her explanation is simply incredible. It is difficult to
believe that respondent would put herself in a position where she would be compelled to pay interest,
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 (Santiagos) creditors.
38

Last, respondent inexplicably never presented Santiago as a witness to corroborate her story.
39
The
presumption is that "evidence willfully suppressed would be adverse if produced."
40
Respondent was not
able to overturn this presumption.
We hold that the CA committed reversible error when it ruled that respondent did not borrow the
amounts of US$100,000 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 andP500,000 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 petitioners 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 attorneys 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 attorneys fees is deleted.
SO ORDERED.

Republic of the Philippines
Supreme Court
Manila


SPECIAL SECOND DIVISION


POLO S. PANTALEON,
Petitioner,


- versus -


AMERICAN EXPRESS INTERNATIONAL, INC.,
Respondent.
G.R. No. 174269

Present:

CARPIO MORALES, J.,
Acting Chairperson,
VELASCO, JR.,
LEONARDO-DE CASTRO,
BRION, and

*
BERSAMIN, JJ.

Promulgated:

August 25, 2010
x----------------------------------------------------------------------------------------x

R E S O L U T I O N

BRION, J.:

We resolve the motion for reconsideration filed by respondent American Express International, Inc.
(AMEX) dated June 8, 2009,
[1]
seeking to reverse our Decision dated May 8, 2009 where we ruled that
AMEX was guilty of culpable delay in fulfilling its obligation to its cardholder petitioner Polo
Pantaleon. Based on this conclusion, we held AMEX liable for moral and exemplary damages, as well as
attorneys fees and costs of litigation.
[2]


FACTUAL ANTECEDENTS

The established antecedents of the case are narrated below.

AMEX is a resident foreign corporation engaged in the business of providing credit services through
the operation of a charge card system. Pantaleon has been an AMEX cardholder since 1980.
[3]


In October 1991, Pantaleon, together with his wife (Julialinda), daughter (Regina), and son
(Adrian Roberto), went on a guided European tour. On October 25, 1991, the tour group arrived
in Amsterdam. Due to their late arrival, they postponed the tour of the city for the following day.
[4]


The next day, the group began their sightseeing at around 8:50 a.m. with a trip to the Coster
Diamond House (Coster). To have enough time for take a guided city tour of Amsterdam before their
departure scheduled on that day, the tour group planned to leave Coster by 9:30 a.m. at the latest.

While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a total of
US$13,826.00. Pantaleon presented his American Express credit card to the sales clerk to pay for this
purchase. He did this at around 9:15 a.m. The sales clerk swiped the credit card and asked Pantaleon to
sign the charge slip, which was then electronically referred to AMEXs Amsterdam office at 9:20 a.m.
[5]


At around 9:40 a.m., Coster had not received approval from AMEX for the purchase so Pantaleon
asked the store clerk to cancel the sale. The store manager, however, convinced Pantaleon to wait a few
more minutes. Subsequently, the store manager informed Pantaleon that AMEX was asking for bank
references; Pantaleon responded by giving the names of his Philippine depository banks.

At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEX still had not
approved the purchase. Since the city tour could not begin until the Pantaleons were onboard the tour
bus, Coster decided to release at around 10:05 a.m. the purchased items to Pantaleon even without
AMEXs approval.

When the Pantaleons finally returned to the tour bus, they found their travel companions
visibly irritated. This irritation intensified when the tour guide announced that they would have to
cancel the tour because of lack of time as they all had to be in Calais, Belgium by 3 p.m. to catch the ferry
to London.
[6]


From the records, it appears that after Pantaleons purchase was transmitted for approval to
AMEXs Amsterdam office at 9:20 a.m.; was referred to AMEXsManila office at 9:33 a.m.; and was
approved by the Manila office at 10:19 a.m. At 10:38 a.m., AMEXs Manila office finally transmitted the
Approval Code to AMEXs Amsterdam office. In all, it took AMEX a total of 78 minutes to approve
Pantaleons purchase and to transmit the approval to the jewelry store.
[7]


After the trip to Europe, the Pantaleon family proceeded to the United States. Again, Pantaleon
experienced delay in securing approval for purchases using his American Express credit card on two
separate occasions. He experienced the first delay when he wanted to purchase golf equipment in the
amount of US$1,475.00 at the Richard Metz Golf Studio in New York on October 30, 1991. Another delay
occurred when he wanted to purchase childrens shoes worth US$87.00 at the Quiency Market
in Boston on November 3, 1991.

Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for the humiliation
and inconvenience he and his family experienced due to the delays in obtaining approval for his credit
card purchases. AMEX responded by explaining that the delay in Amsterdam was due to the amount
involved the charged purchase of US$13,826.00 deviated from Pantaleons established charge
purchase pattern. Dissatisfied with this explanation, Pantaleon filed an action for damages against the
credit card company with the Makati City Regional Trial Court (RTC).


On August 5, 1996, the RTC found AMEX guilty of delay, and awarded Pantaleon P500,000.00
as moral damages, P300,000.00 as exemplary damages,P100,000.00 as attorneys fees, and P85,233.01
as litigation expenses.

On appeal, the CA reversed the awards.
[8]
While the CA recognized that delay in the nature
of mora accipiendi or creditors default attended AMEXs approval of Pantaleons purchases, it disagreed
with the RTCs finding that AMEX had breached its contract, noting that the delay was not attended by
bad faith, malice or gross negligence. The appellate court found that AMEX exercised diligent efforts to
effect the approval of Pantaleons purchases; the purchase at Coster posed particularly a problem
because it was at variance with Pantaleons established charge pattern. As there was no proof that
AMEX breached its contract, or that it acted in a wanton, fraudulent or malevolent manner, the
appellate court ruled that AMEX could not be held liable for any form of damages.

Pantaleon questioned this decision via a petition for review on certiorari with this Court.

In our May 8, 2009 decision, we reversed the appellate courts decision and held that AMEX
was guilty of mora solvendi, or debtors default. AMEX, as debtor, had an obligation as the credit
provider to act on Pantaleons purchase requests, whether to approve or disapprove them, with timely
dispatch. Based on the evidence on record, we found that AMEX failed to timely act on Pantaleons
purchases.

Based on the testimony of AMEXs credit authorizer Edgardo Jaurique, the approval time for
credit card charges would be three to four seconds under regular circumstances. In Pantaleons case, it
took AMEX 78 minutes to approve the Amsterdam purchase. We attributed this delay to
AMEXs Manila credit authorizer, Edgardo Jaurique, who had to go over Pantaleons past credit history,
his payment record and his credit and bank references before he approved the purchase. Finding this
delay unwarranted, we reinstated the RTC decision and awarded Pantaleon moral and exemplary
damages, as well as attorneys fees and costs of litigation.

THE MOTION FOR RECONSIDERATION

In its motion for reconsideration, AMEX argues that this Court erred when it found AMEX guilty of
culpable delay in complying with its obligation to act with timely dispatch on Pantaleons purchases.
While AMEX admits that it normally takes seconds to approve charge purchases, it emphasizes that
Pantaleon experienced delay in Amsterdam because his transaction was not a normal one. To recall,
Pantaleon sought to charge in a single transaction jewelry items purchased from Coster in the total
amount of US$13,826.00 or P383,746.16. While the total amount of Pantaleons previous purchases
using his AMEX credit card did exceed US$13,826.00, AMEX points out that these purchases were made
in a span of more than 10 years, not in a single transaction.

Because this was the biggest single transaction that Pantaleon ever made using his AMEX
credit card, AMEX argues that the transaction necessarily required the credit authorizer to carefully
review Pantaleons credit history and bank references. AMEX maintains that it did this not only to
ensure Pantaleons protection (to minimize the possibility that a third party was fraudulently using his
credit card), but also to protect itself from the risk that Pantaleon might not be able to pay for his
purchases on credit. This careful review, according to AMEX, is also in keeping with the extraordinary
degree of diligence required of banks in handling its transactions. AMEX concluded that in these lights,
the thorough review of Pantaleons credit record was motivated by legitimate concerns and could not be
evidence of any ill will, fraud, or negligence by AMEX.

AMEX further points out that the proximate cause of Pantaleons humiliation and
embarrassment was his own decision to proceed with the purchase despite his awareness that the tour
group was waiting for him and his wife. Pantaleon could have prevented the humiliation had he
cancelled the sale when he noticed that the credit approval for the Coster purchase was unusually
delayed.

In his Comment dated February 24, 2010, Pantaleon maintains that AMEX was guilty of mora
solvendi, or delay on the part of the debtor, in complying with its obligation to him. Based on
jurisprudence, a just cause for delay does not relieve the debtor in delay from the consequences of
delay; thus, even if AMEX had a justifiable reason for the delay, this reason would not relieve it from the
liability arising from its failure to timely act on Pantaleons purchase.

In response to AMEXs assertion that the delay was in keeping with its duty to perform its
obligation with extraordinary diligence, Pantaleon claims that this duty includes the timely or prompt
performance of its obligation.

As to AMEXs contention that moral or exemplary damages cannot be awarded absent a
finding of malice, Pantaleon argues that evil motive or design is not always necessary to support a finding
of bad faith; gross negligence or wanton disregard of contractual obligations is sufficient basis for the
award of moral and exemplary damages.

OUR RULING

We GRANT the motion for reconsideration.


Brief historical background

A credit card is defined as any card, plate, coupon book, or other credit device existing for
the purpose of obtaining money, goods, property, labor or services or anything of value on credit.
[9]
It
traces its roots to the charge card first introduced by the Diners Club in New York City in
1950.
[10]
American Express followed suit by introducing its own charge card to the American market
in 1958.
[11]


In the Philippines, the now defunct Pacific Bank was responsible for bringing the first credit
card into the country in the 1970s.
[12]
However, it was only in the early 2000s that credit card use gained
wide acceptance in the country, as evidenced by the surge in the number of credit card holders then.
[13]


Nature of Credit Card Transactions

To better understand the dynamics involved in credit card transactions, we turn to the United
States case of Harris Trust & Savings Bank v. McCray
[14]
which explains:

The bank credit card system involves a tripartite relationship between
the issuer bank, the cardholder, and merchants participating in the system. The
issuer bank establishes an account on behalf of the person to whom the card is
issued, and the two parties enter into an agreement which governs their
relationship. This agreement provides that the bank will pay for cardholders
account the amount of merchandise or services purchased through the use of the
credit card and will also make cash loans available to the cardholder. It also states
that the cardholder shall be liable to the bank for advances and payments made by
the bank and that the cardholders obligation to pay the bank shall not be affected
or impaired by any dispute, claim, or demand by the cardholder with respect to
any merchandise or service purchased.

The merchants participating in the system agree to honor the banks
credit cards. The bank irrevocably agrees to honor and pay the sales slips
presented by the merchant if the merchant performs his undertakings such as
checking the list of revoked cards before accepting the card. x x x.

These slips are forwarded to the member bank which originally issued
the card. The cardholder receives a statement from the bank periodically and may
then decide whether to make payment to the bank in full within a specified period,
free of interest, or to defer payment and ultimately incur an interest charge.


We adopted a similar view in CIR v. American Express International, Inc. (Philippine
branch),
[15]
where we also recognized that credit card issuers are not limited to banks. We said:

Under RA 8484, the credit card that is issued by banks in general, or by
non-banks in particular, refers to any card x x x or other credit device existing
for the purpose of obtaining x x x goods x x x or services x x x on credit; and
is being used usually on a revolving basis. This means that the consumer-credit
arrangement that exists between the issuer and the holder of the credit card
enables the latter to procure goods or services on a continuing basis as long as
the outstanding balance does not exceed a specified limit. The card holder is,
therefore, given the power to obtain present control of goods or service on a
promise to pay for them in the future.

Business establishments may extend credit sales through the use of the
credit card facilities of a non-bank credit card company to avoid the risk of
uncollectible accounts from their customers. Under this system, the
establishments do not deposit in their bank accounts the credit card drafts that
arise from the credit sales. Instead, they merely record their receivables from the
credit card company and periodically send the drafts evidencing those receivables
to the latter.

The credit card company, in turn, sends checks as payment to these business
establishments, but it does not redeem the drafts at full price. The agreement
between them usually provides for discounts to be taken by the company upon its
redemption of the drafts. At the end of each month, it then bills its credit card
holders for their respective drafts redeemed during the previous month. If the
holders fail to pay the amounts owed, the company sustains the loss.


Simply put, every credit card transaction involves three contracts, namely: (a) the sales
contract between the credit card holder and the merchant or the business establishment which
accepted the credit card; (b) the loan agreement between the credit card issuer and the credit card
holder; and lastly, (c) the promise to paybetween the credit card issuer and the merchant or business
establishment.
[16]


Credit card issuer cardholder
relationship


When a credit card company gives the holder the privilege of charging items at
establishments associated with the issuer,
[17]
a necessary question in a legal analysis is when does this
relationship begin? There are two diverging views on the matter. In City Stores Co. v.
Henderson,
[18]
another U.S. decision, held that:

The issuance of a credit card is but an offer to extend a line of open
account credit. It is unilateral and supported by no consideration. The offer may be
withdrawn at any time, without prior notice, for any reason or, indeed, for no
reason at all, and its withdrawal breaches no duty for there is no duty to
continue it and violates no rights.

Thus, under this view, each credit card transaction is considered a separate offer and acceptance.

Novack v. Cities Service Oil Co.
[19]
echoed this view, with the court ruling that the mere
issuance of a credit card did not create a contractual relationship with the cardholder.

On the other end of the spectrum is Gray v. American Express Company
[20]
which recognized the
card membership agreement itself as a binding contract between the credit card issuer and the card
holder. Unlike in the Novack and the City Stores cases, however, the cardholder in Gray paid an annual
fee for the privilege of being an American Express cardholder.

In our jurisdiction, we generally adhere to the Gray ruling, recognizing the relationship between the
credit card issuer and the credit card holder as a contractual one that is governed by the terms and
conditions found in the card membership agreement.
[21]
This contract provides the rights and liabilities of
a credit card company to its cardholders and vice versa.

We note that a card membership agreement is a contract of adhesion as its terms are
prepared solely by the credit card issuer, with the cardholder merely affixing his signature signifying his
adhesion to these terms.
[22]
This circumstance, however, does not render the agreement void; we have
uniformly held that contracts of adhesion are as binding as ordinary contracts, the reason being that the
party who adheres to the contract is free to reject it entirely.
[23]
The only effect is that the terms of the
contract are construed strictly against the party who drafted it.
[24]




On AMEXs obligations to Pantaleon

We begin by identifying the two privileges that Pantaleon assumes he is entitled to with the
issuance of his AMEX credit card, and on which he anchors his claims. First, Pantaleon presumes that
since his credit card has no pre-set spending limit, AMEX has the obligation to approve all his charge
requests. Conversely, even if AMEX has no such obligation, at the very least it is obliged to act on his
charge requests within a specific period of time.

i. Use of credit card a mere offer to enter into loan agreements

Although we recognize the existence of a relationship between the credit card issuer and the
credit card holder upon the acceptance by the cardholder of the terms of the card membership
agreement (customarily signified by the act of the cardholder in signing the back of the credit card), we
have to distinguish this contractual relationship from the creditor-debtor relationship which only
arises after the credit card issuer has approved the cardholders purchase request. The first relates
merely to an agreement providing for credit facility to the cardholder. The latter involves the actual
credit on loan agreement involving three contracts, namely: the sales contract between the credit card
holder and the merchant or the business establishment which accepted the credit card; the loan
agreement between the credit card issuer and the credit card holder; and the promise to pay between
the credit card issuer and the merchant or business establishment.

From the loan agreement perspective, the contractual relationship begins to exist only upon
the meeting of the offer
[25]
and acceptance of the parties involved. In more concrete terms, when
cardholders use their credit cards to pay for their purchases, they merely offer to enter into loan
agreements with the credit card company. Only after the latter approves the purchase requests that the
parties enter into binding loan contracts, in keeping with Article 1319 of the Civil Code, which provides:

Article 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute. A qualified acceptance
constitutes a counter-offer.

This view finds support in the reservation found in the card membership agreement itself,
particularly paragraph 10, which clearly states that AMEX reserve[s] the right to deny authorization for
any requested Charge. By so providing, AMEX made its position clear that it has no obligation to
approve any and all charge requests made by its card holders.

ii. AMEX not guilty of culpable delay

Since AMEX has no obligation to approve the purchase requests of its credit cardholders,
Pantaleon cannot claim that AMEX defaulted in its obligation. Article 1169 of the Civil Code, which
provides the requisites to hold a debtor guilty of culpable delay, states:

Article 1169. Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation. x x x.


The three requisites for a finding of default are: (a) that the obligation is demandable and
liquidated; (b) the debtor delays performance; and (c) the creditor judicially or extrajudicially requires
the debtors performance.
[26]


Based on the above, the first requisite is no longer met because AMEX, by the express terms
of the credit card agreement, is not obligated to approve Pantaleons purchase request. Without a
demandable obligation, there can be no finding of default.

Apart from the lack of any demandable obligation, we also find that Pantaleon failed to make
the demand required by Article 1169 of the Civil Code.

As previously established, the use of a credit card to pay for a purchase is only an offer to the
credit card company to enter a loan agreement with the credit card holder. Before the credit card issuer
accepts this offer, no obligation relating to the loan agreement exists between them. On the other
hand, a demand is defined as the assertion of a legal right; xxx an asking with authority, claiming or
challenging as due.
[27]
A demand presupposes the existence of an obligation between the parties.

Thus, every time that Pantaleon used his AMEX credit card to pay for his purchases, what the
stores transmitted to AMEX were his offers to execute loan contracts. These obviously could not be
classified as the demand required by law to make the debtor in default, given that no obligation could
arise on the part of AMEX until after AMEX transmitted its acceptance of Pantaleons offers. Pantaleons
act of insisting on and waiting for the charge purchases to be approved by AMEX
[28]
is not the demand
contemplated by Article 1169 of the Civil Code.

For failing to comply with the requisites of Article 1169, Pantaleons charge that AMEX is
guilty of culpable delay in approving his purchase requests must fail.

iii. On AMEXs obligation to act on the offer within a specific period of time

Even assuming that AMEX had the right to review his credit card history before it approved his
purchase requests, Pantaleon insists that AMEX had an obligation to act on his purchase requests, either
to approve or deny, in a matter of seconds or in timely dispatch. Pantaleon impresses upon us the
existence of this obligation by emphasizing two points: (a) his card has no pre-set spending limit; and (b)
in his twelve years of using his AMEX card, AMEX had always approved his charges in a matter of
seconds.

Pantaleons assertions fail to convince us.

We originally held that AMEX was in culpable delay when it acted on the Coster transaction,
as well as the two other transactions in the United States which took AMEX approximately 15 to 20
minutes to approve. This conclusion appears valid and reasonable at first glance, comparing the time it
took to finally get the Coster purchase approved (a total of 78 minutes), to AMEXs normal approval
time of three to four seconds (based on the testimony of Edgardo Jaurigue, as well as Pantaleons
previous experience). We come to a different result, however, after a closer look at the factual and legal
circumstances of the case.

AMEXs credit authorizer, Edgardo Jaurigue, explained that having no pre-set spending limit in
a credit card simply means that the charges made by the cardholder are approved based on his ability to
pay, as demonstrated by his past spending, payment patterns, and personal
resources.
[29]
Nevertheless, every time Pantaleon charges a purchase on his credit card, the credit card
company still has to determine whether it will allow this charge, based on his past credit history. This
right to review a card holders credit history, although not specifically set out in the card membership
agreement, is a necessary implication of AMEXs right to deny authorization for any requested charge.

As for Pantaleons previous experiences with AMEX (i.e., that in the past 12 years, AMEX has
always approved his charge requests in three or four seconds), this record does not establish that
Pantaleon had a legally enforceable obligation to expect AMEX to act on his charge requests within a
matter of seconds. For one, Pantaleon failed to present any evidence to support his assertion that AMEX
acted on purchase requests in a matter of three or four seconds as an established practice. More
importantly, even if Pantaleon did prove that AMEX, as a matter of practice or custom, acted on its
customers purchase requests in a matter of seconds, this would still not be enough to establish a legally
demandable right; as a general rule, a practice or custom is not a source of a legally demandable or
enforceable right.
[30]


We next examine the credit card membership agreement, the contract that primarily governs
the relationship between AMEX and Pantaleon. Significantly, there is no provision in this agreement
that obligates AMEX to act on all cardholder purchase requests within a specifically defined period of
time. Thus, regardless of whether the obligation is worded was to act in a matter of seconds or to act
in timely dispatch, the fact remains that no obligation exists on the part of AMEX to act within a specific
period of time. Even Pantaleon admits in his testimony that he could not recall any provision in the
Agreement that guaranteed AMEXs approval of his charge requests within a matter of minutes.
[31]


Nor can Pantaleon look to the law or government issuances as the source of AMEXs alleged
obligation to act upon his credit card purchases within a matter of seconds. As the following survey of
Philippine law on credit card transactions demonstrates, the State does not require credit card
companies to act upon its cardholders purchase requests within a specific period of time.

Republic Act No. 8484 (RA 8484), or the Access Devices Regulation Act of 1998, approved
on February 11, 1998, is the controlling legislation
that regulates the issuance and use of access devices,
[32]
including credit cards. The more salient
portions of this law include the imposition of the obligation on a credit card company to disclose certain
important financial information
[33]
to credit card applicants, as well as a definition of the acts that
constitute access device fraud.

As financial institutions engaged in the business of providing credit, credit card companies fall
under the supervisory powers of the Bangko Sentral ng Pilipinas (BSP).
[34]
BSP Circular No. 398
dated August 21, 2003 embodies the BSPs policy when it comes to credit cards
The Bangko Sentral ng Pilipinas (BSP) shall foster the development of
consumer credit through innovative products such as credit cards under conditions
of fair and sound consumer credit practices. The BSP likewise encourages
competition and transparency to ensure more efficient delivery of services and fair
dealings with customers. (Emphasis supplied)

Based on this Circular, x x x [b]efore issuing credit cards, banks and/or their subsidiary
credit card companies must exercise proper diligence by ascertaining that applicants possess good credit
standing and are financially capable of fulfilling their credit commitments.
[35]
As the above-quoted policy
expressly states, the general intent is to foster fair and sound consumer credit practices.

Other than BSP Circular No. 398, a related circular is BSP Circular No. 454, issued
on September 24, 2004, but this circular merely enumerates the unfair collection practices of credit card
companies a matter not relevant to the issue at hand.

In light of the foregoing, we find and so hold that AMEX is neither contractually bound
nor legally obligated to act on its cardholders purchase requests within any specific period of time, much
less a period of a matter of seconds that Pantaleon uses as his standard. The standard therefore is
implicit and, as in all contracts, must be based on fairness and reasonableness, read in relation to the
Civil Code provisions on human relations, as will be discussed below.

AMEX acted with good faith

Thus far, we have already established that: (a) AMEX had neither a contractual nor a legal
obligation to act upon Pantaleons purchases within a specific period of time; and (b) AMEX has a right to
review a cardholders credit card history. Our recognition of these entitlements, however, does not give
AMEX an unlimited right to put off action on cardholders purchase requests for indefinite periods of
time. In acting on cardholders purchase requests, AMEX must take care not to abuse its rights and cause
injury to its clients and/or third persons. We cite in this regard Article 19, in conjunction with Article 21,
of the Civil Code, which provide:

Article 19. Every person must, in the exercise of his rights and in the performance
of his duties, act with justice, give everyone his due and observe honesty and good
faith.

Article 21. Any person who willfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall compensate the
latter for the damage.

Article 19 pervades the entire legal system and ensures that a person suffering damage in the
course of anothers exercise of right or performance of duty, should find himself without relief.
[36]
It sets
the standard for the conduct of all persons, whether artificial or natural, and requires that everyone, in
the exercise of rights and the performance of obligations, must: (a) act with justice, (b) give everyone his
due, and (c) observe honesty and good faith. It is not because a person invokes his rights that he can do
anything, even to the prejudice and disadvantage of another.
[37]


While Article 19 enumerates the standards of conduct, Article 21 provides the remedy for the
person injured by the willful act, an action for damages. We explained how these two provisions
correlate with each other in GF Equity, Inc. v. Valenzona:
[38]


[Article 19], known to contain what is commonly referred to as the
principle of abuse of rights, sets certain standards which must be observed not
only in the exercise of one's rights but also in the performance of one's duties.
These standards are the following: to act with justice; to give everyone his due;
and to observe honesty and good faith. The law, therefore, recognizes a primordial
limitation on all rights; that in their exercise, the norms of human conduct set
forth in Article 19 must be observed. A right, though by itself legal because
recognized or granted by law as such, may nevertheless become the source of
some illegality. When a right is exercised in a manner which does not conform
with the norms enshrined in Article 19 and results in damage to another, a legal
wrong is thereby committed for which the wrongdoer must be held
responsible. But while Article 19 lays down a rule of conduct for the government
of human relations and for the maintenance of social order, it does not provide a
remedy for its violation. Generally, an action for damages under either Article 20
or Article 21 would be proper.

In the context of a credit card relationship, although there is neither a contractual stipulation nor a
specific law requiring the credit card issuer to act on the credit card holders offer within a definite
period of time, these principles provide the standard by which to judge AMEXs actions.

According to Pantaleon, even if AMEX did have a right to review his charge purchases, it abused
this right when it unreasonably delayed the processing of the Coster charge purchase, as well as his
purchase requests at the Richard Metz Golf Studio and Kids Unlimited Store; AMEX should have known
that its failure to act immediately on charge referrals would entail inconvenience and result in
humiliation, embarrassment, anxiety and distress to its cardholders who would be required to wait
before closing their transactions.
[39]


It is an elementary rule in our jurisdiction that good faith is presumed and that the burden of
proving bad faith rests upon the party alleging it.
[40]
Although it took AMEX some time before it approved
Pantaleons three charge requests, we find no evidence to suggest that it acted with deliberate intent to
cause Pantaleon any loss or injury, or acted in a manner that was contrary to morals, good customs or
public policy. We give credence to AMEXs claim that its review procedure was done to ensure
Pantaleons own protection as a cardholder and to prevent the possibility that the credit card was being
fraudulently used by a third person.

Pantaleon countered that this review procedure is primarily intended to protect AMEXs
interests, to make sure that the cardholder making the purchase has enough means to pay for the credit
extended. Even if this were the case, however, we do not find any taint of bad faith in such motive. It is
but natural for AMEX to want to ensure that it will extend credit only to people who will have sufficient
means to pay for their purchases. AMEX, after all, is running a business, not a charity, and it would
simply be ludicrous to suggest that it would not want to earn profit for its services. Thus, so long as
AMEX exercises its rights, performs its obligations, and generally acts with good faith, with no intent to
cause harm, even if it may occasionally inconvenience others, it cannot be held liable for damages.

We also cannot turn a blind eye to the circumstances surrounding the Coster transaction
which, in our opinion, justified the wait. In Edgardo Jaurigues own words:

Q 21: With reference to the transaction at the Coster Diamond House covered by
Exhibit H, also Exhibit 4 for the defendant, the approval came at 2:19 a.m. after
the request was relayed at1:33 a.m., can you explain why the approval came after
about 46 minutes, more or less?

A21: Because we have to make certain considerations and evaluations of
*Pantaleons+ past spending pattern with *AMEX+ at that time before approving
plaintiffs request because *Pantaleon+ was at that time making his very first
single charge purchase of US$13,826 [this is below the US$16,112.58 actually
billed and paid for by the plaintiff because the difference was already
automatically approved by [AMEX] office in Netherland[s] and the record of
[Pantaleons] past spending with [AMEX] at that time does not favorably support
his ability to pay for such purchase. In fact, if the foregoing internal policy of
[AMEX] had been strictly followed, the transaction would not have been approved
at all considering that the past spending pattern of the plaintiff with [AMEX] at
that time does not support his ability to pay for such purchase.
[41]


x x x x

Q: Why did it take so long?

A: It took time to review the account on credit, so, if there is any delinquencies
[sic] of the cardmember. There are factors on deciding the charge itself which are
standard measures in approving the authorization. Now in the case of Mr.
Pantaleon although his account is single charge purchase of US$13,826. [sic] this is
below the US$16,000. plus actually billed x x x we would have already declined
the charge outright and asked him his bank account to support his charge. But due
to the length of his membership as cardholder we had to make a decision on
hand.
[42]



As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait for AMEXs approval was
because he had to go over Pantaleons credit card history for the past twelve months.
[43]
It would
certainly be unjust for us to penalize AMEX for merely exercising its right to review Pantaleons credit
history meticulously.

Finally, we said in Garciano v. Court of Appeals that the right to recover [moral damages]
under Article 21 is based on equity, and he who comes to court to demand equity, must come with clean
hands. Article 21 should be construed as granting the right to recover damages to injured persons who
are not themselves at fault.
[44]
As will be discussed below, Pantaleon is not a blameless party in all this.

Pantaleons action was the proximate
cause for his injury

Pantaleon mainly anchors his claim for moral and exemplary damages on the
embarrassment and humiliation that he felt when the European tour group had to wait for him and his
wife for approximately 35 minutes, and eventually had to cancel the Amsterdam city tour. After
thoroughly reviewing the records of this case, we have come to the conclusion that Pantaleon is the
proximate cause for this embarrassment and humiliation.

As borne by the records, Pantaleon knew even before entering Coster that the tour group
would have to leave the store by 9:30 a.m. to have enough time to take the city tour
of Amsterdam before they left the country. After 9:30 a.m., Pantaleons son, who had boarded the bus
ahead of his family, returned to the store to inform his family that they were the only ones not on the
bus and that the entire tour group was waiting for them. Significantly, Pantaleon tried to cancel the sale
at 9:40 a.m. because he did not want to cause any inconvenience to the tour group. However, when
Costers sale manager asked him to wait a few more minutes for the credit card approval, he agreed,
despite the knowledge that he had already caused a 10-minute delay and that the city tour could not
start without him.

In Nikko Hotel Manila Garden v. Reyes,
[45]
we ruled that a person who knowingly and
voluntarily exposes himself to danger cannot claim damages for the resulting injury:

The doctrine of volenti non fit injuria (to which a person assents is not
esteemed in law as injury) refers to self-inflicted injury or to the consent to injury
which precludes the recovery of damages by one who has knowingly and
voluntarily exposed himself to danger, even if he is not negligent in doing so.


This doctrine, in our view, is wholly applicable to this case. Pantaleon himself testified that
the most basic rule when travelling in a tour group is that you must never be a cause of any delay
because the schedule is very strict.
[46]
When Pantaleon made up his mind to push through with his
purchase, he must have known that the group would become annoyed and irritated with him. This was
the natural, foreseeable consequence of his decision to make them all wait.

We do not discount the fact that Pantaleon and his family did feel humiliated and
embarrassed when they had to wait for AMEX to approve the Coster purchase in Amsterdam. We have
to acknowledge, however, that Pantaleon was not a helpless victim in this scenario at any time, he
could have cancelled the sale so that the group could go on with the city tour. But he did not.

More importantly, AMEX did not violate any legal duty to Pantaleon under the circumstances
under the principle of damnum absque injuria, or damages without legal wrong, loss without injury.
[47]
As
we held in BPI Express Card v. CA:
[48]

We do not dispute the findings of the lower court that private
respondent suffered damages as a result of the cancellation of his credit card.
However, there is a material distinction between damages and injury. Injury is the
illegal invasion of a legal right; damage is the loss, hurt, or harm which results from
the injury; and damages are the recompense or compensation awarded for the
damage suffered. Thus, there can be damage without injury in those instances in
which the loss or harm was not the result of a violation of a legal duty. In such
cases, the consequences must be borne by the injured person alone, the law
affords no remedy for damages resulting from an act which does not amount to a
legal injury or wrong. These situations are often called damnum absque injuria.
In other words, in order that a plaintiff may maintain an action for the
injuries of which he complains, he must establish that such injuries resulted from a
breach of duty which the defendant owed to the plaintiff - a concurrence of injury
to the plaintiff and legal responsibility by the person causing it. The underlying
basis for the award of tort damages is the premise that an individual was injured
in contemplation of law. Thus, there must first be a breach of some duty and the
imposition of liability for that breach before damages may be awarded; and the
breach of such duty should be the proximate cause of the injury.

Pantaleon is not entitled to damages

Because AMEX neither breached its contract with Pantaleon, nor acted with culpable delay or
the willful intent to cause harm, we find the award of moral damages to Pantaleon unwarranted.

Similarly, we find no basis to award exemplary damages. In contracts, exemplary damages can
only be awarded if a defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner.
[49]
The plaintiff must also show that he is entitled to moral, temperate, or compensatory
damages before the court may consider the question of whether or not exemplary damages should be
awarded.
[50]


As previously discussed, it took AMEX some time to approve Pantaleons purchase requests
because it had legitimate concerns on the amount being charged; no malicious intent was ever
established here. In the absence of any other damages, the award of exemplary damages clearly lacks
legal basis.

Neither do we find any basis for the award of attorneys fees and costs of litigation. No
premium should be placed on the right to litigate and not every winning party is entitled to an automatic
grant of attorney's fees.
[51]
To be entitled to attorneys fees and litigation costs, a party must show that
he falls under one of the instances enumerated in Article 2208 of the Civil Code.
[52]
This, Pantaleon failed
to do. Since we eliminated the award of moral and exemplary damages, so must we delete the award for
attorney's fees and litigation expenses.

Lastly, although we affirm the result of the CA decision, we do so for the reasons stated in this
Resolution and not for those found in the CA decision.

WHEREFORE, premises considered, we SET ASIDE our May 8, 2009 Decision and GRANT the
present motion for reconsideration. The Court of Appeals Decision dated August 18, 2006 is
hereby AFFIRMED. No costs.

SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-8321 October 14, 1913
ALEJANDRA MINA, ET AL., plaintiffs-appellants,
vs.
RUPERTA PASCUAL, ET AL., defendants-appellees.
N. Segundo for appellants.
Iigo Bitanga for appellees.

ARELLANO, C.J.:
Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla acquired during his
lifetime, on March 12, 1874, a lot in the center of the town of Laoag, the capital of the Province of Ilocos
Norte, the property having been awarded to him through its purchase at a public auction held by
the alcalde mayor of that province. The lot has a frontage of 120 meters and a depth of 15.
Andres Fontanilla, with the consent of his brother Francisco, erected a warehouse on a part of the said
lot, embracing 14 meters of its frontage by 11 meters of its depth.
Francisco Fontanilla, the former owner of the lot, being dead, the herein plaintiffs, Alejandro Mina, et al.,
were recognized without discussion as his heirs.
Andres Fontanilla, the former owner of the warehouse, also having died, the children of Ruperta Pascual
were recognized likes without discussion, though it is not said how, and consequently are entitled to the
said building, or rather, as Ruperta Pascual herself stated, to only six-sevenths of one-half of it, the other
half belonging, as it appears, to the plaintiffs themselves, and the remaining one-seventh of the first one-
half to the children of one of the plaintiffs, Elena de Villanueva. The fact is that the plaintiffs and the
defendants are virtually, to all appearance, the owners of the warehouse; while the plaintiffs are
undoubtedly, the owners of the part of the lot occupied by that building, as well as of the remainder
thereof.
This was the state of affairs, when, on May 6, 1909, Ruperta Pascual, as the guardian of her minor
children, the herein defendants, petitioned the Curt of First Instance of Ilocos Norte for authorization to
sell "the six-sevenths of the one-half of the warehouse, of 14 by 11 meters, together with its lot." The
plaintiffs that is Alejandra Mina, et al. opposed the petition of Ruperta Pascual for the reason that
the latter had included therein the lot occupied by the warehouse, which they claimed was their
exclusive property. All this action was taken in a special proceeding in re guardianship.
The plaintiffs did more than oppose Pascual's petition; they requested the court, through motion, to
decide the question of the ownership of the lot before it pass upon the petition for the sale of the
warehouse. But the court before determining the matter of the ownership of the lot occupied by the
warehouse, ordered the sale of this building, saying:
While the trial continues with respect to the ownership of the lot, the court orders the sale at
public auction of the said warehouse and of the lot on which it is built, with the present
boundaries of the land and condition of the building, at a price of not less than P2,890
Philippine currency . . . .
So, the warehouse, together with the lot on which it stands, was sold to Cu Joco, the other defendant in
this case, for the price mentioned.
The plaintiffs insisted upon a decision of the question of the ownership of the lot, and the court decided
it by holding that this land belonged to the owner of the warehouse which had been built thereon thirty
years before.
The plaintiffs appealed and this court reversed the judgment of the lower court and held that the
appellants were the owners of the lot in question.
1

When the judgment became final and executory, a writ of execution issued and the plaintiffs were given
possession of the lot; but soon thereafter the trial court annulled this possession for the reason that it
affected Cu Joco, who had not been a party to the suit in which that writ was served.
It was then that the plaintiffs commenced the present action for the purpose of having the sale of the
said lot declared null and void and of no force and effect.
An agreement was had ad to the facts, the ninth paragraph of which is as follows:
9. That the herein plaintiffs excepted to the judgment and appealed therefrom to the
Supreme Court which found for them by holding that they are the owners of the lot in
question, although there existed and still exists a commodatum by virtue of which the
guardianship (meaning the defendants) had and has the use, and the plaintiffs the ownership,
of the property, with no finding concerning the decree of the lower court that ordered the
sale.
The obvious purport of the cause "although there existed and still exists a commodatum," etc., appears
to be that it is a part of the decision of the Supreme Court and that, while finding the plaintiffs to be the
owners of the lot, we recognized in principle the existence of a commodatum under which the
defendants held the lot. Nothing could be more inexact. Possibly, also, the meaning of that clause is that,
notwithstanding the finding made by the Supreme Court that the plaintiffs were the owners, these
former and the defendants agree that there existed, and still exists, a commodatum, etc. But such an
agreement would not affect the truth of the contents of the decision of this court, and the opinions held
by the litigants in regard to this point could have no bearing whatever on the present decision.
Nor did the decree of the lower court that ordered the sale have the least influence in our previous
decision to require our making any finding in regard thereto, for, with or without that decree, the
Supreme Court had to decide the ownership of the lot consistently with its titles and not in accordance
with the judicial acts or proceedings had prior to the setting up of the issue in respect to the ownership
of the property that was the subject of the judicial decree.
What is essentially pertinent to the case is the fact that the defendant agree that the plaintiffs have the
ownership, and they themselves only the use, of the said lot.
On this premise, the nullity of the sale of the lot is in all respects quite evident, whatsoever be the
manner in which the sale was effected, whether judicially or extrajudicially.
He who has only the use of a thing cannot validly sell the thing itself. The effect of the sale being a
transfer of the ownership of the thing, it is evident that he who has only the mere use of the thing
cannot transfer its ownership. The sale of a thing effected by one who is not its owner is null and void.
The defendants never were the owners of the lot sold. The sale of it by them is necessarily null and void.
On cannot convey to another what he has never had himself.
The returns of the auction contain the following statements:
I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the authorization conferred
upon me on the 31st of July, 1909, by the Court of First Instance of Ilocos Norte, proceeded
with the sale at public auction of the six-sevenths part of the one-half of the warehouse
constructed of rubble stone, etc.
Whereas I, Ruperta Pascual, the guardian of the minors, etc., sold at public auction all the
land and all the rights title, interest, and ownership in the said property to Cu Joco, who was
the highest bidder, etc.
Therefore, . . . I cede and deliver forever to the said purchaser, Cu Joco, his heirs and assigns,
all the interest, ownership and inheritance rights and others that, as the guardian of the said
minors, I have and may have in the said property, etc.
The purchaser could not acquire anything more than the interest that might be held by a person to
whom realty in possession of the vendor might be sold, for at a judicial auction nothing else is disposed
of. What the minor children of Ruperta Pascual had in their possession was the ownership of the six-
sevenths part of one-half of the warehouse and the use of the lot occupied by his building. This, and
nothing more, could the Chinaman Cu Joco acquire at that sale: not the ownership of the lot; neither the
other half, nor the remaining one-seventh of the said first half, of the warehouse. Consequently, the sale
made to him of this one-seventh of one-half and the entire other half of the building was null and void,
and likewise with still more reason the sale of the lot the building occupies.
The purchaser could and should have known what it was that was offered for sale and what it was that
he purchased. There is nothing that can justify the acquisition by the purchaser of the warehouse of the
ownership of the lot that this building occupies, since the minors represented by Ruperta Pascual never
were the owners of the said lot, nor were they ever considered to be such.
The trial court, in the judgment rendered, held that there were no grounds for the requested annulment
of the sale, and that the plaintiffs were entitled to the P600 deposited with the clerk of the court as the
value of the lot in question. The defendants, Ruperta Pascual and the Chinaman Cu Joco, were absolved
from the complaint, without express finding as to costs.
The plaintiffs cannot be obliged to acquiesce in or allow the sale made and be compelled to accept the
price set on the lot by expert appraisers, not even though the plaintiffs be considered as coowner of the
warehouse. It would be much indeed that, on the ground of coownership, they should have to abide by
and tolerate the sale of the said building, which point this court does not decide as it is not a question
submitted to us for decision, but, as regards the sale of the lot, it is in all respects impossible to hold that
the plaintiffs must abide by it and tolerate, it, and this conclusion is based on the fact that they did not
give their consent (art. 1261, Civil Code), and only the contracting parties who have given it are obliged
to comply (art. 1091, idem).
The sole purpose of the action in the beginning was to obtain an annulment of the sale of the lot; but
subsequently the plaintiffs, through motion, asked for an amendment by their complaint in the sense
that the action should be deemed to be one for the recovery of possession of a lot and for the
annulment of its sale. The plaintiff's petition was opposed by the defendant's attorney, but was allowed
by the court; therefore the complaint seeks, after the judicial annulment of the sale of the lot, to have
the defendants sentenced immediately to deliver the same to the plaintiffs.
Such a finding appears to be in harmony with the decision rendered by the Supreme Court in previous
suit, wherein it was held that the ownership of the lot lay in the plaintiffs, and for this reason steps were
taken to give possession thereof to the defendants; but, as the purchaser Cu Joco was not a party to that
suit, the present action is strictly one for recover against Cu Joco to compel him, once the sale has been
annulled, to deliver the lot to its lawful owners, the plaintiffs.
As respects this action for recovery, this Supreme Court finds:
1. That it is a fact admitted by the litigating parties, both in this and in the previous suit, that
Andres Fontanilla, the defendants' predecessor in interest, erected the warehouse on the lot,
some thirty years ago, with the explicit consent of his brother Francisco Fontanilla, the
plaintiff's predecessor in interest.
2. That it also appears to be an admitted fact that the plaintiffs and the defendants are the
coowners of the warehouse.
3. That it is a fact explicitly admitted in the agreement, that neither Andres Fontanilla nor his
successors paid any consideration or price whatever for the use of the lot occupied by the
said building; whence it is, perhaps, that both parties have denominated that use a
commodatum.
Upon the premise of these facts, or even merely upon that of the first of them, the sentencing of the
defendants to deliver the lot to the plaintiffs does not follow as a necessary corollary of the judicial
declaration of ownership made in the previous suit, nor of that of the nullity of the sale of the lot, made
in the present case.
The defendants do not hold lawful possession of the lot in question.1awphil.net
But, although both litigating parties may have agreed in their idea of the commodatum, on account of its
not being, as indeed it is not, a question of fact but of law, yet that denomination given by them to the
use of the lot granted by Francisco Fontanilla to his brother, Andres Fontanilla, is not acceptable.
Contracts are not to be interpreted in conformity with the name that the parties thereto agree to give
them, but must be construed, duly considering their constitutive elements, as they are defined and
denominated by law.
By the contract of loan, one of the parties delivers to the other, either anything not
perishable, in order that the latter may use it during the certain period and return it to the
former, in which case it is calledcommodatum . . . (art. 1740, Civil Code).
It is, therefore, an essential feature of the commodatum that the use of the thing belonging to another
shall for a certain period. Francisco Fontanilla did not fix any definite period or time during which Andres
Fontanilla could have the use of the lot whereon the latter was to erect a stone warehouse of
considerable value, and so it is that for the past thirty years of the lot has been used by both Andres and
his successors in interest. The present contention of the plaintiffs that Cu Joco, now in possession of the
lot, should pay rent for it at the rate of P5 a month, would destroy the theory of the commodatum
sustained by them, since, according to the second paragraph of the aforecited article 1740,
"commodatum is essentially gratuitous," and, if what the plaintiffs themselves aver on page 7 of their
brief is to be believed, it never entered Francisco's mind to limit the period during which his brother
Andres was to have the use of the lot, because he expected that the warehouse would eventually fall
into the hands of his son, Fructuoso Fontanilla, called the adopted son of Andres, which did not come to
pass for the reason that Fructuoso died before his uncle Andres. With that expectation in view, it
appears more likely that Francisco intended to allow his brother Andres a surface right; but this right
supposes the payment of an annual rent, and Andres had the gratuitous use of the lot.
Hence, as the facts aforestated only show that a building was erected on another's ground, the question
should be decided in accordance with the statutes that, thirty years ago, governed accessions to real
estate, and which were Laws 41 and 42, title 28, of the third Partida, nearly identical with the provisions
of articles 361 and 362 of the Civil Code. So, then, pursuant to article 361, the owner of the land on
which a building is erected in good faith has a right to appropriate such edifice to himself, after payment
of the indemnity prescribed in articles 453 and 454, or to oblige the builder to pay him the value of the
land. Such, and no other, is the right to which the plaintiff are entitled.
For the foregoing reasons, it is only necessary to annul the sale of the said lot which was made by
Ruperta Pascual, in representation of her minor children, to Cu Joco, and to maintain the latter in the use
of the lot until the plaintiffs shall choose one or the other of the two rights granted them by article 361
of the Civil Code.1awphil.net
The judgment appealed from is reversed and the sale of the lot in question is held to be null and void
and of no force or effect. No special finding is made as to the costs of both instances.
Torres, Johnson, Carson, Moreland and Trent, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-46240 November 3, 1939
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,
vs.
BECK, defendant-appellee.
Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for appellee.

IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain furniture which she lent
him for his use. She appealed from the judgment of the Court of First Instance of Manila which ordered
that the defendant return to her the three has heaters and the four electric lamps found in the
possession of the Sheriff of said city, that she call for the other furniture from the said sheriff of Manila
at her own expense, and that the fees which the Sheriff may charge for the deposit of the furniture be
paid pro rata by both parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar
street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between the plaintiff
and the defendant, the former gratuitously granted to the latter the use of the furniture described in the
third paragraph of the stipulation of facts, subject to the condition that the defendant would return
them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario
Lopez and on September 14, 1936, these three notified the defendant of the conveyance, giving him
sixty days to vacate the premises under one of the clauses of the contract of lease. There after the
plaintiff required the defendant to return all the furniture transferred to him for them in the house
where they were found. On November 5, 1936, the defendant, through another person, wrote to
the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On the 7th of
the same month, the defendant wrote another letter to the plaintiff informing her that he could not give
up the three gas heaters and the four electric lamps because he would use them until the 15th of the
same month when the lease in due to expire. The plaintiff refused to get the furniture in view of the fact
that the defendant had declined to make delivery of all of them. On November 15th, before
vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff
and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the
said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in
holding that they violated the contract by not calling for all the furniture on November 5, 1936, when the
defendant placed them at their disposal; in not ordering the defendant to pay them the value of the
furniture in case they are not delivered; in holding that they should get all the furniture from the Sheriff
at their expenses; in ordering them to pay-half of the expenses claimed by the Sheriff for the deposit of
the furniture; in ruling that both parties should pay their respective legal expenses or the costs; and in
denying pay their respective legal expenses or the costs; and in denying the motions for reconsideration
and new trial. To dispose of the case, it is only necessary to decide whether the defendant complied with
his obligation to return the furniture upon the plaintiff's demand; whether the latter is bound to bear the
deposit fees thereof, and whether she is entitled to the costs of litigation.lawphi1.net
The contract entered into between the parties is one of commadatum, because under it the plaintiff
gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership
thereof; by this contract the defendant bound himself to return the furniture to the plaintiff, upon the
latters demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil
Code). The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's
demand, means that he should return all of them to the plaintiff at the latter's residence or house. The
defendant did not comply with this obligation when he merely placed them at the disposal of the
plaintiff, retaining for his benefit the three gas heaters and the four eletric lamps. The provisions of
article 1169 of the Civil Code cited by counsel for the parties are not squarely applicable. The trial court,
therefore, erred when it came to the legal conclusion that the plaintiff failed to comply with her
obligation to get the furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's
demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of the
furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on
deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the
defendant wanted to retain the three gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by
the defendant in case of his inability to return some of the furniture because under paragraph 6 of the
stipulation of facts, the defendant has neither agreed to nor admitted the correctness of the said value.
Should the defendant fail to deliver some of the furniture, the value thereof should be latter determined
by the trial Court through evidence which the parties may desire to present.
The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party
(section 487 of the Code of Civil Procedure). The defendant was the one who breached the contract
of commodatum, and without any reason he refused to return and deliver all the furniture upon the
plaintiff's demand. In these circumstances, it is just and equitable that he pay the legal expenses and
other judicial costs which the plaintiff would not have otherwise defrayed.
The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in
the residence to return and deliver to the plaintiff, in the residence or house of the latter, all the
furniture described in paragraph 3 of the stipulation of facts Exhibit A. The expenses which may be
occasioned by the delivery to and deposit of the furniture with the Sheriff shall be for the account of the
defendant. the defendant shall pay the costs in both instances. So ordered.
Avancea, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.
Republic vs. Court of Appeals, No. L-46145, 146 SCRA 15 , November 26, 1986

G.R. No. L-46145 November 26, 1986
REPUBLIC OF THE PHILIPPINES (BUREAU OF LANDS), petitioner,
vs.
THE HON. COURT OF APPEALS, HEIRS OF DOMINGO P. BALOY, represented by RICARDO BALOY, ET
AL., respondents.
Pelaez, Jalondoni, Adriano and Associates for respondents.

PARAS, J.:p
This case originally emanated from a decision of the then Court of First Instance of Zambales in LRC Case
No. 11-0, LRC Record No. N-29355, denying respondents' application for registration. From said order of
denial the applicants, heirs of Domingo Baloy, represented by Ricardo P. Baloy, (herein private
respondents) interposed on appeal to the Court of Appeals which was docketed as CA-G.R. No. 52039-R.
The appellate court, thru its Fifth Division with the Hon. Justice Magno Gatmaitan as ponente, rendered
a decision dated February 3, 1977 reversing the decision appealed from and thus approving the
application for registration. Oppositors (petitioners herein) filed their Motion for Reconsideration
alleging among other things that applicants' possessory information title can no longer be invoked and
that they were not able to prove a registerable title over the land. Said Motion for Reconsideration was
denied, hence this petition for review on certiorari.
Applicants' claim is anchored on their possessory information title (Exhibit F which had been translated
in Exhibit F-1) coupled with their continuous, adverse and public possession over the land in question. An
examination of the possessory information title shows that the description and the area of the land
stated therein substantially coincides with the land applied for and that said possessory information title
had been regularly issued having been acquired by applicants' predecessor, Domingo Baloy, under the
provisions of the Spanish Mortgage Law. Applicants presented their tax declaration on said lands on April
8, 1965.
The Director of Lands opposed the registration alleging that this land had become public land thru the
operation of Act 627 of the Philippine Commission. On November 26, 1902 pursuant to the executive
order of the President of the U.S., the area was declared within the U.S. Naval Reservation. Under Act
627 as amended by Act 1138, a period was fixed within which persons affected thereby could file their
application, (that is within 6 months from July 8, 1905) otherwise "the said lands or interest therein will
be conclusively adjudged to be public lands and all claims on the part of private individuals for such lands
or interests therein not to presented will be forever barred." Petitioner argues that since Domingo Baloy
failed to file his claim within the prescribed period, the land had become irrevocably public and could not
be the subject of a valid registration for private ownership.
Considering the foregoing facts respondents Court of Appeals ruled as follows:
... perhaps, the consequence was that upon failure of Domingo Baloy to have filed his application within
that period the land had become irrevocably public; but perhaps also, for the reason that warning was
from the Clerk of the Court of Land Registration, named J.R. Wilson and there has not been presented a
formal order or decision of the said Court of Land Registration so declaring the land public because of
that failure, it can with plausibility be said that after all, there was no judicial declaration to that effect, it
is true that the U.S. Navy did occupy it apparently for some time, as a recreation area, as this Court
understands from the communication of the Department of Foreign Affairs to the U.S. Embassy exhibited
in the record, but the very tenor of the communication apparently seeks to justify the title of herein
applicants, in other words, what this Court has taken from the occupation by the U.S. Navy is that during
the interim, the title of applicants was in a state of suspended animation so to speak but it had not died
either; and the fact being that this land was really originally private from and after the issuance and
inscription of the possessory information Exh. F during the Spanish times, it would be most difficult to
sustain position of Director of Lands that it was land of no private owner; open to public disposition, and
over which he has control; and since immediately after U.S. Navy had abandoned the area, applicant
came in and asserted title once again, only to be troubled by first Crispiniano Blanco who however in due
time, quitclaimed in favor of applicants, and then by private oppositors now, apparently originally
tenants of Blanco, but that entry of private oppositors sought to be given color of ownership when they
sought to and did file tax declaration in 1965, should not prejudice the original rights of applicants thru
their possessory information secured regularly so long ago, the conclusion must have to be that after all,
applicants had succeeded in bringing themselves within the provisions of Sec. 19 of Act 496, the land
should be registered in their favor;
IN VIEW WHEREOF, this Court is constrained to reverse, as it now reverses, judgment appealed from the
application is approved, and once this decision shall have become final, if ever it would be, let decree
issue in favor of applicants with the personal circumstances outlined in the application, costs against
private oppositors.
Petitioner now comes to Us with the following:
ASSIGNMENT OF ERRORS:
1. Respondent court erred in holding that to bar private respondents from asserting any right under their
possessory information title there is need for a court order to that effect.
2. Respondent court erred in not holding that private respondents' rights by virtue of their possessory
information title was lost by prescription.
3. Respondent court erred in concluding that applicants have registerable title.
A cursory reading of Sec. 3, Act 627 reveals that several steps are to be followed before any affected land
can "be conclusively adjudged to be public land." Sec. 3, Act 627 reads as follows:
SEC. 3. Immediately upon receipt of the notice from the civil Governor in the preceeding section
mentioned it shall be the duty of the judge of the Court of Land Registration to issue a notice, stating
that the lands within the limits aforesaid have been reserved for military purposes, and announced and
declared to be military reservations, and that claims for all private lands, buildings, and interests therein,
within the limits aforesaid, must be presented for registration under the Land Registration Act within six
calendar months from the date of issuing the notice, and that all lands, buildings, and interests therein
within the limits aforesaid not so presented within the time therein limited will be conclusively adjudged
to be public lands and all claims on the part of private individuals for such lands, buildings, or an interest
therein not so presented will be forever barred. The clerk of the Court of Land Registration shall
immediately upon the issuing of such notice by the judge cause the same to be published once a week
for three successive weeks in two newspapers, one of which newspapers shall be in the English
Language, and one in the Spanish language in the city or province where the land lies, if there be no such
Spanish or English newspapers having a general circulation in the city or province wherein the land lies,
then it shall be a sufficient compliance with this section if the notice be published as herein provided, in
a daily newspaper in the Spanish language and one in the English language, in the City of Manila, having
a general circulation. The clerk shall also cause a duly attested copy of the notice in the Spanish language
to be posted in conspicuous place at each angle formed by the lines of the limits of the land reserved.
The clerk shall also issue and cause to be personally served the notice in the Spanish language upon
every person living upon or in visible possession of any part of the military reservation. If the person in
possession is the head of the family living upon the hand, it shall be sufficient to serve the notice upon
him, and if he is absent it shall be sufficient to leave a copy at his usual place of residence. The clerk shall
certify the manner in which the notices have been published, posted, and served, and his certificate shall
be conclusive proof of such publication, posting, and service, but the court shall have the power to cause
such further notice to be given as in its opinion may be necessary.
Clearly under said provisions, private land could be deemed to have become public land only by virtue of
a judicial declaration after due notice and hearing. It runs contrary therefore to the contention of
petitioners that failure to present claims set forth under Sec. 2 of Act 627 made the land ipso facto public
without any deed of judicial pronouncement. Petitioner in making such declaration relied on Sec. 4 of
Act 627 alone. But in construing a statute the entire provisions of the law must be considered in order to
establish the correct interpretation as intended by the law-making body. Act 627 by its terms is not self-
executory and requires implementation by the Court of Land Registration. Act 627, to the extent that it
creates a forfeiture, is a penal statute in derogation of private rights, so it must be strictly construed so
as to safeguard private respondents' rights. Significantly, petitioner does not even allege the existence of
any judgment of the Land Registration court with respect to the land in question. Without a judgment or
order declaring the land to be public, its private character and the possessory information title over it
must be respected. Since no such order has been rendered by the Land Registration Court it necessarily
follows that it never became public land thru the operation of Act 627. To assume otherwise is to deprive
private respondents of their property without due process of law. In fact it can be presumed that the
notice required by law to be given by publication and by personal service did not include the name of
Domingo Baloy and the subject land, and hence he and his lane were never brought within the operation
of Act 627 as amended. The procedure laid down in Sec. 3 is a requirement of due process. "Due process
requires that the statutes which under it is attempted to deprive a citizen of private property without or
against his consent must, as in expropriation cases, be strictly complied with, because such statutes are
in derogation of general rights." (Arriete vs. Director of Public Works, 58 Phil. 507, 508, 511).
We also find with favor private respondents' views that court judgments are not to be presumed. It
would be absurd to speak of a judgment by presumption. If it could be contended that such a judgment
may be presumed, it could equally be contended that applicants' predecessor Domingo Baloy
presumably seasonably filed a claim, in accordance with the legal presumption that a person takes
ordinary care of his concerns, and that a judgment in his favor was rendered.
The finding of respondent court that during the interim of 57 years from November 26, 1902 to
December 17, 1959 (when the U.S. Navy possessed the area) the possessory rights of Baloy or heirs were
merely suspended and not lost by prescription, is supported by Exhibit "U," a communication or letter
No. 1108-63, dated June 24, 1963, which contains an official statement of the position of the Republic of
the Philippines with regard to the status of the land in question. Said letter recognizes the fact that
Domingo Baloy and/or his heirs have been in continuous possession of said land since 1894 as attested
by an "Informacion Possessoria" Title, which was granted by the Spanish Government. Hence, the
disputed property is private land and this possession was interrupted only by the occupation of the land
by the U.S. Navy in 1945 for recreational purposes. The U.S. Navy eventually abandoned the premises.
The heirs of the late Domingo P. Baloy, are now in actual possession, and this has been so since the
abandonment by the U.S. Navy. A new recreation area is now being used by the U.S. Navy personnel and
this place is remote from the land in question.
Clearly, the occupancy of the U.S. Navy was not in the concept of owner. It partakes of the character of
a commodatum. It cannot therefore militate against the title of Domingo Baloy and his successors-in-
interest. One's ownership of a thing may be lost by prescription by reason of another's possession if such
possession be under claim of ownership, not where the possession is only intended to be transient, as in
the case of the U.S. Navy's occupation of the land concerned, in which case the owner is not divested of
his title, although it cannot be exercised in the meantime.
WHEREFORE, premises considered, finding no merit in the petition the appealed decision is hereby
AFFIRMED.
SO ORDERED.
Feria (Chairman), Alampay and Feliciano, * JJ., concur.
Gutierrez, Jr., J., concurs in the results.
Fernan J., took no part.

SECOND DIVISION
[G.R. No. 115324. February 19, 2003]
PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner, vs. HON.
COURT OF APPEALS AND FRANKLIN VIVES, respondents.
D E C I S I O N
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision
[1]
of the Court of Appeals dated June 25,
1991 in CA-G.R. CV No. 11791 and of its Resolution
[2]
dated May 5, 1994, denying the motion for
reconsideration of said decision filed by petitioner Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend
Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his business,
the Sterela Marketing and Services (Sterela for brevity). Specifically, Sanchez asked private respondent
to deposit in a bank a certain amount of money in the bank account of Sterela for purposes of its
incorporation. She assured private respondent that he could withdraw his money from said account
within a months time. Private respondent asked Sanchez to bring Doronilla to their house so that they
could discuss Sanchezs request.
[3]

On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi,
Doronillas private secretary, met and discussed the matter. Thereafter, relying on the assurances and
representations of Sanchez and Doronilla, private respondent issued a check in the amount of Two
Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private respondent instructed his wife, Mrs.
Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings account in the name of Sterela
in the Buendia, Makati branch of Producers Bank of the Philippines. However, only Sanchez, Mrs. Vives
and Dumagpi went to the bank to deposit the check. They had with them an authorization letter from
Doronilla authorizing Sanchez and her companions, in coordination with Mr. Rufo Atienza, to open an
account for Sterela Marketing Services in the amount of P200,000.00. In opening the account, the
authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings Account
No. 10-1567 was thereafter issued to Mrs. Vives.
[4]

Subsequently, private respondent learned that Sterela was no longer holding office in the address
previously given to him. Alarmed, he and his wife went to the Bank to verify if their money was still
intact. The bank manager referred them to Mr. Rufo Atienza, the assistant manager, who informed
them that part of the money in Savings Account No. 10-1567 had been withdrawn by Doronilla, and that
only P90,000.00 remained therein. He likewise told them that Mrs. Vives could not withdraw said
remaining amount because it had to answer for some postdated checks issued by Doronilla. According
to Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla opened Current
Account No. 10-0320 for Sterela and authorized the Bank to debit Savings Account No. 10-1567 for the
amounts necessary to cover overdrawings in Current Account No. 10-0320. In opening said current
account, Sterela, through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover payment
thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza also said that
Doronilla could assign or withdraw the money in Savings Account No. 10-1567 because he was the sole
proprietor of Sterela.
[5]

Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he
received a letter from Doronilla, assuring him that his money was intact and would be returned to
him. On August 13, 1979, Doronilla issued a postdated check for Two Hundred Twelve Thousand Pesos
(P212,000.00) in favor of private respondent. However, upon presentment thereof by private
respondent to the drawee bank, the check was dishonored. Doronilla requested private respondent to
present the same check on September 15, 1979 but when the latter presented the check, it was again
dishonored.
[6]

Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla
for the return of his clients money. Doronilla issued another check forP212,000.00 in private
respondents favor but the check was again dishonored for insufficiency of funds.
[7]

Private respondent instituted an action for recovery of sum of money in the Regional Trial Court
(RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed
as Civil Case No. 44485. He also filed criminal actions against Doronilla, Sanchez and Dumagpi in the
RTC. However, Sanchez passed away on March 16, 1985 while the case was pending before the trial
court. On October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil Case No.
44485, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J. Doronila,
Estrella Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin Vives jointly and
severally
(a) the amount of P200,000.00, representing the money deposited, with interest at the legal rate from
the filing of the complaint until the same is fully paid;
(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages;
(c) the amount of P40,000.00 for attorneys fees; and
(d) the costs of the suit.
SO ORDERED.
[8]

Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June
25, 1991, the appellate court affirmed in toto the decision of the RTC.
[9]
It likewise denied with finality
petitioners motion for reconsideration in its Resolution dated May 5, 1994.
[10]

On June 30, 1994, petitioner filed the present petition, arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN THE
DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT
ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS BANK MANAGER, MR.
RUFO ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be
PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER THE
PRINCIPLE OF NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE REGIONAL
TRIAL COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL
TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION IN SALUDARES
VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN
EMPLOYEE IS APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER COURT THAT
HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE
AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL
DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND THE COSTS
OF SUIT.
[11]

Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto
on September 25, 1995. The Court then required private respondent to submit a rejoinder to the
reply. However, said rejoinder was filed only on April 21, 1997, due to petitioners delay in furnishing
private respondent with copy of the reply
[12]
and several substitutions of counsel on the part of private
respondent.
[13]
On January 17, 2001, the Court resolved to give due course to the petition and required
the parties to submit their respective memoranda.
[14]
Petitioner filed its memorandum on April 16, 2001
while private respondent submitted his memorandum on March 22, 2001.
Petitioner contends that the transaction between private respondent and Doronilla is a simple
loan (mutuum) since all the elements of a mutuum are present: first, what was delivered by private
respondent to Doronilla was money, a consumable thing; and second, the transaction was onerous as
Doronilla was obliged to pay interest, as evidenced by the check issued by Doronilla in the amount
of P212,000.00, or P12,000 more than what private respondent deposited in Sterelas bank
account.
[15]
Moreover, the fact that private respondent sued his good friend Sanchez for his failure to
recover his money from Doronilla shows that the transaction was not merely gratuitous but had a
business angle to it. Hence, petitioner argues that it cannot be held liable for the return of private
respondents P200,000.00 because it is not privy to the transaction between the latter and Doronilla.
[16]

It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be faulted for
allowing Doronilla to withdraw from the savings account of Sterela since the latter was the sole
proprietor of said company. Petitioner asserts that Doronillas May 8, 1979 letter addressed to the bank,
authorizing Mrs. Vives and Sanchez to open a savings account for Sterela, did not contain any
authorization for these two to withdraw from said account. Hence, the authority to withdraw therefrom
remained exclusively with Doronilla, who was the sole proprietor of Sterela, and who alone had legal
title to the savings account.
[17]
Petitioner points out that no evidence other than the testimonies of
private respondent and Mrs. Vives was presented during trial to prove that private respondent deposited
his P200,000.00 in Sterelas account for purposes of its incorporation.
[18]
Hence, petitioner should not be
held liable for allowing Doronilla to withdraw from Sterelas savings account.
Petitioner also asserts that the Court of Appeals erred in affirming the trial courts decision since
the findings of fact therein were not accord with the evidence presented by petitioner during trial to
prove that the transaction between private respondent and Doronilla was a mutuum, and that it
committed no wrong in allowing Doronilla to withdraw from Sterelas savings account.
[19]

Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable
for the actual damages suffered by private respondent, and neither may it be held liable for moral and
exemplary damages as well as attorneys fees.
[20]

Private respondent, on the other hand, argues that the transaction between him and Doronilla is
not a mutuum but an accommodation,
[21]
since he did not actually part with the ownership of
his P200,000.00 and in fact asked his wife to deposit said amount in the account of Sterela so that a
certification can be issued to the effect that Sterela had sufficient funds for purposes of its incorporation
but at the same time, he retained some degree of control over his money through his wife who was
made a signatory to the savings account and in whose possession the savings account passbook was
given.
[22]

He likewise asserts that the trial court did not err in finding that petitioner, Atienzas employer, is
liable for the return of his money. He insists that Atienza, petitioners assistant manager, connived with
Doronilla in defrauding private respondent since it was Atienza who facilitated the opening of Sterelas
current account three days after Mrs. Vives and Sanchez opened a savings account with petitioner for
said company, as well as the approval of the authority to debit Sterelas savings account to cover any
overdrawings in its current account.
[23]

There is no merit in the petition.
At the outset, it must be emphasized that only questions of law may be raised in a petition for
review filed with this Court. The Court has repeatedly held that it is not its function to analyze and weigh
all over again the evidence presented by the parties during trial.
[24]
The Courts jurisdiction is in principle
limited to reviewing errors of law that might have been committed by the Court of Appeals.
[25]
Moreover,
factual findings of courts, when adopted and confirmed by the Court of Appeals, are final and conclusive
on this Court unless these findings are not supported by the evidence on record.
[26]
There is no showing
of any misapprehension of facts on the part of the Court of Appeals in the case at bar that would require
this Court to review and overturn the factual findings of that court, especially since the conclusions of
fact of the Court of Appeals and the trial court are not only consistent but are also amply supported by
the evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction between
private respondent and Doronilla was a commodatum and not a mutuum. A circumspect examination of
the records reveals that the transaction between them was a commodatum. Article 1933 of the Civil
Code distinguishes between the two kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either something not consumable so that
the latter may use the same for a certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition that the same amount of the
same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership
passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable thing,
such as money, the contract would be a mutuum. However, there are some instances where
a commodatum may have for its object a consumable thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is not the
consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the
parties is to lend consumable goods and to have the very same goods returned at the end of the period
agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration in
determining the actual character of a contract.
[27]
In case of doubt, the contemporaneous and
subsequent acts of the parties shall be considered in such determination.
[28]

As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that
private respondent agreed to deposit his money in the savings account of Sterela specifically for the
purpose of making it appear that said firm had sufficient capitalization for incorporation, with the
promise that the amount shall be returned within thirty (30) days.
[29]
Private respondent merely
accommodated Doronilla by lending his money without consideration, as a favor to his good friend
Sanchez. It was however clear to the parties to the transaction that the money would not be removed
from Sterelas savings account and would be returned to private respondent after thirty (30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter
deposited in Sterelas account together with an additional P12,000.00, allegedly representing interest on
the mutuum, did not convert the transaction from a commodatum into a mutuum because such was not
the intent of the parties and because the additionalP12,000.00 corresponds to the fruits of the lending of
the P200,000.00. Article 1935 of the Civil Code expressly states that *t+he bailee
in commodatum acquires the use of the thing loaned but not its fruits. Hence, it was only proper for
Doronilla to remit to private respondent the interest accruing to the latters money deposited with
petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable for the
return of private respondents money because it was not privy to the transaction between Doronilla and
private respondent. The nature of said transaction, that is, whether it is a mutuum or a commodatum,
has no bearing on the question of petitioners liability for the return of private respondents money
because the factual circumstances of the case clearly show that petitioner, through its employee Mr.
Atienza, was partly responsible for the loss of private respondents money and is liable for its restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of
Sterela for Savings Account No. 10-1567 expressly states that
2. Deposits and withdrawals must be made by the depositor personally or upon his written authority
duly authenticated, and neither a deposit nor a withdrawal will be permitted except upon the
production of the depositor savings bank book in which will be entered by the Bank the amount
deposited or withdrawn.
[30]

Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant
Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom even without presenting
the passbook (which Atienza very well knew was in the possession of Mrs. Vives), not just once, but
several times. Both the Court of Appeals and the trial court found that Atienza allowed said withdrawals
because he was party to Doronillas scheme of defrauding private respondent:
X X X
But the scheme could not have been executed successfully without the knowledge, help and cooperation
of Rufo Atienza, assistant manager and cashier of the Makati (Buendia) branch of the defendant
bank. Indeed, the evidence indicates that Atienza had not only facilitated the commission of the fraud
but he likewise helped in devising the means by which it can be done in such manner as to make it
appear that the transaction was in accordance with banking procedure.
To begin with, the deposit was made in defendants Buendia branch precisely because Atienza was a key
officer therein. The records show that plaintiff had suggested that the P200,000.00 be deposited in his
bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that it must be in defendants
branch in Makati for it will be easier for them to get a certification. In fact before he was introduced
to plaintiff, Doronilla had already prepared a letter addressed to the Buendia branch manager
authorizing Angeles B. Sanchez and company to open a savings account for Sterela in the amount
ofP200,000.00, as per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank x x x (Exh.
1). This is a clear manifestation that the other defendants had been in consultation with Atienza from
the inception of the scheme. Significantly, there were testimonies and admission that Atienza is the
brother-in-law of a certain Romeo Mirasol, a friend and business associate of Doronilla.
Then there is the matter of the ownership of the fund. Because of the coordination between Doronilla
and Atienza, the latter knew before hand that the money deposited did not belong to Doronilla nor to
Sterela. Aside from such foreknowledge, he was explicitly told by Inocencia Vives that the money
belonged to her and her husband and the deposit was merely to accommodate Doronilla. Atienza even
declared that the money came from Mrs. Vives.
Although the savings account was in the name of Sterela, the bank records disclose that the only ones
empowered to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In the signature card
pertaining to this account (Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B.
Sanchez. Atienza stated that it is the usual banking procedure that withdrawals of savings deposits could
only be made by persons whose authorized signatures are in the signature cards on file with the
bank. He, however, said that this procedure was not followed here because Sterela was owned by
Doronilla. He explained that Doronilla had the full authority to withdraw by virtue of such
ownership. The Court is not inclined to agree with Atienza. In the first place, he was all the time aware
that the money came from Vives and did not belong to Sterela. He was also told by Mrs. Vives that they
were only accommodating Doronilla so that a certification can be issued to the effect that Sterela had a
deposit of so much amount to be sued in the incorporation of the firm. In the second place, the
signature of Doronilla was not authorized in so far as that account is concerned inasmuch as he had not
signed the signature card provided by the bank whenever a deposit is opened. In the third place, neither
Mrs. Vives nor Sanchez had given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been presented. It is an accepted
practice that whenever a withdrawal is made in a savings deposit, the bank requires the presentation of
the passbook. In this case, such recognized practice was dispensed with. The transfer from the savings
account to the current account was without the submission of the passbook which Atienza had given to
Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella Dumagpi that a duplicate
passbook was issued to Sterela because the original passbook had been surrendered to the Makati
branch in view of a loan accommodation assigning the savings account (Exh. C). Atienza, who
undoubtedly had a hand in the execution of this certification, was aware that the contents of the same
are not true. He knew that the passbook was in the hands of Mrs. Vives for he was the one who gave it
to her. Besides, as assistant manager of the branch and the bank official servicing the savings and
current accounts in question, he also was aware that the original passbook was never surrendered. He
was also cognizant that Estrella Dumagpi was not among those authorized to withdraw so her
certification had no effect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate that Atienzas active
participation in the perpetration of the fraud and deception that caused the loss. The records indicate
that this account was opened three days later after the P200,000.00 was deposited. In spite of his
disclaimer, the Court believes that Atienza was mindful and posted regarding the opening of the current
account considering that Doronilla was all the while in coordination with him. That it was he who
facilitated the approval of the authority to debit the savings account to cover any overdrawings in the
current account (Exh. 2) is not hard to comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. x x x.
[31]

Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for
damages caused by their employees acting within the scope of their assigned tasks. To hold the
employer liable under this provision, it must be shown that an employer-employee relationship exists,
and that the employee was acting within the scope of his assigned task when the act complained of was
committed.
[32]
Case law in the United States of America has it that a corporation that entrusts a general
duty to its employee is responsible to the injured party for damages flowing from the employees
wrongful act done in the course of his general authority, even though in doing such act, the employee
may have failed in its duty to the employer and disobeyed the latters instructions.
[33]

There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not
deny that Atienza was acting within the scope of his authority as Assistant Branch Manager when he
assisted Doronilla in withdrawing funds from Sterelas Savings Account No. 10-1567, in which account
private respondents money was deposited, and in transferring the money withdrawn to Sterelas
Current Account with petitioner. Atienzas acts of helping Doronilla, a customer of the petitioner, were
obviously done in furtherance of petitioners interests
[34]
even though in the process, Atienza violated
some of petitioners rules such as those stipulated in its savings account passbook.
[35]
It was established
that the transfer of funds from Sterelas savings account to its current account could not have been
accomplished by Doronilla without the invaluable assistance of Atienza, and that it was their connivance
which was the cause of private respondents loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil
Code, petitioner is liable for private respondents loss and is solidarily liable with Doronilla and Dumagpi
for the return of the P200,000.00 since it is clear that petitioner failed to prove that it exercised due
diligence to prevent the unauthorized withdrawals from Sterelas savings account, and that it was not
negligent in the selection and supervision of Atienza. Accordingly, no error was committed by the
appellate court in the award of actual, moral and exemplary damages, attorneys fees and costs of suit to
private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of
Appeals are AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing and Austria-Martinez, JJ., concur.