Section 1. Who may be parties; plaintiff and defendant.

Only natural or juridical persons, or entities authorized by law may be

parties in a civil action. The term "plaintiff" may refer to the claiming party, the counter-claimant, the cross-claimant, or the third
(fourth, etc.) party plaintiff. The term "defendant" may refer to the original defending party, the defendant in a counter-claim, the
cross-defendant, or the third (fourth, etc.) party defendant. (1a)

Section 2. Parties in interest. A real party in interest is the party who stands to be benefited or injured by the judgment in the
suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be
prosecuted or defended in the name of the real party in interest. (2a)

Section 3. Representatives as parties. Where the action is allowed to be prosecuted and defended by a representative or
someone acting in a fiduciary capacity, the beneficiary shall be included in the title of the case and shall be deemed to be the real
property in interest. A representative may be a trustee of an expert trust, a guardian, an executor or administrator, or a party
authorized by law or these Rules. An agent acting in his own name and for the benefit of an undisclosed principal may sue or be
sued without joining the principal except when the contract involves things belonging to the principal. (3a)

Section 4. Spouses as parties. Husband and wife shall sue or be sued jointly, except as provided by law. (4a)

Section 5. Minor or incompetent persons. A minor or a person alleged to be incompetent, may sue or be sued with the
assistance of his father, mother, guardian, or if he has none, a guardian ad litem. (5a)

Section 6. Permissive joinder of parties. All persons in whom or against whom any right to relief in respect to or arising out of
the same transaction or series of transactions is alleged to exist, whether jointly, severally, or in the alternative, may, except as
otherwise provided in these Rules, join as plaintiffs or be joined as defendants in one complaint, where any question of law or fact
common to all such plaintiffs or to all such defendants may arise in the action; but the court may make such orders as may be just
to prevent any plaintiff or defendant from being embarrassed or put to expense in connection with any proceedings in which he may
have no interest. (6n)

Section 7. Compulsory joinder of indispensable parties. Parties in interest without whom no final determination can be had of an
action shall be joined either as plaintiffs or defendants. (7)

Section 8. Necessary party. A necessary party is one who is not indispensable but who ought to be joined as a party if complete
relief is to be accorded as to those already parties, or for a complete determination or settlement of the claim subject of the action.
(8a)

Section 9. Non-joinder of necessary parties to be pleaded. Whenever in any pleading in which a claim is asserted a necessary
party is not joined, the pleader shall set forth his name, if known, and shall state why he is omitted. Should the court find the reason
for the omission unmeritorious, it may order the inclusion of the omitted necessary party if jurisdiction over his person may be
obtained.

The failure to comply with the order for his inclusion, without justifiable cause, shall be deemed a waiver of the claim against such
party.

The non-inclusion of a necessary party does not prevent the court from proceeding in the action, and the judgment rendered
therein shall be without prejudice to the rights of such necessary party. (8a, 9a)

Section 10. Unwilling co-plaintiff. If the consent of any party who should be joined as plaintiff can not be obtained, he may be
made a defendant and the reason therefor shall be stated in the complaint. (10)

Section 11. Misjoinder and non-joinder of parties. Neither misjoinder nor non-joinder of parties is ground for dismissal of an
action. Parties may be dropped or added by order of the court on motion of any party or on its own initiative at any stage the action
and on such terms as are just. Any claim against a misjoined party may be severed and proceeded with separately. (11a)

Section 12. Class suit. When the subject matter of the controversy is one of common or general interest to many persons so
numerous that it is impracticable to join all as parties, a number of them which the court finds to be sufficiently numerous and
representative as to fully protect the interests of all concerned may sue or defend for the benefit of all. Any party in interest shall
have the right to intervene to protect his individual interest. (12a)

Section 13. Alternative defendants. Where the plaintiff is uncertain against who of several persons he is entitled to relief, he
may join any or all of them as defendants in the alternative, although a right to relief against one may be inconsistent with a right of
relief against the other. (13a)
G.R. No. 84719 January 25, 1991

YONG CHAN KIM, petitioner,

vs.

PEOPLE OF THE PHILIPPINES, HON. EDGAR D. GUSTILO, Presiding Judge, RTC, 6th Judicial Region, Branch 28 Iloilo City and
Court of Appeals (13th Division) respondents.

Remedios C. Balbin and Manuel C. Cases, Jr. for petitioner.

Hector P. Teodosio for private respondent.

PADILLA, J.:

This petition seeks the review on certiorari of the following:

1. The decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court (Guimbal-Igbaras-Tigbauan-Tubungan) in
Guimbal, Iloilo, in Criminal Case No. 628,1 and the affirming decision of the Regional Trial Court, Branch XXVIII, Iloilo City, in
Criminal Case No. 20958, promulgated on 30 July 1987;2

2. The decision of the Court of Appeals, dated 29 April 1988,3

dismissing petitioner's appeal/petition for review for having been filed out of time, and the resolution, dated 19 August 1988,
denying petitioner's motion for reconsideration. 4

The antecedent facts are as follows:

Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture Department of the Southeast Asian Fisheries
Development Center (SEAFDEC) with head station at Tigbauan, Province of Iloilo. As Head of the Economics Unit of the Research
Division, he conducted prawn surveys which required him to travel to various selected provinces in the country where there are
potentials for prawn culture.

On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered his travels to different places in Luzon from 16 June
to 21 July 1982, a period of thirty five (35) days. Under this travel order, he received P6,438.00 as cash advance to defray his travel
expenses.

Within the same period, petitioner was issued another travel order, T.O. 2268, requiring him to travel from the Head Station at
Tigbauan, Iloilo to Roxas City from 30 June to 4 July 1982, a period of five (5) days. For this travel order, petitioner received a cash
advance of P495.00.

On 14 January 1983, petitioner presented both travel orders for liquidation, submitting Travel Expense Reports to the Accounting
Section. When the Travel Expense Reports were audited, it was discovered that there was an overlap of four (4) days (30 June to 3
July 1982) in the two (2) travel orders for which petitioner collected per diems twice. In sum, the total amount in the form of per
diems and allowances charged and collected by petitioner under Travel Order No. 2222, when he did not actually and physically
travel as represented by his liquidation papers, was P1,230.00.

Petitioner was required to comment on the internal auditor's report regarding the alleged anomalous claim for per diems. In his
reply, petitioner denied the alleged anomaly, claiming that he made make-up trips to compensate for the trips he failed to undertake
under T.O. 2222 because he was recalled to the head office and given another assignment.

In September 1983, two (2) complaints for Estafa were filed against the petitioner before the Municipal Circuit Trial Court at
Guimbal, Iloilo, docketed as Criminal Case Nos. 628 and 631.

After trial in Criminal Case No. 628, the Municipal Circuit Trial Court rendered a decision, the dispositive part of which reads as
follows:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the court finds the accused, Yong Chan Kim, guilty beyond reasonable doubt
for the crime of Estafa penalized under paragraph l(b) of Article 315, Revised Penal Code. Records disclose there is no aggravating
circumstance proven by the prosecution. Neither there is any mitigating circumstance proven by the accused. Considering the
amount subject of the present complaint, the imposable penalty should be in the medium period of arresto mayor in its maximum
period to prision correccional in its minimum period in accordance with Article 315, No. 3, Revised Penal Code. Consonantly, the
Court hereby sentences the accused to suffer an imprisonment ranging from four (4) months as the minimum to one (1) year and
six (6) months as the maximum in accordance with the Indeterminate Sentence Law and to reimburse the amount of P1,230.00 to
SEAFDEC.
The surety bond of the accused shall remain valid until final judgment in accordance herewith.

Costs against the accused.5

Criminal Case No. 631 was subsequently dismissed for failure to prosecute.

Petitioner appealed from the decision of the Municipal Circuit Trial Court in Criminal Case No. 628. On 30 July 1987, the Regional
Trial Court in Iloilo City in Criminal Case No. 20958 affirmed in toto the trial court's decision.6

The decision of the Regional Trial Court was received by petitioner on 10 August 1987. On 11 August 1987, petitioner, thru counsel,
filed a notice of appeal with the Regional Trial Court which ordered the elevation of the records of the case to the then Intermediate
Appellate Court on the following day, 12 August 1987. The records of the case were received by the Intermediate Appellate Court
on 8 October 1987, and the appeal was docketed as CA-G.R. No. 05035.

On 30 October 1987, petitioner filed with the appellate court a petition for review. As earlier stated, on 29 April 1988, the Court of
Appeals dismissed the petition for having been filed out of time. Petitioner's motion for reconsideration was denied for lack of merit.

Hence, the present recourse.

On 19 October 1988, the Court resolved to require the respondents to comment on the petition for review. The Solicitor General
filed his Comment on 20 January 1989, after several grants of extensions of time to file the same.

In his Comment, the Solicitor General prayed for the dismissal of the instant petition on the ground that, as provided for under
Section 22, Batas Pambansa 129, Section 22 of the Interim Rules and Guidelines, and Section 3, Rule 123 of the 1985 Rules of
Criminal Procedure, the petitioner should have filed a petition for review with the then Intermediate Appellate Court instead of a
notice of appeal with the Regional Trial Court, in perfecting his appeal from the RTC to the Intermediate Appellate Court, since the
RTC judge was rendered in the exercise of its appellate jurisdiction over municipal trial courts. The failure of petitioner to file the
proper petition rendered the decision of the Regional Trial Court final and executory, according to the Solicitor General.

Petitioner's counsel submitted a Reply (erroneously termed Comment) 7 wherein she contended that the peculiar circumstances of
a case, such as this, should be considered in order that the principle barring a petitioner's right of review can be made flexible in the
interest of justice and equity.

In our Resolution of 29 May 1989, we resolved to deny the petition for failure of petitioner to sufficiently show that the Court of
Appeals had committed any reversible error in its questioned judgment which had dismissed petitioner's petition for review for
having been filed out of time.8

Petitioner filed a motion for reconsideration maintaining that his petition for review did not limit itself to the issue upon which the
appellate court's decision of 29 April 1988 was based, but rather it delved into the substance and merits of the case. 9

On 10 August 1990, we resolved to set aside our resolution dismissing this case and gave due course to the petition. In the said
resolution, we stated:

In several cases decided by this Court, it had set aside technicalities in the Rules in order to give way to justice and equity. In the
present case, we note that the petitioner, in filing his Notice of Appeal the very next day after receiving the decision of the court a
quo lost no time in showing his intention to appeal, although the procedure taken was not correct. The Court can overlook the
wrong pleading filed, if strict compliance with the rules would mean sacrificing justice to technicality. The imminence of a person
being deprived unjustly of his liberty due to procedural lapse of counsel is a strong and compelling reason to warrant suspension of
the Rules. Hence, we shall consider the petition for review filed in the Court of Appeals as a Supplement to the Notice of Appeal. As
the Court declared in a recent decision, '. . . there is nothing sacred about the procedure of pleadings. This Court may go beyond
the pleadings when the interest of justice so warrants. It has the prerogative to suspend its rules for the same purpose. . . .
Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant
consideration from courts. [Alonzo v. Villamor, et al., 16 Phil. 315]

Conscience cannot rest in allowing a man to go straight to jail, closing the door to his every entreaty for a full opportunity to be
heard, even as he has made a prima facie showing of a meritorious cause, simply because he had chosen an appeal route, to be
sure, recognized by law but made inapplicable to his case, under altered rules of procedure. While the Court of Appeals can not be
faulted and, in fact, it has to be lauded for correctly applying the rules of procedure in appeals to the Court of Appeals from
decisions of the RTC rendered in the exercise of its appellate jurisdiction, yet, this Court, as the ultimate bulwark of human rights
and individual liberty, will not allow substantial justice to be sacrified at the altar of procedural rigor. 10

In the same resolution, the parties were required to file their respective memoranda, and in compliance with said resolution,
petitioner filed his memorandum on 25 October 1989, while private respondent SEAFDEC filed its required memorandum on 10
April 1990. On the other hand, the Solicitor General filed on 13 March 1990 a Recommendation for Acquittal in lieu of the required
memorandum.
Two (2) issues are raised by petitioner to wit:

I. WHETHER OR NOT THE DECISION (sic) OF THE MUNICIPAL CIRCUIT TRIAL COURT (GUIMBAL, ILOILO) AND THE
REGIONAL TRIAL COURT, BRANCH 28 (ILOILO CITY) ARE SUPPORTED BY THE FACTS AND EVIDENCE OR CONTRARY TO
LAW AND THAT THE TWO COURTS A QUO HAVE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION OR HAVE ACTED WITHOUT OR IN EXCESS OF JURISDICTION.

II. WHETHER OR NOT THE DECISION OF THE HONORABLE COURT OF APPEALS IS CONTRARY TO LAW, ESTABLISHED
JURISPRUDENCE, EQUITY AND DUE PROCESS.

The second issue has been resolved in our Resolution dated 10 August 1990, when we granted petitioner's second motion for
reconsideration. We shall now proceed to the first issue.

We find merit in the petition.

It is undisputed that petitioner received a cash advance from private respondent SEAFDEC to defray his travel expenses under
T.O. 2222. It is likewise admitted that within the period covered by T.O. 2222, petitioner was recalled to the head station in Iloilo and
given another assignment which was covered by T.O. 2268. The dispute arose when petitioner allegedly failed to return P1,230.00
out of the cash advance which he received under T.O. 2222. For the alleged failure of petitioner to return the amount of P1,230.00,
he was charged with the crime of Estafa under Article 315, par. 1(b) of the Revised Penal Code, which reads as follows:

Art. 315. Swindling (Estafa). Any person who shall defraud another by any of the means mentioned herein below shall be
punished by:

xxx xxx xxx

1. With unfaithfulness or abuse of confidence, namely:

(a) xxx xxx xxx

(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by the
offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of; or to
return, the same, even though such obligation be fatally or partially guaranteed by a bond; or by denying having received such
money, goods, or other property.

In order that a person can be convicted under the abovequoted provision, it must be proven that he had the obligation to deliver or
return the same money, good or personal property that he had received. 11

Was petitioner under obligation to return the same money (cash advance) which he had received? We belive not. Executive Order
No. 10, dated 12 February 1980 provides as follows:

B. Cash Advance for Travel

xxx xxx xxx

4. All cash advances must be liquidated within 30 days after date of projected return of the person. Otherwise, corresponding
salary deduction shall be made immediately following the expiration day.

Liquidation simply means the settling of an indebtedness. An employee, such as herein petitioner, who liquidates a cash advance is
in fact paying back his debt in the form of a loan of money advanced to him by his employer, as per diems and allowances.
Similarly, as stated in the assailed decision of the lower court, "if the amount of the cash advance he received is less than the
amount he spent for actual travel . . . he has the right to demand reimbursement from his employer the amount he spent coming
from his personal funds. 12 In other words, the money advanced by either party is actually a loan to the other. Hence, petitioner
was under no legal obligation to return the same cash or money, i.e., the bills or coins, which he received from the private
respondent. 13

Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan.

Art. 1933. 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.

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

The ruling of the trial judge that ownership of the cash advanced to the petitioner by private respondent was not transferred to the
latter is erroneous. Ownership of the money was transferred to the petitioner. Even the prosecution witness, Virgilio Hierro, testified
thus:

Q When you gave cash advance to the accused in this Travel Order No. 2222 subject to liquidation, who owns the funds,
accused or SEAFDEC? How do you consider the funds in the possession of the accused at the time when there is an actual
transfer of cash? . . .

A The one drawing cash advance already owns the money but subject to liquidation. If he will not liquidate, be is obliged to
return the amount.

Q xxx xxx xxx

So why do you treat the itinerary of travel temporary when in fact as of that time the accused owned already the cash advance. You
said the cash advance given to the accused is his own money. In other words, at the time you departed with the money it belongs
already to the accused?

A Yes, but subject for liquidation. He will be only entitled for that credence if he liquidates.

Q If other words, it is a transfer of ownership subject to a suspensive condition that he liquidates the amount of cash advance
upon return to station and completion of the travel?

A Yes, sir.

(pp. 26-28, tsn, May 8, 1985). 14

Since ownership of the money (cash advance) was transferred to petitioner, no fiduciary relationship was created. Absent this
fiduciary relationship between petitioner and private respondent, which is an essential element of the crime of estafa by
misappropriation or conversion, petitioner could not have committed estafa. 15

Additionally, it has been the policy of private respondent that all cash advances not liquidated are to be deducted correspondingly
from the salary of the employee concerned. The evidence shows that the corresponding salary deduction was made in the case of
petitioner vis-a-vis the cash advance in question.

WHEREFORE, the decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court in Guimbal, Iloilo in Criminal Case
No. 628, finding petitioner guilty of estafa under Article 315, par. 1 (b) of the Revised Penal Code and the affirming decision of the
Regional Trial Court, Branch XXVIII, Iloilo City, in Criminal Case No. 20958, promulgated on 30 July 1987 are both hereby SET
ASIDE. Petitioner is ACQUITTED of criminal charge filed against him.

SO ORDERED.

Melencio-Herrera, Paras, Sarmiento and Regalado JJ., concur.

G.R. No. L-48349 December 29, 1986

FRANCISCO HERRERA, plaintiff-appellant,

vs.

PETROPHIL CORPORATION, defendant-appellee.

Paterno R. Canlas Law Offices for plaintiff-appellant.

CRUZ, J.:

This is an appeal by the plaintiff-appellant from a decision rendered by the then Court of First Instance of Rizal on a pure question
of law. 1

The judgment appealed from was rendered on the pleadings, the parties having agreed during the pretrial conference on the
factual antecedents.

The facts are as follows: On December 5, 1969, the plaintiff-appellant and ESSO Standard Eastern. Inc., (later substituted by
Petrophil Corporation) entered into a "Lease Agreement" whereby the former leased to the latter a portion of his property for a
period of twenty (20) years from said date, subject inter alia to the following conditions:

3. Rental: The LESSEE shall pay the LESSOR a rental of Pl.40 sqm. per month on 400 sqm. and are to be expropriated later on
(sic) or P560 per month and Fl.40 per sqm. per month on 1,693 sqm. or P2,370.21 per month or a total of P2,930.20 per month
2,093 sqm. more or less, payable yearly in advance within the 1st twenty days of each year; provided, a financial aid in the sum of
P15,000 to clear the leased premises of existing improvements thereon is paid in this manner; P10,000 upon execution of this
lease and P5,000 upon delivery of leased premises free and clear of improvements thereon within 30 days from the date of
execution of this agreement. The portion on the side of the leased premises with an area of 365 sqrm. more or less, will be
occupied by LESSEE without rental during the lifetime of this lease. PROVIDED FINALLY, that the Lessor is paid 8 years advance
rental based on P2,930.70 per month discounted at 12% interest per annum or a total net amount of P130,288.47 before
registration of lease. Leased premises shall be delivered within 30 days after 1st partial payment of financial aid. 2

On December 31, 1969, pursuant to the said contract, the defendant-appellee paid to the plaintfff-appellant advance rentals for the
first eight years, subtracting therefrom the amount of P101,010.73, the amount it computed as constituting the interest or discount
for the first eight years, in the total sum P180,288.47. On August 20, 1970, the defendant-appellee, explaining that there had been
a mistake in computation, paid to the appellant the additional sum of P2,182.70, thereby reducing the deducted amount to only
P98,828.03. 3

On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the sum of P98,828.03, with interest, claiming this had
been illegally deducted from him in violation of the Usury Law. 4 He also prayed for moral damages and attorney's fees. In its
answer, the defendant-appellee admitted the factual allegations of the complaint but argued that the amount deducted was not
usurious interest but a given to it for paying the rentals in advance for eight years. 5 Judgment on the pleadings was rendered for
the defendant. 6

Plaintiff-appellant now prays for a reversal of that judgment, insisting that the lower court erred in the computation of the interest
collected out of the rentals paid for the first eight years; that such interest was excessive and violative of the Usury Law; and that he
had neither agreed to nor accepted the defendant-appellant's computation of the total amount to be deducted for the eight years
advance rentals. 7

The thrust of the plaintiff-appellant's position is set forth in paragraph 6 of his complaint, which read:

6. The interest collected by defendant out of the rentals for the first eight years was excessive and beyond that allowable by law,
because the total interest on the said amount is only P33,755.90 at P4,219.4880 per yearly rental; and considering that the interest
should be computed excluding the first year rental because at the time the amount of P281, 199.20 was paid it was already due
under the lease contract hence no interest should be collected from the rental for the first year, the amount of P29,536.42 only as
the total interest should have been deducted by defendant from the sum of P281,299.20.

The defendant maintains that the correct amount of the discount is P98,828.03 and that the same is not excessive and above that
allowed by law.

As its title plainly indicates, the contract between the parties is one of lease and not of loan. It is clearly denominated a "LEASE
AGREEMENT." Nowhere in the contract is there any showing that the parties intended a loan rather than a lease. The provision for
the payment of rentals in advance cannot be construed as a repayment of a loan because there was no grant or forbearance of
money as to constitute an indebtedness on the part of the lessor. On the contrary, the defendant-appellee was discharging its
obligation in advance by paying the eight years rentals, and it was for this advance payment that it was getting a rebate or discount.
The provision for a discount is not unusual in lease contracts. As to its validity, it is settled that the parties may establish such
stipulations, clauses, terms and condition as they may want to include; and as long as such agreements are not contrary to law,
morals, good customs, public policy or public order, they shall have the force of law between them. 8

There is no usury in this case because no money was given by the defendant-appellee to the plaintiff-appellant, nor did it allow him
to use its money already in his possession. 9 There was neither loan nor forbearance but a mere discount which the plaintiff-
appellant allowed the defendant-appellee to deduct from the total payments because they were being made in advance for eight
years. The discount was in effect a reduction of the rentals which the lessor had the right to determine, and any reduction thereof,
by any amount, would not contravene the Usury Law.

The difference between a discount and a loan or forbearance is that the former does not have to be repaid. The loan or forbearance
is subject to repayment and is therefore governed by the laws on usury. 10

To constitute usury, "there must be loan or forbearance; the loan must be of money or something circulating as money; it must be
repayable absolutely and in all events; and something must be exacted for the use of the money in excess of and in addition to
interest allowed by law." 11

It has been held that the elements of usury are (1) a loan, express or implied; (2) an understanding between the parties that the
money lent shall or may be returned; that for such loan a greater rate or interest that is allowed by law shall be paid, or agreed to
be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for the use of money loaned. Unless these
four things concur in every transaction, it is safe to affirm that no case of usury can be declared. 12

Concerning the computation of the deductible discount, the trial court declared:

As above-quoted, the 'Lease Agreement' expressly provides that the lessee (defendant) shag pay the lessor (plaintiff) eight (8)
years in advance rentals based on P2,930.20 per month discounted at 12% interest per annum. Thus, the total rental for one-year
period is P35,162.40 (P2,930.20 multiplied by 12 months) and that the interest therefrom is P4,219.4880 (P35,162.40 multiplied by
12%). So, therefore, the total interest for the first eight (8) years should be only P33,755.90 (P4,129.4880 multiplied by eight (8)
years and not P98,828.03 as the defendant claimed it to be.

The afore-quoted manner of computation made by plaintiff is patently erroneous. It is most seriously misleading. He just computed
the annual discount to be at P4,129.4880 and then simply multiplied it by eight (8) years. He did not take into consideration the
naked fact that the rentals due on the eight year were paid in advance by seven (7) years, the rentals due on the seventh year were
paid in advance by six (6) years, those due on the sixth year by five (5) years, those due on the fifth year by four (4) years, those
due on the fourth year by three (3) years, those due on the third year by two (2) years, and those due on the second year by one
(1) year, so much so that the total number of years by which the annual rental of P4,129.4880 was paid in advance is twenty-eight
(28), resulting in a total amount of P118,145.44 (P4,129.48 multiplied by 28 years) as the discount. However, defendant was most
fair to plaintiff. It did not simply multiply the annual rental discount by 28 years. It computed the total discount with the principal
diminishing month to month as shown by Annex 'A' of its memorandum. This is why the total discount amount to only P 8,828.03.

The allegation of plaintiff that defendant made the computation in a compounded manner is erroneous. Also after making its own
computations and after examining closely defendant's Annex 'A' of its memorandum, the court finds that defendant did not charge
12% discount on the rentals due for the first year so much so that the computation conforms with the provision of the Lease
Agreement to the effect that the rentals shall be 'payable yearly in advance within the 1st 20 days of each year. '

We do not agree. The above computation appears to be too much technical mumbo-jumbo and could not have been the intention of
the parties to the transaction. Had it been so, then it should have been clearly stipulated in the contract. Contracts should be
interpreted according to their literal meaning and should not be interpreted beyond their obvious intendment. 13

The plaintfff-appellant simply understood that for every year of advance payment there would be a deduction of 12% and this
amount would be the same for each of the eight years. There is no showing that the intricate computation applied by the trial court
was explained to him by the defendant-appellee or that he knowingly accepted it.

The lower court, following the defendant-appellee's formula, declared that the plaintiff-appellant had actually agreed to a 12%
reduction for advance rentals for all of twenty eight years. That is absurd. It is not normal for a person to agree to a reduction
corresponding to twenty eight years advance rentals when all he is receiving in advance rentals is for only eight years.

The deduction shall be for only eight years because that was plainly what the parties intended at the time they signed the lease
agreement. "Simplistic" it may be, as the Solicitor General describes it, but that is how the lessor understood the arrangement. In
fact, the Court will reject his subsequent modification that the interest should be limited to only seven years because the first year
rental was not being paid in advance. The agreement was for a uniform deduction for the advance rentals for each of the eight
years, and neither of the parties can deviate from it now.

On the annual rental of P35,168.40, the deducted 12% discount was P4,220.21; and for eight years, the total rental was
P281,347.20 from which was deducted the total discount of P33,761.68, leaving a difference of P247,585.52. Subtracting from this
amount, the sum of P182,471.17 already paid will leave a balance of P65,114.35 still due the plaintiff-appellant.
The above computation is based on the more reasonable interpretation of the contract as a whole rather on the single stipulation
invoked by the respondent for the flat reduction of P130,288.47.

WHEREFORE, the decision of the trial court is hereby modified, and the defendant-appellee Petrophil Corporation is ordered to
pay plaintiff-appellant the amount of Sixty Five Thousand One Hundred Fourteen pesos and Thirty-Five Centavos (P65,114.35),
with interest at the legal rate until fully paid, plus Ten Thousand Pesos (P10,000.00) as attorney's fees. Costs against the
defendant-appellee.

SO ORDERED.

Yap (Chairman), Narvasa, Melencio-Herrera and Feliciano, JJ., concur.

G.R. No. 154878 March 16, 2007

CAROLYN M. GARCIA, Petitioner,

vs.

RICA MARIE S. THIO, Respondent.

DECISION

CORONA, J.:

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

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

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

According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000 and P500,000) when they fell due.
Thus, on February 22, 1996, petitioner filed a complaint for sum of money and damages in the RTC of Makati City, Branch 58
against respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and
P500,000, with interest thereon at 4% a month from November 5, 1995, plus 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.161awphi1.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 were contracts of loan) are contradictory.24

The petition is impressed with merit.

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

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

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

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

Petitioner insists that it was upon 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 and P500,000 loans
respectively. There was no written proof of the interest payable except for the verbal agreement that the loans would earn 3% and
4% interest per month. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has been expressly stipulated
in writing."

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

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

Hence, respondent is liable for the payment of legal interest per annum to be computed from November 21, 1995, the date when
she received 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.

RENATO C. CORONA

Associate Justice
G.R. No. 174269 May 8, 2009

POLO S. PANTALEON, Petitioner,

vs.

AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.

DECISION

TINGA, J.:

The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian Roberto, joined an escorted tour of
Western Europe organized by Trafalgar Tours of Europe, Ltd., in October of 1991. The tour group arrived in Amsterdam in the
afternoon of 25 October 1991, the second to the last day of the tour. As the group had arrived late in the city, they failed to engage
in any sight-seeing. Instead, it was agreed upon that they would start early the next day to see the entire city before ending the tour.

The following day, the last day of the tour, the group arrived at the Coster Diamond House in Amsterdam around 10 minutes before
9:00 a.m. The group had agreed that the visit to Coster should end by 9:30 a.m. to allow enough time to take in a guided city tour of
Amsterdam. The group was ushered into Coster shortly before 9:00 a.m., and listened to a lecture on the art of diamond polishing
that lasted for around ten minutes.1 Afterwards, the group was led to the stores showroom to allow them to select items for
purchase. Mrs. Pantaleon had already planned to purchase even before the tour began a 2.5 karat diamond brilliant cut, and she
found a diamond close enough in approximation that she decided to buy.2 Mrs. Pantaleon also selected for purchase a pendant
and a chain,3 all of which totaled U.S. $13,826.00.

To pay for these purchases, Pantaleon presented his American Express credit card together with his passport to the Coster sales
clerk. This occurred at around 9:15 a.m., or 15 minutes before the tour group was slated to depart from the store. The sales clerk
took the cards imprint, and asked Pantaleon to sign the charge slip. The charge purchase was then referred electronically to
respondents Amsterdam office at 9:20 a.m.

Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been approved. His son, who had already
boarded the tour bus, soon returned to Coster and informed the other members of the Pantaleon family that the entire tour group
was waiting for them. As it was already 9:40 a.m., and he was already worried about further inconveniencing the tour group,
Pantaleon asked the store clerk to cancel the sale. The store manager though asked plaintiff to wait a few more minutes. After 15
minutes, the store manager informed Pantaleon that respondent had demanded bank references. Pantaleon supplied the names of
his depositary banks, then instructed his daughter to return to the bus and apologize to the tour group for the delay.

At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and 30 minutes after the tour group was
supposed to have left the store, Coster decided to release the items even without respondents approval of the purchase. The
spouses Pantaleon returned to the bus. It is alleged that their offers of apology were met by their tourmates with stony silence.4
The tour groups visible irritation was aggravated when the tour guide announced that the city tour of Amsterdam was to be
canceled due to lack of remaining time, as they had to catch a 3:00 p.m. ferry at Calais, Belgium to London.5 Mrs. Pantaleon ended
up weeping, while her husband had to take a tranquilizer to calm his nerves.

It later emerged that Pantaleons purchase was first transmitted for approval to respondents Amsterdam office at 9:20 a.m.,
Amsterdam time, then referred to respondents Manila office at 9:33 a.m, then finally approved at 10:19 a.m., Amsterdam time.6
The Approval Code was transmitted to respondents Amsterdam office at 10:38 a.m., several minutes after petitioner had already
left Coster, and 78 minutes from the time the purchases were electronically transmitted by the jewelry store to respondents
Amsterdam office.

After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before returning to Manila on 12
November 1992. While in the United States, Pantaleon continued to use his AmEx card, several times without hassle or delay, but
with two other incidents similar to the Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf equipment amounting
to US $1,475.00 using his AmEx card, but he cancelled his credit card purchase and borrowed money instead from a friend, after
more than 30 minutes had transpired without the purchase having been approved. On 3 November 1991, Pantaleon used the card
to purchase childrens shoes worth $87.00 at a store in Boston, and it took 20 minutes before this transaction was approved by
respondent.

On 4 March 1992, after coming back to Manila, Pantaleon sent a letter7 through counsel to the respondent, demanding an apology
for the "inconvenience, humiliation and embarrassment he and his family thereby suffered" for respondents refusal to provide credit
authorization for the aforementioned purchases.8 In response, respondent sent a letter dated 24 March 1992,9 stating among
others that the delay in authorizing the purchase from Coster was attributable to the circumstance that the charged purchase of US
$13,826.00 "was out of the usual charge purchase pattern established."10 Since respondent refused to accede to Pantaleons
demand for an apology, the aggrieved cardholder instituted an action for damages with the Regional Trial Court (RTC) of Makati
City, Branch 145.11 Pantaleon prayed that he be awarded P2,000,000.00, as moral damages; P500,000.00, as exemplary
damages; P100,000.00, as attorneys fees; and P50,000.00 as litigation expenses.12
On 5 August 1996, the Makati City RTC rendered a decision13 in favor of Pantaleon, awarding him P500,000.00 as moral
damages, P300,000.00 as exemplary damages, P100,000.00 as attorneys fees, and P85,233.01 as expenses of litigation.
Respondent filed a Notice of Appeal, while Pantaleon moved for partial reconsideration, praying that the trial court award the
increased amount of moral and exemplary damages he had prayed for.14 The RTC denied Pantaleons motion for partial
reconsideration, and thereafter gave due course to respondents Notice of Appeal.15

On 18 August 2006, the Court of Appeals rendered a decision16 reversing the award of damages in favor of Pantaleon, holding that
respondent had not breached its obligations to petitioner. Hence, this petition.

The key question is whether respondent, in connection with the aforementioned transactions, had committed a breach of its
obligations to Pantaleon. In addition, Pantaleon submits that even assuming that respondent had not been in breach of its
obligations, it still remained liable for damages under Article 21 of the Civil Code.

The RTC had concluded, based on the testimonial representations of Pantaleon and respondents credit authorizer, Edgardo
Jaurigue, that the normal approval time for purchases was "a matter of seconds." Based on that standard, respondent had been in
clear delay with respect to the three subject transactions. As it appears, the Court of Appeals conceded that there had been delay
on the part of respondent in approving the purchases. However, it made two critical conclusions in favor of respondent. First, the
appellate court ruled that the delay was not attended by bad faith, malice, or gross negligence. Second, it ruled that respondent
"had exercised diligent efforts to effect the approval" of the purchases, which were "not in accordance with the charge pattern"
petitioner had established for himself, as exemplified by the fact that at Coster, he was "making his very first single charge
purchase of US$13,826," and "the record of [petitioner]s past spending with [respondent] at the time does not favorably support his
ability to pay for such purchase."17

On the premise that there was an obligation on the part of respondent "to approve or disapprove with dispatch the charge
purchase," petitioner argues that the failure to timely approve or disapprove the purchase constituted mora solvendi on the part of
respondent in the performance of its obligation. For its part, respondent characterizes the depiction by petitioner of its obligation to
him as "to approve purchases instantaneously or in a matter of seconds."

Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default are that the obligation is demandable
and liquidated; the debtor delays performance; and the creditor judicially or extrajudicially requires the debtors performance.18
Petitioner asserts that the Court of Appeals had wrongly applied the principle of mora accipiendi, which relates to delay on the part
of the obligee in accepting the performance of the obligation by the obligor. The requisites of mora accipiendi are: an offer of
performance by the debtor who has the required capacity; the offer must be to comply with the prestation as it should be
performed; and the creditor refuses the performance without just cause.19 The error of the appellate court, argues petitioner, is in
relying on the invocation by respondent of "just cause" for the delay, since while just cause is determinative of mora accipiendi, it is
not so with the case of mora solvendi.

We can see the possible source of confusion as to which type of mora to appreciate. Generally, the relationship between a credit
card provider and its card holders is that of creditor-debtor,20 with the card company as the creditor extending loans and credit to
the card holder, who as debtor is obliged to repay the creditor. This relationship already takes exception to the general rule that as
between a bank and its depositors, the bank is deemed as the debtor while the depositor is considered as the creditor.21 Petitioner
is asking us, not baselessly, to again shift perspectives and again see the credit card company as the debtor/obligor, insofar as it
has the obligation to the customer as creditor/obligee to act promptly on its purchases on credit.

Ultimately, petitioners perspective appears more sensible than if we were to still regard respondent as the creditor in the context of
this cause of action. If there was delay on the part of respondent in its normal role as creditor to the cardholder, such delay would
not have been in the acceptance of the performance of the debtors obligation (i.e., the repayment of the debt), but it would be
delay in the extension of the credit in the first place. Such delay would not fall under mora accipiendi, which contemplates that the
obligation of the debtor, such as the actual purchases on credit, has already been constituted. Herein, the establishment of the debt
itself (purchases on credit of the jewelry) had not yet been perfected, as it remained pending the approval or consent of the
respondent credit card company.

Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first recognize that there was indeed an
obligation on the part of respondent to act on petitioners purchases with "timely dispatch," or for the purposes of this case, within a
period significantly less than the one hour it apparently took before the purchase at Coster was finally approved.

The findings of the trial court, to our mind, amply established that the tardiness on the part of respondent in acting on petitioners
purchase at Coster did constitute culpable delay on its part in complying with its obligation to act promptly on its customers
purchase request, whether such action be favorable or unfavorable. We quote the trial court, thus:

As to the first issue, both parties have testified that normal approval time for purchases was a matter of seconds.

Plaintiff testified that his personal experience with the use of the card was that except for the three charge purchases subject of this
case, approvals of his charge purchases were always obtained in a matter of seconds.

Defendants credit authorizer Edgardo Jaurique likewise testified:

Q. You also testified that on normal occasions, the normal approval time for charges would be 3 to 4 seconds?
A. Yes, Maam.

Both parties likewise presented evidence that the processing and approval of plaintiffs charge purchase at the Coster Diamond
House was way beyond the normal approval time of a "matter of seconds".

Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m. and by the time he had to leave the store
at 10:05 a.m., no approval had yet been received. In fact, the Credit Authorization System (CAS) record of defendant at Phoenix
Amex shows that defendants Amsterdam office received the request to approve plaintiffs charge purchase at 9:20 a.m.,
Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its approval to Coster at 10:38 a.m., Amsterdam time, or
2:38, Phoenix time, or a total time lapse of one hour and [18] minutes. And even then, the approval was conditional as it directed in
computerese [sic] "Positive Identification of Card holder necessary further charges require bank information due to high exposure.
By Jack Manila."

The delay in the processing is apparent to be undue as shown from the frantic successive queries of Amexco Amsterdam which
reads: "US$13,826. Cardmember buying jewels. ID seen. Advise how long will this take?" They were sent at 01:33, 01:37, 01:40,
01:45, 01:52 and 02:08, all times Phoenix. Manila Amexco could be unaware of the need for speed in resolving the charge
purchase referred to it, yet it sat on its hand, unconcerned.

xxx

To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows how Amexco Netherlands viewed
the delay as unusually frustrating. In sequence expressed in Phoenix time from 01:20 when the charge purchased was referred for
authorization, defendants own record shows:

01:22 the authorization is referred to Manila Amexco

01:32 Netherlands gives information that the identification of the cardmember has been presented and he is buying jewelries
worth US $13,826.

01:33 Netherlands asks "How long will this take?"

02:08 Netherlands is still asking "How long will this take?"

The Court is convinced that defendants delay constitute[s] breach of its contractual obligation to act on his use of the card abroad
"with special handling."22 (Citations omitted)

xxx

Notwithstanding the popular notion that credit card purchases are approved "within seconds," there really is no strict, legally
determinative point of demarcation on how long must it take for a credit card company to approve or disapprove a customers
purchase, much less one specifically contracted upon by the parties. Yet this is one of those instances when "youd know it when
youd see it," and one hour appears to be an awfully long, patently unreasonable length of time to approve or disapprove a credit
card purchase. It is long enough time for the customer to walk to a bank a kilometer away, withdraw money over the counter, and
return to the store.

Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the purchase "in timely dispatch," and not "to
approve the purchase instantaneously or within seconds." Certainly, had respondent disapproved petitioners purchase "within
seconds" or within a timely manner, this particular action would have never seen the light of day. Petitioner and his family would
have returned to the bus without delay internally humiliated perhaps over the rejection of his card yet spared the shame of
being held accountable by newly-made friends for making them miss the chance to tour the city of Amsterdam.

We do not wish do dispute that respondent has the right, if not the obligation, to verify whether the credit it is extending upon on a
particular purchase was indeed contracted by the cardholder, and that the cardholder is within his means to make such transaction.
The culpable failure of respondent herein is not the failure to timely approve petitioners purchase, but the more elemental failure to
timely act on the same, whether favorably or unfavorably. Even assuming that respondents credit authorizers did not have
sufficient basis on hand to make a judgment, we see no reason why respondent could not have promptly informed petitioner the
reason for the delay, and duly advised him that resolving the same could take some time. In that way, petitioner would have had
informed basis on whether or not to pursue the transaction at Coster, given the attending circumstances. Instead, petitioner was left
uncomfortably dangling in the chilly autumn winds in a foreign land and soon forced to confront the wrath of foreign folk.

Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in bad faith, and the court should find
that under the circumstances, such damages are due. The findings of the trial court are ample in establishing the bad faith and
unjustified neglect of respondent, attributable in particular to the "dilly-dallying" of respondents Manila credit authorizer, Edgardo
Jaurique.23 Wrote the trial court:
While it is true that the Cardmembership Agreement, which defendant prepared, is silent as to the amount of time it should take
defendant to grant authorization for a charge purchase, defendant acknowledged that the normal time for approval should only be
three to four seconds. Specially so with cards used abroad which requires "special handling", meaning with priority. Otherwise, the
object of credit or charge cards would be lost; it would be so inconvenient to use that buyers and consumers would be better off
carrying bundles of currency or travellers checks, which can be delivered and accepted quickly. Such right was not accorded to
plaintiff in the instances complained off for reasons known only to defendant at that time. This, to the Courts mind, amounts to a
wanton and deliberate refusal to comply with its contractual obligations, or at least abuse of its rights, under the contract.24

xxx

The delay committed by defendant was clearly attended by unjustified neglect and bad faith, since it alleges to have consumed
more than one hour to simply go over plaintiffs past credit history with defendant, his payment record and his credit and bank
references, when all such data are already stored and readily available from its computer. This Court also takes note of the fact that
there is nothing in plaintiffs billing history that would warrant the imprudent suspension of action by defendant in processing the
purchase. Defendants witness Jaurique admits:

Q. But did you discover that he did not have any outstanding account?

A. Nothing in arrears at that time.

Q. You were well aware of this fact on this very date?

A. Yes, sir.

Mr. Jaurique further testified that there were no "delinquencies" in plaintiffs account.25

It should be emphasized that the reason why petitioner is entitled to damages is not simply because respondent incurred delay, but
because the delay, for which culpability lies under Article 1170, led to the particular injuries under Article 2217 of the Civil Code for
which moral damages are remunerative.26 Moral damages do not avail to soothe the plaints of the simply impatient, so this
decision should not be cause for relief for those who time the length of their credit card transactions with a stopwatch. The
somewhat unusual attending circumstances to the purchase at Coster that there was a deadline for the completion of that
purchase by petitioner before any delay would redound to the injury of his several traveling companions gave rise to the moral
shock, mental anguish, serious anxiety, wounded feelings and social humiliation sustained by the petitioner, as concluded by the
RTC.27 Those circumstances are fairly unusual, and should not give rise to a general entitlement for damages under a more
mundane set of facts.

We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-and-fast rule in determining what
would be a fair and reasonable amount of moral damages, since each case must be governed by its own peculiar facts, however, it
must be commensurate to the loss or injury suffered.28 Petitioners original prayer for P5,000,000.00 for moral damages is
excessive under the circumstances, and the amount awarded by the trial court of P500,000.00 in moral damages more
seemly.1avvphi1

Likewise, we deem exemplary damages available under the circumstances, and the amount of P300,000.00 appropriate. There is
similarly no cause though to disturb the determined award of P100,000.00 as attorneys fees, and P85,233.01 as expenses of
litigation.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED and SET ASIDE. The
Decision of the Regional Trial Court of Makati, Branch 145 in Civil Case No. 92-1665 is hereby REINSTATED. Costs against
respondent.

SO ORDERED.

DANTE O. TINGA

Associate Justice
[G.R. No. 133632. February 15, 2002]

BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT
CORPORATION, respondents.

DECISION

QUISUMBING, J.:

This petition for certiorari assails the decision dated February 28, 1997, of the Court of Appeals and its resolution dated April 21,
1998, in CA-G.R. CV No. 38887. The appellate court affirmed the judgment of the Regional Trial Court of Pasig City, Branch 151, in
(a) Civil Case No. 11831, for foreclosure of mortgage by petitioner BPI Investment Corporation (BPIIC for brevity) against private
respondents ALS Management and Development Corporation and Antonio K. Litonjua,[1] consolidated with (b) Civil Case No.
52093, for damages with prayer for the issuance of a writ of preliminary injunction by the private respondents against said
petitioner.

The trial court had held that private respondents were not in default in the payment of their monthly amortization, hence, the
extrajudicial foreclosure conducted by BPIIC was premature and made in bad faith. It awarded private respondents the amount of
P300,000 for moral damages, P50,000 for exemplary damages, and P50,000 for attorneys fees and expenses for litigation. It
likewise dismissed the foreclosure suit for being premature.

The facts are as follows:

Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and Development Corporation (AIDC),
the predecessor of petitioner BPIIC, for the construction of a house on his lot in New Alabang Village, Muntinlupa. Said house and
lot were mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and
Antonio Litonjua for P850,000. They paid P350,000 in cash and assumed the P500,000 balance of Roas indebtedness with AIDC.
The latter, however, was not willing to extend the old interest rate to private respondents and proposed to grant them a new loan of
P500,000 to be applied to Roas debt and secured by the same property, at an interest rate of 20% per annum and service fee of
1% per annum on the outstanding principal balance payable within ten years in equal monthly amortization of P9,996.58 and
penalty interest at the rate of 21% per annum per day from the date the amortization became due and payable.

Consequently, in March 1981, private respondents executed a mortgage deed containing the above stipulations with the provision
that payment of the monthly amortization shall commence on May 1, 1981.

On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum of P190,601.35. This reduced Roas
principal balance to P457,204.90 which, in turn, was liquidated when BPIIC applied thereto the proceeds of private respondents
loan of P500,000.

On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to be what was left of their loan after full
payment of Roas loan.

In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that they failed to pay the
mortgage indebtedness which from May 1, 1981 to June 30, 1984, amounted to Four Hundred Seventy Five Thousand Five
Hundred Eighty Five and 31/100 Pesos (P475,585.31). A notice of sheriffs sale was published on August 13, 1984.

On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged, among others, that they were not
in arrears in their payment, but in fact made an overpayment as of June 30, 1984. They maintained that they should not be made to
pay amortization before the actual release of the P500,000 loan in August and September 1982. Further, out of the P500,000 loan,
only the total amount of P464,351.77 was released to private respondents. Hence, applying the effects of legal compensation, the
balance of P35,648.23 should be applied to the initial monthly amortization for the loan.

On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093, thus:

WHEREFORE, judgment is hereby rendered in favor of ALS Management and Development Corporation and Antonio K. Litonjua
and against BPI Investment Corporation, holding that the 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, 1982 for it
was only then when it complied with its obligation under the loan contract. Therefore, in computing the amount due as of the date
when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date is October 13, 1982 and not May 1, 1981.

Other points raised by petitioner in connection with the first issue, such as the date of actual release of the loan and whether private
respondents were the cause of the delay in the release of the loan, are factual. Since petitioner has not shown that the instant case
is one of the exceptions to the basic rule that only questions of law can be raised in a petition for review under Rule 45 of the Rules
of Court,[10] factual matters need not tarry us now. On these points we are bound by the findings of the appellate and trial courts.

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.
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
Kenaf mill plant, to manufacture copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials,
principal kenaf." The explanatory note on page 1 of the same brochure states that, the venture "is the first serious attempt in this
country to use 100% locally grown raw materials notably kenaf which is presently grown commercially in theIsland of Mindanao
where the proposed jutemill is located ..."

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

a) For the payment of the receipt for jute mill

machineries with the Prudential Bank &

Trust Company P250,000.00

(For immediate release)

b) For the purchase of materials and equip-

ment per attached list to enable the 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 utilized exclusively for the
following purposes: for construction of factory building P250,000.00; for payment of the balance of purchase price of machinery
and equipment P240,900.00; for working capital P9,100.00." Evidently Saura, Inc. realized that it could not meet the
conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity
this year or probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials
and labor." This was a deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying
as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.

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

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

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

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

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

Makasiar, J., took no part.

[G.R. No. 115324. February 19, 2003]

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner, vs. HON. COURT OF APPEALS
AND FRANKLIN VIVES, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the 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 for P212,000.00 in private respondents favor but the check was again dishonored for insufficiency
of funds.[7]

Private respondent instituted an action for recovery of sum of money in the Regional Trial Court (RTC) in Pasig, Metro Manila
against Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed as Civil Case No. 44485. He also filed criminal actions
against Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez passed away on March 16, 1985 while the case was
pending before the trial court. On October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil Case No.
44485, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J. Doronila, Estrella Dumagpi and
Producers Bank of the Philippines to pay plaintiff Franklin Vives jointly and severally

(a) the amount of P200,000.00, representing the money deposited, with interest at the legal rate from the filing of the complaint until
the same is fully paid;

(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages;

(c) the amount of P40,000.00 for attorneys fees; and

(d) the costs of the suit.

SO ORDERED.[8]

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

On June 30, 1994, petitioner filed the present petition, arguing that

I.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN THE DEFENDANT
DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION;

II.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS BANK MANAGER, MR. RUFO
ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be PRIVATE
RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF
NATURAL JUSTICE;

III.

THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE REGIONAL TRIAL COURT
AND AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL TRIAL COURT WERE BASED
ON A MISAPPREHENSION OF FACTS;

IV.

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 additional P12,000.00 corresponds to
the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code expressly states that [t]he bailee in commodatum
acquires the use of the thing loaned but not 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:

XXX

But the scheme could not have been executed successfully without the knowledge, help and cooperation of Rufo Atienza, assistant
manager and cashier of the Makati (Buendia) branch of the defendant bank. Indeed, the evidence indicates that Atienza had not
only facilitated the commission of the fraud but he likewise helped in devising the means by which it can be done in such manner
as to make it appear that the transaction was in accordance with banking procedure.

To begin with, the deposit was made in defendants Buendia branch precisely because Atienza was a key officer therein. The
records show that plaintiff had suggested that the P200,000.00 be deposited in his bank, the Manila Banking Corporation, but
Doronilla and Dumagpi insisted that it must be in defendants branch in Makati for it will be easier for them to get a certification. In
fact before he was introduced to plaintiff, Doronilla had already prepared a letter addressed to the Buendia branch manager
authorizing Angeles B. Sanchez and company to open a savings account for Sterela in the amount of P200,000.00, as per
coordination with Mr. Rufo Atienza, Assistant Manager of the Bank x x x (Exh. 1). This is a clear manifestation that the other
defendants had been in consultation with Atienza from the inception of the scheme. Significantly, there were testimonies and
admission that Atienza is the brother-in-law of a certain Romeo Mirasol, a friend and business associate of Doronilla.

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.
G.R. No. 80294-95 September 21, 1988

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,

vs.

COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents.

Valdez, Ereso, Polido & Associates for petitioner.

Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.

Jaime G. de Leon for the Heirs of Egmidio Octaviano.

Cotabato Law Office for the Heirs of Juan Valdez.

GANCAYCO, J.:

The principal issue in this case is whether or not a decision of the Court of Appeals promulgated a long time ago can properly be
considered res judicata by respondent Court of Appeals in the present two cases between petitioner and two private respondents.

Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth Division of Respondent Court of
Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for
Recovery of Possession, which affirmed the Decision of the Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of
Baguio and Benguet in Civil Case No. 3607 (419) and Civil Case No. 3655 (429), with the dispositive portion as follows:

WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar Apostolic of the Mountain Province to return
and surrender Lot 2 of Plan Psu-194357 to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan to the other set of
plaintiffs, the Heirs of Egmidio Octaviano (Leonardo Valdez, et al.). For lack or insufficiency of evidence, the plaintiffs' claim or
damages is hereby denied. Said defendant is ordered to pay costs. (p. 36, Rollo)

Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's conclusions that the Decision of the
Court of Appeals, dated May 4,1977 in CA-G.R. No. 38830-R, in the two cases affirmed by the Supreme Court, touched on the
ownership of lots 2 and 3 in question; that the two lots were possessed by the predecessors-in-interest of private respondents
under claim of ownership in good faith from 1906 to 1951; that petitioner had been in possession of the same lots as bailee in
commodatum up to 1951, when petitioner repudiated the trust and when it applied for registration in 1962; that petitioner had just
been in possession as owner for eleven years, hence there is no possibility of acquisitive prescription which requires 10 years
possession with just title and 30 years of possession without; that the principle of res judicata on these findings by the Court of
Appeals will bar a reopening of these questions of facts; and that those facts may no longer be altered.

Petitioner's motion for reconsideation of the respondent appellate court's Decision in the two aforementioned cases (CA G.R. No.
CV-05418 and 05419) was denied.

The facts and background of these cases as narrated by the trail court are as follows

... The documents and records presented reveal that the whole controversy started when the defendant Catholic Vicar Apostolic of
the Mountain Province (VICAR for brevity) filed with the Court of First Instance of Baguio Benguet on September 5, 1962 an
application for registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet,
docketed as LRC N-91, said Lots being the sites of the Catholic Church building, convents, high school building, school
gymnasium, school dormitories, social hall, stonewalls, etc. On March 22, 1963 the Heirs of Juan Valdez and the Heirs of Egmidio
Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. After trial on the
merits, the land registration court promulgated its Decision, dated November 17, 1965, confirming the registrable title of VICAR to
Lots 1, 2, 3, and 4.

The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the Heirs of Egmidio Octaviano (plaintiffs in the herein
Civil Case No. 3607) appealed the decision of the land registration court to the then Court of Appeals, docketed as CA-G.R. No.
38830-R. The Court of Appeals rendered its decision, dated May 9, 1977, reversing the decision of the land registration court and
dismissing the VICAR's application as to Lots 2 and 3, the lots claimed by the two sets of oppositors in the land registration case
(and two sets of plaintiffs in the two cases now at bar), the first lot being presently occupied by the convent and the second by the
women's dormitory and the sister's convent.

On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration praying the Court of Appeals to order the registration of
Lot 3 in the names of the Heirs of Egmidio Octaviano, and on May 17, 1977, the Heirs of Juan Valdez and Pacita Valdez filed their
motion for reconsideration praying that both Lots 2 and 3 be ordered registered in the names of the Heirs of Juan Valdez and
Pacita Valdez. On August 12,1977, the Court of Appeals denied the motion for reconsideration filed by the Heirs of Juan Valdez on
the ground that there was "no sufficient merit to justify reconsideration one way or the other ...," and likewise denied that of the
Heirs of Egmidio Octaviano.
Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari of the decision of the Court of Appeals
dismissing his (its) application for registration of Lots 2 and 3, docketed as G.R. No. L-46832, entitled 'Catholic Vicar Apostolic of
the Mountain Province vs. Court of Appeals and Heirs of Egmidio Octaviano.'

From the denial by the Court of Appeals of their motion for reconsideration the Heirs of Juan Valdez and Pacita Valdez, on
September 8, 1977, filed with the Supreme Court a petition for review, docketed as G.R. No. L-46872, entitled, Heirs of Juan
Valdez and Pacita Valdez vs. Court of Appeals, Vicar, Heirs of Egmidio Octaviano and Annable O. Valdez.

On January 13, 1978, the Supreme Court denied in a minute resolution both petitions (of VICAR on the one hand and the Heirs of
Juan Valdez and Pacita Valdez on the other) for lack of merit. Upon the finality of both Supreme Court resolutions in G.R. No. L-
46832 and G.R. No. L- 46872, the Heirs of Octaviano filed with the then Court of First Instance of Baguio, Branch II, a Motion For
Execution of Judgment praying that the Heirs of Octaviano be placed in possession of Lot 3. The Court, presided over by Hon.
Salvador J. Valdez, on December 7, 1978, denied the motion on the ground that the Court of Appeals decision in CA-G.R. No.
38870 did not grant the Heirs of Octaviano any affirmative relief.

On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a petitioner for certiorari and mandamus, docketed as
CA-G.R. No. 08890-R, entitled Heirs of Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar. In its decision dated May 16,
1979, the Court of Appeals dismissed the petition.

It was at that stage that the instant cases were filed. The Heirs of Egmidio Octaviano filed Civil Case No. 3607 (419) on July 24,
1979, for recovery of possession of Lot 3; and the Heirs of Juan Valdez filed Civil Case No. 3655 (429) on September 24, 1979,
likewise for recovery of possession of Lot 2 (Decision, pp. 199-201, Orig. Rec.).

In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano presented one (1) witness, Fructuoso Valdez,
who testified on the alleged ownership of the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano (Exh. C );
his written demand (Exh. BB-4 ) to defendant Vicar for the return of the land to them; and the reasonable rentals for the use of
the land at P10,000.00 per month. On the other hand, defendant Vicar presented the Register of Deeds for the Province of
Benguet, Atty. Nicanor Sison, who testified that the land in question is not covered by any title in the name of Egmidio Octaviano or
any of the plaintiffs (Exh. 8). The defendant dispensed with the testimony of Mons.William Brasseur when the plaintiffs admitted
that the witness if called to the witness stand, would testify that defendant Vicar has been in possession of Lot 3, for seventy-five
(75) years continuously and peacefully and has constructed permanent structures thereon.

In Civil Case No. 3655, the parties admitting that the material facts are not in dispute, submitted the case on the sole issue of
whether or not the decisions of the Court of Appeals and the Supreme Court touching on the ownership of Lot 2, which in effect
declared the plaintiffs the owners of the land constitute res judicata.

In these two cases , the plaintiffs arque that the defendant Vicar is barred from setting up the defense of ownership and/or long and
continuous possession of the two lots in question since this is barred by prior judgment of the Court of Appeals in CA-G.R. No.
038830-R under the principle of res judicata. Plaintiffs contend that the question of possession and ownership have already been
determined by the Court of Appeals (Exh. C, Decision, CA-G.R. No. 038830-R) and affirmed by the Supreme Court (Exh. 1, Minute
Resolution of the Supreme Court). On his part, defendant Vicar maintains that the principle of res judicata would not prevent them
from litigating the issues of long possession and ownership because the dispositive portion of the prior judgment in CA-G.R. No.
038830-R merely dismissed their application for registration and titling of lots 2 and 3. Defendant Vicar contends that only the
dispositive portion of the decision, and not its body, is the controlling pronouncement of the Court of Appeals. 2

The alleged errors committed by respondent Court of Appeals according to petitioner are as follows:

1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;

2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE ACQUIRED BY PURCHASE BUT
WITHOUT DOCUMENTARY EVIDENCE PRESENTED;

3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3 FROM VALDEZ AND OCTAVIANO WAS
AN IMPLIED ADMISSION THAT THE FORMER OWNERS WERE VALDEZ AND OCTAVIANO;

4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE RESPONDENTS WHO WERE IN POSSESSION OF
LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT PETITIONER;

5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT APPLICATIONS AND THE PREDECESSORS
OF PRIVATE RESPONDENTS ALREADY HAD FREE PATENT APPLICATIONS SINCE 1906;

6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951 AND JUST TITLE IS A PRIME
NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART. 1129 OF THE CIVIL CODE FOR ORDINARY ACQUISITIVE
PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R. NO. 038830 WAS AFFIRMED BY
THE SUPREME COURT;

8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON OWNERSHIP OF LOTS 2 AND 3 AND
THAT PRIVATE RESPONDENTS AND THEIR PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM
OF OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;

9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3 MERELY AS BAILEE BOR
ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;

10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD FAITH WITHOUT RIGHTS OF
RETENTION AND REIMBURSEMENT AND IS BARRED BY THE FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA
G.R. NO. 038830. 3

The petition is bereft of merit.

Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and 05149, when it clearly held that it was in
agreement with the findings of the trial court that the Decision of the Court of Appeals dated May 4,1977 in CA-G.R. No. 38830-R,
on the question of ownership of Lots 2 and 3, declared that the said Court of Appeals Decision CA-G.R. No. 38830-R) did not
positively declare private respondents as owners of the land, neither was it declared that they were not owners of the land, but it
held that the predecessors of private respondents were possessors of Lots 2 and 3, with claim of ownership in good faith from 1906
to 1951. Petitioner was in possession as borrower in commodatum up to 1951, when it repudiated the trust by declaring the
properties in its name for taxation purposes. When petitioner applied for registration of Lots 2 and 3 in 1962, it had been in
possession in concept of owner only for eleven years. Ordinary acquisitive prescription requires possession for ten years, but
always with just title. Extraordinary acquisitive prescription requires 30 years. 4

On the above findings of facts supported by evidence and evaluated by the Court of Appeals in CA-G.R. No. 38830-R, affirmed by
this Court, We see no error in respondent appellate court's ruling that said findings are res judicata between the parties. They can
no longer be altered by presentation of evidence because those issues were resolved with finality a long time ago. To ignore the
principle of res judicata would be to open the door to endless litigations by continuous determination of issues without end.

An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in CA-G.R. No. 38830-R, shows that it
reversed the trial court's Decision 6 finding petitioner to be entitled to register the lands in question under its ownership, on its
evaluation of evidence and conclusion of facts.

The Court of Appeals found that petitioner did not meet the requirement of 30 years possession for acquisitive prescription over
Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession for ordinary acquisitive prescription because of the
absence of just title. The appellate court did not believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by
purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by petitioner Vicar because there was absolutely no
documentary evidence to support the same and the alleged purchases were never mentioned in the application for registration.

By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano. Both Valdez and Octaviano had Free
Patent Application for those lots since 1906. The predecessors of private respondents, not petitioner Vicar, were in possession of
the questioned lots since 1906.

There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not Lots 2 and 3, because the buildings
standing thereon were only constructed after liberation in 1945. Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in
1951. The improvements oil Lots 1, 2, 3, 4 were paid for by the Bishop but said Bishop was appointed only in 1947, the church was
constructed only in 1951 and the new convent only 2 years before the trial in 1963.

When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the lot from Fructuoso Valdez. Lots 2
and 3 were surveyed by request of petitioner Vicar only in 1962.

Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the church and the
convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in
commodatum and the petitioner the bailee. The bailees' failure to return the subject matter of commodatum to the bailor did not
mean adverse possession on the part of the borrower. The bailee held in trust the property subject matter of commodatum. The
adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by such
adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just title.

The Court of Appeals found that the predecessors-in-interest and private respondents were possessors under claim of ownership in
good faith from 1906; that petitioner Vicar was only a bailee in commodatum; and that the adverse claim and repudiation of trust
came only in 1951.

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-R. Its findings of fact have
become incontestible. This Court declined to review said decision, thereby in effect, affirming it. It has become final and executory a
long time ago.
Respondent appellate court did not commit any reversible error, much less grave abuse of discretion, when it held that the Decision
of the Court of Appeals in CA-G.R. No. 38830-R is governing, under the principle of res judicata, hence the rule, in the present
cases CA-G.R. No. 05148 and CA-G.R. No. 05149. The facts as supported by evidence established in that decision may no longer
be altered.

WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of merit, the Decision dated Aug. 31,
1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court of Appeals is AFFIRMED, with costs against petitioner.

SO ORDERED.
[G.R. No. 146364. June 3, 2004]

COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents.

DECISION

CARPIO, J.:

The Case

Before us is a petition for review[1] of the 21 June 2000 Decision[2] and 14 December 2000 Resolution of the Court of Appeals in
CA-G.R. SP No. 43129. The Court of Appeals set aside the 11 November 1996 decision[3] of the Regional Trial Court of Quezon
City, Branch 81,[4] affirming the 15 December 1995 decision[5] of the Metropolitan Trial Court of Quezon City, Branch 31.[6]

The Antecedents

In June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 to a certain Pedro Perez for the rights over a 250-square meter lot in
Barrio Payatas, Quezon City. Pajuyo then constructed a house made of light materials on the lot. Pajuyo and his family lived in the
house from 1979 to 7 December 1985.

On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (Guevarra) executed a Kasunduan or agreement. Pajuyo, as
owner of the house, allowed Guevarra to live in the house for free provided Guevarra would maintain the cleanliness and
orderliness of the house. Guevarra promised that he would voluntarily vacate the premises on Pajuyos demand.

In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra vacate the house. Guevarra
refused.

Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City, Branch 31 (MTC).

In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot where the house stands because
the lot is within the 150 hectares set aside by Proclamation No. 137 for socialized housing. Guevarra pointed out that from
December 1985 to September 1994, Pajuyo did not show up or communicate with him. Guevarra insisted that neither he nor
Pajuyo has valid title to the lot.

On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion of the MTC decision reads:

WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against defendant, ordering the latter to:

A) vacate the house and lot occupied by the defendant or any other person or persons claiming any right under him;

B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as reasonable compensation for the use of the
premises starting from the last demand;

C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and

D) pay the cost of suit.

SO ORDERED.[7]

Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 (RTC).

On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the RTC decision reads:

WHEREFORE, premises considered, the Court finds no reversible error in the decision appealed from, being in accord with the law
and evidence presented, and the same is hereby affirmed en toto.

SO ORDERED.[8]

Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14 December 1996 to file his appeal with the
Court of Appeals. Instead of filing his appeal with the Court of Appeals, Guevarra filed with the Supreme Court a Motion for
Extension of Time to File Appeal by Certiorari Based on Rule 42 (motion for extension). Guevarra theorized that his appeal raised
pure questions of law. The Receiving Clerk of the Supreme Court received the motion for extension on 13 December 1996 or one
day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.

On 8 January 1997, the First Division of the Supreme Court issued a Resolution[9] referring the motion for extension to the Court of
Appeals which has concurrent jurisdiction over the case. The case presented no special and important matter for the Supreme
Court to take cognizance of at the first instance.

On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution[10] granting the motion for extension
conditioned on the timeliness of the filing of the motion.

On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras petition for review. On 11 April 1997, Pajuyo
filed his Comment.

On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. The dispositive portion of the decision
reads:

WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No. Q-96-26943 is REVERSED and
SET ASIDE; and it is hereby declared that the ejectment case filed against defendant-appellant is without factual and legal basis.

SO ORDERED.[11]

Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of Appeals should have dismissed
outright Guevarras petition for review because it was filed out of time. Moreover, it was Guevarras counsel and not Guevarra who
signed the certification against forum-shopping.

On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion for reconsideration. The dispositive
portion of the resolution reads:

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

SO ORDERED.[12]

The Ruling of the MTC

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

The Ruling of the RTC

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

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

The Ruling of the Court of Appeals

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

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

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

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

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

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

The Issues

Pajuyo raises the following issues for resolution:

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

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

2) in giving due course, instead of dismissing, private respondents Petition for Review even though the certification against forum-
shopping was signed only by counsel instead of by petitioner himself.

3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact a commodatum, instead of a Contract of Lease as
found by the Metropolitan Trial Court and in holding that the ejectment case filed against defendant-appellant is without legal and
factual basis.

4) in reversing and setting aside the Decision of the Regional Trial Court in Civil Case No. Q-96-26943 and in holding that the
parties are in pari delicto being both squatters, therefore, illegal occupants of the contested parcel of land.

5) in deciding the unlawful detainer case based on the so-called Code of Policies of the National Government Center Housing
Project instead of deciding the same under the Kasunduan voluntarily executed by the parties, the terms and conditions of which
are the laws between themselves.[13]

The Ruling of the Court

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

Procedural Issues

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

We are not persuaded.

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

Guevarra believed that his appeal of the RTC decision involved only questions of law. Guevarra thus filed his motion for extension
to file petition for review before this Court on 14 December 1996. On 3 January 1997, Guevarra then filed his petition for review
with this Court. A perusal of Guevarras petition for review gives the impression that the issues he raised were pure questions of law.
There is a question of law when the doubt or difference is on what the law is on a certain state of facts.[16] There is a question of
fact when the doubt or difference is on the truth or falsity of the facts alleged.[17]
In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarras petition for review raised these
questions: (1) Do ejectment cases pertain only to possession of a structure, and not the lot on which the structure stands? (2) Does
a suit by a squatter against a fellow squatter constitute a valid case for ejectment? (3) Should a Presidential Proclamation
governing the lot on which a squatters structure stands be considered in an ejectment suit filed by the owner of the structure?

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

The Court of Appeals has the power to grant an extension of time to file a petition for review. In Lacsamana v. Second Special
Cases Division of the Intermediate Appellate Court,[18] we declared that the Court of Appeals could grant extension of time in
appeals by petition for review. In Liboro v. Court of Appeals,[19] we clarified that the prohibition against granting an extension of
time applies only in a case where ordinary appeal is perfected by a mere notice of appeal. The prohibition does not apply in a
petition for review where the pleading needs verification. A petition for review, unlike an ordinary appeal, requires preparation and
research to present a persuasive position.[20] The drafting of the petition for review entails more time and effort than filing a notice
of appeal.[21] Hence, the Court of Appeals may allow an extension of time to file a petition for review.

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

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

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

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

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

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

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

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

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

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

We agree with the Court of Appeals that the issue on the certificate against forum shopping was merely an afterthought. Pajuyo did
not call the Court of Appeals attention to this defect at the early stage of the proceedings. Pajuyo raised this procedural issue too
late in the proceedings.
Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve the Issue of Possession

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

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

We do not agree with the Court of Appeals.

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

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

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

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

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

While the Court did not brand the plaintiff and the defendant in Pitargue[44] as squatters, strictly speaking, their entry into the
disputed land was illegal. Both the plaintiff and defendant entered the public land without the owners permission. Title to the land
remained with the government because it had not awarded to anyone ownership of the contested public land. Both the plaintiff and
the defendant were in effect squatting on government property. Yet, we upheld the courts jurisdiction to resolve the issue of
possession even if the plaintiff and the defendant in the ejectment case did not have any title over the contested land.

Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of the public need to preserve the
basic policy behind the summary actions of forcible entry and unlawful detainer. The underlying philosophy behind ejectment suits
is to prevent breach of the peace and criminal disorder and to compel the party out of possession to respect and resort to the law
alone to obtain what he claims is his.[45] The party deprived of possession must not take the law into his own hands.[46] Ejectment
proceedings are summary in nature so the authorities can settle speedily actions to recover possession because of the overriding
need to quell social disturbances.[47]

We further explained in Pitargue the greater interest that is at stake in actions for recovery of possession. We made the following
pronouncements in Pitargue:

The question that is before this Court is: Are courts without jurisdiction to take cognizance of possessory actions involving these
public lands before final award is made by the Lands Department, and before title is given any of the conflicting claimants? It is one
of utmost importance, as there are public lands everywhere and there are thousands of settlers, especially in newly opened
regions. It also involves a matter of policy, as it requires the determination of the respective authorities and functions of two
coordinate branches of the Government in connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old, which was in force in this country before the
American occupation, or in the new, we have a possessory action, the aim and purpose of which is the recovery of the physical
possession of real property, irrespective of the question as to who has the title thereto. Under the Spanish Civil Code we had the
accion interdictal, a summary proceeding which could be brought within one year from dispossession (Roman Catholic Bishop of
Cebu vs. Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901, upon the enactment of the Code of Civil Procedure (Act
No. 190 of the Philippine Commission) we implanted the common law action of forcible entry (section 80 of Act No. 190), the object
of which has been stated by this Court to be to prevent breaches of the peace and criminal disorder which would ensue from the
withdrawal of the remedy, and the reasonable hope such withdrawal would create that some advantage must accrue to those
persons who, believing themselves entitled to the possession of property, resort to force to gain possession rather than to some
appropriate action in the court to assert their claims. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the
enactment of the first Public Land Act (Act No. 926) the action of forcible entry was already available in the courts of the country. So
the question to be resolved is, Did the Legislature intend, when it vested the power and authority to alienate and dispose of the
public lands in the Lands Department, to exclude the courts from entertaining the possessory action of forcible entry between rival
claimants or occupants of any land before award thereof to any of the parties? Did Congress intend that the lands applied for, or all
public lands for that matter, be removed from the jurisdiction of the judicial Branch of the Government, so that any troubles arising
therefrom, or any breaches of the peace or disorders caused by rival claimants, could be inquired into only by the Lands
Department to the exclusion of the courts? The answer to this question seems to us evident. The Lands Department does not have
the means to police public lands; neither does it have the means to prevent disorders arising therefrom, or contain breaches of the
peace among settlers; or to pass promptly upon conflicts of possession. Then its power is clearly limited to disposition and
alienation, and while it may decide conflicts of possession in order to make proper award, the settlement of conflicts of possession
which is recognized in the court herein has another ultimate purpose, i.e., the protection of actual possessors and occupants with a
view to the prevention of breaches of the peace. The power to dispose and alienate could not have been intended to include the
power to prevent or settle disorders or breaches of the peace among rival settlers or claimants prior to the final award. As to this,
therefore, the corresponding branches of the Government must continue to exercise power and jurisdiction within the limits of their
respective functions. The vesting of the Lands Department with authority to administer, dispose, and alienate public lands,
therefore, must not be understood as depriving the other branches of the Government of the exercise of the respective functions or
powers thereon, such as the authority to stop disorders and quell breaches of the peace by the police, the authority on the part of
the courts to take jurisdiction over possessory actions arising therefrom not involving, directly or indirectly, alienation and
disposition.

Our attention has been called to a principle enunciated in American courts to the effect that courts have no jurisdiction to determine
the rights of claimants to public lands, and that until the disposition of the land has passed from the control of the Federal
Government, the courts will not interfere with the administration of matters concerning the same. (50 C. J. 1093-1094.) We have no
quarrel with this principle. The determination of the respective rights of rival claimants to public lands is different from the
determination of who has the actual physical possession or occupation with a view to protecting the same and preventing disorder
and breaches of the peace. A judgment of the court ordering restitution of the possession of a parcel of land to the actual occupant,
who has been deprived thereof by another through the use of force or in any other illegal manner, can never be prejudicial
interference with the disposition or alienation of public lands. On the other hand, if courts were deprived of jurisdiction of cases
involving conflicts of possession, that threat of judicial action against breaches of the peace committed on public lands would be
eliminated, and a state of lawlessness would probably be produced between applicants, occupants or squatters, where force or
might, not right or justice, would rule.

It must be borne in mind that the action that would be used to solve conflicts of possession between rivals or conflicting applicants
or claimants would be no other than that of forcible entry. This action, both in England and the United States and in our jurisdiction,
is a summary and expeditious remedy whereby one in peaceful and quiet possession may recover the possession of which he has
been deprived by a stronger hand, by violence or terror; its ultimate object being to prevent breach of the peace and criminal
disorder. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere possession as a fact, of
physical possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or right to possession is never in issue
in an action of forcible entry; as a matter of fact, evidence thereof is expressly banned, except to prove the nature of the
possession. (Second 4, Rule 72, Rules of Court.) With this nature of the action in mind, by no stretch of the imagination can
conclusion be arrived at that the use of the remedy in the courts of justice would constitute an interference with the alienation,
disposition, and control of public lands. To limit ourselves to the case at bar can it be pretended at all that its result would in any
way interfere with the manner of the alienation or disposition of the land contested? On the contrary, it would facilitate adjudication,
for the question of priority of possession having been decided in a final manner by the courts, said question need no longer waste
the time of the land officers making the adjudication or award. (Emphasis ours)

The Principle of Pari Delicto is not Applicable to Ejectment Cases

The Court of Appeals erroneously applied the principle of pari delicto to this case.

Articles 1411 and 1412 of the Civil Code[48] embody the principle of pari delicto. We explained the principle of pari delicto in these
words:

The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari delicto potior est conditio defedentis.
The law will not aid either party to an illegal agreement. It leaves the parties where it finds them.[49]

The application of the pari delicto principle is not absolute, as there are exceptions to its application. One of these exceptions is
where the application of the pari delicto rule would violate well-established public policy.[50]
In Drilon v. Gaurana,[51] we reiterated the basic policy behind the summary actions of forcible entry and unlawful detainer. We held
that:

It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of the actual condition of the title to
the property, the party in peaceable quiet possession shall not be turned out by strong hand, violence or terror. In affording this
remedy of restitution the object of the statute is to prevent breaches of the peace and criminal disorder which would ensue from the
withdrawal of the remedy, and the reasonable hope such withdrawal would create that some advantage must accrue to those
persons who, believing themselves entitled to the possession of property, resort to force to gain possession rather than to some
appropriate action in the courts to assert their claims. This is the philosophy at the foundation of all these actions of forcible entry
and detainer which are designed to compel the party out of possession to respect and resort to the law alone to obtain what he
claims is his.[52]

Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is fraught with danger. To shut out
relief to squatters on the ground of pari delicto would openly invite mayhem and lawlessness. A squatter would oust another
squatter from possession of the lot that the latter had illegally occupied, emboldened by the knowledge that the courts would leave
them where they are. Nothing would then stand in the way of the ousted squatter from re-claiming his prior possession at all cost.

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

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

Possession is the only Issue for Resolution in an Ejectment Case

The case for review before the Court of Appeals was a simple case of ejectment. The Court of Appeals refused to rule on the issue
of physical possession. Nevertheless, the appellate court held that the pivotal issue in this case is who between Pajuyo and
Guevarra has the priority right as beneficiary of the contested land under Proclamation No. 137.[54] According to the Court of
Appeals, Guevarra enjoys preferential right under Proclamation No. 137 because Article VI of the Code declares that the actual
occupant or caretaker is the one qualified to apply for socialized housing.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Guevarra contends that there is a pernicious evil that is sought to be avoided, and that is allowing an absentee squatter who (sic)
makes (sic) a profit out of his illegal act.[72] Guevarra bases his argument on the preferential right given to the actual occupant or
caretaker under Proclamation No. 137 on socialized housing.
We are not convinced.

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

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

Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras transient right to possess the property
ended as well. Moreover, it was Pajuyo who was in actual possession of the property because Guevarra had to seek Pajuyos
permission to temporarily hold the property and Guevarra had to follow the conditions set by Pajuyo in the Kasunduan. Control over
the property still rested with Pajuyo and this is evidence of actual possession.

Pajuyos absence did not affect his actual possession of the disputed property. Possession in the eyes of the law does not mean
that a man has to have his feet on every square meter of the ground before he is deemed in possession.[77] One may acquire
possession not only by physical occupation, but also by the fact that a thing is subject to the action of ones will.[78] Actual or
physical occupation is not always necessary.[79]

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

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

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

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

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

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

Attorneys Fees and Rentals

The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys fees as part of damages are awarded
only in the instances enumerated in Article 2208 of the Civil Code.[83] Thus, the award of attorneys fees is the exception rather
than the rule.[84] Attorneys fees are not awarded every time a party prevails in a suit because of the policy that no premium should
be placed on the right to litigate.[85] We therefore delete the attorneys fees awarded to Pajuyo.

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

WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution dated 14 December 2000 of the Court of
Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated 11 November 1996 of the Regional Trial Court of Quezon
City, Branch 81 in Civil Case No. Q-96-26943, affirming the Decision dated 15 December 1995 of the Metropolitan Trial Court of
Quezon City, Branch 31 in Civil Case No. 12432, is REINSTATED with MODIFICATION. The award of attorneys fees is deleted. No
costs.
G.R. No. L-17474 October 25, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.

JOSE V. BAGTAS, defendant,

FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas, petitioner-appellant.

D. T. Reyes, Liaison and Associates for petitioner-appellant.

Office of the Solicitor General for plaintiff-appellee.

PADILLA, J.:

The Court of Appeals certified this case to this Court because only questions of law are raised.

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

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

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

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

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

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

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

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

(2) If he keeps it longer than the period stipulated . . .

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

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

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

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

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

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

The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had been issue letters of
administration of the estate of the late Jose Bagtas and that "all persons having claims for monopoly against the deceased Jose V.
Bagtas, arising from contract express or implied, whether the same be due, not due, or contingent, for funeral expenses and
expenses of the last sickness of the said decedent, and judgment for monopoly against him, to file said claims with the Clerk of this
Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of the first publication of this order,
serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the said
deceased," is not a notice to the court and the appellee who were to be notified of the defendant's death in accordance with the
above-quoted rule, and there was no reason for such failure to notify, because the attorney who appeared for the defendant was
the same who represented the administratrix in the special proceedings instituted for the administration and settlement of his
estate. The appellee or its attorney or representative could not be expected to know of the death of the defendant or of the
administration proceedings of his estate instituted in another court that if the attorney for the deceased defendant did not notify the
plaintiff or its attorney of such death as required by the rule.

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

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

ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.

Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ., concur.

Barrera, J., concurs in the result.

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.