to cover overdrawings in Current Account No. 10-0320.
In
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
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.
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 Guevarra believed that his appeal of the RTC
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.
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 with the Bureau of Lands when the defendant ousted him
ownership of the disputed property will not divest the from possession. The plaintiff filed the action of forcible
inferior court of its jurisdiction over the ejectment entry against the defendant. The government was not a
case.[32] Even if the pleadings raise the issue of party in the case of forcible entry.
ownership, the court may pass on such issue to determine
The defendant questioned the jurisdiction of the
only the question of possession, especially if the
courts to settle the issue of possession because while the
ownership is inseparably linked with the
application of the plaintiff was still pending, title remained
possession.[33] The adjudication on the issue of ownership
with the government, and the Bureau of Public Lands had
is only provisional and will not bar an action between the
jurisdiction over the case. We disagreed with the
same parties involving title to the land.[34] This doctrine is
defendant. We ruled that courts have jurisdiction to
a necessary consequence of the nature of the two
entertain ejectment suits even before the resolution of the
summary actions of ejectment, forcible entry and unlawful
application. The plaintiff, by priority of his application and
detainer, where the only issue for adjudication is the
of his entry, acquired prior physical possession over the
physical or material possession over the real property.[35]
public land applied for as against other private claimants.
In this case, what Guevarra raised before the courts That prior physical possession enjoys legal protection
was that he and Pajuyo are not the owners of the against other private claimants because only a court can
contested property and that they are mere squatters. Will take away such physical possession in an ejectment
the defense that the parties to the ejectment case are not case.
the owners of the disputed lot allow the courts to renounce
While the Court did not brand the plaintiff and the
their jurisdiction over the case? The Court of Appeals
defendant in Pitargue[44] as squatters, strictly speaking,
believed so and held that it would just leave the parties
their entry into the disputed land was illegal. Both the
where they are since they are in pari delicto.
plaintiff and defendant entered the public land without the
We do not agree with the Court of Appeals. owners permission. Title to the land remained with the
government because it had not awarded to anyone
Ownership or the right to possess arising from
ownership of the contested public land. Both the plaintiff
ownership is not at issue in an action for recovery of
and the defendant were in effect squatting on government
possession. The parties cannot present evidence to
property. Yet, we upheld the courts jurisdiction to resolve
prove ownership or right to legal possession except to
the issue of possession even if the plaintiff and the
prove the nature of the possession when necessary to
defendant in the ejectment case did not have any title over
resolve the issue of physical possession.[36] The same is
the contested land.
true when the defendant asserts the absence of title over
the property. The absence of title over the contested lot is Courts must not abdicate their jurisdiction to resolve
not a ground for the courts to withhold relief from the the issue of physical possession because of the public
parties in an ejectment case. need to preserve the basic policy behind the summary
actions of forcible entry and unlawful detainer. The
The only question that the courts must resolve in
underlying philosophy behind ejectment suits is to prevent
ejectment proceedings is - who is entitled to the physical
breach of the peace and criminal disorder and to compel
possession of the premises, that is, to the possession de
the party out of possession to respect and resort to the
facto and not to the possession de jure.[37] It does not
law alone to obtain what he claims is his.[45] The party
even matter if a partys title to the property is
deprived of possession must not take the law into his own
questionable,[38] or when both parties intruded into public
hands.[46] Ejectment proceedings are summary in nature
land and their applications to own the land have yet to be
so the authorities can settle speedily actions to recover
approved by the proper government
[39]
possession because of the overriding need to quell social
agency. Regardless of the actual condition of the title
disturbances.[47]
to the property, the party in peaceable quiet possession
shall not be thrown out by a strong hand, violence or We further explained in Pitargue the greater interest
terror.[40] Neither is the unlawful withholding of property that is at stake in actions for recovery of possession. We
allowed. Courts will always uphold respect for prior made the following pronouncements in Pitargue:
possession.
The question that is before this Court is: Are courts
Thus, a party who can prove prior possession can
without jurisdiction to take cognizance of possessory
recover such possession even against the owner
actions involving these public lands before final award is
himself.[41] Whatever may be the character of his
made by the Lands Department, and before title is given
possession, if he has in his favor prior possession in time,
any of the conflicting claimants? It is one of utmost
he has the security that entitles him to remain on the
importance, as there are public lands everywhere and
property until a person with a better right lawfully ejects
there are thousands of settlers, especially in newly
him.[42] To repeat, the only issue that the court has to
opened regions. It also involves a matter of policy, as it
settle in an ejectment suit is the right to physical
requires the determination of the respective authorities
possession.
and functions of two coordinate branches of the
In Pitargue v. Sorilla,[43] the government owned the Government in connection with public land conflicts.
land in dispute. The government did not authorize either
the plaintiff or the defendant in the case of forcible entry Our problem is made simple by the fact that under the
case to occupy the land. The plaintiff had prior possession Civil Code, either in the old, which was in force in this
and had already introduced improvements on the public country before the American occupation, or in the new,
land. The plaintiff had a pending application for the land 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
delictorule 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 isconstituted.[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 Kasunduanafter he had benefited
from it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of
determining who between Pajuyo and Guevarra has a
right to physical possession of the contested
property. The Kasunduan is the undeniable evidence of
Guevarras recognition of Pajuyos better right of physical
possession. Guevarra is clearly a possessor in bad
faith. The absence of a contract would not yield a different
result, as there would still be an implied promise to
vacate.
Guevarra contends that there is a pernicious evil that
is sought to be avoided, and that is allowing an absentee
squatter who (sic) makes (sic) a profit out of his illegal
act.[72] Guevarra bases his argument on the preferential
right given to the actual occupant or caretaker under
Proclamation No. 137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with
Guevarra because Guevarra stayed in the property
without paying any rent. There is also no proof that Pajuyo
is a professional squatter who rents out usurped
properties to other squatters. Moreover, it is for the proper
government agency to decide who between Pajuyo and
Guevarra qualifies for socialized housing. The only issue
that we are addressing is physical possession.
Prior possession is not always a condition sine qua
non in ejectment.[73] This is one of the distinctions
between forcible entry and unlawful detainer.[74] In forcible
entry, the plaintiff is deprived of physical possession of his
land or building by means of force, intimidation, threat,
strategy or stealth. Thus, he must allege and prove prior
possession.[75] But in unlawful detainer, the defendant
unlawfully withholds possession after the expiration or
termination of his right to possess under any contract,
express or implied. In such a case, prior physical
possession is not required.[76]
Pajuyos withdrawal of his permission to Guevarra
terminated the Kasunduan. Guevarras transient right to
possess the property ended as well. Moreover, it was
Pajuyo who was in actual possession of the property
because Guevarra had to seek Pajuyos permission to
temporarily hold the property and Guevarra had to follow
the conditions set by Pajuyo in the Kasunduan. Control
over the property still rested with Pajuyo and this is
evidence of actual possession.
Pajuyos absence did not affect his actual possession
of the disputed property. Possession in the eyes of the
law does not mean that a man has to have his feet on
every square meter of the ground before he is deemed in
possession.[77] One may acquire possession not only by
physical occupation, but also by the fact that a thing is
subject to the action of ones will.[78] Actual or physical
occupation is not always necessary.[79]
Ruling on Possession Does not Bind Title to the
Land in Dispute
We are aware of our pronouncement in cases where
we declared that squatters and intruders who
clandestinely enter into titled government property
cannot, by such act, acquire any legal right to said
property.[80] We made this declaration because the
person who had title or who had the right to legal
possession over the disputed property was a party in the
ejectment suit and that party instituted the case against
squatters or usurpers.
In this case, the owner of the land, which is the
government, is not a party to the ejectment case. This
case is between squatters. Had the government
participated in this case, the courts could have evicted the
contending squatters, Pajuyo and Guevarra.
Since the party that has title or a better right over the
property is not impleaded in this case, we cannot evict on
our own the parties. Such a ruling would discourage
squatters from seeking the aid of the courts in settling the
issue of physical possession. Stripping both the plaintiff
and the defendant of possession just because they are
squatters would have the same dangerous implications as
the application of the principle of pari delicto. Squatters
would then rather settle the issue of physical possession
among themselves than seek relief from the courts if the
plaintiff and defendant in the ejectment case would both
stand to lose possession of the disputed property. This
would subvert the policy underlying actions for recovery
of possession.
Since Pajuyo has in his favor priority in time in
holding the property, he is entitled to remain on the
property until a person who has title or a better right
lawfully ejects him. Guevarra is certainly not that person.
The ruling in this case, however, does not preclude
Pajuyo and Guevarra from introducing evidence and
presenting arguments before the proper administrative
agency to establish any right to which they may be entitled
under the law.[81]
In no way should our ruling in this case be interpreted
to condone squatting. The ruling on the issue of physical
possession does not affect title to the property nor
constitute a binding and conclusive adjudication on the
merits on the issue of ownership.[82] The owner can still
go to court to recover lawfully the property from the
person who holds the property without legal title. Our
ruling here does not diminish the power of government
agencies, including local governments, to condemn,
abate, remove or demolish illegal or unauthorized
structures in accordance with existing laws.
Attorneys Fees and Rentals
The MTC and RTC failed to justify the award
of P3,000 attorneys fees to Pajuyo. Attorneys fees as part
of damages are awarded only in the instances
enumerated in Article 2208 of the Civil Code.[83] Thus, the
award of attorneys fees is the exception rather than the
rule.[84] Attorneys fees are not awarded every time a party
prevails in a suit because of the policy that no premium
should be placed on the right to litigate.[85] We therefore
delete the attorneys fees awarded to Pajuyo.
We sustain the P300 monthly rentals the MTC and
RTC assessed against Guevarra. Guevarra did not
dispute this factual finding of the two courts. We find the
amount reasonable compensation to Pajuyo. The P300
monthly rental is counted from the last demand to vacate,
which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The
Decision dated 21 June 2000 and Resolution dated 14
December 2000 of the Court of Appeals in CA-G.R. SP
No. 43129 are SET ASIDE. The Decision dated 11
November 1996 of the Regional Trial Court of Quezon
City, Branch 81 in Civil Case No. Q-96-26943, affirming
the Decision dated 15 December 1995 of the Metropolitan
Trial Court of Quezon City, Branch 31 in Civil Case No.
12432, is REINSTATED with MODIFICATION. The award
of attorneys fees is deleted. No costs.
SO ORDERED.
interest-free in six (6) months; on the maturity date of the
loan or on August 6, 1992, petitioner Antonio Tan failed to
settle the same, and despite repeated demands,
petitioners never did, drawing him to file the complaint
thru his counsel to whom he agreed to pay 30% of the
loan as attorneys fees on a contingent basis
and P1,000.00 per appearance fee; and on account of the
willful refusal of petitioners to honor their obligation, he
suffered moral damages in the amount of P50,000.00,
among other things.

By their Answer,[9] petitioners, denying having gone to

SPOUSES ANTONIO and LOLITA TAN, Malita and having obtained a loan from respondent,
Petitioners, alleged that the check was issued by respondent in Davao
City on February 6, 1992 in exchange for equivalent cash;
- versus - they never received from respondent any demand for
payment, be it verbal or written, respecting the alleged
CARMELITO VILLAPAZ, loan; since the alleged loan was one with a period payable
Respondent. in six months, it should have been expressly stipulated
upon in writing by the parties but it was not, hence, the
essential requisite for the validity and enforceability of a
loan is wanting; and the check is inadmissible to prove the
DECISION existence of a loan for P250,000.00.

By way of Compulsory Counterclaim, petitioners prayed

CARPIO MORALES, J.: for the award of damages and litigation expenses and
attorneys fees.[10]
From the January 25, 2001 decision[1] of the Court of
Appeals reversing that of the Regional Trial Court (RTC) Crediting defendants-petitioners version, Branch 19 of the
of Digos, Davao del Sur[2] which dismissed the complaint RTC, Digos, Davao del Sur, by Decision[11] of July 24,
filed by herein respondent Carmelito Villapaz against 1996, dismissed the Complaint and granted the
herein petitioners-spouses Antonio Tony and Lolita Tan, Counterclaim, disposing as follows:
the present Petition for Review on Certiorari[3] was
lodged. WHEREFORE, premises considered,
judgment is hereby rendered as
follows:
On February 6, 1992, respondent issued a Philippine
Bank of Communications (PBCom) crossed check [4] in 1. Ordering the
the amount of P250,000.00, payable to the order of dismissal of the
petitioner Tony Tan. On even date, the check was complaint;
deposited at the drawee bank, PBCom Davao City branch
at Monteverde Avenue, to the account of petitioner 2. On
Antonio Tan also at said bank. the counterclaim orderi
ng the plaintiff
The Malita, Davao del Sur Police, by letter of June 22, Carmelito Villapaz to
1994,[5] issued an invitation-request to petitioner Antonio pay to defendants
Tan at his address at Malatibas Plaza, Lolitas spouses Antonio and
Rendezvous, Bonifacio St., Davao City inviting him to Lolita Tan:
appear before the Deputy Chief of Police Office on June
27, 1994 at 9:00 oclock in the morning in connection with a. P100,000.00
the request of [herein respondent] Carmelito Villapaz, for as moral
conference of vital importance. damages;
b. P50,000.00
The invitation-request was received by petitioner Antonio as exemplary
Tan on June 22, 1994[6] but on the advice of his damages;
lawyer,[7] he did not show up at the Malita, Davao del Sur c. P30,000.00
Police Office. as attorneys
fees; and
On November 7, 1994,[8] respondent filed before the
Digos, Davao del Sur RTC a Complaint for sum of money 3. Plaintiff Carmelito Villapaz to pay the
against petitioners-spouses, alleging that, inter alia, on costs.
February 6, 1992, petitioners-spouses repaired to his
place of business at Malita, Davao and obtained a loan SO ORDERED. (Underscoring in the
of P250,000.00, hence, his issuance of the February 6, original)[12]
1992 PBCom crossed check which loan was to be settled
 writing. Such requirement, it has
Respondent appealed to the Court of Appeals which, by been held, is only for convenience,
Decision[13] of January 25, 2001, credited his version and not for validity. It bears emphasis that
accordingly reversed the trial courts decision in this wise: at the time plaintiff-appellant
delivered the crossed-check to
Briefly stated, the lower Court gave four defendants-appellees, plaintiff-
reasons for ruling out a loan, namely: appellant had no account whatsoever
(a) the defense of defendants- with them. Defendants-appellees
appellees that they did not go to contention that they did not obtain
plaintiff-appellants place on February any loan but merely exchanged the
6, 1992, date the check was given to latters check for cash is not borne
them; (b) defendants-appellees could by any evidence.
not have borrowed money on that
date because from January to March, Notably, plaintiff-appellant and defendant-
1992, they had an average daily appellee Antonio Tan are compadres,
deposit of P700,000 and on February one of them being a godfather to the
6, 1992, they had P1,211,400.64 in others son. There is no established
the bank, hence, they had surely no enmity between them such that
reason nor logic to borrow money plaintiff-appellant would be motivated
from plaintiff-appellant; (c) the alleged to institute an unfounded action in
loan was not reduced in writing and court. Plaintiff-appellants sole
(d) the check could not be a purpose was to be paid back the loan
competent evidence of loan. he extended to defendants-appellees.
Thus, a pertinent portion of his
The four-fold reasoning cannot be sustained. testimony on cross-examination
They are faulty and do not accord discloses:
either with law or ordinary conduct of
men. For one thing, the first two given ATTY. TAN (On Cross Examination):
reasons partake more of alibi and
speculation, hence, deserve scant Q: Now, aside from this check that you issued,
consideration. For another, the last did you let the
two miss the applicable provisions of defendant sign a cash
law. voucher?
A: I did not require him any cash voucher
The existence of a contract of loan cannot or any written
be denied merely because it is not document because
reduced in writing. Surely, there can as I said we are close
be a verbal loan. Contracts are friends and I
binding between the parties, whether trusted him so I issued
oral or written. The law is explicit that a check in his name
contracts shall be obligatory in Tony Tan.
whatever form they may have been
entered into, provided all the essential Q: You said that the spouses Tan were in
requisites for their validity are present. need of money on
A loan (simple loan or mutuum) exists February 6, 1992. Why
when a person receives a loan of did you have to issue a
money or any other fungible thing and cross-check?
acquires the ownership thereof. He is A: I issued a cross-check in order to be sure
bound to pay to the creditor the equal that he received the
amount of the same kind and quality. money from me so that
Contracts are perfected by mere consent, and he could not deny that
from that moment the parties are he did not receive.
bound not only to the fulfillment of (TSN of Villapaz dtd
what has been expressly stipulated 7/25/95, p. 21)
but also to all the consequences
which, according to their nature, Apart from their self-serving testimonies, there
maybe in keeping with good faith, is no evidence or proof that
usage and law. defendants-appellees actually
delivered to plaintiff-appellant the
The lower Court misplaced its reliance on cash amount of P250,000.00 in
Article 1358 of the Civil Code exchange for the check. Defendant-
providing that to be enforceable, appellee Tan testified that he records
contracts where the amount his transactions if it involves a huge
involved exceed five hundred cash amount. But surprisingly in this
pesos, must appear in
 case, he did not follow his usual
practice.
ATTY. CARPENTERO (On Cross-
Examination):
Q: x x x you have noticed Carmelito Villapaz
to have trusted and
have full confidence in
you during your
business relationship,
correct?
A: All people have trust and confidence
but whenever there is a
transaction, it should
be covered a (sic)
proof.
Q: You mean you are a fellow who adheres
that every transaction
should be recorded?
A: Yes, if the transaction involves a big
amount,
Q: But in this case of Carmelito Villapaz you
noticed personally that
he has trust and
confidence in your
person, correct?
A: The truth is, if ever we have a transaction
which
involves P1,000.00
or P2,000.00, we need
no document at all as
proof, but because it is
a big amount, it needs
documents. (TSN of
Tan dtd 5/9/96, pp. 12-
13.
Plaintiff-appellant has a checking account with
PBCom Bank. This is located within
walking distance (300 meters) from
defendants-appellees store. If
plaintiff-appellant was in dire need
of money, he could have
personally withdrawn said money
from his own account, since it was
sufficiently funded. Defendant-
appellee Antonio Tan himself testified
that plaintiff-appellants check was
sufficiently funded.
It is well-nigh unlikely that the wife who was
supposed to have delivered the
money on such a short notice,
produced, prepared and counted the
money at home from Obrero, Davao
City, then delivered it to plaintiff-
appellant who was in the Golden
Harvest Store at Sta Ana Avenue,
Davao City. In contrast, PBCom
Bank where plaintiff-appellant has
his account is in the same vicinity
of the store of Golden Harvest.
Certainly, by way of exception to the
general rule, the erroneous
inferences in the factual finding of
the trial Court cannot bind the
appellate courts.
The trial Court placed much emphasis on the
daily and time deposit accounts of
defendants-appellees. It is immaterial
whether or not one is financially
capable. A pauper may borrow
money for survival; a prince may incur
a loan for expansion.[14] (Emphasis
supplied; underscoring in the original)
Thus, the Court of Appeals disposed:
WHEREFORE, the appealed judgment is
hereby REVERSED and SET ASIDE.
Defendants-appellees are ordered to
pay plaintiff-appellant the sum
of P250,000.00 with 12% interest per
annum from judicial demand or filing
of the complaint in Court until fully
paid.[15]
Hence, the present appeal by petitioners anchored on the
following grounds:
I.
The Honorable Court of Appeals erred in
concluding that the transaction in
dispute was a contract of loan and not
a mere matter of check encashment
as found by the trial court.
II.
The Honorable Court likewise erred in
reasoning that the trial court placed
much emphasis on the daily and time
deposits of herein petitioners to
determine their financial capability.
III.
The Honorable Court failed to consider the
wanton, reckless manner of
respondent in attempting to enforce
an obligation that does not even exist,
thus justifying the award for moral and
exemplary damages, as well as
attorneys fees and costs of
suit.[16] (Underscoring supplied)
Petitioners maintain that they did not secure a loan from
respondent, insisting that they encashed in Davao City
respondents February 6, 1992 crossed check; in the
ordinary course of business, prudence dictates that a
contract of loan must be in writing as in fact the New Civil
Code provides that to be enforceable contracts where the
amount involved exceed[s] P500.00 must appear in
writing even a private one, hence, respondents self-
serving claim does not suffice to prove the existence of a
loan; respondents allegation that no memorandum in
writing of the transaction was executed because he and
they are kumpadres does not inspire belief for
respondent, being a businessman himself, was with more
reason expected to be more prudent; and the mere
encashment of the check is not a contractual transaction
such as a sale or a loan which ordinarily requires a receipt
and that explains why they did not issue a receipt when
they encashed the check of respondent.
Petitioners add that they could not have gone to Malita on
February 6, 1992, as claimed by respondent, to obtain the
alleged loan represented by the check because February
6, 1992 was the opening for business in Davao City of
Golden Harvest of which petitioner Antonio Tan is
treasurer and in-charge of the bodega, during which
opening guests and well-wishers including respondent
were entertained.
Petitioners furthermore maintain that they were financially
stable on February 6, 1992 as shown by the entries of
their bank passbook,[17] hence, there was no reason for
them to go to a distant place like Malita to borrow money.
The petition fails.
By petitioner Antonio Tans account, respondent arrived at
the Golden Harvest place of business at Davao City on
February 6, 1992 at about 10:30 in the morning[18] and left
before noon of the same day; respondent, however,
returned to Golden Harvest shortly before 3:00 oclock in
the afternoon of the same day upon which he informed
him (petitioner Antonio Tan) that he needed to bring cash
to Malita in the amount of P250,000.00 but time was
running out and . . . he was so busy that was why he
requested [him] to accommodate (sic) the said amount at
3:00 p.m.[19]
Still by petitioner Antonio Tans account, he thereupon
inquire by telephone from his wife who was at their house
whether she had P250,000.00 cash and as his wife
replied she had, he asked her to bring the cash, as she
did, to the Golden Harvest where she gave the amount
of P250,000.00 to him (petitioner Antonio Tan); in the
meantime, as respondent had left for a while but not
before leaving the check, he (petitioner Antonio Tan) kept
the P250,000.00 cash and gave the check to his wife who
had it deposited on the same afternoon to his account at
PBCom Monteverde branch after he received clearance
from the bank manager, who knows him (petitioner
Antonio Tan) very well, that respondents account at same
branch of the bank was funded and the check could be
deposited and credited to his (petitioner Antonio Tans)
account that same afternoon; and when later that same
afternoon respondent returned to the Golden Harvest, he
turned over to him the P250,000.00 cash.
Petitioner Antonio Tans foregoing tale hardly inspires
credence. For it is contrary to common experience. If
indeed respondent, who came all the way from Malita to
Davao City, arriving at petitioner Antonio Tans workplace
at Golden Harvest at 10:30 in the morning, needed cash
of P250,000.00, and the drawee bank PBCom Davao
City, Monteverde branch where respondent maintained a
current account could even be reached by foot from the
Golden Harvest in just a few minutes (albeit by petitioner
Antonio Tans own information respondent brought his
truck with him),[20] it being about 300 meters
away,[21] respondent could just have gone there and drew
cash from his current account via over the counter
transaction. After all, his account had sufficient funds. In
other words, he did not have to encash his check from
petitioners.
Even assuming that, as claimed by petitioner Antonio
Tan, at the time respondent needed to have his check
encashed, it was already close to 3:00 oclock in the
afternoon, why could not have PBCom Monteverde
branch also accommodated him and allow him to encash
his check that same time when he, like petitioners, was
also a client-depositor and the bank was still open for
business?
Petitioners version was thus correctly denied credit by the
appellate court.
That apart from the check no written proof of the grant of
the loan was executed was credibly explained by
respondent when he declared that petitioners son being
his godson, he, out of trust and respect, believed that the
crossed check sufficed to prove their transaction.
As for petitioners reliance on Art. 1358[22] of the Civil
Code, the same is misplaced for the requirement that
contracts where the amount involved exceeds P500.00
must appear in writing is only for convenience.[23]
At all events, a check, the entries of which are no doubt in
writing, could prove a loan transaction.[24]
That petitioner Antonio Tan had, on February 6, 1992, an
outstanding balance of more than P950,000.00 in his
account at PBCom Monteverde branch where he was
later to deposit respondents check did not rule out
petitioners securing a loan. It is pure naivete to believe
that if a businessman has such an outstanding balance in
his bank account, he would have no need to borrow a
lesser amount.
In fine, as petitioners side of the case is incredible as it is
inconsistent with the principles by which men similarly
situated are governed, whereas respondents claim that
the proceeds of the check, which were admittedly
received by petitioners, represented a loan[25] extended to
petitioner Antonio Tan is credible, the preponderance of
evidence inclines on respondent.
WHEREFORE, the present petition is DENIED.
Costs against petitioners.
SO ORDERED.
CAROLYN M. GARCIA, G.R. No. 15487
Petitioner,
-versus-
RICA MARIE S.
THIO,
Respondent.
DECISION
CORONA, J.:
Assailed in this petition for review on certiorari[1] are
the June 19, 2002 decision[2] and August 20,
[3]
2002 resolution of the Court of Appeals (CA) in CA-G.R.
CV No. 56577 which set aside the February 28,
1997 decision of the Regional Trial Court (RTC)
of Makati City, Branch 58.
Sometime in February 1995, respondent Rica
Marie S. Thio received from petitioner Carolyn M. Garcia
a crossed check[4] dated February 24, 1995 in the amount
of US$100,000 payable to the order of a certain Marilou
Santiago.[5] Thereafter, petitioner received from
respondent every month (specifically, on March 24, April
26, June 26 and July 26, all in 1995) the amount of
US$3,000[6] and P76,500[7] on July 26,[8] August 26,
September 26 and October 26, 1995.
In June 1995, respondent received from
petitioner another crossed check [9] dated June 29,
1995 in the amount 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.[16]
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. P50
0,000.00 with interest thereon at 4% per
month from November 5, 1995 until fully
paid.
3. P10
0,000.00 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.
ROSE PACKING COMPANY, INC., petitioner,
vs.
THE COURT OF APPEALS, HON. PEDRO C.
NAVARRO, Judge of the Court of First Instance of
Rizal (Br. III), PHILIPPINE COMMERCIAL &
INDUSTRIAL BANK & PROVINCIAL SHERIFF OF
RIZAL, respondents.
PARAS, J.:
This is a petition for review on certiorari of the
decision 1 of the Court of Appeals in CA-G.R. No.
43198-R promulgated on December 16,1970 (Rollo, pp.
237-249), the dispositive portion of which reads as
follows:
WHEREFORE, in view of the foregoing,
this Court hereby renders judgment:
1. Denying the petition to set aside and
annul the questioned orders dated
January 31, 1969 and May 7,1969
rendered by respondent Judge, the
same having been issued in
consonance with the exercise of the
Court's discretion.
2. Declaring valid the foreclosure sale of
May 9, 1969 but finding the
consolidation of ownership over the
properties sold at such sale to have
been prematurely executed thereby
rendering it void ab initio.
 3. In accordance with this Court's
resolution dated May 8, 1970, petitioner
is hereby granted sixty (60) days from
receipt of a copy of this decision within
which to redeem the properties sold at
the foreclosure sale of May 9, 1969.
4. Dismissing the charge of contempt
against PCIB and its Executive Vice-
President and General Manager,
Eugenio R. Unson,. for lack of merit.
and its Resolution 2 dated January 12, 1971 (Rollo, p.
280), denying petitioner's motion for reconsideration, as
wen as its Resolution 3 dated January 22, 1971 (Rollo,
p. 281) denying petitioner's supplement to motion for
reconsideration.
The facts of the case as presented by petitioner and as
embodied in the decision of the Court of Appeals are as
follows:
On December 12, 1962 respondent bank (PCIB)
approved a letter- request by petitioner for the
reactivation of its overdraft line of P50,000.00,
discounting line of P100,000.00 and a letter of credit-
trust receipt line of P550,000.00 as wen as an
application for a loan of P300,000.00, on fully secured
real estate and chattel mortgage and on the further
condition that respondent PCIB appoint as it did appoint
its executive
vice-president Roberto S. Benedicto as its
representative in petitioner's board of directors.
On November 3, 1965 the National Investment &
Development Corporation (NIDC), the wholly owned
investment subsidiary of the Philippine National Bank,
approved a P2.6 million loan application of petitioner
with certain conditions. Pursuant thereto, the NIDC
released to petitioner on November 7, 1965 the amount
of P100,000.00. Subsequently, petitioner purchased five
(5) parcels of land in Pasig, Rizal making a down
payment thereon.
On January 5,1966, the NIDC released another
P100,000.00 to petitioner and on January 12, 1966, the
aforesaid releases totalling P200,000.00 were applied to
the payment of preferred stock which NIDC subscribed
in petitioner corporation to partially implement its
P1,000,000.00 investment scheme as per agreement.
Thereafter, the NIDC refused to make further releases
on the approved loan of petitioner.
On August 3, 1966 and October 5, 1966, respondent
PCIB approved additional accomodations to petitioner
consisting of a P710,000.00 loan for the payment of the
balance of the purchase price of those lots in Pasig
required to be bought, P500,000.00 loan for operating
capital, P200,000.00 loan to be paid directly to
petitioner's creditors, while consolidating all previous
accommodations at P1,597,000.00all of which were
still secured by chattel and real estate mortgages.
However, PCIB released only P300,000.00 of the
P710,000.00 approved loan for the payment of the Pasig
lands and some P300,000.00 for operating capital.
On June 29,1967, the Development Bank of the
Philippines approved an application by petitioner for a
loan of P1,840,000.00 and a guarantee for $652,682.00
for the purchase of can making equipment. Immediately
upon receipt of notice of the approval of the
Development Bank of the loan, petitioner advised
respondent PCIB of the availability of P800,000.00 to
partially pay off its account and requested the release of
the titles to the Pasig lots for delivery to the
Development Bank of the Philippines. Respondent PCIB
verbally advised petitioner of its refusal, stating that all
obligations should be liquidated before the release of the
titles to the Pasig properties. Following the PCIB's
rejection of petitioner's counter-proposal, petitioner
purchased a parcel of land at Valenzuela, Bulacan with
the P800,000.00 DBP loan, with the latter's consent.
On January 5, 1968 respondent PCIB filed a complaint
against petitioner and Rene Knecht, its president for the
collection of petitioner's indebtedness to respondent
bank, which complaint was docketed as Civil Case No.
71697 of the Court of First Instance of Manila.
On January 22, 1968, PCIB gave petitioner notice that it
would cause the real estate mortgage to be foreclosed at
an auction sale, which it scheduled for February
27,1968. Thus, respondent Sheriff served notice of
sheriffs sale (of the real properties mortgaged to
respondent PCIB) on July 18,1968 at 10:00 a.m., more
particularly, T.C.T. No. 73620 (barrio Sto. Domingo,
municipality of Cainta); T.C.T. No. 177019 (barrio of San
Joaquin, Pasig, Rizal); and T.C.T. No. 175595 (barrio
San Joaquin, Pasig, Rizal). Subsequently, on July 15,
1968, petitioner filed a complaint docketed as Civil Case
No. 11015 in the Court of First Instance of Rizal to enjoin
respondents PCIB and the sheriff from proceeding with
the foreclosure sale, to ask the lower court to fix a new
period for the payment of the obligations of petitioner to
PCIB and for other related matters. Petitioner likewise
prayed, pending final judgment, for the issuance ex-
parte of a writ of preliminary injunction enjoining herein
respondents from proceeding with the foreclosure sale
scheduled to be held on July 18, 1968.
On January 31, 1969, the lower court issued ail order
denying the application for preliminary injunction and
dissolving its restraining order which had been issued on
July 17, 1968. Petitioner promptly filed a motion for
reconsideration which was denied by the lower court on
May 7, 1969.
On May 8, 1969 petitioner filed with respondent Court of
Appeals a petition for certiorari with application for a
restraining order and preliminary injunction against the
foreclosure sale (Rollo, p. 54).<re||an1w> On May
13, 1969 respondent Court resolved to issue a writ of
preliminary injunction upon filing by petitioner of a bond
in the amount of P60,000.00. However, petitioner moved
for amendment of the Order issuing the preliminary
injunction, on the ground that the aforementioned
resolution of respondent Court came too late to stop the
foreclosure sale which was held on May 9, 1969, praying
instead that the preliminary injunction should now enjoin
respondents, particularly respondent Provincial Sheriff,
from proceeding to give effect to the foreclosure sale of
May 9, 1969; that said sheriff should refrain from issuing
a deed of certificate of sale pursuant thereto and from
registering the certificate of deed of sale in the Registry
of Deeds; and to toll or stop the running of the period of
redemption. Respondent Court resolved to deny said
motion in its Resolution dated May 28, 1969 (Rollo, pp.
237-242).
On May 8, 1970, on urgent motion of petitioner,
respondent Court granted petitioner a period of sixty (60)
days from receipt of the decision to be rendered in
CA-G.R. No. 43198 within which to redeem its properties
sold, should the said decision be one declaring the
execution sale in dispute to be valid (Rollo, p. 231).
Meantime, on May 12, 1970, an affidavit of consolidation
of ownership executed by Eugenio R. Unson for and in
behalf of respondent PCIB concerning the properties
involved in the instant petition for certiorari, was
registered with the Register of Deeds of Pasig, Rizal at
8:00 a.m.. Consequently, the old transfer certificates of
title covering the aforementioned properties were
cancelled and new ones issued in the name of
respondent PCIB, the buyer at the foreclosure sale. In
view thereof, petitioner filed a motion charging
respondent PCIB and its Executive Vice-President and
Assistant General Manager Eugenio R. Unson with
contempt of court. Petitioner prayed that (a) the Deed of
Sale dated May 12, 1970 and the consolidation of
ownership of the same date be declared null and void;
(b) that the new transfer certificates of title TCT Nos.
286174, 286175, and 286176be cancelled and the old
ones, TCT Nos. 177019,175595, and 73620 be restored
or revived by the Register of Deeds of Rizal; and (c) that
the respondent PCIB be ordered to surrender and
deposit the TCT Nos. 177019, 175595, and 73620 with
respondent Court for safekeeping (Rollo. p. 243).
On December 16, 1970 respondent Court promulgated
the questioned decision (Rollo, pp. 237-249). On
January 12, 1971 it resolved (Rollo, p. 280) to deny
petitioner's motion for reconsideration dated January 5,
1971 (Rollo, p. 250) and on January 22, 1971 it again
resolved (Rollo, p. 281) to deny petitioner's supplement
to motion for reconsideration dated January 18, 1971
(Rollo, p. 260).
The instant Petition for Review on certiorari (Rollo, p. 12)
was filed with the Court on February 16, 1971. On
February 23, 1971, the Court resolved to give due
course to the petition and ordered the issuance of
preliminary injunction enjoining respondents from
enforcing or implementing the appealed decision of
respondent Court of Appeals, upon petitioner's posting a
bond of P50,000.00 (Rollo, p. 584). The writ of
preliminary injunction was issued on April 28, 1971
(Rollo, p. 619).
The Brief for Petitioner was filed on June 18, 1971
(Rollo, p. 631). The Brief for the Respondents was filed
on September 20, 1971 (Rollo, p. 655). The Reply Brief
was filed on December 6, 1971 (Rollo, p. 678).
On April 2, 1971 respondent PCIB filed a motion for
leave to lease real estate properties in custodia
legis, more specifically the 31, 447 sq.m. lot located at
Sto. Domingo, Cainta, Rizal covered by TCT No. 286176
(Rollo, p. 697). Petitioner filed its opposition to the
motion on May 27, 1971 (Rollo, p. 712). The reply to the
opposition was filed on December 6,1971 (Rollo, p. 730);
the rejoinder to respondent PCIB's reply to opposition,
on November 19, 1971 (Rollo, p. 736). Meantime the
case was transferred to the Second Division, by a
Resolution of the First Division dated January 17, 1983
(Rollo, p. 752).
The issues raised in this case are the following:
1. WHETHER OR NOT RESPONDENT
COURT ERRED IN FINDING THAT
THE LOWER COURT DID NOT
COMMIT AN ABUSE OF DISCRETION
IN DENYING PETITIONER'S
APPLICATION FOR A PRELIMINARY
INJUNCTION AND DISSOLVING THE
RESTRAINING ORDER PREVIOUSLY
ISSUED. (Brief for Petitioner, pp. 21-
47);
2. WHETHER OR NOT RESPONDENT
COURT ERRED IN DECLARING VALID
THE FORECLOSURE SALE ON MAY
9,1969 OF THE MORTGAGED
PROPERTIES EN MASSE WHEN
THEY REFER TO SEVERAL REAL
ESTATE MORTGAGES EXECUTED
ON DIFFERENT DATES. (Brief for
Petitioner, pp. 47-50).
The main issue is whether or not private respondents
have the right to the extrajudicial foreclosure sale of
petitioner's mortgaged properties before trial on the
merits. The answer is in the negative.
Petitioner filed Civil Case No. 11015 in the Court of First
Instance of Rizal, Branch II, to obtain judgment (1)
enjoining defendants (respondents herein) from
proceeding with the foreclosure sale of the subject real
estate mortgages, (2) fixing a new period for the
payment of the obligations of plaintiff to defendant PCIB
sufficiently long to enable it to recover from the effects of
defendant PCIB's inequitable acts, (3) ordering
defendant PCIB to immediately give up management of
plaintiffs canning industry and to pay plaintiff such
damages as it may prove in the concept of actual,
compensatory and exemplary or corrective damages,
aside from attorney's fees and expenses of litigation,
plus costs (Rollo, p. 98). It is to be noted that petitioner
filed the above case mainly to forestall the foreclosure
sale of the mortgaged properties before final judgment.
The issuance of a writ of preliminary injuction could have
preserved the status quo of the parties in relation to the
subject matter litigated by them during the pendency of
the action (Lasala v. Fernandez, 5 SCRA 79 [1962]; De
Lara v. Cloribel, 14 SCRA 269 [1965]; Locsin v. Climaco,
26 SCRA 816 [1969].
When the lower court denied the issuance of the writ
prayed for and dissolved the restraining order it had
previously issued, in its order dated January 31, 1969
(Rollo, p. 138) it practically adjudicated the case before
trial on the merits.
While petitioner corporation does not deny, in fact, it
admits its indebtedness to respondent bank (Brief for
Petitioner, pp. 7-11), there were matters that needed the
preservation of the status quo between the parties. The
foreclosure sale was premature.
First was the question of whether or not petitioner
corporation was already in default. In its letter dated
August 12,1966 to petitioner corporation, among the
conditions that respondent bank set for the consolidation
of the outstanding obligations of petitioner was the
liquidation of the said obligations together with the
latter's other obligations in the financing scheme already
approved by the NIDC and PDCP. To quote:
a) These facilities shall be temporary
and shall be fully liquidated, together
with other obligations from a refinancing
scheme already approved by the NIDC
and PDCP totalling Pl million in equity
and P2.6 million in long term financing.
In this connection, the firm shall present
to this Bank a certified copy of the terms
and conditions of the approval by the
NIDC and PDCP. (Brief for the
Respondent, p. 41).
In other words, the loans of petitioner corporation from
respondent bank were supposed to become due only at
the time that it receives from the NIDC and PDCP the
proceeds of the approved financing scheme. As it is, the
conditions did not happen. NIDC refused to make further
releases after it had made two releases totalling
P200,000.00 which were all applied to the payment of
the preferred stock NIDC subscribed in petitioner
corporation to partially implement its P1,000,000.00
investment scheme (Brief for Petitioner, p. 9). The
efficacy or obligatory force of a conditional obligation is
subordinated to the happening of a future and uncertain
event so that if the suspensive condition does not take
place, the parties would stand as if the conditional
obligation had never existed (Gaite v. Fonacier, 2 SCRA
831 [1961]).<re||an1w>
Petitioner corporation alleges that there had been no
demand on the part of respondent bank previous to its
filing a complaint against petitioner and Rene Knecht
personally for collection on petitioner's indebtedness
(Brief for Petitioner, p. 13). For an obligation to become
due there must generally be a demand. Default generally
begins from the moment the creditor demands the
performance of the obligation. Without such demand,
judicial or extrajudicial, the effects of default will not arise
(Namarco v. Federation of United Namarco Distributors,
Inc. 49 SCRA 238 [1973]; Borje v. CFI of Misamis
Occidental, 88 SCRA 576 [1979]). Whether petitioner
corporation is already in default or not and whether
demand had been properly made or not had to be
determined in the lower court.
Granting that the findings of the lower court after trial on
the merits answer both questions in the affirmative,
another question that had to be determined was the
question of cause or consideration.
The loan agreements between petitioner and respondent
Bank are reciprocal obligations (the obligation or
promise of each party is the consideration for that of the
other Penacio v. Ruaya, 110 SCRA 46 [1981], cited. in
Central Bank of the Philippines v. Court of Appeals, 139
SCRA 46 [1985] ). A contract of loan is not a unilateral
contract as respondent Bank thinks it is (Brief for the
Respondent, p. 19). The promise of petitioner to pay is
the consideration for the obligation of respondent bank
to furnish the loan (Ibid.).
Respondent bank had complete control of the financial
affairs and the management of petitioner corporation. It
appointed its executive vice-president Roberto S.
Benedicto as its representative in petitioner's board of
directors, giving him the position of
vice-president in petitioner corporation (Brief for
Petitioner, p. 7). Upon the resignation of Roberto S.
Benedicto as vice-president and member of the board of
directors of petitioner corporation on December 29, 1965
(Brief for Petitioner, p. 8), respondent bank designated
Rafael Ledesma as its representative in petitioner
corporation's board of directors, due representation in
the board of petitioner being a condition for the loan
granted to the petitioner (Rollo, p. 166). In fact, Rafael
Ledesma was designated Chairman of the Board of
Directors (Rollo, p. 169). Respondent bank required
petitioner to appoint Sycip, Gorrez, Velayo & Co. as full-
time comptroller-treasurer of the corporation at a
monthly salary of P1,500.00 (Brief for Petitioner, p. 9;
Brief for the Respondent, p. 41). On January 2, 1967, it
also required petitioner to replace its then manager, the
Management & Investment Development Associates
(MIDA) and to appoint instead Edmundo Ledesma at a
monthly salary of P3,000.00 and transportation
allowance of P1,000.00 plus an assistant manager,
Venancio Concepcion at a salary of P1,000.00 a month.
During the next 18 months' management by defendant's
designated manager, no meeting of the board of
directors of petitioner was called- Edmundo Ledesma
exercised full control and management (Brief for
Petitioner, pp. 10-11; Rollo, p. 167). Respondent Bank
has not given up management of petitioner's food
canning industry and continues to hold it. Even Atty.
Juan de Ocampo has been retained by petitioner as
corporate counsel, at the insistence of respondent bank
(Brief for Petitioner, p. 14). This has not been denied by
respondent bank.
Respondent bank's designation of its own choice of
people holding key positions in petitioner corporation tied
the hands of petitioner's board of directors to make
decisions for the interest of petitioner corporation, in fact,
undermined the latter's financial stability. During the 18
months of Edmundo Ledesma's management,
petitioner's factory produced some P200,000.00 worth of
canned goods which according to petitioner is only
equivalent to its normal production in three weeks (Brief
for Petitioner, pp.10-11). Respondent bank justifies the
underproduction by averring that petitioner at that time
did not have sufficient capital to operate the factory, and
that said factory was only operating for the purpose of
avoiding spoilage and deterioration of the raw materials
then in store at the petitioner's factory (Rollo. p. 168) and
yet respondent bank insists, that it had released the
entire amount of P500,000.00 loan to petitioner (Rollo, p.
167) earmarked for operating capital purposes (Brief for
the Respondent, p. 43) and admits having granted a
P40,000.00 loan at a higher interest of 14% per annum
to petitioner at the request of the same Edmundo
Ledesma (Rollo, p. 167). After the Development Bank of
the Philippines had approved on June 29, 1967 a loan of
P1,840,000.00 applied for by petitioner in 1961,
respondent bank informed of the availability of
P800,000.00 to pay off partially petitioner's account with
it and requested to release the titles of the Pasig parcels
for delivery to the Development Bank of the Philippines,
and the amount actually released by the Development
Bank, Rafael Ledesma, in his capacity as Chairman of
petitioner's board of directors wrote a letter to the
Development Bank of the Philippines stating that Rene
Knecht, petitioner's president, had no authority to borrow
for petitioner, being a mere figurehead president,
although Rene Knecht, controlled 87% of the
stockholding of petitioner and the by-laws authorized the
president to borrow for the company (Brief for Petitioner,
pp. 11-13).<re||an1w> That Rafael Ledesma wrote a
letter to the Development Bank of the Philippines is
admitted by respondent bank (Rollo, p. 169). The
Development Bank of the Philippines refused to make
further releases on the approved loan or to issue the
dollar guaranty for the importation of can making
machinery. It was Atty. Juan de Ocampo, the corporate
counsel retained by petitioner at the insistence of
respondent bank that instituted the collection suit and
extra-judicial foreclosure for respondent bank against
petitioner (Brief for Petitioner, pp. 13-14; Rollo, p. 79).
It is apparent that it is respondent bank practically
managing petitioner corporation through its
representatives occupying key positions therein. Not
even the president of petitioner corporation could escape
control by respondent bank through the Comptroller
Treasurer assigned "to countersign all checks and other
disbursements and decide on all financial matters
regarding the operations and who shall see to it that
operations are carried out" (Brief for the Respondent, p.
41). There is basis for petitioner's complaint of
interference by respondent bank with petitioner's
financing (Brief for Petitioner, pp. 3132) and such
interference is only a consequence of respondent bank's
management of petitioner corporation through the
officers occupying key positions therein. Thus, if ever
petitioner corporation was in financial straits instead of
being rehabilitated this can be attributed to the
mismanagement of respondent corporation through its
representatives in petitioner corporation.
In a similar case, Filipinas Marble Corporation v.
Intermediate Appellate Court (142 SCRA 180 [1986])
where the lending institution took over the management
of the borrowing corporation and led that corporation to
bankcruptcy through mismanagement or
misappropriation of the funds, defeating the very
purpose of the loan which is to develop the projects of
the corporation, the Court ruled that it is as if the loan
was never delivered to it and thus, there was failure on
the part of the respondent DBP to deliver the
consideration for which the mortgage and the
assignment of deed were executed.
It cannot be determined at this point how much of the
total loan, most especially the P500,000.00 loan for
operating capital and the P40,000.00 loan of the
manager, Edmundo Ledesma, had been mismanaged or
misspent by respondent bank through its
representatives. This matter should rightfully be litigated
below in the main action (Filipinas Marble Corportion v.
Intermediate Appellate Court. (supra).
Furthermore, respondent bank was in default in fulfilling
its reciprocal obligation under their loan agreement. By
its own admission it failed to release the P710,000.00
loan (Rollo, p. 167) it approved on October 13, 1966
(Brief for Respondent, p. 44) in which case, petitioner
corporation, under Article 1191 of the Civil Code, may
choose between specific performance or rescission with
damages in either case (Central Bank of the Philippines
v. Court of Appeals, 139 SCRA 46 [1985]).
As a consequence, the real estate mortgage of petitioner
corporation cannot be entirely foreclosed to satisfy its
total debt to respondent bank. (Central Bank of the
Philippines v. Court of Appeals, supra.)
The issue of whether the foreclosure sale of the
mortgaged properties en masse was valid or not must be
answered in the negative. The rule of indivisibility of a
real estate mortgage refers to the provisions of Article
2089 of the Civil Code, which provides:
Art. 2089. A pledge or mortgage is
indivisible, even though the debt may be
divided among the successors in
interest of the debtor or of the creditor.
Therefore the debtor's heir who has paid
a part of the debt cannot ask for the
proportionate extinguishment of the
pledge or mortgage as the debt is not
completely satisfied.
Neither can the creditor's heir who
received his share of the debt return the
pledge or cancel the mortgage, to the
prejudice of the other heirs who have
not been paid.
From these provisions is excepted the
case in which, there being several
things given in mortgage or pledge,
each one of them guarantees only a
determinate portion of the credit.
The debtor, in this case, shall have a
right to the extinguishment of the pledge
or mortgage as the portion of the debt
for which each thing is specially
answerable is satisfied.
Respondent bank cites the above-quoted article in its
argument that the mortgage contract is indivisible and
that the loan it secures cannot be divided among the
different lots (Brief for Respondent, p. 27). Respondent
Court upheld the validity of the sale en masse (Rollo, p.
246).
The rule, however, is not applicable to the instant case
as it presupposes several heirs of the debtor or creditor
which does not obtain in this case (Central Bank of the
Philippines v. Court of Appeals, supra.) Furthermore,
granting that there was consolidation of the entire loan of
petitioner corporations approved by respondent bank,
the rule of indivisibility of mortgage cannot apply where
there was failure of consideration on the part of
respondent bank for the mismanagement of the affairs of
petitioner corporation and where said bank is in default
in complying with its obligation to release to petitioner
corporation the amount of P710,000.00. In fact the real
estate mortgage itself becomes unenforceable (Central
Bank of the Philippines v. Court of Appeals, supra).
Finally, it is noted that as already stated hereinabove,
the exact amount of petitioner's total debt was
still unknown.
PREMISES CONSIDERED, (1) the decision of the Court
of Appeals is REVERSED insofar as it sustained: (a) the
lower court's denial of petitioner's application for
preliminary injunction and (b) the validity of the
foreclosure sale; (2) the lower court is ordered to
proceed with the trial on the merits of the main case
together with a determination of exactly how much are
petitioner's liabilities in favor of respondent bank PCIB
so that proper measures may be taken for their eventual
liquidation; (3) the preliminary injunction issued by this
Court on April 28, 1971 remains in force until the merits
of the main case are resolved; and (4) the motion of
respondent bank dated April 1, 1981 for leave to lease
the real properties in custodia legis is DENIED.
SO ORDERED.
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.
SO ORDERED.
POLO S. PANTALEON,
Petitioner,
- versus
AMERICAN EXPRESS INTERNATIONAL,
INC.,
Respondent.
BRION, J.:
We resolve the motion for reconsideration filed by
respondent American Express International, Inc. (AMEX)
dated June 8, 2009,[1] seeking to reverse our Decision
dated May 8, 2009 where we ruled that AMEX was guilty
of culpable delay in fulfilling its obligation to its
cardholder petitioner Polo Pantaleon. Based on this
conclusion, we held AMEX liable for moral and exemplary
damages, as well as attorneys fees and costs of
litigation.[2]
FACTUAL ANTECEDENTS
The established antecedents of the case are narrated
below.
AMEX is a resident foreign corporation engaged in the
business of providing credit services through the
operation of a charge card system. Pantaleon has been
an AMEX cardholder since 1980.[3]
In October 1991, Pantaleon, together with his wife
(Julialinda), daughter (Regina), and son (Adrian Roberto),
went on a guided European tour. On October 25, 1991,
the tour group arrived in Amsterdam. Due to their late
arrival, they postponed the tour of the city for the following
day.[4]
The next day, the group began their sightseeing
at around 8:50 a.m. with a trip to the Coster Diamond
House (Coster). To have enough time for take a guided
city tour of Amsterdam before their departure scheduled
on that day, the tour group planned to leave Coster
by 9:30 a.m. at the latest.
While at Coster, Mrs. Pantaleon decided to
purchase some diamond pieces worth a total of
US$13,826.00. Pantaleon presented his American
Express credit card to the sales clerk to pay for this
purchase. He did this at around 9:15 a.m. The sales clerk
swiped the credit card and asked Pantaleon to sign the
charge slip, which was then electronically referred to
AMEXs Amsterdam office at 9:20 a.m.[5]
At around 9:40 a.m., Coster had not received approval
from AMEX for the purchase so Pantaleon asked the
store clerk to cancel the sale. The store manager,
however, convinced Pantaleon to wait a few more
minutes. Subsequently, the store manager informed
Pantaleon that AMEX was asking for bank references;
Pantaleon responded by giving the names of his
Philippine depository banks.
At around 10 a.m., or 45 minutes after Pantaleon
presented his credit card, AMEX still had not approved the
purchase. Since the city tour could not begin until the
Pantaleons were onboard the tour bus, Coster decided to
release at around 10:05 a.m. the purchased items to
Pantaleon even without AMEXs approval.
When the Pantaleons finally returned to the tour
bus, they found their travel companions visibly
irritated. This irritation intensified when the tour guide
announced that they would have to cancel the tour
because of lack of time as they all had to be
in Calais, Belgium by 3 p.m. to catch the ferry
to London.[6]
From the records, it appears that after Pantaleons
purchase was transmitted for approval to
AMEXs Amsterdam office at 9:20 a.m.; was referred to
AMEXs Manila office at 9:33 a.m.; and was approved by
the Manila office at 10:19 a.m. At 10:38 a.m.,
AMEXs Manila office finally transmitted the Approval
Code to AMEXs Amsterdam office. In all, it took AMEX a
total of 78 minutes to approve Pantaleons purchase
and to transmit the approval to the jewelry store.[7]
After the trip to Europe, the Pantaleon family proceeded
to the United States. Again, Pantaleon experienced delay
in securing approval for purchases using his American
Express credit card on two separate occasions. He
experienced the first delay when he wanted to purchase
golf equipment in the amount of US$1,475.00 at the
Richard Metz Golf Studio in New York on October 30,
1991. Another delay occurred when he wanted to
purchase childrens shoes worth US$87.00 at the Quiency
Market in Boston on November 3, 1991.
Upon return to Manila, Pantaleon sent AMEX a letter
demanding an apology for the humiliation and
inconvenience he and his family experienced due to the
delays in obtaining approval for his credit card purchases.
AMEX responded by explaining that the delay in
Amsterdam was due to the amount involved the charged
purchase of US$13,826.00 deviated from Pantaleons
established charge purchase pattern. Dissatisfied with
this explanation, Pantaleon filed an action for damages
against the credit card company with the Makati City
Regional Trial Court (RTC).
On August 5, 1996, the RTC found AMEX guilty
of delay, and awarded Pantaleon P500,000.00 as moral
damages, P300,000.00 as exemplary
damages, P100,000.00 as attorneys fees,
and P85,233.01 as litigation expenses.
On appeal, the CA reversed the awards.[8] While
the CA recognized that delay in the nature of mora
accipiendi or creditors default attended AMEXs approval
of Pantaleons purchases, it disagreed with the RTCs
finding that AMEX had breached its contract, noting that
the delay was not attended by bad faith, malice or gross
negligence. The appellate court found that AMEX
exercised diligent efforts to effect the approval of
Pantaleons purchases; the purchase at Coster posed
particularly a problem because it was at variance with
Pantaleons established charge pattern. As there was no
proof that AMEX breached its contract, or that it acted in
a wanton, fraudulent or malevolent manner, the appellate
court ruled that AMEX could not be held liable for any form
of damages.
Pantaleon questioned this decision via a petition
for review on certiorari with this Court.
In our May 8, 2009 decision, we reversed the
appellate courts decision and held that AMEX was guilty
of mora solvendi, or debtors default. AMEX, as debtor,
had an obligation as the credit provider to act on
Pantaleons purchase requests, whether to approve or
disapprove them, with timely dispatch. Based on the
evidence on record, we found that AMEX failed to timely
act on Pantaleons purchases.
Based on the testimony of AMEXs credit
authorizer Edgardo Jaurique, the approval time for credit
card charges would be three to four seconds under
regular circumstances. In Pantaleons case, it took AMEX
78 minutes to approve the Amsterdam purchase. We
attributed this delay to AMEXs Manila credit authorizer,
Edgardo Jaurique, who had to go over Pantaleons past
credit history, his payment record and his credit and bank
references before he approved the purchase. Finding this
delay unwarranted, we reinstated the RTC decision and
awarded Pantaleon moral and exemplary damages, as
well as attorneys fees and costs of litigation.
THE MOTION FOR RECONSIDERATION
In its motion for reconsideration, AMEX argues that this
Court erred when it found AMEX guilty of culpable delay
in complying with its obligation to act with timely dispatch
on Pantaleons purchases. While AMEX admits that it
normally takes seconds to approve charge purchases, it
emphasizes that Pantaleon experienced delay
in Amsterdam because his transaction was not a normal
one. To recall, Pantaleon sought to charge in a single
transaction jewelry items purchased from Coster in the
total amount of US$13,826.00 or P383,746.16. While the
total amount of Pantaleons previous purchases using his
AMEX credit card did exceed US$13,826.00, AMEX
points out that these purchases were made in a span of
more than 10 years, not in a single transaction.
Because this was the biggest single transaction
that Pantaleon ever made using his AMEX credit card,
AMEX argues that the transaction necessarily required
the credit authorizer to carefully review Pantaleons credit
history and bank references. AMEX maintains that it did
this not only to ensure Pantaleons protection (to minimize
the possibility that a third party was fraudulently using his
credit card), but also to protect itself from the risk that
Pantaleon might not be able to pay for his purchases on
credit. This careful review, according to AMEX, is also in
keeping with the extraordinary degree of diligence
required of banks in handling its transactions. AMEX
concluded that in these lights, the thorough review of
Pantaleons credit record was motivated by legitimate
concerns and could not be evidence of any ill will, fraud,
or negligence by AMEX.
AMEX further points out that the proximate cause
of Pantaleons humiliation and embarrassment was his
own decision to proceed with the purchase despite his
awareness that the tour group was waiting for him and his
wife. Pantaleon could have prevented the humiliation had
he cancelled the sale when he noticed that the credit
approval for the Coster purchase was unusually delayed.
 In his Comment dated February 24, 2010,
Pantaleon maintains that AMEX was guilty of mora
The bank credit card system
solvendi, or delay on the part of the debtor, in complying
involves a tripartite relationship between
with its obligation to him. Based on jurisprudence, a just
the issuer bank, the cardholder, and
cause for delay does not relieve the debtor in delay from
merchants participating in the system.
the consequences of delay; thus, even if AMEX had a
The issuer bank establishes an account
justifiable reason for the delay, this reason would not
on behalf of the person to whom the card
relieve it from the liability arising from its failure to timely
is issued, and the two parties enter into
act on Pantaleons purchase.
an agreement which governs their
relationship. This agreement provides
that the bank will pay for cardholders
In response to AMEXs assertion that the delay
account the amount of merchandise or
was in keeping with its duty to perform its obligation with
services purchased through the use of
extraordinary diligence, Pantaleon claims that this duty
the credit card and will also make cash
includes the timely or prompt performance of its
loans available to the cardholder. It also
obligation.
states that the cardholder shall be liable
to the bank for advances and payments
made by the bank and that the
As to AMEXs contention that moral or exemplary cardholders obligation to pay the bank
damages cannot be awarded absent a finding of malice, shall not be affected or impaired by any
Pantaleon argues that evil motive or design is not always dispute, claim, or demand by the
necessary to support a finding of bad faith; gross cardholder with respect to any
negligence or wanton disregard of contractual obligations merchandise or service purchased.
is sufficient basis for the award of moral and exemplary
damages.
The merchants participating in
the system agree to honor the banks
OUR RULING credit cards. The bank irrevocably agrees
to honor and pay the sales slips
presented by the merchant if the
We GRANT the motion for reconsideration. merchant performs his undertakings
such as checking the list of revoked cards
before accepting the card. x x x.
Brief
historic
al These slips are forwarded to the
backgro member bank which originally issued the
und card. The cardholder receives a
statement from the bank periodically and
A credit card is defined as any card, plate, coupon may then decide whether to make
book, or other credit device existing for the purpose of payment to the bank in full within a
obtaining money, goods, property, labor or services or specified period, free of interest, or to
anything of value on credit.[9] It traces its roots to defer payment and ultimately incur an
the charge card first introduced by the Diners Club in New interest charge.
York City in 1950.[10] American Express followed suit by
introducing its own charge card to the American market
in 1958.[11]

We adopted a similar view in CIR v. American

In the Philippines, the now defunct Pacific Bank
Express International, Inc. (Philippine branch),[15] where
was responsible for bringing the first credit card into the
we also recognized that credit card issuers are not limited
country in the 1970s.[12] However, it was only in the early
to banks. We said:
2000s that credit card use gained wide acceptance in the
country, as evidenced by the surge in the number of credit
card holders then.[13]
Under RA 8484, the credit card
that is issued by banks in general, or by
non-banks in particular, refers to any
Nature of Credit Card Transactions
card x x x or other credit device existing
for the purpose of obtaining x x x goods
x x x or services x x x on credit; and is
To better understand the dynamics involved in being used usually on a revolving
credit card transactions, we turn to the United States case basis. This means that the consumer-
of Harris Trust & Savings Bank v. McCray [14]which
credit arrangement that exists between
explains:
the issuer and the holder of the credit
 card enables the latter to procure goods
or services on a continuing basis as long
as the outstanding balance does not
exceed a specified limit. The card holder
is, therefore, given the power to obtain
present control of goods or service on a
promise to pay for them in the future.
Business establishments may extend
credit sales through the use of the credit
card facilities of a non-bank credit card
company to avoid the risk of uncollectible
accounts from their customers. Under
this system, the establishments do not
deposit in their bank accounts the credit
card drafts that arise from the credit
sales. Instead, they merely record their
receivables from the credit card company
and periodically send the drafts
evidencing those receivables to the
latter.
The credit card company, in turn,
sends checks as payment to these
business establishments, but it does not
redeem the drafts at full price. The
agreement between them usually
provides for discounts to be taken by the
company upon its redemption of the
drafts. At the end of each month, it then
bills its credit card holders for their
respective drafts redeemed during the
previous month. If the holders fail to pay
the amounts owed, the company
sustains the loss.
Simply put, every credit card transaction involves
three contracts, namely: (a) the sales contract between
the credit card holder and the merchant or the business
establishment which accepted the credit card; (b)
the loan agreement between the credit card issuer and
the credit card holder; and lastly, (c) the promise to
pay between the credit card issuer and the merchant or
business establishment.[16]
Credit
card
issuer
cardho
lder
relatio
nship
When a credit card company gives the holder the
privilege of charging items at establishments associated
with the issuer,[17] a necessary question in a legal analysis
is when does this relationship begin? There are two
diverging views on the matter. In City Stores Co. v.
Henderson,[18] another U.S. decision, held that:
The issuance of a credit card is
but an offer to extend a line of open
account credit. It is unilateral and
supported by no consideration. The offer
may be withdrawn at any time, without
prior notice, for any reason or, indeed, for
no reason at all, and its withdrawal
breaches no duty for there is no duty to
continue it and violates no rights.
Thus, under this view, each credit card transaction is
considered a separate offer and acceptance.
Novack v. Cities Service Oil Co.[19] echoed this
view, with the court ruling that the mere issuance of a
credit card did not create a contractual relationship with
the cardholder.
On the other end of the spectrum is Gray v. American
Express Company[20] which recognized the card
membership agreement itself as a binding contract
between the credit card issuer and the card holder. Unlike
in the Novack and the City Stores cases, however, the
cardholder in Gray paid an annual fee for the privilege of
being an American Express cardholder.
In our jurisdiction, we generally adhere to the Gray ruling,
recognizing the relationship between the credit card
issuer and the credit card holder as a contractual one that
is governed by the terms and conditions found in the card
membership agreement.[21] This contract provides the
rights and liabilities of a credit card company to its
cardholders and vice versa.
We note that a card membership agreement
is a contract of adhesion as its terms are prepared
solely by the credit card issuer, with the cardholder
merely affixing his signature signifying his adhesion
to these terms.[22] This circumstance, however, does
not render the agreement void; we have uniformly
held that contracts of adhesion are as binding as
ordinary contracts, the reason being that the party
who adheres to the contract is free to reject it
entirely.[23] The only effect is that the terms of the
contract are construed strictly against the party who
drafted it.[24]
On AMEXs obligations to Pantaleon
We begin by identifying the two privileges that Pantaleon
assumes he is entitled to with the issuance of his AMEX
credit card, and on which he anchors his claims. First,
Pantaleon presumes that since his credit card has no pre-
set spending limit, AMEX has the obligation to approve all
his charge requests. Conversely, even if AMEX has no
such obligation, at the very least it is obliged to act on his
charge requests within a specific period of time.
i. Use of credit card a mere offer to enter into
loan agreements
Although we recognize the existence of a
relationship between the credit card issuer and the
credit card holder upon the acceptance by the
cardholder of the terms of the card membership
agreement (customarily signified by the act of the
cardholder in signing the back of the credit card), we
have to distinguish this contractual relationship
from the creditor-debtor relationship which only
arises after the credit card issuer has approved
the cardholders purchase request. The first relates
merely to an agreement providing for credit facility to
the cardholder. The latter involves the actual credit on
loan agreement involving three contracts, namely:
the sales contract between the credit card holder
and the merchant or the business establishment
which accepted the credit card; the loan
agreement between the credit card issuer and the
credit card holder; and the promise to pay between
the credit card issuer and the merchant or business
establishment.
From the loan agreement perspective, the
contractual relationship begins to exist only upon the
meeting of the offer[25] and acceptance of the parties
involved. In more concrete terms, when cardholders use
their credit cards to pay for their purchases, they merely
offer to enter into loan agreements with the credit card
company. Only after the latter approves the purchase
requests that the parties enter into binding loan
contracts, in keeping with Article 1319 of the Civil Code,
which provides:
Article 1319. Consent is
manifested by the meeting of the offer
and the acceptance upon the thing and
the cause which are to constitute the
contract. The offer must be certain and
the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
This view finds support in the reservation found in the card
membership agreement itself, particularly paragraph 10,
which clearly states that AMEX reserve[s] the right to
deny authorization for any requested Charge. By so
providing, AMEX made its position clear that it has no
obligation to approve any and all charge requests made
by its card holders.
ii. AMEX not guilty of culpable delay
Since AMEX has no obligation to approve the
purchase requests of its credit cardholders, Pantaleon
cannot claim that AMEX defaulted in its obligation. Article
1169 of the Civil Code, which provides the requisites to
hold a debtor guilty of culpable delay, states:
Article 1169. Those obliged to
deliver or to do something incur in delay
from the time the obligee judicially or
extrajudicially demands from them the
fulfillment of their obligation. x x x.
The three requisites for a finding of default are:
(a) that the obligation is demandable and liquidated; (b)
the debtor delays performance; and (c) the creditor
judicially or extrajudicially requires the debtors
performance.[26]
Based on the above, the first requisite is no longer
met because AMEX, by the express terms of the credit
card agreement, is not obligated to approve Pantaleons
purchase request. Without a demandable obligation,
there can be no finding of default.
Apart from the lack of any demandable obligation,
we also find that Pantaleon failed to make the demand
required by Article 1169 of the Civil Code.
As previously established, the use of a credit card
to pay for a purchase is only an offer to the credit card
company to enter a loan agreement with the credit card
holder. Before the credit card issuer accepts this
offer, no obligation relating to the loan agreement
exists between them. On the other hand, a demand is
defined as the assertion of a legal right; xxx an asking with
authority, claiming or challenging as due.[27] A demand
presupposes the existence of an obligation between
the parties.
Thus, every time that Pantaleon used his AMEX
credit card to pay for his purchases, what the stores
transmitted to AMEX were his offers to execute loan
contracts. These obviously could not be classified as the
demand required by law to make the debtor in default,
given that no obligation could arise on the part of AMEX
until after AMEX transmitted its acceptance of Pantaleons
offers. Pantaleons act of insisting on and waiting for the
charge purchases to be approved by AMEX [28] is not the
demand contemplated by Article 1169 of the Civil Code.
For failing to comply with the requisites of Article
1169, Pantaleons charge that AMEX is guilty of culpable
delay in approving his purchase requests must fail.
 iii. On AMEXs obligation to act on the offer within
a specific period of time
Even assuming that AMEX had the right to review
his credit card history before it approved his purchase
requests, Pantaleon insists that AMEX had an obligation
to act on his purchase requests, either to approve or deny,
in a matter of seconds or in timely dispatch. Pantaleon
impresses upon us the existence of this obligation by
emphasizing two points: (a) his card has no pre-set
spending limit; and (b) in his twelve years of using his
AMEX card, AMEX had always approved his charges in a
matter of seconds.
Pantaleons assertions fail to convince us.
We originally held that AMEX was in culpable
delay when it acted on the Coster transaction, as well as
the two other transactions in the United Stateswhich took
AMEX approximately 15 to 20 minutes to approve. This
conclusion appears valid and reasonable at first glance,
comparing the time it took to finally get the Coster
purchase approved (a total of 78 minutes), to AMEXs
normal approval time of three to four seconds (based on
the testimony of Edgardo Jaurigue, as well as Pantaleons
previous experience). We come to a different result,
however, after a closer look at the factual and legal
circumstances of the case.
AMEXs credit authorizer, Edgardo Jaurigue,
explained that having no pre-set spending limit in a credit
card simply means that the charges made by the
cardholder are approved based on his ability to pay, as
demonstrated by his past spending, payment patterns,
and personal resources.[29] Nevertheless, every time
Pantaleon charges a purchase on his credit card, the
credit card company still has to determine whether it
will allow this charge, based on his past credit
history. This right to review a card holders credit history,
although not specifically set out in the card membership
agreement, is a necessary implication of AMEXs right to
deny authorization for any requested charge.
As for Pantaleons previous experiences with
AMEX (i.e., that in the past 12 years, AMEX has always
approved his charge requests in three or four seconds),
this record does not establish that Pantaleon had a legally
enforceable obligation to expect AMEX to act on his
charge requests within a matter of seconds. For one,
Pantaleon failed to present any evidence to support his
assertion that AMEX acted on purchase requests in a
matter of three or four seconds as an established practice.
More importantly, even if Pantaleon did prove that AMEX,
as a matter of practice or custom, acted on its customers
purchase requests in a matter of seconds, this would still
not be enough to establish a legally demandable right; as
a general rule, a practice or custom is not a source of a
legally demandable or enforceable right.[30]
We next examine the credit card membership
agreement, the contract that primarily governs the
relationship between AMEX and Pantaleon.
Significantly, there is no provision in this agreement
that obligates AMEX to act on all cardholder purchase
requests within a specifically defined period of time.
Thus, regardless of whether the obligation is worded was
to act in a matter of seconds or to act in timely dispatch,
the fact remains that no obligation exists on the part of
AMEX to act within a specific period of time. Even
Pantaleon admits in his testimony that he could not recall
any provision in the Agreement that guaranteed AMEXs
approval of his charge requests within a matter of
minutes.[31]
Nor can Pantaleon look to the law or government
issuances as the source of AMEXs alleged obligation to
act upon his credit card purchases within a matter of
seconds. As the following survey of Philippine law on
credit card transactions demonstrates, the State does not
require credit card companies to act upon its cardholders
purchase requests within a specific period of time.
Republic Act No. 8484 (RA 8484), or the Access
Devices Regulation Act of 1998, approved on February
11, 1998, is the controlling legislation
that regulates the issuance and use of access
devices,[32] including credit cards. The more salient
portions of this law include the imposition of the obligation
on a credit card company to disclose certain important
financial information[33] to credit card applicants, as well
as a definition of the acts that constitute access device
fraud.
As financial institutions engaged in the business
of providing credit, credit card companies fall under
the supervisory powers of the Bangko Sentral ng Pilipinas
(BSP).[34] BSP Circular No. 398 dated August 21,
2003 embodies the BSPs policy when it comes to credit
cards
The Bangko Sentral ng Pilipinas
(BSP) shall foster the development of
consumer credit through innovative
products such as credit cards under
conditions of fair and sound consumer
credit practices. The BSP likewise
encourages competition and
transparency to ensure more efficient
delivery of services and fair dealings with
customers. (Emphasis supplied)
Based on this Circular, x x x [b]efore issuing
credit cards, banks and/or their subsidiary credit card
companies must exercise proper diligence by
ascertaining that applicants possess good credit standing
and are financially capable of fulfilling their credit
commitments.[35] As the above-quoted policy expressly
states, the general intent is to foster fair and sound
consumer credit practices.
Other than BSP Circular No. 398, a related
circular is BSP Circular No. 454, issued on September 24,
2004, but this circular merely enumerates the unfair
collection practices of credit card companies a matter not
relevant to the issue at hand.
In light of the foregoing, we find and so hold that
AMEX is neither contractually bound nor legally obligated
to act on its cardholders purchase requests within any
specific period of time, much less a period of a matter of
seconds that Pantaleon uses as his standard. The
standard therefore is implicit and, as in all contracts, must
be based on fairness and reasonableness, read in relation
to the Civil Code provisions on human relations, as will be
discussed below.
AMEX acted with good faith
Thus far, we have already established that: (a)
AMEX had neither a contractual nor a legal obligation to
act upon Pantaleons purchases within a specific period of
time; and (b) AMEX has a right to review a cardholders
credit card history. Our recognition of these
entitlements, however, does not give AMEX an
unlimited right to put off action on cardholders
purchase requests for indefinite periods of time. In
acting on cardholders purchase requests, AMEX must
take care not to abuse its rights and cause injury to its
clients and/or third persons. We cite in this regard Article
19, in conjunction with Article 21, of the Civil Code, which
provide:
Article 19. Every person must, in the
exercise of his rights and in the
performance of his duties, act with
justice, give everyone his due and
observe honesty and good faith.
Article 21. Any person who willfully
causes loss or injury to another in a
manner that is contrary to morals, good
customs or public policy shall
compensate the latter for the damage.
Article 19 pervades the entire legal system and
ensures that a person suffering damage in the course of
anothers exercise of right or performance of duty, should
find himself without relief.[36] It sets the standard for the
conduct of all persons, whether artificial or natural, and
requires that everyone, in the exercise of rights and the
performance of obligations, must: (a) act with justice, (b)
give everyone his due, and (c) observe honesty and good
faith. It is not because a person invokes his rights that he
can do anything, even to the prejudice and disadvantage
of another.[37]
While Article 19 enumerates the standards of
conduct, Article 21 provides the remedy for the person
injured by the willful act, an action for damages. We
explained how these two provisions correlate with each
other in GF Equity, Inc. v. Valenzona:[38]
[Article 19], known to contain
what is commonly referred to as the
principle of abuse of rights, sets certain
standards which must be observed not
only in the exercise of one's rights but
also in the performance of one's duties.
These standards are the following: to act
with justice; to give everyone his due;
and to observe honesty and good faith.
The law, therefore, recognizes a
primordial limitation on all rights; that in
their exercise, the norms of human
conduct set forth in Article 19 must be
observed. A right, though by itself
legal because recognized or granted
by law as such, may nevertheless
become the source of some illegality.
When a right is exercised in a manner
which does not conform with the
norms enshrined in Article 19 and
results in damage to another, a legal
wrong is thereby committed for which
the wrongdoer must be held
responsible. But while Article 19 lays
down a rule of conduct for the
government of human relations and for
the maintenance of social order, it does
not provide a remedy for its violation.
Generally, an action for damages under
either Article 20 or Article 21 would be
proper.
In the context of a credit card relationship, although there
is neither a contractual stipulation nor a specific law
requiring the credit card issuer to act on the credit card
holders offer within a definite period of time, these
principles provide the standard by which to judge AMEXs
actions.
According to Pantaleon, even if AMEX did have a right to
review his charge purchases, it abused this right when it
unreasonably delayed the processing of the Coster
charge purchase, as well as his purchase requests at the
Richard Metz Golf Studio and Kids Unlimited Store;
AMEX should have known that its failure to act
immediately on charge referrals would entail
inconvenience and result in humiliation, embarrassment,
anxiety and distress to its cardholders who would be
required to wait before closing their transactions.[39]
It is an elementary rule in our jurisdiction that
good faith is presumed and that the burden of proving bad
faith rests upon the party alleging it.[40] Although it took
AMEX some time before it approved Pantaleons three
charge requests, we find no evidence to suggest that it
acted with deliberate intent to cause Pantaleon any loss
or injury, or acted in a manner that was contrary to morals,
good customs or public policy. We give credence to
AMEXs claim that its review procedure was done to
ensure Pantaleons own protection as a cardholder and to
prevent the possibility that the credit card was being
fraudulently used by a third person.
Pantaleon countered that this review procedure is
primarily intended to protect AMEXs interests, to make
sure that the cardholder making the purchase has enough
means to pay for the credit extended. Even if this were the
case, however, we do not find any taint of bad faith in such
motive. It is but natural for AMEX to want to ensure that it
will extend credit only to people who will have sufficient
means to pay for their purchases. AMEX, after all, is
running a business, not a charity, and it would simply be
ludicrous to suggest that it would not want to earn profit
for its services. Thus, so long as AMEX exercises its
rights, performs its obligations, and generally acts with
good faith, with no intent to cause harm, even if it may
occasionally inconvenience others, it cannot be held liable
for damages.
We also cannot turn a blind eye to the
circumstances surrounding the Coster transaction which,
in our opinion, justified the wait. In Edgardo Jaurigues
own words:
Q 21: With reference to the transaction at
the Coster Diamond House covered by
Exhibit H, also Exhibit 4 for the
defendant, the approval came at 2:19
a.m. after the request was relayed
at 1:33 a.m., can you explain why the
approval came after about 46 minutes,
more or less?
A21: Because we have to make certain
considerations and evaluations of
[Pantaleons] past spending pattern with
[AMEX] at that time before approving
plaintiffs request because [Pantaleon]
was at that time making his very first
single charge purchase of
US$13,826 [this is below the
US$16,112.58 actually billed and paid for
by the plaintiff because the difference
was already automatically approved by
[AMEX] office in Netherland[s] and the
record of [Pantaleons] past spending
with [AMEX] at that time does not
favorably support his ability to pay for
such purchase. In fact, if the foregoing
internal policy of [AMEX] had been
strictly followed, the transaction would
not have been approved at all
considering that the past spending
pattern of the plaintiff with [AMEX] at that
time does not support his ability to pay for
such purchase.[41]
xxxx
Q: Why did it take so long?
A: It took time to review the account on
credit, so, if there is any delinquencies
[sic] of the cardmember. There are
factors on deciding the charge itself
which are standard measures in
approving the authorization. Now in the
case of Mr. Pantaleon although his
account is single charge purchase of
US$13,826. [sic] this is below the
US$16,000. plus actually billed x x x we
would have already declined the charge
outright and asked him his bank account
to support his charge. But due to the
length of his membership as cardholder
we had to make a decision on hand.[42]
As Edgardo Jaurigue clarified, the reason why
Pantaleon had to wait for AMEXs approval was because
he had to go over Pantaleons credit card history for the
past twelve months.[43] It would certainly be unjust for us
to penalize AMEX for merely exercising its right to review
Pantaleons credit history meticulously.
Finally, we said in Garciano v. Court of
Appeals that the right to recover [moral damages] under
Article 21 is based on equity, and he who comes to court
to demand equity, must come with clean hands. Article 21
should be construed as granting the right to recover
damages to injured persons who are not themselves at
fault.[44] As will be discussed below, Pantaleon is not a
blameless party in all this.
Pantale
ons
action
was the
proxim
ate
cause
for his
injury
Pantaleon mainly anchors his claim for moral and
exemplary damages on the embarrassment and
humiliation that he felt when the European tour group had
to wait for him and his wife for approximately 35 minutes,
and eventually had to cancel the Amsterdam city tour.
After thoroughly reviewing the records of this case, we
have come to the conclusion that Pantaleon is the
proximate cause for this embarrassment and humiliation.
As borne by the records, Pantaleon knew even
before entering Coster that the tour group would have to
leave the store by 9:30 a.m. to have enough time to take
the city tour of Amsterdam before they left the country.
After 9:30 a.m., Pantaleons son, who had boarded the
bus ahead of his family, returned to the store to inform his
family that they were the only ones not on the bus and
that the entire tour group was waiting for them.
Significantly, Pantaleon tried to cancel the sale at 9:40
a.m. because he did not want to cause any
inconvenience to the tour group. However, when
Costers sale manager asked him to wait a few more
minutes for the credit card approval, he agreed, despite
the knowledge that he had already caused a 10-minute
delay and that the city tour could not start without him.
In Nikko Hotel Manila Garden v. Reyes,[45] we
ruled that a person who knowingly and voluntarily
exposes himself to danger cannot claim damages for the
resulting injury:
The doctrine of volenti non fit injuria (to
which a person assents is not esteemed
in law as injury) refers to self-inflicted
injury or to the consent to injury which
precludes the recovery of damages by
one who has knowingly and voluntarily
exposed himself to danger, even if he is
not negligent in doing so.
This doctrine, in our view, is wholly applicable to
this case. Pantaleon himself testified that the most basic
rule when travelling in a tour group is that you must never
be a cause of any delay because the schedule is very
strict.[46] When Pantaleon made up his mind to push
through with his purchase, he must have known that the
group would become annoyed and irritated with him. This
was the natural, foreseeable consequence of his decision
to make them all wait.
We do not discount the fact that Pantaleon and
his family did feel humiliated and embarrassed when they
had to wait for AMEX to approve the Coster purchase
in Amsterdam. We have to acknowledge, however, that
Pantaleon was not a helpless victim in this scenario at any
time, he could have cancelled the sale so that the group
could go on with the city tour. But he did not.
More importantly, AMEX did not violate any legal
duty to Pantaleon under the circumstances under the
principle of damnum absque injuria, or damages without
legal wrong, loss without injury.[47] As we held in BPI
Express Card v. CA:[48]
We do not dispute the findings of
the lower court that private respondent
suffered damages as a result of the
cancellation of his credit card. However,
there is a material distinction between
damages and injury. Injury is the illegal
invasion of a legal right; damage is the
loss, hurt, or harm which results from the
injury; and damages are the recompense
or compensation awarded for the
damage suffered. Thus, there can be
damage without injury in those
instances in which the loss or harm
was not the result of a violation of a
legal duty. In such cases, the
consequences must be borne by the
injured person alone, the law affords no
remedy for damages resulting from an
act which does not amount to a legal
injury or wrong. These situations are
often called damnum absque injuria.
In other words, in order that a
plaintiff may maintain an action for the
injuries of which he complains, he must
establish that such injuries resulted from
a breach of duty which the defendant
owed to the plaintiff - a concurrence of
injury to the plaintiff and legal
responsibility by the person causing
it. The underlying basis for the award
of tort damages is the premise that an
individual was injured in
contemplation of law. Thus, there must
first be a breach of some duty and the
imposition of liability for that breach
before damages may be awarded; and
the breach of such duty should be the
proximate cause of the injury.
Pantaleon is not entitled to damages
Because AMEX neither breached its contract with
Pantaleon, nor acted with culpable delay or the willful
intent to cause harm, we find the award of moral damages
to Pantaleon unwarranted.
Similarly, we find no basis to award exemplary
damages. In contracts, exemplary damages can only be
awarded if a defendant acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.[49] The
plaintiff must also show that he is entitled to moral,
temperate, or compensatory damages before the court
may consider the question of whether or not exemplary
damages should be awarded.[50]
As previously discussed, it took AMEX some time
to approve Pantaleons purchase requests because it had
legitimate concerns on the amount being charged; no
malicious intent was ever established here. In the
absence of any other damages, the award of exemplary
damages clearly lacks legal basis.

Neither do we find any basis for the award of

attorneys fees and costs of litigation. No premium should
be placed on the right to litigate and not every winning
party is entitled to an automatic grant of attorney's
fees.[51] To be entitled to attorneys fees and litigation
costs, a party must show that he falls under one of the
instances enumerated in Article 2208 of the Civil
Code.[52] This, Pantaleon failed to do. Since we eliminated
the award of moral and exemplary damages, so must we
delete the award for attorney's fees and litigation
expenses.

Lastly, although we affirm the result of the CA decision,

we do so for the reasons stated in this Resolution and not
for those found in the CA decision.

WHEREFORE, premises considered, we SET

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

SO ORDERED.