1. G.R. No.

118375 October 3, 2003

CELESTINA T. NAGUIAT, petitioner,

vs.
COURT OF APPEALS and AURORA QUEAÑO, respondents.

FACTS:

Queaño applied with Naguiat a loan for P200,000, which the latter granted.
Naguiat indorsed to Queaño Associated bank a check amounting to P95,000 and
issued also her own Filmanbank Check to the order of Queaño for the amount of
P95,000.

The proceeds of these checks were to constitute the loan granted by Naguiat to
Queaño. To secure the loan, Queaño executed a Deed of Real Estate Mortgage in
favor of Naguiat, and surrendered the owner’s duplicates of titles of the
mortgaged properties.

The deed was notarized and Queaño issued to Naguiat a promissory note for the
amount of P200,000. Queaño also issued a post-dated check amounting to P200,000
payable to the order of Naguait.

The check was dishonoured for insufficiency of funds. After that a demand was
sent to Queaño. Shortly, Queaño, and one Ruby Reubenfeldt met with Naguiat.
Queaño told Naguiat that she did not receive the loan proceeds, adding that the
checks were retained by Reubenfeldt, who purportedly was Naguiat’s agent.

Consequently, Naguiat applied for extrajudicial foreclosure of the mortgage.

RTC RULING:

RTC declared the Deed as null and void and ordered Naguiat to return to Queaño
the owner’s duplicates of titles of the mortgaged lots.

CA RULING:

The Court of Appeals promulgated the decision that affirmed in toto the RTC
decision.

ISSUE:
Whether or not the issuance of check resulted in the perfection of the loan
contract.

RULING:

The Court held in the negative. Article 1934 of the Civil Code provides:

“An accepted promise to deliver something by way of commodatum or simple loan

is binding upon the parties, but the commodatum or simple loan itself shall not
be perfected until the delivery of the object of the contract. A loan contract
is a real contract, not consensual, and as such, is perfected only upon the
delivery of the objects of the contract.”

In this case, the objects of the contract are the loan proceeds which Queaño
would enjoy only upon the encashment of the checks signed or indorsed by Naguiat.
If indeed the checks were encashed or deposited, Naguiat would have certainly
presented the corresponding documentary evidence, such as the returned checks
and the pertinent bank records. Since Naguiat presented no such proof, it
follows that the checks were not encashed or credited to Queaño’s account.

Also, no evidence was submitted by Naguiat that the checks she issued or endorsed
were actually encashed or deposited. The mere issuance of the checks did not
result in the perfection of the contract of loan. The Civil Code provides that
the delivery of bills of exchange and mercantile documents such as checks shall
produce the effect of payment only when they have been cashed. It is only after
the checks have been produced the effect of payment that the contract of loan
may have been perfected.

Moreover, it follows that the mortgage which is supposed to secure the loan is
null and void. The consideration of the mortgage contract is the same as that
of the principal contract from which it receives life, and without which it
cannot exist as an independent contract. A mortgage contract being a mere
accessory contract, its validity would depend on the validity of the loan
secured by it.

2. G.R. No. 160758 January 15, 2014

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,
vs.
GUARIÑA AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION, Respondent.

FACTS:

Respondent Guariña Corporation applied for a loan (P3,387,000.00)

from petitioner DBP for the construction of a resort complex in
Iloilo. Prior to the release of the loan, petitioner required
respondent to put up a cash equity of P1,470,951.00 for the
construction of the buildings and other improvements on the resort
complex.

The loan was released in several installments, which respondent used

to cover the additional improvements. In all, the amount released
totaled P3,003,617.49, from which petitioner withheld P148,102.98 as
interest.

Upon inspection, petitioner found that Guariña had not completed the
construction works and demanded in a letter that respondent expedite
the completion and warned that it would initiate foreclosure
proceedings should they not comply.

The non-action and objection of respondent led DBP to initiate

extrajudicial foreclosure proceedings, which gave its clients and
patrons the impression that business operation had slowed down and
that the resort had closed.

RTC RULING:

Respondent filed a complaint to the RTC to seek the nullification

of the foreclosure proceedings and cancellation of certificate of
sale, which ruled in their favor – rendered the extrajudicial sale
as null and void, ordered petitioner to give back the properties
foreclosed and for respondent to pay back the loan.

CA RULING:

On appeal, the CA sustained the trial court’s decision with the

modification deleting the award of attorney’s fees.

ISSUE:
Whether the respondent is in default when it failed to perform the
terms of the mortgage contract securing the promissory note.

RULING:

No. Petition denied. CA decision is AFFIRMED.

The Court held that the agreement between petitioner and respondent
was a loan, which requires the delivery of money or any other
consumable object by one party to another on the condition that the
same amount or quality shall be paid.

Loan is a reciprocal obligation, as it arises from the same cause

where one party is the creditor, and the other the debtor – which
means that the creditor should release the full loan amount and the
debtor repays it when it becomes due and demandable.

The failure of petitioner to release the proceeds of the loan in its

entirety, gave them no right to demand from respondent to comply
with their obligations. Indeed, if a party in a reciprocal contract
like a loan does not perform its obligation, the other party cannot
be obliged to perform what is expected of it while the other’s
obligation remains unfulfilled. In other words, the latter party
does not incur delay.

In the case at bar, DBP's actuations were legally unfounded. It is true that
loans are often secured by a mortgage constituted on real or personal property
to protect the creditor's interest in case of the default of the debtor. By
its nature, however, a mortgage remains an accessory contract dependent on the
principal obligation, such that enforcement of the mortgage contract will
depend on whether or not there has been a violation of the principal
obligation.

While a creditor and a debtor could regulate the order in which they should
comply with their reciprocal obligations, it is presupposed that in a loan the
lender should perform its obligation - the release of the full loan amount -
before it could demand that the borrower repay the loaned amount.

In other words, Guariña Corporation would not incur in delay before DBP fully
performed its reciprocal obligation.

Considering that it had yet to release the entire proceeds of the loan, DBP
could not yet make an effective demand for payment upon Guariña Corporation
to perform its obligation under the loan.

According to Development Bank of the Philippines v. Licuanan, it would only be

when a demand to pay had been made and was subsequently refused that a
borrower could be considered in default, and the lender could obtain the right
to collect the debt or to foreclose the mortgage. Hence, Guariña Corporation
would not be in default without the demand.

1.
Findings of the CA were supported by the
evidence as well as by law and jurisprudence

2.
The doctrine of law of the case
did not apply herein

3.
Guarifia Corporation is legally entitled to the
restoration of the possession of the resort complex
and payment of reasonable rentals by DBP
3. G.R. No. 205578

GEORGIA OSMEÑA-JALANDONI, Petitioner

vs
CARMEN A. ENCOMIENDA, Respondent

FACTS:

The petitioner Georgia O. Jalandoni met the respondent Carmen A. Encomienda

when the latter was purchasing a condominium unit while the former was then a
real estate broker. From then on, Jalandoni and Encomienda became close
friends.

On March 2, 1997, Jalandoni borrowed an amount of money worth P100,000.00 to

Encomienda. The said amount of money borrowed by Jalandoni is for the purpose
of using it as expenses for the search and rescue operations for her children
who were allegedly taken away by their father, Luis Jalandoni. When the
petitioner was in Manila, she borrowed money again to support errands for the
search and rescue, salaries of her driver, helper, various plane fare,
cellphone bill and many more. On April 1, 1997, the petitioner borrowed
another P1 Million where Jalandoni promised to pay when her bank loan matures.
After the event of borrowing a million, Jalandoni still again and again
borrowed large amount of money to Encomienda. To sum it all, the respondent
spent around P3, 245, 836. 02 and $6, 638. 20 for Jalandoni.

By the time that Jalandoni came back to Cebu, she never informed the
respondent. Bothered by the petitioner’s action, the respondent then filed a
settlement in the Barangay. In the Lupong Tagapamayapa of the Barangay’s
preliminary investigation, Jalandoni attested her debt to Encomienda and even
promised to pay for it after she has talked to her lawyer for the settlement.
But still, no settlement has been done so Encomienda decided to file the case
in the Regional Trial Court of Cebu City. Jalandoni’s defense says that they
never reached a discussion about a loan and all that Encomienda has offered is
purely out of charity. The Cebu City RTC then DISMISSED Encomienda’s
complaint. But it did not stop there, Encomienda brought the case at the Court
of Appeals where the decision of the RTC was REVERSED AND SET-ASIDE. Jalandoni
then filed a Motion for Reconsideration.

ISSUE: Whether or not Encomienda is entitled to be reimbursed for the amounts

she defrayed to Jalandoni?
RULING:

Yes. Article 1236(2) of the Civil Code, provides:

“Whoever pays for another may demand from the debtor what he has paid, except
if he paid without the knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial to the debtor.”

In the case at bar, the petitioner insists that she never borrowed any amount
of money from Encomienda. And that they never reach into a discussion about a
loan. Therefore, all that Encomienda has offered is purely out of charity.
Jalandoni’s biggest contention is that the amounts she received from
Encomienda were mostly provided and paid without her prior knowledge and thus,
she has not consented to any loan agreement. As the foregoing, there is no any
documentary evidence to prove the claims of Encomienda.

However, as what it can be seen, Jalandoni really did benefit from the
unauthorized payments. Although it can be her defense that she is not
knowledgeable of Encomienda’s acts so she was not able to go against it, the
explicit fact that she benefitted from it gives Encomienda then the right to
be paid with the amount of money she also gave to the petitioner.

The Principle of Unjust Enrichment is highly visible in this case. Unjust

Enrichment exists when a person unfairly retains a benefit to the loss of
another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience.

Wherefore, premises considered, the Court DISMISSES the petition for lack of
merit and AFFIRMS the decision of the Court of Appeals, Cebu City dated March
29, 2012 and its Resolution dated December 19, 2012 in CA-G.R. CV No. 01339,
with MODIFICATION as the interest which must be twelve percent (12%) per annum
of the amount awarded from the time of demand on August 14, 1997 to June 30,
2013, and six percent (6%) per annum from July 1, 2013 until its satisfaction.
4. G.R. No. 90270 July 24, 1992

ARMANDO V. SIERRA, petitioner,

vs.
HON. COURT OF APPEALS, EPIFANIA EBARLE, SOL AND ELE EBARLE, respondents.

FACTS:

On November 2, 1984, the petitioner filed a complaint against the private

respondents in the Regional Trial Court of Dumaguete City to seek for recovery
of a sum of money in a promissory note.

At the trial, the petitioner testified that he had lent the private
respondents the sum of P85,000.00 which they said they needed "to pay some
cattle for fattening to be inspected by the inspector of the Land Bank that
day" in connection with their application for a loan of P400,000.00 from the
said bank to finance their logging and cattle business. The application was
apparently not approved. When the note fell due, he made demands for their
payment, which were ignored. He thereupon filed a complaint.

RTC RULING:

On July 21, 1988, the trial court rendered a decision holding that the
promissory note for P85,000.00 was invalid and that the private respondents
were liable to the petitioner only for the loan of P20,000.00.

CA RULING:

On appeal, this decision was affirmed by the respondent court.

ISSUE/S:

Whether or not the Court of Appeals committed reversible error in the

interpretation of the promissory note in light of the established facts.

SC RULING:

Yes. The Rules of Court provide that "when the terms of an agreement have been
reduced to writing, it is to be considered as containing all such terms, and,
therefore, there can be, between the parties and their successors in interest,
no evidence of the terms of the agreement other than the contents of the
writing." It is true that parol evidence may be admitted to challenge the
contents of such agreement "where a mistake or imperfection of the writing, or
its failure to express the true intent and agreement of the parties, or the
validity of the agreement is put in issue by the pleadings." However, such
evidence must be clear and convincing and of such sufficient credibility as to
overturn the written agreement.

In the case at bar, the Court is asked to believe that three highly educated
persons, to acknowledge an alleged debt of only P20,000.00 owed by one of
them, signed on the same day two notarized promissory notes for the total
amount of P139,550.00 on the assurance by the petitioner that it was a mere
"formality." The notes were written in plain English, without the "whereases"
and "wherefores" of the legal idiom, and could not have been misunderstood or
not comprehended by them. What is even worse, the private respondents insist
that when they expressed their hesitation, the petitioner assured them that if
they were sued on the notes, all they should do was allow themselves to be
declared in default and a new and more liberal agreement specifying the
correct amount of their loan would then be concluded. Although they admitted
knowing the meaning of default, they nevertheless accepted this assurance and
freely signed the notes without reservation. None of the three private
respondents tried to dissuade the others when all of them signed the first
note in the morning, and this same acquiescence was repeated when all three of
them, again in common concert, signed the second note that same afternoon.

A promissory note is a solemn acknowledgment of a debt and a formal commitment

to repay it on the date and under the conditions agreed upon by the borrower
and the lender. A person who signs such an instrument is bound to honor it as
a legitimate obligation duly assumed by him through the signature he affixes
thereto as a token of his good faith. If he reneges on his promise without
cause, he forfeits the sympathy and assistance of this Court and deserves
instead its sharp repudiation. So must it be in the case at bar.

WHEREFORE, the appealed decision is REVERSED and SET ASIDE and a new judgment
is hereby rendered requiring the private respondents to pay the petitioner
the sum of P85,000.00, with 12% interest from September 8, 1984, until full
payment, plus P15,000.00 as moral damages and P15,000.00 as attorney's fees.
Costs against the respondents.
5. G.R. No. 171736 July 5, 2010

PENTACAPITAL INVESTMENT CORPORATION, Petitioner,

vs.
MAKILITO B. MAHINAY, Respondent.

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

G.R. No. 181482

PENTACAPITAL INVESTMENT CORPORATION, Petitioner,

vs.
MAKILITO B. MAHINAY, Respondent.

FACTS:

Petitioner filed a complaint for a sum of money against respondent Makilito

Mahinay based on two separate loans obtained by the latter, a total amount of
P1,936,800.00. These loans were evidenced by two promissory notes dated February
23, 1996. Despite repeated demands, respondent failed to pay the loans, hence,
the complaint.

Respondent claimed that petitioner had no cause of action because the promissory
notes on which its complaint was based were subject to a condition that did not
occur. While admitting that he indeed signed the promissory notes, he insisted
that he never took out a loan and that the notes were not intended to be
evidences of indebtedness. By way of counterclaim, respondent prayed for the
payment of moral and exemplary damages plus attorney’s fees.

Respondent explained that he was the counsel of Ciudad Real Development Inc.
(CRDI) and allegedly agreed that the former had a charging lien equivalent to
20% of the total consideration of the sale in the amount of P10,277,040.00.
Pending the submission of the Entry of Judgment and as a sign of good faith,
respondent purportedly returned the P1,715,156.90 check to Pentacapital Realty.
However, the Molino Properties continued to be haunted by the seemingly
interminable court actions initiated by different parties which thus prevented
respondent from collecting his commission.

Admittedly, respondent earlier instituted an action for Specific Performance

against Pentacapital Realty before the RTC of Cebu City, Branch 57, praying for
the payment of his commission on the sale of the Molino Properties. I n an
Amended Complaint, respondent referred to the action he instituted as one of
Preliminary Mandatory Injunction instead of Specific Performance. Acting on
Pentacapital Realty’s Motion to Dismiss, the RTC dismissed the case for lack
of cause of action. The dismissal became final and executory.

However, respondent alleged that petitioner and Pentacapital Realty are one and
the same entity belonging to the Pentacapital Group of Companies.

ISSUE:

Whether or not respondent is bound by the promissory notes?

RULING:

Yes. Under Article 1354 of the Civil Code, it is presumed that consideration
exists and is lawful unless the debtor proves the contrary.

To ascertain whether or not respondent is bound by the promissory notes, it

must be established that all the elements of a contract of loan are present.
Like any other contract, a contract of loan is subject to the rules governing
the requisites and validity of contracts in general. It is elementary in this
jurisdiction that what determines the validity of a contract, in general, is
the presence of the following elements: (1) consent of the contracting parties;
(2) object certain which is the subject matter of the contract; and (3) cause
of the obligation which is established.

In the present case, it appears that the promissory notes clearly stated that
respondent promised to pay petitioner P1,520,000.00 and P416,800.00, plus
interests and penalty charges, a year after their execution. Nowhere in the
notes was it stated that they were subject to a condition.

As correctly observed by petitioner, respondent is not only a lawyer but a law

professor as well. Respondent’s liability is not negated by the fact that he
has uncollected commissions from the sale of the Molino properties. As the
records of the case show, at the time of the execution of the promissory
notes, the Molino properties were subject of various court actions commenced
by different parties.

Thus, the sale of the properties and, consequently, the payment of respondent
’s commissions were put on hold. The non-payment of his commissions could very
well be the reason why he obtained a loan from petitioner.
Aside from the payment of the principal obligation of P1,936,800.00, the parties
agreed that respondent pay interest at the rate of 25% from February 17, 1997
until fully paid.

Such rate, however, is excessive and thus, void. Since the stipulation on the
interest rate is void, it is as if there was no express contract thereon. To be
sure, courts may reduce the interest rate as reason and equity demand. In this
case, 12% interest is reasonable.

The promissory notes likewise required the payment of a penalty charge of 3%

per month or 36% per annum. However, a penalty charge of 3% per month is
unconscionable; hence, we reduce it to 1% per month or 12% per annum.

Lastly, respondent promised to pay 25% of his outstanding obligations as

attorney’s fees in case of non-payment thereof. Attorney’s fees here are in
the nature of liquidated damages. As long as said stipulation does not contravene
law, morals, or public order, it is strictly binding upon respondent.
Nonetheless, courts are empowered to reduce such rate if the same is iniquitous
or unconscionable pursuant to the above-quoted provision.

This sentiment is echoed in Article 2227 of the Civil Code, to wit: Art. 2227.
Liquidated damages, whether intended as an indemnity or a penalty, shall be
equitably reduced if they are iniquitous or unconscionable. Hence, we reduce
the stipulated attorney’s fees from 25% to 10%.

WHEREFORE, premises considered, the petitions are hereby GRANTED. The Decisions
and Resolutions of the Court of Appeals dated December 20, 2005 and March 1,
2006, in CA-G.R. SP No. 74851, and October 4, 2007 and January 21, 2008, in CA-
G.R. CV No. 86939, are REVERSED and SET ASIDE.

Respondent Makilito B. Mahinay is ordered to pay petitioner Pentacapital

Investment Corporation ₱1,936,800.00 plus 12% interest per annum, and 12% per
annum penalty charge, starting February 17, 1997. He is likewise ordered to pay
10% of his outstanding obligation as attorney’s fees. No pronouncement as to
costs.
6. G.R. No. 199161

PHILIPPINE NATIONAL BANK, Petitioner

vs
JAMES T. CUA, Respondent

In Ycong v. Court of Appeals, the petitioners alleged that they did not receive
the proceeds of the loan despite executing a promissory note containing the
words "for a loan received today xxx." The trial court ruled in favor of the
petitioners holding that they were merely intimidated, pressured and coerced
into signing the promissory note. On appeal, the appellate court reversed the
factual findings by the trial court. In sustaining the reversal by the
appellate court, the Court ratiocinated that the promissory note is the best
evidence to prove the existence of the loan and there was no need for the
respondent to submit a separate receipt to prove that the petitioners received
the proceeds thereof.
Similarly, by affixing his signature on PN No. 0011628152240006, dated 26
February 2002, which contained the words "FOR VALUE RECEIVED," James
acknowledged receipt of the proceeds of the loan in the stated amount and
committed to pay the same under the conditions stated therein.

FACTS:

Respondent James T. Cua filed a Complaint for Sum of Money with Damages against
herein petitioner Philippine National Bank (PNB).

James averred that he and his brother maintained a US Dollar Savings Time
Deposit with PNB, evidenced by Certificate of Time Deposit (CTD) No. B-630178
and which replaced CTD No. B- 658788. Later, James learned that he had a loan
obligation with PNB which had allegedly become due and demandable. He
maintained, however, that although he had pre-signed loan documents for pre-
arranged loans with his time deposit as collateral, he had never availed of
its proceeds.

To revive his cash-strapped machine shop business, James requested from PNB
the release of P500,000.00 to be secured by CTD No. B-630178. PNB rejected his
loan application. James inquired about the reason for the denial. PNB explained
that his dollar time deposit had been applied in payment to the loans he had
with the bank, in accordance with the loan application and other documents he
had executed. Thereafter, James demanded the release of his entire dollar time
deposit asserting that he never made use of any loan amount from his pre-
arranged loan from the time he was issued CTD No. B-630178. PNB failed to heed
his demand.

In its Answer, PNB argued that James already made use of his hold-out facility
with PNB and received the proceeds of his loan. PNB explained that James was
considered as one of its valued clients such that when he came to the bank on
certain dates inquiring if he could use the hold-out loan facilities of the
bank, the latter gladly obliged. Hence, immediately after James applied for
the respective loans, the same were granted on the very same day, and the
proceeds released in the form of manager's checks. PNB averred that when the
subject loan fell due, demands to pay were made on James who, however, failed
to heed the demands. Thus, it was prompted to set off James' obligations with
his dollar time deposit with the bank, in accordance with the provisions of
the promissory notes.

RTC RULING:

The RTC ruled in favor of James. It explained that the burden of proof shifted
from James to PNB when the latter asserted an affirmative defense – that the
loan proceeds were released to James and, thus, PNB properly applied his time
deposit as payment of his unpaid loan in accordance with the provisions of the
promissory note. PNB, however, failed to substantiate this affirmative defense.

CA RULING:

The appellate court concurred with the trial court that the burden of proof
shifted to PNB. The appellate court, thus, found no reversible error in the
trial court's disquisition that PNB should be held liable to James.

ISSUE:
Whether James had a loan obligation to PNB

RULING:

Yes. A promissory note is a solemn acknowledgment of a debt and a formal

commitment to repay it on the date and under the conditions agreed upon by the
borrower and the lender. A person who signs such an instrument is bound to
honor it as a legitimate obligation duly assumed by him through the signature
he affixes thereto as a token of his good faith. If he reneges on his promise
without cause, he forfeits the sympathy and assistance of this Court and
deserves instead its sharp repudiation. The promissory note is the best
evidence to prove the existence of the loan.

In this case, James does not deny that he executed several promissory notes
in favor of PNB. In fact, during the pre-trial as well as in his
Comment/Opposition to PNB's formal offer of documentary evidence, James
admitted the genuineness of his signatures as appearing on several promissory
notes, including PN No. 0011628152240006, albeit with the caveat that the same
were pre-signed for pre-arranged loans which he allegedly never availed of.

The trial court apparently believed James' claim that the loan documents were
just pre-signed for pre-arranged loans despite the absence of any corroborating
evidence to support it. As a result, it ruled that PNB, indeed, failed to
prove that the proceeds of the loan subject of the pre-signed loan application
were released to James. The trial court's reliance on James' self-serving
allegation, however, is erroneous.

Nothing in PN No. 0011628152240006 would suggest that it was executed merely

to secure future loans. In fact, it is clear from the wordings used therein
that James acknowledged receipt of the proceeds of the loan. The said
promissory note provides:

FOR VALUE RECEIVED, I/We, solidarily promise to pay to the order of the
PHILIPPINE NATIONAL BANK (the "BANK") on the stipulated due date/s the sum of
Pesos DOLLARS: FIFTY THOUSAND ONLY (P $50,000.00 ) (the "Loan"), together with
interest at 3.85% p.a. per annum. [26] x x x (emphasis supplied)

In Ycong v. Court of Appeals, the petitioners alleged that they did not receive
the proceeds of the loan despite executing a promissory note containing the
words "for a loan received today xxx." The trial court ruled in favor of the
petitioners holding that they were merely intimidated, pressured and coerced
into signing the promissory note. On appeal, the appellate court reversed the
factual findings by the trial court. In sustaining the reversal by the
appellate court, the Court ratiocinated that the promissory note is the best
evidence to prove the existence of the loan and there was no need for the
respondent to submit a separate receipt to prove that the petitioners received
the proceeds thereof.

Similarly, by affixing his signature on PN No. 0011628152240006, dated 26

February 2002, which contained the words "FOR VALUE RECEIVED," James
acknowledged receipt of the proceeds of the loan in the stated amount and
committed to pay the same under the conditions stated therein. As a
businessman, James cannot claim unfamiliarity with commercial documents. He
could not also pretend not understanding the contents of the promissory note
he signed considering that he is a lettered-person and a college graduate. He
certainly understood the import and was fully aware of the consequences of
signing a promissory note. Indeed, no reasonable and prudent man would
acknowledge a debt, and even secure it with valuable assets, if the same does
not exist.

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

SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.

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

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

DOCTRINE:
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.

FACTS:

Saura, Inc. applied to the RFC, for an industrial loan of P500,000.00 which
approved by the latter and to be secured by a mortgage. Loan documents were
executed: the promissory note and the corresponding deed of mortgage, which
was duly registered. Subsequently in a meeting of RFC board to which the
President of Saura, Inc. was present, the loan was reduced to 300,000. Saura
Inc. however that the loan of 500,000 be approved. RFC accepted and approved
the loan application subject to some conditions which Saura admitted it could
not comply with. Correspondence and negotiations came to a halt and Saura,
Inc. did not pursue further and instead requested the cancellation of mortgage
and was delivered to the President of Saura, Inc. Almost nine years after the
mortgage in favor of RFC was cancelled at the request of Saura, Inc., the
latter commenced the present suit for damages, alleging failure of RFC (DBP)
to comply with its obligation to release the proceeds of the loan applied for
and approved, thereby preventing the plaintiff from completing or paying
contractual commitments it had entered into, in connection with its jute mill
project.
ISSUES

1. Whether there was there a perfected consensual contract?

2. Whether there was a real contract of loan which would warrant recovery
of damages arising out of breach of such contract?

HELD
1. Yes. There was indeed a perfected consensual contract, as recognized in
Article 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.

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

2. None. Evidently Saura, Inc. realized that it could not meet the
conditions required by RFC, and so wrote its letter asking that out of
the loan agreed upon the sum of P67,586.09 be released "for raw materials
and labor."

This was a deviation from the terms laid down in Resolution No. 145 and
embodied in the mortgage contract, implying as it did a diversion of
part of the proceeds of the loan to purposes other than those agreed
upon. When RFC turned down the request in its letter the negotiations
which had been going on for the implementation of the agreement reached
an impasse. Saura, Inc. obviously was in no position to comply with
RFC's conditions. So instead of doing so and insisting that the loan be
released as agreed upon, Saura, Inc. asked that the mortgage be
cancelled. The action thus taken by both parties was in the nature of
 mutual desistance — what Manresa terms "mutuo disenso" — which is a
mode of extinguishing obligations. It is a concept that derives from
the principle that since mutual agreement can create a contract, mutual
disagreement by the parties can cause its extinguishment.

8. G.R. No. 133632 February 15, 2002

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

FACTS:

Frank Roa obtained a loan at an interest rate of 16 ¼% per annum from Ayala
Investment and Development Corporation (AIDC), predecessor of BPIIC, for the
construction of a house on his lot. The house and lot were mortgaged to AIDC to
secure the loan. In 1980, Roa sold the house and lot to the ALS Management &
Development Corporation for P850,000,. ALS paid P 350,000 in cash and assumed
the P 500,000 balance of Roa’s indebtedness with AIDC. AIDC
proposed to ALS that it will grant them a new loan of P 500,000 to be applied
to Roa’s debt and secured by the same property, with an increased interest
rate of 20% per annum and service fee of 1% per annum on the outstanding
principal balance payable within ten years. AIDC also added a penalty interest
at the rate of 21% per annum per day from the date the amortization (P 9,996.58
monthly) became due and payable.

On March 31 1981, the private respondents executed a mortgage deed containing

the above stipulations and the monthly amortization commenced on May 1, 1981.
ALS paid Roa’s loan and arrearages by paying P190, 601.35 on August13, 1982
and applying the loan proceeds of P500,000 to the principal balance of Roa’s
loan amounting to P 457,204.90. On September 13, 1982, BPIIC released to ALS P
7,146.87 purporting to be what was left of their loan after full payment of Roa
’s loan.

BPIIC instituted foreclosure proceedings against ALS on the ground that they
failed to pay the mortgage indebtedness from May 1, 1981 to June 30, 1984
amounting to P 475,585.31. ALS argued 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 loan in August and September 1982.

ISSUE:

1. Whether or not the contract of simple loan in this case was perfected on
September 13, 1982, when BPIIC delivered the purported net proceeds of the
loan to ALS.

2. Whether or not the payment of the monthly amortization should commence on

May 1, 1982, as stipulated.

RULING:

1. Yes. 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.

The private respondents were correct when they said that based on Article 1934
of the Civil Code, 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.

2. No. 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.

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. 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.

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

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,

vs.
VENANCIO CONCEPCION, defendant-appellant.

Recaredo Ma. Calvo for appellant.

Attorney-General Villa-Real for appellee.

FACTS:

"Puno y Concepcion, S. en C." was a co-partnership capitalized at P100,000 while

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

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

ISSUE:

1. Whether or not the granting of a credit of PHP 300,000 to the

co-partnership is considered a "loan" within the meaning of section 35 of Act
No. 2747.

RULING:
1. YES. The "credit" of an individual means his ability to borrow money by
virtue of the confidence or trust reposed by a lender that he will pay what he
may promise.

A "loan" means the delivery by one party and the receipt by the other party of
a given sum of money, upon an agreement, express or implied, to repay the sum
loaned, with or without interest. The concession of a "credit" necessarily
involves the granting of "loans" up to the limit of the amount fixed in the
"credit."

In the case at bar, a letter dated August 7, 1916, H. Parker Willis, then
President of the National Bank, inquired of the Insular Auditor whether
section 37 of Act No. 2612 was intended to apply to discounts as well as to
loans.

The ruling of the Acting Insular Auditor, dated August 11, 1916, was to the
effect that said section referred to loans alone, and placed no restriction
upon discount transactions. It becomes material, therefore, to discover the
distinction between a "loan" and a "discount," and to ascertain if the instant
transaction comes under the first or the latter denomination.

Discounts are favored by bankers because of their liquid nature, growing, as

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

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

Hence, on a review of the evidence of record, with reference to the decision

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

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

10. G.R. No. 181873 November 27, 2013

SPOUSES PIO DATO and SONIA Y. SIA, Petitioners,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.

FACTS:

On May 23, 1990, petitioners Spouses Pio Dato (Pio) and Sonia Y. Sia (Spouses
Sia) applied for a ₱240,000.00 loan which was granted by the Bank of the
Philippine Islands (BPI) with a term of six months and secured by a real estate
mortgage over a parcel of land owned by Spouses Sia. Subsequently, on August 8,
1990, Spouses Sia availed of a ₱4 Million Revolving Promissory Note Line with
a term of one year, secured by the same real estate mortgage.

Spouses Sia alleged that their loan was "precipitated by the representation of
the [BPI] that the same will be indorsed to [Industrial Guarantee and Loan Fund]
(IGLF) [in order] for the spouses to be able to avail of a much lower interest
rate and longer payment terms."

Thereafter, Spouses Sia approached BPI through Mona Padilla (Padilla), account
officer of BPI for additional loans and agreed to obtain a Credit Facility of
₱5.7 Million using the same collaterals offered in their previous loans and
four additional parcels of land.

On February 13, 1991, Padilla sent a written reminder to Spouses Sia to settle
all unpaid interest before February 22, 1991. Yet the spouses failed to pay the
same. Their principal loans of ₱240,000.00 and ₱4 Million loan also remained
unsettled. BPI, through Padilla and Assistant Vice President, Danilo A. Quinto
sent another demand letter to them requesting payment of the outstanding loan.
Since, the stated amount were not yet settled, BPI cancelled the ₱5.7 Million
Credit facility then Spouses Sia agreed to sell the lots and use the proceeds
thereof to make partial payments of their loans. Despite the cancellation of
the real estate mortgage, Spouses Sia failed to make good their promise to sell
the lots to pay off their loans.
On August 3, 1993, Spouses Sia filed a complaint with the RTC of Cebu City
praying for the issuance of a temporary restraining order (TRO) to maintain
status quo, award of moral and exemplary damages, attorney’s fees and
litigation costs.

RTC RULING:

The RTC rendered its judgment in favor of BPI and against Spouses Sia, the
dispositive portion of which states:

WHEREFORE, premises all considered, JUDGMENT is hereby rendered in favor of

[BPI] and against Spouses Sia as follows:

1. Dismissing [Spouses Sia’s] complaint, supplemental and amended complaint

for lack of merit; 2. Declaring the extrajudicial foreclosure sale conducted on
August 8, 1993 as valid and binding; 3. Declaring defendant [BPI] as absolute
and legal owner of Lot No. 1 covered by TCT No. 102434 as well as the residential
house and all improvements thereon; 4. Ordering [Spouses Sia] to pay defendant
[BPI’s] counsel the sum of ₱500,000.00 as attorney’s fees; ordering to pay
defendant [BPI] the sum of ₱10,000.00 per month from August 10, 1994 for use
and occupancy of the foreclosed properties until the same are vacated and
possession delivered to defendant [BPI]; to pay the sum of ₱1,000,000.00 as
exemplary damages so as to prevent others from following [Spouses Sia’s] filing
a suit to prevent payment of a just and valid debt; the sum of ₱2,000,000.00 as
compensatory damages; the sum of ₱50,000.00 as litigation expenses as well as
costs of the suit.

SO ORDERED.

CA RULING:

The CA rendered its Decision on July 25, 2007, affirming the RTC Decision with
Modification, as follows:

WHEREFORE, in view of the foregoing, the instant appeal is PARTLY GRANTED. The
Decision of the Regional Trial Court is hereby AFFIRMED with MODIFICATIONS by
deleting the award to BPI of compensatory and exemplary damages.

SO ORDERED.

ISSUE/S:
1. WHETHER THE CA ERRED IN HOLDING THAT BPI DID NOT BREACH ITS CONTRACT WITH
SPOUSES SIA CONCERNING THE IGLF ENDORSEMENT

2. WHETHER THE CANCELLATION OF THE ₱5.7 MILLION CREDIT FACILITY OF SPOUSES SIA
RAISES A LEGAL ISSUE

SC RULING/S:

1. BPI did not commit Breach of Contract. By the admission of the due execution
of a document, it means that the party whose signature it bears admits that he
signed it voluntarily or that it was signed by another for him and with his
authority; and by the admission of the genuineness of the document, it means
that the party whose signature it bears admits that at the time it was signed
it was in the words and figures exactly as set out in the pleading of the party
relying upon it.

Since both the RTC and the CA found no evidence on record to support Spouses
Sia’s bare assertions that the endorsement to IGLF is a condition precedent to
their contract of loan with BPI, the Court is inclined to disregard Spouses
Sia’s contentions on this score.

2. There is no legal issue as regard to the cancellation of the ₱5.7 Million.

A credit line is "that amount of money or merchandise which a banker, merchant,

or supplier agrees to supply to a person on credit and generally agreed to in
advance." It is the fixed limit of credit granted by a bank, retailer, or credit
card issuer to a customer, to the full extent of which the latter may avail
himself of his dealings with the former but which he must not exceed and is
usually intended to cover a series of transactions in which case, when the
customer’s line of credit is nearly exhausted, he is expected to reduce his
indebtedness by payments before making any further drawings.

In the case at bar, Sps. Sia admitted that they have not updated the interest
due for their loans and in fact, they intentionally stopped servicing the
interest, more particularly for the ₱4,000,000.00 loan because of the alleged
breach of contract by BPI.

Thus, contrary to the belief and understanding of Spouses Sia, BPI does not
have to require the execution of promissory note of the entire ₱5.7 Million
since a credit line as stated above, is merely a fixed limit of credit.
Furthermore, still applying the above quoted definition, a credit line usually
presupposes a series of transactions until the credit line is nearly exhausted.
BPI is not obliged to release the amount of ₱5.7 Million to Spouses Sia all at
once, in a single transaction.

In any case, the extrajudicial foreclosure which is the subject of the present
case pertains to Spouses Sia’s failure to pay their ₱240,000.00 and ₱4 Million
loans.

It is a settled rule of law that foreclosure is proper when the debtors are in
default of the payment of their obligation. As the CA had appositely considered,
due to Spouses Sia’s failure to pay their loans covered by Promissory Notes
(PN) Nos. 90/98 and 90/152, the extrajudicial foreclosure of the real estate
mortgage is valid and binding against them.

The Court is in consonance with the CA and RTC that BPI is entitled to receive
rental fees as the new owner of the property covered by TCT No. 102434 (Now TCT
No. 130468), following the Court’s ruling in F. David Enterprises v. Insular
Bank of Asia and America, that the buyer in a foreclosure sale becomes the
absolute owner of the property purchased if it is not redeemed during the period
of one year after the registration of the sale.

Also, the Court agrees with the RTC and CA that the award of attorney’s fees
and litigation expenses is warranted owing to the fact that BPI was compelled
to engage the services of a counsel to protect its rights.

It is so stated under Article 2208 of the Civil Code that attorney’s fees and
expenses of litigation may be recovered by a party when an act or omission has
compelled him to litigate with third persons or to incur expenses to protect
his interest. However, the Court deems the award of ₱500,000.00 as attorney’s
fees and ₱50,000 for litigation expenses, as excessive, considering the nature
of this case. Award of attorney’s fees, being part of a party’s liquidated
damages, may be equitably reduced.

WHEREFORE, the instant petition is DENIED. The Decision dated July 25, 2007 and
Resolution dated February 8, 2008 of the Court of Appeals are AFFIRMED with
MODIFICATIONS. The award of attorney’s fees and litigation expenses are hereby
reduced to ₱50,000.00.

The prayer for the issuance of a Temporary Restraining Order/Writ of Preliminary

Injunction is DENIED.
11. [G.R. NO. 137232 : June 29, 2005]

ROSARIO TEXTILE MILLS CORPORATION and EDILBERTO YUJUICO, Petitioners, v. HOME

BANKERS SAVINGS AND TRUST COMPANY, Respondent.

A trust receipt is a security agreement pursuant to which a bank acquires a

‘security interest’ in the goods. In Vintola vs. Insular Bank of Asia and
America, we elucidated further that “a trust receipt, therefore, is a security
agreement, pursuant to which a bank acquires a ‘security interest’ in the
goods. It secures an indebtedness and there can be no such thing as security
interest that secures no obligation.”

FACTS:

Sometime in 1989, Rosario Textile Mills Corporation (RTMC) applied from Home
Bankers Savings & Trust Co. for an Omnibus Credit Line for P10 million. The
bank approved RTMC’s credit line but for only P8 million. The bank notified
RTMC of the grant of the said loan thru a letter dated March 2, 1989 which
contains terms and conditions conformed by RTMC thru Edilberto V. Yujuico. On
March 3, 1989, Yujuico signed a Surety Agreement in favor of the bank, in which
he bound himself jointly and severally with RTMC for the payment of all RTMC’
s indebtedness to the bank from 1989 to 1990. RTMC availed of the credit line
by making numerous drawdowns, each drawdown being covered by a separate
promissory note and trust receipt. RTMC, represented by Yujuico, executed in
favor of the bank a total of eleven (11) promissory notes.

Yujuico contend that he should be absolved from liability. They claimed that
although the grant of the credit line and the execution of the suretyship
agreement. They alleged that the bank gave assurance that the suretyship
agreement was merely a formality under which Yujuico will not be personally
liable. He theorized that when RTMC imported the raw materials needed for its
manufacture, using the credit line, it was merely acting on behalf of the bank,
the true owner of the goods by virtue of the trust receipts.

ISSUE: Whether or not Yujuico is absolved from liability by the grant of the
credit line and the execution of the suretyship agreement

RULING:
No. Yujuico’s argument conveniently ignores the true nature of its transaction
with the bank. A trust receipt is a security agreement pursuant to which a bank
acquires a ‘security interest’ in the goods.

In Vintola vs. Insular Bank of Asia and America, we elucidated further that “a
trust receipt, therefore, is a security agreement, pursuant to which a bank
acquires a ‘security interest’ in the goods. It secures an indebtedness and
there can be no such thing as security interest that secures no obligation.”

In Samo vs. People, we described a trust receipt as “a security transaction

intended to aid in financing importers and retail dealers who do not have
sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported or purchased.”

“If under the trust receipt, the bank is made to appear as the owner, it was
but an artificial expedient, more of legal fiction than fact, for if it were
really so, it could dispose of the goods in any manner it wants, which it cannot
do, just to give consistency with purpose of the trust receipt of giving a
stronger security for the loan obtained by the importer. To consider the bank
as the true owner from the inception of the transaction would be to disregard
the loan feature thereof.

RTMC filed with the bank an application for a credit line in the amount of P10
million, but only P8 million was approved. RTMC then made withdrawals from this
credit line and issued several promissory notes in favor of the bank. In banking
and commerce, a credit line is “that amount of money or merchandise which a
banker, merchant, or supplier agrees to supply to a person on credit and
generally agreed to in advance.”

It is the fixed limit of credit granted by a bank, retailer, or credit card

issuer to a customer, to the full extent of which the latter may avail himself
of his dealings with the former but which he must not exceed and is usually
intended to cover a series of transactions in which case, when the customer’s
line of credit is nearly exhausted, he is expected to reduce his indebtedness
by payments before making any further drawings.

12. G.R. No. L-50550-52 October 31, 1979

CHEE KIONG YAM, AMPANG MAH, ANITA YAM JOSE Y.C. YAM AND RICHARD
YAM, petitioners,
vs.
HON. NABDAR J. MALIK, Municipal Judge of Jolo, Sulu (Branch I), THE PEOPLE OF
THE PHILIPPINES, ROSALINDA AMIN, TAN CHU KAO and LT. COL. AGOSTO
SAJOR respondents.

FACTS:

Petitioners filed a petition for certiorari, prohibition and mandamus with

preliminary injunction against the respondent Judge Malik who ruled that several
cases of estafa filed against the petitioners should be admitted for trial in
his sala. It must be noted that all complainants admitted that the money which
the petitioners did not return were obtained from them by the latter in a form
of loans.

ISSUE: Can there be a crime of estafa for non-payment of a loan?

RULING:

No. In order that a person be convicted of Swindling (Estafa) under Art. 315 of
the Revised Penal Code, it must be proven that he has the obligation to deliver
or return the same money, goods or personal property that he received.
Petitioners had no such obligation to return the same money, i.e., the bills or
coins, which they received from private respondents.

This is so because as clearly stated in criminal complaints, the related civil

complaints and the supporting sworn statements, the sums of money that
petitioners received were loans.

In U.S. vs. Ibañez, 19 Phil. 559, 560 (1911), the Supreme Court held that it is
not estafa for a person to refuse to pay his debt or to deny its existence.

It is the opinion of the Court that when the relation is purely that of debtor
and creditor, the debtor can not be held liable for the crime of estafa, under
said article, by merely refusing to pay or by denying the indebtedness.

It appeared that respondent judge failed to appreciate the distinction between

the two types of loan, mutuum and commodatum, when he performed the questioned
acts. As clearly stated in the complaints, the sums were given to them as loans;
more specifically, simple loans as defined in NCC 1933 and 1953. Judge Malik
mistook the transaction between petitioners and private respondents to be
commodatum wherein the borrower does not acquire ownership over the thing
borrowed and has the duty to return the same thing to the lender.

In simple loan, the borrower acquires ownership of the thing borrowed. As owner,
the borrower can dispose of the thing borrowed and his act will not be considered
misappropriation.

13. G.R. No. L-8321 October 14, 1913

ALEJANDRA MINA, ET AL., plaintiffs-appellants,

vs.
RUPERTA PASCUAL, ET AL., defendants-appellees.

N. Segundo for appellants.

Iñigo Bitanga for appellees.

FACTS:

Andres Fontanilla, with the consent of his brother Francisco, erected a stone
warehouse on a part of the lot owned by the latter without consideration. Upon
the death of Andres and brothers, Alejandra Mina, et al. for Francisco and
Ruperta Pascual, et al. for Andres become their respective heirs. Mina, et al.
file an action to declare the sale of the lot, where the warehouse stands,
between Ruperta to Cu Joco as null and void and of no force and effect after
the trial court annulled the possession for the reason that it affected Cu Joco
who is not a party to the suit despite the ruling of the Supreme Court that the
subject lot and the warehouse belonged to the Mina, et al. in a separate
proceeding. Both parties in the ninth paragraph of the facts submitted to the
Court agree that there existed, and still exists, a commodatum under which
Pascual, et al. held the lot.

ISSUE: Whether or not the agreement entered into by the brothers Fontanilla is
one of commodatum.

RULING:

No. The Court held that although both litigating parties may have agreed in
their idea of the commodatum yet that denomination given by them to the use of
the lot granted by Francisco Fontanilla to his brother, Andres Fontanilla, is
not acceptable. Contracts are not to be interpreted in conformity with the name
that the parties thereto agree to give them, but must be construed, duly
considering their constitutive elements, as they are defined and denominated by
law.

It is an essential feature of the commodatum that the use of the thing belonging
to another shall for a certain period. Francisco Fontanilla did not fix any
definite period or time during which Andres Fontanilla could have the use of
the lot whereon the latter was to erect a stone warehouse of considerable value,
and so it is that for the past thirty years of the lot has been used by both
Andres and his successors in interest. The present contention of the plaintiffs
that Cu Joco, now in possession of the lot, should pay rent for it at the rate
of P5 a month, would destroy the theory of the commodatum sustained by them,
since, according to the second paragraph of article 1740, "commodatum is
essentially gratuitous," and, if what the plaintiffs themselves aver on page 7
of their brief is to be believed, it never entered Francisco's mind to limit
the period during which his brother Andres was to have the use of the lot,
because he expected that the warehouse would eventually fall into the hands of
his son, Fructuoso Fontanilla, called the adopted son of Andres, which did not
come to pass for the reason that Fructuoso died before his uncle Andres. With
that expectation in view, it appears more likely that Francisco intended to
allow his brother Andres a surface right; but this right supposes the payment
of an annual rent, and Andres had the gratuitous use of the lot.
14. G.R. No. L-17474 October 25, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

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

FACTS:

Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau
of Animal Industry three bulls for a period of one year subject to a government
charge of breeding fee of 10% of the book value of the bulls. Upon the expiration
on 7 May 1949 of the contract, the borrower asked for a renewal for another
period of one year. However, was approved a renewal thereof of only one bull
for another year from 8 May 1949 to 7 May 1950 and requested the return of the
other two. Jose V. Bagtas failed to pay the book value of the three bulls or to
return them. In the Court of First Instance of Manila the Republic of the
Philippines commenced an action against him praying that he be ordered to return
the three bulls loaned to him or to pay their book value in the total sum of
P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with interests,
and costs; and that other just and equitable relief be granted.

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

The appellant contends that the Sahiniwal bull was accidentally killed during
a raid by the Huk in November 1953 upon the surrounding barrios of Hacienda
Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such
death was due to force majeure she is relieved from the duty of returning the
bull or paying its value to the appellee. The contention is without merit. The
loan by the appellee to the late defendant Jose V. Bagtas of the three bulls
for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949,
later on renewed for another year as regards one bull, was subject to the
payment by the borrower of breeding fee of 10% of the book value of the bulls.
The appellant contends that the contract was commodatum and that, for that
reason, as the appellee retained ownership or title to the bull it should suffer
its loss due to force majeure.

ISSUE:

Whether the borrowing of the Bull from the appellee is a commodatum contract
and that, for that reason, as the appellee retained ownership or title to the
bull it should suffer its loss due to force majeure.?

RULING:

No, a contract of commodatum is essentially gratuitous. If the breeding fee be

considered a compensation, then the contract would be a lease of the bull. Under
article 1671 of the Civil Code the lessee would be subject to the
responsibilities of a possessor in bad faith, because she had continued
possession of the bull after the expiry of the contract. And even if the contract
be commodatum, still the appellant is liable, because article 1942 of the Civil
Code provides that a bailee in a contract of commodatum is liable for loss of
the things, even if it should be through a fortuitous event:

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

(3) If the thing loaned has been delivered with appraisal of its value, unless
there is a stipulation exempting the bailee from responsibility in case of a
fortuitous event;
15. G.R. No. L-46145 November 26, 1986

REPUBLIC OF THE PHILIPPINES (BUREAU OF LANDS), petitioner,

vs.
THE HON. COURT OF APPEALS, HEIRS OF DOMINGO P. BALOY, represented by RICARDO
BALOY, ET AL., respondents.

Pelaez, Jalondoni, Adriano and Associates for respondents.

FACTS:

The heirs of Domingo Baloy, represented by Ricardo Baloy, filed an application

for land registration with a possessory title acquired under the provisions of
the Spanish Mortgage Law. The Court of First Instance of Zambales, denied the
application thus it was interposed on appeal to the Court of Appeals. The
appellate court, thru its Fifth Division reversed the decision and approved
the application for registration. The petitioners filed their Motion for
reconsideration and was denied.

A communication/letter which contains an official statement, recognizes the

fact that Domingo Baloy and/or his heirs have been in continuous possession of
the said land since 1894, as attested by an “Informacion Possessoria” Title,
which was granted by the Spanish Government. And was interrupted only by the
occupation of the land by the US Navy in 1945.

ISSUES:

1. Whether or not there is a need for a court order for a private land to be
deemed to have become public land.

2. Whether the occupancy of the US Navy over the subject land is in the concept
of an owner, hence, such possession cannot be acquired by prescription.

SC RULING/S:

1. Yes. Under Sec 3 Act 827. Private land could be deemed to have become public
land by virtue of a judicial declaration after due process and hearing. Without
a judgement or order declaring the land to be public, its private character and
the possessory information title over it must be respected.

2. No. The occupancy of the US Navy was not in the concept of owner. It partakes
of the character of a commodatum.
In the case at bar, during the interim of 57 years from November 26, 1902 to
December 17, 1959 the possessory rights of Baloy or his heirs were merely
suspended and not lost by prescription.

One’s ownership of a thing may be lost by prescription by reason of another’s

possession if such possession be under claim of ownership, not where the
possession is only intended to be transient, in which case the owner is not
divested of his title, although it cannot be exercised in the meantime.
16. G.R. No. 115324 February 19, 2003

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner,

vs.
HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.

FACTS:

Vives (will be the creditor in this case) was asked by his friend Sanchez to
help the latter’s friend, Doronilla (will be the debtor in this case) in
incorporating Doronilla’s business “Strela”. This “help” basically
involved Vives depositing a certain amount of money in Strela’s bank account
for purposes of incorporation (rationale: Doronilla had to show that he had
sufficient funds for incorporation). This amount shall later be returned to
Vives.

Relying on the assurances and representations of Sanchez and Doronilla, Vives

issued a check of P200,00 in favor of Strela and deposited the same into
Strela’s newly-opened bank account (the passbook was given to the wife of
Vives and the passbook had an instruction that no withdrawals/deposits will
be allowed unless the passbook is presented).

Later on, Vives learned that Strela was no longer holding office in the address
previously given to him. He later found out that the funds had already been
withdrawn leaving only a balance of P90,000. The Vives spouses tried to withdraw
the amount, but it was unable to since the balance had to answer for certain
postdated checks issued by Doronilla.

Doronilla made various tenders of check in favor of Vives in order to pay his
debt. All of which were dishonored.

Hence, Vives filed an action for recovery of sum against Doronilla, Sanchez,
Dumagpi and Producer’s Bank.

TC & CA: ruled in favor of Vives.

ISSUE:
 1. Whether or not the transaction is a commodatum or a mutuum. COMMODATUM

2. Whether or not the fact that there is an additional P 12,000 (allegedly

representing interest) in the amount to be returned to Vives converts
the transaction from commodatum to mutuum. NO.

3. Whether or not Producer’s Bank is solidarily liable to Vives, considering

that it was not privy to the transaction between Vives and Doronilla.
YES.

RULING:

(1) The transaction is a commodatum.

CC 1933 (the provision distinguishing between the two kinds of loans) seem
to imply that if the subject of the contract is a consummable thing, such
as money, the contract would be a mutuum.

However, there are instances when a commodatum may have for its object a
consummable thing. Such can be found in CC 1936 which states that “
consummable 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”.

In this case, the intention of the parties was merely for exhibition. Vives
agreed to deposit his money in Strela’s account specifically for purpose
of making it appear that Streal had sufficient capitalization for
incorporation, with the promise that the amount should be returned withing
30 days.

(2) CC 1935 states that “the bailee in commodatum acquires the use of the
thing loaned but not its fruits”. In this case, the additional P 12,000
corresponds to the fruits of the lending of the P 200,000.

Atienza, the Branch Manager of Producer’s Bank, allowed the withdrawals on

the account of Strela despite the rule written in the passbook that neither a
deposit, nor a withdrawal will be permitted except upon the production of the
passbook (recall in this case that the passbook was in the possession of the
wife of Vives all along). Hence, this only proves to show that Atienza allowed
the withdrawals because he was party to Doronilla’s scheme of defrauding
Vives.

By virtue of CC 2180, PNB, as employer, is held primarily and solidarily liable

for damages caused by their employees acting within the scope of their assigned
tasks. Atienza’s acts, in helping Doronilla, a customer of the bank, were
obviously done in furtherance of the business of the bank, even though in the
process, Atienza violated some rules.

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

COLITO T. PAJUYO, petitioner,

vs.
COURT OF APPEALS and EDDIE GUEVARRA, respondents.

FACTS:

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.

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.

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.

CA: 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. Pajuyo and
Guevarra are in pari delicto or in equal fault. The court will leave them where
they are.

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 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.
ISSUE:

Whether or not the CA erred or abused its authority and discretion tantamount
to lack of jurisdiction in ruling that the Kasunduan voluntarily entered into
by the parties was in fact a commodatum, instead of a Contract of Lease as found
by the Metropolitan Trial Court and in holding that the ejectment case filed
against defendant-appellant is without legal and factual basis.

RULING:

The Court do not subscribe to the CA’s 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. 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. Thus, the bailor cannot demand the return of the thing loaned until
after expiration of the period stipulated, or after accomplishment of the use
for which the commodatum is constituted. If the bailor should have urgent need
of the thing, he may demand its return for temporary use. 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. Under
the Civil Code,(Article 1947(2)) precarium is a kind of commodatum.

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. 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. These contracts certainly involve
the obligation to deliver or return the thing received.

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

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

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

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

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

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

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

Office of the Solicitor General for plaintiff-appellee.

FACTS:

Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau
of Animal Industry three bulls for a period of one year subject to a government
charge of breeding fee of 10% of the book value of the bulls. Upon the expiration
on 7 May 1949 of the contract, the borrower asked for a renewal for another
period of one year. However, was approved a renewal thereof of only one bull
for another year from 8 May 1949 to 7 May 1950 and requested the return of the
other two. Jose V. Bagtas failed to pay the book value of the three bulls or to
return them. In the Court of First Instance of Manila the Republic of the
Philippines commenced an action against him praying that he be ordered to return
the three bulls loaned to him or to pay their book value in the total sum of
P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with interests,
and costs; and that other just and equitable relief be granted.

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

The appellant contends that the Sahiniwal bull was accidentally killed during
a raid by the Huk in November 1953 upon the surrounding barrios of Hacienda
Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such
death was due to force majeure she is relieved from the duty of returning the
bull or paying its value to the appellee. The contention is without merit. The
loan by the appellee to the late defendant Jose V. Bagtas of the three bulls
for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949,
later on renewed for another year as regards one bull, was subject to the
payment by the borrower of breeding fee of 10% of the book value of the bulls.
The appellant contends that the contract was commodatum and that, for that
reason, as the appellee retained ownership or title to the bull it should suffer
its loss due to force majeure.

ISSUE:

Whether the borrowing of the Bull from the appellee is a commodatum contract
and that, for that reason, as the appellee retained ownership or title to the
bull it should suffer its loss due to force majeure.?

RULING:
No, A contract of commodatum is essentially gratuitous. If the breeding fee be
considered a compensation, then the contract would be a lease of the bull. Under
article 1671 of the Civil Code the lessee would be subject to the
responsibilities of a possessor in bad faith, because she had continued
possession of the bull after the expiry of the contract. And even if the contract
be commodatum, still the appellant is liable, because article 1942 of the Civil
Code provides that a bailee in a contract of commodatum is liable for loss of
the things, even if it should be through a fortuitous event:

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

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

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

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,

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

Valdez, Ereso, Polido & Associates for petitioner.

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

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

Cotabato Law Office for the Heirs of Juan Valdez.

FACTS:

Catholic Vicar of the Mountain Province (Vicar for brevity) filed with the CFI
of Baguio, Benguet an application for registration of title for Lots 1,2,3 and
4 of Psu-194357 situated at Poblacion Central, La Trinidad, Benguet. Said lots
being the sites of the Catholic Church building, convents, school, etc.
Upon learning of the application, the Heirs of Juan Valdez and the Heirs of
Emigdio Octaviano filed an Answer/Opposition thereto on Lots 2 and
3,respectively, asserting ownership and title thereto.

The land registration court promulgated its decision confirming the registrable
title to Vicar. Both heirs of Valdez and Octaviano appealed to the Court of
Appeals.

CA RULING:

The CA modified the decision of the land registration court and found that Lots
2 and 3 were possessed by the predecessors-in-interest of private respondents
under claim of ownership in good faith from 1906 to 1951; that Vicar has been
in possession of the same lots as bailee in commodatum up to 1951, when Vicar
repudiated the trust and when it applied for registration in1962; that Vicar
had just been in possession as owner for 11years, hence there is no possibility
of acquisitive prescription which requires 10 years possession with just title
and 30 years possession without.

The appellate court did not believe the findings of the trial court that Lot 2
was acquired from Juan Valdez by purchase and Lot 3 was acquired also by
purchase from Egmidio Octaviano by petitioner Vicar because there was
absolutely no documentary evidence to support the same and the alleged
purchases were never mentioned in the application for registration.

ISSUE: Whether or not petitioner Vicar's failure to return the subject

property to private respondents would constitute an adverse possession that
would entitle Vicar to have a just title over the questioned lots.

RULING:

Private respondents were able to prove that their predecessors' house was
borrowed by petitioner Vicar after the church and the convent were destroyed.
They never asked for the return of the house, but when they allowed its free
use, they became bailors in commodatum and the petitioner the bailee.

The bailees' failure to return the subject matter of commodatum to the bailor
did not mean adverse possession on the part of the borrower. The bailee held
in trust the property subject matter of commodatum.
The adverse claim of petitioner came only in 1951 when it declared the lots for
taxation purposes. The action of petitioner Vicar by such adverse claim could
not ripen into title by way of ordinary acquisitive prescription because of
the absence of just title.

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

20. G.R. No. L-4150 February 10, 1910

FELIX DE LOS SANTOS, plaintiff-appelle,

vs.
AGUSTINA JARRA, administratrix of the estate of Magdaleno Jimenea,
deceased, defendant-appellant.

Matias Hilado, for appellant.

Jose Felix Martinez, for appellee.

FACTS:

Plaintiff Felix delos Santos filed this suit against Agustina Jarra. Jarra was
the administratix of the estate of Jimenea. Plaintiff alleged that he owned 10
1st class carabaos which he lent to his father-in-law Jimenea to be used in
the animal-power mill without compensation. This was done on the condition of
their return after the work at the latter’s mill is terminated. When delos
Santos demanded the return of the animals Jimenea refused, hence this suit.

ISSUE:

W/N the contracts is one of a commodatum

RULING:

YES. The carabaos were given on commodatum as these were delivered to be used
by defendant. Upon failure of defendant to return the cattle upon demand, he
is under the obligation to indemnify the plaintiff by paying him their value.
Since the 6 carabaos were not the property of the deceased or of any of his
descendants, it is the duty of the administratrix of the estate to either
return them or indemnify the owner thereof of their value.

The Civil Code, in dealing with loans in general, from which generic denomination
the specific one of commodatum is derived, establishes prescriptions in relation
to the last-mentioned contract by the following articles:
ART. 1740. By the contract of loan, one of the parties delivers to the other,
either anything not perishable, in order that the latter may use it during a
certain period and return it to the former, in which case it is called
commodatum, or money or any other perishable thing, under the condition to
return an equal amount of the same kind and quality, in which case it is merely
called a loan.
Commodatum is essentially gratuitous.
A simple loan may be gratuitous, or made under a stipulation to pay interest.
ART. 1741. The bailee acquires retains the ownership of the thing loaned. The
bailee acquires the use thereof, but not its fruits; if any compensation is
involved, to be paid by the person requiring the use, the agreement ceases to
be a commodatum.
ART. 1742. The obligations and rights which arise from the commodatum pass to
the heirs of both contracting parties, unless the loan has been in consideration
for the person of the bailee, in which case his heirs shall not have the right
to continue using the thing loaned.
The carabaos delivered to be used not being returned by the defendant upon
demand, there is no doubt that she is under obligation to indemnify the owner
thereof by paying him their value.
Article 1101 of said code reads:
Those who in fulfilling their obligations are guilty of fraud, negligence, or
delay, and those who in any manner whatsoever act in contravention of the
stipulations of the same, shall be subjected to indemnify for the losses and
damages caused thereby.

21. G.R. No. L-6648 July 25, 1955

VICTORIAS PLANTERS ASSOCIATION, INC., NORTH NEGROS PLANTERS ASSOCIATION,

INC., FERNANDO GONZAGA, JOSE GASTON and CESAR L. LOPEZ, on their own behalf
and on behalf of other sugar cane planters in Manapla, Cadiz and Victorias
Districts, petitioners-appellees,
vs.
VICTORIAS MILLING CO., INC., respondent-appellant.
Ross, Selph, Carrascoso and Janda for appellant.
Tañada, Pelaez and Teehankee for appellees.

FACTS:

Several sugarcane farmers in Negros Occidental entered into a contract with the
North Negros Sugar Co. In. and Victorias Milling Co. Inc. wherein said
corporation will construct a sugar central or mill with the capacity of milling
300 tons of sugar every 24 hours. In the said contract it is stipulated that
the sugar cane planter’s produce will be milled by the said corporation for
the period of 30 years. During the World War II comprising of 4 years and the
post war period comprising of 2 years the petitioners was not able to produce
sugarcane and the sugar central is destroyed. The North Central Sugar Co. Inc.
did not reconstruct its destroyed mill but rather made an arrangement with the
planters that their produce will be milled by Victorias Milling Co. Inc. herein
respondent. In view of the 30-year period of the milling contract the petitioner
contended that the contract is deemed terminated. On the other hand the
respondent stated that the contract speaks of “30 years milling period” not
“30 years in time” and in view of the failure of the petitioners to produce
sugarcane during the war and post war they still have 6 years milling period.
The trial court ruled in favor of the petitioners

ISSUE:

Is the occurrence of war (fortuitous event ) relieved the petitioners from

their obligation?

RULING:

Yes, considering that war is a force majeure or a fortuitous event, the obligee
has no legal right compel the obligor to perform his obligation.

Fortuitious event relieves the obligor from fulfilling a contractual obligation.

The fact that the contracts make reference to "first milling" does not make the
period of thirty years one of thirty milling years.

Furthermore it is impossible in this case for the petitioner to produce crops

(Nemo tenetor ad impossibilia) and the fulfillment of that impossible, if
granted will amount to the extension of the contract. Therefore the judgment
appealed is affirmed.
22. G.R. No. 176858 : September 15, 2010

HEIRS OF JUANITA PADILLA, represented by CLAUDIO

PADILLA, Petitioners, v. DOMINADOR MAGDUA, Respondent.

FACTS:

Juanita Padilla (Juanita), the mother of petitioners, owned a piece of land

located in San Roque, Tanauan, Leyte. After Juanita’s death on 1989,
petitioners, as legal heirs of Juanita, sought to have the land partitioned.
Petitioners sent word to their eldest brother Ricardo Bahia (Ricardo) regarding
their plans for the partition of the land. In a letter dated 5 June 1998
written by Ricardo addressed to them, petitioners were surprised to find out
that Ricardo had declared the land for himself, prejudicing their rights as co-
heirs. It was then discovered that Juanita had allegedly executed a notarized
Affidavit of Transfer of Real Property[4] (Affidavit) in favor of Ricardo on 4
June 1966 making him the sole owner of the land. The records do not show that
the land was registered under the Torrens system.

On 26 October 2001, petitioners filed an action with the RTC for recovery of
ownership, possession, partition and damages. Petitioners sought to declare
void the sale of the land by Ricardo’s daughters, Josephine Bahia and Virginia
Bahia-Abas, to respondent Dominador Magdua (Dominador). The sale was made
during the lifetime of Ricardo.

The RTC dismissed the case on the ground of prescription; that the case was
filed only in 2001 or more than 30 years since the Affidavit was executed in
1966. The RTC explained that while the right of an heir to his inheritance is
imprescriptible, yet when one of the co-heirs appropriates the property as his
own to the exclusion of all other heirs, then prescription can set in.

ISSUE:

WON the action for partition has prescribed.

RULING:

NO. Reckoning date should start from 1998, when Ricardo repudiated co-ownership
against co-heirs in accordance with Art. 494 of the Civil Code.

Ricardo and petitioners are co-heirs or co-owners of the land. Co-heirs or

co-owners cannot acquire by acquisitive prescription the share of the other
co-heirs or co-owners absent a clear repudiation of the co-ownership
Since possession of co-owners is like that of a trustee, in order that a co-
owner’s possession may be deemed adverse to the cestui que trust or other co-
owners, the following requisites must concur: (1) that he has performed
unequivocal acts of repudiation amounting to an ouster of the cestui que trust
or other co-owners, (2) that such positive acts of repudiation have been made
known to the cestui que trust or other co-owners, and (3) that the evidence
thereon must be clear and convincing

In the present case, the prescriptive period began to run only from 1998, the
date petitioners received notice of Ricardo’s repudiation of their claims to
the land. Since petitioners filed an action for recovery of ownership and
possession, partition and damages with the RTC on 26 October 2001, only a mere
three years had lapsed. This three-year period falls short of the 10-year or
30-year acquisitive prescription period required by law in order to be
entitled to claim legal ownership over the land. Thus, Dominador cannot invoke
acquisitive prescription.

23. G.R. No. L-55225 September 30, 1982

HEIRS OF CATALINO JARDIN, namely, RUSTICA, CEFERINA, VICTORINA, REMEDIOS,

ELSIE, CIRILA, PURIFICACION, and VIRGINIA, all surnamed JARDIN, and WALDERICO
Z. JARDIN, as Heir of Galo Jardin, plaintiffs-appellants,
vs.
HEIRS OF SIXTO HALLASGO, namely, PAZ, CORAZON, NERIO, and ELIODORA, all
surnamed HALLASGO, defendants- appellees.

Galdino B. Jardin for plaintiffs-appellants.

Bernardo Semine for defendants-appellees.

FACTS:

The Sps. Braulio Jardin and Maura Hallasgo were survived by their 2 children
named Catalino and Galo and by Sixto Hallasgo, apparently Maura's child by her
first husband.

Catalino, Galo and Sixto partitioned in a private document the following

properties inherited from the Jardin sps.. Galo later ceded to Catalino his
share of 495 square meters in the lot at the poblacion of Jasaan in exchange
for Catalino's one-half share of the Riceland. Catalino became the owner of
the poblacion lot. Galo became the sole owner of the riceland at Sagpolon.

Sixto was allowed by Catalino's children to use as a garden an area of 350

square meters which is a part of the 990 square meters owned by them. However,
Sixto fraudulently and without the knowledge of Catalino's children (Sixto's
nephews and nieces) included said portion in the cadastral survey of his share
of the poblacion lot. Sixto and his children refused to reconvey the said 350-
square-meter portion to Catalino's children.

Allegedly taking advantage of the minority of the children of Catalino and

Galo, who both died after the war, Sixto occupied the parcels of land
adjudicated to Galo and Catalino in the 1920 deed of partition including the
house of strong materials. Sixto used those lands after the death of Galo and
Catalino and did not give to their heirs any share of the harvests.

It was only in the early part of 1973 that the children of Galo and Catalino
came to know of the 1920 deed of partition which was shown to them by Corazon
Hallasgo during a confrontation in the provincial commander's office at Camp
Alagar when they sought to recover the said portion of 350 square meters from
the Hallasgos.

On that occasion, the children of Galo and Catalino came to know that the
shares of Galo and Catalino in that partition allegedly had been in the
possession of Sixto and his children "for a long time". In spite of earnest
efforts, Sixto's heirs refused to settle the case amicably with the heirs of
Galo and Catalino.

The heirs of Galo and Catalino prayed in their 1973 complaint that Sixto's
heirs be ordered to reconvey to them the lands allocated to their parents in
the 1920 partition and the portion of 350 square meters in the poblacion lot
appropriated by Sixto.

Defendants Hallasgo filed a MTD. The trial court in a minute order dismissed
the complaint on the ground of prescription, citing Bargayo vs. Camumot, 40
Phil. 857. The plaintiffs appealed.

ISSUE: Whether or not their action had prescribed.

RULING:

No. We find these contentions to be flimsy and untenable.

While the action for the partition of the thing owned in common ( actio communi
dividendo or actio familiae erciscundae) does not prescribe, the co-ownership
does not last forever since it may be repudiated by a co-owner. In such a
case, the action for partition does not lie. What may be brought by the
aggrieved co-owner is anaccion reivindicatoria or action for recovery of title
and possession. That action may be barred by prescription. In the instant
case, as the partition was made in 1920 and the plaintiffs did not specify
when Sixto Hallasgo repudiated the co-ownership of the lands in Composanto and
Calabugon, the trial court assumed that prescription started to run even before
the Civil Code took effect,

Under the Code of Civil Procedure, a period of ten years was the maximum period
for acquisitive and extinctive prescription. Hence, the trial court concluded
that the 1973 action was barred by prescription.

With respect to the portion of 350 square meters of the poblacion lot, the same is
governed by other legal rules. That portion was loaned to Sixto by his nephews and
nieces by way of commodatum or precanum (Art. 1947, Civil Code). In grievous
violation of the trust, he allegedly included it in the cadastral survey of his
share of the poblacion lot. (Whether he obtained a Torrens title for it is not
specified.)

The action of Catalino's children for the recovery of that 350-square-meter portion
from Sixto's heirs has not yet prescribed. The trial court erred in dismissing that
part of plaintiffs' complaint.

Article 494 of the Civil Code provides that "no co-owner shall be obliged to
remain in the co-ownership" and that "each co-owner may demand at any time the
partition of the thing owned in common, insofar as his share is concerned." It
also provides that "no prescription shall run in favor of a co-owner or co-heir
against his co-owners or co-heirs so long as he expressly or impliedly recognizes
the co-ownership."