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G.R. No.

L-19190

November 29, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,


vs.
VENANCIO CONCEPCION, defendant-appellant.
MALCOLM, J.:
By telegrams and a letter of confirmation to the manager of the Aparri branch
of the Philippine National Bank, Venancio Concepcion, President of the
Philippine National Bank, between April 10, 1919, and May 7, 1919,
authorized an extension of credit in favor of "Puno y Concepcion, S. en C." in
the amount of P300,000. This special authorization was essential in view of
the memorandum order of President Concepcion dated May 17, 1918, limiting
the discretional power of the local manager at Aparri, Cagayan, to grant loans
and discount negotiable documents to P5,000, which, in certain cases, could
be increased to P10,000. Pursuant to this authorization, credit aggregating
P300,000, was granted the firm of "Puno y Concepcion, S. en C.," the only
security required consisting of six demand notes. The notes, together with the
interest, were taken up and paid by July 17, 1919.
"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000.
Anacleto Concepcion contributed P5,000; Clara Vda. de Concepcion, P5,000;
Miguel S. Concepcion, P20,000; Clemente Puno, P20,000; and Rosario San
Agustin, "casada con Gral. Venancio Concepcion," P50,000. Member Miguel
S. Concepcion was the administrator of the company.
On the facts recounted, Venancio Concepcion, as President of the Philippine
National Bank and as member of the board of directors of this bank, was
charged in the Court of First Instance of Cagayan with a violation of section 35
of Act No. 2747. He was found guilty by the Honorable Enrique V. Filamor,
Judge of First Instance, and was sentenced to imprisonment for one year and
six months, to pay a fine of P3,000, with subsidiary imprisonment in case of
insolvency, and the costs.
Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to
which reference must hereafter repeatedly be made, reads as follows: "The
National Bank shall not, directly or indirectly, grant loans to any of the
members of the board of directors of the bank nor to agents of the branch
banks." Section 49 of the same Act provides: "Any person who shall violate
any of the provisions of this Act shall be punished by a fine not to exceed ten
thousand pesos, or by imprisonment not to exceed five years, or by both such
fine and imprisonment." These two sections were in effect in 1919 when the

alleged unlawful acts took place, but were repealed by Act No. 2938,
approved on January 30, 1921.
Counsel for the defense assign ten errors as having been committed by the
trial court. These errors they have argued adroitly and exhaustively in their
printed brief, and again in oral argument. Attorney-General Villa-Real, in an
exceptionally accurate and comprehensive brief, answers the proposition of
appellant one by one.
The question presented are reduced to their simplest elements in the opinion
which follows:
I. Was the granting of a credit of P300,000 to the copartnership "Puno y
Concepcion, S. en C." by Venancio Concepcion, President of the Philippine
National Bank, a "loan" within the meaning of section 35 of Act No. 2747?
Counsel argue that the documents of record do not prove that authority to
make a loan was given, but only show the concession of a credit. In this
statement of fact, counsel is correct, for the exhibits in question speak of a
"credito" (credit) and not of a " prestamo" (loan).
The "credit" of an individual means his ability to borrow money by virtue of the
confidence or trust reposed by a lender that he will pay what he may promise.
(Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.) A "loan"
means the delivery by one party and the receipt by the other party of a given
sum of money, upon an agreement, express or implied, to repay the sum
loaned, with or without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146,
167.) The concession of a "credit" necessarily involves the granting of "loans"
up to the limit of the amount fixed in the "credit,"
II. Was the granting of a credit of P300,000 to the copartnership "Puno y
Concepcion, S. en C.," by Venancio Concepcion, President of the Philippine
National Bank, a "loan" or a "discount"?
Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a
"loan," it does not prohibit what is commonly known as a "discount."
In a letter dated August 7, 1916, H. Parker Willis, then President of the
National Bank, inquired of the Insular Auditor whether section 37 of Act No.
2612 was intended to apply to discounts as well as to loans. The ruling of the
Acting Insular Auditor, dated August 11, 1916, was to the effect that said
section referred to loans alone, and placed no restriction upon discount
transactions. It becomes material, therefore, to discover the distinction

between a "loan" and a "discount," and to ascertain if the instant transaction


comes under the first or the latter denomination.

be specially noted.) A loan, therefore, to a partnership of which the wife of a


director of a bank is a member, is an indirect loan to such director.

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.

That it was the intention of the Legislature to prohibit exactly such


occurrence is shown by the acknowledged fact that in this instance
defendant was tempted to mingle his personal and family affairs with
official duties, and to permit the loan P300,000 to a partnership of
established reputation and without asking for collateral security.

Conceding, without deciding, that, as ruled by the Insular Auditor, the law
covers loans and not discounts, yet the conclusion is inevitable that the
demand notes signed by the firm "Puno y Concepcion, S. en C." were not
discount paper but were mere evidences of indebtedness, because (1)
interest was not deducted from the face of the notes, but was paid when the
notes fell due; and (2) they were single-name and not double-name paper.
The facts of the instant case having relation to this phase of the argument are
not essentially different from the facts in the Binalbagan Estate case. Just as
there it was declared that the operations constituted a loan and not a discount,
so should we here lay down the same ruling.
III. Was the granting of a credit of P300,000 to the copartnership, "Puno y
Concepcion, S. en C." by Venancio Concepcion, President of the Philippine
National Bank, an "indirect loan" within the meaning of section 35 of Act No.
2747?
Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C."
was not an "indirect loan." In this connection, it should be recalled that the
wife of the defendant held one-half of the capital of this partnership.
In the interpretation and construction of statutes, the primary rule is to
ascertain and give effect to the intention of the Legislature. In this instance,
the purpose of the Legislature is plainly to erect a wall of safety against
temptation for a director of the bank. The prohibition against indirect loans is a
recognition of the familiar maxim that no man may serve two masters that
where personal interest clashes with fidelity to duty the latter almost always
suffers. If, therefore, it is shown that the husband is financially interested in the
success or failure of his wife's business venture, a loan to partnership of which
the wife of a director is a member, falls within the prohibition.
Various provisions of the Civil serve to establish the familiar relationship called
a conjugal partnership. (Articles 1315, 1393, 1401, 1407, 1408, and 1412 can

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In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am.
Rep., 211), the Supreme Court of Maryland said:
What then was the purpose of the law when it declared that no
director or officer should borrow of the bank, and "if any director," etc.,
"shall be convicted," etc., "of directly or indirectly violating this section
he shall be punished by fine and imprisonment?" We say to protect
the stockholders, depositors and creditors of the bank, against the
temptation to which the directors and officers might be exposed, and
the power which as such they must necessarily possess in the control
and management of the bank, and the legislature unwilling to rely
upon the implied understanding that in assuming this relation they
would not acquire any interest hostile or adverse to the most exact
and faithful discharge of duty, declared in express terms that they
should not borrow, etc., of the bank.
In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the
Binalbagan Estate decision, it was said:
We are of opinion the statute forbade the loan to his copartnership
firm as well as to himself directly. The loan was made indirectly to him
through his firm.
IV. Could Venancio Concepcion, President of the Philippine National Bank, be
convicted of a violation of section 35 of Act No. 2747 in relation with section
49 of the same Act, when these portions of Act No. 2747 were repealed by Act
No. 2938, prior to the finding of the information and the rendition of the
judgment?
As noted along toward the beginning of this opinion, section 49 of Act No.
2747, in relation to section 35 of the same Act, provides a punishment for any
person who shall violate any of the provisions of the Act. It is contended,
however, by the appellant, that the repeal of these sections of Act No. 2747 by
Act No. 2938 has served to take away the basis for criminal prosecution.

This same question has been previously submitted and has received an
answer adverse to such contention in the cases of United Stated vs.
Cuna ([1908], 12 Phil., 241); People vs. Concepcion ([1922], 43 Phil., 653);
and Ong Chang Wing and Kwong Fok vs. United States ([1910], 218 U. S.,
272; 40 Phil., 1046). In other words, it has been the holding, and it must again
be the holding, that where an Act of the Legislature which penalizes an
offense, such repeals a former Act which penalized the same offense, such
repeal does not have the effect of thereafter depriving the courts of jurisdiction
to try, convict, and sentenced offenders charged with violations of the old law.
V. Was the granting of a credit of P300,000 to the copartnership "Puno y
Concepcion, S. en C." by Venancio Concepcion, President of the Philippine
National Bank, in violation of section 35 of Act No. 2747, penalized by this
law?
Counsel argue that since the prohibition contained in section 35 of Act No.
2747 is on the bank, and since section 49 of said Act provides a punishment
not on the bank when it violates any provisions of the law, but on
a personviolating any provisions of the same, and imposing imprisonment as
a part of the penalty, the prohibition contained in said section 35 is without
penal sanction.lawph!l.net
The answer is that when the corporation itself is forbidden to do an act, the
prohibition extends to the board of directors, and to each director separately
and individually. (People vs. Concepcion, supra.)

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


It is fraud for directors to secure by means of their trust, and
advantage not common to the other stockholders. The law will not
allow private profit from a trust, and will not listen to any proof of
honest intent.
JUDGMENT
On a review of the evidence of record, with reference to the decision of the
trial court, and the errors assigned by the appellant, and with reference to
previous decisions of this court on the same subject, we are irresistibly led to
the conclusion that no reversible error was committed in the trial of this case,
and that the defendant has been proved guilty beyond a reasonable doubt of
the crime charged in the information. The penalty imposed by the trial judge
falls within the limits of the punitive provisions of the law.
Judgment is affirmed, with the costs of this instance against the appellant. So
ordered.
Araullo, C. J., Johnson, Street, Avancea, Villamor, Ostrand, Johns, and
Romualdez, JJ., concur.

VI. Does the alleged good faith of Venancio Concepcion, President of the
Philippine National Bank, in extending the credit of P300,000 to the
copartnership "Puno y Concepcion, S. en C." constitute a legal defense?
Counsel argue that if defendant committed the acts of which he was
convicted, it was because he was misled by rulings coming from the Insular
Auditor. It is furthermore stated that since the loans made to the copartnership
"Puno y Concepcion, S. en C." have been paid, no loss has been suffered by
the Philippine National Bank.
Neither argument, even if conceded to be true, is conclusive. Under the
statute which the defendant has violated, criminal intent is not necessarily
material. The doing of the inhibited act, inhibited on account of public policy
and public interest, constitutes the crime. And, in this instance, as previously
demonstrated, the acts of the President of the Philippine National Bank do not
fall within the purview of the rulings of the Insular Auditor, even conceding that
such rulings have controlling effect.

G.R. No. L-17474

October 25, 1962

REPUBLIC
OF
THE
PHILIPPINES, plaintiff-appellee,
vs.
JOSE
V.
BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the
late Jose V. Bagtas, petitioner-appellant.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions
of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines
through the Bureau of Animal Industry three bulls: a Red Sindhi with a book
value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for
a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes
subject to a government charge of breeding fee of 10% of the book value of
the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower
asked for a renewal for another period of one year. However, the Secretary of
Agriculture and Natural Resources approved a renewal thereof of only one
bull for another year from 8 May 1949 to 7 May 1950 and requested the return
of the other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of
Animal Industry that he would pay the value of the three bulls. On 17 October
1950 he reiterated his desire to buy them at a value with a deduction of yearly
depreciation to be approved by the Auditor General. On 19 October 1950 the
Director of Animal Industry advised him that the book value of the three bulls
could not be reduced and that they either be returned or their book value paid
not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of
the three bulls or to return them. So, on 20 December 1950 in the Court of
First Instance of Manila the Republic of the Philippines commenced an action
against him praying that he be ordered to return the three bulls loaned to him
or to pay their book value in the total sum of P3,241.45 and the unpaid
breeding fee in the sum of P199.62, both with interests, and costs; and that
other just and equitable relief be granted in (civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo,
answered that because of the bad peace and order situation in Cagayan
Valley, particularly in the barrio of Baggao, and of the pending appeal he had
taken to the Secretary of Agriculture and Natural Resources and the President
of the Philippines from the refusal by the Director of Animal Industry to deduct
from the book value of the bulls corresponding yearly depreciation of 8% from
the date of acquisition, to which depreciation the Auditor General did not

object, he could not return the animals nor pay their value and prayed for the
dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the
total value of the three bulls plus the breeding fees in the amount of
P626.17 with interest on both sums of (at) the legal rate from the filing
of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which
the court granted on 18 October and issued on 11 November 1958. On 2
December 1958 granted an ex-parte motion filed by the plaintiff on November
1958 for the appointment of a special sheriff to serve the writ outside Manila.
Of this order appointing a special sheriff, on 6 December 1958, Felicidad M.
Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23
October 1951 and as administratrix of his estate, was notified. On 7 January
1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and
Bhagnari were returned to the Bureau Animal of Industry and that sometime in
November 1958 the third bull, the Sahiniwal, died from gunshot wound
inflicted during a Huk raid on Hacienda Felicidad Intal, and praying that the
writ of execution be quashed and that a writ of preliminary injunction be
issued. On 31 January 1959 the plaintiff objected to her motion. On 6
February 1959 she filed a reply thereto. On the same day, 6 February, the
Court denied her motion. Hence, this appeal certified by the Court of Appeals
to this Court as stated at the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the
late defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin,
Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong,
Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter
(Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's
motion to quash the writ of execution the appellee prays "that another writ of
execution in the sum of P859.53 be issued against the estate of defendant
deceased Jose V. Bagtas." She cannot be held liable for the two bulls which
already had been returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a
raid by the Huk in November 1953 upon the surrounding barrios of Hacienda
Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as
such death was due to force majeure she is relieved from the duty of returning
the bull or paying its value to the appellee. The contention is without merit.
The loan by the appellee to the late defendant Jose V. Bagtas of the three
bulls for breeding purposes for a period of one year from 8 May 1948 to 7 May

1949, later on renewed for another year as regards one bull, was subject to
the payment by the borrower of breeding fee of 10% of the book value of the
bulls. The appellant contends that the contract was commodatum and that, for
that reason, as the appellee retained ownership or title to the bull it should
suffer its loss due to force majeure. A contract ofcommodatum is essentially
gratuitous.1 If the breeding fee be considered a compensation, then the
contract would be a lease of the bull. Under article 1671 of the Civil Code the
lessee would be subject to the responsibilities of a possessor in bad faith,
because she had continued possession of the bull after the expiry of the
contract. And even if the contract be commodatum, still the appellant is liable,
because article 1942 of the Civil Code provides that a bailee in a contract
of commodatum
. . . is liable for loss of the things, even if it should be through a
fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value,
unless there is a stipulation exempting the bailee from responsibility in
case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan
of one bull was renewed for another period of one year to end on 8 May 1950.
But the appellant kept and used the bull until November 1953 when during a
Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to
the deceased husband of the appellant the bulls had each an appraised book
value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the
Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due
to fortuitous event the late husband of the appellant would be exempt from
liability.
The appellant's contention that the demand or prayer by the appellee for the
return of the bull or the payment of its value being a money claim should be
presented or filed in the intestate proceedings of the defendant who died on
23 October 1951, is not altogether without merit. However, the claim that his
civil personality having ceased to exist the trial court lost jurisdiction over the
case against him, is untenable, because section 17 of Rule 3 of the Rules of
Court provides that
After a party dies and the claim is not thereby extinguished, the court
shall order, upon proper notice, the legal representative of the

deceased to appear and to be substituted for the deceased, within a


period of thirty (30) days, or within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to
comply with section 16 of Rule 3 which provides that
Whenever a party to a pending case dies . . . it shall be the duty of his
attorney to inform the court promptly of such death . . . and to give the
name and residence of the executory administrator, guardian, or other
legal representative of the deceased . . . .
The notice by the probate court and its publication in the Voz de Manila that Felicidad
M. Bagtas had been issue letters of administration of the estate of the late Jose Bagtas
and that "all persons having claims for monopoly against the deceased Jose V. Bagtas,
arising from contract express or implied, whether the same be due, not due, or
contingent, for funeral expenses and expenses of the last sickness of the said
decedent, and judgment for monopoly against him, to file said claims with the Clerk of
this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from
the date of the first publication of this order, serving a copy thereof upon the
aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the
said deceased," is not a notice to the court and the appellee who were to be notified of
the defendant's death in accordance with the above-quoted rule, and there was no
reason for such failure to notify, because the attorney who appeared for the defendant
was the same who represented the administratrix in the special proceedings instituted
for the administration and settlement of his estate. The appellee or its attorney or
representative could not be expected to know of the death of the defendant or of the
administration proceedings of his estate instituted in another court that if the attorney
for the deceased defendant did not notify the plaintiff or its attorney of such death as
required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the
late defendant is only liable for the sum of P859.63, the value of the bull which has not
been returned to the appellee, because it was killed while in the custody of the
administratrix of his estate. This is the amount prayed for by the appellee in its
objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant
for the quashing of the writ of execution.

Special proceedings for the administration and settlement of the estate of the
deceased Jose V. Bagtas having been instituted in the Court of First Instance
of Rizal (Q-200), the money judgment rendered in favor of the appellee cannot
be enforced by means of a writ of execution but must be presented to the
probate court for payment by the appellant, the administratrix appointed by the
court.
ACCORDINGLY, the writ of execution appealed from is set aside, without
pronouncement as to costs.

G.R. No. L-46240

November 3, 1939

MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,


vs.
BECK, defendant-appellee.
IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain
furniture which she lent him for his use. She appealed from the judgment of
the Court of First Instance of Manila which ordered that the defendant return
to her the three has heaters and the four electric lamps found in the
possession of the Sheriff of said city, that she call for the other furniture from
the said sheriff of Manila at her own expense, and that the fees which the
Sheriff may charge for the deposit of the furniture be paid pro rata by both
parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's
house on M. H. del Pilar street, No. 1175. On January 14, 1936, upon the
novation of the contract of lease between the plaintiff and the defendant, the
former gratuitously granted to the latter the use of the furniture described in
the third paragraph of the stipulation of facts, subject to the condition that the
defendant would return them to the plaintiff upon the latter's demand. The
plaintiff sold the property to Maria Lopez and Rosario Lopez and on
September 14, 1936, these three notified the defendant of the conveyance,
giving him sixty days to vacate the premises under one of the clauses of the
contract of lease. There after the plaintiff required the defendant to return all
the furniture transferred to him for them in the house where they were found.
On
November 5, 1936, the defendant, through another person, wrote
to the plaintiff reiterating that she may call for the furniture in the ground floor
of the house. On the 7th of the same month, the defendant wrote another
letter to the plaintiff informing her that he could not give up the three gas
heaters and the four electric lamps because he would use them until the 15th
of the same month when the lease in due to expire. The plaintiff refused to get
the furniture in view of the fact that the defendant had declined to make
delivery of all of them. On
November 15th, before vacating the house,
the defendant deposited with the Sheriff all the furniture belonging to the
plaintiff and they are now on deposit in the warehouse situated at No. 1521,
Rizal Avenue, in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court
incorrectly applied the law: in holding that they violated the contract by not
calling for all the furniture on November 5, 1936, when the defendant placed
them at their disposal; in not ordering the defendant to pay them the value of

the furniture in case they are not delivered; in holding that they should get all
the furniture from the Sheriff at their expenses; in ordering them to pay-half of
the expenses claimed by the Sheriff for the deposit of the furniture; in ruling
that both parties should pay their respective legal expenses or the costs; and
in denying pay their respective legal expenses or the costs; and in denying the
motions for reconsideration and new trial. To dispose of the case, it is only
necessary to decide whether the defendant complied with his obligation to
return the furniture upon the plaintiff's demand; whether the latter is bound to
bear the deposit fees thereof, and whether she is entitled to the costs of
litigation.lawphi1.net
The contract entered into between the parties is one of commadatum,
because under it the plaintiff gratuitously granted the use of the furniture to the
defendant, reserving for herself the ownership thereof; by this contract the
defendant bound himself to return the furniture to the plaintiff, upon the latters
demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and
1741 of the Civil Code). The obligation voluntarily assumed by the defendant
to return the furniture upon the plaintiff's demand, means that he should return
all of them to the plaintiff at the latter's residence or house. The defendant did
not comply with this obligation when he merely placed them at the disposal of
the plaintiff, retaining for his benefit the three gas heaters and the four eletric
lamps. The provisions of article 1169 of the Civil Code cited by counsel for the
parties are not squarely applicable. The trial court, therefore, erred when it
came to the legal conclusion that the plaintiff failed to comply with her
obligation to get the furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the
plaintiff, upon the latter's demand, the Court could not legally compel her to
bear the expenses occasioned by the deposit of the furniture at the
defendant's behest. The latter, as bailee, was not entitled to place the furniture
on deposit; nor was the plaintiff under a duty to accept the offer to return the
furniture, because the defendant wanted to retain the three gas heaters and
the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to
the payment thereof by the defendant in case of his inability to return some of
the furniture because under paragraph 6 of the stipulation of facts, the
defendant has neither agreed to nor admitted the correctness of the said
value. Should the defendant fail to deliver some of the furniture, the value
thereof should be latter determined by the trial Court through evidence which
the parties may desire to present.
The costs in both instances should be borne by the defendant because the
plaintiff is the prevailing party (section 487 of the Code of Civil Procedure).

The defendant was the one who breached the contract of commodatum, and
without any reason he refused to return and deliver all the furniture upon the
plaintiff's demand. In these circumstances, it is just and equitable that he pay
the legal expenses and other judicial costs which the plaintiff would not have
otherwise defrayed.
The appealed judgment is modified and the defendant is ordered to return and
deliver to the plaintiff, in the residence to return and deliver to the plaintiff, in
the residence or house of the latter, all the furniture described in paragraph 3
of the stipulation of facts Exhibit A. The expenses which may be occasioned
by the delivery to and deposit of the furniture with the Sheriff shall be for the
account of the defendant. the defendant shall pay the costs in both instances.
So ordered.

G.R. No. L-20240

December 31, 1965

REPUBLIC
OF
THE
vs.
JOSE GRIJALDO, defendant-appellant.

PHILIPPINES, plaintiff-appellee,

ZALDIVAR, J.:
In the year 1943 appellant Jose Grijaldo obtained five loans from the branch
office of the Bank of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97
with interest at the rate of 6% per annum, compounded quarterly. These loans
are evidenced by five promissory notes executed by the appellant in favor of
the Bank of Taiwan, Ltd., as follows: On June 1, 1943, P600.00; on June 3,
1943, P159.11; on June 18, 1943, P22.86; on August 9, 1943,P300.00; on
August 13, 1943, P200.00, all notes without due dates, but because the loans
were due one year after they were incurred. To secure the payment of the
loans the appellant executed a chattel mortgage on the standing crops on his
land, Lot No. 1494 known as Hacienda Campugas in Hinigiran, Negros
Occidental.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the
authority provided for in the Trading with the Enemy Act, as amended, the
assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the
Government of the United States. Pursuant to the Philippine Property Act of
1946 of the United States, these assets, including the loans in question, were
subsequently transferred to the Republic of the Philippines by the Government
of the United States under Transfer Agreement dated July 20, 1954. These
assets were among the properties that were placed under the administration
of the Board of Liquidators created under Executive Order No. 372, dated
November 24, 1950, and in accordance with Republic Acts Nos. 8 and 477
and other pertinent laws.
On September 29, 1954 the appellee, Republic of the Philippines, represented
by the Chairman of the Board of Liquidators, made a written extrajudicial
demand upon the appellant for the payment of the account in question. The
record shows that the appellant had actually received the written demand for
payment, but he failed to pay.
The aggregate amount due as principal of the five loans in question,
computed under the Ballantyne scale of values as of the time that the loans
were incurred in 1943, was P889.64; and the interest due thereon at the rate
of 6% per annum compounded quarterly, computed as of December 31, 1959
was P2,377.23.

On January 17, 1961 the appellee filed a complaint in the Justice of the Peace
Court of Hinigaran, Negros Occidental, to collect from the appellant the unpaid
account in question. The Justice of the Peace Of Hinigaran, after hearing,
dismissed the case on the ground that the action had prescribed. The
appellee appealed to the Court of First Instance of Negros Occidental and on
March 26, 1962 the court a quo rendered a decision ordering the appellant to
pay the appellee the sum of P2,377.23 as of December 31, 1959, plus interest
at the rate of 6% per annum compounded quarterly from the date of the filing
of the complaint until full payment was made. The appellant was also ordered
to pay the sum equivalent to 10% of the amount due as attorney's fees and
costs.
The appellant appealed directly to this Court. During the pendency of this
appeal the appellant Jose Grijaldo died. Upon motion by the Solicitor General
this Court, in a resolution of May 13, 1963, required Manuel Lagtapon, Jacinto
Lagtapon, Ruben Lagtapon and Anita L. Aguilar, who are the legal heirs of
Jose Grijaldo to appear and be substituted as appellants in accordance with
Section 17 of Rule 3 of the Rules of Court.
In the present appeal the appellant contends: (1) that the appellee has no
cause of action against the appellant; (2) that if the appellee has a cause of
action at all, that action had prescribed; and (3) that the lower court erred in
ordering the appellant to pay the amount of P2,377.23.
In discussing the first point of contention, the appellant maintains that the
appellee has no privity of contract with the appellant. It is claimed that the
transaction between the Taiwan Bank, Ltd. and the appellant, so that the
appellee, Republic of the Philippines, could not legally bring action against the
appellant for the enforcement of the obligation involved in said transaction.
This contention has no merit. It is true that the Bank of Taiwan, Ltd. was the
original creditor and the transaction between the appellant and the Bank of
Taiwan was a private contract of loan. However, pursuant to the Trading with
the Enemy Act, as amended, and Executive Order No. 9095 of the United
States; and under Vesting Order No. P-4, dated January 21, 1946, the
properties of the Bank of Taiwan, Ltd., an entity which was declared to be
under the jurisdiction of the enemy country (Japan), were vested in the United
States Government and the Republic of the Philippines, the assets of the
Bank of Taiwan, Ltd. were transferred to and vested in the Republic of the
Philippines. The successive transfer of the rights over the loans in question
from the Bank of Taiwan, Ltd. to the United States Government, and from the
United States Government to the government of the Republic of the
Philippines, made the Republic of the Philippines the successor of the rights,
title and interest in said loans, thereby creating a privity of contract between

the appellee and the appellant. In defining the word "privy" this Court, in a
case, said:

In an obligation to deliver a generic thing, the loss or destruction of


anything of the same kind does not extinguish the obligation.

The word "privy" denotes the idea of succession ... hence an assignee
of a credit, and one subrogated to it, etc. will be privies; in short, he
who by succession is placed in the position of one of those who
contracted the judicial relation and executed the private document
and appears to be substituting him in the personal rights and
obligation is a privy (Alpurto vs. Perez, 38 Phil. 785, 790).

The chattel mortgage on the crops growing on appellant's land simply stood
as a security for the fulfillment of appellant's obligation covered by the five
promissory notes, and the loss of the crops did not extinguish his obligation to
pay, because the account could still be paid from other sources aside from the
mortgaged crops.

The United States of America acting as a belligerent sovereign power seized


the assets of the Bank of Taiwan, Ltd. which belonged to an enemy country.
The confiscation of the assets of the Bank of Taiwan, Ltd. being an involuntary
act of war, and sanctioned by international law, the United States succeeded
to the rights and interests of said Bank of Taiwan, Ltd. over the assets of said
bank. As successor in interest in, and transferee of, the property rights of the
United States of America over the loans in question, the Republic of the
Philippines had thereby become a privy to the original contracts of loan
between the Bank of Taiwan, Ltd. and the appellant. It follows, therefore, that
the Republic of the Philippines has a legal right to bring the present action
against the appellant Jose Grijaldo.
The appellant likewise maintains, in support of his contention that the appellee
has no cause of action, that because the loans were secured by a chattel
mortgage on the standing crops on a land owned by him and these crops
were lost or destroyed through enemy action his obligation to pay the loans
was thereby extinguished. This argument is untenable. The terms of the
promissory notes and the chattel mortgage that the appellant executed in
favor of the Bank of Taiwan, Ltd. do not support the claim of appellant. The
obligation of the appellant under the five promissory notes was not to deliver a
determinate thing namely, the crops to be harvested from his land, or the
value of the crops that would be harvested from his land. Rather, his
obligation was to pay a generic thing the amount of money representing the
total sum of the five loans, with interest. The transaction between the
appellant and the Bank of Taiwan, Ltd. was a series of five contracts of simple
loan of sums of money. "By a contract of (simple) loan, one of the parties
delivers to another ... money or other consumable thing upon the condition
that the same amount of the same kind and quality shall be paid." (Article
1933, Civil Code) The obligation of the appellant under the five promissory
notes evidencing the loans in questions is to pay the value thereof; that is, to
deliver a sum of money a clear case of an obligation to deliver, a generic
thing. Article 1263 of the Civil Code provides:

In his second point of contention, the appellant maintains that the action of the
appellee had prescribed. The appellant points out that the loans became due
on June 1, 1944; and when the complaint was filed on January 17,1961 a
period of more than 16 years had already elapsed far beyond the period of
ten years when an action based on a written contract should be brought to
court.
This contention of the appellant has no merit. Firstly, it should be considered
that the complaint in the present case was brought by the Republic of the
Philippines not as a nominal party but in the exercise of its sovereign
functions, to protect the interests of the State over a public property. Under
paragraph 4 of Article 1108 of the Civil Code prescription, both acquisitive and
extinctive, does not run against the State. This Court has held that the statute
of limitations does not run against the right of action of the Government of the
Philippines (Government of the Philippine Islands vs. Monte de Piedad, etc.,
35 Phil. 738-751).Secondly, the running of the period of prescription of the
action to collect the loan from the appellant was interrupted by the moratorium
laws (Executive Orders No. 25, dated November 18, 1944; Executive Order
No. 32. dated March 10, 1945; and Republic Act No. 342, approved on July
26, 1948). The loan in question, as evidenced by the five promissory notes,
were incurred in the year 1943, or during the period of Japanese occupation
of the Philippines. This case is squarely covered by Executive Order No. 25,
which became effective on November 18, 1944, providing for the suspension
of payments of debts incurred after December 31, 1941. The period of
prescription was, therefore, suspended beginning November 18, 1944. This
Court, in the case of Rutter vs. Esteban (L-3708, May 18, 1953, 93 Phil. 68),
declared on May 18, 1953 that the Moratorium Laws, R.A. No. 342 and
Executive Orders Nos. 25 and 32, are unconstitutional; but in that case this
Court ruled that the moratorium laws had suspended the prescriptive period
until May 18, 1953. This ruling was categorically reiterated in the decision in
the case of Manila Motors vs. Flores, L-9396, August 16, 1956. It follows,
therefore, that the prescriptive period in the case now before US was
suspended from November 18,1944, when Executive Orders Nos. 25 and 32
were declared unconstitutional by this Court. Computed accordingly, the
prescriptive period was suspended for 8 years and 6 months. By the

appellant's own admission, the cause of action on the five promissory notes in
question arose on June 1, 1944. The complaint in the present case was filed
on January 17, 1961, or after a period of 16 years, 6 months and 16 days
when the cause of action arose. If the prescriptive period was not interrupted
by the moratorium laws, the action would have prescribed already; but, as We
have stated, the prescriptive period was suspended by the moratorium laws
for a period of 8 years and 6 months. If we deduct the period of suspension (8
years and 6 months) from the period that elapsed from the time the cause of
action arose to the time when the complaint was filed (16 years, 6 months and
16 days) there remains a period of 8 years and 16 days. In other words, the
prescriptive period ran for only 8 years and 16 days. There still remained a
period of one year, 11 months and 14 days of the prescriptive period when the
complaint was filed.

become worthless, in order that justice may be done and the party
entitled to be paid can recover their actual value in Philippine
Currency, what the debtor or defendant bank should return or pay is
the value of the Japanese military notes in relation to the peso in
Philippine Currency obtaining on the date when and at the place
where the obligation was incurred unless the parties had agreed
otherwise. ... . (italics supplied)
IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with
costs against the appellant. Inasmuch as the appellant Jose Grijaldo died
during the pendency of this appeal, his estate must answer in the execution of
the judgment in the present case.

In his third point of contention the appellant maintains that the lower court
erred in ordering him to pay the amount of P2,377.23. It is claimed by the
appellant that it was error on the part of the lower court to apply the Ballantyne
Scale of values in evaluating the Japanese war notes as of June 1943 when
the loans were incurred, because what should be done is to evaluate the
loans on the basis of the Ballantyne Scale as of the time the loans became
due, and that was in June 1944. This contention of the appellant is also
without merit.
The decision of the court a quo ordered the appellant to pay the sum of
P2,377.23 as of December 31, 1959, plus interest rate of 6% per annum
compounded quarterly from the date of the filing of the complaint. The sum
total of the five loans obtained by the appellant from the Bank of Taiwan, Ltd.
was P1,281.97 in Japanese war notes. Computed under the Ballantyne Scale
of values as of June 1943, this sum of P1,281.97 in Japanese war notes in
June 1943 is equivalent to P889.64 in genuine Philippine currency which was
considered the aggregate amount due as principal of the five loans, and the
amount of P2,377.23 as of December 31, 1959 was arrived at after computing
the interest on the principal sum of P889.64 compounded quarterly from the
time the obligations were incurred in 1943.
It is the stand of the appellee that the Ballantyne scale of values should be
applied as of the time the obligation was incurred, and that was in June 1943.
This stand of the appellee was upheld by the lower court; and the decision of
the lower court is supported by the ruling of this Court in the case of Hilado
vs. De la Costa (G.R. No. L-150, April 30, 1949; 46 O.G. 5472), which states:
... Contracts stipulating for payments presumably in Japanese war
notes may be enforced in our Courts after the liberation to the extent
of the just obligation of the contracting parties and, as said notes have

10

G.R. No. L-26058 October 28, 1977


AMPARO JOVEN DE CORTES & NOEL J. CORTES (Jesus Noel plaintiffappellees,
vs.
MARY E. VENTURANZA, ETC., JOSE OLEDAN & ERLINDA M.
OLEDAN, defendants-appellants.
MAKASIAR, J.:
Direct appeal by the defendants-appellants from the decision of the Court of
First Instance of Bulacan against them in its Civil Case No. 2693, entitled
"Felix Cortes y Ochoa, and Noel J. Cortes (Jesus Noel plaintiffs, versus
Gregorio Venturanza, Mary E. Venturanza, Jose Oledan and Erlinda M.
Oledan, defendants."
The original plaintiffs in this case were Felix Cortes y Ochoa and Noel J.
Cortes, and the original defendants were Gregorio Venturanza, Mary E.
Venturanza, Jose Oledan and Erlinda M. Oledan. On December 11, 1967,
defendant Gregorio Venturanza died. Accordingly, as prayed for by appellees,
Mary E. Venturanza, Edna Lucille, Greymar, Sylvia, Edward and Mary Grace,
all surnamed Venturanza, surviving spouse and children of the deceased
Gregorio Venturanza, were substituted as appellants, in place of the
deceased, by resolution of this Court dated February 28, 1968. On September
12, 1968, Felix Cortes y Ochoa died. Appellees, through counsel, thereupon
filed a petition praying that the title of this case be changed to read: "Amparo
Joven de Cortes and Noel J. Cortes (Jesus Noel plaintiffs-appellant, versus
Mary E. Venturanza, etc., Jose Oledan and Erlinda M. Oledan, defendantsappellants," which petition was granted by this Court in its resolution dated
April 11, 1969.
The background facts may be gleaned from the pertinent portions of the
decision of the court a quo, as follows:+.wph!1
Plaintiff Felix Cortes y Ochoa and Noel J. Cortes filed the instant action for
foreclosure of real estate against the defendants Gregorio Venturanza, Mary
E. Venturanza, Jose Oledan and Erlinda M. Oledan. The complaint alleges
that plaintiff Felix Cortez y Ochoa was the original owner of nine (9) parcels of
land covered by Transfer Certificates of Title Nos. 21334 to 21342, inclusive,
while plaintiff Noel J. Cortes was likewise the original owner of twenty-four
(24) parcels of land covered by Transfer Certificates off Title Nos. 21343,
21345, 21347 to 21367, inclusive, all of the land records of Bulacan; that on
October 24, 1958 said plaintiffs sold and delivered to the defendants all the

above-mentioned thirty-three (33) parcels of land with all the improvements


thereon for the total sum of P716,573.90 of which defendants agreed to pay
jointly and severally the plaintiffs the sum of P100,000.00 upon the signing
and execution of a deed of sale and P40,000.00 on January 1, 1959 thereby
leaving a balance of P576,573.90 which the defendants agreed and bound
themselves to pay plaintiffs jointly and severally within three (3) years from
January 1, 1959 with interest thereon at the rate of 6% per annum; that
defendants further agreed and bound themselves to secure the payment of
the said balance of P576,573.90 with a first mortgage upon the said 33
parcels of land with improvements; that the defendants have already paid the
plaintiffs the total sum of P140,000.00; that of the unpaid balance owing to
plaintiffs, P169,484.24 pertaining to plaintiff Felix Cortes and P407,089.66
pertains to plaintiff Noel J. Cortes; that upon the registration of the deed of
sale and mortgage with the office of the register of deeds of Bulacan new
certificates of title for the 33 parcels of land were issued in the names of the
defendants and the mortgage obligation was noted thereon; that the mortgage
obligation fell due on January 1, 1962, but despite repeated demands for
payment, defendants failed and refused to pay the said balance of
P576,573.90 to plaintiffs; that from the time the mortgage obligation fell due
and demandable up to December 1, 1962 the total interest due from the
defendants on the balance of their obligation is P103,783.32 computer led at
the stipulated interest of 6% per annum; that it is stipulated in the deed of sale
with purchase money mortgage that in the event or default by defendants to
pay the obligation secured by the mortgage and a suit is brought for the
foreclosure of the mortgage or any other legal proceedings is instituted for the
enforcement of plaintiffs' right, defendants would be obligated and hound to
pay the plaintiffs reasonable compensation for attorney's fees which plaintiffs
fixed at P50,000.00.
Defendants Spouses Venturanza admit the allegations of the complaint
regarding plaintiffs's former ownership of the lands in question as well as their
execution of the mortgage in favor of plaintiffs but allege that they are at
present the registered owners of the same parcels of land by virtue of the sale
thereof made to them; they likewise admit the allotment of payment to
plaintiffs of the balance of their obligation but allege that the said balance has
not yet become due and demandable so that they have not incurred in default.
As special affirmative defense defendants Venturanza allege that the
document designated as deed of sale with purchase money mortgage does
not express the true intent and agreement of the parties with respect to the
manner of payment of the balance of the purchase price, the truth being that
defendants will pay the balance of the purchase price in,the amount of
P576,573.90 to the plaintiffs, and the latter agreed, as soon as defendants will
have received from the Land Tenure Administration the purchase price of their
(defendants') hacienda in Bugo, Cagayan de Oro in the amount of

11

P360,000.00 which hacienda is the object of exporpiration proceedings before


the Court of First Instance of said City; that it was agreed moreover that
defendants will complete payment of the balance of the purchase price upon
the consummation of the sale of their other hacienda at Buhi, Camarines Sur
to one Mr. De Castro for P837, 00.00 more or less; that this negotiation was
known to plaintiffs who agreed to wait for the sale of the same properties by
defendants; that the property in question was bought by defendant for
speculative purposes. As second special and affirmative defenses defendants
allege that the deed of sale with purchase money mortgage had been novated
by a subsequent agreement regarding the manner and period of payment to
be made by defendants and that, therefore, the cause of action has not yet
accrued.
Defendants Jose Oledan and Erlinda M. Oledan deny the material allegations
of the complaint with respect to the mortgage obligation alleging that plaintiffs
cause of action against them has been extinguished and, therefore did not
become due against them on January 1, 1962; that even as regards their codefendants Venturanzas the mortgage obligation did not become due on
January 1, 1962 there hating been a novation of the original agreement which
affected material changes in the manner and condition of time of payment of
the balance of the mortgage obligation. By way of affirmative defenses
defendants Oledans alleged that the deed of sale with purchase money
mortgage fails to express the true intent and agreement of the parties thereto
insofar as the nature of the liability of the defendants is concerned, the true
intention being to hold them (defendants Oledan) obligated unto plaintiffs only
to the extent of the proportion of their share, ownership and interests in the
property conveyed; that their obligation to plaintiffs has been extinguished by
novation; that their obligation to plaintiffs has been extinguished by the
assumption of the obligation by defendants Venturanza as provided for in the
agreement among defendants dated December 28, 1959, such assumption of
the obligation being inside' with full knowledge (of) and consent of plaintiffs
which partakes of the character of a novation of the original agreement and
that by their failure to seasonably interrupt any opposition to the assumption of
any obligation by defendants Venturanza and to take appropriate action
thereon, plaintiffs have waived their right to proceed against them.
By way of cross-claim against their co-defendants Venturanza, defendants
Oledan allege that on December 28, 1958 they and their co-defendants
executed and entered into an agreement whereby they sold, transferred unto
their co-defendants all their shares, ownership and interest in the property
subject of a deed of sale with purchase money mortgage for and in
consideration of the sum of P44,571.66 payable at the time and in the manner
specified in the written agreement; that of the aforementioned consideration
cross-defendants have paid to them the sum of P22,285.83 thereby leaving a

balance still due and unpaid in the amount of P22,285.83 which crossdefendants have failed to pay within the period stipulated in their agreement;
that it is further stipulated in their agreement with cross-defendants that in the
event of failure by the latter to pay the said balance within the period agreed
upon they (cross-defendants) shall pay to them the sum of P6,367.30 for the
period August 8, 1960 to August 28, 1961; another amount of P6,367.30 for
the period August 28,1961 to August 28, 1962 and still another amount of
P6,367.30 for the period August 28, 1963 by way of penalty, which despite
repeated demands cross-defendants have failed to pay; that it is further
stipulated in their agreement that in the event of default on the part of crossdefendants, interest in the legal rate of 6% per annum shall be borne by the
unpaid balance in the amount of P22,285.83 plus the penalties
aforementioned.
By way of counter-claim, defendants-cross-plaintiffs allege that at the time
defendants executed the agreement dated December 28, 1958 plaintiffs had
full knowledge of and gave their consent to the transfer of their shares,
ownership and interest in favor of their co-defendants, as well as the
assumption by the latter of the mortgage obligation; that despite such
knowledge and consent, plaintiffs induced cross-defendants not to register the
agreement and effect the issuance of new transfer certificate of title in the
name solely of defendants Venturanza, evidently for the purpose of preversing
cause of action against them under the deed of sale with purchase money
mortgage; that as a consequence of plaintiffs' injurious and malicious suit
against them they suffered mental anguish, serious anxiety, besmirched
reputation and moral shock on the basis of which plaintiffs should he held
answerable to them in moral damages in the amount of P100,000.00 aside
from exemplary damages; and that a, a consequence of plaintiffs' having filed
the instant action against them they were compelled to engage the services of
counsel and incurred expenses of litigation in the total amount of P20,000.00
for which plaintiffs should be held liable to them (pp. 93-100, Corrected Rec.
on Appeal, pp. 320-323, rec ).
After due trial, the court a quo rendered its judgment with the following
rationale and dispositive portion:+.wph!1
There is no question that defendants are indebted to plaintiffs on the
mortgage executed by them contained in the document denominated as 'Deed
of Sale with Purchase Money Mortgage' (Exhibit 'A') to the tune of
P576,573.90 with interest thereon at the stipulate rate of 6% per annum. The
pertinent portion of the document in question is quoted, as follows:+.wph!
1

12

'(c) The remaining balance of the purchase price, after deducting the sums of
P100,000.00 and P40,000.00, mentioned in Paragraphs (a) and (b) of this
Article II, aggregating the sum of Five Hundred Seventy Six Thousand Five
Hundred Seventy Three Pesos and Ninety Centavos (P576,573.90) shall be
paid jointly and severally, by the vendees to the vendors within three (3) Nears
from January 1, 1959, with interest thereon at the rate of six per annum, until
fully paid, of which the sum of P169,484.24, plus the corresponding interest
thereon, shall be paid by the vendees to the vendor, Felix Cortes y Ochoa,
and the balance of P407,089.66, plus the corresponding interest thereon,
shall be paid by the Vendees to the Vendor, Noel J. Cortes.'
Defendants do not deny their failure to make good their obligation to pay
plaintiffs the balance of the purchase price within the three-year period agreed
upon in their document. However, defendants Venturanzas explained their
failure as being due to their inability to collect the payment of the sale of their
own property located in Buhi, Camarines Sur, and Bugo, Cagayan de Oro. in
this connection, we are again quoting a specific provision of the agreement
between the parties as regards the payment of the obligation, thus:+.
wph!1
C. In the event that the vendees shall fail to pay to the vendors, in the form
and manner provided in Paragraphs (b) and (c) of Article II hereof, the said
sums of P40,000.00 and P576,573.90, and the interest thereon, or should the
vendees make default in the performance of any one or more of the conditions
stipulated herein, the Vendors shall have the right, at their election, to
foreclos(ur)e this mortgage, and to that end the vendors are hereby appointed
the attorneys-in-fact for the Vendees with full power of substitution, to enter
upon and take possession of the mortgaged properties, without the order of
any court or any other authority other than herein granted, and to sell and
dispose of the same to the highest bidder at public auction, ... .'
Defendants claim that there had been a novation of the contract between
them and plaintiffs on account of the transfer made by defendants Oledans of
their interest in the property in favor of their defendants Venturanzas, with the
knowledge and consent of the plaintiffs As regards this claim of defendants,
we have another pertinenent provision of their contract which reads as
follows:+.wph!1
'B. The vendees may, during the existence of this mortgage, sell the property
hereby mortgaged, or any part thereof, or encumber the same with a second
mortgage, with the previous written consent of the vendors. ... .'
In view of the foregoing stipulations in the contract between the parties, while
plaintiffs may have knowledge of the transfer made by defendants Oledans of

their interest in the property in question in favor of their co-defendants, yet


insofar as the original contract between plaintiffs and defendants are
concerned, 'the provisions thereof shall govern. For plaintiffs' written consent
to any transfer is required by the provisions of their contract. Since defendants
were of the said provision, they should have taken steps to obtain plaintiffs'
written consent if only to effect a novation. To the mind of the court, it must
have been due to a premonition on the part of plaintiffs that there might be a
substitution of debtor that gave rise to the incIusion of the aforequoted
provision in their original contract.
It having been satisfactorily established that defendants are indeed indebted
to plaintiffs on the mortgage constituted by them over the parcels of land in
question, the period of payment of the obligations having become due,
plaintiffs are, therefore, entitled to a foreclosure of the said mortgage.
The next question that crops up for determination is whether or not
defendants Oledans have a right against their co-defendants Venturanzas in
this case. Exhibit 1-Oledan which is an Agreement and Deed of Sale of
Undivided Share in Real Estate entered into by and between the Venturanzas
and the Oledans clearly shows that by virtue of said document, the
Venturanzas assumed the whole obligation to plaintiffs for and in
consideration of the sum of P44,571.66, one-half of which amount was paid to
the Oledans upon the execution and signing thereof and the balance payable
within 8 months therefrom. The Venturanzas do not assail the veracity of the
document However, they seem to deny having agreed to the divisions of the
penalty clause claiming that the Oledans assured them that the same was just
incorporated therein as a matter of form but that it would not be enforced. The
Venturanzas having agreed to time, as in fact, they have assumed the whole
obligation to the plaintiffs, they should, therefore, be held liable to the Oledans
for ,Alexander the latter shall be bound to pay to plaintiffs under the original
contract known as Deed of Sale with Purchase Money Mortgage.
WHEREFORE, judgment is hereby rendered in favor of pIaintiffs and against
the defendants, ordering the latter jointly and severally to pay to the former or
to deposit with the clerk of court the sum of P576,573.90 with interest thereon
at the stipulated rate of 6% per annum until fully paid, within 90 days from
notice hereof. In default of such payment the mortgaged property will be sold
at public auction to realize the mortgage indebtedness and costs. in
accordance with law.
On the cross-claim filed by defendants-cross-claimants Oledans, crossdefendants Venturanzas are ordered to reimburse to the former the amount
which cross-claimants are to pay to plaintiffs under the above judgment.

13

The parties will bear their own costs and expensive of litigation" (pp. 107-113,
Corrected Record on Appeal, pp. 327-330, rec.).
Not satisfied with the foregoing decision of the court a quo, particularly with
respect to its dispositive portion, plaintiffs filed a motion for reconsideration
and/or new trial, dated October 19, 1965, and an urgent supplemental ration
for reconsideration, dated November 2, 1965. The defendants Oledans
likewise filed their motion for reconsideration dated November 2, 1965, and
the defendants Venturanzas also filed a motion for reconsideration dated
November 10, 1965.
Resolving the aforesaid motions of the parties litigants, the trial court
amended the dispositive portion of its in question in its order dated November
22, 1965, which reads as follows:+.wph!1
This case is again before the Court upon a motion for reconsideration and/or
new trial filed by plaintiffs dated October 19, 1965, an urgent supplemental
motion for reconsideration dated November 2, 1965 filed by the same
plaintiffs, a motion for reconsideration dated November 2, 1965 filed by
defendants Oledans, and a motion for reconsideration dated November 10,
1965 filed by defendants Venturanzas.
After a careful deliberation of the different motions for filed by the parties, the
Court believes a further modification of the decision of September 30, 1965,
as amended by the order of October l, 1965, is in order. This, in accordance
with the agreement entered into by the parties embodied in the document
designated as Deed of Sale with Purchase Money Mortgage.
WHEREFORE, the dispositive part of the decision of September 30, 1965 is
hereby re-amended so as to read as follows:+.wph!1
'WHEREFORE, judgment is hereby rendered in favor of plaintiff.s, and against
the defendants ordering the latter, jointly and severally, to pay the former or to
deposit with the clerk of court the sum of P576,573.90 with interest thereon at
the stipulated rate of 6% per annum from January 1, 1959 until fully paid,
within 90 days from notice hereof. In default of such payment the mortgaged
property will be sold at public auction to realize the mortgage indebtedness
and costs, in accordance with law.'
'On the cross-claim by the defendants-cross-claimants Venturanzas are
ordered to reimburse to the former the amount which cross-claimants are to
pay to plaintiff under the judgment.

'The parties will bear their own costs and expenses of litigation.'
With the foregoing resolution the motion for reconsideration filed by
defendants Venturanzas and Oledans are, therefore, DENIED (pp. 151-152,
Corrected Record on Appeal, pp. 349-350, rec.).
From the foregoing judgment, as amended, the defendants Venturanzas and
Oledans now appeal directly before this Court. The Venturanzas assigned four
(4) errors while the Oledans assinged five (5) errors allegedly committed by
the trial court. WE believe these errors taken together all boil down to the
following issues:
a. Whether, upon the filing by plaintiffs of their complaint against the
defendants on December 12, 1962, the obligation of the defendants had not
yet become due and demandable and, hence, the complaint was filed
prematurely.
b. Whether the payment of P576,573.90 with interest thereon at the stipulated
rate of 6% per annum was to be made dependent upon the consummation of
the sale of the two haciendas of defendants Venturanzas and, hence, there
was a novation of the contract of sale with purchase money mortgage, Exhibit
B, as a result of a change in the manner of payment.
c. Whether the sale on December 28, 1959 by the defendants Oledans to their
co-defendants Venturanzas, of all their rights and interests in the property,
subject-matter of the deed of sale with purchase money mortgage, Exhibit B,
likewise constituted a novation thereof and, therefore, had the effect of
discharging the defendants Oledans from their original obligation to the
plaintiffs.
1. The first and second issues involve an interpretation of paragraph II (c) of
the Deed of Sale with Purchase Money Mortgage, Exhibit B, which provides
as follows: +.wph!1
(c) The remaining balance of the purchase price, after deducting the sums of
P100,000.00 and P40,000.00, mentioned in Paragraphs (a) and (b) of this
Article II, aggregating the sum of FIVE HUNDRED SEVENTY-SIX
THOUSAND FIVE HUNDRED SEVENTY-THREE PESOS AND NINETY
CENTAVOS (P576,573.90) shall be paid, jointly and severally, by the
VENDEES to the VENDORS WITHIN THREE (3) years from January 1, 1959,
with interest at the rate of Six Per Centrum (6%) per annum, until fully paid of
which the sum of P169,484.24, plus the corresponding interest thereon, shall
be paid by the VENDEES to the VENDOR, FELIX CORTES y OCHOA, and

14

the balance of P407,089.66, plus the corresponding interest thereon, shall be


paid by the VENDEES to the VENDOR, NOEL J. CORTES. ...
With respect to the first issue whether the complaint was filed prematurely
there is no dispute that plaintiffs filed their complaint on December 12,
1962; that under the term of the contract, the pertinent portion of which is
quoted above, the defendants were given until January 1, 1962 within which
to pay their obligation; and that January 1, 1962 had passed without the
defendants having paid to the plaintiffs the sum of P576,573.90 and the
corresponding interest thereon notwithstanding repeated demands for
payment made upon and duly received by them (Exhs. D, D-3 E, E-3, pp. 72,
73, 73-A, 74- 75, Folder of Exhibits). Therefore, when plaintiffs filed the
complaint on December 12, 1962, the effects of default as against the
defendants had already arisen. Besides, no less than the defendants
Venturanzas themselves admitted in their brief that they were delayed in the
payment of the balance of their obligation to the plaintiffs. Let us turn to page
25 of their brief.+.wph!1
The delay in the payment of the balance of the purchase price due to the
plaintiffs-appellees was caused by the delay in the receipt of the payment of
the purchase price of the two haciendas of the herein defendants-appellants
Venturanza spouses. The non-compliance of herein defendants-appellants
with their obligations to pIaintiffs-appellees was due to circumstances not
within their control ... .
One cannot admit being delayed in the payment of his obligation unless he
believes that his obligation is already due and demandable. Stated otherwise,
there is no delay if the obligation is not yet due.
The alleged cause of their default in paying the balance of the price, is not
force majeure nor an act of God. Hence, their failure to pay is not justified.
2. With respect to the second issue, defendants Venturanzas contend that the
three-year period provided for in the Deed of Sale with Purchase Money
Mortgage, Exhibit B, was dependent on the date when they would be able to
collect the purchase price of the two properties they were trying to sell. For
this purpose, they claim that Dr. Cortes, one of the plaintiffs, granted them an
extension of time within which to pay and this act of Dr. Cortes constituted a
novation of the contract.
This claim of defendants Venturanzas is equally devoid of merit. A careful
reading of the Deed of Sale with Purchase Money Mortgage, Exhibit B,
reveals the conspicuous absence of any provision making the consummation

of the said contract dependent on the ability of defendants Venturanzas to


collect the purchase price of their two haciendas. If this were the intention of
the parties, they should have clearly stated it in the contract. It is true the
defendants wrote two letters to Dr. Cortes and/or his lawyer (Exhibits H and IVenturanza, p. 90, Folder of Exhibits), wherein the defendants Venturanzas
requested an extension of time within which to pay and Dr. Cortes admitted
having been informed of the alleged projected sale of defendants
Venturanzas' properties. Dr. Cortes, however, vehemently denied having given
said defendants any extension of time.
The deed of sale with purchase money mortgage clearly indicates that the
balance of P576,573.90 shall be paid by the defendants, jointly and severally,
within three (3) years from January 1, 1959, with interest at the rate of 6% per
annum, until fully paid. On January 1, 1962, the defendants failed and refused
to pay their obligation. This is a clear case of an obligation with a definite
period ex die, which period was incidentally established for the benefit of the
defendants. The evidence presented by the plaintiffs to substantiate these
facts approaches moral certainty, not merely preponderance of evidence.
Hence, defendants' defense of novation as to the period for payment, fails.
Furthermore, according to Article 1159 of the New Civil Code, obligations
arising from contracts have the force of law between the contracting parties
and should be complied with in good faith. The deed, Exhibit B, does not show
on its face that any of the limitation of the freedom of contract under Article
1306 of the same Code, such as law, morals, good customs, public order, or
public policy, exists, On the contrary, the terms of said exhibit are so clear and
leave no doubt with respect to the intention of the contracting parties. Hence,
the literal meaning of its stipulations shall control (Art. 1370, New Civil Code).
This is so because the intention of the parties is clearly manifested and they
are presumed to intend the consequences of their voluntary acts ft. 5, par. [c],
Rule 131, Revised Rules of Court). There being nothing in the deed, Exhibit B,
which would argue against its enforcement, it follows that there is no ground
or reason why it should not be given effect.
WE therefore, see no reason to overturn the finding of the court a quo that the
defendants are indebted to the plaintiffs on the mortgage constituted by them
over the 33 parcels of land in question since the period for payment of the
obligation had become due and, therefore, plaintiffs are entitled to a
foreclosure of the said mortgage
3. The third and last issue pertains to the principal defense of the defendants
Oledans. These defendants claim that because they transferred their interest
and participation in the property subject of the Deed of Sale with Purchase
Money Mortgage, Exhibit B, to the defendants Venturanzas allegedly with the

15

knowledge of the plaintiffs, novation by substitution of the person of the debtor


took place and, therefore, their obligation to the plaintiffs had been
extinguished.
In resolving this issue, it is important to state some principles and
jurisprudence underlying the concept and nature of novation as a mode of
extinguishing obligations.

above, and then concluded that the creditor's consent to the novation which
consists one "is entirely unnecessary and senseless." They also cited the
cases of Rio Grande Oil Co. vs. Coleman (39 O.G. No. 38, 986) and
Santisimo Rosario de Molo vs. Gemperle (39 O.G. No. 59, 1410), both
decided by the Court of Appeals, through the learned Mr. Justice Sabino
Padilla, who later became an active and respected member of this Court.
A perusal of the aforecited cases shows the following:+.wph!1

According to Manresa, novation is the extinguishment of an obligation by the


substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first, either by changing the object or Principal
conditions, or by substituting the person of the debtor, or by subrogating a
third person to the rights of the creditor (8 Manresa 428, cited in IV Civil Code
of the Philippines by Tolentino 1962 ed., p. 352). Unlike other modes of
extinction of obligations, novation is a juridical act with a dual function it
extinguishes an obligation and creates a new one in lieu of the old.
Article 1293 of the New Civil Code provides:+.wph!1
Novation which consists in substituting a new debtor ,in the place of the
original one, may be made even without the knowledge or -i , it the will of the
latter, but not without the without of the creditor (Emphasis supplied).
Under this provision, there are two forms of novation by substituting the
person of the debtor, and they are: (1)expromision and (2) delegacion. In the
former,the initiative for the change does not come from the debtor and may
even be made without his knowledge, since it consists in a third person
assuming the obligation. As such, it logically requires the consent of the third
person and the creditor. In the latter, the debtor offers and the creditor accepts
a third person who consents to the substitution and assumes the obligation,
so that the intervention and the consent of these three persons are necessary
(8 Manresa 436-437, cited in IV Civil Code of the Philippines by Tolentino,
1962 ed., p. 360). In these two modes of substitution, the consent of the
creditor is an indispensable requirement (Garcia vs. Khu Yek Chiong, 65 Phil.
466, 468)
Defendants Oledans' theory is that the Agreement and Deed of Sale of
Undivided Share in Real Estate (Exhibit 1-Oledan, p. 91, Folder of Exhibits),
executed and entered into by and between them and their co-defendants
Venturanzas, and which in effect transferred all their interest and participation
in the property subject of the deed of mortgage (Exhibit B) to their codefendants Venturanzas, extinguished their obligation to the plaintiffs. In
support of their theory, they cited Article 1293 of the New Civil Code, quoted

From the Coleman case:


... A personal novation by substitution of another in place of the debtor may be
effected with or without the knowledge of the debtor but not without the
consent of the creditor (Art. 1205, Civil Code [now Art 1293, New Civil code]).
this is the legal provision applicable to the case at bar. the reason for the
requirement that the creditor give his consent to the substitution is obvious.
the substitution of another in place of the debtor may prevent or delay the
fulfillment or performance of the obligation by reason of the inability or
insolvency of the new debtor; hence, the consent of the creditor is necessary.
This kind of substitution may take place without the knowledge of the debtor
when a third party assumes the obligation of the debtor with the consent of the
creditor. The novation effected in this way is called delegacion. (Art. 1206,
Civil Code [now Art. 1295, New Civil Code]). In these two modes of
substitution, the consent of the creditor is always required.... (emphasis
supplied).
From the Gemperle case:+.wph!1
A personal novation by substitution of another in place of the debtor may take
place with or without the knowledge of the debtor but not without the consent
of the creditor (Article 1205, Civil code the creditor's consent to such
substitution is obvious. Substitution of one debtor, for another may delay or
prevent the fulfillment or performance of the obligation by reason of the
temporary inability or insolvency of the new debtor. In a novation that takes
place when the debtor offers and the creditor accepts a third party in place of
the former debtor, the consent of the creditor is also necessary (art. 1206,
Civil Code [now Art. 1295, New civil Code]). ...
After going over carefully the aforecited portions of the decisions of the Court
of Appeal cited by the defendants Oledans, WE find that they do not help any
the cause of said defendants; on the contrary, they both militate against their
theory. Be that as it may, suffice it to state that while the Agreement and Deed
of Sale of Undivided Share in Real Estate, Exhibit 1-Oledan, might have

16

created a juridical relation as between defendants Venturanzas and Oledans,


it cannot however affect the relation between them on one hand, and the
plaintiffs, on the other, since the latter are not privies to the said agreement,
and this kind of novation cannot be made without the consent of the plaintiffs
(Garcia vs. Khu Yek Chiong, et al., supra). One reason for the requirement of
the creditor's consent to such substitution is obvious. Substitution of one
debtor for another may delay or prevent the fulfillment of the obligation by
reason of the financial inability or insolvency of the new debtor; hence, the
creditor should agree to accept the substitution in order that it may be binding
on him.

contract between him and the plaintiff was novated by the substitution of
Serna as a new debtor.

Incidentally, this case is, in practically all respects, similar to, if not Identical
with, the case of McCullough & Co. vs. Veloso and Serna (46 Phil. 1). In that
case, plaintiff sold to defendant Veloso its property known as "McCullough
Building" consisting of a land with the building thereon, for the price of
P700,000.00. Veloso paid a down payment of P50,000.00 cash on account at
the execution of the contract, and the balance of P650,000.00 to be paid on
installment basis. To secure the payment of the balance, Veloso mortgaged
the property purchased in favor of McCullough. It was stipulated that in case
of failure on the part of Veloso to comply with any of the stipulations contained
in the mortgage deed, all the installments with the interest thereon at the rate
of 7% per annum shall become due, and the creditor shall then have the right
to bring the proper action in court.

In the case at bar, the agreement, Exhibit 1-Oledan relied upon by the
defendants Oledans, does not show on its face that the plaintiffs intervened in,
much less gave their consent to, the substitution; as a matter of fact, plaintiff
Cortes vehemently denied having consented to the transfer of rights from the
Oledans to the Venturanzas alone. Res inter alios acta alteri nocere non debet
, no less than defendant lose Oledan himself testified that he did not
personally see Dr. Cortes about the transfer of rights in Exhibit 1-Oledan,
despite his commitment with his co-defendants in said agreement 'to inform
Messrs. Felix Cortes and Noel J. Cortes (Jesus Noel) of the execution of the
said agreement" (p. 15, t.s.n. hearing of January 19, 1965). There is thus a
complete absence of animus novandi, whether express or implied, on the part
of the creditors the Corteses.

Subsequently, Veloso sold the property with the improvements thereon for
P100,000.00 to Serna, who agreed to respect the mortgage on the property in
favor of McCullough and to assume Veloso's obligation to pay the plaintiff the
balance. Veloso paid P50,000.00 on account of the P650,000.00 and Serna
made several payments up to the total sum of P250.000.00 Subsequently,
however, neither Veloso nor Serna made any payment upon the last
installments, by virtue of which delay, the whole obligation became due
McCullough went to court.

With respect to the claim of plaintiffs for reasonable attorney's fees, paragraph
III (G) of the Deed of Sale with Purchase Money Mortgage, Exhibit B,
provides:+.wph!1

After due trial, the court sentenced defendant Veloso to pay the plaintiff the
sum of P510,047.34, with interest thereon at 7% per annum, within three
months; otherwise, the property mortgaged shall be sold at public auction to
the highest bidder and in the manner provided by law, the proceeds of the
sale to be applied to the payment of the judgment, after deducting the fees of
the court's officer.
On appeal, defendant Veloso contended that having sold the property to
Serna and the otter having assumed the obligation to pay the plaintiff"the
unpaid balance of the price secured by the he was relieved from the obligation
to pay the plaintiff. This means contract between the appellant and Serna,

The Supreme Court ruled +.wph!1


In order that this novation may take place, the law requires the consent of the
creditor (Art. 1205 of the Old Civil code; now Art. 1293 of the New Civil Code).
The plaintiff did not intervene in the contract between Veloso and Serna and
did not expressly give his consent to this substitution. Novation must be
express, and cannot be presumed.

G In the event of default on the part of the VENDEES and by reason thereof a
suit is brought for the foreclosure of this mortgage or any other legal
proceedings is instituted for the enforcement of any of the rights of the
VENDORS hereunder, a reasonable compensation shall be paid, jointly and
severally, by the VENDEES to the VENDORS for attorney's fees, in addition to
the fees and costs allowed by the Rules of Court.
The validity of the above agreement for reasonable attorney's fees was
questioned in the pleadings of the defendants before the trial court. Before
this Court, the plaintiffs in their brief (pp. 121-123, 126), called OUR attention
to the oversight in respect thereto committed by the court a quo.
With respect, however, to the interest due to the plaintiffs on the indebtedness
of the defendants, WE are reminded of the mandate of Article 2212 of the
New Civil Code, which provides: +.wph!1

17

Interest due shall earn legal interest from the time it is judicially demanded,
although the obligation may be silent upon this point.
Per stipulation, plaintiffs are entitled to collect from defendants interest at the
rate of six per centum (6%) per annum on the remaining balance of
P576,573.90 from January 1, 1959. Hence, for the period from January 1,
1959 to December 12, 1962, the date of the riling of the complaint, plaintiffs
are entitled to collect from the defendants, by way of interest at six percent per
annum, the sum of P136,482.13. Applying the aforequoted legal provision, this
amount of P136,482.13 should be added to the principal of P576,573.90,
making a total of P713,056.03, which shall earn legal interest stipulated at six
percent per annum from December 13, 1962 until fully paid. Such interest is
not due to stipulation; rather it is due to the mandate of the law hereinbefore
quoted.
Now, considering that the total amount recoverable in this case approximates
1.4 million pesos as of October 31, 1977 (consisting of principal of
P576,573.90, plus P136,482.13 interest from January 1, 1959 to December
12, 1962, plus P636,827.37 interest from December 13, 1962 to October 31,
1977), and that every step in the foreclosure proceedings had been
tenaciously contested, not to mention the work it will still require counsel for
the plaintiffs to collect the same by judicial proceedings, WE find that
P50,000.00 is a reasonable amount to which the plaintiffs are entitled as and
for attorney's fees.
Anent the cross-claim of defendants Oledans against their co-defendants
Venturanzas to the effect "that the defendants Venturanzas are liable to them
for the balance of P22,285.83 in addition to the penalties stipulated in the
agreement and deed of sale, Exhibit 1-Oledan, and the interests provided
therein, WE find the claim for the balance of P22,285.83 meritorious.
On their claim for penalties and interests as provided for in the same
agreement, cross-claimants and defendants Oledans rely on the pertinent
portions of the agreement, which read:+.wph!1

Twenty Two Thousand Two Hundred and Eighty Five Pesos and Eighty Three
centavos (P22,285.83), Philippine Currency, shall be paid by the PARTIES OF
THE FIRST PART to the PARTIES OF THE SECOND PART within eight (8)
months from the date and execution of this Agreement and Deed of Sale;
xxx xxx xxx
4. That in the event of failure on the part of the PARTIES OF THE FIRST
PART to pay the said balance of Twenty Two Thousand Two Hundred and
Eighty Five Pesos and Eighty Centavos (P22,285.80) within the said period of
eight (8) months stipulated above, the said PARTIES OF THE FIRST PART
will pay to the PARTIES OF THE SECOND PART a penalty of Six Thousand
Three Hundred Sixty Seven Pesos and Thirty Centavos (P6,367.30) for the
period from August 28, 1960 to August 28, 1961; another penalty of P6,367.30
for the period from August 28, 1961 to August 28, 1962; and another penalty
of P6,367.30 for the period from August 28, 1962 to August 28, 1963. It is
agreed that any part payment on the said balance of P22,285.80 has no effect
on the payment of the penalty provided for herein, and in case of nonpayment of the full amount of the balance of P22,285.80 within the said period
of three years aforementioned or up to August 28, 1963, then the said balance
left unpaid plus the penalties due, as provided for herein, shall bear an
interest at the legal rate. It is of course understood, that the penalties and
interest provided for herein shall not apply if the PARTIES OF THE FIRST
PART shall pay the said balance of Twenty Two Thousand Two Hundred and
Eighty Five Pesos and Eighty Centavos (P22,285.80) within the eight (8)
months stipulated in paragraph 2 above, or on or before August 28, 1960;
xxx xxx xxx
(Brief for defendants Oledans, pp. 32-34, Folder of Exhibits, pp. 92- 93).
A meticulous analysis of the aforequoted portions of Exhibit 1-Oledan shows:

xxx xxx xxx

1. That the Venturanzas were given a period of eight (8) months from and
after December 28, 1959 - the date of the execution of the agreement - within
which to pay the balance of P22,285.80;

2. That upon the execution and signing of this Agreement, the PARTIES/OF
THE FIRST PART (the Venturanzas will pay to the PARTIES OF THE
SECOND PART (the Oledans and the latter hereby, acknowledge receipt
thereof, of the sum of TWENTY TWO THOUSAND (TWO HUNDRED) AND
EIGHTY FIVE PESOS AND EIGHTY THREE CENTAVOS (P22,285-83),
Philippine Currency (Prudential Bank Check No. 965159) and the balance of

2. That in the event of failure on the part of the Venturanzas to pay the said
balance of P22,285.80 within the said period of eight (8) months, the
Venturanzas would pay to the Oledans a penalty of P6,367.30 annually,
beginning August 28, 1960, for a period of three (3) years lip to August 28,
1963, regardless of any partial payment which the Venturanzas might make
on the balance of P22,285.80; and

18

3. That in case of non-payment of the whole obligation of P22,285.80 within


the stipulated period of three (3) years from August 28, 1960 to August 28,
1963, such obligation or any balance thereof remaining unpaid, plus the
penalties due at the rate of P6,367.30 annually for three (3) years, shall earn
interest at the legal rate.
Going over the entire agreement, Exhibit 1-Oledan, WE have noted the
following:
1. That in connection with the deed of sale with mortgage, Exhibit B, the
Venturanzas were the ones who paid out of their own personal funds the One
Hundred Thousand Pesos (P100,000.00) to the plaintiffs, representing the
down payment on the purchase price of the property, with the understanding
that the Oledans would reimburse the Venturanzas their one-half (1/2) share
of P50,000.00;
2. That subsequently, the Oledans decided not to continue with the payment
or reimbursement to the Venturanzas of their one-half (1/2) share of
P50,000.00 as above indicated, but they agreed to share in the amount of
their investment of only P20,000.00;
3. That the Venturanzas were again the ones who paid out of their own
personal funds the succeeding P40,000.00, which fell due on January 1,
1959, to the plaintiffs;
4. That it was only on January 16, 1959 that the Oledans were able to
reimburse to the Venturanzas their one-half (1/2) share of the P40,000.00;
and
5. That the sum of P20,000.00 was the only amount paid by the Oledans to
and/or invested with the Venturanzas in their joint venture envisioned in the
deed of sale with mortgage, Exhibit B.
In support of their claim for penalties and interests, the cross-claimants and
defendants Oledans contend that "this is a normal stipulation in contracts of
this character." WE do not agree and hereby reject such claim for penalties as
well as for interests.
Settled is the rule that the contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy
(Art. 1306, New Civil Code). The onwards show that cross-claimants and
defendants Oledans more than broke even on their investment of P20,000.00

when they received from their co-defendants Venturanzas the sum of


P22,285.F3 on December 28, 1959. From all indications, it would seem that
defendants Venturanzas threw caution to the four winds, so to say, and bound
themselves to pay to their co-defendants Oledans the stipulated penalty of
P6,367.30 annually for three (3) years, beginning August 28, 1960, in their
belief that within the said period of time they would have more than enough
money with which to pay their obligation to the plaintiffs. Unfortunately,
however, to their great disappointment, the unexpected happened as they
ended up with no money with which to pay not only the balance of their
obligation to the plaintiffs in the sum of P576,573.90, but also the balance of
their obligation to their co-defendants Oledans in the sum of P22,285.30. Be
that as it may justice and morality cannot consent to and sanction a clearly
iniquitous deprivation of property, repulsive to the common sense of man. This
is what this Court said some sixty (60) years ago in the case of Ibarra vs.
Aveyro and Pre (37 Phil 273, 282), which WE cannot help but quote
hereunder:+.wph!1
Notwithstanding the imprudence and temerity shown by the defendants by
their execution of a ruinous engagement, assumed, as it appears, knowingly
and voluntarily, morality and justice cannot consent to and sanction a
repugnant spoliation and iniquitous deprivation of property, repulsive to the
common sense of man; and therefore, as all acts performed against the
provisions of law are null and void, and as the penal clause referred to,
notwithstanding its being an ostensible violation of morals, was inserted in
said promissory note, and as there is no law that expressly authorizes it, we
must conclude that the contracting party favored by said penal clause totally
lacks all right of action to enforce its fulfillment (emphasis supplied).
WHEREFORE, THE APPEALED JUDGMENT IS MODIFIED AND ANOTHER
ONE IS RENDERED, DIRECTING:
I. ALL THE DEFENDANTS APPELLANTS VENTURANZAS AND OLEDANS
TO PAY JOINTLY AND SEVERALLY THE PLAINTIFFS-APPELLEES: +.
wph!1
A. THE SUM OF FIVE HUNDRED SEVENTY SIX THOUSAND FIVE
HUNDRED SEVENTY THREE PESOS AND NINETY CENTAVOS
(P576,573.90), PLUS ONE HUNDRED THIRTY SIX THOUSAND FOUR
HUNDRED EIGHTY TWO PESOS AND THIRTEEN CENTAVOS
(P136,482.13) INTEREST AT THE RATE OF SIX PER CENTUM (6%) PER
ANNUM FROM JANUARY 1, 1959 TO DECEMBER 12, 1962, PLUS
INTEREST AT THE SAME RATE ON THE PRINCIPAL AMOUNT OF P576,
573.90 ADDED TO THE ACCRUED INTEREST FOR THE PERIOD FROM
DECEMBER 13,1962 UNTIL THE WHOLE OBLIGATION IS FULLY PAID,

19

WITHIN NINETY (90) DAYS FROM NOTICE HEREOF. IN DEFAULT OF


SUCH PAYMENT, THE MORTGAGED PROPERTIES SHALL BE SOLD AT
PUBLIC AUCTION TO REALIZE THE MORTGAGE INDEBTEDNESS AND
COSTS IN ACCORDANCE WITH LAW; AND
B. THE SUM OF FIFTY THOUSAND PESOS (P50,000.00) AS ATTORNEY'S
FEES:
II. THE CROSS-DEFENDANT'S VENTURANZAS TO PAY AND/OR
REIMBURSE THE CROSS-CLAIMANTS OLEDANS: +.wph!1
A. THE SUM OF TWENTY TWO THOUSAND TWO HUNDRED AND EIGHTY
FIVE PESOS AND EIGHTY THREE CENTAVOS (P22,285.83), PLUS
INTEREST AT THE RATE OF SIX PERCENT (6%) PER ANNUM COUNTED
FROM THE FINALITY OF THIS DECISION, UNTIL THE SAW IS FULLY
PAID;
B. THE AMOUNT WHICH SAID CROSS-CLAIMANT'S MAY PAY TO
PLAINTIFFS-APPELLEES UNDER THIS JUDGMENT;AND
III. THE DEFENDANTS-APPELLANTS VENTURANZAS TO PAY TREBLE
COSTS.
Teehankee (Chairman), Mu;oz Palma, Martin, Fernandez and Guerrero, JJ.,
concur.1wph1.

20