SECOND DIVISION

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

BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF

APPEALS and ALS MANAGEMENT & DEVELOPMENT
CORPORATION, respondents.

DECISION
QUISUMBING, J.:

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

(b) Civil Case No. 52093, for damages with prayer for the issuance of a writ of
preliminary injunction by the private respondents against said petitioner.
The trial court had held that private respondents were not in default in the payment
of their monthly amortization, hence, the extrajudicial foreclosure conducted by BPIIC
was premature and made in bad faith. It awarded private respondents the amount
of P300,000 for moral damages, P50,000 for exemplary damages, and P50,000 for
attorneys fees and expenses for litigation. It likewise dismissed the foreclosure suit for
being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala
Investment and Development Corporation (AIDC), the predecessor of petitioner BPIIC,
for the construction of a house on his lot in New Alabang Village, Muntinlupa. Said
house and lot were mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold
the house and lot to private respondents ALS and Antonio Litonjua for P850,000. They
paid P350,000 in cash and assumed the P500,000 balance of Roas indebtedness with
AIDC. The latter, however, was not willing to extend the old interest rate to private
respondents and proposed to grant them a new loan of P500,000 to be applied to Roas
debt and secured by the same property, at an interest rate of 20% per annum and
service fee of 1% per annum on the outstanding principal balance payable within ten
years in equal monthly amortization of P9,996.58 and penalty interest at the rate of 21%
per annum per day from the date the amortization became due and payable.
 Consequently, in March 1981, private respondents executed a mortgage deed
containing the above stipulations with the provision that payment of the monthly
amortization shall commence on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC
the sum of P190,601.35. This reduced Roas principal balance to P457,204.90 which, in
turn, was liquidated when BPIIC applied thereto the proceeds of private respondents
loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87,
purporting to be what was left of their loan after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings against private respondents
on the ground that they failed to pay the mortgage indebtedness which from May 1,
1981to June 30, 1984, amounted to Four Hundred Seventy Five Thousand Five
Hundred Eighty Five and 31/100 Pesos (P475,585.31). A notice of sheriffs sale was
published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC.
They alleged, among others, that they were not in arrears in their payment, but in fact
made an overpayment as of June 30, 1984. They maintained that they should not be
made to pay amortization before the actual release of the P500,000 loan in August and
September 1982. Further, out of the P500,000 loan, only the total amount
of P464,351.77 was released to private respondents. Hence, applying the effects of
legal compensation, the balance of P35,648.23 should be applied to the initial monthly
amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831
and 52093, thus:

WHEREFORE, judgment is hereby rendered in favor of ALS Management and

Development Corporation and Antonio K. Litonjua and against BPI Investment
Corporation, holding that the amount of loan granted by BPI to ALS and Litonjua was
only in the principal sum of P464,351.77, with interest at 20% plus service charge of
1% per annum, payable on equal monthly and successive amortizations at P9,283.83
for ten (10) years or one hundred twenty (120) months. The amortization schedule
attached as Annex A to the Deed of Mortgage is correspondingly reformed as
aforestated.

The Court further finds that ALS and Litonjua suffered compensable damages when
BPI caused their publication in a newspaper of general circulation as defaulting
debtors, and therefore orders BPI to pay ALS and Litonjua the following sums:

a) P300,000.00 for and as moral damages;

b) P50,000.00 as and for exemplary damages;

c) P50,000.00 as and for attorneys fees and expenses of litigation.

The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being
premature.

Costs against BPI.

SO ORDERED. [2]

Both parties appealed to the Court of Appeals. However, private respondents

appeal was dismissed for non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the
dispositive portion reads:

WHEREFORE, finding no error in the appealed decision the same is hereby

AFFIRMED in toto.

SO ORDERED. [3]

In its decision, the Court of Appeals reasoned that a simple loan is perfected only
upon the delivery of the object of the contract. The contract of loan between BPIIC and
ALS & Litonjua was perfected only on September 13, 1982, the date when BPIIC
released the purported balance of the P500,000 loan after deducting therefrom the
value of Roas indebtedness. Thus, payment of the monthly amortization should
commence only a month after the said date, as can be inferred from the stipulations in
the contract. This, despite the express agreement of the parties that payment shall
commence on May 1, 1981. From October 1982 to June 1984, the total amortization
due was only P194,960.43. Evidence showed that private respondents had an
overpayment, because as of June 1984, they already paid a total amount
of P201,791.96. Therefore, there was no basis for BPIIC to extrajudicially foreclose the
mortgage and cause the publication in newspapers concerning private respondents
delinquency in the payment of their loan.This fact constituted sufficient ground for moral
damages in favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence
this petition, where BPIIC submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN
THE LIGHT OF THE RULE LAID DOWN IN BONNEVIE VS. COURT OF APPEALS,
125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES IN THE FACE OF IRREGULAR
PAYMENTS MADE BY ALS AND OPPOSED TO THE RULE LAID DOWN
INSOCIAL SECURITY SYSTEM VS. COURT OF APPEALS, 120 SCRA 707.
 On the first issue, petitioner contends that the Court of Appeals erred in ruling that
because a simple loan is perfected upon the delivery of the object of the contract, the
loan contract in this case was perfected only on September 13, 1982. Petitioner claims
that a contract of loan is a consensual contract, and a loan contract is perfected at the
time the contract of mortgage is executed conformably with our ruling in Bonnevie v.
Court of Appeals, 125 SCRA 122. In the present case, the loan contract was perfected
on March 31, 1981, the date when the mortgage deed was executed, hence, the
amortization and interests on the loan should be computed from said date.
Petitioner also argues that while the documents showed that the loan was released
only on August 1982, the loan was actually released on March 31, 1981, when BPIIC
issued a cancellation of mortgage of Frank Roas loan. This finds support in the
registration on March 31, 1981 of the Deed of Absolute Sale executed by Roa in favor of
ALS, transferring the title of the property to ALS, and ALS executing the Mortgage Deed
in favor of BPIIC. Moreover, petitioner claims, the delay in the release of the loan should
be attributed to private respondents. As BPIIC only agreed to extend a P500,000 loan,
private respondents were required to reduce Frank Roas loan below said
amount.According to petitioner, private respondents were only able to do so in August
1982.
In their comment, private respondents assert that based on Article 1934 of the Civil
Code, a simple loan is perfected upon the delivery of the object of the contract, hence
[4]

a real contract. In this case, even though the loan contract was signed on March 31,
1981, it was perfected only on September 13, 1982, when the full loan was released to
private respondents. They submit that petitioner misread Bonnevie. To give meaning to
Article 1934, according to private respondents, Bonnevie must be construed to mean
that the contract to extend the loan was perfected on March 31, 1981 but the contract of
loan itself was only perfected upon the delivery of the full loan to private respondents
onSeptember 13, 1982.
Private respondents further maintain that even granting, arguendo, that the loan
contract was perfected on March 31, 1981, and their payment did not start a month
thereafter, still no default took place. According to private respondents, a perfected loan
agreement imposes reciprocal obligations, where the obligation or promise of each
party is the consideration of the other party. In this case, the consideration for BPIIC in
entering into the loan contract is the promise of private respondents to pay the monthly
amortization. For the latter, it is the promise of BPIIC to deliver the money. In reciprocal
obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. Therefore, private
respondents conclude, they did not incur in delay when they did not commence paying
the monthly amortization on May 1, 1981, as it was only on September 13, 1982 when
petitioner fully complied with its obligation under the loan contract.
We agree with private respondents. A loan contract is not a consensual contract but
a real contract. It is perfected only upon the delivery of the object of the contract.
Petitioner misapplied Bonnevie. The contract in Bonnevie declared by this Court as a
[5]

perfected consensual contract falls under the first clause of Article 1934, Civil Code. It is
an accepted promise to deliver something by way of simple loan.
 In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44
SCRA 445, petitioner applied for a loan of P500,000 with respondent bank. The latter
approved the application through a board resolution. Thereafter, the corresponding
mortgage was executed and registered. However, because of acts attributable to
petitioner, the loan was not released. Later, petitioner instituted an action for damages.
We recognized in this case, a perfected consensual contract which under normal
circumstances could have made the bank liable for not releasing the loan. However,
since the fault was attributable to petitioner therein, the court did not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for
damages. However, said contract does not constitute the real contract of loan which
requires the delivery of the object of the contract for its perfection and which gives rise
to obligations only on the part of the borrower.[6]

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

We also agree with private respondents that a contract of loan involves a reciprocal
obligation, wherein the obligation or promise of each party is the consideration for that
of the other. As averred by private respondents, the promise of BPIIC to extend and
[8]

deliver the loan is upon the consideration that ALS and Litonjua shall pay the monthly
amortization commencing on May 1, 1981, one month after the supposed release of the
loan. It is a basic principle in reciprocal obligations that neither party incurs in delay, if
the other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him. Only when a party has performed his part of the contract can he
[9]

demand that the other party also fulfills his own obligation and if the latter fails, default
sets in. Consequently, petitioner could only demand for the payment of the monthly
amortization after September 13, 1982 for it was only then when it complied with its
obligation under the loan contract. Therefore, in computing the amount due as of the
date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting
date is October 13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the date
of actual release of the loan and whether private respondents were the cause of the
delay in the release of the loan, are factual. Since petitioner has not shown that the
instant case is one of the exceptions to the basic rule that only questions of law can be
raised in a petition for review under Rule 45 of the Rules of Court, factual matters need
[10]

not tarry us now. On these points we are bound by the findings of the appellate and trial
courts.
On the second issue, petitioner claims that it should not be held liable for moral and
exemplary damages for it did not act maliciously when it initiated the foreclosure
proceedings. It merely exercised its right under the mortgage contract because private
respondents were irregular in their monthly amortization. It invoked our ruling in Social
Security System vs. Court of Appeals, 120 SCRA 707, where we said:
Nor can the SSS be held liable for moral and temperate damages. As concluded by the
Court of Appeals the negligence of the appellant is not so gross as to warrant moral
and temperate damages, except that, said Court reduced those damages by only
P5,000.00 instead of eliminating them. Neither can we agree with the findings of both
the Trial Court and respondent Court that the SSS had acted maliciously or in bad
faith. The SSS was of the belief that it was acting in the legitimate exercise of its right
under the mortgage contract in the face of irregular payments made by private
respondents and placed reliance on the automatic acceleration clause in the contract.
The filing alone of the foreclosure application should not be a ground for an award of
moral damages in the same way that a clearly unfounded civil action is not among the
grounds for moral damages.

Private respondents counter that BPIIC was guilty of bad faith and should be liable
for said damages because it insisted on the payment of amortization on the loan even
before it was released. Further, it did not make the corresponding deduction in the
monthly amortization to conform to the actual amount of loan released, and it
immediately initiated foreclosure proceedings when private respondents failed to make
timely payment.
But as admitted by private respondents themselves, they were irregular in their
payment of monthly amortization. Conformably with our ruling in SSS, we can not
properly declare BPIIC in bad faith. Consequently, we should rule out the award of
moral and exemplary damages. [11]

However, in our view, BPIIC was negligent in relying merely on the entries found in
the deed of mortgage, without checking and correspondingly adjusting its records on the
amount actually released to private respondents and the date when it was
released. Such negligence resulted in damage to private respondents, for which an
award of nominal damages should be given in recognition of their rights which were
violated by BPIIC. For this purpose, the amount of P25,000 is sufficient.
[12]

Lastly, as in SSS where we awarded attorneys fees because private respondents

were compelled to litigate, we sustain the award of P50,000 in favor of private
respondents as attorneys fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and
its resolution dated April 21, 1998, are AFFIRMED WITH MODIFICATION as to the
award of damages. The award of moral and exemplary damages in favor of private
respondents is DELETED, but the award to them of attorneys fees in the amount
of P50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private
respondents P25,000 as nominal damages. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.
 FIRST DIVISION

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

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

GUEVARRA, respondents.

DECISION
CARPIO, J.:

The Case

Before us is a petition for review of the 21 June 2000 Decision and 14 December
[1] [2]

2000 Resolution of the Court of Appeals in CA-G.R. SP No. 43129. The Court of
Appeals set aside the 11 November 1996 decision of the Regional Trial Court of
[3]

Quezon City, Branch 81, affirming the 15 December 1995 decision of the Metropolitan
[4] [5]

Trial Court of Quezon City, Branch 31. [6]

The Antecedents

In June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 to a certain Pedro
Perez for the rights over a 250-square meter lot in Barrio Payatas, Quezon City. Pajuyo
then constructed a house made of light materials on the lot. Pajuyo and his family lived
in the house from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (Guevarra)
executed a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra
to live in the house for free provided Guevarra would maintain the cleanliness and
orderliness of the house. Guevarra promised that he would voluntarily vacate the
premises on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and
demanded that Guevarra vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of
Quezon City, Branch 31 (MTC).
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession
over the lot where the house stands because the lot is within the 150 hectares set aside
by Proclamation No. 137 for socialized housing. Guevarra pointed out that from
December 1985 to September 1994, Pajuyo did not show up or communicate with him.
Guevarra insisted that neither he nor Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The
dispositive portion of the MTC decision reads:

WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff

and against defendant, ordering the latter to:

A) vacate the house and lot occupied by the defendant or any other person or persons
claiming any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as
reasonable compensation for the use of the premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
D) pay the cost of suit.

SO ORDERED. [7]

Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch
81 (RTC).
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion
of the RTC decision reads:

WHEREFORE, premises considered, the Court finds no reversible error in the

decision appealed from, being in accord with the law and evidence presented, and the
same is hereby affirmed en toto.

SO ORDERED. [8]

Guevarra received the RTC decision on 29 November 1996. Guevarra had only
until 14 December 1996 to file his appeal with the Court of Appeals. Instead of filing his
appeal with the Court of Appeals, Guevarra filed with the Supreme Court a Motion for
Extension of Time to File Appeal by Certiorari Based on Rule 42 (motion for
extension). Guevarra theorized that his appeal raised pure questions of law. The
Receiving Clerk of the Supreme Court received the motion for extension on 13
December 1996 or one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a
Resolution referring the motion for extension to the Court of Appeals which has
[9]

concurrent jurisdiction over the case. The case presented no special and important
matter for the Supreme Court to take cognizance of at the first instance.
 On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a
Resolution granting the motion for extension conditioned on the timeliness of the filing
[10]

of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on
Guevaras petition for review. On 11 April 1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC
decision. The dispositive portion of the decision reads:

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

SO ORDERED. [11]

Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the
Court of Appeals should have dismissed outright Guevarras petition for review because
it was filed out of time. Moreover, it was Guevarras counsel and not Guevarra who
signed the certification against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos
motion for reconsideration. The dispositive portion of the resolution reads:

WHEREFORE, for lack of merit, the motion for reconsideration is

hereby DENIED. No costs.

SO ORDERED. [12]

The Ruling of the MTC

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

The Ruling of the RTC

The RTC upheld the Kasunduan, which established the landlord and tenant
relationship between Pajuyo and Guevarra. The terms of the Kasunduan bound
Guevarra to return possession of the house on demand.
The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the
Revised National Government Center Housing Project Code of Policies and other
pertinent laws. In an ejectment suit, the RTC has no power to decide Guevarras rights
under these laws. The RTC declared that in an ejectment case, the only issue for
resolution is material or physical possession, not ownership.

The Ruling of the Court of Appeals

The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and
Guevarra illegally occupied the contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez
had no right or title over the lot because it is public land. The assignment of rights
between Perez and Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did not
have any legal effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The court
will leave them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held that
the Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a
landlord and tenant relationship. The Court of Appeals ruled that the Kasunduan is not a
lease contract but a commodatum because the agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the
appellate court held that Guevarra has a better right over the property under
Proclamation No. 137. President Corazon C. Aquino (President Aquino) issued
Proclamation No. 137 on 7 September 1987. At that time, Guevarra was in physical
possession of the property. Under Article VI of the Code of Policies Beneficiary
Selection and Disposition of Homelots and Structures in the National Housing Project
(the Code), the actual occupant or caretaker of the lot shall have first priority as
beneficiary of the project. The Court of Appeals concluded that Guevarra is first in the
hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court debunked
Pajuyos claim that Guevarra filed his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for extension filed before
the Supreme Court was stamped 13 December 1996 at 4:09 PM by the Supreme
Courts Receiving Clerk. The Court of Appeals concluded that the motion for extension
bore a date, contrary to Pajuyos claim that the motion for extension was
undated. Guevarra filed the motion for extension on time on 13 December 1996 since
he filed the motion one day before the expiration of the reglementary period on 14
December 1996. Thus, the motion for extension properly complied with the condition
imposed by the Court of Appeals in its 28 January 1997 Resolution. The Court of
Appeals explained that the thirty-day extension to file the petition for review was
deemed granted because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should
have dismissed the petition for review because it was Guevarras counsel and not
Guevarra who signed the certification against forum-shopping. The Court of Appeals
pointed out that Pajuyo did not raise this issue in his Comment. The Court of Appeals
held that Pajuyo could not now seek the dismissal of the case after he had extensively
argued on the merits of the case. This technicality, the appellate court opined, was
clearly an afterthought.

The Issues

Pajuyo raises the following issues for resolution:

WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY

AND DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:

1) in GRANTING, instead of denying, Private Respondents Motion for an

Extension of thirty days to file petition for review at the time when there
was no more period to extend as the decision of the Regional Trial Court
had already become final and executory.
2) in giving due course, instead of dismissing, private respondents Petition for
Review even though the certification against forum-shopping was signed
only by counsel instead of by petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into by the parties was in
fact a commodatum, instead of a Contract of Lease as found by the
Metropolitan Trial Court and in holding that the ejectment case filed against
defendant-appellant is without legal and factual basis.
4) in reversing and setting aside the Decision of the Regional Trial Court in
Civil Case No. Q-96-26943 and in holding that the parties are in pari
delicto being both squatters, therefore, illegal occupants of the contested
parcel of land.
5) in deciding the unlawful detainer case based on the so-called Code of
Policies of the National Government Center Housing Project instead of
deciding the same under the Kasunduan voluntarily executed by the
parties, the terms and conditions of which are the laws between
themselves.[13]

The Ruling of the Court

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

Procedural Issues

Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras
petition for review because the RTC decision had already become final and executory
when the appellate court acted on Guevarras motion for extension to file the
petition.Pajuyo points out that Guevarra had only one day before the expiry of his period
to appeal the RTC decision. Instead of filing the petition for review with the Court of
Appeals, Guevarra filed with this Court an undated motion for extension of 30 days to
file a petition for review. This Court merely referred the motion to the Court of
Appeals.Pajuyo believes that the filing of the motion for extension with this Court did not
toll the running of the period to perfect the appeal. Hence, when the Court of Appeals
received the motion, the period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their appellate jurisdiction are
appealable to the Court of Appeals by petition for review in cases involving questions of
fact or mixed questions of fact and law. Decisions of the regional trial courts involving
[14]

pure questions of law are appealable directly to this Court by petition for review. These
[15]

modes of appeal are now embodied in Section 2, Rule 41 of the 1997 Rules of Civil
Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of
law.Guevarra thus filed his motion for extension to file petition for review before this
Court on 14 December 1996. On 3 January 1997, Guevarra then filed his petition for
review with this Court. A perusal of Guevarras petition for review gives the impression
that the issues he raised were pure questions of law. There is a question of law when
the doubt or difference is on what the law is on a certain state of facts. There is a
[16]

question of fact when the doubt or difference is on the truth or falsity of the facts
alleged.[17]

In his petition for review before this Court, Guevarra no longer disputed the
facts.Guevarras petition for review raised these questions: (1) Do ejectment cases
pertain only to possession of a structure, and not the lot on which the structure stands?
(2) Does a suit by a squatter against a fellow squatter constitute a valid case for
ejectment? (3) Should a Presidential Proclamation governing the lot on which a
squatters structure stands be considered in an ejectment suit filed by the owner of the
structure?
These questions call for the evaluation of the rights of the parties under the law on
ejectment and the Presidential Proclamation. At first glance, the questions Guevarra
raised appeared purely legal. However, some factual questions still have to be resolved
because they have a bearing on the legal questions raised in the petition for
review.These factual matters refer to the metes and bounds of the disputed property
and the application of Guevarra as beneficiary of Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition
for review. In Lacsamana v. Second Special Cases Division of the Intermediate
Appellate Court, we declared that the Court of Appeals could grant extension of time
[18]

in appeals by petition for review. In Liboro v. Court of Appeals, we clarified that the
[19]

prohibition against granting an extension of time applies only in a case where ordinary
appeal is perfected by a mere notice of appeal. The prohibition does not apply in a
petition for review where the pleading needs verification. A petition for review, unlike an
ordinary appeal, requires preparation and research to present a persuasive position.
The drafting of the petition for review entails more time and effort than filing a notice of
[20]

appeal. Hence, the Court of Appeals may allow an extension of time to file a petition
[21]

for review.
In the more recent case of Commissioner of Internal Revenue v. Court of
Appeals, we held that Liboros clarification of Lacsamana is consistent with the
[22]

Revised Internal Rules of the Court of Appeals and Supreme Court Circular No. 1-91.
They all allow an extension of time for filing petitions for review with the Court of
Appeals. The extension, however, should be limited to only fifteen days save in
exceptionally meritorious cases where the Court of Appeals may grant a longer period.
A judgment becomes final and executory by operation of law. Finality of judgment
becomes a fact on the lapse of the reglementary period to appeal if no appeal is
perfected. The RTC decision could not have gained finality because the Court of
[23]

Appeals granted the 30-day extension to Guevarra.

The Court of Appeals did not commit grave abuse of discretion when it approved
Guevarras motion for extension. The Court of Appeals gave due course to the motion
for extension because it complied with the condition set by the appellate court in its
resolution dated 28 January 1997. The resolution stated that the Court of Appeals would
only give due course to the motion for extension if filed on time. The motion for
extension met this condition.
The material dates to consider in determining the timeliness of the filing of the
motion for extension are (1) the date of receipt of the judgment or final order or
resolution subject of the petition, and (2) the date of filing of the motion for extension. It
[24]

is the date of the filing of the motion or pleading, and not the date of execution, that
determines the timeliness of the filing of that motion or pleading. Thus, even if the
motion for extension bears no date, the date of filing stamped on it is the reckoning
point for determining the timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC
decision.Guevarra filed his motion for extension before this Court on 13 December
1996, the date stamped by this Courts Receiving Clerk on the motion for extension.
Clearly, Guevarra filed the motion for extension exactly one day before the lapse of the
reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed Guevarras appeal on
technical grounds, Pajuyo did not ask the appellate court to deny the motion for
extension and dismiss the petition for review at the earliest opportunity. Instead, Pajuyo
vigorously discussed the merits of the case. It was only when the Court of Appeals ruled
in Guevarras favor that Pajuyo raised the procedural issues against Guevarras petition
for review.
A party who, after voluntarily submitting a dispute for resolution, receives an
adverse decision on the merits, is estopped from attacking the jurisdiction of the court.
Estoppel sets in not because the judgment of the court is a valid and conclusive
[25]

adjudication, but because the practice of attacking the courts jurisdiction after voluntarily
submitting to it is against public policy.
[26]
 In his Comment before the Court of Appeals, Pajuyo also failed to discuss
Guevarras failure to sign the certification against forum shopping. Instead, Pajuyo
harped on Guevarras counsel signing the verification, claiming that the counsels
verification is insufficient since it is based only on mere information.
A partys failure to sign the certification against forum shopping is different from the
partys failure to sign personally the verification. The certificate of non-forum shopping
must be signed by the party, and not by counsel. The certification of counsel renders
[27]

the petition defective.[28]

On the other hand, the requirement on verification of a pleading is a formal and not
a jurisdictional requisite. It is intended simply to secure an assurance that what are
[29]

alleged in the pleading are true and correct and not the product of the imagination or a
matter of speculation, and that the pleading is filed in good faith. The party need not
[30]

sign the verification. A partys representative, lawyer or any person who personally
knows the truth of the facts alleged in the pleading may sign the verification. [31]

We agree with the Court of Appeals that the issue on the certificate against forum
shopping was merely an afterthought. Pajuyo did not call the Court of Appeals attention
to this defect at the early stage of the proceedings. Pajuyo raised this procedural issue
too late in the proceedings.

Absence of Title over the Disputed Property will not Divest the Courts of
Jurisdiction to Resolve the Issue of Possession

Settled is the rule that the defendants claim of ownership of the disputed property
will not divest the inferior court of its jurisdiction over the ejectment case. Even if the
[32]

pleadings raise the issue of ownership, the court may pass on such issue to determine
only the question of possession, especially if the ownership is inseparably linked with
the possession. The adjudication on the issue of ownership is only provisional and will
[33]

not bar an action between the same parties involving title to the land. This doctrine is a
[34]

necessary consequence of the nature of the two summary actions of ejectment, forcible
entry and unlawful detainer, where the only issue for adjudication is the physical or
material possession over the real property. [35]

In this case, what Guevarra raised before the courts was that he and Pajuyo are not
the owners of the contested property and that they are mere squatters. Will the defense
that the parties to the ejectment case are not the owners of the disputed lot allow the
courts to renounce their jurisdiction over the case? The Court of Appeals believed so
and held that it would just leave the parties where they are since they are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action
for recovery of possession. The parties cannot present evidence to prove ownership or
right to legal possession except to prove the nature of the possession when necessary
to resolve the issue of physical possession. The same is true when the defendant
[36]
asserts the absence of title over the property. The absence of title over the contested lot
is not a ground for the courts to withhold relief from the parties in an ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who is
entitled to the physical possession of the premises, that is, to the possession de
factoand not to the possession de jure. It does not even matter if a partys title to the
[37]

property is questionable, or when both parties intruded into public land and their
[38]

applications to own the land have yet to be approved by the proper government agency.
Regardless of the actual condition of the title to the property, the party in peaceable
[39]

quiet possession shall not be thrown out by a strong hand, violence or terror. Neither is
[40]

the unlawful withholding of property allowed. Courts will always uphold respect for prior
possession.
Thus, a party who can prove prior possession can recover such possession even
against the owner himself. Whatever may be the character of his possession, if he has
[41]

in his favor prior possession in time, he has the security that entitles him to remain on
the property until a person with a better right lawfully ejects him. To repeat, the only
[42]

issue that the court has to settle in an ejectment suit is the right to physical possession.
In Pitargue v. Sorilla, the government owned the land in dispute. The government
[43]

did not authorize either the plaintiff or the defendant in the case of forcible entry case to
occupy the land. The plaintiff had prior possession and had already introduced
improvements on the public land. The plaintiff had a pending application for the land
with the Bureau of Lands when the defendant ousted him from possession. The plaintiff
filed the action of forcible entry against the defendant. The government was not a party
in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of
possession because while the application of the plaintiff was still pending, title remained
with the government, and the Bureau of Public Lands had jurisdiction over the case. We
disagreed with the defendant. We ruled that courts have jurisdiction to entertain
ejectment suits even before the resolution of the application. The plaintiff, by priority of
his application and of his entry, acquired prior physical possession over the public land
applied for as against other private claimants. That prior physical possession enjoys
legal protection against other private claimants because only a court can take away
such physical possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue as [44]

squatters, strictly speaking, their entry into the disputed land was illegal. Both the
plaintiff and defendant entered the public land without the owners permission. Title to
the land remained with the government because it had not awarded to anyone
ownership of the contested public land. Both the plaintiff and the defendant were in
effect squatting on government property. Yet, we upheld the courts jurisdiction to resolve
the issue of possession even if the plaintiff and the defendant in the ejectment case did
not have any title over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical
possession because of the public need to preserve the basic policy behind the summary
actions of forcible entry and unlawful detainer. The underlying philosophy behind
ejectment suits is to prevent breach of the peace and criminal disorder and to compel
the party out of possession to respect and resort to the law alone to obtain what he
claims is his. The party deprived of possession must not take the law into his own
[45]

hands. Ejectment proceedings are summary in nature so the authorities can settle
[46]

speedily actions to recover possession because of the overriding need to quell social
disturbances.[47]

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

The question that is before this Court is: Are courts without jurisdiction to take
cognizance of possessory actions involving these public lands before final award is
made by the Lands Department, and before title is given any of the conflicting
claimants? It is one of utmost importance, as there are public lands everywhere and
there are thousands of settlers, especially in newly opened regions. It also involves a
matter of policy, as it requires the determination of the respective authorities and
functions of two coordinate branches of the Government in connection with public
land conflicts.

Our problem is made simple by the fact that under the Civil Code, either in the old,
which was in force in this country before the American occupation, or in the new, we
have a possessory action, the aim and purpose of which is the recovery of the physical
possession of real property, irrespective of the question as to who has the title thereto.
Under the Spanish Civil Code we had the accion interdictal, a summary proceeding
which could be brought within one year from dispossession (Roman Catholic Bishop
of Cebu vs. Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901, upon the
enactment of the Code of Civil Procedure (Act No. 190 of the Philippine
Commission) we implanted the common law action of forcible entry (section 80 of
Act No. 190), the object of which has been stated by this Court to be to prevent
breaches of the peace and criminal disorder which would ensue from the
withdrawal of the remedy, and the reasonable hope such withdrawal would create
that some advantage must accrue to those persons who, believing themselves
entitled to the possession of property, resort to force to gain possession rather than
to some appropriate action in the court to assert their claims. (Supia and Batioco vs.
Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first Public
Land Act (Act No. 926) the action of forcible entry was already available in the courts
of the country. So the question to be resolved is, Did the Legislature intend, when it
vested the power and authority to alienate and dispose of the public lands in the Lands
Department, to exclude the courts from entertaining the possessory action of forcible
entry between rival claimants or occupants of any land before award thereof to any of
the parties? Did Congress intend that the lands applied for, or all public lands for that
matter, be removed from the jurisdiction of the judicial Branch of the Government, so
that any troubles arising therefrom, or any breaches of the peace or disorders caused
by rival claimants, could be inquired into only by the Lands Department to the
exclusion of the courts? The answer to this question seems to us evident. The Lands
Department does not have the means to police public lands; neither does it have the
means to prevent disorders arising therefrom, or contain breaches of the peace among
settlers; or to pass promptly upon conflicts of possession. Then its power is clearly
limited to disposition and alienation, and while it may decide conflicts of possession
in order to make proper award, the settlement of conflicts of possession which is
recognized in the court herein has another ultimate purpose, i.e., the protection of
actual possessors and occupants with a view to the prevention of breaches of the
peace. The power to dispose and alienate could not have been intended to include
the power to prevent or settle disorders or breaches of the peace among rival settlers
or claimants prior to the final award. As to this, therefore, the corresponding
branches of the Government must continue to exercise power and jurisdiction within
the limits of their respective functions. The vesting of the Lands Department with
authority to administer, dispose, and alienate public lands, therefore, must not be
understood as depriving the other branches of the Government of the exercise of
the respective functions or powers thereon, such as the authority to stop disorders
and quell breaches of the peace by the police, the authority on the part of the courts
to take jurisdiction over possessory actions arising therefrom not involving, directly
or indirectly, alienation and disposition.

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

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

The Principle of Pari Delicto is not Applicable to Ejectment Cases

The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code embody the principle of pari delicto. We
[48]

explained the principle of pari delicto in these words:

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

The application of the pari delicto principle is not absolute, as there are exceptions
to its application. One of these exceptions is where the application of the pari
delicto rule would violate well-established public policy.
[50]

In Drilon v. Gaurana, we reiterated the basic policy behind the summary actions
[51]

of forcible entry and unlawful detainer. We held that:

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

Clearly, the application of the principle of pari delicto to a case of ejectment between
squatters is fraught with danger. To shut out relief to squatters on the ground of pari
delicto would openly invite mayhem and lawlessness. A squatter would oust another
squatter from possession of the lot that the latter had illegally occupied, emboldened by
the knowledge that the courts would leave them where they are. Nothing would then
stand in the way of the ousted squatter from re-claiming his prior possession at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or
actions for recovery of possession seek to prevent. Even the owner who has title over
[53]

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

Possession is the only Issue for Resolution in an Ejectment Case

The case for review before the Court of Appeals was a simple case of
ejectment. The Court of Appeals refused to rule on the issue of physical possession.
Nevertheless, the appellate court held that the pivotal issue in this case is who between
Pajuyo and Guevarra has the priority right as beneficiary of the contested land under
Proclamation No. 137. According to the Court of Appeals, Guevarra enjoys preferential
[54]

right under Proclamation No. 137 because Article VI of the Code declares that the
actual occupant or caretaker is the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a
relocation site under Proclamation No. 137. Proclamation No. 137 laid down the metes
and bounds of the land that it declared open for disposition to bona fide residents.
The records do not show that the contested lot is within the land specified by
Proclamation No. 137. Guevarra had the burden to prove that the disputed lot is within
the coverage of Proclamation No. 137. He failed to do so.
 Second. The Court of Appeals should not have given credence to Guevarras
unsubstantiated claim that he is the beneficiary of Proclamation No. 137. Guevarra
merely alleged that in the survey the project administrator conducted, he and not Pajuyo
appeared as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No.
137. Pajuyo allowed Guevarra to occupy the disputed property in 1985. President
Aquino signed Proclamation No. 137 into law on 11 March 1986. Pajuyo made his
earliest demand for Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to the time that
Proclamation No. 137 allegedly segregated the disputed lot, Guevarra never applied as
beneficiary of Proclamation No. 137. Even when Guevarra already knew that Pajuyo
was reclaiming possession of the property, Guevarra did not take any step to comply
with the requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation
No. 137 and Guevarra has a pending application over the lot, courts should still assume
jurisdiction and resolve the issue of possession. However, the jurisdiction of the courts
would be limited to the issue of physical possession only.
In Pitargue, we ruled that courts have jurisdiction over possessory actions
[55]

involving public land to determine the issue of physical possession. The determination
of the respective rights of rival claimants to public land is, however, distinct from the
determination of who has the actual physical possession or who has a better right of
physical possession. The administrative disposition and alienation of public lands
[56]

should be threshed out in the proper government agency. [57]

The Court of Appeals determination of Pajuyo and Guevarras rights under

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

Pajuyo is Entitled to Physical Possession of the Disputed Property

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

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

Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot
free of rent, but Guevarra was under obligation to maintain the premises in good
condition. Guevarra promised to vacate the premises on Pajuyos demand but Guevarra
broke his promise and refused to heed Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the
withholding by a person from another of the possession of real property to which the
latter is entitled after the expiration or termination of the formers right to hold
possession under a contract, express or implied. [59]

Where the plaintiff allows the defendant to use his property by tolerance without any
contract, the defendant is necessarily bound by an implied promise that he will vacate
on demand, failing which, an action for unlawful detainer will lie. The defendants
[60]

refusal to comply with the demand makes his continued possession of the property
unlawful. The status of the defendant in such a case is similar to that of a lessee or
[61]

tenant whose term of lease has expired but whose occupancy continues by tolerance of
the owner. [62]

This principle should apply with greater force in cases where a contract embodies
the permission or tolerance to use the property. The Kasunduan expressly articulated
Pajuyos forbearance. Pajuyo did not require Guevarra to pay any rent but only to
maintain the house and lot in good condition. Guevarra expressly vowed in
the Kasunduan that he would vacate the property on demand. Guevarras refusal to
comply with Pajuyos demand to vacate made Guevarras continued possession of the
property unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one
of commodatum.
In a contract of commodatum, one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return it. An [63]

essential feature of commodatum is that it is gratuitous. Another feature

of commodatumis that the use of the thing belonging to another is for a certain period.
Thus, the bailor cannot demand the return of the thing loaned until after expiration of
[64]

the period stipulated, or after accomplishment of the use for which

the commodatum is constituted. If the bailor should have urgent need of the thing, he
[65]

may demand its return for temporary use. If the use of the thing is merely tolerated by
[66]

the bailor, he can demand the return of the thing at will, in which case the contractual
relation is called a precarium. Under the Civil Code, precarium is a kind
[67]

of commodatum. [68]

The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra

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

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

the thing received. [71]

Guevarra turned his back on the Kasunduan on the sole ground that like him,
Pajuyo is also a squatter. Squatters, Guevarra pointed out, cannot enter into a contract
involving the land they illegally occupy. Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra
freely entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after
he had benefited from it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and
Guevarra has a right to physical possession of the contested
property. The Kasunduan is the undeniable evidence of Guevarras recognition of
Pajuyos better right of physical possession. Guevarra is clearly a possessor in bad
faith. The absence of a contract would not yield a different result, as there would still be
an implied promise to vacate.
Guevarra contends that there is a pernicious evil that is sought to be avoided, and
that is allowing an absentee squatter who (sic) makes (sic) a profit out of his illegal act.
Guevarra bases his argument on the preferential right given to the actual occupant or
[72]

caretaker under Proclamation No. 137 on socialized housing.

We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed
in the property without paying any rent. There is also no proof that Pajuyo is a
professional squatter who rents out usurped properties to other squatters. Moreover, it
is for the proper government agency to decide who between Pajuyo and Guevarra
qualifies for socialized housing. The only issue that we are addressing is physical
possession.
Prior possession is not always a condition sine qua non in ejectment. This is one
[73]

of the distinctions between forcible entry and unlawful detainer. In forcible entry, the
[74]

plaintiff is deprived of physical possession of his land or building by means of force,

intimidation, threat, strategy or stealth. Thus, he must allege and prove prior
possession. But in unlawful detainer, the defendant unlawfully withholds possession
[75]

after the expiration or termination of his right to possess under any contract, express or
implied. In such a case, prior physical possession is not required. [76]

Pajuyos withdrawal of his permission to Guevarra terminated

the Kasunduan.Guevarras transient right to possess the property ended as
well. Moreover, it was Pajuyo who was in actual possession of the property because
Guevarra had to seek Pajuyos permission to temporarily hold the property and
Guevarra had to follow the conditions set by Pajuyo in the Kasunduan. Control over the
property still rested with Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property.
Possession in the eyes of the law does not mean that a man has to have his feet on
every square meter of the ground before he is deemed in possession. One may [77]

acquire possession not only by physical occupation, but also by the fact that a thing is
subject to the action of ones will. Actual or physical occupation is not always
[78]

necessary. [79]

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

We are aware of our pronouncement in cases where we declared that squatters and
intruders who clandestinely enter into titled government property cannot, by such act,
acquire any legal right to said property. We made this declaration because the person
[80]

who had title or who had the right to legal possession over the disputed property was a
party in the ejectment suit and that party instituted the case against squatters or
usurpers.
In this case, the owner of the land, which is the government, is not a party to the
ejectment case. This case is between squatters. Had the government participated in this
case, the courts could have evicted the contending squatters, Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded in
this case, we cannot evict on our own the parties. Such a ruling would discourage
squatters from seeking the aid of the courts in settling the issue of physical
possession. Stripping both the plaintiff and the defendant of possession just because
they are squatters would have the same dangerous implications as the application of
the principle of pari delicto.Squatters would then rather settle the issue of physical
possession among themselves than seek relief from the courts if the plaintiff and
defendant in the ejectment case would both stand to lose possession of the disputed
property. This would subvert the policy underlying actions for recovery of possession.
Since Pajuyo has in his favor priority in time in holding the property, he is entitled to
remain on the property until a person who has title or a better right lawfully ejects
him.Guevarra is certainly not that person. The ruling in this case, however, does not
preclude Pajuyo and Guevarra from introducing evidence and presenting arguments
before the proper administrative agency to establish any right to which they may be
entitled under the law.[81]

In no way should our ruling in this case be interpreted to condone squatting. The
ruling on the issue of physical possession does not affect title to the property nor
constitute a binding and conclusive adjudication on the merits on the issue of
ownership. The owner can still go to court to recover lawfully the property from the
[82]

person who holds the property without legal title. Our ruling here does not diminish the
power of government agencies, including local governments, to condemn, abate,
remove or demolish illegal or unauthorized structures in accordance with existing laws.

Attorneys Fees and Rentals

The MTC and RTC failed to justify the award of P3,000 attorneys fees to
Pajuyo.Attorneys fees as part of damages are awarded only in the instances
enumerated in Article 2208 of the Civil Code. Thus, the award of attorneys fees is the
[83]

exception rather than the rule. Attorneys fees are not awarded every time a party
[84]

prevails in a suit because of the policy that no premium should be placed on the right to
litigate. We therefore delete the attorneys fees awarded to Pajuyo.
[85]

We sustain the P300 monthly rentals the MTC and RTC assessed against
Guevarra.Guevarra did not dispute this factual finding of the two courts. We find the
amount reasonable compensation to Pajuyo. The P300 monthly rental is counted from
the last demand to vacate, which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and
Resolution dated 14 December 2000 of the Court of Appeals in CA-G.R. SP No. 43129
are SET ASIDE. The Decision dated 11 November 1996 of the Regional Trial Court of
Quezon City, Branch 81 in Civil Case No. Q-96-26943, affirming the Decision dated 15
December 1995 of the Metropolitan Trial Court of Quezon City, Branch 31 in Civil Case
No. 12432, is REINSTATED with MODIFICATION. The award of attorneys fees is
deleted. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna,
JJ., concur.

SECOND DIVISION

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

PRODUCERS BANK OF THE PHILIPPINES (now FIRST

INTERNATIONAL BANK), petitioner, vs. HON. COURT OF
APPEALS AND FRANKLIN VIVES, respondents.

DECISION
CALLEJO, SR., J.:
 This is a petition for review on certiorari of the Decision of the Court of
[1]

Appeals dated June 25, 1991 in CA-G.R. CV No. 11791 and of its
Resolution dated May 5, 1994, denying the motion for reconsideration of said
[2]

decision filed by petitioner Producers Bank of the Philippines.

Sometime in 1979, private respondent Franklin Vives was asked by his

neighbor and friend Angeles Sanchez to help her friend and townmate, Col.
Arturo Doronilla, in incorporating his business, the Sterela Marketing and
Services (Sterela for brevity).Specifically, Sanchez asked private respondent
to deposit in a bank a certain amount of money in the bank account of Sterela
for purposes of its incorporation. She assured private respondent that he
could withdraw his money from said account within a months time. Private
respondent asked Sanchez to bring Doronilla to their house so that they could
discuss Sanchezs request. [3]

On May 9, 1979, private respondent, Sanchez, Doronilla and a certain

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

Subsequently, private respondent learned that Sterela was no longer

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

Private respondent tried to get in touch with Doronilla through

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

Private respondent referred the matter to a lawyer, who made a written

demand upon Doronilla for the return of his clients money. Doronilla issued
another check for P212,000.00 in private respondents favor but the check was
again dishonored for insufficiency of funds.[7]

Private respondent instituted an action for recovery of sum of money in the

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

IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants

Arturo J. Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay
plaintiff Franklin Vives jointly and severally
(a) the amount of P200,000.00, representing the money deposited, with interest at the
legal rate from the filing of the complaint until the same is fully paid;

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

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

(d) the costs of the suit.

SO ORDERED. [8]

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

reconsideration in its Resolution dated May 5, 1994. [10]

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

I.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE

TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND
RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT
ACCOMMODATION;

II.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT

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

III.

THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE

RECORDS OF THE REGIONAL TRIAL COURT AND AFFIRMING THE
JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL
TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS;
 IV.

THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE

CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745,
UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED
BY AN EMPLOYEE IS APPLICABLE;

V.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE

DECISION OF THE LOWER COURT THAT HEREIN PETITIONER BANK IS
JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR
THE AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS
ACCOUNT DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR
EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND THE
COSTS OF SUIT. [11]

Private respondent filed his Comment on September 23, 1994. Petitioner

filed its Reply thereto on September 25, 1995. The Court then required private
respondent to submit a rejoinder to the reply. However, said rejoinder was filed
only on April 21, 1997, due to petitioners delay in furnishing private
respondent with copy of the reply and several substitutions of counsel on the
[12]

part of private respondent. On January 17, 2001, the Court resolved to give
[13]

due course to the petition and required the parties to submit their respective
memoranda. Petitioner filed its memorandum on April 16, 2001 while private
[14]

respondent submitted his memorandum on March 22, 2001.

Petitioner contends that the transaction between private respondent and

Doronilla is a simple loan (mutuum) since all the elements of a mutuum are
present: first, what was delivered by private respondent to Doronilla was
money, a consumable thing; and second, the transaction was onerous as
Doronilla was obliged to pay interest, as evidenced by the check issued by
Doronilla in the amount of P212,000.00, or P12,000 more than what private
respondent deposited in Sterelas bank account. Moreover, the fact that
[15]

private respondent sued his good friend Sanchez for his failure to recover his
money from Doronilla shows that the transaction was not merely gratuitous
but had a business angle to it. Hence, petitioner argues that it cannot be held
liable for the return of private respondents P200,000.00 because it is not privy
to the transaction between the latter and Doronilla.
[16]
 It argues further that petitioners Assistant Manager, Mr. Rufo Atienza,
could not be faulted for allowing Doronilla to withdraw from the savings
account of Sterela since the latter was the sole proprietor of said
company. Petitioner asserts that Doronillas May 8, 1979 letter addressed to
the bank, authorizing Mrs. Vives and Sanchez to open a savings account for
Sterela, did not contain any authorization for these two to withdraw from said
account. Hence, the authority to withdraw therefrom remained exclusively with
Doronilla, who was the sole proprietor of Sterela, and who alone had legal title
to the savings account. Petitioner points out that no evidence other than the
[17]

testimonies of private respondent and Mrs. Vives was presented during trial to
prove that private respondent deposited his P200,000.00 in Sterelas account
for purposes of its incorporation. Hence, petitioner should not be held liable
[18]

for allowing Doronilla to withdraw from Sterelas savings account.

Petitioner also asserts that the Court of Appeals erred in affirming the trial
courts decision since the findings of fact therein were not accord with the
evidence presented by petitioner during trial to prove that the transaction
between private respondent and Doronilla was a mutuum, and that it
committed no wrong in allowing Doronilla to withdraw from Sterelas savings
account. [19]

Finally, petitioner claims that since there is no wrongful act or omission on

its part, it is not liable for the actual damages suffered by private respondent,
and neither may it be held liable for moral and exemplary damages as well as
attorneys fees. [20]

Private respondent, on the other hand, argues that the transaction

between him and Doronilla is not a mutuum but an accommodation, since he [21]

did not actually part with the ownership of his P200,000.00 and in fact asked
his wife to deposit said amount in the account of Sterela so that a certification
can be issued to the effect that Sterela had sufficient funds for purposes of its
incorporation but at the same time, he retained some degree of control over
his money through his wife who was made a signatory to the savings account
and in whose possession the savings account passbook was given. [22]

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

There is no merit in the petition.

At the outset, it must be emphasized that only questions of law may be

raised in a petition for review filed with this Court. The Court has repeatedly
held that it is not its function to analyze and weigh all over again the evidence
presented by the parties during trial. The Courts jurisdiction is in principle
[24]

limited to reviewing errors of law that might have been committed by the Court
of Appeals. Moreover, factual findings of courts, when adopted and
[25]

confirmed by the Court of Appeals, are final and conclusive on this Court
unless these findings are not supported by the evidence on record. There is
[26]

no showing of any misapprehension of facts on the part of the Court of

Appeals in the case at bar that would require this Court to review and overturn
the factual findings of that court, especially since the conclusions of fact of the
Court of Appeals and the trial court are not only consistent but are also amply
supported by the evidence on record.

No error was committed by the Court of Appeals when it ruled that the
transaction between private respondent and Doronilla was
a commodatum and not a mutuum. A circumspect examination of the records
reveals that the transaction between them was a commodatum. Article 1933
of the Civil Code distinguishes between the two kinds of loans in this wise:

By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in
which case the contract is called a commodatum; or money or other consumable thing,
upon the condition that the same amount of the same kind and quality shall be paid, in
which case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum, the bailor retains the ownership of the thing loaned, while in simple
loan, ownership passes to the borrower.
 The foregoing provision seems to imply that if the subject of the contract is
a consumable thing, such as money, the contract would be
a mutuum. However, there are some instances where a commodatum may
have for its object a consumable thing.Article 1936 of the Civil Code provides:

Consumable goods may be the subject of commodatum if the purpose of the contract
is not the consumption of the object, as when it is merely for exhibition.

Thus, if consumable goods are loaned only for purposes of exhibition, or

when the intention of the parties is to lend consumable goods and to have the
very same goods returned at the end of the period agreed upon, the loan is
a commodatum and not a mutuum.

The rule is that the intention of the parties thereto shall be accorded
primordial consideration in determining the actual character of a contract. In[27]

case of doubt, the contemporaneous and subsequent acts of the parties shall
be considered in such determination. [28]

As correctly pointed out by both the Court of Appeals and the trial court,
the evidence shows that private respondent agreed to deposit his money in
the savings account of Sterela specifically for the purpose of making it appear
that said firm had sufficient capitalization for incorporation, with the promise
that the amount shall be returned within thirty (30) days. Private respondent
[29]

merely accommodated Doronilla by lending his money without consideration,

as a favor to his good friend Sanchez. It was however clear to the parties to
the transaction that the money would not be removed from Sterelas savings
account and would be returned to private respondent after thirty (30) days.

Doronillas attempts to return to private respondent the amount

of P200,000.00 which the latter deposited in Sterelas account together with an
additional P12,000.00, allegedly representing interest on the mutuum, did not
convert the transaction from a commodatum into a mutuum because such
was not the intent of the parties and because the additional P12,000.00
corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the
Civil Code expressly states that [t]he bailee in commodatum acquires the use
of the thing loaned but not its fruits. Hence, it was only proper for Doronilla to
remit to private respondent the interest accruing to the latters money
deposited with petitioner.
 Neither does the Court agree with petitioners contention that it is not
solidarily liable for the return of private respondents money because it was not
privy to the transaction between Doronilla and private respondent. The nature
of said transaction, that is, whether it is a mutuum or a commodatum, has no
bearing on the question of petitioners liability for the return of private
respondents money because the factual circumstances of the case clearly
show that petitioner, through its employee Mr. Atienza, was partly responsible
for the loss of private respondents money and is liable for its restitution.

Petitioners rules for savings deposits written on the passbook it issued

Mrs. Vives on behalf of Sterela for Savings Account No. 10-1567 expressly
states that

2. Deposits and withdrawals must be made by the depositor personally or upon his
written authority duly authenticated, and neither a deposit nor a withdrawal will be
permitted except upon the production of the depositor savings bank book in
which will be entered by the Bank the amount deposited or withdrawn. [30]

Said rule notwithstanding, Doronilla was permitted by petitioner, through

Atienza, the Assistant Branch Manager for the Buendia Branch of petitioner, to
withdraw therefrom even without presenting the passbook (which Atienza very
well knew was in the possession of Mrs. Vives), not just once, but several
times. Both the Court of Appeals and the trial court found that Atienza allowed
said withdrawals because he was party to Doronillas scheme of defrauding
private respondent:

XXX

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

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

Then there is the matter of the ownership of the fund. Because of the coordination
between Doronilla and Atienza, the latter knew before hand that the money deposited
did not belong to Doronilla nor to Sterela. Aside from such foreknowledge, he was
explicitly told by Inocencia Vives that the money belonged to her and her husband and
the deposit was merely to accommodate Doronilla. Atienza even declared that the
money came from Mrs. Vives.

Although the savings account was in the name of Sterela, the bank records disclose
that the only ones empowered to withdraw the same were Inocencia Vives and
Angeles B. Sanchez. In the signature card pertaining to this account (Exh. J), the
authorized signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated
that it is the usual banking procedure that withdrawals of savings deposits could only
be made by persons whose authorized signatures are in the signature cards on file with
the bank. He, however, said that this procedure was not followed here because Sterela
was owned by Doronilla. He explained that Doronilla had the full authority to
withdraw by virtue of such ownership. The Court is not inclined to agree with
Atienza. In the first place, he was all the time aware that the money came from Vives
and did not belong to Sterela. He was also told by Mrs. Vives that they were only
accommodating Doronilla so that a certification can be issued to the effect that Sterela
had a deposit of so much amount to be sued in the incorporation of the firm.In the
second place, the signature of Doronilla was not authorized in so far as that account is
concerned inasmuch as he had not signed the signature card provided by the bank
whenever a deposit is opened. In the third place, neither Mrs. Vives nor Sanchez had
given Doronilla the authority to withdraw.

Moreover, the transfer of fund was done without the passbook having been
presented. It is an accepted practice that whenever a withdrawal is made in a savings
deposit, the bank requires the presentation of the passbook. In this case, such
recognized practice was dispensed with. The transfer from the savings account to the
current account was without the submission of the passbook which Atienza had given
to Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella
Dumagpi that a duplicate passbook was issued to Sterela because the original
passbook had been surrendered to the Makati branch in view of a loan
accommodation assigning the savings account (Exh. C). Atienza, who undoubtedly
had a hand in the execution of this certification, was aware that the contents of the
same are not true. He knew that the passbook was in the hands of Mrs. Vives for he
was the one who gave it to her. Besides, as assistant manager of the branch and the
bank official servicing the savings and current accounts in question, he also was aware
that the original passbook was never surrendered. He was also cognizant that Estrella
Dumagpi was not among those authorized to withdraw so her certification had no
effect whatsoever.

The circumstance surrounding the opening of the current account also demonstrate
that Atienzas active participation in the perpetration of the fraud and deception that
caused the loss. The records indicate that this account was opened three days later
after the P200,000.00 was deposited. In spite of his disclaimer, the Court believes that
Atienza was mindful and posted regarding the opening of the current account
considering that Doronilla was all the while in coordination with him. That it was he
who facilitated the approval of the authority to debit the savings account to cover any
overdrawings in the current account (Exh. 2) is not hard to comprehend.

Clearly Atienza had committed wrongful acts that had resulted to the loss subject of
this case. x x x.
[31]

Under Article 2180 of the Civil Code, employers shall be held primarily and
solidarily liable for damages caused by their employees acting within the
scope of their assigned tasks. To hold the employer liable under this provision,
it must be shown that an employer-employee relationship exists, and that the
employee was acting within the scope of his assigned task when the act
complained of was committed. Case law in the United States of America has
[32]

it that a corporation that entrusts a general duty to its employee is responsible

to the injured party for damages flowing from the employees wrongful act
done in the course of his general authority, even though in doing such act, the
employee may have failed in its duty to the employer and disobeyed the
latters instructions. [33]

There is no dispute that Atienza was an employee of

petitioner. Furthermore, petitioner did not deny that Atienza was acting within
the scope of his authority as Assistant Branch Manager when he assisted
Doronilla in withdrawing funds from Sterelas Savings Account No. 10-1567, in
which account private respondents money was deposited, and in transferring
the money withdrawn to Sterelas Current Account with petitioner. Atienzas
acts of helping Doronilla, a customer of the petitioner, were obviously done in
furtherance of petitioners interests even though in the process, Atienza
[34]

violated some of petitioners rules such as those stipulated in its savings

account passbook. It was established that the transfer of funds from Sterelas
[35]

savings account to its current account could not have been accomplished by
Doronilla without the invaluable assistance of Atienza, and that it was their
connivance which was the cause of private respondents loss.

The foregoing shows that the Court of Appeals correctly held that under
Article 2180 of the Civil Code, petitioner is liable for private respondents loss
and is solidarily liable with Doronilla and Dumagpi for the return of
the P200,000.00 since it is clear that petitioner failed to prove that it exercised
due diligence to prevent the unauthorized withdrawals from Sterelas savings
account, and that it was not negligent in the selection and supervision of
Atienza. Accordingly, no error was committed by the appellate court in the
award of actual, moral and exemplary damages, attorneys fees and costs of
suit to private respondent.

WHEREFORE, the petition is hereby DENIED. The assailed Decision and

Resolution of the Court of Appeals are AFFIRMED.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Quisumbing and Austria-Martinez,

JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 154878 March 16, 2007

CAROLYN M. GARCIA, Petitioner,

vs.
RICA MARIE S. THIO, Respondent.
 DECISION

CORONA, J.:

Assailed in this petition for review on certiorari1 are the June 19, 2002 decision2 and August 20, 2002
resolution3of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28,
1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.

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

In June 1995, respondent received from petitioner another crossed check 9 dated June 29, 1995 in
the amount of P500,000, also payable to the order of Marilou Santiago.10 Consequently, petitioner
received from respondent the amount of P20,000 every month on August 5, September 5, October 5
and November 5, 1995.11

According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000
and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum
of money and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect
the sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and P500,000,
with interest thereon at 4% a month from November 5, 1995, plus attorneys fees and actual
damages.12

Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of
US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on October
26, 1995.13 The amount of this loan was covered by the first check. On June 29, 1995, respondent
again borrowed the amount of P500,000 at an agreed monthly interest of 4%, the maturity date of
which was on November 5, 1995.14 The amount of this loan was covered by the second check. For
both loans, no promissory note was executed since petitioner and respondent were close friends at
the time.15 Respondent paid the stipulated monthly interest for both loans but on their maturity dates,
she failed to pay the principal amounts despite repeated demands. 16 1awphi1.nt

Respondent denied that she contracted the two loans with petitioner and countered that it was
Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by
petitioner to give the crossed checks to Santiago. 17 She issued the checks for P76,000 and P20,000
not as payment of interest but to accommodate petitioners request that respondent use her own
checks instead of Santiagos.18

In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.19 It found that respondent
borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% and P500,000 at a
monthly interest of 4%:20

WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is

hereby rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount of:

1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from
October 26, 1995 until fully paid;
 2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid.

3. P100,000.00 as and for attorneys fees; and

4. P50,000.00 as and for actual damages.

For lack of merit, [respondents] counterclaim is perforce dismissed.

With costs against [respondent].

IT IS SO ORDERED.21

On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan
between the parties:

A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that
[respondent] indeed borrowed money from her. There is nothing in the record that shows that
[respondent] received money from [petitioner]. What is evident is the fact that [respondent]
received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00,
payable to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the
amount of P500,000.00, again payable to the order of Marilou Santiago, both of which were issued
by [petitioner]. The checks received by [respondent], being crossed, may not be encashed but
only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself.

It must be noted that crossing a check has the following effects: (a) the check may not be encashed
but only deposited in the bank; (b) the check may be negotiated only onceto one who has an
account with the bank; (c) and the act of crossing the check serves as warning to the holder that the
check has been issued for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose, otherwise, he is not a holder in due course.

Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to
the payee in contemplation of law since the latter is not the person who could take the checks as a
holder, i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither could she be
deemed as an agent of Marilou Santiago with respect to the checks because she was merely
facilitating the transactions between the former and [petitioner].

With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan
that existed between the parties. x x x (emphasis supplied) 22

Hence this petition.23

As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of
the Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual
findings of the CA (which held that there were no contracts of loan between petitioner and
respondent) and the RTC (which held that there were contracts of loan) are contradictory.24

The petition is impressed with merit.

A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the
object of the contract.25 This is evident in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of commodatum or simple loan is binding upon
the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of
the object of the contract. (Emphasis supplied)

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

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

Petitioner insists that it was upon respondents instruction that both checks were made payable to
Santiago.27She maintains that it was also upon respondents instruction that both checks were
delivered to her (respondent) so that she could, in turn, deliver the same to Santiago. 28 Furthermore,
she argues that once respondent received the checks, the latter had possession and control of them
such that she had the choice to either forward them to Santiago (who was already her debtor), to
retain them or to return them to petitioner.29

We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within
the actual or constructive possession or control of another.30 Although respondent did not physically
receive the proceeds of the checks, these instruments were placed in her control and possession
under an arrangement whereby she actually re-lent the amounts to Santiago.

Several factors support this conclusion.

First, respondent admitted that petitioner did not personally know Santiago. 31 It was highly
improbable that petitioner would grant two loans to a complete stranger without requiring as much as
promissory notes or any written acknowledgment of the debt considering that the amounts involved
were quite big. Respondent, on the other hand, already had transactions with Santiago at that time. 32

Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both
parties list of witnesses) testified that respondents plan was for petitioner to lend her money at a
monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a
higher rate of 5% and realize a profit of 2%.33 This explained why respondent instructed petitioner to
make the checks payable to Santiago. Respondent has not shown any reason why Ruiz testimony
should not be believed.

Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount
of P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For
the P500,000 loan, she also issued her own checks in the amount of P20,000 each for four
months.34 According to respondent, she merely accommodated petitioners request for her to issue
her own checks to cover the interest payments since petitioner was not personally acquainted with
Santiago.35 She claimed, however, that Santiago would replace the checks with cash. 36 Her
explanation is simply incredible. It is difficult to believe that respondent would put herself in a position
where she would be compelled to pay interest, from her own funds, for loans she allegedly did not
contract. We declared in one case that:

In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence
to be believed, it must not only proceed from the mouth of a credible witness, but must be credible in
itself such as the common experience of mankind can approve as probable under the
circumstances. We have no test of the truth of human testimony except its conformity to our
knowledge, observation, and experience. Whatever is repugnant to these belongs to the miraculous,
and is outside of juridical cognizance.37

Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner,
who was listed as one of her (Santiagos) creditors.38

Last, respondent inexplicably never presented Santiago as a witness to corroborate her story.39 The
presumption is that "evidence willfully suppressed would be adverse if produced." 40 Respondent was
not able to overturn this presumption.

We hold that the CA committed reversible error when it ruled that respondent did not borrow the
amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC
making respondent liable for the principal amounts of the loans.

We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the
US$100,000 and P500,000 loans respectively. There was no written proof of the interest payable
except for the verbal agreement that the loans would earn 3% and 4% interest per month. Article
1956 of the Civil Code provides that "[n]o interest shall be due unless it has been expressly
stipulated in writing."

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

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

Hence, respondent is liable for the payment of legal interest per annum to be computed from
November 21, 1995, the date when she received petitioners demand letter.42 From the finality of the
decision until it is fully paid, the amount due shall earn interest at 12% per annum, the interim period
being deemed equivalent to a forbearance of credit.43

The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is deleted
since the RTC decision did not explain the factual bases for these damages.

WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20,
2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE.
The February 28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266
is AFFIRMED with the MODIFICATION that respondent is directed to pay petitioner the amounts of
US$100,000 and P500,000 at 12% per annum interest from November 21, 1995 until the finality of
the decision. The total amount due as of the date of finality will earn interest of 12% per annum until
fully paid. The award of actual damages and attorneys fees is deleted.

SO ORDERED.

RENATO C. CORONA
Associate Justice
WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ ADOLFO S. AZCUNA

Associate Justice Asscociate Justice

CANCIO C. GARCIA
Associate Justice

C E R TI F I C ATI O N

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
decision had been reached in consultation before the case was assigned to the writer of the opinion
of the Courts Division.

REYNATO S. PUNO

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

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

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,

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

Valdez, Ereso, Polido & Associates for petitioner.

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

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

Cotabato Law Office for the Heirs of Juan Valdez.

GANCAYCO, J.:

The principal issue in this case is whether or not a decision of the Court of Appeals promulgated a
long time ago can properly be considered res judicata by respondent Court of Appeals in the present
two cases between petitioner and two private respondents.
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth Division
of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and CA-G.R. No.
05149 [Civil Case No. 3655 (429)], both for Recovery of Possession, which affirmed the Decision of the
Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of Baguio and Benguet in Civil Case No.
3607 (419) and Civil Case No. 3655 (429), with the dispositive portion as follows:

WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar

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

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

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

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

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

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

On May 9, 1977, the Heirs of Octaviano filed a motion for

reconsideration praying the Court of Appeals to order the registration
of Lot 3 in the names of the Heirs of Egmidio Octaviano, and on May
17, 1977, the Heirs of Juan Valdez and Pacita Valdez filed their
motion for reconsideration praying that both Lots 2 and 3 be ordered
registered in the names of the Heirs of Juan Valdez and Pacita
Valdez. On August 12,1977, the Court of Appeals denied the motion
for reconsideration filed by the Heirs of Juan Valdez on the ground
that there was "no sufficient merit to justify reconsideration one way
or the other ...," and likewise denied that of the Heirs of Egmidio
Octaviano.

Thereupon, the VICAR filed with the Supreme Court a petition for
review on certiorari of the decision of the Court of Appeals dismissing
his (its) application for registration of Lots 2 and 3, docketed as G.R.
No. L-46832, entitled 'Catholic Vicar Apostolic of the Mountain
Province vs. Court of Appeals and Heirs of Egmidio Octaviano.'

From the denial by the Court of Appeals of their motion for

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

On January 13, 1978, the Supreme Court denied in a minute

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

On February 7, 1979, the Heirs of Octaviano filed with the Court of

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

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

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

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

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

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

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

2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE ACQUIRED
BY PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3 FROM
VALDEZ AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER OWNERS WERE
VALDEZ AND OCTAVIANO;

4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE RESPONDENTS WHO

WERE IN POSSESSION OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT PETITIONER;

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

6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951 AND JUST
TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART. 1129 OF THE CIVIL
CODE FOR ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;

7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R. NO.
038830 WAS AFFIRMED BY THE SUPREME COURT;

8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON

OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR
PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF OWNERSHIP
IN GOOD FAITH FROM 1906 TO 1951;

9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3

MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;

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

The petition is bereft of merit.

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

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

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

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

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

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

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

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

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

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-
R. Its findings of fact have become incontestible. This Court declined to review said decision, thereby
in effect, affirming it. It has become final and executory a long time ago.

Respondent appellate court did not commit any reversible error, much less grave abuse of
discretion, when it held that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is
governing, under the principle of res judicata, hence the rule, in the present cases CA-G.R. No.
05148 and CA-G.R. No. 05149. The facts as supported by evidence established in that decision may
no longer be altered.

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

SO ORDERED.

Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.

FIRST DIVISION
MARIANO UN OCAMPO III, G.R. Nos. 156547-51
Petitioner,
- versus -
PEOPLE OF THE PHILIPPINES,
Respondent.
X -------------------------------------------------------------------------------------- X
ANDRES S. FLORES, G.R. Nos. 156384-85
Petitioner,
Present:

- versus - PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
LEONARDO-DE CASTRO, JJ.
PEOPLE OF THE PHILIPPINES,
Respondent. Promulgated:
February 4, 2008
X ---------------------------------------------------------------------------------------X

DECISION
AZCUNA, J.:
These are consolidated petitions for review on certiorari[1] of the
Sandiganbayans Decision promulgated on March 8, 2002 and its Resolution
promulgated on January 6, 2003.
 The Decision and Resolution of the Sandiganbayan held petitioners Mariano
Un Ocampo III and Andres S. Flores guilty of malversation of public funds in
Crim. Case Nos. 16794 and 16795.

The facts are as follows:

During the incumbency of President Corazon C.

Aquino, Tarlac Province was chosen as one of the four provinces that would serve
as a test case on decentralization of local government administration.

For this purpose, the Department of Budget and Management (DBM)

released National Aid for Local Government Units (NALGU) funds in the total
amount of P100 million to the Province of Tarlac. The NALGU is a fund set aside
in the General Appropriations Act to assist local governments in their various
projects and services. The distribution of this fund is entirely vested with the
Secretary of the DBM.

Petitioner Ocampo, provincial governor of Tarlac from February 22, 1988 up

to June 30, 1992, loaned out P56.6 million of the P100 million to the Lingkod
Tarlac Foundation, Inc. (LTFI) for the implementation of various livelihood
projects. The loan was made pursuant to a Memorandum of Agreement (MOA)
entered into by the Province of Tarlac, represented by petitioner Ocampo, and
LTFI, represented by petitioner Flores, on August 8, 1988.

LTFI is a private non-stock corporation with petitioner Ocampo as its first

chairperson and petitioner Andres S. Flores as its executive director. The
Sandiganbayan, in its Resolution dated January 6, 2000, admitted the
annexes[2]submitted by petitioner Ocampo, which annexes proved that petitioner
Ocampo resigned as chairperson and trustee of the LTFI prior to August 8, 1988,
the date when petitioner Ocampo and LTFI entered into the MOA.

How the P56.6 million released to LTFI was utilized became the subject
matter of 25 criminal cases. In a Resolution in G.R. Nos. 103754-78 dated October
22, 1992,[3] this Court quashed 19 of the 25 Informations filed against petitioner
Ocampo. The Fifth Division of the Sandiganbayan dismissed one case [4] on
demurrer to evidence. In its Decision promulgated on March 8, 2002, the Fifth
Division of the Sandiganbayan dismissed two[5] of five criminal cases for
malversation of public funds against petitioners. On motion for reconsideration, the
Sandiganbayan dismissed one[6] more case in a Resolution promulgated on January
6, 2003. The two remaining cases are the subject matters in the instant consolidated
petitions.

The Informations of the remaining two cases filed on May 28, 1991 state:

Crim. Case No. 16794

That on or about the periods between November 2, 1988 to

February 27, 1989, or sometime subsequent thereto, in the Province
of Tarlac, Philippines and within the jurisdiction of this Honorable
Court, accused Mariano Un Ocampo III, then the Governor of the
province of Tarlac and at the same time President-Chairman of the Board
of Trustees of the Lingkod Tarlac Foundation, Inc. (LTFI), a private
entity, having received by reason of his position, public funds amounting
to more than Fifty Two Million Pesos (P52,000,000) x x x from the
National Aid for Local Government Unit (NALGU) funds, which he is
accountable by reason of his official duties, did then and there with
intent to defraud the government aforethought release out of the
aforesaid funds thru the said LTFI, the amount of EIGHT MILLION
EIGHT HUNDRED SIXTY THOUSAND PESOS (P8,860,000) x x x
for the payment of the importation of Juki Embroidery Machines which
actually cost SEVEN MILLION SIX HUNDRED SEVENTY NINE
THOUSAND FIVE HUNDRED THIRTY PESOS AND FIFTY TWO
CENTAVOS (P7,679,530.52) x x x thereby leaving a balance
of P1,180,463.48 which ought to have been returned, but far from
returning the said amount, accused Mariano Un Ocampo III, in
connivance with his co-accused, Andres S. Flores and William Uy
wilfully, unlawfully and feloniously misapply, misappropriate and
convert for their own personal use and benefit the said amount resulting
to the damage and prejudice of the government in the aforesaid sum of
One Million One Hundred Eighty Thousand Four Hundred Sixty Three
Pesos and Forty Eight Centavos (P1,180,463.48).

CONTRARY TO LAW.

Crim. Case No. 16795

 That on or about the periods between November 2, 1988 to
February 27, 1989, or sometime subsequent thereto, in the Province of
Tarlac, Philippines and within the jurisdiction of this Honorable Court,
accused Mariano Un Ocampo III, then the Governor of the province of
Tarlac, and at the same time President-Chairman of the Board of
Trustees of the Lingkod Tarlac Foundation, Inc. (LTFI), a private entity,
having received by reason of his position, public funds amounting to
more than Fifty Two Million Pesos (P52,000,000.00) x x x from the
National Aid for Local Government Unit (NALGU) Funds, which he is
accountable by reason of his official duties, caused the withdrawal by
co-accused Andres S. Flores on April 28, 1989, then Executive Officer,
LTFI, from the PHILIPPINE NATIONAL BANK LTFI account the sum
of FIFTY EIGHT THOUSAND PESOS (P58,000.00), portion of the said
NALGU funds deposited by LTFI under Account No. 490-555744, both
accused conniving and confederating with one another, with intent to
gain and to defraud the government, did then and there, wilfully,
unlawfully and feloniously misappropriate, misapply and convert the
same to their own personal use and benefit to the damage and prejudice
of the government in the aforesaid amount of P58,000.00, Philippine
Currency.

CONTRARY TO LAW.[7]

The Prosecution relied mainly on an audit conducted by the Commission on

Audit on LTFI from February 12, 1990 up to April 2, 1990. The audit covered the
period from July 1, 1988 to December 31, 1989 and was confined to the
examination of the loans granted by the Provincial Government of Tarlac for the
implementation of its Rural Industrialization Can Happen Program. The result of
the audit was embodied in Special Audit Report No. 90-91, offered as Exhibit B by
the prosecution.

According to the Sandiganbayan, the money trail with respect to the two
cases, as proven by the prosecution, is as follows:

(1) Accused Ocampo released P11.5 Million to

LTFI, P7,023,836.00 of which was intended for the purchase of
400 embroidery machines;
(2) The total amount released was deposited by LTFI to the Rural
Bank of Tarlac, Inc.;

(3) Within two (2) months from the deposit, a total

of P5,465,000.00 was withdrawn and given to William Uy (LTFIs
broker for the importation of the machines);

(4) This amount (P5,465,000) was thereafter deposited to the

personal account of Willam Uy and/or Andres Flores under S/A
No. 26127;

(5) Another account (PNB S/A No. 490-555744-6) was opened by

LTFI by Andres Flores, this time with PNB, intended solely for
the purchase of the machines;

(6) A check in the amount of P3,395,000.00 dated February 27,

1989, was remitted for the payment of the machines;

(7) This amount, together with the P5,465,000.00 placed on the

personal account of William Uy and/or Andres Flores, made up
the cost of he machines or a total of P8,860,000.00 as recorded in
the books of LTFI;

(8) To the PNB account was added a total

of P4,332,261.00 deposited on different dates from March 6 to
April 17, 1989 which funds came from S/A No. 26127;

(9) Thus, the total amount on deposit with PNB

was P7,727,261.00 plus interest;

(10) Of this amount, P7,679,530.52 was used for the opening of the
LC (for the payment of the machines) leaving a balance
of P47,730,48.00 plus interest;

(11) Between the amount listed in the books of the

corporation (P8,860,000) and the amount of the LC (P7,679,530),
a discrepancy of P1,180,496.48 existed.

(12) Between the total amount deposited in PNB S/A No. 490-
555744-6 (P7,727,261.00) and the total amount withdrawn from
the account for the payment of the machines (P7,679,530.52), a
 balance of P47,730.48 remained. This balance (plus interest), in
the amount of P58,000.00, was later withdrawn upon
authorization of accused Flores.[8]

Petitioner Ocampo did not testify regarding the subject cases on the ground
that he was not competent to testify on the disbursements made by LTFI but only
as to the receipt of the NALGU funds from the government.

The Sandiganbayan declared that petitioner Ocampo as governor of Tarlac,

who personally received the NALGU funds from the DBM and thereafter released
some of them to the LTFI, was duty bound to put up regular and effective measures
for the monitoring of the projects approved by him.

According to the Sandiganbayan, Sec. 203(t) of the Local Government Code

obligated provincial governors to adopt measures to safeguard all the lands,
buildings, records, monies, credits and other property rights of the
province.However, petitioner Ocampo, as governor of Tarlac, neglected to set up
safeguards for the proper handling of the NALGU funds in the hands of LTFI
which resulted in the disappearance of P1,132,739 and P58,000 of the said
funds. The Sandiganbayan held:

For such gross and inexcusable negligence, accused is liable for

malversation. In so ruling, we are guided by the oft-repeated principle
that malversation may be committed through a positive act of
misappropriation of public funds or passively though negligence by
allowing another to commit such misappropriation (Cabello vs.
Sandiganbayan, 197 SCRA 94 [1991]). Although accused was charged
with willful malversation, he can validly be convicted of malversation
through negligence where the evidence sustains the latter mode of
committing the offense (Cabello, supra).[9]

Further, the Sandiganbayan stated that under Sec. 203(f) of the Local
Government Code of 1983,[10] the provincial governor, as chief executive of the
provincial government, has the power to represent the province in all its business
transactions and sign on its behalf all bonds, contracts and obligations and other
official documents made in accordance with law or ordinance.

Sec. 2 (c) of Rule XI[11] of the Rules and Regulations Implementing the
Local Government Code of 1983 provides that the local chief executive of a local
government unit shall [r]epresent the respective local units in all their business
transactions and sign on its behalf all bonds, contracts and obligations and other
official documents made in accordance with law or ordinance. Sec. 2 of Rule
VI[12]states that [t]he power to sue, to acquire and convey real or personal property,
and to enter into contracts shall be exercised by the local chief executive upon
authority of the Sanggunian concerned. Thus, the Sandiganbayan declared that
since the required authority from the Sangguniang Panlalawigan was not shown to
have been obtained by petitioner Ocampo, the MOA is ineffective as far as
the Province of Tarlac is concerned.

Petitioner Flores, as executive director of LTFI, was charged with

malversation of public funds in connivance with a public officer. However, the
Sandiganbayan found that there was no conspiracy between the petitioners, and
held petitioner Flores guilty of malversation through his independent acts under
Art. 222 of the Revised Penal Code,[13] since the purpose of Art. 222 is to extend
the provisions of the Penal Code on malversation to private individuals. According
to the Sandiganbayan, petitioner Flores bound himself, as a signatory of the MOA
representing LTFI, to receive NALGU funds from the province of Tarlac. In such
capacity, he had charge of these funds.
In Crim. Case No. 16794, petitioner Flores was found to have charge of
missing NALGU funds deposited in his personal account in the amount
of P1,132,739, which formed part of the discrepancy of the actual cost of the
embroidery machines and the NALGU funds released for payment of the said
machines.

In defense, petitioner Flores claimed that the broker for the importation of
the machines made an initial payment to the supplier of the machines, which initial
payment would explain the discrepancy between the reported cost as stated in the
books of the corporation and the letter of credit. However, the Sandiganbayan
stated that the explanation was hearsay as the broker was not presented in court,
and there was no proof of the initial payment.
 In Crim. Case No. 16795, the Sandiganbayan held that
petitioner Flores failure to explain the purpose of the withdrawal on April 28,
1989 of P58,000 uponhis authorization, considering that he was in charge of the
PNB savings account, made him liable for malversation of public funds.

Petitioners presented five documents to show that LTFIs obligations to

the Province of Tarlac, in the amount of P56.6 million, have been
extinguished. The documents are as follows:

1) The Tripartite Memorandum of Agreement (TMOA) dated May 23,

1990 executed by the Province of Tarlac, LTFI and the Barangay
Unity for Industrial and Leadership Development (BUILD)
Foundation whereby the liability of LTFI in favor of the Province of
Tarlac was transferred and assumed by BUILD in the total amount
of P40 million.

2) Resolution No. 76 of the Sangguniang Panlalawigan of Tarlac dated

April 5, 1990 showing that the authority of petitioner Ocampo in
entering into the TMOA was with prior approval of the Sangguniang
Panlalawigan.

3) A Deed of Assignment between Tarlac and LTFI whereby the latter

assigned its loan portfolios (including interests and certificates of time
deposit), the Juki embroidery machines and other
assignable documents to the Province of Tarlac in the total amount
of P16,618,403.

4) Resolution No. 199 of the Sangguniang Panlalawigan of Tarlac

dated October 18, 1990 authorizing petitioner Ocampo to enter into
the Deed of Assignment with LTFI.

5) A certified photocopy of a document dated June 16, 1992 issued by

the OIC provincial treasurer of Tarlac whereby the treasurer affirmed
the existence of the above documents.
 The Sandiganbayan declared that the documents showing the
extinguishment of LTFIs obligations to the Province of Tarlace do not mitigate the
liability of petitioners since the crime is consummated as of asportation, akin to the
taking of anothers property in theft. It held that the return of the amount malversed
is neither an exempting circumstance nor a ground for extinguishing the criminal
liability of petitioners.

On March 8, 2002, the Fifth Division of the Sandiganbayan rendered a

Decision acquitting petitioners of the crime of malversation of public funds in
Crim. Case Nos. 16796 and 16802, but finding them guilty of the crime in Crim.
Case Nos. 16787, 16794 and 16795. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, accused Mariano Un
Ocampo III and Andres S. Flores are hereby found GUILTY beyond
reasonable doubt of the crime of malversation of Public Funds under
Crim. Case No. 16787 and are sentenced to suffer the indeterminate
penalty of (10) years, and one (1) day of prision mayor, as minimum, to
eighteen (18) years, eight (8) months and one (1) day of reclusion
temporal as maximum and to pay a fine of sixty-six thousand nine
hundred thirty-two pesos and seventy centavos (P66,932.70). They shall
also suffer the penalty of perpetual special disqualification. Costs against
the accused.

For Crim. Case No. 16794, accused Mariano Un Ocampo III and
Andres S. Flores are hereby found GUILTY beyond reasonable doubt of
the crime of Malversation of Public Funds and are sentenced to suffer
the indeterminate penalty of (10) years, and one (1) day of prision
mayor, as minimum, to eighteen (18) years, eight (8) months and one (1)
day of reclusion temporal as maximum and to pay a fine of one million
one hundred thirty-two thousand seven hundred thirty-nine pesos
(P1,132,739.00). They shall also suffer the penalty of perpetual special
disqualification. Costs against the accused.

For Crim. Case No. 16795, accused Mariano Un Ocampo III and
Andres S. Flores are hereby found GUILTY beyond reasonable doubt of
the crime of Malversation of Public Funds and are sentenced to suffer
the indeterminate penalty of (10) years, and one (1) day of prision
mayor, as minimum, to eighteen (18) years, eight (8) months and one (1)
day of reclusion temporal as maximum and to pay a fine of fifty-eight
thousand pesos (P58,000.00). They shall also suffer the penalty of
perpetual special disqualification. Costs against the accused.
 For Crim. Case No. 16796, on ground that the crime was not
committed by the accused, accused Mariano Un Ocampo III and Andres
S. Flores are hereby ACQUITTED of the crime charged. The surety
bonds posted by them for their provisional liberty are cancelled.

For Crim. Case No. 16802, on ground of reasonable doubt,

accused Mariano Un Ocampo III and Andres S. Flores are hereby
ACQUITTED of the crime charged. The surety bonds posted by them
for their provisional liberty are cancelled.

SO ORDERED.[14]

Petitioners separately filed a motion for reconsideration of the Decision.

In a Resolution promulgated on January 6, 2003, the Sandiganbayan

reconsidered its Decision in Crim. Case No. 16787, and acquitted petitioners of the
crime charged. In that case, the prosecution alleged that P5 million of the NALGU
funds loaned to LTFI were placed in time deposits with the Rural Bank of Tarlac
and earned a total interest of P116,932.77, of which amount only P50,000.00 was
recorded in the books of LTFI. The unrecorded interest of P66,932.77 was said to
have been withdrawn from December 27, 1988 to February 2, 1989 and allegedly
malversed by petitioners. The Sandiganbayan held that as this Court has already
labeled the subject agreement as one of loan, the said interest are private funds,
hence, not the proper subject for malversation of public funds. Thus, petitioners
were acquitted in Crim. Case No. 16787.

Petitioners thereafter filed their respective petitions, which were

consolidated by the Court in a Resolution dated February 20, 2006.

The pertinent issues raised by petitioners may be summarized as follows:

1) Whether or not petitioners Ocampo and Flores are guilty of the crime of
malversation of public funds under Art. 217 and Art. 220 respectively of
the Revised Penal Code;
 2) Whether or not the Sandiganbayan erred in holding that the MOA is void
and did not bind the Province of Tarlac on the ground that the MOA was
entered into by petitioner Ocampo without authority from
the Sangguniang Panlalawigan in violation of the Local Government
Code of 1983.

First Issue: Whether or not petitioners Ocampo and Flores are guilty
of the crime of malversation of public funds under Art. 217 and
Art. 220 respectively of the Revised Penal Code?

Crucial to the resolution of the first issue is the nature of the transaction
entered into by the Province of Tarlac and LTFI.

Petitioners claim that in the instant cases, the public funds alleged to have
been malversed were loaned by the Province of Tarlac to LTFI per the MOA;
hence, LTFI acquired ownership of the funds which thus shed their public
character and became private funds.
Petitioner Ocampo also asserts that the Sandiganbayan impliedly ruled that
the funds were private in character and owned by LTFI when it ruled in Crim. Case
No. 16787 that since this Court has already labeled the subject agreement as one of
loan, the interests from the loan are private funds; hence, not the proper subject for
malversation of public funds. Having declared the interests earned by the funds
loaned to LTFI as private funds, the Sandiganbayan should have also declared the
funds loaned as private.

Petitioners arguments are meritorious.

The MOA states:

xxx
WHEREAS, the First Party [the Provincial Government of
Tarlac], in order to vigorously pursue its livelihood program for rural
development, has identified the need to establish a RICH (Rural
Industrialization Can Happen) Program;
 WHEREAS, the First Party now realizes the effectivity and
efficiency of designating a professional private non-profit organization
to implement the various livelihood projects under the RICH Program;

WHEREAS, the Second Party [Lingkod Tarlac Foundation], has

represented that it has the technical expertise required by the First Party
in the implementation of the various livelihood projects under the RICH
Program;

WHEREAS, the First Party desires to engage the Second Party

and the latter agrees as the implementing arm of the Provincial
Government for its livelihood projects;

NOW, THEREFORE, in consideration of the mutual covenants

herein contained, the Parties hereby agree as follows:

ARTICLE I
UNDERTAKINGS OF THE FIRST PARTY

1. The First Party shall provide all the data and information as may be
required by [the] Second Party in the implementation of the RICH
Program;

ARTICLE III
DESCRIPTION OF THE PRIORITY PROJECTS

A. Program For Lease Purchase Agreements on equipment,

machineries, buildings and structures:
xxx

B. Direct Lending Pogram:

Under this scheme, the Lingkod Tarlac Foundation shall

engage in direct lending operations to proponents of livelihood
activities under the Rural Industrialization Can Happen (RICH
PROGRAM) at variable interest rates and loan conditions
depending on the viability and nature of the livelihood projects
availing of the loan.

C. Direct Borrowing by Lingkod Tarlac Foundation:

 The Lingkod Tarlac Foundation shall be allowed to
borrow fundsdirectly from the Provincial government to fund
Lingkod Tarlac Foundation projects provided the projects are
livelihood projects under the Rural Industrialization Can Happen
(RICH Program).

D. Other project financing schemes that may be developed for the

RICH Program.

ARTICLE IV
CONDITIONS FOR RELEASE OF FUNDS

The First Party shall release in lump sum the appropriate funds for
the approved projects covered by individual loan documents upon
signing of [the] respective loan agreement and approval of the
Commission on Audit.

ARTICLE V
TERMS OF REPAYMENT

1. The Second Party shall repay the First Party only the total amount of
capital without interest in consideration of the following:

a) The Second Party shall shoulder all its operating expenses.

b) The Second Party shall not charge the Province any
management fees or whatever fees.
c) The Second Party shall, whenever necessary, assure the
beneficiaries of the project interests and management fees at
rates lower than the commercial financial rates.

2. The terms of repayment shall be based on the projects ability to pay

without sacrificing on the projects viability.

ARTICLE VI
SUCCESSORS AND ASSIGNEES
 Except as may be mutually agreed in writing, neither party can
assign, sublet, or transfer its interest or duties under this Agreement.

ARTICLE VII
TERMS OF THE AGREEMENT

This Agreement shall exist for as long as the Program exists or

any extension thereof.

IN WITNESS WHEREOF, the Parties have hereunto set their

hands on this 8th day of August, 1988 in Tarlac, Tarlac.

LINGKOD TARLAC FOUNDATION PROVINCE OF TARLAC

Second Party First Party
(Signed) (Signed)
ANDRES S, FLORES MARIANO UN OCAMPO III
Executive Director Governor

CONCURRED IN BY:
(Signed)
GUILLERMO N. CARAGUE
Secretary of Budget
& Management

The MOA shows that LTFI is allowed to borrow funds directly from the
Provincial Government to fund Lingkod Tarlac Foundation projects provided the
projects are livelihood projects under the Rural Industrialization Can Happen
Program. Moreover, the agreement stipulates under the Conditions for Release of
Funds that the Province of Tarlac shall release in lump sum the appropriate funds
for the approved projects covered by individual loan documents upon signing
of the respective loan agreement....[15]

In Crim. Case No. 16794, the fund alleged to have been malversed in the
amount of P1,180,496.48 represents the discrepancy of the cost of the Juki
embroidery machines as listed in the books of LTFI and the amount actually paid
to open the letter of credit for the payment of the machines. In the books of LTFI,
the cost of the Juki embroidery machines was listed as P8,860,000, while the
amount paid to open the letter of credit for the payment of the machines
was P7,679,530.52.Petitioner Flores was held liable only up to the amount
of P1,132,739.

In Crim. Case No. 16795, the fund alleged to have been malversed in the
amount of P58,000 is the money left (P47,730) in PNB S/A No. 490-555744-
6 after the withdrawal of the purchase price of the Juki embroidery machines, plus
interest.The amount of P58,000 was withdrawn upon the authorization of petitioner
Flores. The withdrawal was neither reflected as deposit in the bank accounts of
LTFI nor spent by it.

In both cases, the money trail proven by the prosecution shows that the
subject funds or the money used for the purchase of the Juki embroidery machines
came from the release of the Province of Tarlac through petitioner Ocampo of
NALGU funds in the amount of P11.5 million to LTFI on October 24, 1988. The
release of the funds was covered by a loan document in accordance with the MOA
which states that the Province of Tarlac shall release in lump sum the appropriate
funds for the approved projects covered by individual loan documents upon
signing of the respective loan agreement....
The Report on the Special Audit of LTFI[16] stated:

. . . For the period July 1988 to December 1989, LTFI received a total
of P56.6 million which consisted of six releases and covered by
individual loan agreements, as follows:

Date Amount
08 30 88 P7, 000, 000
10 24 88 11,500, 000
12 08 88 1,500, 000
02 22 89 4,000, 000
04 12 89 18,000, 000
06 14 89 12,718, 403
Total P56,618, 403

xxx
On October 24, 1988, the Provincial Government of Tarlac
approved and released an amount of P11,500,000 to Lingkod Tarlac
Foundation, Inc. (LTFI) for the Rural Industrialization Can Happen
 (RICH) Program. Of the amount released, P7,023,836 was intended for
the purchase of 400 sets embroidery machines for the Embroidery Skills
Training Project.[17]

Based on the foregoing, it is clear that the funds released by

the Province of Tarlac, including the money allegedly malversed by petitioners in
Crim. Case Nos. 16794 and 16795, were in the nature of a loan to LTFI.

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

Hence, petitioner Ocampo correctly argued that the NALGU funds shed
their public character when they were lent to LTFI as it acquired ownership of the
funds with an obligation to repay the Province of Tarlac the amount borrowed. The
relationship between the Province of Tarlac and the LTFI is that of a creditor and
debtor. Failure to pay the indebtedness would give rise to a collection suit.

The Sandiganbayan convicted petitioner Ocampo of malversation of public

funds under Art. 217 of the Revised Penal Code for his gross and inexcusable
negligence in not setting up safeguards in accordance with Sec. 203(t) of the Local
Government Code[18] for the proper handling of the NALGU funds in the hands of
LTFI which resulted in the disappearance of P1,132,739 allegedly malversed in
Crim. Case No. 16794 and the disappearance of P58,000 in Crim. Case No. 16795.

In his petition, petitioner Ocampo states that he made sure that proper
safeguards were in place within LTFI to ensure the proper handling of NALGU
funds by LTFI. On August 5, 1988, before the Province of Tarlac and LTFI entered
into the MOA, LTFIs Articles of Incorporation were amended to add the following:

TENTH: That no part of the net income of the Foundation shall

inure to the benefit of any member of the Foundation and that at least
seventy percent (70%) of the funds shall be used for the projects and not
more than thirty percent (30%) of said funds shall be used for
administrative purposes.
 Petitioner Ocampo argues that since he had resigned from LTFI both as
chairperson and as trustee on June 22, 1988, he ceased to become accountable for
the handling of the NALGU funds after the same were loaned to LTFI pursuant to
the MOA dated August 8, 1988. Consequently, he may not be held criminally
liable for disbursements made by LTFI since he had nothing to do with its
operations after his resignation.

Malversation may be committed by appropriating public funds or property;

by taking or misappropriating the same; by consenting, or through abandonment or
negligence, by permitting any other person to take such public funds or property;
or by being otherwise guilty of the misappropriation or malversation of such funds
or property.[19]

The essential elements common to all acts of malversation under Art. 217 of
the Revised Penal Code[20] are:

(a) That the offender be a public officer;

(b) That he had the custody or control of funds or property by reason of the
duties of his office;
(c) That those funds or property were public funds or property for which
he was accountable;
(d) That he appropriated, took, misappropriated or consented or, through
abandonment or negligence, permitted another person to take them.[21]

There can be no malversation of public funds by petitioner Ocampo in the

instant cases since the loan of P11.5 million transferred ownership and custody of
the funds, which included the sum of money allegedly malversed, to LTFI for
which Ocampo could no longer be held accountable. Thus, contrary to the
allegation of the Office of the Special Prosecutor, petitioner Ocampo cannot be
held culpable for malversation committed through negligence in adopting measures
to safeguard the money of the Province of Tarlac, since the same were neither in
his custody nor was he accountable therefor after the loan to LTFI.

Thus, petitioner Flores, as the executive director of LTFI, cannot also be

held liable for malversation of public funds in a contract of loan which transferred
ownership of the funds to LTFI making them private in character. Liwanag v.
Court of Appeals[22] held:

. . . in a contract of loan once the money is received by the debtor,

ownership over the same is transferred. Being the owner, the borrower
can dispose of it for whatever purpose he may deem proper.

The Sandiganbayan erred when it stated that the intention of the parties was
for the funds to remain public, citing the MOA which allegedly provided, thus:

The Province shall have the right to have access to all resources
and records of either LTF[I] or BUILD and may conduct COA
examination or audit on any or all matter affecting the loans or assets
covered by this agreement and funds from the Province of Tarlac.

A review of the MOA did not show the presence of such provision. But the
cited provision is contained in the TMOA, which was later entered into by
the Province of Tarlac, LTFI and BUILD, whereby LTFI transferred part of its
obligation to BUILD.

What is controlling in the instant cases is that the parties entered into a
contract of loan for each release of NALGU funds. The second release
on October 24, 1988 included the subject funds in controversy. By virtue of the
contract of loan, ownership of the subject funds was transferred to LTFI making
them private in character, and therefore not subject of the instant cases of
malversation of public funds.
The Court notes that the obligation of LTFI to repay the NALGU Funds
of P56,618,403 obtained by it from the Province of Tarlac pursuant to the
MOA was extinguished as follows:

(1) BUILD assumed LTFIs principal loan of P40 million;

(2) LTFI ceded, transferred and assigned to the Province of Tarlac all the
rights and interests of LTFI in certain loans including
 interests, certificate of time deposit and certain Juki embroidery
machines in the total amount of P16,618,403.

Second Issue: Whether or not the Sandiganbayan erred in holding that the
MOA is void and did not bind the Province of Tarlac on the ground that
the MOA was entered into by petitioner Ocampo without authority from
the Sangguniang Panlalawigan in violation of the Local Government
Code of 1983?

In its Resolution dated January 6, 2003, the Sandiganbayan concedes that

the transaction between the Province of Tarlac through petitioner Ocampo and the
LTFI was one of loan. However, it stated that since Ocampo was not authorized by
the Sangguniang Panlalawigan to enter into the MOA as required by the Local
Government Code of 1983, the MOA did not bind the province nor did it give any
benefits to the LTFI because a void contract has no effect whatsoever.

Petitioner Ocampo alleges that he had ample authority to enter into the
MOA for the following reasons:

1) NALGU funds received by the Province of Tarlac came straight from

the national government and were intended for a specific purpose, that
is, the implementation of various livelihood projects in
the Province of Tarlac, as evidenced by the exchange of
correspondence between him (petitioner Ocampo) and DBM
Secretary Guillermo N. Carague.[23]

2) On July 15, 1988, the DBM released a revolving fund for the
implementation of various livelihood projects in
the Province of Tarlacunder Advice Allotment No. BCS-0183-88-
301.[24] In August 1988, he (petitioner Ocampo) informed the DBM
that the Province of Tarlachad designated LTFI as the implementing
arm for its livelihood projects, and requested authority to extend loans
to LTFI, which request was approved by the DBM Secretary.[25]
 3) The DBMs approval of petitioner Ocampos request constituted the
authority of petitioner Ocampo to enter into the MOA with LTFI.

4) DBM also approved and concurred with the terms of the MOA as
evidenced by the DBM Secretarys signature on the MOA.

Petitioner Ocampo also asserts that Sec. 203(f) of the Local Government
Code of 1983,[26] which authorized the provincial governor to enter into business
transactions on behalf of the province, did not expressly require the concurrence of
the provincial board unlike its counterpart provision in the Local Government
Code of 1991.[27]

Further, petitioner Ocampo states that in any case, the lack of authority of
one who enters into a contract in the name of another does not render the contract
void under Art. 1409 of the Civil Code, [28] as ruled by the Sandiganbayan, but only
unenforceable under Art. 1403(1) of the Civil Code. He points out that
unenforceable contracts are susceptible of ratification, and in this case, the
Provincial Board of Tarlac can be deemed to have ratified the MOA when it passed
the following resolutions:

(1) Resolution No. 76, which confirmed and ratified the TMOA among
the Province of Tarlac, LTFI and the BUILD, whereby the liability of
LTFI in favor of the Province of Tarlac in the total amount of P40
millionwas transferred to and assumed by BUILD;[29] and

(2) Resolution No. 199, which authorized petitioner Ocampo to sign the
Deed of Assignment between the Province of Tarlac and LTFI,
whereby LTFI assigned loans, sewing machines and other assignable
documents in favor of the Province of Tarlac to settle the balance of
its obligation in the amount of P16,618,403.00. [30]

The Court holds that since petitioner Ocampo was not duly authorized by
the Sangguniang Panlalawigan to enter into the MOA, the agreement is an
unenforceable contract under Sec. 1403 of the Civil Code:
 Art. 403. The following contracts are unenforceable, unless they
are ratified:

(1) Those entered into in the name of another person by one who
has been given no authority or legal representation, or who has
acted beyond his powers; x x x.

Unenforceable contracts are governed by the following provisions of the

Civil Code:

Art. 1404. Unauthorized contracts are governed by article

1317 and the principles of agency in Title X of this Book.
Art. 1317. No one may contract in the name of another without
being authorized by the latter, or unless he has by law or right to
represent him.

A contract entered into in the name of another by one who has no

authority or legal representation, or who has acted beyond his powers,
shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked by
the other contracting party.[31]

The Court finds that the MOA has been impliedly ratified by
the Sangguniang Panlalawigan as it has not directly impugned the validity of the
MOA despite knowledge of this controversy. Implied ratification is also shown by
the following acts:

1) The Sangguniang Panlalawigan subsequently recognized the

transfer of liabilities of LTFI in favor of
the Province of Tarlac toBUILD in the amount of P40 million
contained in a TMOA.[32]

2) It authorized petitioner Ocampo to sign in behalf of

the Province of Tarlac the Deed of Assignment entered into by
the Province of Tarlac and LTFI[33] which extinguished the
remaining loan obligations of LTFI obtained under the MOA.
 WHEREFORE, the consolidated petitions are GRANTED. The Decision
of the Sandiganbayan promulgated on March 8, 2002 and its Resolution
promulgated on January 6, 2003 are SET ASIDE. Petitioner Mariano Un Ocampo
III and petitioner Andres S. Flores are hereby ACQUITTED of the crime of
malversation of public funds in Crim. Case Nos. 16794 and 16795.

No costs.

SO ORDERED.

ADOLFO S. AZCUNA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice
 TERESITA J. LEONARDO-DE CASTRO
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that
the conclusions in the above Decision had been reached in consultation before the
cases were assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

EN BANC

[G.R. No. 144516. February 11, 2004]

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs. COMMISSION ON AUDIT, respondent.

DECISION
CARPIO, J.:
 The Case

In this special civil action for certiorari, the Development Bank of the Philippines
[1]

(DBP) seeks to set aside COA Decision No. 98-403 dated 6 October 1998 (COA
[2]

Decision) and COA Resolution No. 2000-212 dated 1 August 2000 issued by the
[3]

Commission on Audit (COA). The COA affirmed Audit Observation Memorandum (AOM)
No. 93-2, which disallowed in audit the dividends distributed under the Special Loan
[4]

Program (SLP) to the members of the DBP Gratuity Plan.

Antecedent Facts

The DBP is a government financial institution with an original charter, Executive

Order No. 81, as amended by Republic Act No. 8523 (DBP Charter). The COA is a
[5] [6]

constitutional body with the mandate to examine and audit all government
instrumentalities and investment of public funds. [7]

The COA Decision sets forth the undisputed facts of this case as follows:

xxx [O]n February 20, 1980, the Development Bank of the Philippines (DBP) Board
of Governors adopted Resolution No. 794 creating the DBP Gratuity Plan and
authorizing the setting up of aretirement fund to cover the benefits due to DBP retiring
officials and employees under Commonwealth Act No. 186, as amended. The Gratuity
Plan was made effective on June 17, 1967 and covered all employees of the Bank as
of May 31, 1977.

On February 26, 1980, a Trust Indenture was entered into by and between the DBP
and the Board of Trustees of the Gratuity Plan Fund, vesting in the latter the control
and administration of the Fund. The trustee, subsequently, appointed the DBP Trust
Services Department (DBP-TSD) as the investment manager thru an Investment
Management Agreement, with the end in view of making the income and principal of
the Fund sufficient to meet the liabilities of DBP under the Gratuity Plan.

In 1983, the Bank established a Special Loan Program availed thru the facilities of the
DBP Provident Fund and funded by placements from the Gratuity Plan Fund. This
Special Loan Program was adopted as part of the benefit program of the Bank to
provide financial assistance to qualified members to enhance and protect the value of
their gratuity benefits because Philippine retirement laws and the Gratuity Plan do not
allow partial payment of retirement benefits. The program was suspended in 1986 but
was revived in 1991 thru DBP Board Resolution No. 066 dated January 5, 1991.

Under the Special Loan Program, a prospective retiree is allowed the option to utilize
in the form of a loan a portion of his outstanding equity in the gratuity fund and to
invest it in a profitable investment or undertaking. The earnings of the investment
shall then be applied to pay for the interest due on the gratuity loan which was initially
set at 9% per annum subject to the minimum investment rate resulting from the
updated actuarial study. The excess or balance of the interest earnings shall then be
distributed to the investor-members.

Pursuant to the investment scheme, DBP-TSD paid to the investor-members a total

of P11,626,414.25 representing the net earnings of the investments for the years 1991
and 1992. The payments were disallowed by the Auditor under Audit Observation
Memorandum No. 93-2 dated March 1, 1993, on the ground that the distribution of
income of the Gratuity Plan Fund (GPF) to future retirees of DBP is irregular and
constituted the use of public funds for private purposes which is specifically
proscribed under Section 4 of P.D. 1445. [8]

AOM No. 93-2 did not question the authority of the Bank to set-up the [Gratuity
Plan] Fund and have it invested in the Trust Services Department of the Bank. Apart[9]

from requiring the recipients of the P11,626,414.25 to refund their dividends, the Auditor
recommended that the DBP record in its books as miscellaneous income the income of
the Gratuity Plan Fund (Fund). The Auditor reasoned that the Fund is still owned by the
Bank, the Board of Trustees is a mere administrator of the Fund in the same way that
the Trust Services Department where the fund was invested was a mere investor and
neither can the employees, who have still an inchoate interest [i]n the Fund be
considered as rightful owner of the Fund. [10]

In a letter dated 29 July 1996, former DBP Chairman Alfredo C. Antonio requested
[11]

then COA Chairman Celso D. Gangan to reconsider AOM No. 93-2. Chairman Antonio
alleged that the express trust created for the benefit of qualified DBP employees under
the Trust Agreement (Agreement) dated 26 February 1980 gave the Fund a separate
[12]

legal personality. The Agreement transferred legal title over the Fund to the Board of
Trustees and all earnings of the Fund accrue only to the Fund. Thus, Chairman Antonio
contended that the income of the Fund is not the income of DBP.
Chairman Antonio also asked COA to lift the disallowance of the P11,626,414.25
distributed as dividends under the SLP on the ground that the latter was simply a
normal loan transaction. He compared the SLP to loans granted by other gratuity and
retirement funds, like the GSIS, SSS and DBP Provident Fund.

The Ruling of the Commission on Audit

On 6 October 1998, the COA en banc affirmed AOM No. 93-2, as follows:

The Gratuity Plan Fund is supposed to be accorded separate personality under the
administration of the Board of Trustees but that concept has been effectively
eliminated when the Special Loan Program was adopted. xxx
The Special Loan Program earns for the GPF an interest of 9% per annum, subject to
adjustment after actuarial valuation. The investment scheme managed by the TSD
accumulated more than that as evidenced by the payment of P4,568,971.84 in 1991
and P7,057,442,41 in 1992, to the member-borrowers. In effect, the program is
grossly disadvantageous to the government because it deprived the GPF of higher
investment earnings by the unwarranted entanglement of its resources under the loan
program in the guise of giving financial assistance to the availing employees. xxx

Retirement benefits may only be availed of upon retirement. It can only be demanded
and enjoyed when the employee shall have met the last requisite, that is, actual
retirement under the Gratuity Plan. During employment, the prospective retiree shall
only have an inchoate right over the benefits. There can be no partial payment or
enjoyment of the benefits, in whatever guise, before actual retirement. xxx

PREMISES CONSIDERED, the instant request for reconsideration of the

disallowance amounting to P11,626,414.25 has to be, as it is hereby, denied. [13]

In its Resolution of 1 August 2000, the COA also denied DBPs second motion for
reconsideration. Citing the Courts ruling in Conte v. COA, the COA concluded that the
[14]

SLP was actually a supplementary retirement benefit in the guise of financial

assistance, thus:

At any rate, the Special Loan Program is not just an ordinary and regular transaction
of the Gratuity Plan Fund, as the Bank innocently represents. xxx It is a systematic
investment mix conveniently implemented in a special loan program with the least
participation of the beneficiaries, by merely filing an application and then wait for the
distribution of net earnings. The real objective, of course, is to give financial
assistance to augment the value of the gratuity benefits, and this has the same effect as
the proscribed supplementary pension/retirement plan under Section 28 (b) of
C(ommonwealth) A(ct) 186.

This Commission may now draw authority from the case of Conte, et al. v.
Commission on Audit(264 SCRA 19 [1996]) where the Supreme Court declared that
financial assistance granted to retiring employees constitute supplementary retirement
or pension benefits. It was there stated:

xxx Said Sec. 28 (b) as amended by R.A. 4968 in no uncertain terms bars the creation
of any insurance or retirement plan other than the GSIS for government officers and
employees, in order to prevent the undue and iniquitous proliferation of such plans. It
is beyond cavil that Res. 56 contravenes the said provision of law and is therefore,
invalid, void and of no effect. To ignore this and rule otherwise would be tantamount
to permitting every other government office or agency to put up its own
supplementary retirement benefit plan under the guise of such financial assistance. [15]

Hence, the instant petition filed by DBP.

The Issues

The DBP invokes justice and equity on behalf of its employees because of
prevailing economic conditions. The DBP reiterates that the income of the Fund should
be treated and recorded as separate from the income of DBP itself, and charges that
COA committed grave abuse of discretion:

1. IN CONCLUDING THAT THE ADOPTION OF THE SPECIAL LOAN

PROGRAM CONSTITUTES A CIRCUMVENTION OF PHILIPPINE
RETIREMENT LAWS;

2. IN CONCLUDING THAT THE SPECIAL LOAN PROGRAM IS GROSSLY

DISADVANTAGEOUS TO THE GOVERNMENT;

3. IN CONCLUDING THAT THE SPECIAL LOAN PROGRAM CONSTITUTES A

SUPPLEMENTARY RETIREMENT BENEFIT. [16]

The Office of the Solicitor General (OSG), arguing on behalf of the COA, questions
the standing of the DBP to file the instant petition. The OSG claims that the trustees of
the Fund or the DBP employees themselves should pursue this certiorari proceeding
since they would be the ones to return the dividends and not DBP.
The central issues for resolution are: (1) whether DBP has the requisite standing to
file the instant petition for certiorari; (2) whether the income of the Fund is income of
DBP; and (3) whether the distribution of dividends under the SLP is valid.

The Ruling of the Court

The petition is partly meritorious.

The standing of DBP to file this petition for certiorari

As DBP correctly argued, the COA en banc implicitly recognized DBPs standing
when it ruled on DBPs request for reconsideration from AOM No. 93-2 and motion for
reconsideration from the Decision of 6 October 1998. The supposed lack of standing of
the DBP was not even an issue in the COA Decision or in the Resolution of 1 August
2000.
The OSG nevertheless contends that the DBP cannot question the decisions of the
COA en banc since DBP is a government instrumentality. Citing Section 2, Article IX-D
of the Constitution, the OSG argued that:
[17]

Petitioner may ask the lifting of the disallowance by COA, since COA had not yet
made a definitive and final ruling on the matter in issue. But after COA denied with
finality the motion for reconsideration of petitioner, petitioner, being a government
instrumentality, should accept COAs ruling and leave the matter of questioning COAs
decision with the concerned investor-members. [18]

These arguments do not persuade us.

Section 2, Article IX-D of the Constitution does not bar government instrumentalities
from questioning decisions of the COA. Government agencies and government-owned
and controlled corporations have long resorted to petitions for certiorari to question
rulings of the COA. These government entities filed their petitions with this Court
[19]

pursuant to Section 7, Article IX of the Constitution, which mandates that aggrieved

parties may bring decisions of the COA to the Court on certiorari. Likewise, the[20]

Government Auditing Code expressly provides that a government agency aggrieved by

a COA decision, order or ruling may raise the controversy to the Supreme Court
on certiorari in the manner provided by law and the Rules of Court. Rule 64 of the
[21]

Rules of Court now embodies this procedure, to wit:

SEC 2. Mode of review. A judgment or final order or resolution of the Commission on

Elections and the Commission on Audit may be brought by the aggrieved party to the
Supreme Court on certiorari under Rule 65, except as hereinafter provided.

The novel theory advanced by the OSG would necessarily require persons not
parties to the present case the DBP employees who are members of the Plan or the
trustees of the Fund to avail of certiorari under Rule 65. The petition for certiorari under
Rule 65, however, is not available to any person who feels injured by the decision of a
tribunal, board or officer exercising judicial or quasi-judicial functions. The person
aggrieved under Section 1 of Rule 65 who can avail of the special civil action
of certioraripertains only to one who was a party in the proceedings before the court a
quo, or in this case, before the COA. To hold otherwise would open the courts to
[22]

numerous and endless litigations. Since DBP was the sole party in the proceedings
[23]

before the COA, DBP is the proper party to avail of the remedy of certiorari.
The real party in interest who stands to benefit or suffer from the judgment in the
suit must prosecute or defend an action. We have held that interest means material
[24]

interest, an interest in issue that the decision will affect, as distinguished from mere
interest in the question involved, or a mere incidental interest.
[25]
 As a party to the Agreement and a trustor of the Fund, DBP has a material interest
in the implementation of the Agreement, and in the operation of the Gratuity Plan and
the Fund as prescribed in the Agreement. The DBP also possesses a real interest in
upholding the legitimacy of the policies and programs approved by its Board of Directors
for the benefit of DBP employees. This includes the SLP and its implementing rules,
which the DBP Board of Directors confirmed.

The income of the Gratuity Plan Fund

The COA alleges that DBP is the actual owner of the Fund and its income, on the
following grounds: (1) DBP made the contributions to the Fund; (2) the trustees of the
Fund are merely administrators; and (3) DBP employees only have an inchoate right to
the Fund.
The DBP counters that the Fund is the subject of a trust, and that the Agreement
transferred legal title over the Fund to the trustees. The income of the Fund does not
accrue to DBP. Thus, such income should not be recorded in DBPs books of account. [26]

A trust is a fiduciary relationship with respect to property which involves the

existence of equitable duties imposed upon the holder of the title to the property to deal
with it for the benefit of another. A trust is either express or implied. Express trusts are
[27]

those which the direct and positive acts of the parties create, by some writing or deed,
or will, or by words evincing an intention to create a trust.
[28]

In the present case, the DBP Board of Governors (now Board of Directors)
Resolution No. 794 and the Agreement executed by former DBP Chairman Rafael Sison
and the trustees of the Plan created an express trust, specifically, an employees
trust. An employees trust is a trust maintained by an employer to provide retirement,
pension or other benefits to its employees. It is a separate taxable entity established
[29] [30]

for the exclusive benefit of the employees. [31]

Resolution No. 794 shows that DBP intended to establish a trust fund to cover the
retirement benefits of certain employees under Republic Act No. 1616 (RA 1616). The
[32]

principal and income of the Fund would be separate and distinct from the funds of
DBP.We quote the salient portions of Resolution No. 794, as follows:

2. Trust Agreement designed for in-house trustees of three (3) to be appointed by the
Board of Governors and vested with control and administration of the funds
appropriated annually by the Board to be invested in selective investments so that the
income and principal of said contributions would be sufficient to meet the
required payments of benefits as officials and employees of the Bank retire under
the Gratuity Plan; xxx

The proposed funding of the gratuity plan has decided advantages on the part of the
Bank over the present procedure, where the Bank provides payment only when an
employee retires or on pay as you go basis:
1. It is a definite written program, permanent and continuing whereby the Bank
provides contributions to a separate trust fund, which shall be exclusively used to
meet its liabilities to retiring officials and employees; and

2. Since the gratuity plan will be tax qualified under the National Internal Revenue
Code and RA 4917, the Banks periodic contributions thereto shall be deductible for
tax purposes and the earnings therefrom tax free. (Emphasis supplied)
[33]

In a trust, one person has an equitable ownership in the property while another
person owns the legal title to such property, the equitable ownership of the former
entitling him to the performance of certain duties and the exercise of certain powers by
the latter. A person who establishes a trust is the trustor. One in whom confidence is
[34]

reposed as regards property for the benefit of another is the trustee. The person for
whose benefit the trust is created is the beneficiary. [35]

In the present case, DBP, as the trustor, vested in the trustees of the Fund legal title
over the Fund as well as control over the investment of the money and assets of the
Fund. The powers and duties granted to the trustees of the Fund under the Agreement
were plainly more than just administrative, to wit:

1. The BANK hereby vests the control and administration of the Fund in the
TRUSTEES for the accomplishment of the purposes for which said Fund is intended
in defraying the benefits of the PLAN in accordance with its provisions, and the
TRUSTEES hereby accept the trust xxx

2. The TRUSTEES shall receive and hold legal title to the money and/or property
comprising the Fund, and shall hold the same in trust for its beneficiaries, in
accordance with, and for the uses and purposes stated in the provisions of the PLAN.

3. Without in any sense limiting the general powers of management and

administration given to TRUSTEES by our laws and as supplementary thereto, the
TRUSTEES shall manage, administer, and maintain the Fund with full power and
authority:

xxx

b. To invest and reinvest at any time all or any part of the Fund in any
real estate (situated within the Philippines), housing project, stocks,
bonds, mortgages, notes, other securities or property which the said
TRUSTEES may deem safe and proper, and to collect and receive all
income and profits existing therefrom;

c. To keep and maintain accurate books of account and/or records of the Fund
xxx.
 d. To pay all costs, expenses, and charges incurred in connection with the
administration, preservation, maintenance and protection of the Fund
xxx to employ or appoint such agents or employees xxx.

e. To promulgate, from time to time, such rules not inconsistent with the
conditions of this Agreement xxx.

f. To do all acts which, in their judgment, are needful or desirable for the
proper and advantageous control and management of the Fund xxx.
(Emphasis supplied)
[36]

Clearly, the trustees received and collected any income and profit derived from the
Fund, and they maintained separate books of account for this purpose. The principal
and income of the Fund will not revert to DBP even if the trust is subsequently modified
or terminated. The Agreement states that the principal and income must be used to
satisfy all of the liabilities to the beneficiary officials and employees under the Gratuity
Plan, as follows:

5. The BANK reserves the right at any time and from time to time (1) to
modify or amend in whole or in part by written directions to the
TRUSTEES, any and all of the provisions of this Trust Agreement, or (2)
to terminate this Trust Agreement upon thirty (30) days prior notice in
writing to the TRUSTEES; provided, however, that no modification or
amendment which affects the rights, duties, or responsibilities of the
TRUSTEES may be made without the TRUSTEES consent; and
provided, that such termination, modification, or amendment prior to
the satisfaction of all liabilities with respect to eligible employees and
their beneficiaries, does not permit any part of the corpus or income
of the Fund to be used for, or diverted to, purposes other than for
the exclusive benefit of eligible employees and workers as provided
for in the PLAN. In the event of termination of this Trust Agreement, all
cash, securities, and other property then constituting the Fund less any
amounts constituting accrued benefits to the eligible employees, charges
and expenses payable from the Fund, shall be paid over or delivered by
the TRUSTEES to the members in proportion to their accrued benefits.
(Emphasis supplied)
[37]

The resumption of the SLP did not eliminate the trust or terminate the transfer of
legal title to the Funds trustees. The records show that the Funds Board of Trustees
approved the SLP upon the request of the DBP Career Officials Association. The DBP
[38]

Board of Directors only confirmed the approval of the SLP by the Funds trustees.
The beneficiaries or cestui que trust of the Fund are the DBP officials and
employees who will retire under Commonwealth Act No. 186 (CA 186), as amended by
[39]
RA 1616.RA 1616 requires the employer agency or government instrumentality to pay
for the retirement gratuity of its employees who rendered service for the required
number of years. The Government Service Insurance System Act of 1997 still allows
[40] [41]

retirement under RA 1616 for certain employees.

As COA correctly observed, the right of the employees to claim their gratuities from
the Fund is still inchoate. RA 1616 does not allow employees to receive their gratuities
until they retire. However, this does not invalidate the trust created by DBP or the
concomitant transfer of legal title to the trustees. As far back as in Government v.
Abadilla, the Court held that it is not always necessary that the cestui que trust should
[42]

be named, or even be in esse at the time the trust is created in his favor. It is enough
that the beneficiaries are sufficiently certain or identifiable.
[43]

In this case, the GSIS Act of 1997 extended the option to retire under RA 1616 only
to employees who had entered government service before 1 June 1977. The DBP [44]

employees who were in the service before this date are easily identifiable. As of the
time DBP filed the instant petition, DBP estimated that 530 of its employees could still
retire under RA 1616. At least 60 DBP employees had already received their gratuities
under the Fund. [45]

The Agreement indisputably transferred legal title over the income and properties of
the Fund to the Funds trustees. Thus, COAs directive to record the income of the Fund
in DBPs books of account as the miscellaneous income of DBP constitutes grave abuse
of discretion. The income of the Fund does not form part of the revenues or profits of
DBP, and DBP may not use such income for its own benefit. The principal and income
of the Fund together constitute the res or subject matter of the trust. The Agreement
established the Fund precisely so that it would eventually be sufficient to pay for the
retirement benefits of DBP employees under RA 1616 without additional outlay from
DBP.COA itself acknowledged the authority of DBP to set up the Fund. However, COAs
subsequent directive would divest the Fund of income, and defeat the purpose for the
Funds creation.

The validity of the Special Loan Program

and the disallowance of P11,626,414.25

In disallowing the P11,626,414.25 distributed as dividends under the SLP, the COA
relied primarily on Republic Act No. 4968 (RA 4968) which took effect on 17 June
1967.RA 4968 added the following paragraph to Section 28 of CA 186, thus:

(b) Hereafter no insurance or retirement plan for officers or employees shall be

created by any employer. All supplementary retirement or pension plans heretofore in
force in any government office, agency, or instrumentality or corporation owned or
controlled by the government, are hereby declared inoperative or
abolished: Provided, That the rights of those who are already eligible to retire
thereunder shall not be affected.
 Even assuming, however, that the SLP constitutes a supplementary retirement plan,
RA 4968 does not apply to the case at bar. The DBP Charter, which took effect on 14
February 1986, expressly authorizes supplementary retirement plans adopted by and
effective in DBP, thus:

SEC. 34. Separation Benefits. All those who shall retire from the service or are
separated therefrom on account of the reorganization of the Bank under the provisions
of this Charter shall be entitled to all gratuities and benefits provided for under
existing laws and/or supplementary retirement plans adopted by and effective in
the Bank: Provided, that any separation benefits and incentives which may be granted
by the Bank subsequent to June 1, 1986, which may be in addition to those provided
under existing laws and previous retirement programs of the Bank prior to the said
date, for those personnel referred to in this section shall be funded by the National
Government; Provided, further, that, any supplementary retirement plan adopted by
the Bank after the effectivity of this Chapter shall require the prior approval of the
Minister of Finance.

xxx.

SEC. 37. Repealing Clause. All acts, executive orders, administrative orders,
proclamations, rules and regulations or parts thereof inconsistent with any of the
provisions of this charter are hereby repealed or modified accordingly. (Emphasis
[46]

supplied)

Being a special and later law, the DBP Charter prevails over RA 4968. The DBP
[47]

originally adopted the SLP in 1983. The Court cannot strike down the SLP now based
on RA 4968 in view of the subsequent DBP Charter authorizing the SLP.
Nevertheless, the Court upholds the COAs disallowance of the P11,626,414.25 in
dividends distributed under the SLP.
According to DBP Board Resolution No. 0036 dated 25 January 1991, the SLP
allows a prospective retiree to utilize in the form of a loan, a portion of their outstanding
equity in the Gratuity Plan Fund and to invest [the] proceeds in a profitable investment
or undertaking. The basis of the loanable amount was an employees gratuity fund
[48]

credit, that is to say, what an employee would receive if he retired at the time he
[49]

availed of the loan.

In his letter dated 26 October 1983 proposing the confirmation of the SLP, then DBP
Chairman Cesar B. Zalamea stated that:

The primary objective of this proposal therefore is to counteract the unavoidable

decrease in the value of the said retirement benefits through the following scheme:
 I. To allow a prospective retiree the option to utilize in the form of a loan, a
portion of his standing equity in the Gratuity Fund and to invest it in a
profitable investment or undertaking. The income or appreciation in value will
be for his own account and should provide him the desired hedge against
inflation or erosion in the value of the peso. This is being proposed
since Philippine retirement laws and the Gratuity Plan do not allow partial
payment of retirement benefits, even the portion already earned, ahead of
actual retirement. (Emphasis supplied)
[50]

As Chairman Zalamea himself noted, neither the Gratuity Plan nor our laws on
retirement allow the partial payment of retirement benefits ahead of actual retirement. It
appears that DBP sought to circumvent these restrictions through the SLP, which
released a portion of an employees retirement benefits to him in the form of a
loan.Certainly, the DBP did this for laudable reasons, to address the concerns of DBP
employees on the devaluation of their retirement benefits. The remaining question is
whether RA 1616 and the Gratuity Plan allow this scheme.
We rule that it is not allowed.
The right to retirement benefits accrues only upon certain prerequisites. First, the
conditions imposed by the applicable law in this case, RA 1616 must be fulfilled.
Second, there must be actual retirement. Retirement means there is a bilateral act of
[51] [52]

the parties, a voluntary agreement between the employer and the employees whereby
the latter after reaching a certain age agrees and/or consents to severe his
employment with the former. [53]

Severance of employment is a condition sine qua non for the release of retirement
benefits. Retirement benefits are not meant to recompense employees who are still in
the employ of the government. That is the function of salaries and other emoluments.
Retirement benefits are in the nature of a reward granted by the State to a government
[54]

employee who has given the best years of his life to the service of his country. [55]

The Gratuity Plan likewise provides that the gratuity benefit of a qualified DBP
employee shall only be released upon retirement under th(e) Plan. As the COA
[56]

correctly pointed out, this means that retirement benefits can only be demanded and
enjoyed when the employee shall have met the last requisite, that is, actual retirement
under the Gratuity Plan. [57]

There was thus no basis for the loans granted to DBP employees under the
SLP.The rights of the recipient DBP employees to their retirement gratuities were still
inchoate, if not a mere expectancy, when they availed of the SLP. No portion of their
retirement benefits could be considered as actually earned or outstanding before
retirement. Prior to retirement, an employee who has served the requisite number of
years is only eligible for, but not yet entitled to, retirement benefits.
The DBP contends that the SLP is merely a normal loan transaction, akin to the
loans granted by the GSIS, SSS and the DBP Provident Fund.
The records show otherwise.
 In a loan transaction or mutuum, the borrower or debtor acquires ownership of the
amount borrowed. As the owner, the debtor is then free to dispose of or to utilize the
[58]

sum he loaned, subject to the condition that he should later return the amount with the
[59]

stipulated interest to the creditor.

[60]

In contrast, the amount borrowed by a qualified employee under the SLP was not
even released to him. The implementing rules of the SLP state that:

The loan shall be available strictly for the purpose of investment in the following
investment instruments:

a. 182 or 364-day term Time deposits with DBP

b. 182 or 364-day T-bills /CB Bills

c. 182 or 364-day term DBP Blue Chip Fund

The investment shall be registered in the name of DBP-TSD in trust for availee-
investor for his sole risk and account. Choice of eligible terms shall be at the option of
availee-investor.Investments shall be commingled by TSD and Participation
Certificates shall be issued to each availee-investor.

xxx

IV. LOANABLE TERMS

xxx

e. Allowable Investment Instruments Time Deposit DBP T-Bills/CB Bills and DBP
Blue Chip Fund. TSD shall purchase new securities and/or allocate existing
securities portfolio of GPFdepending on liquidity position of the Fund xxx.

xxx

g. Security The loan shall be secured by GS, Certificate of Time Deposit and/or BCF
Certificate of Participation which shall be registered in the name of DBP-TSD in trust
for name of availee-investor and shall be surrendered to the TSD for safekeeping.
(Emphasis supplied)
[61]

In the present case, the Fund allowed the debtor-employee to borrow a portion of
his gratuity fund credit solely for the purpose of investing it in certain instruments
specified by DBP. The debtor-employee could not dispose of or utilize the loan in any
other way.These instruments were, incidentally, some of the same securities where the
Fund placed its investments. At the same time the Fund obligated the debtor-employee
to assign immediately his loan to DBP-TSD so that the amount could be commingled
with the loans of other employees. The DBP-TSD the same department which handled
and had custody of the Funds accounts then purchased or re-allocated existing
securities in the portfolio of the Fund to correspond to the employees loans.
Simply put, the amount ostensibly loaned from the Fund stayed in the Fund, and
remained under the control and custody of the DBP-TSD. The debtor-employee never
had any control or custody over the amount he supposedly borrowed. However, DBP-
TSD listed new or existing investments of the Fund corresponding to the loan in the
name of the debtor-employee, so that the latter could collect the interest earned from
the investments.
In sum, the SLP enabled certain DBP employees to utilize and even earn from their
retirement gratuities even before they retired. This constitutes a partial release of their
retirement benefits, which is contrary to RA 1616 and the Gratuity Plan. As we have
discussed, the latter authorizes the release of gratuities from the earnings and principal
of the Fund only upon retirement.
The Gratuity Plan will lose its tax-exempt status if the retirement benefits are
released prior to the retirement of the employees. The trust funds of employees other
than those of private employers are qualified for certain tax exemptions pursuant to
Section 60(B) formerly Section 53(b) of the National Internal Revenue Code. Section
[62]

60(B) provides:

Section 60. Imposition of Tax.

(A) Application of Tax. The tax imposed by this Title upon individuals shall apply to
the income of estates or of any kind of property held in trust, including:

xxx

(B) Exception. The tax imposed by this Title shall not apply to employees trust which
forms part of a pension, stock bonus or profit-sharing plan of an employer for the
benefit of some or all of his employees (1) if contributions are made to the trust by
such employer, or employees, or both for the purpose of distributing to such
employees the earnings and principal of the fund accumulated by the trust in
accordance with such plan, and (2) if under the trust instrument it is impossible, at
any time prior to the satisfaction of all liabilities with respect to employees under the
trust, for any part of the corpus or income to be (within the taxable year or thereafter)
used for, or diverted to, purposes other than for the exclusive benefit of his
employees: xxx (Emphasis supplied)

The Gratuity Plan provides that the gratuity benefits of a qualified DBP employee
shall be released only upon retirement under th(e) Plan. If the earnings and principal of
the Fund are distributed to DBP employees prior to their retirement, the Gratuity Plan
will no longer qualify for exemption under Section 60(B). To recall, DBP Resolution No.
794 creating the Gratuity Plan expressly provides that since the gratuity plan will be tax
qualified under the National Internal Revenue Code xxx, the Banks periodic
contributions thereto shall be deductible for tax purposes and the earnings therefrom tax
free. If DBP insists that its employees may receive the P11,626,414.25 dividends, the
necessary consequence will be the non-qualification of the Gratuity Plan as a tax-
exempt plan.
Finally, DBP invokes justice and equity on behalf of its affected employees. Equity
cannot supplant or contravene the law. Further, as evidenced by the letter of former
[63]

DBP Chairman Zalamea, the DBP Board of Directors was well aware of the proscription
against the partial release of retirement benefits when it confirmed the SLP. If DBP
wants to enhance and protect the value of xxx (the) gratuity benefits of its employees,
DBP must do so by investing the money of the Fund in the proper and sound
investments, and not by circumventing restrictions imposed by law and the Gratuity Plan
itself.
We nevertheless urge the DBP and COA to provide equitable terms and a sufficient
period within which the affected DBP employees may refund the dividends they
received under the SLP. Since most of the DBP employees were eligible to retire within
a few years when they availed of the SLP, the refunds may be deducted from their
retirement benefits, at least for those who have not received their retirement benefits.
WHEREFORE, COA Decision No. 98-403 dated 6 October 1998 and COA
Resolution No. 2000-212 dated 1 August 2000
are AFFIRMED with MODIFICATION. The income of the Gratuity Plan Fund, held in
trust for the benefit of DBP employees eligible to retire under RA 1616, should not be
recorded in the books of account of DBP as the income of the latter.
SO ORDERED.
Davide, Jr., C.J., Puno, Vitug, Panganiban, Quisumbing, Ynares-Santiago,
Sandoval-Gutierrez, Austria-Martinez, Corona, Carpio-Morales, Callejo, Sr.,
Azcuna, and Tinga, JJ., concur.

SECOND DIVISION

[G.R. No. 110207. July 11, 1996]

FLORENTINO REYES, SPOUSES EDUARDO REYES AND ANITA

MABABANGLOOB, ENGRACIA REYES, SPOUSES ZACARIAS
AND NORMA R. MADRID, SPOUSES ALBERTO AND NORMA N.
REYES, SPOUSES TEODORO AND DOLORES S.
REYES, petitioners, vs. COURT OF APPEALS (NINTH DIVISION)
AND JACINTA REYES, PAULA REYES, AND PETRA
REYES, respondents.
 DECISION

ROMERO, J.:

This is a petition for review on certiorari seeking the reversal of the decision of the
Court of Appeals in CA-G.R. CV No. 33028 entitled "Jacinta Reyes, et al. vs. Florentino
Reyes, et al"[1] which affirmed the judgment of the Regional Trial Court of Makati,
Branch 58 rendered in favor of private respondents.

The antecedent facts as found by the lower court and adopted by the Court of
Appeals are as follows:

On July 29, 1970, a Deed of Extrajudicial Partition and Settlement was allegedly
entered into between petitioner Florentino and his sisters (private respondents herein)
Jacinta, Paula and Petra, all surnamed Reyes. The subject of the alleged partition was
a parcel of land located in Bangkal, Makati measuring Three Hundred Eighty Three
(383) Square Meters. Said parcel of land covered by Transfer Certificate of Title No.
22801 was registered in the name of Bernardino Reyes, the father of petitioner and
private respondents.

The Deed which allegedly partitioned the subject parcel of land extrajudicially
among petitioner and private respondents stated that the latter waived their rights,
interest and participation therein in favor of the former. Thereunder, one of the private
respondents, Paula Reyes Palmenco was given a share of fifty (50) square meters.

On March 16, 1971, petitioner caused the registration of the alleged Deed of
Extrajudicial Partition and Settlement with the Register of Deeds of Rizal. Subsequently,
he managed to obtain Transfer Certificate of Title No. 318944 with 333 square meters in
his name and 50 square meters in the name of Paula Palmenco.

Sometime in May 1985, private respondents, having discovered the registration of

the said Deed denied having knowledge of its execution and disclaimed having signed
the same; nor did they ever waive their rights, shares and interest in the subject parcel
of land.

Similarly, private respondent Paula Palmenco denied having ever executed said
Deed. According to private respondents, subject Deed was fraudulently prepared by
petitioner and that their signatures thereon were forged. They also assert that one Atty.
Jose Villena, the Notary Public who notarized the said Deed was not even registered in
the list of accredited Notaries Public of Pasay City.

Thereafter, petitioner executed a Deed of Absolute Sale selling 240 square meters
of the land to his children while retaining 93 square meters for himself. The 50 square
meter portion given to Paula Palmenco as originally provided in the Deed remained in
her name.

After the property was partitioned, petitioner, his children and private respondent
Paula Palmenco allegedly executed a Deed of Co-owners' Partition dividing the property
among themselves. Each of the alleged co-owners, namely, petitioner, his children
Eduardo, Teodoro, Engracia, Norma and Alberto, as well as Paula Palmenco, allocated
for themselves a specific portion of one-seventh (1/7) each.

On May 27, 1985, private respondents filed a Complaint for "Annulment of Sale and
Damages With Prayer for Preliminary Injunction/Restraining Order" before the Makati
Regional Trial Court against petitioner and the Register of Deeds of Makati. Private
respondents Petra Reyes and Paula Palmenco who died on May 23, 1988 and October
20, 1987, respectively, were duly substituted by their respective children. Private
respondent Jacinta Reyes and the children of Petra and Paula then filed an amended
complaint praying for the annulment of the following: (1) Deed of Extrajudicial Partition
and Settlement dated July 29, 1970 and TCT No. 318944 of the Registry of Deeds of
Makati, Metro Manila; (2) Deed of Absolute Sale dated May 15, 1979; (3) Deed of Co-
owners' Partition dated August 24, 1984 and (4) the seven (7) Transfer Certificates of
Titles Nos. 135257, 135258, 135259, 135260, 135261, 135262, and 135263 of the
Registry of Deeds of Makati, Metro Manila as null and void.

On June 1, 1985, the lower court issued an order enjoining the Register of Deeds of
Makati from issuing and delivering the Transfer Certificates of Title in question to the
petitioners and from collecting the monthly rentals due on the subject parcel of
land. After trial on the merits, the lower court ruled that the private respondents'
signatures on the questioned Deed of Extrajudicial Partition and Settlement were indeed
forged and simulated. As a result of such finding, the lower court permanently enjoined
the Registry of Deeds of Makati from issuing and delivering TCT Nos. 135257, 135258,
135259, 135260, 135261, 135262, and 135263 to petitioner Florentino and his children,
and petitioners from collecting the monthly rentals due on the properties. The lower
court also declared the Deed of Extrajudicial Partition and Settlement, Transfer
Certificate of Title No. 318944 of the Registry of Deeds of Makati, Deed of Absolute
Sale, Deed of Co-owner's Partition, and the seven (7) TCT Nos. 135257 to 135263 of
the Registry of Deeds of Makati as null and void.[2]

On appeal, the Court of Appeals affirmed the decision of the lower court. Hence,
this petition. Petitioners assign the following errors:

THE COURT A QUO ERRED IN FINDING THAT THE DEED OF

EXTRAJUDICIAL PARTITION AND SETTLEMENT WAS A FORGERY;
 II

ASSUMING ARGUENDO THE AFORESAID FORGERY, THE COURT A

QUO ERRED NONETHELESS IN NOT FINDING THAT PETITIONER HAS
BECOME AN ABSOLUTE OWNER OF THE LAND IN DISPUTE BY VIRTUE OF
ACQUISITIVE PRESCRIPTION;

III

IN LIGHT OF AFORESAID ERRORS, THE COURT A QUO ERRED IN NOT

DISMISSING THE COMPLAINT AND AWARDING THE RELIEFS PRAYED FOR
BY PETITIONERS IN THEIR COUNTERCLAIMS.

The Court of Appeals, in affirming the decision of the lower court, declared that
petitioners failed to convincingly overturn the factual findings of the trial court which
ruled on the fake and forged character of the document on the following points:

1. The signatures at the bottom page of the Extrajudicial Partition and Settlement
appear to have been written by one and the same hand and not by individual
signatories thereto except the signature of Rustico Reyes.

2. The acknowledgment in the Extrajudicial Partition and Settlement appears to

have been signed by one Jose D. Villena who was never commissioned as Notary
Public for and in the province of Rizal on July 31, 1970 in Pasay City.

3. The word "Pasay, Rizal" in handwriting was superimposed on the word "Makati,"
supposedly the place where the document was notarized.

4. The residence certificates of the parties who allegedly executed the Extrajudicial
Partition and Settlement were all issued on July 30, 1970 in Pasay City except that of
Encarnacion Reyes and Rustico Reyes when in fact they were residents of Makati,
Metro Manila, specifically, at Evangelista Street in Bangkal, less than a kilometer away
from the Municipal Hall of Makati, while Pasay City is 10 kilometers away from Bangkal,
Makati.[3]

Aside from the above factual findings of the lower court which the Court of Appeals
agreed with, the latter also noted that under the certification of one Pedro P. Rollon,
OIC, Record and Notarial Reports of Pasay City, no such Extrajudicial Partition and
Settlement subject of this case notarized by a certain Atty. Jose Villena was ever
recorded. Nor was Atty. Villena officially appointed as Notary Public for and in Pasay
City on the aforesaid date.
 Instead, it appears that the original copy of the Deed, as published in the Daily
Mirror, was notarized by one Atty. Primo M. Beltran in Pasay City and not in Makati, as
shown by the Affidavit of Publication. More importantly, petitioners did not dispute the
fact that the alleged residence certificates of private respondents shown to the trial court
were in the possession of petitioner Florentino which the Court of Appeals found to be
unnatural since residence certificates are supposed to be in the physical possession of
their owners as ready proofs of their identities and for purposes of dealing with the
government and other agencies. It added that it cannot be inferred that the Deed was
indeed executed by petitioners by facilely presenting a group picture purportedly
showing the parties before the signing of the questioned document when said group
picture may have been taken on another occasion. [4]

Clearly, the main issue to be resolved is the authenticity of the Deed of Extrajudicial
Partition and Settlement which is a question of fact rather than of law. In the case
of Manila Bay Club Corporation v. Court of Appeals,[5] this Court held that for a question
to be one of law, it must involve no examination of the probative value of the evidence
presented by the litigants or any of them. To reiterate the distinction between the two
types of questions: there is a question of law in a given case when the doubt or
difference arises as to what the law is pertaining to a certain state of facts, and there is
a question of fact when the doubt arises as to the truth or the falsity of alleged facts.

In the case at bar, petitioners cast doubt on the findings of the lower court as
affirmed by the Court of Appeals regarding the existence of forgery.

In the case of Chua Tiong Tay v. CA,[6] this Court held that the factual findings of the
trial court, adopted and confirmed by the Court of Appeals, are final and conclusive and
may not be reviewed on appeal. The exceptions to this rule are laid down in the case
of Floro v. Llenado[7] citing Remalante v. Tibe,[8] as follows: (1) when the inference made
is manifestly mistaken, absurd or impossible; (2) when there is a grave abuse of
discretion; (3) when the finding is grounded entirely on speculations, surmises or
conjectures; (4) when the judgment of the Court of Appeals is based on
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee; (7) when the findings
of the Court of Appeals are contrary to those of the trial court; (8) when the findings of
fact are conclusions without citation of specific evidence on which they are based; (9)
when the Court of Appeals manifestly overlooked certain relevant facts not disputed by
the parties and which, if properly considered, would justify a different conclusion and
(10) when the findings of fact of the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on record.

Petitioners failed to show that any of the above-cited exceptions exists in instant
case as to warrant a review of the findings of fact made by the lower court and upheld
by the Court of Appeals. Contrary to the assertion of petitioners, the findings of the
lower court, as well as those of the Court of Appeals, are substantially supported by the
evidence presented by the parties.

This being a petition for certiorari under Rule 45 of the Revised Rules of Court, this
Court is empowered to review errors of law committed by the Court of Appeals. It is not
the function of this court, however, to re-examine the evidence submitted by the parties
unless the findings of fact of the Court of Appeals are not supported by the evidence on
record or the judgment is based on a misapprehension of facts. [9]

The conclusion arrived at by the lower court is consistent with its findings that the
signatures of private respondents were indeed simulated. This conclusion is even
buttressed by the Court of Appeals, which, aside from agreeing with the findings of the
lower court, arrived at conclusions which support said findings.

Petitioners, on the other hand, assail the findings of both courts that the subject
Deed of Extrajudicial Partition and Settlement was a "fakery and a forgery." They claim
that private respondents' signatures thereon, as well as their alleged signatures in the
residence certificates and in the verification of the complaint, were obviously
similar.However, they failed to rebut the observation made by the lower court that the
signatures on the Deed appear to have been written by one and the same hand and not
by the individual signatories thereto, except the signature of Rustico Reyes. [10]

Petitioners' assertion that the steps taken leading to the transfer of the subject
property to them were duly evidenced by public documents do not disprove the finding
that the subject Deed was indeed a fake and the signatures of private respondents,
simulated. Neither does the requisite publication in a newspaper of general circulation
refute said finding.[11]

This Court agrees with private respondents that while Rustico Reyes, Jr., son of
petitioner Florentino and private respondents' only other brother did not join the
complaint, neither did he sign the subject Deed considering that he should have been a
signatory thereto, being the heir of the brother of the parties. [12]

Petitioners' ludicrous claim that private respondents imputed no deception on his

part but only forgery of the subject Deed and the simulation of their signatures is nothing
short of being oxymoronic. For what is forgery and simulation of signatures if not arrant
deception!

The allegation made by petitioner that the execution of a public document ratified
before a notary public cannot be impugned by the mere denial of the signatory is
baseless. It should be noted that there was a finding that the subject Deed was
notarized by one Atty. Villena who at that time was not commissioned as a notary in
Pasay City.Neither was the alleged Deed of Extrajudicial Partition and Settlement
recorded in the Record and Notarial Reports of Pasay City as certified by the OIC of
such office. This finding was never satisfactorily disputed by petitioner.[13]

With respect to the second assignment of error, petitioners contend that even
assuming that there was forgery, they had become absolute owners of the subject
property by virtue of acquisitive prescription citing Articles 1117 and 1134 of the Civil
Code as follows:

"Art. 1117. Acquisitive prescription of dominion and other real rights may be ordinary
or extraordinary.

Ordinary acquisitive prescription requires possession of things in good faith and with
just title for the time fixed by law.

xxx xxx xxx

Art. 1134. Ownership and other real rights over immovable property are acquired by
ordinary prescription through possession of ten years."

By virtue of said articles, they claim that they have been possessors of the
contested parcel of land in good faith, for ten years and with a just title for the period
required by law.

This Court is not impressed with this argument. Petitioners cannot justify their
ownership and possession of the subject parcel of land since they could not meet the
requisites provided by the provisions they have cited. Regarding the requirement of
good faith, the first paragraph of Article 526 states, thus:

"He is deemed a possessor in good faith who is not aware that there exists in his title
or mode of acquisition any flaw which invalidates it."

From the above-cited provision, petitioners could not have been possessors in good
faith of the subject parcel of land considering the finding that at the very inception they
forged the Deed of Extrajudicial Partition and Settlement which they claim to be the
basis for their just title.

Having forged the Deed and simulated the signatures of private respondents,
petitioners, in fact, are in bad faith. The forged Deed containing private respondents'
simulated signatures is a nullity and cannot serve as a just title.

Moreover, this Court agrees with the private respondents that there can be no
acquisitive prescription considering that the parcel of land in dispute is titled property,
i.e., titled in the name of the late Bernardino Reyes, the father of both petitioner
Florentino and the private respondents. [14] This fact, petitioners do not deny.[15] Hence,
even if they allege adverse possession that should ripen into ownership due to
acquisitive prescription, their title cannot defeat the real rights of private respondents
who stepped into the shoes, as it were, of their father as successors-in-interest. As it is,
petitioners cannot even claim adverse possession as they admit that the private
respondents likewise resided and continue to reside on the subject property.[16]

Having found the subject Deed to be a nullity, this Court sees no need to discuss
the third assignment of error.

WHEREFORE, finding no reversible error, the petition is DISMISSED.

SO ORDERED.

Regalado (Chairman), Puno, Mendoza, and Torres, Jr., JJ., concur.

THIRD DIVISION

[G.R. No. 114398. October 24, 1997]

CARMEN LIWANAG, petitioner, vs. THE HON. COURT OF APPEALS

and THE PEOPLE OF THE PHILIPPINES, represented by the
Solicitor General, respondents.

DECISION
ROMERO, J.:

Petitioner was charged with the crime of estafa before the Regional Trial Court
(RTC), Branch 93, Quezon City, in an information which reads as follows:

That on or between the month of May 19, 1988 and August, 1988 in Quezon City,
Philippines and within the jurisdiction of this Honorable Court, the said accused, with
intent of gain, with unfaithfulness, and abuse of confidence, did then and there,
willfully, unlawfully and feloniously defraud one ISIDORA ROSALES, in the
following manner, to wit: on the date and in the place aforementioned, said
accused received in trust from the offended party cash money amounting
to P536,650.00, Philippine Currency, with the express obligation involving the duty to
act as complainants agent in purchasing local cigarettes (Philip Morris and Marlboro
cigarettes), to resell them to several stores, to give her commission corresponding to
40% of the profits; and to return the aforesaid amount of offended party, but said
accused, far from complying her aforesaid obligation, and once in possession thereof,
misapplied, misappropriated and converted the same to her personal use and benefit,
despite repeated demands made upon her, accused failed and refused and still fails and
refuses to deliver and/or return the same to the damage and prejudice of the said
ISIDORA ROSALES, in the aforementioned amount and in such other amount as may
be awarded under the provision of the Civil Code.

CONTRARY TO LAW.

The antecedent facts are as follows:

Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to the
house of complainant Isidora Rosales (Rosales) and asked her to join them in the
business of buying and selling cigarettes. Convinced of the feasibility of the venture,
Rosales readily agreed. Under their agreement, Rosales would give the money needed
to buy the cigarettes while Liwanag and Tabligan would act as her agents, with a
corresponding 40% commission to her if the goods are sold; otherwise the money would
be returned to Rosales. Consequently, Rosales gave several cash advances to Liwanag
and Tabligan amounting to P633,650.00.

During the first two months, Liwanag and Tabligan made periodic visits to Rosales
to report on the progress of the transactions. The visits, however, suddenly stopped,
and all efforts by Rosales to obtain information regarding their business proved futile.

Alarmed by this development and believing that the amounts she advanced were
being misappropriated, Rosales filed a case of estafa against Liwanag.

After trial on the merits, the trial court rendered a decision dated January 9, 1991,
finding Liwanag guilty as charged. The dispositive portion of the decision reads thus:

WHEREFORE, the Court holds, that the prosecution has established the guilt of the
accused, beyond reasonable doubt, and therefore, imposes upon the accused, Carmen
Liwanag, an Indeterminate Penalty of SIX (6) YEARS, EIGHT (8) MONTHS AND
TWENTY ONE (21) DAYS OF PRISION CORRECCIONAL TO FOURTEEN (14)
YEARS AND EIGHT (8) MONTHS OF PRISION MAYOR AS MAXIMUM, AND
TO PAY THE COSTS.

The accused is likewise ordered to reimburse the private complainant the sum
of P526,650.00, without subsidiary imprisonment, in case of insolvency.

SO ORDERED.
 Said decision was affirmed with modification by the Court of Appeals in a decision
dated November 29, 1993, the decretal portion of which reads:

WHEREFORE, in view of the foregoing, the judgment appealed from is hereby

affirmed with the correction of the nomenclature of the penalty which should be: SIX
(6) YEARS, EIGHT (8) MONTHS and TWENTY ONE (21) DAYS of prision mayor,
as minimum, to FOURTEEN (14) YEARS and EIGHT (8) MONTHS of reclusion
temporal, as maximum. In all other respects, the decision is AFFIRMED.

SO ORDERED.

Her motion for reconsideration having been denied in the resolution of March 16,
1994, Liwanag filed the instant petition, submitting the following assignment of errors:

1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN AFFIRMING THE

CONVICTION OF THE ACCUSED-PETITIONER FOR THE CRIME OF ESTAFA,
WHEN CLEARLY THE CONTRACT THAT EXIST (sic) BETWEEN THE
ACCUSED-PETITIONER AND COMPLAINANT IS EITHER THAT OF A SIMPLE
LOAN OR THAT OF A PARTNERSHIP OR JOINT VENTURE HENCE THE NON
RETURN OF THE MONEY OF THE COMPLAINANT IS PURELY CIVIL IN
NATURE AND NOT CRIMINAL.

2. RESPONDENT APPELLATE COURT GRAVELY ERRED IN NOT

ACQUITTING THE ACCUSED-PETITIONER ON GROUNDS OF REASONABLE
DOUBT BY APPLYING THE EQUIPOISE RULE.

Liwanag advances the theory that the intention of the parties was to enter into a
contract of partnership, wherein Rosales would contribute the funds while she would
buy and sell the cigarettes, and later divide the profits between them. [1] She also argues
that the transaction can also be interpreted as a simple loan, with Rosales lending to
her the amount stated on an installment basis. [2]

The Court of Appeals correctly rejected these pretenses.

While factual findings of the Court of Appeals are conclusive on the parties and not
reviewable by the Supreme Court, and carry more weight when these affirm the factual
findings of the trial court,[3] we deem it more expedient to resolve the instant petition on
its merits.

Estafa is a crime committed by a person who defrauds another causing him to

suffer damages, by means of unfaithfulness or abuse of confidence, or of false
pretenses of fraudulent acts.[4]
 From the foregoing, the elements of estafa are present, as follows: (1) that the
accused defrauded another by abuse of confidence or deceit; and (2) that damage or
prejudice capable of pecuniary estimation is caused to the offended party or third party,
[5]
and it is essential that there be a fiduciary relation between them either in the form of a
trust, commission or administration.[6]

The receipt signed by Liwanag states thus:

May 19, 1988 Quezon City

Received from Mrs. Isidora P. Rosales the sum of FIVE HUNDRED TWENTY SIX
THOUSAND AND SIX HUNDRED FIFTY PESOS (P526,650.00) Philippine
Currency, to purchase cigarrets (sic) (Philip & Marlboro) to be sold to customers. In
the event the said cigarrets (sic) are not sold, the proceeds of the sale or the said
products (shall) be returned to said Mrs. Isidora P. Rosales the said amount
of P526,650.00 or the said items on or before August 30, 1988.

(SGD & Thumbedmarked) (sic)

CARMEN LIWANAG

26 H. Kaliraya St.

Quezon City

Signed in the presence of:

(Sgd) Illegible (Sgd) Doming Z. Baligad

The language of the receipt could not be any clearer. It indicates that the money
delivered to Liwanag was for a specific purpose, that is, for the purchase of cigarettes,
and in the event the cigarettes cannot be sold, the money must be returned to Rosales.

Thus, even assuming that a contract of partnership was indeed entered into by and
between the parties, we have ruled that when money or property have been received by
a partner for a specific purpose (such as that obtaining in the instant case) and he later
misappropriated it, such partner is guilty of estafa. [7]

Neither can the transaction be considered a loan, since in a contract of loan once
the money is received by the debtor, ownership over the same is transferred. [8] Being
the owner, the borrower can dispose of it for whatever purpose he may deem proper.
 In the instant petition, however, it is evident that Liwanag could not dispose of the
money as she pleased because it was only delivered to her for a single purpose,
namely, for the purchase of cigarettes, and if this was not possible then to return the
money to Rosales. Since in this case there was no transfer of ownership of the money
delivered, Liwanag is liable for conversion under Art. 315, par. 1(b) of the Revised Penal
Code.

WHEREFORE, in view of the foregoing, the appealed decision of the Court of

Appeals dated November 29, 1993, is AFFIRMED. Costs against petitioner.

SO ORDERED.

Melo, Francisco, and Panganiban, JJ., concur.

Narvasa, C.J., (Chairman), on leave.

PRUDENTIAL BANK AND G.R. No. 186738

TRUST COMPANY (now
BANK OF THE Present:
[1]
PHILIPPINE ISLANDS,
Petitioner, CARPIO MORALES, Chairperson,
PERALTA,*
BERSAMIN,
VILLARAMA, JR., and
- versus - SERENO, JJ.

Promulgated:
LIWAYWAY ABASOLO, September 27, 2010
Respondent.
x--------------------------------------------------x

DECISION

CARPIO MORALES, J.

Leonor Valenzuela-Rosales inherited two parcels of land situated in Palanan, Sta.

Cruz, Laguna (the properties), registered as Original Certificates of Title Nos. RO-
527 and RO-528. After she passed away, her heirs executed on June 14, 1993 a
Special Power of Attorney (SPA) in favor of Liwayway Abasolo (respondent)
empowering her to sell the properties.[2]

Sometime in 1995, Corazon Marasigan (Corazon) wanted to buy the properties

which were being sold for P2,448,960, but as she had no available cash, she
broached the idea of first mortgaging the properties to petitioner Prudential Bank
and Trust Company (PBTC), the proceeds of which would be paid directly to
respondent. Respondent agreed to the proposal.

On Corazon and respondents consultation with PBTCs Head Office, its employee,
Norberto Mendiola (Mendiola), allegedly advised respondent to issue an
authorization for Corazon to mortgage the properties, and for her (respondent) to
act as one of the co-makers so that the proceeds could be released to both of them.

To guarantee the payment of the property, Corazon executed on August 25,

1995 a Promissory Note for P2,448,960 in favor of respondent.

By respondents claim, in October 1995, Mendiola advised her to transfer the

properties first to Corazon for the immediate processing of Corazons loan
application with assurance that the proceeds thereof would be paid directly to her
(respondent), and the obligation would be reflected in a bank guarantee.

Heeding Mendiolas advice, respondent executed a Deed of Absolute Sale over the
properties in favor of Corazon following which or on December 4, 1995, Transfer
Certificates of Title Nos. 164159 and 164160 were issued in the name of Corazon.

Corazons application for a loan with PBTCs Tondo Branch was approved on
December 1995. She thereupon executed a real estate mortgage covering the
properties to secure the payment of the loan. In the absence of a written request for
a bank guarantee, the PBTC released the proceeds of the loan to Corazon.

Respondent later got wind of the approval of Corazons loan application and the
release of its proceeds to Corazon who, despite repeated demands, failed to pay the
purchase price of the properties.
 Respondent eventually accepted from Corazon partial payment in kind
consisting of one owner type jeepney and four passenger jeepneys,[3] plus
installment payments, which, by the trial courts computation, totaled P665,000.

In view of Corazons failure to fully pay the purchase price, respondent filed
a complaint for collection of sum of money and annulment of sale and mortgage
with damages, against Corazon and PBTC (hereafter petitioner), before the
Regional Trial Court (RTC) of Sta. Cruz, Laguna.[4]

In her Answer,[5] Corazon denied that there was an agreement that the proceeds of
the loan would be paid directly to respondent. And she claimed that the vehicles
represented full payment of the properties, and had in fact overpaid P76,040.

Petitioner also denied that there was any arrangement between it and respondent
that the proceeds of the loan would be released to her.[6] It claimed that it may
process a loan application of the registered owner of the real property who requests
that proceeds of the loan or part thereof be payable directly to a third party [but]
the applicant must submit a letter request to the Bank.[7]

On pre-trial, the parties stipulated that petitioner was not a party to the contract of
sale between respondent and Corazon; that there was no written request that the
proceeds of the loan should be paid to respondent; and that respondent received
five vehicles as partial payment of the properties.[8]

Despite notice, Corazon failed to appear during the trial to substantiate her claims.

By Decision of March 12, 2004,[9] Branch 91 of the Sta. Cruz, Laguna RTC
rendered judgment in favor of respondent and against Corazon who was made
directly liable to respondent, and against petitioner who was made subsidiarily
liable in the event that Corazon fails to pay. Thus the trial court disposed:

WHEREFORE, premises considered, finding the plaintiff has

established her claim against the defendants, Corazon Marasigan and
Prudential Bank and Trust Company, judgment is hereby rendered in
favor of the plaintiff ordering:
 Defendant Corazon Marasigan to pay the plaintiff the amount of
P1,783,960.00 plus three percent (3%) monthly interest per month
from August 25, 1995 until fully paid. Further, to pay the plaintiff the
sum equivalent to twenty percent five [sic] (25%) of P1,783,960.00 as
attorneys fees.

Defendant Prudential Bank and Trust Company to pay the plaintiff the
amount of P1,783,960.00 or a portion thereof plus the legal rate of
interest per annum until fully paid in the event that Defendant
Corazon Marasigan fails to pay the said amount or a portion thereof.

Other damages claimed not duly proved are hereby dismissed.

So Ordered.[10] (emphasis in the original; underscoring partly in the

original, partly supplied)
In finding petitioner subsidiarily liable, the trial court held that petitioner breached
its understanding to release the proceeds of the loan to respondent:

Liwayway claims that the bank should also be held responsible for
breach of its obligation to directly release to her the proceeds of the loan
or part thereof as payment for the subject lots. The evidence shows that
her claim is valid. The Bank had such an obligation as proven by
evidence. It failed to rebut the credible testimony of Liwayway which
was given in a frank, spontaneous, and straightforward manner and
withstood the test of rigorous cross-examination conducted by the
counsel of the Bank. Her credibility is further strengthened by the
corroborative testimony of Miguela delos Reyes who testified that she
went with Liwayway to the bank for several times. In her presence,
Norberto Mendiola, the head of the loan department, instructed
Liwayway to transfer the title over the subject lots to Corazon to
facilitate the release of the loan with the guarantee that Liwayway will
be paid upon the release of the proceeds.

Further, Liwayway would not have executed the deed of sale in

favor of Corazon had Norberto Mendiola did not promise and guarantee
that the proceeds of the loan would be directly paid to her. Based on
ordinary human experience, she would not have readily transferred the
title over the subject lots had there been no strong and reliable guarantee.
In this case, what caused her to transfer title is the promise and guarantee
made by Norberto Mendiola that the proceeds of the loan would be
directly paid to her. [11] (emphasis underscoring supplied)
On appeal, the Court of Appeals by Decision of January 14, 2008[12], affirmed the
trial courts decision with modification on the amount of the balance of the
purchase price which was reduced from P1,783,960 to P1,753,960. It disposed:

WHEREFORE, premises considered, the assailed Decision dated

March 12, 2004 of the Regional Trial Court of Sta. Cruz, Laguna,
Branch 91, is AFFIRMED WITH MODIFICATION as to the amount
to be paid which is P1,753,960.00.

SO ORDERED.[13] (emphasis in the original; underscoring

supplied)

Petitioners motion for reconsideration having been denied by the appellate court by
Resolution of February 23, 2009, the present petition for review was filed.

The only issue petitioner raises is whether it is subsidiarily liable.

The petition is meritorious.

In the absence of a lender-borrower relationship between petitioner and

Liwayway, there is no inherent obligation of petitioner to release the proceeds of
the loan to her.

To a banking institution, well-defined lending policies and sound lending practices

are essential to perform its lending function effectively and minimize the risk
inherent in any extension of credit.

Thus, Section X302 of the Manual of Regulations for Banks provides:

X-302. To ensure that timely and adequate management action is

taken to maintain the quality of the loan portfolio and other risk assets
and that adequate loss reserves are set up and maintained at a level
sufficient to absorb the loss inherent in the loan portfolio and other risk
assets, each bank shall establish a system of identifying and monitoring
existing or potential problem loans and other risk assets and of
 evaluating credit policies vis--vis prevailing circumstances and emerging
portfolio trends. Management must also recognize that loss reserve is a
stabilizing factor and that failure to account appropriately for losses or
make adequate provisions for estimated future losses may result in
misrepresentation of the banks financial condition.

In order to identify and monitor loans that a bank has extended, a system of
documentation is necessary. Under this fold falls the issuance by a bank of a
guarantee which is essentially a promise to repay the liabilities of a debtor, in this
case Corazon. It would be contrary to established banking practice if Mendiola
issued a bank guarantee, even if no request to that effect was made.
The principle of relativity of contracts in Article 1311 of the Civil Code
supports petitioners cause:

Art. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations arising
from the contract are not transmissible by their nature, or by stipulation
or by provision of law. The heir is not liable beyond the value of the
property he received from the decedent.

If a contract should contain some stipulation in favor of a third person,

he may demand its fulfillment provided he communicated his acceptance
to the obligor before its revocation. A mere incidental benefit or interest
of a person is not sufficient. The contracting parties must have clearly
and deliberately conferred a favor upon a third person. (underscoring
supplied)

For Liwayway to prove her claim against petitioner, a clear and deliberate act of
conferring a favor upon her must be present. A written request would have sufficed
to prove this, given the nature of a banking business, not to mention the amount
involved.

Since it has not been established that petitioner had an obligation to

Liwayway, there is no breach to speak of. Liwayways claim should only be
directed against Corazon. Petitioner cannot thus be held subisidiarily liable.
To the Court, Liwayway did not rely on Mendiolas representations, even if he
indeed made them. The contract for Liwayway to sell to Corazon was perfected
from the moment there was a meeting of minds upon the properties-object of the
contract and upon the price. Only the source of the funds to pay the purchase price
was yet to be resolved at the time the two inquired from Mendiola. Consider
Liwayways testimony:

Q: We are referring to the promissory note which you aforementioned a

while ago, why did this promissory note come about?

A: Because the negotiation was already completed, sir, and the deed of
sale will have to be executed, I asked the defendant (Corazon)
to execute the promissory note first before I could execute a
deed of absolute sale, for assurance that she really pay me , sir.
[14]
(emphasis and underscoring supplied)

That it was on Corazons execution of a promissory note that prompted Liwayway

to finally execute the Deed of Sale is thus clear.

The trial Courts reliance on the doctrine of apparent authority that the principal, in
this case petitioner, is liable for the obligations contracted by its agent, in this case
Mendiola, does not lie. Prudential Bank v. Court of Appeals[15] instructs:

[A] banking corporation is liable to innocent third persons where

the representation is made in the course of its business by an agent acting
within the general scope of his authority even though, in the particular
case, the agent is secretly abusing his authority and attempting to
perpetuate fraud upon his principal or some person, for his own ultimate
benefit.[16] (underscoring supplied)

The onus probandi that attempt to commit fraud attended petitioners

employee Mendiolas acts and that he abused his authority lies on Liwayway. She,
however, failed to discharge the onus. It bears noting that Mendiola was not privy
to the approval or disallowance of Corazons application for a loan nor that he
would benefit by the approval thereof.
 Aside from Liwayways bare allegations, evidence is wanting to show that
there was collusion between Corazon and Mendiola to defraud her. Even in
Liwayways Complaint, the allegation of fraud is specifically directed against
Corazon.[17]

IN FINE, Liwayways cause of action lies against only Corazon.

WHEREFORE, the Decision of January 14, 2008 of the Court of Appeals, in so

far as it holds petitioner, Prudential Bank and Trust Company (now Bank of the
Philippine Islands), subsidiary liable in case its co-defendant Corazon Marasigan,
who did not appeal the trial courts decision, fails to pay the judgment debt,
is REVERSED and SET ASIDE. The complaint against petitioner is
accordingly DISMISSED.

SO ORDERED.

CONCHITA CARPIO MORALES

Associate Justice

WE CONCUR:

DIOSDADO M. PERALTA LUCAS P. BERSAMIN

Associate Justice Associate Justice

MARTIN S. VILLARAMA, JR. MARIA LOURDES P.A. SERENO

Associate Justice Associate Justice
 ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONCHITA CARPIO MORALES Associate Justice

Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

RENATO C. CORONA
Chief Justice
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 146918 May 2, 2006

CITIBANK, N.A., Petitioner,

vs.
SPS. LUIS and CARMELITA CABAMONGAN and their sons LUISCABAMONGAN, JR. and LITO
CABAMONGAN, Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari of the Decision1 dated January 26, 2001 and the
Resolution2dated July 30, 2001 of the Court of Appeals (CA) in CA-G.R. CV No. 59033.

The factual background of the case is as follows:

On August 16, 1993, spouses Luis and Carmelita Cabamongan opened a joint "and/or" foreign
currency time deposit in trust for their sons Luis, Jr. and Lito at the Citibank, N.A., Makati branch,
with Reference No. 60-22214372, in the amount of $55,216.69 for a term of 182 days or until
February 14, 1994, at 2.5625 per cent interest per annum. 3 Prior to maturity, or on November 10,
1993, a person claiming to be Carmelita went to the Makati branch and pre-terminated the said
foreign currency time deposit by presenting a passport, a Bank of America Versatele Card, an ATM
card and a Mabuhay Credit Card.4 She filled up the necessary forms for pre-termination of deposits
with the assistance of Account Officer Yeye San Pedro. While the transaction was being processed,
she was casually interviewed by San Pedro about her personal circumstances and investment
plans.5Since the said person failed to surrender the original Certificate of Deposit, she had to
execute a notarized release and waiver document in favor of Citibank, pursuant to Citibank's internal
procedure, before the money was released to her.6 The release and waiver document7 was not
notarized on that same day but the money was nonetheless given to the person withdrawing. 8 The
transaction lasted for about 40 minutes.9

After said person left, San Pedro realized that she left behind an identification card. 10 Thus, San
Pedro called up Carmelita's listed address at No. 48 Ranger Street, Moonwalk Village, Las Pinas,
Metro Manila on the same day to have the card picked up.11 Marites, the wife of Lito, received San
Pedro's call and was stunned by the news that Carmelita preterminated her foreign currency time
deposit because Carmelita was in the United States at that time.12 The Cabamongan spouses work
and reside in California. Marites made an overseas call to Carmelita to inform her about what
happened.13 The Cabamongan spouses were shocked at the news. It seems that sometime between
June 10 and 16, 1993, an unidentified person broke in at the couple's residence at No. 3268 Baldwin
Park Boulevard, Baldwin Park, California. Initially, they reported that only Carmelita's jewelry box
was missing, but later on, they discovered that other items, such as their passports, bank deposit
certificates, including the subject foreign currency deposit, and identification cards were also
missing.14 It was only then that the Cabamongan spouses realized that their passports and bank
deposit certificates were lost.15

Through various overseas calls, the Cabamongan spouses informed Citibank, thru San Pedro, that
Carmelita was in the United States and did not preterminate their deposit and that the person who
did so was an impostor who could have also been involved in the break-in of their California
residence. San Pedro told the spouses to submit the necessary documents to support their claim but
Citibank concluded nonetheless that Carmelita indeed preterminated her deposit. In a letter dated
September 16, 1994, the Cabamongan spouses, through counsel, made a formal demand upon
Citibank for payment of their preterminated deposit in the amount of $55,216.69 with legal
interests.16 In a letter dated November 28, 1994, Citibank, through counsel, refused the
Cabamongan spouses' demand for payment, asserting that the subject deposit was released to
Carmelita upon proper identification and verification.17

On January 27, 1995, the Cabamongan spouses filed a complaint against Citibank before the
Regional Trial Court of Makati for Specific Performance with Damages, docketed as Civil Case No
95-163 and raffled to Branch 150 (RTC).18

In its Answer dated April 20, 1995, Citibank insists that it was not negligent of its duties since the
subject deposit was released to Carmelita only upon proper identification and verification. 19

At the pre-trial conference the parties failed to arrive at an amicable settlement. 20 Thus, trial on the
merits ensued.

For the plaintiffs, the Cabamongan spouses themselves and Florenda G. Negre, Documents
Examiner II of the Philippine National Police (PNP) Crime Laboratory in Camp Crame, Quezon City,
testified. The Cabamongan spouses, in essence, testified that Carmelita could not have
preterminated the deposit account since she was in California at the time of the incident. 21 Negre
testified that an examination of the questioned signature and the samples of the standard signatures
of Carmelita submitted in the RTC showed a significant divergence. She concluded that they were
not written by one and the same person.22

For the respondent, Citibank presented San Pedro and Cris Cabalatungan, Vice-President and In-
Charge of Security and Management Division. Both San Pedro and Cabalatungan testified that
proper bank procedure was followed and the deposit was released to Carmelita only upon proper
identification and verification.23

On July 1, 1997, the RTC rendered a decision in favor of the Cabamongan spouses and against
Citibank, the dispositive portion of which reads, thus:

WHEREFORE, premises considered, defendant Citibank, N.A., is hereby ordered to pay the
plaintiffs the following:

1) the principal amount of their Foreign Currency Deposit (Reference No. 6022214372)
amounting to $55,216.69 or its Phil. Currency equivalent plus interests from August 16, 1993
until fully paid;

2) Moral damages of P50,000.00;

3) Attorney's fees of P50,000.00; and

 4) Cost of suit.

SO ORDERED.24

The RTC reasoned that:

xxx Citibank, N.A., committed negligence resulting to the undue suffering of the plaintiffs. The forgery
of the signatures of plaintiff Carmelita Cabamongan on the questioned documents has been
categorically established by the handwriting expert. xxx Defendant bank was clearly remiss in its
duty and obligations to treat plaintiff's account with the highest degree of care, considering the
nature of their relationship. Banks are under the obligation to treat the accounts of their depositors
with meticulous care. This is the reason for their established procedure of requiring several
specimen signatures and recent picture from potential depositors. For every transaction, the
depositor's signature is passed upon by personnel to check and countercheck possible irregularities
and therefore must bear the blame when they fail to detect the forgery or discrepancy.25

Despite the favorable decision, the Cabamongan spouses filed on October 1, 1997 a motion to
partially reconsider the decision by praying for an increase of the amount of the damages
awarded.26 Citibank opposed the motion.27 On November 19, 1997, the RTC granted the motion for
partial reconsideration and amended the dispositive portion of the decision as follows:

From the foregoing, and considering all the evidence laid down by the parties, the dispositive portion
of the court's decision dated July 1, 1997 is hereby amended and/or modified to read as follows:

WHEREFORE, defendant Citibank, N.A., is hereby ordered to pay the plaintiffs the following:

1) the principal amount of their foreign currency deposit (Reference No. 6022214372)
amounting to $55,216.69 or its Philippine currency equivalent (at the time of its actual
payment or execution) plus legal interest from Aug. 16, 1993 until fully paid.

2) moral damages in the amount of P200,000.00;

3) exemplary damages in the amount of P100,000.00;

4) attorney's fees of P100,000.00;

5) litigation expenses of P200,000.00;

6) cost of suit.

SO ORDERED.28

Dissatisfied, Citibank filed an appeal with the CA, docketed as CA-G.R. CV No. 59033. 29 On January
26, 2001, the CA rendered a decision sustaining the finding of the RTC that Citibank was negligent,
ratiocinating in this wise:

In the instant case, it is beyond dispute that the subject foreign currency deposit was pre-terminated
on 10 November 1993. But Carmelita Cabamongan, who works as a nursing aid (sic) at the Sierra
View Care Center in Baldwin Park, California, had shown through her Certificate of Employment and
her Daily Time Record from the [sic] January to December 1993 that she was in the United States at
the time of the incident.
Defendant Citibank, N.A., however, insists that Carmelita was the one who pre-terminated the
deposit despite claims to the contrary. Its basis for saying so is the fact that the person who made
the transaction on the incident mentioned presented a valid passport and three (3) other
identification cards. The attending account officer examined these documents and even interviewed
said person. She was satisfied that the person presenting the documents was indeed Carmelita
Cabamongan. However, such conclusion is belied by these following circumstances.

First, the said person did not present the certificate of deposit issued to Carmelita Cabamongan.
This would not have been an insurmountable obstacle as the bank, in the absence of such
certificate, allows the termination of the deposit for as long as the depositor executes a notarized
release and waiver document in favor of the bank. However, this simple procedure was not followed
by the bank, as it terminated the deposit and actually delivered the money to the impostor without
having the said document notarized on the flimsy excuse that another department of the bank was in
charge of notarization. The said procedure was obviously for the protection of the bank but it
deliberately ignored such precaution. At the very least, the conduct of the bank amounts to
negligence.

Second, in the internal memorandum of Account Officer Yeye San Pedro regarding the incident, she
reported that upon comparing the authentic signatures of Carmelita Cabamongan on file with the
bank with the signatures made by the person claiming to be Cabamongan on the documents
required for the termination of the deposit, she noticed that one letter in the latter [sic] signatures
was different from that in the standard signatures. She requested said person to sign again and
scrutinized the identification cards presented. Presumably, San Pedro was satisfied with the second
set of signatures made as she eventually authorized the termination of the deposit. However, upon
examination of the signatures made during the incident by the Philippine National Police (PNP)
Crime Laboratory, the said signatures turned out to be forgeries. As the qualifications of Document
Examiner Florenda Negre were established and she satisfactorily testified on her findings during the
trial, we have no reason to doubt the validity of her findings. Again, the bank's negligence is patent.
San Pedro was able to detect discrepancies in the signatures but she did not exercise additional
precautions to ascertain the identity of the person she was dealing with. In fact, the entire transaction
took only 40 minutes to complete despite the anomalous situation. Undoubtedly, the bank could
have done a better job.

Third, as the bank had on file pictures of its depositors, it is inconceivable how bank employees
could have been duped by an impostor. San Pedro admitted in her testimony that the woman she
dealt with did not resemble the pictures appearing on the identification cards presented but San
Pedro still went on with the sensitive transaction. She did not mind such disturbing anomaly because
she was convinced of the validity of the passport. She also considered as decisive the fact that the
impostor had a mole on her face in the same way that the person in the pictures on the identification
cards had a mole. These explanations do not account for the disparity between the pictures and the
actual appearance of the impostor. That said person was allowed to withdraw the money anyway is
beyond belief.

The above circumstances point to the bank's clear negligence. Bank transactions pass through a
successive [sic] of bank personnel, whose duty is to check and countercheck transactions for
possible errors. While a bank is not expected to be infallible, it must bear the blame for failing to
discover mistakes of its employees despite established bank procedure involving a battery of
personnel designed to minimize if not eliminate errors. In the instant case, Yeye San Pedro, the
employee who primarily dealt with the impostor, did not follow bank procedure when she did not
have the waiver document notarized. She also openly courted disaster by ignoring discrepancies
between the actual appearance of the impostor and the pictures she presented, as well as the
disparities between the signatures made during the transaction and those on file with the bank. But
even if San Pedro was negligent, why must the other employees in the hierarchy of the bank's work
flow allow such thing to pass unnoticed and unrectified?30

The CA, however, disagreed with the damages awarded by the RTC. It held that, insofar as the date
from which legal interest of 12% is to run, it should be counted from September 16, 1994 when
extrajudicial demand was made. As to moral damages, the CA reduced it to P100,000.00 and
deleted the awards of exemplary damages and litigation expenses. Thus, the dispositive portion of
the CA decision reads:

WHEREFORE, the decision of the trial court dated 01 July 1997, and its order dated 19 November
1997, are hereby AFFIRMED with the MODIFICATION that the legal interest for actual damages
awarded in the amount of $55,216.69 shall run from 16 September 1994; exemplary damages
amounting to P100,000.00 and litigation expenses amounting to P200,000.00 are deleted; and moral
damages is reduced to P100,000.00.

Costs against defendant.

SO ORDERED.31

The Cabamongan spouses filed a motion for partial reconsideration on the matter of the award of
damages in the decision.32 On July 30, 2001, the

CA granted in part said motion and modified its decision as follows:

1. The actual damages in amount of $55,216.69, representing the amount of appellees'

foreign currency time deposit shall earn an interest of 2.5625% for the period 16 August
1993 to 14 February 1994, as stipulated in the contract;

2. From 16 September 1994 until full payment, the amount of $55,216.69 shall earn interest
at the legal rate of 12% per annum, and;

3. The award of moral damages is reduced to P50,000.00.33

Dissatisfied, both parties filed separate petitions for review on certiorari with this Court. The
Cabamongan spouses' petition, docketed as G.R. No. 149234, was denied by the Court per its
Resolution dated October 17, 2001.34 On the other hand, Citibank's petition was given due course by
the Court per Resolution dated December 10, 2001 and the parties were required to submit their
respective memoranda.35

Citibank poses the following errors for resolution:

1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND GRAVELY ABUSED

ITS DISCRETION IN UPHOLDING THE LOWER COURT'S DECISION WHICH IS NOT
BASED ON CLEAR EVIDENCE BUT ON GRAVE MISAPPREHENSION OF FACTS.

2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE

DECISION OF THE TRIAL COURT AWARDING MORAL DAMAGES WHEN IN FACT
THERE IS NO BASIS IN LAW AND FACT FOR SAID AWARD.
 3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE
PRINCIPAL AMOUNT OF US$55,216.69 SHOULD EARN INTEREST AT THE RATE OF
12% PER ANNUM FROM 16 SEPTEMBER 1994 UNTIL FULL PAYMENT.36

Anent the first ground, Citibank contends that the CA erred in affirming the RTC's finding that it was
negligent since the said courts failed to appreciate the extra diligence of a good father of a family
exercised by Citibank thru San Pedro.

As to the second ground, Citibank argues that the Cabamongan spouses are not entitled to moral
damages since moral damages can be awarded only in cases of breach of contract where the bank
has acted willfully, fraudulently or in bad faith. It submits that it has not been shown in this case that
Citibank acted willfully, fraudulently or in bad faith and mere negligence, even if the Cabamongan
spouses suffered mental anguish or serious anxiety on account thereof, is not a ground for awarding
moral damages.

On the third ground, Citibank avers that the interest rate should not be 12% but the stipulated rate of
2.5625% per annum. It adds that there is no basis to pay the interest rate of 12% per annum from
September 16, 1994 until full payment because as of said date there was no legal ground yet for the
Cabamongan spouses to demand payment of the principal and it is only after a final judgment is
issued declaring that Citibank is obliged to return the principal amount of US$55,216.69 when the
right to demand payment starts and legal interest starts to run.

On the other hand, the Cabamongan spouses contend that Citibank's negligence has been
established by evidence. As to the interest rate, they submit that the stipulated interest of 2.5635%
should apply for the 182-day contract period from August 16, 1993 to February 14, 1993; thereafter,
12% should apply. They further contend that the RTC's award of exemplary damages
of P100,000.00 should be maintained. They submit that the CA erred in treating the award of
litigation expenses as lawyer's fees since they have shown that they incurred actual expenses in
litigating their claim against Citibank. They also contend that the CA erred in reducing the award of
moral damages in view of the degree of mental anguish and emotional fears, anxieties and
nervousness suffered by them.37

Subsequently, Citibank, thru a new counsel, submitted a Supplemental Memorandum, 38 wherein it

posits that, assuming that it was negligent, the Cabamongan spouses were guilty of contributory
negligence since they failed to notify Citibank that they had migrated to the United States and were
residents thereat and after having been victims of a burglary, they should have immediately
assessed their loss and informed Citibank of the disappearance of the bank certificate, their
passports and other identification cards, then the fraud would not have been perpetuated and the
losses avoided. It further argues that since the Cabamongan spouses are guilty of contributory
negligence, the doctrine of last clear chance is inapplicable.

Citibank's assertion that the Cabamongan spouses are guilty of contributory negligence and non-
application of the doctrine of last clear chance cannot pass muster since these contentions were
raised for the first time only in their Supplemental Memorandum. Indeed, the records show that said
contention were neither pleaded in the petition for review and the memorandum nor in Citibank's
Answer to the complaint or in its appellant's brief filed with the CA. To consider the alleged facts and
arguments raised belatedly in a supplemental pleading to herein petition for review at this very late
stage in the proceedings would amount to trampling on the basic principles of fair play, justice and
due process.39 1avvphil.net

The Court has repeatedly emphasized that, since the banking business is impressed with public
interest, of paramount importance thereto is the trust and confidence of the public in general.
Consequently, the highest degree of diligence40 is expected,41 and high standards of integrity and
performance are even required, of it.42By the nature of its functions, a bank is "under obligation to
treat the accounts of its depositors with meticulous care, 43 always having in mind the fiduciary nature
of their relationship."44

In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for
pretermination of deposits are forgeries. Citibank, with its signature verification procedure, failed to
detect the forgery. Its negligence consisted in the omission of that degree of diligence required of
banks. The Court has held that a bank is "bound to know the signatures of its customers; and if it
pays a forged check, it must be considered as making the payment out of its own funds, and cannot
ordinarily charge the amount so paid to the account of the depositor whose name was
forged."45 Such principle equally applies here.

Citibank cannot label its negligence as mere mistake or human error. Banks handle daily
transactions involving millions of pesos.46 By the very nature of their works the degree of
responsibility, care and trustworthiness expected of their employees and officials is far greater than
those of ordinary clerks and employees.47 Banks are expected to exercise the highest degree of
diligence in the selection and supervision of their employees.48

The Court agrees with the observation of the CA that Citibank, thru Account Officer San Pedro,
openly courted disaster when despite noticing discrepancies in the signature and photograph of the
person claiming to be Carmelita and the failure to surrender the original certificate of time deposit,
the pretermination of the account was allowed. Even the waiver document was not notarized, a
procedure meant to protect the bank. For not observing the degree of diligence required of banking
institutions, whose business is impressed with public interest, Citibank is liable for damages.

As to the interest rate, Citibank avers that the claim of the Cabamongan spouses does not constitute
a loan or forbearance of money and therefore, the interest rate of 6%, not 12%, applies.

The Court does not agree.

The time deposit subject matter of herein petition is a simple loan. The provisions of the New Civil
Code on simple loan govern the contract between a bank and its depositor. Specifically, Article 1980
thereof categorically provides that ". . . savings . . . deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan." Thus, the relationship
between a bank and its depositor is that of a debtor-creditor, the depositor being the creditor as it
lends the bank money, and the bank is the debtor which agrees to pay the depositor on demand.

The applicable interest rate on the actual damages of $55,216.69, should be in accordance with the
guidelines set forth in Eastern Shipping Lines, Inc. v. Court of Appeals49 to wit:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages.

II. With regard particularly to an award of interest, in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of

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

2. When an obligation, not constituting a loan or forbearance of money, is breached,

an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.50

Thus, in a loan or forbearance of money, the interest due should be that stipulated in writing, and in
the absence thereof, the rate shall be 12% per annum counted from the time of demand.
Accordingly, the stipulated interest rate of 2.562% per annum shall apply for the 182-day contract
period from August 16, 1993 to February 14, 1994. For the period from the date of extra-judicial
demand, September 16, 1994, until full payment, the rate of 12% shall apply. As for the intervening
period between February 15, 1994 to September 15, 1994, the rate of interest then prevailing
granted by Citibank shall apply since the time deposit provided for roll over upon maturity of the
principal and interest.51

As to moral damages, in culpa contractual or breach of contract, as in the case before the Court,
moral damages are recoverable only if the defendant has acted fraudulently or in bad faith, 52 or is
found guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual
obligations.53 The act of Citibank's employee in allowing the pretermination of Cabamongan spouses'
account despite the noted discrepancies in Carmelita's signature and photograph, the absence of
the original certificate of time deposit and the lack of notarized waiver dormant, constitutes gross
negligence amounting to bad faith under Article 2220 of the Civil Code.

There is no hard-and-fast rule in the determination of what would be a fair amount of moral damages
since each case must be governed by its own peculiar facts. The yardstick should be that it is not
palpably and scandalously excessive.54 The amount of P50,000.00 awarded by the CA is reasonable
and just. Moreover, said award is deemed final and executory insofar as respondents are concerned
considering that their petition for review had been denied by the Court in its final and executory
Resolution dated October 17, 2001 in G.R. No. 149234.

Finally, Citibank contends that the award of attorney's fees should be deleted since such award
appears only in the dispositive portion of the decision of the RTC and the latter failed to elaborate,
explain and justify the same.
Article 2208 of the New Civil Code enumerates the instances where such may be awarded and, in all
cases, it must be reasonable, just and equitable if the same were to be granted. Attorney's fees as
part of damages are not meant to enrich the winning party at the expense of the losing litigant. They
are not awarded every time a party prevails in a suit because of the policy that no premium should
be placed on the right to litigate.55 The award of attorney's fees is the exception rather than the
general rule. As such, it is necessary for the court to make findings of facts and law that would bring
the case within the exception and justify the grant of such award. The matter of attorney's fees
cannot be mentioned only in the dispositive portion of the decision. 56 They must be clearly explained
and justified by the trial court in the body of its decision. Consequently, the award of attorney's fees
should be deleted.

WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed Decision and Resolution
are AFFIRMED with MODIFICATIONS, as follows:

1. The interest shall be computed as follows:

a. The actual damages in principal amount of $55,216.69, representing the amount

of foreign currency time deposit shall earn interest at the stipulated rate of 2.5625%
for the period August 16, 1993 to February 14, 1994;

b. From February 15, 1994 to September 15, 1994, the principal amount of
$55,216.69 and the interest earned as of February 14, 1994 shall earn interest at the
rate then prevailing granted by Citibank;

c. From September 16, 1994 until full payment, the principal amount of $55,216.69
and the interest earned as of September 15, 1994, shall earn interest at the legal rate
of 12% per annum;

2. The award of attorney's fees is DELETED.

No pronouncement as to costs.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson

CONSUELO YNARES-SANTIAGO ROMEO J. CALLEJO, SR.

Associate Justice Asscociate Justice

(On official leave)

MINITA V. CHICO-NAZARIO
Associate Justice

C E R TI F I C ATI O N
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned to the writer of the
opinion of the Court's Division.

ARTEMIO V. PANGANIBAN
Chief Justice