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REPUBLIC OF THE PHILIPPINES, vs. JOSE V. BAGTAS,

FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas,
The Court of Appeals certified this case to this Court because only questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of
Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a
Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes
subject to a government charge of breeding fee of 10% of the book value of the bulls. Upon the expiration
on 7 May 1949 of the contract, the borrower asked for a renewal for another period of one year. However,
the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for another
year from 8 May 1949 to 7 May 1950 and requested the return of the other two. On 25 March 1950 Jose V.
Bagtas wrote to the Director of Animal Industry that he would pay the value of the three bulls. On 17
October 1950 he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be
approved by the Auditor General. On 19 October 1950 the Director of Animal Industry advised him that
the book value of the three bulls could not be reduced and that they either be returned or their book value
paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of the three bulls or to
return them. So, on 20 December 1950 in the Court of First Instance of Manila the Republic of the
Philippines commenced an action against him praying that he be ordered to return the three bulls loaned to
him or to pay their book value in the total sum of P3,241.45 and the unpaid breeding fee in the sum of
P199.62, both with interests, and costs; and that other just and equitable relief be granted in (civil No.
12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the
bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending
appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of the
Philippines from the refusal by the Director of Animal Industry to deduct from the book value of the bulls
corresponding yearly depreciation of 8% from the date of acquisition, to which depreciation the Auditor
General did not object, he could not return the animals nor pay their value and prayed for the dismissal of
the complaint.
After hearing, on 30 July 1956 the trial court render judgment
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls plus the
breeding fees in the amount of P626.17 with interest on both sums of (at) the legal rate from the filing of
this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18
October and issued on 11 November 1958. On 2 December 1958 granted an ex-parte motion filed by the
plaintiff on November 1958 for the appointment of a special sheriff to serve the writ outside Manila. Of
this order appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of
the defendant Jose Bagtas who died on 23 October 1951 and as administratrix of his estate, was notified.
On 7 January 1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were
returned to the Bureau Animal of Industry and that sometime in November 1958 the third bull, the
Sahiniwal, died from gunshot wound inflicted during a Huk raid on Hacienda Felicidad Intal, and praying
that the writ of execution be quashed and that a writ of preliminary injunction be issued. On 31 January
1959 the plaintiff objected to her motion. On 6 February 1959 she filed a reply thereto. On the same day, 6
February, the Court denied her motion. Hence, this appeal certified by the Court of Appeals to this Court
as stated at the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned the
Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal
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Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter (Exhibit
2). That is why in its objection of 31 January 1959 to the appellant's motion to quash the writ of execution
the appellee prays "that another writ of execution in the sum of P859.53 be issued against the estate of
defendant deceased Jose V. Bagtas." She cannot be held liable for the two bulls which already had been
returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in November
1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was
kept, and that as such death was due to force majeure she is relieved from the duty of returning the bull or
paying its value to the appellee. The contention is without merit. The loan by the appellee to the late
defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of one year from 8 May 1948
to 7 May 1949, later on renewed for another year as regards one bull, was subject to the payment by the
borrower of breeding fee of 10% of the book value of the bulls. The appellant contends that the contract
was commodatum and that, for that reason, as the appellee retained ownership or title to the bull it should
suffer its loss due to force majeure. A contract of commodatum is essentially gratuitous.1 If the breeding
fee be considered a compensation, then the contract would be a lease of the bull. Under article 1671 of the
Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she had
continued possession of the bull after the expiry of the contract. And even if the contract be commodatum,
still the appellant is liable, because article 1942 of the Civil Code provides that a bailee in a contract
of commodatum
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting
the bailee from responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for
another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November
1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to the
deceased husband of the appellant the bulls had each an appraised book value, to with: the Sindhi, at
P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated that in case of loss
of the bull due to fortuitous event the late husband of the appellant would be exempt from liability.
The appellant's contention that the demand or prayer by the appellee for the return of the bull or the payment
of its value being a money claim should be presented or filed in the intestate proceedings of the defendant
who died on 23 October 1951, is not altogether without merit. However, the claim that his civil personality
having ceased to exist the trial court lost jurisdiction over the case against him, is untenable, because section
17 of Rule 3 of the Rules of Court provides that
After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the
legal representative of the deceased to appear and to be substituted for the deceased, within a period of
thirty (30) days, or within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3
which provides that
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court promptly
of such death . . . and to give the name and residence of the executory administrator, guardian, or other legal
representative of the deceased . . . .
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The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had been
issue letters of administration of the estate of the late Jose Bagtas and that "all persons having claims for
monopoly against the deceased Jose V. Bagtas, arising from contract express or implied, whether the same
be due, not due, or contingent, for funeral expenses and expenses of the last sickness of the said decedent,
and judgment for monopoly against him, to file said claims with the Clerk of this Court at the City Hall
Bldg., Highway 54, Quezon City, within six (6) months from the date of the first publication of this order,
serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the appointed administratrix of the
estate of the said deceased," is not a notice to the court and the appellee who were to be notified of the
defendant's death in accordance with the above-quoted rule, and there was no reason for such failure to
notify, because the attorney who appeared for the defendant was the same who represented the
administratrix in the special proceedings instituted for the administration and settlement of his estate. The
appellee or its attorney or representative could not be expected to know of the death of the defendant or of
the administration proceedings of his estate instituted in another court that if the attorney for the deceased
defendant did not notify the plaintiff or its attorney of such death as required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is only
liable for the sum of P859.63, the value of the bull which has not been returned to the appellee, because it
was killed while in the custody of the administratrix of his estate. This is the amount prayed for by the
appellee in its objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant for the
quashing of the writ of execution.
Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas
having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in
favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the
probate court for payment by the appellant, the administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.

MARGARITA QUINTOS and ANGEL A. ANSALDO, vs. BECK

The plaintiff brought this action to compel the defendant to return her certain furniture which she lent him
for his use. She appealed from the judgment of the Court of First Instance of Manila which ordered that the
defendant return to her the three has heaters and the four electric lamps found in the possession of the
Sheriff of said city, that she call for the other furniture from the said sheriff of Manila at her own expense,
and that the fees which the Sheriff may charge for the deposit of the furniture be paid pro rata by both
parties, without pronouncement as to the costs.

The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar street,
No. 1175. On January 14, 1936, upon the novation of the contract of lease between the plaintiff and the
defendant, the former gratuitously granted to the latter the use of the furniture described in the third
paragraph of the stipulation of facts, subject to the condition that the defendant would return them to the
plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on
September 14, 1936, these three notified the defendant of the conveyance, giving him sixty days to vacate
the premises under one of the clauses of the contract of lease. There after the plaintiff required the defendant
to return all the furniture transferred to him for them in the house where they were found.
On November 5, 1936, the defendant, through another person, wrote to the plaintiff reiterating that
she may call for the furniture in the ground floor of the house. On the 7th of the same month, the defendant
wrote another letter to the plaintiff informing her that he could not give up the three gas heaters and the
four electric lamps because he would use them until the 15th of the same month when the lease in due to
expire. The plaintiff refused to get the furniture in view of the fact that the defendant had declined to make
delivery of all of them. On November 15th, before vacating the house, the defendant deposited with
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the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse situated
at No. 1521, Rizal Avenue, in the custody of the said sheriff.

In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in holding
that they violated the contract by not calling for all the furniture on November 5, 1936, when the defendant
placed them at their disposal; in not ordering the defendant to pay them the value of the furniture in case
they are not delivered; in holding that they should get all the furniture from the Sheriff at their expenses; in
ordering them to pay-half of the expenses claimed by the Sheriff for the deposit of the furniture; in ruling
that both parties should pay their respective legal expenses or the costs; and in denying pay their respective
legal expenses or the costs; and in denying the motions for reconsideration and new trial. To dispose of the
case, it is only necessary to decide whether the defendant complied with his obligation to return the furniture
upon the plaintiff's demand; whether the latter is bound to bear the deposit fees thereof, and whether she is
entitled to the costs of litigation.lawphi1.net

The contract entered into between the parties is one of commadatum, because under it the plaintiff
gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof;
by this contract the defendant bound himself to return the furniture to the plaintiff, upon the latters demand
(clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation
voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means that he
should return all of them to the plaintiff at the latter's residence or house. The defendant did not comply
with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit the
three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code cited by counsel
for the parties are not squarely applicable. The trial court, therefore, erred when it came to the legal
conclusion that the plaintiff failed to comply with her obligation to get the furniture when they were offered
to her.

As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's
demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of the
furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on deposit;
nor was the plaintiff under a duty to accept the offer to return the furniture, because the defendant wanted
to retain the three gas heaters and the four electric lamps.

As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by the
defendant in case of his inability to return some of the furniture because under paragraph 6 of the stipulation
of facts, the defendant has neither agreed to nor admitted the correctness of the said value. Should the
defendant fail to deliver some of the furniture, the value thereof should be latter determined by the trial
Court through evidence which the parties may desire to present.

The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party
(section 487 of the Code of Civil Procedure). The defendant was the one who breached the contract
of commodatum, and without any reason he refused to return and deliver all the furniture upon the plaintiff's
demand. In these circumstances, it is just and equitable that he pay the legal expenses and other judicial
costs which the plaintiff would not have otherwise defrayed.

The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in the
residence to return and deliver to the plaintiff, in the residence or house of the latter, all the furniture
described in paragraph 3 of the stipulation of facts Exhibit A. The expenses which may be occasioned by
the delivery to and deposit of the furniture with the Sheriff shall be for the account of the defendant. the
defendant shall pay the costs in both instances. So ordered.

SEVERINO TOLENTINO and POTENCIANA MANIO, vs. BENITO GONZALEZ SY CHIAM

PRINCIPAL QUESTIONS PRESENTED BY THE APPEAL
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The principal questions presented by this appeal are:

(a) Is the contract in question a pacto de retro or a mortgage?
(b) Under a pacto de retro, when the vendor becomes a tenant of the purchaser and agrees to pay a certain
amount per month as rent, may such rent render such a contract usurious when the amount paid as rent,
computed upon the purchase price, amounts to a higher rate of interest upon said amount than that allowed
by law?
(c) May the contract in the present case may be modified by parol evidence?
ANTECEDENT FACTS
Sometime prior to the 28th day of November, 1922, the appellants purchased of the Luzon Rice Mills, Inc.,
a piece or parcel of land with the camarin located thereon, situated in the municipality of Tarlac of the
Province of Tarlac for the price of P25,000, promising to pay therefor in three installments. The first
installment of P2,000 was due on or before the 2d day of May, 1921; the second installment of P8,000 was
due on or before 31st day of May, 1921; the balance of P15,000 at 12 per cent interest was due and payable
on or about the 30th day of November, 1922. One of the conditions of that contract of purchase was that on
failure of the purchaser (plaintiffs and appellants) to pay the balance of said purchase price or any of the
installments on the date agreed upon, the property bought would revert to the original owner.
The payments due on the 2d and 31st of May, 1921, amounting to P10,000 were paid so far as the record
shows upon the due dates. The balance of P15,000 due on said contract of purchase was paid on or about
the 1st day of December, 1922, in the manner which will be explained below. On the date when the balance
of P15,000 with interest was paid, the vendor of said property had issued to the purchasers transfer
certificate of title to said property, No. 528. Said transfer certificate of title (No. 528) was transfer certificate
of title from No. 40, which shows that said land was originally registered in the name of the vendor on the
7th day of November, 1913.
PRESENT FACTS
On the 7th day of November, 1922 the representative of the vendor of the property in question wrote a letter
to the appellant Potenciana Manio (Exhibit A, p. 50), notifying the latter that if the balance of said
indebtedness was not paid, an action would be brought for the purpose of recovering the property, together
with damages for non compliance with the condition of the contract of purchase. The pertinent parts of said
letter read as follows:
Sirvase notar que de no estar liquidada esta cuenta el dia 30 del corriente, procederemos judicialmente
contra Vd. para reclamar la devolucion del camarin y los daos y perjuicios ocasionados a la compaia por
su incumplimiento al contrato.
Somos de Vd. atentos y S. S.
SMITH, BELL & CO., LTD.
By (Sgd.) F. I. HIGHAM
Treasurer.
General Managers
LUZON RICE MILLS INC.
According to Exhibits B and D, which represent the account rendered by the vendor, there was due and
payable upon said contract of purchase on the 30th day of November, 1922, the sum P16,965.09. Upon
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receiving the letter of the vendor of said property of November 7, 1922, the purchasers, the appellants
herein, realizing that they would be unable to pay the balance due, began to make an effort to borrow money
with which to pay the balance due, began to make an effort to borrow money with which to pay the balance
of their indebtedness on the purchase price of the property involved. Finally an application was made to the
defendant for a loan for the purpose of satisfying their indebtedness to the vendor of said property. After
some negotiations the defendants agreed to loan the plaintiffs to loan the plaintiffs the sum of P17,500 upon
condition that the plaintiffs execute and deliver to him a pacto de retro of said property.
In accordance with that agreement the defendant paid to the plaintiffs by means of a check the sum of
P16,965.09. The defendant, in addition to said amount paid by check, delivered to the plaintiffs the sum of
P354.91 together with the sum of P180 which the plaintiffs paid to the attorneys for drafting said contract
of pacto de retro, making a total paid by the defendant to the plaintiffs and for the plaintiffs of P17,500
upon the execution and delivery of said contract. Said contracts was dated the 28th day of November, 1922,
and is in the words and figures following:
Sepan todos por la presente:
Que nosotros, los conyuges Severino Tolentino y Potenciana Manio, ambos mayores de edad, residentes en
el Municipio de Calumpit, Provincia de Bulacan, propietarios y transeuntes en esta Ciudad de Manila, de
una parte, y de otra, Benito Gonzalez Sy Chiam, mayor de edad, casado con Maria Santiago, comerciante
y vecinos de esta Ciudad de Manila.
MANIFESTAMOS Y HACEMOS CONSTAR:
Primero. Que nosotros, Severino Tolentino y Potenciano Manio, por y en consideracion a la cantidad de
diecisiete mil quinientos pesos (P17,500) moneda filipina, que en este acto hemos recibido a nuestra entera
satisfaccion de Don Benito Gonzalez Sy Chiam, cedemos, vendemos y traspasamos a favor de dicho Don
Benito Gonzalez Sy Chiam, sus herederos y causahabientes, una finca que, segun el Certificado de
Transferencia de Titulo No. 40 expedido por el Registrador de Titulos de la Provincia de Tarlac a favor de
"Luzon Rice Mills Company Limited" que al incorporarse se donomino y se denomina "Luzon Rice Mills
Inc.," y que esta corporacion nos ha transferido en venta absoluta, se describe como sigue:
Un terreno (lote No. 1) con las mejoras existentes en el mismo, situado en el Municipio de Tarlac. Linda
por el O. y N. con propiedad de Manuel Urquico; por el E. con propiedad de la Manila Railroad Co.; y por
el S. con un camino. Partiendo de un punto marcado 1 en el plano, cuyo punto se halla al N. 41 gds. 17'
E.859.42 m. del mojon de localizacion No. 2 de la Oficina de Terrenos en Tarlac; y desde dicho punto 1 N.
81 gds. 31' O., 77 m. al punto 2; desde este punto N. 4 gds. 22' E.; 54.70 m. al punto 3; desde este punto S.
86 gds. 17' E.; 69.25 m. al punto 4; desde este punto S. 2 gds. 42' E., 61.48 m. al punto de partida; midiendo
una extension superficcial de cuatro mil doscientos diez y seis metros cuadrados (4,216) mas o menos.
Todos los puntos nombrados se hallan marcados en el plano y sobre el terreno los puntos 1 y 2 estan
determinados por mojones de P. L. S. de 20 x 20 x 70 centimetros y los puntos 3 y 4 por mojones del P. L.
S. B. L.: la orientacion seguida es la verdadera, siendo la declinacion magnetica de 0 gds. 45' E. y la fecha
de la medicion, 1. de febrero de 1913.
Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aos contados desde el dia 1.
de diciembre de 1922, devolvemos al expresado Don Benito Gonzalez Sy Chiam el referido precio de
diecisiete mil quinientos pesos (P17,500) queda obligado dicho Sr. Benito Gonzalez y Chiam a
retrovendernos la finca arriba descrita; pero si transcurre dicho plazo de cinco aos sin ejercitar el derecho
de retracto que nos hemos reservado, entonces quedara esta venta absoluta e irrevocable.
Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento la finca arriba descrita,
sujeto a condiciones siguientes:
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(a) El alquiler que nos obligamos a pagar por mensualidades vencidas a Don Benito Gonzalez Sy Chiam y
en su domicilio, era de trescientos setenta y cinco pesos (P375) moneda filipina, cada mes.
(b) El amillaramiento de la finca arrendada sera por cuenta de dicho Don Benito Gonzalez Sy Chiam, asi
como tambien la prima del seguro contra incendios, si el conviniera al referido Sr. Benito Gonzalez Sy
Chiam asegurar dicha finca.
(c) La falta de pago del alquiler aqui estipulado por dos meses consecutivos dara lugar a la terminacion de
este arrendamieno y a la perdida del derecho de retracto que nos hemos reservado, como si naturalmente
hubiera expirado el termino para ello, pudiendo en su virtud dicho Sr. Gonzalez Sy Chiam tomar posesion
de la finca y desahuciarnos de la misma.
Cuarto. Que yo, Benito Gonzalez Sy Chiam, a mi vez otorgo que acepto esta escritura en los precisos
terminos en que la dejan otorgada los conyuges Severino Tolentino y Potenciana Manio.
En testimonio de todo lo cual, firmamos la presente de nuestra mano en Manila, por cuadruplicado en
Manila, hoy a 28 de noviembre de 1922.
(Fdo.) SEVERINO TOLENTINO
(Fda.) POTENCIANA MANIO
(Fdo.) BENITO GONZALEZ SY CHIAM
Firmado en presencia de:
(Fdos.) MOISES M. BUHAIN
B. S. BANAAG
An examination of said contract of sale with reference to the first question above, shows clearly that it is
a pacto de retro and not a mortgage. There is no pretension on the part of the appellant that said contract,
standing alone, is a mortgage. The pertinent language of the contract is:
Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aos contados desde el dia 1.
de diciembre de 1922, devolvemos al expresado Don Benito Gonzales Sy Chiam el referido precio de
diecisiete mil quinientos pesos (P17,500) queda obligado dicho Sr. Benito Gonzales Sy Chiam a
retrovendornos la finca arriba descrita; pero si transcurre dicho plazo de cinco (5) aos sin ejercitar al
derecho de retracto que nos hemos reservado, entonces quedara esta venta absoluta e irrevocable.
Language cannot be clearer. The purpose of the contract is expressed clearly in said quotation that there
can certainly be not doubt as to the purpose of the plaintiff to sell the property in question, reserving the
right only to repurchase the same. The intention to sell with the right to repurchase cannot be more clearly
expressed.
It will be noted from a reading of said sale of pacto de retro, that the vendor, recognizing the absolute sale
of the property, entered into a contract with the purchaser by virtue of which she became the "tenant" of the
purchaser. That contract of rent appears in said quoted document above as follows:
Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento la finca arriba descrita,
sujeto a condiciones siguientes:
(a) El alquiler que nos obligamos a pagar por mensualidades vencidas a Don Benito Gonzalez Sy Chiam y
en su domicilio, sera de trescientos setenta y cinco pesos (P375) moneda filipina, cada mes.
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(b) El amillaramiento de la finca arrendada sera por cuenta de dicho Don Benito Gonzalez Sy Chiam, asi
como tambien la prima del seguro contra incendios, si le conviniera al referido Sr. Benito Gonzalez Sy
Chiam asegurar dicha finca.
From the foregoing, we are driven to the following conclusions: First, that the contract of pacto de retro is
an absolute sale of the property with the right to repurchase and not a mortgage; and, second, that by virtue
of the said contract the vendor became the tenant of the purchaser, under the conditions mentioned in
paragraph 3 of said contact quoted above.
It has been the uniform theory of this court, due to the severity of a contract of pacto de retro, to declare
the same to be a mortgage and not a sale whenever the interpretation of such a contract justifies that
conclusion. There must be something, however, in the language of the contract or in the conduct of the
parties which shows clearly and beyond doubt that they intended the contract to be a "mortgage" and not
a pacto de retro. (International Banking Corporation vs. Martinez, 10 Phil., 252; Padilla vs. Linsangan, 19
Phil., 65; Cumagun vs. Alingay, 19 Phil., 415; Olino vs. Medina, 13 Phil., 379; Manalo vs. Gueco, 42 Phil.,
925; Velazquez vs. Teodoro, 46 Phil., 757; Villa vs.Santiago, 38 Phil., 157.)
We are not unmindful of the fact that sales with pacto de retro are not favored and that the court will not
construe an instrument to one of sale with pacto de retro, with the stringent and onerous effect which
follows, unless the terms of the document and the surrounding circumstances require it.
While it is general rule that parol evidence is not admissible for the purpose of varying the terms of a
contract, but when an issue is squarely presented that a contract does not express the intention of the parties,
courts will, when a proper foundation is laid therefor, hear evidence for the purpose of ascertaining the true
intention of the parties.
In the present case the plaintiffs allege in their complaint that the contract in question is a pacto de retro.
They admit that they signed it. They admit they sold the property in question with the right to repurchase
it. The terms of the contract quoted by the plaintiffs to the defendant was a "sale" with pacto de retro, and
the plaintiffs have shown no circumstance whatever which would justify us in construing said contract to
be a mere "loan" with guaranty. In every case in which this court has construed a contract to be a mortgage
or a loan instead of a sale with pacto de retro, it has done so, either because the terms of such contract were
incompatible or inconsistent with the theory that said contract was one of purchase and sale.
(Olino vs. Medina, supra; Padilla vs. Linsangan, supra; Manlagnit vs. Dy Puico, 34 Phil., 325;
Rodriguez vs. Pamintuan and De Jesus, 37 Phil., 876.)
In the case of Padilla vs. Linsangan the term employed in the contract to indicate the nature of the
conveyance of the land was "pledged" instead of "sold". In the case of Manlagnit vs. Dy Puico, while the
vendor used to the terms "sale and transfer with the right to repurchase," yet in said contract he described
himself as a "debtor" the purchaser as a "creditor" and the contract as a "mortgage". In the case of Rodriguez
vs. Pamintuan and De Jesus the person who executed the instrument, purporting on its face to be a deed of
sale of certain parcels of land, had merely acted under a power of attorney from the owner of said land,
"authorizing him to borrow money in such amount and upon such terms and conditions as he might deem
proper, and to secure payment of the loan by a mortgage." In the case of Villa vs. Santiago (38 Phil., 157),
although a contract purporting to be a deed of sale was executed, the supposed vendor remained in
possession of the land and invested the money he had obtained from the supposed vendee in making
improvements thereon, which fact justified the court in holding that the transaction was a mere loan and
not a sale. In the case of Cuyugan vs. Santos (39 Phil., 970), the purchaser accepted partial payments from
the vendor, and such acceptance of partial payments is absolutely incompatible with the idea of
irrevocability of the title of ownership of the purchaser at the expiration of the term stipulated in the original
contract for the exercise of the right of repurchase."
 9
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Referring again to the right of the parties to vary the terms of written contract, we quote from the dissenting
opinion of Chief Justice Cayetano S. Arellano in the case of Government of the Philippine
Islands vs. Philippine Sugar Estates Development Co., which case was appealed to the Supreme Court of
the United States and the contention of the Chief Justice in his dissenting opinion was affirmed and the
decision of the Supreme Court of the Philippine Islands was reversed. (See decision of the Supreme Court
of the United States, June 3, 1918.)1 The Chief Justice said in discussing that question:
According to article 1282 of the Civil Code, in order to judge of the intention of the contracting parties,
consideration must chiefly be paid to those acts executed by said parties which are contemporary with and
subsequent to the contract. And according to article 1283, however general the terms of a contract may be,
they must not be held to include things and cases different from those with regard to which the interested
parties agreed to contract. "The Supreme Court of the Philippine Islands held the parol evidence was
admissible in that case to vary the terms of the contract between the Government of the Philippine Islands
and the Philippine Sugar Estates Development Co. In the course of the opinion of the Supreme Court of the
United States Mr. Justice Brandeis, speaking for the court, said:
It is well settled that courts of equity will reform a written contract where, owing to mutual mistake, the
language used therein did not fully or accurately express the agreement and intention of the parties. The
fact that interpretation or construction of a contract presents a question of law and that, therefore, the
mistake was one of law is not a bar to granting relief. . . . This court is always disposed to accept the
construction which the highest court of a territory or possession has placed upon a local statute. But that
disposition may not be yielded to where the lower court has clearly erred. Here the construction adopted
was rested upon a clearly erroneous assumption as to an established rule of equity. . . . The burden of proof
resting upon the appellant cannot be satisfied by mere preponderance of the evidence. It is settled that relief
by way of reformation will not be granted unless the proof of mutual mistake be of the clearest and most
satisfactory character.
The evidence introduced by the appellant in the present case does not meet with that stringent requirement.
There is not a word, a phrase, a sentence or a paragraph in the entire record, which justifies this court in
holding that the said contract of pacto de retro is a mortgage and not a sale with the right to repurchase.
Article 1281 of the Civil Code provides: "If the terms of a contract are clear and leave no doubt as to the
intention of the contracting parties, the literal sense of its stipulations shall be followed." Article 1282
provides: "in order to judge as to the intention of the contracting parties, attention must be paid principally
to their conduct at the time of making the contract and subsequently thereto."
We cannot thereto conclude this branch of our discussion of the question involved, without quoting from
that very well reasoned decision of the late Chief Justice Arellano, one of the greatest jurists of his time.
He said, in discussing the question whether or not the contract, in the case of Lichauco vs. Berenguer (20
Phil., 12), was a pacto de retro or a mortgage:
The public instrument, Exhibit C, in part reads as follows: "Don Macarion Berenguer declares and states
that he is the proprietor in fee simple of two parcels of fallow unappropriated crown land situated within
the district of his pueblo. The first has an area of 73 quiones, 8 balitas and 8 loanes, located in the sitio of
Batasan, and its boundaries are, etc., etc. The second is in the sitio of Panantaglay, barrio of Calumpang
has as area of 73 hectares, 22 ares, and 6 centares, and is bounded on the north, etc., etc."
In the executory part of the said instrument, it is stated:
'That under condition of right to repurchase (pacto de retro) he sells the said properties to the
aforementioned Doa Cornelia Laochangco for P4,000 and upon the following conditions: First, the sale
stipulated shall be for the period of two years, counting from this date, within which time the deponent shall
be entitled to repurchase the land sold upon payment of its price; second, the lands sold shall, during the
 10
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term of the present contract, be held in lease by the undersigned who shall pay, as rental therefor, the sum
of 400 pesos per annum, or the equivalent in sugar at the option of the vendor; third, all the fruits of the
said lands shall be deposited in the sugar depository of the vendee, situated in the district of Quiapo of this
city, and the value of which shall be applied on account of the price of this sale; fourth, the deponent
acknowledges that he has received from the vendor the purchase price of P4,000 already paid, and in legal
tender currency of this country . . .; fifth, all the taxes which may be assessed against the lands surveyed by
competent authority, shall be payable by and constitute a charge against the vendor; sixth, if, through any
unusual event, such as flood, tempest, etc., the properties hereinbefore enumerated should be destroyed,
wholly or in part, it shall be incumbent upon the vendor to repair the damage thereto at his own expense
and to put them into a good state of cultivation, and should he fail to do so he binds himself to give to the
vendee other lands of the same area, quality and value.'
xxx xxx xxx
The opponent maintained, and his theory was accepted by the trial court, that Berenguer's contract with
Laochangco was not one of sale with right of repurchase, but merely one of loan secured by those properties,
and, consequently, that the ownership of the lands in questions could not have been conveyed to
Laochangco, inasmuch as it continued to be held by Berenguer, as well as their possession, which he had
not ceased to enjoy.
Such a theory is, as argued by the appellant, erroneous. The instrument executed by Macario Berenguer,
the text of which has been transcribed in this decision, is very clear. Berenguer's heirs may not go counter
to the literal tenor of the obligation, the exact expression of the consent of the contracting contained in the
instrument, Exhibit C. Not because the lands may have continued in possession of the vendor, not because
the latter may have assumed the payment of the taxes on such properties, nor yet because the same party
may have bound himself to substitute by another any one of the properties which might be destroyed, does
the contract cease to be what it is, as set forth in detail in the public instrument. The vendor continued in
the possession of the lands, not as the owner thereof as before their sale, but as the lessee which he became
after its consummation, by virtue of a contract executed in his favor by the vendee in the deed itself, Exhibit
C. Right of ownership is not implied by the circumstance of the lessee's assuming the responsibility of the
payment is of the taxes on the property leased, for their payment is not peculiarly incumbent upon the
owner, nor is such right implied by the obligation to substitute the thing sold for another while in his
possession under lease, since that obligation came from him and he continues under another character in its
possessiona reason why he guarantees its integrity and obligates himself to return the thing even in a case
of force majeure. Such liability, as a general rule, is foreign to contracts of lease and, if required, is
exorbitant, but possible and lawful, if voluntarily agreed to and such agreement does not on this account
involve any sign of ownership, nor other meaning than the will to impose upon oneself scrupulous diligence
in the care of a thing belonging to another.
The purchase and sale, once consummated, is a contract which by its nature transfers the ownership and
other rights in the thing sold. A pacto de retro, or sale with right to repurchase, is nothing but a personal
right stipulated between the vendee and the vendor, to the end that the latter may again acquire the
ownership of the thing alienated.
It is true, very true indeed, that the sale with right of repurchase is employed as a method of loan; it is
likewise true that in practice many cases occur where the consummation of a pacto de retro sale means the
financial ruin of a person; it is also, unquestionable that in pacto de retro sales very important interests
often intervene, in the form of the price of the lease of the thing sold, which is stipulated as an additional
covenant. (Manresa, Civil Code, p. 274.)
But in the present case, unlike others heard by this court, there is no proof that the sale with right of
repurchase, made by Berenguer in favor of Laonchangco is rather a mortgage to secure a loan.
 11
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We come now to a discussion of the second question presented above, and that is, stating the same in
another form: May a tenant charge his landlord with a violation of the Usury Law upon the ground that the
amount of rent he pays, based upon the real value of the property, amounts to a usurious rate of interest?
When the vendor of property under a pacto de retro rents the property and agrees to pay a rental value for
the property during the period of his right to repurchase, he thereby becomes a "tenant" and in all respects
stands in the same relation with the purchaser as a tenant under any other contract of lease.
The appellant contends that the rental price paid during the period of the existence of the right to repurchase,
or the sum of P375 per month, based upon the value of the property, amounted to usury. Usury, generally
speaking, may be defined as contracting for or receiving something in excess of the amount allowed by law
for the loan or forbearance of moneythe taking of more interest for the use of money than the law allows.
It seems that the taking of interest for the loan of money, at least the taking of excessive interest has been
regarded with abhorrence from the earliest times. (Dunham vs. Gould, 16 Johnson [N. Y.], 367.) During
the middle ages the people of England, and especially the English Church, entertained the opinion, then,
current in Europe, that the taking of any interest for the loan of money was a detestable vice, hateful to man
and contrary to the laws of God. (3 Coke's Institute, 150; Tayler on Usury, 44.)
Chancellor Kent, in the case of Dunham vs. Gould, supra, said: "If we look back upon history, we shall find
that there is scarcely any people, ancient or modern, that have not had usury laws. . . . The Romans, through
the greater part of their history, had the deepest abhorrence of usury. . . . It will be deemed a little singular,
that the same voice against usury should have been raised in the laws of China, in the Hindu institutes of
Menu, in the Koran of Mahomet, and perhaps, we may say, in the laws of all nations that we know of,
whether Greek or Barbarian."
The collection of a rate of interest higher than that allowed by law is condemned by the Philippine
Legislature (Acts Nos. 2655, 2662 and 2992). But is it unlawful for the owner of a property to enter into a
contract with the tenant for the payment of a specific amount of rent for the use and occupation of said
property, even though the amount paid as "rent," based upon the value of the property, might exceed the
rate of interest allowed by law? That question has never been decided in this jurisdiction. It is one of first
impression. No cases have been found in this jurisdiction answering that question. Act No. 2655 is "An Act
fixing rates of interest upon 'loans' and declaring the effect of receiving or taking usurious rates."
It will be noted that said statute imposes a penalty upon a "loan" or forbearance of any money, goods,
chattels or credits, etc. The central idea of said statute is to prohibit a rate of interest on "loans." A contract
of "loan," is very different contract from that of "rent". A "loan," as that term is used in the statute, signifies
the giving of a sum of money, goods or credits to another, with a promise to repay, but not a promise to
return the same thing. To "loan," in general parlance, is to deliver to another for temporary use, on condition
that the thing or its equivalent be returned; or to deliver for temporary use on condition that an equivalent
in kind shall be returned with a compensation for its use. The word "loan," however, as used in the statute,
has a technical meaning. It never means the return of the same thing. It means the return of an equivalent
only, but never the same thing loaned. A "loan" has been properly defined as an advance payment of money,
goods or credits upon a contract or stipulation to repay, not to return, the thing loaned at some future day
in accordance with the terms of the contract. Under the contract of "loan," as used in said statute, the
moment the contract is completed the money, goods or chattels given cease to be the property of the former
owner and becomes the property of the obligor to be used according to his own will, unless the contract
itself expressly provides for a special or specific use of the same. At all events, the money, goods or chattels,
the moment the contract is executed, cease to be the property of the former owner and becomes the absolute
property of the obligor.
A contract of "loan" differs materially from a contract of "rent." In a contract of "rent" the owner of the
property does not lose his ownership. He simply loses his control over the property rented during the period
 12
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of the contract. In a contract of "loan" the thing loaned becomes the property of the obligor. In a contract
of "rent" the thing still remains the property of the lessor. He simply loses control of the same in a limited
way during the period of the contract of "rent" or lease. In a contract of "rent" the relation between the
contractors is that of landlord and tenant. In a contract of "loan" of money, goods, chattels or credits, the
relation between the parties is that of obligor and obligee. "Rent" may be defined as the compensation either
in money, provisions, chattels, or labor, received by the owner of the soil from the occupant thereof. It is
defined as the return or compensation for the possession of some corporeal inheritance, and is a profit
issuing out of lands or tenements, in return for their use. It is that, which is to paid for the use of land,
whether in money, labor or other thing agreed upon. A contract of "rent" is a contract by which one of the
parties delivers to the other some nonconsumable thing, in order that the latter may use it during a certain
period and return it to the former; whereas a contract of "loan", as that word is used in the statute, signifies
the delivery of money or other consumable things upon condition of returning an equivalent amount of the
same kind or quantity, in which cases it is called merely a "loan." In the case of a contract of "rent," under
the civil law, it is called a "commodatum."
From the foregoing it will be seen that there is a while distinction between a contract of "loan," as that word
is used in the statute, and a contract of "rent" even though those words are used in ordinary parlance as
interchangeable terms.
The value of money, goods or credits is easily ascertained while the amount of rent to be paid for the use
and occupation of the property may depend upon a thousand different conditions; as for example, farm
lands of exactly equal productive capacity and of the same physical value may have a different rental value,
depending upon location, prices of commodities, proximity to the market, etc. Houses may have a different
rental value due to location, conditions of business, general prosperity or depression, adaptability to
particular purposes, even though they have exactly the same original cost. A store on the Escolta, in the
center of business, constructed exactly like a store located outside of the business center, will have a much
higher rental value than the other. Two places of business located in different sections of the city may be
constructed exactly on the same architectural plan and yet one, due to particular location or adaptability to
a particular business which the lessor desires to conduct, may have a very much higher rental value than
one not so located and not so well adapted to the particular business. A very cheap building on the carnival
ground may rent for more money, due to the particular circumstances and surroundings, than a much more
valuable property located elsewhere. It will thus be seen that the rent to be paid for the use and occupation
of property is not necessarily fixed upon the value of the property. The amount of rent is fixed, based upon
a thousand different conditions and may or may not have any direct reference to the value of the property
rented. To hold that "usury" can be based upon the comparative actual rental value and the actual value of
the property, is to subject every landlord to an annoyance not contemplated by the law, and would create a
very great disturbance in every business or rural community. We cannot bring ourselves to believe that the
Legislature contemplated any such disturbance in the equilibrium of the business of the country.
In the present case the property in question was sold. It was an absolute sale with the right only to
repurchase. During the period of redemption the purchaser was the absolute owner of the property. During
the period of redemption the vendor was not the owner of the property. During the period of redemption
the vendor was a tenant of the purchaser. During the period of redemption the relation which existed
between the vendor and the vendee was that of landlord and tenant. That relation can only be terminated by
a repurchase of the property by the vendor in accordance with the terms of the said contract. The contract
was one of rent. The contract was not a loan, as that word is used in Act No. 2655.
As obnoxious as contracts of pacto de retro are, yet nevertheless, the courts have no right to make contracts
for parties. They made their own contract in the present case. There is not a word, a phrase, a sentence or
paragraph, which in the slightest way indicates that the parties to the contract in question did not intend to
 13
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sell the property in question absolutely, simply with the right to repurchase. People who make their own
beds must lie thereon.
What has been said above with reference to the right to modify contracts by parol evidence, sufficiently
answers the third questions presented above. The language of the contract is explicit, clear, unambiguous
and beyond question. It expresses the exact intention of the parties at the time it was made. There is not a
word, a phrase, a sentence or paragraph found in said contract which needs explanation. The parties thereto
entered into said contract with the full understanding of its terms and should not now be permitted to change
or modify it by parol evidence.
With reference to the improvements made upon said property by the plaintiffs during the life of the contract,
Exhibit C, there is hereby reserved to the plaintiffs the right to exercise in a separate action the right
guaranteed to them under article 361 of the Civil Code.
For all of the foregoing reasons, we are fully persuaded from the facts of the record, in relation with the law
applicable thereto, that the judgment appealed from should be and is hereby affirmed, with costs. So
ordered.
EMILIA MANZANO, vs. MIGUEL PEREZ SR., LEONCIO PEREZ, MACARIO PEREZ,
FLORENCIO PEREZ, NESTOR PEREZ, MIGUEL PEREZ JR. and GLORIA PEREZ,
Courts decide cases on the basis of the evidence presented by the parties. In the assessment of the facts,
reason and logic are used. In civil cases, the party that presents a preponderance of convincing evidence
wins.
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the March
31, 1993 Decision[1] of the Court of Appeals (CA)[2] in CA-GR CV No. 32594. The dispositive part of the
Decision reads:
WHEREFORE, the judgment appealed from is hereby REVERSED and another one is entered dismissing
plaintiffs complaint.
On the other hand, the Judgment[3] reversed by the CA ruled in this wise:
WHEREFORE, premises considered, judgment is hereby rendered:
1) Declaring the two Kasulatan ng Bilihang Tuluyan (Exh. J & K) over the properties in question void or
simulated;
2) Declaring the two Kasulatan ng Bilihang Tuluyan (Exh. J & K) over the properties in question rescinded;
3) Ordering the defendants Miguel Perez, Sr., Macario Perez, Leoncio Perez, Florencio Perez, Miguel
Perez, Jr., Nestor Perez and Gloria Perez to execute an Extra Judicial Partition with transfer over the said
residential lot and house, now covered and described in Tax Declaration Nos. 1993 and 1994, respectively
in the name of Nieves Manzano (Exh. Q & P), subject matter of this case, in favor of plaintiff Emilia
Manzano;
4) Ordering the defendants to pay plaintiff:
a) P25,000.00 as moral damages;
b) P10,000.00 as exemplary damages;
c) P15,000.00 as and for [a]ttorneys fees; and
 14
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d) To pay the cost of suit.[4]

The Motion for Reconsideration filed by petitioner before the CA was denied in a Resolution dated October
28, 1993.[5]
The Facts
The facts of the case are summarized by the Court of Appeals as follows:
[Petitioner] Emilia Manzano in her Complaint alleged that she is the owner of a residential house and lot,
more particularly described hereunder:
A parcel of residential lot (Lots 1725 and 1726 of the Cadastral Survey of Siniloan), together with all the
improvements thereon, situated at General Luna Street, Siniloan, Laguna. Bounded on the North by
Callejon; on the East, by [a] town river; on the South by Constancia Adofina; and on the West by Gen.
Luna Street. Containing an area of 130 square meters more or less, covered by Tax Dec. No. 9583 and
assessed at P1,330.00.
A residential house of strong mixed materials and G.I. iron roofing, with a floor area of 40 square meters,
more or less. Also covered by Tax No. 9583.
In 1979, Nieves Manzano, sister of the [petitioner] and predecessor-in-interest of the herein [private
respondents], allegedly borrowed the aforementioned property as collateral for a projected loan. The
[petitioner] acceded to the request of her sister upon the latters promise that she [would] return the property
immediately upon payment of her loan.
Pursuant to their understanding, the [petitioner] executed two deeds of conveyance for the sale of the
residential lot on 22 January 1979 (Exhibit J) and the sale of the house erected thereon on 2 February 1979
(Exhibit K), both for a consideration of P1.00 plus other valuables allegedly received by her from Nieves
Manzano.
On 2 April 1979, Nieves Manzano together with her husband, [respondent] Miguel Perez, Sr., and her son,
[respondent] Macario Perez, obtained a loan from the Rural Bank of Infanta, Inc. in the sum of
P30,000.00. To secure payment of their indebtedness, they executed a Real Estate Mortgage (Exhibit A)
over the subject property in favor of the bank.
Nieves Manzano died on 18 December 1979 leaving her husband and children as heirs. These heirs,
[respondents] herein allegedly refused to return the subject property to the [petitioner] even after the
payment of their loan with the Rural Bank (Exhibit B).
The [petitioner] alleged that sincere efforts to settle the dispute amicably failed and that the unwarranted
refusal of the [respondents] to return the property caused her sleepless nights, mental shock and social
humiliation. She was, likewise, allegedly constrained to engage the services of a counsel to protect her
proprietary rights.
The [petitioner] sought the annulment of the deeds of sale and execution of a deed of transfer or
reconveyance of the subject property in her favor, the award of moral damages of not less than P50,000.00,
exemplary damages of P10,000.00 attorneys fees of P10,000.00 plus P500.00 per court appearance, and
costs of suit.
In seeking the dismissal of the complaint, the [respondents] countered that they are the owners of the
property in question being the legal heirs of Nieves Manzano
Who purchased the same from the [petitioner] for value and in good faith, as shown by the deeds of sale
which contain the true agreements between the parties therein; that except for the [petitioners] bare
 15
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allegations, she failed to show any proof that the transaction she entered into with her sister was a loan and
not a sale.
By way of special and affirmative defense, the [respondents] argued that what the parties to the [sale] agreed
upon was to resell the property to the [petitioner] after the payment of the loan with the Rural Bank. But
since the [respondents] felt that the property is the only memory left by their predecessor-in-interest, they
politely informed the [petitioner] of their refusal to sell the same.The [respondents] also argued that the
[petitioner] is now estopped from questioning their ownership after seven (7) years from the consummation
of the sale.
As a proximate result of the filing of this alleged baseless and malicious suit, the [respondents] prayed as
counterclaim the award of moral damages in the amount of P10,000.00 each, exemplary damages in an
amount as may be warranted by the evidence on record, attorneys fees of P10,000.00 plus P500.00 per
appearance in court and costs of suit.
In ruling for the [petitioner], the court a quo considered the following:
First, the properties in question after [they have] been transferred to Nieves Manzano, the same were
mortgaged in favor of the Rural Bank of Infante, Inc. (Exh. A) to secure payment of the loan extended to
Macario Perez.
Second, the documents covering said properties which were given to the bank as collateral of said loan,
upon payment and [release] to the [private respondents], were returned to [petitioner] by Florencio Perez,
one of the [private respondents].
[These] uncontroverted facts [are] clear recognition [by private respondents] that [petitioner] is the owner
of the properties in question.
xxxxxxxxx
Third, [respondents] pretense of ownership of the properties in question is belied by their failure to present
payment of real estate taxes [for] said properties, and it is on [record] that [petitioner] has been paying the
real estate taxes [on] the same (Exh. T, V, V-1, V-2 & V-3).
xxxxxxxxx
Fourth, [respondents] confirmed the fact that [petitioner] went to the house in question and hacked the
stairs. According to [petitioner] she did it for failure of the [respondents] to return and vacate the
premises. [Respondents] did not file any action against her.
This is a clear indication also that they (respondents) recognized [petitioner] as owner of said properties.
xxxxxxxxx
Fifth, the Cadastral Notice of said properties were in the name of [petitioner] and the same was sent to her
(Exh. F & G).
xxxxxxxxx
Sixth, upon request of the [petitioner] to return said properties to her, [respondents] did promise and prepare
an Extra Judicial Partition with Sale over said properties in question, however the same did not
materialize. The other heirs of Nieves Manzano did not sign.
xxxxxxxxx
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Seventh, uncontroverted is the fact that the consideration [for] the alleged sale of the properties in question
is P1.00 and other things of value. [Petitioner] denies she has received any consideration for the transfer of
said properties, and the [respondents] have not presented evidence to belie her testimony.[6]
Ruling of the Court of Appeals
The Court of Appeals was not convinced by petitioners claim that there was a supposed oral agreement
of commodatum over the disputed house and lot. Neither was it persuaded by her allegation that respondents
predecessor-in-interest had given no consideration for the sale of the property in the latters favor. It
explained as follows:
To begin with, if the plaintiff-appellee remained as the rightful owner of the subject property, she would
not have agreed to reacquire one-half thereof for a consideration of P10,000.00 (Exhibit U-1). This is
especially true if we are to accept her assertion that Nieves Manzano did not purchase the property for
value. More importantly, if the agreement was to merely use plaintiffs property as collateral in a mortgage
loan, it was not explained why physical possession of the house and lot had to be with the supposed vendee
and her family who even built a pigpen on the lot (p. 6, TSN, June 11, 1990). A mere execution of the
document transferring title in the latters name would suffice for the purpose.
The alleged failure of the defendants-appellants to present evidence of payment of real estate taxes cannot
prejudice their cause. Realty tax payment of property is not conclusive evidence of ownership (Director of
Lands vs. Intermediate Appellate Court, 195 SCRA 38). Tax receipts only become strong evidence of
ownership when accompanied by proof of actual possession of the property (Tabuena vs. Court of Appeals,
196 SCRA 650).
In this case, plaintiff-appell[ee] was not in possession of the subject property. The defendant-appellants
were the ones in actual occupation of the house and lot which as aforestated was unnecessary if the real
agreement was merely to lend the property to be used as collateral. Moreover, the plaintiff-appellee began
paying her taxes only in 1986 after the instant complaint ha[d] been instituted (Exhibits V, V-1, V-3 and
T), and are, therefore, self-serving.
Significantly, while plaintiff-appellee was still the owner of the subject property in 1979 (Exhibit I), the
Certificate of Tax Declaration issued by the Office of the Municipal Treasurer on 8 August 1990 upon the
request of the plaintiff-appellee herself (Exhibit W) named Nieves Manzano as the owner and possessor of
the property in question. Moreover, Tax Declaration No. 9589 in the name of Nieves Manzano (Exhibits D
and D-1) indicates that the transfer of the subject property was based on the Absolute Sale executed before
Notary Public Alfonso Sanvictores, duly recorded in his notarial book as Document No. 3157, Page 157,
Book No. II. Tax Declaration No[s]. 9633 (Exhibit H), 1994 (Exhibit P), 1993 (Exhibit Q) are all in the
name of Nieves Manzano.
There is always the presumption that a written contract [is] for a valuable consideration (Section 5 (r), Rule
131 of the Rules of Court; Gamaitan vs. Court of Appeals, 200 SCRA 37). The execution of a deed
purporting to convey ownership of a realty is in itself prima facie evidence of the existence of a valuable
consideration and x x x the party alleging lack of consideration has the burden of proving such allegation
(Caballero, et al. vs. Caballero, et al., C.A. 45 O.G. 2536).
The consideration [for] the questioned [sale] is not the One (P1.00) Peso alone but also the other valuable
considerations. Assuming that such consideration is suspiciously insufficient, this circumstance alone, is
not sufficient to invalidate the sale. The inadequacy of the monetary consideration does not render a
conveyance null and void, for the vendors liberality may be a sufficient cause for a valid contract (Ong vs.
Ong, 139 SCRA 133).[7]
Hence, this Petition.[8]
 17
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Issues
Petitioner submits the following grounds in support of her cause:[9]
1. The Court of Appeals erred in failing to consider that:
A) The introduction of petitioners evidence is proper under the parol evidence rule.
B) The rules on admission by silence apply in the case at bar.
C) Petitioner is entitled to the reliefs prayed for.
2. The Court of Appeals erred in reversing the decision of the trial court whose factual findings are entitled
to great respect since it was able to observe and evaluate the demeanor of the witnesses.[10]
In sum, the main issue is whether the agreement between the parties was a commodatum or an absolute
sale.
The Courts Ruling
The Petition has no merit.
Main Issue: Sale or Commodatum
Obviously, the issue in this case is enveloped by conflict in factual perception, which is ordinarily not
reviewable in a petition under Rule 45. But the Court is constrained to resolve it, because the factual
findings of the Court of Appeals are contrary to those of the trial court.[11]
Preliminarily, petitioner contends that the CA erred in rejecting the introduction of her parol evidence. A
reading of the assailed Decision shows, however, that an elaborate discussion of the parol evidence rule
and its exceptions was merely given as a preface by the appellate court. Nowhere therein did it consider
petitioners evidence as improper under the said rule. On the contrary, it considered and weighed each and
every piece thereof. Nonetheless, it was not persuaded, as explained in the multitude of reasons explicitly
stated in its Decision.
This Court finds no cogent reason to disturb the findings and conclusions of the Court of Appeals. Upon
close examination of the records, we find that petitioner has failed to discharge her burden of proving her
case by preponderance of evidence. This concept refers to evidence that has greater weight or is more
convincing than that which is offered in opposition; at bottom, it means probability of truth.[12]
In the case at bar, petitioner has presented no convincing proof of her continued ownership of the subject
property. In addition to her own oral testimony, she submitted proof of payment of real property taxes. But
that payment, which was made only after her Complaint had already been lodged before the trial court,
cannot be considered in her favor for being self-serving, as aptly explained by the CA. Neither can we give
weight to her allegation that respondents possession of the subject property was merely by virtue of her
tolerance. Bare allegations, unsubstantiated by evidence, are not equivalent to proof under our Rules.[13]
On the other hand, respondents presented two Deeds of Sale, which petitioner executed in favor of the
formers predecessor-in-interest. Both Deeds for the residential lot and for the house erected thereon were
each in consideration of P1.00 plus other valuable. Having been notarized, they are presumed to have been
duly executed. Also, issued in favor of respondents predecessor-in-interest the day after the sale was Tax
Declaration No. 9589, which covered the property.
The facts alleged by petitioner in her favor are the following:
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(1) she inherited the subject house and lot from her parents, with her siblings waiving in her favor their
claim over the same; (2) the property was mortgaged to secure a loan of P30,000 taken in the names of
Nieves Manzano Perez and Respondent Miguel Perez; (3) upon full payment of the loan, the documents
pertaining to the house and lot were returned by Respondent Florencio Perez to petitioner; (4) three of the
respondents were signatories to a document transferring one half of the property to Emilia Manzano in
consideration of the sum of ten thousand pesos, although the transfer did not materialize because of the
refusal of the other respondents to sign the document; and (5) petitioner hacked the stairs of the subject
house, yet no case was filed against her.
These matters are not, however, convincing indicators of petitioners ownership of the house and lot. On the
contrary, they even support the claim of respondents. Indeed, how could one of them obtained a mortgage
over the property, without having dominion over it? Why would they execute a reconveyance of one half
of it in favor of petitioner? Why would the latter have to pay P10,000 for that portion if, as she claims, she
owns the whole?
Pitted against respondents evidence, that of petitioner awfully pales. Oral testimony cannot, as a rule,
prevail over a written agreement of the parties.[14] In order to contradict the facts contained in a notarial
document, such as the two Kasulatan ng Bilihang Tuluyan in this case, as well as the presumption of
regularity in the execution thereof, there must be clear and convincing evidence that is more than merely
preponderant.[15] Here petitioner has failed to come up with even a preponderance of evidence to prove her
claim.
Courts are not blessed with the ability to read what goes on in the minds of people. That is why parties to a
case are given all the opportunity to present evidence to help the courts decide on who are telling the truth
and who are lying, who are entitled to their claim and who are not. The Supreme Court cannot depart from
these guidelines and decide on the basis of compassion alone because, aside from being contrary to the rule
of law and our judicial system, this course of action would ultimately lead to anarchy.
We reiterate, the evidence offered by petitioner to prove her claim is sadly lacking. Jurisprudence on the
subject matter, when applied thereto, points to the existence of a sale, not a commodatum over the subject
house and lot.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
COLITO T. PAJUYO, vs. COURT OF APPEALS and EDDIE GUEVARRA
The Case
Before us is a petition for review[1] of the 21 June 2000 Decision[2] and 14 December 2000 Resolution of
the Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals set aside the 11 November 1996
decision[3] of the Regional Trial Court of Quezon City, Branch 81,[4] affirming the 15 December 1995
decision[5] of the Metropolitan Trial Court of Quezon City, Branch 31.[6]
The Antecedents
In June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 to a certain Pedro Perez for the rights over a
250-square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a house made of light
materials on the lot. Pajuyo and his family lived in the house from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (Guevarra) executed a Kasunduan or
agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house for free provided Guevarra
would maintain the cleanliness and orderliness of the house. Guevarra promised that he would voluntarily
vacate the premises on Pajuyos demand.
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In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra vacate
the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City, Branch
31 (MTC).
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot where the
house stands because the lot is within the 150 hectares set aside by Proclamation No. 137 for socialized
housing. Guevarra pointed out that from December 1985 to September 1994, Pajuyo did not show up or
communicate with him. Guevarra insisted that neither he nor Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion of the
MTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against defendant,
ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person or persons claiming any right
under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as reasonable
compensation for the use of the premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
D) pay the cost of suit.
SO ORDERED.[7]
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 (RTC).
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the RTC decision
reads:
WHEREFORE, premises considered, the Court finds no reversible error in the decision appealed from,
being in accord with the law and evidence presented, and the same is hereby affirmed en toto.
SO ORDERED.[8]
Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14 December 1996 to
file his appeal with the Court of Appeals. Instead of filing his appeal with the Court of Appeals, Guevarra
filed with the Supreme Court a Motion for Extension of Time to File Appeal by Certiorari Based on Rule
42 (motion for extension).Guevarra theorized that his appeal raised pure questions of law. The Receiving
Clerk of the Supreme Court received the motion for extension on 13 December 1996 or one day before the
right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a Resolution[9] referring the motion for
extension to the Court of Appeals which has concurrent jurisdiction over the case. The case presented no
special and important matter for the Supreme Court to take cognizance of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution [10] granting the
motion for extension conditioned on the timeliness of the filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras petition for review. On
11 April 1997, Pajuyo filed his Comment.
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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
 21
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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
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Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras petition for review
because the RTC decision had already become final and executory when the appellate court acted on
Guevarras motion for extension to file the petition. Pajuyo points out that Guevarra had only one day before
the expiry of his period to appeal the RTC decision. Instead of filing the petition for review with the Court
of Appeals, Guevarra filed with this Court an undated motion for extension of 30 days to file a petition for
review. This Court merely referred the motion to the Court of Appeals. Pajuyo believes that the filing of
the motion for extension with this Court did not toll the running of the period to perfect the appeal. Hence,
when the Court of Appeals received the motion, the period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their appellate jurisdiction are appealable to the
Court of Appeals by petition for review in cases involving questions of fact or mixed questions of fact and
law.[14] Decisions of the regional trial courts involving pure questions of law are appealable directly to this
Court by petition for review.[15]These modes of appeal are now embodied in Section 2, Rule 41 of the 1997
Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of law. Guevarra thus filed
his motion for extension to file petition for review before this Court on 14 December 1996. On 3 January
1997, Guevarra then filed his petition for review with this Court. A perusal of Guevarras petition for review
gives the impression that the issues he raised were pure questions of law. There is a question of law when
the doubt or difference is on what the law is on a certain state of facts. [16] There is a question of fact when
the doubt or difference is on the truth or falsity of the facts alleged.[17]
In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarras petition for
review raised these questions: (1) Do ejectment cases pertain only to possession of a structure, and not the
lot on which the structure stands? (2) Does a suit by a squatter against a fellow squatter constitute a valid
case for ejectment? (3) Should a Presidential Proclamation governing the lot on which a squatters structure
stands be considered in an ejectment suit filed by the owner of the structure?
These questions call for the evaluation of the rights of the parties under the law on ejectment and the
Presidential Proclamation. At first glance, the questions Guevarra raised appeared purely legal. However,
some factual questions still have to be resolved because they have a bearing on the legal questions raised
in the petition for review.These factual matters refer to the metes and bounds of the disputed property and
the application of Guevarra as beneficiary of Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition for review. In Lacsamana
v. Second Special Cases Division of the Intermediate Appellate Court,[18] we declared that the Court of
Appeals could grant extension of time in appeals by petition for review. In Liboro v. Court of
Appeals,[19] we clarified that the prohibition against granting an extension of time applies only in a case
where ordinary appeal is perfected by a mere notice of appeal. The prohibition does not apply in a petition
for review where the pleading needs verification. A petition for review, unlike an ordinary appeal, requires
preparation and research to present a persuasive position.[20]The drafting of the petition for review entails
more time and effort than filing a notice of appeal.[21] Hence, the Court of Appeals may allow an extension
of time to file a petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,[22] we held that Liboros
clarification of Lacsamana is consistent with the Revised Internal Rules of the Court of Appeals and
Supreme Court Circular No. 1-91. They all allow an extension of time for filing petitions for review with
the Court of Appeals. The extension, however, should be limited to only fifteen days save in exceptionally
meritorious cases where the Court of Appeals may grant a longer period.
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A judgment becomes final and executory by operation of law. Finality of judgment becomes a fact on the
lapse of the reglementary period to appeal if no appeal is perfected. [23] The RTC decision could not have
gained finality because the Court of Appeals granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved Guevarras motion for
extension. The Court of Appeals gave due course to the motion for extension because it complied with the
condition set by the appellate court in its resolution dated 28 January 1997. The resolution stated that the
Court of Appeals would only give due course to the motion for extension if filed on time. The motion for
extension met this condition.
The material dates to consider in determining the timeliness of the filing of the motion for extension are (1)
the date of receipt of the judgment or final order or resolution subject of the petition, and (2) the date of
filing of the motion for extension.[24] It is the date of the filing of the motion or pleading, and not the date
of execution, that determines the timeliness of the filing of that motion or pleading. Thus, even if the motion
for extension bears no date, the date of filing stamped on it is the reckoning point for determining the
timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed his motion
for extension before this Court on 13 December 1996, the date stamped by this Courts Receiving Clerk on
the motion for extension. Clearly, Guevarra filed the motion for extension exactly one day before the lapse
of the reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed Guevarras appeal on technical grounds, Pajuyo
did not ask the appellate court to deny the motion for extension and dismiss the petition for review at the
earliest opportunity. Instead, Pajuyo vigorously discussed the merits of the case. It was only when the Court
of Appeals ruled in Guevarras favor that Pajuyo raised the procedural issues against Guevarras petition for
review.
A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision on the
merits, is estopped from attacking the jurisdiction of the court.[25]Estoppel sets in not because the judgment
of the court is a valid and conclusive adjudication, but because the practice of attacking the courts
jurisdiction after voluntarily submitting to it is against public policy.[26]
In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure to sign the
certification against forum shopping. Instead, Pajuyo harped on Guevarras counsel signing the verification,
claiming that the counsels verification is insufficient since it is based only on mere information.
A partys failure to sign the certification against forum shopping is different from the partys failure to sign
personally the verification. The certificate of non-forum shopping must be signed by the party, and not by
counsel.[27] The certification of counsel renders the petition defective.[28]
On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional
requisite.[29] It is intended simply to secure an assurance that what are alleged in the pleading are true and
correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in
good faith.[30] The party need not sign the verification. A partys representative, lawyer or any person who
personally knows the truth of the facts alleged in the pleading may sign the verification.[31]
We agree with the Court of Appeals that the issue on the certificate against forum shopping was merely an
afterthought. Pajuyo did not call the Court of Appeals attention to this defect at the early stage of the
proceedings. Pajuyo raised this procedural issue too late in the proceedings.
Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve the Issue
of Possession
 24
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Settled is the rule that the defendants claim of ownership of the disputed property will not divest the inferior
court of its jurisdiction over the ejectment case.[32] Even if the pleadings raise the issue of ownership, the
court may pass on such issue to determine only the question of possession, especially if the ownership is
inseparably linked with the possession.[33] The adjudication on the issue of ownership is only provisional
and will not bar an action between the same parties involving title to the land.[34] This doctrine is a necessary
consequence of the nature of the two summary actions of ejectment, forcible entry and unlawful detainer,
where the only issue for adjudication is the physical or material possession over the real property.[35]
In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of the
contested property and that they are mere squatters. Will the defense that the parties to the ejectment case
are not the owners of the disputed lot allow the courts to renounce their jurisdiction over the case? The
Court of Appeals believed so and held that it would just leave the parties where they are since they are
in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for recovery of
possession. The parties cannot present evidence to prove ownership or right to legal possession except to
prove the nature of the possession when necessary to resolve the issue of physical possession.[36] The same
is true when the defendant asserts the absence of title over the property. The absence of title over the
contested lot is not a ground for the courts to withhold relief from the parties in an ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who is entitled to the physical
possession of the premises, that is, to the possession de factoand not to the possession de jure.[37] It does
not even matter if a partys title to the property is questionable,[38] or when both parties intruded into public
land and their applications to own the land have yet to be approved by the proper government
agency.[39] Regardless of the actual condition of the title to the property, the party in peaceable quiet
possession shall not be thrown out by a strong hand, violence or terror.[40] Neither is the unlawful
withholding of property allowed. Courts will always uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even against the owner
himself.[41] Whatever may be the character of his possession, if he has in his favor prior possession in time,
he has the security that entitles him to remain on the property until a person with a better right lawfully
ejects him.[42] To repeat, the only issue that the court has to settle in an ejectment suit is the right to physical
possession.
In Pitargue v. Sorilla,[43] the government owned the land in dispute. The government did not authorize
either the plaintiff or the defendant in the case of forcible entry case to occupy the land. The plaintiff had
prior possession and had already introduced improvements on the public land. The plaintiff had a pending
application for the land with the Bureau of Lands when the defendant ousted him from possession. The
plaintiff filed the action of forcible entry against the defendant. The government was not a party in the case
of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of possession because while the
application of the plaintiff was still pending, title remained with the government, and the Bureau of Public
Lands had jurisdiction over the case. We disagreed with the defendant. We ruled that courts have
jurisdiction to entertain ejectment suits even before the resolution of the application. The plaintiff, by
priority of his application and of his entry, acquired prior physical possession over the public land applied
for as against other private claimants. That prior physical possession enjoys legal protection against other
private claimants because only a court can take away such physical possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue[44] as squatters, strictly speaking,
their entry into the disputed land was illegal. Both the plaintiff and defendant entered the public land without
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the owners permission. Title to the land remained with the government because it had not awarded to
anyone ownership of the contested public land. Both the plaintiff and the defendant were in effect squatting
on government property. Yet, we upheld the courts jurisdiction to resolve the issue of possession even if
the plaintiff and the defendant in the ejectment case did not have any title over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of the public
need to preserve the basic policy behind the summary actions of forcible entry and unlawful detainer. The
underlying philosophy behind ejectment suits is to prevent breach of the peace and criminal disorder and
to compel the party out of possession to respect and resort to the law alone to obtain what he claims is
his.[45] The party deprived of possession must not take the law into his own hands.[46] Ejectment proceedings
are summary in nature so the authorities can settle speedily actions to recover possession because of the
overriding need to quell social disturbances.[47]
We further explained in Pitargue the greater interest that is at stake in actions for recovery of possession.
We made the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take cognizance of possessory
actions involving these public lands before final award is made by the Lands Department, and before title
is given any of the conflicting claimants? It is one of utmost importance, as there are public lands
everywhere and there are thousands of settlers, especially in newly opened regions. It also involves a matter
of policy, as it requires the determination of the respective authorities and functions of two coordinate
branches of the Government in connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old, which was in force in
this country before the American occupation, or in the new, we have a possessory action, the aim and
purpose of which is the recovery of the physical possession of real property, irrespective of the question as
to who has the title thereto. Under the Spanish Civil Code we had the accion interdictal, a summary
proceeding which could be brought within one year from dispossession (Roman Catholic Bishop of Cebu
vs. Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901, upon the enactment of the Code of Civil
Procedure (Act No. 190 of the Philippine Commission) we implanted the common law action of forcible
entry (section 80 of Act No. 190), the object of which has been stated by this Court to be to prevent breaches
of the peace and criminal disorder which would ensue from the withdrawal of the remedy, and the
reasonable hope such withdrawal would create that some advantage must accrue to those persons who,
believing themselves entitled to the possession of property, resort to force to gain possession rather than
to some appropriate action in the court to assert their claims. (Supia and Batioco vs. Quintero and Ayala,
59 Phil. 312, 314.) So before the enactment of the first Public Land Act (Act No. 926) the action of forcible
entry was already available in the courts of the country. So the question to be resolved is, Did the Legislature
intend, when it vested the power and authority to alienate and dispose of the public lands in the Lands
Department, to exclude the courts from entertaining the possessory action of forcible entry between rival
claimants or occupants of any land before award thereof to any of the parties? Did Congress intend that the
lands applied for, or all public lands for that matter, be removed from the jurisdiction of the judicial Branch
of the Government, so that any troubles arising therefrom, or any breaches of the peace or disorders caused
by rival claimants, could be inquired into only by the Lands Department to the exclusion of the courts? The
answer to this question seems to us evident. The Lands Department does not have the means to police public
lands; neither does it have the means to prevent disorders arising therefrom, or contain breaches of the
peace among settlers; or to pass promptly upon conflicts of possession. Then its power is clearly limited to
disposition and alienation, and while it may decide conflicts of possession in order to make proper award,
the settlement of conflicts of possession which is recognized in the court herein has another ultimate
purpose, i.e., the protection of actual possessors and occupants with a view to the prevention of breaches
of the peace. The power to dispose and alienate could not have been intended to include the power to
prevent or settle disorders or breaches of the peace among rival settlers or claimants prior to the final
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award. As to this, therefore, the corresponding branches of the Government must continue to exercise
power and jurisdiction within the limits of their respective functions. The vesting of the Lands Department
with authority to administer, dispose, and alienate public lands, therefore, must not be understood as
depriving the other branches of the Government of the exercise of the respective functions or powers
thereon, such as the authority to stop disorders and quell breaches of the peace by the police, the
authority on the part of the courts to take jurisdiction over possessory actions arising therefrom not
involving, directly or indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the effect that courts have no
jurisdiction to determine the rights of claimants to public lands, and that until the disposition of the land
has passed from the control of the Federal Government, the courts will not interfere with the administration
of matters concerning the same. (50 C. J. 1093-1094.) We have no quarrel with this principle. The
determination of the respective rights of rival claimants to public lands is different from the determination
of who has the actual physical possession or occupation with a view to protecting the same and preventing
disorder and breaches of the peace. A judgment of the court ordering restitution of the possession of a parcel
of land to the actual occupant, who has been deprived thereof by another through the use of force or in any
other illegal manner, can never be prejudicial interference with the disposition or alienation of public
lands. On the other hand, if courts were deprived of jurisdiction of cases involving conflicts of possession,
that threat of judicial action against breaches of the peace committed on public lands would be
eliminated, and a state of lawlessness would probably be produced between applicants, occupants or
squatters, where force or might, not right or justice, would rule.
It must be borne in mind that the action that would be used to solve conflicts of possession between rivals
or conflicting applicants or claimants would be no other than that of forcible entry. This action, both in
England and the United States and in our jurisdiction, is a summary and expeditious remedy whereby one
in peaceful and quiet possession may recover the possession of which he has been deprived by a stronger
hand, by violence or terror; its ultimate object being to prevent breach of the peace and criminal disorder.
(Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere possession
as a fact, of physical possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or
right to possession is never in issue in an action of forcible entry; as a matter of fact, evidence thereof is
expressly banned, except to prove the nature of the possession. (Second 4, Rule 72, Rules of Court.) With
this nature of the action in mind, by no stretch of the imagination can conclusion be arrived at that the use
of the remedy in the courts of justice would constitute an interference with the alienation, disposition, and
control of public lands. To limit ourselves to the case at bar can it be pretended at all that its result would
in any way interfere with the manner of the alienation or disposition of the land contested? On the contrary,
it would facilitate adjudication, for the question of priority of possession having been decided in a final
manner by the courts, said question need no longer waste the time of the land officers making the
adjudication or award. (Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code[48] embody the principle of pari delicto. We explained the
principle of pari delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari delicto potior
est conditio defedentis. The law will not aid either party to an illegal agreement. It leaves the parties where
it finds them.[49]
 27
COMMODATUM

The application of the pari delicto principle is not absolute, as there are exceptions to its application. One
of these exceptions is where the application of the pari delicto rule would violate well-established public
policy.[50]
In Drilon v. Gaurana,[51] we reiterated the basic policy behind the summary actions of forcible entry and
unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of the actual
condition of the title to the property, the party in peaceable quiet possession shall not be turned out by strong
hand, violence or terror. In affording this remedy of restitution the object of the statute is to prevent breaches
of the peace and criminal disorder which would ensue from the withdrawal of the remedy, and the
reasonable hope such withdrawal would create that some advantage must accrue to those persons who,
believing themselves entitled to the possession of property, resort to force to gain possession rather than to
some appropriate action in the courts to assert their claims. This is the philosophy at the foundation of all
these actions of forcible entry and detainer which are designed to compel the party out of possession to
respect and resort to the law alone to obtain what he claims is his.[52]
Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is fraught
with danger. To shut out relief to squatters on the ground of pari delicto would openly invite mayhem and
lawlessness. A squatter would oust another squatter from possession of the lot that the latter had illegally
occupied, emboldened by the knowledge that the courts would leave them where they are. Nothing would
then stand in the way of the ousted squatter from re-claiming his prior possession at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or actions for recovery of
possession seek to prevent.[53] Even the owner who has title over the disputed property cannot take the law
into his own hands to regain possession of his property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment suit are squatters. The
determination of priority and superiority of possession is a serious and urgent matter that cannot be left to
the squatters to decide. To do so would make squatters receive better treatment under the law. The law
restrains property owners from taking the law into their own hands. However, the principle of pari
delicto as applied by the Court of Appeals would give squatters free rein to dispossess fellow squatters or
violently retake possession of properties usurped from them. Courts should not leave squatters to their own
devices in cases involving recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of ejectment. The Court of Appeals
refused to rule on the issue of physical possession. Nevertheless, the appellate court held that the pivotal
issue in this case is who between Pajuyo and Guevarra has the priority right as beneficiary of the contested
land under Proclamation No. 137.[54] According to the Court of Appeals, Guevarra enjoys preferential right
under Proclamation No. 137 because Article VI of the Code declares that the actual occupant or caretaker
is the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a relocation site under
Proclamation No. 137. Proclamation No. 137 laid down the metes and bounds of the land that it declared
open for disposition to bona fide residents.
The records do not show that the contested lot is within the land specified by Proclamation No. 137.
Guevarra had the burden to prove that the disputed lot is within the coverage of Proclamation No. 137. He
failed to do so.
 28
COMMODATUM

Second. The Court of Appeals should not have given credence to Guevarras unsubstantiated claim that he
is the beneficiary of Proclamation No. 137. Guevarra merely alleged that in the survey the project
administrator conducted, he and not Pajuyo appeared as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137. Pajuyo allowed
Guevarra to occupy the disputed property in 1985. President Aquino signed Proclamation No. 137 into law
on 11 March 1986. Pajuyo made his earliest demand for Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to the time that Proclamation No. 137
allegedly segregated the disputed lot, Guevarra never applied as beneficiary of Proclamation No. 137. Even
when Guevarra already knew that Pajuyo was reclaiming possession of the property, Guevarra did not take
any step to comply with the requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and Guevarra
has a pending application over the lot, courts should still assume jurisdiction and resolve the issue of
possession. However, the jurisdiction of the courts would be limited to the issue of physical possession
only.
In Pitargue,[55] we ruled that courts have jurisdiction over possessory actions involving public land to
determine the issue of physical possession. The determination of the respective rights of rival claimants to
public land is, however, distinct from the determination of who has the actual physical possession or who
has a better right of physical possession.[56] The administrative disposition and alienation of public lands
should be threshed out in the proper government agency.[57]
The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation No. 137 was
premature. Pajuyo and Guevarra were at most merely potential beneficiaries of the law. Courts should not
preempt the decision of the administrative agency mandated by law to determine the qualifications of
applicants for the acquisition of public lands. Instead, courts should expeditiously resolve the issue of
physical possession in ejectment cases to prevent disorder and breaches of peace.[58]
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house built on
it. Guevarra expressly admitted the existence and due execution of the Kasunduan. The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay
pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing bahay at lote ng walang
bayad. Kaugnay nito, kailangang panatilihin nila ang kalinisan at kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent, but Guevarra
was under obligation to maintain the premises in good condition. Guevarra promised to vacate the premises
on Pajuyos demand but Guevarra broke his promise and refused to heed Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by a person
from another of the possession of real property to which the latter is entitled after the expiration or
termination of the formers right to hold possession under a contract, express or implied.[59]
Where the plaintiff allows the defendant to use his property by tolerance without any contract, the defendant
is necessarily bound by an implied promise that he will vacate on demand, failing which, an action for
unlawful detainer will lie.[60] The defendants refusal to comply with the demand makes his continued
possession of the property unlawful.[61] The status of the defendant in such a case is similar to that of a
 29
COMMODATUM

lessee or tenant whose term of lease has expired but whose occupancy continues by tolerance of the
owner.[62]
This principle should apply with greater force in cases where a contract embodies the permission or
tolerance to use the property. The Kasunduan expressly articulated Pajuyos forbearance. Pajuyo did not
require Guevarra to pay any rent but only to maintain the house and lot in good condition. Guevarra
expressly vowed in the Kasunduan that he would vacate the property on demand. Guevarras refusal to
comply with Pajuyos demand to vacate made Guevarras continued possession of the property unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to another something not consumable so that the
latter may use the same for a certain time and return it.[63] An essential feature of commodatum is that it is
gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a certain
period.[64] Thus, the bailor cannot demand the return of the thing loaned until after expiration of the period
stipulated, or after accomplishment of the use for which the commodatum is constituted.[65]If the bailor
should have urgent need of the thing, he may demand its return for temporary use.[66] If the use of the thing
is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the contractual
relation is called a precarium.[67] Under the Civil Code, precarium is a kind of commodatum.[68]
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially
gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the
property in good condition. The imposition of this obligation makes the Kasunduan a contract different
from a commodatum. The effects of the Kasunduan are also different from that of a commodatum. Case law
on ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant relationship
where the withdrawal of permission would result in the termination of the lease.[69] The tenants withholding
of the property would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as
bailee would still have the duty to turn over possession of the property to Pajuyo, the bailor. The obligation
to deliver or to return the thing received attaches to contracts for safekeeping, or contracts of commission,
administration and commodatum.[70] These contracts certainly involve the obligation to deliver or return the
thing received.[71]
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter.
Squatters, Guevarra pointed out, cannot enter into a contract involving the land they illegally occupy.
Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra freely entered into
the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from
it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to
physical possession of the contested property. The Kasunduan is the undeniable evidence of Guevarras
recognition of Pajuyos better right of physical possession. Guevarra is clearly a possessor in bad faith. The
absence of a contract would not yield a different result, as there would still be an implied promise to vacate.
Guevarra contends that there is a pernicious evil that is sought to be avoided, and that is allowing an
absentee squatter who (sic) makes (sic) a profit out of his illegal act.[72]Guevarra bases his argument on the
preferential right given to the actual occupant or caretaker under Proclamation No. 137 on socialized
housing.
We are not convinced.
 30
COMMODATUM

Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the property without
paying any rent. There is also no proof that Pajuyo is a professional squatter who rents out usurped
properties to other squatters. Moreover, it is for the proper government agency to decide who between
Pajuyo and Guevarra qualifies for socialized housing. The only issue that we are addressing is physical
possession.
Prior possession is not always a condition sine qua non in ejectment.[73] This is one of the distinctions
between forcible entry and unlawful detainer.[74] In forcible entry, the plaintiff is deprived of physical
possession of his land or building by means of force, intimidation, threat, strategy or stealth. Thus, he must
allege and prove prior possession.[75]But in unlawful detainer, the defendant unlawfully withholds
possession after the expiration or termination of his right to possess under any contract, express or implied.
In such a case, prior physical possession is not required.[76]
Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras transient right to
possess the property ended as well. Moreover, it was Pajuyo who was in actual possession of the property
because Guevarra had to seek Pajuyos permission to temporarily hold the property and Guevarra had to
follow the conditions set by Pajuyo in the Kasunduan. Control over the property still rested with Pajuyo
and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property. Possession in the eyes of the
law does not mean that a man has to have his feet on every square meter of the ground before he is deemed
in possession.[77] One may acquire possession not only by physical occupation, but also by the fact that a
thing is subject to the action of ones will.[78] Actual or physical occupation is not always necessary.[79]
Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared that squatters and intruders who
clandestinely enter into titled government property cannot, by such act, acquire any legal right to said
property.[80] We made this declaration because the person who had title or who had the right to legal
possession over the disputed property was a party in the ejectment suit and that party instituted the case
against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the ejectment case. This case
is between squatters. Had the government participated in this case, the courts could have evicted the
contending squatters, Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded in this case, we cannot evict
on our own the parties. Such a ruling would discourage squatters from seeking the aid of the courts in
settling the issue of physical possession. Stripping both the plaintiff and the defendant of possession just
because they are squatters would have the same dangerous implications as the application of the principle
of pari delicto. Squatters would then rather settle the issue of physical possession among themselves than
seek relief from the courts if the plaintiff and defendant in the ejectment case would both stand to lose
possession of the disputed property. This would subvert the policy underlying actions for recovery of
possession.
Since Pajuyo has in his favor priority in time in holding the property, he is entitled to remain on the property
until a person who has title or a better right lawfully ejects him.Guevarra is certainly not that person. The
ruling in this case, however, does not preclude Pajuyo and Guevarra from introducing evidence and
presenting arguments before the proper administrative agency to establish any right to which they may be
entitled under the law.[81]
In no way should our ruling in this case be interpreted to condone squatting. The ruling on the issue of
physical possession does not affect title to the property nor constitute a binding and conclusive adjudication
 31
COMMODATUM

on the merits on the issue of ownership.[82] The owner can still go to court to recover lawfully the property
from the person who holds the property without legal title. Our ruling here does not diminish the power of
government agencies, including local governments, to condemn, abate, remove or demolish illegal or
unauthorized structures in accordance with existing laws.
Attorneys Fees and Rentals
The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys fees as part of
damages are awarded only in the instances enumerated in Article 2208 of the Civil Code.[83] Thus, the award
of attorneys fees is the exception rather than the rule.[84] Attorneys fees are not awarded every time a party
prevails in a suit because of the policy that no premium should be placed on the right to litigate. [85] We
therefore delete the attorneys fees awarded to Pajuyo.
We sustain the P300 monthly rentals the MTC and RTC assessed against Guevarra. Guevarra did not
dispute this factual finding of the two courts. We find the amount reasonable compensation to
Pajuyo. The P300 monthly rental is counted from the last demand to vacate, which was on 16 February
1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution dated 14
December 2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated
11 November 1996 of the Regional Trial Court of Quezon City, Branch 81 in Civil Case No. Q-96-26943,
affirming the Decision dated 15 December 1995 of the Metropolitan Trial Court of Quezon City, Branch
31 in Civil Case No. 12432, is REINSTATED with MODIFICATION. The award of attorneys fees is
deleted. No costs.
SO ORDERED.

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and
MERCURIO RIVERA, vs. COURT OF APPEALS, CARLOS EJERCITO, in substitution of
DEMETRIO DEMETRIA, and JOSE JANOLO,

In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of letters
and/or in a meeting with the buyers constitute a perfected and enforceable contract of sale over 101 hectares
of land in Sta. Rosa, Laguna? Does the doctrine of "apparent authority" apply in this case? If so, may the
Central Bank-appointed conservator of Producers Bank (now First Philippine International Bank) repudiate
such "apparent authority" after said contract has been deemed perfected? During the pendency of a suit for
specific performance, does the filing of a "derivative suit" by the majority shareholders and directors of the
distressed bank to prevent the enforcement or implementation of the sale violate the ban against forum-
shopping?

Simply stated, these are the major questions brought before this Court in the instant Petition for review
on certiorariunder Rule 45 of the Rules of Court, to set aside the Decision promulgated January 14, 1994
of the respondent Court of Appeals1 in CA-G.R CV No. 35756 and the Resolution promulgated June 14,
1994 denying the motion for reconsideration. The dispositive portion of the said Decision reads:

WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages
awarded under paragraphs 3, 4 and 6 of its dispositive portion and the reduction of the award in
paragraph 5 thereof to P75,000.00, to be assessed against defendant bank. In all other aspects, said
decision is hereby AFFIRMED.

All references to the original plaintiffs in the decision and its dispositive portion are deemed, herein
and hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito.
 32
COMMODATUM

Costs against appellant bank.

The dispositive portion of the trial court's2 decision dated July 10, 1991, on the other hand, is as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and
against the defendants as follows:

1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land
situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less, covered by and
embraced in Transfer Certificates of Title Nos. T-106932 to T-106937, inclusive, of the Land
Records of Laguna, between the plaintiffs as buyers and the defendant Producers Bank for an
agreed price of Five and One Half Million (P5,500,000.00) Pesos;

2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and receipt
from the plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a deed of
absolute sale over the aforementioned six (6) parcels of land, and to immediately deliver to the
plaintiffs the owner's copies of T.C.T. Nos. T-106932 to T- 106937, inclusive, for purposes of
registration of the same deed and transfer of the six (6) titles in the names of the plaintiffs;

3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio
Demetria the sums of P200,000.00 each in moral damages;

4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P100,000.00 as
exemplary damages ;

5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of P400,000.00
for and by way of attorney's fees;

6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate damages
in the amount of P20,000.00;

With costs against the defendants.

After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the petition
was given due course in a Resolution dated January 18, 1995. Thence, the parties filed their respective
memoranda and reply memoranda. The First Division transferred this case to the Third Division per
resolution dated October 23, 1995. After carefully deliberating on the aforesaid submissions, the Court
assigned the case to the undersigned ponentefor the writing of this Decision.

The Parties

Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner Bank,
for brevity) is a banking institution organized and existing under the laws of the Republic of the Philippines.
Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all times material to
this case, Head-Manager of the Property Management Department of the petitioner Bank.

Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original
plaintiffs-appellees Demetrio Demetria and Jose Janolo.

Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside
through this petition.
 33
COMMODATUM

The Facts

The facts of this case are summarized in the respondent Court's Decision3 as follows:

(1) In the course of its banking operations, the defendant Producer Bank of the Philippines acquired
six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rose, Laguna, and
covered by Transfer Certificates of Title Nos. T-106932 to T-106937. The property used to be
owned by BYME Investment and Development Corporation which had them mortgaged with the
bank as collateral for a loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted
to purchase the property and thus initiated negotiations for that purpose.

(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME investment's
legal counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property
Management Department of the defendant bank. The meeting was held pursuant to plaintiffs' plan
to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo, following
the advice of defendant Rivera, made a formal purchase offer to the bank through a letter dated
August 30, 1987 (Exh. "B"), as follows:

August 30, 1987

The Producers Bank of the Philippines

Makati, Metro Manila

Attn. Mr. Mercurio Q. Rivera

Manager, Property Management Dept.

Gentleman:

I have the honor to submit my formal offer to purchase your properties covered by titles listed
hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or less.

TCT NO. AREA

T-106932 113,580 sq. m.
T-106933 70,899 sq. m.
T-106934 52,246 sq. m.
T-106935 96,768 sq. m.
T-106936 187,114 sq. m.
T-106937 481,481 sq. m.

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00)

PESOS, in cash.

Kindly contact me at Telephone Number 921-1344.

(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by letter
which is hereunder quoted (Exh. "C"):

September 1, 1987
 34
COMMODATUM

JP M-P GUTIERREZ ENTERPRISES

142 Charisma St., Doa Andres II
Rosario, Pasig, Metro Manila

Attention: JOSE O. JANOLO

Dear Sir:

Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna
(formerly owned by Byme Industrial Corp.). Please be informed however that the bank's counter-
offer is at P5.5 million for more than 101 hectares on lot basis.

We shall be very glad to hear your position on the on the matter.

Best regards.

(4) On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted reply, wrote (Exh.
"D"):

September 17, 1987

Producers Bank
Paseo de Roxas
Makati, Metro Manila

Attention: Mr. Mercurio Rivera

Gentlemen:

In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. Rosa,
Laguna, I would like to amend my previous offer and I now propose to buy the said lot at P4.250
million in CASH..

Hoping that this proposal meets your satisfaction.

(5) There was no reply to Janolo's foregoing letter of September 17, 1987. What took place was a
meeting on September 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-President of
defendant bank. Rivera as well as Fajardo, the BYME lawyer, attended the meeting. Two days
later, or on September 30, 1987, plaintiff Janolo sent to the bank, through Rivera, the following
letter (Exh. "E"):

The Producers Bank of the Philippines

Paseo de Roxas, Makati
Metro Manila

Attention: Mr. Mercurio Rivera

Re: 101 Hectares of Land

in Sta. Rosa, Laguna

Gentlemen:
 35
COMMODATUM

Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are
accepting your offer for us to purchase the property at Sta. Rosa, Laguna, formerly owned by Byme
Investment, for a total price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND
(P5,500,000.00).

Thank you.

(6) On October 12, 1987, the conservator of the bank (which has been placed under conservatorship
by the Central Bank since 1984) was replaced by an Acting Conservator in the person of defendant
Leonida T. Encarnacion. On November 4, 1987, defendant Rivera wrote plaintiff Demetria the
following letter (Exh. "F"):

Attention: Atty. Demetrio Demetria

Dear Sir:

Your proposal to buy the properties the bank foreclosed from Byme investment Corp. located at
Sta. Rosa, Laguna is under study yet as of this time by the newly created committee for submission
to the newly designated Acting Conservator of the bank.

For your information.

(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank
with what plaintiff considered as a perfected contract of sale, which demands were in one form or
another refused by the bank. As detailed by the trial court in its decision, on November 17, 1987,
plaintiffs through a letter to defendant Rivera (Exhibit "G") tendered payment of the amount of
P5.5 million "pursuant to (our) perfected sale agreement." Defendants refused to receive both the
payment and the letter. Instead, the parcels of land involved in the transaction were advertised by
the bank for sale to any interested buyer (Exh, "H" and "H-1"). Plaintiffs demanded the execution
by the bank of the documents on what was considered as a "perfected agreement." Thus:

Mr. Mercurio Rivera

Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila

Dear Mr. Rivera:

This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-hectare
lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to 106937.

From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this
same lot in the amount of P5.5 million was accepted by our client thru a letter dated September 30,
1987 and was received by you on October 5, 1987.

In view of the above circumstances, we believe that an agreement has been perfected. We were
also informed that despite repeated follow-up to consummate the purchase, you now refuse to honor
your commitment. Instead, you have advertised for sale the same lot to others.

In behalf of our client, therefore, we are making this formal demand upon you to consummate and
execute the necessary actions/documentation within three (3) days from your receipt hereof. We
 36
COMMODATUM

are ready to remit the agreed amount of P5.5 million at your advice. Otherwise, we shall be
constrained to file the necessary court action to protect the interest of our client.

We trust that you will be guided accordingly.

(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter and
stated, in its communication of December 2, 1987 (Exh. "I"), that said letter has been "referred . . .
to the office of our Conservator for proper disposition" However, no response came from the Acting
Conservator. On December 14, 1987, the plaintiffs made a second tender of payment (Exh. "L" and
"L-1"), this time through the Acting Conservator, defendant Encarnacion. Plaintiffs' letter reads:

PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila

Attn.: Atty. NIDA ENCARNACION

Central Bank Conservator

We are sending you herewith, in - behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No.
258387 in the amount of P5.5 million as our agreed purchase price of the 101-hectare lot covered
by TCT Nos. 106932, 106933, 106934, 106935, 106936 and 106937 and registered under
Producers Bank.

This is in connection with the perfected agreement consequent from your offer of P5.5 Million as
the purchase price of the said lots. Please inform us of the date of documentation of the sale
immediately.

Kindly acknowledge receipt of our payment.

(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988,
plaintiff, through counsel, made a final demand for compliance by the bank with its obligations
under the considered perfected contract of sale (Exhibit "N"). As recounted by the trial court
(Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex "4" of defendant's answer
to amended complaint), the defendants through Acting Conservator Encarnacion repudiated the
authority of defendant Rivera and claimed that his dealings with the plaintiffs, particularly his
counter-offer of P5.5 Million are unauthorized or illegal. On that basis, the defendants justified the
refusal of the tenders of payment and the non-compliance with the obligations under what the
plaintiffs considered to be a perfected contract of sale.

(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the
bank, its Manager Rivers and Acting Conservator Encarnacion. The basis of the suit was that the
transaction had with the bank resulted in a perfected contract of sale, The defendants took the
position that there was no such perfected sale because the defendant Rivera is not authorized to sell
the property, and that there was no meeting of the minds as to the price.

On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar
Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that as owner of
80% of the Bank's outstanding shares of stock, he had a substantial interest in resisting the
complaint. On July 8, 1991, the trial court issued an order denying the motion to intervene on the
ground that it was filed after trial had already been concluded. It also denied a motion for
reconsideration filed thereafter. From the trial court's decision, the Bank, petitioner Rivera and
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conservator Encarnacion appealed to the Court of Appeals which subsequently affirmed with
modification the said judgment. Henry Co did not appeal the denial of his motion for intervention.

In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of
Demetria and Janolo, in view of the assignment of the latters' rights in the matter in litigation to said private
respondent.

On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and several
other stockholders of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an
action (hereafter, the "Second Case") purportedly a "derivative suit" with the Regional Trial Court of
Makati, Branch 134, docketed as Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo "to
declare any perfected sale of the property as unenforceable and to stop Ejercito from enforcing or
implementing the sale"4 In his answer, Janolo argued that the Second Case was barred by litis pendentia by
virtue of the case then pending in the Court of Appeals. During the pre-trial conference in the Second Case,
plaintiffs filed a Motion for Leave of Court to Dismiss the Case Without Prejudice. "Private respondent
opposed this motion on the ground, among others, that plaintiff's act of forum shopping justifies the
dismissal of both cases, with prejudice."5 Private respondent, in his memorandum, averred that this motion
is still pending in the Makati RTC.

In their Petition6 and Memorandum7 , petitioners summarized their position as follows:

I.

The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito (in
substitution of Demetria and Janolo) and the bank.

II.

The Court of Appeals erred in declaring the existence of an enforceable contract of sale between
the parties.

III.

The Court of Appeals erred in declaring that the conservator does not have the power to overrule
or revoke acts of previous management.

IV.

The findings and conclusions of the Court of Appeals do not conform to the evidence on record.

On the other hand, petitioners prayed for dismissal of the instant suit on the ground8 that:

I.

Petitioners have engaged in forum shopping.

II.

The factual findings and conclusions of the Court of Appeals are supported by the evidence on
record and may no longer be questioned in this case.
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III.

The Court of Appeals correctly held that there was a perfected contract between Demetria and
Janolo (substituted by; respondent Ejercito) and the bank.

IV.

The Court of Appeals has correctly held that the conservator, apart from being estopped from
repudiating the agency and the contract, has no authority to revoke the contract of sale.

The Issues

From the foregoing positions of the parties, the issues in this case may be summed up as follows:

1) Was there forum-shopping on the part of petitioner Bank?

2) Was there a perfected contract of sale between the parties?

3) Assuming there was, was the said contract enforceable under the statute of frauds?

4) Did the bank conservator have the unilateral power to repudiate the authority of the bank officers
and/or to revoke the said contract?

5) Did the respondent Court commit any reversible error in its findings of facts?

The First Issue: Was There Forum-Shopping?

In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated Revised
Circular No. 28-91 requiring that a party "must certify under oath . . . [that] (a) he has not (t)heretofore
commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of
Appeals, or any other tribunal or agency; (b) to the best of his knowledge, no such action or proceeding is
pending" in said courts or agencies. A violation of the said circular entails sanctions that include the
summary dismissal of the multiple petitions or complaints. To be sure, petitioners have included a
VERIFICATION/CERTIFICATION in their Petition stating "for the record(,) the pendency of Civil Case
No. 92-1606 before the Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by
stockholders of petitioner Bank against the conservator and other defendants but which is the subject of a
pending Motion to Dismiss Without Prejudice.9

Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of actual
forum shopping because the instant petition pending before this Court involves "identical parties or interests
represented, rights asserted and reliefs sought (as that) currently pending before the Regional Trial Court,
Makati Branch 134 in the Second Case. In fact, the issues in the two cases are so interwined that a judgement
or resolution in either case will constitute res judicata in the other." 10

On the other hand, petitioners explain 11 that there is no forum-shopping because:

1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded as
a defendant, whereas in the "Second Case" (assuming the Bank is the real party in interest in a
derivative suit), it wasplaintiff;

2) "The derivative suit is not properly a suit for and in behalf of the corporation under the
circumstances";
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3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and

attached to the Petition identifies the action as a "derivative suit," it "does not mean that it is one"
and "(t)hat is a legal question for the courts to decide";

4) Petitioners did not hide the Second Case at they mentioned it in the said
VERIFICATION/CERTIFICATION.

We rule for private respondent.

To begin with, forum-shopping originated as a concept in private international law.12 , where non-resident
litigants are given the option to choose the forum or place wherein to bring their suit for various reasons or
excuses, including to secure procedural advantages, to annoy and harass the defendant, to avoid
overcrowded dockets, or to select a more friendly venue. To combat these less than honorable excuses, the
principle of forum non conveniens was developed whereby a court, in conflicts of law cases, may refuse
impositions on its jurisdiction where it is not the most "convenient" or available forum and the parties are
not precluded from seeking remedies elsewhere.

In this light, Black's Law Dictionary 13 says that forum shopping "occurs when a party attempts to have his
action tried in a particular court or jurisdiction where he feels he will receive the most favorable judgment
or verdict." Hence, according to Words and Phrases14 , "a litigant is open to the charge of "forum shopping"
whenever he chooses a forum with slight connection to factual circumstances surrounding his suit, and
litigants should be encouraged to attempt to settle their differences without imposing undue expenses and
vexatious situations on the courts".

In the Philippines, forum shopping has acquired a connotation encompassing not only a choice of venues,
as it was originally understood in conflicts of laws, but also to a choice of remedies. As to the first (choice
of venues), the Rules of Court, for example, allow a plaintiff to commence personal actions "where the
defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs
resides, at the election of the plaintiff" (Rule 4, Sec, 2 [b]). As to remedies, aggrieved parties, for example,
are given a choice of pursuing civil liabilities independently of the criminal, arising from the same set of
facts. A passenger of a public utility vehicle involved in a vehicular accident may sue on culpa contractual,
culpa aquiliana or culpa criminal each remedy being available independently of the others although
he cannot recover more than once.

In either of these situations (choice of venue or choice of remedy), the litigant actually shops for a
forum of his action, This was the original concept of the term forum shopping.

Eventually, however, instead of actually making a choice of the forum of their actions, litigants,
through the encouragement of their lawyers, file their actions in all available courts, or invoke all
relevant remedies simultaneously. This practice had not only resulted to (sic) conflicting
adjudications among different courts and consequent confusion enimical (sic) to an orderly
administration of justice. It had created extreme inconvenience to some of the parties to the action.

Thus, "forum shopping" had acquired a different concept which is unethical professional legal
practice. And this necessitated or had given rise to the formulation of rules and canons discouraging
or altogether prohibiting the practice. 15

What therefore originally started both in conflicts of laws and in our domestic law as a legitimate device
for solving problems has been abused and mis-used to assure scheming litigants of dubious reliefs.

To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned,
promulgated Circular 28-91. And even before that, the Court had prescribed it in the Interim Rules and
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COMMODATUM

Guidelines issued on January 11, 1983 and had struck down in several cases 16 the inveterate use of this
insidious malpractice. Forum shopping as "the filing of repetitious suits in different courts" has been
condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister of Natural Resources, et al., vs.
Heirs of Orval Hughes, et al., "as a reprehensible manipulation of court processes and proceedings . .
." 17 when does forum shopping take place?

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a
favorable opinion (other than by appeal or certiorari) in another. The principle applies not only
with respect to suits filed in the courts but also in connection with litigations commenced in the
courts while an administrative proceeding is pending, as in this case, in order to defeat
administrative processes and in anticipation of an unfavorable administrative ruling and a favorable
court ruling. This is specially so, as in this case, where the court in which the second suit was
brought, has no jurisdiction.18

The test for determining whether a party violated the rule against forum shopping has been laid dawn in the
1986 case of Buan vs. Lopez 19 , also by Chief Justice Narvasa, and that is, forum shopping exists where
the elements of litis pendentia are present or where a final judgment in one case will amount to res
judicata in the other, as follows:

There thus exists between the action before this Court and RTC Case No. 86-36563 identity of
parties, or at least such parties as represent the same interests in both actions, as well as identity of
rights asserted and relief prayed for, the relief being founded on the same facts, and the identity on
the two preceding particulars is such that any judgment rendered in the other action, will, regardless
of which party is successful, amount to res adjudicata in the action under consideration: all the
requisites, in fine, of auter action pendant.

xxx xxx xxx

As already observed, there is between the action at bar and RTC Case No. 86-36563, an identity as
regards parties, or interests represented, rights asserted and relief sought, as well as basis thereof,
to a degree sufficient to give rise to the ground for dismissal known as auter action pendant or lis
pendens. That same identity puts into operation the sanction of twin dismissals just mentioned. The
application of this sanction will prevent any further delay in the settlement of the controversy which
might ensue from attempts to seek reconsideration of or to appeal from the Order of the Regional
Trial Court in Civil Case No. 86-36563 promulgated on July 15, 1986, which dismissed the petition
upon grounds which appear persuasive.

Consequently, where a litigant (or one representing the same interest or person) sues the same party against
whom another action or actions for the alleged violation of the same right and the enforcement of the same
relief is/are still pending, the defense of litis pendencia in one case is bar to the others; and, a final judgment
in one would constitute res judicata and thus would cause the dismissal of the rest. In either case, forum
shopping could be cited by the other party as a ground to ask for summary dismissal of the two 20 (or more)
complaints or petitions, and for imposition of the other sanctions, which are direct contempt of court,
criminal prosecution, and disciplinary action against the erring lawyer.

Applying the foregoing principles in the case before us and comparing it with the Second Case, it is obvious
that there exist identity of parties or interests represented, identity of rights or causes and identity of reliefs
sought.

Very simply stated, the original complaint in the court a quo which gave rise to the instant petition was
filed by the buyer (herein private respondent and his predecessors-in-interest) against the seller (herein
petitioners) to enforce the alleged perfected sale of real estate. On the other hand, the complaint 21 in the
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Second Case seeks to declare such purported sale involving the same real property "as unenforceable as
against the Bank", which is the petitioner herein. In other words, in the Second Case, the majority
stockholders, in representation of the Bank, are seeking to accomplish what the Bank itself failed to do in
the original case in the trial court. In brief, the objective or the relief being sought, though worded
differently, is the same, namely, to enable the petitioner Bank to escape from the obligation to sell the
property to respondent. In Danville Maritime, Inc. vs. Commission on Audit. 22 , this Court ruled that the
filing by a party of two apparently different actions, but with the same objective, constituted forum
shopping:

In the attempt to make the two actions appear to be different, petitioner impleaded different
respondents therein PNOC in the case before the lower court and the COA in the case before
this Court and sought what seems to be different reliefs. Petitioner asks this Court to set aside the
questioned letter-directive of the COA dated October 10, 1988 and to direct said body to approve
the Memorandum of Agreement entered into by and between the PNOC and petitioner, while in
the complaint before the lower court petitioner seeks to enjoin the PNOC from conducting a
rebidding and from selling to other parties the vessel "T/T Andres Bonifacio", and for an extension
of time for it to comply with the paragraph 1 of the memorandum of agreement and damages. One
can see that although the relief prayed for in the two (2) actions are ostensibly different, the ultimate
objective in both actions is the same, that is, approval of the sale of vessel in favor of petitioner
and to overturn the letter-directive of the COA of October 10, 1988 disapproving the
sale. (emphasis supplied).

In an earlier case 23 but with the same logic and vigor, we held:

In other words, the filing by the petitioners of the instant special civil action for certiorari and
prohibition in this Court despite the pendency of their action in the Makati Regional Trial Court, is
a species of forum-shopping. Both actions unquestionably involve the same transactions, the same
essential facts and circumstances. The petitioners' claim of absence of identity simply because the
PCGG had not been impleaded in the RTC suit, and the suit did not involve certain acts which
transpired after its commencement, is specious. In the RTC action, as in the action before this Court,
the validity of the contract to purchase and sell of September 1, 1986, i.e., whether or not it had
been efficaciously rescinded, and the propriety of implementing the same (by paying the pledgee
banks the amount of their loans, obtaining the release of the pledged shares, etc.) were the basic
issues. So, too, the relief was the same: the prevention of such implementation and/or the restoration
of the status quo ante. When the acts sought to be restrained took place anyway despite the issuance
by the Trial Court of a temporary restraining order, the RTC suit did not become functus oficio. It
remained an effective vehicle for obtention of relief; and petitioners' remedy in the premises was
plain and patent: the filing of an amended and supplemental pleading in the RTC suit, so as to
include the PCGG as defendant and seek nullification of the acts sought to be enjoined but
nonetheless done. The remedy was certainly not the institution of another action in another forum
based on essentially the same facts, The adoption of this latter recourse renders the petitioners
amenable to disciplinary action and both their actions, in this Court as well as in the Court a quo,
dismissible.

In the instant case before us, there is also identity of parties, or at least, of interests represented. Although
the plaintiffs in the Second Case (Henry L. Co. et al.) are not name parties in the First Case, they represent
the same interest and entity, namely, petitioner Bank, because:

Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the matter
in controversy. They are not principally or even subsidiarily liable; much less are they direct parties in the
assailed contract of sale; and
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Secondly, the allegations of the complaint in the Second Case show that the stockholders are bringing a
"derivative suit". In the caption itself, petitioners claim to have brought suit "for and in behalf of the
Producers Bank of the Philippines" 24 . Indeed, this is the very essence of a derivative suit:

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation

wherein he holdsstock in order to protect or vindicate corporate rights, whenever the officials of the
corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In such
actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party
in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]; emphasis supplied).

In the face of the damaging admissions taken from the complaint in the Second Case, petitioners, quite
strangely, sought to deny that the Second Case was a derivative suit, reasoning that it was brought, not by
the minority shareholders, but by Henry Co et al., who not only own, hold or control over 80% of the
outstanding capital stock, but also constitute the majority in the Board of Directors of petitioner Bank. That
being so, then they really represent the Bank. So, whether they sued "derivatively" or directly, there is
undeniably an identity of interests/entity represented.

Petitioner also tried to seek refuge in the corporate fiction that the personality Of the Bank is separate and
distinct from its shareholders. But the rulings of this Court are consistent: "When the fiction is urged as a
means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of
knavery or crime, the veil with which the law covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of
individuals." 25

In addition to the many cases 26 where the corporate fiction has been disregarded, we now add the instant
case, and declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of
the prohibition against forum-shopping. Shareholders, whether suing as the majority in direct actions or as
the minority in a derivative suit, cannot be allowed to trifle with court processes, particularly where, as in
this case, the corporation itself has not been remiss in vigorously prosecuting or defending corporate causes
and in using and applying remedies available to it. To rule otherwise would be to encourage corporate
litigants to use their shareholders as fronts to circumvent the stringent rules against forum shopping.

Finally, petitioner Bank argued that there cannot be any forum shopping, even assuming arguendo that
there is identity of parties, causes of action and reliefs sought, "because it (the Bank) was the defendant in
the (first) case while it was the plaintiff in the other (Second Case)",citing as authority Victronics
Computers, Inc., vs. Regional Trial Court, Branch 63, Makati, etc. et al., 27 where Court held:

The rule has not been extended to a defendant who, for reasons known only to him, commences a
new action against the plaintiff instead of filing a responsive pleading in the other case
setting forth therein, as causes of action, specific denials, special and affirmative defenses or even
counterclaims, Thus, Velhagen's and King's motion to dismiss Civil Case No. 91-2069 by no means
negates the charge of forum-shopping as such did not exist in the first place. (emphasis supplied)

Petitioner pointed out that since it was merely the defendant in the original case, it could not have chosen
the forum in said case.

Respondent, on the other hand, replied that there is a difference in factual setting between Victronics and
the present suit. In the former, as underscored in the above-quoted Court ruling, the defendants did not file
any responsive pleading in the first case. In other words, they did not make any denial or raise any defense
or counter-claim therein In the case before us however, petitioners filed a responsive pleading to the
complaint as a result of which, the issues were joined.
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COMMODATUM

Indeed, by praying for affirmative reliefs and interposing counterclaims in their responsive pleadings, the
petitioners became plaintiffs themselves in the original case, giving unto themselves the very remedies they
repeated in the Second Case.

Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is the
vexation caused the courts and parties-litigant by a party who asks different courts and/or administrative
agencies to rule on the same or related causes and/or to grant the same or substantially the same reliefs, in
the process creating the possibility of conflicting decisions being rendered by the different fora upon the
same issue. In this case, this is exactly the problem: a decision recognizing the perfection and directing the
enforcement of the contract of sale will directly conflict with a possible decision in the Second Case barring
the parties front enforcing or implementing the said sale. Indeed, a final decision in one would constitute res
judicata in the other 28 .

The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction
possible now is the dismissal of both cases with prejudice, as the other sanctions cannot be imposed because
petitioners' present counsel entered their appearance only during the proceedings in this Court, and the
Petition's VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency of the
Second Case to show good faith in observing Circular 28-91. The Lawyers who filed the Second Case are
not before us; thus the rudiments of due process prevent us from motu propio imposing disciplinary
measures against them in this Decision. However, petitioners themselves (and particularly Henry Co, et al.)
as litigants are admonished to strictly follow the rules against forum-shopping and not to trifle with court
proceedings and processes They are warned that a repetition of the same will be dealt with more severely.

Having said that, let it be emphasized that this petition should be dismissed not merely because of forum-
shopping but also because of the substantive issues raised, as will be discussed shortly.

The Second Issue: Was The Contract Perfected?

The respondent Court correctly treated the question of whether or not there was, on the basis of the facts
established, a perfected contract of sale as the ultimate issue. Holding that a valid contract has been
established, respondent Court stated:

There is no dispute that the object of the transaction is that property owned by the defendant bank
as acquired assets consisting of six (6) parcels of land specifically identified under Transfer
Certificates of Title Nos. T-106932 to T-106937. It is likewise beyond cavil that the bank intended
to sell the property. As testified to by the Bank's Deputy Conservator, Jose Entereso, the bank was
looking for buyers of the property. It is definite that the plaintiffs wanted to purchase the property
and it was precisely for this purpose that they met with defendant Rivera, Manager of the Property
Management Department of the defendant bank, in early August 1987. The procedure in the sale
of acquired assets as well as the nature and scope of the authority of Rivera on the matter is clearly
delineated in the testimony of Rivera himself, which testimony was relied upon by both the bank
and by Rivera in their appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20):

A: The procedure runs this way: Acquired assets was turned over to me and then I published
it in the form of an inter-office memorandum distributed to all branches that these are
acquired assets for sale. I was instructed to advertise acquired assets for sale so on that
basis, I have to entertain offer; to accept offer, formal offer and upon having been offered,
I present it to the Committee. I provide the Committee with necessary information about
the property such as original loan of the borrower, bid price during the foreclosure, total
claim of the bank, the appraised value at the time the property is being offered for sale and
then the information which are relative to the evaluation of the bank to buy which the
Committee considers and it is the Committee that evaluate as against the exposure of the
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bank and it is also the Committee that submit to the Conservator for final approval and
once approved, we have to execute the deed of sale and it is the Conservator that sign the
deed of sale, sir.

The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the
property, dealt with and talked to the right person. Necessarily, the agenda was the price of the
property, and plaintiffs were dealing with the bank official authorized to entertain offers, to accept
offers and to present the offer to the Committee before which the said official is authorized to
discuss information relative to price determination. Necessarily, too, it being inherent in his
authority, Rivera is the officer from whom official information regarding the price, as determined
by the Committee and approved by the Conservator, can be had. And Rivera confirmed his
authority when he talked with the plaintiff in August 1987. The testimony of plaintiff Demetria is
clear on this point (TSN of May 31,1990, pp. 27-28):

Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you
ask him point-blank his authority to sell any property?

A: No, sir. Not point blank although it came from him, (W)hen I asked him how long it
would take because he was saying that the matter of pricing will be passed upon by the
committee. And when I asked him how long it will take for the committee to decide and
he said the committee meets every week. If I am not mistaken Wednesday and in about
two week's (sic) time, in effect what he was saying he was not the one who was to decide.
But he would refer it to the committee and he would relay the decision of the committee to
me.

Q Please answer the question.

A He did not say that he had the authority (.) But he said he would refer the matter to
the committee and he would relay the decision to me and he did just like that.

"Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was the
Head, with Jose Entereso as one of the members.

What transpired after the meeting of early August 1987 are consistent with the authority and the
duties of Rivera and the bank's internal procedure in the matter of the sale of bank's assets. As
advised by Rivera, the plaintiffs made a formal offer by a letter dated August 20, 1987 stating that
they would buy at the price of P3.5 Million in cash. The letter was for the attention of Mercurio
Rivera who was tasked to convey and accept such offers. Considering an aspect of the official duty
of Rivera as some sort of intermediary between the plaintiffs-buyers with their proposed buying
price on one hand, and the bank Committee, the Conservator and ultimately the bank itself with the
set price on the other, and considering further the discussion of price at the meeting of August
resulting in a formal offer of P3.5 Million in cash, there can be no other logical conclusion than
that when, on September 1, 1987, Rivera informed plaintiffs by letter that "the bank's counter-offer
is at P5.5 Million for more than 101 hectares on lot basis," such counter-offer price had been
determined by the Past Due Committee and approved by the Conservator after Rivera had duly
presented plaintiffs' offer for discussion by the Committee of such matters as original loan of
borrower, bid price during foreclosure, total claim of the bank, and market value. Tersely put, under
the established facts, the price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"),
the official and definitive price at which the bank was selling the property.

There were averments by defendants below, as well as before this Court, that the P5.5 Million price
was not discussed by the Committee and that price. As correctly characterized by the trial court,
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COMMODATUM

this is not credible. The testimonies of Luis Co and Jose Entereso on this point are at best equivocal
and considering the gratuitous and self-serving character of these declarations, the bank's
submission on this point does not inspire belief. Both Co ad Entereso, as members of the Past Due
Committee of the bank, claim that the offer of the plaintiff was never discussed by the Committee.
In the same vein, both Co and Entereso openly admit that they seldom attend the meetings of the
Committee. It is important to note that negotiations on the price had started in early August and the
plaintiffs had already offered an amount as purchase price, having been made to understand by
Rivera, the official in charge of the negotiation, that the price will be submitted for approval by the
bank and that the bank's decision will be relayed to plaintiffs. From the facts, the official bank price.
At any rate, the bank placed its official, Rivera, in a position of authority to accept offers to buy
and negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn
around and later say, as it now does, that what Rivera states as the bank's action on the matter is
not in fact so. It is a familiar doctrine, the doctrine of ostensible authority, that if a corporation
knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent
authority, and thus holds him out to the public as possessing power to do those acts, the corporation
will, as against any one who has in good faith dealt with the corporation through such agent, he
estopped from denying his authority (Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of
Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14,
1993). 29

Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: "(1)
Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause
of the obligation which is established."

There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6) parcels
of land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less, and covered by
Transfer Certificates of Title Nos. T-106932 to T-106937. There is, however, a dispute on the first and third
requisites.

Petitioners allege that "there is no counter-offer made by the Bank, and any supposed counter-offer which
Rivera (or Co) may have made is unauthorized. Since there was no counter-offer by the Bank, there was
nothing for Ejercito (in substitution of Demetria and Janolo) to accept." 30 They disputed the factual basis
of the respondent Court's findings that there was an offer made by Janolo for P3.5 million, to which the
Bank counter-offered P5.5 million. We have perused the evidence but cannot find fault with the said Court's
findings of fact. Verily, in a petition under Rule 45 such as this, errors of fact if there be any - are, as a
rule, not reviewable. The mere fact that respondent Court (and the trial court as well) chose to believe the
evidence presented by respondent more than that presented by petitioners is not by itself a reversible error.
In fact, such findings merit serious consideration by this Court, particularly where, as in this case, said
courts carefully and meticulously discussed their findings. This is basic.

Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review the
question of Rivera's authority to act and petitioner's allegations that the P5.5 million counter-offer was
extinguished by the P4.25 million revised offer of Janolo. Here, there are questions of law which could be
drawn from the factual findings of the respondent Court. They also delve into the contractual elements of
consent and cause.

The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine
of "apparent authority", with special reference to banks, was laid out in Prudential Bank vs. Court of
Appeals31 , where it was held that:

Conformably, we have declared in countless decisions that the principal is liable for obligations
contracted by the agent. The agent's apparent representation yields to the principal's true
 46
COMMODATUM

representation and the contract is considered as entered into between the principal and the third
person (citing National Food Authority vs. Intermediate Appellate Court, 184 SCRA 166).

A bank is liable for wrongful acts of its officers done in the interests of the bank or in the
course of dealings of the officers in their representative capacity but not for acts outside
the scape of their authority (9 C.J.S., p. 417). A bank holding out its officers and agents as
worthy of confidence will not be permitted to profit by the frauds they may thus be enabled
to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its
responsibility for such frauds even though no benefit may accrue to the bank therefrom (10
Am Jur 2d, p. 114). Accordingly, 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 perpetrate a fraud upon his principal or some other
person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW
818, 40 ALR 1021).

Application of these principles is especially necessary because banks have a fiduciary relationship
with the public and their stability depends on the confidence of the people in their honesty and
efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and
supervision of its employees, resulting in prejudice to their depositors.

From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or implied
authority to act for the Bank in the matter of selling its acquired assets. This evidence includes the following:

(a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times material to this case,
Manager of the Property Management Department of the Bank". By his own admission, Rivera was
already the person in charge of the Bank's acquired assets (TSN, August 6, 1990, pp. 8-9);

(b) As observed by respondent Court, the land was definitely being sold by the Bank. And during
the initial meeting between the buyers and Rivera, the latter suggested that the buyers' offer should
be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17);

(c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5 million (TSN, 30 July
1990, p.11);

(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5 million
(TSN, July 30, p. 11);

(e) Rivera received the letter dated September 17, 1987 containing the buyers' proposal to buy the
property for P4.25 million (TSN, July 30, 1990, p. 12);

(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of the
Bank (TSN, January 16, 1990, p. 18);

(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1994, during
which the Bank's offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35).
At said meeting, Co, a major shareholder and officer of the Bank, confirmed Rivera's statement as
to the finality of the Bank's counter-offer of P5.5 million (TSN, January 16, 1990, p. 21; TSN, April
26, 1990, p. 35);

(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the officer
acting for the Bank in relation to parties interested in buying assets owned/acquired by the Bank.
 47
COMMODATUM

In fact, Rivera was the officer mentioned in the Bank's advertisements offering for sale the property
in question (cf. Exhs. "S" and "S-1").

In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32 , the Court, through
Justice Jose A. R. Melo, affirmed the doctrine of apparent authority as it held that the apparent authority of
the officer of the Bank of P.I. in charge of acquired assets is borne out by similar circumstances surrounding
his dealings with buyers.

To be sure, petitioners attempted to repudiate Rivera's apparent authority through documents and testimony
which seek to establish Rivera's actual authority. These pieces of evidence, however, are inherently weak
as they consist of Rivera's self-serving testimony and various inter-office memoranda that purport to show
his limited actual authority, of which private respondent cannot be charged with knowledge. In any event,
since the issue is apparent authority, the existence of which is borne out by the respondent Court's findings,
the evidence of actual authority is immaterial insofar as the liability of a corporation is concerned 33 .

Petitioners also argued that since Demetria and Janolo were experienced lawyers and their "law firm" had
once acted for the Bank in three criminal cases, they should be charged with actual knowledge of Rivera's
limited authority. But the Court of Appeals in its Decision (p. 12) had already made a factual finding that
the buyers had no notice of Rivera's actual authority prior to the sale. In fact, the Bank has not shown that
they acted as its counsel in respect to any acquired assets; on the other hand, respondent has proven that
Demetria and Janolo merely associated with a loose aggrupation of lawyers (not a professional partnership),
one of whose members (Atty. Susana Parker) acted in said criminal cases.

Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the letter dated
September 17, 1987 extinguished the Bank's offer of P5.5 million 34 .They disputed the respondent Court's
finding that "there was a meeting of minds when on 30 September 1987 Demetria and Janolo through Annex
"L" (letter dated September 30, 1987) "accepted" Rivera's counter offer of P5.5 million under Annex "J"
(letter dated September 17, 1987)", citingthe late Justice Paras35 , Art. 1319 of the Civil Code 36 and related
Supreme Court rulings starting with Beaumont vs. Prieto 37 .

However, the above-cited authorities and precedents cannot apply in the instant case because, as found by
the respondent Court which reviewed the testimonies on this point, what was "accepted" by Janolo in his
letter dated September 30, 1987 was the Bank's offer of P5.5 million as confirmed and reiterated to Demetria
and Atty. Jose Fajardo by Rivera and Co during their meeting on September 28, 1987. Note that the said
letter of September 30, 1987 begins with"(p)ursuant to our discussion last 28 September 1987 . . .

Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co that the
September 28, 1987 meeting "was meant to have the offerors improve on their position of P5.5.
million."38 However, both the trial court and the Court of Appeals found petitioners' testimonial evidence
"not credible", and we find no basis for changing this finding of fact.

Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA) common finding that
private respondents' evidence is more in keeping with truth and logic that during the meeting on
September 28, 1987, Luis Co and Rivera "confirmed that the P5.5 million price has been passed upon by
the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35)"39 . Hence,
assuming arguendo that the counter-offer of P4.25 million extinguished the offer of P5.5 million, Luis Co's
reiteration of the said P5.5 million price during the September 28, 1987 meeting revived the said offer. And
by virtue of the September 30, 1987 letter accepting this revived offer, there was a meeting of the minds,
as the acceptance in said letter was absolute and unqualified.

We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's authority and action,
particularly the latter's counter-offer of P5.5 million, as being "unauthorized and illegal" came only on May
 48
COMMODATUM

12, 1988 or more than seven (7) months after Janolo' acceptance. Such delay, and the absence of any
circumstance which might have justifiably prevented the Bank from acting earlier, clearly characterizes the
repudiation as nothing more than a last-minute attempt on the Bank's part to get out of a binding contractual
obligation.

Taken together, the factual findings of the respondent Court point to an implied admission on the part of
the petitioners that the written offer made on September 1, 1987 was carried through during the meeting of
September 28, 1987. This is the conclusion consistent with human experience, truth and good faith.

It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million was raised for the
first time on appeal and should thus be disregarded.

This Court in several decisions has repeatedly adhered to the principle that points of law, theories,
issues of fact and arguments not adequately brought to the attention of the trial court need not be,
and ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first
time on appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145 SCRA 592).40

. . . It is settled jurisprudence that an issue which was neither averred in the complaint nor raised
during the trial in the court below cannot be raised for the first time on appeal as it would be
offensive to the basic rules of fair play, justice and due process (Dihiansan vs. CA, 153 SCRA 713
[1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development Corp. vs. CA,
157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August
30, 1990).41

Since the issue was not raised in the pleadings as an affirmative defense, private respondent was not given
an opportunity in the trial court to controvert the same through opposing evidence. Indeed, this is a matter
of due process. But we passed upon the issue anyway, if only to avoid deciding the case on purely
procedural grounds, and we repeat that, on the basis of the evidence already in the record and as appreciated
by the lower courts, the inevitable conclusion is simply that there was a perfected contract of sale.

The Third Issue: Is the Contract Enforceable?

The petition alleged42 :

Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the
meeting of 28 September 1987, and it was this verbal offer that Demetria and Janolo accepted with
their letter of 30 September 1987, the contract produced thereby would be unenforceable by action
there being no note, memorandum or writing subscribed by the Bank to evidence such contract.
(Please see article 1403[2], Civil Code.)

Upon the other hand, the respondent Court in its Decision (p, 14) stated:

. . . Of course, the bank's letter of September 1, 1987 on the official price and the plaintiffs'
acceptance of the price on September 30, 1987, are not, in themselves, formal contracts of sale.
They are however clear embodiments of the fact that a contract of sale was perfected between the
parties, such contract being binding in whatever form it may have been entered into (case citations
omitted). Stated simply, the banks' letter of September 1, 1987, taken together with plaintiffs' letter
dated September 30, 1987, constitute in law a sufficient memorandum of a perfected contract of
sale.

The respondent Court could have added that the written communications commenced not only from
September 1, 1987 but from Janolo's August 20, 1987 letter. We agree that, taken together, these letters
 49
COMMODATUM

constitute sufficient memoranda since they include the names of the parties, the terms and conditions of
the contract, the price and a description of the property as the object of the contract.

But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did
constitute a "new" offer which was accepted by Janolo on September 30, 1987. Still, the statute of frauds
will not apply by reason of the failure of petitioners to object to oral testimony proving petitioner Bank's
counter-offer of P5.5 million. Hence, petitioners by such utter failure to object are deemed to have
waived any defects of the contract under the statute of frauds, pursuant to Article 1405 of the Civil Code:

Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified
by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance
of benefits under them.

As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the counter-
offer of P5.5 million is a plenty and the silence of petitioners all throughout the presentation makes the
evidence binding on them thus;

A Yes, sir, I think it was September 28, 1987 and I was again present because Atty. Demetria told
me to accompany him we were able to meet Luis Co at the Bank.

xxx xxx xxx

Q Now, what transpired during this meeting with Luis Co of the Producers Bank?

A Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.

Q What price?

A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is the
final price and that is the price they intends (sic) to have, sir.

Q What do you mean?.

A That is the amount they want, sir.

Q What is the reaction of the plaintiff Demetria to Luis Co's statement (sic) that the defendant
Rivera's counter-offer of 5.5 million was the defendant's bank (sic) final offer?

A He said in a day or two, he will make final acceptance, sir.

Q What is the response of Mr. Luis Co?.

A He said he will wait for the position of Atty. Demetria, sir.

[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]

Q What transpired during that meeting between you and Mr. Luis Co of the defendant Bank?

A We went straight to the point because he being a busy person, I told him if the amount of P5.5
million could still be reduced and he said that was already passed upon by the committee. What the
 50
COMMODATUM

bank expects which was contrary to what Mr. Rivera stated. And he told me that is the final offer
of the bank P5.5 million and we should indicate our position as soon as possible.

Q What was your response to the answer of Mr. Luis Co?

A I said that we are going to give him our answer in a few days and he said that was it. Atty. Fajardo
and I and Mr. Mercurio [Rivera] was with us at the time at his office.

Q For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office in
Producers Bank Building during this meeting?

A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.

Q By Mr. Co you are referring to?

A Mr. Luis Co.

Q After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter offer
by the bank?

A Yes, sir, we did.? Two days thereafter we sent our acceptance to the bank which offer we
accepted, the offer of the bank which is P5.5 million.

[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]

Q According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the
Committee and it is not within his power to reduce this amount. What can you say to that statement
that the amount of P5.5 million was reached by the Committee?

A It was not discussed by the Committee but it was discussed initially by Luis Co and the group of
Atty. Demetrio Demetria and Atty. Pajardo (sic) in that September 28, 1987 meeting, sir.

[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]

The Fourth Issue: May the Conservator Revoke

the Perfected and Enforceable Contract.

It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the
Philippines during the time that the negotiation and perfection of the contract of sale took place. Petitioners
energetically contended that the conservator has the power to revoke or overrule actions of the management
or the board of directors of a bank, under Section 28-A of Republic Act No. 265 (otherwise known as the
Central Bank Act) as follows:

Whenever, on the basis of a report submitted by the appropriate supervising or examining

department, the Monetary Board finds that a bank or a non-bank financial intermediary performing
quasi-banking functions is in a state of continuing inability or unwillingness to maintain a state of
liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary Board
may appoint a conservator to take charge of the assets, liabilities, and the management of that
institution, collect all monies and debts due said institution and exercise all powers necessary to
preserve the assets of the institution, reorganize the management thereof, and restore its viability.
He shall have the power to overrule or revoke the actions of the previous management and board
of directors of the bank or non-bank financial intermediary performing quasi-banking functions,
 51
COMMODATUM

any provision of law to the contrary notwithstanding, and such other powers as the Monetary Board
shall deem necessary.

In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the perfected
contract of sale was raised for the first time in this Petition as this was not litigated in the trial court or
Court of Appeals. As already stated earlier, issues not raised and/or ventilated in the trial court, let alone in
the Court of Appeals, "cannot be raised for the first time on appeal as it would be offensive to the basic
rules of fair play, justice and due process."43

In the second place, there is absolutely no evidence that the Conservator, at the time the contract was
perfected, actually repudiated or overruled said contract of sale. The Bank's acting conservator at the time,
Rodolfo Romey, never objected to the sale of the property to Demetria and Janolo. What petitioners are
really referring to is the letter of Conservator Encarnacion, who took over from Romey after the sale was
perfected on September 30, 1987 (Annex V, petition) which unilaterally repudiated not the contract
but the authority of Rivera to make a binding offer and which unarguably came months after the
perfection of the contract. Said letter dated May 12, 1988 is reproduced hereunder:

May 12, 1988

Atty. Noe C. Zarate

Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila

Dear Atty. Zarate:

This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria regarding
the six (6) parcels of land located at Sta. Rosa, Laguna.

We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor
perfected a "contract to sell and buy" with any of them for the following reasons.

In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and approved by former
Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto M. Pascua
detailed the functions of Property Management Department (PMD) staff and officers (Annex A.),
you will immediately read that Manager Mr. Mercurio Rivera or any of his subordinates
has no authority, power or right to make any alleged counter-offer. In short, your lawyer-clients
did not deal with the authorized officers of the bank.

Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Bates Pambansa Blg.
68.) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended), only the Board of
Directors/Conservator may authorize the sale of any property of the corportion/bank..

Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank
conservators (starting January, 1984) to sell the aforesaid property to any of your clients.
Apparently, what took place were just preliminary discussions/consultations between him and your
clients, which everyone knows cannot bind the Bank's Board or Conservator.

We are, therefore, constrained to refuse any tender of payment by your clients, as the same is
patently violative of corporate and banking laws. We believe that this is more than sufficient legal
justification for refusing said alleged tender.
 52
COMMODATUM

Rest assured that we have nothing personal against your clients. All our acts are official, legal and
in accordance with law. We also have no personal interest in any of the properties of the Bank.

Please be advised accordingly.

Very truly yours,

(Sgd.) Leonida T. Encarnacion

LEONIDA T. EDCARNACION
Acting Conservator

In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the
conservator of a bank, it must be pointed out that such powers must be related to the "(preservation of) the
assets of the bank, (the reorganization of) the management thereof and (the restoration of) its viability."
Such powers, enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected
transactions, otherwise they would infringe against the non-impairment clause of the Constitution 44 . If the
legislature itself cannot revoke an existing valid contract, how can it delegate such non-existent powers to
the conservator under Section 28-A of said law?

Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under
existing law, deemed to be defective i.e., void, voidable, unenforceable or rescissible. Hence, the
conservator merely takes the place of a bank's board of directors. What the said board cannot do such as
repudiating a contract validly entered into under the doctrine of implied authority the conservator cannot
do either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the
Bank. His authority would be only to bring court actions to assail such contracts as he has already done
so in the instant case. A contrary understanding of the law would simply not be permitted by the
Constitution. Neither by common sense. To rule otherwise would be to enable a failing bank to become
solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke all previous
dealings which had one way or another or come to be considered unfavorable to the Bank, yielding nothing
to perfected contractual rights nor vested interests of the third parties who had dealt with the Bank.

The Fifth Issue: Were There Reversible Errors of Facts?

Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact by the
Court of Appeals are not reviewable by the Supreme Court. In Andres vs. Manufacturers Hanover & Trust
Corporation, 45 , we held:

. . . The rule regarding questions of fact being raised with this Court in a petition for certiorari under
Rule 45 of the Revised Rules of Court has been stated in Remalante vs. Tibe, G.R. No. 59514,
February 25, 1988, 158 SCRA 138, thus:

The rule in this jurisdiction is that only questions of law may be raised in a petition
for certiorari under Rule 45 of the Revised Rules of Court. "The jurisdiction of the Supreme Court
in cases brought to it from the Court of Appeals is limited to reviewing and revising the errors of
law imputed to it, its findings of the fact being conclusive " [Chan vs. Court of Appeals, G.R. No.
L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has
emphatically declared that "it is not the function of the Supreme Court to analyze or weigh such
evidence all over again, its jurisdiction being limited to reviewing errors of law that might have
been committed by the lower court" (Tiongco v. De la Merced, G. R. No. L-24426, July 25, 1974,
58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865;
Baniqued vs. Court of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596). "Barring,
therefore, a showing that the findings complained of are totally devoid of support in the record, or
 53
COMMODATUM

that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must
stand, for this Court is not expected or required to examine or contrast the oral and documentary
evidence submitted by the parties" [Santa Ana, Jr. vs. Hernandez, G. R. No. L-16394, December
17, 1966, 18 SCRA 973] [at pp. 144-145.]

Likewise, in Bernardo vs. Court of Appeals 46 , we held:

The resolution of this petition invites us to closely scrutinize the facts of the case, relating to the
sufficiency of evidence and the credibility of witnesses presented. This Court so held that it is not
the function of the Supreme Court to analyze or weigh such evidence all over again. The Supreme
Court's jurisdiction is limited to reviewing errors of law that may have been committed by the lower
court. The Supreme Court is not a trier of facts. . . .

As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and
Development Corp. 47 :

The Court has consistently held that the factual findings of the trial court, as well as the Court of
Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional
circumstances where a reassessment of facts found by the lower courts is allowed are when the
conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the
inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of
discretion in the appreciation of facts; when the judgment is premised on a misapprehension of
facts; when the findings went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee. After a careful study of the case at bench, we find none
of the above grounds present to justify the re-evaluation of the findings of fact made by the courts
below.

In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance Company
Inc. vs. Hon. Court of Appeals, et al. 48 is equally applicable to the present case:

We see no valid reason to discard the factual conclusions of the appellate court, . . . (I)t is not the
function of this Court to assess and evaluate all over again the evidence, testimonial and
documentary, adduced by the parties, particularly where, such as here, the findings of both the trial
court and the appellate court on the matter coincide. (emphasis supplied)

Petitioners, however, assailed the respondent Court's Decision as "fraught with findings and conclusions
which were not only contrary to the evidence on record but have no bases at all," specifically the findings
that (1) the "Bank's counter-offer price of P5.5 million had been determined by the past due committee and
approved by conservator Romey, after Rivera presented the same for discussion" and (2) "the meeting with
Co was not to scale down the price and start negotiations anew, but a meeting on the already determined
price of P5.5 million" Hence, citingPhilippine National Bank vs. Court of Appeals 49 , petitioners are asking
us to review and reverse such factual findings.

The first point was clearly passed upon by the Court of Appeals 50 , thus:

There can be no other logical conclusion than that when, on September 1, 1987, Rivera informed
plaintiffs by letter that "the bank's counter-offer is at P5.5 Million for more than 101 hectares on
lot basis, "such counter-offer price had been determined by the Past Due Committee and approved
by the Conservator after Rivera had duly presented plaintiffs' offer for discussion by the Committee
. . . Tersely put, under the established fact, the price of P5.5 Million was, as clearly worded in
Rivera's letter (Exh. "E"), the official and definitive price at which the bank was selling the
property. (p. 11, CA Decision)
 54
COMMODATUM

xxx xxx xxx

. . . The argument deserves scant consideration. As pointed out by plaintiff, during the meeting of
September 28, 1987 between the plaintiffs, Rivera and Luis Co, the senior vice-president of the
bank, where the topic was the possible lowering of the price, the bank official refused it and
confirmed that the P5.5 Million price had been passed upon by the Committee and could no longer
be lowered (TSN of April 27, 1990, pp. 34-35) (p. 15, CA Decision).

The respondent Court did not believe the evidence of the petitioners on this point, characterizing it as "not
credible" and "at best equivocal and considering the gratuitous and self-serving character of these
declarations, the bank's submissions on this point do not inspire belief."

To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo Romey
to testify on their behalf, as he would have been in the best position to establish their thesis. Under the rules
on evidence 51 , such suppression gives rise to the presumption that his testimony would have been adverse,
if produced.

The second point was squarely raised in the Court of Appeals, but petitioners' evidence was deemed
insufficient by both the trial court and the respondent Court, and instead, it was respondent's submissions
that were believed and became bases of the conclusions arrived at.

In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower courts
are valid and correct. But the petitioners are now asking this Court to disturb these findings to fit the
conclusion they are espousing, This we cannot do.

To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by the
Court of Appeals 52 . We have studied both the records and the CA Decision and we find no such exceptions
in this case. On the contrary, the findings of the said Court are supported by a preponderance of competent
and credible evidence. The inferences and conclusions are seasonably based on evidence duly identified in
the Decision. Indeed, the appellate court patiently traversed and dissected the issues presented before it,
lending credibility and dependability to its findings. The best that can be said in favor of petitioners on this
point is that the factual findings of respondent Court did not correspond to petitioners' claims, but were
closer to the evidence as presented in the trial court by private respondent. But this alone is no reason to
reverse or ignore such factual findings, particularly where, as in this case, the trial court and the appellate
court were in common agreement thereon. Indeed, conclusions of fact of a trial judge as affirmed by the
Court of Appeals are conclusive upon this Court, absent any serious abuse or evident lack of basis or
capriciousness of any kind, because the trial court is in a better position to observe the demeanor of the
witnesses and their courtroom manner as well as to examine the real evidence presented.

Epilogue.

In summary, there are two procedural issues involved forum-shopping and the raising of issues for the first
time on appeal [viz., the extinguishment of the Bank's offer of P5.5 million and the conservator's powers to
repudiate contracts entered into by the Bank's officers] which per se could justify the dismissal of the
present case. We did not limit ourselves thereto, but delved as well into the substantive issues the
perfection of the contract of sale and its enforceability, which required the determination of questions of
fact. While the Supreme Court is not a trier of facts and as a rule we are not required to look into the factual
bases of respondent Court's decisions and resolutions, we did so just the same, if only to find out whether
there is reason to disturb any of its factual findings, for we are only too aware of the depth, magnitude and
vigor by which the parties through their respective eloquent counsel, argued their positions before this
Court.
 55
COMMODATUM

We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a
government-appointed conservator and "there is need to rehabilitate the Bank in order to get it back on its
feet . . . as many people depend on (it) for investments, deposits and well as employment. As of June 1987,
the Bank's overdraft with the Central Bank had already reached P1.023 billion . . . and there were (other)
offers to buy the subject properties for a substantial amount of money." 53

While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot emotionally
close its eyes to overriding considerations of substantive and procedural law, like respect for perfected
contracts, non-impairment of obligations and sanctions against forum-shopping, which must be upheld
under the rule of law and blind justice.

This Court cannot just gloss over private respondent's submission that, while the subject properties may
currently command a much higher price, it is equally true that at the time of the transaction in 1987, the
price agreed upon of P5.5 million was reasonable, considering that the Bank acquired these properties at a
foreclosure sale for no more than P3.5 million 54 . That the Bank procrastinated and refused to honor its
commitment to sell cannot now be used by it to promote its own advantage, to enable it to escape its binding
obligation and to reap the benefits of the increase in land values. To rule in favor of the Bank simply because
the property in question has algebraically accelerated in price during the long period of litigation is to
reward lawlessness and delays in the fulfillment of binding contracts. Certainly, the Court cannot stamp its
imprimatur on such outrageous proposition.

WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court hereby
DENIES the petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is
REPRIMANDED for engaging in forum-shopping and WARNED that a repetition of the same or similar
acts will be dealt with more severely. Costs against petitioners.

SO ORDERED.