CIVIL LAW | C r e d i t T r a n s a c t i o n s
that the elements of usury are (1) a loan express or
FIRST DIVISION
[G.R. No. L-48349. December 29, 1986.]
FRANCISCO HERRERA, Plaintiff-Appellant, v.
PETROPHIL CORPORATION, Defendant-Appellee.
Paterno R. Canlas Law Offices, for Plaintiff-
Appellant.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; LEASE; ADVANCE
PAYMENT OF RENTALS; CANNOT BE CONSTRUED AS
REPAYMENT OF A LOAN. — As its title plainly indicates,
the contract between the parties is one of lease and not
of loan. It is clearly denominated a "LEASE
AGREEMENT." Nowhere in the contract is there any
showing that the parties intended a loan rather than a
lease. The provision for the payment of rentals in
advance cannot be construed as a repayment of a loan
because there was no grant or forbearance of money as
to constitute an indebtedness on the part of the lessor.
On the contrary, the defendant-appellee was
discharging its obligation in advance by paying the eight
years rentals, and it was for this advance payment that
it was getting a rebate or discount.
2. ID.; ID.; ID.; DISCOUNT PROVISION; VALIDITY
THEREOF. — The provision for a discount is not unusual
in lease contracts. As to its validity, it is settled that the
parties may establish such stipulations, clauses, terms
and conditions as they may want to include; and as long
as such agreements are not contrary to law, morals,
good customs, public policy or public order, they shall
have the force of law between them.
3. ID.; ID.; USURY LAW; NO APPLICATION IN THE CASE
AT BAR. — There is no usury in this case because no
money was given by the defendant-appellee to the
plaintiff-appellant, nor did it allow him to use its money
already in his possession. There was neither loan nor
forbearance but a mere discount which the plaintiff-
appellant allowed the defendant-appellee to deduct from
the total payments because they were being made in
advance for eight years. The discount was in effect a
reduction of the rentals which the lessor had the right to
determine, and any reduction thereof, by any amount,
could not contravene the Usury Law.
4. ID.; ID.; DISCOUNT AND LOAN, DIFFERENTIATED. —
The difference between a discount and a loan or
forbearance is that the former does not have to be
repaid. The loan or forbearance is subject to repayment
and is therefore governed by the laws on usury. To
constitute usury, "there must be loan or forbearance;
the loan must be money or something circulating as
money; it must be repayable absolutely and in all
events; and something must be exacted for the use of
the money in excess of and in addition to interest
allowed by law." cralaw vi rtua1aw l ibra ry
5. ID.; ID.; ELEMENTS OF USURY. — It has been held
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implied; (2) an understanding between the parties that
the money lent shall or may be returned; (3) that for
such loan a greater rate or interest that is allowed by
law shall be paid, or agreed to be paid, as the case may
be; and (4) a corrupt intent to take more than the legal
rate for the use of money loaned. Unless these four
things concur in every transaction, it is safe to affirm
that no case of usury can be declared.
6. ID.; CONTRACTS; INTERPRETED ACCORDING TO
THEIR LITERAL MEANING, NOT BEYOND INTENTION OF
PARTIES. — Computation of the deductible discount
appears to be too technical mumbo jumbo and could not
have been the intention of the parties to the
transaction. Had it been so, then lit should have been
clearly stipulated in the contract. Contracts should be
interpreted according to their literal meaning and should
not be interpreter beyond their obvious intendment.
DECISION
CRUZ, J.:
This is an appeal by the plaintiff-appellant from a
decision rendered by the then Court of First Instance of
Rizal on a pure question of law. 1
The judgment appealed from was rendered on the
pleadings, the parties having agreed during the pretrial
conference on the factual antecedents.
The facts are as follows:
chanrob 1es vi rtua l 1aw lib rary
On December 5, 1969, the plaintiff-appellant and ESSO
Standard Eastern, Inc., (later substituted by Petrophil
Corporation) entered into a "Lease Agreement" whereby
the former leased to the latter a portion of his property
for a period of twenty (20) years from said date, subject
inter alia to the following conditions:
jgc:cha nro bles. com.ph
"3. Rental: The LESSEE shall pay the LESSOR a rental of
P1.40 sqm. per month on 400 sqm. and are to be
expropriated later on (sic) or P560 per month and P1.40
per sqm. per month on 1,693 sqm. or P2,370.21 per
month or a total of P2,930.20 per month 2,093 sqm.
more or less, payable yearly in advance within the 1st
twenty days of each year; provided, a financial aid in
the sum of P15,000 to clear the leased premises of
existing improvements thereon is paid in this manner;
P10,000 upon execution of this lease and P5,000 upon
delivery of leased premises free and clear of
improvements thereon within 30 days from the date of
execution of this agreement. The portion on the side of
the leased premises with an area of 365 sqm. more or
less, will be occupied by LESSEE without rental during
the lifetime of this lease. PROVIDED FINALLY, that the
Lessor is paid 8 years advance rental based on
P2,930.70 per month discounted at 12% interest per
annum or a total net amount of P130,288.47 before
registration of lease. Leased premises shall be delivered
within 30 days after 1st partial payment of financial
aid." 2
On December 31, 1969, pursuant to the said contract,
the defendant-appellee paid to the plaintiff-appellant
advance rentals for the first eight years, subtracting
therefrom the amount of P101,010.73, the amount it
computed as constituting the interest or discount for the
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CIVIL LAW | C r e d i t T r a n s a c t i o n s
first eight years, in the total sum P180,288.47. On
August 20, 1970, the defendant-appellee, explaining
that there had been a mistake in computation, paid to
the plaintiff-appellant the additional sum of P2,182.70,
thereby reducing the deducted amount to only
P98,828.03. 3
On October 14, 1974, the plaintiff-appellant sued the
defendant-appellee for the sum of P98,828.03, with
interest, claiming this had been illegally deducted from
him in violation of the Usury Law. 4 He also prayed for
moral damages and attorney’s fees. In its answer, the
defendant-appellee admitted the factual allegations of
the complaint but argued that the amount deducted was
not usurious interest but a discount given to it for
paying the rentals in advance for eight years. 5
Judgment on the pleadings was rendered for the
defendant. 6
Plaintiff-appellant now prays for a reversal of that
Judgment, insisting that the lower court erred in the
computation of the interest collected out of the rentals
paid for the first eight years; that such interest was
excessive and violative of the Usury Law; and that he
had neither agreed to nor accepted the defendant-
appellant’s computation of the total amount to be
deducted for the eight years advance rentals. 7
The thrust of the plaintiff-appellant’s position is set forth
in paragraph 6 of his complaint, which read: jgc:chan robles .com.p h
"6. The interest collected by defendant out of the rentals
for the first eight years was excessive and beyond that
allowable by law, because the total interest on the said
amount is only P33,755.90 at P4,219.4880 per yearly
rental; and considering that the interest should be
computed excluding the first year rental because at the
time the amount of P281,199.20 was paid it was already
due under the lease contract hence no interest should
be collected from the rental for the first year, the
amount of P29,536.42 only as the total interest should
have been deducted by defendant from the sum of
P281,299.20." cralaw virtua1aw l ibra ry
The defendant maintains that the correct amount of the
discount is P98,828.03 and that the same is not
excessive and above that allowed by law.
As its title plainly indicates, the contract between the
parties is one of lease and not of loan. It is clearly
denominated a "LEASE AGREEMENT." Nowhere in the
contract is there any showing that the parties intended
a loan rather than a lease. The provision for the
payment of rentals in advance cannot be construed as a
repayment of a loan because there was no grant or
forbearance of money as to constitute an indebtedness
on the part of the lessor. On the contrary, the
defendant-appellee was discharging its obligation in
advance by paying the eight years rentals, and it was
for this advance payment that it was getting a rebate or
discount.
The provision for a discount is not unusual in lease
contracts. As to its validity, it is settled that the parties
may establish such stipulations, clauses, terms and
condition as they may want to include; and as long as
such agreements are not contrary to law, morals, good
customs, public policy or public order, they shall have
the force of law between them. 8
There is no usury in this case because no money was
given by the defendant-appellee to the plaintiff-
appellant, nor did it allow him to use its money already
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in his possession. 9 There was neither loan nor
forbearance but a mere discount which the plaintiff-
appellant allowed the defendant-appellee to deduct from
the total payments because they were being made in
advance for eight years. The discount was in effect a
reduction of the rentals which the lessor had the right to
determine, and any reduction thereof, by any amount,
would not contravene the Usury Law.
The difference between a discount and a loan or
forbearance is that the former does not have to be
repaid. The loan or forbearance is subject to repayment
and is therefore governed by the laws on usury. 10 To
constitute usury, "there must be loan or forbearance;
the loan must be of money or something circulating as
money; it must be repayable absolutely and in all
events; and something must be exacted for the use of
the money in excess of and in addition to interest
allowed by law." 11
It has been held that the elements of usury are (1) a
loan, express or implied; (2) an understanding between
the parties that the money lent shall or may be
returned; (3) that for such loan a greater rate or
interest that is allowed by law shall be paid, or agreed
to be paid, as the case may be; and (4) a corrupt intent
to take more than the legal rate for the use of money
loaned. Unless these four things concur in every
transaction, it is safe to affirm that no case of usury can
be declared. 12
Concerning the computation of the deductible discount,
the trial court declared:
jgc: chan roble s.com.p h
"As above-quoted, the ‘Lease Agreement’ expressly
provides that the lessee (defendant) shall pay the lessor
(plaintiff) eight (8) years in advance rentals based on
P2,930.20 per month discounted at 12% interest per
annum. Thus, the total rental for one-year period is
P35,162.40 (P2,930.20 multiplied by 12 months) and
that the interest therefrom is P4,219.4880 (P35,162.40
multiplied by 12%). So, therefore, the total interest for
the first eight (8) years should be only P33,755.90
(P4,129.4880 multiplied by eight (8) years) and not
P98,828.03 as the defendant claimed it to be." cralaw vi rtua 1aw lib rary
"The afore-quoted manner of computation made by
plaintiff is patently erroneous. It is most seriously
misleading. He just computed the annual discount to be
at P4,129.4880 and then simply multiplied it by eight
(8) years. He did not take into consideration the naked
fact that the rentals due on the eight year were paid in
advance by seven (7) years, the rentals due on the
seventh year were paid in advance by six (6) years,
those due on the sixth year by five (5) years, those due
on the fifth year by four (4) years, those due on the
fourth year by three (3) years, those due on the third
year by two (2) years, and those due on the second
year by one (1) year, so much so that the total number
of years by which the annual rental of P4,129.4880 was
paid in advance is twenty-eight (28), resulting in a total
amount of P118,145.44 (P4,129.48 multiplied by 28
years) as the discount. However, defendant was most
fair to plaintiff. It did not simply multiply the annual
rental discount by 28 years. It computed the total
discount with the principal diminishing month to month
as shown by Annex ‘A’ of its memorandum. This is why
the total discount amount to only P8,828.03.
"The allegation of plaintiff that defendant made the
computation in a compounded manner is erroneous.
Also after making its own computations and after
examining closely defendant’s Annex ‘A’ of its
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CIVIL LAW | C r e d i t T r a n s a c t i o n s

memorandum, the court finds that defendant did not

charge 12% discount on the rentals due for the first
year so much so that the computation conforms with 1. Rollo, p. 28.
the provision of the Lease Agreement to the effect that
the rentals shall be `payable yearly in advance within 2. Rec. on Appeal, pp. 14-15.
the 1st 20 days of each year.’"
3. Rollo, p. 28.
We do not agree. The above computation appears to be
too much technical mumbo-jumbo and could not have 4. Record on Appeal, pp. 1-6.
been the intention of the parties to the transaction. Had
it been so, then it should have been clearly stipulated in 5. Ibid., pp. 22-26.
the contract. Contracts should be interpreted according
to their literal meaning and should not be interpreted 6. Id., pp. 72-81.
beyond their obvious intendment. 13
7. Brief for the Appellant, pp. 8-21.
The plaintiff-appellant simply understood that for every
year of advance payment there would be a deduction of 8. Articles 1159, 1306, Civil Code.
12% and this amount would be the same for each of the
eight years. There is no showing that the intricate 9. Art. 1953, Civil Code; Monte de Piedad v. Javier, Et
computation applied by the trial court was explained to Al., 36 O.G. 2176; Tolentino v. Gonzales, 50 Phil. 560.
him by the defendant-appellee or that he knowingly
accepted it. 10 Tolentino v. Gonzales Sy Chian, 50 Phil. 558.

The lower court, following the defendant-appellee’s 11. Manufacturers Finance Trust v. Stone, 251 Ill. App.
formula, declared that the plaintiff-appellant had 414.
actually agreed to a 12% reduction for advance rentals
for all of twenty eight years. That is absurd. It is not 12. Jenkins v. Dugger, C.C., A. Tenn., p. 96 F. 2nd 727,
normal for a person to agree to a reduction 729, 119 A.L.R. 1488.
corresponding to twenty eight years advance rentals
when all he is receiving in advance rentals is for only 13. Article 1370, Civil Code.
eight years.

The deduction shall be for only eight years because that

was plainly what the parties intended at the time they
signed the lease agreement. "Simplistic" it may be, as
the Solicitor General describes it, but that is how the
lessor understood the arrangement, In fact, the Court
will reject his subsequent modification that the interest
should be limited to only seven years because the first
year rental was not being paid in advance. The
agreement was for a uniform deduction for the advance
rentals for each of the eight years, and neither of the
parties can deviate from it now.

On the annual rental of P35,168.40, the deducted 12%

discount was P4,220.21; and for eight years, the total
rental was P281,347.20 from which was deducted the
total discount of P33,761.68, leaving a difference of
P247,585.52. Subtracting from this amount, the sum of
P182,471.17 already paid will leave a balance of
P65,114.35 still due the plaintiff-appellant.

The above computation is based on the more reasonable

interpretation of the contract as a whole rather on the
single stipulation invoked by the respondent for the flat
reduction of P130,288.47.

WHEREFORE, the decision of the trial court is hereby

modified, and the defendant-appellee Petrophil
Corporation is ordered to pay plaintiff-appellant the
amount of Sixty Five Thousand One Hundred Fourteen
pesos and Thirty-Five Centavos (P65,114.35), with
interest at the legal rate until fully paid, plus Ten
Thousand Pesos (P10,000.00) as attorney’s fees. Costs
against the Defendant-Appellee.

SO ORDERED.

Yap, Narvasa, Melencio-Herrera and Feliciano, JJ.,

concur.

Endnotes:

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CIVIL LAW | C r e d i t T r a n s a c t i o n s
SPECIAL SECOND DIVISION
[G.R. No. 174269 : August 25, 2010]
POLO S. PANTALEON, PETITIONER, VS. AMERICAN
EXPRESS INTERNATIONAL, INC., RESPONDENT.
RESOLUTION
BRION, J.:
We resolve the motion for reconsideration filed by
respondent American Express International, Inc. (AMEX)
dated June 8, 2009,[1] seeking to reverse our Decision
dated May 8, 2009 where we ruled that AMEX was guilty
of culpable delay in fulfilling its obligation to its
cardholder -petitioner Polo Pantaleon. Based on this
conclusion, we held AMEX liable for moral and
exemplary damages, as well as attorney's fees and
costs of litigation.[2]
FACTUAL ANTECEDENTS
The established antecedents of the case are narrated
below.
AMEX is a resident foreign corporation engaged in the
business of providing credit services through the
operation of a charge card system. Pantaleon has been
an AMEX cardholder since 1980.[3]
In October 1991, Pantaleon, together with his wife
(Julialinda), daughter (Regina), and son (Adrian
Roberto), went on a guided European tour. On October
25, 1991, the tour group arrived in Amsterdam. Due to
their late arrival, they postponed the tour of the city for
the following day.[4]
The next day, the group began their sightseeing at
around 8:50 a.m. with a trip to the Coster Diamond
House (Coster). To have enough time for take a guided
city tour of Amsterdam before their departure scheduled
on that day, the tour group planned to leave Coster
by 9:30 a.m. at the latest.
While at Coster, Mrs. Pantaleon decided to purchase
some diamond pieces worth a total of US$13,826.00.
Pantaleon presented his American Express credit card to
the sales clerk to pay for this purchase. He did this at
around 9:15 a.m. The sales clerk swiped the credit card
and asked Pantaleon to sign the charge slip, which was
then electronically referred to AMEX's Amsterdam office
at 9:20 a.m.[5]
At around 9:40 a.m., Coster had not received approval
from AMEX for the purchase so Pantaleon asked the
store clerk to cancel the sale. The store manager,
however, convinced Pantaleon to wait a few more
minutes. Subsequently, the store manager informed
Pantaleon that AMEX was asking for bank references;
Pantaleon responded by giving the names of his
Philippine depository banks.
At around 10 a.m., or 45 minutes after Pantaleon
presented his credit card, AMEX still had not approved
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the purchase. Since the city tour could not begin until
the Pantaleons were onboard the tour bus, Coster
decided to release at around 10:05 a.m. the purchased
items to Pantaleon even without AMEX's approval.
When the Pantaleons finally returned to the tour bus,
they found their travel companions visibly irritated. This
irritation intensified when the tour guide announced that
they would have to cancel the tour because of lack of
time as they all had to be in Calais, Belgium by 3 p.m.
to catch the ferry to London.[6]
From the records, it appears that after Pantaleon's
purchase was transmitted for approval to AMEX's
Amsterdam office at 9:20 a.m.; was referred to AMEX's
Manila office at 9:33 a.m.; and was approved by the
Manila office at 10:19 a.m. At 10:38 a.m., AMEX's
Manila office finally transmitted the Approval Code to
AMEX's Amsterdam office. In all, it took AMEX a total
of 78 minutes to approve Pantaleon's purchase
and to transmit the approval to the jewelry
store.[7]
After the trip to Europe, the Pantaleon family proceeded
to the United States. Again, Pantaleon experienced
delay in securing approval for purchases using his
American Express credit card on two separate
occasions. He experienced the first delay when he
wanted to purchase golf equipment in the amount of
US$1,475.00 at the Richard Metz Golf Studio in New
York on October 30, 1991. Another delay occurred
when he wanted to purchase children's shoes worth
US$87.00 at the Quiency Market in Boston on November
3, 1991.
Upon return to Manila, Pantaleon sent AMEX a letter
demanding an apology for the humiliation and
inconvenience he and his family experienced due to the
delays in obtaining approval for his credit card
purchases. AMEX responded by explaining that the delay
in Amsterdam was due to the amount involved - the
charged purchase of US$13,826.00 deviated
from Pantaleon's established charge purchase
pattern. Dissatisfied with this explanation, Pantaleon
filed an action for damages against the credit card
company with the Makati City Regional Trial Court
(RTC).
On August 5, 1996, the RTC found AMEX guilty of delay,
and awarded Pantaleon P500,000.00 as moral damages,
P300,000.00 as exemplary damages, P100,000.00 as
attorney's fees, and P85,233.01 as litigation expenses.
On appeal, the CA reversed the awards.[8] While the CA
recognized that delay in the nature of mora accipiendi or
creditor's default attended AMEX's approval of
Pantaleon's purchases, it disagreed with the RTC's
finding that AMEX had breached its contract, noting that
the delay was not attended by bad faith, malice or gross
negligence. The appellate court found that AMEX
exercised diligent efforts to effect the approval of
Pantaleon's purchases; the purchase at Coster posed
particularly a problem because it was at variance with
Pantaleon's established charge pattern. As there was no
proof that AMEX breached its contract, or that it acted in
a wanton, fraudulent or malevolent manner, the
appellate court ruled that AMEX could not be held liable
for any form of damages.
Pantaleon questioned this decision via a petition for
review on certiorari with this Court.
In our May 8, 2009 decision, we reversed the appellate
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CIVIL LAW | C r e d i t T r a n s a c t i o n s
court's decision and held that AMEX was guilty ofmora
solvendi, or debtor's default. AMEX, as debtor, had an
obligation as the credit provider to act on Pantaleon's
purchase requests, whether to approve or disapprove
them, with "timely dispatch." Based on the evidence on
record, we found that AMEX failed to timely act on
Pantaleon's purchases.
Based the testimony of AMEX's credit authorizer
Edgardo Jaurique, the approval time for credit card
charges would be three to four seconds under regular
circumstances. In Pantaleon's case, it took AMEX 78
minutes to approve the Amsterdam purchase. We
attributed this delay to AMEX's Manila credit authorizer,
Edgardo Jaurique, who had to go over Pantaleon's past
credit history, his payment record and his credit and
bank references before he approved the
purchase. Finding this delay unwarranted, we
reinstated the RTC decision and awarded Pantaleon
moral and exemplary damages, as well as attorney's
fees and costs of litigation.
THE MOTION FOR RECONSIDERATION
In its motion for reconsideration, AMEX argues that this
Court erred when it found AMEX guilty of culpable delay
in complying with its obligation to act with timely
dispatch on Pantaleon's purchases. While AMEX admits
that it normally takes seconds to approve charge
purchases, it emphasizes that Pantaleon experienced
delay in Amsterdam because his transaction was not a
normal one. To recall, Pantaleon sought to charge in
a single transaction jewelry items purchased from
Coster in the total amount of US$13,826.00 or
P383,746.16. While the total amount of Pantaleon's
previous purchases using his AMEX credit card did
exceed US$13,826.00, AMEX points out that these
purchases were made in a span of more than 10 years,
not in a single transaction.
Because this was the biggest single transaction that
Pantaleon ever made using his AMEX credit card, AMEX
argues that the transaction necessarily required the
credit authorizer to carefully review Pantaleon's credit
history and bank references. AMEX maintains that it did
this not only to ensure Pantaleon's protection (to
minimize the possibility that a third party was
fraudulently using his credit card), but also to protect
itself from the risk that Pantaleon might not be able to
pay for his purchases on credit. This careful review,
according to AMEX, is also in keeping with the
extraordinary degree of diligence required of banks in
handling its transactions. AMEX concluded that in these
lights, the thorough review of Pantaleon's credit record
was motivated by legitimate concerns and could not be
evidence of any ill will, fraud, or negligence by AMEX.
AMEX further points out that the proximate cause of
Pantaleon's humiliation and embarrassment was his own
decision to proceed with the purchase despite his
awareness that the tour group was waiting for him and
his wife. Pantaleon could have prevented the humiliation
had he cancelled the sale when he noticed that the
credit approval for the Coster purchase was unusually
delayed.
In his Comment dated February 24, 2010, Pantaleon
maintains that AMEX was guilty of mora solvendi, or
delay on the part of the debtor, in complying with its
obligation to him. Based on jurisprudence, a just cause
for delay does not relieve the debtor in delay from the
consequences of delay; thus, even if AMEX had a
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justifiable reason for the delay, this reason would not
relieve it from the liability arising from its failure to
timely act on Pantaleon's purchase.
In response to AMEX's assertion that the delay was in
keeping with its duty to perform its obligation with
extraordinary diligence, Pantaleon claims that this duty
includes the timely or prompt performance of its
obligation.
As to AMEX's contention that moral or exemplary
damages cannot be awarded absent a finding of malice,
Pantaleon argues that evil motive or design is not
always necessary to support a finding of bad faith; gross
negligence or wanton disregard of contractual
obligations is sufficient basis for the award of moral and
exemplary damages.
OUR RULING
We GRANT the motion for reconsideration.
Brief historical background
A credit card is defined as "any card, plate, coupon
book, or other credit device existing for the purpose of
obtaining money, goods, property, labor or services or
anything of value on credit."[9] It traces its roots to the
charge card first introduced by the Diners Club in New
York City in 1950.[10] American Express followed suit by
introducing its own charge card to the American market
in 1958.[11]
In the Philippines, the now defunct Pacific Bank was
responsible for bringing the first credit card into the
country in the 1970s.[12] However, it was only in the
early 2000s that credit card use gained wide acceptance
in the country, as evidenced by the surge in the number
of credit card holders then.[13]
Nature of Credit Card Transactions
To better understand the dynamics involved in credit
card transactions, we turn to the United States case
of Harris Trust & Savings Bank v. McCray[14] which
explains:
The bank credit card system involves a tripartite
relationship between the issuer bank, the cardholder,
and merchants participating in the system. The issuer
bank establishes an account on behalf of the person to
whom the card is issued, and the two parties enter into
an agreement which governs their relationship. This
agreement provides that the bank will pay for
cardholder's account the amount of merchandise or
services purchased through the use of the credit card
and will also make cash loans available to the
cardholder. It also states that the cardholder shall be
liable to the bank for advances and payments made by
the bank and that the cardholder's obligation to pay the
bank shall not be affected or impaired by any dispute,
claim, or demand by the cardholder with respect to any
merchandise or service purchased.
The merchants participating in the system agree to
honor the bank's credit cards. The bank irrevocably
agrees to honor and pay the sales slips presented by the
merchant if the merchant performs his undertakings
such as checking the list of revoked cards before
accepting the card. x x x.
These slips are forwarded to the member bank which
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CIVIL LAW | C r e d i t T r a n s a c t i o n s
originally issued the card. The cardholder receives a
statement from the bank periodically and may then
decide whether to make payment to the bank in full
within a specified period, free of interest, or to defer
payment and ultimately incur an interest charge.
We adopted a similar view in CIR v. American Express
International, Inc. (Philippine branch),[15] where we also
recognized that credit card issuers are not limited to
banks. We said:
Under RA 8484, the credit card that is issued by banks
in general, or by non-banks in particular, refers to "any
card x x x or other credit device existing for the
purpose of obtaining x x x goods x x x or
services x x x on credit;" and is being used "usually
on a revolving basis." This means that the consumer-
credit arrangement that exists between the issuer and
the holder of the credit card enables the latter to
procure goods or services "on a continuing basis as long
as the outstanding balance does not exceed a specified
limit." The card holder is, therefore, given "the power to
obtain present control of goods or service on a promise
to pay for them in the future."
Business establishments may extend credit sales
through the use of the credit card facilities of a non-
bank credit card company to avoid the risk of
uncollectible accounts from their customers.Under this
system, the establishments do not deposit in their bank
accounts the credit card drafts that arise from the credit
sales. Instead, they merely record their receivables from
the credit card company and periodically send the drafts
evidencing those receivables to the latter.
The credit card company, in turn, sends checks as
payment to these business establishments, but it does
not redeem the drafts at full price. The agreement
between them usually provides for discounts to be taken
by the company upon its redemption of the drafts. At
the end of each month, it then bills its credit card
holders for their respective drafts redeemed during the
previous month. If the holders fail to pay the amounts
owed, the company sustains the loss.
Simply put, every credit card transaction involves three
contracts, namely: (a) the sales contractbetween the
credit card holder and the merchant or the business
establishment which accepted the credit card; (b)
the loan agreement between the credit card issuer and
the credit card holder; and lastly, (c) the promise to
pay between the credit card issuer and the merchant or
business establishment.[16]
Credit card issuer - cardholder relationship
When a credit card company gives the holder the
privilege of charging items at establishments associated
with the issuer,[17] a necessary question in a legal
analysis is - when does this relationship begin? There
are two diverging views on the matter. In City Stores
Co. v. Henderson,[18] another U.S. decision, held that:
The issuance of a credit card is but an offer to extend a
line of open account credit. It is unilateral and
supported by no consideration. The offer may be
withdrawn at any time, without prior notice, for any
reason or, indeed, for no reason at all, and its
withdrawal breaches no duty - for there is no duty to
continue it - and violates no rights.
Thus, under this view, each credit card transaction is
considered a separate offer and acceptance.
6|Page
Novack v. Cities Service Oil Co.[19] echoed this view,
with the court ruling that the mere issuance of a credit
card did not create a contractual relationship with the
cardholder.
On the other end of the spectrum is Gray v. American
Express Company[20] which recognized the card
membership agreement itself as a binding contract
between the credit card issuer and the card holder.
Unlike in the Novack and the City Stores cases,
however, the cardholder in Gray paid an annual fee for
the privilege of being an American Express cardholder.
In our jurisdiction, we generally adhere to
the Gray ruling, recognizing the relationship between
the credit card issuer and the credit card holder as a
contractual one that is governed by the terms and
conditions found in the card membership
agreement.[21] This contract provides the rights and
liabilities of a credit card company to its cardholders and
vice versa.
We note that a card membership agreement is a
contract of adhesion as its terms are prepared solely by
the credit card issuer, with the cardholder merely
affixing his signature signifying his adhesion to these
terms.[22] This circumstance, however, does not render
the agreement void; we have uniformly held that
contracts of adhesion are "as binding as ordinary
contracts, the reason being that the party who adheres
to the contract is free to reject it entirely."[23] The only
effect is that the terms of the contract are construed
strictly against the party who drafted it.[24]
On AMEX's obligations to Pantaleon
We begin by identifying the two privileges that
Pantaleon assumes he is entitled to with the issuance of
his AMEX credit card, and on which he anchors his
claims. First, Pantaleon presumes that since his credit
card has no pre-set spending limit, AMEX has the
obligation to approve all his charge requests.
Conversely, even if AMEX has no such obligation, at the
very least it is obliged to act on his charge requests
within a specific period of time.
i. Use of credit card a mere offer to enter into loan
agreements
Although we recognize the existence of a relationship
between the credit card issuer and the credit card
holder upon the acceptance by the cardholder of the
terms of the card membership agreement (customarily
signified by the act of the cardholder in signing the back
of the credit card), we have to distinguish this
contractual relationship from the creditor-debtor
relationship which only arises after the credit card
issuer has approved the cardholder's purchase
request. The first relates merely to an agreement
providing for credit facility to the cardholder. The latter
involves the actual credit on loan agreement involving
three contracts, namely: the sales contract between
the credit card holder and the merchant or the business
establishment which accepted the credit card; the loan
agreement between the credit card issuer and the
credit card holder; and the promise to paybetween the
credit card issuer and the merchant or business
establishment.
From the loan agreement perspective, the contractual
relationship begins to exist only upon the meeting of the
offer[25] and acceptance of the parties involved. In more
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CIVIL LAW | C r e d i t T r a n s a c t i o n s
concrete terms, when cardholders use their credit cards
to pay for their purchases, they merely offer to enter
into loan agreements with the credit card company.
Only after the latter approves the purchase requests
that the parties enter into binding loan contracts, in
keeping with Article 1319 of the Civil Code, which
provides:
Article 1319. Consent is manifested by the meeting of
the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer
must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
This view finds support in the reservation found in the
card membership agreement itself, particularly
paragraph 10, which clearly states that AMEX
"reserve[s] the right to deny authorization for any
requested Charge." By so providing, AMEX made its
position clear that it has no obligation to approve any
and all charge requests made by its card holders.
ii. AMEX not guilty of culpable delay
Since AMEX has no obligation to approve the purchase
requests of its credit cardholders, Pantaleon cannot
claim that AMEX defaulted in its obligation. Article 1169
of the Civil Code, which provides the requisites to hold a
debtor guilty of culpable delay, states:
Article 1169.Those obliged to deliver or to do something
incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of
their obligation. x x x.
The three requisites for a finding of default are: (a) that
the obligation is demandable and liquidated; (b) the
debtor delays performance; and (c) the creditor
judicially or extrajudicially requires the debtor's
performance.[26]
Based on the above, the first requisite is no longer met
because AMEX, by the express terms of the credit card
agreement, is not obligated to approve Pantaleon's
purchase request. Without a demandable obligation,
there can be no finding of default.
Apart from the lack of any demandable obligation, we
also find that Pantaleon failed to make the demand
required by Article 1169 of the Civil Code.
As previously established, the use of a credit card to pay
for a purchase is only an offer to the credit card
company to enter a loan agreement with the credit card
holder. Before the credit card issuer accepts this
offer, no obligation relating to the loan agreement
exists between them. On the other hand, a demand is
defined as the "assertion of a legal right; xxx an asking
with authority, claiming or challenging as due."[27] A
demand presupposes the existence of an
obligation between the parties.
Thus, every time that Pantaleon used his AMEX credit
card to pay for his purchases, what the stores
transmitted to AMEX were his offers to execute loan
contracts. These obviously could not be classified as the
demand required by law to make the debtor in default,
given that no obligation could arise on the part of AMEX
until after AMEX transmitted its acceptance of
Pantaleon's offers. Pantaleon's act of "insisting on and
waiting for the charge purchases to be approved by
AMEX"[28] is not the demand contemplated by Article
7|Page #SJBL
1169 of the Civil Code.
For failing to comply with the requisites of Article 1169,
Pantaleon's charge that AMEX is guilty of culpable delay
in approving his purchase requests must fail.
iii. On AMEX's obligation to act on the offer within
a specific period of time
Even assuming that AMEX had the right to review his
credit card history before it approved his purchase
requests, Pantaleon insists that AMEX had an obligation
to act on his purchase requests, either to approve or
deny, in "a matter of seconds" or "in timely dispatch."
Pantaleon impresses upon us the existence of this
obligation by emphasizing two points: (a) his card has
no pre-set spending limit; and (b) in his twelve years of
using his AMEX card, AMEX had always approved his
charges in a matter of seconds.
Pantaleon's assertions fail to convince us.
We originally held that AMEX was in culpable delay
when it acted on the Coster transaction, as well as the
two other transactions in the United States which took
AMEX approximately 15 to 20 minutes to approve. This
conclusion appears valid and reasonable at first glance,
comparing the time it took to finally get the Coster
purchase approved (a total of 78 minutes), to AMEX's
"normal" approval time of three to four seconds (based
on the testimony of Edgardo Jaurigue, as well as
Pantaleon's previous experience). We come to a
different result, however, after a closer look at the
factual and legal circumstances of the case.
AMEX's credit authorizer, Edgardo Jaurigue, explained
that having no pre-set spending limit in a credit card
simply means that the charges made by the cardholder
are approved based on his ability to pay, as
demonstrated by his past spending, payment patterns,
and personal resources.[29] Nevertheless, every time
Pantaleon charges a purchase on his credit card,
the credit card company still has to determine
whether it will allow this charge, based on his past
credit history. This right to review a card holder's
credit history, although not specifically set out in the
card membership agreement, is a necessary implication
of AMEX's right to deny authorization for any requested
charge.
As for Pantaleon's previous experiences with AMEX (i.e.,
that in the past 12 years, AMEX has always approved
his charge requests in three or four seconds), this
record does not establish that Pantaleon had a legally
enforceable obligation to expect AMEX to act on his
charge requests within a matter of seconds. For one,
Pantaleon failed to present any evidence to support his
assertion that AMEX acted on purchase requests in a
matter of three or four seconds as an established
practice. More importantly, even if Pantaleon did prove
that AMEX, as a matter of practice or custom, acted on
its customers' purchase requests in a matter of seconds,
this would still not be enough to establish a legally
demandable right; as a general rule, a practice or
custom is not a source of a legally demandable or
enforceable right.[30]
We next examine the credit card membership
agreement, the contract that primarily governs the
relationship between AMEX and Pantaleon.
Significantly, there is no provision in this
agreement that obligates AMEX to act on all
cardholder purchase requests within a specifically
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CIVIL LAW | C r e d i t T r a n s a c t i o n s
defined period of time. Thus, regardless of whether
the obligation is worded was to "act in a matter of
seconds" or to "act in timely dispatch," the fact remains
that no obligation exists on the part of AMEX to act
within a specific period of time. Even Pantaleon admits
in his testimony that he could not recall any provision in
the Agreement that guaranteed AMEX's approval of his
charge requests within a matter of minutes.[31]
Nor can Pantaleon look to the law or government
issuances as the source of AMEX's alleged obligation to
act upon his credit card purchases within a matter of
seconds. As the following survey of Philippine law on
credit card transactions demonstrates, the State does
not require credit card companies to act upon its
cardholders' purchase requests within a specific period
of time.
Republic Act No. 8484 (RA 8484), or the Access Devices
Regulation Act of 1998, approved on February 11, 1998,
is the controlling legislation
that regulates the issuance and use of access
devices,[32] including credit cards. The more salient
portions of this law include the imposition of the
obligation on a credit card company to disclose certain
important financial information[33] to credit card
applicants, as well as a definition of the acts that
constitute access device fraud.
As financial institutions engaged in the business of
providing credit, credit card companies fall under the
supervisory powers of the Bangko Sentral ng Pilipinas
(BSP).[34] BSP Circular No. 398 dated August 21, 2003
embodies the BSP's policy when it comes to credit cards
-
The Bangko Sentral ng Pilipinas (BSP) shall foster the
development of consumer credit through innovative
products such as credit cards under conditions of fair
and sound consumer credit practices. The BSP
likewise encourages competition and transparency to
ensure more efficient delivery of services and fair
dealings with customers. (Emphasis supplied)
Based on this Circular, "x x x [b]efore issuing credit
cards, banks and/or their subsidiary credit card
companies must exercise proper diligence by
ascertaining that applicants possess good credit
standing and are financially capable of fulfilling their
credit commitments."[35] As the above-quoted policy
expressly states, the general intent is to foster "fair
and sound consumer credit practices."
Other than BSP Circular No. 398, a related circular is
BSP Circular No. 454, issued on September 24, 2004,
but this circular merely enumerates the unfair collection
practices of credit card companies - a matter not
relevant to the issue at hand.
In light of the foregoing, we find and so hold that AMEX
is neither contractually bound nor legally obligated to
act on its cardholders' purchase requests within any
specific period of time, much less a period of a "matter
of seconds" that Pantaleon uses as his standard. The
standard therefore is implicit and, as in all contracts,
must be based on fairness and reasonableness, read in
relation to the Civil Code provisions on human relations,
as will be discussed below.
AMEX acted with good faith
Thus far, we have already established that: (a) AMEX
8|Page #SJBL
had neither a contractual nor a legal obligation to act
upon Pantaleon's purchases within a specific period of
time; and (b) AMEX has a right to review a cardholder's
credit card history. Our recognition of these
entitlements, however, does not give AMEX an
unlimited right to put off action on cardholders'
purchase requests for indefinite periods of time. In
acting on cardholders' purchase requests, AMEX must
take care not to abuse its rights and cause injury to its
clients and/or third persons. We cite in this regard
Article 19, in conjunction with Article 21, of the Civil
Code, which provide:
Article 19. Every person must, in the exercise of his
rights and in the performance of his duties, act with
justice, give everyone his due and observe honesty and
good faith.
Article 21. Any person who willfully causes loss or injury
to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for
the damage.
Article 19 pervades the entire legal system and ensures
that a person suffering damage in the course of
another's exercise of right or performance of duty,
should find himself without relief.[36] It sets the standard
for the conduct of all persons, whether artificial or
natural, and requires that everyone, in the exercise of
rights and the performance of obligations, must: (a) act
with justice, (b) give everyone his due, and (c) observe
honesty and good faith. It is not because a person
invokes his rights that he can do anything, even to the
prejudice and disadvantage of another.[37]
While Article 19 enumerates the standards of conduct,
Article 21 provides the remedy for the person injured by
the willful act, an action for damages. We explained how
these two provisions correlate with each other in GF
Equity, Inc. v. Valenzona:[38]
[Article 19], known to contain what is commonly
referred to as the principle of abuse of rights, sets
certain standards which must be observed not only in
the exercise of one's rights but also in the performance
of one's duties. These standards are the following: to
act with justice; to give everyone his due; and to
observe honesty and good faith. The law, therefore,
recognizes a primordial limitation on all rights; that in
their exercise, the norms of human conduct set forth in
Article 19 must be observed. A right, though by itself
legal because recognized or granted by law as
such, may nevertheless become the source of
some illegality. When a right is exercised in a
manner which does not conform with the norms
enshrined in Article 19 and results in damage to
another, a legal wrong is thereby committed for
which the wrongdoer must be held
responsible. But while Article 19 lays down a rule of
conduct for the government of human relations and for
the maintenance of social order, it does not provide a
remedy for its violation. Generally, an action for
damages under either Article 20 or Article 21 would be
proper.
In the context of a credit card relationship, although
there is neither a contractual stipulation nor a specific
law requiring the credit card issuer to act on the credit
card holder's offer within a definite period of time, these
principles provide the standard by which to judge
AMEX's actions.
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CIVIL LAW | C r e d i t T r a n s a c t i o n s
According to Pantaleon, even if AMEX did have a right to
review his charge purchases, it abused this right when it
unreasonably delayed the processing of the Coster
charge purchase, as well as his purchase requests at the
Richard Metz' Golf Studio and Kids' Unlimited Store;
AMEX should have known that its failure to act
immediately on charge referrals would entail
inconvenience and result in humiliation, embarrassment,
anxiety and distress to its cardholders who would be
required to wait before closing their transactions.[39]
It is an elementary rule in our jurisdiction that good
faith is presumed and that the burden of proving bad
faith rests upon the party alleging it.[40] Although it took
AMEX some time before it approved Pantaleon's three
charge requests, we find no evidence to suggest that it
acted with deliberate intent to cause Pantaleon any loss
or injury, or acted in a manner that was contrary to
morals, good customs or public policy. We give credence
to AMEX's claim that its review procedure was done to
ensure Pantaleon's own protection as a cardholder and
to prevent the possibility that the credit card was being
fraudulently used by a third person.
Pantaleon countered that this review procedure is
primarily intended to protect AMEX's interests, to make
sure that the cardholder making the purchase has
enough means to pay for the credit extended. Even if
this were the case, however, we do not find any taint of
bad faith in such motive. It is but natural for AMEX to
want to ensure that it will extend credit only to people
who will have sufficient means to pay for their
purchases. AMEX, after all, is running a business, not a
charity, and it would simply be ludicrous to suggest that
it would not want to earn profit for its services. Thus, so
long as AMEX exercises its rights, performs its
obligations, and generally acts with good faith, with no
intent to cause harm, even if it may occasionally
inconvenience others, it cannot be held liable for
damages.
We also cannot turn a blind eye to the circumstances
surrounding the Coster transaction which, in our
opinion, justified the wait. In Edgardo Jaurigue's own
words:
Q 21: With reference to the transaction at the Coster
Diamond House covered by Exhibit H, also Exhibit 4 for
the defendant, the approval came at 2:19 a.m. after the
request was relayed at 1:33 a.m., can you explain why
the approval came after about 46 minutes, more or
less?
A21: Because we have to make certain considerations
and evaluations of [Pantaleon's] past spending pattern
with [AMEX] at that time before approving plaintiff's
request because [Pantaleon] was at that time
making his very first single charge purchase of
US$13,826 [this is below the US$16,112.58 actually
billed and paid for by the plaintiff because the difference
was already automatically approved by [AMEX] office in
Netherland[s] and the record of [Pantaleon's] past
spending with [AMEX] at that time does not
favorably support his ability to pay for such
purchase. In fact, if the foregoing internal policy of
[AMEX] had been strictly followed, the transaction would
not have been approved at all considering that the past
spending pattern of the plaintiff with [AMEX] at that
time does not support his ability to pay for such
purchase.[41]
xx x x
9|Page #SJBL
Q: Why did it take so long?
A: It took time to review the account on credit, so, if
there is any delinquencies [sic] of the cardmember.
There are factors on deciding the charge itself which are
standard measures in approving the authorization. Now
in the case of Mr. Pantaleon although his account is
single charge purchase of US$13,826. [sic] this is below
the US$16,000. plus actually billed x x x we would
have already declined the charge outright and asked
him his bank account to support his charge. But due to
the length of his membership as cardholder we had to
make a decision on hand.[42]
As Edgardo Jaurigue clarified, the reason why Pantaleon
had to wait for AMEX's approval was because he had to
go over Pantaleon's credit card history for the past
twelve months.[43] It would certainly be unjust for us to
penalize AMEX for merely exercising its right to review
Pantaleon's credit history meticulously.
Finally, we said in Garciano v. Court of Appeals that "the
right to recover [moral damages] under Article 21 is
based on equity, and he who comes to court to demand
equity, must come with clean hands. Article 21 should
be construed as granting the right to recover damages
to injured persons who are not themselves at
fault."[44] As will be discussed below, Pantaleon is not a
blameless party in all this.
Pantaleon's action was the
proximate cause for his injury
Pantaleon mainly anchors his claim for moral and
exemplary damages on the embarrassment and
humiliation that he felt when the European tour group
had to wait for him and his wife for approximately 35
minutes, and eventually had to cancel the Amsterdam
city tour. After thoroughly reviewing the records of this
case, we have come to the conclusion that Pantaleon is
the proximate cause for this embarrassment and
humiliation.
As borne by the records, Pantaleon knew even before
entering Coster that the tour group would have to leave
the store by 9:30 a.m. to have enough time to take the
city tour of Amsterdam before they left the country.
After 9:30 a.m., Pantaleon's son, who had boarded the
bus ahead of his family, returned to the store to inform
his family that they were the only ones not on the bus
and that the entire tour group was waiting for them.
Significantly, Pantaleon tried to cancel the sale at
9:40 a.m. because he did not want to cause any
inconvenience to the tour group. However, when
Coster's sale manager asked him to wait a few more
minutes for the credit card approval, he agreed, despite
the knowledge that he had already caused a 10-minute
delay and that the city tour could not start without him.
In Nikko Hotel Manila Garden v. Reyes,[45] we ruled that
a person who knowingly and voluntarily exposes himself
to danger cannot claim damages for the resulting injury:
The doctrine of volenti non fit injuria ("to which a person
assents is not esteemed in law as injury") refers to self-
inflicted injury or to the consent to injury which
precludes the recovery of damages by one who has
knowingly and voluntarily exposed himself to danger,
even if he is not negligent in doing so.
This doctrine, in our view, is wholly applicable to this
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CIVIL LAW | C r e d i t T r a n s a c t i o n s
case. Pantaleon himself testified that the most basic
rule when travelling in a tour group is that you must
never be a cause of any delay because the schedule is
very strict.[46] When Pantaleon made up his mind to
push through with his purchase, he must have known
that the group would become annoyed and irritated with
him. This was the natural, foreseeable consequence of
his decision to make them all wait.
We do not discount the fact that Pantaleon and his
family did feel humiliated and embarrassed when they
had to wait for AMEX to approve the Coster purchase in
Amsterdam. We have to acknowledge, however, that
Pantaleon was not a helpless victim in this scenario - at
any time, he could have cancelled the sale so that the
group could go on with the city tour. But he did not.
More importantly, AMEX did not violate any legal duty to
Pantaleon under the circumstances under the principle
of damnum absque injuria, or damages without legal
wrong, loss without injury.[47] As we held in BPI Express
Card v. CA:[48]
We do not dispute the findings of the lower court that
private respondent suffered damages as a result of the
cancellation of his credit card. However, there is a
material distinction between damages and
injury. Injury is the illegal invasion of a legal right;
damage is the loss, hurt, or harm which results from the
injury; and damages are the recompense or
compensation awarded for the damage
suffered. Thus, there can be damage without injury
in those instances in which the loss or harm was
not the result of a violation of a legal duty. In such
cases, the consequences must be borne by the
injured person alone, the law affords no remedy for
damages resulting from an act which does not amount
to a legal injury or wrong. These situations are often
called damnum absque injuria.
In other words, in order that a plaintiff may maintain an
action for the injuries of which he complains, he must
establish that such injuries resulted from a breach of
duty which the defendant owed to the plaintiff - a
concurrence of injury to the plaintiff and legal
responsibility by the person causing it. The underlying
basis for the award of tort damages is the premise
that an individual was injured in contemplation of
law. Thus, there must first be a breach of some duty
and the imposition of liability for that breach before
damages may be awarded; and the breach of such duty
should be the proximate cause of the injury.
Pantaleon is not entitled to damages
Because AMEX neither breached its contract with
Pantaleon, nor acted with culpable delay or the willful
intent to cause harm, we find the award of moral
damages to Pantaleon unwarranted.
Similarly, we find no basis to award exemplary
damages. In contracts, exemplary damages can only be
awarded if a defendant acted "in a wanton, fraudulent,
reckless, oppressive or malevolent manner."[49]The
plaintiff must also show that he is entitled to moral,
temperate, or compensatory damages before the court
may consider the question of whether or not exemplary
damages should be awarded.[50]
As previously discussed, it took AMEX some time to
approve Pantaleon's purchase requests because it had
legitimate concerns on the amount being charged; no
10 | P a g e #SJBL
malicious intent was ever established here. In the
absence of any other damages, the award of exemplary
damages clearly lacks legal basis.
Neither do we find any basis for the award of attorney's
fees and costs of litigation. No premium should be
placed on the right to litigate and not every winning
party is entitled to an automatic grant of attorney's
fees.[51] To be entitled to attorney's fees and litigation
costs, a party must show that he falls under one of the
instances enumerated in Article 2208 of the Civil
Code.[52] This, Pantaleon failed to do. Since we
eliminated the award of moral and exemplary damages,
so must we delete the award for attorney's fees and
litigation expenses.
Lastly, although we affirm the result of the CA decision,
we do so for the reasons stated in this Resolution and
not for those found in the CA decision.
WHEREFORE, premises considered, we SET ASIDE our
May 8, 2009 Decision and GRANT the present motion
for reconsideration. The Court of Appeals Decision dated
August 18, 2006 is hereby AFFIRMED. No costs.
SO ORDERED.
Carpio Morales, (Acting Chairperson), Velasco, Jr.,
Leonardo-De Castro, and *Bersamin, JJ., concur.
Endnotes:
*
Designated additional Member of the Special Second
Division, per Raffle dated August 10, 2010.
[1]
Rollo, pp. 1504-1514.
[2]
Id. at 1488-1503.
[3]
Id. at 14-15.
[4]
Id. at 735-736.
[5]
Id. at 739-749.
[6]
Id. at 20-21.
[7]
Id., citing defendant's Exhibit "9-G," "9-H," and "9-I."
In a decision dated August 18, 2006 penned by
[8]
Associate Justice E. J. Asuncion, with the concurrence of
Associate Justices J. Mendoza and A. Tayag.
[9]
Section 3(f), Republic Act 8484.
See M.J. Stephey, A Brief History of: Credit Cards,
[10]
TIME Magazine, April 23,
2009, http://www.time.com/time/magazine/article/0,91
71,1893507,00.html
[11]
http://home3.americanexpress.com/corp/os/history.
asp
[12]
See Advice on Wise Credit Card Use and Money
Management, Business Section of the February 9, 2009
issue of the Philippine
Star, http://www.philstar.com/Article.aspx?articleid=43
8524
http://www.economywatch.com/credit-
[13]
card/international/philippines-credit-cards.html
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CIVIL LAW | C r e d i t T r a n s a c t i o n s
[14]
21 III. App.3d 605, 316 N.E.2d 209 (1974).
[15]
G.R. No. 152609, June 29, 2005, 462 SCRA 197.
[16]
In Presta Oil, Inc. v. Van Waters & Rogers
Corporation, the court characterized the nature of this
last contract, thus:
Credit cards are more automatic in their operation than
checks or notes, but courts which have examined
whether a credit card is legal tender have concluded
that it is not. Instead, these courts held that the debt
incurred in a credit card transaction is discharged when
the merchant receives payment from the card issuer.
276 F.Supp.2d 1128, (2003) citing Porter v. City of
Atlanta, 259 Ga. 526, 384 S.E.2d 631, 634 (1989), cert
denied *1137 494 U.S. 1004, 110 S.Ct. 1297, 108
L.Ed.2d 474 (1990); Berry v. Hannigan, 7 Cal.App.4th
587, 9 Cal.Rptr.2d 213, 215 (1992), rev. denied Sept.
02, 1992; Cade v. Montgomery Co., 83 Md.App. 419,
575 A.2d 744, 749 (1990), rev. denied Aug. 30,
1990, cert denied 498 U.S. 1085, 111 S.Ct. 960, 112
L.Ed.2d 1047 (1991).
Katz v. Carte Blanche Corp., 496 F.2d 747 (3d Cir.
[17]
1974).
[18]
116 Ga.App. 114, 156 S.E.2d 818 (1967).
149 NJ Super 542, 374 A.2d 89 (1977), aff'd, 159 NJ
[19]
Super. 400, 388 A.2d 264 (1978).
[20]
743 F.2d 10, 240 US.App.D.C. 10 (1984).
See BPI Express v. CA, G.R. No. 120639, September
[21]
25, 1998; Aznar v. Citibank, G.R. No. 164273, March
28, 2007; Sps. Ermitano v. CA, G.R. No. 127246, April
21, 1999; Acol v. Philippine Commercial Credit Card
Incorporation,G.R. No. 135149, July 25, 2006; Equitable
Banking Corporation v. Calderon, G.R. No.
156168,December 14, 2004; Bankard v. Feliciano, G.R.
No. 141761, July 28, 2006.
See BPI Express Card Corp. v. Olalia, 423 Phil. 593,
[22]
599 (2001).
Polotan, Sr. vs. Court of Appeals, 296 SCRA 247,
[23]
255 [1998].
Palmares vs. Court of Appeals, G.R. No. 126490, 288
[24]
SCRA 422, 433 (1998), citing Philippine Airlines vs.
Court of Appeals, et al., G.R. No. 119706, 255 SCRA 48,
58 (1996).
[25]
An offer is defined as "a manifestation of willingness
to enter into a bargain, so made as to justify another
person in understanding that his assent to that bargain
is invited and will conclude it." Black's Law Dictionary,
5th edition, p. 976.
See Selegna Management and Development
[26]
Corporation v. UCPB, G.R. No. 165662, May 3, 2006.
[27]
Black's Law Dictionary, 5th ed., p. 386.
[28]
Rollo, p. 1429.
[29]
Id. at 210.
11 | P a g e #SJBL
See Makati Stock Exchange, Inc. v. Campos, G.R.
[30]
No. 138814, April 16, 2009.
[31]
RTC records, p. 893-894.
[32]
Defined in Section 3 of RA 8484 as "any card, plate,
code, account number, electronic serial number,
personal identification number, or other
telecommunications service, equipment, or instrumental
identifier, or other means of account access that can be
used to obtain money, goods, services, or any other
thing of value or to initiate a transfer of funds (other
than a transfer originated solely by paper instrument)."
[33]
Credit card companies are required to provide
information on the annual interest rates on the amount
of credit obtained by the card holder, the annual
membership fees, if any, the manner by which all
charges and fees are computed, among others.
Section 3 of Republic Act No. 7653, or the New
[34]
Central Bank Act, provides:
Section 3. Responsibility and Primary Objective. - The
Bangko Sentral shall provide policy directions in the
areas of money, banking, and credit. It shall have
supervision over the operations of banks and exercise
such regulatory powers as provided in this Act and other
pertinent laws over the operations of finance companies
and non-bank financial institutions performing quasi-
banking functions, hereafter referred to as quasi-banks,
and institutions performing similar functions.
The primary objective of the Bangko Sentral is to
maintain price stability conducive to a balanced and
sustainable growth of the economy. It shall also
promote and maintain monetary stability and the
convertibility of the peso.
Subsections X320.3 and 4301N.3 of BSP Circular No.
[35]
398.
[36]
Albano, Ed Vincent. Persons and Family Relations,
3rd Edition, 2006, p. 66, citing the Report of the Code
Commission, p. 39.
[37]
Id., at 67.
[38]
G.R. No. 156841, June 30, 2005, 462 SCRA 466.
[39]
Rollo, p. 50.
Barons Marketing Corp. v. Court of Appeals, G.R. No.
[40]
126486, February 9, 1998, 286 SCRA 96, 105.
[41]
RTC Records, p. 210.
[42]
Id. at 1064.
[43]
Id. at 1074.
[44]
G.R. No. 96126, August 10, 1992, citing Mabutas v.
Calapan Electric Co. [CA], 50 OG 5828 (cited in Padilla,
Civil Code Annotated, Vol. 1, 1975 ed., p. 87).
[45]
G.R. No. 154259, February 28, 2005.
[46]
RTC records, pp. 1299-1300.
[47]
See 17 C.J., 1125; Gilchrist v. Cuddy, 29 Phil. 542.
[48]
G.R. No. 120639, September 25, 1998.
Concept of Loans
CIVIL LAW | C r e d i t T r a n s a c t i o n s

[49]
CIVIL CODE, Article 2232.

[50]
Ibid. Article 2234.

Tanay Recreation Center and Development Corp. v.

[51]

Fausto, 495 Phil. 400 (2005).

Article 2208. In the absence of stipulation, attorney's

[52]

fees and expenses of litigation, other than judicial costs,

cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant's act or omission has compelled

the plaintiff to litigate with third persons or to incur
expenses to protect his interest;

(3) In criminal cases of malicious prosecution against

the plaintiff;

(4) In case of a clearly unfounded civil action or

proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad

faith in refusing to satisfy the plaintiff's plainly valid,
just and demandable claim;

(6) In actions for legal support;

(7) In actions for recovery of wages of household

helpers, laborers and skilled workers;

(8) In actions for indemnity under workmen's

compensation and employer's liability laws;

(9) In a separate civil action to recover civil liability

arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just

and equitable that attorney's fees and expenses of
litigation should be recovered.

In all cases, the attorney's fees and expenses of

litigation must be reasonable.

12 | P a g e #SJBL Concept of Loans

CIVIL LAW | C r e d i t T r a n s a c t i o n s
EN BANC
[G.R. No. L-17474. October 25, 1962.]
REPUBLIC OF THE PHILIPPINES, Plaintiff-
Appellee, v. JOSE V. BAGTAS, Defendant.
FELICIDAD M. BAGTAS, Administratrix of the
Intestate Estate left by the late Jose V.
Bagtas, Petitioner-Appellant.
D. T. Reyes, Luison & Associates for Petitioner-
Appellant.
Solicitor General for Plaintiff-Appellee.
SYLLABUS
1. CONTRACTS; LOAN OF BULLS FOR BREEDING
PURPOSES; NATURE OF CONTRACT AFFECTED BY
PAYMENT OF FEE. — The loan by the Bureau of Animal
Industry to the defendant of three bulls for breeding
purposes for a period of one year, later on renewed for
another as regards one bull, was subject to the payment
by the borrower of breeding fee of 10% of the book
value of the bulls. If the breeding fee be considered a
compensation, the contract would be a lease of the
bulls; it could not be a contract of commodatum,
because that contract is essential gratuitous.
2. JUDGMENTS; PROCEEDINGS FOR ADMINISTRATIONS
AND SETTLEMENT OF ESTATE OF THE DECEASED;
ENFORCEMENT OF MONEY JUDGMENT. — Where special
proceedings for the administration and settlement of the
estate of the deceased have been instituted, the money
judgment rendered in favor of a party cannot be
enforced by means of a writ of execution, but must be
presented to the probate court for payment by the
administrator appointed by the court.
DECISION
PADILLA, J.:
The Court of Appeals certified this case to this Court
because only questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the
Republic of the Philippines through the Bureau of Animal
Industry three bulls: a Red Sindhi with a book value of
P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of
P744.46, for a period of one year from 8 May 1948 to 7
May 1949 for breeding purposes subject to a
government charge of breeding fee of 10% of the book
value of the bulls. Upon the expiration on 7 May 1949 of
the contract, the borrower asked for a renewal for
another period of one year. However, the Secretary of
Agriculture and Natural Resources approved a renewal
thereof of only one bull for another year from 8 May
1949 to 7 May 1950 and requested the return of the
13 | P a g e
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 P499.62, both with interests, and costs;
and that other just and equitable relief be granted it
(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 rendered
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
it granted an ex-parte motion filed by the plaintiff on 28
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 V.
Bagtas who died on 23 October 1951 and as
administratrix of his estate, was notified. On 7 January
1959 she filed a motion alleging that on 26 June 1952
the two bulls, Sindhi and Bhagnari, were returned to the
Bureau of Animal Industry and that sometime in
November 1953 the third bull, the Sahiniwal, died from
gunshot wounds inflicted during a Huks raid on
Hacienda Felicidad Intal, and praying that the writ of
execution be quashed and that a writ of preliminary
injunction be issued. On 31 January 1959 the plaintiff
objected to her motion. On 6 February 1959 she filed a
reply thereto. On the same day, 6 February, the Court
denied her motion. Hence, this appeal certified by the
Court of Appeals to this Court, as stated at the
beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son
of the appellant by the late defendant, returned the
Sindhi and Bhagnari bulls to Roman Remorin,
Superintendent of the NVB Station, Bureau of Animal
Industry, Bayombong, Nueva Vizcaya, as evidenced by
a memorandum receipt signed by the latter (Exhibit 2).
That is why in its objection of 31 January 1959 to the
#SJBL Concept of Loans
CIVIL LAW | C r e d i t T r a n s a c t i o n s
appellant’s motion to quash the writ of execution the
appellee prays "that another writ of execution in the
sum of P859.5.3 be issued against the estate of
defendant deceased José 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 Huks 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 the
returning the bull or paying its value to the appellee.
The contention is without merit. The loan by the
appellee to the late defendant José 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 thing, even if it should be
through a fortuitous event: chanrob1e s virtua l 1aw lib rary
(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:
virtua l 1aw lib rary
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 wit: 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
14 | P a g e
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 executor or administrator, guardian, or other legal
representative of the deceased . . .
The notice by the probate court and its publication in
the Voz de Manila that Felicidad M. Bagtas had been
issued letters of administration of the estate of the late
José V. Bagtas and that "all persons having claims for
money against the deceased José 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 money 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 abovequoted 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, if
the attorney for the deceased defendant did not notify
the plaintiff or its attorney of such death as required by
the rule.
chanrob1es 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 José 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.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion,
Reyes, J.B.L., Paredes, Dizon, Regala and
Makalintal, JJ., concur.
Barrera, J., concurs in the result.
#SJBL Concept of Loans
CIVIL LAW | C r e d i t T r a n s a c t i o n s
FIRST DIVISION
[G.R. No. 80294-95. September 21, 1988.]
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN
PROVINCE, Petitioner, v. COURT OF APPEALS,
HEIRS OF EGMIDIO OCTAVIANO AND JUAN
VALDEZ, Respondents.
Valdez Ereso Polido & Associates for Petitioner.
Claustro, Claustro Claustro Law Office
collaborating counsel for Petitioner.
Jaime G. de Leon for the Heirs of Egmidio
Octaviano.
Cabato Law Office for the Heirs of Juan Valdez.
SYLLABUS
1. REMEDIAL LAW; JUDGMENT; RES JUDICATA.— The
findings of the trial court affirmed by the appellate court
that the private respondent’s predecessor were
possessors of the lots in dispute with claim of ownership
from 1906 to 1951 while the petitioner was in
possession as borrower in commodatum up to 1951 are
res judicata between the parties.
DECISION
GANCAYCO, J.:
The principal issue in this case is whether or not a
decision of the Court of Appeals promulgated a long
time ago can properly be considered res judicata by
respondent Court of Appeals in the present two cases
between petitioner and two private respondents.
Petitioner questions as allegedly erroneous the Decision
dated August 31, 1987 of the Ninth Division of
Respondent Court of Appeals 1 in CA-G.R. No. 05148
[Civil Case No. 3607 (419)] and CA-G.R. No. 05149
[Civil Case No. 3655 (429)], both for Recovery of
Possession, which affirmed the Decision of the
Honorable Nicodemo T. Ferrer, Judge of the Regional
Trial Court of Baguio and Benguet in Civil Case No. 3607
(419) and Civil Case No. 3655 (429), with the
dispositive portion as follows:jgc:chan roble s.com.p h
"WHEREFORE, Judgment is hereby rendered ordering
the defendant, Catholic Vicar Apostolic of the Mountain
Province to return and surrender Lot 2 of Plan Psu-
194357 to the plaintiffs. Heirs of Juan Valdez, and Lot 3
of the same Plan to the other set of plaintiffs, the Heirs
of Egmidio Octaviano (Leonardo Valdez, Et. Al.). For
lack or insufficiency of evidence, the plaintiffs’ claim or
damages is hereby denied. Said defendant is ordered to
pay costs." (p 36, Rollo)
15 | P a g e #SJBL
Respondent Court of Appeals, in affirming the trial
court’s decision, sustained the trial court’s conclusions
that the Decision of the Court of Appeals, dated May 4,
1977 in CA-G.R. No. 38830-R, in the two cases affirmed
by the Supreme Court, touched on the ownership of lots
2 and 3 in question; that the two lots were possessed
by the predecessors-in-interest of private respondents
under claim of ownership in good faith from 1906 to
1951; that petitioner had been in possession of the
same lots as bailee in commodatum up to 1951, when
petitioner repudiated the trust and when it applied for
registration in 1962; that petitioner had just been in
possession as owner for eleven years, hence there is no
possibility of acquisitive prescription which requires 10
years possession with just title and 30 years of
possession without; that the principle of res judicata on
these findings by the Court of Appeals will bar a
reopening of these questions of fact; and that those
facts may no longer be altered. chan roblesv irt ualawli bra ry
Petitioner’s motion for reconsideration of the respondent
appellate court’s Decision in the two aforementioned
cases (CA-G.R. No. CV-05418 and 05419) was denied.
The facts and background of the cases as narrated by
the trial court are as follows —
". . . The documents and records presented reveal that
the whole controversy started when the defendant
Catholic Vicar Apostolic of the Mountain Province (VICAR
for brevity) filed with the Court of First Instance of
Baguio-Benguet, on September 5, 1962 an application
for registration of title over Lots 1, 2, 3, and 4 in Psu-
194357, situated at Poblacion Central, La Trinidad,
Benguet, docketed as LRC N-91, said Lots being the
sites of the Catholic Church building, convents, high
school building, school gymnasium, school dormitories,
social hall, stonewalls, etc. On March 22, 1963 the Heirs
of Juan Valdez and the Heirs of Egmidio Octaviano filed
their Answer/Opposition on Lots Nos. 2 and 3,
respectively, asserting ownership and title thereto. After
trial on the merits, the land registration court
promulgated its Decision, dated November 17, 1965,
confirming the registrable title of VICAR to Lots 1, 2, 3,
and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil
Case No. 3655) and the Heirs of Egmidio Octaviano
(plaintiffs in the herein Civil Case No. 3607) appealed
the decision of the land registration court to the then
Court of Appeals, docketed as CA-G.R. No. 38830-R.
The Court of Appeals rendered its decision, dated May 9,
1977, reversing the decision of the land registration
court and dismissing the VICAR’s application as to Lots
2 and 3, the lots claimed by the two sets of oppositors
in the land registration case (and two sets of plaintiffs in
the two cases now at bar), the first lot being presently
occupied by the convent and the second by the women’s
dormitory and the sister’s convent.
On May 9, 1977, the Heirs of Octaviano filed a motion
for reconsideration praying the Court of Appeals to order
the registration of Lot 3 in the names of the Heirs of
Egmidio Octaviano, and on May 17, 1977, the Heirs of
Juan Valdez and Pacita Valdez filed their motion for
reconsideration praying that both Lots 2 and 3 be
ordered registered in the names of the Heirs of Juan
Valdez and Pacita Valdez. On August 12, 1977, the
Court of Appeals denied the motion for reconsideration
filed by the Heirs of Juan Valdez on the ground that
there was "no sufficient merit to justify reconsideration
one way or the other . . .," and likewise denied that of
Concept of Loans
CIVIL LAW | C r e d i t T r a n s a c t i o n s
the Heirs of Egmidio Octaviano.
Thereupon, the VICAR filed with the Supreme Court a
petition for review on certiorari of the decision of the
Court of Appeals dismissing his (its) application for
registration of Lots 2 and 3, docketed as G.R. No. L-
46832, entitled, ‘Catholic Vicar Apostolic of the Mountain
Province v. Court of Appeals and Heirs of Egmidio
Octaviano.’
From the denial by the Court of Appeals of their motion
for reconsideration, the Heirs of Juan Valdez and Pacita
Valdez, on September 8, 1977, filed with the Supreme
Court a petition for review, docketed as G.R. No. L-
46872, entitled, ‘Heirs of Juan Valdez and Pacita Valdez
v. Court of Appeals, Vicar, Heirs of Egmidio Octaviano
and Amable O. Valdez.
On January 13, 1978, the Supreme Court denied in a
minute resolution both petitions (of VICAR on the one
hand and the Heirs of Juan Valdez and Pacita Valdez on
the other) for lack of merit. Upon the finality of both
Supreme Court resolutions in G.R. No. L-46832 and G.R.
No. L-46872, the Heirs of Octaviano filed with the then
Court of First Instance of Baguio, Branch 11, a Motion
For Execution of Judgment praying that the Heirs of
Octaviano be placed in possession of Lot 3. The Court,
presided over by Hon. Salvador J. Valdez, on December
7, 1978, denied the motion on the ground that the
Court of Appeals decision in CA-G.R. No. 38870 did not
grant the Heirs of Octaviano any affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with
the Court of Appeals a petition for certiorari and
mandamus, docketed as CA-G.R. No. 08890-R, entitled
‘Heirs of Egmidio Octaviano v. Hon. Salvador J. Valdez,
Jr. and Vicar.’ In its decision dated May 16, 1979, the
Court of Appeals dismissed the petition.
It was at that stage that the instant cases were filed.
The Heirs of Egmidio Octaviano filed Civil Case No. 3607
(419) on July 24, 1979, for recovery of possession of
Lot 3; and the Heirs of Juan Valdez filed Civil Case No.
3655 (429) on September 24, 1979, likewise for
recovery of possession of Lot 2 (Decision, pp. 199-201,
Orig. Rec.).
"In Civil Case No. 3607 (419) trial was held. The
plaintiffs Heirs of Egmidio Octaviano presented one (1)
witness, Fructuoso Valdez, who testified on the alleged
ownership of the land in question (Lot 3) by their
predecessor-in-interest, Egmidio Octaviano (Exh. C); his
written demand (Exh. B - B-4) to defendant Vicar for
the return of the land to them; and the reasonable
rentals for the use of the land at P10,000.00 per month.
On the other hand, defendant Vicar presented the
Register of Deeds for the Province of Benguet, Atty.
Nicanor Sison, who testified that the land in question is
not covered by any title in the name of Egmidio
Octaviano or any of the plaintiffs (Exh. 8). The
defendant dispensed with the testimony of Mons.
William Brasseur when the plaintiffs admitted that the
witness if called to the witness stand, would testify that
defendant Vicar has been in possession of Lot 3, for
seventy-five (75) years continuously and peacefully and
has constructed permanent structures thereon.
"In Civil Case No. 3655, the parties admitting that the
material facts are not in dispute, submitted the case on
the sole issue of whether or not the decisions of the
Court of Appeals and the Supreme Court touching on
the ownership of Lot 2, which in effect declared the
plaintiffs the owners of the land constitute res judicata.
16 | P a g e #SJBL
"In these two cases, the plaintiffs argue that the
defendant Vicar is barred from setting up the defense of
ownership and or long and continuous possession of the
two lots in question since this is barred by prior
judgment of the Court of Appeals in CA-G.R. No.
038830-R under the principle of res judicata. Plaintiffs
contend that the question of possession and ownership
have already been determined by the Court of Appeals
(Exh. C, Decision, CA-G.R. No. 038830-R) and affirmed
by the Supreme Court (Exh. 1, Minute Resolution of the
Supreme Court). On his part, defendant Vicar maintains
that the principle of res judicata would not prevent them
from litigating the issues of long possession and
ownership Because the dispositive portion of the prior
judgment in CA-G.R. No. 038830-R merely dismissed
their application for registration and titling of lots 2 and
3. Defendant Vicar contends that only the dispositive
portion of the decision, and not its body, is the
controlling pronouncement of the Court of Appeals." 2
The alleged errors committed by respondent Court of
Appeals according to petitioner are as follows: chan rob1e s virtual 1aw l ibra ry
1. ERROR IN APPLYING LAW OF THE CASE AND RES
JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED
THAT LOTS 2 AND 3 WERE ACQUIRED BY PURCHASE
BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS CLAIM IT
PURCHASED LOTS 2 AND 3 FROM VALDEZ AND
OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE
FORMER OWNERS WERE VALDEZ AND OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF
PRIVATE RESPONDENTS WHO WERE IN POSSESSION
OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT
PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO
HAD FREE PATENT APPLICATIONS AND THE
PREDECESSORS OF PRIVATE RESPONDENTS ALREADY
HAD FREE PATENT APPLICATIONS SINCE 1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED
LOTS 2 AND 3 ONLY IN 1951 AND JUST TITLE IS A
PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION
TO ART. 1129 OF THE CIVIL CODE FOR ORDINARY
ACQUISITIVE PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE
COURT OF APPEALS IN CA G.R. NO. 038830 WAS
AFFIRMED BY THE SUPREME COURT;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R.
NO. 038830 TOUCHED ON OWNERSHIP OF LOTS 2 AND
3 AND THAT PRIVATE RESPONDENTS AND THEIR
PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND
3 UNDER A CLAIM OF OWNERSHIP IN GOOD FAITH
FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN
POSSESSION OF LOTS 2 AND 3 MERELY AS BAILEE
(BORROWER) IN COMMODATUM, A GRATUITOUS LOAN
FOR USE;
10. ERROR IN FINDING THAT PETITIONER IS A
POSSESSOR AND BUILDER IN GOOD FAITH WITHOUT
RIGHTS OF RETENTION AND REIMBURSEMENT AND IS
BARRED BY THE FINALITY AND CONCLUSIVENESS OF
THE DECISION IN CA G.R. NO. 033830. 3
Concept of Loans
CIVIL LAW | C r e d i t T r a n s a c t i o n s
The petition is bereft of merit.
Petitioner questions the ruling of respondent Court of
Appeals in CA-G.R. Nos. 05148 and 05149, when it
clearly held that it was in agreement with the findings of
the trial court that the Decision of the Court of Appeals
dated May 4, 1977 in CA-G.R. No. 38830-R, on the
question of ownership of Lots 2 and 3, declared that the
said Court of Appeals Decision (CA-G.R. No. 38830-R)
did not positively declare private respondents as owners
of the land, neither was it declared that they were not
owners of the land, but it held that the predecessors of
private respondents were possessors of Lots 2 and 3,
with claim of ownership in good faith from 1906 to
1951. Petitioner was in possession as borrower in
commodatum up to 1951, when it repudiated the trust
by declaring the properties in its name for taxation
purposes. When petitioner applied for registration of
Lots 2 and 3 in 1962, it had been in possession in
concept of owner only for eleven years. Ordinary
acquisitive prescription requires possession for ten
years, but always with just title. Extraordinary
acquisitive prescription requires 30 years. 4
On the above findings of facts supported by evidence
and evaluated by the Court of Appeals in CA-G.R. No.
38830-R, affirmed by this Court, We see no error in
respondent appellate court’s ruling that said findings are
res judicata between the parties. They can no longer be
altered by presentation of evidence because those
issues were resolved with finality a long time ago. To
ignore the principle of res judicata would be to open the
door to endless litigations by continuous determination
of issues without end.
An examination of the Court of Appeals Decision dated
May 4, 1977, First Division 5 in CA-G.R. No. 38830-R,
shows that it reversed the trial court’s Decision 6 finding
petitioner to be entitled to register the lands in question
under its ownership, on its evaluation of evidence and
conclusion of facts.
The Court of Appeals found that petitioner did not meet
the requirement of 30 years possession for acquisitive
prescription over Lots 2 and 3. Neither did it satisfy the
requirement of 10 years possession for ordinary
acquisitive prescription because of the absence of just
title. The appellate court did not believe the findings of
the trial court that Lot 2 was acquired from Juan Valdez
by purchase and Lot 3 was acquired also by purchase
from Egmidio Octaviano by petitioner Vicar because
there was absolutely no documentary evidence to
support the same and the alleged purchases were never
mentioned in the application for registration.
By the very admission of petitioner Vicar, Lots 2 and 3
were owned by Valdez and Octaviano. Both Valdez and
Octaviano had Free Patent Application for those lots
since 1906. The predecessors of private respondents,
not petitioner Vicar, were in possession of the
questioned lots since 1906.
There is evidence that petitioner Vicar occupied Lots 1
and 4, which are not in question, but not Lots 2 and 3,
because the buildings standing thereon were only
constructed after liberation in 1945. Petitioner Vicar only
declared Lots 2 and 3 for taxation purposes in 1951.
The improvements on Lots 1, 2, 3, 4 were paid for by
the Bishop but said Bishop was appointed only in 1947,
the church was constructed only in 1951 and the new
convent only 2 years before the trial in 1963. chan roble s.com.p h : virt ual law l ibra ry
17 | P a g e
When petitioner Vicar was notified of the oppositor’s
claims, the parish priest offered to buy the lot from
Fructuoso Valdez. Lots 2 and 3 were surveyed by
request of petitioner Vicar only in 1962.
Private respondents were able to prove that their
predecessors’ house was borrowed by petitioner Vicar
after the church and the convent were destroyed. They
never asked for the return of the house, but when they
allowed its free use, they became bailors in
commodatum and the petitioner the bailee. The bailees’
failure to return the subject matter of commodatum to
the bailor did not mean adverse possession on the part
of the borrower. The bailee held in trust the property
subject matter of commodatum. The adverse claim of
petitioner came only in 1951 when it declared the lots
for taxation purposes. The action of petitioner Vicar by
such adverse claim could not ripen into title by way of
ordinary acquisitive prescription because of the absence
of just title.
The Court of Appeals found that the predecessors-in-
interest and private respondents were possessors under
claim of ownership in good faith from 1906; that
petitioner Vicar was only a bailee in commodatum; and
that the adverse claim and repudiation of trust came
only in 1951.
We find no reason to disregard or reverse the ruling of
the Court of Appeals in CA-G.R. No. 38830-R. Its
findings of fact have become incontestible. This Court
declined to review said decision, thereby in effect,
affirming it. It has become final and executory a long
time ago.
Respondent appellate court did not commit any
reversible error, much less grave abuse of discretion,
when it held that the Decision of the Court of Appeals in
CA-G.R. No. 38830-R is governing, under the principle
of res judicata, hence the rule, in the present cases CA-
G.R. No. 05148 and CA-G.R. No. 05149. The facts as
supported by evidence established in that decision may
no longer be altered.
WHEREFORE AND BY REASON OF THE FOREGOING, this
petition is DENIED for lack of merit, the Decision dated
Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by
respondent Court of Appeals is AFFIRMED, with costs
against petitioner. chan roble s.com:c ralaw:red
SO ORDERED.
Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.
Endnotes:
1. Associate Justices Conrado T. Limcaoco, Jose C. Campos, Jr.
and Gloria C. Paras.
2. Decision in CA-G.R. No. CV Nos. 05148 and 05149 dated
August 31, 1987; pp. 112-117, Rollo.
3. Pp. 5-15, Petition; pp. 6-17, Rollo.
4. Arts. 1134 and 1129, Civil Code.
5. Presiding Justice Magno S. Gatmaitan, Associate Justices
Pacifico P. de Castro and Samuel Reyes.
6. Land Reg. No. N91, LRC Rec. No. N-22991 of the then C.F.I.
of Baguio City.
#SJBL Concept of Loans
CIVIL LAW | C r e d i t T r a n s a c t i o n s
EN BANC
G.R. No. L-46240 November 3, 1939
MARGARITA QUINTOS and ANGEL A.
ANSALDO, plaintiffs-appellants,
vs.
BECK, defendant-appellee.
Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for appellee.
IMPERIAL, J.:
The plaintiff brought this action to compel the defendant
to return her certain furniture which she lent him for his
use. She appealed from the judgment of the Court of
First Instance of Manila which ordered that the
defendant return to her the three has heaters and the
four electric lamps found in the possession of the Sheriff
of said city, that she call for the other furniture from the
said sheriff of Manila at her own expense, and that the
fees which the Sheriff may charge for the deposit of the
furniture be paid pro rata by both parties, without
pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such
occupied the latter's house on M. H. del Pilar street, No.
1175. On January 14, 1936, upon the novation of the
contract of lease between the plaintiff and the
defendant, the former gratuitously granted to the latter
the use of the furniture described in the third paragraph
of the stipulation of facts, subject to the condition that
the defendant would return them to the plaintiff upon
the latter's demand. The plaintiff sold the property to
Maria Lopez and Rosario Lopez and on September 14,
1936, these three notified the defendant of the
conveyance, giving him sixty days to vacate the
premises under one of the clauses of the contract of
lease. There after the plaintiff required the defendant to
return all the furniture transferred to him for them in
the house where they were found.
On November 5, 1936, the defendant, through
another person, wrote to the plaintiff reiterating that
she may call for the furniture in the ground floor of the
house. On the 7th of the same month, the defendant
wrote another letter to the plaintiff informing her that
he could not give up the three gas heaters and the four
electric lamps because he would use them until the 15th
of the same month when the lease in due to expire. The
plaintiff refused to get the furniture in view of the fact
that the defendant had declined to make delivery of all
of them. On November 15th, before vacating
the house, the defendant deposited with the Sheriff all
the furniture belonging to the plaintiff and they are now
on deposit in the warehouse situated at No. 1521, Rizal
Avenue, in the custody of the said sheriff.
18 | P a g e #SJBL
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
Concept of Loans
CIVIL LAW | C r e d i t T r a n s a c t i o n s

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.

Avanceña, C.J., Villa-Real, Laurel, Concepcion and

Moran, JJ., concur.

19 | P a g e #SJBL Concept of Loans

CIVIL LAW | C r e d i t T r a n s a c t i o n s
FIRST DIVISION
[G.R. NO. 146364. June 3, 2004]
COLITO T. PAJUYO, Petitioner, v. COURT OF
APPEALS and EDDIE GUEVARRA, Respondents.
DECISION
CARPIO, J.:
The Case
Before us is a Petition for Review 1 of the 21 June 2000
Decision2 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 decision3 of
the Regional Trial Court of Quezon City, Branch
81,4 affirming the 15 December 1995 decision5 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 Kasunduanor
agreement. Pajuyo, as owner of the house, allowed
Guevarra to live in the house for free provided Guevarra
would maintain the cleanliness and orderliness of the
house. Guevarra promised that he would voluntarily
vacate the premises on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his
need of the house and demanded that Guevarra vacate
the house.Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with
the Metropolitan Trial Court of Quezon City, Branch 31
(MTC).
In his Answer, Guevarra claimed that Pajuyo had no
valid title or right of possession over the lot where the
house stands because the lot is within the 150 hectares
set aside by Proclamation No. 137 for socialized
housing. Guevarra pointed out that from December
1985 to September 1994, Pajuyo did not show up or
communicate with him. Guevarra insisted that neither
he nor Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision in
favor of Pajuyo. The dispositive portion of the MTC
decision reads:c hanro blesvi rt ua1awlib ra ry
20 | P a g e #SJBL
WHEREFORE, premises considered, judgment is hereby
rendered for the plaintiff and against defendant,
ordering the latter to: chan roblesv irtua1awli bra ry
A) vacate the house and lot occupied by the defendant
or any other person or persons claiming any right under
him;chan roble svirtual lawlib rary
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; chanro blesvi rt uallawl ibra ry
C) pay plaintiff the sum of P3,000.00 as and by way of
attorneys fees; and cralawlibra ry
D) pay the cost of suit.
SO ORDERED.7 cralawred
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: chan roblesv irtua1awl ibra ry
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 cralawred
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 Resolution9 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 Resolution10 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.
Concept of Loans
CIVIL LAW | C r e d i t T r a n s a c t i o n s
On 21 June 2000, the Court of Appeals issued its
decision reversing the RTC decision. The dispositive
portion of the decision reads: chan roblesv irtua1awl ibra ry
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
cralawred
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
TheRuling 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.
21 | P a g e
The Court of Appeals reversed the MTC and RTC rulings,
which held that the Kasunduan between Pajuyo and
Guevarra created a legal tie akin to that of a landlord
and tenant relationship. The Court of Appeals ruled that
the Kasunduan is not a lease contract but
a commodatum because the agreement is not for a
price certain.
Since Pajuyo admitted that he resurfaced only in 1994
to claim the property, the appellate court held that
Guevarra has a better right over the property under
Proclamation No. 137. President Corazon C. Aquino
(President Aquino) issued Proclamation No. 137 on 7
September 1987. At that time, Guevarra was in physical
possession of the property. Under Article VI of the Code
of Policies Beneficiary Selection and Disposition of
Homelots and Structures in the National Housing Project
(the Code), the actual occupant or caretaker of the lot
shall have first priority as beneficiary of the project. The
Court of Appeals concluded that Guevarra is first in the
hierarchy of priority.
c hanro blesvi rt ua1awlib ra ry
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: cha nrob lesvi rtua 1awlib rary
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.
#SJBL Concept of Loans
CIVIL LAW | C r e d i t T r a n s a c t i o n s
2) in giving due course, instead of dismissing, private
respondents Petition for Review even though the
certification against forum-shopping was signed only by
counsel instead of by petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into
by the parties was in fact a commodatum, instead of a
Contract of Lease as found by the Metropolitan Trial
Court and in holding that the ejectment case filed
against defendant-appellant is without legal and factual
basis.
4) in reversing and setting aside the Decision of the
Regional Trial Court in Civil Case No. Q-96-26943 and in
holding that the parties are in pari delicto being both
squatters, therefore, illegal occupants of the contested
parcel of land.
5) in deciding the unlawful detainer case based on the
so-called Code of Policies of the National Government
Center Housing Project instead of deciding the same
under the Kasunduan voluntarily executed by the
parties, the terms and conditions of which are the laws
between themselves.13
The Ruling of the Court
The procedural issues Pajuyo is raising are baseless.
However, we find merit in the substantive issues Pajuyo
is submitting for resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have
dismissed outright Guevarras Petition for Review
because the RTC decision had already become final and
executory when the appellate court acted on Guevarras
motion for extension to file the petition. Pajuyo points
out that Guevarra had only one day before the expiry of
his period to appeal the RTC decision. Instead of filing
the Petition for Review with the Court of Appeals,
Guevarra filed with this Court an undated motion for
extension of 30 days to file a Petition for Review . This
Court merely referred the motion to the Court of
Appeals. Pajuyo believes that the filing of the motion for
extension with this Court did not toll the running of the
period to perfect the appeal. Hence, when the Court of
Appeals received the motion, the period to appeal had
already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of
their appellate jurisdiction are appealable to the Court of
Appeals by Petition for Review in cases involving
questions of fact or mixed questions of fact and
law.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
22 | P a g e #SJBL
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.17c ralaw red
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? chanroble svi rtualawl ib rary
These questions call for the evaluation of the rights of
the parties under the law on ejectment and the
Presidential Proclamation. At first glance, the questions
Guevarra raised appeared purely legal. However, some
factual questions still have to be resolved because they
have a bearing on the legal questions raised in the
Petition for Review .These factual matters refer to the
metes and bounds of the disputed property and the
application of Guevarra as beneficiary of Proclamation
No. 137.
The Court of Appeals has the power to grant an
extension of time to file a Petition for Review .
In Lacsamana v. Second Special Cases Division of
the Intermediate Appellate Court,18 we declared that
the Court of Appeals could grant extension of time in
appeals by Petition for Review . In Liboro v. Court of
Appeals,19 we clarified that the prohibition against
granting an extension of time applies only in a case
where ordinary appeal is perfected by a mere notice of
appeal. The prohibition does not apply in a Petition for
Review where the pleading needs verification. A Petition
for Review , unlike an ordinary appeal, requires
preparation and research to present a persuasive
position.20 The drafting of the Petition for Review entails
more time and effort than filing a notice of
appeal.21 Hence, the Court of Appeals may allow an
extension of time to file a Petition for Review .
In the more recent case of Commissioner of Internal
Revenue v. Court of Appeals,22 we held that Liboros
clarification of Lacsamana is consistent with the
Revised Internal Rules of the Court of Appeals and
Supreme Court Circular No. 1-91. They all allow an
extension of time for filing petitions for review with the
Court of Appeals. The extension, however, should be
limited to only fifteen days save in exceptionally
meritorious cases where the Court of Appeals may grant
a longer period.
A judgment becomes final and executory by operation of
law. Finality of judgment becomes a fact on the lapse of
the reglementary period to appeal if no appeal is
perfected.23 The RTC decision could not have gained
finality because the Court of Appeals granted the 30-day
extension to Guevarra.
The Court of Appeals did not commit grave abuse of
discretion when it approved Guevarras motion for
extension. The Court of Appeals gave due course to the
motion for extension because it complied with the
condition set by the appellate court in its resolution
dated 28 January 1997. The resolution stated that the
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CIVIL LAW | C r e d i t T r a n s a c t i o n s
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.26c ralawre d
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 cra lawred
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 cralawred
We agree with the Court of Appeals that the issue on
the certificate against forum shopping was merely an
23 | P a g e #SJBL
afterthought. Pajuyo did not call the Court of Appeals
attention to this defect at the early stage of the
proceedings. Pajuyo raised this procedural issue too late
in the proceedings.
Absence of Title over the Disputed Property will not
Divest the Courts of Jurisdiction to Resolve the Issue of
Possession
Settled is the rule that the defendants claim of
ownership of the disputed property will not divest the
inferior court of its jurisdiction over the ejectment
case.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.35c ralawred
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 facto and 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
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CIVIL LAW | C r e d i t T r a n s a c t i o n s
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 Pitargue44 as squatters, strictly speaking,
their entry into the disputed land was illegal. Both the
plaintiff and defendant entered the public land without
the owners permission. Title to the land remained with
the government because it had not awarded to anyone
ownership of the contested public land. Both the plaintiff
and the defendant were in effect squatting on
government property. Yet, we upheld the courts
jurisdiction to resolve the issue of possession even if the
plaintiff and the defendant in the ejectment case did not
have any title over the contested land.
Courts must not abdicate their jurisdiction to resolve the
issue of physical possession because of the public need
to preserve the basic policy behind the summary actions
of forcible entry and unlawful detainer. The underlying
philosophy behind ejectment suits is to prevent breach
of the peace and criminal disorder and to compel the
party out of possession to respect and resort to the law
alone to obtain what he claims is his.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 cralaw red
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:
chan roblesv irt ua1awli bra ry
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
24 | P a g e
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 v. 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 v. Quintero and Ayala,
59 Phil. 312, 314.) So before the enactment of the first
Public Land Act (Act No. 926) the action of forcible entry
was already available in the courts of the country. So
the question to be resolved is, Did the Legislature
intend, when it vested the power and authority to
alienate and dispose of the public lands in the Lands
Department, to exclude the courts from entertaining the
possessory action of forcible entry between rival
claimants or occupants of any land before award thereof
to any of the parties? Did Congress intend that the lands
applied for, or all public lands for that matter, be
removed from the jurisdiction of the judicial Branch of
the Government, so that any troubles arising therefrom,
or any breaches of the peace or disorders caused by
rival claimants, could be inquired into only by the Lands
Department to the exclusion of the courts? The answer
to this question seems to us evident. The Lands
Department does not have the means to police public
lands; neither does it have the means to prevent
disorders arising therefrom, or contain breaches of the
peace among settlers; or to pass promptly upon
conflicts of possession. Then its power is clearly
limited to disposition and alienation, and while it
may decide conflicts of possession in order to
make proper award, the settlement of conflicts of
possession which is recognized in the court herein
has another ultimate purpose, i.e., the protection
of actual possessors and occupants with a view to
the prevention of breaches of the peace. The
power to dispose and alienate could not have been
intended to include the power to prevent or settle
disorders or breaches of the peace among rival
settlers or claimants prior to the final award. As to
this, therefore, the corresponding branches of the
Government must continue to exercise power and
jurisdiction within the limits of their respective
functions. The vesting of the Lands Department
with authority to administer, dispose, and alienate
public lands, therefore, must not be understood as
depriving the other branches of the Government of
the exercise of the respective functions or powers
thereon, such as the authority to stop disorders
and quell breaches of the peace by the police, the
authority on the part of the courts to take
jurisdiction over possessory actions arising
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CIVIL LAW | C r e d i t T r a n s a c t i o n s
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 v. 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 v. 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 Code48 embody the
principle of pari delicto. We explained the principle
of pari delicto in these words:chan roblesv irt ua1awli bra ry
25 | P a g e
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 cralawre d
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 c ralawre d
In Drilon v. Gaurana,51 we reiterated the basic policy
behind the summary actions of forcible entry and
unlawful detainer. We held that:
chanroble svi rtua1awl ib rary
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
cra lawred
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
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CIVIL LAW | C r e d i t T r a n s a c t i o n s
The case for review before the Court of Appeals was a
simple case of ejectment. The Court of Appeals refused
to rule on the issue of physical possession.
Nevertheless, the appellate court held that the pivotal
issue in this case is who between Pajuyo and Guevarra
has the priority right as beneficiary of the contested
land under Proclamation No. 137.54 According to the
Court of Appeals, Guevarra enjoys preferential right
under Proclamation No. 137 because Article VI of the
Code declares that the actual occupant or caretaker is
the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and
legal basis.
First. Guevarra did not present evidence to show that
the contested lot is part of a relocation site under
Proclamation No. 137. Proclamation No. 137 laid down
the metes and bounds of the land that it declared open
for disposition to bona fide residents.
The records do not show that the contested lot is within
the land specified by Proclamation No. 137. Guevarra
had the burden to prove that the disputed lot is within
the coverage of Proclamation No. 137. He failed to do
so.
Second. The Court of Appeals should not have given
credence to Guevarras unsubstantiated claim that he is
the beneficiary of Proclamation No. 137. Guevarra
merely alleged that in the survey the project
administrator conducted, he and not Pajuyo appeared as
the actual occupant of the lot.
There is no proof that Guevarra actually availed of the
benefits of Proclamation No. 137. Pajuyo allowed
Guevarra to occupy the disputed property in
1985.President Aquino signed Proclamation No. 137 into
law on 11 March 1986. Pajuyo made his earliest demand
for Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the
property up to the time that Proclamation No. 137
allegedly segregated the disputed lot, Guevarra never
applied as beneficiary of Proclamation No. 137. Even
when Guevarra already knew that Pajuyo was
reclaiming possession of the property, Guevarra did not
take any step to comply with the requirements of
Proclamation No. 137.
Third. Even assuming that the disputed lot is within the
coverage of Proclamation No. 137 and Guevarra has a
pending application over the lot, courts should still
assume jurisdiction and resolve the issue of possession.
However, the jurisdiction of the courts would be limited
to the issue of physical possession only.
In Pitargue,55 we ruled that courts have jurisdiction
over possessory actions involving public land to
determine the issue of physical possession. The
determination of the respective rights of rival claimants
to public land is, however, distinct from the
determination of who has the actual physical possession
or who has a better right of physical possession.56 The
administrative disposition and alienation of public lands
should be threshed out in the proper government
agency.57 cralawred
26 | P a g e #SJBL
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 Kasunduanreads: chanroble svirtua1awl ibra ry
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, Pajuyopermitted 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 cralawred
Where the plaintiff allows the defendant to use his
property by tolerance without any contract, the
defendant is necessarily bound by an implied promise
that he will vacate on demand, failing which, an action
for unlawful detainer will lie.60 The defendants refusal to
comply with the demand makes his continued
possession of the property unlawful.61 The status of the
defendant in such a case is similar to that of a lessee or
tenant whose term of lease has expired but whose
occupancy continues by tolerance of the owner.62 cralawred
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.
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CIVIL LAW | C r e d i t T r a n s a c t i o n s
In a contract of commodatum, one of the parties
delivers to another something not consumable so that
the latter may use the same for a certain time and
return it.63 An essential feature of commodatum is that
it is gratuitous. Another feature of commodatum is that
the use of the thing belonging to another is for a certain
period.64 Thus, the bailor cannot demand the return of
the thing loaned until after expiration of the period
stipulated, or after accomplishment of the use for which
the commodatum isconstituted.65If 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 theCivil
Code, precarium is a kind of commodatum.68
cralawred
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 effectsof 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
cralaw red
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.
27 | P a g e
We are not convinced.
Pajuyo did not profit from his arrangement with
Guevarra because Guevarra stayed in the property
without paying any rent. There is also no proof that
Pajuyo is a professional squatter who rents out usurped
properties to other squatters. Moreover, it is for the
proper government agency to decide who between
Pajuyo and Guevarra qualifies for socialized housing.
The only issue that we are addressing is physical
possession.
Prior possession is not always a condition sine qua
non in ejectment.73 This is one of the distinctions
between forcible entry and unlawful detainer.74 In
forcible entry, the plaintiff is deprived of physical
possession of his land or building by means of force,
intimidation, threat, strategy or stealth. Thus, he must
allege and prove prior possession.75 But in unlawful
detainer, the defendant unlawfully withholds possession
after the expiration or termination of his right to possess
under any contract, express or implied. In such a case,
prior physical possession is not required.76
c ralaw red
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
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CIVIL LAW | C r e d i t T r a n s a c t i o n s

physical possession among themselves than seek relief 2

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.
Penned by Associate Justice Andres B. Reyes, Jr. with
Associate Justices Quirino D. Abad Santos, Jr. and
Romeo A. Brawner, concurring.
3
Penned by Judge Wenceslao I. Agnir.

Since Pajuyo has in his favor priority in time in holding 4

Docketed as Civil Case No. Q-96-26943.
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
5
Penned by Judge Mariano M. Singzon, Jr.
ruling in this case, however, does not preclude Pajuyo
and Guevarra from introducing evidence and presenting 6
Docketed as Civil Case No. 12432.
arguments before the proper administrative agency to
establish any right to which they may be entitled under 7
Rollo, p. 41.
the law.81 cralawred

8
Ibid., p. 49.
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
9
Ibid., p. 221.
constitute a binding and conclusive adjudication on the
merits on the issue of ownership.82 The owner can still 10
Ibid., p. 224.
go to court to recover lawfully the property from the
person who holds the property without legal title. Our 11
Ibid., p. 60.
ruling here does not diminish the power of government
agencies, including local governments, to condemn,
abate, remove or demolish illegal or unauthorized
12
Ibid., p. 73.
structures in accordance with existing laws.
13
Rollo, p. 134.
Attorneys Fees and Rentals
14
Macawiwili Gold Mining and Development Co., Inc. v.
The MTC and RTC failed to justify the award of P3,000 Court of Appeals, 358 Phil. 245 (1998).
attorneys fees to Pajuyo. Attorneys fees as part of
damages are awarded only in the instances enumerated 15
Ibid.
in Article 2208 of the Civil Code.83 Thus, the award of
attorneys fees is the exception rather than the 16
Ibid.
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 17
Ibid.
therefore delete the attorneys fees awarded to Pajuyo.
18
227 Phil. 606 (1986).
We sustain the P300 monthly rentals the MTC and RTC
assessed against Guevarra. Guevarra did not dispute 19
G.R. No. 101132, 29 January 1993, 218 SCRA 193.
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
20
Ibid.
was on 16 February 1995.
21
Ibid.
WHEREFORE, we GRANT the petition. The Decision
dated 21 June 2000 and Resolution dated 14 December 22
Commissioner of Internal Revenue v. Court of
2000 of the Court of Appeals in CA-G.R. SP No. 43129 Appeals, G.R. No. 110003, 9 February 2001, 351 SCRA
are SET ASIDE. The Decision dated 11 November 1996 436.
of the Regional Trial Court of Quezon City, Branch 81 in
Civil Case No. Q-96-26943, affirming the Decision dated 23
City of Manila v. Court of Appeals, G.R. No. 100626,
15 December 1995 of the Metropolitan Trial Court of 29 November 1991, 204 SCRA 362.
Quezon City, Branch 31 in Civil Case No. 12432, is
REINSTATED with MODIFICATION. The award of
attorneys fees is deleted. No costs.
24
Castilex Industrial Corporation v. Vasquez, Jr., 378
Phil. 1009 (1999).

SO ORDERED. 25
Refugia v. Court of Appeals, 327 Phil. 982 (1996).

Davide, Jr., C.J., (Chairman), Panganiban, Ynares-

Santiago, and Azcuna, JJ., concur.
26
Ibid.

Endnotes:
27
Far Eastern Shipping Company v. Court of Appeals,
357 Phil. 703 (1998).

28
Ibid.

1
Under Rule 45 of the 1997 Rules of Court.

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CIVIL LAW | C r e d i t T r a n s a c t i o n s

29
Buenaventura v. Uy, G.R. No. L-28156, 31 March Art.1412. If the act in which the unlawful or forbidden
1987, 149 SCRA 220. cause consists does not constitute a criminal offense,
the following rule shall be observed: c hanro blesvi rt ua1awlib ra ry

30
Ibid.
(1) When the fault is on the part of both contracting
31
FLORENZ D. REGALADO, REMEDIAL LAW parties, neither may recover what he has given by
COMPENDIUM, VOL.I, SIXTH REV. ED., 143. virtue of the contract, or demand the performance of
the others undertaking; chanroblesv irt uallawl ibra ry

32
Dizon v. Court of Appeals, 332 Phil. 429 (1996).
(2) When only one of the contracting parties is at fault,
he cannot recover what he has given by reason of the
33
Ibid. contract, or ask for the fulfillment of what has been
promised to him. The other who is not at fault, may
34
De Luna v. Court of Appeals, G.R. No. 94490, 6 demand the return of what he has given without any
August 1992, 212 SCRA 276. obligation to comply with his promise.

35
Ibid. 49
Top-Weld Manufacturing, Inc. v. ECED S.A., G.R. No.
L-44944, 9 August 1985, 138 SCRA 118.
36
Pitargue v. Sorilla, 92 Phil. 5 (1952); Dizon v. Court
of Appeals, supra note 32; Section 16, Rule 70 of the 50
Silagan v. Intermediate Appellate Court, 274 Phil. 182
1997 Rules of Court. (1991).

37
Ibid.;Fige v. Court of Appeals, G.R. No. 107951, 30 51
Supra note 40.
June 1994, 233 SCRA 586; Oblea v. Court of Appeals,
313 Phil. 804 (1995). 52
Ibid.

38
Dizon v. Court of Appeals, supra note 32. 53
Dizon v. Concina, 141 Phil. 589 (1969); Cine
Ligaya v. Labrador, 66 Phil. 659 (1938).
39
Supra note36.
54
Rollo, p. 54.
40
Drilon v. Gaurana, G.R. No. L-35482, 30 April 1987,
149 SCRA 342. 55
Supra note 43.

41
Rubio v. The Hon. Municipal Trial Court in Cities, 322 56
Ibid.; Aguilon v. Bohol, supra note 45; Reynoso v.
Phil. 179 (1996). Court of Appeals, supra note 45.

42
Ibid. 57
Reynoso v. Court of Appeals, supra note 45.

43
92 Phil. 5 (1952). 58
Aguilon v. Bohol, supra note 45.

44
Ibid. 59
Section 1, Rule 70 of the 1964 Rules of Court.

45
Ibid.; Reynoso v. Court of Appeals, G.R. No. 49344,
23 February 1989, 170 SCRA 546; Aguilon v. Bohol,
G.R. No. L-27169, 20 October 1977, 79 SCRA 482.
46
Ibid.
47
Ibid.
48
Art. 1411. When the nullity proceeds from the
illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being
in pari delicto, they shall have no action against each
other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of
effects or instruments of a crime shall be applicable to
the things or the price of the contract.
60
Arcal v. Court of Appeals, 348 Phil. 813 (1998).
61
Ibid.
62
Ibid.
63
Art. 1933. By the contract of loan, one of the parties
delivers to another, either something not consumable so
that the latter may use the same for a certain time and
return it, in which case the contract is called a
commodatum; or money or other consumable thing,
upon the condition that the same amount of the same
kind and quality shall be paid, in which case the contract
is simply called a loan or mutuum.
Commodatum is essentially gratuitous.

This rule shall be applicable when only one of the parties

is guilty; but the innocent one may claim what he has
given, and shall not be bound to comply with his
promise.
Simple loan may be gratuitous or with a stipulation to
pay interest.
In commodatum the bailor retains the ownership of the
thing loaned, while in simple loan, ownership passes to
the borrower.

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CIVIL LAW | C r e d i t T r a n s a c t i o n s

64
Pascual v. Mina, 20 Phil. 202 (1911). 83
Padillo v. Court of Appeals, 442 Phil. 344 (2001).

84
65
Art. 1946. The bailor cannot demand the return of the Ibid.
thing loaned till after the expiration of the period
stipulated, or after the accomplishment of the use for 85
Ibid.
which the commodatum has been constituted. However,
if in the meantime, he should have urgent need of the
thing, he may demand its return or temporary use.

In case of temporary use by the bailor, the contract

of commodatum is suspended while the thing is in the
possession of the bailor.

66
Ibid.

67
Art.1947. The bailor may demand the thing at will,
and the contractual relation is called a precarium, in the
following cases: cha nrob lesvi rtua 1awlib rary

(1) If neither the duration of the contract nor the use to

which the thing loaned should be devoted, has been
stipulated; or

(2) If the use of the thing is merely tolerated by the

owner.

68
ARTURO M. TOLENTINO, COMMENTARIES AND
JURISPRUDENCE ON THE CIVIL CODE OF THE
PHILIPPINES, Vol. V, 448.

69
Arcal v. Court of Appeals, supra note60; Dakudao v.
Consolacion, 207 Phil. 750 (1983); Calubayan v.
Pascual, 128 Phil. 160 (1967).

70
United States v. Camara, 28 Phil. 238 (1914).

71
Ibid.

72
Rollo, p. 87.

73
Benitez v. Court of Appeals, G.R. No. 104828, 16
January 1997, 266 SCRA 242.

74
Ibid.

75
Ibid.

76
Ibid.

77
Dela Rosa v. Carlos, G.R. No. 147549, 23 October
2003.

78
Benitez v. Court of Appeals, supra note 73.

79
Ibid.

80
Caballero v. Court of Appeals, G.R. No. 59888, 29
January 1993, 218 SCRA 56; Florendo, Jr. v. Coloma,
G.R. No. L-60544, 19 May 1984, 214 SCRA 268.

81
Florendo, Jr. v. Coloma, supra note 80.

82
Dizon v. Court of Appeals, supra note 32; Section 7,
Rule 70 of the 1964 Rules of Court.

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