Chapter 2 Simple Loan or Mutuum

8/2/2019 Chapter 2 Simple Loan or Mutuum

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Chapter 2: Simple Loan or Mutuum

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

Tomas P. Matic, Jr. for petitioners.

Jose E. Fernandez for private respondent.

Office of the Solicitor General for respondent the People of the Philippines.

ABAD SANTOS,J.:

This is a petition for certiorari, prohibition, and mandamus with preliminary injunction. Petitioners alleged that respondent MunicipaJudge Nabdar J. Malik of Jolo, Sulu, acted without jurisdiction, in excess of jurisdiction and with grave abuse of discretion when:

(a) he held in the preliminary investigation of the charges of estafa filed by respondents Rosalinda Amin, Tan Chu Kao and AugustoSajor against petitioners that there was aprima facie case against the latter;

(b) he issued warrants of arrest against petitioners after making the above determination; and

(c) he undertook to conduct trial on the merits of the charges which were docketed in his court as Criminal Cases No. M-111, M-183and M-208.

Respondent judge is said to have acted without jurisdiction, in excess of jurisdiction and with grave abuse of discretion because thefacts recited in the complaints did not constitute the crime of estafa, and assuming they did, they were not within the jurisdiction of therespondent judge.

In a resolution dated May 23, 1979, we required respondents to comment in the petition and issued a temporary restraining orderagainst the respondent judge from further proceeding with Criminal Cases Nos. M-111, M-183 and M-208 or from enforcing thewarrants of arrest he had issued in connection with said cases.

Comments by the respondent judge and the private respondents pray for the dismissal of the petition but the Solicitor General hasmanifested that the People of the Philippines have no objection to the grant of the reliefs prayed for, except the damages. Weconsidered the comments as answers and gave due course to the petition.

The position of the Solicitor General is well taken. We have to grant the petition in order to prevent manifest injustice and the exerciseof palpable excess of authority.

In Criminal Case No. M-111, respondent Rosalinda M. Amin charges petitioners Yam Chee Kiong and Yam Yap Kieng with estafa throughmisappropriation of the amount of P50,000.00. But the complaint states on its face that said petitioners received the amount fromrespondent Rosalinda M. Amin "as a loan." Moreover, the complaint in Civil Case No. N-5, an independent action for the collection of thesame amount filed by respondent Rosalinda M. Amin with the Court of First Instance of Sulu on September 11, 1975, likewise statesthat the P50,000.00 was a "simple business loan" which earned interest and was originally demandable six (6) months from July 12,1973. (Annex E of the petition.)

In Criminal Case No. M-183, respondent Tan Chu Kao charges petitioners Yam Chee Kiong, Jose Y.C. Yam, Ampang Mah and Anita Yam,

alias Yong Tay, with estafa through misappropriation of the amount of P30,000.00. Likewise, the complaint states on its face that theP30,000.00 was "a simple loan." So does the complaint in Civil Case No. N-8 filed by respondent Tan Chu Kao on April 6, 1976 with theCourt of First Instance of Sulu for the collection of the same amount. (Annex D of the petition.).

In Criminal Case No. M-208, respondent Augusto Sajor charges petitioners Jose Y.C. Yam, Anita Yam alias Yong Tai Mah, Chee KiongYam and Richard Yam, with estafa through misappropriation of the amount of P20,000.00. Unlike the complaints in the other two cases,the complaint in Criminal Case No. M-208 does not state that the amount was received as loan. However, in a sworn statement datedSeptember 29, 1976, submitted to respondent judge to support the complaint, respondent Augusto Sajor states that the amount was a"loan." (Annex G of the petition.).

We agree with the petitioners that the facts alleged in the three criminal complaints do not constitute estafa through misappropriation.


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Estafa through misappropriation is committed according to Article 315, paragraph 1, subparagraph (b), of the Revised Penal Code asfollows:

Art. 315. Swindling (Estafa). Any person who shall defraud another by any of the means mentioned herein belowshall be punished by:

xxx xxx xxx

1. With unfaithfulness or abuse of confidence namely:

xxx xxx xxx

b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal propertyreceived by the offender in trust or on commission, or for administration, or under any other obligation involving theduty to make delivery of or to return the same, even though such obligation be totally or partially guaranteed by abond; or by denying having received such money, goods, or other property.

In order that a person can be convicted under the abovequoted provision, it must be proven that he has the obligation to deliver orreturn the same money, goods or personal property that he received. Petitioners had no such obligation to return the same money, i.e.,the bills or coins, which they received from private respondents. This is so because as clearly stated in criminal complaints, the relatedcivil complaints and the supporting sworn statements, the sums of money that petitioners received were loans.

The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.

Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so thatthe latter may use the same for a certain time and return it, in which case the contract is called a commodatum; ormoney or other consumable thing upon the condition that the same amount of the same kind and quality shall bepaid, in which case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

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

In commodatum the bailor retains the ownership of the thing loaned, while in simple loam ownership passes to theborrower.

Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, andis bound to pay to the creditor an equal amount of the same kind and quality.

It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to commodatum, the borroweacquires ownership of the money, goods or personal property borrowed. Being the owner, the borrower can dispose of the thingborrowed (Article 248, Civil Code) and his act will not be considered misappropriation thereof.

In U.S. vs. Ibaez, 19 Phil. 559, 560 (1911), this Court held that it is not estafa for a person to refuse to nay his debt or to deny itsexistence.

We are of the opinion and so decide that when the relation is purely that of debtor and creditor, the debtor can not beheld liable for the crime of estafa, under said article, by merely refusing to pay or by denying the indebtedness.

It appears that respondent judge failed to appreciate the distinction between the two types of loan, mutuum and commodatum, whenhe performed the questioned acts, He mistook the transaction between petitioners and respondents Rosalinda Amin, Tan Chu Kao andAugusto Sajor to be commodatum wherein the borrower does not acquire ownership over the thing borrowed and has the duty toreturn the same thing to the lender.

Under Sec. 87 of the Judiciary Act, the municipal court of a provincial capital, which the Municipal Court of Jolo is, has jurisdiction overcriminal cases where the penalty provided by law does not exceed prision correccional or imprisonment for not more than six (6) years,or fine not exceeding P6,000.00 or both, The amounts allegedly misappropriated by petitioners range from P20,000.00 to P50,000.00.The penalty for misappropriation of this magnitude exceeds prision correccional or 6 year imprisonment. (Article 315, Revised PenaCode), Assuming then that the acts recited in the complaints constitute the crime of estafa, the Municipal Court of Jolo has no

jurisdiction to try them on the merits. The alleged offenses are under the jurisdiction of the Court of First Instance.

Respondents People of the Philippines being the sovereign authority can not be sued for damages. They are immune from such type osuit.

With respect to the other respondents, this Court is not the proper forum for the consideration of the claim for damages against them.


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WHEREFORE, the petition is hereby granted; the temporary restraining order previously issued is hereby made permanent; the criminacomplaints against petitioners are hereby declared null and void; respondent judge is hereby ordered to dismiss said criminal cases andto recall the warrants of arrest he had issued in connection therewith. Moreover, respondent judge is hereby rebuked for manifestignorance of elementary law. Let a copy of this decision be included in his personal life. Costs against private respondents.

SO ORDERED.


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G.R. No. 26085 August 12, 1927

SEVERINO TOLENTINO and POTENCIANA MANIO, plaintiffs-appellants,vs.BENITO GONZALEZ SY CHIAM, defendants-appellee.

Araneta and Zaragoza for appellants.Eusebio Orense for appelle.

JOHNSON,J.:

PRINCIPAL QUESTIONS PRESENTED BY THE APPEAL

The principal questions presented by this appeal are:

(a) Is the contract in question apacto de retro or a mortgage?

(b) Under a pacto de retro, when the vendor becomes a tenant of the purchaser and agrees to pay a certain amount pemonth as rent, may such rent render such a contract usurious when the amount paid as rent, computed upon the purchaseprice, amounts to a higher rate of interest upon said amount than that allowed by law?

(c) May the contract in the present case may be modified by parol evidence?

ANTECEDENT FACTS

Sometime prior to the 28th day of November, 1922, the appellants purchased of the Luzon Rice Mills, Inc., a piece or parcel of landwith the camarin located thereon, situated in the municipality of Tarlac of the Province of Tarlac for the price of P25,000, promising topay therefor in three installments. The first installment of P2,000 was due on or before the 2d day of May, 1921; the second installmentof P8,000 was due on or before 31st day of May, 1921; the balance of P15,000 at 12 per cent interest was due and payable on or aboutthe 30th day of November, 1922. One of the conditions of that contract of purchase was that on failure of the purchaser (plaintiffs andappellants) to pay the balance of said purchase price or any of the installments on the date agreed upon, the property bought wouldrevert to the original owner.

The payments due on the 2d and 31st of May, 1921, amounting to P10,000 were paid so far as the record shows upon the due datesThe balance of P15,000 due on said contract of purchase was paid on or about the 1st day of December, 1922, in the manner which will

be explained below. On the date when the balance of P15,000 with interest was paid, the vendor of said property had issued to thepurchasers transfer certificate of title to said property, No. 528. Said transfer certificate of title (No. 528) was transfer certificate of titlefrom No. 40, which shows that said land was originally registered in the name of the vendor on the 7th day of November, 1913.

PRESENT FACTS

On the 7th day of November, 1922 the representative of the vendor of the property in question wrote a letter to the appellantPotenciana Manio (Exhibit A, p. 50), notifying the latter that if the balance of said indebtedness was not paid, an action would bebrought for the purpose of recovering the property, together with damages for non compliance with the condition of the contract opurchase. The pertinent parts of said letter read as follows:

Sirvase notar que de no estar liquidada esta cuenta el dia 30 del corriente, procederemos judicialmente contra Vd.para reclamar la devolucion del camarin y los daos y perjuicios ocasionados a la compaia por su incumplimiento alcontrato.

Somos de Vd. atentos y S. S.

SMITH, BELL & CO., LTD.

By (Sgd.) F. I. HIGHAM

Treasurer.

General Managers

LUZON RICE MILLS INC.


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According to Exhibits B and D, which represent the account rendered by the vendor, there was due and payable upon said contract opurchase on the 30th day of November, 1922, the sum P16,965.09. Upon receiving the letter of the vendor of said property ofNovember 7, 1922, the purchasers, the appellants herein, realizing that they would be unable to pay the balance due, began to makean effort to borrow money with which to pay the balance due, began to make an effort to borrow money with which to pay the balanceof their indebtedness on the purchase price of the property involved. Finally an application was made to the defendant for a loan for thepurpose of satisfying their indebtedness to the vendor of said property. After some negotiations the defendants agreed to loan theplaintiffs to loan the plaintiffs the sum of P17,500 upon condition that the plaintiffs execute and deliver to him a pacto de retro of saidproperty.

In accordance with that agreement the defendant paid to the plaintiffs by means of a check the sum of P16,965.09. The defendant, inaddition to said amount paid by check, delivered to the plaintiffs the sum of P354.91 together with the sum of P180 which the plaintiffs

paid to the attorneys for drafting said contract ofpacto de retro, making a total paid by the defendant to the plaintiffs and for theplaintiffs of P17,500 upon the execution and delivery of said contract. Said contracts was dated the 28th day of November, 1922, and isin the words and figures following:

Sepan todos por la presente:

Que nosotros, los conyuges Severino Tolentino y Potenciana Manio, ambos mayores de edad, residentes en eMunicipio de Calumpit, Provincia de Bulacan, propietarios y transeuntes en esta Ciudad de Manila, de una parte, y deotra, Benito Gonzalez Sy Chiam, mayor de edad, casado con Maria Santiago, comerciante y vecinos de esta Ciudadde Manila.

MANIFESTAMOS Y HACEMOS CONSTAR:

Primero. Que nosotros, Severino Tolentino y Potenciano Manio, por y en consideracion a la cantidad de diecisiete m

quinientos pesos (P17,500) moneda filipina, que en este acto hemos recibido a nuestra entera satisfaccion de DonBenito Gonzalez Sy Chiam, cedemos, vendemos y traspasamos a favor de dicho Don Benito Gonzalez Sy Chiam, susherederos y causahabientes, una finca que, segun el Certificado de Transferencia de Titulo No. 40 expedido por eRegistrador de Titulos de la Provincia de Tarlac a favor de "Luzon Rice Mills Company Limited" que al incorporarse sedonomino y se denomina "Luzon Rice Mills Inc.," y que esta corporacion nos ha transferido en venta absoluta, sedescribe como sigue:

Un terreno (lote No. 1) con las mejoras existentes en el mismo, situado en el Municipio de Tarlac. Linda por el O. y Ncon propiedad de Manuel Urquico; por el E. con propiedad de la Manila Railroad Co.; y por el S. con un caminoPartiendo de un punto marcado 1 en el plano, cuyo punto se halla al N. 41 gds. 17' E.859.42 m. del mojon delocalizacion No. 2 de la Oficina de Terrenos en Tarlac; y desde dicho punto 1 N. 81 gds. 31' O., 77 m. al punto 2;desde este punto N. 4 gds. 22' E.; 54.70 m. al punto 3; desde este punto S. 86 gds. 17' E.; 69.25 m. al punto 4;desde este punto S. 2 gds. 42' E., 61.48 m. al punto de partida; midiendo una extension superficcial de cuatro midoscientos diez y seis metros cuadrados (4,216) mas o menos. Todos los puntos nombrados se hallan marcados en eplano y sobre el terreno los puntos 1 y 2 estan determinados por mojones de P. L. S. de 20 x 20 x 70 centimetros y

los puntos 3 y 4 por mojones del P. L. S. B. L.: la orientacion seguida es la verdadera, siendo la declinacionmagnetica de 0 gds. 45' E. y la fecha de la medicion, 1. de febrero de 1913.

Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aos contados desde el dia 1. dediciembre de 1922, devolvemos al expresado Don Benito Gonzalez Sy Chiam el referido precio de diecisiete miquinientos pesos (P17,500) queda obligado dicho Sr. Benito Gonzalez y Chiam a retrovendernos la finca arribadescrita; pero si transcurre dicho plazo de cinco aos sin ejercitar el derecho de retracto que nos hemos reservadoentonces quedara esta venta absoluta e irrevocable.

Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento la finca arriba descrita, sujeto acondiciones siguientes:

(a) El alquiler que nos obligamos a pagar por mensualidades vencidas a Don Benito Gonzalez Sy Chiam y ensu domicilio, era de trescientos setenta y cinco pesos (P375) moneda filipina, cada mes.

(b) El amillaramiento de la finca arrendada sera por cuenta de dicho Don Benito Gonzalez Sy Chiam, ascomo tambien la prima del seguro contra incendios, si el conviniera al referido Sr. Benito Gonzalez Sy Chiamasegurar dicha finca.

(c) La falta de pago del alquiler aqui estipulado por dos meses consecutivos dara lugar a la terminacion deeste arrendamieno y a la perdida del derecho de retracto que nos hemos reservado, como si naturalmentehubiera expirado el termino para ello, pudiendo en su virtud dicho Sr. Gonzalez Sy Chiam tomar posesion dela finca y desahuciarnos de la misma.

Cuarto. Que yo, Benito Gonzalez Sy Chiam, a mi vez otorgo que acepto esta escritura en los precisos terminos en quela dejan otorgada los conyuges Severino Tolentino y Potenciana Manio.


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En testimonio de todo lo cual, firmamos la presente de nuestra mano en Manila, por cuadruplicado en Manila, hoy a28 de noviembre de 1922.

(Fdo.) SEVERINO TOLENTINO

(Fda.) POTENCIANA MANIO

(Fdo.) BENITO GONZALEZ SY CHIAM

Firmado en presencia de:

(Fdos.) MOISES M. BUHAIN

B. S. BANAAG

An examination of said contract of sale with reference to the first question above, shows clearly that it is a pacto de retro and not amortgage. There is no pretension on the part of the appellant that said contract, standing alone, is a mortgage. The pertinent languageof the contract is:

Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aos contados desde el dia 1. de diciembre de1922, devolvemos al expresado Don Benito Gonzales Sy Chiam el referido precio de diecisiete mil quinientos pesos (P17,500)queda obligado dicho Sr. Benito Gonzales Sy Chiam a retrovendornos la finca arriba descrita; pero si transcurre dicho plazo decinco (5) aos sin ejercitar al derecho de retracto que nos hemos reservado, entonces quedara esta venta absoluta eirrevocable.

Language cannot be clearer. The purpose of the contract is expressed clearly in said quotation that there can certainly be not doubt asto the purpose of the plaintiff to sell the property in question, reserving the right only to repurchase the same. The intention to sell withthe right to repurchase cannot be more clearly expressed.

It will be noted from a reading of said sale ofpacto de retro, that the vendor, recognizing the absolute sale of the property, entered intoa contract with the purchaser by virtue of which she became the "tenant" of the purchaser. That contract of rent appears in said quoteddocument above as follows:

Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento la finca arriba descrita, sujeto acondiciones siguientes:

(a) El alquiler que nos obligamos a pagar por mensualidades vencidas a Don Benito Gonzalez Sy Chiam y en su domicilio, serade trescientos setenta y cinco pesos (P375) moneda filipina, cada mes.

(b) El amillaramiento de la finca arrendada sera por cuenta de dicho Don Benito Gonzalez Sy Chiam, asi como tambien laprima del seguro contra incendios, si le conviniera al referido Sr. Benito Gonzalez Sy Chiam asegurar dicha finca.

From the foregoing, we are driven to the following conclusions: First, that the contract ofpacto de retro is an absolute sale of theproperty with the right to repurchase and not a mortgage; and, second, that by virtue of the said contract the vendor became thetenant of the purchaser, under the conditions mentioned in paragraph 3 of said contact quoted above.

It has been the uniform theory of this court, due to the severity of a contract ofpacto de retro, to declare the same to be a mortgageand not a sale whenever the interpretation of such a contract justifies that conclusion. There must be something, however, in thelanguage of the contract or in the conduct of the parties which shows clearly and beyond doubt that they intended the contract to be a"mortgage" and not apacto de retro. (International Banking Corporation vs. Martinez, 10 Phil., 252; Padilla vs. Linsangan, 19 Phil., 65Cumagun vs. Alingay, 19 Phil., 415; Olino vs. Medina, 13 Phil., 379; Manalo vs. Gueco, 42 Phil., 925; Velazquez vs. Teodoro, 46 Phil.757; Villa vs. Santiago, 38 Phil., 157.)

We are not unmindful of the fact that sales with pacto de retro are not favored and that the court will not construe an instrument to oneof sale withpacto de retro, with the stringent and onerous effect which follows, unless the terms of the document and the surroundingcircumstances require it.

While it is general rule that parol evidence is not admissible for the purpose of varying the terms of a contract, but when an issue issquarely presented that a contract does not express the intention of the parties, courts will, when a proper foundation is laid thereforhear evidence for the purpose of ascertaining the true intention of the parties.

In the present case the plaintiffs allege in their complaint that the contract in question is apacto de retro. They admit that they signedit. They admit they sold the property in question with the right to repurchase it. The terms of the contract quoted by the plaintiffs to thedefendant was a "sale" with pacto de retro, and the plaintiffs have shown no circumstance whatever which would justify us inconstruing said contract to be a mere "loan" with guaranty. In every case in which this court has construed a contract to be a mortgageor a loan instead of a sale with pacto de retro, it has done so, either because the terms of such contract were incompatible or


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inconsistent with the theory that said contract was one of purchase and sale. (Olino vs. Medina, supra; Padilla vs. Linsangan, supraManlagnit vs. Dy Puico, 34 Phil., 325; Rodriguez vs. Pamintuan and De Jesus, 37 Phil., 876.)

In the case of Padilla vs. Linsangan the term employed in the contract to indicate the nature of the conveyance of the land was"pledged" instead of "sold". In the case of Manlagnit vs. Dy Puico, while the vendor used to the terms "sale and transfer with the righto repurchase," yet in said contract he described himself as a "debtor" the purchaser as a "creditor" and the contract as a "mortgage"In the case ofRodriguez vs. Pamintuan and De Jesus the person who executed the instrument, purporting on its face to be a deed ofsale of certain parcels of land, had merely acted under a power of attorney from the owner of said land, "authorizing him to borrowmoney in such amount and upon such terms and conditions as he might deem proper, and to secure payment of the loan by amortgage." In the case ofVilla vs. Santiago (38 Phil., 157), although a contract purporting to be a deed of sale was executed, thesupposed vendor remained in possession of the land and invested the money he had obtained from the supposed vendee in making

improvements thereon, which fact justified the court in holding that the transaction was a mere loan and not a sale. In the case ofCuyugan vs. Santos (39 Phil., 970), the purchaser accepted partial payments from the vendor, and such acceptance of partial paymentsis absolutely incompatible with the idea of irrevocability of the title of ownership of the purchaser at the expiration of the termstipulated in the original contract for the exercise of the right of repurchase."

Referring again to the right of the parties to vary the terms of written contract, we quote from the dissenting opinion of Chief JusticeCayetano S. Arellano in the case of Government of the Philippine Islands vs. Philippine Sugar Estates Development Co., which case wasappealed to the Supreme Court of the United States and the contention of the Chief Justice in his dissenting opinion was affirmed andthe decision of the Supreme Court of the Philippine Islands was reversed. (See decision of the Supreme Court of the United States,June 3, 1918.)1 The Chief Justice said in discussing that question:

According to article 1282 of the Civil Code, in order to judge of the intention of the contracting parties, consideration must chiefly bepaid to those acts executed by said parties which are contemporary with and subsequent to the contract. And according to article 1283,however general the terms of a contract may be, they must not be held to include things and cases different from those with regard towhich the interested parties agreed to contract. "The Supreme Court of the Philippine Islands held the parol evidence was admissible in

that case to vary the terms of the contract between the Government of the Philippine Islands and the Philippine Sugar EstatesDevelopment Co. In the course of the opinion of the Supreme Court of the United States Mr. Justice Brandeis, speaking for the courtsaid:

It is well settled that courts of equity will reform a written contract where, owing to mutual mistake, the language used thereindid not fully or accurately express the agreement and intention of the parties. The fact that interpretation or construction of acontract presents a question of law and that, therefore, the mistake was one of law is not a bar to granting relief. . . . Thiscourt is always disposed to accept the construction which the highest court of a territory or possession has placed upon a locastatute. But that disposition may not be yielded to where the lower court has clearly erred. Here the construction adopted wasrested upon a clearly erroneous assumption as to an established rule of equity. . . . The burden of proof resting upon theappellant cannot be satisfied by mere preponderance of the evidence. It is settled that relief by way of reformation will not begranted unless the proof of mutual mistake be of the clearest and most satisfactory character.

The evidence introduced by the appellant in the present case does not meet with that stringent requirement. There is not a word, aphrase, a sentence or a paragraph in the entire record, which justifies this court in holding that the said contract ofpacto de retro is amortgage and not a sale with the right to repurchase. Article 1281 of the Civil Code provides: "If the terms of a contract are clear andleave no doubt as to the intention of the contracting parties, the literal sense of its stipulations shall be followed." Article 1282 provides:"in order to judge as to the intention of the contracting parties, attention must be paid principally to their conduct at the time of makingthe contract and subsequently thereto."

We cannot thereto conclude this branch of our discussion of the question involved, without quoting from that very well reasoneddecision of the late Chief Justice Arellano, one of the greatest jurists of his time. He said, in discussing the question whether or not thecontract, in the case ofLichauco vs. Berenguer(20 Phil., 12), was apacto de retro or a mortgage:

The public instrument, Exhibit C, in part reads as follows: "Don Macarion Berenguer declares and states that he is theproprietor in fee simple of two parcels of fallow unappropriated crown land situated within the district of his pueblo. The firsthas an area of 73 quiones, 8 balitas and 8 loanes, located in the sitio of Batasan, and its boundaries are, etc., etc. Thesecond is in the sitio of Panantaglay, barrio of Calumpang has as area of 73 hectares, 22 ares, and 6 centares, and is boundedon the north, etc., etc."

In the executory part of the said instrument, it is stated:

'That under condition of right to repurchase (pacto de retro) he sells the said properties to the aforementioned DoaCornelia Laochangco for P4,000 and upon the following conditions: First, the sale stipulated shall be for the period otwo years, counting from this date, within which time the deponent shall be entitled to repurchase the land sold uponpayment of its price; second, the lands sold shall, during the term of the present contract, be held in lease by theundersigned who shall pay, as rental therefor, the sum of 400 pesos per annum, or the equivalent in sugar at theoption of the vendor; third, all the fruits of the said lands shall be deposited in the sugar depository of the vendeesituated in the district of Quiapo of this city, and the value of which shall be applied on account of the price of thissale; fourth, the deponent acknowledges that he has received from the vendor the purchase price of P4,000 alreadypaid, and in legal tender currency of this country . . .; fifth, all the taxes which may be assessed against the landssurveyed by competent authority, shall be payable by and constitute a charge against the vendor; sixth, if, throughany unusual event, such as flood, tempest, etc., the properties hereinbefore enumerated should be destroyed, wholly


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or in part, it shall be incumbent upon the vendor to repair the damage thereto at his own expense and to put theminto a good state of cultivation, and should he fail to do so he binds himself to give to the vendee other lands of thesame area, quality and value.'

x x x x x x x x x

The opponent maintained, and his theory was accepted by the trial court, that Berenguer's contract with Laochangco was notone of sale with right of repurchase, but merely one of loan secured by those properties, and, consequently, that theownership of the lands in questions could not have been conveyed to Laochangco, inasmuch as it continued to be held byBerenguer, as well as their possession, which he had not ceased to enjoy.

Such a theory is, as argued by the appellant, erroneous. The instrument executed by Macario Berenguer, the text of which hasbeen transcribed in this decision, is very clear. Berenguer's heirs may not go counter to the literal tenor of the obligation, theexact expression of the consent of the contracting contained in the instrument, Exhibit C. Not because the lands may havecontinued in possession of the vendor, not because the latter may have assumed the payment of the taxes on such properties,nor yet because the same party may have bound himself to substitute by another any one of the properties which might bedestroyed, does the contract cease to be what it is, as set forth in detail in the public instrument. The vendor continued in thepossession of the lands, not as the owner thereof as before their sale, but as the lessee which he became after itsconsummation, by virtue of a contract executed in his favor by the vendee in the deed itself, Exhibit C. Right of ownership isnot implied by the circumstance of the lessee's assuming the responsibility of the payment is of the taxes on the propertyleased, for their payment is not peculiarly incumbent upon the owner, nor is such right implied by the obligation to substitutethe thing sold for another while in his possession under lease, since that obligation came from him and he continues underanother character in its possessiona reason why he guarantees its integrity and obligates himself to return the thing even ina case offorce majeure. Such liability, as a general rule, is foreign to contracts of lease and, if required, is exorbitant, butpossible and lawful, if voluntarily agreed to and such agreement does not on this account involve any sign of ownership, norother meaning than the will to impose upon oneself scrupulous diligence in the care of a thing belonging to another.

The purchase and sale, once consummated, is a contract which by its nature transfers the ownership and other rights in thething sold. Apacto de retro, or sale with right to repurchase, is nothing but a personal right stipulated between the vendeeand the vendor, to the end that the latter may again acquire the ownership of the thing alienated.

It is true, very true indeed, that the sale with right of repurchase is employed as a method of loan; it is likewise true that inpractice many cases occur where the consummation of a pacto de retro sale means the financial ruin of a person; it is alsounquestionable that inpacto de retro sales very important interests often intervene, in the form of the price of the lease of thething sold, which is stipulated as an additional covenant. (Manresa, Civil Code, p. 274.)

But in the present case, unlike others heard by this court, there is no proof that the sale with right of repurchase, made byBerenguer in favor of Laonchangco is rather a mortgage to secure a loan.

We come now to a discussion of the second question presented above, and that is, stating the same in another form: May a tenant

charge his landlord with a violation of the Usury Law upon the ground that the amount of rent he pays, based upon the real value of theproperty, amounts to a usurious rate of interest? When the vendor of property under apacto de retro rents the property and agrees topay a rental value for the property during the period of his right to repurchase, he thereby becomes a "tenant" and in all respectsstands in the same relation with the purchaser as a tenant under any other contract of lease.

The appellant contends that the rental price paid during the period of the existence of the right to repurchase, or the sum of P375 pemonth, based upon the value of the property, amounted to usury. Usury, generally speaking, may be defined as contracting for orreceiving something in excess of the amount allowed by law for the loan or forbearance of moneythe taking of more interest for theuse of money than the law allows. It seems that the taking of interest for the loan of money, at least the taking of excessive interesthas been regarded with abhorrence from the earliest times. (Dunham vs. Gould, 16 Johnson [N. Y.], 367.) During the middle ages thepeople of England, and especially the English Church, entertained the opinion, then, current in Europe, that the taking of any interestfor the loan of money was a detestable vice, hateful to man and contrary to the laws of God. (3 Coke's Institute, 150; Tayler on Usury,44.)

Chancellor Kent, in the case ofDunham vs. Gould, supra, said: "If we look back upon history, we shall find that there is scarcely anypeople, ancient or modern, that have not had usury laws. . . . The Romans, through the greater part of their history, had the deepesabhorrence of usury. . . . It will be deemed a little singular, that the same voice against usury should have been raised in the laws ofChina, in the Hindu institutes of Menu, in the Koran of Mahomet, and perhaps, we may say, in the laws of all nations that we know ofwhether Greek or Barbarian."

The collection of a rate of interest higher than that allowed by law is condemned by the Philippine Legislature (Acts Nos. 2655, 2662and 2992). But is it unlawful for the owner of a property to enter into a contract with the tenant for the payment of a specific amount ofrent for the use and occupation of said property, even though the amount paid as "rent," based upon the value of the property, mighexceed the rate of interest allowed by law? That question has never been decided in this jurisdiction. It is one of first impression. Nocases have been found in this jurisdiction answering that question. Act No. 2655 is "An Act fixing rates of interest upon 'loans' anddeclaring the effect of receiving or taking usurious rates."

It will be noted that said statute imposes a penalty upon a "loan" or forbearance of any money, goods, chattels or credits, etc. Thecentral idea of said statute is to prohibit a rate of interest on "loans." A contract of "loan," is very different contract from that of "rent"


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A "loan," as that term is used in the statute, signifies the giving of a sum of money, goods or credits to another, with a promise torepay, but not a promise to return the same thing. To "loan," in general parlance, is to deliver to another for temporary use, oncondition that the thing or its equivalent be returned; or to deliver for temporary use on condition that an equivalent in kind shall bereturned with a compensation for its use. The word "loan," however, as used in the statute, has a technical meaning. It never meansthe return of the same thing. It means the return of an equivalent only, but never the same thing loaned. A "loan" has been properlydefined as an advance payment of money, goods or credits upon a contract or stipulation to repay, not to return, the thing loaned atsome future day in accordance with the terms of the contract. Under the contract of "loan," as used in said statute, the moment thecontract is completed the money, goods or chattels given cease to be the property of the former owner and becomes the property ofthe obligor to be used according to his own will, unless the contract itself expressly provides for a special or specific use of the same. Atall events, the money, goods or chattels, the moment the contract is executed, cease to be the property of the former owner andbecomes the absolute property of the obligor.

A contract of "loan" differs materially from a contract of "rent." In a contract of "rent" the owner of the property does not lose hisownership. He simply loses his control over the property rented during the period of the contract. In a contract of "loan" the thingloaned becomes the property of the obligor. In a contract of "rent" the thing still remains the property of the lessor. He simply losescontrol of the same in a limited way during the period of the contract of "rent" or lease. In a contract of "rent" the relation between thecontractors is that of landlord and tenant. In a contract of "loan" of money, goods, chattels or credits, the relation between the partiesis that of obligor and obligee. "Rent" may be defined as the compensation either in money, provisions, chattels, or labor, received bythe owner of the soil from the occupant thereof. It is defined as the return or compensation for the possession of some corporealinheritance, and is a profit issuing out of lands or tenements, in return for their use. It is that, which is to paid for the use of land,whether in money, labor or other thing agreed upon. A contract of "rent" is a contract by which one of the parties delivers to the othesome nonconsumable thing, in order that the latter may use it during a certain period and return it to the former; whereas a contract of"loan", as that word is used in the statute, signifies the delivery of money or other consumable things upon condition of returning anequivalent amount of the same kind or quantity, in which cases it is called merely a "loan." In the case of a contract of "rent," under thecivil law, it is called a "commodatum."

From the foregoing it will be seen that there is a while distinction between a contract of "loan," as that word is used in the statute, anda contract of "rent" even though those words are used in ordinary parlance as interchangeable terms.

The value of money, goods or credits is easily ascertained while the amount of rent to be paid for the use and occupation of theproperty may depend upon a thousand different conditions; as for example, farm lands of exactly equal productive capacity and of thesame physical value may have a different rental value, depending upon location, prices of commodities, proximity to the market, etcHouses may have a different rental value due to location, conditions of business, general prosperity or depression, adaptability toparticular purposes, even though they have exactly the same original cost. A store on the Escolta, in the center of business, constructedexactly like a store located outside of the business center, will have a much higher rental value than the other. Two places of businesslocated in different sections of the city may be constructed exactly on the same architectural plan and yet one, due to particularlocation or adaptability to a particular business which the lessor desires to conduct, may have a very much higher rental value than onenot so located and not so well adapted to the particular business. A very cheap building on the carnival ground may rent for moremoney, due to the particular circumstances and surroundings, than a much more valuable property located elsewhere. It will thus beseen that the rent to be paid for the use and occupation of property is not necessarily fixed upon the value of the property. The amountof rent is fixed, based upon a thousand different conditions and may or may not have any direct reference to the value of the propertyrented. To hold that "usury" can be based upon the comparative actual rental value and the actual value of the property, is to subjecevery landlord to an annoyance not contemplated by the law, and would create a very great disturbance in every business or ruracommunity. We cannot bring ourselves to believe that the Legislature contemplated any such disturbance in the equilibrium of thebusiness of the country.

In the present case the property in question was sold. It was an absolute sale with the right only to repurchase. During the period oredemption the purchaser was the absolute owner of the property. During the period of redemption the vendor was not the owner ofthe property. During the period of redemption the vendor was a tenant of the purchaser. During the period of redemption the relationwhich existed between the vendor and the vendee was that of landlord and tenant. That relation can only be terminated by arepurchase of the property by the vendor in accordance with the terms of the said contract. The contract was one of rent. The contracwas not a loan, as that word is used in Act No. 2655.

As obnoxious as contracts ofpacto de retro are, yet nevertheless, the courts have no right to make contracts for parties. They madetheir own contract in the present case. There is not a word, a phrase, a sentence or paragraph, which in the slightest way indicates thatthe parties to the contract in question did not intend to sell the property in question absolutely, simply with the right to repurchase

People who make their own beds must lie thereon.

What has been said above with reference to the right to modify contracts by parol evidence, sufficiently answers the third questionspresented above. The language of the contract is explicit, clear, unambiguous and beyond question. It expresses the exact intention othe parties at the time it was made. There is not a word, a phrase, a sentence or paragraph found in said contract which needsexplanation. The parties thereto entered into said contract with the full understanding of its terms and should not now be permitted tochange or modify it by parol evidence.

With reference to the improvements made upon said property by the plaintiffs during the life of the contract, Exhibit C, there is herebyreserved to the plaintiffs the right to exercise in a separate action the right guaranteed to them under article 361 of the Civil Code.

For all of the foregoing reasons, we are fully persuaded from the facts of the record, in relation with the law applicable thereto, that thejudgment appealed from should be and is hereby affirmed, with costs. So ordered.


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Avancea, C. J., Street, Villamor, Romualdez and Villa-Real, JJ., concur.

Separate Opinions

MALCOLM,J., dissenting:

I regret to have to dissent from the comprehensive majority decision. I stand squarely on the proposition that the contract executed bythe parties was merely a clever device to cover up the payment of usurious interest. The fact that the document purports to be a truesale with right of repurchase means nothing. The fact that the instrument includes a contract of lease on the property whereby thelessees as vendors apparently bind themselves to pay rent at the rate of P375 per month and whereby "Default in the payment of the

rent agreed for two consecutive months will terminate this lease and will forfeit our right of repurchase, as though the term had expirednaturally" does mean something, and taken together with the oral testimony is indicative of a subterfuge hiding a usurious loan. (UsuryLaw, Act No. 2655, sec. 7, as amended; Padilla vs. Linsangan [1911], 19 Phil., 65; U. S. vs. Tan Quingco Chua [1919], 39 Phil., 552Russel vs. Southard [1851], 53 U. S., 139 Monagas vs. Albertucci y Alvarez [1914], 235 U. S., 81; 10 Manresa, Codigo Civil Espaol3rd ed., p. 318.) The transaction should be considered as in the nature of an equitable mortgage. My vote is for a modification of the

judgment of the trial court.

Footnotes

162 Law. ed., 1177.


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THIRD DIVISION

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

CARMEN LIWANAG, petitioner, vs. THE HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, represented bythe Solicitor General, respondents.

D E C I S I O N

ROMERO,J.:

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

That on or between the month of May 19, 1988 and August, 1988 in Quezon City, Philippines and within the jurisdiction of thisHonorable Court, the said accused, with intent of gain, with unfaithfulness, and abuse of confidence, did then and there, willfully,unlawfully and feloniously defraud one ISIDORA ROSALES, in the following manner, to wit: on the date and in the placeaforementioned, said accused received in trust from the offended party cash money amounting to P 536,650.00 , Philippine Currencywith the express obligation involving the duty to act as complainants agent in purchasing local cigarettes (Philip Morris and Marlborocigarettes), to resell them to several stores, to give her commission corresponding to 40% of the profits; and to return the aforesaidamount of offended party, but said accused, far from complying her aforesaid obligation, and once in possession thereof, misappliedmisappropriated and converted the same to her personal use and benefit, despite repeated demands made upon her, accused failed

and refused and still fails and refuses to deliver and/or return the same to the damage and prejudice of the said ISIDORA ROSALES, inthe aforementioned amount and in such other amount as may be awarded under the provision of the Civil Code.

CONTRARY TO LAW.

The antecedent facts are as follows:

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

During the first two months, Liwanag and Tabligan made periodic visits to Rosales to report on the progress of the transactions. The

visits, however, suddenly stopped, and all efforts by Rosales to obtain information regarding their business proved futile.

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

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

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

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

case of insolvency.

SO ORDERED.

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

WHEREFORE, in view of the foregoing, the judgment appealed from is hereby affirmed with the correction of the nomenclature of thepenalty which should be: SIX (6) YEARS, EIGHT (8) MONTHS and TWENTY ONE (21) DAYS of prision mayor, as minimum, to FOURTEEN(14) YEARS and EIGHT (8) MONTHS ofreclusion temporal, as maximum. In all other respects, the decision is AFFIRMED.

SO ORDERED.


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

1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN AFFIRMING THE CONVICTION OF THE ACCUSED-PETITIONER FOR THECRIME OF ESTAFA, WHEN CLEARLY THE CONTRACT THAT EXIST (sic) BETWEEN THE ACCUSED-PETITIONER AND COMPLAINANT ISEITHER THAT OF A SIMPLE LOAN OR THAT OF A PARTNERSHIP OR JOINT VENTURE HENCE THE NON RETURN OF THE MONEY OF THECOMPLAINANT IS PURELY CIVIL IN NATURE AND NOT CRIMINAL.

2. RESPONDENT APPELLATE COURT GRAVELY ERRED IN NOT ACQUITTING THE ACCUSED-PETITIONER ON GROUNDS OF REASONABLEDOUBT BY APPLYING THE EQUIPOISE RULE.

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

The Court of Appeals correctly rejected these pretenses.

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

Estafa is a crime committed by a person who defrauds another causing him to suffer damages, by means of unfaithfulness or abuse oconfidence, or of false pretenses of fraudulent acts.iv[4]

From the foregoing, the elements of estafa are present, as follows: (1) that the accused defrauded another by abuse of confidence ordeceit; and (2) that damage or prejudice capable of pecuniary estimation is caused to the offended party or third party,v[5] and it isessential that there be a fiduciary relation between them either in the form of a trust, commission or administration.vi[6]

The receipt signed by Liwanag states thus:

May 19, 1988 Quezon City

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

(SGD & Thumbedmarked) (sic)

CARMEN LIWANAG26 H. Kaliraya St.Quezon City

Signed in the presence of:

(Sgd) Illegible (Sgd) Doming Z. Baligad

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

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

Neither can the transaction be considered a loan, since in a contract of loan once the money is received by the debtor, ownership ovethe same is transferred.viii[8] Being the owner, the borrower can dispose of it for whatever purpose he may deem proper.

In the instant petition, however, it is evident that Liwanag could not dispose of the money as she pleased because it was only deliveredto her for a single purpose, namely, for the purchase of cigarettes, and if this was not possible then to return the money to RosalesSince in this case there was no transfer of ownership of the money delivered, Liwanag is liable for conversion under Art. 315, par. 1(bof the Revised Penal Code.

WHEREFORE, in view of the foregoing, the appealed decision of the Court of Appeals dated November 29, 1993, is AFFIRMED. Costsagainst petitioner.

SO ORDERED.


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

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


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

SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,vs.DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.

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

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

MAKALINTAL,J.:p

In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965 sentencing defendantDevelopment Bank of the Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import and Export Co., Inc. inthe amount of P383,343.68, plus interest at the legal rate from the date the complaint was filed and attorney's fees in the amount oP5,000.00. The present appeal is from that judgment.

In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance Corporation (RFC), before itsconversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building(for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipmentand P9,100.00 as additional working capital.

Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength of a letter ofcredit extended by the Prudential Bank and Trust Co., and arrived in Davao City in July 1953; and that to secure its release without firstpaying the draft, Saura, Inc. executed a trust receipt in favor of the said bank.

On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a first mortgageon the factory building to be constructed, the land site thereof, and the machinery and equipment to be installed. Among the otherterms spelled out in the resolution were the following:

1. That the proceeds of the loan shall be utilized exclusively for the following purposes:

For construction of factory building P250,000.00

For payment of the balance of purchase

price of machinery and equipment 240,900.00

For working capital 9,100.00

T O T A L P500,000.00

4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign thepromissory notes jointly with the borrower-corporation;

5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of funds, and as theconstruction of the factory buildings progresses, to be certified to by an appraiser of this Corporation;"

Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having otherwise beeninformed of its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu ofhaving China Engineers, Ltd. (which was willing to assume liability only to the extent of its stock subscription with Saura, Inc.) sign asco-maker on the corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to suchsubscription; and that Maria S. Roca would be substituted for Inocencia Arellano as one of the other co-makers, having acquired thelatter's shares in Saura, Inc.

In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of its Board of Governorsfor certain reasons stated in the resolution, "to reexamine all the aspects of this approved loan ... with special reference as to theadvisability of financing this particular project based on present conditions obtaining in the operations of jute mills, and to submit hisfindings thereon at the next meeting of the Board."

On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the loan, and asked thatthe necessary documents be prepared in accordance with the terms and conditions specified in Resolution No. 145. In connection with


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the reexamination of the project to be financed with the loan applied for, as stated in Resolution No. 736, the parties named theirespective committees of engineers and technical men to meet with each other and undertake the necessary studies, although inappointing its own committee Saura, Inc. made the observation that the same "should not be taken as an acquiescence on (its) part tonovate, or accept new conditions to, the agreement already) entered into," referring to its acceptance of the terms and conditionsmentioned in Resolution No. 145.

On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China Engineers, Ltd., asone of the co-signers; and the corresponding deed of mortgage, which was duly registered on the following April 17.

It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in Resolution No. 736proceeded. In a meeting of the RFC Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., waspresent, it was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as follows:

RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-examination of all the various aspects of the loan granted theSaura Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing the manufacture of jute sacks in Davao, withspecial reference as to the advisability of f inancing this particular project based on present conditions obtaining in the operation of jutemills, and after having heard Ramon E. Saura and after extensive discussion on the subject the Board, upon recommendation of theChairman, RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that releasesup to P100,000 may be authorized as may be necessary from time to time to place the factory in actual operation: PROVIDED that alterms and conditions of Resolution No. 145, c.s., not inconsistent herewith, shall remain in full force and effect."

On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China Engineers Ltd. jointly andseverally with the other RFC that his company no longer to of the loan and therefore considered the same as cancelled as far as it wasconcerned. A follow-up letter dated July 2 requested RFC that the registration of the mortgage be withdrawn.

In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was denied by RFC,which added in its letter-reply that it was "constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ..from the China Engineers Ltd., expressing their desire to consider the loan insofar as they are concerned."

On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers, Ltd. "will at anytime reinstate their signature as co-signer of the note if RFC releases to us the P500,000.00 originally approved by you.".

On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of P500,000.00, "it appearing thaChina Engineers, Ltd. is now willing to sign the promissory notes jointly with the borrower-corporation," but with the following proviso:

That in view of observations made of the shortage and high cost of imported raw materials, the Department oAgriculture and Natural Resources shall certify to the following:

1. That the raw materials needed by the borrower-corporation to carry out its operation are available in theimmediate vicinity; and

2. That there is prospect of increased production thereof to provide adequately for the requirements of the factory."

The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it was explained that thecertification by the Department of Agriculture and Natural Resources was required "as the intention of the original approval (of the loan)is to develop the manufacture of sacks on the basis of locally available raw materials." This point is important, and sheds light on thesubsequent actuations of the parties. Saura, Inc. does not deny that the factory he was building in Davao was for the manufacture obags from local raw materials. The cover page of its brochure (Exh. M) describes the project as a "Joint venture by and between theMindanao Industry Corporation and the Saura Import and Export Co., Inc. to finance, manage and operate a Kenafmill plant, tomanufacture copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials, principal kenaf." Theexplanatory note on page 1 of the same brochure states that, the venture "is the first serious attempt in this country to use 100%locally grown raw materials notably kenafwhich is presently grown commercially in theIsland of Mindanao where the proposed jutemilis located ..."

This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place, and to require, in itsResolution No. 9083, a certification from the Department of Agriculture and Natural Resources as to the availability of local rawmaterials to provide adequately for the requirements of the factory. Saura, Inc. itself confirmed the defendant's stand impliedly in itsletter of January 21, 1955: (1) stating that according to a special study made by the Bureau of Forestry "kenafwill not be available insufficient quantity this year or probably even next year;" (2) requesting "assurances (from RFC) that my company and associates wilbe able to bring in sufficient jute materials as may be necessary for the full operation of the jute mill;" and (3) asking that releases othe loan be made as follows:

a) For the payment of the receipt for jute millmachineries with the Prudential Bank &

Trust Company P250,000.00


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(For immediate release)

b) For the purchase of materials and equip-ment per attached list to enable the jutemill to operate 182,413.91

c) For raw materials and labor 67,586.09

1) P25,000.00 to be released on the open-ing of the letter of credit for raw jute

for $25,000.00.

2) P25,000.00 to be released upon arrivalof raw jute.

3) P17,586.09 to be released as soon as themill is ready to operate.

On January 25, 1955 RFC sent to Saura, Inc. the following reply:

Dear Sirs:

This is with reference to your letter of January 21, 1955, regarding the release of your loan underconsideration of P500,000. As stated in our letter of December 22, 1954, the releases of the loan, ifrevived, are proposed to be made from time to time, subject to availability of funds towards theend that the sack factory shall be placed in actual operating status. We shall be able to act on yourequest for revised purpose and manner of releases upon re-appraisal of the securities offered fothe loan.

With respect to our requirement that the Department of Agriculture and Natural Resources certifythat the raw materials needed are available in the immediate vicinity and that there is prospect oincreased production thereof to provide adequately the requirements of the factory, we wish toreiterate that the basis of the original approval is to develop the manufacture of sacks on the basisof the locally available raw materials. Your statement that you will have to rely on the importationof jute and your request that we give you assurance that your company will be able to bring insufficient jute materials as may be necessary for the operation of your factory, would not be in linewith our principle in approving the loan.

With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, it requested RFCto cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F.Saura himself as president of Saura, Inc.

It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed on August 6, 1954over the same property in favor of the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of thesame year within which to pay its obligation on the trust receipt heretofore mentioned. It appears further that for failure to pay the saidobligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.

On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the lattercommenced the present suit for damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply with its obligation torelease the proceeds of the loan applied for and approved, thereby preventing the plaintiff from completing or paying contractuacommitments it had entered into, in connection with its jute mill project.

The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and that the

defendant was guilty of breach thereof. The defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause ofaction had prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected contract; and (3) that assumingthere was, the plaintiff itself did not comply with the terms thereof.

We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which provides:

ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is binding upon theparties, but the commodatum or simple loan itself shall not be perferted until the delivery of the object of thecontract.

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


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It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed wouldutilize locally grown raw materials, principally kenaf. There is no serious dispute about this. It was in line with such assumption thawhen RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan to the original amount of P500,000.00. itimposed two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its operation are availablein the immediate vicinity; and (2) that there is prospect of increased production thereof to provide adequately for the requirements othe factory." The imposition of those conditions was by no means a deviation from the terms of the agreement, but rather a step in itsimplementation. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145, passed onJanuary 7, 1954, namely "that the proceeds of the loan shall be utilized exclusively for the following purposes: for construction ofactory building P250,000.00; for payment of the balance of purchase price of machinery and equipment P240,900.00; for workingcapital P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter ofJanuary 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year," and asking that out o

the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation from the terms laid downin Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan topurposes other than those agreed upon.

When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for the implementationof the agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing soand insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15,1955. The action thus taken by both parties was in the nature cf mutual desistance what Manresa terms "mutuo disenso" 1 whichis a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contractmutual disagreement by the parties can cause its extinguishment. 2

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, oeven point out that the latter's stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation ofwhatever rights it believed it might have against RFC for the latter's non-compliance. In 1962 it even applied with DBP for another loanto finance a rice and corn project, which application was disapproved. It was only in 1964, nine years after the loan agreement had

been cancelled at its own request, that Saura, Inc. brought this action for damages.All these circumstances demonstrate beyond doubtthat the said agreement had been extinguished by mutual desistance and that on the initiative of the plaintiff-appellee itself.

With this view we take of the case, we find it unnecessary to consider and resolve the other issues raised in the respective briefs of theparties.

WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the plaintiff-appellee.

Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.

Makasiar, J., took no part.


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G.R. No. L-1328 September 9, 1949

MARIANO NEPOMUCENO and AGUEDA G. DE NEPOMUCENO, plaintiffs-appellants,vs.EDILBERTO A. NARCISO and MAURA SUAREZ, defendants-appellees.

Higinio Gopez for appellants.Fausto, Solima and Gotiangco for appellees.

OZAETA,J.:

On November 14, 1938, appellant Mariano Nepomuceno executed a mortgage in favor of the appellees on a parcel of land situated inthe municipality of Angeles, Province of Pampanga, to secure the payment within the period of seven years from the date of themortgage of the sum of P24,000 together with interest thereon at the rate of 8 per cent per annum.

On September 30, 1943, that is to say, more than two years before the maturity of said mortgage, the parties executed a notarialdocument entitled "Partial Novation of Contract" whereby they modified the terms of said mortgage as follows:

(1) From December 8, 1941, to January 1, 1944, the interest on the mortgage shall be at 6 per cent per annum, unpaidinterest also paying interest also paying interest at the same rate.

(2) From January 1, 1944, up to the end of the war, the mortgage debt shall likewise bear interest at 6 per cent. Unpaidinterest during this period shall however not bear any interest.

(3) At the end of the war the interest shall again become 8 per cent in accordance with the original contract of mortgage.

(4) While the war goes on, the mortgagor, his administrators or assigns, cannot redeem the property mortgaged.

(5) When the mortgage lapses on November 14, 1945, the mortgage may continue for another ten years if the mortgagor sochooses, but during this period he may pay only one half of the capital.

On July 21, 1944, the mortgagor Mariano Nepomuceno and his wife Agueda G. de Nepomuceno filed their complaint in this case againstthe mortgagees, which compplaint, as amended on September 7, 1944, alleged the execution of the contract of mortgage and itsprincipal novation as above indicated, and

7. That as per Annex B, No. 4, it is provided that the mortgagor cannot redeem the property mortgaged while the war goeson; and that notwithstanding the said provision the herein plaintiffs-mortgagors are now willing to pay the amount of theindebtedness together with the corresponding interest due thereon;

8. That on July 19, 1944, the mortgagors-plaintiffs went to the house of the mortgagees-defendants to tender payment of thebalance of the mortgage debt with their corresponding interest, but said spouses defendants refuse and still refuse to acceppayment;

9. That because of this refusal of the defendants to accept tender of payment on the mortgage consideration, the plaintiffssuffered and still suffer damages in the amount of P5,000;

10. That the plaintiffs are now and have deposited with the Clerk of Court of First Instance of Pampanga the amount ofP22,356 for the payment of the mortgage debt and the interest due thereon;

Wherefore, it is more respectfully prayed that this Honorable Court will issue an order in the following tenor:

(a) Ordering the defendants to accept tender of payment from the plaintiffs;

(b) Ordering defendants to execute the corresponding deed of release of mortgage;

(c) Ordering defendants to pay damages in the amount of P5,000; and

(d) Ordering defendants to pay the amount of P3,000 as attorney's fee and the costs of suit and any other remedy just andequitable in the premises.

After the trial the court sustained the defense that the complaint had been prematurely presented and dismissed it with costs.


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Appellants contend that the stipulation in the contract of September 30, 1943, that "while the war goes on the mortgagor, hisadministrators or assigns cannot redeem the property mortgaged," is against public policy and therefore null and void. They cite andrely on article 1255 of the Civil Code, which provides:

ART. 1255. The contracting parties may establish any pacts, clauses, and conditions they may deem advisable, providedthey are not contrary to law, morals, or public order.

They argue that "it would certainly be against public policy and a restraint on the freedom of commerce to compel a debtor not torelease his property from a lien even if he wanted to by the payment of the indebtedness while the war goes on, which wasundoubtedly of a very uncertain duration."

The first two paragraphs of article 1125 of the Civil Code provide:

ART. 1125. Obligation for the performance of which a day certain has been fixed shall be demandable only when the dayarrives.

A day certain is understood to be one which must necessarily arrive, even though its date be unknown.

Article 1127 says:

ART. 1127. Whenever a term for the performance of an obligation is fixed, it is presumed to have been established for thebenefit of the creditor and that of the debtor, unless from its tenor or from other circumstances it should appear that the termwas established for the benefit of one or the other.

It will be noted that the original contract of mortgage provided for interest at 8 per cent per annum and that the principal together withthe interest was payable within the period of seven years from November 14, 1938. But by mutual agreement of the parties that termwas modified on September 30, 1943, by reducing the interest to 6 per cent per annum from December 8, 1941, until the end of thewar and by stipulating that the mortgagor shall not pay off the mortgage while the war went on.

We find nothing immoral or violative of public order in that stipulation. The mortgagees apparently did not want to have their prewarcredit paid with Japanese military notes, and the mortgagor voluntarily agreed not to do so in consideration of the reduction of the rateof interest.

It was a perfectly equitable and valid transaction, in conformity with the provision of the Civil Code hereinabove quoted.

Appellants were bound by said contract and appellees were not obligated to receive the payment before it was due. Hence the latterhad reason not to accept the tender of payment made to them by the former.

The judgment is affirmed, with costs against the appellants.

Moran, C.J., Paras, Feria, Bengzon, Padilla, Tuason, Montemayor, Reyes and Torres, JJ., concur.


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FIRST DIVISION

EQUITABLE PCI BANK,* G.R. No. 171545

AIMEE YU and BEJAN

LIONEL APAS,

Petitioners, Present:

PUNO, C.J., Chairperson,

- v e r s u s - SANDOVAL-GUTIERREZ,

CORONA,

AZCUNA and

LEONARDO-DE CASTRO,JJ.

NG SHEUNG NGOR** doing

business under the name

and style KEN MARKETING, Promulgated:

KEN APPLIANCE DIVISION,

INC. and BENJAMIN E. GO,

Respondents. December 19, 2007

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

D E C I S I O N

CORONA,J.:

This petition for review on certiorari[1] seeks to set aside the decision[2] of the Court of Appeals (CA) in CA-G.R. SP No. 83112 and its

resolution[3] denying reconsideration.

On October 7, 2001, respondents Ng Sheung Ngor,[4] Ken Appliance Division, Inc. and Benjamin E. Go filed an action for annulment

and/or reformation of documents and contracts[5] against petitioner Equitable PCI Bank (Equitable) and its employees, Aimee Yu and

Bejan Lionel Apas, in the Regional Trial Court (RTC), Branch 16 of Cebu City.[6] Theyclaimed that Equitable induced them to avail of its

peso and dollar credit facilities by offering low interest rates[7] so they accepted Equitable's proposal and signed the bank's pre-printed

promissory notes on various dates beginning 1996. They, however, were unaware that the documents contained identical escalation

clauses granting Equitable authority to increase interest rates without their consent.[8]

Equitable, in its answer, asserted that respondents knowingly accepted all the terms and conditions contained in the promissory notes

[9] In fact, they continuously availed of and benefited from Equitable's credit facilities for five years.[10]

After trial, the RTC upheld the validity of the promissory notes. It found that, in 2001 alone, Equitable restructured respondents'loanamounting to US$228,200 and P1,000,000.[11] The trial court, however, invalidated the escalation clause contained therein because it

violated the principle of mutuality of contracts.[12] Nevertheless, it took judicial notice of the steep depreciation of the peso during the

intervening period[13] and declared the existence of extraordinary deflation.[14] Consequently, the RTC ordered the use of the 1996

dollar exchange rate in computing respondents' dollar-denominated loans.[15] Lastly, because the business reputation of respondent

was (allegedly) severely damaged when Equitable froze their accounts,[16] the trial court awarded moral and exemplary damages to

them.[17]

The dispositive portion of the February 5, 2004 RTC decision[18] provided:

WHEREFORE, premises considered, judgment is hereby rendered:

A) Ordering [Equitable] to reinstate and return the amount of [respondents'] deposit placed on hold status;


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B) Ordering [Equitable] to pay [respondents] the sum of P12 [m]illion [p]esos as moral damages;

C) Ordering [Equitable] to pay [respondents] the sum of P10 [m]illion [p]esos as exemplary damages;

D) Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay [respondents], jointly and severally, the sum of [t]wo [m]illion

[p]esos as moral and exemplary damages;

E) Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and severally, to pay [respondents'] attorney's fees in the sum o

P300,000; litigation expenses in the sum of P50,000 and the cost of suit;

F) Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay [Equitable] the unpaid principal obligation for the peso loan as weas the unpaid obligation for the dollar denominated loan;

G) Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable] interest as follows:

1) 12% per annum for the peso loans;

2) 8% per annum for the dollar loans. The basis for the payment of the dollar obligation is the conversion rate of P26.50 per dolla

availed of at the time of incurring of the obligation in accordance with Article 1250 of the Civil Code of the Philippines;

H) Dismissing [Equitable's] counterclaim except the payment of the aforestated unpaid principal loan obligations and interest.

SO ORDERED.[19]

Equitable and respondents filed their respective notices of appeal.[20]

In the March 1, 2004 order of the RTC, both notices were denied due course because Equitable and respondents failed to submit proo

that they paid their respective appeal fees.[21]

WHEREFORE, premises considered, the appeal interposed by defendants from the Decision in the above-entitled case is DENIED due

course. As of February 27, 2004, the Decision dated February 5, 2004, is considered final and executory in so far as [Equitable, Aimee

Yu and Bejan Lionel Apas] are concerned.[22](emphasis supplied)

Equitable moved for the reconsideration of the March 1, 2004 order of the RTC[23] on the ground that it did in fact pay the appeal fees.

Respondents, on the other hand, prayed for the issuance of a writ of execution.[24]

On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion for reconsideration for lack of merit[25] and ordered

the issuance of a writ of execution in favor of respondents.[26] According to the RTC, because respondents did not move for the

reconsideration of the previous order (denying due course to the parties notices of appeal),[27] the February 5, 2004 decision became

final and executory as to both parties and a writ of execution against Equitable was in order.[28]

A writ of execution was thereafter issued[29] and three real properties of Equitable were levied upon.[30]

On March 26, 2004, Equitable filed a petition for relief in the RTC from the March 1, 2004 order.[31] It, however, withdrew that petition

on March 30, 2004[32] and instead filed a petition for certiorari with an application for an injunction in the CA to enjoin the

implementation and execution of the March 24, 2004 omnibus order.[33]

On June 16, 2004, the CA granted Equitable's application for injunction. A writ of preliminary injunction was correspondingly issued

[34]

Notwithstanding the writ of injunction, the properties of Equitable previously levied upon were sold in a public auction on July 1, 2004

Respondentswere the highest bidders and certificates of sale were issued to them.[35]

On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale and to cite the sheriffs who conducted the sale in contemptfor proceeding with the auction despite the injunction order of the CA.[36]

On October 28, 2005, the CA dismissed the petition for certiorari.[37] It found Equitable guilty of forum shopping because the bank

filed its petition for certiorari in the CA several hours before withdrawing its petition for relief in the RTC.[38] Moreover, Equitable failed

to disclose, both in the statement of material dates and certificate of non-forum shopping (attached to its petition for certiorari in the

CA), that it had a pending petition for relief in the RTC.[39]

Equitable moved for reconsideration[40] but it was denied.[41] Thus, this petition.

Equitable asserts that it was not guilty of forum shopping because the petition for relief was withdrawn on the same daythe petition fo

certiorari was filed.[42] It likewise avers that its petition for certiorari was meritorious because the RTC committed grave abuse of

discretion in issuing the March 24, 2004 omnibus order which was based on an erroneous assumption. The March 1, 2004 order


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denying its notice of appeal for non payment of appeal fees was erroneous because it had in fact paid the required fees.[43] Thus, the

RTC, by issuing its March 24, 2004 omnibus order, effectively prevented Equitable from appealing the patently wrong February 5, 2004

decision.[44]

This petition is meritorious.

Equitable Was Not Guilty Of Forum shopping

Forum shopping exists when two or more actions involving the same transactions, essential facts and circumstances are filed and those

actions raise identical issues, subject matter and causes of action.[45][46] The test is whether, in two or more pending cases, there is

identity of parties, rights or causes of actions and reliefs.

Equitable's petition for relief in the RTC and its petition for certiorari in the CA did not have identical causes of action. The petition for

relief from the denial of its notice of appeal was based on the RTCs judgment or final order preventing it from taking an appeal by

fraud, accident, mistake or excusable negligence.[47][48] On the other hand, its petition for certiorari in the CA, a special civil action

sought to correct the grave abuse of discretion amounting to lack of jurisdiction committed by the RTC.

In a petition for relief, the judgment or final order is rendered by a court with competent jurisdiction. In a petition for certiorari, the

order is rendered by a court without or in excess of its jurisdiction.

Moreover, Equitable substantially complied with the rule on non-forum shopping when it moved to withdraw its petition for relief in the

RTC on the same day (in fact just four hours and forty minutes after) it filed the petition for certiorari in the CA. Even if Equitable failed

to disclose that it had a pending petition for relief in the RTC, it rectified what was doubtlessly a careless oversight by withdrawing the

petition for relief just a few hours after it filed its petition for certiorari in the CA ? a clear indication that it had no intention of

maintaining the two actions at the same time.

The Trial Court Committed Grave Abuse of Discretion In Issuing Its Mar

Documents

Chapter 2 Simple Loan or Mutuum