credit cases _chap. 1-2

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1Credit Transactions

COMMODATUM

EN BANC

[G.R. No. L-17474. October 25, 1962.]

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. JOSE V. BAGTAS, defendant.

FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V.

Bagtas, petitioner-appellant.

D E C I S I O N

PADILLA, J p:

The Court of Appeals certified this case to this Court because only questions of law are raised.

On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the

Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a

Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948

to 7 May 1949 for breeding purposes subject to a government charge of breeding fee of 10%

of the book value of the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower

asked for a renewal for another period of one year. However, the Secretary of Agriculture and

Natural Resources approved a renewal thereof of only one bull for another year from 8 May

1949 to 7 May 1950 and requested the return of the other two. On 25 March 1950 Jose V.

Bagtas wrote to the Director of Animal Industry that he would pay the value of the three bulls.On 17 October 1950 he reiterated his desire to buy them at a value with a deduction of yearly

depreciation to be approved by the Auditor General. On 19 October 1950 the Director of

Animal Industry advised him that the book value of the three bulls could not be reduced and

that they either be returned or their book value paid not later than 31 October 1950. Jose V.

Bagtas failed to pay the book value of the three bulls or to return them. So, on 20 December

1950 in the Court of First Instance of Manila the Republic of the Philippines commenced an

action against him praying that he be ordered to return the three bulls loaned to him or to pay

their book value in the total sum of P3,241.45 and the unpaid breeding fee in the sum of

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


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. . . 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 grantedon 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

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 Jos 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 Jos 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 theborrower 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:


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(2) If he keeps it longer than the period stipulated. . . .

(3) If the thing loaned has been delivered with appraisal of its value, unless there is a

stipulation exempting the bailee from responsibility in case of a fortuitous event:

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was

renewed for another period of one year to end on 8 May 1950. But the appellant kept and used

the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore,

when lent and delivered to the deceased husband of the appellant the bulls had each an

appraised book value, to 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 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 Jos V. Bagtas and

that "all persons having claims for money against the deceased Jos 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 couldnot be expected to know of the death of the defendant or of the administration proceedings of


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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.

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 beenreturned 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 Jos

V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money

judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution

but must be presented to the probate court for payment by the appellant, the administratrix

appointed by the court.

ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as

to costs.

G.R. No. L-46240 November 3, 1939

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

BECK, defendant-appellee.

IMPERIAL, J.:

The plaintiff brought this action to compel the defendant to return her certain furniturewhich she lent him for his use. She appealed from the judgment of the Court of First Instanceof Manila which ordered that the defendant return to her the three has heaters and the fourelectric lamps found in the possession of the Sheriff of said city, that she call for the otherfurniture from the said sheriff of Manila at her own expense, and that the fees which the Sheriffmay charge for the deposit of the furniture be paid pro rata by both parties, withoutpronouncement 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 leasebetween the plaintiff and the defendant, the former gratuitously granted to the latter the use ofthe furniture described in the third paragraph of the stipulation of facts, subject to the conditionthat the defendant would return them to the plaintiff upon the latter's demand. The plaintiff soldthe property to Maria Lopez and Rosario Lopez and on September 14, 1936, these threenotified the defendant of the conveyance, giving him sixty days to vacate the premises underone of the clauses of the contract of lease. There after the plaintiff required the defendant toreturn 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 samemonth, the defendant wrote another letter to the plaintiff informing her that he could not give up


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he pay the legal expenses and other judicial costs which the plaintiff would not have otherwisedefrayed.

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 ofthe latter, all the furniture described in paragraph 3 of the stipulation of facts Exhibit A. Theexpenses which may be occasioned by the delivery to and deposit of the furniture with theSheriff shall be for the account of the defendant. the defendant shall pay the costs in bothinstances. So ordered.

Avancea, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.

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 andagrees to pay a certain amount per month as rent, may such rent render such a contractusurious when the amount paid as rent, computed upon the purchase price, amounts toa 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 LuzonRice Mills, Inc., a piece or parcel of land with the camarin located thereon, situated in themunicipality of Tarlac of the Province of Tarlac for the price of P25,000, promising to paytherefor in three installments. The first installment of P2,000 was due on or before the 2d dayof May, 1921; the second installment of P8,000 was due on or before 31st day of May, 1921;the balance of P15,000 at 12 per cent interest was due and payable on or about the 30th dayof November, 1922. One of the conditions of that contract of purchase was that on failure ofthe purchaser (plaintiffs and appellants) to pay the balance of said purchase price or any of the

installments on the date agreed upon, the property bought would revert to the original owner.


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The payments due on the 2d and 31st of May, 1921, amounting to P10,000 were paid so far asthe record shows upon the due dates. The balance of P15,000 due on said contract ofpurchase was paid on or about the 1st day of December, 1922, in the manner which will beexplained below. On the date when the balance of P15,000 with interest was paid, the vendor

of said property had issued to the purchasers transfer certificate of title to said property, No.528. Said transfer certificate of title (No. 528) was transfer certificate of title from No. 40, whichshows that said land was originally registered in the name of the vendor on the 7th day ofNovember, 1913.

PRESENT FACTS

On the 7th day of November, 1922 the representative of the vendor of the property in questionwrote a letter to the appellant Potenciana Manio (Exhibit A, p. 50), notifying the latter that if thebalance of said indebtedness was not paid, an action would be brought for the purpose ofrecovering the property, together with damages for non compliance with the condition of the

contract of purchase. The pertinent parts of said letter read as follows:

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

Somos de Vd. atentos y S. S.

SMITH, BELL & CO., LTD.

By (Sgd.) F. I. HIGHAM

Treasurer.

General Managers

LUZON RICE MILLS INC.

According to Exhibits B and D, which represent the account rendered by the vendor, there wasdue and payable upon said contract of purchase on the 30th day of November, 1922, the sumP16,965.09. Upon receiving the letter of the vendor of said property of November 7, 1922, thepurchasers, the appellants herein, realizing that they would be unable to pay the balance due,

began to make an effort to borrow money with which to pay the balance due, began to makean effort to borrow money with which to pay the balance of their indebtedness on the purchaseprice of the property involved. Finally an application was made to the defendant for a loan forthe purpose of satisfying their indebtedness to the vendor of said property. After somenegotiations the defendants agreed to loan the plaintiffs to loan the plaintiffs the sum ofP17,500 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 thesum of P16,965.09. The defendant, in addition to said amount paid by check, delivered to theplaintiffs the sum of P354.91 together with the sum of P180 which the plaintiffs paid to theattorneys for drafting said contract ofpacto de retro, making a total paid by the defendant tothe plaintiffs and for the plaintiffs of P17,500 upon the execution and delivery of said contract.


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Said contracts was dated the 28th day of November, 1922, and is in the words and figuresfollowing:

Sepan todos por la presente:

Que nosotros, los conyuges Severino Tolentino y Potenciana Manio, ambos mayoresde edad, residentes en el Municipio de Calumpit, Provincia de Bulacan, propietarios ytranseuntes en esta Ciudad de Manila, de una parte, y de otra, Benito Gonzalez SyChiam, mayor de edad, casado con Maria Santiago, comerciante y vecinos de estaCiudad de Manila.

MANIFESTAMOS Y HACEMOS CONSTAR:

Primero. Que nosotros, Severino Tolentino y Potenciano Manio, por y en consideraciona la cantidad de diecisiete mil quinientos pesos (P17,500) moneda filipina, que en este

acto hemos recibido a nuestra entera satisfaccion de Don Benito Gonzalez Sy Chiam,cedemos, vendemos y traspasamos a favor de dicho Don Benito Gonzalez Sy Chiam,sus herederos y causahabientes, una finca que, segun el Certificado de Transferenciade Titulo No. 40 expedido por el Registrador de Titulos de la Provincia de Tarlac a favorde "Luzon Rice Mills Company Limited" que al incorporarse se donomino y sedenomina "Luzon Rice Mills Inc.," y que esta corporacion nos ha transferido en ventaabsoluta, se describe como sigue:

Un terreno (lote No. 1) con las mejoras existentes en el mismo, situado en el Municipiode Tarlac. Linda por el O. y N. con propiedad de Manuel Urquico; por el E. conpropiedad de la Manila Railroad Co.; y por el S. con un camino. Partiendo de un punto

marcado 1 en el plano, cuyo punto se halla al N. 41 gds. 17' E.859.42 m. del mojon 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; desdeeste 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 mildoscientos diez y seis metros cuadrados (4,216) mas o menos. Todos los puntosnombrados se hallan marcados en el plano y sobre el terreno los puntos 1 y 2 estandeterminados por mojones de P. L. S. de 20 x 20 x 70 centimetros y los puntos 3 y 4por mojones del P. L. S. B. L.: la orientacion seguida es la verdadera, siendo ladeclinacion magnetica de 0 gds. 45' E. y la fecha de la medicion, 1. de febrero de1913.

Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aoscontados desde el dia 1. de diciembre de 1922, devolvemos al expresado Don BenitoGonzalez Sy Chiam el referido precio de diecisiete mil quinientos 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 deretracto que nos hemos reservado, entonces quedara esta venta absoluta eirrevocable.

Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento lafinca arriba descrita, sujeto a condiciones siguientes:


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

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

(c) La falta de pago del alquiler aqui estipulado por dos meses consecutivos daralugar a la terminacion de este arrendamieno y a la perdida del derecho de retractoque nos hemos reservado, como si naturalmente hubiera expirado el termino paraello, pudiendo en su virtud dicho Sr. Gonzalez Sy Chiam tomar posesion de la finca ydesahuciarnos de la misma.

Cuarto. Que yo, Benito Gonzalez Sy Chiam, a mi vez otorgo que acepto esta escritura

en los precisos terminos en que la dejan otorgada los conyuges Severino Tolentino yPotenciana Manio.

En testimonio de todo lo cual, firmamos la presente de nuestra mano en Manila, porcuadruplicado en Manila, hoy a 28 de noviembre de 1922.

(Fdo.) SEVERINO TOLENTINO(Fda.) POTENCIANA MANIO(Fdo.) BENITO GONZALEZ SY CHIAMFirmado en presencia de:(Fdos.) MOISES M. BUHAIN

B. S. BANAAG

An examination of said contract of sale with reference to the first question above, showsclearly that it is a pacto de retro and not a mortgage. There is no pretension on the part of theappellant that said contract, standing alone, is a mortgage. The pertinent language of thecontract is:

Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aoscontados desde el dia 1. de diciembre de 1922, devolvemos al expresado Don BenitoGonzales Sy Chiam el referido precio de diecisiete mil quinientos pesos (P17,500)queda obligado dicho Sr. Benito Gonzales Sy Chiam a retrovendornos la finca arribadescrita; pero si transcurre dicho plazo de cinco (5) aos sin ejercitar al derecho deretracto que nos hemos reservado, entonces quedara esta venta absoluta eirrevocable.

Language cannot be clearer. The purpose of the contract is expressed clearly in said quotationthat there can certainly be not doubt as to the purpose of the plaintiff to sell the property inquestion, reserving the right only to repurchase the same. The intention to sell with the right torepurchase cannot be more clearly expressed.

It will be noted from a reading of said sale ofpacto de retro, that the vendor, recognizing theabsolute sale of the property, entered into a contract with the purchaser by virtue of which shebecame the "tenant" of the purchaser. That contract of rent appears in said quoted documentabove as follows:


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Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento lafinca arriba descrita, sujeto a condiciones siguientes:

(a) El alquiler que nos obligamos a pagar por mensualidades vencidas a Don Benito

Gonzalez Sy Chiam y en su domicilio, sera de trescientos setenta y cinco pesos (P375)moneda filipina, cada mes.

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

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

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

We are not unmindful of the fact that sales withpacto de retro are not favored and that the

court will not construe an instrument to one of sale withpacto de retro, with the stringent andonerous 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 theterms of a contract, but when an issue is squarely presented that a contract does not expressthe intention of the parties, courts will, when a proper foundation is laid therefor, hear evidencefor 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 isapacto de retro. They admit that they signed it. They admit they sold the property in question

with the right to repurchase it. The terms of the contract quoted by the plaintiffs to thedefendant was a "sale" withpacto de retro, and the plaintiffs have shown no circumstancewhatever which would justify us in construing said contract to be a mere "loan" with guaranty.In every case in which this court has construed a contract to be a mortgage or a loan insteadof a sale withpacto de retro, it has done so, either because the terms of such contract wereincompatible or inconsistent with the theory that said contract was one of purchase and sale.(Olino vs. Medina, supra; Padilla vs. Linsangan,supra; Manlagnit vs. Dy Puico, 34 Phil., 325;Rodriguez vs. Pamintuan and De Jesus, 37 Phil., 876.)

In the case of Padilla vs. Linsangan the term employed in the contract to indicate the nature ofthe conveyance of the land was "pledged" instead of "sold". In the case of Manlagnit vs. DyPuico, while the vendor used to the terms "sale and transfer with the right to repurchase," yetin said contract he described himself as a "debtor" the purchaser as a "creditor" and thecontract as a "mortgage". In the case ofRodriguez vs. Pamintuan and De Jesusthe person


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who executed the instrument, purporting on its face to be a deed of sale of certain parcels ofland, had merely acted under a power of attorney from the owner of said land, "authorizing himto borrow money in such amount and upon such terms and conditions as he might deemproper, and to secure payment of the loan by a mortgage." In the case ofVilla vs. Santiago (38

Phil., 157), although a contract purporting to be a deed of sale was executed, the supposedvendor remained in possession of the land and invested the money he had obtained from thesupposed vendee in making improvements thereon, which fact justified the court in holdingthat the transaction was a mere loan and not a sale. In the case ofCuyugan vs. Santos (39Phil., 970), the purchaser accepted partial payments from the vendor, and such acceptance ofpartial payments is absolutely incompatible with the idea of irrevocability of the title ofownership of the purchaser at the expiration of the term stipulated in the original contract forthe exercise of the right of repurchase."

Referring again to the right of the parties to vary the terms of written contract, we quote fromthe dissenting opinion of Chief Justice Cayetano S. Arellano in the case of Government of the

Philippine Islands vs. Philippine Sugar Estates Development Co., which case was appealed tothe Supreme Court of the United States and the contention of the Chief Justice in hisdissenting opinion was affirmed and the decision of the Supreme Court of the PhilippineIslands was reversed. (See decision of the Supreme Court of the United States, June 3,1918.)

1The Chief Justice said in discussing that question:

According to article 1282 of the Civil Code, in order to judge of the intention of the contractingparties, consideration must chiefly be paid to those acts executed by said parties which arecontemporary with and subsequent to the contract. And according to article 1283, howevergeneral the terms of a contract may be, they must not be held to include things and casesdifferent from those with regard to which the interested parties agreed to contract. "TheSupreme Court of the Philippine Islands held the parol evidence was admissible in that case tovary the terms of the contract between the Government of the Philippine Islands and thePhilippine Sugar Estates Development Co. In the course of the opinion of the Supreme Courtof the United States Mr. Justice Brandeis, speaking for the court, said:

It is well settled that courts of equity will reform a written contract where, owing tomutual mistake, the language used therein did not fully or accurately express theagreement 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 isnot a bar to granting relief. . . . This court is always disposed to accept the constructionwhich the highest court of a territory or possession has placed upon a local statute. Butthat disposition may not be yielded to where the lower court has clearly erred. Here theconstruction adopted was rested upon a clearly erroneous assumption as to anestablished rule of equity. . . . The burden of proof resting upon the appellant cannot besatisfied by mere preponderance of the evidence. It is settled that relief by way ofreformation will not be granted unless the proof of mutual mistake be of the clearest andmost satisfactory character.

The evidence introduced by the appellant in the present case does not meet with that stringentrequirement. There is not a word, a phrase, a sentence or a paragraph in the entire record,which justifies this court in holding that the said contract ofpacto de retro is a mortgage andnot a sale with the right to repurchase. Article 1281 of the Civil Code provides: "If the terms ofa contract are clear and leave no doubt as to the intention of the contracting parties, the literalsense of its stipulations shall be followed." Article 1282 provides: "in order to judge as to the


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intention of the contracting parties, attention must be paid principally to their conduct at thetime of making the contract and subsequently thereto."

We cannot thereto conclude this branch of our discussion of the question involved, without

quoting from that very well reasoned decision of the late Chief Justice Arellano, one of thegreatest jurists of his time. He said, in discussing the question whether or not the contract, inthe 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 Berenguerdeclares and states that he is the proprietor in fee simple of two parcels of fallowunappropriated crown land situated within the district of his pueblo. The first has an areaof 73 quiones, 8 balitas and 8 loanes, located in the sitio of Batasan, and itsboundaries are, etc., etc. The second is in the sitio of Panantaglay, barrio of Calumpanghas as area of 73 hectares, 22 ares, and 6 centares, and is bounded on the north, etc.,etc."

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

'That under condition of right to repurchase (pacto de retro) he sells the saidproperties to the aforementioned Doa Cornelia Laochangco for P4,000 and upon thefollowing conditions: First, the sale stipulated shall be for the period of two years,counting from this date, within which time the deponent shall be entitled to repurchasethe land sold upon payment of its price; second, the lands sold shall, during the termof the present contract, be held in lease by the undersigned who shall pay, as rentaltherefor, the sum of 400 pesos per annum, or the equivalent in sugar at the option ofthe vendor; third, all the fruits of the said lands shall be deposited in the sugar

depository of the vendee, situated in the district of Quiapo of this city, and the value ofwhich shall be applied on account of the price of this sale; fourth, the deponentacknowledges that he has received from the vendor the purchase price of P4,000already paid, and in legal tender currency of this country . . .; fifth, all the taxes whichmay be assessed against the lands surveyed by competent authority, shall be payableby and constitute a charge against the vendor; sixth, if, through any unusual event,such as flood, tempest, etc., the properties hereinbefore enumerated should bedestroyed, wholly or in part, it shall be incumbent upon the vendor to repair thedamage thereto at his own expense and to put them into a good state of cultivation,and should he fail to do so he binds himself to give to the vendee other lands of 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, thatBerenguer's contract with Laochangco was not one of sale with right of repurchase, butmerely one of loan secured by those properties, and, consequently, that the ownershipof the lands in questions could not have been conveyed to Laochangco, inasmuch as itcontinued to be held by Berenguer, as well as their possession, which he had notceased to enjoy.

Such a theory is, as argued by the appellant, erroneous. The instrument executed byMacario Berenguer, the text of which has been transcribed in this decision, is very clear.Berenguer's heirs may not go counter to the literal tenor of the obligation, the exactexpression of the consent of the contracting contained in the instrument, Exhibit C. Not


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current in Europe, that the taking of any interest for the loan of money was a detestable vice,hateful to man and contrary to the laws of God. (3 Coke's Institute, 150; Tayler on Usury, 44.)

Chancellor Kent, in the case ofDunham vs. Gould, supra, said: "If we look back upon history,

we shall find that there is scarcely any people, ancient or modern, that have not had usurylaws. . . . The Romans, through the greater part of their history, had the deepest abhorrence ofusury. . . . It will be deemed a little singular, that the same voice against usury should havebeen raised in the laws of China, in the Hindu institutes of Menu, in the Koran of Mahomet, andperhaps, we may say, in the laws of all nations that we know of, whether Greek or Barbarian."

The collection of a rate of interest higher than that allowed by law is condemned by thePhilippine Legislature (Acts Nos. 2655, 2662 and 2992). But is it unlawful for the owner of aproperty to enter into a contract with the tenant for the payment of a specific amount of rent forthe use and occupation of said property, even though the amount paid as "rent," based uponthe value of the property, might exceed the rate of interest allowed by law? That question has

never been decided in this jurisdiction. It is one of first impression. No cases have been foundin this jurisdiction answering that question. Act No. 2655 is "An Act fixing rates of interest upon'loans' and declaring the effect of receiving or taking usurious rates."

It will be noted that said statute imposes a penalty upon a "loan" or forbearance of any money,goods, chattels or credits, etc. The central idea of said statute is to prohibit a rate of interest on"loans." A contract of "loan," is very different contract from that of "rent". A "loan," as that termis used in the statute, signifies the giving of a sum of money, goods or credits to another, witha promise to repay, but not a promise to return the same thing. To "loan," in general parlance,is to deliver to another for temporary use, on condition that the thing or its equivalent bereturned; or to deliver for temporary use on condition that an equivalent in kind shall be

returned with a compensation for its use. The word "loan," however, as used in the statute, hasa technical meaning. It never means the return of the same thing. It means the return of anequivalent only, but never the same thing loaned. A "loan" has been properly defined as anadvance payment of money, goods or credits upon a contract or stipulation to repay, not toreturn, the thing loaned at some future day in accordance with the terms of the contract. Underthe contract of "loan," as used in said statute, the moment the contract is completed themoney, goods or chattels given cease to be the property of the former owner and becomes theproperty of the obligor to be used according to his own will, unless the contract itself expresslyprovides for a special or specific use of the same. At all events, the money, goods or chattels,the moment the contract is executed, cease to be the property of the former owner andbecomes the absolute property of the obligor.

A contract of "loan" differs materially from a contract of "rent." In a contract of "rent" the ownerof the property does not lose his ownership. He simply loses his control over the propertyrented during the period of the contract. In a contract of "loan" the thing loaned becomes theproperty of the obligor. In a contract of "rent" the thing still remains the property of the lessor.He simply loses control of the same in a limited way during the period of the contract of "rent"or lease. In a contract of "rent" the relation between the contractors is that of landlord andtenant. In a contract of "loan" of money, goods, chattels or credits, the relation between theparties is that of obligor and obligee. "Rent" may be defined as the compensation either inmoney, provisions, chattels, or labor, received by the owner of the soil from the occupantthereof. 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. Acontract of "rent" is a contract by which one of the parties delivers to the other some


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nonconsumable thing, in order that the latter may use it during a certain period and return it tothe former; whereas a contract of "loan", as that word is used in the statute, signifies thedelivery of money or other consumable things upon condition of returning an equivalentamount of the same kind or quantity, in which cases it is called merely a "loan." In the case of

a contract of "rent," under the civil law, it is called a "commodatum."

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

The value of money, goods or credits is easily ascertained while the amount of rent to be paidfor the use and occupation of the property may depend upon a thousand different conditions;as for example, farm lands of exactly equal productive capacity and of the same physical valuemay have a different rental value, depending upon location, prices of commodities, proximity tothe market, etc. Houses may have a different rental value due to location, conditions of

business, general prosperity or depression, adaptability to particular purposes, even thoughthey have exactly the same original cost. A store on the Escolta, in the center of business,constructed exactly like a store located outside of the business center, will have a much higherrental value than the other. Two places of business located in different sections of the city maybe constructed exactly on the same architectural plan and yet one, due to particular location oradaptability to a particular business which the lessor desires to conduct, may have a verymuch higher rental value than one not so located and not so well adapted to the particularbusiness. A very cheap building on the carnival ground may rent for more money, due to theparticular circumstances and surroundings, than a much more valuable property locatedelsewhere. It will thus be seen that the rent to be paid for the use and occupation of property isnot necessarily fixed upon the value of the property. The amount of rent is fixed, based upon athousand different conditions and may or may not have any direct reference to the value of theproperty rented. To hold that "usury" can be based upon the comparative actual rental valueand the actual value of the property, is to subject every landlord to an annoyance notcontemplated by the law, and would create a very great disturbance in every business or ruralcommunity. We cannot bring ourselves to believe that the Legislature contemplated any suchdisturbance in the equilibrium of the business of the country.

In the present case the property in question was sold. It was an absolute sale with the rightonly to repurchase. During the period of redemption the purchaser was the absolute owner ofthe property. During the period of redemption the vendor was not the owner of the property.During the period of redemption the vendor was a tenant of the purchaser. During the period ofredemption the relation which existed between the vendor and the vendee was that of landlordand tenant. That relation can only be terminated by a repurchase of the property by the vendorin accordance with the terms of the said contract. The contract was one of rent. The contractwas 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 tomake contracts for parties. They made their own contract in the present case. There is not aword, a phrase, a sentence or paragraph, which in the slightest way indicates that the partiesto the contract in question did not intend to sell the property in question absolutely, simply withthe right to repurchase. People who make their own beds must lie thereon.

What has been said above with reference to the right to modify contracts by parol evidence,sufficiently answers the third questions presented above. The language of the contract isexplicit, clear, unambiguous and beyond question. It expresses the exact intention of the


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parties at the time it was made. There is not a word, a phrase, a sentence or paragraph foundin said contract which needs explanation. The parties thereto entered into said contract withthe full understanding of its terms and should not now be permitted to change or modify it byparol evidence.

With reference to the improvements made upon said property by the plaintiffs during the life ofthe contract, Exhibit C, there is hereby reserved to the plaintiffs the right to exercise in aseparate 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 relationwith the law applicable thereto, that the judgment appealed from should be and is herebyaffirmed, with costs. So ordered.

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

G.R. No. 112485 August 9, 2001

EMILIA MANZANO, petitioner,vs.

MIGUEL PEREZ SR., LEONCIO PEREZ, MACARIO PEREZ, FLORENCIO PEREZ, NESTORPEREZ, MIGUEL PEREZ JR. and GLORIA PEREZ,respondents.

PANGANIBAN, J.:

Courts decide cases on the basis of the evidence presented by the parties. In the assessmentof the facts, reason and logic are used. In civil cases, the party that presents a preponderanceof convincing evidence wins.

The CaseBefore us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailingthe March 31, 1993 Decision

1of the Court of Appeals (CA)

2in CA-GR CY No. 32594. The

dispositive part of the Decision reads:

"WHEREFORE, the judgment appealed from is hereby REVERSED and another one isentered dismissing plaintiff's complaint."

On the other hand, the Judgment3

reversed by the CA ruled in this wise:

"WHEREFORE, premises considered, judgment is hereby rendered:

1) Declaring the two 'Kasulatan ng Bilihang Tuluyan' (Exh. 'J' & 'K') over the propertiesin question void or simulated;

2) Declaring the two 'Kasulatan ng Bilihang Tuluyan' (Exh. 'J' & 'K') over the propertiesin question rescinded;

3) Ordering the defendants Miguel Perez, Sr., Macario Perez, Leoncio Perez, FlorencioPerez, Miguel Perez, Jr., Nestor Perez and Gloria Perez to execute an Extra Judicial


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Partition with transfer over the said residential lot and house, now covered anddescribed in Tax Declaration Nos. 1993 and 1994, respectively in the name of NievesManzano (Exh. 'Q' & 'P'), subject matter of this case, in favor of plaintiff EmiliaManzano;

4) Ordering the defendants to pay plaintiff:

a) P25,000.00as moral damages;b) P10,000.00as exemplary damages;c) P15,000.00 as and for [a]ttorney's fees; andd) to pay the cost of the suit."4

The Motion for Reconsideration filed by petitioner before the CA was denied in a Resolutiondated October 28, 1993.

5

The Facts

The facts of the case are summarized by the Court of Appeals as follows:

"[Petitioner] Emilia Manzano in her Complaint alleged that she is the owner of aresidential house and lot, more particularly described hereunder:

'A parcel of residential lot (Lots 1725 and 1726 of the Cadastral Survey of Siniloan),together with all the improvements thereon, situated at General Luna Street,Siniloan, Laguna. Bounded on the North by Callejon; on the East, by [a] town river;on the South by Constancia Adofina; and on the West by Gen. Luna Street.

Containing an area of 130 square meters more or less, covered by Tax Dec. No.9583 and assessed at P1,330.00.

'A residential house of strong mixed materials and G.I. iron roofing, with a floor areaof 40 square meters, more or less. Also covered by Tax No. 9583.'

"In 1979, Nieves Manzano, sister of the [petitioner] and predecessor-in-interest of theherein [private respondents], allegedly borrowed the aforementioned property ascollateral for a projected loan. The [petitioner] acceded to the request of her sister uponthe latter's promise that she [would] return the property immediately upon payment ofher loan.

"Pursuant to their understanding, the [petitioner] executed two deeds of conveyance forthe sale of the residential lot on 22 January 1979 (Exhibit 'J') and the sale of the houseerected thereon on 2 February 1979 (Exhibit 'K'), both for a consideration of P1.00 plusother valuables allegedly received by her from Nieves Manzano.

"On 2 April 1979, Nieves Manzano, together with her husband, [respondent] MiguelPerez, Sr., and her son, [respondent] Macario Perez, obtained a loan from the RuralBank of Infanta, Inc. in the sum of P30,000.00.To secure payment of theirindebtedness, they executed a Real Estate Mortgage (Exhibit 'A') over the subjectproperty in favor of the bank.


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"Nieves Manzano died on 18 December 1979 leaving her husband and children asheirs. These heirs, [respondents] herein, allegedly refused to return the subject propertyto the [petitioner] even after the payment of their loan with the Rural Bank (Exhibit 'B').

"The [petitioner] alleged that sincere efforts to settle the dispute amicably failed and thatthe unwarranted refusal of the [respondents] to return the property caused her sleeplessnights, mental shock and social humiliation. She was, likewise, allegedly constrained toengage the services of a counsel to protect her proprietary rights.

"The [petitioner] sought the annulment of the deeds of sale and execution of a deed oftransfer or reconveyance of the subject property in her favor, the award of moraldamages of not less than P50,000.00, exemplary damages of P10,000.00, attorney'sfees of P10,000.00 plus P500.00 per court appearance, and costs of suit.

"In seeking the dismissal of the complaint, the [respondents] countered that they are the

owners of the property in question being the legal heirs of Nieves Manzano whopurchased the same from the [petitioner] for value and in good faith, as shown by thedeeds of sale which contain the true agreements between the parties therein; thatexcept for the [petitioner's] bare allegations, she failed to show any proof that thetransaction she entered into with her sister was a loan and not a sale.

"By way of special and affirmative defense, the [respondents] argued that what theparties to the [sale] agreed upon was to resell the property to the [petitioner] after thepayment of the loan with the Rural Bank. But since the [respondents] felt that theproperty is the only memory left by their predecessor-in-interest, they politely informedthe [petitioner] of their refusal to sell the same. The [respondents] also argued that the

[petitioner] is now estopped from questioning their ownership after seven (7) years fromthe consummation of the sale.

"As a proximate result of the filing of this alleged baseless and malicious suit, the[respondents] prayed as counterclaim the award of moral damages in the amount ofP10,000.00 each, exemplary damages in an amount as may be warranted by theevidence on record, attorney's fees of P10,000.00 plus P500.00 per appearance in courtand costs of suit.

"In ruling for the [petitioner], the court a guo considered the following:

'First, the properties in question after [they have] been transferred to Nieves Manzano,the same were mortgaged in favor of the Rural Bank of Infante, Inc. (Exh. 'A') tosecure payment of the loan extended to Macario Perez.'

'Second, the documents covering said properties which were given to the bank ascollateral of said loan, upon payment and [release] to the [private respondents], werereturned to [petitioner] by Florencio Perez, one of the [private respondents].'

'[These] uncontroverted facts [are] a clear recognition [by private respondents] that[petitioner] is the owner of the properties in question.'

xxx xxx xxx "'


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'Third, [respondents'] pretense of ownership of the properties in question is belied bytheir failure to present payment of real estate taxes [for] said properties, and it is on[record] that [petitioner] has been paying the real estate taxes [on] the same (Exh. 'T','V', 'V-1', 'V-2' & 'V- 3')."

xxx xxx xxx

'Fourth, [respondents] confirmed the fact that [petitioner] went to the house in questionand hacked the stairs. According to [petitioner] she did it for failure of the[respondents] to return and vacate the premises. [Respondents] did not file any actionagainst her.'

'This is a clear indication also that they (respondents) recognized [petitioner] as ownerof said properties.'

xxx xxx xxx

'Fifth, the Cadastral Notice of said properties were in the name of [petitioner] and thesame was sent to her (Exh. 'F' & 'G').

xxx xxx xxx

'Sixth, upon request of the [petitioner] to return said properties to her, [respondents]did promise and prepare an Extra Judicial Partition with Sale over said properties inquestion, however the same did not materialize. The other heirs of Nieves Manzanodid not sign."

xxx xxx xxx

'Seventh, uncontroverted is the fact that the consideration [for] the alleged sale of theproperties in question is P1.00 and other things of value. [Petitioner] denies she hasreceived any consideration for the transfer of said properties, and the [respondents]have not presented evidence to belie her testimony."6

Ruling of the Court of Appeals

The Court of Appeals was not convinced by petitioner's claim that there was a supposed oral

agreement ofcommodatum over the disputed house and lot. Neither was it persuaded by herallegation that respondents' predecessor-in-interest had given no consideration for the sale ofthe property in the latter's favor. It explained as follows:

"To begin with, if the plaintiff-appellee remained as the rightful owner of the subjectproperty, she would not have agreed to reacquire one-half thereof for a consideration ofP10,000.00 (Exhibit 'U-1'). This is especially true if we are to accept her assertion thatNieves Manzano did not purchase the property for value. More importantly, if theagreement was to merely use plaintiff's property as collateral in a mortgage loan, it wasnot explained why physical possession of the house and lot had to be with thesupposed vendee and her family who even built a pigpen on the lot (p. 6, TSN, June 11,

1990). A mere execution of the document transferring title in the latter's name wouldsuffice for the purpose.


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"The alleged failure of the defendants-appellants to present evidence of payment of realestate taxes cannot prejudice their cause. Realty tax payment of property is notconclusive evidence of ownership (Director of Lands vs. Intermediate Appellate Court,195 SCRA 38). Tax receipts only become strong evidence of ownership when

accompanied by proof of actual possession of the property (Tabuena vs. Court ofAppeals, 196 SCRA 650).

"In this case, plaintiff-appell[ee] was not in possession of the subject property. Thedefendant-appellants were the ones in actual occupation of the house and lot which asaforestated was unnecessary if the real agreement was merely to lend the property tobe used as collateral. Moreover, the plaintiff-appellee began paying her taxes only in1986 after the instant complaint ha[d] been instituted (Exhibits 'V', 'V-1', 'V-2', 'V-3' and'T'), and are, therefore, self-serving.

"Significantly, while plaintiff-appellee was still the owner of the subject property in 1979

(Exhibit 'I'), the Certificate of Tax Declaration issued by the Office of the MunicipalTreasurer on 8 August 1990 upon the request of the plaintiff-appellee herself (Exhibit'W') named Nieves Manzano as the owner and possessor of the property in question.Moreover, Tax Declaration No. 9589 in the name of Nieves Manzano (Exhibits 'D' and'D-1 ') indicates that the transfer of the subject property was based on the Absolute Saleexecuted before Notary Public Alfonso Sanvictores, duly recorded in his notarial bookas Document No. 3157, Page 157, Book No. II. Tax Declaration No[s]. 9633 (Exhibit'H'), 1994 (Exhibit 'P'), 1993 (Exhibit 'Q') are all in the name of Nieves Manzano.

"There is always the presumption that a written contract [is] for a valuable consideration(Section 5 (r), Rule 131 of the Rules of Court; Gamaitan vs. Court of Appeals, 200

SCRA 37). The execution of a deed purporting to convey ownership of a realty is initself prima facie evidence of the existence of a valuable consideration and xxx the partyalleging lack of consideration has the burden of proving such allegation (Caballero, etal. vs. Caballero, et al., C.A. 45 O.G. 2536).

"The consideration [for] the questioned [sale] is not the One (P1.00)Peso alone but alsothe other valuable considerations. Assuming that such consideration is suspiciouslyinsufficient, this circumstance alone, is not sufficient to invalidate the sale. Theinadequacy of the monetary consideration does not render a conveyance null and void,for the vendor's liberality may be a sufficient cause for a valid contract (Ong vs. Ong,139 SCRA 133)."7

Hence, this Petition.8

Issues

Petitioner submits the following grounds in support of her cause:9

"1. The Court of Appeals erred in failing to consider that:

A) The introduction of petitioner's evidence is proper under the parol evidencerule.

B) The rules on admission by silence apply in the case at bar.


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C) Petitioner is entitled to the reliefs prayed for.

"2. The Court of Appeals erred in reversing the decision of the trial court whose factualfindings are entitled to great respect since it was able to observe and evaluate the

demeanor of the witnesses."

10

In sum, the main issue is whether the agreement between the parties was a commodatum oran absolute sale.

The Court's Ruling

The Petition has no merit.

Main Issue: Sale orCommodatum

Obviously, the issue in this case is enveloped by a conflict in factual perception, which isordinarily not reviewable in a petition under Rule 45. But the Court is constrained to resolve it,because the factual findings of the Court of Appeals are contrary to those of the trial court.11

Preliminarily, petitioner contends that the CA erred in rejecting the introduction of her parolevidence. A reading of the assailed Decision shows, however, that an elaborate discussion ofthe parol evidence rule and its exceptions was merely given as a preface by the appellatecourt. Nowhere therein did it consider petitioner's evidence as improper under the said rule. Onthe contrary, it considered and weighed each and every piece thereof. Nonetheless, it was notpersuaded, as explained in the multitude of reasons explicitly stated in its Decision.

This Court finds no cogent reason to disturb the findings and conclusions of the Court ofAppeals. Upon close examination of the records, we find that petitioner has failed to dischargeher burden of proving her case by apreponderance of evidence. This concept refers toevidence that has greater weight or is more convincing than that which is offered in opposition;at bottom, it means probability of truth.

12

In the case at bar, petitioner has presented no convincing proof of her continued ownership ofthe subject property. In addition to her own oral testimony, she submitted proof of payment ofreal property taxes. But that payment, which was made only after her Complaint had alreadybeen lodged before the trial court, cannot be considered in her favor for being self-serving, asaptly explained by the CA. Neither can we give weight to her allegation that respondent's

possession of the subject property was merely by virtue of her tolerance. Bare allegations,unsubstantiated by evidence, are not equivalent to proof under our Rules.13

On the other hand, respondents presented two Deeds of Sale, which petitioner executed infavor of the former's predecessor-in-interest. Both Deeds - for the residential lot and for thehouse erected thereon - were each in consideration of P1.00 "plus other valuables." Havingbeen notarized, they are presumed to have been duly executed. Also, issued in favor ofrespondents' predecessor-in-interest the day after the sale was Tax Declaration No. 9589,which covered the property.

The facts alleged by petitioner in her favor are the following: (1) she inherited the subjecthouse and lot from her parents, with her siblings waiving in her favor their claim over the same;(2) the property was mortgaged to secure a loan of P30,000 taken in the names of NievesManzano Perez and Respondent Miguel Perez; (3) upon full payment of the loan, the


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documents pertaining to the house and lot were returned by Respondent Florencio Perez topetitioner; (4) three of the respondents were signatories to a document transferring one half ofthe property to Emilia Manzano in consideration of the sum of ten thousand pesos, althoughthe transfer did not materialize because of the refusal of the other respondents to sign the

document; and (5) petitioner hacked the stairs of the subject house, yet no case was filedagainst her. 1wphi1.nt

These matters are not, however, convincing indicators of petitioner's ownership of the houseand lot. On the contrary, they even support the claim of respondents. Indeed, how could one ofthem have obtained a mortgage over the property, without having dominion over it? Why wouldthey execute a reconveyance of one half of it in favor of petitioner? Why would the latter haveto pay P10,000 for that portion if, as she claims, she owns the whole?

Pitted against respondents' evidence, that of petitioner awfully pales. Oral testimony cannot, asa rule, prevail over a written agreement of the parties.

14In order to contradict the facts

contained in a notarial document, such as the two "Kasulatan ng Bilihang Tuluyan"in thiscase, as well as the presumption of regularity in the execution thereof, there must be clear andconvincing evidence that is more than merely preponderant.

15Here, petitioner has failed to

come up with even a preponderance of evidence to prove her claim.

Courts are not blessed with the ability to read what goes on in the minds of people. That is whyparties to a case are given all the opportunity to present evidence to help the courts decide onwho are telling the truth and who are lying, who are entitled to their claim and who are not. TheSupreme Court cannot depart from these guidelines and decide on the basis of compassionalone because, aside from being contrary to the rule of law and our judicial system, this courseof action would ultimately lead to anarchy.

We reiterate, the evidence offered by petitioner to prove her claim is sadly lacking.Jurisprudence on the subject matter, when applied thereto, points to the existence of a sale,not a commodatum over the subject house and lot.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costsagainst petitioner.

SO ORDERED.

G.R. No. 146364 June 3, 2004

COLITO T. PAJUYO, petitioner,vs.

COURT OF APPEALS and EDDIE GUEVARRA, respondents.

CARPIO, J.:

The Case

Before us is a petition for review

1

of the 21 June 2000 Decision

2

and 14 December 2000Resolution of the Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals set aside


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the 11 November 1996 decision3 of the Regional Trial Court of Quezon City, Branch81,4affirming 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 therights over a 250-square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed ahouse made of light materials on the lot. Pajuyo and his family lived in the house from 1979 to7 December 1985.

On 8 December 1985, Pajuyo and private respondent Eddie Guevarra ("Guevarra") executeda Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in thehouse 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 thatGuevarra vacate the house. Guevarra refused.

Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of QuezonCity, Branch 31 ("MTC").

In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over thelot where the house stands because the lot is within the 150 hectares set aside byProclamation No. 137 for socialized housing. Guevarra pointed out that from December 1985to 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 dispositiveportion of the MTC decision reads:

WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff andagainst defendant, ordering the latter to:

A) vacate the house and lot occupied by the defendant or any other person or personsclaiming any right under him;

B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly asreasonable compensation for the use of the premises starting from the last demand;

C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and

D) pay the cost of suit.

SO ORDERED.7

Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 ("RTC").

On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of theRTC decision reads:


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WHEREFORE, premises considered, the Court finds no reversible error in the decisionappealed from, being in accord with the law and evidence presented, and the same ishereby affirmed en toto.

SO ORDERED.

8

Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14December 1996 to file his appeal with the Court of Appeals. Instead of filing his appeal with theCourt of Appeals, Guevarra filed with the Supreme Court a "Motion for Extension of Time toFile Appeal by Certiorari Based on Rule 42" ("motion for extension"). Guevarra theorized thathis appeal raised pure questions of law. The Receiving Clerk of the Supreme Court receivedthe motion for extension on 13 December 1996 or one day before the right to appeal expired.

On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.

On 8 January 1997, the First Division of the Supreme Court issued a Resolution

9

referring themotion 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 cognizanceof at the first instance.

On 28 January 1997, the Thirteenth Division of the Court of Appeals issued aResolution10 granting the motion for extension conditioned on the timeliness of the filing of themotion.

On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras petitionfor review. On 11 April 1997, Pajuyo filed his Comment.

On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. Thedispositive portion of the decision reads:

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

SO ORDERED.11

Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of

Appeals should have dismissed outright Guevarras petition for review because it was filed outof time. Moreover, it was Guevarras counsel and not Guevarra who signed the certificationagainst forum-shopping.

On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion forreconsideration. The dispositive portion of the resolution reads:

WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. Nocosts.

SO ORDERED.12

The Ruling of the MTC


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

The Ruling of the RTC

The RTC upheld the Kasunduan, which established the landlord and tenant relationshipbetween Pajuyo and Guevarra. The terms of the Kasunduan bound Guevarra to returnpossession of the house on demand.

The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the RevisedNational Government Center Housing Project Code of Policies and other pertinent laws. In anejectment suit, the RTC has no power to decide Guevarras rights under these laws. The RTCdeclared 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 Guevarraillegally occupied the contested lot which the government owned.

Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had noright or title over the lot because it is public land. The assignment of rights between Perez andPajuyo, and the Kasunduan between Pajuyo and Guevarra, did not have any legal effect.Pajuyo and Guevarra are inpari delicto or in equal fault. The court will leave them where they

are.

The Court of Appeals reversed the MTC and RTC rulings, which held thatthe Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a landlord andtenant relationship. The Court of Appeals ruled that the Kasunduan is not a lease contract butacommodatum because the agreement is not for a price certain.

Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellatecourt 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 7September 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 andStructures in the National Housing Project ("the Code"), the actual occupant or caretaker of thelot shall have first priority as beneficiary of the project. The Court of Appeals concluded thatGuevarra is first in the hierarchy of priority.

In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claimthat Guevarra filed his motion for extension beyond the period to appeal.

The Court of Appeals pointed out that Guevarras motion for extension filed before theSupreme Court was stamped "13 December 1996 at 4:09 PM" by the Supreme CourtsReceiving 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 themotion for extension on time on 13 December 1996 since he filed the motion one day beforethe expiration of the reglementary period on 14 December 1996. Thus, the motion for


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extension properly complied with the condition imposed by the Court of Appeals in its 28January 1997 Resolution. The Court of Appeals explained that the thirty-day extension to filethe petition for review was deemed granted because of such compliance.

The Court of Appeals rejected Pajuyos argument that the appellate court should havedismissed the petition for review because it was Guevarras counsel and not Guevarra whosigned the certification against forum-shopping. The Court of Appeals pointed out that Pajuyodid not raise this issue in his Comment. The Court of Appeals held that Pajuyo could not nowseek the dismissal of the case after he had extensively argued on the merits of the case. Thistechnicality, the appellate court opined, was clearly an afterthought.

The Issues

Pajuyo raises the following issues for resolution:

WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY ANDDISCRETION TANTAMOUNT TO LACK OF JURISDICTION:

1) in GRANTING, instead of denying, Private Respondents Motion for an Extension of thirtydays to file petition for review at the time when there was no more period to extend as thedecision of the Regional Trial Court had already become final and executory.

2) in giving due course, instead of dismissing, private respondents Petition for Review eventhough the certification against forum-shopping was signed only by counsel instead of bypetitioner himself.

3) in ruling that the Kasunduan voluntarily entered into by the parties was in facta commodatum, instead of a Contract of Lease as found by the Metropolitan Trial Court and inholding that "the ejectment case filed against defendant-appellant is without legal and factualbasis".

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 inpari 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 theNational Government Center Housing Project instead of deciding the same under

the Kasunduan voluntarily executed by the parties, the terms and conditions of which are thelaws between themselves.13

The Ruling of the Court

The procedural issues Pajuyo is raising are baseless. However, we find merit in thesubstantive 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 appellatecourt acted on Guevarras motion for extension to file the petition. Pajuyo points out thatGuevarra had only one day before the expiry of his period to appeal the RTC decision. Instead


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of filing the petition for review with the Court of Appeals, Guevarra filed with this Court anundated motion for extension of 30 days to file a petition for review. This Court merely referredthe motion to the Court of Appeals. Pajuyo believes that the filing of the motion for extensionwith 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 areappealable to the Court of Appeals by petition for review in cases involving questions of fact ormixed questions of fact and law.14 Decisions of the regional trial courts involving purequestions of law are appealable directly to this Court by petition for review.

15These 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 14December 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 werepure questions of law. There is a question of law when the doubt or difference is on what thelaw is on a certain state of facts.16 There is a question of fact when the doubt or difference ison the truth or falsity of the facts alleged.17

In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarraspetition for review raised these questions: (1) Do ejectment cases pertain only to possession ofa structure, and not the lot on which the structure stands? (2) Does a suit by a squatter againsta 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 suitfiled by the owner of the structure?

These questions call for the evaluation of the rights of the parties under the law on ejectmentand the Presidential Proclamation. At first glance, the questions Guevarra raised appearedpurely legal. However, some factual questions still have to be resolved because they have abearing on the legal questions raised in the petition for review. These factual matters refer tothe metes and bounds of the disputed property and the application of Guevarra as beneficiaryof 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 AppellateCourt,18 we declared that the Court of Appeals could grant extension of time in appeals bypetition for review. In Liboro v. Court of Appeals,

19we clarified that the prohibition against

granting an extension of time applies only in a case where ordinary appeal is perfected by amere notice of appeal. The prohibition does not apply in a petition for review where thepleading needs verification. A petition for review, unlike an ordinary appeal, requirespreparation and research to present a persuasive position.

20The drafting of the petition for

review entails more time and effort than filing a notice of appeal.21

Hence, the Court of Appealsmay allow an extension of time to file a petition for review.

In the more recent case ofCommissioner of Internal Revenue v. Court of Appeals,22

weheld that Liboros clarification ofLacsamana is consistent with the Revised Internal Rules ofthe Court of Appeals and Supreme Court Circular No. 1-91. They all allow an extension of timefor filing petitions for review with the Court of Appeals. The extension, however, should be


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limited to only fifteen days save in exceptionally meritorious cases where the Court of Appealsmay 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 RTCdecision could not have gained finality because the Court of Appeals granted the 30-dayextension to Guevarra.

The Court of Appeals did not commit grave abuse of discretion when it approved Guevarrasmotion for extension. The Court of Appeals gave due course to the motion for extensionbecause it complied with the condition set by the appellate court in its resolution dated 28January 1997. The resolution stated that the Court of Appeals would only give due course tothe 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 thepetition, and (2) the date of filing of the motion for extension.24

It is the date of the filing of themotion or pleading, and not the date of execution, that determines the timeliness of the filing ofthat motion or pleading. Thus, even if the motion for extension bears no date, the date of filingstamped 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 filedhis motion for extension before this Court on 13 December 1996, the date stamped by thisCourts Receiving Clerk on the motion for extension. Clearly, Guevarra filed the motion forextension exactly one day before the lapse of the reglementary period to appeal.

Assuming that the Court of Appeals should have dismissed Guevarras appeal on technicalgrounds, Pajuyo did not ask the appellate court to deny the motion for extension and dismissthe petition for review at the earliest opportunity. Instead, Pajuyo vigorously discussed themerits of the case. It was only when the Court of Appeals ruled in Guevarras favor that Pajuyoraised the procedural issues against Guevarras petition for review.

A party who, after voluntarily submitting a dispute for resolution, receives an adverse decisionon the merits, is estopped from attacking the jurisdiction of the court.25 Estoppel sets in notbecause the judgment of the court is a valid and conclusive adjudication, but because thepractice of attacking the courts jurisdiction after voluntarily submitting to it is against publicpolicy.26

In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure tosign the certification against forum shopping. Instead, Pajuyo harped on Guevarras counselsigning the verification, claiming that the counsels verification is insufficient since it is basedonly on "mere information."

A partys failure to sign the certification against forum shopping is different from the partysfailure to sign personally the verification. The certificate of non-forum shopping must be signedby the party, and not by counsel.27 The certification of counsel renders the petition defective.28

On the other hand, the requirement on verification of a pleading is a formal and not ajurisdictional requisite.29 It is intended simply to secure an assurance that what are alleged inthe pleading are true and correct and not the product of the imagination or a matter ofspeculation, and that the pleading is filed in good faith.30 The party need not sign the


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

We agree with the Court of Appeals that the issue on the certificate against forum shopping

was merely an afterthought. Pajuyo did not call the Court of Appeals attention to this defect atthe early stage of the proceedings. Pajuyo raised this procedural issue too late in theproceedings.

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

Settled is the rule that the defendants claim of ownership of the disputed property will notdivest the inferior court of its jurisdiction over the ejectment case.

32Even if the pleadings raise

the issue of ownership, the court may pass on such issue to determine only the question ofpossession, 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 betweenthe same parties involving title to the land.34

This doctrine is a necessary consequence of thenature of the two summary actions of ejectment, forcible entry and unlawful detainer, wherethe only issue for adjudication is the physical or material possession over the real property.

35

In this case, what Guevarra raised before the courts was that he and Pajuyo are not theowners of the contested property and that they are mere squatters. Will the defense that theparties to the ejectment case are not the owners of the disputed lot allow the courts torenounce their jurisdiction over the case? The Court of Appeals believed so and held that itwould just leave the parties where they are since they are inpari 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 forrecovery of possession. The parties cannot present evidence to prove ownership or right tolegal possession except to prove the nature of the possession when necessary to resolve theissue of physical possession.

36The 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 courtsto withhold relief from the parties in an ejectment case.

The only question that the courts must resolve in ejectment proceedings is - who is entitled tothe 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 isquestionable,38

or when both parties intruded into public land and their applications to own theland have yet to be approved by the proper government agency.39 Regardless of the actualcondition of the title to the property, the party in peaceable quiet possession shall not bethrown out by a strong hand, violence or terror.

40Neither 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 theowner himself.41 Whatever may be the character of his possession, if he has in his favor priorpossession in time, he has the security that entitles him to remain on the property until aperson with a better right lawfully ejects him.42 To repeat, the only issue that the court has tosettle in an ejectment suit is the right to physical possession.


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In Pitargue v. Sorilla,43 the government owned the land in dispute. The government did notauthorize either the plaintiff or the defendant in the case of forcible entry case to occupy theland. The plaintiff had prior possession and had already introduced improvements on thepublic 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 againstthe 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 possessionbecause while the application of the plaintiff was still pending, title remained with thegovernment, and the Bureau of Public Lands had jurisdiction over the case. We disagreed withthe defendant. We ruled that courts have jurisdiction to entertain ejectment suits even beforethe 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 privateclaimants. That prior physical possession enjoys legal protection against other privateclaimants 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, strictlyspeak

credit cases _chap. 1-2

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