credit finals cases

8/10/2019 Credit Finals Cases

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Eastern Shipping vs CA Credit DigestEastern Shipping vs CAGR No. 97412, 12 July 1994234 SCRA 78

FACTSTwo fiber drums were shipped owned by EasternShipping from Japan. The shipment as insured witha marine policy. Upon arrival in Manila unto thecustody of metro Port Service, which excepted toone drum, said to be in bad order and whichdamage was unknown the Mercantile InsuranceCompany. Allied Brokerage Corporation receivedthe shipment from Metro, one drum opened andwithout seal. Allied delivered the shipment to theconsignees warehouse. The latter excepted to one

drum which contained spillages while the rest of thecontents was adulterated/fake. As consequence ofthe loss, the insurance company paid theconsignee, so that it became subrogated to all therights of action of consignee against the defendantsEastern Shipping, Metro Port and Allied Brokerage.The insurance company filed before the trial court.The trial court ruled in favor of plaintiff an ordereddefendants to pay the former with present legalinterest of 12% per annum from the date of thefiling of the complaint. On appeal by defendants,

the appellate court denied the same and affirmed intoto the decision of the trial court.

ISSUEWhether the applicable rate of legal interest is 12% or 6%.

Whether the payment of legal interest on the award for lossor damage is to be computed from the time the complaint

is filed from the date the decision appealed from isrendered.

HELDThe Court held that the legal interest is 6%

computed from the decision of the court a quo.When an obligation, not constituting a loan orforbearance of money, is breached, an interest onthe amount of damaes awarded may be imposed atthe discretion of the court at the rate of 6% perannum. No interest shall be adjudged onunliquidated claims or damages except when oruntil the demand can be established withreasonable certainty.

When the judgment of the court awarding a sum of

money becomes final and executor, the rate oflegal interest shall be 12% per annum from suchfinality until satisfaction, this interim period beingdeemed to be by then an equivalent to aforbearance of money.

The interest due shall be 12% PA to be computedfro default, J or EJD.

From the date the judgment is made. Where the demand isestablished with reasonable certainty, the interest shall

begin to run from the time the claim is made judicially or EJbut when such certainty cannot be so reasonablyestablished at the time the demand is made, the interestshll begin to run only from the date of judgment of the courtis made.

The Court held that it should be computed from thedecision rendered by the court a quo.


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G.R. No. 152071 May 8, 2009

PRODUCERS BANK OF THE PHILIPPINES,Petitioner,vs.EXCELSA INDUSTRIES, INC., Respondent.

D E C I S I O N

TINGA, J .:

This is a petition for review on certiorari1under Rule 43 ofthe 1997 Rules of Civil Procedure, assailing thedecision2and resolution3of the Court of Appeals in CA-G.R. CV No. 59931. The Court of Appealsdecision4reversed the decision of the Regional Trial Court

(RTC), Branch 73, Antipolo, Rizal, upholding theextrajudicial foreclosure of the mortgage on respondentsproperties, while the resolution denied petitioners motionfor reconsideration.5

As borne by the records of the case, the following factualantecedents appear:

Respondent Excelsa Industries, Inc. is a manufacturer andexporter of fuel products, particularly charcoal briquettes,as an alternative fuel source. Sometime in January 1987,

respondent applied for a packing credit line or a creditexport advance with petitioner Producers Bank of thePhilippines, a banking institution duly organized andexisting under Philippines laws.6

The application was supported by Letter of Credit No.M3411610NS2970 dated 14 October 1986. Kwang JuBank, Ltd. of Seoul, Korea issued the letter of creditthrough its correspondent bank, the Bank of the PhilippineIslands, in the amount of US$23,000.00 for the account of

Shin Sung Commercial Co., Ltd., also located in Seoul,Korea. T.L. World Development Corporation was theoriginal beneficiary of the letter of credit. On 05 December1986, for value received, T.L. World transferred torespondent all its rights and obligations under the said

letter of credit. Petitioner approved respondentsapplication for a packing credit line in the amountof P300,000.00, of which aboutP96,000.00 in principal

remained outstanding.7Respondent executed thecorresponding promissory notes evidencing theindebtedness.8

Prior to the application for the packing credit line,respondent had obtained a loan from petitioner in the formof a bill discounted and secured credit accommodation inthe amount of P200,000.00, of which P110,000.00 was

outstanding at the time of the approval of the packingcredit line. The loan was secured by a real estatemortgage dated 05 December 1986 over respondentsproperties covered by Transfer Certificates of Titles (TCT)No. N-68661, N-68662, N-68663, N-68664, N-68665 andN-68666, all issued by the Register of Deeds of Marikina.9

Significantly, the real estate mortgage contained thefollowing clause:

For and in consideration of those certain loans, overdraftand/or other credit accommodations on this date obtainedfrom the MORTGAGEE, and to secure the payment of thesame, the principal of all of which is hereby fixed at FIVEHUNDRED THOUSAND PESOS ONLY (P500,000.00)

Pesos, Philippine Currency, as well as those that theMORTGAGEE may hereafter extend to theMORTGAGOR, including interest and expenses or anyother obligation owing to the MORTGAGEE, theMORTGAGOR does hereby transfer and convey by way of
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mortgage unto the MORTGAGEE, its successors orassigns, the parcel(s) of land which is/are described in thelist inserted on the back of this document, and/orappended hereto, together with all the buildings andimprovements now existing or which may hereafter be

erected or constructed thereon, of which theMORTGAGOR declares that he/it is the absolute owner,free from all liens and encumbrances.10

On 17 March 1987, respondent presented for negotiationto petitioner drafts drawn under the letter of credit and thecorresponding export documents in consideration for itsdrawings in the amounts of US$5,739.76 andUS$4,585.79. Petitioner purchased the drafts and exportdocuments by paying respondent the peso equivalent ofthe drawings. The purchase was subject to the conditionslaid down in two separate undertakings by respondentdated 17 March 1987 and 10 April 1987.11

On 24 April 1987, Kwang Ju Bank, Ltd. notified petitionerthrough cable that the Korean buyer refused to payrespondents export documents on account oftypographical discrepancies. Kwang Ju Bank, Ltd. returnedto petitioner the export documents.12

Upon learning about the Korean importers non-payment,

respondent sent petitioner a letter dated 27 July 1987,informing the latter that respondent had brought the matterbefore the Korea Trade Court and that it was ready toliquidate its past due account with petitioner. Respondentsent another letter dated 08 September 1987, reiteratingthe same assurance. In a letter 05 October 1987, KwangJu Bank, Ltd. informed petitioner that it would be returningthe export documents on account of the non-acceptanceby the importer.13

Petitioner demanded from respondent the payment of thepeso equivalent of the export documents, plus interest andother charges, and also of the other due and unpaid loans.Due to respondents failure to heed the demand, petitionermoved for the extrajudicial foreclosure on the real estate

mortgage over respondents properties.

Per petitioners computation, aside from charges forattorneys fees and sheriffs fees, respondent had a totaldue and demandable obligation of P573,225.60, including

interest, in six different accounts, namely:

EBP-PHO-87-1121 (US$4,585.97 x 21.212)= P119,165.06

EBP-PHO-87-1095 (US$ 5,739.76 x21.212) = 151,580.97

BDS-001-87 = 61,777.78

BDS-030/86 A = 123,555.55

BDS-PC-002-/87 = 55,822.91

BDS-005/87 = 61,323.33

P573,225.6014

The total approved bid price, which included the attorneysfees and sheriff fees, was pegged at P752,074.63. At the

public auction held on 05 January 1988, the Sheriff ofAntipolo, Rizal issued a Certificate of Sale in favor ofpetitioner as the highest bidder.15The certificate of salewas registered on 24 March 1988.16
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On 12 June 1989, petitioner executed an affidavit ofconsolidation over the foreclosed properties afterrespondent failed to redeem the same. As a result, theRegister of Deeds of Marikina issued new certificates oftitle in the name of petitioner.17

On 17 November 1989, respondent instituted an action forthe annulment of the extrajudicial foreclosure with prayerfor preliminary injunction and damages against petitionerand the Register of Deeds of Marikina. Docketed as CivilCase No. 1587-A, the complaint was raffled to Branch 73of the RTC of Antipolo, Rizal. The complaint prayed,among others, that the defendants be enjoined fromcausing the transfer of ownership over the foreclosedproperties from respondent to petitioner.18

On 05 April 1990, petitioner filed a petition for the issuanceof a writ of possession, docketed as LR Case No. 90-787,before the same branch of the RTC of Antipolo, Rizal. TheRTC ordered the consolidation of Civil Case No, 1587-Aand LR Case No. 90-787.19

On 18 December 1997, the RTC rendered a decisionupholding the validity of the extrajudicial foreclosure andordering the issuance of a writ of possession in favor ofpetitioner, to wit:

WHEREFORE, in Case No. 1587-A, the court hereby rulesthat the foreclosure of mortgage for the old and newobligations of the plaintiff Excelsa Industries Corp., whichhas remained unpaid up to the time of foreclosure bydefendant Producers Bank of the Philippines was valid,legal and in order; In Case No. 787-A, the court herebyorders for the issuance of a writ of possession in favor ofProducers Bank of the Philippines after the properties ofExcelsa Industries Corp., which were foreclosed and

consolidated in the name of Producers Bank of thePhilippines under TCT No. 169031, 169032, 169033,169034 and 169035 of the Register of Deeds of Marikina.

SO ORDERED.20

The RTC held that petitioner, whose obligation consistedonly of receiving, and not of collecting, the export proceedsfor the purpose of converting into Philippine currency andremitting the same to respondent, cannot be considered asrespondents agent. The RTC also held that petitionercannot be presumed to have received the export proceeds,considering that respondent executed undertakingswarranting that the drafts and accompanying documentswere genuine and accurately represented the facts statedtherein and would be accepted and paid in accordancewith their tenor.21

Furthermore, the RTC concluded that petitioner had noobligation to return the export documents and respondentcould not expect their return prior to the payment of theexport advances because the drafts and export documentswere the evidence that respondent received exportadvances from petitioner.22

The RTC also found that by its admission, respondent had

other loan obligations obtained from petitioner which weredue and demandable; hence, petitioner correctly exercisedits right to foreclose the real estate mortgage, whichprovided that the same secured the payment of not onlythe loans already obtained but also the exportadvances.231avvphi1

Lastly, the RTC found respondent guilty of laches inquestioning the foreclosure sale considering that petitionermade several demands for payment of respondents
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outstanding loans as early as July 1987 and thatrespondent acknowledged the failure to pay its loans andadvances.24

The RTC denied respondents motion for

reconsideration.25Thus, respondent elevated the matter tothe Court of Appeals, reiterating its claim that petitionerwas not only a collection agent but was considered apurchaser of the export

On 30 May 2001, the Court of Appeals rendered theassailed decision, reversing the RTCs decision, thus:

WHEREFORE, the appeal is hereby GRANTED. Thedecision of the trial court dated December 18, 1997 isREVERSED and SET ASIDE. Accordingly, the foreclosureof mortgage on the properties of appellant is declared asINVALID. The issuance of the writ of possession in favor ofappellee is ANNULLED. The following damages arehereby awarded in favor of appellant:

Moral damages in the amountof P100,000.00;

Exemplary damages in the amountof P100,000.00; and

Costs.

SO ORDERED.26

The Court of Appeals held that respondent should not befaulted for the dishonor of the drafts and export documentsbecause the obligation to collect the export proceeds fromKwang Ju Bank, Ltd. devolved upon petitioner. It cited thetestimony of petitioners manager for the foreign currency

department to the effect that petitioner was respondentsagent, being the only entity authorized under Central BankCircular No. 491 to collect directly from the importer theexport proceeds on respondents behalf and converting thesame to Philippine currency for remittance to respondent.

The appellate court found that respondent was notauthorized and even powerless to collect from the importerand it appeared that respondent was left at the mercy ofpetitioner, which kept the export documents during the timethat respondent attempted to collect payment from theKorean importer.

The Court of Appeals disregarded the RTCs finding thatthe export documents were the only evidence ofrespondents export advances and that petitioner was

justified in refusing to return them. It opined that granting

petitioner had no obligation to return the exportdocuments, the former should have helped respondent inthe collection efforts instead of augmenting respondentsdilemma.

Furthermore, the Court of Appeals found petitionersnegligence as the cause of the refusal by the Korean buyerto pay the export proceeds based on the following: first,petitioner had a hand in preparing and scrutinizing theexport documents wherein the discrepancies were found;and, second, petitioner failed to advise respondent aboutthe warning from Kwang Ju Bank, Ltd. that the exportdocuments would be returned if no explanation regardingthe discrepancies would be made.

The Court of Appeals invalidated the extrajudicialforeclosure of the real estate mortgage on the ground thatthe posting and publication of the notice of extrajudicialforeclosure proceedings did not comply with
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the personal notice requirement under paragraph 1227ofthe real estate mortgage executed between petitioner andrespondent. The Court of Appeals also overturned theRTCs finding that respondent was guilty of estoppel bylaches in questioning the extrajudicial foreclosure sale.

Petitioners motion for reconsideration28was denied in a

Resolution dated 29 January 2002. Hence, the instantpetition, arguing that the Court of Appeals erred in findingpetitioner as respondents agent, which was liable for thediscrepancies in the export documents, in invalidating theforeclosure sale and in declaring that respondent was notestopped from questioning the foreclosure sale.29

The validity of the extrajudicial foreclosure of the mortgageis dependent on the following issues posed by petitioner:(1) the coverage of the "blanket mortgage clause;" (2)petitioners failure to furnish personal notice of theforeclosure to respondent; and (3) petitioners obligation asnegotiating bank under the letter of credit.

Notably, the errors cited by petitioners are factual innature. Although the instant case is a petition for reviewunder Rule 45 which, as a general rule, is limited toreviewing errors of law, findings of fact being conclusive asa matter of general principle, however, considering theconflict between the factual findings of the RTC and theCourt of Appeals, there is a need to review the factualissues as an exception to the general rule.30

Much of the discussion has revolved around who shouldbe liable for the dishonor of the draft and exportdocuments. In the two undertakings executed byrespondent as a condition for the negotiation of the drafts,respondent held itself liable if the drafts were not accepted.The two undertakings signed by respondent are similarly-

worded and contained respondents express warranties, towit:

In consideration of your negotiating the above describeddraft(s), we hereby warrant that the said draft(s) and

accompanying documents thereon are valid, genuineand accurately represent the facts stated therein, andthat such draft(s) will be accepted and paid inaccordance with its/their tenor. We further undertakeand agree, jointly and severally, to defend and hold youfree and harmless from any and all actions, claims anddemands whatsoever, and to pay on demand all damagesactual or compensatory including attorneys fees, costsand other awards or be adjudged to pay, in case of suit,which you may suffer arising from, by reason, or onaccount of your negotiating the above draft(s) because of

the following discrepancies or reasons or any otherdiscrepancy or reason whatever.

We hereby undertake to pay on demand the fullamount of the above draft(s) or any unpaid balancethereof,the Philippine perso equivalent converted at the

prevailing selling rate (or selling rate prevailing at the date

you negotiate our draft, whichever is higher) allowed by theCentral Bank with interest at the rate prevailing today fromthe date of negotiation, plus all charges and expenseswhatsoever incurred in connection therewith. You shallneither be obliged to contest or dispute any refusal toaccept or to pay the whole or any part of the abovedraft(s), nor proceed in any way against the drawee, theissuing bank or any endorser thereof, before making ademand on us for the payment of the whole or any unpaidbalance of the draft(s).(Emphasis supplied)31

In Velasquez v. Solidbank Corporation,32where the drawertherein also executed a separate letter of undertaking in
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consideration for the banks negotiation of its sight drafts,the Court held that the drawer can still be made liableunder the letter of undertaking even if he is discharged dueto the banks failure to protest the non-acceptance of thedrafts. The Court explained, thus:

Petitioner, however, can still be made liable under theletter of undertaking. It bears stressing that it is a separatecontract from the sight draft. The liability of petitioner underthe letter of undertaking is direct and primary. It isindependent from his liability under the sight draft. Liabilitysubsists on it even if the sight draft was dishonored fornon-acceptance or non-payment.

Respondent agreed to purchase the draft and creditpetitioner its value upon the undertaking that he willreimburse the amount in case the sight draft is dishonored.The bank would certainly not have agreed to grantpetitioner an advance export payment were it not for theletter of undertaking. The consideration for the letter ofundertaking was petitioners promise to pay respondentthe value of the sight draft if it was dishonored for anyreason by the Bank of Seoul.33

Thus, notwithstanding petitioners alleged failure to complywith the requirements of notice of dishonor and protestunder Sections 8934and 152,35respectively, of theNegotiable Instruments Law, respondent may not escapeits liability under the separate undertakings, whererespondent promised to pay on demand the full amount ofthe drafts.

The next question, therefore, is whether the real estatemortgage also served as security for respondents draftsthat were not accepted and paid by the Kwang Ju Bank,Ltd.

Respondent executed a real estate mortgage containing a"blanket mortgage clause," also known as a "dragnetclause." It has been settled in a long line of decisions thatmortgages given to secure future advancements are validand legal contracts, and the amounts named as

consideration in said contracts do not limit the amount forwhich the mortgage may stand as security if from the fourcorners of the instrument the intent to secure future andother indebtedness can be gathered.36

In Union Bank of the Philippines v. Court of Appeals ,37thenature of a dragnet clause was explained, thus:

Is one which is specifically phrased to subsume all debts ofpast and future origins. Such clauses are "carefullyscrutinized and strictly construed." Mortgages of thischaracter enable the parties to provide continuousdealings, the nature or extent of which may not be knownor anticipated at the time, and they avoid the expense andinconvenience of executing a new security on each newtransaction. A "dragnet clause" operates as a convenienceand accommodation to the borrowers as it makes availableadditional funds without their

having to execute additional security documents, therebysaving time, travel, loan closing costs, costs of extra legalservices, recording fees, et cetera.38

x x x

Petitioner, therefore, was not precluded from seeking theforeclosure of the real estate mortgage based on theunpaid drafts drawn by respondent. In any case,respondent had admitted that aside from the unpaid drafts,respondent also had due and demandable loans securedfrom another account as evidenced by Promissory Notes
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(PN Nos.) BDS-001-87, BDS-030/86 A, BDS-PC-002-/87and BDS-005/87.

However, the Court of Appeals invalidated the extrajudicialforeclosure of the mortgage on the ground that petitioner

had failed to furnish respondent personal notice of the salecontrary to the stipulation in the real estate mortgage.

Petitioner, on the other hand, claims that under paragraph1239of the real estate mortgage, personal notice of theforeclosure sale is not a requirement to the validity of theforeclosure sale.

A perusal of the records of the case shows that a notice ofsheriffs sale

40was sent by registered mail to respondentand received in due course.41Yet, respondent claims that itdid not receive the notice but only learned about it frompetitioner. In any event, paragraph 12 of the real estatemortgage requires petitioner merely to furnish respondentwith the notice and does not oblige petitioner to ensurethat respondent actually receives the notice. On this score,the Court holds that petitioner has performed its obligationunder paragraph 12 of the real estate mortgage.

As regards the issue of whether respondent may stillquestion the foreclosure sale, the RTC held that the sale

was conducted according to the legal procedure, to wit:

Plaintiff is estopped from questioning the foreclosure. Theplaintiff is guilty of laches and cannot at this point in timequestion the foreclosure of the subject properties.Defendant bank made demands against the plaintiff for thepayment of plaintiffs outstanding loans and advances withthe defendant as early as July 1997. Plaintiffacknowledged such outstanding loans and advances tothe defendant bank and committed to liquidate the same.

For failure of the plaintiff to pay its obligations on maturity,defendant bank foreclosed the mortgage on subjectproperties on January 5, 1988 the certificate of sale wasannotated on March 24, 1988 and there being noredemption made by the plaintiff, title to said properties

were consolidated in the name of defendant in July 1989.Undeniably, subject foreclosure was done in accordancewith the prescribed rules as may be borne out by theexhibits submitted to this Court which are Exhibit "33," anotice of extrajudicial sale executed by the Sheriff of

Antipolo, Exhibit "34" certificate posting of extrajudicialsale, Exhibit "35" return card evidencing receipt by plaintiffof the notice of extrajudicial sale and Exhibit "21" affidavitof publication.

The Court adopts and approves the aforequoted findings

by the RTC, the same being fully supported by theevidence on record.

WHEREFORE, the instant petition for review on certiorariis GRANTED and the decision and resolution of the Courtof Appeals in CA-G.R. CV No. 59931 are REVERSED andSET ASIDE. The decision of the Regional Trial CourtBranch 73, Antipolo, Rizal in Civil Case No. 1587-A and LRCase No. 90-787 is REINSTATED.

SO ORDERED.

G.R. No. L-30771 May 28, 1984

LIAM LAW, plaintiff-appellee,vs.OLYMPIC SAWMILL CO. and ELINO LEECHI, defendants-appellants.

Felizardo S.M. de Guzman for plaintiff-appellee.
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Mariano M. de Joya for defendants-appellants.

MELENCIO-HERRERA, J .:

This is an appeal by defendants from a Decision renderedby the then Court of First Instance of Bulacan. The appealwas originally taken to the then Court of Appeals, whichendorsed it to this instance stating that the issue involvedwas one of law.

It appears that on or about September 7, 1957, plaintiffloaned P10,000.00, without interest, to defendantpartnership and defendant Elino Lee Chi, as the managing

partner. The loan became ultimately due on January 31,1960, but was not paid on that date, with the debtorsasking for an extension of three months, or up to April 30,1960.

On March 17, 1960, the parties executed another loandocument. Payment of the P10,000.00 was extended to

April 30, 1960, but the obligation was increased byP6,000.00 as follows:

That the sum of SIX THOUSAND PESOS

(P6,000.00), Philippine currency shall formpart of the principal obligation to answer forattorney's fees, legal interest, and other costincident thereto to be paid unto the creditorand his successors in interest upon thetermination of this agreement.

Defendants again failed to pay their obligation by April 30,1960 and, on September 23, 1960, plaintiff instituted thiscollection case. Defendants admitted the P10,000.00

principal obligation, but claimed that the additionalP6,000.00 constituted usurious interest.

Upon application of plaintiff, the Trial Court issued, on thesame date of September 23, 1960, a writ of Attachment on

real and personal properties of defendants located atKaranglan, Nueva Ecija. After the Writ of Attachment wasimplemented, proceedings before the Trial Court versedprincipally in regards to the attachment.

On January 18, 1961, an Order was issued by the TrialCourt stating that "after considering the manifestation ofboth counsel in Chambers, the Court hereby allows bothparties to simultaneously submit a Motion for SummaryJudgment. 1The plaintiff filed his Motion for SummaryJudgment on January 31, 1961, while defendants filedtheirs on February 2, 196l. 2

On June 26, 1961, the Trial Court rendered decisionordering defendants to pay plaintiff "the amount ofP10,000.00 plus the further sum of P6,000.00 by way ofliquidated damages . . . with legal rate of interest on bothamounts from April 30, 1960." It is from this judgment thatdefendants have appealed.

We have decided to affirm.

Under Article 1354 of the Civil Code, in regards to theagreement of the parties relative to the P6,000.00obligation, "it is presumed that it exists and is lawful,unless the debtor proves the contrary". No evidentiaryhearing having been held, it has to be concluded thatdefendants had not proven that the P6,000.00 obligationwas illegal. Confirming the Trial Court's finding, we viewthe P6,000.00 obligation as liquidated damages suffered


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by plaintiff, as of March 17, 1960, representing loss ofinterest income, attorney's fees and incidentals.

The main thrust of defendants' appeal is the allegation intheir Answer that the P6,000.00 constituted usurious

interest. They insist the claim of usury should have beendeemed admitted by plaintiff as it was "not deniedspecifically and under oath". 3

Section 9 of the Usury Law (Act 2655) provided:

SEC. 9. The person or corporationsuedshall file its answer in writing underoath to any complaint brought or filedagainst said person or corporation before acompetent court to recover the money orother personal or real property, seeds oragricultural products, charged or received inviolation of the provisions of this Act. Thelack of taking an oath to an answer to acomplaint will mean the admission of thefacts contained in the latter.

The foregoing provision envisages a complaint filedagainst an entity which has committed usury, for therecovery of the usurious interest paid. In that case, if the

entity sued shall not file its answer under oath denying theallegation of usury, the defendant shall be deemed to haveadmitted the usury. The provision does not apply to a case,as in the present, where it is the defendant, not theplaintiff, who is alleging usury.

Moreover, for sometime now, usury has been legally non-existent. Interest can now be charged as lender andborrower may agree upon. 4The Rules of Court in regards

to allegations of usury, procedural in nature, should beconsidered repealed with retroactive effect.

Statutes regulating the procedure of thecourts will be construed as applicable to

actions pending and undetermined at thetime of their passage. Procedural laws areretrospective in that sense and to thatextent. 5

... Section 24(d), Republic Act No. 876,known as the Arbitration Law, which tookeffect on 19 December 1953, and may beretroactively applied to the case at barbecause it is procedural in nature. ... 6

WHEREFORE, the appealed judgment is hereby affirmed,without pronouncement as to costs.

SO ORDERED.

G.R. No. L-57314 November 29, 1983

TEODORO SANCHEZ, petitioner,vs.HON. CARLOS R. BUENVIAJE, Presiding Judge,

Branch VII, Court of First Instance of Camarines Sur,Iriga City, and ALEJO SANCHEZ, respondents.

Andres C. Regalado for petitioner.

The Solicitor General for respondents.


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ABAD SANTOS, J .:+. wph!1

This is a petition to review a decision rendered by thedefunct Court of First Instance of Camarines Sur, BranchVII, with following factual background.

On August 25, 1976, Alejo Sanchez sued TeodoroSanchez and Leonor Santilles in the Municipal Court ofBato, Camarines Sur, for the recovery of P2,000.00 whichthe latter had promised to pay in two notes. Said notesalso contained stipulations for interest at the rate of 10%per month The Municipal Court rendered judgmentordering Teodoro Sanchez only to pay to Alejo SanchezP2,000.00 plus interest thereon at the legal rate from thefiling of the complaint.

Teodoro appealed to the Court of First Instance ofCamarines Sur which rendered the following

judgment: t.hqw

WHEREFORE, the judgment rendered bythe lower court is hereby AFFIRMED withmodification as to costs. Judgment ishereby rendered, ordering the defendant topay his indebtedness to plaintiff in the totalsum of P2,000.00, plus interest thereon at

the legal rate from the firing of the complaintin this case to actual payment. Defendant topay double the costs of this suit. (Rollo p.30.)

In his petition for review, Teodoro claims that in a loan withusurious interest both the loan and the usurious interestare void.

Alejo was required to comment on the petition but itappears that he died sometime in the latter part of 1980and the early part of 1981. (Rollo, p. 42.) Accordingly, hischildren were impleaded as respondents and required tofile comment which they failed to do despite notice to them.

The absence of comment on the part of the privaterespondents notwithstanding, We resolve the petitionwithout any difficulty.

It is now well-settled that: "the Usury Law (Act No. 2655),by its letter and spirit, does not deprive the lender of hisright to recover of the borrower the money actually loanedthis only in the case that the interest collected is usurious.The law, as it is now, does not provide for the forfeiture ofthe capital in favor of the debtor in usurious contract ...(Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249,275 [1925].)

True it is that in Briones vs. Cammayo, L-23559, Oct. 4,1971; 41 SCRA 404, Chief Justice Concepcion and nowChief Justice Fernando concurred with Justice Castro whoopined that both loan and usurious interest are void.However, it must be emphasized that eight other justicesmaintained that only the usurious interest is void but notthe principal obligation.

WHEREFORE, finding the judgment sought to be reviewedto be in accordance with law, the petition is herebydismissed for lack of merit with costs against the petitioner.

SO ORDERED.1wph1.t

Concepcion, Jr., Guerrero, De Castro and Escolin JJ.,concur.


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Baron vs. David, 51 Phil. 1, Nos. 26948, October 08,1927

G.R. Nos. L-26948 and L-26949 October 8, 1927SILVESTRA BARON, plaintiff-appellant,vs.PABLO DAVID, defendant-appellant.AndGUILLERMO BARON, plaintiff-appellant,vs.PABLO DAVID, defendant-appellant.Jose Gutierrez David for plaintiff-appellant in case ofNo. 26948.Gregorio Perfecto for defendant-appellant in both

cases.Francisco, Lualhati & Lopez and Jose Gutierrez Davidfor plaintiff-appellant in case No. 26949.

STREET, J.:These two actions were instituted in the Court ofFirst Instance of the Province of Pampanga by therespective plaintiffs, Silvestra Baron and GuillermoBaron, for the purpose of recovering from thedefendant, Pablo David, the value of palay allegedto have been sold by the plaintiffs to the defendant

in the year 1920. Owing to the fact that thedefendant is the same in both cases and that thetwo cases depend in part upon the same facts, thecases were heard together in the trial court anddetermined in a single opinion. The same coursewill accordingly be followed here.In the first case, i. e., that which Silvestra Baron isplaintiff, the court gave judgment for her to recoverof the defendant the sum of P5,238.51, with costs.

From this judgment both the plaintiff and thedefendant appealed.In the second case, i. e., that in which GuillermoBaron, is plaintiff, the court gave judgment for himto recover of the defendant the sum of P5,734.60,

with costs, from which judgment both the plaintiffand the defendant also appealed. In the same casethe defendant interposed a counterclaim in whichhe asked credit for the sum of P2,800 which he hadadvanced to the plaintiff Guillermo Baron onvarious occasions. This credit was admitted by theplaintiff and allowed by the trial court. But thedefendant also interposed a cross-action againstGuillermo Baron in which the defendant claimedcompensation for damages alleged to have Bensuffered by him by reason of the alleged malicious

and false statements made by the plaintiff againstthe defendant in suing out an attachment againstthe defendant's property soon after the institution ofthe action. In the same cross-action the defendantalso sought compensation for damages incident tothe shutting down of the defendant's rice mill for theperiod of one hundred seventy days during whichthe above-mentioned attachment was in force. Thetrial judge disallowed these claims for damages,and from this feature of the decision the defendantappealed. We are therefore confronted with five

distinct appeals in this record.Prior to January 17, 1921, the defendant Pablo David hasbeen engaged in running a rice mill in the municipality ofMagalang, in the Province of Pampanga, a mill which waswell patronized by the rice growers of the vicinity andalmost constantly running. On the date stated a fireoccurred that destroyed the mill and its contents, and itwas some time before the mill could be rebuilt and put inoperation again. Silvestra Baron, the plaintiff in the first of


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the defendant might mill the palay and he has in factappropriated it to his own use, he is of course bound toaccount for its value. Under article 1768 of the Civil Code,when the depository has permission to make use of thething deposited, the contract loses the character of mere

deposit and becomes a loan or a commodatum; and ofcourse by appropriating the thing, the bailee becomesresponsible for its value. In this connection we wholly rejectthe defendant's pretense that the palay delivered by theplaintiffs or any part of it was actually consumed in the fireof January, 1921. Nor is the liability of the defendant in anywise affected by the circumstance that, by a customprevailing among rice millers in this country, personsplacing palay with them without special agreement as toprice are at liberty to withdraw it later, proper allowancebeing made for storage and shrinkage, a thing that is

sometimes done, though rarely.In view of what has been said it becomesnecessary to discover the price which thedefendant should be required to pay for theplaintiffs' palay. Upon this point the trial judge fixedupon P6.15 per cavan; and although we are notexactly in agreement with him as to the propriety ofthe method by which he arrived at this figure, weare nevertheless of the opinion that, all thingsconsidered, the result is approximately correct. Itappears that the price of palay during the months of

April, May, and June, 1920, had been excessivelyhigh in the Philippine Islands and even prior to thatperiod the Government of the Philippine Islandshad been attempting to hold the price in check byexecutive regulation. The highest point wastouched in this season was apparently about P8.50per cavan, but the market began to sag in May orJune and presently entered upon a precipitatedecline. As we have already stated, the plaintiffs

made demand upon the defendant for settlement inthe early part of August; and, so far as we are ableto judge from the proof, the price of P6.15 percavan, fixed by the trial court, is about the price atwhich the defendant should be required to settle as

of that date. It was the date of the demand of theplaintiffs for settlement that determined the price tobe paid by the defendant, and this is true whetherthe palay was delivered in the character of sale withprice undetermined or in the character of depositsubject to use by the defendant. It results that theplaintiffs are respectively entitle to recover thevalue of the palay which they had placed with thedefendant during the period referred to, withinterest from the date of the filing of their severalcomplaints.

As already stated, the trial court found that at thetime of the fire there were about 360 cavans ofpalay in the mill and that this palay was destroyed.His Honor assumed that this was part of the palaydelivered by the plaintiffs, and he held that thedefendant should be credited with said amount. HisHonor therefore deducted from the claims of theplaintiffs their respective proportionate shares ofthis amount of palay. We are unable to see thepropriety of this feature of the decision. There weremany customers of the defendant's rice mill who

had placed their palay with the defendant under thesame conditions as the plaintiffs, and nothing canbe more certain than that the palay which wasburned did not belong to the plaintiffs. That palaywithout a doubt had long been sold and marketed.The assignments of error of each of the plaintiffs-appellants in which this feature of the decision isattacked are therefore well taken; and the appealed

judgments must be modified by eliminating the


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deductions which the trial court allowed from theplaintiffs' claims.

The trial judge also allowed a deduction from the claim ofthe plaintiff Guillermo Baron of 167 cavans of palay, asindicated in Exhibit 12, 13, 14, and 16. This was also

erroneous. These exhibits relate to transactions thatoccurred nearly two years after the transactions with whichwe are here concerned, and they were offered in evidencemerely to show the character of subsequent transactionsbetween the parties, it appearing that at the time saidexhibits came into existence the defendant hadreconstructed his mill and that business relations withGuillermo Baron had been resumed. The transactionsshown by these exhibits (which relate to palay withdrawnby the plaintiff from the defendant's mill) were not madethe subject of controversy in either the complaint or the

cross-complaint of the defendant in the second case. Theytherefore should not have been taken into account as acredit in favor of the defendant. Said credit must thereforebe likewise of course be without prejudice to any properadjustment of the rights of the parties with respect to thesesubsequent transactions that they have heretofore or mayhereafter effect.

The preceding discussion disposes of all vitalcontentions relative to the liability of the defendantupon the causes of action stated in the complaints.We proceed therefore now to consider the question

of the liability of the plaintiff Guillermo Baron uponthe cross-complaint of Pablo David in case R. G.No. 26949. In this cross-action the defendant seek,as the stated in the third paragraph of this opinion,to recover damages for the wrongful suing out of anattachment by the plaintiff and the levy of the sameupon the defendant's rice mill. It appears that abouttwo and one-half months after said action wasbegun, the plaintiff, Guillermo Baron, asked for an

attachment to be issued against the property of thedefendant; and to procure the issuance of said writthe plaintiff made affidavit to the effect that thedefendant was disposing, or attempting the plaintiff.Upon this affidavit an attachment was issued as

prayed, and on March 27, 1924, it was levied uponthe defendant's rice mill, and other property, realand personal. 1awph!l.netUpon attaching the property the sheriff closed themill and placed it in the care of a deputy.Operations were not resumed until September 13,1924, when the attachment was dissolved by anorder of the court and the defendant was permittedto resume control. At the time the attachment waslevied there were, in the bodega, more than 20,000cavans of palay belonging to persons who held

receipts therefor; and in order to get this grain awayfrom the sheriff, twenty-four of the depositors foundit necessary to submit third-party claims to thesheriff. When these claims were put in the sheriffnotified the plaintiff that a bond in the amount ofP50,000 must be given, otherwise the grain wouldbe released. The plaintiff, being unable or unwillingto give this bond, the sheriff surrendered the palayto the claimants; but the attachment on the rice millwas maintained until September 13, as abovestated, covering a period of one hundred seventy

days during which the mill was idle. The groundupon which the attachment was based, as set forthin the plaintiff's affidavit was that the defendant wasdisposing or attempting to dispose of his propertyfor the purpose of defrauding the plaintiff. That thisallegation was false is clearly apparent, and not aword of proof has been submitted in support of theassertion. On the contrary, the defendant testifiedthat at the time this attachment was secured he


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was solvent and could have paid his indebtednessto the plaintiff if judgment had been renderedagainst him in ordinary course. His financialconditions was of course well known to the plaintiff,who is his uncle. The defendant also states that he

had not conveyed away any of his property, norhad intended to do so, for the purpose ofdefrauding the plaintiff. We have before ustherefore a case of a baseless attachment,recklessly sued out upon a false affidavit and leviedupon the defendant's property to his great andneedless damage. That the act of the plaintiff insuing out the writ was wholly unjustifiable isperhaps also indicated in the circumstance that theattachment was finally dissolved upon the motion ofthe plaintiff himself.

The defendant testified that his mill was accustomed toclean from 400 to 450 cavans of palay per day, producing225 cavans of rice of 57 kilos each. The price charged forcleaning each cavan rice was 30 centavos. The defendantalso stated that the expense of running the mill per daywas from P18 to P25, and that the net profit per day on themill was more than P40. As the mill was not accustomed torun on Sundays and holiday, we estimate that thedefendant lost the profit that would have been earned onnot less than one hundred forty work days. Figuring hisprofits at P40 per day, which would appear to be a

conservative estimate, the actual net loss resulting from hisfailure to operate the mill during the time stated could nothave been less than P5,600. The reasonableness of thesefigures is also indicated in the fact that the twenty-fourcustomers who intervened with third-party claims took outof the camarin 20,000 cavans of palay, practically all ofwhich, in the ordinary course of events, would have beenmilled in this plant by the defendant. And of course othergrain would have found its way to this mill if it had

remained open during the one hundred forty days when itwas closed.

But this is not all. When the attachment wasdissolved and the mill again opened, the defendantfound that his customers had become scattered

and could not be easily gotten back. So slow,indeed, was his patronage in returning that duringthe remainder of the year 1924 the defendant wasable to mill scarcely more than the grain belongingto himself and his brothers; and even after the nextseason opened many of his old customers did notreturn. Several of these individuals, testifying aswitnesses in this case, stated that, owing to theunpleasant experience which they had in gettingback their grain from the sheriff to the mill of thedefendant, though they had previously had much

confidence in him.As against the defendant's proof showing the facts abovestated the plaintiff submitted no evidence whatever. Weare therefore constrained to hold that the defendant wasdamaged by the attachment to the extent of P5,600, inprofits lost by the closure of the mill, and to the extent ofP1,400 for injury to the good-will of his business, making atotal of P7,000. For this amount the defendant mustrecover judgment on his cross-complaint.The trial court, in dismissing the defendant's cross-complaint for damages resulting from the wrongful suing

out of the attachment, suggested that the closure of therice mill was a mere act of the sheriff for which the plaintiffwas not responsible and that the defendant might havebeen permitted by the sheriff to continue running the mill ifhe had applied to the sheriff for permission to operate it.This singular suggestion will not bear a moment's criticism.It was of course the duty of the sheriff, in levying theattachment, to take the attached property into hispossession, and the closure of the mill was a natural, and


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even necessary, consequence of the attachment. For thedamage thus inflicted upon the defendant the plaintiff isundoubtedly responsible.One feature of the cross-complaint consist in the claim ofthe defendant (cross-complaint) for the sum of P20,000 as

damages caused to the defendant by the false and allegedmalicious statements contained in the affidavit upon whichthe attachment was procured. The additional sum ofP5,000 is also claimed as exemplary damages. It is clearthat with respect to these damages the cross-action cannotbe maintained, for the reason that the affidavit in questionwas used in course of a legal proceeding for the purposeof obtaining a legal remedy, and it is therefore privileged.But though the affidavit is not actionable as a libelouspublication, this fact in no obstacle to the maintenance ofan action to recover the damage resulting from the levy of

the attachment.Before closing this opinion a word should be saidupon the point raised in the first assignment of errorof Pablo David as defendant in case R. G. No.26949. In this connection it appears that thedeposition of Guillermo Baron was presented incourt as evidence and was admitted as an exhibit,without being actually read to the court. It issupposed in the assignment of error now underconsideration that the deposition is not available asevidence to the plaintiff because it was not actually

read out in court. This connection is not wellfounded. It is true that in section 364 of the Code ofCivil Procedure it is said that a deposition, oncetaken, may be read by either party and will then bedeemed the evidence of the party reading it. Theuse of the word "read" in this section finds itsexplanation of course in the American practice oftrying cases for the most part before juries. When acase is thus tried the actual reading of the

deposition is necessary in order that the jurymenmay become acquainted with its contents. But incourts of equity, and in all courts where judgeshave the evidence before them for perusal at theirpleasure, it is not necessary that the deposition

should be actually read when presented asevidence.

From what has been said it result that judgment of thecourt below must be modified with respect to the amountsrecoverable by the respective plaintiffs in the two actionsR. G. Nos. 26948 and 26949 and must be reversed inrespect to the disposition of the cross-complaint interposedby the defendant in case R. G. No. 26949, with thefollowing result: In case R. G. No. 26948 the plaintiffSilvestra Baron will recover of the Pablo David the sum ofP6,227.24, with interest from November 21, 1923, the date

of the filing of her complaint, and with costs. In case R. G.No. 26949 the plaintiff Guillermo Baron will recover of thedefendant Pablo David the sum of P8,669.75, with interestfrom January 9, 1924. In the same case the defendantPablo David, as plaintiff in the cross-complaint, will recoverof Guillermo Baron the sum of P7,000, without costs. Soordered.Avancea, C.J., Johnson, Malcolm, Villamor, Romualdezand Villa-Real, JJ., concur.Delgado vs. BonnevieLessons Applicable: Simple Loan

Laws Applicable:

Facts:

December 6, 1966: Spouses Jose M. Lozano and JosefaP. Lozano secured their loan of P75K from Philippine Bankof Commerce (PBC) by mortgaging their property


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received for this purpose was credited by receipts madeout in this way: "Receipt for (number) cavanes of paddy infavor of (owner of the paddy), Nueva Caceres, (day) of(month), 1898." And they issued to Vicente Delgadoreceipts Nos. 86-99 for a total of 2,003 cavanes and a half

of paddy, from April 9 to June 8, 1898.

On February 6, 1909, Vicente Delgado appeared in theCourt of First Instance of Ambos Camarines with saidreceipts, demanding return of the said 2,003 and ahalf cavanes of paddy, or in the absence thereof, of theprice of said article at the rate of 3 pesos the cavan of6,009 pesos and 50 centimos, with the interest thereon at6 percent a year reckoning from, November 21, 905, untilcomplete payment, and the costs. The plaintiff asked thatthe interest run from November 21, 1905, because on that

date his counsel demanded of the defendants, Bonnevieand Arandez, their partnership having been dissolved, thatthey settle the accounts in this matter.

The court decided the case by sentencing the defendant,Pedro Bonnevie and Francisco Arandez, to pay to VicenteDelgado two thousand seven hundred and fifty-four pesosand 81 centimos (2,754.81), the value of 2,003cavanes of paddy at the rate of 11 reales the cavan and6 percent interest on said sum reckoned from November21, 1905, and the costs.

On appeal to this Supreme Court, the only grounds of errorassigned are: (1) Violation of articles 532 and 950 of theCode of Commerce; (2) violation of articles 309 of theCode of Commerce and 1955 and 1962 of the Civil Code;and (3) violation of section 296 of the Code of CivilProcedure.

With reference to the first assignment of error it is allegedthat the receipts in question, the form whereof has beenset forth, were all issued before July 11, 1898, and beingcredit paper as defined in paragraph 2 of article 532 of theCode of Commerce, the right of action arising therefrom

prescribed before July 11, 1901, in accordance with article950 of the Code of Commerce.

This conclusion is not admissible. It is true that, accordingto the article 950 of the Code of Commerce, actions arisingfrom bills of exchange, drafts, notes, checks, securities,dividends, coupons, and the amounts of the amortizationof obligations issued in accordance with said code, shallextinguish three years after they have fallen due; but it isalso true that as the receipts in question are notdocuments of any kinds enumerated in said article, the

actions arising therefrom do not extinguish three yearsfrom their date (that, after all, they do not fall due). It is truethat paragraph 2 of article 950 also mentions, besidesthose already stated, "other instruments of draft orexchange;" but it is also true that the receipts in this caseare not documents of draft or exchange, they are notdrafts payable to order, but they are, as the appellantsacknowledge, simple promises to pay, or rather meredocuments evidencing the receipt of some cavanes ofpaddy for the purpose already stated, which is nothingmore than purely for industrial, and not for mercantile

exchange. They are documents such as would be issuedby the thousand so-called rice-mills scattered throughoutthe Islands, wherein a few poor women of the people inlike manner clean the paddy by pounding it with a pestleand return hulled rice. The contract whereby one personreceives from another a quantity of unhulled rice to return ithulled, for a fixed compensation or renumeration, is anindustrial, not a commercial act; it is, as the appellant say,a hire of services without mercantile character, for there is


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nothing about the operation of washing clothes. Articles532 and 950 of the Code of Commerce have not,therefore, been violated, for they are not applicable to thecase at bar.

Neither are articles 309 of the Code of Commerce and1955 and 1962 of the Civil Code applicable. The first ofthese articles reads thus:

Whenever, with the consent of the depositor, thedepositary disposes of the articles on deposit either forhimself or for his business, or for transactions intrusted tohim by the former, the rights and obligations of thedepositary and of the depositor shall cease, and the rulesand provisions applicable to the commercial loans,commission, or contract which took place of the deposit

shall be observed.

The appellants say that, in accordance with this legalprovision, the puddy received on deposit ceased tocontinue under such character in order to remain in theirpossession under the contract of hire of services, in virtuewhereof they could change it by returning rice instead ofpaddy and a half less than the quantity received. Theyfurther say that the ownership of personal property,according to article 1955 of the Civil Code, prescribes byuninterrupted possession for six years, without necessity of

any other condition, and in accordance with article 1962 ofthe same Code real actions, with regard to personalproperty, prescribe after the lapse of six years from theloss of possession. 1awphil.net

Two questions are presented in these allegations: Oneregarding the nature of the obligation contracted by theappellants; and the other regarding prescription, not for aperiod of three years, but of six years.

With reference to the first, it is acknowledged that theobligation of the appellants arose primarily out of thecontract of deposit, but this deposit was later convertedinto a contract of hire of services, and this is true. But it isalso true that, after the object of the hire of services had

been fulfilled, the rice in every way remained as a depositin the possession of the appellants for them to return to thedepositor at any time they might be required to do so, andnothing has relieved them of this obligation; neither thedissolution of the partnership that united them, nor therevolutionary movement of a political character that seemsto have occurred in 1898, nor the fact that they may atsome time have lost possession of the rice.

With reference to the second question, or under title ofdeposit or hire of services, the possession of the

appellants can in no way amount to prescription, for thething received on deposit or for hire of services could notprescribe, since for every prescription of ownership thepossession must be in the capacity of an owner, public,peaceful, and uninterrupted (Civil Code, 1941); and theappellants could not possess the rice in the capacity ofowners, taking for granted that the depositor or lessornever could have believed that he had transferred to themownership of the thing deposited or leased, but merely thecare of the thing on deposit and the use or profit thereof;which is expressed in legal terms by saying that the

possession of the depositary or of the lessee is notadverse to that of the depositor or lessor, who continues tobe the owner of the thing which is merely held in trust bythe depositary or lessee.

In strict law, the deposit, when it is of fungible goodsreceived by weight, number or measurement, becomes amutual loan, by reason of the authorization which thedepositary may have from the depositor to make use of the


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goods deposited. (Civil Code, 1768, and Code ofCommerce, 309.) .

But in the present case neither was there for authorizationof the depositor nor did the depositaries intend to make

use of the rice for their own consumption or profit; theywere merely released from the obligation of returning thesame thing and contracted in lieu thereof the obligation ofdelivering something similar to the half of it, being boundby no fixed terms, the opposite of what happens in amutual loan, to make the delivery or return when and howit might please the depositor.

In fact, it has happened that the depositaries have, with theconsent of the depositor, as provided in article 309 of theCode of Commerce, disposed of the paddy "for

transactions he intrusted to them," and that in lieu of thedeposit there has been a hire of services, which is oneentered into between the parties to the end that one shouldreturn in rice half of the quantity of paddy delivered by theother, with the obligation on the latter's part of paying10 centimosfor each cavan of hulled rice. Theconsequence of this is that the rules and regulations forcontract of hire of services must be applied to the case,one of which is that the thing must be returned after theoperation entrusted and payment of compensation, andthe other that the action for claiming the thing leased,

being personal, does not prescribe for fifteen years underarticle 1964 of the Civil Code. 1awphi1.net

If the action arising from the receipts in question does notprescribe in three years, as does that from bills ofexchange, because they are not drafts payable to order oranything but receipts that any warehouseman would sign;if the possession of the paddy on the part of those whoreceived it for threshing is not in the capacity of owner but

only in that of depositary or lessor of services and undersuch character ownership thereof could not prescribe in sixyears, or at any time, because adverse possession and notmere holding in trust is required prescription; if the actionto recover the paddy so delivered is not real with regard to

personal property, possession whereof has been lost, buta personal obligation arising from contract of lease forrecovery of possession that has not been lost butmaintained in the lessee in the name of the lessor; ifprescription of any kind can in no way be held, onlybecause there could not have been either beginning or endof a fixed period for the prescription, it is useless to talk ofinterruption of the period for the prescription, to whichtends the third assignment of error, wherein it is said thatthe court violated article 296 of the Code of Civil Procedurein admitting as proven facts not alleged in the complaint,

justas if by admitting them there would have been a findingwith regard to the computation of the period for timelyexercise of the action, taking into consideration the legalinterruptions of the running of the period of prescription.The court has made no finding in the sense that this or thatperiod of time during which these or those facts occuredmust be counted out, and therefore the action has notprescribed, because by eliminating such period of time andcomparing such and such date the action has beenbrought in due time. Prescription of three or six yearscannot be presupposed in the terms alleged, but only of

fifteen years, which is what is proper to oppose to theexercise of a right of action arising from hire of servicesand even of deposit or mutual loan, whether common ormercantile; and such is the prescription consideredpossible by the trial court, in conformity with articles 943 ofthe Code of Commerce and 1964 of the Civil Code.

The trial judge confined himself to sentencing thedefendants to payment of the price of the paddy, ignoring


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the thing itself, return whereof ought to have been thesubject of judgment in the first place, because the thingitself appears to have been extinguished and its price hastaken its place. But the assigning of legal interest fromNovember 21, 1905, can have no other ground than the

demand made by plaintiff's counsel upon the defendants tosettle this matter. Legal interest on delinquent debts canonly be owed from the time the principal amountconstitutes a clear and certain debt, and in the presentcase the principal debt has only been clear and certainsince the date of the judgment of the lower court; so thelegal interest can be owed. only since then.

The judgment appealed from is affirmed, except that thelegal interest shall be understood to be owed from the datethereof; with the costs of this instance against the

appellants.

Torres, Mapa, Johnson and Carson, JJ., concur.

Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. 34642 September 24, 1931

FABIOLA SEVERINO, accompanied by her husbandRICARDO VERGARA,plaintiffs-appellees,vs.GUILLERMO SEVERINO, ET AL.,defendants.ENRIQUE ECHAUS,appellant.

R. Nepomuceno for appellant.Jacinto E. Evidente for appellees.

STREET, J .:

This action was instituted in the Court of First Instance ofthe Province of Iloilo by Fabiola Severino, with whom is

joined her husband Ricardo Vergara, for the purpose of

recovering the sum of P20,000 from Guillermo Severinoand Enrique Echaus, the latter in the character ofguarantor for the former. Upon hearing he cause the trialcourt gave judgment in favor of the plaintiffs to recover thesum of P20,000 with lawful from November 15, 1929, thedate of the filing of the complaint, with costs. But it wasdeclared that execution of this judgment should issue firstagainst the property of Guillermo Severino, and if noproperty should be found belonging to said defendantsufficient to satisfy the judgment in whole or in part,execution for the remainder should be issued against the

property of Enrique Echaus as guarantor. From thisjudgment the defendant Echaus appealed, but hisprincipal, Guillermo Severino, did not.

The plaintiff Fabiola Severino is the recognized naturaldaughter of Melecio Severino, deceased, former residentof Occidental Negros. Upon the death of Melecio Severinoa number of years ago, he left considerable property andlitigation ensued between his widow, Felicitas Villanueva,and Fabiola Severino, on the one part, and other heirs ofthe deceased on the other part. In order to make an end of

this litigation a compromise was effected by whichGuillermo Severino, a son of Melecio Severino, took overthe property pertaining to the estate of his father at thesame time agreeing to pay P100,000 to FelicitasVillanueva and Fabiola Severino. This sum of money wasmade payable, first, P40,000 in cash upon the execution ofthe document of compromise, and the balance in threeseveral payments of P20,000 at the end of one year; twoyears, and three years respectively. To this contract the


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appellant Enrique Echaus affixed his name as guarantor.The first payment of P40,000 was made on July 11, 1924,the date when the contract of compromise was executed;and of this amount the plaintiff Fabiola Severino receivedthe sum of P10,000. Of the remaining P60,000, all as yet

unpaid, Fabiola Severino is entitled to the sum of P20,000.

It appears that at the time of the compromise agreementabove-mentioned was executed Fabiola Severino had notyet been judicially recognized as the natural daughter ofMelecio Severino, and it was stipulated that the lastP20,000 corresponding to Fabiola and the last P5,000corresponding to Felicitas Villanueva should retained ondeposit until the definite status of Fabiola Severino asnatural daughter of Melecio Severino should beestablished. The judicial decree to this effect was entered

in the Court of First Instance of Occidental Negros on June16, 1925, and as the money which was contemplated to beheld in suspense has never in fact been paid to the partiesentitled thereto, it results that the point respecting thedeposit referred to has ceased to be of moment.

The proof shows that the money claimed in this action hasnever been paid and is still owing to the plaintiff; and theonly defense worth noting in this decision is the assertionon the part of Enrique Echaus that he received nothing foraffixing his signature as guarantor to the contract which is

the subject of suit and that in effect the contract waslacking in consideration as to him.

The point is not well taken. A guarantor or surety is boundby the same consideration that makes the contracteffective between the principal parties thereto. (Pyle vs.Johnson, 9 Phil., 249.) The compromise and dismissal of alawsuit is recognized in law as a valuable consideration;and the dismissal of the action which Felicitas Villanueva

and Fabiola Severino had instituted against GuillermoSeverino was an adequate consideration to support thepromise on the part of Guillermo Severino to pay the sumof money stipulated in the contract which is the subject ofthis action. The promise of the appellant Echaus as

guarantor therefore binding. It is never necessary that theguarantor or surety should receive any part of the benefit, ifsuch there be, accruing to his principal. But the trueconsideration of this contract was the detriment suffered bythe plaintiffs in the former action in dismissing thatproceeding, and it is immaterial that no benefit may haveaccrued either to the principal or his guarantor.

The judgment appealed from is in all respects correct, andthe same will be affirmed, with costs against the appellant.So ordered.

Avancea, C.J., Johnson, Malcolm, Villamor, Ostrand,Romualdez, Villa-Real and Imperial, JJ.,concur.

G.R. No. L-22108 August 30, 1967

GOVERNMENT OF THE REPUBLIC OF THEPHILIPPINES, represented by the BUREAU OFSUPPLY COORDINATIONplaintiff-appellee,vs.MARCELINO TIZON, ET AL.,defendants.CAPITAL INSURANCE and SURETY CO.,INC.,defendant-appellant.

Achacoso, Nera and Ocampo for defendant-appellant.Office of the Solicitor General Arturo A. Alafriz, AssistantSolicitor General J.C. Borromeo and Solicitor N. P.Eduardo for plaintiff-appellee.

ANGELES, J .:


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Appeal from an order of the Court of First Instance ofManila, dated September 11, 1963, expunging from therecord of the case the answer of the Capital Insurance &Surety, Co., Inc. and remanding said record to the CityCourt of Manila for execution against the Surety of the

decision rendered by the latter court.

It appears that in a bidding conducted by the Bureau ofSupply Coordination of the Department of GeneralServices, for the supply of "one (1) Baylift portable heavy-duty truck and auto lift, fully air operated, 500 lbs. capacity,and two (2) Baylift Ramps, U.S. manufacture", Tizonengineering, of which Marcelino Tizon was the sole ownerand proprietor, won the bid, having offered the lowest bidof P4,000.00. To guarantee faithful performance of theconditions of the bid, the Bureau of Supply Coordination

required Tizon Engineering to give a bond in the sum ofP10,000.00. On September 12, 1958, the Surety issued itsbond for the said amount in favor of the Republic of thePhilippines. Tizon Engineering failed to comply with theconditions of the bid, failing as he did to deliver theequipment called for in the Buyer's order No. 42546 of theBureau of Supply, constraining the latter to purchase theequipment from Fema Trading, the second lowest bidder,resulting in a loss of P2,975.00 to the Government.Notwithstanding demands made by the Bureau of Supplyon defendants Marcelino Tizon and the Surety to pay said

amount, they failed and refused. Hence, complaint wasfiled in the City Court of Manila by the Republic of thePhilippines to recover the said sum with legal interests,plus attorney's fees and costs.

Defendant Tizon averred in his answer that: (a) "thealleged bidding conducted by the Bureau of Supply is inutter disregard and wanton violation of the Rules andRegulations of the said office"; (b) "that assuming that a

corresponding buyer's order was prepared, the same wasnot delivered to and duly received by him, such that therehas never been a binding contract between plaintiff andthe answering defendant; furthermore, the plaintiffdeliberately failed to notify the answering defendant as to

the acceptance of his bid, thus again violating the Rulesand Regulations mentioned above"; (c) that the bond-issued by the Surety "answers only (for) those contractslegally entered into by the herein defendants with theBureau of Supply and certainly not those contracts and/orbids which are of doubtful legality, as in the present case."

The defendant Surety, in answer to the complaint, admittedhaving executed a bond in favor of the Republic of thePhilippines for the purpose as therein stated, but denied"that it failed and refused to pay the demand (of the

plaintiff), the truth of the matter being that its co-defendant,Marcelino Tizon, doing business under the name of TizonEngineering, has put it on notice not to settle the claimbecause he is not in any way whatsoever liable to plaintiff."

As cross-claim against defendant Tizon, the Suretyasserted that if it is made liable to the plaintiff on its bond,Marcelino Tizon should be ordered to make thecorresponding reimbursement, with interest of 12%, plusattorney's fees.

After trial, judgment was rendered in favor of the plaintiff

and against the defendants, ordering the latter topay,jointly and severally, the sum of P2,972.00 with legalinterests from November 12, 1960, and the costs of suit.On the cross-claim of the Surety, defendant Tizon wasordered to reimburse the cross-plaintiff of whatever amountthe latter might have paid to the plaintiff, plus P100.00 asattorney's fees.


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Only defendant Tizon appealed from the decision to theCourt of First Instance of Manila.

Within fifteen days from receipt of notice from the clerk ofthe Court of First Instance of Manila, that the case has

been received and docketed in said court, the defendants,Tizon and the Surety, each filed separate manifestationsthat they were reproducing their respective answers filed inthe City Court.

On August 29, 1963, the plaintiff filed a motion praying "(a)To strike out the answer filed by the Surety reproducing itsanswer filed in the City Court; (b) To remand the case tothe City Court, as concerns the Surety, for execution of the

judgment rendered in said court."

The Surety opposed the motion on two grounds: (a) thatalthough it did not appeal from the decision of the inferiorcourt, the appeal interposed by its co-defendant inured toits benefit, because the obligation sued on "is sodependent on that of the principal debtor, that the Surety isconsidered in law as being the same party in relation towhatever is adjudged, touching the obligation of its co-defendant"; and (b) the appeal of its co-defendant, theprincipal debtor, "should be considered in law as to includethe defendant Surety, in view of the latter's cross-claimagainst the former." The opposition was over-ruled in the

order appealed from.

The issue at this instance is whether an appeal by one ofthe parties sentenced to pay solidarily a sum of money,inures to the benefit of the other who did not appeal. Thepronouncements in the case of Municipality of Orion vs.Concha, 50 Phil. 682, provide ample guideposts in theresolution of the issue at bar. In said case this Court held:

The judgment was joint and several, which means thatthey are severally liable. We have made a carefulexamination of numerous authorities and believe that weare correct in saying that the effect of the appeal by one

judgment debtor upon the co-debtors depends upon the

particular facts and conditions in each case. The differencein the apparently conflicting opinions may be wellillustrated in this very case.

Suppose, for example, that F. B. Concha, the contractor,had appealed from the judgment of the lower court uponthe ground that he had either completed his contract withintime or that the municipality had suffered no damageswhatever, and the Supreme Court had reversed the

judgment of the lower court on his appeal. Certainly thatjudgment would have the effect of relieving the bondsmen

from any liability whatever, for the reason that their liabilitywas consequent upon the liability of the contractor; and thecourt having declared that no liability for damages hadresulted from the execution of said contract, then certainlythe bondsmen would have been relieved because theirliability depended upon the liability of the principal. Thatexample gives us a clear case, showing that the effect ofthe appeal of the one of the judgment debtors wouldnecessarily have the effect of releasing his co-judgmentdebtors.

x x x x x x x x x

As we have already said, whether an appeal by one ofseveral judgment debtors will affect the liability of thosewho did not appeal must depend upon the facts in eachparticular case. If the judgment can only be sustained uponthe liability of the one who appeals and the liability of theother co-judgment debtors depends solely upon thequestion whether or not the appellant is liable, and the


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judgment is revoked as to that appellant, then the result ofhis appeal will inure to the benefit of all. . . .

The rule is quite general that a reversal as to partiesappealing does not necessitate a reversal as to parties not

appealing, but that the judgment may be affirmed or leftundisturbed as to them.An exception to the rule exists,however, where a judgment cannot be reversed as to theparty appealing without affecting the rights of his co-debtor. (4 C.J. 1184)

A reversal of a judgment on appeal is binding on theparties to the suit, but does not inure to the benefit ofparties against whom judgment was rendered in the lowercourt who did not join in the appeal, unless their rights andliabilities and those of the parties appealing are so

interwoven and dependent as to be inseparable, in whichcase a reversal as to one operates as a reversal as toall.(4 C.J., 1206; Alling vs. Wenzel, 133 Ill., 264-278.)

In the case of Brashear vs. Carlin, Curator (19 La. 395) ajudgment was rendered in the lower court againsttheprincipal debtor and his surety to pay damages. Theprincipal debtor alone appealed and the judgment wasreversed. When the question of the liability of the suretyunder the judgment of the lower court was raised, the courtsaid:

"It is obvious, that the judgment of the inferior court couldnot be reversed as to the principal debtor in this case,andcontinue in force against the surety. The latter could notremain bound, after the former had been released;although the surety had not joined in the appeal, the

judgment rendered in this court inured to his benefit. Theobligation of a surety is so dependent on that of theprincipal debtor, that he is considered in law as being the

same party as the debtor in relation to whatever isadjudged, touching the obligation of the latter; provided itbe not on grounds personal to such principal debtor; it isfor this reason, that a judgment in favor of the principaldebtor can be invoked as res judicataby the surety."

In the case of Schoenberger vs. White (75 Con. 605) ajoint judgment was rendered against husband and wife fora sum of mon

credit finals cases

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