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commission, or for administration, or under any other obligation involving theduty to make delivery of or to return the same, even though such obligation betotally or partially guaranteed by a bond; or by denying having received suchmoney, goods, or other property.

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

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

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

Commodatum is essentially gratuitous.

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

In commodatum the bailor retains the ownership of the thing loaned, while insimple loam ownership passes to the borrower.

Art. 1953.A person who receives a loan of money or any other fungible thingacquires the ownership thereof, and is bound to pay to the creditor an equalamount of the same kind and quality.

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

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

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

It appears that respondent judge failed to appreciate the distinction between the two types of loan,mutuum and commodatum, when he performed the questioned acts, He mistook the transactionbetween petitioners and respondents Rosalinda Amin, Tan Chu Kao and Augusto Sajor to be

commodatum wherein the borrower does not acquire ownership over the thing borrowed and has theduty to return the same thing to the lender.

Under Sec. 87 of the Judiciary Act, the municipal court of a provincial capital, which the MunicipalCourt of Jolo is, has jurisdiction over criminal cases where the penalty provided by law does notexceed prision correccional or imprisonment for not more than six (6) years, or fine not exceedingP6,000.00 or both, The amounts allegedly misappropriated by petit ioners range from P20,000.00 toP50,000.00. The penalty for misappropriation of this magnitude exceeds prision correccional or 6year imprisonment. (Article 315, Revised Penal Code), Assuming then that the acts recited in thecomplaints constitute the crime of estafa, the Municipal Court of Jolo has no jurisdiction to try themon the merits. The alleged offenses are under the jurisdict ion of the Court of First Instance.

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

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

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

SO ORDERED.


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SECOND DIVISION

[G.R. No. 115324. February 19, 2003]

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK),petitioner,vs. HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.

D E C I S I O N

CALLEJO, SR., J.:

This is a petition for review on certiorariof the Decision[1]of the Court of Appeals dated June25, 1991 in CA-G.R. CV No. 11791 and of its Resolutio n[2]dated May 5, 1994, denying the motion forreconsideration of said decision filed by petitioner Producers Bank of the Philippines.

Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friendAngeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his

business, the Sterela Marketing and Services (Sterela for brevity). Specifically, Sanchez askedprivate respondent to deposit in a bank a certain amount of money in the bank account of Sterela forpurposes of its incorporation. She assured private respondent that he could withdraw his moneyfrom said account within a months time.Private respondent asked Sanchez to bring Doronilla to theirhouse so that they could discuss Sanchezs request.[3]

On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi,Doronillas private secretary, met and discussed the matter. Thereafter, relying on the assurancesand representations of Sanchez and Doronilla, private respondent issued a check in the amount ofTwo Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private respondent instructed hiswife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings account in thename of Sterela in the Buendia, Makati branch of Producers Bank of the Philippines. However, only

Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the check. They had with them anauthorization letter from Doronilla authorizing Sanchez and her companions, in coordination with Mr.Rufo Atienza, to open an account for Sterela Marketing Services in the amount of P200,000.00. Inopening the account, the authorized signatories were Inocencia Vives and/or Angeles Sanchez. Apassbook for Savings Account No. 10-1567 was thereafter issued to Mrs. Vives.[4]

Subsequently, private respondent learned that Sterela was no longer holding office in theaddress previously given to him. Alarmed, he and his wife went to the Bank to verify if their moneywas still intact. The bank manager referred them to Mr. Rufo Atienza, the assistant manager, whoinformed them that part of the money in Savings Account No. 10-1567 had been withdrawn byDoronilla, and that only P90,000.00 remained therein. He l ikewise told them that Mrs. Vives couldnot withdraw said remaining amount because it had to answer for some postdated checks issued byDoronilla. According to Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-1567,Doronilla opened Current Account No. 10-0320 for Sterela and authorized the Bank to debit SavingsAccount No. 10-1567 for the amounts necessary to cover overdrawings in Current Account No. 10-

0320. In opening said current account, Sterela, through Doronilla, obtained a loan of P175,000.00from the Bank. To cover payment thereof, Doronilla issued three postdated checks, all of which weredishonored. Atienza also said that Doronilla could assign or withdraw the money in Savings AccountNo. 10-1567 because he was the sole proprietor of Sterela.[5]

Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, hereceived a letter from Doronilla, assuring him that his money was intact and would be returned tohim. On August 13, 1979, Doronilla issued a postdated check for Two Hundred Twelve ThousandPesos (P212,000.00) in favor of private respondent. However, upon presentment thereof by privaterespondent to the drawee bank, the check was dishonored. Doronilla requested private respondentto present the same check on September 15, 1979 but when the latter presented the check, it wasagain dishonored.[6]

Private respondent referred the matter to a lawyer, who made a written demand uponDoronilla for the return of his clients money. Doronilla issued another check for P212,000.00 inprivate respondents favor but the check was again dishonored for insufficiency of funds.[7]

Private respondent instituted an action for recovery of sum of money in the Regional TrialCourt (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The casewas docketed as Civil Case No. 44485. He also filed criminal actions against Doronilla, Sanchez andDumagpi in the RTC. However, Sanchez passed away on March 16, 1985 while the case was pendingbefore the trial court. On October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision inCivil Case No. 44485, the disposi tive portion of which reads:
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IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J.Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin Vives jointlyand severally

(a) the amount of P200,000.00, representing the money deposited, with interest at the legal ratefrom the filing of the complaint until the same is fully paid;

(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages;

(c) the amount of P40,000.00 for attorneys fees; and

(d) the costs of the suit.

SO ORDERED.[8]

Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June25, 1991, the appellate court affirmed in toto the decision of the RTC.[9] It likewise denied withfinality petitioners motion for reconsideration in its Resolution dated May 5, 1994.[10]

On June 30, 1994, petitioner filed the present petition, arguing that

I.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN

THE DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOTACCOMMODATION;

II.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS BANK MANAGER,MR. RUFO ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER(Sic.Should be PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE HELDLIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE;

III.

THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THEREGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OFTHE REGIONAL TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS;

IV.

THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION INSALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTSCOMMITTED BY AN EMPLOYEE IS APPLICABLE;

V.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWERCOURT THAT HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHERDEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING THE SAVINGSACCOUNT DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES,P40,000.00 FOR ATTORNEYS FEES AND THE COSTS OF SUIT.[11]

Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply theretoon September 25, 1995. The Court then required private respondent to submit a rejoinder to thereply. However, said rejoinder was filed only on April 21, 1997, due to petitioners delay in furnishing

private respondent with copy of the reply[12]

and several substitutions of counsel on the part ofprivate respondent.[13]On January 17, 2001, the Court resolved to give due course to the petition andrequired the parties to submit their respective memoranda.[14]Petitioner filed its memorandum onApril 16, 2001 while private respondent submitted his memorandum on March 22, 2001.

Petitioner contends that the transaction between private respondent and Doronilla is a simpleloan (mutuum) since all the elements of a mutuumare present: first, what was delivered by privaterespondent to Doronilla was money, a consumable thing; and second, the transaction was onerous asDoronilla was obliged to pay interest, as evidenced by the check issued by Doronilla in the amountof P212,000.00, orP12,000 more than what private respondent deposited in Sterelas bankaccount.[15]Moreover, the fact that private respondent sued his good friend Sanchez for his failure torecover his money from Doronilla shows that the transaction was not merely gratuitous but had abusiness angle to it. Hence, petitioner argues that it cannot be held liable for the return of privaterespondentsP200,000.00 because it is not p rivy to the transaction between the lat ter andDoronilla.[16]

It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be faulted forallowing Doronilla to withdraw from the savings account of Sterela since the latter was the soleproprietor of said company. Petitioner asserts that Doronillas May 8, 1979 letter addressed to thebank, authorizing Mrs. Vives and Sanchez to open a savings account for Sterela, did not contain anyauthorization for these two to withdraw from said account. Hence, the authority to withdrawtherefrom remained exclusively with Doronilla, who was the sole proprietor of Sterela, and who alonehad legal title to the savings account.[17]Petitioner points out that no evidence other than thetestimonies of private respondent and Mrs. Vives was presented during trial to prove that privaterespondent deposited his P200,000.00 in Sterelas account for purposes of itsincorporation.[18]Hence, petitioner should not be held liable for allowing Doronilla to withdraw fromSterelas savings account.

Petitioner also asserts that the Court of Appeals erred in affirming the trial courts decisionsince the findings of fact therein were not accord with the evidence presented by petitioner duringtrial to prove that the transaction between private respondent and Doronilla was a mutuum, and thatit committed no wrong in allowing Doronilla to withdraw from Sterelas savings account.[19]

Finally, petitioner claims that since there is no wrongful act or omission on its part, it is notliable for the actual damages suffered by private respondent, and neither may it be held liable formoral and exemplary damages as well as attorneys fees.[20]

Private respondent, on the other hand, argues that the transaction between him and Doronillais not amutuumbut an accommodation,[21]since he did not actually part with the ownership ofhis P200,000.00 and in fact asked his wife to deposit said amount in the account of Sterela so that acertification can be issued to the effect that Sterela had sufficient funds for purposes of its
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incorporation but at the same time, he retained some degree of control over his money through hiswife who was made a signatory to the savings account and in whose possession the savings accountpassbook was given.[22]

He likewise asserts that the trial court did not err in finding that petitioner, Atienzas employer,is liable for the return of his money. He insists that Atienza, petitioners assistant manager, connivedwith Doronilla in defrauding private respondent since it was Atienza who facilitated the opening ofSterelas current account three days after Mrs. Vives and Sanchez opened a savings account withpetitioner for said company, as well as the approval of the authority to debit Sterelas savingsaccount to cover any overdrawings in its current account.[23]

There is no merit in the petition.

At the outset, i t must be emphasized that only questions of law may be ra ised in a petition forreview filed with this Court. The Court has repeatedly held that it is not its function to analyze andweigh all over again the evidence presented by the parties during trial.[24]The Courts jurisdiction is inprinciple limited to reviewing errors of law that might have been committed by the Court ofAppeals.[25]Moreover, factual findings of courts, when adopted and confirmed by the Court ofAppeals, are final and conclusive on this Court unless these findings are not supported by theevidence on record.[26]There is no showing of any misapprehension of facts on the part of the Courtof Appeals in the case at bar that would require this Court to review and overturn the factual findingsof that court, especially since the conclusions of fact of the Court of Appeals and the trial court arenot only consistent but are also amply supported by the evidence on record.

No error was committed by the Court of Appeals when it ruled that the transaction betweenprivate respondent and Doronilla was a commodatumand not a mutuum. A circumspect examinationof the records reveals that the transaction between them was a commodatum. Article 1933 of theCivil Code distinguishes between the two kinds of loans in this wise:

By the contract of loan, one of the parties delivers to another, either something not consumable sothat the latter may use the same for a certain time and return it, in which case the contract is calleda commodatum; or money or other consumable thing, upon the condition that the same amount ofthe same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

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

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

The foregoing provision seems to imply that if the subject of the contract is a consumablething, such as money, the contract would be a mutuum. However, there are some instances wherea commodatummay have for its object a consumable thing. Article 1936 of the Civil Code provides:

Consumable goods may be the subject of commodatum if the purpose of the contract is not theconsumption of the object, as when it is merely for exhibition.

Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention ofthe parties is to lend consumable goods and to have the very same goods returned at the end of theperiod agreed upon, the loan is a commodatumand not a mutuum.

The rule is that the intention of the parties thereto shall be accorded primordial consideration indetermining the actual character of a contract.[27]In case of doubt, the contemporaneous andsubsequent acts of the parties shall be considered in such determination.[28]

As correctly pointed out by both the Court of Appeals and the trial court, the evidence showsthat private respondent agreed to deposit his money in the savings account of Sterela specifically forthe purpose of making it appear that said firm had sufficient capitalization for incorporation, with thepromise that the amount shall be returned within thirty (30) days.[29]Private respondent merelyaccommodated Doronilla by lending his money without consideration, as a favor to his good friend

Sanchez. It was however clear to the parties to the transaction that the money would not beremoved from Sterelas savings account and would be returned to private respondent after thirty (30)days.

Doronillas attempts to return to private respondent the amount ofP200,000.00 which thelatter deposited in Sterelas account together with an additional P12,000.00, allegedly representinginterest on themutuum, did not convert the transaction from a commodatuminto a mutuumbecausesuch was not the intent of the parties and because the additional P12,000.00 corresponds to thefruits of the lending of theP200,000.00. Article 1935 of the Civil Code expressly states that [t]hebailee in commodatumacquires the use of the thing loaned but not its fruits. Hence, it was onlyproper for Doronilla to remit to private respondent the interest accruing to the latters moneydeposited with petitioner.

Neither does the Court agree with petitioners contention that it is not solidarily liable for thereturn of private respondents money because it was not privy to the transaction between Doronillaand private respondent. The nature of said transaction, that is, whether it is a mutuumora commodatum, has no bearing on the question of petitioners liability for the return of privaterespondents money because the factual circumstances of the case clearly show that petitioner,through its employee Mr. Atienza, was partly responsible for the loss of private respondents moneyand is liable for its restitution.

Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf ofSterela for Savings Account No. 10-1567 expressly states that

2. Deposits and withdrawals must be made by the depositor personally or upon his writtenauthority duly authenticated, and neither a deposit nor a withdrawal will be permitted exceptupon the production of the depositor savings bank book in which will be entered by the Bankthe amount deposited or withdrawn.[30]

Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the AssistantBranch Manager for the Buendia Branch of petitioner, to withdraw therefrom even without presentingthe passbook (which Atienza very well knew was in the possession of Mrs. Vives), not just once, butseveral times. Both the Court of Appeals and the trial court found that Atienza allowed saidwithdrawals because he was party to Doronillasscheme of defrauding private respondent:

X X X
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But the scheme could not have been executed success fully without the knowledge, help andcooperation of Rufo Atienza, assistant manager and cashier of the Makati (Buendia) branch of thedefendant bank. Indeed, the evidence indicates that Atienza had not only facilitated the commissionof the fraud but he likewise helped in devising the means by which it can be done in such manner asto make it appear that the transaction was in accordance with banking procedure.

To begin with, the deposit was made in defendants Buendia branch precisely because Atienza was akey officer therein. The records show that plaintiff had suggested that the P200,000.00 be depositedin his bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that it must be indefendants branch in Makati for it will be easier for them to get a certification. In fact before hewas introduced to plaintiff, Doronilla had already prepared a letter addressed to the Buendia branchmanager authorizing Angeles B. Sanchez and company to open a savings account for Sterela in theamount of P200,000.00, as per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank xx x (Exh. 1). This is a clear manifestation that the other defendants had been in consultation withAtienza from the inception of the scheme. Significantly, there were testimonies and admission thatAtienza is the brother-in-law of a certain Romeo Mirasol, a friend and business associate of Doronilla.

Then there is the matter of the ownership of the fund. Because of the coordination betweenDoronilla and Atienza, the latter knew before hand that the money deposited did not belong toDoronilla nor to Sterela. Aside from such foreknowledge, he was explicitly told by Inocencia Vivesthat the money belonged to her and her husband and the deposit was merely to accommodateDoronilla. Atienza even declared that the money came from Mrs. Vives.

Although the savings account was in the name of Sterela, the bank records disclose that the onlyones empowered to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In the

signature card pertaining to this account (Exh. J), the authorized s ignatories were Inocencia Vives&/or Angeles B. Sanchez. Atienza stated that it is the usual banking procedure that withdrawals ofsavings deposits could only be made by persons whose authorized signatures are in the signaturecards on file with the bank. He, however, said that this procedure was not followed here becauseSterela was owned by Doronilla. He explained that Doronilla had the full authority to withdraw byvirtue of such ownership. The Court is not inclined to agree with Atienza. In the first place, he wasall the time aware that the money came from Vives and did not belong to Sterela. He was also toldby Mrs. Vives that they were only accommodating Doronilla so that a certification can be issued tothe effect that Sterela had a deposit of so much amount to be sued in the incorporation of thefirm. In the second place, the signature of Doronilla was not authorized in so far as that account isconcerned inasmuch as he had not signed the signature card provided by the bank whenever adeposit is opened. In the third place, neither Mrs. Vives nor Sanchez had given Doronilla theauthority to withdraw.

Moreover, the transfer of fund was done without the passbook having been presented. It is anaccepted practice that whenever a withdrawal is made in a savings deposit, the bank requires thepresentation of the passbook. In this case, such recognized practice was dispensed with. Thetransfer from the savings account to the current account was without the submission of the passbookwhich Atienza had given to Mrs. Vives. Instead, it was made to appear in a certification signed byEstrella Dumagpi that a duplicate passbook was issued to Sterela because the original passbook hadbeen surrendered to the Makati branch in view of a loan accommodation assigning the savingsaccount (Exh. C). Atienza, who undoubtedly had a hand in the execution of this certification, wasaware that the contents of the same are not true. He knew that the passbook was in the hands ofMrs. Vives for he was the one who gave it to her. Besides, as assistant manager of the branch andthe bank official servicing the savings and current accounts in question, he also was aware that the

original passbook was never surrendered. He was also cognizant that Estrella Dumagpi was notamong those authorized to withdraw so her certification had no effect whatsoever.

The circumstance surrounding the opening of the current account also demonstrate that Atienzasactive participation in the perpetration of the fraud and deception that caused the loss. The recordsindicate that this account was opened three days later after the P200,000.00 was deposited. In spiteof his disclaimer, the Court believes that Atienza was mindful and posted regarding the opening ofthe current account considering that Doronilla was all the while in coordination with him. That itwas he who facilitated the approval of the authority to debit the savings account to cover anyoverdrawings in the current account (Exh. 2) is not hard to comprehend.

Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. x xx.[31]

Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable fordamages caused by their employees acting within the scope of their assigned tasks. To hold theemployer liable under this provision, it must be shown that an employer-employee relationship exists,and that the employee was acting within the scope of his assigned task when the act complained ofwas committed.[32] Case law in the United States of America has it that a corporation that entrusts ageneral duty to its employee is responsible to the injured party for damages flowing from theemployees wrongful act done in the course of his general authority, even though in doing such act,the employee may have failed in its duty to the employer and disobeyed the latters instructions.[33]

There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner didnot deny that Atienza was acting within the scope of his authority as Assistant Branch Manager when

he assisted Doronilla in withdrawing funds from Sterelas Savings Account No. 10-1567, in whichaccount private respondents money was deposited, and in transferring the money withdrawn toSterelas Current Account with petitioner.Atienzas acts of helping Doronilla, a customer of thepetitioner, were obviously done in furtherance of petitioners interests[34]even though in the process,Atienza violated some of petitioners rules such as those stipulated in its savings accountpassbook.[35]It was established that the transfer of funds from Sterelas savings account to itscurrent account could not have been accomplished by Doronilla without the invaluable assistance ofAtienza, and that it was their connivance which was the cause of private respondents loss.

The foregoing shows that the Court of Appeals correctly held that under Article 2180 of theCivil Code, petitioner is liable for private respondents loss and is solidarily liable with Doronilla andDumagpi for the return of the P200,000.00 since it is clear that petitioner failed to prove that itexercised due diligence to prevent the unauthorized withdrawals from Sterelas savings account, andthat it was not negligent in the selection and supervision of Atienza. Accordingly, no error wascommitted by the appellate court in the award of actual, moral and exemplary damages, attorneys

fees and costs of suit to private respondent.WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the

Court of Appeals are AFFIRMED.

SO ORDERED.
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Republic of the Philippines

SUPREME COURT

Manila

EN BANC

August 12, 1927

G.R. No. 26085

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 a pacto de retroor a mortgage?

(b) Under apacto de retro, when the vendor becomes a tenant of the purchaser and agrees to pay a

certain amount per month as rent, may such rent render such a contract usurious when the amount

paid as rent, computed upon the purchase price, amounts to a higher rate of interest upon said

amount than that allowed by law?

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

ANTECEDENT FACTS

Sometime prior to the 28th day of November, 1922, the appellants purchased of the Luzon Rice Mills,

Inc., a piece or parcel of land with the camarinlocated thereon, situated in the municipality of Tarlac

of the Province of Tarlac for the price of P25,000, promising to pay therefor in three installments. The

first installment of P2,000 was due on or before the 2d day of May, 1921; the second installment of

P8,000 was due on or before 31st day of May, 1921; the balance of P15,000 at 12 per cent interest


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was due and payable on or about the 30th day of November, 1922. One of the conditions of that

contract of purchase was that on failure of the purchaser (plaintiffs and appellants) to pay the

balance of said purchase price or any of the installments on the date agreed upon, the property

bought would revert to the original owner.

The payments due on the 2d and 31st of May, 1921, amounting to P10,000 were paid so far as the

record shows upon the due dates. The balance of P15,000 due on said contract of purchase was paid

on or about the 1st day of December, 1922, in the manner which will be explained below. On the

date when the balance of P15,000 with interest was paid, the vendor of said property had issued to

the purchasers transfer certificate of title to said property, No. 528. Said transfer certificate of title

(No. 528) was transfer certificate of title from No. 40, which shows that said land was originally

registered in the name of the vendor on the 7th day of November, 1913.

PRESENT FACTS

On the 7th day of November, 1922 the representative of the vendor of the property in question wrote

a letter to the appellant Potenciana Manio (Exhibit A, p. 50), notifying the latter that if the balance of

said indebtedness was not paid, an action would be brought for the purpose of recovering the

property, together with damages for non compliance with the condition of the contract of purchase.

The pertinent parts of said letter read as follows:

Sirvase notar que de no estar liquidada esta cuenta el dia 30 del corriente, procederemos

judicialmente contra Vd. para reclamar la devolucion del camarin y los daos y perjuicios ocasionados

a la compaia por su incumplimiento al contrato.

Somos de Vd. atentos y S. S.

SMITH, BELL & CO., LTD.

By (Sgd.) F. I. HIGHAM

Treasurer.

General Managers

LUZON RICE MILLS INC.

According to Exhibits B and D, which represent the account rendered by the vendor, there was due

and payable upon said contract of purchase on the 30th day of November, 1922, the sum

P16,965.09. Upon receiving the letter of the vendor of said property of November 7, 1922, the

purchasers, the appellants herein, realizing that they would be unable to pay the balance due, began

to make an effort to borrow money with which to pay the balance due, began to make an effort to

borrow money with which to pay the balance of their indebtedness on the purchase price of the

property involved. Finally an application was made to the defendant for a loan for the purpose of


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

Chiam y en su domicilio, era de tresc ientos setenta y cinco pesos (P375) moneda filipina, cada mes.

(b) El amillaramiento de la finca arrendada sera por cuenta de dicho Don Benito Gonzalez Sy Chiam,

asi como tambien la prima del seguro contra incendios, si el conviniera al referido Sr. Benito Gonzalez

Sy Chiam asegurar dicha finca.

(c) La falta de pago del alquiler aqui estipulado por dos meses consecutivos dara lugar a la

terminacion de este arrendamieno y a la perdida del derecho de retracto que nos hemos reservado,

como si naturalmente hubiera expirado el termino para ello, pudiendo en su virtud dicho Sr. Gonzalez

Sy Chiam tomar posesion de la finca y desahuciarnos de la misma.

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

terminos en que la dejan otorgada los conyuges Severino Tolentino y Potenciana Manio.

En testimonio de todo lo cual, firmamos la presente de nuestra mano en Manila, por cuadruplicado

en Manila, hoy a 28 de noviembre de 1922.

(Fdo.) SEVERINO TOLENTINO

(Fda.) POTENCIANA MANIO

(Fdo.) BENITO GONZALEZ SY CHIAM

Firmado en presencia de:

(Fdos.) MOISES M. BUHAIN

B. S. BANAAG

An examination of said contract of sale with reference to the first question above, shows clearly that

it is apacto de retro and not a mortgage. There is no pretension on the part of the appellant that

said contract, standing alone, is a mortgage. The pertinent language of the contract is:

Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aos contados desde el

dia 1. de diciembre de 1922, devolvemos al expresado Don Benito Gonzales Sy Chiam el referido

precio de diecisiete mil quinientos pesos (P17,500) queda obligado dicho Sr. Benito Gonzales Sy

Chiam a retrovendornos la finca arriba descrita; pero si transcurre dicho plazo de cinco (5) aos sin

ejercitar al derecho de retracto que nos hemos reservado, entonces quedara esta venta absoluta e

irrevocable.

Language cannot be clearer. The purpose of the contract is expressed clearly in said quotation that

there can certainly be not doubt as to the purpose of the plaintiff to sell the property in question,

reserving the right only to repurchase the same. The intention to sell with the right to repurchase

cannot be more clearly expressed.

It will be noted from a reading of said sale ofpacto de retro, that the vendor, recognizing the

absolute sale of the property, entered into a contract with the purchaser by virtue of which she

became the "tenant" of the purchaser. That contract of rent appears in said quoted document above

as follows:


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Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento la finca arriba

descrita, sujeto a condiciones siguientes:

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

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

(b) El amillaramiento de la finca arrendada sera por cuenta de dicho Don Benito Gonzalez Sy Chiam,

asi como tambien la prima del seguro contra incendios, si le conviniera al referido Sr. Benito Gonzalez

Sy Chiam asegurar dicha finca.

From the foregoing, we are driven to the following conclusions: First, that the contract ofpacto de

retro is an absolute sale of the property with the right to repurchase and not a mortgage; and,

second, that by virtue of the said contract the vendor became the tenant of the purchaser, under the

conditions mentioned in paragraph 3 of said contact quoted above.

It has been the uniform theory of this court, due to the severity of a contract ofpacto de retro, to

declare the same to be a mortgage and not a sale whenever the interpretation of such a contract

justifies that conclusion. There must be something, however, in the language of the contract or in the

conduct of the parties which shows clearly and beyond doubt that they intended the contract to be a

"mortgage" and not a pacto de retro. (International Banking Corporation vs.Martinez,10 Phil., 252;

Padilla vs.Linsangan,19 Phil., 65;Cumagun vs.Alingay,19 Phil., 415;Olino vs.Medina, 13 Phil., 379;

Manalo vs.Gueco,42 Phil., 925;Velazquez vs.Teodoro,46 Phil., 757;Villa vs.Santiago,38 Phil.,

157.)

We are not unmindful of the fact that sales with pacto de retroare not favored and that the court will

not construe an instrument to one of sale with pacto de retro, with the stringent and onerous effect

which follows, unless the terms of the document and the surrounding circumstances require it.

While it is general rule that parol evidence is not admissible for the purpose of varying the terms of a

contract, but when an issue is squarely presented that a contract does not express the intention of

the parties, courts will, when a proper foundation is laid therefor, hear evidence for the purpose of

ascertaining the true intention of the parties.

In the present case the plaintiffs allege in their complaint that the contract in question is apacto de

retro. They admit that they signed i t. They admit they sold the property in question with the right to

repurchase it. The terms of the contract quoted by the plaintiffs to the defendant was a "sale"

with pacto de retro, and the plaintiffs have shown no circumstance whatever which would justify us

in construing said contract to be a mere "loan" with guaranty. In every case in which this court has

construed a contract to be a mortgage or a loan instead of a sale with pacto de retro, it has done so,

either because the terms of such contract were incompatible or inconsistent with the theory that said

contract was one of purchase and sale. (Olino vs.Medina, supra; Padilla vs.Linsangan, supra;

Manlagnit vs.Dy Puico,34 Phil., 325;Rodriguez vs.Pamintuan and De Jesus,37 Phil., 876.)

In the case of Padilla vs.Linsangan the term employed in the contract to indicate the nature of the

conveyance of the land was "pledged" instead of "sold". In the case of Manlagnit vs.Dy Puico, while

the vendor used to the terms "sale and transfer with the right to repurchase," yet in said contract he

described himself as a "debtor" the purchaser as a "creditor" and the contract as a "mortgage". In

the case of Rodriguez vs. Pamintuan and De Jesus the person who executed the instrument,
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purporting on its face to be a deed of sale of certain parcels of land, had merely acted under a power

of attorney from the owner of said land, "authorizing him to borrow money in such amount and upon

such terms and conditions as he might deem proper, and to secure payment of the loan by a

mortgage." In the case of Villa vs. Santiago (38 Phil., 157), although a contract purporting to be a

deed of sale was executed, the supposed vendor remained in possession of the land and invested the

money he had obtained from the supposed vendee in making improvements thereon, which fact

justified the court in holding that the transaction was a mere loan and not a sale. In the case

of Cuyugan vs. Santos (39 Phil., 970), the purchaser accepted partial payments from the vendor, and

such acceptance of partial payments is absolutely incompatible with the idea of irrevocability of the

title of ownership of the purchaser at the expiration of the term stipulated in the original contract for

the exercise of the right of repurchase."

Referring again to the right of the parties to vary the terms of written contract, we quote from the

dissenting opinion of Chief Justice Cayetano S. Arellano in the case of Government of the Philippine

Islands vs.Philippine Sugar Estates Development Co., which case was appealed to the Supreme

Court of the United States and the contention of the Chief Justi ce in his dissenting opinion was

affirmed and the decision of the Supreme Court of the Philippine Is lands was reversed. (See decision

of the Supreme Court of the United States, June 3, 1918.) [[1]]The Chief Justice said in discussing that

question:

According to article 1282 of the Civil Code, in order to judge of the intention of the contracting

parties, consideration must chiefly be paid to those acts executed by said parties which are

contemporary with and subsequent to the contract. And according to article 1283, however general

the terms of a contract may be, they must not be held to include things and cases different from

those with regard to which the interested parties agreed to contract. "The Supreme Court of the

Philippine Islands held the parol evidence was admissible in that case to vary the terms of the

contract between the Government of the Philippine Islands and the Philippine Sugar Estates

Development Co. In the course of the opinion of the Supreme Court of the United States Mr. Justice

Brandeis, speaking for the court, said:

It is well settled that courts of equity will reform a written contract where, owing to mutual mistake,

the language used therein did not fully or accurately express the agreement and intention of the

parties. The fact that interpretation or construction of a contract p resents a question of law and that,

therefore, the mistake was one of law is not a bar to granting relief. . . . This court is always

disposed to accept the construction which the highest court of a territory or possession has placed

upon a local statute. But that disposition may not be yielded to where the lower court has clearly

erred. Here the construction adopted was rested upon a clearly erroneous assumption as to an

established rule of equity. . . . The burden of proof resting upon the appellant cannot be satisfied by

mere preponderance of the evidence. It is settled that relief by way of reformation will not be

granted unless the proof of mutual mistake be of the clearest and most satisfactory character.

The evidence introduced by the appellant in the present case does not meet with that stringent

requirement. There is not a word, a phrase, a sentence or a paragraph in the entire record, which

justifies this court in holding that the said contract of pacto de retrois a mortgage and not a sale

with the right to repurchase. Article 1281 of the Civil Code provides: "If the terms of a contract are

clear and leave no doubt as to the intention of the contracting parties, the literal sense of its
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stipulations shall be followed." Article 1282 provides: "in order to judge as to the intention of the

contracting parties, attention must be paid principally to their conduct at the time of making the

contract and subsequently thereto."

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

from that very well reasoned decision of the late Chief Justice Arellano, one of the greatest jurists of

his time. He said, in discussing the question whether or not the contract, in the case of Lichauco vs.

Berenguer (20 Phil., 12), was a pacto de retroor a mortgage:

The public instrument, Exhibit C, in part reads as follows: "Don Macarion Berenguer declares and

states that he is the proprietor in fee simple of two parcels of fallow unappropriated crown land

situated within the district of his pueblo. The first has an area of 73 quiones, 8 balitas and 8 loanes,

located in the sitioof Batasan, and its boundaries are, etc., etc. The second is in the sitio of

Panantaglay, barrio of Calumpang has as area of 73 hectares, 22 ares, and 6 centares, and is

bounded on the north, etc., etc."

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

'That under condition of right to repurchase (pacto de retro) he sells the said properties to the

aforementioned Doa Cornelia Laochangco for P4,000 and upon the following conditions: First, the

sale stipulated shall be for the period of two years, counting from this date, within which time the

deponent shall be entitled to repurchase the land sold upon payment of its price; second, the lands

sold shall, during the term of the present contract, be held in lease by the undersigned who shall

pay, as rental therefor, the sum of 400 pesos per annum, or the equivalent in sugar at the option of

the vendor; third, all the fruits of the said lands shall be deposited in the sugar depository of the

vendee, situated in the district of Quiapo of this city, and the value of which shall be applied on

account of the price of this sale; fourth, the deponent acknowledges that he has received from the

vendor the purchase price of P4,000 already paid, and in legal tender currency of this country . . .;

fifth, all the taxes which may be assessed against the lands surveyed by competent authority, shall

be payable by and constitute a charge against the vendor; sixth, if, through any unusual event, such

as flood, tempest, etc., the properties hereinbefore enumerated should be destroyed, wholly or in

part, it shall be incumbent upon the vendor to repair the damage thereto at his own expense and to

put them into a good state of cultivation, and should he fail to do so he binds himself to give to the

vendee other lands of the same area, quality and value.'

x x x x x x x x x

The opponent maintained, and his theory was accepted by the trial court, that Berenguer's contract

with Laochangco was not one of sale with right of repurchase, but merely one of loan secured by

those properties, and, consequently, that the ownership of the lands in questions could not have

been conveyed to Laochangco, inasmuch as it continued to be held by Berenguer, as well as their

possession, which he had not ceased to enjoy.

Such a theory is, as argued by the appellant, erroneous. The instrument executed by Macario

Berenguer, the text of which has been transcribed in this decision, is very clear. Berenguer's heirs

may not go counter to the literal tenor of the obligation, the exact expression of the consent of the

contracting contained in the instrument, Exhibit C. Not because the lands may have continued in

possession of the vendor, not because the latter may have assumed the payment of the taxes on
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such properties, nor yet because the same party may have bound himself to substitute by another

any one of the properties which might be destroyed, does the contract cease to be what it is, as set

forth in detail in the public instrument. The vendor continued in the possession of the lands, not as

the owner thereof as before their sale, but as the lessee which he became after its consummation, by

virtue of a contract executed in his favor by the vendee in the deed itself, Exhibit C. Right of

ownership is not implied by the circumstance of the lessee's assuming the responsibility of the

payment is of the taxes on the property leased, for their payment is not peculiarly incumbent upon

the owner, nor is such right implied by the obligation to substitute the thing sold for another while in

his possession under lease, since that obligation came from him and he continues under another

character in its possessiona reason why he guarantees its integrity and obligates himself to return

the thing even in a case offorce majeure. Such liability, as a general rule, is foreign to contracts of

lease and, if required, is exorbitant, but possible and lawful, if voluntarily agreed to and such

agreement does not on this account involve any sign of ownership, nor other meaning than the will

to impose upon oneself scrupulous diligence in the care of a thing belonging to another.

The purchase and sale, once consummated, is a contract which by its nature transfers the ownership

and other rights in the thing sold. A pacto de retro, or sale with right to repurchase, is nothing but a

personal right stipulated between the vendee and the vendor, to the end that the lat ter may again

acquire the ownership of the thing alienated.

It is true, very true indeed, that the sale with right of repurchase is employed as a method of loan; it

is likewise true that in practice many cases occur where the consummation of apacto de retrosale

means the financial ruin of a person; it is also, unquestionable that inpacto de retrosales very

important interests often intervene, in the form of the price of the lease of the thing sold, which i s

stipulated as an additional covenant. (Manresa, Civil Code, p. 274.)

But in the present case, unlike others heard by this court, there is no proof that the sale with right of

repurchase, made by Berenguer in favor of Laonchangco is rather a mortgage to secure a loan.

We come now to a discussion of the second question presented above, and that is, stating the same

in another form: May a tenant charge his landlord with a violation of the Usury Law upon the ground

that the amount of rent he pays, based upon the real value of the property, amounts to a usurious

rate of interest? When the vendor of property under a pacto de retrorents the property and agrees

to pay a rental value for the property during the period of his right to repurchase, he thereby

becomes a "tenant" and in all respects stands in the same relation with the purchaser as a tenant

under any other contract of lease.

The appellant contends that the rental price paid during the period of the exis tence of the right to

repurchase, or the sum of P375 per month, based upon the value of the property, amounted to

usury. Usury, generally speaking, may be defined as contracting for or receiving something in excess

of the amount allowed by law for the loan or forbearance of moneythe taking of more interest for

the use of money than the law allows. It seems that the taking of interest for the loan of money, at

least the taking of excessive interest has been regarded with abhorrence from the earliest times.

(Dunham vs.Gould, 16 Johnson [N. Y.], 367.) During the middle ages the people of England, and

especially the English Church, entertained the opinion, then, current in Europe, that the taking of any

interest for the loan of money was a detestable vice, hateful to man and contrary to the laws of God.

(3 Coke's Institute, 150; Tayler on Usury, 44.)


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

shall find that there is scarcely any people, ancient or modern, that have not had usury laws. . . . The

Romans, through the greater part of their history, had the deepest abhorrence of usury. . . . It will be

deemed a little singular, that the same voice against usury should have been raised in the laws of

China, in the Hindu institutes of Menu, in the Koran of Mahomet, and perhaps, we may say, in the

laws of all nations that we know of, whether Greek or Barbarian."

The collection of a rate of interest higher than that allowed by law i s condemned by the Philippine

Legislature (Acts Nos. 2655, 2662 and 2992). But i s it unlawful for the owner of a property to enter

into a contract with the tenant for the payment of a specific amount of rent for the use and

occupation of said property, even though the amount paid as " rent," based upon the value of the

property, might exceed the rate of interest allowed by law? That question has never been decided in

this jurisdiction. It is one o f first impression. No cases have been found in this jurisdiction answering

that question.Act No. 2655 is "An Act fixing rates of interest upon 'loans' and declaring the effect of

receiving or taking usurious rates."

It will be noted that said statute imposes a penalty upon a "loan" or forbearance of any money,

goods, chattels or credits, etc. The central idea of said statute is to prohibit a rate of interest on

"loans." A contract of "loan," is very different contract from that of "rent". A "loan," as that term is

used in the statute, signifies the giving of a sum of money, goods or credits to another, with a

promise to repay, but not a promise to return the same thing. To "loan," in general parlance, is to

deliver to another for temporary use, on condition that the thing or i ts equivalent be returned; or to

deliver for temporary use on condition that an equivalent in kind shall be returned with a

compensation for its use. The word "loan," however, as used in the statute, has a technical meaning.

It never means the return of the same thing. It means the return of an equivalent only, but never the

same thing loaned. A "loan" has been properly defined as an advance payment of money, goods or

credits upon a contract or stipulation to repay, not to return, the thing loaned at some future day in

accordance with the terms of the contract. Under the contract of "loan," as used in said statute, the

moment the contract is completed the money, goods or chattels given cease to be the property of

the former owner and becomes the property of the obligor to be used according to his own wil l,

unless the contract itself expressly provides for a special or specific use of the same. At all events,

the money, goods or chattels, the moment the contract is executed, cease to be the property of the

former owner and becomes the absolute property of the obligor.

A contract of "loan" differs materially from a contract of "rent." In a contract of "rent" the owner of

the property does not lose his ownership. He simply loses his control over the property rented during

the period of the contract. In a contract of " loan" the thing loaned becomes the property of the

obligor. In a contract of "rent" the thing still remains the property of the lessor. He simply loses

control of the same in a limited way during the period of the contract of "rent" or lease. In a contract

of "rent" the relation between the contractors is that of landlord and tenant. In a contract of " loan" of

money, goods, chattels or credits, the relation between the parties is that of obligor and obligee.

"Rent" may be defined as the compensation either in money, provisions, chattels, or labor, received

by the owner of the soil from the occupant thereof. It i s defined as the return or compensation for

the possession of some corporeal inheritance, and is a profit issuing out of lands or tenements, in

return for their use. It is that, which is to paid for the use of land, whether in money, labor or other

thing agreed upon. A contract of "rent" is a contract by which one of the parties delivers to the other
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some nonconsumable thing, in order that the latter may use it during a certain period and return it to

the former; whereas a contract of "loan", as that word i s used in the statute, signifies the delivery of

money or other consumable things upon condition of returning an equivalent amount of the same

kind or quantity, in which cases it is called merely a "loan." In the case of a contract of "rent," under

the civil law, it is called a "commodatum."

From the foregoing it will be seen that there is a while distinction between a contract of "loan," as

that word is used in the statute, and a contract of "rent" even though those words are used in

ordinary parlance as interchangeable terms.

The value of money, goods or credits is easily ascertained while the amount of rent to be paid for the

use and occupation of the property may depend upon a thousand different conditions; as for

example, farm lands of exactly equal productive capacity and of the same physical value may have a

different rental value, depending upon location, prices of commodities, proximity to the market, etc.

Houses may have a different rental value due to location, conditions of business, general prosperity

or depression, adaptability to particular purposes, even though they have exactly the same original

cost. A store on the Escolta, in the center of business, constructed exactly like a store located outside

of the business center, will have a much higher rental value than the other. Two places of business

located in different sections of the city may be constructed exactly on the same architectural plan and

yet one, due to particular location or adaptability to a particular business which the lessor desires to

conduct, may have a very much higher rental value than one not so located and not so well adapted

to the particular business. A very cheap building on the carnival ground may rent for more money,

due to the particular circumstances and surroundings, than a much more valuable property located

elsewhere. It will thus be seen that the rent to be paid for the use and occupation of property is not

necessarily fixed upon the value of the property. The amount of rent is fixed, based upon a thousand

different conditions and may or may not have any direct reference to the value of the property

rented. To hold that "usury" can be based upon the comparative actual rental value and the ac tual

value of the property, is to subject every landlord to an annoyance not contemplated by the law, and

would create a very great disturbance in every business or rural community. We cannot bring

ourselves to believe that the Legis lature contemplated any such disturbance in the equilibrium of the

business of the country.

In the present case the property in question was sold. It was an absolute sale with the right only to

repurchase. During the period of redemption the purchaser was the absolute owner of the property.

During the period of redemption the vendor was not the owner of the property. During the period of

redemption the vendor was a tenant of the purchaser. During the period of redemption the relation

which existed between the vendor and the vendee was that of landlord and tenant. That relation can

only be terminated by a repurchase of the property by the vendor in accordance with the terms of

the said contract. The contract was one of rent. The contract was not a loan, as that word is used

inAct No. 2655.

As obnoxious as contracts of pacto de retroare, yet nevertheless, the courts have no right to make

contracts for parties. They made their own contract in the present case. There is not a word, a

phrase, a sentence or paragraph, which in the slightest way indicates that the parties to the contract
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in question did not intend to sell the property in question absolutely, simply with the right to

repurchase. People who make their own beds must lie thereon.

What has been said above wi th reference to the right to modify contracts by parol evidence,

sufficiently answers the third questions presented above. The language of the contract is explicit,

clear, unambiguous and beyond question. It expresses the exact intention of the parties at the time i t

was made. There is not a word, a phrase, a sentence or paragraph found in said contract which

needs explanation. The parties thereto entered into said contract with the full understanding of its

terms and should not now be permitted to change or modify it by parol evidence.

With reference to the improvements made upon said property by the plaintiffs during the life of the

contract, Exhibit C, there is hereby reserved to the plaintiffs the right to exercise in a separate action

the right guaranteed to them under article 361 of the Civil Code.

For all of the foregoing reasons, we are fully persuaded from the facts of the record, in relation with

the law applicable thereto, that the judgment appealed from should be and is hereby affirmed, with

costs. So ordered.

THIRD DIVISION

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

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

D E C I S I O N

ROMERO, J.:

Petitioner was charged with the crime of estafabefore the Regional Trial Court (RTC), Branch93, Quezon City, in an information which reads as follows:

That on or between the month of May 19, 1988 and August, 1988 in Quezon City, Philippines andwithin the jurisdiction of this Honorable Court, the said accused, with intent of gain, wi th


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unfaithfulness, and abuse of confidence, did then and there, willfully, unlawfully and feloniouslydefraud one ISIDORA ROSALES, in the following manner, to wit: on the date and in the placeaforementioned, said accused received in trust from the offended party cash money amountingto P536,650.00, Philippine Currency, with the express obligation involving the duty to act ascomplainants agent in purchasing local cigarettes (Philip Morris and Marlboro cigarettes), to resellthem to several stores, to give her commission corresponding to 40% of the profits; and to returnthe aforesaid amount of offended party, but said accused, far from complying her aforesaidobligation, and once in possession thereof, misapplied, misappropriated and converted the same toher personal use and benefit, despite repeated demands made upon her, accused failed and refusedand still fails and refuses to deliver and/or return the same to the damage and prejudice of the saidISIDORA ROSALES, in the aforementioned amount and in such other amount as may be awardedunder the provision of the Civil Code.

CONTRARY TO LAW.

The antecedent facts are as follows:

Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to the house ofcomplainant Isidora Rosales (Rosales) and asked her to join them in the business of buying andselling cigarettes. Convinced of the feasibility of the venture, Rosales readily agreed. Under theiragreement, Rosales would give the money needed to buy the cigarettes while Liwanag and Tabliganwould act as her agents, with a corresponding 40% commission to her if the goods are sold;otherwise the money would be returned to Rosales. Consequently, Rosales gave several cashadvances to Liwanag and Tabligan amounting toP633,650.00.

During the first two months, Liwanag and Tabligan made periodic visits to Rosales to report on

the progress of the transactions. The visits, however, suddenly stopped, and all efforts by Rosales toobtain information regarding their business proved futile.

Alarmed by this development and believing that the amounts she advanced were beingmisappropriated, Rosales filed a case of estafa against Liwanag.

After trial on the merits, the trial court rendered a decision dated January 9, 1991, findingLiwanag guilty as charged. The dispositive portion of the decision reads thus:

WHEREFORE, the Court holds, that the prosecution has established the guilt of the accused, beyondreasonable doubt, and therefore, imposes upon the accused, Carmen Liwanag, an IndeterminatePenalty of SIX (6) YEARS, EIGHT (8) MONTHS AND TWENTY ONE (21) DAYS OF PRISIONCORRECCIONAL TO FOURTEEN (14) YEARS AND EIGHT (8) MONTHS OF PRISION MAYOR ASMAXIMUM, AND TO PAY THE COSTS.

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

SO ORDERED.

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

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

SO ORDERED.

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

1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN AFFIRMING THE CONVICTION OF THE

ACCUSED-PETITIONER FOR THE CRIME OF ESTAFA, WHEN CLEARLY THE CONTRACT THAT EXIST(sic) BETWEEN THE ACCUSED-PETITIONER AND COMPLAINANT IS EITHER THAT OF A SIMPLELOAN OR THAT OF A PARTNERSHIP OR JOINT VENTURE HENCE THE NON RETURN OF THE MONEYOF THE COMPLAINANT IS PURELY CIVIL IN NATURE AND NOT CRIMINAL.

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

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

The Court of Appeals correctly rejected these pretenses.

While factual findings of the Court of Appeals are conclusive on the parties and not reviewableby the Supreme Court, and carry more weight when these affirm the factual findings of the trialcourt,[3]we deem it more expedient to resolve the instant petition on its merits.

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

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

The receipt signed by Liwanag states thus:

May 19, 1988 Quezon City

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

(SGD & Thumbedmarked) (sic)
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CARMEN LIWANAG26 H. Kaliraya St.

Quezon City

Signed in the presence of:

(Sgd) Illegible (Sgd) Doming Z. Baligad

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

Thus, even assuming that a contract of partnership was indeed entered into by and betweenthe parties, we have ruled that when money or property have been received by a partner for aspecific purpose (such as that obtaining in the instant case) and he later misappropriated it, suchpartner is guilty of estafa.[7]

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

In the instant petition, however, it is evident that Liwanag could not dispose of the money asshe pleased because it was only delivered to her for a single purpose, namely, for the purchase ofcigarettes, and if this was not possible then to return the money to Rosales. Since in this case therewas no transfer of ownership of the money delivered, Liwanag is liable for conversion under Art. 315,par. 1(b) of the Revised Penal Code.

WHEREFORE, in view of the foregoing, the appealed decision of the Court of Appeals datedNovember 29, 1993, is AFFIRMED. Costs against petitioner.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

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

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

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

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

MAKALINTAL, J.:p

In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28,1965 sentencing defendant Development Bank of the Philippines (DBP) to pay actual andconsequential damages to plaintiff Saura Import and Export Co., Inc. in the amount of P383,343.68,plus interest at the legal rate from the date the complaint was filed and attorney's fees in the amountof P5,000.00. The present appeal is from that judgment.

In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation FinanceCorporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be usedas follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks);P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; andP9,100.00 as additional working capital.

Parenthetically, it may be mentioned that the jute mill machinery had already been purchased bySaura on the strength of a letter of credit extended by the Prudential Bank and Trust Co., and arrived

in Davao City in July 1953; and that to secure its release without first paying the draft, Saura, Inc.executed a trust receipt in favor of the said bank.

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

1. That the proceeds of the loan shall be utilized exclusively for the followingpurposes:
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For construction of factory building P250,000.00

For payment of the balance of purchase

price of machinery and equipment 240,900.00

For working capital 9,100.00

T O T A L P500,000.00

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

5. That release shall be made at the discretion of the Rehabili tation Finance Corporation, subject toavailability of funds, and as the construction of the factory buildings progresses, to be certified to byan appraiser of this Corporation;"

Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however,evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to RFC,requesting a modification of the terms laid down by it, namely: that in lieu of having China Engineers,Ltd. (which was willing to assume liability only to the extent of its stock subscription with Saura, Inc.)sign as co-maker on the corresponding

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