Catholic Vicar Apostolic of the Mt. Prov. vs. Court of Appeals

Facts: The documents and records presented reveal that the whole controversy started when the defendant (VICAR for brevity) filed with the Court of First Instance of Baguio-Benguet an application for registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet, said Lots being the sites of the Catholic Church building, convents, high school building, school gymnasium, school dormitories, social hall, stonewalls, etc. On 1963 the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. After trial on the merits, the 1. LAND REGISTRATION COURT promulgated its Decision confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.The Heirs of Juan Valdez and the Heirs of Egmidio Octaviano appealed the decision of the land registration court to the then 2. Court of Appeals. The Court of Appeals rendered its decision, dated May 9, 1977, reversing the decision of the land registration court and dismissing the VICARs application as to Lots 2 and 3.On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration praying the Court of Appeals to order the registration of Lot 3 in the names of the Heirs of Egmidio Octaviano, and on May 17, 1977, the Heirs of Juan Valdez and Pacita Valdez filed their motion for reconsideration praying that both Lots 2 and 3 be ordered registered in the names of the Heirs of Juan Valdez and Pacita Valdez. On August 12, 1977, the 3. Court of Appeals denied the motion for reconsideration filed by the Heirs of Juan Valdez on the ground that there was no sufficient merit to justify reconsideration one way or the other, and likewise denied that of the Heirs of Egmidio Octaviano.Thereupon, the VICAR filed with the 4.Supreme Court a petition for review on certiorari of the decision of the Court of Appeals dismissing his (its) application for registration of Lots 2 and 3. From the denial by the Court of Appeals of their motion for reconsideration, the Heirs of Juan Valdez and Pacita Valdezfiled with the Supreme Court a petition for review. On January 13, 1978, the Supreme Court denied in a minute resolution both petitions (of VICAR on the one hand and the Heirs of Juan Valdez and Pacita Valdez on the other) for lack of merit. Upon the finality of both Supreme Court resolutions then Heirs of Octaviano filed with the then Court of First Instance of Baguio, Branch II, a Motion For Execution of Judgment praying that the Heirs of Octaviano be placed in possession of Lot 3. The Court, presided over by Hon. Salvador J. Valdez, on December 7, 1978, denied the motion on the ground that the Court of Appeals decision did not grant the Heirs of Octaviano any affirmative relief.On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a petition for certiorari and mandamus In its decision dated May 16, 1979, the Court of Appeals dismissed the petition.It was at that stage that the instant cases were filed. The Heirs of Egmidio Octaviano filed Civil Case July 24, 1979, for recovery of possession of Lot 3; and the Heirs of Juan Valdez filed Civil on September 24, 1979, likewise for recovery of possession of Lot 2. In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano presented one (1) witness, Fructuoso Valdez, who testified on the alleged ownership of the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano his written demand to defendant Vicar for the return of the land to them; and the reasonable rentals for the use of the land at P10,000.00 per month. On the other hand, defendant Vicar presented the Register of Deeds for the Province of Benguet, Atty. Nicanor Sison, who testified that the land in question is not covered by any title in the name of Egmidio Octaviano or any of the plaintiffs). The defendant dispensed with the testimony of Mons. William Brasseur when the plaintiffs admitted that the witness if called to the witness stand, would testify that defendant Vicar has been in possession of Lot 3, for seventy-five (75) years continuously and peacefully and has constructed permanent structures thereon.In these two cases, the plaintiffs argue that the defendant Vicar is barred from setting up the defense of ownership and/or long and continuous possession of the two lots in question since this is barred by prior judgment of the Court of Appeals under the principle of res judicata. Plaintiffs contend that the question of possession and ownership have already been determined by the Court of Appeals and affirmed by the Supreme Court. On his part, defendant Vicar maintains that the principle of res judicata would not prevent them from litigating the issues of long possession and ownership because the dispositive portion of the prior judgment merely dismissed their application for registration and titling of lots 2 and 3. Defendant Vicar contends that only the dispositive portion of the decision, and not its body, is the controlling pronouncement of the Court of Appeals.

Issue:Whether or not the the petitioner had been in possession of lots 2 and 3 are merely bailee (borrower) in commodatum.

Held: Credit Transactions; Commodatum; Property; Adverse Possession; Adverse Claim; Acquisitive Prescription; When petitioner borrowed the house of private respondents predecessors, and petitioner was allowed its free use, private respondents became bailors in commodatum, and petitioner, the bailee.Private respondents were able to prove that their predecessors house was borrowed by petitioner Vicar after the church and the convent were destroyed. They never asked for the return of the house, but when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The bailees failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part of the borrower. The bailee held in trust the property subject matter of commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the absence of just title.

Republic vs. Bagtas

Facts: On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a government charge of breeding fee of 10% of the book value of the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower asked for a renewal for another period of one year.However, the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950 and requested the return of the other two.

On 25 March 1950 Jose V. Bagtas wrote to the Director of Animal Industry that he would pay the value of the three bulls.

On 17 October 1950 he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be approved by the Auditor General.

On 19 October 1950 the Director of Animal Industry advised him that the book value of the three bulls could not be reduced and that they either be returned or their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of the three bulls or to return them.So, on 20 December 1950 in the Court of First Instance of Manila the Republic of the Philippines commenced an action against him praying that he be ordered to return the three bulls loaned to him or to pay their book value in the total sum of P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with interests, and costs; and that other just and equitable relief be granted in.On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of the Philippines from the refusal by the Director of Animal Industry to deduct from the book value of the bulls corresponding yearly depreciation of 8% from the date of acquisition, to which depreciation the Auditor General did not object, he could not return the animals nor pay their value and prayed for the dismissal of the complaint.After hearing, on 30 July 1956 the TRIAL COURT rendered judgmentx x x sentencing the latter (defendant) to pay the sum of P3, 625.09 the total value of the three bulls plus the breeding fees in the amount of P626.17 with interest on both sums of (at) the legal rate from the filing of this complaint and costs.

On 7 January 1959 she felicidad bagtas filed a motion alleging that on 26 June 1952 the two bulls, Sindhi and Bhagnari, were returned to the Bureau of Animal Industry and that sometime in November 1958 the third bull, the Sahiniwal, died from gunshot wounds inflicted during a Huk raid on Hacienda Felicidad Intal, and praying that the writ of execution be quashed and that a writ of preliminary injunction be issued. On 31 January 1959 the plaintiff objected to her motion. On 6 February 1959 she filed a reply thereto. On the same day, 6 February, the Court denied her motion. Hence, this appeal certified by the Court of Appeals to this Court, as stated at the beginning of this opinion.It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter That is why in its objection of 31 January 1959 to the appellants motion to quash the writ of execution the appellee prays that another writ of execution in the sum of P859.53 be issued against the estate of defendant deceased Jose V. Bagtas. She cannot be held liable for the two bulls which already had been returned to and received by the appellee.The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huks in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such death was due to force majeure she is relieved from the duty of returning the bull or paying its value to the appellee. The contention is without merit. The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. The appellant contends that the contract was commodatum and that, for that reason, as the appellee retained ownership or title to the bull it should suffer its loss due to force majeure. A contract of commodatum is essentially gratuitous.1Article 1933 of the Civil Code. If the breeding fee be considered a compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of the contract.

Issue: Whether or not the nature of contract was commodatum.

Held: Contracts; Loan of bulls for breeding purposes; Nature of contract affected by payment of fee.The loan by the Bureau of Animal Industry to the defendant of three bulls for breeding purposes for a period of one year, later on renewed for another as regards one bull, was subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. If the breeding fee be considered a compensation, the contract would be a lease of the bulls; it could not be a contract of commodatum, because that contract is essentially gratuitous.

And even if the contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code provides that a bailee in a contract of commodatumis liable for loss of the things, even if it should be through a fortuitous event:1. (2) If he keeps it longer than the period stipulated x x x2. (3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event;

SAURA IMPORT & EXPORT CO., INC vs. DEVELOPMENT BANK OF THE PHILIPPINESFacts: In Civil Case 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 and consequential 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 attorneys fees in the amount of P5,000.00. The present appeal is from that judgment.In July 1953 the plaintiff Saura, Inc. applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital.Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength of a letter 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 buildings to be constructed, the land site thereof, and the machinery and equipment to be installed. Among the other terms spelled out in the resolution were the following: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 comaker on the corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as one of the other comakers, having acquired the latters shares in Saura, Inc.In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of its Board of Governors, for certain reasons stated in the resolution, to reexamine all the aspects of this approved loan . . . with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operations of jute mills, and to submit his findings thereon at the next meeting of the Board.On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the loan, and asked that the necessary documents be prepared in accordance with the terms and conditions specified in Resolution No. 145. In connection with the reexamination of the project to be financed with the loan applied for, as stated in Resolution No. 736, the parties named their respective committees of engineers and technical men to meet with each other and undertake the necessary studies, although in appointing its own committee Saura, Inc. made the observation that the same should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the agreement already entered into, referring to its acceptance of the terms and conditions mentioned in Resolution No. 145.On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Hailing, representing China Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which was duly registered on the following April 17.It appears, however, that despite the formal execution of the loan agreement the re-examination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as follows:RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to P300,000.00. authorizing the re-examination of all the various aspects of the loan granted the Saura Import & Export Co. under Resolution No. 145, for the purpose of financing the manufacture of jute sacks in Davao, with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operation of jute mills, and after having heard Ramon E. Saura and after extensive discussion on the subject the Board, upon recommendation of the Chairman, RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be authorized as may be necessary from time to time to place the factory in actual operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not inconsistent herewith, shall remain in full force and effect.On June 19, 1954 another hitch developed. F.R. Hailing, who had signed the promissory note for China Engineers Ltd. jointly and severally with the other co-signers, wrote RFC that his company no longer wished to avail of the loan and therefore considered the same cancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC that the registration of the mortgage be withdrawn.In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was denied by RFC, which added in its letter-reply that it was constrained to consider as cancelled the loan of P300,000.00 . . . in view of a notification . . . from the China Engineers, Ltd., expressing their desire to consider the loan cancelled insofar as they are concerned. On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers, Ltd. will at any time reinstate their signature as co-signer of the note if RFC releases to us the P500,000.00 originally approved by you.On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of P500,000.00, it appearing that China Engineers, Ltd. is now willing to sign the promissory notes jointly with the borrower-corporation, but with the following proviso:That in view of observations made of the shortage and high cost of imported raw materials, the Department of Agriculture and Natural Resources shall certify to the following:1. 1. That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and2. 2. That there is prospect of increased production thereof to provide adequately for the requirements of the factory.The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it was explained that the certification by the Department of Agriculture and Natural Resources was required as the intention of the original approval (of the loan) is to develop the manufacture of sacks on the basis of locally available raw materials. This point is important, and sheds light on the subsequent actuations of the parties. Saura, Inc. does not deny that the factory he was building in Davao was for the manufacture of bags from local raw materials. The cover page of its brochure describes the project as a Joint venture by and between the Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to finance, manage and operate a Kenaf mill plant, to manufacture copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials, principal kenaf. The explanatory note on page 1 of the same brochure states that the venture is the first serious attempt in this country to use 100% locally grown raw materials notably kenaf which is presently grown commercially in the Island of Mindanao where the proposed jutemill is located . . .This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place, and to require, in its Resolution No. 9083, a certification from the Department of Agriculture and Natural Resources as to the availability of local raw materials to provide adequately for the requirements of the factory. Saura, Inc. itself confirmed the defendants stand impliedly in its letter of January 21, 1955: (1) stating that according to a special study made by the Bureau of Forestry kenaf will not be available in sufficient quantity this year or probably even next year; (2) requesting assurances (from RFC) that my company and associates will be able to bring in sufficient jute materials as may be necessary for the full operation of the jute mill; and (3) asking that releases of the loan be made as follows:

This is with reference to your letter of January 21, 1955, regarding the release of your loan under consideration of P500,-000. As stated in our letter of December 22, 1954, the releases of the loan, if revived, are proposed to be made from time to time, subject to availability of funds towards the end that the sack factory shall be placed in actual operating status. We shall be able to act on your request for revised purposes and manner of releases upon re-appraisal of the securities offered for the loan. With respect to our requirement that the Department of Agriculture and Natural Resources certify that the raw materials needed are available in the immediate vicinity and that there is prospect of increased production thereof to provide adequately the requirements of the factory, we wish to reiterate that the basis of the original approval is to develop the manufacture of sacks on the basis of the locally available raw materials. Your statement that you will have to rely on the importation of jute and your request that we give you assurance that your company will be able to bring in sufficient jute materials as may be necessary for the operation of your factory, would not be in line with our principle in approving the loan.

With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed on August 6, 1954, over the same property in favor of the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of the same year within which to pay its obligation on the trust receipt heretofore mentioned. It appears further that for failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.On January 9, 1964, almost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff from completing or paying contractual commitments it had entered into, in connection with its jute mill project.The TRIAL COURT rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and that the defendant was guilty of breach thereof. The defendant pleaded below, and reiterates in this appeal: (1) that the plaintiffs cause of action had prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms thereof.We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which provides:ART. 1954. An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract.There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was executed and registered. But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and that the plaintiff is therefore entitled to recover damages.It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locally grown raw materials, principally kenaf. There is no serious dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan to the original amount of P500,000.00, it imposed two conditions, to wit: (1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and (2) that there is prospect of increased production thereof to provide adequately for the requirements of the factory. The imposition of those conditions was by no means a deviation from the terms of the agreement, but rather a step in its implementation. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954, namelythat the proceeds of the loan shall be utilized exclusively for the following purposes: for construction of factory buildingP250,000.00; for payment of the balance of purchase price of machinery and equipmentP240,900.00; for working capitalP9,100.00 Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute will not be available in sufficient quantity this year or probably next year, and asking that out of the loan agreed upon the sum of P67,586.09 be released for raw materials and labor. This was a deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon.When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for the implementation of the agreement reached an impasse. Saura, Inc, obviously was in no position to comply with RFCs conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the nature of mutual desistancewhat Manresa terms mutuo disenso18 Manresa, p. 294.which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment. 2 Castan, p. 560.The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, or even point out that the latters stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latters noncompliance. In 1962 it even applied with DBP for another loan to finance a rice and corn project, which application was disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at its own request, that Saura, Inc. brought this action for damages. All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual desistanceand that on the initiative of the plaintiff-appellee itself.

Issue: Whether or not there was a perfected-consensual contract of loan.

Held: When contract of simple loan perfected. Where an application for a loan of money was approved by resolution of the defendant corporation and the corresponding mortgage was executed and registered, there arises a perfected-consensual contract of loan.Extinguishment of obligations by mutual desistance.Where after approval of his loan, the borrower, instead of insisting for its release, asked that the mortgage given as security be cancelled and the creditor acceded thereto, the action taken by both parties was in the nature of mutual desistancewhat Manresa terms mutuo disensowhich is a mode of extinguishing obligations. It is a concept that derives from, the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.

We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which provides:ART. 1954. An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract.

FRANCISCO HERRERA vs. PETROPHIL CORPORATIONFacts: On December 5, 1969, the plaintiff-appellant and ESSO Standard Eastern, Inc., (Petrophil Corporation) entered into a "Lease Agreement" whereby the former leased to the latter a portion of his property for a period of twenty (20) years from said date, subject inter alia to the following conditions:". Rental: The LESSEE shall pay the LESSOR a rental of P1.40 sqm. per month on 400 sqm. and are to be expropriated later on (sic) or P560 per month and P1.40 per sqm. per month on 1,693 sqm. or P2,370.21 per month or a total of P2,930.20 per month 2,093 sqm. more or less, payable yearly in advance within the 1st twenty days of each year; provided, a financial aid in the sum of P1 5,000 to clear the leased premises of existing improvements thereon is paid in this manner; P10,000 upon execution of this lease and P5,000 upon delivery of leased premises free and clear of improvements thereon within 30 days from the date of execution of this agreement. The portion on the side of the leased premises with an area of 365 sqm. more or less, will be occupied by LESSEE without rental during the lifetime of this lease. PROVIDED FINALLY, that the Lessor is paid 8 years advance rental based on P2,930.70 per month discounted at 12% interest per annum or a total net amount of P1 30,288.47 before registration of lease. Leased premises shall be delivered within 30 day s after 1 st partial payment of financial aid.Rec. on Appeal, pp. 14-15.On December 31, 1969, pursuant to the said contract, Herrera paid to Petrophil Corp rentals for the first eight years, subtracting therefrom the amount of P101,010.73, the amount it computed as constituting the interest or discount for the first eight years, in the total sum P180,288.47. On August 20, 1970, Herrera, explaining that there had been a mistake in computation, paid to Petrophil Corp the additional sum of P2,182.70, thereby reducing the deducted amount to only P98,828.03.3Rollo, p. 28.On October 14, 1974Herrera sued,Petrophil for the sum of P98,828.03, with interest, claiming this had been illegally deducted from him in violation of the Usury Law.4Record on Appeal, pp. 1-6. He also prayed for moral damages and attorney's fees. In its answer, the defendant-appellee Petrophil admitted the factual allegations of the complaint but argued that the amount deducted was not usurious interest but a discount given to it for paying the rentals in advance for eight years.5Ibid., pp. 22-26. Judgment on the pleadings was rendered for the defendant.6Id., pp. 72-81.Plaintiff-appellant Herrera now prays for a reversal of that judgment, insisting that the lower court erred in the computation of the interest collected out of the rentals paid for the first eight years; that such interest was excessive and violative of the Usury Law; and that he had neither agreed to nor accepted the defendant-appellant's Petrophil computation of the total amount to be deducted for the eight years advance rentals.7Brief for the Appellant, pp. 8-21.

The thrust of the plaintiff-appellant's Herrera position is set forth in paragraph 6 of his complaint, which read:"6. The interest collected by defendant out of the rentals for the first eight years was excessive and beyond that allowable by law, because the total interest on the said amount is only P33,755.90 at P4,219.4880 per yearly rental; and considering that the interest should be computed excluding the first year rental because at the time the amount of P281,199.20 was paid it was already due under the lease contract hence no interest should be collected from the rental for the first year, the amount of P29,536.42 only as the total interest should have been deducted by defendant from the sum of P281,299.20."The defendant maintains that the correct amount of the discount is P98,828.03 and that the same is not excessive and above that allowed by law. As its title plainly indicates, the contract between the parties is one of lease and not of loan. It is clearly denominated a "LEASE AGREEMENT." Nowhere in the contract is there any showing that the parties intended a loan rather than a lease. The provision for the payment of rentals in advance cannot be construed as a repayment of a loan because there was no grant or forbearance of money as to constitute indebtedness on the part of the lessor. On the contrary, the defendant appellee was discharging its obligation in advance by paying the eight years rentals, and it was for this advance payment that it was getting a rebate or discount.There is no usury in this case because no money was given by the defendant-appellee to the plaintiff-appellant, nor did it allow him to use its money already in his possession.Concerning the computation of the deductible discount, the TRIAL COURT declared :

"As above-quoted, the 'Lease Agreement' expressly provides that the lessee (defendant) shall pay the lessor (plaintiff) eight (8) years in advance rentals based on P2,930.20 per month discounted at 12% interest per annum. Thus, the total rental for one-year period is P35,162.40 (P2,930.20 multiplied by 12 months) and that the interest therefrom is P4,219.4880 (P35,162.40 multiplied by 12%). So, therefore, the total interest for the first eight (8) years should be only P33,755.90 (P4,129.4880 multiplied by eight (8) years) and not P98,828.03 as the defendant claimed it to be.""The afore-quoted manner of computation made by plaintiff is patently erroneous. It is most seriously misleading. He just computed the annual discount to be at P4,129.4880 and then simply multiplied it by eight (8) years. He did not take into consideration the naked fact that the rentals due on the eight year were paid in advance by seven (7) years, the rentals due on the seventh year were paid in advance by six (6) years, those due on the sixth year by five (5) years, those due on the fifth year by four (4) years, those due on the fourth year by three (3) years, those due on the third year by two (2) years, and those due on the second year by one (1) year, so much so that the total number of years by which the annual rental of P4,129.4880 was paid in advance is twenty-eight (28), resulting in a total amount of P118.145.44 (P4,129.48 multiplied by 28 years) as the discount. However, defendant was most fair to plaintiff. It did not simply multiply the annual rental discount by 28 years. It computed the total discount with the principal diminishing month to month as shown by Annex 'A' of its memorandum. This is why the total discount amount to only P8,828.03."The allegation of plaintiff Herrera that defendant Petrophil made the computation in a compounded manner is erroneous. AIso after making its own computations and after examining closely defendant's Annex 'A' of its memorandum, the court finds that defendant did not charge 12% discount on the rentals due for the first year so much so that the computation conforms with the provision of the Lease Agreement to the effect that the rentals shall be 'payable yearly in advance within the 1st 20 days of each year.' "The plaintiff-appellant simply understood that for every year of advance payment there would be a deduction of 12% and this amount would be the same f or each of the eight years. There is no showing that the intricate computation applied by the trial court was explained to him by the defendant-appellee or that he knowingly accepted it.The lower court, following the defendant-appellee's formula, declared that the plaintiff-appellant had actually agreed to a 12% reduction for advance rentals for all of twenty eight years. That is absurd. It is not normal for a person to agree to a reduction corresponding to twenty eight years advance rentals when all he is receiving in advance rentals is for only eight years.The deduction shall be for only eight years because that was plainly what the parties intended at the time they signed the lease agreement. "Simplistic" it may be, as the Solicitor General describes it, but that is how the lessor understood the arrangement. In fact, the Court will reject his subsequent modification that the interest should be limited to only seven years because the first year rental was not being paid in advance. The agreement was for a uniform deduction for the advance rentals for each of the eight years, and neither of the parties can deviate from it now.On the annual rental of P35,168.40, the deducted 12% discount was P4,220.21; and for eight years, the total rental was P281,347.20 from which was deducted the total discount of P33,761.68, leaving a difference of P247,585.52. Subtracting from this amount, the sum of P182,471.17 already paid will leave a balance of P65,114.35 still due the plaintiff-appellant.The above computation is based on the more reasonable interpretation of the contract as a whole rather on the single stipulation invoked by the respondent for the flat reduction of P130,288.47.WHEREFORE, the decision of the trial court is hereby modified, and the defendant-appellee Petrophil Corporation is ordered to pay plaintiff-appellant the amount of Sixty Five Thousand One Hundred Fourteen pesos and Thirty-Five Centavos (P65,114.35), with interest at the legal rate until fully paid, plus Ten Thousand Pesos (P10,000.00) as attorney's fees. Costs against the defendant-appellee Petrophil.SO ORDERED.

Issue: Whether or not there is a violation of Usury Law.Held: Usury Law; No usury where there was no money given by defendant to plaintiff, nor did it allow him to use its money already in his possession, and there was neither loan nor forbearance but a mere discountThere is no usury in this case because no money was given by the defendant-appellee to the plaintiff-appellant, nor did it allow him to use its money already in his possession. There was neither loan nor forbearance but a mere discount which the plaintiff-appellant allowed the defendant-appellee to deduct from the total payments because they were being made in advance for eight years. The discount was in effect a reduction of the rentals which the lessor had the right to determine, and any reduction thereof, by any amount, would not contravene the Usury law.Difference between a discount and a loan or forbearance.The difference between a discount and a loan or forbearance is that the former does not have to be repaid. The loan or forbearance is subject to repayment and is therefore governed by the laws on usury.Requirements to constitute usury; Elements of usury.To constitute usury, "there must be loan or forbearance; the loan must be of money or something circulating as money; it must be repayable absolutely and in all events; and something must be exacted for the use of the money in excess of and in addition to interest allowed by law." It has been held that the elements of usury are (1) a loan, express or implied; (2) an understanding between the parties that the money lent shall or may be returned; (3) that for such loan a greater rate or interest that is allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for the use of money loaned. Unless these four things concur in every transaction, it is safe to affirm that no case of usury can be declared.

INTEGRATED REALTY CORPORATION and RAUL L. SANTOS, petitioners, vs. PHILIPPINE NATIONAL BANK

Facts: In G.R. No. 60705, petitioners Integrated Realty Corporation (hereafter, IRC) and Raul L. Santos (hereafter, Santos) seek the dismissal of the complaint filed by the Philippine National Bank (hereafter, PNB), or in the event that they be held liable thereunder, to revive and affirm that portion of the decision of the trial court ordering Overseas Bank of Manila (hereafter, OBM) to pay IRC and Santos whatever amounts the latter will pay to PNB, with interest from the date of payment.2

Under date 11 January 1967 defendant Raul L. Santos made a time deposit with defendant OBM in the amount of P500,000.00. (Exhibit-10 OBM) and was issued a Certificate of Time Deposit No. 2308 (Exhibit 1-Santos, Exhibit D). Under date 6 February 1967 defendant Raul L. Santos also made a time deposit with defendant OBM in the amount of P200,000.00 (Exhibit 11-OBM) and was issued certificate of Time Deposit No. 2367 (Exhibit 2-Santos, Exhibit E).

Issue:Held: Civil Law; Credit Transactions; Pledge; Deed of Assignment; The deed of assignment in the instant case is actually a pledge.For all intents and purposes, the deed of assignment in this case is actually a pledge. Adverting again to the Courts pronouncements in Lopez, supra, we quote therefrom: The character of the transaction between the parties is to be determined by their intention, regardless of what language was used or what the form of the transfer was. If it was intended to secure the payment of money, it must be construed as a pledge; but if there was some other intention, it is not a pledge. However, even though a transfer, if regarded by itself, appears to have absolute, its object and character might still be qualified and explained by contemporaneous writing declaring it to have been a deposit of the property as collateral security. It has been said that a transfer of property by the debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should be treated as a pledge if the debt continues in existence and is not discharged by the transfer, and that accordingly, the use of the terms ordinarily importing conveyance, of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the absence of clear and unambiguous language or other circumstances excluding an intent to pledge.

Requisites of a Contract of Pledge.The facts and circumstances leading to the execution of the deed of assignment, as found by the court a quo and the respondent court, yield said conclusion that it is in fact a pledge. The deed of assignment has satisfied the requirements of a contract of pledge (1) that it be constituted to secure the fulfillment of a principal obligation; (2) that the pledgor be the absolute owner of the thing pledged; (3) that the persons constituting the pledge have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. The further requirement that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement was complied with by the execution of the deed of assignment in favor of PNB.Loans; A contract of simple loan or mutuum is created when Santos invested his money in time deposit with petitioner-bank.Thus, when PNB demanded from OBM payment of the amounts due on the two time deposits which matured on January 11, 1968 and February 6, 1968, respectively, there was as yet no obstacle to the faithful compliance by OBM of its liabilities thereunder. Consequently, for having incurred in delay in the performance of its obligation, OBM should be held liable for damages. When respondent Santos invested his money in time deposits with OBM, they entered into a contract of simple loan or mutuum, not a contract of deposit.REPUBLIC OF THE PHILIPPINES (BUREAU OF LANDS), petitioner, vs. THE HON. COURT OF APPEALS, HEIRS OF DOMINGO P. BALOYFacts: This case originally emanated from a decision of the then Court of First Instance of Zambales in LRC denying respondents' application for registration. From said order of denial the applicants, heirs of Domingo Baloy, represented by Ricardo P. Baloy, (herein private respondents) interposed on appeal to the Court of Appeals. The appellate court, thru its Fifth Division with the Hon. Justice Magno Gatmaitan as ponente, rendered a decision dated February 3, 1977 reversing the decision appealed from and thus approving the application for registration. Oppositors (petitioners herein) filed their Motion for Reconsideration alleging among other things that applicants' possessory information title can no longer be invoked and that they were not able to prove a registerable title over the land. Said Motion for Reconsideration was denied, hence this petition for review on certiorari.Applicants' claim is anchored on their possessory information title coupled with their continuous, adverse and public possession over the land in question. An examination of the possessory information title shows that the description and the area of the land stated therein substantially coincides with the land applied for and that said possessory information title had been regularly issued having been acquired by applicants' predecessor, Domingo Baloy, under the provisions of the Spanish Mortgage Law. Applicants presented their tax declaration on said lands on April 8, 1965.The Director of Lands opposed the registration alleging that this land had become public land thru the operation of Act 627 of the Philippine Commission. On 1902 pursuant to the executive order of the President of the U.S., the area was declared within the U.S. Naval Reservation. Under Act 627 as amended by Act 1138, a period was fixed within which persons affected thereby could file their application, (that is within 6 months from July 8, 1905) otherwise "the said lands or interests therein will be conclusively adjudged to be public lands and all claims on the part of private individuals for such lands or interests therein not to presented will be forever barred." Petitioner argues that since Domingo Baloy failed to file his claim within the prescribed period, the land had become irrevocably public and could not be the subject of a valid registration for private ownership.Considering the foregoing facts respondent Court of Appeals ruled as follows:"x x x perhaps, the consequence was that upon failure of Domingo Baloy to have filed his application within that period the land had become irrevocably public; but perhaps also, for the reason that that warning was from the Clerk of the Court of Land Registration, named J.R. Wilson and there has not been presented a formal order or decision of the said Court of Land Registration so declaring the land public because of that failure, it can with plausibility be said that after all, there was no judicial declaration to that effect, it is true that the U.S. Navy did occupy it apparently for some time, as a recreation area, as this Court understands from the communication of the Department of Foreign Affairs to the U.S. Embassy exhibited in the record, but the very tenor of the communication apparently seeks to justify the title of herein applicants, in other words, what this Court has taken from the occupation by the U.S. Navy is that during the interim, the title of applicants was in a state of suspended animation so to speak but it had not died either; and the fact being that this land was really originally private from and after the issuance and inscription of the possessory information Exh. F during the Spanish times, it would be most difficult to sustain position of Director of Lands that it was land of no private owner; open to public disposition, and over which he has control; and since immediately after U.S. Navy had abandoned the area, applicant came in and asserted title once again, only to be troubled by first Crispiniano Blanco who however in due time, quitclaimed in favor of applicants, and then by private oppositors now, apparently originally tenants of Blanco, but that entry of private oppositors sought to be given color of ownership when they sought to and did file tax declaration in 1965, should not prejudice the original rights of applicants thru their possessory information secured regularly so long ago, the conclusion must have to be that after all, applicants had succeeded in bringing themselves within the provisions of Sec. 19 of Act 496, the land should be registered in their favor;IN VIEW WHEREOF, this Court is constrained to reverse, as it now reverses, judgment appealed from the application is approved, and once this decision shall have become final, if ever it would be, let decree issue in favor of applicants with the personal circumstances outlined in the application, costs against private oppositors."Issue:Held: Possessory rights over a piece of land is interrupted only and not lost by temporary occupation thereof by the U.S. Navy for recreational purposes.The finding of respondent court that during the interim of 57 years from November 26,1902 to December 17, 1959 (when the U.S. Navy possessed the area) the possessory rights of Baloy or heirs were merely suspended and not lost by prescription, is supported by Exhibit "U," a communication or letter No. 1108-63, dated June 24, 1963, which contains an official statement of the position of the Republic of the Philippines with regard to the status of the land in question. Said letter recognizes the fact that Domingo Baloy and/or his heirs have been in continuous possession of said land since 1894 as attested by an "Informacion Possessoria" Title, which was granted by the Spanish Government. Hence, the disputed property is private land and this possession was interrupted only by the occupation of the land by the U.S. Navy in 1945 for recreational purposes. The U.S. Navy eventually abandoned the premises. The heirs of the late Domingo P. Baloy, are now in actual possession, and this has been so since the abandonment by the U.S. Navy. A new recreation area is now being used by the U.S. Navy personnel and this place is remote from the land in question.Clearly, the occupancy of the U.S. Navy was not in the concept of owner. It partakes of the character of a commodatum. It cannot therefore militate against the title of Domingo Baloy and his successors-in-interest. One's ownership of a thing may be lost by prescription by reason of another's possession if such possession be under claim of ownership, not where the possession is only intended to be transient, as in the case of the U.S. Navy's occupation of the land concerned, in which case the owner is not divested of his title, although it cannot be exercised in the meantime.

MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs and appellants, vs. BECKFacts: The plaintiff brought this action to compel the defendant to return to her certain furniture which she lent him for his use. She appealed from the judgment of the Court of First Instance of Manila which ordered that the defendant return to her the three gas heaters and the four electric lamps found in the possession of the Sheriff of said city, that she call for the other furniture from the said Sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for the deposit of the furniture be paid pro rata by both parties, without pronouncement as to the costs.The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between the plaintiff and the defendant, the former gratuitously granted to the latter the use of the furniture described in the third paragraph of the stipulation of facts, subject to the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified the defendant of the conveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of lease. There after the plaintiff required the defendant to return all the furniture transferred to him for his use. The defendant answered that she may call for them in the house where they are found. On November 5, 1936, the defendant, through another person, wrote to the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On the 7th of the same month, the defendant wrote another letter to the plaintiff informing her that he could not give up the three gas heaters and the four electric lamps because he would use them until the 15th of the same month when the lease is due to expire. The plaintiff refused to get the furniture in view of the fact that the defendant had declined to make delivery of all of them. On November 15th, before vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue in the custody of the said sheriff.In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in holding that they violated the contract by not calling for all the furniture on November 5, 1936, when the defendant placed them at their disposal; in not ordering the defendant to pay them the value of the furniture in case they are not delivered; in holding that they should get all the furniture from the Sheriff at their expenses; in ordering them to pay one-half of the expenses claimed by the Sheriff for the deposit of the furniture; in ruling that both parties should pay their respective legal expenses or the costs; and in denying the motions for reconsideration and new trial. To dispose of the case, it is only necessary to decide whether the defendant complied with his obligation to return the furniture upon the plaintiff's demand; whether the latter is bound to bear the deposit fees thereof, and whether she is entitled to the costs of litigation.

Issue: Whether or not the contract entered into between the parties is one of commudatumHeld: COMMODATUM; OBLIGATION OF THE PARTIES.The contract entered into between the parties is one of commodatum, because under it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract the defendant bound himself to return the furniture to the plaintiff, upon the latter's demand (Clause 7 of the contract, Exhibit "A"; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff at the latter's residence or house. The defendant did not comply with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit the three gas heaters and the four electric lamps.

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. JOSE GRIJALDO

Facts: In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the Bank of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the rate of 6% per annum, compounded quarterly. These loans are evidenced by five promissory noteexecuted by the appellant in favor of the Bank of Taiwan, Ltd., as follows: On June 1, 1943, P600.00; on June 3, 1948, P159.11; on June 18, 1943. P22.86; on August 9, 1943, P300.00; on August 13, 1943, P200.00, all notes without due dates, but because the loans were crop loans it was considered that 'the loans were due one year after they were incurred. To secure the payment of the loans the appellant executed a chattel mortgage on the standing crops on his land, Lot No. 1494 known as Hacienda Campugas in Hinigaran. Negros Occidental.By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for in the Trading with the Enemy Act, as amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the Government of the United States. Pursuant to the Philippine Property Act of 1946 of the United States, these assets, including the loans in question, were subsequently transferred to the Republic of the Philippines by the Government of the United States under Transfer Agreement dated July 20, 1954. These assets were among the properties that were placed under the administration of the Board of Liquidators created under Executive Order No. 372, dated November 24, 1950, and in accordance with Republic Acts Nos. 8 and 477 and other pertinent laws.On September 29, 1954 the appellee, Republic of the Philippines, represented by the Chairman of the Board of Liquidators, made a written extrajudicial demand upon the appellant for the payment of the account in question. The record shows that the appellant had actually received the written demand for payment, but he failed to pay..The aggregate amount due as principal of the five loans in question, computed under the Ballantyne scale of values as of the time that the loans were incurred in 1943, was P889.64; and the interest due thereon at the rate of 6% per annum compounded quarterly, computed as of December 31, 1959. was P 1,457.39; so that the total account as of December 31, 1959 was P2,377.23.On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros Occidental, to collect from the appellant the unpaid account in question. The Justice of the Peace of Hinigaran, after hearing, dismissed the case on the ground that the action had prescribed. The appellee appealed to the Court of First Instance of Negros Occidental and on March 26, 1982 the court a quo rendered a decision ordering the appellant to pay the appellee the sum of P2,377.23 as of December 31, 1959, plus interest at the rate of 6% per annum compounded quarterly from the date of the filing of the complaint until full payment was made. The appellant was also ordered to pay the sum equivalent to 10% of the amount due as attorney's fees and the costs.The appellant appealed directly to this Court. During the pendency of this appeal the appellant Jose Grijaldo died. Upon motion by the Solicitor General this Court, in a resolution of May 13, 1963, required Manuel Lagtapon, Jacinto Lagtapon, Ruben Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose Grijaldo, to appear and be substituted as appellants in accordance with Section 17 of Rule 3 of the Rules of Court.Issue:Held: Crop loans obtained from the Bank of Taiwan, Ltd.; Right of Philippine Government to collect the loans.In 1943, appellant obtained crop loans from the Bank of Taiwan, Ltd., Bacolod City Branch, evidenced by promissory notes. To secure payment of the loans, appellant executed a chattel mortgage over the standing crops on his land. After the war, the Republic of the Philippines brought the present action to collect from appellant the unpaid account. Held: It is true that the Bank of Taiwan, Ltd. was the original creditor and the transaction between the appellant and the Bank of Taiwan was a private contract of loans. However, pursuant to the Trading with the Enemy Act, as amended, and Executive Order No. 9095 of the United States; and under Vesting Order No. P-4, dated January 21, 1946, the properties of the Bank of Taiwan, Ltd., were vested in the United States Government. Pursuant, further, to the Philippine Property Act of 1946 and Transfer Agreements dated July 20, 1954 and June 15, 1957, between the United States Government and the Republic of the Philippines, the assets of the Bank of Taiwan, Ltd. were transferred to and vested in the Republic of the Philippines. The successive transfers of the rights over the loans in question from the Bank of Taiwan, Ltd. to the United States Government, and from the United States Government to the government of the Republic of the Philippines, made the Republic of the Philippines the successor of the rights, title and interests in said loans, thereby creating a privity of contract between the appellee and the appellant.FELIX DE LOS SANTOS, plaintiff and appellee, vs. AGUSTINA JARRAFacts: On the 1st of September, 1906, Felix de los Santos brought suit against Agustina Jarra, the administratrix of the estate of Magdaleno Jimenea, alleging that in the latter part of 1901 Jimenea borrowed and obtained from the plaintiff ten first-class carabaos, to be used at the animal-power mill of his hacienda during the season of 1901-2, without recompense or remuneration whatever for the use thereof, under the sole condition that they should be returned to the owner as soon as the work at the mill was terminated; that Magdaleno Jimenea, however, did not return the carabaos, notwithstanding the fact that the plaintiff claimed their return after the work at the mill was finished; that Magdaleno Jimenea died on the 28th of October, 1904, and the defendant herein was appointed by the Court of First Instance of Occidental Negros administratrix of his estate and she took over the administration of the same and is still performing her duties as such administratrix; that the plaintiff presented his claim to the commissioners of the estate of Jimenea, within the legal term, for the return of the said ten carabaos, but the said commissioners rejected his claim as appears in their report; therefore, the plaintiff prayed that judgment be entered against the defendant as administratrix of the estate of the deceased, ordering her to return the ten first-class carabaos loaned to the late Jimenea, or their present value, and to pay the costs.The defendant was duly summoned, and on the 25th of September, 1906, she demurred in writing to the complaint on the ground that it was vague; but on the 2d of October of the same year, in answer to the complaint, she said that it was true that the late Magdaleno Jimenea asked the plaintiff to loan him ten carabaos, but that he only obtained three second-class animals, which were afterwards transferred by sale by the plaintiff to the said Jimenea; that she denied the allegations contained in paragraph 3 of the complaint; for all of which she asked the court to absolve her of the complaint with the costs against the plaintiff.By a writing dated the 11th of December, 1906, Attorney Jose Felix Martinez notified the defendant and her counsel, Matias Hilado, that he had made an agreement with the plaintiff to the effect that the latter would not compromise the controversy without his consent, and that as fees for his professional services he was to receive one half of the amount allowed in the judgment if the same were entered in f avor of the plaintiff.The case came up for trial, evidence was adduced by both parties, and their exhibits were made of record. On the 10th of January, 1907, the court below entered judgment sentencing Agustina Jarra, as administratrix of the estate of Magdaleno Jimenea, to return to the plaintiff, Felix de los Santos, the remaining six second and third class carabaos, or the value thereof at the rate of P120 each, or a total of P720 with the costs.Counsel for the defendant excepted to the foregoing judgment, and, by a writing dated January 19, moved for a new trial on the ground that the findings of fact were openly and manifestly contrary to the weight of the evidence. The motion was overruled, the defendant duly excepted, and in due course submitted the corresponding bill of exceptions, which was approved and submitted to this court.The defendant has admitted that Magdaleno Jimenea asked the plaintiff for the loan of ten carabaos which are now claimed by the latter, as shown by two letters addressed by the said Jimenea to Felix de los Santos; but in her answer the said defendant alleged that the late Jimenea only obtained three second-class carabaos, which were subsequently sold to him by the owner, Santos; therefore, in order to decide this litigation it is indispensable that-proof be forthcoming that Jimenea only received three carabaos from his son-in-law Santos, and that they were sold by the latter to him.The record discloses that it has been f ully proven f rom the testimony of a sufficient number of witnesses that the plaintiff, Santos, sent in charge of various persons the ten carabaos requested by his father-in-law, Magdaleno Jimenea, in the two letters produced at the trial by the plaintiff, and that Jimenea received them in the presence of some of said persons, one being a brother of said Jimenea, who saw the animals arrive at the hacienda where it was proposed to employ them. Four died of rinderpest, and it is for this reason that the judgment appealed from only deals with six surviving carabaos.The alleged purchase of three carabaos by Jimenea from his son-in-law Santos is not evidenced by any trustworthy documents such as those of transfer, nor were the declarations of the witnesses presented by the defendant affirming it satisfactory; for said reason it can not be considered that Jimenea only received three carabaos on loan from his sonin-law, and that he afterwards kept them definitely by virtue of the purchase.By the laws in force the transfer of large cattle was and is still made by means of official documents issued by the local authorities; -these documents constitute the title of ownership of the carabao or horse so acquired. Furthermore, not only should the purchaser be provided with a new certificate or credential, a document which has not been produced in evidence by the defendant, nor has the loss of the same been shown in the case, but the old documents ought to be on file in the municipality, or they should have been delivered to the new purchaser, and in the case at bar neither did the defendant present the old credential on which should be stated the name of the previous owner of each of the three carabaos said to have been sold by the plaintiff.From the foregoing it may be logically inferred that the carabaos loaned or given on commodatum to the now deceased Magdaleno Jimenea were ten in number; that they, or at any rate the six surviving ones, have not been returned to the owner thereof, Felix de los Santos, and that it is not true that the latter sold to the former three carabaos that the purchaser was already using; therefore, as the said six carabaos were not the property of the deceased nor of any of his descendants, it is the duty of the administratrix of the estate to return them or indemnify the owner for their value.Issue:Held: ESTATES; ACTION AGAINST ADMINISTRATOR J BAILMENT; COMMODATUM.In a contract of commodatum whereby one of the parties thereto delivers to the other a thing that is not perishable, to be used for a certain time and afterwards returned, it is the imperative duty of the bailee, if he should be unable to return the thing itself to the owner, to pay damages to the latter if, through the fault of the bailee, the thing loaned was lost or destroyed, inasmuch as the bailor retains the ownership thereof.ALEJANDRA MINA ET AL., plaintiffs and appellants, vs. RUPERTA PASCUAL ET AL., defendants and appellees.1. 1.REALTY; SALE OF LAND BY ONE NOT THE OWNER.A sale of land belonging to another, on which a building of the vendor's is located, is null and void, for the vendor cannot sell or transfer property that does not belong to him.1. 2.ID.; BUILDING ON LAND OF ANOTHER; OPTION OF OWNER OF THE LAND,Inasmuch as the acts involved were all performed prior to the enactment of the Civil Code, the controversy must be settled in accordance with the provisions of Laws 41 and 42, title 28, third Partida, nearly identical with articles 361 and 362 of the Civil Code. Therefore, as prescribed by article 361, the owner of the land on which a building has been erected by another in good faith has the option either to appropriate and pay for the building, under articles 453 and 454, or to oblige the builder to purchase the land.Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla acquired during his lifetime, on March 12, 1874, a lot in the center of the town of Laoag, the capital of the Province of Ilocos Norte, the property having been awarded to him through its purchase at a public auction held by the alcalde mayor of that province. The lot has a frontage of 120 meters and a depth of 15.Andres Fontanilla, with the consent of his brother Francisco, erected a warehouse on a part of the said lot, embracing 14 meters of its frontage by 11 meters of its depth.Francisco Fontanilla, the former owner of the lot, being dead, the herein plaintiffs, Alejandra Mina et al., were recognized without discussion as his heirs.Andres Fontanilla, the former owner of the warehouse, also having died, the children of Ruperta Pascual were recognized likewise without discussion, though it is not said how, and consequently are entitled to the said building, or rather, as Ruperta Pascual herself stated, to only six-sevenths of one-half of it, the other half belonging, as it appears, to the plaintiffs themselves, and the remaining one-seventh of the first one-half to the children of one of the plaintiffs, Elena de Villanueva. The fact is that the plaintiffs and the defendants are virtually, to all appearance, the owners of the warehouse; while the plaintiff s are undoubtedly the owners of the part of the lot occupied by that building, as well also as of the remainder thereof.This was the state of affairs when, on May 6, 1909, Ruperta Pascual, as the guardian of her minor children, the herein defendants, petitioned the Court of First Instance of Ilocos Norte for authorization to sell "the six-sevenths of the one-half of the warehouse, of 14 by 11 meters, together with its lot." The plaintiffsthat is, Alejandra Mina et al.opposed the petition of Ruperta Pascual for the reason that the latter had included therein the lot occupied by the warehouse, which they claimed was their exclusive property. All this action was taken in a special proceeding in re guardianship.The plaintiffs did more than oppose Pascual's petition; they requested the court, through motion, to decide the question of the ownership of the lot before it pass upon the petition for the sale of the warehouse. But the court, before determining the matter of the ownership of the lot occupied by the warehouse, ordered the sale of this building, saying:"While the trial continues with respect to the ownership of the lot, the court orders the sale at public auction of the said warehouse and of the lot on which it is built, with the present boundaries of the land and condition of the building, at a price of not less than P2,890 Philippine currency * * *"So, the warehouse, together with the lot on which it stands, was sold to Cu JOCO, the other def endant in this case, for the price mentioned.The plaintiffs insisted upon a decision of the question of the ownership of the lot, and the court decided it by holding that this land belonged to the owner of the warehouse which had been built thereon thirty years before.The plaintiffs appealed and this court reversed the judgment of the lower court and held that the appellants were the owners of the lot in question.1Pascual vs. Mina, 20 Phil. Rep., 202.When the judgment became final and executory, a writ of execution issued and the plaintiffs were given possession of the lot; but soon thereafter the trial court annulled this possession for the reason that it affected Cu Joco, who had not been a party to the suit in which that writ was served.It was then that the plaintiffs commenced the present action for the purpose of having the sale of the said lot declared null and void and of no force and effect.An agreement was had as to the facts, the ninth paragraph of which is as f ollows:"9. That the herein plaintiffs excepted to the judgment and appealed therefrom to the Supreme Court which found for them by holding that they are the owners of the lot in question, although there existed and still exists a commodatum by virtue of which the guardianship (meaning the defendants) had and has the use, and the plaintiffs the ownership, of the property, with no finding concerning the decree of the lower court that ordered the sale."The obvious purport of the clause "although there existed and still exists a commodatum," etc., appears to be that it is a part of the decision of the Supreme Court and that, while finding the plaintiffs to be the owners of the lot, we recognized in principle the existence of a commodatum under which the defendants held the lot. Nothing could be more inexact. Possibly, also, the meaning of that clause is that, notwithstanding the finding made by the Supreme Court that the plaintiffs were the owners, these former and the defendants agree that there existed, and still exists, a commodatum, etc. But such an agreement would not affect the truth of the contents of the decision of this court, and the opinions held by the litigants in regard to this point could have no bearing whatever on the present decision,Nor did the decree of the lower court that ordered the sale have the least influence in our previous decision to require our making any finding in regard thereto, for, with or without that decree, the Supreme Court had to decide the ownership of the lot consistently with its titles and not in accordance with the judicial acts or proceedings had prior to the setting up of the issue in respect to the ownership of the property that was the subject of the judicial decree.What is essentially pertinent to the case is the fact that the defendants agree that the plaintiffs have the ownership, and they themselves only the use, of the said lot.On this premise, the nullity of the sale of the lot is in all respects quite evident, whatsoever be the manner in which the sale was effected, whether judicially or extrajudicially.He who has only the use of a thing cannot validly sell the thing itself. The effect of the sale being a transfer of the ownership of the thing, it is evident that he who has only the mere use of the thing cannot transfer its ownership. The sale of a thing effected by one who is not its owner is null and void. The defendants never were the owners of the lot sold. The sale of it by them is necessarily null and void. One cannot convey to another what he has never had himself.The returns of the auction contain the following statements:"I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the authorization conferred upon me on the 31st of July, 1909, by the Court of First Instance of Ilocos Norte, proceeded with the sale at public auction of the sixsevenths part of the one-half of the warehouse constructed of rubble stone, etc."Whereas I, Ruperta Pascual, the guardian of the minors, etc., sold at public auction all the land and all the rights, title, interest, and ownership in the said property to Cu Joco, who was the highest bidder, etc."Therefore, * * * I cede and deliver forever to the said purchaser, Cu Joco, his heirs and assigns, all the interest, ownership and inheritance rights and others that, as the guardian of the said minors, I have and may have in the said property, etc."The purchaser could not acquire anything more than the interest that might be held by a person to whom realty in possession of the vendor might be sold, for at a judicial auction nothing else is disposed of. What the minor children of Ruperta Pascual had in their possession was the ownership of the six-sevenths part of one-half of the warehouse and the use of the lot occupied by this building. This, and nothing more, could the Chinaman Cu Joco acquire at that sale: not the ownership of the lot; neither the other half, nor the remaining one-seventh of the said first half, of the warehouse. Consequently, the sale made to him of this oneseventh of one-half and the entire other half of the building was null and void, and likewise with still more reason the sale of the lot the building occupies.The purchaser could and should have known what it was that was offered for sale and what it was that he purchased. There is nothing that can justify the acquisition by the purchaser of the warehouse of the ownership of the lot that this building occupies, since the minors represented by Ruperta Pascual never were the owners of the said lot, nor were they ever considered to be such.The trial court, in the judgment rendered, held that there were no grounds for the requested annulment of the sale, and that the plaintiffs were entitled to the P600 deposited with the clerk of the court as the value of the lot in question. The defendants, Ruperta Pascual and the Chinaman Cu Joco, were absolved from the complaint, without express finding as to costs.The plaintiffs cannot be obliged to acquiesce in or allow the sale made and be compelled to accept the price set on the lot by expert appraisers, not even though the plaintiffs be considered as cowners of the warehouse. It would be much indeed that, on the ground of cownership, they should have to abide by and tolerate the sale of the said building,which point this court does not decide as it is not a question submitted to us for decision, but, as regards the sale of the lot, it is in all respects Impossible to hold that the plaintiffs must abide by it and tolerate it, and this conclusion is based on the fact that they did not give their consent (art. 1261, Civil Code), and only the contracting parties who have given it are obliged to comply (art. 1091, idem).The sole purpose of the action in the beginning was to obtain an annulment of the sale of the lot; but subsequently the plaintiffs, through motion, asked for an amendment of their complaint in the sense that the action should be deemed to be one for the recovery of possession of a lot and for the annulment of its sale. The plaintiffs' petition was opposed by the defendants' attorney, but was allowed by the court; therefore the complaint seeks, after the judicial annulment of the sale of the lot, to have the def endants sentenced immediately to deliver the same to the plaintiffs.Such a finding appears to be in harmony with the decision rendered by the Supreme Court in the previous suit, wherein it was held that the ownership of the lot lay in the plaintiffs, and for this reason steps were taken to give possession thereof to the defendants; but, as the purchaser Cu Joco was not a party to that suit, the present action is strictly one for recovery against Cu Joco to compel him, once the sale has been annulled, to deliver the lot to its lawful owners, the plaintiffs.As respects this action for recovery, this Supreme Court finds:1. 1. That it is a f act admitted by the litigating parties, both in this and in the previous suit, that Andres Fontanilla, the defendants' predecessor in interest, erected the warehouse on the lot, some thirty years ago, with the explicit consent of his brother Francisco Fontanilla, the plaintiffs' predecessor in interest.2. 2. That it also appears to be an admitted fact that the plaintiffs and the defendants are the cowners of the warehouse.3. 3. That it is a fact explicity admitted in the agreement,1. that neither Andres Fontanilla nor his successors paid any consideration or price whatever for the use of the lot occupied by the said building; whence it is, perhaps, that both parties have denominated that use a commodatum.Upon the premise of these facts, or even merely upon that of the first of them, the sentencing of the defendants to deliver the lot to the plaintiffs does not follow as a necessary corollary of the judicial declaration of ownership made in the previous suit, nor of that of the nullity of the sale of the lot, made in the present case.The defendants do not hold lawful possession of the lot in question.But, although both litigating parties may have agreed in their idea of the commodatum, on account of its not being, as indeed it is not, a question of fact but of law, yet that denomination given by them to the use of the lot granted by Francisco Fontanilla to his brother, Andres Fontanilla, is not acceptable. Contracts are not to be interpreted in conformity with the name that the parties thereto agree to give them, but must be construed, duly considering their constitutive elements, as they are defined and denominated by law."By the contract of loan, one of the parties delivers to the other, either anything not perishable, in order that the latter may use it during a certain period and return it to the former, in which case it is called commodatum * * * " (art. 1740, Civil Code).It is, therefore, an essential feature of the commodatum that the use of the thing belonging to another shall be for a certain period. Francisco Fontanilla did not fix any definite period of time during which Andres Fontanilla could have the use of the lot whereon the latter was to erect a stone warehouse of considerable value, and so it is that for the past thirty years the lot has been used by both Andres and his successors in interest. The present contention of the plaintiffs that Cu Joco, now in possession of the lot, should pay rent for it at the rate of P5 a month, would destroy the theory of the commodatum sustained by them, since, according to the second paragraph of the aforecited article 1740, "commodatum is essentially gratuitous," and, if what the plaintiffs themselves aver on page 7 of their brief is to be believed, it never entered Francisco's mind to limit the period during which his brother Andres was to have the use of the lot, because he expected that the warehouse would eventually fall into the hands of his son, Fructuoso Fontanilla, called the adopted son of Andres, which did not come to pass for the reason that Fructuoso died before his uncle Andres. With that expectation in view, it appears more likely that Francisco intended to allow his brother Andres a surface right; but this right supposes the payment of an annual rent, and Andres had the gratuitous use of the lot.Hence, as the facts aforestated only show that a building was erected on another's ground, the question should be de.cided in accordance with the statutes that, thirty years ago, governed accessions to real estate, and which were Laws 41 and 42, title 28, of the third Partida, nearly identical with the provisions of articles 361 and 362 of the Civil Code. So, then, pursuant to article 361, the 'owner of the land on which a building is erected in good faith has a right to appropriate such edifice to himself, after payment of the indemnity prescribed in articles 453 and 454, or to oblige the builder to pay him the value of the land. Such, and no .other, is the right to which the plaintiffs are entitled.For the foregoing reasons, it is only necessary to annul the sale of the said lot which was made by Ruperta Pascual, in representation of her minor children, to Cu Joco, and to maintain the latter in the use of the lot until the plaintiffs shall choose one or the other of the two rights granted them by article 361 of the Civil Code.The judgment appealed from is reversed and the sale of the lot in question is held to be null and void and of no f orce or effect. No special finding is made as to the costs of both instances.AURELJO G. BRIONES, plaintiff-appellee, vs. PRIMITIVO P. CAMMAYO, ET AL., defendants-appellants.Usury; Loan with usurious interest; Loan valid but usurious interest void; Right of creditor to recover his capital.To discourage stipulations on usurious interest, said stipulations are treated as wholly void, so that the loan becomes without stipulation as to payment of interest. It should not, however, be interpreted to mean forfeiture even of the principal, for this would unjustly enrich the borrower at the expense of the lender. Furthermore, penal sanctions are available against a usurious lender, as a further deterrence to usury. The principal debt remaining without stipulation for payment of interest can thus be recovered by judicial action.Same; Same; Divisibility of the contract.A contract of loan with usurious interest consists of principal and accessory stipulations; the principal one is to pay the debt; the accessory stipulation is to pay interest thereon. And said two stipulations are divisible in the sense that the former can still stand without the latter. In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of the contract, is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is illegal.Same; Right of the creditor to recover interest on the principal loan at the legal rate.The debt earns interest from the date of demand (in this case from the filing of the complaint). Such interest is not due to stipulation, for there was none, the same being void. Rather it is due to the general provision of law that in obligations to pay money, where the debtor incurs in delay, he has to pay interest by way of damages (Art. 2209, Civil Code).BARREDO, J., concurringSame; Article 1957 of the Civil Code; Effect of.While it is true that Article 1957 of the Civil Code declares that all usurious contracts and stipulations are void, this is nothing new, for such has been the law even under the Usury Law before the Civil Code went into effect, and, moreover, it is evident that the Civil Code itself yields to the Usury Law when it comes to the question of how much of the loan and interests paid by the borrower may be recovered by him, and the Usury Law is clear that he may recover only all the interests, including, of course, the legal part thereof, with legal interest from the date of judicial demand, without maintaining that he can also recover the principal he has already paid to the lender.On February 22, 1962. Aurelio G. Briones filed an action in the Municipal Court of Manila against Primitivo, Nicasio, Pedro, Hilario and Artemio, all surnamed Cammayo, to recover from them, jointly and severally, the amount of P1,500.00, plus damages, attorneys fees and costs of suit. The defendants answered the complaint with specific denials and the following special defenses and compulsory counterclaim:x x x;By way ofSPECIAL DEFENSESDefendants allege:1. 4. Defendants executed the real estate mortgage, Annex A of the complaint, as security for the loan of P 1,200.00 given to defendant Primitivo P. Cammayo upon the usurious agreement that defendant pays to the plaintiff and that the plaintiff reserve and secure, as in fact plaintiff reserved and secured himself, out of the alleged loan of P1,500.00 as interest the sum of P300.00 for one year;2. 5. That although the mortgage contract, Annex A was executed for securing the payment of P1,500.00 for a period of one year, without interest, the truth and the real fact is that plaintiff delivered to the defendant Primitivo P. Cammayo only the sum of P1,200.00 and withheld the sum of P300.00 which was intended as advance interest for one year;3. 6. That on account of said loan of P1,200.00, defendant Primitivo P. Cammayo paid to the plaintiff during the period from October 1955 to July 1956 the total sum of P330.00 which plaintiff, illegally and unlawfully refuse to acknowledge as part payment of the account but as in interest of the said loan for an extension of another term of one year;7. That said contract of loan entered into between plaintiff and defendant Primitivo P. Cammayo is a usurious contract and is contrary to law, morals, good customs, public order or public policy and is therefore, inexistent and void from the beginning (Art. 1407 Civil Code);And asCOMPULSORY COUNTERCLAIMDefendants replead all their allegations in the preceding paragraphs;1. 8. That plaintiff, by taking and receiving interest in excess of that allowed by law, with full intention to violate the law, at the expense of the defendants, committed a flagrant violation of Act 2655, otherwise known as the Usury Law, causing the defendants damages and attorneys fees, the amount of which will be proven at the trial;2. 9. That this is the second time this same case is filed before this court, the first having been previously filed and docketed in this court as Civil Case No. 75845 (Branch VII) and the same was dismissed by the Court of First Instance of Manila on July 13, 1961 in Civil Case No. 43121