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[G.R. No. 19190. November 29, 1922.]
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. VENANCIO
Recaredo Ma. Calvo for appellant.
Attorney-General Villa-Real for appellee.
1. BANKS AND BANKING; "CREDIT AND LOAN." DEFINED AND DISTINGUISHED. — The "credit" of
an individual means his ability to borrow money by virtue of the confidence or trust reposed by a lender
that he will pay what he may promise. A "loan" means the delivery by one party and the receipt by the
other party of a given sum of money, upon an agreement, expresses or implied, to repay the sum loaned,
with or without interest. The concession of a "credit" necessarily involves the granting of "loans" up to the
limit of the amount fixed in the "credit."
2. ID.' "LOAN" AND "DISCOUNT" DISTINGUISHED. — To discount a paper is a mode of loaning
money, with these distinctions: (1) In a discount, interest is deducted in advanced, while in a loan, interest
is taken at the expiration of a credit; (2) a discount is always on double-name paper; a loan is generally on
single name paper.
3. STATUTES; INTERPRETATION AND CONSTRUCTION; IN GENERAL. — In the interpretation and
construction of statutes, the primary rule is to ascertain and give effect to the intention of the Legislature.
4. ID.; ID.; SECTION 35 OF ACT NO. 2747; PROHIBITION AGAINST INDIRECT LOANS. — The
purpose of the Legislature in enacting section 35 of Act No. 2747 was to erect a wall of safety against
temptation for a director of the Philippine National Bank. The prohibition against indirect loans is a
recognition of the familiar maxim that no man may serve two masters — that where personal interest
clashes with fidelity to duty the latter almost always suffers.
5. ID.; ID.; ID. — A loan to a partnership of which the wife of a director is a member falls within
the prohibition in section 35 of Act No. 2747 against indirect loans.
6. ID., ID.; ID.; PROHIBITION ON CORPORATION. — When the corporation itself is forbidden to do
an act, the prohibition extends to the board of directors, and to each director separately and individually.
7. ID.; REPEAL; EFFECT UPON VIOLATIONS OF THE OLD LAW. — Where an Act of the Legislature
which penalizes an offense repeals a former Act which penalized the same offense, such repeal does not
have the effect of thereafter depriving the courts of jurisdiction to try, convict, and sentence offenders
charged with violations of the old law.
8. CRIMINAL LAW; ACT NO. 2747; GOOD FAITH AS A DEFENSE — Under section 35 of Act No.
2747, criminal intent is not necessarily material. The doing of the inhibited act, inhibited on account of
public policy and public interest, constitutes the crime.
9. ID.; ID.; ID.; — The law will not allow private profit from a trust, and will not listen to any proof
of honest intent.
D E C I S I O N
MALCOLM, J p:
By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine
National Bank, Venancio Conception, President of the Philippine National Bank, between April 10, 1919,
and May 7, 1919, authorized an extension of credit in favor of "Puno y Conception, S. en C." in the amount
of P300,000. This special authorization was essential in view of the memorandum order of President
Conception dated May 17, 1918, limiting the discretional power of the local manager at Aparri, Cagayan, to
grant loans and discount negotiable documents to P5,000, which, in certain cases, could be increased to
P10,000. Pursuant to this authorization, credit aggregating P300,000, was granted the firm of "Puno y
Conception, S. en C.," the only security required consisting of six demand notes. The notes, together with
the interest, were taken up and paid by July 17, 1919.
"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto Concepcion
contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno,
P20,000; and Rosario San Agustin, "casada con. Gral. Venancio Concepcion," P50,000. Member Miguel S.
Conception was the administrator of the company.
On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank and as
member of the board of directors of this bank, was charged in the Court of First Instance of Cagayan with
a violation of section 35 of Act No. 2747. He was found guilty by the Honorable Enrique V Filamor, Judge
of First Instance, and was sentenced to imprisonment for one year and six months, to pay a fine of
P3,000, with subsidiary imprisonment in case of insolvency, and the costs.
Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference
must hereafter repeatedly be made, reads as follows: "The National Bank shall not, directly or indirectly,
grant loans to any of the members of the board of directors of the bank nor to agents of the branch
banks." Section 49 of the same Act provides: "Any person who shall violate any of the provisions of this Act
shall be punished by a fine not to exceed ten thousand pesos, or by imprisonment not to exceed five
years, or by both such fine and imprisonment." These two sections were in effect in 1919 when the alleged
unlawful acts took place, but were repealed by Act No. 2938, approved on January 30, 1921.
Counsel for the defense assign ten errors as having been committed by the trial court. These errors
they have argued adroitly and exhaustively in their printed brief, and again in oral argument. Attorney-
General Villa-Real, in an exceptionally accurate and comprehensive brief, answers the propositions of
appellant one by one.
The questions presented are reduced to their simplest elements in the opinion which follows:
I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by
Venacio Concepcion, President of the Philippine National Bank, a "loan" within the meaning of section 35 of
Act No. 2747?
Counsel argue that the documents of record do not prove that the authority to make a loan was
given, but only show the concession of a credit. In this statement of fact, counsel is correct, for the
exhibits in question speak of a "credito" (credit) and not of a "prestamo" (loan).
The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust
reposed by a lender that he will pay what he may promise. (Donnell vs. Jones , 13 Ala., 490;
Bouvier's Law Dictionary.) A "loan" means the delivery by one party and the receipt by the other party of a
given sum of money, upon an agreement, express or implied, to repay the sum of money, upon an
agreement, express or implied, to repay the sum loaned, with or without interest. (Payne vs. Gardiner
, 29 N.Y., 146, 167.) The concession of a "credit" necessarily involves the granting of "loans" up to
the limit of the amount fixed in the "credit."
II. Was the granting of a credit of P300,000 to the copartnership "Puno y Conception, S. en C.," by
Venancio Conception, President of the Philippine National Bank, a "loan" or a "discount."
In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of
the Insular Auditor whether section 37 of Act No. 2612 was intended to apply to discounts as well as to
loans. The ruling of the Acting Insular Auditor, dated August 11, 1916, was to placed no restriction upon
discount transactions. It be becomes material, therefore, to discover the distinction between a "loan" and a
"discount," and to ascertain if the instant transaction comes under the first or the latter denomination.
Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an
actual, live transaction. But in its last analysis, to discount a paper is only a mode of loaning money, with,
however, these distinctions: (1) In a discount, interest is deducted in advance, while in a loan, interest is
taken at the expiration of a credit; (2) a discount is always on double-name paper; a loan is generally on
Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not
discounts, yet the conclusion is inevitable that the demand notes signed by the firm "Puno y Concepcion,
S. en C." were not discount paper but were mere evidences of indebtedness, because (1) interest was not
deducted from the face of the notes, but was paid when the notes fell due; and (2) they were single-name
and not double-name paper.
The facts of the instant case having relation to this phase of the argument are not essentially
different from the facts in the Binalbagan Estate case. Just as there it was declared that the operations
constituted a loan and not a discount, so should we here lay down the same ruling.
III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C."
by Venancio Concepcion, President of the Philippine National Bank, an "indirect loan" within the meaning of
section 35 of Act No. 2747?
Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect
loan." In this connection, it should be recalled that the wife of the defendant held one-half of the capital of
In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to
the intention of the Legislature. In this instance, the purpose of the Legislature is plainly to erect a wall of
safety against temptation for a director of the bank. The prohibition against indirect loans is a recognition
of the familiar maxim that no man may serve two masters — that where personal interest clashes with
fidelity to duty the latter almost always suffers. If, therefore, it is shown that the husband is financially
interested in the success or failure of his wife's business venture, a loan to a partnership of which the wife
of a director is a member, falls within the prohibition.
Various provisions of the Civil Code serve to establish the familiar relationship called a conjugal
partnership. (Articles 1315, 1393, 1401, 1408, and 1412 can be specially noted.) A loan, therefore, to a
partnership of which the wife of a director of a bank is a member, is an indirect loan to such director.
That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the
acknowledged fact that in this instance the defendant was tempted to mingle his personal and family
affairs with his official duties, and to permit the loan of P300,000 to a partnership of no established
reputation and without asking for collateral security.
In the case of Lester and Wife vs. Howard bank (, 33 Md., 558; 3 Am. Rep., 211), the
Supreme Court of Maryland said:
"What then was the purpose of the law when it declared that no director or officer should
borrow of the bank, and "if any director,' etc., 'shall be convicted,' etc., 'of directly or indirectly violating
this section he shall be punished by fine imprisonment?" We say to protect the stockholders, depositors
and creditors of the bank, against the temptation to which the directors and officers might be exposed,
and the power which as such they must necessarily possess in the control and management of the
bank, and the legislature unwilling to rely upon the implied understanding that in assuming this relation
they would not acquire any interest hostile or adverse to the most exact and faithful discharge of duty,
declared in express terms that they should not borrow, etc., of the bank."
In the case of People vs. Knapp (, 206 N.Y., 373), relied upon in the Binalbagan Estate
decision, it was said:
"We are of opinion the statute forbade the loan to his copartnership firm as well as to himself
directly. The loan was made indirectly to him through his firm."
IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a
violation of section 35 of Act No. 2747 in relation with section 49 of the same Act, when these portions of
Act No. 2747 were repealed by Act No. 2938, prior to the filing of the information and the rendition of the
As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to
section 35 of the same Act, provides a punishment for any person who shall violate any of the provisions
of the Act. It is contended, however, by the appellant, that the repeal of these sections of Act No. 2747 by
Act No. 2747 by Act No. 2938 has served to take away the basis for criminal prosecution.
This same question has been previously submitted and has received an answer adverse to such
contention in the cases of United States vs. Cuna (, 12 Phil., 241); People vs. Concepcion (,
43 Phil., 653); and Ong Chang Wing and Kwong Fok vs. United States (, 218 U.S., 272; 40 Phil.,
1046). In other words, it has been the holding, and it must again be the holding, that where an Act of the
Legislature which penalizes an offense, such repeal does not have the effect of thereafter depriving the
courts of jurisdiction to try, convict, and sentence offenders charged with violations of the old law.
V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by
Venancio Concepcion, President of the Philippine national Bank, in violation of section 35 of Act No. 2747,
penalized by this law?
Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank, and
since section 49 of said Act provides a punishment not on the bank when it violates any provision of the
law, but on a person violating any provision of the law, but on a person violating any provision of the
same, and imposing imprisonment as part of the penalty, the prohibition, contained in said 35 is without
The answer is that when the corporation itself is forbidden to do an act, the prohibition extends to
the board of directors, and to each director separately and individually. (People vs. Concepcion, supra.)
VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank,
in extending the credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." constitute a legal
Counsel argue that if defendant committed the acts of which he was convicted, it was because he
was misled by rulings coming from the Insular Auditor. It is furthermore stated that since the loans made
to the copartnership "Puno y Concepcion, S. en C." have been paid, no loss has been suffered by the
Philippine National Bank.
Neither argument, even if conceded to be true, is conclusive. Under the statute which the
defendant has violated, criminal intent is not necessarily material. The doing of the inhabited act, inhibited
on account of public policy and public interest, constitutes the crime. And, in this instance, as previously
demonstrated, the acts of the President of the Philippine National Bank do not fall within the purview of
the rulings have controlling effect.
Morse, in his work, Banks and Banking, section 125, says:
"It is fraud for directors to secure by means of their trust, any advantage not common to the
other stockholders. The law will not allow private profit from a trust, and will not listen to any proof of
On a review of the evidence of record, with reference to the decision of the trial court, and the
errors assigned by the appellant, and with reference to previous decisions of this court on the same
subject, we are irresistibly led to the conclusion that no reversible error was committed in the trial of this
case, and that the defendant has been proved guilty beyond a reasonable doubt of the crime charged in
the information. The penalty imposed by the trial judge falls within the limits of the punitive provisions of
Judgment is affirmed, with the costs of this instance against the appellant. So ordered.
Araullo, C.J., Johnson, Street, Avanceña, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.
[G.R. No. 154878. March 16, 2007.]
CAROLYN M. GARCIA, petitioner, vs. RICA MARIE S. THIO, respondent.
D E C I S I O N
CORONA, J p:
Assailed in this petition for review on certiorari 1 are the June 19, 2002 decision 2 and August 20, 2002
resolution 3 of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28, 1997
decision of the Regional Trial Court (RTC) of Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a
crossed check 4 dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain
Marilou Santiago. 5 Thereafter, petitioner received from respondent every month (specifically, on March 24,
April 26, June 26 and July 26, all in 1995) the amount of US$3,000 6 and P76,500 7 on July 26, 8 August 26,
September 26 and October 26, 1995.
In June 1995, respondent received from petitioner another crossed check 9 dated June 29, 1995 in the amount
of P500,000, also payable to the order of Marilou Santiago. 10 Consequently, petitioner received from
respondent the amount of P20,000 every month on August 5, September 5, October 5 and November 5,
According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000 and
P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum of money and
damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the sums of US$100,000,
with interest thereon at 3% a month from October 26, 1995 and P500,000, with interest thereon at 4% a
month from November 5, 1995, plus attorney's fees and actual damages. 12
Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000 with
interest thereon at the rate of 3% per month, which loan would mature on October 26, 1995. 13 The amount of
this loan was covered by the first check. On June 29, 1995, respondent again borrowed the amount of
P500,000 at an agreed monthly interest of 4%, the maturity date of which was on November 5, 1995. 14 The
amount of this loan was covered by the second check. For both loans, no promissory note was executed since
petitioner and respondent were close friends at the time. 15 Respondent paid the stipulated monthly interest
for both loans but on their maturity dates, she failed to pay the principal amounts despite repeated
Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou
Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give the
crossed checks to Santiago. 17 She issued the checks for P76,000 and P20,000 not as payment of interest but
to accommodate petitioner's request that respondent use her own checks instead of Santiago's. 18
In a decision dated February 28, 1997, the RTC ruled in favor of petitioner. 19 It found that respondent
borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% and P500,000 at a monthly
interest of 4%: 20
WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby
rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount of:
1.[US$100,000.00] or its peso equivalent with interest thereon at 3% per month from October 26,
1995 until fully paid; CcAESI
2.P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid.
3.P100,000.00 as and for attorney's fees; and
4.P50,000.00 as and for actual damages.
For lack of merit, [respondent's] counterclaim is perforce dismissed.
With costs against [respondent].
IT IS SO ORDERED. 21
On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan between the
A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that
[respondent] indeed borrowed money from her. There is nothing in the record that shows that
[respondent] received money from [petitioner]. What is evident is the fact that [respondent]
received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable
to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount of
P500,000.00, again payable to the order of Marilou Santiago, both of which were issued by
[petitioner]. The checks received by [respondent], being crossed, may not be encashed but
only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself.
It must be noted that crossing a check has the following effects: (a) the check may not be encashed
but only deposited in the bank; (b) the check may be negotiated only once — to one who has an
account with the bank; (c) and the act of crossing the check serves as warning to the holder that the
check has been issued for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose, otherwise, he is not a holder in due course.
Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to
the payee in contemplation of law since the latter is not the person who could take the checks as a
holder, i.e., as a payee or indorsee thereof, with intent to transfer title thereto. Neither could she be
deemed as an agent of Marilou Santiago with respect to the checks because she was merely facilitating
the transactions between the former and [petitioner].
With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan
that existed between the parties. . . . (emphasis supplied)22
Hence this petition. 23
As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the Rules
of Court. However, this case falls under one of the exceptions, i.e., when the factual findings of the CA (which
held that there were no contracts of loan between petitioner and respondent) and the RTC (which held
that there were contracts of loan) are contradictory. 24
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the
contract. 25 This is evident in Art. 1934 of the Civil Code which provides:
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. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the
checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to
pay the creditor an equal amount. 26
It is undisputed that the checks were delivered to respondent. However, these checks were crossed and
payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main question
to be answered is: who borrowed money from petitioner — respondent or Santiago?
Petitioner insists that it was upon respondent's instruction that both checks were made payable to
Santiago. 27 She maintains that it was also upon respondent's instruction that both checks were delivered to
her (respondent) so that she could, in turn, deliver the same to Santiago. 28 Furthermore, she argues that once
respondent received the checks, the latter had possession and control of them such that she had the choice to
either forward them to Santiago (who was already her debtor), to retain them or to return them to
We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the actual
or constructive possession or control of another. 30Although respondent did not physically receive the proceeds
of the checks, these instruments were placed in her control and possession under an arrangement whereby
she actually re-lent the amounts to Santiago. STcHDC
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know Santiago. 31 It was highly improbable that
petitioner would grant two loans to a complete stranger without requiring as much as promissory notes or any
written acknowledgment of the debt considering that the amounts involved were quite big. Respondent, on
the other hand, already had transactions with Santiago at that time. 32
Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both parties' list
of witnesses) testified that respondent's plan was for petitioner to lend her money at a monthly interest rate of
3%, after which respondent would lend the same amount to Santiago at a higher rate of 5% and realize a
profit of 2%. 33 This explained why respondent instructed petitioner to make the checks payable to Santiago.
Respondent has not shown any reason why Ruiz' testimony should not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of P76,000 each
(peso equivalent of US$3,000) for eight months to cover the monthly interest. For the P500,000 loan, she also
issued her own checks in the amount of P20,000 each for four months. 34 According to respondent, she merely
accommodated petitioner's request for her to issue her own checks to cover the interest payments since
petitioner was not personally acquainted with Santiago. 35She claimed, however, that Santiago would replace
the checks with cash. 36 Her explanation is simply incredible. It is difficult to believe that respondent would put
herself in a position where she would be compelled to pay interest, from her own funds, for loans she
allegedly did not contract. We declared in one case that:
In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to
be believed, it must not only proceed from the mouth of a credible witness, but must be credible in
itself such as the common experience of mankind can approve as probable under the circumstances.
We have no test of the truth of human testimony except its conformity to our knowledge, observation,
and experience. Whatever is repugnant to these belongs to the miraculous, and is outside of juridical
Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner, who
was listed as one of her (Santiago's) creditors. 38
Last, respondent inexplicably never presented Santiago as a witness to corroborate her story. 39 The
presumption is that "evidence willfully suppressed would be adverse if produced." 40 Respondent was not able
to overturn this presumption.
We hold that the CA committed reversible error when it ruled that respondent did not borrow the amounts of
US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC making respondent
liable for the principal amounts of the loans.
We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the US$100,000
and P500,000 loans respectively. There was no written proof of the interest payable except for
the verbal agreement that the loans would earn 3% and 4% interest per month. Article 1956 of the Civil Code
provides that "[n]o interest shall be due unless it has been expressly stipulated in writing."
Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article 2209
of the Civil Code. It is well-settled that:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Hence, respondent is liable for the payment of legal interest per annum to be computed from November 21,
1995, the date when she received petitioner's demand letter. 42 From the finality of the decision until it is fully
paid, the amount due shall earn interest at 12% per annum, the interim period being deemed equivalent to a
forbearance of credit. 43
The award of actual damages in the amount of P50,000 and P100,000 attorney's fees is deleted since the RTC
decision did not explain the factual bases for these damages.
WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20, 2002 resolution
of the Court of Appeals in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The February 28, 1997
decision of the Regional Trial Court in Civil Case No. 96-266 is AFFIRMED with the MODIFICATION that
respondent is directed to pay petitioner the amounts of US$100,000 and P500,000 at 12% per annum interest
from November 21, 1995 until the finality of the decision. The total amount due as of the date of finality will
earn interest of 12% per annum until fully paid. The award of actual damages and attorney's fees is deleted. cda
Puno, C.J., Sandoval-Gutierrez, Azcuna and Garcia, JJ., concur.
[G.R. No. L-24968. April 27, 1972.]
SAURA IMPORT & EXPORT CO., INC., plaintiff-appellee, vs. DEVELOPMENT BANK OF
THE PHILIPPINES, defendant-appellant.
Mabanag, Eliger & Associates & Saura, Magno & Associates for plaintiff-appellee.
Jesus A. Avaceña and Hilario G. Orsolino for defendant-appellant.
1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS; PERFECTION UPON ACCEPTANCE OF PROMISE
TO DELIVER SOMETHING BY WAY OF SIMPLE LOAN; ART. 1954 OF THE CIVIL CODE. — Where the
application of Saura Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the
corresponding mortgage executed and registered, there is undoubtedly offer and acceptance and We hold that
there was indeed a perfected consensual contract as recognized in Article 1954 of the Civil Code.
2.ID.; ID.; ID.; ID.; DEFENDANT DID NOT DEVIATE FROM PERFECTED CONTRACT IN CASE AT BAR. — The
terms laid down in RFC Resolution No. 145 passed on Jan. 7, 1954 which resolution approved the loan
application state that: "the proceeds of the loan shall be utilized exclusively for the following purposes: for
construction of factory building — P250,000.00; for payment of the balance of purchase price of machinery
and equipment — P240,900.00, for working capital — P9,100.00." There is no serious dispute 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 . It was in line with such assumption that when RFC, by
Resolution 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 RFC Resolution No. 145.
3.ID.; ID.; ID.; ID.; DEVIATION MADE BY PLAINTIFF. — Evidently Saura Inc., realized that it could not meet
the conditions required by RFC in Resolution 9083, 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.
4.ID.; ID.; EXTINGUISHMENTOF OBLIGATION BY MUTUAL DESISTANCE; IN INSTANT CASE. — When RFC
turned down the request of Saura Inc., 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 RFC's 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 desistance — what Manresa terms "mutuo disenso" — which is a mode of extinguishing
obligations. It is a concept that derives from the principle that since mutual agreement by the parties can
create a contract, mutual disagreement by the parties can cause its extinguishment.
D E C I S I O N
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 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 attorney's fees in the amount of 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 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
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
"1.That 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 & equipment240,900.00
For working capital9,100.00
T O T A LP500,000.00
4.That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria
Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-
5.That release shall be made at the discretion of the Rehabilitation Finance Corporation,
subject to availability of funds, and as the construction of the factory buildings progresses, to be
certified to by an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently
having otherwise 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
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 co-
makers, having acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of
its Board of 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 re-examination 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. Halling, 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. Pursuant to Bd. Res. No. 736,
c.s., authorizing the re-examination of all the various aspects of the loan granted the Saura
Import & Export Co. under Resolution No. 145, c.s., 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. Halling, 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.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 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 (Exh. M) 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 defendant's 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:
a)For the payment of the receipt for jute mill
machineries with the Prudential Bank &
(For immediate release)
b)For the purchase of materials and equipment
per attached list to enable the jute
mill to operateP182,413.91
c)For raw materials and labor67,586.09
1)P25,000.00 to be released on the opening
of the letter of credit for raw jute
for $25,000 00.
2)P25,000.00 to be released upon arrival
of raw jute.
3)P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
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 plaintiff's 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,
"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. 9033 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, namely — "that the
proceeds of the loan shall be utilized exclusively for the following purposes: for construction of factory building
— P250,000.00; for payment of the balance of purchase price of machinery and equipment — P240,900.00;
for working capital — P9,100.00." 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 RFC's 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 desistance — what Manresa terms "mutuo disenso" 1 — 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
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 latter's 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 latter's
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 desistance — and that on the initiative of the
With this view we take of the case, we find it unnecessary to consider and resolve the other issues raised in
the respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.
Makasiar, J., took no part.
[G.R. No. L-45710. October 3, 1985.]
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T.
CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his
capacity as statutory receiver of Island Savings Bank, petitioners, vs. THE
HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
D E C I S I O N
MAKASIAR, C.J p:
This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals, in
C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision dated February 15, 1972 of the Court
of First Instance of Agusan, which dismissed the petition of respondent Sulpicio M. Tolentino for injunction,
specific performance or rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the
loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same
day a real estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by
TCT No. T-305, and which mortgage was annotated on the said title the next day. The approved loan
application called for a lump sum P80,000.00 loan, repayable in semi-annual installments for a period of 3
years, with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the loan proceeds solely
as an additional capital to develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and
Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual
interest, payable within 3 years from the date of execution of the contract at semi-annual installments of
P3,459.00 (p. 64, rec.), An advance interest for the P80,000.00 loan covering a 6-month period amounting to
P4,800.00 was deducted from the partial release of P17,000.00. But this pre-deducted interest was refunded
to Sulpicio M. Tolentino on July 23, 1965, after being informed by the Bank that there was no fund yet
available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president and
treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering
liquidity problems, issued Resolution No. 1049, which provides:
"In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the
Board, by unanimous vote, decided as follows:
"1)To prohibit the bank from making new loans and investments [except investments
in government securities] excluding extensions or renewals of already approved loans, provided
that such extensions or renewals shall be subject to review by the Superintendent of Banks,
who may impose such limitations as may be necessary to insure correction of the bank's
deficiency as soon as possible;
. . ." (p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding that Island Savings Bank failed to put up the required
capital to restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing
business in the Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of
Island Savings Bank (pp. 48-49, rec.).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory
note, filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-
hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for
injunction, specific performance or rescission and damages with preliminary injunction, alleging that since
Island Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific
performance by ordering Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum from
April 28, 1965, and if said balance cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary
restraining order enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage (pp.
On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the
petition of Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central Bank and by
the Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits, rendered its decision, finding unmeritorious the
petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the amount of P17,000.00 plus legal
interest and legal charges due thereon, and lifting the restraining order so that the sheriff may proceed with
the foreclosure (pp. 135-136, rec.).
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First
Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it
ruled that Island Savings Bank can neither foreclose the real estate mortgage nor collect the P17,000.00 loan
(pp. 30-31, rec.).prcd
Hence, this instant petition by the Central Bank.
The issues are:
1.Can the action of Sulpicio M. Tolentino for specific performance prosper?
2.Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note?
3.If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage be foreclosed
to satisfy said amount?.
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28,
1965, they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is
the consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46 ; Vda. de Quirino vs. Pelarca, 29
SCRA 1 ); and when one party has performed or is ready and willing to perform his part of the contract,
the other party who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the
Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island
Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on
April 28, 1965, he signified his willingness to pay the P80,000.00 loan. From such date, the obligation of Island
Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan
started on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the Central Bank
issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from doing further
business. Such prohibition made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance
of the P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the protection of
the public is recognized by Section 29 of R.A. No. 265, which took effect on June 15, 1948, the validity of
which is not in question.
The Monetary Board Resolution No. 1049 issued on August 13, 1965 cannot interrupt the default of Island
Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said resolution
merely prohibited the Bank from making new loans and investments, and nowhere did it prohibit Island
Savings Bank from releasing the balance of loan agreements previously contracted. Besides, the mere
pecuniary inability to fulfill an engagement does not discharge the obligation of the contract, nor does it
constitute any defense to a decree of specific performance (Gutierrez Repide vs. Afzelins and Afzelins, 39 Phil.
190 ). And, the mere fact of insolvency of a debtor is never an excuse for the non-fulfillment of an
obligation but instead it is taken as a breach of the contract by him (Vol. 17A, 1974 ed., CJS p. 650). L exL ib
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest amounting
to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his
right to collect the P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest for 6
months on the supposed P80,000.00 loan, was improper considering that only P17,000.00 out of the
P80,000.00 loan was released. A person cannot be legally charged interest for a non-existing debt. Thus, the
receipt by Sulpicio M. Tolentino of the pre-deducted interest was an exercise of his right to it, which right exist
independently of his right to demand the completion of the P80,000.00 loan. The exercise of one right does
not affect, much less neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from
complying with its reciprocal obligation to furnish the entire P80,000.00 loan. This Court previously ruled that
bank officials and employees are expected to exercise caution and prudence in the discharge of their functions
(Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 ). It is the obligation of the bank's officials and
employees that before they approve the loan application of their customers, they must investigate the
existence and valuation of the properties being offered as a loan security. The recent rush of events where
collaterals for bank loans turn out to be non-existent or grossly over-valued underscore the importance of this
responsibility. The mere reliance by bank officials and employees on their customer's representation regarding
the loan collateral being offered as loan security is a patent non-performance of this responsibility. If ever,
bank officials and employees totally rely on the representation of their customers as to the valuation of the
loan collateral, the bank shall bear the risk in case the collateral turn out to be over-valued. The representation
made by the customer is immaterial to the bank's responsibility to conduct its own investigation. Furthermore,
the lower court, on objections of Sulpicio M. Tolentino, had enjoined petitioners from presenting proof on the
alleged over-valuation because of their failure to raise the same in their pleadings (pp. 198-199, t.s.n., Sept.
15, 1971). The lower court's action is sanctioned by the Rules of Court, Section 2, Rule 9, which states that
"defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived."
Petitioners, thus, cannot raise the same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement,
Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or
rescission with damages in either case. But since Island Savings Bank is now prohibited from doing further
business by Monetary Board Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio M.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00
balance of the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as
there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00,
which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed to
have complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to
Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay the
overdue amortizations under the promissory note made him a party in default, hence not entitled to rescission
(Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it shall belong to the
aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the date
for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire loan because
he cannot possibly be in default as there was no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island
Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to
comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability
of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M.
Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt.
The liability of Sulpicio M. Tolentino for interest on his P17,000.00 debt shall not be included in offsetting the
liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is
just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to
satisfy his P17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the principal
contract (Banco de Oro vs. Bayuga, 93 SCRA 443 ). For the debtor, the consideration of his obligation to
pay is the existence of a debt. Thus, in the accessory contract of real estate mortgage, the consideration of
the debtor in furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt (Art. 2086, in
relation to Art. 2052, of the Civil Code).
The fact that when Sulpicio M. Tolentino executed his real estate mortgage, no consideration was then in
existence, as there was no debt yet because Island Savings Bank had not made any release on the loan, does
not make the real estate mortgage void for lack of consideration. It is not necessary that any consideration
should pass at the time of the execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122
). It may either be a prior or subsequent matter. But when the consideration is subsequent to the
mortgage, the mortgage can take effect only when the debt secured by it is created as a binding contract to
pay (Parks vs. Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And,
when there is partial failure of consideration, the mortgage becomes unenforceable to the extent of such
failure (Dow, et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where the
indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage, the
mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol.
19, F(2d) p. 88, cited in 6th ed., Wiltsie on Mortgage, Vol. 1, p. 180). L L pr
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the real estate
mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00,
hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The
mortgage covering the remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25
hectares is more than sufficient to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable
to the facts of this case.
Article 2089 provides:
"A pledge or mortgage is indivisible even though the debt may be divided among the successors in
interest of the debtor or creditor.
"Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate
extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.
"Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the
mortgage, to the prejudice of other heirs who have not been paid."
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of
the debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED,
1.SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF
P17,000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM
MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED' FROM
AUGUST 22, 1985 UNTIL PAID;
2.IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25
HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND
3.THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNENFORCEABLE AND
IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.
Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.
Aquino (Chairman) and Abad Santos, JJ., took no part.
[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.
Domingo & Dizon for petitioner.
Mauricio Law Office for private respondent.
Upon request of a friend, Franklin Vives accommodated Arturo Doronilla by opening a savings account for
Sterela Marketing, in coordination with Producer's Bank assistant branch manager, Rufo Atienza. The purpose
was for incorporation, and the agreement was that the money would not be removed from Sterela's savings
account and returned to Vives after thirty (30) days. Later, however, part of the money had been withdrawn
by Doronilla who also opened a current account and authorized the bank to debit the savings account to cover
overdrawing in the current account. Vives filed a case for recovery of sum of money and both the trial court
and the appellate court ruled on the solidary liability of Producers Bank to Vives. Hence, this appeal. IDSEAH
The Court affirmed the appealed decision. Under Art. 2180 of the Civil Code, employers shall be held liable for
damages caused by their employees acting within the scope of their assigned tasks. The Bank, through its
employee Atienza, was partly responsible for the loss of Vives' money and is liable for its restitution. That
despite limitation on the savings account passbook issued to Mrs. Vives on behalf of Sterela, Doronilla was
allowed to withdraw several times without presentation of a passbook as required.
1.REMEDIAL LAW; EVIDENCE; FACTUAL FINDINGS OF THE TRIAL COURT ADOPTED BY THE APPELLATE
COURT, RESPECTED. — At the outset, it must be emphasized that only questions of law may be raised in a
petition for review filed with this Court. The Court has repeatedly held that it is not its function to analyze and
weigh all over again the evidence presented by the parties during trial. The Court's jurisdiction is in principle
limited to reviewing errors of law that might have been committed by the Court of Appeals. Moreover, factual
findings of courts, when adopted and confirmed by the Court of Appeals, are final and conclusive on this Court
unless these findings are not supported by the evidence on record. There is no showing of any
misapprehension of facts on the part of the Court of Appeals in the case at bar that would require this Court to
review and overturn the factual findings of that court, especially since the conclusions of fact of the Court of
Appeals and the trial court are not only consistent but are also amply supported by the evidence on record.
2.CIVIL LAW; SPECIAL CONTRACTS; LOAN; MUTUUM AND COMMODATUM, DISTINGUISHED. — Article 1933
of the Civil 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 so that the latter may use the same for a certain
time and return it, in which case the contract is called a commodatum; or money or other consumable thing,
upon the condition that the same amount of the 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 consumable thing, such as money, the contract would be a mutuum. However,
there are some instances where a commodatum may 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 the consumption 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 of the parties is to lend consumable goods and to have
the very same goods returned at the end of the period agreed upon, the loan is a commodatum and not
a mutuum. The rule is that the intention of the parties thereto shall be accorded primordial consideration in
determining the actual character of a contract. In case of doubt, the contemporaneous and subsequent acts of
the parties shall be considered in such determination.
3.ID.; ID.; ID.; ADDITIONAL AMOUNT PAID TO ORIGINAL AMOUNT LOANED AS INTEREST DID NOT
CONVERT AGREEMENT OF COMMODATUM TO MUTUUM. — Doronilla's attempts to return to private
respondent the amount of P200,000.00 which the latter deposited in Sterela's account together with an
additional P12,000.00, allegedly representing interest on the mutuum, did not convert the transaction from
a commodatum into a mutuum because such was not the intent of the parties and because the additional
P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code expressly
states that "[t]he bailee in commodatum acquires the use of the thing loaned but not its fruits." Hence, it was
only proper for Doronilla to remit to private respondent the interest accruing to the latter's money deposited
4.ID.; EXTRA-CONTRACTUAL OBLIGATIONS; QUASI-DELICTS; EMPLOYERS LIABLE FOR DAMAGES CAUSED
BY EMPLOYEES ACTING WITHIN THE SCOPE OF THEIR ASSIGNED TASKS. — Under Article 2180 of the Civil
Code, employers shall be held primarily and solidarily liable for damages caused by their employees acting
within the scope of their assigned tasks. To hold the employer 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 of was committed. Case law in the United States of America has it that
a corporation that entrusts a general duty to its employee is responsible to the injured party for damages
flowing from the employee's 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 latter's instructions. ACTEHI
D E C I S I O N
CALLEJO, SR., J p:
This is a petition for review on certiorari of the Decision 1 of the Court of Appeals dated June 25, 1991 in CA-
G.R. CV No. 11791 and of its Resolution 2 dated May 5, 1994, denying the motion for reconsideration of said
decision filed by petitioner Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend Angeles Sanchez to
help her friend and townmate, Col. Arturo Doronilla, in incorporating his business, the Sterela Marketing and
Services ("Sterela" for brevity). Specifically, Sanchez asked private respondent to deposit in a bank a certain
amount of money in the bank account of Sterela for purposes of its incorporation. She assured private
respondent that he could withdraw his money from said account within a month's time. Private respondent
asked Sanchez to bring Doronilla to their house so that they could discuss Sanchez's request. 3
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doronilla's private
secretary, met and discussed the matter. Thereafter, relying on the assurances and representations of
Sanchez and Doronilla, private respondent issued a check in the amount of Two Hundred Thousand Pesos
(P200,000.00) in favor of Sterela. Private respondent instructed his wife, Mrs. Inocencia Vives, to accompany
Doronilla and Sanchez in opening a savings account in the name 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 an authorization 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. In opening the account, the authorized signatories were Inocencia Vives and/or
Angeles Sanchez. A passbook 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 the address previously
given to him. Alarmed, he and his wife went to the Bank to verify if their money was still intact. The bank
manager referred them to Mr. Rufo Atienza, the assistant manager, who informed them that part of the
money in Savings Account No. 10-1567 had been withdrawn by Doronilla, and that only P90,000.00 remained
therein. He likewise told them that Mrs. Vives could not withdraw said remaining amount because it had to
answer for some postdated checks issued by Doronilla. 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 Savings; Account 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 P175,000.00 from the Bank. To cover payment thereof, Doronilla issued three postdated checks, all of
which were dishonored. Atienza also said that Doronilla could assign or withdraw the money in Savings
Account No. 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, he received a
letter from Doronilla, assuring him that his money was intact and would be returned to him. On August 13,
1979, Doronilla issued a postdated check for Two Hundred Twelve Thousand Pesos (P212,000.00) in favor of
private respondent. However, upon presentment thereof by private respondent to the drawee bank, the check
was dishonored. Doronilla requested private respondent to present the same check on September 15, 1979
but when the latter presented the check, it was again dishonored. 6
Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla for the return
of his client's money. Doronilla issued another check for P212,000.00 in private respondent's 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 Trial Court (RTC) in
Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed as Civil Case
No. 44485. He also filed criminal actions against Doronilla, Sanchez and Dumagpi in the RTC. However,
Sanchez passed away on March 16, 1985 while the case was pending before the trial court. On October 3,
1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil Case No. 44485, the dispositive portion
of which reads:
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 jointly and
(a)the amount of P200,000.00, representing the money deposited, with interest at the legal rate from
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 attorney's fees; and
(d)the costs of the suit.
SO ORDERED. 8
Petitioner appealed the trial court's decision to the Court of Appeals. In its Decision dated June 25, 1991, the
appellate court affirmed in toto the decision of the RTC9 It likewise denied with finality petitioner's motion for
reconsideration in its Resolution dated May 5, 1994. 10
On June 30, 1994, petitioner filed the present petition, arguing that —
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN
THE DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONER'S 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 HELD
LIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE;
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE
REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OF
THE REGIONAL TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS;
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION
IN SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR
ACTS COMMITTED BY AN EMPLOYEE IS APPLICABLE;
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER COURT
THAT HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER
DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT,
P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR
ATTORNEY'S FEES AND THE COSTS OF SUIT. 11
Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on September
25, 1995. The Court then required private respondent to submit a rejoinder to the reply. However, said
rejoinder was filed only on April 21, 1997, due to petitioner's delay in furnishing private respondent with copy
of the reply 12 and several substitutions of counsel on the part of private respondent. 13 On January 17, 2001,
the Court resolved to give due course to the petition and required the parties to submit their respective
memoranda. 14 Petitioner filed its memorandum on April 16, 2001 while private respondent submitted his
memorandum on March 22, 2001.
Petitioner contends that the transaction between private respondent and Doronilla is a simple loan (mutuum)
since all the elements of a mutuum are present: first, what was delivered by private respondent to Doronilla
was money, a consumable thing; and second, the transaction was onerous as Doronilla was obliged to pay
interest, as evidenced by the check issued by Doronilla in the amount of P212,000.00, or P12,000 more than
what private respondent deposited in Sterela's bank account. 15 Moreover, the fact that private respondent
sued his good friend Sanchez for his failure to recover his money from Doronilla shows that the transaction
was not merely gratuitous but "had a business angle" to it. Hence, petitioner argues that it cannot be held
liable for the return of private respondent's P200,000.00 because it is not privy to the transaction between the
latter and Doronilla. 16
It argues further that petitioner's Assistant Manager, Mr. Rufo Atienza, could not be faulted for allowing
Doronilla to withdraw from the savings account of Sterela since the latter was the sole proprietor of said
company. Petitioner asserts that Doronilla's May 8, 1979 letter addressed to the bank, authorizing Mrs. Vives
and Sanchez to open a savings account for Sterela, did not contain any authorization for these two to
withdraw from said account. Hence, the authority to withdraw therefrom remained exclusively with Doronilla,
who was the sole proprietor of Sterela, and who alone had legal title to the savings account. 17 Petitioner
points out that no evidence other than the testimonies of private respondent and Mrs. Vives was presented
during trial to prove that private respondent deposited his P200,000.00 in Sterela's account for purposes of its
incorporation. 18 Hence, petitioner should not be held liable for allowing Doronilla to withdraw from Sterela's
Petitioner also asserts that the Court of Appeals erred in affirming the trial court's decision since the findings of
fact therein were not accord with the evidence presented by petitioner during trial to prove that the
transaction between private respondent and Doronilla was a mutuum, and that it committed no wrong in
allowing Doronilla to withdraw from Sterela's savings account. 19
Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable for the actual
damages suffered by private respondent, and neither may it be held liable for moral and exemplary damages
as well as attorney's fees. 20
Private respondent, on the other hand, argues that the transaction between him and Doronilla is not
a mutuum but an accommodation, 21 since he did not actually part with the ownership of his P200,000.00 and
in fact asked his wife to deposit said amount in the account of Sterela so that a certification can be issued to
the effect that Sterela had sufficient funds for purposes of its incorporation but at the same time, he retained
some degree of control over his money through his wife who was made a signatory to the savings account and
in whose possession the savings account passbook was given. 22
He likewise asserts that the trial court did not err in finding that petitioner, Atienza's employer, is liable for the
return of his money. He insists that Atienza, petitioner's assistant manager, connived with Doronilla in
defrauding private respondent since it was Atienza who facilitated the opening of Sterela's current account
three days after Mrs. Vives and Sanchez opened a savings account with petitioner for said company, as well as
the approval of the authority to debit Sterela's savings account to cover any overdrawings in its current
There is no merit in the petition.
At the outset, it must be emphasized that only questions of law may be raised in a petition for review filed
with this Court. The Court has repeatedly held that it is not its function to analyze and weigh all over again the
evidence presented by the parties during trial. 24 The Court's jurisdiction is in principle limited to reviewing
errors of law that might have been committed by the Court of Appeals. 25 Moreover, factual findings of courts,
when adopted and confirmed by the Court of Appeals, are final and conclusive on this Court unless these
findings are not supported by the evidence on record. 26 There is no showing of any misapprehension of facts
on the part of the Court of Appeals in the case at bar that would require this Court to review and overturn the
factual findings of that court, especially since the conclusions of fact of the Court of Appeals and the trial court
are not 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 between private
respondent and Doronilla was a commodatum and not a mutuum. A circumspect examination of the records
reveals that the transaction between them was a commodatum. Article 1933 of the Civil 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 so that
the latter may use the same for a certain time and return it, in which case the contract is called
a commodatum; or money or other consumable thing, upon the condition that the same amount of the
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 consumable thing, such as
money, the contract would be a mutuum. However, there are some instances where a commodatum may 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 the
consumption 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 of the parties is to
lend consumable goods and to have the very same goods returned at the end of the period agreed upon, the
loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration in determining
the actual character of a contract. 27 In case of doubt, the contemporaneous and subsequent 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 shows that private
respondent agreed to deposit his money in the savings account of Sterela specifically for the purpose of
making it appear "that said firm had sufficient capitalization for incorporation, with the promise that the
amount shall be returned within thirty (30) days. 29 Private respondent merely "accommodated" 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 be removed from Sterela's savings account and would be
returned to private respondent after thirty (30) days.
Doronilla's attempts to return to private respondent the amount of P200,000.00 which the latter deposited in
Sterela's account together with an additional P12,000.00, allegedly representing interest on the mutuum, did
not convert the transaction from a commodatum into a mutuum because such was not the intent of the
parties and because the additional P12,000.00 corresponds to the fruits of the lending of the
P200,000.00. Article 1935 of the Civil Code expressly states that "[t]he bailee in commodatum acquires the use
of the thing loaned but not its fruits." Hence, it was only proper for Doronilla to remit to private respondent
the interest accruing to the latter's money deposited with petitioner.
Neither does the Court agree with petitioner's contention that it is not solidarily liable for the return of private
respondent's money because it was not privy to the transaction between Doronilla and private respondent.
The nature of said transaction, that is, whether it is a mutuum or a commodatum, has no bearing on the
question of petitioner's liability for the return of private respondent's 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 respondent's money and is liable for its restitution.
Petitioner's rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of Sterela for
Savings Account No. 10-1567 expressly states that —
"2.Deposits and withdrawals must be made by the depositor personally or upon his written authority
duly authenticated, and neither a deposit nor a withdrawal will be permitted except upon the
production of the depositor savings bank book in which will be entered by the Bank the amount
deposited or withdrawn." 30
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant Branch
Manager for the Buendia Branch of petitioner, to withdraw therefrom even without presenting the passbook
(which Atienza very well knew was in the possession of Mrs. Vives), not just once, but several times. Both the
Court of Appeals and the trial court found that Atienza allowed said withdrawals because he was party to
Doronilla's "scheme" of defrauding private respondent:
xxx xxx xxx
But the scheme could not have been executed successfully without the knowledge, help and
cooperation of Rufo Atienza, assistant manager and cashier of the Makati (Buendia) branch of the
defendant bank. Indeed, the evidence indicates that Atienza had not only facilitated the commission of
the fraud but he likewise helped in devising the means by which it can be done in such manner as to
make it appear that the transaction was in accordance with banking procedure.
To begin with, the deposit was made in defendant's Buendia branch precisely because Atienza was a
key officer therein. The records show that plaintiff had suggested that the P200,000.00 be deposited in
his bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that it must be in
defendant's branch Makati for "it will be easier for them to get a certification." In fact before he was
introduced to plaintiff, Doronilla had already prepared a letter addressed to the Buendia branch
manager authorizing Angeles B. Sanchez and company to open a savings account for Sterela in the
amount of P200,000.00, as "per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank . .
." (Exh. 1). This is a clear manifestation that the other defendants had been in consultation with
Atienza from the inception of the scheme. Significantly, there were testimonies and admission that
Atienza 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" between Doronilla
and Atienza, the latter knew before hand that the money deposited did not belong to Doronilla nor to
Sterela. Aside from such foreknowledge, he was explicitly told by Inocencia Vives that the money
belonged to her and her husband and the deposit was merely to accommodate Doronilla. 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 only ones
empowered to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In the signature card
pertaining to this account (Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B.
Sanchez. Atienza stated that it is the usual banking procedure that withdrawals of savings deposits
could only be made by persons whose authorized signatures are in the signature cards on file with the
bank. He, however, said that this procedure was not followed here because Sterela was owned by
Doronilla. He explained that Doronilla had the full authority to withdraw by virtue of such ownership.
The Court is not inclined to agree with Atienza. In the first place, he was all the time aware that the
money came from Vives and did not belong to Sterela.. He was also told by Mrs. Vives that they were
only accommodating Doronilla so that a certification can be issued to the effect that Sterela had a
deposit of so much amount to be sued in the incorporation of the firm. In the second place, the
signature of Doronilla was not authorized in so far as that account is concerned inasmuch as he had
not signed the signature card provided by the bank whenever a deposit is opened. In the third place,
neither Mrs. Vives nor Sanchez had given Doronilla the authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been presented. It is an
accepted practice that whenever a withdrawal is made in a savings deposit, the bank requires the
presentation of the passbook. In this case, such recognized practice was dispensed with. The transfer
from the savings account to the current account was without the submission of the passbook which
Atienza had given to Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella
Dumagpi that a duplicate passbook was issued to Sterela because the original passbook had been
surrendered to the Makati Branch in view of a loan accommodation assigning the savings account (Exh.
C). Atienza, who undoubtedly had a hand in the execution of this certification, was aware that the
contents of the same are not true. He knew that the passbook was in the hands of Mrs. Vives for he
was the one who gave it to her. Besides, as assistant manager of the branch and the 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 not among those authorized
to withdraw so her certification had no effect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate that Atienza's
active participation in the perpetration of the fraud and deception that caused the loss. The records
indicate that this account was opened three days later after the P200,000.00 was deposited. In spite of
his disclaimer, the Court believes that Atienza was mindful and posted regarding the opening of the
current account considering that Doronilla was all the while in "coordination" with him. That it was he
who facilitated the approval of the authority to debit the savings account to cover any overdrawings 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 . . . . 31
Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for damages caused
by their employees acting within the scope of their assigned tasks. To hold the employer 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 of was committed. 32 Case law in the United
States of America has it that a corporation that entrusts a general duty to its employee is responsible to the
injured party for damages flowing from the employee's 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 latter's instructions. 33
There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not deny that
Atienza was acting within the scope of his authority as Assistant Branch Manager when he assisted Doronilla in
withdrawing funds from Sterela's Savings Account No. 10-1567, in which account private respondent's money
was deposited, and in transferring the money withdrawn to Sterela's Current Account with petitioner. Atienza's
acts of helping Doronilla, a customer of the petitioner, were obviously done in furtherance of petitioner's
interests 34 even though in the process, Atienza violated some of petitioner's rules such as those stipulated in
its savings account passbook. 35 It was established that the transfer of funds from Sterela's savings account to
its current account could not have been accomplished by Doronilla without the invaluable assistance of
Atienza, and that it was their connivance which was the cause of private respondent's loss.