Credit Transactions Case Digest: Spouses Gironella v. PNB (2015)

Spouses Gironella v. PNB
G.R. No. 194515. Sept. 16, 2015.
Perez J.

FACTS:
On November 11, 1991 and January 16, 1992, the Spouses Oscar and Gina Gironella obtained two co-terminus loans amounting to 7,500,000 php and 2,000,000 php from Philippine National Bank (PNB) for the construction of the Dagupan Village Hotel and Sports Complex.  Both loans were payable on installment and secured by the same real estate mortgage over a parcel of land covered by TCT No. 56059 in favor of PNB.
In May 1992, the Spouses Gironella applied for another loan amounting to 5,800,000 php for the construction of a disco-restaurant and bar and the purchase of a generator set.
From the period of February 1993 to October 2, 1995, the Spouses Gironella paid 4,219,000 php in total for their first two loans.
The Spouses Gironella defaulted in paying the prior two loans.  The Spouses alleged that: (1) they were made to believe by PNB that their third loan would be approved, (2) they were directed to proceed with their expansion plans and (3) there would be a loan restructuring.  Thus, they the income generated by the hotel while the third was pending.
In January and April 1998, the Spouses Gironella paid a total of 2,650,000 php allegedly to effect the restructuring of their loans.  Despite restructuring negotiations, PNB filed a petition to foreclose the mortgaged property on May 29, 1996 and April 17, 1998 and a Notice of Extra-judicial Foreclosure Sale.   The final foreclosure was subsequently stalled but was refiled on July 25, 2000 after failure to agree on the restructuring. 
Spouses Gironella filed a complaint before the RTC with prayer for issuance of a Temporary Restraining Order (TRO) and preliminary injunction to enjoin the enforcement of the original credit agreements and the foreclosure of the mortgaged property.  The RTC issued the TRO and Writ of Preliminary injunction and subsequently, grant the complaint by ruling that there was a binding credit restructuring agreement.  On Motion for Partial Reconsideration, RTC clarified that actual and compensatory damages to reckon from the date of the filing of the amended complaint and declared permanent the writ of preliminary injunction.
PNB filed a petition an appeal to the CA arguing that the letters sent on January 2000 and February 7, 2000 were not perfected since there was only a qualified acceptance equivalent to a counter-offer.  CA favored PNB.  The bare allegations of abuse of right by PNB on giving the Spouses Gironella false hope was insufficient to grant them damages.
Spouses Gironella filed a petition for review under Rule 45 of the Rules of Court.

ISSUE: W/N CA is correct that there is no acceptance to perfect the credit restructuring agreement.

HELD: YES. No restructured loan agreement at all that was perfected. Petition is Denied.
There are 3 distinct stages of a contract: (1) preparation or negotiation (2) perfection and (3) consummation.  The credit restructuring loan was in the negotiation stage.  The application for additional loan separate from the first two credit loans was also in the negotiation stage.
The approval of the additional loan is not contingent on the representation of the PNB officers as PNB must comply with the General Banking Law to assess based on specific legal banking requirements.  Thus, it cannot be approved without qualification.
A contract is perfected by mere consent.  In turn, consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.  The offer must be certain and the acceptance seasonable and absolute.  If qualified, the acceptance would merely constitute a counter-offer as what occurred in this case.
To reach that moment of perfection, the parties must agree on the same thing in the same sense, so that their minds meet as to all the terms. They must have a distinct intention common to both and without doubt or difference; until all understand alike, there can be no assent, and therefore no contract. The minds of parties must meet at every point; nothing can be left open for further arrangement. So long as there is any uncertainty or indefiniteness, or future negotiations or considerations to be had between the parties, there is not a completed contract, and in fact, there is no contract at all.
The Spouses Gironella's payments under its original loan account cannot be considered as partial execution of the proposed restructuring loan agreement.  Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties.
Once there is concurrence of the offer and acceptance of the object and cause, the stage of negotiation is finished.  Since there was a counter-offer, the parties were not past the stage of negotiation.

Jurisprudence: G.R. No. 194515, September 16, 2015

FIRST DIVISION
G.R. No. 194515, September 16, 2015
SPOUSES OSCAR AND GINA GIRONELLA, Petitioners, v. PHILIPPINE NATIONAL BANK, Respondent.
D E C I S I O N
PEREZ, J.:
We have here a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision1 dated 27 August 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 83870 which reversed and set aside the Decision2 of the Regional Trial Court (RTC), Branch 44, Dagupan City in Civil Case No. 2000-0099-D. The RTC granted the complaint of petitioners, the Spouses Oscar and Gina Gironella (Spouses Gironella), against respondent Philippine National Bank (PNB) for: (1) the proper construction of events between the parties relative to the proposed Restructuring Agreement; (2) fraud, gross negligence, and/or at the very least, abuse of right under Article 19, 20 and 21 of the Civil Code; and (3) corollary thereto, payment of actual and compensatory damages, moral damages, attorney's fees and litigation expenses.

First, the bare and undisputed facts.

In separate Credit Agreements respectively dated 11 November 1991 and 16 January 1992, the Spouses Gironella obtained two (2) loans from PNB in the amounts of Php7,500,000.00 and Php2,000,000.00 for the construction of the Dagupan Village Hotel and Sports Complex. The loans were co-terminus, both payable on installments and secured by the same real estate mortgage over a parcel of land covered by Transfer Certificate of Title (TCT) No. 56059 in favor of the creditor, PNB.

In May 1992, seeking to expand their hotel operations, the Spouses Gironella again applied for another loan with PNB in the amount of Php5,800,000.00 for the construction of a restaurant bar and the purchase of a generator set.

From these front events, the dealings between the parties turned into the present case.

The Spouses Gironella began to default in paying their prior two (2) loans. They would aver, in their complaint until this petition, that their default in payment is attributable to PNB whose representatives and officers made them believe that their Php5,800,000.00 loan application would be approved and directed them to proceed with their expansion plans. To that end and with the full knowledge of the PNB's officers and representatives, the Spouses Gironella used the income generated by the hotel for the construction of the restaurant bar and purchase of the generator set while the Php5,800,000.00 loan was pending and still being processed. In their Complaint, the Spouses Gironella alleged:
[PNB's] officers and representatives, gave their assurance to the [Spouses Gironella] that the said loan will be approved by [PNB] and even directed the [Spouses Gironella] to make use of the- funds being generated by Dagupan Village Hotel for the said purposes, which the [Spouses Gironella] did, but seriously affected the servicing of their first loan. [The Spouses Gironella] then proposed a restructuring of their first loan and after a series of meetings, offers and counter offers, the [Spouses Gironella] accepted the offer of [PNB] to their proposed program (sic) to restructure the loan which for all intents and purposes was already perfected.3
From the period of February 1993 to 2 October 1995, the Spouses Gironella paid a total of Php4,219,000.00 on their first two loans of Php9,500,000.00. In January and April 1998, the Spouses Gironella likewise paid PNB Php1,000,000.00 and Php1,650,000.00. They maintain that all these payments were made to effect the restructuring of their loans with PNB.

Meanwhile, in separate instances, on 29 May 1996 and 17 April 1998, while the parties were negotiating and discussing the restructuring of the Spouses Gironella's loans, PNB made a couple of attempts to foreclose the mortgaged property. It filed a Petition for the Extra-Judicial Foreclosure thereof and subsequently, a Notice of Extra-Judicial Foreclosure Sale. However, the final foreclosure of the mortgaged property was stalled because of the continuing negotiations between the parties for the restructuring of the loans.

By the year 2000, negotiations for the restructuring of the Spouses Gironella's loans was still ongoing and remained indefinite. On 25 January 2000, after several exchange of correspondence, PNB wrote the Spouses Gironella and proposed, thus:
May we now have your written final conformity with the proposed restructuring of your account by way of:
Capitalization of the P9,485,620.00, part of the accrued interest as of December 14, 1999 for consolidation with the outstanding P9,500,000.00 unpaid principal to aggregate P14,380,000.00;

Restructuring of this P14,380,000.00 into a fully secured 10 year term loan payable quarterly under the following scheme;

- grace period on the payment of the principal only for Eight (8) quarters.
- amortization for the 1st to 8th quarters be based on accrued interest due.
- amortization from the 9th up to the 39th quarter to be based on a 15-year payment scheme with balloon payment on the 40th quarter.

Restructuring of P8,120,000.00, the other part of the accrued interest as of December 14, 2000, on clean basis to be payable quarterly for five (5) years with amortization from 1st to 19th quarters based on a 15-year payment scheme and balloon payment on the 20th quarter.

Interest, net of capitalization, to be paid from December 14. 1999 up to date of implementation,
This proposed restructuring is still subject for evaluation and approval of higher management and therefore tentative in nature.4 (Emphasis Supplied)
In a letter dated 7 February 2000, the Spouses Gironella gave a qualified acceptance of PNB's proposed restructuring, specifically referring to specific terms in the 25 January 2000 proposal of PNB.

However, in its 8 March 2000 letter, PNB rejected finally the counter offer of the Spouses Gironella for the restructuring of their loan.

On 25 July 2000, PNB re-filed its Petition for Extra-Judicial Foreclosure of the mortgaged property.

Forthwith, the Spouses Gironella filed the Complaint before the RTC with prayer for issuance of a Temporary Restraining Order (TRO) and preliminary injunction to enjoin enforcement of the original credit agreements, and security therefor, between the parties. Effectively, the Spouses Gironella sought to enjoin the foreclosure of the mortgaged property.

On 4 and 28 September 2000, the RTC issued the prayed for TRO and Writ of Preliminary injunction.

Subsequently, the RTC granted the Complaint of the Spouses Gironella ruling that there was a perfected and binding restructured credit agreement, the terms contained in the 25 January 2000 and 7 February 2000 written exchanges of the parties:
WHEREFORE, judgment is rendered in favor of [petitioners] Oscar Gironella and Gina F. Gironella and against [respondent] Philippine National Bank, as follows:

1. On the first and third causes of action, judgment is rendered ordering [PNB] to pay [the Spouses Gironella], the following:

a) P5,000,000.00 and P100,000.00 a month as actual and compensatory damages;

b) P2,000,000.00 as moral damages;

c)  P500,000.00 as and for Attorney's fees, plus P10,000.00 for every conference or hearing as Appearance Fees; and

d)  P250,000.00 as litigation expenses.

2. On the second cause of action, the [c]ourt declares the restructuring of the subject loan pursuant to the letter of [PNB] dated January 25, 2000, Exhibit U for [the Spouses Gironella], and Exhibit 2 for [PNB], and [the Spouses Gironella's] letter dated February 7, 2000, Exhibit V for the [Spouses Gironella], and Exhibit 3 for [PNB], as perfected and binding upon the parties.

[PNB] is ordered to pay the costs of suit.5
On Motion for Partial Reconsideration and/or Clarification filed by the Spouses Gironella, the RTC clarified that the payment of Php100,000.00 a month as actual and compensatory damages is reckoned from the filing of the Amended Complaint on 25 September 2002. In addition, the RTC declared permanent the writ of preliminary injunction it had previously issued, effectively enjoining the enforcement of the original credit agreements and the accessory contract, the real estate mortgage over the land covered by TCT No. 56059.

Posthaste, PNB appealed to the CA questioning the trial court's ruling. PNB argued that the exchange of correspondence between the parties, specifically the 25 January 2000 and 7 February 2000 letters, did not constitute a perfected and binding restructuring agreement since there was no express acceptance by either party of the other's counter-offer. PNB averred that it, in fact, finally rejected the restructuring proposal of the Spouses Gironella on 8 March 2000.

The appellate court granted the appeal of PNB and reversed the ruling of the trial court. The CA ruled that the Spouses Gironella, apart from their bare allegations, failed to present evidence required in civil cases, i.e. by a preponderance of evidence, to establish their claim that PNB fraudulently and in gross negligence and/or, in abuse of right, gave them false hopes and assurances that their third loan would be approved in violation of Articles 19, 20 and 21 of the Civil Code thereby entitling them to damages. The appellate court ruled, thus:
In civil cases, he who alleges a fact has the burden of proving it by a preponderance of evidence. Aside from the surmises of [the Spouses Gironella] that they were given false hope and assurances by [PNB's] officers, the [Spouses Gironella] in this case failed to show proof preponderant enough to sway this [c]ourt in their favor.

As compared to the other transactions and negotiation entered into between the parties herein which were very much documented, the [Spouses Gironella] failed to present any documentary evidence relevant to their claims of fraud, gross negligence, and abuse of right against the [PNB's] officers. The records of the instant case are wanting of any proof that would substantiate the [Spouses Gironella's] claim that they were assured by [PNB's] officers that the additional loan application will be approved and that it was agreed upon that the income of the hotel will be used for the construction of the disco-restaurant and the purchase of the generator set for the meantime.

It must also be noted that [the Spouses Gironella] contracted two previous loans from [PNB] even before the additional loan subject of this case was applied for. Thus, not being their first time to enter into a loan with a bank, the [Spouses Gironella] are already very much aware of the process being observed in obtaining a loan from such kind of institution. Gina Gironella even wrote in her 7 August 1992 letter to Mr. Alfredo S. Besa, Manager of the PNB Dagupan Branch, that:
Dear Mr. Besa:

I was very much elated over the information relayed to me by my father, thru our Resident Manager, William Crossly, regarding the profound concern and interest shown by your Vice-President for Northern Luzon Branches Pedrito D. Torres towards the Dagupan Village Hotel and Sports Center. I understand that VP Torres was also convinced that the construction of the additional function hall and night club would, indeed, upgrade the revenue-earning capacity of the hotel, thus reportedly giving his assent for the immediate commencement of the project.

In this connection, therefore, may I reiterate our appeal manifested in our previous letters for the approval of our additional loan application with which to underwrite the above project which was started almost two months ago, and the purchase of a 125 ... generating set.
In the above letter, [petitioner] Gina Gironella appears to be mindful that a formal approval is necessary for their application to be considered as finally approved. Thus, when the [Spouses Gironella] undertook to initiate the construction of the disco-restaurant and the purchase of the generator set even without the formal approval of their additional loan, the [Spouses Gironella] did it at their own risk.6
On the finding of the trial court that the correspondence between the parties embodied in the 25 January 2000 and 7 February 2000 letters of PNB and the Spouses Gironella, respectively, constituted the restructuring agreement, the appellate court found that there was no final agreement reached by the parties where the offer was certain and acceptance thereof by the other party was absolute. The appellate court held that, in this case, a qualified acceptance equated to a counter-offer and, at that point, there was no absolute and unqualified acceptance which is identical in all respects with that of the offer so as to produce consent or meeting of the minds.

Hence, this appeal by certiorari of the Spouses Gironella insisting on the correctness of the trial court's ruling.

We deny the petition and affirm the appellate court's ruling.

The Spouses Gironella claim fraud, gross negligence and/or, at the very least, abuse of right in violation of Articles 19, 20 and 21 of the Civil Code when PNB, essentially, twice did not approve their loan applications: (1) the additional loan of Php5,800,000.00 for their businesses' expansion plans, and (2) restructuring of their original credit agreements, despite purported assurances and representations of approval by PNB's officers and representatives. The Spouses Gironella maintain that these actuations of PNB through its officers and representatives constituted fraud, gross negligence and/or abuse of right in its dealings thus entitling the Spouses Gironella to damages, actual and compensatory, moral, attorney's fees and litigation expenses.

Incredibly, the RTC adopted in full the stance and allegations of the Spouses Gironella, without a shred of evidence or reference thereto in the ratiocination of its ruling:
It should be noted that [PNB's] act of continuously giving positive assurances to the [Spouses Gironella] and giving them false hopes that the additional loan will be approved and eventually informing them later that the same was disapproved by the higher management is a clear indication of fraud and gross negligence. If it were not for [PNB's] continuous assurances that the loan will be approved, the [Spouses Gironella] would not have participated in the negotiations with PNB officers and representatives, thus dispensing with the preparation and submission of various documents, financial reports and other demands. The [c]ourt agrees with the stand of the [Spouses Gironella] that if it were for [PNB's] directive to direct the use of the funds generated by the hotel to construct [the] disco-restaurant purchase of the generator set (sic), the servicing and/or payment of the original loan should not have been affected. The records would show that [PNB] misled the [Spouses Gironella] into believing that the additional loan of 5.8 Million Pesos would be approved. It should be stated in this connection that the payments for the first loan Php9,500,000.00 would have come from the funds generated by the hotel. There is no doubt that the [Spouses Gironella] applied for an additional loan of P5,800,000.00 for the purpose of constructing the disco-restaurant and purchase of generator set. The hotel fund was used for the above-cited purpose and that was the reason instead of using the same to pay [the Spouses Gironella's] obligation relative to the Php9,500,000.00 loan. [The Spouses Gironella's] acted in good faith when they used the money to construct the disco-restaurant and purchase the generator set because of the false assurances of [PNB] that the amount of Php5,800,000.00 loan would be approved.7
The appellate court correctly did not give imprimatur to the foregoing ruling of the trial court given that nowhere therein does the trial court refer to evidence to support its conclusions.
First. As plaintiffs, the Spouses Gironella had the duty, the burden of proof, to present evidence, required by law, on the facts in issue necessary to establish their claim.8 The trial court did not even name the bank officers and representatives who gave "false hopes and assurances" to the Spouses Gironella. The trial court could have easily specified the representations and statements of the bank officers and representatives which the Spouses Gironella heavily relied upon. The Spouses Gironella's lack of evidence is further highlighted by the trial court's non-sequitur statement that "[i]f it were not for [PNB's] continuous assurances that the loan will be approved, the [Spouses Gironella] would not have participated in the negotiations with PNB officers and representatives, thus dispensing with the preparation and submission of various documents, financial reports and other demands."9
Second. The foregoing statement fails to take into consideration the three (3) distinct stages of a contract: (1) preparation or negotiation, (2) perfection, and finally, (3) consummation.10 At that point where the Spouses Gironella were applying for the additional loan of Php5,800,000.00, that involved the negotiation stage for a contract separate from the first two credit agreements which were consolidated into one, secured by the same real estate mortgage over TCT No. 56059, both payable on installment and with the same term. Necessarily, the Spouses Gironella as debtors applying for an. additional loan, ought to participate in the negotiations thereof and await PNB's assessment and processing of their additional loan application.

Discussion on the succeeding stages of a contract shall be done anon in relation to the alleged restructuring agreement.

Third. We find difficulty in accepting the Spouses Gironella's insistence that PNB's officers and representatives repeatedly assured them that their additional loan will be approved, apparently, without qualification. In approving loans, credit accommodations and guarantees, PNB, as a bank, must still comply with banking laws and conduct business in a safe and sound manner. Ultimately, PNB to comply with the General Banking Act11 as amended, the old statute and precursor to the present General Banking Law,12 must assess compliance by the Spouses Gironella with specific legal banking requirements such as the Single Borrower's Limit.13 Clearly, approval of the Spouses Gironella's additional loan is not contingent solely on the purported representations of PNB's officers as claimed by the former.

Fourth. From these very same bare allegations of the Spouses Gironella, the trial court, in upholding their stance, considered the assurances given by PNB's officers that the additional loan will be approved as the evidence itself of PNB's supposed commission of fraud. In short, the Spouses Gironella proffer as evidence of fraud their own bare allegations which regrettably, the trial court echoed.

We cannot overemphasize that the burden of proof is upon the party who alleges bad faith or fraud.14 In this case, the Spouses Gironella's bare allegations that PNB's officers assured them that their additional loan will be approved are mere abstractions of fraud without specifics pointing to the actual commission of fraud.

We thus agree with the disquisition of the appellate court thereon:
In civil cases, he who alleges a fact has the burden of proving it by a preponderance of evidence. Aside from the surmises of [the Spouses Gironella] that they were given false hopes and assurances by [PNB's] officers, the [Spouses Gironella] in this case failed to show proof preponderant enough to sway this [c]ourt in their favor.

As compared to the other transactions and negotiations entered into between the parties herein which were very, much documented, the [Spouses Gironella] failed to present any documentary evidence relevant to their claims of fraud, gross negligence, and abuse of right against the [PNB's] officers. The records of the instant case are wanting of any proof that would substantiate the [Spouses Gironella's] claim that they were assured by [PNB's] officers that the additional loan application will be approved and that it was agreed upon that the income of the hotel will be used for the construction of the disco-restaurant and the purchase of the generator set for the meantime.15
The Spouses Gironella next contend that the parties already had a partially executed, if not perfected and binding, restructuring agreement embodied in their 7 February 2000 letter of acceptance of the offer and proposal contained in PNB's 25 January 2000 letter. As with their first contention on the "false hopes and assurances" purportedly given by PNB's officers and representatives to the Spouses Gironella, the trial court upheld them and found that there was a perfected and binding restructuring agreement between the parties. Moreover, the Spouses Gironella assert that since they have made substantial payments in pursuance of the restructuring agreement, or at the least under a promise of restructuring the loan, there is effectively a partially executed restructuring agreement.

We cannot subscribe to the contention of the Spouses Gironella, albeit upheld by the trial court.

A contract is perfected by mere consent.16 In turn, consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.17 The offer must be certain and the acceptance seasonable and absolute.18 If qualified, the acceptance would merely constitute a counter-offer19 as what occurred in this case.

To reach that moment of perfection, the parties must agree on the same thing in the same sense, so that their minds meet as to all the terms.20 They must have a distinct intention common to both and without doubt or difference; until all understand alike, there can be no assent, and therefore no contract. The minds of parties must meet at every point; nothing can be left open for further arrangement. So long as there is any uncertainty or indefiniteness, or future negotiations or considerations to be had between the parties, there is not a completed contract, and in fact, there is no contract at all.21

The Spouses Gironella's payments under its original loan account cannot be considered as partial execution of the proposed restructuring loan agreement. They were clearly made during the pendency of the negotiations on the restructuring. Such pendency proves, absence, not presence of an agreement ready for execution. At the time of payments only petitioners' obligation under the original credit agreements were in existence. Indeed, the payment scheme under the proposed restructuring was outlined by PNB only in the letter of 25 January 2000.

Further on this, negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. Once there is concurrence of the offer and acceptance of the object and cause, the stage of negotiation is finished.22 This situation does not obtain in the case at bar. The letter dated 25 January 2000 of PNB was qualifiedly accepted by the Spouses Gironella as contained in their 7 February 2000 letter and constituted a counter-offer which PNB ultimately rejected in its 8 March 2000 letter. The surrounding circumstances clearly show that the parties were not past the stage of negotiation for the terms and conditions of the restructured loan agreements. There was no meeting of the minds on the restructuring of the loans. Thus, the Spouses Gironella's original Php9,500,000.00 loan agreement subsists.

In all, we affirm the appellate court's ruling, PNB is not liable either for fraud, gross negligence or abuse of right. It did not breach any agreement there having been no restructured loan agreement at all that was perfected. Consequently, the PNB is not liable to pay the Spouses Gironella any form of damages.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 27 August 2010 in CA-G.R. CV No. 83870 is AFFIRMED. The Decision and Order dated 23 June 2004 and 28 September 2004 of the Regional Trial Court, Branch 44, Dagupan City are REVERSED and SET ASIDE. The Amended Complaint of the petitioners, Oscar and Gina Gironella, is DISMISSED.

SO ORDERED

Civil Procedure Credit Transactions Case Digest: Radiowealth Finance Company v. Del Rosario (2000)

Radiowealth Finance Company v. Del Rosario
G.R. No. 138739 July 6, 2000

Lessons Applicable: Demurrer to Evidence, Promissory Note, When Demandable, Penalty, Interest (Credit Transactions)

Laws Applicable: Rule 33 of the 1997 Rules of Court (Civil Procedure)

FACTS:
•    March 2, 1991: Spouses Vicente and Maria Sumilang del Rosario jointly and severally executed, signed and delivered in favor of Radiowealth Finance Company a Promissory Note for P138,948 without need of notice or demand, in instalments of P11,579.00 payable for 12 consecutive months leaving the period for the instalments blank.  Upon default, the late payment, 2.5% penalty charge per month shall be added to each unpaid installment from due date thereof until fully paid.
•    June 7, 1993:  Radiowealth filed a complaint for the collection of a sum of money before the Regional Trial Court of Manila.  During the trial, Jasmer Famatico, the credit and collection officer of Radiowealth, presented in evidence the Spouses’ check payments, the demand letter dated July 12, 1991, Spouses’ customer’s ledger card, another demand letter and Metropolitan Bank dishonor slips.  Famatico admitted that he did not have personal knowledge of the transaction or the execution of any of these pieces of documentary evidence, which had merely been endorsed to him.
•    July 29, 1994: Spouses filed a Demurrer to Evidence for alleged lack of cause of action
•    RTC: Dismissed for Radiowealth’s failure to substantiate the claims, the evidence it had presented being merely hearsay
•    CA: reversed and remanded the case for further proceedings
o    During the pretrial, through judicial admissions or the spouses admitted the genuineness of the Promissory Note and demand letter dated July 12, 1991.  Their only defense was the absence of an agreement on when the installment payments were to begin
ISSUES:
1.    W/N the spouses can still present evidence after the appellate court’s reversal of the dismissal on demurer of evidence (Civil Procedure)
2.    W/N the obligation is due and demandable (Credit Transaction)

HELD: Petition is GRANTED.  Appealed Decision is MODIFIED.  Ordered to PAY P138,948, plus 2.5 percent penalty charge per month beginning April 2, 1991 until fully paid, and 10 percent of the amount due as attorney’s fees.

1.    NO.
•    Rule 33 of the 1997 Rules
o    SECTION 1.  Demurrer to evidence.—After the plaintiff has completed the presentation of his evidence, the defendant may move for dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief.  If his motion is denied, he shall have the right to present evidence.  If the motion is granted but on appeal the order of dismissal is reversed he shall be deemed to have waived the right to present evidence.
•    Defendants who present a demurrer to the plaintiff’s evidence retain the right to present their own evidence, if the trial court disagrees with them; if the trial court agrees with them, but on appeal, the appellate court disagrees with both of them and reverses the dismissal order, the defendants lose the right to present their own evidence
•    The appellate court shall resolve the case and render judgment on the merits, inasmuch as a demurrer aims to discourage prolonged litigations

2.    Yes.
•    The act of leaving blank the due date of the first installment did NOT necessarily mean that the debtors were allowed to pay as and when they could.  While the specific date on which each installment would be due was left blank, the Note clearly provided that each installment should be payable each month. It also provided for an acceleration clause and a late payment penalty, both of which showed the intention of the parties that the installments should be paid at a definite date.  Per the acceleration clause, the whole debt became due one month (April 2, 1991) after the date of the Note because the check representing their first installment bounced.
•    Respondents started paying installments on the Promissory Note, even if the checks were dishonored by their drawee bank. 
•    The Note already stipulated a late payment penalty of 2.5 percent monthly to be added to each unpaid installment until fully paid.  Payment of interest was not expressly stipulated in the Note.  Thus, it should be deemed included in such penalty.  Liquidated damages, however, should no longer be imposed for being unconscionable. Such damages should also be deemed included in the 2.5 percent monthly penalty.  Furthermore, we hold that petitioner is entitled to attorney’s fees, but only in a sum equal to 10 percent of the amount due which we deem reasonable under the proven facts

Jurisprudence: G.R. No. 138739. July 6, 2000

THIRD DIVISION

G.R. No. 138739.  July 6, 2000

RADIOWEALTH FINANCE COMPANY, petitioner, vs. Spouses VICENTE and MA. SUMILANG DEL ROSARIO, respondents.

D E C I S I O N

PANGANIBAN, J.:

When a demurrer to evidence granted by a trial court is reversed on appeal, the reviewing court cannot remand the case for further proceedings.  Rather, it should render judgment on the basis of the evidence proffered by the plaintiff.  Inasmuch as defendants in the present case admitted the due execution of the Promissory Note both in their Answer and during the pretrial, the appellate court should have rendered judgment on the bases of that Note and on the other pieces of evidence adduced during the trial.

The Case

Before us is a Petition for Review on Certiorari of the December 9, 1997 Decision[1] and the May 3, 1999 Resolution[2] of the Court of Appeals in CA-GR CV No. 47737.  The assailed Decision disposed as follows:

“WHEREFORE, premises considered, the appealed order (dated November 4, 1994) of the Regional Trial Court (Branch XIV) in the City of Manila in Civil Case No. 93-66507 is hereby REVERSED and SET ASIDE.  Let the records of this case be remanded to the court a quo for further proceedings.  No pronouncement as to costs.”[3]

The assailed Resolution denied the petitioner’s Partial Motion for Reconsideration.[4]

The Facts

The facts of this case are undisputed.  On March 2, 1991, Spouses Vicente and Maria Sumilang del Rosario (herein respondents), jointly and severally executed, signed and delivered in favor of Radiowealth Finance Company (herein petitioner), a Promissory Note[5] for P138,948.  Pertinent provisions of the Promissory Note read:

“FOR VALUE RECEIVED, on or before the date listed below, I/We promise to pay jointly and severally Radiowealth Finance Co. or order the sum of ONE HUNDRED THIRTY EIGHT THOUSAND NINE HUNDRED FORTY EIGHT Pesos (P138,948.00) without need of notice or demand, in installments as follows:

P11,579.00 payable for 12 consecutive months starting on ________ 19__ until the amount of P11,579.00 is fully paid.  Each installment shall be due every ____ day of each month.  A late payment penalty charge of two and a half (2.5%) percent per month shall be added to each unpaid installment from due date thereof until fully paid.

x x x x x x                                   x x x

It is hereby agreed that if default be made in the payment of any of the installments or late payment charges thereon as and when the same becomes due and payable as specified above, the total principal sum then remaining unpaid, together with the agreed late payment charges thereon, shall at once become due and payable without need of notice or demand.

x x x x x x                                   x x x

If any amount due on this Note is not paid at its maturity and this Note is placed in the hands of an attorney or collection agency for collection, I/We jointly and severally agree to pay, in addition to the aggregate of the principal amount and interest due, a sum equivalent to ten (10%) per cent thereof as attorney’s and/or collection fees, in case no legal action is filed, otherwise, the sum will be equivalent to twenty-five (25%) percent of the amount due which shall not in any case be less than FIVE HUNDRED PESOS (P500.00) plus the cost of suit and other litigation expenses and, in addition, a further sum of ten per cent (10%) of said amount which in no case shall be less than FIVE HUNDRED PESOS (P500.00), as and for liquidated damages.”[6]

Thereafter, respondents defaulted on the monthly installments.  Despite repeated demands, they failed to pay their obligations under their Promissory Note.

On June 7, 1993, petitioner filed a Complaint[7] for the collection of a sum of money before the Regional Trial Court of Manila, Branch 14.[8] During the trial, Jasmer Famatico, the credit and collection officer of petitioner, presented in evidence the respondents’ check payments, the demand letter dated July 12, 1991, the customer’s ledger card for the respondents, another demand letter and Metropolitan Bank dishonor slips.  Famatico admitted that he did not have personal knowledge of the transaction or the execution of any of these pieces of documentary evidence, which had merely been endorsed to him.

On July 4, 1994, the trial court issued an Order terminating the presentation of evidence for the petitioner.[9] Thus, the latter formally offered its evidence and exhibits and rested its case on July 5, 1994.

Respondents filed on July 29, 1994 a Demurrer to Evidence[10] for alleged lack of cause of action.  On November 4, 1994, the trial court dismissed[11] the complaint for failure of petitioner to substantiate its claims, the evidence it had presented being merely hearsay.

On appeal, the Court of Appeals (CA) reversed the trial court and remanded the case for further proceedings.

Hence, this recourse.[12]

Ruling of the Court of Appeals

According to the appellate court, the judicial admissions of respondents established their indebtedness to the petitioner, on the grounds that they admitted the due execution of the Promissory Note, and that their only defense was the absence of an agreement on when the installment payments were to begin.  Indeed, during the pretrial, they admitted the genuineness not only of the Promissory Note, but also of the demand letter dated July 12, 1991.  Even if the petitioner’s witness had no personal knowledge of these documents, they would still be admissible “if the purpose for which [they are] produced is merely to establish the fact that the statement or document was in fact made or to show its tenor[,] and such fact or tenor is of independent relevance.”

Besides, Articles 19 and 22 of the Civil Code require that every person must -- in the exercise of rights and in the performance of duties -- act with justice, give all else their due, and observe honesty and good faith.  Further, the rules on evidence are to be liberally construed in order to promote their objective and to assist the parties in obtaining just, speedy and inexpensive determination of an action.

Issue

The petitioner raises this lone issue:

“The Honorable Court of Appeals patently erred in ordering the remand of this case to the trial court instead of rendering judgment on the basis of petitioner’s evidence.”[13]

For an orderly discussion, we shall divide the issue into two parts: (a) legal effect of the Demurrer to Evidence, and (b) the date when the obligation became due and demandable.

The Court’s Ruling

The Petition has merit.  While the CA correctly reversed the trial court, it erred in remanding the case "for further proceedings."

Consequences of a Reversal, on Appeal, of a Demurrer to Evidence

Petitioner contends that if a demurrer to evidence is reversed on appeal, the defendant should be deemed to have waived the right to present evidence, and the appellate court should render judgment on the basis of the evidence submitted by the plaintiff.  A remand to the trial court "for further proceedings" would be an outright defiance of Rule 33, Section 1 of the 1997 Rules of Court.

On the other hand, respondents argue that the petitioner was not necessarily entitled to its claim, simply on the ground that they lost their right to present evidence in support of their defense when the Demurrer to Evidence was reversed on appeal.  They stress that the CA merely found them indebted to petitioner, but was silent on when their obligation became due and demandable.

The old Rule 35 of the Rules of Court was reworded under Rule 33 of the 1997 Rules, but the consequence on appeal of a demurrer to evidence was not changed.  As amended, the pertinent provision of Rule 33 reads as follows:

“SECTION 1.  Demurrer to evidence.—After the plaintiff has completed the presentation of his evidence, the defendant may move for dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief.  If his motion is denied, he shall have the right to present evidence.  If the motion is granted but on appeal the order of dismissal is reversed he shall be deemed to have waived the right to present evidence.”[14]

Explaining the consequence of a demurrer to evidence, the Court in Villanueva Transit v. Javellana[15] pronounced:

“The rationale behind the rule and doctrine is simple and logical.  The defendant is permitted, without waiving his right to offer evidence in the event that his motion is not granted, to move for a dismissal (i.e., demur to the plaintiff’s evidence) on the ground that upon the facts as thus established and the applicable law, the plaintiff has shown no right to relief.  If the trial court denies the dismissal motion, i.e., finds that plaintiff’s evidence is sufficient for an award of judgment in the absence of contrary evidence, the case still remains before the trial court which should then proceed to hear and receive the defendant’s evidence so that all the facts and evidence of the contending parties may be properly placed before it for adjudication as well as before the appellate courts, in case of appeal.  Nothing is lost.  The doctrine is but in line with the established procedural precepts in the conduct of trials that the trial court liberally receive all proffered evidence at the trial to enable it to render its decision with all possibly relevant proofs in the record, thus assuring that the appellate courts upon appeal have all the material before them necessary to make a correct judgment, and avoiding the need of remanding the case for retrial or reception of improperly excluded evidence, with the possibility thereafter of still another appeal, with all the concomitant delays.  The rule, however, imposes the condition by the same token that if his demurrer is granted by the trial court, and the order of dismissal is reversed on appeal, the movant losses his right to present evidence in his behalf and he shall have been deemed to have elected to stand on the insufficiency of plaintiff’s case and evidence.  In such event, the appellate court which reverses the order of dismissal shall proceed to render judgment on the merits on the basis of plaintiff’s evidence.”  (Underscoring supplied)

In other words, defendants who present a demurrer to the plaintiff’s evidence retain the right to present their own evidence, if the trial court disagrees with them; if the trial court agrees with them, but on appeal, the appellate court disagrees with both of them and reverses the dismissal order, the defendants lose the right to present their own evidence.[16] The appellate court shall, in addition, resolve the case and render judgment on the merits, inasmuch as a demurrer aims to discourage prolonged litigations.[17]

In the case at bar, the trial court, acting on respondents’ demurrer to evidence, dismissed the Complaint on the ground that the plaintiff had adduced mere hearsay evidence.  However, on appeal, the appellate court reversed the trial court because the genuineness and the due execution of the disputed pieces of evidence had in fact been admitted by defendants.

Applying Rule 33, Section 1 of the 1997 Rules of Court, the CA should have rendered judgment on the basis of the evidence submitted by the petitioner.  While the appellate court correctly ruled that “the documentary evidence submitted by the [petitioner] should have been allowed and appreciated xxx,” and that “the petitioner presented quite a number of documentary exhibits xxx enumerated in the appealed order,”[18] we agree with petitioner that the CA had sufficient evidence on record to decide the collection suit.  A remand is not only frowned upon by the Rules, it is also logically unnecessary on the basis of the facts on record.

Due and Demandable Obligation

Petitioner claims that respondents are liable for the whole amount of their debt and the interest thereon, after they defaulted on the monthly installments.

Respondents, on the other hand, counter that the installments were not yet due and demandable.  Petitioner had allegedly allowed them to apply their promotion services for its financing business as payment of the Promissory Note.  This was supposedly evidenced by the blank space left for the date on which the installments should have commenced.[19] In other words, respondents theorize that the action for immediate enforcement of their obligation is premature because its fulfillment is dependent on the sole will of the debtor.  Hence, they consider that the proper court should first fix a period for payment, pursuant to Articles 1180 and 1197 of the Civil Code.

This contention is untenable.  The act of leaving blank the due date of the first installment did not necessarily mean that the debtors were allowed to pay as and when they could.  If this was the intention of the parties, they should have so indicated in the Promissory Note.  However, it did not reflect any such intention.

On the contrary, the Note expressly stipulated that the debt should be amortized monthly in installments of P11,579 for twelve consecutive months.  While the specific date on which each installment would be due was left blank, the Note clearly provided that each installment should be payable each month.

Furthermore, it also provided for an acceleration clause and a late payment penalty, both of which showed the intention of the parties that the installments should be paid at a definite date.  Had they intended that the debtors could pay as and when they could, there would have been no need for these two clauses.

Verily, the contemporaneous and subsequent acts of the parties manifest their intention and knowledge that the monthly installments would be due and demandable each month.[20] In this case, the conclusion that the installments had already became due and demandable is bolstered by the fact that respondents started paying installments on the Promissory Note, even if the checks were dishonored by their drawee bank.  We are convinced neither by their avowals that the obligation had not yet matured nor by their claim that a period for payment should be fixed by a court.

Convincingly, petitioner has established not only a cause of action against the respondents, but also a due and demandable obligation.  The obligation of the respondents had matured and they clearly defaulted when their checks bounced.  Per the acceleration clause, the whole debt became due one month (April 2, 1991) after the date of the Note because the check representing their first installment bounced.

As for the disputed documents submitted by the petitioner, the CA ruling in favor of their admissibility, which was not challenged by the respondents, stands.  A party who did not appeal cannot obtain affirmative relief other than that granted in the appealed decision.[21]

It should be stressed that respondents do not contest the amount of the principal obligation.  Their liability as expressly stated in the Promissory Note and found by the CA is “P13[8],948.00[22] which is payable in twelve (12) installments at P11,579.00 a month for twelve (12) consecutive months.” As correctly found by the CA, the "ambiguity" in the Promissory Note is clearly attributable to human error.[23]

Petitioner, in its Complaint, prayed for “14% interest per annum from May 6, 1993 until fully paid.” We disagree.  The Note already stipulated a late payment penalty of 2.5 percent monthly to be added to each unpaid installment until fully paid.  Payment of interest was not expressly stipulated in the Note.  Thus, it should be deemed included in such penalty.

In addition, the Note also provided that the debtors would be liable for attorney’s fees equivalent to 25 percent of the amount due in case a legal action was instituted and 10 percent of the same amount as liquidated damages.  Liquidated damages, however, should no longer be imposed for being unconscionable.[24] Such damages should also be deemed included in the 2.5 percent monthly penalty.  Furthermore, we hold that petitioner is entitled to attorney’s fees, but only in a sum equal to 10 percent of the amount due which we deem reasonable under the proven facts.[25]

The Court deems it improper to discuss respondents' claim for moral and other damages.  Not having appealed the CA Decision, they are not entitled to affirmative relief, as already explained earlier.[26]

WHEREFORE, the Petition is GRANTED.  The appealed Decision is MODIFIED in that the remand is SET ASIDE and respondents are ordered TO PAY P138,948, plus 2.5 percent penalty charge per month beginning April 2, 1991 until fully paid, and 10 percent of the amount due as attorney’s fees.  No costs.

SO ORDERED.

Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

Jurisprudence: G.R. No. 80294-95

FIRST DIVISION

G.R. No. 80294-95 September 21, 1988

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents.

Valdez, Ereso, Polido & Associates for petitioner.

Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.

Jaime G. de Leon for the Heirs of Egmidio Octaviano.

Cotabato Law Office for the Heirs of Juan Valdez.



GANCAYCO, J.:

The principal issue in this case is whether or not a decision of the Court of Appeals promulgated a long time ago can properly be considered res judicata by respondent Court of Appeals in the present two cases between petitioner and two private respondents.

Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth Division of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for Recovery of Possession, which affirmed the Decision of the Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of Baguio and Benguet in Civil Case No. 3607 (419) and Civil Case No. 3655 (429), with the dispositive portion as follows:

WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar Apostolic of the Mountain Province to return and surrender Lot 2 of Plan Psu-194357 to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan to the other set of plaintiffs, the Heirs of Egmidio Octaviano (Leonardo Valdez, et al.). For lack or insufficiency of evidence, the plaintiffs' claim or damages is hereby denied. Said defendant is ordered to pay costs. (p. 36, Rollo)

Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's conclusions that the Decision of the Court of Appeals, dated May 4,1977 in CA-G.R. No. 38830-R, in the two cases affirmed by the Supreme Court, touched on the ownership of lots 2 and 3 in question; that the two lots were possessed by the predecessors-in-interest of private respondents under claim of ownership in good faith from 1906 to 1951; that petitioner had been in possession of the same lots as bailee in commodatum up to 1951, when petitioner repudiated the trust and when it applied for registration in 1962; that petitioner had just been in possession as owner for eleven years, hence there is no possibility of acquisitive prescription which requires 10 years possession with just title and 30 years of possession without; that the principle of res judicata on these findings by the Court of Appeals will bar a reopening of these questions of facts; and that those facts may no longer be altered.

Petitioner's motion for reconsideation of the respondent appellate court's Decision in the two aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied.

The facts and background of these cases as narrated by the trail court are as follows —

... The documents and records presented reveal that the whole controversy started when the defendant Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed with the Court of First Instance of Baguio Benguet on September 5, 1962 an application for registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet, docketed as LRC N-91, said Lots being the sites of the Catholic Church building, convents, high school building, school gymnasium, school dormitories, social hall, stonewalls, etc. On March 22, 1963 the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title thereto. After trial on the merits, the land registration court promulgated its Decision, dated November 17, 1965, confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.

The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the Heirs of Egmidio Octaviano (plaintiffs in the herein Civil Case No. 3607) appealed the decision of the land registration court to the then Court of Appeals, docketed as CA-G.R. No. 38830-R. The Court of Appeals rendered its decision, dated May 9, 1977, reversing the decision of the land registration court and dismissing the VICAR's application as to Lots 2 and 3, the lots claimed by the two sets of oppositors in the land registration case (and two sets of plaintiffs in the two cases now at bar), the first lot being presently occupied by the convent and the second by the women's dormitory and the sister's convent.

On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration praying the Court of Appeals to order the registration of Lot 3 in the names of the Heirs of Egmidio Octaviano, and on May 17, 1977, the Heirs of Juan Valdez and Pacita Valdez filed their motion for reconsideration praying that both Lots 2 and 3 be ordered registered in the names of the Heirs of Juan Valdez and Pacita Valdez. On August 12,1977, the Court of Appeals denied the motion for reconsideration filed by the Heirs of Juan Valdez on the ground that there was "no sufficient merit to justify reconsideration one way or the other ...," and likewise denied that of the Heirs of Egmidio Octaviano.

Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari of the decision of the Court of Appeals dismissing his (its) application for registration of Lots 2 and 3, docketed as G.R. No. L-46832, entitled 'Catholic Vicar Apostolic of the Mountain Province vs. Court of Appeals and Heirs of Egmidio Octaviano.'

From the denial by the Court of Appeals of their motion for reconsideration the Heirs of Juan Valdez and Pacita Valdez, on September 8, 1977, filed with the Supreme Court a petition for review, docketed as G.R. No. L-46872, entitled, Heirs of Juan Valdez and Pacita Valdez vs. Court of Appeals, Vicar, Heirs of Egmidio Octaviano and Annable O. Valdez.

On January 13, 1978, the Supreme Court denied in a minute resolution both petitions (of VICAR on the one hand and the Heirs of Juan Valdez and Pacita Valdez on the other) for lack of merit. Upon the finality of both Supreme Court resolutions in G.R. No. L-46832 and G.R. No. L- 46872, the Heirs of Octaviano filed with the then Court of First Instance of Baguio, Branch II, a Motion For Execution of Judgment praying that the Heirs of Octaviano be placed in possession of Lot 3. The Court, presided over by Hon. Salvador J. Valdez, on December 7, 1978, denied the motion on the ground that the Court of Appeals decision in CA-G.R. No. 38870 did not grant the Heirs of Octaviano any affirmative relief.

On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a petitioner for certiorari and mandamus, docketed as CA-G.R. No. 08890-R, entitled Heirs of Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar. In its decision dated May 16, 1979, the Court of Appeals dismissed the petition.

It was at that stage that the instant cases were filed. The Heirs of Egmidio Octaviano filed Civil Case No. 3607 (419) on July 24, 1979, for recovery of possession of Lot 3; and the Heirs of Juan Valdez filed Civil Case No. 3655 (429) on September 24, 1979, likewise for recovery of possession of Lot 2 (Decision, pp. 199-201, Orig. Rec.).

In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano presented one (1) witness, Fructuoso Valdez, who testified on the alleged ownership of the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano (Exh. C ); his written demand (Exh. B—B-4 ) to defendant Vicar for the return of the land to them; and the reasonable rentals for the use of the land at P10,000.00 per month. On the other hand, defendant Vicar presented the Register of Deeds for the Province of Benguet, Atty. Nicanor Sison, who testified that the land in question is not covered by any title in the name of Egmidio Octaviano or any of the plaintiffs (Exh. 8). The defendant dispensed with the testimony of Mons.William Brasseur when the plaintiffs admitted that the witness if called to the witness stand, would testify that defendant Vicar has been in possession of Lot 3, for seventy-five (75) years continuously and peacefully and has constructed permanent structures thereon.

In Civil Case No. 3655, the parties admitting that the material facts are not in dispute, submitted the case on the sole issue of whether or not the decisions of the Court of Appeals and the Supreme Court touching on the ownership of Lot 2, which in effect declared the plaintiffs the owners of the land constitute res judicata.

In these two cases , the plaintiffs arque that the defendant Vicar is barred from setting up the defense of ownership and/or long and continuous possession of the two lots in question since this is barred by prior judgment of the Court of Appeals in CA-G.R. No. 038830-R under the principle of res judicata. Plaintiffs contend that the question of possession and ownership have already been determined by the Court of Appeals (Exh. C, Decision, CA-G.R. No. 038830-R) and affirmed by the Supreme Court (Exh. 1, Minute Resolution of the Supreme Court). On his part, defendant Vicar maintains that the principle of res judicata would not prevent them from litigating the issues of long possession and ownership because the dispositive portion of the prior judgment in CA-G.R. No. 038830-R merely dismissed their application for registration and titling of lots 2 and 3. Defendant Vicar contends that only the dispositive portion of the decision, and not its body, is the controlling pronouncement of the Court of Appeals. 2

The alleged errors committed by respondent Court of Appeals according to petitioner are as follows:

1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;

2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE ACQUIRED BY PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;

3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3 FROM VALDEZ AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER OWNERS WERE VALDEZ AND OCTAVIANO;

4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE RESPONDENTS WHO WERE IN POSSESSION OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT PETITIONER;

5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT APPLICATIONS AND THE PREDECESSORS OF PRIVATE RESPONDENTS ALREADY HAD FREE PATENT APPLICATIONS SINCE 1906;

6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951 AND JUST TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART. 1129 OF THE CIVIL CODE FOR ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;

7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R. NO. 038830 WAS AFFIRMED BY THE SUPREME COURT;

8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;

9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3 MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;

10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD FAITH WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED BY THE FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3

The petition is bereft of merit.

Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and 05149, when it clearly held that it was in agreement with the findings of the trial court that the Decision of the Court of Appeals dated May 4,1977 in CA-G.R. No. 38830-R, on the question of ownership of Lots 2 and 3, declared that the said Court of Appeals Decision CA-G.R. No. 38830-R) did not positively declare private respondents as owners of the land, neither was it declared that they were not owners of the land, but it held that the predecessors of private respondents were possessors of Lots 2 and 3, with claim of ownership in good faith from 1906 to 1951. Petitioner was in possession as borrower in commodatum up to 1951, when it repudiated the trust by declaring the properties in its name for taxation purposes. When petitioner applied for registration of Lots 2 and 3 in 1962, it had been in possession in concept of owner only for eleven years. Ordinary acquisitive prescription requires possession for ten years, but always with just title. Extraordinary acquisitive prescription requires 30 years. 4

On the above findings of facts supported by evidence and evaluated by the Court of Appeals in CA-G.R. No. 38830-R, affirmed by this Court, We see no error in respondent appellate court's ruling that said findings are res judicata between the parties. They can no longer be altered by presentation of evidence because those issues were resolved with finality a long time ago. To ignore the principle of res judicata would be to open the door to endless litigations by continuous determination of issues without end.

An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in CA-G.R. No. 38830-R, shows that it reversed the trial court's Decision 6 finding petitioner to be entitled to register the lands in question under its ownership, on its evaluation of evidence and conclusion of facts.

The Court of Appeals found that petitioner did not meet the requirement of 30 years possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession for ordinary acquisitive prescription because of the absence of just title. The appellate court did not believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by petitioner Vicar because there was absolutely no documentary evidence to support the same and the alleged purchases were never mentioned in the application for registration.

By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano. Both Valdez and Octaviano had Free Patent Application for those lots since 1906. The predecessors of private respondents, not petitioner Vicar, were in possession of the questioned lots since 1906.

There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not Lots 2 and 3, because the buildings standing thereon were only constructed after liberation in 1945. Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in 1951. The improvements oil Lots 1, 2, 3, 4 were paid for by the Bishop but said Bishop was appointed only in 1947, the church was constructed only in 1951 and the new convent only 2 years before the trial in 1963.

When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner Vicar only in 1962.

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

The Court of Appeals found that the predecessors-in-interest and private respondents were possessors under claim of ownership in good faith from 1906; that petitioner Vicar was only a bailee in commodatum; and that the adverse claim and repudiation of trust came only in 1951.

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-R. Its findings of fact have become incontestible. This Court declined to review said decision, thereby in effect, affirming it. It has become final and executory a long time ago.

Respondent appellate court did not commit any reversible error, much less grave abuse of discretion, when it held that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is governing, under the principle of res judicata, hence the rule, in the present cases CA-G.R. No. 05148 and CA-G.R. No. 05149. The facts as supported by evidence established in that decision may no longer be altered.

WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court of Appeals is AFFIRMED, with costs against petitioner.

SO ORDERED.

Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.



Footnotes

1 Associate Justices Conrado T. Limcaoco, Jose C. Campos, Jr. and Gloria C. Paras.

2 Decision in CA-G.R. No. CV Nos. 05148 and 05149 dated August 31, 1987; pp. 11 2-117, Rollo.

3 Pp. 5-15, Petition; pp. 6-17, Rollo.

4 Arts. 1134 and 1129, Civil Code.

5 Presiding Justice Magno S. Gatmaitan, Associate Justices Pacifico P. de Castro and Samuel Reyes.

6 Land Reg. No. N-91, LRC Rec. No. N-22991 of the then C.F.I. of Baguio City.

Credit Transactions Case Digest: Republic v. Bagtas (1962)

G.R. No. L-17474 October 25, 1962

Laws Applicable: Commodatum

Lessons Applicable:

FACTS:

• May 8, 1948: Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of 1 year for breeding purposes subject to a breeding fee of 10% of the book value of the bulls
• May 7, 1949: Jose requested for a renewal for another year for the three bulls but only one bull was approved while the others are to be returned
• March 25, 1950: He wrote to the Director of Animal Industry that he would pay the value of the 3 bulls
• October 17, 1950: he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be approved by the Auditor General.
• October 19, 1950: Director of Animal Industry advised him that either the 3 bulls are to be returned or their book value without deductions should be paid not later than October 31, 1950 which he was not able to do
• December 20, 1950: An action at the CFI was commenced against Jose praying that he be ordered to return the 3 bulls or to pay their book value of P3,241.45 and the unpaid breeding fee of P199.62, both with interests, and costs
• July 5, 1951: Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of the Philippines, he could not return the animals nor pay their value and prayed for the dismissal of the complaint.
• RTC: granted the action
• December 1958: granted an ex-parte motion for the appointment of a special sheriff to serve the writ outside Manila
• December 6, 1958: Felicidad M. Bagtas, the surviving spouse of Jose who died on October 23, 1951 and administratrix of his estate, was notified
• January 7, 1959: she file a motion that the 2 bulls where returned by his son on June 26, 1952 evidenced by recipt and the 3rd bull died from gunshot wound inflicted during a Huk raid and prayed that the writ of execution be quashed and that a writ of preliminary injunction be issued. 

ISSUE: W/N the contract is commodatum and NOT a lease and the estate should be liable for the loss due to force majeure due to delay.

HELD: YES. writ of execution appealed from is set aside, without pronouncement as to costs

• If contract was commodatum then Bureau of Animal Industry retained ownership or title to the bull it should suffer its loss due to force majeure. A contract of commodatum is essentially gratuitous.  If the breeding fee be considered a compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of the contract.  And even if the contract be commodatum, still the appellant is liable if he keeps it longer than the period stipulated
• the estate of the late defendant is only liable for the sum of P859.63, the value of the bull which has not been returned because it was killed while in the custody of the administratrix of his estate
• Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been instituted in the CFI, the money judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the probate court for payment by the appellant, the administratrix appointed by the court.

Jurisprudence: G.R. No. L-17474

EN BANC

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

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas, petitioner-appellant.

D. T. Reyes, Liaison and Associates for petitioner-appellant.
Office of the Solicitor General for plaintiff-appellee.

PADILLA, J.:

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

On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a government charge of breeding fee of 10% of the book value of the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower asked for a renewal for another period of one year. However, the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950 and requested the return of the other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of Animal Industry that he would pay the value of the three bulls. On 17 October 1950 he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be approved by the Auditor General. On 19 October 1950 the Director of Animal Industry advised him that the book value of the three bulls could not be reduced and that they either be returned or their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of the three bulls or to return them. So, on 20 December 1950 in the Court of First Instance of Manila the Republic of the Philippines commenced an action against him praying that he be ordered to return the three bulls loaned to him or to pay their book value in the total sum of P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with interests, and costs; and that other just and equitable relief be granted in (civil No. 12818).

On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of the Philippines from the refusal by the Director of Animal Industry to deduct from the book value of the bulls corresponding yearly depreciation of 8% from the date of acquisition, to which depreciation the Auditor General did not object, he could not return the animals nor pay their value and prayed for the dismissal of the complaint.

After hearing, on 30 July 1956 the trial court render judgment —

. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls plus the breeding fees in the amount of P626.17 with interest on both sums of (at) the legal rate from the filing of this complaint and costs.

On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18 October and issued on 11 November 1958. On 2 December 1958 granted an ex-parte motion filed by the plaintiff on November 1958 for the appointment of a special sheriff to serve the writ outside Manila. Of this order appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23 October 1951 and as administratrix of his estate, was notified. On 7 January 1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were returned to the Bureau Animal of Industry and that sometime in November 1958 the third bull, the Sahiniwal, died from gunshot wound inflicted during a Huk raid on Hacienda Felicidad Intal, and praying that the writ of execution be quashed and that a writ of preliminary injunction be issued. On 31 January 1959 the plaintiff objected to her motion. On 6 February 1959 she filed a reply thereto. On the same day, 6 February, the Court denied her motion. Hence, this appeal certified by the Court of Appeals to this Court as stated at the beginning of this opinion.

It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter (Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's motion to quash the writ of execution the appellee prays "that another writ of execution in the sum of P859.53 be issued against the estate of defendant deceased Jose V. Bagtas." She cannot be held liable for the two bulls which already had been returned to and received by the appellee.

The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such death was due to force majeure she is relieved from the duty of returning the bull or paying its value to the appellee. The contention is without merit. The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. The appellant contends that the contract was commodatum and that, for that reason, as the appellee retained ownership or title to the bull it should suffer its loss due to force majeure. A contract of commodatum is essentially gratuitous.1 If the breeding fee be considered a compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code provides that a bailee in a contract of commodatum —

. . . is liable for loss of the things, even if it should be through a fortuitous event:

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

(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event;

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had each an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability.

The appellant's contention that the demand or prayer by the appellee for the return of the bull or the payment of its value being a money claim should be presented or filed in the intestate proceedings of the defendant who died on 23 October 1951, is not altogether without merit. However, the claim that his civil personality having ceased to exist the trial court lost jurisdiction over the case against him, is untenable, because section 17 of Rule 3 of the Rules of Court provides that —

After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the legal representative of the deceased to appear and to be substituted for the deceased, within a period of thirty (30) days, or within such time as may be granted. . . .

and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3 which provides that —

Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court promptly of such death . . . and to give the name and residence of the executory administrator, guardian, or other legal representative of the deceased . . . .

The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had been issue letters of administration of the estate of the late Jose Bagtas and that "all persons having claims for monopoly against the deceased Jose V. Bagtas, arising from contract express or implied, whether the same be due, not due, or contingent, for funeral expenses and expenses of the last sickness of the said decedent, and judgment for monopoly against him, to file said claims with the Clerk of this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of the first publication of this order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the said deceased," is not a notice to the court and the appellee who were to be notified of the defendant's death in accordance with the above-quoted rule, and there was no reason for such failure to notify, because the attorney who appeared for the defendant was the same who represented the administratrix in the special proceedings instituted for the administration and settlement of his estate. The appellee or its attorney or representative could not be expected to know of the death of the defendant or of the administration proceedings of his estate instituted in another court that if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death as required by the rule.

As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is only liable for the sum of P859.63, the value of the bull which has not been returned to the appellee, because it was killed while in the custody of the administratrix of his estate. This is the amount prayed for by the appellee in its objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant for the quashing of the writ of execution.

Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the probate court for payment by the appellant, the administratrix appointed by the court.

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

Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ., concur.
Barrera, J., concurs in the result.


Footnotes

1 Article 1933 of the Civil Code.

Credit Transactions Case Digest: Bonnevie v. CA (1983)

G.R. No. L-49101 October 24, 1983

Lessons Applicable: Simple Loan

Laws Applicable:

Facts:

• December 6, 1966: Spouses Jose M. Lozano and Josefa P. Lozano secured their loan of P75K from Philippine Bank of Commerce (PBC) by mortgaging their property
• December 8, 1966: Executed Deed of Sale with Mortgage to Honesto Bonnevie where P75K is payable to PBC and P25K is payable to Spouses Lanzano.
• April 28, 1967 to July 12, 1968:   Honesto Bonnevie paid a total of P18,944.22 to PBC
• May 4, 1968:  Honesto Bonnevie assigned all his rights under the Deed of Sale with Assumption of Mortgage to his brother, intervenor Raoul Bonnevie
• June 10, 1968:  PBC applied for the foreclosure of the mortgage, and notice of sale was published 
• January 26, 1971: Honesto Bonnevie filed in the CFI of Rizal against Philippine Bank of Commerce for the annulment of the Deed of Mortgage dated December 6, 1966 as well as the extrajudicial foreclosure made on September 4, 1968.
• CFI: Dismissed the complaint with costs against the Bonnevies
• CA: Affirmed

ISSUE: W/N the forclosure on the mortgage is validly executed.

HELD: YES. CA affirmed

• A contract of loan being a consensual contract is perfected at the same time the contract of mortgage was executed. The promissory note executed on December 12, 1966 is only an evidence of indebtedness and does not indicate lack of consideration of the mortgage at the time of its execution.
• Respondent Bank had every right to rely on the certificate of title. It was not bound to go behind the same to look for flaws in the mortgagor's title, the doctrine of innocent purchaser for value being applicable to an innocent mortgagee for value. 
• Thru certificate of sale in favor of appellee was registered on September 2, 1968 and the one year redemption period expired on September 3, 1969. It was not until September 29, 1969 that Honesto Bonnevie first wrote respondent and offered to redeem the property. 
• loan matured on December 26, 1967 so when respondent Bank applied for foreclosure, the loan was already six months overdue. Payment of interest on July 12, 1968 does not make the earlier act of PBC inequitous nor does it ipso facto result in the renewal of the loan. In order that a renewal of a loan may be effected, not only the payment of the accrued interest is necessary but also the payment of interest for the proposed period of renewal as well. Besides, whether or not a loan may be renewed does not solely depend on the debtor but more so on the discretion of the bank. 

Jurisprudence: G.R. No. L-49101

SECOND DIVISION

G.R. No. L-49101 October 24, 1983

RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and THE PHILIPPINE BANK OF COMMERCE, respondents.

Edgardo I. De Leon for petitioners.

Siguion Reyna, Montecillo & Associates for private respondent.


GUERRERO, J:

Petition for review on certiorari seeking the reversal of the decision of the defunct Court of Appeals, now Intermediate Appellate Court, in CA-G.R. No. 61193-R, entitled "Honesto Bonnevie vs. Philippine Bank of Commerce, et al.," promulgated August 11, 1978 1 as well as the Resolution denying the motion for reconsideration.

The complaint filed on January 26, 1971 by petitioner Honesto Bonnevie with the Court of First Instance of Rizal against respondent Philippine Bank of Commerce sought the annulment of the Deed of Mortgage dated December 6, 1966 executed in favor of the Philippine Bank of Commerce by the spouses Jose M. Lozano and Josefa P. Lozano as well as the extrajudicial foreclosure made on September 4, 1968. It alleged among others that (a) the Deed of Mortgage lacks consideration and (b) the mortgage was executed by one who was not the owner of the mortgaged property. It further alleged that the property in question was foreclosed pursuant to Act No. 3135 as amended, without, however, complying with the condition imposed for a valid foreclosure. Granting the validity of the mortgage and the extrajudicial foreclosure, it finally alleged that respondent Bank should have accepted petitioner's offer to redeem the property under the principle of equity said justice.

On the other hand, the answer of defendant Bank, now private respondent herein, specifically denied most of the allegations in the complaint and raised the following affirmative defenses: (a) that the defendant has not given its consent, much less the requisite written consent, to the sale of the mortgaged property to plaintiff and the assumption by the latter of the loan secured thereby; (b) that the demand letters and notice of foreclosure were sent to Jose Lozano at his address; (c) that it was notified for the first time about the alleged sale after it had foreclosed the Lozano mortgage; (d) that the law on contracts requires defendant's consent before Jose Lozano can be released from his bilateral agreement with the former and doubly so, before plaintiff may be substituted for Jose Lozano and Alfonso Lim; (e) that the loan of P75,000.00 which was secured by mortgage, after two renewals remain unpaid despite countless reminders and demands; of that the property in question remained registered in the name of Jose M. Lozano in the land records of Rizal and there was no entry, notation or indication of the alleged sale to plaintiff; (g) that it is an established banking practice that payments against accounts need not be personally made by the debtor himself; and (h) that it is not true that the mortgage, at the time of its execution and registration, was without consideration as alleged because the execution and registration of the securing mortgage, the signing and delivery of the promissory note and the disbursement of the proceeds of the loan are mere implementation of the basic consensual contract of loan.

After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul SV Bonnevie filed a motion for intervention. The intervention was premised on the Deed of Assignment executed by petitioner Honesto Bonnevie in favor of petitioner Raoul SV Bonnevie covering the rights and interests of petitioner Honesto Bonnevie over the subject property. The intervention was ultimately granted in order that all issues be resolved in one proceeding to avoid multiplicity of suits.

On March 29, 1976, the lower court rendered its decision, the dispositive portion of which reads as follows:

WHEREFORE, all the foregoing premises considered, judgment is hereby rendered dismissing the complaint with costs against the plaintiff and the intervenor.

After the motion for reconsideration of the lower court's decision was denied, petitioners appealed to respondent Court of Appeals assigning the following errors:

1. The lower court erred in not finding that the real estate mortgage executed by Jose Lozano was null and void;

2. The lower court erred in not finding that the auction sale decide on August 19, 1968 was null and void;

3. The lower court erred in not allowing the plaintiff and the intervenor to redeem the property;

4. The lower court erred in not finding that the defendant acted in bad faith; and

5. The lower court erred in dismissing the complaint.

On August 11, 1978, the respondent court promulgated its decision affirming the decision of the lower court, and on October 3. 1978 denied the motion for reconsideration. Hence, the present petition for review.

The factual findings of respondent Court of Appeals being conclusive upon this Court, We hereby adopt the facts found the trial court and found by the Court of Appeals to be consistent with the evidence adduced during trial, to wit:

It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano were the owners of the property which they mortgaged on December 6, 1966, to secure the payment of the loan in the principal amount of P75,000.00 they were about to obtain from defendant-appellee Philippine Bank of Commerce; that on December 8, 1966, executed in favor of plaintiff-appellant the Deed of Sale with Mortgage ,, for and in consideration of the sum of P100,000.00, P25,000.00 of which amount being payable to the Lozano spouses upon the execution of the document, and the balance of P75,000.00 being payable to defendant- appellee; that on December 6, 1966, when the mortgage was executed by the Lozano spouses in favor of defendant-appellee, the loan of P75,000.00 was not yet received them, as it was on December 12, 1966 when they and their co-maker Alfonso Lim signed the promissory note for that amount; that from April 28, 1967 to July 12, 1968, plaintiff-appellant made payments to defendant-appellee on the mortgage in the total amount of P18,944.22; that on May 4, 1968, plaintiff-appellant assigned all his rights under the Deed of Sale with Assumption of Mortgage to his brother, intervenor Raoul Bonnevie; that on June 10, 1968, defendant-appellee applied for the foreclosure of the mortgage, and notice of sale was published in the Luzon Weekly Courier on June 30, July 7, and July 14, 1968; that auction sale was conducted on August 19, 1968, and the property was sold to defendant-appellee for P84,387.00; and that offers from plaintiff-appellant to repurchase the property failed, and on October 9, 1969, he caused an adverse claim to be annotated on the title of the property. (Decision of the Court of Appeals, p. 5).

Presented for resolution in this review are the following issues:

I

Whether the real estate mortgage executed by the spouses Lozano in favor of respondent bank was validly and legally executed.

II

Whether the extrajudicial foreclosure of the said mortgage was validly and legally effected.

III

Whether petitioners had a right to redeem the foreclosed property.

IV

Granting that petitioners had such a right, whether respondent was justified in refusing their offers to repurchase the property.

As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold. They primarily attack the validity of the mortgage executed by the Lozano spouses in favor of respondent Bank. Next, they attack the validity of the extrajudicial foreclosure and finally, appeal to justice and equity. In attacking the validity of the deed of mortgage, they contended that when it was executed on December 6, 1966, there was yet no principal obligation to secure as the loan of P75,000.00 was not received by the Lozano spouses "So much so that in the absence of a principal obligation, there is want of consideration in the accessory contract, which consequently impairs its validity and fatally affects its very existence." (Petitioners' Brief, par. 1, p. 7).

This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is clearly seen that the mortgage deed was executed for and on condition of the loan granted to the Lozano spouses. The fact that the latter did not collect from the respondent Bank the consideration of the mortgage on the date it was executed is immaterial. A contract of loan being a consensual contract, the herein contract of loan was perfected at the same time the contract of mortgage was executed. The promissory note executed on December 12, 1966 is only an evidence of indebtedness and does not indicate lack of consideration of the mortgage at the time of its execution.

Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of the original loan, using as security the same property which the Lozano spouses had already sold to petitioners, rendered the mortgage null and void,

This argument failed to consider the provision 2 of the contract of mortgage which prohibits the sale, disposition of, mortgage and encumbrance of the mortgaged properties, without the written consent of the mortgagee, as well as the additional proviso that if in spite of said stipulation, the mortgaged property is sold, the vendee shall assume the mortgage in the terms and conditions under which it is constituted. These provisions are expressly made part and parcel of the Deed of Sale with Assumption of Mortgage.

Petitioners admit that they did not secure the consent of respondent Bank to the sale with assumption of mortgage. Coupled with the fact that the sale/assignment was not registered so that the title remained in the name of the Lozano spouses, insofar as respondent Bank was concerned, the Lozano spouses could rightfully and validly mortgage the property. Respondent Bank had every right to rely on the certificate of title. It was not bound to go behind the same to look for flaws in the mortgagor's title, the doctrine of innocent purchaser for value being applicable to an innocent mortgagee for value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48). Another argument for the respondent Bank is that a mortgage follows the property whoever the possessor may be and subjects the fulfillment of the obligation for whose security it was constituted. Finally, it can also be said that petitioners voluntarily assumed the mortgage when they entered into the Deed of Sale with Assumption of Mortgage. They are, therefore, estopped from impugning its validity whether on the original loan or renewals thereof.

Petitioners next assail the validity and legality of the extrajudicial foreclosure on the following grounds:

a) petitioners were never notified of the foreclosure sale.

b) The notice of auction sale was not posted for the period required by law.

c) publication of the notice of auction sale in the Luzon Weekly Courier was not in accordance with law.

The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not being a party to the Deed of Sale with Assumption of Mortgage, it can validly claim that it was not aware of the same and hence, it may not be obliged to notify petitioners. Secondly, petitioner Honesto Bonnevie was not entitled to any notice because as of May 14, 1968, he had transferred and assigned all his rights and interests over the property in favor of intervenor Raoul Bonnevie and respondent Bank not likewise informed of the same. For the same reason, Raoul Bonnevie is not entitled to notice. Most importantly, Act No. 3135 does not require personal notice on the mortgagor. The requirement on notice is that:

Section 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city

In the case at bar, the notice of sale was published in the Luzon Courier on June 30, July 7 and July 14, 1968 and notices of the sale were posted for not less than twenty days in at least three (3) public places in the Municipality where the property is located. Petitioners were thus placed on constructive notice.

The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because said case involved a judicial foreclosure and the sale to the vendee of the mortgaged property was duly registered making the mortgaged privy to the sale.

As regards the claim that the period of publication of the notice of auction sale was not in accordance with law, namely: once a week for at least three consecutive weeks, the Court of Appeals ruled that the publication of notice on June 30, July 7 and July 14, 1968 satisfies the publication requirement under Act No. 3135 notwithstanding the fact that June 30 to July 14 is only 14 days. We agree. Act No. 3135 merely requires that such notice shall be published once a week for at least three consecutive weeks." Such phrase, as interpreted by this Court in Basa vs. Mercado, 61 Phil. 632, does not mean that notice should be published for three full weeks.

The argument that the publication of the notice in the "Luzon Weekly Courier" was not in accordance with law as said newspaper is not of general circulation must likewise be disregarded. The affidavit of publication, executed by the Publisher, business/advertising manager of the Luzon Weekly Courier, stares that it is "a newspaper of general circulation in ... Rizal, and that the Notice of Sheriff's sale was published in said paper on June 30, July 7 and July 14, 1968. This constitutes prima facie evidence of compliance with the requisite publication. Sadang vs. GSIS, 18 SCRA 491).

To be a newspaper of general circulation, it is enough that "it is published for the dissemination of local news and general information; that it has a bona fide subscription list of paying subscribers; that it is published at regular intervals." (Basa vs. Mercado, 61 Phil. 632). The newspaper need not have the largest circulation so long as it is of general circulation. Banta vs. Pacheco, 74 Phil. 67). The testimony of three witnesses that they do read the Luzon Weekly Courier is no proof that said newspaper is not a newspaper of general circulation in the province of Rizal.

Whether or not the notice of auction sale was posted for the period required by law is a question of fact. It can no longer be entertained by this Court. (see Reyes, et al. vs. CA, et al., 107 SCRA 126). Nevertheless, the records show that copies of said notice were posted in three conspicuous places in the municipality of Pasig, Rizal namely: the Hall of Justice, the Pasig Municipal Market and Pasig Municipal Hall. In the same manner, copies of said notice were also posted in the place where the property was located, namely: the Municipal Building of San Juan, Rizal; the Municipal Market and on Benitez Street. The following statement of Atty. Santiago Pastor, head of the legal department of respondent bank, namely:

Q How many days were the notices posted in these two places, if you know?

A We posted them only once in one day. (TSN, p. 45, July 25, 1973)

is not a sufficient countervailing evidence to prove that there was no compliance with the posting requirement in the absence of proof or even of allegation that the notices were removed before the expiration of the twenty- day period. A single act of posting (which may even extend beyond the period required by law) satisfies the requirement of law. The burden of proving that the posting requirement was not complied with is now shifted to the one who alleges non-compliance.

On the question of whether or not the petitioners had a right to redeem the property, We hold that the Court of Appeals did not err in ruling that they had no right to redeem. No consent having been secured from respondent Bank to the sale with assumption of mortgage by petitioners, the latter were not validly substituted as debtors. In fact, their rights were never recorded and hence, respondent Bank is charged with the obligation to recognize the right of redemption only of the Lozano spouses. But even granting that as purchaser or assignee of the property, as the case may be, the petitioners had acquired a right to redeem the property, petitioners failed to exercise said right within the period granted by law. Thru certificate of sale in favor of appellee was registered on September 2, 1968 and the one year redemption period expired on September 3, 1969. It was not until September 29, 1969 that petitioner Honesto Bonnevie first wrote respondent and offered to redeem the property. Moreover, on September 29, 1969, Honesto had at that time already transferred his rights to intervenor Raoul Bonnevie.

On the question of whether or not respondent Court of Appeals erred in holding that respondent Bank did not act in bad faith, petitioners rely on Exhibit "B" which is the letter of lose Lozano to respondent Bank dated December 8, 1966 advising the latter that Honesto Bonnevie was authorized to make payments for the amount secured by the mortgage on the subject property, to receive acknowledgment of payments, obtain the Release of the Mortgage after full payment of the obligation and to take delivery of the title of said property. On the assumption that the letter was received by respondent Bank, a careful reading of the same shows that the plaintiff was merely authorized to do acts mentioned therein and does not mention that petitioner is the new owner of the property nor request that all correspondence and notice should be sent to him.

The claim of appellants that the collection of interests on the loan up to July 12, 1968 extends the maturity of said loan up to said date and accordingly on June 10, 1968 when defendant applied for the foreclosure of the mortgage, the loan was not yet due and demandable, is totally incorrect and misleading. The undeniable fact is that the loan matured on December 26, 1967. On June 10, 1968, when respondent Bank applied for foreclosure, the loan was already six months overdue. Petitioners' payment of interest on July 12, 1968 does not thereby make the earlier act of respondent Bank inequitous nor does it ipso facto result in the renewal of the loan. In order that a renewal of a loan may be effected, not only the payment of the accrued interest is necessary but also the payment of interest for the proposed period of renewal as well. Besides, whether or not a loan may be renewed does not solely depend on the debtor but more so on the discretion of the bank. Respondent Bank may not be, therefore, charged of bad faith.

WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

Aquino, J., concur.

Makasiar (Chairman), Abad Santos and Escolin, JJ., concurs in the result.

Concepcion J J., took no part.

De Castro, J., is on leave.

Footnotes

1 Third Division, Reyes, L.B., J., ponente; Busran and Nocon, JJ., concurring.

2 4. The MORTGAGOR shall not sell, dispose of, mortgage, nor in any manner encumber the mortgaged properties without the written consent of MORTGAGEE. If in spite of this stipulation, a mortgaged property is sold, the Vendee shall assume the mortgaged in the terms and conditions under which it is constituted, it being understood that the assumption of the Vendee (does) not release the Vendor of his obligation to the MORTGAGEE; on the contrary, both the Vendor and the Vendee shall be jointly and severally liable for said mortgage obligation. ...