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G.R. No. L-66653 June 19, 1986

COMMISSIONER OF INTERNAL REVENUE, petitioner,vs.BURROUGHS LIMITED AND THE COURT OF TAX APPEALS, respondents.

Sycip, Salazar, Feliciano & Hernandez Law Office for private respondent.

PARAS, J.:

Petition for certiorari to review and set aside the Decision dated June 27, 1983 of respondent Court of Tax Appeals in itsC.T.A. Case No. 3204, entitled "Burroughs Limited vs. Commissioner of Internal Revenue"

which ordered petitionerCommissioner of Internal Revenue to grant in favor of private respondent Burroughs Limited, tax credit in the sum ofP172,058.90, representing erroneously overpaid branch profit remittance tax.

Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines through a branchoffice located at De la Rosa corner Esteban Streets, Legaspi Village, Makati, Metro Manila.

Sometime in March 1979, said branch office applied with the Central Bank for authority to remit to its parent company

abroad, branch profit amounting to P7,647,058.00. Thus, on March 14, 1979, it paid the 15% branch profit remittance tax,pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the amount of P6,499,999.30 computed as follows:

Amount applied for remittance................................ P7,647,058.00

Deduct: 15% branch profit

remittance tax ..............................................1,147,058.70

Net amount actually remitted.................................. P6,499,999.30

Claiming that the 15% profit remittance tax should have been computed on the basis of the amount actually remitted(P6,499,999.30) and not on the amount before profit remittance tax (P7,647,058.00), private respondent filed onDecember 24, 1980, a written claim for the refund or tax credit of the amount of P172,058.90 representing allegedoverpaid branch profit remittance tax, computed as follows:

Profits actually remitted .........................................P6,499,999.30

Remittance tax rate .......................................................15%

Branch profit remittance tax-

due thereon ......................................................P 974,999.89

Branch profit remittance

tax paid .............................................................Pl,147,058.70

Less: Branch profit remittance

tax as above computed................................................. 974,999.89

Total amount refundable........................................... P172,058.81

On February 24, 1981, private respondent filed with respondent court, a petition for review, docketed as C.T.A. Case No.3204 for the recovery of the above-mentioned amount of P172,058.81.

On June 27, 1983, respondent court rendered its Decision, the dispositive portion of which reads

ACCORDINGLY, respondent Commission of Internal Revenue is hereby ordered to grant a tax credit in favor of petitionerBurroughs Limited the amount of P 172,058.90. Without pronouncement as to costs.

SO ORDERED.

Unable to obtain a reconsideration from the aforesaid decision, petitioner filed the instant petition before this Court withthe prayers as herein earlier stated upon the sole issue of whether the tax base upon which the 15% branch profitremittance tax shall be imposed under the provisions of section 24(b) of the Tax Code, as amended, is the amount


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applied for remittance on the profit actually remitted after deducting the 15% profit remittance tax. Stated differently isprivate respondent Burroughs Limited legally entitled to a refund of the aforementioned amount of P172,058.90.

We rule in the affirmative. The pertinent provision of the National Revenue Code is Sec. 24 (b) (2) (ii) which states:

Sec. 24. Rates of tax on corporations....

(b) Tax on foreign corporations. ...

(2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head office shall besubject to a tax of fifteen per cent (15 %) ...

In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner of Internal Revenue Hon.Efren I. Plana the aforequoted provision had been interpreted to mean that "the tax base upon which the 15% branchprofit remittance tax ... shall be imposed...(is) the profit actually remittedabroad and not on the total branch profits out ofwhich the remittance is to be made. " The said ruling is hereinbelow quoted as follows:

In reply to your letter of November 3, 1978, relative to your query as to the tax base upon which the 15%branch profits remittance tax provided for under Section 24 (b) (2) of the 1977 Tax Code shall beimposed, please be advised that the 15% branch profit tax shall be imposed on the branch profits actuallyremitted abroad and not on the total branch profits out of which the remittance is to be made.

Please be guided accordingly.

Applying, therefore, the aforequoted ruling, the claim of private respondent that it made an overpayment in the amount ofP172,058.90 which is the difference between the remittance tax actually paid of Pl,147,058.70 and the remittance tax thatshould have been paid of P974,999,89, computed as follows

Profits actually remitted......................................... P6,499,999.30

Remittance tax rate.............................................................. 15%

Remittance tax due................................................... P974,999.89

is well-taken. As correctly held by respondent Court in its assailed decision-

Respondent concedes at least that in his ruling dated January 21, 1980 he held that under Section 24 (b)(2) of the Tax Code the 15% branch profit remittance tax shall be imposed on the profit actually remittedabroad and not on the total branch profit out of which the remittance is to be made. Based on such rulingpetitioner should have paid only the amount of P974,999.89 in remittance tax computed by taking the15% of the profits of P6,499,999.89 in remittance tax actually remitted to its head office in the UnitedStates, instead of Pl,147,058.70, on its net profits of P7,647,058.00. Undoubtedly, petitioner has overpaidits branch profit remittance tax in the amount of P172,058.90.

Petitioner contends that respondent is no longer entitled to a refund because Memorandum Circular No. 8-82 dated March17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. The said memorandum circular states

Considering that the 15% branch profit remittance tax is imposed and collected at source, necessarily thetax base should be the amount actually applied for by the branch with the Central Bank of the Philippinesas profit to be remitted abroad.

Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still the Revenue Ruling ofJanuary 21, 1980 because private respondent Burroughs Limited paid the branch profit remittance tax in questionon March 14, 1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect in the light ofSection 327 of the National Internal Revenue Code which provides-

Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules andregulations promulgated in accordance with the preceding section or any of the rulings or circularspromulgated by the Commissioner shag not be given retroactive application if the revocation,

modification, or reversal will be prejudicial to the taxpayer except in the following cases (a) where thetaxpayer deliberately misstates or omits material facts from his return or in any document required of himby the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of InternalRevenue are materially different from the facts on which the ruling is based, or (c) where the taxpayeracted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152)

The prejudice that would result to private respondent Burroughs Limited by a retroactive application of MemorandumCircular No. 8-82 is beyond question for it would be deprived of the substantial amount of P172,058.90. And, insofar asthe enumerated exceptions are concerned, admittedly, Burroughs Limited does not fall under any of them.

WHEREFORE, the assailed decision of respondent Court of Tax Appeals is hereby AFFIRMED. No pronouncement as tocosts.


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SO ORDERED.

G.R. No. L-19190 November 29, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,vs.VENANCIO CONCEPCION, defendant-appellant.

Recaredo Ma. Calvo for appellant.Attorney-General Villa-Real for appellee.

MALCOLM, J.:

By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine National Bank,Venancio Concepcion, President of the Philippine National Bank, between April 10, 1919, and May 7, 1919, authorized anextension of credit in favor of "Puno y Concepcion, S. en C." in the amount of P300,000. This special authorization wasessential in view of the memorandum order of President Concepcion dated May 17, 1918, limiting the discretional power

of the local manager at Aparri, Cagayan, to grant loans and discount negotiable documents to P5,000, which, in certaincases, could be increased to P10,000. Pursuant to this authorization, credit aggregating P300,000, was granted the firmof "Puno y Concepcion, S. en C.," the only security required consisting of six demand notes. The notes, together with theinterest, were taken up and paid by July 17, 1919.

"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto Concepcion contributedP5,000; Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno, P20,000; and Rosario SanAgustin, "casada con Gral. Venancio Concepcion," P50,000. Member Miguel S. Concepcion was the administrator of thecompany.

On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank and as member of theboard of directors of this bank, was charged in the Court of First Instance of Cagayan with a violation of section 35 of ActNo. 2747. He was found guilty by the Honorable Enrique V. Filamor, Judge of First Instance, and was sentenced to

imprisonment for one year and six months, to pay a fine of P3,000, with subsidiary imprisonment in case of insolvency,and the costs.

Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference must hereafterrepeatedly be made, reads as follows: "The National Bank shall not, directly or indirectly, grant loans to any of themembers of the board of directors of the bank nor to agents of the branch banks." Section 49 of the same Act provides:"Any person who shall violate any of the provisions of this Act shall be punished by a fine not to exceed ten thousandpesos, or by imprisonment not to exceed five years, or by both such fine and imprisonment." These two sections were ineffect in 1919 when the alleged unlawful acts took place, but were repealed by Act No. 2938, approved on January 30,1921.

Counsel for the defense assign ten errors as having been committed by the trial court. These errors they haveargued adroitly and exhaustively in their printed brief, and again in oral argument. Attorney-General Villa-Real, in an

exceptionally accurate and comprehensive brief, answers the proposition of appellant one by one.

The question presented are reduced to their simplest elements in the opinion which follows:

I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion,President of the Philippine National Bank, a "loan" within the meaning of section 35 of Act No. 2747?

Counsel argue that the documents of record do not prove that authority to make a loan was given, but only showthe concession of a credit. In this statement of fact, counsel is correct, for the exhibits in question speak of a "credito"(credit) and not of a " prestamo" (loan).

The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust reposed by alender that he will pay what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.) A "loan"means the delivery by one party and the receipt by the other party of a given sum of money, upon an agreement, expressor implied, to repay the sum loaned, with or without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) Theconcession of a "credit" necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit,"

II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.," by Venancio Concepcion,President of the Philippine National Bank, a "loan" or a "discount"?

Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it does not prohibit what iscommonly known as a "discount."


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In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of the InsularAuditor whether section 37 of Act No. 2612 was intended to apply to discounts as well as to loans. The ruling of the ActingInsular Auditor, dated August 11, 1916, was to the effect that said section referred to loans alone, and placed norestriction upon discount transactions. It becomes material, therefore, to discover the distinction between a "loan" and a"discount," and to ascertain if the instant transaction comes under the first or the latter denomination.

Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an actual, live,transaction. But in its last analysis, to discount a paper is only a mode of loaning money, with, however, these distinctions:(1) In a discount, interest is deducted in advance, while in a loan, interest is taken at the expiration of a credit; (2) a

discount is always on double-name paper; a loan is generally on single-name paper.

Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not discounts, yet theconclusion is inevitable that the demand notes signed by the firm "Puno y Concepcion, S. en C." were not discount paperbut were mere evidences of indebtedness, because (1) interest was not deducted from the face of the notes, but was paidwhen the notes fell due; and (2) they were single-name and not double-name paper.

The facts of the instant case having relation to this phase of the argument are not essentially different from the factsin the Binalbagan Estate case. Just as there it was declared that the operations constituted a loan and not a discount, soshould we here lay down the same ruling.

III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by VenancioConcepcion, President of the Philippine National Bank, an "indirect loan" within the meaning of section 35 of Act No.

2747?

Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect loan." In thisconnection, it should be recalled that the wife of the defendant held one-half of the capital of this partnership.

In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to the intention ofthe Legislature. In this instance, the purpose of the Legislature is plainly to erect a wall of safety against temptation for adirector of the bank. The prohibition against indirect loans is a recognition of the familiar maxim that no man may servetwo masters that where personal interest clashes with fidelity to duty the latter almost always suffers. If, therefore, it isshown that the husband is financially interested in the success or failure of his wife's business venture, a loan topartnership of which the wife of a director is a member, falls within the prohibition.

Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership. (Articles1315, 1393, 1401, 1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a partnership of which the wife of adirector of a bank is a member, is an indirect loan to such director.

That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the acknowledgedfact that in this instance the defendant was tempted to mingle his personal and family affairs with his official duties, and topermit the loan P300,000 to a partnership of no established reputation and without asking for collateral security.

In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the Supreme Court ofMaryland said:

What then was the purpose of the law when it declared that no director or officer should borrow of the bank,and "if any director," etc., "shall be convicted," etc., "of directly or indirectly violating this section he shall be

punished by fine and imprisonment?" We say to protect the stockholders, depositors and creditors of the bank,against the temptation to which the directors and officers might be exposed, and the power which as such theymust necessarily possess in the control and management of the bank, and the legislature unwilling to rely uponthe implied understanding that in assuming this relation they would not acquire any interest hostile or adverse tothe most exact and faithful discharge of duty, declared in express terms that they should not borrow, etc., of thebank.

In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan Estate decision, it was said:

We are of opinion the statute forbade the loan to his copartnership firm as well as to himself directly. Theloan was made indirectly to him through his firm.

IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a violation of section 35 of Act

No. 2747 in relation with section 49 of the same Act, when these portions of Act No. 2747 were repealed by Act No. 2938,prior to the finding of the information and the rendition of the judgment?

As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to section 35 of thesame Act, provides a punishment for any person who shall violate any of the provisions of the Act. It is contended,however, by the appellant, that the repeal of these sections of Act No. 2747 by Act No. 2938 has served to take away thebasis for criminal prosecution.

This same question has been previously submitted and has received an answer adverse to such contention in thecases ofUnited Stated vs. Cuna ([1908], 12 Phil., 241); People vs. Concepcion ([1922], 43 Phil., 653); and Ong ChangWing and Kwong Fok vs. United States ([1910], 218 U. S., 272; 40 Phil., 1046). In other words, it has been the holding,


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and it must again be the holding, that where an Act of the Legislature which penalizes an offense, such repeals a formerAct which penalized the same offense, such repeal does not have the effect of thereafter depriving the courts of

jurisdiction to try, convict, and sentenced offenders charged with violations of the old law.

V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion,President of the Philippine National Bank, in violation of section 35 of Act No. 2747, penalized by this law?

Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank, and since section49 of said Act provides a punishment not on the bank when it violates any provisions of the law, but on aperson violating

any provisions of the same, and imposing imprisonment as a part of the penalty, the prohibition contained in said section35 is without penal sanction.lawph!l.net

The answer is that when the corporation itself is forbidden to do an act, the prohibition extends to the board ofdirectors, and to each director separately and individually. (People vs. Concepcion, supra.)

VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank, in extending the creditof P300,000 to the copartnership "Puno y Concepcion, S. en C." constitute a legal defense?

Counsel argue that if defendant committed the acts of which he was convicted, it was because he was misled byrulings coming from the Insular Auditor. It is furthermore stated that since the loans made to the copartnership "Puno yConcepcion, S. en C." have been paid, no loss has been suffered by the Philippine National Bank.

Neither argument, even if conceded to be true, is conclusive. Under the statute which the defendant has violated,criminal intent is not necessarily material. The doing of the inhibited act, inhibited on account of public policy and publicinterest, constitutes the crime. And, in this instance, as previously demonstrated, the acts of the President of thePhilippine National Bank do not fall within the purview of the rulings of the Insular Auditor, even conceding that suchrulings have controlling effect.

Morse, in his work, Banks and Banking, section 125, says:

It is fraud for directors to secure by means of their trust, and advantage not common to the otherstockholders. The law will not allow private profit from a trust, and will not listen to any proof of honest intent.

JUDGMENT

On a review of the evidence of record, with reference to the decision of the trial court, and the errors assigned bythe appellant, and with reference to previous decisions of this court on the same subject, we are irresistibly led to theconclusion that no reversible error was committed in the trial of this case, and that the defendant has been proved guiltybeyond a reasonable doubt of the crime charged in the information. The penalty imposed by the trial judge falls within thelimits of the punitive provisions of the law.

Judgment is affirmed, with the costs of this instance against the appellant. So ordered.

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 threebulls: 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 foranother period of one year. However, the Secretary of Agriculture and Natural Resources approved a renewal thereof ofonly one bull for another year from 8 May 1949 to 7 May 1950 and requested the return of the other two. On 25 March1950 Jose V. Bagtas wrote to the Director of Animal Industry that he would pay the value of the three bulls. On 17October 1950 he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be approved by theAuditor General. On 19 October 1950 the Director of Animal Industry advised him that the book value of the three bullscould 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 FirstInstance of Manila the Republic of the Philippines commenced an action against him praying that he be ordered to returnthe 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 thesum of P199.62, both with interests, and costs; and that other just and equitable relief be granted in (civil No. 12818).


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On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad peaceand order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he had taken to theSecretary of Agriculture and Natural Resources and the President of the Philippines from the refusal by the Director ofAnimal Industry to deduct from the book value of the bulls corresponding yearly depreciation of 8% from the date ofacquisition, to which depreciation the Auditor General did not object, he could not return the animals nor pay their valueand 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 thebreeding fees in the amount of P626.17 with interest on both sums of (at) the legal rate from the filing of thiscomplaint and costs.

On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18 October and issuedon 11 November 1958. On 2 December 1958 granted an ex-parte motion filed by the plaintiff on November 1958 for theappointment of a special sheriff to serve the writ outside Manila. Of this order appointing a special sheriff, on 6 December1958, Felicidad M. Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23 October 1951 and asadministratrix of his estate, was notified. On 7 January 1959 she file a motion alleging that on 26 June 1952 the two bullSindhi 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 ofexecution be quashed and that a writ of preliminary injunction be issued. On 31 January 1959 the plaintiff objected to hermotion. 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 andBhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong, NuevaVizcaya, as evidenced by a memorandum receipt signed by the latter (Exhibit 2). That is why in its objection of 31 January1959 to the appellant's motion to quash the writ of execution the appellee prays "that another writ of execution in the sumof P859.53 be issued against the estate of defendant deceased Jose V. Bagtas." She cannot be held liable for the twobulls 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 uponthe surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such deathwas due to force majeure she is relieved from the duty of returning the bull or paying its value to the appellee. Thecontention 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 contendsthat the contract was commodatum and that, for that reason, as the appellee retained ownership or title to the bull itshould suffer its loss due to force majeure. A contract ofcommodatum is essentially gratuitous.1 If the breeding fee beconsidered a compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lesseewould be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull afterthe expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of theCivil Code provides that a bailee in a contract ofcommodatum

. . . 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 thebailee 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 periodof one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid itwas killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of the appellant the bulls hadeach 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 beexempt 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 valuebeing a money claim should be presented or filed in the intestate proceedings of the defendant who died on 23 October1951, 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 legalrepresentative 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 providesthat


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Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court promptly ofsuch death . . . and to give the name and residence of the executory administrator, guardian, or other legalrepresentative 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 ofadministration of the estate of the late Jose Bagtas and that "all persons having claims for monopoly against the deceasedJose V. Bagtas, arising from contract express or implied, whether the same be due, not due, or contingent, for funeralexpenses and expenses of the last sickness of the said decedent, and judgment for monopoly against him, to file saidclaims 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 appointedadministratrix of the estate of the said deceased," is not a notice to the court and the appellee who were to be notified ofthe 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 specialproceedings instituted for the administration and settlement of his estate. The appellee or its attorney or representativecould not be expected to know of the death of the defendant or of the administration proceedings of his estate instituted inanother court that if the attorney for the deceased defendant did not notify the plaintiff or its attorney of such death asrequired 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 thesum of P859.63, the value of the bull which has not been returned to the appellee, because it was killed while in thecustody of the administratrix of his estate. This is the amount prayed for by the appellee in its objection on 31 January1959 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 beeninstituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in favor of the appellee cannot beenforced by means of a writ of execution but must be presented to the probate court for payment by the appellant, theadministratrix appointed by the court.

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

G.R. No. L-46240 November 3, 1939

MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,vs.BECK, defendant-appellee.

Mauricio Carlos for appellants.Felipe Buencamino, Jr. for appellee.

IMPERIAL, J.:

The plaintiff brought this action to compel the defendant to return her certain furniture which she lent him for hisuse. She appealed from the judgment of the Court of First Instance of Manila which ordered that the defendant return toher the three has heaters and the four electric lamps found in the possession of the Sheriff of said city, that she call for theother furniture from the said sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for the

deposit of the furniture be paid pro rata by both parties, without pronouncement as to the costs.

The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar street, No.1175. On January 14, 1936, upon the novation of the contract of lease between the plaintiff and the defendant, the formergratuitously granted to the latter the use of the furniture described in the third paragraph of the stipulation of facts, subjectto the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold theproperty to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified the defendant of theconveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of lease. There afterthe plaintiff required the defendant to return all the furniture transferred to him for them in the house where they werefound. On November 5, 1936, the defendant, through another person, wrote to the plaintiff reiterating that she maycall for the furniture in the ground floor of the house. On the 7th of the same month, the defendant wrote another letter tothe plaintiff informing her that he could not give up the three gas heaters and the four electric lamps because he woulduse them until the 15th of the same month when the lease in due to expire. The plaintiff refused to get the furniture in view

of the fact that the defendant had declined to make delivery of all of them. On November 15th, before vacating thehouse, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit inthe warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.

In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in holding thatthey violated the contract by not calling for all the furniture on November 5, 1936, when the defendant placed them at theirdisposal; in not ordering the defendant to pay them the value of the furniture in case they are not delivered; in holding thatthey should get all the furniture from the Sheriff at their expenses; in ordering them to pay-half of the expenses claimed bythe Sheriff for the deposit of the furniture; in ruling that both parties should pay their respective legal expenses or thecosts; and in denying pay their respective legal expenses or the costs; and in denying the motions for reconsideration andnew trial. To dispose of the case, it is only necessary to decide whether the defendant complied with his obligation to


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return the furniture upon the plaintiff's demand; whether the latter is bound to bear the deposit fees thereof, and whethershe is entitled to the costs of litigation.lawphi1.net

The contract entered into between the parties is one ofcommadatum, because under it the plaintiff gratuitouslygranted the use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract thedefendant bound himself to return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit A;articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation voluntarily assumed by the defendant to return thefurniture upon the plaintiff's demand, means that he should return all of them to the plaintiff at the latter's residence orhouse. The defendant did not comply with this obligation when he merely placed them at the disposal of the plaintiff,

retaining for his benefit the three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Codecited by counsel for the parties are not squarely applicable. The trial court, therefore, erred when it came to the legalconclusion that the plaintiff failed to comply with her obligation to get the furniture when they were offered to her.

As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's demand, theCourt could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the defendant'sbehest. The latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to acceptthe offer to return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.

As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by thedefendant in case of his inability to return some of the furniture because under paragraph 6 of the stipulation of facts, thedefendant has neither agreed to nor admitted the correctness of the said value. Should the defendant fail to deliver someof the furniture, the value thereof should be latter determined by the trial Court through evidence which the parties may

desire to present.

The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party (section487 of the Code of Civil Procedure). The defendant was the one who breached the contract ofcommodatum, and withoutany reason he refused to return and deliver all the furniture upon the plaintiff's demand. In these circumstances, it is justand equitable that he pay the legal expenses and other judicial costs which the plaintiff would not have otherwisedefrayed.

The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in theresidence to return and deliver to the plaintiff, in the residence or house of the latter, all the furniture described inparagraph 3 of the stipulation of facts Exhibit A. The expenses which may be occasioned by the delivery to and deposit ofthe furniture with the Sheriff shall be for the account of the defendant. the defendant shall pay the costs in both instances.So ordered.

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

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

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

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

MAKALINTAL, J.:p

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

In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance Corporation (RFC),before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for theconstruction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchaseprice of the jute mill machinery and equipment; and P9,100.00 as additional working capital.

Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength ofa letter of credit extended by the Prudential Bank and Trust Co., and arrived in Davao City in July 1953; and that to secureits release without first paying the draft, Saura, Inc. executed a trust receipt in favor of the said bank.

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

1. That the proceeds of the loan shall be utilized exclusively for the following purposes:

For construction of factory building P250,000.00


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For payment of the balance of purchase

price of machinery and equipment 240,900.00

For working capital 9,100.00

T O T A L P500,000.00

4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers,

Ltd. shall sign the promissory notes jointly with the borrower-corporation;

5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of funds,and as the construction of the factory buildings progresses, to be certified to by an appraiser of this Corporation;"

Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently havingotherwise been informed of its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laiddown by it, namely: that in lieu of having China Engineers, Ltd. (which was willing to assume liability only to the extent ofits stock subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes, Saura, Inc. would put upa bond for P123,500.00, an amount equivalent to such subscription; and that Maria S. Roca would be substituted forInocencia Arellano as one of the other co-makers, having acquired the latter's shares in Saura, Inc.

In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of its Boardof Governors, for certain reasons stated in the resolution, "to reexamine all the aspects of this approved loan ... withspecial reference as to the advisability of financing this particular project based on present conditions obtaining in theoperations of jute mills, and to submit his findings thereon at the next meeting of the Board."

On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the loan,and asked that the necessary documents be prepared in accordance with the terms and conditions specified in ResolutionNo. 145. In connection with the reexamination of the project to be financed with the loan applied for, as stated inResolution No. 736, the parties named their respective committees of engineers and technical men to meet with eachother and undertake the necessary studies, although in appointing its own committee Saura, Inc. made the observationthat the same "should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the agreementalready) entered into," referring to its acceptance of the terms and conditions mentioned in Resolution No. 145.

On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing ChinaEngineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which was duly registered on thefollowing April 17.

It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated inResolution No. 736 proceeded. In a meeting of the RFC Board of Governors on June 10, 1954, at which Ramon Saura,President of Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution No.3989 was approved as follows:

RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No. 145, C.S.,from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-examination of all the variousaspects of the loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing themanufacture of jute sacks in Davao, with special reference as to the advisability of financing this particular project based

on present conditions obtaining in the operation of jute mills, and after having heard Ramon E. Saura and after extensivediscussion on the subject the Board, upon recommendation of the Chairman, RESOLVED that the loan granted the SauraImport & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be authorized asmay be necessary from time to time to place the factory in actual operation: PROVIDED that all terms and conditions ofResolution No. 145, c.s., not inconsistent herewith, shall remain in full force and effect."

On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China Engineers Ltd.jointly and severally with the other RFC that his company no longer to of the loan and therefore considered the same ascancelled as far as it was concerned. A follow-up letter dated July 2 requested RFC that the registration of the mortgagebe withdrawn.

In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was deniedby RFC, which added in its letter-reply that it was "constrained to consider as cancelled the loan of P300,000.00 ... in view

of a notification ... from the China Engineers Ltd., expressing their desire to consider the loan insofar as they areconcerned."

On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers, Ltd."will at any time reinstate their signature as co-signer of the note if RFC releases to us the P500,000.00 originallyapproved by you.".

On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of P500,000.00, "itappearing that China Engineers, Ltd. is now willing to sign the promissory notes jointly with the borrower-corporation," butwith the following proviso:


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That in view of observations made of the shortage and high cost of imported raw materials, theDepartment of Agriculture and Natural Resources shall certify to the following:

1. That the raw materials needed by the borrower-corporation to carry out its operation are available inthe immediate vicinity; and

2. That there is prospect of increased production thereof to provide adequately for the requirements of thefactory."

The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it wasexplained that the certification by the Department of Agriculture and Natural Resources was required "as the intention ofthe original approval (of the loan) is to develop the manufacture of sacks on the basis of locally available raw materials."This point is important, and sheds light on the subsequent actuations of the parties. Saura, Inc. does not deny that thefactory he was building in Davao was for the manufacture of bags from local raw materials. The cover page of its brochure(Exh. M) describes the project as a "Joint venture by and between the Mindanao Industry Corporation and the SauraImport and Export Co., Inc. to finance, manage and operate a Kenaf

mill plant, to manufacture copra and corn bags,runners, floor mattings, carpets, draperies; out of 100% local raw materials, principal kenaf

." The explanatory note onpage 1 of the same brochure states that, the venture "is the first serious attempt in this country to use 100% locally grownraw materials notably kenaf

which is presently grown commercially in theIsland of Mindanao where the proposed jutemillis located ..."

This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place, and to

require, in its Resolution No. 9083, a certification from the Department of Agriculture and Natural Resources as to theavailability of local raw materials to provide adequately for the requirements of the factory. Saura, Inc. itself confirmed thedefendant's stand impliedly in its letter of January 21, 1955: (1) stating that according to a special study made by theBureau of Forestry "kenaf

will not be available in sufficient quantity this year or probably even next year;" (2) requesting"assurances (from RFC) that my company and associates will be able to bring in sufficient jute materials as may benecessary for the full operation of the jute mill;" and (3) asking that releases of the loan be made as follows:

a) For the payment of the receipt for jute millmachineries with the Prudential Bank &

Trust Company P250,000.00

(For immediate release)

b) For the purchase of materials and equip-ment per attached list to enable the jutemill to operate 182,413.91

c) For raw materials and labor 67,586.09

1) P25,000.00 to be released on the open-ing of the letter of credit for raw jutefor $25,000.00.

2) P25,000.00 to be released upon arrival

of raw jute.

3) P17,586.09 to be released as soon as themill is ready to operate.

On January 25, 1955 RFC sent to Saura, Inc. the following reply:

Dear Sirs:

This is with reference to your letter of January 21, 1955, regarding the release of yourloan under consideration of P500,000. As stated in our letter of December 22, 1954, thereleases of the loan, if revived, are proposed to be made from time to time, subject toavailability of funds towards the end that the sack factory shall be placed in actualoperating status. We shall be able to act on your request for revised purpose and mannerof releases upon re-appraisal of the securities offered for the loan.

With respect to our requirement that the Department of Agriculture and NaturalResources certify that the raw materials needed are available in the immediate vicinityand that there is prospect of increased production thereof to provide adequately therequirements of the factory, we wish to reiterate that the basis of the original approval isto develop the manufacture of sacks on the basis of the locally available raw materials.Your statement that you will have to rely on the importation of jute and your request thatwe give you assurance that your company will be able to bring in sufficient jute materials


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as may be necessary for the operation of your factory, would not be in line with ourprinciple in approving the loan.

With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, itrequested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellationand delivered it to Ramon F. Saura himself as president of Saura, Inc.

It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed onAugust 6, 1954, over the same property in favor of the Prudential Bank and Trust Co., under which contract Saura, Inc.

had up to December 31 of the same year within which to pay its obligation on the trust receipt heretofore mentioned. Itappears further that for failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15,1955.

On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., thelatter commenced the present suit for damages, alleging failure of RFC (as predecessor of the defendant DBP) to complywith its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff fromcompleting or paying contractual commitments it had entered into, in connection with its jute mill project.

The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and thatthe defendant was guilty of breach thereof. The defendant pleaded below, and reiterates in this appeal: (1) that theplaintiff's cause of action had prescribed, or that its claim had been waived or abandoned; (2) that there was no perfectedcontract; and (3) that assuming there was, the plaintiff itself did not comply with the terms thereof.

We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, whichprovides:

ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is bindingupon the parties, but the commodatum or simple loan itself shall not be perferted until the delivery of theobject of the contract.

There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 wasapproved by resolution of the defendant, and the corresponding mortgage was executed and registered. But this factalone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is thereforeentitled to recover damages.

It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to beconstructed would utilize locally grown raw materials, principally kenaf

. There is no serious dispute about this. It was inline with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan tothe original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and (2) that there is prospect of increasedproduction thereof to provide adequately for the requirements of the factory." The imposition of those conditions was by nomeans a deviation from the terms of the agreement, but rather a step in its implementation. There was nothing in saidconditions that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954, namely "thatthe proceeds of the loan shall be utilizedexclusively

for the following purposes: for construction of factory building P250,000.00; for payment of the balance of purchase price of machinery and equipment P240,900.00; for workingcapital P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wroteits letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year,"and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a

deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it did adiversion of part of the proceeds of the loan to purposes other than those agreed upon.

When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for theimplementation of the agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFC'sconditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that themortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the nature cfmutual desistance what Manresa terms "mutuo disenso" 1 which is a mode of extinguishing obligations. It is aconcept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by theparties can cause its extinguishment. 2

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contractby RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the mortgage carriedno reservation of whatever rights it believed it might have against RFC for the latter's non-compliance. In 1962 it evenapplied with DBP for another loan to finance a rice and corn project, which application was disapproved. It was only in1964, nine years after the loan agreement had been cancelled at its own request, that Saura, Inc. brought this action fordamages.All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutualdesistance and that on the initiative of the plaintiff-appellee itself.

With this view we take of the case, we find it unnecessary to consider and resolve the other issues raised in the respectivebriefs of the parties.

WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the plaintiff-appellee.


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G.R. No. 132648 March 4, 1999

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner,vs.COURT OF APPEALS and ROMEO S. BELLA, respondents.

PURISIMA, J.:

At bar is a Petition for Review on Certiorariunder Rule 45 of the Revised Rules of Court seeking to set aside theDecision 1 of the Court of Appeals 2 dated February 12, 1998 in CA-G.R. SP NO. 44465, reversing the Decision of theGovernment Service Insurance System (GSIS), which affirmed the Decision of the Employees CompensationCommission (ECC) in ECC Case No. M.G. 7872 - 1295.

The antecedent facts are, as follows:

On June 10, 1964, private respondent Romeo S. Bella was employed by the Bureau of Animal Industry as a livestockinspector. He retired from the service on August 16, 1986. On July 16, 1987, he was re-employed by the Department ofAgriculture as Agricultural Food Technologist and on March 1, !994, promoted to the position of Agriculturist II.

As disclosed by his records of employment, private respondent was suspended without pay from September 1, 1993 toMarch 1, 1994. A month after, or on April 1, 1994, to be precise, he was reinstated to his former position as Agriculturist IIat the Provincial Agricultural Office in Tacurong, Sultan Kudarat. On July 1, 1995, private respondent who was then56 3 years old, filed a terminal leave of absence due to physical disability.

The medical records of private respondent reveal that he was suffering from Acute Myocardial Infraction 4 and wasconfined at the Notre Dame Hospital in Cotabato City from September 13, 1988 to September 19, 1988 and at thePhilippine Heart Center from September 6, 1994 to September 26, 1994.

Thus, private respondent filed with the GSIS Cotabato Branch, a claim for compensation benefits under P.D. 626,5 asamended. Finding his application meritorious and his ailment compensable, the GSIS awarded him a Temporary TotalDisability income benefit during the periods of July 16 to July 21, 1994 and August 24 to August 29, 1994, as well asreimbursement for medical expenses. Private respondent Romeo S. Bella was also granted a Permanent Partial Disability

income benefit equivalent to thirty-eight (38) months for his Ischemic Cardiomayopathy.

Private respondent requested for the conversion of his benefits from Permanent Partial Disability to Permanent TotalDisability, reasoning out that his ailments of Ischemic Cardiomayopathy 6and Chronic Obstructure PulmonaryDisease 7rendered him unable to engage in any gainful occupation for a continuous period exceeding 120 days, ascertified to by his attending physicians, Dr. Romulo Uy, Dr. Anne Marie Luat, Dr. Danilo Rustia, Dr. Juanito Lastimosa andDr. Eldefonso Maglasang. 8

But petitioner GSIS denied his request for Permanent Total Disability on the ground that the degree of privaterespondent's disability as evaluated by, petitioner's medical officers, did not satisfy the criteria for Permanent TotalDisability. His motion for reconsideration was similarly denied. On appeal, the Employees Compensation Commission(ECC) affirmed the Decision of the GSIS, denying private respondent's request for conversion of his Permanent PartialDisability benefit to Permanent Total Disability benefit.

Dissatisfied, private respondent went to the Court of Appeals on a Petition for Review.

On February 12, 1998, the Court of Appeals came out with its decision reversing the Decision of the EmployeesCompensation Commission; disposing, thus:

WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE. Accordingly, anotherjudgment is rendered granting petitioner's claim for Permanent Total Disability (PTD) benefits.

No Pronouncements as to costs.

SO ORDERED. 9

Therefrom, petitioner GSIS found its way to this Court via the present petition, theorizing:

I

THAT THE RESPONDENT HONORABLE COURT OF APPEALS GRAVELY ERRED IN REVERSINGAND SETTING ASIDE THE DECISION OF THE EMPLOYEES COMPENSATION COMMISSION WHICHAFFIRMED THE DECISION OF HEREIN PETITIONER GSIS.

II


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THAT THE HONORABLE COURT OF APPEALS ERRED IN CONSIDERING THE CONVERSION OFPERMANENT PARTIAL DISABILITY (PPD) BENEFITS OF HEREIN RESPONDENT TO PERMANENTTOTAL DISABILITY UNDER P.D. 626, AS AMENDED.

III

THAT THE DECISION OF THE RESPONDENT HONORABLE COURT OF APPEALS IS CONTRARYTO LAW AND APPLICABLE JURISPRUDENCE.

The pivot of inquiry here is: whether or riot the private respondent is entitled to permanent total disability benefits.

The labor Code classifies employees' disability into three distinct categories, namely: a) temporary total disability;10 b)permanent totaldisability; 11 and c) permanent partial disability. 12 Section 2, Rule VII, of the Rules and Regulation Implementing Title II,Book IV of the Labor Code defines and clarifies these categories, as follows:

Sec. 2. Disability. (a) A total disability is temporary if as a result of the injury or sickness the employeeis unable to perform any gainful occupation for a continuous period not exceeding 120 days, except asotherwise provided for in Rule X of these Rules.

(b) A disability is total and permanent if as a result of the injury or sickness the employee is unable toperform any gainful occupation for a continuous period exceeding 120 days except as otherwise providedfor in Rule X13 of these Rules.

(c) A disability is partial and permanent if as a result of the injury or sickness the employee suffers apermanent partial loss of the use of any part of his body.

In Vicente vs. Employees Compensation Commission, 14the Court laid down the litmus test and distinction betweenPermanent Total Disability and Permanent Partial Disability, to wit:

. . . While "permanent total disability" invariably results in an employee's loss of work or inability toperform his usual work, "permanent partial disability," on the other hand, occurs when an employee losesthe use of any particular anatomical part of his body which disables him to continue with his former work.Stated otherwise, the test of whether or not an employee suffers from "permanent total disability" is a

showing of the capacity of the employee to continue performing his work notwithstanding the disability heincurred. Thus, if by, reason of the injury or sickness he sustained, the employee is unable to perform hiscustomary job for more than 120 days and he does not come within the coverage of Rule X of theAmended Rules on Employees Compensability (which, in a more detailed manner, describes whatconstitutes temporary total disability). then the said employee undoubtedly suffers from "permanent totaldisability" regardless of whether or not he loses the use of any part of his body. 15

To justify its finding that private respondent's disability cannot be a Permanent Total Disability, the ECC ratiocinated:

. . . Under the ECC Schedule of Compensation, appellant was already awarded the maximum benefitscommensurate to the degree of his disability. Under this schedule, appellant's Ischemlc Cardiomyopathymerits a disability rating of 38 months Permanent Partial Disability (PPD), and this has already beengranted him. The nature of his ailment and his present physical condition which the medical officers of the

System were able to evaluate when he came to follow-up his request showed that the criteria forPermanent Total Disability (PTD) like the permanent complete paralysis of two limbs has not beensatisfied. Thus, we see no reason to alter the earlier ruling of the respondent System 16

Petitioner contends that the criteria for Permanent Total Disability, like permanent complete paralysis of two, limbs havenot been met 17 by private respondent's ailment and physical condition. As aptly pointed out by the Solicitor General, "totaldisability does not mean a state of absolute helplessness, but disablement of an employee to earn wages in the samekind of work or a work of similar nature, that he was trained or accustomed to perform, or any kind of work which a personof his mentality and attachments could do. 18 The fact that he was forced to retire at the early age of 56, due to a sicknessdisabling him from performing his job as Agriculturist II, qualifies his disability as a Permanent Total Disability, though helost no use of any particular anatomical part of his body.

So also, no less than five doctors certified that private respondent's illness disabled him from performing any gainful

occupation for a continuous period exceeding 120 days. Then too, even petitioner GSIS granted private respondent anincome benefit amounting to the equivalent of 38 months. Well settled is the rule that a physician's report of sickness oraccident substantiates the disability claim. 19 "A doctor's certification as to the nature of the claimant's disability may begiven credence as he would not normally make false certification for the sake of a lowly school teacher." 20

It is then beyond cavil that the sickness of the private respondent made him unable to perform any gainful occupation for acontinuous period exceeding 120 days, thus entitling him to permanent total disability benefits.

Clearly, the position taken by the GSIS and the ECC runs counter to the avowed policy of the State to construe sociallegislations liberally in favor of the beneficiaries. "The court takes this occasion to stress once more its abiding concern forthe welfare of the government workers, especially the humble rank and file, whose patience, industry and dedication to


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duty have often gone unheralded, but who, in spite of every little recognition, plod on dutifully to perform their appointedtasks. It is for this reason that the sympathy of the law on social security is toward its beneficiaries, and the law, by its ownterms, requires a construction of utmost liberality in their favor." 21

Sec. 18, Article II of the Constitution, provides:

Sec. 18. The State affirms labor as a primary social economic force. It shall protect the rights of workersand promote their welfare.

All things studiedly considered, we are of the ineluctable conclusion that the Court of Appeals erred not in granting privaterespondent's claim for Permanent Total Disability benefits.

WHEREFORE, the petition is hereby DENIED, and the assailed Decision of the Court of Appeals in CA-G.R. SP NO.44465 AFFIRMED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,vs.

HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.

Zapa Law Office for private respondent.

VITUG, J.:

The issues, albeitnot completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods canbe a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b)whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint isfiled or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred toabove, is twelve percent (12%) or six percent (6%).

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led tothe controversy are hereunder reproduced:

This is an action against defendants shipping company, arrastre operator and broker-forwarder fordamages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paidthe consignee the value of such losses/damages.

On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for deliveryvessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading

No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 forP36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody ofdefendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, whichdamage was unknown to plaintiff.

On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant MetroPort Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D).

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment tothe consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest ofthe contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered lossestotaling P19,032.95, due to the fault and negligence of defendants. Claims were presented againstdefendants who failed and refused to pay the same (Exhs. H, I, J, K, L).

As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95under the aforestated marine insurance policy, so that it became subrogated to all the rights of action ofsaid consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs.M, N, and O). (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:


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Defendants filed their respective answers, traversing the material allegations of the complaint contendingthat: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order fromthe vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipmentwas incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record);Metroport averred that although subject shipment was discharged unto its custody, portion of the samewas already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of actionagainst it, not having negligent or at fault for the shipment was already in damage and bad order conditionwhen received by it, but nonetheless, it still exercised extra ordinary care and diligence in thehandling/delivery of the cargo to consignee in the same condition shipment was received by it.

From the evidence the court found the following:

The issues are:

1. Whether or not the shipment sustained losses/damages;

2. Whether or not these losses/damages were sustained while in the custody ofdefendants (in whose respective custody, if determinable);

3. Whether or not defendant(s) should be held liable for the losses/damages (seeplaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff'sRecords, p. 38).

As to the first issue, there can be no doubt that the shipment sustained losses/damages.The two drums were shipped in good order and condition, as clearly shown by the Bill ofLading and Commercial Invoice which do not indicate any damages drum that wasshipped (Exhs. B and C). But when on December 12, 1981 the shipment was delivered todefendant Metro Port Service, Inc., it excepted to one drum in bad order.

Correspondingly, as to the second issue, it follows that the losses/damages weresustained while in the respective and/or successive custody and possession ofdefendants carrier (Eastern), arrastre operator (Metro Port) and broker (AlliedBrokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G), withits "Additional Survey Notes", are considered. In the latter notes, it is stated that when theshipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila onDecember 12, 1981, it was observed that "one (1) fiber drum (was) in damagedcondition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The reportfurther states that when defendant Allied Brokerage withdrew the shipment fromdefendant arrastre operator's custody on January 7, 1982, one drum was found openedwithout seal, cello bag partly torn but contents intact. Net unrecovered spillages was15 kgs. The report went on to state that when the drums reached the consignee, onedrum was found with adulterated/faked contents. It is obvious, therefore, that theselosses/damages occurred before the shipment reached the consignee while under thesuccessive custodies of defendants. Under Art. 1737 of the New Civil Code, the commoncarrier's duty to observe extraordinary diligence in the vigilance of goods remains in fullforce and effect even if the goods are temporarily unloaded and stored in transit in thewarehouse of the carrier at the place of destination, until the consignee has been advisedand has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC).

Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes"(Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open".

and thus held:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of 12% per annum fromOctober 1, 1982, the date of filing of this complaints, until fully paid (the liability ofdefendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of

the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shallbe to the extent of the actual invoice value of each package, crate box or container in nocase to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract);

2. P3,000.00 as attorney's fees, and

3. Costs.

B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation.


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SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct.As there is sufficient evidence that the shipment sustained damage while in the successive possession ofappellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the

consignee. (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the courta quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the partof the appellate court when

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTREOPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTEDIN THE QUESTIONED DECISION;

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULDCOMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVEPERCENT PER ANNUMINSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURTAND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEINGINDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, wedo have a fairly good number of previous decisions this Court can merely tack to.

The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles aresurrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered

to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738,Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When thegoods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure toobserve that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code;Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases,enumerated in Article 1734 1of the Civil Code, are exclusive, not one of which can be applied to this case.

The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods tothe consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA455), we have explained, in holding the carrier and the arrastre operator liable in solidum,thus:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and

warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between theconsignee and the common carrier is similar to that of the consignee and the arrastre operator (NorthernMotors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to takegood care of the goods that are in its custody and to deliver them in good condition to the consignee,such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER aretherefore charged with the obligation to deliver the goods in good condition to the consignee.

We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker arethemselves always and necessarily liable solidarily with the carrier, orvice-versa, nor that attendant facts in a given casemay not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier andnot having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factualfinding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the shipmentsustained damage while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the

liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether thereare others solidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.

Let us first see a chronological recitation of the major rulings of this Court:

The early case ofMalayan Insurance Co., Inc., vs. Manila PortService, 2decided 3on 15 May 1969, involved a suit forrecovery of money arising out of short deliveries and pilferage ofgoods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the totalamount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither


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established in its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu ofproof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants (defendants)Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legalinterest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The appellantsthen assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court ruled:

Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate.Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court optedfor judicial demand as the starting point.

But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered uponunliquidated claims or damages, except when the demand can be established with reasonable certainty."And as was held by this Court in Rivera vs. Perez, 4L-6998, February 29, 1956, if the suit were fordamages, "unliquidated and not known until definitely ascertained, assessed and determined by thecourts after proof (Montilla c.Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,38 Phil. 302)," then, interest"should be from the date of the decision." (Emphasis supplied)

The case ofReformina vs. Tomol, 5rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person andLoss of Property."After trial, the lower court decreed:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants andagainst the defendants and third party plaintiffs as follows:

Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severallythe following persons:

xxx xxx xxx

(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value ofthe boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 whichis the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthlyloss suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid oralready the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaintuntil paidand to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs.(Emphasis supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trialcourt in adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decisionbecame final, the case was remanded to the lower court for execution, and this was when the trial court issued itsassailed resolution which applied the 6% interestper annum prescribed in Article 2209 of the Civil Code. In theirpetition for review on certiorari, the petitioners contended that Central Bank CircularNo. 416, providing thus

By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in itsResolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, orforbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of expresscontract as to such rate of interest, shall be twelve (12%) percentper annum. This Circular shall takeeffect immediately. (Emphasis found in the text)

should have, instead, been applied. This Court 6ruled:

The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of anymoney, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involvingloans or forbearance of any money, goods or credits does not fall within the coverage of the said law for itis not within the ambit of the authority granted to the Central Bank.

xxx xxx xxx

Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action forDamages for injury to persons and loss of property and does not involve any loan, much less

forbearances of any money, goods or credits. As correctly argued by the private respondents, the lawapplicable to the said case is Article 2209 of the New Civil Code which reads

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtorincurs in delay, the indemnity for damages, there being no stipulation to the contrary,shall be the payment of interest agreed upon, and in the absence of stipulation, the legalinterest which is six percent per annum.

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7promulgated on 28 July 1986. The case wasfor damages occasioned by an injury to person and loss of property. The trial court awarded private respondent PedroManabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of the


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complaint until fully paid. Relying on the Reformina v. Tomolcase, this Court 8modified the interest award from 12% to 6%interest per annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.

In Nakpil and Sons vs. Court of Appeals, 9the trial court, in an action for the recovery of damages arising from thecollapse of a building, ordered,inter alia, the "defendant United Construction Co., Inc. (one of the petitioners). . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date ofthe filing of the complaint until full payment. . . ." Save from the modification of the amount granted by the lower court, theCourt of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986,

was decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special andenvironmental circumstances of this case, we deem it reasonable to render a decision imposing, as Wedo hereby impose, upon the defendant and the third-party defendants (with the exception of RomanOzaeta) a solidary (Art. 1723, Civil Code, Supra.p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos tocover all damages (with the exception to attorney's fees) occasioned by the loss of the building (includinginterest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesosas and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to

pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementionedamounts from finality until paid. Solidary costs against the defendant and third-party defendants (ExceptRoman Ozaeta). (Emphasis supplied)

A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) percent per annum imposed on the total amount of the monetary award was in contravention of law." TheCourt 10ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of15 April 1988, it explained:

There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No.416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance ofany money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986];Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loanor a forbearance, but then no interest is actually imposed provided the sums referred to in the judgmentare paid upon the finality of

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