Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-8257

April 13, 1956

JOSE R. CRUZ, plaintiff-appellant,

vs.
REYNALDO PAHATI, ET AL., defendants-appellees.
Panganiban Law Offices and Arsenio Roldan for appellant.
Carlos, Laurea, Fernando and Padilla for appellees.
BAUTISTA ANGELO, J.:
This is an action of replevin instituted by plaintiff in the Court of Firts Instance of Manila to recover the
possession of an automobile and certain amount as damages and attorney's fees resulting from his illegal
deprivation thereof.
The original defendants were Reynaldo Pahati and Felixberto Bulahan but, upon amendment of the
complaint, Jesusito Belizo was included as party defendant who was summoned by publication because
his whereabouts were not known. Belizo failed to appear or answer the complaint and so he was declared
default.
Pahati admitted having bought the automobile from Bulahan, for the sum of P4,900 which he paid in
check. When the Manila Police Department impounded the automobile, he cancelled the sale and
stopped the payment of the check and as a result he returned the automobile to Bulahan who in turned
surrended the check for cancellation. He set up a counterclaim for the sum of P2,000 as attorney's fees.
Bulahan on his part claims that he acquired the automobile from Jesusito Belizo for value and without
having any knowledge of any defect in the title of the latter; that plaintiff had previously acquired title to
said automobile by purchase from Belizo as evidenced by a deed of sale executed to that effect; that later
plaintiff delivered the possession of the automobile to Belizo for resale and to facilitate it he gave the latter
a letter of authority to secure a new certificate of registration in his name (plaintiff's) and that by having
clothed Belizo with an apparent ownership or authority to sell the automobile, plaintiff is now estopped to
deny such ownership or authority. Bulahan claims that between two innocent parties, he who gave
occasion, through his conduct, to the falsification committed by Belizo, should be the one to suffer the
loss and this one is the plaintiff. Bulahan also set up a counterclaim for P17,000 as damages and
attorney's fees.
After the presentation of the evidence, the court rendered judgment declaring defendant Bulahan entitled
to the automobile in question and consequently ordered the plaintiff to return it to said defendant and,
upon his failure to do so, to pay him the sum of P4,900, with legal interest from the date of the decision.
The claim for damages and attorney's fees of Bulahan was denied. Defendant Belizo was however
ordered to indemnify the plaintiff in the amount of P4,900 and pay the sum of P5,000 as moral damages.
The counterclaim of defendant Pahati was denied for lack of evidence. The case was taken directly to this
Court by the plaintiff.

The lower court found that the automobile in question was originally owned by the Nothern Motors, Inc.
which later sold it to Chinaman Lu Dag. This Chinaman sold it afterwards to Jesusito Belizo and the latter
in turn sold it to plaintiff. Belizo was then a dealer in second hand cars. One year thereafter, Belizo offered
the plaintiff to sell the automobile for him claiming to have a buyer for it. Plaintiff agreed. At that time,
plaintiff's certificate of registration was missing and, upon the suggestion of Belizo, plaintiff wrote a letter
addressed to the Motor Section of the Bureau of Public Works for the issuance of a new registration
certificate alleging as reason the loss of the one previously issued to him and stating that he was
intending to sell his car. This letter was delivered to Belizo on March 3, 1952. He also turned over Belizo
the automobile on the latter's pretext that he was going to show it to a prospective buyer. On March 7,
1952, the letter was falsified and converted into an authorized deed of sale in favor of Belizo by erasing a
portion thereof and adding in its place the words "sold the above car to Mr. Jesusito Belizo of 25 Valencia,
San Francisco del Monte, for Five Thousand Pesos (P5,000)." Armed with this deed of sale, Belizo
succeeded in ontaining a certificate of registration in his name on the same date, March 7, 1952, and also
on the same date, Belizo sold the car to Felixberto Bulahan who in turn sold it to Reynaldo Pahati, a
second hand car dealer. These facts show that the letter was falsified by Belizo to enable him to sell the
car to Bulahan for a valuable consideration.
This is a case which involves a conflict of rights of two persons who claim to be the owners of the same
property; plaintiff and defendant Bulahan. Both were found by the lower court to be innocent and to have
acted in good faith. They were found to be the victims of Belizo who falsified the letter given him by
plaintiff to enable him to sell the car of Bulahan for profit. Who has, therefore, a better right of the two over
the car?.
The law applicable to the case is Article 559 of the new Civil Code which provides:
ART. 559. The possession of movable property acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from
the person in possession of the same.
If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in
good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.
It appears that "one who has lost any movable or has been unlawfully deprived thereof, may recover it
from the person in possession of the same" and the only defense the latter may have is if he "has
acquired it in good faith at a public sale" in which case "the owner cannot obtain its return without
reimbursing the price paid therefor." And supplementing this provision, Article 1505 of the same Code
provides that "where goods are sold by a person who is not the owner thereof, and who does not sell
them under authority or with the consent of the owner, the buyer acquires no better title to the goods than
the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's
authority to sell.
Applying the above legal provisions to the facts of this case, one is inevitably led to the conclusion that
plaintiff has a better right to the car in question than defendant Bulahan for it cannot be disputed that
plaintiff had been illegally deprived thereof because of the ingenious scheme utilized by Belizo to enable
him to dispose of it as if he were the owner thereof. Plaintiff therefore can still recover the possession of
the car even if defendant Bulahan had acted in good faith in purchasing it from Belizo. Nor can it be
pretended that the conduct of plaintiff in giving Belizo a letter to secure the issuance of a new certificate of
registration constitutes a sufficient defense that would preclude recovery because of the undisputed fact
that that letter was falsified and this fact can be clearly seen by a cursory examination of the document. If
Bulahan had been more diligent he could have seen that the pertinent portion of the letter had been

erased which would have placed him on guard to make an inquiry as regards the authority of Belizo to sell
the car. This he failed to do.
The right of the plaintiff to the car in question can also be justified under the doctrine laid down in U. S. vs.
Sotelo, 28 Phil., 147. This is a case of estafa wherein one Sotelo misappropriated a ring belonging to
Alejandra Dormir. In the course of the decision, the Court said that "Whoever may have been deprived of
his property in consequence of a crime is entitled to the recovery thereof, even if such property is in the
possession of a third party who acquired it by legal means other than those expressly stated in Article 464
of the Civil Code" (p. 147), which refers to property pledged in the "Monte de Piedad", an establishment
organized under the authority of the Government. The Court further said: It is a fundamental principle of
our law of personal property that no man can be divested of it without his own consent; consequently,
even an honest purchaser, under a defective title, cannot resist the claim of the true owner. The maxim
that 'No man can transfer a better title than he has himself "obtain in the civil as well as in the common
law." (p. 158).
Counsel for appellee places much reliance on the common law principle that "Where one of two innocent
parties must suffer by a fraud perpetrated by another, the law imposes the loss upon the party who, by his
misplaced confidence, has enabled the fraud to be committed" (Sager vs. W. T. Rawleight Co. 153 Va.
514, 150 S. E. 244, 66 A.L.R. 305), and contends that, as between plaintiff and Bulahan, the former
should bear the loss because of the confidence he reposed in Belizo which enabled the latter to commit
the falsification. But this principle cannot be applied to this case which is coverred by an express provision
of our new Civil Code. Between a common law principle and a statutory provision, the latter must
undoubtedly prevail in this jurisdiction. Moreover we entertain serious doubt if, under the circumstances
obtaining, Bulahan may be considered more innocent than the plaintiff in dealing with the car in question.
We prefer not to elaborate on this matter it being necessary considering the conclusion we have reached.
Wherefore, the decision appealed from is reversed. The Court declares plaintiff to be entitled to recover
the car in question, and orders defendant Jesusito Belizo to pay him the sum of P5,000 as moral
damages, plus P2,000 as attorney's fees. The Court absolves defendant Bulahan and Pahati from the
complaint as regards the claim for damages, reserving to Bulahan whatever action he may deem proper
to take against Jesusito Belizo. No costs.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-11108

June 30, 1958

CHUA HAI, petitioner,

vs.
HON. RUPERTO KAPUNAN, JR. as Judge of the Court of First Instance of Manila and ONG
SHU,respondents.
Pedro Panganiban y Tolentino for petitioner.
German Lee for respondent Ong Shu.
REYES, J. B. L., J.:
Certiorari against an order of the Court of First Instance of Manila, Hon. Ruperto Kapunan, Jr. presiding,
ordering the return to the complainant in criminal case No. 34250, People vs. Roberto Sotto, of 100
sheets of galvanized iron roofing which had been sold by the accused in said case to petitioner herein,
Chua Hai. The order is as follows:
Counsel for the complainant in this case seeks the return of the 700 sheets of galvanized iron now with
the Manila Police Department which form part of the hardware materials involved in this case. Chua Hai,
one of the persons who purchased from the accused one hundred (100) pieces of the said galvanized
iron sheets, opposes the said motion on the ground that the question of ownership should be determined
in the proper proceedings, claiming that he has a valid title to the 100 pieces, having bought them from
the accused Roberto Soto on February 1, 1956. Roberto Soto is presently at large, his arrest having been
ordered by this Court on June 13, 1956, for failure to appear for trial.
Considering the provisions of Article 105 of the Revised Penal Code, the said 700 sheets, except five of
them which are to be retained for purposes of evidence, are hereby ordered returned to the complainant,
subject, however, to the condition that the complainant post a bond in an amount equal to twice the value
of 100 sheets in favor of Chua Hai who has a claim of ownership to the said 100 sheets, and without
prejudice on the part of said Chua Hai to file the corresponding action on the matter of ownership thereof
by virtue of his purchase from the herein accused.
From the facts alleged in the pleadings presented in this case, we gather the following: On January 31,
1956, Roberto Soto purchased from Youngstown Hardware, owned by Ong Shu, 700 corrugated
galvanized iron sheets and 249 pieces of round iron bar for P6,137.70, and in payment thereof he issued
a check drawn against the Security Bank and Trust Company for P7,000.00, without informing Ong Shu
that he had no sufficient funds in said bank to answer for the same. When the check was presented for
payment, it was dishonored for insufficiency of funds. Soto sold 165 sheets in Pangasinan and 535 sheets
in Calapan, Mindoro. Of those sold in Pangasinan, 100 were sold to petitioner Chua Hai. When the case
was filed in the Court of First Instance of Manila against Roberto Soto, for estafa, the offended party filed
a petition asking that the 700 galvanized iron sheets, which were deposited with the Manila Police
Department, be returned to him, as owner of the Youngstown Hardware. Petitioner herein opposed the
motion with respect to the 100 sheets that he had bought from Soto. Notwithstanding the opposition, the
court ordered the return of the galvanized iron sheets to Ong Shu. Petitioner then presented a motion to
reconsider the order, alleging that by the return thereof to the offended party, the court had not only

violated the contract of deposit, because it was in that concept that petitioner had delivered the 100
sheets to the Manila Police Department, and that said return to Ong Shu amounted to a deprivation of his
property without due process of law. It is also claimed that Article 105 of the Revised Penal Code, under
whose authority the return was ordered, can be invoked only after the termination of the criminal case and
not while said criminal case is still pending trial.
The court having given no heed to these protests on the part of the petitioner, the latter brought the
present petition to this Court alleging that the order of the respondent judge constitutes a deprivation of
petitioner's property without due process of law, violating the contract of deposit under which the sheets
were delivered to the police department of the City of Manila, and determining the respective rights of
petitioner and respondent Ong Shu without a previous trial of the criminal case all of which constitute a
grave abuse of discretion and excess of jurisdiction. In answer to the petition, it is claimed that as
respondent Ong Shu is the owner of the property, he has the right to recover possession thereof even if
said property appears to have fallen into the possession of a third party who acquired it by legal means,
provided that said form of acquisition is not that provided for in Article 464 of the Civil Code (where
property has been pledged in a monte de piedad established under authority of the Government) ; that
even if the property was acquired in good faith, the owner who has been unlawfully deprived thereof may
recover it from the person in possession of the same unless a person in possession acquired it in good
faith at a public sale. (Art. 559, Civil Code of the Philippines). It is also claimed that under the provisions
of Article 105 of the Revised Penal Code, under which restitution is made by a return of the thing itself
whenever possible, the galvanized iron sheets in question should be returned to the offended party, the
owner, and that there is no provision of law requiring that the criminal case must first be finally disposed of
before restitution of the goods swindled can be ordered returned to the owner. In answer to the allegation
that petitioner has been deprived of his property without due process of law, it is alleged that same is
without foundation because the petitioner was given ample time to be heard. As to the claim that the
galvanized iron sheets in question were deposited with the Manila Police Department, it is argued that the
delivery to the Manila Police Department was by virtue of the order of the court, because the said sheets,
were the subject of or are the instruments of the commission of the crime of estafa, and the court had the
power to order the return thereof to the owner after it had satisfied itself of the ownership thereof by the
offended party. It is also alleged in defense that petitioner's rights, if any, are sufficiently protected by the
bond that the court has required to be filed.
We find the case meritorious, since petitioner's good faith is not questioned. To deprive the possessor in
good faith, even temporarily and provisionally, of the chattels possessed, violates the rule of Art. 559 of
the Civil Code. The latter declares that possession of chattels in good faith is equivalent to title; i.e., that
for all intents and purposes, the possessor is the owner, until ordered by the proper court to restore the
thing to the one who was illegally deprived thereof. Until such decree is rendered (and it can not be
rendered in a criminal proceeding in which the possessor is not a party), the possessor, as presumptive
owner, is entitled to hold and enjoy the thing; and "every possessor has a right to be respected in his
possession; and should he be disturbed therein he shall be protected in or restored to said possession
established by the means established by the laws and the Rules of Court."(Art. 539, New Civil Code).
The decision of the court below, instead of conforming to Arts. 559 and 539 of the Civil Code, directs
possessor to surrender the chattel to the claimant Ong Shu before the latter has proved that he was
illegally deprived thereof, without taking into account that the mere filing of a criminal action for estafa is
no proof that estafa was in fact committed. Instead of regarding the possessor as the owner of the chattel
until illegal deprivation is shown, the court below regards the possessor of the chattel not as an owner, but
as a usurper, and compels him to surrender possession even before the illegal deprivation is proved. We
see no warrant for such a reversal of legal rules.

It can not be assumed at this stage of the proceedings that respondent Ong Shu is still the owner of the
property; to do so it take for granted that the estafa was in fact committed, when so far, the trial on the
merits has not even started, and the presumption of innocence holds full sway.
In the third place, the civil liability of the offender to make restitution, under Art. 105 of the Revised Penal
Code,does not arise until his criminal liability is finally declared, since the former is a consequence of the
latter. Art. 105 of the Revised Penal Code, therefore, can not be invoked to justify the order of the court
below, since that very article recognizes the title of an innocent purchaser when it says:
ART. 105. Restitution . . .
The thing itself shall be restored, even though it be found in the possession of a third person who has
acquired it by lawful means, saving to the latter his action against the proper person who may be liable to
him.
This provision is not applicable in cases in which the thing has been acquired by the third person in the
manner and under the requirements which, by law, bar an action for its recovery. (R.P.C.) (Emphasis
supplied)
The last paragraph of Article 105 plainly refers to those cases where recovery is denied by the civil law,
notwithstanding the fact that the former owner was deprived of his chattels through crime. One of these
cases is that provided for in Art. 85 of the Code of Commerce:
ART. 85. La compra de mercaderias en almacenes o tiendas abiertas al publico causara prescripcion
de derecho a favor del comprador respecto de las mercaderias adquiridas, quedando a salvo en su caso
los derechos del propietario de los objetos vendidos para ejercitar las acciones civiles o criminales que
puedan corresponderle contra el que los vendiere indebidamente. (Civ. 464)
Para los efectos de esta prescripcion, se reputaran almacenes o tiendas abiertas al publico:
1. Los que establezcan los comerciantes inscritos.
2. Los que establezcan los comerciantes no inscritos, siempre que los almacenes o tiendas
permanezcan abiertos al publico por espacio de echo dias consecutivos, o se hayan anunciado por
medio de rotulos, muestras o titulos en el local mismo, o por avisos repartidos al publico o insertos en los
diarios de la localidad.
Notwithstanding the claim of some authors that this Art. 85 has been repealed, the fact is that its rule
exists and has been confirmed by Article 1505 of the new Civil Code:
ART. 1505. Subject to the provisions of this Title, where goods are sold by a person who is not the owner
thereof, and who does not sell them under authority or with consent of the owner, the buyer acquires no
better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded
from denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
xxx

xxx

xxx

(3) Purchases made in a merchant's store, or in fairs, or markets in accordance with the Code of
Commerce and special laws. (C.C.)

But even if the articles in dispute had not been acquired in a market, fair or merchant's store, still, so far
as disclosed, the facts do not justify a finding that the owner, respondent Ong Shu, was illegally deprived
of the iron sheets, at least in so far as appellant was concerned. It is not denied that Ong Shu delivered
the sheets to Soto upon a perfected contract of sale, and such delivery transferred title or ownership to
the purchaser. Says Art. 1496:
ART. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to
him in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement
that the possession is transferred from the vendor to the vendee. (C.C.)
The failure of the buyer to make good the price does not, in law, cause the ownership to revest in the
seller until and unless the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191 of
the new Civil Code.
And, assuming that the consent of Ong Shu to the sale in favor of Sotto was obtained by the latter
through fraud or deceit, the contract was not thereby rendered void ab initio, but only voidable by reason
of the fraud, and Article 1390 expressly provides that:
ART. 1390. The following contracts are voidable or annullable, even though there may have been no
damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of
ratification. (C.C.)
Agreeably to this provision, Article 1506 prescribes:
ART. 1506. Where the seller of goods has a voidable title thereto, but his title has not been avoided at the
time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for
value, and without notice of the seller's defect of title. (C.C.)
Hence, until the contract of Ong Shu with Sotto is set aside by a competent court (assuming that the fraud
is established to its satisfaction), the validity of appellant's claim to the property in question cannot be
disputed, and his right to the possession thereof should be respected.
It is no excuse that the respondent Ong Shu was required to post a redelivery bond. An indemnity bond,
while answering for damages, is not, by itself alone, sufficient reason for disturbing property rights,
whether temporarily or permanently. If the invasion is not warranted, the filing of a bond will not make it
justifiable.
Questions of ownership and possession being eminently civil in character, they should not be settled by
exclusive reference to the Revised Penal Code. If Ong Shu has reason to fear that petitioner Chua Hai
may dispose of the chattels in dispute and thereby render nugatory his eventual right to restitution, then
the proper remedy lies in a civil suit and attachment, not in an order presuming to adjudicate in a criminal
case the civil rights of one who is not involved therein.
Summing up, we hold:

1) That the acquirer and possessor in good faith, of a chattel or movable property is entitled to be
respected and protected in his possession, as if he were the true owner thereof, until a competent court
rules otherwise;
2) That being considered, in the meantime, as the true owner, the possessor in good faith cannot be
compelled to I surrender possession nor to be required to institute an action for the recovery of the
chattel, whether or not an indemnity bond is issued in his favor;
3) That the filing of an information charging that the chattel was illegally obtained through estafa from its
true owner by the transferor of the bona fide possessor does not warrant disturbing the possession of the
chattel against the will of the possessor; and
4) That the judge taking cognizance of the criminal case against the vendor of the possessor in good faith
has not right to interfere with the possession of the latter, who is not a party to the criminal proceedings,
and such unwarranted interference is not made justifiable by requiring a bond to answer for damages
caused to the possessor.
Wherefore, the writ of certiorari is granted, and the order of the Court of First Instance of Manila in
Criminal Case No. 34250, dated July 31, 1956, is hereby revoked and set aside, as issued in abuse of
discretion amounting to excess of jurisdiction. Costs against appellant Ong Shu.
Paras, C. J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Concepcion, and Endencia, JJ., concur.

Separate Opinions
FELIX, J., concurring:
The issue in this case revolves around the proposition of whether or not "goods purchased by an
accused, for which he paid with a rubber check, can be seized from a third party who bought the same in
good faith and for a valuable consideration before the offender, who was charged with estafa, is tried and
convicted."
I concur with the reasons adduced in the majority decision but the main basis of my vote with the majority
of the Court is based on the principle that Article 105 of the Revised Penal Code relied upon by the lower
Court for the issuance of the order which We revoked and set aside in this instance, cannot be invoked
and made applicable to the case at bar.
As it is known, among the civil liabilities established by Articles 100 to 103 of the Revised Penal Code
restitution is included and Article 105 of the same Code dealing on restitution, provides the following:
ART. 105. Restitution. How Made. The restitution of the thing itself must be made whenever possible,
with allowance for the deterioration or diminution of value as determined by the court.
The thing itself shall be restored, even though it be found in the possession of a third person who has
acquired it by lawful means, saving to the latter his action against the proper person who may be liable to
him.
This provision is not applicable in cases in which the thing has been acquired by the third person in the
manner and under the requirements which, by law, bar an action for its recovery.

There is no dispute that petitioner herein, Chua Hai, purchased from Roberto Sotto 100 sheets of
galvanized iron roofing in good faith and for value, and there is no denial either that this stock comes from
and is a part of the 700 sheets that Roberto Sotto bought and paid with a check that bounced for lack of
funds. Under such circumstances, there is no question that the purchase was perfected by the agreement
of the respondent Ong Shu and defendant Sotto and as a consequence of the transaction, upon delivery
of the sheets to the latter, ownership of the same was conveyed and transferred legally to the purchaser
who, from that moment, with or without payment of the consideration therefor was in turn entitled to sell
and convey all or a portion of the property in question to a third party who definitely acquired said goods,
specially when he acted in good faith and for value. Had those goods been sold on credit by Ong Shu to
Roberto Sotto, the failure of the latter to pay the purchase price thereof would not entitle the vendor,
under the circumstances obtaining in the instant case, to take the goods from Chua Hai and much less
without a previous court action. And the same thing can be said in the case at bar where the vendor was
induced to part with his property by the issuance of a rubber check. Both in the case of sale on credit as
well as on the case of sale through the payment with rubber check, the transaction is perfected and the
transfer of ownership verified, the difference being only circumscribed to the liability of the first purchaser
(Sotto) which in the first case would be merely civil, while in the latter case is also criminal.1 The first sale
of the property having been legallyconsummated, the 100 sheets of galvanized iron herein involved could
not be recovered from Chua Hai even in case of Sotto's conviction of estafa, because under the terms of
Article 105 of the Revised Penal Code, therestitution of the thing is not possible for the reason that said
thing has been acquired by the third persons (Chua Hai) in the manner under the requirements which (in
addition to the other means enumerated in the majority decision) bar, by law an action for its recovery. I
am, therefore, of the opinion and thus hold that in cases where the ownership of the effects of the crime
has already been transferred by the offender to an innocent third party, the restitution of the thing
itself referred to in Article 105 of the Revised Penal Code must necessarily be limited to cases in which
the offended party was illegally deprived of the property involved in the crime committed, such as in cases
of robbery and theft, but not to cams wherein the offended party has not been deprived of his property
which he delivered to the purchaser with the expectation of course, of receiving the consideration of the
sale.
I, therefore, concur in the majority decision penned by Mr. Justice J. B. L. Reyes.

LABRADOR, J., dissenting:

I dissent. Before proceeding to the discussion of the facts it seems necessary for an understanding of this
dissent that this is a certiorari originally instituted in this Court against an order of Judge Ruperto
Kapunan, Jr. of the Court of First Instance of Manila. As a case of certiorari, not a petition for review, the
only pertinent issue, as I see it, is whether under the facts and circumstances of the case the order
against which the petition is instituted was issued in excess of jurisdiction or with grave abuse of
discretion. The order issued by the respondent judge was provisional in character, subject to the outcome
of the criminal case and any other future litigation respecting the property subject of the proceedings.
The certiorari seeks to set aside the order for the return to the complainant in criminal case No. 34250,
People vs. Roberto Sotto, of 100 sheets of galvanized iron roofing which had been sold by the accused in
said case to petitioner herein, Chua Hai. The order is as follows:
Counsel for the complainant in this case seeks the return of the 700 sheets of galvanized iron now with
the Manila Police Department which form part of the hardware materials involved in this case. Chua Hai,

one of the persons who purchased from the accused one hundred (100) pieces of the said galvanized
iron sheets, opposes the said motion on the ground that the question of ownership should be determined
in the proper proceedings, claiming that he has a valid title to the 100 pieces, having bought them from
the accused Roberto Sotto on February 1, 1956. Roberto Sotto is presently at large, his arrest having
been ordered by this Court on June 13, 1956, for failure to appear for trial.
Considering the provisions of Article 105 of the Revised Penal Code, the said 700 sheets, except five of
them which are to be retained for purposes of evidence, are hereby ordered returned to the complainant,
subject, however, to the condition that the complainant post a bond in an amount equal to twice the value
of 100 sheets in favor of Chua Hai who has a claim of ownership to the said 100 sheets, and without
prejudice on the part of said Chua Hai to file the corresponding action on the matter of ownership thereof
by virtue of his purchase from the herein accused.
From the facts alleged in the pleadings prescribed in this case, we gather the following: On January 31,
1956, Roberto Sotto purchased from Youngstown Hardware, owned by Ong Shu, 700 corrugated
galvanized iron sheets and 249 pieces of round iron bar for P6,137.70, and in payment thereof he issued
a check drawn against the Security Bank and Trust Company for P7,000.00, without informing Ong Shu
that had no sufficient funds in said bank to answer for the same. When the check was presented for
payment it was dishonored for insufficiency of funds. Sotto sold 165 sheets in Pangasinan and 535 sheets
in Calapan, Mindoro. Of those sold in Pangasinan, 100 was sold to petitioner Chua Hai. When the case
was filed in the Court of First Instance of Manila against Roberto Sotto, for estafa, the offended party filed
a petition asking that the 700 galvanized iron sheets which were deposited with the Manila Police
Department be returned to him, as owner of the Youngstown Hardware. Petitioner herein opposed the
motion with respect to the 100 sheets that he had bought from Sotto. Notwithstanding the opposition the
court ordered the return of the galvanized iron sheets to Ong Shu. Petitioner then presented a motion to
reconsider the order, alleging that by the return thereof to the offended party, the court had not only
violated the contract of deposit, because it was in that concept that petitioner had deliver the 100 sheets
to the Manila Police Department, and that said return to Ong Shu amounted to a deprivation of his
property without due process of law. It is also claimed that Article 105 of the Revised Penal Code, under
whose authority the return was ordered, can be invoked only after the termination of the criminal case and
not while said criminal case is still pending trial.
The court giving no heed to these protests on the part of the petitioner, the latter brought the present
petition to this Court alleging that the order of the respondent judge constitutes a deprivation of
petitioner's property without due process of law, violating the contract of deposit under which the sheets
were delivered to the police department of the City of Manila, and determining the respective rights of
petitioner and respondent Ong Shu without a previous trial of the criminal case all of which constitute a
grave abuse of discretion and excess of jurisdiction. In answer to the petition it is claimed that as
respondent Ong Shu is the owner of the property, he has the right to recover possession thereof even if
said property appears to have fallen into the possession of a third party who acquired it by legal means,
provided that said form of acquisition is not that provided for in Article 464 of the Civil Code (where
property has been pledged in a monte de piedad established under authority of the Government) ; that
even if the property was acquired in good faith, the owner who has been unlawfully deprived thereof may
recover it from the person in possession of the same unless a person in possession acquired it in good
faith at a public sale (Art. 559, Civil Code of the Philippines). It is also claimed that under the provisions of
Article 105 of the Revised Penal Code, under which restitution is made by a return of the thing itself
whenever possible, the galvanized iron sheets in question should be returned to the offended party, the
owner, and that there is no provision of law requiring that the criminal case must first be finally disposed of
before restitution of the goods swindled can be ordered returned to the owner. In answer to the allegation

that petitioner has been deprived of his property without due process of law, it is alleged that same is
without foundation because the petitioner was given ample time to be heard. As to the claim that the
galvanized iron sheets in question were deposited with the Manila Police Department, it is argued that the
delivery to the Manila Police Department was by virtue of the order of the court, because the said sheets
were the subject of or are the instruments of the commission of the crime of estafa, and the court had the
power to order the return thereof to the owner after it had satisfied itself of the ownership thereof by the
offended party. It is also alleged in defense that petitioner's rights, if any, are sufficiently protected by the
bond that the court has required to be filed.
I find no merit in the contention that petitioner was deprived of the possession and ownership of the
galvanized iron sheets without due process of law, it appearing that sufficient opportunity was given him
to explain his right to the possession and ownership thereof when he presented him motion for
reconsideration which the court heard and which it finally denied. The claim that the respective rights of
the petitioner and the respondent owner can only be decided in the final criminal action is also without
merit. The criminal case seeks to determine the fact of the commission of the crime by the accused.
When as in this case it cannot be seriously contended that the galvanized iron sheet in question were not
the ones that the accused had taken away from the offended party by illegal means, there is no
advantage to be gained by postponing the determination of the ownership of the stolen property as
between the offended party and the purchaser. Anyway, the order of the court is merely provisional in
character and it is expressly provided therein that the claims of the parties to the property are to be
determined in the final action that the petitioner may file, if he desires to do so.
The decision of the majority supposedly rests on the provisions of Article 599 of the Civil Code, which is
as follows:
The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who
has lost any movable or has been unlawfully deprived thereof, may recover it from the person in
possession of the same.
If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in
good faith at a public sale, the owner can not obtain its return without reimbursing the price paid therefor.
We fully agree with the majority that this Article covers the case, but we are of the humble opinion that the
provision that is applicable is not paragraph 1, but paragraph 2. Granting that the petitioner was a
possessor in good faith, the facts disclosed not by the information alone, but by the motion for the return
of the goods and other parts of the record show that these movable properties used to belong to the
respondent Ong Shu and that he was deprived thereof unlawfully because a certain person purchased it
with a bogus check. As between the purchaser and Ong Shu, the lawful owner, even if the former is
clothed with all the good faith, the owner of the property Ong Shu has a better right to recover possession
thereof. The criminal law provides that the subject of a crime can always be recovered from whoever is in
possession of the same, irrespective of the good faith of the possessor. Were we to adopt the ruling of the
majority, we will be encouraging crooks because by artful connivance with supposed buyers in good faith
(and the worst part of it is good faith is always presumed), we will have a holiday for crooks, thieves and
robbers.
While it is true that the information does not deny the good faith of petitioner, but as against that of the
lawful owner, Ong Shu, the latter should be given preference.
It is not disputed that the respondent Ong Shu was originally the lawful owner. If that is so and he was
deprived of the property by a criminal act, how can such ownership now have been destroyed and can

now be denied. The only way by which the petitioner, the buyer from the thief, can be protected in his
possession is by applying the provisions of paragraph 2 of Article 599 of the Civil Code, which reads:
If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in
good faith at a public sale, the owner can not obtain its return without reimbursing the price paid therefor.
Note that we have underlined the words public sale. This he has not proved and no evidence has been
shown or is insinuated in the record. Even if he had acquired it at public sale, the right for reimbursement
of the price still remains. The price is fully guaranteed by the bond approved by the court.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 90365

March 18, 1991

VICENTE T. TAN, VICTAN & COMPANY, INC., TRANSWORLD INVESTMENT CORPORATION, FIRST
INTERNATIONAL INVESTMENT COMPANY, INC., FAR EAST PETROLEUM & MINERALS
CORPORATION, and PHILCONTRUST INTERNATIONAL CORPORATION, petitioners,
vs.
THE HONORABLE COURT OF APPEALS (FORMER SPECIAL FIRST DIVISION), CENTRAL BANK OF
THE PHILIPPINES, respondents.
Ruperto G. Martin & Associates for petitioners.
Agapito S. Fajardo, Jerry P. Rebutoc & Restituto P. Ventura for private respondent.
SARMIENTO, J.:
The petitioners ask the Court to set aside the Decision of the Court of Appeals 1 dismissing their
complaint for reconveyance of shares of stock against the Central Bank. The fact as stated by the
respondent court are accurate and we adopt the same. They are as follows:
xxx

xxx

xxx

Civil Case No. 15707, entitled "Vicente T. Tan, et al. vs. Central Bank of the Philippines, et al.," is an
action for "Reconveyance of Shares of Stock with Damages and Restraining Order" wherein private
respondent Vicente T. Tan sought to recover shares of stocks owned by him and his associates in
Continental Bank which he had assigned to three corporations, namely: Executive Consultants, Inc.,
Orobel Property Management, Inc., and Antolum International Trading Corporation, as well as damages
for the illegal closure of Continental Bank.
It appears from the record that on June 15, 1974, private respondent Tan was arrested by the military
authorities pursuant to an Arrest, Search and Seizure Order (ASSO) issued by the then Secretary of
National Defense on the basis of criminal charges filed against him before the PC Criminal Investigation
Service for alleged irregular transactions at Continental Bank. At the time of his arrest, respondent Tan
was neither a director nor an officer of said bank. Subsequently, three (3) other officers of Continental
Bank, all with the rank of vice-presidents, were arrested. However, the bank's chairman of the board,
Cornelio Balmaceda, and its President, Jose Moran, were not arrested, and in fact continued to run the
operations of the bank.
Because of a possible bank run as a result of the arrests, the officers of Continental Bank requested an
emergency loan to meet pending withdrawals of depositors. The Monetary Board approved the request
on June 21, 1974 subject, however, to a verification of the bank's assets.
On June 24, 1974, the Director of petitioner's department of Commercial and Savings Banks, after
conducting said verification, reported that Continental Bank's assets cannot meet its liabilities, since the
latter exceeded the former by P 67.260 million. The report also indicated that Continental Bank was
insolvent and that its continuance in business would involve probable loss to its depositors and creditors,

which are the two grounds mandated under Section 29 of Republic Act No. 265, otherwise known as the
Central Bank Act, justifying the closure and placing under receivership of a bank.
On the basis of the report, petitioner ordered the closure of Continental Bank effective June 24, 1974 and
designated the Director of its Department of Commercial and Savings Banks as receiver with instructions
to take charge of the bank's assets pursuant to Sec. 29 of R.A. No. 265.
As also required by Section 29 of R.A. No. 265, a final report was submitted to the Monetary Board on
August 12, 1974 by Feliciano A. Balajadia, the Supervising Bank Examiner, affirming the earlier report
that Continental Bank was in an insolvent position and that its continuance in business may be
detrimental to its, creditors and depositors. The same report indicated, however, that the bank may be
allowed to reorganize under an entirely new management subject to certain conditions foremost of which
was the infusion of fresh funds into the bank.
While still under detention by the military, respondent Tan executed certain agreements on February 2,
1977, May 12, 1977 and July 5, 1977 transferring and assigning 359,615 shares of stock in Continental
Bank, as well as other properties belonging to him and his affiliate firms, to Executive Consultants, Inc.,
Orobel Property Management, Inc. and Antolum International Trading Corporation in consideration of the
assumption by these assignees of the liabilities and obligations of respondents Tan and his companies.
The assignees of respondents Tan and his companies rehabilitated Continental Bank and, in support
thereof, respondent Tan wrote the petitioner on July 5, 1977 certifying on his own behalf and in behalf of
the corporations owned and controlled by him, that they have no objection to the reopening and
rehabilitation of Continental Bank under its new name, International Corporate Bank or Interbank.
Interbank reopened in 1977 and since then operated as a banking institution with controlling ownership
thereof changing hands during the past decade.
On January 13, 1987, after the lapse of more than twelve (12) years, private respondents filed the present
case of reconveyance of shares of stock with damages and restraining order before the respondent court.
On March 3, 1987, petitioner filed a Motion to Dismiss dated February 27, 1987 on the grounds that the
action is barred by the statute of limitations or prescription and that plaintiffs therein (private respondents
herein) have no cause of action against the defendant (herein petitioner), as well as laches on the part of
plaintiffs. On April 1, 1987, private respondents filed their Opposition to the Motion to Dismiss to which
petitioner filed its Reply dated April 10, 1987.
The respondent court (trial court) resolved the motion to dismiss in favor of private respondent(s) in an
Order dated May 15, 1987, which stated among other things:
As to the prescription of an action based on implied or constructive trust, the Supreme Court held that it
prescribes in ten years. . . .
As alleged in the complaint, plaintiffs were fraudulently divested of their Continental Bank shares in 1977.
Consequently, the ten-year prescription period has not yet lapsed.
Plaintiffs likewise are not guilty of laches. . . .
With regards (sic) to the second ground, this Court finds that the allegations in the complaint, passed the
test laid down in Ruiz vs. Court of Appeals, G.R. No. 29213, Oct. 21, 1977, 79 SCRA 525, 534, regarding
sufficiency of ultimate facts. A valid judgment can be rendered upon the facts alleged in the complaint

(which are deemed admitted for purposes of the Motion to Dismiss) in accordance with the prayer of this
complaint. (p. 4, Petition)
Not satisfied with the Order petitioner filed a Motion for Reconsideration of the same, alleging that the
grounds of prescription and laches were raised principally in connection with private respondents' claim
for damages, while the ground of no cause of action was raised in connection with private respondents'
claim for reconveyance. In spite of petitioner's arguments, the Motion for Reconsideration was denied by
the respondent court in its Order of August 12, 1987. Hence, the (sic) petition for certiorari. 2
The issues, as the petitioners point out, are as follows:
1. Whether or not petitioners' action for damages against respondent is barred by prescription under
Section 29 of Republic Act No. 265.
2. Assuming, arguendo, that the action is not barred by prescription under Section 29 of Republic Act No.
265, whether or not the action for damages is barred by prescription under Article 1146 of the Civil Code.
3. Whether or not the complaint states a cause of action against respondent for the reconveyance of
petitioners' shareholdings in the former Continental Bank under the doctrine of constructive trust. 3
On the issue of prescription, the holding of the Court of Appeals is that prescription is a bar, under Section
29 of Republic Act No. 265, the Central Bank Act, as follows:
Sec. 29. Proceedings upon insolvency. Whenever, upon examination by the head of the appropriate
supervising and examining department or his examiners or agents into the condition of any banking
institution, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance
in business would involve probable loss to its depositors or creditors, it shall be the duty of the department
head concerned therewith, in writing, to inform the Monetary Board of the facts, and the Board, upon
finding the statements of the department head to be true, shall forthwith forbid the institution to do
business in the Philippines and shall designate an official of the Central Bank as receiver to immediately
take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and
administer the same for the benefit of its creditors, and exercising all the power necessary for these
purposes including, but not limited to bringing suits and foreclosing mortgages in the name of the banking
institution.
xxx

xxx

xxx

At any time within ten days after the Monetary Board has taken charge of the assets of any banking
institution, such institution may apply to the court of First Instance for an order requiring the Monetary
Board to show cause why its designated official should not be enjoined from continuing such charge of its
assets, and the court may direct the Board to refrain from further proceedings and to surrender charge of
its assets. 4
The respondent court also held that assuming, as the petitioners maintained (and still maintain in this
petition), that the complaint is for tort, Article 1146 of the Civil Code, providing as follows:
Art. 1146. The following actions must be instituted within four years:
(1) Upon an inquiry to the rights of the plaintiff;
(2) Upon a quasi-delict.5

is in any case, a bar.

Its ruling is that since the petitioners' action was commenced on January 13, 1987, or more than twelve
years from June 24, 1974, the date the Central Bank ordered the closure of Continental Bank, the same
had prescribed, whether under Section 29 of the Central Bank Act or under Article 1146 of the Civil Code.
On the issue of cause of action, the Court of Appeals is of the opinion that the complaint states no cause
of action, since the Central Bank is not one of the assignees of the shares the petitioners are seeking to
recover, and hence, no reconveyance is possible against it.
The petitioners now argue that prescription has not set in; that the ten-day period prescribed by Section
29 of Republic Act No. 265 refers to acts of the Monetary Board in taking over a bank's assets; that their
complaint is in the nature of an action for tort against the Central Bank arising from its alleged forcible
divestment of their shares in the Continental Bank-; that the period during which they were detained under
a martial law government constitutesfuerza mayor which interrupted prescription under Article 1146 of the
Civil Code; and that their action for reconveyance is to enforce a constructive trust with the Central Bank
as "indirect owner" (of the shares of stock), which must allegedly account therefor.
The first question refers to prescription. In this connection, we are not disposed to accept the ruling of the
Court of Appeals that under Republic Act No. 265, the action has prescribed, and that in any event,
assuming that Republic Act No. 265 is inapplicable, Article 1146 of the Civil Code is nonetheless a bar.
With respect to Republic Act No. 265, the Court notes that the statute talks of enjoining the Monetary
Board from taking charge of a bank's assets. The Court also notes, however, that the Monetary Board has
since relinquished possession of Continental Bank's assets, and the controlling ownership of the bank
has passed from hand to hand in the course of the decade. It has likewise since reopened under a new
name, International Corporate Bank, and a new management. Clearly, and as a perusal of the petitioners'
complaint confirms, the petitioners are not asking for an injunction against the Monetary Board and the
Board has since in fact ceased from performing any act in connection with Continental Bank or its
successor bank.
From a reading of the complaint, we can not either say that Article 1146 is a deterrent, because although
the same, coincidentally, avers intimidation employed by the martial law administration in taking over
Continental Bank, an act that suggests "quasi-delict," the same is preeminently one for reconveyance of
the shares of stock subject of that takeover, and not on account of any injury to the petitioners' rights. We
quote:
WHEREFORE, plaintiffs respectfully pray that judgment be rendered:
A. Upon the filing of this Complaint, this Honorable Court issue a restraining order directing defendant
National Development Company, its agents, representatives or such other persons acting under its
authority and direction to desist and refrain from disposing or otherwise transferring the shares of stock in
question.
B. After due hearing:
1. Ordering the defendants to reconvey, restore and/or re-assign to plaintiffs all the latter's controlling
shareholdings in the former Continental Bank (now renamed INTERBANK) in the same proportion as it
was at the time of its fraudulent acquisition including such incremental shares of stock that should have
been acquired by the plaintiffs had they been granted the opportunity to exercise their right to pre-emption
to the new issues of shares of stock as a consequence of the subsequent increases in the authorized

capital stock of said bank and all stocks dividends declared since the reopening of Continental Bank
under the name INTERBANK.
2. Ordering the defendant Central Bank of the Philippines to pay the plaintiffs moral damages including
attorney's fees and litigation expenses in an amount that may be proved during the trial.
Plaintiffs likewise pray for such other reliefs and remedies as this Honorable Court may deem just and
equitable in the premises. 6
As the petitioners in fact very vehemently maintain in the present petition, the cause of action is
predicated on "reconveyance of petitioners' shareholdings in the former Continental Bank under the
doctrine of constructive trust."7
At any rate, actions on tortassuming that the complaint is one for tort-prescribe in four years under, as
aforesaid, Article 1146 of the Code. That Article 1149 which refers to "periods not fixed in this Code or
other laws "is the applicable provision becomes therefore untenable because, please note, Article 1146
speaks of "injury to the rights of the plaintiff " and "quasi-delict" specific legal nomenclatures for tort
assuming, again, that the action is for tort. The Court does not see how Article 1149 can therefore enter
into the picture.
Please note also that in the case of Allied Banking Corporation vs. Court of Appeals 8 we specifically held
that an action against the Central Bank for "tortious interference," that is, in closing and liquidating a bank,
prescribes in four years from the date of closure. In that case which is one for tort we held that Article
1146 is the applicable law.
Be that as it may, and assuming ex gratia argumenti that Article 1149 were applicable, it still would not
have rescued the petitioners since that meant that they had until 1982 at most, within which to institute a
claim. Prescription would still have been a bar.
The next question is whether or not any action for reconveyance has nevertheless prescribed, on the
bases of provisions governing reconveyance.
The rule anent prescription on recovery of movables (shares of stock in this case) is expressed in Article
1140 of the Civil Code, which we quote:
Art. 1140. Actions to recover movables shall prescribe eight years from the time the possession thereof is
lost, unless the possessor had acquired the ownership by prescription for a less period, according to
article 1132, and without prejudice to the provisions of articles 559, 1505, and 1133.
As it provides, Article 1140 is subject to the provisions of Articles 1132 and 1133 of the Code, governing
acquisitive presciption, in relation to Articles 559 and 1505 thereof. Under Article 1132:
Art. 1132. The ownership of movables prescribes through uninterruped possession for four years in good
faith.
The ownership of personal property also prescribes through uninterrupted possession for eight years,
without need of any other condition.
With regard to the right of the owner to recover personal property lost or of which he has been illegally
deprived, as well as with respect to movables acquired in a public sale, fair, or market, or from a
merchant's store the provisions of articles 559 and 1505 of this Code shall be observed.

acquisitive prescription sets in after uninterrupted possession of four years, provided there is good faith,
and upon the lapse of eight years, if bad faith is present. Where, however, the thing was acquired through
a crime, the offender can not acquire ownership by prescription under Article 1133, which we quote:
Art. 1133. Movables possessed through a crime can never be acquired through prescription by the
offender.
Please note that under the above Article, the benefits of prescription are denied to the offender;
nonetheless, if the thing has meanwhile passed to a subsequent holder, prescription begins to run (four or
eight years, depending on the existence of good faith). 9
For purposes of existence prescription vis-a-vis movables, we therefore understand the periods to be:
1. Four years, if the possessor is in good faith;
2. Eight years in all other cases, except where the loss was due to a crime in which case, the offender
can not acquire the movable by prescription, and an action to recover it from him is imprescriptible.
It is evident, for purposes of the complaint in question, that the petitioners had at most eight years within
which to pursue a reconveyance, reckoned from the loss of the shares in 1977, when the petitioner
Vicente Tan executed the various agreements in which he conveyed the same in favor of the Executive
Consultants, Inc., Orobel Property Management, Inc., and Antolum Trading Corporation.
We are hard put to say, in this regard, that the petitioners' action is after all, imprescriptible pursuant to the
provisions of Article 1133 of the Civil Code, governing actions to recover loss by means of a crime. For
one thing, the complaint was not brought upon this theory. For another, there is nothing there that
suggests that the loss of the shares was indeed made possible by a criminal act, other than simple bad
faith and probably abuse of right:
18. By reason of the fraudulent acquisition by the Disini corporations (Executive Consultants, Inc., Orobel
Property Management, Inc. and Antolum International Trading Corporation) of the 359, 615 shares
mentioned in Paragraph 5 hereof, a constructive trust has been constituted on said shares in favor of
plaintiffs, a "remedy to whatever knavery human ingenuity can invent";
19. The execution of the aforementioned Agreement and Supplemental Agreements paved the way for
the re-opening of the Continental Bank on September 19, 1977 under a new name, INTERNATIONAL
CORPORATE BANK (INTERBANK, for short) and under the new management of the Herdis Group,
which became the owner of the controlling stocks by virtue of their fraudulent acquisition of the 359,615
shares mentioned in Paragraph 5 hereof; and it also paved the way for the release of Plaintiff Vicente T.
Tan, his spouse and other officers of the Continental Bank from military custody on December 27, 1977
and the subsequent dismissal of the complaint for estafa thru falsification and violation of the Central
Bank Act against said Plaintiff Tan and other officers of the Bank in compliance with the instructions of
deposed President Ferdinand E. Marcos;
20. Without the infusion of fresh capital and after barely three (3) months of operation, INTERBANK's
consolidated statement of financial condition as of December 29, 1977, which was published in Bulletin
Todayon January 31, 1978, showed a P22.42 million undivided profit and surplus which represented
about 50% of the paid-up capital. Said financial statement is hereto attached as Annex "D".
21. In the special meeting of the shareholders of INTERBANK on April 24, 1978, the
recommendation/declaration by the Board of Directors during its special meeting on April 14, 1978 of a

25.5% stock dividend on all fully paid shares as of April 12, 1978 was approved, subject to the approval of
the Central Bank of the Philippines; however, the Central Bank allowed INTERBANK to declare only
23.71% stock dividend;
22. The new management then of INTERBANK totally ignored the existing rules and regulations of the
Central Bank of the Philippines by milking dry the deposits with said INTERBANK through huge
borrowings of the Disini Group of companies thereby pushing said Bank to the brink of total collapse had
it not been for the huge infusion of funds by the Central Bank of the Philippines in the form of emergency
loans and advances;
23. Since the Central Bank of the Philippines is prohibited to acquire shares of any kind and to participate
in the ownership or management of any enterprise, either directly or indirectly, it assigned the emergency
loans and advances extended to the INTERBANK to the National Development Company of (sic) which
the latter executed the corresponding promissory note payable in 25 years, without interest, in favor of
said Central Bank, and which loans and advances were converted into equity thereby enabling the
National Development Corporation to acquire 99% of INTERBANK's outstanding shares of stock from the
Disini Group, including the 359,615 shares mentioned in Paragraph 5 hereof, and the corresponding
stock/cash dividends earned;
24. The defendant American Express Bank, Ltd. (AMEX) acquired from defendant National Development
Company 40% of the outstanding shares of stock of INTERBANK but before AMEX (sic) acquisition of
said interest, it was placed on notice of the infirmities of the transfer of the shares of plaintiffs in
Continental Bank to the former owners of INTERBANK;
25. That despite said notice, AMEX proceeded to convert, with the approval of Central Bank of the
Philippines, its exposures to the Philippine government into equity in INTERBANK;
26. Defendant Central Bank of the Philippines, which may be considered indirect owner of INTERBANK
under the foregoing arrangement, and defendants National Development Company and AMEX having
actual or constructive notice of the fraudulent acquisition by the aforementioned three corporations acting
as fronts of Herminio Disini of the 359,615 shares of stock of plaintiffs, are obligated under the principle of
constructive trust to reconvey to plaintiffs their original controlling shareholdings in the then Continental
Bank including the corresponding stock/cash dividends earned;
27. Were it not for the acts complained of in this case, plaintiffs would have retained the right to said
shareholdings and they could have exercised their pre-emption rights to new issues of stock as a
consequence of the increases of capitalization of INTERBANK;
28. In view of the evident arbitrariness and bad faith of the Central Bank as adverted to above, which
caused Plaintiffs Vicente T. Tan being divested of his huge investment and virtually all his assets, said
Plaintiff Tan has been subjected to physical suffering, mental anguish, besmirched reputation and social
humiliation; hence, defendant Central Bank is liable for moral damages. 10
xxx

xxx

xxx

Since the complaint was filed on January 13, 1987, ten years more or less after the petitioners transferred
the shares in question, it is clear that the petitioners have come to court too late.
We can not accept the petitioners' contention that the period during which authoritarian rule was in force
had interrupted prescription and that the same began to run only on February 25, 1986, when the Aquino
government took power. It is true that under Article 1154:

Art. 1154. The period during which the obligee was prevented by a fortuitous event from enforcing s right
is not reckoned against him. 11
fortuitous events have the effect of tolling the period of prescription. However, we can not say, as a
universal rule, that the period from September 21, 1972 through February 25, 1986 involves a force
majeure. Plainly, we can not box in the "dictatorial" period within the term without distinction, and without,
by necessity, suspending all liabilities, however demandable, incurred during that period, including
perhaps those ordered by this Court to be paid. While this Court is cognizant of acts of the last regime,
especially political acts, that might have indeed precluded the enforcement of liability against that regime
and/or it's minions the Court is not inclined to make quite a sweeping pronouncement, considering
especially the unsettling effects such a pronouncement is likely to bring about. It is our opinion that claims
should be taken on a case-to-case basis. This selective rule is compelled, among others, by the fact that
not all those imprisoned or detained by the past dictatorship were true political oppositionists, or, for that
matter, innocent of any crime or wrongdoing. Indeed, not a few of them were manipulators and
scoundrels.
The petitioner Vicente Tan claims that from June, 1974 through December, 1977, he was under detention;
that sometime in August, 1977, the Central Bank lodged six criminal cases against him, along with several
others, with Military Commission No. 5 in connection with alleged violation of the Central Bank Act,
falsification of documents, and estafa, that while in detention, he was made to execute various
agreements in which he conveyed the shares of stock in question; and that "[u]nder the foregoing factual
setting . . . it would be foolhardy on the part of petitioners to institute . . . [any] action for
reconveyance . . ." 12
The records show, however, that although under detention, Vicente Tan:
1. Commenced, in July, 1976, Civil Case No. 103359 of the defunct Court of First Instance of Manila, "to
mandatorily enjoin the Central Bank as receiver of Continental Bank, to takeover from 'NISA' the control
and management and assets of Vicente Tan and his affiliate corporations;" 13
2. Was ably represented by competent counsel, Atty. Norberto Quisumbing, throughout; 14
3. Filed with this Court a petition to stop the trial of the criminal cases pending against him with the
Military Commission No. 5 and succeeded in obtaining a temporary restraining order.
On top of those facts abovementioned, he:
1. Asked the Court of First Instance to order the Central Bank "to proceed to rehabilitate Continental Bank
by extending to it such emergency loans and advances as may be needed for its rehabilitation. . ." 15
2. Wrote, on July 15, 1977, the Central Bank expressing his approval in the reopening and rehabilitation
of Continental Bank. 16
We are, therefore, convinced, from Vicente Tan's very behavior, that detention was not an impediment to
a judicial challenge, and the fact of the matter was that he was successful in obtaining judicial assistance.
Under these circumstances, we can not declare detention, or authoritarian rule for that matter, as a
fortuitous event insofar as he was concerned, that interrupted prescription.
To be sure, there is nothing in the petition which would remotely suggest, assuming that Vicente Tan
could not have freely and intelligently acted during the period of martial rule, that his co-petitioners Victan
& Company, Inc., Transworld Investment Corporation, First International Investment Company, Inc., Far

East Petroleum & Minerals Corporation, and Philcontrust International Corporation, could not have
similarly acted during the martial law regime and shortly thereafter. As far as they are therefore
concerned, the Court has even better reason to invoke prescription because none of them acted and
none now claims that it could not have acted.
On the question of cause of action, the Court notes that as the complaint itself avers, the petitioners'
shares in the Continental Bank were assigned to the firms already above specified (which Herminio Disini
allegedly controlled), and not to the Central Bank. It is therefore fairly obvious that if any claim for
reconveyance may be prosecuted, it should be prosecuted against the Disini companies.
It is true that the Central Bank is alleged to be the "indirect owner," 17 arising from certain loans
supposedly facilitated by the Bank that enabled yet two other companies, the National Development
Company and the American Express Bank, to acquire about ninety-nine percent of International
Corporate Bank, subject to the conditionality that any transfer of shares shall be approved by the Central
Bank. Clearly, however, if the Central Bank were "owner" which as we shall see, it is notit is "owner"
only because it is preserving its money exposure to the National Development Corporation and the
American Express Bank. It is not "owner" for reconveyance purposes, that is, as the trustee holding
shares acquired by fraud or mistake. To say now that it is holding those shares as such a trustee, that is,
as a result of the takeover of Continental Bank by the Disini companies, in spite of the fact that based on
the records the bank now pertains to the NDC and American Express, is a mere conclusion of fact of the
petitioners, the plaintiffs in the trial court.
We have held that:
xxx

xxx

xxx

The subject Amended and Supplemental Complaint fail to meet the test. It should be noted that it charges
PNB and NIDC with having assisted in the illegal creation and operation of defendant sugar mill. Granting,
for the sake of argument, that, indeed, assistance in the "illegal" act was rendered, the same, however, is
not supported by well-pleaded averments of facts. Nowhere is it alleged that defendants-appellees had
notice, information or knowledge of any flaw, much less any illegality, in their co-defendants' actuations,
assuming that there was such a flaw or illegality. This absence is fatal and buoys up instead the PNB
NIDC's position of lack of cause of action.
Although it is averred that the defendants' acts were done in bad faith, the Complaint does not contain
any averment of facts showing that the acts were done in the manner alleged. Such a bare statement
neither establishes any right or cause of action on the part of the plaintiff-appellant. It is a mere conclusion
of law not sustained by declarations of facts, much less admitted by defendants-appellees. It does not,
therefore, aid in any wise the complaint in setting forth a cause of action. Defendants-appellees are not
fairly apprised of the act or acts complained of. 18
xxx

xxx

xxx

As we indicated, the fact that the parties had stipulated that any transfer of the Interbank shares by the
National Development Company shall be "subject to prior CB approval" does not make the Central Bank
the owner. We said, it is a simple conditionality prescribed by the Central Bank in order to protect its
money, a conditionality that is prescribed in many loans. It is not as if the arrangement had allowed the
Central Bank to hold the Interbank shares in question and had left the National Development Company to
act as a front.
In fine, the respondent court did not commit any reversible error.

WHEREFORE, the petition is DENIED. The Complaint in Civil Case No. 15707 of the Regional Trial
Court, Branch 134, Makati, Metro Manila, is hereby DISMISSED.
Costs against the petitioners.
IT IS SO ORDERED.
Melencio-Herrera and Regalado, JJ., concur.
Padilla, J., took no part.

Separate Opinions
PARAS, J., dissenting:
I dissent.
The facts in this case are simple enough: Vicente T. Tan, one of the petitioners herein, was one of the
principal stockholders of the former Continental Bank, located in Manila. At the time the Central Bank
closed the Continental Bank for alleged bankruptcy, he was a stockholder of said Continental Bank.
Because of the closure and incidents attendant thereto, he, among others, filed on January 13, 1987 an
action in the Regional Trial Court of Makati asking a) for damages from the Central Bank; and b) for
reconveyance of certain deeds of assignment which he had executed in favor of the private respondent.
Respondent Central Bank filed a Motion to Dismiss because of a) alleged prescription and laches
regarding the claim for damages and b) the alleged failure of the complaint to state a cause of action
against the Central Bankregarding the action for reconveyance. The Regional Trial Court of Makati,
Metro Manila, (Branch 134) denied the motion to dismiss in a resolution penned by Judge Ignacio M.
Capulong. However, on appeal, the respondent Court of Appeals reversed the Regional Trial Court in a
decision dated April 5, 1989. Hence this petition for review filed by Vicente T. Tan, et al. (who felt
aggrieved) before Us purely on two (2) questions of law: a) what is the period for prescription in an action
for damages filed against the Central Bank for alleged illegal closure of Continental Bank?; and b) does
the complaint in the Regional Trial Court for reconveyance state a cause of action against the Central
Bank?
We believe that the petition is meritorious on both counts, that is, a) the complaint filed before the
Regional Trial Court had not prescribed, nor was there any laches on the part of petitioner Vicente T. Tan;
and b) said complaint actually stated a cause of action against the Central Bank for reconveyance of the
deeds of assignment involved in this case.
With reference to prescription, We state that the 10-day period in Sec. 29 of Republic Act 265 is not
applicable because to Our mind, said period applies only when the purpose of the action is for
the reopening (or for prevention of further closure) of the bank, not in an action for damages for the
closure and subsequent actuations of the Central Bank incidental to said closure. The correct period is
five (5) years under Art. 1149 of the Civil Code and not four years under Art. 1146 of the same Code. And
from this period of five (5) years must be excluded the period during which the action could not be brought
because of a force majeure (Art. 1154 of the Civil Code), as exemplified by the dictatorial regime which
ruled the Philippines during the past administration. The period of prescription therefore should be
counted from February 25, 1986 when the present administration of President Corazon C. Aquino took
over the control of the government. The action having been brought on January 13, 1987, it is clear that

counted from February 25, 1986, less than a year had elapsed, and therefore the action has not yet
prescribed. Moreover, considering the additional fact that petitioner Vicente T. Tan was a detention
prisoner up to the end of the former regime, it is likewise clear that he is not guilty of laches. While it may
be said cavalier-like, that despite being a detention prisoner, Tan could have filed the action thru his
lawyers, this is easier said than done. Tan knew he had little chance of indication when the highest official
of the land seemed to be his mortal enemy.
Anent the claim for reconveyance, it is evident from a reading of the complaint filed in the Regional Trial
Court that the execution of the deeds of assignment was precipitated by the alleged illegal closure of the
Continental Bank. Whether or not the closure of said bank was really illegal, and whether or not it was the
Central Bank's fault that the execution of the deeds had been made is completely beside the point for it
should be noted that this entire case was begun by a mere motion to dismiss, hence, there has been no
hearing on the merits as yet. And herein lies one of the principal faults of the questioned decision, the
resolution of the Court of Appeals, and the majority decision herein, namely, that it dwelt somehow on the
merits of the case, particularly on whether or not the Central Bank wasactually responsible for the
execution of the deeds of assignment. The majority says they cannot understand how the Central Bank
"precipitated" the fraudulent transfer to the assignees. This is completely irrelevant. Whether or not there
was such a "precipitating," and how this was done, is beside the point. The fact is there is such a charge,
such an allegation. Clearly, the complaint by itself states a cause of action. Be it remembered that there is
a big difference between failure to state a cause of action and failure to prove lack of a valid cause of
action. After all, this case will still be examined thoroughly on the merits after it is brought back to the
Regional Trial Court.
I therefore vote for the reversal and setting aside of the appealed decision dated April 5, 1989 and the
resolution dated September 20, 1989 both of the Court of Appeals as well as for the remanding of the
case to the Regional Trial Court of Makati, Metro Manila, Branch 134 for further proceedings.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-18536

March 31, 1965

JOSE B. AZNAR, plaintiff-appellant,

vs.
RAFAEL YAPDIANGCO, defendant-appellee;
TEODORO SANTOS, intervenor-appellee.
Florentino M. Guanlao for plaintiff-appellant.
Rafael Yapdiangco in his own behalf as defendant-appellee.
Lorenzo Sumulong, R. B. Hilao and B. S. Felipe for intervenor-appellee.
REGALA, J.:
This is an appeal, on purely legal questions, from a decision of the Court of First Instance of Quezon City,
Branch IV, declaring the intervenor-appellee, Teodoro Santos, entitled to the possession of the car in
dispute.
The records before this Court disclose that sometime in May, 1959, Teodoro Santos advertised in two
metropolitan papers the sale of his FORD FAIRLANE 500. In the afternoon of May 28, 1959, a certain L.
De Dios, claiming to be a nephew of Vicente Marella, went to the Santos residence to answer the ad.
However, Teodoro Santos was out during this call and only the latter's son, Irineo Santos, received and
talked with De Dios. The latter told the young Santos that he had come in behalf of his uncle, Vicente
Marella, who was interested to buy the advertised car.
On being informed of the above, Teodoro Santos instructed his son to see the said Vicente Marella the
following day at his given address: 1642 Crisostomo Street, Sampaloc, Manila. And so, in the morning of
May 29, 1959, Irineo Santos went to the above address. At this meeting, Marella agreed to buy the car for
P14,700.00 on the understanding that the price would be paid only after the car had been registered in his
name.
Irineo Santos then fetched his father who, together with L. De Dios, went to the office of a certain Atty.
Jose Padolina where the deed of the sale for the car was executed in Marella's favor. The parties to the
contract thereafter proceeded to the Motor Vehicles Office in Quezon City where the registration of the car
in Marella's name was effected. Up to this stage of the transaction, the purchased price had not been
paid.
From the Motor Vehicles Office, Teodoro Santos returned to his house. He gave the registration papers
and a copy of the deed of sale to his son, Irineo, and instructed him not to part with them until Marella
shall have given the full payment for the car. Irineo Santos and L. De Dios then proceeded to 1642
Crisostomo Street, Sampaloc, Manila where the former demanded the payment from Vicente Marella.
Marella said that the amount he had on hand then was short by some P2,000.00 and begged off to be
allowed to secure the shortage from a sister supposedly living somewhere on Azcarraga Street, also in
Manila. Thereafter, he ordered L. De Dios to go to the said sister and suggested that Irineo Santos go
with him. At the same time, he requested the registration papers and the deed of sale from Irineo Santos
on the pretext that he would like to show them to his lawyer. Trusting the good faith of Marella, Irineo

handed over the same to the latter and thereupon, in the company of L. De Dios and another unidentified
person, proceeded to the alleged house of Marella's sister.
At a place on Azcarraga, Irineo Santos and L. De Dios alighted from the car and entered a house while
their unidentified companion remained in the car. Once inside, L. De Dios asked Irineo Santos to wait at
the sala while he went inside a room. That was the last that Irineo saw of him. For, after a considerable
length of time waiting in vain for De Dios to return, Irineo went down to discover that neither the car nor
their unidentified companion was there anymore. Going back to the house, he inquired from a woman he
saw for L. De Dios and he was told that no such name lived or was even known therein. Whereupon,
Irineo Santos rushed to 1642 Crisostomo to see Marella. He found the house closed and Marella gone.
Finally, he reported the matter to his father who promptly advised the police authorities.
That very same day, or on the afternoon of May 29, 1959 Vicente Marella was able to sell the car in
question to the plaintiff-appellant herein, Jose B. Aznar, for P15,000.00. Insofar as the above incidents are
concerned, we are bound by the factual finding of the trial court that Jose B. Aznar acquired the said car
from Vicente Marella in good faith, for a valuable consideration and without notice of the defect
appertaining to the vendor's title.
While the car in question was thus in the possession of Jose B. Aznar and while he was attending to its
registration in his name, agents of the Philippine Constabulary seized and confiscated the same in
consequence of the report to them by Teodoro Santos that the said car was unlawfully taken from him.
In due time, Jose B. Aznar filed a complaint for replevin against Captain Rafael Yapdiangco, the head of
the Philippine Constabulary unit which seized the car in question Claiming ownership of the vehicle, he
prayed for its delivery to him. In the course of the litigation, however, Teodoro Santos moved and was
allowed to intervene by the lower court.
At the end of the trial, the lower court rendered a decision awarding the disputed motor vehicle to the
intervenor-appellee, Teodoro Santos. In brief, it ruled that Teodoro Santos had been unlawfully deprived
of his personal property by Vicente Marella, from whom the plaintiff-appellant traced his right.
Consequently, although the plaintiff-appellant acquired the car in good faith and for a valuable
consideration from Vicente Marella, the said decision concluded, still the intervenor-appellee was entitled
to its recovery on the mandate of Article 559 of the New Civil Code which provides:
ART. 559. The possession of movable property acquired in good faith is equivalent to title. Nevertheless,
one who lost any movable or has been unlawfully deprived thereof, may recover it from the person in
possession of the same.
If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in
good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.
From this decision, Jose B. Aznar appeals.
The issue at bar is one and simple, to wit: Between Teodoro Santos and the plaintiff-appellant, Jose B.
Aznar, who has a better right to the possession of the disputed automobile?
We find for the intervenor-appellee, Teodoro Santos.
The plaintiff-appellant accepts that the car in question originally belonged to and was owned by the
intervenor-appellee, Teodoro Santos, and that the latter was unlawfully deprived of the same by Vicente
Marella. However, the appellant contends that upon the facts of this case, the applicable provision of the

Civil Code is Article 1506 and not Article 559 as was held by the decision under review. Article 1506
provides:
ART. 1506. Where the seller of goods has a voidable title thereto, but his, title has not been voided at the
time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for
value, and without notice of the seller's defect of title.
The contention is clearly unmeritorious. Under the aforequoted provision, it is essential that the seller
should have a voidable title at least. It is very clearly inapplicable where, as in this case, the seller had no
title at all.
Vicente Marella did not have any title to the property under litigation because the same was never
delivered to him. He sought ownership or acquisition of it by virtue of the contract. Vicente Marella could
have acquired ownership or title to the subject matter thereof only by the delivery or tradition of the car to
him.
Under Article 712 of the Civil Code, "ownership and other real rights over property are acquired and
transmitted by law, by donation, by testate and intestate succession, and in consequence of certain
contracts, by tradition." As interpreted by this Court in a host of cases, by this provision, ownership is not
transferred by contract merely but by tradition or delivery. Contracts only constitute titles or rights to the
transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the same
(Gonzales v. Rojas, 16 Phil. 51; Ocejo, Perez and Co. v. International Bank, 37 Phil. 631, Fidelity and
Deposit Co. v. Wilson, 8 Phil. 51; Kuenzle & Streiff v. Wacke & Chandler, 14 Phil. 610; Easton v. Diaz Co.,
32 Phil. 180).
For the legal acquisition and transfer of ownership and other property rights, the thing transferred must be
delivered, inasmuch as, according to settled jurisprudence, the tradition of the thing is a necessary and
indispensable requisite in the acquisition of said ownership by virtue of contract. (Walter Laston v. E. Diaz
& Co. & the Provincial Sheriff of Albay, supra.)
So long as property is not delivered, the ownership over it is not transferred by contract merely but by
delivery. Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery
or tradition is the method of accomplishing the same, the title and the method of acquiring it being
different in our law. (Gonzales v. Roxas, 16 Phil. 51)
In the case on hand, the car in question was never delivered to the vendee by the vendor as to complete
or consummate the transfer of ownership by virtue of the contract. It should be recalled that while there
was indeed a contract of sale between Vicente Marella and Teodoro Santos, the former, as vendee, took
possession of the subject matter thereof by stealing the same while it was in the custody of the latter's
son.
There is no adequate evidence on record as to whether Irineo Santos voluntarily delivered the key to the
car to the unidentified person who went with him and L. De Dios to the place on Azcarraga where a sister
of Marella allegedly lived. But even if Irineo Santos did, it was not the delivery contemplated by Article 712
of the Civil Code. For then, it would be indisputable that he turned it over to the unidentified companion
only so that he may drive Irineo Santos and De Dios to the said place on Azcarraga and not to vest the
title to the said vehicle to him as agent of Vicente Marella. Article 712 above contemplates that the act be
coupled with the intent of delivering the thing. (10 Manresa 132)
The lower court was correct in applying Article 559 of the Civil Code to the case at bar, for under it, the
rule is to the effect that if the owner has lost a thing, or if he has been unlawfully deprived of it, he has a

right to recover it, not only from the finder, thief or robber, but also from third persons who may have
acquired it in good faith from such finder, thief or robber. The said article establishes two exceptions to the
general rule of irrevindicability, to wit, when the owner (1) has lost the thing, or (2) has been unlawfully
deprived thereof. In these cases, the possessor cannot retain the thing as against the owner, who may
recover it without paying any indemnity, except when the possessor acquired it in a public sale. (Del
Rosario v. Lucena, 8 Phil. 535; Varela v. Finnick, 9 Phil. 482; Varela v. Matute, 9 Phil. 479; Arenas v.
Raymundo, 19 Phil. 46. Tolentino, id., Vol. II, p. 261.)
In the case of Cruz v. Pahati, et al., 52 O.G. 3053 this Court has already ruled
that
Under Article 559 of the new Civil Code, a person illegally deprived of any movable may recover it from
the person in possession of the same and the only defense the latter may have is if he has acquired it in
good faith at a public sale, in which case, the owner cannot obtain its return without reimbursing the price
paid therefor. In the present case, plaintiff has been illegally deprived of his car through the ingenious
scheme of defendant B to enable the latter to dispose of it as if he were the owner thereof. Plaintiff,
therefore, can still recover possession of the car even if it is in the possession of a third party who had
acquired it in good faith from defendant B. The maxim that "no man can transfer to another a better title
than he had himself" obtains in the civil as well as in the common law. (U.S. v. Sotelo, 28 Phil. 147)
Finally, the plaintiff-appellant here contends that inasmuch as it was the intervenor-appellee who had
caused the fraud to be perpetrated by his misplaced confidence on Vicente Marella, he, the intervenorappellee, should be made to suffer the consequences arising therefrom, following the equitable principle
to that effect. Suffice it to say in this regard that the right of the owner to recover personal property
acquired in good faith by another, is based on his being dispossessed without his consent. The common
law principle that where one of two innocent persons must suffer by a fraud perpetrated by another, the
law imposes the loss upon the party who, by his misplaced confidence, has enabled the fraud to be
committed, cannot be applied in a case which is covered by an express provision of the new Civil Code,
specifically Article 559. Between a common law principle and a statutory provision, the latter must prevail
in this jurisdiction. (Cruz v. Pahati, supra)