G.R. No.

188832

April 23, 2014

VIVENCIO B. VILLAGRACIA, Petitioner,

vs.
FIFTH (5th) SHARI'A DISTRICT COURT and ROLDAN E. MALA, represented by his father Hadji Kalam T. Mala, Respondents.
DECISION
LEONEN, J.:
Shari' a District Courts have no jurisdiction over real actions where one of the parties is not a Muslim.
This is a petition for certiorari with application for issuance of temporary restraining order and/or preliminary injunction to set aside
1
2
the Fifth (5th) Shari'a District Court's decision dated June 11, 2008 and order dated May 29, 2009 in SDC Special Proceedings Case
No. 07-200.
The facts as established from the pleadings of the parties are as follows:
On February 15, 1996, Roldan E. Mala purchased a 300-square-meter parcel of land located in Poblacion, Parang, Maguindanao, now
Shariff Kabunsuan, from one Ceres Caete. On March 3, 1996, Transfer Certificate of Title No. T-15633 covering the parcel of land
3
4
was issued in Roldans name. At the time of the purchase, Vivencio B. Villagracia occupied the parcel of land.
By 2002, Vivencio secured a Katibayan ng Orihinal na Titulo Blg. P-60192 issued by the Land Registration Authority allegedly covering
5
the same parcel of land.
On October 30, 2006, Roldan had the parcel of land surveyed. In a report, Geodetic Engineer Dennis P. Dacup found that Vivencio
6
occupied the parcel of land covered by Roldans certificate of title.
To settle his conflicting claim with Vivencio, Roldan initiated barangay conciliation proceedings before the Office of the Barangay
Chairman of Poblacion II, Parang, Shariff Kabunsuan. Failing to settle with Vivencio at the barangay level, Roldan filed an action to
7
recover the possession of the parcel of land with respondent Fifth Sharia District Court.
In his petition, Roldan alleged that he is a Filipino Muslim; that he is the registered owner of the lot covered by Transfer Certificate
of Title No. 15633; and that Vivencio occupied his property, depriving him of the right to use, possess, and enjoy it. He prayed that
8
respondent Fifth Sharia District Court order Vivencio to vacate his property.
Respondent court took cognizance of the case and caused service of summons on Vivencio. However, despite service of summons,
Vivencio failed to file his answer. Thus, Roldan moved that he be allowed to present evidence ex parte, which motion respondent
9
10
Fifth Sharia District Court granted in its order dated January 30, 2008.
11

In its decision dated June 11, 2008, respondent Fifth Sharia District Court ruled that Roldan, as registered owner, had the better
right to possess the parcel of land. It ordered Vivencio to vacate the property, turn it over to Roldan, and pay P10,000.00 as
moderate damages and P5,000.00 as attorneys fees.
12

On December 15, 2008, respondent Fifth Sharia Distict Court issued the notice of writ of execution to Vivencio, giving him 30 days
13
from receipt of the notice to comply with the decision. He received a copy of the notice on December 16, 2008.
14

On January 13, 2009, Vivencio filed a petition for relief from judgment with prayer for issuance of writ of preliminary injunction. In
his petition for relief from judgment, Vivencio cited Article 155, paragraph (2) of the Code of Muslim Personal Laws of the
15
Philippines and argued that Sharia District Courts may only hear civil actions and proceedings if both parties are Muslims.
Considering that he is a Christian, Vivencio argued that respondent Fifth Sharia District Court had no jurisdiction to take cognizance
of Roldans action for recovery of possession of a parcel of land. He prayed that respondent Fifth Sharia District Court set aside the
16
decision dated June 11, 2008 on the ground of mistake.
17

Respondent Fifth Sharia District Court ruled that Vivencio "intentionally [waived] his right to defend himself." It noted that he was
duly served with summons and had notice of the following: Roldans motion to present evidence ex parte, respondent Fifth Sharia

District Courts decision dated June 11, 2008, and the writ of execution. However, Vivencio only went to court "when he lost his right
18
to assail the decision via certiorari."
According to respondent Fifth Sharia District Court, Vivencio cited the wrong provision of law. Article 155, paragraph (2) of the Code
19
of Muslim Personal Laws of the Philippines refers to the jurisdiction of Sharia Circuit Courts, not of Sharia District Courts. It ruled
that it had jurisdiction over Roldans action for recovery of possession. Regardless of Vivencio being a non-Muslim, his rights were
not prejudiced since respondent Fifth Sharia District Court decided the case applying the provisions of the Civil Code of the
20
Philippines.
21

Thus, in its order dated May 29, 2009, respondent Fifth Sharia District Court denied Vivencios petition for relief from judgment for
lack of merit. It reiterated its order directing the issuance of a writ of execution of the decision dated June 11, 2008.
Vivencio received a copy of the order denying his petition for relief from judgment on June 17, 2009.

22

On August 6, 2009, Vivencio filed the petition for certiorari with prayer for issuance of temporary restraining order with this court.

23

In his petition for certiorari, Vivencio argued that respondent Fifth Sharia District Court acted without jurisdiction in rendering the
24
decision dated June 11, 2008. Under Article 143, paragraph (2)(b) of the Code of Muslim Personal Laws of the Philippines, Sharia
District Courts may only take cognizance of real actions where the parties involved are Muslims. Reiterating that he is not a Muslim,
Vivencio argued that respondent Fifth Sharia District Court had no jurisdiction over the subject matter of Roldans action. Thus, all
25
the proceedings before respondent Fifth Sharia District Court, including the decision dated June 11, 2008, are void.
26

In the resolution dated August 19, 2009, this court ordered Roldan to comment on Vivencios petition for certiorari. This court
27
subsequently issued a temporary restraining order enjoining the implementation of the writ of execution against Vivencio.
28

On September 21, 2011, Roldan filed his comment on the petition for certiorari. He allegedly filed the action for recovery of
29
possession with the Sharia District Court where "a more speedy disposition of the case would be obtained":
1. That SDC Spl. Case No. 07-200 (Quieting of Title) was duly filed with the Fifth (5th) Shariah District Court, Cotabato City
at the option of herein private respondent (petitioner below) who believed that a more speedy disposition of the case
would be obtained when the action is filed with the Shariah District Court than in the Regional Trial Courts considering the
30
voluminous pending cases at the Regional Trial Courts[.]
On Vivencios claim that respondent Fifth Sharia District Court had no jurisdiction to decide the action for recovery of
possession because he is a non-Muslim, Roldan argued that no provision in the Code of Muslim Personal Laws of the
Philippines prohibited non-Muslims from participating in Sharia court proceedings, especially in actions where the Sharia
court applied the provisions of the Civil Code of the Philippines. Thus, respondent Fifth Sharia District Court validly took
cognizance of his action:
2. That the Shariah District Court is not a court exclusively for muslim litigants. No provision in the Code on Muslim Personal
Laws which expressly prohibits non-muslim to participate in the proceedings in the Shariah Courts, especially in actions
which applies the civil code and not the Code on Muslim Personal Laws;
3. The Shariah District Courts has jurisdiction over action for quieting of title filed by a muslim litigant since the nature of
the action involved mere removal of cloud of doubt upon ones Certificate of Title. The laws applied in this case is the Civil
31
Code and other related laws, and not the Code on Muslim Personal Laws[.]
Since respondent Fifth Sharia District Court had jurisdiction to decide the action for recovery of possession, Roldan argued
that the proceedings before it were valid. Respondent Fifth Sharia District Court acquired jurisdiction over the person of
Vivencio upon service on him of summons. When Vivencio failed to file his answer, he "effectively waived his right to
32
participate in the proceedings [before the Fifth Sharia District Court]" and he cannot argue that his rights were
prejudiced:
4. That it is not disputed that herein petitioner (respondent below) was properly served with summons, notices and other
court processes when the SDC Spl. Case No. 07-200 was filed and heard in the Fifth (5th) Shariah District Court, Cotabato
City, but petitioner (respondent below) intentionally or without known reason, ignore the proceedings;

5. That the main issue in the instant action for certiorari is whether or not herein petitioner (respondent below) has
effectively waived his right to participate in the proceedings below and had lost his right to appeal via Certiorari; and the
issue on whether or not the Fifth (5th) Shariah District Court has jurisdiction over an action where one of the parties is a
non-muslim;
6. That the Fifth (5th) Shariah District Court, Cotabato City acquired jurisdiction over the case and that the same Court had
correctly ruled that herein petitioner (respondent) intentionally waived his right to defend himself including his right to
appeal via certiorari;
7. That it is humbly submitted that when the Shariah District Court took cognizance of an action under its concurrent
jurisdiction with the Regional Trial Court, the law rules applied is not the Code on Muslim Personal Laws but the Civil Code
of the Philippines and the Revised Rules of Procedure, hence the same would not prejudice the right of herein petitioner
33
(respondent below)[.]
In the resolution dated November 21, 2011, this court ordered Vivencio to reply to Roldans comment. On February 3, 2012,
34
Vivencio filed his manifestation, stating that he would no longer file a reply to the comment as he had "exhaustively discussed the
35
issue presented for resolution in [his petition for certiorari]."
The principal issue for our resolution is whether a Sharia District Court has jurisdiction over a real action where one of the parties is
not a Muslim.
We also resolve the following issues:
1. Whether a Sharia District Court may validly hear, try, and decide a real action where one of the parties is a non-Muslim if
the District Court decides the action applying the provisions of the Civil Code of the Philippines; and
2. Whether a Sharia District Court may validly hear, try, and decide a real action filed by a Muslim against a non-Muslim if
the non-Muslim defendant was served with summons.
We rule for petitioner Vivencio.
I
Respondent Fifth Sharia District
Court had no jurisdiction to hear, try,
and decide Roldans action for
recovery of possession
Jurisdiction over the subject matter is "the power to hear and determine cases of the general class to which the proceedings in
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question belong." This power is conferred by law, which may either be the Constitution or a statute. Since subject matter
jurisdiction is a matter of law, parties cannot choose, consent to, or agree as to what court or tribunal should decide their
38
disputes. If a court hears, tries, and decides an action in which it has no jurisdiction, all its proceedings, including the judgment
39
rendered, are void.
To determine whether a court has jurisdiction over the subject matter of the action, the material allegations of the complaint and
40
the character of the relief sought are examined.
The law conferring the jurisdiction of Sharia District Courts is the Code of the Muslim Personal Laws of the Philippines. Under Article
143 of the Muslim Code, Sharia District Courts have concurrent original jurisdiction with "existing civil courts" over real actions not
41
arising from customary contracts wherein the parties involved are Muslims:
ART 143. Original jurisdiction. x x x x
(2) Concurrently with existing civil courts, the Sharia District Court shall have original jurisdiction over:
xxxx

42

(b) All other personal and real actions not mentioned in paragraph 1(d) wherein the parties involved are Muslims except those for
forcible entry and unlawful detainer, which shall fall under the exclusive original jurisdiction of the Municipal Circuit Court; and
xxxx
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When ownership is acquired over a particular property, the owner has the right to possess and enjoy it. If the owner is
44
dispossessed of his or her property, he or she has a right of action to recover its possession from the dispossessor. When the
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property involved is real, such as land, the action to recover it is a real action; otherwise, the action is a personal action. In such
actions, the parties involved must be Muslims for Sharia District Courts to validly take cognizance of them.
In this case, the allegations in Roldans petition for recovery of possession did not state that Vivencio is a Muslim. When Vivencio
stated in his petition for relief from judgment that he is not a Muslim, Roldan did not dispute this claim.
When it became apparent that Vivencio is not a Muslim, respondent Fifth Sharia District Court should have motu proprio dismissed
the case. Under Rule 9, Section 1 of the Rules of Court, if it appears that the court has no jurisdiction over the subject matter of the
action based on the pleadings or the evidence on record, the court shall dismiss the claim:
Section 1. Defenses and objections not pleaded. Defenses and objections not pleaded either in a motion to dismiss or in the
answer are deemed waived. However, when it appears from the pleadings or the evidence on record that the court has no
jurisdiction over the subject matter, that there is another action pending between the same parties for the same cause, or that the
action is barred by a prior judgment or by statute of limitations, the court shall dismiss the claim.
Respondent Fifth Sharia District Court had no authority under the law to decide Roldans action because not all of the parties
involved in the action are Muslims. Thus, it had no jurisdiction over Roldans action for recovery of possession. All its proceedings in
SDC Special Proceedings Case No. 07-200 are void.
Roldan chose to file his action with the Sharia District Court, instead of filing the action with the regular courts, to obtain "a more
48
speedy disposition of the case." This would have been a valid argument had all the parties involved in this case been Muslims.
Under Article 143 of the Muslim Code, the jurisdiction of Sharia District Courts over real actions not arising from customary
contracts is concurrent with that of existing civil courts. However, this concurrent jurisdiction over real actions "is applicable solely
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when both parties are Muslims" as this court ruled in Tomawis v. Hon. Balindong. When one of the parties is not a Muslim, the
action must be filed before the regular courts.
The application of the provisions of the Civil Code of the Philippines by respondent Fifth Sharia District Court does not validate the
proceedings before the court. Under Article 175 of the Muslim Code, customary contracts are construed in accordance with Muslim
51
law. Hence, Sharia District Courts apply Muslim law when resolving real actions arising from customary contracts.
In real actions not arising from contracts customary to Muslims, there is no reason for Sharia District Courts to apply Muslim law. In
such real actions, Sharia District Courts will necessarily apply the laws of general application, which in this case is the Civil Code of
the Philippines, regardless of the court taking cognizance of the action. This is the reason why the original jurisdiction of Sharia
District Courts over real actions not arising from customary contracts is concurrent with that of regular courts.
However, as discussed, this concurrent jurisdiction arises only if the parties involved are Muslims. Considering that Vivencio is not a
Muslim, respondent Fifth Sharia District Court had no jurisdiction over Roldans action for recovery of possession of real property.
The proceedings before it are void, regardless of the fact that it applied the provisions of the Civil Code of the Philippines in resolving
the action.
True, no provision in the Code of Muslim Personal Laws of the Philippines expressly prohibits non-Muslims from participating in
Sharia court proceedings. In fact, there are instances when provisions in the Muslim Code apply to non-Muslims. Under Article 13 of
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the Muslim Code, provisions of the Code on marriage and divorce apply to the female party in a marriage solemnized according to
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Muslim law, even if the female is non-Muslim. Under Article 93, paragraph (c) of the Muslim Code, a person of a different religion
55
is disqualified from inheriting from a Muslim decedent. However, by operation of law and regardless of Muslim law to the contrary,
the decedents parent or spouse who is a non-Muslim "shall be entitled to one-third of what he or she would have received without
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such disqualification." In these instances, non-Muslims may participate in Sharia court proceedings.
Nonetheless, this case does not involve any of the previously cited instances. This case involves an action for recovery of possession
of real property. As a matter of law, Sharia District Courts may only take cognizance of a real action "wherein the parties involved

58

are Muslims." Considering that one of the parties involved in this case is not a Muslim, respondent Fifth Sharia District Court had
no jurisdiction to hear, try, and decide the action for recovery of possession of real property. The judgment against Vivencio is void
for respondent Fifth Sharia District Courts lack of jurisdiction over the subject matter of the action.
That Vivencio raised the issue of lack of jurisdiction over the subject matter only after respondent Fifth Sharia District Court had
rendered judgment is immaterial. A party may assail the jurisdiction of a court or tribunal over a subject matter at any stage of the
59
proceedings, even on appeal. The reason is that "jurisdiction is conferred by law, and lack of it affects the very authority of the
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court to take cognizance of and to render judgment on the action."
In Figueroa v. People of the Philippines,61 Venancio Figueroa was charged with reckless imprudence resulting in homicide before the
Regional Trial Court of Bulacan. The trial court convicted Figueroa as charged. On appeal with the Court of Appeals, Figueroa raised
for the first time the issue of jurisdiction of the Regional Trial Court to decide the case. Ruling that the Regional Trial Court had no
jurisdiction over the crime charged, this court dismissed the criminal case despite the fact that Figueroa objected to the trial courts
jurisdiction only on appeal.
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In Metromedia Times Corporation v. Pastorin, Johnny Pastorin filed a complaint for constructive dismissal against Metromedia
Times Corporation. Metromedia Times Corporation actively participated in the proceedings before the Labor Arbiter. When the
Labor Arbiter ruled against Metromedia Times, it appealed to the National Labor Relations Commission, arguing for the first time
that the Labor Arbiter had no jurisdiction over the complaint. According to Metromedia Times, the case involved a grievance issue
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"properly cognizable by the voluntary arbitrator." This court set aside the decision of the Labor Arbiter on the ground of lack of
jurisdiction over the subject matter despite the fact that the issue of jurisdiction was raised only on appeal.
There are exceptional circumstances when a party may be barred from assailing the jurisdiction of the court to decide a case. In the
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1968 case of Tijam v. Sibonghanoy, the Spouses Tijam sued the Spouses Sibonghanoy on July 19, 1948 before the Court of First
Instance of Cebu to recover P1,908.00. At that time, the court with exclusive original jurisdiction to hear civil actions in which the
amount demanded does not exceed P2,000.00 was the court of justices of the peace and municipal courts in chartered cities under
Section 88 of the Judiciary Act of 1948.
As prayed for by the Spouses Tijam in their complaint, the Court of First Instance issued a writ of attachment against the Spouses
Sibonghanoy. However, the latter filed a counter-bond issued by Manila Surety and Fidelity Co., Inc. Thus, the Court of First Instance
dissolved the writ of attachment.
After trial, the Court of First Instance decided in favor of the Spouses Tijam. When the writ of execution returned unsatisfied, the
Spouses Tijam moved for the issuance of a writ of execution against Manila Surety and Fidelity Co., Inc.s bond. The Court of First
Instance granted the motion. Manila Surety and Fidelity Co., Inc. moved to quash the writ of execution, which motion the Court of
First Instance denied. Thus, the surety company appealed to the Court of Appeals.
The Court of Appeals sustained the Court of First Instances decision. Five days after receiving the Court of Appeals decision, Manila
Surety and Fidelity Co., Inc. filed a motion to dismiss, arguing for the first time that the Court of First Instance had no jurisdiction
over the subject matter of the case. The Court of Appeals forwarded the case to this court for resolution.
This court ruled that the surety company could no longer assail the jurisdiction of the Court of First Instance on the ground of
estoppel by laches. Parties may be barred from assailing the jurisdiction of the court over the subject matter of the action if it took
65
them an unreasonable and unexplained length of time to object to the courts jurisdiction. This is to discourage the deliberate
practice of parties in invoking the jurisdiction of a court to seek affirmative relief, only to repudiate the courts jurisdiction after
66
failing to obtain the relief sought. In such cases, the courts lack of jurisdiction over the subject matter is overlooked in favor of the
67
public policy of discouraging such inequitable and unfair conduct.
In Tijam, it took Manila Surety and Fidelity Co., Inc. 15 years before assailing the jurisdiction of the Court of First Instance. As early as
1948, the surety company became a party to the case when it issued the counter-bond to the writ of attachment. During trial, it
invoked the jurisdiction of the Court of First Instance by seeking several affirmative reliefs, including a motion to quash the writ of
execution. The surety company only assailed the jurisdiction of the Court of First Instance in 1963 when the Court of Appeals
affirmed the lower courts decision. This court said:
x x x x Were we to sanction such conduct on [Manila Surety and Fidelity, Co. Inc.s] part, We would in effect be declaring as useless
all the proceedings had in the present case since it was commenced on July 19, 1948 and compel [the spouses Tijam] to go up their
Calvary once more.

The inequity and unfairness of this is not only patent but revolting.

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After this court had rendered the decision in Tijam, this court observed that the "non-waivability of objection to jurisdiction" has
been ignored, and the Tijam doctrine has become more the general rule than the exception.
70

In Calimlim v. Ramirez, this court said:

A rule that had been settled by unquestioned acceptance and upheld in decisions so numerous to cite is that the jurisdiction of a
court over the subject-matter of the action is a matter of law and may not be conferred by consent or agreement of the parties. The
lack of jurisdiction of a court may be raised at any stage of the proceedings, even on appeal. This doctrine has been qualified by
recent pronouncements which stemmed principally from the ruling in the cited case of [Tijam v. Sibonghanoy]. It is to be regretted,
71
however, that the holding in said case had been applied to situations which were obviously not contemplated therein. x x x.
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Thus, the court reiterated the "unquestionably accepted" rule that objections to a courts jurisdiction over the subject matter may
be raised at any stage of the proceedings, even on appeal. This is because jurisdiction over the subject matter is a "matter of
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law" and "may not be conferred by consent or agreement of the parties."
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In Figueroa, this court ruled that the Tijam doctrine "must be applied with great care;" otherwise, the doctrine "may be a most
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effective weapon for the accomplishment of injustice":
x x x estoppel, being in the nature of a forfeiture, is not favored by law. It is to be applied rarely only from necessity, and only in
extraordinary circumstances. The doctrine must be applied with great care and the equity must be strong in its favor. When
misapplied, the doctrine of estoppel may be a most effective weapon for the accomplishment of injustice. x x x a judgment rendered
without jurisdiction over the subject matter is void. x x x. No laches will even attach when the judgment is null and void for want of
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jurisdiction x x x.
In this case, the exceptional circumstances similar to Tijam do not exist. Vivencio never invoked respondent Fifth Sharia District
Courts jurisdiction to seek affirmative relief. He filed the petition for relief from judgment precisely to assail the jurisdiction of
respondent Fifth Sharia District Court over Roldans petition for recovery of possession.
Thus, the general rule holds. Vivencio validly assailed the jurisdiction of respondent Fifth Sharia District Court over the action for
recovery of possession for lack of jurisdiction over the subject matter of Roldans action.
II
That respondent Fifth Sharia
District Court served summons on
petitioner Vivencio did not vest it
with jurisdiction over the person of
petitioner Vivencio
Roldan argued that the proceedings before respondent Sharia District Court were valid since the latter acquired jurisdiction over the
person of Vivencio. When Vivencio was served with summons, he failed to file his answer and waived his right to participate in the
proceedings before respondent Fifth Sharia District Court. Since Vivencio waived his right to participate in the proceedings, he
cannot argue that his rights were prejudiced.
Jurisdiction over the person is "the power of [a] court to render a personal judgment or to subject the parties in a particular action
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to the judgment and other rulings rendered in the action." A court acquires jurisdiction over the person of the plaintiff once he or
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she files the initiatory pleading. As for the defendant, the court acquires jurisdiction over his or her person either by his or her
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voluntary appearance in court or a valid service on him or her of summons.
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84

Jurisdiction over the person is required in actions in personam or actions based on a partys personal liability. Since actions in
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personam "are directed against specific persons and seek personal judgments," it is necessary that the parties to the action "are
86
properly impleaded and duly heard or given an opportunity to be heard." With respect to the defendant, he or she must have been
duly served with summons to be considered properly impleaded; otherwise, the proceedings in personam, including the judgment
87
rendered, are void.

88

On the other hand, jurisdiction over the person is not necessary for a court to validly try and decide actions in rem. Actions in rem
are "directed against the thing or property or status of a person and seek judgments with respect thereto as against the whole
89
world." In actions in rem, the court trying the case must have jurisdiction over the res, or the thing under litigation, to validly try
and decide the case. Jurisdiction over the res is acquired either "by the seizure of the property under legal process, whereby it is
brought into actual custody of the law; or as a result of the institution of legal proceedings, in which the power of the court is
90
recognized and made effective." In actions in rem, summons must still be served on the defendant but only to satisfy due process
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requirements.
Unlike objections to jurisdiction over the subject matter which may be raised at any stage of the proceedings, objections to
jurisdiction over the person of the defendant must be raised at the earliest possible opportunity; otherwise, the objection to the
courts jurisdiction over the person of the defendant is deemed waived. Under Rule 9, Section 1 of the Rules of Court, "defenses and
objections not pleaded either in a motion to dismiss or in the answer are deemed waived."
In this case, Roldan sought to enforce a personal obligation on Vivencio to vacate his property, restore to him the possession of his
92
property, and pay damages for the unauthorized use of his property. Thus, Roldans action for recovery of possession is an action
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in personam. As this court explained in Ang Lam v. Rosillosa and Santiago, an action to recover the title to or possession of a parcel
94
of land "is an action in personam, for it binds a particular individual only although it concerns the right to a tangible thing." Also, in
95
Muoz v. Yabut, Jr., this court said that "a judgment directing a party to deliver possession of a property to another is in personam.
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It is binding only against the parties and their successors-in-interest by title subsequent to the commencement of the action."
This action being in personam, service of summons on Vivencio was necessary for respondent Fifth Sharia District Court to acquire
jurisdiction over Vivencios person.
However, as discussed, respondent Fifth Sharia District Court has no jurisdiction over the subject matter of the action, with Vivencio
not being a Muslim. Therefore, all the proceedings before respondent Sharia District Court, including the service of summons on
Vivencio, are void.
III
The Sharia Appellate Court and the
Office of the Jurisconsult in Islamic
law must now be organized to
effectively enforce the Muslim legal
system in the Philippines
We note that Vivencio filed directly with this court his petition for certiorari of respondent Fifth Sharia District Courts decision.
97
Under the judicial system in Republic Act No. 9054, the Sharia Appellate Court has exclusive original jurisdiction over petitions for
certiorari of decisions of the Sharia District Courts. He should have filed his petition for certiorari before the Sharia Appellate Court.
However, the Sharia Appellate Court is yet to be organized.1wphi1 Thus, we call for the organization of the court system created
under Republic Act No. 9054 to effectively enforce the Muslim legal system in our country. After all, the Muslim legal system a
98
legal system complete with its own civil, criminal, commercial, political, international, and religious laws is part of the law of the
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land, and Sharia courts are part of the Philippine judicial system.
Sharia Circuit Courts and Sharia District Courts created under the Code of Muslim Personal Laws of the Philippines shall continue to
101
discharge their duties. All cases tried in Sharia Circuit Courts shall be appealable to Sharia District Courts.[[102]
The Sharia Appellate Court created under Republic Act No. 9054 shall exercise appellate jurisdiction over all cases tried in the
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Sharia District Courts. It shall also exercise original jurisdiction over petitions for certiorari, prohibition, mandamus, habeas
104
corpus, and other auxiliary writs and processes in aid of its appellate jurisdiction. The decisions of the Sharia Appellate Court shall
105
be final and executory, without prejudice to the original and appellate jurisdiction of this court.
106

This court held in Tomawis v. Hon. Balindong that "until such time that the Sharia Appellate Court shall have been
107
organized," decisions of the Sharia District Court shall be appealable to the Court of Appeals and "shall be referred to a Special
Division to be organized in any of the [Court of Appeals] stations preferably composed of Muslim [Court of Appeals]
108
Justices." However, considering that To m a w i s was not yet promulgated when Vivencio filed his petition for certiorari on August

6, 2009, we take cognizance of Vivencios petition for certiorari in the exercise of our original jurisdiction over petitions for
109
certiorari.
Moreover, priority should be given in organizing the Office of the Jurisconsult in Islamic law. A Jurisconsult in Islamic law or "Mufti"
110
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is an officer with authority to render legal opinions or "fatawa" on any questions relating to Muslim law. These legal opinions
112
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should be based on recognized authorities and "must be rendered in precise accordance with precedent." In the Philippines
where only Muslim personal laws are codified, a legal officer learned in the Quran and Hadiths is necessary to assist this court as
well as Sharia court judges in resolving disputes not involving Muslim personal laws.
All told, Sharia District Courts have jurisdiction over a real action only when the parties involved are Muslims. Respondent Fifth
Sharia District Court acted without jurisdiction in taking cognizance of Roldan E. Malas action for recovery of possession considering
that Vivencio B. Villagracia is not a Muslim. Accordingly, the proceedings in SDC Special Proceedings Case No. 07-200, including the
judgment rendered, are void.
WHEREFORE, the petition for certiorari is GRANTED. Respondent Fifth Sharia District Courts decision dated June 11, 2008 and order
dated May 29, 2009 in SDC Special Proceedings Case No. 07-200 are SET ASIDE without prejudice to the filing of respondent Roldan
E. Mala of an action with the proper court.
SO ORDERED.
G.R. No. 181490

April 23, 2014

MIRANT (PHILIPPINES) CORPORATION AND EDGARDO A. BAUTISTA, Petitioners,

vs.
JOSELITO A. CARO, Respondent.
DECISION
VILLARAMA, JR., J.:
1

At bar is a petition under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the Decision and Resolution of the
4
Court of Appeals (CA) dated June 26, 2007 and January 11, 2008, respectively, which reversed and set aside the Decision of the
National Labor Relations Commission (NLRC) in NLRC NCR CA No. 046551-05 (NCR-00-03-02511-05). The NLRC decision vacated and
5
set aside the Decision of the Labor Arbiter which found that respondent Joselito A. Caro (Caro) was illegally dismissed by petitioner
Mirant (Philippines) Corporation (Mirant).
Petitioner corporation is organized and operating under and by virtue of the laws of the Republic of the Philippines. It is a holding
company that owns shares in project companies such as Mirant Sual Corporation and Mirant Pagbilao Corporation (Mirant Pagbilao)
which operate and maintain power stations located in Sual, Pangasinan and Pagbilao, Quezon, respectively. Petitioner corporation
and its related companies maintain around 2,000 employees detailed in its main office and other sites. Petitioner corporation had
changed its name to CEPA Operations in 1996 and to Southern Company in 2001. In 2002, Southern Company was sold to petitioner
6
Mirant whose corporate parent is an Atlanta-based power producer in the United States of America. Petitioner corporation is now
7
known as Team Energy Corporation.
Petitioner Edgardo A. Bautista (Bautista) was the President of petitioner corporation when respondent was terminated from
8
employment.
Respondent was hired by Mirant Pagbilao on January 3, 1994 as its Logistics Officer. In 2002, when Southern Company was sold to
Mirant, respondent was already a Supervisor of the Logistics and Purchasing Department of petitioner. At the time of the severance
of his employment, respondent was the Procurement Supervisor of Mirant Pagbilao assigned at petitioner corporations corporate
office. As Procurement Supervisor, his main task was to serve as the link between the Materials Management Department of
petitioner corporation and its staff, and the suppliers and service contractors in order to ensure that procurement is carried out in
conformity with set policies, procedures and practices. In addition, respondent was put incharge of ensuring the timely, economical,
safe and expeditious delivery of materials at the right quality and quantity to petitioner corporations plant. Respondent was also
responsible for guiding and overseeing the welfare and training needs of the staff of the Materials Management Department. Due to
9
the nature of respondents functions, petitioner corporation considers his position as confidential.

The antecedent facts follow:

10

Respondent filed a complaint for illegal dismissal and money claims for 13th and 14th month pay, bonuses and other benefits, as
well as the payment of moral and exemplary damages and attorneys fees. Respondent posits the following allegations in his
11
Position Paper:
On January 3, 1994, respondent was hired by petitioner corporation as its Logistics Officer and was assigned at petitioner
corporations corporate office in Pasay City. At the time of the filing of the complaint, respondent was already a Supervisor at the
Logistics and Purchasing Department with a monthly salary of P39,815.00.
On November 3, 2004, petitioner corporation conducted a random drug test where respondent was randomly chosen among its
12
employees who would be tested for illegal drug use. Through an Intracompany Correspondence, these employees were informed
that they were selected for random drug testing to be conducted on the same day that they received the correspondence.
Respondent was duly notified that he was scheduled to be tested after lunch on that day. His receipt of the notice was evidenced by
his signature on the correspondence.
Respondent avers that at around 11:30 a.m. of the same day, he received a phone call from his wifes colleague who informed him
that a bombing incident occurred near his wifes work station in Tel Aviv, Israel where his wife was then working as a caregiver.
13
Respondent attached to his Position Paper a Press Release of the Department of Foreign Affairs (DFA) in Manila to prove the
14
occurrence of the bombing incident and a letter from the colleague of his wife who allegedly gave him a phone call from Tel Aviv.
Respondent claims that after the said phone call, he proceeded to the Israeli Embassy to confirm the news on the alleged bombing
incident. Respondent further claims that before he left the office on the day of the random drug test, he first informed the secretary
of his Department, Irene Torres (Torres), at around 12:30 p.m. that he will give preferential attention to the emergency phone call
that he just received. He also told Torres that he would be back at the office as soon as he has resolved his predicament. Respondent
recounts that he tried to contact his wife by phone but he could not reach her. He then had to go to the Israeli Embassy to confirm
the bombing incident. However, he was told by Eveth Salvador (Salvador), a lobby attendant at the Israeli Embassy, that he could not
be allowed entry due to security reasons.
On that same day, at around 6:15 p.m., respondent returned to petitioner corporations office. When he was finally able to charge
his cellphone at the office, he received a text message from Tina Cecilia (Cecilia), a member of the Drug Watch Committee that
conducted the drug test, informing him to participate in the said drug test. He immediately called up Cecilia to explain the reasons
for his failure to submit himself to the random drug test that day. He also proposed that he would submit to a drug test the
following day at his own expense. Respondent never heard from Cecilia again.
15

On November 8, 2004, respondent received a Show Cause Notice from petitioner corporation through Jaime Dulot (Dulot), his
immediate supervisor, requiring him to explain in writing why he should not be charged with "unjustified refusal to submit to
16
random drug testing." Respondent submitted his written explanation on November 11, 2004. Petitioner corporation further
required respondent on December 14, 2004 to submit additional pieces of supporting documents to prove that respondent was at
the Israeli Embassy in the afternoon of November 3, 2004 and that the said bombing incident actually occurred. Respondent
requested for a hearing to explain that he could not submit proof that he was indeed present at the Israeli Embassy during the said
day because he was not allegedly allowed entry by the embassy due to security reasons. On January 3, 2005, respondent submitted
17
the required additional supporting documents.
18

On January 13, 2005, petitioner corporations Investigating Panel issued an Investigating Report finding respondent guilty of
"unjustified refusal to submit to random drug testing" and recommended a penalty of four working weeks suspension without pay,
instead of termination, due to the presence of mitigating circumstances. In the same Report, the Investigating Panel also
recommended that petitioner corporation should review its policy on random drug testing, especially of the ambiguities cast by the
term "unjustified refusal."
On January 19, 2005, petitioner corporations Asst. Vice President for Material Management Department, George K. Lamela, Jr.
19
(Lamela), recommended that respondent be terminated from employment instead of merely being suspended. Lamela argued that
even if respondent did not outrightly refuse to take the random drug test, he avoided the same. Lamela averred that "avoidance"
was synonymous with "refusal."

20

On February 14, 2005, respondent received a letter from petitioner corporations Vice President for Operations, Tommy J. Sliman
21
(Sliman), terminating him on the same date. Respondent filed a Motion to Appeal his termination on February 23, 2005. The
motion was denied by petitioner corporation on March 1, 2005.
It is the contention of respondent that he was illegally dismissed by petitioner corporation due to the latters non-compliance with
the twin requirements of notice and hearing. He asserts that while there was a notice charging him of "unjustified refusal to submit
to random drug testing," there was no notice of hearing and petitioner corporations investigation was not the equivalent of the
"hearing" required under the law which should have accorded respondent the opportunity to be heard.
Respondent further asserts that he was illegally dismissed due to the following circumstances:
1. He signed the notice that he was randomly selected as a participant to the company drug testing;
2. Even the Investigating Panel was at a loss in interpreting the charge because it believed that the term "refusal" was
ambiguous, and therefore such doubt must be construed in his favor; and
3. He agreed to take the drug test the following day at his own expense, which he says was clearly not an indication of
evasion from the drug test.
Petitioner corporation counters with the following allegations:
On November 3, 2004, a random drug test was conducted on petitioner corporations employees at its Corporate Office at the CTC
Bldg. in Roxas Blvd., Pasay City. The random drug test was conducted pursuant to Republic Act No. 9165, otherwise known as the
"Comprehensive Dangerous Drugs Act of 2002." Respondent was randomly selected among petitioners employees to undergo the
22
said drug test which was to be carried out by Drug Check Philippines, Inc.
When respondent failed to appear at the scheduled drug test, Cecilia prepared an incident report addressed to Dulot, the Logistics
23
Manager of the Materials Management Department. Since it was stated under petitioner corporations Mirant Drugs Policy
Employee Handbook to terminate an employee for "unjustified refusal to submit to a random drug test" for the first offense, Dulot
24
sent respondent a Show Cause Notice dated November 8, 2004, requiring him to explain why no disciplinary action should be
imposed for his failure to take the random drug test. Respondent, in a letter dated November 11, 2004, explained that he attended
to an emergency call from his wifes colleague and apologized for the inconvenience he had caused. He offered to submit to a drug
25
test the next day even at his expense. Finding respondents explanation unsatisfactory, petitioner corporation formed a panel to
26
investigate and recommend the penalty to be imposed on respondent. The Investigating Panel found respondents explanations as
to his whereabouts on that day to be inconsistent, and recommended that he be suspended for four weeks without pay. The
Investigating Panel took into account that respondent did not directly refuse to be subjected to the drug test and that he had been
serving the company for ten years without any record of violation of its policies. The Investigating Panel further recommended that
27
the Mirant Drug Policy be reviewed to clearly define the phrase "unjustified refusal to submit to random drug testing." Petitioner
corporations Vice-President for Operations, Sliman, however disagreed with the Investigating Panels recommendations and
terminated the services of respondent in accordance with the subject drug policy. Sliman likewise stated that respondents violation
28
of the policy amounted to willful breach of trust and loss of confidence.
A cursory examination of the pleadings of petitioner corporation would show that it concurs with the narration of facts of
respondent on material events from the time that Cecilia sent an electronic mail at about 9:23 a.m. on November 3, 2004 to all
employees of petitioner corporation assigned at its Corporate Office advising them of the details of the drug test up to the time of
respondents missing his schedule to take the drug test. Petitioner corporation and respondents point of disagreement, however, is
whether respondents proffered reasons for not being able to take the drug test on the scheduled day constituted valid defenses
that would have taken his failure to undergo the drug test out of the category of "unjustified refusal." Petitioner corporation argues
that respondents omission amounted to "unjustified refusal" to submit to the random drug test as he could not proffer a
satisfactory explanation why he failed to submit to the drug test:
1. Petitioner corporation is not convinced that there was indeed such a phone call at noon of November 3, 2004 as
respondent could not even tell who called him up.
2. Respondent could not even tell if he received the call via the landline telephone service at petitioner corporations office
or at his mobile phone.

3. Petitioner corporation was also of the opinion that granting there was such a phone call, there was no compelling reason
for respondent to act on it at the expense of his scheduled drug testing. Petitioner corporation principally pointed out that
the call merely stated that a bomb exploded near his wifes work station without stating that his wife was affected. Hence,
it found no point in confirming it with extraordinary haste and forego the drug test which would have taken only a few
minutes to accomplish. If at all, respondent should have undergone the drug testing first before proceeding to confirm the
news so as to leave his mind free from this obligation.
4. Petitioner corporation maintained that respondent could have easily asked permission from the Drug Watch Committee
29
that he was leaving the office since the place where the activity was conducted was very close to his work station.
To the mind of petitioners, they are not liable for illegal dismissal because all of these circumstances prove that respondent really
eluded the random drug test and was therefore validly terminated for cause after being properly accorded with due process.
Petitioners further argue that they have already fully settled the claim of respondent as evidenced by a Quitclaim which he duly
executed. Lastly, petitioners maintain that they are not guilty of unfair labor practice as respondents dismissal was not intended to
curtail his right to self-organization; that respondent is not entitled to the payment of his 13th and 14th month bonuses and other
incentives as he failed to show that he is entitled to these amounts according to company policy; that respondent is not entitled to
reinstatement, payment of full back wages, moral and exemplary damages and attorneys fees due to his termination for cause.
In a decision dated August 31, 2005, Labor Arbiter Aliman D. Mangandog found respondent to have been illegally dismissed. The
Labor Arbiter also found that the quitclaim purportedly executed by respondent was not a bona fide quitclaim which effectively
discharged petitioners of all the claims of respondent in the case at bar. If at all, the Labor Arbiter considered the execution of the
quitclaim as a clear attempt on the part of petitioners to mislead its office into thinking that respondent no longer had any cause of
action against petitioner corporation. The decision stated, viz.:
WHEREFORE, premises considered, this Office finds respondents GUILTY of illegal dismissal, and hereby ordered to jointly and
severally reinstate complainant back to his former position without loss on seniority rights and benefits and to pay him his
backwages and other benefits from the date he was illegally dismissed up to the time he is actually reinstated, partially computed as
of this date in the amount of P258,797.50 (P39,815.00 x 6.5 mos.) plus his 13th and 14th month pay in the amount of P43,132.91 or
in the total amount of P301,930.41.
Respondents are also ordered to pay complainant the amount of P3,000,000.00 as and by way of moral and exemplary damages,
and to pay complainant the amount equivalent to ten percent (10%) of the total awards as and by way of attorneys fees.
SO ORDERED.

30

The Labor Arbiter stated that while petitioner corporation observed the proper procedure in the termination of an employee for a
purported authorized cause, such just cause did not exist in the case at bar. The decision did not agree with the conclusions reached
by petitioner corporations own Investigating Panel that while respondent did not refuse to submit to the questioned drug test and
merely "avoided" it on the designated day, "avoidance" and "refusal" are one and the same. It also held that the terms "avoidance"
31
and "refusal" are separate and distinct and that "the two words are not even synonymous with each other." The Labor Arbiter
considered as more tenable the stance of respondent that his omission merely resulted to a "failure" to submit to the said drug test
and not an "unjustified refusal." Even if respondents omission is to be considered as refusal, the Labor Arbiter opined that it was
not tantamount to "unjustified refusal" which constitutes as just cause for his termination. Finally, the Labor Arbiter found that
respondent was entitled to moral and exemplary damages and attorneys fees.
On appeal to the NLRC, petitioners alleged that the decision of the Labor Arbiter was rendered with grave abuse of discretion for
being contrary to law, rules and established jurisprudence, and contained serious errors in the findings of facts which, if not
corrected, would cause grave and irreparable damage or injury to petitioners. The NLRC, giving weight and emphasis to the
inconsistencies in respondents explanations, considered his omission as "unjustified refusal" in violation of petitioner corporations
drug policy. Thus, in a decision dated May 31, 2006, the NLRC ruled, viz.:
x x x [Respondent] was duly notified as shown by copy of the notice x x x which he signed to acknowledge receipt thereof on the said
date. [Respondent] did not refute [petitioner corporations] allegation that he was also personally reminded of said drug test on the
same day by Ms. Cecilia of [petitioner corporations] drug watch committee. However, [respondent] was nowhere to be found at
[petitioner corporations] premises at the time when he was supposed to be tested. Due to his failure to take part in the random
drug test, an incident report x x x was prepared by the Drug Cause Notice x x x to explain in writing why no disciplinary action should

be taken against him for his unjustified refusal to submit to random drug test, a type D offense punishable with termination.
Pursuant to said directive, [respondent] submitted an explanation x x x on 11 November 2004, pertinent portions of which read:
"I was scheduled for drug test after lunch that day of November 3, 2004 as confirmed with Tina Cecilia. I was having my lunch when
a colleague of my wife abroad called up informing me that there was something wrong [that] happened in their neighborhood,
where a bomb exploded near her workstation. Immediately, I [left] the office to confirm said information but at around 12:30 P.M.
that day, I informed MS. IRENE TORRES, our Department Secretary[,] that I would be attending to this emergency call. Did even
[inform] her that Ill try to be back as soon as possible but unfortunately, I was able to return at 6:15 P.M. I didnt know that Tina was
the one calling me on my cell that day. Did only receive her message after I charged my cell at the office that night. I was able to call
back Tina Cecilia later [that] night if its possible to have it (drug test) the next day.
My apology [for] any inconvenience to the Drug Watch Committee, that I forgot everything that day including my scheduled drug
test due to confusion of what had happened. It [was] not my intention not to undergo nor refuse to have a drug test knowing well
that its a company policy and its mandated by law."
In the course of the investigation, [respondent] was requested to present proof pertaining to the alleged call he received on 3
November 2004 from a colleague of his wife regarding the bomb explosion in Tel Aviv, his presence at the Israel Embassy also on 3
November 2004. [Respondent], thereafter, submitted a facsimile which he allegedly received from his wife's colleague confirming
that she called and informed him of the bombing incident. However, a perusal of said facsimile x x x reveals that the same cannot be
given any probative value because, as correctly observed by [petitioners], it can barely be read and upon inquiry with PLDT, the
international area code of Israel which is 00972 should appear on the face of the facsimile if indeed said facsimile originated from
Israel. [Respondent] also could not present proof of his presence at the Israel Embassy on said time and date. He instead provided
the name of a certain Ms. Eveth Salvador of said embassy who could certify that he was present thereat. Accordingly, Mr. Bailon, a
member of the investigation panel, verified with Ms. Salvador who told him that she is only the telephone operator of the Israel
Embassy and that she was not in a position to validate [respondents] presence at the Embassy. Mr. Bailon was then referred to a
certain Ms. Aimee Zandueta, also of said embassy, who confirmed that based on their records, [respondent] did not visit the
embassy nor was he attended to by any member of said embassy on 3 November 2004. Ms. Zandueta further informed Mr. Bailon
that no bombing occurred in Tel Aviv on 3 November 2004 and that the only reported incident of such nature occurred on 1
November 2004. A letter x x x to this effect was written by Consul Ziva Samech of the Embassy of Israel. A press release x x x of the
Department of Foreign Affairs confirm[ed] that the bombing occurred on 1 November 2004.
In his explanation, the [respondent] stated that the reason why he had to leave the office on 3 November 2004 was to verify an
information at the Israel Embassy of the alleged bombing incident on the same day. However, [petitioners] in their position paper
alleged that Ms. Torres of [petitioner] company received a text message from him at around 12:47 p.m. informing her that he will try
to be back since he had a lot of things to do and asking her if there was a signatory on that day. [Respondent] did not deny sending
said text messages to Ms. Torres in his reply and rejoinder x x x. He actually confirmed that he was involved in the CIIS registration
with all companies that was involved with [petitioner] company and worked on the registration of [petitioner] companys vehicles
with TRO.
It is also herein noted that [respondent] had initially reported to Ms. Torres that it was his mother in law who informed him about
the problem concerning his wife. However, in his written explanation x x x, the [respondent] stated that it was a friend of his wife,
whom he could not even identify, who informed him of the alleged bombing incident in Tel Aviv, Israel. [Respondent] also did not
deny receiving a cellphone call from Ms. Cecilia that day. He merely stated that he did not know that it was Ms. Cecilia calling him up
in a cellphone and it was only after he charged his cellphone at the office that night that he received her message. In effect,
[respondent] asserted that his cellphone battery was running low or drained. [Petitioners] were able to refute [these] averments of
[respondent] when they presented [respondents] Smart Billing Statement
x x x showing that he was able to make a cellphone call at 5:29 p.m. to [petitioner corporations] supplier, Mutico for a duration of
32
two (2) minutes.
Given the foregoing facts, the NLRC stated that the offer of respondent to submit to another drug test the following day, even at his
expense, cannot operate to free him from liability. The NLRC opined that taking the drug test on the day following the scheduled
random drug test would affect both the integrity and the accuracy of the specimen which was supposed to be taken from a
randomly selected employee who was notified of his/her selection on the same day that the drug test was to be administered. The
NLRC further asserted that a drug test, conducted many hours or a day after the employee was notified, would compromise its
results because the employee may have possibly taken remedial measures to metabolize or eradicate whatever drugs s/he may have
ingested prior to the drug test.

The NLRC further stated that these circumstances have clearly established the falsity of respondents claims and found no justifiable
reason for respondent to refuse to submit to the petitioner corporations random drug test. While the NLRC acknowledged that it
was petitioner corporations own Investigating Panel that considered respondents failure to take the required drug test as mere
"avoidance" and not "unjustified refusal," it concluded that such finding was merely recommendatory to guide top management on
what action to take.
The NLRC also found that petitioner corporations denial of respondents motion to reconsider his termination was in order.
Petitioner corporations reasons for such denial are quoted in the NLRC decision, viz.:
"Your appeal is anchored on your claim that you responded to an emergency call from someone abroad informing you that a bomb
exploded near the work station of your wife making you unable to undergo the scheduled drug testing. This claim is groundless
taking into account the following:
We are not convinced that there was indeed that call which you claim to have received noon of November 3, 2004. On the contrary,
our belief is based on the fact that you could not tell who called you up or how the call got to you. If you forgot to ask the name of
the person who called you up, surely you would have known how the call came to you. You said you were having lunch at the third
floor of the CTC building when you received the call. There were only two means of communication available to you then: the land
line telephone service in your office and your mobile phone. If your claim were (sic) not fabricated, you would be able to tell which
of these two was used.
Granting that you indeed received that alleged call, from your own account, there was no compelling reason for you to act on it at
the expense of your scheduled drug testing. The call, as it were, merely stated that something wrong happened (sic) in their
neighborhood, where a bomb exploded near her workstation. Nothing was said if your wife was affected. There is no point in
confirming it with extraordinary haste and forego the drug test which would have taken only a few minutes to accomplish. If at all,
you should have undergone the drug testing first before proceeding to confirm the news so as to leave your mind free from this
obligation.
Additionally, if it was indeed necessary that you skip the scheduled drug testing to verify that call, why did you not ask permission
from the Drug Watch [C]ommittee that you were leaving? The place where the activity was being conducted was very close to your
workstation. It was absolutely within your reach to inform any of its members that you were attending to an emergency call. Why
did you not do so?
All this undisputedly proves that you merely eluded the drug testing. Your claim that you did not refuse to be screened carries no
33
value. Your act was a negation of your words."
The NLRC found that respondent was not only validly dismissed for cause he was also properly accorded his constitutional right to
due process as shown by the following succession of events:
1. On November 8, 2004, respondent was given a show-cause notice requiring him to explain in writing within three days
why no disciplinary action should be taken against him for violation of company policy on unjustified refusal to submit to
random drug testing a type D offense which results in termination.
2. Respondent submitted his explanation on November 11, 2004.
34

3. On December 9, 2004, respondent was given a notice of investigation informing him of a meeting on December 13,
2004 at 9:00 a.m. In this meeting, respondent was allowed to explain his side, present his evidences and witnesses, and
confront the witnesses presented against him.
4. On February 14, 2005, respondent was served a letter of termination which clearly stated the reasons therefor.

35

The NLRC, notwithstanding its finding that respondent was dismissed for cause and with due process, granted financial assistance to
respondent on equitable grounds. It invoked the past decisions of this Court which allowed the award of financial assistance due to
factors such as long years of service or the Courts concern and compassion towards labor where the infraction was not so serious.
Thus, considering respondents 10 years of service with petitioner corporation without any record of violation of company policies,
the NLRC ordered petitioner corporation to pay respondent financial assistance equivalent to one-half (1/2) month pay for every
year of service in the amount of One Hundred Ninety-Nine Thousand Seventy-Five Pesos (P199,075.00). The NLRC decision states
thus:

WHEREFORE, the decision dated 31 August 2005 is VACATED and SET ASIDE. The instant complaint is dismissed for lack of merit.
However, respondent Mirant [Philippines] Corp. is ordered to pay complainant financial assistance in the amount of one hundred
ninety-nine thousand seventy five pesos (P199,075.00).
SO ORDERED.

36

37

38

Respondent filed a motion for reconsideration, while petitioners filed a motion for partial reconsideration of the NLRC decision.
39
In a Resolution dated June 30, 2006, the NLRC denied both motions.
In a petition for certiorari before the CA, respondent raised the following issues: whether the NLRC acted without or in excess of its
jurisdiction, or with grave abuse of discretion amounting to lack or excess of its jurisdiction when it construed that the terms
"failure," "avoidance," "refusal" and "unjustified refusal" have similar meanings; reversed the factual findings of the Labor Arbiter;
40
and held that respondent deliberately breached petitioners Anti-Drugs Policy. Respondent further argued before the appellate
court that his failure to submit himself to the random drug test was justified because he merely responded to an emergency call
regarding his wifes safety in Tel Aviv, and that such failure cannot be considered synonymous with "avoidance" or "refusal" so as to
41
mean "unjustified refusal" in order to be meted the penalty of termination.
The CA disagreed with the NLRC and ruled that it was immaterial whether respondent failed, refused, or avoided being tested. To
the appellate court, the singular fact material to this case was that respondent did not get himself tested in clear disobedience of
company instructions and policy. Despite such disobedience, however, the appellate court considered the penalty of dismissal to be
too harsh to be imposed on respondent, viz.:
x x x While it is a management prerogative to terminate its erring employee for willful disobedience, the Supreme Court has
recognized that such penalty is too harsh depending on the circumstances of each case. "There must be reasonable proportionality
between, on the one hand, the willful disobedience by the employee and, on the other hand, the penalty imposed therefor" x x x.
In this case, [petitioner corporations] own investigating panel has revealed that the penalty of dismissal is too harsh to impose on
[respondent], considering that this was the first time in his 10-year employment that the latter violated its company policies. The
investigating panel even suggested that a review be had of the company policy on the term "unjustified refusal" to clearly define
what constitutes a violation thereof. The recommendation of the investigating panel is partially reproduced as follows:
"VII. Recommendation
However, despite having violated the company policy, the panel recommends 4 working weeks suspension without pay (twice the
company policys maximum of 2 working weeks suspension) instead of termination due to the following mitigating circumstances.
1. Mr. Joselito A. Caro did not directly refuse to be subjected to the random drug test scheduled on November 3, 2004.
2. In the case of Mr. Joselito A. Caro, the two conditions for termination (Unjustified and Refusal) were not fully met as he
expressly agreed to undergo drug test.
3. Mr. Joselito A. Caro voluntarily offered himself to undergo drug test the following day at his own expense.
Doubling the maximum of 2 weeks suspension to 4 weeks is indicative of the gravity of the offense committed. The panel believes
that although mitigating factors partially offset reasons for termination, the 2 weeks maximum suspension is too lenient penalty for
such an offense.
The Panel also took into consideration that Mr. Joselito A. Caro has served the company for ten (10) years without any record of
violation of the company policies.
xxxx
The Panel also recommends that Management review the Mirant Drug Policy specifically Unjustified [R]efusal to submit to random
42
drug testing. The Panel believes that the term refusal casts certain ambiguities and should be clearly defined."

The CA however found that award of moral and exemplary damages is without basis due to lack of bad faith on the part of the
petitioner corporation which merely acted within its management prerogative. In its assailed Decision dated June 26, 2007, the CA
ruled, viz.:
IN VIEW OF ALL THE FOREGOING, the instant petition is GRANTED. The assailed Decision dated May 31, 2006 and Resolution dated
June 30, 2006 rendered by the National Labor Relations Commission (NLRC) in NLRC NCR CA No. 046551-05 (NCR-00-03-02511-05)
are REVERSED and SET ASIDE. The Labor Arbiters Decision dated August 31, 2005 is hereby REINSTATED with MODIFICATION by
omitting the award of moral and exemplary damages as well as attorneys fees, and that the petitioners salary equivalent to four (4)
working weeks at the time he was terminated be deducted from his backwages. No cost.
SO ORDERED.

43

Petitioner moved for reconsideration. In its assailed Resolution dated January 11, 2008, the CA denied petitioners motion for
reconsideration for lack of merit. It ruled that the arguments in the motion for reconsideration were already raised in their past
pleadings.
In this instant Petition, petitioners raise the following grounds:
I. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT FAILED TO CONSIDER THAT:
A. THE PETITION FOR CERTIORARI FILED BY RESPONDENT CARO SHOULD HAVE BEEN SUMMARILY DISMISSED CONSIDERING
THAT IT LACKED THE REQUISITE VERIFICATION AND CERTIFICATION AGAINST FORUM SHOPPING REQUIRED BY THE RULES
OF COURT; OR
B. AT THE VERY LEAST, THE SAID PETITION FOR CERTIORARI FILED BY RESPONDENT CARO SHOULD HAVE BEEN CONSIDERED
MOOT SINCE RESPONDENT CARO HAD ALREADY PREVIOUSLY EXECUTED A QUITCLAIM DISCHARGING THE PETITIONERS
FROM ALL HIS MONETARY CLAIMS.
II. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT IN
ACCORDANCE WITH LAW AND APPLICABLE DECISIONS OF THE HONORABLE COURT, CONSIDERING THAT:
A. THE COURT OF APPEALS REVERSED THE DECISION DATED 31 MAY 2006 OF THE NLRC ON THE GROUND THAT THERE WAS
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION NOTWITHSTANDING THE FACT THAT IT
AFFIRMED THE NLRCS FINDINGS THAT RESPONDENT CARO DELIBERATELY DISOBEYED PETITIONER MIRANTS ANTI-DRUGS
POLICY.
B. THE PENALTY OF TERMINATION SHOULD HAVE BEEN SUSTAINED BY THE COURT OF APPEALS GIVEN ITS POSITIVE
FINDING THAT RESPONDENT CARO DELIBERATELY AND WILLFULLY DISOBEYED PETITIONER MIRANTS ANTI-DRUGS POLICY.
C. IN INVALIDATING RESPONDENT CAROS DISMISSAL, THE COURT OF APPEALS SUBSTITUTED WITH ITS OWN DISCRETION A
CLEAR MANAGEMENT PREROGATIVE BELONGING ONLY TO PETITIONER MIRANT IN THE INSTANT CASE.
D. THE WILLFUL AND DELIBERATE VIOLATION OF PETITIONER MIRANTS ANTI-DRUGS POLICY AGGRAVATED RESPONDENT
CAROS WRONGFUL CONDUCT WHICH JUSTIFIED HIS TERMINATION.
E. IN INVALIDATING RESPONDENT CAROS DISMISSAL, THE COURT OF APPEALS, IN EFFECT, BELITTLED THE IMPORTANCE
AND SERIOUSNESS OF PETITIONER MIRANTS ANTI-DRUGS POLICY AND CONSEQUENTLY HAMPERED THE EFFECTIVE
IMPLEMENTATION OF THE SAME.
F. THE EXISTENCE OF OTHER GROUNDS FOR CAROS DISMISSAL, SUCH AS WILLFUL DISOBEDIENCE AND [LOSS] OF TRUST
AND CONFIDENCE, JUSTIFIED HIS TERMINATION FROM EMPLOYMENT.
III. NONETHELESS, THE AWARD OF FINANCIAL ASSISTANCE IN FAVOR OF RESPONDENT CARO IS NOT WARRANTED CONSIDERING
THAT RESPONDENT CAROS WILLFUL AND DELIBERATE REFUSAL TO SUBJECT HIMSELF TO PETITIONER MIRANTS DRUG TEST AND HIS
SUBSEQUENT EFFORTS TO CONCEAL THE SAME SHOWS HIS DEPRAVED MORAL CHARACTER.

IV. THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT HELD PETITIONER BAUTISTA PERSONALLY LIABLE FOR [RESPONDENT]
CAROS UNFOUNDED CLAIMS CONSIDERING THAT, ASIDE FROM RESPONDENT CAROS DISMISSAL BEING LAWFUL, PETITIONER
44
BAUTISTA MERELY ACTED WITHIN THE SCOPE OF HIS FUNCTIONS IN GOOD FAITH.
We shall first rule on the issue raised by petitioners that the petition for certiorari filed by respondent with the CA should have been
summarily dismissed as it lacked the requisite verification and certification against forum shopping under Sections 4 and 5, Rule 7 of
the Rules, viz.:
SEC. 4. Verification. Except when otherwise specifically required by law or rule, pleadings need not be under oath, verified or
accompanied by affidavit.
A pleading is verified by an affidavit that the affiant has read the pleading and that the allegations therein are true and correct of his
knowledge and belief.
A pleading required to be verified which contains a verification based on "information and belief," or upon "knowledge, information
and belief," or lacks a proper verification, shall be treated as an unsigned pleading.
SEC. 5. Certification against forum shopping. The plaintiff or principal party shall certify under oath in the complaint or other
initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed therewith: (a) that
he has not theretofore commenced any action or filed any claim involving the same issues in any court, tribunal or quasi-judicial
agency and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other pending action
or claim, a complete statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action or
claim has been filed or is pending, he shall report that fact within five (5) days therefrom to the court wherein his aforesaid
complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or other initiatory
pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise provided, upon motion and after
hearing. The submission of a false certification or noncompliance with any of the undertakings therein shall constitute indirect
contempt of court, without prejudice to the corresponding administrative and criminal actions. If the acts of the party or his counsel
clearly constitute willful and deliberate forum shopping, the same shall be ground for summary dismissal with prejudice and shall
constitute direct contempt, as well as a cause for administrative sanctions.
It is the contention of petitioners that due to respondents failure to subscribe the Verification and Certification of Non-Forum
Shopping before a Notary Public, the said verification and certification cannot be considered to have been made under oath.
Accordingly, such omission is fatal to the entire petition for not being properly verified and certified. The CA therefore erred when it
did not dismiss the petition.
This jurisdiction has adopted in the field of labor protection a liberal stance towards the construction of the rules of procedure in
order to serve the ends of substantial justice. This liberal construction in labor law emanates from the mandate that the
45
workingmans welfare should be the primordial and paramount consideration. Thus, if the rules of procedure will stunt courts from
fulfilling this mandate, the rules of procedure shall be relaxed if the circumstances of a case warrant the exercise of such liberality. If
we sustain the argument of petitioners in the case at bar that the petition for certiorari should have been dismissed outright by the
CA, the NLRC decision would have reached finality and respondent would have lost his remedy and denied his right to be protected
against illegal dismissal under the Labor Code, as amended.
It is beyond debate that petitioner corporations enforcement of its Anti-Drugs Policy is an exercise of its management prerogative.
It is also a conceded fact that respondent "failed" to take the random drug test as scheduled, and under the said company policy,
such failure metes the penalty of termination for the first offense. A plain, simple and literal application of the said policy to the
omission of respondent would have warranted his outright dismissal from employment if the facts were that simple in the case at
bar. Beyond debate the facts of this case are not and this disables the Court from permitting a straight application of an
otherwise prima facie straightforward rule if the ends of substantial justice have to be served.
It is the crux of petitioners argument that respondents omission amounted to "unjust refusal" because he could not sufficiently
support with convincing proof and evidence his defenses for failing to take the random drug test. For petitioners, the inconsistencies
in respondents explanations likewise operated to cast doubt on his real reasons and motives for not submitting to the random drug
test on schedule. In recognition of these inconsistencies and the lack of convincing proof from the point of view of petitioners, the

NLRC reversed the decision of the Labor Arbiter. The CA found the ruling of the Labor Arbiter to be more in accord with the facts,
law and existing jurisprudence.
We agree with the disposition of the appellate court that there was illegal dismissal in the case at bar.
While the adoption and enforcement by petitioner corporation of its Anti-Drugs Policy is recognized as a valid exercise of its
management prerogative as an employer, such exercise is not absolute and unbridled. Managerial prerogatives are subject to
46
limitations provided by law, collective bargaining agreements, and the general principles of fair play and justice. In the exercise of
its management prerogative, an employer must therefore ensure that the policies, rules and regulations on work-related activities of
the employees must always be fair and reasonable and the corresponding penalties, when prescribed, commensurate to the offense
47
involved and to the degree of the infraction. The Anti-Drugs Policy of Mirant fell short of these requirements.
Petitioner corporations subject Anti-Drugs Policy fell short of being fair and reasonable.
First. The policy was not clear on what constitutes "unjustified refusal" when the subject drug policy prescribed that an employees
"unjustified refusal" to submit to a random drug test shall be punishable by the penalty of termination for the first offense. To be
sure, the term "unjustified refusal" could not possibly cover all forms of "refusal" as the employees resistance, to be punishable by
termination, must be "unjustified." To the mind of the Court, it is on this area where petitioner corporation had fallen short of
making it clear to its employees as well as to management as to what types of acts would fall under the purview of "unjustified
refusal." Even petitioner corporations own Investigating Panel recognized this ambiguity, viz.:
The Panel also recommends that Management review the Mirant Drug Policy specifically "Unjustified [R]efusal to submit to random
48
drug testing." The Panel believes that the term "refusal" casts certain ambiguities and should be clearly defined.
The fact that petitioner corporations own Investigating Panel and its Vice President for Operations, Sliman, differed in their
recommendations regarding respondents case are first-hand proof that there, indeed, is ambiguity in the interpretation and
application of the subject drug policy. The fact that petitioner corporations own personnel had to dissect the intended meaning of
"unjustified refusal" is further proof that it is not clear on what context the term "unjustified refusal" applies to. It is therefore not a
surprise that the Labor Arbiter, the NLRC and the CA have perceived the term "unjustified refusal" on different prisms due to the
lack of parameters as to what comes under its purview. To be sure, the fact that the courts and entities involved in this case had to
engage in semantics and come up with different constructions is yet another glaring proof that the subject policy is not clear
creating doubt that respondents dismissal was a result of petitioner corporations valid exercise of its management prerogative.
It is not a mere jurisprudential principle, but an enshrined provision of law, that all doubts shall be resolved in favor of labor. Thus, in
Article 4 of the Labor Code, as amended, "[a]ll doubts in the implementation and interpretation of the provisions of [the Labor]
Code, including its implementing rules and regulations, shall be resolved in favor of labor." In Article 1702 of the New Civil Code, a
similar provision states that "[i]n case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety
and decent living for the laborer." Applying these provisions of law to the circumstances in the case at bar, it is not fair for this Court
to allow an ambiguous policy to prejudice the rights of an employee against illegal dismissal. To hold otherwise and sustain the
stance of petitioner corporation would be to adopt an interpretation that goes against the very grain of labor protection in this
jurisdiction. As correctly stated by the Labor Arbiter, "when a conflicting interest of labor and capital are weighed on the scales of
social justice, the heavier influence of the latter must be counter-balanced by the sympathy and compassion the law must accord
49
the underprivileged worker."
Second. The penalty of termination imposed by petitioner corporation upon respondent fell short of being reasonable. Company
policies and regulations are generally valid and binding between the employer and the employee unless shown to be grossly
50
oppressive or contrary to law as in the case at bar. Recognizing the ambiguity in the subject policy, the CA was more inclined to
adopt the recommendation of petitioner corporations own Investigating Panel over that of Sliman and the NLRC. The appellate
court succinctly but incisively pointed out, viz.:
x x x We find, as correctly pointed out by the investigating panel, that the [petitioner corporations] Anti-Drug Policy is excessive in
terminating an employee for his "unjustified refusal" to subject himself to the random drug test on first offense, without clearly
defining what amounts to an "unjustified refusal."
Thus, We find that the recommended four (4) working weeks suspension without pay as the reasonable penalty to be imposed on
51
[respondent] for his disobedience. x x x (Additional emphasis supplied.)

To be sure, the unreasonableness of the penalty of termination as imposed in this case is further highlighted by a fact admitted by
petitioner corporation itself: that for the ten-year period that respondent had been employed by petitioner corporation, he did not
have any record of a violation of its company policies.
As to the other issue relentlessly being raised by petitioner corporation that respondents petition for certiorari before the CA should
have been considered moot as respondent had already previously executed a quitclaim discharging petitioner corporation from all
his monetary claims, we cannot agree. Quitclaims executed by laborers are ineffective to bar claims for the full measure of their
52
legal rights, especially in this case where the evidence on record shows that the amount stated in the quitclaim exactly
53
54
corresponds to the amount claimed as unpaid wages by respondent under Annex A of his Reply filed with the Labor Arbiter.
Prima facie, this creates a false impression that respondents claims have already been settled by petitioner corporation
discharging the latter from all of respondents monetary claims. In truth and in fact, however, the amount paid under the subject
quitclaim represented the salaries of respondent that remained unpaid at the time of his termination not the amounts being
claimed in the case at bar.
We believe that this issue was extensively discussed by both the Labor Arbiter and the CA and we find no reversible error on the
disposition of this issue, viz.:
A review of the records show that the alluded quitclaim, which was undated and not even notarized although signed by the
petitioner, was for the amount of P59,630.05. The said quitclaim was attached as Annex 26 in the [petitioners] Position Paper filed
before the Labor Arbiter. As fully explained by [respondent] in his Reply filed with the Labor Arbiter, the amount stated therein was
his last pay due to him when he was terminated, not the amount representing his legitimate claims in this labor suit x x x. To bolster
his defense, [respondent] submitted the pay form issued to him by the [petitioner corporation], showing his net pay at P59,630.05
exactly the amount stated in the quitclaim x x x. Then, too, as stated on the quitclaim itself, the intention of the waiver executed by
the [respondent] was to release [petitioner corporation] from any liability only on the said amount representing [respondents] "full
and final payment of [his] last salary/separation pay" x x x. It did not in any way waive [respondents] right to pursue his legitimate
claims regarding his dismissal in a labor suit. Thus, We gave no credence to [petitioners] private defense that alleged quitclaim
55
rendered the instant petition moot.
Finally, the petition avers that petitioner Bautista should not be held personally liable for respondents dismissal as he acted in good
faith and within the scope of his official functions as then president of petitioner corporation. We agree with
petitioners.1wphi1 Both decisions of the Labor Arbiter and the CA did not discuss the basis of the personal liability of petitioner
Bautista, and yet the dispositive portion of the decision of the Labor Arbiter - which was affirmed by the appellate court - held him
jointly and severally liable with petitioner corporation, viz.:
WHEREFORE, premises considered, this Office finds respondents GUILTY of illegal dismissal, and hereby ordered to jointly and
severally reinstate complainant back to his former position without loss on seniority rights and benefits and to pay him his
backwages and other benefits from the date he was illegally dismissed up to the time he is actually reinstated, partially computed as
of this date in the amount of P258,797.50 (P39,815.00 x 6.5 mos.) plus his 13th and 14th month pay in the amount of P43,132.91 or
in the total amount of P301,930.41. Respondents are also ordered to pay complainant the amount of P3,000,000.00 as and by way
of moral and exemplary damages, and to pay complainant the amount equivalent to ten percent (10%) of the total awards as and by
way of attorney's fees.
56

SO ORDERED. (Emphasis supplied.)

A corporation has a personality separate and distinct from its officers and board of directors who may only be held personally liable
57
for damages if it is proven that they acted with malice or bad faith in the dismissal of an employee. Absent any evidence on record
that petitioner Bautista acted maliciously or in bad faith in effecting the termination of respondent, plus the apparent lack of
allegation in the pleadings of respondent that petitioner Bautista acted in such manner, the doctrine of corporate fiction dictates
that only petitioner corporation should be held liable for the illegal dismissal of respondent.
WHEREFORE, the petition for review on certiorari is DENIED. The assailed Decision dated June 26, 2007 and the Resolution dated
January 11, 2008 in CA-G.R. SP No. 96153 are AFFIRMED with the MODIFICATION that only petitioner corporation is found GUILTY of
the illegal dismissal of respondent Joselito A. Caro. Petitioner Edgardo A. Bautista is not held personally liable as then President of
petitioner corporation at the time of the illegal dismissal.
No pronouncement as to costs.

SO ORDERED.
G.R. No. 160025

April 23, 2014

SANGGUNIANG PANLUNGSOD NG BAGUIO CITY, Petitioner,

vs.
JADEWELL PARKING SYSTEMS CORPORATION, Respondent.
x-----------------------x
G.R. No. 163052
JADEWELL PARKING SYSTEMS CORPORATION, Petitioner,
vs.
MAYOR BERNARDO M. VERGARA, CITY MAYOR OF BAGUIO, VICE MAYOR BETTY LOURDES F. TABANDA, VICE MAYOR OF BAGUIO,
COUNCILOR BRAULIO D. YARANON, COUNCILOR ELMER O. DATUIN, COUNCILOR ANTONIO R. TABORA, JR., COUNCILOR GALO D.
WEYGAN, COUNCILOR EDILBERTO B. TENEFRANCIA, COUNCILOR FEDERICO J. MANDAPAT, JR., COUNCILOR RICHARD A. CARINO,
COUNCILOR FAUSTINO A. OLOWAN, COUNCILOR DELFIN V. BALAJADIA, COUNCILOR RUFINO M. PANAGAN, CITY SECRETARY
RONALDO B. PEREZ, SANGGUNIANG PANLUNGSOD NG BAGUIO,Respondents.
x-----------------------x
G.R. No. 164107
JADEWELL PARKING SYSTEMS CORPORATION, Petitioner,
vs.
CITY MAYOR BRAULIO D. YARANON, Respondent.
x-----------------------x
G.R. No. 165564
JADEWELL PARKING SYSTEMS CORPORATION, Petitioner,
vs.
CITY MAYOR BRAULIO D. YARANON, Respondent.
x-----------------------x
G.R. No. 172215
JADEWELL PARKING SYSTEMS CORPORATION, Petitioner,
vs.
JUDGE FERNANDO VIL PAMINTUAN, PRESIDING JUDGE OF BRANCH 3 OF THE REGIONAL TRIAL COURT OF BAGUIO CITY,
BENEDICTO BALAJADIA, PATERNO AQUINO, RICHARD LABERINTO, ROLANDO ABELLERA, FERNANDO SANGALANG, ALLAN ATOS,
ANGELINO SANGALANG, CITY OF BAGUIO, AND CITY MAYOR BRAULIO D. YARANON, Respondents.
x-----------------------x
G.R. No. 172216
JADEWELL PARKING SYSTEMS CORPORATION, Petitioner,
vs.
JUDGE FERNANDO VIL PAMINTUAN, PRESIDING JUDGE, BRANCH 03 REGIONAL TRIAL COURT OF BAGUIO CITY, Respondent.
x-----------------------x

G.R. No. 173043

JADEWELL PARKING SYSTEMS CORPORATION, Petitioner,
vs.
CITY MAYOR BRAULIO D. YARANON, Respondent.
x-----------------------x
G.R. No. 174879
JADEWELL PARKING SYSTEMS CORPORATION, Petitioner,
vs.
ACTING CITY MAYOR AND FORMERLY VICE MAYOR AND PRESIDING OFFICER OF THE SANGGUNIANG PANLUNGSOD NG BAGUIO,
REINALDO A. BAUTISTA, JR., MEMBERS OF THE SANGGUNIANG PANLUNGSOD NG BAGUIO, LEONARDO B. YANGOT, JR., ROCKY
THOMAS A. BALISONG, EDILBERTO B. TENEFRANCIA, FAUSTINO A. OLOWAN, GALO P. WEYGAN, FEDERICO J. MANDAP AT,
PERLITA L. CHAN-RONDEZ, ANTONIO R. TABORA, JOSE M. MOLINTAS AND RUFINO M. PANAGAN AND CITY LEGAL OFFICER
MELCHOR CARLOS R. RABANES, Respondents.
x-----------------------x
G.R. No. 181488
CITY MAYOR BRAULIO D. YARANON, Petitioner,
vs.
JADEWELL PARKING SYSTEMS CORPORATION, HON. EXECUTIVE SECRETARY EDUARDO R. ERMITA, ACTING BY AUTHORITY OF THE
PRESIDENT, AND HON. RONALDO V. PUNO, IN HIS CAPACITY AS SECRETARY OF THE DEPARTMENT OF INTERIOR AND LOCAL
GOVERNMENT, Respondents.
DECISION
SERENO, CJ:
Before this Court are nine (9) Petitions involving essentially the same parties - officials of the City Government of Baguio and
Jadewell Parking Systems Corporation (Jadewell). The only party here that is neither an official of the City Government of Baguio nor
an officer of Jadewell is former Judge Fernando Vil Pamintuan.
The two principal parties executed a Memorandum of Agreement (MOA) on 26 June 2000, whereby the City of Baguio authorized
Jadewell to regulate and collect parking fees for on-street parking in the city, as well as to implement the installation of modern
parking meters.
The legal disputes embodied in the nine Petitions began when the Sangguniang Panlungsod of Baguio City (Sanggunian) revoked the
MOA through City Resolution No. 037, Series of 2002 (Resolution 37), alleging substantial breach of the MOA on the part of Jadewell.
Then Mayor Alfredo Vergara vetoed the Resolution. The Sanggunian Panlungsod overrode the veto through an unnumbered
1
Resolution dated 17 April 2002. These twin Resolutions constitute what we call here as the first act of Rescission of the MOA by the
city officials of Baguio. Jadewell denied the breach and commenced an action before the Regional Trial Court (RTC) of
2
Baguio, questioning the validity of the MOAs revocation and the Sanggunians capacity to pass a resolution revoking the MOA.
There was a second act of rescission that the city officials of Baguio performed in 2006, the circumstances of which will be narrated
later on.
While the main case was under litigation, and then under appeal, the parties filed contempt charges against each other. Six of these
cases are part of the consolidated Petitions before us.
These nine highly-voluminous cases, however, all boil down essentially to just these five sets of legal questions requiring resolution:
(a) The validity or invalidity and legal efficacy of Saggunians two distinct acts of rescission of the MOA;

(b) The duty of a trial judge to dismiss a case assailing the validity of the MOA and the city resolution approving it in view of
the pendency of the various petitions before this Court;
(c) the liability of : (i) respondent city officials of Baguio, for various counts of indirect contempt of this court, (ii) some
respondents, who are lawyers at the same time, for acts that require the disciplinary action of disbarment, (iii) respondent
Judge Pamintuan, for taking cognizance of a civil case allegedly in defiance of this Courts authority;
(d) the validity of the administrative suspension of one of the respondents herein, former Mayor Braulio Yaranon, by the
Office of the President in relation to his acts of non-recognition of the MOA; and
(e) the nullification of certain acts of officials of Baguio City directed against Jadewell pursuant to their belief that the latter
had no authority to continue implementing the terms of the MOA.
THE ANTECEDENT FACTS
3

On 1 March 1999, Jadewell proposed the privatization of the administration of on-street parking in Baguio City using
Schlumbergers DG4S Pay and Display Parking Meter (hereinafter "DG4S P&D"), which it touted as "technologically advanced, up to
the level of more progressive countries and which would make the city as the first and only city in the Philippines, if not in Asia, to
4
have metered parking as an important part of its traffic and parking system."
5

Respondent Sanggunian acted favorably on the proposal. On 31 May 2000, it passed Resolution No. 159, Series of 1999, authorizing
the City Mayor of Baguio to negotiate and enter into a Memorandum of Agreement with Jadewell for the installation of its proposed
6
DG4S parking technology.
On 16 July 1999, the City Mayor of Baguio wrote to Jadewell, transmitting to it the finalized draft of the MOA, with amendments
emanating from his office. The City Mayor informed Jadewell that the finalization of the MOA would be subject to the appropriate
7
action of the Sanggunian and the passage of an enabling ordinance.
On 27 March 2000, respondent Sanggunian enacted City Ordinance No. 003, Series of 2000 (Ordinance No. 003-2000) amending
Ordinance No. 13, Series of 1983, outlining the rules and policy on the privatization of the administration of on-street parking in the
8
city streets of Baguio. For this purpose, the City of Baguio authorized the intervention of a private operator for the regulation,
charging and collection of parking fees and the installation of modern parking meters, among others.
On 10 April 2000, the City Legal Officer of Baguio City advised the City Mayor that the project for the regulation of on-street parking
and installation of parking meters was not an infrastructure. Hence, the project was not covered by the Build-Operate-Transfer
9
10
Law and did not require publication of a notice for its validity.
Nevertheless, for the sake of transparency, the City Legal Officer recommended the publication of the appropriate notice on the
project and an invitation to bid. An invitation to bid for the proposed regulation of on-street parking and installation of parking
meters on Baguio Citys streets was published in the Philippine Daily Inquirer on 8, 9 and 10 May 2000. Four interested bidders
submitted their proposals, but three were disqualified. The bid of Jadewell was the only one not disqualified; hence, it was awarded
11
the project.
On 26 June 2000, the MOA was finally executed between Jadewell and the City of Baguio through its then City Mayor, Mauricio G.
12
Domogan for the installation, management and operation of the DG4S P&D parking meters.
On 17 July 2000, the Sanggunian confirmed the MOA through its Resolution No. 205-2000.

13

On 31 August 2000, the parties executed a supplemental MOA to include the Ganza/Burnham parking space, owned by the
14
Philippine Tourism Authority and managed by the City of Baguio, in the project. This supplemental agreement was neither
confirmed nor ratified by the Sanggunian.
15

In September of 2000, Jadewell began to mobilize and take over the parking facilities at the Ganza/Burnham Park area. Around this
time, questions arose regarding the compliance by Jadewell with the provisions of the MOA, notably on matters such as obtaining
the recommendation from the Department of Public Works and Highways (DPWH) for the installation of the parking meters and the

legality of the collection of parking fees being done by its parking attendants prior to the installation of the parking meters at
16
Burnham Park.
On 20 December 2000, Jadewell wrote then Vice-Mayor Daniel T. Farias to inform him of the progress of the deputization by the
Department of Transportation and CommunicationsLand Transportation Office (DOTC-LTO) of parking attendants required for the
implementation of the MOA. Jadewell explained that they were still working on the required deputization of Jadewells parking
attendants. Nevertheless, it claimed that its parking attendants were authorized to collect parking fees pending the actual
installation of the parking meters. It also claimed that the parking meters had not yet been installed because the necessary civil
17
works were yet to be completed.
Shortly thereafter, a case was filed by Edgar M. Avila, et al. with the RTC-Baguio City (Branch 61), assailing Ordinance No. 003-2000
as unconstitutional and seeking to restrain the City Government of Baguio from implementing the provisions of the MOA. It further
alleged that the City Government could not delegate the designation of pay parking zones to Jadewell, that the parking attendants
deployed by Jadewell were not deputized, and that the questioned ordinance creates class legislation as the designated taxi and
18
jeepney stands were discriminatorily removed. The case was docketed as Civil Case No. 4892-R. This was dismissed on motion by
Jadewell joined by the City Government of Baguio. The lower court declared that Ordinance No. 003-2000 is constitutional and that
all acts emanating from it are deemed "reasonable and non-discriminatory...having been enacted in accordance with the powers
19
granted to Baguio City by law." Complainants Motion for Reconsideration (MR) was denied.
On 24 August 2001, Edgar Avila, et al., filed a Rule 65 Petition for Certiorari, Prohibition and Mandamus with the Supreme Court
assailing the RTCs dismissal of their Complaint. The case was docketed as G.R. No. 149642. On 10 October 2001, this Court issued a
Resolution dismissing the petition of Avila, et al. for failure to state in their petition the material dates when they received the
appealed resolution and order, and to append the original or certified true copies of the questioned resolution and order subject of
20
21
their petition. There was no resolution on the merits. The Resolution became final and executory on 2 April 2002.
A case was also filed by Nelia G. Cid against then Mayor Bernardo Vergara, et al. when her vehicle was clamped, towed away, and
impounded by Jadewell after the latter found her car to be illegally parked. She refused to pay the corresponding fees to Jadewell
22
and as a result, the latter refused to release her vehicle. Cid filed a case for replevin and questioned the validity of Ordinance No.
003-2000 and the MOA, as well as the authority of Jadewell to clamp down/tow away vehicles whose owners refuse to pay parking
fees. The case was docketed as Civil Case No. 5165-R and was assigned to Branch 7 of RTC-Baguio. On 24 May 2002, an Omnibus
Order was issued by this RTC that addressed several pending incidents related to the authority of Jadewell to clamp down/tow away
vehicles. The Omnibus Order upheld Jadewells authority to retain the vehicle of petitioner Nelia G. Cid pending her payment of the
parking and towage fees to Jadewell, and held that the authority of Jadewell was lawfully provided in Ordinance No. 003-2000 and
the MOA. Also, the RTC-Baguio took cognizance of the ruling by this Court in G.R. No. 149642 which, in its mistaken view, upheld the
23
validity of the questioned ordinance and the MOA.
Ultimately, Jadewell was able to install no more than 14 parking meters in three (3) areas of Baguio City: six (6) on Session Road, five
24
(5) on Harrison Road and three (3) on Lake Drive. At the time that these meters were installed, there were already verbal
complaints being raised against Jadewell by the Sanggunian for the following alleged violations:
a. Failure to install parking meters for each parking space as specified in Section 3-F of Ordinance No. 003-2000;

25

b. Failure to install a convenient and technologically advanced parking device that is solar-powered and can measure the
26
time a vehicle stays in a parking slot;
c. Failure to give the City of Baguio the latter's share of the collected parking fee;

27

d. Failure to post a performance bond in the amount of P1 million after its previous bond expired.

28

The Sanggunian passed Resolution No. 395, Series of 2000, directing Jadewell to comply with its obligations under the MOA for the
29
installation of the necessary number of parking meters.
On 15 March 2001, Jadewell wrote to the City Mayor in response to the mentioned Resolution, informing the said office that the
30
former had started operation of the off-street parking on 2 December 2000 and of the on-street parking on 15 December 2000. On
31
27 January 2001, Jadewell also wrote the City Treasurer that the former had completed installation of the parking meters.

In response to the letter of Jadewell, the City Treasurer demanded the remittance of Baguios share of the parking fees collected by
32
Jadewell since it started operations. Jadewell responded by saying that it had complied with this obligation.
33

On 19 February 2002, the Sanggunian passed Resolution 37, expressing its intent to rescind the MOA with Jadewell. The said
Resolution enumerated in the "Whereas" clauses the alleged violations of Jadewell prompting it to rescind the MOA. It reads:
xxxx
WHEREAS, it now appears from verified facts that:
1. contrary to its commitment to install a technologically based P & D parking system, at no cost to the City, including "such
equipment and paraphernalia to meter the length of usage of the affected parking spaces for purposes of payment of the
parking fees", Jadewell has installed only fourteen (14) parking meters (only 12 of which are working) in only three (3)
streets, and Jadewell does not intend to install anymore [sic]; instead it has resorted as a rule to an exceptional
circumstance of manual collection of parking fees by parking attendants who, despite express provisions of the Ordinance,
are not duly deputized by the DOTC-LTO. Despite assurances to the Honorable City Mayor that Jadewell would stop
collection of parking fees until the parking meters have been duly installed, Jadewell continues to collect parking fees
manually by using undeputized parking attendants to do the collection;
2. contrary to its commitment to install a technologically based P & D parking system, at no cost to the City, Jadewell has
charged the cost of such and similar equipment as direct costs, thus substantially eroding the share of the City in the
parking fees;
3. contrary to its obligation to post a performance bond, Jadewell has not fully complied, and when required to update its
performance bond Jadewell refused to do so rationalizing its non-compliance by the assertion that they are already
performing and therefore are no longer obligated to post a performance bond;
4. contrary to its obligation to remit the share of the City within the first ten (10) days of the following month, Jadewell had
initially resisted making payments to the City on the pretext that the profits cannot be determined until after the end of the
fiscal year and initially failed to have their tickets pre-numbered and registered with the Office of the City Treasurer;
5. contrary to its promise that the City would derive substantial revenue from the on-street pay parking system, Jadewell
has not paid a single centavo of the City share in on-street parking operation; whatever Jadewell has remitted to the City
are properly chargeable against the share of the City in the MOA on off-street parking (the Burnham Parking Area near
Ganza), and it appears less than what the City is entitled thereto; and
6. contrary to its representations that the P & D System which it proposed would eliminate fraud in the collection of parking
fees, Jadewell has perpetrated fraud on the City by, according to the affidavit of its former bookkeeper, Mr. Adonis
34
Cabungan, doctoring the financial statements before the same are submitted to City authorities.
WHEREAS, there has been no substantial improvement of the traffic situation in the City even with the introduction of the P & D
Parking System and thus it increasingly appears that the system introduced by Jadewell is more for revenue raising than for
regulatory purposes. As a consequence the legal principle applies that the collection of taxes cannot be let to any person. In other
words, government cannot allow private persons to collect public funds for themselves with the agreement that part thereof or as it
turned out in this case no part thereof is shared with the City;
WHEREAS, in its financial reports to the City showing substantial loses [sic] and in its statement to other persons that it is losing
money on the project, the kindest thing that the City can do for Jadewell is to prevent Jadewell from incurring anymore [sic] loses.
NOW THEREFORE, on motion of Hon. Bautista, and Hon. Cario, seconded by Hon. Yaranon, Hon. Weygan and Hon. Tabora, be it
RESOLVED, as it is hereby resolved, to rescind the Memorandum of Agreement (MOA) executed between the City of Baguio and
Jadewell Parking System Corporation dated 26 June 2000 on the basis of the foregoing premises and exercising its rights under
Section 12 of the MOA on the subject of On-Street Parking executed between the City of Baguio and Jadewell Parking Systems
Corporation dated 26 June 2000 and, more importantly, performing its duty to protect and promote the general welfare of the
people of Baguio City.

RESOLVED FURTHER, to direct the City Legal Officer to cause the proper notice of rescission to Jadewell Parking Systems Corporation
forthwith and to take all appropriate steps to implement and enforce the intent of this Resolution.
RESOLVED FURTHERMORE, to inform all City officials and employees and all other persons concerned to be guided accordingly.

35

On 1 March 2002, the then City Mayor of Baguio, Bernardo M. Vergara, vetoed Resolution 37, through a letter dated 1 March 2002
addressed to the Vice-Mayor, as Presiding Officer of the Sanggunian, and its members. Mayor Vergara reasoned that it was
premature for the Sangguniang Panlungsod to rescind the MOA, because the latter provides for a minimum period of five years
before the right of rescission can be exercised; and, that the right of Jadewell to due process was violated due to the lack of
opportunity to hear the latters side. The City Mayor proposed a re-negotiation of the MOA with Jadewell as a solution to the
36
problem.
Meanwhile, on 13 March 2002, the DOTCCordillera Autonomous Region (DOTC-CAR) issued a cease and desist order to Jadewell
37
prohibiting it from clamping down and/or towing away vehicles in Baguio City for violation of traffic rules and regulations.
On 17 April 2002, the Sanggunian resolved through a Resolution of the same date, to override the veto of the City Mayor, worded
thus:
NOW THEREFORE, the Sangguniang Panlungsod (City Council) in Regular Session assembled, by twelve affirmative votes constituting
more that [sic] a two-thirds vote of all its Members, has resolved to override, as it hereby overrides, the veto of His Honor, Mayor
Bernardo M. Vergara, of City Resolution Numbered 037, Series of 2002, entitled "Rescinding the Memorandum of Agreement (MOA)
38
Executed Between the City of Baguio and Jadewell Parking Systems Corporation Dated 26 June 2000."
Also at this time, Braulio D. Yaranon, who was then a member of the Sanggunian, requested a special audit from the Commission on
AuditCordillera Autonomous Region (COA-CAR) on the operations of Jadewell as regards the pay parking project embodied in the
MOA.
On 27 May 2002, Jadewell filed with the RTC of Baguio City a Rule 65 Petition for Certiorari, Prohibition and Mandamus with Prayer
for the Issuance of a Writ of Preliminary Injunction, assailing the validity of Resolution No. 037-2002, which rescinded the MOA
39
between the Sangguniang Panlungsod and Jadewell. The case was docketed as Civil Case No. 5285-R and was raffled off to RTCBaguio (Branch 61).
40

On 8 October 2002, the RTC Br. 61 promulgated its Decision finding the Sanggunians rescission of the MOA unlawful. The
Sanggunian then filed an appeal assailing the RTCs decision with the Court of Appeals; the case was docketed as CA-G.R. SP No.
74756.
Meanwhile, pending resolution of CA-G.R. SP No. 74756 before the CA, the Sanggunian passed Resolution No. 089, Series of 2003.
The resolution sought the assistance of the DOTC-CAR specifically, for it to take immediate action against the officers and personnel
of Jadewell for defying the 13 March 2002 cease-and-desist Order it issued prohibiting the latter from clamping down and/or towing
41
away vehicles. On 27 May 2003, City Mayor Vergara approved and signed Resolution No. 089-2003. In response, Jadewell filed a
Petition for Indirect Contempt with the CA against Mayor Vergara, the Sanggunian and other local government officers. The case
was docketed as CA-G.R. SP No. 77341. The original petition was followed by three (3) supplemental petitions filed by Jadewell in the
same case.
42

On 7 July 2003, the CA rendered a Decision in CA G.R. SP No. 74756, affirming the assailed Decision of the trial court which
declared as invalid the Sanggunians rescission of the MOA. The Sanggunian filed a Motion For Reconsideration, but this was denied
43
by the CA through a Resolution dated 4 September 2003. Aggrieved by the denial of their appeal, the Sanggunian filed a Rule 45
Petition for Review on Certiorari with this Court, seeking to reverse and set aside the 7 July 2003 Decision and its Resolution dated
44
04 September 2003 of the CA. The petition was docketed as G.R. No. 160025, the first of the consolidated petitions herein.
45

In CA-G.R. SP No. 77341, the CA dismissed in a Decision promulgated on 28 July 2004 the contempt petitions filed by Jadewell for
46
lack of merit. The latters Motion For Reconsideration was likewise denied by the CA. Jadewell elevated the dismissal of its
contempt petitions to this Court on 8 December 2004 by filing a Rule 45 Petition for Review on Certiorari. The case was docketed as
G.R. No. 166094. This is not among the consolidated petitions herein.

47

On 13 July 2003, the COA-CAR promulgated the requested Report. The Reports objective was to ascertain compliance by the
contracting parties the City of Baguio and Jadewell with Ordinance No. 003-2000 and the MOA. The COA-CAR Report has 12
findings, essentially as follows:
1) The provisions of the MOA and its Supplement as regards the sharing of the fees are contradicting, hence the share of
48
the City Government cannot be determined;
2) There was no proper segregation by area of the parking fees collected, hence the proper share of Baguio City cannot be
49
determined;
3) The City Government did not strictly implement the collection of penalties arising from the late remittances of Jadewell,
50
hence additional revenues were not collected;
4) The City Treasurer did not conduct an audit of the books and accounts of Jadewell, thus the City Governments share
51
from parking fees cannot be ascertained;
5) The use of the P&D parking meters were [sic] not maximized due to Jadewells non-compliance with Ordinance No. 00352
2000 and the MOA, resulting in the collection of meager income from its use;
6) The MOA does not specify the guidelines for determining the economic viability of installing the parking meters and the
53
period within which to install it [sic];
7) The Supplemental MOA was not confirmed by the City Council of Baguio in violation of R.A. No. 7160 (the Local
54
Government Code);
8) The coverage of the parking operations contained in Annex "A" of the MOA was not confirmed by the City Council in
55
violation of R.A. No. 7160;
9) The City Government failed to ensure proper compliance by Jadewell with the MOA provisions;

56

10) The pay parking project was awarded to a bidder who did not have all the qualifications as stated in the "Invitation to
57
Bid" in violation of R.A. No. 7160 and Audit Circular No. 92-386;
11) The provisions on deputization in Ordinance No. 003-2000 and the MOA are contrary to R.A. No. 4136 (the Land
58
Transportation and Traffic Code), thus rendering it invalid;
12) The monthly minimum amount to be remitted to the City Government is doubtful due to the discrepancy in the
amounts collected and expenses for the year 1999 provided by the City Government to Jadewell as against the amount
certified by the Office of the City Architect and Parks Superintendent-Burnham Parks Office for the City Government
59
overseeing the Ganza-Burnham parking spaces.
On 11 February 2004, after G.R. No. 160025 was filed and pending resolution by this Court, the Sangguniang Panlungsod adopted
Resolution No. 056, Series of 2004. The said Resolution informs the general public that Jadewell had neither the authority nor the
60
police power to clamp, tow, or impound vehicles at any place in the City of Baguio. Also, on the same date, the Sangguniang
Panlungsod passed Resolution No. 059, Series of 2004, in which it made a formal demand upon Jadewell to restore to it possession
61
of the Ganza Parking Area.
With these developments, Jadewell filed directly with this Court its first indirect contempt case against Bernardo M. Vergara (then
City Mayor of Baguio), its Vice-Mayor, and the entire City Council for enacting Resolution Nos. 056 & 059, Series of 2004 pending
resolution by this Court of G.R. 160025. The case was docketed as G.R. No. 163052.
On 23 June 2004, this Court through its First Division, ordered G.R. No. 163052 consolidated with G.R. No. 160025.
63

62

On 1 July 2004, then Baguio City Mayor Braulio D. Yaranon issued Executive Order No. 001-04, the decretal portion of which reads:

NOW, THEREFORE, the undersigned City Mayor, pursuant to his authority to enforce all laws and ordinances relative to the
governance of the City, and to issue executive orders for the faithful and appropriate enforcement and execution of such laws and
ordinances (Sec. 455 (b) (2) and (iii), R.A. 7160) hereby affirms and gives protection to the right of the citizenry, particularly affected
motor vehicle owners, operators, and drivers, to refuse to submit to the enforcement of Ordinance 003-2000, by the Jadewell
Parking Systems Corporation, and further to refuse to pay public revenue in the form of fees, charges, impositions, fines, and
penalties provided for in the said ordinance, to the said entity, such acts being patently illegal and prohibited by law; this Executive
Order shall be in force and effect until the City Council, as the legislative arm of the City of Baguio, shall have adopted appropriate
remedial or corrective measures on the matters and concerns specified hereinabove.
64

On 8 July 2004, Mayor Yaranon issued a Memorandum to the City Director of the Baguio City Police Department, directing the
department to stop and prevent Jadewell from clamping, towing, and impounding vehicles; to arrest and file criminal charges
against Jadewell personnel who would execute the proscribed acts specified in the said Memorandum; and to confiscate the
equipment used by Jadewell to clamp, tow, or impound vehicles under the authority of the rescinded MOA.
On 12 July 2004, Jadewell filed its second Petition for indirect contempt again with this Court, this time against Mayor Yaranon for
having issued the above-cited Order also for the same reasons given in its first contempt petition with this Court. The Petition was
docketed as G.R. No. 164107.
Furthermore, on 15 July 2004, Jadewell filed an administrative case against Mayor Yaranon before the Office of the President (OP).
Docketed as Case No. OP 04-G-294, it sought the mayors suspension and removal from office. The case against Mayor Yaranon was
for his issuance of the following: (1) Executive Order No. 001-04 dated 1 July 2004; (2) the Memorandum dated 7 July 2004 limiting
the pay parking business of Jadewell to certain parts of Baguio City;; and (3) Memorandum dated 8 July 2004 directing the Baguio
City Police Department to prevent Jadewell from apprehending, towing and impounding vehicles. A supplemental petition filed by
Jadewell on 19 January 2005, complaining of Executive Order No. 005-2004, which was issued on 15 October 2004, was also included
in administrative case OP 04-G-294.
65

On the following day, 16 July 2004, Jadewell filed a Supplemental Petition with Motion for Leave of this Court in the second
contempt petition before this Court, G.R. No. 164107, alleging as a supplemental fact, Mayor Yaranons Memorandum of 08 July
2004.
66

On 15 October 2004, Mayor Yaranon issued Executive Order No. 005-2004. This was a cease and desist order against Jadewell to
67
prevent it from performing the following acts: (1) charging and collecting from motorists, parking fees without their consent; (2)
68
seizing and detaining vehicles of motorists who refuse to pay parking fees to Jadewell; and (3) using yellow-colored heavy wreckers
69
or tow trucks bearing the name "City of Baguio".
In addition to Executive Order No. 005-2004, Mayor Yaranon issued Executive Order No. 005-2004-A, which is essentially a rehash of
70
Executive Order No. 005-2004.
On 25 October 2004, Jadewell filed a third Petition with this Court, praying that Mayor Yaranon be cited for contempt and that
71
Executive Order No. 005-2004 be nullified. This case was docketed as G.R. No. 165564. On 16 November 2004, Jadewell filed a
72
Supplemental Petition to this Petition alleging as a supplemental ground the issuance of Executive Order No. 005-2004-A.
On 20 December 2004, Mayor Yaranon issued Administrative Order No. 622, Series of 2004, which declared that Jadewell exceeded
its area of operations for the administration of on-street parking and was thus required to show lawful cause why its business permit
should not be revoked. In response to this Order, Jadewell filed a Second Supplemental Petition for contempt against Mayor
Yaranon in G.R. No. 165564 on 25 January 2005.
73

On 10 January 2005, this Court through a Resolution ordered the consolidation of G.R. No. 160025 with G.R. Nos. 163052, 164107,
and 165564.
On 17 January 2005, this Court denied Jadewells petition in G.R. No. 166094 for failure to show any reversible error on the part of
74
the CA in dismissing its petition for contempt in CA-G.R. SP No. 77341. Its Motion For Reconsideration was likewise denied with
75
finality.
In the beginning of the year 2005, Jadewell attempted to renew its business permit from the City of Baguio and tendered the fees
76
required. However, the Office of the City Mayor refused to renew the business permit and returned the amount tendered. Because
of these actions of Mayor Yaranon, Jadewell filed on 15 April 2005 its Third Supplemental Petition in G.R. No. 164107, which had

been consolidated with G.R. Nos. 160025, 163052, and 165564. Aside from its main prayer to cite the mayor for contempt, Jadewell
77
also prayed that Mayor Yaranon, a lawyer, be disbarred. On 25 April 2005, this Court, through its Third Division, admitted the Third
78
Supplemental Petition of Jadewell.
On 9 February 2005, this Court, in G.R. No. 160025, issued a Writ of preliminary mandatory injunction ordering Mayor Yaranon to
immediately reopen the streets and premises occupied and/or operated by Jadewell. The Court also required Jadewell to post a cash
79
or surety bond in the amount of P100,000 within five days from receipt of the order.
The order, in part, reads:
Acting on the urgent motion dated January 26, 2005 of respondent Jadewell Parking Systems Corporation for the issuance of a
temporary mandatory/preventive order and/or for writ of preliminary mandatory/prohibitory injunction pending appeal in G.R. No.
160025, alleging that the effects of the acts of City Mayor Yaranon, unless stayed, would also make effective what the petitioner
Sangguniang Panglungsod ng Baguio failed to obtain in the instant case, the net effect of which would not only be grave damage and
injury to the respondent but also to the City of Baguio, the Court further Resolved:
(a) to ISSUE, the WRIT OF PRELIMINARY MANDATORY INJUNCTION prayed for, effective immediately, commanding City
Mayor Yaranon to immediately reopen the streets and/or premises operated and/or occupied by the respondent and to let
them remain open, until further orders of this Court; and
(b) to require petitioner to POST a CASH BOND or a SURETY BOND from a reputable bonding company of indubitable
solvency in the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00), with terms and conditions to be approved by
the Court, within five (5) days from notice, otherwise, the writ of preliminary mandatory injunction herein issued shall
AUTOMATICALLY be lifted.
NOW THEREFORE, You, [City Mayor Braulio D. Yaranon], your agents, representatives and/or any person or persons acting upon
your orders or in your place or stead, are hereby DIRECTED to IMMEDIATELY REOPEN the streets and/or premises operated and/or
occupied by the respondents and to let the said streets and premises remain OPEN, until further orders from this Court.
80

On 8 April 2005, Mayor Yaranon issued a Memorandum directing Col. Isagani Nerez, Director of the Baguio City Police District, to
create a special task force to stop Jadewell from clamping, towing, and impounding vehicles in violation of parking rules in Baguio
City; to impound the wrecker/tow trucks used by Jadewell.
On 20 April 2005, this Court promulgated a Resolution in G.R. No. 160025, finding Mayor Yaranon guilty of direct and indirect
contempt. He was cited for direct contempt when it was proven that he had submitted pleadings before this Court containing
falsehoods. Mayor Yaranon had stated in his Compliance that the streets were opened for Jadewell to resume operations, but upon
81
inspection these were found to be closed. He was also cited for indirect contempt, for having continuously refused to carry out the
82
writ issued by this Court to reopen the streets so Jadewell could resume operations. This Court likewise fined Mayor Yaranon the
amount of P10,000, which he paid. The Court further ordered the National Bureau of Investigation (NBI) to immediately arrest and
detain Mayor Yaranon pending his compliance with the 9 February 2005 writ of preliminary mandatory injunction issued by this
83
Court, which ordered the reopening of some streets so Jadewell could continue its operations.
On 10 August 2005, Benedicto Balajadia, et al. filed Civil Case No. 6089-R against Jadewell before the RTCBaguio City. The case was
84
subsequently raffled to Branch 3 of the RTC presided by Judge Fernando Vil Pamintuan. Balajadia, et al. sought to nullify the MOA
between Jadewell and the City Government of Baguio and its enabling ordinance, Ordinance No. 003-2000. The complainants also
prayed for the issuance of a Temporary Restraining Order (TRO) and for a writ of preliminary injunction against Jadewell.
On 19 April 2006, Judge Pamintuan issued an Order in Civil Case No. 6089-R granting the prayer of complainants Balajadia et al. for
the issuance of a Writ of Preliminary Prohibitory Injunction. The injunction was meant to restrain Jadewell from proceeding with the
supervision and collection of parking, towing, and impounding fees on the streets of Baguio City. Further, Judge Pamintuan ordered
85
the holding in abeyance of the implementation of City Ordinance No. 003-2000 and the MOA.
On 27 April 2006, Jadewell filed with this Court a Rule 65 Petition for Certiorari, Prohibition, and Mandamus against Judge
86
Pamintuan for refusing to dismiss Civil Case No. 6089-R. The case was docketed as G.R. No. 172215. On the same day, Jadewell
filed a Petition asking this Court to cite Judge Pamintuan for contempt. This fourth contempt case, albeit primarily against a member
of the judiciary, was docketed as G.R. No. 172216.

On 19 June 2006, G.R. No. 172215 was ordered consolidated with G.R. Nos. 160025, 163052, 164107, and 165564.

87

On 23 June 2006, Mayor Yaranon wrote Jadewell a letter demanding that it desist from operating the pay parking system in Baguio
City. Simultaneously, he wrote the Sanggunian, requesting it to cancel Ordinance No. 003-2000, the enabling ordinance for the MOA.
88

On 26 June 2006, Jadewell filed a Supplemental Petition in G.R. No. 172215 complaining of Judge Pamintuans issuance of the
89
following Orders in Civil Case No. 6089-R: (a) Order dated 24 April 2006 directing the parties to file a pre-trial brief and setting the
90
pre-trial of the case; (b) Order dated 01 June 2006 informing Jadewell that public respondent was not suspending the proceedings,
91
because he believed he was not covered by the writ issued by this Court; (c) Order dated 14 June 2006 upholding the writ he
issued in the civil case despite his receipt of a copy of the writ of preliminary injunction issued by this Court; and (d) Order dated 16
92
June 2006 directing Jadewell to comply with the writ of preliminary prohibitory injunction under pain of direct contempt.
On the same day, 26 June 2006, the Office of the President (OP) rendered a Decision in OP 04-G-294, the administrative case
Jadewell had filed against Mayor Yaranon, finding him guilty of grave misconduct, abuse of authority, and oppression. Mayor
93
Yaranon was meted out a penalty totalling 12 months suspension from office. This suspension was implemented by the
Department of Interior and Local Government (DILG). Aggrieved by his suspension, Mayor Yaranon filed his Motion For
Reconsideration, which was denied on 22 August 2006 by the OP.
On 29 June 2006, in response to Mayor Yaranons letters of 23 June 2006, Jadewell filed before this Court yet another case for
contempt its fifth contempt case, and the third one specifically against Mayor Yaranon. In addition to its prayer to cite the mayor
94
for contempt, Jadewell also prayed that Mayor Yaranon, a lawyer, be disbarred. The case was docketed as G.R. No. 173043.
95

On 31 July 2006, G.R. No. 173043 was ordered consolidated with G.R. Nos. 160025, 163052, 164107, 165564, and 172215. On 27
96
September 2006, G.R. No. 172216 was consolidated with G.R. Nos. 160025, 163052, 164107, 165564.
On 23 August 2006, while the consolidated cases were pending resolution before this Court, the Sangguniang Panlungsod enacted
Resolution No. 204, Series of 2006. The Resolution directed the City Legal Officer to notify Jadewell of the Baguio City Governments
97
intention to rescind the MOA, and to inform Jadewell to stop its operations under the MOA 60 days after receipt of the Notice.
On 28 August 2006, the legal counsel for Jadewell wrote to Baguio City Vice-Mayor Bautista, Jr., informing him that the OP had
denied the Motion for Reconsideration of Mayor Yaranon assailing the OP resolution ordering the latters suspension as City Mayor
98
of Baguio City. The counsel for Jadewell likewise stated in his letter that they were aware that the Sanggunian was planning to
issue a resolution to repeal Ordinance No. 003-2000 and rescind the MOA. The letter requested the Vice-Mayor to veto the measure
99
in light of the pending petitions with the Supreme Court. The said counsel likewise sent a similar letter to the Sanggunian, urging it
to desist from implementing the repeal of Ordinance No. 003-2000 and the rescission of the MOA pending the resolution of the
100
cases with the Supreme Court.
On 13 September 2006, Mayor Yaranon appealed to the CA, in a case docketed as CA G.R. CV SP No. 96116, praying for the lifting of
101
the penalty of suspension meted him in OP 04-G-294, but this appeal was denied. Mayor Yaranon moved for reconsideration.
On 22 September 2006, City Legal Officer Rabanes wrote a letter to Jadewell, through its President, Mr. Rogelio Tan, informing
Jadewell of Resolution No. 204, Series of 2006, which rescinded the MOA, and ordering it to stop operations within 60 days from
102
103
notice. This letter was received on the same day it was issued; hence, the 60-day period lapsed on 22 November 2006. This
notice, together with the resolution, constitute the second act of rescission of the MOA by the city officials of Baguio.
On 19 October 2006, Jadewell filed the sixth contempt case with this Court against the acting City Mayor of Baguio, Reinaldo A.
Bautista, Jr., and the members of the Sanggunian, including City Legal Officer Melchor Carlos R. Rabanes, for the second act of
104
rescission of the MOA. The case was docketed as G.R. No. 174879.
On 9 October 2007, the CA dismissed Mayor Yaranons Petition in CA G.R. CV SP No. 96116 on the ground that it had become moot
and academic due to Mayor Yaranons failure to be re-elected in the 17 May 2007 elections. Mayor Yaranon filed a Motion for
Reconsideration on 07 November 2007, but this was also denied by the CA on 24 January 2008. Thus, on 17 March 2008, Mayor
Yaranon filed a Rule 45 Petition before this Court seeking to reverse and set aside the CA Decision and Resolution. It was docketed as
G.R. No. 181488.
On 12 November 2008, G.R. No. 181488 was ordered consolidated with the cases already mentioned.

105

THE ISSUES
1. On G.R. No. 160025 and on the
claim in G.R. No. 174879 that the second
act of rescission was a valid act of
rescission.
Whilst the issues are spread out among the nine cases, we have grouped these according to what are common to the specific cases.
In our effort to simplify the issues and provide forms of relief to the parties that are not purely academic, it is necessary to examine
the operative effects that may result from any resolution of this Court. Such examination may also help guide the parties in their
future actions, and perhaps the overly-litigated matters brought before us in the consolidated petitions may finally be put to rest.
We note at the outset that on 22 November 2006, 60 days had lapsed from receipt of the letter dated 22 September 2006, informing
Jadewell of the decision of the City of Baguio to rescind the MOA under Section 12 thereof. It may be recalled that Section 12
requires that notice of the intention to rescind be given 60 days prior to the effectivity of the rescission. Jadewell has not questioned
the legal efficacy of this notice. It has brought this matter of a second rescission to the Courts attention only as a matter of
contumacious behavior on the part of the respondents in G.R. No. 174879, in the same way that it brought various actions of the
public respondents before the Court in its other contempt petitions. Since the legal efficacy of the rescission in 2006 has not been
contested by Jadewell in any of the petitions before us, we thus consider this notice of rescission to have taken legal effect and
therefore, at the latest, the MOA between the City of Baguio and Jadewell has ceased to legally exist as of 22 November 2006.
Parenthetically, we note that while the validity of the second act of rescission described in G.R. No. 174879 is not principally
determinative of the respondents liability for indirect contempt therein, a conclusion that the second act of rescission was
undertaken competently and appropriately will to a certain degree impact our appreciation of such possible liability. We will discuss
this issue in our subsequent discussion on the charges of contempt.
Inasmuch as there is no longer any existing MOA, no order of this Court can have the effect of directing the City of Baguio to enforce
any of the terms of the MOA, which brings us to the matter of G.R. No. 160025. In whatever direction we rule on the question of the
validity of the first act of rescission, such ruling will only have the effect of either providing Jadewell a basis to seek damages from
the City of Baguio for the wrongful termination of the MOA, should we find wrongful termination to have taken place, or, deny
Jadewell that right. The possible susceptibility of the City of Baguio and its officials to an action for damages on a finding of wrongful
termination is why we do not consider G.R. No. 160025 as having been rendered moot by the lawful rescission of the MOA on 22
November 2006. Thus, we will proceed to rule on the issues in G.R. No. 160025.
The fallo of the RTC Decision upheld by the CA, which affirmance is the lis mota in G.R. No. 160025, reads as follows:
WHEREFORE, judgment is rendered declaring both Sangguniang Panlungsod Resolution No. 037, Series of 2002 and the April 17,
2002 Resolution overriding the Mayors veto as NULL and VOID. The Writ of Preliminary Injunction earlier issued by this Court is
106
made PERMANENT, with costs against respondents.
The RTC did not order the respondents therein to comply with the MOA. An order to perform a contract is not necessarily subsumed
in an order not to terminate the same.
Contrast this legal point with the fact that the prayer of Jadewell in its original petition asked the RTC, in relevant part:
...that the writ of preliminary injunction be made permanent and the writs applied for be issued against the respondents nullifying
and voiding Resolution No. 037, series of 2002 and the resolution over-riding the veto and instead, directing them to perform
107
what the memorandum of agreement requires them to do. (Emphasis supplied)
This latter part, which is effectively a prayer for a permanent mandatory injunction against respondents therein to perform the
terms of the MOA, are not in the fallo of the RTC decision. We consider therefore that the RTC deliberately withheld granting the
specific prayer to order Baguio City to perform the MOA. No motion to correct or clarify the said fallo having been filed by Jadewell,
the prayer to order the city officials of Baguio to perform the MOA is hereby deemed abandoned.
We further note three things:

1. Jadewell has not questioned - in its Petition, Reply to Comment, and Memorandum before this Court - the implication of
the RTC and CA Decisions to the effect that the Sanggunian had the authority to perform acts of contractual rescission on
behalf of the City of Baguio when both these courts ignored the issue raised by Jadewell in its Petition before the RTC, and
we therefore do not consider this to be a genuine issue in this Petition before us;
2. While the Sangguniang Panlungsod has insinuated that there was fraud and excess of authority on the part of the mayor
108
in the execution of the MOA - because the latter provided for a smaller sharing of "20 % from the gross profit of the
109
operation or 50% of the net profit whichever is higher" instead of the intended "20% of gross receipts," - petitioners in
G.R. No. 160025 conceded even at the RTC level that they are not assailing the MOA for being defective but for having been
breached in the performance. We thus disregard all arguments in G.R. No. 160025 regarding the validity of the execution of
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the MOA, for being a non-issue in this case;
3. We also immediately set aside claims of Jadewell in its Petition before the RTC that an alternative relief should be
provided by the courts in the form of compensation for terminated Build-Operate-Transfer (BOT) contracts under the BOT
Law (Republic Act No. 6957) as there is not the slightest basis on record that the administration of on-street parking can be
classified as an infrastructure contract, a basic element that must be present for any contract to come within the terms of
the BOT Law.
Having preliminarily screened out the non-issues in this case, we proceed to examine the rulings of the courts a quo in G.R. 160025.
The CA affirmed the RTC Decision in toto, along the following points:
1. On the sole procedural issue. - The RTC was correct in treating the Petition as one for permanent injunction with a prayer
for a preliminary injunction, instead of treating it by its formal title: "Petition for Certiorari, Prohibition and Mandamus with
a Prayer for a Writ of Preliminary Injunction." It was correct in holding that if the Petition had been treated by its formal
denomination, then it would have been dismissed for failing to satisfy the requirement that the act sought to be nullified
was rendered in a judicial or quasi-judicial capacity by the respondents, but then this formal denomination could be
disregarded and the nature of the Petition should be determined by its allegations and prayers. Since there was a prayer to
permanently enjoin respondents from enforcing the questioned resolutions, the RTC was correct in treating it as one for
permanent injunction.
2. On the substantive issues:
a. On the lack of due process afforded Jadewell. The RTC was correct in ruling that Jadewell was denied the right
to be heard before the Sanggunian rescinded the MOA. There is no evidence on record that the Sanggunian
afforded Jadewell an opportunity to present its side or refute the charges of the latters violation committed under
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the MOA.
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b. On the authority of the RTC to consider the effect of Section 9 of the MOA when Jadewell never raised the
matter of Section 9 in any of its pleadings. The RTC correctly considered Jadewells letter dated 24 November
2001, addressed to the Sanggunian and offered during the trial, which introduced the subject matter of the five (5)
year guarantee against rescission provided in Section 9 of the MOA. The CA regarded the RTCs consideration of
said letter as judicious and added that even without it, the MOA, and its provisions, form part of the case
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records.
c. On the failure to observe the 60-day notice requirement. The RTC correctly found that the Sanggunian cannot
validly and unilaterally rescind the MOA without observing the provisions in Section 12 of the MOA requiring that a
60-day notice be given before rescission can take place. To allow the Sanggunian to unilaterally rescind the MOA
without giving Jadewell an opportunity to present its side is to render the right to rescission provided in the MOA
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legally vulnerable.
d. On the lack of substantiveness of the alleged breach of performance of the MOA by Jadewell. The CA reviewed
the records of the case and upheld the findings of the RTC that the violations of Jadewell were not substantial to
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merit the consequence of rescission under the MOA.
We elucidate on the arguments of the parties, the RTC, and the CA.

In its Petition before the RTC, Jadewell argues that the rescission of the MOA was not valid, on due process grounds, and also
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because there was no substantial breach on its part to justify a rescission of the MOA. It also asserts that the Sanggunian had no
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authority to rescind the MOA, because the latter was not a party thereto.
Jadewell sought a writ of preliminary injunction to prevent the implementation of the questioned Resolution, and prayed that after
hearing, the preliminary injunction be made permanent. It further prayed for the issuance of a writ of certiorari to nullify the
assailed Resolution; and for a mandatory injunction to compel the City Government to perform the latters obligations under the
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MOA. Jadewell alternatively invoked the provisions of Section 18 of the Implementing Rules and Regulations (IRR) of the BOT
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Law, in the event the RTC would uphold the validity of the questioned Resolution.
The trial court ruled that the rescission violated the due process clause of the Constitution and failed to meet the requirements for
rescission under the Civil Code and the MOA itself. In the Sanggunians Memorandum, on appeal before the CA, the Sanggunian
assigned three errors to the Decision of the trial court: (1) the RTC ignored the evidence on record and the requirements of Rule 65
when it declared the subject Resolution void; (2) Jadewell was not denied due process when the MOA was rescinded; and (3) by
ruling that the Sangguniang Panlungsod had no right of rescission for the first 5 years of the MOA an issue not raised in the
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pleadings the trial court improperly took up the cudgels for Jadewell in the case.
As earlier stated, the CA upheld the RTCs Decision in toto.
The Sanggunian filed its Motion for Reconsideration arguing that the CA had erred as follows: (1) treating Jadewells petition as an
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original action for injunction; (2) ruling that Jadewell was deprived of due process when it rescinded the MOA; and (3) finding
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that the MOA stipulated for a five-year minimum guarantee against rescission. This was denied, and this denial and the CA
Decision are the subjects of G. R. 160025.
2. G.R. No. 172215 Certiorari,
Prohibition and Mandamus, filed by
Jadewell against Judge Pamintuan
for not dismissing Civil Case No. 6089-R
Jadewell directly filed the instant Rule 65 Petition for Certiorari before this Court to nullify the denial by the trial court of its Motion
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to Dismiss and its Motion for Reconsideration of the same order, and for ordering Jadewell to cease collecting parking fees, and
from towing and impounding vehicles on the streets of Baguio City. It also seeks to nullify the proceedings in Civil Case No. 6089-R,
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invoking both res judicata and litis pendentia. It contends that, since the issue on the validity of the questioned city ordinance and
the MOA was favorably ruled upon previously by RTC Branches 7 and 61 of Baguio City in separate cases, Branch 3 of the same RTC
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presided by Judge Pamintuan is bound by the rulings of the other branches. Litis pendentia is being invoked in relation to the
petitions already before this Court.
Mayor Yaranon is impleaded in this case on the basis of the order of Judge Pamintuan to the city mayor to perform his duty to
supervise the roads, streets and park of Baguio City, in coordination with the police and the LTO during the validity of the Writ of
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Injunction that Judge Pamintuan issued.
The main issue to be resolved in Jadewells Petition for certiorari is whether Judge Pamintuans rulings in Civil Case No. 6089-R
violated the res judicata/litis pendentia doctrines.
3. G.R. No. 181488 The
Certiorari petition filed by Yaranon
seeking to reverse Resolutions dated
9 October 2008 and 24 January 2008
in CA-G.R. SP No. 96116 which
upheld the validity of his suspension
as City Mayor of Baguio.
Mayor Yaranons instant Petition before this Court raises the following issues: (1) that his failed re-election bid was not a
supervening event in the final determination by the CA of whether he was guilty of grave misconduct, abuse of authority, and
oppression; and (2) that the CA should rule on the substantive validity of his suspension.
4. The Petitions for Contempt

a. G.R. No. 163052 This is the first contempt petition filed by Jadewell directly with this Court against City Mayor Vergara, the Vice
Mayor, and the entire Sanggunian, for enacting Resolution Nos. 056 & 059, Series of 2004. To recall, Resolution No. 056, Series of
2004 informs the general public that Jadewell had neither the authority nor the police power to clamp, tow or impound vehicles at
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any place in the City of Baguio. In Resolution No. 059, Series of 2004, the City of Baguio made a formal demand upon Jadewell to
surrender the Ganza and Burnham Park Parking Areas within thirty days. In the same Resolution, the City of Baguio also directed the
City Legal Officer to file the appropriate legal actions necessary to recover the said parking areas and to ask for damages against
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Jadewell.
The core issue to be resolved in this case is whether the Sanggunian Panlungsod is guilty of indirect contempt for enacting the above
resolutions, pending resolution of G.R. No. 160025.
b. G.R. No. 164107 This contempt petition was filed directly with this Court against then Baguio City Mayor Braulio D. Yaranon
after he issued Executive Order No. 001-04 announcing that, as City Mayor, he would give protection to motor vehicle owners,
operators, and drivers who would refuse to submit to the enforcement of traffic rules by Jadewell such as by refusing to pay the
parking fees or fines the latter imposes.
Yaranon also issued a Memorandum dated 8 July 2004, ordering the arrest and filing of criminal charges against Jadewell personnel
who would clamp, tow, or impound motor vehicles in defiance of Executive Order No. 001-04. This was followed by a Memorandum
on 8 April 2005 directing the Baguio City Police District to create a special task force to prevent Jadewell from clamping, towing, and
impounding vehicles found to be in violation of the parking rules in Baguio City.
The issue to be resolved in this petition is whether Mayor Yaranon could be cited for contempt for the above, pending resolution of
the issue of the validity of the rescission of the MOA in G.R. Nos. 160025 and 163052.
c. G.R. No. 165564 Jadewell filed this third contempt petition against Mayor Yaranon for issuing Executive Order No. 005-2004
dated 15 October 2004. The order directs Jadewell to cease and desist from: (a) charging and collecting parking fees on the streets of
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Baguio City without the consent of the City Government; (b) seizing and detaining vehicles of motorists who refuse to pay the
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parking fees to Jadewell and (c) using yellow-colored tow trucks bearing the name "City of Baguio". Jadewells petition also
seeks to nullify Executive Order No. 005-2004.
On 16 November 2004, Jadewell filed a Supplemental Petition. The act complained of this time was the issuance of Executive Order
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No. 005-2004-A which is a mere rehash of Executive Order No. 005-2004. On 25 January 2005, Jadewell filed a Second
Supplemental Petition in connection with Mayor Yaranons issuance of Administrative Order No. 622, Series of 2004. The said
administrative order declared that Jadewell exceeded its area of operations for the administration of on-street parking and it
required to show lawful cause why its business permit should not be revoked.
Like in the earlier contempt petitions, Jadewell alleges that these issuances by Mayor Yaranon are contumacious because they were
made while the main petition, G.R. No. 160025 questioning the rescission of the MOA by the Sanggunian, is still pending resolution
with this Court.
d. G.R. No. 172216 On 27 April 2006, Jadewell filed a petition for contempt against Judge Fernando Vil Pamintuan, Presiding Judge
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of RTC-Branch 3 of Baguio City, in relation to Civil Case No. 6089-R pending before his sala. In the said civil case, Judge Pamintuan
issued an Order directing Jadewell to desist from the collection of parking fees, from towing and impounding vehicles on the streets
of Baguio City and to hold in abeyance the implementation of City Ordinance 003-2000 and the MOA. The validity of the Order of
Judge Pamintuan is the subject of a Petition for Certiorari, Prohibition, and Mandamus instituted by Jadewell in G.R. No. 172215.
The main issue to be resolved in this case is whether Judge Pamintuan should be cited for indirect contempt by this Court for issuing
the assailed Orders.
e. G.R. No. 173043 On 29 June 2006, Jadewell filed yet another contempt case against Mayor Yaranon. In addition to its prayer to
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cite him for contempt, Jadewell also prays that Mayor Yaranon, as a lawyer, be disbarred. Jadewell instituted this fifth contempt
case after it received a letter from Mayor Yaranon demanding that it stop its business operations in Baguio City, at the same time
directing the Sangguniang Panlungsod to cancel Ordinance 003-2000.
The issue to be resolved in this case is whether Mayor Yaranon was guilty of indirect contempt and professional misconduct for the
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above acts pending resolution of G.R. Nos. 160025, 163052,164107, 165564 and 172215.

f. G.R. No. 174879 - On 19 October 2006, Jadewell filed a contempt case against the acting City Mayor of Baguio, Reinaldo A.
Bautista, Jr., and the members of the Sangguniang Panlungsod, including City Legal Officer Melchor Carlos R. Rabanes, in connection
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with the second act of rescission. Jadewell also asks that the respondents who are lawyers, namely: Rocky Thomas A. Balisong,
Edilberto B. Tenefrancia, Faustino A. Olowan, Federico J. Mandapat, Perlita L. Chan-Rondez, and Jose M. Molintas, be disbarred.
These acts, in Jadewells view, are contumacious in light of the pending G.R. No. 160025 before this Court.
OUR RULINGS
1. On G.R. No. 160025
a. On the Treatment of
Jadewells Petition as one for
Permanent Injunction.
The CA sustained the position of the Sanggunian that certiorari could not prosper because when the latter enacted Resolution 37,
the Sanggunian was exercising its legislative function and not its judicial or quasi-judicial function. The writ of certiorari under Rule
65 requires: (a) that it is directed against a tribunal, a board or an officer exercising judicial or quasi-judicial functions; (b) that such
tribunal, board, or officer has acted without or in excess of jurisdiction or with grave abuse of discretion; and (c) that there is no
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appeal nor any plain, speedy and adequate remedy in the ordinary course of law.
The CA nevertheless proceeded to treat the Petition as an original action for injunction, ruling in this wise:
xxxx
Although in the trial court, Jadewell filed said petition for Certiorari, Prohibition and Mandamus under Rule 65, it is essentially one
for Injunction under Rule 58. Said petitions form and substance satisfied all the requirements of a civil action for Injunction, which is
the proper remedy under the attendant circumstances.
The rules of procedure ought not to be applied in a very rigid technical sense, rules of procedure are used only to help secure, not
override substantial justice. If a technical and rigid enforcement of the rules is made, their aim would be defeated.
Considering the clear and patent denial of due process committed by the Sanggunian in precipitately rescinding the MOA and in the
interest of substantial justice, WE deem it more prudent to treat the petition filed below as an action for Injunction under Rule 58,
which is well within the jurisdiction of the trial court. Consequently, the present appeal shall be considered as an appeal from the
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permanent injunction ordered by the trial court, which is properly appealable to this Court, as held in Casilan vs. Ybaez.
xxxx
We sustain the ruling of the appellate court treating Jadewells original action for certiorari as one for injunction based on the
allegations in the latters pleadings.
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In Ramon Jimenez, Jr. v. Juan Jose Jordana, the issue to be resolved was whether the nature of the action was one for specific
performance or for recovery of real property. In determining that the case was one for the recovery of real property, the Court
characterized the suit on the basis of the allegations in the Complaint. We restated the rule that the nature of an action is
determined by the material averments in the complaint and the character of the relief sought. In the recent case of Reyes v. Alsons
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Development and Investment Corporation, we likewise ruled that the nature of an action is determined by the allegations in the
pleadings.
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In Lee, Jr. v. Court of Appeals, the controversy to be resolved was whether the appeal filed by the petitioner was one under Rule
65 or Rule 42. The determination of the issue was crucial, because the appellate court had dismissed the appeal of the petitioner,
saying that the wrong mode of appeal had been used. The CA had ruled that petitioner should have filed a certiorari petition under
Rule 65 instead of a petition under Rule 42 to appeal the assailed decision rendered by the RTC in the exercise of its appellate
jurisdiction.
We held:

Our perusal of the petition filed before the Court of Appeals clearly shows that it is a petition for review under Rule 42, and not a
special civil action for certiorari under Rule 65. We note that in the Court of Appeals petition, under the heading "Nature of the
Petition," petitioner stated that it was a "petition for review on certiorari to set aside, invalidate and reverse the Decision dated
December 14, 2001 of public respondent Judge Victor T. Llamas, Jr." Also, the reversal sought was premised on the ground that the
decision was issued in gross error. The statement under the heading "Nature of the Petition" that the trial courts decisions were
issued with grave abuse of discretion amounting to lack of jurisdiction, and even the caption impleading the lower courts, would not
automatically bring the petition within the coverage of Rule 65. It is hornbook doctrine that it is not the caption of the pleading but
the allegations therein that determine the nature of the action. (Emphasis supplied)
In the original action filed by Jadewell before the RTC of Baguio City, although the action was clearly denominated as a Petition for
Certiorari, Prohibition and Mandamus against the Sangguniang Panlungsod, the allegations actually supported an action for
injunction under Rule 58 of the Revised Rules on Civil Procedure. As can be gleaned from its allegations and especially in its prayers,
Jadewell filed the case with the trial court with the ultimate end of restraining the implementation of Resolution No. 037, Series of
2002.
We agree with the CA when it ruled that Jadewell sought permanent injunction aside from the auxiliary remedy of preliminary
injunction, thus:
An action for injunction is a recognized remedy in this jurisdiction. It is a suit for the purpose of enjoining the defendant, perpetually
or for a particular time, from committing or continuing to commit a specific act, or compelling the defendant to continue performing
a particular act. It has an independent existence. The action for injunction is distinct from the ancillary remedy of preliminary
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injunction, which cannot exist except only as part or an incident of an independent action or proceeding. xxxx...
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In Garcia v. Adeva, this Court had the opportunity to clarify that while injunction can be a provisional remedy, it can also be a main
case. The Court had to make this preliminary distinction in order to find out whether the SEC had the jurisdiction to prevent, on a
permanent basis, the commission of certain acts by the respondents. Thus, the necessity to make the distinction between injunction
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as a provisional remedy and injunction as a main case. It found guidance from Garayblas v. Atienza, Jr., and quoting from the
latter:
Injunction is a judicial writ, process or proceeding whereby a party is ordered to do or refrain from doing a certain act. It may be the
main action or merely a provisional remedy for and as an incident in the main action. The Court has distinguished the main action for
injunction from the provisional or ancillary remedy of preliminary injunction, thus:
The main action for injunction is distinct from the provisional or ancillary remedy of preliminary injunction which cannot exist except
only as part or an incident of an independent action or proceeding. As a matter of course, in an action for injunction, the auxiliary
remedy of preliminary injunction, whether prohibitory or mandatory, may issue. Under the law, the main action for injunction seeks
a judgment embodying a final injunction which is distinct from, and should not be confused with, the provisional remedy of
preliminary injunction, the sole object of which is to preserve the status quo until the merits can be heard. A preliminary injunction
is granted at any stage of an action or proceeding prior to the judgment or final order. It persists until it is dissolved or until the
termination of the action without the court issuing a final injunction.
We, therefore, rule that the CA did not commit any error in treating Jadewells Petition for Certiorari as an original action for
injunction.
b. On the denial of due process.
The second issue in this Petition is the correctness of the CAs ruling that Jadewell was deprived of due process when the
Sangguniang Panlungsod rescinded the MOA. The findings of the CA are as follows:
In the instant case, evidence on record does not show that before the Sanggunian passed the disputed Resolution it gave Jadewell
an opportunity to present its side. Neither did the Sanggunian convene an investigatory body to inquire into Jadewells alleged
violations nor at least invite Jadewell to a conference to discuss the alleged violations, if only to give Jadewell the chance to refute
any evidence gathered by it against the latter. As it is, the Sanggunian arrogated upon itself the role of a prosecutor, judge and
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executioner in rescinding the MOA, all in clear violation of Jadewells constitutionally embedded right to due process.
x x x.

Both courts held that Jadewell was denied due process. When the denial of due process argument is raised, it is directed primarily
against the exercise of governmental authority that "deprives life, liberty and property" without observance what is, in the
circumstances, the applicable standards of "due process." It is not an argument that is relevant in situations of contractual breach
between two purely private entities, nor is it available against the government when the latter is not discharging a governmental
function, but merely pursuing a purely commercial activity in a proprietary capacity. In order to consider the due process argument,
this Court must first determine whether the MOA was entered into by the City of Baguio in a governmental capacity, or in a purely
proprietary capacity.
The regulation of on-street and off-street parking is a governmental function that can be exercised by local governments. It is
important to understand the objective of the Baguio City Government in: (1) privatizing the administration of on-street and offstreet parking; and (2) its execution of a MOA with Jadewell. This can be gleaned from the Explanatory Note and other provisions of
the agreement, to wit:
The City of Baguio has earned the reputation of the CLEANEST AND GREENEST HIGHLY URBANIZED CITY for the previous years. This
has become possible due to the collective effort of both the Citizens of Baguio and the City Government. However, the increase in
population, volume of vehicles and the absence of a regulatory measure to address this concern gradually tainted what used to be a
reputation we were proud of.
The ever increasing problems, specifically those relevant to the Traffic situation is at this point the biggest contributor to
environmental degradation. Other Salient points we must consider relevant to this matter are the problems on OBSTRUCTION AND
DOUBLE PARKING which are very rampant. We further add to these the problems on DISORGANIZED PARKING, LACK OF DEPUTIZED
AGENTS to monitor, supervise and enforce traffic rules and regulations.
At this point in time, we feel the immediate need of focusing on these problems. There is an urgent need to adopt measures that
would alleviate these matters. This we recommend that PARKING SPACES should be REGULATED in such a manner that it would
bring advantage both to the City Government and the Citizens of Baguio. We further propose the collection of REGULATORY FEES
that would be used in maintaining our roads and to hire people that would de deputized to help ease the problems as stated above.
Finally, we believe that our roads are beyond the Commerce of Man. To convert our roads into PAY PARKING SPACES, would be
violative of this principle. However to REGULATE its use and its eventual effect would redound to the GENERAL WELFARE will be an
appreciated gesture to help preserve our image as the CLEANEST AND GREENEST HIGHLY URBANIZED CITY.
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SECTION 4. Parking spaces. A parking place may be divided into parking spaces and for the purposes of this Ordinance, each space or
for a number of spaces as determined by the private parking operator in consultation with the concerned Official of the City of
Baguio.
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SECTION 5. Prohibitions against parking outside the parking spaces. No spaces shall park any motor vehicle on the sidewalk or cause
or permit any motor vehicle to wait to any road or length of road on which in any place in which or adjacent to or in close proximity
to which there is a parking place.
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SECTION 7. Payment of Prescribed Charges. (1) No person shall park any motor vehicle in a parking place or parking space during the
times specified in this Ordinance without paying the prescribed charge for the required parking period; (2) The prescribed charge
payable in respect to the parking of a motor vehicle in a parking space shall be paid by the insertion into the parking meter provided
for that parking space a coin/coins of Philippine Currency or by using cards in order to obtain the payment ticket to evidence the
payment of the prescribed charge; (3) The payment ticket shall be displayed at a conspicuous part of a motor vehicle in a parking
place or parking space; (4) The payment ticket shall be valid to be used on any parking space within the authorized period indicated
in the payment ticket.
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SECTION 22. Rules. The Memorandum of Agreement (MOA) to be entered into by the City Mayor shall be governed by this
Ordinance.
From the above, the following are clear: (1) that the City of Baguio decided on the privatization of the administration of parking for
environmental and peace and safety reasons, both of which are within its powers under Section 458(A)(5)(v) and (vi) of the Local
Government Code; and (2) that the terms of agreement between the City of Baguio and Jadewell involve the delegation of
governmental functions in terms of regulating the designation and use of parking spaces as well as the collection of fees for such
use. These are indicators that any privatization contract pursuant to the above Resolution takes the essential character of a franchise
because what is being privatized is a government-monopolized function.
It would thus be relevant to ask if there is a provision in the applicable laws or the franchise (MOA) that grants the City of Baguio the
right to revoke the latter either at will, or upon the satisfaction of certain conditions, such that ordinary due process protection can
be considered to have been waived by the franchisee. We must caution that when we refer to revocation at will here, we are
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referring to the revocation of resolutory, not suspensive, obligations.
We have looked closely at Resolution No. 003-2000 and the MOA and have additionally reflected on the applicable provision under
the Civil Code. We have come to the conclusion that:
(a) There is only one provision that allows for unilateral revocation of the MOA, which can be found in Section 9 thereof:
9. Minimum Guaranty The FIRST PARTY guaranties (sic) a minimum period of five (5) years against rescission; provided
that after such period, the parties may agree to increase to a reasonable rate the parking fees and the share of the city from
the parking fees collected as provided for in the guidelines, (Annex "B");
(b) This Section 9 requires that five years must have lapsed presumably from the date of execution of the MOA before
the unilateral right to revoke the MOA can be exercised;
(c) Therefore, before the five year period has lapsed, the right to revoke the MOA arises only under Article 1191 of the Civil
Code, which reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles
1385 and 1388 and the Mortgage Law.
From the above, it appears that in order to effect a valid revocation of the MOA prior to the lapse of the 5-year period provided for
in Section 9, the City of Baguio had to approach the problem from one or both of two perspectives: one, negotiate the termination
of the MOA with Jadewell, or two, exercise its option under Article 1191 of the Civil Code.
The first option, a negotiated pretermination of the contract, is an inherent right of every party in a contract. This can be inferred
from the freedom of the parties to contract and modify their previous covenants provided it would not be contrary to law, morals,
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good customs, public order or public policy. Despite the provision on the minimum warranty against rescission stipulated in the
MOA, the parties were not constrained to mutually modify such restriction. The Sanggunian could have proposed to Jadewell the
possibility of lifting the warranty against rescission subject to the condition that the latter will comply with its obligations under the
MOA.
This scenario could have impressed upon Jadewell that its contractual relations with the city government of Baguio were less than
ideal. The suggested approach for the Sanggunian could have been legally sound and practical. Obviously, this was not done in this
case; thus, Jadewells Complaint before the RTC of Baguio City.

The second option is the exercise of the unilateral right to rescind a bilateral contract on the part of a party who believes that it has
been injured by a breach substantial enough to warrant revocation. Where one party allegedly failed to comply with his obligations
under a contract, the injured party may rescind the obligation if the other does not perform or is not ready and willing to
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perform. We will examine the acts of Baguio City in relation to what is allowed under Article 1191.
Rescission under Article 1191 takes place through either of two modes: (1) through an extrajudicial declaration of rescission; or (2)
upon the grant of a judicial decree of rescission.
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Extrajudicial declaration of rescission is recognized as a power which does not require judicial intervention. If the rescission is not
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opposed, extrajudicial declaration of rescission produces legal effect such that the injured party is already relieved from
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performing the undertaking.
However, the power of declaring extrajudicial rescission conferred upon the injured party is regulated by the Civil Code. If the
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extrajudicial rescission is impugned by the other party, it shall be subject to a judicial determination where court action must be
taken, and the function of the court is to declare the rescission as having been properly or improperly made, or to give a period
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within which the debtor must perform the obligation alleged to be breached. A unilateral cancellation of a contract may be
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questioned in courts by the affected party to determine whether or not cancellation is warranted. Thus, in an extrajudicial decree
of rescission, revocation cannot be completely exercised solely on a partys own judgment that the other has committed a breach of
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the obligation but always subject to the right of the other party to judicially impugn such decision.
It is important to contextualize that the agreement entered into by the City of Baguio with Jadewell is the embodiment of a grant of
franchise imbued with public interest and is not merely an agreement between two private parties.
It is our view that the first act of rescission by the City of Baguio may be valid even if there is a stipulation against it within the first
five years of the MOAs existence. Article 1191 of the New Civil Code provides a party the right to rescind the agreement and clearly
overrides any stipulation to the contrary. However, the grounds that would serve as basis to the application of the said article must
be clearly established.
In the exercise of this option under Article 1191, was it necessary for the City of Baguio to provide Jadewell an opportunity to air its
side on the matter before the former implemented the rescission of the MOA? In the instant case, was Jadewell deprived of
procedural due process?
We answer in the negative. We disagree with the rulings of the RTC and the CA that Jadewell was deprived of due process. In
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Taxicab Operators of Metro Manila v. The Board of Transportation, we confronted the issue of whether the petitioners were
denied procedural due process when the respondent Board of Transportation issued a circular ordering the phasing out of old
vehicles to be used as taxicabs. In the said case, the phase-out was embodied in a circular that was promulgated without holding a
public hearing or at least requiring those affected to submit their position papers on the policy to be implemented. We held for the
respondent Board, and ruled in this wise:
Dispensing with a public hearing prior to the issuance of the Circulars is neither violative of procedural due process. As held in
Central Bank vs. Hon. Cloribel and Banco Filipino, 44 SCRA 307 (1972):
Previous notice and hearing as elements of due process, are constitutionally required for the protection of life or vested property
rights, as well as of liberty, when its limitation or loss takes place in consequence of a judicial or quasi-judicial proceeding, generally
dependent upon a past act or event which has to be established or ascertained. It is not essential to the validity of general rules or
regulations promulgated to govern future conduct of a class or persons or enterprises, unless the law provides otherwise.
In the instant case, the assailed act by the Sanggunian Panlungsod in rescinding the MOA be it first or second act of rescission
was clearly in the exercise of its legislative or administrative functions and was not an exercise of a judicial or quasi-judicial function.
The Sanggunian Panlungsod does not possess any judicial or quasi-judicial functions. The preamble of the MOA lends support to this
view. Evidently, the foremost reason why the agreement was entered into by the parties was to provide order, given Baguio Citys
parking problems in identified areas, as well as to generate income.
The objectives of the Sanggunian Panlungsod, as well as its intention to rescind the MOA; because it deems to no longer serve the
interest of the City of Baguio, are clearly an exercise of its legislative or administrative function. However, it is another matter as to
whether the City of Baguio was able to clearly establish the grounds as basis for the exercise of its right to rescind.

c. On the allegation of Jadewells

substantial breach of the MOA.
The Baguio City government has repeatedly mentioned that Jadewell had so far installed only 14 parking meters, with only 12
158
functioning. The COA-CAR Report dated 13 July 2003 enumerated 12 findings, a majority of which indicates that Jadewell was
remiss in the fulfilment of its obligations under the MOA. While Finding Nos. (1), (2), (3), (4), (5), (8) and (12) of the COA-CAR Report
state that Jadewell collected parking fees, Jadewell failed to properly remit the same. Finding No. (11) of the COA-CAR Report states
159
that Jadewell failed to have its parking attendants deputized, a condition under the MOA that is also important to the overall
objective of the endeavor.
The MOA does not specifically provide for the exact number of parking meters to be installed by Jadewell pursuant to the parties
objective in regulating parking in the city. Nevertheless, 100 parking spaces were allotted as mentioned in Annex A of the
160
MOA. The agreement also obligates Jadewell to have its parking attendants deputized by the DOTC-LTO so that they shall have the
161
authority to enforce traffic rules and regulations in the regulated areas. To the Courts mind, these are two of the most important
obligations that Jadewell had to comply with, considering the nature and objective of the agreement it had entered into.
Despite the enumeration of the above-mentioned faults of Jadewell, we do not make a categorical finding that there was substantial
breach committed by Jadewell to justify a unilateral rescission of the MOA. We find, however, that the RTC had not properly
received evidence that would allow it to determine the extent of the claimed violations of the MOA. Had these violations by
Jadewell been proven in a proper hearing, the finding of a substantial breach of the MOA would have been a distinct probability.
Unfortunately, neither the RTC nor the CA provided a clear basis for their rulings on the extent of the breach of the MOA by
Jadewell. Save from reiterating the Sanggunians litany of violations said to be committed by Jadewell, there was no testimony on
record to prove such facts and no indication as to whether the RTC or CA dismissed them or took them at face value.
Whatever the extent of breach of contract that Jadewell may have committed and the enumeration of Jadewells alleged faults in
Resolution 37 is quite extensive the City of Baguio was still duty-bound to establish the alleged breach.
Matters became complicated when the RTC and the CA lumped the issues on the due process violation of Baguio City with Jadewells
alleged substantial breaches under the MOA, instead of making a clear finding on the existence and extent of such breach. The facts
and legal issues were thus muddled.
We find fault in the lower and appellate courts lapse in examining the issue on Jadewells alleged substantial breach. Evidencetaking had to be undertaken by these courts before they could arrive at a judicial conclusion on the presence of substantial breach.
We thus DENY the Petition of the Sanggunian Panlungsod in G.R. No. 160025 and AFFIRM the questioned CA Decision. However, we
reject the ruling made by the appellate court that the violations of Jadewell under the MOA were not substantial. We hold that there
is no sufficient evidence on record to make such determination.
While Jadewell prays for damages against the public respondent, and while ordinarily we could grant the same, the context of this
case prevents us from giving any form of recompense to Jadewell even if the rescission of the MOA did not follow the required legal
procedure. This is because it would be appalling to grant Jadewell any award of damages, considering (1) it installed only 14 out of
the apparently 100 contemplated parking meters; (2) its employees, private citizens who did not possess any authority from the LTO,
were manually collecting parking fees from the public, and (3) it did not, apparently properly remit any significant amount of money
to the City of Baguio. These three facts are uncontested, these omissions are offensive to the concept of public service that the
residents of Baguio were promised through Jadewell. From its ambiguous responses extant in the records, it is clear that Jadewell
does not appear to be an investor who has lost in its investments in the Baguio City project. Thus, we do not award any damages to
Jadewell.
2. On G.R. Nos. 163052, 164107,
165564, 172216, 173043 and 174879
(The Contempt Petitions)
Section 3 of Rule 71 of the Revised Rules of Civil Procedure enumerates the acts constituting indirect contempt, thus:
(a) Misbehavior of an officer of a court in the performance of his official duties or in his official transactions;

(b) Disobedience of or resistance to a lawful writ, process, order, or judgment of a court, including the act of a person who,
after being dispossessed or ejected from any real property by the judgment or process of any court of competent
jurisdiction, enters or attempts or induces another to enter into or upon such real property, for the purpose of executing
acts of ownership or possession, or in any manner disturbs the possession given to the person adjudged to be entitled
thereto;
(c) Any abuse of or any unlawful interference with the processes or proceedings of a court not constituting direct contempt
under Section 1 of this Rule;
(d) Any improper conduct tending, directly or indirectly, to impede, obstruct, or degrade the administration of justice;
(e) Assuming to be an attorney or an officer of a court, and acting as such without authority;
(f) Failure to obey a subpoena duly served;
(g) The rescue, or attempted rescue, of a person or property in the custody of an officer by virtue of an order or process of a
court held by him.
But nothing in this section shall be so construed as to prevent the court from issuing process to bring the respondent into court, or
from holding him in custody pending such proceedings.
The rule alerts us to three possible situations, wherein, in the context of the facts of these petitions, contumacious behaviour could
have been committed by public respondents. First, disobedience or resistance to a lawful order of this Court under paragraph (b).
Second, unlawful interference with the proceedings of this Court under paragraph (c). Third, improper conduct tending, directly or
indirectly, to impeded, obstruct, or degrade the administration of justice by this Court under paragraph (d).
Jadewell, in G.R. Nos. 163052, 164107, 165564, 172216, 173043, and 174879, bases its charges of indirect contempt against public
respondents on a claim that any action that tends to stop the implementation of the MOA is contumacious. Such actions include
desistance orders to desist against Jadewell itself, the second act of unilateral rescission of the MOA; orders to other public officers
to prevent Jadewell from exercising its authority under the MOA; and the official encouragement for motorists to resist attempts of
Jadewell to collect parking fees or clamp/tow vehicles that do not observe the parking regulations.
We find scant jurisprudence to guide us on this matter. The closest situation is that presented in Southern Broadcasting Network v.
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Davao Light and Power, penned by Justice Felix Makasiar. In that case, petitioners representative, Carmen Pacquing, wrote a
letter to President Marcos asking for his intervention so that her Motion for Reconsideration (MR) of the resolution of this Court
denying her Petition could be favorably granted. Respondent Davao Light asked that petitioner Pacquing be cited for contempt,
arguing that her act in writing to the President asking him to intervene in the case showed disrespect to and disregard for the
authority of this Court as the final arbiter of all cases. We found petitioner Pacquing guilty of contempt, thus:
x x x. WE hold that such actuation of herein petitioners representative only bespeaks more of her contumacious attempt to trifle
with the orderly administration of justice because if she know that this Court will ultimately decide the case "regardless of the
Presidents intervention," then she should have desisted from writing to the President.
In the light of the foregoing, there is no doubt that Mrs. Pacquing committed an "improper conduct tending, directly or indirectly, to
impede, obstruct, or degrade the administration of justice" (Section 3, par. [d] Rule 71, Rules of Court) and impair the respect due to
the courts of justice in general, and the Supreme Court, in particular.
In the above case, respondent Carmen Pacquing was clearly asking the President to commit an improper act to influence the
Supreme Court that obstructs the orderly administration of justice, as the Court is constitutionally required to act independently
free from the promptings of the President. Pacquing clearly violated both Sections (c) and (d) of Section 3, Rule 71.
No such similar situation occurred here. Public respondents never asked anyone to employ pressure or influence on this Court for
the formers benefit.
Instead, the acts that have been allegedly committed by public respondents are acts done pursuant to their belief that: (a) the MOA
has been validly voided, and more importantly, (b) that Jadewells personnel do not have the legal authority to perform the

governmental function of administering the regulation of on-street and off-street parking, of towing or clamping vehicles that violate
such regulation, and of collecting parking fees from motorists.
It is important to note that the Court never gave a mandatory injunction that is couched in a way that requires public respondents to
fully comply with the terms of the MOA. The writ of preliminary mandatory injunction (WPMI) issued on 9 February 2005 is directed
to Mayor Yaranon only, and it directs him to perform only one specific act: to reopen, and maintain open, the street and premises
then being occupied and operated by Jadewell.
Mayor Yaranon did not immediately comply with this WPMI. Thus, this Court fined him P10,000 on 20 April 2005, and ordered the
NBI to arrest him if he further failed to comply with the WPMI. Subsequently, Mayor Yaranon paid the fine, and there is nothing on
record to show that he has, since April of 2005, further defied this Court on that score.
The Court did not issue a WPMI specifically ordering the parties to observe the terms of the MOA. Thus, public respondents were
not expressly prohibited to act on their beliefs regarding the validity or invalidity of the MOA, or, the authority or lack of authority of
Jadewell personnel to perform governmental functions in the streets of Baguio.
This is an important result, because to hold otherwise is to effectively grant one of the parties a mandatory injunction even without
an express resolution to this effect from the Court. Without an express order, the pendency of a suit before the Supreme Court is
not a prima facie entitlement of provisional relief to either party.
Public respondents therefore were, at liberty to question and inform the public of their belief regarding the lack of authority of
Jadewell and its personnel to regulate public parking in Baguio. They were certainly free to formally write Jadewell on their beliefs
and pass the corresponding resolutions to this effect. The mayor was also not under legal compulsion to renew Jadewells business
permit in view of his opinion that Jadewell was exceeding its allowable area of operation, which Jadewell was not able to fully
disprove. This is especially true for two important reasons: (1) there is an uncontested cease and desist order that was issued by the
DOTC-CAR on 13 March 2002 which Jadewell defied well into 2005, and (2) public respondents are city officials of Baguio who have
the legal duty to ensure the laws are being followed, including laws that define who may enforce regulations on public parking.
That Jadewell personnel do not have the legal authority to enforce regulations on public parking is categorical from the Letter dated
163
1 February 2001 by the Regional Director of the DOTC-CAR denying the request of Jadewell for the deputation of its personnel.
We therefore do not find any of the public respondents who were then officials of the City of Baguio, liable for indirect contempt,
and thereby dismiss G.R. Nos. 163052, 164107, 165564, 173043 and 174879. In G.R. 174879, we have already pronounced that the
Sanggunian was within its full right to perform the second act of rescission, and thus, it is even with more reason, that its members
and the City Legal Officer cannot be held in contempt therefor. We deny the prayer in the petitions to disbar the respondents
therein who are lawyers.
We also do not find Judge Fernando Vil Pamintuan liable for contempt in G.R. No. 172216.
Jadewell wants this Court to cite Judge Pamintuan for contempt for issuing a writ of preliminary prohibitory injunction ordering
Jadewell to stop collecting parking fees; to refrain from supervising the parking in Baguio City; as well as to hold in abeyance the
164
implementation of the MOA and its enabling ordinance.
165

It was only on 5 June 2006 that this Court, in G.R. No. 172215, issued a Temporary Restraining Order (TRO) directing the trial court
to discontinue the proceedings in Civil Case No. 6089-R. Upon receipt by Judge Pamintuan of the TRO, he immediately ordered the
166
cancellation of the 29 June 2006 hearing.
We do not consider the promulgation of the assailed writ of preliminary prohibitory injunction against Jadewell as a defiance of our
writ issued on 9 February 2005, considering, it was directed against Mayor Yaranon only. We have held in Leonidas v. Supnet that "a
167
party cannot be held in indirect contempt for disobeying a court order which is not addressed to him." We note that Judge
Pamintuan observed deference to the Orders of this Court when he immediately suspended the proceedings in Civil Case No. 6089-R
upon receipt of the TRO.
G.R. No. 172215
In this Petition for certiorari, prohibition, and mandamus under Rule 65 of the Rules of Civil Procedure, Jadewell assails the Orders of
RTC-Branch 3 (Baguio City) denying its motion to dismiss and motion for reconsideration in Civil Case No. 6089-R.

We deny the petition of Jadewell in this case.

In Manuel Camacho v. Atty. Jovito Coresis, Jr.,
follows:

168

we described the nature of special civil action for certiorari under Rule 65, as

A special civil action for certiorari under Rule 65 of the Rules of Court is an extraordinary remedy for the correction of errors of
jurisdiction. To invoke the Courts power of judicial review under this Rule, it must first be shown that respondent tribunal, board or
officer exercising judicial or quasi- judicial functions has indeed acted without or in excess of its or his jurisdiction, and that there is
no appeal, or any plain, speedy and adequate remedy in the ordinary course of law. Conversely, absent a showing of lack or excess
of jurisdiction or grave abuse of discretion amounting to lack or excess of jurisdiction, the acts of the respondents may not be
subjected to our review under Rule 65.
In Indiana Aerospace University v. Commission on Higher Education,

169

this Court ruled thus:

An order denying a motion to dismiss is interlocutory, and so the proper remedy in such a case is to appeal after a decision has been
rendered. A writ of certiorari is not intended to correct every controversial interlocutory ruling; it is resorted to only to correct a
grave abuse of discretion or a whimsical exercise of judgment equivalent to lack of jurisdiction. Its function is limited to keeping an
inferior court within its jurisdiction and to relieve persons from arbitrary acts -- acts which courts or judges have no power or
authority in law to perform. It is not designed to correct erroneous findings and conclusions made by the court.
In East Asia Traders, Inc. v. Republic of the Philippines, et al.,

170

we decreed:

The petition for certiorari and prohibition filed by petitioner with the Court of Appeals is not the proper remedy to assail the denial
by the RTC of the motion to dismiss. The Order of the RTC denying the motion to dismiss is merely interlocutory. An interlocutory
order does not terminate nor finally dispose of the case, but leaves something to be done by the court before the case is finally
decided on the merits. It is always under the control of the court and may be modified or rescinded upon sufficient grounds shown
at any time before final judgment. This proceeds from the courts inherent power to control its process and orders so as to make
them conformable to law and justice. The only limitation is that the judge cannot act with grave abuse of discretion, or that no
injustice results thereby.
East Asia Trader also reiterated our ruling in Indiana Aerospace. Further, in Bonifacio Construction Management Corporation v. Hon.
171
Perlas Bernabe, we reiterated our rulings in East Asia Traders and Indiana Aerospace. We had ruled in these earlier cases that an
order of the trial court denying a motion to dismiss is an interlocutory order, and to use a writ of certiorari to assail it is improper.
The procedural policy in the cited cases was again referred to in Bernas v. Sovereign Ventures, Inc.,

172

highlighting the following:

Let it be stressed at this point the basic rule that when a motion to dismiss is denied by the trial court, the remedy is not to file a
petition for certiorari, but to appeal after a decision has been rendered. (Emphasis supplied)
G.R. No. 181488
The question of law raised by petitioner Yaranon in this Petition for Review on Certiorari is whether the CA correctly dismissed his
appeal questioning the validity of his suspension from office as City Mayor, on the ground that his suit had become moot and
173
academic due to his non-re-election to office. The CA cited Crespo v. Provincial Board of Nueva Ecija as basis for the dismissal.
For his part, Mayor Yaranon contends that the appellate court should have ruled on the validity of his suspension from office despite
his failure to get re-elected as City Mayor. He argues that he has the right to know whether his suspension was valid or not and, in
the event his suspension is declared invalid, Mayor Yaranon believes he is entitled to the salaries and benefits accruing during the
period he was suspended.
We deny the Petition of Mayor Yaranon.
The appeal of Mayor Yaranon has been rendered moot and academic. We hold that the resolution of the issue raised herein would
serve no practical purpose.

174

In Miriam College v. Court of Appeals, we ruled that a case becomes moot and academic when there is no more actual
controversy between the parties, or when no useful purpose can be served in passing upon the merits. Further, courts will not
175
determine a moot question in which no practical relief can be granted.
Mayor Yaranon has already served his suspension. We find no practical value in remanding his case to the appellate court for the
determination of the factual basis and legal issues of his appeal pertaining to the validity of his suspension as then City Mayor of
Baguio City.
We have held in Nicart, Jr. v. Sandiganbayan (Third Division),
substantial relief:

176

that an issue becomes moot when a petitioner is not entitled to

x x x [T]he propriety of the preventive suspension of petitioner effected through the assailed Resolution of February 15, 2001 has
become a moot issue, it appearing that he has already served his suspension. An issue becomes moot and academic when it ceases
to present a justifiable controversy so that a determination thereof would be of no practical use and value. In such cases, there is no
actual substantial relief to which petitioner would be entitled to and which would be negated by the dismissal of the petition.
We cannot sustain Mayor Yaranons argument that his appeal should not have been dismissed because, in the event that the finding
of the Office of the President to suspend him is reversed, he is still entitled to the salaries accruing during the period he was
177
suspended. We take note of the cases cited by Mayor Yaranon such as Crespo v. Provincial Board of Nueva Ecija, Baquerfo v.
178
179
Sanchez and Reyes v. Cristi, among others. These cases involve substantial issues such as denial of due process and procedural
irregularities other than a mere claim for entitlement to salaries. The factual background and the legal issues for resolution in the
cases mentioned are not similar to the case at bar.
In Triste v. Leyte State College Board of Trustees

180

the Court elucidated on the nature of the salary of a public official:

Mechem states that "(l)ike the requirement of an oath, the fact of the payment of a salary and/or fees may aid in determining the
nature of a position, but it is not conclusive, for while a salary or fees are usually annexed to the office, it is not necessarily so. As in
the case of the oath, the salary or fees are mere incidents and form no part of the office. Where a salary or fees are annexed, the
office is often said to be coupled with an interest; where neither is provided for it is a naked or honorary office, and is supposed to
be accepted merely for the public good." (Emphasis supplied)
Given the circumstances of this case, we find that Mayor Yaranons claim for unpaid salaries, in case of exoneration, does not
constitute such substantial relief that would justify the revival of his appeal. Even if we did sustain his Petition, we nevertheless find
that it has been mooted by our resolution in the main petition.
WHEREFORE, we hereby rule as follows:
a.) In G.R. No. 160025, the Petition of the Sangguniang Panlungsod of Baguio City is DENIED. The CA Decision dated 7 July
2003 in CA G.R. SP No. 74756 is hereby AFFIRMED with modification. There is not enough evidence on record to conclude
that Jadewells violations were sufficient to justify the unilateral cancellation of the MOA by the Sangguniang Panlungsod of
Baguio City; at the same time, neither the RTC nor the CA provided a clear finding whether the breach of the MOA by
Jadewell was substantial. We affirm the CA as to the rest of its dispositions in its assailed Decision. Nevertheless, no award
of damages is hereby made in favour of Jadewell and neither is there any pronouncement as to costs.
b.) G.R. Nos. 163052, 164107, 165564, 172216, 173043 and 174879, the Petitions of Jadewell to cite Mayor Braulio D.
Yaranon, Mayor Bernardo M. Vergara, Acting City Mayor Reinaldo A. Bautista, Vice Mayor Betty Lourdes F. Tabanda, the
members of the Sangguniang Panlungsod of Baguio City namely: Elmer O. Datuin, Antonio R. Tabora, Edilberto B.
Tenefrancia, Federico J. Mandapat, Jr., Richard A. Carino, Faustino A. Olowan, Rufino M. Panagan, Leonardo B. Yangot, Jr.,
Rocky Thomas A. Balisong, Galo P. Weygan, Perlita L. Chan-Rondez, Jose M. Molintas, and Judge Fernando Vil Pamintuan for
indirect contempt and to disbar Sangguniang Panlungsod members Rocky Thomas A. Balisong, Edilberto B. Tenefrancia,
Faustino A. Olowan, Federico J. Mandapat, Perlita L. Chan-Rondez, Jose M. Molintas, Melchor Carlos B. Rabanes and Mayor
Braulio D. Yaranon are all hereby DISMISSED for lack of merit. No pronouncement as to costs.
c.) We DENY the Petition of Jadewell for lack of merit in G.R. No. 172215. We likewise DENY its prayer for the issuance of a
temporary restraining order and/or writ of preliminary injunction for being moot and academic. No pronouncement as to
costs.

d.) We DENY the Petition of Mayor Braulio D. Yaranon in G.R. No. 181488, for lack of merit and AFFIRM the CA Decision CAG.R. SP No. 96116. No pronouncement as to costs.
SO ORDERED.
G.R. No. 192669

April 21, 2014

RAUL SABERON, JOAN F. SABERON and JACQUELINE SABERON, Petitioners,

vs.
OSCAR VENTANILLA, JR., and CARMEN GLORIA D. VENTANILLA, Respondents.
RESOLUTION
MENDOZA, J.:
1

For resolution of the Court is a motion for reconsideration of the Court's January 19, 2011 Resolution which denied the petition of
2
Raul F. Saberon, Jr., Joan F. Saberon and Jacqueline F. Saberon (Saberons). In effect, it affirmed the March 12, 2010 Decision and
3
the June 18, 2010 Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 85520, holding that the June 21, 2005 Decision of the
Regional Trial Court, Branch 80, Quezon City (RTC) in Civil Case No. 96-26486, was correct in, among others, ordering the
cancellation of Transfer Certificate of Title (TCT) Nos. 55396 and 55397 in the name of the Saberons and Samuel Marquez (Marquez).
This case is an offshoot of two (2) cases involving the same property, docketed as G.R. No. 82978 and G.R. No. 107282, which had
been decided by the Court with finality on November 22, 1990 and March 16, 1994, respectively.
Antecedent Facts
In the earlier cases, Manila Remnant Co., Inc. (MRCI) was the petitioner, being the owner of several parcels of land situated in
Quezon City, constituting the subdivision known as Capitol Homes Subdivision Nos. I and II. On July 25, 1972, MRCI entered into a
contract with A.U. Valencia & Co. Inc. (AUVC) entitled "Confirmation of Land Development and Sales Contract," whereby for a
consideration, including sales commission and management fee, the latter was to develop the aforesaid subdivision with authority
to manage the sales thereof; execute contracts to sell to lot buyers; and issue official receipts. At that time, the president of AUVC,
was Artemio U. Valencia (Valencia).
On March 3, 1970, MRCI and AUVC executed two (2) contracts to sell covering Lots 1 and 2 of Block 17, in favor of Oscar C.
Ventanilla, Jr. and Carmen Gloria D. Ventanilla (Ventanillas), for the combined contract price ofP66,571.00 payable monthly for ten
(10) years. The Ventanillas paid the down payment as stipulated in the two (2) contracts.
On March 13, 1970, Valencia, holding out himself as president of MRCI, and without the knowledge of the Ventanillas, resold the
same property to Carlos Crisostomo (Crisostomo), without any consideration. Valencia transmitted the fictitious contract with
Crisostomo to MRCI while he kept the contracts to sell with the Ventanillas in his private office files. All the amounts paid by the
latter were deposited in Valencias bank account and remitted to MRCI as payments of Crisostomo. The Ventanillas continued to pay
the monthly installment.
Thereafter, MRCI terminated its business relationship with AUVC on account of irregularities discovered in its collection and
remittances. Consequently, Valencia was removed as president by the Board of Directors of MRCI. He then stopped transmitting the
Ventanillas monthly installments which at that time, already amounted toP17,925.40 for Lot 1 and P18,141.95 for Lot 2 (appearing
in MRCIs records as credited under the name of Crisostomo).
On June 8, 1973, AUVC sued MRCI to impugn the abrogation of their agency agreement before the Court of First Instance, Branch
19, Manila (CFI Manila), which eventually ordered all lot buyers to deposit their monthly amortizations with the court. On July 17,
1973, AUVC informed the Ventanillas that it was still authorized by the trial court to collect the monthly amortizations and
requested them to continue remitting their payment, with the assurance that said payments would be deposited later in court.
For AUVCs failure to forward its collections to the trial court as ordered, MRCI caused the publication of a notice cancelling the
contracts to sell of some lot buyers including those of Crisostomo in whose name the payments of the Ventanillas had been credited.

It was not until March 1978 when the Ventanillas discovered Valencias deception. Believing that they had already remitted the total
amount of P73,122.35 for the two lots, the Ventanillas offered to pay the balance to MRCI. To their shock, their names as lot buyers
did not appear in MRCIs records. Instead, MRCI showed them a copy of the contract to sell signed by Valencia, in favor of
Crisostomo. MRCI refused the Ventanillas offer to pay for the remainder of the contract price.
Aggrieved, the Ventanillas commenced an action for specific performance, annulment of deeds and damages against MRCI, AUVC,
and Crisostomo with the Court of First Instance, Branch 17-B, Quezon City (CFI Quezon City) docketed as Civil Case No. 26411, where
Crisostomo was declared in default for his failure to file an answer.
On November 17, 1980, the CFI Quezon City rendered a decision declaring the contracts to sell in favor of the Ventanillas as valid
and subsisting, and annulling the contract to sell in favor of Crisostomo. It ordered the MRCI to execute an absolute deed of sale in
favor of the Ventanillas, free from all liens and encumbrances. Damages and attorney's fees in the total amount of P210,000.00 were
also awarded to the Ventanillas for which the MRCI, AUVC, and Crisostomo were held solidarily liable. The CFI Quezon City ruled
further that if for any reason the transfer of the lots could not be effected, MRCI, AUVC and Crisostomo would be solidarily liable to
the Ventanillas for the reimbursement of the sum of P73,122.35, representing the amount they paid for the two (2) lots, and the
legal interest thereon from March 1970, plus the decreed damages and attorney's fees. Valencia was also held liable to MRCI for
moral and exemplary damages and attorney's fees.
On separate appeals filed by AUVC and MRCI, the CA sustained the CFI Quezon Citys decision in toto.
The 1990 Case
MRCI then filed before this Court a petition for certiorari docketed as G.R. No. 82978, to review the decision of the CA upholding the
solidary liability of MRCI, AUVC and Crisostomo for the payment of moral and exemplary damages and attorney's fees to the
Ventanillas.
On November 22, 1990, this Court affirmed the decision of the CA and declared the judgment of the CFI Quezon City immediately
executory.
Encouraged by the seeming triumph of their cause, the Ventanillas moved for the issuance of a writ of execution in Civil Case No.
26411. The writ was issued on May 3, 1991, and served upon MRCI on May 9, 1991. A notice of levy was annotated in the titles of
MRCI on May 31, 1991.
In a manifestation and motion, however, MRCI alleged that the subject properties could not longer be delivered to the Ventanillas
because they had already been sold to Samuel Marquez (Marquez) on February 7, 1990, while its petition was pending before this
Court. Nevertheless, MRCI offered to reimburse the amount paid by the Ventanillas, including legal interest plus damages. MRCI also
prayed that its tender of payment be accepted and that all garnishments on their accounts lifted.
The Ventanillas accepted the amount of P210,000.00 as damages and attorneys fees but rejected the reimbursement offered by
MRCI in lieu of the execution of the absolute deed of sale. They contended that the alleged sale to Marquez was void, fraudulent,
and in contempt of court and that no claim of ownership over the properties in question had ever been made by Marquez.
On July 19, 1991, the CFI Quezon City ordered that the garnishment made by the Sheriff upon the bank account of MRCI could be
lifted only upon the deposit to the Court of the amount of P500,000.00 in cash.
MRCI then moved for reconsideration praying that it be ordered to reimburse the Ventanillas in the amount ofP263,074.10 and that
the garnishment of its bank deposit be lifted. This plea was denied twice by the trial court prompting MRCI to file another petition
for certiorari with the CA, which ruled that the contract to sell in favor of Marquez did not constitute a legal impediment to the
immediate execution of the judgment. Furthermore, it held that the cash bond fixed by the trial court for the lifting of the
garnishment was fair and reasonable because the value of the lot in question had considerably increased.
The 1994 Case
From the CA, the case was elevated to this Court as G.R. No. 107282 where MRCI argued that the sale of the properties to Marquez
was valid because at the time of the sale, the issue of the validity of the sale to the Ventanillas had not yet been resolved. Further,
there was no specific injunction against it re-selling the property. As a buyer in good faith, Marquez had a right to rely on the recitals

in the certificate of title. The subject matter of the controversy having been passed to an innocent purchaser for value, the execution
of the absolute deed of sale in favor of the Ventanillas could not be ordered by the trial court.
The Ventanillas countered that the validity of the sale to them had already been established even while the previous petition was
still awaiting resolution. The petition only questioned the solidary liability of MRCI to the Ventanillas. Hence, the portion of the
decision ordering MRCI to execute an absolute deed of sale in their favor had already become final and executory when MRCI failed
to appeal it to the Court. Thus, an order enjoining MRCI from reselling the property in litigation was unnecessary. Besides, the
unusual lack of interest, on the part of Marquez, to protect and assert his right over the disputed property was, to the Ventanillas, a
clear indication that the alleged sale to him was merely a ploy of MRCI to evade the execution of the absolute deed of sale in their
favor.
On March 16, 1994, the Court settled the controversy in this wise:
The validity of the contract to sell in favor of the Ventanilla spouses is not disputed by the parties. Even in the previous petition, the
recognition of that contract was not assigned as error of either the trial court or appellate court. The fact that the MRCI did not
question the legality of the award for damages to the Ventanillas also shows that it even then already acknowledged the validity of
the contract to sell in favor of the private respondents.
On top of all this, there are other circumstances that cast suspicion on the validity, not to say the very existence, of the contract with
Marquez.
First, the contract to sell in favor of Marquez was entered into after the lapse of almost ten years from the rendition of the judgment
of the trial court upholding the sale to the Ventanillas.
Second, the petitioner did not invoke the contract with Marquez during the hearing on the motion for the issuance of the writ of
execution filed by the private respondents. It disclosed the contract only after the writ of execution had been served upon it.
Third, in its manifestation and motion dated December 21, 1990, the petitioner said it was ready to deliver the titles to the
Ventanillas provided that their counterclaims against private respondents were paid or offset first. There was no mention of the
contract to sell with Marquez on February 7, 1990.
Fourth, Marquez has not intervened in any of these proceedings to assert and protect his rights to the subject property as an alleged
purchaser in good faith.
At any rate, even if it be assumed that the contract to sell in favor of Marquez is valid, it cannot prevail over the final and executory
judgment ordering MRCI to execute an absolute deed of sale in favor of the Ventanillas. No less importantly, the records do not
show that Marquez has already paid the supposed balance amounting toP616,000.00 of the original price of over P800,000.00.
(Emphasis supplied)
As it turned out, the execution of the judgment in favor of the Ventanillas was yet far from fruition. Samuel Cleofe, Register of Deeds
for Quezon City (ROD Cleofe) revealed to them, that on March 11, 1992, MRCI registered a deed of absolute sale to Marquez who
eventually sold the same property to the Saberons, which conveyance was registered in July 1992. ROD Cleofe opined that a judicial
order for the cancellation of the titles in the name of the Saberons was essential before he complied with the writ of execution in
Civil Case No. 26411. Apparently, the notice of levy, through inadvertence, was not carried over to the title issued to Marquez, the
same being a junior encumbrance which was entered after the contract to sell to Marquez had already been annotated.
Civil Case No. Q-96-26486
Once again, the Ventanillas were constrained to go to court to seek the annulment of the deed of sale executed between MRCI and
Marquez as well as the deed of sale between Marquez and the Saberons, as the fruits of void conveyances. The case was docketed
as Civil Case No. Q-96-26486 with the Regional Trial Court, Branch 80, Quezon City (RTC).
During the trial, all the defendants, including Edgar Krohn Jr. (Krohn) as President of MRCI, and Bede Tabalingcos (Tabalingcos) as its
legal counsel, filed their respective answers, except Marquez who was declared in default.
On June 21, 2005, the RTC rendered its decision, the dispositive portion of which reads:

Wherefore, premises considered, judgment is hereby rendered in favour of plaintiffs, the spouses Oscar and Carmen Ventanilla, and
against defendants MRCI, Krohn, Tabalingcos, Marquez and Saberon, as follows:
(1) Declaring the Transfer Certificated of Title Nos. 55396 and 55397 in the name of Samuel Marquez, and Transfer
Certificates of Title Nos. 63140 and 63141 in the names of Raul, Jr., Joan and Jacqueline Saberon as null and void;
(2) Ordering defendant MRCI to receive payment of the balance of the purchase price to be paid by the plaintiffs and to
execute a Deed of Absolute Sale in favour of the plaintiffs, and in case of failure thereof, ordering plaintiffs to consign the
amount with this Court;
(3) Ordering the Register of Deeds to cancel the titles in the name of Marquez and the Saberons, and to issue new
certificates of title in the name of the spouses Ventanillas upon registration of the Deed of Absolute Sale in favour of the
plaintiffs or proof of their consignment;
(4) Ordering defendant MRCI, Krohn, Tabalingcos and Marquez to pay plaintiffs, jointly and severally, the sums of:
a. P100,000.00, as moral damages; and
b. P50,000.00, as attorneys fees.
(5) Ordering defendant MRCI, Krohn, Tabalingcos and Marquez to pay defendants Saberon, jointly and severally, the sum
of P7,118,155.88 representing the value of the properties in dispute and the value of the improvements introduced by
defendants Saberon; and
(6) Ordering the defendants to pay the costs of the suit.
Defendants counterclaims are hereby dismissed for lack of merit.
Separate appeals were instituted by MRCI and Tabalingcos, on one hand, and the Saberons, on the other. The former contended
that no fraudulent act could be attributed to them for the sale of the property to the title of Marquez, considering that ROD Cleofe
was the one who inadvertently omitted the carrying over of the notice of levy to Marquez who consequently secured a clean title to
the lot. MRCI Tabalingcos further claimed that the sale to Marquez was effected while the previous case was still pending, at a time
when they had every liberty to believe in the legality of their position.
Meanwhile, the Saberons relied on one central argumentthat they were purchasers in good faith, having relied on the correctness
of the certificates of title covering the lots in question; and therefore, holders of a valid and indefeasible title.
In the assailed decision, the CA made its conclusion hinged on the following findings:
When MRCI executed a Contract to Sell in favor of Marquez in February 1990, it was in the throes of an appeal from the Decision in
Civil Case No. 26411 where its very first Contracts to Sell to the Ventanillas were upheld over those of Crisostomo. The Marquez
Contract to Sell was in fact the third in a row, and registered a year later, on May 21, 1991, appears as the first recorded entry in
MRCIs titles. The notice of levy in Civil Case No. 26411 came ten days later, on May 31, 1991. Then, in February 1992, MRCI
executed a deed of absolute sale to Marquez and when the new titles were issued in Marquez name, the notice of levy was not
carried over. A few months later, these titles were cancelled by virtue of a deed of sale to the Saberons and, on the same day, TCT
63140 and 63141 were issued clean to them.
According to the CA, the arguments espoused by MRCI and Tabalingcos were untenable. The said parties were found guilty of bad
faith for selling the lots to Marquez at a time when litigation as to the validity of the first sale to the Ventanillas was still pending. In
other words, MRCI was sufficiently aware of the Court decision confirming its failure to supervise and control the affairs of its
authorized agent, AUVC, which led to the explicit pronouncement that the first sale to the Ventanillas was valid. This should have
served as a warning to MRCI that it could no longer deal with the property in deference to the Courts ruling and affirmation of the
trial courts order to execute the deed of sale in favor of the Ventanillas. Obviously, MRCI took no heed of this caveat. The titles had
been transferred yet again to the Saberons, who claimed to be purchasers in good faith. Unfortunately, there was an exception to
4
the general rule. The CA cited AFP Mutual Benefit Association Inc. v. Santiago, where the Court ruled that with respect to
involuntary liens, an entry of a notice of levy and attachment in the primary entry or day book of the Registry of Deeds was

considered as sufficient notice to all persons that the land was already subject to attachment. Resultantly, attachment was duly
perfected and bound the land.
The Present Petition
Aggrieved by this CA ruling, the Saberons filed the present petition. They claimed that in 1992, a certain Tiks Bautista offered the lots
to Raul Saberon, who, after being given photocopies of the titles to the land, inquired with the Registry of Deeds for Quezon City
(ROD-QC) to verify the authenticity of the same. He found no encumbrances or annotations on the said titles, other than restrictions
for construction and negotiation. As agreed upon, he paid Marquez the amount of Two Million One Hundred Thousand Pesos
(P2,100,000.00) as purchase price for the lots. Upon payment of the real property taxes, a certification was issued by the Office of
the City Treasurer for the purpose of transferring the title over the property.
Thereafter, Marquez executed the Deed of Absolute Sale in favor of the Saberons. The ROD-QC then issued TCT Nos. 63140 and
63141 in their names.
Unknown to the Saberons, the former owner of the properties had entered into contracts to sell with the Ventanillas, way back in
1970. It was only upon receipt of the summons in the case filed by the Ventanillas with the RTC that they learned of the present
controversy.
With the RTC and the CA rulings against their title over the properties, the Saberons now come to the Court with their vehement
insistence that they were purchasers in good faith and for value. Before purchasing the lots, they exercised due diligence and found
no encumbrance or annotations on the titles. At the same time, the Ventanillas also failed to rebut the presumption of their good
faith as there was no showing that they confederated with MRCI and its officers to deprive the Ventanillas of their right over the
subject properties.
According to the Saberons, the CA likewise erred in ruling that there was no constructive notice of the levy made upon the subject
5
lands. They claimed that the appellate court could not solely rely on AFP Mutual Benefit Association Inc. v. Santiago. Instead, they
urged the Court to interpret
Sections 52 and 42 of Presidential Decree (P.D.) No. 1529 which cover the effects of registration and the manner thereof; and to
examine Section 54 which shows that, in addition to the filing of the instrument creating, transferring or claiming interest in
registered land less than ownership, a brief memorandum of such shall be made by the Register of Deeds on the certificate of title
and signed by him. Hence, the ruling in AFP, that an entry of a notice of levy and attachment in the primary entry or day book of the
Registry of Deeds was sufficient notice to all persons that the land was already subject to such attachment, would be rendered as a
superfluity in light of the mandatory character of the said provision.
The Saberons further pointed that the claim of the Ventanillas over the subject properties never ripened into ownership as they
failed to consign the balance on the purchase price stipulated on the contracts to sell, thus preventing the obligatory force of the
contract from taking effect.
6

On October 4, 2010, the Court required the Ventanillas to file their comment to the petition. On January 19, 2011, the Court
7
resolved to deny the Saberons petition for failure to sufficiently show any reversible error in the assailed judgment by the CA. In its
8
June 15, 2011 Resolution, the Court required the Ventanillas to comment on the motion for reconsideration filed by the Saberons.
Resolution of the Court
At first glance, it would seem that the case involves convoluted issues brought about by the number of times the Ventanillas were
impelled by circumstances to seek judicial action. Nonetheless, the antecedents would readily reveal that the essential facts are not
disputed: 1) that the subject properties have indeed been the objects of various transfers effected by MRCI leading to the current
controversy between the Saberons and the Ventanillas; and 2) that prior to the sale to the Saberons, a notice of levy as an
encumbrance was already in existence.
Sections 51 and 52 of P.D. No. 1529 explain the purpose and effects of registering both voluntary and involuntary instruments, to
wit:
Section 51. Conveyance and other dealings by registered owner. An owner of registered land may convey, mortgage, lease, charge
or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, leases or other

voluntary instruments as are sufficient in law. But no deed, mortgage, lease, or other voluntary instrument, except a will purporting
to convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between
the parties and as evidence of authority to the Register of Deeds to make registration.
The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases
under this Decree, the registration shall be made in the office of the Register of Deeds for the province or city where the land lies.
Section 52. Constructive notice upon registration. Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument
or entry affecting registered land shall, if registered, filed or entered in the office of the Register of Deeds for the province or city
where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing or entering.
These provisions encapsulate the rule that documents, like the certificates of title do not effect a conveyance of or encumbrances on
a parcel of land. Registration is the operative act that conveys ownership or affects the land insofar as third persons are concerned.
By virtue of registration, a constructive notice to the whole world of such voluntary or involuntary instrument or court writ or
processes, is thereby created.
The question of utmost relevance to this case, then, is this: whether or not the registration of the notice of levy had produced
constructive notice that would bind third persons despite the failure of the ROD-QC to annotate the same in the certificates of title?
In answering these questions, the Court is beckoned to rule on two conflicting rights over the subject properties: the right of the
Ventanillas to acquire the title to the registered land from the moment of inscription of the notice of levy on the day book (or entry
book), on one hand; and the right of the Saberons to rely on what appears on the certificate of title for purposes of voluntary
dealings with the same parcel of land, on the other.
The Saberons maintain that they had no notice of any defect, irregularity or encumbrance in the titles of the property they
purchased. In its decision, however, the RTC pointed out that their suspicion should have been aroused by the circumstance that
Marquez, who was not engaged in the buy-and-sell business and had the property for only a few months, would offer the same for
sale. Although the RTC found that the Saberons may not be considered as innocent purchasers for value because of this
circumstance, it, nonetheless, ruled that they, who might well be unwilling victims of the fraudulent scheme employed by MRCI and
Marquez, were entitled to actual and compensatory damages.
To this latter finding, the Court agrees. The Saberons could not be said to have authored the entanglement they found themselves
in. No fault can be attributed to them for relying on the face of the title presented by Marquez. This is bolstered by the fact that the
RTC decision shows no categorical finding that the Saberons purchase of the lots from Marquez was tainted with bad faith. That the
Saberons should have harbored doubts against Marquez is too high a standard to impose on a buyer of titled land. This is in
consonance to the rule that the one who deals with property registered under the Torrens system is charged with notice only of
9
such burdens and claims as are annotated on the title. "All persons dealing with property covered by Torrens certificate of title are
not required to explore further than what the Torrens title upon its face indicates in quest for any hidden defect or inchoate right
10
that may subsequently defeat his right thereto." These rules remain as essential features of the Torrens system. The present case
does not entail a modification or overturning of these principles.
Be that as it may, no fault can likewise be imputed to the Ventanillas.
In ultimately ruling for the Ventanillas, the courts a quo focused on the superiority of their notice of levy and the constructive notice
against the whole world which it had produced and which effectively bound third persons including the Saberons.
It has already been established in the two previous cases decided by the Court that the contracts to sell executed in favor of the
Ventanillas are valid and subsisting. Clearly, it has been acknowledged, even by MRCI, as can be seen in the latters own choice to
only question their solidary liability in the 1990 case and its failure to assign the same as an error in the 1994 case. In the same vein,
the issue on Marquezs title had already been passed upon and settled in the 1994 case. That he purchased the lots prior to the
annotation of the notice of levy in MRCIs title was of no moment. In fact, the Court explicitly declared that MRCIs transaction with
Marquez "cannot prevail over the final and executory judgment ordering MRCI to execute an absolute deed of sale in favor of the
Ventanillas."
These favorable findings prompted the Ventanillas to register the notice of levy on the properties. The records show that on the
strength of a final and executory decision by the Court, they successfully obtained a writ of execution from the RTC and a notice of
levy was then entered, albeit on the primary entry book only. The contract to sell to Marquez was registered on May 21, 1991, while

the notice of levy was issued ten (10) days later, or on May 31, 1991. In February 1992, MRCI executed the Deed of Sale with
Marquez, under whose name the clean titles, sans the notice of levy, were issued. A year later, or on March 11, 1992, MRCI
registered the deed of sale to Marquez who later sold the same property to the Saberons.
This complex situation could have been avoided if it were not for the failure of ROD Cleofe to carry over the notice of levy to
Marquezs title, serving as a senior encumbrance that might have dissuaded the Saberons from purchasing the properties.
The Court agrees with the position of the RTC in rejecting ROD Cleofes theory.
Distinctions between a contract to sell and a contract of sale are well-established in urisprudence.1wphi1 In a contract of sale, the
title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of
sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded;
whereas, in a contract to sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the
price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to
11
convey title from becoming effective.
It is undeniable, therefore, that no title was transferred to Marquez upon the annotation of the contract to sell on MRCIs title. As
correctly found by the trial court, the contract to sell cannot be substituted by the Deed of Absolute Sale as a "mere conclusion" of
12
the previous contract since the owners of the properties under the two instruments are different.
Considering that the deed of sale in favor of Marquez was of later registration, the notice of levy should have been carried over to
the title as a senior encumbrance.
Corollary to this is the rule that a levy of a judgment debtor creates a lien, which nothing can subsequently destroy except the very
13
dissolution of the attachment of the levy itself. Prior registration of the lien creates a preference, since the act of registration is the
14
operative act to convey and affect the land. Jurisprudence dictates that the said lien continues until the debt is paid, or the sale is
had under an execution issued on the judgment or until the judgment is satisfied, or the attachment is discharged or vacated in the
same manner provided by law. Under no law, not even P.D. No. 1529, is it stated that an attachment shall be discharged upon sale
15
of the property other than under execution.
Additionally, Section 59 of P.D. No. 1529 provides that, "[i]f, at the time of the transfer, subsisting encumbrances or annotations
appear in the registration book, they shall be carried over and stated in the new certificate or certificates, except so far as they may
be simultaneously released or discharged." This provision undoubtedly speaks of the ministerial duty on the part of the Register of
Deeds to carry over existing encumbrances to the certificates of title.
From the foregoing, ROD Cleofes theory that a deed of sale, as a mere conclusion of a contract to sell, turns into a senior
encumbrance which may surpass a notice of levy, has no leg to stand on. It was, in fact, properly rejected by the courts a quo. Verily,
the controversy at hand arose not from the Ventanillas fault, but from ROD Cleofes misplaced understanding of his duty under the
law.
Surely, the Ventanillas had every right to presume that the Register of Deeds would carry over the notice of levy to subsequent titles
covering the subject properties. The notice was registered precisely to bind the properties and to serve as caution to third persons
16
who might potentially deal with the property under the custody of the law. In DBP v. Acting Register of Deeds of Nueva Ecija, the
Court ruled that entry alone produced the effect of registration, whether the transaction entered was a voluntary or involuntary
one, so long as the registrant had complied with all that was required of him for purposes of entry and annotation, and nothing
more remained to be done but a duty incumbent solely on the Register of Deeds.
While the Court is not unmindful that a buyer is charged with notice only of such burdens and claims as are annotated on the title,
the RTC and the CA are both correct in applying the rule as to the effects of involuntary registration. In cases of voluntary
registration of documents, an innocent purchaser for value of registered land becomes the registered owner, and, in contemplation
of law the holder of a certificate of title, the moment he presents and files a duly notarized and valid deed of sale and the same is
entered in the day book and at the same time he surrenders or presents the owner's duplicate certificate of title covering the land
sold and pays the registration fees, because what remains to be done lies not within his power to perform. The Register of Deeds is
17
duty bound to perform it. In cases of involuntary registration, an entry thereof in the day book is a sufficient notice to all persons
even if the owner's duplicate certificate of title is not presented to the register of deeds. Therefore, in the registration of an

attachment, levy upon execution, notice of lis pendens, and the like, the entry thereof in the day book is a sufficient notice to all
18
persons of such adverse claim.
19

This rule was reiterated in the more recent case of Armed Forces and Police Mutual Benefit Association, Inc., v. Santiago, as relied
upon by the CA. In AFP, the Notice of Levy was presented for registration in the Registry of Deeds of Pasig City. The Notice was
entered in the Primary Entry Book, but was not annotated on the TCT because the original copy of the said title on file in the Registry
of Deeds was not available at that time. Six (6) days after the presentation of the Notice of Levy, the Deed of Absolute Sale involving
the same parcel of land was presented for registration and likewise entered. The deed of sale was examined by the same employee
who examined the notice of levy, but she failed to notice that the title subject of the sale was the same title which was the subject of
the notice of levy earlier presented. Unaware of the previous presentation of the notice of levy, the Register of Deeds issued a
certificate of title in the name of the vendee on the basis of the deed of sale. The Register of Deeds in AFP immediately requested
the vendee to surrender the documents in light of the mistake discovered so that he could take appropriate rectification or
correction. Settling the issue on whether the notice of levy could be annotated in the certificate of title, the Court ruled in the
affirmative on the ground that the preference created by the levy on attachment was not diminished by the subsequent registration
of the prior sale. Superiority and preference in rights were given to the registration of the levy on attachment; although the notice of
attachment had not been noted on the certificate of title, its notation in the book of entry of the Register of Deeds produced all the
effects which the law gave to its registration or inscription, to wit:
Under the rule of notice, it is presumed that the purchaser has examined every instrument of record affecting the title. Such
presumption is irrebuttable. He is charged with notice of every fact shown by the record and is presumed to know every fact shown
by the record and to know every fact which an examination of the record would have disclosed. This presumption cannot be
overcome by proof of innocence or good faith. Otherwise, the very purpose and object of the law requiring a record would be
destroyed. Such presumption cannot be defeated by proof of want of knowledge of what the record contains any more than one
may be permitted to show that he was ignorant of the provisions of the law. The rule that all persons must take notice of the facts
which the public record contains is a rule of law. The rule must be absolute; any variation would lead to endless confusion and
useless litigation. For these reasons, a declaration from the court that respondent was in bad faith is not necessary in order that the
notice of levy on attachment may be annotated on TCT No. PT-94912.
The fact that the notice of levy on attachment was not annotated on the original title on file in the Registry of Deeds, which resulted
in its non-annotation on the title TCT No. PT-94912, should not prejudice petitioner. As long as the requisites required by law in
order to effect attachment are complied with and the appropriate fees duly paid, attachment is duly perfected. The attachment
already binds the land. This is because what remains to be done lies not within the petitioners power to perform but is a duty
incumbent solely on the Register of Deeds. (Emphasis supplied)
In the case at bench, the notice of levy covering the subject property was annotated in the entry book of the ROD QC prior to the
issuance of a TCT in the name of the Saberons. Clearly, the Ventanillas levy was placed on record prior to the sale. This shows the
superiority and preference in rights of the Ventanillas over the property as against the Saberons. In AFP, the Court upheld the
registration of the levy on attachment in the primary entry book as a senior encumbrance despite the mistake of the ROD, the Court
must, a fortiori, sustain the notice of levy registered by the Ventanillas notwithstanding the nonfeasance of ROD Cleofe. Again, the
prevailing rule is that there is effective registration once the registrant has fulfilled all that is needed of him for purposes of entry
20
and annotation, so that what is left to be accomplished lies solely on the Register of Deeds.
Suffice it to say, no bad faith can be ascribed to the parties alike. Nevertheless, the equal footing of the parties necessarily tilts in
favor of the superiority of the Ventanillas notice of levy, as discussed.
The Court also sees no reason to dwell in the contention that the rights or interests of the Ventanillas in the subject properties never
ripened into ownership. It bears stressing that the previous decisions discussed herein already sealed the validity of the contract to
sell issued to the Ventanillas decades ago. As found by the RTC, it was MRCIs obstinate refusal to accept their tender of payment,
not to mention the devious transfer of the property, which caused the decade-long delay of the execution of the deed of sale in their
favor. This is a finding that the Court, which is not a trier of facts, will have to respect.
In the same vein, the attribution of laches against the Ventanillas is flawed. Their failure to learn about the structures being built on
the subject lands and the payment of real property taxes by the Saberons is not sufficient justification to withhold the declaration of
their ownership over it. Against a different factual milieu, laches may be said to have set it but not so in this case. While the
Ventanillas may have been unaware that improvements were being erected over the lots, this obliviousness can, by no means, be
treated as a lack of vigilance on their part. It bears stressing that the Ventanillas are now of advanced age and retired as university
professors. Considering the length of litigation which they had to endure in order to assert their right over the property which they

have painstakingly paid for decades ago, to hold now that they have been remiss in the protection of their rights would be the
height of impropriety, if not injustice. To exact from them an obligation to visit the land in litigation every so often, lest they be held
to have slept on their rights, is iniquitous and unreasonable. All told, the Ventanillas remain as innocent victims of deception.
The Court deems it significant to note that the amount of P7,118,115.88 awarded to the Saberons by the RTC is to be satisfied by
MRCI, Krohn, Tabalingcos, and Marquez, who have not been impleaded as parties to the present petition, thus, rendering the said
21
award final and executory. The said amount, however, is separate and distinct from those provided under Article 448 in relation to
22
Article 546 of the Civil Code. In the petition, the Saberons invoked the said provisions, claiming that they are entitled to
reimbursement of all the expenses incurred in the introduction of improvements on the subject lands amounting to P23,058,822.79.
The Court finds the Saberons to be builders in good faith.
No less than the court a quo observed that "no actual evidence that the Saberons connived with the MRCI and Marquez to have the
titles registered in their names to the prejudice of the (Ventanillas)" and that what was obvious was that "the Saberons dealt with
clean certificates of titles." Also quite telling on this point is the finding that MRCI, Krohn, Tabalingcos, and Marquez are liable to the
Saberons. The RTC reasoned out in the following wise:
This Court is not convinced, however that defendants Saberon took part in the fraudulent scheme employed by the other
defendants against the plaintiffs. Although they may not be considered as innocent purchasers for value shown in the discussion
above, this Court is not ready to conclude that the Saberons joined the other defendants in their efforts to frustrate plaintiffs rights
over the disputed properties. On the contrary, they may be considered victims of the same fraudulent employed by defendants
23
MRCI and Marquez, and thus can rightfully claim damages from the same.
Consequently, Article 448 in relation to Article 546 of the Civil Code will apply.1wphi1 The provisions respectively read:
Article 448. The owner of the land on which anything has been built, sow or planted in good faith, shall have the right to
appropriate, as his own the works, sowing, or planting, after payment of the indemnity provided for in Article 546 and 548, or to
oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or
planter cannot be obliged to buy the land and if its value is considerably more than that of the building or trees. In such case, he
shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The
parties shall agree upon the terms of the lease and in case disagreement, the court shall fix the terms thereof.
Article 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until
he has been reimbursed therefore.
Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated
him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing
may have acquired by reason thereof.
Thus, the two options available to the Ventanillas: 1) they may exercise the right to appropriate after payment of indemnity
representing the value of the improvements introduced and the necessary and useful expenses defrayed on the subject lots; or 2)
they may forego payment of the said indemnity and instead, oblige the Saberons to pay the price of the land.
Should the Ventanillas elect to appropriate the improvements, the trial court is ordered to determine the value of the improvements
and the necessary and useful expenses after hearing and reception of evidence. Should the Ventanillas, however, pursue the option
to oblige the Saberons to pay the "price of the land," the trial court is ordered to determine said price to be paid to the V entanillas.
WHEREFORE, the Motion for Reconsideration is PARTIALLY GRANTED. The appealed March 12, 2010 Decision and the June 18, 2010
Resolution of the Court of Appeals in CA-G.R. CV No. 85520 are AFFIRMED with modification in that the Ventanillas are given a
period of sixty ( 60) days from finality of this Resolution to decide whether to pay the Saberons the value of the improvements and
the necessary and useful expenses defrayed on the 2 lots or to oblige the Saberons to pay them the "price" of said lots. Depending
on the option exercised by the Ventanillas, the case is hereby remanded to the court of origin for further proceedings as to the
determination of reimbursement due to the petitioners or of the "price" of the subject lots due to the Ventanillas.
SO ORDERED.

G.R. No. 166859

April 12, 2011

REPUBLIC OF THE PHILIPPINES, Petitioner,

vs.
SANDIGANBAYAN (FIRST DIVISION), EDUARDO M. COJUANGCO, JR., AGRICULTURAL CONSULTANCY SERVICES, INC.,
ARCHIPELAGO REALTY CORP., BALETE RANCH, INC., BLACK STALLION RANCH, INC., CHRISTENSEN PLANTATION COMPANY,
DISCOVERY REALTY CORP., DREAM PASTURES, INC., ECHO RANCH, INC., FAR EAST RANCH, INC., FILSOV SHIPPING COMPANY, INC.,
FIRST UNITED TRANSPORT, INC., HABAGAT REALTY DEVELOPMENT, INC., KALAWAKAN RESORTS, INC., KAUNLARAN
AGRICULTURAL CORP., LABAYUG AIR TERMINALS, INC., LANDAIR INTERNATIONAL MARKETING CORP., LHL CATTLE CORP., LUCENA
OIL FACTORY, INC., MEADOW LARK PLANTATIONS, INC., METROPLEX COMMODITIES, INC., MISTY MOUNTAIN AGRICULTURAL
CORP., NORTHEAST CONTRACT TRADERS, INC., NORTHERN CARRIERS CORP., OCEANSIDE MARITIME ENTERPRISES, INC., ORO
VERDE SERVICES, INC., PASTORAL FARMS, INC., PCY OIL MANUFACTURING CORP., PHILIPPINE TECHNOLOGIES, INC., PRIMAVERA
FARMS, INC., PUNONG-BAYAN HOUSING DEVELOPMENT CORP., PURA ELECTRIC COMPANY, INC., RADIO AUDIENCE DEVELOPERS
INTEGRATED ORGANIZATION, INC., RADYO PILIPINO CORP., RANCHO GRANDE, INC., REDDEE DEVELOPERS, INC., SAN ESTEBAN
DEVELOPMENT CORP., SILVER LEAF PLANTATIONS, INC., SOUTHERN SERVICE TRADERS, INC., SOUTHERN STAR CATTLE CORP.,
SPADE ONE RESORTS CORP., UNEXPLORED LAND DEVELOPERS, INC., VERDANT PLANTATIONS, INC., VESTA AGRICULTURAL CORP.
AND WINGS RESORTS CORP., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 169203
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
SANDIGANBAYAN (FIRST DIVISION), EDUARDO M. COJUANGCO, JR., MEADOW LARK PLANTATIONS, INC., SILVER LEAF
PLANTATIONS, INC., PRIMAVERA FARMS, INC., PASTORAL FARMS, INC., BLACK STALLION RANCH, INC., MISTY MOUNTAINS
AGRICULTURAL CORP., ARCHIPELAGO REALTY CORP., AGRICULTURAL CONSULTANCY SERVICES, INC., SOUTHERN STAR CATTLE
CORP., LHL CATTLE CORP., RANCHO GRANDE, INC., DREAM PASTURES, INC., FAR EAST RANCH, INC., ECHO RANCH, INC., LAND AIR
INTERNATIONAL MARKETING CORP., REDDEE DEVELOPERS, INC., PCY OIL MANUFACTURING CORP., LUCENA OIL FACTORY, INC.,
METROPLEX COMMODITIES, INC., VESTA AGRICULTURAL CORP., VERDANT PLANTATIONS, INC., KAUNLARAN AGRICULTURAL
CORP., ECJ & SONS AGRICULTURAL ENTERPRISES, INC., RADYO PILIPINO CORP., DISCOVERY REALTY CORP., FIRST UNITED
TRANSPORT, INC., RADIO AUDIENCE DEVELOPERS INTEGRATED ORGANIZATION, INC., ARCHIPELAGO FINANCE AND LEASING
CORP., SAN ESTEBAN DEVELOPMENT CORP., CHRISTENSEN PLANTATION COMPANY, NORTHERN CARRIERS CORP., VENTURE
SECURITIES, INC., BALETE RANCH, INC., ORO VERDE SERVICES, INC., and KALAWAKAN RESORTS, INC., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 180702
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
EDUARDO M. COJUANGCO, JR., FERDINAND E. MARCOS, IMELDA R. MARCOS, EDGARDO J. ANGARA,* JOSE C. CONCEPCION,
AVELINO V. CRUZ, EDUARDO U. ESCUETA, PARAJA G. HAYUDINI, JUAN PONCE ENRILE, TEODORO D. REGALA, DANILO URSUA,
ROGELIO A. VINLUAN, AGRICULTURAL CONSULTANCY SERVICES, INC., ANGLO VENTURES, INC., ARCHIPELAGO REALTY CORP., AP
HOLDINGS, INC., ARC INVESTMENT, INC., ASC INVESTMENT, INC., AUTONOMOUS DEVELOPMENT CORP., BALETE RANCH, INC.,
BLACK STALLION RANCH, INC., CAGAYAN DE ORO OIL COMPANY, INC., CHRISTENSEN PLANTATION COMPANY, COCOA
INVESTORS, INC., DAVAO AGRICULTURAL AVIATION, INC., DISCOVERY REALTY CORP., DREAM PASTURES, INC., ECHO RANCH, INC.,
ECJ & SONS AGRI. ENT., INC., FAR EAST RANCH, INC., FILSOV SHIPPING COMPANY, INC., FIRST MERIDIAN DEVELOPMENT, INC.,
FIRST UNITED TRANSPORT, INC., GRANEXPORT MANUFACTURING CORP., HABAGAT REALTY DEVELOPMENT, INC., HYCO
AGRICULTURAL, INC., ILIGAN COCONUT INDUSTRIES, INC., KALAWAKAN RESORTS, INC., KAUNLARAN AGRICULTURAL CORP.,
LABAYOG AIR TERMINALS, INC., LANDAIR INTERNATIONAL MARKETING CORP., LEGASPI OIL COMPANY, LHL CATTLE CORP.,
LUCENA OIL FACTORY, INC., MEADOW LARK PLANTATIONS, INC., METROPLEX COMMODITIES, INC., MISTY MOUNTAIN
AGRICULTURAL CORP., NORTHEAST CONTRACT TRADERS, INC., NORTHERN CARRIERS CORP., OCEANSIDE MARITIME
ENTERPRISES, INC., ORO VERDE SERVICES, INC., PASTORAL FARMS, INC., PCY OIL MANUFACTURING CORP., PHILIPPINE RADIO
CORP., INC., PHILIPPINE TECHNOLOGIES, INC., PRIMAVERA FARMS, INC., PUNONG-BAYAN HOUSING DEVELOPMENT CORP., PURA
ELECTRIC COMPANY, INC., RADIO AUDIENCE DEVELOPERS INTEGRATED ORGANIZATION, INC., RADYO PILIPINO CORP., RANCHO
GRANDE, INC., RANDY ALLIED VENTURES, INC., REDDEE DEVELOPERS, INC., ROCKSTEEL RESOURCES, INC., ROXAS SHARES, INC.,

SAN ESTEBAN DEVELOPMENT CORP., SAN MIGUEL CORPORATION OFFICERS, INC., SAN PABLO MANUFACTURING CORP.,
SOUTHERN LUZON OIL MILLS, INC., SILVER LEAF PLANTATIONS, INC., SORIANO SHARES, INC., SOUTHERN SERVICE TRADERS, INC.,
SOUTHERN STAR CATTLE CORP., SPADE 1 RESORTS CORP., TAGUM AGRICULTURAL DEVELOPMENT CORP., TEDEUM RESOURCES,
INC., THILAGRO EDIBLE OIL MILLS, INC., TODA HOLDINGS, INC., UNEXPLORED LAND DEVELOPERS, INC., VALHALLA PROPERTIES,
INC., VENTURES SECURITIES, INC., VERDANT PLANTATIONS, INC., VESTA AGRICULTURAL CORP. and WINGS RESORTS
CORP., Respondents.
JOVITO R. SALONGA, WIGBERTO E. TAADA, OSCAR F. SANTOS, VIRGILIO M. DAVID, ROMEO C. ROYANDAYAN for himself and for
SURIGAO DEL SUR FEDERATION OF AGRICULTURAL COOPERATIVES (SUFAC), MORO FARMERS ASSOCIATION OF ZAMBOANGA DEL
SUR (MOFAZS) and COCONUT FARMERS OF SOUTHERN LEYTE COOPERATIVE (COFA-SL); PHILIPPINE RURAL RECONSTRUCTION
MOVEMENT (PRRM), represented by CONRADO S. NAVARRO; COCONUT INDUSTRY REFORM MOVEMENT, INC. (COIR)
represented by JOSE MARIE T. FAUSTINO; VICENTE FABE for himself and for PAMBANSANG KILUSAN NG MGA SAMAHAN NG
MAGSASAKA (PAKISAMA); NONITO CLEMENTE for himself and for the NAGKAKAISANG UGNAYAN NG MGA MALILIIT NA
MAGSASAKA AT MANGGAGAWA SA NIYUGAN (NIUGAN); DIONELO M. SUANTE, SR. for himself and for KALIPUNAN NG MALILIIT
NA MAGNINIYOG NG PILIPINAS (KAMMPIL), INC., Petitioners-Intervenors.
DECISION
BERSAMIN, J.:
For over two decades, the issue of whether the sequestered sizable block of shares representing 20% of the outstanding capital
stock of San Miguel Corporation (SMC) at the time of acquisition belonged to their registered owners or to the coconut farmers has
remained unresolved. Through this decision, the Court aims to finally resolve the issue and terminate the uncertainty that has
plagued that sizable block of shares since then.
These consolidated cases were initiated on various dates by the Republic of the Philippines (Republic) via petitions for certiorari in
1
2
3
G.R. Nos. 166859 and 169023, and via petition for review on certiorari in 180702, the first two petitions being brought to assail
the following resolutions issued in Civil Case No. 0033-F by the Sandiganbayan, and the third being brought to appeal the adverse
decision promulgated on November 28, 2007 in Civil Case No. 0033-F by the Sandiganbayan.
Specifically, the petitions and their particular reliefs are as follows:
4

(a) G.R. No. 166859 (petition for certiorari), to assail the resolution promulgated on December 10, 2004 denying the
Republics Motion For Partial Summary Judgment;
(b) G.R. No. 169023 (petition for certiorari), to nullify and set aside, firstly, the resolution promulgated on October 8,
5
6
2003, and, secondly, the resolution promulgated on June 24, 2005 modifying the resolution of October 8, 2003; and
(c) G.R. No. 180702 (petition for review on certiorari), to appeal the decision promulgated on November 28, 2007.

ANTECEDENTS
On July 31, 1987, the Republic commenced Civil Case No. 0033 in the Sandiganbayan by complaint, impleading as defendants
respondent Eduardo M. Cojuangco, Jr. (Cojuangco) and 59 individual defendants. On October 2, 1987, the Republic amended the
complaint in Civil Case No. 0033 to include two additional individual defendants. On December 8, 1987, the Republic further
amended the complaint through its Amended Complaint [Expanded per Court-Approved Plaintiffs Manifestation/Motion Dated
Dec. 8, 1987] albeit dated October 2, 1987.
More than three years later, on August 23, 1991, the Republic once more amended the complaint apparently to avert the
nullification of the writs of sequestration issued against properties of Cojuangco. The amended complaint dated August 19, 1991,
designated as Third Amended Complaint [Expanded Per Court-Approved Plaintiffs Manifestation/Motion Dated Dec. 8,
8
1987], impleaded in addition to Cojuangco, President Marcos, and First Lady Imelda R. Marcos nine other individuals, namely:
Edgardo J. Angara, Jose C. Concepcion, Avelino V. Cruz, Eduardo U. Escueta, Paraja G. Hayudini, Juan Ponce Enrile, Teodoro D.
Regala, and Rogelio Vinluan, collectively, the ACCRA lawyers, and Danilo Ursua, and 71 corporations.
On March 24, 1999, the Sandiganbayan allowed the subdivision of the complaint in Civil Case No. 0033 into eight complaints, each
pertaining to distinct transactions and properties and impleading as defendants only the parties alleged to have participated in the

relevant transactions or to have owned the specific properties involved. The subdivision resulted into the following subdivided
complaints, to wit:
Subdivided
Complaint

Subject Matter

1. Civil Case No.

0033-A

Anomalous Purchase and Use of First United Bank (now United

Coconut Planters Bank)

2. Civil Case No.

0033-B

Creation of Companies Out of Coco Levy Funds

3. Civil Case No.

0033-C

Creation and Operation of Bugsuk Project and Award of P998 Million

Damages to Agricultural Investors, Inc.

4. Civil Case No.

0033-D

Disadvantageous Purchases and Settlement of the Accounts of Oil

Mills Out of Coco Levy Funds

5. Civil Case No.

0033-E

Unlawful Disbursement and Dissipation of Coco Levy Funds

6. Civil Case No.

0033-F

Acquisition of SMC shares of stock

7. Civil Case No.

0033-G

Acquisition of Pepsi-Cola

8. Civil Case No.

0033-H

Behest Loans and Contracts

In Civil Case No. 0033-F, the individual defendants were Cojuangco, President Marcos and First Lady Imelda R. Marcos, the ACCRA
lawyers, and Ursua. Impleaded as corporate defendants were Southern Luzon Oil Mills, Cagayan de Oro Oil Company, Incorporated,
Iligan Coconut Industries, Incorporated, San Pablo Manufacturing Corporation, Granexport Manufacturing Corporation, Legaspi Oil
Company, Incorporated, collectively referred to herein as the CIIF Oil Mills, and their 14 holding companies, namely: Soriano Shares,
Incorporated, Roxas Shares, Incorporated, Arc Investments, Incorporated, Toda Holdings, Incorporated, ASC Investments,
Incorporated, Randy Allied Ventures, Incorporated, AP Holdings, Incorporated, San Miguel Corporation Officers, Incorporated, Te
Deum Resources, Incorporated, Anglo Ventures, Incorporated, Rock Steel Resources, Incorporated, Valhalla Properties,
Incorporated, and First Meridian Development, Incorporated.
Allegedly, Cojuangco purchased a block of 33,000,000 shares of SMC stock through the 14 holding companies owned by the CIIF Oil
Mills. For this reason, the block of 33,133,266 shares of SMC stock shall be referred to as the CIIF block of shares.
9

Also impleaded as defendants in Civil Case No. 0033-F were several corporations alleged to have been under Cojuangcos control
and used by him to acquire the block of shares of SMC stock totaling 16,276,879 at the time of acquisition (representing
approximately 20% percent of the capital stock of SMC). These corporations are referred to as Cojuangco corporations or
companies, to distinguish them from the CIIF Oil Mills. Reference hereafter to Cojuangco and the Cojuangco corporations or
companies shall be as Cojuangco, et al., unless the context requires individualization.
10

The material averments of the Republics Third Amended Complaint (Subdivided) in Civil Case No. 0033-F included the following:
12. Defendant Eduardo Cojuangco, Jr., served as a public officer during the Marcos administration. During the period of his
incumbency as a public officer, he acquired assets, funds, and other property grossly and manifestly disproportionate to his
salaries, lawful income and income from legitimately acquired property.
13. Having fully established himself as the undisputed "coconut king" with unlimited powers to deal with the coconut levy
funds, the stage was now set for Defendant Eduardo M. Cojuangco, Jr. to launch his predatory forays into almost all aspects
of Philippine economic activity namely: softdrinks, agribusiness, oil mills, shipping, cement manufacturing, textile, as more
fully described below.

14. Defendant Eduardo Cojuangco, Jr. taking undue advantage of his association, influence and connection, acting in
unlawful concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos, and the individual defendants, embarked
upon devices, schemes and stratagems, including the use of defendant corporations as fronts, to unjustly enrich themselves
at the expense of Plaintiff and the Filipino people, such as when he misused coconut levy funds to buy out majority of the
outstanding shares of stock of San Miguel Corporation in order to control the largest agri-business, foods and beverage
company in the Philippines, more particularly described as follows:
(b) He entered SMC in early 1983 when he bought most of the 20 million shares Enrique Zobel owned in the
Company. The shares, worth $49 million, represented 20% of SMC;
(c) Later that year, Cojuangco also acquired the Soriano stocks through a series of complicated and secret
agreements, a key feature of which was a "voting trust agreement" that stipulated that Andres, Jr. or his heir
would proxy over the vote of the shares owned by Soriano and Cojuangco. This agreement, which accounted for
30% of the outstanding shares of SMC and which lasted for five (5) years, enabled the Sorianos to retain
management control of SMC for the same period;
(d) Furthermore, in exchange for an SMC investment of $45 million in non-voting preferred shares in UCPB,
Soriano served as the vice-chairman of the supposed bank of the coconut farmers, UCPB, and in return, Cojuangco,
for investing funds from the coconut levy, was named vice-chairman of SMC;
(e) Consequently, Cojuangco enjoyed the privilege of appointing his nominees to the SMC Board, to which he
appointed key members of the ACCRA Law Firm (herein Defendants) instead of coconut farmers whose money
really funded the sale;
(f) The scheme of Cojuangco to use the lawyers of the said Firm was revealed in a document which he signed on 19
February 1983 entitled "Principles and Framework of Mutual Cooperation and Assistance" which governed the
rules for the conduct of management of SMC and the disposition of the shares which he bought.
(g) All together, Cojuangco purchased 33 million shares of the SMC through the following 14 holding companies:
a) Soriano Shares, Inc.

1,249,163

b) ASC Investors, Inc.

1,562,449

c) Roxas Shares, Inc.

2,190,860

d) ARC Investors, Inc.

4,431,798

e) Toda Holdings, Inc.

3,424,618

f) AP Holdings, Inc.

1,580,997

g) Fernandez Holdings, Inc.

838,837

h) SMC Officers Corps., Inc.

2,385,987

i) Te Deum Resources, Inc.

2,674,899

j) Anglo Ventures Corp.

1,000.000

k) Randy Allied Ventures, Inc.

1,000,000

l) Rock Steel Resources, Inc.

2,432,625

m) Valhalla Properties Ltd., Inc.

1,361,033

n) First Meridian Development, Inc.

1,000,000
33,133,266

3.1. The same fourteen companies were in turn owned by the following six (6) so-called CIIF Companies which
were:
a) San Pablo Manufacturing Corp.

19%

b) Southern Luzon Coconut Oil Mills, Inc.

11%

c) Granexport Manufacturing Corporation

19%

d) Legaspi Oil Company, Inc.

18%

e) Cagayan de Oro Oil Company, Inc.

18%

f) Iligan Coconut Industries, Inc.

15%
100%

(h) Defendant Corporations are but "shell" corporations owned by interlocking shareholders who have previously
admitted that they are just "nominee stockholders" who do not have any proprietary interest over the shares in
their names. The respective affidavits of the following, namely: Jose C. Concepcion, Florentino M. Herrera III,
Teresita J. Herbosa, Teodoro D. Regala, Victoria C. de los Reyes, Manuel R. Roxas, Rogelio A. Vinluan, Eduardo U.
Escuete and Franklin M. Drilon, who were all, at the time they became such stockholders, lawyers of the Angara
Abello Concepcion Regala & Cruz (ACCRA) Law Offices, the previous counsel who incorporated said corporations,
prove that they were merely nominee stockholders thereof.
(i) Mr. Eduardo M. Cojuangco, Jr., acquired a total of 16,276,879 shares of San Miguel Corporation from the Ayala
group: of said shares, a total of 8,138,440 (broken into 7,128,227 Class A and 1,010,213 Class B shares) were
placed in the names of Meadowlark Plantations, Inc. (2,034,610) and Primavera Farms, Inc. (4,069,220). The
Articles of Incorporation of these three companies show that Atty. Jose C. Concepcion of ACCRA owns 99.6% of the
entire outstanding stock. The same shareholder executed three (3) separate "Declaration of Trust and Assignment
of Subscription:" in favor of a BLANK assignee pertaining to his shareholdings in Primavera Farms, Inc., Silver Leaf
Plantations, Inc. and Meadowlark Plantations, Inc.
(k) The other respondent Corporations are owned by interlocking shareholders who are likewise lawyers in the
ACCRA Law Offices and had admitted their status as "nominee stockholders" only.
(k-1) The corporations: Agricultural Consultancy Services, Inc., Archipelago Realty Corporation, Balete
Ranch, Inc., Black Stallion Ranch, Inc., Discovery Realty Corporation, First United Transport, Inc., Kaunlaran
Agricultural Corporation, LandAir International Marketing Corporation, Misty Mountains Agricultural
Corporation, Pastoral Farms, Inc., Oro Verde Services, Inc. Radyo Filipino Corporation, Reddee Developers,
Inc., Verdant Plantations, Inc. and Vesta Agricultural Corporation, were incorporated by lawyers of ACCRA
Law Offices.
(k-2) With respect to PCY Oil Manufacturing Corporation and Metroplex Commodities, Inc., they are
controlled respectively by HYCO, Inc. and Ventures Securities, Inc., both of which were incorporated
likewise by lawyers of ACCRA Law Offices.
(k-3) The stockholders who appear as incorporators in most of the other Respondents corporations are
also lawyers of the ACCRA Law Offices, who as early as 1987 had admitted under oath that they were
acting only as "nominee stockholders."
(l) These companies, which ACCRA Law Offices organized for Defendant Cojuangco to be able to control more than
60% of SMC shares, were funded by institutions which depended upon the coconut levy such as the UCPB,
UNICOM, United Coconut Planters Assurance Corp. (COCOLIFE), among others. Cojuangco and his ACCRA lawyers
used the funds from 6 large coconut oil mills and 10 copra trading companies to borrow money from the UCPB and
purchase these holding companies and the SMC stocks. Cojuangco used $150 million from the coconut levy,
broken down as follows:

Amount
(in million)

Source

Purpose

$22.26

Oil Mills equity in holding companies

$65.6

Oil Mills loan to holding companies

$61.2

UCPB

loan to holding companies [164]

The entire amount, therefore, came from the coconut levy, some passing through the Unicom Oil mills, others
directly from the UCPB.
(m) With his entry into the said Company, it began to get favors from the Marcos government, significantly the
lowering of the excise taxes (sales and specific taxes) on beer, one of the main products of SMC.
(n) Defendant Cojuangco controlled SMC from 1983 until his co-defendant Marcos was deposed in 1986.
(o) Along with Cojuangco, Defendant Enrile and ACCRA also had interests in SMC, broken down as follows:
% of SMC
Cojuangco
31.3%

Owner
coconut levy money

18%

companies linked to Cojuangco

5.2%

government

5.2%

SMC employee retirement fund

Enrile & ACCRA

1.8%

Enrile

1.8%

Jaka Investment Corporation

1.8%

ACCRA Investment Corporation

15. Defendants Eduardo Cojuangco, Jr., Edgardo J. Angara, Jose C. Concepcion, Teodoro Regala, Avelino Cruz, Rogelio
Vinluan, Eduardo U. Escueta and Paraja G. Hayudini of the Angara Concepcion Cruz Regala and Abello law offices (ACCRA)
plotted, devised, schemed, conspired and confederated with each other in setting up, through the use of coconut levy
funds, the financial and corporate framework and structures that led to the establishment of UCPB, UNICOM, COCOLIFE,
COCOMARK. CIC, and more than twenty other coconut levy-funded corporations, including the acquisition of San Miguel
Corporation shares and its institutionalization through presidential directives of the coconut monopoly. Through insidious
means and machinations, ACCRA, being the wholly-owned investment arm, ACCRA Investments Corporation, became the
holder of approximately fifteen million shares representing roughly 3.3% of the total outstanding capital stock of UCPB as of
31 March 1987. This ranks ACCRA Investments Corporation number 44 among the top 100 biggest stockholders of UCPB
which has approximately 1,400,000 shareholders. On the other hand, the corporate books show the name Edgardo J.
Angara as holding approximately 3,744 shares as of February, 1984.
16. The acts of Defendants, singly or collectively, and/or in unlawful concert with one another, constitute gross abuse of
official position and authority, flagrant breach of public trust and fiduciary obligations, brazen abuse of right and power,
unjust enrichment, violation of the constitution and laws of the Republic of the Philippines, to the grave and irreparable
11
damage of Plaintiff and the Filipino people.
On June 17, 1999, Ursua and Enrile each filed his separate Answer with Compulsory Counterclaims.
Before filing their answer, the ACCRA lawyers sought their exclusion as defendants in Civil Case No. 0033, averring that even as they
admitted having assisted in the organization and acquisition of the companies included in Civil Case No. 0033, they had acted as
mere nominees-stockholders of corporations involved in the sequestration proceedings pursuant to office practice. After the
Sandiganbayan denied their motion, they elevated their cause to this Court, which ultimately ruled in their favor in the related cases
12
13
of Regala, et al. v. Sandiganbayan, et al. and Hayudini v. Sandiganbayan, et al., as follows:

WHEREFORE, IN VIEW OF THE FOREGOING, the Resolutions of respondent Sandiganbayan (First Division) promulgated on March 18,
1992 and May 21, 1992 are hereby ANNULLED and SET ASIDE. Respondent Sandiganbayan is further ordered to exclude petitioners
Teodoro D. Regala, Edgardo J. Angara, Avelino V. Cruz, Jose C. Concepcion, Victor P. Lazatin, Eduardo U. Escueta and Paraja G.
Hayudini as parties-defendants in SB Civil Case No. 0033 entitled "Republic of the Philippines v. Eduardo Cojuangco, Jr., et al."
SO ORDERED.
Conformably with the ruling, the Sandiganbayan excluded the ACCRA lawyers from the case on May 24, 2000.

14

15

On June 23, 1999, Cojuangco filed his Answer to the Third Amended Complaint, averring the following affirmative defenses, to wit:
7.00. The Presidential Commission on Good Government (PCGG) is without authority to act in the name and in behalf of the
"Republic of the Philippines".
7.01. As constituted in E.O. No. 1, the PCGG was composed of "Minister Jovito R. Salonga, as Chairman, Mr. Ramon Diaz,
Mr. Pedro L. Yap, Mr. Raul Daza and Ms. Mary Concepcion Bautista, as Commissioners". When the complaint in the instant
case was filed, Minister Salonga, Mr. Pedro L. Yap and Mr. Raul Daza had already left the PCGG. By then the PCGG had
become functus officio.
7.02. The Sandiganbayan has no jurisdiction over the complaint or over the transaction alleged in the complaint.
7.03. The complaint does not allege any cause of action.
7.04. The complaint is not brought in the name of the real parties in interest, assuming any cause of action exists.
7.05. Indispensable and necessary parties have not been impleaded.
7.06. There is improper joinder of causes of action (Sec. 6, Rule 2, Rules of Civil Procedure). The causes of action alleged, if
any, do not arise out of the same contract, transaction or relation between the parties, nor are they simply for money, or
are of the same nature and character.
7.07. There is improper joinder of parties defendants (Sec. 11, Rule 3, Rules of Civil Procedure).The causes of action alleged
as to defendants, if any, do not involve a single transaction or a related series of transactions. Defendant is thus compelled
to litigate in a suit regarding matters as to which he has no involvement. The questions of fact and law involved are not
common to all defendants.
7.08. In so far as the complaint seeks the forfeiture of assets allegedly acquired by defendant "manifestly out of proportion
to their salaries, to their other lawful income and income from legitimately acquired property," under R.A. 1379, the
"previous inquiry similar to preliminary investigation in criminal cases" required to be conducted under Sec. 2 of that law
before any suit for forfeiture may be instituted, was not conducted; as a consequence, the Court may not acquire and
exercise jurisdiction over such a suit.
7.09. The complaint in the instant suit was filed July 31, 1987, or within one year before the local election held on January
18, 1988. If this suit involves an action under R.A. 1379, its institution was also in direct violation of Sec. 2, R.A. No. 1379.
7.10. E.O. No. 1, E.O. No. 2, E.O. No. 14 and 14-A, are unconstitutional. They violate due process, equal protection, ex post
facto and bill of attainder provisions of the Constitution.
7.11. Acts imputed to defendant which he had committed were done pursuant to law and in good faith.
16

The Cojuangco corporations Answer had the same tenor as the Answer of Cojuangco.
17

In his own Answer with Compulsory Counterclaims, Ursua averred affirmative and special defenses.
18

In his own Answer with Compulsory Counterclaims, Enrile specifically denied the material averments of the Third Amended
Complaint and asserted affirmative defenses.

19

The CIIF Oil Mills Answer also contained affirmative defenses.

On December 20, 1999, the Sandiganbayan scheduled the pre-trial in Civil Case No. 0033-F on March 8, 2000, giving the parties
sufficient time to file their Pre-Trial Briefs prior to that date. Subsequently, the parties filed their respective Pre-Trial Briefs, as
follows: Cojuangco and the Cojuangco corporations, jointly on February 14, 2000; Enrile, on March 1, 2000; the CIIF Oil Mills, on
March 3, 2000; and Ursua, on March 6, 2000. However, the Republic sought several extensions to file its own Pre-Trial Brief, and
eventually did so on May 9, 2000.
In the meanwhile, some non-parties sought to intervene. On November 22, 1999, GABAY Foundation, Inc. (GABAY) filed its
complaint-in-intervention. On February 24, 2000, the Philippine Coconut Producers Federation, Inc., Maria Clara L. Lobregat, Jose R.
Eleazar, Jr., Domingo Espina, Jose Gomez, Celestino Sabate, Manuel del Rosario, Jose Martinez, Jr., and Eladio Chato (collectively
referred to as COCOFED, considering that the co-intervenors were its officers) also sought to intervene, citing the October 2, 1989
ruling in G.R. No. 75713 entitled COCOFED v. PCGG whereby the Court recognized COCOFED as the "private national association of
coconut producers certified in 1971 by the PHILCOA as having the largest membership among such producers" and as such
"entrusted it with the task of maintaining continuing liaison with the different sectors of the industry, the government and its mass
base." Pending resolution of its motion for intervention, COCOFED filed a Pre-Trial Brief on March 2, 2000.
On May 24, 2000, the Sandiganbayan denied GABAYs intervention without prejudice because it found "that the allowance of GABAY
to enter under the special character in which it presents itself would be to open the doors to other groups of coconut farmers
whether of the same kind or of any other kind which could be considered a sub-class or a sub-classification of the coconut planters
20
or the coconut industry of this country."
COCOFEDs intervention as defendant was allowed on May 24, 2000, however, because "the position taken by the COCOFED is
relevant to the proceedings herein, if only to state that there is a special function which the COCOFED and the coconut planters have
21
in the matter of the coconut levy funds and the utilization of those funds, part of which is in dispute in the instant matter."
22

The pre-trial was actually held on May 24, 2000, during which the Sandiganbayan sought clarification from the parties, particularly
the Republic, on their respective positions, but at the end it found the clarifications "inadequately" enlightening. Nonetheless, the
Sandiganbayan, not disposed to reset, terminated the pre-trial:
xxx primarily because the Court is given a very clear impression that the plaintiff does not know what documents will be or whether
they are even available to prove the causes of action in the complaint. The Court has pursued and has exerted every form of inquiry
to see if there is a way by which the plaintiff could explain in any significant particularity the acts and the evidence which will
23
support its claim of wrong-doing by the defendants. The plaintiff has failed to do so.
24

The following material portions of the pre-trial order are quoted to provide a proper perspective of what transpired during the pretrial, to wit:
Upon oral inquiry from the Court, the issues which were being raised by plaintiff appear to have been made on a very generic
character. Considering that any claim for violation or breach of trust or deception cannot be made on generic statements but rather
by specific acts which would demonstrate fraud or breach of trust or deception, together with the evidence in support thereof, the
same was not acceptable to the Court.
The plaintiff through its designated counsel for this morning, Atty. Dennis Taningco, has represented to this Court that the annexes
to its pre-trial brief, more particularly the findings of the COA in its various examinations, copies of which COA reports are attached
to the pre-trial brief, would demonstrate the wrong, the act or omission attributed to the defendants or to several of them and the
basis, therefore, for the relief that plaintiff seeks in its complaint. It would appear, however, that the plaintiff through its counsel at
this time is not prepared to go into the specifics of the identification of these wrongs or omissions attributed to plaintiff.
The Court has reminded the plaintiff that a COA report proves itself only in proceedings where the issue arises from a review of the
accountability of particular officers and, therefore, to show the existence of shortages or deficiencies in an examination conducted
for that purpose, provided that such a report is accompanied by its own working papers and other supporting documents.
In civil cases such as this, a COA report would not have the same independent probative value since it is not a review of the
accountability of public officers for public property in their custody as accountable officers. It has been the stated view of this Court
that a COA report, to be of significant evidence, may itself stand only on the basis of the supporting documents that upon which it is
based and upon an analysis made by those who are competent to do so. The Court, therefore, sought a more specific statement

from plaintiff as to what these documents were and which of them would prove a particular act or omission or a series of acts or
omissions purportedly committed by any, by several or by all of the defendants in any particular stage of the chain of alleged wrongdoing in this case.
The plaintiff was not in a position to do so.
The Court has remonstrated with the plaintiff, insofar as its inadequacy is concerned, primarily because this case was set for pre-trial
as far back as December and has been reset from its original setting, with the undertaking by the plaintiff to prepare itself for these
proceedings. It appears to this Court at this time that the failure of the plaintiff to have available responses and specific data and
documents at this stage is not because the matter has been the product of oversight or notes and papers left elsewhere; rather, the
agitation of this Court arises from the fact that at this very stage, the plaintiff through its counsel does not know what these
documents are, where these documents will be and is still anticipating a submission or a delivery thereof by COA at an
undetermined time. The justification made by counsel for this stance is that this is only pre-trial and this information and the
documents are not needed yet.
The Court is not prepared to postpone the pre-trial anew primarily because the Court is given a very clear impression that the
plaintiff does not know what documents will be or whether they are even available to prove the causes of action in the complaint.
The Court has pursued and has exerted every form of inquiry to see if there is a way by which the plaintiff could explain in any
significant particularity the acts and the evidence which will support its claim of wrong-doing by the defendants. The plaintiff has
failed to do so.
Defendants Cojuangco have come back and reiterated their previous inquiry as to the statement of the cause of action and the
description thereof. While the Court acknowledges that logically, that statement along that line would be primary, the Court also
recognizes that sometimes the phrasing of the issue may be determined or may arise after a statement of the evidence is
determined by this Court because the Court can put itself in a position of more clearly and perhaps more accurately stating what the
issues are. The Pre-Trial Order, after all, is not so much a reflection of merely separate submissions by all of the parties involved,
witnesses by the Court, as to what the subject matter of litigation will be, including the determination of what matters of fact remain
unresolved. At this time, the plaintiff has not taken the position on any factual statement or any piece of evidence which can be
subject of admission or denial, nor any specifics of any act which could be disputed by the defendants; what plaintiff through
counsel has stated are general conclusions, general statements of abuse and misuse and opportunism.
After an extended break requested by some of the parties, the sessions were resumed and nothing anew arose from the plaintiff.
The plaintiff sought fifteen (15) days to file a reply to the comments and observations made by defendant Cojuangco to the pre-trial
brief of the plaintiff. This Court denied this Request since the submissions in preparation for pre-trial are not litigious or contentious
matters. They are mere assertions or positions which may or may not be meritorious depending upon the view of the Court of the
entire case and if useful at the pre-trial. At this stage, the plaintiff then reiterated its earlier request to consider the pre-trial
terminated. The Court sought the positions of the other parties, whether or not they too were prepared to submit their respective
positions on the basis of what was before the Court at pre-trial. All of the parties, in the end, have come to an agreement that they
were submitting their own respective positions for purpose of pre-trial on the basis of the submissions made of record.
With all of the above, the pre-trial is now deemed terminated.
This Order has been overly extended simply because there has been a need to put on record all of the events that have taken place
leading to the conclusions which were drawn herein.
The parties have indicated a desire to make their submissions outside of trial as a consequence of this terminated pre-trial, with the
plea that the transcript of the proceedings this morning be made available to them, so that they may have the basis for whatever
assertions they will have to make either before this Court or elsewhere. The Court deems the same reasonable and the Court now
gives the parties fifteen (15) days after notice to them that the transcript of stenographic notes of the proceedings herein are
complete and ready for them to be retrieved. Settings for trial or for any other proceeding hereafter will be fixed by this Court either
upon request of the parties or when the Court itself shall have determined that nothing else has to be done.
The Court has sought confirmation from the parties present as to the accuracy of the recapitulation herein of the proceedings this
morning and the Court has gotten assent from all of the parties.
xxx

SO ORDERED.

25

In the meanwhile, the Sandiganbayan, in order to conform with the ruling in Presidential Commission on Good Government v.
26
Cojuangco, et al., resolved COCOFEDs Omnibus Motion (with prayer for preliminary injunction) relative to who should vote the
27
UCPB shares under sequestration, holding as follows:
In the light of all of the above, the Court submits itself to jurisprudence and with the statements of the Supreme Court in G.R. No.
115352 entitled Enrique Cojuangco, Jr., et al. vs. Jaime Calpo, et al. dated January 27, 1997, as well as the resolution of the Supreme
Court promulgated on January 27, 1999 in the case of PCGG vs. Eduardo Cojuangco, Jr., et al., G.R. No. 13319 which included the
Sandiganbayan as one of the respondents. In these two cases, the Supreme Court ruled that the voting of sequestered shares of
stock is governed by two considerations, namely:
1. whether there is prima facie evidence showing that the said shares are ill-gotten and thus belong to the State; and
2. whether there is an imminent danger of dissipation thus necessitating their continued sequestration and voting by the
PCGG while the main issue pends with the Sandiganbayan.
xxx

xxx

xxx

In view hereof, the movants COCOFED, et al and Ballares, et al. as well as Eduardo Cojuangco, et al. who were acknowledged to be
registered stockholders of the UCPB are authorized, as are all other registered stockholders of the United Coconut Planters Bank,
until further orders from this Court, to exercise their rights to vote their shares of stock and themselves to be voted upon in the
United Coconut Planters Bank (UCPB) at the scheduled Stockholders Meeting on March 6, 2001 or on any subsequent continuation
or resetting thereof, and to perform such acts as will normally follow in the exercise of these rights as registered stockholders.
xxx

xxx

xxx

Consequently, on March 1, 2001, the Sandiganbayan issued a writ of preliminary injunction to enjoin the PCGG from voting the
sequestered shares of stock of the UCPB.
On July 25, 2002, before Civil Case No. 0033-F could be set for trial, the Republic filed a Motion for Judgment on the Pleadings
28
and/or for Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and COCOFED, et al.).
Cojuangco, Enrile, and COCOFED separately opposed the motion. Ursua adopted COCOFEDs opposition.
Thereafter, the Republic likewise filed a Motion for Partial Summary Judgment [Re: Shares in San Miguel Corporation Registered in
29
the Respective Names of Defendant Eduardo M. Cojuangco, Jr. and the Defendant Cojuangco Companies].
30

Cojuangco, et al. opposed the motion, after which the Republic submitted its reply.

31

32

On February 23, 2004, the Sandiganbayan issued an order, in which it enumerated the admitted facts or facts that appeared to be
without substantial controversy in relation to the Republics Motion for Judgment on the Pleadings and/or for Partial Summary
Judgment [Re: Defendants CIIF Companies, 14 Holding Companies and COCOFED, et al.].
Commenting on the order of February 23, 2004, Cojuangco, et al. specified the items they considered as inaccurate, but particularly
interposed no objection to item no. 17 (to the extent that item no. 17 stated that Cojuangco had disclaimed any interest in the CIIF
33
block SMC shares of stock registered in the names of the 14 corporations listed in item no. 1 of the order).
34

The Republic also filed its Comment, but COCOFED denied the admitted facts summarized in the order of February 23, 2004.

35

36

Earlier, on October 8, 2003, the Sandiganbayan resolved the various pending motions and pleadings relative to the writs of
sequestration issued against the defendants, disposing:
IN VIEW OF THE FOREGOING, the Writs of Sequestration Nos. (a) 86-0042 issued on April 8, 1986, (b) 86-0062 issued on April 21,
1986, (c) 86-0069 issued on April 22, 1986, (d) 86-0085 issued on May 9, 1986, (e) 86-0095 issued on May 16, 1986, (f) 86-0096

dated May 16, 1986, (g) 86-0097 issued on May 16, 1986, (h) 86-0098 issued on May 16, 1986 and (i) 87-0218 issued on May 27,
1987 are hereby declared automatically lifted for being null and void.
Despite the lifting of the writs of sequestration, since the Republic continues to hold a claim on the shares which is yet to be
resolved, it is hereby ordered that the following shall be annotated in the relevant corporate books of San Miguel Corporation:
(1) any sale, pledge, mortgage or other disposition of any of the shares of the Defendants Eduardo Cojuangco, et al. shall be
subject to the outcome of this case;
(2) the Republic through the PCGG shall be given twenty (20) days written notice by Defendants Eduardo Cojuangco, et al.
prior to any sale, pledge, mortgage or other disposition of the shares;
(3) in the event of sale, mortgage or other disposition of the shares, by the Defendants Cojuangco, et al., the consideration
therefore, whether in cash or in kind, shall be placed in escrow with Land Bank of the Philippines, subject to disposition only
upon further orders of this Court; and
(4) any cash dividends that are declared on the shares shall be placed in escrow with the Land Bank of the Philippines,
subject to disposition only upon further orders of this Court. If in case stock dividends are declared, the conditions on the
sale, pledge, mortgage and other disposition of any of the shares as above-mentioned in conditions 1, 2 and 3, shall likewise
apply.
In so far as the matters raised by Defendants Eduardo Cojuangco, et al. in their "Omnibus Motion" dated September 23, 1996 and
"Reply to PCGGs Comment/Opposition with Motion to Order PCGG to Complete Inventory, to Nullify Writs of Sequestration and to
Enjoin PCGG from Voting Sequestered Shares of Stock" dated January 3, 1997, considering the above conclusion, this Court rules
that it is no longer necessary to delve into the matters raised in the said Motions.
SO ORDERED.

37

38

Cojuangco, et al. moved for the modification of the resolution, praying for the deletion of the conditions for allegedly restricting
39
their rights. The Republic also sought reconsideration of the resolution.
Eventually, on June 24, 2005, the Sandiganbayan denied both motions, but reduced the restrictions thuswise:
WHEREFORE, the "Motion for Reconsideration (Re: Resolution dated September 17, 2003 Promulgated on October 8, 2003)" dated
October 24, 2003 of Plaintiff Republic is hereby DENIED for lack of merit. As to the "Motion for Modification (Re: Resolution
Promulgated on October 8, 2003)" dated October 22, 2003, the same is hereby DENIED for lack of merit. However, the restrictions
imposed by this Court in its Resolution dated September 17, 2003 and promulgated on October 8, 2003 shall now read as follows:
"Despite the lifting of the writs of sequestration, since the Republic continues to hold a claim on the shares which is yet to be
resolved, it is hereby ordered that the following shall be annotated in the relevant corporate books of San Miguel Corporation:
"a) any sale, pledge, mortgage or other disposition of any of the shares of the Defendants Eduardo Cojuangco, et al. shall be subject
to the outcome of this case.
"b) the Republic through the PCGG shall be given twenty (20) days written notice by Defendants Eduardo Cojuangco, et al. prior to
any sale, pledge, mortgage or other disposition of the shares.
"SO ORDERED."

40

Pending resolution of the motions relative to the lifting of the writs of sequestration, SMC filed a Motion for Intervention with
41
attached Complaint-in-Intervention, alleging, among other things, that it had an interest in the matter in dispute between the
Republic and defendants CIIF Companies for being the owner by purchase of a portion (i.e., 25,450,000 SMC shares covered by Stock
Certificate Nos. A0004129 and B0015556 of the so-called "CIIF block of SMC shares of stock" sought to be recovered as alleged illgotten wealth).

42

Although Cojuangco, et al. interposed no objection to SMCs intervention, the Republic opposed, averring that the intervention
would be improper and was a mere attempt to litigate anew issues already raised and passed upon by the Supreme Court. COCOFED
43
similarly opposed SMCs intervention, and Ursua adopted its opposition.
44

45

On May 6, 2004, the Sandiganbayan denied SMCs motion to intervene. SMC sought reconsideration, and its motion to that effect
was opposed by COCOFED and the Republic.
On May 7, 2004, the Sandiganbyan granted the Republics Motion for Judgment on the Pleadings and/or Partial Summary Judgment
46
(Re: Defendants CIIF Companies, 14 Holding Companies and COCOFED, et al.) and rendered a Partial Summary Judgment, the
dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing, we hold that:
The Motion for Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and Cocofed, et al.) filed by
Plaintiff is hereby GRANTED. ACCORDINGLY, THE CIIF COMPANIES, NAMELY:
1. Southern Luzon Coconut Oil Mills (SOLCOM);
2. Cagayan de Oro Oil Co., Inc. (CAGOIL);
3. Iligan Coconut Industries, Inc. (ILICOCO);
4. San Pablo Manufacturing Corp. (SPMC);
5. Granexport Manufacturing Corp. (GRANEX); and
6. Legaspi Oil Co., Inc. (LEGOIL),
AS WELL AS THE 14 HOLDING COMPANIES, NAMELY:
1. Soriano Shares, Inc.;
2. ACS Investors, Inc.;
3. Roxas Shares, Inc.;
4. Arc Investors, Inc.;
5. Toda Holdings, Inc.;
6. AP. Holdings, Inc.;
7. Fernandez Holdings, Inc.;
8. SMC Officers Corps. Inc.;
9. Te Deum Resources, Inc.;
10. Anglo Ventures, Inc.;
11. Randy Allied Ventures, Inc.;
12. Rock Steel Resources, Inc.;
13. Valhalla Properties Ltd., Inc.; and

14. First Meridian Development, Inc.

AND THE CIIF BLOCK OF SAN MIGUEL CORPORATION (SMC) SHARES OF STOCK TOTALING 33,133,266 SHARES AS OF 1983 TOGETHER
WITH ALL DIVIDENDS DECLARED, PAID AND ISSUED THEREON AS WELL AS ANY INCREMENTS THERETO ARISING FROM, BUT NOT
LIMITED TO, EXERCISE OF PRE-EMPTIVE RIGHTS ARE DECLARED OWNED BY THE GOVERNMENT IN-TRUST FOR ALL THE COCONUT
FARMERS AND ORDERED RECONVEYED TO THE GOVERNMENT.
Let the trial of this Civil Case proceed with respect to the issues which have not been disposed of in this partial Summary Judgment,
including the determination of whether the CIIF Block of SMC Shares adjudged to be owned by the Government represents 27% of
the issued and outstanding capital stock of SMC according to plaintiff or 31.3% of said capital stock according to COCOFED, et al. and
Ballares, et al.
SO ORDERED.

47

In the same resolution of May 7, 2004, the Sandiganbayan considered the Motions to Dismiss filed by Cojuangco, et al. on August 2,
2000 and by Enrile on September 4, 2000 as overtaken by the Republics Motion for Judgment on the Pleadings and/or Partial
48
Summary Judgment.
On May 25, 2004, Cojuangco, et al. filed their Motion for Reconsideration.

49

COCOFED filed its so-called Class Action Omnibus Motion: (a) Motion to Dismiss for Lack of Subject Matter Jurisdiction and
50
Alternatively, (b) Motion for Reconsideration dated May 26, 2004.
The Republic submitted its Consolidated Comment.

51

52

Relative to the resolution of May 7, 2004, the Sandiganbayan issued its resolution of December 10, 2004, denying the Republics
Motion for Partial Summary Judgment (Re: Shares in San Miguel Corporation Registered in the Respective Names of Defendants
Eduardo M. Cojuangco, Jr. and the defendant Cojuangco Companies) upon the following reasons:
In the instant case, a circumspect review of the records show that while there are facts which appear to be undisputed, there are
also genuine factual issues raised by the defendants which need to be threshed out in a full-blown trial. Foremost among these
issues are the following:
1) What are the "various sources" of funds, which the defendant Cojuangco and his companies claim they utilized to acquire
the disputed SMC shares?
2) Whether or not such funds acquired from alleged "various sources" can be considered coconut levy funds;
3) Whether or not defendant Cojuangco had indeed served in the governing bodies of PC, UCPB and/or CIIF Oil Mills at the
time the funds used to purchase the SMC shares were obtained such that he owed a fiduciary duty to render an account to
these entities as well as to the coconut farmers;
4) Whether or not defendant Cojuangco took advantage of his position and/or close ties with then President Marcos to
obtain favorable concessions or exemptions from the usual financial requirements from the lending banks and/or coco-levy
funded companies, in order to raise the funds to acquire the disputed SMC shares; and if so, what are these favorable
concessions or exemptions?
Answers to these issues are not evident from the submissions of the plaintiff and must therefore be proven through the
presentation of relevant and competent evidence during trial. A perusal of the subject Motion shows that the plaintiff hastily
derived conclusions from the defendants statements in their previous pleadings although such conclusions were not supported by
categorical facts but only mere inferences. In the Reply dated October 2, 2003, the plaintiff construed the supposed meaning of the
phrase "various sources" (referring to the source of defendant Cojuangcos funds which were used to acquire the subject SMC
shares), which plaintiff said was quite obvious from the defendants admission in his Pre-Trial Brief, which we quote:
"According to Cojuangcos own Pre-Trial Brief, these so-called various sources, i.e., the sources from which he obtained the funds
he claimed to have used in buying the 20% SMC shares are not in fact various as he claims them to be. He says he obtained loans

from UCPB and advances from the CIIF Oil Mills. He even goes as far as to admit that his only evidence in this case would have been
records of UCPB and a representative of the CIIF Oil Mills obviously the records of UCPB relate to the loans that Cojuangco
claims to have obtained from UCPB of which he was President and CEO while the representative of the CIIF Oil Mills will
obviously testify on the advances Cojuangco obtained from CIIF Oil Mills of which he was also the President and CEO."
From the foregoing premises, plaintiff went on to conclude that:
"These admissions of defendant Cojuangco are outright admissions that he (1) took money from the bank entrusted by law with the
administration of coconut levy funds and (2) took more money from the very corporations/oil mills in which part of those coconut
levy funds (the CIIF) was placed treating the funds of UCPB and the CIIF as his own personal capital to buy his SMC shares."
We cannot agree with the plaintiffs contention that the defendants statements in his Pre-Trial Brief regarding the presentation of a
possible CIIF witness as well as UCPB records, can already be considered as admissions of the defendants exclusive use and misuse
of coconut levy funds to acquire the subject SMC shares and defendant Cojuangcos alleged taking advantage of his positions to
acquire the subject SMC shares. Moreover, in ruling on a motion for summary judgment, the court "should take that view of the
evidence most favorable to the party against whom it is directed, giving such party the benefit of all inferences." Inasmuch as this
issue cannot be resolved merely from an interpretation of the defendants statements in his brief, the UCPB records must be
produced and the CIIF witness must be heard to ensure that the conclusions that will be derived have factual basis and are thus,
valid.
WHEREFORE, in view of the forgoing, the Motion for Partial Summary Judgment dated July 11, 2003 is hereby DENIED for lack of
merit.
SO ORDERED.
53

Thereafter, on December 28, 2004, the Sandiganbayan resolved the other pending motions, viz:
WHEREFORE, in view of the foregoing, the Motion for Reconsideration dated May 25, 2004 filed by defendant Eduardo M.
Cojuangco, Jr., et al. and the Class Action Omnibus Motion: (a) Motion to Dismiss for Lack of Subject Matter Jurisdiction and
Alternatively, (b) Motion for Reconsideration dated May 26, 2004 filed by COCOFED, et al. and Ballares, et al. are hereby DENIED for
lack of merit.
SO ORDERED.

54

55

56

COCOFED moved to set the case for trial, but the Republic opposed the motion. On their part, Cojuangco, et al. also moved to set
57
58
the trial, with the Republic similarly opposing the motion.
On March 23, 2006, the Sandiganbayan granted the motions to set for trial and set the trial on August 8, 10, and 11, 2006.

59

In the meanwhile, on August 9, 2005, the Republic filed a Motion for Execution of Partial Summary Judgment (re: CIIF block of SMC
60
Shares of Stock), contending that an execution pending appeal was justified because any appeal by the defendants of the Partial
Summary Judgment would be merely dilatory.
Cojuangco, et al. opposed the motion.

61

The Sandiganbayan denied the Republics Motion for Execution of Partial Summary Judgment (re: CIIF block of SMC Shares of
62
Stock), to wit:
WHEREFORE, the MOTION FOR EXECUTION OF PARTIAL SUMMARY JUDGMENT (RE: CIIF BLOCK OF SMC SHARES OF STOCK) dated
August 8, 2005 of the plaintiff is hereby denied for lack of merit. However, this Court orders the severance of this particular claim of
Plaintiff. The Partial Summary Judgment dated May 7, 2004 is now considered a separate final and appealable judgment with
respect to the said CIIF Block of SMC shares of stock.
The Partial Summary Judgment rendered on May 7, 2004 is modified by deleting the last paragraph of the dispositive portion which
will now read, as follows:

WHEREFORE, in view of the foregoing, we hold that:

The Motion for Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and Cocofed, et al.) filed by
Plaintiff is hereby GRANTED. ACCORDINGLY, THE CIIF COMPANIES, NAMELY:
1. Southern Coconut Oil Mills (SOLCOM);
2. Cagayan de Oro Oil Co., Inc. (CAGOIL);
3. Iligan Coconut Industries, Inc. (ILICOCO);
4. San Pablo Manufacturing Corp. (SPMC);
5. Granexport Manufacturing Corp.
(GRANEX); and
6. Legaspi Oil Co., Inc. (LEGOIL),
AS WELL AS THE 14 HOLDING COMPANIES, NAMELY:
1. Soriano Shares, Inc.;
2. ACS Investors, Inc.;
3. Roxas Shares, Inc.;
4. Arc Investors, Inc.;
5. Toda Holdings, Inc.;
6. AP Holdings, Inc.;
7. Fernandez Holdings, Inc.;
8. SMC Officers Corps, Inc.;
9. Te Deum Resources, Inc.;
10. Anglo Ventures, Inc.;
11. Randy Allied Ventures, Inc.;
12. Rock Steel Resources, Inc.;
13. Valhalla Properties Ltd., Inc.; and
14. First Meridian Development, Inc.
AND THE CIIF BLOCK OF SAN MIGUEL CORPORATION (SMC) SHARES OF STOCK TOTALING 33,133,266 SHARES AS OF 1983 TOGETHER
WITH ALL DIVIDENDS DECLARED, PAID AND ISSUED THEREON AS WELL AS ANY INCREMENTS THERETO ARISING FROM, BUT NOT
LIMITED TO, EXERCISE OF PRE-EMPTIVE RIGHTS ARE DECLARED OWNED BY THE GOVERNMENT IN TRUST FOR ALL THE COCONUT
FARMERS AND ORDERED RECONVEYED TO THE GOVERNMENT.

The aforementioned Partial Summary Judgment is now deemed a separate appealable judgment which finally disposes of the
ownership of the CIIF Block of SMC Shares, without prejudice to the continuation of proceedings with respect to the remaining
claims particularly those pertaining to the Cojuangco, et al. block of SMC shares.
SO ORDERED.

63

During the pendency of the Republics motion for execution, Cojuangco, et al. filed a Motion for Authority to Sell San Miguel
Corporation (SMC) shares, praying for leave to allow the sale of SMC shares to proceed, exempted from the conditions set forth in
64
the resolutions promulgated on October 3, 2003 and June 24, 2005. The Republic opposed, contending that the requested leave to
65
sell would be tantamount to removing jurisdiction over the res or the subject of litigation.
However, the Sandiganbayan eventually granted the Motion for Authority to Sell San Miguel Corporation (SMC) shares.

66

Thereafter, Cojuangco, et al. manifested to the Sandiganbayan that the shares would be sold to the San Miguel Corporation
67
Retirement Plan. Ruling on the manifestations of Cojuangco, et al., the Sandiganbayan issued its resolution of July 30, 2007
allowing the sale of the shares, to wit:
This notwithstanding however, while the Court exempts the sale from the express condition that it shall be subject to the outcome
of the case, defendants Cojuangco, et al. may well be reminded that despite the deletion of the said condition, they cannot transfer
to any buyer any interest higher than what they have. No one can transfer a right to another greater than what he himself has.
Hence, in the event that the Republic prevails in the instant case, defendants Cojuangco, et al. hold themselves liable to their
transferees-buyers, especially if they are buyers in good faith and for value. In such eventuality, defendants Cojuangco, et al. cannot
be shielded by the cloak of principle of caveat emptor because case law has it that this rule only requires the purchaser to exercise
such care and attention as is usually exercised by ordinarily prudent men in like business affairs, and only applies to defects which
are open and patent to the service of one exercising such care.
Moreover, said defendants Eduardo M. Cojuangco, et al. are hereby ordered to render their report on the sale within ten (10) days
from completion of the payment by the San Miguel Corporation Retirement Plan.
SO ORDERED.

68

Cojuangco, et al. later rendered a complete accounting of the proceeds from the sale of the Cojuangco block of shares of SMC stock,
69
informing that a total amount of P 4,786,107,428.34 had been paid to the UCPB as loan repayment.
It appears that the trial concerning the disputed block of shares was not scheduled because the consideration and resolution of the
aforecited motions for summary judgment occupied much of the ensuing proceedings.
70

At the hearing of August 8, 2006, the Republic manifested that it did not intend to present any testimonial evidence and asked for
the marking of certain exhibits that it would have the Sandiganbayan take judicial notice of. The Republic was then allowed to mark
certain documents as its Exhibits A to I, inclusive, following which it sought and was granted time within which to formally offer the
exhibits.
On August 31, 2006, the Republic filed its Manifestation of Purposes (Re: Matters Requested or Judicial Notice on the 20% Shares in
San Miguel Corporation Registered in the Respective Names of defendant Eduardo M. Cojuangco, Jr. and the defendant Cojuangco
71
Companies).
72

On September 18, 2006, the Sandiganbayan issued the following resolution, to wit:
Acting on the Manifestation of Purposes (Re: Matters Requested or Judicial Notice on the 20% Shares in San Miguel Corporation
Registered in the Respective names of Defendant Eduardo M. Cojuangco, Jr. and the Defendant Cojuangco Companies) dated 28
August 2006 filed by the plaintiff, which has been considered its formal offer of evidence, and the Comment of Defendants Eduardo
M. Cojuangco, Jr., et al. on Plaintiffs "Manifestation of Purposes " Dated August 30, 2006 dated September 15, 2006, the court
resolves to ADMIT all the exhibits offered, i.e.:
Exhibit "A" the Answer of defendant Eduardo M. Cojuangco, Jr. to the Third Amended Complaint (Subdivided) dated
June 23, 1999, as well as the sub-markings (Exhibit "A-1" to "A-4";

 Exhibit "B" the "Pre-Trial Brief dated January 11, 2000 of defendant CIIF Oil Mills and fourteen (14) CIIF Holding
Companies, as well as the sub-markings Exhibits "B-1" and "B-2"
Exhibit "C" the Pre-Trial Brief dated January 11, 2000 of defendant Eduardo M. Cojuangco, Jr. as well as the submarkings Exhibits "C-1", "C-1-a" and "C-1-b";
Exhibit "D" the Plaintiffs Motion for Summary Judgment [Re: Shares in San Miguel Corporation Registered in the
Respective Names of Defendant Eduardo M. Cojuangco, Jr. and the Defendant Cojuangco Companies] dated July 11, 2003,
as well as the sub-markings Exhibits "D-1" to "D-4"
the said exhibits being part of the record of the case, as well as
Exhibit "E" Presidential Decree No. 961 dated July 11, 1976;
Exhibit "F" Presidential Decree No. 755 dated July 29, 1975;
Exhibit "G" Presidential Decree No. 1468 dated June 11, 1978;
Exhibit "H" Decision of the Supreme Court in Republic vs. COCOFED, et al., G.R. Nos. 147062-64, December 14, 2001,
372 SCRA 462
the aforementioned exhibits being matters of public record.
The admission of these exhibits is being made over the objection of the defendants Cojuangco, et al. as to the relevance thereof and
as to the purposes for which they were offered in evidence, which matters shall be taken into consideration by the Court in deciding
the case on the merits.
The trial hereon shall proceed on November 21, 2006, at 8:30 in the morning as previously scheduled.

73

74

During the hearing on November 24, 2006, Cojuangco, et al. filed their Submission and Offer of Evidence of Defendants, formally
offering in evidence certain documents to substantiate their counterclaims, and informing that they found no need to present
countervailing evidence because the Republics evidence did not prove the allegations of the Complaint. On December 5, 2006, after
75
the Republic submitted its Comment, the Sandiganbayan admitted the exhibits offered by Cojuangco, et al., and granted the
parties a non-extendible period within which to file their respective memoranda and reply-memoranda.
Thereafter, on February 23, 2007, the Sandiganbayan considered the case submitted for decision.

76

ISSUES
The various issues submitted for consideration by the Court are summarized hereunder.
G.R. No. 166859
77

The Republic came to the Court via petition for certiorari to assail the denial of its Motion for Partial Summary Judgment through
the resolution promulgated on December 10, 2004, insisting that the Sandiganbayan thereby committed grave abuse of discretion:
(a) in holding that the various sources of funds used in acquiring the SMC shares of stock remained disputed; (b) in holding that it
was disputed whether or not Cojuangco had served in the governing bodies of PCA, UCPB, and/or the CIIF Oil Mills; and (c) in not
finding that Cojuangco had taken advantage of his position and had violated his fiduciary obligations in acquiring the SMC shares of
stock in issue.
The Court will consider and resolve the issues thereby raised alongside the issues presented in G.R. No. 180702.
G.R. No. 169203
In the resolution promulgated on October 8, 2003, the Sandiganbayan declared as "automatically lifted for being null and void" nine
writs of sequestration (WOS) issued against properties of Cojuangco and Cojuangco companies, considering that: (a) eight of them

(i.e., WOS No. 86-0062 dated April 21, 1986; WOS No. 86-0069 dated April 22, 1986; WOS No. 86-0085 dated May 9, 1986; WOS No.
86-0095 dated May 16, 1986; WOS No. 86-0096 dated May 16, 1986; WOS No. 86-0097 dated May 16, 1986; WOS No. 86-0098
dated May 16, 1986; and WOS No. 87-0218 dated May 27, 1987) had been issued by only one PCGG Commissioner, contrary to the
requirement of Section 3 of the Rules of the PCGG for at least two Commissioners to issue the WOS; and (b) the ninth (i.e., WOS No.
86-0042 dated April 8, 1986), although issued prior to the promulgation of the Rules of the PCGG requiring at least two
Commissioners to issue the WOS, was void for being issued without prior determination by the PCGG of a prima facie basis for
sequestration.1avvphi1
Nonetheless, despite its lifting of the nine WOS, the Sandiganbayan prescribed four conditions to be still "annotated in the relevant
corporate books of San Miguel Corporation" considering that the Republic "continues to hold a claim on the shares which is yet to be
78
resolved."
In its resolution promulgated on June 24, 2005, the Sandiganbayan denied the Republics Motion for Reconsideration filed vis-a-vis
79
the resolution promulgated on October 8, 2003, but reduced the conditions earlier imposed to only two.
80

On September 1, 2005, the Republic filed a petition for certiorari to annul the resolutions promulgated on October 8, 2003 and on
June 24, 2005 on the ground that the Sandiganbayan had thereby committed grave abuse of discretion:
I.
XXX IN LIFTING WRIT OF SEQUESTRATION NOS. 86-0042 AND 87-0218 DESPITE EXISTENCE OF THE BASIC REQUISITES FOR THE
VALIDITY OF SEQUESTRATION.
II.
XXX WHEN IT DENIED PETITIONERS ALTERNATIVE PRAYER IN ITS MOTION FOR RECONSIDERATION FOR THE ISSUANCE OF AN ORDER
OF SEQUESTRATION AGAINST ALL THE SUBJECT SHARES OF STOCK IN ACCORDNCE WITH THE RULING IN REPUBLIC VS.
SANDIGANBAYAN, 258 SCRA 685 (1996).
III.
XXX IN SUBSEQUENTLY DELETING THE LAST TWO (2) CONDITIONS WHICH IT EARLIER IMPOSED ON THE SUBJECT SHARES OF STOCK.

81

G.R. No. 180702

82

On November 28, 2007, the Sandiganbayan promulgated its decision, decreeing as follows:
WHEREFORE, in view of all the foregoing, the Court is constrained to DISMISS, as it hereby DISMISSES, the Third Amended Complaint
in subdivided Civil Case No. 0033-F for failure of plaintiff to prove by preponderance of evidence its causes of action against
defendants with respect to the twenty percent (20%) outstanding shares of stock of San Miguel Corporation registered in
defendants names, denominated herein as the "Cojuangco, et al. block" of SMC shares. For lack of satisfactory warrant, the
counterclaims in defendants Answers are likewise ordered dismissed.
SO ORDERED.
Hence, the Republic appeals, positing:
I.
COCONUT LEVY FUNDS ARE PUBLIC FUNDS. THE SMC SHARES, WHICH WERE ACQUIRED BY RESPONDENTS COJUANGCO, JR.
AND THE COJUANGCO COMPANIES WITH THE USE OF COCONUT LEVY FUNDS IN VIOLATION OF RESPONDENT
COJUANGCO, JR.S FIDUCIARY OBLIGATION ARE, NECESSARILY, PUBLIC IN CHARACTER AND SHOULD BE RECONVEYED TO
THE GOVERNMENT.
II.

PETITIONER HAS CLEARLY DEMONSTRATED ITS ENTITLEMENT, AS A MATTER OF LAW, TO THE RELIEFS PRAYED FOR.

83

and urging the following issues to be resolved, to wit:

I.
WHETHER THE HONORABLE SANDIGANBAYAN COMMITTED A REVERSIBLE ERROR WHEN IT DISMISSED CIVIL CASE NO.
0033-F; AND
II.
WHETHER OR NOT THE SUBJECT SHARES IN SMC, WHICH WERE ACQUIRED BY, AND ARE IN THE RESPECTIVE NAMES OF
RESPONDENTS COJUANGCO, JR. AND THE COJUANGCO COMPANIES, SHOULD BE RECONVEYED TO THE REPUBLIC OF THE
84
PHILIPPINES FOR HAVING BEEN ACQUIRED USING COCONUT LEVY FUNDS.
85

On their part, the petitioners-in-intervention submit the following issues, to wit:

I
WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND DECIDED THE CASE A QUO IN VIOLATION OF LAW AND
APPLICABLE RULINGS OF THE HONORABLE COURT IN RULING THAT, WHILE ADMITTEDLY THE SUBJECT SMC SHARES WERE
PURCHASED FROM LOAN PROCEEDS FROM UCPB AND ADVANCES FROM THE CIIF OIL MILLS, SAID SUBJECT SMC SHARES
ARE NOT PUBLIC PROPERTY
II
WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND DECIDED THE CASE A QUO IN VIOLATION OF LAW AND
APPLICABLE RULINGS OF THE HONORABLE COURT IN FAILING TO RULE THAT, EVEN ASSUMING FOR THE SAKE OF
ARGUMENT THAT LOAN PROCEEDS FROM UCPB ARE NOT PUBLIC FINDS, STILL, SINCE RESPONDENT COJUANGCO, IN THE
PURCHASE OF THE SUBJECT SMC SHARES FROM SUCH LOAN PROCEEDS, VIOLATED HIS FIDUCIARY DUTIES AND TOOK A
COMMERCIAL OPPORTUNITY THAT RIGHTFULLY BELONGED TO UCPB (A PUBLIC CORPORATION), THE SUBJECT SMC SHARES
SHOULD REVERT BACK TO THE GOVERNMENT.
RULING
We deny all the petitions of the Republic.
I
Lifting of nine WOS for violation of PCGG Rules
did not constitute grave abuse of discretion
Through its resolution promulgated on June 24, 2005, assailed on certiorari in G.R. No. 169203, the Sandiganbayan lifted the nine
WOS for the following reasons, to wit:
Having studied the antecedent facts, this Court shall now resolve the pending incidents especially defendants "Motion to Affirm
that the Writs or Orders of Sequestration Issued on Defendants Properties Were Unauthorized, Invalid and Never Became Effective"
dated March 5, 1999.
Section 3 of the PCGG Rules and Regulations promulgated on April 11, 1986, provides:
"Sec. 3. Who may issue. A writ of sequestration or a freeze or hold order may be issued by the Commission upon the authority of
at least two Commissioners, based on the affirmation or complaint of an interested party or motu propio (sic) the issuance thereof is
warranted."

In this present case, of all the questioned writs of sequestration issued after the effectivity of the PCGG Rules and Regulations or
after April 11, 1986, only writ no. 87-0218 issued on May 27, 1987 complied with the requirement that it be issued by at least two
Commissioners, the same having been issued by Commissioners Ramon E. Rodrigo and Quintin S. Doromal. However, even if Writ of
Sequestration No. 87-0218 complied with the requirement that the same be issued by at least two Commissioners, the records fail
to show that it was issued with factual basis or with factual foundation as can be seen from the Certification of the Commission
Secretary of the PCGG of the excerpt of the minutes of the meeting of the PCGG held on May 26, 1987, stating therein that:
"The Commission approved the recommendation of Dir. Cruz to sequester all the shares of stock, assets, records, and documents of
Balete Ranch, Inc. and the appointment of the Fiscal Committee with ECI Challenge, Inc./Pepsi-Cola for Balete Ranch, Inc. and the
Aquacor Marketing Corp. vice Atty. S. Occena. The objective is to consolidate the Fiscal Committee activities covering three
associated entities of Mr. Eduardo Cojuangco.Upon recommendation of Comm. Rodrigo, the reconstitution of the Board of Directors
of the three companies was deferred for further study."
Nothing in the above-quoted certificate shows that there was a prior determination of a factual basis or factual foundation. It is the
absence of a prima facie basis for the issuance of a writ of sequestration and not the lack of authority of two (2) Commissioners
which renders the said writ void ab initio. Thus, being the case, Writ of Sequestration No. 87-0218 must be automatically lifted.
As declared by the Honorable Supreme Court in two cases it has decided,
"The absence of a prior determination by the PCGG of a prima facie basis for the sequestration order is, unavoidably, a fatal defect
which rendered the sequestration of respondent corporation and its properties void ab initio." And
"The corporation or entity against which such writ is directed will not be able to visually determine its validity, unless the required
signatures of at least two commissioners authorizing its issuance appear on the very document itself. The issuance of sequestration
orders requires the existence of a prima facie case. The two commissioner rule is obviously intended to assure a collegial
determination of such fact. In this light, a writ bearing only one signature is an obvious transgression of the PCGG Rules."
Consequently, the writs of sequestration nos. 86-0062, 86-0069, 86-0085, 86-0095, 86-0096, 86-0097 and 86-0098 must be lifted for
not having complied with the pertinent provisions of the PCGG Rules and Regulations, all of which were issued by only one
Commissioner and after April 11, 1986 when the PCGG Rules and Regulations took effect, an utter disregard of the PCGGs Rules and
Regulations. The Honorable Supreme Court has stated that:
"Obviously, Section 3 of the PCGG Rules was intended to protect the public from improvident, reckless and needless sequestrations
of private property. And since these Rules were issued by Respondent Commission, it should be the first entity to observe them."
Anent the writ of sequestration no. 86-0042 which was issued on April 8, 1986 or prior to the promulgation of the PCGG Rules and
Regulations on April 11, 1986, the same cannot be declared void on the ground that it was signed by only one Commissioner
because at the time it was issued, the Rules and Regulations of the PCGG were not yet in effect. However, it again appears that there
was no prior determination of the existence of a prima facie basis or factual foundation for the issuance of the said writ. The PCGG,
despite sufficient time afforded by this Court to show that a prima facie basis existed prior to the issuance of Writ No. 86-0042,
failed to do so. Nothing in the records submitted by the PCGG in compliance of the Resolutions and Order of this Court would reveal
that a meeting was held by the Commission for the purpose of determining the existence of a prima facieevidence prior to its
issuance. In a case decided by the Honorable Supreme Court, wherein it involved a writ of sequestration issued by the PCGG on
March 19, 1986 against all assets, movable and immovable, of Provident International Resources Corporation and Philippine Casino
Operators Corporation, the Honorable Supreme Court enunciated:
"The questioned sequestration order was, however issued on March 19, 1986, prior to the promulgation of the PCGG Rules and
Regulations. As a consequence, we cannot reasonably expect the commission to abide by said rules, which were nonexistent at the
time the subject writ was issued by then Commissioner Mary Concepcion Bautista. Basic is the rule that no statute, decree,
ordinance, rule or regulation (and even policies) shall be given retrospective effect unless explicitly stated so. We find no provision in
said Rules which expressly gives them retroactive effect, or implies the abrogation of previous writs issued not in accordance with
the same Rules. Rather, what said Rules provide is that they "shall be effective immediately," which in legal parlance, is understood
as "upon promulgation". Only penal laws are given retroactive effect insofar as they favor the accused.
We distinguish this case from Republic vs. Sandiganbayan, Romualdez and Dio Island Resort, G.R. No. 88126, July 12, 1996 where the
sequestration order against Dio Island Resort, dated April 14, 1986, was prepared, issued and signed not by two commissioners of

the PCGG, but by the head of its task force in Region VIII. In holding that said order was not valid since it was not issued in
accordance with PCGG Rules and Regulations, we explained:
"(Sec. 3 of the PCGG Rules and Regulations), couched in clear and simple language, leaves no room for interpretation. On the basis
thereof, it is indubitable that under no circumstances can a sequestration or freeze order be validly issued by one not a
commissioner of the PCGG.
xxx

xxx

xxx

Even assuming arguendo that Atty. Ramirez had been given prior authority by the PCGG to place Dio Island Resort under
sequestration, nevertheless, the sequestration order he issued is still void since PCGG may not delegate its authority to sequester to
its representatives and subordinates, and any such delegation is valid and ineffective."
We further said:
"In the instant case, there was clearly no prior determination made by the PCGG of a prima facie basis for the sequestration of Dio
Island Resort, Inc. x x x
xxx

xxx

xxx

The absence of a prior determination by the PCGG of a prima facie basis for the sequestration order is, unavoidably, a fatal defect
which rendered the sequestration of respondent corporation and its properties void ab initio. Being void ab initio, it is deemed
nonexistent, as though it had never been issued, and therefore is not subject to ratification by the PCGG.
What were obviously lacking in the above case were the basic requisites for the validity of a sequestration order which we laid down
in BASECO vs. PCGG, 150 SCRA 181, 216, May 27, 1987, thus:
"Section (3) of the Commissions Rules and regulations provides that sequestration or freeze (and takeover) orders issue upon the
authority of at least two commissioners, based on the affirmation or complaint of an interested party, or motu propio (sic) when the
Commission has reasonable grounds to believe that the issuance thereof is warranted."
In the case at bar, there is no question as to the presence of prima facie evidence justifying the issuance of the sequestration order
against respondent corporations. But the said order cannot be nullified for lack of the other requisite (authority of at least two
commissioners) since, as explained earlier, such requisite was nonexistent at the time the order was issued."
As to the argument of the Plaintiff Republic that Defendants Cojuangco, et al. have not shown any contrary prima facie proof that
the properties subject matter of the writs of sequestration were legitimate acquisitions, the same is misplaced. It is a basic legal
doctrine, as well as many times enunciated by the Honorable Supreme Court that when a prima facie proof is required in the
issuance of a writ, the party seeking such extraordinary writ must establish that it is entitled to it by complying strictly with the
requirements for its issuance and not the party against whom the writ is being sought for to establish that the writ should not be
issued against it.
According to the Republic, the Sandiganbayan thereby gravely abused its discretion in: (a) in lifting WOS No. 86-0042 and No. 870218 despite the basic requisites for the validity of sequestration being existent; (b) in denying the Republics alternative prayer for
the issuance of an order of sequestration against all the subject shares of stock in accordance with the ruling in Republic v.
Sandiganbayan, 258 SCRA 685, as stated in its Motion For Reconsideration; and (c) in deleting the last two conditions the
Sandiganbayan had earlier imposed on the subject shares of stock.
We sustain the lifting of the nine WOS for the reasons made extant in the assailed resolution of October 8, 2003, supra.
Section 3 of the Rules of the PCGG, promulgated on April 11, 1986, provides:
Section 3. Who may issue. A writ of sequestration or a freeze or hold order may be issued by the Commission upon the authority of
at least two Commissioners, based on the affirmation or complaint of an interested party or motu proprio when the Commission has
reasonable grounds to believe that the issuance thereof is warranted.

Conformably with Section 3, supra, WOS No. 86-0062 dated April 21, 1986; WOS No. 86-0069 dated April 22, 1986; WOS No. 860085 dated May 9, 1986; WOS No. 86-0095 dated May 16, 1986; WOS No. 86-0096 dated May 16, 1986; WOS No. 86-0097 dated
May 16, 1986; and WOS No. 86-0098 dated May 16, 1986 were lawfully and correctly nullified considering that only one PCGG
Commissioner had issued them.
Similarly, WOS No. 86-0042 dated April 8, 1986 and WOS No. 87-0218 dated May 27, 1987 were lawfully and correctly nullified
notwithstanding that WOS No. 86-0042, albeit signed by only one Commissioner (i.e., Commissioner Mary Concepcion Bautista), was
not at the time of its issuance subject to the two-Commissioners rule, and WOS No. 87-0218, albeit already issued under the
signatures of two Commissioners considering that both had been issued without a prior determination by the PCGG of a prima facie
basis for the sequestration.
Plainly enough, the irregularities infirming the issuance of the several WOS could not be ignored in favor of the Republic and
resolved against the persons whose properties were subject of the WOS. Where the Rules of the PCGG instituted safeguards under
Section 3, supra, by requiring the concurrent signatures of two Commissioners to every WOS issued and the existence of a prima
facie case of ill gotten wealth to support the issuance, the non-compliance with either of the safeguards nullified the WOS thus
issued. It is already settled that sequestration, due to its tendency to impede or limit the exercise of proprietary rights by private
citizens, is construed strictly against the State, conformably with the legal maxim that statutes in derogation of common rights are
86
generally strictly construed and rigidly confined to the cases clearly within their scope and purpose.
Consequently, the nullification of the nine WOS, being in implementation of the safeguards the PCGG itself had instituted, did not
constitute any abuse of its discretion, least of all grave, on the part of the Sandiganbayan.
Nor did the Sandiganbayan gravely abuse its discretion in reducing from four to only two the conditions imposed for the lifting of the
WOS. The Sandiganbayan thereby acted with the best of intentions, being all too aware that the claim of the Republic to the
sequestered assets and properties might be prejudiced or harmed pendente lite unless the protective conditions were annotated in
the corporate books of SMC. Moreover, the issue became academic following the Sandiganbayans promulgation of its decision
dismissing the Republics Amended Complaint, which thereby removed the stated reason "the Republic continues to hold a claim
on the shares which is yet to be resolved" underlying the need for the annotation of the conditions (whether four or two).
II
The Concept and Genesis of
Ill-Gotten Wealth in the Philippine Setting
A brief review of the Philippine law and jurisprudence pertinent to ill-gotten wealth should furnish an illuminating backdrop for
further discussion.
In the immediate aftermath of the peaceful 1986 EDSA Revolution, the administration of President Corazon C. Aquino saw to it,
among others, that rules defining the authority of the government and its instrumentalities were promptly put in place. It is
significant to point out, however, that the administration likewise defined the limitations of the authority.
The first official issuance of President Aquino, which was made on February 28, 1986, or just two days after the EDSA Revolution,
was Executive Order (E.O.) No. 1, which created the Presidential Commission on Good Government (PCGG). Ostensibly, E.O. No. 1
was the first issuance in light of the EDSA Revolution having come about mainly to address the pillage of the nations wealth by
President Marcos, his family, and cronies.
E.O. No. 1 contained only two WHEREAS Clauses, to wit:
WHEREAS, vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family,
relatives, and close associates both here and abroad;
WHEREAS, there is an urgent need to recover all ill-gotten wealth;
88

87

Paragraph (4) of E.O. No. 2 further required that the wealth, to be ill-gotten, must be "acquired by them through or as a result of
improper or illegal use of or the conversion of funds belonging to the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their official position, authority,

relationship, connection or influence to unjustly enrich themselves at the expense and to the grave damage and prejudice of the
Filipino people and the Republic of the Philippines."
Although E.O. No. 1 and the other issuances dealing with ill-gotten wealth (i.e., E.O. No. 2, E.O. No. 14, and E.O. No. 14-A) only
identified the subject matter of ill-gotten wealth and the persons who could amass ill-gotten wealth and did not include an explicit
definition of ill-gotten wealth, we can still discern the meaning and concept of ill-gotten wealth from the WHEREAS Clauses
themselves of E.O. No. 1, in that ill-gotten wealth consisted of the "vast resources of the government" amassed by "former President
Ferdinand E. Marcos, his immediate family, relatives and close associates both here and abroad." It is clear, therefore, that ill-gotten
wealth would not include all the properties of President Marcos, his immediate family, relatives, and close associates but only the
part that originated from the "vast resources of the government."
In time and unavoidably, the Supreme Court elaborated on the meaning and concept of ill-gotten wealth. In Bataan Shipyard &
89
Engineering Co., Inc. v. Presidential Commission on Good Government, or BASECO, for the sake of brevity, the Court held that:
xxx until it can be determined, through appropriate judicial proceedings, whether the property was in truth "ill-gotten," i.e., acquired
through or as a result of improper or illegal use of or the conversion of funds belonging to the Government or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of official position, authority,
relationship, connection or influence, resulting in unjust enrichment of the ostensible owner and grave damage and prejudice to the
90
State. And this, too, is the sense in which the term is commonly understood in other jurisdictions.
91

The BASECO definition of ill-gotten wealth was reiterated in Presidential Commission on Good Government v. Lucio C. Tan, where
the Court said:
On this point, we find it relevant to define "ill-gotten wealth." In Bataan Shipyard and Engineering Co., Inc., this Court described "illgotten wealth" as follows:
"Ill-gotten wealth is that acquired through or as a result of improper or illegal use of or the conversion of funds belonging to the
Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of
official position, authority, relationship, connection or influence, resulting in unjust enrichment of the ostensible owner and grave
damage and prejudice to the State. And this, too, is the sense in which the term is commonly understood in other jurisdiction."
Concerning respondents shares of stock here, there is no evidence presented by petitioner that they belong to the Government of
the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions. Nor is there evidence that
respondents, taking undue advantage of their connections or relationship with former President Marcos or his family, relatives and
close associates, were able to acquire those shares of stock.
92

Incidentally, in its 1998 ruling in Chavez v. Presidential Commission on Good Government, the Court rendered an identical
definition of ill-gotten wealth, viz:
xxx. We may also add that ill-gotten wealth, by its very nature, assumes a public character. Based on the aforementioned Executive
Orders, ill-gotten wealth refers to assets and properties purportedly acquired, directly or indirectly, by former President Marcos,
his immediate family, relatives and close associates through or as a result of their improper or illegal use of government funds or
properties; or their having taken undue advantage of their public office; or their use of powers, influence or relationships,
"resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the
Philippines."Clearly, the assets and properties referred to supposedly originated from the government itself. To all intents and
purposes, therefore, they belong to the people. As such, upon reconveyance they will be returned to the public treasury, subject
only to the satisfaction of positive claims of certain persons as may be adjudged by competent courts. Another declared overriding
consideration for the expeditious recovery of ill-gotten wealth is that it may be used for national economic recovery.
All these judicial pronouncements demand two concurring elements to be present before assets or properties were considered as illgotten wealth, namely: (a) they must have "originated from the government itself," and (b) they must have been taken by former
President Marcos, his immediate family, relatives, and close associates by illegal means.
But settling the sources and the kinds of assets and property covered by E.O. No. 1 and related issuances did not complete the
definition of ill-gotten wealth. The further requirement was that the assets and property should have been amassed by former
President Marcos, his immediate family, relatives, and close associates both here and abroad. In this regard, identifying former
President Marcos, his immediate family, and relatives was not difficult, but identifying other persons who might be the close

associates of former President Marcos presented an inherent difficulty, because it was not fair and just to include within the term
close associates everyone who had had any association with President Marcos, his immediate family, and relatives.
Again, through several rulings, the Court became the arbiter to determine who were the close associates within the coverage of E.O.
No. 1.
93

In Republic v. Migrio, the Court held that respondents Migrio, et al. were not necessarily among the persons covered by the
term close subordinate or close associate of former President Marcos by reason alone of their having served as government officials
or employees during the Marcos administration, viz:
It does not suffice, as in this case, that the respondent is or was a government official or employee during the administration of
former Pres. Marcos. There must be a prima facie showing that the respondent unlawfully accumulated wealth by virtue of his
close association or relation with former Pres. Marcos and/or his wife. This is so because otherwise the respondents case will fall
under existing general laws and procedures on the matter. xxx
94

In Cruz, Jr. v. Sandiganbayan, the Court declared that the petitioner was not a close associate as the term was used in E.O. No. 1
just because he had served as the President and General Manager of the GSIS during the Marcos administration.
95

In Republic v. Sandiganbayan, the Court stated that respondent Maj. Gen. Josephus Q. Ramas having been a Commanding General
of the Philippine Army during the Marcos administration "d[id] not automatically make him a subordinate of former President
Ferdinand Marcos as this term is used in Executive Order Nos. 1, 2, 14 and 14-A absent a showing that he enjoyed close association
with former President Marcos."
It is well to point out, consequently, that the distinction laid down by E.O. No. 1 and its related issuances, and expounded by
relevant judicial pronouncements unavoidably required competent evidentiary substantiation made in appropriate judicial
proceedings to determine: (a) whether the assets or properties involved had come from the vast resources of government, and (b)
whether the individuals owning or holding such assets or properties were close associates of President Marcos. The requirement of
competent evidentiary substantiation made in appropriate judicial proceedings was imposed because the factual premises for the
reconveyance of the assets or properties in favor of the government due to their being ill-gotten wealth could not be simply
96
assumed. Indeed, in BASECO, the Court made this clear enough by emphatically observing:
6. Governments Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the Governments plan "to recover all ill-gotten wealth."
Neither can there be any debate about the proposition that assuming the above described factual premises of the Executive Orders
and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from Marcos, his family and his
minions of the assets and properties involved, is not only a right but a duty on the part of Government.
But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling necessity that a
proper respect be accorded and adequate protection assured, the fundamental rights of private property and free enterprise which
are deemed pillars of a free society such as ours, and to which all members of that society may without exception lay claim.
xxx Democracy, as a way of life enshrined in the Constitution, embraces as its necessary components freedom of conscience,
freedom of expression, and freedom in the pursuit of happiness. Along with these freedoms are included economic freedom and
freedom of enterprise within reasonable bounds and under proper control. xxx Evincing much concern for the protection of
property, the Constitution distinctly recognizes the preferred position which real estate has occupied in law for ages. Property is
bound up with every aspect of social life in a democracy as democracy is conceived in the Constitution. The Constitution realizes the
indispensable role which property, owned in reasonable quantities and used legitimately, plays in the stimulation to economic effort
and the formation and growth of a solid social middle class that is said to be the bulwark of democracy and the backbone of every
progressive and happy country.
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly established by
adequate proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten wealth may be validly and properly
adjudged and consummated; although there are some who maintain that the fact that an immense fortune, and "vast resources

of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close
associates both here and abroad," and they have resorted to all sorts of clever schemes and manipulations to disguise and hide their
illicit acquisitions is within the realm of judicial notice, being of so extensive notoriety as to dispense with proof thereof. Be this as
it may, the requirement of evidentiary substantiation has been expressly acknowledged, and the procedure to be followed explicitly
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laid down, in Executive Order No. 14.
Accordingly, the Republic should furnish to the Sandiganbayan in proper judicial proceedings the competent evidence proving who
were the close associates of President Marcos who had amassed assets and properties that would be rightly considered as ill-gotten
wealth.
III.
Summary Judgment was not warranted;
The Republic should have adduced evidence
to substantiate its allegations against the Respondents
We affirm the decision of November 28, 2007, because the Republic did not discharge its burden as the plaintiff to establish by
preponderance of evidence that the respondents SMC shares were illegally acquired with coconut-levy funds.
The decision of November 28, 2007 fully explained why the Sandiganbayan dismissed the Republics case against Cojuangco, et al.,
viz:
Going over the evidence, especially the laws, i.e., P.D. No. 961, P.D. No. 755, and P.D. No. 1468, over which plaintiff prayed that
Court to take judicial notice of, it is worth noting that these same laws were cited by plaintiff when it filed its motion for judgment
on the pleadings and/or summary judgment regarding the CIIF block of SMC shares of stock. Thus, the Court has already passed
upon the same laws when it arrived at judgment determining ownership of the CIIF block of SMC shares of stock. Pertinently, in the
Partial Summary Judgment promulgated on May 7, 2004, the Court gave the following rulings finding certain provisions of the
above-cited laws to be constitutionally infirmed, thus:
In this case, Section 2(d) and Section 9 and 10, Article III, of P.D. Nos. 961 and 1468 mandated the UCPB to utilize the CIIF, an
accumulation of a portion of the CCSF and the CIDF, for investment in the form of shares of stock in corporations organized for the
purpose of engaging in the establishment and the operation of industries and commercial activities and other allied business
undertakings relating to coconut and other palm oils industry in all aspects. The investments made by UCPB in CIIF companies are
required by the said Decrees to be equitably distributed for free by the said bank to the coconut farmers (Sec. 10, P.D. No. 961 and
Sec. 10, P.D. No. 1468). The public purpose sought to be served by the free distribution of the shares of stock acquired with the use
of public funds is not evident in the laws mentioned. More specifically, it is not clear how private ownership of the shares of stock
acquired with public funds can serve a public purpose. The mode of distribution of the shares of stock also left much room for the
diversion of assets acquired through public funds into private uses or to serve directly private interests, contrary to the Constitution.
In the said distribution, defendants COCOFED, et al. and Ballares, et al. admitted that UCPB followed the administrative issuances of
PCA which we found to be constitutionally objectionable in our Partial Summary Judgment in Civil Case No. 0033-A, the pertinent
portions of which are quoted hereunder:
xxx

xxx

xxx

The distribution for free of the shares of stock of the CIIF Companies is tainted with the above-mentioned constitutional infirmities
of the PCA administrative issuances. In view of the foregoing, we cannot consider the provision of P.D. No. 961 and P.D. No. 1468
and the implementing regulations issued by the PCA as valid legal basis to hold that assets acquired with public funds have
legitimately become private properties.
The CIIF Companies having been acquired with public funds, the 14 CIIF-owned Holding Companies and all their assets, including the
CIIF Block of SMC Shares, being public in character, belong to the government. Even granting that the 14 Holding Companies
acquired the SMC Shares through CIIF advances and UCPB loans, said advances and loans are still the obligations of the said
companies. The incorporating equity or capital of the 14 Holding Companies, which were allegedly used also for the acquisition of
the subject SMC shares, being wholly owned by the CIIF Companies, likewise form part of the coconut levy funds, and thus belong to
the government in trust for the ultimate beneficiaries thereof, which are all the coconut farmers.

xxx

xxx

xxx

And, with the above-findings of the Court, the CIIF block of SMC shares were subsequently declared to be of public character and
should be reconveyed to the government in trust for coconut farmers. The foregoing findings notwithstanding, a question now
arises on whether the same laws can likewise serve as ultimate basis for a finding that the Cojuangco, et al. block of SMC shares are
also imbued with public character and should rightfully be reconveyed to the government.
On this point, the Court disagrees with plaintiff that reliance on said laws would suffice to prove that defendants Cojuangco, et al.s
acquisition of SMC shares of stock was illegal as public funds were used. For one, plaintiffs reliance thereon has always had
reference only to the CIIF block of shares, and the Court has already settled the same by going over the laws and quoting related
findings in the Partial Summary judgment rendered in Civil Case No. 0033-A. For another, the allegations of plaintiff pertaining to the
Cojuangco block representing twenty percent (20%) of the outstanding capital stock of SMC stress defendant Cojuangcos
acquisition by virtue of his positions as Chief Executive Officer of UCPB, a member-director of the Philippine Coconut Authority (PCA)
Governing Board, and a director of the CIIF Oil Mills. Thus, reference to the said laws would not settle whether there was abuse on
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the part of defendants Cojuangco, et al. of their positions to acquire the SMC shares.
Besides, in the Resolution of the Court on plaintiffs Motion for Parial Summary Judgment (Re: Shares in San Miguel Corporation
Registered in the Respective Names of Defendants Eduardo M. Cojuangco, Jr. and the defendant Cojuangco Companies), the Court
already rejected plaintiffs reference to said laws. In fact, the Court declined to grant plaintiffs motion for partial summary judgment
because it simply contended that defendant Cojuangcos statements in his pleadings, which plaintiff again offered in evidence
herein, regarding the presentation of a possible CIIF witness as well as UCPB records can already be considered admissions of
defendants exclusive use and misuse of coconut levy funds. In the said resolution, the Court already reminded plaintiff that the
issues cannot be resolved by plaintiffs interpretation of defendant Cojuangcos statements in his brief. Thus, the substantial portion
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of the Resolution of the Court denying plaintiffs motion for partial summary judgment is again quoted for emphasis:
We cannot agree with the plaintiffs contention that the defendants statements in his Pre-Trial Brief regarding the presentation of a
possible CIIF witness as well as UCPB records, can already be considered as admissions of the defendants exclusive use and misuse
of coconut levy funds to acquire the subject SMC shares and defendant Cojuangcos alleged taking advantage of his positions to
acquire the subject SMC shares. Moreover, in ruling on a motion for summary judgment, the court "should take that view of the
evidence most favorable to the party against whom it is directed, giving such party the benefit of all favorable inferences." Inasmuch
as this issue cannot be resolved merely from an interpretation of the defendants statements in his brief, the UCPB records must be
produced and the CIIF witness must be heard to ensure that the conclusions that will be derived have factual basis and are thus,
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valid.
WHEREFORE, in view of the foregoing, the Motion for Partial Summary Judgment dated July 11, 2003 is hereby DENIED for lack of
merit.
SO ORDERED.
(Emphasis supplied)
Even assuming that, as plaintiff prayed for, the Court takes judicial notice of the evidence it offered with respect to the Cojuangco
block of SMC shares of stock, as contained in plaintiffs manifestation of purposes, still its evidence do not suffice to prove the
material allegations in the complaint that Cojuangco took advantage of his positions in UCPB and PCA in order to acquire the said
shares. As above-quoted, the Court, itself, has already ruled, and hereby stress that "UCPB records must be produced and the CIIF
witness must be heard to ensure that the conclusions that will be derived have factual basis and are thus, valid." Besides, the Court
found that there are genuine factual issues raised by defendants that need to be threshed out in a full-blown trial, and which
plaintiff had the burden to substantially prove. Thus, the Court outlined these genuine factual issues as follows:
1) What are the "various sources" of funds, which defendant Cojuangco and his companies claim they utilized to acquire the
disputed SMC shares?
2) Whether or not such funds acquired from alleged "various sources" can be considered coconut levy funds;
3) Whether or not defendant Cojuangco had indeed served in the governing bodies of PCA, UCPB and/or CIIF Oil Mills at the
time the funds used to purchase the SMC shares were obtained such that he owed a fiduciary duty to render an account to
these entities as well as to the coconut farmers;

4) Whether or not defendant Cojuangco took advantage of his position and/or close ties with then President Marcos to
obtain favorable concessions or exemptions from the usual financial requirements from the lending banks and/or coco-levy
funded companies, in order to raise the funds to acquire the disputed SMC shares; and if so, what are these favorable
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concessions or exemptions?
Answers to these issues are not evident from the submissions of plaintiff and must therefore be proven through the presentation of
relevant and competent evidence during trial. A perusal of the subject Motion shows that the plaintiff hastily derived conclusions
from the defendants statements in their previous pleadings although such conclusions were not supported by categorical facts but
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only mere inferences. xxx xxx xxx." (Emphasis supplied)
Despite the foregoing pronouncement of the Court, plaintiff did not present any other evidence during the trial of this case but
instead made its manifestation of purposes, that later served as its offer of evidence in the instant case, that merely used the same
evidence it had already relied upon when it moved for partial summary judgment over the Cojuangco block of SMC shares.
Altogether, the Court finds the same insufficient to prove plaintiffs allegations in the complaint because more than judicial notices,
the factual issues require the presentation of admissible, competent and relevant evidence in accordance with Sections 3 and 4, Rule
128 of the Rules on Evidence.
Moreover, the propriety of taking judicial notice of plaintiffs exhibits is aptly questioned by defendants Cojuangco, et al. Certainly,
the Court can take judicial notice of laws pertaining to the coconut levy funds as well as decisions of the Supreme Court relative
thereto, but taking judicial notice does not mean that the Court would accord full probative value to these exhibits. Judicial notice is
based upon convenience and expediency for it would certainly be superfluous, inconvenient, and expensive both to parties and the
court to require proof, in the ordinary way, of facts which are already known to courts. However, a court cannot take judicial notice
of a factual matter in controversy. Certainly, there are genuine factual matters in the instant case, as above-cited, which plaintiff
ought to have proven with relevant and competent evidence other than the exhibits it offered.
Referring to plaintiffs causes of action against defendants Cojuangco, et al., the Court finds its evidence insufficient to prove that
the source of funds used to purchase SMC shares indeed came from coconut levy funds. In fact, there is no direct link that the loans
obtained by defendant Cojuangco, Jr. were the same money used to pay for the SMC shares. The scheme alleged to have been taken
by defendant Cojuangco, Jr. was not even established by any paper trail or testimonial evidence that would have identified the
same. On account of his positions in the UCPB, PCA and the CIIF Oil Mills, the Court cannot conclude that he violated the fiduciary
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obligations of the positions he held in the absence of proof that he was so actuated and that he abused his positions.
It was plain, indeed, that Cojuangco, et al. had tendered genuine issues through their responsive pleadings and did not admit that
the acquisition of the Cojuangco block of SMC shares had been illegal, or had been made with public funds. As a result, the Republic
needed to establish its allegations with preponderant competent evidence, because, as earlier stated, the fact that property was ill
gotten could not be presumed but must be substantiated with competent proof adduced in proper judicial proceedings. That the
Republic opted not to adduce competent evidence thereon despite stern reminders and warnings from the Sandiganbayan to do so
revealed that the Republic did not have the competent evidence to prove its allegations against Cojuangco, et al.
Still, the Republic, relying on the 2001 holding in Republic v. COCOFED,

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pleads in its petition for review (G.R. No. 180702) that:

With all due respect, the Honorable Sandiganbayan failed to consider legal precepts and procedural principles vis--vis the records
of the case showing that the funds or "various loans" or "advances" used in the acquisition of the disputed SMC Shares ultimately
came from the coconut levy funds.
As discussed hereunder, respondents own admissions in their Answers and Pre-Trial Briefs confirm that the "various sources" of
funds utilized in the acquisition of the disputed SMC shares came from "borrowings" and "advances" from the UCPB and the CIIF Oil
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Mills.
Thereby, the Republic would have the Sandiganbayan pronounce the block of SMC shares of stock acquired by Cojuangco, et al. as
ill-gotten wealth even without the Republic first presenting preponderant evidence establishing that such block had been acquired
illegally and with the use of coconut levy funds.
The Court cannot heed the Republics pleas for the following reasons:
To begin with, it is notable that the decision of November 28, 2007 did not rule on whether coconut levy funds were public funds or
not. The silence of the Sandiganbayan on the matter was probably due to its not seeing the need for such ruling following its

conclusion that the Republic had not preponderantly established the source of the funds used to pay the purchase price of the
concerned SMC shares, and whether the shares had been acquired with the use of coconut levy funds.
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Secondly, the ruling in Republic v. COCOFED determined only whether certain stockholders of the UCPB could vote in the
stockholders meeting that had been called. The issue now before the Court could not be controlled by the ruling in Republic v.
COCOFED, however, for even as that ruling determined the issue of voting, the Court was forthright enough about not thereby
preempting the Sandiganbayans decisions on the merits on ill-gotten wealth in the several cases then pending, including this one,
viz:
In making this ruling, we are in no way preempting the proceedings the Sandiganbayan may conduct or the final judgment it may
promulgate in Civil Case No. 0033-A, 0033-B and 0033-F. Our determination here is merely prima facie, and should not bar the antigraft court from making a final ruling, after proper trial and hearing, on the issues and prayers in the said civil cases, particularly in
reference to the ownership of the subject shares.
We also lay down the caveat that, in declaring the coco levy funds to be prima facie public in character, we are not ruling in any final
manner on their classification whether they are general or trust or special funds since such classification is not at issue here.
Suffice it to say that the public nature of the coco levy funds is decreed by the Court only for the purpose of determining the right to
vote the shares, pending the final outcome of the said civil cases.
Neither are we resolving in the present case the question of whether the shares held by Respondent Cojuangco are, as he claims, the
result of private enterprise. This factual matter should also be taken up in the final decision in the cited cases that are pending in the
court a quo. Again, suffice it to say that the only issue settled here is the right of PCGG to vote the sequestered shares, pending the
final outcome of said cases.
Thirdly, the Republics assertion that coconut levy funds had been used to source the payment for the Cojuangco block of SMC
shares was premised on its allegation that the UCPB and the CIIF Oil Mills were public corporations. But the premise was grossly
erroneous and overly presumptuous, because:
(a) The fact of the UCPB and the CIIF Oil Mills being public corporations or government-owned or government-controlled
corporations precisely remained controverted by Cojuangco, et al. in light of the lack of any competent to that effect being
in the records;
(b) Cojuangco explicitly averred in paragraph 2.01.(b) of his Answer that the UCPB was a "private corporation;" and
(c) The Republic did not competently identify or establish which ones of the Cojuangco corporations had supposedly
received advances from the CIIF Oil Mills.
Fourthly, the Republic asserts that the contested block of shares had been paid for with "borrowings" from the UCPB and "advances"
from the CIIF Oil Mills, and that such borrowings and advances had been illegal because the shares had not been purchased for the
"benefit of the Coconut Farmers." To buttress its assertion, the Republic relied on the admissions supposedly made in paragraph
2.01 of Cojuangcos Answer in relation to paragraph 4 of the Republics Amended Complaint.
The best way to know what paragraph 2.01 of Cojuangcos Answer admitted is to refer to both paragraph 4 of the Amended
Complaint and paragraph 2.01 of his Answer, which are hereunder quoted:
Paragraph 4 of the Amended Complaint
4. Defendant EDUARDO M. COJUANGCO, JR., was Governor of Tarlac, Congressman of then First District of Tarlac and Ambassadorat-Large in the Marcos Administration. He was commissioned Lieutenant Colonel in the Philippine Air Force, Reserve. Defendant
Eduardo M. Cojuangco, Jr., otherwise known as the "Coconut King" was head of the coconut monopoly which was instituted by
Defendant Ferdinand E. Marcos, by virtue of the Presidential Decrees. Defendant Eduardo E. Cojuangco, Jr., who was also one of the
closest associates of the Defendant Ferdinand E. Marcos, held the positions of Director of the Philippine Coconut Authority, the
United Coconut Mills, Inc., President and Board Director of the United Coconut Planters Bank, United Coconut Planters Life
Assurance Corporation, and United Coconut Chemicals, Inc. He was also the Chairman of the Board and Chief Executive Officer and
the controlling stockholder of the San Miguel Corporation. He may be served summons at 45 Balete Drive, Quezon City or at 136
East 9th Street, Quezon City.

Paragraph 2.01 of Respondent Cojuangcos Answer

2.01. Herein defendant admits paragraph 4 only insofar as it alleges the following:
(a) That herein defendant has held the following positions in government: Governor of Tarlac, Congressman of the then
First District of Tarlac, Ambassador-at-Large, Lieutenant Colonel in the Philippine Air Force and Director of the Philippines
Coconut Authority;
(b) That he held the following positions in private corporations: Member of the Board of Directors of the United Coconut Oil
Mills, Inc.; President and member of the Board of Directors of the United Coconut Planters Bank, United Coconut Planters
Life Assurance Corporation, and United Coconut Chemicals, Inc.; Chairman of the Board and Chief Executive of San Miguel
Corporation; and
(c) That he may be served with summons at 136 East 9th Street, Quezon City.
Herein defendant specifically denies the rest of the allegations of paragraph 4, including any insinuation that whatever association
he may have had with the late Ferdinand Marcos or Imelda Marcos has been in connection with any of the acts or transactions
alleged in the complaint or for any unlawful purpose.
It is basic in remedial law that a defendant in a civil case must apprise the trial court and the adverse party of the facts alleged by the
complaint that he admits and of the facts alleged by the complaint that he wishes to place into contention. The defendant does the
former either by stating in his answer that they are true or by failing to properly deny them. There are two ways of denying alleged
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facts: one is by general denial, and the other, by specific denial.
108

109

In this jurisdiction, only a specific denial shall be sufficient to place into contention an alleged fact. Under Section 10, Rule 8 of
the Rules of Court, a specific denial of an allegation of the complaint may be made in any of three ways, namely: (a) a defendant
specifies each material allegation of fact the truth of which he does not admit and, whenever practicable, sets forth the substance of
the matters upon which he relies to support his denial; (b) a defendant who desires to deny only a part of an averment specifies so
much of it as is true and material and denies only the remainder; and (c) a defendant who is without knowledge or information
sufficient to form a belief as to the truth of a material averment made in the complaint states so, which has the effect of a denial.
The express qualifications contained in paragraph 2.01 of Cojuangcos Answer constituted efficient specific denials of the averments
of paragraph 2 of the Republics Amended Complaint under the first method mentioned in Section 10 of Rule 8, supra. Indeed, the
aforequoted paragraphs of the Amended Complaint and of Cojuangcos Answer indicate that Cojuangco thereby expressly qualified
his admission of having been the President and a Director of the UCPB with the averment that the UCPB was a "private corporation;"
that his Answers allegation of his being a member of the Board of Directors of the United Coconut Oil Mills, Inc. did not admit that
he was a member of the Board of Directors of the CIIF Oil Mills, because the United Coconut Oil Mills, Inc. was not one of the CIIF Oil
Mills; and that his Answer nowhere contained any admission or statement that he had held the various positions in the government
or in the private corporations at the same time and in 1983, the time when the contested acquisition of the SMC shares of stock
took place.
What the Court stated in Bitong v. Court of Appeals (Fifth Division)

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as to admissions is illuminating:

When taken in its totality, the Amended Answer to the Amended Petition, or even the Answer to the Amended Petition alone,
clearly raises an issue as to the legal personality of petitioner to file the complaint. Every alleged admission is taken as an entirety of
the fact which makes for the one side with the qualifications which limit, modify or destroy its effect on the other side. The reason
for this is, where part of a statement of a party is used against him as an admission, the court should weigh any other portion
connected with the statement, which tends to neutralize or explain the portion which is against interest.
In other words, while the admission is admissible in evidence, its probative value is to be determined from the whole statement and
others intimately related or connected therewith as an integrated unit. Although acts or facts admitted do not require proof and
cannot be contradicted, however, evidence aliunde can be presented to show that the admission was made through palpable
mistake. The rule is always in favor of liberality in construction of pleadings so that the real matter in dispute may be submitted to
the judgment of the court.
And, lastly, the Republic cites the following portions of the joint Pre-Trial Brief of Cojuangco, et al.,

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to wit:

IV.
PROPOSED EVIDENCE
xxx
4.01. xxx Assuming, however, that plaintiff presents evidence to support its principal contentions, defendants evidence in rebuttal
would include testimonial and documentary evidence showing: a) the ownership of the shares of stock prior to their acquisition by
respondents (listed in Annexes A" and B"); b) the consideration for the acquisition of the shares of stock by the persons or
companies in whose names the shares of stock are now registered; and c) the source of the funds used to pay the purchase price.
4.02. Herein respondents intend to present the following evidence:
xxx
b. Proposed Exhibits ____, ____, ____
Records of the United Coconut Planters Bank which would show borrowings of the companies listed in Annexes "A" and "B", or
companies affiliated or associated with them, which were used to source payment of the shares of stock of the San Miguel
Corporation subject of this case.
4.03. Witnesses.
xxx
(b) A representative of the United Coconut Planters Bank who will testify in regard the loans which were used to source the
payment of the price of SMC shares of stock.
(c) A representative from the CIIF Oil Mills who will testify in regard the loans or credit advances which were used to source
the payment of the purchase price of the SMC shares of stock.
The Republic insists that the aforequoted portions of the joint Pre-Trial Brief were Cojuangco, et al.s admission that:
(a) Cojuangco had received money from the UCPB, a bank entrusted by law with the administration of the coconut levy
funds; and
(b) Cojuangco had received more money from the CIIF Oil Mills in which part of the CIIF funds had been placed, and thereby
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used the funds of the UCPB and the CIIF as capital to buy his SMC shares.
We disagree with the Republics posture.
The statements found in the joint Pre-Trial Brief of Cojuangco, et al. were noticeably written beneath the heading of Proposed
Evidence. Such location indicated that the statements were only being proposed, that is, they were not yet intended or offered as
admission of any fact stated therein. In other words, the matters stated or set forth therein might or might not be presented at all.
Also, the text and tenor of the statements expressly conditioned the proposal on the Republic ultimately presenting its evidence in
the action. After the Republic opted not to present its evidence, the condition did not transpire; hence, the proposed admissions,
assuming that they were that, did not materialize.
Obviously, too, the statements found under the heading of Proposed Evidence in the joint Pre-Trial Brief were incomplete and
inadequate on the important details of the supposed transactions (i.e., alleged borrowings and advances). As such, they could not
constitute admissions that the funds had come from borrowings by Cojuangco, et al. from the UCPB or had been credit advances
from the CIIF Oil Companies. Moreover, the purpose for presenting the records of the UCPB and the representatives of the UCPB
and of the still unidentified or unnamed CIIF Oil Mills as declared in the joint Pre-Trial Brief did not at all show whether the UCPB
and/or the unidentified or unnamed CIIF Oil Mills were the only sources of funding, or that such institutions, assuming them to be
the sources of the funding, had been the only sources of funding. Such ambiguousness disqualified the statements from being relied

upon as admissions. It is fundamental that any statement, to be considered as an admission for purposes of judicial proceedings,
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should be definite, certain and unequivocal; otherwise, the disputed fact will not get settled.
Another reason for rejecting the Republics posture is that the Sandiganbayan, as the trial court, was in no position to second-guess
what the non-presented records of the UCPB would show as the borrowings made by the corporations listed in Annexes A and B, or
by the companies affiliated or associated with them, that "were used to source payment of the shares of stock of the San Miguel
Corporation subject of this case," or what the representative of the UCPB or the representative of the CIIF Oil Mills would testify
about loans or credit advances used to source the payment of the price of SMC shares of stock.
Lastly, the Rules of Court has no rule that treats the statements found under the heading Proposed Evidence as admissions binding
Cojuangco, et al. On the contrary, the Rules of Court has even distinguished between admitted facts and facts proposed to be
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admitted during the stage of pre-trial. Section 6 (b), Rule 18 of the Rules of Court, requires a Pre-Trial Brief to include a summary
of admitted facts and a proposed stipulation of facts. Complying with the requirement, the joint Pre-Trial Brief of Cojuangco, et al.
included the summary of admitted facts in its paragraph 3.00 of its Item III, separately and distinctly from the Proposed Evidence, to
wit:
III.
SUMMARY OF UNDISPUTED FACTS
3.00. Based on the complaint and the answer, the acquisition of the San Miguel shares by, and their registration in the names of, the
companies listed in Annexes "A" and "B" may be deemed undisputed.
3.01. All other allegations in the complaint are disputed.

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The burden of proof, according to Section 1, Rule 131 of the Rules of Court, is "the duty of a party to present evidence on the facts in
issue necessary to establish his claim or defense by the amount of evidence required by law." Here, the Republic, being the plaintiff,
was the party that carried the burden of proof. That burden required it to demonstrate through competent evidence that the
respondents, as defendants, had purchased the SMC shares of stock with the use of public funds; and that the affected shares of
stock constituted ill-gotten wealth. The Republic was well apprised of its burden of proof, first through the joinder of issues made by
the responsive pleadings of the defendants, including Cojuangco, et al. The Republic was further reminded through the pre-trial
order and the Resolution denying its Motion for Summary Judgment, supra, of the duty to prove the factual allegations on ill-gotten
wealth against Cojuangco, et al., specifically the following disputed matters:
(a) When the loans or advances were incurred;
(b) The amount of the loans from the UCPB and of the credit advances from the CIIF Oil Mills, including the specific CIIF Oil
Mills involved;
(c) The identities of the borrowers, that is, all of the respondent corporations together, or separately; and the amounts of
the borrowings;
(d) The conditions attendant to the loans or advances, if any;
(e) The manner, form, and time of the payments made to Zobel or to the Ayala Group, whether by check, letter of credit, or
some other form; and
(f) Whether the loans were paid, and whether the advances were liquidated.
With the Republic nonetheless choosing not to adduce evidence proving the factual allegations, particularly the aforementioned
matters, and instead opting to pursue its claims by Motion for Summary Judgment, the Sandiganbayan became completely deprived
of the means to know the necessary but crucial details of the transactions on the acquisition of the contested block of shares. The
Republics failure to adduce evidence shifted no burden to the respondents to establish anything, for it was basic that the party who
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asserts, not the party who denies, must prove. Indeed, in a civil action, the plaintiff has the burden of pleading every essential fact
and element of the cause of action and proving them by preponderance of evidence. This means that if the defendant merely denies
each of the plaintiffs allegations and neither side produces evidence on any such element, the plaintiff must necessarily fail in the

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action. Thus, the Sandiganbayan correctly dismissed Civil Case No. 0033-F for failure of the Republic to prove its case by
preponderant evidence.
A summary judgment under Rule 35 of the Rules of Court is a procedural technique that is proper only when there is no genuine
118
issue as to the existence of a material fact and the moving party is entitled to a judgment as a matter of law. It is a method
intended to expedite or promptly dispose of cases where the facts appear undisputed and certain from the pleadings, depositions,
119
admissions, and affidavits on record. Upon a motion for summary judgment the courts sole function is to determine whether
there is an issue of fact to be tried, and all doubts as to the existence of an issue of fact must be resolved against the moving party.
In other words, a party who moves for summary judgment has the burden of demonstrating clearly the absence of any genuine issue
of fact, and any doubt as to the existence of such an issue is resolved against the movant. Thus, in ruling on a motion for summary
judgment, the court should take that view of the evidence most favorable to the party against whom it is directed, giving that party
120
the benefit of all favorable inferences.
The term genuine issue has been defined as an issue of fact that calls for the presentation of evidence as distinguished from an issue
that is sham, fictitious, contrived, set up in bad faith, and patently unsubstantial so as not to constitute a genuine issue for trial. The
court can determine this on the basis of the pleadings, admissions, documents, affidavits, and counter-affidavits submitted by the
parties to the court. Where the facts pleaded by the parties are disputed or contested, proceedings for a summary judgment cannot
121
take the place of a trial. Well-settled is the rule that a party who moves for summary judgment has the burden of demonstrating
122
clearly the absence of any genuine issue of fact. Upon that partys shoulders rests the burden to prove the cause of action, and to
show that the defense is interposed solely for the purpose of delay. After the burden has been discharged, the defendant has the
123
burden to show facts sufficient to entitle him to defend. Any doubt as to the propriety of a summary judgment shall be resolved
against the moving party.
We need not stress that the trial courts have limited authority to render summary judgments and may do so only in cases where no
genuine issue as to any material fact clearly exists between the parties. The rule on summary judgment does not invest the trial
courts with jurisdiction to try summarily the factual issues upon affidavits, but authorizes summary judgment only when it appears
124
clear that there is no genuine issue as to any material fact.
IV.
Republics burden to establish by preponderance of evidence that respondents SMC shares had been illegally acquired with
coconut-levy funds was not discharged
Madame Justice Carpio Morales argues in her dissent that although the contested SMC shares could be inescapably treated as fruits
of funds that are prima facie public in character, Cojuangco, et al. abstained from presenting countervailing evidence; and that with
the Republic having shown that the SMC shares came into fruition from coco levy funds that are prima facie public funds, Cojuangco,
et al. had to go forward with contradicting evidence, but did not.
The Court disagrees. We cannot reverse the decision of November 28, 2007 on the basis alone of judicial pronouncements to the
125
effect that the coconut levy funds were prima facie public funds, but without any competent evidence linking the acquisition of
the block of SMC shares by Cojuangco, et al. to the coconut levy funds.
V.
No violation of the DOSRI and
Single Borrowers Limit restrictions
The Republics lack of proof on the source of the funds by which Cojuangco, et al. had acquired their block of SMC shares has made it
shift its position, that it now suggests that Cojuangco had been enabled to obtain the loans by the issuance of LOI 926 exempting the
UCPB from the DOSRI and the Single Borrowers Limit restrictions.
We reject the Republics suggestion.
Firstly, as earlier pointed out, the Republic adduced no evidence on the significant particulars of the supposed loan, like the amount,
126
the actual borrower, the approving official, etc. It did not also establish whether or not the loans were DOSRI or issued in violation
of the Single Borrowers Limit. Secondly, the Republic could not outrightly assume that President Marcos had issued LOI 926 for the
purpose of allowing the loans by the UCPB in favor of Cojuangco. There must be competent evidence to that effect. And, finally, the

loans, assuming that they were of a DOSRI nature or without the benefit of the required approvals or in excess of the Single
Borrowers Limit, would not be void for that reason. Instead, the bank or the officers responsible for the approval and grant of the
127
DOSRI loan would be subject only to sanctions under the law.
VI.
Cojuangco violated no fiduciary duties
The Republic invokes the following pertinent statutory provisions of the Civil Code, to wit:
Article 1455. When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of
property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the
person to whom the funds belong.
Article 1456. If property is acquired through mistake or fraud, the person obtaining it s by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the property comes.
and the Corporation Code, as follows:
Section 31. Liability of directors, trustees or officers.Directors or trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees shall be liable jointly and severally
for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in
respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his
own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued
to the corporation.
Did Cojuangco breach his "fiduciary duties" as an officer and member of the Board of Directors of the UCPB? Did his acquisition and
holding of the contested SMC shares come under a constructive trust in favor of the Republic?
The answers to these queries are in the negative.
The conditions for the application of Articles 1455 and 1456 of the Civil Code (like the trustee using trust funds to purchase, or a
person acquiring property through mistake or fraud), and Section 31 of the Corporation Code (like a director or trustee willfully and
knowingly voting for or assenting to patently unlawful acts of the corporation, among others) require factual foundations to be first
laid out in appropriate judicial proceedings. Hence, concluding that Cojuangco breached fiduciary duties as an officer and member of
the Board of Directors of the UCPB without competent evidence thereon would be unwarranted and unreasonable.
Thus, the Sandiganbayan could not fairly find that Cojuangco had committed breach of any fiduciary duties as an officer and
member of the Board of Directors of the UCPB. For one, the Amended Complaint contained no clear factual allegation on which to
predicate the application of Articles 1455 and 1456 of the Civil Code, and Section 31 of the Corporation Code. Although the trust
relationship supposedly arose from Cojuangcos being an officer and member of the Board of Directors of the UCPB, the link
between this alleged fact and the borrowings or advances was not established. Nor was there evidence on the loans or borrowings,
their amounts, the approving authority, etc. As trial court, the Sandiganbayan could not presume his breach of fiduciary duties
128
without evidence showing so, for fraud or breach of trust is never presumed, but must be alleged and proved.
The thrust of the Republic that the funds were borrowed or lent might even preclude any consequent trust implication. In a contract
of loan, one of the parties (creditor) delivers money or other consumable thing to another (debtor) on the condition that the same
129
amount of the same kind and quality shall be paid. Owing to the consumable nature of the thing loaned, the resulting duty of the
borrower in a contract of loan is to pay, not to return, to the creditor or lender the very thing loaned. This explains why the
130
ownership of the thing loaned is transferred to the debtor upon perfection of the contract. Ownership of the thing loaned having
transferred, the debtor enjoys all the rights conferred to an owner of property, including the right to use and enjoy (jus utendi), to
consume the thing by its use (jus abutendi), and to dispose (jus disponendi), subject to such limitations as may be provided by
131
law. Evidently, the resulting relationship between a creditor and debtor in a contract of loan cannot be characterized as
132
fiduciary.

To say that a relationship is fiduciary when existing laws do not provide for such requires evidence that confidence is reposed by one
party in another who exercises dominion and influence. Absent any special facts and circumstances proving a higher degree of
133
responsibility, any dealings between a lender and borrower are not fiduciary in nature. This explains why, for example, a trust
receipt transaction is not classified as a simple loan and is characterized as fiduciary, because the Trust Receipts Law (P.D. No. 115)
punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of
134
whether the latter is the owner.
Based on the foregoing, a debtor can appropriate the thing loaned without any responsibility or duty to his creditor to return the
very thing that was loaned or to report how the proceeds were used. Nor can he be compelled to return the proceeds and fruits of
the loan, for there is nothing under our laws that compel a debtor in a contract of loan to do so. As owner, the debtor can dispose of
135
the thing borrowed and his act will not be considered misappropriation of the thing. The only liability on his part is to pay the loan
together with the interest that is either stipulated or provided under existing laws.
WHEREFORE, the Court dismisses the petitions for certiorari in G.R. Nos. 166859 and 169023; denies the petition for review on
certiorari in G.R. No. 180702; and, accordingly, affirms the decision promulgated by the Sandiganbayan on November 28, 2007 in
Civil Case No. 0033-F.
The Court declares that the block of shares in San Miguel Corporation in the names of respondents Cojuangco, et al. subject of Civil
Case No. 0033-F is the exclusive property of Cojuangco, et al. as registered owners.
Accordingly, the lifting and setting aside of the Writs of Sequestration affecting said block of shares (namely: Writ of Sequestration
No. 86-0062 dated April 21, 1986; Writ of Sequestration No. 86-0069 dated April 22, 1986; Writ of Sequestration No. 86-0085 dated
May 9, 1986; Writ of Sequestration No. 86-0095 dated May 16, 1986; Writ of Sequestration No. 86-0096 dated May 16, 1986; Writ
of Sequestration No. 86-0097 dated May 16, 1986; Writ of Sequestration No. 86-0098 dated May 16, 1986; Writ of Sequestration
No. 86-0042 dated April 8, 1986; and Writ of Sequestration No. 87-0218 dated May 27, 1987) are affirmed; and the annotation of
the conditions prescribed in the Resolutions promulgated on October 8, 2003 and June 24, 2005 is cancelled.
SO ORDERED.
G.R. No. 193787

April 7, 2014

SPOUSES JOSE C. ROQUE AND BEATRIZ DELA CRUZ ROQUE, with deceased Jose C. Roque represented by his substitute heir
JOVETTE ROQUE-LIBREA, Petitioners,
vs.
MA. PAMELA P. AGUADO, FRUCTUOSO C. SABUG, JR., NATIONAL COUNCIL OF CHURCHES IN THE PHILIPPINES (NCCP), represented
by its Secretary General SHARON ROSE JOY RUIZ-DUREMDES, LAND BANK OF THE PHILIPPINES (LBP), represented by Branch
Manager EVELYN M. MONTERO, ATTY. MARIO S.P. DIAZ, in his Official Capacity as Register of Deeds for Rizal, Morong Branch,
and CECILIO U. PULAN, in his Official Capacity as Sheriff, Office of the Clerk of Court, Regional Trial Court, Binangonan,
Rizal,Respondents.
DECISION
PERLAS-BERNABE, J.:
1

Assailed in this petition for review on certiorari are the Decision dated May 12, 2010 and the Resolution dated September 15,
4
2010 of the Court of Appeals (CA) in CA G.R. CV No. 92113 which affirmed the Decision dated July 8, 2008 of the Regional Trial Court
of Binangonan, Rizal, Branch 69 (RTC) that dismissed Civil Case Nos. 03-022 and 05-003 for reconveyance, annulment of sale, deed of
real estate mortgage, foreclosure and certificate of sale, and damages.
The Facts
The property subject of this case is a parcel of land with an area of 20,862 square meters (sq. m.), located in Sitio Tagpos, Barangay
5
Tayuman, Binangonan, Rizal, known as Lot 18089.
On July 21, 1977, petitioners-spouses Jose C. Roque and Beatriz dela Cruz Roque (Sps. Roque) and the original owners of the then
unregistered Lot 18089 namely, Velia R. Rivero (Rivero), Magdalena Aguilar, Angela Gonzales, Herminia R. Bernardo, Antonio

Rivero, Araceli R. Victa, Leonor R. Topacio, and Augusto Rivero (Rivero, et al.) executed a Deed of Conditional Sale of Real
6
Property (1977 Deed of Conditional Sale) over a 1,231-sq. m. portion of Lot 18089 (subject portion) for a consideration
of P30,775.00. The parties agreed that Sps. Roque shall make an initial payment of P15,387.50 upon signing, while the remaining
balance of the purchase price shall be payable upon the registration of Lot 18089, as well as the segregation and the concomitant
issuance of a separate title over the subject portion in their names. After the deeds execution, Sps. Roque took possession and
7
introduced improvements on the subject portion which they utilized as a balut factory.
On August 12, 1991, Fructuoso Sabug, Jr. (Sabug, Jr.), former Treasurer of the National Council of Churches in the Philippines (NCCP),
8
applied for a free patent over the entire Lot 18089 and was eventually issued Original Certificate of Title (OCT) No. M-5955 in his
name on October 21, 1991. On June 24, 1993, Sabug, Jr. and Rivero, in her personal capacity and in representation of Rivero, et al.,
9
executed a Joint Affidavit (1993 Joint Affidavit), acknowledging that the subject portion belongs to Sps. Roque and expressed their
willingness to segregate the same from the entire area of Lot 18089.
10

On December 8, 1999, however, Sabug, Jr., through a Deed of Absolute Sale (1999 Deed of Absolute Sale), sold Lot 18089 to one
Ma. Pamela P. Aguado (Aguado) for P2,500,000.00, who, in turn, caused the cancellation of OCT No. M-5955 and the issuance of
11
Transfer Certificate of Title (TCT) No. M-96692 dated December 17, 1999 in her name.
Thereafter, Aguado obtained an P8,000,000.00 loan from the Land Bank of the Philippines (Land Bank) secured by a mortgage over
12
Lot 18089. When she failed to pay her loan obligation, Land Bank commenced extra-judicial foreclosure proceedings and
eventually tendered the highest bid in the auction sale. Upon Aguados failure to redeem the subject property, Land Bank
13
14
consolidated its ownership, and TCT No. M-115895 was issued in its name on July 21, 2003.
15

On June 16, 2003, Sps. Roque filed a complaint for reconveyance, annulment of sale, deed of real estate mortgage, foreclosure,
and certificate of sale, and damages before the RTC, docketed as Civil Case No. 03-022, against Aguado, Sabug, Jr., NCCP, Land Bank,
the Register of Deeds of Morong, Rizal, and Sheriff Cecilio U. Pulan, seeking to be declared as the true owners of the subject portion
which had been erroneously included in the sale between Aguado and Sabug, Jr., and, subsequently, the mortgage to Land Bank,
both covering Lot 18089 in its entirety.
In defense, NCCP and Sabug, Jr. denied any knowledge of the 1977 Deed of Conditional Sale through which the subject portion had
16
been purportedly conveyed to Sps. Roque.
For her part, Aguado raised the defense of an innocent purchaser for value as she allegedly derived her title (through the 1999 Deed
of Absolute Sale) from Sabug, Jr., the registered owner in OCT No. M-5955, covering Lot 18089, which certificate of title at the time
of sale was free from any lien and/or encumbrances. She also claimed that Sps. Roques cause of action had already prescribed
because their adverse claim was made only on April 21, 2003, or four (4) years from the date OCT No. M-5955 was issued in Sabug,
17
Jr.s name on December 17, 1999.
On the other hand, Land Bank averred that it had no knowledge of Sps. Roques claim relative to the subject portion, considering
that at the time the loan was taken out, Lot 18089 in its entirety was registered in Aguados name and no lien and/or encumbrance
18
was annotated on her certificate of title.
19

Meanwhile, on January 18, 2005, NCCP filed a separate complaint also for declaration of nullity of documents and certificates of
title and damages, docketed as Civil Case No. 05-003. It claimed to be the real owner of Lot 18089 which it supposedly acquired from
20
Sabug, Jr. through an oral contract of sale in the early part of 1998, followed by the execution of a Deed of Absolute Sale on
21
December 2, 1998 (1998 Deed of Absolute Sale). NCCP also alleged that in October of the same year, it entered into a Joint Venture
Agreement (JVA) with Pilipinas Norin Construction Development Corporation (PNCDC), a company owned by Aguados parents, for
the development of its real properties, including Lot 18089, into a subdivision project, and as such, turned over its copy of OCT No.
22
M-5955 to PNCDC. Upon knowledge of the purported sale of Lot 18089 to Aguado, Sabug, Jr. denied the transaction and alleged
23
forgery. Claiming that the Aguados and PNCDC conspired to defraud NCCP, it prayed that PNCDCs corporate veil be pierced and
24
that the Aguados be ordered to pay the amount of 38,092,002.00 representing the unrealized profit from the JVA. Moreover,
NCCP averred that Land Bank failed to exercise the diligence required to ascertain the true owners of Lot 18089. Hence, it further
prayed that: (a) all acts of ownership and dominion over Lot 18089 that the bank might have done or caused to be done be declared
null and void; (b) it be declared the true and real owners of Lot 18089; and (c) the Register of Deeds of Morong, Rizal be ordered to
25
cancel any and all certificates of title covering the lot, and a new one be issued in its name. In its answer, Land Bank reiterated its
stance that Lot 18089 was used as collateral for the P8,000,000.00 loan obtained by the Countryside Rural Bank, Aguado, and one
Bella Palasaga. There being no lien and/ or encumbrance annotated on its certificate of title, i.e., TCT No. M-115895, it cannot be
26
held liable for NCCPs claims. Thus, it prayed for the dismissal of NCCPs complaint.

On September 7, 2005, Civil Case Nos. 02-022 and 05-003 were ordered consolidated.

27

The RTC Ruling

28

After due proceedings, the RTC rendered a Decision dated July 8, 2008, dismissing the complaints of Sps. Roque and NCCP.
With respect to Sps. Roques complaint, the RTC found that the latter failed to establish their ownership over the subject portion,
considering the following: (a) the supposed owners-vendors, i.e., Rivero, et al., who executed the 1977 Deed of Conditional Sale, had
no proof of their title over Lot 18089; (b) the 1977 Deed of Conditional Sale was not registered with the Office of the Register of
29
Deeds; (c) the 1977 Deed of Conditional Sale is neither a deed of conveyance nor a transfer document, as it only gives the holder
the right to compel the supposed vendors to execute a deed of absolute sale upon full payment of the consideration; (d) neither Sps.
Roque nor the alleged owners-vendors, i.e., Rivero, et al., have paid real property taxes in relation to Lot 18089; and (e) Sps. Roques
occupation of the subject portion did not ripen into ownership that can be considered superior to the ownership of Land
30
Bank. Moreover, the RTC ruled that Sps. Roques action for reconveyance had already prescribed, having been filed ten (10) years
31
after the issuance of OCT No. M-5955.
On the other hand, regarding NCCPs complaint, the RTC observed that while it anchored its claim of ownership over Lot 18089 on
the 1998 Deed of Absolute Sale, the said deed was not annotated on OCT No. M-5955. Neither was any certificate of title issued in
its name nor did it take possession of Lot 18089 or paid the real property taxes therefor. Hence, NCCPs claim cannot prevail against
Land Banks title, which was adjudged by the RTC as an innocent purchaser for value. Also, the RTC disregarded NCCPs allegation
that the signature of Sabug, Jr. on the 1999 Deed of Absolute Sale in favor of Aguado was forged because his signatures on both
instruments bear semblances of similarity and appear genuine. Besides, the examiner from the National Bureau of Investigation,
who purportedly found that Sabug, Jr.s signature thereon was spurious leading to the dismissal of a criminal case against him, was
32
not presented as a witness in the civil action.
Finally, the RTC denied the parties respective claims for damages.

33

The CA Ruling
34

On appeal, the Court of Appeals (CA) affirmed the foregoing RTC findings in a Decision dated May 12, 2010. While Land Bank was
not regarded as a mortgagee/purchaser in good faith with respect to the subject portion considering Sps. Roques possession
35
thereof, the CA did not order its reconveyance or segregation in the latters favor because of Sps. Roques failure to pay the
remaining balance of the purchase price. Hence, it only directed Land Bank to respect Sps. Roques possession with the option to
36
appropriate the improvements introduced thereon upon payment of compensation.
As regards NCCP, the CA found that it failed to establish its right over Lot 18089 for the following reasons: (a) the sale to it of the lot
by Sabug, Jr. was never registered; and (b) there is no showing that it was in possession of Lot 18089 or any portion thereof from
37
1998. Thus, as far as NCCP is concerned, Land Bank is a mortgagee/purchaser in good faith.
38

39

40

Aggrieved, both Sps. Roque and NCCP moved for reconsideration but were denied by the CA in a Resolution dated September
15, 2010, prompting them to seek further recourse before the Court.
The Issue Before the Court
The central issue in this case is whether or not the CA erred in not ordering the reconveyance of the subject portion in Sps. Roques
favor.
Sps. Roque maintain that the CA erred in not declaring them as the lawful owners of the subject portion despite having possessed
41
the same since the execution of the 1977 Deed of Conditional Sale, sufficient for acquisitive prescription to set in in their favor. To
bolster their claim, they also point to the 1993 Joint Affidavit whereby Sabug, Jr. and Rivero acknowledged their ownership
42
thereof. Being the first purchasers and in actual possession of the disputed portion, they assert that they have a better right over
the 1,231- sq. m. portion of Lot 18089 and, hence, cannot be ousted therefrom by Land Bank, which was adjudged as a
43
ortgagee/purchaser in bad faith, pursuant to Article 1544 of the Civil Code.
In opposition, Land Bank espouses that the instant petition should be dismissed for raising questions of fact, in violation of the
44
proscription under Rule 45 of the Rules of Court which allows only pure questions of law to be raised. Moreover, it denied that

ownership over the subject portion had been acquired by Sps. Roque who admittedly failed to pay the remaining balance of the
45
46
purchase price. Besides, Land Bank points out that Sps. Roques action for reconveyance had already prescribed.
47

Instead of traversing the arguments of Sps. Roque, NCCP, in its Comment dated December 19, 2011, advanced its own case,
arguing that the CA erred in holding that it failed to establish its claimed ownership over Lot 18089 in its entirety. Incidentally,
48
NCCPs appeal from the CA Decision dated May 12, 2010 was already denied by the Court, and hence, will no longer be dealt with
in this case.
The Courts Ruling
The petition lacks merit.
The essence of an action for reconveyance is to seek the transfer of the property which was wrongfully or erroneously registered in
49
another persons name to its rightful owner or to one with a better right. Thus, it is incumbent upon the aggrieved party to show
that he has a legal claim on the property superior to that of the registered owner and that the property has not yet passed to the
50
hands of an innocent purchaser for value.
Sps. Roque claim that the subject portion covered by the 1977 Deed of Conditional Sale between them and Rivero, et al. was
wrongfully included in the certificates of title covering Lot 18089, and, hence, must be segregated therefrom and their ownership
thereof be confirmed. The salient portions of the said deed state:
DEED OF CONDITIONAL SALE OF REAL PROPERTY
KNOW ALL MEN BY THESE PRESENTS:
xxxx
That for and in consideration of the sum of THIRTY THOUSAND SEVEN HUNDRED SEVENTY FIVE PESOS (P30,775.00), Philippine
Currency, payable in the manner hereinbelow specified, the VENDORS do hereby sell, transfer and convey unto the VENDEE, or their
heirs, executors, administrators, or assignors, that unsegregated portion of the above lot, x x x.
That the aforesaid amount shall be paid in two installments, the first installment which is in the amount of __________ (P15,387.50)
and the balance in the amount of __________ (P15,387.50), shall be paid as soon as the described portion of the property shall have
been registered under the Land Registration Act and a Certificate of Title issued accordingly;
That as soon as the total amount of the property has been paid and the Certificate of Title has been issued, an absolute deed of sale
shall be executed accordingly;
xxxx

51

Examining its provisions, the Court finds that the stipulation above-highlighted shows that the 1977 Deed of Conditional Sale is
52
actually in the nature of a contract to sell and not one of sale contrary to Sps. Roques belief. In this relation, it has been
consistently ruled that where the seller promises to execute a deed of absolute sale upon the completion by the buyer of the
payment of the purchase price, the contract is only a contract to sell even if their agreement is denominated as a Deed of
53
Conditional Sale, as in this case. This treatment stems from the legal characterization of a contract to sell, that is, a bilateral
contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to
the prospective buyer, binds himself to sell the subject property exclusively to the prospective buyer upon fulfillment of the
54
condition agreed upon, such as, the full payment of the purchase price. Elsewise stated, in a contract to sell, ownership is retained
55
by the vendor and is not to pass to the vendee until full payment of the purchase price. Explaining the subject matter further, the
56
Court, in Ursal v. CA, held that:
[I]n contracts to sell the obligation of the seller to sell becomes demandable only upon the happening of the suspensive condition,
that is, the full payment of the purchase price by the buyer. It is only upon the existence of the contract of sale that the seller
becomes obligated to transfer the ownership of the thing sold to the buyer. Prior to the existence of the contract of sale, the seller is
not obligated to transfer the ownership to the buyer, even if there is a contract to sell between them.

57

Here, it is undisputed that Sps. Roque have not paid the final installment of the purchase price. As such, the condition which would
have triggered the parties obligation to enter into and thereby perfect a contract of sale in order to effectively transfer the
ownership of the subject portion from the sellers (i.e., Rivero et al.) to the buyers (Sps. Roque) cannot be deemed to have been
fulfilled. Consequently, the latter cannot validly claim ownership over the subject portion even if they had made an initial payment
58
and even took possession of the same.
The Court further notes that Sps. Roque did not even take any active steps to protect their claim over the disputed portion. This
remains evident from the following circumstances appearing on record: (a) the 1977 Deed of Conditional Sale was never registered;
(b) they did not seek the actual/physical segregation of the disputed portion despite their knowledge of the fact that, as early as
1993, the entire Lot 18089 was registered in Sabug, Jr.s name under OCT No. M-5955; and (c) while they signified their willingness
59
to pay the balance of the purchase price, Sps. Roque neither compelled Rivero et al., and/or Sabug, Jr. to accept the same nor did
they consign any amount to the court, the proper application of which would have effectively fulfilled their obligation to pay the
60
purchase price. Instead, Sps. Roque waited 26 years, reckoned from the execution of the 1977 Deed of Conditional Sale, to
institute an action for reconveyance (in 2003), and only after Lot 18089 was sold to Land Bank in the foreclosure sale and title
thereto was consolidated in its name. Thus, in view of the foregoing, Sabug, Jr. as the registered owner of Lot 18089 borne by the
grant of his free patent application could validly convey said property in its entirety to Aguado who, in turn, mortgaged the same
to Land Bank. Besides, as aptly observed by the RTC, Sps. Roque failed to establish that the parties who sold the property to them,
61
i.e., Rivero, et al., were indeed its true and lawful owners. In fine, Sps. Roque failed to establish any superior right over the subject
portion as against the registered owner of Lot 18089, i.e., Land Bank, thereby warranting the dismissal of their reconveyance action,
62
63
without prejudice to their right to seek damages against the vendors, i.e., Rivero et al. As applied in the case of Coronel v. CA:
It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property
is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. In a contract to sell,
there being no previous sale of the property, a third person buying such property despite the fulfilment of the suspensive condition
such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer
cannot seek the relief of reconveyance of the property.
There is no double sale in such case.1wphi1 Title to the property will transfer to the buyer after registration because there is no
defect in the owner-sellers title per se, but the latter, of course, may be sued for damages by the intending buyer. (Emphasis
supplied)
64

65

On the matter of double sales, suffice it to state that Sps. Roques reliance on Article 1544 of the Civil Code has been misplaced
since the contract they base their claim of ownership on is, as earlier stated, a contract to sell, and not one of sale. In Cheng v.
66
Genato, the Court stated the circumstances which must concur in order to determine the applicability of Article 1544, none of
which are obtaining in this case, viz.:
(a) The two (or more) sales transactions in issue must pertain to exactly the same subject matter, and must be valid sales
transactions;
(b) The two (or more) buyers at odds over the rightful ownership of the subject matter must each represent conflicting
interests; and
(c) The two (or more) buyers at odds over the rightful ownership of the subject matter must each have bought from the
same seller.
Finally, regarding Sps. Roques claims of acquisitive prescription and reimbursement for the value of the improvements they have
67
introduced on the subject property, it is keenly observed that none of the arguments therefor were raised before the trial court or
68
the CA. Accordingly, the Court applies the well-settled rule that litigants cannot raise an issue for the first time on appeal as this
would contravene the basic rules of fair play and justice. In any event, such claims appear to involve questions of fact which are
69
generally prohibited under a Rule 45 petition.
With the conclusions herein reached, the Court need not belabor on the other points raised by the parties, and ultimately finds it
proper to proceed with the denial of the petition.
WHEREFORE, the petition is DENIED. The Decision dated May 12, 2010 and the Resolution dated September 15, 2010 of the Court of
Appeals in CAG.R. CV No. 92113 are hereby AFFIRMED.

SO ORDERED.
G.R. No. 189563

April 7, 2014

GILAT SATELLITE NETWORKS, LTD., Petitioner,

vs.
UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO., INC., Respondent.
DECISION
SERENO, CJ:
1

This is an appeal via a Petition for Review on Certiorari filed 6 November 2009 assailing the Decision and Resolution of the Court
4
of Appeals (CA) in CA-G.R. CV No. 89263, which reversed the Decision of the Regional Trial Court (RTC), Branch 141, Makati City in
Civil Case No. 02-461, ordering respondent to pay petitioner a sum of money.
The antecedent facts, as culled from the CA, are as follows:
On September 15, 1999, One Virtual placed with GILAT a purchase order for various telecommunications equipment (sic),
accessories, spares, services and software, at a total purchase price of Two Million One Hundred Twenty Eight Thousand Two
Hundred Fifty Dollars (US$2,128,250.00). Of the said purchase price for the goods delivered, One Virtual promised to pay a portion
thereof totalling US$1.2 Million in accordance with the payment schedule dated 22 November 1999. To ensure the prompt payment
of this amount, it obtained defendant UCPB General Insurance Co., Inc.s surety bond dated 3 December 1999, in favor of GILAT.
During the period between [sic] September 1999 and June 2000, GILAT shipped and delivered to One Virtual the purchased products
and equipment, as evidenced by airway bills/Bill of Lading (Exhibits "F", "F-1" to "F-8"). All of the equipment (including the software
components for which payment was secured by the surety bond, was shipped by GILAT and duly received by One Virtual. Under an
endorsement dated December 23, 1999 (Exhibit "E"), the surety issued, with One Virtuals conformity, an amendment to the surety
bond, Annex "A" thereof, correcting its expiry date from May 30, 2001 to July 30, 2001.
One Virtual failed to pay GILAT the amount of Four Hundred Thousand Dollars (US$400,000.00) on the due date of May 30, 2000 in
accordance with the payment schedule attached as Annex "A" to the surety bond, prompting GILAT to write the surety defendant
UCPB on June 5, 2000, a demand letter (Exhibit "G") for payment of the said amount of US$400,000.00. No part of the amount set
forth in this demand has been paid to date by either One Virtual or defendant UCPB. One Virtual likewise failed to pay on the
succeeding payment instalment date of 30 November 2000 as set out in Annex "A" of the surety bond, prompting GILAT to send a
second demand letter dated January 24, 2001, for the payment of the full amount of US$1,200,000.00 guaranteed under the surety
bond, plus interests and expenses (Exhibits "H") and which letter was received by the defendant surety on January 25, 2001.
However, defendant UCPB failed to settle the amount of US$1,200,000.00 or a part thereof, hence, the instant
5
complaint." (Emphases in the original)
6

On 24 April 2002, petitioner Gilat Satellite Networks, Ltd., filed a Complaint against respondent UCPB General Insurance Co., Inc., to
recover the amounts supposedly covered by the surety bond, plus interests and expenses. After due hearing, the RTC rendered its
7
Decision, the dispositive portion of which is herein quoted:
WHEREFORE, premises considered, the Court hereby renders judgment for the plaintiff, and against the defendant, ordering, to wit:
1. The defendant surety to pay the plaintiff the amount of One Million Two Hundred Thousand Dollars (US$1,200,000.00)
representing the principal debt under the Surety Bond, with legal interest thereon at the rate of 12% per annum computed
from the time the judgment becomes final and executory until the obligation is fully settled; and
2. The defendant surety to pay the plaintiff the amount of Forty Four Thousand Four Dollars and Four Cents (US$44,004.04)
representing attorneys fees and litigation expenses.
Accordingly, defendants counterclaim is hereby dismissed for want of merit.
SO ORDERED. (Emphasis in the original)

In so ruling, the RTC reasoned that there is "no dispute that plaintiff [petitioner] delivered all the subject equipments [sic] and the
same was installed. Even with the delivery and installation made, One Virtual failed to pay any of the payments agreed upon.
8
Demand notwithstanding, defendant failed and refused and continued to fail and refused to settle the obligation."
Considering that its liability was indeed that of a surety, as "spelled out in the Surety Bond executed by and between One Virtual as
9
Principal, UCPB as Surety and GILAT as Creditor/Bond Obligee," respondent agreed and bound itself to pay in accordance with the
Payment Milestones. This obligation was not made dependent on any condition outside the terms and conditions of the Surety Bond
10
and Payment Milestones.
Insofar as the interests were concerned, the RTC denied petitioners claim on the premise that while a surety can be held liable for
interest even if it becomes more onerous than the principal obligation, the surety shall only accrue when the delay or refusal to pay
11
the principal obligation is without any justifiable cause. Here, respondent failed to pay its surety obligation because of the advice
12
of its principal (One Virtual) not to pay. The RTC then obligated respondent to pay petitioner the amount of USD1,200,000.00
representing the principal debt under the Surety Bond, with legal interest at the rate of 12% per annum computed from the time the
judgment becomes final and executory, and USD44,004.04 representing attorneys fees and litigation expenses.
13

14

On 18 October 2007, respondent appealed to the CA. The appellate court rendered a Decision in the following manner:
WHEREFORE, this appealed case is DISMISSED for lack of jurisdiction. The trial courts Decision dated December 28, 2006 is
VACATED. Plaintiff-appellant Gilat Satellite Networks Ltd., and One Virtual are ordered to proceed to arbitration, the outcome of
which shall necessary bind the parties, including the surety, defendant-appellant United Coconut Planters Bank General Insurance
Co., Inc.
SO ORDERED. (Emphasis in the original)
The CA ruled that in "enforcing a surety contract, the complementary-contracts-construed-together doctrine finds application."
15
According to this doctrine, the accessory contract must be construed with the principal agreement. In this case, the appellate court
16
considered the Purchase Agreement entered into between petitioner and One Virtual as the principal contract, whose stipulations
17
18
are also binding on the parties to the suretyship. Bearing in mind the arbitration clause contained in the Purchase Agreement and
19
pursuant to the policy of the courts to encourage alternative dispute resolution methods, the trial courts Decision was vacated;
petitioner and One Virtual were ordered to proceed to arbitration.
On 9 September 2008, petitioner filed a Motion for Reconsideration with Motion for Oral Argument. The motion was denied for lack
20
of merit in a Resolution issued by the CA on 16 September 2009.
Hence, the instant Petition.
21

On 31 August 2010, respondent filed a Comment on the Petition for Review. On 24 November 2010, petitioner filed a Reply.

22

ISSUES
From the foregoing, we reduce the issues to the following:
1. Whether or not the CA erred in dismissing the case and ordering petitioner and One Virtual to arbitrate; and
2. Whether or not petitioner is entitled to legal interest due to the delay in the fulfilment by respondent of its obligation
under the Suretyship Agreement.
THE COURTS RULING
The existence of a suretyship agreement does not give the surety the right to intervene in the principal contract, nor can an
arbitration clause between the buyer and the seller be invoked by a non-party such as the surety.
Petitioner alleges that arbitration laws mandate that no court can compel arbitration, unless a party entitled to it applies for this
23
24
relief. This referral, however, can only be demanded by one who is a party to the arbitration agreement. Considering that neither
petitioner nor One Virtual has asked for a referral, there is no basis for the CAs order to arbitrate.

25

Moreover, Articles 1216 and 2047 of the Civil Code clearly provide that the creditor may proceed against the surety without having
26
first sued the principal debtor. Even the Surety Agreement itself states that respondent becomes liable upon "mere failure of the
27
Principal to make such prompt payment." Thus, petitioner should not be ordered to make a separate claim against One Virtual (via
28
arbitration) before proceeding against respondent.
On the other hand, respondent maintains that a surety contract is merely an accessory contract, which cannot exist without a valid
29
30
obligation. Thus, the surety may avail itself of all the defenses available to the principal debtor and inherent in the debt that is,
the right to invoke the arbitration clause in the Purchase Agreement.
We agree with petitioner.
In suretyship, the oft-repeated rule is that a suretys liability is joint and solidary with that of the principal debtor. This undertaking
31
makes a surety agreement an ancillary contract, as it presupposes the existence of a principal contract. Nevertheless, although the
contract of a surety is in essence secondary only to a valid principal obligation, its liability to the creditor or "promise" of the
32
principal is said to be direct, primary and absolute; in other words, a surety is directly and equally bound with the principal. He
becomes liable for the debt and duty of the principal obligor, even without possessing a direct or personal interest in the obligations
33
34
constituted by the latter. Thus, a surety is not entitled to a separate notice of default or to the benefit of excussion. It may in fact
35
be sued separately or together with the principal debtor.
36

After a thorough examination of the pieces of evidence presented by both parties, the RTC found that petitioner had delivered all
37
the goods to One Virtual and installed them. Despite these compliances, One Virtual still failed to pay its obligation, triggering
respondents liability to petitioner as the formers surety.1wphi1 In other words, the failure of One Virtual, as the principal debtor,
to fulfill its monetary obligation to petitioner gave the latter an immediate right to pursue respondent as the surety.
Consequently, we cannot sustain respondents claim that the Purchase Agreement, being the principal contract to which the
Suretyship Agreement is accessory, must take precedence over arbitration as the preferred mode of settling disputes.
38

First, we have held in Stronghold Insurance Co. Inc. v. Tokyu Construction Co. Ltd., that "[the] acceptance [of a surety agreement],
however, does not change in any material way the creditors relationship with the principal debtor nor does it make the surety an
active party to the principal creditor-debtor relationship. In other words, the acceptance does not give the surety the right to
intervene in the principal contract. The suretys role arises only upon the debtors default, at which time, it can be directly held liable
by the creditor for payment as a solidary obligor." Hence, the surety remains a stranger to the Purchase Agreement. We agree with
petitioner that respondent cannot invoke in its favor the arbitration clause in the Purchase Agreement, because it is not a party to
39
40
that contract. An arbitration agreement being contractual in nature, it is binding only on the parties thereto, as well as their
41
assigns and heirs.
42

Second, Section 24 of Republic Act No. 9285 is clear in stating that a referral to arbitration may only take place "if at least one party
so requests not later than the pre-trial conference, or upon the request of both parties thereafter." Respondent has not presented
even an iota of evidence to show that either petitioner or One Virtual submitted its contesting claim for arbitration.
43

Third, sureties do not insure the solvency of the debtor, but rather the debt itself. They are contracted precisely to mitigate risks of
non-performance on the part of the obligor. This responsibility necessarily places a surety on the same level as that of the principal
44
debtor. The effect is that the creditor is given the right to directly proceed against either principal debtor or surety. This is the
45
reason why excussion cannot be invoked. To require the creditor to proceed to arbitration would render the very essence of
46
suretyship nugatory and diminish its value in commerce. At any rate, as we have held in Palmares v. Court of Appeals, "if the surety
is dissatisfied with the degree of activity displayed by the creditor in the pursuit of his principal, he may pay the debt himself and
become subrogated to all the rights and remedies of the creditor."
Interest, as a form of indemnity, may be awarded to a creditor for the delay incurred by a debtor in the payment of the latters
obligation, provided that the delay is inexcusable.
Anent the issue of interests, petitioner alleges that it deserves to be paid legal interest of 12% per annum from the time of its first
demand on respondent on 5 June 2000 or at most, from the second demand on 24 January 2001 because of the latters delay in
47
discharging its monetary obligation. Citing Article 1169 of the Civil Code, petitioner insists that the delay started to run from the
time it demanded the fulfilment of respondents obligation under the suretyship contract. Significantly, respondent does not contest
this point, but instead argues that it is only liable for legal interest of 6% per annum from the date of petitioners last demand on 24
January 2001.

In rejecting petitioners position, the RTC stated that interests may only accrue when the delay or the refusal of a party to pay is
48
without any justifiable cause. In this case, respondents failure to heed the demand was due to the advice of One Virtual that
49
petitioner allegedly breached its undertakings as stated in the Purchase Agreement. The CA, however, made no pronouncement on
this matter.
We sustain petitioner.
Article 2209 of the Civil Code is clear: "[i]f an obligation consists in the payment of a sum of money, and the debtor incurs a delay,
the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest."
Delay arises from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation, and
50
the latter fails to comply. Delay, as used in Article 1169, is synonymous with default or mora, which means delay in the fulfilment
51
52
of obligations. It is the nonfulfillment of an obligation with respect to time. In order for the debtor (in this case, the surety) to be
in default, it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2)
53
that the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially.
Having held that a surety upon demand fails to pay, it can be held liable for interest, even if in thus paying, its liability becomes more
54
than the principal obligation. The increased liability is not because of the contract, but because of the default and the necessity of
55
judicial collection.
56

However, for delay to merit interest, it must be inexcusable in nature. In Guanio v. Makati-Shangri-la Hotel, citing RCPI v.
57
Verchez, we held thus:
In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a
corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from
liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon the
contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to
preserve the interests of the promissee that may include his "expectation interest," which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had the contract been performed, or his "reliance interest,"
which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would
have been in had the contract not been made; or his "restitution interest," which is his interest in having restored to him any benefit
that he has conferred on the other party. Indeed, agreements can accomplish little, either for their makers or for society, unless they
are made the basis for action. The effect of every infraction is to create a new duty, that is, to make RECOMPENSE to the one who
has been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances, like
proof of his exercise of due diligence x x x or of the attendance of fortuitous event, to excuse him from his ensuing liability.
(Emphasis ours)
We agree with petitioner that records are bereft of proof to show that respondents delay was indeed justified by the circumstances
that is, One Virtuals advice regarding petitioners alleged breach of obligations. The lower courts Decision itself belied this
contention when it said that "plaintiff is not disputing that it did not complete commissioning work on one of the two systems
58
because One Virtual at that time is already in default and has not paid GILAT." Assuming arguendo that the commissioning work
was not completed, respondent has no one to blame but its principal, One Virtual; if only it had paid its obligation on time,
petitioner would not have been forced to stop operations. Moreover, the deposition of Mr. Erez Antebi, vice president of Gilat,
repeatedly stated that petitioner had delivered all equipment, including the licensed software; and that the equipment had been
59
installed and in fact, gone into operation. Notwithstanding these compliances, respondent still failed to pay.
As to the issue of when interest must accrue, our Civil Code is explicit in stating that it accrues from the time judicial or extrajudicial
demand is made on the surety. This ruling is in accordance with the provisions of Article 1169 of the Civil Code and of the settled
rule that where there has been an extra-judicial demand before an action for performance was filed, interest on the amount due
60
begins to run, not from the date of the filing of the complaint, but from the date of that extra-judicial demand. Considering that
respondent failed to pay its obligation on 30 May 2000 in accordance with the Purchase Agreement, and that the extrajudicial
61
demand of petitioner was sent on 5 June 2000, we agree with the latter that interest must start to run from the time petitioner
sent its first demand letter (5 June 2000), because the obligation was already due and demandable at that time.
62

With regard to the interest rate to be imposed, we take cue from Nacar v. Gallery Frames, which modified the guidelines
63
established in Eastern Shipping Lines v. CA in relation to Bangko Sentral-Monetary Board Circular No. 799 (Series of 2013), to wit:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded.1wphi1 In the absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
xxxx
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.
Applying the above-discussed concepts and in the absence of an agreement as to interests, we are hereby compelled to award
petitioner legal interest at the rate of 6% per annum from 5 June 2000, its first date of extra judicial demand, until the satisfaction of
the debt in accordance with the revised guidelines enunciated in Nacar.
WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The assailed Decision and Resolution of the Court of Appeals
in CA-G.R. CV No. 89263 are REVERSED. The Decision of the Regional Trial Court, Branch 141, Makati City is REINSTATED, with
MODIFICATION insofar as the award of legal interest is concerned. Respondent is hereby ordered to pay legal interest at the rate of
6% per annum from 5 June 2000 until the satisfaction of its obligation under the Suretyship Contract and Purchase Agreement.
SO ORDERED.
G.R. No. 199595

April 2, 2014

PHILIPPINE WOMAN'S CHRISTIAN TEMPERANCE UNION, INC., Petitioner,

vs.
TEODORO R. YANGCO 2ND AND 3RD GENERATION HEIRS FOUNDATION, INC., Respondent.
DECISION
REYES, J.:
1

This is a petition for certiorari and prohibition under Rule 65 of the Rules of Court seeking the issuance of an order commanding the
Register of Deeds of Quezon City and the Court Sheriff of the Regional Trial Court (RTC) of Quezon City, Branch 218, to cease and
2
3
desist from implementing the Court Resolutions dated July 21, 2010 and September 15, 2010 in G.R. No. 190193 denying with
finality Philippine Woman's Christian Temperance Union, Inc.'s (PWCTUI) petition for review of the Court of Appeals (CA)
4
5
Decision dated November 6, 2009 in CA-G.R. CV No. 90763 which affirmed the Decision dated January 24, 2008 of the RTC in LRC
Case No. Q-18126(04) disposing as follows:
WHEREFORE, the Register of Deeds of Quezon City is hereby ordered to cancel TCT No. 20970 T-22702 and issue in lieu thereof a
new title in the name of Teodoro R. Yangco 2nd and 3rd Generation Heirs Foundation, Inc. free from all liens and encumbrances.
SO ORDERED.

PWCTUI also prays, as ancillary remedy, for the re-opening of LRC Case No. Q-18126(04) and as provisional remedy, for the issuance
of a temporary restraining order (TRO) and/or a writ of preliminary injunction.
The Antecedents
On May 19, 2004, respondent Teodoro R. Yangco (2nd and 3rd Generation Heirs) Foundation, Inc. (TRY Foundation) filed before the
RTC of Quezon City, acting as a Land Registration Court, a Petition for the Issuance of New Title in Lieu of Transfer Certificate of Title
7
(TCT) No. 20970 T-22702 of the Office of the Register of Deeds of Quezon City docketed as LRC Case No. Q-18126(04).

TRY Foundation alleged that it is composed of the 2nd and 3rd generation heirs and successors-in-interest to the first generation
testamentary heirs of the late philanthropist Teodoro R. Yangco (Yangco) who donated on May 19, 1934 a 14,073-square meter
8
parcel of land (subject property) located at 21 Boni Serrano Avenue, Quezon City in the following manner, viz:
a) the property shall be used as a site for an institution to be known as the Abierrtas House of Friendship the purpose of
which shall be to provide a Home for needy and unfortunate women and girls, including children of both sexes and
promote, foster all efforts, work and activities looking toward their protection from the ravages of all forms of immoralities;
b) Should the property herein be used for any other purpose or purposes not herein specified, the present gift shall become
ipso facto null and void and property given shall automatically revert to the donor, his heirs and assigns, but any
improvement or improvements placed, constructed and/or maintained on said premises by the Donee, shall remain the
property of said Donee to be by it removed there[f]rom (sic) at its expense after reasonable notice from the donor, his heirs
9
and assigns.
The property was registered in the name of PWCTUI by virtue of TCT No. 20970 at the back of which the above-quoted conditions of
the donation were annotated. PWCTUI is a non-stock, non-profit corporation originally registered with the Securities and Exchange
10
Commission (SEC) in 1929 under SEC Registration No. PW-959.
11

PWCTUIs corporate term expired in September 1979. Five years thereafter, using the same corporate name, PWCTUI obtained SEC
12
Registration No. 122088 and forthwith applied for the issuance of a new owners duplicate copy of TCT No. 20970 over the subject
13
property thru LRC Case No. 22702. The application was granted and PWCTUI was issued a new TCT No. 20970 T-22702 which,
however, bore only the first condition imposed on the donation.
Recounting the foregoing episodes, TRY Foundation claimed that the expiration of PWCTUIs corporate term in 1979 effectively
rescinded the donation pursuant to the "unwritten resolutory condition" deemed written by Article 1315 of the Civil
14
15
Code prescribing that the Corporation Code, specifically Section 122 thereof, be read into the donation. Interestingly the latter
provision mandates dissolved corporation to wind up their affairs and dispose of their assets within three years from the expiration
of their term. Being comprised of the heirs of the donor, TRY Foundation claimed that it is entitled to petition for the issuance of a
16
new title in their name pursuant to Section 108 of Presidential Decree (P.D.) No. 1529. TRY Foundation prayed for the issuance of a
new title in its name after the cancellation of PWCTUIs TCT No. 20970 T-22702.
PWCTUI opposed the petition arguing that: (1) TRY Foundation has no legal personality to bring the action because the donation has
never been revoked and any right to demand for its revocation already prescribed; (2) although PCWTUIs corporate term was not
extended upon its expiration in 1979, it nonetheless registered anew and continued the operations, affairs and social work of the
corporation; it also continued to possess the property and exercised rights of ownership over it; (3) only the appropriate
government agency and not TRY Foundation or any other private individual can challenge the corporate life and existence of
PCWTUI; (4) TRY Foundation and its counsel are guilty of forum shopping because they have already questioned PWCTUIs corporate
personality in a different forum but failed to obtain a favorable relief; (5) TRY Foundation is guilty of fraud for failing to include
PWCTUI as an indispensable party and to furnish it with a copy of the petition; and (6) the RTC has no jurisdiction over the petition
17
because PWCTUI is unaware of its publication.
18

In a Resolution dated April 4, 2005, the RTC denied the Opposition of PWCTUI. According to the trial court, when the corporate life
of PWCTUI expired in 1979, the property ceased to be used for the purpose for which it was intended, hence, it automatically
reverted to Yangco. As such, TRY Foundation, being composed of his heirs, is considered "other person in interest" under Section
108 of P.D. No. 1529 with a right to file a petition for the issuance of title over the property.
Hearings were thereafter held for the reception of evidence of TRY Foundation. On January 24, 2008, the RTC rendered its
19
Decision sustaining TRY Foundations petition.
The RTC ruled that PWCTUI, with SEC Registration No. PW-959 in whose name the property was registered is separate and distinct
from oppositor PWCTUI with SEC Registration No. 122088. The legal personality of PWCTUI (PW-959) ipso facto ended when its
registration expired in September 1979. The new PWCTUI (122088) has its own personality separate and distinct from PWCTUI (PW959) hence the latter is not the donee and thus has no claim to the property. As such, the reversion clause in the donation came
about and the property must revert to the donor or his heirs, thus:
It is clear that Don Teodoro R. Yangco is the primary reversion owner of the property. He is succeeded as reversion owner by the first
generation heirs or those testamentary heirs named in his Last Will and Testament which will was admitted to probate by the

Supreme Court in the abovecited case. The second generation heirs are the nieces and nephews of Don Teodoro R. Yangco and the
sons/daughters of the "strangers" named in the will. The second generation heirs succeeded the first generation/testamentary heirs
20
in their own right. x x x. (Citations omitted)
The RTC granted TRY Foundations petition by ordering the cancellation of PWCTUIs TCT No. 20970 T-22702 and the issuance of a
21
new title in the name of TRY Foundation.
PWCTUI appealed to the CA, arguing, among others, that it must be determined whether the condition imposed in the donation has
22
already occurred or deemed fulfilled. The appeal was docketed as CA-G.R. CV No. 90763. In its Decision dated November 6, 2009,
the CA affirmed the RTCs findings. The CA added that the subsequent re-registration of PWCTUI (122088) did not revive or continue
the corporate existence of PWCTUI (PW-959). Hence, PWCTUI (122088) is not the real donee contemplated in the donation made by
Yangco and as such any issue on revocation of donation is improper. The CA Decision disposed thus:
WHEREFORE, the appeal is DENIED. The assailed Decision is AFFIRMED in toto. Costs against [PWCTUI].
SO ORDERED.

23

24

PWCTUI sought recourse with the Court thru a petition for review on certiorari docketed as G.R. No. 190193. In a Resolution dated
July 21, 2010, we denied the petition for failure to sufficiently show any reversible error in the assailed CA decision. PWCTUI moved
25
for reconsideration but its motion was denied with finality in another Resolution dated September 15, 2010. An entry of judgment
26
was thereafter issued stating that the Court Resolution dated July 21, 2010 became final and executory on October 20, 2010.
On December 23, 2011, PWCTUI filed the herein petition captioned as one for "Prohibition & Certiorari and to Re-Open the Case
27
with Prayer for Issuance of Temporary Restraining Order (TRO) &/or Writ of Preliminary Injunction." PWCTUI prayed for the
following reliefs:
a.) a TRO and/or a writ of preliminary injunction be issued preventing and/or enjoining public respondents, Register of
Deeds of Quezon City and the Sheriff of the RTC of Quezon City, Branch 218 from executing the RTC Decision dated January
24, 2008;
b.) to make the injunction permanent by annulling and setting aside all orders, decisions, resolutions and proceedings
issued and taken in relation to LRC Case No. Q-18126(04) before the trial and appellate courts for having been promulgated
in excess of jurisdiction or with grave abuse of discretion; and
c.) LRC Case No. Q-18126(04) be re-opened, re-considered and re-studied in the interest of true and fair justice.
In support of its pleas, PWCTUI submitted the following arguments:
a. based on the deed of donation, the expiration of PWCTUIs corporate term is not stated as a ground for the nullification
of the donation and the operation of the reversion clause;
b. the commercial leasing of portions of the donated land did not violate the condition in the donation because the lease
contract with Jelby Acres was pursued for the generation of funds in order for PWCTUI to carry on the charitable purposes
of the Abiertas House of Friendship;
c. TRY Foundation has no legal standing or cause of action to claim the land because its members are not the true heirs of
Yangco who died single and without descendants. His only relatives are his half-siblings who are the legitimate children of
his mother, Doa Ramona Arguelles Corpus and her first husband Tomas Corpus, hence, no right of inheritance ab intestato
can take place between them pursuant to Article 992 of the Civil Code; and d. Even assuming that TRY Foundation has a
cause of action for the revocation of the donation, the same has already prescribed because more than 40 years has lapsed
from the date the donation was made in May 19, 1934.
The Courts Ruling
On its face, it is immediately apparent that the petition merits outright dismissal in view of the doctrine of immutability attached to
the Courts final and executory Resolutions dated July 21, 2010 and September 15, 2010 in G.R. No. 190193.

The doctrine postulates that a decision that has acquired finality becomes immutable and unalterable, and may no longer be
modified in any respect, even if the modification is meant to correct erroneous conclusions of fact and law, and whether it is made
by the court that rendered it or by the Highest Court of the land. Any act which violates this principle must immediately be struck
28
down.
A long and intent study, however, of the arguments raised in the present recourse vis--vis the proceedings taken in LRC Case No. Q18126(04) disclose that it is necessary, obligatory even, for the Court to accord affirmative consideration to the supplications
tendered by PWCTUI in the petition at bar.
While firmly ingrained as a basic procedural tenet in Philippine jurisprudence, immutability of final judgments was never meant to
be an inflexible tool to excuse and overlook prejudicial circumstances. The doctrine must yield to practicality, logic, fairness and
substantial justice.
Hence, its application admits the following exceptions: (1) the correction of clerical errors; (2) the so-called nunc pro tunc entries
which cause no prejudice to any party; (3) void judgments; and (4) whenever circumstances transpire after the finality of the
29
decision rendering its execution unjust and inequitable.
Here, the third exception is attendant. The nullity of the RTC judgment and all subsequent rulings affirming the same, render
inoperative the doctrine of immutability of judgment, and consequently justify the propriety of giving due course to the present
petition.
To expound, the RTC judgment in LRC Case No. Q-18126(04) and all proceedings taken in relation thereto were void because the RTC
did not acquire jurisdiction over the fundamental subject matter of TRY Foundations petition for the issuance of a title which was in
reality, a complaint for revocation of donation, an ordinary civil action outside the ambit of Section 108 of P.D. No. 1529.
The petition filed by TRY
Foundation was a disguised
complaint for revocation of
donation.
It has been held that the jurisdiction of a court over the subject matter of a particular action is determined by the plaintiffs
allegations in the complaint and the principal relief he seeks in the light of the law that apportions the jurisdiction of
30
courts. Jurisdiction should be determined by considering not only the status or the relationship of the parties but also the nature of
31
the issues or questions that is the subject of the controversy.
The petition is premised on allegations that the deed of donation from whence PWCTUI derived its title was automatically revoked
when the latters original corporate term expired in 1979. Consequently, reversion took effect in favor of the donor and/or his heirs.
As relief, TRY Foundation sought the cancellation of TCT No. 20970 T-22702 and the issuance of a new title in its name, to wit:
WHEREFORE, in view of all the foregoing, it is respectfully prayed of the Hon. Court that after due hearing, the Hon. Court render
judgment:
Ordering the Register of Deeds of Quezon City to cancel TCT No. 20970 T-22702 and issue in lieu thereof a new title in the name of
32
TRY Heirs (2nd and 3rd Generation) Heirs Foundation, Inc. free from all liens and encumbrances.
The above contentions and plea betray the caption of the petition. Observably, TRY Foundation is actually seeking to recover the
possession and ownership of the subject property from PWCTUI and not merely the cancellation of PWCTUIs TCT No. 20970 T22702. The propriety of pronouncing TRY Foundation as the absolute owner of the subject property rests on the resolution of
whether or not the donation made to PWCTUI has been effectively revoked when its corporate term expired in 1979. Stated
otherwise, no judgment proclaiming TRY Foundation as the absolute owner of the property can be arrived at without declaring the
deed of donation revoked.
33

The Court made a similar observation in Dolar v. Barangay Lublub (now P.D. Monfort North), Municipality of Dumangas, the facts
of which bear resemblance to the facts at hand. In Dolar, the petitioner filed a complaint for quieting of title and recovery of
possession with damages involving a land he had earlier donated to the respondent. The petitioner claimed that the donation had
ceased to be effective when the respondent failed to comply with the conditions of the donation. As relief, the petitioner prayed
that he be declared the absolute owner of the property. The complaint was dismissed by the trial court on the ground that the

petitioners cause of action for revocation has already prescribed and as such, its claim for quieting of title is ineffective
notwithstanding that the latter cause of action is imprescriptible. In sustaining such dismissal, the Court remarked:
As aptly observed by the trial court, the petitory portion of petitioners complaint in Civil Case No. 98-033 seeks for a judgment
declaring him the absolute owner of the donated property, a plea which necessarily includes the revocation of the deed of donation
in question. Verily, a declaration of petitioners absolute ownership appears legally possible only when the deed of donation is
contextually declared peremptorily revoked.
xxxx
It cannot be overemphasized that respondent barangay traces its claim of ownership over the disputed property to a valid contract
of donation which is yet to be effectively revoked. Such rightful claim does not constitute a cloud on the supposed title of petitioner
over the same property removable by an action to quiet title. Withal, the remedy afforded in Article 476 of the Civil Code is
34
unavailing until the donation shall have first been revoked in due course under Article 764 or Article 1144 of the Code.
An action which seeks the recovery
of property is outside the ambit of
Section 108 of P.D. No. 1529.
Whether the donation merits revocation and consequently effect reversion of the donated property to the donor and/or his heirs
cannot be settled by filing a mere petition for cancellation of title under Section 108 of P.D. No. 1529 which reads:
Sec. 108. Amendment and alteration of certificates. No erasure, alteration, or amendment shall be made upon the registration
book after the entry of a certificate of title or of a memorandum thereon and the attestation of the same by the Register of Deeds,
except by order of the proper Court of First Instance. A registered owner or other person having interest in the registered property,
or, in proper cases, the Register of Deeds with the approval of the Commissioner of Land Registration, may apply by petition to the
court upon the ground that the registered interest of any description, whether vested, contingent, expectant or inchoate appearing
on the certificate, have terminated and ceased; or that new interest not appearing upon the certificate have arisen or been created;
or that an omission or an error was made in entering a certificate or any memorandum thereon, or on any duplicate certificate: or
that the same or any person in the certificate has been changed or that the registered owner has married, or, if registered as
married, that the marriage has been terminated and no right or interest of heirs or creditors will thereby be affected; or that a
corporation which owned registered land and has been dissolved has not yet convened the same within three years after its
dissolution; or upon any other reasonable ground; and the court may hear and determine the petition after notice to all parties in
interest, and may order the entry or cancellation of a new certificate, the entry or cancellation of a memorandum upon a certificate,
or grant any other relief upon such terms and conditions, requiring security and bond if necessary, as it may consider proper;
Provided, however, That this section shall not be construed to give the court authority to reopen the judgment or decree of
registration, and that nothing shall be done or ordered by the court which shall impair the title or other interest of a purchaser
holding a certificate for value and in good faith, or his heirs and assigns without his or their written consent. Where the owners
duplicate certificate is not presented, a similar petition may be filed as provided in the preceding section.
All petitions or motions filed under this section as well as any other provision of this decree after original registration shall be filed
and entitled in the original case in which the decree of registration was entered.
35

A parallel issue was encountered by the Court in Paz v. Republic of the Philippines, which involved a petition for the cancellation of
title brought under the auspices of Section 108 of P.D. No. 1529. The petition sought the cancellation of Original Certificate of Title
No. 684 issued thru LRC Case No. 00-059 in favor of the Republic, Filinvest Development Corporation and Filinvest Alabang, Inc., and
the issuance of a new title in the name of the petitioner therein. The petition was dismissed by the RTC.
The dismissal was affirmed by the CA and eventually by this Court on the following reasons:
We agree with both the CA and the RTC that the petitioner was in reality seeking the reconveyance of the property covered by OCT
No. 684, not the cancellation of a certificate of title as contemplated by Section 108 of P.D. No. 1529. Thus, his petition did not fall
under any of the situations covered by Section 108, and was for that reason rightly dismissed.
Moreover, the filing of the petition would have the effect of reopening the decree of registration, and could thereby impair the
rights of innocent purchasers in good faith and for value. To reopen the decree of registration was no longer permissible,

considering that the one-year period to do so had long ago lapsed, and the properties covered by OCT No. 684 had already been
subdivided into smaller lots whose ownership had passed to third persons. x x x.
xxxx
Nor is it subject to dispute that the petition was not a mere continuation of a previous registration proceeding. Shorn of the thin
disguise the petitioner gave to it, the petition was exposed as a distinct and independent action to seek the reconveyance of realty
and to recover damages. Accordingly, he should perform jurisdictional acts, like paying the correct amount of docket fees for the
filing of an initiatory pleading, causing the service of summons on the adverse parties in order to vest personal jurisdiction over
them in the trial court, and attaching a certification against forum shopping (as required for all initiatory pleadings). He ought to
know that his taking such required acts for granted was immediately fatal to his petition, warranting the granting of the
36
respondents motion to dismiss.
By analogy, the above pronouncements may be applied to the controversy at bar considering that TRY Foundations exposed action
for revocation of the donation necessarily includes a claim for the recovery of the subject property.
The circumstances upon which the ruling in Paz was premised are attendant in the present case. The petition of TRY Foundation had
the effect of reopening the decree of registration in the earlier LRC Case No. 20970 which granted PWCTUIs application for the
issuance of a new owners duplicate copy of TCT No. 20970. As such, it breached the caveat in Section 108 that "this section shall not
be construed to give the court authority to reopen the judgment or decree of registration." The petition of TRY Foundation also
violated that portion in Section 108 stating that "all petitions or motions filed under this section as well as any other provision of this
decree after original registration shall be filed and entitled in the original case in which the decree of registration was entered." The
petition of TRY Foundation in LRC Case No. Q-18126(04) was clearly not a mere continuation of LRC Case No. 20970.
Further, the petition filed by TRY Foundation is not within the province of Section 108 because the relief thereunder can only be
granted if there is unanimity among the parties, or that there is no adverse claim or serious objection on the part of any party in
37
interest. Records show that in its opposition to the petition, PWCTUI maintained that it "remains and continues to be the true and
38
sole owner in fee simple of the property" and that TRY Foundation "has no iota of right" thereto.
More so, the enumerated instances for amendment or alteration of a certificate of title under Section 108 are non-controversial in
nature. They are limited to issues so patently insubstantial as not to be genuine issues. The proceedings thereunder are summary in
39
nature, contemplating insertions of mistakes which are only clerical, but certainly not controversial issues. Undoubtedly,
revocation of donation entails litigious and controversial matters especially in this case where the condition supposedly violated by
PWCTUI is not expressly stated in the deed of donation. Thus, it is imperative to conduct an exhaustive examination of the factual
and legal bases of the parties respective positions for a complete determination of the donors desires. Certainly, such objective
cannot be accomplished by the court through the abbreviated proceedings of Section 108.
In fact, even if it were specifically imposed as a ground for the revocation of the donation that will set off the automatic reversion of
the donated property to the donor and/or his heirs, court intervention is still indispensable.
40

As ruled in Vda. de Delgado v. CA, "[a]lthough automatic reversion immediately happens upon a violation of the condition and
therefore no judicial action is necessary for such purpose, still judicial intervention must be sought by the aggrieved party if only for
41
the purpose of determining the propriety of the rescission made." In addition, where the donee denies the rescission of the
donation or challenges the propriety thereof, only the final award of the court can conclusively settle whether the resolution is
42
proper or not. Here, PWCTUI unmistakably refuted the allegation that the expiration of its corporate term in 1979 rescinded the
donation.
Lastly, the issues embroiled in revocation of donation are litigable in an ordinary civil proceeding which demands stricter
jurisdictional requirements than that imposed in a land registration case.
Foremost of which is the requirement on the service of summons for the court to acquire jurisdiction over the persons of the
defendants. Without a valid service of summons, the court cannot acquire jurisdiction over the defendant, unless the defendant
voluntarily submits to it. Service of summons is a guarantee of ones right to due process in that he is properly apprised of a pending
43
action against him and assured of the opportunity to present his defenses to the suit.

In contrast, jurisdiction in a land registration cases being a proceeding in rem, is acquired by constructive seizure of the land through
44
publication, mailing and posting of the notice of hearing. Persons named in the application are not summoned but merely notified
45
of the date of initial hearing on the petition.
The payment of docket fees is another jurisdictional requirement for an action for revocation which was absent in the suit filed by
TRY Foundation. On the other hand, Section 111 of P.D. No. 1529 merely requires the payment of filing fees and not docket fees.
Filing fees are intended to take care of court expenses in the handling of cases in terms of cost of supplies, use of equipment,
salaries and fringe benefits of personnel, etc., computed as to man hours used in handling of each case. Docket fees, on the other
46
hand, vest the trial court jurisdiction over the subject matter or nature of action.
The absence of the above jurisdictional requirements for ordinary civil actions thus prevented the RTC, acting as a land registration
court, from acquiring the power to hear and decide the underlying issue of revocation of donation in LRC Case No. Q-18126(04). Any
determination made involving such issue had no force and effect; it cannot also bind PWCTUI over whom the RTC acquired no
jurisdiction for lack of service of summons.
"Jurisdiction is the power with which courts are invested for administering justice; that is, for hearing and deciding cases. In order for
the court to have authority to dispose of the case on the merits, it must acquire jurisdiction over the subject matter and the
47
parties."
Conclusion
All told, the RTC, acting as a land registration court, had no jurisdiction over the actual subject matter contained in TRY Foundations
petition for issuance of a new title. TRY Foundation cannot use the summary proceedings in Section 108 of P.D. No. 1529 to rescind a
contract of donation as such action should be threshed out in ordinary civil proceedings. In the same vein, the RTC had no
jurisdiction to declare the donation annulled and as a result thereof, order the register of deeds to cancel PWCTUIs TCT No. 20970
T-22702 and issue a new one in favor of TRY Foundation.
The RTC, acting as a land registration court, should have dismissed the land registration case or re-docketed the same as an ordinary
civil action and thereafter ordered compliance with stricter jurisdictional requirements. Since the RTC had no jurisdiction over the
action for revocation of donation disguised as a land registration case, the judgment in LRC Case No. Q-18126(04) is null and void.
Being void, it cannot be the source of any right or the creator of any obligation. It can never become final and any writ of execution
48
based on it is likewise void. It may even be considered as a lawless thing which can be treated as an outlaw and slain at sight, or
49
ignored wherever and whenever it exhibits its head.
Resultantly, the appellate proceedings relative to LRC Case No. Q-18126(04) and all issuances made in connection with such review
are likewise of no force and effect. A void judgment cannot perpetuate even if affirmed on appeal by the highest court of the land.
50
All acts pursuant to it and all claims emanating from it have no legal effect.
The Court Resolutions dated July
21, 2010 and September 15, 2010 do
not bar the present ruling.
It is worth emphasizing that despite PWCTUIs incessant averment of the RTCs lack of jurisdiction over TRY Foundations petition,
the trial court shelved the issue, took cognizance of matters beyond those enveloped under Section 108 and sorted out, in abridged
proceedings, complex factual issues otherwise determinable in a full-blown trial appropriate for an ordinary civil action.
PWCTUI no longer raised the jurisdiction issue before the CA and limited its appeal to the factual findings and legal conclusions of
the RTC on its corporate existence and capacity as the subject propertys uninterrupted owner. The matter reached the Court thru a
petition for review under Rule 45, but with the question of jurisdiction absent in the appellate pleadings, the Court was constrained
to review only mistakes of judgment.
While PWCTUI could have still challenged the RTCs jurisdiction even on appeal, its failure to do so cannot work to its disadvantage.
51
The issue of jurisdiction is not lost by waiver or by estoppel; no laches will even attach to a judgment rendered without jurisdiction.

Hence, since the Court Resolutions dated July 21, 2010 and September 15, 2010 in G.R. No. 190193 disposed the case only insofar as
the factual and legal questions brought before the CA were concerned, they cannot operate as a procedural impediment to the
present ruling which deals with mistake of jurisdiction.1wphi1
This is not to say, however, that a certiorari before the Court is a remedy against its own final and executory judgment. As made
known in certain cases, the Court is invested with the power to suspend the application of the rules of procedure as a necessary
52
53
complement of its power to promulgate the same. Barnes v. Hon. Quijano Padilla discussed the rationale for this tenet, viz:
Let it be emphasized that the rules of procedure should be viewed as mere tools designed to facilitate the attainment of justice.
Their strict and rigid application, which would result in technicalities that tend to frustrate rather than promote substantial justice,
must always be eschewed. Even the Rules of Court reflect this principle. The power to suspend or even disregard rules can be so
pervasive and compelling as to alter even that which this Court itself has already declared to be final, x x x.
The emerging trend in the rulings of this Court is to afford every party litigant the amplest opportunity for the proper and just
determination of his cause, free from the constraints of technicalities. Time and again, this Court has consistently held that rules
54
must not be applied rigidly so as not to override substantial justice. (Citation omitted and italics supplied)
Here, the grave error in jurisdiction permeating the proceedings taken in LRC Case No. Q-18126(04) deprived PWCTUI of its property
without the very foundation of judicial proceedings due process. Certainly, the Court cannot let this mistake pass without de
rigueur rectification by suspending the rules of procedure and permitting the present recourse to access auxiliary review.
If the Court, as the head and guardian of the judicial branch, must continuously merit the force of public trust and confidence
which ultimately is the real source of its sovereign power and if it must decisively discharge its sacred duty as the last sanctuary of
the oppressed and the weak, it must, in appropriate cases, pro-actively provide weary litigants with immediate legal and equitable
relief, free from the delays and legalistic contortions that oftentimes result from applying purely formal and procedural approaches
55
to judicial dispensations.
WHEREFORE, all things studiedly viewed in the correct perspective, the petition is hereby GRANTED. All proceedings taken,
decisions, resolutions, orders and other issuances made in LRC Case No. Q-18126(04), CA-G.R. CV No. 90763 and G.R. No. 190193 are
hereby ANNULLED and SET ASIDE.
The Register of Deeds of Quezon City is hereby ORDERED to CANCEL any Transfer Certificate of Title issued in the name of Teodoro
R. Yangco 2nd and 3rd Generation Heirs Foundation, Inc. as a consequence of the execution of the disposition in LRC Case No. Q18126(04), and to REINSTATE Transfer Certificate of Title No. 20970 T-22702 in the name of Philippine Womans Christian
Temperance Union, Inc.
SO ORDERED.
G.R. No. 174433

February 24, 2014

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
SPOUSES ENRIQUE MANALO & ROSALINDA JACINTO, ARNOLD J. MANALO, ARNEL J. MANALO, and ARMA J.
MANALO, Respondents.
DECISION
BERSAMIN, J.:
Although banks are free to determine the rate of interest they could impose on their borrowers, they can do so only reasonably, not
arbitrarily. They may not take advantage of the ordinary borrowers' lack of familiarity with banking procedures and jargon. Hence,
any stipulation on interest unilaterally imposed and increased by them shall be struck down as violative of the principle of mutuality
of contracts.
Antecedents

Respondent Spouses Enrique Manalo and Rosalinda Jacinto (Spouses Manalo) applied for an All-Purpose Credit Facility in the
amount of P1,000,000.00 with Philippine National Bank (PNB) to finance the construction of their house. After PNB granted their
application, they executed a Real Estate Mortgage on November 3, 1993 in favor of PNB over their property covered by Transfer
1
Certificate of Title No. S- 23191 as security for the loan. The credit facility was renewed and increased several times over the years.
On September 20, 1996, the credit facility was again renewed for P7,000,000.00. As a consequence, the parties executed a
Supplement to and Amendment of Existing Real Estate Mortgage whereby the property covered by TCT No. 171859 was added as
security for the loan.
The additional security was registered in the names of respondents Arnold, Arnel, Anthony, and Arma, all surnamed Manalo, who
2
were their children.
It was agreed upon that the Spouses Manalo would make monthly payments on the interest. However, PNB claimed that their last
recorded payment was made on December, 1997. Thus, PNB sent a demand letter to them on their overdue account and required
3
them to settle the account. PNB sent another demand letter because they failed to heed the first demand.
After the Spouses Manalo still failed to settle their unpaid account despite the two demand letters, PNB foreclose the mortgage.
During the foreclosure sale, PNB was the highest bidder for P15,127,000.00 of the mortgaged properties of the Spouses Manalo. The
4
sheriff issued to PNB the Certificate of Sale dated November 13, 2000.
After more than a year after the Certificate of Sale had been issued to PNB, the Spouses Manalo instituted this action for the
nullification of the foreclosure proceedings and damages. They alleged that they had obtained a loan for P1,000,000.00 from a
certain Benito Tan upon arrangements made by Antoninus Yuvienco, then the General Manager of PNBs Bangkal Branch where they
had transacted; that they had been made to understand and had been assured that the P1,000,000.00 would be used to update
5
their account, and that their loan would be restructured and converted into a long-term loan; that they had been surprised to learn,
therefore, that had been declared in default of their obligations, and that the mortgage on their property had been foreclosed and
6
their property had been sold; and that PNB did not comply with Section 3 of Act No. 3135, as amended.
PNB and Antoninus Yuvienco countered that the P1,000,000.00 loan obtained by the Spouses Manalo from Benito Tan had been
credited to their account; that they did not make any assurances on the restructuring and conversion of the Spouses Manalos loan
7
into a long-term one; that PNBs right to foreclose the mortgage had been clear especially because the Spouses Manalo had not
assailed the validity of the loans and of the mortgage; and that the Spouses Manalo did not allege having fully paid their
8
indebtedness.
Ruling ofthe RTC
After trial, the RTC rendered its decision in favor of PNB, holding thusly:
In resolving this present case, one of the most significant matters the court has noted is that while during the pre-trial held on 8
September 2003, plaintiff-spouses Manalo with the assistance counsel had agreed to stipulate that defendants had the right to
foreclose upon the subject properties and that the plaintiffs[] main thrust was to prove that the foreclosure proceedings were
invalid, in the course of the presentation of their evidence, they modified their position and claimed [that] the loan document
executed were contracts of adhesion which were null and void because they were prepared entirely under the defendant banks
supervision. They also questioned the interest rates and penalty charges imposed arguing that these were iniquitous,
unconscionable and therefore likewise void.
Not having raised the foregoing matters as issues during the pre-trial, plaintiff-spouses are presumably estopped from allowing
these matters to serve as part of their evidence, more so because at the pre-trial they expressly recognized the defendant banks
right to foreclose upon the subject property (See Order, pp. 193-195).
However, considering that the defendant bank did not interpose any objection to these matters being made part of plaintiffs
evidence so much so that their memorandum contained discussions rebutting plaintiff spouses arguments on these issues, the court
9
must necessarily include these matters in the resolution of the present case.
The RTC held, however, that the Spouses Manalos "contract of adhesion" argument was unfounded because they had still accepted
10
the terms and conditions of their credit agreement with PNB and had exerted efforts to pay their obligation; that the Spouses
Manalo were now estopped from questioning the interest rates unilaterally imposed by PNB because they had paid at those rates

11

for three years without protest; and that their allegation about PNB violating the notice and publication requirements during the
12
foreclosure proceedings was untenable because personal notice to the mortgagee was not required under Act No. 3135.
The Spouses Manalo appealed to the CA by assigning a singular error, as follows:
THE COURT A QUO SERIOUSLY ERRED IN DISMISSING PLAINTIFF-APPELLANTS COMPLAINT FOR BEING (sic) LACK OF MERIT
13
NOTWITHSTANDING THE FACT THAT IT WAS CLEARLY SHOWN THAT THE FORECLOSURE PROCEEDINGS WAS INVALID AND ILLEGAL.
The Spouses Manalo reiterated their arguments, insisting that: (1) the credit agreements they entered into with PNB were contracts
14
of adhesion; (2) no interest was due from them because their credit agreements with PNB did not specify the interest rate, and
15
PNB could not unilaterally increase the interest rate without first informing them; and (3) PNB did not comply with the notice and
16
publication requirements under Section 3 of Act 3135. On the other hand, PNB and Yuvienco did not file their briefs despite
17
notice.
Ruling ofthe CA
18

In its decision promulgated on March 28, 2006, the CA affirmed the decision of the RTC insofar as it upheld the validity of the
foreclosure proceedings initiated by PNB, but modified the Spouses Manalos liability for interest. It directed the RTC to see to the
recomputation of their indebtedness, and ordered that should the recomputed amount be less than the winning bid in the
foreclosure sale, the difference should be immediately returned to the Spouses Manalo.
The CA found it necessary to pass upon the issues of PNBs failure to specify the applicable interest and the lack of mutuality in the
execution of the credit agreements considering the earlier cited observation made by the trial court in its decision. Applying Article
1956 of the Civil Code, the CA held that PNBs failure to indicate the rate of interest in the credit agreements would not excuse the
Spouses Manalo from their contractual obligation to pay interest to PNB because of the express agreement to pay interest in the
credit agreements. Nevertheless, the CA ruled that PNBs inadvertence to specify the interest rate should be construed against it
because the credit agreements were clearly contracts of adhesion due to their having been prepared solely by PNB.
The CA further held that PNB could not unilaterally increase the rate of interest considering that the credit agreements specifically
provided that prior notice was required before an increase in interest rate could be effected. It found that PNB did not adduce proof
showing that the Spouses Manalo had been notified before the increased interest rates were imposed; and that PNBs unilateral
imposition of the increased interest rate was null and void for being violative of the principle of mutuality of contracts enshrined in
Article 1308 of the Civil Code. Reinforcing its "contract of adhesion" conclusion, it added that the Spouses Manalos being in dire
need of money rendered them to be not on an equal footing with PNB. Consequently, the CA, relying on Eastern Shipping Lines, v.
19
Court of Appeals, fixed the interest rate to be paid by the Spouses Manalo at 12% per annum, computed from their default.
The CA deemed to be untenable the Spouses Manalos allegation that PNB had failed to comply with the requirements for notice
and posting under Section 3 of Act 3135. The CA stated that Sheriff Norberto Magsajos testimony was sufficient proof of his posting
of the required Notice of Sheriffs Sale in three public places; that the notarized Affidavit of Publication presented by Sheriff Magsajo
was prima facie proof of the publication of the notice; and that the Affidavit of Publication enjoyed the presumption of regularity,
such that the Spouses Manalos bare allegation of non-publication without other proof did not overcome the presumption.
On August 29, 2006, the CA denied the Spouses Manalos Motion for Reconsideration and PNBs Partial Motion for
20
Reconsideration.
Issues
21

In its Memorandum, PNB raises the following issues:

I
WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN NULLIFYING THE INTEREST RATES IMPOSED ON RESPONDENT
SPOUSES LOAN AND IN FIXING THE SAME AT TWELVE PERCENT (12%) FROM DEFAULT, DESPITE THE FACT THAT (i) THE SAME WAS
RAISED BY THE RESPONDENTS ONLY FOR THE FIRST TIME ON APPEAL (ii) IT WAS NEVER PART OF THEIR COMPLAINT (iii) WAS
EXLUDED AS AN ISSUE DURING PRE-TRIAL, AND WORSE, (iv) THERE WAS NO FORMALLY OFFERED PERTAINING TO THE SAME
DURING TRIAL.

II
WHETHER OR NOT THE COURT OF APPEALS CORRECTLY RULED THAT THERE WAS NO MUTUALITY OF CONSENT IN THE IMPOSITION
OF INTEREST RATES ON THE RESPONDENT SPOUSES LOAN DESPITE THE EXISTENCE OF FACTS AND CIRCUMSTANCES CLEARLY
SHOWING RESPONDENTS ASSENT TO THE RATES OF INTEREST SO IMPOSED BY PNB ON THE LOAN.
Anent the first issue, PNB argues that by passing upon the issue of the validity of the interest rates, and in nullifying the rates
imposed on the Spouses Manalo, the CA decided the case in a manner not in accord with Section 15, Rule 44 of the Rules of Court,
which states that only questions of law or fact raised in the trial court could be assigned as errors on appeal; that to allow the
Spouses Manalo to raise an issue for the first time on appeal would "offend the basic rules of fair play, justice and due
22
23
process;" that the resolution of the CA was limited to the issues agreed upon by the parties during pre-trial; that the CA erred in
passing upon the validity of the interest rates inasmuch as the Spouses Manalo did not present evidence thereon; and that the
Judicial Affidavit of Enrique Manalo, on which the CA relied for its finding, was not offered to prove the invalidity of the interest
24
rates and was, therefore, inadmissible for that purpose.
As to the substantive issues, PNB claims that the Spouses Manalos continuous payment of interest without protest indicated their
assent to the interest rates imposed, as well as to the subsequent increases of the rates; and that the CA erred in declaring that the
interest rates and subsequent increases were invalid for lack of mutuality between the contracting parties.
Ruling
The appeal lacks merit.
1.
Procedural Issue
Contrary to PNBs argument, the validity of the interest rates and of the increases, and on the lack of mutuality between the parties
were not raised by the Spouses Manalos for the first time on appeal. Rather, the issues were impliedly raised during the trial itself,
and PNBs lack of vigilance in voicing out a timely objection made that possible.
It appears that Enrique Manalos Judicial Affidavit introduced the issues of the validity of the interest rates and the increases, and
the lack of mutuality between the parties in the following manner, to wit:
5. True to his words, defendant Yuvienco, after several days, sent us a document through a personnel of defendant PNB,
Bangkal, Makati City Branch, who required me and my wife to affix our signature on the said document;
6. When the document was handed over me, I was able to know that it was a Promissory Note which was in ready made
form and prepared solely by the defendant PNB;
xxxx
21. As above-noted, the rates of interest imposed by the defendant bank were never the subject of any stipulation between
us mortgagors and the defendant PNB as mortgagee;
22. The truth of the matter is that defendant bank imposed rate of interest which ranges from 19% to as high as 28% and
which changes from time to time;
23. The irregularity, much less the invalidity of the imposition of iniquitous rates of interest was aggravated by the fact that
25
we were not informed, notified, nor the same had our prior consent and acquiescence therefor. x x x
PNB cross-examined Enrique Manalo upon his Judicial Affidavit. There is no showing that PNB raised any objection in the course of
26
the cross examination. Consequently, the RTC rightly passed upon such issues in deciding the case, and its having done so was in
total accord with Section 5, Rule 10 of the Rules of Court, which states:
Section 5. Amendment to conform to or authorize presentation of evidence. When issues not raised by the pleadings are tried with
the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such

amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made
upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial of these
issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow
the pleadings to be amended and shall do so with liberality if the presentation of the merits of the action and the ends of substantial
justice will be subserved thereby. The court may grant a continuance to enable the amendment to be made.
27

In Bernardo Sr. v. Court of Appeals, we held that:

It is settled that even if the complaint be defective, but the parties go to trial thereon, and the plaintiff, without objection,
introduces sufficient evidence to constitute the particular cause of action which it intended to allege in the original complaint, and
the defendant voluntarily produces witnesses to meet the cause of action thus established, an issue is joined as fully and as
effectively as if it had been previously joined by the most perfect pleadings. Likewise, when issues not raised by the pleadings are
tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings.
The RTC did not need to direct the amendment of the complaint by the Spouses Manalo. Section 5, Rule 10 of the Rules of Court
specifically declares that the "failure to amend does not affect the result of the trial of these issues." According to Talisay-Silay
28
Milling Co., Inc. v. Asociacion de Agricultores de Talisay-Silay, Inc.:
The failure of a party to amend a pleading to conform to the evidence adduced during trial does not preclude an adjudication by the
court on the basis of such evidence which may embody new issues not raised in the pleadings, or serve as a basis for a higher award
of damages. Although the pleading may not have been amended to conform to the evidence submitted during trial, judgment may
nonetheless be rendered, not simply on the basis of the issues alleged but also on the basis of issues discussed and the assertions of
fact proved in the course of trial.1wphi1 The court may treat the pleading as if it had been amended to conform to the evidence,
although it had not been actually so amended. Former Chief Justice Moran put the matter in this way:
When evidence is presented by one party, with the expressed or implied consent of the adverse party, as to issues not alleged in the
pleadings, judgment may be rendered validly as regards those issues, which shall be considered as if they have been raised in the
pleadings. There is implied, consent to the evidence thus presented when the adverse party fails to object thereto." (Emphasis
supplied)
Clearly, a court may rule and render judgment on the basis of the evidence before it even though the relevant pleading had not been
previously amended, so long as no surprise or prejudice is thereby caused to the adverse party. Put a little differently, so long as the
basic requirements of fair play had been met, as where litigants were given full opportunity to support their respective contentions
and to object to or refute each other's evidence, the court may validly treat the pleadings as if they had been amended to conform
to the evidence and proceed to adjudicate on the basis of all the evidence before it.
There is also no merit in PNBs contention that the CA should not have considered and ruled on the issue of the validity of the
interest rates because the Judicial Affidavit of Enrique Manalo had not been offered to prove the same but only "for the purpose of
29
identifying his affidavit." As such, the affidavit was inadmissible to prove the nullity of the interest rates.
We do not agree.
Section 5, Rule 10 of the Rules of Court is applicable in two situations.1wphi1 The first is when evidence is introduced on an issue
not alleged in the pleadings and no objection is interposed by the adverse party. The second is when evidence is offered on an issue
30
not alleged in the pleadings but an objection is raised against the offer. This case comes under the first situation. Enrique Manalos
Judicial Affidavit would introduce the very issues that PNB is now assailing. The question of whether the evidence on such issues was
admissible to prove the nullity of the interest rates is an entirely different matter. The RTC accorded credence to PNBs evidence
showing that the Spouses Manalo had been paying the interest imposed upon them without protest. On the other hand, the CAs
nullification of the interest rates was based on the credit agreements that the Spouses Manalo and PNB had themselves submitted.
Based on the foregoing, the validity of the interest rates and their increases, and the lack of mutuality between the parties were
issues validly raised in the RTC, giving the Spouses Manalo every right to raise them in their appeal to the CA. PNBs contention was
based on its wrong appreciation of what transpired during the trial. It is also interesting to note that PNB did not itself assail the
RTCs ruling on the issues obviously because the RTC had decided in its favor. In fact, PNB did not even submit its appellees brief
despite notice from the CA.

2.
Substantive Issue
The credit agreement executed succinctly stipulated that the loan would be subjected to interest at a rate "determined by the Bank
31
to be its prime rate plus applicable spread, prevailing at the current month." This stipulation was carried over to or adopted by the
subsequent renewals of the credit agreement. PNB thereby arrogated unto itself the sole prerogative to determine and increase the
interest rates imposed on the Spouses Manalo. Such a unilateral determination of the interest rates contravened the principle of
32
mutuality of contracts embodied in Article 1308 of the Civil Code.
The Court has declared that a contract where there is no mutuality between the parties partakes of the nature of a contract of
33
adhesion, and any obscurity will be construed against the party who prepared the contract, the latter being presumed the stronger
34
party to the agreement, and who caused the obscurity. PNB should then suffer the consequences of its failure to specifically
35
indicate the rates of interest in the credit agreement. We spoke clearly on this in Philippine Savings Bank v. Castillo, to wit:
The unilateral determination and imposition of the increased rates is violative of the principle of mutuality of contracts under Article
1308 of the Civil Code, which provides that [t]he contract must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them. A perusal of the Promissory Note will readily show that the increase or decrease of interest rates
hinges solely on the discretion of petitioner. It does not require the conformity of the maker before a new interest rate could be
enforced. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result,
thus partaking of the nature of a contract of adhesion, is void. Any stipulation regarding the validity or compliance of the contract
left solely to the will of one of the parties is likewise invalid. (Emphasis supplied)
PNB could not also justify the increases it had effected on the interest rates by citing the fact that the Spouses Manalo had paid the
interests without protest, and had renewed the loan several times. We rule that the CA, citing Philippine National Bank v. Court of
36
Appeals, rightly concluded that "a borrower is not estopped from assailing the unilateral increase in the interest made by the
lender since no one who receives a proposal to change a contract, to which he is a party, is obliged to answer the same and said
37
partys silence cannot be construed as an acceptance thereof."
Lastly, the CA observed, and properly so, that the credit agreements had explicitly provided that prior notice would be necessary
before PNB could increase the interest rates. In failing to notify the Spouses Manalo before imposing the increased rates of interest,
therefore, PNB violated the stipulations of the very contract that it had prepared. Hence, the varying interest rates imposed by PNB
have to be vacated and declared null and void, and in their place an interest rate of 12% per annum computed from their default is
38
fixed pursuant to the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.
The CAs directive to PNB (a) to recompute the Spouses Manalos indebtedness under the oversight of the RTC; and (b) to refund to
them any excess of the winning bid submitted during the foreclosure sale over their recomputed indebtedness was warranted and
equitable. Equally warranted and equitable was to make the amount to be refunded, if any, bear legal interest, to be reckoned from
39
the promulgation of the CAs decision on March 28, 2006. Indeed, the Court said in Eastern Shipping Lines, Inc. v. Court of
40
Appeals that interest should be computed from the time of the judicial or extrajudicial demand. However, this case presents a
peculiar situation, the peculiarity being that the Spouses Manalo did not demand interest either judicially or extrajudicially. In the
RTC, they specifically sought as the main reliefs the nullification of the foreclosure proceedings brought by PNB, accounting of the
41
payments they had made to PNB, and the conversion of their loan into a long term one. In its judgment, the RTC even upheld the
42
validity of the interest rates imposed by PNB. In their appellants brief, the Spouses Manalo again sought the nullification of the
43
foreclosure proceedings as the main relief. It is evident, therefore, that the Spouses Manalo made no judicial or extrajudicial
demand from which to reckon the interest on any amount to be refunded to them. Such demand could only be reckoned from the
promulgation of the CAs decision because it was there that the right to the refund was first judicially recognized. Nevertheless,
44
pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals, the amount to be refunded and the interest thereon should earn
interest to be computed from the finality of the judgment until the full refund has been made.
45

Anent the correct rates of interest to be applied on the amount to be refunded by PNB, the Court, in Nacar v. Gallery Frames and
46
S.C. Megaworld Construction v. Parada, already applied Monetary Board Circular No. 799 by reducing the interest rates allowed in
47
judgments from 12% per annum to 6% per annum. According to Nacar v. Gallery Frames, MB Circular No. 799 is applied
prospectively, and judgments that became final and executory prior to its effectivity on July 1, 2013 are not to be disturbed but
continue to be implemented applying the old legal rate of 12% per annum. Hence, the old legal rate of 12% per annum applied to
judgments becoming final and executory prior to July 1, 2013, but the new rate of 6% per annum applies to judgments becoming
final and executory after said dater.

Conformably with Nacar v. Gallery Frames and S.C. Megaworld Construction v. Parada, therefore, the proper interest rates to be
imposed in the present case are as follows:
1. Any amount to be refunded to the Spouses Manalo shall bear interest of 12% per annum computed from March 28,
2006, the date of the promulgation of the CA decision, until June 30, 2013; and 6% per annum computed from July 1, 2013
until finality of this decision; and
2. The amount to be refunded and its accrued interest shall earn interest of 6% per annum until full refund.
WHEREFORE, the Court AFFIRMS the decision promulgated by the Court of Appeals on March 28, 2006 in CA-G.R. CV No. 84396,
subject to the MODIFICATION that any amount to be refunded to the respondents shall bear interest of 12% per annum computed
from March 28, 2006 until June 30, 2013, and 6% per annum computed from July 1, 2013 until finality hereof; that the amount to be
refunded and its accrued interest shall earn interest at 6o/o per annum until full refund; and DIRECTS the petitioner to pay the costs
of suit.
SO ORDERED.
G.R. No. 182128

February 19, 2014

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
TERESITA TAN DEE, ANTIPOLO PROPERTIES, INC., (now PRIME EAST PROPERTIES, INC.) and AFP-RSBS, INC., Respondents.
DECISION
REYES, J.:
1

This is a Petition for Review under Rule 45 of the Rules of Court, assailing the Decision dated August 13, 2007 and
3
Resolution dated March 13, 2008 rendered by the Court of Appeals (CA) in CA-G.R. SP No. 86033, which affirmed the
4
Decision dated August 4, 2004 of the Office of the President (OP) in O.P. Case No. 04-D-182 (HLURB Case No. REM-A-030724-0186).
Facts of the Case
5

Some time in July 1994, respondent Teresita Tan Dee (Dee) bought from respondent Prime East Properties Inc. (PEPI) on an
6
installment basis a residential lot located in Binangonan, Rizal, with an area of 204 square meters and covered by Transfer
Certificate of Title (TCT) No. 619608. Subsequently, PEPI assigned its rights over a 213,093-sq m property on August 1996 to
respondent Armed Forces of the Philippines-Retirement and Separation Benefits System, Inc. (AFP-RSBS), which included the
property purchased by Dee.
Thereafter, or on September 10, 1996, PEPI obtained a P205,000,000.00 loan from petitioner Philippine National Bank (petitioner),
secured by a mortgage over several properties, including Dees property. The mortgage was cleared by the Housing and Land Use
7
Regulatory Board (HLURB) on September 18, 1996.
After Dees full payment of the purchase price, a deed of sale was executed by respondents PEPI and AFP-RSBS on July 1998 in Dees
favor. Consequently, Dee sought from the petitioner the delivery of the owners duplicate title over the property, to no avail. Thus,
she filed with the HLURB a complaint for specific performance to compel delivery of TCT No. 619608 by the petitioner, PEPI and AFP8
RSBS, among others. In its Decision dated May 21, 2003, the HLURB ruled in favor of Dee and disposed as follows:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Directing [the petitioner] to cancel/release the mortgage on Lot 12, Block 21-A, Village East Executive Homes covered by
Transfer Certificate of Title No. -619608-(TCT No. -619608-), and accordingly, surrender/release the title thereof to [Dee];
2. Immediately upon receipt by [Dee] of the owners duplicate of Transfer Certificate of Title No. -619608- (TCT No. 619608-), respondents PEPI and AFP-RSBS are hereby ordered to deliver the title of the subject lot in the name of [Dee] free
from all liens and encumbrances;

3. Directing respondents PEPI and AFP-RSBS to pay [the petitioner] the redemption value of Lot 12, Block 21-A, Village East
Executive Homes covered by Transfer Certificate of Title No. -619608- (TCT No. -619608-) as agreed upon by them in their
Real Estate Mortgage within six (6) months from the time the owners duplicate of Transfer Certificate of Title No. -619608(TCT No. -619608-) is actually surrendered and released by [the petitioner] to [Dee];
4. In the alternative, in case of legal and physical impossibility on the part of [PEPI, AFP-RSBS, and the petitioner] to comply
and perform their respective obligation/s, as above-mentioned, respondents PEPI and AFP-RSBS are hereby ordered to
jointly and severally pay to [Dee] the amount of FIVE HUNDRED TWENTY THOUSAND PESOS ([P]520,000.00) plus twelve
percent (12%) interest to be computed from the filing of complaint on April 24, 2002 until fully paid; and
5. Ordering [PEPI, AFP-RSBS, and the petitioner] to pay jointly and severally [Dee] the following sums:
a) The amount of TWENTY FIVE THOUSAND PESOS ([P]25,000.00) as attorneys fees;
b) The cost of litigation[;] and
c) An administrative fine of TEN THOUSAND PESOS ([P]10,000.00) payable to this Office fifteen (15) days upon
receipt of this decision, for violation of Section 18 in relation to Section 38 of PD 957.
SO ORDERED.

The HLURB decision was affirmed by its Board of Commissioners per Decision dated March 15, 2004, with modification as to the rate
10
of interest.
On appeal, the Board of Commissioners decision was affirmed by the OP in its Decision dated August 4, 2004, with modification as
11
to the monetary award.
Hence, the petitioner filed a petition for review with the CA, which, in turn, issued the assailed Decision dated August 13, 2007,
affirming the OP decision. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated August 4, 2004 rendered by the Office of the
President in O. P. Case No. 04-D-182 (HLURB Case No. REM-A-030724-0186) is hereby AFFIRMED.
SO ORDERED.

12

Its motion for reconsideration having been denied by the CA in the Resolution dated March 13, 2008, the petitioner filed the present
petition for review on the following grounds:
I. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING OUTRIGHT RELEASE OF TCT NO. 619608 DESPITE PNBS DULY
REGISTERED AND HLURB[-] APPROVED MORTGAGE ON TCT NO. 619608.
II. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING CANCELLATION OF MORTGAGE/RELEASE OF TITLE IN FAVOR
OF RESPONDENT DEE DESPITE THE LACK OF PAYMENT OR SETTLEMENT BY THE MORTGAGOR (API/PEPI and AFP-RSBS) OF
ITS EXISTING LOAN OBLIGATION TO PNB, OR THE PRIOR EXERCISE OF RIGHT OF REDEMPTION BY THE MORTGAGOR AS
MANDATED BY SECTION 25 OF PD 957 OR DIRECT PAYMENT MADE BY RESPONDENT DEE TO PNB PURSUANT TO THE DEED
13
OF UNDERTAKING WHICH WOULD WARRANT RELEASE OF THE SAME.
The petitioner claims that it has a valid mortgage over Dees property, which was part of the property mortgaged by PEPI to it to
secure its loan obligation, and that Dee and PEPI are bound by such mortgage. The petitioner also argues that it is not privy to the
transactions between the subdivision project buyers and PEPI, and has no obligation to perform any of their respective undertakings
14
under their contract.
15

The petitioner also maintains that Presidential Decree (P.D.) No. 957 cannot nullify the subsisting agreement between it and PEPI,
16
and that the petitioners rights over the mortgaged properties are protected by Act 3135 . If at all, the petitioner can be compelled
to release or cancel the mortgage only after the provisions of P.D. No. 957 on redemption of the mortgage by the owner/developer

(Section 25) are complied with. The petitioner also objects to the denomination by the CA of the provisions in the Affidavit of
17
18
Undertaking as stipulations pour autrui, arguing that the release of the title was conditioned on Dees direct payment to it.
Respondent AFP-RSBS, meanwhile, contends that it cannot be compelled to pay or settle the obligation under the mortgage contract
19
between PEPI and the petitioner as it is merely an investor in the subdivision project and is not privy to the mortgage.
Respondent PEPI, on the other hand, claims that the title over the subject property is one of the properties due for release by the
20
petitioner as it has already been the subject of a Memorandum of Agreement and dacion en pago entered into between them. The
agreement was reached after PEPI filed a petition for rehabilitation, and contained the stipulation that the petitioner agreed to
release the mortgage lien on fully paid mortgaged properties upon the issuance of the certificates of title over the dacioned
21
properties.
For her part, respondent Dee adopts the arguments of the CA in support of her prayer for the denial of the petition for review.

22

Ruling of the Court

The petition must be DENIED.
The petitioner is correct in arguing that it is not obliged to perform any of the undertaking of respondent PEPI and AFP-RSBS in its
transactions with Dee because it is not a privy thereto. The basic principle of relativity of contracts is that contracts can only bind the
23
parties who entered into it, and cannot favor or prejudice a third person, even if he is aware of such contract and has acted with
24
25
knowledge thereof. "Where there is no privity of contract, there is likewise no obligation or liability to speak about."
The petitioner, however, is not being tasked to undertake the obligations of PEPI and AFP-RSBS.1avvphi1 In this case, there are two
phases involved in the transactions between respondents PEPI and Dee the first phase is the contract to sell, which eventually
became the second phase, the absolute sale, after Dees full payment of the purchase price. In a contract of sale, the parties
obligations are plain and simple. The law obliges the vendor to transfer the ownership of and to deliver the thing that is the object of
26
27
sale. On the other hand, the principal obligation of a vendee is to pay the full purchase price at the agreed time. Based on the
final contract of sale between them, the obligation of PEPI, as owners and vendors of Lot 12, Block 21-A, Village East Executive
Homes, is to transfer the ownership of and to deliver Lot 12, Block 21-A to Dee, who, in turn, shall pay, and has in fact paid, the full
purchase price of the property. There is nothing in the decision of the HLURB, as affirmed by the OP and the CA, which shows that
the petitioner is being ordered to assume the obligation of any of the respondents. There is also nothing in the HLURB decision,
which validates the petitioners claim that the mortgage has been nullified. The order of cancellation/release of the mortgage is
simply a consequence of Dees full payment of the purchase price, as mandated by Section 25 of P.D. No. 957, to wit:
Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or
unit. No fee, except those required for the registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance
of such title. In the event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the
owner or developer shall redeem the mortgage or the corresponding portion thereof within six months from such issuance in order
that the title over any fully paid lot or unit may be secured and delivered to the buyer in accordance herewith.
It must be stressed that the mortgage contract between PEPI and the petitioner is merely an accessory contract to the principal
three-year loan takeout from the petitioner by PEPI for its expansion project. It need not be belaboured that "[a] mortgage is an
28
accessory undertaking to secure the fulfillment of a principal obligation," and it does not affect the ownership of the property as it
29
is nothing more than a lien thereon serving as security for a debt.
Note that at the time PEPI mortgaged the property to the petitioner, the prevailing contract between respondents PEPI and Dee was
still the Contract to Sell, as Dee was yet to fully pay the purchase price of the property. On this point, PEPI was acting fully well
within its right when it mortgaged the property to the petitioner, for in a contract to sell, ownership is retained by the seller and is
30
not to pass until full payment of the purchase price. In other words, at the time of the mortgage, PEPI was still the owner of the
31
property. Thus, in China Banking Corporation v. Spouses Lozada, the Court affirmed the right of the owner/developer to mortgage
the property subject of development, to wit: "[P.D.] No. 957 cannot totally prevent the owner or developer from mortgaging the
subdivision lot or condominium unit when the title thereto still resides in the owner or developer awaiting the full payment of the
32
purchase price by the installment buyer." Moreover, the mortgage bore the clearance of the HLURB, in compliance with Section 18
of P.D. No. 957, which provides that "[n]o mortgage on any unit or lot shall be made by the owner or developer without prior
written approval of the [HLURB]."

Nevertheless, despite the apparent validity of the mortgage between the petitioner and PEPI, the former is still bound to respect the
transactions between respondents PEPI and Dee. The petitioner was well aware that the properties mortgaged by PEPI were also the
subject of existing contracts to sell with other buyers. While it may be that the petitioner is protected by Act No. 3135, as amended,
it cannot claim any superior right as against the installment buyers. This is because the contract between the respondents is
33
protected by P.D. No. 957, a social justice measure enacted primarily to protect innocent lot buyers. Thus, in Luzon Development
34
Bank v. Enriquez, the Court reiterated the rule that a bank dealing with a property that is already subject of a contract to sell and is
35
protected by the provisions of P.D. No. 957, is bound by the contract to sell.
However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquezs rights thereunder. This is because the
Contract to Sell, involving a subdivision lot, is covered and protected by PD 957.
x x x.
xxxx
x x x Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned properties were
already covered by existing contracts to sell in favor of subdivision lot buyers. As observed by the Court in another case involving a
bank regarding a subdivision lot that was already subject of a contract to sell with a third party:
"[The Bank] should have considered that it was dealing with a property subject of a real estate development project. A reasonable
person, particularly a financial institution x x x, should have been aware that, to finance the project, funds other than those obtained
from the loan could have been used to serve the purpose, albeit partially. Hence, there was a need to verify whether any part of the
property was already intended to be the subject of any other contract involving buyers or potential buyers. In granting the loan, [the
Bank] should not have been content merely with a clean title, considering the presence of circumstances indicating the need for a
thorough investigation of the existence of buyers x x x. Wanting in care and prudence, the [Bank] cannot be deemed to be an
36
innocent mortgagee. x x x" (Citation omitted)
More so in this case where the contract to sell has already ripened into a contract of absolute sale.1wphi1
Moreover, PEPI brought to the attention of the Court the subsequent execution of a Memorandum of Agreement dated November
22, 2006 by PEPI and the petitioner. Said agreement was executed pursuant to an Order dated February 23, 2004 by the Regional
Trial Court (RTC) of Makati City, Branch 142, in SP No. 02-1219, a petition for Rehabilitation under the Interim Rules of Procedure on
Corporate Rehabilitation filed by PEPI. The RTC order approved PEPIs modified Rehabilitation Plan, which included the settlement of
the latters unpaid obligations to its creditors by way of dacion of real properties. In said order, the RTC also incorporated certain
measures that were not included in PEPIs plan, one of which is that "[t]itles to the lots which have been fully paid shall be released
37
to the purchasers within 90 days after the dacion to the secured creditors has been completed." Consequently, the agreement
stipulated that as partial settlement of PEPIs obligation with the petitioner, the former absolutely and irrevocably conveys by way of
38
"dacion en pago" the properties listed therein, which included the lot purchased by Dee. The petitioner also committed to
[R]elease its mortgage lien on fully paid Mortgaged Properties upon issuance of the certificates of title over the Dacioned Properties
in the name of the [petitioner]. The request for release of a Mortgaged Property shall be accompanied with: (i) proof of full payment
by the buyer, together with a certificate of full payment issued by the Borrower x x x. The [petitioner] hereby undertakes to cause
the transfer of the certificates of title over the Dacioned Properties and the release of the Mortgaged Properties with reasonable
39
dispatch.
Dacion en pago or dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an
40
41
accepted equivalent of the performance of the obligation. It is a mode of extinguishing an existing obligation and partakes the
nature of sale as the creditor is really buying the thing or property of the debtor, the payment for which is to be charged against the
42
debtors debt. Dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed
upon by the parties or as may be proved, unless the parties by agreement express or implied, or by their silence consider the
43
thing as equivalent to the obligation, in which case the obligation is totally extinguished.
There is nothing on record showing that the Memorandum of Agreement has been nullified or is the subject of pending litigation;
44
hence, it carries with it the presumption of validity. Consequently, the execution of the dation in payment effectively extinguished
respondent PEPIs loan obligation to the petitioner insofar as it covers the value of the property purchased by Dee. This negates the
petitioners claim that PEPI must first redeem the property before it can cancel or release the mortgage. As it now stands, the
petitioner already stepped into the shoes of PEPI and there is no more reason for the petitioner to refuse the cancellation or release

of the mortgage, for, as stated by the Court in Luzon Development Bank, in accepting the assigned properties as payment of the
obligation, "[the bank] has assumed the risk that some of the assigned properties are covered by contracts to sell which must be
45
honored under PD 957." Whatever claims the petitioner has against PEPI and AFP-RSBS, monetary or otherwise, should not
prejudice the rights and interests of Dee over the property, which she has already fully paid for.
As between these small lot buyers and the gigantic financial institutions which the developers deal with, it is obvious that the law
46
as an instrument of social justicemust favor the weak. (Emphasis omitted)
Finally, the Court will not dwell on the arguments of AFP-RSBS given the finding of the OP that "[b]y its non-payment of the appeal
47
fee, AFP-RSBS is deemed to have abandoned its appeal and accepts the decision of the HLURB." As such, the HLURB decision had
48
long been final and executory as regards AFP-RSBS and can no longer be altered or modified.
WHEREFORE, the petition for review is DENIED for lack of merit. Consequently, the Decision dated August 13, 2007 and Resolution
dated March 13, 2008 of the Court of Appeals in CA-G.R. SP No. 86033 are AFFIRMED.
Petitioner Philippine National Bank and respondents Prime East Properties Inc. and Armed Forces of the Philippines-Retirement and
Separation Benefits System, Inc. are hereby ENJOINED to strictly comply with the Housing and Land Use Regulatory Board Decision
dated May 21, 2003, as modified by its Board of Commissioners Decision dated March 15, 2004 and Office of the President Decision
dated August 4, 2004.
SO ORDERED.
G.R. No. 172302

February 18, 2014

PRYCE CORPORATION, Petitioner,

vs.
CHINA BANKING CORPORATION, Respondent.
RESOLUTION
LEONEN, J.:
This case resolves conflicting decisions between two divisions. Only one may serve as res judicata or a bar for the other to proceed.
This case also settles the doctrine as to whether a hearing is needed prior to the issuance of a stay order in corporate rehabilitation
proceedings.
The present case originated from a petition for corporate rehabilitation filed by petitioner Pryce Corporation on July 9, 2004 with the
1
Regional Trial Court of Makati, Branch 138.
The rehabilitation court found the petition sufficient in form and substance and issued a stay order on July 13, 2004 appointing
2
Gener T. Mendoza as rehabilitation receiver.
On September 13, 2004, the rehabilitation court gave due course to the petition and directed the rehabilitation receiver to evaluate
3
and give recommendations on petitioner Pryce Corporations proposed rehabilitation plan attached to its petition.
The rehabilitation receiver did not approve this plan and submitted instead an amended rehabilitation plan, which the rehabilitation
4
court approved by order dated January 17, 2005. In its disposition, the court found petitioner Pryce Corporation "eligible to be
5
placed in a state of corporate rehabilitation." The disposition likewise identified the assets to be held and disposed of by petitioner
6
Pryce Corporation and the manner by which its liabilities shall be paid and liquidated.
On February 23, 2005, respondent China Banking Corporation elevated the case to the Court of Appeals. Its petition questioned the
January 17, 2005 order that included the following terms:
1. The indebtedness to China Banking Corporation and Bank of the Philippine Islands as well as the long term commercial
papers will be paid through a dacion en pago of developed real estate assets of the petitioner.

xxxx
4. All accrued penalties are waived[.]
5. Interests shall accrue only up to July 13, 2004, the date of issuance of the stay order[.]
6. No interest will accrue during the pendency of petitioners corporate rehabilitation[.]
7. Dollar-denominated loans will be converted to Philippine Pesos on the date of the issuance of this Order using the
7
reference rate of the Philippine Dealing System as of this date.
Respondent China Banking Corporation contended that the rehabilitation plans approval impaired the obligations of contracts. It
argued that neither the provisions of Presidential Decree No. 902-A nor the Interim Rules of Procedure on Corporate Rehabilitation
8
(Interim Rules) empowered commercial courts "to render without force and effect valid contractual stipulations." Moreover, the
plans approval authorizing dacion en pago of petitioner Pryce Corporations properties without respondent China Banking
Corporations consent not only violated "mutuality of contract and due process, but [was] also antithetical to the avowed policies of
9
the state to maintain a competitive financial system."
The Bank of the Philippine Islands (BPI), another creditor of petitioner Pryce Corporation, filed a separate petition with the Court of
Appeals assailing the same order by the rehabilitation court. BPI called the attention of the court "to the non-impairment clause and
10
the mutuality of contracts purportedly ran roughshod by the [approved rehabilitation plan]."
11

On July 28, 2005, the Court of Appeals Seventh (7th) Division granted respondent China Banking Corporation's petition, and
reversed and set aside the rehabilitation courts: (1) July 13, 2004 stay order that also appointed Gener T. Mendoza as rehabilitation
receiver; (2) September 13, 2004 order giving due course to the petition and directing the rehabilitation receiver to evaluate and
give recommendations on petitioner Pryce Corporations proposed rehabilitation plan; and (3) January 17, 2005 order finding
petitioner Pryce Corporation eligible to be placed in a state of corporate rehabilitation, identifying assets to be disposed of, and
12
determining the manner of liquidation to pay the liabilities.
13

With respect to BPIs separate appeal, the Court of Appeals First (1st) Division granted its petition initially and set aside the January
14
17, 2005 order of the rehabilitation court in its decision dated May 3, 2006. On reconsideration, the court issued a resolution dated
15
May 23, 2007 setting aside its original decision and dismissing the petition. BPI elevated the case to this court, docketed as G.R. No.
180316. By resolution dated January 30, 2008, the First (1st) Division of this court denied the petition.16 By resolution dated April
17
28, 2008, this court denied reconsideration with finality.
Meanwhile, petitioner Pryce Corporation also appealed to this court assailing the July 28, 2005 decision of the Court of Appeals
Seventh (7th) Division granting respondent China Banking Corporations petition as well as the resolution denying its motion for
reconsideration.
18

In the decision dated February 4, 2008, the First (1st) Division of this court denied its petition with the dispositive portion as
follows:
WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 88479 is AFFIRMED with the
modification discussed above. Let the records of this case be REMANDED to the RTC, Branch 138, Makati City, sitting as Commercial
19
Court, for further proceedings with dispatch to determine the merits of the petition for rehabilitation. No costs.
Petitioner Pryce Corporation filed an omnibus motion for (1) reconsideration or (2) partial reconsideration and (3) referral to the
court En Banc dated February 29, 2008. Respondent China Banking Corporation also filed a motion for reconsideration on even date,
praying that the February 4, 2008 decision be set aside and reconsidered only insofar as it ordered the remand of the case for
further proceedings "to determine whether petitioner's financial condition is serious and whether there is clear and imminent
20
danger that it will lose its corporate assets."
By resolution dated June 16, 2008, this court denied with finality the separate motions for reconsideration filed by the parties.
On September 10, 2008, petitioner Pryce Corporation filed a second motion for reconsideration praying that the Court of Appeals
decision dated February 4, 2008 be set aside.

21

The First Division of this court referred this case to the En Banc en consulta by resolution dated June 22, 2009. The court En Banc, in
22
its resolution dated April 13, 2010, resolved to accept this case.
On July 30, 2013, petitioner Pryce Corporation and respondent China Banking Corporation, through their respective counsel, filed a
joint manifestation and motion to suspend proceedings. The parties requested this court to defer its ruling on petitioner Pryce
23
Corporations second motion for reconsideration "so as to enable the parties to work out a mutually acceptable arrangement."
By resolution dated August 6, 2013, this court granted the motion but only for two (2) months. The registry receipts showed that
counsel for respondent China Banking Corporation and counsel for petitioner Pryce Corporation received their copies of this
24
resolution on September 5, 2013.
More than two months had lapsed since September 5, 2013, but no agreement was filed by the parties. Thus, we proceed to rule on
petitioner Pryce Corporations second motion for reconsideration.
This motion raises two grounds.
First, petitioner Pryce Corporation argues that the issue on the validity of the rehabilitation court orders is now res judicata.
Petitioner Pryce Corporation submits that the ruling in BPI v. Pryce Corporation docketed as G.R. No. 180316 contradicts the present
25
case, and it has rendered the issue on the validity and regularity of the rehabilitation court orders as res judicata.
Second, petitioner Pryce Corporation contends that Rule 4, Section 6 of the Interim Rules of Procedure on Corporate
26
Rehabilitation does not require the rehabilitation court to hold a hearing before issuing a stay order. Considering that the Interim
27
28
Rules was promulgated later than Rizal Commercial Banking Corp. v. IAC that enunciated the "serious situations" test, petitioner
Pryce Corporation argues that the test has effectively been abandoned by the "sufficiency in form and substance test" under the
29
Interim Rules.
The present second motion for reconsideration involves the following issues:
I. WHETHER THE ISSUE ON THE VALIDITY OF THE REHABILITATION ORDER DATED JANUARY 17, 2005 IS NOW RES JUDICATA
IN LIGHT OF BPI V. PRYCE CORPORATION DOCKETED AS G.R. NO. 180316;
II. WHETHER THE REHABILITATION COURT IS REQUIRED TO HOLD A HEARING TO COMPLY WITH THE "SERIOUS SITUATIONS"
TEST LAID DOWN IN THE CASE OF RIZAL COMMERCIAL BANKING CORP. V. IAC BEFORE ISSUING A STAY ORDER.
We proceed to discuss the first issue.
BPI v. Pryce Corporation docketed as G.R. No. 180316 rendered the issue on the validity of the rehabilitation courts January 17,
2005 order approving the amended rehabilitation plan as res judicata.
30

In BPI v. Pryce Corporation, the Court of Appeals set aside initially the January 17, 2005 order of the rehabilitation court. On
31
reconsideration, the court set aside its original decision and dismissed the petition. On appeal, this court denied the petition filed
32
by BPI with finality. An entry of judgment was made for BPI v. Pryce Corporation on June 2, 2008. In effect, this court upheld the
January 17, 2005 order of the rehabilitation court.
According to the doctrine of res judicata, "a final judgment or decree on the merits by a court of competent jurisdiction is conclusive
33
of the rights of the parties or their privies in all later suits on all points and matters determined in the former suit."
The elements for res judicata to apply are as follows: (a) the former judgment was final; (b) the court that rendered it had
jurisdiction over the subject matter and the parties; (c) the judgment was based on the merits; and (d) between the first and the
34
second actions, there was an identity of parties, subject matters, and causes of action.
35

Res judicata embraces two concepts: (1) bar by prior judgment and (2) conclusiveness of judgment.

36

Bar by prior judgment exists "when, as between the first case where the judgment was rendered and the second case that is sought
37
to be barred, there is identity of parties, subject matter, and causes of action."

On the other hand, the concept of conclusiveness of judgment finds application "when a fact or question has been squarely put in
38
issue, judicially passed upon, and adjudged in a former suit by a court of competent jurisdiction." This principle only needs identity
39
of parties and issues to apply.
The elements of res judicata through bar by prior judgment are present in this case.
On the element of identity of parties, res judicata does not require absolute identity of parties as substantial identity is
40
enough. Substantial identity of parties exists "when there is a community of interest between a party in the first case and a party in
41
the second case, even if the latter was not impleaded in the first case." Parties that represent the same interests in two petitions
42
are, thus, considered substantial identity of parties for purposes of res judicata. Definitely, one test to determine substantial
identity of interest would be to see whether the success or failure of one party materially affects the other.
In the present case, respondent China Banking Corporation and BPI are creditors of petitioner Pryce Corporation and are both
questioning the rehabilitation courts approval of the amended rehabilitation plan. Thus, there is substantial identity of parties since
they are litigating for the same matter and in the same capacity as creditors of petitioner Pryce Corporation.
There is no question that both cases deal with the subject matter of petitioner Pryce Corporations rehabilitation. The element of
identity of causes of action also exists.
In separate appeals, respondent China Banking Corporation and BPI questioned the same January 17, 2005 order of the
rehabilitation court before the Court of Appeals.
Since the January 17, 2005 order approving the amended rehabilitation plan was affirmed and made final in G.R. No. 180316, this
plan binds all creditors, including respondent China Banking Corporation.
In any case, the Interim Rules or the rules in effect at the time the petition for corporate rehabilitation was filed in 2004 adopts the
cram-down principle which "consists of two things: (i) approval despite opposition and (ii) binding effect of the approved plan x x
43
x."
44

First, the Interim Rules allows the rehabilitation court to "approve a rehabilitation plan even over the opposition of creditors
holding a majority of the total liabilities of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the
45
opposition of the creditors is manifestly unreasonable."
Second, it also provides that upon approval by the court, the rehabilitation plan and its provisions "shall be binding upon the debtor
and all persons who may be affected by it, including the creditors, whether or not such persons have participated in the proceedings
46
or opposed the plan or whether or not their claims have been scheduled."
Thus, the January 17, 2005 order approving the amended rehabilitation plan, now final and executory resulting from the resolution
of BPI v. Pryce Corporation docketed as G.R. No. 180316, binds all creditors including respondent China Banking Corporation.
This judgment in BPI v. Pryce Corporation covers necessarily the rehabilitation courts September 13, 2004 order giving due course
to the petition. The general rule precluding relitigation of issues extends to questions implied necessarily in the final judgment, viz:
The general rule precluding the relitigation of material facts or questions which were in issue and adjudicated in former action are
commonly applied to all matters essentially connected with the subject matter of the litigation. Thus, it extends to questions
necessarily implied in the final judgment, although no specific finding may have been made in reference thereto and although such
47
matters were directly referred to in the pleadings and were not actually or formally presented. x x x.
The dispositive portion of the Court of Appeals decision in BPI v. Pryce Corporation, reversed on reconsideration, only mentioned
the January 17, 2005 order of the rehabilitation court approving the amended rehabilitation plan. Nevertheless, the affirmation of
its validity necessarily included the September 13, 2004 order as this earlier order gave due course to the petition and directed the
48
rehabilitation receiver to evaluate and give recommendations on the rehabilitation plan proposed by petitioner.
In res judicata, the primacy given to the first case is related to the principle of immutability of final judgments essential to an
effective and efficient administration of justice, viz:

x x x [W]ell-settled is the principle that a decision that has acquired finality becomes immutable and unalterable and may no longer
be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and whether it will be
made by the court that rendered it or by the highest court of the land.
The reason for this is that litigation must end and terminate sometime and somewhere, and it is essential to an effective and
efficient administration of justice that, once a judgment has become final, the winning party be not deprived of the fruits of the
verdict. Courts must guard against any scheme calculated to bring about that result and must frown upon any attempt to prolong
the controversies.
The only exceptions to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause no
prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision rendering its
49
execution unjust and inequitable. (Emphasis provided)
Generally, the later case is the one abated applying the maxim qui prior est tempore, potior est jure (he who is before in time is the
50
better in right; priority in time gives preference in law). However, there are limitations to this rule as discussed in Victronics
51
Computers, Inc. v. Regional Trial Court, Branch 63, Makati:
In our jurisdiction, the law itself does not specifically require that the pending action which would hold in abatement the other must
be a pending prior action. Thus, in Teodoro vs. Mirasol, this Court observed:
It is to be noted that the Rules do not require as a ground for dismissal of a complaint that there is a prior pending action. They
provide that there is a pending action, not a pending prior action. The fact that the unlawful detainer suit was of a later date is no
bar to the dismissal of the present action. We find, therefore, no error in the ruling of the court a quo that plaintiff's action should
be dismissed on the ground of the pendency of another more appropriate action between the same parties and for the same cause.
In Roa-Magsaysay vs. Magsaysay, wherein it was the first case which was abated, this Court ruled:
In any event, since We are not really dealing with jurisdiction but mainly with venue, considering both courts concerned do have
jurisdiction over the causes of action of the parties herein against each other, the better rule in the event of conflict between two
courts of concurrent jurisdiction as in the present case, is to allow the litigation to be tried and decided by the court which, under
the circumstances obtaining in the controversy, would, in the mind of this Court, be in a better position to serve the interests of
justice, considering the nature of the controversy, the comparative accessibility of the court to the parties, having in view their
peculiar positions and capabilities, and other similar factors. Without in any manner casting doubt as to the capacity of the Court of
First Instance of Zambales to adjudicate properly cases involving domestic relations, it is easy to see that the Juvenile and Domestic
Relations Court of Quezon City which was created in order to give specialized attention to family problems, armed as it is with
adequate and corresponding facilities not available to ordinary courts of first instance, would be able to attend to the matters here
in dispute with a little more degree of expertise and experience, resulting in better service to the interests of justice. A reading of
the causes of action alleged by the contending spouses and a consideration of their nature, cannot but convince Us that, since
anyway, there is an available Domestic Court that can legally take cognizance of such family issues, it is better that said Domestic
Court be the one chosen to settle the same as the facts and the law may warrant.
We made the same pronouncement in Ramos vs. Peralta:
Finally, the rule on litis pendentia does not require that the later case should yield to the earlier case. What is required merely is that
there be another pending action, not a prior pending action. Considering the broader scope of inquiry involved in Civil Case No. 4102
and the location of the property involved, no error was committed by the lower court in deferring to the Bataan court's jurisdiction.
An analysis of these cases unravels the ratio for the rejection of the priority-in-time rule and establishes the criteria to determine
which action should be upheld and which is to be abated. In Teodoro, this Court used the criterion of the more appropriate action.
We ruled therein that the unlawful detainer case, which was filed later, was the more appropriate action because the earlier case
for specific performance or declaratory relief filed by the lessee (Teodoro) in the Court of First Instance (CFI) to seek the extension
of the lease for another two (2) years or the fixing of a longer term for it, was "prompted by a desire on plaintiff's part to anticipate
the action for unlawful detainer, the probability of which was apparent from the letter of the defendant to the plaintiff advising the
latter that the contract of lease expired on October 1, 1954." The real issue between the parties therein was whether or not the
lessee should be allowed to continue occupying the leased premises under a contract the terms of which were also the subject
matter of the unlawful detainer case. Consonant with the doctrine laid down in Pue vs. Gonzales and Lim Si vs. Lim, the right of the

lessee to occupy the land leased against the lessor should be decided under Rule 70 of the Rules of Court; the fact that the unlawful
detainer case was filed later then of no moment. Thus, the latter was the more appropriate action.
xxxx
In Roa-Magsaysay[,] the criterion used was the consideration of the interest of justice. In applying this standard, what was asked was
which court would be "in a better position to serve the interests of justice," taking into account (a) the nature of the controversy, (b)
the comparative accessibility of the court to the parties and (c) other similar factors. While such a test was enunciated therein, this
Court relied on its constitutional authority to change venue to avoid a miscarriage of justice.
It is interesting to note that in common law, as earlier adverted to, and pursuant to the Teodoro vs. Mirasol case, the bona fides or
good faith of the parties is a crucial element. In the former, the second case shall not be abated if not brought to harass or vex; in
the latter, the first case shall be abated if it is merely an anticipatory action or, more appropriately, an anticipatory defense against
52
an expected suit a clever move to steal the march from the aggrieved party. (Emphasis provided and citations omitted)
None of these situations are present in the facts of this instant suit. In any case, it is the better part of wisdom in protecting the
creditors if the corporation is rehabilitated.
We now proceed to the second issue on whether the rehabilitation court is required to hold a hearing to comply with the "serious
situations" test laid down in Rizal Commercial Banking Corp. v. IAC before issuing a stay order.
The rehabilitation court complied with the Interim Rules in its order dated July 13, 2004 on the issuance of a stay order and
53
appointment of Gener T. Mendoza as rehabilitation receiver.
54

The 1999 Rizal Commercial Banking Corp. v. IAC case provides for the "serious situations" test in that the suspension of claims is
55
counted only upon the appointment of a rehabilitation receiver, and certain situations serious in nature must be shown to exist
before one is appointed, viz:
Furthermore, as relevantly pointed out in the dissenting opinion, a petition for rehabilitation does not always result in the
appointment of a receiver or the creation of a management committee. The SEC has to initially determine whether such
appointment is appropriate and necessary under the circumstances. Under Paragraph (d), Section 6 of Presidential Decree No. 902A, certain situations must be shown to exist before a management committee may be created or appointed, such as:
1. when there is imminent danger of dissipation, loss, wastage or destruction of assets or other properties; or
2. when there is paralization of business operations of such corporations or entities which may be prejudicial to the interest
of minority stockholders, parties-litigants or to the general public.
On the other hand, receivers may be appointed whenever:
1. necessary in order to preserve the rights of the parties-litigants; and/or
2. protect the interest of the investing public and creditors. (Section 6 [c], P.D. 902-A.)
These situations are rather serious in nature, requiring the appointment of a management committee or a receiver to preserve the
existing assets and property of the corporation in order to protect the interests of its investors and creditors. Thus, in such
situations, suspension of actions for claims against a corporation as provided in Paragraph (c) of Section 6, of Presidential Decree No.
902-A is necessary, and here we borrow the words of the late Justice Medialdea, "so as not to render the SEC management
Committee irrelevant and inutile and to give it unhampered rescue efforts over the distressed firm" (Rollo, p. 265)."
Otherwise, when such circumstances are not obtaining or when the SEC finds no such imminent danger of losing the corporate
assets, a management committee or rehabilitation receiver need not be appointed and suspension of actions for claims may not be
ordered by the SEC. When the SEC does not deem it necessary to appoint a receiver or to create a management committee, it may
be assumed, that there are sufficient assets to sustain the rehabilitation plan, and that the creditors and investors are amply
56
protected.

However, this case had been promulgated prior to the effectivity of the Interim Rules that took effect on December 15, 2000.
Section 6 of the Interim Rules states explicitly that "[i]f the court finds the petition to be sufficient in form and substance, it shall, not
later than five (5) days from the filing of the petition, issue an Order (a) appointing a Rehabilitation Receiver and fixing his bond; (b)
57
staying enforcement of all claims x x x."
Compliant with the rules, the July 13, 2004 stay order was issued not later than five (5) days from the filing of the petition on July 9,
2004 after the rehabilitation court found the petition sufficient in form and substance.
We agree that when a petition filed by a debtor "alleges all the material facts and includes all the documents required by Rule 4-2
58
[of the Interim Rules]," it is sufficient in form and substance.
Nowhere in the Interim Rules does it require a comprehensive discussion in the stay order on the courts findings of sufficiency in
form and substance.
The stay order and appointment of a rehabilitation receiver dated July 13, 2004 is an "extraordinary, preliminary, ex parte
59
remed[y]." The effectivity period of a stay order is only "from the date of its issuance until dismissal of the petition or termination
60
of the rehabilitation proceedings." It is not a final disposition of the case. It is an interlocutory order defined as one that "does not
finally dispose of the case, and does not end the Courts task of adjudicating the parties contentions and determining their rights
61
and liabilities as regards each other, but obviously indicates that other things remain to be done by the Court."
Thus, it is not covered by the requirement under the Constitution that a decision must include a discussion of the facts and laws on
62
which it is based.
Neither does the Interim Rules require a hearing before the issuance of a stay order. What it requires is an initial hearing before it
63
64
can give due course to or dismiss a petition.
Nevertheless, while the Interim Rules does not require the holding of a hearing before the issuance of a stay order, neither does it
prohibit the holding of one. Thus, the trial court has ample discretion to call a hearing when it is not confident that the allegations in
the petition are sufficient in form and substance, for so long as this hearing is held within the five (5)-day period from the filing of
the petition the period within which a stay order may issue as provided in the Interim Rules.
One of the important objectives of the Interim Rules is "to promote a speedy disposition of corporate rehabilitation cases[,] x x x
apparent from the strict time frames, the non-adversarial nature of the proceedings, and the prohibition of certain kinds of
65
pleadings." It is in light of this objective that a court with basis to issue a stay order must do so not later than five (5) days from the
66
date the petition was filed.
Moreover, according to the November 17, 2000 memorandum submitted by the Supreme Court Committee on the Interim Rules of
Procedure on Corporate Rehabilitation:
The Proposed Rules remove the concept of the Interim Receiver and replace it with a rehabilitation receiver. This is to justify the
immediate issuance of the stay order because under Presidential Decree No. 902-A, as amended, the suspension of actions takes
67
effect only upon appointment of the rehabilitation receiver. (Emphasis provided)
Even without this court going into the procedural issues, addressing the substantive merits of the case will yield the same result.
Respondent China Banking Corporation mainly argues the violation of the constitutional proscription against impairment of
68
contractual obligations in that neither the provisions of Pres. Dec. No. 902-A as amended nor the Interim Rules empower
69
commercial courts "to render without force and effect valid contractual stipulations."
The non-impairment clause first appeared in the United States Constitution as a safeguard against the issuance of worthless paper
70
money that disturbed economic stability after the American Revolution. This constitutional provision was designed to promote
71
72
commercial stability. At its core is "a prohibition of state interference with debtor-creditor relationships."
This clause first became operative in the Philippines through the Philippine Bill of 1902, the fifth paragraph of Section 5 which states
"[t]hat no law impairing the obligation of contracts shall be enacted." It was consistently adopted in subsequent Philippine

74

75

fundamental laws, namely, the Jones Law of 1916,73 the 1935 Constitution, the 1973 Constitution, and the present
76
Constitution.
Nevertheless, this court has brushed aside invocations of the non-impairment clause to give way to a valid exercise of police
77
78
power and afford protection to labor.
79

In Pacific Wide Realty and Development Corporation v. Puerto Azul Land, Inc. which similarly involved corporate rehabilitation, this
court found no merit in Pacific Wides invocation of the non-impairment clause, explaining as follows:
We also find no merit in PWRDCs contention that there is a violation of the impairment clause. Section 10, Article III of the
Constitution mandates that no law impairing the obligations of contract shall be passed. This case does not involve a law or an
executive issuance declaring the modification of the contract among debtor PALI, its creditors and its accommodation mortgagors.
Thus, the non-impairment clause may not be invoked. Furthermore, as held in Oposa v. Factoran, Jr. even assuming that the same
may be invoked, the non-impairment clause must yield to the police power of the State. Property rights and contractual rights are
not absolute. The constitutional guaranty of non-impairment of obligations is limited by the exercise of the police power of the State
for the common good of the general public.
Successful rehabilitation of a distressed corporation will benefit its debtors, creditors, employees, and the economy in general. The
court may approve a rehabilitation plan even over the opposition of creditors holding a majority of the total liabilities of the debtor
if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable. The
rehabilitation plan, once approved, is binding upon the debtor and all persons who may be affected by it, including the creditors,
whether or not such persons have participated in the proceedings or have opposed the plan or whether or not their claims have
80
been scheduled.
Corporate rehabilitation is one of many statutorily provided remedies for businesses that experience a downturn. Rather than leave
the various creditors unprotected, legislation now provides for an orderly procedure of equitably and fairly addressing their
concerns. Corporate rehabilitation allows a court-supervised process to rejuvenate a corporation. Its twin, insolvency, provides for a
system of liquidation and a procedure of equitably settling various debts owed by an individual or a business. It provides a
corporations owners a sound chance to re-engage the market, hopefully with more vigor and enlightened services, having learned
from a painful experience.
Necessarily, a business in the red and about to incur tremendous losses may not be able to pay all its creditors. Rather than leave it
to the strongest or most resourceful amongst all of them, the state steps in to equitably distribute the corporations limited
resources.
The cram-down principle adopted by the Interim Rules does, in effect, dilute contracts. When it permits the approval of a
81
rehabilitation plan even over the opposition of creditors, or when it imposes a binding effect of the approved plan on all parties
82
including those who did not participate in the proceedings, the burden of loss is shifted to the creditors to allow the corporation to
rehabilitate itself from insolvency.
Rather than let struggling corporations slip and vanish, the better option is to allow commercial courts to come in and apply the
process for corporate rehabilitation.
This option is preferred so as to avoid what Garrett Hardin called the Tragedy of Commons. Here, Hardin submits that "coercive
government regulation is necessary to prevent the degradation of common-pool resources [since] individual resource appropriators
83
receive the full benefit of their use and bear only a share of their cost." By analogy to the game theory, this is the prisoners
dilemma: "Since no individual has the right to control or exclude others, each appropriator has a very high discount rate [with] little
84
incentive to efficiently manage the resource in order to guarantee future use." Thus, the cure is an exogenous policy to equitably
distribute scarce resources. This will incentivize future creditors to continue lending, resulting in something productive rather than
resulting in nothing.
In fact, these corporations exist within a market. The General Theory of Second Best holds that "correction for one market
imperfection will not necessarily be efficiency-enhancing unless [there is also] simultaneous [correction] for all other market
85
imperfections." The correction of one market imperfection may adversely affect market efficiency elsewhere, for instance, "a
contract rule that corrects for an imperfection in the market for consensual agreements may [at the same time] induce welfare
86
losses elsewhere." This theory is one justification for the passing of corporate rehabilitation laws allowing the suspension of
payments so that corporations can get back on their feet.

As in all markets, the environment is never guaranteed. There are always risks.1avvphi1 Contracts are indeed sacred as the law
between the parties. However, these contracts exist within a society where nothing is risk-free, and the government is constantly
being called to attend to the realities of the times.
Corporate rehabilitation is preferred for addressing social costs.1wphi1 Allowing the corporation room to get back on its feet will
retain if not increase employment opportunities for the market as a whole. Indirectly, the services offered by the corporation will
also benefit the market as "[t]he fundamental impulse that sets and keeps the capitalist engine in motion comes from [the constant
entry of] new consumers goods, the new methods of production or transportation, the new markets, [and] the new forms of
87
industrial organization that capitalist enterprise creates."
As a final note, this is not the first time this court was made to review two separate petitions appealed from two conflicting
decisions, rendered by two divisions of the Court of Appeals, and originating from the same case. In Serrano v. Ambassador Hotel,
88
Inc., we ordered the Court of Appeals to adopt immediately a more efficient system in its Internal Rules to avoid situations as this.
In this instance, it is fortunate that this court had the opportunity to correct the situation and prevent conflicting judgments from
reaching impending finality with the referral to the En Banc.
We reiterate the need for our courts to be "constantly vigilant in extending their judicial gaze to cases related to the matters
89
90
submitted for their resolution" as to "ensure against judicial confusion and [any] seeming conflict in the judiciarys decisions."
WHEREFORE, petitioner Pryce Corporation's motion is GRANTED. This court's February 4, 2008 decision is RECONSIDERED and SET
ASIDE.
SO ORDERED.
G.R. No. 187403

February 12, 2014

TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE PHILIPPINES (Formerly PHILIPPINE EXPORT AND FOREIGN LOAN
GUARANTEE CORPORATION.), Petitioner,
vs.
ASIA PACES CORPORATION, PACES INDUSTRIAL CORPORATION, NICOLAS C. BALDERRAMA, SIDDCOR INSURANCE CORPORATION
(now MEGA PACIFIC INSURANCE CORPORATION), PHILIPPINE PHOENIX SURETY AND INSURANCE, INC., PARAMOUNT INSURANCE
CORPORATION,* AND FORTUNE LIFE AND GENERAL INSURANCE COMPANY, Respondents.
DECISION
PERLAS-BERNABE, J.:
1

Assailed in this petition for review on certiorari are the Decision dated April 30, 2008 and Resolution dated March 27, 2009 of the
4
Court of Appeals (CA) in CA-G.R. CV No. 86558 which affirmed the Decision dated April 29, 2005 of the Regional Trial Court of
Makati, Branch 132 (RTC) in Civil Case No. 95-1812. The CA upheld the RTCs finding that the liabilities of Paramount Insurance
Corporation (Paramount), and respondents Philippine Phoenix Surety and Insurance, Inc. (Phoenix), Mega Pacific Insurance
5
Corporation (Mega Pacific), and Fortune Life and General Insurance Company (Fortune) on their respective counter-surety bonds
have been extinguished due to the extension of the principal obligations these bonds covered, to which said respondents did not
give their consent.
The Facts
On January 19, 1981, respondents Asia Paces Corporation (ASPAC) and Paces Industrial Corporation (PICO) entered into a subcontracting agreement, denominated as "200 KV Transmission Lines Contract No. 20-/80-II Civil Works & Electrical Erection," with
the Electrical Projects Company of Libya (ELPCO), as main contractor, for the construction and erection of a double circuit bundle
phase conductor transmission line in the country of Libya. To finance its working capital requirements, ASPAC obtained loans from
foreign banks Banque Indosuez and PCI Capital (Hong Kong) Limited (PCI Capital) which, upon the latters request, were secured by
several Letters of Guarantee issued by petitioner Trade and Investment Development Corporation of the Philippines
6
(TIDCORP), then Philippine Export and Foreign Loan Guarantee Corp., a government owned and controlled corporation created for
the primary purpose of, among others, "guarantee[ing], with the prior concurrence of the Monetary Board, subject to the rules and

regulations that the Monetary Board may prescribe, approved foreign loans, in whole or in part, granted to any entity, enterprise or
7
corporation organized or licensed to engage in business in the Philippines." Under the Letters of Guarantee, TIDCORP irrevocably
and unconditionally guaranteed full payment of ASPACs loan obligations to Banque Indosuez and PCI Capital in the event of default
8
9
by the latter. The denominations of these letters, including the loan agreements secured by each, are detailed as follows:
LETTER OF GUARANTEE

LOAN AGREEMENT SECURED

CREDITOR

Letter of Guarantee No. 82-446 F

dated March 11, 1982
(LG No. 82-446 F)

Loan Agreement dated March 9, 1982 (with

an extension dated March 25, 1983), in the
amount of US$250,000.00

Banque
Indosuez

Letter of Guarantee No. 82-498 F

dated June 10, 1982
(LG No. 82-498 F)

Loan Agreement dated June 10, 1982, in the PCI

amount of US$250,000.00
Capital

Letter of Guarantee No. 82-548 F

dated October 5, 1982
(LG No. 82-548 F)

Loan Agreement dated October 5, 1982, in

the amount of US$2,000,000.00

PCI
Capital

As a condition precedent to the issuance by TIDCORP of the Letters of Guarantee, ASPAC, PICO, and ASPACs President, respondent
10
Nicolas C. Balderrama (Balderrama) had to execute several Deeds of Undertaking, binding themselves to jointly and severally pay
TIDCORP for whatever damages or liabilities it may incur under the aforementioned letters. In the same light, ASPAC, as principal
debtor, entered into surety agreements (Surety Bonds) with Paramount, Phoenix, Mega Pacific and Fortune (bonding companies), as
sureties, also holding themselves solidarily liable to TIDCORP, as creditor, for whatever damages or liabilities the latter may incur
11
under the Letters of Guarantee. The details of said bonds, including their respective coverage amounts and expiration dates,
among others, are as follows:
SURETY BOND

Surety Bond No.

13
G(16)01943
Surety Bond No.
15
G(16)01906
Surety Bond No.
17
G(16)15495
Surety Bond No.
19
G(16)01903
Surety Bond No.
21
G(16)01497

LETTER OF
GUARANTEE
COVERED
LG No. 82-446 F

COVERAGE
12
AMOUNT

BONDING
COMPANY/
SURETY

FINAL
EXPIRATION
DATE

P2,752,000.00 Paramount

March 5, 1986

P1,845,000.00 Paramount

June 4, 1986

LG No. 82-498 F

14

16

Fortune

November 21,
18
1985

P11,970,000.00 Phoenix

September 28,
20
1985

P1,849,000.00

LG No. 82-548 F
P5,030,000.00

Mega
Pacific

September 28,
22
1985

ASPAC eventually defaulted on its loan obligations to Banque Indosuez and PCI Capital, prompting them to demand payment from
23
TIDCORP under the Letters of Guarantee. The demand letter of Banque Indosuez was sent to TIDCORP on March 5, 1984, while
24
25
26
that of PCI Capital was sent on February 21, 1985. In turn, TIDCORP demanded payment from Paramount, Phoenix, Mega
27
28
Pacific, and Fortune under the Surety Bonds. TIDCORPs demand letters to the bonding companies were sent on May 28, 1985, or
29
before the final expiration dates of all the Surety Bonds, but to no avail.
30

Taking into account the moratorium request issued by the Minister of Finance of the Republic of the Philippines (whereby
31
members of the international banking community were requested to grant government financial institutions, such as TIDCORP,
among others, a 90-day roll over from their foreign debts beginning October 17, 1983), TIDCORP and its various creditor banks, such
32
as Banque Indosuez and PCI Capital, forged a Restructuring Agreement on April 16, 1986, extending the maturity dates of the
33
Letters of Guarantee. The bonding companies were not privy to the Restructuring Agreement and, hence, did not give their
consent to the payment extensions granted by Banque Indosuez and PCI Capital, among others, in favor of TIDCORP. Nevertheless,

34

following new payment schedules, TIDCORP fully settled its obligations under the Letters of Guarantee to both Banque Indosuez
35
and PCI Capital on December 1, 1992, and April 19 and June 4, 1991, respectively. Seeking payment for the damages and liabilities
it had incurred under the Letters of Guarantee and with its previous demands therefor left unheeded, TIIDCORP filed a collection
36
case against: (a) ASPAC, PICO, and Balderrama on account of their obligations under the deeds of undertaking; and (b) the bonding
companies on account of their obligations under the Surety Bonds.
The RTC Ruling
37

In a Decision dated April 29, 2005, the RTC partially granted TIDCORPs complaint and thereby found ASPAC, PICO, and Balderrama
jointly and severally liable to TIDCORP in the sum of P277,891,359.66 pursuant to the terms of the Deeds of Undertaking, but
absolved the bonding companies from liability on the ground that the moratorium request and the consequent payment extensions
granted by Banque Indosuez and PCI Capital in TIDCORPs favor without their consent extinguished their obligations under the
Surety Bonds. As basis, the RTC cited Article 2079 of the Civil Code which provides that an extension granted to the debtor by the
creditor without the consent of the guarantor/surety extinguishes the guaranty/suretyship, and, in this relation, added that the
38
bonding companies "should not be held liable as sureties for the extended period."
39

Dissatisfied, TIDCORP and Balderrama filed separate appeals before the CA. For its part, TIDCORP averred, among others, that
Article 2079 of the Civil Code is only limited to contracts of guaranty, and, hence, should not apply to contracts of suretyship.
Meanwhile, Balderrama theorized that the main contractors (i.e., ELPCO) failure to pay ASPAC due to the war/political upheaval in
Libya which further resulted in the latters inability to pay Banque Indosuez and PCI Capital had the effect of releasing him from his
obligations under the Deeds of Undertaking.
The CA Ruling
40

In a Decision dated April 30, 2008, the CA upheld the RTCs ruling that the moratorium request "had the effect of an extension
granted to a debtor, which extension was without the consent of the guarantor, and thus released the surety companies from their
41
respective liabilities under the issued surety bonds" pursuant to Article 2079 of the Civil Code. To this end, it noted that "the
maturity of the foreign loans was extended to December 31, 1989 or up to December 31, 1994 as provided under Section 4.01 of the
Restructuring Agreement," and that "said extension is beyond the expiry date[s] of the surety bonds x x x and the maturity date of
42
the principal obligations it purportedly secured, which extension was without [the bonding companies] consent," It further
discredited TIDCORPs contention that Article 2079 of the Civil Code is only limited to contracts of guaranty by citing the Courts
43
pronouncement on the provisions applicability to suretyships in the case of Security Bank and Trust Co., Inc. v. Cuenca (Security
Bank). As for Balderrama, the CA debunked his assignment of error, ratiocinating that "[h]is undertaking to pay is not dependent
44
upon the payment to be made by ELPCO to ASPAC." The CA, however, modified the RTC decision to the extent of holding ASPAC,
PICO, and Balderrama liable to TIDCORP for attorneys fees in the reasonable amount of P2,000,000.00 since the payment of
45
attorneys fees was stipulated by the parties in the Deed of Undertaking dated April 2, 1982.
46

Aggrieved, TIDCORP and Balderrama filed separate motions for reconsideration, which were, however, denied in a
47
Resolution dated March 27, 2009. Only TIDCORP elevated the matter to the Court on appeal. Pending resolution thereof, or on
48
October 6, 2010, TIDCORP filed a Motion for Partial Withdrawal of its claim against Paramount in view of their Compromise
49
50
Agreement dated June 24, 2010 which was approved by the CA in CA-G.R. CV No. 92818, entitled "Trade & Investment
51
Corporation of the Phils., et al. v. Roblet Industrial Construction Corp. and Paramount Insurance Corp., et al."
The Issue Before the Court
The essential issue raised for the Courts resolution is whether or not the CA erred in holding that the bonding companies liabilities
to TIDCORP under the Surety Bonds have been extinguished by the payment extensions granted by Banque Indosuez and PCI Capital
to TIDCORP under the Restructuring Agreement.
The Courts Ruling
The petition is granted.
A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the
latter, and their liabilities are interwoven as to be inseparable. Although the contract of a surety is in essence secondary only to a
valid principal obligation, his liability to the creditor is direct, primary and absolute; he becomes liable for the debt and duty of
52
another although he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom. The

fundamental reason therefor is that a contract of suretyship effectively binds the surety as a solidary debtor. This is provided under
Article 2047 of the Civil Code which states:
Article 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor
in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be
observed. In such case the contract is called a suretyship. (Emphasis and underscoring supplied)
Thus, since the surety is a solidary debtor, it is not necessary that the original debtor first failed to pay before the surety could be
53
made liable; it is enough that a demand for payment is made by the creditor for the suretys liability to attach.
Article 1216 of the Civil Code provides that:
Article 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand
made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the
debt has not been fully collected.
54

Comparing a suretys obligations with that of a guarantor, the Court, in the case of Palmares v. CA, illumined that a surety is
responsible for the debts payment at once if the principal debtor makes default, whereas a guarantor pays only if the principal
55
debtor is unable to pay, viz.:
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor.1wphi1 A suretyship is an
undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. Stated differently, a surety promises to
pay the principals debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal,
may proceed against the guarantor if the principal is unable to pay. A surety binds himself to perform if the principal does not,
without regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal will pay, but simply that he
is able to do so. In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor
makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal
debtor.
(Emphases and underscoring supplied; citations omitted)
56

Despite these distinctions, the Court in Cochingyan, Jr. v. R&B Surety & Insurance Co., Inc., and later in the case of Security Bank,
held that Article 2079 of the Civil Code, which pertinently provides that "[a]n extension granted to the debtor by the creditor
without the consent of the guarantor extinguishes the guaranty," equally applies to both contracts of guaranty and suretyship. The
57
rationale therefor was explained by the Court as follows:
The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the suretys consent
would deprive the surety of his right to pay the creditor and to be immediately subrogated to the creditors remedies against the
principal debtor upon the maturity date. The surety is said to be entitled to protect himself against the contingency of the principal
debtor or the indemnitors becoming insolvent during the extended period. (Emphasis and underscoring supplied; citations omitted)
Applying these principles, the Court finds that the payment extensions granted by Banque Indosuez and PCI Capital to TIDCORP
under the Restructuring Agreement did not have the effect of extinguishing the bonding companies obligations to TIDCORP under
the Surety Bonds, notwithstanding the fact that said extensions were made without their consent. This is because Article 2079 of the
Civil Code refers to a payment extension granted by the creditor to the principal debtor without the consent of the guarantor or
surety. In this case, the Surety Bonds are suretyship contracts which secure the debt of ASPAC, the principal debtor, under the Deeds
of Undertaking to pay TIDCORP, the creditor, the damages and liabilities it may incur under the Letters of Guarantee, within the
bounds of the bonds respective coverage periods and amounts. No payment extension was, however, granted by TIDCORP in favor
of ASPAC in this regard; hence, Article 2079 of the Civil Code should not be applied with respect to the bonding companies liabilities
to TIDCORP under the Surety Bonds.
The payment extensions granted by Banque Indosuez and PCI Capital pertain to TIDCORPs own debt under the Letters of Guarantee
wherein it (TIDCORP) irrevocably and unconditionally guaranteed full payment of ASPACs loan obligations to the banks in the event
of its (ASPAC) default. In other words, the Letters of Guarantee secured ASPACs loan agreements to the banks. Under this
58
59
arrangement, TIDCORP therefore acted as a guarantor, with ASPAC as the principal debtor, and the banks as creditors.

Proceeding from the foregoing discussion, it is quite clear that there are two sets of transactions that should be treated separately
and distinctly from one another following the civil law principle of relativity of contracts "which provides that contracts can only bind
the parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware of such contract and has acted
60
with knowledge thereof." Verily, as the Surety Bonds concern ASPACs debt to TIDCORP and not TIDCORPs debt to the banks, the
payments extensions (which conversely concern TIDCORPs debt to the banks and not ASPACs debt to TIDCORP) would not deprive
the bonding companies of their right to pay their creditor (TIDCORP) and to be immediately subrogated to the latters remedies
against the principal debtor (ASPAC) upon the maturity date. It must be stressed that these payment extensions did not modify the
terms of the Letters of Guarantee but only provided for a new payment scheme covering TIDCORPs liability to the banks. In fine,
considering the inoperability of Article 2079 of the Civil Code in this case, the bonding companies liabilities to TIDCORP under the
Surety Bonds except those issued by Paramount and covered by its Compromise Agreement with TIDCORP have not been
extinguished. Since these obligations arose and have been duly demanded within the coverage periods of all the Surety
61
Bonds, TIDCORPs claim is hereby granted and the CAs ruling on this score consequently reversed. Nevertheless, given that no
appeal has been filed on Balderramas adjudged liability or on the award of attorney's fees, the CA's dispositions on these matters
are now deemed as final and executory.
WHEREFORE, the petition is GRANTED. The Decision dated April 30, 2008 and Resolution dated March 27, 2009 of the Court of
Appeals in CA-G.R. CV No. 86558 are MODIFIED in that respondents Philippine Phoenix Surety and Insurance, Inc., Mega Pacific
Insurance Corporation, Fortune Life and General Insurance Company are ORDERED to fulfill their respective obligations to petitioner
Trade and Investment Development Corporation of the Philippines (TIDCORP) under the Surety Bonds subject of this case,
discounting the obligations arising from the Surety Bonds issued by Paramount Insurance Corporation and covered by its
Compromise Agreement with TIDCORP.
SO ORDERED.
G.R. No. 179597

February 3, 2014

IGLESIA FILIPINA INDEPENDIENTE, Petitioner,

vs.
HEIRS of BERNARDINO TAEZA, Respondents.
DECISION
PERALTA, J.:
1

This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that the Decision of the Court of
2
Appeals (CA), promulgated on June 30, 2006, and the Resolution dated August 23, 2007, denying petitioner's motion for
reconsideration thereof, be reversed and set aside.
The CA's narration of facts is accurate, to wit:
The plaintiff-appellee Iglesia Filipina Independiente (IFI, for brevity), a duly registered religious corporation, was the owner of a
parcel of land described as Lot 3653, containing an area of 31,038 square meters, situated at Ruyu (now Leonarda), Tuguegarao,
Cagayan, and covered by Original Certificate of Title No. P-8698. The said lot is subdivided as follows: Lot Nos. 3653-A, 3653-B, 3653C, and 3653-D.
Between 1973 and 1974, the plaintiff-appellee, through its then Supreme Bishop Rev. Macario Ga, sold Lot 3653-D, with an area of
15,000 square meters, to one Bienvenido de Guzman.
On February 5, 1976, Lot Nos. 3653-A and 3653-B, with a total area of 10,000 square meters, were likewise sold by Rev. Macario Ga,
in his capacity as the Supreme Bishop of the plaintiff-appellee, to the defendant Bernardino Taeza, for the amount of P100,000.00,
through installment, with mortgage to secure the payment of the balance. Subsequently, the defendant allegedly completed the
payments.
In 1977, a complaint for the annulment of the February 5, 1976 Deed of Sale with Mortgage was filed by the Parish Council of
Tuguegarao, Cagayan, represented by Froilan Calagui and Dante Santos, the President and the Secretary, respectively, of the
Laymen's Committee, with the then Court of First Instance of Tuguegarao, Cagayan, against their Supreme Bishop Macario Ga and
the defendant Bernardino Taeza.

The said complaint was, however, subsequently dismissed on the ground that the plaintiffs therein lacked the personality to file the
case.
After the expiration of Rev. Macario Ga's term of office as Supreme Bishop of the IFI on May 8, 1981, Bishop Abdias dela Cruz was
elected as the Supreme Bishop. Thereafter, an action for the declaration of nullity of the elections was filed by Rev. Ga, with the
Securities and Exchange Commission (SEC).
In 1987, while the case with the SEC is (sic) still pending, the plaintiff-appellee IFI, represented by Supreme Bishop Rev. Soliman F.
Ganno, filed a complaint for annulment of the sale of the subject parcels of land against Rev. Ga and the defendant Bernardino
Taeza, which was docketed as Civil Case No. 3747. The case was filed with the Regional Trial Court of Tuguegarao, Cagayan, Branch
III, which in its order dated December 10, 1987, dismissed the said case without prejudice, for the reason that the issue as to whom
of the Supreme Bishops could sue for the church had not yet been resolved by the SEC.
On February 11, 1988, the Securities and Exchange Commission issued an order resolving the leadership issue of the IFI against Rev.
Macario Ga.
Meanwhile, the defendant Bernardino Taeza registered the subject parcels of land. Consequently, Transfer Certificate of Title Nos. T77995 and T-77994 were issued in his name.
The defendant then occupied a portion of the land. The plaintiff-appellee allegedly demanded the defendant to vacate the said land
which he failed to do.
In January 1990, a complaint for annulment of sale was again filed by the plaintiff-appellee IFI, this time through Supreme Bishop
Most Rev. Tito Pasco, against the defendant-appellant, with the Regional Trial Court of Tuguegarao City, Branch 3.
On November 6, 2001, the court a quo rendered judgment in favor of the plaintiff-appellee.1wphi1 It held that the deed of sale
3
executed by and between Rev. Ga and the defendant-appellant is null and void.
The dispositive portion of the Decision of Regional Trial Court of Tuguegarao City (RTC) reads as follows:
WHEREFORE, judgment is hereby rendered:
1) declaring plaintiff to be entitled to the claim in the Complaint;
2) declaring the Deed of Sale with Mortgage dated February 5, 1976 null and void;
3) declaring Transfer Certificates of Title Numbers T-77995 and T-77994 to be null and void ab initio;
4) declaring the possession of defendant on that portion of land under question and ownership thereof as unlawful;
5) ordering the defendant and his heirs and successors-in-interest to vacate the premises in question and surrender the
same to plaintiff; [and]
6) condemning defendant and his heirs pay (sic) plaintiff the amount of P100,000.00 as actual/consequential damages
4
and P20,000.00 as lawful attorney's fees and costs of the amount (sic).
Petitioner appealed the foregoing Decision to the CA. On June 30, 2006, the CA rendered its Decision reversing and setting aside the
5
RTC Decision, thereby dismissing the complaint. The CA ruled that petitioner, being a corporation sole, validly transferred
ownership over the land in question through its Supreme Bishop, who was at the time the administrator of all properties and the
official representative of the church. It further held that "[t]he authority of the then Supreme Bishop Rev. Ga to enter into a contract
and represent the plaintiff-appellee cannot be assailed, as there are no provisions in its constitution and canons giving the said
6
authority to any other person or entity."
Petitioner then elevated the matter to this Court via a petition for review on certiorari, wherein the following issues are presented
for resolution:

A.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING THE FEBRUARY 5, 1976 DEED OF SALE WITH
MORTGAGE AS NULL AND VOID;
B.) ASSUMING FOR THE SAKE OF ARGUMENT THAT IT IS NOT VOID, WHETHER OR NOT THE COURT OF APPEALS ERRED IN
NOT FINDING THE FEBRUARY 5, 1976 DEED OF SALE WITH MORTGAGE AS UNENFORCEABLE, [and]
C.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING RESPONDENT TAEZA HEREIN AS BUYER IN BAD
7
FAITH.
The first two issues boil down to the question of whether then Supreme Bishop Rev. Ga is authorized to enter into a contract of sale
in behalf of petitioner.
Petitioner maintains that there was no consent to the contract of sale as Supreme Bishop Rev. Ga had no authority to give such
consent. It emphasized that Article IV (a) of their Canons provides that "All real properties of the Church located or situated in such
parish can be disposed of only with the approval and conformity of the laymen's committee, the parish priest, the Diocesan Bishop,
with sanction of the Supreme Council, and finally with the approval of the Supreme Bishop, as administrator of all the temporalities
of the Church." It is alleged that the sale of the property in question was done without the required approval and conformity of the
entities mentioned in the Canons; hence, petitioner argues that the sale was null and void.
In the alternative, petitioner contends that if the contract is not declared null and void, it should nevertheless be found
unenforceable, as the approval and conformity of the other entities in their church was not obtained, as required by their Canons.
Section 113 of the Corporation Code of the Philippines provides that:
Sec. 113. Acquisition and alienation of property. - Any corporation sole may purchase and hold real estate and personal property for
its church, charitable, benevolent or educational purposes, and may receive bequests or gifts for such purposes. Such corporation
may mortgage or sell real property held by it upon obtaining an order for that purpose from the Court of First Instance of the
province where the property is situated; x x x Provided, That in cases where the rules, regulations and discipline of the religious
denomination, sect or church, religious society or order concerned represented by such corporation sole regulate the method of
acquiring, holding, selling and mortgaging real estate and personal property, such rules, regulations and discipline shall control, and
8
the intervention of the courts shall not be necessary.
Pursuant to the foregoing, petitioner provided in Article IV (a) of its Constitution and Canons of the Philippine Independent
9
Church, that "[a]ll real properties of the Church located or situated in such parish can be disposed of only with the approval and
conformity of the laymen's
committee, the parish priest, the Diocesan Bishop, with sanction of the Supreme Council, and finally with the approval of the
Supreme Bishop, as administrator of all the temporalities of the Church."
Evidently, under petitioner's Canons, any sale of real property requires not just the consent of the Supreme Bishop but also the
concurrence of the laymen's committee, the parish priest, and the Diocesan Bishop, as sanctioned by the Supreme Council.
However, petitioner's Canons do not specify in what form the conformity of the other church entities should be made known. Thus,
as petitioner's witness stated, in practice, such consent or approval may be assumed as a matter of fact, unless some opposition is
10
expressed.
11

Here, the trial court found that the laymen's committee indeed made its objection to the sale known to the Supreme Bishop. The
CA, on the other hand, glossed over the fact of such opposition from the laymen's committee, opining that the consent of the
Supreme Bishop to the sale was sufficient, especially since the parish priest and the Diocesan Bishop voiced no objection to the
12
sale.
The Court finds it erroneous for the CA to ignore the fact that the laymen's committee objected to the sale of the lot in question. The
Canons require that ALL the church entities listed in Article IV (a) thereof should give its approval to the transaction. Thus, when the
Supreme Bishop executed the contract of sale of petitioner's lot despite the opposition made by the laymen's committee, he acted
beyond his powers.
This case clearly falls under the category of unenforceable contracts mentioned in Article 1403, paragraph (1) of the Civil Code,
which provides, thus:

Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has
acted beyond his powers;
13

In Mercado v. Allied Banking Corporation, the Court explained that:

x x x Unenforceable contracts are those which cannot be enforced by a proper action in court, unless they are ratified, because
either they are entered into without or in excess of authority or they do not comply with the statute of frauds or both of the
14
contracting parties do not possess the required legal capacity. x x x.
Closely analogous cases of unenforceable contracts are those where a person signs a deed of extrajudicial partition in behalf of co15
heirs without the latter's authority; where a mother as judicial guardian of her minor children, executes a deed of extrajudicial
16
partition wherein she favors one child by giving him more than his share of the estate to the prejudice of her other children; and
where a person, holding a special power of attorney, sells a property of his principal that is not included in said special power of
17
attorney.
In the present case, however, respondents' predecessor-in-interest, Bernardino Taeza, had already obtained a transfer certificate of
title in his name over the property in question. Since the person supposedly transferring ownership was not authorized to do so, the
18
property had evidently been acquired by mistake. In Vda. de Esconde v. Court of Appeals, the Court affirmed the trial court's ruling
that the applicable provision of law in such cases is Article 1456 of the Civil Code which states that "[i]f property is acquired through
mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person
19
20
from whom the property comes." Thus, in Aznar Brothers Realty Company v. Aying, citing Vda. de Esconde, the Court clarified the
concept of trust involved in said provision, to wit:
Construing this provision of the Civil Code, in Philippine National Bank v. Court of Appeals, the Court stated:
A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a typical trust, confidence is reposed in one
person who is named a trustee for the benefit of another who is called the cestui que trust, respecting property which is held by the
trustee for the benefit of the cestui que trust. A constructive trust, unlike an express trust, does not emanate from, or generate a
fiduciary relation. While in an express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a
constructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust
nor intends holding the property for the beneficiary.
The concept of constructive trusts was further elucidated in the same case, as follows:
. . . implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or
which are superinduced on the transaction by operation of law as matters of equity, independently of the particular intention of the
parties. In turn, implied trusts are either resulting or constructive trusts. These two are differentiated from each other as follows:
Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the equitable title or
interest and are presumed always to have been contemplated by the parties. They arise from the nature of circumstances of the
consideration involved in a transaction whereby one person thereby becomes invested with legal title but is obligated in equity to
hold his legal title for the benefit of another. On the other hand, constructive trusts are created by the construction of equity in
order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud,
duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to
hold. (Italics supplied)
A constructive trust having been constituted by law between respondents as trustees and petitioner as beneficiary of the subject
21
property, may respondents acquire ownership over the said property? The Court held in the same case of Aznar, that unlike in
express trusts and resulting implied trusts where a trustee cannot acquire by prescription any property entrusted to him unless he
repudiates the trust, in constructive implied trusts, the trustee may acquire the property through prescription even if he does not
repudiate the relationship. It is then incumbent upon the beneficiary to bring an action for reconveyance before prescription bars
the same.
22

In Aznar, the Court explained the basis for the prescriptive period, to wit:

x x x under the present Civil Code, we find that just as an implied or constructive trust is an offspring of the law (Art. 1456, Civil
Code), so is the corresponding obligation to reconvey the property and the title thereto in favor of the true owner. In this context,
and vis--vis prescription, Article 1144 of the Civil Code is applicable.
Article 1144. The following actions must be brought within ten years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
xxx

xxx

xxx

An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten years and not otherwise. A long
line of decisions of this Court, and of very recent vintage at that, illustrates this rule. Undoubtedly, it is now well-settled that an
action for reconveyance based on an implied or constructive trust prescribes in ten years from the issuance of the Torrens title over
the property.
It has also been ruled that the ten-year prescriptive period begins to run from the date of registration of the deed or the date of the
23
issuance of the certificate of title over the property, x x x.
24

Here, the present action was filed on January 19, 1990, while the transfer certificates of title over the subject lots were issued to
25
respondents' predecessor-in-interest, Bernardino Taeza, only on February 7, 1990.
Clearly, therefore, petitioner's complaint was filed well within the prescriptive period stated above, and it is only just that the
subject property be returned to its rightful owner.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals, dated June 30, 2006, and its Resolution dated August
23, 2007, are REVERSED and SET ASIDE. A new judgment is hereby entered:
(1) DECLARING petitioner Iglesia Filipina Independiente as the RIGHTFUL OWNER of the lots covered by Transfer Certificates
of Title Nos. T-77994 and T-77995;
(2) ORDERING respondents to execute a deed reconveying the aforementioned lots to petitioner;
(3) ORDERING respondents and successors-in-interest to vacate the subject premises and surrender the same to petitioner;
and
(4) Respondents to PAY costs of suit.
SO ORDERED.
G.R. No. 191189

January 29, 2014

MANLAR RICE MILL, INC., Petitioner,

vs.
LOURDES L. DEYTO, doing business under the trade name "J.D. Grains Center" and JENNELITA DEYTO ANG, a.k.a. "JANET
ANG," Respondents.
DECISION
DEL CASTILLO, J.:
As a general rule, a contract affects only the parties to it, and cannot be enforced by or against a person who is not a party thereto.

This Petition for Review on Certiorari seeks to set aside the October 30, 2009 Decision of the Court of Appeals (CA) in CA-G.R. CV
No. 91239, entitled "Maniar Rice Mill, Inc., Plaintiff-Appellee, versus Lourdes L. Deyto, doing business under the trade name JD
3
Grains Center, Defendant-Appellant," as well as its February 9, 2010 Resolution denying reconsideration of the assailed judgment.
Factual Antecedents
Petitioner Maniar Rice Mill, Inc. (Maniar), organized and existing under Philippine laws, is engaged in the business of rice milling and
selling of grains. Respondent Lourdes L. Deyto (Deyto) does business under the trade name "JD Grains Center" and is likewise
engaged in the business of milling and selling of grains. Respondent Jennelita Deyto Ang or Janet Ang (Ang) is Deytos daughter and,
4
prior to her alleged absconding, operated her own rice trading business through her own store, "Janet Commercial Store".
It appears that in October 2000, Ang entered into a rice supply contract with Manlar, with the former purchasing rice from the latter
amounting to P3,843,220.00. The transaction was covered by nine postdated checks issued by Ang from her personal bank/checking
5
account with Chinabank, to wit:
Check Number

Date

Amount (PhP)

146514

October 19, 2000

P 204,660.00

146552

October 20, 2000

472,200.00

146739

October 27, 2000

327,600.00

146626

October 26, 2000

212,460.00

146627

October 27, 2000

565,600.00

146740

October 30, 2000

515,000.00

146628

October 31, 2000

358,500.00

146630

November 4, 2000

593,600.00

146555

November 6, 2000

593,600.00

TOTAL

P 3,843,220.00

Upon presentment, the first two checks were dishonored for having been drawn against insufficient funds; the remaining seven
checks were dishonored for being drawn against a closed account. Manlar made oral and written demands upon both Deyto and
7
Ang, which went unheeded. It appears that during the time demand was being made upon Deyto, she informed Manlar, through its
8
Sales Manager Pablo Pua (Pua), that Ang could not be located.
9

10

On November 24, 2000, Manlar filed a Complaint for sum of money against Deyto and Ang before the Regional Trial Court (RTC) of
Quezon City. The case was docketed as Civil Case No. Q-00-42527 and assigned to Branch 215. The Complaint essentially sought to
hold Deyto and Ang solidarily liable on the rice supply contract. Manlar prayed for actual damages in the total amount
of P3,843,220.00, with interest; P300,000.00 attorneys fees, with charges for appearance fees; and attachment bond and
attachment expenses.
11

Deyto filed her Answer with Compulsory Counterclaim, claiming that she did not contract with Manlar or any of its representatives
regarding the purchase and delivery of rice; that JD Grains Center was solely owned by her, and Ang had no participation therein,
whether as employee, consultant, agent or other capacity; that JD Grains Center was engaged in rice milling and not in the buying
and selling of rice; and that one of her customers was her daughter Ang, who was engaged in the buying and selling of rice under the
trade name "Janet Commercial Store." Deyto prayed among others that the Complaint be dismissed.
For her part, Ang failed to file an Answer despite summons by publication; for this reason, she was declared in default.
12

On June 7, 2001, Manlar submitted to the trial court a notarized minutes of a special meeting of its board of directors dated
November 8, 2000, indicating that Pua was authorized to file and prosecute the Complaint in Civil Case No. Q-00-42527.

13

In a July 31, 2001 Resolution, the trial court resolved to deny Deytos special/affirmative defenses contained in her Answer.
Regarding her objection to Puas authority to prosecute the case for lack of the proper board resolution to such effect, the trial court
held that the issue had been rendered moot by Manlars submission on June 7, 2001 of the notarized board resolution.
During trial, Manlar presented its lone witness, Pua, who testified that he knew Deyto and Ang since 1995; that Ang was the
Operations Manager of JD Grains Center; that they (Deyto and Ang) bought rice from Manlar on "cash on delivery" basis from 1995
up to 2000; that since 2000, they increased the volume of their purchases and requested that they pay Manlar by postdated checks
on a weekly basis, to which Manlar acceded; that Manlar agreed to this arrangement because Deyto induced Pua to deliver rice on
the assurance that Deyto had extensive assets, financial capacity and a thriving business, and Deyto provided Pua with copies of JD
Grains Centers certificate of registration, business permit, business card, and certificates of title covering property belonging to
Deyto; that when rice deliveries were made by Manlar, Deyto was not around; that it was solely Ang who issued the subject checks
and delivered them to Pua or Manlar; that initially, they (Deyto and Ang) faithfully complied with the arrangement; that later on,
they defaulted in their payments thus resulting in the dishonor of the subject nine checks previously issued to Manlar; that by then,
Manlar had delivered rice to them totaling P3,843,220.00; that he went to the residence of Deyto at No. 93 Bulusan Street, La Loma,
Quezon City on five occasions to demand payment from Deyto; and that he likewise went to Angs residence at No. 4
14
15
Sabucoy Street, San Francisco del Monte, Quezon City to demand payment.
On cross-examination, Pua testified that no rice deliveries were in fact made by Manlar at Deytos Bulusan Street residence; that
Deyto guaranteed Angs checks, although the guarantee was made verbally; that although he ordered Manlars drivers to deliver rice
16
at Deytos residence at Bulusan Street, the deliveries would actually end up at Angs Sabucoy residence.
On the other hand, the defense presented three witnesses: Deyto, her son Jose D. Ang, and Homer Petallano (Petallano), Chinabank
del Monte branch Operations Head. Deyto testified that she did not know Pua; that Pua was a liar and that she did not enter into a
contract with him for the purchase and delivery of rice; that she did not receive at any time any rice delivery from Manlar; that while
she had a house at No. 93 Bulusan Street, La Loma, Quezon City, she actually resided in Santiago City, Isabela; that she met Pua for
the first time when the latter went to her La Loma residence sometime in November or December 2000 looking for Ang, and
claiming that Ang was indebted to Manlar; that she had nothing to do with the obligations of Ang incurred for rice deliveries made
to her or JD Grains Center, as Ang was not connected with JD Grains Center, and it was her son, Jose D. Ang, who managed and ran
the business; that all the checks issued to Manlar were drawn by Ang from her own bank account, as a businessperson in her own
right and with her own business and receipts; that as of 2000, Ang was the proprietress of Jane Commercial with address at No. 49
Corumi Street, Masambong, San Francisco del Monte, Quezon City, and not at No. 93 Bulusan Street, La Loma, Quezon City; that the
last time she saw Ang was in June 2000, during the blessing of Angs Sabucoy residence; that she was not on talking terms with her
daughter as early as June 2000 on account of Angs activities and involvements; that one of Angs children was living with her after
the child was recovered from a kidnapping perpetrated by Angs best friend; that Angs other child lived with the childs father; and
17
that Angs whereabouts could not be ascertained.
Jose D. Ang, on the other hand, testified that he is Deytos son; that from the start, JD Grains Center has been under his supervision
and control as Manager and Deyto had no participation in the actual operation thereof; that JD Grains Center was registered in the
name of Deyto for convenience, to avoid jealousy or intrigue among his siblings, and because they used Deytos properties as
collateral to borrow money for the business; that Ang was originally an agent of JD Grains Center, but was removed in 1997 for
18
failure to remit her collections.
Finally, Petallano testified that he was the Operations Head of Chinabank del Monte branch and that Ang is the sole owner and
19
depositor of the account from which the subject checks were drawn.
Ruling of the Trial Court
20

On November 22, 2007, a Decision was rendered by the trial court in Civil Case No. Q-00-42527, the dispositive portion of which
reads, as follows:
WHEREFORE, premises considered, judgment is hereby rendered finding the defendants liable to the plaintiff jointly and severally
and ordering them as follows:
21

1. To pay plaintiff actual damages in the sum of P3,843,200.00 plus interest [thereon] at 6% per annum reckoned from the
time of demand up to the time of payment thereof;
2. To pay plaintiff attorneys fees in the sum of P200,000.00 plus P2,500.00 as per appearance fee; and

3. To pay the costs of this suit.

SO ORDERED.

22

Essentially, the trial court believed Puas declarations that both Deyto and Ang personally transacted with him in purchasing rice
from Manlar for JD Grains Center with Ang paying for the deliveries with her personal checks and his testimony that both Deyto
and Ang received Manlars rice deliveries. For these reasons, the trial court ruled that both defendants should be held solidarily
liable for the unpaid and outstanding Manlar account.
Ruling of the Court of Appeals
Deyto went up to the CA on appeal, assailing the Decision of the trial court and claiming that there was no evidence to show her
participation in the transactions between Manlar and Ang, or that rice deliveries were even made to her; that she had no legal
obligation to pay Manlar what Ang owed the latter in her personal capacity; that the evidence proved that Ang had overpaid Manlar;
that the Complaint in Civil Case No. Q-00-42527 was defective for lack of the required board resolution authorizing Pua to sign the
Complaint, verification, and certification against forum shopping on behalf of Manlar; and that the trial court erred in not awarding
damages in her favor.
On October 30, 2009, the CA issued the assailed Decision, which held thus:
WHEREFORE, premises considered, the assailed Decision dated November 22, 2007 in Civil Case No. Q-00-42527 of the Regional Trial
Court, Branch 215, Quezon City is REVERSED and SET ASIDE, and a new one entered, DISMISSING the complaint for lack of merit.
SO ORDERED.

23

The CA held that in the absence of a board resolution from Manlar authorizing Pua to sign the verification and certification against
forum shopping, the Complaint in Civil Case No. Q-00-42527 should have been dismissed; the subsequent submission on June 7,
2001 or six months after the filing of the case of the notarized minutes of a special meeting of Manlars board of directors cannot
24
have the effect of curing or amending the defective Complaint, as Revised Supreme Court Circular No. 28-91 enjoins strict
compliance. Substantial compliance does not suffice.
The CA added that the trial courts Decision overlooked, misapprehended, and failed to appreciate important facts and
circumstances of the case. Specifically, it held that Manlar failed to present documentary evidence to prove deliveries of rice to
Deyto, yet the trial court sweepingly concluded that she took actual delivery of Manlars rice. Likewise, Puas declaration that Manlar
delivered rice to Deyto at her La Loma residence was not based on personal knowledge or experience, but on Manlars drivers
supposed accounts of events. Because these drivers were not called to testify on such fact or claim, the CA held that Puas testimony
regarding Deytos alleged acceptance of rice deliveries from Manlar was hearsay.
The appellate court conceded that if Ang indeed contracted with Manlar, she did so on her own; the evidence failed to indicate that
Deyto had any participation in the supposed transactions between her daughter and Manlar. The record reveals that Deyto and Ang
owned separate milling and grains businesses: JD Grains Center and Janet Commercial Store. If Ang did business with Manlar, it is
likely that she did so on her own or in her personal capacity, and not for and in behalf of Deytos JD Grains Center. Besides, the
subject checks were drawn against Angs personal bank account, therefore Ang, not Deyto is bound to make good on the dishonored
checks.
Thus, the CA concluded that there is no legal basis to hold Deyto solidarily liable with Ang for what the latter may owe Manlar.
Manlar moved for reconsideration, but in its February 9, 2010 Resolution, the CA stood its ground. Hence, Manlar took the present
recourse.
Issues
Manlar raises the following issues in its Petition:
1. THE COURT OF APPEALS COMMITTED CLEAR REVERSIBLE ERROR WHEN IT SET ASIDE THE JUDGMENT OF THE TRIAL
COURT BY SWEEPINGLY AND BASELESSLY CONCLUDING THAT THE VERIFICATION AND CERTIFICATE AGAINST FORUM

SHOPPING IN THE COMPLAINT WERE ALLEGEDLY "DEFECTIVE" IN THAT PABLO PUA, THE SALES MANAGER, WAS
SUPPOSEDLY "NOT AUTHORIZED" TO SIGN THE VERIFICATION AND CERTIFICATE OF NON-FORUM SHOPPING FOR MANLAR
RICE MILL, INC.
2. THE CONCLUSION OF THE COURT OF APPEALS THAT THE ALL-ENCOMPASSING PHRASE IN THE BOARD RESOLUTION THAT
"MR. PABLO PUA IS AUTHORIZED TO SIGN ANY DOCUMENT, PAPERS, FOR AND IN BEHALF OF THE COMPANY, AND TO
REPRESENT THE COMPANY IN ANY SUCH CASE OR CASES" IS ALLEGEDLY "NOT SUFFICIENT" AUTHORITY FOR PABLO PUA TO
SIGN THE VERIFICATION AND CERTIFICATE AGAINST FORUM SHOPPING IS GROSSLY ERRONEOUS AND MANIFESTLY
MISTAKEN BECAUSE IT IS DIRECTLY NEGATED AND DISPROVED BY THE EXPRESS TERMS OF HIS AUTHORITY.
3. FURTHER, THE SERIOUS AND GLARING ERROR OF THE COURT OF APPEALS IN CONCLUDING THAT PABLO PUA WAS
ALLEGEDLY NOT AUTHORIZED TO SIGN THE VERIFICATION AND CERTIFICATE OF NON-FORUM SHOPPING HAD BEEN
PREVIOUSLY RAISED AND SQUARELY RESOLVED BY THE TRIAL COURT AND ITS RESOLUTION ON THIS ISSUE HAD LONG
BECOME FINAL AND EXECUTORY WITHOUT LOURDES L. DEYTO TAKING ANY APPELLATE REMEDY.
4. THE COURT OF APPEALS ALSO COMMITTED REVERSIBLE ERROR IN SAYING THAT "THERE WAS NO DOCUMENTARY
EVIDENCE TO PROVE ACTUAL DELIVERIES OF RICE" AS BASIS FOR THE DISMISSAL OF THE CASE BECAUSE THIS IS MANIFESTLY
MISTAKEN AND NEGATED BY THE RECORDS SINCE RESPONDENTS (MOTHER AND DAUGHTER) ISSUED NINE (9) POSTDATED
CHECKS TO PETITIONER THRU PABLO PUA IN THE TOTAL AMOUNT OF P3,843,2[2]0.00 IN PAYMENT OF THE RICE DELIVERED
TO THEM.
5. THE CONTRACTS OF SALE OF RICE WERE PERFECTED BY THE DELIVERY OF RICE TO RESPONDENTS MOTHER AND
DAUGHTER AND THEIR ISSUANCE OF NINE (9) POSTDATED CHECKS (P3,843,220.00) AS PAYMENT THEREOF BY
RESPONDENTS, BUT THAT THE NINE (9) POSTDATED CHECKS OF RESPONDENTS WERE LATER DISHONORED.
6. THE SWEEPING STATEMENT OF THE COURT OF APPEALS THAT ALLEGEDLY "THE PARTICIPATION OF APPELLANT (LOURDES
L. DEYTO) TO WHATEVER BUSINESS TRANSACTIONS HER DAUGHTER (CO-RESPONDENT JENNELITA DEYTO ANG) HAD WITH
MANLAR RICE MILL INC. WAS NOT DULY PROVEN" IS NOT ONLY A PURE SPECULATION BUT IS SQUARELY NEGATED AND
DISPROVED BY THE OVERWHELMING EVIDENCE OF THE CONSPIRACY AND COLLABORATIVE EFFORTS OF BOTH MOTHER
25
AND DAUGHTER IN KNOWINGLY DEFRAUDING PETITIONER.
Petitioners Arguments
26

In its Petition and Reply, Manlar insists that the CAs findings and conclusions are not supported by the evidence on record. On the
procedural issue, it reiterates the trial courts pronouncement that its subsequent submission on June 7, 2001, or six months after
the filing of Civil Case No. Q-00-42527 of the notarized minutes of a special meeting of its board of directors authorizing Pua to file
and prosecute Civil Case No. Q-00-42527, effectively cured the defective Complaint, or rendered the issue of lack of proper authority
moot and academic, and should not result in the dismissal of the case. Because Deyto did not question this ruling through the proper
petition or appeal, it should stand; besides, the trial courts disposition on the matter is sound and just.
Next, Manlar disputes the CA ruling that Manlar failed to present documentary evidence to prove deliveries of rice to Deyto, apart
from that delivered to Ang in her personal capacity. It points to "compelling and convincing evidence" that both Deyto and Ang
induced it to deliver rice to them, and that both of them issued the subject postdated checks. It claims that it was Deyto who
delivered the checks to Pua at his office in Manila; that Deyto induced Pua to deliver rice to respondents on the assurance that
Deyto had extensive assets, financial capacity and a thriving business; and that Deyto provided Pua with copies of JD Grains Centers
certificate of registration, business permit, business card, and certificates of title covering property belonging to Deyto.
Manlar adds that Deyto disposed of some of her personal properties specifically delivery/cargo trucks in fraud of her creditors,
including Manlar. It is also argued that the fact that Deyto was in possession of Angs negotiated checks proved that both of them
connived to defraud Manlar by using the said checks to convince and induce Pua to contract with them.
Manlar goes on to argue that Ang and another of Deytos children, Judith Ang Yu (Judith), were charged and the latter convicted of
estafa for defrauding another rice trader, a certain Sergio Casaclang, of P3,800,000.00 attaching a certified true copy of the
Decision of Branch 215 of the RTC of Quezon City in Criminal Case No. Q-01-105698, indicating that Judith was sentenced to three
months of arresto mayor and to pay a fine and indemnity.

Next, Manlar argues that it is not necessary to further show proof of deliveries of rice to Deyto and Ang in order to prove the
existence of their obligation; the issuance of the subject postdated checks as payment established the obligation.
Manlar thus prays that the Court annul and set aside the assailed CA dispositions and thus reinstate the trial courts November 22,
2007 Decision finding Deyto liable under the rice supply contract.
Respondents Arguments
27

Praying that the Petition be denied, respondent Deyto in her Comment essentially argues that petitioner Manlars claims are
"products of pure imagination", having no factual and legal basis, and that Manlars impleading her is simply a desperate strategy or
attempt to recover its losses from her, considering that Ang can no longer be located. Furthermore, Deyto claims that Manlars
alleged rice deliveries are not covered by sufficient documentary evidence, and while it may appear that Ang had transacted with
Manlar, she did so in her sole capacity; thus, Deyto may not be held liable under a transaction in which she took no part.
Deyto adds that Puas basis for claiming that deliveries were made at her Bulusan Street residence is unfounded, considering that it
springs from hearsay, or on the mere affirmation of Manlars drivers who were not presented in court to testify on such fact. Pua
himself had no personal knowledge of such fact, and thus could not be believed in testifying that rice was indeed delivered to Deyto
at her Bulusan Street residence. She argues further that overall, Pua Manlars lone witness proved to be an unreliable witness,
constantly changing his testimony when the inconsistencies of his previous declarations were called out.
Finally, Deyto reiterates the CA ruling that Manlars Complaint in Civil Case No. Q-00-42527 was defective for lack of the required
board resolution authorizing Pua to sign the verification and certification against forum shopping, characterizing the belated
submission of the required resolution six months later as a mere afterthought.
Our Ruling
The Court denies the Petition.
It is a basic rule in evidence that he who alleges must prove his case or claim by the degree of evidence required.
x x x Ei incumbit probatio qui dicit, non qui negat. This Court has consistently applied the ancient rule that "if the plaintiff, upon
whom rests the burden of proving his cause of action, fails to show in a satisfactory manner the facts upon which he bases his claim,
28
the defendant is under no obligation to prove his exception or defense."
In civil cases, the quantum of proof required is preponderance of evidence, which connotes "that evidence that is of greater weight
or is more convincing than that which is in opposition to it. It does not mean absolute truth; rather, it means that the testimony of
29
one side is more believable than that of the other side, and that the probability of truth is on one side than on the other."
The CA is correct in concluding that there is no legal basis to hold Deyto solidarily liable with Ang for what the latter may owe
Manlar. The evidence does not support Manlars view that both Deyto and Ang contracted with Manlar for the delivery of rice on
credit; quite the contrary, the preponderance of evidence indicates that it was Ang alone who entered into the rice supply
agreement with Manlar. Puas own direct testimony indicated that whenever rice deliveries were made by Manlar, Deyto was not
around; that it was solely Ang who issued the subject checks and delivered them to Pua or Manlar. On cross-examination, he
testified that no rice deliveries were in fact made by Manlar at Deytos Bulusan Street residence; that although Deyto guaranteed
Angs checks, this guarantee was made verbally; and that while he ordered Manlars drivers to deliver rice at Deytos residence at
Bulusan Street, the deliveries would actually end up at Angs Sabucoy residence.
The documentary evidence, on the other hand, shows that the subject checks were issued from a bank account in Chinabank del
Monte branch belonging to Ang alone. They did not emanate from an account that belonged to both Ang and Deyto. This is
supported by no less than the testimony of Chinabank del Monte branch Operations Head Petallano.1wphi1
The evidence on record further indicates that Deyto was an old lady who owned vast tracts of land in Isabela province, and other
properties in Metro Manila; that she is a reputable businessperson in Isabela; that Ang originally worked for JD Grains Center, but
was removed in 1997 for failure to remit collections; that as early as June 2000, or prior to the alleged transaction with Manlar, Ang
and Deyto were no longer on good terms as a result of Angs activities; that Deyto took custody of one of Angs children, who was
previously recovered from a kidnapping perpetrated by no less than Angs best friend; and that Ang appears to have abandoned her

own family and could no longer be located. This shows not only what kind of person Ang is; it likewise indicates the improbability of
Deytos involvement in Angs activities, noting her age, condition, reputation, and the extent of her business activities and holdings.
This Court cannot believe Manlars claims that Deyto induced Pua to transact with her and Ang by providing him with copies of JD
Grains Centers certificate of registration, business permit, business card, and certificates of title covering property belonging to
Deyto to show her creditworthiness, extensive assets, financial capacity and a thriving business. The documents presented by
Manlar during trial copies of JD Grains Centers certificate of registration, business permit, and certificates of title covering Deytos
landholdings are public documents which Manlar could readily obtain from appropriate government agencies; it is improbable that
Deyto provided Manlar with copies of these documents in order to induce the latter to contract with her. Considering that both
Manlar and Deyto were in the same line of business in the same province, it may be said that Manlar knew Deyto all along without
the latter having to supply it with actual proof of her creditworthiness.
The allegations that Deyto guaranteed Angs checks and that she consented to be held solidarily liable with Ang under the latters
rice supply contract with Manlar are hardly credible. Pua in fact admitted that this was not in writing, just a verbal assurance. But
this will not suffice. "Well-entrenched is the rule that solidary obligation cannot lightly be inferred. There is a solidary liability only
30
when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires."
What this Court sees is an attempt to implicate Deyto in a transaction between Manlar and Ang so that the former may recover its
losses, since it could no longer recover them from Ang as a result of her absconding; this conclusion is indeed consistent with what
the totality of the evidence on record appears to show. This, however, may not be allowed. As a general rule, a contract affects only
the parties to it, and cannot be enforced by or against a person who is not a party thereto. "It is a basic principle in law that
31
contracts can bind only the parties who had entered into it; it cannot favor or prejudice a third person." Under Article 1311 of the
Civil Code, contracts take effect only between the parties, their assigns and heirs. Thus, Manlar may sue Ang, but not Deyto, who the
Court finds to be not a party to the rice supply contract.
Having decided the case in the foregoing manner, the Court finds no need to resolve the other issues raised by the parties.
WHEREFORE, the Petition is DENIED. The assailed dispositions of the Court of Appeals are AFFIRMED.
SO ORDERED.
G.R. No. 160600

January 15, 2014

DOMINGO GONZALO, Petitioner,

vs.
JOHN TARNATE, JR., Respondent.
DECISION
BERSAMIN, J.:
The doctrine of in pari delicto which stipulates that the guilty parties to an illegal contract are not entitled to any relief, cannot
prevent a recovery if doing so violates the public policy against unjust enrichment.
Antecedents
After the Department of Public Works and Highways (DPWH) had awarded on July 22, 1997 the contract for the improvement of the
Sadsadan-Maba-ay Section of the Mountain Province-Benguet Road in the total amount of 7 014 963 33 to his company, Gonzalo
1
Construction, petitioner Domingo Gonzalo (Gonzalo) subcontracted to respondent John Tarnate, Jr. (Tarnate) on October 15, 1997,
the supply of materials and labor for the project under the latter s business known as JNT Aggregates. Their agreement stipulated,
among others, that Tarnate would pay to Gonzalo eight percent and four percent of the contract price, respectively, upon Tarnate s
2
first and second billing in the project.
In furtherance of their agreement, Gonzalo executed on April 6, 1999 a deed of assignment whereby he, as the contractor, was
assigning to Tarnate an amount equivalent to 10% of the total collection from the DPWH for the project. This 10% retention fee
(equivalent to P233,526.13) was the rent for Tarnates equipment that had been utilized in the project. In the deed of assignment,

Gonzalo further authorized Tarnate to use the official receipt of Gonzalo Construction in the processing of the documents relative to
3
the collection of the 10% retention fee and in encashing the check to be issued by the DPWH for that purpose. The deed of
assignment was submitted to the DPWH on April 15, 1999. During the processing of the documents for the retention fee, however,
Tarnate learned that Gonzalo had unilaterally rescinded the deed of assignment by means of an affidavit of cancellation of deed of
4
assignment dated April 19, 1999 filed in the DPWH on April 22, 1999; and that the disbursement voucher for the 10% retention fee
5
had then been issued in the name of Gonzalo, and the retention fee released to him.
Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail. Thus, he brought this suit against Gonzalo on
September 13, 1999 in the Regional Trial Court (RTC) in Mountain Province to recover the retention fee of P233,526.13, moral and
6
exemplary damages for breach of contract, and attorneys fees.
In his answer, Gonzalo admitted the deed of assignment and the authority given therein to Tarnate, but averred that the project had
not been fully implemented because of its cancellation by the DPWH, and that he had then revoked the deed of assignment. He
insisted that the assignment could not stand independently due to its being a mere product of the subcontract that had been based
on his contract with the DPWH; and that Tarnate, having been fully aware of the illegality and ineffectuality of the deed of
assignment from the time of its execution, could not go to court with unclean hands to invoke any right based on the invalid deed of
7
assignment or on the product of such deed of assignment.
Ruling of the RTC
On January 26, 2001, the RTC, opining that the deed of assignment was a valid and binding contract, and that Gonzalo must comply
with his obligations under the deed of assignment, rendered judgment in favor of Tarnate as follows:
WHEREFORE, premises considered and as prayed for by the plaintiff, John Tarnate, Jr. in his Complaint for Sum of Money, Breach of
Contract With Damages is hereby RENDERED in his favor and against the above-named defendant Domingo Gonzalo, the Court now
hereby orders as follows:
1. Defendant Domingo Gonzalo to pay the Plaintiff, John Tarnate, Jr., the amount of TWO HUNDRED THIRTY THREE
THOUSAND FIVE HUNDRED TWENTY SIX and 13/100 PESOS (P233,526.13) representing the rental of equipment;
2. Defendant to pay Plaintiff the sum of THIRTY THOUSAND (P30,000.00) PESOS by way of reasonable Attorneys Fees for
having forced/compelled the plaintiff to litigate and engage the services of a lawyer in order to protect his interest and to
enforce his right. The claim of the plaintiff for attorneys fees in the amount of FIFTY THOUSAND PESOS (P50,000.00) plus
THREE THOUSAND PESOS (P3,000.00) clearly appears to be unconscionable and therefore reduced to Thirty Thousand
Pesos (P30,000.00) as aforestated making the same to be reasonable;
3. Defendant to pay Plaintiff the sum of FIFTEEN THOUSAND PESOS (P15,000.00) by way of litigation expenses;
4. Defendant to pay Plaintiff the sum of TWENTY THOUSAND PESOS (P20,000.00) for moral damages and for the breach of
contract; and
5. To pay the cost of this suit.
Award of exemplary damages in the instant case is not warranted for there is no showing that the defendant acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner analogous to the case of Xentrex Automotive, Inc. vs. Court of Appeals, 291
8
SCRA 66.
Gonzalo appealed to the Court of Appeals (CA).
Decision of the CA
On February 18, 2003, the CA affirmed the RTC.

Although holding that the subcontract was an illegal agreement due to its object being specifically prohibited by Section 6 of
Presidential Decree No. 1594; that Gonzalo and Tarnate were guilty of entering into the illegal contract in violation of Section 6 of
Presidential Decree No. 1594; and that the deed of assignment, being a product of and dependent on the subcontract, was also

illegal and unenforceable, the CA did not apply the doctrine of in pari delicto, explaining that the doctrine applied only if the fault of
one party was more or less equivalent to the fault of the other party. It found Gonzalo to be more guilty than Tarnate, whose guilt
had been limited to the execution of the two illegal contracts while Gonzalo had gone to the extent of violating the deed of
assignment. It declared that the crediting of the 10% retention fee equivalent to P233,256.13 to his account had unjustly enriched
Gonzalo; and ruled, accordingly, that Gonzalo should reimburse Tarnate in that amount because the latters equipment had been
utilized in the project.
10

Upon denial of his motion for reconsideration, Gonzalo has now come to the Court to seek the review and reversal of the decision
of the CA.
Issues
Gonzalo contends that the CA erred in affirming the RTC because: (1) both parties were in pari delicto; (2) the deed of assignment
was void; and (3) there was no compliance with the arbitration clause in the subcontract.
Gonzalo submits in support of his contentions that the subcontract and the deed of assignment, being specifically prohibited by law,
had no force and effect; that upon finding both him and Tarnate guilty of violating the law for executing the subcontract, the RTC
and the CA should have applied the rule of in pari delicto, to the effect that the law should not aid either party to enforce the illegal
contract but should leave them where it found them; and that it was erroneous to accord to the parties relief from their
11
predicament.
Ruling
We deny the petition for review, but we delete the grant of moral damages, attorneys fees and litigation expenses.
There is no question that every contractor is prohibited from subcontracting with or assigning to another person any contract or
project that he has with the DPWH unless the DPWH Secretary has approved the subcontracting or assignment. This is pursuant to
Section 6 of Presidential Decree No. 1594, which provides:
Section 6. Assignment and Subcontract. The contractor shall not assign, transfer, pledge, subcontract or make any other
disposition of the contract or any part or interest therein except with the approval of the Minister of Public Works, Transportation
and Communications, the Minister of Public Highways, or the Minister of Energy, as the case may be. Approval of the subcontract
shall not relieve the main contractor from any liability or obligation under his contract with the Government nor shall it create any
contractual relation between the subcontractor and the Government.
Gonzalo, who was the sole contractor of the project in question, subcontracted the implementation of the project to Tarnate in
violation of the statutory prohibition. Their subcontract was illegal, therefore, because it did not bear the approval of the DPWH
Secretary. Necessarily, the deed of assignment was also illegal, because it sprung from the subcontract. As aptly observed by the CA:
x x x. The intention of the parties in executing the Deed of Assignment was merely to cover up the illegality of the sub-contract
agreement. They knew for a fact that the DPWH will not allow plaintiff-appellee to claim in his own name under the Sub-Contract
Agreement.
Obviously, without the Sub-Contract Agreement there will be no Deed of Assignment to speak of. The illegality of the Sub-Contract
Agreement necessarily affects the Deed of Assignment because the rule is that an illegal agreement cannot give birth to a valid
contract. To rule otherwise is to sanction the act of entering into transaction the object of which is expressly prohibited by law and
thereafter execute an apparently valid contract to subterfuge the illegality. The legal proscription in such an instance will be easily
12
rendered nugatory and meaningless to the prejudice of the general public.
Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is contrary to law is a void or inexistent contract.
13
As such, a void contract cannot produce a valid one. To the same effect is Article 1422 of the Civil Code, which declares that "a
contract, which is the direct result of a previous illegal contract, is also void and inexistent."
We do not concur with the CAs finding that the guilt of Tarnate for violation of Section 6 of Presidential Decree No. 1594 was lesser
14
than that of Gonzalo, for, as the CA itself observed, Tarnate had voluntarily entered into the agreements with Gonzalo. Tarnate
also admitted that he did not participate in the bidding for the project because he knew that he was not authorized to contract with
15
the DPWH. Given that Tarnate was a businessman who had represented himself in the subcontract as "being financially and

16

organizationally sound and established, with the necessary personnel and equipment for the performance of the project," he
justifiably presumed to be aware of the illegality of his agreements with Gonzalo. For these reasons, Tarnate was not less guilty than
Gonzalo.
According to Article 1412 (1) of the Civil Code, the guilty parties to an illegal contract cannot recover from one another and are not
entitled to an affirmative relief because they are in pari delicto or in equal fault. The doctrine of in pari delicto is a universal doctrine
that holds that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or
to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation; and where the
17
parties are in pari delicto, no affirmative relief of any kind will be given to one against the other.
Nonetheless, the application of the doctrine of in pari delicto is not always rigid.1wphi1 An accepted exception arises when its
18
application contravenes well-established public policy. In this jurisdiction, public policy has been defined as "that principle of the
law which holds that no subject or citizen can lawfully do that which has a tendency to be injurious to the public or against the public
19
good."
20

Unjust enrichment exists, according to Hulst v. PR Builders, Inc., "when a person unjustly retains a benefit at the loss of another, or
when a person retains money or property of another against the fundamental principles of justice, equity and good conscience." The
prevention of unjust enrichment is a recognized public policy of the State, for Article 22 of the Civil Code explicitly provides that
"[e]very person who through an act of performance by another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground, shall return the same to him." It is well to note that Article 22 "is
part of the chapter of the Civil Code on Human Relations, the provisions of which were formulated as basic principles to be observed
for the rightful relationship between human beings and for the stability of the social order; designed to indicate certain norms that
spring from the fountain of good conscience; guides for human conduct that should run as golden threads through society to the
21
end that law may approach its supreme ideal which is the sway and dominance of justice."
There is no question that Tarnate provided the equipment, labor and materials for the project in compliance with his obligations
under the subcontract and the deed of assignment; and that it was Gonzalo as the contractor who received the payment for his
contract with the DPWH as well as the 10% retention fee that should have been paid to Tarnate pursuant to the deed of
22
assignment. Considering that Gonzalo refused despite demands to deliver to Tarnate the stipulated 10% retention fee that would
have compensated the latter for the use of his equipment in the project, Gonzalo would be unjustly enriched at the expense of
Tarnate if the latter was to be barred from recovering because of the rigid application of the doctrine of in pari delicto. The
prevention of unjust enrichment called for the exception to apply in Tarnates favor. Consequently, the RTC and the CA properly
adjudged Gonzalo liable to pay Tarnate the equivalent amount of the 10% retention fee (i.e., P233,526.13).
Gonzalo sought to justify his refusal to turn over the P233,526.13 to Tarnate by insisting that he (Gonzalo) had a debt of P200,000.00
to Congressman Victor Dominguez; that his payment of the 10% retention fee to Tarnate was conditioned on Tarnate paying that
debt to Congressman Dominguez; and that he refused to give the 10% retention fee to Tarnate because Tarnate did not pay to
23
Congressman Dominguez. His justification was unpersuasive, however, because, firstly, Gonzalo presented no proof of the debt to
Congressman Dominguez; secondly, he did not competently establish the agreement on the condition that supposedly bound
24
Tarnate to pay to Congressman Dominguez; and, thirdly, burdening Tarnate with Gonzalos personal debt to Congressman
Dominguez to be paid first by Tarnate would constitute another case of unjust enrichment.
The Court regards the grant of moral damages, attorneys fees and litigation expenses to Tarnate to be inappropriate. We have ruled
that no damages may be recovered under a void contract, which, being nonexistent, produces no juridical tie between the parties
25
involved. It is notable, too, that the RTC and the CA did not spell out the sufficient factual and legal justifications for such damages
to be granted.
Lastly, the letter and spirit of Article 22 of the Civil Code command Gonzalo to make a full reparation or compensation to Tarnate.
The illegality of their contract should not be allowed to deprive Tarnate from being fully compensated through the imposition of
legal interest. Towards that end, interest of 6% per annum reckoned from September 13, 1999, the time of the judicial demand by
Tarnate, is imposed on the amount of P233,526.13. Not to afford this relief will make a travesty of the justice to which Tarnate was
entitled for having suffered too long from Gonzalos unjust enrichment.
WHEREFORE, we AFFIRM the decision promulgated on February 18, 2003, but DELETE the awards of moral damages, attorneys fees
and litigation expenses; IMPOSE legal interest of 6% per annum on the principal oLP233,526.13 reckoned from September 13, 1999;
and DIRECT the petitioner to pay the costs of suit.

SO ORDERED.