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JOSEFINA RUBIO DE LARENA, plaintiff-appellant,

vs.
HERMENEGILDO VILLANUEVA, defendant-appellee.
Abad Santos, Camus and Delgado and Jose Montano for appellant. Del Rosario and Del Rosario for
appellee.
OSTRAND, J.:
The case at bar is a sequel to case G. R. No. 21706, Josefina Rubio de Larena vs. Hermenegildo
Villanueva, decided on March 26, 1924. 1 In that case we affirmed a decision of the Court of First Instance
ordering the rescission of a lease of the Tacgajan Sugar Plantation and the payment by the defendantlessee of the unpaid balance of the rent for the agricultural year 1920-1922 in the sum of P5,949.28 with
interest from August 26, 1922, an for P8,000 in rent for the agricultural year 1921-1923. The decision also
provided that the possession of the leased land be delivered to the plaintiff.
Shortly after the record was returned to the court below, a writ of execution was issued, but before levy
was made the parties came to an agreement, under which the money judgment was to be satisfied by the
payment of P10,500 in cash and the transfer to the plaintiff of a dwelling house situated in the municipality
of Bais. The agreement was carried out in accordance with its terms, and on September 30, 1924, the
following document was executed by the plaintiff:
Habiendo llegado a un convenio entre la que subscribe, ejecutante, en la causa civil No. 67 decidida por
la Corte Suprema, y el ejecutado, Don Hermenegildo Villanueva, por la presente declaro haber recibido
del Sheriff Provincial de Negros Oriental, y mi entera satisfaccion la suma de diez mil quinientos pesos
(P10,500), mas una casa residencial con su solar, situada en la plaza del Municipio de Bais, Provincia de
Negros Oriental, cuyas descripciones aparecen an un ocumento aparte, por el importnte de la
ejecusacion expidida por el Jusgado de Negros Oriental al 14 de mayo de 1924, en vitud de una decision
de la Corte Suprema. Con este queda definitivamente cumplimentada esta ejecucion.
Y para que asi conste, firmo la presente en el Municipio de Bais, Provincia de Negros Oriental, I. F., ante
el Sheriff Provincial de esta Provincia de Negros Oriental y el Notario Publico Don Francisco Romero,
que ratifica este compromiso.
(Fda.) JOSEFINA RUBIO, Vda. DE LARENA
Firmado en presencia de:
(Fdos.) BRAULIO RUBIO
FRANCISCO PINERO
(ACKNOWLEDGMENT)
In the meantime, the defendant had harvested the sugarcane crop produced in the agricultural year 19221924, and after having satisfied the aforesaid money judgment, he also continued in possession of the
plantation long enough to appropriate to himself the following ratoon cane crop.
The present action was brought on April 13, 1925, but the last amended complaint, setting forth three
causes of action, was not filed until June 17, 1927. As her first cause of action the plaintiff, after a
preliminary statement of the origin of the controversy, alleges that while case G. R. No. 21706 was on
appeal to the Supreme Court, the defendant knew positively that the aforesaid lease was declared
rescinded by the Court of First Instance on September 8, 1923, and that he, the defendant, also knew that
he thereafter was not entitled to the possession of the aforesaid hacienda; that he, nevertheless, in bad
faith continued in such possession during the agricultural year 1922-1924 and appropriated to himself the
cane harvest for that year, which after deducting the share of the sugar central, produced 1,679.02 piculs
for his own benefit, which sugar was sold by him for the sum of P13 a picul; that the plaintiff has
demanded payment to her of the total value of said 1,679.02 piculs, amounting to P21,827.26, but that the
defendant refuses to pay. The plaintiff, therefore, asks judgment for the sum of P21,827.26 upon the first
cause of action.
For the second cause of action the plaintiff alleges that under the contract of lease of the Tacgajan
Hacienda, one of the obligations assumed by the defendant was that he would use the care of a good
father of the family in conserving the tools, agricultural implements, draft animals, and other effects
enumerated in an inventory made at the time the defendant entered in possession under the lease; that
he was further obligated to return said property to the plaintiff, but that he return said property to the
plaintiff, but that he returned only a part that he returned only a part thereof and failed to returned only a
part thereof and failed to return 4 carabaos, 4 vacunos, 1 corn mill, 4 wagons, 106 steel rails, 14 plows, 1

table, 1 scale, an 1 telephone, the total value of the property enumerated being P3,596 for which amount,
plus P500 in damages, the plaintiff asks judgment under her second cause of action.
As a third cause of action the plaintiff alleges that the harvest of sugar cane illegally made by the
defendant in 1924 left ratoon sugar cane in the fields of the hacienda, which sugar can was the property
of the plaintiff, and that during the year 1925, the defendant illegally harvested said ratoon cane together
with some recently planted cane, which harvested after deducting the share of the sugar central,
produced 1,613.25 piculs of sugar, which the defendant sold for his own benefit at the price of P13 per
picul, the total amount received by him being P20,962.25 for which the plaintiff demands judgment.
lawphi1.net
In his answer to the first and third causes of action, the defendants alleges that according to the pleadings
in case G. R. No. 21706, the two causes of action were included in that case and, therefore, must be
considered res adjudicata. In regard to the second cause of action the defendant pleads the general issue
and sets up as a special defense that assuming that the property referred to in said cause of action was
missing, it loss was due to its total extinction by ordinary use, for which the defendant could not be held
responsible. For all three causes of action, the defendant sets up as a special defense the document
executed by the plaintiff on September 30, 1924, acknowledging the satisfaction of the judgment in case
G. R. No. 21706.
Upon trial the Court of First Instance sustained the defendant's special defense and absolved him from
the complaint with the cost against the plaintiff, whereupon the latter appealed to this court.
We do not think that the court below erred in absolving the defendant from liability upon the second cause
of action. It is not without significance that in her original complaint the plaintiff claimed only 5 plows, 6
carts, 3 carabaos an 4 vacunos, the total value of which was alleged to be P1,360; in the first amended
complaint filed over two years later, the same claim was made, but in the last amended complaint a
number of other articles were included, thus increasing the claim to P3,596. The court below found that
the weight of the evidence showed that the missing draft animals died from rinderpest and that the other
personal property was turned over to the provincial sheriff for delivery to the plaintiff before the writ of
execution was returned to the court. If so, the action would lie against the sheriff rather than against the
defendant.
As to the first cause of action the defendant argues that it was included in the prayer of an amended
complaint filed in case G. R. No. 21706 and that, although no express determination thereof was made in
the decision of the case, it must, nevertheless, be regarded as res judicata. That such is not the case is
very clear. The Code of Civil Procedure says:
That only is deemed to have been so adjudged in a former judgment which appears upon its face to have
been so adjudged, or which was actually and necessarily included therein or necessary thereto. (Sec.
307, Code of Civil Proc.)
But the defendant maintains that the plaintiff having had an opportunity to ventilate the matter in the
former case, she cannot now enforce the same cause of action in the present case. Properly speaking,
this argument does not involve the doctrine of res judicata but rests on the well-known an, in American
law, firmly established principle that a party will not be permitted to split up a single cause of action an
make it the basis for several suits. But that is not this case. The rule is well established that when a lease
provides for the payment of the rent in separate installments, each installment is an independent cause of
action, though it has been held and is good law, that in an action upon such a lease for the recovery of
rent, the installments due at the time the action brought must be included in the complaint an that failure
to o so will constitute a bar to a subsequent action for the payment of that rent. The aforesaid action, G.
R. No. 21706, was brought on August 23, 1922, the plaintiff demanding payment of then sue rent in
addition to the rescission of the lease. On July 27, 1923, the plaintiff filed a motion for an amendment to
paragraph 6 of the complaint adding to that paragraph the following sentence:
Que tambien ha vencido ya el tercer ano el arrendamiento de la finca en cuestion y que tampoco ha
pagado el demandao el canon correspondiente a icho ano.
The plaintiff also amended the prayer of the complaint by asking judgment for rent for years subsequent
to 1922. The motion was granted, and the case came up for trial on July 30, 1923, and on September 8,
1923, the trial court rendered its decision giving judgment for rent up to and including the rent for the
agricultural year ending in 1923. The lease did not provide for payment of rent in advance or at any
definite time, an it appears plainly from the record that the rent for an agricultural year was not considered
due until the end of the corresponding year. It follows that the rent for the agricultural year 1922-1924 ha
not become sue time of the trial of the case and that consequently the trial court could not render

judgment therefore. The action referred to is, therefore, no bar to the first cause of action in the present
litigation.
The defendant places much weigh upon the document of September 30, 1924, hereinbefore quoted. The
document speaks for itself, and it will be readily seen that it is merely a receipt for the satisfaction of the
money judgment in the case G. R. No. L-21706 and has nothing to with the present case.
The only question in regard to the first cause of action relates to the amount of the damages. The plaintiff
contends that the defendant was a possessor in bad faith, and therefore, must pay the value of the fruits
of the land in accordance with article 455 of the Civil Code. Under the circumstances of the case, we
cannot so hold. The defendant held possession under the contract of lease until said contract was
rescinded. The contract contained no special provision for the procedure in effecting the rescission, and it
follows that it could only be accompanied by a final judgment of the court. The judgment in case G. R. No.
L-210706 did not become final until March 27, 192, when our decision on appeal was rendered. As that
must have been close to the end of the harvest and milling of the sugar crop for the period to which the
first cause of action refers, we do not think that the defendant should be required to pay more than the
amount of the stipulated rent for the period, i. e., the sum of P8,000 with interest rent for that period, i. e.,
the sum of P8,000 with interest. (Lerma vs. De la Cruz, 7 Phil., 581.)
The action for terminating the lease was brought under article 1124 of the Civil Code, an it may, perhaps,
he said that properly speaking, the subject matter of the action was a resolution of the contract an not a
rescission. That may be true, but it is a distinction without a difference; in their case a judicial declaration
would be necessary for the cancellation of the contract in the absence of a special agreement.
Very little need be said in regard to the third cause of action. It relates to a period subsequent to the
complete termination of the lease by final judicial order. The defendant had then no right whatever to the
possession of the land or to the fruits thereof, and in removing the fruits, he acted in bad faith. This being
the case, he must pay for the fruits received by him, less the necessary expenses of production. (Arts.
455 and 453 of the Civil Code.) As his bad faith commence long before the fruits in question were
produced, he is not entitled to any part of the net proceeds of the crop. The evidence shows that the net
ratoon crop of the year 1924-1925 was 1,613.25 piculs of sugar, and according to the defendant's own
statement, the market value of the sugar was in the neighborhood of P11 per picul an the costs of
production about P4.50. The net result is that under the third cause of action, the defendant must pay to
the plaintiff the sum of P10,486.13 with interest.
For the reason stated, the judgment of the court below is affirmed in regard to the second cause of action.
It is reversed as to the first and third causes of action, and it is hereby ordered that the plaintiff have and
recover from the defendant the sum of P18,486.13 with interest at the rate of 6 per cent per annum from
April 13, 1925, the date of the filing of the complaint. No costs will be allowed. So ordered.
Avancea, C. J., Johnson Street, Malcolm, Villamor, Romualdez, an Villa-Real, JJ., concur.
ORDER AMENDING DECISION
December 10, 1928
OSTRAND, J.:
In the motion filed by the defendant on November 14, 1928 our attention is called to a mathematical error
in that we, in discussing the plaintiff's third cause of action, failed to take into consideration the fact that
one-half of the gross ratoon crop produced on the land in question in the agricultural year 1924-1925 was
ceded to the sugar central as compensation for the milling of the cane and that the defendant paid the
expenses of the production of the total or gross crop. Page 8 of the aforesaid decision is therefore
amended so as to read as follows:
Very little need be said in regard to the third cause of action. It relates to a period subsequent to complete
termination of the lease by final judicial order. The defendant had then no right whatever to the
possession of the land or to the fruits thereof, and in removing the fruits, he acted in bad faith. This being
the case, he must pay for the fruits received by him, less the necessary expenses of production (Arts. 455
and 453 of the Civil Code.) As his bad faith commenced long before the fruits in question were produced,
he is not entitled to any part of the net proceeds of the crop. The evidence shows that the gross ratoon
crop for the year 1924-1925 was 3,226.50 piculs of sugar, and according to the defendant's own
statement, the market value of the sugar was in the neighborhood of P11 per picul and the cost of
production about P4.50. The defendant received only one-half of the gross crop, the other half going to
the sugar central as compensation for the milling of the cane, but the defendant paid the cost of
production both of his share of the sugar and that of the sugar central. The net result is that under the
third cause of action, the defendant must pay to the plaintiff the sum of P3,226.50 with interest.

"For the reasons stated, the judgment of the court below is affirmed in regard to the second cause of
action. It is reversed as to the first an third causes of action, an it is hereby ordered that the plaintiff have
and recover from the defendant the sum of P11,226.50 with interest at the rate of 6 per cent per annum
from April 13, 1925, the date of the filing of the complaint. No costs will be allowed." So ordered.
BLOSSOM and CO., petitioner,
vs.
MANILA GAS CORPORATION, RICARDO SUMMERS, sheriff of the City of Manila, and GEORGE R.
HARVEY, Judge of First Instance of Manila, respondents.
J. Courtney Hixson for petitioner.Thomas Cary Welch for respondents.
OSTRAND, J.:
Though the petition in this case is styled a "Petition for preliminary injunction," it is in reality a petition for a
writ of prohibition. The petitioner alleges, among many other things, more or less immaterial, that on or
about October 16, 1923, in the City of Manila, in civil case No. 24267, wherein one of the herein
respondents, the Manila Gas Corporation was plaintiff and the herein petitioner Blossom and Co. was the
defendant, a judgment in mortgage foreclosure proceedings was rendered against the said Blossom and
Co. ordering the payment of P7,794.65 to the said Manila Gas Corporation, with interest thereon at the
rate of 8 per cent per annum, the judgment also providing that if the defendant Blossom and Co. failed to
satisfy the judgment within ninety days from the time of the notification of said judgment, the mortgaged
land should be sold by the sheriff at public auction and the proceeds of the sale applied towards the
satisfaction of said judgment; that from said judgment Blossom and Co. appealed to this court and on
October 18, 1924, the judgment of the Court of First Instance was affirmed; 1 that the decision of this court
became final on the 28th of the same month and the record was returned to the court below.
It is further alleged that on December 31, 1924, the respondent, the Honorable George R. Harvey, Judge
of the Court of First Instance of the City of Manila, ordered that a writ of execution be issued against the
defendant in said case No. 24267; that on January 6, 1925, the same respondent modified his order of
December 31, 1924, by ordering "that the judgment be executed;" that on or about January 9, 1925, the
respondent Ricardo Summers, in his capacity as sheriff of the City of Manila and in compliance with the
aforesaid orders, advertised in the newspapers of the City of Manila that the mortgaged property would be
sold at public auction to the highest bidder in front of the court house in Manila, at 9 o'clock a.m. on
February 6, 1925.
The petitioner further alleges that the execution of the judgment is premature inasmuch as the period of
three months from the date of the judgment provided for in section 256 of the Code of Civil Procedure for
the execution of a judgment in foreclosure proceedings had not then expired; that the interests of the
petitioner will suffer grave injury from the premature execution of the judgment; and that the petitioner has
no other plain, speedy, and adequate remedy in the ordinary course of law than to apply to this court for
an order enjoining the respondents from proceeding with the aforesaid sale.
Upon being required to answer the petition within five days, the respondents in lieu of an answer filed a
demurrer which will be considered as an answer admitting the material allegations of the petition. The
case was thereupon set down for hearing on February 17, 1925, at which hearing the parties were
represented by counsel and arguments submitted.
The only question presented for our consideration is whether, in the event a judgment for the plaintiff in a
foreclosure proceeding is affirmed on appeal, the three months stay of execution allowed the defendant
by section 256 of the Code of Civil Procedure is to be counted from the date of the judgment of the lower
court or whether it should be counted from the date of the final determination of the case by the appellate
court.
The respondents maintain that under the second paragraph of section 506 of the Code of Civil Procedure
the judgment must, in regard to its execution, be treated as if no appeal had been taken and that three
months from the date of the original judgment having expired it might be executed immediately upon the
remittitur. We cannot accept this view and do not think that the paragraph of the Code upon which the
respondents rely supports their contention. The section in which it is found reads as follows:
Certificate of judgment to be remitted the Court of First Instance. In all cases heard by the Supreme
Court on bills of exception, its judgment shall be remitted to the Courts of First Instance from which the
actions respectively came into the Supreme Court; and for this purpose it shall be the duty of the clerk of
the Supreme Court, within ten days after the close of any term, to remit to the clerks of Courts of First
Instance, notices of all judgments of the Supreme Court in actions brought from the Courts of First

Instance respectively. Upon receiving the notice so remitted, the clerk of the Court of First Instance shall
enter the same upon his docket and file the notice with the other papers in the action.
The judgment so remitted shall be executed by the Court of First Instance, in the same manner as though
the action had not been carried to the Supreme Court. But the Supreme Court may, by special order,
direct any particular judgment to be remitted to the proper Court of First Instance at any time, without
awaiting the end of the term.
It shall likewise be the duty of the clerk of the Supreme Court, within ten days after the close of any term,
to remit to the clerks of the Courts of First Instance, with the notices of all judgments of the Supreme
Court in this section referred to, likewise all the original documents and the record of the actions
transmitted by the Court of First Instance, in order that the files of the action may remain together in that
court.
As will be seen, the paragraph in question relates to the manner of executing the judgment and says
nothing about the time. As to the time for the execution, section 144 of the Code of Civil Procedure
provides that, except by special order of the court, no execution shall issue upon a final judgment until
after the period for perfecting a bill of exceptions has expired and that the filing of a bill of exceptions shall
of itself stay execution until the final determination of the action, unless for special reasons stated in the
bill of exceptions the court shall order that execution be not stayed. In other words, the filing of the bill tolls
the running of time pending the final disposition on appeal and we can see no valid reason why this
should not apply to the three months period allowed the judgment debtor by section 256 to satisfy the
judgment before execution issues.
That such is the intent of the statute seems fairly clear. The defendant in a foreclosure proceeding has no
right of redemption from the judicial sale of the mortgaged property and the purpose of the three months
stay of execution is very evidently to give the judgment debtor time and opportunity to make the
necessary arrangements for the payment of the debt after it has been definitely determined that the debt
is due and must be paid by him. In the event of an appeal there is no definite determination of the case
until it is finally disposed of by the appellate court and if we were to hold that the appeal did not suspend
the running of the period mentioned, the result would necessarily be that the defendant would be deprived
of the time granted him by the statute to provide funds for the satisfaction of the judgment before its
execution. We therefore hold that the running of said period is suspended during the appeal and as the
case cannot be said to be finally determined on appeal while the record remains with the appellate court,
it logically follows that the period does not begin to run until the remittitur of the record to the court below.
In the present case, it is alleged in the petition and admitted by the respondents that the decision of this
court in the foreclosure proceedings became final on October 28, 1924, and that on January 9, 1925, only
seventy-three days after it became final.
It appearing that the execution here in question was begun before the expiration of three months from the
final determination of the case, the petition is granted and the respondents are prohibited from proceeding
with the execution until after the expiration of the period of three months from October 28, 1924. The
respondent, the Manila Gas Corporation, shall pay the costs. So ordered.
Johnson, Malcolm, Villamor, and Romualdez, JJ., concur.
Separate Opinions
JOHNS, J., specially concurring:
This case is presented on a demurrer to the petition, which in legal effect admits all of the material
allegations in the petition. Hence, as the majority opinion says:
The only question presented for our consideration is whether, in the event a judgment for the plaintiff in a
foreclosure proceedings is affirmed on appeal, the three months stay of execution allowed the defendant
by section 256 of the Code of Civil Procedure is to be counted from the date of the judgment of the lower
court or whether it should be counted from the date of the final determination of the case by the appellate
court.
Based on such admissions, I agree with the majority opinion.
As it points out, among other things, section 506 of the Code of Civil Procedure says:
The judgment so remitted shall be executed by the Court of First Instance, in the same manner as though
the action had not been carried to the Supreme Court.
If it be a fact that an appeal is dismissed or that no final judgment is rendered by this court, and that the
judgment of the lower court remains in legal force and effect as of the day when it was rendered, and that
an execution is issued upon the original judgment as it was rendered in the lower court, another and a

different question would be presented. But for the reasons above stated, I concur in the result.

SWAGMAN HOTELS AND TRAVEL, INC., petitioner, vs. HON. COURT OF APPEALS, and NEAL B.
CHRISTIAN, respondents.
DECISION
DAVIDE, JR., C.J.:
May a complaint that lacks a cause of action at the time it was filed be cured by the accrual of a cause of
action during the pendency of the case? This is the basic issue raised in this petition for the Courts
consideration.
Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc., through Atty. Leonor L. Infante
and Rodney David Hegerty, its president and vice-president, respectively, obtained from private
respondent Neal B. Christian loans evidenced by three promissory notes dated 7 August 1996, 14 March
1997, and 14 July 1997. Each of the promissory notes is in the amount of US$50,000 payable after three
years from its date with an interest of 15% per annum payable every three months. [1] In a letter dated 16
December 1998, Christian informed the petitioner corporation that he was terminating the loans and
demanded from the latter payment in the total amount of US$150,000 plus unpaid interests in the total
amount of US$13,500.[2]
On 2 February 1999, private respondent Christian filed with the Regional Trial Court of Baguio City,
Branch 59, a complaint for a sum of money and damages against the petitioner corporation, Hegerty, and
Atty. Infante. The complaint alleged as follows: On 7 August 1996, 14 March 1997, and 14 July 1997, the
petitioner, as well as its president and vice-president obtained loans from him in the total amount of
US$150,000 payable after three years, with an interest of 15% per annum payable quarterly or every
three months. For a while, they paid an interest of 15% per annum every three months in accordance with
the three promissory notes. However, starting January 1998 until December 1998, they paid him only an
interest of 6% per annum, instead of 15% per annum, in violation of the terms of the three promissory
notes. Thus, Christian prayed that the trial court order them to pay him jointly and solidarily the amount of
US$150,000 representing the total amount of the loans; US$13,500 representing unpaid interests from
January 1998 until December 1998; P100,000 for moral damages; P50,000 for attorneys fees; and the
cost of the suit.[3]
The petitioner corporation, together with its president and vice-president, filed an Answer raising as
defenses lack of cause of action and novation of the principal obligations. According to them, Christian
had no cause of action because the three promissory notes were not yet due and demandable. In
December 1997, since the petitioner corporation was experiencing huge losses due to the Asian financial
crisis, Christian agreed (a) to waive the interest of 15% per annum, and (b) accept payments of the
principal loans in installment basis, the amount and period of which would depend on the state of
business of the petitioner corporation. Thus, the petitioner paid Christian capital repayment in the amount
of US$750 per month from January 1998 until the time the complaint was filed in February 1999. The
petitioner and its co-defendants then prayed that the complaint be dismissed and that Christian be
ordered to pay P1 million as moral damages; P500,000 as exemplary damages; and P100,000 as
attorneys fees.[4]
In due course and after hearing, the trial court rendered a decision [5] on 5 May 2000 declaring the first two
promissory notes dated 7 August 1996 and 14 March 1997 as already due and demandable and that the
interest on the loans had been reduced by the parties from 15% to 6% per annum. It then ordered the
petitioner corporation to pay Christian the amount of $100,000 representing the principal obligation
covered by the promissory notes dated 7 August 1996 and 14 March 1997, plus interest of 6% per month
thereon until fully paid, with all interest payments already paid by the defendant to the plaintiff to be
deducted therefrom.
The trial court ratiocinated in this wise:
(1) There was no novation of defendants obligation to the plaintiff. Under Article 1292 of the Civil Code,
there is an implied novation only if the old and the new obligation be on every point incompatible with one
another.
The test of incompatibility between the two obligations or contracts, according to an imminent author, is
whether they can stand together, each one having an independent existence. If they cannot, they are
incompatible, and the subsequent obligation novates the first (Tolentino, Civil Code of the Philippines, Vol.
IV, 1991 ed., p. 384). Otherwise, the old obligation will continue to subsist subject to the modifications
agreed upon by the parties. Thus, it has been written that accidental modifications in an existing
obligation do not extinguish it by novation. Mere modifications of the debt agreed upon between the
parties do not constitute novation. When the changes refer to secondary agreement and not to the object

or principal conditions of the contract, there is no novation; such changes will produce modifications of
incidental facts, but will not extinguish the original obligation. Thus, the acceptance of partial payments or
a partial remission does not involve novation (id., p. 387). Neither does the reduction of the amount of an
obligation amount to a novation because it only means a partial remission or condonation of the same
debt.
In the instant case, the Court is of the view that the parties merely intended to change the rate of interest
from 15% per annum to 6% per annum when the defendant started paying $750 per month which
payments were all accepted by the plaintiff from January 1998 onward. The payment of the principal
obligation, however, remains unaffected which means that the defendant should still pay the plaintiff
$50,000 on August 9, 1999, March 14, 2000 and July 14, 2000.
(2) When the instant case was filed on February 2, 1999, none of the promissory notes was due and
demandable. As of this date however, the first and the second promissory notes have already matured.
Hence, payment is already due.
Under Section 5 of Rule 10 of the 1997 Rules of Civil Procedure, a complaint which states no cause of
action may be cured by evidence presented without objection. Thus, even if the plaintiff had no cause of
action at the time he filed the instant complaint, as defendants obligation are not yet due and demandable
then, he may nevertheless recover on the first two promissory notes in view of the introduction of
evidence showing that the obligations covered by the two promissory notes are now due and
demandable.
(3) Individual defendants Rodney Hegerty and Atty. Leonor L. Infante can not be held personally liable for
the obligations contracted by the defendant corporation it being clear that they merely acted in
representation of the defendant corporation in their capacity as General Manager and President,
respectively, when they signed the promissory notes as evidenced by Board Resolution No. 1(94) passed
by the Board of Directors of the defendant corporation (Exhibit 4). [6]
In its decision[7] of 5 September 2003, the Court of Appeals denied petitioners appeal and affirmed in toto
the decision of the trial court, holding as follows:
In the case at bench, there is no incompatibility because the changes referred to by appellant Swagman
consist only in the manner of payment. . . .
Appellant Swagmans interpretation that the three (3) promissory notes have been novated by reason of
appellee Christians acceptance of the monthly payments of US$750.00 as capital repayments
continuously even after the filing of the instant case is a little bit strained considering the stiff requirements
of the law on novation that the intention to novate must appear by express agreement of the parties, or by
their acts that are too clear and unequivocal to be mistaken. Under the circumstances, the more
reasonable interpretation of the act of the appellee Christian in receiving the monthly payments of
US$750.00 is that appellee Christian merely allowed appellant Swagman to pay whatever amount the
latter is capable of. This interpretation is supported by the letter of demand dated December 16, 1998
wherein appellee Christian demanded from appellant Swagman to return the principal loan in the amount
of US$150,000 plus unpaid interest in the amount of US$13,500.00
...
Appellant Swagman, likewise, contends that, at the time of the filing of the complaint, appellee Christian
ha[d] no cause of action because none of the promissory notes was due and demandable.
Again, We are not persuaded.
...
In the case at bench, while it is true that appellant Swagman raised in its Answer the issue of prematurity
in the filing of the complaint, appellant Swagman nonetheless failed to object to appellee Christians
presentation of evidence to the effect that the promissory notes have become due and demandable.
The afore-quoted rule allows a complaint which states no cause of action to be cured either by evidence
presented without objection or, in the event of an objection sustained by the court, by an amendment of
the complaint with leave of court (Herrera, Remedial Law, Vol. VII, 1997 ed., p. 108). [8]
Its motion for reconsideration having been denied by the Court of Appeals in its Resolution of 4 December
2003,[9] the petitioner came to this Court raising the following issues:
I. WHERE THE DECISION OF THE TRIAL COURT DROPPING TWO DEFENDANTS HAS BECOME
FINAL AND EXECUTORY, MAY THE RESPONDENT COURT OF APPEALS STILL STUBBORNLY
CONSIDER THEM AS APPELLANTS WHEN THEY DID NOT APPEAL?
II. WHERE THERE IS NO CAUSE OF ACTION, IS THE DECISION OF THE LOWER COURT VALID?
III. MAY THE RESPONDENT COURT OF APPEALS VALIDLY AFFIRM A DECISION OF THE LOWER

COURT WHICH IS INVALID DUE TO LACK OF CAUSE OF ACTION?


IV. WHERE THERE IS A VALID NOVATION, MAY THE ORIGINAL TERMS OF CONTRACT WHICH HAS
BEEN NOVATED STILL PREVAIL?[10]
The petitioner harps on the absence of a cause of action at the time the private respondents complaint
was filed with the trial court. In connection with this, the petitioner raises the issue of novation by arguing
that its obligations under the three promissory notes were novated by the renegotiation that happened in
December 1997 wherein the private respondent agreed to waive the interest in each of the three
promissory notes and to accept US$750 per month as installment payment for the principal loans in the
total amount of US$150,000. Lastly, the petitioner questions the act of the Court of Appeals in considering
Hegerty and Infante as appellants when they no longer appealed because the trial court had already
absolved them of the liability of the petitioner corporation.
On the other hand, the private respondent asserts that this petition is a mere ploy to continue delaying the
payment of a just obligation. Anent the fact that Hegerty and Atty. Infante were considered by the Court of
Appeals as appellants, the private respondent finds it immaterial because they are not affected by the
assailed decision anyway.
Cause of action, as defined in Section 2, Rule 2 of the 1997 Rules of Civil Procedure, is the act or
omission by which a party violates the right of another. Its essential elements are as follows:
1. A right in favor of the plaintiff by whatever means and under whatever law it arises or is created;
2. An obligation on the part of the named defendant to respect or not to violate such right; and
3. Act or omission on the part of such defendant in violation of the right of the plaintiff or constituting a
breach of the obligation of the defendant to the plaintiff for which the latter may maintain an action for
recovery of damages or other appropriate relief.[11]
It is, thus, only upon the occurrence of the last element that a cause of action arises, giving the plaintiff
the right to maintain an action in court for recovery of damages or other appropriate relief.
It is undisputed that the three promissory notes were for the amount of P50,000 each and uniformly
provided for (1) a term of three years; (2) an interest of 15 % per annum, payable quarterly; and (3) the
repayment of the principal loans after three years from their respective dates. However, both the Court of
Appeals and the trial court found that a renegotiation of the three promissory notes indeed happened in
December 1997 between the private respondent and the petitioner resulting in the reduction not waiver of
the interest from 15% to 6% per annum, which from then on was payable monthly, instead of quarterly.
The term of the principal loans remained unchanged in that they were still due three years from the
respective dates of the promissory notes. Thus, at the time the complaint was filed with the trial court on 2
February 1999, none of the three promissory notes was due yet; although, two of the promissory notes
with the due dates of 7 August 1999 and 14 March 2000 matured during the pendency of the case with
the trial court. Both courts also found that the petitioner had been religiously paying the private
respondent US$750 per month from January 1998 and even during the pendency of the case before the
trial court and that the private respondent had accepted all these monthly payments.
With these findings of facts, it has become glaringly obvious that when the complaint for a sum of money
and damages was filed with the trial court on 2 February 1999, no cause of action has as yet existed
because the petitioner had not committed any act in violation of the terms of the three promissory notes
as modified by the renegotiation in December 1997. Without a cause of action, the private respondent
had no right to maintain an action in court, and the trial court should have therefore dismissed his
complaint.
Despite its finding that the petitioner corporation did not violate the modified terms of the three promissory
notes and that the payment of the principal loans were not yet due when the complaint was filed, the trial
court did not dismiss the complaint, citing Section 5, Rule 10 of the 1997 Rules of Civil Procedure, which
reads:
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.

According to the trial court, and sustained by the Court of Appeals, this Section allows a complaint that
does not state a cause of action to be cured by evidence presented without objection during the trial.
Thus, it ruled that even if the private respondent had no cause of action when he filed the complaint for a
sum of money and damages because none of the three promissory notes was due yet, he could
nevertheless recover on the first two promissory notes dated 7 August 1996 and 14 March 1997, which
became due during the pendency of the case in view of the introduction of evidence of their maturity
during the trial.
Such interpretation of Section 5, Rule 10 of the 1997 Rules of Civil Procedure is erroneous.
Amendments of pleadings are allowed under Rule 10 of the 1997 Rules of Civil Procedure in order that
the actual merits of a case may be determined in the most expeditious and inexpensive manner without
regard to technicalities, and that all other matters included in the case may be determined in a single
proceeding, thereby avoiding multiplicity of suits. [12] Section 5 thereof applies to situations wherein
evidence not within the issues raised in the pleadings is presented by the parties during the trial, and to
conform to such evidence the pleadings are subsequently amended on motion of a party. Thus, a
complaint which fails to state a cause of action may be cured by evidence presented during the trial.
However, the curing effect under Section 5 is applicable only if a cause of action in fact exists at the time
the complaint is filed, but the complaint is defective for failure to allege the essential facts . For example, if
a complaint failed to allege the fulfillment of a condition precedent upon which the cause of action
depends, evidence showing that such condition had already been fulfilled when the complaint was filed
may be presented during the trial, and the complaint may accordingly be amended thereafter. [13] Thus, in
Roces v. Jalandoni,[14] this Court upheld the trial court in taking cognizance of an otherwise defective
complaint which was later cured by the testimony of the plaintiff during the trial. In that case, there was in
fact a cause of action and the only problem was the insufficiency of the allegations in the complaint. This
ruling was reiterated in Pascua v. Court of Appeals.[15]
It thus follows that a complaint whose cause of action has not yet accrued cannot be cured or remedied
by an amended or supplemental pleading alleging the existence or accrual of a cause of action while the
case is pending.[16] Such an action is prematurely brought and is, therefore, a groundless suit, which
should be dismissed by the court upon proper motion seasonably filed by the defendant. The underlying
reason for this rule is that a person should not be summoned before the public tribunals to answer for
complaints which are immature. As this Court eloquently said in Surigao Mine Exploration Co., Inc. v.
Harris:[17]
It is a rule of law to which there is, perhaps, no exception, either at law or in equity, that to recover at all
there must be some cause of action at the commencement of the suit. As observed by counsel for
appellees, there are reasons of public policy why there should be no needless haste in bringing up
litigation, and why people who are in no default and against whom there is yet no cause of action should
not be summoned before the public tribunals to answer complaints which are groundless. We say
groundless because if the action is immature, it should not be entertained, and an action prematurely
brought is a groundless suit.
It is true that an amended complaint and the answer thereto take the place of the originals which are
thereby regarded as abandoned (Reynes vs. Compaa General de Tabacos [1912], 21 Phil. 416; Ruyman
and Farris vs. Director of Lands [1916], 34 Phil., 428) and that the complaint and answer having been
superseded by the amended complaint and answer thereto, and the answer to the original complaint not
having been presented in evidence as an exhibit, the trial court was not authorized to take it into account.
(Bastida vs. Menzi & Co. [1933], 58 Phil., 188.) But in none of these cases or in any other case have we
held that if a right of action did not exist when the original complaint was filed, one could be created by
filing an amended complaint. In some jurisdictions in the United States what was termed an imperfect
cause of action could be perfected by suitable amendment (Brown vs. Galena Mining & Smelting Co., 32
Kan., 528; Hooper vs. City of Atlanta, 26 Ga. App., 221) and this is virtually permitted in Banzon and
Rosauro vs. Sellner ([1933], 58 Phil., 453); Asiatic Potroleum [sic] Co. vs. Veloso ([1935], 62 Phil., 683);
and recently in Ramos vs. Gibbon (38 Off. Gaz., 241). That, however, which is no cause of action
whatsoever cannot by amendment or supplemental pleading be converted into a cause of action:
Nihil de re accrescit ei qui nihil in re quando jus accresceret habet.
We are therefore of the opinion, and so hold, that unless the plaintiff has a valid and subsisting cause
of action at the time his action is commenced, the defect cannot be cured or remedied by the
acquisition or accrual of one while the action is pending, and a supplemental complaint or an
amendment setting up such after-accrued cause of action is not permissible. (Emphasis ours).

Hence, contrary to the holding of the trial court and the Court of Appeals, the defect of lack of cause of
action at the commencement of this suit cannot be cured by the accrual of a cause of action during the
pendency of this case arising from the alleged maturity of two of the promissory notes on 7 August 1999
and 14 March 2000.
Anent the issue of novation, this Court observes that the petitioner corporation argues the existence of
novation based on its own version of what transpired during the renegotiation of the three promissory
notes in December 1997. By using its own version of facts, the petitioner is, in a way, questioning the
findings of facts of the trial court and the Court of Appeals.
As a rule, the findings of fact of the trial court and the Court of Appeals are final and conclusive and
cannot be reviewed on appeal to the Supreme Court [18] as long as they are borne out by the record or are
based on substantial evidence.[19] The Supreme Court is not a trier of facts, its jurisdiction being limited to
reviewing only errors of law that may have been committed by the lower courts. Among the exceptions is
when the finding of fact of the trial court or the Court of Appeals is not supported by the evidence on
record or is based on a misapprehension of facts. Such exception obtains in the present case. [20]
This Court finds to be contrary to the evidence on record the finding of both the trial court and the Court of
Appeals that the renegotiation in December 1997 resulted in the reduction of the interest from 15% to 6%
per annum and that the monthly payments of US$750 made by the petitioner were for the reduced
interests.
It is worthy to note that the cash voucher dated January 1998 [21] states that the payment of US$750
represents INVESTMENT PAYMENT. All the succeeding cash vouchers describe the payments from
February 1998 to September 1999 as CAPITAL REPAYMENT.[22] All these cash vouchers served as
receipts evidencing private respondents acknowledgment of the payments made by the petitioner: two of
which were signed by the private respondent himself and all the others were signed by his
representatives. The private respondent even identified and confirmed the existence of these receipts
during the hearing. [23] Significantly, cognizant of these receipts, the private respondent applied these
payments to the three consolidated principal loans in the summary of payments he submitted to the court.
[24]

Under Article 1253 of the Civil Code, if the debt produces interest, payment of the principal shall not be
deemed to have been made until the interest has been covered. In this case, the private respondent
would not have signed the receipts describing the payments made by the petitioner as capital repayment
if the obligation to pay the interest was still subsisting. The receipts, as well as private respondents
summary of payments, lend credence to petitioners claim that the payments were for the principal loans
and that the interests on the three consolidated loans were waived by the private respondent during the
undisputed renegotiation of the loans on account of the business reverses suffered by the petitioner at the
time.
There was therefore a novation of the terms of the three promissory notes in that the interest was waived
and the principal was payable in monthly installments of US$750. Alterations of the terms and conditions
of the obligation would generally result only in modificatory novation unless such terms and conditions are
considered to be the essence of the obligation itself. [25] The resulting novation in this case was, therefore,
of the modificatory type, not the extinctive type, since the obligation to pay a sum of money remains in
force.
Thus, since the petitioner did not renege on its obligation to pay the monthly installments conformably
with their new agreement and even continued paying during the pendency of the case, the private
respondent had no cause of action to file the complaint. It is only upon petitioners default in the payment
of the monthly amortizations that a cause of action would arise and give the private respondent a right to
maintain an action against the petitioner.
Lastly, the petitioner contends that the Court of Appeals obstinately included its President Infante and
Vice-President Hegerty as appellants even if they did not appeal the trial courts decision since they were
found to be not personally liable for the obligation of the petitioner. Indeed, the Court of Appeals erred in
referring to them as defendants-appellants; nevertheless, that error is no cause for alarm because its
ruling was clear that the petitioner corporation was the one solely liable for its obligation. In fact, the Court
of Appeals affirmed in toto the decision of the trial court, which means that it also upheld the latters ruling
that Hegerty and Infante were not personally liable for the pecuniary obligations of the petitioner to the
private respondent.
In sum, based on our disquisition on the lack of cause of action when the complaint for sum of money and
damages was filed by the private respondent, the petition in the case at bar is impressed with merit.

WHEREFORE, the petition is hereby GRANTED. The Decision of 5 September 2003 of the Court
of Appeals in CA-G.R. CV No. 68109, which affirmed the Decision of 5 May 2000 of the Regional Trial
Court of Baguio, Branch 59, granting in part private respondents complaint for sum of money and
damages, and its Resolution of 4 December 2003, which denied petitioners motion for reconsideration are
hereby REVERSED and SET ASIDE. The complaint docketed as Civil Case No. 4282-R is hereby
DISMISSED for lack of cause of action.
No costs.
SO ORDERED.

BANDA VS. ERENITA


The present controversy arose from a Petition for Certiorari and prohibition challenging the
constitutionality of Executive Order No. 378 dated October 25, 2004, issued by President Gloria
Macapagal Arroyo (President Arroyo). Petitioners characterize their action as a class suit filed on their
own behalf and on behalf of all their co-employees at the National Printing Office (NPO).
The NPO was formed on July 25, 1987, during the term of former President Corazon C. Aquino (President
Aquino), by virtue of Executive Order No. 285 [if !supportFootnotes][1][endif] which provided, among others, the
creation of the NPO from the merger of the Government Printing Office and the relevant printing units of
the Philippine Information Agency (PIA). Section 6 of Executive Order No. 285 reads:
SECTION 6. Creation of the National Printing Office. There is hereby
created a National Printing Office out of the merger of the Government Printing
Office and the relevant printing units of the Philippine Information Agency. The
Office shall have exclusive printing jurisdiction over the following:
a. Printing, binding and distribution of all standard and accountable
forms of national, provincial, city and municipal governments, including
government corporations;
[if !supportLists]b.
[if !supportLists]c.

[endif]Printing of officials ballots;

[endif]Printing of public documents such as the Official Gazette,


General Appropriations Act, Philippine Reports, and development
information materials of the Philippine Information Agency.

The Office may also accept other government printing jobs, including government
publications, aside from those enumerated above, but not in an exclusive basis.
The details of the organization, powers, functions, authorities, and
related management aspects of the Office shall be provided in the implementing
details which shall be prepared and promulgated in accordance with Section II of
this Executive Order.
The Office shall be attached to the Philippine Information Agency.
On October 25, 2004, President Arroyo issued the herein assailed Executive Order No. 378,
amending Section 6 of Executive Order No. 285 by, inter alia, removing the exclusive jurisdiction of the
NPO over the printing services requirements of government agencies and instrumentalities. The pertinent
portions of Executive Order No. 378, in turn, provide:
SECTION 1. The NPO shall continue to provide printing services to
government agencies and instrumentalities as mandated by law. However, it
shall no longer enjoy exclusive jurisdiction over the printing services
requirements of the government over standard and accountable forms. It
shall have to compete with the private sector, except in the printing of
election paraphernalia which could be shared with the Bangko Sentral ng
Pilipinas, upon the discretion of the Commission on Elections consistent with the
provisions of the Election Code of 1987.
SECTION 2. Government agencies/instrumentalities may source
printing services outside NPO provided that:
2.1 The printing services to be provided by the private sector is superior

in quality and at a lower cost than what is offered by the NPO; and
2.2 The private printing provider is flexible in terms of meeting the target
completion time of the government agency.
SECTION 3. In the exercise of its functions, the amount to be
appropriated for the programs, projects and activities of the NPO in the
General Appropriations Act (GAA) shall be limited to its income without
additional financial support from the government. (Emphases and
underscoring supplied.)
Pursuant to Executive Order No. 378, government agencies and instrumentalities are allowed
to source their printing services from the private sector through competitive bidding, subject to the
condition that the services offered by the private supplier be of superior quality and lower in cost
compared to what was offered by the NPO. Executive Order No. 378 also limited NPOs appropriation in
the General Appropriations Act to its income.
Perceiving Executive Order No. 378 as a threat to their security of tenure as employees of the
NPO, petitioners now challenge its constitutionality, contending that: (1) it is beyond the executive powers
of President Arroyo to amend or repeal Executive Order No. 285 issued by former President Aquino
when the latter still exercised legislative powers; and (2) Executive Order No. 378 violates petitioners
security of tenure, because it paves the way for the gradual abolition of the NPO.
We dismiss the petition.
Before proceeding to resolve the substantive issues, the Court must first delve into a
procedural matter. Since petitioners instituted this case as a class suit, the Court, thus, must first
determine if the petition indeed qualifies as one. In Board of Optometry v. Colet,[if !supportFootnotes][2][endif] we held
that [c]ourts must exercise utmost caution before allowing a class suit, which is the exception to the
requirement of joinder of all indispensable parties. For while no difficulty may arise if the decision secured
is favorable to the plaintiffs, a quandary would result if the decision were otherwise as those who were
deemed impleaded by their self-appointed representatives would certainly claim denial of due process.
Section 12, Rule 3 of the Rules of Court defines a class suit, as follows:
Sec. 12. Class suit. When the subject matter of the controversy is one of common or general interest to
many persons so numerous that it is impracticable to join all as parties, a number of them which the court
finds to be sufficiently numerous and representative as to fully protect the interests of all concerned may
sue or defend for the benefit of all. Any party in interest shall have the right to intervene to protect his
individual interest.
From the foregoing definition, the requisites of a class suit are: 1) the subject matter of controversy is one
of common or general interest to many persons; 2) the parties affected are so numerous that it is
impracticable to bring them all to court; and 3) the parties bringing the class suit are sufficiently numerous
or representative of the class and can fully protect the interests of all concerned.
In Mathay v. The Consolidated Bank and Trust Company,[if

!supportFootnotes][3][endif]

the Court held

that:
An action does not become a class suit merely because it is designated as such in the
pleadings. Whether the suit is or is not a class suit depends upon the attending
facts, and the complaint, or other pleading initiating the class action should
allege the existence of the necessary facts, to wit, the existence of a subject matter
of common interest, and the existence of a class and the number of persons in

the alleged class, in order that the court might be enabled to determine
whether the members of the class are so numerous as to make it
impracticable to bring them all before the court, to contrast the number
appearing on the record with the number in the class and to determine
whether claimants on record adequately represent the class and the subject
matter of general or common interest. (Emphases ours.)
Here, the petition failed to state the number of NPO employees who would be affected by the
assailed Executive Order and who were allegedly represented by petitioners. It was the Solicitor General,
as counsel for respondents, who pointed out that there were about 549 employees in the NPO. [if !
supportFootnotes][4][endif]
The 67 petitioners undeniably comprised a small fraction of the NPO employees whom
they claimed to represent. Subsequently, 32 of the original petitioners executed an Affidavit of
Desistance, while one signed a letter denying ever signing the petition, [if !supportFootnotes][5][endif] ostensibly
reducing the number of petitioners to 34. We note that counsel for the petitioners challenged the validity
of the desistance or withdrawal of some of the petitioners and insinuated that such desistance was due to
pressure from people close to the seat of power.[if !supportFootnotes][6][endif] Still, even if we were to disregard the
affidavit of desistance filed by some of the petitioners, it is highly doubtful that a sufficient, representative
number of NPO employees have instituted this purported class suit. A perusal of the petition itself would
show that of the 67 petitioners who signed the Verification/Certification of Non-Forum Shopping, only 20
petitioners were in fact mentioned in the jurat as having duly subscribed the petition before the notary
public. In other words, only 20 petitioners effectively instituted the present case.
Indeed, in MVRS Publications, Inc. v. Islamic Dawah Council of the Philippines, Inc.,[if !
we observed that an element of a class suit or representative suit is the adequacy of
representation. In determining the question of fair and adequate representation of members of a class,
the court must consider (a) whether the interest of the named party is coextensive with the interest of the
other members of the class; (b) the proportion of those made a party, as it so bears, to the total
membership of the class; and (c) any other factor bearing on the ability of the named party to speak for
the rest of the class.
supportFootnotes][7][endif]

Previously, we held in Ibaes v. Roman Catholic Church [if !supportFootnotes][8][endif] that where the
interests of the plaintiffs and the other members of the class they seek to represent are diametrically
opposed, the class suit will not prosper.
It is worth mentioning that a Manifestation of Desistance, [if !supportFootnotes][9][endif] to which the
previously mentioned Affidavit of Desistance[if !supportFootnotes][10][endif] was attached, was filed by the President
of the National Printing Office Workers Association (NAPOWA). The said manifestation expressed
NAPOWAs opposition to the filing of the instant petition in any court. Even if we take into account the
contention of petitioners counsel that the NAPOWA President had no legal standing to file such
manifestation, the said pleading is a clear indication that there is a divergence of opinions and views
among the members of the class sought to be represented, and not all are in favor of filing the present
suit. There is here an apparent conflict between petitioners interests and those of the persons whom they
claim to represent. Since it cannot be said that petitioners sufficiently represent the interests of the entire
class, the instant case cannot be properly treated as a class suit.
As to the merits of the case, the petition raises two main grounds to assail the constitutionality
of Executive Order No. 378:
First, it is contended that President Arroyo cannot amend or repeal Executive Order No. 285 by the mere
issuance of another executive order (Executive Order No. 378). Petitioners maintain that former President
Aquinos Executive Order No. 285 is a legislative enactment, as the same was issued while President
Aquino still had legislative powers under the Freedom Constitution; [if !supportFootnotes][11][endif] thus, only Congress
through legislation can validly amend Executive Order No. 285.

Second, petitioners maintain that the issuance of Executive Order No. 378 would lead to the eventual
abolition of the NPO and would violate the security of tenure of NPO employees.
Anent the first ground raised in the petition, we find the same patently without merit.
It is a well-settled principle in jurisprudence that the President has the power to reorganize the
offices and agencies in the executive department in line with the Presidents constitutionally granted
power of control over executive offices and by virtue of previous delegation of the legislative power to
reorganize executive offices under existing statutes.
In Buklod ng Kawaning EIIB v. Zamora,[if !supportFootnotes][12][endif] the Court pointed out that Executive
Order No. 292 or the Administrative Code of 1987 gives the President continuing authority to reorganize
and redefine the functions of the Office of the President. Section 31, Chapter 10, Title III, Book III of the
said Code, is explicit:
Sec. 31. Continuing Authority of the President to Reorganize his Office. The President, subject to the
policy in the Executive Office and in order to achieve simplicity, economy and efficiency, shall
have continuing authority to reorganize the administrative structure of the Office of the President.
For this purpose, he may take any of the following actions:
(1) Restructure the internal organization of the Office of
the President Proper, including the immediate Offices, the President
Special Assistants/Advisers System and the Common Staff Support
System, by abolishing, consolidating or merging units thereof or
transferring functions from one unit to another;
(2) Transfer any function under the Office of
the President to any other Department or Agency as well
as transfer functions to the Office of the President from
other Departments and Agencies; and
(3) Transfer any agency under the Office of the
President to any other department or agency as well as
transfer agencies to the Office of the President from
other Departments or agencies. (Emphases ours.)
Interpreting the foregoing provision, we held in Buklod ng Kawaning EIIB, thus:
But of course, the list of legal basis authorizing the President to reorganize any department or agency in
the executive branch does not have to end here. We must not lose sight of the very source of the power
that which constitutes an express grant of power. Under Section 31, Book III of Executive Order No. 292
(otherwise known as the Administrative Code of 1987), the President, subject to the policy in the
Executive Office and in order to achieve simplicity, economy and efficiency, shall have the continuing
authority to reorganize the administrative structure of the Office of the President. For this purpose, he may
transfer the functions of other Departments or Agencies to the Office of the President. In Canonizado v.
Aguirre [323 SCRA 312 (2000)], we ruled that reorganization involves the reduction of personnel,
consolidation of offices, or abolition thereof by reason of economy or redundancy of functions. It
takes place when there is an alteration of the existing structure of government offices or units
therein, including the lines of control, authority and responsibility between them. The EIIB is a
bureau attached to the Department of Finance. It falls under the Office of the President. Hence, it is
subject to the Presidents continuing authority to reorganize. [if !supportFootnotes][13][endif] (Emphasis ours.)
It is undisputed that the NPO, as an agency that is part of the Office of the Press Secretary

(which in various times has been an agency directly attached to the Office of the Press Secretary or as an
agency under the Philippine Information Agency), is part of the Office of the President. [if !supportFootnotes][14][endif]
Pertinent to the case at bar, Section 31 of the Administrative Code of 1987 quoted above
authorizes the President (a) to restructure the internal organization of the Office of the President Proper,
including the immediate Offices, the President Special Assistants/Advisers System and the Common Staff
Support System, by abolishing, consolidating or merging units thereof or transferring functions from one
unit to another, and (b) to transfer functions or offices from the Office of the President to any other
Department or Agency in the Executive Branch, and vice versa.
Concomitant to such power to abolish, merge or consolidate offices in the Office of the
President Proper and to transfer functions/offices not only among the offices in the Office of President
Proper but also the rest of the Office of the President and the Executive Branch, the President implicitly
has the power to effect less radical or less substantive changes to the functional and internal structure of
the Office of the President, including the modification of functions of such executive agencies as the
exigencies of the service may require.
In the case at bar, there was neither an abolition of the NPO nor a removal of any of its
functions to be transferred to another agency. Under the assailed Executive Order No. 378, the NPO
remains the main printing arm of the government for all kinds of government forms and publications but in
the interest of greater economy and encouraging efficiency and profitability, it must now compete with the
private sector for certain government printing jobs, with the exception of election paraphernalia which
remains the exclusive responsibility of the NPO, together with the Bangko Sentral ng Pilipinas, as the
Commission on Elections may determine. At most, there was a mere alteration of the main function of the
NPO by limiting the exclusivity of its printing responsibility to election forms. [if !supportFootnotes][15][endif]
There is a view that the reorganization actions that the President may take with respect to
agencies in the Office of the President are strictly limited to transfer of functions and offices as seemingly
provided in Section 31 of the Administrative Code of 1987.
However, Section 20, Chapter 7, Title I, Book III of the same Code significantly provides:
Sec. 20. Residual Powers. Unless Congress provides otherwise, the President shall exercise such other
powers and functions vested in the President which are provided for under the laws and which are
not specifically enumerated above, or which are not delegated by the President in accordance with law.
(Emphasis ours.)
Pursuant to Section 20, the power of the President to reorganize the Executive Branch under
Section 31 includes such powers and functions that may be provided for under other laws. To be sure, an
inclusive and broad interpretation of the Presidents power to reorganize executive offices has been
consistently supported by specific provisions in general appropriations laws.
In the oft-cited Larin v. Executive Secretary,[if !supportFootnotes][16][endif] the Court likewise adverted to
certain provisions of Republic Act No. 7645, the general appropriations law for 1993, as among the
statutory bases for the Presidents power to reorganize executive agencies, to wit:
Section 48 of R.A. 7645 provides that:
Sec. 48. Scaling Down and Phase Out of Activities
of Agencies Within the Executive Branch. The heads of
departments, bureaus and offices and agencies are hereby
directed to identify their respective activities which are no
longer essential in the delivery of public services and which
may be scaled down, phased out or abolished, subject to civil
[service] rules and regulations. x x x. Actual scaling down,
phasing out or abolition of the activities shall be effected

pursuant to Circulars or Orders issued for the purpose by the


Office of the President.
Said provision clearly mentions the acts of "scaling down, phasing out and abolition" of
offices only and does not cover the creation of offices or transfer of
functions. Nevertheless, the act of creating and decentralizing is included in
the subsequent provision of Section 62, which provides that:
Sec. 62. Unauthorized organizational changes.
Unless otherwise created by law or directed by the President
of the Philippines, no organizational unit or changes in key
positions in any department or agency shall be authorized in
their respective organization structures and be funded from
appropriations by this Act.
The foregoing provision evidently shows that the President is authorized to effect
organizational changes including the creation of offices in the department or
agency concerned.
The contention of petitioner that the two provisions are riders deserves scant consideration.
Well settled is the rule that every law has in its favor the presumption of
constitutionality. Unless and until a specific provision of the law is declared invalid
and unconstitutional, the same is valid and binding for all intents and purposes. [if !
supportFootnotes][17][endif]
(Emphases ours)
Buklod ng Kawaning EIIB v. Zamora,[if !supportFootnotes][18][endif] where the Court upheld as valid then President
Joseph Estradas Executive Order No. 191 deactivating the Economic Intelligence and Investigation
Bureau (EIIB) of the Department of Finance, hewed closely to the reasoning in Larin. The Court, among
others, also traced from the General Appropriations Act [if !supportFootnotes][19][endif] the Presidents authority to
effect organizational changes in the department or agency under the executive structure, thus:
We adhere to the precedent or ruling in Larin that this provision recognizes the authority of the President
to effect organizational changes in the department or agency under the executive structure. Such a ruling
further finds support in Section 78 of Republic Act No. 8760. Under this law, the heads of departments,
bureaus, offices and agencies and other entities in the Executive Branch are directed (a) to conduct a
comprehensive review of their respective mandates, missions, objectives, functions, programs, projects,
activities and systems and procedures; (b) identify activities which are no longer essential in the delivery
of public services and which may be scaled down, phased-out or abolished; and (c) adopt measures
that will result in the streamlined organization and improved overall performance of their
respective agencies. Section 78 ends up with the mandate that the actual streamlining and productivity
improvement in agency organization and operation shall be effected pursuant to Circulars or Orders
issued for the purpose by the Office of the President. x x x. [if !supportFootnotes][20][endif] (Emphasis ours)
Notably, in the present case, the 2003 General Appropriations Act, which was reenacted in
2004 (the year of the issuance of Executive Order No. 378), likewise gave the President the authority to
effect a wide variety of organizational changes in any department or agency in the Executive Branch.
Sections 77 and 78 of said Act provides:
Section 77. Organized Changes. Unless otherwise provided by law or directed by the President of
the Philippines, no changes in key positions or organizational units in any department or agency shall be
authorized in their respective organizational structures and funded from appropriations provided by this
Act.
Section 78. Institutional Strengthening and Productivity Improvement in
Agency
Organization
and
Operations
and
Implementation
of
Organization/Reorganization Mandated by Law. The Government shall adopt
institutional strengthening and productivity improvement measures to
improve service delivery and enhance productivity in the government, as directed

by the President of the Philippines. The heads of departments, bureaus, offices,


agencies, and other entities of the Executive Branch shall accordingly conduct a
comprehensive review of their respective mandates, missions, objectives,
functions, programs, projects, activities and systems and procedures; identify
areas where improvements are necessary; and implement corresponding
structural, functional and operational adjustments that will result in
streamlined organization and operations and improved performance and
productivity: PROVIDED, That actual streamlining and productivity improvements
in agency organization and operations, as authorized by the President of the
Philippines for the purpose, including the utilization of savings generated from such
activities, shall be in accordance with the rules and regulations to be issued by the
DBM, upon consultation with the Presidential Committee on Effective Governance:
PROVIDED,
FURTHER,
That
in
the
implementation
of
organizations/reorganizations, or specific changes in agency structure,
functions and operations as a result of institutional strengthening or as
mandated by law, the appropriation, including the functions, projects,
purposes and activities of agencies concerned may be realigned as may be
necessary: PROVIDED, FINALLY, That any unexpended balances or savings in
appropriations may be made available for payment of retirement gratuities and
separation benefits to affected personnel, as authorized under existing laws.
(Emphases and underscoring ours.)
Implicitly, the aforequoted provisions in the appropriations law recognize the power of the
President to reorganize even executive offices already funded by the said appropriations act, including
the power to implement structural, functional, and operational adjustments in the executive
bureaucracy and, in so doing, modify or realign appropriations of funds as may be necessary under such
reorganization. Thus, insofar as petitioners protest the limitation of the NPOs appropriations to its own
income under Executive Order No. 378, the same is statutorily authorized by the above provisions.
In the 2003 case of Bagaoisan v. National Tobacco Administration,[if !supportFootnotes][21][endif] we
upheld the streamlining of the National Tobacco Administration through a reduction of its personnel and
deemed the same as included in the power of the President to reorganize executive offices granted under
the laws, notwithstanding that such streamlining neither involved an abolition nor a transfer of functions of
an office. To quote the relevant portion of that decision:
In the recent case of Rosa Ligaya C. Domingo, et al. vs. Hon. Ronaldo D. Zamora, in his
capacity as the Executive Secretary, et al., this Court has had occasion to also delve on the Presidents
power to reorganize the Office of the President under Section 31(2) and (3) of Executive Order No. 292
and the power to reorganize the Office of the President Proper. x x x
xxxx
The first sentence of the law is an express grant to the President of a continuing authority to
reorganize the administrative structure of the Office of the President. The succeeding numbered
paragraphs are not in the nature of provisos that unduly limit the aim and scope of the grant to the
President of the power to reorganize but are to be viewed in consonance therewith. Section 31(1)
of Executive Order No. 292 specifically refers to the Presidents power to restructure the internal
organization of the Office of the President Proper, by abolishing, consolidating or merging units hereof or
transferring functions from one unit to another, while Section 31(2) and (3) concern executive offices
outside the Office of the President Proper allowing the President to transfer any function under the Office
of the President to any other Department or Agency and vice-versa, and the transfer of any agency under
the Office of the President to any other department or agency and vice-versa.
In the present instance, involving neither an abolition nor transfer
of offices, the assailed action is a mere reorganization under the general
provisions of the law consisting mainly of streamlining the NTA in the interest
of simplicity, economy and efficiency. It is an act well within the authority of
the President motivated and carried out, according to the findings of the appellate
court, in good faith, a factual assessment that this Court could only but accept. [if !

supportFootnotes][22][endif]

(Emphases and underscoring supplied.)

In the more recent case of Tondo Medical Center Employees Association v. Court of Appeals, [if
which involved a structural and functional reorganization of the Department of
Health under an executive order, we reiterated the principle that the power of the President to
reorganize agencies under the executive department by executive or administrative order is
constitutionally and statutorily recognized. We held in that case:
!supportFootnotes][23][endif]

This Court has already ruled in a number of cases that the


President may, by executive or administrative order, direct the reorganization
of government entities under the Executive Department. This is also
sanctioned under the Constitution, as well as other statutes.
Section 17, Article VII of the 1987 Constitution, clearly states: [T]he
president shall have control of all executive departments, bureaus and offices.
Section 31, Book III, Chapter 10 of Executive Order No. 292, also known as the
Administrative Code of 1987 reads:
SEC. 31. Continuing Authority of the President to
Reorganize his Office - The President, subject to the policy in
the Executive Office and in order to achieve simplicity,
economy and efficiency, shall have continuing authority to
reorganize the administrative structure of the Office of the
President. For this purpose, he may take any of the following
actions:
xxxx
In Domingo v. Zamora [445 Phil. 7 (2003)], this Court explained the rationale behind
the Presidents continuing authority under the Administrative
Code to reorganize the administrative structure of the Office of
the President. The law grants the President the power to
reorganize the Office of the President in recognition of
the recurring need of every President to reorganize his or
her office to achieve simplicity, economy and efficiency.
To remain effective and efficient, it must be capable of being
shaped and reshaped by the President in the manner the
Chief Executive deems fit to carry out presidential directives
and policies.
The Administrative Code provides that the Office of the President
consists of the Office of the President Proper and the agencies under it. The
agencies under the Office of the President are identified in Section 23, Chapter 8,
Title II of the Administrative Code:
Sec. 23. The Agencies under the Office of the President.The agencies under the Office
of the President refer to those offices placed under the chairmanship of the
President, those under the supervision and control of the President, those
under the administrative supervision of the Office of the President, those attached to
it for policy and program coordination, and those that are not placed by law or order
creating them under any specific department.
xxxx
The power of the President to reorganize the executive department is likewise recognized

in general appropriations laws. x x x.


xxxx
Clearly, Executive Order No. 102 is well within the constitutional power of the President to
issue. The President did not usurp any legislative prerogative in issuing
Executive Order No. 102. It is an exercise of the Presidents constitutional
power of control over the executive department, supported by the provisions
of the Administrative Code, recognized by other statutes, and consistently
affirmed by this Court.[if !supportFootnotes][24][endif] (Emphases supplied.)
Subsequently, we ruled in Anak Mindanao Party-List Group v. Executive Secretary [if !supportFootnotes]
[25][endif]

that:

The Constitutions express grant of the power of control in the President justifies an executive action to
carry out reorganization measures under a broad authority of law.
In enacting a statute, the legislature is presumed to have deliberated with full
knowledge of all existing laws and jurisprudence on the subject. It is thus
reasonable to conclude that in passing a statute which places an agency under the
Office of the President, it was in accordance with existing laws and jurisprudence on
the Presidents power to reorganize.
In establishing an executive department, bureau or office, the legislature necessarily ordains
an executive agencys position in the scheme of administrative structure. Such
determination is primary, but subject to the Presidents continuing authority to
reorganize the administrative structure. As far as bureaus, agencies or offices in the
executive department are concerned, the power of control may justify the President
to deactivate the functions of a particular office. Or a law may expressly grant the
President the broad authority to carry out reorganization measures. The
Administrative Code of 1987 is one such law.[if !supportFootnotes][26][endif]

The issuance of Executive Order No. 378 by President Arroyo is an exercise of a delegated legislative
power granted by the aforementioned Section 31, Chapter 10, Title III, Book III of the Administrative Code
of 1987, which provides for the continuing authority of the President to reorganize the Office of the
President, in order to achieve simplicity, economy and efficiency. This is a matter already well-entrenched
in jurisprudence. The reorganization of such an office through executive or administrative order is also
recognized in the Administrative Code of 1987. Sections 2 and 3, Chapter 2, Title I, Book III of the said
Code provide:
Sec. 2. Executive Orders. - Acts of the President providing for rules of a general or permanent character
in implementation or execution of constitutional or statutory powers shall be promulgated in
executive orders.
Sec. 3. Administrative Orders. - Acts of the President which relate to particular aspects of
governmental operations in pursuance of his duties as administrative head shall
be promulgated in administrative orders. (Emphases supplied.)
To reiterate, we find nothing objectionable in the provision in Executive Order No. 378 limiting
the appropriation of the NPO to its own income. Beginning with Larin and in subsequent cases, the Court
has noted certain provisions in the general appropriations laws as likewise reflecting the power of the

President to reorganize executive offices or agencies even to the extent of modifying and realigning
appropriations for that purpose.
Petitioners contention that the issuance of Executive Order No. 378 is an invalid exercise of
legislative power on the part of the President has no legal leg to stand on.
In all, Executive Order No. 378, which purports to institute necessary reforms in government in
order to improve and upgrade efficiency in the delivery of public services by redefining the functions of
the NPO and limiting its funding to its own income and to transform it into a self-reliant agency able to
compete with the private sector, is well within the prerogative of President Arroyo under her continuing
delegated legislative power to reorganize her own office. As pointed out in the separate concurring
opinion of our learned colleague, Associate Justice Antonio T. Carpio, the objective behind Executive
Order No. 378 is wholly consistent with the state policy contained in Republic Act No. 9184 or the
Government Procurement Reform Act to encourage competitiveness by extending equal opportunity to
private contracting parties who are eligible and qualified.
To be very clear, this delegated legislative power to reorganize pertains only to the Office of
the President and the departments, offices and agencies of the executive branch and does not include
the Judiciary, the Legislature or the constitutionally-created or mandated bodies. Moreover, it must be
stressed that the exercise by the President of the power to reorganize the executive department must be
in accordance with the Constitution, relevant laws and prevailing jurisprudence.
In this regard, we are mindful of the previous pronouncement of this Court in Dario v. Mison[if !
that:

supportFootnotes][28][endif]

Reorganizations in this jurisdiction have been regarded as valid


provided they are pursued in good faith. As a general rule, a reorganization is
carried out in good faith if it is for the purpose of economy or to make bureaucracy
more efficient. In that event, no dismissal (in case of a dismissal) or separation
actually occurs because the position itself ceases to exist. And in that case, security
of tenure would not be a Chinese wall. Be that as it may, if the abolition, which is
nothing else but a separation or removal, is done for political reasons or purposely
to defeat security of tenure, or otherwise not in good faith, no valid abolition takes
place and whatever abolition is done, is void ab initio. There is an invalid abolition
as where there is merely a change of nomenclature of positions, or where claims of
economy are belied by the existence of ample funds. (Emphasis ours.)

Stated alternatively, the presidential power to reorganize agencies and offices in the executive
branch of government is subject to the condition that such reorganization is carried out in good faith.
If the reorganization is done in good faith, the abolition of positions, which results in loss of
security of tenure of affected government employees, would be valid. In Buklod ng Kawaning EIIB v.
Zamora,[if !supportFootnotes][29][endif] we even observed that there was no such thing as an absolute right to hold
office. Except those who hold constitutional offices, which provide for special immunity as regards salary
and tenure, no one can be said to have any vested right to an office or salary.[if !supportFootnotes][30][endif]
This brings us to the second ground raised in the petition that Executive Order No. 378, in
allowing government agencies to secure their printing requirements from the private sector and in limiting
the budget of the NPO to its income, will purportedly lead to the gradual abolition of the NPO and the loss
of security of tenure of its present employees. In other words, petitioners avow that the reorganization of

the NPO under Executive Order No. 378 is tainted with bad faith. The basic evidentiary rule is that he
who asserts a fact or the affirmative of an issue has the burden of proving it. [if !supportFootnotes][31][endif]
A careful review of the records will show that petitioners utterly failed to substantiate their
claim. They failed to allege, much less prove, sufficient facts to show that the limitation of the NPOs
budget to its own income would indeed lead to the abolition of the position, or removal from office, of any
employee. Neither did petitioners present any shred of proof of their assertion that the changes in the
functions of the NPO were for political considerations that had nothing to do with improving the efficiency
of, or encouraging operational economy in, the said agency.
In sum, the Court finds that the petition failed to show any constitutional infirmity or grave
abuse of discretion amounting to lack or excess of jurisdiction in President Arroyos issuance of Executive
Order No. 378.
WHEREFORE, the petition is hereby DISMISSED and the prayer for a Temporary Restraining Order
and/or a Writ of Preliminary Injunction is hereby DENIED. No costs.
SO ORDERED.