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RULE 25 1986 Revised Chapter must be based on its total

claim, which was ₱1,927,729.50 as of 30


September 1995. Subsequently, she allegedly
RULE 26 assigned her right to redeem her properties to
her daughter, herein private respondent
Rosalinda A. Canadalla-Go.

G.R. No. 153034 September 20, 2005 In January 1996, Go offered to redeem the
properties for ₱526,882.40. In response, the
DEVELOPMENT BANK OF THE DBP advised Go that the acceptable redemption
PHILIPPINES, Petitioners, price was ₱1,814,700.58 representing its total
vs. claim as of 17 January 1996. When Go failed to
HONORABLE COURT OF APPEALS and redeem the properties, the DBP consolidated its
ROSALINDA CANADALLA-GO, represented titles over the subject properties and new
by her Attorney-in-fact BENITO A. certificates of title were issued in its name.
CANADALLA, Respondent.
On 8 July 1996, Go filed with the Regional Trial
DECISION Court (RTC) of Makati City a Supplemental
Complaint1 for the "Exercise of Right of
DAVIDE, JR., CJ.: Redemption and Determination of Redemption
Price, Nullification of Consolidation, Annulment
Once again, we are confronted with the issue of of Titles, with Damages, Plus Injunction and
whether matters requested to be admitted under Temporary Restraining Order." The case was
Rule 26 of the Rules of Court – which are mere docketed as Civil Case No. 96-483 in Branch
reiterations of the allegations in the complaint 148 of said court. After the DBP filed its
and are specifically denied in the answer – may Answer2 but before the parties could proceed to
be deemed impliedly admitted on the ground that trial, Go filed a Request for Admission by
the response thereto is not under oath. Adverse Party.3 Thereafter, the DBP filed its
Comment.4
The controversy stemmed in January 1977 when
Irene Canadalla obtained a loan of ₱100,000 During the hearing on 20 May 1997, Go objected
from petitioner Development Bank of the to the Comment reasoning that it was not under
Philippines (DBP) for purposes of financing her oath as required by Section 2, Rule 26 of the
piggery business. As security, Canadalla Rules of Court, and that it failed to state the
executed on 19 January 1977 a Deed of Real reasons for the admission or denial of matters for
Estate Mortgage over two parcels of land which an admission was requested. For its part,
covered by TCT No. T-7609 and OCT No. the DBP manifested that, first, the statements,
P-4226 of the Registry of Deeds of Infanta, allegations, and documents contained in the
Quezon. On 10 August 1979, Canadalla Request for Admission are substantially the
procured another loan in the amount of same as those in the Supplemental Complaint;
₱150,000, which was secured by a mortgage second, they had already been either specifically
over the same two parcels of land and a third denied or admitted by the DBP in its Answer;
parcel covered by OCT No. P-6679 of the and third, the reasons for the denial or admission
Registry of Deeds of the Province of Quezon. had already been specifically stated therein.

Since the piggery business allegedly suffered On 22 May 1997, the DBP filed a
strong reverses, compounded by devastating manifestation5 incorporating its response to Go’s
typhoons, the prevalence of diseases, and objections during the 20 May 1997 hearing,
destruction of her store by fire, Canadalla failed attaching therewith an affidavit6 executed by its
to comply with her obligations to the DBP. officer and counsel Atty. Perla Melanie Caraan.
Subsequently, the DBP extrajudicially foreclosed
the mortgages. On 5 September 1989, the On 9 June 1997, the RTC issued an
mortgaged properties were sold at public auction Order7 granting the motion of Go to consider as
to the DBP, which emerged as the only bidder. impliedly admitted the matters sought to be
The sale was evidenced by a Certificate of Sale admitted in the Request for Admission and all
and registered on 17 January 1990. those denied by the DBP in its Comment.

Canadalla was able to redeem the foreclosed Its motion for reconsideration8 having been
property covered by TCT No. T-7609 within the denied,9 the DBP filed with the Court of Appeals
redemption period of one year from 17 January a petition for certiorari,10 docketed as CA-G.R.
1990. As to the properties covered by OCT Nos. SP No. 62142, attributing to the court a
P-4226 and P-6679, she had six years from 17 quo grave abuse of discretion in granting the
January 1990 to redeem the same, they being Request for Admission despite the fact that (1)
free patent titles. On 5 October 1995, she some of the matters assigned in the Request for
offered to redeem the properties for a Admission had already been specifically denied
redemption price of ₱1.5 million. But the DBP in its Answer to the Supplemental Complaint; (2)
countered that the redemption price under its the sworn statement of Atty. Caraan had
sufficiently cured the alleged defect of the either denying specifically the matters of which
Comment; and (3) some of the matters in the an admission is requested or setting forth in
Request for Admission involved questions of law, detail the reasons why he cannot truthfully either
conclusions of facts, and matters of opinion admit or deny those matters.
which are improper subjects of such a request.
Objections on the ground of irrelevancy or
On 6 August 2001, the Court of Appeals impropriety of the matter requested shall be
dismissed the petition for lack of merit.11 It held promptly submitted to the court for resolution.
that since DBP’s answer was not under oath, it
could not be considered as having substantially We have held in Po v. Court of Appeals14 that "[a]
complied with the requirements of Section 2 of party should not be compelled to admit matters
Rule 26 of the Rules of Court. The affidavit of of fact already admitted by his pleading and … to
Atty. Caraan, one of the legal counsels of the make a second denial of those already denied in
DBP, failed to cure the defect because it was his answer to the complaint."
submitted after the motion for the declaration of
implied admission had been made and the The Po doctrine was brought a step further
hearing of the same had been terminated. in Concrete Aggregates Co. v. Court of
Moreover, in the hearing of 20 May 1997, the Appeals,15 where we ruled that if the factual
DBP only made a manifestation that the matters allegations in the complaint are the very same
sought for admission had already been covered allegations set forth in the request for admission
in the Answer without objecting to the propriety and have already been specifically denied or
of some of the matters sought to be admitted. otherwise dealt with in the answer, a response to
Thus, the DBP failed to timely raise its objections the request is no longer required. It becomes,
on the ground of impropriety. therefore, unnecessary to dwell on the issue of
the propriety of an unsworn response to the
The DBP’s Motion for Reconsideration12 was request for admission. The reason is obvious. A
denied by the Court of Appeals in a request for admission that merely reiterates the
Resolution13 dated 16 April 2002. Hence, the allegations in an earlier pleading is inappropriate
DBP is now before this Court by way of certiorari under Rule 26 of the Rules of Court, which, as a
under Rule 45 of the Rules of Court challenging mode of discovery, contemplates of
the Decision and Resolution of the Court of interrogatories that would clarify and tend to
Appeals. shed light on the truth or falsity of the allegations
in the pleading. Rule 26 does not refer to a mere
We find for petitioner DBP. reiteration of what has already been alleged in
the pleadings.16
Indeed, as pointed out by the DBP, the matters
stated in Go’s Request for Admission are the Hence, the DBP did not even have to file its
same as those alleged in her Supplemental Comment on Go’s Request for Admission, which
Complaint. Besides, they had already been merely reproduced the allegations in her
either specifically denied or admitted in DBP’s complaint. DBP’s Answer itself controverts the
Answer to the Supplemental Complaint. To averments in the complaint and those recopied
require the DBP to admit these matters under in the request for admission.
Rule 26 of the Rules of Court would be pointless
and superfluous. Sections 1 and 2 of Rule 26, Even assuming that a reply to the request is
before their amendment took effect on 1 July needed, it is undisputed that the DBP filed its
1997, read: Comment either admitting or specifically denying
again the matters sought to be admitted and
SECTION 1. Request for admission. — At any stating the reasons therefor. That the Comment
time after issues have been joined, a party may was not under oath is not a substantive, but
file and serve upon any other party a written merely a formal, defect which can be excused in
request for the admission by the latter of the the interest of justice conformably to the
genuineness of any relevant documents well-entrenched doctrine that all pleadings
described in and exhibited with the request or of should be liberally construed as to do substantial
the truth of any relevant matter of fact set forth in justice.17 The filing of such Comment
the request. Copies of the documents shall be substantially complied with Rule 26.
delivered with the request unless copies have Consequently, the DBP cannot be deemed to
already been furnished. have impliedly admitted the matters set forth in
the Request for Admission for the mere reason
SEC. 2. Implied admission. – Each of the that its Comment was not under oath.
matters of which an admission is requested shall
be deemed admitted unless, within a period At any rate, the petitioner submitted a
designated in the request, which shall not be Manifestation, together with an affidavit
less than ten (10) days after service thereof, or incorporating its specific denials of Go’s factual
within such further time as the court may allow allegations, immediately after it filed its
on motion and notice, the party to whom the Comment on the Request for Admission and
request is directed serves upon the party before the RTC issued the questioned 9 June
requesting the admission a sworn statement 1997 Order, with a view "to avoid any
technicalities" on the matter. The filing of the admitting or specifically denying them. Moreover,
affidavit amounted also to a substantial during the 20 May 1997 hearing, the counsel for
compliance with the requirements of Rule 26 of DBP manifested the foregoing in open court. In
the Rules of Court. so doing, the DBP, in effect, argued that the
matters in question are redundant and, therefore,
Moreover, some of the matters sought to be improper subjects for admission.
admitted in the Request for Admission were
matters of law or opinions, to wit: It must be stressed that the rule on admission as
a mode of discovery is intended "to expedite trial
20. Section 6 of Act No. 3135, as amended, and to relieve parties of the costs of proving facts
recognizes the right of redemption, just as it which will not be disputed on trial and the truth of
provides the amount to be paid by a which can be ascertained by reasonable
redemptioner. On the other hand, Section 30, inquiry."22 Thus, if a request for admission would
Rule 39, Revised Rules of Court specifically only serve to delay the proceedings by abetting
defines the amount which a redemptioner must redundancy in the pleadings, the intended
pay. purpose for the rule would certainly be
defeated.23 After all, rules of procedures are
21. Accordingly, plaintiff’s offer to redeem two intended to promote, not to defeat, substantial
subject properties[,] as earlier mentioned, were justice and should not therefore be applied in a
in accord with the said provisions of Act No. very rigid and technical sense.24
3135, as amended, and Rule 39 of the Revised
R[u]les of Court and such offer to redeem should WHEREFORE, in view of all the foregoing, the
be well-placed in law and procedure. instant petition is GRANTED and the questioned
Decision of the Court of Appeals dated 6 August
22. Plaintiff exercised the right of redemption on 2001 and its Resolution dated 16 April 2002 in
January 11, 1996, within the prescribed period of CA-G.R. SP No. 62142
six (6) years, two subject properties being are REVERSED and SET ASIDE. The Regional
redeemed are covered by Free Patent titles. She Trial Court of Makati City, Branch 148, is
made a tender of the offer. A substantial directed to proceed with reasonable dispatch
compliance with the requisites in law was met. with the trial of Civil Case No. 96-483.

Under Section 1 of Rule 26 of the Rules of Court, Costs against the private respondent.
the scope of matters that a party may request
the adversary to admit are (1) the genuineness SO ORDERED.
of any material and relevant document described
in and exhibited with the request; and (2) the
truth of any material and relevant matter of fact
set forth in the request. The rule authorizing a
party to call on the other party to make an
admission implies the making of demands for
admission of relevant and material matters of
facts18 – and not for admission of matters of
law,19 conclusions,20 or opinions.21

Since the afore-quoted allegations are matters of


law or opinion, they are improper matters and
cannot therefore be deemed impliedly admitted
under Rule 26.

Finally, the Court of Appeals erred in ruling that


the DBP failed to timely raise its objections to the
impropriety of the matters requested for
admission.

At the time Go made use of discovery


proceedings under Rule 26, the governing rule
before its amendment took effect on 1 July 1997
read: "Objections on the ground of irrelevancy or
impropriety of the matter requested shall be
promptly submitted to the court for resolution."

Petitioner DBP’s objection to the impropriety of


some of the matters requested was promptly
made as early as the filing of its comment on the
request for admission. DBP’s comment
consistently averred that it had already dealt with
the matters in question in its answer, either
RULE 27 and to any extension, renewal, or amendments
of this Note or Loan. We/I agree that in case the
G.R. No. 164805 April 30, 2008 proceeds of the foregoing Letter(s) of Credit
prove insufficient to pay Our/My outstanding
SOLIDBANK CORPORATION, NOW KNOWN liabilities under this Note or Loan, We/I shall
AS METROPOLITAN BANK AND TRUST continue to be liable for the deficiency.
COMPANY, petitioner,
vs. 5. We/I irrevocably undertake to course the
GATEWAY ELECTRONICS CORPORATION, foreign exchange proceeds of the Letter(s) of
JAIME M. HIDALGO AND ISRAEL Credit directly with Solidbank. Our/My failure to
MADUCDOC, respondents. comply with the above would render Us or Me in
default of the loan or credit facility without need
DECISION of demand.8

NACHURA, J.: Gateway failed to comply with its loan


obligations. By January 31, 2000, Gateway’s
Before the Court is a petition for review on outstanding debt amounted to US$1,975,835.58.
certiorari1 assailing the Decision dated June 2, Solidbank’s numerous demands to pay were not
2004 and the Resolution dated July 29, 2004 of heeded by Gateway. Thus, on February 21,
the Court of Appeals in CA-G.R. SP No. 73684. 2000, Solidbank filed a Complaint9 for collection
of sum of money against Gateway.
The Facts
On June 16, 2002, Solidbank filed an Amended
In May and June 1997, Gateway Electronics Complaint10 to implead the officers/stockholders
Corporation (Gateway) obtained from Solidbank of Gateway, namely, Nand K. Prasad, Andrew S.
Corporation (Solidbank) four (4) foreign currency Delos Reyes, Israel F. Maducdoc, Jaime M.
denominated loans to be used as working capital Hidalgo and Alejandro S. Calderon – who signed
for its manufacturing operations.2 The loans in their personal capacity a Continuing
were covered by promissory notes3 (PNs) which Guaranty11 to become sureties for any and all
provided an interest of eight and 75/100 percent existing indebtedness of Gateway to Solidbank.
(8.75%), but was allegedly increased to ten On June 20, 2002, the trial court admitted the
percent (10%) per annum, and a penalty of two amended complaint and impleaded the
percent (2%) per month based on the total additional defendants.
amount due computed from the date of default
until full payment of the total amount due.4 The Earlier, on October 11, 2000, Solidbank filed a
particulars of the loans are: Motion for Production and Inspection of
Documents12 on the basis of an information
Promissory Date of Loan Amount of LoanreceivedDate
fromDue
Mr. David Eichler, Chief Financial
Note No. Officer of Alliance, that Gateway has already
received from Alliance the proceeds/payment of
a) PN 97-375 20 May 1997 US$ 190,000.00 11 Nov. 1998
the Back-end Services Agreement. The pertinent
b) PN 97-408 29 May 1997 portions
US$ 570,000.00 of the
11 Nov. motion read:
1998
c) PN 97-435 09 June 1997 US$1,150,000.00
8. 04 June 1998plaintiffs request that this
Therefore,
Honorable Court issue an Order requiring
d) PN 97-458 15 June 1997 US$ 130,000.00 15 June 1998
defendant GEC, through its Treasurer/Chief
Financial Officer, Chief Accountant, Comptroller
To secure the loans covered by PN 97-3755 and or any such officer, to bring before this
PN 97-408,6 Gateway assigned to Solidbank the Honorable Court for inspection and copying the
proceeds of its Back-end Services following documents:
Agreement7 dated June 25, 2000 with Alliance
Semiconductor Corporation (Alliance). The a) The originals, duplicate originals and copies
following stipulations are common in both PNs: of all documents pertaining to, arising from, in
connection with or involving the Back-end
3. This Note or Loan shall be paid from the Services Agreement of defendant GEC and
foreign exchange proceeds of Our/My Letter(s) Alliance Semiconductors;
of Credit, Purchase Order or Sales Contract
described as follows: *** Back-end Services b) The originals, duplicate
Agreement dated 06-25-96 by and between originals and copies of all books of account,
Gateway Electronics Corporation and Alliance financial statements, receipts, checks,
Semiconductor Corporation. vouchers, invoices, ledgers and other
financial/accounting records and
4. We/I assign, transfer and convey to Solidbank documents pertaining to or evidencing financial
all title and interest to the proceeds of the and money transactions arising from, in
foregoing Letter(s) of Credit to the extent connection with or involving the Back-end
necessary to satisfy all amounts and obligations Services Agreement of defendant GEC and
due or which may arise under this Note or Loan, Alliance Semiconductors; and
c) The originals, duplicate originals and copies of WHEREFORE, the defendant GEC is hereby
all documents from whatever source pertaining ordered to bring all the records and documents,
to the proceeds/payments received by GEC from not privileged, arising from, in connection with
Alliance Semiconductors. and/or involving the Back-end Services
Agreement between defendant GEC and
d) Documents, as used in this section, means all Alliance Semiconductor Corporation, particularly
writings of any kind, including the originals and to those pertaining to all payments made by
all non-identical copies, whether different from Alliance Semiconductor Corporation to GEC
the originals by reason of any notation made on pursuant to said Agreement, incorporating the
such copies or otherwise, including without instructions enumerated in par. 9 of the instant
limitation, correspondence, memoranda, notes motion, for inspection and copying by the plaintiff,
diaries, statistics, letters, telegrams, minutes, the same to be made before the
contracts, reports, studies, checks, statements, Officer-In-Charge, Office of the Branch Clerk of
receipts, returns, summaries, pamphlets, books, Court on February 27, 2001 at 9:00 a.m.
inter-office and intra-office communications,
notations of any sort of conversations, telephone SO ORDERED.15
calls, meetings or other communications,
bulletins, printed matter, computer records, Gateway filed a motion to reset the production
diskettes or print-outs, teletypes, telefax, e-mail, and inspection of documents to March 29, 2001
invoices, worksheets, all drafts, alterations, in order to give them enough time to gather and
modifications, changes and amendments of any collate the documents in their possession. The
of the foregoing, graphic or oral records or trial court granted the motion.16
representations of any kind (including, without
limitation, photographs, charts, graphs, On April 30, 2001, Solidbank filed a motion for
microfiche, microfilm, videotapes, recordings, issuance of a show cause order for Gateway’s
motion pictures, CD-ROM’s), and any electronic, failure to comply with the January 30, 2001
mechanical or electric records or representations Order of the trial court.17 In response, Gateway
(including, without limitation, tapes, cassettes, filed a manifestation that they appeared before
discs, recordings and computer or the trial court on March 29, 2001 to present the
computer-related memories). documents in their possession, however,
Solidbank’s counsel failed to appear on the said
9. Furthermore, plaintiffs request that date.18 In the manifestation, Gateway also
said Order to the Treasurer/Chief Financial expressed their willingness to make available for
Officer, Chief Accountant, Comptroller of inspection at Gateway’s offices any requested
defendant GEC include the following document.19
instructions:
On May 31, 2001, the trial court issued an Order
a. If the response is that the documents are not setting the production and inspection of
in defendant GEC’s or the officers’ possession or documents on June 7, 2001 in the premises of
custody, said officer should describe in detail the Gateway.20 It was subsequently moved to July
efforts made to locate said records or 24, 2001. On the said date, Gateway presented
documents; the invoices representing the billings sent by
Gateway to Alliance in relation to the Back-end
b. If the documents are not in defendant GEC’s Services Agreement.21
or the officer’s possession and control, said
officer should identify who has control and the Solidbank was not satisfied with the documents
location of said documents or records; produced by Gateway. Thus, on December 13,
2001, Solidbank filed a motion to cite Gateway
c. If the request for production seeks a specific and its responsible officers in contempt for their
document or itemized category that is not in refusal to produce the documents subject of the
defendant GEC’s or the officer’s possession, January 30, 2001 Order. In opposition thereto,
control or custody, the officer should provide any Gateway claimed that they had complied with
documents he has that contain all or part of the the January 30, 2001 Order and that the billings
information contained in the requested sent to Alliance are the only documents that they
document or category; have pertaining to the Back-end Services
Agreement.22
d. If the officer cannot furnish the originals of the
documents requested, he should explain in On April 15, 2002, the trial court issued an
detail the reasons therefore; and Order23 denying the motion to cite Gateway for
contempt. However, the trial court chastised
e. The officer should identify the source within or Gateway for exerting no diligent efforts to
outside GEC of each of the documents he produce the documents evidencing the
produces.13 payments received by Gateway from Alliance in
relation to the Back-end Services Agreement,
On January 30, 2001, the trial court issued an viz.:
Order14 granting the motion for production and
inspection of documents, viz.:
Before this Court is a Motion to Cite Defendant SO ORDERED.28
GEC In Contempt For Refusing To Produce
Documents Pursuant to the Order Dated 30 Solidbank filed a motion for reconsideration of
January 2001 filed by plaintiff dated December the Decision of the CA. On July 29, 2004, the CA
12, 2001, together with defendant GEC’s rendered a Resolution29 denying the same. Thus,
Opposition thereto dated January 14, 2002, as this petition.
well as plaintiff’s Reply dated February 6, 2002
and GEC’s Rejoinder dated February 27, 2002. The Issues

As Courts are cautioned to utilize the power to I. Whether Solidbank’s motion for production and
punish for contempt on the preservative and not inspection of documents and the Order of the
on the vindictive, contempt being drastic and trial court dated January 30, 2001 failed to
extraordinary in nature (Wicker vs. Arcangel, 252 comply with Section 1, Rule 27 of the Rules of
SCRA 444; Paredes-Garcia vs. CA, 261 SCRA Court; and
693), this Court is inclined to DENY the present
motion. II. Whether the trial court committed grave abuse
of discretion in holding that the matters subject of
However, as no diligent effort was shown to have the documents sought to be produced but which
been exerted by defendant GEC to produce the were not produced by Gateway shall be deemed
documents enumerated in the Order dated established in accordance with Solidbank’s
January 30, 2001, this Court hereby orders, in claim.
accordance with Sec. 3(a), Rule 29 of the Rules
of Court, that the matters regarding the contents The Ruling of the Court
of the documents sought to be produced but
which were not otherwise produced by GEC, We resolve to deny the petition.
shall be taken to be established in accordance
with plaintiff’s claim, but only for the purpose of I
this action.
Section 1, Rule 27 of the Rules of Court
SO ORDERED.24 provides:

Gateway filed a partial motion for SECTION 1. Motion for production or inspection;
reconsideration of the April 15, 2002 Order. order. – Upon motion of any party showing good
However, the same was denied in an cause therefor, the court in which an action is
Order25 dated August 27, 2002. pending may (a) order any party to produce and
permit the inspection and copying or
On November 5, 2002, Gateway filed a petition photographing, by or on behalf of the moving
for certiorari26 before the Court of Appeals (CA) party, of any designated documents, papers,
seeking to nullify the Orders of the trial court books, accounts, letters, photographs, objects or
dated April 15, 2002 and August 27, 2002. tangible things, not privileged, which constitute
or contain evidence material to any matter
On June 2, 2004, the CA rendered a involved in the action and which are in his
Decision27 nullifying the Orders of the trial court possession, custody or control; or (b) order any
dated April 15, 2002 and August 27, 2002. The party or permit entry upon designated land or
CA ruled that both the Motion for Production of other property in his possession or control for the
Documents and the January 30, 2001 Order of purpose of inspecting, measuring, surveying, or
the trial court failed to comply with the provisions photographing the property or any designated
of Section 1, Rule 27 of the Rules of Court. It relevant object or operation thereon. The order
further held that the trial court committed grave shall specify the time, place and manner of
abuse of discretion in ruling that the matters making the inspection and taking copies and
regarding the contents of the documents sought photographs, and may prescribe such terms and
to be produced but which were not produced by conditions as are just.
Gateway shall be deemed established in
accordance with Solidbank’s claim. The fallo of The aforecited rule provides the mechanics for
the Decision reads: the production of documents and the inspection
of things during the pendency of a case. It also
WHEREFORE, the instant petition is deals with the inspection of sources of evidence
hereby GRANTED. Accordingly, the assailed other than documents, such as land or other
portion of the Order dated April 15, 2002 and property in the possession or control of the other
Order dated August 27, 2002, both issued by party.30 This remedial measure is intended to
public respondent, are assist in the administration of justice by
hereby NULLIFIED and SET ASIDE without facilitating and expediting the preparation of
prejudice to the filing by private respondent of a cases for trial and guarding against undesirable
new Motion for Production and Inspection of surprise and delay; and it is designed to simplify
Documents in accordance with the requirements procedure and obtain admissions of facts and
of the Rules. evidence, thereby shortening costly and
time-consuming trials. It is based on ancient
principles of equity. More specifically, the under Rule 27. The purpose of Solidbank’s
purpose of the statute is to enable a party-litigant motion is to compel Gateway to produce the
to discover material information which, by reason documents evidencing payments received from
of an opponent's control, would otherwise be Alliance in connection with the Back-end
unavailable for judicial scrutiny, and to provide a Services Agreement.
convenient and summary method of obtaining
material and competent documentary evidence Solidbank was able to show good cause for the
in the custody or under the control of an production of the documents. It had also shown
adversary. It is a further extension of the concept that the said documents are material or contain
of pretrial.31 evidence relevant to an issue involved in the
action. However, Solidbank’s motion was fatally
The modes of discovery are accorded a broad defective and must be struck down because of
and liberal treatment.32 Rule 27 of the Revised its failure to specify with particularity the
Rules of Court permits "fishing" for evidence, the documents it required Gateway to produce.
only limitation being that the documents, papers, Solidbank’s motion for production and inspection
etc., sought to be produced are not privileged, of documents called for a blanket inspection.
that they are in the possession of the party Solidbank’s request for inspection of "all
ordered to produce them and that they are documents pertaining to, arising from, in
material to any matter involved in the connection with or involving the Back-end
action.33 The lament against a fishing expedition Services Agreement"36 was simply too broad
no longer precludes a party from prying into the and too generalized in scope.
facts underlying his opponent’s case. Mutual
knowledge of all relevant facts gathered by both A motion for production and inspection of
parties is essential to proper litigation. To that documents should not demand a roving
end, either party may compel the other to inspection of a promiscuous mass of documents.
disgorge whatever facts he has in his The inspection should be limited to those
possession.34 However, fishing for evidence that documents designated with sufficient
is allowed under the rules is not without particularity in the motion, such that the adverse
limitations. In Security Bank Corporation v. Court party can easily identify the documents he is
of Appeals, the Court enumerated the requisites required to produce.37
in order that a party may compel the other party
to produce or allow the inspection of documents Furthermore, Solidbank, being the one who
or things, viz.: asserts that the proceeds of the Back-end
Services Agreement were already received by
(a) The party must file a motion for the Gateway, has the burden of proof in the instant
production or inspection of documents or things, case. Burden of proof is the duty of a party to
showing good cause therefor; present evidence on the facts in issue necessary
to establish his claim or defense by the amount
(b) Notice of the motion must be served to all of evidence required by law.38 Throughout the
other parties of the case; trial, the burden of proof remains with the party
upon whom it is imposed,39 until he shall have
(c) The motion must designate the documents, discharged the same.
papers, books, accounts, letters, photographs,
objects or tangible things which the party wishes II
to be produced and inspected;
The trial court held that as a consequence of
(d) Such documents, etc., are not privileged; Gateway’s failure to exert diligent effort in
producing the documents subject of the Order
(e) Such documents, etc., constitute or contain dated January 30, 2001, in accordance with
evidence material to any matter involved in the Section 3(a), Rule 2940 of the Rules of Court, the
action, and matters regarding the contents of the documents
sought to be produced but which were not
(f) Such documents, etc., are in the possession, produced by Gateway, shall be considered as
custody or control of the other party.35 having been established in accordance with
Solidbank’s claim.
In the case at bench, Gateway assigned to
Solidbank the proceeds of its Back-end Services We hold that the trial court committed grave
Agreement with Alliance in PN Nos. 97-375 and abuse of discretion in issuing the aforesaid
97-408. By virtue of the assignment, Gateway Order. It is not fair to penalize Gateway for not
was obligated to remit to Solidbank all payments complying with the request of Solidbank for the
received from Alliance under the agreement. In production and inspection of documents,
this regard, Solidbank claims that they have considering that the documents sought were not
received information from the Chief Financial particularly described. Gateway and its officers
Officer of Alliance that Gateway had already can only be held liable for unjust refusal to
received payments under the agreement. In comply with the modes of discovery if it is shown
order to ascertain the veracity of the information, that the documents sought to be produced were
Solidbank availed of the discovery procedure specifically described, material to the action and
in the possession, custody or control of (2) The production of the LSPA would violate the
Gateway. parol evidence rule; and8

Neither can it be said that Gateway did not exert (3) The LSPA is a privileged and confidential
effort in complying with the order for production document.9
and inspection of documents since it presented
the invoices representing the billings sent by Respondent asserts that there was no "insistent
Gateway to Alliance in relation to the Back-end refusal" on its part to present the LSPA, but that
Services Agreement. Good faith effort to petitioners filed their motion for production way
produce the required documents must be out of time, even beyond the protracted pre-trial
accorded to Gateway, absent a finding that it period from September 2005 to 2011.10 Hence,
acted willfully, in bad faith or was at fault in failing petitioners had no oneto blame but themselves
to produce the documents sought to be when the trial court denied their motion as it was
produced.41 filed only during the trial proper.11

One final note. The CA decision nullifying the Respondent further submits that "Article 1634 [of
orders of the trial court was without prejudice to the] Civil Code had been inappropriately cited by
the filing by herein petitioner of a new motion for [p]etitioners"12inasmuch as it is Republic Act No.
Production and Inspection of Documents in 9182 (Special Purpose Vehicle Act) that is
accordance with the Rules. It would have been applicable.13 Nonetheless, even assuming that
in the best interest of the parties, and it would Article 1634 is applicable, respondent argued
have saved valuable time and effort, if the that petitioners are: 1) still liable to pay the whole
petitioner simply heeded the advice of the CA. of petitioner Eagleridge Development
Corporation’s (EDC) loanobligation, i.e.,
WHEREFORE, in view of the foregoing, the ₱10,232,998.00 exclusive of interests and/or
instant petition is DENIED for lack of merit. damages;14 and 2) seven (7) years late in
extinguishing petitioner EDC’s loan obligation
SO ORDERED. because pursuant to Article 1634, they should
have exercised their right of extinguishment
G.R. No. 204700 November 24, within 30 days from the substitution of Export
2014 and Industry Bank or EIB (the original creditor)
by respondent in December 2006.15 According to
EAGLERIDGE DEVELOPMENT respondent, the trial court order "granting the
CORPORATION, MARCELO N. NAVAL and substitution constituted sufficient judicial demand
CRISPIN I. OBEN, Petitioners, as contemplated under Article 1634."16 Also,
vs. maintaining that the LSPA is immaterial or
CAMERON GRANVILLE 3 ASSET irrelevant to the case, respondent contends that
MANAGEMENT, INC., Respondent. the "[o]rder of substitution settled the issue of
[respondent’s] standing before the [c]ourt and its
RESOLUTION right to fill in the shoes of [EIB]."17 It argues that
the production of the LSPA will neither prevent
LEONEN, J.: respondent from pursuing its claim of
10,232,998.00, exclusive of interests and
For resolution is respondent Cameron Granville penalties, from petitioner EDC, nor write off
3 Asset Management, Inc. 's motion for petitioner EDC’s liability to respondent.18 The
reconsideration1 of our April 10, 2013 primordial issue of whether petitioners owe
decision,2 which reversed and set aside the respondent a sum of money via the deed of
Court of Appeals' resolutions3 and ordered assignment can allegedly "be readily resolved by
respondent to produce the Loan Sale and application of Civil Code provisions and/or
Purchase Agreement (LSPA) dated April 7, 2006, applicable jurisprudence and not by the
including its annexes and/or attachments, if any, production/inspection of the
in order that petitioners may inspect or LSPA[.]"19 Respondent also argues that "a
photocopy the same. consideration is not always a requisite [in
assignment of credits, and] an assignee may
Petitioners Eagleridge Development Corporation, maintain an action based on his title and it is
Marcelo N. Naval, and Crispin I. Oben filed on immaterial whether ornot he paid any
June 7, 2013 their motion to ad.mit attached consideration [therefor][.]"20
opposition.4 Subsequently, respondent filed its
reply5 and petitioners their motion to admit Respondent also contends that: (1) the
attached rejoinder.6 production of the LSPA will violate the parol
evidence rule21 under Rule 130, Section 9 of the
The motion for reconsideration raises the Rules of Court; (2) the LSPA is a
following points: privileged/confidential bank document;22 and (3)
under the Special Purpose Vehicle Act, "the only
(1) The motion for production was filed out of obligation of both the assignor (bank) and the
time;7 assignee (the SPV; respondent Cameron) is to
give notice to the debtor (Eagleridge, Naval,and
Oben) that its account has been relationships enumerated in Rule 130, Section
assigned/transferred to a special purpose 124] that would exempt [respondent] from
vehicle (Sec. 12, R.A. 9182) [and] [i]t does not disclosing information as to their transaction."34
require of the special purpose vehicle or the
bank to disclose all financial documents included In reply, respondent argues that "[petitioners]
in the assignment/sale/transfer[.]"23 cannot accept and reject the same instrument at
the same time."35According to respondent, by
Finally, respondent points out that the deed of allegedly "uphold[ing] the truth of the contents as
assignment is a contested document. "Fair play well as the validity of [the] Deed of Assignment
would be violated if the LSPA is produced [in] seeking the production of the
without [p]etitioners acknowledging that 36
[LSPA]," petitioners could no longer be allowed
respondent Cameron Granville 3 Asset to impugn the validity of the same deed.37
Management, Inc. is the real party-in-interest
because petitioners . . . would [thereafter] use . . . In their rejoinder, petitioners clarified that their
the contents of a document (LSPA) to its benefit consistent position was always to assail the
while at the same time"24 refuting the integrity of validity of the deed of assignment; that
the deed and the legal personality of respondent alternatively, they invoked the application of
to sue petitioners.25 Article 1634 should the court uphold the validity
of the transfer of their alleged loan obligation;
For their part, petitioners counter that their and that Rule 8, Section 2 of the Rules of Court
motion for production was not filed out of time, "permits parties to set forth alternative causes of
and "[t]here is no proscription, under Rule 27 or action or defenses."38
any provision of the Rules of Court, from filing
motions for production, beyond the pre-trial."26 We deny the motion for reconsideration.
Discovery mode of
Further, assuming that there was a valid transfer production/inspection of
of the loan obligation of petitioner EDC, Article document may be availed of
1634 is applicable and, therefore, petitioners even beyond pre-trial upon a
must be informed of the actual transfer price, showing of good cause
which information may only be supplied by the
LSPA.27 Petitioners argue that the substitution of The availment of a motion for production, as one
respondent in the case a quowas "not sufficient of the modes of discovery, is not limited to the
‘demand’as contemplated under Article 1634 of pre-trial stage. Rule 27 does not provide for any
the Civil Code inasmuch asrespondent Cameron time frame within which the discovery mode of
failed . . . to inform petitioner EDC of the price it production or inspection of documents can be
paid for the [transfer of the] loan utilized. The rule only requires leave of court
28
obligation," which made it "impossible for "upon due application and a showing of due
petitioners to reimburse what was paid for the cause."39 Rule 27, Section 1 of the 1997 Rules of
acquisition of the . . . loan obligation [of Court, states:
EDC]."29 Additionally, petitioners contend that
respondent was not a party to the deed of SECTION 1. Motion for production or inspection
assignment, but Cameron Granville Asset order — Upon motion of any party showing good
Management (SPV-AMC), Inc., hence, "as [to] cause therefor the court in which an action is
the actual parties to the Deed of Assignment are pending may (a) order any party to produce and
concerned, no such demand has yet been permit the inspection and copying or
made."30 photographing, by or on behalf of the moving
party, of any designated documents, papers,
Petitioners add that the amount of their liability to books, accounts, letters, photographs, objects or
respondent is one of the factual issues to be tangible things, not privileged, which constitute
resolved as stated in the November 21, 2011 or contain evidence material to any matter
pretrial order of the Regional Trial Court, which involved in the action and which are in his
makes the LSPA clearly relevant and material to possession, custody or control[.] (Emphasis
the disposition of the case.31 supplied)

Petitioners next argue that the parol evidence In Producers Bank of the Philippines v. Court of
rule is not applicable to them because they were Appeals,40 this court held that since the rules are
not parties tothe deed of assignment, and "they silent asto the period within which modes of
cannot be prevented from seeking evidence to discovery (in that case, written interrogatories)
determine the complete terms of the Deed of may still be requested, it is necessary to
Assignment."32 Besides, the deedof assignment determine: (1) the purposeof discovery; (2)
made express reference to the LSPA, hence,the whether, based on the stage of the proceedings
latter cannot be considered as extrinsic to it.33 and evidence presented thus far, allowing it is
proper and would facilitate the disposition of the
As to respondent’s invocation that the LSPA is case; and (3) whether substantial rights of
privileged/confidential, petitioners counter that "it parties would be unduly prejudiced.41 This court
has not been shown that the parties fall under . . . further held that "[t]he use of discovery is
or, at the very least . . . analogous to [any of the encouraged, for it operates with desirable
flexibility under the discretionary control of the Article 1634 of the New Civil Code is applicable
trial court."42
Contrary to respondent’s stance, Article 1634 of
In Dasmariñas Garments, Inc. v. Reyes,43
this the Civil Code on assignment of credit in
court declared that depositions, as a mode litigation is applicable.
ofdiscovery, "may be taken at any time after the
institution of any action [as there is] no Section 13 of the Special Purpose Vehicle Act
prohibition against the taking of depositions after clearly provides that in the transfer of the
pre-trial."44 Thus: non-performing loans to a special purpose
vehicle, "the provisions on subrogation and
Dasmariñas also contends that the "taking of assignment of credits under the New Civil Code
deposition is a mode of pretrial discovery to be shall apply." Thus:
availed of before the action comes to trial." Not
so. Depositions may be taken at any time after Sec. 13. Nature of Transfer. – All sales or
the institution of any action, whenever necessary transfers of NPAs to an SPV shall be in the
or convenient. There is no rule that limits nature of a true sale after proper notice in
deposition-taking only to the period of pre-trial or accordance with the procedures asprovided for
before it; no prohibition against the taking of in Section 12: Provided, That GFIs and GOCCs
depositions after pre-trial. Indeed, the law shall be subject to existing law on the disposition
authorizes the taking of depositions of witnesses of assets: Provided, further, That in the transfer
before or after an appeal is taken from the of the NPLs, the provisions on subrogation and
judgment of a Regional Trial Court "to assignment of credits under the New Civil Code
perpetuate their testimony for use in the event of shall apply.
further proceedings in the said court" (Rule 134,
Rules of Court), and even during the process of Furthermore, Section 19 of the Special Purpose
execution of a final and executory judgment Vehicle Act expressly states that redemption
(East Asiatic Co. v. C.I.R., 40 SCRA 521, 544).45 periods allowed to borrowers under the banking
law, the Rules of Court, and/or other laws are
"The modes of discovery are accorded a broad applicable. Hence, the right of redemption
and liberal treatment."46 The evident purpose of allowed to a debtor under Article 1634 of the
discovery procedures is "to enable the parties, Civil Code is applicable to the case a quo.
consistent with recognized privileges, to obtain
the fullest possible knowledge of the issues and Accordingly, petitioners may extinguish their
facts before civil trials"47 and, thus, facilitating an debt by paying the assignee-special purpose
amicable settlement or expediting the trial of the vehicle the transfer price plus the cost of money
case.48 up to the time of redemption and the judicial
costs.
Technicalities in pleading should be avoided in
order to obtain substantial justice. In Mutuc v. Petitioners’ right to
Judge Agloro,49 this court directed the bank to extinguish their debt has not
give Mutuc a complete statement asto how his yet lapsed
debt was computed, and should he be
dissatisfied with that statement, pursuant to Rule Petitioners’ right to extinguish their debt under
27 of the Rules of Court, to allow him to inspect Article 1634 on assignment of credits has not yet
and copy bank records supporting the items in lapsed. The pertinent provision is reproduced
that statement.50 This was held to be "in here:
consonance with the rules on discovery and the
avowed policy of the Rules of Court . . . to Art. 1634. When a credit or other incorporeal
require the parties to lay their cards on the table right in litigation is sold, the debtor shall have a
to facilitate a settlement of the case before the right to extinguish it by reimbursing the assignee
trial."51 for the price the latter paid therefor, the judicial
costs incurred by him, and the interest on the
We have determined that the LSPA isrelevant price from the day on which the same was paid.
and material to the issue on the validity of the A credit or other incorporeal right shall be
deed of assignment raised by petitioners in the considered in litigation from the time the
court a quo, and allowing its production and complaint concerning the same is answered.
inspection by petitioners would be more in
keeping with the objectives of the discovery rules. The debtor may exercise his right within thirty
We find no great practical difficulty, and days from the date the assignee demands
respondent continuously fails to allege any, in payment from him. (Emphasis supplied)
presenting the document for inspection and
copying of petitioners. On the other hand, to Under the last paragraph of Article 1634, the
deny petitioners the opportunity to inquire into debtor may extinguish his or her debt within 30
the LSPA would bar their access to relevant days from the date the assignee demands
evidence and impair their fundamental right to payment. In this case, insofar as the actual
due process.52 parties to the deed of assignment are concerned,
no demand has yet been made, and the 30-day
period did not begin to run. Indeed, petitioners SEC. 9. Evidence of written agreements.—When
assailed before the trial court the validity of the the terms of an agreement have been reduced to
deed of assignment on the groundsthat it did not writing, it is considered as containing all the
comply with the mandatory requirements of the terms agreed upon and there can be, between
Special Purpose Vehicle Act,53 and it referred to the parties and their successors in interest, no
Cameron Granville Asset Management evidence of such terms other than the contents
(SPV-AMC), Inc., as the assignee, and not of the written agreement.
respondent Cameron Granville 3 Asset
Management, Inc.54 The law requires that However, a party may present evidence to
payment should be made only "to the person in modify, explain or add to the terms of the written
whose favor the obligation has been constituted, agreement ifhe puts in issue in his pleading:
or his [or her] successor in interest, or any
person authorized to receive it."55 It was held (a) An intrinsic ambiguity, mistake or
that payment made to a person who is not the imperfection in the written agreement;
creditor, his or her successor-in-interest, or a
person who is authorized to receive payment, (b) The failure of the written agreement to
even through error or good faith, is not effective express the true intent and agreement of the
payment which will bind the creditor or release parties thereto;
the debtor from the obligation to pay.56 Therefore,
it was important for petitioners to determine for (c) The validity of the written agreement; or
sure the proper assignee of the EIB credit or who
to pay, in order to effectively extinguish their (d) The existence of other terms agreed to by the
debt. parties or their successors in interest after the
execution of the written agreement.
Moreover, even assuming that respondent is the
proper assignee of the EIB credit, petitioners The term "agreement" includes wills.
could not exercise their right of extinguishment
because they were not informed of the We disagree.
consideration paid for the assignment.57
The parol evidence rule does notapply to
Respondent must, pursuant to Article 1634 of petitioners who are not parties to the deed of
the Civil Code, disclose how much it paid to assignment and do not base a claim on
acquire the EIB credit, so that petitioners could it.59 Hence, they cannot be prevented from
make the corresponding offer to pay, by way of seeking evidence to determine the complete
redemption, the same amount in final settlement terms of the deed of assignment.
of their obligation.
Even assuming that Rule 130, Section 9 is
Respondent insists that the transfer price of the applicable, an exception to the rule under the
EIB credit is ₱10,232,998.00 (the actual amount second paragraph iswhen the party puts in issue
and value of the credit), and that petitioners the validity of the written agreement, as in the
should have paid the said amount within 30 days case a quo.
from the December 8, 2006 order of the
Regional Trial Court approving its substitution of Besides, what is forbidden under the parol
EIB.58 Petitioners believe otherwise, and as the evidence rule is the presentation of oral or
deed of assignment was silent on the matter, it extrinsic evidence, not those expressly referred
becomes necessary to verify the amount of the to in the written agreement. "[D]ocuments canbe
consideration from the LSPA. read together when one refers to the other."60 By
the express terms of the deed of assignment, it
Assuming indeed that respondent acquired the is clear that the deed of assignment was meant
EIB credit for a lesser consideration, it cannot to be read in conjunction with the LSPA.
compel petitioners to pay or answer for the entire
original EIB credit, or more thanwhat it paid for As we have stated in our decision, Rule 132,
the assignment. Section 1761 of the Rules of Court allows a party
to inquire into the whole of the writing or record
Under the circumstances of this case, the 30-day when a part of it is given in evidence by the other
period under Article 1634 within which party. Since the deed of assignment was
petitioners could exercise their right to extinguish produced in court by respondent and marked as
their debt should begin to run only from the time one of its documentary exhibits, the LSPA which
they were informed of the actual price paid by was made a part thereof by explicit reference
the assignee for the transfer of their debt. Parol and which is necessary for its understanding
evidence rule is not applicable may also be inquired into by petitioners.

Claiming further the impropriety of allowing the The LSPA is not privileged
production of the LSPA, respondent contends and confidential in nature
that the presentation of the document and its
annexes would violate the parol evidence rule in Respondent’s contention that the LSPAis
Rule 130, Section 9: privileged and confidential is likewise untenable.
Indeed, Rule 27 contains the proviso that the Finally, respondent’s contention that petitioners
documents sought to be produced and inspected cannot claim the validity and invalidity of the
must not be privileged against disclosure. Rule deed ofassignment at the same time is
130, Section 24 describes the types of privileged untenable.
communication. These are communication
between or involving the following: (a) between The invocation by petitioners of Article 1634,
husband and wife; (b) between attorney and which presupposes the validity of the deed of
client; (c) between physician and patient; (d) assignment orthe transfer of the EIB credit to
between priest and penitent; and (e) public respondent, even if it would run counter to their
officers and public interest. defense on the invalidity of the deed of
assignment, is proper and sanctioned by Rule 8,
Privileged communications under the rules of Section 2 of the Rules of Court, which reads:
evidence is premised on an accepted need to
protect a trust relationship. It has not been SEC. 2. Alternative causes of action or defenses.
shown that the parties to the deed of assignment — A party may set forth two or more statements
fall under any of the foregoing categories. of a claim or defense alternatively or
hypothetically, either in one causeof action or
This court has previously cited other privileged defense or in separate causes of action or
matters such as the following: "(a) editors may defenses. When two or more statements are
not be compelled to disclose the source of made in the alternative and one of them if made
published news; (b) voters may not be independently would be sufficient, the pleading
compelled to disclose for whom they voted; (c) is not made insufficient by the insufficiency of
trade secrets; (d) information contained in tax one or more of the alternative statements.
census returns; . . . (d) bank (Emphasis supplied)
deposits"62 (pursuant to the Secrecy of Bank
Deposits Act); (e) national security matters and All told, respondent failed to allege sufficient
intelligence information;63 and (f) criminal reasons for us to reconsider our decision. Verily,
matters.64 Nonetheless, the LSPA does not fall the production and inspection of the LSPA and
within any of these classes of information. its annexes fulfill the discovery-procedures
Moreover, the privilegeis not absolute, and the objective of making the trial "less a game of blind
court may compel disclosure where it is man’s buff and morea fair contest with the basic
indispensable for doing justice. issues and facts disclosed to the fullest
practicable extent."67
At any rate, respondent failed to discharge the
burden of showing that the LSPA is a privileged WHEREFORE, the motion for reconsideration is
document.1âwphi1Respondent did not present DENIED WITH FINALITY.
any law or regulation that considers bank
documents such as the LSPA as classified SO ORDERED.
information. Its contention that the Special
Purpose Vehicle Act65 only requires the G.R. No. 172835 December 13,
creditor-bank to give notice to the debtor of the 2007
transfer of his or her account to a special
purpose vehicle, and that the assignee-special AIR PHILIPPINES CORPORATION, Petitioner,
purpose vehicle has no obligation to disclose vs.
other financial documents related to the sale, is PENNSWELL, INC. Respondent.
untenable. The Special Purpose Vehicle Act
does not explicitly declare these financial DECISION
documents as privileged matters. Further, as
discussed, petitioners are not precluded from CHICO-NAZARIO, J.:
inquiring as to the true consideration of the
assignment, precisely because the same law in Petitioner Air Philippines Corporation seeks, via
relation to Article 1634 allows the debtor to the instant Petition for Review under Rule 45 of
extinguish its debt by reimbursing the the Rules of Court, the nullification of the 16
assignee-special purpose vehicle of the actual February 2006 Decision1 and the 25 May 2006
price the latter paid for the assignment. Resolution2 of the Court of Appeals in CA-G.R.
SP No. 86329, which affirmed the Order3 dated
An assignment of a credit "produce[s] no effect 30 June 2004 of the Regional Trial Court (RTC),
as against third persons, unless it appears ina Makati City, Branch 64, in Civil Case No. 00-561.
public instrument[.]"66It strains reason why the
LSPA, which by law must be a publicinstrument Petitioner Air Philippines Corporation is a
to be binding against third persons such as domestic corporation engaged in the business of
petitioners-debtors, is privileged and air transportation services. On the other hand,
confidential. respondent Pennswell, Inc. was organized to
engage in the business of manufacturing and
Alternative defenses are selling industrial chemicals, solvents, and
allowed under the Rules special lubricants.
On various dates, respondent delivered and sold (fake)
to petitioner sundry goods in trade, covered by
Sales Invoices No. 8846,4 9105,5 8962,6 and
8963,7 which correspond to Purchase Orders No. 1. a. Dry
6433, 6684, 6634 and 6633, respectively. Under Lubrica
the contracts, petitioner’s total outstanding nt 571 05/20/
obligation amounted to ₱449,864.98 with b. ASC-E 87,346.5 2 99
interest at 14% per annum until the amount Anti-Sei P 2 476 02/16/
would be fully paid. For failure of the petitioner to ze ASC-E 124,108. 3 & 99 &
comply with its obligation under said contracts, Compo P 2000 10 589 06/24/
respondent filed a Complaint8 for a Sum of und 0 99
Money on 28 April 2000 with the RTC. (fake)

In its Answer,9 petitioner contended that its


refusal to pay was not without valid and
According to petitioner, respondent’s products,
justifiable reasons. In particular, petitioner namely Excellent Rust Corrosion, Connector
alleged that it was defrauded in the amount of Grease, Electric Strength Protective Coating,
₱592,000.00 by respondent for its previous sale and Anti-Seize Compound, are identical with its
of four items, covered by Purchase Order No. Anti-Friction Fluid, Contact Grease, Thixohtropic
6626. Said items were misrepresented by
Grease, and Dry Lubricant, respectively.
respondent as belonging to a new line, but were
Petitioner asseverated that had respondent been
in truth and in fact, identical with products
forthright about the identical character of the
petitioner had previously purchased from
products, it would not have purchased the items
respondent. Petitioner asserted that it was
complained of. Moreover, petitioner alleged that
deceived by respondent which merely altered
when the purported fraud was discovered, a
the names and labels of such goods. Petitioner
conference was held between petitioner and
specifically identified the items in question, as
respondent on 13 January 2000, whereby the
follows:
parties agreed that respondent would return to
petitioner the amount it previously paid. However,
Label/Descript Item P.O petitioner was surprised when it received a letter
Amount Date
ion No. . from the respondent, demanding payment of the
amount of ₱449,864.94, which later became the
1. a. subject of respondent’s Complaint for Collection
Anti-Fri of a Sum of Money against petitioner.
ction
Fluid MPL-8 153,941. 571 05/20/ During the pendency of the trial, petitioner filed a
b. 00 40 4 99 Motion to Compel10 respondent to give a
Excelle MPL-0 155,496. 588 06/20/ detailed list of the ingredients and chemical
nt Rust 08 00 8 99 components of the following products, to wit: (a)
Corrosi Contact Grease and Connector Grease; (b)
on Thixohtropic Grease and Di-Electric Strength
(fake) Protective Coating; and (c) Dry Lubricant and
Anti-Seize Compound.11 It appears that
petitioner had earlier requested the Philippine
1. a. Institute of Pure and Applied Chemistry (PIPAC)
Contact for the latter to conduct a comparison of
Grease 115,236. 554 04/26/ respondent’s goods.
b. COG
00 0 99
Connec #2
230,519. 632 08/05/ On 15 March 2004, the RTC rendered an Order
tor CG
52 7 99 granting the petitioner’s motion. It disposed,
Grease thus:
(fake)
The Court directs [herein respondent] Pennswell,
Inc. to give [herein petitioner] Air Philippines
1. a.
Corporation[,] a detailed list of the ingredients or
Trixohtr
chemical components of the following chemical
opic
products:
Grease
b. 81,876.9 458 01/29/
a. Contact Grease to be compared with
Di-Elect EPC 6 2 99
EPC#2 81,876.9 544 04/21/ Connector Grease;
ric
Strengt 6 6 99
b. Thixohtropic Grease to be compared with
h
Di-Electric Strength Protective Coating; and
Protecti
ve
c. Dry Lubricant to be compared with Anti-Seize
Coating
Compound[.]
[Respondent] Pennswell, Inc. is given fifteen (15) respondent’s rights over its trade secrets. It was
days from receipt of this Order to submit to categorical in declaring that the chemical
[petitioner] Air Philippines Corporation the formulation of respondent’s products and their
chemical components of all the ingredients are embraced within the meaning of
above-mentioned products for chemical "trade secrets." In disallowing the disclosure, the
comparison/analysis.12 Court of Appeals expounded, thus:

Respondent sought reconsideration of the The Supreme Court in Garcia v. Board of


foregoing Order, contending that it cannot be Investments (177 SCRA 374 [1989]) held that
compelled to disclose the chemical components trade secrets and confidential, commercial and
sought because the matter is confidential. It financial information are exempt from public
argued that what petitioner endeavored to scrutiny. This is reiterated in Chavez v.
inquire upon constituted a trade secret which Presidential Commission on Good Government
respondent cannot be forced to divulge. (299 SCRA 744 [1998]) where the Supreme
Respondent maintained that its products are Court enumerated the kinds of information and
specialized lubricants, and if their components transactions that are recognized as restrictions
were revealed, its business competitors may on or privileges against compulsory disclosure.
easily imitate and market the same types of There, the Supreme Court explicitly stated that:
products, in violation of its proprietary rights and
to its serious damage and prejudice. "The drafters of the Constitution also
unequivocally affirmed that, aside from national
The RTC gave credence to respondent’s security matters and intelligence
reasoning, and reversed itself. It issued an Order information, trade or industrial secrets (pursuant
dated 30 June 2004, finding that the chemical to the Intellectual Property Code and other
components are respondent’s trade secrets and related laws) as well as banking transactions
are privileged in character. A priori, it (pursuant to the Secrecy of Bank Deposits Act)
rationalized: re also exempt from compulsory disclosure."

The Supreme Court held in the case of Chavez It is thus clear from the foregoing that a party
vs. Presidential Commission on Good cannot be compelled to produce, release or
Government, 299 SCRA 744, p. 764, that "the disclose documents, papers, or any object which
drafters of the Constitution also unequivocally are considered trade secrets.
affirmed that aside from national security matters
and intelligence information, trade or industrial In the instant case, petitioner [Air Philippines
secrets (pursuant to the Intellectual Property Corporation] would have [respondent] Pennswell
Code and other related laws) as well as banking produce a detailed list of ingredients or
transactions (pursuant to the Secrecy of Bank composition of the latter’s lubricant products so
Deposit Act) are also exempted from compulsory that a chemical comparison and analysis thereof
disclosure." can be obtained. On this note, We believe and
so hold that the ingredients or composition of
Trade secrets may not be the subject of [respondent] Pennswell’s lubricants are trade
compulsory disclosure. By reason of [their] secrets which it cannot be compelled to disclose.
confidential and privileged character, ingredients
or chemical components of the products ordered [Respondent] Pennswell has a proprietary or
by this Court to be disclosed constitute trade economic right over the ingredients or
secrets lest [herein respondent] would eventually components of its lubricant products. The
be exposed to unwarranted business formulation thereof is not known to the general
competition with others who may imitate and public and is peculiar only to [respondent]
market the same kinds of products in violation of Pennswell. The legitimate and economic
[respondent’s] proprietary rights. Being interests of business enterprises in protecting
privileged, the detailed list of ingredients or their manufacturing and business secrets are
chemical components may not be the subject of well-recognized in our system.
mode of discovery under Rule 27, Section 1 of
the Rules of Court, which expressly makes [Respondent] Pennswell has a right to guard its
privileged information an exception from its trade secrets, manufacturing formulas,
coverage.13 marketing strategies and other confidential
programs and information against the public.
Alleging grave abuse of discretion on the part of Otherwise, such information can be illegally and
the RTC, petitioner filed a Petition for Certiorari unfairly utilized by business competitors who,
under Rule 65 of the Rules of Court with the through their access to [respondent] Pennswell’s
Court of Appeals, which denied the Petition and business secrets, may use the same for their
affirmed the Order dated 30 June 2004 of the own private gain and to the irreparable prejudice
RTC. of the latter.

The Court of Appeals ruled that to compel xxxx


respondent to reveal in detail the list of
ingredients of its lubricants is to disregard
In the case before Us, the alleged trade secrets process or device intended for continuous use in
have a factual basis, i.e., it comprises of the the operation of the business, for example, a
ingredients and formulation of [respondent] machine or formula, but can be a price list or
Pennswell’s lubricant products which are catalogue or specialized customer list.19 It is
unknown to the public and peculiar only to indubitable that trade secrets constitute
Pennswell. proprietary rights. The inventor, discoverer, or
possessor of a trade secret or similar innovation
All told, We find no grave abuse of discretion has rights therein which may be treated as
amounting to lack or excess of jurisdiction on the property, and ordinarily an injunction will be
part of public respondent Judge in finding that granted to prevent the disclosure of the trade
the detailed list of ingredients or composition of secret by one who obtained the information "in
the subject lubricant products which petitioner confidence" or through a "confidential
20
relationship." American jurisprudence has
[Air Philippines Corporation] seeks to be
disclosed are trade secrets of [respondent] utilized the following factors21 to determine if an
Pennswell; hence, privileged against compulsory information is a trade secret, to wit:
disclosure.14
(1) the extent to which the information is known
Petitioner’s Motion for Reconsideration was outside of the employer's business;
denied.
(2) the extent to which the information is known
Unyielding, petitioner brought the instant Petition by employees and others involved in the
before us, on the sole issue of: business;

WHETHER THE COURT OF (3) the extent of measures taken by the


APPEALS RULED IN employer to guard the secrecy of the
ACCORDANCE WITH information;
PREVAILING LAWS AND
JURISPRUDENCE WHEN IT (4) the value of the information to the employer
UPHELD THE RULING OF THE and to competitors;
TRIAL COURT THAT THE
CHEMICAL COMPONENTS OR (5) the amount of effort or money expended by
INGREDIENTS OF the company in developing the information; and
RESPONDENT’S PRODUCTS
ARE TRADE SECRETS OR (6) the extent to which the information could be
INDUSTRIAL SECRETS THAT easily or readily obtained through an
ARE NOT SUBJECT TO independent source.22
COMPULSORY DISCLOSURE.15
In Cocoland Development Corporation v.
Petitioner seeks to convince this Court that it has National Labor Relations Commission,23 the
a right to obtain the chemical composition and issue was the legality of an employee’s
ingredients of respondent’s products to conduct termination on the ground of unauthorized
a comparative analysis of its products. Petitioner disclosure of trade secrets. The Court laid down
assails the conclusion reached by the Court of the rule that any determination by management
Appeals that the matters are trade secrets which as to the confidential nature of technologies,
are protected by law and beyond public scrutiny. processes, formulae or other so-called trade
Relying on Section 1, Rule 27 of the Rules of secrets must have a substantial factual basis
Court, petitioner argues that the use of modes of which can pass judicial scrutiny. The Court
discovery operates with desirable flexibility rejected the employer’s naked contention that its
under the discretionary control of the trial court. own determination as to what constitutes a trade
Furthermore, petitioner posits that its request is secret should be binding and conclusive upon
not done in bad faith or in any manner as to the NLRC. As a caveat, the Court said that to
annoy, embarrass, or oppress respondent. rule otherwise would be to permit an employer to
label almost anything a trade secret, and thereby
A trade secret is defined as a plan or process, create a weapon with which he/it may arbitrarily
tool, mechanism or compound known only to its dismiss an employee on the pretext that the
owner and those of his employees to whom it is latter somehow disclosed a trade secret, even if
necessary to confide it.16 The definition also in fact there be none at all to speak of.24 Hence,
extends to a secret formula or process not in Cocoland, the parameters in the determination
patented, but known only to certain individuals of trade secrets were set to be such substantial
using it in compounding some article of trade factual basis that can withstand judicial scrutiny.
having a commercial value.17 A trade secret may
consist of any formula, pattern, device, or The chemical composition, formulation, and
compilation of information that: (1) is used in ingredients of respondent’s special lubricants
one's business; and (2) gives the employer an are trade secrets within the contemplation of the
opportunity to obtain an advantage over law. Respondent was established to engage in
competitors who do not possess the the business of general manufacturing and
information.18 Generally, a trade secret is a selling of, and to deal in, distribute, sell or
otherwise dispose of goods, wares, merchandise, A more than cursory glance at the above text
products, including but not limited to industrial would show that the production or inspection of
chemicals, solvents, lubricants, acids, alkalies, documents or things as a mode of discovery
salts, paints, oils, varnishes, colors, pigments sanctioned by the Rules of Court may be availed
and similar preparations, among others. It is of by any party upon a showing of good cause
unmistakable to our minds that the manufacture therefor before the court in which an action is
and production of respondent’s products pending. The court may order any party: a) to
proceed from a formulation of a secret list of produce and permit the inspection and copying
ingredients. In the creation of its lubricants, or photographing of any designated documents,
respondent expended efforts, skills, research, papers, books, accounts, letters, photographs,
and resources. What it had achieved by virtue of objects or tangible things, which are not
its investments may not be wrested from privileged;25 which constitute or contain
respondent on the mere pretext that it is evidence material to any matter involved in the
necessary for petitioner’s defense against a action; and which are in his possession, custody
collection for a sum of money. By and large, the or control; or b) to permit entry upon designated
value of the information to respondent is crystal land or other property in his possession or
clear. The ingredients constitute the very fabric control for the purpose of inspecting, measuring,
of respondent’s production and business. No surveying, or photographing the property or any
doubt, the information is also valuable to designated relevant object or operation thereon.
respondent’s competitors. To compel its
disclosure is to cripple respondent’s business, Rule 27 sets an unequivocal proviso that the
and to place it at an undue disadvantage. If the documents, papers, books, accounts, letters,
chemical composition of respondent’s lubricants photographs, objects or tangible things that may
are opened to public scrutiny, it will stand to lose be produced and inspected should not be
the backbone on which its business is founded. privileged.26 The documents must not be
This would result in nothing less than the privileged against disclosure.27 On the ground of
probable demise of respondent’s business. public policy, the rules providing for production
Respondent’s proprietary interest over the and inspection of books and papers do not
ingredients which it had developed and authorize the production or inspection of
expended money and effort on is incontrovertible. privileged matter; that is, books and papers
Our conclusion is that the detailed ingredients which, because of their confidential and
sought to be revealed have a commercial value privileged character, could not be received in
to respondent. Not only do we acknowledge the evidence.28 Such a condition is in addition to the
fact that the information grants it a competitive requisite that the items be specifically described,
advantage; we also find that there is clearly a and must constitute or contain evidence material
glaring intent on the part of respondent to keep to any matter involved in the action and which
the information confidential and not available to are in the party’s possession, custody or control.
the prying public.
Section 2429 of Rule 130 draws the types of
We now take a look at Section 1, Rule 27 of the disqualification by reason of privileged
Rules of Court, which permits parties to inspect communication, to wit: (a) communication
documents or things upon a showing of good between husband and wife; (b) communication
cause before the court in which an action is between attorney and client; (c) communication
pending. Its entire provision reads: between physician and patient; (d)
communication between priest and penitent; and
SECTION 1. Motion for production or inspection (e) public officers and public interest. There are,
order. – Upon motion of any party showing good however, other privileged matters that are not
cause therefore, the court in which an action is mentioned by Rule 130. Among them are the
pending may (a) order any party to produce and following: (a) editors may not be compelled to
permit the inspection and copying or disclose the source of published news; (b) voters
photographing, by or on behalf of the moving may not be compelled to disclose for whom they
party, of any designated documents, papers, voted; (c) trade secrets; (d) information
books, accounts, letters, photographs, objects or contained in tax census returns; and (d) bank
tangible things, not privileged, which constitute deposits. 30
or contain evidence material to any matter
involved in the action and which are in his We, thus, rule against the petitioner. We affirm
possession, custody or control; or (b) order any the ruling of the Court of Appeals which upheld
party to permit entry upon designated land or the finding of the RTC that there is substantial
other property in his possession or control for the basis for respondent to seek protection of the
purpose of inspecting, measuring, surveying, or law for its proprietary rights over the detailed
photographing the property or any designated chemical composition of its products.
relevant object or operation thereon. The order
shall specify the time, place and manner of That trade secrets are of a privileged nature is
making the inspection and taking copies and beyond quibble. The protection that this
photographs, and may prescribe such terms and jurisdiction affords to trade secrets is evident in
conditions as are just. our laws. The Interim Rules of Procedure on
Government Rehabilitation, effective 15
December 2000, which applies to: (1) petitions Republic Act No. 6969, or the Toxic Substances
for rehabilitation filed by corporations, and Hazardous and Nuclear Wastes Control Act
partnerships, and associations pursuant to of 1990, enacted to implement the policy of the
Presidential Decree No. 902-A,31 as amended; state to regulate, restrict or prohibit the
and (2) cases for rehabilitation transferred from importation, manufacture, processing, sale,
the Securities and Exchange Commission to the distribution, use and disposal of chemical
RTCs pursuant to Republic Act No. 8799, substances and mixtures that present
otherwise known as The Securities Regulation unreasonable risk and/or injury to health or the
Code, expressly provides that the court may environment, also contains a provision that
issue an order to protect trade secrets or other limits the right of the public to have access to
confidential research, development, or records, reports or information concerning
commercial information belonging to the chemical substances and mixtures including
debtor.32 Moreover, the Securities Regulation safety data submitted and data on emission
Code is explicit that the Securities and Exchange or discharge into the environment, if the
Commission is not required or authorized to matter is confidential such that it would
require the revelation of trade secrets or divulge trade secrets, production or sales
processes in any application, report or document figures; or methods, production or
filed with the Commission.33 This confidentiality processes unique to such manufacturer,
is made paramount as a limitation to the right of processor or distributor; or would otherwise
any member of the general public, upon request, tend to affect adversely the competitive
to have access to all information filed with the position of such manufacturer, processor or
Commission.34 distributor.35

Furthermore, the Revised Penal Code endows a Clearly, in accordance with our statutory laws,
cloak of protection to trade secrets under the this Court has declared that intellectual and
following articles: industrial property rights cases are not simple
property cases.36 Without limiting such industrial
Art. 291. Revealing secrets with abuse of office. property rights to trademarks and trade names,
— The penalty of arresto mayor and a fine not this Court has ruled that all agreements
exceeding 500 pesos shall be imposed upon any concerning intellectual property are intimately
manager, employee or servant who, in such connected with economic development.37 The
capacity, shall learn the secrets of his principal protection of industrial property encourages
or master and shall reveal such secrets. investments in new ideas and inventions and
stimulates creative efforts for the satisfaction of
Art. 292. Revelation of industrial secrets. — The human needs. It speeds up transfer of
penalty of prision correccional in its minimum technology and industrialization, and thereby
and medium periods and a fine not exceeding bring about social and economic
500 pesos shall be imposed upon the person in progress.38 Verily, the protection of industrial
charge, employee or workman of any secrets is inextricably linked to the advancement
manufacturing or industrial establishment who, of our economy and fosters healthy competition
to the prejudice of the owner thereof, shall reveal in trade.
the secrets of the industry of
the latter. Jurisprudence has consistently acknowledged
the private character of trade
Similarly, Republic Act No. 8424, otherwise secrets.1âwphi1 There is a privilege not to
known as the National Internal Revenue Code of disclose one’s trade secrets.39 Foremost, this
1997, has a restrictive provision on trade secrets, Court has declared that trade secrets and
penalizing the revelation thereof by internal banking transactions are among the recognized
revenue officers or employees, to wit: restrictions to the right of the people to
information as embodied in the
40
Constitution. We said that the drafters of the
SECTION 278. Procuring Unlawful Divulgence
of Trade Secrets. - Any person who causes or Constitution also unequivocally affirmed that,
procures an officer or employee of the Bureau of aside from national security matters and
Internal Revenue to divulge any confidential intelligence information, trade or industrial
information regarding the business, income or secrets (pursuant to the Intellectual Property
inheritance of any taxpayer, knowledge of which Code and other related laws) as well as banking
was acquired by him in the discharge of his transactions (pursuant to the Secrecy of Bank
official duties, and which it is unlawful for him to Deposits Act), are also exempted from
reveal, and any person who publishes or prints in compulsory disclosure.41
any manner whatever, not provided by law, any
income, profit, loss or expenditure appearing in Significantly, our cases on labor are replete with
any income tax return, shall be punished by a examples of a protectionist stance towards the
fine of not more than two thousand pesos trade secrets of employers. For instance, this
(₱2,000), or suffer imprisonment of not less than Court upheld the validity of the policy of a
six (6) months nor more than five (5) years, or pharmaceutical company prohibiting its
both. employees from marrying employees of any
competitor company, on the rationalization that
the company has a right to guard its trade Substances and Hazardous and Nuclear Wastes
secrets, manufacturing formulas, marketing Control Act of 1990, which grants the public
strategies and other confidential programs and access to records, reports or information
information from competitors.42 Notably, it was in concerning chemical substances and mixtures,
a labor-related case that this Court made a stark including safety data submitted, and data on
ruling on the proper determination of trade emission or discharge into the environment. To
secrets. reiterate, Section 1250 of said Act deems as
confidential matters, which may not be made
In the case at bar, petitioner cannot rely on public, those that would divulge trade secrets,
Section 7743 of Republic Act 7394, or the including production or sales figures or methods;
Consumer Act of the Philippines, in order to production or processes unique to such
compel respondent to reveal the chemical manufacturer, processor or distributor, or would
components of its products. While it is true that otherwise tend to affect adversely the
all consumer products domestically sold, competitive position of such manufacturer,
whether manufactured locally or imported, shall processor or distributor. It is true that under the
indicate their general make or active ingredients same Act, the Department of Environment and
in their respective labels of packaging, the law Natural Resources may release information;
does not apply to respondent. Respondent’s however, the clear import of the law is that said
specialized lubricants -- namely, Contact Grease, authority is limited by the right to confidentiality
Connector Grease, Thixohtropic Grease, of the manufacturer, processor or distributor,
Di-Electric Strength Protective Coating, Dry which information may be released only to a
Lubricant and Anti-Seize Compound -- are not medical research or scientific institution where
consumer products. "Consumer products," as it the information is needed for the purpose of
is defined in Article 4(q),44 refers to goods, medical diagnosis or treatment of a person
services and credits, debts or obligations which exposed to the chemical substance or mixture.
are primarily for personal, family, household or The right to confidentiality is recognized by said
agricultural purposes, which shall include, but Act as primordial. Petitioner has not made the
not be limited to, food, drugs, cosmetics, and slightest attempt to show that these
devices. This is not the nature of respondent’s circumstances are availing in the case at bar.
products. Its products are not intended for
personal, family, household or agricultural Indeed, the privilege is not absolute; the trial
purposes. Rather, they are for industrial use, court may compel disclosure where it is
specifically for the use of aircraft propellers and indispensable for doing justice.51 We do not,
engines. however, find reason to except respondent’s
trade secrets from the application of the rule on
Petitioner’s argument that Republic Act No. 8203, privilege. The revelation of respondent’s trade
or the Special Law on Counterfeit Drugs, secrets serves no better purpose to the
requires the disclosure of the active ingredients disposition of the main case pending with the
of a drug is also on faulty RTC, which is on the collection of a sum of
ground. Respondent’s products are outside the
45 money. As can be gleaned from the facts,
scope of the cited law. They do not come within petitioner received respondent’s goods in trade
the purview of a drug46 which, as defined therein, in the normal course of business. To be sure,
refers to any chemical compound or biological there are defenses under the laws of contracts
substance, other than food, that is intended for and sales available to petitioner. On the other
use in the treatment, prevention or diagnosis of hand, the greater interest of justice ought to
disease in man or animals. Again, such are not favor respondent as the holder of trade secrets.
the characteristics of respondent’s products. If we were to weigh the conflicting interests
between the parties, we rule in favor of the
What is clear from the factual findings of the greater interest of respondent. Trade secrets
RTC and the Court of Appeals is that the should receive greater protection from discovery,
chemical formulation of respondent’s products is because they derive economic value from being
not known to the general public and is unique generally unknown and not readily ascertainable
only to it. Both courts uniformly ruled that these by the public.52 To the mind of this Court,
ingredients are not within the knowledge of the petitioner was not able to show a compelling
public. Since such factual findings are generally reason for us to lift the veil of confidentiality
not reviewable by this Court, it is not duty-bound which shields respondent’s trade secrets.
to analyze and weigh all over again the evidence
already considered in the proceedings WHEREFORE, the Petition is DENIED. The
below.47 We need not delve into the factual Decision dated 16 February 2006, and the
bases of such findings as questions of fact are Resolution dated 25 May 2006, of the Court of
beyond the pale of Rule 45 of the Rules of Court. Appeals in CA-G.R. SP No. 86329 are
Factual findings of the trial court when affirmed AFFIRMED. No costs.
by the Court of Appeals, are binding and
conclusive on the Supreme Court.48 SO ORDERED.

We do not find merit or applicability in petitioner’s


invocation of Section 1249 of the Toxic