Cojuangco Jr.

vs Republic

Of the several coconut levy appealed cases that stemmed from certain issuances of the
Sandiganbayan in its Civil Case No. 0033, the present recourse proves to be one of the most
difficult.

In particular, the instant petition for review under Rule 45 of the Rules of Court assails and
seeks to annul a portion of the Partial Summary Judgment dated July 11, 2003, as affirmed in a
Resolution of December 28, 2004, both rendered by the Sandiganbayan in its Civil Case ("CC")
No. 0033-A (the judgment shall hereinafter be referred to as "PSJ-A"), entitled "Republic of the
Philippines, Plaintiff, v. Eduardo M. Cojuangco, Jr., et al., Defendants, COCOFED, et al.,
BALLARES, et al., Class Action Movants." CC No. 0033-A is the result of the splitting into eight
(8) amended complaints of CC No. 0033 entitled, "Republic of the Philippines v. Eduardo
Cojuangco, Jr., et al.," a suit for recovery of ill-gotten wealth commenced by the Presidential
Commission on Good Government ("PCGG"), for the Republic of the Philippines ("Republic"),
against Eduardo M. Cojuangco, Jr. ("Cojuangco") and several individuals, among them,
Ferdinand E. Marcos, Maria Clara Lobregat ("Lobregat"), and Danilo S. Ursua ("Ursua"). Each of
the eight (8) subdivided complaints, CC No. 0033-A to CC No. 0033-H, correspondingly
impleaded as defendants only the alleged participants in the transaction/s subject of the suit, or
who are averred as owner/s of the assets involved.

Apart from this recourse, We clarify right off that PSJ-A was challenged in two other separate
but consolidated petitions for review, one commenced by COCOFED et al., docketed as G.R.
Nos. 177857-58, and the other, interposed by Danilo S. Ursua, and docketed as G.R. No. 178193.

By Decision dated January 24, 2012, in the aforesaid G.R. Nos. 177857-58 (COCOFED et al. v.
Republic) and G.R. No. 178193 (Ursua v. Republic) consolidated cases 1 (hereinafter collectively
referred to as "COCOFED v. Republic"), the Court addressed and resolved all key matters
elevated to it in relation to PSJ-A, except for the issues raised in the instant petition which have
not yet been resolved therein. In the same decision, We made clear that: (1) PSJ-A is subject of
another petition for review interposed by Eduardo Cojuangco, Jr., in G.R. No. 180705, entitled
Eduardo M. Cojuangco, Jr. v. Republic of the Philippines, which shall be decided separately by
the Court,2 and (2) the issues raised in the instant petition should not be affected by the earlier
decision "save for determinatively legal issues directly addressed therein." 3

For a better perspective, the instant recourse seeks to reverse the Partial Summary Judgment 4 of
the anti-graft court dated July 11, 2003, as reiterated in a Resolution 5 of December 28, 2004,
denying COCOFED’s motion for reconsideration, and the May 11, 2007 Resolution6 denying

COCOFED’s motion to set case for trial and declaring the partial summary judgment final and
appealable, all issued in PSJ-A. In our adverted January 24, 2012 Decision in COCOFED v.
Republic, we affirmed with modification PSJ-A of the Sandiganbayan, and its Partial Summary
Judgment in Civil Case No. 0033-F, dated May 7, 2004 (hereinafter referred to as "PSJ-F’). 7

More specifically, We upheld the Sandiganbayan’s ruling that the coconut levy funds are
special public funds of the Government. Consequently, We affirmed the Sandiganbayan’s
declaration that Sections 1 and 2 of Presidential Decree ("P.D.") 755, Section 3, Article III of P.D.
961 and Section 3, Article III of P.D. 1468, as well as the pertinent implementing regulations of
the Philippine Coconut Authority ("PCA"), are unconstitutional for allowing the use and/or the
distribution of properties acquired through the coconut levy funds to private individuals for
their own direct benefit and absolute ownership. The Decision also affirmed the Government’s
ownership of the six CIIF companies, the fourteen holding companies, and the CIIF block of San
Miguel Corporation shares of stock, for having likewise been acquired using the coconut levy
funds. Accordingly, the properties subject of the January 24, 2012 Decision were declared
owned by and ordered reconveyed to the Government, to be used only for the benefit of all
coconut farmers and for the development of the coconut industry.

By Resolution of September 4, 2012,8 the Court affirmed the above-stated Decision promulgated

on January 24, 2012.

It bears to stress at this juncture that the only portion of the appealed Partial Summary
Judgment dated July 11, 2003 ("PSJ-A") which remains at issue revolves around the following
decretal holdings of that court relating to the "compensation" paid to petitioner for exercising
his personal and exclusive option to acquire the FUB/UCPB shares. 9 It will be recalled that the
Sandiganbayan declared the Agreement between the PCA and Cojuangco containing the
assailed "compensation" null and void for not having the required valuable consideration.
Consequently, the UCPB shares of stocks that are subject of the Agreement were declared
conclusively owned by the Government. It also held that the Agreement did not have the effect
of law as it was not published as part of P.D. 755, even if Section 1 thereof made reference to the
same.

Facts

We reproduce, below, portions of the statement of facts in COCOFED v. Republic relevant to

the present case:10

In 1971, Republic Act No. ("R.A.") 6260 was enacted creating the Coconut Investment Company
("CIC") to administer the Coconut Investment Fund ("CIF"), which, under Section 8 thereof, was
to be sourced from a PhP 0.55 levy on the sale of every 100 kg. of copra. Of the PhP 0.55 levy of
which the copra seller was – or ought to be – issued COCOFUND receipts, PhP 0.02 was placed
at the disposition of COCOFED, the national association of coconut producers declared by the

Philippine Coconut Administration ("PHILCOA" now "PCA") as having the largest

membership.

The declaration of martial law in September 1972 saw the issuance of several presidential
decrees ("P.D.") purportedly designed to improve the coconut industry through the collection
and use of the coconut levy fund. While coming generally from impositions on the first sale of
copra, the coconut levy fund came under various names x x x. Charged with the duty of
collecting and administering the Fund was PCA. Like COCOFED with which it had a legal
linkage, the PCA, by statutory provisions scattered in different coco levy decrees, had its share
of the coco levy.

The following were some of the issuances on the coco levy, its collection and utilization, how
the proceeds of the levy will be managed and by whom and the purpose it was supposed to
serve:
1. P.D. No. 276 established the Coconut Consumers Stabilization Fund ("CCSF")
and declared the proceeds of the CCSF levy as trust fund, to be utilized to
subsidize the sale of coconut-based products, thus stabilizing the price of edible
oil.

2. P.D. No. 582 created the Coconut Industry Development Fund ("CIDF") to
finance the operation of a hybrid coconut seed farm.

3. Then came P.D. No. 755 providing under its Section 1 the following:

It is hereby declared that the policy of the State is to provide readily

available credit facilities to the coconut farmers at preferential rates; that
this policy can be expeditiously and efficiently realized by the
implementation of the "Agreement for the Acquisition of a Commercial
Bank for the benefit of Coconut Farmers" executed by the PCA…; and
that the PCA is hereby authorized to distribute, for free, the shares of
stock of the bank it acquired to the coconut farmers….

Towards achieving the policy thus declared, P.D. No. 755, under its
Section 2, authorized PCA to utilize the CCSF and the CIDF collections to
acquire a commercial bank and deposit the CCSF levy collections in said
bank interest free, the deposit withdrawable only when the bank has
attained a certain level of sufficiency in its equity capital. The same
section also decreed that all levies PCA is authorized to collect shall not
be considered as special and/or fiduciary funds or form part of the
general funds of the government within the contemplation of P.D. No.
711.

4. P.D. No. 961 codified the various laws relating to the development of
coconut/palm oil industries.

5. The relevant provisions of P.D. No. 961, as later amended by P.D. No. 1468
(Revised Coconut Industry Code), read:

ARTICLE III
Levies

Section 1. Coconut Consumers Stabilization Fund Levy. — The PCA is

hereby empowered to impose and collect … the Coconut Consumers
Stabilization Fund Levy, ….

….

Section 5. Exemption. — The CCSF and theCIDF as well as all

disbursements as herein authorized, shall not be construed … as special
and/or fiduciary funds, or as part of the general funds of the national
government within the contemplation of PD 711; … the intention being
that said Fund and the disbursements thereof as herein authorized for the
 benefit of the coconut farmers shall be owned by them in their private
capacities: …. (Emphasis supplied)

6. Letter of Instructions No. ("LOI") 926, s. of 1979, made reference to the creation,
out of other coco levy funds, of the Coconut Industry Investment Fund ("CIIF")
in P.D. No. 1468 and entrusted a portion of the CIIF levy to UCPB for investment,
on behalf of coconut farmers, in oil mills and other private corporations, with the
following equity ownership structure:

Section 2. Organization of the Cooperative Endeavor. – The UCPB, in its

capacity as the investment arm of the coconut farmers thru the CIIF … is
hereby directed to invest, on behalf of the coconut farmers, such portion
of the CIIF … in private corporations … under the following guidelines:

a) The coconut farmers shall own or control at least … (50%) of the

outstanding voting capital stock of the private corporation acquired thru
the CIIF and/or corporation owned or controlled by the farmers thru the
CIIF …. (Words in bracket added.)

Through the years, a part of the coconut levy funds went directly or indirectly to
finance various projects and/or was converted into various assets or
investments.11 Relevant to the present petition is the acquisition of the First
United Bank ("FUB"), which was subsequently renamed as United Coconut
Planters Bank ("UCPB").12

Apropos the intended acquisition of a commercial bank for the purpose stated
earlier, it would appear that FUB was the bank of choice which Pedro
Cojuangco’s group (collectively, "Pedro Cojuangco") had control of. The plan,
then, was for PCA to buy all of Pedro Cojuangco’s shares in FUB. However, as
later events unfolded, a simple direct sale from the seller (Pedro) to PCA did not
ensue as it was made to appear that Cojuangco had the exclusive option to
acquire the former’s FUB controlling interests. Emerging from this elaborate,
circuitous arrangement were two deeds. The first one was simply denominated
as Agreement, dated May 1975, entered into by and between Cojuangco for and
in his behalf and in behalf of "certain other buyers", and Pedro Cojuangco in
which the former was purportedly accorded the option to buy 72.2% of FUB’s
outstanding capital stock, or 137,866 shares (the "option shares," for brevity), at
PhP 200 per share. On its face, this agreement does not mention the word
"option."

The second but related contract, dated May 25, 1975, was denominated as
Agreement for the Acquisition of a Commercial Bank for the Benefit of the
Coconut Farmers of the Philippines. It had PCA, for itself and for the benefit of
the coconut farmers, purchase from Cojuangco the shares of stock subject of the
First Agreement for PhP200.00 per share. As additional consideration for PCA’s
buy-out of what Cojuangco would later claim to be his exclusive and personal
option, it was stipulated that, from PCA, Cojuangco shall receive equity in FUB
amounting to 10%, or 7.22%, of the 72.2%, or fully paid shares. And so as not to
 dilute Cojuangco’s equity position in FUB, later UCPB, the PCA agreed under
paragraph 6 (b) of the second agreement to cede over to the former a number of
fully paid FUB shares out of the shares it (PCA) undertakes to eventually
subscribe. It was further stipulated that Cojuangco would act as bank president
for an extendible period of 5 years.

Apart from the aforementioned 72.2%, PCA purchased from other FUB
shareholders 6,534 shares of which Cojuangco, as may be gathered from the
records, got 10%..

While the 64.98% portion of the option shares (72.2% – 7.22% = 64.98%)
ostensibly pertained to the farmers, the corresponding stock certificates
supposedly representing the farmers’ equity were in the name of and delivered
to PCA. There were, however, shares forming part of the aforesaid 64.98%
portion, which ended up in the hands of non-farmers. The remaining 27.8% of
the FUB capital stock were not covered by any of the agreements.

Under paragraph # 8 of the second agreement, PCA agreed to expeditiously

distribute the FUB shares purchased to such "coconut farmers holding registered
COCOFUND receipts" on equitable basis.

As found by the Sandiganbayan, the PCA appropriated, out of its own fund, an
amount for the purchase of the said 72.2% equity, albeit it would later reimburse
itself from the coconut levy fund.

And per Cojuangco’s own admission, PCA paid, out of the CCSF, the entire acquisition price for
the 72.2% option shares.13

As of June 30, 1975, the list of FUB stockholders included Cojuangco with 14,440 shares and
PCA with 129,955 shares.14 It would appear later that, pursuant to the stipulation on
maintaining Cojuangco’s equity position in the bank, PCA would cede to him 10% of its
subscriptions to (a) the authorized but unissued shares of FUB and (b) the increase in FUB’s
capital stock (the equivalent of 158,840 and 649,800 shares, respectively). In all, from the
"mother" PCA shares, Cojuangco would receive a total of 95,304 FUB (UCPB) shares broken
down as follows: 14,440 shares + 10% (158,840 shares) + 10% (649,800 shares) = 95,304. 15

We further quote, from COCOFED v. Republic, facts relevant to the instant case: 16

Shortly after the execution of the PCA – Cojuangco Agreement, President Marcos issued, on
July 29, 1975, P.D. No. 755 directing x x x as narrated, PCA to use the CCSF and CIDF to acquire
a commercial bank to provide coco farmers with "readily available credit facilities at preferential
rate" x x x.

Then came the 1986 EDSA event. One of the priorities of then President Corazon C. Aquino’s
revolutionary government was the recovery of ill-gotten wealth reportedly amassed by the
Marcos family and close relatives, their nominees and associates. Apropos thereto, she issued
Executive Order Nos. (EO) 1, 2 and 14, as amended by E.O. 14-A, all series of 1986. E.O. 1
created the PCGG and provided it with the tools and processes it may avail of in the recovery
efforts;17 E.O. No. 2 asserted that the ill-gotten assets and properties come in the form of shares
of stocks, etc., while E.O. No. 14 conferred on the Sandiganbayan exclusive and original
jurisdiction over ill-gotten wealth cases, with the proviso that "technical rules of procedure and
evidence shall not be applied strictly" to the civil cases filed under the EO. Pursuant to these
issuances, the PCGG issued numerous orders of sequestration, among which were those
handed out x x x against shares of stock in UCPB purportedly owned by or registered in the
names of (a) the more than a million coconut farmers, (b) the CIIF companies and (c) Cojuangco,
Jr., including the SMC shares held by the CIIF companies. On July 31, 1987, the PCGG instituted
before the Sandiganbayan a recovery suit docketed thereat as CC No. 0033.

xxxx

3. Civil Case 0033 x x x would be subdivided into eight complaints, docketed as CC 0033-A to
CC 0033-H.

xxxx

5. By Decision of December 14, 2001, in G.R. Nos. 147062-64 (Republic v. COCOFED), 18 the
Court declared the coco levy funds as prima facie public funds. And purchased as the
sequestered UCPB shares were by such funds, beneficial ownership thereon and the corollary
voting rights prima facie pertain, according to the Court, to the government.

xxxx

Correlatively, the Republic, on the strength of the December 14, 2001 ruling in Republic v.
COCOFED and on the argument, among others, that the claim of COCOFED and Ballares et al.,
over the subject UCPB shares is based solely on the supposed COCOFUND receipts issued for
payment of the RA 6260 CIF levy, filed a Motion for Partial Summary Judgment RE: COCOFED,
et al. and Ballares, et al. dated April 22, 2002, praying that a summary judgment be rendered
declaring:

a. That Section 2 of [PD] 755, Section 5, Article III of P.D. 961 and Section 5,
Article III of P.D. No. 1468 are unconstitutional;

b. That x x x (CIF) payments under x x x (R.A.) No. 6260 are not valid and legal
bases for ownership claims over UCPB shares; and

c. That COCOFED, et al., and Ballares, et al. have not legally and validly obtained
title over the subject UCPB shares.

Right after it filed the Motion for Partial Summary Judgment RE: COCOFED, et al. and Ballares,
et al., the Republic interposed a Motion for Partial Summary Judgment Re: Eduardo M.
Cojuangco, Jr., praying that a summary judgment be rendered:

a. Declaring that Section 1 of P.D. No. 755 is unconstitutional insofar as it validates the
provisions in the "PCA-Cojuangco Agreement x x x" dated May 25, 1975 providing
payment of ten percent (10%) commission to defendant Cojuangco with respect to the
FUB, now UCPB shares subject matter thereof;
 b. Declaring that x x x Cojuangco, Jr. and his fronts, nominees and dummies, including x
x x and Danilo S. Ursua, have not legally and validly obtained title over the subject
UCPB shares; and

c. Declaring that the government is the lawful and true owner of the subject UCPB
shares registered in the names of … Cojuangco, Jr. and the entities and persons above-
enumerated, for the benefit of all coconut farmers. x x x

Following an exchange of pleadings, the Republic filed its sur-rejoinder praying that it be
conclusively declared the true and absolute owner of the coconut levy funds and the UCPB
shares acquired therefrom.19

We quote from COCOFED v. Republic:20

A joint hearing on the separate motions for summary judgment to determine what material
facts exist with or without controversy then ensued. By Order of March 11, 2003, the
Sandiganbayan detailed, based on this Court’s ruling in related ill-gotten cases, the parties’
manifestations made in open court and the pleadings and evidence on record, the facts it found
to be without substantial controversy, together with the admissions and/or extent of the
admission made by the parties respecting relevant facts, as follows:

As culled from the exhaustive discussions and manifestations of the parties in open court of
their respective pleadings and evidence on record, the facts which exist without any substantial
controversy are set forth hereunder, together with the admissions and/or the extent or scope of
the admissions made by the parties relating to the relevant facts:

1. The late President Ferdinand E. Marcos was President x x x for two terms
under the 1935 Constitution and, during the second term, he declared Martial
Law through Proclamation No. 1081 dated September 21, 1972.

2. On January 17, 1973, he issued Proclamation No. 1102 announcing the

ratification of the 1973 Constitution.

3. From January 17, 1973 to April 7, 1981, he x x x exercised the powers and
prerogative of President under the 1935 Constitution and the powers and
prerogative of President x x x the 1973 Constitution.

He x x x promulgated various P.D.s, among which were P.D. No. 232, P.D. No.
276, P.D. No. 414, P.D. No. 755, P.D. No. 961 and P.D. No. 1468.

4. On April 17, 1981, amendments to the 1973 Constitution were effected and, on
June 30, 1981, he, after being elected President, "reassumed the title and exercised
the powers of the President until 25 February 1986."

5. Defendants Maria Clara Lobregat and Jose R. Eleazar, Jr. were PCA Directors x
x x during the period 1970 to 1986 x x x.
6. Plaintiff admits the existence of the following agreements which are attached
as Annexes "A" and "B" to the Opposition dated October 10, 2002 of defendant
Eduardo M. Cojuangco, Jr. to the above-cited Motion for Partial Summary
Judgment:

a) "This Agreement made and entered into this ______ day of May, 1975
at Makati, Rizal, Philippines, by and between:

PEDRO COJUANGCO, Filipino, of legal age and with residence at 1575

Princeton St., Mandaluyong, Rizal, for and in his own behalf and in
behalf of certain other stockholders of First United Bank listed in Annex
"A" attached hereto (hereinafter collectively called the SELLERS);

– and –

EDUARDO COJUANGCO, JR., Filipino, of legal age and with residence

at 136 9th Street corner Balete Drive, Quezon City, represented in this act
by his duly authorized attorney-in-fact, EDGARDO J. ANGARA, for and
in his own behalf and in behalf of certain other buyers, (hereinafter
collectively called the BUYERS)";

WITNESSETH: That

WHEREAS, the SELLERS own of record and beneficially a total of 137,866

shares of stock, with a par value of P100.00 each, of the common stock of
the First United Bank (the "Bank"), a commercial banking corporation
existing under the laws of the Philippines;

WHEREAS, the BUYERS desire to purchase, and the SELLERS are willing
to sell, the aforementioned shares of stock totaling 137,866 shares
(hereinafter called the "Contract Shares") owned by the SELLERS due to
their special relationship to EDUARDO COJUANGCO, JR.;

NOW, THEREFORE, for and in consideration of the premises and the

mutual covenants herein contained, the parties agree as follows:

1. Sale and Purchase of Contract Shares

Subject to the terms and conditions of this Agreement, the

SELLERS hereby sell, assign, transfer and convey unto the
BUYERS, and the BUYERS hereby purchase and acquire, the
Contract Shares free and clear of all liens and encumbrances
thereon.

2. Contract Price
The purchase price per share of the Contract Shares payable by
the BUYERS is P200.00 or an aggregate price of P27,573,200.00 (the
"Contract Price").

3. Delivery of, and payment for, stock certificates

Upon the execution of this Agreement, (i) the SELLERS shall

deliver to the BUYERS the stock certificates representing the
Contract Shares, free and clear of all liens, encumbrances,
obligations, liabilities and other burdens in favor of the Bank or
third parties, duly endorsed in blank or with stock powers
sufficient to transfer the shares to bearer; and (ii) BUYERS shall
deliver to the SELLERS P27,511,295.50 representing the Contract
Price less the amount of stock transfer taxes payable by the
SELLERS, which the BUYERS undertake to remit to the
appropriate authorities. (Emphasis added.)

4. Representation and Warranties of Sellers

The SELLERS respectively and independently of each other

represent and warrant that:

(a) The SELLERS are the lawful owners of, with good
marketable title to, the Contract Shares and that (i) the
certificates to be delivered pursuant thereto have been
validly issued and are fully paid and non-assessable; (ii)
the Contract Shares are free and clear of all liens,
encumbrances, obligations, liabilities and other burdens in
favor of the Bank or third parties x x x.

This representation shall survive the execution and

delivery of this Agreement and the consummation or
transfer hereby contemplated.

(b) The execution, delivery and performance of this

Agreement by the SELLERS does not conflict with or
constitute any breach of any provision in any agreement to
which they are a party or by which they may be bound.

(c) They have complied with the condition set forth in

Article X of the Amended Articles of Incorporation of the
Bank.

5. Representation of BUYERS

xxxx

6. Implementation
 The parties hereto hereby agree to execute or cause to be executed
such documents and instruments as may be required in order to
carry out the intent and purpose of this Agreement.

7. Notices

xxxx

IN WITNESS WHEREOF, the parties hereto have hereunto set their

hands at the place and on the date first above written.

PEDRO COJUANGCO EDUARDO COJUANGCO, JR.

(on his own behalf and in (on his own behalf and in behalf
behalf of the other Sellers of the other Buyers)
listed in Annex "A" hereof) (BUYERS)
(SELLERS)

By:

EDGARDO J. ANGARA
Attorney-in-Fact

xxxx

b) "Agreement for the Acquisition of a Commercial Bank for the Benefit of the
Coconut Farmers of the Philippines, made and entered into this 25th day of May
1975 at Makati, Rizal, Philippines, by and between:

EDUARDO M. COJUANGCO, JR., Filipino, of legal age, with business

address at 10th Floor, Sikatuna Building, Ayala Avenue, Makati, Rizal,
hereinafter referred to as the SELLER;

– and –

PHILIPPINE COCONUT AUTHORITY, a public corporation created by

Presidential Decree No. 232, as amended, for itself and for the benefit of
the coconut farmers of the Philippines, (hereinafter called the BUYER)"

WITNESSETH: That

WHEREAS, on May 17, 1975, the Philippine Coconut Producers

Federation ("PCPF"), through its Board of Directors, expressed the desire
of the coconut farmers to own a commercial bank which will be an
effective instrument to solve the perennial credit problems and, for that
purpose, passed a resolution requesting the PCA to negotiate with the
SELLER for the transfer to the coconut farmers of the SELLER’s option to
buy the First United Bank (the "Bank") under such terms and conditions
as BUYER may deem to be in the best interest of the coconut farmers and
instructed Mrs. Maria Clara Lobregat to convey such request to the
BUYER;

WHEREAS, the PCPF further instructed Mrs. Maria Clara Lobregat to

make representations with the BUYER to utilize its funds to finance the
purchase of the Bank;

WHEREAS, the SELLER has the exclusive and personal option to buy
144,400 shares (the "Option Shares") of the Bank, constituting 72.2% of the
present outstanding shares of stock of the Bank, at the price of P200.00
per share, which option only the SELLER can validly exercise;

WHEREAS, in response to the representations made by the coconut

farmers, the BUYER has requested the SELLER to exercise his personal
option for the benefit of the coconut farmers;

WHEREAS, the SELLER is willing to transfer the Option Shares to the

BUYER at a price equal to his option price of P200 per share;

WHEREAS, recognizing that ownership by the coconut farmers of a

commercial bank is a permanent solution to their perennial credit
problems, that it will accelerate the growth and development of the
coconut industry and that the policy of the state which the BUYER is
required to implement is to achieve vertical integration thereof so that
coconut farmers will become participants in, and beneficiaries of the
development and growth of the coconut industry, the BUYER approved
the request of PCPF that it acquire a commercial bank to be owned by the
coconut farmers and, appropriated, for that purpose, the sum of P150
Million to enable the farmers to buy the Bank and capitalize the Bank to
such an extension as to be in a position to adopt a credit policy for the
coconut farmers at preferential rates;

WHEREAS, x x x the BUYER is willing to subscribe to additional shares

("Subscribed Shares") and place the Bank in a more favorable financial
position to extend loans and credit facilities to coconut farmers at
preferential rates;

NOW, THEREFORE, for and in consideration of the foregoing premises

and the other terms and conditions hereinafter contained, the parties
hereby declare and affirm that their principal contractual intent is (1) to
ensure that the coconut farmers own at least 60% of the outstanding
capital stock of the Bank; and (2) that the SELLER shall receive
compensation for exercising his personal and exclusive option to acquire
the Option Shares, for transferring such shares to the coconut farmers at
the option price of P200 per share, and for performing the management
services required of him hereunder.
1. To ensure that the transfer to the coconut farmers of the Option
Shares is effected with the least possible delay and to provide for
the faithful performance of the obligations of the parties
hereunder, the parties hereby appoint the Philippine National
Bank as their escrow agent (the "Escrow Agent").

Upon execution of this Agreement, the BUYER shall deposit with

the Escrow Agent such amount as may be necessary to implement
the terms of this Agreement x x x.

2. As promptly as practicable after execution of this Agreement,

the SELLER shall exercise his option to acquire the Option Share
and SELLER shall immediately thereafter deliver and turn over to
the Escrow Agent such stock certificates as are herein provided to
be received from the existing stockholders of the Bank by virtue of
the exercise on the aforementioned option x x x.

3. To ensure the stability of the Bank and continuity of

management and credit policies to be adopted for the benefit of
the coconut farmers, the parties undertake to cause the
stockholders and the Board of Directors of the Bank to authorize
and approve a management contract between the Bank and the
SELLER under the following terms:

(a) The management contract shall be for a period of five

(5) years, renewable for another five (5) years by mutual
agreement of the SELLER and the Bank;

(b) The SELLER shall be elected President and shall hold

office at the pleasure of the Board of Directors. While
serving in such capacity, he shall be entitled to such
salaries and emoluments as the Board of Directors may
determine;

(c) The SELLER shall recruit and develop a professional

management team to manage and operate the Bank under
the control and supervision of the Board of Directors of the
Bank;

(d) The BUYER undertakes to cause three (3) persons

designated by the SELLER to be elected to the Board of
Directors of the Bank;

(e) The SELLER shall receive no compensation for

managing the Bank, other than such salaries or
emoluments to which he may be entitled by virtue of the
discharge of his function and duties as President, provided
x x x and
 (f) The management contract may be assigned to a
management company owned and controlled by the
SELLER.

4. As compensation for exercising his personal and exclusive

option to acquire the Option Shares and for transferring such
shares to the coconut farmers, as well as for performing the
management services required of him, SELLER shall receive
equity in the Bank amounting, in the aggregate, to 95,304 fully
paid shares in accordance with the procedure set forth in
paragraph 6 below;

5. In order to comply with the Central Bank program for increased

capitalization of banks and to ensure that the Bank will be in a
more favorable financial position to attain its objective to extend
to the coconut farmers loans and credit facilities, the BUYER
undertakes to subscribe to shares with an aggregate par value of
P80,864,000 (the "Subscribed Shares"). The obligation of the
BUYER with respect to the Subscribed Shares shall be as follows:

(a) The BUYER undertakes to subscribe, for the benefit of

the coconut farmers, to shares with an aggregate par value
of P15,884,000 from the present authorized but unissued
shares of the Bank; and

(b) The BUYER undertakes to subscribe, for the benefit of

the coconut farmers, to shares with an aggregate par value
of P64,980,000 from the increased capital stock of the Bank,
which subscriptions shall be deemed made upon the
approval by the stockholders of the increase of the
authorized capital stock of the Bank from P50 Million to
P140 Million.

The parties undertake to declare stock dividends of P8 Million out

of the present authorized but unissued capital stock of P30
Million.

6. To carry into effect the agreement of the parties that the SELLER
shall receive as his compensation 95,304 shares:

(a) The Escrow Agent shall, upon receipt from the SELLER
of the stock certificates representing the Option Shares,
duly endorsed in blank or with stock powers sufficient to
transfer the same to bearer, present such stock certificates
to the Transfer Agent of the Bank and shall cause such
Transfer Agent to issue stock certificates of the Bank in the
following ratio: one share in the name of the SELLER for
every nine shares in the name of the BUYER.
 (b) With respect to the Subscribed Shares, the BUYER
undertakes, in order to prevent the dilution of SELLER’s
equity position, that it shall cede over to the SELLER
64,980 fully-paid shares out of the Subscribed Shares. Such
undertaking shall be complied with in the following
manner: upon receipt of advice that the BUYER has
subscribed to the Subscribed Shares upon approval by the
stockholders of the increase of the authorized capital stock
of the Bank, the Escrow Agent shall thereupon issue a
check in favor of the Bank covering the total payment for
the Subscribed Shares. The Escrow Agent shall thereafter
cause the Transfer Agent to issue a stock certificates of the
Bank in the following ratio: one share in the name of the
SELLER for every nine shares in the name of the BUYER.

7. The parties further undertake that the Board of Directors and management of
the Bank shall establish and implement a loan policy for the Bank of making
available for loans at preferential rates of interest to the coconut farmers x x x.

8. The BUYER shall expeditiously distribute from time to time the shares of the
Bank, that shall be held by it for the benefit of the coconut farmers of the
Philippines under the provisions of this Agreement, to such, coconut farmers
holding registered COCOFUND receipts on such equitable basis as may be
determine by the BUYER in its sound discretion.

9. x x x x

10. To ensure that not only existing but future coconut farmers shall be
participants in and beneficiaries of the credit policies, and shall be entitled to the
benefit of loans and credit facilities to be extended by the Bank to coconut
farmers at preferential rates, the shares held by the coconut farmers shall not be
entitled to pre-emptive rights with respect to the unissued portion of the
authorized capital stock or any increase thereof.

11. After the parties shall have acquired two-thirds (2/3) of the outstanding
shares of the Bank, the parties shall call a special stockholders’ meeting of the
Bank:

(a) To classify the present authorized capital stock of P50,000,000 divided

into 500,000 shares, with a par value of P100.00 per share into: 361,000
Class A shares, with an aggregate par value of P36,100,000 and 139,000
Class B shares, with an aggregate par value of P13,900,000. All of the
Option Shares constituting 72.2% of the outstanding shares, shall be
classified as Class A shares and the balance of the outstanding shares,
constituting 27.8% of the outstanding shares, as Class B shares;

(b) To amend the articles of incorporation of the Bank to effect the

following changes:
 (i) change of corporate name to First United Coconut Bank;

(ii) replace the present provision restricting the transferability of

the shares with a limitation on ownership by any individual or
entity to not more than 10% of the outstanding shares of the Bank;

(iii) provide that the holders of Class A shares shall not be entitled
to pre-emptive rights with respect to the unissued portion of the
authorized capital stock or any increase thereof; and

(iv) provide that the holders of Class B shares shall be absolutely

entitled to pre-emptive rights, with respect to the unissued
portion of Class B shares comprising part of the authorized capital
stock or any increase thereof, to subscribe to Class B shares in
proportion t the subscriptions of Class A shares, and to pay for
their subscriptions to Class B shares within a period of five (5)
years from the call of the Board of Directors.

(c) To increase the authorized capital stock of the Bank from P50 Million
to P140 Million, divided into 1,010,800 Class A shares and 389,200 Class B
shares, each with a par value of P100 per share;

(d) To declare a stock dividend of P8 Million payable to the SELLER, the

BUYER and other stockholders of the Bank out of the present authorized
but unissued capital stock of P30 Million;

(e) To amend the by-laws of the Bank accordingly; and

(f) To authorize and approve the management contract provided in

paragraph 2 above.

The parties agree that they shall vote their shares and take all the necessary
corporate action in order to carry into effect the foregoing provisions of this
paragraph 11, including such other amendments of the articles of incorporation
and by-laws of the Bank as are necessary in order to implement the intention of
the parties with respect thereto.

12. It is the contemplation of the parties that the Bank shall achieve a financial
and equity position to be able to lend to the coconut farmers at preferential rates.

In order to achieve such objective, the parties shall cause the Bank to adopt a
policy of reinvestment, by way of stock dividends, of such percentage of the
profits of the Bank as may be necessary.

13. The parties agree to execute or cause to be executed such documents and
instruments as may be required in order to carry out the intent and purpose of
this Agreement.
IN WITNESS WHEREOF x x x

PHILIPPINE COCONUT AUTHORITY

(BUYER)

By:

EDUARDO COJUANGCO, JR. MARIA CLARA L. LOBREGAT

(SELLER)

xxxx

7. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the x x x
(PCA) was the "other buyers" represented by defendant Eduardo M. Cojuangco, Jr. in the May
1975 Agreement entered into between Pedro Cojuangco (on his own behalf and in behalf of
other sellers listed in Annex "A"of the agreement) and defendant Eduardo M. Cojuangco, Jr. (on
his own behalf and in behalf of the other buyers). Defendant Cojuangco insists he was the "only
buyer" under the aforesaid Agreement.

8. Defendant Eduardo M. Cojuangco, Jr. did not own any share in the x x x (FUB) prior to the
execution of the two Agreements x x x.

9. Defendants Lobregat, et al., and COCOFED, et al., and Ballares, et al. admit that in addition to
the 137,866 FUB shares of Pedro Cojuangco, et al. covered by the Agreement, other FUB
stockholders sold their shares to PCA such that the total number of FUB shares purchased by
PCA … increased from 137,866 shares to 144,400 shares, the OPTION SHARES referred to in the
Agreement of May 25, 1975. Defendant Cojuangco did not make said admission as to the said
6,534 shares in excess of the 137,866 shares covered by the Agreement with Pedro Cojuangco.

10. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the
Agreement, described in Section 1 of Presidential Decree (P.D.) No. 755 dated July 29, 1975 as
the "Agreement for the Acquisition of a Commercial Bank for the Benefit of Coconut Farmers"
executed by the Philippine Coconut Authority" and incorporated in Section 1 of P.D. No. 755 by
reference, refers to the "AGREEMENT FOR THE ACQUISITION OF A COMMERCIAL BANK
FOR THE BENEFIT OF THE COCONUT FARMERS OF THE PHILIPPINES" dated May 25,
1975 between defendant Eduardo M. Cojuangco, Jr. and the PCA (Annex "B" for defendant
Cojuangco’s OPPOSITION TO PLAINTIFF’S MOTION FOR PARTIAL SUMMARY
JUDGMENT RE: EDUARDO M. COJUANGCO, JR. dated September 18, 2002).

Plaintiff refused to make the same admission.

11. As to whether P.D. No. 755 and the text of the agreement described therein was published,
the Court takes judicial notice that P.D. No. 755 was published in x x x volume 71 of the Official
Gazette but the text of the agreement x x x was not so published with P.D. No. 755.

12. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the PCA
used public funds x x x in the total amount of P150 million, to purchase the FUB shares
amounting to 72.2% of the authorized capital stock of the FUB, although the PCA was later
reimbursed from the coconut levy funds and that the PCA subscription in the increased
capitalization of the FUB, which was later renamed the x x x (UCPB), came from the said
coconut levy funds x x x.

13. Pursuant to the May 25, 1975 Agreement, out of the 72.2% shares of the authorized and the
increased capital stock of the FUB (later UCPB), entirely paid for by PCA, 64.98% of the shares
were placed in the name of the "PCA for the benefit of the coconut farmers" and 7,22% were
given to defendant Cojuangco. The remaining 27.8% shares of stock in the FUB which later
became the UCPB were not covered by the two (2) agreements referred to in item no. 6, par. (a)
and (b) above. "There were shares forming part of the aforementioned 64.98% which were later
sold or transferred to non-coconut farmers.

14. Under the May 27, 1975 Agreement, defendant Cojuangco’s equity in the FUB (now UCPB)
was ten percent (10%) of the shares of stock acquired by the PCA for the benefit of the coconut
farmers.

15. That the fully paid 95.304 shares of the FUB, later the UCPB, acquired by defendant x x x
Cojuangco, Jr. pursuant to the May 25, 1975 Agreement were paid for by the PCA in accordance
with the terms and conditions provided in the said Agreement. 16. Defendants Lobregat, et al.
and COCOFED, et al. and Ballares, et al. admit that the affidavits of the coconut farmers
(specifically, Exhibit "1-Farmer" to "70-Farmer") uniformly state that:

a. they are coconut farmers who sold coconut products;

b. in the sale thereof, they received COCOFUND receipts pursuant to R.A. No.
6260;

c. they registered the said COCOFUND receipts; and

d. by virtue thereof, and under R.A. No. 6260, P.D. Nos. 755, 961 and 1468, they
are allegedly entitled to the subject UCPB shares.

but subject to the following qualifications:

a. there were other coconut farmers who received UCPB shares although they
did not present said COCOFUND receipt because the PCA distributed the
unclaimed UCPB shares not only to those who already received their UCPB
shares in exchange for their COCOFUND receipts but also to the coconut farmers
determined by a national census conducted pursuant to PCA administrative
issuances;

b. there were other affidavits executed by Lobregat, Eleazar, Ballares and

Aldeguer relative to the said distribution of the unclaimed UCPB shares; and

c. the coconut farmers claim the UCPB shares by virtue of their compliance not
only with the laws mentioned in item (d) above but also with the relevant
issuances of the PCA such as, PCA Administrative Order No. 1, dated August 20,
1975 (Exh. "298-Farmer"); PCA Resolution No. 033-78 dated February 16, 1978….
The plaintiff did not make any admission as to the foregoing qualifications.

17. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. claim that the UCPB
shares in question have legitimately become the private properties of the 1,405,366 coconut
farmers solely on the basis of their having acquired said shares in compliance with R.A. No.
6260, P.D. Nos. 755, 961 and 1468 and the administrative issuances of the PCA cited above.

18. On the other hand, defendant … Cojuangco, Jr. claims ownership of the UCPB shares, which
he holds, solely on the basis of the two Agreements…. (Emphasis and words in brackets added.)

On July 11, 2003, the Sandiganbayan issued the assailed PSJ-A, ruling in favor of the Republic,
disposing insofar as pertinent as follows:21

WHEREFORE, in view of the foregoing, we rule as follows:

xxxx

C. Re: MOTION FOR PARTIAL SUMMARY JUDGMENT (RE: EDUARDO M. COJUANGCO,

JR.) dated September 18, 2002 filed by plaintiff.

1. Sec. 1 of P.D. No. 755 did not validate the Agreement between PCA and defendant
Eduardo M. Cojuangco, Jr. dated May 25, 1975 nor did it give the Agreement the
binding force of a law because of the non-publication of the said Agreement.

2. Regarding the questioned transfer of the shares of stock of FUB (later UCPB) by PCA
to defendant Cojuangco or the so-called "Cojuangco UCPB shares" which cost the PCA
more than Ten Million Pesos in CCSF in 1975, we declare, that the transfer of the
following FUB/UCPB shares to defendant Eduardo M. Cojuangco, Jr. was not supported
by valuable consideration, and therefore null and void:

a. The 14,400 shares from the "Option Shares";

b. Additional Bank Shares Subscribed and Paid by PCA, consisting of:

1. Fifteen Thousand Eight Hundred Eighty-Four (15,884) shares out of the

authorized but unissued shares of the bank, subscribed and paid by PCA;

2. Sixty Four Thousand Nine Hundred Eighty (64,980) shares of the

increased capital stock subscribed and paid by PCA; and

3. Stock dividends declared pursuant to paragraph 5 and paragraph 11

(iv) (d) of the Agreement.

3. The above-mentioned shares of stock of the FUB/UCPB transferred to defendant

Cojuangco are hereby declared conclusively owned by the plaintiff Republic of the
Philippines.
 4. The UCPB shares of stock of the alleged fronts, nominees and dummies of defendant
Eduardo M. Cojuangco, Jr. which form part of the 72.2% shares of the FUB/UCPB paid
for by the

PCA with public funds later charged to the coconut levy funds, particularly the CCSF, belong to
the plaintiff Republic of the Philippines as their true and beneficial owner.

Let trial of this Civil Case proceed with respect to the issues which have not been disposed of in
this Partial Summary Judgment. For this purpose, the plaintiff’s Motion Ad Cautelam to Present

Additional Evidence dated March 28, 2001 is hereby GRANTED. 22 (Emphasis and underlining
added.)

As earlier explained, the core issue in this instant petition is Part C of the dispositive portion in
PSJ-A declaring the 7.22% FUB (now UCPB) shares transferred to Cojuangco, plus the other
shares paid by the PCA as "conclusively" owned by the Republic. Parts A and B of the same
dispositive portion have already been finally resolved and adjudicated by this Court in
COCOFED v. Republic on January 24, 2012.23

From PSJ-A, Cojuangco moved for partial reconsideration but the Sandiganbayan, by
Resolution24 of December 28, 2004, denied the motion.

Hence, the instant petition.

The Issues

Cojuangco’s petition formulates the issues in question form, as follows: 25

a. Is the acquisition of the so-called Cojuangco, Jr. UCPB shares by petitioner Cojuangco
x x x "not supported by valuable consideration and, therefore, null and void"?

b. Did the Sandiganbayan have jurisdiction, in Civil Case No. 0033-A, an "ill-gotten
wealth" case brought under EO Nos. 1 and 2, to declare the Cojuangco UCPB shares
acquired by virtue of the Pedro Cojuangco, et al. Agreement and/or the PCA Agreement
null and void because "not supported by valuable consideration"?

c. Was the claim that the acquisition by petitioner Cojuangco of shares representing 7.2%
of the outstanding capital stock of FUB (later UCPB) "not supported by valuable
consideration", a "claim" pleaded in the complaint and may therefore be the basis of a
"summary judgment" under Section 1, Rule 35 of the Rules of Court?

d. By declaring the Cojuangco UCPB shares as "not supported by valuable

consideration, and therefore, null and void", did the Sandiganbayan effectively nullify
the PCA Agreement? May the Sandiganbayan nullify the PCA Agreement when the
parties to the Agreement, namely: x x x concede its validity? If the PCA Agreement be
deemed "null and void", should not the FUB (later UCPB) shares revert to petitioner
Cojuangco (under the PCA Agreement) or to Pedro Cojuangco, et al. x x x? Would there
be a basis then, even assuming the absence of consideration x x x, to declare 7.2% UCPB
 shares of petitioner Cojuangco as "conclusively owned by the plaintiff Republic of the
Philippines"?26

The Court’s Ruling

THE SANDIGANBAYAN HAS JURISDICTION OVER THE SUBJECT MATTER OF THE

SUBDIVIDED AMENDED COMPLAINTS, INCLUDING THE SHARES ALLEGEDLY
ACQUIRED BY COJUANGCO BY VIRTUE OF THE PCA AGREEMENTS.

The issue of jurisdiction over the subject matter of the subdivided amended complaints has
peremptorily been put to rest by the Court in its January 24, 2012 Decision in COCOFED v.
Republic. There, the Court, citing Regalado 27 and settled jurisprudence, stressed the following
interlocking precepts: Subject matter jurisdiction is conferred by law, not by the consent or
acquiescence of any or all of the parties. In turn, the issue on whether a suit comes within the
penumbra of a statutory conferment is determined by the allegations in the complaint,
regardless of whether or not the suitor will be entitled to recover upon all or part of the claims
asserted.

The Republic’s material averments in its complaint subdivided in CC No. 0033-A included the
following:

CC No. 0033-A

12. Defendant Eduardo M. Cojuangco, Jr. served as a public officer during the Marcos
administration. During the period of his incumbency as a public officer, he acquired assets,
funds and other property grossly and manifestly disproportionate to his salaries, lawful income
and income from legitimately acquired property.

13. Defendant Eduardo M. Cojuangco, Jr., taking undue advantage of his association, influence,
connection, and acting in unlawful concert with Defendants Ferdinand E. Marcos and Imelda R.
Marcos, AND THE INDIVIDUAL DEFENDANTS, embarked upon devices, schemes and
stratagems, to unjustly enrich themselves at the expense of Plaintiff and the Filipino people,
such as when he –

a) manipulated, beginning the year 1975 with the active collaboration of Defendants x x
x Maria Clara Lobregat, Danilo Ursua etc., the purchase by . . . (PCA) of 72.2% of the
outstanding capital stock of the x x x (FUB) which was subsequently converted into a
universal bank named x x x (UCPB) through the use of the Coconut Consumers
Stabilization Fund (CCSF) being initially in the amount of P85,773,100.00 in a manner
contrary to law and to the specific purposes for which said coconut levy funds were
imposed and collected under P.D. 276, and with sinister designs and under anomalous
circumstances, to wit:

(i) Defendant Eduardo Cojuangco, Jr. coveted the coconut levy funds as a cheap,
lucrative and risk-free source of funds with which to exercise his private option
to buy the controlling interest in FUB; thus, claiming that the 72.2% of the
 outstanding capital stock of FUB could only be purchased and transferred
through the exercise of his "personal and exclusive action option to acquire the
144,000 shares" of the bank, Defendant Eduardo M. Cojuangco, Jr. and PCA, x x x
executed on May 26, 1975 a purchase agreement which provides, among others,
for the payment to him in fully paid shares as compensation thereof 95,384
shares worth P1,444,000.00 with the further condition that he shall manage and
control the bank as Director and President for a term of five (5) years renewable
for another five (5) years and to designate three (3) persons of his choice who
shall be elected as members of the Board of Directors of the Bank;

(ii) to legitimize a posteriori his highly anomalous and irregular use and
diversion of government funds to advance his own private and commercial
interests, Defendant Eduardo Cojuangco, Jr. caused the issuance by Defendant
Ferdinand E. Marcos of PD 755 (a) declaring that the coconut levy funds shall not
be considered special and fiduciary and trust funds and do not form part of the
general funds of the National Government, conveniently repealing for that
purpose a series of previous decrees, PDs 276 and 414, establishing the character
of the coconut levy funds as special, fiduciary, trust and governmental funds; (b)
confirming the agreement between Defendant Eduardo Cojuangco, Jr. and PCA
on the purchase of FUB by incorporating by reference said private commercial
agreement in PD 755;

(iii)To further consolidate his hold on UCPB, Defendant Eduardo Cojuangco, Jr.
imposed as consideration and conditions for the purchase that (a) he gets one out
of every nine shares given to PCA, and (b) he gets to manage and control UCPB
as president for a term of five (5) years renewable for another five (5) years;

(iv) To perpetuate his opportunity to deal with and make use of the coconut levy
funds x x x Cojuangco, Jr. caused the issuance by Defendant Ferdinand E. Marcos
of an unconstitutional decree (PD 1468) requiring the deposit of all coconut levy
funds with UCPB, interest free to the prejudice of the government.

(v) In gross violation of their fiduciary positions and in contravention of the goal
to create a bank for the coconut farmers of the country, the capital stock of UCPB
as of February 25, 1986 was actually held by the defendants, their lawyers,
factotum and business associates, thereby finally gaining control of the UCPB by
misusing the names and identities of the so-called "more than one million
coconut farmers."

14. The acts of Defendants, singly or collectively, and/or in unlawful concert with one
another, constitute gross abuse of official position and authority, flagrant breach of
public trust and fiduciary obligations, brazen abuse of right and power, and unjust
enrichment, violation of the constitution and laws of the Republic of the Philippines, to
the grave and irreparable damage of Plaintiff and the Filipino people.28

In no uncertain terms, the Court has upheld the Sandiganbayan’s assumption of jurisdiction
over the subject matter of Civil Case Nos. 0033-A and 0033-F. 29 The Court wrote:
Judging from the allegations of the defendants’ illegal acts thereat made, it is fairly obvious that
both CC Nos. 0033-A and CC 0033-F partake, in the context of EO Nos. 1, 2 and 14, series of
1986, the nature of ill-gotten wealth suits. Both deal with the recovery of sequestered shares,
property or business enterprises claimed, as alleged in the corresponding basic complaints, to
be ill-gotten assets of President Marcos, his cronies and nominees and acquired by taking undue
advantage of relationships or influence and/or through or as a result of improper use,
conversion or diversion of government funds or property. Recovery of these assets––
determined as shall hereinafter be discussed as prima facie ill-gotten––falls within the
unquestionable jurisdiction of the Sandiganbayan.30

P.D. No. 1606, as amended by R.A. 7975 and E.O. No. 14, Series of 1986, vests the
Sandiganbayan with, among others, original jurisdiction over civil and criminal cases instituted
pursuant to and in connection with E.O. Nos. 1, 2, 14 and 14-A. Correlatively, the PCGG Rules
and Regulations defines the term "Ill-Gotten Wealth" as "any asset, property, business enterprise
or material possession of persons within the purview of E.O. Nos. 1 and 2, acquired by them
directly, or indirectly thru dummies, nominees, agents, subordinates and/or business associates
by any of the following means or similar schemes":

(1) Through misappropriation, conversion, misuse or malversation of public funds or

raids on the public treasury;

(2) x x x x

(3) By the illegal or fraudulent conveyance or disposition of assets belonging to the

government or any of its subdivisions, agencies or instrumentalities or government-
owned or controlled corporations;

(4) By obtaining, receiving or accepting directly or indirectly any shares of stock, equity
or any other form of interest or participation in any business enterprise or undertaking;

(5) Through the establishment of agricultural, industrial or commercial monopolies or

other combination and/or by the issuance, promulgation and/or implementation of
decrees and orders intended to benefit particular persons or special interests; and

(6) By taking undue advantage of official position, authority, relationship or influence

for personal gain or benefit. (Emphasis supplied)

Section 2(a) of E.O. No. 1 charged the PCGG with the task of assisting the President in "The
recovery of all ill-gotten wealth accumulated by former … President Marcos, his immediate
family, relatives, subordinates and close associates … including the takeover or sequestration of
all business enterprises and entities owned or controlled by them, during his administration,
directly or through nominees, by taking undue advantage of their public office and/or using
their powers, authority, influence, connections or relationship." Complementing the aforesaid
Section 2(a) is Section 1 of E.O. No. 2 decreeing the freezing of all assets "in which the Marcoses
their close relatives, subordinates, business associates, dummies, agents or nominees have any
interest or participation."
The Republic’s averments in the amended complaints, particularly those detailing the alleged
wrongful acts of the defendants, sufficiently reveal that the subject matter thereof comprises the
recovery by the Government of ill-gotten wealth acquired by then President Marcos, his cronies
or their associates and dummies through the unlawful, improper utilization or diversion of
coconut levy funds aided by P.D. No. 755 and other sister decrees. President Marcos himself
issued these decrees in a brazen bid to legalize what amounts to private taking of the said
public funds.

xxxx

There was no actual need for Republic, as plaintiff a quo, to adduce evidence to show that the
Sandiganbayan has jurisdiction over the subject matter of the complaints as it leaned on the
averments in the initiatory pleadings to make visible the jurisdiction of the Sandiganbayan over
the ill-gotten wealth complaints. As previously discussed, a perusal of the allegations easily
reveals the sufficiency of the statement of matters disclosing the claim of the government
against the coco levy funds and the assets acquired directly or indirectly through said funds as
ill-gotten wealth. Moreover, the Court finds no rule that directs the plaintiff to first prove the
subject matter jurisdiction of the court before which the complaint is filed. Rather, such burden
falls on the shoulders of defendant in the hearing of a motion to dismiss anchored on said
ground or a preliminary hearing thereon when such ground is alleged in the answer.

xxxx

Lest it be overlooked, this Court has already decided that the sequestered shares are prima facie
ill-gotten wealth rendering the issue of the validity of their sequestration and of the jurisdiction
of the Sandiganbayan over the case beyond doubt. In the case of COCOFED v. PCGG, We
stated that:

It is of course not for this Court to pass upon the factual issues thus raised. That function
pertains to the Sandiganbayan in the first instance. For purposes of this proceeding, all that the
Court needs to determine is whether or not there is prima facie justification for the
sequestration ordered by the PCGG. The Court is satisfied that there is. The cited incidents,
given the public character of the coconut levy funds, place petitioners COCOFED and its
leaders and officials, at least prima facie, squarely within the purview of Executive Orders Nos.
1, 2 and 14, as construed and applied in BASECO, to wit:

"1. that ill-gotten properties (were) amassed by the leaders and supporters of the previous
regime;

"a. more particularly, that ‘(i) Ill-gotten wealth was accumulated by x x x Marcos, his immediate
family, relatives, subordinates and close associates, x x x (and) business enterprises and entities
(came to be) owned or controlled by them, during x x x (the Marcos) administration, directly or
through nominees, by taking undue advantage of their public office and using their powers,
authority, influence, connections or relationships’;

"b. otherwise stated, that ‘there are assets and properties purportedly pertaining to the
Marcoses, their close relatives, subordinates, business associates, dummies, agents or nominees
which had been or were acquired by them directly or indirectly, through or as a result of the
improper or illegal use of funds or properties owned by the Government x x x or any of its
branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue
advantage of their office, authority, influence, connections or relationship, resulting in their
unjust enrichment x x x;

xxxx

2. The petitioners’ claim that the assets acquired with the coconut levy funds are privately
owned by the coconut farmers is founded on certain provisions of law, to wit Sec. 7, RA 6260
and Sec. 5, Art. III, PD 1468… (Words in bracket added; italics in the original).

xxxx

E.O. 1, 2, 14 and 14-A, it bears to stress, were issued precisely to effect the recovery of ill-gotten
assets amassed by the Marcoses, their associates, subordinates and cronies, or through their
nominees. Be that as it may, it stands to reason that persons listed as associated with the
Marcoses refer to those in possession of such ill-gotten wealth but holding the same in behalf of
the actual, albeit undisclosed owner, to prevent discovery and consequently recovery. Certainly,
it is well-nigh inconceivable that ill-gotten assets would be distributed to and left in the hands
of individuals or entities with obvious traceable connections to Mr. Marcos and his cronies. The
Court can take, as it has in fact taken, judicial notice of schemes and machinations that have
been put in place to keep ill-gotten assets under wraps. These would include the setting up of
layers after layers of shell or dummy, but controlled, corporations 31 or manipulated instruments
calculated to confuse if not altogether mislead would-be investigators from recovering wealth
deceitfully amassed at the expense of the people or simply the fruits thereof. Transferring the
illegal assets to third parties not readily perceived as Marcos cronies would be another. So it
was that in PCGG v. Pena, the Court, describing the rule of Marcos as a "well entrenched
plundering regime of twenty years," noted the magnitude of the past regime’s organized pillage
and the ingenuity of the plunderers and pillagers with the assistance of experts and the best
legal minds in the market.32

Prescinding from the foregoing premises, there can no longer be any serious challenge as to the
Sandiganbayan’s subject matter jurisdiction. And in connection therewith, the Court wrote in
COCOFED v. Republic, that the instant petition shall be decided separately and should not be
affected by the January 24, 2012 Decision, "save for determinatively legal issues directly
addressed" therein.33 Thus:

We clarify that PSJ-A is subject of another petition for review interposed by Eduardo
Cojuangco, Jr., in G.R. No. 180705 entitled, Eduardo M. Cojuangco, Jr. v. Republic of the
Philippines, which shall be decided separately by this Court. Said petition should accordingly
not be affected by this Decision save for determinatively legal issues directly addressed
herein.34 (Emphasis Ours.)

We, therefore, reiterate our holding in COCOFED v. Republic respecting the Sandiganbayan’s
jurisdiction over the subject matter of Civil Case No. 0033-A, including those matters whose
adjudication We shall resolve in the present case.

II
PRELIMINARILY, THE AGREEMENT BETWEEN THE PCA AND EDUARDO M.
COJUANGCO, JR. DATED MAY 25, 1975 CANNOT BE ACCORDED THE STATUS OF A LAW
FOR THE LACK OF THE REQUISITE PUBLICATION.

It will be recalled that Cojuangco’s claim of ownership over the UCPB shares is hinged on two
contract documents the respective contents of which formed part of and reproduced in their
entirety in the aforecited Order 35 of the Sandiganbayan dated March 11, 2003. The first contract
refers to the agreement entered into by and between Pedro Cojuangco and his group, on one
hand, and Eduardo M. Cojuangco, Jr., on the other, bearing date "May 1975" 36 (hereinafter
referred to as "PC-ECJ Agreement"), while the second relates to the accord between the PCA
and Eduardo M. Cojuangco, Jr. dated May 25, 1975 (hereinafter referred to as "PCA-Cojuangco
Agreement"). The PC-ECJ Agreement allegedly contains, inter alia, Cojuangco’s personal and
exclusive option to acquire the FUB ("UCPB") shares from Pedro and his group. The PCA-
Cojuangco Agreement shows PCA’s acquisition of the said option from Eduardo M. Cojuangco,
Jr.

Section 1 of P.D. No. 755 incorporated, by reference, the "Agreement for the Acquisition of a
Commercial Bank for the Benefit of the Coconut Farmers" executed by the PCA. Particularly,
Section 1 states:

Section 1. Declaration of National Policy. It is hereby declared that the policy of the State is to
provide readily available credit facilities to the coconut farmers at preferential rates; that this
policy can be expeditiously and efficiently realized by the implementation of the "Agreement
for the Acquisition of a Commercial Bank for the benefit of the Coconut Farmers" executed by
the Philippine Coconut Authority, the terms of which "Agreement" are hereby incorporated by
reference; and that the Philippine Coconut Authority is hereby authorized to distribute, for free,
the shares of stock of the bank it acquired to the coconut farmers under such rules and
regulations it may promulgate. (Emphasis Ours.)

It bears to stress at this point that the PCA-Cojuangco Agreement referred to above in Section 1
of P.D. 755 was not reproduced or attached as an annex to the same law. And it is well-settled
that laws must be published to be valid. In fact, publication is an indispensable condition for the
effectivity of a law. Tañada v. Tuvera37 said as much:

Publication of the law is indispensable in every case x x x.

xxxx

We note at this point the conclusive presumption that every person knows the law, which of
course presupposes that the law has been published if the presumption is to have any legal
justification at all. It is no less important to remember that Section 6 of the Bill of Rights
recognizes "the right of the people to information on matters of public concern," and this
certainly applies to, among others, and indeed especially, the legislative enactments of the
government.

xxxx
We hold therefore that all statutes, including those of local application and private laws, shall be
published as a condition for their effectivity, which shall begin fifteen days after publication
unless a different effectivity date is fixed by the legislature.

Covered by this rule are presidential decrees and executive orders promulgated by the
President in the exercise of legislative powers whenever the same are validly delegated by the
legislature, or, at present, directly conferred by the Constitution. Administrative rules and
regulations must also be published if their purpose is to enforce or implement existing law
pursuant also to a valid delegation.38

We even went further in Tañada to say that:

Laws must come out in the open in the clear light of the sun instead of skulking in the shadows
with their dark, deep secrets. Mysterious pronouncements and rumored rules cannot be
recognized as binding unless their existence and contents are confirmed by a valid publication
intended to make full disclosure and give proper notice to the people. The furtive law is like a
scabbarded saber that cannot feint, parry or cut unless the naked blade is drawn. 39

The publication, as further held in Tañada, must be of the full text of the law since the purpose
of publication is to inform the public of the contents of the law. Mere referencing the number of
the presidential decree, its title or whereabouts and its supposed date of effectivity would not
satisfy the publication requirement.40

In this case, while it incorporated the PCA-Cojuangco Agreement by reference, Section 1 of P.D.
755 did not in any way reproduce the exact terms of the contract in the decree. Neither was
acopy thereof attached to the decree when published. We cannot, therefore, extend to the said

Agreement the status of a law. Consequently, We join the Sandiganbayan in its holding that the
PCA-Cojuangco Agreement shall be treated as an ordinary transaction between agreeing minds
to be governed by contract law under the Civil Code.

III

THE PCA-COJUANGCO AGREEMENT IS A VALID CONTRACT FOR HAVING THE

REQUISITE CONSIDERATION.

In PSJ-A, the Sandiganbayan struck down the PCA-Cojuangco Agreement as void for lack of
consideration/cause as required under Article 1318, paragraph 3 in relation to Article 1409,
paragraph 3 of the Civil Code. The Sandiganbayan stated:

In sum, the evidence on record relied upon by defendant Cojuangco negates the presence of: (1)
his claimed personal and exclusive option to buy the 137,866 FUB shares; and (2) any pecuniary
advantage to the government of the said option, which could compensate for generous payment
to him by PCA of valuable shares of stock, as stipulated in the May 25, 1975 Agreement between
him and the PCA.41

On the other hand, the aforementioned provisions of the Civil Code state:
Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established. (Emphasis supplied) 42

Art. 1409. The following contracts are inexistent and void from the beginning:

xxxx

(3) Those whose cause or object did not exist at the time of the transaction; 43

The Sandiganbayan found and so tagged the alleged cause for the agreement in question, i.e.,
Cojuangco’s "personal and exclusive option to acquire the Option Shares," as fictitious. A
reading of the purchase agreement between Cojuangco and PCA, so the Sandiganbayan ruled,
would show that Cojuangco was not the only seller; thus, the option was, as to him, neither
personal nor exclusive as he claimed it to be. Moreover, as the Sandiganbayan deduced, that
option was inexistent on the day of execution of the PCA-Cojuangco Agreement as the Special
Power of Attorney executed by Cojuangco in favor of now Senator Edgardo J. Angara, for the
latter to sign the PC-ECJ Agreement, was dated May 25, 1975 while the PCA-Cojuangco
Agreement was also signed on May 25, 1975. Thus, the Sandiganbayan believed that when the
parties affixed their signatures on the second Agreement, Cojuangco’s option to purchase the
FUB shares of stock did not yet exist. The Sandiganbayan further ruled that there was no
justification in the second Agreement for the compensation of Cojuangco of 14,400 shares,
which it viewed as exorbitant. Additionally, the Sandiganbayan ruled that PCA could not
validly enter, in behalf of FUB/UCPB, into a veritable bank management contract with
Cojuangco, PCA having a personality separate and distinct from that of FUB. As such, the
Sandiganbayan concluded that the PCA-Cojuangco Agreement was null and void.
Correspondingly, the Sandiganbayan also ruled that the sequestered FUB (UCPB) shares of
stock in the name of Cojuangco are conclusively owned by the Republic.

After a circumspect study, the Court finds as inconclusive the evidence relied upon by
Sandiganbayan to support its ruling that the PCA-Cojuangco Agreement is devoid of sufficient
consideration. We shall explain.

Rule 131, Section 3(r) of the Rules of Court states:

Sec. 3. Disputable presumptions.—The following presumptions are satisfactory if

uncontradicted, but may be contradicted and overcome by other evidence:

xxxx

(r) That there was a sufficient consideration for a contract;

The Court had the occasion to explain the reach of the above provision in Surtida v. Rural Bank
of Malinao (Albay), Inc.,44 to wit:
Under Section 3, Rule 131 of the Rules of Court, the following are disputable presumptions: (1)
private transactions have been fair and regular; (2) the ordinary course of business has been
followed; and (3) there was sufficient consideration for a contract. A presumption may operate
against an adversary who has not introduced proof to rebut it. The effect of a legal presumption
upon a burden of proof is to create the necessity of presenting evidence to meet the legal
presumption or the prima facie case created thereby, and which if no proof to the contrary is
presented and offered, will prevail. The burden of proof remains where it is, but by the
presumption, the one who has that burden is relieved for the time being from introducing
evidence in support of the averment, because the presumption stands in the place of evidence
unless rebutted.

The presumption that a contract has sufficient consideration cannot be overthrown by the bare
uncorroborated and self-serving assertion of petitioners that it has no consideration. To
overcome the presumption of consideration, the alleged lack of consideration must be shown by
preponderance of evidence. Petitioners failed to discharge this burden x x x. (Emphasis Ours.)

The assumption that ample consideration is present in a contract is further elucidated in

Pentacapital Investment Corporation v. Mahinay:45

Under Article 1354 of the Civil Code, it is presumed that consideration exists and is lawful
unless the debtor proves the contrary. Moreover, under Section 3, Rule 131 of the Rules of
Court, the following are disputable presumptions: (1) private transactions have been fair and
regular; (2) the ordinary course of business has been followed; and (3) there was sufficient
consideration for a contract. A presumption may operate against an adversary who has not
introduced proof to rebut it. The effect of a legal presumption upon a burden of proof is to
create the necessity of presenting evidence to meet the legal presumption or the prima facie case
created thereby, and which, if no proof to the contrary is presented and offered, will prevail.
The burden of proof remains where it is, but by the presumption, the one who has that burden
is relieved for the time being from introducing evidence in support of the averment, because the
presumption stands in the place of evidence unless rebutted. 46 (Emphasis supplied.)

The rule then is that the party who stands to profit from a declaration of the nullity of a contract
on the ground of insufficiency of consideration––which would necessarily refer to one who
asserts such nullity––has the burden of overthrowing the presumption offered by the
aforequoted Section 3(r). Obviously then, the presumption contextually operates in favor of
Cojuangco and against the Republic, as plaintiff a quo, which then had the burden to prove that
indeed there was no sufficient consideration for the Second Agreement. The Sandiganbayan’s
stated observation, therefore, that based on the wordings of the Second Agreement, Cojuangco
had no personal and exclusive option to purchase the FUB shares from Pedro Cojuangco had
really little to commend itself for acceptance. This, as opposed to the fact that such sale and
purchase agreement is memorialized in a notarized document whereby both Eduardo
Cojuangco, Jr. and Pedro Cojuangco attested to the correctness of the provisions thereof, among
which was that Eduardo had such option to purchase. A notarized document, Lazaro v.
Agustin47 teaches, "generally carries the evidentiary weight conferred upon it with respect to its
due execution, and documents acknowledged before a notary public have in their favor the
disputable presumption of regularity."
In Samanilla v. Cajucom,48 the Court clarified that the presumption of a valid consideration
cannot be discarded on a simple claim of absence of consideration, especially when the contract
itself states that consideration was given:

x x x This presumption appellants cannot overcome by a simple assertion of lack of

consideration. Especially may not the presumption be so lightly set aside when the contract
itself states that consideration was given, and the same has been reduced into a public
instrument will all due formalities and solemnities as in this case. (Emphasis ours.)

A perusal of the PCA-Cojuangco Agreement disclosed an express statement of consideration for

the transaction:

NOW, THEREFORE, for and in consideration of the foregoing premises and the other terms
and conditions hereinafter contained, the parties hereby declare and affirm that their principal
contractual intent is (1) to ensure that the coconut farmers own at least 60% of the outstanding
capital stock of the Bank, and (2) that the SELLER shall receive compensation for exercising his
personal and exclusive option to acquire the Option Shares, for transferring such shares to the
coconut farmers at the option price of P200 per share, and for performing the management
services required of him hereunder.

xxxx

4. As compensation for exercising his personal and exclusive option to acquire the Option
ShareApplying Samanilla to the case at bar, the express and positive declaration by the parties
of the presence of adequate consideration in the contract makes conclusive the presumption of
sufficient consideration in the PCA Agreement. Moreover, the option to purchase shares and
management services for UCPB was already availed of by petitioner Cojuangco for the benefit
of the PCA. The exercise of such right resulted in the execution of the PC-ECJ Agreement, which
fact is not disputed. The document itself is incontrovertible proof and hard evidence that
petitioner Cojuangco had the right to purchase the subject FUB (now UCPB) shares. Res ipsa
loquitur.

The Sandiganbayan, however, pointed to the perceived "lack of any pecuniary value or
advantage to the government of the said option, which could compensate for the generous
payment to him by PCA of valuable shares of stock, as stipulated in the May 25, 1975
Agreement between him and the PCA."49

Inadequacy of the consideration, however, does not render a contract void under Article 1355 of
the Civil Code:

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue influence. (Emphasis supplied.)

Alsua-Betts v. Court of Appeals50 is instructive that lack of ample consideration does not nullify
the contract:

Inadequacy of consideration does not vitiate a contract unless it is proven which in the case at
bar was not, that there was fraud, mistake or undue influence. (Article 1355, New Civil Code).
We do not find the stipulated price as so inadequate to shock the court’s conscience, considering
that the price paid was much higher than the assessed value of the subject properties and
considering that the sales were effected by a father to her daughter in which case filial love must
be taken into account. (Emphasis supplied.)s and for transferring such shares to the coconut
farmers, as well as for performing the management services required of him, SELLER shall
receive equity in the Bank amounting, in the aggregate, to 95,304 fully paid shares in accordance
with the procedure set forth in paragraph 6 below. (Emphasis supplied.)

Vales v. Villa51 elucidates why a bad transaction cannot serve as basis for voiding a contract:

x x x Courts cannot follow one every step of his life and extricate him from bad bargains, protect
him from unwise investments, relieve him from one-sided contracts, or annul the effects of
foolish acts. x x x Men may do foolish things, make ridiculous contracts, use miserable
judgment, and lose money by them – indeed, all they have in the world; but not for that alone
can the law intervene and restore. There must be, in addition, a violation of law, the commission
of what the law knows as an actionable wrong, before the courts are authorized to lay hold of
the situation and remedy it. (Emphasis ours.)

While one may posit that the PCA-Cojuangco Agreement puts PCA and the coconut farmers at
a disadvantage, the facts do not make out a clear case of violation of any law that will
necessitate the recall of said contract. Indeed, the anti-graft court has not put forward any
specific stipulation therein that is at war with any law, or the Constitution, for that matter. It is
even clear as day that none of the parties who entered into the two agreements with petitioner
Cojuangco contested nor sought the nullification of said agreements, more particularly the PCA
who is always provided legal advice in said transactions by the Government corporate counsel,
and a battery of lawyers and presumably the COA auditor assigned to said agency. A
government agency, like the PCA, stoops down to level of an ordinary citizen when it enters
into a private transaction with private individuals. In this setting, PCA is bound by the law on
contracts and is bound to comply with the terms of the PCA-Cojuangco Agreement which is the
law between the parties. With the silence of PCA not to challenge the validity of the PCA-
Cojuangco Agreement and the inability of government to demonstrate the lack of ample
consideration in the transaction, the Court is left with no other choice but to uphold the validity
of said agreements.

While consideration is usually in the form of money or property, it need not be monetary. This
is clear from Article 1350 which reads:

Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other; in remuneratory ones, the service or
benefit which is remunerated; and in contracts of pure beneficence, the mere liability of the
benefactor. (Emphasis supplied.)

Gabriel v. Monte de Piedad y Caja de Ahorros52 tells us of the meaning of consideration:

x x x A consideration, in the legal sense of the word, is some right, interest, benefit, or
advantage conferred upon the promisor, to which he is otherwise not lawfully entitled, or any
detriment, prejudice, loss, or disadvantage suffered or undertaken by the promisee other than
to such as he is at the time of consent bound to suffer. (Emphasis Ours.)
The Court rules that the transfer of the subject UCPB shares is clearly supported by valuable
consideration.

To justify the nullification of the PCA-Cojuangco Agreement, the Sandiganbayan centered on

the alleged imaginary option claimed by petitioner to buy the FUB shares from the Pedro
Cojuangco group. It relied on the phrase "in behalf of certain other buyers" mentioned in the
PC-ECJ Agreement as basis for the finding that petitioner’s option is neither personal nor
exclusive. The pertinent portion of said agreement reads:

EDUARDO COJUANGCO, JR., Filipino, of legal age and with residence at 136 9th Street corner
Balete Drive, Quezon City, represented in this act by his duly authorized attorney-in-fact,
EDGARDO J. ANGARA, for and in his own behalf and in behalf of certain other buyers,
(hereinafter collectively called the "BUYERS"); x x x.

A plain reading of the aforequoted description of petitioner as a party to the PC-ECJ Agreement
reveals that petitioner is not only the buyer. He is the named buyer and there are other buyers
who were unnamed. This is clear from the word "BUYERS." If petitioner is the only buyer, then
his description as a party to the sale would only be "BUYER." It may be true that petitioner
intended to include other buyers. The fact remains, however, that the identities of the unnamed
buyers were not revealed up to the present day. While one can conjure or speculate that PCA
may be one of the buyers, the fact that PCA entered into an agreement to purchase the FUB
shares with petitioner militates against such conjecture since there would be no need at all to
enter into the second agreement if PCA was already a buyer of the shares in the first contract. It
is only the parties to the PC-ECJ Agreement that can plausibly shed light on the import of the
phrase "certain other buyers" but, unfortunately, petitioner was no longer allowed to testify on
the matter and was precluded from explaining the transactions because of the motion for partial
summary judgment and the eventual promulgation of the July 11, 2003 Partial Summary
Judgment.

Even if conceding for the sake of argument that PCA is one of the buyers of the FUB shares in
the PC-ECJ Agreement, still it does not necessarily follow that petitioner had no option to buy
said shares from the group of Pedro Cojuangco. In fact, the very execution of the first agreement
undeniably shows that he had the rights or option to buy said shares from the Pedro Cojuangco
group. Otherwise, the PC-ECJ Agreement could not have been consummated and enforced. The
conclusion is incontestable that petitioner indeed had the right or option to buy the FUB shares
as buttressed by the execution and enforcement of the very document itself.

We can opt to treat the PC-ECJ Agreement as a totally separate agreement from the PCA-
Cojuangco Agreement but it will not detract from the fact that petitioner actually acquired the
rights to the ownership of the FUB shares from the Pedro Cojuangco group. The consequence is
he can legally sell the shares to PCA. In this scenario, he would resell the shares to PCA for a
profit and PCA would still end up paying a higher price for the FUB shares. The "profit" that
will accrue to petitioner may just be equal to the value of the shares that were given to
petitioner as commission. Still we can only speculate as to the true intentions of the parties.
Without any evidence adduced on this issue, the Court will not venture on any unproven
conclusion or finding which should be avoided in judicial adjudication.
The anti-graft court also inferred from the date of execution of the special power of attorney in
favor of now Senator Edgardo J. Angara, which is May 25, 1975, that the PC-ECJ Agreement
appears to have been executed on the same day as the PCA-Cojuangco Agreement (dated May
25, 1975). The coincidence on the dates casts "doubts as to the existence of defendant
Cojuangco’s prior ‘personal and exclusive’ option to the FUB shares."

The fact that the execution of the SPA and the PCA-Cojuangco Agreement occurred
sequentially on the same day cannot, without more, be the basis for the conclusion as to the
non-existence of the option of petitioner. Such conjecture cannot prevail over the fact that
without petitioner Cojuangco, none of the two agreements in question would have been
executed and implemented and the FUB shares could not have been successfully conveyed to
PCA.

Again, only the parties can explain the reasons behind the execution of the two agreements and
the SPA on the same day. They were, however, precluded from elucidating the reasons behind
such occurrence. In the absence of such illuminating proof, the proposition that the option does
not exist has no leg to stand on.

More importantly, the fact that the PC-ECJ Agreement was executed not earlier than May 25,
1975 proves that petitioner Cojuangco had an option to buy the FUB shares prior to that date.
Again, it must be emphasized that from its terms, the first Agreement did not create the
option.It, however, proved the exercise of the option by petitioner.

The execution of the PC-ECJ Agreement on the same day as the PCA-Cojuangco Agreement
more than satisfies paragraph 2 thereof which requires petitioner to exercise his option to
purchase the FUB shares as promptly as practicable after, and not before, the execution of the
second agreement, thus:

2. As promptly as practicable after execution of this Agreement, the SELLER shall exercise his
option to acquire the Option Shares and SELLER shall immediately thereafter deliver and turn
over to the Escrow Agent such stock certificates as are herein provided to be received from the
existing stockholders of the bank by virtue of the exercise on the aforementioned option. The
Escrow Agent shall thereupon issue its check in favor of the SELLER covering the purchase
price for the shares delivered. (Emphasis supplied.)

The Sandiganbayan viewed the compensation of petitioner of 14,400 FUB shares as exorbitant.
In the absence of proof to the contrary and considering the absence of any complaint of illegality
or fraud from any of the contracting parties, then the presumption that "private transactions
have been fair and regular"53 must apply.

Lastly, respondent interjects the thesis that PCA could not validly enter into a bank
management agreement with petitioner since PCA has a personality separate and distinct from
that of FUB. Evidently, it is PCA which has the right to challenge the stipulations on the
management contract as unenforceable. However, PCA chose not to assail said stipulations and
instead even complied with and implemented its prestations contained in said stipulations by
installing petitioner as Chairman of UCPB. Thus, PCA has waived and forfeited its right to
nullify said stipulations and is now estopped from questioning the same.
In view of the foregoing, the Court is left with no option but to uphold the validity of the two
agreements in question.

IV

COJUANGCO IS NOT ENTITLED TO THE UCPB SHARES WHICH WERE BOUGHT WITH
PUBLIC FUNDS AND HENCE, ARE PUBLIC PROPERTY.

The coconut levy funds were exacted for a

special public purpose. Consequently, any
use or transfer of the funds that directly
benefits private individuals should be
invalidated.

The issue of whether or not taxpayers’ money, or funds and property acquired through the
imposition of taxes may be used to benefit a private individual is once again posed.
Preliminarily, the instant case inquires whether the coconut levy funds, and accordingly, the
UCPB shares acquired using the coconut levy funds are public funds. Indeed, the very same
issue took center stage, discussed and was directly addressed in COCOFED v. Republic. And
there is hardly any question about the subject funds’ public and special character. The following
excerpts from COCOFED v. Republic, 54 citing Republic v. COCOFED and related cases, settle
once and for all this core, determinative issue:

Indeed, We have hitherto discussed, the coconut levy was imposed in the exercise of the State’s
inherent power of taxation. As We wrote in Republic v. COCOFED:

Indeed, coconut levy funds partake of the nature of taxes, which, in general, are enforced
proportional contributions from persons and properties, exacted by the State by virtue of its
sovereignty for the support of government and for all public needs.

Based on its definition, a tax has three elements, namely: a) it is an enforced proportional
contribution from persons and properties; b) it is imposed by the State by virtue of its
sovereignty; and c) it is levied for the support of the government. The coconut levy funds fall
squarely into these elements for the following reasons:

(a) They were generated by virtue of statutory enactments imposed on the coconut farmers
requiring the payment of prescribed amounts. Thus, PD No. 276, which created the … (CCSF),
mandated the following:

"a. A levy, initially, of P15.00 per 100 kilograms of copra resecada or its equivalent in other
coconut products, shall be imposed on every first sale, in accordance with the mechanics
established under RA 6260, effective at the start of business hours on August 10, 1973.

"The proceeds from the levy shall be deposited with the Philippine National Bank or any other
government bank to the account of the Coconut Consumers Stabilization Fund, as a separate
trust fund which shall not form part of the general fund of the government."
The coco levies were further clarified in amendatory laws, specifically PD No. 961 and PD No.
1468 – in this wise:

"The Authority (PCA) is hereby empowered to impose and collect a levy, to be known as the
Coconut Consumers Stabilization Fund Levy, on every one hundred kilos of copra resecada, or
its equivalent … delivered to, and/or purchased by, copra exporters, oil millers, desiccators and
other end-users of copra or its equivalent in other coconut products. The levy shall be paid by
such copra exporters, oil millers, desiccators and other end-users of copra or its equivalent in
other coconut products under such rules and regulations as the Authority may prescribe. Until
otherwise prescribed by the Authority, the current levy being collected shall be continued."

Like other tax measures, they were not voluntary payments or donations by the people. They
were enforced contributions exacted on pain of penal sanctions, as provided under PD No. 276:

"3. Any person or firm who violates any provision of this Decree or the rules and regulations
promulgated thereunder, shall, in addition to penalties already prescribed under existing
administrative and special law, pay a fine of not less than P2, 500 or more than P10,000, or suffer
cancellation of licenses to operate, or both, at the discretion of the Court."

Such penalties were later amended thus: ….

(b) The coconut levies were imposed pursuant to the laws enacted by the proper legislative
authorities of the State. Indeed, the CCSF was collected under PD No. 276, …."

(c) They were clearly imposed for a public purpose. There is absolutely no question that they
were collected to advance the government’s avowed policy of protecting the coconut industry.

This Court takes judicial notice of the fact that the coconut industry is one of the great economic
pillars of our nation, and coconuts and their byproducts occupy a leading position among the
country’s export products; ….

Taxation is done not merely to raise revenues to support the government, but also to provide
means for the rehabilitation and the stabilization of a threatened industry, which is so affected
with public interest as to be within the police power of the State ….

Even if the money is allocated for a special purpose and raised by special means, it is still public
in character…. In Cocofed v. PCGG, the Court observed that certain agencies or enterprises
"were organized and financed with revenues derived from coconut levies imposed under a
succession of law of the late dictatorship … with deposed Ferdinand Marcos and his cronies as
the suspected authors and chief beneficiaries of the resulting coconut industry monopoly." The
Court continued: "…. It cannot be denied that the coconut industry is one of the major
industries supporting the national economy. It is, therefore, the State’s concern to make it a
strong and secure source not only of the livelihood of a significant segment of the population,
but also of export earnings the sustained growth of which is one of the imperatives of economic
stability. (Emphasis Ours.)

The following parallel doctrinal lines from Pambansang Koalisyon ng mga Samahang
Magsasaka at Manggagawa sa Niyugan (PKSMMN) v. Executive Secretary55 came next:
The Court was satisfied that the coco-levy funds were raised pursuant to law to support a
proper governmental purpose. They were raised with the use of the police and taxing powers of
the State for the benefit of the coconut industry and its farmers in general. The COA reviewed
the use of the funds. The Bureau of Internal Revenue (BIR) treated them as public funds and the
very laws governing coconut levies recognize their public character.

The Court has also recently declared that the coco-levy funds are in the nature of taxes and can
only be used for public purpose. Taxes are enforced proportional contributions from persons
and property, levied by the State by virtue of its sovereignty for the support of the government
and for all its public needs. Here, the coco-levy funds were imposed pursuant to law, namely,
R.A. 6260 and P.D. 276. The funds were collected and managed by the PCA, an independent
government corporation directly under the President. And, as the respondent public officials
pointed out, the pertinent laws used the term levy, which means to tax, in describing the
exaction.

Of course, unlike ordinary revenue laws, R.A. 6260 and P.D. 276 did not raise money to boost
the government’s general funds but to provide means for the rehabilitation and stabilization of
a threatened industry, the coconut industry, which is so affected with public interest as to be
within the police power of the State. The funds sought to support the coconut industry, one of
the main economic backbones of the country, and to secure economic benefits for the coconut
farmers and far workers. The subject laws are akin to the sugar liens imposed by Sec. 7(b) of
P.D. 388, and the oil price stabilization funds under P.D. 1956, as amended by E.O. 137.

From the foregoing, it is at once apparent that any property acquired by means of the coconut
levy funds, such as the subject UCPB shares, should be treated as public funds or public
property, subject to the burdens and restrictions attached by law to such property. COCOFED
v. Republic, delved into such limitations, thusly:

We have ruled time and again that taxes are imposed only for a public purpose. "They cannot
be used for purely private purposes or for the exclusive benefit of private persons." When a law
imposes taxes or levies from the public, with the intent to give undue benefit or advantage to
private persons, or the promotion of private enterprises, that law cannot be said to satisfy the
requirement of public purpose. In Gaston v. Republic Planters Bank, the petitioning sugar
producers, sugarcane planters and millers sought the distribution of the shares of stock of the
Republic Planters Bank (RPB), alleging that they are the true beneficial owners thereof. In that
case, the investment, i.e., the purchase of RPB, was funded by the deduction of PhP 1.00 per
picul from the sugar proceeds of the sugar producers pursuant to P.D. No. 388. In ruling against
the petitioners, the Court held that to rule in their favor would contravene the general principle
that revenues received from the imposition of taxes or levies "cannot be used for purely private
purposes or for the exclusive benefit of private persons." The Court amply reasoned that the
sugar stabilization fund is to "be utilized for the benefit of the entire sugar industry, and all its
components, stabilization of the domestic market including foreign market, the industry being
of vital importance to the country’s economy and to national interest."

Similarly in this case, the coconut levy funds were sourced from forced exactions decreed under
P.D. Nos. 232, 276 and 582, among others, with the end-goal of developing the entire coconut
industry. Clearly, to hold therefore, even by law, that the revenues received from the imposition
of the coconut levies be used purely for private purposes to be owned by private individuals in
their private capacity and for their benefit, would contravene the rationale behind the
imposition of taxes or levies.

Needless to stress, courts do not, as they cannot, allow by judicial fiat the conversion of special
funds into a private fund for the benefit of private individuals. In the same vein, We cannot
subscribe to the idea of what appears to be an indirect – if not exactly direct – conversion of
special funds into private funds, i.e., by using special funds to purchase shares of stocks, which
in turn would be distributed for free to private individuals. Even if these private individuals
belong to, or are a part of the coconut industry, the free distribution of shares of stocks
purchased with special public funds to them, nevertheless cannot be justified. The ratio in
Gaston, as articulated below, applies mutatis mutandis to this case:

The stabilization fees in question are levied by the State … for a special purpose – that of
"financing the growth and development of the sugar industry and all its components,
stabilization of the domestic market including the foreign market." The fact that the State has
taken possession of moneys pursuant to law is sufficient to constitute them as state funds even
though they are held for a special purpose….

That the fees were collected from sugar producers etc., and that the funds were channeled to the
purchase of shares of stock in respondent Bank do not convert the funds into a trust fund for
their benefit nor make them the beneficial owners of the shares so purchased. It is but rational
that the fees be collected from them since it is also they who are benefited from the expenditure
of the funds derived from it. ….56

In this case, the coconut levy funds were being exacted from copra exporters, oil millers,
desiccators and other end-users of copra or its equivalent in other coconut products. 57 Likewise
so, the funds here were channeled to the purchase of the shares of stock in UCPB. Drawing a
clear parallelism between Gaston and this case, the fact that the coconut levy funds were
collected from the persons or entities in the coconut industry, among others, does not and
cannot entitle them to be beneficial owners of the subject funds – or more bluntly, owners
thereof in their private capacity. Parenthetically, the said private individuals cannot own the
UCPB shares of stocks so purchased using the said special funds of the government. 58 (Emphasis
Ours.)

As the coconut levy funds partake of the nature of taxes and can only be used for public
purpose, and importantly, for the purpose for which it was exacted, i.e., the development,
rehabilitation and stabilization of the coconut industry, they cannot be used to benefit––whether
directly or indirectly–– private individuals, be it by way of a commission, or as the subject
Agreement interestingly words it, compensation. Consequently, Cojuangco cannot stand to
benefit by receiving, in his private capacity, 7.22% of the FUB shares without violating the
constitutional caveat that public funds can only be used for public purpose. Accordingly, the
7.22% FUB (UCPB) shares that were given to Cojuangco shall be returned to the Government, to
be used "only for the benefit of all coconut farmers and for the development of the coconut
industry."59

The ensuing are the underlying rationale for declaring, as unconstitutional, provisions that
convert public property into private funds to be used ultimately for personal benefit:
… not only were the laws unconstitutional for decreeing the distribution of the shares of stock
for free to the coconut farmers and therefore negating the public purposed declared by P.D. No.
276, i.e., to stabilize the price of edible oil and to protect the coconut industry. They likewise
reclassified the coconut levy fund as private fund, to be owned by private individuals in their
private capacities, contrary to the original purpose for the creation of such fund. To compound
the situation, the offending provisions effectively removed the coconut levy fund away from the
cavil of public funds which normally can be paid out only pursuant to an appropriation made
by law. The conversion of public funds into private assets was illegally allowed, in fact
mandated, by these provisions. Clearly therefore, the pertinent provisions of P.D. Nos. 755, 961
and 1468 are unconstitutional for violating Article VI, Section 29 (3) of the Constitution. In this
context, the distribution by PCA of the UCPB shares purchased by means of the coconut levy
fund – a special fund of the government – to the coconut farmers is, therefore, void. 60

It is precisely for the foregoing that impels the Court to strike down as unconstitutional the
provisions of the PCA-Cojuangco Agreement that allow petitioner Cojuangco to personally and
exclusively own public funds or property, the disbursement of which We so greatly protect if
only to give light and meaning to the mandates of the Constitution.

As heretofore amply discussed, taxes are imposed only for a public purpose. 61 They must,
therefore, be used for the benefit of the public and not for the exclusive profit or gain of private
persons.62 Otherwise, grave injustice is inflicted not only upon the Government but most
especially upon the citizenry––the taxpayers––to whom We owe a great deal of accountability.

In this case, out of the 72.2% FUB (now UCPB) shares of stocks PCA purchased using the
coconut levy funds, the May 25, 1975 Agreement between the PCA and Cojuangco provided for
the transfer to the latter, by way of compensation, of 10% of the shares subject of the agreement,
or a total of 7.22% fully paid shares. In sum, Cojuangco received public assets – in the form of
FUB (UCPB) shares with a value then of ten million eight hundred eighty-six thousand pesos
(PhP 10,886,000) in 1975, paid by coconut levy funds. In effect, Cojuangco received the
aforementioned asset as a result of the PCA-Cojuangco Agreement, and exclusively benefited
himself by owning property acquired using solely public funds. Cojuangco, no less, admitted
that the PCA paid, out of the CCSF, the entire acquisition price for the 72.2% option
shares.63 This is in clear violation of the prohibition, which the Court seeks to uphold.1âwphi1

We, therefore, affirm, on this ground, the decision of the Sandiganbayan nullifying the shares of
stock transfer to Cojuangco. Accordingly, the UCPB shares of stock representing the 7.22% fully
paid shares subject of the instant petition, with all dividends declared, paid or issued thereon,
as well as any increments thereto arising from, but not limited to, the exercise of pre-emptive
rights, shall be reconveyed to the Government of the Republic of the Philippines, which as We
previously clarified, shall "be used only for the benefit of all coconut farmers and for the
development of the coconut industry."64

But apart from the stipulation in the PCA-Cojuangco Agreement, more specifically paragraph 4
in relation to paragraph 6 thereof, providing for the transfer to Cojuangco for the UCPB shares
adverted to immediately above, other provisions are valid and shall be enforced, or shall be
respected, if the corresponding prestation had already been performed. Invalid stipulations that
are independent of, and divisible from, the rest of the agreement and which can easily be
separated therefrom without doing violence to the manifest intention of the contracting minds
do not nullify the entire contract.65

WHEREFORE, Part C of the appealed Partial Summary Judgment in Sandiganbayan Civil Case
No. 0033-A is AFFIRMED with modification. As MODIFIED, the dispositive portion in Part C of
the Sandiganbayan’s Partial Summary Judgment in Civil Case No. 0033-A, shall read as follows:

C. Re: MOTION FOR PARTIAL SUMMARY JUDGMENT (RE: EDUARDO M. COJUANGCO,

JR.) dated September 18, 2002 filed by Plaintiff.

1. Sec. 1 of P.D. No. 755 did not validate the Agreement between PCA and defendant
Eduardo M. Cojuangco, Jr. dated May 25, 1975 nor did it give the Agreement the
binding force of a law because of the non-publication of the said Agreement.

2. The Agreement between PCA and defendant Eduardo M. Cojuangco, Jr. dated May
25, 1975 is a valid contract for having the requisite consideration under Article 1318 of
the Civil Code.

3. The transfer by PCA to defendant Eduardo M. Cojuangco, Jr. of 14,400 shares of stock
of FUB (later UCPB) from the "Option Shares" and the additional FUB shares subscribed
and paid by PCA, consisting of

a. Fifteen Thousand Eight Hundred Eighty-Four (15,884) shares out of the

authorized but unissued shares of the bank, subscribed and paid by PCA;

b. Sixty Four Thousand Nine Hundred Eighty (64,980) shares of the increased
capital stock subscribed and paid by PCA; and

c. Stock dividends declared pursuant to paragraph 5 and paragraph 11 (iv) (d) of

the PCA-Cojuangco Agreement dated May 25, 1975. or the so-called "Cojuangco-
UCPB shares" is declared unconstitutional, hence null and void.1âwphi1

4. The above-mentioned shares of stock of the FUB/UCPB transferred to defendant

Cojuangco are hereby declared conclusively owned by the Republic of the Philippines to
be used only for the benefit of all coconut farmers and for the development of the
coconut industry, and ordered reconveyed to the Government.

5. The UCPB shares of stock of the alleged fronts, nominees and dummies of defendant
Eduardo M. Cojuangco, Jr. which form part of the 72.2% shares of the FUB/UCPB paid
for by the PCA with public funds later charged to the coconut levy funds, particularly
the CCSF, belong to the plaintiff Republic of the Philippines as their true and beneficial
owner.

Accordingly, the instant petition is hereby DENIED.

Costs against petitioner Cojuangco.

SO ORDERED
 Tanada vs Tuvera

Invoking the people's right to be informed on matters of public concern, a right recognized in
Section 6, Article IV of the 1973 Philippine Constitution, 1 as well as the principle that laws to be
valid and enforceable must be published in the Official Gazette or otherwise effectively
promulgated, petitioners seek a writ of mandamus to compel respondent public officials to
publish, and/or cause the publication in the Official Gazette of various presidential decrees,
letters of instructions, general orders, proclamations, executive orders, letter of implementation
and administrative orders.

Specifically, the publication of the following presidential issuances is sought:

a] Presidential Decrees Nos. 12, 22, 37, 38, 59, 64, 103, 171, 179, 184, 197, 200, 234,
265, 286, 298, 303, 312, 324, 325, 326, 337, 355, 358, 359, 360, 361, 368, 404, 406, 415,
427, 429, 445, 447, 473, 486, 491, 503, 504, 521, 528, 551, 566, 573, 574, 594, 599, 644,
 658, 661, 718, 731, 733, 793, 800, 802, 835, 836, 923, 935, 961, 1017-1030, 1050, 1060-
1061, 1085, 1143, 1165, 1166, 1242, 1246, 1250, 1278, 1279, 1300, 1644, 1772, 1808,
1810, 1813-1817, 1819-1826, 1829-1840, 1842-1847.

b] Letter of Instructions Nos.: 10, 39, 49, 72, 107, 108, 116, 130, 136, 141, 150, 153,
155, 161, 173, 180, 187, 188, 192, 193, 199, 202, 204, 205, 209, 211-213, 215-224, 226-
228, 231-239, 241-245, 248, 251, 253-261, 263-269, 271-273, 275-283, 285-289, 291,
293, 297-299, 301-303, 309, 312-315, 325, 327, 343, 346, 349, 357, 358, 362, 367, 370,
382, 385, 386, 396-397, 405, 438-440, 444- 445, 473, 486, 488, 498, 501, 399, 527, 561,
576, 587, 594, 599, 600, 602, 609, 610, 611, 612, 615, 641, 642, 665, 702, 712-713, 726,
837-839, 878-879, 881, 882, 939-940, 964,997,1149-1178,1180-1278.

c] General Orders Nos.: 14, 52, 58, 59, 60, 62, 63, 64 & 65.

d] Proclamation Nos.: 1126, 1144, 1147, 1151, 1196, 1270, 1281, 1319-1526, 1529,
1532, 1535, 1538, 1540-1547, 1550-1558, 1561-1588, 1590-1595, 1594-1600, 1606-
1609, 1612-1628, 1630-1649, 1694-1695, 1697-1701, 1705-1723, 1731-1734, 1737-
1742, 1744, 1746-1751, 1752, 1754, 1762, 1764-1787, 1789-1795, 1797, 1800, 1802-
1804, 1806-1807, 1812-1814, 1816, 1825-1826, 1829, 1831-1832, 1835-1836, 1839-
1840, 1843-1844, 1846-1847, 1849, 1853-1858, 1860, 1866, 1868, 1870, 1876-1889,
1892, 1900, 1918, 1923, 1933, 1952, 1963, 1965-1966, 1968-1984, 1986-2028, 2030-
2044, 2046-2145, 2147-2161, 2163-2244.

e] Executive Orders Nos.: 411, 413, 414, 427, 429-454, 457- 471, 474-492, 494-507,
509-510, 522, 524-528, 531-532, 536, 538, 543-544, 549, 551-553, 560, 563, 567-568,
570, 574, 593, 594, 598-604, 609, 611- 647, 649-677, 679-703, 705-707, 712-786, 788-
852, 854-857.

f] Letters of Implementation Nos.: 7, 8, 9, 10, 11-22, 25-27, 39, 50, 51, 59, 76, 80-81,
92, 94, 95, 107, 120, 122, 123.

g] Administrative Orders Nos.: 347, 348, 352-354, 360- 378, 380-433, 436-439.

The respondents, through the Solicitor General, would have this case dismissed outright on the
ground that petitioners have no legal personality or standing to bring the instant petition. The
view is submitted that in the absence of any showing that petitioners are personally and directly
affected or prejudiced by the alleged non-publication of the presidential issuances in
question 2 said petitioners are without the requisite legal personality to institute this mandamus
proceeding, they are not being "aggrieved parties" within the meaning of Section 3, Rule 65 of
the Rules of Court, which we quote:

SEC. 3. Petition for Mandamus.—When any tribunal, corporation, board or person

unlawfully neglects the performance of an act which the law specifically enjoins
as a duty resulting from an office, trust, or station, or unlawfully excludes
another from the use a rd enjoyment of a right or office to which such other is
entitled, and there is no other plain, speedy and adequate remedy in the ordinary
course of law, the person aggrieved thereby may file a verified petition in the
proper court alleging the facts with certainty and praying that judgment be
 rendered commanding the defendant, immediately or at some other specified
time, to do the act required to be done to Protect the rights of the petitioner, and
to pay the damages sustained by the petitioner by reason of the wrongful acts of
the defendant.

Upon the other hand, petitioners maintain that since the subject of the petition concerns a public
right and its object is to compel the performance of a public duty, they need not show any
specific interest for their petition to be given due course.

The issue posed is not one of first impression. As early as the 1910 case of Severino vs. Governor
General, 3 this Court held that while the general rule is that "a writ of mandamus would be
granted to a private individual only in those cases where he has some private or particular
interest to be subserved, or some particular right to be protected, independent of that which he
holds with the public at large," and "it is for the public officers exclusively to apply for the writ
when public rights are to be subserved [Mithchell vs. Boardmen, 79 M.e., 469]," nevertheless,
"when the question is one of public right and the object of the mandamus is to procure the
enforcement of a public duty, the people are regarded as the real party in interest and the
relator at whose instigation the proceedings are instituted need not show that he has any legal
or special interest in the result, it being sufficient to show that he is a citizen and as such
interested in the execution of the laws [High, Extraordinary Legal Remedies, 3rd ed., sec. 431].

Thus, in said case, this Court recognized the relator Lope Severino, a private individual, as a
proper party to the mandamus proceedings brought to compel the Governor General to call a
special election for the position of municipal president in the town of Silay, Negros Occidental.
Speaking for this Court, Mr. Justice Grant T. Trent said:

We are therefore of the opinion that the weight of authority supports the
proposition that the relator is a proper party to proceedings of this character
when a public right is sought to be enforced. If the general rule in America were
otherwise, we think that it would not be applicable to the case at bar for the
reason 'that it is always dangerous to apply a general rule to a particular case
without keeping in mind the reason for the rule, because, if under the particular
circumstances the reason for the rule does not exist, the rule itself is not
applicable and reliance upon the rule may well lead to error'

No reason exists in the case at bar for applying the general rule insisted upon by
counsel for the respondent. The circumstances which surround this case are
different from those in the United States, inasmuch as if the relator is not a
proper party to these proceedings no other person could be, as we have seen that
it is not the duty of the law officer of the Government to appear and represent
the people in cases of this character.

The reasons given by the Court in recognizing a private citizen's legal personality in the
aforementioned case apply squarely to the present petition. Clearly, the right sought to be
enforced by petitioners herein is a public right recognized by no less than the fundamental law
of the land. If petitioners were not allowed to institute this proceeding, it would indeed be
difficult to conceive of any other person to initiate the same, considering that the Solicitor
General, the government officer generally empowered to represent the people, has entered his
appearance for respondents in this case.

Respondents further contend that publication in the Official Gazette is not a sine qua non
requirement for the effectivity of laws where the laws themselves provide for their own
effectivity dates. It is thus submitted that since the presidential issuances in question contain
special provisions as to the date they are to take effect, publication in the Official Gazette is not
indispensable for their effectivity. The point stressed is anchored on Article 2 of the Civil Code:

Art. 2. Laws shall take effect after fifteen days following the completion of their
publication in the Official Gazette, unless it is otherwise provided, ...

The interpretation given by respondent is in accord with this Court's construction of said article.
In a long line of decisions, 4 this Court has ruled that publication in the Official Gazette is
necessary in those cases where the legislation itself does not provide for its effectivity date-for
then the date of publication is material for determining its date of effectivity, which is the
fifteenth day following its publication-but not when the law itself provides for the date when it
goes into effect.

Respondents' argument, however, is logically correct only insofar as it equates the effectivity of
laws with the fact of publication. Considered in the light of other statutes applicable to the issue
at hand, the conclusion is easily reached that said Article 2 does not preclude the requirement of
publication in the Official Gazette, even if the law itself provides for the date of its effectivity.
Thus, Section 1 of Commonwealth Act 638 provides as follows:

Section 1. There shall be published in the Official Gazette [1] all important
legisiative acts and resolutions of a public nature of the, Congress of the
Philippines; [2] all executive and administrative orders and proclamations,
except such as have no general applicability; [3] decisions or abstracts of
decisions of the Supreme Court and the Court of Appeals as may be deemed by
said courts of sufficient importance to be so published; [4] such documents or
classes of documents as may be required so to be published by law; and [5] such
documents or classes of documents as the President of the Philippines shall
determine from time to time to have general applicability and legal effect, or
which he may authorize so to be published. ...

The clear object of the above-quoted provision is to give the general public adequate notice of
the various laws which are to regulate their actions and conduct as citizens. Without such notice
and publication, there would be no basis for the application of the maxim "ignorantia legis non
excusat." It would be the height of injustice to punish or otherwise burden a citizen for the
transgression of a law of which he had no notice whatsoever, not even a constructive one.

Perhaps at no time since the establishment of the Philippine Republic has the publication of
laws taken so vital significance that at this time when the people have bestowed upon the
President a power heretofore enjoyed solely by the legislature. While the people are kept
abreast by the mass media of the debates and deliberations in the Batasan Pambansa—and for
the diligent ones, ready access to the legislative records—no such publicity accompanies the
law-making process of the President. Thus, without publication, the people have no means of
knowing what presidential decrees have actually been promulgated, much less a definite way
of informing themselves of the specific contents and texts of such decrees. As the Supreme
Court of Spain ruled: "Bajo la denominacion generica de leyes, se comprenden tambien los
reglamentos, Reales decretos, Instrucciones, Circulares y Reales ordines dictadas de
conformidad con las mismas por el Gobierno en uso de su potestad. 5

The very first clause of Section I of Commonwealth Act 638 reads: "There shall be published in
the Official Gazette ... ." The word "shall" used therein imposes upon respondent officials an
imperative duty. That duty must be enforced if the Constitutional right of the people to be
informed on matters of public concern is to be given substance and reality. The law itself makes
a list of what should be published in the Official Gazette. Such listing, to our mind, leaves
respondents with no discretion whatsoever as to what must be included or excluded from such
publication.

The publication of all presidential issuances "of a public nature" or "of general applicability" is
mandated by law. Obviously, presidential decrees that provide for fines, forfeitures or penalties
for their violation or otherwise impose a burden or. the people, such as tax and revenue
measures, fall within this category. Other presidential issuances which apply only to particular
persons or class of persons such as administrative and executive orders need not be published
on the assumption that they have been circularized to all concerned. 6

It is needless to add that the publication of presidential issuances "of a public nature" or "of
general applicability" is a requirement of due process. It is a rule of law that before a person
may be bound by law, he must first be officially and specifically informed of its contents. As
Justice Claudio Teehankee said in Peralta vs. COMELEC 7:

In a time of proliferating decrees, orders and letters of instructions which all

form part of the law of the land, the requirement of due process and the Rule of
Law demand that the Official Gazette as the official government repository
promulgate and publish the texts of all such decrees, orders and instructions so
that the people may know where to obtain their official and specific contents.

The Court therefore declares that presidential issuances of general application, which have not
been published, shall have no force and effect. Some members of the Court, quite apprehensive
about the possible unsettling effect this decision might have on acts done in reliance of the
validity of those presidential decrees which were published only during the pendency of this
petition, have put the question as to whether the Court's declaration of invalidity apply to P.D.s
which had been enforced or implemented prior to their publication. The answer is all too
familiar. In similar situations in the past this Court had taken the pragmatic and realistic course
set forth in Chicot County Drainage District vs. Baxter Bank 8 to wit:

The courts below have proceeded on the theory that the Act of Congress, having
been found to be unconstitutional, was not a law; that it was inoperative,
conferring no rights and imposing no duties, and hence affording no basis for the
challenged decree. Norton v. Shelby County, 118 U.S. 425, 442; Chicago, 1. & L.
Ry. Co. v. Hackett, 228 U.S. 559, 566. It is quite clear, however, that such broad
statements as to the effect of a determination of unconstitutionality must be
taken with qualifications. The actual existence of a statute, prior to such a
 determination, is an operative fact and may have consequences which cannot
justly be ignored. The past cannot always be erased by a new judicial declaration.
The effect of the subsequent ruling as to invalidity may have to be considered in
various aspects-with respect to particular conduct, private and official. Questions
of rights claimed to have become vested, of status, of prior determinations
deemed to have finality and acted upon accordingly, of public policy in the light
of the nature both of the statute and of its previous application, demand
examination. These questions are among the most difficult of those which have
engaged the attention of courts, state and federal and it is manifest from
numerous decisions that an all-inclusive statement of a principle of absolute
retroactive invalidity cannot be justified.

Consistently with the above principle, this Court in Rutter vs. Esteban  9 sustained the right of a
party under the Moratorium Law, albeit said right had accrued in his favor before said law was
declared unconstitutional by this Court.

Similarly, the implementation/enforcement of presidential decrees prior to their publication in

the Official Gazette is "an operative fact which may have consequences which cannot be justly
ignored. The past cannot always be erased by a new judicial declaration ... that an all-inclusive
statement of a principle of absolute retroactive invalidity cannot be justified."

From the report submitted to the Court by the Clerk of Court, it appears that of the presidential
decrees sought by petitioners to be published in the Official Gazette, only Presidential Decrees
Nos. 1019 to 1030, inclusive, 1278, and 1937 to 1939, inclusive, have not been so
published. 10 Neither the subject matters nor the texts of these PDs can be ascertained since no
copies thereof are available. But whatever their subject matter may be, it is undisputed that
none of these unpublished PDs has ever been implemented or enforced by the government.
In Pesigan vs. Angeles, 11 the Court, through Justice Ramon Aquino, ruled that "publication is
necessary to apprise the public of the contents of [penal] regulations and make the said
penalties binding on the persons affected thereby. " The cogency of this holding is apparently
recognized by respondent officials considering the manifestation in their comment that "the
government, as a matter of policy, refrains from prosecuting violations of criminal laws until
the same shall have been published in the Official Gazette or in some other publication, even
though some criminal laws provide that they shall take effect immediately.

WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette all
unpublished presidential issuances which are of general application, and unless so published,
they shall have no binding force and effect.

SO ORDERED.

Relova, J., concurs.

Aquino, J., took no part.

Concepcion, Jr., J., is on leave.

 Separate Opinions
  FERNANDO, C.J.,  concurring (with qualification):

There is on the whole acceptance on my part of the views expressed in the ably written opinion
of Justice Escolin. I am unable, however, to concur insofar as it would unqualifiedly impose the
requirement of publication in the Official Gazette for unpublished "presidential issuances" to
have binding force and effect.

I shall explain why.

1. It is of course true that without the requisite publication, a due process question would arise
if made to apply adversely to a party who is not even aware of the existence of any legislative or
executive act having the force and effect of law. My point is that such publication required need
not be confined to the Official Gazette. From the pragmatic standpoint, there is an advantage to
be gained. It conduces to certainty. That is too be admitted. It does not follow, however, that
failure to do so would in all cases and under all circumstances result in a statute, presidential
decree or any other executive act of the same category being bereft of any binding force and
effect. To so hold would, for me, raise a constitutional question. Such a pronouncement would
lend itself to the interpretation that such a legislative or presidential act is bereft of the attribute
of effectivity unless published in the Official Gazette. There is no such requirement in the
Constitution as Justice Plana so aptly pointed out. It is true that what is decided now applies
only to past "presidential issuances". Nonetheless, this clarification is, to my mind, needed to
avoid any possible misconception as to what is required for any statute or presidential act to be
impressed with binding force or effectivity.

2. It is quite understandable then why I concur in the separate opinion of Justice Plana. Its first
paragraph sets forth what to me is the constitutional doctrine applicable to this case. Thus: "The
Philippine Constitution does not require the publication of laws as a prerequisite for their
effectivity, unlike some Constitutions elsewhere. It may be said though that the guarantee of
due process requires notice of laws to affected Parties before they can be bound thereby; but
such notice is not necessarily by publication in the Official Gazette. The due process clause is
not that precise. 1 I am likewise in agreement with its closing paragraph: "In fine, I concur in the
majority decision to the extent that it requires notice before laws become effective, for no person
should be bound by a law without notice. This is elementary fairness. However, I beg to
disagree insofar as it holds that such notice shall be by publication in the Official Gazette. 2

3. It suffices, as was stated by Judge Learned Hand, that law as the command of the government
"must be ascertainable in some form if it is to be enforced at all. 3 It would indeed be to reduce it
to the level of mere futility, as pointed out by Justice Cardozo, "if it is unknown and
unknowable. 4 Publication, to repeat, is thus essential. What I am not prepared to subscribe to is
the doctrine that it must be in the Official Gazette. To be sure once published therein there is the
ascertainable mode of determining the exact date of its effectivity. Still for me that does not
dispose of the question of what is the jural effect of past presidential decrees or executive acts
not so published. For prior thereto, it could be that parties aware of their existence could have
conducted themselves in accordance with their provisions. If no legal consequences could attach
due to lack of publication in the Official Gazette, then serious problems could arise. Previous
transactions based on such "Presidential Issuances" could be open to question. Matters deemed
settled could still be inquired into. I am not prepared to hold that such an effect is contemplated
by our decision. Where such presidential decree or executive act is made the basis of a criminal
prosecution, then, of course, its ex post facto character becomes evident. 5 In civil cases though,
retroactivity as such is not conclusive on the due process aspect. There must still be a showing
of arbitrariness. Moreover, where the challenged presidential decree or executive act was issued
under the police power, the non-impairment clause of the Constitution may not always be
successfully invoked. There must still be that process of balancing to determine whether or not
it could in such a case be tainted by infirmity. 6 In traditional terminology, there could arise then
a question of unconstitutional application. That is as far as it goes.

4. Let me make therefore that my qualified concurrence goes no further than to affirm that
publication is essential to the effectivity of a legislative or executive act of a general application.
I am not in agreement with the view that such publication must be in the Official Gazette. The
Civil Code itself in its Article 2 expressly recognizes that the rule as to laws taking effect after
fifteen days following the completion of their publication in the Official Gazette is subject to this
exception, "unless it is otherwise provided." Moreover, the Civil Code is itself only a legislative
enactment, Republic Act No. 386. It does not and cannot have the juridical force of a
constitutional command. A later legislative or executive act which has the force and effect of
law can legally provide for a different rule.

5. Nor can I agree with the rather sweeping conclusion in the opinion of Justice Escolin that
presidential decrees and executive acts not thus previously published in the Official Gazette
would be devoid of any legal character. That would be, in my opinion, to go too far. It may be
fraught, as earlier noted, with undesirable consequences. I find myself therefore unable to yield
assent to such a pronouncement.

I am authorized to state that Justices Makasiar, Abad Santos, Cuevas, and Alampay concur in
this separate opinion.

Makasiar, Abad Santos, Cuevas and Alampay, JJ., concur.

 TEEHANKEE, J.,  concurring:

I concur with the main opinion of Mr. Justice Escolin and the concurring opinion of Mme.
Justice Herrera. The Rule of Law connotes a body of norms and laws published and
ascertainable and of equal application to all similarly circumstances and not subject to arbitrary
change but only under certain set procedures. The Court has consistently stressed that "it is an
elementary rule of fair play and justice that a reasonable opportunity to be informed must be
afforded to the people who are commanded to obey before they can be punished for its
violation,1 citing the settled principle based on due process enunciated in earlier cases that
"before the public is bound by its contents, especially its penal provisions, a law, regulation or
circular must first be published and the people officially and specially informed of said contents
and its penalties.

Without official publication in the Official Gazette as required by Article 2 of the Civil Code and
the Revised Administrative Code, there would be no basis nor justification for the corollary rule
of Article 3 of the Civil Code (based on constructive notice that the provisions of the law are
ascertainable from the public and official repository where they are duly published) that
"Ignorance of the law excuses no one from compliance therewith.
Respondents' contention based on a misreading of Article 2 of the Civil Code that "only laws
which are silent as to their effectivity [date] need be published in the Official Gazette for their
effectivity" is manifestly untenable. The plain text and meaning of the Civil Code is that "laws
shall take effect after fifteen days following the completion of their publication in the Official
Gazette, unless it is otherwise provided, " i.e. a different effectivity date is provided by the law
itself. This proviso perforce refers to a law that has been duly published pursuant to the basic
constitutional requirements of due process. The best example of this is the Civil Code itself: the
same Article 2 provides otherwise that it "shall take effect [only] one year [not 15 days] after
such publication. 2 To sustain respondents' misreading that "most laws or decrees specify the
date of their effectivity and for this reason, publication in the Official Gazette is not necessary
for their effectivity 3 would be to nullify and render nugatory the Civil Code's indispensable
and essential requirement of prior publication in the Official Gazette by the simple expedient of
providing for immediate effectivity or an earlier effectivity date in the law itself before the
completion of 15 days following its publication which is the period generally fixed by the Civil
Code for its proper dissemination.

 MELENCIO-HERRERA, J.,  concurring:

I agree. There cannot be any question but that even if a decree provides for a date of effectivity,
it has to be published. What I would like to state in connection with that proposition is that
when a date of effectivity is mentioned in the decree but the decree becomes effective only
fifteen (15) days after its publication in the Official Gazette, it will not mean that the decree can
have retroactive effect to the date of effectivity mentioned in the decree itself. There should be
no retroactivity if the retroactivity will run counter to constitutional rights or shall destroy
vested rights.

 PLANA, J., concurring (with qualification):

The Philippine Constitution does not require the publication of laws as a prerequisite for their
effectivity, unlike some Constitutions elsewhere. * It may be said though that the guarantee of
due process requires notice of laws to affected parties before they can be bound thereby; but
such notice is not necessarily by publication in the Official Gazette. The due process clause is
not that precise. Neither is the publication of laws in the Official Gazette required by any statute
as a prerequisite for their effectivity, if said laws already provide for their effectivity date.

Article 2 of the Civil Code provides that "laws shall take effect after fifteen days following the
completion of their publication in the Official Gazette, unless it is otherwise provided " Two things
may be said of this provision: Firstly, it obviously does not apply to a law with a built-in
provision as to when it will take effect. Secondly, it clearly recognizes that each law may
provide not only a different period for reckoning its effectivity date but also a different mode of
notice. Thus, a law may prescribe that it shall be published elsewhere than in the Official
Gazette.

Commonwealth Act No. 638, in my opinion, does not support the proposition that for their
effectivity, laws must be published in the Official Gazette. The said law is simply "An Act to
Provide for the Uniform Publication and Distribution of the Official Gazette." Conformably
therewith, it authorizes the publication of the Official Gazette, determines its frequency,
provides for its sale and distribution, and defines the authority of the Director of Printing in
relation thereto. It also enumerates what shall be published in the Official Gazette, among them,
"important legislative acts and resolutions of a public nature of the Congress of the Philippines"
and "all executive and administrative orders and proclamations, except such as have no general
applicability." It is noteworthy that not all legislative acts are required to be published in the
Official Gazette but only "important" ones "of a public nature." Moreover, the said law does not
provide that publication in the Official Gazette is essential for the effectivity of laws. This is as it
should be, for all statutes are equal and stand on the same footing. A law, especially an earlier
one of general application such as Commonwealth Act No. 638, cannot nullify or restrict the
operation of a subsequent statute that has a provision of its own as to when and how it will take
effect. Only a higher law, which is the Constitution, can assume that role.

In fine, I concur in the majority decision to the extent that it requires notice before laws become
effective, for no person should be bound by a law without notice. This is elementary fairness.
However, I beg to disagree insofar as it holds that such notice shall be by publication in the
Official Gazette.

Cuevas and Alampay, JJ., concur.

 GUTIERREZ, Jr., J., concurring:

I concur insofar as publication is necessary but reserve my vote as to the necessity of such
publication being in the Official Gazette.

  DE LA FUENTE, J.,  concurring:

I concur insofar as the opinion declares the unpublished decrees and issuances of a public
nature or general applicability ineffective, until due publication thereof.

  Separate Opinions

FERNANDO, C.J., concurring (with qualification):

There is on the whole acceptance on my part of the views expressed in the ably written opinion
of Justice Escolin. I am unable, however, to concur insofar as it would unqualifiedly impose the
requirement of publication in the Official Gazette for unpublished "presidential issuances" to
have binding force and effect.

I shall explain why.

1. It is of course true that without the requisite publication, a due process question would arise
if made to apply adversely to a party who is not even aware of the existence of any legislative or
executive act having the force and effect of law. My point is that such publication required need
not be confined to the Official Gazette. From the pragmatic standpoint, there is an advantage to
be gained. It conduces to certainty. That is too be admitted. It does not follow, however, that
failure to do so would in all cases and under all circumstances result in a statute, presidential
decree or any other executive act of the same category being bereft of any binding force and
effect. To so hold would, for me, raise a constitutional question. Such a pronouncement would
lend itself to the interpretation that such a legislative or presidential act is bereft of the attribute
of effectivity unless published in the Official Gazette. There is no such requirement in the
Constitution as Justice Plana so aptly pointed out. It is true that what is decided now applies
only to past "presidential issuances". Nonetheless, this clarification is, to my mind, needed to
avoid any possible misconception as to what is required for any statute or presidential act to be
impressed with binding force or effectivity.

2. It is quite understandable then why I concur in the separate opinion of Justice Plana. Its first
paragraph sets forth what to me is the constitutional doctrine applicable to this case. Thus: "The
Philippine Constitution does not require the publication of laws as a prerequisite for their
effectivity, unlike some Constitutions elsewhere. It may be said though that the guarantee of
due process requires notice of laws to affected Parties before they can be bound thereby; but
such notice is not necessarily by publication in the Official Gazette. The due process clause is
not that precise. 1 I am likewise in agreement with its closing paragraph: "In fine, I concur in the
majority decision to the extent that it requires notice before laws become effective, for no person
should be bound by a law without notice. This is elementary fairness. However, I beg to
disagree insofar as it holds that such notice shall be by publication in the Official Gazette. 2

3. It suffices, as was stated by Judge Learned Hand, that law as the command of the government
"must be ascertainable in some form if it is to be enforced at all. 3 It would indeed be to reduce it
to the level of mere futility, as pointed out by Justice Cardozo, "if it is unknown and
unknowable. 4 Publication, to repeat, is thus essential. What I am not prepared to subscribe to is
the doctrine that it must be in the Official Gazette. To be sure once published therein there is the
ascertainable mode of determining the exact date of its effectivity. Still for me that does not
dispose of the question of what is the jural effect of past presidential decrees or executive acts
not so published. For prior thereto, it could be that parties aware of their existence could have
conducted themselves in accordance with their provisions. If no legal consequences could attach
due to lack of publication in the Official Gazette, then serious problems could arise. Previous
transactions based on such "Presidential Issuances" could be open to question. Matters deemed
settled could still be inquired into. I am not prepared to hold that such an effect is contemplated
by our decision. Where such presidential decree or executive act is made the basis of a criminal
prosecution, then, of course, its ex post facto character becomes evident. 5 In civil cases though,
retroactivity as such is not conclusive on the due process aspect. There must still be a showing
of arbitrariness. Moreover, where the challenged presidential decree or executive act was issued
under the police power, the non-impairment clause of the Constitution may not always be
successfully invoked. There must still be that process of balancing to determine whether or not
it could in such a case be tainted by infirmity. 6 In traditional terminology, there could arise then
a question of unconstitutional application. That is as far as it goes.

4. Let me make therefore that my qualified concurrence goes no further than to affirm that
publication is essential to the effectivity of a legislative or executive act of a general application.
I am not in agreement with the view that such publication must be in the Official Gazette. The
Civil Code itself in its Article 2 expressly recognizes that the rule as to laws taking effect after
fifteen days following the completion of their publication in the Official Gazette is subject to this
exception, "unless it is otherwise provided." Moreover, the Civil Code is itself only a legislative
enactment, Republic Act No. 386. It does not and cannot have the juridical force of a
constitutional command. A later legislative or executive act which has the force and effect of
law can legally provide for a different rule.
5. Nor can I agree with the rather sweeping conclusion in the opinion of Justice Escolin that
presidential decrees and executive acts not thus previously published in the Official Gazette
would be devoid of any legal character. That would be, in my opinion, to go too far. It may be
fraught, as earlier noted, with undesirable consequences. I find myself therefore unable to yield
assent to such a pronouncement.

I am authorized to state that Justices Makasiar, Abad Santos, Cuevas, and Alampay concur in
this separate opinion.

Makasiar, Abad Santos, Cuevas and Alampay, JJ., concur.

TEEHANKEE, J., concurring:

I concur with the main opinion of Mr. Justice Escolin and the concurring opinion of Mme.
Justice Herrera. The Rule of Law connotes a body of norms and laws published and
ascertainable and of equal application to all similarly circumstances and not subject to arbitrary
change but only under certain set procedures. The Court has consistently stressed that "it is an
elementary rule of fair play and justice that a reasonable opportunity to be informed must be
afforded to the people who are commanded to obey before they can be punished for its
violation,1 citing the settled principle based on due process enunciated in earlier cases that
"before the public is bound by its contents, especially its penal provisions, a law, regulation or
circular must first be published and the people officially and specially informed of said contents
and its penalties.

Without official publication in the Official Gazette as required by Article 2 of the Civil Code and
the Revised Administrative Code, there would be no basis nor justification for the corollary rule
of Article 3 of the Civil Code (based on constructive notice that the provisions of the law are
ascertainable from the public and official repository where they are duly published) that
"Ignorance of the law excuses no one from compliance therewith.

Respondents' contention based on a misreading of Article 2 of the Civil Code that "only laws
which are silent as to their effectivity [date] need be published in the Official Gazette for their
effectivity" is manifestly untenable. The plain text and meaning of the Civil Code is that "laws
shall take effect after fifteen days following the completion of their publication in the Official
Gazette, unless it is otherwise provided, " i.e. a different effectivity date is provided by the law
itself. This proviso perforce refers to a law that has been duly published pursuant to the basic
constitutional requirements of due process. The best example of this is the Civil Code itself: the
same Article 2 provides otherwise that it "shall take effect [only] one year [not 15 days] after
such publication. 2 To sustain respondents' misreading that "most laws or decrees specify the
date of their effectivity and for this reason, publication in the Official Gazette is not necessary
for their effectivity 3 would be to nullify and render nugatory the Civil Code's indispensable
and essential requirement of prior publication in the Official Gazette by the simple expedient of
providing for immediate effectivity or an earlier effectivity date in the law itself before the
completion of 15 days following its publication which is the period generally fixed by the Civil
Code for its proper dissemination.

MELENCIO-HERRERA, J., concurring:
I agree. There cannot be any question but that even if a decree provides for a date of effectivity,
it has to be published. What I would like to state in connection with that proposition is that
when a date of effectivity is mentioned in the decree but the decree becomes effective only
fifteen (15) days after its publication in the Official Gazette, it will not mean that the decree can
have retroactive effect to the date of effectivity mentioned in the decree itself. There should be
no retroactivity if the retroactivity will run counter to constitutional rights or shall destroy
vested rights.

PLANA, J.,  concurring (with qualification):

The Philippine Constitution does not require the publication of laws as a prerequisite for their
effectivity, unlike some Constitutions elsewhere. * It may be said though that the guarantee of
due process requires notice of laws to affected parties before they can be bound thereby; but
such notice is not necessarily by publication in the Official Gazette. The due process clause is
not that precise. Neither is the publication of laws in the Official Gazette required by any statute
as a prerequisite for their effectivity, if said laws already provide for their effectivity date.

Article 2 of the Civil Code provides that "laws shall take effect after fifteen days following the
completion of their publication in the Official Gazette, unless it is otherwise provided " Two things
may be said of this provision: Firstly, it obviously does not apply to a law with a built-in
provision as to when it will take effect. Secondly, it clearly recognizes that each law may
provide not only a different period for reckoning its effectivity date but also a different mode of
notice. Thus, a law may prescribe that it shall be published elsewhere than in the Official
Gazette.

Commonwealth Act No. 638, in my opinion, does not support the proposition that for their
effectivity, laws must be published in the Official Gazette. The said law is simply "An Act to
Provide for the Uniform Publication and Distribution of the Official Gazette." Conformably
therewith, it authorizes the publication of the Official Gazette, determines its frequency,
provides for its sale and distribution, and defines the authority of the Director of Printing in
relation thereto. It also enumerates what shall be published in the Official Gazette, among them,
"important legislative acts and resolutions of a public nature of the Congress of the Philippines"
and "all executive and administrative orders and proclamations, except such as have no general
applicability." It is noteworthy that not all legislative acts are required to be published in the
Official Gazette but only "important" ones "of a public nature." Moreover, the said law does not
provide that publication in the Official Gazette is essential for the effectivity of laws. This is as it
should be, for all statutes are equal and stand on the same footing. A law, especially an earlier
one of general application such as Commonwealth Act No. 638, cannot nullify or restrict the
operation of a subsequent statute that has a provision of its own as to when and how it will take
effect. Only a higher law, which is the Constitution, can assume that role.

In fine, I concur in the majority decision to the extent that it requires notice before laws become
effective, for no person should be bound by a law without notice. This is elementary fairness.
However, I beg to disagree insofar as it holds that such notice shall be by publication in the
Official Gazette.

Cuevas and Alampay, JJ., concur.

GUTIERREZ, Jr., J.,  concurring:

I concur insofar as publication is necessary but reserve my vote as to the necessity of such
publication being in the Official Gazette.

PNB vs Office of the President

1. ADMINISTRATIVE LAW; OFFICE OF THE PRESIDENT- APPEAL THEREFROM MAY BE

TAKEN TO THE COURT OF A~PEALS; SUPREME COURT MAY TAKE COGNIZANCE
THEREOF IN THE INTEREST OF SPEEDY JUSTICE. — Under Revised Administrative Circular
No. 1-95, "appeals from judgments or final orders of the . . . Office of the President . . . may be
taken to the Court of Appeals . . ." However, in order to hasten the resolution of this case, which
was deemed submitted for decision three years ago, the Court resolved to make an exception to
the said Circular in the interest of speedy justice.

2. CIVIL LAW; GENERALLY, LAWS HAVE NO RRETROACTIVE EFFECT — Pursuant to

Article 4 of the Civil Code," (l)aws shall have no retroactive effect, unless the contrary is
provided."cralaw virtua1aw library

3. ADMINISTRATIVE LAW; PRESIDENTIAL DECREE NO. 957 (THE SUBDIVISION AND

CONDOMINIUM BUYERS’ PROTECTIVE DECREE) WITH RETROACTIVE APPLICATION.
— It is obvious and indubitable that P.D. 957 was intended to cover even those real estate
mortgages, like the one at issue here, executed prior to its enactments, and such intent (as
succinctly captured in the preamble) must be given effect if the laudable purpose of protecting
innocent purchasers is to be achieved. While P.D. 957 did not expressly provide for retroactivity
in its entirety, yet the same can be plainly inferred from the unmistakable intent of the law to
protect innocent lot buyers from scheming subdivision developers. As between these small lot
buyers and the gigantic financial institutions which the developers deal with, it is obvious that
the law as an instrument of social justice - must favor the weak. Likewise noteworthy are certain
provisions of P.D. 957, which themselves constitute strong arguments in favor of the
retroactivity of P.D. 957 as a whole. These are Sections 20, 21 and 23 thereof, which by their very
terms have retroactive effect and will impact upon even those contracts and transactions
entered into prior to P.D. 957’s enactment

4. STATUTORY CONSTRUCTION; INTENT OF THE STATUTE IS THE LAW. — The instent of

a statute is the law. If a statute is valid it is to have effect according to the purpose and intent of
the lawmaker. The intent is the vital part, the essence of the law, and the primary rule of
construction is to ascertain and give effect to the intent. The intention of the legislature in
enacting a law is the law itself, and must be enforced when ascertained; although it may not be
consistent with the strict letter of the statute. Courts will not follow the letter of a statute when it
leads away from the true intent and purpose of the legislature and to conclusions inconsistent
with the general purpose of the act. Intent is the spirit which gives life to a legislative
enactment. In construing statutes the proper course is to start out and follow the true intent of
the legislature and to adopt that sense which harmonizes best with the context and promotes in
the fullest manner the apparent policy and objects of the legislature. (Sutherland, in his well-
known treatise on Statutory Construction [quoted with approval by this Court in an old case of
consequence, Ongsiako v. Gamboa]).

5. CONSTITUTIONAL LAW; CONSTITUTION, NON-IMPAIRMENT CLAUSE: CAN NOT

PREVAIL OVER POLICE POWER OF THE STATE. — Despite the Impairment clause, a
contract valid at the time of its execution may be legally modified or even completely
invalidated by a subsequent law. If the law is a proper exercise of the police power, it will
prevail over the contract. Into each contract are read the provisions of existing law and, always,
a reservation of the police power as long as the agreement deals with a matter affecting the
public welfare. Such a contract, it has been held, suffers a congenital infirmity, and this is its
susceptibility to change by the legislature as a postulate of the legal order.

6. ADMINISTRATIVE LAW PRESIDENTIAL DECREE NO. 957 (THE SUBDIVIION AND

CONDOMINIUM BUYERS’ DECREE); REAL ESTATE MORTGAGE MADE BY THE
SUBDIVISION OWNER IN FAVOR OF THE BANK DECLARED NULL AND VOID WHERE
RIGHTS OF SUBDIVISION LOT BUYERS CLASH WITH THE MORTGAGEES BANK’S RIGHT
TO FORECLOSE. — The decision of the Court of Appeals in Breta and Hamor v. Lao, et al,
penned by then Court of Appeals Associate Justice Jose A R. Melo, now a respected member of
this Court, is persuasive, the factual circumstances therein being of great similarity to the
antecedent facts of the case at bench. By the foregoing citation, this Court thus adopts by
reference the foregoing as part of this Decision. The real estate mortgage in the above cited case,
although constituted in 1975 and outside the beneficial aegis of P.D. 957,was struck down by the
Court of Appeals which found in favor of subdivision lot buyers when the rights of the latter
clashed with the mortgagee bank’s right to foreclose the property. The Court of Appeals in that
case upheld the decision of the trial court declaring the real estate mortgage as null and void.
7. ID.; ID.; ID.; ID. MORTGAGEE BANK OBLIGED TO ACCEPT PAYMENT OF REAMINING
UNPAID AMORTIZATIONS OF SUBDIVISION LOT BUYERS. — A to the second issue of non-
privity, petitioner avers that, in view of the provisions of Article 1311 of the Civil Code, PNB,
being a "total stranger to the land purchase agreement," cannot be made to take the developer’s
place. We disagree. P.D. 957 being applicable, Section 18 of said law obliges petitioner Bank to
accept the payment of the rernaining unpaid amortizations tendered by private respondents.
Privity of contracts as a defense does not apply in this case for the law explicitly grants to the
buyer the option to pay the installment payment for his lot or unit directly to the mortgagee
(petitioner), which is required to apply such payments to reduce the corresponding portion of
the mortgage indebtedness secured by the particular lot or unit being paid for. And, as stated
earlier, this is without prejudice to petitioner Bank’s seeking relief against the subdivision
developer.

RESOLUTION

PANGANIBAN, J.:

May a buyer of a property at a foreclosure sale dispossess prior purchasers on installment of

individual lots therein, or compel them to pay again for the lots which they previously bought
from the defaulting mortgagor-subdivision developer, on the theory that P.D. 957, "The
Subdivision and Condominium Buyers’ Protective Decree", is not applicable to the mortgage
contract in question, the same having been executed prior to the enactment of P.D. 957? This is
the question confronting the Court in this Petition challenging the Decision dated March 10,
1992 of the Office of the President of the Philippines in O.P. Case No. 4249, signed by the
Executive Secretary, Franklin M. Drilon, "by authority of the President."cralaw virtua1aw
library

Private respondents were buyers on installment of subdivision lots from Marikina Village, Inc.
(represented by spouses Antonio and Susana Astudillo). Notwithstanding the land purchase
agreements it executed over said lots, the subdivision developer mortgaged the lots in favor of
the petitioner, Philippine National Bank. Unaware of this mortgage, private respondents duly
complied with their obligations as lot buyers and constructed their houses on the lots in
question.

Subsequently, the subdivision developer defaulted and PNB foreclosed on the mortgage. As
highest bidder at the foreclosure sale, the bank became owner of the lots.chanroblesvirtual|
awlibrary

Acting on suits brought by private respondents (which were later consolidated), the HLURB
Office of Appeals Adjudication and Legal Affairs (OAALA) in a decision rendered on October
28, 1988 ruled that PNB — without prejudice to seeking relief against Marikina Village, Inc. —
may collect from private respondents only the "remaining amortization, in accordance with the
land purchase agreements they had previously entered into with "Marikina Village. Inc., and
cannot compel private respondents to pay all over again for the lots they had already bought
from said subdivision developer. On May 2, 1989, the Housing and Land Use Regulatory Board
affirmed this decision. On March 10, 1992, the Office of the President, invoking P.D. 957,
likewise concurred with the HLURB. Hence, the present recourse to this Court.

Under Revised Administrative Circular No. 1-95, "appeals from judgments or final orders of the
. . . Office of the President . . . may be taken to the Court of Appeals . . . ." However, in order to
hasten the resolution of this case, which was deemed submitted for decision three years ago, the
Court resolved to make an exception to the said Circular in the interest of speedy justice.

Petitioner bank raised the following issues:chanroblesvirtuallawlibrary

1. The Office of the President erred in applying P.D. 957 because said law was enacted only on
July 12, 1976, while the subject mortgage was executed on December 18, 1975; and

2. Petitioner Bank is not privy to the contracts between private respondents and mortgagor-
subdivision developer, hence, the Office of the President erred in ordering petitioner Bank to
accept private respondents’ remaining amortization and issue the corresponding titles after
payment thereof.

Normally, pursuant to Article 4 of the Civil Code." (l)aws shall have no retroactive effect, unless
the contrary is provided." However, it is obvious and indubitable that P.D. 957 was intended to
cover even those real estate mortgages, like the one at issue here, executed prior to its
enactment, and such intent (as succinctly captured in the preamble quoted below) must be
given effect if the laudable purpose of protecting innocent purchasers is to be
achieved:chanrobles.com : virtual lawlibrary

"WHEREAS, it is the policy of the State to afford its inhabitants the requirements of decent
human settlement and to provide them with ample opportunities for improving their quality of
life;

"WHEREAS, numerous reports reveal that many real estate subdivision owners, developers,
operators, and/or sellers have reneged on their representations and obligations to provide and
maintain properly subdivision roads, drainage, sewerage, water systems, lighting systems, and
other similar basic requirements, thus endangering the health and safety of home and lot
buyers;

"WHEREAS, reports of alarming magnitude also show cases of swindling and fraudulent
manipulations perpetrated by unscrupulous subdivision and condominium sellers and
operators, such as failure to deliver titles to the buyers or titles free from liens and
encumbrance’ and to pay real estate taxes, and fraudulent sales of the same subdivision lots to
different innocent purchasers for value;" 1 (Emphasis supplied)

While P.D. 957 did not expressly provide for retroactivity in its entirety, yet the same can be
plainly inferred from the unmistakable intent of the law to protect innocent lot buyers from
scheming subdivision developers. As between these small lot buyers and the gigantic financial
institutions which the developers deal with, it is obvious that the law — as an instrument of
social justice — must favor the weak. Indeed, the petitioner Bank had at its disposal vast
resources with which it could adequately protect its loan activities, and therefore is presumed to
have conducted the usual "due diligence" checking and ascertained (whether thru ocular
inspection or other modes of investigation) the actual status, condition, utilization and
occupancy of the property offered as collateral. It could not have been unaware that the
property had been built on by small lot buyers. On the other hand, private respondents
obviously were powerless to discover the attempt of the land developer to hypothecate the
property being sold to them. It was precisely in order to deal with this kind of situation that
P.D. 957 was enacted, its very essence and intendment being to provide a protective mantle
over helpless citizens who may fall prey to the razzmatazz of what P.D. 957 termed
"unscrupulous subdivision and condominium sellers."cralaw virtua1aw library

The intent of the law, as culled from its preamble and from the situation, circumstances and
condition it sought to remedy, must be enforced. Sutherland, in his well-known treatise on
Statutory Construction (quoted with approval by this Court in an old case of consequence,
Ongsiako v. Gamboa 2), says:jgc:chanrobles.com.ph

"The intent of a statute is the law. If a statute is valid it is to have effect according to the purpose
and intent of the lawmaker. The intent is the vital part, the essence of the law, and the primary
rule of construction is to ascertain and give effect to the intent. The intention of the legislature in
enacting a law is the law itself, and must be enforced when ascertained; although it may not be
consistent with the strict letter of the statute. Courts will not follow the letter of a statute when it
leads away from the true intent and purpose of the legislature and to conclusions inconsistent
with the general purpose of the act. Intent is the spirit which gives life to a legislative
enactment. In construing statutes, the proper course is to start out and follow the true intent of
the legislature and to adopt that sense which harmonizes best with the context and promotes in
the fullest manner the apparent policy and objects of the legislature."

Truly, this Court cannot allow the injustice that will be wrought by a strictly prospective
application of the law. Little people who have toiled for years through blood and tears would
be deprived of their homes through no fault of their own. As the Solicitor General, in his
comment, argues:

"Verily, if P.D. 957 were to exclude from its coverage the aforecited mortgage contract, the
vigorous regulation which P.D. 957 seeks to impose on unconscientious subdivision sellers will
be translated into a feeble exercise of police power just because the iron hand of the State cannot
particularly touch mortgage contracts badged with the fortunate accident of having been
constituted prior to the enactment of P.D. 957. Indeed, it would be illogical in the extreme if P.D.
957 is to be given full force and effect and yet, the fraudulent practices and manipulations it
seeks to curb in the first instance can nevertheless be liberally perpetrated precisely because
P.D. 957 cannot be applied to existing antecedent mortgage contracts. The legislative intent
could not have conceivably permitted a loophole which all along works to the prejudice of
subdivision lot buyers (private respondents)." 4

Likewise noteworthy are certain provisions of P.D. 957, which themselves constitute strong
arguments in favor of the retroactivity of P.D. 957 as a whole. These are Sections 20, 21 and 23
thereof, which by their very terms have retroactive effect and will impact upon even those
contracts and transactions entered into prior to P.D. 957’s

"SEC. 20. Time of Completion. — Every owner or developer shall construct and provide the
facilities, improvements, infrastructures and other forms of development, including water
supply and lighting facilities, which are offered and indicated in the approved subdivision or
condominium plans, brochures, prospectus, printed matters, letters or in any form of
advertisement, within one year from the date of the issuance of the license for the subdivision or
condominium project or such other period of time as may be fixed by the Authority.

"SEC. 1. Sales Prior to Decree. — In cases of subdivision lots or condominium units sold or
disposed of prior to the effectivity of this Decree, it shall be incumbent upon the owner or
developer of the subdivision or condominium project to complete compliance with his or its
obligations as provided in the preceding section within two years from the date of this Decree
unless otherwise extended by the Authority or unless an adequate performance bond is filed in
accordance with Section 6 hereof.

"Failure of the owner or developer to comply with the obligations under this and the preceding
provisions shall constitute a violation punishable under Section 38 and 39 of this

"SEC. 23. Non-Forfeiture of Payments. — No installment payment made by a buyer in a

subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in
favor of the owner or developer when the buyer, after due notice to the owner or developer,
desists from further payment due to the failure of the owner or developer to develop the
subdivision or condominium project according to the approved plans and within the time limit
for complying with the same. Such buyer may, at his option, be reimbursed the total amount
paid including amortization interests but excluding delinquency interests, with interest thereon
at the legal rate." (Emphasis supplied)

As for objections about a possible violation of the impairment clause, we find the following
statements of Justice Isagani Cruz enlightening and pertinent to the case a bench:j

"Despite the impairment clause, a contract valid at the time of its execution may be legally
modified or even completely invalidated by a subsequent law. If the law is a proper exercise of
the police power, it will prevail over the contract.chanrobles.com : virtual lawlibrary

"Into each contract are read the provisions of existing law and, always, a reservation of the
police power as long as the agreement deals with a matter affecting the public welfare. Such a
contract, it has been held, suffers a congenital infirmity, and this is its susceptibility to change
by the legislature as a postulate of the legal order." 5

This Court ruled along similar lines in Juarez v. Court of Appeals 6:

"The petitioner complains that the retroactive application of the law would violate the
impairment clause. The argument does not impress. The impairment clause is now no longer
inviolate; in fact, there are many who now believe it is an anachronism in the present-day
society. It was quite useful before in protecting the integrity of private agreements from
government meddling, but that was when such agreements did not affect the community in
general. They were indeed purely private agreements then. Any interference with them at that
time was really an unwarranted intrusion that could properly struck down.

"But things are different now. More and more the interests of the public have become involved
in what are supposed to be still private agreements, which have as a result been removed from
the protection of the impairment clause. These agreements have come within the embrace of the
police power, that obtrusive protector of the public interest. It is a ubiquitous policeman indeed.
As long as the contract affects the public welfare one way or another so as to require the
interference of the State, then must the police power be asserted, and prevail, over the
impairment clause."cralaw virtua1aw library

The decision of the Court of Appeals in Breta and Hamor v. Lao, Et. Al. 7, penned by then Court
of Appeals Associate Justice Jose A. R. Melo, now a respected member of this Court is
persuasive, the factual circumstances therein being of great similarity to the antecedent facts of
the case at bench:

"Protection must be afforded small homeowners who toil and save if only to purchase on
installment a tiny home lot they can call their own. The consuming dream of every Filipino is to
be able to buy a lot, no matter how small, so that he may somehow build a house. It has,
however, been seen of late that these honest, hard-living individuals are taken advantage of,
with the delivery of titles delayed, the subdivision facilities, including the most essential such as
water installations not completed, or worse yet, as in the instant case, after almost completing
the payments for the property and after constructing a house, the buyer is suddenly confronted
by the stark reality, contrived or otherwise, in which another person would now appear to be
owner.

x x x

"We cannot over emphasize the fact that the BANK cannot barefacedly argue that simply
because the title or titles offered as security were clean of any encumbrance or lien, that it was
thereby relieved of thing any other step to verify the over-reaching implications should the
subdivision be auctioned on foreclosure. The BANK could not have closed its eyes that it was
dealing over a subdivision where there were already houses constructed. Did it not enter the
mind of the responsible officers of the BANK that there may even be subdivision residents who
have almost completed their installment payments?" (Id., pp. 7 & 9)

By the foregoing citation, this Court thus adopts by reference the foregoing as part of this
Decision.

The real estate mortgage in the above cited case although constituted in 1975 and outside the
beneficial aegis of P.D. 957, was struck down by the Court of Appeals which found in favor of
subdivision lot buyers when the rights of the latter clashed with the mortgagee bank’s right to
foreclose the property. The Court of Appeals in that case upheld the decision of the trial court
declaring the real estate mortgage as null and void.

As to the second issue of non-privity, petitioner avers that, in view of the provisions of Article
1311 of the Civil Code, PNB, being a "total stranger to the land purchase agreement," cannot be
made to take the developer’s place.

We disagree. P.D. 957 being applicable, Section 18 of said law obliges petitioner Bank to accept
the payment of the remaining unpaid amortization tendered by private respondents.

"SEC. 18. Mortgages. — No mortgage on any unit or lot shall be made by the owner or
developer without prior written approval of the Authority. Such approval shall not be granted
unless it is shown that the proceeds of the mortgage loan shall be used for the development of
the condominium or subdivision project and effective measures have been provided to ensure
such utilization. The loan value of each lot or unit covered by the mortgage shall be determined
and the buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at
his option, pay his installment for the lot or unit directly to the mortgagee who shall apply the
payments to the corresponding mortgage indebtedness secured by the particular lot or unit
being paid for, with a view to enabling said buyer to obtain title over the lot or unit promptly
after full payment thereof ." (Emphasis supplied)

Privity of contracts as a defense does not apply in this case for the law explicitly grants to the
buyer the option to pay the installment payment for his lot or unit directly to the mortgagee
(petitioner, which is required to apply such payments to reduce the corresponding portion of
the mortgage indebtedness secured by the particular lot or unit being paid for. And, as stated
earlier, this is without prejudice to petitioner Bank’s seeking relief against the subdivision
developer.

Finally, before closing this Resolution, we enjoin petitioner Bank to focus not only on the strictly
legal issues involved in this case but also to take another look at the larger issues including
social justice and the protection of human rights as enshrined in the Constitution, firstly,
because legal issues are raised and decided not in a vacuum but within the context of existing
social, economic and political conditions, law being merely a brick in the up-building of the
social edifice; and secondly, Petitioner, being THE state bank, is for all intents and purposes an
instrument for the implementation of state policies so cherished in our fundamental law. These
consideration are obviously far more weighty than the winning of any particular suit or the
acquisition of any specific property. Thus, as the country strives to move ahead towards
economic self-sufficiency and to achieve dreams of "NIC-blood" and social well-being for the
majority of our countrymen, we hold that petitioner Bank, the premier bank in the country,
which has in recent years made record earnings and acquired an enable international stature,
with branches and subsidiaries in key financial centers around the world, should be equally as
happy with the disposition of this case as the private respondents, who were almost deprived
and dispossessed of their very homes purchased through their hard work and with their
meager savings.

WHEREFORE, in view of the foregoing considerations, the petition is hereby DENIED,

petitioner having failed to show any REVERSIBLE ERROR or GRAVE ABUSE OF DISCRETION
in the assailed decision. No costs.chanrobles.com :

SO ORDERED.
 People vs. Que Po Lay

Que Po Lay is appealing from the decision of the Court of First Instance of Manila, finding him
guilty of violating Central Bank Circular No. 20 in connection with section 34 of Republic Act
No. 265, and sentencing him to suffer six months imprisonment, to pay a fine of P1,000 with
subsidiary imprisonment in case of insolvency, and to pay the costs.

The charge was that the appellant who was in possession of foreign exchange consisting of U.S.
dollars, U.S. checks and U.S. money orders amounting to about $7,000 failed to sell the same to
the Central Bank through its agents within one day following the receipt of such foreign
exchange as required by Circular No. 20. the appeal is based on the claim that said circular No.
20 was not published in the Official Gazette prior to the act or omission imputed to the
appellant, and that consequently, said circular had no force and effect. It is contended that
Commonwealth Act. No., 638 and Act 2930 both require said circular to be published in the
Official Gazette, it being an order or notice of general applicability. The Solicitor General
answering this contention says that Commonwealth Act. No. 638 and 2930 do not require the
publication in the Official Gazette of said circular issued for the implementation of a law in
order to have force and effect.

We agree with the Solicitor General that the laws in question do not require the publication of
the circulars, regulations and notices therein mentioned in order to become binding and
effective. All that said two laws provide is that laws, resolutions, decisions of the Supreme
Court and Court of Appeals, notices and documents required by law to be of no force and
effect. In other words, said two Acts merely enumerate and make a list of what should be
published in the Official Gazette, presumably, for the guidance of the different branches of the
Government issuing same, and of the Bureau of Printing.

However, section 11 of the Revised Administrative Code provides that statutes passed by
Congress shall, in the absence of special provision, take effect at the beginning of the fifteenth
day after the completion of the publication of the statute in the Official Gazette. Article 2 of the
new Civil Code (Republic Act No. 386) equally provides that laws shall take effect after fifteen
days following the completion of their publication in the Official Gazette, unless it is otherwise
provided. It is true that Circular No. 20 of the Central Bank is not a statute or law but being
issued for the implementation of the law authorizing its issuance, it has the force and effect of
law according to settled jurisprudence. (See U.S. vs. Tupasi Molina, 29 Phil., 119 and authorities
cited therein.) Moreover, as a rule, circulars and regulations especially like the Circular No. 20
of the Central Bank in question which prescribes a penalty for its violation should be published
before becoming effective, this, on the general principle and theory that before the public is
bound by its contents, especially its penal provisions, a law, regulation or circular must first be
published and the people officially and specifically informed of said contents and its penalties.

Our Old Civil code, ( Spanish Civil Code of 1889) has a similar provision about the effectivity of
laws, (Article 1 thereof), namely, that laws shall be binding twenty days after their
promulgation, and that their promulgation shall be understood as made on the day of the
termination of the publication of the laws in the Gazette. Manresa, commenting on this article is
of the opinion that the word "laws" include regulations and circulars issued in accordance with
the same. He says:

El Tribunal Supremo, ha interpretado el articulo 1. del codigo Civil en Sentencia de 22 de Junio

de 1910, en el sentido de que bajo la denominacion generica de leyes, se comprenden tambien
los Reglamentos, Reales decretos, Instrucciones, Circulares y Reales ordenes dictadas de
conformidad con las mismas por el Gobierno en uso de su potestad. Tambien el poder ejecutivo
lo ha venido entendiendo asi, como lo prueba el hecho de que muchas de sus disposiciones
contienen la advertencia de que empiezan a regir el mismo dia de su publicacion en la Gaceta,
advertencia que seria perfectamente inutil si no fuera de aplicacion al caso el articulo 1.o del
Codigo Civil. (Manresa, Codigo Civil Español, Vol. I. p. 52).

In the present case, although circular No. 20 of the Central Bank was issued in the year 1949, it
was not published until November 1951, that is, about 3 months after appellant's conviction of
its violation. It is clear that said circular, particularly its penal provision, did not have any legal
effect and bound no one until its publication in the Official Gazzette or after November 1951. In
other words, appellant could not be held liable for its violation, for it was not binding at the
time he was found to have failed to sell the foreign exchange in his possession thereof.

But the Solicitor General also contends that this question of non-publication of the Circular is
being raised for the first time on appeal in this Court, which cannot be done by appellant.
Ordinarily, one may raise on appeal any question of law or fact that has been raised in the court
below and which is within the issues made by the parties in their pleadings. (Section 19, Rule 48
of the Rules of Court). But the question of non-publication is fundamental and decisive. If as a
matter of fact Circular No. 20 had not been published as required by law before its violation,
then in the eyes of the law there was no such circular to be violated and consequently appellant
committed no violation of the circular or committed any offense, and the trial court may be said
to have had no jurisdiction. This question may be raised at any stage of the proceeding whether
or not raised in the court below.

In view of the foregoing, we reverse the decision appealed from and acquit the appellant, with
costs de oficio.

Pesca vs Pesca

Submitted for review is the decision of the Court of Appeals, promulgated on 27 May 1998, in
C.A. G.R. CV. No. 52374, reversing the decision of the Regional Trial Court ("RTC") of Caloocan
City, Branch 130, which has declared the marriage between petitioner and respondent to be null
and void ab initio on the ground of psychological incapacity on the part of respondent.

Petitioner Lorna G. Pesca and respondent Zosimo A. Pesca first met sometime in 1975 while on
board an inter-island vessel bound for Bacolod City. After a whirlwind courtship, they got
married on 03 March 1975. Initially, the young couple did not live together as petitioner was
still a student in college and respondent, a seaman, had to leave the country on board an ocean-
going vessel barely a month after the marriage. Six months later, the young couple established
their residence in Quezon City until they were able to build their own house in Caloocan City
where they finally resided. It was blissful marriage for the couple during the two months of the
year that they could stay together - when respondent was on vacation. The union begot four
children, 19-year old Ruhem, 17-year old Rez, 11-year old Ryan, and 9-year old Richie.

It started in 1988, petitioner said, when she noticed that respondent surprisingly showed signs
of "psychological incapacity" to perform his marital covenant. His "true color" of being an
emotionally immature and irresponsible husband became apparent. He was cruel and violent.
He was a habitual drinker, staying with friends daily from 4:00 o'clock in the afternoon until
1:00 o'clock in the morning. When cautioned to stop or, to at least, minimize his drinking,
respondent would beat, slap and kick her. At one time, he chased petitioner with a loaded
shotgun and threatened to kill her in the presence of the children. The children themselves were
not spared from physical violence.

Finally, on 19 November 1992, petitioner and her children left the conjugal abode to live in the
house of her sister in Quezon City as they could no longer bear his violent ways. Two months
later, petitioner decided to forgive respondent, and she returned home to give him a chance to
change. But, to her dismay, things did not so turn out as expected. Indeed, matters became
worse.

On the morning of 22 March 1994, about eight o'clock, respondent assaulted petitioner for about
half an hour in the presence of the children. She was battered black and blue. She submitted
herself to medical examination at the Quezon City General Hospital, which diagnosed her
injuries as contusions and abrasions. Petitioner filed a complaint with the barangay authorities,
and a case was filed against respondent for slight physical injuries. He was convicted by the
Metropolitan Trial Court of Caloocan City and sentenced to eleven days of imprisonment.

This time, petitioner and her children left the conjugal home for good and stayed with her sister.
Eventually, they decided to rent an apartment. Petitioner sued respondent before the Regional
Trial Court for the declaration of nullity of their marriage invoking psychological incapacity.
Petitioner likewise sought the custody of her minor children and prayed for support pendente
lite .

Summons, together with a copy of the complaint, was served on respondent on 25 April 1994 by
personal service by the sheriff. As respondent failed to file an answer or to enter his appearance
within the reglementary period, the trial court ordered the city prosecutor to look into a
possible collusion between the parties. Prosecutor Rosa C. Reyes, on 03 August 1994, submitted
her report to the effect that she found no evidence to establish that there was collusion between
the parties. 1âwphi1.nêt

On 11 January 1995, respondent belatedly filed, without leave of court, an answer, and the
same, although filed late, was admitted by the court. In his answer, respondent admitted the
fact of his marriage with petitioner and the birth of their children. He also confirmed the
veracity of Annex "A" of the complaint which listed the conjugal property. Respondent
vehemently denied, however, the allegation that he was psychologically incapacitated.

On 15 November 1995, following hearings conducted by it, the trial court rendered its decision
declaring the marriage between petitioner and respondent to be null and void ab initio on the
basis of psychological incapacity on the part of respondent and ordered the liquidation of the
conjugal partnership.

Respondent appealed the above decision to the Court of Appeals, contending that the trial court
erred, particularly, in holding that there was legal basis to declare the marriage null and void
and in denying his motion to reopen the case.

The Court of Appeals reversed the decision of the trial court and declared the marriage between
petitioner and respondent valid and subsisting. The appellate court said:
"Definitely the appellee has not established the following: That the appellant showed signs of
mental incapacity as would cause him to be truly incognitive of the basic marital covenant, as so
provided for in Article 68 of the Family Code; that the incapacity is grave, has preceded the
marriage and is incurable; that his incapacity to meet his marital responsibility is because of a
psychological, not physical illness; that the root cause of the incapacity has been identified
medically or clinically, and has been proven by an expert; and that the incapacity is permanent
and incurable in nature.

"The burden of proof to show the nullity of marriage lies in the plaintiff and any doubt should
be resolved in favor of the existence and continuation of the marriage and against its dissolution
and nullity."1

Petitioner, in her plea to this Court, would have the decision of the Court of Appeals reversed
on the thesis that the doctrine enunciated in Santos vs. Court of Appeals,2 promulgated on 14
January 1995, as well as the guidelines set out in Republic vs. Court of Appeals and Molina,3
promulgated on 13 February 1997, should have no retroactive application and, on the
assumption that the Molina ruling could be applied retroactively, the guidelines therein
outlined should be taken to be merely advisory and not mandatory in nature. In any case,
petitioner argues, the application of the Santos and Molina dicta should warrant only a remand
of the case to the trial court for further proceedings and not its dismissal.

Be that as it may, respondent submits, the appellate court did not err in its assailed decision for
there is absolutely no evidence that has been shown to prove psychological incapacity on his
part as the term has been so defined in Santos.

Indeed, there is no merit in the petition.

The term "psychological incapacity," as a ground for the declaration of nullity of a marriage
under Article 36 of the Family Code, has been explained by the Court, in Santos and reiterated
in Molina. The Court, in Santos, concluded:

"It should be obvious, looking at all the foregoing disquisitions, including, and most
importantly, the deliberations of the Family Code Revision Committee itself, that the use of the
phrase 'psychological incapacity' under Article 36 of the Code has not been meant to
comprehend all such possible cases of psychoses as, likewise mentioned by some ecclesiastical
authorities, extremely low intelligence, immaturity, and like circumstances (cited in Fr. Artemio
Balumad's 'Void and Voidable Marriages in the Family Code and their Parallels in Canon Law,'
quoting form the Diagnostic Statistical Manuel of Mental Disorder by the American Psychiatric
Association; Edward Hudson's 'Handbook II for Marriage Nullity Cases'). Article 36 of the
Family. Code cannot be taken and construed independently of, but must stand in conjunction
with, existing precepts in our law on marriage. Thus correlated, 'psychological incapacity'
should refer to no less than a mental (not physical) incapacity that causes a party to be truly
incognitive of the basic marital covenants that concomitantly must be assumed and discharged
by the parties to the marriage which, as so expressed by Article 68 of the Family Code, include
their mutual obligations to live together, observe love, respect and fidelity and render help and
support. There is hardly any doubt that the intendment of the law has been to confine the
meaning of 'psychological incapacity' to the most serious cases of personality disorders clearly
demonstrative of an utter insensitivity or inability to give meaning and significance to the
marriage. This psychologic condition must exist at the time the marriage is celebrated."

The- "doctrine of stare decisis," ordained in Article 8 of the Civil Code, expresses that judicial
decisions applying or interpreting the law shall form part of the legal system of the Philippines.
The rule follows the settled legal maxim - "legis interpretado legis vim obtinet" - that the
interpretation placed upon the written law by a competent court has the force of law.3 The
interpretation or construction placed by the courts establishes the contemporaneous legislative
intent of the law. The latter as so interpreted and construed would thus constitute a part of that
law as of the date the statute is enacted. It is only when a prior ruling of this Court finds itself
later overruled, and a different view is adopted, that the new doctrine may have to be applied
prospectively in favor of parties who have relied on the old doctrine and have acted in good
faith in accordance therewith5 under the familiar rule of "lex prospicit, non respicit."

The phrase "psychological incapacity ," borrowed from Canon law, is an entirely novel
provision in our statute books, and, until the relatively recent enactment of the Family Code, the
concept has escaped jurisprudential attention. It is in Santos when, for the first time, the Court
has given life to the term. Molina, that followed, has additionally provided procedural
guidelines to assist the courts and the parties in trying cases for annulment of marriages
grounded on psychological incapacity. Molina has strengthened, not overturned, Santos.

At all events, petitioner has utterly failed, both in her allegations in the complaint and in her
evidence, to make out a case of psychological incapacity on the part of respondent, let alone at
the time of solemnization of the contract, so as to warrant a declaration of nullity of the
marriage. Emotional immaturity and irresponsibility, invoked by her, cannot be equated with
psychological incapacity.

The Court reiterates its reminder that marriage is an inviolable social institution and the
foundation of the family6 that the State cherishes and protects. While the Court commisserates
with petitioner in her unhappy marital relationship with respondent, totally terminating that
relationship, however, may not necessarily be the fitting denouement to it. In these cases, the
law has not quite given up, neither should we.

WHEREFORE, the herein petition is DENIED. No costs.

 Quita vs Dandan

FE D. QUITA and Arturo T. Padlan, both Filipinos, were married in the Philippines on 18 May
1941. They were not however blessed with children. Somewhere along the way their
relationship soured. Eventually Fe sued Arturo for divorce in San Francisco, California, U.S.A.
She submitted in the divorce proceedings a private writing dated 19 July 1950 evidencing their
agreement to live separately from each other and a settlement of their conjugal properties. On
23 July 1954 she obtained a final judgment of divorce. Three (3) weeks thereafter she married a
certain Felix Tupaz in the same locality but their relationship also ended in a divorce. Still in the
U.S.A., she married for the third time, to a certain Wernimont.

On 16 April 1972 Arturo died. He left no will. On 31 August 1972 Lino Javier Inciong filed a
petition with the Regional Trial Court of Quezon City for issuance of letters of administration
concerning the estate of Arturo in favor of the Philippine Trust Company. Respondent Blandina
Dandan (also referred to as Blandina Padlan), claiming to be the surviving spouse of Arturo
Padlan, and Claro, Alexis, Ricardo, Emmanuel, Zenaida and Yolanda, all surnamed Padlan,
named in the petition as surviving children of Arturo Padlan, opposed the petition and prayed
for the appointment instead of Atty. Leonardo Cabasal, which was resolved in favor of the
latter. Upon motion of the oppositors themselves, Atty. Cabasal was later replaced by Higino
Castillon. On 30 April 1973 the oppositors (Blandina and the Padlan children) submitted
certified photocopies of the 19 July 1950 private writing and the final judgment of divorce
between petitioner and Arturo. Later Ruperto T. Padlan, claiming to be the sole surviving
brother of the deceased Arturo, intervened.

On 7 October 1987 petitioner moved for the immediate declaration of heirs of the decedent and
the distribution of his estate. At the scheduled hearing on 23 October 1987, private respondent
as well as the six (6) Padlan children and Ruperto failed to appear despite due notice. On the
same day, the trial court required the submission of the records of birth of the Padlan children
within ten (10) days from receipt thereof, after which, with or without the documents, the issue
on the declaration of heirs would be considered submitted for resolution. The prescribed period
lapsed without the required documents being submitted.

The trial court invoking Tenchavez v. Escao1 which held that "a foreign divorce between
Filipino citizens sought and decreed after the effectivity of the present Civil Code (Rep. Act 386)
was not entitled to recognition as valid in this jurisdiction,"2 disregarded the divorce between
petitioner and Arturo. Consequently, it expressed the view that their marriage subsisted until
the death of Arturo in 1972. Neither did it consider valid their extrajudicial settlement of
conjugal properties due to lack of judicial approval.3 On the other hand, it opined that there
was no showing that marriage existed between private respondent and Arturo, much less was it
shown that the alleged Padlan children had been acknowledged by the deceased as his children
with her. As regards Ruperto, it found that he was a brother of Arturo. On 27 November 19874
only petitioner and Ruperto were declared the intestate heirs of Arturo. Accordingly, equal
adjudication of the net hereditary estate was ordered in favor of the two intestate
heirs.5cräläwvirtualibräry

On motion for reconsideration, Blandina and the Padlan children were allowed to present
proofs that the recognition of the children by the deceased as his legitimate children, except
Alexis who was recognized as his illegitimate child, had been made in their respective records
of birth. Thus on 15 February 19886 partial reconsideration was granted declaring the Padlan
children, with the exception of Alexis, entitled to one-half of the estate to the exclusion of
Ruperto Padlan, and petitioner to the other half.7 Private respondent was not declared an heir.
Although it was stated in the aforementioned records of birth that she and Arturo were married
on 22 April 1947, their marriage was clearly void since it was celebrated during the existence of
his previous marriage to petitioner.

In their appeal to the Court of Appeals, Blandina and her children assigned as one of the errors
allegedly committed by the trial court the circumstance that the case was decided without a
hearing, in violation of Sec. 1, Rule 90, of the Rules of Court, which provides that if there is a
controversy before the court as to who are the lawful heirs of the deceased person or as to the
distributive shares to which each person is entitled under the law, the controversy shall be
heard and decided as in ordinary cases.

Respondent appellate court found this ground alone sufficient to sustain the appeal; hence, on
11 September 1995 it declared null and void the 27 November 1987 decision and 15 February
1988 order of the trial court, and directed the remand of the case to the trial court for further
proceedings.8 On 18 April 1996 it denied reconsideration.9cräläwvirtualibräry

Should this case be remanded to the lower court for further proceedings? Petitioner insists that
there is no need because, first, no legal or factual issue obtains for resolution either as to the
heirship of the Padlan children or as to their respective shares in the intestate estate of the
decedent; and, second, the issue as to who between petitioner and private respondent is the
proper heir of the decedent is one of law which can be resolved in the present petition based on
established facts and admissions of the parties.
We cannot sustain petitioner. The provision relied upon by respondent court is clear: If there is
a controversy before the court as to who are the lawful heirs of the deceased person or as to the
distributive shares to which each person is entitled under the law, the controversy shall be
heard and decided as in ordinary cases.

We agree with petitioner that no dispute exists either as to the right of the six (6) Padlan
children to inherit from the decedent because there are proofs that they have been duly
acknowledged by him and petitioner herself even recognizes them as heirs of Arturo Padlan;10
nor as to their respective hereditary shares. But controversy remains as to who is the legitimate
surviving spouse of Arturo. The trial court, after the parties other than petitioner failed to
appear during the scheduled hearing on 23 October 1987 of the motion for immediate
declaration of heirs and distribution of estate, simply issued an order requiring the submission
of the records of birth of the Padlan children within ten (10) days from receipt thereof, after
which, with or without the documents, the issue on declaration of heirs would be deemed
submitted for resolution.

We note that in her comment to petitioner's motion private respondent raised, among others,
the issue as to whether petitioner was still entitled to inherit from the decedent considering that
she had secured a divorce in the U.S.A. and in fact had twice remarried. She also invoked the
above quoted procedural rule.11 To this, petitioner replied that Arturo was a Filipino and as
such remained legally married to her in spite of the divorce they obtained.12 Reading between
the lines, the implication is that petitioner was no longer a Filipino citizen at the time of her
divorce from Arturo. This should have prompted the trial court to conduct a hearing to
establish her citizenship. The purpose of a hearing is to ascertain the truth of the matters in
issue with the aid of documentary and testimonial evidence as well as the arguments of the
parties either supporting or opposing the evidence. Instead, the lower court perfunctorily
settled her claim in her favor by merely applying the ruling in Tenchavez v. Escao.

Then in private respondent's motion to set aside and/or reconsider the lower court's decision
she stressed that the citizenship of petitioner was relevant in the light of the ruling in Van Dorn
v. Romillo Jr.13 that aliens may obtain divorces abroad, which may be recognized in the
Philippines, provided they are valid according to their national law. She prayed therefore that
the case be set for hearing.14 Petitioner opposed the motion but failed to squarely address the
issue on her citizenship.15 The trial court did not grant private respondent's prayer for a
hearing but proceeded to resolve her motion with the finding that both petitioner and Arturo
were "Filipino citizens and were married in the Philippines."16 It maintained that their divorce
obtained in 1954 in San Francisco, California, U.S.A., was not valid in Philippine jurisdiction.
We deduce that the finding on their citizenship pertained solely to the time of their marriage as
the trial court was not supplied with a basis to determine petitioner's citizenship at the time of
their divorce. The doubt persisted as to whether she was still a Filipino citizen when their
divorce was decreed. The trial court must have overlooked the materiality of this aspect. Once
proved that she was no longer a Filipino citizen at the time of their divorce, Van Dorn would
become applicable and petitioner could very well lose her right to inherit from Arturo.

Respondent again raised in her appeal the issue on petitioner's citizenship;17 it did not merit
enlightenment however from petitioner.18 In the present proceeding, petitioner's citizenship is
brought anew to the fore by private respondent. She even furnishes the Court with the
transcript of stenographic notes taken on 5 May 1995 during the hearing for the reconstitution
of the original of a certain transfer certificate title as well as the issuance of new owner's
duplicate copy thereof before another trial court. When asked whether she was an American
citizen petitioner answered that she was since 1954.19 Significantly, the decree of divorce of
petitioner and Arturo was obtained in the same year. Petitioner however did not bother to file a
reply memorandum to erase the uncertainty about her citizenship at the time of their divorce, a
factual issue requiring hearings to be conducted by the trial court. Consequently, respondent
appellate court did not err in ordering the case returned to the trial court for further
proceedings.

We emphasize however that the question to be determined by the trial court should be limited
only to the right of petitioner to inherit from Arturo as his surviving spouse. Private
respondent's claim to heirship was already resolved by the trial court. She and Arturo were
married on 22 April 1947 while the prior marriage of petitioner and Arturo was subsisting
thereby resulting in a bigamous marriage considered void from the beginning under Arts. 80
and 83 of the Civil Code. Consequently, she is not a surviving spouse that can inherit from him
as this status presupposes a legitimate relationship.20cräläwvirtualibräry

As regards the motion of private respondent for petitioner and her counsel to be declared in
contempt of court and that the present petition be dismissed for forum shopping,21 the same
lacks merit. For forum shopping to exist the actions must involve the same transactions and
same essential facts and circumstances. There must also be identical causes of action, subject
matter and issue.22 The present petition deals with declaration of heirship while the subsequent
petitions filed before the three (3) trial courts concern the issuance of new owner's duplicate
copies of titles of certain properties belonging to the estate of Arturo. Obviously, there is no
reason to declare the existence of forum shopping.

WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals ordering
the remand of the case to the court of origin for further proceedings and declaring null and void
its decision holding petitioner Fe D. Quita and Ruperto T. Padlan as intestate heirs is
AFFIRMED. The order of the appellate court modifying its previous decision by granting one-
half (1/2) of the net hereditary estate to the Padlan children, namely, Claro, Ricardo,
Emmanuel, Zenaida and Yolanda, with the exception of Alexis, all surnamed Padlan, instead of
Arturo's brother Ruperto Padlan, is likewise AFFIRMED. The Court however emphasizes that
the reception of evidence by the trial court should be limited to the hereditary rights of
petitioner as the surviving spouse of Arturo Padlan.

The motion to declare petitioner and her counsel in contempt of court and to dismiss the
present petition for forum shopping is DENIED.
 Cui vs Arellano University

Appeal by plaintiff Emeterio Cui from a decision of the Court of First Instance of Manila,
absolving defendant Arellano University from plaintiff's complaint, with costs against the
plaintiff, and dismissing defendant's counter claim, for insufficiency of proof thereon.

In the language of the decision appealed from:

The essential facts of this case are short and undisputed. As established by the agreement of
facts Exhibits X and by the respective oral and documentary evidence introduced by the parties,
it appears conclusive that plaintiff, before the school year 1948-1949 took up preparatory law
course in the defendant University. After finishing his preparatory law course plaintiff enrolled
in the College of Law of the defendant from the school year 1948-1949. Plaintiff finished his law
studies in the defendant university up to and including the first semester of the fourth year.
During all the school years in which plaintiff was studying law in defendant law college,
Francisco R. Capistrano, brother of the mother of plaintiff, was the dean of the College of Law
and legal counsel of the defendant university. Plaintiff enrolled for the last semester of his law
studies in the defendant university but failed to pay his tuition fees because his uncle Dean
Francisco R. Capistrano having severed his connection with defendant and having accepted the
deanship and chancellorship of the College of Law of Abad Santos University, plaintiff left the
defendant's law college and enrolled for the last semester of his fourth year law in the college of
law of the Abad Santos University graduating from the college of law of the latter university.
Plaintiff, during all the time he was studying law in defendant university was awarded
scholarship grants, for scholastic merit, so that his semestral tuition fees were returned to him
after the ends of semester and when his scholarship grants were awarded to him. The whole
amount of tuition fees paid by plaintiff to defendant and refunded to him by the latter from the
first semester up to and including the first semester of his last year in the college of law or the
fourth year, is in total P1,033.87. After graduating in law from Abad Santos University he
applied to take the bar examination. To secure permission to take the bar he needed the
transcripts of his records in defendant Arellano University. Plaintiff petitioned the latter to issue
to him the needed transcripts. The defendant refused until after he had paid back the P1,033 87
which defendant refunded to him as above stated. As he could not take the bar examination
without those transcripts, plaintiff paid to defendant the said sum under protest. This is the
sum which plaintiff seeks to recover from defendant in this case.

Before defendant awarded to plaintiff the scholarship grants as above stated, he was made to
sign the following contract covenant and agreement:

"In consideration of the scholarship granted to me by the University, I hereby waive my right to
transfer to another school without having refunded to the University (defendant) the equivalent
of my scholarship cash.

(Sgd.) Emeterio Cui".

It is admitted that, on August 16, 1949, the Director of Private Schools issued Memorandum No.
38, series of 1949, on the subject of "Scholarship," addressed to "All heads of private schools,
colleges and universities," reading:

1. School catalogs and prospectuses submitted to this, Bureau show that some schools offer full
or partial scholarships to deserving students — for excellence in scholarship or for leadership in
extra-curricular activities. Such inducements to poor but gifted students should be encouraged.
But to stipulate the condition that such scholarships are good only if the students concerned
continue in the same school nullifies the principle of merit in the award of these scholarships.

2. When students are given full or partial scholarships, it is understood that such scholarships
are merited and earned. The amount in tuition and other fees corresponding to these
scholarships should not be subsequently charged to the recipient students when they decide to
quit school or to transfer to another institution. Scholarships should not be offered merely to
attract and keep students in a school.

3. Several complaints have actually been received from students who have enjoyed
scholarships, full or partial, to the effect that they could not transfer to other schools since their
credentials would not be released unless they would pay the fees corresponding to the period of
the scholarships. Where the Bureau believes that the right of the student to transfer is being
denied on this ground, it reserves the right to authorize such transfer.

that defendant herein received a copy of this memorandum; that plaintiff asked the Bureau of
Private Schools to pass upon the issue on his right to secure the transcript of his record in
defendant University, without being required to refund the sum of P1,033.87; that the Bureau of
Private Schools upheld the position taken by the plaintiff and so advised the defendant; and
that, this notwithstanding, the latter refused to issue said transcript of records, unless said
refund were made, and even recommended to said Bureau that it issue a written order directing
the defendant to release said transcript of record, "so that the case may be presented to the court
for judicial action." As above stated, plaintiff was, accordingly, constrained to pay, and did pay
under protest, said sum of P1,033.87, in order that he could take the bar examination in 1953.
Subsequently, he brought this action for the recovery of said amount, aside from P2,000 as
moral damages, P500 as exemplary damages, P2,000 as attorney's fees, and P500 as expenses of
litigation.

In its answer, defendant reiterated the stand it took, vis-a-vis the Bureau of Private Schools,
namely, that the provisions of its contract with plaintiff are valid and binding and that the
memorandum above-referred to is null and void. It, likewise, set up a counterclaim for
P10,000.00 as damages, and P3,000 as attorney's fees.

The issue in this case is whether the above quoted provision of the contract between plaintiff
and the defendant, whereby the former waived his right to transfer to another school without
refunding to the latter the equivalent of his scholarships in cash, is valid or not. The lower court
resolved this question in the affirmative, upon the ground that the aforementioned
memorandum of the Director of Private Schools is not a law; that the provisions thereof are
advisory, not mandatory in nature; and that, although the contractual provision "may be
unethical, yet it was more unethical for plaintiff to quit studying with the defendant without
good reasons and simply because he wanted to follow the example of his uncle." Moreover,
defendant maintains in its brief that the aforementioned memorandum of the Director of
Private Schools is null and void because said officer had no authority to issue it, and because it
had been neither approved by the corresponding department head nor published in the official
gazette.

We do not deem it necessary or advisable to consider as the lower court did, the question
whether plaintiff had sufficient reasons or not to transfer from defendant University to the
Abad Santos University. The nature of the issue before us, and its far reaching effects, transcend
personal equations and demand a determination of the case from a high impersonal plane.
Neither do we deem it essential to pass upon the validity of said Memorandum No. 38, for,
regardless of the same, we are of the opinion that the stipulation in question is contrary to
public policy and, hence, null and void. The aforesaid memorandum merely incorporates a
sound principle of public policy. As the Director of Private Schools correctly pointed, out in his
letter, Exhibit B, to the defendant,

There is one more point that merits refutation and that is whether or not the contract entered
into between Cui and Arellano University on September 10, 1951 was void as against public
policy. In the case of Zeigel vs. Illinois Trust and Savings Bank, 245 Ill. 180, 19 Ann. Case 127,
the court said: 'In determining a public policy of the state, courts are limited to a consideration
of the Constitution, the judicial decisions, the statutes, and the practice of government officers.'
It might take more than a government bureau or office to lay down or establish a public policy,
as alleged in your communication, but courts consider the practices of government officials as
one of the four factors in determining a public policy of the state. It has been consistently held in
America that under the principles relating to the doctrine of public policy, as applied to the law
of contracts, courts of justice will not recognize or uphold a transaction which its object,
operation, or tendency is calculated to be prejudicial to the public welfare, to sound morality or
to civic honesty (Ritter vs. Mutual Life Ins. Co., 169 U.S. 139; Heding vs. Gallaghere 64 L.R.A.
811; Veazy vs. Allen, 173 N.Y. 359). If Arellano University understood clearly the real essence of
scholarships and the motives which prompted this office to issue Memorandum No. 38, s. 1949,
it should have not entered into a contract of waiver with Cui on September 10, 1951, which is a
direct violation of our Memorandum and an open challenge to the authority of the Director of
Private Schools because the contract was repugnant to sound morality and civic honesty. And
finally, in Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec. 6, 1941, p. 67 we read: 'In order
to declare a contract void as against public policy, a court must find that the contract as to
consideration or the thing to be done, contravenes some established interest of society, or is
inconsistent with sound policy and good morals or tends clearly to undermine the security of
individual rights. The policy enunciated in Memorandum No. 38, s. 1949 is sound policy.
Scholarship are awarded in recognition of merit not to keep outstanding students in school to
bolster its prestige. In the understanding of that university scholarships award is a business
scheme designed to increase the business potential of an education institution. Thus conceived
it is not only inconsistent with sound policy but also good morals. But what is morals? Manresa
has this definition. It is good customs; those generally accepted principles of morality which
have received some kind of social and practical confirmation. The practice of awarding
scholarships to attract students and keep them in school is not good customs nor has it received
some kind of social and practical confirmation except in some private institutions as in Arellano
University. The University of the Philippines which implements Section 5 of Article XIV of the
Constitution with reference to the giving of free scholarships to gifted children, does not require
scholars to reimburse the corresponding value of the scholarships if they transfer to other
schools. So also with the leading colleges and universities of the United States after which our
educational practices or policies are patterned. In these institutions scholarships are granted not
to attract and to keep brilliant students in school for their propaganda mine but to reward merit
or help gifted students in whom society has an established interest or a first lien. (Emphasis
supplied.)

WHEREFORE, the decision appealed from is hereby reversed and another one shall be entered
sentencing the defendant to pay to the plaintiff the sum of P1,033.87, with interest thereon at the
legal rate from September 1, 1954, date of the institution of this case, as well as the costs, and
dismissing defendant's counterclaim. It is so ordered.
 Allied Banking corporation vs. CA et al

Before the Court is a petition for review1 assailing the Decision2 of 27 April 2000 and the
Resolution of 8 August 2000 of the Court of Appeals in CA-G.R. SP No. 51451. The Court of
Appeals upheld the Decision3 of 18 September 1998 and the Resolution of 24 December 1998 of
the National Labor Relations Commission ("NLRC") in NLRC Case No. V-000180-98. The NLRC
modified the Decision dated 23 December 1997 of Labor Arbiter Dominador A. Almirante
("Labor Arbiter") in NLRC Case No. RAB VII-05-0545-94 holding that Allied Banking
Corporation ("Allied Bank") illegally dismissed Potenciano L. Galanida ("Galanida"). The NLRC
awarded Galanida separation pay, backwages, moral and exemplary damages, and other
amounts totaling ₱ 1,264,933.33.

Antecedent Facts

For a background of this case, we quote in part from the Decision of the Court of Appeals:

Private respondent Potenciano Galanida was hired by petitioner Allied Banking Corporation on
11 January 1978 and rose from accountant-book(k)eeper to assistant manager in 1991. His
appointment was covered by a "Notice of Personnel Action" which provides as one of the
conditions of employment the provision on petitioner’s right to transfer employees:

"REGULAR APPOINTMENT: xxx It is understood that the bank reserves the right to transfer or
assign you to other departments or branches of the bank as the need arises and in the interest of
maintaining smooth and uninterrupted service to the public."

Private respondent was promoted several times and was transferred to several branches as
follows:

"a) January, 1978 to March, 1982 – Tagbilaran City Branch

"b) April, 1982 to May, 1984 – Lapulapu City Branch

"c) June, 1984 – Mandaue City Branch

"d) July, 1984 to April, 1986 – Tagbilaran City Branch

"e) May, 1986 to May, 1987 – Dumaguete City Branch

"f) June, 1987 to August, 1987 – Carbon Branch, Cebu City

"g) September, 1987 to Sept. 1989 – Lapulapu City Branch, Cebu

"h) October, 1989 to Sept. 1992 – Carbon Branch, Cebu City

"i) October 1992 to Sept. 1994 – Jakosalem Regional Branch, Cebu City" (Rollo, p. 47)

Effecting a rotation/movement of officers assigned in the Cebu homebase, petitioner listed

respondent as second in the order of priority of assistant managers to be assigned outside of
Cebu City having been stationed in Cebu for seven years already. Private respondent
manifested his refusal to be transferred to Bacolod City in a letter dated 19 April 1994 citing as
reason parental obligations, expenses, and the anguish that would result if he is away from his
family. He then filed a complaint before the Labor Arbiter for constructive dismissal.

Subsequently, petitioner bank informed private respondent (Rollo, p. 86) that he was to report
to the Tagbilaran City Branch effective 23 May 1994. Private respondent refused. In a letter
dated 13 June 1994, petitioner warned and required of private respondent as follows:

"There is no discrimination in your transfer. In fact, among the officers mentioned, only you
have refused the new assignment citing difficulty of working away from your family as if the
other officers concerned do not suffer the same predicament. To exempt you from the officer
transfer would result in favoritism in your favor and discrimination as against the other officers
concerned.

"In furtherance of maintaining a smooth and uninterrupted service to the public, and in
accordance with the Bank’s order of priority of rotating its accountants’ places of assignments,
you are well aware that Roberto Isla, AM/Accountant, assigned in Cebu for more than ten (10)
years, was, on February 14, 1994, reassigned to Iligan City Branch and then to Cagayan de Oro
City Branch on June 8, 1994. Hence, your objection on the ground of your length of service is
without merit.

xxx

"As discussed, your refusal to follow instruction concerning your transfer and reassignment to
Bacolod City and to Tagbilaran City is penalized under Article XII of the Bank’s Employee
Discipline Policy and Procedure [which] provides:

‘XII Transfer and Reassignment

Refusal to follow instruction concerning transfers and reassignments.

First and subsequent offenses –

The penalty may range from suspension to dismissal as determined by management. The
employee shall be required to comply with the order of transfer and reassignment, if the
penalty is not termination of employment.’

"In view of the foregoing, please explain in writing within three (3) days from receipt hereof
why no disciplinary action should be meted against you for your having refused to follow
instructions concerning the foregoing transfer and reassignment." xxx4
On 16 June 1994, Galanida replied that "(w)hether the bank’s penalty for my refusal be
Suspension or Dismissal xxx it will all the more establish and fortify my complaint now
pending at NLRC, RAB 7."5 In the same letter, he charged Allied Bank with discrimination and
favoritism in ordering his transfer, thus:

xxx What I cannot decipher now under the headship of Mr. Olveda is management’s
discriminatory act of transferring only the long staying accountants of Cebu in the guise of its
exercise of management prerogative when in truth and in fact, the ulterior motive is to
accommodate some new officers who happen to enjoy favorable connection with management.
How can the bank ever justify the transfer of Melinda T. Co, a new officer who had experienced
being assigned outside of Cebu for more than a year only to Tabunok Branch? If the purpose is
for check and balance, is management implying that Melinda Co can better carry out such
function over Mr. Larry Sabelino, who is a seasoned and experienced accountant or any of the
Metro Cebu accountants for that matter? Isn’t this act of management an obvious display of
favoritism? xxx6

On 5 October 1994, Galanida received an inter-office communication7 ("Memo") dated 8

September 1994 from Allied Bank’s Vice-President for Personnel, Mr. Leonso C. Pe. The Memo
informed Galanida that Allied Bank had terminated his services effective 1 September 1994. The
reasons given for the dismissal were: (1) Galanida’s continued refusal to be transferred from the
Jakosalem, Cebu City branch; and (2) his refusal to report for work despite the denial of his
application for additional vacation leave. The salient portion of the Memo reads:

Therefore, your refusal to follow instruction concerning your transfer and reassignment to
Bacolod City and to Tagbilaran City is without any justifiable reason and constituted violations
of Article XII of the Bank’s EDPP xxx

In view of the foregoing, please be informed that the Bank has terminated your services
effective September 1, 1994 and considered whatever benefit, if any, that you are entitled as
forfeited in accordance with 04, V Administrative Penalties, page 6 of the Bank’s EDPP which
provides as follows:

"04. Dismissal.

Dismissal is a permanent separation for cause xxx

Notice of termination shall be issued by the Investigation Committee subject to the confirmation
of the President or his authorized representative as officer/employee who is terminated for
cause shall not be eligible to receive any benefit arising from her/his employment with the Bank
or to termination pay."

It is understood that the termination of your service shall be without prejudice to whatever legal
remedies which the Bank may have already undertaken and/or will undertake against you.

Please be guided accordingly. (Emphasis supplied)8

The Ruling of the Labor Arbiter

After several hearings, the Labor Arbiter held that Allied Bank had abused its management
prerogative in ordering the transfer of Galanida to its Bacolod and Tagbilaran branches. In
ruling that Galanida’s refusal to transfer did not amount to insubordination, the Labor Arbiter
misquoted this Court’s decision in Dosch v. NLRC,9 thus:

As a general rule, the right to transfer or reassign an employee is recognized as an employer’s

exclusive right and the prerogative of management (Abbott Laboratories vs. NLRC, 154 SCRA
713 [1987]).

The exercise of this right, is not however, absolute. It has certain limitations. Thus, in Helmut
Dosch vs. NLRC, et al. 123 SCRA 296 (1983), the Supreme Court, ruled:

"While it may be true that the right to transfer or reassign an employee is an employer’s
exclusive right and the prerogative of management, such right is not absolute. The right of an
employer to freely select or discharge his employee is limited by the paramount police power
xxx for the relations between capital and labor are not merely contractual but impressed with
public interest. xxx And neither capital nor labor shall act oppressively against each other.

Refusal to obey a transfer order cannot be considered insubordination where employee cited
reason for said refusal, such (sic) as that of being away from the family."10 (Underscoring
supplied by the Labor Arbiter)

The Labor Arbiter reasoned that Galanida’s transfer was inconvenient and prejudicial because
Galanida would have to incur additional expenses for board, lodging and travel. On the other
hand, the Labor Arbiter held that Allied Bank failed to show any business urgency that would
justify the transfer.

The Labor Arbiter also gave credence to Galanida’s claim that Allied Bank gave Ms. Co special
treatment. The Labor Arbiter stated that Allied Bank deliberately left out Ms. Co’s name from
the list of accountants transferred to Cebu as contained in Allied Bank’s letter dated 13 June
1994. However, Mr. Regidor Olveda, Allied Bank’s Vice President for Operations Accounting,
testified that the bank transferred Ms. Co to the Tabunok, Cebu branch within the first half of
1994.

Still, the Labor Arbiter declined to award Galanida back wages because he was not entirely free
from blame. Since another bank had already employed Galanida, the Labor Arbiter granted
Galanida separation pay in lieu of reinstatement. The dispositive portion of the Labor Arbiter’s
Decision of 23 December 1997 provides:

WHEREFORE, premises considered, judgment is hereby rendered ordering respondent Allied

Banking Corporation to pay complainant the aggregate total amount of Three Hundred Twenty
Four Thousand Pesos (₱ 324,000.00) representing the following awards:

a) Separation pay for ₱ 272,000.00;

b) Quarter bonus for 1994 – ₱ 16,000.00;

c) 13th month pay for 1994 – ₱ 16,000.00;

d) Refund of contribution to Provident Fund - ₱ 20,000.00.

SO ORDERED.11
The Ruling of the NLRC

On appeal, the NLRC likewise ruled that Allied Bank terminated Galanida without just cause.
The NLRC agreed that the transfer order was unreasonable and unjustified, considering the
family considerations mentioned by Galanida. The NLRC characterized the transfer as a
demotion since the Bacolod and Tagbilaran branches were smaller than the Jakosalem branch, a
regional office, and because the bank wanted Galanida, an assistant manager, to replace an
assistant accountant in the Tagbilaran branch. The NLRC found unlawful discrimination since
Allied Bank did not transfer several junior accountants in Cebu. The NLRC also held that Allied
Bank gave Ms. Co special treatment by assigning her to Cebu even though she had worked for
the bank for less than two years.

The NLRC ruled that Galanida’s termination was illegal for lack of due process. The NLRC
stated that Allied Bank did not conduct any hearing. The NLRC declared that Allied Bank failed
to send a termination notice, as required by law for a valid termination. The Memo merely
stated that Allied Bank would issue a notice of termination, but the bank did not issue any
notice.

The NLRC concluded that Allied Bank dismissed Galanida in bad faith, tantamount to an unfair
labor practice as the dismissal undermined Galanida’s right to security of tenure and equal
protection of the laws. On these grounds, the NLRC promulgated its Decision of 18 September
1998, the relevant portion of which states:

In this particular case, We view as impractical, unrealistic and no longer advantageous to both
parties to order reinstatement of the complainant. xxx For lack of sufficient basis, We deny the
claim for 1994 quarter bonus. Likewise, no attorney’s fees is awarded as counsels for
complainant-appellee are from the City Prosecutor’s Office of Cebu.

WHEREFORE, premises considered, the decision of the Labor Arbiter dated December 23, 1997
is hereby MODIFIED by increasing the award of separation pay and granting in addition
thereto backwages, moral and exemplary damages. The respondent-appellant, ALLIED
BANKING CORPORATION, is thus ordered to pay to herein complainant-appellee,
POTENCIANO L. GALANIDA, the following amounts:

a) ₱ 336,000.00, representing separation pay

b> ₱ 833,600.00, representing backwages
c> ₱ 5,333.23 representing proportional 1994 13th month pay
d> ₱ 20,000.00 representing refund of Provident Fund Contribution
e> ₱ 50,000.00 representing moral damages
f> ₱ 20,000.00 representing exemplary damages

===========₱ 1,264,933.33 TOTAL AWARD

All other claims are dismissed for lack of basis. The other respondents are dropped for lack of
sufficient basis that they acted in excess of their corporate powers.

SO ORDERED.12

Allied Bank filed a motion for reconsideration which the NLRC denied in its Resolution of 24
December 1998.13
Dissatisfied, Allied Bank filed a petition for review questioning the Decision and Resolution of
the NLRC before the Court of Appeals.

The Ruling of the Court of Appeals

Citing Dosch v. NLRC,14 the Court of Appeals held that Galanida’s refusal to comply with the
transfer orders did not warrant his dismissal. The appellate court ruled that the transfer from a
regional office to the smaller Bacolod or Tagbilaran branches was effectively a demotion. The
appellate court agreed that Allied Bank did not afford Galanida procedural due process because
there was no hearing and no notice of termination. The Memo merely stated that the bank
would issue a notice of termination but there was no such notice.

The Court of Appeals affirmed the ruling of the NLRC in its Decision of 27 April 2000, thus:

WHEREFORE, for lack of merit, the petition is DISMISSED and the assailed Decision of public
respondent NLRC is AFFIRMED.

SO ORDERED. 15

Allied Bank filed a motion for reconsideration which the appellate court denied in its
Resolution of 8 August 2000.16

On 26 April 2001, Allied Bank appealed the appellate court’s decision and resolution to the
Supreme Court. Allied Bank prayed that the Supreme Court: (1) issue a temporary restraining
order or writ of preliminary injunction ex parte to restrain the implementation or execution of
the questioned Decision and Resolution; (2) declare Galanida’s termination as valid and legal;
(3) set aside the Court of Appeals’ Decision and Resolution; (4) make permanent the restraining
order or preliminary injunction; (5) order Galanida to pay the costs; and (6) order other
equitable reliefs.

The Issues

Allied Bank raises the following issues:

1. WHETHER UNDER THE FACTS PRESENTED THERE IS LEGAL BASIS IN PETITIONER’S

EXERCISE OF ITS MANAGEMENT PREROGATIVE.

2. WHETHER PRIVATE RESPONDENT’S VIOLATIONS OF COMPANY RULES CONSTITUTE

A GROUND TO WARRANT THE PENALTY OF DISMISSAL.

3. WHETHER UNDER THE FACTS PRESENTED, THERE IS LEGAL BASIS TO HOLD THAT
ALLIED BANK AFFORDED PRIVATE RESPONDENT THE REQUIRED DUE PROCESS.

4. WHETHER UNDER THE FACTS, THERE IS LEGAL BASIS TO HOLD THAT PRIVATE
RESPONDENT CANNOT RECOVER ANY MONETARY AWARD.17

In sum, Allied Bank argues that the transfer of Galanida was a valid exercise of its management
prerogative. Allied Bank contends that Galanida’s continued refusal to obey the transfer orders
constituted willful disobedience or insubordination, which is a just cause for termination under
the Labor Code.
On the other hand, Galanida defended his right to refuse the transfer order. The memorandum
for Galanida filed with this Court, prepared by Atty. Loreto M. Durano, again misquoted the
Court’s ruling in Dosch v. NLRC, thus:

xxx His [Galanida’s] refusal to transfer falls well within the ruling of the Supreme Court in
Helmut Dosch vs. NLRC, et. al., 123 SCRA 296 (1983) quoted as follows:

xxx

Refusal to obey a transfer order cannot be considered insubordination where employee cited
reason for said refusal, such as that of being away from the family."18

The Ruling of the Court

The petition is partly meritorious.

Preliminary Matter: Misquoting Decisions of the Supreme Court

The memorandum prepared by Atty. Durano and, worse, the assailed Decision of the Labor
Arbiter, both misquoted the Supreme Court’s ruling in Dosch v. NLRC. The Court held in
Dosch:

We cannot agree to Northwest’s submission that petitioner was guilty of disobedience and
insubordination which respondent Commission sustained. The only piece of evidence on which
Northwest bases the charge of contumacious refusal is petitioner’s letter dated August 28, 1975
to R.C. Jenkins wherein petitioner acknowledged receipt of the former’s memorandum dated
August 18, 1975, appreciated his promotion to Director of International Sales but at the same
time regretted "that at this time for personal reasons and reasons of my family, I am unable to
accept the transfer from the Philippines" and thereafter expressed his preference to remain in
his position, saying: "I would, therefore, prefer to remain in my position of Manager-Philippines
until such time that my services in that capacity are no longer required by Northwest Airlines."
From this evidence, We cannot discern even the slightest hint of defiance, much less imply
insubordination on the part of petitioner.19

The phrase "[r]efusal to obey a transfer order cannot be considered insubordination where
employee cited reason for said refusal, such as that of being away from the family" does not
appear anywhere in the Dosch decision. Galanida’s counsel lifted the erroneous phrase from
one of the italicized lines in the syllabus of Dosch found in the Supreme Court Reports
Annotated ("SCRA").

The syllabus of cases in official or unofficial reports of Supreme Court decisions or resolutions is
not the work of the Court, nor does it state this Court’s decision. The syllabus is simply the
work of the reporter who gives his understanding of the decision. The reporter writes the
syllabus for the convenience of lawyers in reading the reports. A syllabus is not a part of the
court’s decision.20 A counsel should not cite a syllabus in place of the carefully considered text
in the decision of the Court.

In the present case, Labor Arbiter Almirante and Atty. Durano began by quoting from Dosch,
but substituted a portion of the decision with a headnote from the SCRA syllabus, which they
even underscored. In short, they deliberately made the quote from the SCRA syllabus appear as
the words of the Supreme Court. We admonish them for what is at the least patent carelessness,
if not an outright attempt to mislead the parties and the courts taking cognizance of this case.
Rule 10.02, Canon 10 of the Code of Professional Responsibility mandates that a lawyer shall
not knowingly misquote or misrepresent the text of a decision or authority. It is the duty of all
officers of the court to cite the rulings and decisions of the Supreme Court accurately.21

Whether Galanida was dismissed for just cause

We accord great weight and even finality to the factual findings of the Court of Appeals,
particularly when they affirm the findings of the NLRC or the lower courts. However, there are
recognized exceptions to this rule. These exceptions are: (1) when the findings are grounded on
speculation, surmise and conjecture; (2) when the inference made is manifestly mistaken,
absurd or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4)
when the factual findings of the trial and appellate courts are conflicting; (5) when the Court of
Appeals, in making its findings, has gone beyond the issues of the case and such findings are
contrary to the admissions of both appellant and appellee; (6) when the judgment of the
appellate court is premised on a misapprehension of facts or when it has failed to consider
certain relevant facts which, if properly considered, will justify a different conclusion; (7) when
the findings of fact are conclusions without citation of specific evidence on which they are
based; and (8) when the findings of fact of the Court of Appeals are premised on the absence of
evidence but are contradicted by the evidence on record.22 After a scrutiny of the records, we
find that some of these exceptions obtain in the present case.

The rule is that the transfer of an employee ordinarily lies within the ambit of the employer’s
prerogatives.23 The employer exercises the prerogative to transfer an employee for valid
reasons and according to the requirement of its business, provided the transfer does not result
in demotion in rank or diminution of the employee’s salary, benefits and other privileges.24 In
illegal dismissal cases, the employer has the burden of showing that the transfer is not
unnecessary, inconvenient and prejudicial to the displaced employee.25

The constant transfer of bank officers and personnel with accounting responsibilities from one
branch to another is a standard practice of Allied Bank, which has more than a hundred
branches throughout the country.26 Allied Bank does this primarily for internal control. It also
enables bank employees to gain the necessary experience for eventual promotion. The Bangko
Sentral ng Pilipinas, in its Manual of Regulations for Banks and Other Financial
Intermediaries,27 requires the rotation of these personnel. The Manual directs that the "duties of
personnel handling cash, securities and bookkeeping records should be rotated" and that such
rotation "should be irregular, unannounced and long enough to permit disclosure of any
irregularities or manipulations."28

Galanida was well aware of Allied Bank’s policy of periodically transferring personnel to
different branches. As the Court of Appeals found, assignment to the different branches of
Allied Bank was a condition of Galanida’s employment. Galanida consented to this condition
when he signed the Notice of Personnel Action.29
The evidence on record contradicts the charge that Allied Bank discriminated against Galanida
and was in bad faith when it ordered his transfer. Allied Bank’s letter of 13 June 199430 showed
that at least 14 accounting officers and personnel from various branches, including Galanida,
were transferred to other branches. Allied Bank did not single out Galanida. The same letter
explained that Galanida was second in line for assignment outside Cebu because he had been in
Cebu for seven years already. The person first in line, Assistant Manager Roberto Isla, who had
been in Cebu for more than ten years, had already transferred to a branch in Cagayan de Oro
City. We note that none of the other transferees joined Galanida in his complaint or
corroborated his allegations of widespread discrimination and favoritism.

As regards Ms. Co, Galanida’s letter of 16 June 1994 itself showed that her assignment to Cebu
was not in any way related to Galanida’s transfer. Ms. Co was supposed to replace a certain
Larry Sabelino in the Tabunok branch. The employer has the prerogative, based on its
assessment of the employees’ qualifications and competence, to rotate them in the various areas
of its business operations to ascertain where they will function with maximum benefit to the
company.31

Neither was Galanida’s transfer in the nature of a demotion. Galanida did not present evidence
showing that the transfer would diminish his salary, benefits or other privileges. Instead, Allied
Bank’s letter of 13 June 1994 assured Galanida that he would not suffer any reduction in rank or
grade, and that the transfer would involve the same rank, duties and obligations. Mr. Olveda
explained this further in the affidavit he submitted to the Labor Arbiter, thus:

19. There is no demotion in position/rank or diminution of complainant’s salary, benefits and

other privileges as the transfer/assignment of branch officers is premised on the role/functions
that they will assume in the management and operations of the branch, as shown below:

a) The Branch Accountant, as controller of the branch is responsible for the proper discharge of
the functions of the accounting section of the branch, review of documentation/proper
accounting and control of transaction. As such, the accounting functions in the branch can be
assumed by any of the following officers with the rank of: Senior Manager/Acctg.; Manager/
Acctg.; Senior Asst. Manager/Acctg.; Asst. Manager/Acctg.; Accountant or Asst. Accountant.

xxx

20. The transfer/assignment of branch officer from one branch, to another branch/office is
lateral in nature and carries with it the same position/rank, salary, benefits and other privileges.
The assignment/transfer is for the officer to assume the functions relative to his job and NOT
the position/rank of the officer to be replaced.

There is also no basis for the finding that Allied Bank was guilty of unfair labor practice in
dismissing Galanida. Unfair labor practices relate only to violations of "the constitutional right
of workers and employees to self-organization"32 and are limited to the acts enumerated in
Article 248 of the Labor Code, none of which applies to the present case. There is no evidence
that Galanida took part in forming a union, or even that a union existed in Allied Bank.
This leaves the issue of whether Galanida could validly refuse the transfer orders on the ground
of parental obligations, additional expenses, and the anguish he would suffer if assigned away
from his family.

The Court has ruled on this issue before. In the case of Homeowners Savings and Loan
Association, Inc. v. NLRC,33 we held:

The acceptability of the proposition that transfer made by an employer for an illicit or
underhanded purpose – i.e., to defeat an employee’s right to self-organization, to rid himself of
an undesirable worker, or to penalize an employee for union activities – cannot be upheld is
self-evident and cannot be gainsaid. The difficulty lies in the situation where no such illicit,
improper or underhanded purpose can be ascribed to the employer, the objection to the transfer
being grounded solely upon the personal inconvenience or hardship that will be caused to the
employee by reason of the transfer. What then?

This was the very same situation we faced in Phil. Telegraph and Telephone Corp. v. Laplana.
In that case, the employee, Alicia Laplana, was a cashier at the Baguio City Branch of PT&T who
was directed to transfer to the company’s branch office at Laoag City. In refusing the transfer,
the employee averred that she had established Baguio City as her permanent residence and that
such transfer will involve additional expenses on her part, plus the fact that an assignment to a
far place will be a big sacrifice for her as she will be kept away from her family which might
adversely affect her efficiency. In ruling for the employer, the Court upheld the transfer from
one city to another within the country as valid as long as there is no bad faith on the part of the
employer. We held then:

"Certainly the Court cannot accept the proposition that when an employee opposes his
employer’s decision to transfer him to another work place, there being no bad faith or
underhanded motives on the part of either party, it is the employee’s wishes that should be
made to prevail."

Galanida, through counsel, invokes the Court’s ruling in Dosch v. NLRC.34 Dosch, however, is
not applicable to the present case. Helmut Dosch refused a transfer consequential to a
promotion. We upheld the refusal because no law compels an employee to accept a promotion,
and because the position Dosch was supposed to be promoted to did not even exist at that
time.35 This left as the only basis for the charge of insubordination a letter from Dosch in which
the Court found "not even the slightest hint of defiance, much less xxx insubordination."36

Moreover, the transfer of an employee to an overseas post, as in the Dosch case, cannot be
likened to a transfer from one city to another within the country,37 which is the situation in the
present case. The distance from Cebu City to Bacolod City or from Cebu City to Tagbilaran City
does not exceed the distance from Baguio City to Laoag City or from Baguio City to Manila,
which the Court considered a reasonable distance in PT&T v. Laplana.38

The refusal to obey a valid transfer order constitutes willful disobedience of a lawful order of an
employer.39 Employees may object to, negotiate and seek redress against employers for rules or
orders that they regard as unjust or illegal. However, until and unless these rules or orders are
declared illegal or improper by competent authority, the employees ignore or disobey them at
their peril.40 For Galanida’s continued refusal to obey Allied Bank’s transfer orders, we hold
that the bank dismissed Galanida for just cause in accordance with Article 282 (a) of the Labor
Code.41 Galanida is thus not entitled to reinstatement or to separation pay.

Whether Galanida’s dismissal violated the

requirement of notice and hearing

To be effective, a dismissal must comply with Section 2 (d), Rule 1, Book VI of the Omnibus
Rules Implementing the Labor Code ("Omnibus Rules"), which provides:

For termination of employment based on just causes as defined in Article 282 of the Labor Code:

(i) A written notice served on the employee specifying the ground or grounds of termination,
and giving said employee reasonable opportunity within which to explain his side.

(ii) A hearing or conference during which the employee concerned, with the assistance of
counsel if he so desires is given opportunity to respond to the charge, present his evidence, or
rebut the evidence presented against him.

(iii) A written notice of termination served on the employee indicating that upon due
consideration of all the circumstances, grounds have been established to justify his termination.

The first written notice was embodied in Allied Bank’s letter of 13 June 1994. The first notice
required Galanida to explain why no disciplinary action should be taken against him for his
refusal to comply with the transfer orders.

On the requirement of a hearing, this Court has held that the essence of due process is simply
an opportunity to be heard.42 An actual hearing is not necessary. The exchange of several
letters, in which Galanida’s wife, a lawyer with the City Prosecutor’s Office, assisted him, gave
Galanida an opportunity to respond to the charges against him.

The remaining issue is whether the Memo dated 8 September 1994 sent to Galanida constitutes
the written notice of termination required by the Omnibus Rules. In finding that it did not, the
Court of Appeals and the NLRC cited Allied Bank’s rule on dismissals, quoted in the Memo,
that, "Notice of termination shall be issued by the Investigation Committee subject to the
confirmation of the President or his authorized representative."43 The appellate court and
NLRC held that Allied Bank did not send any notice of termination to Galanida. The Memo,
with the heading "Transfer and Reassignment," was not the termination notice required by law.

We do not agree.

Even a cursory reading of the Memo will show that it unequivocally informed Galanida of
Allied Bank’s decision to dismiss him. The statement, "please be informed that the Bank has
terminated your services effective September 1, 1994 and considered whatever benefit, if any,
that you are entitled [to] as forfeited xxx"44 is plainly worded and needs no interpretation. The
Memo also discussed the findings of the Investigation Committee that served as grounds for
Galanida’s dismissal. The Memo referred to Galanida’s "open defiance and refusal" to transfer
first to the Bacolod City branch and then to the Tagbilaran City branch. The Memo also
mentioned his continued refusal to report for work despite the denial of his application for
additional vacation leave.45 The Memo also refuted Galanida’s charges of discrimination and
demotion, and concluded that he had violated Article XII of the bank’s Employee Discipline
Policy and Procedure.

The Memo, although captioned "Transfer and Reassignment," did not preclude it from being a
notice of termination. The Court has held that the nature of an instrument is characterized not
by the title given to it but by its body and contents.46 Moreover, it appears that Galanida
himself regarded the Memo as a notice of termination. We quote from the Memorandum for
Private Respondent-Appellee, as follows:

The proceedings may be capsulized as follows:

1. On March 13, 199447 Private Respondent-Appellee filed before the Region VII Arbitration
Branch a Complaint for Constructive Dismissal. A copy of the Complaint is attached to the
Petition as Annex "H";

xxx

5. On September 8, 1994, Petitioner-Appellant issued him a Letter of Termination. A copy of

said letter is attached to the Petition as Annex "N";

6. Private Respondent-Appellee filed an Amended/ Supplemental Complaint wherein he

alleged illegal dismissal. A copy of the Amended/Supplemental Complaint is attached to the
Petition as Annex "O"; xxx 48 (Emphasis supplied)

The Memorandum for Private Respondent-Appellee refers to the Memo as a "Letter of

Termination." Further, Galanida amended his complaint for constructive dismissal49 to one for
illegal dismissal50 after he received the Memo. Clearly, Galanida had understood the Memo to
mean that Allied Bank had terminated his services.

The Memo complied with Allied Bank’s internal rules which required the bank’s President or
his authorized representative to confirm the notice of termination. The bank’s Vice-President for
Personnel, as the head of the department that handles the movement of personnel within Allied
Bank, can certainly represent the bank president in cases involving the dismissal of employees.

Nevertheless, we agree that the Memo suffered from certain errors.1âwphi1 Although the
Memo stated that Allied Bank terminated Galanida’s services as of 1 September 1994, the Memo
bore the date 8 September 1994. More importantly, Galanida only received a copy of the Memo
on 5 October 1994, or more than a month after the supposed date of his dismissal. To be
effective, a written notice of termination must be served on the employee.51 Allied Bank could
not terminate Galanida on 1 September 1994 because he had not received as of that date the
notice of Allied Bank’s decision to dismiss him. Galanida’s dismissal could only take effect on 5
October 1994, upon his receipt of the Memo. For this reason, Galanida is entitled to backwages
for the period from 1 September 1994 to 4 October 1994.

Under the circumstances, we also find an award of ₱ 10,000 in nominal damages proper. Courts
award nominal damages to recognize or vindicate the right of a person that another has
violated.52 The law entitles Galanida to receive timely notice of Allied Bank’s decision to
dismiss him. Allied Bank should have exercised more care in issuing the notice of termination.
WHEREFORE, the Decision of 27 April 2000 of the Court of Appeals in CA-G.R. SP No. 51451
upholding the Decision of 18 September 1998 of the NLRC in NLRC Case No. V-000180-98 is
AFFIRMED, with the following MODIFICATIONS:

1) The awards of separation pay, moral damages and exemplary damages are hereby deleted
for lack of basis;

2) Reducing the award of backwages to cover only the period from 1 September 1994 to 4
October 194; and

3) Awarding nominal damages to private respondent for ₱ 10,000.

This case is REMANDED to the Labor Arbiter for the computation, within thirty (30) days from
receipt of this Decision, of the backwages, inclusive of allowances and other benefits, due to
Potenciano L. Galanida for the time his dismissal was ineffectual from 1 September 1994 until 4
October 1994.

Labor Arbiter Dominador A. Almirante and Atty. Loreto M. Durano are ADMONISHED to be
more careful in citing the decisions of the Supreme Court in the future.
 Bellis vs Bellis

This is a direct appeal to Us, upon a question purely of law, from an order of the Court of First
Instance of Manila dated April 30, 1964, approving the project of partition filed by the executor
in Civil Case No. 37089 therein.1äwphï1.ñët

The facts of the case are as follows:

Amos G. Bellis, born in Texas, was "a citizen of the State of Texas and of the United States." By
his first wife, Mary E. Mallen, whom he divorced, he had five legitimate children: Edward A.
Bellis, George Bellis (who pre-deceased him in infancy), Henry A. Bellis, Alexander Bellis and
Anna Bellis Allsman; by his second wife, Violet Kennedy, who survived him, he had three
legitimate children: Edwin G. Bellis, Walter S. Bellis and Dorothy Bellis; and finally, he had
three illegitimate children: Amos Bellis, Jr., Maria Cristina Bellis and Miriam Palma Bellis.

On August 5, 1952, Amos G. Bellis executed a will in the Philippines, in which he directed that
after all taxes, obligations, and expenses of administration are paid for, his distributable estate
should be divided, in trust, in the following order and manner: (a) $240,000.00 to his first wife,
Mary E. Mallen; (b) P120,000.00 to his three illegitimate children, Amos Bellis, Jr., Maria Cristina
Bellis, Miriam Palma Bellis, or P40,000.00 each and (c) after the foregoing two items have been
satisfied, the remainder shall go to his seven surviving children by his first and second wives,
namely: Edward A. Bellis, Henry A. Bellis, Alexander Bellis and Anna Bellis Allsman, Edwin G.
Bellis, Walter S. Bellis, and Dorothy E. Bellis, in equal shares.1äwphï1.ñët

Subsequently, or on July 8, 1958, Amos G. Bellis died a resident of San Antonio, Texas, U.S.A.
His will was admitted to probate in the Court of First Instance of Manila on September 15, 1958.

The People's Bank and Trust Company, as executor of the will, paid all the bequests therein
including the amount of $240,000.00 in the form of shares of stock to Mary E. Mallen and to the
three (3) illegitimate children, Amos Bellis, Jr., Maria Cristina Bellis and Miriam Palma Bellis,
various amounts totalling P40,000.00 each in satisfaction of their respective legacies, or a total of
P120,000.00, which it released from time to time according as the lower court approved and
allowed the various motions or petitions filed by the latter three requesting partial advances on
account of their respective legacies.

On January 8, 1964, preparatory to closing its administration, the executor submitted and filed
its "Executor's Final Account, Report of Administration and Project of Partition" wherein it
reported, inter alia, the satisfaction of the legacy of Mary E. Mallen by the delivery to her of
shares of stock amounting to $240,000.00, and the legacies of Amos Bellis, Jr., Maria Cristina
Bellis and Miriam Palma Bellis in the amount of P40,000.00 each or a total of P120,000.00. In the
project of partition, the executor — pursuant to the "Twelfth" clause of the testator's Last Will
and Testament — divided the residuary estate into seven equal portions for the benefit of the
testator's seven legitimate children by his first and second marriages.
On January 17, 1964, Maria Cristina Bellis and Miriam Palma Bellis filed their respective
oppositions to the project of partition on the ground that they were deprived of their legitimes
as illegitimate children and, therefore, compulsory heirs of the deceased.

Amos Bellis, Jr. interposed no opposition despite notice to him, proof of service of which is
evidenced by the registry receipt submitted on April 27, 1964 by the executor.1

After the parties filed their respective memoranda and other pertinent pleadings, the lower
court, on April 30, 1964, issued an order overruling the oppositions and approving the
executor's final account, report and administration and project of partition. Relying upon Art.
16 of the Civil Code, it applied the national law of the decedent, which in this case is Texas law,
which did not provide for legitimes.

Their respective motions for reconsideration having been denied by the lower court on June 11,
1964, oppositors-appellants appealed to this Court to raise the issue of which law must apply —
Texas law or Philippine law.

In this regard, the parties do not submit the case on, nor even discuss, the doctrine of renvoi,
applied by this Court in Aznar v. Christensen Garcia, L-16749, January 31, 1963. Said doctrine is
usually pertinent where the decedent is a national of one country, and a domicile of another. In
the present case, it is not disputed that the decedent was both a national of Texas and a domicile
thereof at the time of his death.2 So that even assuming Texas has a conflict of law rule
providing that the domiciliary system (law of the domicile) should govern, the same would not
result in a reference back (renvoi) to Philippine law, but would still refer to Texas law.
Nonetheless, if Texas has a conflicts rule adopting the situs theory (lex rei sitae) calling for the
application of the law of the place where the properties are situated, renvoi would arise, since
the properties here involved are found in the Philippines. In the absence, however, of proof as
to the conflict of law rule of Texas, it should not be presumed different from ours.3 Appellants'
position is therefore not rested on the doctrine of renvoi. As stated, they never invoked nor even
mentioned it in their arguments. Rather, they argue that their case falls under the circumstances
mentioned in the third paragraph of Article 17 in relation to Article 16 of the Civil Code.

Article 16, par. 2, and Art. 1039 of the Civil Code, render applicable the national law of the
decedent, in intestate or testamentary successions, with regard to four items: (a) the order of
succession; (b) the amount of successional rights; (e) the intrinsic validity of the provisions of
the will; and (d) the capacity to succeed. They provide that —

ART. 16. Real property as well as personal property is subject to the law of the country where it
is situated.

However, intestate and testamentary successions, both with respect to the order of succession
and to the amount of successional rights and to the intrinsic validity of testamentary provisions,
shall be regulated by the national law of the person whose succession is under consideration,
whatever may he the nature of the property and regardless of the country wherein said
property may be found.

ART. 1039. Capacity to succeed is governed by the law of the nation of the decedent.
Appellants would however counter that Art. 17, paragraph three, of the Civil Code, stating that
—

Prohibitive laws concerning persons, their acts or property, and those which have for their
object public order, public policy and good customs shall not be rendered ineffective by laws or
judgments promulgated, or by determinations or conventions agreed upon in a foreign country.

prevails as the exception to Art. 16, par. 2 of the Civil Code afore-quoted. This is not correct.
Precisely, Congress deleted the phrase, "notwithstanding the provisions of this and the next
preceding article" when they incorporated Art. 11 of the old Civil Code as Art. 17 of the new
Civil Code, while reproducing without substantial change the second paragraph of Art. 10 of
the old Civil Code as Art. 16 in the new. It must have been their purpose to make the second
paragraph of Art. 16 a specific provision in itself which must be applied in testate and intestate
succession. As further indication of this legislative intent, Congress added a new provision,
under Art. 1039, which decrees that capacity to succeed is to be governed by the national law of
the decedent.

It is therefore evident that whatever public policy or good customs may be involved in our
System of legitimes, Congress has not intended to extend the same to the succession of foreign
nationals. For it has specifically chosen to leave, inter alia, the amount of successional rights, to
the decedent's national law. Specific provisions must prevail over general ones.

Appellants would also point out that the decedent executed two wills — one to govern his
Texas estate and the other his Philippine estate — arguing from this that he intended Philippine
law to govern his Philippine estate. Assuming that such was the decedent's intention in
executing a separate Philippine will, it would not alter the law, for as this Court ruled in
Miciano v. Brimo, 50 Phil. 867, 870, a provision in a foreigner's will to the effect that his
properties shall be distributed in accordance with Philippine law and not with his national law,
is illegal and void, for his national law cannot be ignored in regard to those matters that Article
10 — now Article 16 — of the Civil Code states said national law should govern.

The parties admit that the decedent, Amos G. Bellis, was a citizen of the State of Texas, U.S.A.,
and that under the laws of Texas, there are no forced heirs or legitimes. Accordingly, since the
intrinsic validity of the provision of the will and the amount of successional rights are to be
determined under Texas law, the Philippine law on legitimes cannot be applied to the testacy of
Amos G. Bellis.

Wherefore, the order of the probate court is hereby affirmed in toto, with costs against
appellants. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Zaldivar, Sanchez and Castro, JJ.,
concur.

Sanchez et al vs CA
Is a petition for certiorari, in lieu of appeal, the proper remedy to correct orders of a probate court
nullifying certain deeds of sale and, thus, effectively passing upon title to the properties subject of
such deeds? Is a compromise agreement partitioning inherited properties valid even without the
approval of the trial court hearing the intestate estate of the deceased owner?

The Case

These questions are answered by this Court as it resolves the petition for review on certiorari before
us assailing the November 23, 1992 Decision  of the Court of Appeals  in CA-G.R. SP No. 28761
1 2

which annulled the decision  of the trial court  and which declared the compromise agreement among
3 4

the parties valid and binding even without the said trial court's approval. The dispositive portion of
the assailed Decision reads:

WHEREFORE, for the reasons hereinabove set forth and discussed, the instant
petition is GRANTED and the challenged decision as well as the subsequent orders
of the respondent court are ANNULLED and SET ASIDE. The temporary restraining
order issued by this Court on October 14, 1992 is made PERMANENT. The
compromise agreement dated October 30, 1969 as modified by the memorandum of
agreement of April 13, 1970 is DECLARED valid and binding upon herein parties.
And Special Proceedings No. 44-M and 1022 are deemed CLOSED and
TERMINATED.

SO ORDERED. 5

The Antecedent Facts

The facts are narrated by the Court of Appeals as follows:

[Herein private respondent] Rosalia S. Lugod is the only child of spouses Juan C.
Sanchez and Maria Villafranca while [herein private respondents] Arturo S. Lugod,
Evelyn L. Ranises and Roberto S. Lugod are the legitimate children of [herein private
respondent] Rosalia.

[Herein petitioners] Rolando, Florida Mierly, Alfredo and Myrna, all surnamed
Sanchez, are the illegitimate children of Juan C. Sanchez.

Following the death of her mother, Maria Villafranca, on September 29, 1967, [herein
private respondent] Rosalia filed on January 22, 1968, thru counsel, a petition for
letters of administration over the estate of her mother and the estate of her father,
Juan C. Sanchez, who was at the time in state of senility (Annex "B", Petition).

On September 30, 1968, [herein private respondent] Rosalia, as administratrix of the

intestate estate of her mother, submitted an inventory and appraisal of the real and
personal estate of her late mother (Annex "C", Petition).

Before the administration proceedings Special in Proceedings No. 44-M could

formally be terminated and closed, Juan C. Sanchez, [herein private respondent]
Rosalia's father, died on October 21, 1968.

On January 14, 1969, [herein petitioners] as heirs of Juan C. Sanchez, filed a petition
for letters of administration (Special Proceedings No. 1022) over the intestate estate
of Juan C. Sanchez, which petition was opposed by (herein private respondent)
Rosalia.6

On October 30, 1969, however, [herein private respondent] Rosalia and [herein
petitioners] assisted by their respective counsels executed a compromise agreement
(Annex "D", Petition) wherein they agreed to divide the properties enumerated
therein of the late Juan C. Sanchez.

On November 3, 1969, petitioner Rosalia was appointed by [the trial court], and took
her oath as the administratrix of her father's intestate estate.

On January 19, 1970, [herein petitioners] filed a motion to require administratrix,

[herein private respondent] Rosalia, to deliver deficiency of 24 hectares and or to set
aside compromise agreement (Annex "E", Petition).

Under date of April 13, 1970, (herein private respondent) Rosalia and [herein
petitioners] entered into and executed a memorandum of agreement which modified
the compromise agreement (Annex "F". Petition)

On October 25, 1979, or nine years later, [herein petitioners] filed, thru counsel, a
motion to require [herein private respondent] Rosalia to submit a new inventory and
to render an accounting over properties not included in the compromise agreement
(Annex "G", Petition). They likewise filed a motion to defer the approval of the
compromise agreement (Annex "H", Ibid), in which they prayed for the annulment of
the compromise agreement on the ground of fraud.

On February 4, 1980, however, counsel for [herein petitioners] moved to withdraw his
appearance and the two motions he flied, Annex "G" and "H" (Annex "I", Petition).

On February 28, 1980, the [trial] court issued an order directing [herein private
respondent] Rosalia to submit a new inventory of properties under her administration
and an accounting of the fruits thereof, which prompted [herein private respondent]
Rosalia to file a rejoinder on March 31, 1980 (Annex "K", Petition).

On May 12, 1980, [herein petitioners], thru new counsel, filed a motion to change
administratrix (Annex "L", Petition) to which [herein private respondent] Rosalia filed
an opposition (Annex "M", Ibid).

The parties were subsequently ordered to submit their respective position papers,
which they did (Annexes "N" and "O", Petition). On September 14, 1989, former
counsel of (herein petitioners) entered his re-appearance as counsel for (herein
petitioners).

On the bases of memoranda submitted by the parties, the [trial court], this time
presided by Judge Vivencio A. Galon, promulgated its decision on June 26, 1991, the
dispositive portion of which states:

WHEREFORE, premises considered, judgment is hereby rendered

as follows by declaring and ordering:
1. That the entire intestate estate of Maria Villafranca Sanchez under
Special Proceedings No. 44-M consists of all her paraphernal
properties and one-half (1/2) of the conjugal properties which must be
divided equally between Rosalia Sanchez de Lugod and Juan C.
Sanchez;

2. That the entire intestate estate of Juan C. Sanchez under Special

Proceedings No. 1022 consists of all his capital properties, one-half
(1/2) from the conjugal partnership of gains and one-half (1/2) of the
intestate estate of Maria Villafranca under Special Proceedings No.
44-M;

3. That one-half (1/2) of the entire intestate estate of Juan C.

Sanchez shall be inherited by his only legitimate daughter, Rosalia V.
Sanchez de Lugod while the other one-half (1/2) shall be inherited
and be divided equally by, between and among the six (6) illegitimate
children, namely: Patricia Alburo, Maria Ramuso Sanchez, Rolando
Pedro T. Sanchez, Florida Mierly T. Sanchez, Alfredo T. Sanchez
and Myrna T. Sanchez;

4. That all the Deed (sic) of Absolute Sales executed by Juan C.

Sanchez and Maria Villafranca in favor of Rosalia Sanchez Lugod,
Arturo S. Lugod, Evelyn S. Lugod and Roberto S. Lugod on July 26,
1963 and June 26, 1967 are all declared simulated and fictitious and
must be subject to collation and partition among all heirs;

5. That within thirty (30) days from finality of this decision, Rosalia
Sanchez Lugod is hereby ordered to prepare a project of partition of
the intestate estate of Juan C. Sanchez under Special Proceedings
No. 1022 and distribute and deliver to all heirs their corresponding
shares. If she fails to do so within the said thirty (30) days, then a
Board of Commissioners is hereby constituted, who are all entitled to
honorarium and per diems and other necessary expenses chargeable
to the estate to be paid by Administratrix Rosalia S. Lugod,
appointing the Community Environment and Natural Resources
Officer (CENRO) of Gingoog City as members thereof, with the task
to prepare the project of partition and deliver to all heirs their
respective shares within ninety (90) days from the finality of said
decision;

6. That within thirty (30) days from receipt of this decision,

Administratrix Rosalia Sanchez Vda. de Lugod is hereby ordered to
submit two (2) separate certified true and correct accounting, one for
the income of all the properties of the entire intestate estate of Maria
Villafranca under Special Proceedings No. 44-M, and another for the
properties of the entire intestate estate of Juan C. Sanchez under
Special Proceedings No. 1022 duly both signed by her and both
verified by a Certified Public Accountant and distribute and deliver to
her six (6) illegitimate brothers and sisters in equal shares, one-half
(1/2) of the net income of the estate of Juan C. Sanchez from
October 21, 1968 up to the finality of this decision;
 7. For failure to render an accounting report and failure to give cash
advances to the illegitimate children of Juan C. Sanchez during their
minority and hour of need from the net income of the estate of Juan
C. Sanchez, which adversely prejudiced their social standing and
pursuit of college education, (the trial court) hereby orders Rosalia
Sanchez Vda. de Lugod to pay her six (6) illegitimate brothers and
sisters the sum of Five Hundred Thousand (P500,000.00) Pesos, as
exemplary damages, and also the sum of One Hundred Fifty
Thousand (P150,000.00) Pesos for attorney's fees;

8. Upon release of this decision and during its pendency, should

appeal be made, the Register of Deeds and Assessors of the
Provinces and Cities where the properties of Juan C. Sanchez and
Maria Villafranca are located, are all ordered to register and annotate
in the title and/or tax declarations, the dispositive portion of this
decision for the protection of all heirs and all those who may be
concerned.

SO ORDERED.

[Herein private respondent] Rosalia filed a motion for reconsideration dated July 17,
1991 (Annex "P", Petition) on August 6, 1991.

On August 13, 1991, [herein petitioners] filed a motion for execution and opposition
to [herein private respondent] Rosalia's motion for reconsideration (Annex "Q",
Petition).

On September 3, 1991, [the trial court] issued an Omnibus Order (Annex "S",
Petition) declaring, among other things, that the decision at issue had become final
and executory.

[Herein private respondent] Rosalia then filed a motion for reconsideration of said
Omnibus Order (Annex "T", Petition). Said [herein private respondent] was allowed to
file a memorandum in support of her motion (Annex "V", Petition).

On June 26, 1991, [the trial court] issued and Order denying petitioner Rosalia's
motion for reconsideration (Annex "W", Petition).
7

Thereafter, private respondents elevated the case to the Court of Appeals via a petition
for certiorari and contended:

The [trial court] has no authority to disturb the compromise agreement.

II

The [trial court] has arbitrarily faulted [herein private respondent] Rosalia S. Lugod
for alleged failure to render an accounting which was impossible.

III
 The [trial court] acted without jurisdiction in derogation of the constitutional rights of
[herein private respondents] Arturo S. Lugod, Evelyn L. Ranises and Roberto S.
Lugod when [the trial court] decided to annul the deed of sale between the said
[herein private respondents] and Juan C. Sanchez without affording them their day in
court.

IV

[The trial court judge] defied without rhyme or reason well-established and
entrenched jurisprudence when he determined facts sans any evidence thereon.

[The trial court] grossly misinterpreted [herein private respondent] Rosalia S. Lugod's
right to appeal.
8

For clarity's sake, this Court hereby reproduces verbatim the compromise agreement  of the parties:
9

COMPROMISE AGREEMENT

COME NOW, the parties in the above-entitled case, motivated by their mutual desire
to preserve and maintain harmonious relations between and among themselves, for
mutual valuable considerations and in the spirit of good will and fair play, and, for the
purpose of this Compromise Agreement, agree to the following:

1. That the deceased Juan C. Sanchez who died intestate on October 21, 1968 was
legally married to Maria Villafranca de Sanchez, who predeceased her on September
29, 1967, out of whose wedlock Rosalia Sanchez Lugod, Oppositor herein, was born,
thus making her the sole and only surviving legitimate heir of her deceased parents;

2. That the said deceased Juan C. Sanchez, left illegitimate children, Intervenors-
Oppositors and Petitioners, respectively, herein namely;

(1) Patricio Alburo, born out of wedlock on March 17,

1926 at Cebu City, Philippines, to Emilia Alburo;

(2) Maria Ramoso Sanchez, born out of wedlock on

May 9, 1937 at Gingoog, Misamis Oriental, now,
Gingoog City, to Alberta Ramoso;

(3) (a) Rolando Pedro Sanchez, born on May 19,

1947,

(b) Florida Mierly Sanchez, born on February 16,

1949,

(c) Alfredo Sanchez, born on July 21, 1950, and

(d) Myrna Sanchez, born on June 16, 1952, all born

out of wedlock to Laureta Tampus in Gingoog City,
Philippines.
3. That the deceased Juan C. Sanchez left the following properties, to wit:

I. SEPARATE CAPITAL OF JUAN C. SANCHEZ

NATURE, DESCRIPTION AND AREA ASSESSED VALUE

(1) Agricultural Land. Covered by Tax. Decl. No. 06458, Cad. Lot No. 1041 C-2,
located at Murallon, Gingoog City and bounded on the North by Lot Nos. 1033, 1035,
1036, 1037, 1039, 1040, 1042 & 1043; South by Lot No. 1080, 1088, 1087 & 1084;
East by Lot Nos. 1089, 1061 & 2319; West by Lot Nos. 954, 1038, 1057 & 1056,
containing an area of ONE HUNDRED EIGHTY THREE THOUSAND SIX
HUNDRED SEVENTY TWO (183, 672) sq. ms. more or less.

P21,690.00

II. CONJUGAL PROPERTY OF JUAN C. SANCHEZ AND MARIA VILLAFRANCA

DE SANCHEZ

(1) Agricultural Land. Covered by Tax Decl. No. 06447, Cad. Lot No. 2745, C-7
located at Agay-ayan, Gingoog City and bounded on the North by Lot Nos. 2744,
2742, 2748; South by Lot No. 2739; East by Lot No. 2746; West by Lot No. 2741,
containing an area of FOURTEEN THOUSAND SEVEN HUNDRED (14,700) sq. ms.
more or less.

P1,900.00

(2) Agricultural Land. Covered by Tax Decl. No. 06449, Cad, Lot No. 3271 C-7
located at Panyangan, Lanao, Gingoog City and bounded on the North by Lot No.
3270; South by Lot Nos. 2900 & 3462; East by Panyangan River & F. Lumanao; and
Part of Lot 3272; and West by Samay Creek, containing an area of ONE HUNDRED
FOUR THOUSAND SIX HUNDRED (104,600) sq. ms. more or less.

P11,580.00

(3) Agricultural Land. Covered by Tax Decl. No. 06449, Cad. Lot No. 2319, Case 2,
located at Murallon, Gingoog City and bounded on the North by Lot No. 1061; South
by Hinopolan Creek; East by Lot No. 1044; and West by Lot No. 1041, containing an
area of THREE THOUSAND TWO HUNDRED TWENTY FIVE (3,225) sq. ms. more
or less.

(4) Agricultural Land. Covered by Tax Decl. No. 06452, Cad. Lot No. 3272, C-7 Part
4 located at Panyangan, Lunao, Gingoog City and bounded on the North by Lot Nos.
3270 & 3273; East by Panyangan River; South by Panyangan River; and West by
Lot Nos. 3270 & 3271, containing an area of FIFTY FIVE THOUSAND SIX
HUNDRED (55,600) sq. ms. more or less, being claimed by Damian Querubin.

P2,370.00

(5) Agricultural Land. Covered by Tax Decl. No. 06453, Cad. Lot No. 3270 Case 7,
located at Sunog, Lunao, Gingoog City and bounded on the North by Samay Creek &
Lot 3267; South by Lot Nos. 3271 & 3272; East by Lot Nos. 3269 & 3273; and West
by Samay Creek, containing an area of FOUR HUNDRED EIGHT THREE
THOUSAND SIX HUNDRED (483,600) sq. ms. more or less.

P61,680.00

(6) Agricultural Land. Covered by Tax Decl. No. 06457, Cad. Lot No. 3273, C-7 Part
2 located at Panyangan, Lunao, Gingoog City and bounded on the North by Lot No.
3269; South by Lot No. 3272; East by Panyangan River; and West by Lot No. 3270,
containing an area of THIRTY FOUR THOUSAND THREE HUNDRED (34,300) sq.
ms. more or less, being claimed by Miguel Tuto.

P3,880.00

(7) Agricultural Land. Covered by Tax Decl. No. 12000, Cad. Lot No. 2806, Case 7
located at Agayayan, Gingoog City and bounded on the North by Agayayan River;
South by Victoriano Barbac; East by Isabelo Ramoso; and West by Restituto Baol,
containing an area of SIX THOUSAND SIX HUNDRED SEVENTY SIX (6,676) sq.
ms. more or less.

P380.00

(8) Agricultural Land. Covered by Tax Decl. No. 12924, Cad. Lot No. 1206 C-1
located at Cahulogan, Gingoog City and bounded on the NW., by Lot No. 1209; SW.,
by Lot No. 1207; Eastby National Highway; and West by Lot No. 1207; containing an
area of FOUR THOUSAND FIVE HUNDRED THIRTEEN (4,513) sq. ms. more or
less.

P740.00

(9) Agricultural Land. Covered by Tax Decl. No. 12925, Cad. Lot No. 5554, located at
Tinaytayan, Pigsalohan, Gingoog City and bounded on the North by Lot Nos. 5559 &
5558; South by Lot No. 3486; East by Lot No. 5555; and West by Lot No. 5355,
containing an area of EIGHTEEN THOUSAND FIVE HUNDRED TWENTY EIGHT
(18,528) sq. ms. more or less.

P320.00

(10) Agricultural Land. Covered by Tax Decl. No. 12926, Cad. Lot No. 5555 C-7
located at Tinaytayan, Pigsalojan, Gingoog City and bounded on the North by
Tinaytayan Creek & Lot Nos. 5557 & 5558; South by Lot Nos. 3486, 3487, 3488,
3491 & 3496; East by Cr. & Lot No. 3496; and West by Lot No. 5554, containing an
area of SEVENTY SEVEN THOUSAND SEVEN HUNDRED SEVENTY SIX (77,776)
sq. ms. more or less.

P1,350.00

(11) A Commercial Land. Covered by Tax Decl. No. 06454, Cad. Lot No. 61-C-1
located at Guno-Condeza Sts., Gingoog City and bounded on the North by Lot 64;
South by Road-Lot 613 Condeza St; East by Lot Nos. 63, and 62; West by Road-Lot
614-Guno St., containing an area of ONE THOUSAND FORTY TWO (1,042) sq. ms.
more or less.
 P9,320.00

(12) A Commercial Land. Covered by Tax Decl. No. 06484, Lot No. 5, Block 2,
located at Cabuyoan, Gingoog City and bounded on the North by Lot No. 4, block 2;
South by Lot No. 8, block 2; East by Lot No. 6, block 2, West by Subdivision Road,
containing an area of FOUR HUNDRED (400) sq. ms. more or less.

P12,240.00

(13) A Commercial Land. Covered by Tax Decl. No. 15798, Block No. 7-A-16-0
located at Cabuyoan, Gingoog City and bounded on the North by Lot No. 7-A-16-0;
South by Lot No. 7-16-0; East by Lot No. 7-A-18-Road; West by Lot No. 8, PSU-
120704-Julito Arengo vs. Restituto Baol, containing an area of TWO HUNDRED
SIXTEEN (216) sq. ms. more or less.

P1,050.00

(14) Agricultural Land. Covered by Tax, Decl. No. 06789, Cad. Lot No. 5157-C-7,
located at Kiogat, Agayayan, Gingoog City and bounded on the North by Lot No.
5158, 5159, 5156; South by SE-Steep Bank; East by NW, by Lot No. 5158,
Villafranca, containing an area of NINETY SIX THOUSAND TWO HUNDRED
(96,200) sq. ms. more or less.

P3,370.00

III. PERSONAL ESTATE (CONJUGAL)

NATURE AND DESCRIPTION LOCATION APPRAISAL

1. Fifty (50) shares of stock

Rural Bank of Gingoog, Inc.
at P100.00 per share P5,000.00

2. Four (4) shares of Preferred Stock

with San Miguel Corporation 400.00

4. That, the parties hereto have agreed to divide the above-enumerated properties in
the following manner, to wit:

(a) To Patricio Alburo, Maria Ramoso Sanchez,

Roland Pedro T. Sanchez, Florida Mierly Sanchez,
Alfredo T. Sanchez and Myrna T. Sanchez, in equal
pro-indiviso shares, considering not only their
respective areas but also the improvements existing
thereon, to wit:

Agricultural Land. Covered by Tax Decl. No. 06453,

Cad. Lot No. 3270 Case 7, located at Sunog, Lunao,
Gingoog City and bounded on the North by Samay
Creek & Lot 3267; South by Lot Nos. 3271 and 3272;
East by Lot Nos. 3269 & 3273; and West by Samay
 Creek, containing an area of FOUR HUNDRED
EIGHTY THREE THOUSAND SIX HUNDRED
(483,600) sq. ms. and assessed in the sum of
P61,680.00.

(b) To Rosalia Sanchez Lugod all the rest of the

properties, both real and personal, enumerated above
with the exception of the following:

(1) Two Preferred Shares of Stock in

the San Miguel Corporation, indicated
in San Miguel Corporation Stock
Certificate No. 30217, which two
shares she is ceding in favor of
Patricio Alburo;

(2) The house and lot designated as

Lot No. 5, Block 2 together with the
improvements thereon and identified
as parcel No. II-12, lot covered by Tax
Decl. No. 15798 identified as Parcel
No. II-13 in the above enumerated,
and Cad. Lot No. 5157-C-7 together
with the improvements thereon, which
is identified as parcel No. II-14 of the
above-enumeration of properties,
which said Rosalia S. Lugod is
likewise ceding and renouncing in
favor of Rolando Pedro, Florida Mierly,
Alfredo and Myrna, all surnamed
Sanchez, in equal pro-indiviso shares;

5. That Rolando Pedro, Florida Mierly, Alfredo and Myrna, all surnamed Sanchez
hereby acknowledge to have received jointly and severally in form of advances after
October 21, 1968 the aggregate sum of EIGHT THOUSAND FIVE HUNDRED
THIRTY-THREE PESOS (P8,533.94) and NINETY-FOUR CENTAVOS;

6. That the parties hereto likewise acknowledge and recognize in the indebtedness of
the deceased Juan G. Sanchez and his deceased wife Maria Villafranca Sanchez to
the Lugod Enterprises, Inc., in the sum of P43,064.99;

7. That the parties hereto shall be responsible for the payment of the estate and
inheritance taxes proportionate to the value of their respective shares as may be
determined by the Bureau of Internal Revenue and shall likewise be responsible for
the expenses of survey and segregation of their respective shares;

8. That Patricio Alburo, Maria Ramoso Sanchez, Roland Pedro Sanchez, Florida
Mierly Sanchez, Alfredo Sanchez and Myrna Sanchez hereby waive, relinquish and
renounce, jointly and individually, in a manner that is absolute and irrevocable, all
their rights and interests, share and participation which they have or might have in all
the properties, both real and personal, known or unknown and/or which may not be
listed herein, or in excess of the areas listed or mentioned herein, and/or which might
have been, at one time or another, owned by, registered or placed in the name of
either of the spouses Juan C. Sanchez or Maria Villafranca de Sanchez or both, and
which either one or both might have sold, ceded, transferred, or donated to any
person or persons or entity and which parties hereto do hereby confirm and ratify
together with all the improvements thereon, as well as all the produce and proceeds
thereof, and particularly of the properties, real and personal listed herein, as well as
demandable obligations due to the deceased spouses Juan C. Sanchez, before and
after the death of the aforementioned spouses Juan C. Sanchez and Maria
Villafranca de Sanchez, in favor of oppositor Rosalia S. Lugod;

9. That the expenses of this litigation including attorney's fees shall be borne
respectively by the parties hereto;

10. That Laureta Tampus for herself and guardian ad-litem of her minor children,
namely: Florida Mierly, Alfredo, and Myrna, all surnamed Sanchez, hereby declare
that she has no right, interest, share and participation whatsoever in the estate left by
Juan C. Sanchez and/or Maria Villafranca de Sanchez, or both, and that she likewise
waives, renounces, and relinquishes whatever rigid, share, participation or interest
therein which she has or might have in favor of Rosalia S. Lugod;

11. That, the parties hereto mutually waive and renounce in favor of each other any
whatever claims or actions, arising from, connected with, and as a result of Special
Proceedings Nos. 44-M and 1022 of the Court of First Instance of Misamis Oriental,
Rosalia S. Lugod, warranting that the parcel of land ceded to the other parties herein
contains 48 hectares and 36 ares.

12. That, Rosalia S. Lugod shall assume as she hereby assumes the payment to
Lugod Enterprises, Inc., of the sum of P51,598.93 representing the indebtedness of
the estate of Juan C. Sanchez and Maria Villafranca de Sanchez and the advances
made to Rolando Pedro, Mierly, Alfredo, and Myna all surnamed Sanchez,
mentioned in paragraphs 5 hereto agree to have letters of administration issued in
favor of Rosalia S. Lugod without any bond.

That Rosalia S. Lugod likewise agrees to deliver possession and enjoyment of the
parcel of land herein ceded to petitioners and intervenors immediately after the
signing of this agreement and that the latter also mutually agree among themselves
to have the said lot subdivided and partitioned immediately in accordance with the
proportion of one sixth (1/6) part for every petitioner and intervenor and that in the
meantime that the partition and subdivision is not yet effected, the administrations of
said parcel of land shall be vested jointly with Laureta Tampos, guardian ad litem of
petitioners and Maria Ramoso, one of the intervenors who shall see to it that each
petitioner and intervenor is given one sixth (1/6) of the net proceeds of all agricultural
harvest made thereon.

WHEREFORE, it is most respectfully prayed that the foregoing compromise

agreement be approved.

Medina, Misamis Oriental, October 30, 1969.

(Sgd.) (Sgd.)
PATRICIO ALBURO ROSALIA S. LUGOD
Intervenor-Oppositor Oppositor
 (Sgd.)
MARIA RAMOSO SANCHEZ ASSISTED BY:
Intervenor-Oppositor

(Sgd.)
ASSISTED BY: PABLO S. REYES
R-101-Navarro Bldg.
(Sgd.) Don A. Velez St.
REYNALDO L. FERNANDEZ Cagayan de Oro City
Gingoong City

(Sgd.) (Sgd.)
ROLANDO PEDRO T. SANCHEZ ALFREDO T. SANCHEZ
Petitioner Petitioner

(Sgd.) (Sgd.)
FLORIDA MIERLY T. SANCHEZ MYRNA T. SANCHEZ
Petitioner Petitioner

(Sgd.)
LAURETA TAMPUS
For herself and as Guardian
Ad-Litem of the minors
Florida Mierly, Alfredo, and
Myrna, all surnamed Sanchez

ASSISTED BY:

TEOGENES VELEZ, JR.

Counsel for Petitioners
Cagayan de Oro City

The Clerk of Court

Court of First Instance
Branch III, Medina, Mis. Or.

Greetings:

Please set the foregoing compromise agreement for the approval of the Honorable
Court today, Oct. 30, 1969.

(Sgd.) (Sgd.) (Sgd.)

PABLO S. REYES TEOGENES VELEZ, JR. REYNALDO L. FERNANDEZ

The Memorandum of Agreement dated April 13, 1970, which the parties entered into with the
assistance of their counsel, amended the above compromise. (It will be reproduced later in our
discussion of the second issue raised by the petitioners.)

The Court of Appeals, in a Resolution   dated September 4, 1992, initially dismissed private
10

respondents' petition. Acting, however, on a motion for reconsideration and a supplemental motion
for reconsideration dated September 14, 1992 and September 25, 1992, respectively,   Respondent
11

Court thereafter reinstated private respondents' petition in a resolution   dated October 14, 1992.
12

In due course, the Court of Appeals, as earlier stated, rendered its assailed Decision granting the
petition, setting aside the trial court's decision and declaring the modified compromise agreement
valid and binding.

Hence, this appeal to this Court under Rule 45 of the Rules of Court.

The Issues

In this appeal, petitioners invite the Court's attention to the following issues:

The respondent court grossly erred in granting the petition for certiorari under Rule
65 considering that the special civil action of certiorari may not be availed of as a
substitute for an appeal and that, in any event, the grounds invoked in the petition
are merely alleged errors of judgment which can no longer be done in view of the fact
that the decision of the lower court had long become final and executory.

II

Prescinding from the foregoing, the respondent court erred in annulling the decision
of the lower court for the reason that a compromise agreement or partition as the
court construed the same to be, executed by the parties on October 30, 1969 was
void and unenforceable the same not having been approved by the intestate court
and that the same having been seasonably repudiated by petitioners on the ground
of fraud.

III

The respondent court grossly erred in ignoring and disregarding findings of facts of
the lower court that the alleged conveyances of real properties made by the spouses
Juan C. Sanchez and Maria Villafranca just before their death in favor of their
daughter and grandchildren, private respondents herein, are tainted with fraud or
made in contemplation of death, hence, collationable.

IV

In any event, the respondent court grossly erred in treating the lower court's
declaration of fictitiousness of the deeds of sale as a final adjudication of annulment.

The respondent court grossly erred in declaring the termination of the intestate
proceedings even as the lower court had not made a final and enforceable
distribution of the estate of the deceased Juan C. Sanchez.

VI
 Prescinding from the foregoing, the respondent court grossly erred in not at least
directing respondent Rosalia S. Lugod to deliver the deficiency of eight (8) hectares
due petitioners under the compromise agreement and memorandum of agreement,
and in not further directing her to include in the inventory properties conveyed under
the deeds of sale found by the lower court to be part of the estate of Juan C.
Sanchez.  13

The salient aspects of some issues are closely intertwined; hence, they are hereby consolidated into
three main issues specifically dealing with the following subjects: (1) the propriety of certiorari as a
remedy before the Court of Appeals, (2) the validity of the compromise agreement, and (3) the
presence of fraud in the execution of the compromise and/or collation of the properties sold.

The Court's Ruling

The petition is not meritorious.

First Issue: Propriety of Certiorari

Before the Court of Appeals

Since private respondents had neglected or failed to file an ordinary appeal within the reglementary
period, petitioners allege that the Court of Appeals erred in allowing private respondent's recourse to
Rule 65 of the Rules of Court. They contend that private respondents' invocation of certiorari was
"procedurally defective."   They further argue that private respondents, in their petition before the
14

Court of Appeals, alleged errors of the trial court which, being merely errors of judgment and not
errors of jurisdiction, were not correctable by certiorari.   This Court disagrees.
15

Doctrinally entrenched is the general rule that certiorari is not a substitute for a lost appeal.
However, Justice Florenz D. Regalado lists several exceptions to this rule, viz.: "(1) where the
appeal does not constitute a speedy and adequate remedy (Salvadades vs. Pajarillo, et al., 78 Phil.
77), as where 33 appeals were involved from orders issued in a single proceeding which will
inevitably result in a proliferation of more appeals (PCIB vs. Escolin, et al., L-27860 and 27896, Mar.
29, 1974); (2) where the orders were also issued either in excess of or without jurisdiction (Aguilar
vs. Tan, L-23600, Jun 30, 1970, Cf. Bautista, et al. vs. Sarmiento, et al., L-45137, Sept. 231985); (3)
for certain special consideration, as public welfare or public policy (See Jose vs. Zulueta, et al.
16598, May 31, 1961 and the cases cited therein); (4) where in criminal actions, the court rejects
rebuttal evidence for the prosecution as, in case of acquittal, there could be no remedy (People vs.
Abalos, L029039, Nov. 28, 1968); (5) where the order is a patent nullity (Marcelo vs. De Guzman, et
al., L-29077, June 29, 1982); and (6) where the decision in the certiorari case will avoid future
litigations (St. Peter Memorial Park, Inc. vs. Campos, et al., L-38280, Mar. 21, 1975)."   Even in a
16

case where the remedy of appeal was lost, the Court has issued the writ of certiorari where the
lower court patently acted in excess of or outside its jurisdiction,   as in the present case.
17

A petition for certiorari under Rule 65 of the Rules of Court is appropriate and allowable when the
following requisites concur: (1) the writ is directed against a tribunal, board or officer exercising
judicial or quasi-judicial functions; (2) such tribunal, board or officer has acted without or in excess of
jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction; and (3)
there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law.    After a
18

thorough review of the case at bar, we are convinced that all these requirements were met.

As a probate court, the trial court was exercising judicial functions when it issued its assailed
resolution. The said court had jurisdiction to act in the intestate proceedings involved in this case
with the caveat that, due to its limited jurisdiction, it could resolve questions of title only
provisionally.   It is hornbook doctrine that "in a special proceeding for the probate of a will, the
19

question of ownership is an extraneous matter which the probate court cannot resolve with finality.
This pronouncement no doubt applies with equal force to an intestate proceeding as in the case at
bar."   In the instant case, the trial court rendered a decision declaring as simulated and fictitious all
20

the deeds of absolute sale which, on July 26, 1963 and June 26, 1967, Juan C. Sanchez and Maria
Villafranca executed in favor of their daughter, Rosalia Sanchez Lugod; and grandchildren, namely,
Arturo S. Lugod, Evelyn S. Lugod and Roberto S. Lugod. The trial court ruled further that the
properties covered by the said sales must be subject to collation. Citing Article 1409 (2) of the Civil
Code, the lower court nullified said deeds of sale and determined with finality the ownership of the
properties subject thereof . In doing so, it clearly overstepped its jurisdiction as a probate court.
Jurisprudence teaches:

[A] probate court or one in charge of proceedings whether testate or intestate cannot
adjudicate or determine title to properties claimed to be a part of the estate and
which are claimed to belong to outside parties. All that the said court could do as
regards said properties is to determine whether they should or should not be
included in the inventory or list of properties to be administered by the administrator.
If there is not dispute, well and good, but if there is, then the parties, the
administrator, and the opposing parties have to resort to an ordinary action for a final
determination of the conflicting claims of title because the probate court cannot do
so.  21

Furthermore, the trial court committed grave abuse of discretion when it rendered its decision in
disregard of the parties' compromise agreement.   Such disregard, on the ground that the
22

compromise agreement "was nor approved by the court,"   is tantamount to "an evasion of positive
23

duty or to a virtual refusal to perform the duty enjoined or to act in contemplation and within the
bounds of law. "  24

The foregoing issues clearly involve not only the correctness of the trial court's decision but also the
latter's jurisdiction. They encompass plain errors of jurisdiction and grave abuse of discretion, not
merely errors of judgment.   Since the trial court exceeded its jurisdiction, a petition for certiorari is
25

certainly a proper remedy. Indeed, it is well-settled that "(a)n act done by a probate court in excess
of its jurisdiction may be corrected by certiorari." 26

Consistent with the foregoing, the following disquisition by respondent appellate court is apt:

As a general proposition, appeal is the proper remedy of petitioner Rosalia here

under Rule 109 of the Revised Rules of Court. But the availability of the ordinary
course of appeal does not constitute sufficient ground to [prevent] a party from
making use of the extraordinary remedy of certiorari where appeal is not an adequate
remedy or equally beneficial, speedy and sufficient (Echauz vs. Court of Appeals,
199 SCRA 381). Here, considering that the respondent court has disregarded the
compromise agreement which has long been executed as early as October, 1969
and declared null and void the deeds of sale with finality, which, as a probate court, it
has no jurisdiction to do, We deem ordinary appeal is inadequate. Considering
further the [trial court's] granting of [herein petitioners') motion for execution of the
assailed decision,   [herein private respondent] Rosalia's resort to the instant petition
27

[for review on certiorari] is all the more warranted under the circumstances. 28

We thus hold that the questioned decision and resolutions of the trial court may be challenged
through a special civil action for certiorari under Rule 65 of the Rules of Court. At the very least, this
case is a clear exception to the general rule that certiorari is not a substitute for a lost appeal
because the trial court's decision and resolutions were issued without or in excess of jurisdiction,
which may thus be challenged or attacked at any time. "A void judgment for want of jurisdiction is no
judgment at all. It cannot be the source of any right nor the creator of any obligation. All acts
performed pursuant to it and all claims emanating from it have no legal effect. Hence, it can never
become final and any writ of execution based on it is void; ' . . . it may be said to be a lawless thing
which can be treated as an outlaw and slain at sight, or ignored wherever and whenever it exhibits
its head.' " 
29

Second Issue: Validity of Compromise Agreement

Petitioners contend that, because the compromise agreement was executed during the pendency of
the probate proceedings, judicial approval is necessary to shroud it with validity. They stress that the
probate court had jurisdiction over the properties covered by said agreement. They add that
Petitioners Florida Mierly, Alfredo and Myrna were all miners represented only by their
mother/natural guardian, Laureta Tampus.  30

These contentions lack merit. Article 2028 of the Civil Code defines a compromise agreement as "a
contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to
one already commenced." Being a consensual contract, it is perfected upon the meeting of the
minds of the parties. Judicial approval is not required for its perfection.   Petitioners' argument that
31

the compromise was not valid for lack of judicial approval is not novel; the same was raised
in Mayuga vs. Court of Appeals,   where the Court, through Justice Irene R. Cortes, ruled:
32

It is alleged that the lack of judicial approval is fatal to the compromise. A

compromise is a consensual contract. As such, it is perfected upon the meeting of
the minds of the parties to the contract. (Hernandez v. Barcelon, 23 Phil. 599 [1912];
see also De los Reyes v. de Ugarte, 75 Phil. 505 [1945].) And from that moment not
only does it become binding upon the parties (De los Reyes v. De Ugarte,  supra ), it
also has upon them the effect and authority of res judicata (Civil Code, Art.
2037), even if not judicially approved (Meneses v. De la Rosa, 77 Phil. 34 [1946];
Vda. De Guilas v. David, 132 Phil. 241, L-24280, 23 SCRA 762 [May 27, 1968];
Cochingyan v. Cloribel, L-27070-71 [April 22, 1977], 76 SCRA 361). (Emphasis
found in the original.)

In the case before us, it is ineludible that the parties knowingly and freely entered into a valid
compromise agreement. Adequately assisted by their respective counsels, they each negotiated its
terms and provisions for four months; in fact, said agreement was executed only after the fourth
draft. As noted by the trial court itself, the first and second drafts were prepared successively in July,
1969; the third draft on September 25, 1969; and the fourth draft, which was finally signed by the
parties on October 30, 1969,   followed. Since this compromise agreement was the result of a long
33

drawn out process, with all the parties ably striving to protect their respective interests and to come
out with the best they could, there can be no doubt that the parties entered into it freely and
voluntarily. Accordingly, they should be bound thereby.   To be valid, it is merely required under the
34

law to be based on real claims and actually agreed upon in good faith by the parties thereto.  35

Indeed, compromise is a form of amicable settlement that is not only allowed but also encouraged in
civil cases.   Article 2029 of the Civil Code mandates that a "court shall endeavor to persuade the
36

litigants in a civil case to agree upon some fair compromise."

In opposing the validity and enforcement of the compromise agreement, petitioners harp on the
minority of Florida Mierly, Alfredo and Myna. Citing Article 2032 of the Civil Code, they contend that
the court's approval is necessary in compromises entered into by guardians and parents in behalf of
their wards or children.  37

However, we observe that although denominated a compromise agreement, the document in this
case is essentially a deed of partition, pursuant to Article 1082 of the Civil Code which provides that
"[e]very act which is intended to put an end to indivision among co-heirs and legatees or devisees is
deemed to be a partition, although it should purport to be a sale, an exchange, a compromise, or any
other transaction."

For a partition to be valid, Section 1, Rule 74 of the Rules of Court, requires the concurrence of the
following conditions: (1) the decedent left no will; (2) the decedent left no debts, or if there were
debts left, all had been paid; (3) the heirs and liquidators are all of age, or if they are minors, the
latter are represented by their judicial guardian or legal representatives; and (4) the partition was
made by means of a public instrument or affidavit duly filed with the Register of Deeds.    We find
38

that all the foregoing requisites are present in this case. We therefore affirm the validity of the
parties' compromise agreement/partition in this case.

In any event, petitioners neither raised nor ventilated this issue in the trial court. This new question
or matter was manifestly beyond the pale of the issues or questions submitted and threshed out
before the lower court which are reproduced below, viz.:

I Are the properties which are the object of the sale by the deceased
spouses to their grandchildren collationable?

II Are the properties which are the object of the sale by the deceased
spouses to their legitimate daughter also collationable?

III The first and second issues being resolved, how much then is the
rightful share of the four (4) recognized illegitimate children? 
39

Furthermore, the 27-page Memorandum dated February 17, 1990 filed by petitioners before the
Regional Trial Court   readily reveals that they never questioned the validity of the compromise. In
40

their comment before the Court of Appeals,   petitioners based their objection to sad compromise
41

agreement on the solitary "reason that it was tainted with fraud and deception," zeroing specifically
on the alleged fraud committed by private respondent Rosalia S. Lugod.   The issue of minority was
42

first raised only in petitioners' Motion for Reconsideration of the Court of Appeals' Decision;    thus, it
43

"is as if it was never duly raised in that court at all."   Hence, this Court cannot now, for the first time
44

on appeal, entertain this issue, for to do so would plainly violate the basic rule of fair play, justice and
due process.   We take this opportunity to reiterate and emphasize the well-settled rule that "(a)n
45

issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is
barred by estoppel. Questions raised on appeal must be within the issues framed by the parties and,
consequently, issues not raised in the trial court cannot be raised for the first time on appeal."  46

The petitioners likewise assail as void the provision on waiver contained in No. 8 of the aforequoted
compromise, because it allegedly constitutes a relinquishment by petitioners of "a right to properties
which were not known."   They argue that such waiver is contrary to law, public policy, morals or
47

good custom. The Court disagrees. The assailed waiver pertained to their hereditary right to
properties belonging to the decedent's estate which were not included in the inventory of the estate's
properties. It also covered their right to other properties originally belonging to the spouses Juan
Sanchez and Maria Villafranca de Sanchez which have been transferred to other persons. In
addition, the parties agreed in the compromise to confirm and ratify said transfers. The waiver is
valid because, contrary to petitioners' protestation, the parties waived a known and existing interest
— their hereditary right which was already vested in them by reason of the death of their father.
Article 777 of the Civil Code provides that "(t)he rights to the succession are transmitted from the
moment of death of the decedent." Hence, there is no legal obstacle to an heir's waiver of his/her
hereditary share "even if the actual extent of such share is not determined until the subsequent
liquidation of the estate."   At any rate, such waiver is consistent with the intent and letter of the law
48

advocating compromise as a vehicle for the settlement of civil disputes.  49

Finally, petitioners contend that Private Respondent Rosalia T. Lugod's alleged fraudulent acts,
specifically her concealment of some of the decedent's properties, attended the actual execution of
the compromise agreement.   This argument is debunked by the absence of any substantial and
50

convincing evidence on record showing fraud on her part. As aptly observed by the appellate court:

[Herein petitioners] accuse [herein private respondent] Rosalia of fraud or deception

by alleging, inter alia, that the parcel of land given to them never conformed to the
stated area, i.e., forty-eight (48) hectares, as stated in the compromise agreement.
We find this argument unconvincing and unmeritorious. [Herein petitioners']
averment of fraud on the part of [herein private respondent] Rosalia becomes
untenable when We consider the memorandum of agreement they later executed
with [herein private respondent] Rosalia wherein said compromise agreement was
modified by correcting the actual area given to [herein petitioners] from forty-eight
(48) hectares to thirty-six (36) hectares only. If the actual area allotted to them did not
conform to the 48 hectare area stated in the compromise agreement, then why did
they agree to the memorandum of agreement whereby their share in the estate of
their father was even reduced to just 36 hectares? Where is fraud or deception
there? Considering that [herein petitioners] were ably represented by their lawyers in
executing these documents and who presumably had explained to them the import
and consequences thereof, it is hard to believe their charge that they were defrauded
and deceived by [herein private respondent] Rosalia.

If the parcel of land given to [herein petitioners], when actually surveyed, happened
to be different in area to the stated area of 48 hectares in the compromise
agreement, this circumstance is not enough proof of fraud or deception on [herein
private respondent] Rosalia's part. Note that Tax Declaration No. 06453 plainly
discloses that the land transferred to [herein petitioners] pursuant to the compromise
agreement contained an area of 48 hectares (Annex "A", Supplemental Reply). And
when [herein petitioners] discovered that the land allotted to them actually contained
only 24 hectares, a conference between the parties took place which led to the
execution and signing of the memorandum of agreement wherein [herein petitioners']
distributive share was even reduced to 36 hectares. In the absence of convincing
and clear evidence to the contrary, the allegation of fraud and deception cannot be
successfully imputed to [herein private respondent] Rosalia who must be presumed
to have acted in good faith. 51

The memorandum of agreement freely and validly entered into by the parties on April 13, 1970 and
referred to above reads:

MEMORANDUM OF AGREEMENT

The parties assisted by their respective counsel have agreed as they hereby agree:

1. To amend the compromise agreement executed by them on October 30, 1969 so

as to include the following:
 a. Correction of the actual area being given to the petitioners and
intervenors, all illegitimate children of the late Juan C. Sanchez, forty-
eight (48) hectares, thirty-six (36) ares as embodied in the
aforementioned compromise agreement to thirty-six (36) hectares
only, thus enabling each of them to get six (6) hectares each.

b. That the said 36-hectare area shall be taken from that parcel of
land which is now covered by O.C.T. No. 146 (Patent No. 30012) and
the adjoining areas thereof designated as Lot A and Lot C as
reflected on the sketch plan attached to the record of this case
prepared by Geodetic Engineer Olegario E. Zalles pursuant to the
Court's commission of March 10, 1970 provided, however, that if the
said 36-hectare area could not be found after adding thereto the
areas of said lots A and C, then the additional area shall be taken
from what is designated as Lot B, likewise also reflected in the said
sketch plan attached to the records;

c. That the partition among the six illegitimate children of the late
Juan C. Sanchez (petitioners and intervenors) shall be effective
among themselves in such a manner to be agreed upon by them,
each undertaking to assume redemption of whatever plants found in
their respective shares which need redemption from the tenants
thereof as well as the continuity of the tenancy agreements now
existing and covering the said shares or areas.

d. The subdivision survey shall be at the expense of the said

petitioners and intervenors prorata.

e. That the administratrix agrees to deliver temporary administration

of the area designated as Lot 5 of the Valles Sketch Plan pending
final survey of the said 36-hectare area.

Cagayan de Oro City, April 13, 1970.

(Sgd.)
LAURETA TAMPOS
For herself and as Guardian
ad-litem of Rolando, Mierly,
Alfredo and Myrna, all
surnamed Sanchez

Assisted by:

(Sgd.)
TEOGENES VELEZ, Jr.
Counsel for Petitioners

(Sgd.)
ROSALIA S. LUGOD
Administratrix
 Assisted by:

(Sgd.)
PABLO S. REYES
Counsel for Administratrix
(Sgd.)
MARIA RABOSO SANCHEZ
Intervenor 52

Not only did the parties knowingly enter into a valid compromise agreement; they even amended it
when they realized some errors in the original. Such correction emphasizes the voluntariness of said
deed.

It is also significant that all the parties, including the then minors, had already consummated and
availed themselves of the benefits of their compromise.   This Court has consistently ruled that "a
53

party to a compromise cannot ask for a rescission after it has enjoyed its benefits."   By their acts,
54

the parties are ineludibly estopped from questioning the validity of their compromise agreement.
Bolstering this conclusion is the fact that petitioners questioned the compromise only nine years after
its execution, when they filed with the trial court their Motion to Defer Approval of Compromise
Agreement, dated October 26, 1979.   In hindsight, it is not at all farfetched that petitioners filed said
55

motion for the sole reason that they may have felt shortchanged in their compromise agreement or
partition with private respondents, which in their view was unwise and unfair. While we may
sympathize with this rueful sentiment of petitioners, we can only stress that this alone is not sufficient
to nullify or disregard the legal effects of said compromise which, by its very nature as a perfected
contract, is binding on the parties. Moreover, courts have no jurisdiction to look into the wisdom of a
compromise or to render a decision different therefrom.   It is a well-entrenched doctrine that "the
56

law does not relieve a party from the effects of an unwise, foolish, or disastrous contract, entered
into with all the required formalities and with full awareness of what he was doing"    and "a 57

compromise entered into and carried out in good faith will not be discarded even if there was a
mistake of law or fact, (McCarthy vs. Barber Steamship Lines, 45 Phil. 488) because courts have no
power to relieve parties from obligations voluntarily assumed, simply because their contracts turned
out to be disastrous deals or unwise investments."   Volenti non fit injuria.
58

Corollarily, the petitioners contend that the Court of Appeals gravely abused its discretion in deeming
Special Proceedings Nos. 44-M and 1022 "CLOSED and TERMINATED," arguing that there was as
yet no order of distribution of the estate pursuant to Rule 90 of the Rules of Court. They add that
they had not received their full share thereto.   We disagree. Under Section 1, Rule 90 of the Rules
59

of Court, an order for the distribution of the estate may be made when the "debts, funeral charges,
and expenses of administration, the allowance to the widow, and inheritance tax, if any," had been
paid. This order for the distribution of the estate's residue must contain the names and shares of the
persons entitled thereto. A perusal of the whole record, particularly the trial court's
conclusion,   reveals that all the foregoing requirements already concurred in this case. The
60

payment of the indebtedness of the estates of Juan C. Sanchez and Maria Villafranca in the amount
of P51,598.93 was shouldered by Private Respondent Rosalia, who also absorbed or charged
against her share the advances of Rolando T. Lugod in the sum of P8,533.94, in compliance with
Article 1061 of the Civil Code on collation.   Furthermore, the compromise of the parties, which is the
61

law between them, already contains the names and shares of the heirs to the residual estate, which
shares had also been delivered. On this point, we agree with the following discussion of the Court of
Appeals:

But what the (trial court) obviously overlooked in its appreciation of the facts of this
case are the uncontroverted facts that (herein petitioners) have been in possession
 and ownership of their respective distributive shares as early as October 30, 1969
and they have received other properties in addition to their distributive shares in
consideration of the compromise agreement which they now assail. Proofs thereof
are Tax Declarations No. 20984, 20985, 20986, 20987, 20988, 20989 and 20990
(Annexes "B" to "H", Supplemental Reply) in the respective names of (herein
petitioners), all for the year 1972. (Herein petitioners) also retained a house and lot, a
residential lot and a parcel of agricultural land (Annexes "I", "J" and "K", Ibid.) all of
which were not considered in the compromise agreement between the parties.
Moreover, in the compromise agreement per se, it is undoubtedly stated therein that
cash advances in the aggregate sum of P8,533.94 were received by (herein
petitioners) after October 21, 1968 (Compromise Agreement, par. 5)  62

All the foregoing show clearly that the probate court had essentially finished said intestate
proceedings which, consequently, should be deemed closed and terminated. In view of the above
discussion, the Court sees no reversible error on the part of the Court of Appeals.

Third Issue: Fraud and Collation

Petitioners fault Respondent Court for not ordering Private Respondent Rosalia T. Lugod to deliver
to them the deficiency as allegedly provided under the compromise agreement. They further contend
that said court erred in not directing the provisional inclusion of the alleged deficiency in the
inventory for purposes of collating the properties subject of the questioned deeds of sale.   We see
63

no such error. In the trial court, there was only one hearing conducted, and it was held only for the
reception of the evidence of Rosalia S. Lugod to install her as administratrix of the estate of Maria
Villafranca. There was no other evidence, whether testimonial or otherwise, "received, formally
offered to, and subsequently admitted by the probate court below"; nor was there "a trial on the
merits of the parries' conflicting claims."   In fact, the petitioners "moved for the deferment of the
64

compromise agreement on the basis of alleged fraudulent concealment of properties — NOT

because of any deficiency in the land conveyed to them under the agreements."   Hence, there is no
65

hard evidence on record to back up petitioners' claims.

In any case, the trial court noted Private Respondent Rosalia's willingness to reimburse any
deficiency actually proven to exist. It subsequently ordered the geodetic engineer who prepared the
certification and the sketch of the lot in question, and who could have provided evidence for the
petitioners, "to bring records of his relocation survey."   However, Geodetic Engineer Idulsa did not
66

comply with the court's subpoena duces tecum and ad testificandum. Neither did he furnish the
required relocation survey.   No wonder, even after a thorough scrutiny of the records, this Court
67

cannot find any evidence to support petitioners' allegations of fraud against Private Respondent
Rosalia.

Similarly, petitioners' allegations of fraud in the execution of the questioned deeds of sale are bereft
of substance, in view of the palpable absence of evidence to support them. The legal presumption of
validity of the questioned deeds of absolute sale, being duly notarized public documents, has not
been overcome.   On the other hand, fraud is not presumed. It must be proved by clear and
68

convincing evidence, and not by mere conjectures or speculations. We stress that these deeds of
sale did not involve gratuitous transfers of future inheritance; these were contracts of sale perfected
by the decedents during their lifetime.   Hence, the properties conveyed thereby are not
69

collationable because, essentially, collation mandated under Article 1061 of the Civil Code
contemplates properties conveyed inter vivos by the decedent to an heir by way of donation or other
gratuitous title.
In any event, these alleged errors and deficiencies regarding the delivery of shares provided in the
compromise, concealment of properties and fraud in the deeds of sale are factual in nature which, as
a rule, are not reviewable by this Court in petitions under Rule 45.   Petitioners have failed to
70

convince us that this case constitutes an exception to such rule. All in all, we find that the Court of
Appeals has sufficiently addressed the issues raised by them. Indeed, they have not persuaded us
that said Court committed any reversible error to warrant a grant of their petition.

WHEREFORE, the petition is hereby DENIED and the assailed Decision of the Court of Appeals is
AFFIRMED.

SO ORDERED.

Valenzuela Hardwood and Industrial Supply Inc

Vs CA et al

Is a stipulation in a charter party that the "(o)wners shall not be responsible for loss, split, short-
landing, breakages and any kind of damages to the cargo" 1 valid? This is the main question
raised in this petition for review assailing the Decision of Respondent Court of Appeals 2 in CA-
G.R. No. CV-20156 promulgated on October 15, 1991. The Court of Appeals modified the
judgment of the Regional Trial Court of Valenzuela, Metro Manila, Branch 171, the dispositive
portion of which reads:

WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance Co., Inc.
to pay plaintiff the sum of TWO MILLION PESOS (P2,000,000.00) representing the value of the
policy of the lost logs with legal interest thereon from the date of demand on February 2, 1984
until the amount is fully paid or in the alternative, defendant Seven Brothers Shipping
Corporation to pay plaintiff the amount of TWO MILLION PESOS (2,000,000.00) representing
the value of lost logs plus legal interest from the date of demand on April 24, 1984 until full
payment thereof; the reasonable attorney's fees in the amount equivalent to five (5) percent of
the amount of the claim and the costs of the suit.

Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the sum of
TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00) representing the balance of the
stipulated freight charges.

Defendant South Sea Surety and Insurance Company's counterclaim is hereby dismissed.

In its assailed Decision, Respondent Court of Appeals held:

WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as the liability
of the Seven Brothers Shipping Corporation to the plaintiff is concerned which is hereby
REVERSED and SET ASIDE. 3

The Facts

The factual antecedents of this case as narrated in the Court of Appeals Decision are as follows:

It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply, Inc.)
entered into an agreement with the defendant Seven Brothers (Shipping Corporation) whereby
the latter undertook to load on board its vessel M/V Seven Ambassador the former's lauan
round logs numbering 940 at the port of Maconacon, Isabela for shipment to Manila.

On 20 January 1984, plaintiff insured the logs against loss and/or damage with defendant South
Sea Surety and Insurance Co., Inc. for P2,000,000.00 and the latter issued its Marine Cargo
Insurance Policy No. 84/24229 for P2,000,000.00 on said date.

On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance
policy to Mr. Victorio Chua.

In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in
the loss of the plaintiff's insured logs.

On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the premium and
documentary stamps due on the policy was tendered due to the insurer but was not accepted.
Instead, the South Sea Surety and Insurance Co., Inc. cancelled the insurance policy it issued as
of the date of the inception for non-payment of the premium due in accordance with Section 77
of the Insurance Code.

On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co.,
Inc. the payment of the proceeds of the policy but the latter denied liability under the policy.
Plaintiff likewise filed a formal claim with defendant Seven Brothers Shipping Corporation for
the value of the lost logs but the latter denied the claim.

After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and against
defendants. Both defendants shipping corporation and the surety company appealed.

Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the court a quo the
following assignment of errors, to wit:

A. The lower court erred in holding that the proximate cause of the sinking of the vessel Seven
Ambassadors, was not due to fortuitous event but to the negligence of the captain in stowing
and securing the logs on board, causing the iron chains to snap and the logs to roll to the
portside.

B. The lower court erred in declaring that the non-liability clause of the Seven Brothers Shipping
Corporation from logs (sic) of the cargo stipulated in the charter party is void for being contrary
to public policy invoking article 1745 of the New Civil Code.

C. The lower court erred in holding defendant-appellant Seven Brothers Shipping Corporation
liable in the alternative and ordering/directing it to pay plaintiff-appellee the amount of two
million (2,000,000.00) pesos representing the value of the logs plus legal interest from date of
demand until fully paid.

D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping Corporation
to pay appellee reasonable attorney's fees in the amount equivalent to 5% of the amount of the
claim and the costs of the suit.
E. The lower court erred in not awarding defendant-appellant Seven Brothers Corporation its
counter-claim for attorney's fees.

F. The lower court erred in not dismissing the complaint against Seven Brothers Shipping
Corporation.

Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:

A. The trial court erred in holding that Victorio Chua was an agent of defendant-appellant
South Sea Surety and Insurance Company, Inc. and likewise erred in not holding that he was
the representative of the insurance broker Columbia Insurance Brokers, Ltd.

B. The trial court erred in holding that Victorio Chua received compensation/commission on
the premiums paid on the policies issued by the defendant-appellant South Sea Surety and
Insurance Company, Inc.

C. The trial court erred in not applying Section 77 of the Insurance Code.

D. The trial court erred in disregarding the "receipt of payment clause" attached to and forming
part of the Marine Cargo Insurance Policy No. 84/24229.

E. The trial court in disregarding the statement of account or bill stating the amount of premium
and documentary stamps to be paid on the policy by the plaintiff-appellee.

F. The trial court erred in disregarding the endorsement of cancellation of the policy due to non-
payment of premium and documentary stamps.

G. The trial court erred in ordering defendant-appellant South Sea Surety and Insurance
Company, Inc. to pay plaintiff-appellee P2,000,000.00 representing value of the policy with legal
interest from 2 February 1984 until the amount is fully paid,

H. The trial court erred in not awarding to the defendant-appellant the attorney's fees alleged
and proven in its counterclaim.

The primary issue to be resolved before us is whether defendants shipping corporation and the
surety company are liable to the plaintiff for the latter's lost logs. 4

The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South Sea
Surety and Insurance Company ("South Sea"), but modified it by holding that Seven Brothers
Shipping Corporation ("Seven Brothers") was not liable for the lost cargo. 5 In modifying the
RTC judgment, the respondent appellate court ratiocinated thus:

It appears that there is a stipulation in the charter party that the ship owner would be exempted
from liability in case of loss.

The court a quo erred in applying the provisions of the Civil Code on common carriers to
establish the liability of the shipping corporation. The provisions on common carriers should
not be applied where the carrier is not acting as such but as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a special cargo or
chartered to a special person only, becomes a private carrier.

As a private carrier, a stipulation exempting the owner from liability even for the negligence of
its agent is valid (Home Insurance Company, Inc. vs. American Steamship Agencies, Inc., 23
SCRA 24).

The shipping corporation should not therefore be held liable for the loss of the logs. 6

South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc.
("Valenzuela") filed separate petitions for review before this Court. In a Resolution dated June 2,
1995, this Court denied the petition of South

Sea. 7 There the Court found no reason to reverse the factual findings of the trial court and the
Court of Appeals that Chua was indeed an authorized agent of South Sea when he received
Valenzuela's premium payment for the marine cargo insurance policy which was thus binding
on the insurer. 8

The Court is now called upon to resolve the petition for review filed by Valenzuela assailing the
CA Decision which exempted Seven Brothers from any liability for the lost cargo.

The Issue

Petitioner Valenzuela's arguments resolve around a single issue: "whether or not respondent
Court (of Appeals) committed a reversible error in upholding the validity of the stipulation in
the charter party executed between the petitioner and the private respondent exempting the
latter from liability for the loss of petitioner's logs arising from the negligence of its (Seven
Brothers') captain." 9

The Court's Ruling

The petition is not meritorious.

Validity of Stipulation is Lis Mota

The charter party between the petitioner and private respondent stipulated that the "(o)wners
shall not be responsible for loss, split, short-landing, breakages and any kind of damages to the
cargo." 10 The validity of this stipulation is the lis mota of this case.

It should be noted at the outset that there is no dispute between the parties that the proximate
cause of the sinking of M/V Seven Ambassadors resulting in the loss of its cargo was the
"snapping of the iron chains and the subsequent rolling of the logs to the portside due to the
negligence of the captain in stowing and securing the logs on board the vessel and not due to
fortuitous event." 11 Likewise undisputed is the status of Private Respondent Seven Brothers as
a private carrier when it contracted to transport the cargo of Petitioner Valenzuela. Even the
latter admits this in its petition. 12

The trial court deemed the charter party stipulation void for being contrary to public policy, 13
citing Article 1745 of the Civil Code which provides:
Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust
and contrary to public policy:

(1) That the goods are transported at the risk of the owner or shipper;

(2) That the common carrier will not be liable for any loss, destruction, or deterioration of the
goods;

(3) That the common carrier need not observe any diligence in the custody of the goods;

(4) That the common carrier shall exercise a degree of diligence less than that of a good father of
a family, or of a man of ordinary prudence in the vigilance over the movables transported;

(5) That the common carrier shall not be responsible for the acts or omissions of his or its
employees;

(6) That the common carrier's liability for acts committed by thieves, or of robbers who do not
act with grave or irresistible threat, violence or force, is dispensed with or diminished;

(7) That the common carrier is not responsible for the loss, destruction, or deterioration of goods
on account of the defective condition of the car, vehicle, ship, airplane or other equipment used
in the contract of carriage.

Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587
of the Code of Commerce 14 and Articles 1170 and 1173 of the Civil Code. Citing Article 1306
and paragraph 1, Article 1409 of the Civil Code, 15 petitioner further contends that said
stipulation "gives no duty or obligation to the private respondent to observe the diligence of a
good father of a family in the custody and transportation of the cargo."

The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent had
acted as a private carrier in transporting petitioner's lauan logs. Thus, Article 1745 and other
Civil Code provisions on common carriers which were cited by petitioner may not be applied
unless expressly stipulated by the parties in their charter party. 16

In a contract of private carriage, the parties may validly stipulate that responsibility for the
cargo rests solely on the charterer, exempting the shipowner from liability for loss of or damage
to the cargo caused even by the negligence of the ship captain. Pursuant to Article 1306 17 of the
Civil Code, such stipulation is valid because it is freely entered into by the parties and the same
is not contrary to law, morals, good customs, public order, or public policy. Indeed, their
contract of private carriage is not even a contract of adhesion. We stress that in a contract of
private carriage, the parties may freely stipulate their duties and obligations which perforce
would be binding on them. Unlike in a contract involving a common carrier, private carriage
does not involve the general public. Hence, the stringent provisions of the Civil Code on
common carriers protecting the general public cannot justifiably be applied to a ship
transporting commercial goods as a private carrier. Consequently, the public policy embodied
therein is not contravened by stipulations in a charter party that lessen or remove the protection
given by law in contracts involving common carriers.
The issue posed in this case and the arguments raised by petitioner are not novel; they were
resolved long ago by this Court in Home Insurance Co. vs. American Steamship Agencies, Inc.
18 In that case, the trial court similarly nullified a stipulation identical to that involved in the
present case for being contrary to public policy based on Article 1744 of the Civil Code and
Article 587 of the Code of Commerce. Consequently, the trial court held the shipowner liable for
damages resulting for the partial loss of the cargo. This Court reversed the trial court and laid
down, through Mr. Justice Jose P. Bengzon, the following well-settled observation and doctrine:

The provisions of our Civil Code on common carriers were taken from Anglo-American law.
Under American jurisprudence, a common carrier undertaking to carry a special cargo or
chartered to a special person only, becomes a private carrier. As a private carrier, a stipulation
exempting the owner from liability for the negligence of its agent is not against public policy,
and is deemed valid.

Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be
applied where the carrier is not acting as such but as a private carrier. The stipulation in the
charter party absolving the owner from liability for loss due to the negligence of its agent would
be void if the strict public policy governing common carriers is applied. Such policy has no
force where the public at large is not involved, as in this case of a ship totally chartered for the
used of a single party. 19 (Emphasis supplied.)

Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public
enters into a contract of transportation with common carriers without a hand or a voice in the
preparation thereof. The riding public merely adheres to the contract; even if the public wants
to, it cannot submit its own stipulations for the approval of the common carrier. Thus, the law
on common carriers extends its protective mantle against one-sided stipulations inserted in
tickets, invoices or other documents over which the riding public has no understanding or,
worse, no choice. Compared to the general public, a charterer in a contract of private carriage is
not similarly situated. It can — and in fact it usually does — enter into a free and voluntary
agreement. In practice, the parties in a contract of private carriage can stipulate the carrier's
obligations and liabilities over the shipment which, in turn, determine the price or consideration
of the charter. Thus, a charterer, in exchange for convenience and economy, may opt to set aside
the protection of the law on common carriers. When the charterer decides to exercise this
option, he takes a normal business risk.

Petitioner contends that the rule in Home Insurance is not applicable to the present case because
it "covers only a stipulation exempting a private carrier from liability for the negligence of his
agent, but it does not apply to a stipulation exempting a private carrier like private respondent
from the negligence of his employee or servant which is the situation in this case." 20 This
contention of petitioner is bereft of merit, for it raises a distinction without any substantive
difference. The case Home Insurance specifically dealt with "the liability of the shipowner for
acts or negligence of its captain and crew" 21 and a charter party stipulation which "exempts the
owner of the vessel from any loss or damage or delay arising from any other source, even from
the neglect or fault of the captain or crew or some other person employed by the owner on

board, for whose acts the owner would ordinarily be liable except for said paragraph." 22
Undoubtedly, Home Insurance is applicable to the case at bar.
The naked assertion of petitioner that the American rule enunciated in Home Insurance is not
the rule in the Philippines 23 deserves scant consideration. The Court there categorically held
that said rule was "reasonable" and proceeded to apply it in the resolution of that case.
Petitioner miserably failed to show such circumstances or arguments which would necessitate a
departure from a well-settled rule. Consequently, our ruling in said case remains a binding
judicial precedent based on the doctrine of stare decisis and Article 8 of the Civil Code which
provides that "(j)udicial decisions applying or interpreting the laws or the Constitution shall
form part of the legal system of the Philippines."

In fine, the respondent appellate court aptly stated that "[in the case of] a private carrier, a
stipulation exempting the owner from liability even for the negligence of its agents is valid." 24

Other Arguments

On the basis of the foregoing alone, the present petition may already be denied; the Court,
however, will discuss the other arguments of petitioner for the benefit and satisfaction of all
concerned.

Articles 586 and 587, Code of Commerce

Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and 587
of the Code of Commerce which confer on petitioner the right to recover damages from the
shipowner and ship agent for the acts or conduct of the captain. 25 We are not persuaded.
Whatever rights petitioner may have under the aforementioned statutory provisions were
waived when it entered into the charter party.

Article 6 of the Civil Code provides that "(r)ights may be waived, unless the waiver is contrary
to law, public order, public policy, morals, or good customs, or prejudicial to a person with a
right recognized by law." As a general rule, patrimonial rights may be waived as opposed to
rights to personality and family rights which may not be made the subject of waiver. 26 Being
patently and undoubtedly patrimonial, petitioner's right conferred under said articles may be
waived. This, the petitioner did by acceding to the contractual stipulation that it is solely
responsible or any damage to the cargo, thereby exempting the private carrier from any
responsibility for loss or damage thereto. Furthermore, as discussed above, the contract of
private carriage binds petitioner and private respondent alone; it is not imbued with public
policy considerations for the general public or third persons are not affected thereby.

Articles 1170 and 1173, Civil Code

Petitioner likewise argues that the stipulation subject of this controversy is void for being
contrary to Articles 1170 and 1173 of the Civil Code 27 which read:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages

Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which
is required by the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place. When negligence shows bad faith, the provisions of
articles 1171 and 2201, shall apply.

If the law does not state the diligence which is to be observed in the performance, that which is
expected of a good father of a family shall be required.

The Court notes that the foregoing articles are applicable only to the obligor or the one with an
obligation to perform. In the instant case, Private Respondent Seven Brothers is not an obligor
in respect of the cargo, for this obligation to bear the loss was shifted to petitioner by virtue of
the charter party. This shifting of responsibility, as earlier observed, is not void. The provisions
cited by petitioner are, therefore, inapplicable to the present case.

Moreover, the factual milieu of this case does not justify the application of the second paragraph
of Article 1173 of the Civil Code which prescribes the standard of diligence to be observed in
the event the law or the contract is silent. In the instant case, Article 362 of the Code of
Commerce 28 provides the standard of ordinary diligence for the carriage of goods by a carrier.
The standard of diligence under this statutory provision may, however, be modified in a
contract of private carriage as the petitioner and private respondent had done in their charter
party.

Cases Cited by Petitioner Inapplicable

Petitioner cites Shewaram vs. Philippine Airlines, Inc. 29 which, in turn, quoted Juan Ysmael &
Co. vs. Gabino Barreto & Co. 30 and argues that the public policy considerations stated there
vis-a-vis contractual stipulations limiting the carrier's liability be applied "with equal force" to
this case. 31 It also cites Manila Railroad Co. vs. Compañia Transatlantica 32 and contends that
stipulations exempting a party from liability for damages due to negligence "should not be
countenanced" and should be "strictly construed" against the party claiming its benefit. 33 We
disagree.

The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily
justify the application of such policy considerations and concomitantly stricter rules. As already
discussed above, the public policy considerations behind the rigorous treatment of common
carriers are absent in the case of private carriers. Hence, the stringent laws applicable to
common carriers are not applied to private carries. The case of Manila Railroad is also
inapplicable because the action for damages there does not involve a contract for transportation.
Furthermore, the defendant therein made a "promise to use due care in the lifting operations"
and, consequently, it was "bound by its undertaking"'; besides, the exemption was intended to
cover accidents due to hidden defects in the apparatus or other unforseeable occurrences" not
caused by its "personal negligence." This promise was thus constructed to make sense together
with the stipulation against liability for damages. 34 In the present case, we stress that the
private respondent made no such promise. The agreement of the parties to exempt the
shipowner from responsibility for any damage to the cargo and place responsibility over the
same to petitioner is the lone stipulation considered now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo, 35 Walter A.
Smith & Co. vs. Cadwallader Gibson Lumber Co., 36 N. T . Hashim and Co. vs. Rocha and Co.,
37 Ohta Development Co. vs. Steamship "Pompey" 38 and Limpangco Sons vs. Yangco
Steamship Co. 39 in support of its contention that the shipowner be held liable for damages. 40
These however are not on all fours with the present case because they do not involve a similar
factual milieu or an identical stipulation in the charter party expressly exempting the shipowner
form responsibility for any damage to the cargo.

Effect of the South Sea Resolution

In its memorandum, Seven Brothers argues that petitioner has no cause of action against it
because this Court has earlier affirmed the liability of South Sea for the loss suffered by
petitioner. Private respondent submits that petitioner is not legally entitled to collect twice for a
single loss. 41 In view of the above disquisition upholding the validity of the questioned charter
party stipulation and holding that petitioner may not recover from private respondent, the
present issue is moot and academic. It suffices to state that the Resolution of this Court dated
June 2, 1995 42 affirming the liability of South Sea does not, by itself, necessarily preclude the
petitioner from proceeding against private respondent. An aggrieved party may still recover the
deficiency for the person causing the loss in the event the amount paid by the insurance
company does not fully cover the loss. Article 2207 of the Civil Code provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity for the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency form the person causing the loss or injury.

WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show
any reversible error on the part of Respondent Court. The assailed Decision is AFFIRMED.

SO ORDERED.
 Republic vs Orbecido

Given a valid marriage between two Filipino citizens, where one party is later naturalized as a
foreign citizen and obtains a valid divorce decree capacitating him or her to remarry, can the
Filipino spouse likewise remarry under Philippine law?

Before us is a case of first impression that behooves the Court to make a definite ruling on this
apparently novel question, presented as a pure question of law.

In this petition for review, the Solicitor General assails the Decision1 dated May 15, 2002, of the
Regional Trial Court of Molave, Zamboanga del Sur, Branch 23 and its Resolution2 dated July 4,
2002 denying the motion for reconsideration. The court a quo had declared that herein
respondent Cipriano Orbecido III is capacitated to remarry. The fallo of the impugned Decision
reads:

WHEREFORE, by virtue of the provision of the second paragraph of Art. 26 of the Family Code
and by reason of the divorce decree obtained against him by his American wife, the petitioner is
given the capacity to remarry under the Philippine Law.

IT IS SO ORDERED.3

The factual antecedents, as narrated by the trial court, are as follows.

On May 24, 1981, Cipriano Orbecido III married Lady Myros M. Villanueva at the United
Church of Christ in the Philippines in Lam-an, Ozamis City. Their marriage was blessed with a
son and a daughter, Kristoffer Simbortriz V. Orbecido and Lady Kimberly V. Orbecido.

In 1986, Cipriano’s wife left for the United States bringing along their son Kristoffer. A few
years later, Cipriano discovered that his wife had been naturalized as an American citizen.

Sometime in 2000, Cipriano learned from his son that his wife had obtained a divorce decree
and then married a certain Innocent Stanley. She, Stanley and her child by him currently live at
5566 A. Walnut Grove Avenue, San Gabriel, California.

Cipriano thereafter filed with the trial court a petition for authority to remarry invoking
Paragraph 2 of Article 26 of the Family Code. No opposition was filed. Finding merit in the
petition, the court granted the same. The Republic, herein petitioner, through the Office of the
Solicitor General (OSG), sought reconsideration but it was denied.

In this petition, the OSG raises a pure question of law:

WHETHER OR NOT RESPONDENT CAN REMARRY UNDER ARTICLE 26 OF THE FAMILY

CODE4

The OSG contends that Paragraph 2 of Article 26 of the Family Code is not applicable to the
instant case because it only applies to a valid mixed marriage; that is, a marriage celebrated
between a Filipino citizen and an alien. The proper remedy, according to the OSG, is to file a
petition for annulment or for legal separation.5 Furthermore, the OSG argues there is no law
that governs respondent’s situation. The OSG posits that this is a matter of legislation and not of
judicial determination.6

For his part, respondent admits that Article 26 is not directly applicable to his case but insists
that when his naturalized alien wife obtained a divorce decree which capacitated her to
remarry, he is likewise capacitated by operation of law pursuant to Section 12, Article II of the
Constitution.7

At the outset, we note that the petition for authority to remarry filed before the trial court
actually constituted a petition for declaratory relief. In this connection, Section 1, Rule 63 of the
Rules of Court provides:

RULE 63

DECLARATORY RELIEF AND SIMILAR REMEDIES

Section 1. Who may file petition—Any person interested under a deed, will, contract or other
written instrument, or whose rights are affected by a statute, executive order or regulation,
ordinance, or other governmental regulation may, before breach or violation thereof, bring an
action in the appropriate Regional Trial Court to determine any question of construction or
validity arising, and for a declaration of his rights or duties, thereunder.

The requisites of a petition for declaratory relief are: (1) there must be a justiciable controversy;
(2) the controversy must be between persons whose interests are adverse; (3) that the party
seeking the relief has a legal interest in the controversy; and (4) that the issue is ripe for judicial
determination.8

This case concerns the applicability of Paragraph 2 of Article 26 to a marriage between two
Filipino citizens where one later acquired alien citizenship, obtained a divorce decree, and
remarried while in the U.S.A. The interests of the parties are also adverse, as petitioner
representing the State asserts its duty to protect the institution of marriage while respondent, a
private citizen, insists on a declaration of his capacity to remarry. Respondent, praying for
relief, has legal interest in the controversy. The issue raised is also ripe for judicial
determination inasmuch as when respondent remarries, litigation ensues and puts into question
the validity of his second marriage.

Coming now to the substantive issue, does Paragraph 2 of Article 26 of the Family Code apply
to the case of respondent? Necessarily, we must dwell on how this provision had come about in
the first place, and what was the intent of the legislators in its enactment?

Brief Historical Background

On July 6, 1987, then President Corazon Aquino signed into law Executive Order No. 209,
otherwise known as the "Family Code," which took effect on August 3, 1988. Article 26 thereof
states:
All marriages solemnized outside the Philippines in accordance with the laws in force in the
country where they were solemnized, and valid there as such, shall also be valid in this country,
except those prohibited under Articles 35, 37, and 38.

On July 17, 1987, shortly after the signing of the original Family Code, Executive Order No. 227
was likewise signed into law, amending Articles 26, 36, and 39 of the Family Code. A second
paragraph was added to Article 26. As so amended, it now provides:

ART. 26. All marriages solemnized outside the Philippines in accordance with the laws in force
in the country where they were solemnized, and valid there as such, shall also be valid in this
country, except those prohibited under Articles 35(1), (4), (5) and (6), 36, 37 and 38.

Where a marriage between a Filipino citizen and a foreigner is validly celebrated and a divorce
is thereafter validly obtained abroad by the alien spouse capacitating him or her to remarry, the
Filipino spouse shall have capacity to remarry under Philippine law. (Emphasis supplied)

On its face, the foregoing provision does not appear to govern the situation presented by the
case at hand. It seems to apply only to cases where at the time of the celebration of the marriage,
the parties are a Filipino citizen and a foreigner. The instant case is one where at the time the
marriage was solemnized, the parties were two Filipino citizens, but later on, the wife was
naturalized as an American citizen and subsequently obtained a divorce granting her capacity
to remarry, and indeed she remarried an American citizen while residing in the U.S.A.

Noteworthy, in the Report of the Public Hearings9 on the Family Code, the Catholic Bishops’
Conference of the Philippines (CBCP) registered the following objections to Paragraph 2 of
Article 26:

1. The rule is discriminatory. It discriminates against those whose spouses are Filipinos who
divorce them abroad. These spouses who are divorced will not be able to re-marry, while the
spouses of foreigners who validly divorce them abroad can.

2. This is the beginning of the recognition of the validity of divorce even for Filipino citizens.
For those whose foreign spouses validly divorce them abroad will also be considered to be
validly divorced here and can re-marry. We propose that this be deleted and made into law
only after more widespread consultation. (Emphasis supplied.)

Legislative Intent

Records of the proceedings of the Family Code deliberations showed that the intent of
Paragraph 2 of Article 26, according to Judge Alicia Sempio-Diy, a member of the Civil Code
Revision Committee, is to avoid the absurd situation where the Filipino spouse remains married
to the alien spouse who, after obtaining a divorce, is no longer married to the Filipino spouse.

Interestingly, Paragraph 2 of Article 26 traces its origin to the 1985 case of Van Dorn v. Romillo,
Jr.10 The Van Dorn case involved a marriage between a Filipino citizen and a foreigner. The
Court held therein that a divorce decree validly obtained by the alien spouse is valid in the
Philippines, and consequently, the Filipino spouse is capacitated to remarry under Philippine
law.
Does the same principle apply to a case where at the time of the celebration of the marriage, the
parties were Filipino citizens, but later on, one of them obtains a foreign citizenship by
naturalization?

The jurisprudential answer lies latent in the 1998 case of Quita v. Court of Appeals.11 In Quita,
the parties were, as in this case, Filipino citizens when they got married. The wife became a
naturalized American citizen in 1954 and obtained a divorce in the same year. The Court therein
hinted, by way of obiter dictum, that a Filipino divorced by his naturalized foreign spouse is no
longer married under Philippine law and can thus remarry.

Thus, taking into consideration the legislative intent and applying the rule of reason, we hold
that Paragraph 2 of Article 26 should be interpreted to include cases involving parties who, at
the time of the celebration of the marriage were Filipino citizens, but later on, one of them
becomes naturalized as a foreign citizen and obtains a divorce decree. The Filipino spouse
should likewise be allowed to remarry as if the other party were a foreigner at the time of the
solemnization of the marriage. To rule otherwise would be to sanction absurdity and injustice.
Where the interpretation of a statute according to its exact and literal import would lead to
mischievous results or contravene the clear purpose of the legislature, it should be construed
according to its spirit and reason, disregarding as far as necessary the letter of the law. A statute
may therefore be extended to cases not within the literal meaning of its terms, so long as they
come within its spirit or intent.12

If we are to give meaning to the legislative intent to avoid the absurd situation where the
Filipino spouse remains married to the alien spouse who, after obtaining a divorce is no longer
married to the Filipino spouse, then the instant case must be deemed as coming within the
contemplation of Paragraph 2 of Article 26.

In view of the foregoing, we state the twin elements for the application of Paragraph 2 of Article
26 as follows:

1. There is a valid marriage that has been celebrated between a Filipino citizen and a foreigner;
and

2. A valid divorce is obtained abroad by the alien spouse capacitating him or her to remarry.

The reckoning point is not the citizenship of the parties at the time of the celebration of the
marriage, but their citizenship at the time a valid divorce is obtained abroad by the alien spouse
capacitating the latter to remarry.

In this case, when Cipriano’s wife was naturalized as an American citizen, there was still a valid
marriage that has been celebrated between her and Cipriano. As fate would have it, the
naturalized alien wife subsequently obtained a valid divorce capacitating her to remarry.
Clearly, the twin requisites for the application of Paragraph 2 of Article 26 are both present in
this case. Thus Cipriano, the "divorced" Filipino spouse, should be allowed to remarry.
We are also unable to sustain the OSG’s theory that the proper remedy of the Filipino spouse is
to file either a petition for annulment or a petition for legal separation. Annulment would be a
long and tedious process, and in this particular case, not even feasible, considering that the
marriage of the parties appears to have all the badges of validity. On the other hand, legal
separation would not be a sufficient remedy for it would not sever the marriage tie; hence, the
legally separated Filipino spouse would still remain married to the naturalized alien spouse.

However, we note that the records are bereft of competent evidence duly submitted by
respondent concerning the divorce decree and the naturalization of respondent’s wife. It is
settled rule that one who alleges a fact has the burden of proving it and mere allegation is not
evidence.13

Accordingly, for his plea to prosper, respondent herein must prove his allegation that his wife
was naturalized as an American citizen. Likewise, before a foreign divorce decree can be
recognized by our own courts, the party pleading it must prove the divorce as a fact and
demonstrate its conformity to the foreign law allowing it.14 Such foreign law must also be
proved as our courts cannot take judicial notice of foreign laws. Like any other fact, such laws
must be alleged and proved.15 Furthermore, respondent must also show that the divorce decree
allows his former wife to remarry as specifically required in Article 26. Otherwise, there would
be no evidence sufficient to declare that he is capacitated to enter into another marriage.

Nevertheless, we are unanimous in our holding that Paragraph 2 of Article 26 of the Family
Code (E.O. No. 209, as amended by E.O. No. 227), should be interpreted to allow a Filipino
citizen, who has been divorced by a spouse who had acquired foreign citizenship and
remarried, also to remarry. However, considering that in the present petition there is no
sufficient evidence submitted and on record, we are unable to declare, based on respondent’s
bare allegations that his wife, who was naturalized as an American citizen, had obtained a
divorce decree and had remarried an American, that respondent is now capacitated to remarry.
Such declaration could only be made properly upon respondent’s submission of the aforecited
evidence in his favor.

ACCORDINGLY, the petition by the Republic of the Philippines is GRANTED. The assailed
Decision dated May 15, 2002, and Resolution dated July 4, 2002, of the Regional Trial Court of
Molave, Zamboanga del Sur, Branch 23, are hereby SET ASIDE.

No pronouncement as to costs.

SO ORDERED.
 Van Dorn vs. Romillo Jr.

In this Petition for certiorari and Prohibition, petitioner Alice Reyes Van Dorn seeks to set aside
the Orders, dated September 15, 1983 and August 3, 1984, in Civil Case No. 1075-P, issued by
respondent Judge, which denied her Motion to Dismiss said case, and her Motion for
Reconsideration of the Dismissal Order, respectively.

The basic background facts are that petitioner is a citizen of the Philippines while private
respondent is a citizen of the United States; that they were married in Hongkong in 1972; that,
after the marriage, they established their residence in the Philippines; that they begot two
children born on April 4, 1973 and December 18, 1975, respectively; that the parties were
divorced in Nevada, United States, in 1982; and that petitioner has re-married also in Nevada,
this time to Theodore Van Dorn.

Dated June 8, 1983, private respondent filed suit against petitioner in Civil Case No. 1075-P of
the Regional Trial Court, Branch CXV, in Pasay City, stating that petitioner's business in Ermita,
Manila, (the Galleon Shop, for short), is conjugal property of the parties, and asking that
petitioner be ordered to render an accounting of that business, and that private respondent be
declared with right to manage the conjugal property. Petitioner moved to dismiss the case on
the ground that the cause of action is barred by previous judgment in the divorce proceedings
before the Nevada Court wherein respondent had acknowledged that he and petitioner had "no
community property" as of June 11, 1982. The Court below denied the Motion to Dismiss in the
mentioned case on the ground that the property involved is located in the Philippines so that
the Divorce Decree has no bearing in the case. The denial is now the subject of this certiorari
proceeding.

Generally, the denial of a Motion to Dismiss in a civil case is interlocutory and is not subject to
appeal. certiorari and Prohibition are neither the remedies to question the propriety of an
interlocutory order of the trial Court. However, when a grave abuse of discretion was patently
committed, or the lower Court acted capriciously and whimsically, then it devolves upon this
Court in a certiorari proceeding to exercise its supervisory authority and to correct the error
committed which, in such a case, is equivalent to lack of jurisdiction. 1 Prohibition would then
lie since it would be useless and a waste of time to go ahead with the proceedings. 2 Weconsider
the petition filed in this case within the exception, and we have given it due course.

For resolution is the effect of the foreign divorce on the parties and their alleged conjugal
property in the Philippines.

Petitioner contends that respondent is estopped from laying claim on the alleged conjugal
property because of the representation he made in the divorce proceedings before the American
Court that they had no community of property; that the Galleon Shop was not established
through conjugal funds, and that respondent's claim is barred by prior judgment.
For his part, respondent avers that the Divorce Decree issued by the Nevada Court cannot
prevail over the prohibitive laws of the Philippines and its declared national policy; that the acts
and declaration of a foreign Court cannot, especially if the same is contrary to public policy,
divest Philippine Courts of jurisdiction to entertain matters within its jurisdiction.

For the resolution of this case, it is not necessary to determine whether the property relations
between petitioner and private respondent, after their marriage, were upon absolute or relative
community property, upon complete separation of property, or upon any other regime. The
pivotal fact in this case is the Nevada divorce of the parties.

The Nevada District Court, which decreed the divorce, had obtained jurisdiction over petitioner
who appeared in person before the Court during the trial of the case. It also obtained
jurisdiction over private respondent who, giving his address as No. 381 Bush Street, San
Francisco, California, authorized his attorneys in the divorce case, Karp & Gradt Ltd., to agree
to the divorce on the ground of incompatibility in the understanding that there were neither
community property nor community obligations. 3 As explicitly stated in the Power of Attorney
he executed in favor of the law firm of KARP & GRAD LTD., 336 W. Liberty, Reno, Nevada, to
represent him in the divorce proceedings:

xxx xxx xxx

You are hereby authorized to accept service of Summons, to file an Answer, appear on my
behalf and do an things necessary and proper to represent me, without further contesting,
subject to the following:

1. That my spouse seeks a divorce on the ground of incompatibility.

2. That there is no community of property to be adjudicated by the Court.

3. 'I'hat there are no community obligations to be adjudicated by the court.

xxx xxx xxx 4

There can be no question as to the validity of that Nevada divorce in any of the States of the
United States. The decree is binding on private respondent as an American citizen. For instance,
private respondent cannot sue petitioner, as her husband, in any State of the Union. What he is
contending in this case is that the divorce is not valid and binding in this jurisdiction, the same
being contrary to local law and public policy.

It is true that owing to the nationality principle embodied in Article 15 of the Civil Code, 5 only
Philippine nationals are covered by the policy against absolute divorces the same being
considered contrary to our concept of public police and morality. However, aliens may obtain
divorces abroad, which may be recognized in the Philippines, provided they are valid according
to their national law. 6 In this case, the divorce in Nevada released private respondent from the
marriage from the standards of American law, under which divorce dissolves the marriage. As
stated by the Federal Supreme Court of the United States in Atherton vs. Atherton, 45 L. Ed.
794, 799:
The purpose and effect of a decree of divorce from the bond of matrimony by a court of
competent jurisdiction are to change the existing status or domestic relation of husband and
wife, and to free them both from the bond. The marriage tie when thus severed as to one party,
ceases to bind either. A husband without a wife, or a wife without a husband, is unknown to the
law. When the law provides, in the nature of a penalty. that the guilty party shall not marry
again, that party, as well as the other, is still absolutely freed from the bond of the former
marriage.

Thus, pursuant to his national law, private respondent is no longer the husband of petitioner.
He would have no standing to sue in the case below as petitioner's husband entitled to exercise
control over conjugal assets. As he is bound by the Decision of his own country's Court, which
validly exercised jurisdiction over him, and whose decision he does not repudiate, he is
estopped by his own representation before said Court from asserting his right over the alleged
conjugal property.

To maintain, as private respondent does, that, under our laws, petitioner has to be considered
still married to private respondent and still subject to a wife's obligations under Article 109, et.
seq. of the Civil Code cannot be just. Petitioner should not be obliged to live together with,
observe respect and fidelity, and render support to private respondent. The latter should not
continue to be one of her heirs with possible rights to conjugal property. She should not be
discriminated against in her own country if the ends of justice are to be served.

WHEREFORE, the Petition is granted, and respondent Judge is hereby ordered to dismiss the
Complaint filed in Civil Case No. 1075-P of his Court.

Without costs.

SO ORDERED.
 San luis vs San luis

Before us are consolidated petitions for review assailing the February 4, 1998 Decision 1 of the
Court of Appeals in CA-G.R. CV No. 52647, which reversed and set aside the September 12,
1995 2 and January 31, 1996 3 Resolutions of the Regional Trial Court of Makati City, Branch 134
in SP. Proc. No. M-3708; and its May 15, 1998 Resolution 4 denying petitioners’ motion for
reconsideration.

The instant case involves the settlement of the estate of Felicisimo T. San Luis (Felicisimo), who
was the former governor of the Province of Laguna. During his lifetime, Felicisimo contracted
three marriages. His first marriage was with Virginia Sulit on March 17, 1942 out of which were
born six children, namely: Rodolfo, Mila, Edgar, Linda, Emilita and Manuel. On August 11,
1963, Virginia predeceased Felicisimo.

Five years later, on May 1, 1968, Felicisimo married Merry Lee Corwin, with whom he had a
son, Tobias. However, on October 15, 1971, Merry Lee, an American citizen, filed a Complaint
for Divorce 5 before the Family Court of the First Circuit, State of Hawaii, United States of
America (U.S.A.), which issued a Decree Granting Absolute Divorce and Awarding Child
Custody on December 14, 1973. 6

On June 20, 1974, Felicisimo married respondent Felicidad San Luis, then surnamed Sagalongos,
before Rev. Fr. William Meyer, Minister of the United Presbyterian at Wilshire Boulevard, Los
Angeles, California, U.S.A. 7 He had no children with respondent but lived with her for 18
years from the time of their marriage up to his death on December 18, 1992.

Thereafter, respondent sought the dissolution of their conjugal partnership assets and the
settlement of Felicisimo’s estate. On December 17, 1993, she filed a petition for letters of
administration 8 before the Regional Trial Court of Makati City, docketed as SP. Proc. No. M-
3708 which was raffled to Branch 146 thereof.

Respondent alleged that she is the widow of Felicisimo; that, at the time of his death, the
decedent was residing at 100 San Juanico Street, New Alabang Village, Alabang, Metro Manila;
that the decedent’s surviving heirs are respondent as legal spouse, his six children by his first
marriage, and son by his second marriage; that the decedent left real properties, both conjugal
and exclusive, valued at ₱30,304,178.00 more or less; that the decedent does not have any
unpaid debts. Respondent prayed that the conjugal partnership assets be liquidated and that
letters of administration be issued to her.

On February 4, 1994, petitioner Rodolfo San Luis, one of the children of Felicisimo by his first
marriage, filed a motion to dismiss 9 on the grounds of improper venue and failure to state a
cause of action. Rodolfo claimed that the petition for letters of administration should have been
filed in the Province of Laguna because this was Felicisimo’s place of residence prior to his
death. He further claimed that respondent has no legal personality to file the petition because
she was only a mistress of Felicisimo since the latter, at the time of his death, was still legally
married to Merry Lee.
On February 15, 1994, Linda invoked the same grounds and joined her brother Rodolfo in
seeking the dismissal 10 of the petition. On February 28, 1994, the trial court issued an Order 11
denying the two motions to dismiss.

Unaware of the denial of the motions to dismiss, respondent filed on March 5, 1994 her
opposition 12 thereto. She submitted documentary evidence showing that while Felicisimo
exercised the powers of his public office in Laguna, he regularly went home to their house in
New Alabang Village, Alabang, Metro Manila which they bought sometime in 1982. Further,
she presented the decree of absolute divorce issued by the Family Court of the First Circuit,
State of Hawaii to prove that the marriage of Felicisimo to Merry Lee had already been
dissolved. Thus, she claimed that Felicisimo had the legal capacity to marry her by virtue of
paragraph 2, 13 Article 26 of the Family Code and the doctrine laid down in Van Dorn v.
Romillo, Jr. 14

hereafter, Linda, Rodolfo and herein petitioner Edgar San Luis, separately filed motions for
reconsideration from the Order denying their motions to dismiss. 15 They asserted that
paragraph 2, Article 26 of the Family Code cannot be given retroactive effect to validate
respondent’s bigamous marriage with Felicisimo because this would impair vested rights in
derogation of Article 256 16 of the Family Code.

On April 21, 1994, Mila, another daughter of Felicisimo from his first marriage, filed a motion to
disqualify Acting Presiding Judge Anthony E. Santos from hearing the case.

On October 24, 1994, the trial court issued an Order 17 denying the motions for reconsideration.
It ruled that respondent, as widow of the decedent, possessed the legal standing to file the
petition and that venue was properly laid. Meanwhile, the motion for disqualification was
deemed moot and academic 18 because then Acting Presiding Judge Santos was substituted by
Judge Salvador S. Tensuan pending the resolution of said motion.

Mila filed a motion for inhibition 19 against Judge Tensuan on November 16, 1994. On even
date, Edgar also filed a motion for reconsideration 20 from the Order denying their motion for
reconsideration arguing that it does not state the facts and law on which it was based.

On November 25, 1994, Judge Tensuan issued an Order 21 granting the motion for inhibition.
The case was re-raffled to Branch 134 presided by Judge Paul T. Arcangel.

On April 24, 1995, 22 the trial court required the parties to submit their respective position
papers on the twin issues of venue and legal capacity of respondent to file the petition. On May
5, 1995, Edgar manifested 23 that he is adopting the arguments and evidence set forth in his
previous motion for reconsideration as his position paper. Respondent and Rodolfo filed their
position papers on June 14, 24 and June 20, 25 1995, respectively.

On September 12, 1995, the trial court dismissed the petition for letters of administration. It held
that, at the time of his death, Felicisimo was the duly elected governor and a resident of the
Province of Laguna. Hence, the petition should have been filed in Sta. Cruz, Laguna and not in
Makati City. It also ruled that respondent was without legal capacity to file the petition for
letters of administration because her marriage with Felicisimo was bigamous, thus, void ab
initio. It found that the decree of absolute divorce dissolving Felicisimo’s marriage to Merry Lee
was not valid in the Philippines and did not bind Felicisimo who was a Filipino citizen. It also
ruled that paragraph 2, Article 26 of the Family Code cannot be retroactively applied because it
would impair the vested rights of Felicisimo’s legitimate children.

Respondent moved for reconsideration 26 and for the disqualification 27 of Judge Arcangel but
said motions were denied. 28

Respondent appealed to the Court of Appeals which reversed and set aside the orders of the
trial court in its assailed Decision dated February 4, 1998, the dispositive portion of which
states:

WHEREFORE, the Orders dated September 12, 1995 and January 31, 1996 are hereby
REVERSED and SET ASIDE; the Orders dated February 28 and October 24, 1994 are
REINSTATED; and the records of the case is REMANDED to the trial court for further
proceedings. 29

The appellante court ruled that under Section 1, Rule 73 of the Rules of Court, the term "place of
residence" of the decedent, for purposes of fixing the venue of the settlement of his estate, refers
to the personal, actual or physical habitation, or actual residence or place of abode of a person
as distinguished from legal residence or domicile. It noted that although Felicisimo discharged
his functions as governor in Laguna, he actually resided in Alabang, Muntinlupa. Thus, the
petition for letters of administration was properly filed in Makati City.

The Court of Appeals also held that Felicisimo had legal capacity to marry respondent by virtue
of paragraph 2, Article 26 of the Family Code and the rulings in Van Dorn v. Romillo, Jr. 30 and
Pilapil v. Ibay-Somera. 31 It found that the marriage between Felicisimo and Merry Lee was
validly dissolved by virtue of the decree of absolute divorce issued by the Family Court of the
First Circuit, State of Hawaii. As a result, under paragraph 2, Article 26, Felicisimo was
capacitated to contract a subsequent marriage with respondent. Thus –

With the well-known rule – express mandate of paragraph 2, Article 26, of the Family Code of
the Philippines, the doctrines in Van Dorn, Pilapil, and the reason and philosophy behind the
enactment of E.O. No. 227, — there is no justiciable reason to sustain the individual view —
sweeping statement — of Judge Arc[h]angel, that "Article 26, par. 2 of the Family Code,
contravenes the basic policy of our state against divorce in any form whatsoever." Indeed,
courts cannot deny what the law grants. All that the courts should do is to give force and effect
to the express mandate of the law. The foreign divorce having been obtained by the Foreigner
on December 14, 1992, 32 the Filipino divorcee, "shall x x x have capacity to remarry under
Philippine laws". For this reason, the marriage between the deceased and petitioner should not
be denominated as "a bigamous marriage.

Therefore, under Article 130 of the Family Code, the petitioner as the surviving spouse can
institute the judicial proceeding for the settlement of the estate of the deceased. x x x 33

Edgar, Linda, and Rodolfo filed separate motions for reconsideration 34 which were denied by
the Court of Appeals.
On July 2, 1998, Edgar appealed to this Court via the instant petition for review on certiorari. 35
Rodolfo later filed a manifestation and motion to adopt the said petition which was granted. 36

In the instant consolidated petitions, Edgar and Rodolfo insist that the venue of the subject
petition for letters of administration was improperly laid because at the time of his death,
Felicisimo was a resident of Sta. Cruz, Laguna. They contend that pursuant to our rulings in
Nuval v. Guray 37 and Romualdez v. RTC, Br. 7, Tacloban City, 38 "residence" is synonymous
with "domicile" which denotes a fixed permanent residence to which when absent, one intends
to return. They claim that a person can only have one domicile at any given time. Since
Felicisimo never changed his domicile, the petition for letters of administration should have
been filed in Sta. Cruz, Laguna.

Petitioners also contend that respondent’s marriage to Felicisimo was void and bigamous
because it was performed during the subsistence of the latter’s marriage to Merry Lee. They
argue that paragraph 2, Article 26 cannot be retroactively applied because it would impair
vested rights and ratify the void bigamous marriage. As such, respondent cannot be considered
the surviving wife of Felicisimo; hence, she has no legal capacity to file the petition for letters of
administration.

The issues for resolution: (1) whether venue was properly laid, and (2) whether respondent has
legal capacity to file the subject petition for letters of administration.

The petition lacks merit.

Under Section 1, 39 Rule 73 of the Rules of Court, the petition for letters of administration of the
estate of Felicisimo should be filed in the Regional Trial Court of the province "in which he
resides at the time of his death." In the case of Garcia Fule v. Court of Appeals, 40 we laid down
the doctrinal rule for determining the residence – as contradistinguished from domicile – of the
decedent for purposes of fixing the venue of the settlement of his estate:

[T]he term "resides" connotes ex vi termini "actual residence" as distinguished from "legal
residence or domicile." This term "resides," like the terms "residing" and "residence," is elastic
and should be interpreted in the light of the object or purpose of the statute or rule in which it is
employed. In the application of venue statutes and rules – Section 1, Rule 73 of the Revised
Rules of Court is of such nature – residence rather than domicile is the significant factor. Even
where the statute uses the word "domicile" still it is construed as meaning residence and not
domicile in the technical sense. Some cases make a distinction between the terms "residence"
and "domicile" but as generally used in statutes fixing venue, the terms are synonymous, and
convey the same meaning as the term "inhabitant." In other words, "resides" should be viewed
or understood in its popular sense, meaning, the personal, actual or physical habitation of a
person, actual residence or place of abode. It signifies physical presence in a place and actual
stay thereat. In this popular sense, the term means merely residence, that is, personal residence,
not legal residence or domicile. Residence simply requires bodily presence as an inhabitant in a
given place, while domicile requires bodily presence in that place and also an intention to make
it one’s domicile. No particular length of time of residence is required though; however, the
residence must be more than temporary. 41 (Emphasis supplied)
It is incorrect for petitioners to argue that "residence," for purposes of fixing the venue of the
settlement of the estate of Felicisimo, is synonymous with "domicile." The rulings in Nuval and
Romualdez are inapplicable to the instant case because they involve election cases. Needless to
say, there is a distinction between "residence" for purposes of election laws and "residence" for
purposes of fixing the venue of actions. In election cases, "residence" and "domicile" are treated
as synonymous terms, that is, the fixed permanent residence to which when absent, one has the
intention of returning. 42 However, for purposes of fixing venue under the Rules of Court, the
"residence" of a person is his personal, actual or physical habitation, or actual residence or place
of abode, which may not necessarily be his legal residence or domicile provided he resides
therein with continuity and consistency. 43 Hence, it is possible that a person may have his
residence in one place and domicile in another.

In the instant case, while petitioners established that Felicisimo was domiciled in Sta. Cruz,
Laguna, respondent proved that he also maintained a residence in Alabang, Muntinlupa from
1982 up to the time of his death. Respondent submitted in evidence the Deed of Absolute Sale
44 dated January 5, 1983 showing that the deceased purchased the aforesaid property. She also
presented billing statements 45 from the Philippine Heart Center and Chinese General Hospital
for the period August to December 1992 indicating the address of Felicisimo at "100 San Juanico,
Ayala Alabang, Muntinlupa." Respondent also presented proof of membership of the deceased
in the Ayala Alabang Village Association 46 and Ayala Country Club, Inc., 47 letter-envelopes
48 from 1988 to 1990 sent by the deceased’s children to him at his Alabang address, and the
deceased’s calling cards 49 stating that his home/city address is at "100 San Juanico, Ayala
Alabang Village, Muntinlupa" while his office/provincial address is in "Provincial Capitol, Sta.
Cruz, Laguna."

From the foregoing, we find that Felicisimo was a resident of Alabang, Muntinlupa for
purposes of fixing the venue of the settlement of his estate. Consequently, the subject petition
for letters of administration was validly filed in the Regional Trial Court 50 which has territorial
jurisdiction over Alabang, Muntinlupa. The subject petition was filed on December 17, 1993. At
that time, Muntinlupa was still a municipality and the branches of the Regional Trial Court of
the National Capital Judicial Region which had territorial jurisdiction over Muntinlupa were
then seated in Makati City as per Supreme Court Administrative Order No. 3. 51 Thus, the
subject petition was validly filed before the Regional Trial Court of Makati City.

Anent the issue of respondent Felicidad’s legal personality to file the petition for letters of
administration, we must first resolve the issue of whether a Filipino who is divorced by his
alien spouse abroad may validly remarry under the Civil Code, considering that Felicidad’s
marriage to Felicisimo was solemnized on June 20, 1974, or before the Family Code took effect
on August 3, 1988. In resolving this issue, we need not retroactively apply the provisions of the
Family Code, particularly Art. 26, par. (2) considering that there is sufficient jurisprudential
basis allowing us to rule in the affirmative.

The case of Van Dorn v. Romillo, Jr. 52 involved a marriage between a foreigner and his Filipino
wife, which marriage was subsequently dissolved through a divorce obtained abroad by the
latter. Claiming that the divorce was not valid under Philippine law, the alien spouse alleged
that his interest in the properties from their conjugal partnership should be protected. The
Court, however, recognized the validity of the divorce and held that the alien spouse had no
interest in the properties acquired by the Filipino wife after the divorce. Thus:

In this case, the divorce in Nevada released private respondent from the marriage from the
standards of American law, under which divorce dissolves the marriage. As stated by the
Federal Supreme Court of the United States in Atherton vs. Atherton, 45 L. Ed. 794, 799:

"The purpose and effect of a decree of divorce from the bond of matrimony by a competent
jurisdiction are to change the existing status or domestic relation of husband and wife, and to
free them both from the bond. The marriage tie, when thus severed as to one party, ceases to
bind either. A husband without a wife, or a wife without a husband, is unknown to the law.
When the law provides, in the nature of a penalty, that the guilty party shall not marry again,
that party, as well as the other, is still absolutely freed from the bond of the former marriage."

hus, pursuant to his national law, private respondent is no longer the husband of petitioner. He
would have no standing to sue in the case below as petitioner’s husband entitled to exercise
control over conjugal assets. As he is bound by the Decision of his own country’s Court, which
validly exercised jurisdiction over him, and whose decision he does not repudiate, he is
estopped by his own representation before said Court from asserting his right over the alleged
conjugal property. 53

As to the effect of the divorce on the Filipino wife, the Court ruled that she should no longer be
considered married to the alien spouse. Further, she should not be required to perform her
marital duties and obligations. It held:

To maintain, as private respondent does, that, under our laws, petitioner has to be considered
still married to private respondent and still subject to a wife's obligations under Article 109, et.
seq. of the Civil Code cannot be just. Petitioner should not be obliged to live together with,
observe respect and fidelity, and render support to private respondent. The latter should not
continue to be one of her heirs with possible rights to conjugal property. She should not be
discriminated against in her own country if the ends of justice are to be served. 54 (Emphasis
added)

This principle was thereafter applied in Pilapil v. Ibay-Somera 55 where the Court recognized
the validity of a divorce obtained abroad. In the said case, it was held that the alien spouse is
not a proper party in filing the adultery suit against his Filipino wife. The Court stated that "the
severance of the marital bond had the effect of dissociating the former spouses from each other,
hence the actuations of one would not affect or cast obloquy on the other." 56

Likewise, in Quita v. Court of Appeals, 57 the Court stated that where a Filipino is divorced by
his naturalized foreign spouse, the ruling in Van Dorn applies. 58 Although decided on
December 22, 1998, the divorce in the said case was obtained in 1954 when the Civil Code
provisions were still in effect.

he significance of the Van Dorn case to the development of limited recognition of divorce in the
Philippines cannot be denied. The ruling has long been interpreted as severing marital ties
between parties in a mixed marriage and capacitating the Filipino spouse to remarry as a
necessary consequence of upholding the validity of a divorce obtained abroad by the alien
spouse. In his treatise, Dr. Arturo M. Tolentino cited Van Dorn stating that "if the foreigner
obtains a valid foreign divorce, the Filipino spouse shall have capacity to remarry under
Philippine law." 59 In Garcia v. Recio, 60 the Court likewise cited the aforementioned case in
relation to Article 26. 61

In the recent case of Republic v. Orbecido III, 62 the historical background and legislative intent
behind paragraph 2, Article 26 of the Family Code were discussed, to wit:

Brief Historical Background

On July 6, 1987, then President Corazon Aquino signed into law Executive Order No. 209,
otherwise known as the "Family Code," which took effect on August 3, 1988. Article 26 thereof
states:

All marriages solemnized outside the Philippines in accordance with the laws in force in the
country where they were solemnized, and valid there as such, shall also be valid in this country,
except those prohibited under Articles 35, 37, and 38.

On July 17, 1987, shortly after the signing of the original Family Code, Executive Order No. 227
was likewise signed into law, amending Articles 26, 36, and 39 of the Family Code. A second
paragraph was added to Article 26. As so amended, it now provides:

ART. 26. All marriages solemnized outside the Philippines in accordance with the laws in force
in the country where they were solemnized, and valid there as such, shall also be valid in this
country, except those prohibited under Articles 35(1), (4), (5) and (6), 36, 37 and 38.

Where a marriage between a Filipino citizen and a foreigner is validly celebrated and a divorce
is thereafter validly obtained abroad by the alien spouse capacitating him or her to remarry, the
Filipino spouse shall have capacity to remarry under Philippine law. (Emphasis supplied)

xxxx

Legislative Intent

Records of the proceedings of the Family Code deliberations showed that the intent of
Paragraph 2 of Article 26, according to Judge Alicia Sempio-Diy, a member of the Civil Code
Revision Committee, is to avoid the absurd situation where the Filipino spouse remains married
to the alien spouse who, after obtaining a divorce, is no longer married to the Filipino spouse.

Interestingly, Paragraph 2 of Article 26 traces its origin to the 1985 case of Van Dorn v. Romillo,
Jr. The Van Dorn case involved a marriage between a Filipino citizen and a foreigner. The Court
held therein that a divorce decree validly obtained by the alien spouse is valid in the
Philippines, and consequently, the Filipino spouse is capacitated to remarry under Philippine
law. 63 (Emphasis added)

As such, the Van Dorn case is sufficient basis in resolving a situation where a divorce is validly
obtained abroad by the alien spouse. With the enactment of the Family Code and paragraph 2,
Article 26 thereof, our lawmakers codified the law already established through judicial
precedent.1awphi1.net
Indeed, when the object of a marriage is defeated by rendering its continuance intolerable to
one of the parties and productive of no possible good to the community, relief in some way
should be obtainable. 64 Marriage, being a mutual and shared commitment between two
parties, cannot possibly be productive of any good to the society where one is considered
released from the marital bond while the other remains bound to it. Such is the state of affairs
where the alien spouse obtains a valid divorce abroad against the Filipino spouse, as in this
case.

Petitioners cite Articles 15 65 and 17 66 of the Civil Code in stating that the divorce is void
under Philippine law insofar as Filipinos are concerned. However, in light of this Court’s
rulings in the cases discussed above, the Filipino spouse should not be discriminated against in
his own country if the ends of justice are to be served. 67 In Alonzo v. Intermediate Appellate
Court, 68 the Court stated:

But as has also been aptly observed, we test a law by its results; and likewise, we may add, by
its purposes. It is a cardinal rule that, in seeking the meaning of the law, the first concern of the
judge should be to discover in its provisions the intent of the lawmaker. Unquestionably, the
law should never be interpreted in such a way as to cause injustice as this is never within the
legislative intent. An indispensable part of that intent, in fact, for we presume the good motives
of the legislature, is to render justice.

Thus, we interpret and apply the law not independently of but in consonance with justice. Law
and justice are inseparable, and we must keep them so. To be sure, there are some laws that,
while generally valid, may seem arbitrary when applied in a particular case because of its
peculiar circumstances. In such a situation, we are not bound, because only of our nature and
functions, to apply them just the same, in slavish obedience to their language. What we do
instead is find a balance between the word and the will, that justice may be done even as the
law is obeyed.

As judges, we are not automatons. We do not and must not unfeelingly apply the law as it is
worded, yielding like robots to the literal command without regard to its cause and
consequence. "Courts are apt to err by sticking too closely to the words of a law," so we are
warned, by Justice Holmes again, "where these words import a policy that goes beyond them."

xxxx

More than twenty centuries ago, Justinian defined justice "as the constant and perpetual wish to
render every one his due." That wish continues to motivate this Court when it assesses the facts
and the law in every case brought to it for decision. Justice is always an essential ingredient of
its decisions. Thus when the facts warrants, we interpret the law in a way that will render
justice, presuming that it was the intention of the lawmaker, to begin with, that the law be
dispensed with justice. 69

Applying the above doctrine in the instant case, the divorce decree allegedly obtained by Merry
Lee which absolutely allowed Felicisimo to remarry, would have vested Felicidad with the legal
personality to file the present petition as Felicisimo’s surviving spouse. However, the records
show that there is insufficient evidence to prove the validity of the divorce obtained by Merry
Lee as well as the marriage of respondent and Felicisimo under the laws of the U.S.A. In Garcia
v. Recio, 70 the Court laid down the specific guidelines for pleading and proving foreign law
and divorce judgments. It held that presentation solely of the divorce decree is insufficient and
that proof of its authenticity and due execution must be presented. Under Sections 24 and 25 of
Rule 132, a writing or document may be proven as a public or official record of a foreign
country by either (1) an official publication or (2) a copy thereof attested by the officer having
legal custody of the document. If the record is not kept in the Philippines, such copy must be (a)
accompanied by a certificate issued by the proper diplomatic or consular officer in the
Philippine foreign service stationed in the foreign country in which the record is kept and (b)
authenticated by the seal of his office. 71

With regard to respondent’s marriage to Felicisimo allegedly solemnized in California, U.S.A.,

she submitted photocopies of the Marriage Certificate and the annotated text 72 of the Family
Law Act of California which purportedly show that their marriage was done in accordance with
the said law. As stated in Garcia, however, the Court cannot take judicial notice of foreign laws
as they must be alleged and proved. 73

Therefore, this case should be remanded to the trial court for further reception of evidence on
the divorce decree obtained by Merry Lee and the marriage of respondent and Felicisimo.

Even assuming that Felicisimo was not capacitated to marry respondent in 1974, nevertheless,
we find that the latter has the legal personality to file the subject petition for letters of
administration, as she may be considered the co-owner of Felicisimo as regards the properties
that were acquired through their joint efforts during their cohabitation.

Section 6, 74 Rule 78 of the Rules of Court states that letters of administration may be granted to
the surviving spouse of the decedent. However, Section 2, Rule 79 thereof also provides in part:

SEC. 2. Contents of petition for letters of administration. – A petition for letters of

administration must be filed by an interested person and must show, as far as known to the
petitioner: x x x.

An "interested person" has been defined as one who would be benefited by the estate, such as
an heir, or one who has a claim against the estate, such as a creditor. The interest must be
material and direct, and not merely indirect or contingent. 75

In the instant case, respondent would qualify as an interested person who has a direct interest
in the estate of Felicisimo by virtue of their cohabitation, the existence of which was not denied
by petitioners. If she proves the validity of the divorce and Felicisimo’s capacity to remarry, but
fails to prove that her marriage with him was validly performed under the laws of the U.S.A.,
then she may be considered as a co-owner under Article 144 76 of the Civil Code. This provision
governs the property relations between parties who live together as husband and wife without
the benefit of marriage, or their marriage is void from the beginning. It provides that the
property acquired by either or both of them through their work or industry or their wages and
salaries shall be governed by the rules on co-ownership. In a co-ownership, it is not necessary
that the property be acquired through their joint labor, efforts and industry. Any property
acquired during the union is prima facie presumed to have been obtained through their joint
efforts. Hence, the portions belonging to the co-owners shall be presumed equal, unless the
contrary is proven. 77
Meanwhile, if respondent fails to prove the validity of both the divorce and the marriage, the
applicable provision would be Article 148 of the Family Code which has filled the hiatus in
Article 144 of the Civil Code by expressly regulating the property relations of couples living
together as husband and wife but are incapacitated to marry. 78 In Saguid v. Court of Appeals,
79 we held that even if the cohabitation or the acquisition of property occurred before the
Family Code took effect, Article 148 governs. 80 The Court described the property regime under
this provision as follows:

The regime of limited co-ownership of property governing the union of parties who are not
legally capacitated to marry each other, but who nonetheless live together as husband and wife,
applies to properties acquired during said cohabitation in proportion to their respective
contributions. Co-ownership will only be up to the extent of the proven actual contribution of
money, property or industry. Absent proof of the extent thereof, their contributions and
corresponding shares shall be presumed to be equal.

xxxx

In the cases of Agapay v. Palang, and Tumlos v. Fernandez, which involved the issue of co-
ownership of properties acquired by the parties to a bigamous marriage and an adulterous
relationship, respectively, we ruled that proof of actual contribution in the acquisition of the
property is essential. x x x

As in other civil cases, the burden of proof rests upon the party who, as determined by the
pleadings or the nature of the case, asserts an affirmative issue. Contentions must be proved by
competent evidence and reliance must be had on the strength of the party’s own evidence and
not upon the weakness of the opponent’s defense. x x x 81

In view of the foregoing, we find that respondent’s legal capacity to file the subject petition for
letters of administration may arise from her status as the surviving wife of Felicisimo or as his
co-owner under Article 144 of the Civil Code or Article 148 of the Family Code.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals reinstating and
affirming the February 28, 1994 Order of the Regional Trial Court which denied petitioners’
motion to dismiss and its October 24, 1994 Order which dismissed petitioners’ motion for
reconsideration is AFFIRMED. Let this case be REMANDED to the trial court for further
proceedings.

SO ORDERED.

Ancheta vs. Guersey Dalaygon

Spouses Audrey O’Neill (Audrey) and W. Richard Guersey (Richard) were American citizens
who have resided in the Philippines for 30 years. They have an adopted daughter, Kyle Guersey
Hill (Kyle). On July 29, 1979, Audrey died, leaving a will. In it, she bequeathed her entire estate
to Richard, who was also designated as executor.1 The will was admitted to probate before the
Orphan’s Court of Baltimore, Maryland, U.S.A, which named James N. Phillips as executor due
to Richard’s renunciation of his appointment.2 The court also named Atty. Alonzo Q. Ancheta
(petitioner) of the Quasha Asperilla Ancheta Pena & Nolasco Law Offices as ancillary
administrator.3

In 1981, Richard married Candelaria Guersey-Dalaygon (respondent) with whom he has two
children, namely, Kimberly and Kevin.

On October 12, 1982, Audrey’s will was also admitted to probate by the then Court of First
Instance of Rizal, Branch 25, Seventh Judicial District, Pasig, in Special Proceeding No. 9625.4 As
administrator of Audrey’s estate in the Philippines, petitioner filed an inventory and appraisal
of the following properties: (1) Audrey’s conjugal share in real estate with improvements
located at 28 Pili Avenue, Forbes Park, Makati, Metro Manila, valued at P764,865.00 (Makati
property); (2) a current account in Audrey’s name with a cash balance of P12,417.97; and (3)
64,444 shares of stock in A/G Interiors, Inc. worth P64,444.00.5

On July 20, 1984, Richard died, leaving a will, wherein he bequeathed his entire estate to
respondent, save for his rights and interests over the A/G Interiors, Inc. shares, which he left to
Kyle.6 The will was also admitted to probate by the Orphan’s Court of Ann Arundel, Maryland,
U.S.A, and James N. Phillips was likewise appointed as executor, who in turn, designated Atty.
William Quasha or any member of the Quasha Asperilla Ancheta Pena & Nolasco Law Offices,
as ancillary administrator.

Richard’s will was then submitted for probate before the Regional Trial Court of Makati, Branch
138, docketed as Special Proceeding No. M-888.7 Atty. Quasha was appointed as ancillary
administrator on July 24, 1986.8

On October 19, 1987, petitioner filed in Special Proceeding No. 9625, a motion to declare
Richard and Kyle as heirs of Audrey.9 Petitioner also filed on October 23, 1987, a project of
partition of Audrey’s estate, with Richard being apportioned the ¾ undivided interest in the
Makati property, 48.333 shares in A/G Interiors, Inc., and P9,313.48 from the Citibank current
account; and Kyle, the ¼ undivided interest in the Makati property, 16,111 shares in A/G
Interiors, Inc., and P3,104.49 in cash.10

The motion and project of partition was granted and approved by the trial court in its Order
dated February 12, 1988.11 The trial court also issued an Order on April 7, 1988, directing the
Register of Deeds of Makati to cancel TCT No. 69792 in the name of Richard and to issue a new
title in the joint names of the Estate of W. Richard Guersey (¾ undivided interest) and Kyle (¼
undivided interest); directing the Secretary of A/G Interiors, Inc. to transfer 48.333 shares to the
Estate of W. Richard Guersey and 16.111 shares to Kyle; and directing the Citibank to release
the amount of P12,417.97 to the ancillary administrator for distribution to the heirs.12

Consequently, the Register of Deeds of Makati issued on June 23, 1988, TCT No. 155823 in the
names of the Estate of W. Richard Guersey and Kyle.13
Meanwhile, the ancillary administrator in Special Proceeding No. M-888 also filed a project of
partition wherein 2/5 of Richard’s ¾ undivided interest in the Makati property was allocated to
respondent, while 3/5 thereof were allocated to Richard’s three children. This was opposed by
respondent on the ground that under the law of the State of Maryland, "a legacy passes to the
legatee the entire interest of the testator in the property subject of the legacy."14 Since Richard
left his entire estate to respondent, except for his rights and interests over the A/G Interiors, Inc,
shares, then his entire ¾ undivided interest in the Makati property should be given to
respondent.

The trial court found merit in respondent’s opposition, and in its Order dated December 6, 1991,
disapproved the project of partition insofar as it affects the Makati property. The trial court also
adjudicated Richard’s entire ¾ undivided interest in the Makati property to respondent.15

On October 20, 1993, respondent filed with the Court of Appeals (CA) an amended complaint
for the annulment of the trial court’s Orders dated February 12, 1988 and April 7, 1988, issued in
Special Proceeding No. 9625.16 Respondent contended that petitioner willfully breached his
fiduciary duty when he disregarded the laws of the State of Maryland on the distribution of
Audrey’s estate in accordance with her will. Respondent argued that since Audrey devised her
entire estate to Richard, then the Makati property should be wholly adjudicated to him, and not
merely ¾ thereof, and since Richard left his entire estate, except for his rights and interests over
the A/G Interiors, Inc., to respondent, then the entire Makati property should now pertain to
respondent.

Petitioner filed his Answer denying respondent’s allegations. Petitioner contended that he acted
in good faith in submitting the project of partition before the trial court in Special Proceeding
No. 9625, as he had no knowledge of the State of Maryland’s laws on testate and intestate
succession. Petitioner alleged that he believed that it is to the "best interests of the surviving
children that Philippine law be applied as they would receive their just shares." Petitioner also
alleged that the orders sought to be annulled are already final and executory, and cannot be set
aside.

On March 18, 1999, the CA rendered the assailed Decision annulling the trial court’s Orders
dated February 12, 1988 and April 7, 1988, in Special Proceeding No. 9625.17 The dispositive
portion of the assailed Decision provides:

WHEREFORE, the assailed Orders of February 12, 1998 and April 7, 1988 are hereby
ANNULLED and, in lieu thereof, a new one is entered ordering:

(a) The adjudication of the entire estate of Audrey O’Neill Guersey in favor of the estate of W.
Richard Guersey; and

(b) The cancellation of Transfer Certificate of Title No. 15583 of the Makati City Registry and the
issuance of a new title in the name of the estate of W. Richard Guersey.

SO ORDERED.18

Petitioner filed a motion for reconsideration, but this was denied by the CA per Resolution
dated August 27, 1999.19
Hence, the herein petition for review on certiorari under Rule 45 of the Rules of Court alleging
that the CA gravely erred in not holding that:

A) THE ORDERS OF 12 FEBRUARY 1988 AND 07 APRIL 1988 IN SPECIAL PROCEEDINGS

NO. 9625 "IN THE MATTER OF THE PETITION FOR PROBATE OF THE WILL OF THE
DECEASED AUDREY GUERSEY, ALONZO Q. ANCHETA, ANCILLARY ADMINISTRATOR",
ARE VALID AND BINDING AND HAVE LONG BECOME FINAL AND HAVE BEEN FULLY
IMPLEMENTED AND EXECUTED AND CAN NO LONGER BE ANNULLED.

B) THE ANCILLARY ADMINISTRATOR HAVING ACTED IN GOOD FAITH, DID NOT

COMMIT FRAUD, EITHER EXTRINSIC OR INTRINSIC, IN THE PERFORMANCE OF HIS
DUTIES AS ANCILLARY ADMINISTRATOR OF AUDREY O’NEIL GUERSEY’S ESTATE IN
THE PHILIPPINES, AND THAT NO FRAUD, EITHER EXTRINSIC OR INTRINSIC, WAS
EMPLOYED BY [HIM] IN PROCURING SAID ORDERS.20

Petitioner reiterates his arguments before the CA that the Orders dated February 12, 1988 and
April 7, 1988 can no longer be annulled because it is a final judgment, which is "conclusive upon
the administration as to all matters involved in such judgment or order, and will determine for
all time and in all courts, as far as the parties to the proceedings are concerned, all matters
therein determined," and the same has already been executed.21

Petitioner also contends that that he acted in good faith in performing his duties as an ancillary
administrator. He maintains that at the time of the filing of the project of partition, he was not
aware of the relevant laws of the State of Maryland, such that the partition was made in
accordance with Philippine laws. Petitioner also imputes knowledge on the part of respondent
with regard to the terms of Aubrey’s will, stating that as early as 1984, he already apprised
respondent of the contents of the will and how the estate will be divided.22

Respondent argues that petitioner’s breach of his fiduciary duty as ancillary administrator of
Aubrey’s estate amounted to extrinsic fraud. According to respondent, petitioner was duty-
bound to follow the express terms of Aubrey’s will, and his denial of knowledge of the laws of
Maryland cannot stand because petitioner is a senior partner in a prestigious law firm and it
was his duty to know the relevant laws.

Respondent also states that she was not able to file any opposition to the project of partition
because she was not a party thereto and she learned of the provision of Aubrey’s will
bequeathing entirely her estate to Richard only after Atty. Ancheta filed a project of partition in
Special Proceeding No. M-888 for the settlement of Richard’s estate.

A decree of distribution of the estate of a deceased person vests the title to the land of the estate
in the distributees, which, if erroneous may be corrected by a timely appeal. Once it becomes
final, its binding effect is like any other judgment in rem.23 However, in exceptional cases, a
final decree of distribution of the estate may be set aside for lack of jurisdiction or fraud.24
Further, in Ramon v. Ortuzar,25 the Court ruled that a party interested in a probate proceeding
may have a final liquidation set aside when he is left out by reason of circumstances beyond his
control or through mistake or inadvertence not imputable to negligence.26
The petition for annulment was filed before the CA on October 20, 1993, before the issuance of
the 1997 Rules of Civil Procedure; hence, the applicable law is Batas Pambansa Blg. 129 (B.P.
129) or the Judiciary Reorganization Act of 1980. An annulment of judgment filed under B.P.
129 may be based on the ground that a judgment is void for want of jurisdiction or that the
judgment was obtained by extrinsic fraud.27 For fraud to become a basis for annulment of
judgment, it has to be extrinsic or actual,28 and must be brought within four years from the
discovery of the fraud.29

In the present case, respondent alleged extrinsic fraud as basis for the annulment of the RTC
Orders dated February 12, 1988 and April 7, 1988. The CA found merit in respondent’s cause
and found that petitioner’s failure to follow the terms of Audrey’s will, despite the latter’s
declaration of good faith, amounted to extrinsic fraud. The CA ruled that under Article 16 of the
Civil Code, it is the national law of the decedent that is applicable, hence, petitioner should have
distributed Aubrey’s estate in accordance with the terms of her will. The CA also found that
petitioner was prompted to distribute Audrey’s estate in accordance with Philippine laws in
order to equally benefit Audrey and Richard Guersey’s adopted daughter, Kyle Guersey Hill.

Petitioner contends that respondent’s cause of action had already prescribed because as early as
1984, respondent was already well aware of the terms of Audrey’s will,30 and the complaint
was filed only in 1993. Respondent, on the other hand, justified her lack of immediate action by
saying that she had no opportunity to question petitioner’s acts since she was not a party to
Special Proceeding No. 9625, and it was only after Atty. Ancheta filed the project of partition in
Special Proceeding No. M-888, reducing her inheritance in the estate of Richard that she was
prompted to seek another counsel to protect her interest.31

It should be pointed out that the prescriptive period for annulment of judgment based on
extrinsic fraud commences to run from the discovery of the fraud or fraudulent act/s.
Respondent’s knowledge of the terms of Audrey’s will is immaterial in this case since it is not
the fraud complained of. Rather, it is petitioner’s failure to introduce in evidence the pertinent
law of the State of Maryland that is the fraudulent act, or in this case, omission, alleged to have
been committed against respondent, and therefore, the four-year period should be counted
from the time of respondent’s discovery thereof.

Records bear the fact that the filing of the project of partition of Richard’s estate, the opposition
thereto, and the order of the trial court disallowing the project of partition in Special Proceeding
No. M-888 were all done in 1991.32 Respondent cannot be faulted for letting the assailed orders
to lapse into finality since it was only through Special Proceeding No. M-888 that she came to
comprehend the ramifications of petitioner’s acts. Obviously, respondent had no other recourse
under the circumstances but to file the annulment case. Since the action for annulment was filed
in 1993, clearly, the same has not yet prescribed.

Fraud takes on different shapes and faces. In Cosmic Lumber Corporation v. Court of
Appeals,33 the Court stated that "man in his ingenuity and fertile imagination will always
contrive new schemes to fool the unwary."
There is extrinsic fraud within the meaning of Sec. 9 par. (2), of B.P. Blg. 129, where it is one the
effect of which prevents a party from hearing a trial, or real contest, or from presenting all of his
case to the court, or where it operates upon matters, not pertaining to the judgment itself, but to
the manner in which it was procured so that there is not a fair submission of the controversy. In
other words, extrinsic fraud refers to any fraudulent act of the prevailing party in the litigation
which is committed outside of the trial of the case, whereby the defeated party has been
prevented from exhibiting fully his side of the case by fraud or deception practiced on him by
his opponent. Fraud is extrinsic where the unsuccessful party has been prevented from
exhibiting fully his case, by fraud or deception practiced on him by his opponent, as by keeping
him away from court, a false promise of a compromise; or where the defendant never had any
knowledge of the suit, being kept in ignorance by the acts of the plaintiff; or where an attorney
fraudulently or without authority connives at his defeat; these and similar cases which show
that there has never been a real contest in the trial or hearing of the case are reasons for which a
new suit may be sustained to set aside and annul the former judgment and open the case for a
new and fair hearing.34

The overriding consideration when extrinsic fraud is alleged is that the fraudulent scheme of
the prevailing litigant prevented a party from having his day in court.35

Petitioner is the ancillary administrator of Audrey’s estate. As such, he occupies a position of

the highest trust and confidence, and he is required to exercise reasonable diligence and act in
entire good faith in the performance of that trust. Although he is not a guarantor or insurer of
the safety of the estate nor is he expected to be infallible, yet the same degree of prudence, care
and judgment which a person of a fair average capacity and ability exercises in similar
transactions of his own, serves as the standard by which his conduct is to be judged.36

Petitioner’s failure to proficiently manage the distribution of Audrey’s estate according to the
terms of her will and as dictated by the applicable law amounted to extrinsic fraud. Hence the
CA Decision annulling the RTC Orders dated February 12, 1988 and April 7, 1988, must be
upheld.

It is undisputed that Audrey Guersey was an American citizen domiciled in Maryland, U.S.A.
During the reprobate of her will in Special Proceeding No. 9625, it was shown, among others,
that at the time of Audrey’s death, she was residing in the Philippines but is domiciled in
Maryland, U.S.A.; her Last Will and Testament dated August 18, 1972 was executed and
probated before the Orphan’s Court in Baltimore, Maryland, U.S.A., which was duly
authenticated and certified by the Register of Wills of Baltimore City and attested by the Chief
Judge of said court; the will was admitted by the Orphan’s Court of Baltimore City on
September 7, 1979; and the will was authenticated by the Secretary of State of Maryland and the
Vice Consul of the Philippine Embassy.

Being a foreign national, the intrinsic validity of Audrey’s will, especially with regard as to who
are her heirs, is governed by her national law, i.e., the law of the State of Maryland, as provided
in Article 16 of the Civil Code, to wit:
Art. 16. Real property as well as personal property is subject to the law of the country where it is
situated.

However, intestate and testamentary succession, both with respect to the order of succession
and to the amount of successional rights and to the intrinsic validity of testamentary provisions,
shall be regulated by the national law of the person whose succession is under consideration,
whatever may be the nature of the property and regardless of the country wherein said
property may be found. (Emphasis supplied)

Article 1039 of the Civil Code further provides that "capacity to succeed is governed by the law
of the nation of the decedent."

As a corollary rule, Section 4, Rule 77 of the Rules of Court on Allowance of Will Proved
Outside the Philippines and Administration of Estate Thereunder, states:

SEC. 4. Estate, how administered.—When a will is thus allowed, the court shall grant letters
testamentary, or letters of administration with the will annexed, and such letters testamentary
or of administration, shall extend to all the estate of the testator in the Philippines. Such estate,
after the payment of just debts and expenses of administration, shall be disposed of according to
such will, so far as such will may operate upon it; and the residue, if any, shall be disposed of as
is provided by law in cases of estates in the Philippines belonging to persons who are
inhabitants of another state or country. (Emphasis supplied)

While foreign laws do not prove themselves in our jurisdiction and our courts are not
authorized to take judicial notice of them;37 however, petitioner, as ancillary administrator of
Audrey’s estate, was duty-bound to introduce in evidence the pertinent law of the State of
Maryland.38

Petitioner admitted that he failed to introduce in evidence the law of the State of Maryland on
Estates and Trusts, and merely relied on the presumption that such law is the same as the
Philippine law on wills and succession. Thus, the trial court peremptorily applied Philippine
laws and totally disregarded the terms of Audrey’s will. The obvious result was that there was
no fair submission of the case before the trial court or a judicious appreciation of the evidence
presented.

Petitioner insists that his application of Philippine laws was made in good faith. The Court
cannot accept petitioner’s protestation. How can petitioner honestly presume that Philippine
laws apply when as early as the reprobate of Audrey’s will before the trial court in 1982, it was
already brought to fore that Audrey was a U.S. citizen, domiciled in the State of Maryland. As
asserted by respondent, petitioner is a senior partner in a prestigious law firm, with a "big legal
staff and a large library."39 He had all the legal resources to determine the applicable law. It
was incumbent upon him to exercise his functions as ancillary administrator with reasonable
diligence, and to discharge the trust reposed on him faithfully. Unfortunately, petitioner failed
to perform his fiduciary duties.

Moreover, whether his omission was intentional or not, the fact remains that the trial court
failed to consider said law when it issued the assailed RTC Orders dated February 12, 1988 and
April 7, 1988, declaring Richard and Kyle as Audrey’s heirs, and distributing Audrey’s estate
according to the project of partition submitted by petitioner. This eventually prejudiced
respondent and deprived her of her full successional right to the Makati property.

In GSIS v. Bengson Commercial Bldgs., Inc.,40 the Court held that when the rule that the
negligence or mistake of counsel binds the client deserts its proper office as an aid to justice and
becomes a great hindrance and chief enemy, its rigors must be relaxed to admit exceptions
thereto and to prevent a miscarriage of justice, and the court has the power to except a
particular case from the operation of the rule whenever the purposes of justice require it.

The CA aptly noted that petitioner was remiss in his responsibilities as ancillary administrator
of Audrey’s estate. The CA likewise observed that the distribution made by petitioner was
prompted by his concern over Kyle, whom petitioner believed should equally benefit from the
Makati property. The CA correctly stated, which the Court adopts, thus:

n claiming good faith in the performance of his duties and responsibilities, defendant Alonzo H.
Ancheta invokes the principle which presumes the law of the forum to be the same as the
foreign law (Beam vs. Yatco, 82 Phil. 30, 38) in the absence of evidence adduced to prove the
latter law (Slade Perkins vs. Perkins, 57 Phil. 205, 210). In defending his actions in the light of
the foregoing principle, however, it appears that the defendant lost sight of the fact that his
primary responsibility as ancillary administrator was to distribute the subject estate in
accordance with the will of Audrey O’Neill Guersey. Considering the principle established
under Article 16 of the Civil Code of the Philippines, as well as the citizenship and the avowed
domicile of the decedent, it goes without saying that the defendant was also duty-bound to
prove the pertinent laws of Maryland on the matter.

The record reveals, however, that no clear effort was made to prove the national law of Audrey
O’Neill Guersey during the proceedings before the court a quo. While there is claim of good
faith in distributing the subject estate in accordance with the Philippine laws, the defendant
appears to put his actuations in a different light as indicated in a portion of his direct
examination, to wit:

xxx

It would seem, therefore, that the eventual distribution of the estate of Audrey O’Neill Guersey
was prompted by defendant Alonzo H. Ancheta’s concern that the subject realty equally benefit
the plaintiff’s adopted daughter Kyle Guersey.

Well-intentioned though it may be, defendant Alonzo H. Ancheta’s action appears to have
breached his duties and responsibilities as ancillary administrator of the subject estate. While
such breach of duty admittedly cannot be considered extrinsic fraud under ordinary
circumstances, the fiduciary nature of the said defendant’s position, as well as the resultant
frustration of the decedent’s last will, combine to create a circumstance that is tantamount to
extrinsic fraud. Defendant Alonzo H. Ancheta’s omission to prove the national laws of the
decedent and to follow the latter’s last will, in sum, resulted in the procurement of the subject
orders without a fair submission of the real issues involved in the case.41 (Emphasis supplied)
This is not a simple case of error of judgment or grave abuse of discretion, but a total disregard
of the law as a result of petitioner’s abject failure to discharge his fiduciary duties. It does not
rest upon petitioner’s pleasure as to which law should be made applicable under the
circumstances. His onus is clear. Respondent was thus excluded from enjoying full rights to the
Makati property through no fault or negligence of her own, as petitioner’s omission was beyond
her control. She was in no position to analyze the legal implications of petitioner’s omission and
it was belatedly that she realized the adverse consequence of the same. The end result was a
miscarriage of justice. In cases like this, the courts have the legal and moral duty to provide
judicial aid to parties who are deprived of their rights.42

The trial court in its Order dated December 6, 1991 in Special Proceeding No. M-888 noted the
law of the State of Maryland on Estates and Trusts, as follows:

Under Section 1-301, Title 3, Sub-Title 3 of the Annotated Code of the Public General Laws of
Maryland on Estates and Trusts, "all property of a decedent shall be subject to the estate of
decedents law, and upon his death shall pass directly to the personal representative, who shall
hold the legal title for administration and distribution," while Section 4-408 expressly provides
that "unless a contrary intent is expressly indicated in the will, a legacy passes to the legatee the
entire interest of the testator in the property which is the subject of the legacy". Section 7-101,
Title 7, Sub-Title 1, on the other hand, declares that "a personal representative is a fiduciary"
and as such he is "under the general duty to settle and distribute the estate of the decedent in
accordance with the terms of the will and the estate of decedents law as expeditiously and with
as little sacrifice of value as is reasonable under the circumstances".43

In her will, Audrey devised to Richard her entire estate, consisting of the following: (1)
Audrey’s conjugal share in the Makati property; (2) the cash amount of P12,417.97; and (3)
64,444 shares of stock in A/G Interiors, Inc. worth P64,444.00. All these properties passed on to
Richard upon Audrey’s death. Meanwhile, Richard, in his will, bequeathed his entire estate to
respondent, except for his rights and interests over the A/G Interiors, Inc. shares, which he left
to Kyle. When Richard subsequently died, the entire Makati property should have then passed
on to respondent. This, of course, assumes the proposition that the law of the State of Maryland
which allows "a legacy to pass to the legatee the entire estate of the testator in the property
which is the subject of the legacy," was sufficiently proven in Special Proceeding No. 9625.
Nevertheless, the Court may take judicial notice thereof in view of the ruling in Bohanan v.
Bohanan.44 Therein, the Court took judicial notice of the law of Nevada despite failure to prove
the same. The Court held, viz.:

We have, however, consulted the records of the case in the court below and we have found that
during the hearing on October 4, 1954 of the motion of Magdalena C. Bohanan for withdrawal
of P20,000 as her share, the foreign law, especially Section 9905, Compiled Nevada Laws, was
introduced in evidence by appellants' (herein) counsel as Exhibit "2" (See pp. 77-79, Vol. II, and
t.s.n. pp. 24-44, Records, Court of First Instance). Again said law was presented by the counsel
for the executor and admitted by the Court as Exhibit "B" during the hearing of the case on
January 23, 1950 before Judge Rafael Amparo (see Records, Court of First Instance, Vol. 1).

In addition, the other appellants, children of the testator, do not dispute the above-quoted
provision of the laws of the State of Nevada. Under all the above circumstances, we are
constrained to hold that the pertinent law of Nevada, especially Section 9905 of the Compiled
Nevada Laws of 1925, can be taken judicial notice of by us, without proof of such law having
been offered at the hearing of the project of partition.

In this case, given that the pertinent law of the State of Maryland has been brought to record
before the CA, and the trial court in Special Proceeding No. M-888 appropriately took note of
the same in disapproving the proposed project of partition of Richard’s estate, not to mention
that petitioner or any other interested person for that matter, does not dispute the existence or
validity of said law, then Audrey’s and Richard’s estate should be distributed according to their
respective wills, and not according to the project of partition submitted by petitioner.
Consequently, the entire Makati property belongs to respondent.

Decades ago, Justice Moreland, in his dissenting opinion in Santos v. Manarang,45 wrote:

A will is the testator speaking after death. Its provisions have substantially the same force and
effect in the probate court as if the testator stood before the court in full life making the
declarations by word of mouth as they appear in the will. That was the special purpose of the
law in the creation of the instrument known as the last will and testament. Men wished to speak
after they were dead and the law, by the creation of that instrument, permitted them to do so x
x x All doubts must be resolved in favor of the testator's having meant just what he said.

Honorable as it seems, petitioner’s motive in equitably distributing Audrey’s estate cannot

prevail over Audrey’s and Richard’s wishes. As stated in Bellis v. Bellis:46

x x x whatever public policy or good customs may be involved in our system of legitimes,
Congress has not intended to extend the same to the succession of foreign nationals. For it has
specifically chosen to leave, inter alia, the amount of successional rights, to the decedent's
national Law. Specific provisions must prevail over general ones.47

Before concluding, the Court notes the fact that Audrey and Richard Guersey were American
citizens who owned real property in the Philippines, although records do not show when and
how the Guerseys acquired the Makati property.

Under Article XIII, Sections 1 and 4 of the 1935 Constitution, the privilege to acquire and exploit
lands of the public domain, and other natural resources of the Philippines, and to operate public
utilities, were reserved to Filipinos and entities owned or controlled by them. In Republic v.
Quasha,48 the Court clarified that the Parity Rights Amendment of 1946, which re-opened to
American citizens and business enterprises the right in the acquisition of lands of the public
domain, the disposition, exploitation, development and utilization of natural resources of the
Philippines, does not include the acquisition or exploitation of private agricultural lands. The
prohibition against acquisition of private lands by aliens was carried on to the 1973 Constitution
under Article XIV, Section 14, with the exception of private lands acquired by hereditary
succession and when the transfer was made to a former natural-born citizen, as provided in
Section 15, Article XIV. As it now stands, Article XII, Sections 7 and 8 of the 1986 Constitution
explicitly prohibits non-Filipinos from acquiring or holding title to private lands or to lands of
the public domain, except only by way of legal succession or if the acquisition was made by a
former natural-born citizen.
In any case, the Court has also ruled that if land is invalidly transferred to an alien who
subsequently becomes a citizen or transfers it to a citizen, the flaw in the original transaction is
considered cured and the title of the transferee is rendered valid.49 In this case, since the Makati
property had already passed on to respondent who is a Filipino, then whatever flaw, if any, that
attended the acquisition by the Guerseys of the Makati property is now inconsequential, as the
objective of the constitutional provision to keep our lands in Filipino hands has been achieved.

WHEREFORE, the petition is denied. The Decision dated March 18, 1999 and the Resolution
dated August 27, 1999 of the Court of Appeals are AFFIRMED.

Petitioner is ADMONISHED to be more circumspect in the performance of his duties as an

official of the court.

No pronouncement as to costs.

SO ORDERED.

Aznar vs Christensen-Garcia

This is an appeal from a decision of the Court of First Instance of Davao, Hon. Vicente N. Cusi, Jr.,
presiding, in Special Proceeding No. 622 of said court, dated September 14, 1949, approving among
things the final accounts of the executor, directing the executor to reimburse Maria Lucy Christensen
the amount of P3,600 paid by her to Helen Christensen Garcia as her legacy, and declaring Maria
Lucy Christensen entitled to the residue of the property to be enjoyed during her lifetime, and in case
of death without issue, one-half of said residue to be payable to Mrs. Carrie Louise C. Borton, etc., in
accordance with the provisions of the will of the testator Edward E. Christensen. The will was
executed in Manila on March 5, 1951 and contains the following provisions:

3. I declare ... that I have but ONE (1) child, named MARIA LUCY CHRISTENSEN (now Mrs.
Bernard Daney), who was born in the Philippines about twenty-eight years ago, and who is
now residing at No. 665 Rodger Young Village, Los Angeles, California, U.S.A.

4. I further declare that I now have no living ascendants, and no descendants except my
above named daughter, MARIA LUCY CHRISTENSEN DANEY.

xxx     xxx     xxx

7. I give, devise and bequeath unto MARIA HELEN CHRISTENSEN, now married to
Eduardo Garcia, about eighteen years of age and who, notwithstanding the fact that she was
baptized Christensen, is not in any way related to me, nor has she been at any time adopted
by me, and who, from all information I have now resides in Egpit, Digos, Davao, Philippines,
the sum of THREE THOUSAND SIX HUNDRED PESOS (P3,600.00), Philippine Currency
the same to be deposited in trust for the said Maria Helen Christensen with the Davao
Branch of the Philippine National Bank, and paid to her at the rate of One Hundred Pesos
(P100.00), Philippine Currency per month until the principal thereof as well as any interest
which may have accrued thereon, is exhausted..

xxx     xxx     xxx

12. I hereby give, devise and bequeath, unto my well-beloved daughter, the said MARIA
LUCY CHRISTENSEN DANEY (Mrs. Bernard Daney), now residing as aforesaid at No. 665
Rodger Young Village, Los Angeles, California, U.S.A., all the income from the rest,
remainder, and residue of my property and estate, real, personal and/or mixed, of
whatsoever kind or character, and wheresoever situated, of which I may be possessed at my
death and which may have come to me from any source whatsoever, during her lifetime: ....

It is in accordance with the above-quoted provisions that the executor in his final account and project
of partition ratified the payment of only P3,600 to Helen Christensen Garcia and proposed that the
residue of the estate be transferred to his daughter, Maria Lucy Christensen.

Opposition to the approval of the project of partition was filed by Helen Christensen Garcia, insofar
as it deprives her (Helen) of her legitime as an acknowledged natural child, she having been
declared by Us in G.R. Nos. L-11483-84 an acknowledged natural child of the deceased Edward E.
Christensen. The legal grounds of opposition are (a) that the distribution should be governed by the
laws of the Philippines, and (b) that said order of distribution is contrary thereto insofar as it denies to
Helen Christensen, one of two acknowledged natural children, one-half of the estate in full
ownership. In amplification of the above grounds it was alleged that the law that should govern the
estate of the deceased Christensen should not be the internal law of California alone, but the entire
law thereof because several foreign elements are involved, that the forum is the Philippines and
even if the case were decided in California, Section 946 of the California Civil Code, which requires
that the domicile of the decedent should apply, should be applicable. It was also alleged that Maria
Helen Christensen having been declared an acknowledged natural child of the decedent, she is
deemed for all purposes legitimate from the time of her birth.
The court below ruled that as Edward E. Christensen was a citizen of the United States and of the
State of California at the time of his death, the successional rights and intrinsic validity of the
provisions in his will are to be governed by the law of California, in accordance with which a testator
has the right to dispose of his property in the way he desires, because the right of absolute dominion
over his property is sacred and inviolable (In re McDaniel's Estate, 77 Cal. Appl. 2d 877, 176 P. 2d
952, and In re Kaufman, 117 Cal. 286, 49 Pac. 192, cited in page 179, Record on Appeal). Oppositor
Maria Helen Christensen, through counsel, filed various motions for reconsideration, but these were
denied. Hence, this appeal.

The most important assignments of error are as follows:

I - THE LOWER COURT ERRED IN IGNORING THE DECISION OF THE HONORABLE SUPREME
COURT THAT HELEN IS THE ACKNOWLEDGED NATURAL CHILD OF EDWARD E.
CHRISTENSEN AND, CONSEQUENTLY, IN DEPRIVING HER OF HER JUST SHARE IN THE
INHERITANCE.

II - THE LOWER COURT ERRED IN ENTIRELY IGNORING AND/OR FAILING TO RECOGNIZE

THE EXISTENCE OF SEVERAL FACTORS, ELEMENTS AND CIRCUMSTANCES CALLING FOR
THE APPLICATION OF INTERNAL LAW.

III -THE LOWER COURT ERRED IN FAILING TO RECOGNIZE THAT UNDER INTERNATIONAL
LAW, PARTICULARLY UNDER THE RENVOI DOCTRINE, THE INTRINSIC VALIDITY OF THE
TESTAMENTARY DISPOSITION OF THE DISTRIBUTION OF THE ESTATE OF THE DECEASED
EDWARD E. CHRISTENSEN SHOULD BE GOVERNED BY THE LAWS OF THE PHILIPPINES.

IV -THE LOWER COURT ERRED IN NOT DECLARING THAT THE SCHEDULE OF

DISTRIBUTION SUBMITTED BY THE EXECUTOR IS CONTRARY TO THE PHILIPPINE LAWS.

V -THE LOWER COURT ERRED IN NOT DECLARING THAT UNDER THE PHILIPPINE LAWS
HELEN CHRISTENSEN GARCIA IS ENTITLED TO ONE-HALF (1/2) OF THE ESTATE IN FULL
OWNERSHIP.

There is no question that Edward E. Christensen was a citizen of the United States and of the State
of California at the time of his death. But there is also no question that at the time of his death he
was domiciled in the Philippines, as witness the following facts admitted by the executor himself in
appellee's brief:

In the proceedings for admission of the will to probate, the facts of record show that the
deceased Edward E. Christensen was born on November 29, 1875 in New York City, N.Y.,
U.S.A.; his first arrival in the Philippines, as an appointed school teacher, was on July 1,
1901, on board the U.S. Army Transport "Sheridan" with Port of Embarkation as the City of
San Francisco, in the State of California, U.S.A. He stayed in the Philippines until 1904.

In December, 1904, Mr. Christensen returned to the United States and stayed there for the
following nine years until 1913, during which time he resided in, and was teaching school in
Sacramento, California.

Mr. Christensen's next arrival in the Philippines was in July of the year 1913. However, in
1928, he again departed the Philippines for the United States and came back here the
following year, 1929. Some nine years later, in 1938, he again returned to his own country,
and came back to the Philippines the following year, 1939.
 Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted
and approved by this Honorable Court, without prejudice to the parties adducing other
evidence to prove their case not covered by this stipulation of facts. 
1äwphï1.ñët

Being an American citizen, Mr. Christensen was interned by the Japanese Military Forces in
the Philippines during World War II. Upon liberation, in April 1945, he left for the United
States but returned to the Philippines in December, 1945. Appellees Collective Exhibits "6",
CFI Davao, Sp. Proc. 622, as Exhibits "AA", "BB" and "CC-Daney"; Exhs. "MM", "MM-l",
"MM-2-Daney" and p. 473, t.s.n., July 21, 1953.)

In April, 1951, Edward E. Christensen returned once more to California shortly after the
making of his last will and testament (now in question herein) which he executed at his
lawyers' offices in Manila on March 5, 1951. He died at the St. Luke's Hospital in the City of
Manila on April 30, 1953. (pp. 2-3)

In arriving at the conclusion that the domicile of the deceased is the Philippines, we are persuaded
by the fact that he was born in New York, migrated to California and resided there for nine years,
and since he came to the Philippines in 1913 he returned to California very rarely and only for short
visits (perhaps to relatives), and considering that he appears never to have owned or acquired a
home or properties in that state, which would indicate that he would ultimately abandon the
Philippines and make home in the State of California.

Sec. 16. Residence is a term used with many shades of meaning from mere temporary
presence to the most permanent abode. Generally, however, it is used to denote something
more than mere physical presence. (Goodrich on Conflict of Laws, p. 29)

As to his citizenship, however, We find that the citizenship that he acquired in California when he
resided in Sacramento, California from 1904 to 1913, was never lost by his stay in the Philippines,
for the latter was a territory of the United States (not a state) until 1946 and the deceased appears to
have considered himself as a citizen of California by the fact that when he executed his will in 1951
he declared that he was a citizen of that State; so that he appears never to have intended to
abandon his California citizenship by acquiring another. This conclusion is in accordance with the
following principle expounded by Goodrich in his Conflict of Laws.

The terms "'residence" and "domicile" might well be taken to mean the same thing, a place of
permanent abode. But domicile, as has been shown, has acquired a technical meaning.
Thus one may be domiciled in a place where he has never been. And he may reside in a
place where he has no domicile. The man with two homes, between which he divides his
time, certainly resides in each one, while living in it. But if he went on business which would
require his presence for several weeks or months, he might properly be said to have
sufficient connection with the place to be called a resident. It is clear, however, that, if he
treated his settlement as continuing only for the particular business in hand, not giving up his
former "home," he could not be a domiciled New Yorker. Acquisition of a domicile of choice
requires the exercise of intention as well as physical presence. "Residence simply requires
bodily presence of an inhabitant in a given place, while domicile requires bodily presence in
that place and also an intention to make it one's domicile." Residence, however, is a term
used with many shades of meaning, from the merest temporary presence to the most
permanent abode, and it is not safe to insist that any one use et the only proper one.
(Goodrich, p. 29)

The law that governs the validity of his testamentary dispositions is defined in Article 16 of the Civil
Code of the Philippines, which is as follows:
 ART. 16. Real property as well as personal property is subject to the law of the country
where it is situated.

However, intestate and testamentary successions, both with respect to the order of
succession and to the amount of successional rights and to the intrinsic validity of
testamentary provisions, shall be regulated by the national law of the person whose
succession is under consideration, whatever may be the nature of the property and
regardless of the country where said property may be found.

The application of this article in the case at bar requires the determination of the meaning of the
term "national law" is used therein.

There is no single American law governing the validity of testamentary provisions in the United
States, each state of the Union having its own private law applicable to its citizens only and in force
only within the state. The "national law" indicated in Article 16 of the Civil Code above quoted can
not, therefore, possibly mean or apply to any general American law. So it can refer to no other than
the private law of the State of California.

The next question is: What is the law in California governing the disposition of personal property?
The decision of the court below, sustains the contention of the executor-appellee that under the
California Probate Code, a testator may dispose of his property by will in the form and manner he
desires, citing the case of Estate of McDaniel, 77 Cal. Appl. 2d 877, 176 P. 2d 952. But appellant
invokes the provisions of Article 946 of the Civil Code of California, which is as follows:

If there is no law to the contrary, in the place where personal property is situated, it is
deemed to follow the person of its owner, and is governed by the law of his domicile.

The existence of this provision is alleged in appellant's opposition and is not denied. We have
checked it in the California Civil Code and it is there. Appellee, on the other hand, relies on the case
cited in the decision and testified to by a witness. (Only the case of Kaufman is correctly cited.) It is
argued on executor's behalf that as the deceased Christensen was a citizen of the State of
California, the internal law thereof, which is that given in the abovecited case, should govern the
determination of the validity of the testamentary provisions of Christensen's will, such law being in
force in the State of California of which Christensen was a citizen. Appellant, on the other hand,
insists that Article 946 should be applicable, and in accordance therewith and following the doctrine
of the renvoi, the question of the validity of the testamentary provision in question should be referred
back to the law of the decedent's domicile, which is the Philippines.

The theory of doctrine of renvoi has been defined by various authors, thus:

The problem has been stated in this way: "When the Conflict of Laws rule of the forum refers
a jural matter to a foreign law for decision, is the reference to the purely internal rules of law
of the foreign system; i.e., to the totality of the foreign law minus its Conflict of Laws rules?"

On logic, the solution is not an easy one. The Michigan court chose to accept the renvoi, that
is, applied the Conflict of Laws rule of Illinois which referred the matter back to Michigan law.
But once having determined the the Conflict of Laws principle is the rule looked to, it is
difficult to see why the reference back should not have been to Michigan Conflict of Laws.
This would have resulted in the "endless chain of references" which has so often been
criticized be legal writers. The opponents of the renvoi would have looked merely to the
internal law of Illinois, thus rejecting the renvoi or the reference back. Yet there seems no
compelling logical reason why the original reference should be the internal law rather than to
the Conflict of Laws rule. It is true that such a solution avoids going on a merry-go-round, but
those who have accepted the renvoi theory avoid this inextricabilis circulas by getting off at
the second reference and at that point applying internal law. Perhaps the opponents of
the renvoi are a bit more consistent for they look always to internal law as the rule of
reference.

Strangely enough, both the advocates for and the objectors to the renvoi plead that greater
uniformity will result from adoption of their respective views. And still more strange is the fact
that the only way to achieve uniformity in this choice-of-law problem is if in the dispute the
two states whose laws form the legal basis of the litigation disagree as to whether
the renvoi should be accepted. If both reject, or both accept the doctrine, the result of the
litigation will vary with the choice of the forum. In the case stated above, had the Michigan
court rejected the renvoi, judgment would have been against the woman; if the suit had been
brought in the Illinois courts, and they too rejected the renvoi, judgment would be for the
woman. The same result would happen, though the courts would switch with respect to
which would hold liability, if both courts accepted the renvoi.

The Restatement accepts the renvoi theory in two instances: where the title to land is in
question, and where the validity of a decree of divorce is challenged. In these cases the
Conflict of Laws rule of the situs of the land, or the domicile of the parties in the divorce case,
is applied by the forum, but any further reference goes only to the internal law. Thus, a
person's title to land, recognized by the situs, will be recognized by every court; and every
divorce, valid by the domicile of the parties, will be valid everywhere. (Goodrich, Conflict of
Laws, Sec. 7, pp. 13-14.)

X, a citizen of Massachusetts, dies intestate, domiciled in France, leaving movable property

in Massachusetts, England, and France. The question arises as to how this property is to be
distributed among X's next of kin.

Assume (1) that this question arises in a Massachusetts court. There the rule of the conflict
of laws as to intestate succession to movables calls for an application of the law of the
deceased's last domicile. Since by hypothesis X's last domicile was France, the natural thing
for the Massachusetts court to do would be to turn to French statute of distributions, or
whatever corresponds thereto in French law, and decree a distribution accordingly. An
examination of French law, however, would show that if a French court were called upon to
determine how this property should be distributed, it would refer the distribution to the
national law of the deceased, thus applying the Massachusetts statute of distributions. So on
the surface of things the Massachusetts court has open to it alternative course of action: (a)
either to apply the French law is to intestate succession, or (b) to resolve itself into a French
court and apply the Massachusetts statute of distributions, on the assumption that this is
what a French court would do. If it accepts the so-called renvoi doctrine, it will follow the
latter course, thus applying its own law.

This is one type of renvoi. A jural matter is presented which the conflict-of-laws rule of the
forum refers to a foreign law, the conflict-of-laws rule of which, in turn, refers the matter back
again to the law of the forum. This is renvoi in the narrower sense. The German term for this
judicial process is 'Ruckverweisung.'" (Harvard Law Review, Vol. 31, pp. 523-571.)

After a decision has been arrived at that a foreign law is to be resorted to as governing a
particular case, the further question may arise: Are the rules as to the conflict of laws
contained in such foreign law also to be resorted to? This is a question which, while it has
been considered by the courts in but a few instances, has been the subject of frequent
 discussion by textwriters and essayists; and the doctrine involved has been descriptively
designated by them as the "Renvoyer" to send back, or the "Ruchversweisung", or the
"Weiterverweisung", since an affirmative answer to the question postulated and the operation
of the adoption of the foreign law in toto would in many cases result in returning the main
controversy to be decided according to the law of the forum. ... (16 C.J.S. 872.)

Another theory, known as the "doctrine of renvoi", has been advanced. The theory of the
doctrine of renvoi is that the court of the forum, in determining the question before it, must
take into account the whole law of the other jurisdiction, but also its rules as to conflict of
laws, and then apply the law to the actual question which the rules of the other jurisdiction
prescribe. This may be the law of the forum. The doctrine of the renvoi has generally been
repudiated by the American authorities. (2 Am. Jur. 296)

The scope of the theory of renvoi has also been defined and the reasons for its application in a
country explained by Prof. Lorenzen in an article in the Yale Law Journal, Vol. 27, 1917-1918, pp.
529-531. The pertinent parts of the article are quoted herein below:

The recognition of the renvoi theory implies that the rules of the conflict of laws are to be
understood as incorporating not only the ordinary or internal law of the foreign state or
country, but its rules of the conflict of laws as well. According to this theory 'the law of a
country' means the whole of its law.

xxx     xxx     xxx

Von Bar presented his views at the meeting of the Institute of International Law, at
Neuchatel, in 1900, in the form of the following theses:

(1) Every court shall observe the law of its country as regards the application of foreign laws.

(2) Provided that no express provision to the contrary exists, the court shall respect:

(a) The provisions of a foreign law which disclaims the right to bind its nationals
abroad as regards their personal statute, and desires that said personal statute shall
be determined by the law of the domicile, or even by the law of the place where the
act in question occurred.

(b) The decision of two or more foreign systems of law, provided it be certain that
one of them is necessarily competent, which agree in attributing the determination of
a question to the same system of law.

xxx     xxx     xxx

If, for example, the English law directs its judge to distribute the personal estate of an
Englishman who has died domiciled in Belgium in accordance with the law of his domicile, he
must first inquire whether the law of Belgium would distribute personal property upon death
in accordance with the law of domicile, and if he finds that the Belgian law would make the
distribution in accordance with the law of nationality — that is the English law — he must
accept this reference back to his own law.

We note that Article 946 of the California Civil Code is its conflict of laws rule, while the rule applied
in In re Kaufman, Supra, its internal law. If the law on succession and the conflict of laws rules of
California are to be enforced jointly, each in its own intended and appropriate sphere, the principle
cited In re Kaufman should apply to citizens living in the State, but Article 946 should apply to such
of its citizens as are not domiciled in California but in other jurisdictions. The rule laid down of
resorting to the law of the domicile in the determination of matters with foreign element involved is in
accord with the general principle of American law that the domiciliary law should govern in most
matters or rights which follow the person of the owner.

When a man dies leaving personal property in one or more states, and leaves a will directing
the manner of distribution of the property, the law of the state where he was domiciled at the
time of his death will be looked to in deciding legal questions about the will, almost as
completely as the law of situs is consulted in questions about the devise of land. It is logical
that, since the domiciliary rules control devolution of the personal estate in case of intestate
succession, the same rules should determine the validity of an attempted testamentary
dispostion of the property. Here, also, it is not that the domiciliary has effect beyond the
borders of the domiciliary state. The rules of the domicile are recognized as controlling by the
Conflict of Laws rules at the situs property, and the reason for the recognition as in the case
of intestate succession, is the general convenience of the doctrine. The New York court has
said on the point: 'The general principle that a dispostiton of a personal property, valid at the
domicile of the owner, is valid anywhere, is one of the universal application. It had its origin in
that international comity which was one of the first fruits of civilization, and it this age, when
business intercourse and the process of accumulating property take but little notice of
boundary lines, the practical wisdom and justice of the rule is more apparent than ever.
(Goodrich, Conflict of Laws, Sec. 164, pp. 442-443.)

Appellees argue that what Article 16 of the Civil Code of the Philippines pointed out as the national
law is the internal law of California. But as above explained the laws of California have prescribed
two sets of laws for its citizens, one for residents therein and another for those domiciled in other
jurisdictions. Reason demands that We should enforce the California internal law prescribed for its
citizens residing therein, and enforce the conflict of laws rules for the citizens domiciled abroad. If we
must enforce the law of California as in comity we are bound to go, as so declared in Article 16 of
our Civil Code, then we must enforce the law of California in accordance with the express mandate
thereof and as above explained, i.e., apply the internal law for residents therein, and its conflict-of-
laws rule for those domiciled abroad.

It is argued on appellees' behalf that the clause "if there is no law to the contrary in the place where
the property is situated" in Sec. 946 of the California Civil Code refers to Article 16 of the Civil Code
of the Philippines and that the law to the contrary in the Philippines is the provision in said Article 16
that the national law of the deceased should govern. This contention can not be sustained. As
explained in the various authorities cited above the national law mentioned in Article 16 of our Civil
Code is the law on conflict of laws in the California Civil Code, i.e., Article 946, which authorizes the
reference or return of the question to the law of the testator's domicile. The conflict of laws rule in
California, Article 946, Civil Code, precisely refers back the case, when a decedent is not domiciled
in California, to the law of his domicile, the Philippines in the case at bar. The court of the domicile
can not and should not refer the case back to California; such action would leave the issue incapable
of determination because the case will then be like a football, tossed back and forth between the two
states, between the country of which the decedent was a citizen and the country of his domicile. The
Philippine court must apply its own law as directed in the conflict of laws rule of the state of the
decedent, if the question has to be decided, especially as the application of the internal law of
California provides no legitime for children while the Philippine law, Arts. 887(4) and 894, Civil Code
of the Philippines, makes natural children legally acknowledged forced heirs of the parent
recognizing them.
The Philippine cases (In re Estate of Johnson, 39 Phil. 156; Riera vs. Palmaroli, 40 Phil. 105;
Miciano vs. Brimo, 50 Phil. 867; Babcock Templeton vs. Rider Babcock, 52 Phil. 130; and Gibbs vs.
Government, 59 Phil. 293.) cited by appellees to support the decision can not possibly apply in the
case at bar, for two important reasons, i.e., the subject in each case does not appear to be a citizen
of a state in the United States but with domicile in the Philippines, and it does not appear in each
case that there exists in the state of which the subject is a citizen, a law similar to or identical with
Art. 946 of the California Civil Code.

We therefore find that as the domicile of the deceased Christensen, a citizen of California, is the
Philippines, the validity of the provisions of his will depriving his acknowledged natural child, the
appellant, should be governed by the Philippine Law, the domicile, pursuant to Art. 946 of the Civil
Code of California, not by the internal law of California..

WHEREFORE, the decision appealed from is hereby reversed and the case returned to the lower
court with instructions that the partition be made as the Philippine law on succession provides.
Judgment reversed, with costs against appellees.

Albenson Enterprises Corp. vs CA

This petition assails the decision of respondent Court of Appeals in

CA-GR CV No. 14948 entitled "Eugenio S. Baltao, plaintiff-appellee vs. Albenson Enterprises
Corporation, et al, defendants-appellants", which modified the judgment of the Regional Trial Court
of Quezon City, Branch XCVIII in Civil Case No. Q-40920 and ordered petitioner to pay private
respondent, among others, the sum of P500,000.00 as moral damages and attorney's fees in the
amount of P50,000.00.

The facts are not disputed.

In September, October, and November 1980, petitioner Albenson Enterprises Corporation (Albenson
for short) delivered to Guaranteed Industries, Inc. (Guaranteed for short) located at 3267 V. Mapa
Street, Sta. Mesa, Manila, the mild steel plates which the latter ordered. As part payment thereof,
Albenson was given Pacific Banking Corporation Check No. 136361 in the amount of P2,575.00 and
drawn against the account of E.L. Woodworks (Rollo, p. 148).

When presented for payment, the check was dishonored for the reason "Account Closed."
Thereafter, petitioner Albenson, through counsel, traced the origin of the dishonored check. From
the records of the Securities and Exchange Commission (SEC), Albenson discovered that the
president of Guaranteed, the recipient of the unpaid mild steel plates, was one "Eugenio S. Baltao."
Upon further inquiry, Albenson was informed by the Ministry of Trade and Industry that E.L.
Woodworks, a single proprietorship business, was registered in the name of one "Eugenio Baltao".
In addition, upon verification with the drawee bank, Pacific Banking Corporation, Albenson was
advised that the signature appearing on the subject check belonged to one "Eugenio Baltao."

After obtaining the foregoing information, Albenson, through counsel, made an extrajudicial demand
upon private respondent Eugenio S. Baltao, president of Guaranteed, to replace and/or make good
the dishonored check.

Respondent Baltao, through counsel, denied that he issued the check, or that the signature
appearing thereon is his. He further alleged that Guaranteed was a defunct entity and hence, could
not have transacted business with Albenson.

On February 14, 1983, Albenson filed with the Office of the Provincial Fiscal of Rizal a complaint
against Eugenio S. Baltao for violation of Batas Pambansa Bilang 22. Submitted to support said
charges was an affidavit of petitioner Benjamin Mendiona, an employee of Albenson. In said
affidavit, the above-mentioned circumstances were stated.

It appears, however, that private respondent has a namesake, his son Eugenio Baltao III, who
manages a business establishment, E.L. Woodworks, on the ground floor of the Baltao Building,
3267 V. Mapa Street, Sta. Mesa, Manila, the very same business address of Guaranteed.

On September 5, 1983, Assistant Fiscal Ricardo Sumaway filed an information against Eugenio S.
Baltao for Violation of Batas Pambansa Bilang 22. In filing said information, Fiscal Sumaway claimed
that he had given Eugenio S. Baltao opportunity to submit controverting evidence, but the latter
failed to do so and therefore, was deemed to have waived his right.

Respondent Baltao, claiming ignorance of the complaint against him, immediately filed with the
Provincial Fiscal of Rizal a motion for reinvestigation, alleging that it was not true that he had been
given an opportunity to be heard in the preliminary investigation conducted by Fiscal Sumaway, and
that he never had any dealings with Albenson or Benjamin Mendiona, consequently, the check for
which he has been accused of having issued without funds was not issued by him and the signature
in said check was not his.
On January 30, 1984, Provincial Fiscal Mauro M. Castro of Rizal reversed the finding of Fiscal
Sumaway and exonerated respondent Baltao. He also instructed the Trial Fiscal to move for
dismissal of the information filed against Eugenio S. Baltao. Fiscal Castro found that the signature in
PBC Check No. 136361 is not the signature of Eugenio S. Baltao. He also found that there is no
showing in the records of the preliminary investigation that Eugenio S. Baltao actually received
notice of the said investigation. Fiscal Castro then castigated Fiscal Sumaway for failing to exercise
care and prudence in the performance of his duties, thereby causing injustice to respondent who
was not properly notified of the complaint against him and of the requirement to submit his counter
evidence.

Because of the alleged unjust filing of a criminal case against him for allegedly issuing a check which
bounced in violation of Batas Pambansa Bilang 22 for a measly amount of P2,575.00, respondent
Baltao filed before the Regional Trial Court of Quezon City a complaint for damages against herein
petitioners Albenson Enterprises, Jesse Yap, its owner, and Benjamin Mendiona, its employee.

In its decision, the lower court observed that "the check is drawn against the account of "E.L.
Woodworks," not of Guaranteed Industries of which plaintiff used to be President. Guaranteed
Industries had been inactive and had ceased to exist as a corporation since 1975. . . . . The
possibility is that it was with Gene Baltao or Eugenio Baltao III, a son of plaintiff who had a business
on the ground floor of Baltao Building located on V. Mapa Street, that the defendants may have been
dealing with . . . ." (Rollo, pp. 41-42).

The dispositive portion of the trial court 's decision reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against

defendants ordering the latter to pay plaintiff jointly and severally:

1. actual or compensatory damages of P133,350.00;

2. moral damages of P1,000,000.00 (1 million pesos);

3. exemplary damages of P200,000.00;

4. attorney's fees of P100,000.00;

5 costs.

Defendants' counterclaim against plaintiff and claim for damages against Mercantile
Insurance Co. on the bond for the issuance of the writ of attachment at the instance
of plaintiff are hereby dismissed for lack of merit. (Rollo, pp. 38-39).

On appeal, respondent court modified the trial court's decision as follows:

WHEREFORE, the decision appealed from is MODIFIED by reducing the moral

damages awarded therein from P1,000,000.00 to P500,000.00 and the attorney's
fees from P100,000.00 to P50,000.00, said decision being hereby affirmed in all its
other aspects. With costs against appellants. (Rollo, pp. 50-51)

Dissatisfied with the above ruling, petitioners Albenson Enterprises Corp., Jesse Yap, and Benjamin
Mendiona filed the instant Petition, alleging that the appellate court erred in:
 1. Concluding that private respondent's cause of action is not one based on
malicious prosecution but one for abuse of rights under Article 21 of the Civil Code
notwithstanding the fact that the basis of a civil action for malicious prosecution is
Article 2219 in relation to Article 21 or Article 2176 of the Civil Code . . . .

2. Concluding that "hitting at and in effect maligning (private respondent) with an

unjust criminal case was, without more, a plain case of abuse of rights by
misdirection" and "was therefore, actionable by itself," and which "became
inordinately blatant and grossly aggravated when . . . (private respondent) was
deprived of his basic right to notice and a fair hearing in the so-called preliminary
investigation . . . . "

3. Concluding that petitioner's "actuations in this case were coldly deliberate and
calculated", no evidence having been adduced to support such a sweeping
statement.

4. Holding the petitioner corporation, petitioner Yap and petitioner Mendiona jointly
and severally liable without sufficient basis in law and in fact.

5. Awarding respondents —

5.1. P133,350.00 as actual or compensatory damages, even in the

absence of sufficient evidence to show that such was actually
suffered.

5.2. P500,000.00 as moral damages considering that the evidence in

this connection merely involved private respondent's alleged
celebrated status as a businessman, there being no showing that the
act complained of adversely affected private respondent's reputation
or that it resulted to material loss.

5.3. P200,000.00 as exemplary damages despite the fact that

petitioners were duly advised by counsel of their legal recourse.

5.4. P50,000.00 as attorney's fees, no evidence having been

adduced to justify such an award (Rollo, pp. 4-6).

Petitioners contend that the civil case filed in the lower court was one for malicious prosecution.
Citing the case of Madera vs. Lopez (102 SCRA 700 [1981]), they assert that the absence of malice
on their part absolves them from any liability for malicious prosecution. Private respondent, on the
other hand, anchored his complaint for Damages on Articles 19, 20, and 21 ** of the Civil Code.

Article 19, known to contain what is commonly referred to as the principle of abuse of rights, sets
certain standards which may be observed not only in the exercise of one's rights but also in the
performance of one's duties. These standards are the following: to act with justice; to give everyone
his due; and to observe honesty and good faith. The law, therefore, recognizes the primordial
limitation on all rights: that in their exercise, the norms of human conduct set forth in Article 19 must
be observed. A right, though by itself legal because recognized or granted by law as such, may
nevertheless become the source of some illegality. When a right is exercised in a manner which
does not conform with the norms enshrined in Article 19 and results in damage to another, a legal
wrong is thereby committed for which the wrongdoer must be held responsible. Although the
requirements of each provision is different, these three (3) articles are all related to each other. As
the eminent Civilist Senator Arturo Tolentino puts it: "With this article (Article 21), combined with
articles 19 and 20, the scope of our law on civil wrongs has been very greatly broadened; it has
become much more supple and adaptable than the Anglo-American law on torts. It is now difficult to
conceive of any malevolent exercise of a right which could not be checked by the application of
these articles" (Tolentino, 1 Civil Code of the Philippines 72).

There is however, no hard and fast rule which can be applied to determine whether or not the
principle of abuse of rights may be invoked. The question of whether or not the principle of abuse of
rights has been violated, resulting in damages under Articles 20 and 21 or other applicable provision
of law, depends on the circumstances of each case. (Globe Mackay Cable and Radio Corporation
vs. Court of Appeals, 176 SCRA 778 [1989]).

The elements of an abuse of right under Article 19 are the following: (1) There is a legal right or duty;
(2) which is exercised in bad faith; (3) for the sole intent of prejudicing or injuring another. Article 20
speaks of the general sanction for all other provisions of law which do not especially provide for their
own sanction (Tolentino, supra, p. 71). Thus, anyone who, whether willfully or negligently, in the
exercise of his legal right or duty, causes damage to another, shall indemnify his victim for injuries
suffered thereby. Article 21 deals with acts contra bonus mores, and has the following elements: 1)
There is an act which is legal; 2) but which is contrary to morals, good custom, public order, or public
policy; 3) and it is done with intent to injure.

Thus, under any of these three (3) provisions of law, an act which causes injury to another may be
made the basis for an award of damages.

There is a common element under Articles 19 and 21, and that is, the act must be intentional.
However, Article 20 does not distinguish: the act may be done either "willfully", or "negligently". The
trial court as well as the respondent appellate court mistakenly lumped these three (3) articles
together, and cited the same as the bases for the award of damages in the civil complaint filed
against petitioners, thus:

With the foregoing legal provisions (Articles 19, 20, and 21) in focus, there is not
much difficulty in ascertaining the means by which appellants' first assigned error
should be resolved, given the admitted fact that when there was an attempt to collect
the amount of P2,575.00, the defendants were explicitly warned that plaintiff Eugenio
S. Baltao is not the Eugenio Baltao defendants had been dealing with (supra, p. 5).
When the defendants nevertheless insisted and persisted in filing a case — a
criminal case no less — against plaintiff, said defendants ran afoul of the legal
provisions (Articles 19, 20, and 21 of the Civil Code) cited by the lower court and
heretofore quoted (supra).

Defendants, not having been paid the amount of P2,575.00, certainly had the right to
complain. But that right is limited by certain constraints. Beyond that limit is the area
of excess, of abuse of rights. (Rollo, pp.
44-45).

Assuming, arguendo, that all the three (3) articles, together and not independently of each one,
could be validly made the bases for an award of damages based on the principle of "abuse of right",
under the circumstances, We see no cogent reason for such an award of damages to be made in
favor of private respondent.
Certainly, petitioners could not be said to have violated the aforestated principle of abuse of right.
What prompted petitioners to file the case for violation of Batas Pambansa Bilang 22 against private
respondent was their failure to collect the amount of P2,575.00 due on a bounced check which they
honestly believed was issued to them by private respondent. Petitioners had conducted inquiries
regarding the origin of the check, and yielded the following results: from the records of the Securities
and Exchange Commission, it was discovered that the President of Guaranteed (the recipient of the
unpaid mild steel plates), was one "Eugenio S. Baltao"; an inquiry with the Ministry of Trade and
Industry revealed that E.L. Woodworks, against whose account the check was drawn, was
registered in the name of one "Eugenio Baltao"; verification with the drawee bank, the Pacific
Banking Corporation, revealed that the signature appearing on the check belonged to one "Eugenio
Baltao".

In a letter dated December 16, 1983, counsel for petitioners wrote private respondent demanding
that he make good the amount of the check. Counsel for private respondent wrote back and denied,
among others, that private respondent ever transacted business with Albenson Enterprises
Corporation; that he ever issued the check in question. Private respondent's counsel even went
further: he made a warning to defendants to check the veracity of their claim. It is pivotal to note at
this juncture that in this same letter, if indeed private respondent wanted to clear himself from the
baseless accusation made against his person, he should have made mention of the fact that there
are three (3) persons with the same name, i.e.: Eugenio Baltao, Sr., Eugenio S. Baltao, Jr. (private
respondent), and Eugenio Baltao III (private respondent's son, who as it turned out later, was the
issuer of the check). He, however, failed to do this. The last two Baltaos were doing business in the
same building — Baltao Building — located at 3267 V. Mapa Street, Sta. Mesa, Manila. The mild
steel plates were ordered in the name of Guaranteed of which respondent Eugenio S. Baltao is the
president and delivered to Guaranteed at Baltao building. Thus, petitioners had every reason to
believe that the Eugenio Baltao who issued the bouncing check is respondent Eugenio S. Baltao
when their counsel wrote respondent to make good the amount of the check and upon refusal, filed
the complaint for violation of BP Blg. 22.

Private respondent, however, did nothing to clarify the case of mistaken identity at first hand.
Instead, private respondent waited in ambush and thereafter pounced on the hapless petitioners at a
time he thought was propitious by filing an action for damages. The Court will not countenance this
devious scheme.

The criminal complaint filed against private respondent after the latter refused to make good the
amount of the bouncing check despite demand was a sincere attempt on the part of petitioners to
find the best possible means by which they could collect the sum of money due them. A person who
has not been paid an obligation owed to him will naturally seek ways to compel the debtor to pay
him. It was normal for petitioners to find means to make the issuer of the check pay the amount
thereof. In the absence of a wrongful act or omission or of fraud or bad faith, moral damages cannot
be awarded and that the adverse result of an action does not per se make the action wrongful and
subject the actor to the payment of damages, for the law could not have meant to impose a penalty
on the right to litigate (Rubio vs. Court of Appeals, 141 SCRA 488 [1986]).

In the case at bar, private respondent does not deny that the mild steel plates were ordered by and
delivered to Guaranteed at Baltao building and as part payment thereof, the bouncing check was
issued by one Eugenio Baltao. Neither had private respondent conveyed to petitioner that there are
two Eugenio Baltaos conducting business in the same building — he and his son Eugenio Baltao III.
Considering that Guaranteed, which received the goods in payment of which the bouncing check
was issued is owned by respondent, petitioner acted in good faith and probable cause in filing the
complaint before the provincial fiscal.
To constitute malicious prosecution, there must be proof that the prosecution was prompted by a
sinister design to vex and humiliate a person, and that it was initiated deliberately by the defendant
knowing that his charges were false and groundless. Concededly, the mere act of submitting a case
to the authorities for prosecution does not make one liable for malicious prosecution. (Manila Gas
Corporation vs. Court of Appeals, 100 SCRA 602 [1980]). Still, private respondent argues that
liability under Articles 19, 20, and 21 of the Civil Code is so encompassing that it likewise includes
liability for damages for malicious prosecution under Article 2219 (8). True, a civil action for damages
for malicious prosecution is allowed under the New Civil Code, more specifically Articles 19, 20, 26,
29, 32, 33, 35, and 2219 (8) thereof. In order that such a case can prosper, however, the following
three (3) elements must be present, to wit: (1) The fact of the prosecution and the further fact that
the defendant was himself the prosecutor, and that the action was finally terminated with an
acquittal; (2) That in bringing the action, the prosecutor acted without probable cause; (3) The
prosecutor was actuated or impelled by legal malice (Lao vs. Court of Appeals, 199 SCRA 58,
[1991]).

Thus, a party injured by the filing of a court case against him, even if he is later on absolved, may file
a case for damages grounded either on the principle of abuse of rights, or on malicious prosecution.
As earlier stated, a complaint for damages based on malicious prosecution will prosper only if the
three (3) elements aforecited are shown to exist. In the case at bar, the second and third elements
were not shown to exist. It is well-settled that one cannot be held liable for maliciously instituting a
prosecution where one has acted with probable cause. "Probable cause is the existence of such
facts and circumstances as would excite the belief, in a reasonable mind, acting on the facts within
the knowledge of the prosecutor, that the person charged was guilty of the crime for which he was
prosecuted. In other words, a suit will lie only in cases where a legal prosecution has been carried
on without probable cause. The reason for this rule is that it would be a very great discouragement
to public justice, if prosecutors, who had tolerable ground of suspicion, were liable to be sued at law
when their indictment miscarried" (Que vs. Intermediate Appellate Court, 169 SCRA 137 [1989]).

The presence of probable cause signifies, as a legal consequence, the absence of malice. In the
instant case, it is evident that petitioners were not motivated by malicious intent or by sinister design
to unduly harass private respondent, but only by a well-founded anxiety to protect their rights when
they filed the criminal complaint against private respondent.

To constitute malicious prosecution, there must be proof that the prosecution was
prompted by a sinister design to vex and humiliate a person, that it was initiated
deliberately by the defendant knowing that his charges were false and groundless.
Concededly, the mere act of submitting a case to the authorities for prosecution does
not make one liable for malicious prosecution. Proof and motive that the institution of
the action was prompted by a sinister design to vex and humiliate a person must be
clearly and preponderantly established to entitle the victims to damages (Ibid.).

In the case at bar, there is no proof of a sinister design on the part of petitioners to vex or humiliate
private respondent by instituting the criminal case against him. While petitioners may have been
negligent to some extent in determining the liability of private respondent for the dishonored check,
the same is not so gross or reckless as to amount to bad faith warranting an award of damages.

The root of the controversy in this case is founded on a case of mistaken identity. It is possible that
with a more assiduous investigation, petitioners would have eventually discovered that private
respondent Eugenio S. Baltao is not the "Eugenio Baltao" responsible for the dishonored check.
However, the record shows that petitioners did exert considerable effort in order to determine the
liability of private respondent. Their investigation pointed to private respondent as the "Eugenio
Baltao" who issued and signed the dishonored check as the president of the debtor-corporation
Guaranteed Enterprises. Their error in proceeding against the wrong individual was obviously in the
nature of an innocent mistake, and cannot be characterized as having been committed in bad faith.
This error could have been discovered if respondent had submitted his counter-affidavit before
investigating fiscal Sumaway and was immediately rectified by Provincial Fiscal Mauro Castro upon
discovery thereof, i.e., during the reinvestigation resulting in the dismissal of the complaint.

Furthermore, the adverse result of an action does not per se make the act wrongful and subject the
actor to the payment of moral damages. The law could not have meant to impose a penalty on the
right to litigate, such right is so precious that moral damages may not be charged on those who may
even exercise it erroneously. And an adverse decision does not ipso facto justify the award of
attorney's fees to the winning party (Garcia vs. Gonzales, 183 SCRA 72 [1990]).

Thus, an award of damages and attorney's fees is unwarranted where the action was filed in good
faith. If damage results from a person's exercising his legal rights, it is damnum absque
injuria (Ilocos Norte Electric Company vs. Court of Appeals, 179 SCRA 5 [1989]).

Coming now to the claim of private respondent for actual or compensatory damages, the records
show that the same was based solely on his allegations without proof to substantiate the same. He
did not present proof of the cost of the medical treatment which he claimed to have undergone as a
result of the nervous breakdown he suffered, nor did he present proof of the actual loss to his
business caused by the unjust litigation against him. In determining actual damages, the court
cannot rely on speculation, conjectures or guesswork as to the amount. Without the actual proof of
loss, the award of actual damages becomes erroneous (Guilatco vs. City of Dagupan, 171 SCRA
382 [1989]).

Actual and compensatory damages are those recoverable because of pecuniary loss — in business,
trade, property, profession, job or occupation — and the same must be proved, otherwise, if the
proof is flimsy and unsubstantiated, no damages will be given (Rubio vs. Court of Appeals, 141
SCRA 488 [1986]). For these reasons, it was gravely erroneous for respondent court to have
affirmed the award of actual damages in favor of private respondent in the absence of proof thereof.

Where there is no evidence of the other party having acted in wanton, fraudulent or reckless, or
oppressive manner, neither may exemplary damages be awarded (Dee Hua Liong Electrical
Equipment Corporation vs. Reyes, 145 SCRA 488 [1986]).

As to the award of attorney's fees, it is well-settled that the same is the exception rather than the
general rule. Needless to say, the award of attorney's fees must be disallowed where the award of
exemplary damages is eliminated (Article 2208, Civil Code; Agustin vs. Court of Appeals, 186 SCRA
375 [1990]). Moreover, in view of the fact that there was no malicious prosecution against private
respondent, attorney's fees cannot be awarded him on that ground.

In the final analysis, there is no proof or showing that petitioners acted maliciously or in bad faith in
the filing of the case against private respondent. Consequently, in the absence of proof of fraud and
bad faith committed by petitioners, they cannot be held liable for damages (Escritor, Jr. vs.
Intermediate Appellate Court, 155 SCRA 577 [1987]). No damages can be awarded in the instant
case, whether based on the principle of abuse of rights, or for malicious prosecution. The questioned
judgment in the instant case attests to the propensity of trial judges to award damages without basis.
Lower courts are hereby cautioned anew against awarding unconscionable sums as damages
without bases therefor.
WHEREFORE, the petition is GRANTED and the decision of the Court of Appeals in C.A. G.R. C.V.
No. 14948 dated May 13, 1989, is hereby REVERSED and SET ASIDE. Costs against respondent
Baltao.

SO ORDERED.

SEA Com Co. Inc vs CA et al

In this petition for review by certiorari, SEA Commercial Company, Inc. (SEACOM) assails the
decision of the Court of Appeals in CA-G.R. CV NO. 31263 affirming in toto the decision of the
Regional Trial Court of Manila, Branch 5, in Civil Case No. 122391, in favor of Jamandre Industries,
Inc. (JII) et al., the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the defendant and against

the plaintiff, ordering the plaintiff:

1) To pay defendant the sum of P66,156.15 (minus 18,843.85) with legal interest
thereon, from the date of the filing of the counterclaim until fully paid;

2) To pay defendant P2,000.00 as moral and exemplary damages;

3) To pay attorney's fees in the sum of P10,000.00; and

4) To pay the costs of this suit.

SO ORDERED.

SEACOM is a corporation engaged in the business of selling and distributing agricultural machinery,
products and equipment. On September 20, 1966, SEACOM and JII entered into a dealership
agreement whereby SEACOM appointed JII as its exclusive dealer in the City and Province of
Iloilo  . Tirso Jamandre executed a suretyship agreement binding himself jointly and severally with JII
1

to pay for all obligations of JII to SEACOM  . The agreement was subsequently amended to include
2

Capiz in the territorial coverage and to make the dealership agreement on a non-exclusive basis    . 3

In the course of the dealership agreement, JII allegedly incurred a balance of P18,843.85 for unpaid
deliveries, and SEACOM brought action to recover said amount plus interest and attorney's fees.

JII filed an Answer denying the obligation and interposing a counterclaim for damages representing
unrealized profits when JII sold to the Farm System Development Corporation (FSDC) twenty one
(21) units of Mitsubishi power tillers. In the counterclaim, JII alleged that as a dealer in Capiz, JII
contracted to sell in 1977 twenty-four (24) units of Mitsubishi power tillers to a group of farmers to be
financed by said corporation, which fact JII allegedly made known to petitioner, but the latter taking
advantage of said information and in bad faith, went directly to FSDC and dealt with it and sold
twenty one (21) units of said tractors, thereby depriving JII of unrealized profit of eighty-five thousand
four hundred fifteen and 61/100 pesos (P85,415.61).

The trial court rendered its decision on January 24, 1990 ordering JII to pay SEACOM the amount of
Eighteen Thousand Eight Hundred Forty Three and 85/100 (P18,843.85) representing its
outstanding obligation. The trial court likewise granted JII's counterclaim for unrealized profits, and
for moral and exemplary damages and attorney' fees as above quoted.

SEACOM appealed the decision on the counterclaim.

The Court of Appeals held that while there exists no agency relationship between SEACOM and JII,
SEACOM is liable for damages and unrealized profits to JII.

This Court, however, is convinced that with or without the existence of an agency
relationship between appellant SEACOM and appellee JII and notwithstanding the
error committed by the lower court in finding that an agency relationship existed
between appellant and defendant corporation the former is liable for the unrealized
profits which the latter could have gained had not appellant unjustly stepped in and in
bad faith unethically intervened.

It should be emphasized that the very purpose of the dealership agreement is for
SEACOM to have JII as its dealer to sell its products in the provinces of Capiz and
Iloilo. In view of this agreement, the second assigned error that the lower court erred
in holding that appellant learned of the FSDC transaction from defendant JII is clearly
immaterial and devoid of merit. The fact that the dealership is on a non-exclusive
basis does not entitle appellant SEACOM to join the fray as against its dealer. To do
so, is to violate the norms of conduct enjoined by Art. 19 of the Civil Code. By virtue
of such agreement, the competition in the market as regards the sale of farm
equipment shall be between JII, as the dealer of SEACOM and other companies, not
as against SEACOM itself. However, SEACOM, not satisfied with the presence of its
dealer JII in the market, joined the competition even as the against the latter and,
therefore, changed the scenario of the competition thereby rendering inutile the
dealership agreement which they entered into the manifest prejudice of JII. Hence,
the trial court was correct when it applied Art. 19 of the Civil Code in the case at bar
in that appellant SEACOM acted in bad faith when it competed with its own dealer as
regards the sale of farm machineries, thereby depriving appellee JII of the
opportunity to gain a clear profit of P85,000.00.

and affirmed the judgment appealed from in toto.

Hence this petition for review on certiorari, which submits the following reasons for the allowance
thereof:

THE RESPONDENT COURT OF APPEALS DECIDED QUESTIONS OF

SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW AND
JURISPRUDENCE, CONSIDERING THAT:

A - THE RESPONDENT COURT OF APPEALS GARAVELY ERRED IN RULING

THAT PETITIONER IS LIABLE TO PAY DAMAGES AND UNREALIZED PROFITS
TO THE PRIVATE RESPONDENTS DESPITE THE FACT THAT NO AGENCY
RELATIONSHIP EXISTS BETWEEN THEM.

B - THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING

THAT PETITIONER ACTED IN BAD FAITH AGAINST THE PRIVATE
RESPONDENT CORPORATION DESPITE THE FACT THAT SAID RULING IS
CONTRARY TO THE EVIDENCE ON RECORD.
 C - THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING
THAT THE NON-EXCLUSIVITY CLAUSE IN THE DEALERSHIP AGREEMENT
EXECUTED BETWEEN THE PETITIONER AND PRIVATE RESPONDENT
CORPORATION PRECLUDES THE PETITIONER FROM COMPETING WITH THE
PRIVATE RESPONDENT CORPORAITON.

D - THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING

THAT PRIVATE RESPONDENT IS ENTITLED TO UNREALIZED PROFITS,
MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES.  4

Petitioner SEACOM disputes the conclusion of the Court of Appeals that despite the fact that no
agency relationship existed between the parties, the SEACOM is still liable in damages and
unrealized profits for the reason that it acted in bad faith. Petitioner SEACOM invokes the non-
exclusivity clause in the dealership agreement and claims that the transaction with FSDC was
concluded pursuant to a public bidding and not on the basis of alleged information it received from
private respondent Tirso Jamandre. Moreover, petitioner SEACOM claims that it did not underprice
its products during the public bidding wherein both SEACOM and JII participated. Petitioner also
disputes the award of moral damages to JII which is a corporation, in the absence of any evidence
that the said corporation had a good reputation which was debased.

Private respondents in their comment, contends that the four assigned errors raise mixed questions
of fact and law and are therefore beyond the jurisdiction of the Supreme Court which may take
cognizance of only questions of law. The assigned errors were also refuted to secure affirmance of
the appealed decision. JII maintains that the bidding set by FSDC on March 24, 1997 was scheduled
after the demonstration conducted by JII, and after JII informed SEACOM about the preference of
the farmers to buy Mitsubishi tillers. JII further rebuts the SEACOM's contention that the transaction
with FSDC was pursuant to a public bidding with full disclosure to the public and private respondent
JII considering that JII had nothing to do with the list of 37 bidders and cannot be bound by the listing
made by SEACOM's employee; moreover, JII did not participate in the bidding not having been
informed about it. Furthermore, the price at which SEACOM sold to FSDC was lower than the price it
gave to JII. Also, even if the dealership agreement was not exclusive, it was breached when
petitioner in bad faith sold directly to FSDC with whom JII had previously offered the subject farm
equipment. With respect to the awards of moral and exemplary damages, JII seeks an affirmation of
the ruling of the Court of Appeals justifying the awards.

SEACOM filed Reply defending the jurisdiction of this Court over the instant petition since the
decision of the Court of Appeals was "based on a misapprehension of facts". SEACOM insists that
FSDC's purchase was made pursuant to a public bidding, and even if SEACOM did not participate
thereon, JII would not necessarily have closed the deal since thirty seven (37) bidders participated.
SEACOM contends that no evidence was presented to prove that the bidding was a fraudulent
scheme of SEACOM and FSDC. SEACOM further controverts JII's contention that JII did not take
part in the bidding as Tirso Jamandre was one of the bidders and that SEACOM underpriced its
products to entice FSDC to buy directly from it. In fine, JII is not entitled to the award of unrealized
profits and damages.

In its Rejoinder, private responder insist that there is an agency relationship, citing the evidence
showing that credit memos and not cash vouchers were issued to JII by SEACOM for every delivery
from November 26, 1976 to December 24, 1978. Private respondents maintain that SEACOM
"torpedoed the emerging deal between JII and FSDC after being informed about it by JII by dealing
directly with FSDC at a lower price" and after betraying JII, SEACOM would cover up the deceit by
conniving with FSDC to post up a "sham public bidding. SEACOM's sur-rejoinder contains basically
a reiteration of its contention in previous pleadings. Additionally, it is contended that private
respondents are barred from questioning in their Rejoinder, the finding of the Court of Appeals that
there is no agency relationship between the parties since this matter was not raised as error in their
comment.

The core issue is whether SEACOM acted in bad faith when it competed with its own dealer as
regards the sale of farm machineries to FSDC.Both the trial court and the Court of Appeals held
affirmatively; the trial court found that JII was an agent of SEACOM and the act of SEACOM in
dealing directly with FSDC was unfair and unjust to its agent, and that there was fraud in the
transaction between FSDC and SEACOM to the prejudice of JII. On the other hand, the Court of
Appeals ruled that there was no agency relationship between the parties but SEACOM is
nevertheless liable in damages for having acted in bad faith when it competed with its own dealer in
the sale of the farm machineries to FSDC. Both courts invoke as basis for the award Article 19 of the
Civil Code which reads as follows:

Art. 19. Every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due and observe honesty and good faith.

The principle of abuse of rights stated in the above article, departs from the classical theory that "he
who uses a right injures no one". The modern tendency is to depart from the classical and traditional
theory, and to grant indemnity for damages in cases where there is an abuse of rights, even when
the act is not illicit. 
5

Art. 19 was intended to expand the concept of torts by granting adequate legal remedy for the untold
number of moral wrongs which is impossible for human foresight to provide specifically in statutory
law.   If mere fault or negligence in one's acts can make him liable for damages for injury caused
6

thereby, with more reason should abuse or bad faith make him liable. The absence of good faith is
essential to abuse of right. Good faith is an honest intention to abstain from taking any
unconscientious advantage of another, even through the forms or technicalities of the law, together
with an absence of all information or belief of fact which would render the transaction
unconscientious. In business relations, it means good faith as understood by men of affairs.  7

While Article 19 may have been intended as a mere declaration of

principle  , the "cardinal law on human conduct" expressed in said article has given rise to certain
8

rules, e.g. that where a person exercises his rights but does so arbitrarily or unjustly or performs his
duties in a manner that is not in keeping with honesty and good faith, he opens himself to
liability.   The elements of an abuse of rights under Article 19 are: (1) there is a legal right or duty; (2)
9

which is exercised in bad faith; (3) for the sole intent of prejudicing or injuring
another.  10

The issue whether JII is "entitled to recovery on its counterclaim for unrealized profit in the twenty
one (21) units of Mitsubishi power tillers sold by SEACOM to FSDC" was resolved by the trial court
in favor of JII on the basis of documentary evidence   showing that (1) JII has informed SEACOM as
11

early as February 1977 of the promotions undertaken by JII for the sale of 24 contracted units to
FSDC and in connection therewith, requested a 50% discount to make the price competitive, and to
increase the warranty period for eight months to one year. In said letter Jamandre clarified that they
were not amenable to SEACOM's offering directly to FSDC" and to be only given the usual
overriding commission as "we have considerable investments on this transaction". (2) In response,
the general sales manager of SEACOM declined to give the requested 50% discount and offered a
"less 30% less 10% up to end March . . . on cash before delivery basis", granted the requested
extension of the warranty period and stated that "we are glad to note that you have quite a number
of units pending with the FSDC."
The trial court ruled that with said information, SEACOM dealt directly with FSDC and offered its
units at a lower price, leaving FSDC "no choice but to accept the said offer of (SEACOM)".

In affirming the judgment of the of the trial court, the Court of Appeals held that by virtue of the
dealership agreement the competition in the market as regards the sale of farm equipment shall be
between JII, as the dealer of SEACOM, and other companies, not as against SEACOM itself, the
Court stated:

However, SEACOM not satisfied with the presence of its dealer JII in the market, joined the
competition even as against the latter, and thereby changed the scenario of the competition thereby
rendering inutile the dealership agreement which they entered into to the manifest prejudice of JII.
Hence the trial court trial court was correct when it applied Art. 19 of the Civil Code in the case at bar
in that appellant SEACOM acted in bad faith when it competed with its own dealer as regards the
sale of farm machineries, thereby depriving appellee JII of the opportunity to gain a clear profit of
P85,000.00.

We find no cogent reason to overturn the factual finding of the two courts that SEACOM joined the
bidding for the sale of the farm equipment after it was informed that JII was already promoting the
sales of said equipment to the FSDC. Moreover, the conclusion of the trial court that the SEACOM
offered FSDC a lower price than the price offered by JII to FSDC is supported by the evidence: the
price offered by JII to FSDC is P27,167 per unit   but the prices at which SEACOM sold to FSDC
12

were at P22,867.00 for Model CT 83-2, P21,093.50 for model CT 83-E, and P18,979.25 for model
CT 534. The fact that SEACOM may have offered to JII, in lieu of a requested 50% discount, a
discount effectively translating to 37% of the list price and actually sold to FSDC at 35% less than
the list price   does not detract from the fact that by participating in the bidding of FSDC, it actually
13

competed with its own dealer who had earlier conducted demonstrations and promoted its own
products for the sale of the very same equipment, Exh. "N" for the plaintiff confirms that both
SEACOM and Jamandre participated in the bidding.   However, the SEACOM was awarded the
14

contract directly from Manila.   The testimony of Tirso Jamandre that JII was the sole representative
15

of SEACOM in the local demonstrations to convince the farmers and cooperative officers to accept
the Mitsubishi brand of equipment in preference to other brands, was unrebutted by SEACOM.

Clearly, the bad faith of SEACOM was established. By appointing as a dealer of its agricultural
equipment, SEACOM recognized the role and undertaking of JII to promote and sell said equipment.
Under the dealership agreement, JII was to act as a middleman to sell SEACOM's products, in its
area of operations, i.e. Iloilo and Capiz provinces, to the exclusion of other places,   to send its men
16

to Manila for training on repair, servicing and installation of the items to be handled by it, and to
comply with other personnel and vehicle requirements intended for the benefit of the
dealership.   After being informed of the demonstrations JII had conducted to promote the sales of
17

SEACOM equipment, including the operations at JII's expense conducted for five months, and the
approval of its facilities (service and parts) by FSDC,   SEACOM participated in the bidding for the
18

said equipment at a lower price, placing itself in direct competition with its own dealer. The
actuations of SEACOM are tainted by bad faith.

Even if the dealership agreement was amended to make it on a non-exclusive basis,   SEACOM 19

may not exercise its right unjustly or in a manner that is not in keeping with honesty or good faith;
otherwise it opens itself to liability under the abuse of right rule embodied in Article 19 of the Civil
Code above-quoted. This provision, together with the succeeding article on human relation, was
intended to embody certain basic principles "that are to be observed for the rightful relationship
between human being. and for the stability of the social order."   What is sought to be written into the
20

law is the pervading principle of equity and justice above strict legalism. 
21
We accordingly resolve to affirm the award for unrealized profits. The Court of Appeals noted that
the trial court failed to specify to which the two appellees the award for moral and exemplary
damages in granted. However, in view of the fact that moral damages are not as a general rule
granted to a corporation, and that Tirso Jamandre was the one who testified on his feeling very
aggrieved and on his mental anguish and sleepless nights thinking of how SEACOM "dealt with us
behind (our) backs",   the award should go to defendant Jamandre, President of JII.
22

WHEREFORE. the judgment appealed from is AFFIRMED with the modification that the award of
P2,000.00 in moral and exemplary damages shall be paid to defendant Tirso Jamandre.

Costs against appellant.

SO ORDERED.

Rellosa vs Pellosis

"Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith." 1 This provision in our law is
not just a declaration of principle for it can in itself constitute, when unduly ignored or violated, a valid
source of a cause of action or defense.

The case seeks to reverse the Court of Appeals in not countenancing an attempt to abridge and
render inutile a legal right to contest an adverse ruling of an agency of government.

Respondents were lessees of a parcel of land, owned by one Marta Reyes, located at San Pascual
Street, Malate, Manila. Respondents had built their houses on the land which, over the years,
underwent continuous improvements. After the demise of Marta, the land was inherited by her son
Victor Reyes. Sometime in 1986, Victor informed respondents that, for being lessees of the land for
more than twenty (20) years, they would have a right of first refusal to buy the land. Sometime in the
early part of 1989, without the knowledge of respondents, the land occupied by them was sold to
petitioner Cynthia Ortega who was able to ultimately secure title to the property in her name.

On 25 May 1989, Cynthia Ortega, filed a petition for condemnation, docketed Condemnation Case
No. 89-05-007, with the Office of the Building Official, City of Manila, of the structures on the land.

On 31 May 1989, respondents filed with the Regional Trial Court of Manila a suit for the "Declaration
of Nullity of the Sale," docketed as Civil Case No. 89-49176, made in favor of petitioner Cynthia
Ortega predicated upon their right of first refusal which was claimed to have been impinged upon the
sale of the land to petitioner Ortega without their knowledge.

After due hearing in the condemnation case, the Office of the Building Official issued a resolution,
dated 27 November 1989, ordering the demolition of the houses of respondents. Copies of the
resolution were served upon respondents and their counsel on 07 December 1989. The following
day, or on 08 December 1989, Cynthia Ortega, together with her father and co-petitioner, Vicente
Rellosa, hired workers to commence the demolition of respondents' houses. Due to the timely
intervention of a mobile unit of the Western Police District, the intended demolition did not take place
following talks between petitioner Rellosa and counsel who pleaded that the demolition be
suspended since the order sought to be implemented was not yet final and executory. On 11
December 1989, respondents filed their appeal contesting the order of the Office of the Building
Official. On 12 December 1989, petitioners once again hired workers and proceeded with the
demolition of respondents' houses.
Resultantly, respondents filed Civil Case No. 89-49176 before the Regional Trial Court of Manila,
Branch 54, praying that petitioners be ordered to pay moral and exemplary damages, as well as
attorney's fee, for the untimely demolition of the houses. After trial, the court dismissed the complaint
of respondents and instead ordered them to pay petitioners moral damages. On appeal, the Court of
Appeals, on the basis of its findings and conclusions, reversed the decision of the trial court and
ordered petitioners to pay respondents the following sums:

"1) Seventy Five Thousand Pesos (P75,000.00), or Twenty Five Thousand Pesos
(P25,000.00) for each appellant, by way of moral damages;"

"2) Seventy Five Thousand Pesos (P75,000.00), or Twenty Five thousand Pesos
(P25,000.00) for each appellant, by way of exemplary damages;"

"3) Fifteen Thousand Pesos (P15,000.00) as and for attorney's fees; and

"4) The costs of suit." 2

The appellate court ruled:

"Thus, by the clear provisions of paragraph 23 of the Implementing Rules and Regulations of
PD 1096 (otherwise known as the Building Code), above, appellants, being the parties
adversely affected by the November 27, 1989 Resolution of the Office of the Building Official,
had fifteen (15) days from receipt of a copy of the same within which to perfect an
administrative appeal. Thus, since appellants received a copy of the Resolution on
December 7, 1989, they had until December 22, 1989 within which to perfect an
administrative appeal and until such time, the said Resolution was not yet final and
executory."

xxx           xxx           xxx

"It cannot be denied, therefore, that when appellees commenced to demolish appellants'
houses as early as December 8, 1989 and eventually on December 12, 1989, neither the
Resolution of the Building Official nor the Demolition Order itself were final and executory." 3

Petitioners filed the instant petition contending that the appellate court gravely erred in ruling that the
premature demolition of respondents' houses entitled them to the award of damages. Petitioners
pointed out that the order of the Office of the Building Official was eventually upheld on appeal by
the Department of Public Works and Highways in its decision of 14 March 1990. Furthermore,
petitioners added, the structures subject matter of the demolition order were declared to be
dangerous structures by the Office of the Building Official and, as such, could be abated to avoid
danger to the public.

The Court rules for affirmance of the assailed decision.

A right is a power, privilege, or immunity guaranteed under a constitution, statute or decisional law,
or recognized as a result of long usage, constitutive of a legally enforceable claim of one person
4 

against another.

Petitioner might verily be the owner of the land, with the right to enjoy and to exclude any person
5 

from the enjoyment and disposal thereof, but the exercise of these rights is not without limitations.
6 

The abuse of rights rule established in Article 19 of the Civil Code requires every person to act with
justice, to give everyone his due; and to observe honesty and good faith. When a right is exercised
7 

in a manner which discards these norms resulting in damage to another, a legal wrong is committed
for which the actor can be held accountable. In this instance, the issue is not so much about the
existence of the right or validity of the order of demolition as the question of whether or not
petitioners have acted in conformity with, and not in disregard of, the standard set by Article 19 of
the Civil Code.

At the time petitioners implemented the order of demolition, barely five days after respondents
received a copy thereof, the same was not yet final and executory. The law provided for a fifteen-day
appeal period in favor of a party aggrieved by an adverse ruling of the Office of the Building Official
but by the precipitate action of petitioners in demolishing the houses of respondents (prior to the
expiration of the period to appeal), the latter were effectively deprived of this recourse. The fact that
the order of demolition was later affirmed by the Department of Public Works and Highways was of
no moment. The action of petitioners up to the point where they were able to secure an order of
demolition was not condemnable but implementing the order unmindful of the right of respondents to
contest the ruling was a different matter and could only be held utterly indefensible.

The Court, however, finds the award of P75,000.00 exemplary damages and another of P75,000.00
moral damages for each respondent to be rather excessive given the circumstances; the awards
must be reduced to the reasonable amounts of P20,000.00 exemplary damages and P20,000.00
moral damages.

WHEREFORE, the assailed decision of the Court of Appeals is MODIFIED by reducing the awards
of P75,000.00 exemplary damages and of P75,000.00 moral damages to each respondent reduced
to P20,000.00 exemplary damages and P20,000.00 moral damages for each respondent. In all other
respects, the decision of the appellate court is AFFIRMED. No costs.

SO ORDERED.
 Heirs of Nala etc vs Cabansag

This is a Petition for Review under Rule 45 of the Rules of Court assailing the Court of
Appeals (CA) Decision1 dated December 19, 2002 and Resolution2 dated October 28,
2003, dismissing petitioners' appeal and affirming with modification the Regional Trial
Court (RTC) Decision dated August 10, 1994 rendered in Civil Case No. Q-91-10541.

The facts of the case are as follows:

Artemio Cabansag (respondent) filed Civil Case No. Q-91-10541 for damages in
October 1991. According to respondent, he bought a 50-square meter property from
spouses Eugenio Gomez, Jr. and Felisa Duyan Gomez on July 23, 1990. Said property is
part of a 400-square meter lot registered in the name of the Gomez spouses. In
October 1991, he received a demand letter from Atty. Alexander del Prado (Atty. Del
Prado), in behalf of Purisima Nala (Nala), asking for the payment of rentals from 1987
to 1991 until he leaves the premises, as said property is owned by Nala, failing which
criminal and civil actions will be filed against him. Another demand letter was sent on
May 14, 1991. Because of such demands, respondent suffered damages and was
constrained to file the case against Nala and Atty. Del Prado. 3

Atty. Del Prado claimed that he sent the demand letters in good faith and that he was
merely acting in behalf of his client, Nala, who disputed respondent's claim of
ownership. Nala alleged that said property is part of an 800-square meter property
owned by her late husband, Eulogio Duyan, which was subsequently divided into two
parts. The 400-square meter property was conveyed to spouses Gomez in a fictitious
deed of sale, with the agreement that it will be merely held by them in trust for the
Duyan's children. Said property is covered by Transfer Certificate of Title (TCT) No.
281115 in the name of spouses Gomez. Nala also claimed that respondent is only
renting the property which he occupies.4
After trial, the RTC of Quezon City, Branch 93, rendered its Decision on August 10,
1994, in favor of respondent. The dispositive portion of the Decision provides:

WHEREFORE, premises considered, by preponderance of evidence, the Court finds in

favor of the plaintiff and hereby orders the defendants, jointly and severally, to pay
plaintiff the following:

1. P150,000.00 by way of moral damages;

2. P30,000.00 by way of exemplary damages;

3. P20,000.00 as and for reasonable attorney's fees and other litigation expenses; and cralawlibrary

4. to pay the costs.

SO ORDERED.5

Nala and Atty. Del Prado appealed to the CA. The herein assailed CA Decision dated
December 19, 2002 affirmed the RTC Decision with modification, thus:

WHEREFORE, premises considered, the instant appeal is hereby DISMISSED. The

assailed decision of the Regional Trial Court, Branch 93, Quezon City, in Civil Case No.
Q-91-10541 is heretofore AFFIRMED with MODIFICATION. Defendants-appellants are
ordered to pay, jointly and severally, plaintiff-appellee the amount of P30,000.00 by
way of moral damages. It is further ordered to pay him exemplary damages in the
amount of P10,000.00 and P10,000.00, attorney's fees.

SO ORDERED.6

In affirming the RTC Decision, the CA took note of the Decision dated September 5,
1994 rendered by the RTC of Quezon City, Branch 80, dismissing Civil Case No. 91-
8821, an action for reconveyance of real property and cancellation of TCT No. 281115
with damages, filed by Nala against spouses Gomez. 7

Hence, herein petition by the heirs of Nala (petitioners) 8 with the following assignment
of errors:

a) Respondent Court of Appeals erred in not considering the right of Purisima Nala to
assert her rights and interest over the property.

b) Respondent Court of Appeals erred in not considering the Decision rendered by the
Court of Appeals in the case for reconveyance which upheld the rights and interest of
Purisima Nala and her children over a certain parcel of land, a portion of which is
subject of the present case.

c) Respondent Court of Appeals erred in awarding damages and attorney's fees without
any basis.9
Atty. Del Prado filed a motion for extension of time to file his separate petition but it
was denied by the Court per its Resolution dated January 19, 2004 issued in G.R. No.
160829.

Petitioners argue that their predecessor-in-interest had every right to protect and
assert her interests over the property. Nala had no knowledge that the property was
sold by spouses Gomez to respondent when the demand letters were sent. What she
was aware of was the fact that spouses Gomez were managing the rentals on the
property by virtue of the implied trust created between them and Eulogio Duyan. When
spouses Gomez failed to remit the rentals and claimed ownership of the property, it was
then that Nala decided to procure the services of legal counsel to protect their rights
over the property.

Petitioners also contend that it was error for the CA to take note of the RTC Decision in
Civil Case No. 91-8821 without further noting that the CA had already reversed and set
aside said RTC Decision and ordered reconveyance of the property to Nala and her
children in a Decision dated March 8, 2000 rendered in CA-G.R. CV No. 49163.
Petitioners also argue that respondent did not substantiate his claim for damages.

Preliminarily, the Court notes that both the RTC and the CA failed to indicate the
particular provision of law under which it held petitioners liable for damages.
Nevertheless, based on the allegations in respondent's complaint, it may be gathered
that the basis for his claim for damages is Article 19 of the Civil Code, which provides:

Art. 19. Every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith.

The foregoing provision sets the standards which may be observed not only in the
exercise of one's rights but also in the performance of one's duties. When a right is
exercised in a manner which does not conform with the norms enshrined in Article 19
and results in damage to another, a legal wrong is thereby committed for which the
wrongdoer must be held responsible. But a right, though by itself legal because
recognized or granted by law as such, may nevertheless become the source of some
illegality. A person should be protected only when he acts in the legitimate exercise of
his right; that is, when he acts with prudence and in good faith, but not when he acts
with negligence or abuse. There is an abuse of right when it is exercised only for the
purpose of prejudicing or injuring another. The exercise of a right must be in
accordance with the purpose for which it was established, and must not be excessive or
unduly harsh; there must be no intention to injure another. 10

In order to be liable for damages under the abuse of rights principle, the following
requisites must concur: (a) the existence of a legal right or duty; (b) which is exercised
in bad faith; and (c) for the sole intent of prejudicing or injuring another. 11

It should be stressed that malice or bad faith is at the core of Article 19 of the Civil
Code. Good faith is presumed, and he who alleges bad faith has the duty to prove the
same.12 Bad faith, on the other hand, does not simply connote bad judgment to simple
negligence, dishonest purpose or some moral obloquy and conscious doing of a wrong,
or a breach of known duty due to some motives or interest or ill will that partakes of
the nature of fraud. Malice connotes ill will or spite and speaks not in response to duty.
It implies an intention to do ulterior and unjustifiable harm. 13

In the present case, there is nothing on record which will prove that Nala and her
counsel, Atty. Del Prado, acted in bad faith or malice in sending the demand letters to
respondent. In the first place, there was ground for Nala's actions since she believed
that the property was owned by her husband Eulogio Duyan and that respondent was
illegally occupying the same. She had no knowledge that spouses Gomez violated the
trust imposed on them by Eulogio and surreptitiously sold a portion of the property to
respondent. It was only after respondent filed the case for damages against
Nala that she learned of such sale. The bare fact that respondent claims ownership
over the property does not give rise to the conclusion that the sending of the demand
letters by Nala was done in bad faith. Absent any evidence presented by respondent,
bad faith or malice could not be attributed to petitioner since Nala was only trying to
protect their interests over the property.

Moreover, respondent failed to show that Nala and Atty. Del Prado's acts were done
with the sole intention of prejudicing and injuring him. It may be true that respondent
suffered mental anguish, serious anxiety and sleepless nights when he received the
demand letters; however, there is a material distinction between damages and injury.
Injury is the legal invasion of a legal right while damage is the hurt, loss or harm which
results from the injury.14 Thus, there can be damage without injury in those instances
in which the loss or harm was not the result of a violation of a legal duty. In such cases,
the consequences must be borne by the injured person alone; the law affords no
remedy for damages resulting from an act which does not amount to a legal injury or
wrong. These situations are often called damnum absque injuria.15

Nala was acting well within her rights when she instructed Atty. Del Prado to send the
demand letters. She had to take all the necessary legal steps to enforce her
legal/equitable rights over the property occupied by respondent. One who makes use of
his own legal right does no injury.16 Thus, whatever damages are suffered by
respondent should be borne solely by him.

Nala's acts in protecting her rights over the property find further solid ground in the fact
that the property has already been ordered reconveyed to her and her heirs. In its
Decision dated March 8, 2000 in CA-G.R. CV No. 49163, the CA reversed and set aside
the RTC's Decision and ordered the reconveyance of the property to petitioners, and
TCT No. 281115 was declared canceled. Said CA Decision was affirmed by this Court in
its Decision dated March 18, 2005 in G.R. No. 144148, which became final and
executory on July 27, 2005.

WHEREFORE, the petition is GRANTED. The Decision dated December 19, 2002 and
Resolution dated October 28, 2003 rendered by the Court of Appeals in CA-G.R. CV No.
48580 are NULLIFIED. Civil Case No. Q-91-10541 is DISMISSED for lack of merit.

Costs against respondent.

 Aznar vs Citi Bank

Before this Court is a Petition for Review assailing the Decision 1 of the Court of Appeals (CA) in CA-
G.R. CV No. 62554 dated January 30, 2004 which set aside the November 25, 1998 Order of the
Regional Trial Court (RTC) Branch 10, Cebu City and reinstated the Decision of RTC Branch 20 of
Cebu City dated May 29, 1998 in Civil Case No. CEB-16474; and the CA Resolution dated May 26,
2004 denying petitioner’s motion for reconsideration.

The facts are as follows:

Emmanuel B. Aznar (Aznar), a known businessman 2 in Cebu, is a holder of a Preferred Master
Credit Card (Mastercard) bearing number 5423-3920-0786-7012 issued by Citibank with a credit
limit of ₱150,000.00. As he and his wife, Zoraida, planned to take their two grandchildren, Melissa
and Richard Beane, on an Asian tour, Aznar made a total advance deposit of ₱485,000.00 with
Citibank with the intention of increasing his credit limit to ₱635,000.00. 3

With the use of his Mastercard, Aznar purchased plane tickets to Kuala Lumpur for his group worth
₱237,000.00. On July 17, 1994, Aznar, his wife and grandchildren left Cebu for the said destination. 4

Aznar claims that when he presented his Mastercard in some establishments in Malaysia, Singapore
and Indonesia, the same was not honored. 5 And when he tried to use the same in Ingtan Tour and
Travel Agency (Ingtan Agency) in Indonesia to purchase plane tickets to Bali, it was again
dishonored for the reason that his card was blacklisted by Citibank. Such dishonor forced him to buy
the tickets in cash.6 He further claims that his humiliation caused by the denial of his card was
aggravated when Ingtan Agency spoke of swindlers trying to use blacklisted cards. 7 Aznar and his
group returned to the Philippines on August 10, 1994. 8
On August 26, 1994, Aznar filed a complaint for damages against Citibank, docketed as Civil Case
No. CEB-16474 and raffled to RTC Branch 20, Cebu City, claiming that Citibank fraudulently or with
gross negligence blacklisted his Mastercard which forced him, his wife and grandchildren to abort
important tour destinations and prevented them from buying certain items in their tour. 9 He further
claimed that he suffered mental anguish, serious anxiety, wounded feelings, besmirched reputation
and social humiliation due to the wrongful blacklisting of his card. 10 To prove that Citibank blacklisted
his Mastercard, Aznar presented a computer print-out, denominated as ON-LINE
AUTHORIZATIONS FOREIGN ACCOUNT ACTIVITY REPORT, issued to him by Ingtan Agency
(Exh. "G") with the signature of one Victrina Elnado Nubi (Nubi) 11 which shows that his card in
question was "DECL OVERLIMIT" or declared over the limit. 12

Citibank denied the allegation that it blacklisted Aznar’s card. It also contended that under the terms
and conditions governing the issuance and use of its credit cards, Citibank is exempt from any
liability for the dishonor of its cards by any merchant affiliate, and that its liability for any action or
incident which may be brought against it in relation to the issuance and use of its credit cards is
limited to ₱1,000.00 or the actual damage proven whichever is lesser.13

To prove that they did not blacklist Aznar’s card, Citibank’s Credit Card Department Head, Dennis
Flores, presented Warning Cancellation Bulletins which contained the list of its canceled cards
covering the period of Aznar’s trip.14

On May 29, 1998, RTC Branch 20, Cebu City, through Judge Ferdinand J. Marcos, rendered its
decision dismissing Aznar’s complaint for lack of merit. 15 The trial court held that as between the
computer print-out16 presented by Aznar and the Warning Cancellation Bulletins 17 presented by
Citibank, the latter had more weight as their due execution and authenticity were duly established by
Citibank.18 The trial court also held that even if it was shown that Aznar’s credit card was dishonored
by a merchant establishment, Citibank was not shown to have acted with malice or bad faith when
the same was dishonored.19

Aznar filed a motion for reconsideration with motion to re-raffle the case saying that Judge Marcos
could not be impartial as he himself is a holder of a Citibank credit card. 20 The case was re-
raffled21 and on November 25, 1998, the RTC, this time through Judge Jesus S. De la Peña of
Branch 10 of Cebu City, issued an Order granting Aznar’s motion for reconsideration, as follows:

WHEREFORE, the Motion for Reconsideration is hereby GRANTED. The DECISION dated May 29,
1998 is hereby reconsidered, and consequently, the defendant is hereby condemned liable to pay
the following sums of money:

a) ₱10,000,000.00 as moral damages;

b) ₱5,000,000.00 as exemplary damages;

c) ₱1,000,000.00 as attorney’s fees; and

d) ₱200,000.00 as litigation expenses.22

Judge De la Peña ruled that: it is improbable that a man of Aznar’s stature would fabricate Exh. "G"
or the computer print-out which shows that Aznar’s Mastercard was dishonored for the reason that it
was declared over the limit; Exh. "G" was printed out by Nubi in the ordinary or regular course of
business in the modern credit card industry and Nubi was not able to testify as she was in a foreign
country and cannot be reached by subpoena; taking judicial notice of the practice of automated teller
machines (ATMs) and credit card facilities which readily print out bank account status, Exh. "G" can
be received as prima facie evidence of the dishonor of Aznar’s Mastercard; no rebutting evidence
was presented by Citibank to prove that Aznar’s Mastercard was not dishonored, as all it proved was
that said credit card was not included in the blacklisted cards; when Citibank accepted the additional
deposit of ₱485,000.00 from Aznar, there was an implied novation and Citibank was obligated to
increase Aznar’s credit limit and ensure that Aznar will not encounter any embarrassing situation
with the use of his Mastercard; Citibank’s failure to comply with its obligation constitutes gross
negligence as it caused Aznar inconvenience, mental anguish and social humiliation; the fine prints
in the flyer of the credit card limiting the liability of the bank to ₱1,000.00 or the actual damage
proven, whichever is lower, is a contract of adhesion which must be interpreted against Citibank. 23

Citibank filed an appeal with the CA and its counsel filed an administrative case against Judge De la
Peña for grave misconduct, gross ignorance of the law and incompetence, claiming among others
that said judge rendered his decision without having read the transcripts. The administrative case
was held in abeyance pending the outcome of the appeal filed by Citibank with the CA. 24 lawphi1.net

On January 30, 2004, the CA rendered its Decision granting Citibank’s appeal thus:

WHEREFORE, the instant appeal is GRANTED. The assailed order of the Regional Trial Court, 7th
Judicial Region, Branch 10, Cebu City, in Civil Case No. CEB-16474, is hereby SET ASIDE and the
decision, dated 29 May 1998 of the Regional Trial Court, 7th Judicial Region, Branch 20, Cebu City
in this case is REINSTATED.

SO ORDERED.25

The CA ruled that: Aznar had no personal knowledge of the blacklisting of his card and only
presumed the same when it was dishonored in certain establishments; such dishonor is not sufficient
to prove that his card was blacklisted by Citibank; Exh. "G" is an electronic document which must be
authenticated pursuant to Section 2, Rule 5 of the Rules on Electronic Evidence 26 or under Section
20 of Rule 132 of the Rules of Court 27 by anyone who saw the document executed or written; Aznar,
however, failed to prove the authenticity of Exh. "G", thus it must be excluded; the unrefuted
testimony of Aznar that his credit card was dishonored by Ingtan Agency and certain establishments
abroad is not sufficient to justify the award of damages in his favor, absent any showing that Citibank
had anything to do with the said dishonor; Citibank had no absolute control over the actions of its
merchant affiliates, thus it should not be held liable for the dishonor of Aznar’s credit card by said
establishments.28

Aznar filed a motion for reconsideration which the CA dismissed in its Resolution dated May 26,
2004.29

Parenthetically, the administrative case against Judge De la Peña was activated and on April 29,
2005, the Court’s Third Division 30 found respondent judge guilty of knowingly rendering an unjust
judgment and ordered his suspension for six months. The Court held that Judge De la Peña erred in
basing his Order on a manifestation submitted by Aznar to support his Motion for Reconsideration,
when no copy of such manifestation was served on the adverse party and it was filed beyond office
hours. The Court also noted that Judge De la Peña made an egregiously large award of damages in
favor of Aznar which opened himself to suspicion.31

Aznar now comes before this Court on a petition for review alleging that: the CA erroneously made
its own factual finding that his Mastercard was not blacklisted when the matter of blacklisting was
already a non-issue in the November 25, 1998 Order of the RTC; the RTC found that Aznar’s
Mastercard was dishonored for the reason that it was declared over the credit limit; this factual
finding is supported by Exh. "G" and by his (Aznar’s) testimony; the issue of dishonor on the ground
of ‘DECL OVERLIMIT’, although not alleged in the complaint, was tried with the implied consent of
the parties and should be treated as if raised in the pleadings pursuant to Section 5, Rule 10 of the
Rules of Civil Procedure; 32 Exh. "G" cannot be excluded as it qualifies as an electronic evidence
following the Rules on Electronic Evidence which provides that print-outs are also originals for
purposes of the Best Evidence Rule; Exh. "G" has remained complete and unaltered, apart from the
signature of Nubi, thus the same is reliable for the purpose for which it was generated; the RTC
judge correctly credited the testimony of Aznar on the issuance of the computer print-out as Aznar
saw that it was signed by Nubi; said testimony constitutes the "other evidence showing the integrity
and reliability of the print-out to the satisfaction of the judge" which is required under the Rules on
Electronic Evidence; the trial court was also correct in finding that Citibank was grossly negligent in
failing to credit the additional deposit and make the necessary entries in its systems to prevent Aznar
from encountering any embarrassing situation with the use of his Mastercard. 33

Citibank, in its Comment, contends that: Aznar never had personal knowledge that his credit card
was blacklisted as he only presumed such fact; the issue of dishonor on the ground that the card
was declared over the limit was also never tried with the implied consent of both parties; Aznar’s
self-serving testimony is not sufficient to prove the integrity and reliability of Exh. "G"; Aznar did not
declare that it was Nubi who printed the document and that said document was printed in his
presence as he merely said that the print-out was provided him; there is also no annotation on Exh.
"G" to establish that it was Nubi who printed the same; assuming further that Exh. "G" is admissible
and Aznar’s credit card was dishonored, Citibank still cannot be held liable for damages as it only
shows that Aznar’s credit card was dishonored for having been declared over the limit; Aznar’s
cause of action against Citibank hinged on the alleged blacklisting of his card which purportedly
caused its dishonor; dishonor alone, however, is not sufficient to award Aznar damages as he must
prove that the dishonor was caused by a grossly negligent act of Citibank; the award of damages in
favor of Aznar was based on Article 1170 34 of the Civil Code, i.e., there was fraud, negligence or
delay in the performance of its obligation; there was no proof, however that Citibank committed fraud
or delay or that it contravened its obligations towards Aznar; the terms and conditions of the credit
card cannot be considered as a contract of adhesion since Aznar was entirely free to reject the card
if he did not want the conditions stipulated therein; a person whose stature is such that he is
expected to be more prudent with respect to his transactions cannot later on be heard to complain
for being ignorant or having been forced into merely consenting to the contract. 35

In his Reply, Aznar contended that to a layman, the term "blacklisting" is synonymous with the words
"hot list" or "declared overlimit"; and whether his card was blacklisted or declared over the limit, the
same was dishonored due to the fault or gross negligence of Citibank. 36

Aznar also filed a Memorandum raising as issues the following:

I. Whether or not the augmentation deposit in the amount of ₱485,000.00 of the Petitioner
constitutes relative extinctive novation;

II. Whether or not the purchases made by Petitioner were beyond his credit limit;

III. Whether or not the issues of dishonor by reason of overlimit was tried with the consent of
the parties;

IV. Whether or not the "On Line Authorization Report" is an electronic document."

V. Whether or not the "On Line Authorization Report" constitutes electronic evidence;
 VI. Whether or not the agreement between the parties is a contract of adhesion;

VII. Whether or not the Respondent is negligent in not crediting the deposits of the
Respondent.37

Aznar further averred in his Memorandum that Citibank assured him that with the use of his
Mastercard, he would never be turned down by any merchant store, and that under Section 43, Rule
130 of the Rules of Court, Exh. "G" is admissible in evidence. 38

Citibank also filed a Memorandum reiterating its earlier arguments. 39

Stripped to its essentials, the only question that needs to be answered is: whether Aznar has
established his claim against Citibank.

The answer is no.

It is basic that in civil cases, the burden of proof rests on the plaintiff to establish his case based on a
preponderance of evidence. The party that alleges a fact also has the burden of proving it. 40

In the complaint Aznar filed before the RTC, he claimed that Citibank blacklisted his Mastercard
which caused its dishonor in several establishments in Malaysia, Singapore, and Indonesia,
particularly in Ingtan Agency in Indonesia where he was humiliated when its staff insinuated that he
could be a swindler trying to use a blacklisted card.

As correctly found by the RTC in its May 29, 1998 Decision, Aznar failed to prove with a
preponderance of evidence that Citibank blacklisted his Mastercard or placed the same on the "hot
list."41

Aznar in his testimony admitted that he had no personal knowledge that his Mastercard was
blacklisted by Citibank and only presumed such fact from the dishonor of his card.

Q Now, paragraph 12 also states and I quote: "its entry in the "hot" list was confirmed to be
authentic".

Now, who confirmed that the blacklisting of your Preferred Citibank Mastercard was authentic?

A. Okey. When I presented this Mastercard, my card rather, at the Merchant’s store, I do not know,
they called up somebody for verification then later they told me that "your card is being denied". So, I
am not in a position to answer that. I do not know whom they called up; where they verified.  So,
when it is denied that’s presumed to be blacklisted.

Q. So the word that was used was denied?

A. Denied.
Q. And after you were told that your card was denied you presumed that it was blacklisted?
A. Definitely.
Q. So your statement that your card was allegedly blacklisted is only your presumption
drawn from the fact, from your allegations, that it was denied at the merchandise store?

A. Yes, sir.42 (Emphasis supplied)

The dishonor of Aznar’s Mastercard is not sufficient to support a conclusion that said credit card was
blacklisted by Citibank, especially in view of Aznar’s own admission that in other merchant
establishments in Kuala Lumpur and Singapore, his Mastercard was accepted and honored. 43

Aznar puts much weight on the ON-LINE AUTHORIZATION FOREIGN ACCOUNT ACTIVITY
REPORT, a computer print-out handed to Aznar by Ingtan Agency, marked as Exh. "G", to prove
that his Mastercard was dishonored for being blacklisted. On said print-out appears the words
"DECL OVERLIMIT" opposite Account No. 5423-3920-0786-7012.

As correctly pointed out by the RTC and the CA, however, such exhibit cannot be considered
admissible as its authenticity and due execution were not sufficiently established by petitioner.

The prevailing rule at the time of the promulgation of the RTC Decision is Section 20 of Rule 132 of
the Rules of Court. It provides that whenever any private document offered as authentic is received
in evidence, its due execution and authenticity must be proved either by (a) anyone who saw the
document executed or written; or (b) by evidence of the genuineness of the signature or handwriting
of the maker.

Aznar, who testified on the authenticity of Exh. "G," did not actually see the document executed or
written, neither was he able to provide evidence on the genuineness of the signature or handwriting
of Nubi, who handed to him said computer print-out. Indeed, all he was able to allege in his
testimony are the following:

Q I show to you a Computer Print Out captioned as On Line Authorization Activity Report where it is
shown that the Preferred Master Card Number 5423392007867012 was denied as per notation on
the margin of this Computer Print Out, is this the document evidencing the dishonor of your
Preferred Master Card?

xxxx

A Yes sir, after that Ingtan incident, I went straight to the Service Agency there and on the left hand
side you will be able to see the name of the person in-charged [sic] there certifying that really my
card is being blacklisted and there is the signature there of the agency.

ATTY. NAVARRO:

The witness, your honor, is pointing to the signature over the handwritten name of Victrina Elnado
Nubi which I pray, your honor, that the Computer Print Out be marked as our Exhibit "G" and the
remarks at the left hand bottom portion of Victorina Elnado Nubi with her signature thereon be
encircled and be marked as our Exhibit "G-1".

xxxx

Q Mr. Aznar, where did you secure this Computer Print Out marked as Exhibit "G"?

A This is provided by that Agency, your honor. They were the ones who provided me with
this. So what the lady did, she gave me the Statement and I requested her to sign to show
proof that my Preferred Master Card has been rejected. 44 (Emphasis supplied).
Even if examined under the Rules on Electronic Evidence, which took effect on August 1, 2001, and
which is being invoked by Aznar in this case, the authentication of Exh. "G" would still be found
wanting.

Pertinent sections of Rule 5 read:

Section 1. Burden of proving authenticity. – The person seeking to introduce an electronic document
in any legal proceeding has the burden of proving its authenticity in the manner provided in this Rule.

Section 2. Manner of authentication. – Before any private electronic document offered as authentic is
received in evidence, its authenticity must be proved by any of the following means:

(a) by evidence that it had been digitally signed by the person purported to have signed the
same;

(b) by evidence that other appropriate security procedures or devices as may be authorized
by the Supreme Court or by law for authentication of electronic documents were applied to
the document; or

(c) by other evidence showing its integrity and reliability to the satisfaction of the judge.

Aznar claims that his testimony complies with par. (c), i.e., it constitutes the "other evidence showing
integrity and reliability of Exh. "G" to the satisfaction of the judge." The Court is not convinced.
Aznar’s testimony that the person from Ingtan Agency merely handed him the computer print-out
and that he thereafter asked said person to sign the same cannot be considered as sufficient to
show said print-out’s integrity and reliability. As correctly pointed out by Judge Marcos in his May 29,
1998 Decision, Exh. "G" does not show on its face that it was issued by Ingtan Agency as Aznar
merely mentioned in passing how he was able to secure the print-out from the agency; Aznar also
failed to show the specific business address of the source of the computer print-out because while
the name of Ingtan Agency was mentioned by Aznar, its business address was not reflected in the
print-out.45

Indeed, Aznar failed to demonstrate how the information reflected on the print-out was generated
and how the said information could be relied upon as true. In fact, Aznar to repeat, testified as
follows:

ATTY. NERI

Q Now, paragraph 12 also states and I quote: "its entry in the "hot" list was confirmed to be
authentic"

Now, who confirmed that the blacklisting of your Preferred Citibank Mastercard was authentic?

A Okey. When I presented this Mastercard, my card rather, at the Merchant’s store, I do not know,
they called up somebody for verification then later they told me that "your card is being denied". So, I
am not in a position to answer that. I do not know whom they called up; where they verified. So,
when it is denied that’s presumed to be blacklisted.46 (Emphasis supplied)

Aznar next invokes Section 43 of Rule 130 of the Rules of Court, which pertains to entries in the
course of business, to support Exh. "G". Said provision reads:
Sec. 43. Entries in the course of business. – Entries made at, or near the time of the transactions to
which they refer, by a person deceased or unable to testify, who was in a position to know the facts
therein stated, may be received as prima facie evidence, if such person made the entries in his
professional capacity or in the performance of duty and in the ordinary or regular course of business
or duty.

Under this rule, however, the following conditions are required:

1. the person who made the entry must be dead, or unable to testify;

2. the entries were made at or near the time of the transactions to which they refer;

3. the entrant was in a position to know the facts stated in the entries;

4. the entries were made in his professional capacity or in the performance of a duty,
whether legal, contractual, moral or religious; and

5. the entries were made in the ordinary or regular course of business or duty. 47

As correctly pointed out by the RTC in its May 29, 1998 Decision, there appears on the computer
print-out the name of a certain "Victrina Elnado Nubi" and a signature purportedly belonging to her,
and at the left dorsal side were handwritten the words "Sorry for the delay since the records had to
be retrieved. Regards. Darryl Mario." It is not clear therefore if it was Nubi who encoded the
information stated in the print-out and was the one who printed the same. The handwritten
annotation signed by a certain Darryl Mario even suggests that it was Mario who printed the same
and only handed the print-out to Nubi. The identity of the entrant, required by the provision above
mentioned, was therefore not established. Neither did petitioner establish in what professional
capacity did Mario or Nubi make the entries, or whether the entries were made in the performance of
their duty in the ordinary or regular course of business or duty.

And even if Exh. "G" is admitted as evidence, it only shows that the use of the credit card of
petitioner was denied because it was already over the limit. There is no allegation in the Complaint
or evidence to show that there was gross negligence on the part of Citibank in declaring that the
credit card has been used over the limit.

The Court is also perplexed that stated on Exh. "G" is the amount of "6,289,195.10" opposite
petitioner's account number, which data, petitioner did not clarify. 48 As plaintiff in this case, it was
incumbent on him to prove that he did not actually incur the said amount which is above his credit
limit. As it is, the Court cannot see how Exh. "G" could help petitioner's claim for damages.

The claim of petitioner that Citibank blacklisted his card through fraud or gross negligence is likewise
effectively negated by the evidence of Citibank which was correctly upheld by the RTC and the CA,
to wit:

xxx Mr. Dennis Flores, the Head of the Credit Card Department of defendant Bank, presented
documents known as Warning Cancellation Bulletin for July 10, 17, 24, and 31, 1994 (Exhibits ‘3’, ‘3-
1’ to ‘3-38’, ‘4’, ‘4-1’ to ‘4-38’ ‘5’, ‘5-1’ to ‘5-39’ and ‘6’, ‘6-1’ to ‘6-39’), for August 7, 1994 (Exhibit[s]
‘7’, ‘7-1’ to ‘7-37’), for August 8, 1994 (Exhibit[s] ‘8’, ‘8-1’ to ‘8-20’) which show that plaintiff’s Citibank
preferred mastercard was not placed in a hot list or was not blacklisted.
The Warning Cancellation Bulletins (WCB) (Exhibits ‘3’, ‘4’, ‘5’, ‘6’, ‘7’, ‘8’ and their submarkings)
which covered the period of four (4) days in July 1994 (from July 10, 17, 24 and 31, 1994), and two
(2) days in August 1994, (August 7 and 8, 1994), when plaintiff traveled in the aforementioned Asian
countries showed that said Citibank preferred mastercard had never been placed in a ‘hot list’ or the
same was blacklisted, let alone the fact that all the credit cards which had been cancelled by the
defendant bank were all contained, reported and listed in said Warning Cancellation Bulletin which
were issued and released on a regular basis.

These three hundred (300) Warning Cancellation Bulletins pieces of documentary proofs, all in all,
adduced by defendant pointed to the fact that said plaintiff’s credit car (sic) was not among those
found in said bulletins as having been cancelled for the period for which the said bulletins had been
issued.

Between said computer print out (Exhibit ‘G’) and the Warning Cancellation Bulletins (Exhibits ‘3’ to
‘8’ and their submarkings) the latter documents adduced by defendant are entitled to greater weight
than that said computer print out presented by plaintiff that bears on the issue of whether the
plaintiff’s preferred master card was actually placed in the ‘hot list’ or blacklisted for the following
reasons:

The first reason is that the due execution and authentication of these Warning Cancellation Bulletins
(or WCB) have been duly established and identified by defendant’s own witness, Dennis Flores, one
of the bank’s officers, who is the head of its credit card department, and, therefore, competent to
testify on the said bulletins as having been issued by the defendant bank showing that plaintiff’s
preferred master credit card was never blacklisted or placed in the Bank’s ‘hot list’. But on the other
hand, plaintiff’s computer print out (Exhibit ‘G’) was never authenticated or its due execution had
never been duly established. Thus, between a set of duly authenticated commercial documents, the
Warning Cancellation Bulletins (Exhibits ‘3’ to ‘8’ and their submarkings), presented by defendants
(sic) and an unauthenticated private document, plaintiff’s computer print out (Exhibit ‘G’), the former
deserves greater evidentiary weight supporting the findings of this Court that plaintiff’s preferred
master card (Exhibit ‘1’) had never been blacklisted at all or placed in a so-called ‘hot list’ by
defendant.49

Petitioner next argues that with the additional deposit he made in his account which was accepted
by Citibank, there was an implied novation and Citibank was under the obligation to increase his
credit limit and make the necessary entries in its computerized systems in order that petitioner may
not encounter any embarrassing situation with the use of his credit card. Again, the Court finds that
petitioner's argument on this point has no leg to stand on.

Citibank never denied that it received petitioner’s additional deposit. 50 It even claimed that petitioner
was able to purchase plane tickets from Cebu to Kuala Lumpur in the amount of ₱237,170.00, which
amount was beyond his ₱150,000.00 limit, because it was able to credit petitioner’s additional
deposit to his account. Flores of Citibank testified:

COURT:

Q When was this ticket purchased, after the account was augmented

or before?

A After the account was augmented, Your Honor, because there is no way we can approve a
P250,000.00 purchase with a P150,000.00 credit limit. 51
xxx

ATTY. NERI:

For the record, your honor, the deposit of P450,000.00 was made as per exhibit of the plaintiff
on June 28. The purchase of the tickets amount to P237,000.00 was approved and debited on
the account of Mr. Aznar on July 20, your honor. The deposit was made about a month before
the purchase of the tickets as per documentary exhibits, your honor.

COURT:

So, Atty. Navarro, what do you say to that explanation?

ATTY. NAVARRO [counsel of petitioner]:

That is correct, your honor, that is borne out by the records, your honor. (Emphasis supplied)

COURT: (to witness)

Q So, I think Atty. Navarro is only after whether a credit line could be extended?

A Yes, your honor.

Q Even if there is no augmenting?

A No, sir, it is not possible. So, the only way the ₱237,000.00 transaction could be approved
was by way of advance payment which actually happened in this case because there is no
way that the ₱237,000.00 can be approved with the ₱150,000.00 credit limit.52 (Emphasis
supplied)

The allegations of blacklisting not having been proved, is Citibank liable for damages for the
dishonor of Aznar’s Mastercard?

Again, the answer is no.

Citibank, in its attempt to evade liability, invokes paragraphs 7 and 15 of the terms and conditions
governing the issuance of its Mastercard which read:

7. MERCHANT AFFILIATES. [Citibank is] not responsible if the Card is not honored by any
merchant affiliate for any reason. Furthermore, [the cardholder] will not hold [Citibank] responsible
for any defective product or service purchased through the Card.

xxxx

15. LIMITATION OF LIABILITY. In any action arising from this agreement or any incident thereto
which [the cardholder] or any other party may file against [Citibank], [Citibank’s] liability shall not
exceed One Thousand Pesos [₱1,000.00] or the actual damages proven, whichever is lesser. 53

On this point, the Court agrees with Aznar that the terms and conditions of Citibank’s Mastercard
constitute a contract of adhesion. It is settled that contracts between cardholders and the credit card
companies are contracts of adhesion, so-called, because their terms are prepared by only one party
while the other merely affixes his signature signifying his adhesion thereto. 54

In this case, paragraph 7 of the terms and conditions states that "[Citibank is] not responsible if the
Card is not honored by any merchant affiliate for any reason x x x". While it is true that Citibank may
have no control of all the actions of its merchant affiliates, and should not be held liable therefor, it is
incorrect, however, to give it blanket freedom from liability if its card is dishonored by any merchant
affiliate for any reason. Such phrase renders the statement vague and as the said terms and
conditions constitute a contract of adhesion, any ambiguity in its provisions must be construed
against the party who prepared the contract,55 in this case Citibank.

Citibank also invokes paragraph 15 of its terms and conditions which limits its liability to ₱1,000.00
or the actual damage proven, whichever is lesser.

Again, such stipulation cannot be considered as valid for being unconscionable as it precludes
payment of a larger amount even though damage may be clearly proven. This Court is not precluded
from ruling out blind adherence to the terms of a contract if the attendant facts and circumstances
show that they should be ignored for being obviously too one-sided. 56

The invalidity of the terms and conditions being invoked by Citibank, notwithstanding, the Court still
cannot award damages in favor of petitioner.

It is settled that in order that a plaintiff may maintain an action for the injuries of which he complains,
he must establish that such injuries resulted from a breach of duty which the defendant owed to the
plaintiff – a concurrence of injury to the plaintiff and legal responsibility by the person causing it. The
underlying basis for the award of tort damages is the premise that an individual was injured in
contemplation of law; thus there must first be a breach before damages may be awarded and the
breach of such duty should be the proximate cause of the injury. 57

It is not enough that one merely suffered sleepless nights, mental anguish or serious anxiety as a
result of the actuations of the other party. It is also required that a culpable act or omission was
factually established, that proof that the wrongful act or omission of the defendant is shown as the
proximate cause of the damage sustained by the claimant and that the case is predicated on any of
the instances expressed or envisioned by Arts. 2219 58 and 222059 of the Civil Code.60

In culpa contractual or breach of contract, moral damages are recoverable only if the defendant has
acted fraudulently or in bad faith, or is found guilty of gross negligence amounting to bad faith, or
in wanton disregard of his contractual obligations. The breach must be wanton, reckless, malicious
or in bad faith, oppressive or abusive.61

While the Court commiserates with Aznar for whatever undue embarrassment he suffered when his
credit card was dishonored by Ingtan Agency, especially when the agency’s personnel insinuated
that he could be a swindler trying to use blacklisted cards, the Court cannot grant his present petition
as he failed to show by preponderance of evidence that Citibank breached any obligation that would
make it answerable for said suffering.

As the Court pronounced in BPI Express Card Corporation v. Court of Appeals, 62

We do not dispute the findings of the lower court that private respondent suffered damages as a
result of the cancellation of his credit card. However, there is a material distinction between
damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or harm
which results from the injury; and damages are the recompense or compensation awarded for the
damage suffered. Thus, there can be damage without injury to those instances in which the loss or
harm was not the result of a violation of a legal duty. In such cases, the consequences must be
borne by the injured person alone, the law affords no remedy for damages resulting from an act
which does not amount to a legal injury or wrong. These situations are often called damnum absque
injuria.63

WHEREFORE, the petition is denied for lack of merit.

SO ORDERED.

Hermosisima vs CA

An appeal by certiorari, taken by petitioner Francisco Hermosisima, from a decision of Court of

Appeals modifying that of the Court of First Instance of Cebu. virtual law library

On October 4, 1954, Soledad Cagigas, hereinafter referred to as complaint, filed with said of
her child, Chris Hermosisima, as natural child and moral damages for alleged breach of promise.
Petitioner admitted the paternity of child and expressed willingness to support the latter, but denied
having ever promised to marry the complainant. Upon her motion, said court ordered petitioner, on
October 27, 1954, to pay, by way of alimony pendente lite, P50.00 a month, which was, on February
16, 1955, reduced to P30.00 a month. In due course, later on, said court rendered a decision the
dispositive part of which reads:

WHEREFORE, judgment is hereby rendered, declaring the child, Chris Hermosisima, as the
natural daughter of defendant, and confirming the order pendente lite, ordering defendant to pay to
the said child, through plaintiff, the sum of thirty pesos (P30.00), payable on or before the fifth day of
every month sentencing defendant to pay to plaintiff the sum of FOUR THOUSAND FIVE
HUNDRED PESOS (P4,500.00) for actual and compensatory damages; the sum of FIVE
THOUSAND PESOS (P5,000.00) as moral damages; and the further sum of FIVE HUNDRED
PESOS (P500.00) as attorney's fees for plaintiff, with costs against defendant.

On appeal taken by petitioner, the Court of Appeals affirmed this decision, except as to the
actual and compensatory damages and the moral damages, which were increased to P5,614.25 and
P7,000.00, respectively.

The main issue before us is whether moral damages are recoverable, under our laws, for
breach of promise to marry. The pertinent facts are:chanrobles virtual law library

Complainant Soledad Cagigas, was born in July 1917. Since 1950, Soledad then a teacher in
the Sibonga Provincial High School in Cebu, and petitioner, who was almost ten (10) years younger
than she, used to go around together and were regarded as engaged, although he had made no
promise of marriage prior thereto. In 1951, she gave up teaching and became a life insurance
underwriter in the City of Cebu, where intimacy developed among her and the petitioner, since one
evening in 1953, when after coming from the movies, they had sexual intercourse in his cabin on
board M/V "Esca�o," to which he was then attached as apprentice pilot. In February 1954, Soledad
advised petitioner that she was in the family way, whereupon he promised to marry her. Their child,
Chris Hermosisima, was born on June 17, 1954, in a private maternity and clinic. However,
subsequently, or on July 24, 1954, defendant married one Romanita Perez. Hence, the present
action, which was commenced on or about October 4, 1954.chanroblesvirtualawlibrarychanrobles
virtual law library

Referring now to the issue above referred to, it will be noted that the Civil Code of Spain
permitted the recovery of damages for breach to marry. Article 43 and 44 of said Code provides:

ART. 43. A mutual promise of marriage shall not give rise to an obligation to contract
marriage. No court shall entertain any complaint by which the enforcement of such promise is
sought.

ART. 44. If the promise has been in a public or private instrument by an adult, or by a minor
with the concurrence of the person whose consent is necessary for the celebration of the marriage,
or if the banns have been published, the one who without just cause refuses to marry shall be
obliged to reimburse the other for the expenses which he or she may have incurred by reason of the
promised marriage.

The action for reimbursement of expenses to which the foregoing article refers must be
brought within one year, computed from the day of the refusal to celebrate the marriage.

Inasmuch as these articles were never in force in the Philippines, this Court ruled in De Jesus
vs. Syquia (58 Phil., 866), that "the action for breach of promises to marry has no standing in the civil
law, apart from the right to recover money or property advanced . . . upon the faith of such promise".
The Code Commission charged with the drafting of the Proposed Civil Code of the Philippines deem
it best, however, to change the law thereon. We quote from the report of the Code Commission on
said Proposed Civil Code:

Articles 43 and 44 the Civil Code of 1889 refer to the promise of marriage. But these articles
are not enforced in the Philippines. The subject is regulated in the Proposed Civil Code not only as
to the aspect treated of in said articles but also in other particulars. It is advisable to furnish
legislative solutions to some questions that might arise relative to betrothal. Among the provisions
proposed are: That authorizing the adjudication of moral damages, in case of breach of promise of
marriage, and that creating liability for causing a marriage engagement to be broken.

Accordingly, the following provisions were inserted in said Proposed Civil Code, under
Chapter I, Title III, Book I thereof:

Art. 56. A mutual promise to marry may be made expressly or impliedly.

Art. 57. An engagement to be married must be agreed directly by the future spouses.

Art. 58. A contract for a future marriage cannot, without the consent of the parent or guardian, be
entered into by a male between the ages of sixteen and twenty years or by a female between the
ages of sixteen and eighteen years. Without such consent of the parents or guardian, the
engagement to marry cannot be the basis of a civil action for damages in case of breach of the
promise

Art. 59. A promise to marry when made by a female under the age of fourteen years is not civilly
actionable, even though approved by the parent or guardian virtual law library

Art. 60. In cases referred to in the proceeding articles, the criminal and civil responsibility of a male
for seduction shall not be affected.

Art. 61. No action for specific performance of a mutual promise to marry may be brought.

Art. 62. An action for breach of promise to marry may be brought by the aggrieved party even though
a minor without the assistance of his parent or guardian. Should the minor refuse to bring suit, the
parent or guardian may institute the action.

Art. 63. Damages for breach of promise to marry shall include not only material and pecuniary losses
but also compensation for mental and moral suffering. library

Art. 64. Any person, other than a rival, the parents, guardians and grandparents, of the affianced
parties, who cause a marriage engagement to be broken shall be liable for damages, both material
and moral, to the engaged person who is rejected.

Art. 65. In case of breach of promise to marry, the party breaking the engagement shall be obliged to
return what he or she has received from the other as gift on account of the promise of the marriage.

These article were, however, eliminated in Congress. The reason therefor are set forth in the
report of the corresponding Senate Committee, from which we quote:

The elimination of this Chapter is proposed. That breach of promise to marry is not actionable
has been definitely decide in the case of De Jesus vs. Syquia, 58 Phil., 866. The history of breach of
promise suit in the United States and in England has shown that no other action lends itself more
readily to abuse by designing women and unscrupulous men. It is this experience which has led to
the abolition of the rights of action in the so-called Balm suit in many of the American States.

See statutes of:

Florida 1945 - pp. 1342 - 1344

Maryland 1945 - pp. 1759 - 1762

Nevada 1943 - p. 75

Maine 1941 - pp. 140 - 141

New Hampshire 1941 - p. 223

California 1939 - p. 1245

Massachusetts 1938 - p. 326

Indiana 1936 - p. 1009

Michigan 1935 - p. 201

New York 1935

Pennsylvania p. 450

The Commission perhaps though that it has followed the more progression trend in legislation
when it provided for breach of promise to marry suits. But it is clear that the creation of such causes
of action at a time when so many States, in consequence of years of experience are doing away with
them, may well prove to be a step in the wrong direction. (Congressional Record, Vol. IV, No. 79,
Thursday, May 19, 1949, p. 2352.)

The views thus expressed were accepted by both houses of Congress. In the light of the clear
and manifest intent of our law making body not to sanction actions for breach of promise to marry,
the award of moral damages made by the lower courts is, accordingly, untenable. The Court of
Appeals said award:

Moreover, it appearing that because of defendant-appellant's seduction power, plaintiff-

appellee, overwhelmed by her love for him finally yielded to his sexual desires in spite of her age
and self-control, she being a woman after all, we hold that said defendant-appellant is liable for
seduction and, therefore, moral damages may be recovered from him under the provision of Article
2219, paragraph 3, of the new Civil Code.

Apart from the fact that the general tenor of said Article 2219, particularly the paragraphs
preceding and those following the one cited by the Court of Appeals, and the language used in said
paragraph strongly indicates that the "seduction" therein contemplated is the crime punished as such
in Article as such in Article 337 and 338 of the Revised Penal Code, which admittedly does not exist
in the present case, we find ourselves unable to say that petitioner is morally guilty of seduction, not
only because he is approximately ten (10) years younger than the complainant - who around thirty-
six (36) years of age, and as highly enlightened as a former high school teacher and a life insurance
agent are supposed to be - when she became intimate with petitioner, then a mere apprentice pilot,
but, also, because, the court of first instance found that, complainant "surrendered herself" to
petitioner because, "overwhelmed by her love" for him, she "wanted to bind" "by having a fruit of
their engagement even before they had the benefit of clergy."chanrobles virtual law library

The court of first instance sentenced petitioner to pay the following: (1) a monthly pension of
P30.00 for the support of the child: (2) P4,500, representing the income that complainant had
allegedly failed to earn during her pregnancy and shortly after the birth of the child, as actual and
compensation damages; (3) P5,000, as moral damages; and (4) P500.00, as attorney's fees. The
Court of Appeals added to the second item the sum of P1,114.25 - consisting of P144.20, for
hospitalization and medical attendance, in connection with the parturiation, and the balance
representing expenses incurred to support the child - and increased the moral damages to
P7,000.00.

With the elimination of this award for damages, the decision of the Court of Appeals is hereby
affirmed, therefore, in all other respects, without special pronouncement as to cost in this instance. It
is so ordered.

Andrada vs Pelhino Sales Corporation

An appeal by petition for review on certiorari under Rule 45 shall raise only questions of law. Thus,
the herein petition for review must fail for raising a question essentially of fact.
Antecedents

On December 28, 1990, respondent Pilhino Sales Corporation (Pilhino) sued Jose Andrada, Jr. and
his wife, Maxima, in the Regional Trial Court in Davao City (RTC) to recover the principal sum of
₱240,863.00, plus interest and incidental charges (Civil Case No. 20,489-90). Upon Pilhino’s
application, the RTC issued a writ of preliminary attachment, which came to be implemented against
a Hino truck and a Fuso truck both owned by Jose Andrada, Jr. However, the levies on attachment
were lifted after Jose filed a counter-attachment bond.

In due course, the RTC rendered a decision against Jose Andrada, Jr. and his wife. Pilhino opted to
enforce the writ of execution against the properties of the Andradas instead of claiming against the
counter-attachment bond considering that the premium on the bond had not been paid. As a result,
the sheriff seized the Hino truck and sold it at the ensuing public auction, with Pilhino as the highest
bidder. However, the Hino truck could not be transferred to Pilhino’s name due to its having been
already registered in the name of petitioner Moises Andrada. It appears that the Hino truck had been
meanwhile sold by Jose Andrada, Jr. to Moises Andrada, which sale was unknown to Pilhino, and
that Moises had mortgaged the truck to BA Finance Corporation (BA Finance) to secure his own
obligation.

BA Finance sued Moises Andrada for his failure to pay the loan (Civil Case No. 5117). After a
decision was rendered in the action in favor of BA Finance, a writ of execution issued, by which the
sheriff levied upon and seized the Hino truck while it was in the possession of Pilhino and sold it at
public auction, with BA Finance as the highest bidder.

Consequently, Pilhino instituted this action in the RTC in Davao City against Spouses Jose Andrada,
Jr. and Maxima Andrada, Spouses Moises Andrada and Clemencia Andrada, Jose Andrada, Sr., BA
Finance, Land Transportation Office (in Surallah, South Cotabato), and the Registrar of Deeds of
General Santos City to annul the following: (a) the deed of sale between Jose Andrada, Jr. and
Moises Andrada; (b) the chattel mortgage involving the Hino truck between Moises Andrada and BA
Finance; (c) the deed of conveyance executed by Jose Andrada, Jr. in favor of his father, Jose
Andrada, Sr., involving a hard-top jeep; and (d) the certificate of registration of the Hino truck in the
name of Moises Andrada as well as the registration of the chattel mortgage with the Registry of
Deeds of General Santos City. The action was docketed as Civil Case No. 21,898-93.

Of the Andradas who were defendants in Civil Case No. 21,898-93, only Moises Andrada and his
wife filed their responsive pleading. Later on, Jose Andrada, Jr. and his wife and Pilhino submitted a
compromise agreement dated August 20, 1993. They submitted a second compromise agreement
dated March 4, 1994 because the first was found to be defective and incomplete. The RTC
thereafter rendered a partial judgment on March 21, 1994 based on the second compromise
agreement. After that, further proceedings were taken in Civil Case No. 21,898-93 only with respect
to Moises Andrada and his wife, and BA Finance.

Moises Andrada and his wife averred as defenses that they had already acquired the Hino truck
from Jose Andrada, Jr. free from any lien or encumbrance prior to its seizure by the sheriff pursuant
to the writ of execution issued in Civil Case No. 20,489-90; that their acquisition had been made in
good faith, considering that at the time of the sale the preliminary attachment had already been
lifted; and that Pilhino’s recourse was to proceed against the counter-attachment bond.

For its part, BA Finance claimed lack of knowledge of the truth of the material allegations of the
complaint of Pilhino; and insisted that the Hino truck had been validly mortgaged to it by Moises
Andrada, the lawful owner, to secure his own valid obligation.
On March 25, 1998, the RTC, citing the compromise agreement between Pilhino and Jose Andrada,
Jr. that had settled all the claims of Pilhino against Jose Andrada, Jr., and the good faith of Pilhino
and BA Finance in filing their respective actions, rendered its decision in Civil Case No. 21,898-
93,1 disposing:

WHEREFORE, judgment is rendered dismissing this case insofar as the spouses Moises Andrada
and Clemencia Andrada, Jose Andrada, Sr. and BA Finance Corporation, now accordingly BA
Savings Bank, including the counterclaims.

SO ORDERED.

Spouses Moises and Clemencia Andrada appealed the decision rendered on March 25, 1998 to the
extent that the RTC thereby: (a) dismissed their counterclaim; (b) declared that the deed of sale of
the Hino truck between Jose Andrada, Jr. and Moises Andrada had been simulated; and (c)
approved the compromise agreement between Pilhino and Spouses Jose Andrada, Jr. and Maxima
Andrada.

On December 13, 2001, the Court of Appeals (CA) promulgated its decision, as follows: 2

WHEREFORE, the judgment appealed from is AFFIRMED with the modification that the sale of the
Hino truck by defendant Jose Andrada, Jr. in favor of defendant-appellant Moises Andrada is
declared valid, subject to the rights of BA Finance as mortgagee and highest bidder.

SO ORDERED.

Spouses Moises and Clemencia Andrada are now before the Court via petition for review on
certiorari to pose the following issues: 3

1. Whether or not Pilhino should be held liable for the damages the petitioners sustained
from Pilhino’s levy on execution upon the Hino truck under Civil Case No. 20,489-90; and

2. Whether or not Pilhino was guilty of bad faith when it proceeded with the levy on execution
upon the Hino truck owned by Moises Andrada.

Ruling

We find no merit in the petition for review.

The petitioners assail the decision promulgated by the CA to the extent that it denied their claim for
the damages they had sought by way of counterclaim. They anchored their claim on Article 21 of the
Civil Code, which provides that "any person who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall compensate the latter for
damage."

Article 21 of the Civil Code, in conjunction with Article 19 of the Civil Code, is part of the cause of
action known in this jurisdiction as "abuse of rights." The elements of abuse of rights are: (a) there is
a legal right or duty; (b) exercised in bad faith; and (c) for the sole intent of prejudicing or injuring
another.4

In its assailed decision, the CA found that Pilhino had acted in good faith in bringing Civil Case No.
21,898-93 to annul the deed of sale involving the Hino truck executed by Jose Andrada, Jr. in favor
of Moises Andrada, considering that Pilhino had "believed that the sale in favor of defendants-
appellants [had been] resorted to so that Jose Andrada [might] evade his obligations." 5 The CA
concluded that no remedy was available for any damages that the petitioners sustained from the
filing of Civil Case No. 21,898-93 against them because "the law affords no remedy for such
damages resulting from an act which does not amount to a legal injury or wrong." 6

Worthy to note is that the CA’s finding and conclusion rested on the RTC’s own persuasion that the
sale of the Hino truck to Moises Andrada had been simulated. 7

Yet, the petitioners still insist in this appeal that both lower courts erred in their conclusion on the
absence of bad faith on the part of Pilhino.

We cannot side with the petitioners. Their insistence, which represents their disagreement with the
CA’s declaration that the second and third elements of abuse of rights, supra, were not established,
requires the consideration and review of factual issues. Hence, this appeal cannot succeed, for an
appeal by petition for review on certiorari cannot determine factual issues. In the exercise of its
power of review, the Court is not a trier of facts and does not normally undertake the re-examination
of the evidence presented by the contending parties during the trial. Perforce, the findings of fact by
the CA are conclusive and binding on the Court. This restriction of the review to questions of law has
been institutionalized in Section 1, Rule 45 of the Rules of Court, viz:

Section 1. Filing of petition with Supreme Court. — A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial
Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition
for review on certiorari. The petition shall raise only questions of law which must be distinctly set
forth. (1a, 2a)8

It is true that the Court has, at times, allowed exceptions from the restriction. Among the recognized
exceptions are the following, to wit:9

(a) When the findings are grounded entirely on speculation, surmises, or conjectures;

(b) When the inference made is manifestly mistaken, absurd, or impossible;

(c) When there is grave abuse of discretion;

(d) When the judgment is based on a misapprehension of facts;

(e) When the findings of facts are conflicting;

(f) When in making its findings the CA went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the appellee;

(g) When the CA’s findings are contrary to those by the trial court;

(h) When the findings are conclusions without citation of specific evidence on which they are
based;

(i) When the facts set forth in the petition as well as in the petitioner’s main and reply briefs
are not disputed by the respondent;
 (j) When the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; or

(k) When the CA manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion.

However, the circumstances of this case do not warrant reversing or modifying the findings of the
CA, which are consistent with the established facts. Verily, the petitioners did not prove the
concurrence of the elements of abuse of rights.

The petitioners further seek attorney’s fees based on Article 2208 (4) of the Civil Code, which
provides that "in the absence of stipulation, attorney’s fees and expenses of litigation, other than
judicial costs, cannot be recovered, except xxx (4) in cases of clearly unfounded civil action or
proceeding against the plaintiff xxx."

The petitioners are not entitled to attorney’s fees.

It is well accepted in this jurisdiction that no premium should be placed on the right to litigate and
that not every winning party is entitled to an automatic grant of attorney’s fees. 10 Indeed, before the
effectivity of the new Civil Code, such fees could not be recovered in the absence of a stipulation. 11 It
was only with the advent of the new Civil Code that the right to collect attorney’s fees in the
instances mentioned in Article 2208 was recognized, 12 and such fees are now included in the
concept of actual damages. 13 One such instance is where the defendant is guilty of gross and
evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim. 14 This is
a corollary of the general principle expressed in Article 19 of the Civil Code that everyone must, in
the performance of his duties, observe honesty and good faith and the rule embodied in Article 1170
that anyone guilty of fraud (bad faith) in the performance of his obligation shall be liable for
damages.

But, as noted by the Court in Morales v. Court of Appeals, 15 the award of attorney’s fees is the
exception rather than the rule. The power of a court to award attorney’s fees under Article 2208 of
the Civil Code demands factual, legal, and equitable justification; its basis cannot be left to
speculation and conjecture. 16 The general rule is that attorney’s fees cannot be recovered as part of
damages because of the policy that no premium should be placed on the right to litigate. 17 1avvphi1

Herein, the element of bad faith on the part of Pilhino in commencing and prosecuting Civil Case No.
21,898-93, which was necessary to predicate the lawful grant of attorney’s fees based on Article
2208 (4) of the Civil Code, was not established. Accordingly, the petitioners’ demand for attorney’s
fees must fail.

WHEREFORE, we deny the petition for review on certiorari for its lack of merit, and affirm the
decision of the Court of Appeals.

SO ORDERED.

Gonzales vs PCIB
This is an appeal via a Petition for Review on Certiorari under Rule 45 from the Decision 1 dated
October 22, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 74466, which denied petitioner’s
appeal from the December 10, 2001 Decision 2 in Civil Case No. 99-1324 of the Regional Trial Court
(RTC), Branch 138 in Makati City. The RTC found justification for respondents’ dishonor of
petitioner’s check and found petitioner solidarily liable with the spouses Jose and Jocelyn Panlilio
(spouses Panlilio) for the three promissory notes they executed in favor of respondent Philippine
Commercial and International Bank (PCIB).

The Facts

Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years before he filed the
instant case. His account with PCIB was handled by respondent Edna Ocampo (Ocampo) until she
was replaced by respondent Roberto Noceda (Noceda).

In October 1992, PCIB granted a credit line to Gonzales through the execution of a Credit-On-Hand
Loan Agreement3 (COHLA), in which the aggregate amount of the accounts of Gonzales with PCIB
served as collateral for and his availment limit under the credit line. Gonzales drew from said credit
line through the issuance of check. At the institution of the instant case, Gonzales had a Foreign
Currency Deposit (FCD) of USD 8,715.72 with PCIB.

On October 30, 1995, Gonzales and his wife obtained a loan for PhP 500,000. Subsequently, on
December 26, 1995 and January 3, 1999, the spouses Panlilio and Gonzales obtained two
additional loans from PCIB in the amounts of PhP 1,000,000 and PhP 300,000, respectively. These
three loans amounting to PhP 1,800,000 were covered by three promissory notes. 4 To secure the
loans, a real estate mortgage (REM) over a parcel of land covered by Transfer Certificate of Title
(TCT) No. 38012 was executed by Gonzales and the spouses Panlilio. Notably, the promissory
notes specified, among others, the solidary liability of Gonzales and the spouses Panlilio for the
payment of the loans. However, it was the spouses Panlilio who received the loan proceeds of PhP
1,800,000.

The monthly interest dues of the loans were paid by the spouses Panlilio through the automatic
debiting of their account with PCIB. But the spouses Panlilio, from the month of July 1998, defaulted
in the payment of the periodic interest dues from their PCIB account which apparently was not
maintained with enough deposits. PCIB allegedly called the attention of Gonzales regarding the July
1998 defaults and the subsequent accumulating periodic interest dues which were left still left
unpaid.

In the meantime, Gonzales issued a check dated September 30, 1998 in favor of Rene Unson
(Unson) for PhP 250,000 drawn against the credit line (COHLA). However, on October 13, 1998,
upon presentment for payment by Unson of said check, it was dishonored by PCIB due to the
termination by PCIB of the credit line under COHLA on October 7, 1998 for the unpaid periodic
interest dues from the loans of Gonzales and the spouses Panlilio. PCIB likewise froze the FCD
account of Gonzales.

Consequently, Gonzales had a falling out with Unson due to the dishonor of the check. They had a
heated argument in the premises of the Philippine Columbian Association (PCA) where they are
both members, which caused great embarrassment and humiliation to Gonzales. Thereafter, on
November 5, 1998, Unson sent a demand letter 5 to Gonzales for the PhP 250,000. And on
December 3, 1998, the counsel of Unson sent a second demand letter 6 to Gonzales with the threat
of legal action. With his FCD account that PCIB froze, Gonzales was forced to source out and pay
the PhP 250,000 he owed to Unson in cash.
On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that the check he issued had
been fully funded, and demanded the return of the proceeds of his FCD as well as damages for the
unjust dishonor of the check.7 PCIB replied on March 22, 1999 and stood its ground in freezing
Gonzales’ accounts due to the outstanding dues of the loans. 8 On May 26, 1999, Gonzales
reiterated his demand, reminding PCIB that it knew well that the actual borrowers were the spouses
Panlilio and he never benefited from the proceeds of the loans, which were serviced by the PCIB
account of the spouses Panlilio.9

PCIB’s refusal to heed his demands compelled Gonzales to file the instant case for damages with
the RTC, on account of the alleged unjust dishonor of the check issued in favor of Unson.

The Ruling of the RTC

After due trial, on December 10, 2001, the RTC rendered a Decision in favor of PCIB. The decretal
portion reads:

WHEREFORE, judgment is rendered as follows –

(a) on the first issue, plaintiff is liable to pay defendant Bank as principal under the
promissory notes, Exhibits A, B and C;

(b) on the second issue, the Court finds that there is justification on part of the defendant
Bank to dishonor the check, Exhibit H;

(c) on the third issue, plaintiff and defendants are not entitled to damages from each other.

No pronouncement as to costs.

SO ORDERED.10

The RTC found Gonzales solidarily liable with the spouses Panlilio on the three promissory notes
relative to the outstanding REM loan. The trial court found no fault in the termination by PCIB of the
COHLA with Gonzales and in freezing the latter’s accounts to answer for the past due PhP
1,800,000 loan. The trial court ruled that the dishonor of the check issued by Gonzales in favor of
Unson was proper considering that the credit line under the COHLA had already been terminated or
revoked before the presentment of the check.

Aggrieved, Gonzales appealed the RTC Decision before the CA.

The Ruling of the CA

On September 26, 2007, the appellate court rendered its Decision dismissing Gonzales’ appeal and
affirming in toto the RTC Decision. The fallo reads:

WHEREFORE, in view of the foregoing, the decision, dated December 10, 2001, in Civil Case No.
99-1324 is hereby AFFIRMED in toto.

SO ORDERED.11

In dismissing Gonzales’ appeal, the CA, first, confirmed the RTC’s findings that Gonzales was
indeed solidarily liable with the spouses Panlilio for the three promissory notes executed for the REM
loan; second, it likewise found neither fault nor negligence on the part of PCIB in dishonoring the
check issued by Gonzales in favor of Unson, ratiocinating that PCIB was merely exercising its rights
under the contractual stipulations in the COHLA brought about by the outstanding past dues of the
REM loan and interests for which Gonzales was solidarily liable with the spouses Panlilio to pay
under the promissory notes.

Thus, we have this petition.

The Issues

Gonzales, as before the CA, raises again the following assignment of errors:

I - IN NOT CONSIDERING THAT THE LIABILITY ARISING FROM PROMISSORY NOTES

(EXHIBITS "A", "B" AND "C", PETITIONER; EXHIBITS "1", "2" AND "3", RESPONDENT)
PERTAINED TO BORROWER JOSE MA. PANLILIO AND NOT TO APPELLANT AS
RECOGNIZED AND ACKNOWLEDGE[D] BY RESPONDENT PHILIPPINE COMMERCIAL &
INDUSTRIAL BANK (RESPONDENT BANK).

II - IN FINDING THAT THE RESPONDENTS WERE NOT AT FAULT NOR GUILTY OF

GROSS NEGLIGENCE IN DISHONORING PETITIONER’S CHECK DATED 30
SEPTEMBER 1998 IN THE AMOUNT OF P250,000.00 FOR THE REASON "ACCOUNT
CLOSED", INSTEAD OF MERELY "REFER TO DRAWER" GIVEN THE FACT THAT EVEN
AFTER DISHONOR, RESPONDENT SIGNED A CERTIFICATION DATED 7 DECEMBER
1998 THAT CREDIT ON HAND (COH) LOAN AGREEMENT WAS STILL VALID WITH A
COLLATERAL OF FOREIGN CURRENCY DEPOSIT (FCD) OF [USD] 48,715.72.

III - IN NOT AWARDING DAMAGES AGAINST RESPONDENTS DESPITE

PRESENTATION OF CLEAR PROOF TO SUPPORT ACTION FOR DAMAGES.12

The Court’s Ruling

The core issues can be summarized, as follows: first, whether Gonzales is liable for the three
promissory notes covering the PhP 1,800,000 loan he made with the spouses Panlilio where a REM
over a parcel of land covered by TCT No. 38012 was constituted as security; and second, whether
PCIB properly dishonored the check of Gonzales drawn against the COHLA he had with the bank.

The petition is partly meritorious.

First Issue: Solidarily Liability on Promissory Notes

A close perusal of the records shows that the courts a quo correctly found Gonzales solidarily liable
with the spouses Panlilio for the three promissory notes.

The promissory notes covering the PhP 1,800,000 loan show the following:

(1) Promissory Note BD-090-1766-95, 13 dated October 30, 1995, for PhP 500,000 was
signed by Gonzales and his wife, Jessica Gonzales;

(2) Promissory Note BD-090-2122-95, 14 dated December 26, 1995, for PhP 1,000,000 was
signed by Gonzales and the spouses Panlilio; and
 (3) Promissory Note BD-090-011-96,15 dated January 3, 1996, for PhP 300,000 was signed
by Gonzales and the spouses Panlilio.

Clearly, Gonzales is liable for the loans covered by the above promissory notes. First, Gonzales
admitted that he is an accommodation party which PCIB did not dispute. In his testimony, Gonzales
admitted that he merely accommodated the spouses Panlilio at the suggestion of Ocampo, who was
then handling his accounts, in order to facilitate the fast release of the loan. Gonzales testified:

ATTY. DE JESUS:

Now in this case you filed against the bank you mentioned there was a loan also applied for by the
Panlilio’s in the sum of P1.8 Million Pesos. Will you please tell this Court how this came about?

GONZALES:

Mr. Panlilio requested his account officer . . . . at that time it is a P42.0 Million loan and if he secures
another P1.8 Million loan the release will be longer because it has to pass to XO.

Q: After that what happened?

A: So as per suggestion since Mr. Panlilio is a good friend of mine and we co-owned the property I
agreed initially to use my name so that the loan can be utilized immediately by Mr. Panlilio.

Q: Who is actually the borrower of this P1.8 Million Pesos?

A: Well, in paper me and Mr. Panlilio.

Q: Who received the proceeds of said loan?

A: Mr. Panlilio.

Q: Do you have any proof that it was Mr. Panlilio who actually received the proceeds of this P1.8
Million Pesos loan?

A: A check was deposited in the account of Mr. Panlilio. 16

xxxx

Q: By the way upon whose suggestion was the loan of Mr. Panlilio also placed under your name
initially?

A: Well it was actually suggested by the account officer at that time Edna Ocampo.

Q: How about this Mr. Rodolfo Noceda?

A: As you look at the authorization aspect of the loan Mr. Noceda is the boss of Edna so he has
been familiar with my account ever since its inception.

Q: So these two officers Ocampo and Noceda knew that this was actually the account of Mr. Panlilio
and not your account?
A: Yes, sir. In fact even if there is a change of account officer they are always informing me that the
account will be debited to Mr. Panlilio’s account.17

Moreover, the first note for PhP 500,000 was signed by Gonzales and his wife as borrowers, while
the two subsequent notes showed the spouses Panlilio sign as borrowers with Gonzales. It is, thus,
evident that Gonzales signed, as borrower, the promissory notes covering the PhP 1,800,000 loan
despite not receiving any of the proceeds.

Second, the records of PCIB indeed bear out, and was admitted by Noceda, that the PhP 1,800,000
loan proceeds went to the spouses Panlilio, thus:

ATTY. DE JESUS: [on Cross-Examination]

Is it not a fact that as far as the records of the bank [are] concerned the proceeds of the 1.8 million
loan was received by Mr. Panlilio?

NOCEDA:

Yes sir.18

The fact that the loans were undertaken by Gonzales when he signed as borrower or co-borrower for
the benefit of the spouses Panlilio—as shown by the fact that the proceeds went to the spouses
Panlilio who were servicing or paying the monthly dues—is beside the point. For signing as borrower
and co-borrower on the promissory notes with the proceeds of the loans going to the spouses
Panlilio, Gonzales has extended an accommodation to said spouses.

Third, as an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the
loans. In Ang v. Associated Bank,19 quoting the definition of an accommodation party under Section
29 of the Negotiable Instruments Law, the Court cited that an accommodation party is a person "who
has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor,
and for the purpose of lending his name to some other person." 20 The Court further explained:

[A]n accommodation party is one who meets all the three requisites, viz: (1) he must be a party to
the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value
therefor; and (3) he must sign for the purpose of lending his name or credit to some other person. An
accommodation party lends his name to enable the accommodated party to obtain credit or to raise
money; he receives no part of the consideration for the instrument but assumes liability to the other
party/ies thereto. The accommodation party is liable on the instrument to a holder for value even
though the holder, at the time of taking the instrument, knew him or her to be merely an
accommodation party, as if the contract was not for accommodation.

As petitioner acknowledged it to be, the relation between an accommodation party and the
accommodated party is one of principal and surety—the accommodation party being the surety. As
such, he is deemed an original promisor and debtor from the beginning; he is considered in law as
the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter
since their liabilities are interwoven as to be inseparable. Although a contract of suretyship is in
essence accessory or collateral to a valid principal obligation, the surety’s liability to the creditor
is immediate, primary and absolute; he is directly and equally bound with the principal. As an
equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the
principal obligor even without possessing a direct or personal interest in the obligations nor does he
receive any benefit therefrom. 21
Thus, the knowledge, acquiescence, or even demand by Ocampo for an accommodation by
Gonzales in order to extend the credit or loan of PhP 1,800,000 to the spouses Panlilio does not
exonerate Gonzales from liability on the three promissory notes.

Fourth, the solidary liability of Gonzales is clearly stipulated in the promissory notes which uniformly
begin, "For value received, the undersigned (the "BORROWER") jointly and severally promise to
pay x x x." Solidary liability cannot be presumed but must be established by law or contract. 22 Article
1207 of the Civil Code pertinently states that "there is solidary liability only when the obligation
expressly so states, or when the obligation requires solidarity." This is true in the instant case where
Gonzales, as accommodation party, is immediately, equally, and absolutely bound with the spouses
Panlilio on the promissory notes which indubitably stipulated solidary liability for all the borrowers.
Moreover, the three promissory notes serve as the contract between the parties. Contracts have the
force of law between the parties and must be complied with in good faith. 23

Second Issue: Improper Dishonor of Check

Having ruled that Gonzales is solidarily liable for the three promissory notes, We shall now touch
upon the question of whether it was proper for PCIB to dishonor the check issued by Gonzales
against the credit line under the COHLA.

We answer in the negative.

As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to review of errors of
law.24 The factual findings of the trial court, especially when affirmed by the appellate court, are
generally binding on us unless there was a misapprehension of facts or when the inference drawn
from the facts was manifestly mistaken. 25 The instant case falls within the exception.

The courts a quo found and held that there was a proper dishonor of the PhP 250,000 check issued
by Gonzales against the credit line, because the credit line was already closed prior to the
presentment of the check by Unson; and the closing of the credit line was likewise proper pursuant
to the stipulations in the promissory notes on the bank’s right to set off or apply all moneys of the
debtor in PCIB’s hand and the stipulations in the COHLA on the PCIB’s right to terminate the credit
line on grounds of default by Gonzales.

Gonzales argues otherwise, pointing out that he was not informed about the default of the spouses
Panlilio and that the September 21, 1998 account statement of the credit line shows a balance of
PhP 270,000 which was likewise borne out by the December 7, 1998 PCIB’s certification that he has
USD 8,715.72 in his FCD account which is more than sufficient collateral to guarantee the PhP
250,000 check, dated September 30, 1998, he issued against the credit line.

A careful scrutiny of the records shows that the courts a quo committed reversible error in not finding
negligence by PCIB in the dishonor of the PhP 250,000 check.

First. There was no proper notice to Gonzales of the default and delinquency of the PhP 1,800,000
loan. It must be borne in mind that while solidarily liable with the spouses Panlilio on the PhP
1,800,000 loan covered by the three promissory notes, Gonzales is only an accommodation party
and as such only lent his name and credit to the spouses Panlilio. While not exonerating his solidary
liability, Gonzales has a right to be properly apprised of the default or delinquency of the loan
precisely because he is a co-signatory of the promissory notes and of his solidary liability.
We note that it is indeed understandable for Gonzales to push the spouses Panlilio to pay the
outstanding dues of the PhP 1,800,000 loan, since he was only an accommodation party and was
not personally interested in the loan. Thus, a meeting was set by Gonzales with the spouses Panlilio
and the PCIB officers, Noceda and Ocampo, in the spouses Panlilio’s jewelry shop in SM Megamall
on October 5, 1998. Unfortunately, the meeting did not push through due to the heavy traffic Noceda
and Ocampo encountered.

Such knowledge of the default by Gonzales was, however, not enough to properly apprise Gonzales
about the default and the outstanding dues. Verily, it is not enough to be merely informed to pay over
a hundred thousand without being formally apprised of the exact aggregate amount and the
corresponding dues pertaining to specific loans and the dates they became due.

Gonzales testified that he was not duly notified about the outstanding interest dues of the loan:

ATTY. DE JESUS:

Now when Mr. Panlilio’s was encountering problems with the bank did the defendant bank [advise]
you of any problem with the same account?

GONZALES:

They never [advised] me in writing.

Q: How did you come to know that there was a problem?

A: When my check bounced sir.26

On the other hand, the PCIB contends otherwise, as Corazon Nepomuceno testified:

ATTY. PADILLA:

Can you tell this Honorable Court what is it that you told Mr. Gonzales when you spoke to him at the
celphone?

NEPOMUCENO:

I just told him to update the interest so that we would not have to cancel the COH Line and he could
withdraw the money that was in the deposit because technically, if an account is past due we are not
allowed to let the client withdraw funds because they are allowed to offset funds so, just to help him
get his money, just to update the interest so that we could allow him to withdraw.

Q: Withdraw what?

A: His money on the COH, whatever deposit he has with us.

Q: Did you inform him that if he did not update the interest he would not be able to withdraw his
money?
A: Yes sir, we will be forced to hold on to any assets that he has with us so that’s why we suggested
just to update the interest because at the end of everything, he would be able to withdraw more
funds than the interest that the money he would be needed to update the interest. 27

From the foregoing testimonies, between the denial of Gonzales and the assertion by PCIB that
Gonzales was properly apprised, we find for Gonzales. We find the testimonies of the former PCIB
employees to be self-serving and tenuous at best, for there was no proper written notice given by the
bank. The record is bereft of any document showing that, indeed, Gonzales was formally informed
by PCIB about the past due periodic interests.

PCIB is well aware and did not dispute the fact that Gonzales is an accommodation party. It also
acted in accordance with such fact by releasing the proceeds of the loan to the spouses Panlilio and
likewise only informed the spouses Panlilio of the interest dues. The spouses Panlilio, through their
account28 with PCIB, were paying the periodic interest dues and were the ones periodically informed
by the bank of the debiting of the amounts for the periodic interest payments. Gonzales never paid
any of the periodic interest dues. PCIB’s Noceda admitted as much in his cross-examination:

ATTY. DE JESUS: [on Cross-Examination]

And there was no instance that Mr. Gonzales ever made even interest for this loan, is it not, it’s
always Mr. Panlilio who was paying the interest for this loan?

NOCEDA:

Yes sir.29

Indeed, no evidence was presented tending to show that Gonzales was periodically sent notices or
notified of the various periodic interest dues covering the three promissory notes. Neither do the
records show that Gonzales was aware of amounts for the periodic interests and the payment for
them. Such were serviced by the spouses Panlilio.

Thus, PCIB ought to have notified Gonzales about the status of the default or delinquency of the
interest dues that were not paid starting July 1998. And such notification must be formal or in written
form considering that the outstanding periodic interests became due at various dates, i.e., on July 8,
17, and 28, 1998, and the various amounts have to be certain so that Gonzales is not only properly
apprised but is given the opportunity to pay them being solidarily liable for the loans covered by the
promissory notes.

It is the bank which computes these periodic interests and such dues must be put into writing and
formally served to Gonzales if he were asked to pay them, more so when the payments by the
spouses Panlilio were charged through the account of the spouses Panlilio where the interest dues
were simply debited. Such arrangement did not cover Gonzales’ bank account with PCIB, since he is
only an accommodation party who has no personal interest in the PhP 1,800,000 loan. Without a
clear and determinate demand through a formal written notice for the exact periodic interest dues for
the loans, Gonzales cannot be expected to pay for them.

In business, more so for banks, the amounts demanded from the debtor or borrower have to be
definite, clear, and without ambiguity. It is not sufficient simply to be informed that one must pay over
a hundred thousand aggregate outstanding interest dues without clear and certain figures. Thus, We
find PCIB negligent in not properly informing Gonzales, who is an accommodation party, about the
default and the exact outstanding periodic interest dues. Without being properly apprised, Gonzales
was not given the opportunity to properly act on them.

It was only through a letter 30 sent by PCIB dated October 2, 1998 but incongruously showing the
delinquencies of the PhP 1,800,000 loan at a much later date, i.e., as of October 31, 1998, when
Gonzales was formally apprised by PCIB. In it, the interest due was PhP 106,1616.71 and penalties
for the unpaid interest due of PhP 64,766.66, or a total aggregate due of PhP 171,383.37. But it is
not certain and the records do not show when the letter was sent and when Gonzales received it.
What is clear is that such letter was belatedly sent by PCIB and received by Gonzales after the fact
that the latter’s FCD was already frozen, his credit line under the COHLA was terminated or
suspended, and his PhP 250,000 check in favor of Unson was dishonored.

And way much later, or on May 4, 1999, was a demand letter from the counsel of PCIB sent to
Gonzales demanding payment of the PhP 1,800,000 loan. Obviously, these formal written notices
sent to Gonzales were too late in the day for Gonzales to act properly on the delinquency and he
already suffered the humiliation and embarrassment from the dishonor of his check drawn against
the credit line.

To reiterate, a written notice on the default and deficiency of the PhP 1,800,000 loan covered by the
three promissory notes was required to apprise Gonzales, an accommodation party. PCIB is obliged
to formally inform and apprise Gonzales of the defaults and the outstanding obligations, more so
when PCIB was invoking the solidary liability of Gonzales. This PCIB failed to do.

Second. PCIB was grossly negligent in not giving prior notice to Gonzales about its course of action
to suspend, terminate, or revoke the credit line, thereby violating the clear stipulation in the COHLA.

The COHLA, in its effectivity clause, clearly provides:

4. EFFECTIVITY — The COH shall be effective for a period of one (1) year commencing from the
receipt by the CLIENT of the COH checkbook issued by the BANK, subject to automatic renewals for
same periods unless terminated by the BANK upon prior notice served on CLIENT.31 (Emphasis
ours.)

It is undisputed that the bank unilaterally revoked, suspended, and terminated the COHLA without
giving Gonzales prior notice as required by the above stipulation in the COHLA. Noceda testified on
cross-examination on the Offering Ticket32 recommending the termination of the credit line, thus:

ATTY. DE JESUS: [on Cross-Examination]

This Exhibit 8, you have not furnished at anytime a copy to the plaintiff Mr. Gonzales is it not?

NOCEDA:

No sir but verbally it was relayed to him.

Q: But you have no proof that Mr. Gonzales came to know about this Exhibit 8?

A: It was relayed to him verbally.

Q: But there is no written proof?

A: No sir.

Q: And it is only now that you claim that it was verbally relayed to him, it’s only now when you
testified in Court?

A: Before . . .

Q: To whom did you relay this information?

A: It was during the time that we were going to Megamall, it was relayed by Liza that he has to pay
his obligations or else it will adversely affect the status of the account. 33

On the other hand, the testimony of Corazon Nepomuceno shows:

ATTY. DE JESUS: [on Cross-Examination]

Now we go to the other credit facility which is the credit on hand extended solely of course to Mr.
Eusebio Gonzales who is the plaintiff here, Mr. Panlilio is not included in this credit on hand facility.
Did I gather from you as per your Exhibit 7 as of October 2, 1998 you were the one who
recommended the cancellation of this credit on hand facility?

NEPOMUCENO:

It was recommended by the account officer and I supported it.

Q: And you approved it?

A: Yes sir.

Q: Did you inform Mr. Gonzales that you have already cancelled his credit on hand facility?

A: As far as I know, it is the account officer who will inform him.

Q: But you have no record that he was informed?

A: I don’t recall and we have to look at the folder to determine if they were informed.

Q: If you will notice, this letter . . . what do you call this letter of yours?

A: That is our letter advising them or reminding them of their unpaid interest and that if he is able to
update his interest he can extend the promissory note or restructure the outstanding.

Q: Now, I call your attention madam witness, there is nothing in this letter to the clients advising
them or Mr. Gonzales that his credit on hand facility was already cancelled?

A: I don’t know if there are other letters aside from this.

Q: So in this letter there is nothing to inform or to make Mr. Eusebio aware that his credit on hand
facility was already cancelled?
A: No actually he can understand it from the last sentence. "If you will be able to update your
outstanding interest, we can apply the extention of your promissory note" so in other words we are
saying that if you don’t, you cannot extend the promissory note.

Q: You will notice that the subject matter of this October 2, 1998 letter is only the loan of 1.8 million
is it not, as you can see from the letter? Okay?

A: Ah . . .

Q: Okay. There is nothing there that will show that that also refers to the credit on hand facility which
was being utilized by Mr. Gonzales is it not?

A: But I don’t know if there are other letters that are not presented to me now. 34

The foregoing testimonies of PCIB officers clearly show that not only did PCIB fail to give prior notice
to Gonzales about the Offering Ticket for the process of termination, suspension, or revocation of the
credit line under the COHLA, but PCIB likewise failed to inform Gonzales of the fact that his credit
line has been terminated. Thus, we find PCIB grossly negligent in the termination, revocation, or
suspension of the credit line under the COHLA. While PCIB invokes its right on the so-called "cross
default provisions," it may not with impunity ignore the rights of Gonzales under the COHLA.

Indeed, the business of banking is impressed with public interest and great reliance is made on the
bank’s sworn profession of diligence and meticulousness in giving irreproachable service. Like a
common carrier whose business is imbued with public interest, a bank should exercise extraordinary
diligence to negate its liability to the depositors. 35 In this instance, PCIB is sorely remiss in the
diligence required in treating with its client, Gonzales. It may not wantonly exercise its rights without
respecting and honoring the rights of its clients.

Art. 19 of the New Civil Code clearly provides that "[e]very person must, in the exercise of his rights
and in the performance of his duties, act with justice, give everyone his due, and observe honesty
and good faith." This is the basis of the principle of abuse of right which, in turn, is based upon the
maxim suum jus summa injuria (the abuse of right is the greatest possible wrong). 36

In order for Art. 19 to be actionable, the following elements must be present: "(1) the existence of a
legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or
injuring another."37 We find that such elements are present in the instant case. The effectivity clause
of the COHLA is crystal clear that termination of the COH should be done only upon prior notice
served on the CLIENT. This is the legal duty of PCIB––to inform Gonzales of the termination.
However, as shown by the above testimonies, PCIB failed to give prior notice to Gonzales.

Malice or bad faith is at the core of Art. 19. Malice or bad faith "implies a conscious and intentional
design to do a wrongful act for a dishonest purpose or moral obliquity." 38 In the instant case, PCIB
was able to send a letter advising Gonzales of the unpaid interest on the loans 39 but failed to mention
anything about the termination of the COHLA. More significantly, no letter was ever sent to him
about the termination of the COHLA. The failure to give prior notice on the part of PCIB is already
prima facie evidence of bad faith. 40 Therefore, it is abundantly clear that this case falls squarely
within the purview of the principle of abuse of rights as embodied in Art. 19.

Third. There is no dispute on the right of PCIB to suspend, terminate, or revoke the COHLA under
the "cross default provisions" of both the promissory notes and the COHLA. However, these cross
default provisions do not confer absolute unilateral right to PCIB, as they are qualified by the other
stipulations in the contracts or specific circumstances, like in the instant case of an accommodation
party.

The promissory notes uniformly provide:

The lender is hereby authorized, at its option and without notice, to set off or apply to the
payment of this Note any and all moneys which may be in its hands on deposit or otherwise
belonging to the Borrower. The Borrower irrevocably appoint/s the Lender, effective upon the
nonpayment of this Note on demand/at maturity or upon the happening of any of the events of
default, but without any obligation on the Lender’s part should it choose not to perform this mandate,
as the attorney-in-fact of the Borrower, to sell and dispose of any property of the Borrower, which
may be in the Lender’s possession by public or private sale, and to apply the proceeds thereof to the
payment of this Note; the Borrower, however, shall remain liable for any deficiency. 41 (Emphasis
ours.)

The above provisos are indeed qualified with the specific circumstance of an accommodation party
who, as such, has not been servicing the payment of the dues of the loans, and must first be
properly apprised in writing of the outstanding dues in order to answer for his solidary obligation.

The same is true for the COHLA, which in its default clause provides:

16. DEFAULT — The CLIENT shall be considered in default under the COH if any of the following
events shall occur:

1. x x x

2. Violation of the terms and conditions of this Agreement or any contract of the CLIENT with
the BANK or any bank, persons, corporations or entities for the payment of borrowed money,
or any other event of default in such contracts.42

The above pertinent default clause must be read in conjunction with the effectivity clause (No. 4 of
the COHLA, quoted above), which expressly provides for the right of client to prior notice. The
rationale is simple: in cases where the bank has the right to terminate, revoke, or suspend the credit
line, the client must be notified of such intent in order for the latter to act accordingly—whether to
correct any ground giving rise to the right of the bank to terminate the credit line and to dishonor any
check issued or to act in accord with such termination, i.e., not to issue any check drawn from the
credit line or to replace any checks that had been issued. This, the bank—with gross negligence—
failed to accord Gonzales, a valued client for more than 15 years.

Fourth. We find the testimony 43 of Ocampo incredible on the point that the principal borrower of the
PhP 1,800,000 loan covered by the three promissory notes is Gonzales for which the bank officers
had special instructions to grant and that it was through the instructions of Gonzales that the
payment of the periodic interest dues were debited from the account of the spouses Panlilio.

For one, while the first promissory note dated October 30, 1995 indeed shows Gonzales as the
principal borrower, the other promissory notes dated December 26, 1995 and January 3, 1996
evidently show that it was Jose Panlilio who was the principal borrower with Gonzales as co-
borrower. For another, Ocampo cannot feign ignorance on the arrangement of the payments by the
spouses Panlilio through the debiting of their bank account. It is incredulous that the payment
arrangement is merely at the behest of Gonzales and at a mere verbal directive to do so. The fact
that the spouses Panlilio not only received the proceeds of the loan but were servicing the periodic
interest dues reinforces the fact that Gonzales was only an accommodation party.

Thus, due to PCIB’s negligence in not giving Gonzales—an accommodation party—proper notice
relative to the delinquencies in the PhP 1,800,000 loan covered by the three promissory notes, the
unjust termination, revocation, or suspension of the credit line under the COHLA from PCIB’s gross
negligence in not honoring its obligation to give prior notice to Gonzales about such termination and
in not informing Gonzales of the fact of such termination, treating Gonzales’ account as closed and
dishonoring his PhP 250,000 check, was certainly a reckless act by PCIB. This resulted in the actual
injury of PhP 250,000 to Gonzales whose FCD account was frozen and had to look elsewhere for
money to pay Unson.

With banks, the degree of diligence required is more than that of a good father of the family
considering that the business of banking is imbued with public interest due to the nature of their
function. The law imposes on banks a high degree of obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of banking. 44 Had
Gonzales been properly notified of the delinquencies of the PhP 1,800,000 loan and the process of
terminating his credit line under the COHLA, he could have acted accordingly and the dishonor of
the check would have been avoided.

Third Issue: Award of Damages

The banking system has become an indispensable institution in the modern world and plays a vital
role in the economic life of every civilized society—banks have attained a ubiquitous presence
among the people, who have come to regard them with respect and even gratitude and most of all,
confidence, and it is for this reason, banks should guard against injury attributable to negligence or
bad faith on its part.45

In the instant case, Gonzales suffered from the negligence and bad faith of PCIB. From the
testimonies of Gonzales’ witnesses, particularly those of Dominador Santos 46 and Freddy
Gomez,47 the embarrassment and humiliation Gonzales has to endure not only before his former
close friend Unson but more from the members and families of his friends and associates in the
PCA, which he continues to experience considering the confrontation he had with Unson and the
consequent loss of standing and credibility among them from the fact of the apparent bouncing
check he issued. Credit is very important to businessmen and its loss or impairment needs to be
recognized and compensated.48

The termination of the COHLA by PCIB without prior notice and the subsequent dishonor of the
check issued by Gonzales constitute acts of contra bonus mores. Art. 21 of the Civil Code refers to
such acts when it says, "Any person who willfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for damage."

Accordingly, this Court finds that such acts warrant the payment of indemnity in the form of nominal
damages.  Nominal damages "are recoverable where a legal right is technically violated and must
1avvphi1

be vindicated against an invasion that has produced no actual present loss of any kind x x x." 49 We
further explained the nature of nominal damages in Almeda v. Cariño:

x x x Its award is thus not for the purpose of indemnification for a loss but for the recognition and
vindication of a right. Indeed, nominal damages are damages in name only and not in fact. When
granted by the courts, they are not treated as an equivalent of a wrong inflicted but simply a
recognition of the existence of a technical injury. A violation of the plaintiff’s right, even if only
technical, is sufficient to support an award of nominal damages. Conversely, so long as there is a
showing of a violation of the right of the plaintiff, an award of nominal damages is
proper.50 (Emphasis Ours.)

In the present case, Gonzales had the right to be informed of the accrued interest and most
especially, for the suspension of his COHLA. For failure to do so, the bank is liable to pay nominal
damages. The amount of such damages is addressed to the sound discretion of the court, taking
into account the relevant circumstances. 51 In this case, the Court finds that the grant of PhP 50,000
as nominal damages is proper.

Moreover, as We held in MERALCO v. CA,52 failure to give prior notice when required, such as in the
instant case, constitutes a breach of contract and is a clear violation of Art. 21 of the Code. In cases
such as this, Art. 2219 of the Code provides that moral damages may be recovered in acts referred
to in its Art. 21. Further, Art. 2220 of the Code provides that "[w]illful injury to property may be a legal
ground for awarding moral damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith." Similarly, "every person who, contrary to law, willfully or negligently
causes damage to another, shall indemnify the latter for the same." 53 Evidently, Gonzales is entitled
to recover moral damages.

Even in the absence of malice or bad faith, a depositor still has the right to recover reasonable moral
damages, if the depositor suffered mental anguish, serious anxiety, embarrassment, and
humiliation.54 Although incapable of pecuniary estimation, moral damages are certainly recoverable if
they are the proximate result of the defendant’s wrongful act or omission. The factual antecedents
bolstered by undisputed testimonies likewise show the mental anguish and anxiety Gonzales had to
endure with the threat of Unson to file a suit. Gonzales had to pay Unson PhP 250,000, while his
FCD account in PCIB was frozen, prompting Gonzales to demand from PCIB and to file the instant
suit.

The award of moral damages is aimed at a restoration within the limits of the possible, of the
spiritual status quo ante—it must always reasonably approximate the extent of injury and be
proportional to the wrong committed. 55 Thus, an award of PhP 50,000 is reasonable moral damages
for the unjust dishonor of the PhP 250,000 which was the proximate cause of the consequent
humiliation, embarrassment, anxiety, and mental anguish suffered by Gonzales from his loss of
credibility among his friends, colleagues and peers.

Furthermore, the initial carelessness of the bank’s omission in not properly informing Gonzales of
the outstanding interest dues––aggravated by its gross neglect in omitting to give prior notice as
stipulated under the COHLA and in not giving actual notice of the termination of the credit line––
justifies the grant of exemplary damages of PhP 10,000. Such an award is imposed by way of
example or correction for the public good.

Finally, an award for attorney’s fees is likewise called for from PCIB’s negligence which compelled
Gonzales to litigate to protect his interest. In accordance with Art. 2208(1) of the Code, attorney’s
fees may be recovered when exemplary damages are awarded. We find that the amount of PhP
50,000 as attorney’s fees is reasonable.

WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA Decision dated October 22,
2007 in CA-G.R. CV No. 74466 is hereby REVERSED and SET ASIDE. The Philippine Commercial
and International Bank (now Banco De Oro) is ORDERED to pay Eusebio Gonzales PhP 50,000 as
nominal damages, PhP 50,000 as moral damages, PhP 10,000 as exemplary damages, and PhP
50,000 as attorney’s fees.
No pronouncement as to costs.

SO ORDERED.