2.

1.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 175822 October 23, 2013

CALIFORNIA CLOTHING INC. and MICHELLE S. YBAÑEZ, Petitioners,

vs.
SHIRLEY G. QUIÑONES, Respondent.

DECISION

PERALTA, J.:

Assailed in this petition for review on certiorari under Rule 45 of the ; Rules of Court are the Court of
Appeals Decision1 dated August 3, 2006 and Resolution2 dated November 14, 2006 in CA-G.R. CV
No. 80309. The assailed decision reversed and set aside the June 20, 2003 Decision 3 of the
Regional Trial Court of Cebu City (RTC), Branch 58, in Civil Case No. CEB-26984; while the
assailed resolution denied the motion for reconsideration filed by petitioner Michelle Ybañez
(Ybañez).

The facts of the case, as culled from the records, are as follows:

On July 25, 2001, respondent Shirley G. Quiñones, a Reservation Ticketing Agent of Cebu
Pacific Air in Lapu Lapu City, went inside the Guess USA Boutique at the second floor of
Robinson’s Department Store (Robinson’s) in Cebu City. She fitted four items: two jeans, a blouse
and a shorts, then decided to purchase the black jeans worth ₱2,098.00. 4 Respondent allegedly paid
to the cashier evidenced by a receipt5 issued by the store.6

While she was walking through the skywalk connecting Robinson’s and Mercury Drug Store
(Mercury) where she was heading next, a Guess employee approached and informed her that she
failed to pay the item she got. She, however, insisted that she paid and showed the employee the
receipt issued in her favor.7 She then suggested that they talk about it at the Cebu Pacific Office
located at the basement of the mall. She first went to Mercury then met the Guess employees as
agreed upon.8

When she arrived at the Cebu Pacific Office, the Guess employees allegedly subjected her to
humiliation in front of the clients of Cebu Pacific and repeatedly demanded payment for the black
jeans.9 They supposedly even searched her wallet to check how much money she had, followed by
another argument. Respondent, thereafter, went home.10

On the same day, the Guess employees allegedly gave a letter to the Director of Cebu Pacific Air
narrating the incident, but the latter refused to receive it as it did not concern the office and the same
took place while respondent was off duty.11 Another letter was allegedly prepared and was supposed
to be sent to the Cebu Pacific Office in Robinson’s, but the latter again refused to receive
it.12 Respondent also claimed that the Human Resource Department (HRD) of Robinson’s was
furnished said letter and the latter in fact conducted an investigation for purposes of canceling
respondent’s Robinson’s credit card. Respondent further claimed that she was not given a copy of
said damaging letter.13 With the above experience, respondent claimed to have suffered physical
anxiety, sleepless nights, mental anguish, fright, serious apprehension, besmirched reputation,
moral shock and social humiliation.14 She thus filed the Complaint for Damages15 before the RTC
against petitioners California Clothing, Inc. (California Clothing), Excelsis Villagonzalo (Villagonzalo),
Imelda Hawayon (Hawayon) and Ybañez. She demanded the payment of moral, nominal, and
exemplary damages, plus attorney’s fees and litigation expenses.16

In their Answer,17 petitioners and the other defendants admitted the issuance of the receipt of
payment. They claimed, however, that instead of the cashier (Hawayon) issuing the official receipt, it
was the invoicer (Villagonzalo) who did it manually. They explained that there was
miscommunication between the employees at that time because prior to the issuance of the receipt,
Villagonzalo asked Hawayon " Ok na ?," and the latter replied " Ok na ," which the former believed to
mean that the item has already been paid.18 Realizing the mistake, Villagonzalo rushed outside to
look for respondent and when he saw the latter, he invited her to go back to the shop to make
clarifications as to whether or not payment was indeed made. Instead, however, of going back to the
shop, respondent suggested that they meet at the Cebu Pacific Office. Villagonzalo, Hawayon and
Ybañez thus went to the agreed venue where they talked to respondent. 19 They pointed out that it
appeared in their conversation that respondent could not recall whom she gave the payment. 20 They
emphasized that they were gentle and polite in talking to respondent and it was the latter who was
arrogant in answering their questions.21 As counterclaim, petitioners and the other defendants sought
the payment of moral and exemplary damages, plus attorney’s fees and litigation expenses.22

On June 20, 2003, the RTC rendered a Decision dismissing both the complaint and counterclaim of
the parties. From the evidence presented, the trial court concluded that the petitioners and the other
defendants believed in good faith that respondent failed to make payment. Considering that no
motive to fabricate a lie could be attributed to the Guess employees, the court held that when they
demanded payment from respondent, they merely exercised a right under the honest belief that no
payment was made. The RTC likewise did not find it damaging for respondent when the
confrontation took place in front of Cebu Pacific clients, because it was respondent herself who put
herself in that situation by choosing the venue for discussion. As to the letter sent to Cebu Pacific
Air, the trial court also did not take it against the Guess employees, because they merely asked for
assistance and not to embarrass or humiliate respondent. In other words, the RTC found no
evidence to prove bad faith on the part of the Guess employees to warrant the award of damages. 23

On appeal, the CA reversed and set aside the RTC decision, the dispositive portion of which reads:

WHEREFORE, the instant appeal is GRANTED. The decision of the Regional Trial Court of Cebu
City, Branch 58, in Civil Case No. CEB-26984 (for: Damages) is hereby REVERSED and SET
ASIDE. Defendants Michelle Ybañez and California Clothing, Inc. are hereby ordered to pay plaintiff-
appellant Shirley G. Quiñones jointly and solidarily moral damages in the amount of Fifty Thousand
Pesos (₱50,000.00) and attorney’s fees in the amount of Twenty Thousand Pesos (₱20,000.00).

SO ORDERED.24

While agreeing with the trial court that the Guess employees were in good faith when they
confronted respondent inside the Cebu Pacific Office about the alleged non-payment, the CA,
however, found preponderance of evidence showing that they acted in bad faith in sending the
demand letter to respondent’s employer. It found respondent’s possession of both the official receipt
and the subject black jeans as evidence of payment.25 Contrary to the findings of the RTC, the CA
opined that the letter addressed to Cebu Pacific’s director was sent to respondent’s employer not
merely to ask for assistance for the collection of the disputed payment but to subject her to ridicule,
humiliation and similar injury such that she would be pressured to pay.26 Considering that Guess
already started its investigation on the incident, there was a taint of bad faith and malice when it
dragged respondent’s employer who was not privy to the transaction. This is especially true in this
case since the purported letter contained not only a narrative of the incident but accusations as to
the alleged acts of respondent in trying to evade payment.27 The appellate court thus held that
petitioners are guilty of abuse of right entitling respondent to collect moral damages and attorney’s
fees. Petitioner California Clothing Inc. was made liable for its failure to exercise extraordinary
diligence in the hiring and selection of its employees; while Ybañez’s liability stemmed from her act
of signing the demand letter sent to respondent’s employer. In view of Hawayon and Villagonzalo’s
good faith, however, they were exonerated from liability.28

Ybañez moved for the reconsideration29 of the aforesaid decision, but the same was denied in the
assailed November 14, 2006 CA Resolution.

Petitioners now come before the Court in this petition for review on certiorari under Rule 45 of the

Rules of Court based on the following grounds:

I.

THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT THE LETTER SENT TO THE
CEBU PACIFIC OFFICE WAS MADE TO SUBJECT HEREIN RESPONDENT TO RIDICULE,
HUMILIATION AND SIMILAR INJURY.

II.

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING MORAL DAMAGES AND

ATTORNEY’S FEES.30

The petition is without merit.

Respondent’s complaint against petitioners stemmed from the principle of abuse of rights provided
for in the Civil Code on the chapter of human relations. Respondent cried foul when petitioners
allegedly embarrassed her when they insisted that she did not pay for the black jeans she purchased
from their shop despite the evidence of payment which is the official receipt issued by the shop. The
issuance of the receipt notwithstanding, petitioners had the right to verify from respondent whether
she indeed made payment if they had reason to believe that she did not. However, the exercise of
such right is not without limitations. Any abuse in the exercise of such right and in the performance
of duty causing damage or injury to another is actionable under the Civil Code. The Court’s
pronouncement in Carpio v. Valmonte31 is noteworthy:

In the sphere of our law on human relations, the victim of a wrongful act or omission, whether done
willfully or negligently, is not left without any remedy or recourse to obtain relief for the damage or
injury he sustained. Incorporated into our civil law are not only principles of equity but also universal
moral precepts which are designed to indicate certain norms that spring from the fountain of good
conscience and which are meant to serve as guides for human conduct. First of these fundamental
precepts is the principle commonly known as "abuse of rights" under Article 19 of the Civil Code. It
provides that " 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."x x x 32 The elements of
abuse of rights are as follows: (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.33

In this case, petitioners claimed that there was a miscommunication between the cashier and the
invoicer leading to the erroneous issuance of the receipt to respondent. When they realized the
mistake, they made a cash count and discovered that the amount which is equivalent to the price of
the black jeans was missing. They, thus, concluded that it was respondent who failed to make such
payment. It was, therefore, within their right to verify from respondent whether she indeed paid or not
and collect from her if she did not. However, the question now is whether such right was exercised in
good faith or they went overboard giving respondent a cause of action against them.

Under the abuse of rights principle found in Article 19 of the Civil Code, a person must, in the
exercise of legal right or duty, act in good faith. He would be liable if he instead acted in bad faith,
with intent to prejudice another.34 Good faith refers to the state of mind which is manifested by
the acts of the individual concerned. It consists of the intention to abstain from taking an
unconscionable and unscrupulous advantage of another. 35 Malice or bad faith, on the other
hand, implies a conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity.36

Initially, there was nothing wrong with petitioners asking respondent whether she paid or not. The
Guess employees were able to talk to respondent at the Cebu Pacific Office. The confrontation
started well, but it eventually turned sour when voices were raised by both parties. As aptly held by
both the RTC and the CA, such was the natural consequence of two parties with conflicting views
insisting on their respective beliefs. Considering, however, that respondent was in possession of the
item purchased from the shop, together with the official receipt of payment issued by petitioners, the
latter cannot insist that no such payment was made on the basis of a mere speculation. Their claim
should have been proven by substantial evidence in the proper forum.

It is evident from the circumstances of the case that petitioners went overboard and tried to force
respondent to pay the amount they were demanding. In the guise of asking for assistance,
petitioners even sent a demand letter to respondent’s employer not only informing it of the incident
but obviously imputing bad acts on the part of respondent. Petitioners claimed that after receiving
1âwphi1

the receipt of payment and the item purchased, respondent "was noted to hurriedly left (sic) the
store." They also accused respondent that she was not completely being honest when she was
asked about the circumstances of payment, thus:

x x x After receiving the OR and the item, Ms. Gutierrez was noted to hurriedly left (sic) the store. x x
x

When I asked her about to whom she gave the money, she gave out a blank expression and told
me, "I can’t remember." Then I asked her how much money she gave, she answered, "₱2,100; 2 pcs
1,000 and 1 pc 100 bill." Then I told her that that would (sic) impossible since we have no such
denomination in our cash fund at that moment. Finally, I asked her if how much change and if she
received change from the cashier, she then answered, "I don’t remember." After asking these simple
questions, I am very certain that she is not completely being honest about this. In fact, we invited her
to come to our boutique to clear these matters but she vehemently refused saying that she’s in a
hurry and very busy.37

Clearly, these statements are outrightly accusatory. Petitioners accused respondent that not only did
she fail to pay for the jeans she purchased but that she deliberately took the same without paying for
it and later hurriedly left the shop to evade payment. These accusations were made despite the
issuance of the receipt of payment and the release of the item purchased. There was, likewise, no
showing that respondent had the intention to evade payment. Contrary to petitioners’ claim,
respondent was not in a rush in leaving the shop or the mall. This is evidenced by the fact that the
Guess employees did not have a hard time looking for her when they realized the supposed non-
payment.

It can be inferred from the foregoing that in sending the demand letter to respondent’s employer,
petitioners intended not only to ask for assistance in collecting the disputed amount but to tarnish
respondent’s reputation in the eyes of her employer. To malign respondent without substantial
evidence and despite the latter’s possession of enough evidence in her favor, is clearly
impermissible. A person should not use his right unjustly or contrary to honesty and good faith,
otherwise, he opens himself to liability.38

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.39 In this case, petitioners obviously abused their rights.

Complementing the principle of abuse of rights are the provisions of Articles 20 and 2 of the Civil
Code which read:40

Article 20. Every person who, contrary to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same.

Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary to
morals or good customs, or public policy shall compensate the latter for the damage.

In view of the foregoing, respondent is entitled to an award of moral damages and attorney s fees.
Moral damages may be awarded whenever the defendant s wrongful act or omission is the
proximate cause of the plaintiffs physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury in the
cases specified or analogous to those provided in Article 2219 of the Civil Code. 41 Moral damages
are not a bonanza. They are given to ease the defendant s grief and suffering. They should, thus,
reasonably approximate the extent of hurt caused and the gravity of the wrong done. 42 They are
awarded not to enrich the complainant but to enable the latter to obtain means, diversions, or
amusements that will serve to alleviate the moral suffering he has undergone. 43 We find that the
amount of ₱50,000.00 as moral damages awarded by the CA is reasonable under the
circumstances. Considering that respondent was compelled to litigate to protect her interest,
attorney s fees in the amount of of₱20,000.00 is likewise just and proper.

WHEREFORE, premises considered, the petition is DENIED for lack of merit. The Court of Appeals
Decision dated August 3, 2006 and Resolution dated November 14, 2006 in CA-G.R. CV No. 80309,
are AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:
Case Digest

Issue

Held

The petition is without merit.

It can be inferred from the foregoing that in sending the demand letter to respondent’s employer,
petitioners intended not only to ask for assistance in collecting the disputed amount but to tarnish
respondent’s reputation in the eyes of her employer. To malign respondent without substantial
evidence and despite the latter’s possession of enough evidence in her favor, is clearly
impermissible. A person should not use his right unjustly or contrary to honesty and good faith,
otherwise, he opens himself to liability.38

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.39 In this case, petitioners obviously abused their rights.
Case Digest

Overview: The case revolves around an incident where the petitioner, a

boutique owner, accused the respondent, a customer, of not paying for a pair
of black jeans purchased from the boutique. Despite the respondent
presenting evidence of payment in the form of an official receipt, the boutique
insisted on verifying the payment. The situation escalated, leading to the
boutique sending a demand letter to the respondent's employer, implying
dishonesty on the part of the respondent. The respondent filed a complaint
based on the principle of abuse of rights, claiming damages due to
humiliation and defamation of character.

Issue: The primary issues raised in the case are:

I. Whether the actions of the boutique owners, particularly in sending a

demand letter to the respondent's employer, constituted abuse of rights and
caused the respondent humiliation and similar injury. II. Whether the Court of
Appeals erred in awarding moral damages and attorney’s fees to the
respondent.

Ruling: The court ruled against the petitioner, affirming the decision of the
Court of Appeals. It found that the actions of the boutique owners amounted
to abuse of rights under Article 19 of the Civil Code. While the boutique had
the right to verify payment, their actions, particularly in sending a demand
letter to the respondent's employer without substantial evidence, were
deemed excessive and unjust. The court emphasized that the exercise of rights
must be in good faith and not aimed at causing harm to others. As a result,
the respondent was awarded moral damages and attorney’s fees, as provided
for in the Civil Code. The amount awarded was considered reasonable given
the circumstances of the case. Ultimately, the petition was denied for lack of
merit, and the decision of the Court of Appeals was affirmed.
2.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 88694 January 11, 1993

oALBENSON ENTERPRISES CORP., JESSE YAP, AND BENJAMIN MENDIONA, petitioners,

vs.
THE COURT OF APPEALS AND EUGENIO S. BALTAO, respondents.

Puruganan, Chato, Chato & Tan for petitioners.

Lino M. Patajo, Francisco Ma. Chanco, Ananiano Desierto and Segundo Mangohig for private
respondent.

BIDIN, J.:

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.

Gutierrez, Jr., Davide, Jr., Romero and Melo, JJ., concur.

# Footnotes

** "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.

"Art. 20. Every person who, contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same.

"Art. 21. 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 the
damage.
Overview: The case involves a dispute between Albenson Enterprises Corporation
(petitioner) and Eugenio S. Baltao (respondent) regarding a dishonored check issued as
part payment for delivered goods. Despite efforts by Albenson to recover the amount
owed, including filing a criminal complaint for violation of Batas Pambansa Bilang 22
(Bouncing Checks Law), it was later discovered that there was a case of mistaken
identity, as the check issuer was Eugenio Baltao III, not Eugenio S. Baltao, the
respondent. Subsequently, Eugenio S. Baltao filed a civil case against Albenson for
damages.

Issue: The main issue revolves around whether Albenson's actions constituted an abuse
of rights under Articles 19, 20, and 21 of the Civil Code or amounted to malicious
prosecution, warranting damages in favor of Eugenio S. Baltao.

Ruling: The court ruled in favor of Albenson, reversing the decision of the Court of
Appeals. It found that Albenson's actions were not motivated by malice or bad faith but
were an honest attempt to recover the owed amount. The court also emphasized that
the criminal complaint was filed based on probable cause, as A lbenson conducted
reasonable inquiries before taking legal action. Therefore, Albenson cannot be held
liable for damages under the principle of abuse of rights or malicious prosecution.
Consequently, the award of damages and attorney's fees in favor of Eugenio S. Baltao
was overturned.
3.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No.176897 December 11, 2013

ADVANCE PAPER CORPORATION and GEORGE HAW, in his capacity as President of

Advance Paper Corporation, Petitioners,
vs.
ARMA TRADERS CORPORATION, MANUEL TING, CHENG GUI and BENJAMIN
NG, Respondents.

x-------------------------------------------------x

ANTONIO TAN and UY SENG KEE WILLY, Respondents.

DECISION

BRION, J.:

Before us is a Petition for Review seeking to set aside the Decision of the Court of Appeals (CA) in
1

CA-G.R. CV No. 71499 dated March 31, 2006 and the Resolution dated March 7, 2007. The 2

Decision reversed and set aside the ruling of the Regional Trial Court (RTC) of Manila, Branch 18 in
Civil Case No. 94-72526 which ordered Arma Traders Corporation (Arma Traders) to pay Advance
Paper Corporation (Advance Paper) the sum of ₱15,321,798.25 with interest, and ₱1,500,000.00 for
attorney’s fees, plus the cost of the suit. 3

Factual Antecedents

Petitioner Advance Paper is a domestic corporation engaged in the business of producing, printing,
manufacturing, distributing and selling of various paper products. Petitioner George Haw (Haw) is
4

the President while his wife, Connie Haw, is the General Manager. 5

Respondent Arma Traders is also a domestic corporation engaged in the wholesale and distribution
of school and office supplies, and novelty products. Respondent Antonio Tan (Tan) was formerly the
6

President while respondent Uy Seng Kee Willy (Uy) is the Treasurer of Arma Traders. They 7

represented Arma Traders when dealing with its supplier, Advance Paper, for about 14 years. 8

On the other hand, respondents Manuel Ting, Cheng Gui and Benjamin Ng worked for Arma Traders
as Vice-President, General Manager and Corporate Secretary, respectively. 9

On various dates from September to December 1994, Arma Traders purchased on credit notebooks
and other paper products amounting to ₱7,533,001.49 from Advance Paper. 10

Upon the representation of Tan and Uy, Arma Traders also obtained three loans from Advance
Paper in November 1994 in the amounts of ₱3,380,171.82, ₱1,000,000.00, and ₱3,408,623.94 or a
total of ₱7,788,796.76. Arma Traders needed the loan to settle its obligations to other suppliers
11
because its own collectibles did not arrive on time. Because of its good business relations with
12

Arma Traders, Advance Paper extended the loans. 13

As payment for the purchases on credit and the loan transactions, Arma Traders issued 82
postdated checks payable to cash or to Advance Paper. Tan and Uy were Arma Traders’
14

authorized bank signatories who signed and issued these checks which had the aggregate amount
of ₱15,130,636.87. 15

Advance Paper presented the checks to the drawee bank but these were dishonored either for
"insufficiency of funds" or "account closed." Despite repeated demands, however, Arma Traders
failed to settle its account with Advance Paper.16

On December 29, 1994, the petitioners filed a complaint for collection of sum of money with
17

application for preliminary attachment against Arma Traders, Tan, Uy, Ting, Gui, and Ng.

Claims of the petitioners

The petitioners claimed that the respondents fraudulently issued the postdated checks as payment
for the purchases and loan transactions knowing that they did not have sufficient funds with the
drawee banks. 18

To prove the purchases on credit, the petitioners presented the summary of the transactions and
their corresponding sales invoices as their documentary evidence. 19

During the trial, Haw also testified that within one or two weeks upon delivery of the paper products,
Arma Traders paid the purchases in the form of postdated checks. Thus, he personally collected
these checks on Saturdays and upon receiving the checks, he surrendered to Arma Traders the
original of the sales invoices while he retained the duplicate of the invoices.
20

To prove the loan transactions, the petitioners presented the copies of the checks which Advance
21

Paper issued in favor of Arma Traders. The petitioners also filed a manifestation dated June 14,
22

1995, submitting a bank statement from Metrobank EDSA Kalookan Branch. This was to show that
Advance Paper’s credit line with Metrobank has been transferred to the account of Arma Traders as
payee from October 1994 to December 1994.

Moreover, Haw testified to prove the loan transactions. When asked why he considered extending
the loans without any collateral and loan agreement or promissory note, and only on the basis of the
issuance of the postdated checks, he answered that it was because he trusted Arma Traders since it
had been their customer for a long time and that none of the previous checks ever bounced. 23

Claims of the respondents

The respondents argued that the purchases on credit were spurious, simulated and fraudulent
since there was no delivery of the ₱7,000,000.00 worth of notebooks and other paper products. 24

During the trial, Ng testified that Arma Traders did not purchase notebooks and other paper products
from September to December 1994. He claimed that during this period, Arma Traders concentrated
on Christmas items, not school and office supplies. He also narrated that upon learning about the
complaint filed by the petitioners, he immediately looked for Arma Traders’ records and found no
receipts involving the purchases of notebooks and other paper products from Advance Paper. 25
As to the loan transactions, the respondents countered that these were the personal obligations of
Tan and Uy to Advance Paper. These loans were never intended to benefit the respondents.

The respondents also claimed that the loan transactions were ultra vires because the board of
directors of Arma Traders did not issue a board resolution authorizing Tan and Uy to obtain the
loans from Advance Paper. They claimed that the borrowing of money must be done only with the
prior approval of the board of directors because without the approval, the corporate officers are
acting in excess of their authority or ultra vires. When the acts of the corporate officers are ultra
vires, the corporation is not liable for whatever acts that these officers committed in excess of their
authority. Further, the respondents claimed that Advance Paper failed to verify Tan and Uy’s
authority to transact business with them. Hence, Advance Paper should suffer the consequences. 26

The respondents accused Tan and Uy for conspiring with the petitioners to defraud Arma Traders
through a series of transactions known as rediscounting of postdated checks. In rediscounting, the
respondents explained that Tan and Uy would issue Arma Traders’ postdated checks to the
petitioners in exchange for cash, discounted by as much as 7% to 10% depending on how long were
the terms of repayment. The rediscounted percentage represented the interest or profit earned by
the petitioners in these transactions.
27

Tan did not file his Answer and was eventually declared in default.

On the other hand, Uy filed his Answer dated January 20, 1995 but was subsequently declared in
28

default upon his failure to appear during the pre-trial. In his Answer, he admitted that Arma Traders
together with its corporate officers have been transacting business with Advance Paper. He claimed
29

that he and Tan have been authorized by the board of directors for the past 13 years to issue checks
in behalf of Arma Traders to pay its obligations with Advance Paper. Furthermore, he admitted
30

that Arma Traders’ checks were issued to pay its contractual obligations with Advance
Paper. However, according to him, Advance Paper was informed beforehand that Arma Traders’
31

checks were funded out of the ₱20,000,000.00 worth of collectibles coming from the provinces.
Unfortunately, the expected collectibles did not materialize for unknown reasons. 32

Ng filed his Answer and claimed that the management of Arma Traders was left entirely to Tan and
33

Uy. Thus, he never participated in the company’s daily transactions. 34

Atty. Ernest S. Ang, Jr. (Atty. Ang), Arma Traders’ Vice-President for Legal Affairs and Credit and
Collection, testified that he investigated the transactions involving Tan and Uy and discovered that
they were financing their own business using Arma Traders’ resources. He also accused Haw for
conniving with Tan and Uy in fraudulently making Arma Traders liable for their personal debts. He
based this conclusion from the following: First, basic human experience and common sense tell us
that a lender will not agree to extend additional loan to another person who already owes a
substantial sum from the lender – in this case, petitioner Advance Paper. Second, there was no
other document proving the existence of the loan other than the postdated checks. Third, the total of
the purchase and loan transactions vis-à-vis the total amount of the postdated checks did not
tally. Fourth, he found out that the certified true copy of Advance Paper’s report with the Securities
and Exchange Commission (SEC report) did not reflect the ₱15,000,000.00 collectibles it had with
Arma Traders. 35

Atty. Ang also testified that he already filed several cases of estafa and qualified theft against Tan
36

and Uy and that several warrants of arrest had been issued against them.
In their pre-trial brief, the respondents named Sharow Ong, the secretary of Tan and Uy, to testify
37

on how Tan and Uy conspired with the petitioners to defraud Arma Traders. However, the
respondents did not present her on the witness stand.

The RTC Ruling

On June 18, 2001, the RTC ruled that the purchases on credit and loans were sufficiently proven by
the petitioners. Hence, the RTC ordered Arma Traders to pay Advance Paper the sum of
₱15,321,798.25 with interest, and ₱1,500,000.00 for attorney’s fees, plus the cost of the suit.

The RTC held that the respondents failed to present hard, admissible and credible evidence to prove
that the sale invoices were forged or fictitious, and that the loan transactions were personal
obligations of Tan and Uy. Nonetheless, the RTC dismissed the complaint against Tan, Uy, Ting,
Gui and Ng due to the lack of evidence showing that they bound themselves, either jointly or
solidarily, with Arma Traders for the payment of its account. 38

Arma Traders appealed the RTC decision to the CA.

The CA Ruling

The CA held that the petitioners failed to prove by preponderance of evidence the existence of the
purchases on credit and loans based on the following grounds:

First, Arma Traders was not liable for the loan in the absence of a board resolution authorizing Tan
and Uy to obtain the loan from Advance Paper. The CA acknowledged that Tan and Uy were Arma
39

Traders’ authorized bank signatories. However, the CA explained that this is not sufficient because
the authority to sign the checks is different from the required authority to contract a loan.
40

Second, the CA also held that the petitioners presented incompetent and inadmissible evidence to
prove the purchases on credit since the sales invoices were hearsay. The CA pointed out that
41

Haw’s testimony as to the identification of the sales invoices was not an exception to the hearsay
rule because there was no showing that the secretaries who prepared the sales invoices are already
dead or unable to testify as required by the Rules of Court. Further, the CA noted that the
42

secretaries were not identified or presented in court.43

Third, the CA ruling heavily relied on Ng’s Appellant’s Brief which made the detailed description of
44

the "badges of fraud." The CA averred that the petitioners failed to satisfactorily rebut the badges of
fraud which include the inconsistencies in:
45

(1) "Exhibit E-26," a postdated check, which was allegedly issued in favor of Advance Paper
but turned out to be a check payable to Top Line, Advance Paper’s sister company; 46

(2) "Sale Invoice No. 8946," an evidence to prove the existence of the purchases on credit,
whose photocopy failed to reflect the amount stated in the duplicate copy, and;
47

(3) The SEC report of Advance Paper for the year ended 1994 reflected its account
receivables amounting to ₱219,705.19 only – an amount far from the claimed
₱15,321,798.25 receivables from Arma Traders. 48

Hence, the CA set aside the RTC’s order for Arma Traders to pay Advance Paper the sum of
₱15,321,798.25, ₱1,500,000.00 for attorney’s fees, plus cost of suit. It affirmed the RTC decision
49
dismissing the complaint against respondents Tan, Uy, Ting, Gui and Ng. The CA also directed the
50

petitioners to solidarily pay each of the respondents their counterclaims of ₱250,000.00 as moral
damages, ₱250,000.00 as exemplary damages, and ₱250,000.00 as attorney’s fees. 51

The Petition

The petitioners raise the following arguments.

First, Arma Traders led the petitioners to believe that Tan and Uy had the authority to obtain loans
since the respondents left the active and sole management of the company to Tan and Uy since
1984. In fact, Ng testified that Arma Traders’ stockholders and board of directors never conducted a
meeting from 1984 to 1995. Therefore, if the respondents’ position will be sustained, they will have
the absurd power to question all the business transactions of Arma Traders. Citing Lipat v. Pacific
52

Banking Corporation, the petitioners said that if a corporation knowingly permits one of its officers or
53

any other agent to act within the scope of an apparent authority, it holds him out to the public as
possessing the power to do those acts; thus, the corporation will, as against anyone who has in
good faith dealt with it through such agent, be estopped from denying the agent’s authority.

Second, the petitioners argue that Haw’s testimony is not hearsay. They emphasize that Haw has
personal knowledge of the assailed purchases and loan transactions because he dealt with the
customers, and supervised and directed the preparation of the sales invoices and the deliveries of
the goods. Moreover, the petitioners stress that the respondents never objected to the admissibility
54

of the sales invoices on the ground that they were hearsay. 55

Third, the petitioners dispute the CA’s findings on the existence of the badges of fraud. The
petitioners countered:

(1) The discrepancies between the figures in the 15 out of the 96 photocopies and duplicate
originals of the sales invoices amounting to ₱4,624.80 – an insignificant amount
compared to the total purchases of ₱7,533,001.49 – may have been caused by the failure
to put the carbon paper. Besides, the remaining 81 sales invoices are
56

uncontroverted. The petitioners also raise the point that this discrepancy is a nonissue
because the duplicate originals were surrendered in the RTC. 57

(2) The respondents misled Haw during the cross-examination and took his answer out of
context. The petitioners argue that this maneuver is insufficient to discredit Haw’s entire
58

testimony. 59

(3) Arma Traders should be faulted for indicating Top Line as the payee in Exhibit E-26 or
PBC check no. 091014. Moreover, Exhibit E-26 does not refer to PBC check no. 091014 but
to PBC check no. 091032 payable to the order of cash. 60

(4) The discrepancy in the total amount of the checks which is ₱15,130,363.87 as against
the total obligation of ₱15,321,798.25 does not necessarily prove that the transactions are
spurious. 61

(5) The difference in Advance Paper’s accounts receivables in the SEC report and in Arma
Traders’ obligation with Advance Paper was based on non-existent evidence because
Exhibit 294-NG does not pertain to any balance sheet. Moreover, the term "accounts
62

receivable" is not synonymous with "cause of action." The respondents cannot escape their
liability by simply pointing the SEC report because the petitioners have established their
 cause of action – that the purchases on credit and loan transactions took place, the
respondents issued the dishonored checks to cover their debts, and they refused to settle
their obligation with Advance Paper. 63

The Case for the Respondents

The respondents argue that the Petition for Review should be dismissed summarily because of the
following procedural grounds: first, for failure to comply with A.M. No. 02-8-13-SC; and second, the
64

CA decision is already final and executory since the petitioners filed their Motion for Reconsideration
out of time. They explain that under the rules of the CA, if the last day for filing of any pleading falls
on a Saturday not a holiday, the same must be filed on said Saturday, as the Docket and Receiving
Section of the CA is open on a Saturday. 65

The respondents argue that while as a general rule, a corporation is estopped from denying the
authority of its agents which it allowed to deal with the general public; this is only true if the person
dealing with the agent dealt in good faith. In the present case, the respondents claim that the
66

petitioners are in bad faith because the petitioners connived with Tan and Uy to make Arma Traders
liable for the non-existent deliveries of notebooks and other paper products. They also insist that
67

the sales invoices are manufactured evidence. 68

As to the loans, the respondents aver that these were Tan and Uy’s personal obligations with
Advance Paper. Moreover, while the three cashier’s checks were deposited in the account of Arma
69

Traders, it is likewise true that Tan and Uy issued Arma Traders’ checks in favor of Advance Paper.
All these checks are evidence of Tan, Uy and Haw’s systematic conspiracy to siphon Arma Traders
corporate funds. 70

The respondents also seek to discredit Haw’s testimony on the basis of the following. First, his
testimony as regards the sales invoices is hearsay because he did not personally prepare these
documentary evidence. Second, Haw suspiciously never had any written authority from his own
71

Board of Directors to lend money. Third, the respondents also questioned why Advance Paper
granted the ₱7,000,000.00 loan without requiring Arma Traders to present any collateral or
guarantees. 72

The Issues

The main procedural and substantive issues are:

I. Whether the petition for review should be dismissed for failure to comply with A.M. No. 02-
8-13-SC.

II. Whether the petition for review should be dismissed on the ground of failure to file the
motion for reconsideration with the CA on time.

III. Whether Arma Traders is liable to pay the loans applying the doctrine of apparent
authority.

IV. Whether the petitioners proved Arma Traders’ liability on the purchases on credit by
preponderance of evidence.

The Court's Ruling

We grant the petition.

The procedural issues.

First, the respondents correctly cited A.M. No. 02-8-13-SC dated February 19, 2008 which refer to
the amendment of the 2004 Rules on Notarial Practice. It deleted the Community Tax Certificate
among the accepted proof of identity of the affiant because of its inherent unreliability. The
petitioners violated this when they used Community Tax Certificate No. 05730869 in their Petition for
Review. Nevertheless, the defective jurat in the Verification/Certification of Non-Forum Shopping is
73

not a fatal defect because it is only a formal, not a jurisdictional, requirement that the Court may
waive. Furthermore, we cannot simply ignore the millions of pesos at stake in this case. To do so
74

might cause grave injustice to a party, a situation that this Court intends to avoid.

Second, no less than the CA itself waived the rules on the period to file the motion for
reconsideration. A review of the CA Resolution dated March 7, 2007, reveals that the petitioners’
75

Motion for Reconsideration was denied because the allegations were a mere rehash of what the
petitioners earlier argued – not because the motion for reconsideration was filed out of time.

The substantive issues.

Arma Traders is liable to pay the

loans on the basis of the doctrine of
apparent authority.

The doctrine of apparent authority provides that a corporation will be estopped from denying the
agent’s authority if it knowingly permits one of its officers or any other agent to act within the scope
of an apparent authority, and it holds him out to the public as possessing the power to do those
acts. The doctrine of apparent authority does not apply if the principal did not commit any acts or
76

conduct which a third party knew and relied upon in good faith as a result of the exercise of
reasonable prudence. Moreover, the agent’s acts or conduct must have produced a change of
position to the third party’s detriment.
77

In Inter-Asia Investment Industries v. Court of Appeals, we explained:

78

Under this provision [referring to Sec. 23 of the Corporation Code], the power and responsibility to
decide whether the corporation should enter into a contract that will bind the corporation is lodged in
the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. However,
just as a natural person who may authorize another to do certain acts for and on his behalf,
the board of directors may validly delegate some of its functions and powers to officers,
committees or agents. The authority of such individuals to bind the corporation is generally
derived from law, corporate bylaws or authorization from the board, either expressly or
impliedly by habit, custom or acquiescence in the general course of business, viz.:

A corporate officer or agent may represent and bind the corporation in transactions with third
persons to the extent that [the] authority to do so has been conferred upon him, and this includes
powers as, in the usual course of the particular business, are incidental to, or may be implied from,
the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the
particular officer or agent, and such apparent powers as the corporation has caused person dealing
with the officer or agent to believe that it has conferred.
[A]pparent authority is derived not merely from practice. Its existence may be ascertained
through (1) the general manner in which the corporation holds out an officer or agent as having the
power to act or, in other words the apparent authority to act in general, with which it clothes him; or
(2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge
thereof, within or beyond the scope of his ordinary powers. It requires presentation of
evidence of similar act(s) executed either in its favor or in favor of other parties. It is not the
quantity of similar acts which establishes apparent authority, but the vesting of a corporate
officer with the power to bind the corporation. [emphases and underscores ours]

In People’s Aircargo and Warehousing Co., Inc. v. Court of Appeals, we ruled that the doctrine of
79

apparent authority is applied when the petitioner, through its president Antonio Punsalan Jr., entered
into the First Contract without first securing board approval. Despite such lack of board approval,
petitioner did not object to or repudiate said contract, thus "clothing" its president with the power to
bind the corporation.

"Inasmuch as a corporate president is often given general supervision and control over corporate
operations, the strict rule that said officer has no inherent power to act for the corporation is slowly
giving way to the realization that such officer has certain limited powers in the transaction of the
usual and ordinary business of the corporation." "In the absence of a charter or bylaw provision
80

to the contrary, the president is presumed to have the authority to act within the domain of
the general objectives of its business and within the scope of his or her usual duties." 81

In the present petition, we do not agree with the CA’s findings that Arma Traders is not liable to pay
the loans due to the lack of board resolution authorizing Tan and Uy to obtain the loans. To begin
with, Arma Traders’ Articles of Incorporation provides that the corporation may borrow or raise
82

money to meet the financial requirements of its business by the issuance of bonds, promissory
notes and other evidence of indebtedness. Likewise, it states that Tan and Uy are not just
ordinary corporate officers and authorized bank signatories because they are also Arma
Traders’ incorporators along with respondents Ng and Ting, and Pedro Chao. Furthermore, the
respondents, through Ng who is Arma Traders’ corporate secretary, incorporator, stockholder and
director, testified that the sole management of Arma Traders was left to Tan and Uy and that he
and the other officers never dealt with the business and management of Arma Traders for 14
years. He also confirmed that since 1984 up to the filing of the complaint against Arma
Traders, its stockholders and board of directors never had its meeting. 83

Thus, Arma Traders bestowed upon Tan and Uy broad powers by allowing them to transact with
third persons without the necessary written authority from its non-performing board of directors.
Arma Traders failed to take precautions to prevent its own corporate officers from abusing their
powers. Because of its own laxity in its business dealings, Arma Traders is now estopped from
denying Tan and Uy’s authority to obtain loan from Advance Paper.

We also reject the respondents’ claim that Advance Paper, through Haw, connived with Tan and Uy.
The records do not contain any evidence to prove that the loan transactions were personal to Tan
and Uy. A different conclusion might have been inferred had the cashier’s checks been issued in
favor of Tan and Uy, and had the postdated checks in favor of Advance Paper been either Tan
and/or Uy’s, or had the respondents presented convincing evidence to show how Tan and Uy
conspired with the petitioners to defraud Arma Traders. We note that the respondents initially
84

intended to present Sharow Ong, the secretary of Tan and Uy, to testify on how Advance Paper
connived with Tan and Uy. As mentioned, the respondents failed to present her on the witness
stand.
The respondents failed to object to
the admissibility of the sales invoices
on the ground that they are hearsay

The rule is that failure to object to the offered evidence renders it admissible, and the court cannot,
on its own, disregard such evidence. When a party desires the court to reject the evidence offered,
85

it must so state in the form of a timely objection and it cannot raise the objection to the evidence for
the first time on appeal. Because of a party’s failure to timely object, the evidence becomes part of
the evidence in the case. Thereafter, all the parties are considered bound by any outcome arising
from the offer of evidence properly presented. 86

In Heirs of Policronio M. Ureta, Sr. v. Heirs of Liberato M. Ureta, however, we held:

87

[H]earsay evidence whether objected to or not cannot be given credence for having no probative
value. This principle, however, has been relaxed in cases where, in addition to the failure to object
1âwphi1

to the admissibility of the subject evidence, there were other pieces of evidence presented or
there were other circumstances prevailing to support the fact in issue. (emphasis and
underscore ours; citation omitted)

We agree with the respondents that with respect to the identification of the sales invoices, Haw’s
testimony was hearsay because he was not present during its preparation and the secretaries who
88

prepared them were not presented to identify them in court. Further, these sales invoices do not fall
within the exceptions to the hearsay rule even under the "entries in the course of business" because
the petitioners failed to show that the entrant was deceased or was unable to testify. 89

But even though the sales invoices are hearsay, nonetheless, they form part of the records of the
case for the respondents’ failure to object as to the admissibility of the sales invoices on the ground
that they are hearsay. Based on the records, the respondents through Ng objected to the offer "for
90

the purpose [to] which they are being offered" only – not on the ground that they were hearsay. 91

The petitioners have proven their

claims for the unpaid purchases on
credit by preponderance of evidence.

We are not convinced by the respondents’ argument that the purchases are spurious because no
less than Uy admitted that all the checks issued were in payments of the contractual
obligations of the Arma Traders with Advance Paper. Moreover, there are other pieces of
92

evidence to prove the existence of the purchases other than the sales invoices themselves. For one,
Arma Traders’ postdated checks evince the existence of the purchases on credit. Moreover, Haw
testified that within one or two weeks, Arma Traders paid the purchases in the form of postdated
checks. He personally collected these checks on Saturdays and upon receiving the checks, he
surrendered to Arma Traders the original of the sales invoices while he retained the duplicate of the
invoices. 93

The respondents attempted to impugn the credibility of Haw by pointing to the inconsistencies they
can find from the transcript of stenographic notes. However, we are not persuaded that these
inconsistencies are sufficiently pervasive to affect the totality of evidence showing the general
relationship between Advance Paper and Arma Traders.

Additionally, the issue of credibility of witnesses is to be resolved primarily by the trial court because
it is in the better position to assess the credibility of witnesses as it heard the testimonies and
observed the deportment and manner of testifying of the witnesses. Accordingly, its findings are
entitled to great respect and will not be disturbed on appeal in the absence of any showing that the
trial court overlooked, misunderstood, or misapplied some facts or circumstances of weight and
substance which would have affected the result of the case. 94

In the present case, the RTC judge took into consideration the substance and the manner by which
Haw answered each propounded questions to him in the witness stand. Hence, the minor
inconsistencies in Haw’s testimony notwithstanding, the RTC held that the respondents claim that
the purchase and loan transactions were spurious is "not worthy of serious consideration." Besides,
the respondents failed to convince us that the RTC judge overlooked, misunderstood, or misapplied
some facts or circumstances of weight and substance which would have affected the result of the
case.

On the other hand, we agree with the petitioners that the discrepancies in the photocopy of the sales
invoices and its duplicate copy have been sufficiently explained. Besides, this is already a non-issue
since the duplicate copies were surrendered in the RTC. Furthermore, the fact that the value of
95

Arma Traders' checks does not tally with the total amount of their obligation with Advance Paper is
not inconsistent with the existence of the purchases and loan transactions.

As against the case and the evidence Advance Paper presented, the respondents relied on the core
theory of an alleged conspiracy between Tan, Uy and Haw to defraud Arma Traders. However, the
records are bereft of supporting evidence to prove the alleged conspiracy. Instead, the respondents
simply dwelled on the minor inconsistencies from the petitioners' evidence that the respondents
appear to have magnified. From these perspectives, the preponderance of evidence thus lies heavily
in the petitioners' favor as the RTC found. For this reason, we find the petition meritorious.

WHEREFORE, premises considered, we GRANT the petition. The decision dated March 31, 2006
and the resolution dated March 7, 2007 of the Court of Appeals in CA-G.R. CV No. 71499 are
REVERSED and SET ASIDE. The Regional Trial Court decision in Civil Case No. 94-72526 dated
June 18, 2001 is REINSTATED. No costs.

SO ORDERED.

ARTURO D. BRION
Associate Justice
Overview: The case involves a Petition for Review seeking to overturn the Decision of the Court
of Appeals (CA), which reversed the ruling of the Regional Trial Court (RTC). The RTC had
ordered Arma Traders Corporation to pay Advance Paper Corporation a significant sum for
purchases on credit and loans. The purchases involved paper products, while the loans were
obtained to settle obligations to other suppliers. Arma Traders issued postdated checks to
Advance Paper, but these were dishonored, leading to the legal dispute.

Issue

Whether Arma Traders is liable to pay the loans based on the doctrine of apparent authority.

Ruling:

Arma Traders is deemed liable to pay the loans based on the doctrine of apparent authority.
Even though there was no explicit board resolution authorizing the loans, the corporation's
conduct and acquiescence in allowing its officers to transact with third parties establish apparent
authority.
Case Digest

Issue

III. Whether Arma Traders is liable to pay the loans applying the doctrine of apparent authority.

Held

Arma Traders is liable to pay the

loans on the basis of the doctrine of

apparent authority.

The doctrine of apparent authority provides that a corporation will be estopped from denying the
agent’s authority if it knowingly permits one of its officers or any other agent to act within the scope
of an apparent authority, and it holds him out to the public as possessing the power to do those
acts.76 The doctrine of apparent authority does not apply if the principal did not commit any acts or
conduct which a third party knew and relied upon in good faith as a result of the exercise of
reasonable prudence. Moreover, the agent’s acts or conduct must have produced a change of
position to the third party’s detriment.77

In Inter-Asia Investment Industries v. Court of Appeals,78 we explained:

Under this provision [referring to Sec. 23 of the Corporation Code], the power and responsibility to
decide whether the corporation should enter into a contract that will bind the corporation is lodged in
the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. However, just
as a natural person who may authorize another to do certain acts for and on his behalf, the board of
directors may validly delegate some of its functions and powers to officers, committees or agents.
The authority of such individuals to bind the corporation is generally derived from law, corporate
bylaws or authorization from the board, either expressly or impliedly by habit, custom or
acquiescence in the general course of business, viz.:

A corporate officer or agent may represent and bind the corporation in transactions with third
persons to the extent that [the] authority to do so has been conferred upon him, and this includes
powers as, in the usual course of the particular business, are incidental to, or may be implied from,
the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the
particular officer or agent, and such apparent powers as the corporation has caused person dealing
with the officer or agent to believe that it has conferred.
[A]pparent authority is derived not merely from practice. Its existence may be ascertained through
(1) the general manner in which the corporation holds out an officer or agent as having the power to
act or, in other words the apparent authority to act in general, with which it clothes him; or (2) the
acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within
or beyond the scope of his ordinary powers. It requires presentation of evidence of similar act(s)
executed either in its favor or in favor of other parties. It is not the quantity of similar acts which
establishes apparent authority, but the vesting of a corporate officer with the power to bind the
corporation. [emphases and underscores ours]
4.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 163825 July 13, 2010

VIOLETA TUDTUD BANATE, MARY MELGRID M. CORTEL, BONIFACIO CORTEL, ROSENDO

MAGLASANG, and PATROCINIA MONILAR, Petitioners,
vs.
PHILIPPINE COUNTRYSIDE RURAL BANK (LILOAN, CEBU), INC. and TEOFILO SOON,
JR., Respondents.

DECISION

BRION, J.:

Before the Court is a petition for review on certiorari1 assailing the December 19, 2003 decision2 and
the May 5, 2004 resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 74332. The CA decision
reversed the Regional Trial Court (RTC) decision4 of June 27, 2001 granting the petitioners’
complaint for specific performance and damages against the respondent Philippine Countryside
Rural Bank, Inc. (PCRB).5

THE FACTUAL ANTECEDENTS

On July 22, 1997, petitioner spouses Rosendo Maglasang and Patrocinia Monilar (spouses
Maglasang) obtained a loan (subject loan) from PCRB for ₱1,070,000.00. The subject loan was
evidenced by a promissory note and was payable on January 18, 1998. To secure the payment of
the subject loan, the spouses Maglasang executed, in favor of PCRB a real estate mortgage over
their property, Lot 12868-H-3-C, 6 including the house constructed thereon (collectively referred to as
subject properties), owned by petitioners Mary Melgrid and Bonifacio Cortel (spouses Cortel), the
spouses Maglasang’s daughter and son-in-law, respectively. Aside from the subject loan, the
spouses Maglasang obtained two other loans from PCRB which were covered by separate
promissory notes7 and secured by mortgages on their other properties.

Sometime in November 1997 (before the subject loan became due), the spouses Maglasang and the
spouses Cortel asked PCRB’s permission to sell the subject properties. They likewise requested that
the subject properties be released from the mortgage since the two other loans were adequately
secured by the other mortgages. The spouses Maglasang and the spouses Cortel claimed that the
PCRB, acting through its Branch Manager, Pancrasio Mondigo, verbally agreed to their request but
required first the full payment of the subject loan. The spouses Maglasang and the spouses Cortel
thereafter sold to petitioner Violeta Banate the subject properties for ₱1,750,000.00. The spouses
Magsalang and the spouses Cortel used the amount to pay the subject loan with PCRB. After
settling the subject loan, PCRB gave the owner’s duplicate certificate of title of Lot 12868-H-3-C to
Banate, who was able to secure a new title in her name. The title, however, carried the mortgage
lien in favor of PCRB, prompting the petitioners to request from PCRB a Deed of Release of
Mortgage. As PCRB refused to comply with the petitioners’ request, the petitioners instituted an
action for specific performance before the RTC to compel PCRB to execute the release deed.
The petitioners additionally sought payment of damages from PCRB, which, they claimed, caused
the publication of a news report stating that they "surreptitiously" caused the transfer of ownership of
Lot 12868-H-3-C. The petitioners considered the news report false and malicious, as PCRB knew of
the sale of the subject properties and, in fact, consented thereto.

PCRB countered the petitioners’ allegations by invoking the cross-collateral stipulation in the
mortgage deed which states:

1. That as security for the payment of the loan or advance in principal sum of one million
seventy thousand pesos only (₱1,070,000.00) and such other loans or advances already
obtained, or still to be obtained by the MORTGAGOR(s) as MAKER(s), CO-MAKER(s) or
GUARANTOR(s) from the MORTGAGEE plus interest at the rate of _____ per annum and
penalty and litigation charges payable on the dates mentioned in the corresponding
promissory notes, the MORTGAGOR(s) hereby transfer(s) and convey(s) to MORTGAGEE
by way of first mortgage the parcel(s) of land described hereunder, together with the
improvements now existing for which may hereafter be made thereon, of which
MORTGAGOR(s) represent(s) and warrant(s) that MORTGAGOR(s) is/are the absolute
owner(s) and that the same is/are free from all liens and encumbrances;

TRANSFER CERTIFICATE OF TITLE NO. 827468

Accordingly, PCRB claimed that full payment of the three loans, obtained by the spouses
Maglasang, was necessary before any of the mortgages could be released; the settlement of the
subject loan merely constituted partial payment of the total obligation. Thus, the payment does not
authorize the release of the subject properties from the mortgage lien.

PCRB considered Banate as a buyer in bad faith as she was fully aware of the existing mortgage in
its favor when she purchased the subject properties from the spouses Maglasang and the spouses
Cortel. It explained that it allowed the release of the owner’s duplicate certificate of title to Banate
only to enable her to annotate the sale. PCRB claimed that the release of the title should not indicate
the corresponding release of the subject properties from the mortgage constituted thereon.

After trial, the RTC ruled in favor of the petitioners. It noted that the petitioners, as "necessitous
men," could not have bargained on equal footing with PCRB in executing the mortgage, and
concluded that it was a contract of adhesion. Therefore, any obscurity in the mortgage contract
should not benefit PCRB.9

The RTC observed that the official receipt issued by PCRB stated that the amount owed by the
spouses Maglasang under the subject loan was only about ₱1.2 million; that Mary Melgrid Cortel
paid the subject loan using the check which Banate issued as payment of the purchase price; and
that PCRB authorized the release of the title further indicated that the subject loan had already been
settled. Since the subject loan had been fully paid, the RTC considered the petitioners as rightfully
entitled to a deed of release of mortgage, pursuant to the verbal agreement that the petitioners made
with PCRB’s branch manager, Mondigo. Thus, the RTC ordered PCRB to execute a deed of release
of mortgage over the subject properties, and to pay the petitioners moral damages and attorney’s
fees.10

On appeal, the CA reversed the RTC’s decision. The CA did not consider as valid the petitioners’
new agreement with Mondigo, which would novate the original mortgage contract containing the
cross-collateral stipulation. It ruled that Mondigo cannot orally amend the mortgage contract between
PCRB, and the spouses Maglasang and the spouses Cortel; therefore, the claimed commitment
allowing the release of the mortgage on the subject properties cannot bind PCRB. Since the cross-
collateral stipulation in the mortgage contract (requiring full settlement of all three loans before the
release of any of the mortgages) is clear, the parties must faithfully comply with its terms. The CA
did not consider as material the release of the owner’s duplicate copy of the title, as it was done
merely to allow the annotation of the sale of the subject properties to Banate. 11

Dismayed with the reversal by the CA of the RTC’s ruling, the petitioners filed the present appeal by
certiorari, claiming that the CA ruling is not in accord with established jurisprudence.

THE PETITION

The petitioners argue that their claims are consistent with their agreement with PCRB; they complied
with the required full payment of the subject loan to allow the release of the subject properties from
the mortgage.

Having carried out their part of the bargain, the petitioners maintain that PCRB must honor its
commitment to release the mortgage over the subject properties.

The petitioners disregard the cross-collateral stipulation in the mortgage contract, claiming that it had
been novated by the subsequent agreement with Mondigo. Even assuming that the cross-collateral
stipulation subsists for lack of authority on the part of Mondigo to novate the mortgage contract, the
petitioners contend that PCRB should nevertheless return the amount paid to settle the subject loan
since the new agreement should be deemed rescinded.

The basic issues for the Court to resolve are as follows:

1. Whether the purported agreement between the petitioners and Mondigo novated the
mortgage contract over the subject properties and is thus binding upon PCRB.

2. If the first issue is resolved negatively, whether Banate can demand restitution of the
amount paid for the subject properties on the theory that the new agreement with Mondigo is
deemed rescinded.

THE COURT’S RULING

We resolve to deny the petition.

The purported agreement did not novate the mortgage contract, particularly the cross- collateral
stipulation thereon

Before we resolve the issues directly posed, we first dwell on the determination of the nature of the
cross-collateral stipulation in the mortgage contract. As a general rule, a mortgage liability is usually
limited to the amount mentioned in the contract. However, the amounts named as consideration in a
contract of mortgage do not limit the amount for which the mortgage may stand as security if, from
the four corners of the instrument, the intent to secure future and other indebtedness can be
gathered. This stipulation is valid and binding between the parties and is known as the "blanket
mortgage clause" (also known as the "dragnet clause)."12

In the present case, the mortgage contract indisputably provides that the subject properties serve as
security, not only for the payment of the subject loan, but also for "such other loans or advances
already obtained, or still to be obtained." The cross-collateral stipulation in the mortgage contract
between the parties is thus simply a variety of a dragnet clause. After agreeing to such stipulation,
the petitioners cannot insist that the subject properties be released from mortgage since the security
covers not only the subject loan but the two other loans as well.

The petitioners, however, claim that their agreement with Mondigo must be deemed to have novated
the mortgage contract. They posit that the full payment of the subject loan extinguished their
obligation arising from the mortgage contract, including the stipulated cross-collateral provision.
Consequently, consistent with their theory of a novated agreement, the petitioners maintain that it
devolves upon PCRB to execute the corresponding Deed of Release of Mortgage.

We find the petitioners’ argument unpersuasive. Novation, in its broad concept, may either be
extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a
new obligation that takes the place of the former; it is merely modificatory when the old obligation
subsists to the extent that it remains compatible with the amendatory agreement. An extinctive
novation results either by changing the object or principal conditions (objective or real), or by
substituting the person of the debtor or subrogating a third person in the rights of the creditor
(subjective or personal). Under this mode, novation would have dual functions – one to extinguish an
existing obligation, the other to substitute a new one in its place – requiring a conflux of four
essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a
new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. 13

The second requisite is lacking in this case. Novation presupposes not only the extinguishment or
modification of an existing obligation but, more importantly, the creation of a valid new
obligation.14 For the consequent creation of a new contractual obligation, consent of both parties is,
thus, required. As a general rule, no form of words or writing is necessary to give effect to a
novation. Nevertheless, where either or both parties involved are juridical entities, proof that the
second contract was executed by persons with the proper authority to bind their respective principals
is necessary.15

Section 23 of the Corporation Code16 expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. The power and the responsibility to decide
whether the corporation should enter into a contract that will bind the corporation are lodged in the
board, subject to the articles of incorporation, bylaws, or relevant provisions of law. In the absence of
authority from the board of directors, no person, not even its officers, can validly bind a corporation.

However, just as a natural person may authorize another to do certain acts for and on his behalf, the
board of directors may validly delegate some of its functions and powers to its officers, committees
or agents. The authority of these individuals to bind the corporation is generally derived from law,
corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or
acquiescence in the general course of business.17

The authority of a corporate officer or agent in dealing with third persons may be actual or apparent.
Actual authority is either express or implied. The extent of an agent’s express authority is to be
measured by the power delegated to him by the corporation, while the extent of his implied authority
is measured by his prior acts which have been ratified or approved, or their benefits accepted by his
principal.18 The doctrine of "apparent authority," on the other hand, with special reference to
banks, had long been recognized in this jurisdiction. The existence of apparent authority may
be ascertained through:

1) the general manner in which the corporation holds out an officer or agent as having the
power to act, or in other words, the apparent authority to act in general, with which it clothes
him; or
 2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge
thereof, within or beyond the scope of his ordinary powers.

Accordingly, the authority to act for and to bind a corporation may be presumed from acts of
recognition in other instances when the power was exercised without any objection from its board or
shareholders.19

Notably, the petitioners’ action for specific performance is premised on the supposed actual or
apparent authority of the branch manager, Mondigo, to release the subject properties from the
mortgage, although the other obligations remain unpaid. In light of our discussion above, proof of the
branch manager’s authority becomes indispensable to support the petitioners’ contention. The
petitioners make no claim that Mondigo had actual authority from PCRB, whether express or implied.
Rather, adopting the trial court’s observation, the petitioners posited that PCRB should be held liable
for Mondigo’s commitment, on the basis of the latter’s apparent authority.

We disagree with this position.

Under the doctrine of apparent authority, acts and contracts of the agent, as are within the apparent
scope of the authority conferred on him, although no actual authority to do such acts or to make
such contracts has been conferred, bind the principal.20 The principal’s liability, however, is limited
only to third persons who have been led reasonably to believe by the conduct of the principal that
such actual authority exists, although none was given. In other words, apparent authority is
determined only by the acts of the principal and not by the acts of the agent. 21 There can be no
apparent authority of an agent without acts or conduct on the part of the principal; such acts or
conduct must have been known and relied upon in good faith as a result of the exercise of
reasonable prudence by a third party as claimant, and such acts or conduct must have produced a
change of position to the third party’s detriment.22

In the present case, the decision of the trial court was utterly silent on the manner by which PCRB,
as supposed principal, has "clothed" or "held out" its branch manager as having the power to enter
into an agreement, as claimed by petitioners. No proof of the course of business, usages and
practices of the bank about, or knowledge that the board had or is presumed to have of, its
responsible officers’ acts regarding bank branch affairs, was ever adduced to establish the branch
manager’s apparent authority to verbally alter the terms of mortgage contracts. 23 Neither was there
any allegation, much less proof, that PCRB ratified Mondigo’s act or is estopped to make a contrary
claim.24

Further, we would be unduly stretching the doctrine of apparent authority were we to consider the
power to undo or nullify solemn agreements validly entered into as within the doctrine’s ambit.
Although a branch manager, within his field and as to third persons, is the general agent and is in
general charge of the corporation, with apparent authority commensurate with the ordinary business
entrusted him and the usual course and conduct thereof,25 yet the power to modify or nullify
corporate contracts remains generally in the board of directors.26 Being a mere branch manager
alone is insufficient to support the conclusion that Mondigo has been clothed with "apparent
authority" to verbally alter terms of written contracts, especially when viewed against the telling
circumstances of this case: the unequivocal provision in the mortgage contract; PCRB’s vigorous
denial that any agreement to release the mortgage was ever entered into by it; and, the fact that the
purported agreement was not even reduced into writing considering its legal effects on the parties’
interests. To put it simply, the burden of proving the authority of Mondigo to alter or novate the
mortgage contract has not been established.27
It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of the agent’s
authority, and in case either is controverted, the burden of proof is upon them to establish it. 28 As
parties to the mortgage contract, the petitioners are expected to abide by its terms. The subsequent
purported agreement is of no moment, and cannot prejudice PCRB, as it is beyond Mondigo’s actual
or apparent authority, as above discussed.

Rescission has no legal basis; there can be no restitution of the amount paid

The petitioners, nonetheless, invoke equity and alternatively pray for the restitution of the amount
paid, on the rationale that if PCRB’s branch manager was not authorized to accept payment in
consideration of separately releasing the mortgage, then the agreement should be deemed
rescinded, and the amount paid by them returned.

PCRB, on the other hand, counters that the petitioners’ alternative prayer has no legal and factual
basis, and insists that the clear agreement of the parties was for the full payment of the subject loan,
and in return, PCRB would deliver the title to the subject properties to the buyer, only to enable the
latter to obtain a transfer of title in her own name.

We agree with PCRB. Even if we were to assume that the purported agreement has been sufficiently
established, since it is not binding on the bank for lack of authority of PCRB’s branch manager, then
the prayer for restitution of the amount paid would have no legal basis. Of course, it will be asked:
what then is the legal significance of the payment made by Banate? Article 2154 of the Civil Code
reads:

Art 2154. If something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises.
1avvphi1

Notwithstanding the payment made by Banate, she is not entitled to recover anything from PCRB
under Article 2154. There could not have been any payment by mistake to PCRB, as the check
which Banate issued as payment was to her co-petitioner Mary Melgrid Cortel (the payee), and not
to PCRB. The same check was simply endorsed by the payee to PCRB in payment of the subject
loan that the Maglasangs owed PCRB.29

The mistake, if any, was in the perception of the authority of Mondigo, as branch manager, to
verbally alter the mortgage contract, and not as to whether the Cortels, as sellers, were entitled to
payment. This mistake (on Mondigo’s lack of authority to alter the mortgage) did not affect the
validity of the payment made to the bank as the existence of the loan was never disputed. The
dispute was merely on the effect of the payment on the security given.30

Consequently, no right to recover accrues in Banate’s favor as PCRB never dealt with her. The
borrowers-mortgagors, on the other hand, merely paid what was really owed. Parenthetically, the
subject loan was due on January 18, 1998, but was paid sometime in November 1997. It appears,
however, that at the time the complaint was filed, the subject loan had already matured.
Consequently, recovery of the amount paid, even under a claim of premature payment, will not
prosper.

In light of these conclusions, the claim for moral damages must necessarily fail. On the alleged
injurious publication, we quote with approval the CA’s ruling on the matter, viz:
Consequently, there is no reason to hold [respondent] PCRB liable to [petitioners] for damages. x x x
[Petitioner] Maglasang cannot hold [respondent] PCRB liable for the publication of the extra-judicial
sale. There was no evidence submitted to prove that [respondent] PCRB authored the words
"Mortgagors surreptitiously caused the transfer of ownership of Lot 12868-H-3-C x x x" contained in
the publication since at the bottom was x x x Sheriff Teofilo C. Soon, Jr.’s name. Moreover, there
was not even an iota of proof which shows damage on the part of [petitioner] Mary Melgrid M.
Cortel.31

WHEREFORE, we DENY the petitioners’ petition for review on certiorari for lack of merit, and
AFFIRM the decision of the Court of Appeals dated December 19, 2003 and its resolution dated May
5, 2004 in CA-G.R. CV No. 74332. No pronouncement as to costs.

SO ORDERED.
Case Digest

Overview: The case involves a dispute between petitioner spouses and respondent
Philippine Countryside Rural Bank, Inc. (PCRB) regarding the release of a mortgage over
certain properties. The petitioners sold the properties to another party and requested
PCRB to release the mortgage. PCRB refused, citing a cross-collateral stipulation in the
mortgage contract. The petitioners argu

ed that there was a verbal agreement with PCRB's branch manager to release the
mortgage upon payment of the subject loan, invoking the doctrine of apparent
authority.

Issue: Whether the branch manager of PCRB had apparent authority to enter into an
agreement to release the mortgage over the subject properties.

Ruling of the Court: The Supreme Court held that the branch manager lacked apparent
authority to verbally alter the terms of the mortgage contract. The Court emphasized
that apparent authority arises from the acts of the principal, which lead third parties to
reasonably believe that the agent has the authority to act on behalf of the principal.
However, in this case, there was no evidence presented to show that PCRB had "clothed"
or "held out" its branch manager as having the power to enter into such an agreement.
Moreover, there was no proof that PCRB ratified the branch manager's act or was
estopped from making a contrary claim. Therefore, the Court concluded that the branch
manager's actions did not bind PCRB under the doctrine of apparent authority. As a
result, the petitioners' claim based on the purported agreement with the branch
manager was rejected.
5.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 129792 December 21, 1999

JARCO MARKETING CORPORATION, LEONARDO KONG, JOSE TIOPE and ELISA

PANELO, petitioners,
vs.
HONORABLE COURT OF APPEALS, CONRADO C. AGUILAR and CRISELDA R.
AGUILAR, respondents.

DAVIDE, JR., J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioners seek the
reversal of the 17 June 1996 decision of the Court of Appeals in C.A. G.R. No. CV 37937 and the
1

resolution denying their motion for reconsideration. The assailed decision set aside the 15 January
2

1992 judgment of the Regional Trial Court (RTC), Makati City, Branch 60 in Civil Case No. 7119 and
ordered petitioners to pay damages and attorney's fees to private respondents Conrado and
Criselda (CRISELDA) Aguilar.

Petitioner Jarco Marketing Corporation is the owner of Syvel's Department Store, Makati City.
Petitioners Leonardo Kong, Jose Tiope and Elis0000nb0000000000000000000000a Panelo are the
store's branch manager, operations manager, and supervisor, respectively. Private respondents are
spouses and the parents of Zhieneth Aguilar (ZHIENETH).

In the afternoon of 9 May 1983, CRISELDA and ZHIENETH were at the 2nd floor of Syvel's
Department Store, Makati City. CRISELDA was signing her credit card slip at the payment and
verification counter when she felt a sudden gust of wind and heard a loud thud. She looked behind
her. She then beheld her daughter ZHIENETH on the floor, her young body pinned by the bulk of the
store's gift-wrapping counter/structure. ZHIENETH was crying and screaming for help. Although
shocked, CRISELDA was quick to ask the assistance of the people around in lifting the counter and
retrieving ZHIENETH from the floor. 3

ZHIENETH was quickly rushed to the Makati Medical Center where she was operated on. The next
day ZHIENETH lost her speech and thereafter communicated with CRISELDA by writing on a magic
slate. The injuries she sustained took their toil on her young body. She died fourteen (14) days after
the accident or on 22 May 1983, on the hospital bed. She was six years old. 4

The cause of her death was attributed to the injuries she sustained. The provisional medical
certificate issued by ZHIENETH's attending doctor described the extent of her injuries:
5
 Diagnoses:

1. Shock, severe, sec. to intra-abdominal injuries due

to blunt injury

2. Hemorrhage, massive, intraperitoneal sec. to

laceration, (L) lobe liver

3. Rupture, stomach, anterior & posterior walls

4. Complete transection, 4th position, duodenum

5. Hematoma, extensive, retroperitoneal

6. Contusion, lungs, severe

CRITICAL

After the burial of their daughter, private respondents demanded upon petitioners the reimbursement
of the hospitalization, medical bills and wake and funeral expenses which they had incurred.
6

Petitioners refused to pay. Consequently, private respondents filed a complaint for damages,
docketed as Civil Case No. 7119 wherein they sought the payment of P157,522.86 for actual
damages, P300,000 for moral damages, P20,000 for attorney's fees and an unspecified amount for
loss of income and exemplary damages.

In their answer with counterclaim, petitioners denied any liability for the injuries and consequent
death of ZHIENETH. They claimed that CRISELDA was negligent in exercising care and diligence
over her daughter by allowing her to freely roam around in a store filled with glassware and
appliances. ZHIENETH too, was guilty of contributory negligence since she climbed the counter,
triggering its eventual collapse on her. Petitioners also emphasized that the counter was made of
sturdy wood with a strong support; it never fell nor collapsed for the past fifteen years since its
construction.

Additionally, petitioner Jarco Marketing Corporation maintained that it observed the diligence of a
good father of a family in the selection, supervision and control of its employees. The other
petitioners likewise raised due care and diligence in the performance of their duties and countered
that the complaint was malicious for which they suffered besmirched reputation and mental anguish.
They sought the dismissal of the complaint and an award of moral and exemplary damages and
attorney's fees in their favor.

In its decision the trial court dismissed the complaint and counterclaim after finding that the
7

preponderance of the evidence favored petitioners. It ruled that the proximate cause of the fall of the
counter on ZHIENETH was her act of clinging to it. It believed petitioners' witnesses who testified
that ZHIENETH clung to the counter, afterwhich the structure and the girl fell with the structure falling
on top of her, pinning her stomach. In contrast, none of private respondents' witnesses testified on
how the counter fell. The trial court also held that CRISELDA's negligence contributed to
ZHIENETH's accident.

In absolving petitioners from any liability, the trial court reasoned that the counter was situated at the
end or corner of the 2nd floor as a precautionary measure hence, it could not be considered as an
attractive nuisance. The counter was higher than ZHIENETH. It has been in existence for fifteen
8
years. Its structure was safe and well-balanced. ZHIENETH, therefore, had no business climbing on
and clinging to it.

Private respondents appealed the decision, attributing as errors of the trial court its findings that: (1)
the proximate cause of the fall of the counter was ZHIENETH's misbehavior; (2) CRISELDA was
negligent in her care of ZHIENETH; (3) petitioners were not negligent in the maintenance of the
counter; and (4) petitioners were not liable for the death of ZHIENETH.

Further, private respondents asserted that ZHIENETH should be entitled to the conclusive
presumption that a child below nine (9) years is incapable of contributory negligence. And even if
ZHIENETH, at six (6) years old, was already capable of contributory negligence, still it was
physically impossible for her to have propped herself on the counter. She had a small frame (four
feet high and seventy pounds) and the counter was much higher and heavier than she was. Also,
the testimony of one of the store's former employees, Gerardo Gonzales, who accompanied
ZHIENETH when she was brought to the emergency room of the Makati Medical Center belied
petitioners' theory that ZHIENETH climbed the counter. Gonzales claimed that when ZHIENETH was
asked by the doctor what she did, ZHIENETH replied, "[N]othing, I did not come near the counter
and the counter just fell on me." Accordingly, Gonzales' testimony on ZHIENETH's spontaneous
9

declaration should not only be considered as part of res gestae but also accorded credit.

Moreover, negligence could not be imputed to CRISELDA for it was reasonable for her to have let go
of ZHIENETH at the precise moment that she was signing the credit card slip.

Finally, private respondents vigorously maintained that the proximate cause of ZHIENETH's death,
was petitioners' negligence in failing to institute measures to have the counter permanently nailed.

On the other hand, petitioners argued that private respondents raised purely factual issues which
could no longer be disturbed. They explained that ZHIENETH's death while unfortunate and tragic,
was an accident for which neither CRISELDA nor even ZHIENETH could entirely be held faultless
and blameless. Further, petitioners adverted to the trial court's rejection of Gonzales' testimony as
unworthy of credence.

As to private respondent's claim that the counter should have been nailed to the ground, petitioners
justified that it was not necessary. The counter had been in existence for several years without any
prior accident and was deliberately placed at a corner to avoid such accidents. Truth to tell, they
acted without fault or negligence for they had exercised due diligence on the matter. In fact, the
criminal case for homicide through simple negligence filed by private respondents against the
10

individual petitioners was dismissed; a verdict of acquittal was rendered in their favor.

The Court of Appeals, however, decided in favor of private respondents and reversed the appealed
judgment. It found that petitioners were negligent in maintaining a structurally dangerous counter.
The counter was shaped like an inverted "L" with a top wider than the base. It was top heavy and
11

the weight of the upper portion was neither evenly distributed nor supported by its narrow base.
Thus, the counter was defective, unstable and dangerous; a downward pressure on the overhanging
portion or a push from the front could cause the counter to fall. Two former employees of petitioners
had already previously brought to the attention of the management the danger the counter could
cause. But the latter ignored their concern. The Court of Appeals faulted the petitioners for this
omission, and concluded that the incident that befell ZHIENETH could have been avoided had
petitioners repaired the defective counter. It was inconsequential that the counter had been in use
for some time without a prior incident.
The Court of Appeals declared that ZHIENETH, who was below seven (7) years old at the time of
the incident, was absolutely incapable of negligence or other tort. It reasoned that since a child
under nine (9) years could not be held liable even for an intentional wrong, then the six-year old
ZHIENETH could not be made to account for a mere mischief or reckless act. It also absolved
CRISELDA of any negligence, finding nothing wrong or out of the ordinary in momentarily allowing
ZHIENETH to walk while she signed the document at the nearby counter.

The Court of Appeals also rejected the testimonies of the witnesses of petitioners. It found them
biased and prejudiced. It instead gave credit to the testimony of disinterested witness Gonzales. The
Court of Appeals then awarded P99,420.86 as actual damages, the amount representing the
hospitalization expenses incurred by private respondents as evidenced by the hospital's statement of
account. It denied an award for funeral expenses for lack of proof to substantiate the same.
12

Instead, a compensatory damage of P50,000 was awarded for the death of ZHIENETH.

We quote the dispositive portion of the assailed decision, 13

thus:

WHEREFORE, premises considered, the judgment of the lower court is SET ASIDE
and another one is entered against [petitioners], ordering them to pay jointly and
severally unto [private respondents] the following:

1. P50,000.00 by way of compensatory damages for

the death of Zhieneth Aguilar, with legal interest (6%
p.a.) from 27 April 1984;

2. P99,420.86 as reimbursement for hospitalization

expenses incurred; with legal interest (6% p.a.) from
27 April 1984;

3. P100,000.00 as moral and exemplary damages;

4. P20,000.00 in the concept of attorney's fees; and

5. Costs.

Private respondents sought a reconsideration of the decision but the same was denied in the Court
of Appeals' resolution of 16 July 1997.
14

Petitioners now seek the reversal of the Court of Appeals' decision and the reinstatement of the
judgment of the trial court. Petitioners primarily argue that the Court of Appeals erred in disregarding
the factual findings and conclusions of the trial court. They stress that since the action was based on
tort, any finding of negligence on the part of the private respondents would necessarily negate their
claim for damages, where said negligence was the proximate cause of the injury sustained. The
injury in the instant case was the death of ZHIENETH. The proximate cause was ZHIENETH's act of
clinging to the counter. This act in turn caused the counter to fall on her. This and CRISELDA's
contributory negligence, through her failure to provide the proper care and attention to her child while
inside the store, nullified private respondents' claim for damages. It is also for these reasons that
parents are made accountable for the damage or injury inflicted on others by their minor children.
Under these circumstances, petitioners could not be held responsible for the accident that befell
ZHIENETH.
Petitioners also assail the credibility of Gonzales who was already separated from Syvel's at the time
he testified; hence, his testimony might have been tarnished by ill-feelings against them.

For their part, private respondents principally reiterated their arguments that neither ZHIENETH nor
CRISELDA was negligent at any time while inside the store; the findings and conclusions of the
Court of Appeals are substantiated by the evidence on record; the testimony of Gonzales, who heard
ZHIENETH comment on the incident while she was in the hospital's emergency room should receive
credence; and finally, ZHIENETH's part of the res gestae declaration "that she did nothing to cause
the heavy structure to fall on her" should be considered as the correct version of the gruesome
events.

We deny the petition.

The two issues to be resolved are: (1) whether the death of ZHIENETH was accidental or
attributable to negligence; and (2) in case of a finding of negligence, whether the same was
attributable to private respondents for maintaining a defective counter or to CRISELDA and
ZHIENETH for failing to exercise due and reasonable care while inside the store premises.

An accident pertains to an unforeseen event in which no fault or negligence attaches to the

defendant. It is "a fortuitous circumstance, event or happening; an event happening without any
15

human agency, or if happening wholly or partly through human agency, an event which under the
circumstances is unusual or unexpected by the person to whom it happens." 16

On the other hand, negligence is the omission to do something which a reasonable man, guided by
those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing
of something which a prudent and reasonable man would not do. Negligence is "the failure to
17

observe, for the protection of the interest of another person, that degree of care, precaution and
vigilance which the circumstances justly demand, whereby such other person suffers injury." 18

Accident and negligence are intrinsically contradictory; one cannot exist with the other. Accident
occurs when the person concerned is exercising ordinary care, which is not caused by fault of any
person and which could not have been prevented by any means suggested by common prudence. 19

The test in determining the existence of negligence is enunciated in the landmark case of Plicart v.
Smith, thus: Did the defendant in doing the alleged negligent act use that reasonable care and
20

caution which an ordinarily prudent person would have used in the same situation? If not, then he is
guilty of negligence.
21

We rule that the tragedy which befell ZHIENETH was no accident and that ZHIENETH's death could
only be attributed to negligence.

We quote the testimony of Gerardo Gonzales who was at the scene of the incident and
accompanied CRISELDA and ZHIENETH to the hospital:

Q While at the Makati Medical Center, did you hear or notice anything
while the child was being treated?

A At the emergency room we were all surrounding the child. And

when the doctor asked the child "what did you do," the child said
"nothing, I did not come near the counter and the counter just fell on
me."
 Q (COURT TO ATTY. BELTRAN)

You want the words in Tagalog to be translated?

ATTY. BELTRAN

Yes, your Honor.

COURT

Granted. Intercalate "wala po, hindi po ako lumapit doon. Basta

bumagsak." 22

This testimony of Gonzales pertaining to ZHIENETH's statement formed (and should be admitted as)
part of the res gestae under Section 42, Rule 130 of the Rules of Court, thus:

Part of res gestae. Statements made by a person while a startling occurrence is

taking place or immediately prior or subsequent thereto with respect to the
circumstances thereof, may be given in evidence as part of the res gestae. So, also,
statements accompanying an equivocal act material to the issue, and giving it a legal
significance, may be received as part of the res gestae.

It is axiomatic that matters relating to declarations of pain or suffering and statements made to a
physician are generally considered declarations and admissions. All that is required for their
23

admissibility as part of the res gestae is that they be made or uttered under the influence of a
startling event before the declarant had the time to think and concoct a falsehood as witnessed by
the person who testified in court. Under the circumstances thus described, it is unthinkable for
ZHIENETH, a child of such tender age and in extreme pain, to have lied to a doctor whom she
trusted with her life. We therefore accord credence to Gonzales' testimony on the matter, i.e.,
ZHIENETH performed no act that facilitated her tragic death. Sadly, petitioners did, through their
negligence or omission to secure or make stable the counter's base.

Gonzales' earlier testimony on petitioners' insistence to keep and maintain the structurally unstable
gift-wrapping counter proved their negligence, thus:

Q When you assumed the position as gift wrapper at the second

floor, will you please describe the gift wrapping counter, were you
able to examine?

A Because every morning before I start working I used to clean that

counter and since not nailed and it was only standing on the floor, it
was shaky.

xxx xxx xxx

Q Will you please describe the counter at 5:00 o'clock [sic] in the
afternoon on [sic] May 9 1983?

A At that hour on May 9, 1983, that counter was standing beside the
verification counter. And since the top of it was heavy and
 considering that it was not nailed, it can collapse at anytime, since the
top is heavy.

xxx xxx xxx

Q And what did you do?

A I informed Mr. Maat about that counter which is [sic] shaky and
since Mr. Maat is fond of putting display decorations on tables, he
even told me that I would put some decorations. But since I told him
that it not [sic] nailed and it is shaky he told me "better inform also the
company about it." And since the company did not do anything about
the counter, so I also did not do anything about the
counter. [Emphasis supplied]
24

Ramon Guevarra, another former employee, corroborated the testimony of Gonzales, thus:

Q Will you please described [sic] to the honorable Court the counter
where you were assigned in January 1983?

xxx xxx xxx

A That counter assigned to me was when my supervisor ordered me

to carry that counter to another place. I told him that the counter
needs nailing and it has to be nailed because it might cause injury or
accident to another since it was shaky.

Q When that gift wrapping counter was transferred at the second floor
on February 12, 1983, will you please describe that to the honorable
Court?

A I told her that the counter wrapper [sic] is really in good [sic]
condition; it was shaky. I told her that we had to nail it.

Q When you said she, to whom are you referring to [sic]?

A I am referring to Ms. Panelo, sir.

Q And what was the answer of Ms. Panelo when you told her that the
counter was shaky?

A She told me "Why do you have to teach me. You are only my
subordinate and you are to teach me?" And she even got angry at me
when I told her that.

xxx xxx xxx

Q From February 12, 1983 up to May 9, 1983, what if any, did Ms.
Panelo or any employee of the management do to that (sic)

xxx xxx xxx

 Witness:

None, sir. They never nailed the counter. They only nailed the
counter after the accident happened. [Emphasis supplied]
25

Without doubt, petitioner Panelo and another store supervisor were personally informed of the
danger posed by the unstable counter. Yet, neither initiated any concrete action to remedy the
situation nor ensure the safety of the store's employees and patrons as a reasonable and ordinary
prudent man would have done. Thus, as confronted by the situation petitioners miserably failed to
discharge the due diligence required of a good father of a family.

On the issue of the credibility of Gonzales and Guevarra, petitioners failed to establish that the
former's testimonies were biased and tainted with partiality. Therefore, the allegation that Gonzales
and Guevarra's testimonies were blemished by "ill feelings" against petitioners — since they
(Gonzales and Guevarra) were already separated from the company at the time their testimonies
were offered in court — was but mere speculation and deserved scant consideration.

It is settled that when the issue concerns the credibility of witnesses, the appellate courts will not as
a general rule disturb the findings of the trial court, which is in a better position to determine the
same. The trial court has the distinct advantage of actually hearing the testimony of and observing
the deportment of the witnesses. However, the rule admits of exceptions such as when its
26

evaluation was reached arbitrarily or it overlooked or failed to appreciate some facts or

circumstances of weight and substance which could affect the result of the case. In the instant
27

case, petitioners failed to bring their claim within the exception.

Anent the negligence imputed to ZHIENETH, we apply the conclusive presumption that favors
children below nine (9) years old in that they are incapable of contributory negligence. In his
book, former Judge Cezar S. Sangco stated:
28

In our jurisdiction, a person under nine years of age is conclusively presumed to

have acted without discernment, and is, on that account, exempt from criminal
liability. The same presumption and a like exemption from criminal liability obtains in
a case of a person over nine and under fifteen years of age, unless it is shown that
he has acted with discernment. Since negligence may be a felony and a quasi-
delict and required discernment as a condition of liability, either criminal or civil, a
child under nine years of age is, by analogy, conclusively presumed to be incapable
of negligence; and that the presumption of lack of discernment or incapacity for
negligence in the case of a child over nine but under fifteen years of age is a
rebuttable one, under our law. The rule, therefore, is that a child under nine years of
age must be conclusively presumed incapable of contributory negligence as a matter
of law. [Emphasis supplied]

Even if we attribute contributory negligence to ZHIENETH and assume that she climbed over the
counter, no injury should have occurred if we accept petitioners' theory that the counter was stable
and sturdy. For if that was the truth, a frail six-year old could not have caused the counter to
collapse. The physical analysis of the counter by both the trial court and Court of Appeals and a
scrutiny of the evidence on record reveal otherwise, i.e., it was not durable after all. Shaped like an
29

inverted "L," the counter was heavy, huge, and its top laden with formica. It protruded towards the
customer waiting area and its base was not secured. 30

CRISELDA too, should be absolved from any contributory negligence. Initially, ZHIENETH held on to
CRISELDA's waist, later to the latter's hand. CRISELDA momentarily released the child's hand
31
from her clutch when she signed her credit card slip. At this precise moment, it was reasonable and
usual for CRISELDA to let go of her child. Further, at the time ZHIENETH was pinned down by the
counter, she was just a foot away from her mother; and the gift-wrapping counter was just four
meters away from CRISELDA. The time and distance were both significant. ZHIENETH was near
32

her mother and did not loiter as petitioners would want to impress upon us. She even admitted to the
doctor who treated her at the hospital that she did not do anything; the counter just fell on her.

WHEREFORE, in view of all the foregoing, the instant petition is DENIED and the challenged
decision of the Court of Appeals of 17 June 1996 in C.A. G.R. No. CV 37937 is hereby AFFIRMED.

Costs against petitioners.

SO ORDERED.
Overview: The doctrine of attractive nuisance is a legal principle that imposes liability
on property owners or occupiers for injuries sustained by children trespassing on their
property if the injury is caused by a dangerous condition or object that attracts children.
This doctrine is based on the premise that children, due to their young age and lack of
maturity, may not fully appreciate the dangers posed by certain conditions or objects,
especially if they are attractive or inviting to them. Therefore, property owners have a
duty to take reasonable measures to prevent harm to children who may be drawn to
such hazards.

Issue: In the case described, the issue revolves around whether the gift-wrapping
counter/structure in Syvel's Department Store constituted an attractive nuisance. If the
counter was deemed to be an attractive nuisance, the property owners would be held
liable for injuries sustained by children, such as ZHIENETH Aguilar, who were drawn to
the counter and subsequently harmed by it. The court must determine whether the
counter met the criteria of being both attractive to children and inherently dangerous,
thus imposing a duty of care on the property owners to prevent harm.

Ruling of the Court: The Court of Appeals, affirmed by the Supreme Court, ruled that
the gift-wrapping counter/structure in Syvel's Department Store constituted an
attractive nuisance. It found that the counter was defective, unstable, and dangerous,
with its top-heavy design and lack of proper support making it prone to collapse. The
court also noted that former employees had raised concerns about the counter's safety,
which the management failed to address.

As the counter was located in a department store where children and families
frequented, it was deemed to be attractive to children, who may have been drawn to its
appearance or intrigued by its contents. Therefore, the property owners had a duty to
take reasonable measures to prevent harm to children, such as securing or repairing the
counter to eliminate the danger it posed.

Based on these findings, the court held the property owners liable for ZHIENETH
Aguilar's death, ruling that their negligence in maintaining the defective counter
constituted a breach of their duty of care. Consequently, damages were awarded to the
plaintiffs, ZHIENETH's parents, for the injuries sustained by their daughter and the
resulting damages incurred.
6.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-3422 June 13, 1952

HIDALGO ENTERPRISES, INC., petitioner,

vs.
GUILLERMO BALANDAN, ANSELMA ANILA and THE COURT OF APPEALS, respondents.

Quisumbing, Sycip, Quisumbing and Salazar for petitioner.

Antonio M. Moncado for respondents.

BENGZON, J.:

This is an appeal by certiorari, from a decision of the Court of Appeals requiring Hidalgo Enterprises,
Inc. to pay Guillermo Balandan and his wife, damages in the sum of P2,000 for the death of their son
Mario.

It appears that the petitioner Hidalgo Enterprises, Inc. "was the owner of an ice-plant factory in the
City of San Pablo, Laguna, in whose premises were installed two tanks full of water, nine feet deep,
for cooling purposes of its engine. While the factory compound was surrounded with fence, the tanks
themselves were not provided with any kind of fence or top covers. The edges of the tanks were
barely a foot high from the surface of the ground. Through the wide gate entrance, which is
continually open, motor vehicles hauling ice and persons buying said commodity passed, and any
one could easily enter the said factory, as he pleased. There was no guard assigned on the gate. At
about noon of April 16, 1948, plaintiff's son, Mario Balandan, a boy barely 8 years old, while playing
with and in company of other boys of his age entered the factory premises through the gate, to take
a bath in one of said tanks; and while thus bathing, Mario sank to the bottom of the tank, only to be
fished out later, already a cadaver, having been died of "asphyxia secondary to drowning."

The Court of Appeals, and the Court of First Instance of Laguna, took the view that the petitioner
maintained an attractive nuisance (the tanks), and neglected to adopt the necessary precautions to
avoid accidents to persons entering its premises. It applied the doctrine of attractive nuisance, of
American origin, recognized in this Jurisdiction in Taylor vs. Manila Electric 16 Phil., 8.

The doctrine may be stated, in short, as follows: One who maintains on his premises dangerous
instrumentalities or appliances of a character likely to attract children in play, and who fails to
exercise ordinary care to prevent children from playing therewith or resorting thereto, is liable to a
child of tender years who is injured thereby, even if the child is technically a trespasser in the
premises. (See 65 C.J.S., p. 455.)

The principle reason for the doctrine is that the condition or appliance in question although its danger
is apparent to those of age, is so enticing or alluring to children of tender years as to induce them to
approach, get on or use it, and this attractiveness is an implied invitation to such children (65 C.J.S.,
p. 458).

Now, is a swimming pool or water tank an instrumentality or appliance likely to attract the little
children in play? In other words is the body of water an attractive nuisance?

The great majority of American decisions say no.

The attractive nuisance doctrine generally is not applicable to bodies of water, artificial as
well as natural, in the absence of some unusual condition or artificial feature other than the
mere water and its location.

There are numerous cases in which the attractive nuisance doctrine has not been held not to
be applicable to ponds or reservoirs, pools of water, streams, canals, dams, ditches,
culverts, drains, cesspools or sewer pools, . . . (65 C.J.S., p. 476 et seg. citing decisions of
California, Georgia, Idaho, Illinois, Kansas, Iowa, Louisiana, Miss., Missouri, Montana,
Oklahoma, Pennsylvania, Tennessee, Texas, Nebraska, Wisconsin.)

In fairness to the Court of Appeals it should be stated that the above volume of Corpus Juris
Secundum was published in 1950, whereas its decision was promulgated on September 30, 1949.

The reason why a swimming pool or pond or reservoir of water is not considered an attractive
nuisance was lucidly explained by the Indiana Appellate Court as follows:

Nature has created streams, lakes and pools which attract children. Lurking in their waters is
always the danger of drowning. Against this danger children are early instructed so that they
are sufficiently presumed to know the danger; and if the owner of private property creates an
artificial pool on his own property, merely duplicating the work of nature without adding any
new danger, . . . (he) is not liable because of having created an "attractive nuisance."
Anderson vs. Reith-Riley Const. Co., N. E., 2nd, 184, 185; 112 Ind. App., 170.

Therefore, as petitioner's tanks are not classified as attractive nuisance, the question whether the
petitioner had taken reasonable precautions becomes immaterial. And the other issue submitted by
petitioner — that the parents of the boy were guilty of contributory negligence precluding recovery,
because they left for Manila on that unlucky day leaving their son under the care of no responsible
individual — needs no further discussion.

The appealed decision is reversed and the Hidalgo Enterprises, Inc. is absolved from liability. No
costs.

Feria, Padilla, Tuason, Montemayor, and Bautista Angelo, JJ., concur.

Separate Opinions

PABLO, J., disidente:

La recurrente tiene dos estanques de agua, de nueve pies de profundidad, como anexos
indispensables a su fabrica de hielo; estan constuidos dentro de un solar que esta cercado pero con
una puerta de entrada siempre abierta en donde pasan libremente los coches que distribuyen hielo
y las personas que lo compran de la fabrica; cualquiera puede entrar sin distincion alguna, no hay
ningun guardia en la puerta que impida la entrada de cualquiera persona. A dichos dos entanques
tiene libre acceso el publico.

Es evidente que la recurrente debio haber cercado dichos estanques como medida ordinaria de
precaucion para que los ninos de corta edad no pueden entrar, tanto mas cuanto que los bordes de
esos estanques solo tienen un pie de altura la superficie del terreno. El cerco puesto en el
perimento del solar, con puerta continuamente abierta, no es suficiente medida para impedir que los
ninos puedan meterse en los entanques. Ese cerco con su puerta abierta es como un velo
transparente con que se cubre una mujer semidesnuda en un teatro, pica la curiosidad y atrae la
atencion del publico.

Los niños son curiosos por naturaleza y los de ocho años no tienen perfecto conocimiento de las
cosas. Alucinados por la natural atraccion de las aguas, se meteran en ellas con peligro de sus
vidas, a menos que exista algo que les impida.

Voto con la confirmacion de la decision apelada.

Overview: This case involves an appeal by certiorari from a decision of the Court of
Appeals holding Hidalgo Enterprises, Inc. liable for damages due to the death of Mario
Balandan, a young boy who drowned in one of the company's water tanks. The Court of
Appeals applied the doctrine of attractive nuisance, which imposes liability on property
owners for injuries sustained by children attracted to dangerous conditions or objects
on their premises. However, the Supreme Court, in its ruling, examined whether the
water tanks constituted an attractive nuisance and whether the company had taken
reasonable precautions to prevent accidents.

Issue: The main issue in this case is whether the water tanks owned by Hidalgo
Enterprises, Inc. qualify as an attractive nuisance under the doctrine's criteria.
Additionally, the court must determine whether the company had fulfilled its duty of
care by adopting necessary precautions to prevent accidents involving the water tanks.

Ruling of the Court: The Supreme Court reversed the decision of the Court of Appeals
and absolved Hidalgo Enterprises, Inc. from liability. The court held that the water tanks
did not meet the criteria for an attractive nuisance. Unlike certain artificial features or
conditions that may inherently attract children, such as machinery or structures, bodies
of water like swimming pools or tanks are generally not considered attractive nuisances
on their own. The court emphasized that nature has already created bodies of water that
may attract children, and the danger of drowning is commonly known and understood.
Therefore, the mere existence of water tanks on the company's premises did not
constitute an attractive nuisance.

Since the water tanks were not classified as an attractive nuisance, the question of
whether the company had taken reasonable precautions became irrelevant. The court
also dismissed the argument of contributory negligence on the part of the boy's
parents, as it was not deemed necessary for further discussion.

Ultimately, the Supreme Court's decision reversed the lower court's ruling, absolving
Hidalgo Enterprises, Inc. from liability for Mario Balandan's death.
7.

THIRD DIVISION

G.R. No. 142401 August 20, 2001

ANDREW TAN, petitioner,

vs.
COURT OF APPEALS and WU SEN WOEI, respondents.

PANGANIBAN, J.:

Under the doctrine of conclusiveness of judgment, facts and issues actually and directly resolved in
a former suit cannot again be raised in any future case between the same parties, even if the latter
suit may involve a different cause of action.
1

Statement of the Case

Through a Petition for Review under Rule 45 of the Rules of Court, Andrew Tan challenges the
2

January 10, 2000 Decision rendered by the Court of Appeals (CA) in CA-GR CV No. 58086 and its
3 4

March 8, 2000 Resolution denying reconsideration. The dispositive portion of the assailed Decision
5

reads as follows:

"WHEREFORE, the appealed judgment is REVERSED and SET ASIDE and a new one is
entered, ordering the defendant-appellee to pay appellant the balance of $45,000.00 or the
equivalent thereof in Philippine currency at the rate of exchange prevailing at the time of
payment, with legal interest thereon from September 1987 until fully paid. With costs against
the defendant-appellee." 6

The Facts

The undisputed facts are summarized by the Court of Appeals as follows:

"Plaintiff-appellant [respondent herein], a Taiwanese national, and defendant-appellee

[petitioner herein], a Filipino, first met in Taiwan sometime in August 1987 through Kua Bei
Tiu, defendant's sister-in-law. Defendant proposed that plaintiff invest money in the hatchery
business he had started, and plaintiff parted with the amount of $80,000.00 or its equivalent
of P1,650,700.00. Repaid only [in] the amount of $10,000.00, plaintiff-appellant lodged a
complaint before the National Bureau of Investigation (NBI) to recover the balance of
$70,000.00. Before the NBI, defendant Andrew Tan and his sister Helen Go signed a Joint
Affidavit of Undertaking stating as follows:

'WE, HELEN GO and ANDREW TAN, both of legal age, brother and sister and both
married, presently residing at No. 1427 Sto. Sepulcro St., Paco, Manila and A.T.
Commercial, A.B. Fernandez Avenue, East Dagupan City, respectively, after having
been duly sworn to in accordance with law do hereby depose and undertake to
perform the following:
 'That I, ANDREW TAN is indebted to WU SEN WOEI, a Taiwanese national residing
at 12 Lane, 194, 6th Floor, Sing Tien Road, Kuehsiung, Taiwan in the total amount of
SEVENTY THOUSAND U.S. DOLLARS ($70,000.00);

'That we, brother and sister, acknowledge the said amount as a just and valid
obligation and therefore undertake to pay the same under the following terms which
is in accordance with our present financial capacity;

'Within one (1) week from the date of this affidavit, we bind ourselves to pay WU SEN
WOEI the amount of TWENTY THOUSAND U.S. DOLLARS ($20,000.00) Cash;

'Every month thereafter, or starting August 1990, we bind ourselves to pay WU SEN
WOEI the amount of TEN THOUSAND U.S. DOLLARS ($10,000.00), for the month
of September 1990, TEN THOUSAND U.S. DOLLARS ($10,000.00), for the month of
October 1990, TEN THOUSAND U.S. DOLLARS ($10,000.00), for the month of
November 1990, TEN THOUSAND U.S. DOLLARS ($10,000.00), and for the month
of DECEMBER, 1990, TEN THOUSAND U.S. DOLLARS ($10,000.00) and then all
our indebtedness to WU SEN WOEI would be totally paid, all in cash;

'That we agree that the place of payment should be the NBI office before Atty.
VICTOR BESSAT so that this undertaking would be fully complied with;

'After we have fully complied with the terms of this Affidavit of Undertaking, WU SEN
WOEI should also return to us all the documents in his possession in connection with
this indebtedness.

'That we are executing this joint affidavit of undertaking in order to amicably settle
this obligation of ANDREW TAN to WU SEN WOEI;

'IN WITNESS WHEREOF, we have hereunto set our hands this 19th day of July
1990, at the Office of the National Bureau of Investigation, Taft Avenue, Manila.

(Sgd.) HELEN GO (Sgd.) Illegible

MRS. HELEN GO MR. ANDREW TAN
GUARANTOR:
(Sgd.) Illegible
MR. BENJAMIN GO
WITNESSES:
(Sgd.) Illegible (Sgd.) Illegible
ATTY. ERIC QUINTOS WU SEN WOEI'

(Exh. '6', Record, p. 317)

"Defendant claims that he was coerced into signing the above Undertaking. He then assailed
the validity of said Undertaking in Civil Case No. D-9864 entitled 'Andrew Tan, plaintiff vs.
Wu Sen Woei, represented by Raul Estrella, Attorney-in-Fact, John Doe and Paul Doe,
defendants-appellees' which he filed before the Regional Trial Court of Dagupan City,
Branch 43. The RTC found Tan's and Go's consent to the Undertaking as vitiated and
rendered judgment declaring the Undertaking as a nullity. The decision was appealed to this
Court in CA-G.R. CV No. 47880. This Court through its Fourth Division in a Decision dated
 October 3, 1997 reversed and set aside the appealed judgment, and dismissed Andrew
Tan's complaint. (Rollo, pp. 67-75)

"In the meantime, based on the Undertaking, herein plaintiff-appellant Wu Sen Woei was
further able to collect $25,000.00, Weaving a balance of $45,000.00 (Complaint, par. 8,
Record, p. 3) Hence he filed the instant suit docketed as Civil Case No. 91-55981 to collect
the said balance of $45,000.00 plus interest and attorney's fees, alleging in his Complaint
that defendant had defrauded him by not actually investing the money into the hatchery
business."7

Ruling of the Court of Appeals

The Court of Appeals held in its Decision that, based on the doctrine of conclusiveness of judgment,
Tan's claim that the Affidavit of Undertaking had been executed under duress was rendered
ineffective by the ruling in CA-GR CV No. 47880. The CA had ruled therein that the said Affidavit
was an admission against interest, a clear acknowledgment by Tan of his obligation to Wu Sen
Woei. Thus, the appellate court deemed it pointless to determine whether there was, instead, a
consummated partnership between the two parties.

Issues

In his Memorandum, petitioner raises the following issues for this Court's consideration:
8

"I. Whether or not the Court of Appeals committed a grave and serious error of judgment in
applying the doctrine of conclusiveness of judgment and

"II. Whether or not the Court of Appeals committed a serious error in totally disregarding the
evidence presented by petitioner in the appealed case decided by the Regional Trial Court of
Manila in the application of the above doctrine." 9

Since the two issues are interrelated, they shall be discussed jointly.

The Court's Ruling

The petition is not meritorious.

Main Issue:
Validity of Affidavit of Undertaking

Clearly, the present case is closely related to the civil action for annulment of document filed by
petitioner before the Regional Trial Court (RTC) of Dagupan against respondent on April 3, 1991. In
that action, the RTC-Dagupan declared null and void the Affidavit of Undertaking executed by Tan in
favor of Wu Sen Woei. Upon appeal, however, the Court of Appeals reversed the RTC judgment
10 11

and upheld the validity of the Affidavit. That CA Decision became final and executory. In the
12 13

present case, the appellate court relied on its earlier Decision in CA-GR CV No. 47880 by applying
the doctrine on conclusiveness of judgment.

Indeed, the CA's earlier Decision concerning the validity of Andrew Tan's Affidavit of Undertaking
has become conclusive on the parties, pursuant to Section 47 (c) of Rule 39 of the Rules of
Court. The parties are bound by the matters adjudged and those that are actually and necessarily
14

included therein. Under the doctrine of conclusiveness of judgment, which is also known as
"preclusion of issues" or "collateral estoppel" issues actually and directly resolved in a former suit
cannot again be raised in any future case between the same parties involving a different cause of
action.

The concept clearly applies to the present case, because petitioner again seeks refuge in the
alleged nullity of the same Affidavit of Undertaking which, as earlier mentioned, was already ruled
upon with finality. In other words, the question on the validity of the Affidavit has been settled. The
same question, therefore, cannot be raised again even in a different proceeding involving the same
parties.

Although the action instituted in this case (collection of a sum of money) is technically different from
that action instituted by Andrew Tan before the Regional Trial Court of Dagupan (for annulment of
document), "the concept of conclusiveness of judgment still applies because under this principle, the
identity of causes of action is not required but merely identity of issues. Simply put, conclusiveness
of judgment bars the relitigation of particular facts or issues in another litigation between the same
parties on a different claim or cause of action."15

Significantly, petitioner no longer questioned the CA Decision in CA-GR CV No. 47880. Thus, it has
become final and executory and no longer subject to review.

Moreover, petitioner's assertion that the Affidavit of Undertaking had been executed under duress is
contradicted by the events that took place following its execution. Petitioner did not immediately
question its validity. In fact, of the $70,000 that he undertook to pay Wu Sen Woei, the former has
been able to make payments in the amount of $25,000, pursuant to the terms of the Affidavit. His
counsel even executed a letter requesting an extension of time and a reduction of the monthly
installments that were due, as follows:

"Dear Mr. Wu:

This has reference in the affidavit of Undertaking executed by our client, Andrew Tan, in your
favor through the intercession of Atty. Victor Bessat.

We would like to inform you that our client is now in tight financial situation due to the
economic dislocation caused by the recent earthquake and the flooding of most of Region I
which caused massive destruction on his prawn business and construction business. He had
suffered losses in an amount of no less than P500,000.

In view thereof, our client is not in a financial position to comply with the terms of the
undertaking. Hence, in behalf of our client, we are constrained to request for an extension of
time for him to pay the agreed amount and to reduce the monthly payment from US$10,000
to US$2,000 a month. This is the amount and mode of payment which he can personally
meet considering his financial predicament.

We hope you can understand the plight of our client. He does not wish to evade his
obligation and would comply with it in the manner allowable under his present financial
situation.

We hope to hear from you soon.

Very truly yours,

 (Sgd.) ATTY. A.V. GONZALES
Counsel" 16

These circumstances clearly negate any infirmity in the Affidavit as well as the absence of any
obligation on the part of petitioner to fulfill his liability therein.

Deserving scant consideration is petitioner's suggestion that there was a partnership between
himself and Wu Sen Woei, and that both should thus jointly bear the losses of the business.

The existence of a partnership is belied by the Affidavit of Undertaking in which petitioner admitted
his indebtedness to private respondent in the amount of $70,000 and agreed to reimburse the
amount according to the conditions stated therein. Had the nature of their agreement been
otherwise, such as a business partnership, petitioner would not have acknowledged being indebted
to Wu Sen Woei" and "undertake[n] to pay the same x x x" under the terms specified therein.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.

SO ORDERED.

Melo, Vitug, Gonzaga-Reyes and Sandoval-Gutierrez, JJ ., concur.

Overview: This case involves a petition for review filed by Andrew Tan challenging a
decision of the Court of Appeals (CA) in a case concerning the collection of a debt. The
CA reversed the judgment of the trial court and ordered Tan to pay the outstanding
balance of $45,000, plus interest, to the respondent, Wu Sen Woei. Tan contested the
CA's decision, arguing that the court erred in applying the doctrine of conclusiveness of
judgment.

Issue: The main issue in this case is whether the doctrine of conclusiveness of judgment
applies, preventing Tan from raising the same issues concerning the validity of an
affidavit of undertaking that were already resolved in a previous case between the same
parties.

Ruling of the Court: The Supreme Court denied Tan's petition, affirming the decision of
the Court of Appeals. The court held that the doctrine of conclusiveness of judgment
applies in this case, as the issues regarding the validity of the affidavit of undertaking
had already been conclusively settled in a prior case between Tan and Wu Sen Woei.
Despite the technical difference in the cause of action between the previous case and
the present one, the court emphasized that the identity of issues, not causes of action, is
what matters in applying the doctrine of conclusiveness of judgment.

The court stated that Tan's assertion that the affidavit of undertaking had been executed
under duress was contradicted by his subsequent actions, such as making partial
payments according to the terms of the affidavit and requesting an extension of time to
fulfill his obligations. The court also rejected Tan's argument that there was a
partnership between him and Wu Sen Woei, as it was inconsistent with the terms of the
affidavit, which clearly established a debtor-creditor relationship.

In conclusion, the court held that the CA correctly applied the doctrine of conclusiveness
of judgment, and Tan was bound by the previous decision regarding the validity of the
affidavit of undertaking. Therefore, Tan was obligated to pay the outstanding balance to
Wu Sen Woei as ordered by the CA.
8.

THIRD DIVISION

G.R. No. 144444 April 3, 2003

STATE INVESTMENT TRUST, INC., petitioner,

vs.
DELTA MOTORS CORPORATION, respondent.

PANGANIBAN, J.:

Elementary is the rule that res judicata cannot arise from a judgment that has not attained finality.
The finality of the decision is, in fact, the first requirement for the application of this doctrine. We also
hold that without a final judgment, a trial court's order of execution has no leg to stand on. On the
other hand, an order authorizing execution pending appeal is likewise improper because it was
issued after the appeal has been perfected.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the
November 16, 1999 Decision2 of the Court of Appeals3 (CA) in CA-GR SP No. 48793. The
dispositive part of the Decision reads thus:

"WHEREFORE, the petition for certiorari is GRANTED. The orders of respondent RTC,
Branch 6 of Manila dated May 27, 1998 and August 3, 1998 are hereby ANNULLED. Costs
against private respondent."4

On the other hand, the annulled May 27, 1998 Order of the Regional Trial Court (RTC) 5reads as
follows:

"It appearing that the decision of the Honorable Supreme Court promulgated on July 24,
1997, affirming the challenged resolutions of January 5, 1995 and July 14, 1995 in C.A. Sp.
No. 29147, has become final and executory; that the issues raised by [Delta Motors
Corporation] in its Oppositions/Comment and Counter Omnibus Motion dated March 25,
1998 have already been resolved with finality by the Honorable Supreme Court in said
decision promulgated on July 24, 1997, the Omnibus Motion dated March 16, 1998 filed by x
x x State Investment House Inc.,6 through counsel, is hereby granted.

"WHEREFORE, as prayed for, (i) Sheriff Eduardo E. Centeno is hereby directed to execute
an Alias Sheriff's Final Deed of Sale involving TCT No. 27847, issued by the Register of
Deeds of Pasay City which title is now with the Register of Deeds of Parañaque in favor of
State Investment Trust, Inc., (ii) the Register of Deeds of Parañaque, Metro Manila is hereby
directed to cancel TCT No. 27847 registered in the name of Delta Motors Corporation, upon
the presentation of said Sheriff's Final Deed of Sale and issue a new title covering the same
property in the name of State Investment House, Inc., (iii) Sheriff Eduardo Centeno is hereby
directed to sell at public auction Delta Motors Corporation's shares of stocks in Canlubang
Golf and Country Club covered by Certificate Nos. 074 and 075 and the levied real
properties under TCT Nos. 29567, 29563, 29564, 29171, 29565, 29566 and 32784 issued by
the Register of Deeds of Dagupan City and; [(iv)] Sheriff Eduardo Centeno is hereby directed
 to continue with the execution proceedings commenced by the late Sheriff Orlando M.
Alcantara in the implementation of the Alias Writ of Execution, and to execute all documents
such as, but not limited to, the Sheriff's Certificate of Sale or Final Deed of Sale, and to
perform all acts necessary to implement said writ and to transfer in the name of State
Investment Trust, Inc. title to the properties of Delta Motors Corporation subject of notices of
levy."7

The Facts

The present proceedings originated from Civil Case No. 84-23019, an action for a sum of money
filed with the RTC on February 29, 1984 by State Investment Trust, Inc. 8 (SITI) against Delta Motors
Corporation. On December 5, 1984, the RTC rendered a judgment by default, ordering Delta to pay
SITI P20,061,898.97, plus 25 percent thereof for attorney's fees and costs of the suit.

The RTC Decision was published three times in the Thunderer, a Manila-based weekly newspaper.
Seventeen days from the last publication of the Decision, SITI moved for the issuance of a writ of
execution. The RTC granted the Motion in its March 11, 1987 Order.

On September 21, 1990, Delta obtained a certified true copy of the December 5, 1984 RTC
Decision. On October 11, 1990, it asked the Court of Appeals to annul the trial court's Decision on
the ground that the summons had been served upon a person not authorized to receive it; and
prayed that judgment be rendered "annulling/reversing or setting aside the Decision of the [RTC]
judge dated December 5, 1984, Order dated March 11, 1987 issued by the [RTC] incumbent judge
and all other orders or proceedings issued and conducted pursuant thereto." 9 Docketed as CA-GR
SP No. 23068, this case shall hereafter be referred to as the "First Case."

On January 22, 1991, the CA rendered a Decision, declaring that the summons had been properly
served upon Delta through one Evel Torres, the Corporation's vice president for finance, but that the
RTC Judgment had not attained finality. The dispositive portion of the CA Decision reads:

"WHEREFORE, while the assailed decision was validly rendered by the [RTC], nonetheless
it has not attained finality pending service of a copy thereof on x x x DELTA, which may
appeal therefrom within the reglementary period."10

Notably, the CA Decision was silent on the assailed March 11, 1987 RTC Order granting the
execution. Delta then appealed to this Court. However, its Petition, docketed as GR No. 100366,
was dismissed on August 14, 1991, because of Delta's failure to present proof that a copy of the
Petition was served on the RTC, as required by Revised Supreme Court Circular No. 1-88, which
had taken effect on July 1, 1991.

On November 12, 1991, Delta filed its Notice of Appeal with the RTC, which, however, dismissed it
on June 3, 1992, upon SITI's motion. Thereafter, Delta filed a Petition for Certiorari in CA-GR SP No.
29147 (the "Second Case"), assailing the RTC Order dismissing the Notice of Appeal. The CA
granted the Petition in its June 17, 1993 Decision:

"WHEREFORE, the questioned order of [the RTC] dated June 3, 1992, dismissing the notice
of appeal dated November 6, 1991; and the order dated September 14, 1992 of the same
court denying the motion for reconsideration filed by [Delta], through counsel, are hereby
SET ASIDE; and respondent court [is] hereby ordered to ELEVATE the records of the case
to the Court of Appeals, on appeal."11
SITI elevated the CA ruling to this Court. While the appeal was pending, Delta filed with the CA an
Omnibus Motion asking the latter to take the following steps:

"1) Declare as null and void ab initio and without any force and effect the Order of [the RTC]
dated March 11, 1987 ordering the issuance of the writ of execution;

"2) Declare as null and void ab initio and without any force and effect the writ of execution
issued pursuant to the Order dated March 11, 1987;

"3) All other proceedings held, conducted and executed by x x x sheriff implementing the
aforesaid writ of execution."12

In its July 18, 1994 Resolution, this Court denied SITI's appeal and upheld the CA Decision in the
Second Case. Hence, on October 26, 1994, Delta moved for the resolution of the Omnibus Motion it
had earlier filed with the CA. The latter denied the Omnibus Motion in its January 5, 1995
Resolution:

"Consequently, the matters prayed for in the Omnibus Motion of x x x Delta [Motors]
Corporation dated February 10, 1994 and above-quoted are matters which were not raised
as issues by [Delta] in the instant petition and, therefore, not within the jurisdiction and power
of this Court in the instant petition to decide.

"WHEREFORE, the Omnibus Motion is hereby DENIED."13

Consequently, Delta lodged with this Court an appeal docketed as GR No. 121075. In its July 24,
1997 Decision, however, this Court promulgated a Decision affirming the CA Resolution denying
Delta's Omnibus Motion. After this Decision became final and executory, SITI filed with the RTC on
March 16, 1998, an Omnibus Motion in Civil Case No. 84-23019, asking for the issuance of an order:

"1. Directing the incumbent sheriff of this branch, Eduardo E. Centeno, and/or his successor
in office, to execute an Alias Sheriff's Final Deed of Sale involving TCT No. 27847, issued by
the Register of Deeds of Pasay City (now title is with Register of Deeds of Parañaque) in
favor of State Investment Trust, Inc.;

"2. Directing the Register of Deeds of Parañaque, Metro Manila, to cancel TCT No. 27847
registered in the name of Delta Motors Corporation, upon the presentation of said Sheriff's
Final Deed of Sale and issue a new title covering the same property, in the name of State
Investment [Trust], Inc.;

"3. Directing the incumbent Sheriff of this branch, Eduardo E. Centeno and/or his successor
in office, to sell at public auction Delta Motors Corporation's shares of stocks in Canlubang
Golf and Country Club covered by Certificate Numbers 074 and 075, and the levied real
properties under TCT Nos. 29567, 29563, 29564, 29171, 29565, 29566 and 32784 issued by
the Register of Deeds of Dagupan City;

"4. Directing the incumbent sheriff, and/or his successor in office, to continue with the
execution proceedings commenced by the late sheriff Orlando M. Alcantara in the
implementation of the Alias Writ of Execution, and to execute all documents such as, but not
limited to, the Sheriff's Certificate of Sale or Final Deed of Sale, and to perform all acts
necessary to implement said writ and to transfer in the name of State Investment Trust, Inc.
title to the properties of Delta Motors Corporation subject of notices of levy.
 "Other reliefs just and equitable are likewise prayed for."14

In opposing the Motion, Delta pointed out that the case had not attained finality because of its
pending appeal. The RTC nevertheless rendered the May 27, 1998 Order granting SITI's Omnibus
Motion. Thereafter, Delta challenged that Order on certiorari before the CA, which then annulled it in
the present assailed Decision.

Ruling of the Court of Appeals

Ruling on the Second Case, the CA refused to make any categorical decision on the validity of the
March 11, 1987 RTC Order on the ground that it had no jurisdiction over the matter. It noted that the
only issue raised in the Second Case was the correctness of the June 3, 1992 RTC Order
dismissing respondent's appeal of the December 5, 1984 RTC Decision. In GR No. 110667, this
Court affirmed the CA. Hence, the CA by its refusal to rule on the March 11, 1987 RTC Order, did
not pass upon the substantial rights of the parties, contrary to petitioner's contention.

While it did not nullify the March 11, 1987 RTC Order in its Decision in the First Case, the CA held,
however, that the RTC judgment, which had not been validly served on Delta, was not yet final and
executory. The CA ruled that the RTC had acted without jurisdiction when the latter issued its March
11, 1987 Order granting SITI's Motion for a Writ of Execution. The appellate court noted that the
RTC's assailed Decision was not yet final and executory at the time, because it ordered the records
of the case to be elevated to it for review in its June 17, 1993 Decision.

The CA also found that the RTC had acted without jurisdiction when it relied on GR No. 121075 to
grant petitioner's March 16, 1998 Omnibus Motion. The appellate court held that the lower court's
action effectively allowed execution of the December 5, 1984 Decision even when it had not yet
become final and executory.

Hence, this appeal.15

Issues

Petitioner submits the following issues for our consideration:

"A.

The Court of Appeals erred in finding that there was no valid ruling made with respect to the
1716 March 1987 Order and all orders or proceedings issued pursuant thereto.

"B.

The Court of Appeals erred in concluding that the doctrine of res judicata and conclusiveness of
judgment is inapplicable to the case at bar.

"C.

The Court of Appeals erred in finding [that] the RTC acted without jurisdiction when it granted and
issued the Writ of Execution.

"D.
The Court of Appeals erred in not finding that by reason of laches and inexcusable inaction, Delta
has lost its right to appeal."17

The issues can be summed up into three: (1) whether CA-GR SP No. 48793 is barred by res
judicata or the doctrine of conclusiveness of judgment, (2) whether the RTC acted without
jurisdiction in issuing the Writ of Execution, and (3) whether respondent's appeal is barred by laches.

The Court's Ruling

The Petition has no merit.

First Issue:
Res Judicata

Petitioner contends that by not nullifying the Decision of the RTC and the subsequent proceedings it
conducted, the CA18 and this Court19 affirmed the validity of the March 11, 1987 Order of Execution. It
contends that Delta is thus barred from questioning the subsequent RTC Orders, which merely
emanated from the allegedly valid Order granting execution.

We disagree. The CA Decision in CA-GR SP No. 23068 focused solely on the issue of "whether or
not there was valid service [of] summons as to vest [the RTC] with jurisdiction over x x x [Delta]."
The appellate court ignored respondent's assertion of the validity of the March 11, 1987 Order for the
execution of the RTC Decision. The silence of the CA on the matter, however, cannot be taken as
its imprimatur on the RTC Order. Contrary to petitioner's argument, the validity of this Order cannot
be inferred from the CA Decision, which merely stated that the RTC Decision was not yet final and
executory. To put it bluntly, the RTC Order clashed with the CA Decision. The CA correctly
explained:

"It is without [a] doubt therefore that the decision of the [RTC] has not become final and
executory. As a natural or inherent and inevitable consequence of said declaration, a
decision which has not become final and executory may not be ordered executed or
enforced under Section 1, Rule 39 of the 1997 Rules of Civil Procedure.

"Neither is the Order of March 11, 1987 properly an execution pending appeal under Section
2(a), Rule 39 of the said Rule, as the ground of the RTC in granting the writ of execution was
that the Decision had already become final and executory which is patently erroneous as it
had been expressly held by this Court in CA-G.R. SP No. 23068 that the RTC decision
insofar as Delta is concerned has not become final and executory.

"Thus, the RTC acted without jurisdiction when it granted and issued a writ of execution
under Section 1, Rule 39 despite the fact that the decision had not become final and
executory."20

Neither can the CA's refusal to nullify the March 11, 1987 Order in the other Petitions be construed
as a declaration of its validity. The CA painstakingly explained:

"[I]ndeed in CA-G.R. SP No. 29147, this Court actually desisted from categorically ruling on
the issue of the validity of the order of [the RTC] dated March 11, 1987 as well as the other
court processes. However, contrary to [SITI's] assertions, no substantial rights were
determined by reason of such refusal to rule on said issue. This Court declined to rule on
said issue principally because the same was not raised in the petition, thus, the lack of
 jurisdiction of the Court of Appeals to rule on a matter foreign to that brought to it. The
Supreme Court in G.R. No. [121075], x x x upheld the refusal of the Court of Appeals to rule
on said issue simply because it agreed that the latter court had no jurisdiction to do so in
said particular petition, which was filed only for the purpose of assailing the RTC order
dismissing Delta's appeal."21

As matters stood prior to CA-GR SP No. 48793 (the presently appealed CA Decision), directly or
inferentially, there was yet no judgment or final order on the merits regarding the March 11, 1987
Order for the execution of the RTC Decision and the proceedings conducted relative thereto. Neither
was one made in CA-GR SP No. 23068, 29147 or GR No. 121075.

It follows that petitioner's reliance on res judicata must fail. Such concept is spelled out in Section 47
of Rule 39 of the Rules of Civil Procedure, which reads:

"SEC. 47. Effect of judgments or final orders. – The effect of a judgment or final order
rendered by a court of the Philippines, having jurisdiction to pronounce the judgment or final
order, may be as follows:

xxx xxx xxx

"(b) In other cases, the judgment or final order is, with respect to the matter directly adjudged
or as to any other matter that could have been raised in relation thereto, conclusive between
the parties and their successors in interest by title subsequent to the commencement of the
action or special proceeding, litigating for the same thing under the same title and in the
same capacity; and

"(c) In any other litigation between the same parties or their successors in interest, that only
is deemed to have been adjudged in a former judgment or final order which appears upon its
face to have been so adjudged, or which was actually and necessarily included therein or
necessary thereto."

In Mirpuri v. Court of Appeals,22 the Court explained:

"Literally, res judicata means a matter adjudged, a thing judicially acted upon or decided; a
thing or matter settled by judgment. In res judicata, the judgment in the first action is
considered conclusive as to every matter offered and received therein, as to any other
admissible matter which might have been offered for that purpose, and all other matters that
could have been adjudged therein. Res judicata is an absolute bar to a subsequent action for
the same cause; and its requisites are: (a) the former judgment or order must be final; (b) the
judgment or order must be one on the merits; (c) it must have been rendered by a court
having jurisdiction over the subject matter and parties; (d) there must be between the first
and second actions, identity of parties, of subject matter and of causes of action."

xxx xxx xxx

"x x x A judgment is on the merits when it determines the rights and liabilities of the parties
based on the disclosed facts, irrespective of formal, technical or dilatory objections." 23

All the decisions relied upon by petitioner contain no discussion of the rights and the liabilities of the
parties vis-à-vis the March 11, 1987 Order. The judgment in CA-GR SP No. 23068 was limited to the
validity of the summons and the RTC Decision. CA-GR SP No. 29147 and GR No. 121075 delved
only on the Notice of Appeal. Both matters were distinct from the subject of execution, which was
involved in the March 11, 1987 RTC Order. In the absence of a final judgment or final order on the
merits, there can be no res judicata to speak of.

In sum, the CA committed no error in brushing aside petitioner's caterwauling on res judicata.

Second Issue:
The RTC's Jurisdiction in Ordering the Execution

Petitioner asserts that the RTC acted correctly in issuing the May 27, 1998 Order directing the
continuation of the execution of the RTC Decision.

The following facts are relevant to the resolution of this issue:

1. The December 5, 1984 RTC Decision in Civil Case No. 84-23019 is the subject of the Notice of
Appeal filed by respondent on November 12, 1991.

2. The records of that case have not been actually elevated to the CA by the RTC despite the
former's Decision in CA-GR SP No. 29147 directing the elevation of the records.

3. Upon petitioner's Omnibus Motion dated March 16, 1998, the RTC issued the May 27, 1998 Order
directing the sheriff to continue with the execution of its December 5, 1984 Decision.

4. Before this Court in GR No. 110677, petitioner assailed the CA Decision directing the elevation of
the records. In our July 18, 1994 Decision, we affirmed the CA.

Petitioner insists that the pre-1997 Rules of Court were applicable. We disagree. The issue to be
resolved pertains to the May 27, 1998 RTC Order granting petitioner's Omnibus Motion dated March
16, 1998. Thus, the 1997 Rules of Civil Procedure, being then already in effect, were applicable.
Considering further that the RTC Decision sought to be executed by the Order was not yet final and
executory, Section 2 of Rule 39 of the new Rules should apply. It states:

"Discretionary execution.-

"(a) Execution of a judgment or a final order pending appeal. – On motion of the prevailing
party with notice to the adverse party filed in the trial court while it has jurisdiction over the
case and is in possession of either the original record or the record on appeal, as the case
may be, at the time of the filing of such motion, said court may, in its discretion, order
execution of a judgment or final order even before the expiration of the period to appeal.

"After the trial court has lost jurisdiction, the motion for execution pending appeal may be
filed in the appellate court.

"Discretionary execution may only issue upon good reasons to be stated in a special order
after due hearing."

Section 9 of Rule 41 of the Rules of Court explains the instances when the trial court loses
jurisdiction over a case:

"A party's appeal by record on appeal is deemed perfected as to him with respect to the
subject matter thereof upon the approval of the record on appeal filed in due time.
 xxx xxx xxx

"In appeals by notice of appeal, the court loses jurisdiction over the case upon the perfection
of the appeals filed in due time and the expiration of the time to appeal of the other parties.

xxx xxx xxx

"In either case, prior to the transmittal of the original record or the record on appeal, the court
may issue orders for the protection and preservation of the rights of the parties which do not
involve any matter litigated by the appeal, approve compromises, permit appeals of indigent
litigants, order execution pending appeal in accordance with Section 2 of Rule 39, and allow
withdrawal of the appeal."

In the case at bar, the appeal filed by respondent was perfected on November 12, 1991, when it filed
its Notice of Appeal. Considering that it had already filed such Notice, and that the period of appeal
for petitioner had already expired, the RTC no longer had jurisdiction over the case. Hence, the trial
court acted improperly when it issued its May 27, 1998 Order granting petitioner's Omnibus Motion.
That Motion was filed four years after this Court had affirmed the CA Decision directing the elevation
of the records on appeal. For having been issued without jurisdiction, the Order is plainly null and
void.24

Furthermore, the Order of execution was made without any statement of the special reason for its
issuance. The rule allowing execution pending appeal is strictly construed against the movant,
because courts look with disfavor upon any attempt to execute a judgment that has not acquired a
final character.25 "An execution pending appeal is an extraordinary remedy, being more of the
exception rather than the rule. It is allowed only upon showing of 'good reasons' by the movant." 26 In
the present case, no reason has been shown for the issuance of the Order directing execution
pending appeal.

Third Issue:
Laches

Petitioner asserts that respondent is guilty of laches, because it failed to file a timely Notice of
Appeal. Neither did it do anything to cause the transmittal of the records of the case to the CA.

The issue regarding the Notice of Appeal was already the subject of the CA Decision in CA-GR SP
No. 29147, which passed upon and directly addressed it. Moreover, the matter was laid to rest by
this Court in GR No. 110677. We must abide by the ruling therein affirming the timeliness of
respondent's Notice of Appeal.

Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that
which by exercising due diligence could or should have been done earlier.27 It is negligence or
omission to assert a right within a reasonable time, warranting a presumption that the party entitled
to assert it either has abandoned it or declined to assert it.28

We note that respondent pursued its appeal by filing a Notice of Appeal on November 12, 1991.
Since the RTC dismissed it, respondent had to battle for its right to appeal to the CA and the
Supreme Court. This battle went on until the latter part of 1994. 29

Thereafter, it was the duty of the RTC clerk of court to transmit the records to the appellate
court.30 The CA, in CA-GR SP No. 29147, in fact ordered the RTC to elevate those records.
Consequently, the RTC was duty-bound to obey this mandate within ten (10) days from its receipt of
the Notice of the entry of final judgment effected on October 17, 1994. The branch clerk of court, not
respondent, was primarily responsible for seeing to it that the records of appealed cases were
properly sent to the appellate court without delay.31

Respondent was well within reason to expect and wait for the RTC to elevate the records without
further prodding. In opposing petitioner's Omnibus Motion, respondent indeed brought up the matter
of the pending appeal. Finally, upon noticing that the elevation of the records was not forthcoming, it
filed a Motion therefor in August 1998.32 These acts are incompatible with the presumption that it had
abandoned its appeal. Hence, it cannot be found guilty of laches.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.

SO ORDERED.

Puno, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

Overview of the doctrine of conclusiveness of judgment:

The doctrine of conclusiveness of judgment, also known as res judicata, is a legal

principle that prevents the same parties from relitigating issues that have already been
adjudicated in a prior final judgment. It aims to promote judicial efficiency, prevent
harassment of litigants, and maintain the stability of legal decisions. Res judicata is
applicable when certain conditions are met: (1) the prior judgment must be final and on
the merits, (2) the parties in the subsequent case must be the same or in privity with the
parties in the prior case, and (3) the issues in the subsequent case must be the same as
those adjudicated in the prior case or could have been raised in the prior case.

Overview of the case:

The case involves a series of legal proceedings stemming from Civil Case No. 84-23019,
which concerned a dispute between State Investment Trust, Inc. (SITI) and Delta Motors
Corporation over a sum of money. The Regional Trial Court (RTC) rendered a decision in
favor of SITI on December 5, 1984. However, the decision faced various challenges and
appeals over the years, leading to multiple court rulings and orders.

SITI sought execution of the RTC decision, but Delta contested the validity of the
execution order, arguing that the decision had not yet attained finality due to pending
appeals. The Court of Appeals (CA) ultimately annulled the RTC's execution order in a
decision dated November 16, 1999, leading to the present appeal.

Issues:

1. Whether CA-GR SP No. 48793 is barred by res judicata or the doctrine of

conclusiveness of judgment.
2. Whether the RTC acted without jurisdiction in issuing the Writ of Execution.
3. Whether respondent's appeal is barred by laches.

The Court's Ruling:

1. Res Judicata: The Court rejected the argument that res judicata applied, as there
was no prior final judgment or order specifically addressing the validity of the
execution order. The prior decisions and rulings focused on different issues and
did not conclusively determine the matter of the execution order's validity.
2. RTC's Jurisdiction: The Court found that the RTC acted without jurisdiction in
issuing the execution order, as the appeal had already been perfected and the
 RTC had lost jurisdiction over the case. Additionally, the execution order lacked a
statement of special reasons, as required by law.
3. Laches: The Court dismissed the argument of laches, noting that the respondent
diligently pursued its appeal and was not responsible for the delay in transmitting
the case records to the appellate court.

Conclusion:

The Court denied the petition and affirmed the CA's decision, holding that the execution
order was null and void due to lack of jurisdiction and failure to comply with procedural
requirements. The respondent's appeal was not barred by res judicata or laches, as the
prior rulings did not conclusively determine the issues related to the execution order.
9.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 180643 September 4, 2008

ROMULO L. NERI, petitioner,

vs.
SENATE COMMITTEE ON ACCOUNTABILITY OF PUBLIC OFFICERS AND INVESTIGATIONS,
SENATE COMMITTEE ON TRADE AND COMMERCE, AND SENATE COMMITTEE ON NATIONAL
DEFENSE AND SECURITY, respondents.

RESOLUTION

LEONARDO-DE CASTRO, J.:

Executive privilege is not a personal privilege, but one that adheres to the Office of the President. It exists
to protect public interest, not to benefit a particular public official. Its purpose, among others, is to assure
that the nation will receive the benefit of candid, objective and untrammeled communication and
exchange of information between the President and his/her advisers in the process of shaping or forming
policies and arriving at decisions in the exercise of the functions of the Presidency under the Constitution.
The confidentiality of the President’s conversations and correspondence is not unique. It is akin to the
confidentiality of judicial deliberations. It possesses the same value as the right to privacy of all citizens
and more, because it is dictated by public interest and the constitutionally ordained separation of
governmental powers.

In these proceedings, this Court has been called upon to exercise its power of review and arbitrate a
hotly, even acrimoniously, debated dispute between the Court’s co-equal branches of government. In this
task, this Court should neither curb the legitimate powers of any of the co-equal and coordinate branches
of government nor allow any of them to overstep the boundaries set for it by our Constitution. The
competing interests in the case at bar are the claim of executive privilege by the President, on the one
hand, and the respondent Senate Committees’ assertion of their power to conduct legislative inquiries, on
the other. The particular facts and circumstances of the present case, stripped of the politically and
emotionally charged rhetoric from both sides and viewed in the light of settled constitutional and legal
doctrines, plainly lead to the conclusion that the claim of executive privilege must be upheld.

Assailed in this motion for reconsideration is our Decision dated March 25, 2008 (the "Decision"), granting
the petition for certiorari filed by petitioner Romulo L. Neri against the respondent Senate Committees on
Accountability of Public Officers and Investigations,1 Trade and Commerce,2 and National Defense and
Security (collectively the "respondent Committees").3

A brief review of the facts is imperative.

On September 26, 2007, petitioner appeared before respondent Committees and testified for about
eleven (11) hours on matters concerning the National Broadband Project (the "NBN Project"), a project
awarded by the Department of Transportation and Communications ("DOTC") to Zhong Xing
Telecommunications Equipment ("ZTE"). Petitioner disclosed that then Commission on Elections
("COMELEC") Chairman Benjamin Abalos offered him P200 Million in exchange for his approval of the
NBN Project. He further narrated that he informed President Gloria Macapagal Arroyo ("President
Arroyo") of the bribery attempt and that she instructed him not to accept the bribe. However, when probed
further on President Arroyo and petitioner’s discussions relating to the NBN Project, petitioner refused to
answer, invoking "executive privilege." To be specific, petitioner refused to answer questions on: (a)
whether or not President Arroyo followed up the NBN Project,4 (b) whether or not she directed him to
prioritize it,5 and (c) whether or not she directed him to approve it.6

Respondent Committees persisted in knowing petitioner’s answers to these three questions by requiring
him to appear and testify once more on November 20, 2007. On November 15, 2007, Executive Secretary
Eduardo R. Ermita wrote to respondent Committees and requested them to dispense with petitioner’s
testimony on the ground of executive privilege.7 The letter of Executive Secretary Ermita pertinently
stated:

Following the ruling in Senate v. Ermita, the foregoing questions fall under conversations and
correspondence between the President and public officials which are considered executive
privilege (Almonte v. Vasquez, G.R. 95637, 23 May 1995; Chavez v. PEA, G.R. 133250, July 9,
2002). Maintaining the confidentiality of conversations of the President is necessary in the
exercise of her executive and policy decision making process. The expectation of a President to
the confidentiality of her conversations and correspondences, like the value which we accord
deference for the privacy of all citizens, is the necessity for protection of the public interest in
candid, objective, and even blunt or harsh opinions in Presidential decision-making. Disclosure of
conversations of the President will have a chilling effect on the President, and will hamper her in
the effective discharge of her duties and responsibilities, if she is not protected by the
confidentiality of her conversations.

The context in which executive privilege is being invoked is that the information sought to be
disclosed might impair our diplomatic as well as economic relations with the People’s Republic of
China. Given the confidential nature in which these information were conveyed to the President,
he cannot provide the Committee any further details of these conversations, without disclosing
the very thing the privilege is designed to protect.

In light of the above considerations, this Office is constrained to invoke the settled doctrine of
executive privilege as refined in Senate v. Ermita, and has advised Secretary Neri accordingly.

Considering that Sec. Neri has been lengthily interrogated on the subject in an unprecedented
11-hour hearing, wherein he has answered all questions propounded to him except the foregoing
questions involving executive privilege, we therefore request that his testimony on 20 November
2007 on the ZTE / NBN project be dispensed with.

On November 20, 2007, petitioner did not appear before respondent Committees upon orders of the
President invoking executive privilege. On November 22, 2007, the respondent Committees issued the
show-cause letter requiring him to explain why he should not be cited in contempt. On November 29,
2007, in petitioner’s reply to respondent Committees, he manifested that it was not his intention to ignore
the Senate hearing and that he thought the only remaining questions were those he claimed to be
covered by executive privilege. He also manifested his willingness to appear and testify should there be
new matters to be taken up. He just requested that he be furnished "in advance as to what else" he
"needs to clarify."

Respondent Committees found petitioner’s explanations unsatisfactory. Without responding to his request
for advance notice of the matters that he should still clarify, they issued the Order dated January 30,
2008; In Re: P.S. Res. Nos. 127,129,136 & 144; and privilege speeches of Senator Lacson and Santiago
(all on the ZTE-NBN Project), citing petitioner in contempt of respondent Committees and ordering his
arrest and detention at the Office of the Senate Sergeant-at-Arms until such time that he would appear
and give his testimony.
On the same date, petitioner moved for the reconsideration of the above Order.8 He insisted that he had
not shown "any contemptible conduct worthy of contempt and arrest." He emphasized his willingness to
testify on new matters, but respondent Committees did not respond to his request for advance notice of
questions. He also mentioned the petition for certiorari he previously filed with this Court on December 7,
2007. According to him, this should restrain respondent Committees from enforcing the order dated
January 30, 2008 which declared him in contempt and directed his arrest and detention.

Petitioner then filed his Supplemental Petition for Certiorari (with Urgent Application for TRO/Preliminary
Injunction) on February 1, 2008. In the Court’s Resolution dated February 4, 2008, the parties were
required to observe the status quo prevailing prior to the Order dated January 30, 2008.

On March 25, 2008, the Court granted his petition for certiorari on two grounds: first, the communications
elicited by the three (3) questions were covered by executive privilege; and second, respondent
Committees committed grave abuse of discretion in issuing the contempt order. Anent the first ground, we
considered the subject communications as falling under the presidential communications
privilege because (a) they related to a quintessential and non-delegable power of the President, (b) they
were received by a close advisor of the President, and (c) respondent Committees failed to adequately
show a compelling need that would justify the limitation of the privilege and the unavailability of the
information elsewhere by an appropriate investigating authority. As to the second ground, we found that
respondent Committees committed grave abuse of discretion in issuing the contempt order because (a)
there was a valid claim of executive privilege, (b) their invitations to petitioner did not contain the
questions relevant to the inquiry, (c) there was a cloud of doubt as to the regularity of the proceeding that
led to their issuance of the contempt order, (d) they violated Section 21, Article VI of the Constitution
because their inquiry was not in accordance with the "duly published rules of procedure," and (e) they
issued the contempt order arbitrarily and precipitately.

On April 8, 2008, respondent Committees filed the present motion for reconsideration, anchored on the
following grounds:

CONTRARY TO THIS HONORABLE COURT’S DECISION, THERE IS NO DOUBT THAT THE

ASSAILED ORDERS WERE ISSUED BY RESPONDENT COMMITTEES PURSUANT TO THE
EXERCISE OF THEIR LEGISLATIVE POWER, AND NOT MERELY THEIR OVERSIGHT
FUNCTIONS.

II

CONTRARY TO THIS HONORABLE COURT’S DECISION, THERE CAN BE NO

PRESUMPTION THAT THE INFORMATION WITHHELD IN THE INSTANT CASE IS
PRIVILEGED.

III

CONTRARY TO THIS HONORABLE COURT’S DECISION, THERE IS NO FACTUAL OR

LEGAL BASIS TO HOLD THAT THE COMMUNICATIONS ELICITED BY THE SUBJECT
THREE (3) QUESTIONS ARE COVERED BY EXECUTIVE PRIVILEGE, CONSIDERING THAT:

A. THERE IS NO SHOWING THAT THE MATTERS FOR WHICH EXECUTIVE PRIVILEGE IS

CLAIMED CONSTITUTE STATE SECRETS.
 B. EVEN IF THE TESTS ADOPTED BY THIS HONORABLE COURT IN THE DECISION IS
APPLIED, THERE IS NO SHOWING THAT THE ELEMENTS OF PRESIDENTIAL
COMMUNICATIONS PRIVILEGE ARE PRESENT.

C. ON THE CONTRARY, THERE IS ADEQUATE SHOWING OF A COMPELLING NEED TO

JUSTIFY THE DISCLOSURE OF THE INFORMATION SOUGHT.

D. TO UPHOLD THE CLAIM OF EXECUTIVE PRIVILEGE IN THE INSTANT CASE WOULD

SERIOUSLY IMPAIR THE RESPONDENTS’ PERFORMANCE OF THEIR PRIMARY
FUNCTION TO ENACT LAWS.

E. FINALLY, THE CONSTITUTIONAL RIGHT OF THE PEOPLE TO INFORMATION, AND THE

CONSTITUTIONAL POLICIES ON PUBLIC ACCOUNTABILITY AND TRANSPARENCY
OUTWEIGH THE CLAIM OF EXECUTIVE PRIVILEGE.

IV

CONTRARY TO THIS HONORABLE COURT’S DECISION, RESPONDENTS DID NOT

COMMIT GRAVE ABUSE OF DISCRETION IN ISSUING THE ASSAILED CONTEMPT ORDER,
CONSIDERING THAT:

A. THERE IS NO LEGITIMATE CLAIM OF EXECUTIVE PRIVILEGE IN THE INSTANT CASE.

B. RESPONDENTS DID NOT VIOLATE THE SUPPOSED REQUIREMENTS LAID DOWN

IN SENATE V. ERMITA.

C. RESPONDENTS DULY ISSUED THE CONTEMPT ORDER IN ACCORDANCE WITH THEIR

INTERNAL RULES.

D. RESPONDENTS DID NOT VIOLATE THE REQUIREMENTS UNDER ARTICLE VI, SECTION
21 OF THE CONSTITUTION REQUIRING THAT ITS RULES OF PROCEDURE BE DULY
PUBLISHED, AND WERE DENIED DUE PROCESS WHEN THE COURT CONSIDERED THE
OSG’S INTERVENTION ON THIS ISSUE WITHOUT GIVING RESPONDENTS THE
OPPORTUNITY TO COMMENT.

E. RESPONDENTS’ ISSUANCE OF THE CONTEMPT ORDER IS NOT ARBITRARY OR

PRECIPITATE.

In his Comment, petitioner charges respondent Committees with exaggerating and distorting the Decision
of this Court. He avers that there is nothing in it that prohibits respondent Committees from investigating
the NBN Project or asking him additional questions. According to petitioner, the Court merely applied the
rule on executive privilege to the facts of the case. He further submits the following contentions: first, the
assailed Decision did not reverse the presumption against executive secrecy laid down in Senate v.
Ermita; second, respondent Committees failed to overcome the presumption of executive privilege
because it appears that they could legislate even without the communications elicited by the three (3)
questions, and they admitted that they could dispense with petitioner’s testimony if certain NEDA
documents would be given to them; third, the requirement of specificity applies only to the privilege for
State, military and diplomatic secrets, not to the necessarily broad and all-encompassing presidential
communications privilege; fourth, there is no right to pry into the President’s thought processes or
exploratory exchanges; fifth, petitioner is not covering up or hiding anything illegal; sixth, the Court has
the power and duty to annul the Senate Rules; seventh, the Senate is not a continuing body, thus the
failure of the present Senate to publish its Rules of Procedure Governing Inquiries in Aid of
Legislation (Rules) has a vitiating effect on them; eighth, the requirement for a witness to be furnished
advance copy of questions comports with due process and the constitutional mandate that the rights of
witnesses be respected; and ninth, neither petitioner nor respondent has the final say on the matter of
executive privilege, only the Court.

For its part, the Office of the Solicitor General maintains that: (1) there is no categorical pronouncement
from the Court that the assailed Orders were issued by respondent Committees pursuant to their
oversight function; hence, there is no reason for them "to make much" of the distinction between Sections
21 and 22, Article VI of the Constitution; (2) presidential communications enjoy a presumptive privilege
against disclosure as earlier held in Almonte v. Vasquez9 and Chavez v. Public Estates Authority (PEA)10;
(3) the communications elicited by the three (3) questions are covered by executive privilege, because all
the elements of the presidential communications privilege are present; (4) the subpoena ad
testificandum issued by respondent Committees to petitioner is fatally defective under existing law and
jurisprudence; (5) the failure of the present Senate to publish its Rules renders the same void; and (6)
respondent Committees arbitrarily issued the contempt order.

Incidentally, respondent Committees’ objection to the Resolution dated March 18, 2008 (granting the
Office of the Solicitor General’s Motion for Leave to Intervene and to Admit Attached Memorandum) only
after the promulgation of the Decision in this case is foreclosed by its untimeliness.

The core issues that arise from the foregoing respective contentions of the opposing parties are as
follows:

(1) whether or not there is a recognized presumptive presidential communications privilege in our
legal system;

(2) whether or not there is factual or legal basis to hold that the communications elicited by the
three (3) questions are covered by executive privilege;

(3) whether or not respondent Committees have shown that the communications elicited by the
three (3) questions are critical to the exercise of their functions; and

(4) whether or not respondent Committees committed grave abuse of discretion in issuing the
contempt order.

We shall discuss these issues seriatim.

There Is a Recognized Presumptive

Presidential Communications Privilege

Respondent Committees ardently argue that the Court’s declaration that presidential communications are
presumptively privileged reverses the "presumption" laid down in Senate v. Ermita11 that "inclines heavily
against executive secrecy and in favor of disclosure." Respondent Committees then claim that the Court
erred in relying on the doctrine in Nixon.

Respondent Committees argue as if this were the first time the presumption in favor of the presidential
communications privilege is mentioned and adopted in our legal system. That is far from the truth. The
Court, in the earlier case of Almonte v. Vasquez,12 affirmed that the presidential communications
privilege is fundamental to the operation of government and inextricably rooted in the separation of
powers under the Constitution. Even Senate v. Ermita,13 the case relied upon by respondent Committees,
reiterated this concept. There, the Court enumerated the cases in which the claim of executive privilege
was recognized, among them Almonte v. Chavez, Chavez v. Presidential Commission on Good
Government (PCGG),14 and Chavez v. PEA.15 The Court articulated in these cases that "there are certain
types of information which the government may withhold from the public,16" that there is a "governmental
privilege against public disclosure with respect to state secrets regarding military, diplomatic and other
national security matters";17 and that "the right to information does not extend to matters recognized
as ‘privileged information’ under the separation of powers, by which the Court meant Presidential
conversations, correspondences, and discussions in closed-door Cabinet meetings."18

Respondent Committees’ observation that this Court’s Decision reversed the "presumption that inclines
heavily against executive secrecy and in favor of disclosure" arises from a piecemeal interpretation of the
said Decision. The Court has repeatedly held that in order to arrive at the true intent and meaning of a
decision, no specific portion thereof should be isolated and resorted to, but the decision must be
considered in its entirety.19

Note that the aforesaid presumption is made in the context of the circumstances obtaining in Senate v.
Ermita, which declared void Sections 2(b) and 3 of Executive Order (E.O.) No. 464, Series of 2005. The
pertinent portion of the decision in the said case reads:

From the above discussion on the meaning and scope of executive privilege, both in the United
States and in this jurisprudence, a clear principle emerges. Executive privilege, whether asserted
against Congress, the courts, or the public, is recognized only in relation to certain types of
information of a sensitive character. While executive privilege is a constitutional concept,
a claim thereof may be valid or not depending on the ground invoked to justify it and the context
in which it is made. Noticeably absent is any recognition that executive officials are exempt from
the duty to disclose information by the mere fact of being executive officials. Indeed, the
extraordinary character of the exemptions indicates that the presumption inclines
heavily against executive secrecy and in favor of disclosure. (Emphasis and underscoring
supplied)

Obviously, the last sentence of the above-quoted paragraph in Senate v. Ermita refers to the "exemption"
being claimed by the executive officials mentioned in Section 2(b) of E.O. No. 464, solely by virtue of their
positions in the Executive Branch. This means that when an executive official, who is one of those
mentioned in the said Sec. 2(b) of E.O. No. 464, claims to be exempt from disclosure, there can be no
presumption of authorization to invoke executive privilege given by the President to said executive
official, such that the presumption in this situation inclines heavily against executive secrecy and in favor
of disclosure.

Senate v. Ermita 20 expounds on the premise of the foregoing ruling in this wise:

Section 2(b) in relation to Section 3 virtually provides that, once the head of office determines that
a certain information is privileged, such determination is presumed to bear the President’s
authority and has the effect of prohibiting the official from appearing before Congress, subject
only to the express pronouncement of the President that it is allowing the appearance of such
official. These provisions thus allow the President to authorize claims of privilege by mere silence.

Such presumptive authorization, however, is contrary to the exceptional nature of the privilege.
Executive privilege, as already discussed, is recognized with respect to information the
confidential nature of which is crucial to the fulfillment of the unique role and responsibilities of the
executive branch, or in those instances where exemption from disclosure is necessary to the
discharge of highly important executive responsibilities. The doctrine of executive privilege is thus
premised on the fact that certain information must, as a matter of necessity, be kept confidential
in pursuit of the public interest. The privilege being, by definition, an exemption from the
obligation to disclose information, in this case to Congress, the necessity must be of such high
degree as to outweigh the public interest in enforcing that obligation in a particular case.
 In light of this highly exceptional nature of the privilege, the Court finds it essential to limit to the
President the power to invoke the privilege. She may of course authorize the Executive Secretary
to invoke the privilege on her behalf, in which case the Executive Secretary must state that the
authority is "By order of the President", which means that he personally consulted with her. The
privilege being an extraordinary power, it must be wielded only by the highest official in the
executive hierarchy. In other words, the President may not authorize her subordinates to exercise
such power. There is even less reason to uphold such authorization in the instant case where the
authorization is not explicit but by mere silence. Section 3, in relation to Section 2(b), is further
invalid on this score.

The constitutional infirmity found in the blanket authorization to invoke executive privilege granted by the
President to executive officials in Sec. 2(b) of E.O. No. 464 does not obtain in this case.

In this case, it was the President herself, through Executive Secretary Ermita, who invoked executive
privilege on a specific matter involving an executive agreement between the Philippines and China, which
was the subject of the three (3) questions propounded to petitioner Neri in the course of the Senate
Committees’ investigation. Thus, the factual setting of this case markedly differs from that passed upon in
Senate v. Ermita.

Moreover, contrary to the claim of respondents, the Decision in this present case hews closely to the
ruling in Senate v. Ermita,21 to wit:

Executive privilege

The phrase "executive privilege" is not new in this jurisdiction. It has been used even prior
to the promulgation of the 1986 Constitution. Being of American origin, it is best understood in
light of how it has been defined and used in the legal literature of the United States.

Schwart defines executive privilege as "the power of the Government to withhold information
from the public, the courts, and the Congress. Similarly, Rozell defines it as "the right of the
President and high-level executive branch officers to withhold information from Congress, the
courts, and ultimately the public." x x x In this jurisdiction, the doctrine of executive privilege was
recognized by this Court in Almonte v. Vasquez. Almonte used the term in reference to the same
privilege subject of Nixon. It quoted the following portion of the Nixon decision which explains the
basis for the privilege:

"The expectation of a President to the confidentiality of his conversations and

correspondences, like the claim of confidentiality of judicial deliberations, for example, he
has all the values to which we accord deference for the privacy of all citizens and, added to those
values, is the necessity for protection of the public interest in candid, objective, and even blunt or
harsh opinions in Presidential decision-making. A President and those who assist him must be
free to explore alternatives in the process of shaping policies and making decisions and to do so
in a way many would be unwilling to express except privately. These are the considerations
justifying a presumptive privilege for Presidential communications. The privilege is
fundamental to the operation of government and inextricably rooted in the separation of
powers under the Constitution x x x " (Emphasis and italics supplied)

Clearly, therefore, even Senate v. Ermita adverts to "a presumptive privilege for Presidential
communication," which was recognized early on in Almonte v. Vasquez. To construe the passage
in Senate v. Ermita adverted to in the Motion for Reconsideration of respondent Committees, referring to
the non-existence of a "presumptive authorization" of an executive official, to mean that the "presumption"
in favor of executive privilege "inclines heavily against executive secrecy and in favor of disclosure" is to
distort the ruling in the Senate v. Ermita and make the same engage in self-contradiction.
Senate v. Ermita22 expounds on the constitutional underpinning of the relationship between the Executive
Department and the Legislative Department to explain why there should be no implied authorization or
presumptive authorization to invoke executive privilege by the President’s subordinate officials, as follows:

When Congress exercises its power of inquiry, the only way for department heads to
exempt themselves therefrom is by a valid claim of privilege. They are not exempt by the
mere fact that they are department heads. Only one executive official may be exempted from
this power - the President on whom executive power is vested, hence, beyond the reach of
Congress except through the power of impeachment. It is based on he being the highest official
of the executive branch, and the due respect accorded to a co-equal branch of governments
which is sanctioned by a long-standing custom. (Underscoring supplied)

Thus, if what is involved is the presumptive privilege of presidential communications when invoked by the
President on a matter clearly within the domain of the Executive, the said presumption dictates that the
same be recognized and be given preference or priority, in the absence of proof of a compelling or critical
need for disclosure by the one assailing such presumption. Any construction to the contrary will render
meaningless the presumption accorded by settled jurisprudence in favor of executive privilege. In
fact, Senate v. Ermita reiterates jurisprudence citing "the considerations justifying a presumptive privilege
for Presidential communications."23

II

There Are Factual and Legal Bases to

Hold that the Communications Elicited by the
Three (3) Questions Are Covered by Executive Privilege

Respondent Committees claim that the communications elicited by the three (3) questions are not
covered by executive privilege because the elements of the presidential communications privilege are
not present.

A. The power to enter into an executive agreement is a "quintessential and non-delegable

presidential power."

First, respondent Committees contend that the power to secure a foreign loan does not relate to a
"quintessential and non-delegable presidential power," because the Constitution does not vest it in the
President alone, but also in the Monetary Board which is required to give its prior concurrence and to
report to Congress.

This argument is unpersuasive.

The fact that a power is subject to the concurrence of another entity does not make such power less
executive. "Quintessential" is defined as the most perfect embodiment of something, the concentrated
essence of substance.24 On the other hand, "non-delegable" means that a power or duty cannot be
delegated to another or, even if delegated, the responsibility remains with the obligor.25 The power to
enter into an executive agreement is in essence an executive power. This authority of the President to
enter into executive agreements without the concurrence of the Legislature has traditionally been
recognized in Philippine jurisprudence.26 Now, the fact that the President has to secure the prior
concurrence of the Monetary Board, which shall submit to Congress a complete report of its decision
before contracting or guaranteeing foreign loans, does not diminish the executive nature of the power.

The inviolate doctrine of separation of powers among the legislative, executive and judicial branches of
government by no means prescribes absolute autonomy in the discharge by each branch of that part of
the governmental power assigned to it by the sovereign people. There is the corollary doctrine of checks
and balances, which has been carefully calibrated by the Constitution to temper the official acts of each of
these three branches. Thus, by analogy, the fact that certain legislative acts require action from the
President for their validity does not render such acts less legislative in nature. A good example is the
power to pass a law. Article VI, Section 27 of the Constitution mandates that every bill passed by
Congress shall, before it becomes a law, be presented to the President who shall approve or veto the
same. The fact that the approval or vetoing of the bill is lodged with the President does not render the
power to pass law executive in nature. This is because the power to pass law is generally a quintessential
and non-delegable power of the Legislature. In the same vein, the executive power to enter or not to enter
into a contract to secure foreign loans does not become less executive in nature because of conditions
laid down in the Constitution. The final decision in the exercise of the said executive power is still lodged
in the Office of the President.

B. The "doctrine of operational proximity" was laid down precisely to limit the scope of the
presidential communications privilege but, in any case, it is not conclusive.

Second, respondent Committees also seek reconsideration of the application of the "doctrine of
operational proximity" for the reason that "it maybe misconstrued to expand the scope of the presidential
communications privilege to communications between those who are ‘operationally proximate’ to the
President but who may have "no direct communications with her."

It must be stressed that the doctrine of "operational proximity" was laid down in In re: Sealed
Case27precisely to limit the scope of the presidential communications privilege. The U.S. court was aware
of the dangers that a limitless extension of the privilege risks and, therefore, carefully cabined its reach by
explicitly confining it to White House staff, and not to staffs of the agencies, and then only to White House
staff that has "operational proximity" to direct presidential decision-making, thus:

We are aware that such an extension, unless carefully circumscribed to accomplish the purposes
of the privilege, could pose a significant risk of expanding to a large swath of the executive
branch a privilege that is bottomed on a recognition of the unique role of the President. In order to
limit this risk, the presidential communications privilege should be construed as narrowly as is
consistent with ensuring that the confidentiality of the President’s decision-making process is
adequately protected. Not every person who plays a role in the development of presidential
advice, no matter how remote and removed from the President, can qualify for the
privilege. In particular, the privilege should not extend to staff outside the White House in
executive branch agencies. Instead, the privilege should apply only to communications
authored or solicited and received by those members of an immediate White House advisor’s
staff who have broad and significant responsibility for investigation and formulating the advice to
be given the President on the particular matter to which the communications relate. Only
communications at that level are close enough to the President to be revelatory of his
deliberations or to pose a risk to the candor of his advisers. See AAPS, 997 F.2d at 910 (it
is "operational proximity" to the President that matters in determining whether "[t]he
President’s confidentiality interests" is implicated). (Emphasis supplied)

In the case at bar, the danger of expanding the privilege "to a large swath of the executive branch" (a fear
apparently entertained by respondents) is absent because the official involved here is a member of the
Cabinet, thus, properly within the term "advisor" of the President; in fact, her alter ego and a member of
her official family. Nevertheless, in circumstances in which the official involved is far too remote, this Court
also mentioned in the Decision the organizational test laid down in Judicial Watch, Inc. v. Department of
Justice.28 This goes to show that the operational proximity test used in the Decision is not considered
conclusive in every case. In determining which test to use, the main consideration is to limit the availability
of executive privilege only to officials who stand proximate to the President, not only by reason of their
function, but also by reason of their positions in the Executive’s organizational structure. Thus,
respondent Committees’ fear that the scope of the privilege would be unnecessarily expanded with the
use of the operational proximity test is unfounded.
C. The President’s claim of executive privilege is not merely based on a generalized interest; and
in balancing respondent Committees’ and the President’s clashing interests, the Court did not
disregard the 1987 Constitutional provisions on government transparency, accountability and
disclosure of information.

Third, respondent Committees claim that the Court erred in upholding the President’s invocation, through
the Executive Secretary, of executive privilege because (a) between respondent Committees’ specific and
demonstrated need and the President’s generalized interest in confidentiality, there is a need to strike the
balance in favor of the former; and (b) in the balancing of interest, the Court disregarded the provisions of
the 1987 Philippine Constitution on government transparency, accountability and disclosure of
information, specifically, Article III, Section 7;29 Article II, Sections 2430 and 28;31 Article XI, Section
1;32 Article XVI, Section 10;33 Article VII, Section 20;34 and Article XII, Sections 9,35 21,36 and 22.37

It must be stressed that the President’s claim of executive privilege is not merely founded on her
generalized interest in confidentiality. The Letter dated November 15, 2007 of Executive Secretary Ermita
specified presidential communications privilege in relation to diplomatic and economic relations
with another sovereign nation as the bases for the claim. Thus, the Letter stated:

The context in which executive privilege is being invoked is that the information sought to
be disclosed might impair our diplomatic as well as economic relations with the People’s
Republic of China. Given the confidential nature in which this information were conveyed to the
President, he cannot provide the Committee any further details of these conversations, without
disclosing the very thing the privilege is designed to protect. (emphasis supplied)

Even in Senate v. Ermita, it was held that Congress must not require the Executive to state the reasons
for the claim with such particularity as to compel disclosure of the information which the privilege is meant
to protect. This is a matter of respect for a coordinate and co-equal department.

It is easy to discern the danger that goes with the disclosure of the President’s communication with her
advisor. The NBN Project involves a foreign country as a party to the agreement. It was actually a product
of the meeting of minds between officials of the Philippines and China. Whatever the President says
about the agreement - particularly while official negotiations are ongoing - are matters which China will
surely view with particular interest. There is danger in such kind of exposure. It could adversely affect our
diplomatic as well as economic relations with the People’s Republic of China. We reiterate the importance
of secrecy in matters involving foreign negotiations as stated in United States v. Curtiss-Wright Export
Corp., 38 thus:

The nature of foreign negotiations requires caution, and their success must often depend on
secrecy, and even when brought to a conclusion, a full disclosure of all the measures, demands,
or eventual concessions which may have been proposed or contemplated would be extremely
impolitic, for this might have a pernicious influence on future negotiations or produce immediate
inconveniences, perhaps danger and mischief, in relation to other powers. The necessity of such
caution and secrecy was one cogent reason for vesting the power of making treaties in the
President, with the advice and consent of the Senate, the principle on which the body was formed
confining it to a small number of members. To admit, then, a right in the House of
Representatives to demand and to have as a matter of course all the papers respecting a
negotiation with a foreign power would be to establish a dangerous precedent.

US jurisprudence clearly guards against the dangers of allowing Congress access to all papers relating to
a negotiation with a foreign power. In this jurisdiction, the recent case of Akbayan Citizens Action Party,
et al. v. Thomas G. Aquino, et al.39 upheld the privileged character of diplomatic negotiations. In Akbayan,
the Court stated:

Privileged character of diplomatic negotiations

The privileged character of diplomatic negotiations has been recognized in this jurisdiction. In
discussing valid limitations on the right to information, the Court in Chavez v. PCGG held that
"information on inter-government exchanges prior to the conclusion of treaties and executive
agreements may be subject to reasonable safeguards for the sake of national interest." Even
earlier, the same privilege was upheld in People’s Movement for Press Freedom (PMPF) v.
Manglapus wherein the Court discussed the reasons for the privilege in more precise terms.

In PMPF v. Manglapus, the therein petitioners were seeking information from the President’s
representatives on the state of the then on-going negotiations of the RP-US Military Bases
Agreement. The Court denied the petition, stressing that "secrecy of negotiations with foreign
countries is not violative of the constitutional provisions of freedom of speech or of the press
nor of the freedom of access to information." The Resolution went on to state, thus:

The nature of diplomacy requires centralization of authority and expedition of

decision which are inherent in executive action. Another essential characteristic of
diplomacy is its confidential nature. Although much has been said about "open" and
"secret" diplomacy, with disparagement of the latter, Secretaries of State Hughes and
Stimson have clearly analyzed and justified the practice. In the words of Mr. Stimson:

"A complicated negotiation …cannot be carried through without many,

many private talks and discussion, man to man; many tentative
suggestions and proposals. Delegates from other countries come and tell
you in confidence of their troubles at home and of their differences with
other countries and with other delegates; they tell you of what they would
do under certain circumstances and would not do under other
circumstances… If these reports… should become public… who would
ever trust American Delegations in another conference? (United States
Department of State, Press Releases, June 7, 1930, pp. 282-284)

xxxx

There is frequent criticism of the secrecy in which negotiation with foreign powers
on nearly all subjects is concerned. This, it is claimed, is incompatible with the
substance of democracy. As expressed by one writer, "It can be said that there is no
more rigid system of silence anywhere in the world." (E.J. Young, Looking Behind the
Censorship, J. B. Lipincott Co., 1938) President Wilson in starting his efforts for the
conclusion of the World War declared that we must have "open covenants, openly arrived
at." He quickly abandoned his thought.

No one who has studied the question believes that such a method of publicity is
possible. In the moment that negotiations are started, pressure groups attempt to
"muscle in." An ill-timed speech by one of the parties or a frank declaration of the
concession which are exacted or offered on both sides would quickly lead to a
widespread propaganda to block the negotiations. After a treaty has been drafted
and its terms are fully published, there is ample opportunity for discussion before
it is approved. (The New American Government and Its Works, James T. Young, 4th
Edition, p. 194) (Emphasis and underscoring supplied)

Still in PMPF v. Manglapus, the Court adopted the doctrine in U.S. v. Curtiss-Wright Export
Corp. that the President is the sole organ of the nation in its negotiations with foreign
countries,viz:

"x x x In this vast external realm, with its important, complicated, delicate and manifold
problems, the President alone has the power to speak or listen as a representative of the
 nation. He makes treaties with the advice and consent of the Senate; but he alone
negotiates. Into the field of negotiation the Senate cannot intrude; and Congress itself is
powerless to invade it. As Marshall said in his great arguments of March 7, 1800, in the
House of Representatives, "The President is the sole organ of the nation in its
external relations, and its sole representative with foreign nations." Annals, 6th
Cong., col. 613… (Emphasis supplied; underscoring in the original)

Considering that the information sought through the three (3) questions subject of this Petition involves
the President’s dealings with a foreign nation, with more reason, this Court is wary of approving the view
that Congress may peremptorily inquire into not only official, documented acts of the President but even
her confidential and informal discussions with her close advisors on the pretext that said questions serve
some vague legislative need. Regardless of who is in office, this Court can easily foresee unwanted
consequences of subjecting a Chief Executive to unrestricted congressional inquiries done with increased
frequency and great publicity. No Executive can effectively discharge constitutional functions in the face
of intense and unchecked legislative incursion into the core of the President’s decision-making process,
which inevitably would involve her conversations with a member of her Cabinet.

With respect to respondent Committees’ invocation of constitutional prescriptions regarding the right of
the people to information and public accountability and transparency, the Court finds nothing in these
arguments to support respondent Committees’ case.

There is no debate as to the importance of the constitutional right of the people to information and the
constitutional policies on public accountability and transparency. These are the twin postulates vital to the
effective functioning of a democratic government. The citizenry can become prey to the whims and
caprices of those to whom the power has been delegated if they are denied access to information. And
the policies on public accountability and democratic government would certainly be mere empty words if
access to such information of public concern is denied.

In the case at bar, this Court, in upholding executive privilege with respect to three (3) specific questions,
did not in any way curb the public’s right to information or diminish the importance of public accountability
and transparency.

This Court did not rule that the Senate has no power to investigate the NBN Project in aid of legislation.
There is nothing in the assailed Decision that prohibits respondent Committees from inquiring into the
NBN Project. They could continue the investigation and even call petitioner Neri to testify again. He
himself has repeatedly expressed his willingness to do so. Our Decision merely excludes from the scope
of respondents’ investigation the three (3) questions that elicit answers covered by executive privilege and
rules that petitioner cannot be compelled to appear before respondents to answer the said questions. We
have discussed the reasons why these answers are covered by executive privilege. That there is a
recognized public interest in the confidentiality of such information is a recognized principle in other
democratic States. To put it simply, the right to information is not an absolute right.

Indeed, the constitutional provisions cited by respondent Committees do not espouse an absolute right to
information. By their wording, the intention of the Framers to subject such right to the regulation of the law
is unmistakable. The highlighted portions of the following provisions show the obvious limitations on the
right to information, thus:

Article III, Sec. 7. The right of the people to information on matters of public concern shall be
recognized. Access to official records, and to documents, and papers pertaining to official
records, and to documents, and papers pertaining to official acts, transactions, or decisions, as
well as to government research data used as basis for policy development, shall be afforded the
citizen, subject to such limitations as may be provided by law.
 Article II, Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and
implements a policy of full public disclosure of all its transactions involving public
interest. (Emphasis supplied)

In Chavez v. Presidential Commission on Good Government,40 it was stated that there are no specific
laws prescribing the exact limitations within which the right may be exercised or the correlative state duty
may be obliged. Nonetheless, it enumerated the recognized restrictions to such rights, among them: (1)
national security matters, (2) trade secrets and banking transactions, (3) criminal matters, and (4) other
confidential information. National security matters include state secrets regarding military and diplomatic
matters, as well as information on inter-government exchanges prior to the conclusion of treaties and
executive agreements. It was further held that even where there is no need to protect such state
secrets, they must be "examined in strict confidence and given scrupulous protection."

Incidentally, the right primarily involved here is the right of respondent Committees to obtain information
allegedly in aid of legislation, not the people’s right to public information. This is the reason why we
stressed in the assailed Decision the distinction between these two rights. As laid down in Senate v.
Ermita, "the demand of a citizen for the production of documents pursuant to his right to information does
not have the same obligatory force as a subpoena duces tecum issued by Congress" and "neither does
the right to information grant a citizen the power to exact testimony from government officials." As pointed
out, these rights belong to Congress, not to the individual citizen. It is worth mentioning at this juncture
that the parties here are respondent Committees and petitioner Neri and that there was no prior request
for information on the part of any individual citizen. This Court will not be swayed by attempts to blur the
distinctions between the Legislature's right to information in a legitimate legislative inquiry and the public's
right to information.

For clarity, it must be emphasized that the assailed Decision did not enjoin respondent
Committees from inquiring into the NBN Project. All that is expected from them is to respect
matters that are covered by executive privilege.

III.

Respondent Committees Failed to Show That

the Communications Elicited by the Three Questions
Are Critical to the Exercise of their Functions

In their Motion for Reconsideration, respondent Committees devote an unusually lengthy discussion on
the purported legislative nature of their entire inquiry, as opposed to an oversight inquiry.

At the outset, it must be clarified that the Decision did not pass upon the nature of respondent
Committees’ inquiry into the NBN Project. To reiterate, this Court recognizes respondent Committees’
power to investigate the NBN Project in aid of legislation. However, this Court cannot uphold the view that
when a constitutionally guaranteed privilege or right is validly invoked by a witness in the course of a
legislative investigation, the legislative purpose of respondent Committees’ questions can be sufficiently
supported by the expedient of mentioning statutes and/or pending bills to which their inquiry as a whole
may have relevance. The jurisprudential test laid down by this Court in past decisions on executive
privilege is that the presumption of privilege can only be overturned by a showing of compelling
need for disclosure of the information covered by executive privilege.

In the Decision, the majority held that "there is no adequate showing of a compelling need that would
justify the limitation of the privilege and of the unavailability of the information elsewhere by an
appropriate investigating authority." In the Motion for Reconsideration, respondent Committees argue that
the information elicited by the three (3) questions are necessary in the discharge of their legislative
functions, among them, (a) to consider the three (3) pending Senate Bills, and (b) to curb graft and
corruption.
We remain unpersuaded by respondents’ assertions.

In U.S. v. Nixon, the U.S. Court held that executive privilege is subject to balancing against other interests
and it is necessary to resolve the competing interests in a manner that would preserve the essential
functions of each branch. There, the Court weighed between presidential privilege and the legitimate
claims of the judicial process. In giving more weight to the latter, the Court ruled that the President's
generalized assertion of privilege must yield to the demonstrated, specific need for evidence in a pending
criminal trial.

The Nixon Court ruled that an absolute and unqualified privilege would stand in the way of the primary
constitutional duty of the Judicial Branch to do justice in criminal prosecutions. The said Court further
ratiocinated, through its ruling extensively quoted in the Honorable Chief Justice Puno's dissenting
opinion, as follows:

"... this presumptive privilege must be considered in light of our historic commitment to the rule of
law. This is nowhere more profoundly manifest than in our view that 'the twofold aim (of criminal
justice) is that guild shall not escape or innocence suffer.' Berger v. United States, 295 U.S., at
88, 55 S.Ct., at 633. We have elected to employ an adversary system of criminal justice in which
the parties contest all issues before a court of law. The need to develop all relevant facts in the
adversary system is both fundamental and comprehensive. The ends of criminal justice
would be defeated if judgments were to be founded on a partial or speculative
presentation of the facts. The very integrity of the judicial system and public confidence in
the system depend on full disclosure of all the facts, within the framework of the rules of
evidence. To ensure that justice is done, it is imperative to the function of courts that
compulsory process be available for the production of evidence needed either by the
prosecution or by the defense.

xxx xxx xxx

The right to the production of all evidence at a criminal trial similarly has constitutional
dimensions. The Sixth Amendment explicitly confers upon every defendant in a criminal trial
the right 'to be confronted with the witness against him' and 'to have compulsory
process for obtaining witnesses in his favor.' Moreover, the Fifth Amendment also guarantees
that no person shall be deprived of liberty without due process of law. It is the manifest
duty of the courts to vindicate those guarantees, and to accomplish that it is essential that all
relevant and admissible evidence be produced.

In this case we must weigh the importance of the general privilege of confidentiality of
Presidential communications in performance of the President's responsibilities against the
inroads of such a privilege on the fair administration of criminal justice. (emphasis
supplied)

xxx xxx xxx

...the allowance of the privilege to withhold evidence that is demonstrably relevant in a criminal
trial would cut deeply into the guarantee of due process of law and gravely impair the
basic function of the courts. A President's acknowledged need for confidentiality in the
communications of his office is general in nature, whereas the constitutional need for
production of relevant evidence in a criminal proceeding is specific and central to the fair
adjudication of a particular criminal case in the administration of justice. Without access to
specific facts a criminal prosecution may be totally frustrated. The President's broad interest
in confidentiality of communication will not be vitiated by disclosure of a limited number of
conversations preliminarily shown to have some bearing on the pending criminal cases.
 We conclude that when the ground for asserting privilege as to subpoenaed materials sought for
use in a criminal trial is based only on the generalized interest in confidentiality, it cannot
prevail over the fundamental demands of due process of law in the fair administration of
criminal justice. The generalized assertion of privilege must yield to the demonstrated, specific
need for evidence in a pending criminal trial. (emphasis supplied)

In the case at bar, we are not confronted with a court’s need for facts in order to adjudge liability in a
criminal case but rather with the Senate’s need for information in relation to its legislative functions. This
leads us to consider once again just how critical is the subject information in the discharge of respondent
Committees’ functions. The burden to show this is on the respondent Committees, since they seek to
intrude into the sphere of competence of the President in order to gather information which, according to
said respondents, would "aid" them in crafting legislation.

Senate Select Committee on Presidential Campaign Activities v. Nixon41 expounded on the nature of a
legislative inquiry in aid of legislation in this wise:

The sufficiency of the Committee's showing of need has come to depend, therefore, entirely on
whether the subpoenaed materials are critical to the performance of its legislative functions.
There is a clear difference between Congress' legislative tasks and the responsibility of a grand
jury, or any institution engaged in like functions. While fact-finding by a legislative committee
is undeniably a part of its task, legislative judgments normally depend more on the
predicted consequences of proposed legislative actions and their political acceptability,
than on precise reconstruction of past events; Congress frequently legislates on the basis of
conflicting information provided in its hearings. In contrast, the responsibility of the grand jury
turns entirely on its ability to determine whether there is probable cause to believe that certain
named individuals did or did not commit specific crimes. If, for example, as in Nixon v. Sirica, one
of those crimes is perjury concerning the content of certain conversations, the grand jury's need
for the most precise evidence, the exact text of oral statements recorded in their original form, is
undeniable. We see no comparable need in the legislative process, at least not in the
circumstances of this case. Indeed, whatever force there might once have been in the
Committee's argument that the subpoenaed materials are necessary to its legislative judgments
has been substantially undermined by subsequent events. (Emphasis supplied)

Clearly, the need for hard facts in crafting legislation cannot be equated with the compelling or
demonstratively critical and specific need for facts which is so essential to the judicial power to adjudicate
actual controversies. Also, the bare standard of "pertinency" set in Arnault cannot be lightly applied to the
instant case, which unlike Arnault involves a conflict between two (2) separate, co-equal and coordinate
Branches of the Government.

Whatever test we may apply, the starting point in resolving the conflicting claims between the Executive
and the Legislative Branches is the recognized existence of the presumptive presidential communications
privilege. This is conceded even in the Dissenting Opinion of the Honorable Chief Justice Puno, which
states:

A hard look at Senate v. Ermita ought to yield the conclusion that it bestowed a qualified
presumption in favor of the Presidential communications privilege. As shown in the previous
discussion, U.S. v. Nixon, as well as the other related Nixon cases Sirica and Senate Select
Committee on Presidential Campaign Activities, et al., v. Nixon in the D.C. Court of Appeals,
as well as subsequent cases all recognize that there is a presumptive privilege in favor of
Presidential communications. The Almonte case quoted U.S. v. Nixon and recognized a
presumption in favor of confidentiality of Presidential communications.

The presumption in favor of Presidential communications puts the burden on the respondent Senate
Committees to overturn the presumption by demonstrating their specific need for the information to be
elicited by the answers to the three (3) questions subject of this case, to enable them to craft legislation.
Here, there is simply a generalized assertion that the information is pertinent to the exercise of the power
to legislate and a broad and non-specific reference to pending Senate bills. It is not clear what matters
relating to these bills could not be determined without the said information sought by the three (3)
questions. As correctly pointed out by the Honorable Justice Dante O. Tinga in his Separate Concurring
Opinion:

…If respondents are operating under the premise that the president and/or her executive
officials have committed wrongdoings that need to be corrected or prevented from
recurring by remedial legislation, the answer to those three questions will not necessarily
bolster or inhibit respondents from proceeding with such legislation. They could easily
presume the worst of the president in enacting such legislation.

For sure, a factual basis for situations covered by bills is not critically needed before legislatives bodies
can come up with relevant legislation unlike in the adjudication of cases by courts of law. Interestingly,
during the Oral Argument before this Court, the counsel for respondent Committees impliedly admitted
that the Senate could still come up with legislations even without petitioner answering the three (3)
questions. In other words, the information being elicited is not so critical after all. Thus:

CHIEF JUSTICE PUNO

So can you tell the Court how critical are these questions to the lawmaking function of the
Senate. For instance, question Number 1 whether the President followed up the NBN
project. According to the other counsel this question has already been asked, is that
correct?

ATTY. AGABIN

Well, the question has been asked but it was not answered, Your Honor.

CHIEF JUSTICE PUNO

Yes. But my question is how critical is this to the lawmaking function of the Senate?

ATTY. AGABIN

I believe it is critical, Your Honor.

CHIEF JUSTICE PUNO

Why?

ATTY. AGABIN

For instance, with respect to the proposed Bill of Senator Miriam Santiago, she would like
to indorse a Bill to include Executive Agreements had been used as a device to the
circumventing the Procurement Law.

CHIEF JUSTICE PUNO

But the question is just following it up.

 ATTY. AGABIN

I believe that may be the initial question, Your Honor, because if we look at this problem
in its factual setting as counsel for petitioner has observed, there are intimations of a
bribery scandal involving high government officials.

CHIEF JUSTICE PUNO

Again, about the second question, were you dictated to prioritize this ZTE, is that critical
to the lawmaking function of the Senate? Will it result to the failure of the Senate to
cobble a Bill without this question?

ATTY. AGABIN

I think it is critical to lay the factual foundations for a proposed amendment to the
Procurement Law, Your Honor, because the petitioner had already testified that he was
offered a P200 Million bribe, so if he was offered a P200 Million bribe it is possible that
other government officials who had something to do with the approval of the contract
would be offered the same amount of bribes.

CHIEF JUSTICE PUNO

Again, that is speculative.

ATTY. AGABIN

That is why they want to continue with the investigation, Your Honor.

CHIEF JUSTICE PUNO

How about the third question, whether the President said to go ahead and approve the
project after being told about the alleged bribe. How critical is that to the lawmaking
function of the Senate? And the question is may they craft a Bill a remedial law without
forcing petitioner Neri to answer this question?

ATTY. AGABIN

Well, they can craft it, Your Honor, based on mere speculation. And sound legislation
requires that a proposed Bill should have some basis in fact.42

The failure of the counsel for respondent Committees to pinpoint the specific need for the information
sought or how the withholding of the information sought will hinder the accomplishment of their legislative
purpose is very evident in the above oral exchanges. Due to the failure of the respondent Committees to
successfully discharge this burden, the presumption in favor of confidentiality of presidential
communication stands. The implication of the said presumption, like any other, is to dispense with the
burden of proof as to whether the disclosure will significantly impair the President’s performance of her
function. Needless to state this is assumed, by virtue of the presumption.

Anent respondent Committees’ bewailing that they would have to "speculate" regarding the questions
covered by the privilege, this does not evince a compelling need for the information sought.
Indeed, Senate Select Committee on Presidential Campaign Activities v. Nixon43 held that while fact-
finding by a legislative committee is undeniably a part of its task, legislative judgments normally depend
more on the predicted consequences of proposed legislative actions and their political acceptability than
on a precise reconstruction of past events. It added that, normally, Congress legislates on the basis of
conflicting information provided in its hearings. We cannot subscribe to the respondent Committees’ self-
defeating proposition that without the answers to the three (3) questions objected to as privileged, the
distinguished members of the respondent Committees cannot intelligently craft legislation.

Anent the function to curb graft and corruption, it must be stressed that respondent Committees’ need for
information in the exercise of this function is not as compelling as in instances when the purpose of the
inquiry is legislative in nature. This is because curbing graft and corruption is merely an oversight function
of Congress.44 And if this is the primary objective of respondent Committees in asking the three (3)
questions covered by privilege, it may even contradict their claim that their purpose is legislative in nature
and not oversight. In any event, whether or not investigating graft and corruption is a legislative or
oversight function of Congress, respondent Committees’ investigation cannot transgress bounds set by
the Constitution.

In Bengzon, Jr. v. Senate Blue Ribbon Committee,45 this Court ruled:

The "allocation of constitutional boundaries" is a task that this Court must perform under
the Constitution. Moreover, as held in a recent case, "the political question doctrine neither
interposes an obstacle to judicial determination of the rival claims. The jurisdiction to delimit
constitutional boundaries has been given to this Court. It cannot abdicate that obligation
mandated by the 1987 Constitution, although said provision by no means does away with the
applicability of the principle in appropriate cases.46 (Emphasis supplied)

There, the Court further ratiocinated that "the contemplated inquiry by respondent Committee is not
really ‘in aid of legislation’ because it is not related to a purpose within the jurisdiction of Congress,
since the aim of the investigation is to find out whether or not the relatives of the President or Mr.
Ricardo Lopa had violated Section 5 of R.A. No. 3019, the Anti-Graft and Corrupt Practices Act, a
matter that appears more within the province of the courts rather than of the
Legislature."47 (Emphasis and underscoring supplied)

The general thrust and the tenor of the three (3) questions is to trace the alleged bribery to the Office of
the President.48 While it may be a worthy endeavor to investigate the potential culpability of high
government officials, including the President, in a given government transaction, it is simply not a task for
the Senate to perform. The role of the Legislature is to make laws, not to determine anyone’s guilt of a
crime or wrongdoing. Our Constitution has not bestowed upon the Legislature the latter role. Just as the
Judiciary cannot legislate, neither can the Legislature adjudicate or prosecute.

Respondent Committees claim that they are conducting an inquiry in aid of legislation and a "search for
truth," which in respondent Committees’ view appears to be equated with the search for persons
responsible for "anomalies" in government contracts.

No matter how noble the intentions of respondent Committees are, they cannot assume the power
reposed upon our prosecutorial bodies and courts. The determination of who is/are liable for a crime or
illegal activity, the investigation of the role played by each official, the determination of who should be
haled to court for prosecution and the task of coming up with conclusions and finding of facts regarding
anomalies, especially the determination of criminal guilt, are not functions of the Senate. Congress is
neither a law enforcement nor a trial agency. Moreover, it bears stressing that no inquiry is an end in
itself; it must be related to, and in furtherance of, a legitimate task of the Congress, i.e. legislation.
Investigations conducted solely to gather incriminatory evidence and "punish" those investigated are
indefensible. There is no Congressional power to expose for the sake of exposure.49 In this regard, the
pronouncement in Barenblatt v. United States50 is instructive, thus:

Broad as it is, the power is not, however, without limitations. Since Congress may only
investigate into the areas in which it may potentially legislate or appropriate, it cannot inquire into
 matters which are within the exclusive province of one of the other branches of the government.
Lacking the judicial power given to the Judiciary, it cannot inquire into matters that are exclusively
the concern of the Judiciary. Neither can it supplant the Executive in what exclusively belongs to
the Executive. (Emphasis supplied.)

At this juncture, it is important to stress that complaints relating to the NBN Project have already been
filed against President Arroyo and other personalities before the Office of the Ombudsman. Under our
Constitution, it is the Ombudsman who has the duty "to investigate any act or omission of any public
official, employee, office or agency when such act or omission appears to be illegal, unjust,
improper, or inefficient."51 The Office of the Ombudsman is the body properly equipped by the
Constitution and our laws to preliminarily determine whether or not the allegations of anomaly are true
and who are liable therefor. The same holds true for our courts upon which the Constitution reposes the
duty to determine criminal guilt with finality. Indeed, the rules of procedure in the Office of the
Ombudsman and the courts are well-defined and ensure that the constitutionally guaranteed rights
of all persons, parties and witnesses alike, are protected and safeguarded.

Should respondent Committees uncover information related to a possible crime in the course of their
investigation, they have the constitutional duty to refer the matter to the appropriate agency or branch of
government. Thus, the Legislature’s need for information in an investigation of graft and corruption cannot
be deemed compelling enough to pierce the confidentiality of information validly covered by executive
privilege. As discussed above, the Legislature can still legislate on graft and corruption even without the
information covered by the three (3) questions subject of the petition.

Corollarily, respondent Committees justify their rejection of petitioner’s claim of executive privilege on the
ground that there is no privilege when the information sought might involve a crime or illegal
activity, despite the absence of an administrative or judicial determination to that effect.
Significantly, however, in Nixon v. Sirica,52 the showing required to overcome the presumption favoring
confidentiality turned, not on the nature of the presidential conduct that the subpoenaed material
might reveal, but, instead, on the nature and appropriateness of the function in the performance of
which the material was sought, and the degree to which the material was necessary to its
fulfillment.

Respondent Committees assert that Senate Select Committee on Presidential Campaign Activities v.
Nixon does not apply to the case at bar because, unlike in the said case, no impeachment proceeding
has been initiated at present. The Court is not persuaded. While it is true that no impeachment
proceeding has been initiated, however, complaints relating to the NBN Project have already been filed
against President Arroyo and other personalities before the Office of the Ombudsman. As the Court has
said earlier, the prosecutorial and judicial arms of government are the bodies equipped and mandated by
the Constitution and our laws to determine whether or not the allegations of anomaly in the NBN Project
are true and, if so, who should be prosecuted and penalized for criminal conduct.

Legislative inquiries, unlike court proceedings, are not subject to the exacting standards of evidence
essential to arrive at accurate factual findings to which to apply the law. Hence, Section 10 of the Senate
Rules of Procedure Governing Inquiries in Aid of Legislation provides that "technical rules of evidence
applicable to judicial proceedings which do not affect substantive rights need not be observed by the
Committee." Court rules which prohibit leading, hypothetical, or repetitive questions or questions calling
for a hearsay answer, to name a few, do not apply to a legislative inquiry. Every person, from the highest
public official to the most ordinary citizen, has the right to be presumed innocent until proven guilty in
proper proceedings by a competent court or body.

IV

Respondent Committees Committed Grave

Abuse of Discretion in Issuing the Contempt Order
Respondent Committees insist that they did not commit grave abuse of discretion in issuing the contempt
order because (1) there is no legitimate claim of executive privilege; (2) they did not violate the
requirements laid down in Senate v. Ermita; (3) they issued the contempt order in accordance with their
internal Rules; (4) they did not violate the requirement under Article VI, Section 21 of the Constitution
requiring the publication of their Rules; and (5) their issuance of the contempt order is not arbitrary or
precipitate.

We reaffirm our earlier ruling.

The legitimacy of the claim of executive privilege having been fully discussed in the preceding pages, we
see no reason to discuss it once again.

Respondent Committees’ second argument rests on the view that the ruling in Senate v. Ermita, requiring
invitations or subpoenas to contain the "possible needed statute which prompted the need for the inquiry"
along with the "usual indication of the subject of inquiry and the questions relative to and in furtherance
thereof" is not provided for by the Constitution and is merely an obiter dictum.

On the contrary, the Court sees the rationale and necessity of compliance with these requirements.

An unconstrained congressional investigative power, like an unchecked Executive, generates its own
abuses. Consequently, claims that the investigative power of Congress has been abused (or has the
potential for abuse) have been raised many times.53 Constant exposure to congressional subpoena takes
its toll on the ability of the Executive to function effectively. The requirements set forth in Senate v.
Ermita are modest mechanisms that would not unduly limit Congress’ power. The legislative inquiry must
be confined to permissible areas and thus, prevent the "roving commissions" referred to in the U.S.
case, Kilbourn v. Thompson.54 Likewise, witnesses have their constitutional right to due process. They
should be adequately informed what matters are to be covered by the inquiry. It will also allow them to
prepare the pertinent information and documents. To our mind, these requirements concede too little
political costs or burdens on the part of Congress when viewed vis-à-vis the immensity of its power of
inquiry. The logic of these requirements is well articulated in the study conducted by William P.
Marshall,55 to wit:

A second concern that might be addressed is that the current system allows committees to
continually investigate the Executive without constraint. One process solution addressing this
concern is to require each investigation be tied to a clearly stated purpose. At present, the
charters of some congressional committees are so broad that virtually any matter involving the
Executive can be construed to fall within their province. Accordingly, investigations can proceed
without articulation of specific need or purpose. A requirement for a more precise charge in order
to begin an inquiry should immediately work to limit the initial scope of the investigation and
should also serve to contain the investigation once it is instituted. Additionally, to the extent
clear statements of rules cause legislatures to pause and seriously consider the
constitutional implications of proposed courses of action in other areas, they would serve
that goal in the context of congressional investigations as well.

The key to this reform is in its details. A system that allows a standing committee to
simply articulate its reasons to investigate pro forma does no more than imposes minimal
drafting burdens. Rather, the system must be designed in a manner that imposes actual
burdens on the committee to articulate its need for investigation and allows for meaningful
debate about the merits of proceeding with the investigation. (Emphasis supplied)

Clearly, petitioner’s request to be furnished an advance copy of questions is a reasonable demand that
should have been granted by respondent Committees.
Unfortunately, the Subpoena Ad Testificandum dated November 13, 2007 made no specific reference to
any pending Senate bill. It did not also inform petitioner of the questions to be asked. As it were, the
subpoena merely commanded him to "testify on what he knows relative to the subject matter under
inquiry."

Anent the third argument, respondent Committees contend that their Rules of Procedure Governing
Inquiries in Aid of Legislation (the "Rules") are beyond the reach of this Court. While it is true that this
Court must refrain from reviewing the internal processes of Congress, as a co-equal branch of
government, however, when a constitutional requirement exists, the Court has the duty to look into
Congress’ compliance therewith. We cannot turn a blind eye to possible violations of the Constitution
simply out of courtesy. In this regard, the pronouncement in Arroyo v. De Venecia56 is enlightening, thus:

"Cases both here and abroad, in varying forms of expression, all deny to the courts the power to
inquire into allegations that, in enacting a law, a House of Congress failed to comply with its own
rules, in the absence of showing that there was a violation of a constitutional provision or the
rights of private individuals.

United States v. Ballin, Joseph & Co., the rule was stated thus: ‘The Constitution empowers each
House to determine its rules of proceedings. It may not by its rules ignore constitutional
restraints or violate fundamental rights, and there should be a reasonable relation between
the mode or method of proceeding established by the rule and the result which is sought
to be attained."

In the present case, the Court’s exercise of its power of judicial review is warranted because there
appears to be a clear abuse of the power of contempt on the part of respondent Committees. Section 18
of the Rules provides that:

"The Committee, by a vote of majority of all its members, may punish for contempt any witness
before it who disobey any order of the Committee or refuses to be sworn or to testify or to answer
proper questions by the Committee or any of its members." (Emphasis supplied)

In the assailed Decision, we said that there is a cloud of doubt as to the validity of the contempt order
because during the deliberation of the three (3) respondent Committees, only seven (7) Senators were
present. This number could hardly fulfill the majority requirement needed by respondent Committee on
Accountability of Public Officers and Investigations which has a membership of seventeen (17) Senators
and respondent Committee on National Defense and Security which has a membership of eighteen (18)
Senators. With respect to respondent Committee on Trade and Commerce which has a membership of
nine (9) Senators, only three (3) members were present.57 These facts prompted us to quote in the
Decision the exchanges between Senators Alan Peter Cayetano and Aquilino Pimentel, Jr. whereby the
former raised the issue of lack of the required majority to deliberate and vote on the contempt order.

When asked about such voting during the March 4, 2008 hearing before this Court, Senator Francis
Pangilinan stated that any defect in the committee voting had been cured because two-thirds of the
Senators effectively signed for the Senate in plenary session.58

Obviously the deliberation of the respondent Committees that led to the issuance of the contempt order is
flawed. Instead of being submitted to a full debate by all the members of the respondent Committees, the
contempt order was prepared and thereafter presented to the other members for signing. As a result, the
contempt order which was issued on January 30, 2008 was not a faithful representation of the
proceedings that took place on said date. Records clearly show that not all of those who signed the
contempt order were present during the January 30, 2008 deliberation when the matter was taken up.

Section 21, Article VI of the Constitution states that:

 The Senate or the House of Representatives or any of its respective committees may conduct
inquiries in aid of legislation in accordance with its duly published rules of procedure. The
rights of person appearing in or affected by such inquiries shall be respected. (Emphasis
supplied)

All the limitations embodied in the foregoing provision form part of the witness’ settled expectation. If the
limitations are not observed, the witness’ settled expectation is shattered. Here, how could there be a
majority vote when the members in attendance are not enough to arrive at such majority? Petitioner has
the right to expect that he can be cited in contempt only through a majority vote in a proceeding in which
the matter has been fully deliberated upon. There is a greater measure of protection for the witness when
the concerns and objections of the members are fully articulated in such proceeding. We do not believe
that respondent Committees have the discretion to set aside their rules anytime they wish. This is
especially true here where what is involved is the contempt power. It must be stressed that the Rules are
not promulgated for their benefit. More than anybody else, it is the witness who has the highest stake in
the proper observance of the Rules.

Having touched the subject of the Rules, we now proceed to respondent Committees’ fourth argument.
Respondent Committees argue that the Senate does not have to publish its Rules because the same was
published in 1995 and in 2006. Further, they claim that the Senate is a continuing body; thus, it is not
required to republish the Rules, unless the same is repealed or amended.

On the nature of the Senate as a "continuing body," this Court sees fit to issue a clarification. Certainly,
there is no debate that the Senate as an institution is "continuing", as it is not dissolved as an entity with
each national election or change in the composition of its members. However, in the conduct of its day-to-
day business the Senate of each Congress acts separately and independently of the Senate of the
Congress before it. The Rules of the Senate itself confirms this when it states:

RULE XLIV
UNFINISHED BUSINESS

SEC. 123. Unfinished business at the end of the session shall be taken up at the next session in
the same status.

All pending matters and proceedings shall terminate upon the expiration of one (1)
Congress, but may be taken by the succeeding Congress as if present for the first time.
(emphasis supplied)

Undeniably from the foregoing, all pending matters and proceedings, i.e. unpassed bills and even
legislative investigations, of the Senate of a particular Congress are considered terminated upon the
expiration of that Congress and it is merely optional on the Senate of the succeeding Congress to take up
such unfinished matters, not in the same status, but as if presented for the first time. The logic and
practicality of such a rule is readily apparent considering that the Senate of the succeeding Congress
(which will typically have a different composition as that of the previous Congress) should not be bound
by the acts and deliberations of the Senate of which they had no part. If the Senate is a continuing body
even with respect to the conduct of its business, then pending matters will not be deemed terminated with
the expiration of one Congress but will, as a matter of course, continue into the next Congress with the
same status.

This dichotomy of the continuity of the Senate as an institution and of the opposite nature of the conduct
of its business is reflected in its Rules. The Rules of the Senate (i.e. the Senate’s main rules of
procedure) states:

RULE LI
AMENDMENTS TO, OR REVISIONS OF, THE RULES
 SEC. 136. At the start of each session in which the Senators elected in the preceding elections
shall begin their term of office, the President may endorse the Rules to the appropriate committee
for amendment or revision.

The Rules may also be amended by means of a motion which should be presented at least one
day before its consideration, and the vote of the majority of the Senators present in the session
shall be required for its approval. (emphasis supplied)

RULE LII
DATE OF TAKING EFFECT

SEC. 137. These Rules shall take effect on the date of their adoption and shall remain in force
until they are amended or repealed. (emphasis supplied)

Section 136 of the Senate Rules quoted above takes into account the new composition of the Senate
after an election and the possibility of the amendment or revision of the Rules at the start of each session
in which the newly elected Senators shall begin their term.

However, it is evident that the Senate has determined that its main rules are intended to be valid from the
date of their adoption until they are amended or repealed. Such language is conspicuously absent from
the Rules. The Rules simply state "(t)hese Rules shall take effect seven (7) days after publication in two
(2) newspapers of general circulation."59 The latter does not explicitly provide for the continued effectivity
of such rules until they are amended or repealed. In view of the difference in the language of the two sets
of Senate rules, it cannot be presumed that the Rules (on legislative inquiries) would continue into the
next Congress. The Senate of the next Congress may easily adopt different rules for its legislative
inquiries which come within the rule on unfinished business.

The language of Section 21, Article VI of the Constitution requiring that the inquiry be conducted in
accordance with the duly published rules of procedure is categorical. It is incumbent upon the Senate
to publish the rules for its legislative inquiries in each Congress or otherwise make the published rules
clearly state that the same shall be effective in subsequent Congresses or until they are amended or
repealed to sufficiently put public on notice.

If it was the intention of the Senate for its present rules on legislative inquiries to be effective even in the
next Congress, it could have easily adopted the same language it had used in its main rules regarding
effectivity.

Lest the Court be misconstrued, it should likewise be stressed that not all orders issued or proceedings
conducted pursuant to the subject Rules are null and void. Only those that result in violation of the rights
of witnesses should be considered null and void, considering that the rationale for the publication is to
protect the rights of witnesses as expressed in Section 21, Article VI of the Constitution. Sans such
violation, orders and proceedings are considered valid and effective.

Respondent Committees’ last argument is that their issuance of the contempt order is not precipitate or
arbitrary. Taking into account the totality of circumstances, we find no merit in their argument.

As we have stressed before, petitioner is not an unwilling witness, and contrary to the assertion of
respondent Committees, petitioner did not assume that they no longer had any other questions for him.
He repeatedly manifested his willingness to attend subsequent hearings and respond to new matters. His
only request was that he be furnished a copy of the new questions in advance to enable him to
adequately prepare as a resource person. He did not attend the November 20, 2007 hearing because
Executive Secretary Ermita requested respondent Committees to dispense with his testimony on the
ground of executive privilege. Note that petitioner is an executive official under the direct control and
supervision of the Chief Executive. Why punish petitioner for contempt when he was merely directed by
his superior? Besides, save for the three (3) questions, he was very cooperative during the September
26, 2007 hearing.

On the part of respondent Committees, this Court observes their haste and impatience. Instead of ruling
on Executive Secretary Ermita’s claim of executive privilege, they curtly dismissed it as unsatisfactory and
ordered the arrest of petitioner. They could have informed petitioner of their ruling and given him time to
decide whether to accede or file a motion for reconsideration. After all, he is not just an ordinary witness;
he is a high- ranking official in a co-equal branch of government. He is an alter ego of the President. The
same haste and impatience marked the issuance of the contempt order, despite the absence of the
majority of the members of the respondent Committees, and their subsequent disregard of petitioner’s
motion for reconsideration alleging the pendency of his petition for certiorari before this Court.

On a concluding note, we are not unmindful of the fact that the Executive and the Legislature are political
branches of government. In a free and democratic society, the interests of these branches inevitably
clash, but each must treat the other with official courtesy and respect. This Court wholeheartedly concurs
with the proposition that it is imperative for the continued health of our democratic institutions that we
preserve the constitutionally mandated checks and balances among the different branches of
government.

In the present case, it is respondent Committees’ contention that their determination on the validity of
executive privilege should be binding on the Executive and the Courts. It is their assertion
that their internal procedures and deliberations cannot be inquired into by this Court supposedly in
accordance with the principle of respect between co-equal branches of government. Interestingly, it is a
courtesy that they appear to be unwilling to extend to the Executive (on the matter of executive privilege)
or this Court (on the matter of judicial review). It moves this Court to wonder: In respondent Committees’
paradigm of checks and balances, what are the checks to the Legislature’s all-encompassing, awesome
power of investigation? It is a power, like any other, that is susceptible to grave abuse.

While this Court finds laudable the respondent Committees’ well-intentioned efforts to ferret out
corruption, even in the highest echelons of government, such lofty intentions do not validate or accord to
Congress powers denied to it by the Constitution and granted instead to the other branches of
government.

There is no question that any story of government malfeasance deserves an inquiry into its veracity. As
respondent Committees contend, this is founded on the constitutional command of transparency and
public accountability. The recent clamor for a "search for truth" by the general public, the religious
community and the academe is an indication of a concerned citizenry, a nation that demands an
accounting of an entrusted power. However, the best venue for this noble undertaking is not in the
political branches of government. The customary partisanship and the absence of generally accepted
rules on evidence are too great an obstacle in arriving at the truth or achieving justice that meets the test
of the constitutional guarantee of due process of law. We believe the people deserve a more exacting
"search for truth" than the process here in question, if that is its objective.

WHEREFORE, respondent Committees’ Motion for Reconsideration dated April 8, 2008 is

hereby DENIED.

SO ORDERED.

Puno, C.J., Quisumbing, Ynares-Santiago, Carpio, Austria-Martinez, Corona, Carpio-Morales, Azcuna,

Tinga, Chico-Nazario, Velasco, Jr., Nachura, Reyes, Brion, JJ., concur.

Dissenting Opinion - C.J. Puno

Separate Opinion on the Motion for Reconsideration - J. Quisumbing
Separate Dissenting Opinion - J. Azcuna
Separate Opinion - J. Reyes

Footnotes

1
Chaired by Hon. Senator Alan Peter S. Cayetano.

2
Chaired by Hon. Senator Manuel A. Roxas II.

3
Chaired by Hon. Senator Rodolfo G. Biazon.

4
Transcript of the September 26, 2007 Hearing of the respondent Committees, pp. 91-92.

5
Id., pp. 114-115.

6
Id., pp. 276-277.

7
See Letter dated November 15, 2007.

8
See Letter dated January 30, 2008.

9
G.R. No. 95367, May 23, 1995, 244 SCRA 286.

10
433 Phil. 506 (2002)

11
G.R. No. 169777, April 20, 2006, 488 SCRA 1.

12
Supra., note 9.

13
Supra., note 11.

14
G.R. No. 130716, December 9, 1998, 299 SCRA 744.

15
Supra., note 10.

16
Almonte v. Vasquez, supra., note 9.

17
Chavez v. PCGG, supra., note 14.

18
Senate v. Ermita, supra., note 11.

19
Telefunken Semiconductors Employees Union -FFW v. Court of Appeals, G.R. Nos. 143013-
14, December 18, 2000, 348 SCRA 565,587; Valderama v. NLRC, G.R. No. 98239, April
25,1996, 256 SCRA 466, 472 citing Policarpio v. P.V.B. and Associated Ins. & Surety Co., Inc.,
106 Phil. 125, 131 (1959).

20
Supra, note 11 at pp. 68-69
21
Id., at pp. 45-46

22
Id., at p. 58

23
Id., at p. 50

24
Webster Encyclopedic Unabridged Dictionary, Gramercy Books 1994, p. 1181.

25
Business Dictionary, http://www.businessdictionary.com/definition/non-delegable-duty.html

26
Usaffe Veterans Association, Inc. v. Treasurer of the Philippines, et al. (105 Phil. 1030, 1038);
See also Commissioner of Internal Revenue v. John Gotamco & Sons, Inc. G.R. No. L-31092,
February 27, 1987,148 SCRA 36, 39.

27
No. 96-3124, June 17, 1997, 121 F.3d 729,326 U.S. App. D.C. 276.

28
365 F 3d. 1108, 361 U.S. App. D.C. 183, 64 Fed. R. Evid. Serv.141.

29
Article III, Sec. 7. The right of the people to information on matters of public concern shall be
recognized. Access to official records, and to documents, and papers pertaining to official
records, and to documents, and papers pertaining to official acts, transactions, or decisions, as
well as to government research data used as basis for policy development, shall be afforded the
citizen, subject to such limitations as may be provided by law.

30
Article II, Sec. 24. The State recognizes the vital role of communication and information in
nation-building.

31
Article II, Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and
implements a policy of full public disclosure of all its transactions involving public interest.

32
Article XI, Sec. 1. Public office is a public trust. Public officers and employees must at all times
be accountable to the people, serve them with utmost responsibility, integrity, loyalty, and
efficiency, act with patriotism and justice, and lead modest lives.

33
Article XVI, Sec. 10. The State shall provide the policy environment for the full development of
Filipino capability and the emergence of communications structures suitable to the needs and
aspirations of the nation and the balanced flow of information into, out of, and across the country,
in accordance with a policy that respects the freedom of speech and of the press.

34
Article VII, Sec. 20. The President may contract or guarantee foreign loans on behalf of the
Republic of the Philippines with the prior concurrence of the Monetary Board, and subject to such
limitations as may be provided by law. The Monetary Board shall, within thirty days from the end
of every quarter of the calendar year, submit to Congress a complete report of its decisions on
applications for loans to be contracted or guaranteed by the Government or government-
controlled corporations which would have the effect of increasing the foreign debt, and containing
other matters as may be provided by law.

35
Article XII, Sec. 9. The Congress may establish an independent economic and planning agency
headed by the President, which shall, after consultations with the appropriate public agencies,
various private sectors, and local government units, recommend to Congress, and implement
continuing integrated and coordinated programs and policies for national development. Until the
Congress provides otherwise, the National Economic and Development Authority shall function
as the independent planning agency of the government.
36
Article XII, Sec. 21. Foreign loans may only be incurred in accordance with law and the
regulation of the monetary authority. Information on foreign loans obtained or guaranteed by the
Government shall be made available to the public.

37
Article XII, Sec. 22. Acts which circumvent or negate any of the provisions of this Article shall
be considered inimical to the national interest and subject to criminal and civil sanctions, as may
be provided by law.

38
14 F. Supp. 230, 299 U.S. 304 (1936).

39
G.R. No. 170516, promulgated July 16, 2008.

40
Supra note 14.

41
Senate Select Committee on Presidential Campaign Activities v. Nixon, 498 F.2d 725 (D.C. Cir.
1974).

42
TSN, Oral Argument, March 4, 2008, pp. 417 - 422.

43
Supra, note 41 at pp. 725, 731-32.

44
Senate Select Committee on Presidential Campaign Activities v. Nixon held that Congress’
"asserted power to investigate and inform" was, standing alone, insufficient to overcome a claim
of privilege and so refused to enforce the congressional subpoena. Id.

45
G.R. No. 89914, November 20, 1991, 203 SCRA 767.

46
Id., at p. 776.

47
Id., at p. 783.

48
The dialogue between petitioner and Senator Lacson is a good illustration, thus:

SEN. LACSON. Did you report the attempted bribe offer to the President?

MR. NERI. I mentioned it to the President, Your Honor.

SEN. LACSON: id she tell you?

MR. NERI. She told me, ‘Don’t What daccept it."

SEN. LACSON. And then, that’s it?

MR. NERI. Yeah, because we had other things to discuss during that time.

SEN. LACSON. And then after the President told you, "Do not accept it," what did she
do? How did you report it to the President? In the same context that it was offered to
you?

MR. NERI. I remember it was over the phone, Your Honor.

 SEN. LACSON. Hindi nga. Papaano ninyo ni-report, ‘Inoperan (offer) ako ng bribe
na P200 million ni Chairman Abalos or what? How did you report it to her?

MR.NERI. Well, I said, ‘Chairman Abalos offered me 200 million for this.’

SEN. LACSON. Okay. That clear?

MR. NERI. I’m sorry.

SEN. LACSON. That clear?

MR. NERI. I think so, Your Honor.

SEN. LACSON. And after she told you. ‘Do not accept it,’ what did she do?

MR. NERI. I don’t know anymore, Your Honor, but I understand PAGC investigated it or-I
was not privy to any action of PAGC.

SEN. LACSON. You are not privy to any recommendation submitted by PAGC?

MR. NERI. No, Your Honor.

SEN. LACSON. How did she react, was she shocked also like you or was it just casually
responded to as, "Don’t accept."

MR. NERI. It was over the phone, Your Honor, so I cannot see her facial expression.

SEN. LACSON. Did it have something to do with your change of heart so to speak - your
attitude towards the NBN project as proposed by ZTE?

MR. NERI. Can you clarify, Your Honor, I don’t understand the change of heart.

SEN. LACSON. Because, on March 26 and even on November 21, as early as

November 21, 2006 during the NEDA Board Cabinet Meeting, you were in agreement
with the President that it should be "pay as you use" and not take or pay. There should
be no government subsidy and it should be BOT or BOO or any similar scheme and you
were in agreement, you were not arguing. The President was not arguing with you, you
were not arguing with the President, so you were in agreement and all of a sudden nauwi
tayo doon sa lahat ng --- and proposal all in violation of the President’s Guidelines and in
violation of what you thought of the project?

MR. NERI. Well, we defer to the implementing agency’s choice as to how to implement
the project.

49
Watkins v. United States, 354 U.S. 178 (1957).

50
360 U.A. 109, 3 L Ed. 2d 1115, 69 S CT 1081 (1959).

51
Article XI, Section 13, par.1 of the Constitution.

52
487 F. 2d 700.
53
Professor Christopher Schroeder (then with the Clinton Justice Department), for example,
labeled some of Congress’s investigations as no more than "vendetta oversight" or "oversight that
seems primarily interested in bringing someone down, usually someone close to the President or
perhaps the President himself." Theodore Olson (the former Solicitor General in the Bush Justice
Department), in turn, has argued that oversight has been used improperly by Congress to
influence decision making of executive branch officials in a way that undercuts the President’s
power to assure that laws are faithfully executed. (Marshall, The Limits on Congress’ Authority to
Investigate the President, Marshall-Illinois.Doc, November 24, 2004.)

54
103 U.S. 168 (1880).

55
Kenan Professor of Law, University of North Carolina.

56
G.R. No. 127255, August 14, 1997, 277 SCRA 268.

57
Transcript of the January 30, 2008 proceedings pp. 5-7.

58
TSN, March 4, 2008, at pp. 529-530.

59
Section 24, Rules of Procedure Governing Inquiries in Aid of Legislation.
10.

EN BANC

G.R. No. 169777* April 20, 2006

SENATE OF THE PHILIPPINES, represented by FRANKLIN M. DRILON, in his capacity as

Senate President, JUAN M. FLAVIER, in his capacity as Senate President Pro Tempore,
FRANCIS N. PANGILINAN, in his capacity as Majority Leader, AQUILINO Q. PIMENTEL, JR., in
his capacity as Minority Leader, SENATORS RODOLFO G. BIAZON, "COMPANERA" PIA S.
CAYETANO, JINGGOY EJERCITO ESTRADA, LUISA "LOI" EJERCITO ESTRADA, JUAN
PONCE ENRILE, RICHARD J. GORDON, PANFILO M. LACSON, ALFREDO S.LIM, M. A.
MADRIGAL, SERGIO OSMENA III, RALPH G. RECTO, and MAR ROXAS, Petitioners,
vs.
EDUARDO R. ERMITA, in his capacity as Executive Secretary and alter-ego of President
Gloria Macapagal-Arroyo, and anyone acting in his stead and in behalf of the President of the
Philippines, Respondents.

x-------------------------x

G.R. No. 169659 April 20, 2006

BAYAN MUNA represented by DR. REYNALDO LESACA, JR., Rep. SATUR OCAMPO, Rep.
CRISPIN BELTRAN, Rep. RAFAEL MARIANO, Rep. LIZA MAZA, Rep. TEODORO CASINO, Rep.
JOEL VIRADOR, COURAGE represented by FERDINAND GAITE, and COUNSELS FOR THE
DEFENSE OF LIBERTIES (CODAL) represented by ATTY. REMEDIOS BALBIN, Petitioners,
vs.
EDUARDO ERMITA, in his capacity as Executive Secretary and alter-ego of President Gloria
Macapagal-Arroyo, Respondent.

x-------------------------x

G.R. No. 169660 April 20, 2006

FRANCISCO I. CHAVEZ, Petitioner,

vs.
EDUARDO R. ERMITA, in his capacity as Executive Secretary, AVELINO J. CRUZ, JR., in his
capacity as Secretary of Defense, and GENEROSO S. SENGA, in his capacity as AFP Chief of
Staff, Respondents.

x-------------------------x

G.R. No. 169667 April 20, 2006

ALTERNATIVE LAW GROUPS, INC. (ALG), Petitioner,

vs.
HON. EDUARDO R. ERMITA, in his capacity as Executive Secretary, Respondent.

x-------------------------x
G.R. No. 169834 April 20, 2006

PDP- LABAN, Petitioner,

vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, Respondent.

x-------------------------x

G.R. No. 171246 April 20, 2006

JOSE ANSELMO I. CADIZ, FELICIANO M. BAUTISTA, ROMULO R. RIVERA, JOSE AMOR

AMORANDO, ALICIA A. RISOS-VIDAL, FILEMON C. ABELITA III, MANUEL P. LEGASPI, J. B.
JOVY C. BERNABE, BERNARD L. DAGCUTA, ROGELIO V. GARCIA, and the INTEGRATED
BAR FOR THE PHILIPPINES, Petitioners,
vs.
HON. EXECUTIVE SECRETARY EDUARDO R. ERMITA, Respondent.

DECISION

CARPIO MORALES, J.:

A transparent government is one of the hallmarks of a truly republican state. Even in the early history
of republican thought, however, it has been recognized that the head of government may keep
certain information confidential in pursuit of the public interest. Explaining the reason for vesting
executive power in only one magistrate, a distinguished delegate to the U.S. Constitutional
Convention said: "Decision, activity, secrecy, and dispatch will generally characterize the
proceedings of one man, in a much more eminent degree than the proceedings of any greater
number; and in proportion as the number is increased, these qualities will be diminished." 1

History has been witness, however, to the fact that the power to withhold information lends itself to
abuse, hence, the necessity to guard it zealously.

The present consolidated petitions for certiorari and prohibition proffer that the President has abused
such power by issuing Executive Order No. 464 (E.O. 464) last September 28, 2005. They thus pray
for its declaration as null and void for being unconstitutional.

In resolving the controversy, this Court shall proceed with the recognition that the issuance under
review has come from a co-equal branch of government, which thus entitles it to a strong
presumption of constitutionality. Once the challenged order is found to be indeed violative of the
Constitution, it is duty-bound to declare it so. For the Constitution, being the highest expression of
the sovereign will of the Filipino people, must prevail over any issuance of the government that
contravenes its mandates.

In the exercise of its legislative power, the Senate of the Philippines, through its various Senate
Committees, conducts inquiries or investigations in aid of legislation which call for, inter alia, the
attendance of officials and employees of the executive department, bureaus, and offices including
those employed in Government Owned and Controlled Corporations, the Armed Forces of the
Philippines (AFP), and the Philippine National Police (PNP).

On September 21 to 23, 2005, the Committee of the Senate as a whole issued invitations to various
officials of the Executive Department for them to appear on September 29, 2005 as resource
speakers in a public hearing on the railway project of the North Luzon Railways Corporation with the
China National Machinery and Equipment Group (hereinafter North Rail Project). The public hearing
was sparked by a privilege speech of Senator Juan Ponce Enrile urging the Senate to investigate
the alleged overpricing and other unlawful provisions of the contract covering the North Rail Project.

The Senate Committee on National Defense and Security likewise issued invitations 2 dated
September 22, 2005 to the following officials of the AFP: the Commanding General of the Philippine
Army, Lt. Gen. Hermogenes C. Esperon; Inspector General of the AFP Vice Admiral Mateo M.
Mayuga; Deputy Chief of Staff for Intelligence of the AFP Rear Admiral Tirso R. Danga; Chief of the
Intelligence Service of the AFP Brig. Gen. Marlu Q. Quevedo; Assistant Superintendent of the
Philippine Military Academy (PMA) Brig. Gen. Francisco V. Gudani; and Assistant Commandant,
Corps of Cadets of the PMA, Col. Alexander F. Balutan, for them to attend as resource persons in a
public hearing scheduled on September 28, 2005 on the following: (1) Privilege Speech of Senator
Aquilino Q. Pimentel Jr., delivered on June 6, 2005 entitled "Bunye has Provided Smoking Gun or
has Opened a Can of Worms that Show Massive Electoral Fraud in the Presidential Election of May
2005"; (2) Privilege Speech of Senator Jinggoy E. Estrada delivered on July 26, 2005 entitled "The
Philippines as the Wire-Tapping Capital of the World"; (3) Privilege Speech of Senator Rodolfo
Biazon delivered on August 1, 2005 entitled "Clear and Present Danger"; (4) Senate Resolution No.
285 filed by Senator Maria Ana Consuelo Madrigal – Resolution Directing the Committee on National
Defense and Security to Conduct an Inquiry, in Aid of Legislation, and in the National Interest, on the
Role of the Military in the So-called "Gloriagate Scandal"; and (5) Senate Resolution No. 295 filed by
Senator Biazon – Resolution Directing the Committee on National Defense and Security to Conduct
an Inquiry, in Aid of Legislation, on the Wire-Tapping of the President of the Philippines.

Also invited to the above-said hearing scheduled on September 28 2005 was the AFP Chief of Staff,
General Generoso S. Senga who, by letter3 dated September 27, 2005, requested for its
postponement "due to a pressing operational situation that demands [his utmost personal attention"
while "some of the invited AFP officers are currently attending to other urgent operational matters."

On September 28, 2005, Senate President Franklin M. Drilon received from Executive Secretary
Eduardo R. Ermita a letter4 dated September 27, 2005 "respectfully request[ing] for the
postponement of the hearing [regarding the NorthRail project] to which various officials of the
Executive Department have been invited" in order to "afford said officials ample time and opportunity
to study and prepare for the various issues so that they may better enlighten the Senate Committee
on its investigation."

Senate President Drilon, however, wrote5 Executive Secretary Ermita that the Senators "are unable
to accede to [his request]" as it "was sent belatedly" and "[a]ll preparations and arrangements as well
as notices to all resource persons were completed [the previous] week."

Senate President Drilon likewise received on September 28, 2005 a letter 6 from the President of the
North Luzon Railways Corporation Jose L. Cortes, Jr. requesting that the hearing on the NorthRail
project be postponed or cancelled until a copy of the report of the UP Law Center on the contract
agreements relative to the project had been secured.

On September 28, 2005, the President issued E.O. 464, "Ensuring Observance of the Principle of
Separation of Powers, Adherence to the Rule on Executive Privilege and Respect for the Rights of
Public Officials Appearing in Legislative Inquiries in Aid of Legislation Under the Constitution, and
For Other Purposes,"7 which, pursuant to Section 6 thereof, took effect immediately. The salient
provisions of the Order are as follows:
SECTION 1. Appearance by Heads of Departments Before Congress. – In accordance with Article
VI, Section 22 of the Constitution and to implement the Constitutional provisions on the separation of
powers between co-equal branches of the government, all heads of departments of the Executive
Branch of the government shall secure the consent of the President prior to appearing before either
House of Congress.

When the security of the State or the public interest so requires and the President so states in
writing, the appearance shall only be conducted in executive session.

SECTION. 2. Nature, Scope and Coverage of Executive Privilege. –

(a) Nature and Scope. - The rule of confidentiality based on executive privilege is fundamental to the
operation of government and rooted in the separation of powers under the Constitution (Almonte vs.
Vasquez, G.R. No. 95367, 23 May 1995). Further, Republic Act No. 6713 or the Code of Conduct
and Ethical Standards for Public Officials and Employees provides that Public Officials and
Employees shall not use or divulge confidential or classified information officially known to them by
reason of their office and not made available to the public to prejudice the public interest.

Executive privilege covers all confidential or classified information between the President and the
public officers covered by this executive order, including:

Conversations and correspondence between the President and the public official covered by this
executive order (Almonte vs. Vasquez G.R. No. 95367, 23 May 1995; Chavez v. Public Estates
Authority, G.R. No. 133250, 9 July 2002);

Military, diplomatic and other national security matters which in the interest of national security
should not be divulged (Almonte vs. Vasquez, G.R. No. 95367, 23 May 1995; Chavez v. Presidential
Commission on Good Government, G.R. No. 130716, 9 December 1998).

Information between inter-government agencies prior to the conclusion of treaties and executive
agreements (Chavez v. Presidential Commission on Good Government, G.R. No. 130716, 9
December 1998);

Discussion in close-door Cabinet meetings (Chavez v. Presidential Commission on Good

Government, G.R. No. 130716, 9 December 1998);

Matters affecting national security and public order (Chavez v. Public Estates Authority, G.R. No.
133250, 9 July 2002).

(b) Who are covered. – The following are covered by this executive order:

Senior officials of executive departments who in the judgment of the department heads are covered
by the executive privilege;

Generals and flag officers of the Armed Forces of the Philippines and such other officers who in the
judgment of the Chief of Staff are covered by the executive privilege;

Philippine National Police (PNP) officers with rank of chief superintendent or higher and such other
officers who in the judgment of the Chief of the PNP are covered by the executive privilege;
Senior national security officials who in the judgment of the National Security Adviser are covered by
the executive privilege; and

Such other officers as may be determined by the President.

SECTION 3. Appearance of Other Public Officials Before Congress. – All public officials enumerated
in Section 2 (b) hereof shall secure prior consent of the President prior to appearing before either
House of Congress to ensure the observance of the principle of separation of powers, adherence to
the rule on executive privilege and respect for the rights of public officials appearing in inquiries in
aid of legislation. (Emphasis and underscoring supplied)

Also on September 28, 2005, Senate President Drilon received from Executive Secretary Ermita a
copy of E.O. 464, and another letter8 informing him "that officials of the Executive Department invited
to appear at the meeting [regarding the NorthRail project] will not be able to attend the same without
the consent of the President, pursuant to [E.O. 464]" and that "said officials have not secured the
required consent from the President." On even date which was also the scheduled date of the
hearing on the alleged wiretapping, Gen. Senga sent a letter9 to Senator Biazon, Chairperson of the
Committee on National Defense and Security, informing him "that per instruction of [President
Arroyo], thru the Secretary of National Defense, no officer of the [AFP] is authorized to appear
before any Senate or Congressional hearings without seeking a written approval from the President"
and "that no approval has been granted by the President to any AFP officer to appear before the
public hearing of the Senate Committee on National Defense and Security scheduled [on] 28
September 2005."

Despite the communications received from Executive Secretary Ermita and Gen. Senga, the
investigation scheduled by the Committee on National Defense and Security pushed through, with
only Col. Balutan and Brig. Gen. Gudani among all the AFP officials invited attending.

For defying President Arroyo’s order barring military personnel from testifying before legislative
inquiries without her approval, Brig. Gen. Gudani and Col. Balutan were relieved from their military
posts and were made to face court martial proceedings.

As to the NorthRail project hearing scheduled on September 29, 2005, Executive Secretary Ermita,
citing E.O. 464, sent letter of regrets, in response to the invitations sent to the following government
officials: Light Railway Transit Authority Administrator Melquiades Robles, Metro Rail Transit
Authority Administrator Roberto Lastimoso, Department of Justice (DOJ) Chief State Counsel
Ricardo V. Perez, then Presidential Legal Counsel Merceditas Gutierrez, Department of
Transportation and Communication (DOTC) Undersecretary Guiling Mamonding, DOTC Secretary
Leandro Mendoza, Philippine National Railways General Manager Jose Serase II, Monetary Board
Member Juanita Amatong, Bases Conversion Development Authority Chairperson Gen. Narciso
Abaya and Secretary Romulo L. Neri.10 NorthRail President Cortes sent personal regrets likewise
citing E.O. 464.11

On October 3, 2005, three petitions, docketed as G.R. Nos. 169659, 169660, and 169667, for
certiorari and prohibition, were filed before this Court challenging the constitutionality of E.O. 464.

In G.R. No. 169659, petitioners party-list Bayan Muna, House of Representatives Members Satur
Ocampo, Crispin Beltran, Rafael Mariano, Liza Maza, Joel Virador and Teodoro Casino, Courage,
an organization of government employees, and Counsels for the Defense of Liberties (CODAL), a
group of lawyers dedicated to the promotion of justice, democracy and peace, all claiming to have
standing to file the suit because of the transcendental importance of the issues they posed, pray, in
their petition that E.O. 464 be declared null and void for being unconstitutional; that respondent
Executive Secretary Ermita, in his capacity as Executive Secretary and alter-ego of President
Arroyo, be prohibited from imposing, and threatening to impose sanctions on officials who appear
before Congress due to congressional summons. Additionally, petitioners claim that E.O. 464
infringes on their rights and impedes them from fulfilling their respective obligations. Thus, Bayan
Muna alleges that E.O. 464 infringes on its right as a political party entitled to participate in
governance; Satur Ocampo, et al. allege that E.O. 464 infringes on their rights and duties as
members of Congress to conduct investigation in aid of legislation and conduct oversight functions in
the implementation of laws; Courage alleges that the tenure of its members in public office is
predicated on, and threatened by, their submission to the requirements of E.O. 464 should they be
summoned by Congress; and CODAL alleges that its members have a sworn duty to uphold the rule
of law, and their rights to information and to transparent governance are threatened by the
imposition of E.O. 464.

In G.R. No. 169660, petitioner Francisco I. Chavez, claiming that his constitutional rights as a citizen,
taxpayer and law practitioner, are affected by the enforcement of E.O. 464, prays in his petition that
E.O. 464 be declared null and void for being unconstitutional.

In G.R. No. 169667, petitioner Alternative Law Groups, Inc.12 (ALG), alleging that as a coalition of 17
legal resource non-governmental organizations engaged in developmental lawyering and work with
the poor and marginalized sectors in different parts of the country, and as an organization of citizens
of the Philippines and a part of the general public, it has legal standing to institute the petition to
enforce its constitutional right to information on matters of public concern, a right which was denied
to the public by E.O. 464,13 prays, that said order be declared null and void for being unconstitutional
and that respondent Executive Secretary Ermita be ordered to cease from implementing it.

On October 11, 2005, Petitioner Senate of the Philippines, alleging that it has a vital interest in the
resolution of the issue of the validity of E.O. 464 for it stands to suffer imminent and material injury,
as it has already sustained the same with its continued enforcement since it directly interferes with
and impedes the valid exercise of the Senate’s powers and functions and conceals information of
great public interest and concern, filed its petition for certiorari and prohibition, docketed as G.R. No.
169777 and prays that E.O. 464 be declared unconstitutional.

On October 14, 2005, PDP-Laban, a registered political party with members duly elected into the
Philippine Senate and House of Representatives, filed a similar petition for certiorari and prohibition,
docketed as G.R. No. 169834, alleging that it is affected by the challenged E.O. 464 because it
hampers its legislative agenda to be implemented through its members in Congress, particularly in
the conduct of inquiries in aid of legislation and transcendental issues need to be resolved to avert a
constitutional crisis between the executive and legislative branches of the government.

Meanwhile, by letter14 dated February 6, 2006, Senator Biazon reiterated his invitation to Gen. Senga
for him and other military officers to attend the hearing on the alleged wiretapping scheduled on
February 10, 2005. Gen. Senga replied, however, by letter15 dated February 8, 2006, that "[p]ursuant
to Executive Order No. 464, th[e] Headquarters requested for a clearance from the President to
allow [them] to appear before the public hearing" and that "they will attend once [their] request is
approved by the President." As none of those invited appeared, the hearing on February 10, 2006
was cancelled.16

In another investigation conducted jointly by the Senate Committee on Agriculture and Food and the
Blue Ribbon Committee on the alleged mismanagement and use of the fertilizer fund under the
Ginintuang Masaganang Ani program of the Department of Agriculture (DA), several Cabinet officials
were invited to the hearings scheduled on October 5 and 26, November 24 and December 12, 2005
but most of them failed to attend, DA Undersecretary Belinda Gonzales, DA Assistant Secretary
Felix Jose Montes, Fertilizer and Pesticide Authority Executive Director Norlito R. Gicana, 17 and
those from the Department of Budget and Management18 having invoked E.O. 464.

In the budget hearings set by the Senate on February 8 and 13, 2006, Press Secretary and
Presidential Spokesperson Ignacio R. Bunye,19 DOJ Secretary Raul M. Gonzalez20 and Department
of Interior and Local Government Undersecretary Marius P. Corpus21 communicated their inability to
attend due to lack of appropriate clearance from the President pursuant to E.O. 464. During the
February 13, 2005 budget hearing, however, Secretary Bunye was allowed to attend by Executive
Secretary Ermita.

On February 13, 2006, Jose Anselmo I. Cadiz and the incumbent members of the Board of
Governors of the Integrated Bar of the Philippines, as taxpayers, and the Integrated Bar of the
Philippines as the official organization of all Philippine lawyers, all invoking their constitutional right to
be informed on matters of public interest, filed their petition for certiorari and prohibition, docketed as
G.R. No. 171246, and pray that E.O. 464 be declared null and void.

All the petitions pray for the issuance of a Temporary Restraining Order enjoining respondents from
implementing, enforcing, and observing E.O. 464.

In the oral arguments on the petitions conducted on February 21, 2006, the following substantive
issues were ventilated: (1) whether respondents committed grave abuse of discretion in
implementing E.O. 464 prior to its publication in the Official Gazette or in a newspaper of general
circulation; and (2) whether E.O. 464 violates the following provisions of the Constitution: Art. II, Sec.
28, Art. III, Sec. 4, Art. III, Sec. 7, Art. IV. Sec. 1, Art. VI, Sec. 21, Art. VI, Sec. 22, Art. XI, Sec. 1, and
Art. XIII, Sec. 16. The procedural issue of whether there is an actual case or controversy that calls
for judicial review was not taken up; instead, the parties were instructed to discuss it in their
respective memoranda.

After the conclusion of the oral arguments, the parties were directed to submit their respective
memoranda, paying particular attention to the following propositions: (1) that E.O. 464 is, on its face,
unconstitutional; and (2) assuming that it is not, it is unconstitutional as applied in four instances,
namely: (a) the so called Fertilizer scam; (b) the NorthRail investigation (c) the Wiretapping activity
of the ISAFP; and (d) the investigation on the Venable contract. 22

Petitioners in G.R. No. 16966023 and G.R. No. 16977724 filed their memoranda on March 7, 2006,
while those in G.R. No. 16966725 and G.R. No. 16983426 filed theirs the next day or on March 8,
2006. Petitioners in G.R. No. 171246 did not file any memorandum.

Petitioners Bayan Muna et al. in G.R. No. 169659, after their motion for extension to file
memorandum27 was granted, subsequently filed a manifestation28 dated March 14, 2006 that it would
no longer file its memorandum in the interest of having the issues resolved soonest, prompting this
Court to issue a Resolution reprimanding them.29

Petitioners submit that E.O. 464 violates the following constitutional provisions:

Art. VI, Sec. 2130

Art. VI, Sec. 2231

Art. VI, Sec. 132

 Art. XI, Sec. 133

Art. III, Sec. 734

Art. III, Sec. 435

Art. XIII, Sec. 16 36

Art. II, Sec. 2837

Respondents Executive Secretary Ermita et al., on the other hand, pray in their consolidated
memorandum38 on March 13, 2006 for the dismissal of the petitions for lack of merit.

The Court synthesizes the issues to be resolved as follows:

1. Whether E.O. 464 contravenes the power of inquiry vested in Congress;

2. Whether E.O. 464 violates the right of the people to information on matters of public
concern; and

3. Whether respondents have committed grave abuse of discretion when they implemented
E.O. 464 prior to its publication in a newspaper of general circulation.

Essential requisites for judicial review

Before proceeding to resolve the issue of the constitutionality of E.O. 464, ascertainment of whether
the requisites for a valid exercise of the Court’s power of judicial review are present is in order.

Like almost all powers conferred by the Constitution, the power of judicial review is subject to
limitations, to wit: (1) there must be an actual case or controversy calling for the exercise of judicial
power; (2) the person challenging the act must have standing to challenge the validity of the subject
act or issuance; otherwise stated, he must have a personal and substantial interest in the case such
that he has sustained, or will sustain, direct injury as a result of its enforcement; (3) the question of
constitutionality must be raised at the earliest opportunity; and (4) the issue of constitutionality must
be the very lis mota of the case.39

Except with respect to the requisites of standing and existence of an actual case or controversy
where the disagreement between the parties lies, discussion of the rest of the requisites shall be
omitted.

Standing

Respondents, through the Solicitor General, assert that the allegations in G.R. Nos. 169659, 169660
and 169667 make it clear that they, adverting to the non-appearance of several officials of the
executive department in the investigations called by the different committees of the Senate, were
brought to vindicate the constitutional duty of the Senate or its different committees to conduct
inquiry in aid of legislation or in the exercise of its oversight functions. They maintain that
Representatives Ocampo et al. have not shown any specific prerogative, power, and privilege of the
House of Representatives which had been effectively impaired by E.O. 464, there being no mention
of any investigation called by the House of Representatives or any of its committees which was
aborted due to the implementation of E.O. 464.
As for Bayan Muna’s alleged interest as a party-list representing the marginalized and
underrepresented, and that of the other petitioner groups and individuals who profess to have
standing as advocates and defenders of the Constitution, respondents contend that such interest
falls short of that required to confer standing on them as parties "injured-in-fact." 40

Respecting petitioner Chavez, respondents contend that Chavez may not claim an interest as a
taxpayer for the implementation of E.O. 464 does not involve the exercise of taxing or spending
power.41

With regard to the petition filed by the Senate, respondents argue that in the absence of a personal
or direct injury by reason of the issuance of E.O. 464, the Senate and its individual members are not
the proper parties to assail the constitutionality of E.O. 464.

Invoking this Court’s ruling in National Economic Protectionism Association v. Ongpin 42 and
Valmonte v. Philippine Charity Sweepstakes Office,43 respondents assert that to be considered a
proper party, one must have a personal and substantial interest in the case, such that he has
sustained or will sustain direct injury due to the enforcement of E.O. 464. 44

That the Senate of the Philippines has a fundamental right essential not only for intelligent public
decision-making in a democratic system, but more especially for sound legislation45 is not disputed.
E.O. 464, however, allegedly stifles the ability of the members of Congress to access information
that is crucial to law-making.46 Verily, the Senate, including its individual members, has a substantial
and direct interest over the outcome of the controversy and is the proper party to assail the
constitutionality of E.O. 464. Indeed, legislators have standing to maintain inviolate the prerogative,
powers and privileges vested by the Constitution in their office and are allowed to sue to question
the validity of any official action which they claim infringes their prerogatives as legislators. 47

In the same vein, party-list representatives Satur Ocampo (Bayan Muna), Teodoro Casino (Bayan
Muna), Joel Virador (Bayan Muna), Crispin Beltran (Anakpawis), Rafael Mariano (Anakpawis), and
Liza Maza (Gabriela) are allowed to sue to question the constitutionality of E.O. 464, the absence of
any claim that an investigation called by the House of Representatives or any of its committees was
aborted due to the implementation of E.O. 464 notwithstanding, it being sufficient that a claim is
made that E.O. 464 infringes on their constitutional rights and duties as members of Congress to
conduct investigation in aid of legislation and conduct oversight functions in the implementation of
laws.

The national political party, Bayan Muna, likewise meets the standing requirement as it obtained
three seats in the House of Representatives in the 2004 elections and is, therefore, entitled to
participate in the legislative process consonant with the declared policy underlying the party list
system of affording citizens belonging to marginalized and underrepresented sectors, organizations
and parties who lack well-defined political constituencies to contribute to the formulation and
enactment of legislation that will benefit the nation.48

As Bayan Muna and Representatives Ocampo et al. have the standing to file their petitions, passing
on the standing of their co-petitioners Courage and Codal is rendered unnecessary. 49

In filing their respective petitions, Chavez, the ALG which claims to be an organization of citizens,
and the incumbent members of the IBP Board of Governors and the IBP in behalf of its lawyer
members,50 invoke their constitutional right to information on matters of public concern, asserting that
the right to information, curtailed and violated by E.O. 464, is essential to the effective exercise of
other constitutional rights51 and to the maintenance of the balance of power among the three
branches of the government through the principle of checks and balances.52
It is well-settled that when suing as a citizen, the interest of the petitioner in assailing the
constitutionality of laws, presidential decrees, orders, and other regulations, must be direct and
personal. In Franciso v. House of Representatives,53 this Court held that when the proceeding
involves the assertion of a public right, the mere fact that he is a citizen satisfies the requirement of
personal interest.

As for petitioner PDP-Laban, it asseverates that it is clothed with legal standing in view of the
transcendental issues raised in its petition which this Court needs to resolve in order to avert a
constitutional crisis. For it to be accorded standing on the ground of transcendental importance,
however, it must establish (1) the character of the funds (that it is public) or other assets involved in
the case, (2) the presence of a clear case of disregard of a constitutional or statutory prohibition by
the public respondent agency or instrumentality of the government, and (3) the lack of any party with
a more direct and specific interest in raising the questions being raised. 54 The first and last
determinants not being present as no public funds or assets are involved and petitioners in G.R.
Nos. 169777 and 169659 have direct and specific interests in the resolution of the controversy,
petitioner PDP-Laban is bereft of standing to file its petition. Its allegation that E.O. 464 hampers its
legislative agenda is vague and uncertain, and at best is only a "generalized interest" which it shares
with the rest of the political parties. Concrete injury, whether actual or threatened, is that
indispensable element of a dispute which serves in part to cast it in a form traditionally capable of
judicial resolution.55 In fine, PDP-Laban’s alleged interest as a political party does not suffice to
clothe it with legal standing.

Actual Case or Controversy

Petitioners assert that an actual case exists, they citing the absence of the executive officials invited
by the Senate to its hearings after the issuance of E.O. 464, particularly those on the NorthRail
project and the wiretapping controversy.

Respondents counter that there is no case or controversy, there being no showing that President
Arroyo has actually withheld her consent or prohibited the appearance of the invited officials. 56 These
officials, they claim, merely communicated to the Senate that they have not yet secured the consent
of the President, not that the President prohibited their attendance. 57 Specifically with regard to the
AFP officers who did not attend the hearing on September 28, 2005, respondents claim that the
instruction not to attend without the President’s consent was based on its role as Commander-in-
Chief of the Armed Forces, not on E.O. 464.

Respondents thus conclude that the petitions merely rest on an unfounded apprehension that the
President will abuse its power of preventing the appearance of officials before Congress, and that
such apprehension is not sufficient for challenging the validity of E.O. 464.

The Court finds respondents’ assertion that the President has not withheld her consent or prohibited
the appearance of the officials concerned immaterial in determining the existence of an actual case
or controversy insofar as E.O. 464 is concerned. For E.O. 464 does not require either a deliberate
withholding of consent or an express prohibition issuing from the President in order to bar officials
from appearing before Congress.

As the implementation of the challenged order has already resulted in the absence of officials invited
to the hearings of petitioner Senate of the Philippines, it would make no sense to wait for any further
event before considering the present case ripe for adjudication. Indeed, it would be sheer
abandonment of duty if this Court would now refrain from passing on the constitutionality of E.O.
464.
Constitutionality of E.O. 464

E.O. 464, to the extent that it bars the appearance of executive officials before Congress, deprives
Congress of the information in the possession of these officials. To resolve the question of whether
such withholding of information violates the Constitution, consideration of the general power of
Congress to obtain information, otherwise known as the power of inquiry, is in order.

The power of inquiry

The Congress power of inquiry is expressly recognized in Section 21 of Article VI of the Constitution
which reads:

SECTION 21. The Senate or the House of Representatives or any of its respective committees may
conduct inquiries in aid of legislation in accordance with its duly published rules of procedure. The
rights of persons appearing in or affected by such inquiries shall be respected. (Underscoring
supplied)

This provision is worded exactly as Section 8 of Article VIII of the 1973 Constitution except that, in
the latter, it vests the power of inquiry in the unicameral legislature established therein – the
Batasang Pambansa – and its committees.

The 1935 Constitution did not contain a similar provision. Nonetheless, in Arnault v. Nazareno, 58 a
case decided in 1950 under that Constitution, the Court already recognized that the power of inquiry
is inherent in the power to legislate.

Arnault involved a Senate investigation of the reportedly anomalous purchase of the Buenavista and
Tambobong Estates by the Rural Progress Administration. Arnault, who was considered a leading
witness in the controversy, was called to testify thereon by the Senate. On account of his refusal to
answer the questions of the senators on an important point, he was, by resolution of the Senate,
detained for contempt. Upholding the Senate’s power to punish Arnault for contempt, this Court held:

Although there is no provision in the Constitution expressly investing either House of Congress with
power to make investigations and exact testimony to the end that it may exercise its legislative
functions advisedly and effectively, such power is so far incidental to the legislative function as to be
implied. In other words, the power of inquiry – with process to enforce it – is an essential and
appropriate auxiliary to the legislative function. A legislative body cannot legislate wisely or
effectively in the absence of information respecting the conditions which the legislation is intended to
affect or change; and where the legislative body does not itself possess the requisite information –
which is not infrequently true – recourse must be had to others who do possess it. Experience has
shown that mere requests for such information are often unavailing, and also that information which
is volunteered is not always accurate or complete; so some means of compulsion is essential to
obtain what is needed.59 . . . (Emphasis and underscoring supplied)

That this power of inquiry is broad enough to cover officials of the executive branch may be deduced
from the same case. The power of inquiry, the Court therein ruled, is co-extensive with the power to
legislate.60 The matters which may be a proper subject of legislation and those which may be a
proper subject of investigation are one. It follows that the operation of government, being a legitimate
subject for legislation, is a proper subject for investigation.

Thus, the Court found that the Senate investigation of the government transaction involved in Arnault
was a proper exercise of the power of inquiry. Besides being related to the expenditure of public
funds of which Congress is the guardian, the transaction, the Court held, "also involved government
agencies created by Congress and officers whose positions it is within the power of Congress to
regulate or even abolish."

Since Congress has authority to inquire into the operations of the executive branch, it would be
incongruous to hold that the power of inquiry does not extend to executive officials who are the most
familiar with and informed on executive operations.

As discussed in Arnault, the power of inquiry, "with process to enforce it," is grounded on the
necessity of information in the legislative process. If the information possessed by executive officials
on the operation of their offices is necessary for wise legislation on that subject, by parity of
reasoning, Congress has the right to that information and the power to compel the disclosure
thereof.

As evidenced by the American experience during the so-called "McCarthy era," however, the right of
Congress to conduct inquiries in aid of legislation is, in theory, no less susceptible to abuse than
executive or judicial power. It may thus be subjected to judicial review pursuant to the Court’s
certiorari powers under Section 1, Article VIII of the Constitution.

For one, as noted in Bengzon v. Senate Blue Ribbon Committee,61 the inquiry itself might not
properly be in aid of legislation, and thus beyond the constitutional power of Congress. Such inquiry
could not usurp judicial functions. Parenthetically, one possible way for Congress to avoid such a
result as occurred in Bengzon is to indicate in its invitations to the public officials concerned, or to
any person for that matter, the possible needed statute which prompted the need for the inquiry.
Given such statement in its invitations, along with the usual indication of the subject of inquiry and
the questions relative to and in furtherance thereof, there would be less room for speculation on the
part of the person invited on whether the inquiry is in aid of legislation.

Section 21, Article VI likewise establishes crucial safeguards that proscribe the legislative power of
inquiry. The provision requires that the inquiry be done in accordance with the Senate or House’s
duly published rules of procedure, necessarily implying the constitutional infirmity of an inquiry
conducted without duly published rules of procedure. Section 21 also mandates that the rights of
persons appearing in or affected by such inquiries be respected, an imposition that obligates
Congress to adhere to the guarantees in the Bill of Rights.

These abuses are, of course, remediable before the courts, upon the proper suit filed by the persons
affected, even if they belong to the executive branch. Nonetheless, there may be exceptional
circumstances, none appearing to obtain at present, wherein a clear pattern of abuse of the
legislative power of inquiry might be established, resulting in palpable violations of the rights
guaranteed to members of the executive department under the Bill of Rights. In such instances,
depending on the particulars of each case, attempts by the Executive Branch to forestall these
abuses may be accorded judicial sanction.

Even where the inquiry is in aid of legislation, there are still recognized exemptions to the power of
inquiry, which exemptions fall under the rubric of "executive privilege." Since this term figures
prominently in the challenged order, it being mentioned in its provisions, its preambular
clauses,62 and in its very title, a discussion of executive privilege is crucial for determining the
constitutionality of E.O. 464.

Executive privilege
The phrase "executive privilege" is not new in this jurisdiction. It has been used even prior to the
promulgation of the 1986 Constitution.63 Being of American origin, it is best understood in light of how
it has been defined and used in the legal literature of the United States.

Schwartz defines executive privilege as "the power of the Government to withhold information from
the public, the courts, and the Congress."64 Similarly, Rozell defines it as "the right of the President
and high-level executive branch officers to withhold information from Congress, the courts, and
ultimately the public."65

Executive privilege is, nonetheless, not a clear or unitary concept. 66 It has encompassed claims of
varying kinds.67 Tribe, in fact, comments that while it is customary to employ the phrase "executive
privilege," it may be more accurate to speak of executive privileges "since presidential refusals to
furnish information may be actuated by any of at least three distinct kinds of considerations, and may
be asserted, with differing degrees of success, in the context of either judicial or legislative
investigations."

One variety of the privilege, Tribe explains, is the state secrets privilege invoked by U.S. Presidents,
beginning with Washington, on the ground that the information is of such nature that its disclosure
would subvert crucial military or diplomatic objectives. Another variety is the informer’s privilege, or
the privilege of the Government not to disclose the identity of persons who furnish information of
violations of law to officers charged with the enforcement of that law. Finally, a generic privilege for
internal deliberations has been said to attach to intragovernmental documents reflecting advisory
opinions, recommendations and deliberations comprising part of a process by which governmental
decisions and policies are formulated. 68

Tribe’s comment is supported by the ruling in In re Sealed Case, thus:

Since the beginnings of our nation, executive officials have claimed a variety of privileges to resist
disclosure of information the confidentiality of which they felt was crucial to fulfillment of the unique
role and responsibilities of the executive branch of our government. Courts ruled early that the
executive had a right to withhold documents that might reveal military or state secrets. The courts
have also granted the executive a right to withhold the identity of government informers in some
circumstances and a qualified right to withhold information related to pending investigations. x x
x"69 (Emphasis and underscoring supplied)

The entry in Black’s Law Dictionary on "executive privilege" is similarly instructive regarding the
scope of the doctrine.

This privilege, based on the constitutional doctrine of separation of powers, exempts the executive
from disclosure requirements applicable to the ordinary citizen or organization where such
exemption is necessary to the discharge of highly important executive responsibilities involved in
maintaining governmental operations, and extends not only to military and diplomatic secrets but
also to documents integral to an appropriate exercise of the executive’ domestic decisional and
policy making functions, that is, those documents reflecting the frank expression necessary in intra-
governmental advisory and deliberative communications.70 (Emphasis and underscoring supplied)

That a type of information is recognized as privileged does not, however, necessarily mean that it
would be considered privileged in all instances. For in determining the validity of a claim of privilege,
the question that must be asked is not only whether the requested information falls within one of the
traditional privileges, but also whether that privilege should be honored in a given procedural
setting.71
The leading case on executive privilege in the United States is U.S. v. Nixon, 72 decided in 1974. In
issue in that case was the validity of President Nixon’s claim of executive privilege against a
subpoena issued by a district court requiring the production of certain tapes and documents relating
to the Watergate investigations. The claim of privilege was based on the President’s general interest
in the confidentiality of his conversations and correspondence. The U.S. Court held that while there
is no explicit reference to a privilege of confidentiality in the U.S. Constitution, it is constitutionally
based to the extent that it relates to the effective discharge of a President’s powers. The Court,
nonetheless, rejected the President’s claim of privilege, ruling that the privilege must be balanced
against the public interest in the fair administration of criminal justice. Notably, the Court was careful
to clarify that it was not there addressing the issue of claims of privilege in a civil litigation or against
congressional demands for information.

Cases in the U.S. which involve claims of executive privilege against Congress are rare. 73 Despite
frequent assertion of the privilege to deny information to Congress, beginning with President
Washington’s refusal to turn over treaty negotiation records to the House of Representatives, the
U.S. Supreme Court has never adjudicated the issue.74 However, the U.S. Court of Appeals for the
District of Columbia Circuit, in a case decided earlier in the same year as Nixon, recognized the
President’s privilege over his conversations against a congressional subpoena.75 Anticipating the
balancing approach adopted by the U.S. Supreme Court in Nixon, the Court of Appeals weighed the
public interest protected by the claim of privilege against the interest that would be served by
disclosure to the Committee. Ruling that the balance favored the President, the Court declined to
enforce the subpoena. 76

In this jurisdiction, the doctrine of executive privilege was recognized by this Court in Almonte v.
Vasquez.77 Almonte used the term in reference to the same privilege subject of Nixon. It quoted the
following portion of the Nixon decision which explains the basis for the privilege:

"The expectation of a President to the confidentiality of his conversations and correspondences, like
the claim of confidentiality of judicial deliberations, for example, has all the values to which we
accord deference for the privacy of all citizens and, added to those values, is the necessity for
protection of the public interest in candid, objective, and even blunt or harsh opinions in Presidential
decision-making. A President and those who assist him must be free to explore alternatives in the
process of shaping policies and making decisions and to do so in a way many would be unwilling to
express except privately. These are the considerations justifying a presumptive privilege for
Presidential communications. The privilege is fundamental to the operation of government and
inextricably rooted in the separation of powers under the Constitution x x x " (Emphasis and
underscoring supplied)

Almonte involved a subpoena duces tecum issued by the Ombudsman against the therein
petitioners. It did not involve, as expressly stated in the decision, the right of the people to
information.78 Nonetheless, the Court recognized that there are certain types of information which the
government may withhold from the public, thus acknowledging, in substance if not in name, that
executive privilege may be claimed against citizens’ demands for information.

In Chavez v. PCGG,79 the Court held that this jurisdiction recognizes the common law holding that
there is a "governmental privilege against public disclosure with respect to state secrets regarding
military, diplomatic and other national security matters."80 The same case held that closed-door
Cabinet meetings are also a recognized limitation on the right to information.

Similarly, in Chavez v. Public Estates Authority,81 the Court ruled that the right to information does
not extend to matters recognized as "privileged information under the separation of powers," 82 by
which the Court meant Presidential conversations, correspondences, and discussions in closed-door
Cabinet meetings. It also held that information on military and diplomatic secrets and those affecting
national security, and information on investigations of crimes by law enforcement agencies before
the prosecution of the accused were exempted from the right to information.

From the above discussion on the meaning and scope of executive privilege, both in the United
States and in this jurisdiction, a clear principle emerges. Executive privilege, whether asserted
against Congress, the courts, or the public, is recognized only in relation to certain types of
information of a sensitive character. While executive privilege is a constitutional concept, a claim
thereof may be valid or not depending on the ground invoked to justify it and the context in which it is
made. Noticeably absent is any recognition that executive officials are exempt from the duty to
disclose information by the mere fact of being executive officials. Indeed, the extraordinary character
of the exemptions indicates that the presumption inclines heavily against executive secrecy and in
favor of disclosure.

Validity of Section 1

Section 1 is similar to Section 3 in that both require the officials covered by them to secure the
consent of the President prior to appearing before Congress. There are significant differences
between the two provisions, however, which constrain this Court to discuss the validity of these
provisions separately.

Section 1 specifically applies to department heads. It does not, unlike Section 3, require a prior
determination by any official whether they are covered by E.O. 464. The President herself has,
through the challenged order, made the determination that they are. Further, unlike also Section 3,
the coverage of department heads under Section 1 is not made to depend on the department heads’
possession of any information which might be covered by executive privilege. In fact, in marked
contrast to Section 3 vis-à-vis Section 2, there is no reference to executive privilege at all. Rather,
the required prior consent under Section 1 is grounded on Article VI, Section 22 of the Constitution
on what has been referred to as the question hour.

SECTION 22. The heads of departments may upon their own initiative, with the consent of the
President, or upon the request of either House, as the rules of each House shall provide, appear
before and be heard by such House on any matter pertaining to their departments. Written questions
shall be submitted to the President of the Senate or the Speaker of the House of Representatives at
least three days before their scheduled appearance. Interpellations shall not be limited to written
questions, but may cover matters related thereto. When the security of the State or the public
interest so requires and the President so states in writing, the appearance shall be conducted in
executive session.

Determining the validity of Section 1 thus requires an examination of the meaning of Section 22 of
Article VI. Section 22 which provides for the question hour must be interpreted vis-à-vis Section 21
which provides for the power of either House of Congress to "conduct inquiries in aid of legislation."
As the following excerpt of the deliberations of the Constitutional Commission shows, the framers
were aware that these two provisions involved distinct functions of Congress.

MR. MAAMBONG. x x x When we amended Section 20 [now Section 22 on the Question Hour]
yesterday, I noticed that members of the Cabinet cannot be compelled anymore to appear before the
House of Representatives or before the Senate. I have a particular problem in this regard, Madam
President, because in our experience in the Regular Batasang Pambansa – as the Gentleman
himself has experienced in the interim Batasang Pambansa – one of the most competent inputs that
we can put in our committee deliberations, either in aid of legislation or in congressional
investigations, is the testimonies of Cabinet ministers. We usually invite them, but if they do not
come and it is a congressional investigation, we usually issue subpoenas.

I want to be clarified on a statement made by Commissioner Suarez when he said that the fact that
the Cabinet ministers may refuse to come to the House of Representatives or the Senate [when
requested under Section 22] does not mean that they need not come when they are invited or
subpoenaed by the committee of either House when it comes to inquiries in aid of legislation or
congressional investigation. According to Commissioner Suarez, that is allowed and their presence
can be had under Section 21. Does the gentleman confirm this, Madam President?

MR. DAVIDE. We confirm that, Madam President, because Section 20 refers only to what was
originally the Question Hour, whereas, Section 21 would refer specifically to inquiries in aid of
legislation, under which anybody for that matter, may be summoned and if he refuses, he can be
held in contempt of the House.83 (Emphasis and underscoring supplied)

A distinction was thus made between inquiries in aid of legislation and the question hour. While
attendance was meant to be discretionary in the question hour, it was compulsory in inquiries in aid
of legislation. The reference to Commissioner Suarez bears noting, he being one of the proponents
of the amendment to make the appearance of department heads discretionary in the question hour.

So clearly was this distinction conveyed to the members of the Commission that the Committee on
Style, precisely in recognition of this distinction, later moved the provision on question hour from its
original position as Section 20 in the original draft down to Section 31, far from the provision on
inquiries in aid of legislation. This gave rise to the following exchange during the deliberations:

MR. GUINGONA. [speaking in his capacity as Chairman of the Committee on Style] We now go, Mr.
Presiding Officer, to the Article on Legislative and may I request the chairperson of the Legislative
Department, Commissioner Davide, to give his reaction.

THE PRESIDING OFFICER (Mr. Jamir). Commissioner Davide is recognized. |avvphi|.net

MR. DAVIDE. Thank you, Mr. Presiding Officer. I have only one reaction to the Question Hour. I
propose that instead of putting it as Section 31, it should follow Legislative Inquiries.

THE PRESIDING OFFICER. What does the committee say?

MR. GUINGONA. I ask Commissioner Maambong to reply, Mr. Presiding Officer.

MR. MAAMBONG. Actually, we considered that previously when we sequenced this but we
reasoned that in Section 21, which is Legislative Inquiry, it is actually a power of Congress in terms
of its own lawmaking; whereas, a Question Hour is not actually a power in terms of its own
lawmaking power because in Legislative Inquiry, it is in aid of legislation. And so we put Question
Hour as Section 31. I hope Commissioner Davide will consider this.

MR. DAVIDE. The Question Hour is closely related with the legislative power, and it is precisely as a
complement to or a supplement of the Legislative Inquiry. The appearance of the members of
Cabinet would be very, very essential not only in the application of check and balance but also, in
effect, in aid of legislation.
MR. MAAMBONG. After conferring with the committee, we find merit in the suggestion of
Commissioner Davide. In other words, we are accepting that and so this Section 31 would now
become Section 22. Would it be, Commissioner Davide?

MR. DAVIDE. Yes.84 (Emphasis and underscoring supplied)

Consistent with their statements earlier in the deliberations, Commissioners Davide and Maambong
proceeded from the same assumption that these provisions pertained to two different functions of
the legislature. Both Commissioners understood that the power to conduct inquiries in aid of
legislation is different from the power to conduct inquiries during the question hour. Commissioner
Davide’s only concern was that the two provisions on these distinct powers be placed closely
together, they being complementary to each other. Neither Commissioner considered them as
identical functions of Congress.

The foregoing opinion was not the two Commissioners’ alone. From the above-quoted exchange,
Commissioner Maambong’s committee – the Committee on Style – shared the view that the two
provisions reflected distinct functions of Congress. Commissioner Davide, on the other hand, was
speaking in his capacity as Chairman of the Committee on the Legislative Department. His views
may thus be presumed as representing that of his Committee.

In the context of a parliamentary system of government, the "question hour" has a definite meaning.
It is a period of confrontation initiated by Parliament to hold the Prime Minister and the other
ministers accountable for their acts and the operation of the government, 85 corresponding to what is
known in Britain as the question period. There was a specific provision for a question hour in the
1973 Constitution86 which made the appearance of ministers mandatory. The same perfectly
conformed to the parliamentary system established by that Constitution, where the ministers are also
members of the legislature and are directly accountable to it.

An essential feature of the parliamentary system of government is the immediate accountability of

the Prime Minister and the Cabinet to the National Assembly. They shall be responsible to the
National Assembly for the program of government and shall determine the guidelines of national
policy. Unlike in the presidential system where the tenure of office of all elected officials cannot be
terminated before their term expired, the Prime Minister and the Cabinet remain in office only as long
as they enjoy the confidence of the National Assembly. The moment this confidence is lost the Prime
Minister and the Cabinet may be changed.87

The framers of the 1987 Constitution removed the mandatory nature of such appearance during the
question hour in the present Constitution so as to conform more fully to a system of separation of
powers.88 To that extent, the question hour, as it is presently understood in this jurisdiction, departs
from the question period of the parliamentary system. That department heads may not be required to
appear in a question hour does not, however, mean that the legislature is rendered powerless to
elicit information from them in all circumstances. In fact, in light of the absence of a mandatory
question period, the need to enforce Congress’ right to executive information in the performance of
its legislative function becomes more imperative. As Schwartz observes:

Indeed, if the separation of powers has anything to tell us on the subject under discussion, it is that
the Congress has the right to obtain information from any source – even from officials of
departments and agencies in the executive branch. In the United States there is, unlike the situation
which prevails in a parliamentary system such as that in Britain, a clear separation between the
legislative and executive branches. It is this very separation that makes the congressional right to
obtain information from the executive so essential, if the functions of the Congress as the elected
representatives of the people are adequately to be carried out. The absence of close rapport
between the legislative and executive branches in this country, comparable to those which exist
under a parliamentary system, and the nonexistence in the Congress of an institution such as the
British question period have perforce made reliance by the Congress upon its right to obtain
information from the executive essential, if it is intelligently to perform its legislative tasks. Unless the
Congress possesses the right to obtain executive information, its power of oversight of
administration in a system such as ours becomes a power devoid of most of its practical content,
since it depends for its effectiveness solely upon information parceled out ex gratia by the
executive.89 (Emphasis and underscoring supplied)

Sections 21 and 22, therefore, while closely related and complementary to each other, should not be
considered as pertaining to the same power of Congress. One specifically relates to the power to
conduct inquiries in aid of legislation, the aim of which is to elicit information that may be used for
legislation, while the other pertains to the power to conduct a question hour, the objective of which is
to obtain information in pursuit of Congress’ oversight function.

When Congress merely seeks to be informed on how department heads are implementing the
statutes which it has issued, its right to such information is not as imperative as that of the President
to whom, as Chief Executive, such department heads must give a report of their performance as a
matter of duty. In such instances, Section 22, in keeping with the separation of powers, states that
Congress may only request their appearance. Nonetheless, when the inquiry in which Congress
requires their appearance is "in aid of legislation" under Section 21, the appearance is mandatory for
the same reasons stated in Arnault.90

In fine, the oversight function of Congress may be facilitated by compulsory process only to the
extent that it is performed in pursuit of legislation. This is consistent with the intent discerned from
the deliberations of the Constitutional Commission.

Ultimately, the power of Congress to compel the appearance of executive officials under Section 21
and the lack of it under Section 22 find their basis in the principle of separation of powers. While the
executive branch is a co-equal branch of the legislature, it cannot frustrate the power of Congress to
legislate by refusing to comply with its demands for information.

When Congress exercises its power of inquiry, the only way for department heads to exempt
themselves therefrom is by a valid claim of privilege. They are not exempt by the mere fact that they
are department heads. Only one executive official may be exempted from this power — the
President on whom executive power is vested, hence, beyond the reach of Congress except through
the power of impeachment. It is based on her being the highest official of the executive branch, and
the due respect accorded to a co-equal branch of government which is sanctioned by a long-
standing custom.

By the same token, members of the Supreme Court are also exempt from this power of inquiry.
Unlike the Presidency, judicial power is vested in a collegial body; hence, each member thereof is
exempt on the basis not only of separation of powers but also on the fiscal autonomy and the
constitutional independence of the judiciary. This point is not in dispute, as even counsel for the
Senate, Sen. Joker Arroyo, admitted it during the oral argument upon interpellation of the Chief
Justice.

Having established the proper interpretation of Section 22, Article VI of the Constitution, the Court
now proceeds to pass on the constitutionality of Section 1 of E.O. 464.

Section 1, in view of its specific reference to Section 22 of Article VI of the Constitution and the
absence of any reference to inquiries in aid of legislation, must be construed as limited in its
application to appearances of department heads in the question hour contemplated in the provision
of said Section 22 of Article VI. The reading is dictated by the basic rule of construction that
issuances must be interpreted, as much as possible, in a way that will render it constitutional.

The requirement then to secure presidential consent under Section 1, limited as it is only to
appearances in the question hour, is valid on its face. For under Section 22, Article VI of the
Constitution, the appearance of department heads in the question hour is discretionary on their part.

Section 1 cannot, however, be applied to appearances of department heads in inquiries in aid of

legislation. Congress is not bound in such instances to respect the refusal of the department head to
appear in such inquiry, unless a valid claim of privilege is subsequently made, either by the
President herself or by the Executive Secretary.

Validity of Sections 2 and 3

Section 3 of E.O. 464 requires all the public officials enumerated in Section 2(b) to secure the
consent of the President prior to appearing before either house of Congress. The enumeration is
broad. It covers all senior officials of executive departments, all officers of the AFP and the PNP, and
all senior national security officials who, in the judgment of the heads of offices designated in the
same section (i.e. department heads, Chief of Staff of the AFP, Chief of the PNP, and the National
Security Adviser), are "covered by the executive privilege."

The enumeration also includes such other officers as may be determined by the President. Given
the title of Section 2 — "Nature, Scope and Coverage of Executive Privilege" —, it is evident that
under the rule of ejusdem generis, the determination by the President under this provision is
intended to be based on a similar finding of coverage under executive privilege.

En passant, the Court notes that Section 2(b) of E.O. 464 virtually states that executive privilege
actually covers persons. Such is a misuse of the doctrine. Executive privilege, as discussed above,
is properly invoked in relation to specific categories of information and not to categories of persons.

In light, however, of Sec 2(a) of E.O. 464 which deals with the nature, scope and coverage of
executive privilege, the reference to persons being "covered by the executive privilege" may be read
as an abbreviated way of saying that the person is in possession of information which is, in the
judgment of the head of office concerned, privileged as defined in Section 2(a). The Court shall thus
proceed on the assumption that this is the intention of the challenged order.

Upon a determination by the designated head of office or by the President that an official is "covered
by the executive privilege," such official is subjected to the requirement that he first secure the
consent of the President prior to appearing before Congress. This requirement effectively bars the
appearance of the official concerned unless the same is permitted by the President. The proviso
allowing the President to give its consent means nothing more than that the President may reverse a
prohibition which already exists by virtue of E.O. 464.

Thus, underlying this requirement of prior consent is the determination by a head of office,
authorized by the President under E.O. 464, or by the President herself, that such official is in
possession of information that is covered by executive privilege. This determination then becomes
the basis for the official’s not showing up in the legislative investigation.

In view thereof, whenever an official invokes E.O. 464 to justify his failure to be present, such
invocation must be construed as a declaration to Congress that the President, or a head of office
authorized by the President, has determined that the requested information is privileged, and that
the President has not reversed such determination. Such declaration, however, even without
mentioning the term "executive privilege," amounts to an implied claim that the information is being
withheld by the executive branch, by authority of the President, on the basis of executive privilege.
Verily, there is an implied claim of privilege.

The letter dated September 28, 2005 of respondent Executive Secretary Ermita to Senate President
Drilon illustrates the implied nature of the claim of privilege authorized by E.O. 464. It reads:

In connection with the inquiry to be conducted by the Committee of the Whole regarding the Northrail
Project of the North Luzon Railways Corporation on 29 September 2005 at 10:00 a.m., please be
informed that officials of the Executive Department invited to appear at the meeting will not be able
to attend the same without the consent of the President, pursuant to Executive Order No. 464 (s.
2005), entitled "Ensuring Observance Of The Principle Of Separation Of Powers, Adherence To The
Rule On Executive Privilege And Respect For The Rights Of Public Officials Appearing In Legislative
Inquiries In Aid Of Legislation Under The Constitution, And For Other Purposes". Said officials have
not secured the required consent from the President. (Underscoring supplied)

The letter does not explicitly invoke executive privilege or that the matter on which these officials are
being requested to be resource persons falls under the recognized grounds of the privilege to justify
their absence. Nor does it expressly state that in view of the lack of consent from the President
under E.O. 464, they cannot attend the hearing.

Significant premises in this letter, however, are left unstated, deliberately or not. The letter assumes
that the invited officials are covered by E.O. 464. As explained earlier, however, to be covered by the
order means that a determination has been made, by the designated head of office or the President,
that the invited official possesses information that is covered by executive privilege. Thus, although it
is not stated in the letter that such determination has been made, the same must be deemed
implied. Respecting the statement that the invited officials have not secured the consent of the
President, it only means that the President has not reversed the standing prohibition against their
appearance before Congress.

Inevitably, Executive Secretary Ermita’s letter leads to the conclusion that the executive branch,
either through the President or the heads of offices authorized under E.O. 464, has made a
determination that the information required by the Senate is privileged, and that, at the time of
writing, there has been no contrary pronouncement from the President. In fine, an implied claim of
privilege has been made by the executive.

While there is no Philippine case that directly addresses the issue of whether executive privilege
may be invoked against Congress, it is gathered from Chavez v. PEA that certain information in the
possession of the executive may validly be claimed as privileged even against Congress. Thus, the
case holds:

There is no claim by PEA that the information demanded by petitioner is privileged information
rooted in the separation of powers. The information does not cover Presidential conversations,
correspondences, or discussions during closed-door Cabinet meetings which, like internal-
deliberations of the Supreme Court and other collegiate courts, or executive sessions of either house
of Congress, are recognized as confidential. This kind of information cannot be pried open by a co-
equal branch of government. A frank exchange of exploratory ideas and assessments, free from the
glare of publicity and pressure by interested parties, is essential to protect the independence of
decision-making of those tasked to exercise Presidential, Legislative and Judicial power. This is not
the situation in the instant case.91 (Emphasis and underscoring supplied)
Section 3 of E.O. 464, therefore, cannot be dismissed outright as invalid by the mere fact that it
sanctions claims of executive privilege. This Court must look further and assess the claim of
privilege authorized by the Order to determine whether it is valid.

While the validity of claims of privilege must be assessed on a case to case basis, examining the
ground invoked therefor and the particular circumstances surrounding it, there is, in an implied claim
of privilege, a defect that renders it invalid per se. By its very nature, and as demonstrated by the
letter of respondent Executive Secretary quoted above, the implied claim authorized by Section 3 of
E.O. 464 is not accompanied by any specific allegation of the basis thereof (e.g., whether the
information demanded involves military or diplomatic secrets, closed-door Cabinet meetings, etc.).
While Section 2(a) enumerates the types of information that are covered by the privilege under the
challenged order, Congress is left to speculate as to which among them is being referred to by the
executive. The enumeration is not even intended to be comprehensive, but a mere statement of
what is included in the phrase "confidential or classified information between the President and the
public officers covered by this executive order."

Certainly, Congress has the right to know why the executive considers the requested information
privileged. It does not suffice to merely declare that the President, or an authorized head of office,
has determined that it is so, and that the President has not overturned that determination. Such
declaration leaves Congress in the dark on how the requested information could be classified as
privileged. That the message is couched in terms that, on first impression, do not seem like a claim
of privilege only makes it more pernicious. It threatens to make Congress doubly blind to the
question of why the executive branch is not providing it with the information that it has requested.

A claim of privilege, being a claim of exemption from an obligation to disclose information, must,
therefore, be clearly asserted. As U.S. v. Reynolds teaches:

The privilege belongs to the government and must be asserted by it; it can neither be claimed nor
waived by a private party. It is not to be lightly invoked. There must be a formal claim of privilege,
lodged by the head of the department which has control over the matter, after actual personal
consideration by that officer. The court itself must determine whether the circumstances are
appropriate for the claim of privilege, and yet do so without forcing a disclosure of the very thing the
privilege is designed to protect.92 (Underscoring supplied)

Absent then a statement of the specific basis of a claim of executive privilege, there is no way of
determining whether it falls under one of the traditional privileges, or whether, given the
circumstances in which it is made, it should be respected.93 These, in substance, were the same
criteria in assessing the claim of privilege asserted against the Ombudsman in Almonte v.
Vasquez94 and, more in point, against a committee of the Senate in Senate Select Committee on
Presidential Campaign Activities v. Nixon.95

A.O. Smith v. Federal Trade Commission is enlightening:

[T]he lack of specificity renders an assessment of the potential harm resulting from disclosure
impossible, thereby preventing the Court from balancing such harm against plaintiffs’ needs to
determine whether to override any claims of privilege.96 (Underscoring supplied)

And so is U.S. v. Article of Drug:97

On the present state of the record, this Court is not called upon to perform this balancing operation.
In stating its objection to claimant’s interrogatories, government asserts, and nothing more, that the
disclosures sought by claimant would inhibit the free expression of opinion that non-disclosure is
designed to protect. The government has not shown – nor even alleged – that those who evaluated
claimant’s product were involved in internal policymaking, generally, or in this particular instance.
Privilege cannot be set up by an unsupported claim. The facts upon which the privilege is based
must be established. To find these interrogatories objectionable, this Court would have to assume
that the evaluation and classification of claimant’s products was a matter of internal policy
formulation, an assumption in which this Court is unwilling to indulge sua sponte. 98 (Emphasis and
underscoring supplied)

Mobil Oil Corp. v. Department of Energy99 similarly emphasizes that "an agency must provide
‘precise and certain’ reasons for preserving the confidentiality of requested information."

Black v. Sheraton Corp. of America100 amplifies, thus:

A formal and proper claim of executive privilege requires a specific designation and description of
the documents within its scope as well as precise and certain reasons for preserving their
confidentiality. Without this specificity, it is impossible for a court to analyze the claim short of
disclosure of the very thing sought to be protected. As the affidavit now stands, the Court has little
more than its sua sponte speculation with which to weigh the applicability of the claim. An improperly
asserted claim of privilege is no claim of privilege. Therefore, despite the fact that a claim was made
by the proper executive as Reynolds requires, the Court can not recognize the claim in the instant
case because it is legally insufficient to allow the Court to make a just and reasonable determination
as to its applicability. To recognize such a broad claim in which the Defendant has given no precise
or compelling reasons to shield these documents from outside scrutiny, would make a farce of the
whole procedure.101 (Emphasis and underscoring supplied)

Due respect for a co-equal branch of government, moreover, demands no less than a claim of
privilege clearly stating the grounds therefor. Apropos is the following ruling in McPhaul v. U.S: 102

We think the Court’s decision in United States v. Bryan, 339 U.S. 323, 70 S. Ct. 724, is highly
relevant to these questions. For it is as true here as it was there, that ‘if (petitioner) had legitimate
reasons fo r failing to produce the records of the association, a decent respect for the House of
Representatives, by whose authority the subpoenas issued, would have required that (he) state (his)
reasons for noncompliance upon the return of the writ. Such a statement would have given the
Subcommittee an opportunity to avoid the blocking of its inquiry by taking other appropriate steps to
obtain the records. ‘To deny the Committee the opportunity to consider the objection or remedy is in
itself a contempt of its authority and an obstruction of its processes. His failure to make any such
statement was "a patent evasion of the duty of one summoned to produce papers before a
congressional committee[, and] cannot be condoned." (Emphasis and underscoring supplied;
citations omitted)

Upon the other hand, Congress must not require the executive to state the reasons for the claim with
such particularity as to compel disclosure of the information which the privilege is meant to
protect.103 A useful analogy in determining the requisite degree of particularity would be the privilege
against self-incrimination. Thus, Hoffman v. U.S.104 declares:

The witness is not exonerated from answering merely because he declares that in so doing he would
incriminate himself – his say-so does not of itself establish the hazard of incrimination. It is for the
court to say whether his silence is justified, and to require him to answer if ‘it clearly appears to the
court that he is mistaken.’ However, if the witness, upon interposing his claim, were required to
prove the hazard in the sense in which a claim is usually required to be established in court, he
would be compelled to surrender the very protection which the privilege is designed to guarantee. To
sustain the privilege, it need only be evident from the implications of the question, in the setting in
which it is asked, that a responsive answer to the question or an explanation of why it cannot be
answered might be dangerous because injurious disclosure could result." x x x (Emphasis and
underscoring supplied)

The claim of privilege under Section 3 of E.O. 464 in relation to Section 2(b) is thus invalid per se. It
is not asserted. It is merely implied. Instead of providing precise and certain reasons for the claim, it
merely invokes E.O. 464, coupled with an announcement that the President has not given her
consent. It is woefully insufficient for Congress to determine whether the withholding of information is
justified under the circumstances of each case. It severely frustrates the power of inquiry of
Congress.

In fine, Section 3 and Section 2(b) of E.O. 464 must be invalidated.

No infirmity, however, can be imputed to Section 2(a) as it merely provides guidelines, binding only
on the heads of office mentioned in Section 2(b), on what is covered by executive privilege. It does
not purport to be conclusive on the other branches of government. It may thus be construed as a
mere expression of opinion by the President regarding the nature and scope of executive privilege.

Petitioners, however, assert as another ground for invalidating the challenged order the alleged
unlawful delegation of authority to the heads of offices in Section 2(b). Petitioner Senate of the
Philippines, in particular, cites the case of the United States where, so it claims, only the President
can assert executive privilege to withhold information from Congress.

Section 2(b) in relation to Section 3 virtually provides that, once the head of office determines that a
certain information is privileged, such determination is presumed to bear the President’s authority
and has the effect of prohibiting the official from appearing before Congress, subject only to the
express pronouncement of the President that it is allowing the appearance of such official. These
provisions thus allow the President to authorize claims of privilege by mere silence.

Such presumptive authorization, however, is contrary to the exceptional nature of the privilege.
Executive privilege, as already discussed, is recognized with respect to information the confidential
nature of which is crucial to the fulfillment of the unique role and responsibilities of the executive
branch,105 or in those instances where exemption from disclosure is necessary to the discharge of
highly important executive responsibilities.106 The doctrine of executive privilege is thus premised on
the fact that certain informations must, as a matter of necessity, be kept confidential in pursuit of the
public interest. The privilege being, by definition, an exemption from the obligation to disclose
information, in this case to Congress, the necessity must be of such high degree as to outweigh the
public interest in enforcing that obligation in a particular case.

In light of this highly exceptional nature of the privilege, the Court finds it essential to limit to the
President the power to invoke the privilege. She may of course authorize the Executive Secretary to
invoke the privilege on her behalf, in which case the Executive Secretary must state that the
authority is "By order of the President," which means that he personally consulted with her. The
privilege being an extraordinary power, it must be wielded only by the highest official in the executive
hierarchy. In other words, the President may not authorize her subordinates to exercise such power.
There is even less reason to uphold such authorization in the instant case where the authorization is
not explicit but by mere silence. Section 3, in relation to Section 2(b), is further invalid on this score.

It follows, therefore, that when an official is being summoned by Congress on a matter which, in his
own judgment, might be covered by executive privilege, he must be afforded reasonable time to
inform the President or the Executive Secretary of the possible need for invoking the privilege. This
is necessary in order to provide the President or the Executive Secretary with fair opportunity to
consider whether the matter indeed calls for a claim of executive privilege. If, after the lapse of that
reasonable time, neither the President nor the Executive Secretary invokes the privilege, Congress
is no longer bound to respect the failure of the official to appear before Congress and may then opt
to avail of the necessary legal means to compel his appearance.

The Court notes that one of the expressed purposes for requiring officials to secure the consent of
the President under Section 3 of E.O. 464 is to ensure "respect for the rights of public officials
appearing in inquiries in aid of legislation." That such rights must indeed be respected by Congress
is an echo from Article VI Section 21 of the Constitution mandating that "[t]he rights of persons
appearing in or affected by such inquiries shall be respected."

In light of the above discussion of Section 3, it is clear that it is essentially an authorization for
implied claims of executive privilege, for which reason it must be invalidated. That such authorization
is partly motivated by the need to ensure respect for such officials does not change the infirm nature
of the authorization itself.

Right to Information

E.O 464 is concerned only with the demands of Congress for the appearance of executive officials in
the hearings conducted by it, and not with the demands of citizens for information pursuant to their
right to information on matters of public concern. Petitioners are not amiss in claiming, however, that
what is involved in the present controversy is not merely the legislative power of inquiry, but the right
of the people to information.

There are, it bears noting, clear distinctions between the right of Congress to information which
underlies the power of inquiry and the right of the people to information on matters of public concern.
For one, the demand of a citizen for the production of documents pursuant to his right to information
does not have the same obligatory force as a subpoena duces tecum issued by Congress. Neither
does the right to information grant a citizen the power to exact testimony from government officials.
These powers belong only to Congress and not to an individual citizen.

Thus, while Congress is composed of representatives elected by the people, it does not follow,
except in a highly qualified sense, that in every exercise of its power of inquiry, the people are
exercising their right to information.

To the extent that investigations in aid of legislation are generally conducted in public, however, any
executive issuance tending to unduly limit disclosures of information in such investigations
necessarily deprives the people of information which, being presumed to be in aid of legislation, is
presumed to be a matter of public concern. The citizens are thereby denied access to information
which they can use in formulating their own opinions on the matter before Congress — opinions
which they can then communicate to their representatives and other government officials through the
various legal means allowed by their freedom of expression. Thus holds Valmonte v. Belmonte:

It is in the interest of the State that the channels for free political discussion be maintained to the end
that the government may perceive and be responsive to the people’s will. Yet, this open dialogue
can be effective only to the extent that the citizenry is informed and thus able to formulate its will
intelligently. Only when the participants in the discussion are aware of the issues and have access to
information relating thereto can such bear fruit.107 (Emphasis and underscoring supplied)

The impairment of the right of the people to information as a consequence of E.O. 464 is, therefore,
in the sense explained above, just as direct as its violation of the legislature’s power of inquiry.
Implementation of E.O. 464 prior to its publication

While E.O. 464 applies only to officials of the executive branch, it does not follow that the same is
exempt from the need for publication. On the need for publishing even those statutes that do not
directly apply to people in general, Tañada v. Tuvera states:

The term "laws" should refer to all laws and not only to those of general application, for strictly
speaking all laws relate to the people in general albeit there are some that do not apply to them
directly. An example is a law granting citizenship to a particular individual, like a relative of President
Marcos who was decreed instant naturalization. It surely cannot be said that such a law does not
affect the public although it unquestionably does not apply directly to all the people. The subject of
such law is a matter of public interest which any member of the body politic may question in the
political forums or, if he is a proper party, even in courts of justice. 108 (Emphasis and underscoring
supplied)

Although the above statement was made in reference to statutes, logic dictates that the challenged
order must be covered by the publication requirement. As explained above, E.O. 464 has a direct
effect on the right of the people to information on matters of public concern. It is, therefore, a matter
of public interest which members of the body politic may question before this Court. Due process
thus requires that the people should have been apprised of this issuance before it was implemented.

Conclusion

Congress undoubtedly has a right to information from the executive branch whenever it is sought in
aid of legislation. If the executive branch withholds such information on the ground that it is
privileged, it must so assert it and state the reason therefor and why it must be respected.

The infirm provisions of E.O. 464, however, allow the executive branch to evade congressional
requests for information without need of clearly asserting a right to do so and/or proffering its
reasons therefor. By the mere expedient of invoking said provisions, the power of Congress to
conduct inquiries in aid of legislation is frustrated. That is impermissible. For

[w]hat republican theory did accomplish…was to reverse the old presumption in favor of secrecy,
based on the divine right of kings and nobles, and replace it with a presumption in favor of publicity,
based on the doctrine of popular sovereignty. (Underscoring supplied)109

Resort to any means then by which officials of the executive branch could refuse to divulge
information cannot be presumed valid. Otherwise, we shall not have merely nullified the power of our
legislature to inquire into the operations of government, but we shall have given up something of
much greater value – our right as a people to take part in government.

WHEREFORE, the petitions are PARTLY GRANTED. Sections 2(b) and 3 of Executive Order No.
464 (series of 2005), "Ensuring Observance of the Principle of Separation of Powers, Adherence to
the Rule on Executive

Privilege and Respect for the Rights of Public Officials Appearing in Legislative Inquiries in Aid of
Legislation Under the Constitution, and For Other Purposes," are declared VOID. Sections 1 and
2(a) are, however, VALID.

SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice

WE CONCUR:
11.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 165993 September 30, 2008

MERIDA WATER DISTRICT; ITS BOARD OF DIRECTORS, NAMELY: SUSANO TOREJAS JR.,
LOURDES QUINTE, ROMULO PALES, CARMELITA DE LOS ANGELES, VILLAFRANCA ROSAL;
AND MWD GENERAL MANAGER NILO C. LUCERO, Petitioners,
vs.
FRANCISCO BACARRO, VICTORINO DOMANILLO, PATRICK BACOL, CARLITO BARRERA,
RUSTICA MENDOLA, JOSE DELIO HERMOSO, CHARITO TOLORIO, MA. VICTORIA MAINGqUE,
ELMER GO, and GERARDO BIOCO, Respondents.

DECISION

PUNO, C.J.:

This Petition for Review on Certiorari seeks to set aside the Decision1 and Resolution2 of the Court of
Appeals (CA), dated January 30, 2004 and September 16, 2004, respectively, in CA-G.R. SP No.77141,
which affirmed the Orders3 of the Regional Trial Court (RTC) in favor of respondents.

Petitioners are Merida Water District, a government-owned and controlled corporation4 that operates the
water utility services in the municipality of Merida, Leyte; its Chairman, Susano Torejas, Jr.; other
members of the Board of Directors, Lourdes Quinte, Romulo Pales, Carmelita De Los Angeles, and
Villafranca Rosal; and General Manager, Nilo C. Lucero. On October 10, 2001, Merida Water District
conducted a public hearing for the purpose of increasing the water rate.5

On March 7, 2002, Merida Water District received a letter from the Local Water Utilities Administration
(LWUA).6 The letter stated that on March 5, 2002, the LWUA Board of Trustees, per Board Resolution No.
63, series of 2002, confirmed Merida Water District’s proposed water rates.7 Attached to the letter was the
Rate Schedule of Approved Water Rates containing a progressive increase of water rates over a certain
period.8

On September 3, 2002, Merida Water District approved Resolution No. 006-02, implementing a water rate
increase of P90 for the first ten cubic meters of water consumption.9 Thereafter, petitioners issued notices
of disconnection to concessionaires who refused to pay the water rate increase and did not render service
to those who opted to pay the increased rate on installment basis.10

On February 13, 2003, respondents, consumers of Merida Water District, filed a Petition for Injunction,
etc.11 against petitioners before the RTC. Respondents sought to enjoin the petitioners from collecting
payment of P90 for the first ten cubic meters of water consumption. Respondents alleged that this
imposed rate was contrary to the rate increase agreed upon during the public hearing. Respondents
claimed that petitioners violated Letter of Instructions (LOI) No. 700 by: (1) implementing a water rate
increase exceeding 60% of the current rate; and (2) failing to conduct a public hearing for the imposed
rate of P90.12
On February 24, 2003, petitioners filed a Motion to Dismiss,13 alleging that respondents’ petition lacked a
cause of action as they failed to exhaust administrative remedies under Presidential Decree (P.D.) No.
198, the Provincial Water Utilities Act of 1973, as amended by P.D. Nos. 768 and 1479.

On February 26, 2003, one of the respondents questioned the legality of the water rate increase before
the National Water Resources Board (NWRB).14

In its Order15 dated March 3, 2003, the RTC denied petitioners’ motion to dismiss. The RTC held that
there was no need to exhaust administrative remedies due to the following circumstances, that by
imposing and collecting P90 for the first ten cubic meters of water consumption from its concessionaires,
petitioners: (1) failed to comply with the legal requisites of hearing and notice; and (2) violated LOI No.
700 for prescribing a water rate increase of almost 100% from the previous rate. On March 8, 2003,
petitioners filed a Motion for Reconsideration,16 which the RTC denied in its Order17 dated March 31,
2003.

On April 15, 2003, petitioners filed a Petition for Certiorari18 with the CA, assailing the RTC’s orders for
lack of jurisdiction. The CA affirmed the RTC’s orders, upholding its jurisdiction and the propriety of
respondents’ recourse to the trial court notwithstanding the rule on the exhaustion of administrative
remedies. On March 1, 2004, petitioners filed a Motion for Reconsideration,19 which the CA denied in a
Resolution.

Petitioners raise the same arguments before this Court, alleging the RTC’s lack of jurisdiction over
respondents’ petition and the impropriety of the respondents’ recourse to the RTC considering their failure
to exhaust administrative remedies. The Solicitor General supports the petitioners’ arguments.20

The following issues require resolution:

1. whether the RTC has jurisdiction over respondents’ petition; and

2. in the event of an affirmative answer of the first issue, whether respondents’ recourse to the
trial court is proper despite their failure to exhaust administrative remedies.

Petitioners argue that the NWRB has original and exclusive jurisdiction over the case brought by the
respondents before the RTC, and for this reason, the RTC has no jurisdiction over the same. Petitioners
cite P.D. No. 1067, the Water Code of the Philippines, to support this argument:

Art. 88. The [NWRB] shall have original jurisdiction over all disputes relating to appropriation, utilization,
exploitation, development, control, conservation and protection of waters within the meaning and context
of the provisions of this Code.21

At the outset, it must be clarified that P.D. No. 1067 vests the NWRB with original jurisdiction over
disputes relating to the utilization of waters within the context of the Water Code. However, it must be
noted that respondents’ allegations all point to the legality in Merida Water District’s implementation of the
water rate increase. P.D. No. 1479 provides for the administrative remedies regarding a review of water
rates, to determine whether a local water district had complied with the legal requirements in establishing
such rates:

SEC. 11. The last paragraph of Section 63 of the same decree is hereby amended to read as follows:

The rates or charges established by such local district, after hearing shall have been conducted for the
purpose, shall be subject to review by the Administration to establish compliance with the abovestated
provisions. Said review of rates or charges shall be executory and enforceable after the lapse of seven
calendar days from posting thereof in a public place in the locality of the water district, without prejudice to
an appeal being taken therefrom by a water concessionaire to the [NWRB] whose decision thereon shall
be appealable to the Office of the President. An appeal to the [NWRB] shall be perfected within thirty days
after the expiration of the seven-day period of posting. The [NWRB] shall decide on appeal within thirty
days from perfection.22

After review by the LWUA, a water concessionaire may appeal the same to the NWRB, and the NWRB’s
decision may then be appealed to the Office of the President.

Neither P.D. No. 1067, as cited by petitioners, nor P.D. No. 1479, which governs the procedure for the
review of water rates, expressly states that the NWRB has original and exclusive jurisdiction over a
dispute concerning the increase of water rates.23 Moreover, petitioners failed to cite any law which
impliedly grants the NWRB original and exclusive jurisdiction to resolve a dispute regarding the increase
of water rates. A grant of exclusive jurisdiction cannot be implied from the language of a statute in the
absence of a clear legislative intent to that effect.24 An administrative agency with quasi-judicial power is a
tribunal of limited jurisdiction, and "[i]ts jurisdiction should be interpreted in strictissimi juris."25

Petitioners’ reliance on Abe-Abe v. Manta[26] to support their allegation that the NWRB has original and
exclusive jurisdiction over a dispute concerning a local water district’s water rate increase is misplaced.
First, the abovementioned case involved a dispute over water rights for irrigation purposes,27 a dispute
clearly governed by P.D. No. 1067. The case at bar concerns a local water district’s increase of water
rates, and P.D. No. 1479 provides for the administrative procedure regarding a review of the said rates.
Second, the Court discussed the NWRB’s jurisdiction vis-à-vis the doctrine of the exhaustion of
administrative remedies.28 The doctrine of exhaustion does not apply when jurisdiction is exclusive. An
administrative agency’s exclusive jurisdiction over a certain dispute renders the courts without jurisdiction
to adjudicate the same at that stage.29 The doctrine of exhaustion applies "where a claim is cognizable in
the first instance by an administrative agency alone; judicial intervention is withheld until the
administrative process has run its course."30 To cite Abe-Abe v. Manta as the authority to support the
allegation that the NWRB has original and exclusive jurisdiction over a dispute regarding a water rate
increase is a strained construction of this Court’s pronouncements. Thus, petitioners’ contention that the
RTC has no jurisdiction because the NWRB has original and exclusive jurisdiction over a dispute
concerning the increase of water rates is clearly without merit.

Respondents failed to exhaust administrative remedies by stopping their pursuit of the administrative
process before the NWRB. Their failure to exhaust administrative remedies, however, does not affect the
jurisdiction of the RTC.31 Non-exhaustion of administrative remedies only renders the action premature,
that the "claimed cause of action is not ripe for judicial determination."32

It is incumbent upon the party who has an administrative remedy to pursue the same to its appropriate
conclusion before seeking judicial intervention. The Court has consistently reiterated the rationale behind
the doctrine of the exhaustion of administrative remedies:

One of the reasons for the doctrine of exhaustion is the separation of powers, which enjoins upon the
Judiciary a becoming policy of non-interference with matters coming primarily (albeit not exclusively)
within the competence of the other departments. The theory is that the administrative authorities are in a
better position to resolve questions addressed to their particular expertise and that errors committed by
subordinates in their resolution may be rectified by their superiors if given a chance to do so… It may be
added that strict enforcement of the rule could also relieve the courts of a considerable number of
avoidable cases which otherwise would burden their heavily loaded dockets.33

Although the doctrine of exhaustion does not preclude in all cases a party from seeking judicial relief,
cases where its observance has been disregarded require a strong showing of the inadequacy of the
prescribed procedure and of impending harm.
Respondents justify their failure to observe the administrative process on the following exceptions to the
doctrine of exhaustion of administrative remedies: (1) patent illegality; and (2) a denial of due process.
However, respondents fail to show that the instant case merits the application of these exceptions.

First, respondents claim that Merida Water District’s increase of the water rate is patently illegal for
violating LOI No. 700, which provides that the LWUA shall:

(f) Ensure that the water rates are not abruptly increased beyond the water users’ ability to pay, seeing to
it that each increase if warranted, does not exceed 60% of the current rate.34

The cases where this Court has upheld the non-observance of exhaustion of administrative remedies
because of patently illegal actions35 do not involve issues that require the consideration of the existence
and relevancy of specific surrounding circumstances and their relation to each other. In these cases, the
question of patent illegality arose from a set of undisputed facts. Here, certain facts need to be resolved
first, in order to arrive at a conclusion of patent illegality. The LWUA confirmed the Rate Schedule of
Approved Water Rates for Merida Water District, a schedule that outlines different rates due to the
progressive increase of water rates. Thus, the determination of the current rate from which to measure
the allowable increase prescribed by LOI No. 700 is a factual matter best left to the expertise of the
NWRB.

Second, respondents claim that Merida Water District violated due process by failing to conduct a hearing
for the purpose of establishing a water rate increase. Section 11 of P.D. No. 1479 provides that hearing is
a requirement in establishing water rates:

The rates or charges established by such local district, after hearing shall have been conducted
for the purpose, shall be subject to review by the Administration to establish compliance with the
abovestated provisions. (Emphasis supplied)36

Jurisprudence affirming the failure to observe the doctrine of exhaustion due to a denial of due process
involves instances when the party seeking outright judicial intervention was denied the opportunity to be
heard.37 Here, respondents admit that Merida Water District conducted a public hearing on October 10,
2001 regarding the increase of water rates. The existence of a hearing for this purpose renders the
allegation of a denial of due process without merit.

The failure of the respondents to show that the instant case falls within the exceptions to the doctrine of
exhaustion necessitates in the due observance of exhausting the proper administrative remedies before
seeking judicial intervention.

IN VIEW WHEREOF, the petition is GRANTED. The Decision and Resolution of the Court of Appeals in
CA-G.R. SP No.77141 dated January 30, 2004 and September 16, 2004, respectively, are REVERSED
and SET ASIDE.

SO ORDERED.

REYNATO S. PUNO
Chief Justice

WE CONCUR:
Overview: The case involves a petition for review on certiorari seeking to overturn the
decision and resolution of the Court of Appeals (CA), which affirmed the orders of the
Regional Trial Court (RTC) in favor of the respondents. The petitioners, including Merida
Water District and its officials, implemented a water rate increase that led to a legal
dispute with consumers (respondents). The respondents filed a petition for injunction
against the petitioners before the RTC, alleging violations of legal requirements and
seeking to halt the collection of increased water rates. The petitioners argued that the
RTC lacked jurisdiction over the case and that respondents failed to exhaust
administrative remedies.

Issues:

1. Whether the RTC has jurisdiction over respondents’ petition.

2. Whether respondents’ recourse to the trial court is proper despite their failure to
exhaust administrative remedies.

Ruling:

1. The Supreme Court clarified that while the National Water Resources Board
(NWRB) has jurisdiction over disputes related to water utilization, the case at
hand concerns the legality of the water rate increase, not water utilization. As
such, the RTC has jurisdiction over the matter.
2. Although respondents failed to exhaust administrative remedies by not pursuing
the administrative process before the NWRB, this failure does not affect the RTC's
jurisdiction. The doctrine of exhaustion renders the action premature but does
not strip the court of jurisdiction. Exceptions to the exhaustion doctrine (patent
illegality and denial of due process) were not applicable in this case. Thus,
respondents were required to exhaust administrative remedies before seeking
judicial intervention.

Therefore, the petition was granted, reversing the decision and resolution of the CA, and
the case was remanded for further proceedings consistent with the Supreme Court's
ruling.
12.

Republic of the Philippines

SUPREME COURT
Baguio City

THIRD DIVISION

G.R. No. 194024 April 25, 2012

PHILIP L. GO, PACIFICO Q. LIM and ANDREW Q. LIM Petitioners,

vs.
DISTINCTION PROPERTIES DEVELOPMENT AND CONSTRUCTION, INC. Respondent.

DECISION

MENDOZA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure assailing the March 17, 2010 Decision and October 7, 2010 Resolution of the Court of
1 2

Appeals (CA) in CA-G.R. SP No. 110013 entitled "Distinction Properties Development &
Construction, Inc. v. Housing Land Use Regulatory Board (NCR), Philip L. Go, Pacifico Q. Lim and
Andrew Q. Lim."

Factual and Procedural Antecedents:

Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim (petitioners) are registered individual owners of
condominium units in Phoenix Heights Condominium located at H. Javier/Canley Road, Bo. Bagong
Ilog, Pasig City, Metro Manila.

Respondent Distinction Properties Development and Construction, Inc. (DPDCI) is a corporation

existing under the laws of the Philippines with principal office at No. 1020 Soler Street, Binondo,
Manila. It was incorporated as a real estate developer, engaged in the development of condominium
projects, among which was the Phoenix Heights Condominium.

In February 1996, petitioner Pacifico Lim, one of the incorporators and the then president of DPDCI,
executed a Master Deed and Declaration of Restrictions (MDDR) of Phoenix Heights Condominium,
3

which was filed with the Registry of Deeds. As the developer, DPDCI undertook, among others, the
marketing aspect of the project, the sale of the units and the release of flyers and brochures.

Thereafter, Phoenix Heights Condominium Corporation (PHCC) was formally organized and
incorporated. Sometime in 2000, DPDCI turned over to PHCC the ownership and possession of the
condominium units, except for the two saleable commercial units/spaces:

1. G/F Level BAS covered by Condominium Certificate of Title (CCT) No. 21030 utilized as
the PHCC’s administration office, and

2. G/F Level 4-A covered by CCT No. PT-27396/C-136-II used as living quarters by the
building administrator.

Although used by PHCC, DPDCI was assessed association dues for these two units.
Meanwhile, in March 1999, petitioner Pacifico Lim, as president of DPDCI, filed an Application for
Alteration of Plan pertaining to the construction of 22 storage units in the spaces adjunct to the
4

parking area of the building. The application, however, was disapproved as the proposed alteration
would obstruct light and ventilation.

In August 2004, through its Board, PHCC approved a settlement offer from DPDCI for the set-off of
5

the latter’s association dues arrears with the assignment of title over CCT Nos. 21030 and PT-
27396/C-136-II and their conversion into common areas. Thus, CCT Nos. PT-43400 and PT-43399
were issued by the Registrar of Deeds of Pasig City in favor of PHCC in lieu of the old titles. The
said settlement between the two corporations likewise included the reversion of the 22 storage
spaces into common areas. With the conformity of PHCC, DPDCI’s application for alteration
(conversion of unconstructed 22 storage units and units GF4-A and BAS from saleable to common
areas) was granted by the Housing and Land Use Regulatory Board (HLURB). 6

In August 2008, petitioners, as condominium unit-owners, filed a complaint before the HLURB
7

against DPDCI for unsound business practices and violation of the MDDR. The case was docketed
as REM- 080508-13906. They alleged that DPDCI committed misrepresentation in their circulated
flyers and brochures as to the facilities or amenities that would be available in the condominium and
failed to perform its obligation to comply with the MDDR.

In defense, DPDCI denied that it had breached its promises and representations to the public
concerning the facilities in the condominium. It alleged that the brochure attached to the complaint
was "a mere preparatory draft" and not the official one actually distributed to the public, and that the
said brochure contained a disclaimer as to the binding effect of the supposed offers therein. Also,
DPDCI questioned the petitioners’ personality to sue as the action was a derivative suit.

After due hearing, the HLURB rendered its decision in favor of petitioners. It held as invalid the
8

agreement entered into between DPDCI and PHCC, as to the alteration or conversion of the subject
units into common areas, which it previously approved, for the reason that it was not approved by
the majority of the members of PHCC as required under Section 13 of the MDDR. It stated that
DPDCI’s defense, that the brochure was a mere draft, was against human experience and a
convenient excuse to avoid its obligation to provide the facility of the project. The HLURB further
stated that the case was not a derivative suit but one which involved contracts of sale of the
respective units between the complainants and DPDCI, hence, within its jurisdiction pursuant to
Section 1, Presidential Decree (P.D.) No. 957 (The Subdivision and Condominium Buyers’
Protective Decree), as amended. The decretal portion of the HLURB decision reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Ordering respondent to restore/provide proper gym facilities, to restore the hallway at the
mezzanine floor.

2. Declaring the conversion/alteration of 22 storage units and Units GF4-A and BAS as
illegal, and consequently, and ordering respondent to continue paying the condominium
dues for these units, with interest and surcharge.

3. Ordering the Respondent to pay the sum of Php998,190.70, plus interests and
surcharges, as condominium dues in arrears and turnover the administration office to PHCC
without any charges pursuant to the representation of the respondent in the brochures it
circulated to the public with a corresponding credit to complainants’ individual shares as
members of PHCC entitled to such refund or reimbursements.
 4. Ordering the Respondent to refund to the PHCC the amount of Php1,277,500.00,
representing the cost of the deep well, with interests and surcharges with a corresponding
credit to complainants’ individual shares as members of PHCC entitled to such refund or
reimbursements.

5. Ordering the Respondent to pay the complainants moral and exemplary damages in the
amount of ₱ 10,000.00 and attorney’s fees in the amount of ₱ 10,000.00.

All other claims and counterclaims are hereby dismissed accordingly.

IT IS SO ORDERED. 9

Aggrieved, DPDCI filed with the CA its Petition for Certiorari and Prohibition dated August 11, 2009,
10

on the ground that the HLURB decision was a patent nullity constituting an act without or beyond its
jurisdiction and that it had no other plain, speedy and adequate remedy in the course of law.

On March 17, 2010, the CA rendered the assailed decision which disposed of the case in favor of
DPDCI as follows:

WHEREFORE, in view of the foregoing, the petition is GRANTED. Accordingly, the

assailed Decision of the HLURB in Case No. REM-0800508-13906 is ANNULLED and SET ASIDE
and a new one is entered DISMISSING the Complaint a quo.

IT IS SO ORDERED. 11

The CA ruled that the HLURB had no jurisdiction over the complaint filed by petitioners as the
controversy did not fall within the scope of the administrative agency’s authority under P.D. No. 957.
The HLURB not only relied heavily on the brochures which, according to the CA, did not set out an
enforceable obligation on the part of DPDCI, but also erroneously cited Section 13 of the MDDR to
support its finding of contractual violation.

The CA held that jurisdiction over PHCC, an indispensable party, was neither acquired nor waived
by estoppel. Citing Carandang v. Heirs of De Guzman, it held that, in any event, the action should
12

be dismissed because the absence of PHCC, an indispensable party, rendered all subsequent
actuations of the court void, for want of authority to act, not only as to the absent parties but even as
to those present.

Finally, the CA held that the rule on exhaustion of administrative remedies could be relaxed. Appeal
was not a speedy and adequate remedy as jurisdictional questions were continuously raised but
ignored by the HLURB. In the present case, however, "[t]he bottom line is that the challenged
decision is one that had been rendered in excess of jurisdiction, if not with grave abuse of discretion
amounting to lack or excess of jurisdiction."13

Petitioners filed a motion for reconsideration of the said decision. The motion, however, was denied
14

by the CA in its Resolution dated October 7, 2010.

Hence, petitioners interpose the present petition before this Court anchored on the following

GROUNDS

(1)
 THE COURT OF APPEALS ERRED IN HOLDING THAT THE HLURB HAS NO
JURISDICTION OVER THE INSTANT CASE;

(2)

THE COURT OF APPEALS ALSO ERRED IN FINDING THAT PHCC IS AN

INDISPENSABLE PARTY WHICH WARRANTED THE DISMISSAL OF THE CASE BY
REASON OF IT NOT HAVING BEEN IMPLEADED IN THE CASE;

(3)

THE COURT OF APPEALS HAS LIKEWISE ERRED IN RELAXING THE RULE ON NON-
EXHAUSTION OF ADMINISTRATIVE REMEDIES BY DECLARING THAT THE APPEAL
MAY NOT BE A SPEEDY AND ADEQUATE REMEDY WHEN JURISDICTIONAL
QUESTIONS WERE CONTINUOUSLY RAISED BUT IGNORED BY THE HLURB; and

(4)

THAT FINALLY, THE COURT A QUO ALSO ERRED IN NOT GIVING DUE RESPECT OR
EVEN FINALITY TO THE FINDINGS OF THE HLURB. 15

Petitioners contend that the HLURB has jurisdiction over the subject matter of this case. Their
complaint with the HLURB clearly alleged and demanded specific performance upon DPDCI of the
latter’s contractual obligation under their individual contracts to provide a back-up water system as
part of the amenities provided for in the brochure, together with an administration office, proper gym
facilities, restoration of a hallway, among others. They point out that the violation by DPDCI of its
obligations enumerated in the said complaint squarely put their case within the ambit of Section 1,
P.D. No. 957, as amended, enumerating the cases that are within the exclusive jurisdiction of the
HLURB. Likewise, petitioners argue that the case was not a derivative suit as they were not suing for
and in behalf of PHCC. They were suing, in their individual capacities as condominium unit buyers,
their developer for breach of contract. In support of their view that PHCC was not an indispensable
party, petitioners even quoted the dispositive portion of the HLURB decision to show that complete
relief between or among the existing parties may be obtained without the presence of PHCC as a
party to this case. Petitioners further argue that DPDCI’s petition before the CA should have been
dismissed outright for failure to comply with Section 1, Rule XVI of the 2004 Rules of Procedure of
the HLURB providing for an appeal to the Board of Commissioners by a party aggrieved by a
decision of a regional officer.

DPDCI, in its Comment, strongly objects to the arguments of petitioners and insists that the CA did
16

not err in granting its petition. It posits that the HLURB has no jurisdiction over the complaint filed by
petitioners because the controversies raised therein are in the nature of "intra-corporate disputes."
Thus, the case does not fall within the jurisdiction of the HLURB under Section 1, P.D. No. 957 and
P.D. No. 1344. According to DPDCI, petitioners sought to address the invalidation of the corporate
acts duly entered and executed by PHCC as a corporation of which petitioners are admittedly
members of, and not the acts pertaining to their ownership of the units. Such being the case, PHCC
should have been impleaded as a party to the complaint. Its non-inclusion as an indispensable party
warrants the dismissal of the case. DPDCI further avers that the doctrine of exhaustion is
inapplicable inasmuch as the issues raised in the petition with the CA are purely legal; that the
challenged administrative act is patently illegal; and that the procedure of the HLURB does not
provide a plain, speedy and adequate remedy and its application may cause great and irreparable
damage. Finally, it claims that the decision of the HLURB Arbiter has not attained finality, the same
having been issued without jurisdiction.
Essentially, the issues to be resolved are: (1) whether the HLURB has jurisdiction over the complaint
filed by the petitioners; (2) whether PHCC is an indispensable party; and (3) whether the rule on
exhaustion of administrative remedies applies in this case.

The petition fails.

Basic as a hornbook principle is that jurisdiction over the subject matter of a case is conferred by law
and determined by the allegations in the complaint which comprise a concise statement of the
ultimate facts constituting the plaintiff's cause of action. The nature of an action, as well as which
court or body has jurisdiction over it, is determined based on the allegations contained in the
complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to recover upon all or
some of the claims asserted therein. The averments in the complaint and the character of the relief
sought are the ones to be consulted. Once vested by the allegations in the complaint, jurisdiction
also remains vested irrespective of whether or not the plaintiff is entitled to recover upon all or some
of the claims asserted therein. Thus, it was ruled that the jurisdiction of the HLURB to hear and
17

decide cases is determined by the nature of the cause of action, the subject matter or property
involved and the parties. 18

Generally, the extent to which an administrative agency may exercise its powers depends largely, if
not wholly, on the provisions of the statute creating or empowering such agency. With respect to the
19

HLURB, to determine if said agency has jurisdiction over petitioners’ cause of action, an examination
of the laws defining the HLURB’s jurisdiction and authority becomes imperative. P.D. No.
957, specifically Section 3, granted the National Housing Authority (NHA) the "exclusive jurisdiction
20

to regulate the real estate trade and business." Then came P.D. No. 1344 expanding the jurisdiction
21

of the NHA (now HLURB), as follows:

SECTION 1. In the exercise of its functions to regulate the real estate trade and business and in
addition to its powers provided for in Presidential Decree No. 957, the National Housing Authority
shall have exclusive jurisdiction to hear and decide cases of the following nature:

(a) Unsound real estate business practices;

(b) Claims involving refund and any other claims filed by subdivision lot or condominium unit
buyer against the project owner, developer, dealer, broker or salesman; and

(c) Cases involving specific performance of contractual and statutory obligations filed by
buyers of subdivision lot or condominium unit against the owner, developer, dealer, broker or
salesman.

This provision must be read in light of the law’s preamble, which explains the reasons for enactment
of the law or the contextual basis for its interpretation. A statute derives its vitality from the purpose
22

for which it is enacted, and to construe it in a manner that disregards or defeats such purpose is to
nullify or destroy the law. P.D. No. 957, as amended, aims to protect innocent subdivision lot and
23

condominium unit buyers against fraudulent real estate practices. 24

The HLURB is given a wide latitude in characterizing or categorizing acts which may constitute
unsound business practice or breach of contractual obligations in the real estate trade. This grant of
expansive jurisdiction to the HLURB does not mean, however, that all cases involving subdivision
lots or condominium units automatically fall under its jurisdiction. The CA aptly quoted the case
of Christian General Assembly, Inc. v. Ignacio, wherein the Court held that:
25
The mere relationship between the parties, i.e., that of being subdivision owner/developer and
subdivision lot buyer, does not automatically vest jurisdiction in the HLURB. For an action to fall
within the exclusive jurisdiction of the HLURB, the decisive element is the nature of the action as
enumerated in Section 1 of P.D. 1344. On this matter, we have consistently held that the concerned
administrative agency, the National Housing Authority (NHA) before and now the HLURB, has
jurisdiction over complaints aimed at compelling the subdivision developer to comply with its
contractual and statutory obligations. [Emphases supplied]
26

In this case, the complaint filed by petitioners alleged causes of action that apparently are not
cognizable by the HLURB considering the nature of the action and the reliefs sought. A perusal of
the complaint discloses that petitioners are actually seeking to nullify and invalidate the duly
constituted acts of PHCC - the April 29, 2005 Agreement entered into by PHCC with DPDCI and its
27

Board Resolution which authorized the acceptance of the proposed offsetting/settlement of DPDCI’s
28

indebtedness and approval of the conversion of certain units from saleable to common areas. All
these were approved by the HLURB. Specifically, the reliefs sought or prayers are the following:

1. Ordering the respondent to restore the gym to its original location;

2. Ordering the respondent to restore the hallway at the second floor;

3. Declaring the conversion/alteration of 22 storage units and Units GF4-A and BAS as
illegal, and consequently, ordering respondent to continue paying the condominium dues for
these units, with interest and surcharge;

4. Ordering the respondent to pay the sum of PHP998,190.70, plus interest and surcharges,
as condominium dues in arrears and turnover the administration office to PHCC without any
charges pursuant to the representation of the respondent in the brochures it circulated to the
public;

5. Ordering the respondent to refund to the PHCC the amount of PHP1,277,500.00,

representing the cost of the deep well, with interests and surcharges;

6. Ordering the respondent to pay the complainants moral/exemplary damages in the

amount of PHP100,000.00; and

7. Ordering the respondent to pay the complainant attorney’s fees in the amount of
PHP100,000.00, and PHP3,000.00 for every hearing scheduled by the Honorable Office. 29

As it is clear that the acts being assailed are those of PHHC, this case cannot prosper for failure to
implead the proper party, PHCC.

An indispensable party is defined as one who has such an interest in the controversy or subject
matter that a final adjudication cannot be made, in his absence, without injuring or affecting that
interest. In the recent case of Nagkakaisang Lakas ng Manggagawa sa Keihin (NLMK-OLALIA-
30

KMU) v. Keihin Philippines Corporation, the Court had the occasion to state that:
31

Under Section 7, Rule 3 of the Rules of Court, "parties in interest without whom no final
determination can be had of an action shall be joined as plaintiffs or defendants." If there is a failure
to implead an indispensable party, any judgment rendered would have no effectiveness. It is
"precisely ‘when an indispensable party is not before the court (that) an action should be dismissed.’
The absence of an indispensable party renders all subsequent actions of the court null and void for
want of authority to act, not only as to the absent parties but even to those present." The purpose of
the rules on joinder of indispensable parties is a complete determination of all issues not only
between the parties themselves, but also as regards other persons who may be affected by the
judgment. A decision valid on its face cannot attain real finality where there is want of indispensable
parties. (Underscoring supplied)
32

Similarly, in the case of Plasabas v. Court of Appeals, the Court held that a final decree would
33

necessarily affect the rights of indispensable parties so that the Court could not proceed without their
presence. In support thereof, the Court in Plasabas cited the following authorities, thus:

"The general rule with reference to the making of parties in a civil action requires the joinder of all
indispensable parties under any and all conditions, their presence being a sine qua non of the
exercise of judicial power. (Borlasa v. Polistico, 47 Phil. 345, 348) For this reason, our Supreme
Court has held that when it appears of record that there are other persons interested in the subject
matter of the litigation, who are not made parties to the action, it is the duty of the court to suspend
the trial until such parties are made either plaintiffs or defendants. (Pobre, et al. v. Blanco, 17 Phil.
156). x x x Where the petition failed to join as party defendant the person interested in sustaining the
proceeding in the court, the same should be dismissed. x x x When an indispensable party is not
before the court, the action should be dismissed. (People, et al. v. Rodriguez, et al., G.R. Nos. L-
14059-62, September 30, 1959) (sic)

"Parties in interest without whom no final determination can be had of an action shall be joined either
as plaintiffs or defendants. (Sec. 7, Rule 3, Rules of Court). The burden of procuring the presence of
all indispensable parties is on the plaintiff. (39 Amjur [sic] 885). The evident purpose of the rule is to
prevent the multiplicity of suits by requiring the person arresting a right against the defendant to
include with him, either as co-plaintiffs or as co-defendants, all persons standing in the same
position, so that the whole matter in dispute may be determined once and for all in one litigation.
(Palarca v. Baginsi, 38 Phil. 177, 178).

From all indications, PHCC is an indispensable party and should have been impleaded, either as a
plaintiff or as a defendant, in the complaint filed before the HLURB as it would be directly and
34

adversely affected by any determination therein. To belabor the point, the causes of action, or the
acts complained of, were the acts of PHCC as a corporate body. Note that in the judgment rendered
by the HLURB, the dispositive portion in particular, DPDCI was ordered (1) to pay ₱ 998,190.70,
plus interests and surcharges, as condominium dues in arrears and turnover the administration
office to PHCC; and (2) to refund to PHCC ₱ 1,277,500.00, representing the cost of the deep well,
with interests and surcharges. Also, the HLURB declared as illegal the agreement regarding the
conversion of the 22 storage units and Units GF4-A and BAS, to which agreement PHCC was a
party.

Evidently, the cause of action rightfully pertains to PHCC. Petitioners cannot exercise the same
except through a derivative suit. In the complaint, however, there was no allegation that the action
was a derivative suit. In fact, in the petition, petitioners claim that their complaint is not a derivative
suit. In the cited case of Chua v. Court of Appeals, the Court ruled:
35 36

For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of
the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf
of the corporation and all other stockholders similarly situated who may wish to join him in the suit. It
is a condition sine qua non that the corporation be impleaded as a party because not only is the
corporation an indispensable party, but it is also the present rule that it must be served with process.
The judgment must be made binding upon the corporation in order that the corporation may get the
benefit of the suit and may not bring subsequent suit against the same defendants for the same
cause of action. In other words, the corporation must be joined as party because it is its cause of
action that is being litigated and because judgment must be a res adjudicata against it.
(Underscoring supplied)

Without PHCC as a party, there can be no final adjudication of the HLURB’s judgment. The CA was,
thus, correct in ordering the dismissal of the case for failure to implead an indispensable party.

To justify its finding of contractual violation, the HLURB cited a provision in the MDDR, to wit:

Section 13. Amendment. After the corporation shall have been created, organized and operating,
this MDDR may be amended, in whole or in part, by the affirmative vote of Unit owners constituting
at least fifty one (51%) percent of the Unit shares in the Project at a meeting duly called pursuant to
the Corporation By Laws and subject to the provisions of the Condominium Act.

This citation, however, is misplaced as the above-quoted provision pertains to the amendment of the
MDDR. It should be stressed that petitioners are not asking for any change or modification in the
terms of the MDDR. What they are really praying for is a declaration that the agreement regarding
the alteration/conversion is illegal. Thus, the Court sustains the CA’s finding that:

There was nothing in the records to suggest that DPDCI sought the amendment of a part or the
whole of such MDDR. The cited section is somewhat consistent only with the principle that an
amendment of a corporation’s Articles of Incorporation must be assented to by the stockholders
holding more than 50% of the shares. The MDDR does not contemplate, by such provision, that all
corporate acts ought to be with the concurrence of a majority of the unit owners. 37

Moreover, considering that petitioners, who are members of PHCC, are ultimately challenging the
agreement entered into by PHCC with DPDCI, they are assailing, in effect, PHCC’s acts as a body
corporate. This action, therefore, partakes the nature of an "intra-corporate controversy," the
jurisdiction over which used to belong to the Securities and Exchange Commission (SEC), but
transferred to the courts of general jurisdiction or the appropriate Regional Trial
Court (RTC), pursuant to Section 5b of P.D. No. 902-A, as amended by Section 5.2 of Republic
38

Act (R.A.) No. 8799. 39

An intra-corporate controversy is one which "pertains to any of the following relationships: (1)
between the corporation, partnership or association and the public; (2) between the corporation,
partnership or association and the State in so far as its franchise, permit or license to operate is
concerned; (3) between the corporation, partnership or association and its stockholders, partners,
members or officers; and (4) among the stockholders, partners or associates themselves." 40

Based on the foregoing definition, there is no doubt that the controversy in this case is essentially
intra-corporate in character, for being between a condominium corporation and its members-unit
owners. In the recent case of Chateau De Baie Condominium Corporation v. Sps. Moreno, an action
41

involving the legality of assessment dues against the condominium owner/developer, the Court held
that, the matter being an intra-corporate dispute, the RTC had jurisdiction to hear the same pursuant
to R.A. No. 8799.

As to the alleged failure to comply with the rule on exhaustion of administrative remedies, the Court
again agrees with the position of the CA that the circumstances prevailing in this case warranted a
relaxation of the rule.
The doctrine of exhaustion of administrative remedies is a cornerstone of our judicial system. The 1âwphi1

thrust of the rule is that courts must allow administrative agencies to carry out their functions and
discharge their responsibilities within the specialized areas of their respective competence. It has
42

been held, however, that the doctrine of exhaustion of administrative remedies and the doctrine of
primary jurisdiction are not ironclad rules. In the case of Republic of the Philippines v. Lacap, the 43

Court enumerated the numerous exceptions to these rules, namely: (a) where there is estoppel on
the part of the party invoking the doctrine; (b) where the challenged administrative act is patently
illegal, amounting to lack of jurisdiction; (c) where there is unreasonable delay or official inaction that
will irretrievably prejudice the complainant; (d) where the amount involved is relatively so small as to
make the rule impractical and oppressive; (e) where the question involved is purely legal and will
ultimately have to be decided by the courts of justice; (f) where judicial intervention is urgent; (g)
where the application of the doctrine may cause great and irreparable damage; (h) where the
controverted acts violate due process; (i) where the issue of non-exhaustion of administrative
remedies has been rendered moot; (j) where there is no other plain, speedy and adequate remedy;
(k) where strong public interest is involved; and (l) in quo warranto proceedings. [Underscoring
44

supplied]

The situations (b) and (e) in the foregoing enumeration obtain in this case.

The challenged decision of the HLURB is patently illegal having been rendered in excess of
jurisdiction, if not with grave abuse of discretion amounting to lack or excess of jurisdiction. Also, the
issue on jurisdiction is purely legal which will have to be decided ultimately by a regular court of law.
As the Court wrote in Vigilar v. Aquino: 45

It does not involve an examination of the probative value of the evidence presented by the parties.
There is a question of law when the doubt or difference arises as to what the law is on a certain state
of facts, and not as to the truth or the falsehood of alleged facts. Said question at best could be
resolved only tentatively by the administrative authorities. The final decision on the matter rests not
with them but with the courts of justice. Exhaustion of administrative remedies does not apply,
because nothing of an administrative nature is to be or can be done. The issue does not require
technical knowledge and experience but one that would involve the interpretation and application of
law.

Finally, petitioners faulted the CA in not giving respect and even finality to the findings of fact of the
HLURB. Their reliance on the case of Dangan v. NLRC, reiterating the well-settled principles
46

involving decisions of administrative agencies, deserves scant consideration as the decision of the
HLURB in this case is manifestly not supported by law and jurisprudence.

Petitioners, therefore, cannot validly invoke DPDCI’s failure to fulfill its obligation on the basis of a
plain draft leaflet which petitioners were able to obtain, specifically Pacifico Lim, having been a
president of DPDCI. To accord petitioners the right to demand compliance with the commitment
under the said brochure is to allow them to profit by their own act. This, the Court cannot tolerate.

In sum, inasmuch as the HLURB has no jurisdiction over petitioners’ complaint, the Court sustains
the subject decision of the CA that the HLURB decision is null and void ab initio. This disposition,
however, is without prejudice to any action that the parties may rightfully file in the proper forum.

WHEREFORE, the petition is DENIED.

SO ORDERED.
JOSE CATRAL MENDOZA
Associate Justice

WE CONCUR:

The case involves a petition for review on certiorari under Rule 45 of the 1997
Rules of Civil Procedure filed with the Supreme Court. The petition challenges
the Decision and Resolution of the Court of Appeals (CA) in CA-G.R. SP No.
110013, which annulled and set aside the decision of the Housing and Land
Use Regulatory Board (HLURB) in Case No. REM-0800508-13906. The dispute
arose between individual condominium unit owners (petitioners) and
Distinction Properties Development and Construction, Inc. (DPDCI), a real
estate developer, regarding alleged breaches of contract and
misrepresentations related to a condominium project.

Issue:

1. Whether the HLURB had jurisdiction over the complaint filed by the
petitioners.
2. Whether Phoenix Heights Condominium Corporation (PHCC) is an
indispensable party.
3. Whether the rule on exhaustion of administrative remedies applies in
this case.

Ruling: The Supreme Court denied the petition, affirming the CA's decision.
The court held that:

1. The HLURB did not have jurisdiction over the complaint as it pertained
to acts of PHCC, rendering the controversy intra-corporate in nature.
The jurisdiction over intra-corporate disputes was transferred to the
courts of general jurisdiction.
2. PHCC was deemed an indispensable party, and failure to implead it
warranted dismissal of the case.
3. The rule on exhaustion of administrative remedies could be relaxed, as
the HLURB's decision was patently illegal, involving issues of jurisdiction
and purely legal questions. The court emphasized exceptions to the rule,
 including when the challenged administrative act is illegal or when the
issue is purely legal.

The S

upreme Court upheld the CA's ruling, concluding that the HLURB decision was
null and void due to lack of jurisdiction. The decision did not preclude the
parties from pursuing appropriate action in the proper forum.
13.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 194560 June 11, 2014

NESTOR T. GADRINAB, Petitioner,

vs.
NORAT. SALAMANCA, ANTONIO TALAO AND ELENA LOPEZ, Respondents.

DECISION

LEONEN, J.:

A judgment on compromise agreement is a judgment on the merits. It has the effect of res judicata,
and is immediately final and executory unless set aside because of falsity or vices of consent. The
doctrine of immutability of judgments bars courts from modifying decisions that have already attained
finality, even if the purpose of the modification is to correct errors of fact or law.

This Rule 45 petlt10n seeks the review of the Court of Appeals' Decision dated July 22, 2010 and its
1

resolution dated November 19, 2010.

2

The Court of Appeals dismissed petitioner’s appeal and affirmed the Regional Trial Court’s decision
granting respondent Salamanca’s motion for physical partition pending the execution of a judgment
on compromise agreement between the parties.

Respondents, together with Adoracion Gadrinab and Arsenia Talao, are siblings and heirs of the late
Spouses Talao, Nicolas and Aurelia. The Spouses Talao died intestate, leaving a parcel of land in
3

Sta. Ana, Manila. 4

The five Talao children divided the property among themselves through an extrajudicial
settlement. Subsequently, Arsenia Talao waived her share over the property in favor of her siblings.
5 6

Respondent Salamanca filed a complaint for partition against her siblings, Antonio, Elena
(deceased, now represented by her husband, Jose Lopez), and Adoracion (deceased, now
represented by heirs, petitioner Nestor and Francisco Gadrinab) before the Regional Trial Court of
Manila.7

All parties claimed their respective shares in the property. They also claimed shares in the rentals
8

collected from one of the units of a duplex apartment on the property. The total amount of rental
9

collection in the possession of Jose Lopez was 528,623.00. The amount, according to Jose’s
10

counsel, was ready for distribution.

11

Upon being referred to mediation, the parties entered into a compromise agreement and stipulated
the following:
 1) That the subject property (land with all the improvements) situated at 2370 Nacar Street,
San Andres, Sta. Ana, Manila will be subject for sale and the amount will be divided among
the four (plaintiff and defendants);

2) That the subject property will be appraised by independent appraiser and the appraised
value will be divided into four. Mr. Antonio Talao will pay in advance the share of Francisco
Gadrinab immediately after the report of the said appraisal;

3) That Cuervo Appraiser will be the one who appraised [sic] the property on or before March
21, 2003 and any appraised value shall binding [sic] on all parties;

4) That the rental collection in its total amount of Five Hundred Twenty Eight Thousand and
Six Hundred Twenty Three Pesos (528,623.00) and the uncollected amount up to February
2003 once collected will be divided among the parties;

5) That the amount of 528,623.00 divided by four be distributed among the parties will be
given to all parties on or before March 12, 2003 by Mr. Antonio Talao;

6) That upon payment of the appraised value to Francisco Gadrinab, Mr. Nestor Gadrinab is
given forty-five (45) days within which to leave the premises in question;

7) That the parties agreed to waive all their claims and counter-claims arising from this case;
and

8) That the parties agreed to request this Honorable Court that a decision be issued base
[sic] on this Compromise Agreement or this Compromise Agreement be submitted before
this Honorable Court for approval. 12

On April 10, 2003, the Regional Trial Court approved the compromise agreement. Based on the
13

entry of judgment, the case became final and executory on April 10, 2003. 14

Nestor Gadrinab filed a motion for execution of the compromise agreement. He demanded his one-
15

fourth share in the accumulated rentals. During the hearing on the motion for execution, the parties
16

agreed that the rentals shall be divided only into three since Nestor had already been occupying one
of the duplex units. The parties also agreed that Antonio Talao would shoulder Nestor’s share,
17

equivalent to one-fourth of the rental amount. 18

Pursuant to the compromise agreement, Cuervo Appraiser appraised the property. Unsatisfied with
19

the appraisal, Antonio Talao moved for the property’s reappraisal. This was denied by the Regional
20

Trial Court. 21

The portion of the duplex that Nestor refused to vacate, remained unsold.
22 23

Because of the attitude of her co-heirs, respondent Salamanca moved for the physical partition of
the property before the Regional Trial Court of Manila. She prayed for the physical partition of the
24

property instead of having it sold.

25

Nestor and Francisco Gadrinab opposed the motion. They contended that the judgment on the
26

compromise agreement had already become final and executory and had the effect of res
judicata. Antonio Talao and Jose Lopez did not object to the motion for physical partition.
27 28
On December 29, 2005, the Regional Trial Court of Manila granted the motion for physical partition. 29

Nestor and Francisco Gadrinab appealed to the Court of Appeals. They assailed the grant of
Salamanca’s motion for physical partition after the issuance of the judgment on compromise
agreement. 30

In a decision promulgated on July 22, 2010, the Court of Appeals dismissed the appeal. The Court
31

of Appeals ruled that the exception to the immutability of judgments, that is, "whenever
circumstances transpire after the finality of the decision rendering its execution unjust and
inequitable," applies in this case. The Court of Appeals specifically noted that the "parties’
32

seemingly endless disagreements on matters involving the disposition of the subject property" were 33

such circumstances that rendered the compromise agreement’s execution unjust and inequitable.
The Court of Appeals agreed with the Regional Trial Court’s ruling that "the proposed physical
partition of the subject lot . . . is just another way of enforcing the [c]ourt’s decision and will not in
anyway vary the parties’ agreement nor affect their right over the property." 34

On November 19, 2010, the Court of Appeals denied petitioner’s motion for reconsideration. 35

Hence, this petition was filed.

Petitioner argued that the Court of Appeals erred in affirming the Regional Trial Court’s order
granting respondent Salamanca’s motion for physical partition. A judgment on the compromise
36

agreement had already been rendered and had attained finality. Petitioner also argued that the
37

Court of Appeals failed to consider the following terms of the compromise agreement:

2. That the subject property will be appraised by independent appraiser and the appraised
value will be divided into four (4). Mr. Antonio Talao will pay in advance the share of
Francisco Gadrinab immediately after the report of the said appraisal;

....

4. That the rental collection in its total amount of FIVE HUNDRED TWENTY EIGHT
THOUSAND SIX HUNDRED TWENTY THREE PESOS (Php528,623.00) and the
uncollected amount up to February 2003 once collected [sic] will be divided among the
parties;

5. That the amount of FIVEHUNDRED TWENTY EIGHT THOUSAND SIX HUNDRED

TWENTY THREE PESOS Php528,623.00 divided by four (4) among the parties will be given
to all parties on or [sic] March 12, 2003 by Mr. Antonio Talao at Greenbelt, Mc Donald at
9:00 o’clock in the morning;

6. That upon payment of the appraised value to Mr. Francisco Gadrinab, Mr. Nestor
Gadrinab is given forty five (45) days within which to leave the premises in
question[.] (Emphasis in the original)
38

Petitioner alleged that the judgment on the compromise agreement had already been partially
complied with, as respondent Salamanca had already been paid her share in the accrued
rentals. On the other hand, petitioner still had not been paid his share, prompting him to file the
39 40

motion for execution. 41

Petitioner pointed out that there was no agreement that he must vacate the property before it could
be sold. 42

Moreover, petitioner argued that the Court of Appeals’ decision violated his right to due
process. According to him, had there been a full-blown trial on the action for partition, he would
43

have been able to present evidence of exclusive possession of half of the property. 44

In their separate comments, respondents Salamanca and Talao argued that this case fell under the
exception of the rule on immutability of judgments. The non-compliance of some of the parties with
45

the compromise agreement constituted an event that "[makes] it difficult if not totally impossible to
enforce the compromise agreement." 46

Respondents Salamanca and Talao also argued that the physical partition of the property would not
prejudice the parties. The order granting the motion for physical partition was a mere enforcement
47

of the compromise agreement, which entitled the parties to their shares in the proceeds of the
sale. Respondent Salamanca pointed out that the grant of the motion for physical partition would
48

still be consistent with the intent of the compromise agreement since it would result in the proceeds
being divided equally among the parties. "The Order granting the physical partition was within the
49

inherent power and authority of the court having jurisdiction to render a particular judgment to
enforce it and to exercise equitable control over such enforcement." 50

Moreover, petitioner’s refusal to vacate the property prevented it from being sold so that the
proceeds could already be distributed among the parties. 51

On the violation of due process, respondents Salamanca and Talao argued that it was only before
this court that this issue was raised.

The issue in this case is whether the Court of Appeals erred in affirming the Regional Trial Court’s
decision allowing the physical partition of the property despite finality of a previous judgment on
compromise agreement involving the division of the same property.

The petition is meritorious.

The Court of Appeals erred in

affirming the Regional Trial
Court’s decision allowing the
physical partition of the property

Respondent Salamanca filed two actions for physical partition. The two parties settled the first action
through a judicial compromise agreement. The same respondent filed the second action after she
had determined that her co-heirs were not being cooperative in complying with the compromise
agreement.

In a compromise agreement, the parties freely enter into stipulations. "[A] judgment based on a
compromise agreement is a judgment on the merits" of the case. It has the effect of res judicata.
52

These principles are impressed both in our law and jurisprudence.

Thus, Article 2037 of the Civil Code provides:

Article 2037. A compromise has upon the parties the effect and authority of res judicata; but there
shall be no execution except in compliance with a judicial compromise.
In Spouses Romero v. Tan, this court said:
53

It is well settled that a judicial compromise has the effect of res judicata and is immediately
executory and not appealable unless set aside [by mistake, fraud, violence, intimidation, undue
influence, or falsity of documents that vitiated the compromise agreement]. 54

There is res judicata when the following concur:

1. Previous final judgment;

2. By a court having jurisdiction over the parties and the subject matter;

3. On the merits of the case;

4. Between identical parties, on the same subject matter, and cause of action 55

There are two rules that embody the principle of res judicata. The first rule refers to "bar by prior
judgment," which means that actions on the same claim or cause of action cannot be
56

relitigated. This rule is embodied in Rule 39, Section 47, paragraph (b) of the Rules of Court, which
57

provides:

Section 47. Effect of judgments or final orders. — The effect of a judgment or final order rendered by
a court of the Philippines, having jurisdiction to pronounce the judgment or final order, may be as
follows:

(b) In other cases, the judgment or final order is, with respect to the matter directly adjudged or as to
any other matter that could have been raised in relation thereto, conclusive between the parties and
their successors in interest by title subsequent to the commencement of the action or special
proceeding, litigating for the same thing and under the same title and in the same capacity[.]

The second rule refers to "conclusiveness of judgment." This means that facts already tried and
58

determined in another action involving a different claim or cause of action cannot anymore be
relitigated. This rule is embodied in Rule 39, Section 47, paragraph (c) of the Rules of Court, which
59

provides:

Section 47. Effect of judgments or final orders. — The effect of a judgment or final order rendered by
a court of the Philippines, having jurisdiction to pronounce the judgment or final order, may be as
follows:

....

(c) In any other litigation between the same parties or their successors in interest, that only is
deemed to have been adjudged in a former judgment or final order which appears upon its face to
have been so adjudged, or which was actually and necessarily included therein or necessary
thereto. (49a)

This case involves "bar by prior judgment." Respondents cannot file another action for partition after
final judgment on compromise had already been rendered in a previous action for partition involving
the same parties and property.
This court explained in FGU Insurance Corporation v. Regional Trial Court the doctrine of finality of
60

judgment:

Under the doctrine of finality of judgment or immutability of judgment, a decision that has acquired
finality becomes immutable and unalterable, and may no longer be modified in any respect, even if
the modification is meant to correct erroneous conclusions of fact and law, and whether it be made
by the court that rendered it or by the Highest Court of the land. Any act which violates this principle
must immediately be struck down. 61

This doctrine admits a few exceptions, usually applied to serve substantial justice:

1. "The correction of clerical errors;

2. the so-called nunc pro tunc entries which cause no prejudice to any party;

3. void judgments; and

4. whenever circumstances transpire after the finality of the decision rendering its execution
unjust and inequitable." 62

Doctrines on bar by prior judgment and immutability of judgment apply whether judgment is rendered
after a full-blown trial or after the parties voluntarily execute a compromise agreement duly approved
by the court.

Because a judicial compromise agreement is in the nature of both an agreement between the parties
and a judgment on the merits, it is covered by the Civil Code provisions on contracts. It can be
avoided on grounds that may avoid an ordinary contract, e.g., it is not in accord with the law; lack of
63

consent by a party; and existence of fraud or duress. Further, the pertinent Civil Code provisions on
compromise agreements provide:

Article 2038. A compromise in which there is mistake, fraud, violence, intimidation, undue influence,
or falsity of documents is subject to the provisions of Article 1330 of this Code.

Article 1330. A contract where consent is given through mistake, violence, intimidation, undue
influence, or fraud is voidable.

Therefore, courts cannot entertain actions involving the same cause of action, parties, and subject
matter without violating the doctrines on bar by prior judgment and immutability of judgments, unless
there is evidence that the agreement was void, obtained through fraud, mistake or any vice of
consent, or would disrupt substantial justice.

In this case, there was no issue as to the fact that the parties freely entered into the compromise
agreement. There was also no dispute about the clarity of its terms. Some of the parties simply do
not wish to abide by the compromise agreement’s terms.

This court does not see how substantial justice will be served by disturbing a previous final judgment
on compromise when failure of its execution was caused by the parties themselves.

Likewise, respondents’ argument that a supervening event, i.e. disagreement among the parties,
was present to justify disturbance of the final judgment on compromise fails to persuade. A
supervening event may justify the disturbance of a final judgment on compromise if it "brought about
a material change in [the] situation" between the parties. The material change contemplated must
64

render the execution of the final judgment unjust and inequitable. Otherwise, a party to the
compromise agreement has a "right to have the compromise agreement executed, according to its
terms."65

The subsequent disagreement among the parties did not cause any material change in the situation
or in the relations among the parties. The situation and relations among the parties remained the
same as the situation and their relations prior to the compromise agreement. They remained co-
owners of the property, which they desired to partition.

Moreover, the parties voluntarily agreed to the compromise agreement, which was already stamped
with judicial approval. The agreement’s execution would bring about the effects desired by all parties
and the most just and equitable situation for all. On the other hand, the judgment granting the
second action for partition filed by respondent Salamanca was obtained with opposition.

Judges "have the ministerial and mandatory duty to implement and enforce [a compromise
agreement]." Absent appeal or motion to set aside the judgment, courts cannot modify, impose
66

terms different from the terms of a compromise agreement, or set aside the compromises and
reciprocal concessions made in good faith by the parties without gravely abusing their discretion. 67

"[They cannot] relieve parties from [their] obligations . . . simply because [the agreements are] . . .
unwise." Further, "[t]he mere fact that the Compromise Agreement favors one party does not render
68

it invalid." Courts do not have power to "alter contracts in order to save [one party]
69

from [the effects of] adverse stipulations. . . ." 70

Respondents have remedies if

parties to the compromise
agreement refuse to abide by its
terms

The issue in this case involves the non-compliance of some of the parties with the terms of the
compromise agreement. The law affords complying parties with remedies in case one of the parties
1âwphi1

to an agreement fails to abide by its terms.

A party may file a motion for execution of judgment. Execution is a matter of right on final judgments.
Section 1, Rule 39 of the Rules of Court provides:

Section 1. Execution upon judgments or final orders. — Execution shall issue as a matter of right, on
motion, upon a judgment or order that disposes of the action or proceeding upon the expiration of
the period to appeal therefrom if no appeal has been duly perfected. (1a)

If the appeal has been duly perfected and finally resolved, the execution may forthwith be applied for
in the court of origin, on motion of the judgment obligee, submitting therewith certified true copies of
the judgment or judgments or final order or orders sought to be enforced and of the entry thereof,
with notice to the adverse party.

The appellate court may, on motion in the same case, when the interest of justice so requires, direct
the court of origin to issue the writ of execution. (n)
If a party refuses to comply with the terms of the judgment or resists the enforcement of a lawful writ
issued, an action for indirect contempt may be filed in accordance with Rule 71 of the Rules of Court:

Section 3. Indirect contempt to be punished after charge and hearing. — After a charge in writing
has been filed, and an opportunity given to the respondent to comment thereon within such period
as may be fixed by the court and to be heard by himself or counsel, a person guilty of any of the
following acts may be punished for indirect contempt;

....

(b) Disobedience of or resistance to a lawful writ, process, order, or judgment of a court, including
the act of a person who, after being dispossessed or ejected from any real property by the judgment
or process of any court of competent jurisdiction, enters or attempts or induces another to enter into
or upon such real property, for the purpose of executing acts of ownership or possession, or in any
manner disturbs the possession given to the person adjudged to be entitled thereto[.]

Since a judgment on compromise agreement is effectively a judgment on the case, proper remedies
against ordinary judgments may be used against judgments on a compromise agreement. Provided
these are availed on time and the appropriate grounds exist, remedies may include the following: a)
motion for reconsideration; b) motion for new trial; c) appeal; d) petition for relief from judgment; e)
petition for certiorari; and f) petition for annulment of judgment.
71

Respondent Salamanca knew that the only reason for the failed compromise agreement was the
non-compliance with the agreement’s terms of some of her co-heirs. Particularly, it was stipulated
that petitioner’s removal from the property was conditioned upon payment of an amount equivalent
to his share. Respondent Talao refused to abide by his own undertaking to shoulder respondent
Salamanca’s share. He also refused to acknowledge the appraisal of the appraiser appointed in the
compromise agreement. This refusal caused the failure of the compromise agreement.

Instead of availing herself of the proper remedies so the compromise could be enforced and the
partition could be effected, respondent Salamanca chose to move again for the partition of the
property and set aside a valid and final judgment on compromise. This court cannot allow such
motion to prosper without going against law and established jurisprudence on judgments.

WHEREFORE, the Court of Appeals’ decision is REVERSED and SET ASIDE. The judgment on the
compromise agreement is REINSTATED.

SO ORDERED.

MARVIC MARIO VICTOR F. LEONEN

Associate Justice

WE CONCUR:
Overview: This case revolves around a dispute among siblings who are heirs to a parcel
of land in Sta. Ana, Manila, left by their deceased parents. Respondent Salamanca filed a
complaint for partition against her siblings, seeking to divide the property among them.
Eventually, the parties entered into a compromise agreement, which was approved by
the Regional Trial Court. However, certain issues arose regarding the execution of the
compromise agreement, leading to a subsequent motion for physical partition filed by
Salamanca.

Issue: The main issue in this case is whether the Court of Appeals erred in affirming the
Regional Trial Court's decision allowing the physical partition of the property despite the
finality of a previous judgment on a compromise agreement involving the same
property and parties.

Ruling: The Supreme Court reversed the decision of the Court of Appeals and reinstated
the judgment on the compromise agreement. The Court held that a judgment based on
a compromise agreement has the effect of res judicata and is immediately executory,
similar to a judgment rendered after a full-blown trial. Exceptions to the immutability of
judgments exist but are limited. In this case, the subsequent disagreement among the
parties did not constitute a material change in the situation or relations among the
parties to justify disturbing the final judgment on compromise. The Court emphasized
that parties to a compromise agreement have remedies available to enforce its terms,
such as a motion for execution of judgment or action for indirect contempt. Since
respondent Salamanca chose to move for a second partition instead of availing herself
of proper remedies to enforce the compromise agreement, the Court reinstated the
judgment on the compromise agreement.

In summary, the Court ruled that judgments on compromise agreements are final and
enforceable, and parties must abide by their terms or seek appropriate remedies for
enforcement rather than filing new actions to disturb final judgments.
14.

Republic of the Philippines

SUPREME COURT
Baguio City

SECOND DIVISION

G.R. No. 173802 April 7, 2014

NATIONAL HOUSING AUTHORITY, Petitioner,

vs.
COURT OF APPEALS, BERNABE NOBLE, WILLIAM GAN, JULIO RODRIGUEZ, JR., SAMUEL
LIM, SANDRA YAP NG, ALFONSO UY, and BOARD OF COMMISSIONERS, Respondents.

RESOLUTION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari is the Resolution dated June 30, 2006 of the Court of
1 2

Appeals (CA) in CA-G.R. CV No. 73725 which dismissed petitioner National Housing Authority's
(NHA) appeal and held that the Order dated August 3, 1998 of the Regional Trial Court (RTC) of
3

Cagayan de Oro City, Misamis Oriental (Misamis), Branch 17 (court a quo) in Civil Case No. 7847
(Assailed Order) had become final and executory. 4

The Facts

On May 25, 1981, the NHA filed a case against respondents Bernabe Noble, et al. (respondents-
landowners) for the expropriation of their properties situated in Lapasan, Cagayan de Oro City
(subject properties), pursuant to Letter of Instructions No. (LOI) 555, mandating a nationwide Slum
Improvement and Resettlement Program, and LOI 557, otherwise known as "Adopting Slum
Improvement." The case was docketed as Civil Case No. 7847 and originally raffled to Branch V of
the then Court of First Instance of Misamis Oriental, but was transferred to Branch 20 of the Misamis
RTC (Branch 20), upon the effectivity of Batas Pambansa Bilang 129. Consequently, Branch 20
5

issued a writ of possession placing the respondent-landowners’ properties under the NHA’s control. 6

Thereafter, the case was transferred to Branch 23 of the Misamis RTC (Branch 23), which appointed
commissioners who appraised the fair market value (FMV) of the subject properties at ₱470.00 per
square meter, as of 1984. Later on, the case was once more transferred to the court a quo, which
then issued an Order dated April 5, 1990, approving the aforementioned amount as just
compensation, and ordering the NHA to pay respondents-landowners the same. 7

Dissatisfied, the NHA appealed the commissioners’ valuation of the subject properties before the
CA, docketed as CA-G.R. CV No. 33832. On August 11, 1992, the CA rendered a decision
remanding the case to the court a quo for further proceedings on the issue of just compensation. On
May 12, 1993, the CA issued an Entry of Judgment which closed and terminated the said appeal
proceeding. 8

Accordingly, the records were remanded to the court a quo for further proceedings, during which a
new set of commissioners was appointed to re-appraise the FMV of the subject properties.
Eventually, the commissioners pegged the just compensation at ₱705.00 per square meter, taking
into consideration the value of the subject properties in 1984 and the accumulated improvements
thereon since then. 9

The Court A Quo Ruling

On August 3, 1998, the court a quo issued the Assailed Order, approving the commissioners’
valuation of the subject properties at ₱705.00 per square meter and, thus, ordering the NHA to pay
respondents-landowners the amounts due to them. 10

Claiming that it only received a copy of the Assailed Order on March 3, 1999, the NHA filed a
Manifestation and Motion for Reconsideration (motion) on March 11, 1999, arguing that the FMV of
the subject properties should have been determined at the time the expropriation proceeding was
instituted. For its part, respondents-landowners opposed the NHA’s motion on the ground that it was
belatedly filed and thus, the said order already became final and executory. In particular,
respondents-landowners contended that contrary to the NHA’s claim, the registry return receipt on
record shows that it received a copy of the questioned Order on November 10, 1998. 11

Finding respondents-landowners’ opposition to be well-taken, the court a quo denied the NHA’s
motion on May 21, 1990. Aggrieved, the NHA appealed to the CA. 12

The CA Ruling

In a Resolution dated September 9, 2002, the CA initially dismissed the NHA’s appeal on the
13

ground that it failed to file its appellant’s brief on time. The NHA moved for reconsideration, which
was granted in a Resolution dated September 10, 2003. As such, the CA ordered respondents-
14

landowners to file their comment to said appeal. However, instead of filing their comment as
directed, respondents-landowners moved for the resolution’s reconsideration, contending that the
appeal should be dismissed since the Assailed Order had long become final and executory due to
the NHA’s failure to timely file a motion for reconsideration therefrom or perfect its appeal within the
prescribed reglementary period. 15

In a Resolution dated June 30, 2006, the CA dismissed the appeal and held that the Assailed Order
16

had already become final and executory. Accordingly, it ordered that the entire records of the case
be remanded to the court a quo for execution proceedings. The CA held that contrary to NHA’s claim
that it only received a copy of the Assailed Order on March 3, 1999 and, thus, timely filed its motion
for reconsideration on March 11, 1999, the registry return receipt on record clearly shows that it
already received a copy of the same on November 10, 1998. It opined that the issuance of the
registry return receipt enjoys the presumption of regularity, and, hence, the entries on said receipt
should be given full evidentiary weight, including, among others, the date indicated thereon. As a
result, the Assailed Order had long become final and executory and the outright dismissal of NHA’s
appeal was deemed to be proper. 1âwphi1
17

At odds with the CA’s ruling, the NHA filed the instant petition.

The Issue Before the Court

The primordial issue raised for the Court’s resolution is whether or not the CA erred in finding that
the Assailed Order had already become final and executory.

The Court’s Ruling

The petition is without merit.

It is well-settled that a decision that has acquired finality becomes immutable and unalterable, and
may no longer be modified in any respect, even if the modification is meant to correct erroneous
conclusions of fact and law, and whether it be made by the court that rendered it or by the Highest
Court of the land. This principle, commonly known as the doctrine of immutability of judgment, has a
two-fold purpose, namely: (a) to avoid delay in the administration of justice and thus, procedurally, to
make orderly the discharge of judicial business; and (b) to put an end to judicial controversies, at the
risk of occasional errors, which is precisely why courts exist. Verily, it fosters the judicious perception
that the rights and obligations of every litigant must not hang in suspense for an indefinite period of
time. As such, it is not regarded as a mere technicality to be easily brushed aside, but rather, a
matter of public policy which must be faithfully complied. 18

In this case, the Court concurs with the CA’s view that the Assailed Order had already become final
and executory at the time when the NHA sought to have it reconsidered before the court a quo. As
evidenced by the registry return receipt on record, the NHA received a copy of the Assailed Order on
November 10, 1998. However, it moved for reconsideration therefrom only on March 11, 1999, or
more than four (4) months from notice. As the motion was filed way beyond the 15-day reglementary
period prescribed therefor, the court a quo‘s judgment had already lapsed into finality. Consequently,
the Assailed Order cannot be made subject to further appellate review and now constitutes res
judicata as to every matter offered and received in the proceedings below as well as to any other
matter admissible therein and which might have been offered for that purpose. 19

In an effort to remove itself from this quandary, the NHA points out that as per the registry return
receipt on record, it received a copy of the Assailed Order on November 10, 1998 through a certain
Atty. Epifanio P. Recafia (Atty. Recafia). The NHA claims that as early as January 1997, Atty.
Recafia ceased to be connected with it and thus, it contends that he could not have validly received
a copy of the Assailed Order in its behalf.20

The contention is untenable.

Other than its bare assertions and a self-serving certification emanating from its own human
21

resource management department, the NHA has not shown any sufficient proof that the service of a
copy of the Assailed Order to it on November 10, 1998 is invalid. Moreover, the NHA could have
easily presented Atty. Recafia, or at least a statement of his, to disown any authority to receive a
copy of the Assailed Order in the former' s behalf but it failed to do so. Succinctly put, the NHA's
unsubstantiated asservations cannot prevail over the contrary statement of a postal official as
embodied in the registry return receipt, considering that it is the latter's primary duty to send mail
matters and thus, accorded with the presumption of regularity. 22

WHEREFORE, the petition is DENIED. The Resolution dated June 30, 2006 of the Court of Appeals
in CA-G.R. CV No. 73725 is hereby AFFIRMED.

SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice

WE CONCUR:
Overview: The case involves a dispute between the National Housing Authority (NHA)
and respondents-landowners over the just compensation for properties expropriated by
NHA. The dispute originated from a case filed by NHA in 1981 for the expropriation of
the respondents' properties in Cagayan de Oro City. After several proceedings, the
Regional Trial Court (RTC) issued an order in 1998 determining the compensation due to
the landowners. The NHA, dissatisfied with the valuation, filed a motion for
reconsideration, which the RTC denied, prompting NHA to appeal to the Court of
Appeals (CA). However, the CA dismissed the appeal, ruling that the RTC's order had
become final and executory.

Issue: The main issue before the court is whether the Court of Appeals erred in finding
that the RTC's order had become final and executory.

Ruling: The Supreme Court upheld the decision of the Court of Appeals, affirming that
the RTC's order had indeed become final and executory. The Court emphasized the
doctrine of immutability of judgment, stating that once a decision has acquired finality,
it becomes immutable and unalterable. The purpose of this doctrine is to avoid delays in
the administration of justice and to put an end to judicial controversies. In this case, the
NHA received a copy of the RTC's order but filed a motion for reconsideration beyond
the prescribed reglementary period. Despite the NHA's contention that the person who
received the order on its behalf was no longer connected with the organization, the
Court held that the NHA failed to provide sufficient proof to invalidate the service of the
order. Therefore, the RTC's order stands as res judicata, and the appeal filed by the NHA
was properly dismissed.
15.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 160110 June 18, 2014

MARIANO C. MENDOZA and ELVIRA LIM, Petitioners,

vs.
SPOUSES LEONORA J. GOMEZ and GABRIEL V. GOMEZ, Respondents.

DECISION

PEREZ, J.:

Assailed in the present appeal by certiorari is the Decision dated 29 September 2003 of the Special
1

Fourth Division of the Court of Appeals (CA) in CA-G.R. CV No. 71877, which affirmed with
modification the Decision dated 31 January 2001 of the Regional Trial Court (RTC), Branch 172,
2

Valenzuela City in Civil Case No. 5352-V-97, and which effectively allowed the award of actual,
moral, and exemplary damages, as well as attorney's fees and costs of the suit in favor of
respondent Spouses Leonora and Gabriel Gomez (respondents).

Antecedent Facts

On 7 March 1997, an Isuzu Elf truck (Isuzu truck) with plate number UAW 582, owned by
3

respondent Leonora J. Gomez (Leonora) and driven by Antenojenes Perez (Perez), was hit by a
4 5

Mayamy Transportation bus (Mayamy bus) with temporary plate number 1376-1280, registered 6

under the name of petitioner Elvira Lim (Lim) and driven by petitioner Mariano C. Mendoza
7

(Mendoza). 8

Owing to the incident, an Information for reckless imprudence resulting in damage to property and
multiple physical injuries was filed against Mendoza. Mendoza, however, eluded arrest, thus,
9

respondents filed a separate complaint for damages against Mendoza and Lim, seeking actual
damages, compensation for lost income, moral damages, exemplary damages, attorney’s fees and
costs of the suit. This was docketed as Civil Case No. 5352-V-97.
10

According to PO1 Melchor F. Rosales (PO1 Rosales), investigating officer of the case, at around
5:30 a.m., the Isuzu truck, coming from Katipunan Road and heading towards E. Rodriguez, Sr.
Avenue, was travelling along the downward portion of Boni Serrano Avenue when, upon reaching
the corner of Riviera Street, fronting St. Ignatius Village, its left front portion was hit by the Mayamy
bus. According to PO1 Rosales, the Mayamy bus, while traversing the opposite lane, intruded on
11

the lane occupied by the Isuzu truck. 12

PO1 Rosales also reported that Mendoza tried to escape by speeding away, but he was
apprehended in Katipunan Road corner C. P. Garcia Avenue by one Traffic Enforcer Galante and a
security guard of St. Ignatius Village.13
As a result of the incident, Perez,as well as the helpers on board the Isuzu truck, namely Melchor V.
Anla (Anla), Romeo J. Banca (Banca), and Jimmy Repisada (Repisada), sustained injuries
necessitating medical treatment amounting to ₱11,267.35,which amount was shouldered by
respondents. Moreover, the Isuzu truck sustained extensive damages on its cowl, chassis, lights and
steering wheel, amounting to ₱142,757.40. 14

Additionally, respondents averred that the mishap deprived them of a daily income of ₱1,000.00.
Engaged in the business of buying plastic scraps and delivering them to recycling plants,
respondents claimed that the Isuzu truck was vital in the furtherance of their business.

For their part, petitioners capitalized on the issue of ownership of the bus in question. Respondents
argued that although the registered owner was Lim, the actual owner of the bus was SPO1 Cirilo
Enriquez (Enriquez), who had the bus attached with Mayamy Transportation Company (Mayamy
Transport) under the so-called "kabit system." Respondents then impleaded both Lim and Enriquez.

Petitioners, on the other hand, presented Teresita Gutierrez (Gutierrez), whose testimony was
offered to prove that Mayamy Bus or Mayamy Transport is a business name registered under her
name, and that such business is a sole proprietorship. Such was presented by petitioners to rebut
the allegation of respondents that Mayamy Transport is a corporation; and to show, moreover, that
15

although Gutierrez is the sole proprietor of Mayamy Transport, she was not impleaded by
respondents in the case at bar. 16

After weighing the evidence, the RTC found Mendoza liable for direct personal negligence under
Article 2176 of the Civil Code, and it also found Lim vicariously liable under Article 2180 of the same
Code.

As regards Lim, the RTC relied on the Certificate of Registration issued by the Land Transportation
Office on 9 December 1996 in concluding that she is the registered owner of the bus in question.
17

Although actually owned by Enriquez, following the established principle in transportation law, Lim,
as the registered owner, is the one who can be held liable.

Thus, the RTC disposed of the case as follows:

WHEREFORE, judgment is hereby rendered in favor of the [respondents] and against the
[petitioners]:

1. Ordering the [petitioners] except Enriquez to pay [respondents], jointly and severally, the
costs of repair of the damaged vehicle in the amount of ₱142,757.40;

2. Ordering the defendants except Enriquez to pay [respondents], jointly and severally, the
amount of ₱1,000.00 per day from March 7, 1997 up to November 1997 representing the
unrealized income of the [respondents] when the incident transpired up to the time the
damaged Isuzu truck was repaired;

3. Ordering the [petitioners] except Enriquez to pay [respondents], jointly and severally, the
amount of ₱100,000.00 as moral damages, plus a separate amount of ₱50,000.00 as
exemplary damages;

4. Ordering the [petitioners] except Enriquez to pay [respondents], jointly and severally, the
amount of ₱50,000.00 as attorney’s fees; 5. Ordering the [petitioners] except Enriquez to pay
[respondents] the costs of suit.
18
Displeased, petitioners appealed to the CA, which appeal was docketed as CA-G.R. CV No. 71877.
After evaluating the damages awarded by the RTC, such were affirmed by the CA with the exception
of the award of unrealized income which the CA ordered deleted, viz:

WHEREFORE, premises considered, the appeal is PARTLY GRANTED. The judgment of the
Regional Trial Court of Valenzuela City, Branch 172 dated January 31, 2001, is MODIFIED, in that
the award of ₱1,000.00 per day from March 1997 up to November 1997 representing unrealized
income is DELETED. The award of ₱142,757.40 for the cost of repair of the damaged vehicle, the
award of ₱100,000.00 as moral damages, the award of ₱50,000.00 as exemplary damages, the
award of ₱50,000.00 as attorney’s fees and the costs of the suit are hereby MAINTAINED. 19

The Present Petition

Unsatisfied with the CA ruling, petitioners filed an appeal by certiorari before the Court, raising the
following issues:20

1. The court a quo has decided questions of substance in a way not in accord with law or
with the applicable decisions of the Supreme Court when it awarded:

a. Moral damages in spite of the fact that the [respondents’] cause of action is clearly
based on quasi-delict and [respondents] did not sustain physical injuries to be
entitled thereto pursuant to Article 2219 (2) of the New Civil Code and pertinent
decisions of the Supreme Court to that effect. The court a quo erroneously concluded
that the driver acted in bad faith and erroneously applied the provision of Article 21 of
the same code to justify the award for bad faith is not consistent with quasi-delict
which is founded on fault or negligence.

b. Exemplary damages in spite of the fact that there is no finding that the vehicular
accident was due to petitioner-driver’s gross negligence to be entitled thereto
pursuant to Article 2231 of the New Civil Code and pertinent decisions of the
Supreme Court to that effect. The factual basis of the court a quo that "the act of the
driver of the bus in attempting to escape after causing the accident in wanton
disregard of the consequences of his negligent act is such gross negligence that
justifies an award of exemplary damages" is an act after the fact which is not within
the contemplation of Article 2231 of the New Civil Code.

c. Attorney’s fees in spite of the fact that the assailed decisions of the trial court and
the court a quo are bereft with jurisdictions for the award of attorney’s fees pursuant
to the pertinent decisions of the Supreme Court on the matter and provision Article
2208 of the New Civil Code. The court a quo erroneously applied the decision of the
Supreme Court in Bañas, Jr. vs. Court of Appeals, 325 SCRA 259.

The Court’s Ruling

The petition is partially meritorious.

Respondents anchor their claim for damages on Mendoza’s negligence, banking on Article 2176 of
the Civil Code, to wit:
Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.

In impleading Lim, on the other hand, respondents invoke the latter’s vicarious liability as espoused
in Article 2180 of the same Code:

The obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but
also for those of persons for whom one is responsible.

xxxx

Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business of
industry.

The first question to address, then, is whether or not Mendoza’s negligence was duly proven.
Negligence is defined as the failure to observe for the protection of the interests of another person,
that degree of care, precaution and vigilance which the circumstances justly demand, whereby such
other person suffers injury.
21

As found by the RTC, and affirmed by the CA, Mendoza was negligent in driving the subject
Mayamy bus, as demonstrated by the fact that, at the time of the collision, the bus intruded on the
lane intended for the Isuzu truck. Having encroached on the opposite lane, Mendoza was clearly in
violation of traffic laws. Article2185 of the Civil Code provides that unless there is proof to the
contrary, it is presumed that a person driving a motor vehicle has been negligent if at the time of the
mishap, he was violating any traffic regulation. In the case at bar, Mendoza’s violation of traffic laws
was the proximate cause of the harm.

Proximate cause is defined as that cause, which, in natural and continuous sequence, unbroken by
any efficient intervening cause, produces the injury, and without which the result would not have
occurred. And more comprehensively, the proximate legal cause is that acting first and producing
the injury, either immediately or by setting other events in motion, all constituting a natural and
continuous chain of events, each having a close causal connection with its immediate predecessor,
the final event in the chain immediately effecting the injury as a natural and probable result of the
cause which first acted, under such circumstances that the person responsible for the first event
should, as an ordinary prudent and intelligent person, have reasonable ground to expect at the
moment of his act or default that an injury to some person might probably result therefrom. 22

The evidence on record shows that before the collision, the Isuzu truck was in its rightful lane, and
was even at a stop, having been flagged down by a security guard of St. Ignatius Village. The
23

mishap occurred when the Mayamy bus, travelling at a fast speed as shown by the impact of the
collision, and going in the opposite direction as that of the Isuzu truck, encroached on the lane
rightfully occupied by said Isuzu truck, and caused the latter to spin, injuring Perez, Anla, Banca, and
Repisada, and considerably damaging the Isuzu truck.

Having settled the fact of Mendoza’s negligence, then, the next question that confronts us is who
may beheld liable. According to Manresa, liability for personal acts and omissions is founded on that
indisputable principle of justice recognized by all legislations that when a person by his act or
omission causes damage or prejudice to another, a juridical relation is created by virtue of which the
injured person acquires a right to be indemnified and the person causing the damage is charged with
the corresponding duty of repairing the damage. The reason for this is found in the obvious truth that
man should subordinate his acts to the precepts of prudence and if he fails to observe them and
causes damage to another, he must repair the damage. His negligence having caused the damage,
24

Mendoza is certainly liable to repair said damage.

Additionally, Mendoza’s employer may also be held liable under the doctrine of vicarious liability or
imputed negligence. Under such doctrine, a person who has not committed the act or omission
which caused damage or injury to another may nevertheless be held civilly liable to the latter either
directly or subsidiarily under certain circumstances. In our jurisdiction, vicarious liability or imputed
25

negligence is embodied in Article 2180 of the Civil Code and the basis for damages in the action
under said article is the direct and primary negligence of the employer in the selection or
supervision, or both, of his employee. 26

In the case at bar, who is deemed as Mendoza’s employer? Is it Enriquez, the actual owner of the
bus or Lim, the registered owner of the bus?

In Filcar Transport Services v. Espinas, we held that the registered owner is deemed the employer
27

of the negligent driver, and is thus vicariously liable under Article 2176, in relation to Article 2180, of
the Civil Code. Citing Equitable Leasing Corporation v. Suyom, the Court ruled that in so far as third
28

persons are concerned, the registered owner of the motor vehicle is the employer of the negligent
driver, and the actual employer is considered merely as an agent of such owner. Thus, whether
there is an employer-employee relationship between the registered owner and the driver is irrelevant
in determining the liability of the registered owner who the law holds primarily and directly
responsible for any accident, injury or death caused by the operation of the vehicle in the streets and
highways. 29

As early as Erezo v. Jepte, the Court, speaking through Justice Alejo Labrador summarized the
30

justification for holding the registered owner directly liable, to wit:

x x x The main aim of motor vehicle registration is to identify the owner so that if any accident
happens, or that any damage or injury is caused by the vehicles on the public highways,
responsibility therefore can be fixed on a definite individual, the registered owner. Instances are
numerous where vehicle running on public highways caused accidents or injuries to pedestrians or
other vehicles without positive identification of the owner or drivers, or with very scant means of
identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that
the motor vehicle registration is primarily ordained, in the interest of the determination of persons
responsible for damages or injuries caused on public highways.

"‘One of the principal purposes of motor vehicles legislation is identification of the vehicle and of the
operator, in case of accident; and another is that the knowledge that means of detection are always
available may act as a deterrent from lax observance of the law and of the rules of conservative and
safe operation. Whatever purpose there may be in these statutes, it is subordinate at the last to the
primary purpose of rendering it certain that the violator of the law or of the rules of safety shall not
escape because of lack of means to discover him." The purpose of the statute is thwarted, and the
displayed number becomes a "snare and delusion," if courts will entertain such defenses as that put
forward by appellee in this case. No responsible person or corporation could be held liable for the
most outrageous acts of negligence, if they should be allowed to place a "middleman" between them
and the public, and escape liability by the manner in which they recompense their servants. 31

Generally, when an injury is caused by the negligence of a servant or employee, there instantly
arises a presumption of law that there was negligence on the part of the master or employer either in
the selection of the servant or employee (culpa in eligiendo) or in the supervision over him after the
selection (culpa vigilando), or both. The presumption is juris tantum and not juris et de jure;
consequently, it may be rebutted. Accordingly, the general rule is that if the employer shows to the
satisfaction of the court that in the selection and supervision of his employee he has exercised the
care and diligence of a good father of a family, the presumption is overcome and he is relieved of
liability. However, with the enactment of the motor vehicle registration law, the defenses available
32

under Article 2180 of the Civil Code - that the employee acts beyond the scope of his assigned task
or that it exercised the due diligence of a good father of a family to prevent damage – are no longer
available to the registered owner of the motor vehicle, because the motor vehicle registration law, to
a certain extent, modified Article 2180.
33

As such, there can be no other conclusion but to hold Lim vicariously liable with Mendoza.

This does not mean, however, that Lim is left without any recourse against Enriquez and Mendoza.
Under the civil law principle of unjust enrichment, the registered owner of the motor vehicle has a
right to be indemnified by the actual employer of the driver; and under Article 2181 of the Civil Code,
whoever pays for the damage caused by his dependents or employees may recover from the latter
what he has paid or delivered in satisfaction of the claim.

Having identified the persons liable, our next question is what may be awarded.

Actual or Compensatory Damages. Actual or compensatory damages are those awarded in

satisfaction of, or in recompense for, loss or injury sustained. They simply make good or replace the
loss caused by the wrong. 34

Article 2202 of the Civil Code provides that in crimes and quasi delicts, the defendant shall be liable
for all damages which are the natural and probable consequences of the act or omission complained
of. It is not necessary that such damages have been foreseen or could have reasonably been
foreseen by the defendant. Article 2199 of the same Code, however, sets the limitation that, except
as provided by law or by stipulation, one is entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved. As such, to warrant an award of actual or
compensatory damages, the claimant must prove that the damage sustained is the natural and
probable consequences of the negligent act and, moreover, the claimant must adequately prove the
amount of such damage.

In the case at bar, the RTC, basing on the receipts submitted by respondents and which receipts
petitioners had the opportunity to examine, found that the total repairs on the Isuzu truck amounted
to ₱142,757.40, and that the full hospitalization and medical expenses of Perez, Anla, Banca, and
Repisada amounted to ₱11,267.35. As such, these are the amounts that respondents are entitled to
as actual and compensatory damages.

Although respondents alleged in their complaint that the damage to their Isuzu truck caused them
the loss of a daily income of ₱1,000.00, such claim was not duly substantiated by any evidence on
record, and thus cannot be awarded in their favor.

Moral Damages. Moral damages are awarded to enable the injured party to obtain means,
diversions or amusements that will serve to alleviate the moral suffering he has undergone, by
reason of the defendant's culpable action. 35

In prayers for moral damages, however, recovery is more an exception rather than the rule. Moral
damages are not meant to be punitive but are designed to compensate and alleviate the physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar harm unjustly caused to a person. To be entitled to such an
award, the claimant must satisfactorily prove that he has suffered damages and that the injury
causing it has sprung from any of the cases listed in Articles 2219 and 2220 of the Civil Code.
Moreover, the damages must be shown to be the proximate result of a wrongful act or omission. The
claimant must thus establish the factual basis of the damages and its causal tie with the acts of the
defendant.36

In fine, an award of moral damages calls for the presentation of 1) evidence of besmirched
reputation or physical, mental or psychological suffering sustained by the claimant; 2)a culpable act
or omission factually established; 3) proof that the wrongful act or omission of the defendant is the
proximate cause of the damages sustained by the claimant; and 4) the proof that the act is
predicated on any of the instances expressed or envisioned by Article 2219 and Article 2220 of the
Civil Code.37

A review of the complaint and the transcript of stenographic notes yields the pronouncement that
respondents neither alleged nor offered any evidence of besmirched reputation or physical, mental
or psychological suffering incurred by them. All that Leonora and her counsel had to say on the
matter of damages other than actual or compensatory damages is this: 38

Q: Did you ever spend covering attorney’s fees?

A: Yes, sir. ₱50,000.00.

Q: Aside from the actual damage that you have mentioned x x x, how much more would you like this
Court to award you by way of moral damages?

A: ₱100,000.00, sir.

Q: How about exemplary damages?

A: ₱50,000.00, sir.

Q: What happened to you, what did you feel when the defendants failed to immediately repair your
vehicle that was damaged Madam Witness?

A: I have incurred expenses and I was forced to apply for a loan, sir.

In Kierulf v. CA, we observed that this Court cannot remind the bench and the bar often enough that
39

in order that moral damages may be awarded, there must be pleading and proof of moral suffering,
mental anguish, fright and the like. Citing Francisco v. GSIS, the Court held that there must be clear
40

testimony on the anguish and other forms of mental suffering. Thus, if the plaintiff fails to take the
witness stand and testify as to his social humiliation, wounded feelings and anxiety, moral damages
cannot be awarded.

Moreover, respondents were not able to show that their claim properly falls under Articles 2219 and
2220 of the Civil Code. Respondents cannot rely on Article 2219 (2) of the Civil Code which allows
moral damages in quasi-delicts causing physical injuries because in physical injuries, moral
damages are recoverable only by the injured party, and in the case at bar, herein respondents were
41

not the ones who were actually injured.

In B.F. Metal (Corp.) v. Sps. Lomotan, et al., the Court, in a claim for damages based on quasi-
42

delict causing physical injuries, similarly disallowed an award of moral damages to the owners of the
damaged vehicle, when neither of them figured in the accident and sustained injuries.
Neither can respondents rely on Article 21 of the Civil Code as the RTC erroneously did. 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. In the present case, it can hardly be said that Mendoza’s negligent driving
43

and violation of traffic laws are legal acts. Moreover, it was not proven that Mendoza intended to
injure Perez, et al. Thus, Article 21 finds no application to the case at bar. All in all, we find that the
RTC and the CA erred in granting moral damages to respondents. Exemplary Damages. Article
2229 of the Civil Code provides that exemplary or corrective damages are imposed, by way of
example or correction for the public good, in addition to moral, temperate, liquidated or
compensatory damages. Article 2231 of the same Code further states that in quasi-delicts,
exemplary damages may be granted if the defendant acted with gross negligence.

Our jurisprudence sets certain conditions when exemplary damages may be awarded: First, they
may be imposed by way of example or correction only in addition, among others, to compensatory
damages, and cannot be recovered as a matter of right, their determination depending upon the
amount of compensatory damages that may be awarded to the claimant. Second, the claimant must
first establish his right to moral, temperate, liquidated or compensatory damages. Third, the wrongful
act must be accompanied by bad faith, and the award would be allowed only if the guilty party acted
in a wanton, fraudulent, reckless, oppressive or malevolent manner. 44

In motor vehicle accident cases, exemplary damages may be awarded where the defendant’s
misconduct is so flagrant as to transcend simple negligence and be tantamount to positive or
affirmative misconduct rather than passive or negative misconduct. In characterizing the requisite
positive misconduct which will support a claim for punitive damages, the courts have used such
descriptive terms as willful, wanton, grossly negligent, reckless, or malicious, either alone or in
combination. 45

Gross negligence is the absence of care or diligence as to amount to a reckless disregard of the
safety of persons or property. It evinces a thoughtless disregard of consequences without exerting
any effort to avoid them.46

In the case at bar, having established respondents’ right to compensatory damages, exemplary
damages are also in order, given the fact that Mendoza was grossly negligent in driving the Mayamy
bus. His act of intruding or encroaching on the lane rightfully occupied by the Isuzu truck shows his
reckless disregard for safety.

In Baño v. Bachelor Express, Inc., et al., where an erring bus, in the process of overtaking a
47

jeepney, also encroached on the opposite lane, and consequently collided with a dump truck, the
Court held the driver of the bus grossly negligent and affirmed the award of exemplary damages.
Attorney’s Fees. Article 2208 of the Civil Code enumerates the instances when attorney’s fees may
be recovered:

Art. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

 (4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff’s valid and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney’s fees and
expenses of litigation should be recovered;

In all cases, the attorney’s fees and expenses of litigation must be reasonable.

From the very opening sentence of Article 2208 of the Civil Code, it is clearly intended to retain the
award of attorney’s fees as the exception in our law, as the general rule remains that attorney’s fees
are not recoverable in the absence of a stipulation thereto, the reason being that it is not sound
policy to set a premium on the right to litigate. 48

As such, in Spouses Agustin v. CA, we held that, the award of attorney’s fees being an exception
49

rather than the general rule, it is necessary for the court to make findings of facts and law that would
bring the case within the exception and justify the grant of such award. Thus, the reason for the
award of attorney’s fees must be stated in the text of the court’s decision; otherwise, if it is stated
only in the dispositive portion of the decision, the same must be disallowed on appeal.

In the case at bar, the RTC Decision had nil discussion on the propriety of attorney’s fees, and it
merely awarded such in the dispositive. The CA Decision, on the other hand, merely stated that the
award of attorney’s fees is merited as such is allowed when exemplary damages are
awarded. Following established jurisprudence, however, the CA should have disallowed on appeal
50 51

said award of attorney’s fees as the RTC failed to substantiate said award. Costs of suit. The Rules
of Court provide that, generally, costs shall be allowed to the prevailing party as a matter of course,
thus:52

Section 1. Costs ordinarily follow results of suit.- Unless otherwise provided in these rules, costs
shall be allowed to the prevailing party as a matter of course, but the court shall have power, for
special reasons, to adjudge that either party shall pay the costs of an action, or that the same be
divided, as may be equitable. No costs shall be allowed against the Republic of the Philippines,
unless otherwise provided by law.

In the present case, the award of costs of suit to respondents, as the prevailing party, is in order.
Interests. Interest by way of damages has been defined as interest allowed in actions for breach of
1âwphi1

contractor tort for the unlawful detention of money already due. This type of interest is frequently
called "moratory interest." Interest as a part of damage, is allowed, not by application of arbitrary
rules, but as a result of the justice of the individual case and as compensation to the injured party. 53
The legal provision on interests in quasi-delicts is Article 2211 of the Civil Code which provides that
in crimes and quasi-delicts, interest as part of the damage, may, in a proper case, be adjudicated in
the discretion of the court.

Generally, interest is allowed as a matter of right for failure to pay liquidated claims when due. For
54

unliquidated claims, however, Article 2213 of the Civil Code provides that interest cannot be
recovered upon unliquidated claims or damages, except when the demand can be established with
reasonable certainty.

In the case at bar, although the award of exemplary damages is unliquidated in the sense that
petitioners cannot know for sure, before judgment, the exact amount that they are required to pay to
respondents, the award of actual or compensatory damages, however, such as the truck repairs and
medical expenses, is arguably liquidated in that they can be measured against a reasonably certain
standard. Moreover, justice would seem to require that the delay in paying for past losses which
55

can be made reasonably certain should be compensated through an award of interest. 56

WHEREFORE, premises considered, the Court Resolves to PARTIALLY GRANT the appeal by
certiorari, as follows:

1) DECLARE Mariano Mendoza and Elvira Lim solidarily liable to respondent Spouses
Leonora and Gabriel Gomez;

2) MAINTAIN the award of actual or compensatory damages in the amount of ₱142,757.40

for the repair of the Isuzu Elf truck, with legal interest beginning 31 January 2001 until fully
paid;

3) GRANT additional actual or compensatory damages in the amount of ₱11,267.35 for the
medical expenses shouldered by respondent Spouses Leonora and Gabriel Gomez, with
legal interest beginning 31 January 2001 until fully paid;

4) DELETE the award of moral damages;

5) MAINTAIN the award of exemplary damages at ₱50,000.00;

6) DELETE the award of attorney's fees; and

7) MAINTAIN the award of costs of suit.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice

WE CONCUR:

ARTURO D. BRION*
Associate Justice
Acting Chairperson

MARIANO C. DEL CASTILLO JOSE CATRAL MENDOZA**

Associate Justice Associate Justice
 ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

ARTURO D. BRION
Associate Justice
Acting Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting Chairperson's
Attestation, it is hereby certified that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice
Overview: This legal case revolves around a vehicular accident involving an Isuzu Elf
truck owned by the respondents and a Mayamy Transportation bus owned by the
petitioner Lim. The accident resulted in damages to the truck and injuries to its
occupants. The respondents filed a complaint seeking damages against Lim and
Mendoza, the driver of the bus. The Regional Trial Court (RTC) found Mendoza liable for
negligence and held Lim vicariously liable as the registered owner of the bus. The RTC
awarded various damages to the respondents. On appeal, the Court of Appeals (CA)
affirmed the RTC's decision with modifications, deleting an award for unrealized income.
Dissatisfied, the petitioners filed an appeal by certiorari before the Supreme Court.

In the case provided, the doctrine of imputed negligence or vicarious liability is

significant in determining the liability of the registered

owner of a motor vehicle for the negligent acts of its driver. Here's a breakdown
focusing on the doctrine of imputed negligence:

Overview: The doctrine of imputed negligence holds that a person who has not directly
committed a wrongful act may still be held responsible for it under certain
circumstances. In the context of motor vehicle accidents, this doctrine often applies to
the registered owner of the vehicle. Even if the owner was not personally driving the
vehicle at the time of the accident, they may still be held liable for the negligence of the
driver.

Issue: The main issue in the case revolves around determining whether the registered
owner of the bus, Elvira Lim, can be held vicariously liable for the negligent acts of the
driver, Mariano Mendoza, who caused the accident. Specifically, the court needs to
decide whether Lim, as the registered owner, can be imputed with the negligence of
Mendoza.

Ruling of the Court: The court ruled in favor of the doctrine of imputed negligence,
holding Lim vicariously liable for the damages caused by Mendoza's negligent driving.
The court cited Article 2180 of the Civil Code, which imposes liability on employers for
damages caused by their employees while performing their tasks. Since Lim was the
registered owner of the bus, she was considered the employer of Mendoza for the
purpose of determining liability.

The court justified this decision by emphasizing the purpose of motor vehicle
registration laws, which is to identify the owner of the vehicle in case of accidents or
damages. By registering the vehicle in her name, Lim assumed the responsibility
associated with ownership, including liability for accidents caused by the vehicle,
regardless of who was driving it at the time.

Therefore, the court's ruling established that Lim could be held vicariously liable for
Mendoza's negligence under the doctrine of imputed negligence. This decision
highlights the legal principle that owners of registered motor vehicles can be held
accountable for the actions of those driving their vehicles, even if the owner was not
directly involved in the incident.
16.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-20392 December 18, 1968

MARCIAL T. CAEDO, JUANA SANGALANG CAEDO, and the Minors, EPHRAIM CAEDO,
EILEEN CAEDO, ROSE ELAINE CAEDO, suing through their father, MARCIAL T. CAEDO, as
guardian ad litem, plaintiffs-appellants,
vs.
YU KHE THAI and RAFAEL BERNARDO, defendants-appellants.

Norberto J. Quisumbing for plaintiffs-appellants.

De Joya, Lopez, Dimaguila, Hermoso and Divino for defendants-appellants

MAKALINTAL, J.:

As a result of a vehicular accident in which plaintiff Marcial Caedo and several members of his family
were injured they filed this suit for recovery of damages from the defendants. The judgment,
rendered by the Court of First Instance of Rizal on February 26, 1960 (Q-2952), contains the
following disposition:

IN VIEW OF THE FOREGOING, the court renders a judgment, one in favor of the plaintiffs
and against the defendants, Yu Khe Thai and Rafael Bernardo, jointly and severally, to pay
to plaintiffs Marcial Caedo, et al., the sum of P1,929.70 for actual damages; P48,000.00 for
moral damages; P10,000.00 for exemplary damages; and P5,000.00 for attorney's fees, with
costs against the defendants. The counterclaim of the defendants against the plaintiffs is
hereby ordered dismissed, for lack of merits.

On March 12, 1960 the judgment was amended so as to include an additional award of P3,705.11 in
favor of the plaintiffs for the damage sustained by their car in the accident.

Both parties appealed to the Court of Appeals, which certified the case to us in view of the total
amount of the plaintiffs' claim.

There are two principal questions posed for resolution: (1) who was responsible for the accident?
and (2) if it was defendant Rafael Bernardo, was his employer, defendant Yu Khe Thai, solidarily
liable with him? On the first question the trial court found Rafael Bernardo negligent; and on the
second, held his employer solidarily liable with him.

The mishap occurred at about 5:30 in the morning of March 24, 1958 on Highway 54 (now E. de los
Santos Avenue) in the vicinity of San Lorenzo Village. Marcial was driving his Mercury car on his
way from his home in Quezon City to the airport, where his son Ephraim was scheduled to take a
plane for Mindoro. With them in the car were Mrs. Caedo and three daughters. Coming from the
opposite direction was the Cadillac of Yu Khe Thai, with his driver Rafael Bernardo at the wheel,
taking the owner from his Parañaque home to Wack Wack for his regular round of golf. The two cars
were traveling at fairly moderate speeds, considering the condition of the road and the absence of
traffic — the Mercury at 40 to 50 kilometers per hour, and the Cadillac at approximately 30 to 35
miles (48 to 56 kilometers). Their headlights were mutually noticeable from a distance. Ahead of the
Cadillac, going in the same direction, was a caretella owned by a certain Pedro Bautista.
The carretela was towing another horse by means of a short rope coiled around the rig's vertical post
on the right side and held at the other end by Pedro's son, Julian Bautista.

Rafael Bernardo testified that he was almost upon the rig when he saw it in front of him, only eight
meters away. This is the first clear indication of his negligence. The carretela was provided with two
lights, one on each side, and they should have given him sufficient warning to take the necessary
precautions. And even if he did not notice the lights, as he claimed later on at the trial,
the carretela should anyway have been visible to him from afar if he had been careful, as it must
have been in the beam of his headlights for a considerable while.

In the meantime the Mercury was coming on its own lane from the opposite direction. Bernardo,
instead of slowing down or stopping altogether behind the carretela until that lane was clear, veered
to the left in order to pass. As he did so the curved end of his car's right rear bumper caught the
forward rim of the rig's left wheel, wrenching it off and carrying it along as the car skidded obliquely
to the other lane, where it collided with the oncoming vehicle. On his part Caedo had seen the
Cadillac on its own lane; he slackened his speed, judged the distances in relation to
the carretela and concluded that the Cadillac would wait behind. Bernardo, however, decided to take
a gamble — beat the Mercury to the point where it would be in line with the carretela, or else
squeeze in between them in any case. It was a risky maneuver either way, and the risk should have
been quite obvious. Or, since the car was moving at from 30 to 35 miles per hour (or 25 miles
according to Yu Khe Thai) it was already too late to apply the brakes when Bernardo saw
the carretela only eight meters in front of him, and so he had to swerve to the left in spite of the
presence of the oncoming car on the opposite lane. As it was, the clearance Bernardo gave for his
car's right side was insufficient. Its rear bumper, as already stated, caught the wheel of
the carretela and wrenched it loose. Caedo, confronted with the unexpected situation, tried to avoid
the collision at the last moment by going farther to the right, but was unsuccessful. The photographs
taken at the scene show that the right wheels of his car were on the unpaved shoulder of the road at
the moment of impact.

There is no doubt at all that the collision was directly traceable to Rafael Bernardo's negligence and
that he must be held liable for the damages suffered by the plaintiffs. The next question is whether or
not Yu Khe Thai, as owner of the Cadillac, is solidarily liable with the driver. The applicable law is
Article 2184 of the Civil Code, which reads:

ART. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the
former, who was in the vehicle, could have, by the use of due diligence, prevented the
misfortune. It is disputably presumed that a driver was negligent, if he had been found guilty
of reckless driving or violating traffic regulations at least twice within the next preceding two
months.

Under the foregoing provision, if the causative factor was the driver's negligence, the owner of the
vehicle who was present is likewise held liable if he could have prevented the mishap by the
exercise of due diligence. The rule is not new, although formulated as law for the first time in the new
Civil Code. It was expressed in Chapman vs. Underwood (1914), 27 Phil. 374, where this Court held:

... The same rule applies where the owner is present, unless the negligent acts of the driver
are continued for such a length of time as to give the owner a reasonable opportunity to
observe them and to direct his driver to desist therefrom. An owner who sits in his
 automobile, or other vehicle, and permits his driver to continue in a violation of the law by the
performance of negligent acts, after he has had a reasonable opportunity to observe them
and to direct that the driver cease therefrom, becomes himself responsible for such acts. The
owner of an automobile who permits his chauffeur to drive up the Escolta, for example, at a
speed of 60 miles an hour, without any effort to stop him, although he has had a reasonable
opportunity to do so, becomes himself responsible, both criminally and civilly, for the results
produced by the acts of the chauffeur. On the other hand, if the driver, by a sudden act of
negligence, and without the owner having a reasonable opportunity to prevent the act or its
continuance, injures a person or violates the criminal law, the owner of the automobile,
although present therein at the time the act was committed, is not responsible, either civilly
or criminally, therefor. The act complained of must be continued in the presence of the owner
for such a length of time that the owner, by his acquiescence, makes his driver act his own.

The basis of the master's liability in civil law is not respondent superior but rather the relationship
of paterfamilias. The theory is that ultimately the negligence of the servant, if known to the master
and susceptible of timely correction by him, reflects his own negligence if he fails to correct it in order
to prevent injury or damage.

In the present case the defendants' evidence is that Rafael Bernardo had been Yu Khe Thai's driver
since 1937, and before that had been employed by Yutivo Sons Hardware Co. in the same capacity
for over ten years. During that time he had no record of violation of traffic laws and regulations. No
negligence for having employed him at all may be imputed to his master. Negligence on the part of
the latter, if any, must be sought in the immediate setting and circumstances of the accident, that is,
in his failure to detain the driver from pursuing a course which not only gave him clear notice of the
danger but also sufficient time to act upon it. We do not see that such negligence may be imputed.
The car, as has been stated, was not running at an unreasonable speed. The road was wide and
open, and devoid of traffic that early morning. There was no reason for the car owner to be in any
special state of alert. He had reason to rely on the skill and experience of his driver. He became
aware of the presence of the carretela when his car was only twelve meters behind it, but then his
failure to see it earlier did not constitute negligence, for he was not himself at the wheel. And even
when he did see it at that distance, he could not have anticipated his driver's sudden decision to
pass the carretela on its left side in spite of the fact that another car was approaching from the
opposite direction. The time element was such that there was no reasonable opportunity for Yu Khe
Thai to assess the risks involved and warn the driver accordingly. The thought that entered his mind,
he said, was that if he sounded a sudden warning it might only make the other man nervous and
make the situation worse. It was a thought that, wise or not, connotes no absence of that due
diligence required by law to prevent the misfortune.

The test of imputed negligence under Article 2184 of the Civil Code is, to a great degree, necessarily
subjective. Car owners are not held to a uniform and inflexible standard of diligence as are
professional drivers. In many cases they refrain from driving their own cars and instead hire other
persons to drive for them precisely because they are not trained or endowed with sufficient
discernment to know the rules of traffic or to appreciate the relative dangers posed by the different
situations that are continually encountered on the road. What would be a negligent omission under
aforesaid Article on the part of a car owner who is in the prime of age and knows how to handle a
motor vehicle is not necessarily so on the part, say, of an old and infirm person who is not similarly
equipped.

The law does not require that a person must possess a certain measure of skill or proficiency either
in the mechanics of driving or in the observance of traffic rules before he may own a motor vehicle.
The test of his intelligence, within the meaning of Article 2184, is his omission to do that which the
evidence of his own senses tells him he should do in order to avoid the accident. And as far as
perception is concerned, absent a minimum level imposed by law, a maneuver that appears to be
fraught with danger to one passenger may appear to be entirely safe and commonplace to another.
Were the law to require a uniform standard of perceptiveness, employment of professional drivers by
car owners who, by their very inadequacies, have real need of drivers' services, would be effectively
proscribed.

We hold that the imputation of liability to Yu Khe Thai, solidarily with Rafael Bernardo, is an error.
The next question refers to the sums adjudged by the trial court as damages. The award of P48,000
by way of moral damages is itemized as follows:

1. Marcial Caedo P 20,000.00

2. Juana S. Caedo 15,000.00
3. Ephraim Caedo 3,000.00
4. Eileen Caedo 4,000.00
5. Rose Elaine Caedo 3,000.00
6. Merilyn Caedo 3,000.00

Plaintiffs appealed from the award, claiming that the Court should have granted them also actual or
compensatory damages, aggregating P225,000, for the injuries they sustained. Defendants, on the
other hand maintain that the amounts awarded as moral damages are excessive and should be
reduced. We find no justification for either side. The amount of actual damages suffered by the
individual plaintiffs by reason of their injuries, other than expenses for medical treatment, has not
been shown by the evidence. Actual damages, to be compensable, must be proven. Pain and
suffering are not capable of pecuniary estimation, and constitute a proper ground for granting moral,
not actual, damages, as provided in Article 2217 of the Civil Code.

The injuries sustained by plaintiffs are the following:

MARCIAL T. CAEDO:

A. Contusion, with hematoma, scalp, frontal left; abrasions, chest wall, anterior;
B. Multiple fractures, ribs, right, lst to 5th inclusive. Third rib has a double fracture;
Subparieto-plaural hematoma; Basal disc atelectasis, lung, right lower lobe,
secondary;
C. Pseudotosis, left, secondary to probable basal fracture, skull.

JUANA SANGALANG CAEDO:

A. Abrasions, multiple:
(1)frontal region, left; (2) apex of nose; (3) upper eyelid, left; (4) knees.
B. Wound, lacerated, irregular, deep, frontal;
C. Fracture, simple, 2nd rib posterior, left with displacement.
D. Fracture, simple, base, proximal phalanx right, big toe.
E. Fracture, simple, base, metatarsals III and V right.
F. Concussion, cerebral.

EPHRAIM CAEDO:
 A. Abrasions, multiple:
(1) left temporal area; (2) left frontal; (3) left supraorbital

EILEEN CAEDO:

A. Lacerated wound (V-shaped), base, 5th finger, right, lateral aspect.

B. Abrasions, multiple:
(1) dorsum, proximal phalanx middle finger; (2) Knee, anterior, bilateral; (3) shin,
lower 1/3.

ROSE ELAINE CAEDO:

A. Abrasions, multiple: (1) upper and lower lids; (2) left temporal; (3) nasolabial
region; (4) leg, lower third, anterior.

MARILYN CAEDO:

A. Abrasions, multiple: (1)shin, lower 1/3 right; (2) arm, lower third

C. Contusion with hematoma, shin, lower 1/3, anterior aspect, right. (See Exhibits D,
D-1, D-2, D-3, D-4, and D- 5)

It is our opinion that, considering the nature and extent of the above-mentioned injuries, the amounts
of moral damages granted by the trial court are not excessive.

WHEREFORE, the judgment appealed from is modified in the sense of declaring defendant-
appellant Yu Khe Thai free from liability, and is otherwise affirmed with respect to defendant Rafael
Bernardo, with costs against the latter.

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

Fernando, J., took no part.

Overview: The case involves a vehicular accident resulting in injuries to Marcial Caedo
and his family members. Marcial Caedo filed a lawsuit seeking damages from the
defendants, Yu Khe Thai and Rafael Bernardo. The court found Rafael Bernardo
negligent for the accident and held his employer, Yu Khe Thai, solidarily liable with him.
The key legal issue revolves around the application of the doctrine of imputed
negligence or vicarious liability, particularly whether the owner of the vehicle, Yu Khe
Thai, can be held liable for the negligence of his employee, Rafael Bernardo.

Issue: The main issues in the case are twofold: first, determining who was responsible
for the accident, and second, if Rafael Bernardo was found responsible, whether his
employer, Yu Khe Thai, is solidarily liable with him. This raises the question of whether
Yu Khe Thai, as the owner of the vehicle involved in the accident, can be held vicariously
liable for the negligence of his employee, Rafael Bernardo, under the doctrine of
imputed negligence.

Ruling of the Court: The court held Rafael Bernardo negligent for the accident due to
his decision to pass a caretella (horse-drawn carriage) on the left side despite the
presence of an oncoming vehicle. However, the court concluded that Yu Khe Thai, the
owner of the vehicle, should not be held solidarily liable with Rafael Bernardo. The court
cited Article 2184 of the Civil Code, which imposes solidary liability on the vehicle owner
if they could have prevented the mishap by the use of due diligence.

The court reasoned that there was no negligence on the part of Yu Khe Thai that could
be imputed in this case. It noted that Rafael Bernardo had a good driving record and
that Yu Khe Thai had no reason to anticipate or prevent the specific negligent act that
led to the accident. The court emphasized that car owners are not held to the same
standard of diligence as professional drivers and that Yu Khe Thai had reason to rely on
the skill and experience of his driver.

Therefore, the court ruled in favor of Yu Khe Thai, absolving him from liability, while
affirming the liability of Rafael Bernardo for the damages resulting from the accident.
17.

THIRD DIVISION

G.R. No. 194767, October 14, 2015

EDGAR T. BARROSO, Petitioner, v. HON. JUDGE GEORGE E. OMELIO, PRESIDING

JUDGE, REGIONAL TRIAL COURT, BRANCH 14, DAVAO CITY AND TRAVELLERS
INSURANCE & SURETY CORPORATION, ANTONIO V. BATAO, REGIONAL
MANAGER, Respondents.

DECISION

PERALTA, J.:

This deals with the Petition for Certiorari under Rule 65 of the Rules of Court praying
that the Order1 dated July 29, 2009, and the Order2 dated September 15, 2010, both of
the Regional Trial Court of Davao City, Branch 14 (RTC-Br. 14), be reversed and set
aside.

The antecedent facts are as follow.

Sometime in 2007, herein petitioner filed with the Regional Trial Court of Davao City,
Branch 16 (RTC-Br. 16) a Complaint for sum of money, damages and attorney's fees
against Dennis Li. The complaint included a prayer for the issuance of a writ of
attachment, and after Dennis Li filed his Answer, RTC-Br. 16 granted herein petitioner's
application for a Writ of Attachment and approved the corresponding attachment bond.
On the other hand, Dennis Li filed a counter-attachment bond purportedly issued by
herein respondent Travellers Insurance & Surety Corporation (Travellers).

On January 7, 2008, petitioner filed a Motion for Approval of Compromise Agreement.

Thereafter, RTC-Br. 16 issued a Judgment on Compromise Agreement dated January
22, 2008. However, Dennis Li failed to pay the sums of money as provided for under
said Judgment on Compromise Agreement. Herein petitioner then filed a Motion for
Execution and RTC-Br. 16 issued a Writ of Execution solely against Dennis Li. When said
Writ of Execution against Dennis Li was returned by the Sheriff unsatisfied, petitioner
then filed a Motion for Execution of Judgment upon the Counterbond. Acting on said
Motion, RTC-Br. 16 issued an Order3 dated April 2, 2009, pertinent portions of which
read as follows:
cralawlawlibrary

Since the Writ was returned "UNSATISFIED", plaintiff filed a Motion for Execution of
Judgment upon the Counter-Bond, a copy of which was sent to the Head Office of
Travellers Insurance Surety Corporation. In accordance with the Rules, a summary
hearing to determine the liability under the counterbond was set. Notice of said hearing
was likewise sent to the Head Office of the surety corporation at the address appearing
on the face of the counterbond issued. For reasons unknown, the notice was simply
returned.
The case law cited by movant x x x justifies the issuance of an Alias Writ of Execution
against the Defendant Dennis Li but this time including the Travellers Insurance Surety
Corporation based on its counterbond. x x x.4 chanrobleslaw

An Alias Writ of Execution dated April 28, 2009 was then issued against both Dennis Li
and respondent Travellers based on the counterbond it issued in favor of the former,
and pursuant to said writ, Sheriff Anggot served a Demand Letter on Travellers. In a
letter dated July 1, 2009 addressed to Sheriff Anggot, Travellers asked for a period of
seven (7) days within which to validate the counterbond and, thereafter, for its
representative to discuss the matter with complainant, herein petitioner.

However, on July 10, 2009, instead of appearing before RTC-Br. 16, Travellers filed a
separate case for Declaration of Nullity, Prohibition, Injunction with Prayer for Writ of
Preliminary Injunction & Temporary Restraining Order (TRO), and Damages, which was
raffled to RTC-Br. 14. Said petition prayed for the following reliefs: (a) the issuance of a
TRO enjoining Sheriff Anggot and herein petitioner from implementing and enforcing
the Writ of Execution dated April 28, 2009, and after hearing, the issuance of a writ of
preliminary injunction; (b) judgment be rendered declaring the counterbond and its
supporting documents to be null and void; ordering Sheriff Anggot and herein petitioner
to desist from further implementing the Writ of Execution dated April 28, 2009; and (c)
ordering Sheriff Anggot and herein petitioner to pay Travellers actual and moral
damages, attorney's fees and costs of suit.

After hearing on the application for a writ of preliminary injunction, herein respondent
judge issued the assailed Order dated July 29, 2009 directing the issuance of the writ of
preliminary injunction. RTC-Br. 14, in its Order dated July 29, 2009, ratiocinated,
thus:cralawlawlibrary

Be it noted that under letter (b) of paragraph six (6) of respondents' [herein petitioner
among them] answer with counterclaim they alleged that: "x x x The evidence the
counter-attachment bond is fake has yet to be proven by the petitioner [Travellers] in
the proper forum. Till then, said judicial officers enjoy the presumption of regularity in
the performance of their judicial duties . . ."

Precisely, herein petitioner [comes] before this Court, which is the "proper forum"
referred to by the respondents in their answer, to prove that the counter-attachment
bond which herein respondents are about to implement, is fake. And the only remedy
for the petitioner to hold in abeyance the enforcement of the subject writ of execution
lest the decision of this Court on the merit more so if favorable to the petitioner will
become moot and academic or phyrric victory, is the writ of preliminary injunction.

Anent the respondents' defense that "this Court has no jurisdiction to interfere with the
judgment of RTC, Branch 16 in Davao City" x x x, suffice it to state that this Court is
not interfering with the Order or judgment of RTC-Br. 16 which is a coordinate Court.
On the contrary[,] this Court is merely exercising its complementary jurisdiction with
that of the jurisdiction of RTC 16 - a coordinate court, the latter - to hypothetical ly
state, was hoodwinked into believing as to the regularity and due production of the
subject counter-attachment bond now subject to be executed and enforced against
herein petitioner. While this Court is aware of this doctrine of non-interference by a
Court against the Order or judgment of another coordinate court, this doctrine,
however, is not without exception. The maxim is: For every rule, there is an exception;
for in every room, there is always a door. This case is an exception, x x x5 chanrobleslaw

On July 30, 2009, the Writ of Preliminary Injunction was issued, commanding Sheriff
Anggot to refrain from implementing the Writ of Execution dated April 28, 2009.
Petitioner's motion for reconsideration of the afore-quoted Order was denied in the
Order dated September 15, 2010.

Hence, the instant petition was filed with this Court, alleging that respondent judge
committed grave abuse of discretion amounting to lack or in excess of jurisdiction and
gross ignorance of the law by (1) acting on respondent Travellers' petition despite the
lack of jurisdiction of RTC-Br. 14; (2) issuing the writ of preliminary injunction without
requiring Travellers to put up an injunction bond; and (3) assuming jurisdiction over
the action for prohibition and injunction against the executive sheriff of a co�equal
court.

Herein petitioner, while acknowledging that the Court of Appeals (CA) had concurrent
jurisdiction over this petition, justified his immediate resort to this Court by pointing out
that respondent judge's conduct shows his gross ignorance of the law, and any other
remedy under the ordinary course of law would not be speedy and adequate.

Private respondents, on the other hand, counter that its petition before RTC-Br. 14
involved the issue of the validity of a contract, hence, the court presided by respondent
judge had jurisdiction to take cognizance of the same. Private respondent then
reiterated its arguments regarding the dubious authenticity and genuineness of the
counterbond purportedly issued by Travellers and filed by Dennis Li before RTC-Br. 16.

It must first be emphasized that trifling with the rule on hierarchy of courts is looked
upon with disfavor by the Court. Said rule is an important component of the orderly
administration of justice and not imposed merely for whimsical and arbitrary reasons.
This doctrine was exhaustively explained in The Diocese of Bacolod, represented by the
Most Rev. Bishop Vicente M. Navarra and the Bishop Himself in His Personal Capacity v.
Commission on Elections and the Election Officer of Bacolod City, Atty. Mavil V.
Majarucon6 in this wise: cralawlawlibrary

x x x we explained the necessity of the application of the hierarchy of courts:

The Court must enjoin the observance of the policy on the hierarchy of courts, and now
affirms that the policy is not to be ignored without serious consequences. The
strictness of the policy is designed to shield the Court from having to deal with
causes that are also well within the competence of the lower courts, and thus
leave time for the Court to deal with the more fundamental and more essential
tasks that the Constitution has assigned to it. The Court may act on petitions for
the extraordinary writs of certiorari, prohibition and mandamus only when absolutely
necessary or when serious and important reasons exist to justify an exception to the
policy.

xxxx
The doctrine that requires respect for the hierarchy of courts was created by
this court to ensure that every level of the judiciary performs its designated
roles in an effective and efficient manner.
Trial courts do not only determine the facts from the evaluation of the evidence
presented before them. They are likewise competent to determine issues of law which
may include the validity of an ordinance, statute, or even an executive issuance in
relation to the Constitution. To effectively perform these functions, they are territorially
organized into regions and then into branches. Their writs generally reach within those
territorial boundaries. Necessarily, they mostly perform the all-important task of
inferring the facts from the evidence as these are physically presented before them. In
many instances, the facts occur within their territorial jurisdiction, which properly
present the "actual case" that makes ripe a determination of the constitutionality of
such action. The consequences, of course, would be national in scope. There are,
however, some cases where resort to courts at their level would not be practical
considering their decisions could still be appealed before the higher courts, such as the
Court of Appeals.

The Court of Appeals is primarily designed as an appellate court that reviews the
determination of facts and law made by the trial courts. It is collegiate in nature. This
nature ensures more standpoints in the review of the actions of the trial court. But the
Court of Appeals also has original jurisdiction over most special civil actions. Unlike the
trial courts, its writs can have a nationwide scope. It is competent to determine facts
and, ideally, should act on constitutional issues that may not necessarily be novel
unless there are factual questions to determine.

This court, on the other hand, leads the judiciary by breaking new ground or further
reiterating - in the light of new circumstances or in the light of some confusion of bench
or bar - existing precedents. Rather than a court of first instance or as a repetition of
the actions of the Court of Appeals, this court promulgates these doctrinal devices in
order that it truly performs that role.7
chanrobleslaw

However, in the same case, it was acknowledged that for exceptionally compelling
reasons, the Court may exercise its discretion to act on special civil actions
for certiorari filed directly with it. Examples of cases that present compelling reasons
are: (1) those involving genuine issues of constitutionality that must be addressed at
the most immediate time; (2) those where the issues are of transcendental importance,
and the threat to fundamental constitutional rights are so great as to outweigh the
necessity for prudence; (3) cases of first impression, where no jurisprudence yet exists
that will guide the lower courts on such issues; (4) where the constitutional issues
raised are better decided after a thorough deliberation by a collegiate body and with the
concurrence of the majority of those who participated in its discussion; (5) where time
is of the essence; (6) where the act being questioned was that of a constitutional body;
(7) where there is no other plain, speedy, and adequate remedy in the ordinary course
of law that could free petitioner from the injurious effects of respondents' acts in
violation of their constitutional rights; and (8) the issues involve public welfare, the
advancement of public policy, the broader interest of justice, or where the orders
complained of are patent nullities, or where appeal can be considered as clearly an
inappropriate remedy.8

Verily, the issues in this case could have been competently resolved by the CA, thus,
the Court was initially inclined to reject taking cognizance of this case. However, we
cannot close our eyes to the unbecoming conduct exhibited by respondent judge in
obstinately issuing an injunction against the orders of a co-equal court despite this
Court's consistent reiteration of the time-honored principle that "no court has the power
to interfere by injunction with the judgments or decrees of a court of concurrent or
coordinate jurisdiction. The various trial courts of a province or city, having the
same or equal authority, should not, cannot, and are not permitted to interfere
with their respective cases, much less with their orders or judgments." 9 The
issue raised in this case, therefore, falls under one of the exceptions to the rule on
hierarchy of courts, i.e., where the order complained of is a patent nullity.

Atty. Cabili v. Judge Balindong10 is closely analogous to the present case. In Cabili, the
RTC of Iligan City issued a writ of execution, but the judgment debtor, instead of
complying with said writ, filed a separate petition for prohibition and mandamus with
application for issuance of temporary restraining order (TRO) and/or preliminary
injunction with the RTC of Marawi City. After the hearing, the Presiding Judge of the
RTC of Marawi City issued the TRO restraining the sheriff from enforcing the writ of
execution issued by the RTC of Iligan City.

In the aforementioned case, the Court struck down such action of the RTC of Marawi
City, ruling thus:
cralawlawlibrary

The doctrine of judicial stability or non-interference in the regular orders or judgments

of a co-equal court is an elementary principle in the administration of justice: no court
can interfere by injunction with the judgments or orders of another court of
concurrent jurisdiction having the power to grant the relief sought by the injunction.
The rationale for the rule is founded on the concept of jurisdiction: a court that acquires
jurisdiction over the case and renders judgment therein has jurisdiction over Its
judgment, to the exclusion of all other coordinate courts, for its execution and
over all its incidents, and to control, in furtherance of justice, the conduct of
ministerial officers acting in connection with this judgment.

Thus, we have repeatedly held that a case where an execution order has been issued is
considered as still pending, so that all the proceedings on the execution are still
proceedings in the suit. A court which issued a writ of execution has the inherent
power, for the advancement of justice, to correct errors of its ministerial officers and to
control its own processes. To hold otherwise would be to divide the jurisdiction of the
appropriate forum in the resolution of incidents arising in execution proceedings-
Splitting of jurisdiction is obnoxious to the orderly administration of justice.

xxxx

To be sure, the law and the rules are not unaware that an issuing court may violate the
law in issuing a writ of execution and have recognized that there should be a remedy
against this violation. The remedy, however, is not the resort to another co-equal body
but to a higher court with authority to nullify the action of the issuing court. This is
precisely the judicial power that the 1987 Constitution, under Article VIII, Section 1,
paragraph 2, speaks of and which this Court has operationalized through a petition
for certiorari, under Rule 65 of the Rules of Court.

xxxx
It is not a viable legal position to claim that a TRO against a writ of execution is issued
against an erring sheriff, not against the issuing Judge. A TRO enjoining the
enforceability of a writ addresses the writ itself, not merely the executing sheriff x x x
As already mentioned above, the appropriate action is to assail the implementation of
the writ before the issuing court in whose behalf the sheriff acts, and, upon failure, to
seek redress through a higher judicial body, xxx.11 chanrobleslaw

Applying the foregoing ruling, it is quite clear that, in this case, the issuance of the
subject writ of preliminary injunction was improper and, thus, correctible
by certiorari. Herein respondent judge does not have jurisdiction to hinder the
enforcement of an order of a co-equal court. He must be aware that said co-equal court
had the exclusive jurisdiction or authority to correct its own issuances if ever there was,
indeed, a mistake. There is no question, therefore, that subject writ of preliminary
injunction is null and void.

Further, had Judge Omelio not been dismissed from the service in 2013 for gross
ignorance of the law and violation of judicial conduct, he could have been subjected to
an investigation again for gross ignorance due to his unprecedented acts in the case at
bar.

WHEREFORE, the instant petition is GRANTED and the Orders dated July 29, 2009
and September 15, 2010, both issued by the Regional Trial Court of Davao City, Branch
14, are hereby SET ASIDE and declared NULL and VOID.

SO ORDERED

Velasco, Jr., (Chairperson), Villarama, Jr., Mendoza, * and Jardeleza, JJ., concur.
Overview: The case involves a Petition for Certiorari under Rule 65 of the
Rules of Court, seeking to reverse and set aside the Orders dated July 29,
2009, and September 15, 2010, issued by the Regional Trial Court of Davao
City, Branch 14 (RTC-Br. 14). These orders pertained to the issuance of a writ of
preliminary injunction hindering the enforcement of an order from a co-equal
court.

Issue: The primary issue revolves around whether the respondent judge of
RTC-Br. 14 committed grave abuse of discretion amounting to lack or excess
of jurisdiction and gross ignorance of the law by issuing a writ of preliminary
injunction against the orders of a co-equal court.

Ruling of the Court: The Court emphasized the doctrine of judicial stability or
non-interference with the regular orders or judgments of a co-equal court. It
reiterated that no court has the power to interfere with the judgments or
orders of another court of concurrent jurisdiction. The Court held that the
issuance of the writ of preliminary injunction by RTC-Br. 14 against the orders
of a co-equal court was improper and amounted to a patent nullity.

The Court cited the case of Atty. Cabili v. Judge Balindong, which established
that the appropriate remedy against the violation of law in issuing a writ of
execution is not the resort to another co-equal body but to a higher court with
the authority to nullify the action of the issuing court. Therefore, the remedy in
such cases is a petition for certiorari under Rule 65 of the Rules of Court.

In conclusion, the Court granted the petition and set aside the orders of RTC-
Br. 14, declaring them null and void. Additionally, the Court noted that the
respondent judge could have been subjected to an investigation for gross
ignorance of the law if he had not been dismissed from service for similar
reasons in 2013.
18.

Republic of the Philippines

SUPREME COURT
Baguio

FIRST DIVISION

G.R. No. 175303 April 11, 2012

PACIFIC ACE FINANCE LTD. (PAFIN), Petitioner,

vs.
EIJI* YANAGISAWA, Respondent.

DECISION

DEL CASTILLO, J.:

An undertaking not to dispose of a property pending litigation, made in open court and embodied in a
court order, and duly annotated on the title of the said property, creates a right in favor of the person
relying thereon. The latter may seek the annulment of actions that are done in violation of such
undertaking.

Before us is a Petition for Review of the August 1, 2006 Decision of the Court of Appeals (CA) in
1 2

CA-G.R. CV No. 78944, which held:

WHEREFORE, the Decision dated April 20, 2003 of the RTC, Branch 258, Parañaque City, is
hereby ANNULLED and SET ASIDE and a new one entered annulling the Real Estate Mortgage
executed on August 25, 1998 in favor of defendant Pacific Ace Finance Ltd.

SO ORDERED. 3

Factual Antecedents

Respondent Eiji Yanagisawa (Eiji), a Japanese national, and Evelyn F. Castañeda (Evelyn), a
Filipina, contracted marriage on July 12, 1989 in the City Hall of Manila.4

On August 23, 1995, Evelyn purchased a 152 square-meter townhouse unit located at Bo. Sto. Niño,
Parañaque, Metro Manila (Parañaque townhouse unit). The Registry of Deeds for Parañaque issued
5

Transfer Certificate of Title (TCT) No. 99791 to "Evelyn P. Castañeda, Filipino, married to Ejie
Yanagisawa, Japanese citizen[,] both of legal age." 6

In 1996, Eiji filed a complaint for the declaration of nullity of his marriage with Evelyn on the ground
of bigamy (nullity of marriage case). The complaint, docketed as Civil Case No. 96-776, was raffled
to Branch 149 of the Regional Trial Court of Makati (Makati RTC). During the pendency of the case,
Eiji filed a Motion for the Issuance of a Restraining Order against Evelyn and an Application for a
Writ of a Preliminary Injunction. He asked that Evelyn be enjoined from disposing or encumbering all
of the properties registered in her name.
At the hearing on the said motion, Evelyn and her lawyer voluntarily undertook not to dispose of the
properties registered in her name during the pendency of the case, thus rendering Eiji’s application
and motion moot. On the basis of said commitment, the Makati RTC rendered the following Order
dated October 2, 1996:

ORDER

In view of the commitment made in open court by Atty. Lupo Leyva, counsel for the defendant
[Evelyn], together with his client, the defendant in this case, that the properties registered in the
name of the defendant would not be disposed of, alienated or encumbered in any manner during the
pendency of this petition, the Motion for the Issuance of a Restraining Order and Application for a
Writ of a Preliminary Injunction scheduled today is hereby considered moot and academic.

SO ORDERED. (Emphasis supplied.)

7

The above Order was annotated on the title of the Parañaque townhouse unit or TCT No. 99791,
thus:

Entry No. 8729 – Order – issued by Hon. Josefina Guevara Salonga, Judge, RTC, Branch 149,
Makati City, ordering the defendant in Civil Case No. 96-776 – entitled Eiji Yanagisawa, Plaintiff-
versus-Evelyn Castañeda Yanagisawa, that the properties registered in the name of the
defendant would not be disposed of, alienated or encumbered in any manner during the
pendency of the petition, the Motion for the Issuance of a Restraining Order and Application for a
Writ of Preliminary Injunction is hereby considered moot and academic.

Date of Instrument – October 2, 1996

Date of Inscription – March 17, 1997 – 11:21 a.m. (Emphasis supplied.)

8

Sometime in March 1997, Evelyn obtained a loan of ₱500,000.00 from petitioner Pacific Ace
Finance Ltd. (PAFIN). To secure the loan, Evelyn executed on August 25, 1998 a real estate
9

mortgage (REM) in favor of PAFIN over the Parañaque townhouse unit covered by TCT No. 99791.
10

The instrument was submitted to the Register of Deeds of Parañaque City for annotation on the
same date. 11

At the time of the mortgage, Eiji’s appeal in the nullity of marriage case was pending before the
CA. The Makati RTC had dissolved Eiji and Evelyn’s marriage, and had ordered the liquidation of
12 13

their registered properties, including the Parañaque townhouse unit, with its proceeds to be divided
between the parties. The Decision of the Makati RTC did not lift or dissolve its October 2, 1996
14

Order on Evelyn’s commitment not to dispose of or encumber the properties registered in her name.

Eiji learned of the REM upon its annotation on TCT No. 99791. Deeming the mortgage as a violation
of the Makati RTC’s October 2, 1996 Order, Eiji filed a complaint for the annulment of REM
(annulment of mortgage case) against Evelyn and PAFIN. The complaint, docketed as Civil Case
15

No. 98-0431, was raffled to Branch 258 of the Regional Trial Court of Parañaque City (Parañaque
RTC).

For its defense, PAFIN denied prior knowledge of the October 2, 1996 Order against Evelyn. It
admitted, however, that it did not conduct any verification of the title with the Registry of Deeds of
Parañaque City "because x x x Evelyn was a good, friendly and trusted neighbor." PAFIN16
maintained that Eiji has no personality to seek the annulment of the REM because a foreign national
cannot own real properties located within the Philippines. 17

Evelyn also denied having knowledge of the October 2, 1996 Order. Evelyn asserted that she paid
18

for the property with her own funds and that she has exclusive ownership thereof.
19 20

Parañaque Regional Trial Court Decision 21

The Parañaque RTC determined that the only issue before it is "whether x x x [Eiji] has a cause of
action against the defendants and x x x is entitled to the reliefs prayed for despite the fact that he is
not the registered owner of the property being a Japanese national." 22

The Parañaque RTC explained that Eiji, as a foreign national, cannot possibly own the mortgaged
property. Without ownership, or any other law or contract binding the defendants to him, Eiji has no
cause of action that may be asserted against them. Thus, the Parañaque RTC dismissed Eiji’s
23

complaint:

WHEREFORE, premises considered, for failure of the plaintiff to state a cause of action against
defendants, EVELYN CASTAÑEDA YANAGISAWA and Pacific Ace Finance Ltd. (PAFIN), this case
is DISMISSED.

The counterclaim and cross-claim are likewise DISMISSED.

SO ORDERED. 24

Eiji appealed the trial court’s decision arguing that the trial court erred in holding that his inability to
own real estate property in the Philippines deprives him of all interest in the mortgaged property,
which was bought with his money. He added that the Makati RTC has even recognized his
contribution in the purchase of the property by its declaration that he is entitled to half of the
proceeds that would be obtained from its sale.

Eiji also emphasized that Evelyn had made a commitment to him and to the Makati RTC that she
would not dispose of, alienate, or encumber the properties registered in her name while the case
was pending. This commitment incapacitates Evelyn from entering into the REM contract.

Court of Appeals Decision 25

The CA found merit in Eiji’s appeal.

The CA noted that the Makati RTC ruled on Eiji’s and Evelyn’s ownership rights over the properties
that were acquired during their marriage, including the Parañaque townhouse unit. It was determined
therein that the registered properties should be sold at public auction and the proceeds thereof to be
divided between Eiji and Evelyn. 26

Contrary to this ruling, the Parañaque RTC ruled that Eiji has no ownership rights over the
Parañaque townhouse unit in light of the constitutional prohibition on foreign ownership of lands and
that the subject property is Evelyn’s exclusive property. 27

The appellate court determined that the Parañaque RTC’s Decision was improper because it
violated the doctrine of non-interference. Courts of equal jurisdiction, such as regional trial courts,
have no appellate jurisdiction over each other. For this reason, the CA annulled and set aside the
28

Parañaque RTC’s decision to dismiss Eiji’s complaint. 29

The CA then proceeded to resolve Eiji’s complaint. The CA noted that Eiji anchored his complaint
30

upon Evelyn’s violation of her commitment to the Makati RTC and to Eiji that she would not dispose
of, alienate, or encumber the properties registered in her name, including the Parañaque townhouse
unit. This commitment created a right in favor of Eiji to rely thereon and a correlative obligation on
1âwphi1

Evelyn’s part not to encumber the Parañaque townhouse unit. Since Evelyn’s commitment was
annotated on TCT No. 99791, all those who deal with the said property are charged with notice of
the burdens on the property and its registered owner. 31

On the basis of Evelyn’s commitment and its annotation on TCT No. 99791, the CA determined that
Eiji has a cause of action to annul the REM contract. Evelyn was aware of her legal impediment to
encumber and dispose of the Parañaque townhouse unit. Meanwhile, PAFIN displayed a wanton
disregard of ordinary prudence when it admitted not conducting any verification of the title
whatsoever. The CA determined that PAFIN was a mortgagee in bad faith. 32

Thus, the CA annulled the REM executed by Evelyn in favor of PAFIN.

The parties to the annulled mortgage filed separate motions for reconsideration on August 22,
2006, which were both denied for lack of merit by the appellate court in its November 7, 2006
33

Resolution. 34

PAFIN filed this petition for review.

Petitioner’s Arguments

Petitioner seeks a reversal of the CA Decision, which allegedly affirmed the

Makati RTC ruling that Eiji is a co-owner of the mortgaged property. PAFIN insists that the CA
sustained a violation of the constitution with its declaration that an alien can have an interest in real
property located in the Philippines. 35

Petitioner also seeks the reinstatement of the Parañaque RTC’s Decision dated April 20, 2003 and 36

prays that this Court render a decision that Eiji cannot have ownership rights over the mortgaged
property and that Evelyn enjoys exclusive ownership thereof. As the sole owner, Evelyn can validly
mortgage the same to PAFIN without need of Eiji’s consent. Corollarily, Eiji has no cause of action to
seek the REM’s annulment. 37

Respondent’s Arguments

Respondent argues that he has an interest to have the REM annulled on two grounds: First, Evelyn
made a commitment in open court that she will not encumber the Parañaque townhouse unit during
the pendency of the case. Second, the Makati RTC’s decision declared that he is entitled to share in
the proceeds of the Parañaque townhouse unit. 38

Respondent also insists that petitioner is in bad faith for entering into the mortgage contract with
Evelyn despite the annotation on TCT No. 99791 that Evelyn committed herself not to encumber the
same. 39

Issues
Petitioner raises the following issues: 40

1. Whether a real property in the Philippines can be part of the community property of a
Filipina and her foreigner spouse;

2. Whether a real property registered solely in the name of the Filipina wife is paraphernal or
conjugal;

3. Who is entitled to the real property mentioned above when the marriage is declared void?

4. Whether the Parañaque RTC can rule on the issue of ownership, even as the same issue
was already ruled upon by the Makati RTC and is pending appeal in the CA.

Our Ruling

The petition has no merit.

Contrary to petitioner’s stance, the CA did not make any disposition as to who between Eiji and
Evelyn owns the Parañaque townhouse unit. It simply ruled that the Makati RTC had acquired
jurisdiction over the said question and should not have been interfered with by the Parañaque RTC.
The CA only clarified that it was improper for the Parañaque RTC to have reviewed the ruling of a
co-equal court.

The Court agrees with the CA. The issue of ownership and liquidation of properties acquired during
the cohabitation of Eiji and Evelyn has been submitted for the resolution of the Makati RTC, and is
pending appeal before the CA. The doctrine of judicial stability or non-interference dictates that the
41

assumption by the Makati RTC over the issue operates as an "insurmountable barrier" to the
subsequent assumption by the Parañaque RTC. By insisting on ruling on the same issue, the
42

Parañaque RTC effectively interfered with the Makati RTC’s resolution of the issue and created the
possibility of conflicting decisions. Cojuangco v. Villegas states: "The various branches of the
43

[regional trial courts] of a province or city, having as they have the same or equal authority and
exercising as they do concurrent and coordinate jurisdiction, should not, cannot and are not
permitted to interfere with their respective cases, much less with their orders or judgments. A
contrary rule would obviously lead to confusion and seriously hamper the administration of justice."
The matter is further explained thus:

It has been held that "even in cases of concurrent jurisdiction, it is, also, axiomatic that the court first
acquiring jurisdiction excludes the other courts."

In addition, it is a familiar principle that when a court of competent jurisdiction acquires jurisdiction
over the subject matter of a case, its authority continues, subject only to the appellate authority, until
the matter is finally and completely disposed of, and that no court of co-ordinate authority is at liberty
to interfere with its action. This doctrine is applicable to civil cases, to criminal prosecutions, and to
courts-martial. The principle is essential to the proper and orderly administration of the laws; and
while its observance might be required on the grounds of judicial comity and courtesy, it does not
rest upon such considerations exclusively, but is enforced to prevent unseemly, expensive, and
dangerous conflicts of jurisdiction and of the process. 44

Petitioner maintains that it was imperative for the Parañaque RTC to rule on the ownership issue
because it was essential for the determination of the validity of the REM. 45
The Court disagrees. A review of the complaint shows that Eiji did not claim ownership of the
Parañaque townhouse unit or his right to consent to the REM as his bases for seeking its annulment.
Instead, Eiji invoked his right to rely on Evelyn’s commitment not to dispose of or encumber the
property (as confirmed in the October 2, 1996 Order of the Makati RTC), and the annotation of the
said commitment on TCT No. 99791.

It was Evelyn and PAFIN that raised Eiji’s incapacity to own real property as their defense to the
suit. They maintained that Eiji, as an alien incapacitated to own real estate in the Philippines, need
1âwphi1

not consent to the REM contract for its validity. But this argument is beside the point and is not a
proper defense to the right asserted by Eiji. This defense does not negate Eiji’s right to rely on the
October 2, 1996 Order of the Makati RTC and to hold third persons, who deal with the registered
property, to the annotations entered on the title. Thus, the RTC erred in dismissing the complaint
based on this defense.

Petitioner did not question the rest of the appellate court’s ruling, which held that Evelyn and PAFIN
executed the REM in complete disregard and violation of the October 2, 1996 Order of the Makati
RTC and the annotation on TCT No. 99791. It did not dispute the legal effect of the October 2, 1996
Order on Evelyn’s capacity to encumber the Parañaque townhouse unit nor the CA’s finding that
petitioner is a mortgagee in bad faith.

The October 2, 1996 Order, embodying Evelyn’s commitment not to dispose of or encumber the
property, is akin to an injunction order against the disposition or encumbrance of the property.
Jurisprudence holds that all acts done in violation of a standing injunction order are voidable as to
the party enjoined and third parties who are not in good faith. The party, in whose favor the
46

injunction is issued, has a cause of action to seek the annulment of the offending actions. The
47

following is instructive:

An injunction or restraining order must be obeyed while it remains in full force and effect until the
injunction or restraining order has been set aside, vacated, or modified by the court which granted it,
or until the order or decree awarding it has been reversed on appeal. The injuction must be obeyed
irrespective of the ultimate validity of the order, and no matter how unreasonable and unjust the
injunction may be in its terms.
48

In view of the foregoing discussion, we find no need to discuss the other issues raised by the
petitioner.

WHEREFORE, premises considered, the Petition is DENIED for lack of merit. The August 1, 2006
Decision of the Court of Appeals in CA-G.R. CV No. 78944 is AFFIRMED.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO LUCAS P. BERSAMIN

 Associate Justice Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in
the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

Footnotes

* Also spelled as Ejie in some parts of the records.

1
Rollo, pp. 3-21.

2
CA rollo, pp. 101-112.

3
Id. at 111.

4
Records, Vol. 2, p. 425.

5
Id. at 569-573.

6
Id. at 470.

7
Id. at 435 and 604.

8
Records, Vol. 1, p. 98.

9
Records, Vol 2, p. 574.

10
Id. at 467-469.

11
Id. at 601.

12
CA Decision, p. 9; CA rollo, p. 109; Respondent’s Memorandum, p. 4; rollo, p. 115.

13
The dispositive portion reads:

WHEREFORE, plaintiff having established his case against defendant by

preponderance of evidence, the marriage between plaintiff and defendant contracted
on July 12, 1989 is hereby declared VOID AB INITIO. Accordingly, the absolute
 community of property existing between the parties is dissolved and in lieu thereof a
regime of complete separation of property between the parties is established in
accordance with the provisions of Chapter 6 of the Family Code, without prejudice to
the rights previously acquired by creditors. Thus, the parties are declared co-
owners of the following real estate properties, to wit:

a) a parcel of land in Paranaque, Metro Manila covered by TCT No. 63782,

registered on June 17, 1992;

b) a parcel of land in Paranaque, Metro Manila covered by TCT No.

99791 registered on August 23, 1995; and

c) a parcel of land in Pagbilao, Quezon covered by TCT No. T-295343 registered on

October 20, 1994.

xxxx

Accordingly, let a copy of this Decision be duly recorded in the proper civil and
property registries.

SO ORDERED. (RTC Decision in Civil Case No. 96-776, pp. 10-11; Records, Vol. 1,
pp. 108-109)

14
The Order reads thus:

Acting on plaintiff’s Motion for Reconsideration dated February 9, 1998, which was
opposed by the defendant through counsel considering that there was no conjugal
partnership obtained that existed between plaintiff, their property relation has been
governed by the rules of co-ownership under Article 148 of the Family Code. The
Court finds no cogent reason to disturb its findings except that plaintiff being a
foreigner is prohibited to own real property in the Philippines and that the said parcel
of land enumerated in the said decision are hereby ordered sold at public auction
and the proceeds to be divided between plaintiff and defendant. (Defendant PAFIN’s
Comment, p. 2; Records, Vol. 2, p. 447.)

15
Records, Vol. 1, pp. 1-7.

PAFIN’s Answer, p. 5; Records, Vol. 1, p. 141; Direct examination of Marietta Delos Santos,
16

TSN dated December 1, 2000, pp. 25-27; Records, Vol. 1, pp. 966-968.

17
PAFIN’S Answer, p. 6; Records, Vol. 1, p. 142.

18
Answer of Evelyn Castaneda, p. 5; Records, Vol. 1, p. 204.

19
Direct examination of Evelyn Castaneda, TSN dated September 5, 2001, pp. 13, 17-19.

20
Answer of Evelyn Castaneda, p. 3; Records, Vol. 1, p. 202.

21
Records, Vol. 3, pp. 726-732; penned by Judge Raul E. De Leon.

22
RTC Decision, p. 5; Records, Vol. 3, p. 730.
23
Id. at 7; id. at 732.

24
Id.; id.

CA rollo, pp. 101-112; penned by Associate Justice Estela M. Perlas-Bernabe (now a

25

Member of this Court) and concurred in by Associate Justices Andres B. Reyes, Jr. and
Hakim S. Abdulwahid.

26
CA Decision, p. 6; CA rollo, p. 106.

27
Id.; id.

28
Id. at 8; id. at 108.

29
Id. at 11; id. at 111.

30
Id. at 8; id. at 108.

31
Id. at 9; id. at 109.

32
Id. at 10-11; id. at 110-111.

33
CA rollo, pp. 116-122 and 123-125.

34
Id. at 131.

35
Petitioner’s Memorandum, p. 14; rollo, p. 101.

36
Id. at 21; id. at 108.

37
Id. at 14-16; id. at 101-103.

38
Respondent’s Memorandum, pp. 6-7; id. at 117-118.

39
Id. at 7-8; id. at 118-119.

40
Petitioner’s Memorandum, p. 12; id. at 99.

Respondent claimed in his Comment (rollo, p. 70) and Memorandum (rollo, p. 118) that the
41

Decision of the Makati RTC was affirmed by the CA. He further maintained that the Decision
of the CA had already attained finality (rollo, pp. 70 and 118). Notably, respondent did not
attach a copy of the appellate court’s decision or a certification to that effect to any of his
pleadings. Thus, the Court cannot consider these bare factual assertions in its resolution of
the instant case.

42
Panlilio v. Salonga, G.R. No. 113087, June 27, 1994, 233 SCRA 476, 481-482.

43
263 Phil. 291, 297 (1990).

44
Lee v. Presiding Judge, 229 Phil. 405, 414 (1986). Citations omitted.
 45
Petitioner’s Memorandum, p.16; rollo, p. 103.

Air Materiel Wing Savings and Loan Association, Inc. v. Manay, G.R. No. 175338, October
46

9, 2007, 535 SCRA 356, 375-377; Lee v. Court of Appeals, 528 Phil. 1050, 1070 (2006).

Air Materiel Wing Savings and Loan Association, Inc. v. Manay, G.R. No. 175338, October
47

9, 2007, 535 SCRA 356, 375-377.

48
Id. at 375.

The Lawphil Project - Arellano Law Foundation

Overview: The case involves a dispute over a real estate mortgage (REM) executed by
Evelyn Yanagisawa in favor of Pacific Ace Finance Ltd. (PAFIN) over a property in
Parañaque City. The petitioner, Eiji Yanagisawa, challenged the validity of the REM,
arguing that it violated an undertaking made by Evelyn not to dispose of or encumber
the property during the pendency of a separate case. The Court of Appeals (CA)
annulled the REM, prompting PAFIN to file a petition for review.

Issue: The main issue revolves around whether the Parañaque Regional Trial Court (RTC)
had the authority to rule on the validity of the REM, considering that a similar issue had
already been ruled upon by the Makati RTC, which was still pending appeal at the CA.

Ruling: The Supreme Court denied PAFIN's petition for lack of merit and affirmed the
CA's decision. The Court emphasized the doctrine of judicial stability or non-
interference, which dictates that courts of equal jurisdiction should not interfere with
each other's decisions. In this case, the Parañaque RTC interfered with the jurisdiction of
the Makati RTC by ruling on a similar issue. The Court held that the Makati RTC's ruling
on ownership and liquidation of properties during the cohabitation of Eiji and Evelyn
should be respected and that the Parañaque RTC's decision to dismiss Eiji's complaint
was improper. Additionally, the Court upheld Eiji's right to rely on Evelyn's commitment
not to dispose of or encumber the property, as confirmed by the Makati RTC's order,
and the annotation of said commitment on the property title. Therefore, the Court
affirmed the CA's decision to annul the REM executed by Evelyn in favor of PAFIN.
19.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 120027 April 21, 1999

EDNA A. RAYNERA, for herself and on behalf of the minors RIANNA and REIANNE
RAYNERA, petitioners,
vs.
FREDDIE HICETA and JIMMY ORPILLA, respondents.

PARDO, J.:

The case is a petition for review certiorari of the decision of the Court of Appeals, 1 reversing that of
the Regional Trial Court, Branch 45, Manila. 2

The rule is well-settled that factual findings of the Court of Appeals are generally considered final and may not be reviewed on appeal.
However, this principle admits of certain exceptions, among which is when the findings of the appellate court are contrary to those of the trial
court, a re-examination of the facts and evidence may be undertaken. 3 This case falls under the cited exception.

The antecedent facts are as follows:

Petitioner Edna A. Raynera was the widow of Reynaldo Raynera and the mother and legal guardian
of the minors Rianna and Reianne, both surnamed Raynera. Respondents Freddie Hiceta and
Jimmy Orpilla were the owner and driver, respectively, of an Isuzu truck-trailer with plate No. NXC
848, involved in the accident. 1âwphi1.nêt

On March 23, 1989, at about 2:00 in the morning, Reynaldo Raynera was on his way home. He was
riding a motorcycle traveling on the southbound lane of East Service Road, Cupang, Muntinlupa.
The truck
The Isuzu truck was travelling ahead of him at 20 to 30 kilometers per hour. 4
was loaded with two (2) metal sheets extended on both
sides, two (2) feet on the left and three (3) feet on the
right. There were two (2) pairs of red lights, about 35 watts
each, on both sides of the metal plates. The asphalt road was not well lighted. 5

At some point on the road, Reynaldo Raynera crashed his motorcycle into the left rear portion of the
truck trailer, which was without tail lights. Due to the collision, Reynaldo sustained head injuries and
truck helper Geraldino D.
Lutelo 6 rushed him to the Parañaque Medical Center. Upon arrival at the hospital, the attending physician, Dr. Marivic
Aguirre, 7 pronounced Reynaldo Raynera dead on arrival.
At the time of his death, Reynaldo was manager of the Engineering Department, Kawasaki Motors
(Phils.) Corporation. He was 32 years old, had a life expectancy of sixty five (65) years, and an
annual net earnings of not less than seventy three thousand five hundred (P73,500.00) pesos, 8 with a
9
potential increase in annual net earnings of not less than ten percent (10%) of his salary.

On May 12, 1989, the heirs of the deceased demanded 10 from respondents payment of damages arising from the death of Reynaldo
Raynera as a result of the vehicular accident. The respondents refused to pay the claims.

On September 13, 1989, petitioners filed with the Regional Trial Court, Manila 11 a complaint 12
for damages
against respondents owner and driver of the Isuzu truck.

In their complaint against respondents, petitioners sought recovery of damages for the death of
Reynaldo Raynera caused by the negligent operation of the truck-trailer at nighttime on the highway,
without tail lights.

In their answer filed on April 4, 1990, respondents alleged that the truck was travelling slowly on the
service road, not parked improperly at a dark portion of the road, with no tail lights, license plate and
early warning device.

At the trial, petitioners presented Virgilio Santos. He testified that at about 1.00 and 2:00 in the
morning of March 23, 1989, he and his wife went to Alabang, market, on board a tricycle. They
passed by the service road going south, and saw a parked truck trailer, with its hood open and
without tail lights. They would have bumped the truck but the tricycle driver was quick in avoiding a
collision. The place was dark, and the truck had no early warning device to alert passing motorists. 13

On the other hand, respondents presented truck helper Geraldino

Lucelo. 14 He testified that at the time the incident happened, the truck was slowly traveling at approximately 20 to 30 kilometers per hour.
Another employee of respondents, auto-mechanic Rogoberto Reyes, 15 testified that at about 3:00 in the afternoon of March 22, 1989, with
the help of Lucelo, he installed two (2) pairs of red lights, about 30 to 40 watts each, on both sides of the steel plates. 16 On his part, traffic
investigation officer Cpl. Virgilio del Monte 17 admitted that these lights were visible at a distance of 100 meters.

On December 19, 1991, the trial court rendered decision in favor of petitioners. It found respondents
Freddie Hiceta and Jimmy Orpilla negligent in view of these circumstances: (1) the truck trailer had
no license plate and tail lights; (2) there were only two pairs of red lights, 50 watts 18 each, on both
sides of the steel plates; and (3) the truck trailer was improperly parked in a dark area.

The trial court held that respondents' negligence was the immediate and proximate cause of
Reynaldo Raynera's death, for which they are jointly and severally liable to pay damages to
petitioners. The trial court also held that the victim was himself negligent, although this was
insufficient to overcome respondents' negligence. The trial court applied the doctrine of contributory
negligence 19 and reduced the responsibility of respondents by 20% on account of the victim's own
negligence.

The dispositive portion of the lower court's decision reads as follows:

All things considered, the Court is of the opinion that it is fair and reasonable to fix
the living and other expenses of the deceased the sum of P54,000.00 a year or
about P4,500.00 a month (P150.00 p/d) and that, consequently, the loss or damage
sustained by the plaintiffs may be estimated at P1,674,000.00 for the 31 years of
Reynaldo Raynera's life expectancy.

Taking into account the cooperative negligence of the deceased Reynaldo Raynera,
the Court believes that the demand of substantial justice are satisfied by allocating
 the damages on 80-20 ratio. Thus, P1,337,200.00 shall be paid by the defendants
with interest thereon, at the legal rate, from date of decision, as damages for the loss
of earnings. To this sum, the following shall be added:

(a) P33,412.00, actually spent for funeral services,

interment and memorial lot;

(b) P20,000.00 as attorney's fees;

(c) cost of suit.

SO ORDERED. 20

On January 10, 1992, respondents Hiceta and Orpilla appealed to the Court of Appeals. 21

After due proceedings, on April 28, 1995, the Court of Appeals rendered decision setting aside the
appealed decision. The appellate court held that Reynaldo Raynera's bumping into the left rear
portion of the truck was the proximate cause or his death, and consequently, absolved
22

respondents from liability.

Hence, this petitition for review on certiorari.

In this petition, the heirs of Reynaldo Raynera contend that the appellate court erred in: (1)
overturning the trial court's finding that respondents' negligent operation of the Isuzu truck was the
proximate cause of the victim's death; (2) applying the doctrine of last clear chance; (3) setting aside
the trial court's award of actual and compensatory damages.

The issues presented are (a) whether respondents were negligent, and if so, (b) whether such
negligence was the proximate cause of the death of Reynaldo Raynera.

Petitioners maintain that the proximate cause of Reynaldo Raynera's death was respondents'
negligence in operating the truck trailer on the highway without tail lights and license plate.

The Court finds no reason to disturb the factual findings of the Court of Appeals.

"Negligence is the omission to do something which a reasonable man, guided by those

considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something, which a prudent and reasonable man would not do." 23

Proximate cause is "that cause, which, in natural and continous sequence, unbroken by any efficient intervening cause, produces the injury,
and without which the result would not have occured." 24

During the trial, it was established that the truck had no tail lights. The photographs taken of the
scene of the accident showed that there were no tail lights of license plates installed on the Isuzu
truck. Instead, what were installed were two (2) pairs of lights on top of the steel plates, and one (1)
pair of lights in front of the truck. With regard to the rear of the truck, the photos taken and the sketch
in the spot report proved that there were no tail lights.

Despite the absence of tail lights and license plate, respondents truck was visible in the highway. It
was traveling at a moderate speed, approximately 20 to 30 kilometers per hour. It used the service
road, instead of the highway, because the cargo they were hauling posed a danger to passing
motorists. In compliance with the Land Transportation Traffic Code (Republic Act No.
4136)" 25 respondents installed 2 pairs of lights on top of the steel plates, as the vehicle's cargo load
extended beyond the bed or body thereof.

We find that the direct cause of the accident was the negligence of the victim. Traveling behind the
truck, he had the responsibility of avoiding bumping the vehicle in front of him. He was in control of
the situation. His motorcycle was equipped with headlights to enable him to see what was in front of
him. He was traversing the service road where the prescribed speed limit was less than that in the
highway.

Traffic investigator Cpl. Virgilio del Monte testified that two pairs of 50-watts bulbs were on top of the
. 27
Virgilio Santos admitted
steel plates, 26 which were visible from a distance of 100 meters
that from the tricycle where he was on board, he saw the
truck and its cargo of iron plates from a distance of ten
(10) meters. In light of these circumstances, an accident
28

could have been easily avoided, unless the victim had

been driving too fast and did not exercise dues care and
prudence demanded of him under the circumstances.
Virgilio Santos' testimony strengthened respondents' defense that it was the victim who was reckless
and negligent in driving his motorcycle at high speed. The tricycle where Santos was on board was
not much different from the victim's motorcycle that figured in the accident. Although Santos claimed
the tricycle almost bumped into the improperly parked truck, the tricycle driver was able to void
hitting the truck.

It has been said that drivers of vehicles "who bump the rear of another vehicle" are presumed to be
"the cause of the accident, unless contradicted by other evidence". 29 The rationale behind the
presumption is that the driver of the rear vehicle has full control of the situation as he is in a position
to observe the vehicle in front of him.

We agree with the Court of Appeals that the responsibility to avoid the collision with the front vehicle
lies with the driver of the rear vehicle.

Consequently, no other person was to blame but the victim himself since he was the one who
bumped his motorcycle into the rear of the Isuzu truck. He had the last clear chance of avoiding the
accident.

WHEREFORE, we DENY the petition for review on certiorari and AFFIRM the decision of the Court
of Appeals in CA-G.R. CV No. 35895, dismissing the amended complaint in Civil Case No. 89-
50355, Regional Trial Court, Branch 45, Manila. 1âwphi1.nêt

No costs.

SO ORDERED.

Davide, Jr., C.J., Melo, Kapunan and Ynares-Santiago, JJ., concur.

Footnotes

1 Promulgated on April 26, 1995, in CA-G.R. CV No. 35895, Eighth Division, Justice
Bernardo L1 Salas, ponente, concurred in by Justices Jaime M. Lantin, Chairman,
and Ma. Alicia Austria-Martinez.

2 Dated December 19, 1991, Judge Benito C. Se, Jr., presiding.

3 Cayabyab vs. Intermediate Appellate Court, 123 SCRA 1, 4; see also Misa vs.
Court of Appeals, 212 SCRA 217, Golangco vs. Court of Appeals, 283 SCRA 493,
503, Fule vs. Court of Appeals, 286 SCRA 698, 710; Halili vs. Court of Appeals, 287
SCRA 465, 470; Remalante vs. Tibe 158 SCRA 138; Ayala Corporation vs. Ray
Burton Development Corporation, G.R. No. 126699, August 7, 1998.

4 tsn., February 8, 1991, p. 11.

5 tsn., February 8, 1991, pp. 5-9.

6 Police Spot Report, Exh. G, Original Records, p. 81.

7 Ibid.

8 Per certification issued by Digna S. Remolana, personnel manager, Kawasaki

Motors (Phils.) Corporation on May 18, 1989, Exh. D, Original Records, p. 78.

9 Complaint, Original Records, p. 2.

10 Exh. K, Original Records, p. 85.

11 Docketed as Civil Case No. 89-50355.

12 Complaint, Records, pp. 1-5.

13 Memorandum for the Petitioners, Rollo, p. 186.

14 tsn., February 8, 1991.

15 In the decision of the trial court, he was referred to as Rogo Roberto Reyes.

16 tsn. January 29, 1991.

17 tsn. October 1, 1990.

18 The trial court's decision stated that the bulbs installed on top of the steel plates
were 50 watts each, but from the testimonies of the witnesses before the trial court,
they said that the bulbs were 30 to 40 watts each.

19 Phoenix Construction, Inc. vs. Intermediate Appellate Court, 148 SCRA 353.

20 Regional Trial Court Decision, CV Case No. 89-50335, Rollo, p. 66.

 21 Docketed as CA-G.R. CV No. 35895.

22 Court of Appeals Decision, CA-G.R. No. 35895, Rollo, p. 51.

23 Philippine Bank of Commerce vs. Court of Appeals, 269 SCRA 695, 703.

24 Ibid., at pp. 706-707.

25 Art. IV. Sec. 34 (I) Use of Red Flag — Whenever the load of any vehicle extends
more than one meter beyond the bed or body thereof there shall be displayed at
every projecting end of such load a red flag not less than thirty centimeters both in
length and width, except that during the hours fixed under sub-section (c) [not later
than one-half hour after sunset and until at least one-half hour before sunrise and
whenever weather conditions so require], there shall be displayed, in lieu of the
required red flags, red lights, visible at least fifty meters away.

26 tsn., October 1, 1990, p. 13.

27 Ibid., p. 17.

28 tsn., October 15, 1990, pp. 4-6.

29 Cf. Philippine Rabbit Bus Lines, Inc. vs. Intermediate Appellate Court, 189 SCRA
158, 168.

The Lawphil Project - Arellano Law Foundation

Overview: The case involves a petition for review certiorari filed by the heirs of Reynaldo
Raynera, challenging the decision of the Court of Appeals (CA) that reversed the ruling
of the Regional Trial Court (RTC) Branch 45, Manila. The case arose from a vehicular
accident wherein Reynaldo Raynera, riding a motorcycle, collided with an Isuzu truck-
trailer driven by Freddie Hiceta and owned by Jimmy Orpilla.

Issue: The main issue in the case is whether the respondents (truck owner and driver)
were negligent, and if so, whether such negligence was the proximate cause of Reynaldo
Raynera's death.

Ruling: The Supreme Court denied the petition for review on certiorari and affirmed the
decision of the Court of Appeals. The Court upheld the factual findings of the CA, which
concluded that Reynaldo Raynera's negligence was the proximate cause of the accident,
absolving the respondents from liability. Despite the truck's lack of tail lights and license
plate, the Court found that it was visible on the highway due to the lights installed on
top of the steel plates. The Court determined that Reynaldo Raynera, traveling behind
the truck, had the last clear chance to avoid the collision but failed to do so. Therefore,
the responsibility for the accident lay with Reynaldo Raynera himself. Consequently, the
petition was denied, and the decision of the CA dismissing the amended complaint was
affirmed.
20.

THIRD DIVISION

[G.R. Nos. 79050-51. November 14, 1989.]

PANTRANCO NORTH EXPRESS, INC., Petitioner, v. MARICAR BASCOS BAESA, thru

her personal guardian FRANCISCA O. BASCOS, FE O. ICO, in her behalf and in behalf
of her minor children, namely ERWIN, OLIVE, EDMUNDO and SHARON
ICO, Respondents.

Efren N. Ambrosio & Associates for petitioner PNEI.

Emiliano S. Micu for Respondents.

SYLLABUS

1. CIVIL LAW; DAMAGES; LAST CLEAR CHANCE DOCTRINE; WHEN APPLICABLE.

— The doctrine of last clear chance applies only in a situation where the defendant, having the
last fair chance to avoid the impending harm and failed to do so, becomes liable for all the
consequences of the accident notwithstanding the prior negligence of the plaintiff.

2. ID.; ID.; ID.; CONDITION TO MAKE DOCTRINE APPLICABLE. — In order that the
doctrine of last clear chance may be applied, it must be shown that the person who allegedly had
the last opportunity to avert the accident was aware of the existence of the peril or with exercise
of due care should have been aware of it.

3. ID.; ID.; ID.; NOT APPLICABLE TO PERSON ACTING INSTANTANEOUSLY OR BY

AVAILABLE MEANS. — This doctrine of last chance has no application to a case where a
person is to act instantaneously, and if the injury cannot be avoided by using all means available
after the peril is or should have been discovered.

4. ID.; ID.; PROVISION OF R.A. NO. 4136 RE VEHICLE ENTERING A THROUGH

HIGHWAY OR A STOP INTERSECTION. — Section 43 (c), Article III, Chapter IV of
Republic Act No. 1436 cannot apply to case a bar where at the time of the accident, the jeepney
had already crossed the intersection.

5. ID.; ID.; NEGLIGENCE; BURDEN OF PROOF LIES ON THE EMPLOYER. — A finding

of negligence on the part of the driver establishes a presumption that the employer has been
negligent and the latter has the burden of proof that it has exercised due negligence not only in
the selection of its employees but also in adequately supervising their work.

6. ID.; ID.; FAILURE TO PRESENT EVIDENCE TO SUPPORT CLAIM FOR DAMAGES. —

Plaintiff’s failure to present documentary evidence to support their claim for damages for loss of
earning capacity of the deceased victim does not bar recovery of the damages, if such loss may
be based sufficiently on their testimonies.

7. ID.; ID.; INDEMNITY FIXED AT P30,000. — The indemnity for the death of a person was
fixed by this Court at (P30,000.00).

DECISION

CORTES, J.:

In this Petition, Pantranco North Express Inc. (PANTRANCO), asks the Court to review the
decision of the Court of Appeals in CA-G.R. No. 05494-95 which affirmed the decisions of the
Court of First Instance of Rosales, Pangasinan in Civil Case No. 561-R and Civil Case No. 589-
R wherein PANTRANCO was ordered to pay damages and attorney’s fees to herein private
respondents.chanrobles virtual lawlibrary

The pertinent fact are as follows: chanrob1es virtual 1aw library

At about 7:00 o’clock in the morning of June 12, 1981, the spouses Ceasar and Marilyn Baesa
and their children Harold Jim, Marcelino and Maricar, together with spouses David Ico and Fe
O. Ico with their son Erwin Ico and seven other persons, were aboard a passenger jeepney on
their way to a picnic at Malalam River, Ilagan, Isabela, to celebrate the fifth wedding anniversary
of Ceasar and Marilyn Baesa.

The group, numbering fifteen (15) persons, rode in the passenger jeepney driven by David Ico,
who was also the registered owner thereof. From Ilagan, Isabela, they proceeded to Barrio
Capayacan to deliver some viands to one Mrs. Bascos and thenceforth to San Felipe, taking the
highway going to Malalam River. Upon reaching the highway, the jeepney turned right and
proceeded to Malalam River at a speed of about 20 kph. While they were proceeding towards
Malalam River, a speeding PANTRANCO bus from Aparri, on its regular route to Manila,
encroached on the jeepney’s lane while negotiating a curve, and collided with it.

As a result of the accident David Ico, spouses Ceasar Baesa and Marilyn Baesa and their
children, Harold Jim and Marcelino Baesa, died while the rest of the passengers suffered injuries.
The jeepney was extensively damaged. After the accident the driver of the PANTRANCO Bus,
Ambrosio Ramirez, boarded a car and proceeded to Santiago, Isabela. From that time on up to
the present, Ramirez has never been seen and has apparently remained in hiding.

All the victims and/or their surviving heirs except herein private respondents settled the case
amicably under the "No Fault" insurance coverage of PANTRANCO.

Maricar Baesa through her guardian Francisca O. Bascos and Fe O. Ico for herself and for her
minor children, filed separate actions for damages arising from quasi-delict against
PANTRANCO, respectively docketed as Civil Case No. 561-R and 589-R of the Court of First
Instance of Pangasinan.

In its answer, PANTRANCO, aside from pointing to the late David Ico’s alleged negligence as
the proximate cause of the accident, invoked the defense of due diligence in the selection and
supervision of its driver, Ambrosio Ramirez. chanroblesvirtualawlibrary

On July 3, 1984, the CFI of Pangasinan rendered a decision against PANTRANCO awarding the
total amount of Two Million Three Hundred Four Thousand Six Hundred Forty-Seven
(P2,304,647.00) as damages, plus 10% thereof as attorney’s fees and costs to Maricar Baesa in
Civil Case No. 561-R, and the total amount of Six Hundred Fifty Two Thousand Six Hundred
Seventy-Two Pesos (P652,672.00) as damages, plus 10% thereof as attorney’s fees and costs to
Fe Ico and her children in Civil Case No. 589-R. On appeal, the cases were consolidated and the
Court of Appeals modified the decision of the trial court by ordering PANTRANCO to pay the
total amount of One Million One Hundred Eighty-Nine Thousand Nine Hundred Twenty Seven
Pesos (P1,189,927.00) as damages, plus Twenty Thousand Pesos (P20,000.00) as attorney’s fees
to Maricar Baesa, and the total amount of Three Hundred Forty-Four Thousand Pesos
(P344,000.00) plus Ten Thousand Pesos (P10,000.00) as attorney’s fees to Fe Ico and her
children, and to pay the costs in both cases. The dispositive portion of the assailed decision reads
as follows:chanrob1es virtual 1aw library

WHEREFORE, the decision appealed from is hereby modified by ordering the defendant
PANTRANCO North Express, Inc. to pay: chanrob1es virtual 1aw library

I. The plaintiff in Civil Case No. 561-R, Maricar Bascos Baesa, the following damages: chanrob1es virtual 1aw library

A) As compensatory damages for the death of Ceasar Baesa — P30,000.00;

B) As compensatory damages for the death of Marilyn Baesa — P30,000.00;

C) As compensatory damages for the death of Harold Jim Baesa and Marcelino Baesa —
P30,000.00;

D) For the loss of earnings of Ceasar Baesa — P630,000.00;

E) For the loss of earnings of Marilyn Bascos Baesa — P375,000.00;

F) For the burial expenses of the deceased Ceasar and Marilyn Baesa — P41,200.00;

G) For hospitalization expenses of Maricar Baesa — P3,727.00;

H) As moral damages — P50,000.00;

I) As attorney’s fees — P20,000.00;

II. The plaintiffs in Civil Case No. 589-R, the following damages: chanrob1es virtual 1aw library
A) As compensatory damages for the death of David Ico — P30,000.00;

B) For loss of earning capacity of David Ico — P252,000.00;

C) As moral damages for the death of David Ico and the injury of Fe Ico — P30,000.00

D) As payment for the jeepney — P20,000.00;

E) For the hospitalization of Fe Ico — P12,000.000;

F) And for attorney’s fees — P10,000.00;

and to pay the costs in both cases.

The amount of P25,000 paid to Maricar Bascos Baesa, plaintiff in Civil Case No. 561-R, and the
medical expenses in the sum of P3,273.55, should be deducted from the award in her favor. chanrobles virtual lawlibrary

All the foregoing amounts herein awarded except the costs shall earn interest at the legal rate
from date of this decision until fully paid. [CA Decision, pp. 14-15; Rollo, pp. 57-58.]

PANTRANCO filed a motion for reconsideration of the Court of Appeal’s decision, but on June
26, 1987, it denied the same for lack of merit. PANTRANCO then filed the instant petition for
review.

Petitioner faults the Court of Appeals for not applying the doctrine of the "last clear chance"
against the jeepney driver. Petitioner claims that under the circumstances of the case, it was the
driver of the passenger jeepney who had the last clear chance to avoid the collision and was
therefore negligent in failing to utilize with reasonable care and competence his then existing
opportunity to avoid the harm.

The doctrine of the last clear chance was defined by this Court in the case of Ong v.
Metropolitan Water District, 104 Phil. 397 (1958), in this wise: chanrob1es virtual 1aw library

The doctrine of the last clear chance simply, means that the negligence of a claimant does not
preclude a recovery for the negligence of defendant where it appears that the latter, by exercising
reasonable care and prudence, might have avoided injurious consequences to claimant
notwithstanding his negligence.

The doctrine applies only in a situation where the plaintiff was guilty of prior or antecedent
negligence but the defendant, who had the last fair chance to avoid the impending harm and
failed to do so, is made liable for all the consequences of the accident notwithstanding the prior
negligence of the plaintiff [Picart v. Smith, 37 Phil. 809 (1918); Glan People’s Lumber and
Hardware, Et. Al. v. Intermediate Appellate Court, Cecilia Alferez Vda. de Calibo, Et Al., G.R.
No. 70493, May 18, 1989]. The subsequent negligence of the defendant in failing to exercise
ordinary care to avoid injury to plaintiff becomes the immediate or proximate cause of the
accident which intervenes between the accident and the more remote negligence of the plaintiff,
thus making the defendant liable to the plaintiff [Picart v. Smith, supra].

Generally, the last clear chance doctrine is invoked for the purpose of making a defendant liable
to a plaintiff who was guilty of prior or antecedent negligence, although it may also be raised as
a defense to defeat claim for damages. chanrobles lawlibrary : rednad

To avoid liability for the negligence of its driver, petitioner claims that the original negligence of
its driver was not the proximate cause of the accident and that the sole proximate cause was the
supervening negligence of the jeepney driver David Ico in failing to avoid the accident. It is
petitioner’s position that even assuming arguendo, that the bus encroached into the lane of the
jeepney, the driver of the latter could have swerved the jeepney towards the spacious dirt
shoulder on his right without danger to himself or his passengers.

The above contention of petitioner is manifestly devoid of merit.

Contrary to the petitioner’s contention, the doctrine of "last clear chance" finds no application in
this case. For the doctrine to be applicable, it is necessary to show that the person who allegedly
had the last opportunity to avert the accident was aware of the existence of the peril or should,
with exercise of due care, have been aware of it. One cannot be expected to avoid an accident or
injury if he does not know or could not have known the existence of the peril. In this case, there
is nothing to show that the jeepney driver David Ico knew of the impending danger. When he
saw at a distance that the approaching bus was encroaching on his lane, he did not immediately
swerve the jeepney to the dirt shoulder on his right since he must have assumed that the bus
driver will return the bus to its own lane upon seeing the jeepney approaching from the opposite
direction. As held by this Court in the case of Vda. De Bonifacio v. BLTB, G.R. No. L-26810,
August 31, 1970, 34 SCRA 618, a motorist who is properly proceeding on his own side of the
highway is generally entitled to assume that an approaching vehicle coming towards him on the
wrong side, will return to his proper lane of traffic. There was nothing to indicate to David Ico
that the bus could not return to its own lane or was prevented from returning to the proper lane
by anything beyond the control of its driver. Leo Marantan, an alternate driver of the Pantranco
bus who was seated beside the driver Ramirez at the time of the accident, testified that Ramirez
had no choice but to swerve the steering wheel to the left and encroach on the jeepney’s lane
because there was a steep precipice on the right [CA Decision, p. 2; Rollo, p. 45]. However, this
is belied by the evidence on record which clearly shows that there was enough space to swerve
the bus back to its own lane without any danger [CA Decision, p. 7; Rollo, p. 50].

Moreover, both the trial court and the Court of Appeals found that at the time of the accident the
Pantranco bus was speeding towards Manila [CA Decision, p. 2; Rollo, p. 45]. By the time David
Ico must have realized that the bus was not returning to its own lane, it was already too late to
swerve the jeepney to his right to prevent an accident. The speed at which the approaching bus
was running prevented David Ico from swerving the jeepney to the right shoulder of the road in
time to avoid the collision. Thus, even assuming that the jeepney driver perceived the danger a
few seconds before the actual collision, he had no opportunity to avoid it. This Court has held
that the last clear chance doctrine "can never apply where the party charged is required to act
instantaneously, and if the injury cannot be avoided by the application of all means at hand after
the peril is or should have been discovered" [Ong v. Metropolitan Water District, supra]. chanrobles.com : virtual law library

Petitioner likewise insists that David Ico was negligent in failing to observe Section 43 (c),
Article III Chapter IV of Republic Act No. 4136 * which provides that the driver of a vehicle
entering a through highway or a stop intersection shall yield the right of way to all vehicles
approaching in either direction on such through highway.

Petitioner’s misplaced reliance on the aforesaid law is readily apparent in this case. The cited law
itself provides that it applies only to vehicles entering a through highway or a stop intersection.
At the time of the accident, the jeepney had already crossed the intersection and was on its way
to Malalam River. Petitioner itself cited Fe Ico’s testimony that the accident occurred after the
jeepney had travelled a distance of about two (2) meters from the point of intersection [Petition
p. 10; Rollo, p. 27]. In fact, even the witness for the petitioner, Leo Marantan, testified that both
vehicles were coming from opposite directions [CA Decision, p. 7; Rollo, p. 50], clearly
indicating that the jeepney had already crossed the intersection.

Considering the foregoing, the Court finds that the negligence of petitioner’s driver in
encroaching into the lane of the incoming jeepney and in failing to return the bus to its own lane
immediately upon seeing the jeepney coming from the opposite direction was the sole and
proximate cause of the accident without which the collision would not have occurred. There was
no supervening or intervening negligence on the part of the jeepney driver which would have
made the prior negligence of petitioner’s driver a mere remote cause of the accident.

II

On the issue of its liability as an employer, petitioner claims that it had observed the diligence of
a good father of a family to prevent damage, conformably to the last paragraph of Article 2180 of
the Civil Code. Petitioner adduced evidence to show that in hiring its drivers, the latter are
required to have professional driver’s license and police clearance. The drivers must also pass
written examinations, interviews and practical driving tests, and are required to undergo a six-
month training period. Rodrigo San Pedro, petitioner’s Training Coordinator, testified on
petitioner’s policy of conducting regular and continuing training programs and safety seminars
for its drivers, conductors, inspectors and supervisors at a frequency rate of at least two (2)
seminars a month.

On this point, the Court quotes with approval the following findings of the trial court which was
adopted by the Court of Appeals in its challenged decision: chanrob1es virtual 1aw library

When an injury is caused by the negligence of an employee, there instantly arises a presumption
that the employer has been negligent either in the selection of his employees or in the supervision
over their acts. Although this presumption is only a disputable presumption which could be
overcome by proof of diligence of a good father of a family, this Court believes that the evidence
submitted by the defendant to show that it exercised the diligence of a good father of a family in
the case of Ramirez, as a company driver is far from sufficient. No support evidence has been
adduced. The professional driver’s license of Ramirez has not been produced. There is no proof
that he is between 25 to 38 years old. There is also no proof as to his educational attainment, his
age, his weight and the fact that he is married or not. Neither are the result of the written test,
psychological and physical test, among other tests, have been submitted in evidence [sic]. His
NBI or police clearances and clearances from previous employment were not marked in
evidence. No evidence was presented that Ramirez actually and really attended the seminars.
Vital evidence should have been the certificate of attendance or certificate of participation or
evidence of such participation like a logbook signed by the trainees when they attended the
seminars. If such records are not available, the testimony of the classmates that Ramirez was
their classmate in said seminar (should have been presented) [CA Decision, pp. 8-9; Rollo, pp.
51-52].chanrobles law library

Petitioner contends that the fact that Ambrosio Ramirez was employed and remained as its driver
only means that he underwent the same rigid selection process and was subjected to the same
strict supervision imposed by petitioner on all applicants and employees. It is argued by the
petitioner that unless proven otherwise, it is presumed that petitioner observed its usual
recruitment procedure and company polices on safety and efficiency [Petition, p. 20; Rollo, p.
37].

The Court finds the above contention unmeritorious.

The finding of negligence on the part of its driver Ambrosio Ramirez gave rise to the
presumption of negligence on the part of petitioner and the burden of proving that it exercised
due diligence not only in the selection of its employees but also in adequately supervising their
work rests with the petitioner [Lilius v. Manila Railroad Company, 59 Phil. 758 (1934); Umali v.
Bacani, G.R. No. L-40570, June 30, 1976, 69 SCRA 623]. Contrary to petitioner’s claim, there is
no presumption that the usual recruitment procedures and safety standards were observed. The
mere issuance of rules and regulations and the formulation of various company policies on
safety, without showing that they are being complied with, are not sufficient to exempt petitioner
from liability arising from the negligence of its employee. It is incumbent upon petitioner to
show that in recruiting and employing the erring driver, the recruitment procedures and company
policies on efficiency and safety were followed. Petitioner failed to do this. Hence, the Court
finds no cogent reason to disturb the finding of both the trial court and the Court of Appeals that
the evidence presented by the petitioner, which consists mainly of the uncorroborated testimony
of its Training Coordinator, is insufficient to overcome the presumption of negligence against
petitioner. cralawnad

III

On the question of damages, petitioner claims that the Court of Appeals erred in fixing the
damages for the loss of earning capacity of the deceased victims. Petitioner assails respondent
court’s findings because no documentary evidence in support thereof, such as income tax returns,
pay-rolls, pay slips or invoices obtained in the usual course of business, were presented [Petition,
p. 22; Rollo, p. 39]. Petitioner argues that the "bare and self-serving testimonies of the wife of
the deceased David Ico and the mother of the deceased Marilyn Baesa . . . have no probative
value to sustain in law the Court of Appeals’ conclusion on the respective earnings of the
deceased victims." [Petition, pp. 21-22; Rollo, pp. 38-39.] It is petitioner’s contention that the
evidence presented by the private respondent does not meet the requirements of clear and
satisfactory evidence to prove actual and compensatory damages.

The Court finds that the Court of Appeals committed no reversible error in fixing the amount of
damages for the loss of earning capacity of the deceased victims. While it is true that private
respondents should have presented documentary evidence to support their claim for damages for
loss of earning capacity of the deceased victims, the absence thereof does not necessarily bar the
recovery of the damages in question. The testimony of Fe Ico and Francisca Bascos as to the
earning capacity of David Ico, and the spouses Baesa, respectively, are sufficient to establish a
basis from which the court can make a fair and reasonable estimate of the damages for the loss of
earning capacity of the three deceased victims. Moreover, in fixing the damages for loss of
earning capacity of a deceased victim, the court can consider the nature of his occupation, his
educational attainment and the state of his health at the time of death.

In the instant case, David Ico was thirty eight (38) years old at the time of his death in 1981 and
was driving his own passenger jeepney. The spouses Ceasar and Marilyn Baesa were both thirty
(30) years old at the time of their death. Ceasar Baesa was a commerce degree holder and the
proprietor of the Cauayan Press, printer of the Cauayan Valley Newspaper and the Valley Times
at Cauayan, Isabela. Marilyn Baesa graduated as a nurse in 1976 and at the time of her death,
was the company nurse, personnel manager, treasurer and cashier of the Ilagan Press at Ilagan,
Isabela. Respondent court duly considered these factors, together with the uncontradicted
testimonies of Fe Ico and Francisca Bascos, in fixing the amount of damages for the loss of
earning capacity of David Ico and the spouses Baesa. chanrobles.com:cralaw:red

However, it should be pointed out that the Court of Appeals committed error in fixing the
compensatory damages for the death of Harold Jim Baesa and Marcelino Baesa. Respondent
court awarded to plaintiff (private respondent) Maricar Baesa Thirty Thousand Pesos
(P30,000.00) as "compensatory damages for the death of Harold Jim Baesa and Marcelino
Baesa." [CA Decision, p. 14; Rollo, 57]. In other words, the Court of Appeals awarded only
Fifteen Thousand Pesos (P15,000.00) as indemnity for the death of Harold Jim Baesa and
another Fifteen Thousand Pesos (P15,000.00) for the death of Marcelino Baesa. This is clearly
erroneous. In the case of People v. de la Fuente, G.R. Nos. 63251-52, December 29, 1983, 126
SCRA 518, the indemnity for the death of a person was fixed by this Court at Thirty Thousand
Pesos (P30,000.00). Plaintiff Maricar Baesa should therefore be awarded Sixty Thousand Pesos
(P60,000.00) as indemnity for the death of her brothers, Harold Jim Baesa and Marcelino Baesa
or Thirty Thousand Pesos (P30,000.00) for the death of each brother.

The other items of damages awarded by respondent court which were not challenged by the
petitioner are hereby affirmed.

WHEREFORE, premises considered, the petition is DENIED, and the decision of respondent
Court of Appeals is hereby AFFIRMED with the modification that the amount of compensatory
damages for the death of Harold Jim Baesa and Marcelino Baesa are increased to Thirty
Thousand Pesos (P30,000.00) each. chanrobles law library
SO ORDERED.

Fernan (C.J.), Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

Endnotes:

* R.A. 4136 is entitled "An Act to Compile the Laws Relative to Land Transportation and
Traffic Rules, To Create A Land Transportation Commission and other Purposes."
Overview: This case involves a collision between a passenger jeepney and a Pantranco
bus, resulting in fatalities and injuries. The plaintiffs filed separate actions for damages
against Pantranco, alleging negligence on the part of the bus driver. The Court of
Appeals affirmed the trial court's decision, holding Pantranco liable for damages.
Pantranco appealed the decision, arguing, among other things, the application of the
"last clear chance" doctrine.

Issue: The primary issue revolves around whether the doctrine of "last clear chance"
should be applied in the case, determining which party had the final opportunity to
avoid the accident and thus should bear liability for the consequences.

Ruling:

1. Application of Last Clear Chance Doctrine: The Court rejected Pantranco's

argument that the jeepney driver had the last clear chance to avoid the collision.
It emphasized that for the doctrine to apply, the person with the last opportunity
to prevent the accident must have been aware of the peril or should have been
aware of it with due care. In this case, the evidence showed that the jeepney
driver, David Ico, did not have sufficient time to react due to the bus's speeding
and the suddenness of the situation.
2. Negligence and Liability: The Court held Pantranco primarily liable for the
accident, finding that its driver's negligence in encroaching into the jeepney's
lane was the proximate cause of the collision. Pantranco's failure to return the
bus to its lane in a timely manner, despite the jeepney's approach, constituted
negligence.
3. Employer Liability: Pantranco argued that it observed due diligence in selecting
and supervising its employees, thereby seeking to shift liability away from itself.
However, the Court found insufficient evidence presented by Pantranco to prove
its diligence in hiring and supervising the driver.
4. Damages: The Court affirmed the damages awarded by the Court of Appeals,
except for the compensatory damages for the deaths of Harold Jim Baesa and
Marcelino Baesa, which were increased to Thirty Thousand Pesos (P30,000.00)
each, consistent with previous rulings.

In summary, the Court denied Pantranco's appeal, affirmed the decision of the Court of
Appeals, and modified the damages awarded for the deaths of Harold Jim Baesa and
Marcelino Baesa.
21.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 178760 July 23, 2009

CARMEN B. DY-DUMALASA, Petitioner,

vs.
DOMINGO SABADO S. FERNANDEZ, VIRGILIO P. MONSALUD, EMELYN R. MONARES,
MARIA NILA M. DURO, ROSE GUIAO, JUANITO B. RACCA, JR., RENATO M. CARLOS, JR.,
WILFREDO M. MERCADO, JUANITA B. DIMANLIG, REYNALDO M. DIMANLIG, AMIE A. MICOR,
TYNE C. DIGNADICE (D), JOANNE H. COMANDA, JOCELYN H. FERNANDEZ (D), SHYAMELA
L. FARAON, REBECCA V. DUNGAO, DOUGLAS A. ANDOSAY, VIRGINIA V. VILLARTA,
VICTORIA O. HUELGAS, LORETA S. SANTERO, MARISSA F. TRASMONTERO, NORBERTO C.
TRASMONTERO, DELIA S. DADO, ROWENA L. VICTORIA, MARITES P. TANAN, MA.
THERESA ROQUE, DANILO NICOLAS, JOCELYN J. ORDOÑEZ and ANNABEL M. DY, ET.
AL. Respondents.

DECISION

CARPIO MORALES, J.:

Via petition for review on certiorari, Carmen B. Dy-Dumalasa (petitioner) seeks the reversal of the
Court of Appeals Decision1 dated April 28, 2006 and Resolution2 dated June 29, 2007 annulling and
setting aside the Resolutions dated January 27, 20053 and March 16, 20054 of the National Labor
Relations Commission (NLRC).

Domingo Sabado S. Fernandez, et al. (respondents) are former employees of Helios Manufacturing
Corporation (HELIOS), a closed domestic corporation engaged in soap manufacturing located in
Muntinlupa, of which petitioner is a stockholder, a member of the Board of Directors, and Acting
Corporate Secretary.

On October 23, 2001, respondents filed a Complaint5 against HELIOS, docketed as NLRC-NCR
South Sector Case No. 30-10-04950-01, for illegal dismissal or illegal closure of business, non-
payment of salaries and other money claims against HELIOS. The complaint was
later consolidated with another case filed by similarly situated employees of HELIOS, docketed as
NLRC-NCR South Sector Case No. 30-11-05301-01.6 Both complaints also impleaded HELIOS’
members of the Board of Directors (The Board) including herein petitioner. Atty. Arturo Balbastro,
one of the members of the Board, was subsequently dropped from the complaint, upon
manifestation of respondents.7

Despite service of summons,8 of the remaining four members of the Board, only Leonardo Dy-
Dumalasa, HELIOS’ President and General Manager-husband of petitioner, appeared with counsel. 9

As amicable settlement proved not to be viable and with the repeated non-appearance of the
members of the Board in the scheduled hearings, the Labor Arbiter required the parties to submit
their respective position papers.10 Only respondents complied with this directive.11 Despite the grant
of a 10-day extension, HELIOS et al. failed to submit theirs, hence, the cases were deemed
submitted for decision.12

In the meantime, or on June 6, 2002, HELIOS et al. moved to have their position paper admitted.
There being no proof of service of the motion upon respondents, hearings/conferences between the
parties were again scheduled, but HELIOS et al. failed13 to attend the same despite due notice.
Hence, by Order14 dated July 22, 2002, Labor Arbiter Nieves V. de Castro denied HELIOS et al.’s
motion to admit their position paper and again deemed the cases submitted for decision. Just the
same, the Labor Arbiter, who took into account HELIOS et al.’s position paper despite the earlier
denial of their motion to admit it, found HELIOS, its members of the Board, and its stockholders, by
Decision15 dated August 30, 2002, liable for illegal dismissal and unfair labor practice, as the closure
of the business was attended with fraud and bad faith, having been largely motivated by their desire
to interfere with respondents’ exercise of the right to self-organization and to evade payment of their
claims.

The Labor Arbiter found that the closure of the Muntinlupa office/plant was a sham, as HELIOS
simply relocated its operations to a new plant in Carmona, Cavite under the new name of "Pat &
Suzara," in response to the newly-established local union. The dispositive portion of the Labor
Arbiter’s Decision reads:

WHEREFORE, respondent HELIOS Manufacturing Corp. or "Pat & Suzara" and its Board of
Directors and stockholders are hereby directed to pay complainants their full backwages from the
time they were illegally dismissed on 30 May 2001 up to 30 August 2002; and separation pay of one
month’s salary for every year of service; to pay complainants’ service incentive leave for three (3)
years from 1998-2001; to pay proportionate 13th month pay for 2001; to pay moral and exemplary
damages of ₱300,000.00 each as prayed for; and to pay 10% of the total award as attorney’s fees,
or to pay the 29 complainants the total amount of ₱15,195,479.30, plus 10% attorney’s fees in the
amount of ₱1,519,549.93. The detailed computation of complainant’s award forms part of this
Decision.

SO ORDERED. (Emphasis supplied)

HELIOS et al. filed a Memorandum of Appeal16 on October 28, 2002, but the same was not
accompanied by a cash or surety bond, hence, by Resolution17 dated March 21, 2003, the NLRC
dismissed the appeal. HELIOS et al.’s motion for reconsideration having been denied 18 on May 30,
2003 for having been filed out of time, the Labor Arbiter’s Decision attained finality on July 17,
2003.19

After respondents filed a motion for the issuance of a writ of execution, 20 the Labor Arbiter set a pre-
execution conference on September 18, 2003. Again, only respondents appeared during the
scheduled conference, drawing the Labor Arbiter to issue on October 9, 2003 a Writ of
Execution21 the pertinent portion of which reads:

NOW THEREFORE, you are hereby commanded to proceed to respondents Helios Manufacturing
Corporation or "Pat & Suzara" and its Board of Directors and stockholders with address at Tahanan
Compound, Poblacion Uno, Gen. Mariano Alvarez, Cavite or at Warehouse 4, Partition 3, Sunblest
Compund, Km. 23, West Service Road, Muntinlupa City, or wherever they may be presently located
or holding their business, to collect the amount of SIXTEEN MILLION SEVEN HUNDRED FIFTEEN
THOUSAND AND TWENTY EIGHT PESOS (₱16,715,028.00) representing complainant’s [sic] full
backwages, separation pay, service incentive leave pay, proportionate 13th month pay for 2001,
moral and exemplary damages and attorney’s fees, all pursuant to the decision in this case.
 xxxx

In case you fail to collect the amounts above indicated, you are hereby ordered to cause the
satisfaction of the judgment out of respondents’ goods or chattels, or in the absence thereof, from
respondents’ properties not exempt from execution.

xxxx

Pursuant to the above Writ, Sheriff Antonio Datu issued a Notice of Levy on Real Property 22 under
which a house and lot in Ayala-Alabang in the name of petitioner and her husband Leonardo Dy-
Dumalasa23 were levied upon.

Petitioner moved to quash24 the Writ, putting up the defense of corporate fiction as well as lack of
jurisdiction over her person, but the same was denied by Order25 dated January 26, 2004. Petitioner
appealed to the NLRC, hence, the execution of the Writ was held in abeyance.

By Resolution of January 27, 2005, the NLRC modified the Labor Arbiter’s Order, holding that
petitioner is not jointly and severally liable with HELIOS for respondents’ claims, there being no
showing that she acted in bad faith nor that HELIOS cannot pay its obligations. Petitioner moved for
reconsideration, but this was denied by Resolution dated March 16, 2005, hence, she appealed to
the Court of Appeals.

By the assailed Decision, the appellate court reversed and set aside the NLRC Resolution, holding
that what the NLRC, in effect, modified was not the Order denying the Motion to Quash the Writ of
Execution, but the Labor Arbiter’s Decision itself -- an impermissible act, the Decision having
become final and executory, hence, it could no longer be reversed or modified. It further held that the
NLRC gravely abused its discretion when it took cognizance of the appeal from the Order denying
petitioner’s Motion to Quash the Writ of Execution, as no appeal lies therefrom, especially since
petitioner attempted to exculpate herself from the judgment obligation by invoking corporate fiction, a
defense which could have been raised during the hearings before the Labor Arbiter.

Respecting NLRC’s pronouncement that petitioner was not jointly and severally liable, the appellate
court held that the same is a superfluity, for there was no statement, either in the main case or in the
Writ, that the liability is solidary, hence, petitioner is merely jointly liable for the judgment award.

Petitioner moved for reconsideration of the appellate court’s Decision, claiming that the labor tribunal
never acquired jurisdiction over her person due to lack of summons, and reiterating her defense that
HELIOS has a separate personality. Petitioner’s motion was denied by the appellate court by
Resolution of June 29, 2007, it holding that petitioner’s act of filing the Motion to Quash the Writ of
Execution as well as her submission of a Memorandum of Appeal was tantamount to submission to
the Arbiter’s jurisdiction. Hence, the present petition.

Petitioner maintains that as she was never summoned by the Labor Arbiter, jurisdiction over her
person was not acquired; and that although the Board and stockholders of HELIOS were impleaded
in the original complaint, it was by virtue of their official, not personal capacities.

And she reiterates that HELIOS has a personality separate and distinct from her, and there is
nothing in the questioned Writ which directed the Sheriff to attach and levy the properties of the
members of the Board or stockholders which are personal to them; and that for her and the other
directors and stockholders to be held personally liable for the judgment award, they must have been
found guilty of malice and bad faith -- a finding absent in the Labor Arbiter’s Decision.
Finally, petitioner contends that assuming arguendo that she is personally liable together with
HELIOS, still, settlement of the entire judgment obligation cannot be claimed from her alone, under
the doctrine of limited liability. She thus prays that the appellate court’s Decision be reversed and set
aside and the NLRC Resolutions reinstated.

The petition is bereft of merit.

Contrary to petitioner’s contention, the Labor Arbiter acquired jurisdiction over her person regardless
of the fact that there was allegedly no valid service of summons. It bears noting that, in quasi-judicial
proceedings, procedural rules governing service of summons are not strictly construed. Substantial
compliance therewith is sufficient.26 In the cases at bar, petitioner, her husband and three other
relatives, were all individually impleaded in the complaint. The Labor Arbiter furnished her with
notices of the scheduled hearings and other processes. It is undisputed that HELIOS, of which she
and her therein co-respondents in the subject cases were the stockholders and managers, was in
fact heard, proof of which is the attendance of her husband, President-General Manager of HELIOS,
together with counsel in one such scheduled hearing and the Labor Arbiter’s consideration of their
position paper in arriving at the Decision, albeit the same position paper was belatedly filed.

Clearly, petitioner was adequately represented in the proceedings conducted by the Labor Arbiter by
the lawyer retained by HELIOS.

Taking into account the peculiar circumstances of the cases, HELIOS’ knowledge of the pendency
thereof and its efforts to resist them are deemed to be knowledge and action of petitioner. That
petitioner and her fellow members of the Board refused to heed the summons and avail of the
opportunity to defend themselves as they instead opted to hide behind the corporate veil does not
shield them from the application of labor laws.

Petitioner can not now thus question the implementation of the Writ of Execution on her on the
pretext that jurisdiction was not validly acquired over her person or that HELIOS has a separate and
distinct personality as a corporate entity. To apply the normal precepts on corporate fiction and the
technical rules on service of summons would be to overturn the bias of the Constitution and the laws
in favor of labor.27

On to the liability of petitioner.

Interestingly, the assailed Court of Appeals Decision did not categorically rule on the issue of bad
faith and piercing the corporate veil, it focusing instead on the issues of jurisdiction and the propriety
of the NLRC Resolutions. However, the Labor Arbiter found HELIOS et al. guilty of bad faith when
they closed the company’s Muntinlupa plant 15 days before the scheduled cessation of operations,
only to reestablish a plant in Carmona, Cavite sometime later as "Pat & Suzara," in response to the
newly-created workers’ union.

As to HELIOS being a separate juridical entity, the Labor Arbiter held that it and "Pat & Suzara" are
one and the same, using the same machineries and personnel in the new plant.

The Labor Arbiter thus concluded that "indeed, fraud and bad faith on the part of the management
are well-established" and, as such, HELIOS et al. are liable for the judgment award.

While the appellate court reinstated the Labor Arbiter’s decision, it held that since its fallo did not
indicate with certainty the solidary nature of the obligation, the obligation is merely joint. The Court
finds this ruling well-taken. As held in Industrial Management Int’l. Development Corp v. NLRC: 28
It is an elementary principle of procedure that the resolution of the court in a given issue as
embodied in the dispositive part of a decision or order is the controlling factor as to settlement of
rights of the parties.
1awph!1

A perusal of the Labor Arbiter’s Decision readily shows that, notwithstanding the finding of bad faith
on the part of the management, the dispositive portion did not expressly mention the solidary liability
of the officers and Board members, including petitioner. Further:

A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation,
and each creditor is entitled to demand the whole obligation. In a joint obligation each obligor
answers only for a part of the whole liability and to each obligee belongs only a part of the correlative
rights.

Well-entrenched is the rule that solidary obligation cannot lightly be inferred. There is a solidary
liability only when the obligation expressly so states, when the law so provides or when the nature of
the obligation so requires.29 (Emphasis and underscoring supplied)

And as held in Carag v. NLRC:30

To hold a director personally liable for debts of the corporation, and thus pierce the veil of corporate
fiction, the bad faith or wrongdoing of the director must be established clearly and convincingly. Bad
faith is never presumed. Bad faith does not connote bad judgment or negligence. Bad faith imports a
dishonest purpose. Bad faith means breach of a known duty through some ill motive or interest. Bad
faith partakes of the nature of fraud. (Emphasis and underscoring supplied)

Ineluctably, absent a clear and convincing showing of the bad faith in effecting the closure of
HELIOS that can be individually attributed to petitioner as an officer thereof, and without the
pronouncement in the Decision that she is being held solidarily liable, petitioner is only jointly liable.

The Court in fact finds that the present action is actually a last-ditch attempt on the part of petitioner
to wriggle its way out of her share in the judgment obligation and to discuss the defenses which she
failed to interpose when given the opportunity. Even as petitioner avers that she is not questioning
the final and executory Decision of the Labor Arbiter and admits liability, albeit only joint, 31 still, she
proceeds to interpose the defenses that jurisdiction was not acquired over her person and that
HELIOS has a separate juridical personality.

As for petitioner’s questioning the levy upon her house and lot, she conveniently omits to mention
that the same are actually conjugal property belonging to her and her husband. Whether petitioner is
jointly or solidarily liable for the judgment obligation, the levied property is not fully absolved from any
lien except if it be shown that it is exempt from execution.

WHEREFORE, the petition is DENIED. The Decision dated April 28, 2006 and the Resolution dated
June 29, 2007 of the Court of Appeals are AFFIRMED.

The liability of the respondents in NLRC-NCR South Sector Case No. 30-10-04950-01 and NLRC-
NCR South Sector Case No. 30-11-05301-01 pursuant to the Decision of Labor Arbiter Nieves V. de
Castro dated August 30, 2002 should be, as it is hereby, considered joint, without prejudice to the
enforcement of the award against petitioner’s co-judgment obligors in said cases.

SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice

WE CONCUR:
Overview: The case involves Carmen B. Dy-Dumalasa's petition seeking the reversal of a
decision holding her jointly liable for labor claims against Helios Manufacturing
Corporation (HELIOS), where she is a stockholder and member of the Board of Directors.
The respondents are former employees of HELIOS who filed complaints for illegal
dismissal and other labor-related claims. The main issue revolves around Carmen B. Dy-
Dumalasa's liability for the judgment award and whether she can be held personally
liable under the doctrine of limited liability in corporate law.

Issue: The central issue is whether Carmen B. Dy-Dumalasa can be held personally liable
for the labor claims against HELIOS despite the doctrine of limited liability in corporate
law. The petitioner argues that HELIOS has a separate legal personality, and therefore,
she should not be personally liable for the corporation's obligations. The court must
determine the applicability of the doctrine of limited liability in this case and whether
Carmen B. Dy-Dumalasa's personal assets can be reached to satisfy the judgment award.

Ruling: The court affirms the decision holding Carmen B. Dy-Dumalasa jointly liable for
the labor claims against HELIOS. It emphasizes that while corporations generally have a
separate legal personality, there are circumstances where the corporate veil can be
pierced, and shareholders can be held personally liable for corporate obligations.
However, the court finds that Carmen B. Dy-Dumalasa's liability is only joint, not
solidary, as there is no clear and convincing evidence of her personal wrongdoing or
bad faith. Therefore, the court upholds the application of the doctrine of limited liability
in this case, recognizing the separate legal personality of HELIOS but holding Carmen B.
Dy-Dumalasa jointly liable for the labor claims as a shareholder and member of the
Board of Directors.
22.

FIRST DIVISION

April 4, 2017

G.R. No. 185024

JOSELITO HERNAND M. BUSTOS, Petitioners

vs.
MILLIANS SHOE, INC., SPOUSES FERNANDO AND AMELIA CRUZ, and the REGISTER OF
DEEDS OF MARIKINA CITY, Respondents

DECISION

SERENO, J.:

Before this Court is a Rule 45 Petition assailing the Decision and the Resolution of the Court of
1 2

Appeals (CA). The CA did not find any grave abuse of discretion on the part of the Regional Trial
Court, Imus, Cavite, Branch 21 (RTC). The RTC had issued Orders refusing to exclude the subject
3

property in the Stay Order pertaining to assets under rehabilitation of respondent Millians Shoe, Inc.
(MSI).

FACTS OF THE CASE

Spouses Fernando and Amelia Cruz owned a 464-square-meter lot covered by Transfer Certificate
of Title (TCT) No. N-126668. On 6 January 2004, the City Government of Marikina levied the
4

prope1iy for nonpayment of real estate taxes. The Notice of Levy was annotated on the title on 8
January 2004. On 14 October 2004, the City Treasurer of Marikina auctioned off the property, with
petitioner Joselito Hernand M. Bustos emerging 'as the winning bidder.

Petitioner then applied for the cancellation of TCT No. N-126668. On 13 July 2006, the Regional
Trial Court, Marikina City, Branch 273, rendered a final and executory Decision ordering the
cancellation of the previous title and the issuance of a new one under the name of petitioner. 5

Meanwhile, notices of lis pendens were annotated on TCT No. N-126668 on 9 February
2005. These markings indicated that SEC Corp. Case No. 036-04, which was filed before the RTC
6

and involved the rehabilitation proceedings for MSI, covered the subject property and included it in
the Stay Order issued by the RTC dated 25 October 2004. 7

On 26 September 2006, petitioner moved for the exclusion of the subject property from the Stay
Order.8 He claimed that the lot belonged to Spouses Cruz who were mere stockholders and officers
of MSL He further argued that since he had won the bidding of the property on 14 October 2004, or
before the annotation of the title on 9 February 2005, the auctioned property could no longer be part
of the Stay Order.

The RTC denied the entreaty of petitioner. It ruled that because the period of redemption up to 15
October 2005 had not yet lapsed at the time of the issuance of the Stay Order on 25 October 2004,
the ownership thereof had not yet been transferred to petitioner.9
Petitioner moved for reconsideration, but to no avail. He then filed an action for certiorari before
10 11

the CA. He asserted that the Stay Order undermined the taxing powers of the local government unit.
He also reiterated his arguments that Spouses Cruz owned the property, and that the lot had already
been auctioned to him.

In the assailed Decision dated 12 June 2008, the CA brushed aside the claim that the suspension
orders undermined the power to tax. As regards petitioner's main contention, the CA ruled as
follows:

In the case at bar, the delinquent tax payers were the Cruz Spouses who were the registered
owners of the said parcel of land at the time of the delinquency sale. The sale was held on October
14, 2004 and the Cruz

Spouses had until October 15, 2005 within which to redeem the parcel of land. The stay order was
issued on October 25, 2004 and inscribed at the back of the title on February 9, 2005, which is within
the redemption period. The Cruz Spouses were still the owners of the land at the time of the
issuance of the stay order. The said parcel of land which secured several mortgage liens for the
account of MSI remains to be an asset of the Cruz Spouses, who are the stockholders and/or
officers of MSI, a close corporation. Incidentally, as an exception to the general rule, in a close
corporation, the stockholders and/or officers usually manage the business of the corporation and are
subject to all liabilities of directors, i.e. personally liable for corporate debts and obligations. Thus,
the Cruz Spouses being stockholders of MSI are personally liable for the latter's debt and
obligations.

Petitioner unsuccessfully moved for reconsideration. The CA maintained its ruling and even held that
his prayer to exclude the property was time-barred by the 10-day reglementary period to oppose
rehabilitation petitions under Rule 4, Section 6 of the Interim Rules of Procedure on Corporate
Rehabilitation

Before this Court, petitioner maintains three points: (1) the Spouses Cruz are not liable for the debts
of MSI; (2) the Stay Order undermines the taxing power of Marikina City; and (3) the time bar rule
does not apply to him, because he is not a creditor of MSI. 12

In their Comment, 13 respondents do not contest that Spouses Cruz own the subject property.
Rather, respondents assert that as stockholders and officers of a close corporation, they are
personally liable for its debts and obligations. Furthermore, they argue that since the Rehabilitation
Plan of MSI has been approved, petitioner can no longer assail the same.

ISSUE OF THE CASE

The controlling issue in this case is whether the CA correctly considered the properties of Spouses
Cruz answerable for the obligations of MSI.

If the answer is in the affirmative, then the courts a quo correctly ruled that the Stay Order involving
the assets of MSI included the property covered by TCT No. N-126668. Petitioner would also be
considered a creditor of MSI who must timely file an opposition to the proposed rehabilitation plan of
the corporation.

RULING OF THE COURT

We set aside rulings of the CA for lack of basis.

In finding the subject property answerable for the obligations of MSI, the CA characterized
respondent spouses as stockholders of a close corporation who, as such, are liable for its debts.
This conclusion is baseless.

To be considered a close corporation, an entity must abide by the requirements laid out in Section
96 of the Corporation Code, which reads:

Sec. 96. Definition and applicability of Title. - A close corporation, within the meaning of this Code, is
one whose articles of incorporation provide that: (1) All the corporation's issued stock of all
classes, exclusive of treasury shares, shall be held of record by not more than a specified number of
persons, not exceeding twenty (20); (2) all the issued stock of all classes shall be subject to one or
more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in
any stock exchange or make any public offering of any of its stock of any class. Notwithstanding the
foregoing, a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its
voting stock or voting rights is owned or controlled by another corporation which is not a close
corporation within the meaning of this Code.x x x. (Emphasis supplied)

In San Juan Structural and Steel Fabricators. Inc. v. Court ol Appeals, this Court held that a narrow
14

distribution of ownership does not, by itself, make a close corporation. Courts must look into the
articles of incorporation to find provisions expressly stating that (l) the number of stockholders shall
not exceed 20; or (2) a preemption of shares is restricted in favor of any stockholder or of the
corporation; or (3) the listing of the corporate stocks in any stock exchange or making a public
offering of those stocks is prohibited.

Here, neither the CA nor the R TC showed its basis for finding that MSI is a close corporation. The
courts a quo did not at all refer to the Articles of Incorporation of MSI. The Petition submitted by
respondent in the rehabilitation proceedings before the RTC did not even include those Articles of
Incorporation among its attachments. 15

In effect, the CA and the RTC deemed MSI a close corporation based on the allegation of Spouses
Cruz that it was so. However, mere allegation is not evidence and is not equivalent to proof. For16

this reason alone, the CA rulings should be set aside.

Furthermore, we find that the CA seriously erred in portraying the import of Section 97 of the
Corporation Code. Citing that provision, the CA concluded that "in a close corporation, the
stockholders and/or officers usually manage the business of the corporation and are subject to all
liabilities of directors, i.e. personally liable for corporate debts and obligations."
17

However, Section 97 of the Corporation Code only specifies that "the stockholders of the corporation
shall be subject to all liabilities of directors." Nowhere in that provision do we find any inference that
stockholders of a close corporation are automatically liable for corporate debts and obligations.

Parenthetically, only Section 100, paragraph 5, of the Corporation Code explicitly provides for
personal liability of stockholders of close corporation, viz:

Sec. 100. Agreements by stockholders. -

xxxx
5. To the extent that the stockholders are actively engaged in the management or operation of the
business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to
each other and among themselves. Said stockholders shall be personally liable for corporate
torts unless the corporation has obtained reasonably adequate liability insurance. (Emphasis
supplied)

As can be read in that provision, several requisites must be present for its applicability. None of
these were alleged in the case of Spouses Cruz. Neither did the RTC or the CA explain the factual
circumstances for this Court to discuss the personally liability of respondents to their creditors
because of corporate torts." 18

We thus apply the general doctrine of separate juridical personality, which provides that a
corporation has a legal personality separate and distinct from that of people comprising it. By virtue
19

of that doctrine, stockholders of a corporation enjoy the principle of limited liability: the corporate
debt is not the debt of the stockholder. Thus, being an officer or a stockholder of a corporation does
20

not make one's property the property also of the corporation. 21

Situs Development Corp. v. Asiatrust Bank is analogous to the case at bar. We held therein that
22
1âwphi1

the parcels of land mortgaged to creditor banks were owned not by the corporation, but by the
spouses who were its stockholders. Applying the doctrine of separate juridical personality, we ruled
that the parcels of land of the spouses could not be considered part of the corporate assets that
could be subjected to rehabilitation proceedings.

In rehabilitation proceedings, claims of creditors are limited to demands of whatever nature or

character against a debtor or its property, whether for money or otherwise. In several cases, we
23 24

have already held that stay orders should only cover those claims directed against corporations or
their properties, against their guarantors, or their sureties who are not solidarily liable with them, to
the exclusion of accommodation mortgagors. To repeat, properties merely owned by stockholders
25

cannot be included in the inventory of assets of a corporation under rehabilitation.

Given that the true owner the subject property is not the corporation, petitioner cannot be considered
a creditor of MSI but a holder of a claim against respondent spouses. 26

Rule 4, Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation, directs creditors of
the debtor to file an opposition to petitions for rehabilitation within 10 days before the initial hearing
of rehabilitation proceedings. Since petitioner does not hold any claim over the properties owned by
MSI, the time-bar rule does not apply to him.

WHEREFORE, the Petition for review on certiorari filed by petitioner Joselito Hernand M. Bustos
is GRANTED. The Decision dated 12 June 2008 and Resolution dated 27 October 2008 of the Court
of Appeals in C.A.-G.R. SP. No. 100298 are REVERSED and SET ASIDE.

SO ORDERED.

MARIA LOURDES P.A.SERENO,

Chief Justice, Chairperson

WE CONCUR:
Overview: The case involves a dispute over whether Spouses Cruz, as shareholders and
officers of Millians Shoe, Inc. (MSI), can be held personally liable for the corporation's
debts. Petitioner Joselito Hernand M. Bustos seeks to exclude a property owned by
Spouses Cruz from the Stay Order issued by the Regional Trial Court (RTC) in connection
with MSI's rehabilitation proceedings.

Issue: The primary issue revolves around whether Spouses Cruz, as shareholders of MSI,
can be personally liable for the corporation's debts and obligations. Additionally, the
question arises as to whether their property can be included in the rehabilitation
proceedings and subjected to the Stay Order issued by the RTC.

Ruling: The court underscores the principle of limited liability, emphasizing that
shareholders' liability for corporate debts is generally limited to their investment in the
company. The court highlights that unless specific circumstances exist to pierce the
corporate veil and hold shareholders personally liable, they are shielded from such
obligations.