Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 186069 January 30, 2013

SPOUSES JESUS L. CABAHUG AND CORONACION M. CABAHUG, Petitioners,

vs.
NATIONAL POWER CORPORATION, Respondent.

DECISION

PEREZ, J.:

This Rule 45 Petition for Review on Certiorari seeks the reversal of (a) the 16 May 2007
Decision1 rendered by the Eighteenth Division of the Court of Appeals (CA) in CA-G.R. CV No.
67331 which reversed the 14 March 2000 Decision rendered by the Regional Trial Court (RTC),
Branch 17, Palompon, Leyte, in Civil Case No. PN-0213 and ordered the dismissal of the complaint
for just compensation tiled by petitioners Spouses Jesus L. Cabahug and Coronacion M. Cabahug
(Spouses Cabahug) against respondent National Power Corporation (NPC);2 and (b) the CA's
Resolution dated 9 January 2009, denying the motion for reconsideration of the 16 May 2007
Decision for lack of merit.3

The facts are not in dispute.

The Spouses Cabahug are the owners of two parcels of land situated in Barangay Capokpok,
Tabango, Leyte, registered in their names under Transfer Certificate of Title (TCT) Nos. T-9813 and
T-1599 of the Leyte provincial registry.4 They were among the defendants in Special Civil

Action No. 0019-PN, a suit for expropriation earlier filed by NPC before the RTC, in connection with
its Leyte-Cebu Interconnection Project. The suit was later dismissed when NPC opted to settle with
the landowners by paying an easement fee equivalent to 10% of value of their property in
accordance with Section 3-A of Republic Act (RA) No. 6395.5 In view of the conflicting land values
presented by the affected landowners, it appears that the Leyte Provincial Appraisal Committee,
upon request of NPC, fixed the valuation of the affected properties at P45.00 per square meter. 6

On 9 November 1996, Jesus Cabahug executed two documents denominated as Right of Way
Grant in favor of NPC. For and in consideration of the easement fees in the sums of P112,225.50
and P21,375.00, Jesus Cabahug granted NPC a continuous easement of right of way for the latter’s
transmissions lines and their appurtenances over 24,939 and 4,750 square meters of the parcels of
land covered by TCT Nos. T-9813 and T-1599, respectively. By said grant, Jesus Cabahug agreed
not to construct any building or structure whatsoever, nor plant in any area within the Right of Way
that will adversely affect or obstruct the transmission line of NPC, except agricultural crops, the
growth of which will not exceed three meters high. Under paragraph 4 of the grant, however, Jesus
Cabahug reserved the option to seek additional compensation for easement fee, based on the
Supreme Court’s 18 January 1991 Decision in G.R. No. 60077, entitled National Power Corporation
v. Spouses Misericordia Gutierrez and Ricardo Malit, et al. (Gutierrez).7
On 21 September 1998, the Spouses Cabahug filed the complaint for the payment of just
compensation, damages and attorney’s fees against NPC which was docketed as Civil Case No.
PN-0213 before the RTC. Claiming to have been totally deprived of the use of the portions of land
covered by TCT Nos. T-9813 and T-1599, the Spouses Cabahug alleged, among other matters, that
in accordance with the reservation provided under paragraph 4 of the aforesaid grant, they have
demanded from NPC payment of the balance of the just compensation for the subject properties
which, based on the valuation fixed by the Leyte Provincial Appraisal Committee, amounted to
P1,202,404.50.8 In its answer, on the other hand, NPC averred that it already paid the full easement
fee mandated under Section 3-A of RA 6395 and that the reservation in the grant referred to
additional compensation for easement fee, not the full just compensation sought by the Spouses
Cabahug.9

Acting on the motion for judgment on the pleadings that was filed by the Spouses Cabahug, the RTC
went on to render a Decision dated 14 March 2000. Brushing aside NPC’s reliance on Section 3-A of
RA 6395, the RTC applied the ruling handed down by this Court in Gutierrez to the effect that NPC’s
easement of right of way which indefinitely deprives the owner of their proprietary rights over their
property falls within the purview of the power of eminent domain. 10 As a consequence, the RTC
disposed of the complaint in the following wise:

WHEREFORE, premises considered, judgment is hereby rendered for the Spouses Cabahug and
against NPC, ordering NPC:

1. To pay the Spouses Cabahug the sum of ONE MILLION THREE HUNDRED THIRTY SIX
THOUSAND and FIVE PESOS (P1,336,005.00) together with the legal rate of interest
thereon per annum reckoned from January 3, 1997 less the amount previously paid by NPC
to the Spouses Cabahug for easement fee only;

2. To pay the Spouses Cabahug the sum equivalent to FIVE (5%) PERCENT of the amount
mentioned in the next preceding paragraph for attorney’s fees; and

3. To pay the Spouses Cabahug the sum of TWENTY THOUSAND (P20,000.00) PESOS for
actual damages and litigation expenses plus costs of the proceedings.

SO ORDERED.11

Aggrieved by the foregoing decision, the NPC perfected the appeal which was docketed as CA-G.R.
CV No. 67331 before the CA which, on 16 May 2007, rendered the herein assailed decision,
reversing and setting aside the RTC’s appealed decision. Finding that the facts of a case are
different from those obtaining in Gutierrez and that Section 3-A of RA 6395 only allows NPC to
acquire an easement of right of way over properties traversed by its transmission lines, 12 the CA
succinctly ruled as follows:

Unfortunately, the Spouses Cabahug had already accepted the payment of easement fee, pursuant
to R.A. 6395, as amended, way back in 1996. Therefore, NPC’s easement of right of way has for all
legal intents and purposes, been established as far back as 1996. Since vested right has already
accrued in favor of NPC, to allow the Spouses Cabahug to pursue this case when the easement of
right of way had already been consummated would be in violation of the contract. The contracting
parties, the Spouses Cabahug and NPC had already conformed with the terms and conditions of the
agreement. To allow the Spouses Cabahug to again collect from NPC payment of just compensation
would amount to unjust enrichment at the expense of NPC and would sanction violation of the
parties’ contract, which the Spouses Cabahug cannot do in the case at bench. Further, the award of
attorney’s fees and litigation expenses and the costs of suit in favor of the Spouses Cabahug cannot
be justified in the case at bar since it appears that the complaint actually has no legal basis. 13

The Spouses Cabahug’s motion for reconsideration of the 16 May 2007 Decision 14 was denied for
lack of merit in the CA’s Resolution dated 9 January 2009. Hence, this petition for review on
certiorari.15 In urging the reversal of the CA’s assailed Decision and Resolution, the Spouses
Cabahug argue that the CA erred: (a) in disregarding paragraph 4 of the Grant of Right of Way
whereby Jesus Cabahug reserved the right to seek additional compensation for easement fee; and
(b) in not applying this Court’s ruling in Gutierrez case.16 In representation of NPC, on the other
hand, the Office of the Solicitor General (OSG) argues that the sums paid in 1996 by way of
easement fees represent the full amount allowed by law and agreed upon by the parties.
Considering that Gutierrez concerned the payment of just compensation for property expropriated by
the NPC, the OSG maintains the CA did not err in according scant consideration to the Spouses
Cabahug’s invocation of the ruling in said case.17

We find the petition impressed with merit.

The CA regarded the Grant of Right of Way executed by Jesus Cabahug in favor of NPC as a valid
and binding contract between the parties, a fact affirmed by the OSG in its 8 October 2009 Comment
to the petition at bench.18 Given that the parties have already agreed on the easement fee for the
portions of the subject parcels traversed by NPC’s transmissions lines, the CA ruled that the
Spouses Cabahug’s attempt to collect further sums by way of additional easement fee and/or just
compensation is violative of said contract and tantamount to unjust enrichment at the expense of
NPC. As correctly pointed out by the Spouses Cabahug, however, the CA’s ruling totally disregards
the fourth paragraph of the Grant executed by Jesus Cabahug which expressly states as follows:

That I hereby reserve the option to seek additional compensation for Easement Fee, based on the
Supreme Court Decision in G.R. No. 60077, promulgated on January 18, 1991, which jurisprudence
is designated as "NPC vs. Gutierrez" case.19

From the foregoing reservation, it is evident that the Spouses Cabahug’s receipt of the easement fee
did not bar them from seeking further compensation from NPC. Even by the basic rules in the
interpretation of contracts, we find that the CA erred in holding that the payment of additional sums
to the Spouses Cabahug would be violative of the parties’ contract and amount to unjust enrichment.
Indeed, the rule is settled that a contract constitutes the law between the parties who are bound by
its stipulations20 which, when couched in clear and plain language, should be applied according to
their literal tenor.21 Courts cannot supply material stipulations, read into the contract words it does
not contain22 or, for that matter, read into it any other intention that would contradict its plain
import.23 Neither can they rewrite contracts because they operate harshly or inequitably as to one of
the parties, or alter them for the benefit of one party and to the detriment of the other, or by
construction, relieve one of the parties from the terms which he voluntarily consented to, or impose
on him those which he did not.24

Considering that Gutierrez was specifically made the point of reference for Jesus Cabahug’s
reservation to seek further compensation from NPC, we find that the CA likewise erred in finding that
the ruling in said case does not apply to the case at bench. Concededly, the NPC was constrained to
file an expropriation complaint in Gutierrez due to the failure of the negotiations for its acquisition of
an easement of right of way for its transmission lines. The issue that was eventually presented for
this Court’s resolution, however, was the propriety of making NPC liable for the payment of the full
market value of the affected property despite the fact that transfer of title thereto was not required by
said easement. In upholding the landowners’ right to full just compensation, the Court ruled that the
power of eminent domain may be exercised although title is not transferred to the expropriator in an
easement of right of way. Just compensation which should be neither more nor less than the money
equivalent of the property is, moreover, due where the nature and effect of the easement is to
impose limitations against the use of the land for an indefinite period and deprive the landowner its
ordinary use.

Even without the reservation made by Jesus Cabahug in the Grant of Right of Way, the application
of Gutierrez to this case is not improper as NPC represents it to be. Where the right of way
easement, as in this case, similarly involves transmission lines which not only endangers life and
limb but restricts as well the owner's use of the land traversed thereby, the ruling in Gutierrez
remains doctrinal and should be applied.25 It has been ruled that the owner should be compensated
for the monetary equivalent of the land if, as here, the easement is intended to perpetually or
indefinitely deprive the owner of his proprietary rights through the imposition of conditions that affect
the ordinary use, free enjoyment and disposal of the property or through restrictions and limitations
that are inconsistent with the exercise of the attributes of ownership, or when the introduction of
structures or objects which, by their nature, create or increase the probability of injury, death upon or
destruction of life and property found on the land is necessary.26 Measured not by the taker’s gain
but the owner’s loss, just compensation is defined as the full and fair equivalent of the property taken
from its owner by the expropriator.271âwphi1

Too, the CA reversibly erred in sustaining NPC’s reliance on Section 3-A of RA 6395 which states
that only 10% of the market value of the property is due to the owner of the property subject to an
easement of right of way. Since said easement falls within the purview of the power of eminent
domain, NPC’s utilization of said provision has been repeatedly struck down by this Court in a
number of cases.28 The determination of just compensation in eminent domain proceedings is a
judicial function and no statute, decree, or executive order can mandate that its own determination
shall prevail over the court's findings.29 Any valuation for just compensation laid down in the statutes
may serve only as a guiding principle or one of the factors in determining just compensation, but it
may not substitute the court's own judgment as to what amount should be awarded and how to
arrive at such amount.30 Hence, Section 3A of R.A. No. 6395, as amended, is not binding upon this
Court.31

In this case, the Leyte Provincial Appraisal Committee fixed the valuation of the affected properties
at P45.00 per square meter at the instance of NPC. Considering that the installation of the latter’s
transmission lines amounted to the taking of 24,939 and 4,750 square meters from the parcels of
land covered by TCT Nos. T-9813 and T-1599 or a total of 29,689 square meters, the RTC correctly
determined that the Spouses Cabahug are entitled to P1,336,005.00 (29,689 x P45.00) by way of
just compensation for their properties. Inasmuch as NPC had already paid the sums of P112,225.50
and P21,375.00 as easement fee, the sum of P133,600.50 should be deducted from P1,336,005.00
for a remaining balance of P1,202,404.50. To this latter sum, the RTC also correctly imposed legal
interest since the Spouses Cabahug, as landowners, are entitled to the payment of legal interest on
the compensation for the subject lands from the time of the taking of their possession up to the time
that full payment is made by petitioner. In accordance with jurisprudence, the legal interest allowed
in payment of just compensation for lands expropriated for public use is six percent (6%) per
annum.32

For want of a statement of the rationale for the award in the body of the RTC’s 14 March 2000
Decision, we are constrained, however, to disallow the grant of attorney’s fees in favor of the
Spouses Cabahug in an amount equivalent to 5% of the just compensation due as well as the legal
interest thereon. Considered the exception rather than the general rule, the award of attorney’s fees
is not due every time a party prevails in a suit because of the policy that no premium should be set
on the right to litigate.33 The RTC's award of litigation expenses should likewise be deleted since, like
attorney's fees, the award thereof requires that the reasons or grounds therefor must be set forth in
the decision of the court.34 This is particularly true in this case where the litigation expenses awarded
were alternatively categorized by the RTC as actual damages which, by jurisprudence, should be
pleaded and adequately proved. Time and again, it has been ruled that the fact and amount of actual
damages cannot be based on speculation, conjecture or guess work, but must depend on actual
proof.35

WHEREFORE, premises considered, the petition is GRANTED and the CA's assailed 16 May 2007
Decision and 9 January 2009 Resolution are, accordingly, REVERSED and SET ASIDE. In lieu
thereof, another is entered REINSTATING the RTC's 14 March 2000 Decision, subject to the
MODIFICATION that the awards of attorney's fees, actual damages and/or litigation expenses are
DELETED.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Senior Associate Justice

ARTURO D. BRION MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest 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.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division 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

Footnotes
1
Penned by CA Associate Justice Agustin S. Dizon and concurred in by Associate Justices
Arsenio J. Magpale and Francisco P. Acosta.

2
CA's 16 May 2007 Decision, rollo, pp. 30-35.

3
CA’s 9 January 2009 Resolution, id. at 88a-89.

4
TCT Nos. T-9813 and T-1599, id. at 50-52.

5
An Act Revising the Charter of the National Power Corporation.

6
Rollo, pp. 44-45; 57-58 and 77.

7
9 November 1996 Right of Way Grant in Favor of NPC, id. at 53-56; G.R. No. 60077, 18
January 1991, 193 SCRA 1.

8
Spouses Cabahug’s 18 September 1998 Complaint, id. at 44-48.

9
NPC’s 9 October 1998 Answer, id at 63-70.

10
RTC’s 14 March 2000 Decision, id. at 71-80.

11
Id. at 80.

12
Id. at 30-35.

13
Rollo, p. 34.

14
Spouses Cabahug’s 6 June 2008 Motion for Reconsideration, id. at 81-88.

15
CA’s 9 January 2009 Resolution, id. at 88a-89.

16
Id. at 22-23.

17
Id. at 123-126.

18
Id. at 126.

19
Id. at 55.

20
R&M General Merchandise, Inc. v. Court of Appeals, 419 Phil. 131, 142 (2001).

Antipolo Properties, Inc. v. Nuyda, G.R. No. 171832, 12 October 2009, 603 SCRA 376,
21

381.

22
Sps. Barrera v. Sps. Lorenzo, 438 Phil. 42, 49 (2002).

23
German Marine Agencies, Inc. v. NLRC, 403 Phil. 572, 589 (2001).
24
Bautista v. Court of Appeals, 379 Phil. 386, 399 (2000).

25
National Power Corporation v. Tuazon, G.R. No. 193023, 29 June 2011, 653 SCRA 84, 94.

National Power Corporation v. Tiangco, G.R. No. 170846, 6 February 2007, 514 SCRA
26

674, 686-687.

27
NPC v. Manubay Agro-Industrial Development Corp., 480 Phil. 470, 479 (2004).

28
National Power Corporation v. Villamor, G.R. No. 160080, 19 June 2009, 590 SCRA 11,
20-21; National Power Corporation v. Tiangco, 543 Phil. 637, 649 (2007); National Power
Corporation v. San Pedro, 534 Phil. 448, 470 (2006); Didipio Earth Savers’ Multi-Purpose
Association, Inc. (DESAMA) v. Sec. Gozun, 520 Phil. 457 (2006); National Power
Corporation v. Aguirre-Paderanga, 502 Phil. 722 (2005); National Power Corporation v.
Igmedio, 452 Phil. 649, 662 (2000); Camarines Norte Electric Cooperative Inc. v. Court of
Appeals, 398 Phil. 886, 899 (2000); National Power Corporation v. Gutierrez, supra, note 7.

29
National Power Corporation v. Bongbong, G.R. 164079, 3 April 2007, 520 SCRA 290, 307.

30
Republic v. Libunao, G.R. No. 166553, 30 July 2009, 594 SCRA 363, 378.

National Power Corporation v. Saludares, G.R. No. 189127, 25 April 2012, 671 SCRA 266,
31

277.

32
Republic v. Spouses Libunao, supra, note 29, at 379.

33
Country Bankers Ins. Corp. v. Lianga Bay, 425 Phil. 511, 525 (2002).

34
Mercury Drug Corporation v. Baking, G.R. No. 156037, 25 May 2007,523 SCRA 184, 192.

Government Service Insurance System v. Sps. Gonzalo and Labung-Deang, 417 Phil. 662,
35

671 (2001).
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 200602 December 11, 2013

ACE FOODS, INC., Petitioner,

vs.
MICRO PACIFIC TECHNOLOGIES CO., LTD. , Respondent. 1

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari are the Decision dated October 21, 2011 and
2 3

Resolution dated February 8, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 89426 which
4

reversed and set aside the Decision dated February 28, 2007 of the Regional Trial Court of Makati,
5

Branch 148 (RTC) in Civil Case No. 02-1248, holding petitioner ACE Foods, Inc. (ACE Foods) liable
to respondent Micro Pacific Technologies Co., Ltd. (MTCL) for the payment of Cisco Routers and
Frame Relay Products (subject products) amounting to ₱646,464.00 pursuant to a perfected
contract of sale.

The Facts

ACE Foods is a domestic corporation engaged in the trading and distribution of consumer goods in
wholesale and retail bases, while MTCL is one engaged in the supply of computer hardware and
6

equipment. 7

On September 26, 2001, MTCL sent a letter-proposal for the delivery and sale of the subject
8

products to be installed at various offices of ACE Foods. Aside from the itemization of the products
offered for sale, the said proposal further provides for the following terms, viz.:
9

TERMS : Thirty (30) days upon delivery

VALIDITY : Prices are based on current dollar rate and subject to changes without prior notice.

DELIVERY : Immediate delivery for items on stock, otherwise thirty (30) to forty-five days upon
receipt of [Purchase Order]

WARRANTY : One (1) year on parts and services. Accessories not included in warranty.

On October 29, 2001, ACE Foods accepted MTCL’s proposal and accordingly issued Purchase
Order No. 100023 (Purchase Order) for the subject products amounting to ₱646,464.00 (purchase
10

price). Thereafter, or on March 4, 2002, MTCL delivered the said products to ACE Foods as
reflected in Invoice No. 7733 (Invoice Receipt). The fine print of the invoice states, inter alia, that
11

"[t]itle to sold property is reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until full
compliance of the terms and conditions of above and payment of the price" (title reservation
12
stipulation). After delivery, the subject products were then installed and configured in ACE Foods’s
premises. MTCL’s demands against ACE Foods to pay the purchase price, however, remained
unheeded. Instead of paying the purchase price, ACE Foods sent MTCL a Letter dated September
13 14

19, 2002, stating that it "ha[s] been returning the [subject products] to [MTCL] thru [its] sales
representative Mr. Mark Anteola who has agreed to pull out the said [products] but had failed to do
so up to now."

Eventually, or on October 16, 2002, ACE Foods lodged a Complaint against MTCL before the RTC,
15

praying that the latter pull out from its premises the subject products since MTCL breached its "after
delivery services" obligations to it, particularly, to: (a) install and configure the subject products; (b)
submit a cost benefit study to justify the purchase of the subject products; and (c) train ACE Foods’s
technicians on how to use and maintain the subject products. ACE Foods likewise claimed that the
16

subject products MTCL delivered are defective and not working. 17

For its part, MTCL, in its Answer with Counterclaim, maintained that it had duly complied with its
18

obligations to ACE Foods and that the subject products were in good working condition when they
were delivered, installed and configured in ACE Foods’s premises. Thereafter, MTCL even
conducted a training course for ACE Foods’s representatives/employees; MTCL, however, alleged
that there was actually no agreement as to the purported "after delivery services." Further, MTCL
posited that ACE Foods refused and failed to pay the purchase price for the subject products despite
the latter’s use of the same for a period of nine (9) months. As such, MTCL prayed that ACE Foods
be compelled to pay the purchase price, as well as damages related to the transaction. 19

The RTC Ruling

On February 28, 2007, the RTC rendered a Decision, directing MTCL to remove the subject
20

products from ACE Foods’s premises and pay actual damages and attorney fees in the amounts of
₱200,000.00 and ₱100,000.00, respectively. 21

At the outset, it observed that the agreement between ACE Foods and MTCL is in the nature of a
contract to sell. Its conclusion was based on the fine print of the Invoice Receipt which expressly
indicated that "title to sold property is reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until
full compliance of the terms and conditions of above and payment of the price," noting further that in
a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective
buyer, and said transfer is conditioned upon the full payment of the purchase price. Thus, 22

notwithstanding the execution of the Purchase Order and the delivery and installation of the subject
products at the offices of ACE Foods, by express stipulation stated in the Invoice Receipt issued by
MTCL and signed by ACE Foods, i.e., the title reservation stipulation, it is still the former who holds
title to the products until full payment of the purchase price therefor. In this relation, it noted that the
full payment of the price is a positive suspensive condition, the non-payment of which prevents the
obligation to sell on the part of the seller/vendor from materializing at all. Since title remained with
23

MTCL, the RTC therefore directed it to withdraw the subject products from ACE Foods’s premises.
Also, in view of the foregoing, the RTC found it unnecessary to delve into the allegations of breach
since the non-happening of the aforesaid suspensive condition ipso jure prevented the obligation to
sell from arising.
24

Dissatisfied, MTCL elevated the matter on appeal. 25

The CA Ruling
In a Decision dated October 21, 2011, the CA reversed and set aside the RTC’s ruling, ordering
26

ACE Foods to pay MTCL the amount of ₱646,464.00, plus legal interest at the rate of 6% per annum
to be computed from April 4, 2002, and attorney’s fees amounting to ₱50,000.00. 27

It found that the agreement between the parties is in the nature of a contract of sale, observing that
the said contract had been perfected from the time ACE Foods sent the Purchase Order to MTCL
which, in turn, delivered the subject products covered by the Invoice Receipt and subsequently
installed and configured them in ACE Foods’s premises. Thus, considering that MTCL had already
28

complied with its obligation, ACE Foods’s corresponding obligation arose and was then duty bound
to pay the agreed purchase price within thirty (30) days from March 5, 2002. In this light, the CA
29

concluded that it was erroneous for ACE Foods not to pay the purchase price therefor, despite its
receipt of the subject products, because its refusal to pay disregards the very essence of reciprocity
in a contract of sale. The CA also dismissed ACE Foods’s claim regarding MTCL’s failure to
30

perform its "after delivery services" obligations since the letter-proposal, Purchase Order and Invoice
Receipt do not reflect any agreement to that effect. 31

Aggrieved, ACE Foods moved for reconsideration which was, however, denied in a
Resolution dated February 8, 2012, hence, this petition.
32

The Issue Before the Court

The essential issue in this case is whether ACE Foods should pay MTCL the purchase price for the
subject products.

The Court’s Ruling

The petition lacks merit.

A contract is what the law defines it to be, taking into consideration its essential elements, and not
what the contracting parties call it. The real nature of a contract may be determined from the
33

express terms of the written agreement and from the contemporaneous and subsequent acts of the
contracting parties. However, in the construction or interpretation of an instrument, the intention of
the parties is primordial and is to be pursued. The denomination or title given by the parties in
their contract is not conclusive of the nature of its contents.34

The very essence of a contract of sale is the transfer of ownership in exchange for a price paid
or promised. This may be gleaned from Article 1458 of the Civil Code which defines a contract of
35

sale as follows:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.

A contract of sale may be absolute or conditional. (Emphasis supplied)

Corollary thereto, a contract of sale is classified as a consensual contract, which means that the
sale is perfected by mere consent. No particular form is required for its validity. Upon perfection of
the contract, the parties may reciprocally demand performance, i.e., the vendee may compel transfer
of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold. 36
In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the property despite delivery thereof to the prospective buyer,
binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the condition
agreed upon, i.e., the full payment of the purchase price. A contract to sell may not even be
considered as a conditional contract of sale where the seller may likewise reserve title to the
property subject of the sale until the fulfillment of a suspensive condition, because in a conditional
contract of sale, the first element of consent is present, although it is conditioned upon the
happening of a contingent event which may or may not occur. 37

In this case, the Court concurs with the CA that the parties have agreed to a contract of sale and not
to a contract to sell as adjudged by the RTC. Bearing in mind its consensual nature, a contract of
sale had been perfected at the precise moment ACE Foods, as evinced by its act of sending MTCL
the Purchase Order, accepted the latter’s proposal to sell the subject products in consideration of the
purchase price of ₱646,464.00. From that point in time, the reciprocal obligations of the parties – i.e.,
on the one hand, of MTCL to deliver the said products to ACE Foods, and, on the other hand, of
ACE Foods to pay the purchase price therefor within thirty (30) days from delivery – already arose
and consequently may be demanded. Article 1475 of the Civil Code makes this clear:

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of
the law governing the form of contracts.

At this juncture, the Court must dispel the notion that the stipulation anent MTCL’s reservation of
ownership of the subject products as reflected in the Invoice Receipt, i.e., the title reservation
stipulation, changed the complexion of the transaction from a contract of sale into a contract to sell.
Records are bereft of any showing that the said stipulation novated the contract of sale between the
parties which, to repeat, already existed at the precise moment ACE Foods accepted MTCL’s
proposal. To be sure, 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 it remains
compatible with the amendatory agreement. In either case, however, novation is never presumed,
and the animus novandi, whether totally or partially, must appear by express agreement of the
parties, or by their acts that are too clear and unequivocal to be mistaken. 38

In the present case, it has not been shown that the title reservation stipulation appearing in the
Invoice Receipt had been included or had subsequently modified or superseded the original
agreement of the parties. The fact that the Invoice Receipt was signed by a representative of ACE
Foods does not, by and of itself, prove animus novandi since: (a) it was not shown that the signatory
was authorized by ACE Foods (the actual party to the transaction) to novate the original agreement;
(b) the signature only proves that the Invoice Receipt was received by a representative of ACE
Foods to show the fact of delivery; and (c) as matter of judicial notice, invoices are generally issued
at the consummation stage of the contract and not its perfection, and have been even treated as
documents which are not actionable per se, although they may prove sufficient delivery. Thus,
39

absent any clear indication that the title reservation stipulation was actually agreed upon, the Court
must deem the same to be a mere unilateral imposition on the part of MTCL which has no effect on
the nature of the parties’ original agreement as a contract of sale. Perforce, the obligations arising
thereto, among others, ACE Foods’s obligation to pay the purchase price as well as to accept the
delivery of the goods, remain enforceable and subsisting.
40
1âwphi1
As a final point, it may not be amiss to state that the return of the subject products pursuant to a
rescissory action is neither warranted by ACE Foods’s claims of breach – either with respect to
41

MTCL’s breach of its purported "after delivery services" obligations or the defective condition of the
products - since such claims were not adequately proven in this case. The rule is clear: each party
must prove his own affirmative allegation; one who asserts the affirmative of the issue has the
burden of presenting at the trial such amount of evidence required by law to obtain a favorable
judgment, which in civil cases, is by preponderance of evidence. This, however, ACE Foods failed
42

to observe as regards its allegations of breach. Hence, the same cannot be sustained.

WHEREFORE, the petition is DENIED. Accordingly, the Decision dated October 21, 2011 and
Resolution dated February 8, 2012 of the Court of Appeals in CA-G.R. CV No. 89426 are
hereby AFFIRMED.

SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

MARVIC MARIO VICTOR F. LEONEN*

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.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, I
certify 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.

MARIA LOURDES P.A. SERENO

Chief Justice
Footnotes

* Designated Acting Member per Special Order No. 1627.

1
Micropacific Technologies, Co., Ltd." in some parts of the records.

2
Rollo, pp. 23-54.

3
Id. at 10-17. Penned by Associate Justice Japar B. Dimaampao, with Associate Justices
Stephen C. Cruz and Ramon A. Cruz, concurring.

4
Id. at 19-20.

5
Id. at 87-93. Penned by Judge Oscar B. Pimentel.

6
Id. at 37.

7
Id. at 571.

8
Id. at 100-102.

9
Id. at 102.

10
Id. at 103.

11
Id. at 104.

12
Id.

Id. at 56. On September 3, 2002, MTCL sent a demand letter to ACE Foods, seeking
13

payment for the said products in the amount of ₱646,464.00; id. at 105.

14
Id. at 107.

15
Id. at 94-99.

16
Id. at 56 and 87.

17
Id. at 87.

18
Id. at 110-120.

19
Id. at 56 and 57.

20
Id. at 87-93.

21
Id. at 93.

22
Id. at 90.
23
Id. at 91.

24
Id.

25
Id. at 31.

26
Id. at 55-62.

27
Id. at 61.

28
Id. at 59.

29
Id.

30
Id. at 59-60.

31
Id. at 59.

32
Id. at 64-65.

Tan v. Benolirao, G.R. No. 153820, October 16, 2009, 604 SCRA 36, 48, citing Quiroga v.
33

Parsons Hardware Co., 38 Phil. 501, 506 (1918).

Ayala Life Assurance, Inc. v. Ray Burton Development Corporation, G.R. No. 163075,
34

January 23, 2006, 479 SCRA 462, 467-468.

35
See Schmid & Oberly, Inc. v. RJL Martinez Fishing Corp., 248 Phil. 727, 735 (1988).
(Citations omitted)

36
Sps. Dalion v. CA, G.R. No. 78903, 261 Phil. 1033, 1039 (1990).

37
Tan v. Benolirao, supra note 33, at 48-49.

Ocampo-Paule v. CA, G.R. No. 145872, 426 Phil. 463, 470 (2002), citing Quinto v. People,
38

365 Phil. 259, 267 (1999).

39
"The charge invoices are not actionable documents.

Section 7 of Rule 8 of the Rules of Court states:

SEC. 7. Action or defense based on document. – Whenever an action or defense is

based upon a written instrument or document, the substance of such instrument or
document shall be set forth in the pleading, and the original or a copy thereof shall be
attached to the pleading as an exhibit, which shall be deemed to be a part of the
pleading, or said copy may with like effect be set forth in the pleading. x x x

Based on the foregoing provision, a document is actionable when an action or

defense is grounded upon such written instrument or document. In the instant case,
the Charge Invoices are not actionable documents per se as these "only provide
details on the alleged transactions." These documents need not be attached to or
 stated in the complaint as these are evidentiary in nature. In fact, respondent’s cause
of action is not based on these documents but on the contract of sale between the
parties.

xxxx

But although the Charge Invoices are not actionable documents, we find that these,
along with the Purchase Orders, are sufficient to prove that petitioner indeed
ordered supplies and materials from Highett and that these were delivered to
petitioner." (Asian Construction and Development Corporation v. Mendoza, G.R. No.
176949, June 27, 2012, 675 SCRA 284, 289; emphases supplied; citations omitted)

40
Article 1582 of the Civil Code states:

Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing
sold at the time and place stipulated in the contract.

xxxx

41
"Considering that the rescission of the contract is based on Article 1191 of the Civil Code,
mutual restitution is required to bring back the parties to their original situation prior to the
inception of the contract. x x x

Rescission creates the obligation to return the object of the contract. It can be carried
out only when the one who demands rescission can return whatever he may be
obliged to restore. To rescind is to declare a contract void at its inception and to put
an end to it as though it never was. It is not merely to terminate it and release the
parties from further obligations to each other, but to abrogate it from the beginning
and restore the parties to their relative positions as if no contract has been made."
(Sps. Velarde v. CA, 413 Phil. 360, 375 (2001); citations omitted)

42
Tongson v. CA, G.R. No. 77104, November 6, 1992, 215 SCRA 426, 432-433.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 170369 June 16, 2010

KOREAN AIR CO., LTD. and SUK KYOO KIM, Petitioners,

vs.
ADELINA A.S. YUSON, Respondent.

DECISION

CARPIO, J.:

The Case

This is a petition1 for review on certiorari under Rule 45 of the Rules of Court. The petition challenges
the 28 June 2005 Decision2 and 3 November 2005 Resolution3 of the Court of Appeals in CA-G.R.
SP No. 86762. The Court of Appeals set aside the 30 July 2004 Resolution 4 of the National Labor
Relations Commission (NLRC) in NLRC NCR CA No. 034928-03, affirming the 31 January 2003
Decision5 of Labor Arbiter Ariel Cadiente Santos (Labor Arbiter Santos) in NLRC-NCR S Case No.
30-11-05543-01.

The Facts

In July 1975, Korean Air Co., Ltd. (Korean Air) hired Adelina A.S. Yuson (Yuson) as reservations
agent. Korean Air promoted Yuson to assistant manager in 1993, and to passenger sales manager
in 1999.

Korean Air had an International Passenger Manual (IPM) which contained, among others, travel
benefit to its employees. However, Korean Air never implemented the travel benefit under the
manual. Instead, Korean Air granted all its employees travel benefit as contained in the collective
bargaining agreement (CBA). Yuson availed of the travel benefit under the CBA during her stay in
the company.

In 2000, Korean Air suffered a net loss of over $367,000,000. Consequently, Korean Air reduced its
budget for 2001 by 10 percent.

In April 2001, Yuson requested Korean Air that she be transferred from the passenger sales
department to the cargo department. Yuson wanted to be exposed to the operations of the cargo
department because she intended to pursue a cargo agency business after her retirement. On 4
June 2001, Korean Air temporarily transferred Yuson to the cargo department as "cargo dispatch."
Yuson continued to receive the same compensation and exercise the same authority as passenger
sales manager.

In order to cut costs, Korean Air offered its employees an early retirement program (ERP). In a
memorandum6 dated 21 August 2001, Korean Air stated that:

The results of operation of Korean Air for the Year 2000, was [sic] bad. The Company suffered a net
loss of over THREE HUNDRED SIXTY SEVEN MILLION DOLLARS, (USD367,000,000.00). For this
reason, the budget for the Year 2001 was reduced by 10%. Accordingly, to prevent further losses,
Head Office recently implemented an early retirement program not only for Head Office staffs but
throughout all Korean Air branches abroad. Unfortunately, in Head Office alone, 500 positions will be
affected. This program is being offered before finally conducting a retrenchment program.

In compliance with Head Office instruction, MNLSM Management, on its discretion, is hereby
offering the said early retirement program to its staff. Availing employees shall be given ONE AND A
HALF MONTHS (1.50%) [sic] salary for every year of service and other benefits. This rate is 50%
higher than the retrenchment pay prevailing in the CBA.

Please accept our deepest regrets.7

In a letter8 dated 23 August 2001 and addressed to Korean Air’s Philippine general manager Suk
Kyoo Kim (Suk), Yuson accepted the offer for early retirement.

In a letter9 dated 24 August 2001, Suk informed Yuson that she was excluded from the ERP
because she was retiring on 8 January 2002. Suk stated that:

Please be informed that you are excluded from the "Early Retirement Program". The program is
intended to staffs, upon discretion of management, who still have long years left with the Company
before reaching retirement age. You are already due for retirement on January 8, 2002. This
program is being implemented by the Company as a cost saving tool to prevent further losses. 10

In a letter11 dated 1 September 2001 and addressed to Suk, Yuson claimed that Korean Air was
bound by the perfected contract and accused the company of harassment and discrimination. Yuson
stated that:

Korean Air offered the "Early Retirement Program" through its memo under MNLSM#01-13 dated 21
August 2001. I accepted this offer under my letter dated 23 August 2001. With this Offer and
Acceptance, a Contract has been legally perfected between Korean Air and myself.

xxxx

Not too long ago, you tried to demote me from my position as Passenger Sales Manager to Cargo
Dispatch, a clerical position. This was not only done internally but also communicated with other
airlines. This has caused me undue embarrassment and humiliation. x x x

Your unilateral decision to exclude me from the "early Retirement Program" which Head Office has
stated as (and I quote) "..... [sic] not only for Head Office staffs but THROUGHOUT ALL KOREAN
AIR BRANCHES ABROAD" is another case of harassment and discrimination. It is very clear that
the Program does not allow for discretion on the part of Korean Air — MNL Manager to harass or
discriminate against any employee for any reason whatsoever, be it age, gender or nationality.
I therefore request that Korean Air perform its obligation arising out of a Contract legally perfected
with the Offer of 21 August 2001 and Acceptance of 23 August 2001. I sincerely hope I will not have
to engage the services of counsel to enforce performance of our Contract as this will subject me to
further distress and mental anguish, plus a considerable amount of expenditure, which can be the
basis for additional claim for damages.12

In a letter13 dated 12 September 2001 and addressed to Yuson, Suk stated that:

1. The "Early Retirement Program" ("ERP") is a plan by the Head Office for the purpose of
reducing the workforce of Korean Air (the "Company") due to substantial losses prior to
undertaking a retrenchment program. Contrary to your assertion, my letter dated 21 August
2001 was not an absolute offer but rather an invitation to possible qualified employees to
consider the ERP subject to the approval and acceptance by the Company, through the
Head Office, in the exercise of its discretion. x x x

2. This explains the Company’s position stated in my letter-response dated 24 August

2001 wherein the ERP is supposedly for employees who have still a number of years to
serve the Company in order to prevent further losses. It is, therefore, clear why you are
disqualified under the ERP since you are scheduled to retire on 08 January 2002. There
is no closure of business contemplated herein but merely a reduction of personnel to prevent
further losses to the Company.

3. x x x x

4. It is unfortunate that you invoke the afore-said [sic] announcement knowing that as early
as April 2001, your request for payment of one and one-half 1 and 1/2 months for every year
of service retirement benefit was denied by our SSG, Mr. Lee. As unmistakably explained to
you, you cannot avail of the ERP since you are due to retire on 08 January 2002. As a cost-
saving measure, it would be contrary to this objective of the Company to include you simply
because "you accept the offer for early retirement."

5. On the other hand, you have also been informed that since you have less than one (1)
year from your retirement date, you have the option to retire before such date. x x x

6. Also, as in previous ERPs implemented by the Company, you very well know as Sales
Manager that the Head Office does the acceptance and approval of any ERP application. In
fact, in the case of your staff, I even consult your opinion before forwarding MNLSM’s
recommendation on the matter to the Head Office. x x x

7. x x x x

8. For the record, your supposed transfer from Passenger Sales Department to the Cargo
Department on June 4, 2001 was upon your own request in April 2001 since, as you
mentioned to me, you intend to pursue a cargo agency business with your sister upon your
retirement. x x x

9. Lest you forgot our discussion on the matter, you were never demoted from your position
as Sales Manager, whether in terms of your compensation or scope of authority. As agreed
upon, your transfer was temporary for you to learn the particulars involving cargo operations.
In fact, I never appointed a new Sales Manager to replace you.
 10. The term "Cargo Dispatch", again as known to you, is a phrase peculiar to the Company
referring to the Cargo Department. I, for instance, while assigned as Regional Sales
Manager of Manila, if temporarily assigned to Hongkong [sic] Cargo, would be referred to
as "HKGRH Cargo Dispatch". This position, despite the title, is obviously not clerical or
derogatory of my rank and authority.

11. Everybody in our Office can attest to the truth that you yourself requested the temporary
transfer to cargo. I am saddened, therefore, to hear, especially from you, of your accusation
that I have tried to demote and/or discriminate against you. For your information, before your
transfer, I even instructed SSF, Mr. Kim, to extend his full support to you in your desire to
learn cargo operations.14

In a memorandum15 dated 20 September 2001, Korean Air informed its employees that application
for the ERP ended on 15 September 2001 and that only the applications of eligible employees shall
be forwarded to the head office for approval.

In a letter16 dated 22 September 2001 and addressed to Suk, Yuson reiterated her claims that (1)
Korean Air’s offer for early retirement and her acceptance of the offer constituted a perfected
contract; (2) Korean Air unjustly transferred her from passenger sales department to cargo
department; and (3) the transfer caused her embarrassment.

In a letter17 dated 10 October 2001 and addressed to Yuson, Suk stated that:

1. We believe that the Company’s position regarding the Early Retirement Program ("ERP")
has been fully explained to you in our letters dated 21 September 2001 and 24 August 2001,
respectively.

2. You complained of "injustice", "undue embarrassment and humiliation", in relation to your

transfer to Cargo. However, in our meeting on 04 October 2001, with SSG, Tito Cosico and
Chito Cajucom, you informed us to "forget about the issue on discrimination concerning
Cargo Dispatch, since you just included it when you were excluded from the ERP".
Furthermore, you also stated "I like to be in Cargo, I love working in Cargo, I have no
regrets".18

In a letter19 dated 6 November 2001 and addressed to Suk, a certain Patricia A. Galang,
representing Yuson, followed up and made a final demand for Yuson’s benefit under the ERP. In
another letter20 dated 27 November 2001 and addressed to Suk, Yuson applied for travel benefit
under the IPM. Chapter 14, Section 2.14.3.4 of the manual states:

2.14.3.4 Retired Officers or Employees

Retired officers or employees may be granted free transportation on the following basis provided that
the application therefore shall be submitted to the office which he/she belonged just before
retirement for approval not later than maximum five years from the date of retirement:

xxxx

b) Employees who terminated their employment after having served ten consecutive years or
more and their immediate families be favored with their Points (if any) not later than three
years from the date of retirement.
 c) Officers who completed their term of services or employees who reached full retirement
status and their immediate families may be favored with their Points (if any) not later than
five years from the date of retirement.21

On 28 November 2001, Yuson filed with the arbitration branch of the NLRC a complaint against
Korean Air and Suk for payment of benefit under the ERP, moral damages, exemplary damages,
and attorney’s fees.

In a letter22 dated 29 November 2001, Suk informed Yuson that the points system as contained in the
IPM had never been practiced in the Philippines. Suk stated that:

The points system of earning travel benefits you referred to under Chapter 14 of the International
Passenger Manual (IPM) is not applicable in your case since the Company follows the system as
agreed upon between MNLSM staffs and Management. You are aware that in our 26 years of
operation in Manila, we never used point system in this regard. Doing so can result to a lesser travel
benefit which is a violation of the said agreement.23

On 8 January 2002, her 60th birthday, Yuson availed of the optional retirement under Article 287 24 of
the Labor Code, as amended. lawphil.ne+

On 12 March 2002, Yuson filed with the Makati Prosecution Office a criminal complaint against
Korean Air officials Tae Sang Kim (Tae), Kwan Hee Lee (Lee), and Benedicto Cajucom for violation
of Article 287. A corresponding information was filed with Branch 146 of the Makati Regional Trial
Court (RTC).

Yuson filed with the Bureau of Immigration a complaint for deportation against Korean Air officials
Tae, Lee, Byung Jo Kim, Ja Chool Koo, Yoo Jin Kim, Cho Mahn Hung, Kim Seong Ung, Evi Sung
Hwang, and Park Jin Suk. In a Resolution25 dated 30 July 2002, the Bureau dismissed the complaint.

The Labor Arbiter’s Ruling

In his 31 January 2003 Decision, Labor Arbiter Santos denied for lack of merit Yuson’s claims for
benefit under the ERP, for moral and exemplary damages, and for attorney’s fees. The dispositive
portion of the Decision stated:

WHEREFORE, premises considered, complainant’s claim under the Early Retirement Program and
payment of moral and exemplary damages, and attorney’s fees are hereby denied for lack of merit.
Complainant is nevertheless deemed to have opted to retire on January 8, 2002 when she reached
the age of sixty years pursuant to Article 287 of the Labor Code. However, in view of the previous
offer of respondent company to pay complainant one (1) month for every year of service, respondent
company is accordingly directed to pay complainant her retirement benefits as follows:

Monthly salary x No. of Years in Service

₱59,000.00 x 26 years - ₱1,534,000.00

SO ORDERED.26

Labor Arbiter Santos held that (1) the 21 August 2001 ERP memorandum included only rank-and-
file, and excluded managerial, employees; (2) the memorandum reserved to Korean Air discretion in
approving applications for the ERP; (3) approval of applications for the ERP was a valid exercise of
Korean Air’s management prerogative; (4) Yuson could not claim benefits under both Article 287 and
Korean Air’s ERP; (5) Yuson’s claim for benefit under the ERP became moot when she availed of
the optional retirement under Article 287; (6) Yuson was not entitled to travel benefit under the IPM
because Korean Air never implemented such travel benefit; (7) Yuson was not demoted — she
requested to be transferred to the cargo department and continued to receive the same
compensation and exercise the same authority as passenger sales manager; (8) Yuson was not
entitled to moral damages because there was no showing of evil motive on Korean Air’s part; (9)
Yuson was not entitled to exemplary damages because Korean Air did not act in a wanton,
oppressive, or malevolent manner; and (10) Korean Air acted in good faith.

On 14 February 2003, Tae and Yuson entered into a compromise agreement 27 and amicably settled
the criminal case. They stated that:

1. Without necessarily admitting that they violated any law, and in deference to the desire of
the Honorable Judge that the parties amicably settle the RTC Case if only to buy peace and
avoid a protracted criminal litigation, Messrs. Tae Sang Kim, Benedicto Cajucom and the
Company have agreed to pay Adelina A.S. Yuson, and the latter acknowledges receipt from
them the amount of ONE MILLION SIX HUNDRED SEVENTY ONE THOUSAND FIVE
HUNDRED FORTY SIX PESOS AND NINETY TWO CENTAVOS (₱1,671,546.92),
representing her retirement benefit pursuant to Article 287 of the Labor Code, as amended.
This amount includes six percent (6%) legal interest from the date of her retirement on 8
January 2002 until 8 February 2003, less Ms. Yuson’s salary loan balance in the amount of
TWENTY FIVE THOUSAND PESOS (P25,000.00). x x x This amount represents a complete
settlement of all her claims in the RTC Case and such compensation and benefits to which
she may be entitled under Article 287 of the Labor Code, as amended;

2. x x x x

3. x x x x

4. x x x x

5. The parties hereby agree and understand that the withdrawal of the RTC Case is without
prejudice to other claims, which Mrs. Yuson may have in the NLRC Case. The parties agree
and understand that Ms. Yuson shall continue to pursue her claims in the NLRC Case, which
shall remain pending until final decision by the NLRC and the appropriate courts. The parties
agree that Ms. Yuson shall deduct the amount of ONE MILLION FIVE HUNDRED NINETY
THREE THOUSAND ONE PESOS AND EIGHTY CENTAVOS (₱1,593,001.80), which she
received under this Compromise Agreement, from the amount that will be awarded to her by
the NLRC and the appropriate courts should the NLRC Case be decided in her favor. 28

Yuson filed with the NLRC an appeal memorandum29 dated 10 March 2003 challenging Labor Arbiter
Santos’ 31 January 2003 Decision. The NLRC referred the case to Labor Arbiter Cristeta D. Tamayo
(Labor Arbiter Tamayo) for report and recommendation.

The NLRC’s Ruling

In its 30 January 2004 Decision,30 the NLRC adopted the report and recommendations of Labor
Arbiter Tamayo to order Korean Air and Suk to pay Yuson her benefit under the ERP and to give her
10 Korean Air economy tickets.
Korean Air and Suk filed with the NLRC a motion31 for reconsideration dated 6 May 2004. In its 30
July 2004 Resolution, the NLRC set aside its 30 January 2004 Decision and affirmed Labor Arbiter
Santos’ 31 January 2003 Decision. The NLRC held that (1) the 21 August 2001 memorandum
reserved to Korean Air discretion in approving applications for the ERP; (2) approval of applications
for the ERP was a valid exercise of Korean Air’s management prerogative; (3) Yuson was retiring on
8 January 2002; (4) inclusion of Yuson in the ERP would have been contrary to the objective of the
program as a cost-saving scheme; (5) Labor Arbiter Tamayo had no basis in granting Yuson 10
Korean Air economy tickets; (6) Yuson did not show that Korean Air ever implemented the travel
benefit under the IPM; and (7) Korean Air and Suk adequately showed that the company had been
giving one Korean Air ticket to retiring employees.

Yuson filed with the Court of Appeals a petition32 for certiorari under Rule 65 of the Rules of Court.

The Court of Appeals’ Ruling

In its 28 June 2005 Decision, the Court of Appeals set aside the NLRC’s 30 July 2004 Resolution
and affirmed the commission’s 30 January 2004 Decision. The Court of Appeals held that (1) the 21
August 2001 memorandum included both rank-and-file and managerial employees; (2) Korean Air’s
offer for early retirement and Yuson’s acceptance of the offer constituted a perfected contract under
Article 1315 of the Civil Code; (3) Korean Air forced Yuson to retire on 8 January 2002; and (4)
Korean Air’s reason for excluding Yuson in the ERP was misplaced because the company would
have incurred more costs by keeping Yuson in its employ until her compulsory retirement on 8
January 2007.

Hence, the present petition.

The Issues

Korean Air and Suk raise as issues that the Court of Appeals erred in (1) failing to consider that
Yuson’s claim for benefit under the ERP became moot when she availed of the optional retirement
under Article 287 of the Labor Code, as amended; (2) ruling that Yuson may claim benefit under the
ERP; and (3) awarding Yuson 10 Korean Air economy tickets.

The Court’s Ruling

The petition is meritorious.

On 8 January 2002, Yuson availed of the optional retirement under Article 287 of the Labor Code, as
amended. The third paragraph of Article 287 states that:

In the absence of a retirement plan or agreement providing for retirement benefits of employees in
the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond
sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at
least five (5) years in the said establishment, may retire and shall be entitled to retirement pay
equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six
(6) months being considered as one whole year.

On 14 February 2003, Yuson accepted ₱1,671,546.92 as retirement benefit under Article 287. The
compromise agreement between Tae and Yuson stated that:
Without necessarily admitting that they violated any law, and in deference to the desire of the
Honorable Judge that the parties amicably settle the RTC Case if only to buy peace and avoid a
protracted criminal litigation, Messrs. Tae Sang Kim, Benedicto Cajucom and the Company have
agreed to pay Adelina A.S. Yuson, and the latter acknowledges receipt from them the amount
of ONE MILLION SIX HUNDRED SEVENTY ONE THOUSAND FIVE HUNDRED FORTY SIX
PESOS AND NINETY TWO CENTAVOS (₱1,671,546.92), representing her retirement benefit
pursuant to Article 287 of the Labor Code, as amended. This amount includes six percent (6%)
legal interest from the date of her retirement on 8 January 2002 until 8 February 2003, less Ms.
Yuson’s salary loan balance in the amount of TWENTY FIVE THOUSAND PESOS (₱25,000.00). x x
x This amount represents a complete settlement of all her claims in the RTC Case and such
compensation and benefits to which she may be entitled under Article 287 of the Labor Code, as
amended.33 (Emphasis supplied)

Yuson’s claim for benefit under the ERP became moot when she availed of the optional retirement
under Article 287 and accepted the benefit. By her acceptance of the benefit, Yuson is deemed to
have opted to retire under Article 287. In Capili v. National Labor Relations Commission,34 the Court
held that:

[A] suprevening event worked against the petitioner. On 30 April 1994, after receiving the Labor
Arbiter’s decision but before filing his appeal from that decision, the petitioner received partial
payment of his retirement pay and other accrued benefits from respondent UM. During the pendency
of his appeal with the NLRC, specifically, on 6 October 1994, he received full payment of his
retirement benefits. In his Counter-Manifestation he declared:

COMPLAINANT-APPELLANT . . . most respectfully maintains that the partial acceptance of the

retirement benefits does not render the instant case moot and academic. The complainant-appellant
who had long and unjustly been denied of his retirement benefits since August 18, 1993 cannot be
expected to remain idle.

By his acceptance of retirement benefits the petitioner is deemed to have opted to retire
under the third paragraph of Article 287 of the Labor Code, as amended by R.A. No. 7641.
Thereunder he could choose to retire upon reaching the age of 60 years, provided it is before
reaching 65 years, which is the compulsory age of retirement.

Also worth noting is his statement that he "had long and unjustly been denied of his retirement
benefits since August 18, 1993." Elsewise stated, he was entitled to retirement benefits as early as
18 August 1993 but was denied thereof without justifiable reason. This could only mean that he has
already acceded to his retirement, effective on such date — when he reached the age of 60
years.35 (Emphasis supplied)

The Court of Appeals held that Yuson may claim benefit under the ERP because "the offer was
certain and the acceptance is absolute; hence, there is a valid contract pursuant to the last
paragraph of Article 1315 of the New Civil Code."36

The Court disagrees. Articles 1315, 1318 and 1319 of the Civil Code, respectively, state:

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.

Art. 1318. There is no contract unless the following requisites concur:

 (1) Consent of the contracting parties;

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

(3) Cause of the obligation which is established.

Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. x x x (Emphasis supplied)

An offer is a unilateral proposition made by one party to another for the celebration of a contract. For
an offer to be certain, a contract must come into existence by the mere acceptance of the offeree
without any further act on the offeror’s part. The offer must be definite, complete and intentional.
In Spouses Paderes v. Court of Appeals,37 the Court held that, "There is an ‘offer’ in the context of
Article 1319 only if the contract can come into existence by the mere acceptance of the offeree,
without any further act on the part of the offeror. Hence, the ‘offer’ must be definite, complete and
intentional."38

In the present case, the offer is not certain: (1) the 21 August 2001 memorandum clearly states that,
"MNLSM Management, on its discretion, is hereby offering the said early retirement program to its
staff"; (2) applications for the ERP were forwarded to the head office for approval, and further acts
on the offeror’s part were necessary before the contract could come into existence; and (3) the 21
August 2001 memorandum clearly states Korean Air’s intention, which was, "to prevent further
losses." Korean Air could not have intended to ministerially approve all applications for the ERP.

The Court of Appeals held that Korean Air forced Yuson to retire on 8 January 2002. The Court of
Appeals stated that, "By its letter of August 24, 2001, Private Respondent is forcing Petitioner to
retire even if the choice of optional retirement belongs to the latter." 39

The Court disagrees. The surrounding circumstances show that Korean Air did not force Yuson to
retire on 8 January 2002. Yuson was actually retiring on 8 January 2002: (1) in April 2001, Yuson
requested Korean Air that she be transferred to the cargo department because she intended to
pursue a cargo agency business after her retirement; (2) in its 24 August and 12 September 2001
letters, Korean Air clearly stated that Yuson was retiring on 8 January 2002; (3) Yuson never
corrected or denied Korean Air’s statements regarding her retirement date; (4) on 8 January 2002,
Yuson retired under Article 287 of the Labor Code, as amended; (5) in his 31 January 2003
Decision, Labor Arbiter Santos stated, "As admitted by complainant, she was set to retire by
January 2002";40 and (6) in its 30 July 2004 Resolution, the NLRC stated, "it was shown in the
records of this case that [Yuson] was about to retire sometime in January 2002, which in fact
happened."41

Approval of applications for the ERP is within Korean Air’s management prerogatives. The exercise
of management prerogative is valid as long as it is not done in a malicious, harsh, oppressive,
vindictive, or wanton manner.42 In the present case, the Court sees no bad faith on Korean Air’s part.
The 21 August 2001 memorandum clearly states that Korean Air, on its discretion, was offering
ERP to its employees. The memorandum also states that the reason for the ERP was to prevent
further losses. Korean Air did not abuse its discretion when it excluded Yuson in the ERP. To allow
Yuson to avail of the ERP would have been contrary to the purpose of the ERP.

The Court of Appeals awarded Yuson 10 Korean Air economy tickets. The Court disagrees. Aside
from a photocopy of two pages of the IPM, the records fail to show the basis for the award of the
tickets. Even the Court of Appeals totally failed to discuss the basis for the award. In his 31 January
2003 Decision, Labor Arbiter Santos held that Yuson was not entitled to the tickets. Labor Arbiter
Santos stated that:

Anent the issue on the applicability of the IPM, complainant alleged that the non-implementation
thereof with respect to her was a discriminatory act on the part of the respondents. Such argument
would have been meritorious if said policy was used in the Philippines by respondent company but
was denied her. x x x

Verily the use of different policies for employees’ benefits in various countries is not necessarily
discriminatory. Complainant’s reliance on Pakistan International Airlines vs. Ople (190 SCRA 90) is
unfortunately misplaced. In said case, the issue is the enforceability of the provisions in the
employment contract which provided for the exclusive application of Pakistani laws in case of labor
disputes and the venue for settlement of any dispute arising out of or in connection with the contract
which should only be heard in the courts of Karachi, Pakistan. For this reason, the Supreme Court
correctly ruled that said provision was inapplicable considering that employer-employee relationship
is imbued with public interest, thus, Philippine laws were applicable.43

In its 30 July 2004 Resolution, the NLRC also held that Yuson was not entitled to the tickets. The
NLRC stated that:

[O]n the award of ten (10) Korean Air tickets, we likewise assiduously re-examined the record of this
case and we must admit that we have overlooked the fact that in the recommendation made by
Labor Arbiter Cristeta D. Tamayo, which as we stated earlier was adopted en toto by former
Commissioner Vicente S.E. Veloso, except in her summation, there was nothing in her disquisition
which shows that she ever discussed the basis of her award of ten Korean Air tickets in favor of
complainant. "Decisions, however, concisely written, must distinctly and clearly set forth the facts
and the law upon which they are based, a rule applicable as well to dispositions by quasi-judicial and
administrative bodies." (Naguiat vs. NLRC, 269 SCRA 664) In any event, while it may be argued that
the "point system" of earning travel benefits is mentioned in Chapter 14, Section 2.14.3.4 of the
International Passenger Manual of Korean Air, nevertheless, it is also very clear that complainant
has not shown that this policy has been implemented in the Philippines or has ever been granted to
local managers. In the absence of a single precedent where this privilege was extended by the
respondent company, the effort of complainant to prove her entitlement to this benefit must also fall
on barren ground. In contrast, respondents have adequately shown that, during complainant’s
tenure, respondent company has extended to her CBA benefits on free tickets, and even more.
Certainly, complainant cannot enjoy the best of both worlds, so to speak. 44

Korean Air had never implemented the IPM in the Philippines. Its, employees, including Yuson,
received the travel benefit under the CBA. During her 26-year stay in Korean Air, Yuson already
received more than 10 tickets.

WHEREFORE, we GRANT the petition. We SET ASIDE the 28 June 2005 Decision and 3
November 2005 Resolution of the Court of Appeals in CA-G.R. SP No. 86762, and AFFIRM the 30
July 2004 Resolution of the National Labor Relations Commission in NLRC NCR CA No. 034928-03
which, in turn, affirmed the 31 January 2003 Decision of the Labor Arbiter in NLRC-NCR S Case No.
30-11-05543-01.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice
WE CONCUR:

ARTURO D. BRION *
Associate Justice

DIOSDADO M. PERALTA ROBERTO A. ABAD

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ **

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.

ANTONIO T. CARPIO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I
certify 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

* Designated additional member per Raffle dated 2 January 2010.

** Designated additional member per Special Order No. 842.

1
Rollo, pp. 3-50.

2
Id. at 58-86. Penned by Associate Justice Jose L. Sabio, Jr., with Associate Justices Noel
G. Tijam and Mariflor P. Punzalan Castillo concurring.

3
Id. at 88-89.

4
Id. at 248-259. Penned by Commissioner Ernesto S. Dinopol, with Presiding Commissioner
Roy V. Señeres and Commissioner Romeo L. Go concurring.

5
Id. at 91-103. Penned by Labor Arbiter Ariel Cadiente Santos.
6
Id. at 135.

7
Id.

8
Id. at 136.

9
Id. at 137.

10
Id.

11
Id. at 138.

12
Id.

13
Id. at 139-141.

14
Id.

15
Id. at 535.

16
Id. at 142-144.

17
Id. at 539.

18
Id.

19
Id. at 145.

20
Id. at 146.

21
Id. at 147.

22
Id. at 542.

23
Id.

24
Article 287 of the Labor Code states:

ART. 287. Retirement. — Any employee may be retired upon reaching the retirement
age established in the collective bargaining agreement or other applicable
employment contract.

In case of retirement, the employee shall be entitled to receive such retirement

benefits as he may have earned under existing laws and any collective bargaining
agreement and other agreements: Provided, however, That an employee’s
retirement benefits under any collective bargaining and other agreements shall not
be less than those provided therein.

In the absence of a retirement plan or agreement providing for retirement benefits of

employees in the establishment, an employee upon reaching the age of sixty (60)
 years or more, but not beyond sixty-five (65) years which is hereby declared the
compulsory retirement age, who has served at least five (5) years in the said
establishment, may retire and shall be entitled to retirement pay equivalent to at least
one-half (1/2) month salary for every year of service, a fraction of at least six (6)
months being considered as one whole year.

Unless the parties provide for broader inclusions, the term ‘one-half (1/2) month
salary’ shall mean fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and
the cash equivalent of not more than five (5) days of service incentive leaves.

Retail, service and agricultural establishments or operations employing not more

than ten (10) employees or workers are exempted from the coverage of this
provision.

Violation of this provision is hereby declared unlawful and subject to the penal
provisions under Article 288 of this Code.

25
Rollo, pp. 185-187. Penned by Commissioner Andrea D. Domingo.

26
Id. at 103.

27
Id. at 151-153.

28
Id. at 151-152.

29
Id. at 105-127.

30
Id. at 189-211.

31
Id. at 213-228.

32
Id. at 260-288.

33
Id. at 151.

34
G.R. No. 120802, 17 June 1997, 273 SCRA 576.

35
Id. at 589-590.

36
Rollo, p. 83.

37
502 Phil. 76 (2005).

38
Id. at 93.

39
Rollo, p. 84.

40
Id. at 98.

41
Id. at 256.
 42
Magdadaro v. Philippine National Bank, G.R. No. 166198, 17 July 2009, 593 SCRA 195,
201.

43
Rollo, pp. 99-100.

G.R. No. 133250 May 6, 2003

FRANCISCO I. CHAVEZ, petitioner,

vs.
PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY DEVELOPMENT
CORPORATION, respondents.

RESOLUTION

CARPIO, J.:

For resolution of the Court are the following motions: (1) Motion to Inhibit and for Re-Deliberation
filed by respondent Amari Coastal Bay Development Corporation ("Amari" for brevity) on September
13, 2002; (2) Motion to Set Case for Hearing on Oral Argument filed by Amari on August 20, 2002;
(3) Motion for Reconsideration and Supplement to Motion for Reconsideration filed by Amari on July
26, 2002 and August 20, 2002, respectively; (4) Motion for Reconsideration and Supplement to
Motion for Reconsideration filed by respondent Public Estates Authority ("PEA" for brevity) on July
26, 2002 and August 8, 2002, respectively; and (5) Motion for Reconsideration and/or Clarification
filed by the Office of the Solicitor General on July 25, 2002. Petitioner Francisco I. Chavez filed on
November 13, 2002 his Consolidated Opposition to the main and supplemental motions for
reconsideration.

To recall, the Court’s decision of July 9, 2002 ("Decision" for brevity) on the instant case states in its
summary:

We can now summarize our conclusions as follows:

1. The 157.84 hectares of reclaimed lands comprising the Freedom Islands, now covered by
certificates of title in the name of PEA, are alienable lands of the public domain. PEA may
lease these lands to private corporations but may not sell or transfer ownership of these
lands to private corporations. PEA may only sell these lands to Philippine citizens, subject to
the ownership limitations in the 1987 Constitution and existing laws.

2. The 592.15 hectares of submerged areas of Manila Bay remain inalienable natural
resources of the public domain until classified as alienable or disposable lands open to
disposition and declared no longer needed for public service. The government can make
such classification and declaration only after PEA has reclaimed these submerged areas.
Only then can these lands qualify as agricultural lands of the public domain, which are the
only natural resources the government can alienate. In their present state, the 592.15
hectares of submerged areas are inalienable and outside the commerce of man.

3. Since the Amended JVA seeks to transfer to AMARI, a private corporation, ownership of
77.34 hectares of the Freedom Islands, such transfer is void for being contrary to Section 3,
Article XII of the 1987 Constitution which prohibits private corporations from acquiring any
kind of alienable land of the public domain.
 4. Since the Amended JVA also seeks to transfer to AMARI ownership of 290.156 hectares
of still submerged areas of Manila Bay, such transfer is void for being contrary to Section 2,
Article XII of the 1987 Constitution which prohibits the alienation of natural resources other
than agricultural lands of the public domain. PEA may reclaim these submerged areas.
Thereafter, the government can classify the reclaimed lands as alienable or disposable, and
further declare them no longer needed for public service. Still, the transfer of such reclaimed
alienable lands of the public domain to AMARI will be void in view of Section 3, Article XII of
the 1987 Constitution which prohibits private corporations from acquiring any kind of
alienable land of the public domain.

Clearly, the Amended JVA violates glaringly Sections 2 and 3, Article XII of the 1987 Constitution.
Under Article 1409 of the Civil Code, contracts whose "object or purpose is contrary to law," or
whose "object is outside the commerce of men," are "inexistent and void from the beginning." The
Court must perform its duty to defend and uphold the Constitution, and therefore declares the
Amended JVA null and void ab initio.

Amari seeks the inhibition of Justice Antonio T. Carpio, ponente of the Decision, on the ground that
Justice Carpio, before his appointment to the Court, wrote in his Manila Times column of July 1,
1997, "I have always maintained that the law requires the public bidding of reclamation projects."
Justice Carpio, then a private law practitioner, also stated in the same column, "The Amari-PEA
reclamation contract is legally flawed because it was not bid out by the PEA." Amari claims that
because of these statements Justice Carpio should inhibit himself "on the grounds of bias and
prejudgment" and that the instant case should be "re-deliberated" after being assigned to a new
ponente.

The motion to inhibit Justice Carpio must be denied for three reasons. First, the motion to inhibit
came after Justice Carpio had already rendered his opinion on the merits of the case. The rule is
that a motion to inhibit must be denied if filed after a member of the Court had already given an
opinion on the merits of the case,1 the rationale being that "a litigant cannot be permitted to
speculate upon the action of the Court xxx (only to) raise an objection of this sort after a decision has
been rendered." Second, as can be readily gleaned from the summary of the Decision quoted
above, the absence of public bidding is not one of the ratio decidendi of the Decision which is
anchored on violation of specific provisions of the Constitution. The absence of public bidding was
not raised as an issue by the parties. The absence of public bidding was mentioned in the Decision
only to complete the discussion on the law affecting reclamation contracts for the guidance of public
officials. At any rate, the Office of the Solicitor General in its Motion for Reconsideration concedes
that the absence of public bidding in the disposition of the Freedom Islands rendered the Amended
JVA null and void.2 Third, judges and justices are not disqualified from participating in a case just
because they have written legal articles on the law involved in the case. As stated by the Court in
Republic v. Cocofed,3 -

The mere fact that, as a former columnist, Justice Carpio has written on the coconut levy will
not disqualify him, in the same manner that jurists will not be disqualified just because they
may have given their opinions as textbook writers on the question involved in a case.

Besides, the subject and title of the column in question was "The CCP reclamation project" and the
column referred to the Amari-PEA contract only in passing in one sentence.

Amari’s motion to set the case for oral argument must also be denied since the pleadings of the
parties have discussed exhaustively the issues involved in the case.
The motions for reconsideration reiterate mainly the arguments already discussed in the Decision.
We shall consider in this Resolution only the new arguments raised by respondents.

In its Supplement to Motion for Reconsideration, Amari argues that the Decision should be made to
apply prospectively, not retroactively to cover the Amended JVA. Amari argues that the existence of
a statute or executive order prior to its being adjudged void is an operative fact to which legal
consequences are attached, citing De Agbayani v. PNB,4 thus:

x x x. It does not admit of doubt that prior to the declaration of nullity such challenged
legislative or executive act must have been in force and had to be complied with. This is so
as until after the judiciary, in an appropriate case, declares its invalidity, it is entitled to
obedience and respect. Parties may have acted under it and may have changed their
positions. What could be more fitting than that in a subsequent litigation regard be had to
what has been done while such legislative or executive act was in operation and presumed
to be valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its
existence as a fact must be reckoned with. This is merely to reflect awareness that precisely
because the judiciary is the governmental organ which has the final say on whether or not a
legislative or executive measure is valid, a period of time may have elapsed before it can
exercise the power of judicial review that may lead to a declaration of nullity. It would be to
deprive the law of its quality of fairness and justice then, if there be no recognition of what
had transpired prior to such adjudication.

In the language of an American Supreme Court decision: "The actual existence of a statute,
prior to such a determination [of unconstitutionality], is an operative fact and may have
consequences which cannot justly be ignored. The past cannot always be erased by a new
judicial declaration. The effect of the subsequent ruling as to invalidity may have to be
considered in various aspects, - with respect to particular relations, individual and corporate,
and particular conduct, private and official." This language has been quoted with approval in
a resolution in Araneta v. Hill and the decision in Manila Motor Co., Inc. v. Flores. x x x.

xxx

x x x That before the decision they were not constitutionally infirm was admitted expressly.
There is all the more reason then to yield assent to the now prevailing principle that the
existence of a statute or executive order prior to its being adjudged void is an operative fact
to which legal consequences are attached.

Amari now claims that "assuming arguendo that Presidential Decree Nos. 1084 and 1085,
and Executive Order Nos. 525 and 654 are inconsistent with the 1987 Constitution, the
limitation imposed by the Decision on these decrees and executive orders should only be
applied prospectively from the finality of the Decision."

Amari likewise asserts that a new doctrine of the Court cannot operate retroactively if it impairs
vested rights. Amari maintains that the new doctrine embodied in the Decision cannot apply
retroactively on those who relied on the old doctrine in good faith, citing Spouses Benzonan v. Court
of Appeals,5 thus:

At that time, the prevailing jurisprudence interpreting section 119 of R.A. 141 as amended
was that enunciated in Monge and Tupas cited above. The petitioners Benzonan and
respondent Pe and the DBP are bound by these decisions for pursuant to Article 8 of the
Civil Code "judicial decisions applying or interpreting the laws or the Constitution shall form a
part of the legal system of the Philippines." But while our decisions form part of the law of the
 land, they are also subject to Article 4 of the Civil Code which provides that "laws shall have
no retroactive effect unless the contrary is provided." This is expressed in the familiar legal
maxim lex prospicit, non respicit, the law looks forward not backward. The rationale against
retroactivity is easy to perceive. The retroactive application of a law usually divests rights that
have already become vested or impairs the obligations of contract and hence, is
unconstitutional (Francisco v. Certeza, 3 SCRA 565 [1961]).

The same consideration underlies our rulings giving only prospective effect to decisions enunciating
new doctrines. Thus, we emphasized in People v. Jabinal, 55 SCRA 607 [1974] "x x x when a
doctrine of this Court is overruled and a different view is adopted, the new doctrine should be applied
prospectively and should not apply to parties who had relied on the old doctrine and acted on the
faith thereof.

There may be special cases where weighty considerations of equity and social justice will warrant a
retroactive application of doctrine to temper the harshness of statutory law as it applies to poor
farmers or their widows and orphans. In the present petitions, however, we find no such equitable
considerations. Not only did the private respondent apply for free agricultural land when he did not
need it and he had no intentions of applying it to the noble purposes behind the law, he would now
repurchase for only P327,995.00, the property purchased by the petitioners in good faith
for P1,650,000.00 in 1979 and which, because of improvements and the appreciating value of land
must be worth more than that amount now.

The buyers in good faith from DBP had a right to rely on our rulings in Monge and Tupas when they
purchased the property from DBP in 1979 or thirteen (13) years ago. Under the rulings in these two
cases, the period to repurchase the disputed lot given to respondent Pe expired on June 18, 1982.
He failed to exercise his right. His lost right cannot be revived by relying on the 1988 case of
Belisario. The right of petitioners over the subject lot had already become vested as of that time and
cannot be impaired by the retroactive application of the Belisario ruling.

Amari’s reliance on De Agbayani and Spouses Benzonan is misplaced. These cases would apply if
the prevailing law or doctrine at the time of the signing of the Amended JVA was that a private
corporation could acquire alienable lands of the public domain, and the Decision annulled the law or
reversed this doctrine. Obviously, this is not the case here.

Under the 1935 Constitution, private corporations were allowed to acquire alienable lands of the
public domain. But since the effectivity of the 1973 Constitution, private corporations were banned
from holding, except by lease, alienable lands of the public domain. The 1987 Constitution continued
this constitutional prohibition. The prevailing law before, during and after the signing of the Amended
JVA is that private corporations cannot hold, except by lease, alienable lands of the public domain.
The Decision has not annulled or in any way changed the law on this matter. The Decision, whether
made retroactive or not, does not change the law since the Decision merely reiterates the law that
prevailed since the effectivity of the 1973 Constitution. Thus, De Agbayani, which refers to a law that
is invalidated by a decision of the Court, has no application to the instant case.

Likewise, Spouses Benzonan is inapplicable because it refers to a doctrine of the Court that is
overruled by a subsequent decision which adopts a new doctrine. In the instant case, there is no
previous doctrine that is overruled by the Decision. Since the case of Manila Electric Company v.
Judge Castro-Bartolome,6 decided on June 29, 1982, the Court has applied consistently the
constitutional provision that private corporations cannot hold, except by lease, alienable lands of the
public domain. The Court reiterated this in numerous cases, and the only dispute in the application
of this constitutional provision is whether the land in question had already become private property
before the effectivity of the 1973 Constitution.7 If the land was already private land before the 1973
Constitution because the corporation had possessed it openly, continuously, exclusively and
adversely for at least thirty years since June 12, 1945 or earlier, then the corporation could apply for
judicial confirmation of its imperfect title. But if the land remained public land upon the effectivity of
the 1973 Constitution, then the corporation could never hold, except by lease, such public land.
Indisputably, the Decision does not overrule any previous doctrine of the Court.

The prevailing doctrine before, during and after the signing of the Amended JVA is that private
corporations cannot hold, except by lease, alienable lands of the public domain. This is one of the
two main reasons why the Decision annulled the Amended JVA. The other main reason is that
submerged areas of Manila Bay, being part of the sea, are inalienable and beyond the commerce of
man, a doctrine that has remained immutable since the Spanish Law on Waters of 1886. Clearly, the
Decision merely reiterates, and does not overrule, any existing judicial doctrine.

Even on the characterization of foreshore lands reclaimed by the government, the Decision does not
overrule existing law or doctrine. Since the adoption of the Regalian doctrine in this jurisdiction, the
sea and its foreshore areas have always been part of the public domain. And since the enactment of
Act No. 1654 on May 18, 1907 until the effectivity of the 1973 Constitution, statutory law never
allowed foreshore lands reclaimed by the government to be sold to private corporations. The 1973
and 1987 Constitution enshrined and expanded the ban to include any alienable land of the public
domain.

There are, of course, decisions of the Court which, while recognizing a violation of the law or
Constitution, hold that the sale or transfer of the land may no longer be invalidated because of
"weighty considerations of equity and social justice."8 The invalidation of the sale or transfer may
also be superfluous if the purpose of the statutory or constitutional ban has been achieved. But none
of these cases apply to Amari.

Thus, the Court has ruled consistently that where a Filipino citizen sells land to an alien who later
sells the land to a Filipino, the invalidity of the first transfer is corrected by the subsequent sale to a
citizen.9 Similarly, where the alien who buys the land subsequently acquires Philippine citizenship,
the sale is validated since the purpose of the constitutional ban to limit land ownership to Filipinos
has been achieved.10 In short, the law disregards the constitutional disqualification of the buyer to
hold land if the land is subsequently transferred to a qualified party, or the buyer himself becomes a
qualified party. In the instant case, however, Amari has not transferred the Freedom Islands, or any
portion of it, to any qualified party. In fact, Amari admits that title to the Freedom Islands still remains
with PEA.11

The Court has also ruled consistently that a sale or transfer of the land may no longer be questioned
under the principle of res judicata, provided the requisites for res judicata are present. 12 Under this
principle, the courts and the parties are bound by a prior final decision, otherwise there will be no
end to litigation. As the Court declared in Toledo-Banaga v. Court of Appeals, 13 "once a judgement
has become final and executory, it can no longer be disturbed no matter how erroneous it may be."
In the instant case, there is no prior final decision adjudicating the Freedom Islands to Amari.

There are, moreover, special circumstances that disqualify Amari from invoking equity principles.
Amari cannot claim good faith because even before Amari signed the Amended JVA on March 30,
1999, petitioner had already filed the instant case on April 27, 1998 questioning precisely the
qualification of Amari to acquire the Freedom Islands. Even before the filing of this petition, two
Senate Committees14 had already approved on September 16, 1997 Senate Committee Report No.
560. This Report concluded, after a well-publicized investigation into PEA’s sale of the Freedom
Islands to Amari, that the Freedom Islands are inalienable lands of the public domain. Thus, Amari
signed the Amended JVA knowing and assuming all the attendant risks, including the annulment of
the Amended JVA.

Amari has also not paid to PEA the full reimbursement cost incurred by PEA in reclaiming the
Freedom Islands. Amari states that it has paid PEA only P300,000,000.0015 out of
the P1,894,129,200.00 total reimbursement cost agreed upon in the Amended JVA. Moreover,
Amari does not claim to have even initiated the reclamation of the 592.15 hectares of submerged
areas covered in the Amended JVA, or to have started to construct any permanent infrastructure on
the Freedom Islands. In short, Amari does not claim to have introduced any physical improvement or
development on the reclamation project that is the subject of the Amended JVA. And yet Amari
claims that it had already spent a "whopping P9,876,108,638.00" as its total development cost as of
June 30, 2002.16 Amari does not explain how it spent the rest of the P9,876,108,638.00 total project
cost after paying PEA P300,000,000.00. Certainly, Amari cannot claim to be an innocent purchaser
in good faith and for value.

In its Supplement to Motion for Reconsideration, PEA claims that it is "similarly situated" as the
Bases Conversion Development Authority (BCDA) which under R.A. No. 7227 is tasked to sell
portions of the Metro Manila military camps and other military reservations. PEA’s comparison is
incorrect. The Decision states as follows:

As the central implementing agency tasked to undertake reclamation projects nationwide,

with authority to sell reclaimed lands, PEA took the place of DENR as the government
agency charged with leasing or selling reclaimed lands of the public domain. The reclaimed
lands being leased or sold by PEA are not private lands, in the same manner that DENR,
when it disposes of other alienable lands, does not dispose of private lands but alienable
lands of the public domain. Only when qualified private parties acquire these lands will the
lands become private lands. In the hands of the government agency tasked and authorized
to dispose of alienable or disposable lands of the public domain, these lands are still public,
not private lands.

PEA is the central implementing agency tasked to undertake reclamation

projects nationwide. PEA took the place of Department of Environment and Natural
Resources ("DENR" for brevity) as the government agency charged with leasing or selling all
reclaimed lands of the public domain. In the hands of PEA, which took over the leasing
and selling functions of DENR, reclaimed foreshore lands are public lands in the same
manner that these same lands would have been public lands in the hands of DENR.
BCDA is an entirely different government entity. BCDA is authorized by law to
sell specific government lands that have long been declared by presidential proclamations
as military reservations for use by the different services of the armed forces under the
Department of National Defense. BCDA’s mandate is specific and limited in area, while
PEA’s mandate is general and national. BCDA holds government lands that have been
granted to end-user government entities – the military services of the armed forces. In
contrast, under Executive Order No. 525, PEA holds the reclaimed public lands, not as an
end-user entity, but as the government agency "primarily responsible for integrating,
directing, and coordinating all reclamation projects for and on behalf of the National
Government."

In Laurel v. Garcia,17 cited in the Decision, the Court ruled that land devoted to public use by the
Department of Foreign Affairs, when no longer needed for public use, may be declared patrimonial
property for sale to private parties provided there is a law authorizing such act. Well-settled is the
doctrine that public land granted to an end-user government agency for a specific public use may
subsequently be withdrawn by Congress from public use and declared patrimonial property to be
sold to private parties. R.A. No. 7227 creating the BCDA is a law that declares specific military
reservations no longer needed for defense or military purposes and reclassifies such lands as
patrimonial property for sale to private parties.

Government owned lands, as long they are patrimonial property, can be sold to private parties,
whether Filipino citizens or qualified private corporations. Thus, the so-called Friar Lands acquired
by the government under Act No. 1120 are patrimonial property18 which even private corporations
can acquire by purchase. Likewise, reclaimed alienable lands of the public domain if sold or
transferred to a public or municipal corporation for a monetary consideration become patrimonial
property in the hands of the public or municipal corporation. Once converted to patrimonial property,
the land may be sold by the public or municipal corporation to private parties, whether Filipino
citizens or qualified private corporations.

We reiterate what we stated in the Decision is the rationale for treating PEA in the same manner as
DENR with respect to reclaimed foreshore lands, thus:

To allow vast areas of reclaimed lands of the public domain to be transferred to PEA as
private lands will sanction a gross violation of the constitutional ban on private corporations
from acquiring any kind of alienable land of the public domain. PEA will simply turn around,
as PEA has now done under the Amended JVA, and transfer several hundreds of hectares
of these reclaimed and still to be reclaimed lands to a single private corporation in only one
transaction. This scheme will effectively nullify the constitutional ban in Section 3, Article XII
of the 1987 Constitution which was intended to diffuse equitably the ownership of alienable
lands of the public domain among Filipinos, now numbering over 80 million strong.

This scheme, if allowed, can even be applied to alienable agricultural lands of the public domain
since PEA can "acquire x x x any and all kinds of lands." This will open the floodgates to
corporations and even individuals acquiring hundreds, if not thousands, of hectares of alienable
lands of the public domain under the guise that in the hands of PEA these lands are private lands.
This will result in corporations amassing huge landholdings never before seen in this country -
creating the very evil that the constitutional ban was designed to prevent. This will completely
reverse the clear direction of constitutional development in this country. The 1935 Constitution
allowed private corporations to acquire not more than 1,024 hectares of public lands. The 1973
Constitution prohibited private corporations from acquiring any kind of public land, and the 1987
Constitution has unequivocally reiterated this prohibition.

Finally, the Office of the Solicitor General and PEA argue that the cost of reclaiming deeply
submerged areas is "enormous" and "it would be difficult for PEA to accomplish such project without
the participation of private corporations."19 The Decision does not bar private corporations from
participating in reclamation projects and being paid for their services in reclaiming lands. What the
Decision prohibits, following the explicit constitutional mandate, is for private corporations to acquire
reclaimed lands of the public domain. There is no prohibition on the directors, officers and
stockholders of private corporations, if they are Filipino citizens, from acquiring at public auction
reclaimed alienable lands of the public domain. They can acquire not more than 12 hectares per
individual, and the land thus acquired becomes private land.

Despite the nullity of the Amended JVA, Amari is not precluded from recovering from PEA in the
proper proceedings, on a quantum meruit basis, whatever Amari may have incurred in implementing
the Amended JVA prior to its declaration of nullity.
WHEREFORE, finding the Motions for Reconsideration to be without merit, the same are hereby
DENIED with FINALITY. The Motion to Inhibit and for Re-Deliberation and the Motion to Set Case
for Hearing on Oral Argument are likewise DENIED.

SO ORDERED.

Davide, Jr., C.J., Vitug, Panganiban, Quisumbing, Austria- Martinez, Carpio-Morales, and Callejo,
Sr., JJ., concur.
Bellosillo, J., please see separate opinion, concurring and dissenting.
Puno, J., please see separate opinion.
Ynares-Santiago, and Sandoval-Gutierrez, JJ., please see dissenting opinion.
Corona, J., I dissent.
Azcuna, J., I take no part.

Footnotes

1
Limpin, Jr. v. IAC, 161 SCRA 83 (1988); Araneta v. Dinglasan, 84 Phil. 368 (1949).

2
Motion for Reconsideration of the Office of the Solicitor General, p. 3.

3
En Banc Resolution of February 26, 2002.

4
38 SCRA 429 (1971).

5
205 SCRA 515 (1992).

6
114 SCRA 799 (1982).

7
Republic v. CA and Iglesia ni Cristo, and Republic v. Cendaña and Iglesia ni Cristo, 119
SCRA 449 (1982); Republic v. Villanueva and Iglesia ni Cristo, 114 SCRA 875 (1982);
Director of Lands v. Lood, 124 SCRA 460 (1983); Republic v. Iglesia ni Cristo, 128 SCRA 44
(1984); Director of Lands v. Hermanos y Hermanas de Sta. Cruz de Mayo, Inc., 141 SCRA
21 (1986); Director of Lands v. IAC and Acme Plywood & Veneer Inc., 146 SCRA 509
(1986); Republic v. IAC and Roman Catholic Bishop of Lucena, 168 SCRA 165 (1988);
Natividad v. CA, 202 SCRA 493 (1991); Villaflor v. CA and Nasipit Lumber Co., 280 SCRA
297 (1997). In Ayog v. Cusi, Jr., 118 SCRA 492 (1982), the Court did not apply the
constitutional ban in the 1973 Constitution because the applicant corporation, Biñan
Development Co., Inc., had fully complied with all its obligations and even paid the full
purchase price before the effectivity of the 1973 Constitution, although the sales patent was
issued after the 1973 Constitution took effect.

8
Spouses Benzonan v. Court of Appeals, note 5.

9
United Church Board for World Ministries v. Sebastian, 159 SCRA 446 (1988); Sarsosa
Vda. de Barsobia v. Cuenco, 113 SCRA 547 (1982); Godinez v. Pak Luen, 120 SCRA 223
(1983); Vasquez v. Giap and Li Seng Giap & Sons, 96 Phil. 447 (1955).
10
Lee v. Republic, G.R. No. 128195, October 3, 2001; Yap v. Maravillas, 121 SCRA 244
(1983); De Castro v. Teng, 129 SCRA 85 (1984).

11
Amari’s Motion for Reconsideration, p. 10.

Republic v. Court of Appeals, G.R. No. 101115, August 22, 2002; Firestone Ceramics v.
12

Court of Appeals, 313 SCRA 522 (1999); Herrera v. Canlas, 310 SCRA 318 (1999); People’s
Homesite and Housing Corporation v. Mencias, 20 SCRA 1031 (1967); Galvez v. Tuason, 10
SCRA 344 (1964).

13
302 SCRA 331 (1999).

Committee on Government Corporations and Public Enterprises, and Committee on

14

Accountability of Public Officers and Investigations.

15
Amari’s Motion for Reconsideration, p. 49.

16
Ibid., p. 50.

187 SCRA 797 (1990); See also Ignacio v. Director of Lands, 108 Phil. 335 (1960); Cebu
17

Oxygen & Acetylene Co., Inc. v. Bercilles, 66 SCRA 481 (1975).

18
Central Capiz v. Ramirez, 40 Phil. 883 (1920); Jacinto v. Director of Lands, 49 Phil. 853
(1926); Pugeda v. Trias, 4 SCRA 849 (1962); De la Cruz v. De la Cruz, 130 SCRA 666
(1984).

OSG’s Motion for Reconsideration, pp. 22-24; PEA’s Supplement to Motion for
19

Reconsideration, p.12.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 180705 November 27, 2012

EDUARDO M. COJUANGCO, JR., Petitioner,

vs.
REPUBLIC OF THE PHILIPPINES, Respondent.

DECISION

VELASCO, JR., J.:

The Case

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

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

Apart from this recourse, We clarify right off that PSJ-A was challenged in two other separate but
consolidated petitions for review, one commenced by COCOFED et al., docketed as G.R. Nos.
177857-58, and the other, interposed by Danilo S. Ursua, and docketed as G.R. No. 178193.
By Decision dated January 24, 2012, in the aforesaid G.R. Nos. 177857-58 (COCOFED et al. v.
Republic) and G.R. No. 178193 (Ursua v. Republic) consolidated cases (hereinafter collectively
1

referred to as "COCOFED v. Republic"), the Court addressed and resolved all key matters elevated
to it in relation to PSJ-A, except for the issues raised in the instant petition which have not yet been
resolved therein. In the same decision, We made clear that: (1) PSJ-A is subject of another petition
for review interposed by Eduardo Cojuangco, Jr., in G.R. No. 180705, entitled Eduardo M.
Cojuangco, Jr. v. Republic of the Philippines, which shall be decided separately by the Court, and 2

(2) the issues raised in the instant petition should not be affected by the earlier decision "save for
determinatively legal issues directly addressed therein." 3

For a better perspective, the instant recourse seeks to reverse the Partial Summary Judgment of the 4

anti-graft court dated July 11, 2003, as reiterated in a Resolution of December 28, 2004, denying
5

COCOFED’s motion for reconsideration, and the May 11, 2007 Resolution denying 6

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

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

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

January 24, 2012.

It bears to stress at this juncture that the only portion of the appealed Partial Summary Judgment
dated July 11, 2003 ("PSJ-A") which remains at issue revolves around the following decretal
holdings of that court relating to the "compensation" paid to petitioner for exercising his personal and
exclusive option to acquire the FUB/UCPB shares. It will be recalled that the Sandiganbayan
9

declared the Agreement between the PCA and Cojuangco containing the assailed "compensation"
null and void for not having the required valuable consideration. Consequently, the UCPB shares of
stocks that are subject of the Agreement were declared conclusively owned by the Government. It
also held that the Agreement did not have the effect of law as it was not published as part of P.D.
755, even if Section 1 thereof made reference to the same.

Facts

We reproduce, below, portions of the statement of facts in COCOFED v. Republic relevant to the
present case: 10

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

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

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

The following were some of the issuances on the coco levy, its collection and utilization, how the
proceeds of the levy will be managed and by whom and the purpose it was supposed to serve:

1. P.D. No. 276 established the Coconut Consumers Stabilization Fund ("CCSF")
and declared the proceeds of the CCSF levy as trust fund, to be utilized to subsidize
the sale of coconut-based products, thus stabilizing the price of edible oil.

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

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

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

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

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

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

ARTICLE III
Levies
 Section 1. Coconut Consumers Stabilization Fund Levy. — The PCA is
hereby empowered to impose and collect … the Coconut Consumers
Stabilization Fund Levy, ….

….

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

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

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

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

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

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

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

Through the years, a part of the coconut levy funds went directly or indirectly to
finance various projects and/or was converted into various assets or
investments. Relevant to the present petition is the acquisition of the First United
11

Bank ("FUB"), which was subsequently renamed as United Coconut Planters Bank
("UCPB"). 12

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

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

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

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

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

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

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

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

As of June 30, 1975, the list of FUB stockholders included Cojuangco with 14,440 shares and PCA
with 129,955 shares. It would appear later that, pursuant to the stipulation on maintaining
14

Cojuangco’s equity position in the bank, PCA would cede to him 10% of its subscriptions to (a) the
authorized but unissued shares of FUB and (b) the increase in FUB’s capital stock (the equivalent of
158,840 and 649,800 shares, respectively). In all, from the "mother" PCA shares, Cojuangco would
receive a total of 95,304 FUB (UCPB) shares broken down as follows: 14,440 shares + 10%
(158,840 shares) + 10% (649,800 shares) = 95,304. 15

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

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

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

xxxx

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

xxxx

5. By Decision of December 14, 2001, in G.R. Nos. 147062-64 (Republic v. COCOFED), the Court
18

declared the coco levy funds as prima facie public funds. And purchased as the sequestered UCPB
shares were by such funds, beneficial ownership thereon and the corollary voting rights prima facie
pertain, according to the Court, to the government.

xxxx

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

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

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

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

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

a. Declaring that Section 1 of P.D. No. 755 is unconstitutional insofar as it validates the
provisions in the "PCA-Cojuangco Agreement x x x" dated May 25, 1975 providing payment
of ten percent (10%) commission to defendant Cojuangco with respect to the FUB, now
UCPB shares subject matter thereof;

b. Declaring that x x x Cojuangco, Jr. and his fronts, nominees and dummies, including x x x
and Danilo S. Ursua, have not legally and validly obtained title over the subject UCPB
shares; and
 c. Declaring that the government is the lawful and true owner of the subject UCPB shares
registered in the names of … Cojuangco, Jr. and the entities and persons above-
enumerated, for the benefit of all coconut farmers. x x x

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

We quote from COCOFED v. Republic: 20

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

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

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

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

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

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

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

5. Defendants Maria Clara Lobregat and Jose R. Eleazar, Jr. were PCA Directors x x
x during the period 1970 to 1986 x x x.

6. Plaintiff admits the existence of the following agreements which are attached as
Annexes "A" and "B" to the Opposition dated October 10, 2002 of defendant Eduardo
M. Cojuangco, Jr. to the above-cited Motion for Partial Summary Judgment:

a) "This Agreement made and entered into this ______ day of May, 1975 at
Makati, Rizal, Philippines, by and between:
PEDRO COJUANGCO, Filipino, of legal age and with residence at 1575
Princeton St., Mandaluyong, Rizal, for and in his own behalf and in behalf of
certain other stockholders of First United Bank listed in Annex "A" attached
hereto (hereinafter collectively called the SELLERS);

– and –

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

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

WITNESSETH: That

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

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

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

NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein contained, the parties agree as follows:

1. Sale and Purchase of Contract Shares

Subject to the terms and conditions of this Agreement, the SELLERS

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

2. Contract Price

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

3. Delivery of, and payment for, stock certificates

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

4. Representation and Warranties of Sellers

The SELLERS respectively and independently of each other

represent and warrant that:

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

This representation shall survive the execution and delivery of

this Agreement and the consummation or transfer hereby
contemplated.

(b) The execution, delivery and performance of this

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

(c) They have complied with the condition set forth in Article X
of the Amended Articles of Incorporation of the Bank.

5. Representation of BUYERS

xxxx

6. Implementation

The parties hereto hereby agree to execute or cause to be executed

such documents and instruments as may be required in order to carry
out the intent and purpose of this Agreement.

7. Notices

xxxx

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands at
the place and on the date first above written.

PEDRO COJUANGCO EDUARDO COJUANGCO, JR.

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

EDGARDO J. ANGARA
Attorney-in-Fact

xxxx

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

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

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

– and –

PHILIPPINE COCONUT AUTHORITY, a public corporation created by

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

WITNESSETH: That

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

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

WHEREAS, the PCPF further instructed Mrs. Maria Clara Lobregat to make
representations with the BUYER to utilize its funds to finance the purchase of
the Bank;

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

WHEREAS, in response to the representations made by the coconut farmers,

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

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

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

WHEREAS, recognizing that ownership by the coconut farmers of a

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

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

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

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

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

1. To ensure that the transfer to the coconut farmers of the Option

Shares is effected with the least possible delay and to provide for the
faithful performance of the obligations of the parties hereunder, the
parties hereby appoint the Philippine National Bank as their escrow
agent (the "Escrow Agent").

Upon execution of this Agreement, the BUYER shall deposit with the
Escrow Agent such amount as may be necessary to implement the
terms of this Agreement x x x.

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

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

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

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

(a) The management contract shall be for a period of five (5)

years, renewable for another five (5) years by mutual
agreement of the SELLER and the Bank;
 (b) The SELLER shall be elected President and shall hold
office at the pleasure of the Board of Directors. While serving
in such capacity, he shall be entitled to such salaries and
emoluments as the Board of Directors may determine;

(c) The SELLER shall recruit and develop a professional

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

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

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

(e) The SELLER shall receive no compensation for managing

the Bank, other than such salaries or emoluments to which he
may be entitled by virtue of the discharge of his function and
duties as President, provided x x x and

(f) The management contract may be assigned to a

management company owned and controlled by the SELLER.

4. As compensation for exercising his personal and exclusive option

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

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

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

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

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

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

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

The parties undertake to declare stock dividends of P8 Million out of

the present authorized but unissued capital stock of P30 Million.
 6. To carry into effect the agreement of the parties that the SELLER
shall receive as his compensation 95,304 shares:

(a) The Escrow Agent shall, upon receipt from the SELLER of
the stock certificates representing the Option Shares, duly
endorsed in blank or with stock powers sufficient to transfer
the same to bearer, present such stock certificates to the
Transfer Agent of the Bank and shall cause such Transfer
Agent to issue stock certificates of the Bank in the following
ratio: one share in the name of the SELLER for every nine
shares in the name of the BUYER.

(b) With respect to the Subscribed Shares, the BUYER

undertakes, in order to prevent the dilution of SELLER’s
equity position, that it shall cede over to the SELLER 64,980
fully-paid shares out of the Subscribed Shares. Such
undertaking shall be complied with in the following manner:
upon receipt of advice that the BUYER has subscribed to the
Subscribed Shares upon approval by the stockholders of the
increase of the authorized capital stock of the Bank, the
Escrow Agent shall thereupon issue a check in favor of the
Bank covering the total payment for the Subscribed Shares.
The Escrow Agent shall thereafter cause the Transfer Agent
to issue a stock certificates of the Bank in the following ratio:
one share in the name of the SELLER for every nine shares
in the name of the BUYER.

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

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

9. x x x x

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

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

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

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

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

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

(ii) replace the present provision restricting the transferability of the

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

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

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

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

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

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

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

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

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

2 above.

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

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

In order to achieve such objective, the parties shall cause the Bank to adopt a policy
of reinvestment, by way of stock dividends, of such percentage of the profits of the
Bank as may be necessary.
 13. The parties agree to execute or cause to be executed such documents and
instruments as may be required in order to carry out the intent and purpose of this
Agreement.

IN WITNESS WHEREOF x x x

PHILIPPINE COCONUT AUTHORITY

(BUYER)

By:

EDUARDO COJUANGCO, JR. MARIA CLARA L. LOBREGAT

(SELLER)

xxxx

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

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

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

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

Plaintiff refused to make the same admission.

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

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

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

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

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

a. they are coconut farmers who sold coconut products;

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

c. they registered the said COCOFUND receipts; and

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

but subject to the following qualifications:

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

b. there were other affidavits executed by Lobregat, Eleazar, Ballares and Aldeguer
relative to the said distribution of the unclaimed UCPB shares; and

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

The plaintiff did not make any admission as to the foregoing qualifications.

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

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

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

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

xxxx

C. Re: MOTION FOR PARTIAL SUMMARY JUDGMENT (RE: EDUARDO M. COJUANGCO, JR.)
dated September 18, 2002 filed by plaintiff.

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

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

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

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

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

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

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

increased capital stock subscribed and paid by PCA; and

3. Stock dividends declared pursuant to paragraph 5 and paragraph 11 (iv)

(d) of the Agreement.

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

Cojuangco are hereby declared conclusively owned by the plaintiff Republic of the
Philippines.

4. The UCPB shares of stock of the alleged fronts, nominees and dummies of defendant
Eduardo M. Cojuangco, Jr. which form part of the 72.2% shares of the FUB/UCPB paid for
by the

PCA with public funds later charged to the coconut levy funds, particularly the CCSF, belong to the
plaintiff Republic of the Philippines as their true and beneficial owner.
Let trial of this Civil Case proceed with respect to the issues which have not been disposed of in this
Partial Summary Judgment. For this purpose, the plaintiff’s Motion Ad Cautelam to Present

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

added.)

As earlier explained, the core issue in this instant petition is Part C of the dispositive portion in PSJ-A
declaring the 7.22% FUB (now UCPB) shares transferred to Cojuangco, plus the other shares paid
by the PCA as "conclusively" owned by the Republic. Parts A and B of the same dispositive portion
have already been finally resolved and adjudicated by this Court in COCOFED v. Republic on
January 24, 2012. 23

From PSJ-A, Cojuangco moved for partial reconsideration but the Sandiganbayan, by Resolution of 24

December 28, 2004, denied the motion.

Hence, the instant petition.

The Issues

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

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

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

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

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

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

The Court’s Ruling

THE SANDIGANBAYAN HAS JURISDICTION OVER THE SUBJECT MATTER OF THE

SUBDIVIDED AMENDED COMPLAINTS, INCLUDING THE SHARES ALLEGEDLY ACQUIRED BY
COJUANGCO BY VIRTUE OF THE PCA AGREEMENTS.
The issue of jurisdiction over the subject matter of the subdivided amended complaints has
peremptorily been put to rest by the Court in its January 24, 2012 Decision in COCOFED v.
Republic. There, the Court, citing Regalado and settled jurisprudence, stressed the following
27

interlocking precepts: Subject matter jurisdiction is conferred by law, not by the consent or
acquiescence of any or all of the parties. In turn, the issue on whether a suit comes within the
penumbra of a statutory conferment is determined by the allegations in the complaint, regardless of
whether or not the suitor will be entitled to recover upon all or part of the claims asserted.

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

CC No. 0033-A

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

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

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

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

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

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

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

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

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

In no uncertain terms, the Court has upheld the Sandiganbayan’s assumption of jurisdiction over the
subject matter of Civil Case Nos. 0033-A and 0033-F. The Court wrote:
29

Judging from the allegations of the defendants’ illegal acts thereat made, it is fairly obvious that both
CC Nos. 0033-A and CC 0033-F partake, in the context of EO Nos. 1, 2 and 14, series of 1986, the
nature of ill-gotten wealth suits. Both deal with the recovery of sequestered shares, property or
business enterprises claimed, as alleged in the corresponding basic complaints, to be ill-gotten
assets of President Marcos, his cronies and nominees and acquired by taking undue advantage of
relationships or influence and/or through or as a result of improper use, conversion or diversion of
government funds or property. Recovery of these assets––determined as shall hereinafter be
discussed as prima facie ill-gotten––falls within the unquestionable jurisdiction of the
Sandiganbayan. 30

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

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

the public treasury;

(2) x x x x
 (3) By the illegal or fraudulent conveyance or disposition of assets belonging to the
government or any of its subdivisions, agencies or instrumentalities or government-owned or
controlled corporations;

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

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

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

(6) By taking undue advantage of official position, authority, relationship or influence for
personal gain or benefit. (Emphasis supplied)

Section 2(a) of E.O. No. 1 charged the PCGG with the task of assisting the President in "The
recovery of all ill-gotten wealth accumulated by former … President Marcos, his immediate family,
relatives, subordinates and close associates … including the takeover or sequestration of all
business enterprises and entities owned or controlled by them, during his administration, directly or
through nominees, by taking undue advantage of their public office and/or using their powers,
authority, influence, connections or relationship." Complementing the aforesaid Section 2(a) is
Section 1 of E.O. No. 2 decreeing the freezing of all assets "in which the Marcoses their close
relatives, subordinates, business associates, dummies, agents or nominees have any interest or
participation."

The Republic’s averments in the amended complaints, particularly those detailing the alleged
wrongful acts of the defendants, sufficiently reveal that the subject matter thereof comprises the
recovery by the Government of ill-gotten wealth acquired by then President Marcos, his cronies or
their associates and dummies through the unlawful, improper utilization or diversion of coconut levy
funds aided by P.D. No. 755 and other sister decrees. President Marcos himself issued these
decrees in a brazen bid to legalize what amounts to private taking of the said public funds.

xxxx

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

xxxx

Lest it be overlooked, this Court has already decided that the sequestered shares are prima facie ill-
gotten wealth rendering the issue of the validity of their sequestration and of the jurisdiction of the
Sandiganbayan over the case beyond doubt. In the case of COCOFED v. PCGG, We stated that:
It is of course not for this Court to pass upon the factual issues thus raised. That function pertains to
the Sandiganbayan in the first instance. For purposes of this proceeding, all that the Court needs to
determine is whether or not there is prima facie justification for the sequestration ordered by the
PCGG. The Court is satisfied that there is. The cited incidents, given the public character of the
coconut levy funds, place petitioners COCOFED and its leaders and officials, at least prima facie,
squarely within the purview of Executive Orders Nos. 1, 2 and 14, as construed and applied in
BASECO, to wit:

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

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

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

xxxx

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

xxxx

E.O. 1, 2, 14 and 14-A, it bears to stress, were issued precisely to effect the recovery of ill-gotten
assets amassed by the Marcoses, their associates, subordinates and cronies, or through their
nominees. Be that as it may, it stands to reason that persons listed as associated with the Marcoses
refer to those in possession of such ill-gotten wealth but holding the same in behalf of the actual,
albeit undisclosed owner, to prevent discovery and consequently recovery. Certainly, it is well-nigh
inconceivable that ill-gotten assets would be distributed to and left in the hands of individuals or
entities with obvious traceable connections to Mr. Marcos and his cronies. The Court can take, as it
has in fact taken, judicial notice of schemes and machinations that have been put in place to keep ill-
gotten assets under wraps. These would include the setting up of layers after layers of shell or
dummy, but controlled, corporations or manipulated instruments calculated to confuse if not
31

altogether mislead would-be investigators from recovering wealth deceitfully amassed at the
expense of the people or simply the fruits thereof. Transferring the illegal assets to third parties not
readily perceived as Marcos cronies would be another. So it was that in PCGG v. Pena, the Court,
describing the rule of Marcos as a "well entrenched plundering regime of twenty years," noted the
magnitude of the past regime’s organized pillage and the ingenuity of the plunderers and pillagers
with the assistance of experts and the best legal minds in the market. 32

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

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

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

II

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

It will be recalled that Cojuangco’s claim of ownership over the UCPB shares is hinged on two
contract documents the respective contents of which formed part of and reproduced in their entirety
in the aforecited Order of the Sandiganbayan dated March 11, 2003. The first contract refers to the
35

agreement entered into by and between Pedro Cojuangco and his group, on one hand, and Eduardo
M. Cojuangco, Jr., on the other, bearing date "May 1975" (hereinafter referred to as "PC-ECJ
36

Agreement"), while the second relates to the accord between the PCA and Eduardo M. Cojuangco,
Jr. dated May 25, 1975 (hereinafter referred to as "PCA-Cojuangco Agreement"). The PC-ECJ
Agreement allegedly contains, inter alia, Cojuangco’s personal and exclusive option to acquire the
FUB ("UCPB") shares from Pedro and his group. The PCA-Cojuangco Agreement shows PCA’s
acquisition of the said option from Eduardo M. Cojuangco, Jr.

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

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

It bears to stress at this point that the PCA-Cojuangco Agreement referred to above in Section 1 of
P.D. 755 was not reproduced or attached as an annex to the same law. And it is well-settled that
laws must be published to be valid. In fact, publication is an indispensable condition for the effectivity
of a law. Tañada v. Tuvera said as much:
37

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

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

xxxx

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

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

We even went further in Tañada to say that:

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

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

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

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

III

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

CONSIDERATION.

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

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

On the other hand, the aforementioned provisions of the Civil Code state:

Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

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

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

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

xxxx

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

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

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

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

Sec. 3. Disputable presumptions.—The following presumptions are satisfactory if uncontradicted, but

may be contradicted and overcome by other evidence:

xxxx

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

The Court had the occasion to explain the reach of the above provision in Surtida v. Rural Bank of
Malinao (Albay), Inc., to wit:
44

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

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

The assumption that ample consideration is present in a contract is further elucidated in Pentacapital
Investment Corporation v. Mahinay: 45

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

The rule then is that the party who stands to profit from a declaration of the nullity of a contract on
the ground of insufficiency of consideration––which would necessarily refer to one who asserts such
nullity––has the burden of overthrowing the presumption offered by the aforequoted Section 3(r).
Obviously then, the presumption contextually operates in favor of Cojuangco and against the
Republic, as plaintiff a quo, which then had the burden to prove that indeed there was no sufficient
consideration for the Second Agreement. The Sandiganbayan’s stated observation, therefore, that
based on the wordings of the Second Agreement, Cojuangco had no personal and exclusive option
to purchase the FUB shares from Pedro Cojuangco had really little to commend itself for
acceptance. This, as opposed to the fact that such sale and purchase agreement is memorialized in
a notarized document whereby both Eduardo Cojuangco, Jr. and Pedro Cojuangco attested to the
correctness of the provisions thereof, among which was that Eduardo had such option to purchase.
A notarized document, Lazaro v. Agustin teaches, "generally carries the evidentiary weight
47

conferred upon it with respect to its due execution, and documents acknowledged before a notary
public have in their favor the disputable presumption of regularity."

In Samanilla v. Cajucom, the Court clarified that the presumption of a valid consideration cannot be
48

discarded on a simple claim of absence of consideration, especially when the contract itself states
that consideration was given:
x x x This presumption appellants cannot overcome by a simple assertion of lack of consideration.
Especially may not the presumption be so lightly set aside when the contract itself states that
consideration was given, and the same has been reduced into a public instrument will all due
formalities and solemnities as in this case. (Emphasis ours.)

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

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

xxxx

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

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

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

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

Alsua-Betts v. Court of Appeals is instructive that lack of ample consideration does not nullify the
50

contract:

Inadequacy of consideration does not vitiate a contract unless it is proven which in the case at bar
was not, that there was fraud, mistake or undue influence. (Article 1355, New Civil Code). We do not
find the stipulated price as so inadequate to shock the court’s conscience, considering that the price
paid was much higher than the assessed value of the subject properties and considering that the
sales were effected by a father to her daughter in which case filial love must be taken into account.
(Emphasis supplied.)s and for transferring such shares to the coconut farmers, as well as for
performing the management services required of him, SELLER shall receive equity in the Bank
amounting, in the aggregate, to 95,304 fully paid shares in accordance with the procedure set forth
in paragraph 6 below. (Emphasis supplied.)
Vales v. Villa elucidates why a bad transaction cannot serve as basis for voiding a contract:
51

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

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

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

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

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

52

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

The Court rules that the transfer of the subject UCPB shares is clearly supported by valuable
consideration.

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

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

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

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

We can opt to treat the PC-ECJ Agreement as a totally separate agreement from the PCA-
Cojuangco Agreement but it will not detract from the fact that petitioner actually acquired the rights to
the ownership of the FUB shares from the Pedro Cojuangco group. The consequence is he can
legally sell the shares to PCA. In this scenario, he would resell the shares to PCA for a profit and
PCA would still end up paying a higher price for the FUB shares. The "profit" that will accrue to
petitioner may just be equal to the value of the shares that were given to petitioner as commission.
Still we can only speculate as to the true intentions of the parties. Without any evidence adduced on
this issue, the Court will not venture on any unproven conclusion or finding which should be avoided
in judicial adjudication.

The anti-graft court also inferred from the date of execution of the special power of attorney in favor
of now Senator Edgardo J. Angara, which is May 25, 1975, that the PC-ECJ Agreement appears to
have been executed on the same day as the PCA-Cojuangco Agreement (dated May 25, 1975). The
coincidence on the dates casts "doubts as to the existence of defendant Cojuangco’s prior ‘personal
and exclusive’ option to the FUB shares."

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

Again, only the parties can explain the reasons behind the execution of the two agreements and the
SPA on the same day. They were, however, precluded from elucidating the reasons behind such
occurrence. In the absence of such illuminating proof, the proposition that the option does not exist
has no leg to stand on.
More importantly, the fact that the PC-ECJ Agreement was executed not earlier than May 25, 1975
proves that petitioner Cojuangco had an option to buy the FUB shares prior to that date. Again, it
must be emphasized that from its terms, the first Agreement did not create the option.It, however,
proved the exercise of the option by petitioner.

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

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

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

Lastly, respondent interjects the thesis that PCA could not validly enter into a bank management
agreement with petitioner since PCA has a personality separate and distinct from that of FUB.
Evidently, it is PCA which has the right to challenge the stipulations on the management contract as
unenforceable. However, PCA chose not to assail said stipulations and instead even complied with
and implemented its prestations contained in said stipulations by installing petitioner as Chairman of
UCPB. Thus, PCA has waived and forfeited its right to nullify said stipulations and is now estopped
from questioning the same.

In view of the foregoing, the Court is left with no option but to uphold the validity of the two
agreements in question.

IV

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

The coconut levy funds were exacted for a

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

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

Republic v. COCOFED and related cases, settle once and for all this core, determinative issue:
Indeed, We have hitherto discussed, the coconut levy was imposed in the exercise of the State’s
inherent power of taxation. As We wrote in Republic v. COCOFED:

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

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

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

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

"The proceeds from the levy shall be deposited with the Philippine National Bank or any other
government bank to the account of the Coconut Consumers Stabilization Fund, as a separate trust
fund which shall not form part of the general fund of the government."

The coco levies were further clarified in amendatory laws, specifically PD No. 961 and PD No. 1468
– in this wise:

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

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

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

Such penalties were later amended thus: ….

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

(c) They were clearly imposed for a public purpose. There is absolutely no question that they were
collected to advance the government’s avowed policy of protecting the coconut industry.
This Court takes judicial notice of the fact that the coconut industry is one of the great economic
pillars of our nation, and coconuts and their byproducts occupy a leading position among the
country’s export products; ….

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

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

The following parallel doctrinal lines from Pambansang Koalisyon ng mga Samahang Magsasaka at
Manggagawa sa Niyugan (PKSMMN) v. Executive Secretary came next:
55

The Court was satisfied that the coco-levy funds were raised pursuant to law to support a proper
governmental purpose. They were raised with the use of the police and taxing powers of the State
for the benefit of the coconut industry and its farmers in general. The COA reviewed the use of the
funds. The Bureau of Internal Revenue (BIR) treated them as public funds and the very laws
governing coconut levies recognize their public character.

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

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

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

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

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

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

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

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

In this case, the coconut levy funds were being exacted from copra exporters, oil millers, desiccators
and other end-users of copra or its equivalent in other coconut products. Likewise so, the funds
57

here were channeled to the purchase of the shares of stock in UCPB. Drawing a clear parallelism
between Gaston and this case, the fact that the coconut levy funds were collected from the persons
or entities in the coconut industry, among others, does not and cannot entitle them to be beneficial
owners of the subject funds – or more bluntly, owners thereof in their private capacity.
Parenthetically, the said private individuals cannot own the UCPB shares of stocks so purchased
using the said special funds of the government. (Emphasis Ours.)
58

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

The ensuing are the underlying rationale for declaring, as unconstitutional, provisions that convert
public property into private funds to be used ultimately for personal benefit:

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

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

As heretofore amply discussed, taxes are imposed only for a public purpose. They must, therefore,
61

be used for the benefit of the public and not for the exclusive profit or gain of private
persons. Otherwise, grave injustice is inflicted not only upon the Government but most especially
62

upon the citizenry––the taxpayers––to whom We owe a great deal of accountability.

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

the Court seeks to uphold. 1âwphi1

We, therefore, affirm, on this ground, the decision of the Sandiganbayan nullifying the shares of
stock transfer to Cojuangco. Accordingly, the UCPB shares of stock representing the 7.22% fully
paid shares subject of the instant petition, with all dividends declared, paid or issued thereon, as well
as any increments thereto arising from, but not limited to, the exercise of pre-emptive rights, shall be
reconveyed to the Government of the Republic of the Philippines, which as We previously clarified,
shall "be used only for the benefit of all coconut farmers and for the development of the coconut
industry."64
But apart from the stipulation in the PCA-Cojuangco Agreement, more specifically paragraph 4 in
relation to paragraph 6 thereof, providing for the transfer to Cojuangco for the UCPB shares
adverted to immediately above, other provisions are valid and shall be enforced, or shall be
respected, if the corresponding prestation had already been performed. Invalid stipulations that are
independent of, and divisible from, the rest of the agreement and which can easily be separated
therefrom without doing violence to the manifest intention of the contracting minds do not nullify the
entire contract.
65

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

C. Re: MOTION FOR PARTIAL SUMMARY JUDGMENT (RE: EDUARDO M. COJUANGCO, JR.)
dated September 18, 2002 filed by Plaintiff.

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

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

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

a. Fifteen Thousand Eight Hundred Eighty-Four (15,884) shares out of the authorized
but unissued shares of the bank, subscribed and paid by PCA;

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

c. Stock dividends declared pursuant to paragraph 5 and paragraph 11 (iv) (d) of the
PCA-Cojuangco Agreement dated May 25, 1975. or the so-called "Cojuangco-UCPB
shares" is declared unconstitutional, hence null and void. 1âwphi1

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

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

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

Accordingly, the instant petition is hereby DENIED.

Costs against petitioner Cojuangco.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice

WE CONCUR:

ARIA LOURDES P. A. SERENOM

Chief Justice

(No part) (No part)

ANTONIO T. CARPIO* TERESITA J. LEONARDO-DE CASTRO*
Associate Justice Associate Justice

(On leave) (No part)

ARTURO D. BRION** DIOSDADO M. PERALTA*
Associate Justice Associate Justice

LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ** JOSE CATRAL MENDOZA

Associate Justice Associate Justice

(On leave) (On leave)

BIENVENIDO L. REYES ESTELA M. PERLAS-BERNABE**
Associate Justice Associate Justice

MARVIC MARIO VICTOR F. LEONEN

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.

MARIA LOURDES P. A. SERENO

Chief Justice

Footnotes

* No part.
** On leave.

1
G.R. Nos. 177857-58 & 178193, January 24, 2012.

2
Id.

3
Id.

4
Penned by Associate Justice Teresita Leonardo-De Castro (now a member of this Court),
concurred in by Associate Justices Diosdado M. Peralta (now also a member of this Court)
and Francisco H. Villaruz, Jr.; rollo, pp. 179-261.

5
Rollo, pp. 361-400.

6
Id. at 1043-53.

7
COCOFED v. Republic, G.R. Nos. 177857-58 & 178193, January 24, 2012.

The dispositive portion of the Our modificatory decision reads:

WHEREFORE, the petitions in G.R. Nos. 177857-58 and 178793 are hereby
DENIED. The Partial Summary Judgment dated July 11, 2003 in Civil Case No.
0033-A as reiterated with modification in Resolution dated June 5, 2007, as well as
the Partial Summary Judgment dated May 7, 2004 in Civil Case No. 0033-F, which
was effectively amended in Resolution dated May 11, 2007, are AFFIRMED with
MODIFICATION, only with respect to those issues subject of the petitions in G.R.
Nos. 177857-58 and 178193. However, the issues raised in G.R. No. 180705 in
relation to Partial Summary Judgment dated July 11, 2003 and Resolution dated
June 5, 2007 in Civil Case No. 0033-A, shall be decided by this Court in a separate
decision.

The Partial Summary Judgment in Civil Case No. 0033-A dated July 11, 2003, is
hereby MODIFIED, and shall read as follows:

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

SUMMARY OF THE COURT’S RULING.

A. Re: CLASS ACTION MOTION FOR A SEPARATE SUMMARY JUDGMENT dated

April 11,

2001 filed by Defendant Maria Clara L. Lobregat, COCOFED, et al., and Ballares, et
al.

The Class Action Motion for Separate Summary Judgment dated April 11, 2001 filed
by defendant Maria Clara L. Lobregat, COCOFED, et al. and Ballares, et al., is
hereby DENIED for lack of merit.

B. Re: MOTION FOR PARTIAL SUMMARY JUDGMENT (RE: COCOFED, ET AL.

AND BALLARES, ET AL.) dated April 22, 2002 filed by Plaintiff.
1. a. The portion of Section 1 of P.D. No. 755, which reads:

…and that the Philippine Coconut Authority is hereby authorized to distribute, for
free, the shares of stock of the bank it acquired to the coconut farmers under such
rules and regulations it may promulgate.

taken in relation to Section 2 of the same P.D., is unconstitutional: (i) for having
allowed the use of the CCSF to benefit directly private interest by the outright and
unconditional grant of absolute ownership of the FUB/UCPB shares paid for by PCA
entirely with the CCSF to the undefined "coconut farmers", which negated or
circumvented the national policy or public purpose declared by P.D. No. 755 to
accelerate the growth and development of the coconut industry and achieve its
vertical integration; and (ii) for having unduly delegated legislative power to the PCA.

b. The implementing regulations issued by PCA, namely, Administrative Order No. 1,

Series of 1975 and Resolution No. 074-78 are likewise invalid for their failure to see
to it that the distribution of shares serve exclusively or at least primarily or directly the
aforementioned public purpose or national policy declared by P.D. No. 755.

2. Section 2 of P.D. No. 755 which mandated that the coconut levy funds shall not be
considered special and/or fiduciary funds nor part of the general funds of the national
government and similar provisions of Sec. 5, Art. III, P.D. No. 961 and Sec. 5, Art. III,
P.D. No. 1468 contravene the provisions of the Constitution, particularly, Art. IX (D),
Sec. 2; and Article VI, Sec. 29 (3).

3. Lobregat, COCOFED, et al. and Ballares, et al. have not legally and validly
obtained title of ownership over the subject UCPB shares by virtue of P.D. No. 755,
the Agreement dated May 25, 1975 between the PCA and defendant Cojuangco, and
PCA implementing rules, namely, Adm. Order No. 1, s. 1975 and Resolution No.
074-78.

4. The so-called "Farmers’ UCPB shares" covered by 64.98% of the UCPB shares of
stock, which formed part of the 72.2% of the shares of stock of the former FUB and
now of the UCPB, the entire consideration of which was charged by PCA to the
CCSF, are hereby declared conclusively owned by, the Plaintiff Republic of the
Philippines.

………

SO ORDERED.

The Partial Summary Judgment in Civil Case No. 0033-F dated May 7, 2004, is
hereby MODIFIED, and shall read as follows:

WHEREFORE, the MOTION FOR EXECUTION OF PARTIAL SUMMARY

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

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

The Motion for Partial Summary Judgment (Re: Defendants CIIF Companies, 14
Holding Companies and Cocofed, et al) filed by Plaintiff is hereby GRANTED.
ACCORDINGLY, THE CIIF COMPANIES, NAMELY:

1. Southern Luzon Coconut Oil Mills (SOLCOM);

2. Cagayan de Oro Oil Co., Inc. (CAGOIL);

3. Iligan Coconut Industries, Inc. (ILICOCO);

4. San Pablo Manufacturing Corp. (SPMC);

5. Granexport Manufacturing Corp. (GRANEX); and

6. Legaspi Oil Co., Inc. (LEGOIL),

AS WELL AS THE 14 HOLDING COMPANIES, NAMELY:

1. Soriano Shares, Inc.;

2. ACS Investors, Inc.;

3. Roxas Shares, Inc.;

4. Arc Investors; Inc.;

5. Toda Holdings, Inc.;

6. AP Holdings, Inc.;

7. Fernandez Holdings, Inc.;

8. SMC Officers Corps, Inc.;

9. Te Deum Resources, Inc.;

10. Anglo Ventures, Inc.;

11. Randy Allied Ventures, Inc.;

12. Rock Steel Resources, Inc.;

13. Valhalla Properties Ltd., Inc.; and

 14. First Meridian Development, Inc.

AND THE CIIF BLOCK OF SAN MIGUEL CORPORATION (SMC) SHARES OF

STOCK TOTALING 33,133,266 SHARES AS OF 1983 TOGETHER WITH ALL
DIVIDENDS DECLARED, PAID AND ISSUED THEREON AS WELL AS ANY
INCREMENTS THERETO ARISING FROM, BUT NOT LIMITED TO, EXERCISE OF
PRE-EMPTIVE RIGHTS ARE DECLARED OWNED BY THE GOVERNMENT TO BE
USED ONLY FOR THE BENEFIT OF ALL COCONUT FARMERS AND FOR THE
DEVELOPMENT OF THE COCONUT INDUSTRY, AND ORDERED RECONVEYED
TO THE GOVERNMENT.

THE COURT AFFIRMS THE RESOLUTIONS ISSUED BY THE SANDIGANBAYAN

ON JUNE 5, 2007 IN CIVIL CASE NO. 0033-A AND ON MAY 11, 2007 IN CIVIL
CASE NO. 0033-F, THAT THERE IS NO MORE NECESSITY OF FURTHER TRIAL
WITH RESPECT TO THE ISSUE OF OWNERSHIP OF (1) THE SEQUESTERED
UCPB SHARES, (2) THE CIIF BLOCK OF SMC SHARES, AND (3) THE CIIF
COMPANIES. AS THEY HAVE FINALLY BEEN ADJUDICATED IN THE
AFOREMENTIONED PARTIAL SUMMARY JUDGMENTS DATED JULY 11, 2003
AND MAY 7, 2004.

SO ORDERED.

…. (Emphasis and underlining in the original)

8
Resolution, COCOFED v. Republic, G.R. Nos. 177857-58 & 178193, September 4, 2012.

9
Rollo, pp. 259-260.

10
COCOFED v. Republic, G.R. Nos. 177857-58 & 178193, January 24, 2012.

11
Id.; citing Republic v. Sandiganbayan, G.R. No. 118661, January 22, 2007, 512 SCRA 25.

12
Id.

13
Republic v. COCOFED, G.R. Nos. 147062-64, December 14, 2001, 372 SCRA 462, 477.

14
Republic v. Sandiganbayan, G.R. No. 118661, January 22, 2007, 512 SCRA 25.

15
Rollo, p. 263.

16
COCOFED v. Republic, G.R. Nos. 177857-58 & 178193, January 24, 2012.

The validity and propriety of these processes were sustained by the Court in BASECO v.
17

PCGG, No. L-75885, May 27, 1987, 150 SCRA 181.

18
Reported in 372 SCRA 2001.

19
Rollo (G.R. Nos. 177857-58), pp. 830-871.

20
G.R. Nos. 177857-58 & 178193, January 24, 2012.
21
PSJ-A, pp. 15, 54-55, 80-83; rollo, pp. 193, 231-232, 257-60.

22
PSJ-A, pp. 15, 54-55, 80-83; rollo, pp. 193, 231-32, 257-60.

23
COCOFED v. Republic, G.R. Nos. 177857-58 & 178193, January 24, 2012.

24
Rollo, pp. 361-400.

25
Id. at 42-43.

26
Id.

27
1 Regalado, REMEDIAL LAW COMPENDIUM 11 (6th revised ed., 1997).

28
Rollo, pp. 488-493.

29
COCOFED v. Republic, G.R. Nos. 177857-58 & 178193, January 24, 2012.

Id.; citing San Miguel Corporation v. Sandiganbayan, G.R. Nos. 104637-38, September 14,
30

2000, 340 SCRA 289.

31
Id.; citing Yuchengco v. Sandiganbayan, G.R. No. 149802, January 20, 2006, 479 SCRA 1.

32
Id.

33
Id.

34
Id.

35
Rollo, pp. 956-961.

36
The date of the agreement was left blank.

37
No. L-63915, December 29, 1986, 146 SCRA 446, 452-454.

38
Id.

39
Id.

40
Id.

41
PSJ-A, p. 74; rollo, p. 251.

An Act to Ordain and Institute the Civil Code of the Philippines [CIVIL CODE], Republic Act
42

No. 386, Art. 1318 (1950).

CIVIL CODE, Art. 1409; see also 4 Arturo M. Tolentino, COMMENTARIES AND
43

JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES 629 (2002).

44
G.R. No. 170563, December 20, 2006, 511 SCRA 507.

45
G.R. Nos. 171736 & 181482, July 5, 2010, 623 SCRA 284, 303.

See also Union Bank of the Philippines v. Spouses Tiu, G.R. Nos. 173090-91, September
46

7, 2011; Great Asian Sales Center v. Court of Appeals, 431 Phil. 293 (2002); Fernandez v.
Fernandez, 416 Phil. 322 (2001); Gevero v. Intermediate Appellate Court, G.R. No. 77029,
August 30, 1990, 189 SCRA 201; Spouses Nuguid v. Court of Appeals, 253 Phil. 207 (1989).

47
G.R. No. 152364, April 15, 2010, 618 SCRA 298.

48
107 Phil. 432 (1960).

49
PSJ-A, pp. 73-74.

Nos. L-46430-31, July 30, 1979, 92 SCRA 332; Morales Development Company, Inc. v.
50

Court of Appeals, No. L-26572, March 28, 1969, 27 SCRA 484.

51
35 Phil. 769, 788 (1916).

52
71 Phil. 497, 501 (1941).

53
RULES OF COURT, Rule 131(p).

COCOFED v. Republic, G.R. Nos. 177857-58 & 178193, January 24, 2012; citing Republic
54

v. COCOFED, G.R. Nos. 147062-64, December 14, 2001, 372 SCRA 462, 482-484.

55
G.R. Nos. 147036-37 & 147811, April 10, 2012.

COCOFED v. Republic, G.R. Nos. 177857-58 & 178193, January 24, 2012; citing Gaston v.
56

Republic Planters Bank, No. L-77194, March 15, 1988, 158 SCRA 626, 633-34; see also
Republic v. COCOFED, G.R. No. 147062-64, December 14, 2001, 372 SCRA 462, 485-486.

Republic v. COCOFED, G.R. No. 147062-64, December 14, 2001, 372 SCRA 462, 483;
57

citing P.D. No. 961, 1976, Art. III, Sec. 1; P.D. No. 1468, 1978, Art. III, Sec. 1.

58
COCOFED v. Republic, G.R. Nos. 177857-58 & 178193, January 24, 2012.

59
Id.

60
Id.

61
Id.; citing Republic v. Sandiganbayan, G.R. No. 118661, January 22, 2007, 512 SCRA 25.

62
Id.

63
Republic v. COCOFED, G.R. Nos. 147062-64, Dec. 14, 2001; 372 SCRA 462, 477.
 In the present case before the Court, it is not disputed that the money used to
purchase the sequestered UCPB shares came from the Coconut Consumer
Stabilization Fund (CCSF), otherwise known, as the coconut levy funds.

This fact was plainly admitted by private respondent’s counsel, Atty. Teresita J.
Hebosa, during the Oral Arguments held on April 17, 2001 in Baguio City, as follows:

"Justice Panganiban:

"In regard to the theory of the Solicitor General that the funds used to purchase both
the original 28 million and the subsequent 80 million came from the CCSF, Coconut
Consumers Stabilization Fund, do you agree with that?

"Atty. Herbosa:

"Yes, Your Honor.

………

"Justice Panganiban:

"So it seems that the parties [have] agreed up to that point that the funds used to
purchase 72% of the former First United Bank came from the Coconut Consumer
Stabilization Fund?

"Atty. Herbosa:

"Yes, Your Honor."

FN40. Transcript of Oral Arguments, April 17, 2001, pp. 171, 173. During the same
Oral Argument, Private Respondent Cojuangco similarly admitted that the "entire
amount" paid for the shares had come from the Philippine Coconut Authority. TSN, p.
115.

64
COCOFED v. Republic, G.R. Nos. 177857-58 & 178193, January 24, 2012.

CIVIL CODE, Art. 1420 specifically provides, "[I]n case of a divisible contract, if the illegal
65

terms can be separated from the legal ones, the latter may be enforced."
 FIRST DIVISION

[ G.R. No. 230784. February 15, 2022 ]

HEIRS OF ANGEL YADAO, NAMELY: RUFINA YADAO, ETHERLYN YADAO-YASAÑA, RYANTH

YADAO, RUTH ANN YADAO-MANGIBUNONG, DINA JOYCE YADAO-INES, AND ANGEL
YADAO, JR.; HEIRS OF JOSEFINA IDICA-YADAO, NAMELY: LOURDES YADAO-APOSTOL
AND AURORA YADAO; HEIRS OF OFELIA YADAO-NACENO, NAMELY: TEODULFO NACENO,
JR., AILEEN NACENO, AND IRMA NACENO-AGPAOA, PETITIONERS, VS. HEIRS OF JUAN
CALETINA, NAMELY: HOSPICIO CALETINA, JR., ANICETO CALETINA, AND FLORIDA
CALETINA, RESPONDENTS.

DECISION

LAZARO-JAVIER, J.:

The Case

This petition for review on certiorari1 seeks to reverse and set aside the following issuances of
the Court of Appeals in CA-G.R. CV No. 99109 entitled Heirs of Juan Caletina,2 namely: Hospicio
Caletina, Jr., Aniceto Caletina, and Florida Caletina v. Angel Yadao, Josephine Yadao, Ernesto
Guzman, Arsenio De La Peña, Antonio De La Peña, Sr., Antonio De La Peña, Jr., Ronald Campos,
Mario De La Peña, Alfonso Agcaoili, Raisy Evilda, Ofelia Naceno, Jaime Coles, and Bella Calina:

1. Decision3 dated February 29, 2016 affirming the trial court's decision
declaring respondents as the owners of the parcel of lot covered by Original
Certificate of Title No. P-479 (S) and thus entitled to its possession; and

2. Resolution4 dated December 20, 2016 denying petitioners' motion for

reconsideration.
 Antecedents

On June 22, 1993, respondents heirs of Juan Caletina (Juan), namely Hospicio Caletina, Jr.
(Hospicio, Jr.), Aniceto Caletina, and Florida Caletina filed before the Regional Trial Court (RTC),
Sanchez Mira, Cagayan, a complaint for ownership and recovery of possession against petitioners'
predecessors-in-interest, namely: Angel Yadao (Angel), Josephine Yadao (Josephine), Ernesto
Guzman, Arsenio De La Peña, Antonio De La Peña, Sr., Antonio De La Peña, Jr., Ronald Campos,
Mario De La Peña, Alfonso Agcaoili, Raisy Evilda, Ofelia Yadao-Naceno (Ofelia), Jaime Coles, and
Bella Calina.

In their Complaint5 dated July 1, 1993, respondents averred that they are the grandchildren and
surviving heirs of Juan, the registered owner of a parcel of land denominated as Lot 1087 of
Cadaster 317-D, located at Barangay Taggat Norte, Claveria, Cagayan with a total area of 1,797
square meters and covered by Original Certificate of Title (OCT) No. P-479 (S). Sometime
in 1991, petitioners occupied the subject land and refused to leave despite their opposition and
vigorous prohibition. Thus, they brought the matter to the Barangay Captain of Taggat Norte. They
failed to reach an agreement.

The complaint was docketed as Civil Case No. 1868-S and was raffled to RTC-Branch 12,
Sanchez Mira, Cagayan, then presided by Judge Leo S. Reyes.

In their Answer6 dated July 29, 1993 and Amended Answer7 dated October 5, 1995, Angel,
Josephine, and Ofelia countered that on September 28, 1962, their parents Josefina Yadao
(Josefina) and Domingo Yadao (Domingo) bought Lot 1087 for value and in good faith from Juan's
surviving heirs, i.e., his second wife Casiana Dalo (Casiana), and their sons Hospicio, Jose,
and William. The sale was covered by a Contrata written in Ilocano:

(CONTRATA)

Ammoen ti suamin a makaimatang;

Dacami Jose Calitina, Hospicio Calitina, William Calitina ken ti inami Marciana
Calitina, nataengan kami amin ti tawen, naasawaan ken tubo iti daytoy nga ili, palawagenmi ti
kinapudnona unay ti inkam nagtutulagan ti panangilacomi ti lote nga tawidmi iti amami a natay, isu
nga masarakan ti masasao nga lote ditoy barrio Taggat, Claveria, Cagayan.

Ti lenderos daytoy a lote:

Ammianan ---- Taggat Creek & Seashore

Daya ---- Seashore
Laud ---- Taggat Creek
Bagatan ---- Rafael Guimayen

Lot No. 1087 Cad. 317-[D]

Nagtutulaganmi ngarud nga ilacomi ken ni Mrs. Josefina I. Yadao ket mayawat amin a
carbengan kencuana nga isu ti agtaguicua ken ken aglac-am ti aniaman a patauden ti masasao nga
lote.

Ket no addanto agriri, dacamto ti makaammo nga agsungbat a cas bileg daytoy a catulagan.
 Awaten mi ita nga aldao ti dagup (P850.00) walo gasut ket lima-pulo a pesos a kas
nagtutulaganmi a baler ken bayad daytoy a lote.

Tapno pamatian ti kinapudno daytoy nga kasuratan, agpirma kami amin ditoy babaenna, ita nga
aldao Sept. 20, 1962, Claveria, Cagayan.

Dacami:

Jose Calitina (signed)

Hospicio Calitina (signed)
William Calitina (signed)
Marciana Calitina8

As translated to English, this Contrata stated:

(CONTRACT)

To All Men By These Present;

We, Jose Calitina, Hospicio Calitina, William Calitina and our mother Marciana Calitina, all of
legal age, married and residents of this place, confirm the truth of our agreement concerning our
sale of the lot that we inherited from our father who had died, which lot is located at Barrio Taggat,
Claveria, Cagayan.

This is the lot bound by and referred to:

North ---- Taggat Creek & Seashore

East ---- Seashore
West ---- Taggat Creek
South ----- Rafael Guimayen

Lot No. 1087 Cad. 317-[D]

We agreed to the sale thereof to Mrs. Josefina I. Yadao and waive all our rights in this lot in her
favor and in favor of all her heirs, assigns and privies.

In case of adverse claims, we will answer to and be responsible for all of them.

We acknowledge our receipt today of the amount of Eight-Hundred Fifty Pesos (P850.00) as
agreed value and payment for this lot.

In witness whereof, we sign this agreement below on this date Sept. 20, 1962, Claveria,
Cagayan.

We:

Jose Calitina (signed)

Hospicio Calitina (signed)
William Calitina (signed)
 Marciana Calitina8

Marciana Calitina is also known as Casiana Dalo Calitina and Sianang.

The Contrata was not notarized. But Josefina and Casiana executed another Deed of Absolute
Sale on October 15, 1962 on the same Lot 1087 for the same price though this time had it
notarized:

DEED OF ABSOLUTE SALE

KNOW ALL MEN BY THESE PRESENTS:

I, CASIANA DALO CALITINA, widow, of legal age, Filipino, and resident of Bo. Taggat, Claveria,
Cagayan, hereinafter called the VENDOR, and JOSEFINA I. YADAO, of legal age, Filipino, married
to Domingo Yadao, both are residents of Bo. Taggat, Claveria, Cagayan, hereinafter called the
VENDEE;

WITNESSETH:

That for and in consideration of the (sum) of EIGHT HUNDRED PESOS (P850.00) (sic.)
Philippine Currency, to me in hand paid by the VENDEE JOSEFINA I. YADAO DOES HEREBY
SELL, TRANSFER, AND CONVEY unto said Josefina I. Yadao, his heirs and assigns that certain
parcel of land situated in Bo. Taggat, Claveria, Cagayan which is more particularly described as
follows to wit:

RESIDENTIAL LOT declared under the Cadastral Survey in

Claveria as Lot No. 1087. Bounded on the North by Seashore and
Taggat Creek, on the East by Seashore, on the South by Fausto
Udac now Rafael Guimayen, with an area of (400 sq. meters) 1,797
sq. m. (Lot 1087), more or less, assessed at P80.00 as described
under tax Declaration No. 41054-a.

Of which I am the [a]bsolute owner free from all liens and encumbrances. That the said
described parcel of land has not been registered under Act No. 496 now under the Spanish
Mortgage Law, the parties having agreed to register under the provision of Act No. 3344.

IN WITNESS WHEREOF, the parties have agreed to sign their hand, in the Municipality of
Claveria, Province of Cagayan, Philippines this 13th day of October 1962.

(signed) (signed)
___________________________________ ___________________________________
CASIANA CALITINA JOSEFINA I. YADAO
VENDOR VENDEE

(signed)

Signed in the presence of: Hospicio Calitina

(witness)10
 As alleged by petitioners, the owner's duplicate copy of OCT No. P- 479 (S) was delivered to
them. They also averred, without any dispute, that from the time their parents bought Lot 1087,
they had been in public and continuous possession thereof. The other defendants in the case
below were their tenants in Lot 1087. Petitioners maintained that even assuming that no sale was
made on Lot 1087, the fact remained that they had been in possession of the lot since 1962 to the
present. On the other hand, as petitioners stressed, respondents brought the matter to court
only on June 22, 1993 or more than thirty (30) years after they have taken possession thereof
on September 28, 1962. By petitioners' conclusion, acquisitive prescription has ripened their de
facto possession of Lot 1087 into legal possession and ownership.

Trial ensued.

To prove the allegations in the complaint, Hospicio, Jr. and his mother Dolores Corpuz-Caletina
(Dolores) took the witness stand. They were the only witnesses for respondents.

Hospicio, Jr. testified that his father, Hospicio Caletina, Sr. (Hospicio, Sr.), was the only child
of his grandfather Juan Caletina (Juan) with his wife - Nicetas Galoran (Nicetas). Casiana was
Juan's common law wife after the latter got separated from Nicetas. But Juan and Casiana were
never married. He did not know Jose and William. He denied selling the Lot 1087 to the Yadaos.
In fact, after his grandfather died, his father took over the collection of rent from their tenants. After
his father himself died, he and his siblings continued to occupy the subject lot.11

Dolores, on the other hand, testified that Juan was her father-in-law, being the father of her
husband Hospicio, Sr.

She admitted that Jose and William were also heirs of Juan as his children. She knew Jose
to be Juan's child with another woman before he (Juan) got married to Nicetas. William was also
Juan's son from another woman during his marriage to Nicetas.12 They were the half-
brothers of Hospicio, Sr.

She also averred that Juan used to live in Hawaii but returned to the Philippines after he had
been separated from Nicetas. She and Hospicio, Sr. lived with Juan and his non-marital partner
"Sianang" at Lot 1087.

Interestingly, Dolores admitted against respondents' interest that after Juan had died, they
sold, at least going by her admission, a portion of Lot 1087 to petitioners' predecessors-in-
interest Domingo and Josefina. Thus:

xxxx

Q: Where did you construct your house?

A: We built our house in the lot where Juan Caletina's house is located sir.

Q: Are you referring to the land in suit?

A: Yes sir.

Q: Is that house still standing there?

A: No more sir.
Q: Why?

A: We sold it to Mrs. Yadao sir.13

xxxx

COURT:

Q: What was the amount of the sale?

A: P300.00 sir.

Q: Why did you sell that house?

A: They came to ask us to be used as a boarding house of Domingo Yadao sir.

ATTY. PASCUA:

Q: And so you sold the house to Domingo Yadao and Josefina?

A: Yes sir.14

xxxx

Notably, the owner's duplicate of OCT No. P-479 (S) was delivered to petitioners'
predecessors-in-interest. Although it is not clear who gave the OCT to them, records bear
that petitioners were the ones who offered this document in evidence.15 The delivery and
voluntary cession of the OCT to their predecessors-in-interest and petitioners' eventual
possession thereof were not contested by respondents. Respondents were able to offer in
evidence only a certified copy of OCT No. P-479 (S) from the Register of Deeds in Cagayan.

Petitioners' predecessors-in-interest occupied and possessed Lot 1087 after its sale on
September 28, 1962 and thereafter until the present time. Dolores did not deny and has never
denied this fact. She has known of their occupation and possession since September 28,
1962.16

For their part, petitioner Ofelia reiterated that her parents bought the subject lot on September
28, 1962 and they have possessed it since that time. Lot 1087 came with a small house built
thereon. The sale was covered by an unnotarized Contrata dated September 28, 1962 and
a notarized Deed of Absolute Sale dated October 15, 1962. They later leased portions of Lot
1087 to their co-defendants.

The remaining portions of Ofelia's testimony touched mainly upon the lessees' names and the
details of their lease. Some of the other defendants took the stand regarding their lease agreements
with the Yadaos.17

On July 10, 2009, petitioners filed a motion to dismiss18 the complaint on ground of lack of
jurisdiction. They averred that the RTC had no jurisdiction over the subject matter because the
assessed value of Lot 1087 was only P5,390.00. Thus, the complaint should have been filed before
the Municipal Trial Court (MTC), not with the RTC.
 Through Resolution19 dated January 26, 2010, the trial court granted the motion and dismissed
the complaint on ground of lack of jurisdiction.

However, in its Order20 dated February 16, 2010, the trial court granted respondents' motion for
reconsideration and reinstated the complaint. It held that the motion to dismiss was filed at the tail
end of the hearing when only one witness of petitioner had not testified. Thus, it would be the height
of injustice to dismiss the complaint on ground of lack of jurisdiction at that late time of the day.

Ruling of the Regional Trial Court

By Decision21 dated November 25, 2011, the trial court granted respondents' complaint:

IN VIEW OF THE FOREGOING, judgment is rendered:

1. DECLARING plaintiffs heirs of Juan Caletina - Hospicio Caletina Jr., Aniceto Caletina and Florida
Caletina - absolute owners through succession of Lot No. 1087 Cad 317-D covered by Original
Certificate of Title No. 479(S) with an area of one thousand seven hundred ninety seven (1,797) sq.
meters and located at Taggat, Claveria, Cagayan; and

2. ORDERING defendants Josefina Yadao and Angel Yadao and all those who claim ownership and
possession through spouses Domingo Yadao and Josefina Yadao, to restore possession of the
above-described land to [the] heirs of Juan Caletina and all the above-named defendants to vacate
the land.

IT IS SO DECIDED.22

The RTC held that there was no evidence to prove the alleged sale of Lot 1087 to the
Yadaos. The Contrata signed by Hospicio, Sr., Jose, William, and Casiana was not notarized,
hence, it was only a private document which was unenforceable. The notarized Deed of Absolute
Sale, on the other hand, was signed by Casiana who had no authority to do so as she was not a
legal heir of Juan Caletina, being his non-marital partner. The RTC also opined that Lot 1087 was
acquired during the marriage of Juan to Nicetas.

More, despite the alleged sale, the RTC faulted petitioners for failing to transfer the title to Lot
1087 to their names, and not presenting retired RTC Judge Eugenio Tangonan, Jr. who had
allegedly notarized the Deed of Absolute Sale. The RTC finally ruled that petitioners could not have
acquired Lot 1087 through prescription because it was covered by a Torrens title.23

Ruling of the Court of Appeals

By its assailed Decision24 dated February 29, 2016, the Court of Appeals affirmed.

The appellate court concurred with the trial court that prescription and laches would not apply
to registered lands. Thus, as lawful owners of Lot 1087 through succession, respondents have
the right to reclaim its possession.

The Court of Appeals further ruled that, as between an unregistered deed of sale and
a Torrens title, the latter has more probative weight. Petitioners cannot rely on the tax
declarations in the name of Casiana and Josefina since tax declarations do not conclusively prove
ownership. In any event, the tax declarations reflect that the property was only 400 square meters,
while the subject land consists of 1,797 square meters.
 In its assailed Resolution25 dated December 20, 2016, the Court of Appeals denied petitioners'
motion for reconsideration.

The Present Petition

Petitioners pray that the assailed issuances of the Court of Appeals be reversed and the
complaint, dismissed. They assert that:

a) The complaint should have been dismissed on the ground of lack of

jurisdiction. The tax declarations submitted by respondents show that Lot 1087 had
an assessed value of only P5,390.00, way below the jurisdictional amount for
RTCs.26

b) Respondents' right to question their (petitioners) title and possession of the

subject lot by virtue of the Contrata and Deed of Absolute Sale had already
prescribed as the challenge was raised way beyond the 10-year prescriptive
period.27

c) Respondents never specifically denied the genuineness and due execution of

the Contrata and Deed of Absolute Sale.

d) Although the Contrata was unnotarized, it is binding upon the heirs of the
signatories including respondents herein. The presumption of regularity favors the
notarized Deed of Sale and this is especially true as the sale was coupled with the
delivery of OCT No. P-479 (S). As a result, it was they who offered in evidence this
OCT. More, the Deed of Sale cannot be disregarded on the ground that Casiana
was not the legal heir of Juan because there was no proof that Casiana was not
legally married to Juan.28

e) They have acquired Lot 1087 through prescription because they have
occupied the subject land for more than thirty (30) years.29

In their Comment30 dated October 29, 2017, respondents riposte that:

1) Petitioners are already estopped in questioning the jurisdiction of the trial

court over the subject matter of the case. They raised the issue only in 2009 when
they were already about to present their last witness.31

2) Respondents cannot raise the defense of acquisitive prescription as this

defense is unavailing not only against the registered owner but also the latter's
heirs.32

3) Petitioners are not the owners of Lot 1087. Hospicio, Jr. vehemently denied
having signed the Contrata and he could not have given valid consent to the sale
considering that he was only fourteen (14) years old at the time it was executed in
1962.

4) The Deed of Absolute Sale, on the other hand, is void as it was signed by
Casiana who had no claim or right to Lot 1087. Although Juan was described as
"married to Casiana Dalo" in OCT No. P-479 (S), the same is a mere description.
 Also, the truth is that, Casiana and Juan were never married. There was no
evidence to prove this.33

Issues

1. Did the trial court have jurisdiction over the subject matter of the complaint?

2. Did petitioners acquire ownership of the subject lot through acquisitive

prescription?

3. Is respondents' action already barred by prescription?

4. Is there a valid and binding contract selling Lot 1087 to the Yadaos?

Ruling

Subject Matter Jurisdiction

Petitioners are already estopped from questioning the jurisdiction of the RTC over the
subject matter of the present case.

The general rule is that the issue on jurisdiction over the subject matter may be raised at any
time in the proceedings, even on appeal.

By way of an exception, however, Tijam v. Sibonghanoy34 has ruled that estoppel by

laches may bar a party from invoking lack of jurisdiction when the issue is raised later in the
proceedings of the case and only after the party raising the argument has actively
participated during trial and lost.

The delay in raising the argument and the moving party's participation in the proceedings has led
the court and the opposing party of the waiver of this issue, and as a result, the belated claim if
considered and more so if granted would be inefficient and iniquitous as it is
opportunistic.35 Notably, by the time the jurisdictional challenge is raised long into the proceedings:
(i) scarce judicial resources have been spent determining the merits of the claims; (ii) the truth-
seeking function of the subsequent proceedings would be severely compromised due to the long
passage of time and the resultant loss of evidence and/or interest in re-litigating the same claims
already passed upon; and (iii) the moving party is wagering on the basis of the latter's success or
failure in the originating proceedings.

Here, the complaint was initiated on July 1, 1993. Petitioners filed their Answer36 on July 30,
1993 and their Amended Answer37 in October 1995. Petitioners filed a Second Amended
Answer38 on October 24, 2008. Pre-trial and trial commenced as early as January 1994. Yet,
petitioners raised the issue of jurisdiction only on July 17, 200939 or sixteen (16) years after the
complaint was filed. The trial was on going for years. In fact, petitioners, as defendants, was about to
present their last witness.

Petitioners' ground for this argument was well-known to them from the start. They based their
claim on the assessed value of the subject lot as stated in the tax declaration submitted by
respondents. Petitioners could not have been but be aware of this amount since they also assert
that they have been paying real estate taxes on Lot 1087 since 1962. Thus, they could have raised
the issue on jurisdiction in their original answer back in 1993. Yet they did not. Petitioners slept on
their right to claim this defense.

Acquisitive prescription

Section 47 of Presidential Decree No. 1529 (PD 1529) declares that "no title to registered land in
derogation of the title of the registered owner shall be acquired by prescription or adverse
possession." Heir of Cardenas v. The Christian and Missionary Alliance Churches of the
Philippines, Inc.40 ruled that the ownership and possession of registered land cannot
be obtained or acquired by prescription no matter the length of time of one's physical occupation
and exercise of juridical rights of possession over the land.

Hence, since ownership cannot be gained through this means, it follows that the registered
owner is not automatically dispossessed of the registered land and foreclosed from getting it back
through the passage of time as the registered owner may resort to appropriate remedies to recover
the property. Appropriateness, however, requires that the rule on extinctive prescription as
explained below has not set in.

Acquisitive prescription has a wide scope of impact as to the persons or individuals protected.
Thus, as consistently re-stated, this rule is unavailing not only against the registered owner but also
against their hereditary successors because the latter merely step into the shoes of the decedent by
operation of law and are merely a continuation of the personality of their predecessor-in-interest.

Extinctive Prescription

Extinctive prescription refers to the rule that bars even the registered owner from availing of
remedies to vindicate their right over the subject lot. It is a shield rather than a sword –
the mere fact that the party seeking recovery can no longer sue the party in possession does not
mean automatically that the latter already has the right to possess or own. The present case
demonstrates the legal principle that the law aids the vigilant, not those who slumber on their
rights. Vigilantibus, sed non dormientibus jura subverniunt.41

Pangasinan v. Disonglo-Almazora42 is explicative:

The action has prescribed.

On the basis of prescription of actions, the pending petition must also be denied. Petitioners
argue that prescription shall not lie against their action because a registered land under
Section 47 of P.D. No. 1529 cannot be acquired through prescription. The argument is patently
erroneous.

There are two kinds of prescription provided in the Civil Code. One is acquisitive, that is, the
acquisition of a right by the lapse of time as expounded in paragraph 1, Article 1106. Acquisitive
prescription is also known as adverse possession and usucapcion. The other kind is extinctive
prescription whereby rights and actions are lost by the lapse of time as defined in paragraph 2,
Article 1106 and Article 1139. Another name for extinctive prescription is litigation of action. These
two kinds of prescription should not be interchanged.

In a plethora of cases, the Court has held that Section 47 of P.D. No. 1529 covers acquisitive
prescription. A registered land therein can never be acquired by adverse possession. In the case at
bench, however, it was extinctive prescription, and not acquisitive prescription, which barred
the action of petitioners. As the CA correctly held, the action must fail, not because respondents
adversely occupied the property, but because petitioners failed to institute their suit within
the prescriptive period under Article 1144 of the Civil Code.

To determine the applicable period of extinctive prescription, the nature and circumstances
of the case should be considered. According to petitioners, the owner's duplicate certificate of title
was given to Conrado for safekeeping in 1945. Allegedly, Conrado employed fraud and bad
faith when he drafted the Adjudication and Absolute Sale of a Parcel of Registered Land on January
9, 1949, and transferred the title of the land to his name with the issuance of TCT No. 35282 on
June 17, 1965; and because of the purported fraud committed by Conrado against petitioners, an
implied constructive trust was created by operation of law, with Conrado as trustee and Aurora
as cestui que trust.

Constructive trusts are created by the construction of equity in order to satisfy the demands of
justice and prevent unjust enrichment. Article 1456 of the Civil Code provides that a person acquiring
property through fraud becomes, by operation of law, a trustee of an implied trust for the benefit of
the real owner of the property. It is now well-settled that the prescriptive period to recover property
obtained by fraud or mistake, giving rise to an implied trust under Article 1456 of the Civil Code, is 10
years pursuant to Article 1144. The prescriptive period to enforce the constructive trust shall be
counted from the alleged fraudulent registration or date of issuance of the certificate of title over the
property. The ten-year prescriptive period applies only if there is an actual need to reconvey
the property as when the plaintiff is not in possession of the property.

In this case, the ten-year prescriptive period is squarely applicable because Conrado and
his family, not petitioners, were in possession of the property. The subject property was
registered in the name of Conrado on June 17, 1965, and this should be the starting point of the ten-
year period. Petitioners, thus, had until June 17, 1975 to enforce the implied trust and assert their
claim over the land. As properly held by the CA, petitioners belatedly instituted their judicial claim
over the land on May 9, 1996. Indeed, with the lapse of the prescriptive period to file an action,
petitioners could no longer seek relief from the courts. (Emphasis supplied)43

Hence, the result of the successful invocation of this rule is that while the registered owner
keeps their substantive right over the lot, since acquisitive prescription is not a mode of acquiring
ownership of a registered land, they are nonetheless prevented by law from invoking the legal
remedies otherwise available to them. When extinctive prescription sets in, the damage done to
the registered owner is not recognized as a legal injury – a legal case of damnum absque injuria –
and they do not stand to enjoy any legal relief so far as their property (in both senses
of title or right and the tangible lot) is concerned.

Of course, the party invoking extinctive prescription may end up being declared the lawful
possessor or owner of the disputed lot. This declaration, however, is not per se the relief arising from
extinctive, much less acquisitive, prescription. Rather, this relief is the result of the evidence on
the counterclaim if any of the party's lawful right as possessor or owner. The reason for this is
that, to stress, extinctive prescription is a shield rather than a sword.

The rule is that extinctive prescription does not lie against the heirs of the registered
owner seeking recovery of the disputed lot in two instances: first, if the heirs are in actual
possession of the lot; and second, if the conveyance to the party in possession of the lot
is unlawful, void, or non-existent. In either of these instances, the action to recover the lot
is imprescriptible.
 Here, it is not disputed that petitioners are the ones in possession of the lot. Thus,
the first instance does not apply.

As regards the second instance, Department of Education, Culture and Sports v. Heirs of
Banguilan44 has explained this rule, as follows:

In Casibang, the Court ruled in favor of a registered owner and upheld the
indefeasibility and incontrovertibility of a registered title as against the school's
possession by mere tolerance. In said case, the registered owner therein allowed
the construction and operation of a school on a portion of his property because he
had no use of it at the time. However, when his successors-in-interest sought to
recover possession of the lot, the DepEd refused alleging that its possession
was in the concept of an owner because it had purchased it from the original
registered owner. The Court ruled against the DepEd because it failed to
produce any competent proof of transfer of ownership. Hence, their possession
of the subject property was only by mere tolerance and not in the concept of an
owner. The Court held:

It is undisputed that the subject property is covered by OCT

No. O-627, registered in the name of the Juan Cepeda.
A fundamental principle in land registration under the Torrens
system is that a certificate of title serves as evidence of an
indefeasible and incontrovertible title to the property in favor of
the person whose name appears therein. Thus, the certificate of
title becomes the best proof of ownership of a parcel of land.

As registered owners of the lots in question, the respondents have a right

to eject any person illegally occupying their property. This right is
imprescriptible. Even if it be supposed that they were aware of the petitioner's
occupation of the property, and regardless of the length of that possession,
the lawful owners have a right to demand the return of their property at any
time as long as the possession was unauthorized or merely tolerated, if at all.
This right is never barred by laches.

Case law teaches that those who occupy the land of another at the latter's
tolerance or permission, without any contract between them, are necessarily bound
by an implied promise that the occupants will vacate the property upon
demand.45 (Emphasis supplied.)

The rule of imprescriptibility protects not only the registered owner but also the latter's
heirs because they step into the shoes of the decedent by operation of law and are the continuation
of the personality of their predecessor-in-interest.

The rule applied in Department of Education, Culture and Sports was affirmed in Heirs of
Cardenas v. The Christian and Missionary Alliance Churches of the Philippines,
Inc.,46 Aledro-Ruña v. Lead Export and Agro-Development Corporation,47 and Bangis v.
Heirs of Adolfo,48 among others, where the possession of the other party was adjudged to be void,
unlawful or non-existent.

For clarity, the rule in these precedents is that where there was no lawful conveyance of the lot
to the party in possession, or the conveyance is void or non-existent and the lot continues to
be under the name of the original registered owner, the action to recover by the latter's heirs
who did not convey the lot is imprescriptible.

For purposes of extinctive prescription, Uy v. Court of

Appeals49 carefully distinguishes between conveyance that is totally void, unauthorized, or non-
existent and conveyance that is vitiated by fraud or mistake:

The foregoing cases on the prescriptibility of actions for reconveyance

apply when the action is based on fraud, or when the contract used as basis
for the action is voidable. Under Article 1390 of the Civil Code, a contract is
voidable when the consent of one of the contracting parties is vitiated by mistake,
violence, intimidation, undue influence or fraud. When the consent is totally
absent and not merely vitiated, the contract is void. An action for reconveyance
may also be based on a void contract. When the action for reconveyance is
based on a void contract, as when there was no consent on the part of the
alleged vendor, the action is imprescriptible. The property may be reconveyed to
the true owner, notwithstanding the TCTs already issued in another's name. The
issuance of a certificate of title in the latter's favor could not vest upon him or her
ownership of the property; neither could it validate the purchase thereof which is null
and void. Registration does not vest title; it is merely the evidence of such title. Our
land registration laws do not give the holder any better title than what he actually
has. Being null and void, the sale produces no legal effects whatsoever.

Whether an action for reconveyance prescribes or not is therefore determined

by the nature of the action, that is, whether it is founded on a claim of the
existence of an implied or constructive trust, or one based on the existence of
a void or inexistent contract. This is evident in several of our past decisions. x x
x50

Our erudite colleague, Justice Alfredo Benjamin Caguioa, painstakingly parsed the evidence to
prove that petitioners' predecessors-in-interest must have purchased only a portion of Lot 1087
while the rest of this lot is unlawfully occupied by petitioners. He thus dissented stating in
summary:

This sole dissent is premised on decisive factual indications that appear to belie
the ponencia's findings, as they find support in the records of the case, and
ultimately buttress the legal conclusion that what was lawfully conveyed to Josefina
Yadao, if any, was at best a portion of the subject property, and not the whole of it,
as the petitioners so claim. Consequently, with respect to the unsold/unconveyed
portions of the subject property, the same cannot be deemed to have been lawfully
conveyed to petitioners' predecessors-in-interest, and therefore are not covered by
the applicability of the extinctive prescription.

Justice Caguioa also referred to Dolores' testimony that she and her husband (the person who
sold Lot 1087) Hospicio, Sr. merely transferred residence within Lot 1087 after the sale of their
house to petitioners' predecessors-in-interest.

While very much respectfully considered, the dissent, we rule, has no solid legal anchor.

For one, Dolores' testimony is not dispositive that Lot 1087 was not sold entirely to
petitioners' predecessors. The hard fact remains that the buyers of Lot 1087, or petitioners'
predecessors were able to possess the entirety of Lot 1087 after the execution of several
documents and the parties' own recollections regarding the sale of Lot 1087 and the fact that
petitioners and their predecessors-in-interest were even able to lease portions thereof while
occupying the remainder – without any objections from respondents for 31 long years. We
cannot now favor respondents' claim on the basis of faulty recollections since, as stated, petitioners
and their predecessors have long exercised the rights of ownership over the entirety of Lot 1087.

Contrary to Justice Caguioa's well-considered opinion, the burden is upon respondents to prove
to all and sundry that more likely than not the sale was not of the whole of Lot 1087, which means
that they ought to explain why they said nothing for 31 years notwithstanding that petitioners and
their predecessors have long been exercising ownership rights over every part and portion of
Lot 1087 for these number of years and even more.

Further, respondents' predecessor-in-interest, Hospicio, Sr., was himself one of the sellers of
Lot 1087 as clearly mentioned in the Contrata.

True, the lot is a registered lot and registered until today in the name of Juan Caletina,
the ultimate predecessor-in-interest referred to by both petitioners and respondents. True, as
well, the Contrata was unnotarized.

These truths, however, do not affect the validity and enforceability of

the presumably unregistered and factually unnotarized sale.
An unregistered and unnotarized sale is valid and enforceable against the parties to the
sale. Hospicio, Sr., respondents' predecessor-in-interest, is bound by the sale.

We held in Heirs of Biona v. Court of Appeals:51

We agree with the private respondent that all the requisites for a valid
contract of sale are present in the instant case. For a valuable consideration of
P4,500.00, Soledad Biona agreed to sell and actually conveyed the subject
property to private respondent. The fact that the deed of sale was not
notarized does not render the agreement null and void and without any effect.
The provision of Article 1358 of the Civil Code on the necessity of a public
document is only for convenience, and not for validity or enforceability. The
observance of which is only necessary to insure its efficacy, so that
after the existence of said contract had been admitted, the party bound may be
compelled to execute the proper document. Undeniably, a contract has been
entered into by Soledad Biona and the private respondent. Regardless of its form,
it was valid, binding and enforceable between the parties. We quote with favor
the respondent court's ratiocination on the matter:

xxx The trial court cannot dictate the manner in which the
parties may execute their agreement, unless the law otherwise
provides for a prescribed form, which is not so in this case. The
deed of sale so executed, although a private document, is effective
as between the parties themselves and also as the third persons
having no better title, and should be admitted in evidence for the
purpose of showing the rights and relations of the contracting
parties (Carbonell v. Court of Appeals, 69 SCRA 99; Elumbaring v.
Elumbaring, 12 Phil. 384). Under Art. 1356 of the Civil
Code, contracts shall be obligatory in whatever form they may
have been entered into provided all the essential requisites for
their necessary elements for a valid contract of sale were
 met when Soledad Biona agreed to sell and actually conveyed Lot
177 to defendant-appellant who paid the amount of P4,500.00
therefore. The deed of sale (Exh. 2) is not made ineffective
merely because it is not notarized or does not appear in a
public document. The contract is binding upon the contracting
parties, defendant-appellant and Soledad Biona, including her
successors-in-interest. Pursuant to Art. 1357, plaintiffs-appellees
may be compelled by defendant-appellant to execute a public
document to embody their valid and enforceable contract and for the
purpose of registering the property in the latter's name (Clarin v.
Rulona, 127 SCRA 512; Heirs of Amparo v. Santos, 108 SCRA 43;
Araneta v. Montelibano, 14 Phil. 117).52

Since Hospicio, Sr. as respondent's predecessor-in-interest already sold his property in Lot
1087, together with his half-brothers,respondents no longer have any valid and enforceable
claim to this lot.

Much has been said too about Juan's spouse, Nicetas, as one of Juan's heirs. But there is no
evidence of her having laid any claim herself to Lot 1087. In fact, when Dolores and Hospicio, Sr.
lived with Juan at Lot 1087, it was already Juan's non-marital partner Sianang who lived with them.
Neither may respondents lay any rights-based claim to the lot on behalf of Nicetas except for
Hospicio, Sr.'s status as her heir who as such, nonetheless, already sold his property over Lot
1087 on September 28, 1962.

As a result, we cannot accept Justice Caguioa's claim that there was no valid or
even enforceable sale of Lot 1087 to petitioners and their predecessors-in-interest, or that the sale
was only for a portion thereof. As stated, the unnotarized Contrata signed by Hospicio, Sr. and his
half-brothers sold to petitioners' predecessors-in-interest the whole of Lot 1087 for P850, and not
only for 400 square meters as subsequently intercalated in the notarized Deed of Sale that Hospicio,
Sr. witnessed. But whether for the whole of Lot 1087 or 400 square meters thereof, Hospicio, Sr.
more likely than not agreed to these series of sales since the certificate of title for the whole of
Lot 1087 was delivered to petitioners' predecessors-in-interest as they too at once occupied the
entire lot, and collected rentals from the lessees of the portions they did not occupy – without
objection from Hospicio, Sr. and Dolores.

Given these factual circumstances, petitioners' present occupation and possession of Lot 1087
is not unlawful, void, or based on non-existent claim. They have long planted themselves on
Lot 1087 under the series of sales by the heirs of the registered owner – without any objection from
any of them until 1993 when the relevant parties are long dead, truthful memory has faded and
compromised, and crucial evidence may no longer be availed of. For this reason, respondent's
action to recover the lot is definitely not imprescriptible. It will be both inefficient and unfair to
the truth-seeking and grievance-redressing functions of the courts to insist that prescription has not
set in.

To stress, respondents are now barred from assailing the sale of Lot 1087 and petitioners'
possession of this lot by reason of extinctive prescription.

The reckoning point for extinctive prescription to set in was when the right of respondents'
predecessors-in-interest, i.e., Hospicio, Sr. as Dolores' spouse and respondents' father, who was
the heir of Juan, accrued and was violated. This was when Juan died and Hospicio, Sr. acquired
property (in the sense of rights) by succession to Lot 1087 and when this lot was sold
 to and possessed and openly occupied by petitioners' predecessors-in-interest, whichever came
later.

Here, this means that the starting date for extinctive prescription was September 28, 1962 and
has since been interrupted only on June 22, 1993 when the complaint was filed with the RTC.
Hospicio, Sr. could not have but known of his right to Lot 1087 and the violation of his
right because –

(i) he himself sold this lot to petitioners' predecessor-in-interests on September 28, 1962, and

(ii) they at once openly possessed Lot 1087 by physical occupation for their own use and
by leasing portions thereof to other individuals.

By June 22, 1993, when the complaint for recovery of Lot 1087 was filed with the RTC,
the ultimate and all-encompassing prescriptive period of 31 years had already lapsed. It no
longer matters whatever respondents' cause of action was - contract or constructive trust arising
from a mistake or even fraud. The super prescriptive period has set in. With the lapse of the
prescriptive period to file an action, respondents could no longer seek relief from the courts.

We invoke the singular outcome of our rulings in Pangasinan v. Disonglo-

Almazora and Heirs of Biona v. Court of Appeals to refute further Justice Caguioa's well-
considered opinions. If respondents do have any cause of action at all, they surely have lost it
when Hospicio, Sr. sold the entirety of Lot 1087 and witnessed without objection for more
than 30 years the supposed sale of 400 square meters thereof, the physical occupation by
petitioners' predecessors-in-interest of portions of Lot 1087 for their own use, and their collection of
rentals from and other forms of juridical possession of those portions of this lot not physically
occupied by them.

Indeed, the law aids only the vigilant, not those who slumber on their rights.53 Vigilantibus, sed
non dormientibus jura subverniunt.

Valid and binding contract

While it is a well-established rule that the Court is not a trier of facts and will not delve into
evidentiary matters, this Court can exercise its discretion in undergoing a close examination of the
testimonial and documentary evidence on record where the findings of fact of the lower courts are
not supported by the record or are so glaringly erroneous as to constitute a serious abuse of
discretion.54

Here, both the trial court and the Court of Appeals arrived at a similar finding of fact and legal
conclusion that respondents are the true owners of Lot 1087. They both held that petitioners have no
claim of ownership over Lot 1087 based on the Contrata dated September 28, 1962 because it was
unenforceable being a mere private instrument for lack of notarization, and the Deed of Sale dated
October 15, 1962 did not confer ownership as it was void since the party identified as the seller –
Casiana Dalo – was not the owner of Lot 1087.

We agree with the lower courts' unified pronouncements that respondents cannot claim
ownership over the subject lot from the Deed of Sale dated October 13, 1962 between Marciana or
Casiana Dalo Calitina (or Caletina) and Josefina, because Casiana was never its owner. It is an
established principle that no one can give what one does not have, nemo dat quod non habet. A
buyer can acquire no more than what the seller can legally transfer.55
 It bears emphasis that aside from the phrase "Juan Caletina, Filipino, of legal age, married to
Casiana Dalo" in OCT No. P-479 (S), no other evidence was submitted to prove that Casiana Dalo
was indeed married to or in any manner an heir of Juan Caletina. On the contrary, respondents
presented the marriage certificate56 between Juan Caletina and Nicetas Galoran. There was dearth
of proof that Juan and Nicetas' marriage was ever annulled or declared a nullity or she was dead
when Juan and Casiano were allegedly married.

On this score, Banguis-Tambuyat v. Balcom-Tambuyat57 is binding.

In Tambuyat, Adriano M. Tambuyat was married to Wenifreda Balcolm-Tambuyat. They

separated in fact. Later, Adriano and one Rosario were allegedly married. Adriano acquired some
properties including a 700-square meter parcel of land located at Barangay Muzon, San Jose del
Monte, Bulacan. For this sale, TCT No. T-145321(M) was registered in the name of "Adriano M.
Tambuyat married to Rosario E. Banguis." Adriano died intestate. Wenifreda, as Adriano's spouse,
sought the cancellation of TCT No. T-145321(M) on the ground that it was erroneously registered to
"Adriano M. Tambuyat married to Rosario E. Banguis". In granting the petition for cancellation, both
the trial court and the Court of Appeals held that the inclusion of Rosario's name in TCT No. T-
145321(M) was an error or mistake. In affirming this, the Court held:

As correctly ruled by the appellate court, the preponderance of evidence points

to the fact that Wenifreda is the legitimate spouse of Adriano. Documentary
evidence – among others, the parties' respective marriage contracts, which, together
with marriage certificates, are considered the primary evidence of a marital union –
indicates that Adriano was married to Wenifreda, while Banguis was married to
Nolasco – and both marriages were subsisting at the time of the acquisition of the
subject property and issuance of the certificate of title thereto. Thus, it cannot be
said that Adriano and Banguis were husband and wife to each other; it cannot even
be said that they have a common-law relationship at all. Consequently, Banguis
cannot be included or named in TCT T-145321 as Adriano's spouse; the right and
privilege belonged to Wenifreda alone.

Thus, the phrase "married to Casiana Dalo" in OCT No. P-479 (S), on its own, is not evidence
and does not constitute proof, whether presumptive or conclusive, that Juan and Casiana were
married. Absent any other evidence that Casiana and Juan were married or that she is the latter's
heir or that she has in any other way a juridical tie to or right over the lot, Casiana could not have
validly sold or transferred any right in it to petitioners' predecessor-in-interest Josefina Yadao.

We, however, disagree with the trial and appellate courts that petitioners cannot claim
ownership over Lot 1087 through the Contrata dated September 28, 1962 because it was not
notarized.

Article 1358 of the Civil Code58 states that a contract that transmits or extinguishes real rights
or in any manner deals with immovable property is to be embodied in a public document.
Nonetheless, as already mentioned above, it is a settled rule that the failure to observe the proper
form prescribed by Article 1358 does not render the acts or contracts invalid. This is because
the purpose of Article 1358 is merely to suggest a convenient form in which to deal with real
rights, convenience being measured in terms of the ease by which to prove the underlying
transaction over the immovable. 1âшphi1

Thus, although a conveyance of land is not made in a public document, this form does not
affect the validity of such conveyance. As referenced above, the form mentioned under Article
1358 is not essential to the validity or even the enforceability of the embodied agreement or
transaction, but is intended for convenience. So long as the elements of consent, cause,
and consideration are present, the binding effect of a contract in any other form extends to the
parties and their heirs and assigns.59 As a result, even an oral contract involving real rights
produces legal effects between the parties, their heirs, and assigns.

Thus, as already adverted to above, it was grave error on the part of the trial court and the
Court of Appeals to have completely ignored the Contrata simply because it was not notarized.

We must not also forget that respondents' own witness, Dolores, respondents' mother,
categorically affirmed the presence of all the elements of a valid sale when she testified that after
Juan had died, they sold Lot 1087 to petitioners' predecessors-in-interest – Domingo and
Josefina.60 As respondents themselves admitted this sale, and the fact that the owner's duplicate
copy of OCT No. P-479 (S) was delivered contemporaneously to petitioners' predecessors,
petitioners can justify their occupation and possession of the lot on the basis of this other sale,
regardless of the form, oral or written, notarized or unnotarized, in which this sale was embodied.

On this, as we reiterate the case law referenced above, the Court's pronouncement in Diampoc
v. Buenaventura61 is similarly instructive:

It must be remembered, however, that "the absence of notarization of the

deed of sale would not invalidate the transaction evidenced therein"; it merely
"reduces the evidentiary value of a document to that of a private document,
which requires proof of its due execution and authenticity to be admissible as
evidence." x x x

x x x Article 1358 of the Civil Code requires that the form of a

contract that transmits or extinguishes real rights over immovable
property should be in a public document, yet the failure to observe
the proper form does not render the transaction invalid. The
necessity of a public document for said contracts is only for
convenience; it is not essential for validity or enforceability. Even a
sale of real property, though not contained in a public instrument or
formal writing, is nevertheless valid and binding, for even a verbal
contract of sale or real estate produces legal effects between the
parties. Consequently, when there is a defect in the notarization of a
document, the clear and convincing evidentiary standard originally
attached to a duly-notarized document is dispensed with, and the
measure to test the validity of such document is preponderance of
evidence.

xxxx

Thus, following the above pronouncements, the remaining judicial task,

therefore, is to determine if the deed of sale executed by and between the parties
should be upheld. The RTC and the CA are unanimous in declaring that the deed
should be sustained on account of petitioner's failure to discredit it with her
evidence. The CA further found that petitioner and her husband received in full the
consideration of P200,000.00 for the sale. As far as the lower courts are
concerned, the three requirements of cause, object, and consideration
concurred. x x x

xxxx
 It is also a well-settled principle that "the law will not relieve parties from the
effects of an unwise, foolish or disastrous agreement they entered into with all the
required formalities and with full awareness of what they were doing. Courts have no
power to relieve them from obligations they voluntarily assumed, simply because
their contracts turn out to be disastrous deals or unwise investments. Neither the law
nor the courts will extricate them from an unwise or undesirable contract which they
entered into with all the required formalities and with full knowledge of its
consequences."62 (Emphasis supplied)

In sum, the fact that the Contrata was not notarized does not mean that there was no sale of
Lot 1087 between the Caletina's (or Calitina) and the Yadaos. As discussed, even an oral sale of a
real property is valid and binding between the parties, their heirs, and assigns.

More important, the Court cannot turn a blind eye to the other pieces of evidence proving
that: (i) respondents' privies themselves in fact sold supposedly a portion of Lot 1087 to petitioners'
predecessors-in-interest; (ii) the owner's duplicate copy of the OCT for the whole of Lot 1087 was
delivered contemporaneously to petitioners' predecessors-in-interest; and (iii) on September 28,
1962, contemporaneously with the execution of the Contrata, petitioners started their occupation and
possession of the entirety of Lot 1087 with respondents' privies' knowledge and without
complaints from them and their successors-in-interest until well into June 22, 1993.

All in all, what is clear from the evidence is that the heirs of Juan sold Lot 1087 to petitioners'
predecessors-in-interest and petitioners and their successors occupied and possessed
the entire lot. There were admissions to this effect from respondents themselves and respondents
did not complain for thirty-one (31) years until June 22, 1993. By then, respondents have
compromised the truth-seeking and grievance-redressing functions of the RTC as a result of the
fact that relevant parties are long dead, truthful memory has faded and compromised, and crucial
evidence may no longer be availed of. It is thus now too late for respondents to assail and for the
courts to upend the validity and enforceability of the Contrata. As we have concluded above, since
there is nothing in and about the Contrata that makes it invalid and unenforceable, and in view of
the presence of all the elements of a valid and enforceable sale, the Contrata must be upheld in
toto to affirm the validity of petitioners' ownership including of course possession of the whole of Lot
1087.

To reiterate, as regards Juan's spouse, Nicetas, she being the mother of Hospicio, Sr. and the
grandmother of respondents in the marital or legitimate line, her share when Juan died, as
respondents themselves suggest, was already inherited by Hospicio, Sr. and included in their
complaint for recovery that started this case. Thus, any disposition in the instant case will also
1a⍵⍴h!1

apply to Nicetas' share.

So, when we say that, (i) as we have earlier explained above, respondents
are now precluded from recovering the subject lot due to extinctive prescription, and (ii)as we
discussed immediately above, there was a valid and enforceable sale by Hospicio, Sr. and his half-
brothers of Lot 1087, this ruling covers the entirety of Lot 1087 including Nicetas' share as Juan's
spouse and heir through Hospicio, Sr.'s status also as her heir.

All told, the Court of Appeals gravely erred when it affirmed in full the trial court's ruling that
respondents may still recover from petitioners Lot 1087 of Cadaster 317-D, located at Barangay
Taggat Norte, Claveria, Cagayan with a total area of 1,797 square meters and covered by OCT No.
P-479 (S). Their claim has prescribed and the series of sales thereof to petitioners' predecessors
as discussed in this Decision are declared valid.
 Respondents can no longer recover Lot 1087 from petitioners. They are already barred from
assailing petitioners' possession of the lot on their claims that do not amount to the sale of Lot 1087
as being unlawful, void, or non-existent. Their right of action to establish these claims has become
stale due to extinctive prescription. Falling short of being unlawful, void, or non-existent, their
claims can no longer be established as facts with legal consequences.

Thus, with this bar against respondents, coupled with the validity of the series of sales of Lot
1087 to petitioners' predecessors-in-interest, there are no more vices vitiating petitioners' acquisition
of the lot. As a result, their ownership of the lot will be declared, as they are declared, to be valid.
Petitioners are entitled to secure from respondents, as respondents are ordered to provide, all the
documents of title to complete the registration of petitioners' acquisition and ownership, or their title,
to Lot 1087 in accordance with the Court's ruling in Heirs of Arao v. Heirs of Eclipse:63

The intent to transfer the ownership over the subject land has been
established and effected by the execution of the 1940 Deed of Sale by the
heirs of the registered owner, as well as the delivery thereof to petitioners.
What is needed is merely the issuance of the corresponding Certificate of Title
on the basis of the said 1940 Deed of Sale. To make this possible, certain
documents (pertaining to estate settlements, as well as registrable Deeds of
Conveyance) are needed to facilitate the transfer of the title of the lot from the heirs
of the original owners to herein petitioners, not to mention payment of corresponding
taxes. Hence, this Court directs the parties herein to execute all necessary
documents as required by law to effect the smooth issuance of the new Certificate of
Title based on the 1940 Deed of Sale. This is not the first time this Court made such
directive even if not prayed for by the winning parties in their pleadings. The case
of Spouses Aguinaldo v. Torres, Jr. is instructive:

To be sure, the directive to execute a registrable deed of

conveyance in respondent's favor - albeit not specifically
prayed for in respondent's Answer with Counterclaim - is but a
necessary consequence of the judgment upholding the validity
of the sale to him, and an essential measure to put in proper
place the title to and ownership of the subject properties and to
preclude further contentions thereon. As aptly explained by the
CA, "to leave the 1991 deed of sale as a private one would not
necessarily serve the intent of the country's land registration laws,
and resorting to another action merely to compel the petitioners to
execute a registrable deed of sale would unnecessarily prolong the
resolution of this case, especially when the end goal would be the
same." In this relation, case law states that a judgment should be
complete by itself; hence, the courts are to dispose finally of the
litigation so as to preclude further litigation between the parties on
the same subject matter, thereby avoiding a multiplicity of suits
between the parties and their privies and successors-in-
interests.64 (Emphasis supplied, citations omitted.)

ACCORDINGLY, the petition is GRANTED and the Decision dated February 29,
2016 and Resolution dated December 20, 2016 of the Court of Appeals in CA-G.R.
CV No. 99109, REVERSED and SET ASIDE. The complaint in Civil Case No. 1868-
S of the Regional Trial Court, Branch 12, Sanchez Mira, Cagayan is
ordered DISMISSED.
 Petitioners Heirs of Angel Yadao, namely: Rufina Yadao, Etherlyn Yadao-
Yasaña, Ryanth Yadao, Ruth Ann Yadao-Mangibunong, Dina Joyce Yadao-Ines,
and Angel Yadao, Jr.; Heirs of Josefina Idica-Yadao, namely: Lourdes Yadao-
Apostol and Aurora Yadao; and the Heirs of Ofelia Yadao-Naceno, namely: Teodulfo
Naceno, Jr., Aileen Naceno and Irma Naceno-Agpaoa are declared co-owners of
Lot 1087 of Cadaster 317-D, located at Barangay Taggat Norte, Claveria, Cagayan
with a total area of 1,797 square meters and covered by Original Certificate of Title
No. P-479 (S).

Respondents heirs of Juan Caletina, namely: Hospicio Caletina, Jr., Aniceto

Caletina, and Florida Caletina, are DIRECTED to EXECUTE AT THEIR OWN
EXPENSE a registrable deed of conveyance in petitioners' favor for the issuance of
a new Transfer Certificate of Title in their names as co-owners of Lot 1087. In case
respondents refuse or neglect to execute such registrable deed, the Clerk of Court
or the Officer-in-Charge of Regional Trial Court, Branch 12, Sanchez Mira, Cagayan
is authorized and ordered to execute such document on their behalf and to
collect the lawful expenses for such purpose as part and parcel of this Decision.

SO ORDERED.

Gesmundo, C.J., (Chairperson), M. Lopez, and J. Lopez, JJ., concur.

Caguioa, J., See Dissent.

Footnotes

1 Rollo, pp. 15-39.

2 Spelled as "Calitina" in other portions of the records.

3 Penned by now Supreme Court Associate Justice Ramon Paul L. Hernando and concurred
in by retired Supreme Court Associate Justice Jose C. Reyes, Jr. and Associate Justice
Stephen C. Cruz; rollo, pp. 51-58.

4 Id. at 48-49.

5 Record, pp. 1-4.

6 Id. at 36-40.

7 Id. at 63-67.

8 Id. at 371.

9 Id.

10 Id. at 372.
11 Rollo, pp. 100-101.

12 Id. at 102-103.

13 TSN, August 19, 1999, p. 10.

14 Id. at 12.

15 Exhibit "8", rollo, pp. 159-160; record, p. 396.

16 TSN, August 19, 1999, pp. 15, and 17-18.

17 Rollo, pp. 103-105.

18 Record, pp. 299-302.

19 Id. at 314-315.

20 Id. at 323.

21 Penned by Executive Judge Leo S. Reyes; rollo, pp. 99-109.

22 Id. at 109.

23 Id. at 106-108.

24 Supra, note 3.

25 Supra, note 4.

26 Rollo, pp. 22-23.

27 Id. at 25.

28 Id. at 26-30.

29 Id. at 33-37.

30 Id. at 213-227.

31 Id. at 214-215.

32 Id. at 218 and 224-226.

33 Id. at 216 and 219-222.

34 131 Phil. 556 (1968).

35 Amoguis v. Ballado, G.R. No. 189626, August 20, 2018, 878 SCRA 1, 33.
36 Supra, note 6.

37 Supra, note 7.

38 Record, pp. 270-273.

39 See Motion to Dismiss dated July 10, 2009; record, pp. 299-302.

40 G.R. No. 222614, March 20, 2019, 898 SCRA 1, 20; also see Philippine Development
Alternatives Foundation, Inc. v. Fortune Tobacco Corp., G.R. No. 209090 (Notice),
September 23, 2020.

41 See Pangasinan v. Disonglo-Almazora, 762 Phil. 492 (2015).

42 Id.

43 Id. at 505-507.

44 833 Phil. 943 (2018).

45 Id. at 955-956.

46 G.R. No. 222614, March 20, 2019; 898 SCRA 1.

47 836 Phil. 946 (2018).

48 687 Phil. 437 (2012).

49 769 Phil. 705 (2015).

50 Id. at 720-721.

51 414 Phil. 297 (2001).

52 Id. at 307-308.

53 Supra, note 41.

54 See Heirs of Cardenas v. The Christian and Missionary Alliance Churches of the
Philippines, Inc., G.R. No. 222614, March 20, 2019; 893 SCRA 1, 9.

55 See Tamayao v. Lacambra, G.R. No. 244232, November 03, 2020.

56 Record, p. 142.

57 756 Phil. 586 (2015).

58 Art. 1358. The following must appear in a public document:

 (1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over immovable
property; sales of real property or of an interest therein a governed by
Articles 1403, No. 2, and 1405; x x x x

59 See Sps. Pontigon v. Heirs of Sanchez, 801 Phil. 1042, 1064-1605 (2016).

60 TSN, August 19, 1999, pp. 10-12.

61 828 Phil. 479 (2018).

62 Id. at 489-491.

63 G.R. No. 211425, November 19, 2018, 886 SCRA 30.

64 Id. at pp. 45-46.

G.R. No. 128991 April 12, 2000

YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and CHARITO PORMIDA, petitioners,

vs.
HONORABLE MATEO M. LEANDA, in his capacity as Presiding Judge of RTC, Tacloban City,
Branch 8, and LEYTE GULF TRADERS, INC., respondents.
KAPUNAN, J.:

Reformation. of an instrument is that remedy in equity by means of which a written instrument is

made or construed so as to express or conform to the real intention of the parties when some error
or mistake has been committed. It is predicated on the equitable maxim that equity treats as done
1

that which ought to be done. The rationale of the doctrine is that it would be unjust and unequitable
2

to allow the enforcement of a written instrument which does not reflect or disclose the real meeting
of the minds of the parties. However, an action for reformation must be brought within the period
3

prescribed by law, otherwise, it will be barred by the mere lapse of time. The issue in this case is
whether or not the complaint for reformation filed by respondent Leyte Gulf Traders, Inc. has
prescribed and in the negative, whether or not it is entitled to the remedy of reformation sought.

On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein referred to as respondent corporation)
filed a complaint for reformation of instrument, specific performance, annulment of conditional sale
and damages with prayer for writ of injunction against petitioners Yolanda Rosello-Bentir and the
spouses Samuel and Charito Pormida. The case was docketed as Civil Case No. 92-05-88 and
raffled to Judge Pedro S. Espina, RTC, Tacloban City, Branch 7. Respondent corporation alleged
that it entered into a contract of lease of a parcel of land with petitioner Bentir for a period of twenty
(20) years starting May 5, 1968. According to respondent corporation, the lease was extended for
another four (4) years or until May 31, 1992. On May 5, 1989, petitioner Bentir sold the leased
premises to petitioner spouses Samuel Pormada and Charito Pormada. Respondent corporation
questioned the sale alleging that it had a right of first refusal. Rebuffed, it filed Civil Case No. 92-05-
88 seeking the reformation of the expired contract of lease on the ground that its lawyer
inadvertently omitted to incorporate in the contract of lease executed in 1968, the verbal agreement
or understanding between the parties that in the event petitioner Bentir leases or sells the lot after
the expiration of the lease, respondent corporation has the right to equal the highest offer.

In due time, petitioners filed their answer alleging that the inadvertence of the lawyer who prepared
the lease contract is not a ground for reformation. They further contended that respondent
corporation is guilty of laches for not bringing the case for reformation of the lease contract within the
prescriptive period of ten (10) years from its execution.

Respondent corporation then filed its reply and on November 18, 1992, filed a motion to admit
amended complaint. Said motion was granted by the lower court. 4

Thereafter, petitioners filed a motion to dismiss reiterating that the complaint should be dismissed on
the ground of prescription.

On December 15, 1995, the trial court through Judge Pedro S. Espina issued an order dismissing
the complaint premised on its finding that the action for reformation had already prescribed. The
order reads:

ORDER

Resolved here is the defendants' MOTION TO DISMISS PLAINTIFF'S complaint on ground

of prescription of action.
 It is claimed by plaintiff that he and defendant Bentir entered into a contract of lease of a
parcel of land on May 5, 1968 for a period of 20 years (and renewed for an additional 4 years
thereafter) with the verbal agreement that in case the lessor decides to sell the property after
the lease, she shall give the plaintiff the right to equal the offers of other prospective buyers.
It was claimed that the lessor violated this tight of first refusal of the plaintiff when she
sureptitiously (sic) sold the land to co-defendant Pormida on May 5, 1989 under a Deed of
Conditional Sale. Plaintiffs right was further violated when after discovery of the final sale,
plaintiff ordered to equal the price of co-defendant Pormida was refused and again
defendant Bentir surreptitiously executed a final deed of sale in favor of co-defendant
Pormida in December 11, 1991.

The defendant Bentir denies that she bound herself to give the plaintiff the right of first
refusal in case she sells the property. But assuming for the sake of argument that such right
of first refusal was made, it is now contended that plaintiffs cause of action to reform the
contract to reflect such right of first refusal, has already prescribed after 10 years, counted
from May 5, 1988 when the contract of lease incepted. Counsel for defendant cited Conde
vs. Malaga, L-9405 July 31, 1956 and Ramos vs. Court of Appeals, 180 SCRA 635, where
the Supreme Court held that the prescriptive period for reformation of a written contract is ten
(10) years under Article 1144 of the Civil Code.

This Court sustains the position of the defendants that this action for reformation of contract
has prescribed and hereby orders the dismissal of the case.

SO ORDERED. 5

On December 29, 1995, respondent corporation filed a motion for reconsideration of the order
dismissing the complaint.

On January 11, 1996, respondent corporation filed an urgent ex-parte motion for issuance of an
order directing the petitioners, or their representatives or agents to refrain from taking possession of
the land in question.

Considering that Judge Pedro S. Espina, to whom the case was raffled for resolution, was assigned
to the RTC, Malolos, Bulacan, Branch 19, Judge Roberto A. Navidad was designated in his place.

On March 28, 1996, upon motion of herein petitioners, Judge Navidad inhibited himself from hearing
the case. Consequently, the case was re-raffled and assigned to RTC, Tacloban City, Branch 8,
presided by herein respondent judge Mateo M. Leanda.

On May 10, 1996, respondent judge issued an order reversing the order of dismissal on the grounds
that the action for reformation had not yet prescribed and the dismissal was "premature and
precipitate", denying respondent corporation of its right to procedural due process. The order reads:

ORDER

Stated briefly, the principal objectives of the twin motions submitted by the plaintiffs, for
resolution are:

(1) for the reconsideration of the Order of 15 December 1995 of the Court (RTC, Br.
7), dismissing this case, on the sole ground of prescription of one (1) of the five (5)
 causes of action of plaintiff in its complaint for "reformation" of a contract of lease;
and,

(2) for issuance by this Court of an Order prohibiting the defendants and their privies-
in-interest, from taking possession of the leased premises, until a final court order
issues for their exercise of dominical or possessory right thereto.

The records of this case reveal that co-defendant BENTER (Yolanda) and plaintiff Leyte Gulf
Traders Incorporation, represented by Chairman Benito Ang, entered into a contract of lease
of a parcel of land, denominated as Lot No. 878-D, located at Sagkahan District, Tacloban
City, on 05 May 1968, for a period of twenty (20) years, (later renewed for an additional two
(2) years). Included in said covenant of lease is the verbal understanding and agreement
between the contracting parties, that when the defendant (as lessor) will sell the subject
property, the plaintiff as (lessee) has the "right of first refusal", that is, the right to equal the
offer of any other prospective third-party buyer. This agreement (sic) is made apparent by
paragraph 4 of the lease agreement stating:

4. IMPROVEMENT. The lessee shall have the right to erect on the leased premises
any building or structure that it may desire without the consent or approval of the
Lessor . . . provided that any improvements existing at the termination of the lease
shall remain as the property of the Lessor without right to reimbursement to the
Lessee of the cost or value thereof.

That the foregoing provision has been included in the lease agreement if only to convince
the defendant-lessor that plaintiff desired a priority right to acquire the property (ibid) by
purchase, upon expiration of the effectivity of the deed of lease.

In the course of the interplay of several procedural moves of the parties herein, the
defendants filed their motion to admit their amended answer to plaintiff's amended complaint.
Correspondingly, the plaintiff filed its opposition to said motion. The former court branch
admitted the amended answer, to which order of admission, the plaintiff seasonably filed its
motion for reconsideration. But, before the said motion for reconsideration was acted upon
by the court, the latter issued an Order on 15 December 1995, DISMISSING this case on the
lone ground of prescription of the cause of action of plaintiff's complaint on "reformation" of
the lease contract, without anymore considering the remaining cause of action, viz.: (a) on
Specific Performance; (b) an Annulment of Sale and Title; (c) on Issuance of a Writ of
Injunction, and (d) on Damages.

With due respect to the judicial opinion of the Honorable Presiding Judge of Branch 7 of this
Court, the undersigned, to whom this case was raffled to after the inhibition of Judge Roberto
Navidad, as acting magistrate of Branch 7, feels not necessary any more to discuss at length
that even the cause of action for "reformation" has not, as yet, prescribed.

To the mind of this Court, the dismissal order adverted to above, was obviously premature
and precipitate, thus resulting denial upon the right of plaintiff that procedural due process.
The other remaining four (4) causes of action of the complaint must have been deliberated
upon before that court acted hastily in dismissing this case.

WHEREFORE, in the interest of substantial justice, the Order of the court, (Branch 7, RTC)
dismissing this case, is hereby ordered RECONSIDERED and SET ASIDE.
 Let, therefore, the motion of plaintiff to reconsider the Order admitting the amended answer
and the Motion to Dismiss this case (ibid), be set for hearing on May 24, 1996, at 8:30
o'clock in the morning. Service of notices must be effected upon parties and counsel as early
as possible before said scheduled date.

Concomitantly, the defendants and their privies-in-interest or agents, are hereby STERNLY
WARNED not to enter, in the meantime, the litigated premises, before a final court order
issues granting them dominical as well as possessory right thereto.

To the motion or petition for contempt, filed by plaintiff, thru Atty. Bartolome C. Lawsin, the
defendants may, if they so desire, file their answer or rejoinder thereto, before the said
petition will be set for hearing. The latter are given ten (10) days to do so, from the date of
their receipt of a copy of this Order.

SO ORDERED. 6

On June 10, 1996, respondent judge issued an order for status quo ante, enjoining petitioners to
desist from occupying the property. 7

Aggrieved, petitioners herein filed a petition for certiorari to the Court of Appeals seeking the
annulment of the order of respondent court with prayer for issuance of a writ of preliminary injunction
and temporary restraining order to restrain respondent judge from further hearing the case and to
direct respondent corporation to desist from further possessing the litigated premises and to turn
over possession to petitioners.

On January 17, 1997, the Court of Appeals, after finding no error in the questioned order nor grave
abuse of discretion on the part of the trial court that would amount to lack, or in excess of jurisdiction,
denied the petition and affirmed the questioned order. A reconsideration of said decision was,
8

likewise, denied on April 16, 1997. 9

Thus, the instant petition for review based on the following assigned errors, viz:

6:01 THE COURT OF APPEALS ERRED IN HOLDING THAT AN ACTION FOR

REFORMATION IS PROPER AND JUSTIFIED UNDER THE CIRCUMSTANCES OF THE
PRESENT CASE;

6.02 THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACTION FOR
REFORMATION HAS NOT YET PRESCRIBED;

6.03 THE COURT OF APPEALS ERRED IN HOLDING THAT AN OPTION TO BUY IN A

CONTRACT OF LEASE IS REVIVED FROM THE IMPLIED RENEWAL OF SUCH LEASE;
AND,

6.04 THE COURT OF APPEALS ERRED IN HOLDING THAT A STATUS QUO

ANTE ORDER IS NOT AN INJUNCTIVE RELIEF THAT SHOULD COMPLY WITH THE
PROVISIONS OF RULE 58 OF THE RULES OF COURT. 10

The petition has merit.

The core issue that merits our consideration is whether the complaint for reformation of instrument
has prescribed. 1awp++i1
The remedy of reformation of an instrument is grounded on the principle of equity where, in order to
express the true intention of the contracting parties, an instrument already executed is allowed by
law to be reformed. The right of reformation is necessarily an invasion or limitation of the parol
evidence rule since, when a writing is reformed, the result is that an oral agreement is by court
decree made legally effective. Consequently, the courts, as the agencies authorized by law to
11

exercise the power to reform an instrument, must necessarily exercise that power sparingly and with
great caution and zealous care. Moreover, the remedy, being an extraordinary one, must be subject
to limitations as may be provided by law. Our law and jurisprudence set such limitations, among
which is laches. A suit for reformation of an instrument may be barred by lapse of time. The
prescriptive period for actions based upon a written contract and for reformation of an instrument is
ten (10) years under Article 1144 of the Civil Code. Prescription is intended to suppress stale and
12

fraudulent claims arising from transactions like the one at bar which facts had become so obscure
from the lapse of time or defective memory. In the case at bar, respondent corporation had ten (10)
13

years from 1968, the time when the contract of lease was executed, to file an action for reformation.
Sadly, it did so only on May 15, 1992 or twenty-four (24) years after the cause of action accrued,
hence, its cause of action has become stale, hence, time-barred.

In holding that the action for reformation has not prescribed, the Court of Appeals upheld the ruling
of the Regional Trial Court that the 10-year prescriptive period should be reckoned not from the
execution of the contract of lease in 1968, but from the date of the alleged 4-year extension of the
lease contract after it expired in 1988. Consequently, when the action for reformation of instrument
was filed in 1992 it was within ten (10) years from the extended period of the lease. Private
respondent theorized, and the Court of Appeals agreed, that the extended period of lease was an
"implied new lease" within the contemplation of Article 1670 of the Civil Code, under which
14

provision, the other terms of the original contract were deemed revived in the implied new lease.

We do not agree. First, if, according to respondent corporation, there was an agreement between
the parties to extend the lease contract for four (4) years after the original contract expired in 1988,
then Art. 1670 would not apply as this provision speaks of an implied new lease (tacita
reconduccion) where at the end of the contract, the lessee continues to enjoy the thing leased "with
the acquiescence of the lessor", so that the duration of the lease is "not for the period of the original
contract, but for the time established in Article 1682 and 1687." In other words, if the extended
period of lease was expressly agreed upon by the parties, then the term should be exactly what the
parties stipulated, not more, not less. Second, even if the supposed 4-year extended lease be
considered as an implied new lease under Art. 1670, "the other terms of the original contract"
contemplated in said provision are only those terms which are germane to the lessee's right of
continued enjoyment of the property leased. The prescriptive period of ten (10) years provided for
15

in Art. 1144 applies by operation of law, not by the will of the parties. Therefore, the right of action
16

for reformation accrued from the date of execution of the contract of lease in 1968.

Even if we were to assume for the sake of argument that the instant action for reformation is not
time-barred, respondent corporation's action will still not prosper. Under Section 1, Rule 64 of the
New Rules of Court, an action for the reformation of an instrument is instituted as a special civil
17

action for declaratory relief. Since the purpose of an action for declaratory relief is to secure an
authoritative statement of the rights and obligations of the parties for their guidance in the
enforcement thereof, or compliance therewith, and not to settle issues arising from an alleged
breach thereof, it may be entertained only before the breach or violation of the law or contract to
which it refers. Here, respondent corporation brought the present action for reformation after an
18

alleged breach or violation of the contract was already committed by petitioner Bentir. Consequently,
the remedy of reformation no longer lies.
We no longer find it necessary to discuss the other issues raised considering that the same are
predicated upon our affirmative resolution on the issue of the prescription of the action for
reformation.

WHEREFORE, the petition is hereby GRANTED. The Decision of the Court of Appeals dated
January 17, 1997 is REVERSED and SET ASIDE. The Order of the Regional Trial Court of Tacloban
City, Branch 7, dated December 15, 1995 dismissing the action for reformation is REINSTATED. 1âwphi1.nêt

SO ORDERED.

Davide, Jr., C.J., Puno, Pardo and Ynares-Santiago, JJ., concur.

Footnotes

1
76 C.J.S. Reformation of Instruments § 1.

2
Id., at § 4.

3
2-a Report of the Code Commission, p. 56.

4
The order granting the motion and admitting the amended complaint was raised in a petition
for certiorari before the Court of Appeals. Said petition, docketed as CA-G.R. SP No. 30994,
was eventually dismissed by the appellate court.

5
Rollo, pp. 23-26.

6
Id., at 27-29.

7
Id., at 36-37.

8
Id., at 31-40.

9
Id., at 42.

10
Id., at 10-11.

11
See Note 1.

Ramos vs. Court of Appeals, 180 SCRA 635 (1989); Spouses Jayme and Solidarios vs.
12

Alampay, 62 SCRA 131 (1975); Conde vs. Cuenca, 99 Phil, 1056 (1956).

Ochagabia vs. Court of Appeals, 304 SCRA 587 (1999); Peñaflor vs. IAC, 145 SCRA 223
13

(1986).

Art. 1670. If at the end of the contract the lessee should continue enjoying the thing leased
14

for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by
either party has previously been given, it is understood that there is an implied new lease,
not for the period of the original contract, but for the time established in articles 1682 and
1687. The other terms of the contract shall be revived.

15
Dizon v. Magsaysay, 57 SCRA 250 [1974].

Art. 1144. The following actions must be brought within ten years from the time the right of
16

action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

The second paragraph of said section was deleted in the present Section 1, Rule 63 of the
17

1997 Rules of Civil Procedure.

18
Reparations Commission vs. Northern Lines, Inc. 34 SCRA 203 (1970).
G.R. No. 183852 October 20, 2010

CARMELA BROBIO MANGAHAS, Petitioner,

vs.
EUFROCINA A. BROBIO, Respondent.

RESOLUTION

NACHURA, J.:

This petition for review on certiorari seeks to set aside the Court of Appeals (CA) Decision 1 dated
February 21, 2008, which dismissed petitioner’s action to enforce payment of a promissory note
issued by respondent, and Resolution2 dated July 9, 2008, which denied petitioner’s motion for
reconsideration.

The case arose from the following facts:

On January 10, 2002, Pacifico S. Brobio (Pacifico) died intestate, leaving three parcels of land. He
was survived by his wife, respondent Eufrocina A. Brobio, and four legitimate and three illegitimate
children; petitioner Carmela Brobio Mangahas is one of the illegitimate children.

On May 12, 2002, the heirs of the deceased executed a Deed of Extrajudicial Settlement of Estate of
the Late Pacifico Brobio with Waiver. In the Deed, petitioner and Pacifico’s other children, in
consideration of their love and affection for respondent and the sum of ₱150,000.00, waived and
ceded their respective shares over the three parcels of land in favor of respondent. According to
petitioner, respondent promised to give her an additional amount for her share in her father’s estate.
Thus, after the signing of the Deed, petitioner demanded from respondent the promised additional
amount, but respondent refused to pay, claiming that she had no more money. 3

A year later, while processing her tax obligations with the Bureau of Internal Revenue (BIR),
respondent was required to submit an original copy of the Deed. Left with no more original copy of
the Deed, respondent summoned petitioner to her office on May 31, 2003 and asked her to
countersign a copy of the Deed. Petitioner refused to countersign the document, demanding that
respondent first give her the additional amount that she promised. Considering the value of the three
parcels of land (which she claimed to be worth ₱20M), petitioner asked for ₱1M, but respondent
begged her to lower the amount. Petitioner agreed to lower it to ₱600,000.00. Because respondent
did not have the money at that time and petitioner refused to countersign the Deed without any
assurance that the amount would be paid, respondent executed a promissory note. Petitioner
agreed to sign the Deed when respondent signed the promissory note which read —

31 May 2003

This is to promise that I will give a Financial Assistance to CARMELA B. MANGAHAS the amount
of ₱600,000.00 Six Hundred Thousand only on June 15, 2003.

(SGD)

EUFROCINA A. BROBIO4
When the promissory note fell due, respondent failed and refused to pay despite demand. Petitioner
made several more demands upon respondent but the latter kept on insisting that she had no
money.

On January 28, 2004, petitioner filed a Complaint for Specific Performance with Damages 5 against
respondent, alleging in part—

2. That plaintiff and defendant are legal heirs of the deceased, Pacifico S. Brobio[,] who died
intestate and leaving without a will, on January 10, 2002, but leaving several real and
personal properties (bank deposits), and some of which were the subject of the extra-judicial
settlement among them, compulsory heirs of the deceased, Pacifico Brobio. x x x.

3. That in consideration of the said waiver of the plaintiff over the listed properties in the
extra-judicial settlement, plaintiff received the sum of ₱150,000.00, and the defendant
executed a "Promissory Note" on June 15, 2003, further committing herself to give plaintiff a
financial assistance in the amount of ₱600,000.00. x x x.

4. That on its due date, June 15, 2003, defendant failed to make good of her promise of
delivering to the plaintiff the sum of ₱600,000.00 pursuant to her "Promissory Note" dated
May 31, 2003, and despite repeated demands, defendant had maliciously and capriciously
refused to deliver to the plaintiff the amount [of] ₱600,000.00, and the last of which demands
was on October 29, 2003. x x x.6

In her Answer with Compulsory Counterclaim,7 respondent admitted that she signed the promissory
note but claimed that she was forced to do so. She also claimed that the undertaking was not
supported by any consideration. More specifically, she contended that —

10. Defendant was practically held "hostage" by the demand of the plaintiff. At that time,
defendant was so much pressured and was in [a] hurry to submit the documents to the
Bureau of Internal Revenue because of the deadline set and for fear of possible penalty if
not complied with. Defendant pleaded understanding but plaintiff was adamant. Her hand
could only move in exchange for 1 million pesos.

11. Defendant, out of pressure and confused disposition, was constrained to make a
promissory note in a reduced amount in favor of the plaintiff. The circumstances in the
execution of the promissory note were obviously attended by involuntariness and the same
was issued without consideration at all or for illegal consideration.8

On May 15, 2006, the Regional Trial Court (RTC) rendered a decision in favor of petitioner. The RTC
found that the alleged "pressure and confused disposition" experienced by respondent and the
circumstances that led to the execution of the promissory note do not constitute undue influence as
would vitiate respondent’s consent thereto. On the contrary, the RTC observed that —

It is clear from all the foregoing that it is the defendant who took improper advantage of the plaintiff’s
trust and confidence in her by resorting to a worthless written promise, which she was intent on
reneging. On the other hand, plaintiff did not perform an unlawful conduct when she insisted on a
written commitment from the defendant, as embodied in the promissory note in question, before
affixing her signature that was asked of her by the defendant because, as already mentioned, that
was the only opportunity available to her or which suddenly and unexpectedly presented itself to her
in order to press her demand upon the defendant to satisfy the correct amount of consideration due
to her. In other words, as the defendant had repeatedly rebuffed her plea for additional consideration
by claiming lack of money, it is only natural for the plaintiff to seize the unexpected opportunity that
suddenly presented itself in order to compel the defendant to give to her [what is] due [her]. And by
executing the promissory note which the defendant had no intention of honoring, as testified to by
her, the defendant clearly acted in bad faith and took advantage of the trust and confidence that
plaintiff had reposed in her.9

The RTC also brushed aside respondent’s claim that the promissory note was not supported by
valuable consideration. The court maintained that the promissory note was an additional
consideration for the waiver of petitioner’s share in the three properties in favor of respondent. Its
conclusion was bolstered by the fact that the promissory note was executed after negotiation and
haggling between the parties. The dispositive portion of the RTC decision reads:

WHEREFORE, judgment is hereby rendered as follows:

1. Ordering the defendant to pay to plaintiff the sum of Six Hundred Thousand Pesos
(₱600,000.00) which she committed to pay to plaintiff under the promissory note in question,
plus interest thereon at the rate of 12% per annum computed from the date of the filing of the
complaint;

2. Ordering the defendant to pay to plaintiff the sum of ₱50,000.00 as attorney’s fees; and

3. Ordering the defendant to pay to plaintiff the costs of this suit.

SO ORDERED.10

On February 21, 2008, the CA reversed the RTC decision and dismissed the complaint. 11 The CA
found that there was a complete absence of consideration in the execution of the promissory note,
which made it inexistent and without any legal force and effect. The court noted that "financial
assistance" was not the real reason why respondent executed the promissory note, but only to
secure petitioner’s signature. The CA held that the waiver of petitioner’s share in the three
properties, as expressed in the deed of extrajudicial settlement, may not be considered as the
consideration of the promissory note, considering that petitioner signed the Deed way back in 2002
and she had already received the consideration of ₱150,000.00 for signing the same. The CA went
on to hold that if petitioner disagreed with the amount she received, then she should have filed an
action for partition.

Further, the CA found that intimidation attended the signing of the promissory note. Respondent
needed the Deed countersigned by petitioner in order to comply with a BIR requirement; and, with
petitioner’s refusal to sign the said document, respondent was forced to sign the promissory note to
assure petitioner that the money promised to her would be paid.

Petitioner moved for the reconsideration of the CA Decision. In a Resolution dated July 9, 2008, the
CA denied petitioner’s motion.12

In this petition for review, petitioner raises the following issues:

1. The Honorable Court of Appeals erred in the appreciation of the facts of this case when it
found that intimidation attended the execution of the promissory note subject of this case.

2. The Honorable Court of Appeals erred when it found that the promissory note was without
consideration.
 3. The Honorable Court of Appeals erred when it stated that petitioner should have filed [an
action] for partition instead of a case for specific performance.13

The petition is meritorious.

Contracts are voidable where consent thereto is given through mistake, violence, intimidation, undue
influence, or fraud. In determining whether consent is vitiated by any of these circumstances, courts
are given a wide latitude in weighing the facts or circumstances in a given case and in deciding in
favor of what they believe actually occurred, considering the age, physical infirmity, intelligence,
relationship, and conduct of the parties at the time of the execution of the contract and subsequent
thereto, irrespective of whether the contract is in a public or private writing. 14

Nowhere is it alleged that mistake, violence, fraud, or intimidation attended the execution of the
promissory note. Still, respondent insists that she was "forced" into signing the promissory note
because petitioner would not sign the document required by the BIR. In one case, the Court – in
characterizing a similar argument by respondents therein – held that such allegation is tantamount to
saying that the other party exerted undue influence upon them. However, the Court said that the fact
that respondents were "forced" to sign the documents does not amount to vitiated consent. 15

There is undue influence when a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice.16 For undue influence to be present,
the influence exerted must have so overpowered or subjugated the mind of a contracting party as to
destroy his free agency, making him express the will of another rather than his own. 17

Respondent may have desperately needed petitioner’s signature on the Deed, but there is no
showing that she was deprived of free agency when she signed the promissory note. Being forced
into a situation does not amount to vitiated consent where it is not shown that the party is deprived of
free will and choice. Respondent still had a choice: she could have refused to execute the
promissory note and resorted to judicial means to obtain petitioner’s signature. Instead, respondent
chose to execute the promissory note to obtain petitioner’s signature, thereby agreeing to pay the
amount demanded by petitioner.

The fact that respondent may have felt compelled, under the circumstances, to execute the
promissory note will not negate the voluntariness of the act. As rightly observed by the trial court, the
execution of the promissory note in the amount of ₱600,000.00 was, in fact, the product of a
negotiation between the parties. Respondent herself testified that she bargained with petitioner to
lower the amount:

ATTY. VILLEGAS:

Q And is it not that there was even a bargaining from ₱1-M to ₱600,000.00 before you
prepare[d] and [sign[ed] that promissory note marked as Exhibit "C"?

A Yes, sir.

Q And in fact, you were the one [who] personally wrote the amount of ₱600,000.00 only as
indicated in the said promissory note?

A Yes, sir.

COURT:
 Q So, just to clarify. Carmela was asking an additional amount of ₱1-M for her to sign this
document but you negotiated with her and asked that it be lowered to ₱600,000.00 to which
she agreed, is that correct?

A Yes, Your Honor. Napilitan na po ako.

Q But you negotiated and asked for its reduction from ₱1-M to ₱600,000.00?

A Yes, Your Honor.18

Contrary to the CA’s findings, the situation did not amount to intimidation that vitiated
consent. There is intimidation when one of the contracting parties is compelled to give his consent
1awphil

by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property,
or upon the person or property of his spouse, descendants, or ascendants.19 Certainly, the payment
of penalties for delayed payment of taxes would not qualify as a "reasonable and well-grounded fear
of an imminent and grave evil."

We join the RTC in holding that courts will not set aside contracts merely because solicitation,
importunity, argument, persuasion, or appeal to affection was used to obtain the consent of the other
party. Influence obtained by persuasion or argument or by appeal to affection is not prohibited either
in law or morals and is not obnoxious even in courts of equity.20

On the issue that the promissory note is void for not being supported by a consideration, we likewise
disagree with the CA.

A contract is presumed to be supported by cause or consideration.21 The presumption that a contract

has sufficient consideration cannot be overthrown by a mere assertion that it has no consideration.
To overcome the presumption, the alleged lack of consideration must be shown by preponderance
of evidence.22 The burden to prove lack of consideration rests upon whoever alleges it, which, in the
present case, is respondent.

Respondent failed to prove that the promissory note was not supported by any consideration. From
her testimony and her assertions in the pleadings, it is clear that the promissory note was issued for
a cause or consideration, which, at the very least, was petitioner’s signature on the document. 1avvphi1

It may very well be argued that if such was the consideration, it was inadequate. Nonetheless, even
if the consideration is inadequate, the contract would not be invalidated, unless there has been
fraud, mistake, or undue influence.23 As previously stated, none of these grounds had been proven
present in this case.

The foregoing discussion renders the final issue insignificant. Be that as it may, we would like to
state that the remedy suggested by the CA is not the proper one under the circumstances. An action
for partition implies that the property is still owned in common.24 Considering that the heirs had
already executed a deed of extrajudicial settlement and waived their shares in favor of respondent,
the properties are no longer under a state of co-ownership; there is nothing more to be partitioned,
as ownership had already been merged in one person.

WHEREFORE, premises considered, the CA Decision dated February 21, 2008 and its Resolution
dated July 9, 2008 are REVERSED and SET ASIDE. The RTC decision dated May 15, 2006 is
REINSTATED.
SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

RENATO C. CORONA*
Chief Justice

ANTONIO T. CARPIO TERESITA J. LEONARDO-DE CASTRO**

Associate Justice Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Resolution had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Resolution 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

* Additional member in lieu of Associate Justice Diosdado M. Peralta per Raffle dated May
27, 2009.

** Additional member in lieu of Associate Justice Roberto A. Abad per Special Order No. 905
dated October 5, 2010.

1
Penned by Associate Justice Normandie B. Pizarro, with Associate Justices Edgardo P.
Cruz and Fernanda Lampas Peralta, concurring; rollo, 30-42.

2
Id. at 43-44.
3
TSN, August 17, 2005, pp. 4-5.

4
The promissory note is a non-negotiable instrument as it does not conform to the
requirements under Sec. 1 of the Negotiable Instruments Law; records, p. 57.

5
Id. at 5-6.

6
Id.

7
Id. at 25-29.

8
Id. at 26-27.

9
Id. at 102-103.

10
Id. at 104.

11
Rollo, p. 41.

12
Id. at 44.

13
Id. at 17-18.

14
Leonardo v. Court of Appeals, 481 Phil. 520, 532 (2004).

Development Bank of the Philippines v. Court of Appeals, G.R. No. 138703, June 30,
15

2006, 494 SCRA 25, 42-43.

16
Civil Code of the Philippines, Art. 1337.

17
Carpo v. Chua, G.R. Nos. 150773 and 153599, September 30, 2005, 471 SCRA 471, 482.

18
TSN, August 17, 2005, p. 11.

19
Civil Code of the Philippines, Art. 1335.

20
Martinez v. Hongkong & Shanghai Bank, 15 Phil. 252, 270 (1910).

21
Civil Code of the Philippines, Art. 1354.

Saguid v. Security Finance, Inc., G.R. No.159467, December 9, 2005, 477 SCRA 256,
22

270-271.

23
Civil Code of the Philippines, Art. 1355.

24
Republic v. Baltazar-Ramirez, G.R. No.148103, July 27, 2006, 496 SCRA 718, 721.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 179743 August 2, 2010

HADJA FATIMA GAGUIL MAGOYAG, joined by her husband, HADJI HASAN MADLAWI
MAGOYAG, Petitioners,
vs.
HADJI ABUBACAR MARUHOM, Respondent.

DECISION

NACHURA, J.:

Hadja Fatima Gaguil Magoyag and her husband Hadji Hasan Madlawi Magoyag (petitioners), appeal
by certiorari under Rule 45 of the Rules of Court the April 28, 2006 Decision 1 of the Court of Appeals
(CA) in CA-G.R. CV No. 75765, and the August 28, 2007 Resolution2 denying its reconsideration.

The antecedents:

On December 20, 1982, respondent Hadji Abubacar Maruhom (respondent) was awarded a market
stall at the Reclamation Area by the Islamic City of Marawi.3

On December 1, 1985, respondent orally sold his stall to petitioner for ₱20,000.00. Later, on
December 10, 1985, respondent executed a Deed of Assignment,4 confirming the oral sale;
assigning, selling, transferring, and conveying his market stall to petitioners for a consideration of
₱20,000.00. In the same Deed of Assignment, petitioners leased the subject stall to respondent for a
monthly rental of ₱250.00, beginning December 1, 1985, renewable every year at the option of
petitioners. Respondent undertook to pay in advance the rentals for six months amounting to
₱1,500.00 on or before December 1, 1985.

Respondent religiously paid the monthly rentals of ₱250.00, which was increased to ₱300.00 on
December 1, 1988; and to ₱400.00 beginning December 1, 1991. However, on June 1, 1993,
respondent simply stopped paying the rentals. Respondent promised to settle his unpaid account,
but he failed to make good his promise. Petitioner then demanded that respondent vacate the
property, but the demand just fell on deaf ears.

Accordingly, on August 22, 1994, petitioners filed a complaint5 for recovery of possession and
damages, with prayer for issuance of a temporary restraining order (TRO), with the Regional Trial
Court (RTC) of Marawi City.

In his Answer,6 respondent admitted selling the subject stall for ₱20,000.00 to petitioners, but
averred that the sale was with right to repurchase; and on condition that he would remain in
possession of the subject stall as long as he wants. He signed the Deed of Assignment on
petitioners’ assurance that the conditions they earlier agreed upon were contained in the deed.
Being illiterate, he just relied on petitioners’ assurances. Respondent denied that he refused to pay
the agreed monthly rentals; alleging that petitioners were the ones who refused to receive the rental
payments and instead demanded payment of ₱150,000.00. The Deed of Assignment, he added,
failed to express the true intent and agreement of the parties; and his signature thereon was
procured by fraud, deceit, and misrepresentation; hence, void ab initio. Respondent further averred
that the complaint failed to state a cause of action, as petitioners failed to comply with the provisions
of Presidential Decree (P.D.) No. 1508, or the Katarungang Pambarangay Law, and the Local
Government Code of 1991. He also assailed the jurisdiction of the RTC over the complaint, claiming
the jurisdiction falls with the Municipal Trial Court (MTC). Finally, he averred that the complaint
lacked the required verification and certification against forum shopping. Respondent, therefore,
prayed for the dismissal of the complaint.

On June 10, 2002, the RTC rendered a Decision,7 viz.:

After a careful examination of the foregoing facts and pieces of evidence as presented by the
parties, this court is convinced that [petitioners] spouses has (sic) proved and duly established that
indeed [respondent] have (sic) agreed to sell to [petitioners] spouses whatever rights that he has
over the disputed stall. Their transaction was even admitted by the [respondent] when he signed the
acknowledgment receipt (Exhs. "B" & "B-1") for ₱20,000.00 which is the agreed purchase price and
the notarized Deed of Assignment (Exh. "A" to "A-6). [Respondent], however, claimed that the
contents of the Deed of Assignment was (sic) not even read & translated to him, he being illiterate
(sic).

The transaction was further supported by [respondent’s] counter-offer to buy the stall for ₱80,000.00
(Exh. "D") and the acknowledgment receipts of [respondent] on the payment of rentals to the
[petitioners] (Exhs. "H" to "H-6", Exh(s). "I-1" to "I-6" and Exh(s) "J" to "J-3".

The only evidence presented by the [respondent] is his lone testimony and Exh. "1" awarding [the]
subject stall by the City Government to him.

The [respondent] did not present any evidence on his alleged ownership over [the] subject stall
except a certification (Exh. "1") dated December 20, 1982 from the City Government awarding [the]
same to him and subject even to the condition that he cannot sell, donate or otherwise alienate the
same without the consent of the City Government.

It appears therefore that [the] subject stall is owned by the City Government of Marawi and that
[respondent] cannot even sell or dispose of the same.

Not being the owner, the principle NEMO DAT QUOD NON HABET which means ONE CANNOT
GIVE WHAT ONE DOES NOT HAVE squarely applies in this case.

At most, what [respondent] can sell is whatever rights that he has over the disputed stalls like his
continued possession over the same for his business purposes. This is what [petitioner-spouses]
acquired in the interest of justice.8

The RTC disposed, thus:

WHEREFORE, judgment is hereby rendered in favor of [petitioner-spouses] and against the

[respondent] as follows:

1. Whatever rights that [respondent] Hadji Abubacar Maruhom has over stall No. CTD 1583
as described in the complaint as lessee or grantee or even as the alleged owner are hereby
transferred to [petitioner-spouses] Hadji Fatima Gaguil Magoyag and Hadji Hasan Madlawi
Mangoyag. Said [respondent] is ordered to vacate the stall in favor of [petitioners];
 2. Ordering [respondent] to pay unto petitioner the following:

(a) The unpaid rentals from June 1, 1993 up to May 31, 2002 at Three Hundred
Pesos (₱300.00) a month or a total of ₱24,900.00;

(b) Ten Thousand (₱10,000.00) pesos – moral and [e]xemplary [d]amages;

(c) Twenty Thousand (₱20,000.00) pesos – Attorney’s fees.

SO ORDERED.9

Respondent appealed to the CA faulting the RTC for not dismissing the complaint. He argued that
the complaint was filed in brazen violation of Supreme Court Circular No. 04-94 and the Rules of
Court requiring a certification of non-forum shopping. He added that the subject stall is owned by the
City Government of Marawi that cannot be leased or alienated. The Deed of Assignment that he
executed in favor of the petitioners is, therefore, null and void. He urged the CA to apply the civil law
rule on pari delicto.

On April 28, 2006, the CA rendered the assailed Decision reversing the RTC. The decretal portion of
the CA Decision reads:

WHEREFORE, the assailed decision of the Regional Trial Court is hereby REVERSED AND SET
ASIDE and another one entered declaring the Deed of Assignment dated December 10, 1985 void
and [of] no effect and ordering [respondent] to pay the loan amount of ₱20,000.00 plus ₱250.00 as
monthly interest thereon from the date of demand or August 1, 1994 until the same shall have been
fully paid. No pronouncement as to costs.

SO ORDERED.10

Petitioners filed a motion for reconsideration, but the CA denied it on August 28, 2007. 11

Hence, this appeal by petitioners, ascribing reversible error on the part of the CA for reversing the
RTC. Specifically, they argue that the CA erred in declaring that the transaction they had with
respondent was a loan with mortgage; and invalidating the Deed of Assignment. They insist that
respondent already transferred his entire interest over the subject stall in their favor. Thus, they are
entitled to the possession of the property.

In declaring the transaction as loan with mortgage, the CA explains in this wise:

x x x [t]he evidence overwhelmingly showed that the real intention of the [respondent] was to have
the subject market stall mortgaged, in order to secure the payment of the loan of ₱20,000.00 from
[petitioners]. There was no genuine intention on his part to sell the property. In fact, even after the
execution of the Deed of Assignment, [respondent] remained in possession of the said property and
paid religiously the so-called "monthly rentals" in the amount of two hundred fifty (₱250.00) which, in
reality, was the amount they had agreed upon as interest on the loan. For these reasons, We find
and so hold that the purported assignment was really meant to be a contract of loan in the amount of
₱20,000.00 with interest thereon at the rate of ₱250.00 per month. The property was intended to
serve as a collateral for the loan. It is firmly ensconced in jurisprudence that neither clarity of contract
terms nor explicitness of the name given to it can bar Us from determining the true intent of the
parties.
x x x x12

We find the finding of the CA contrary to the evidence on record, if not outright preposterous.

The Deed of Assignment13 reads in full:

DEED OF ASSIGNMENT

Know all men by these presents:

This DEED OF ASSIGNMENT made and executed by and between:

The FIRST PARTY: Hadji Abubacar Maruhom, of legal age, married, businessman
by occupation and a resident of Marawi City

-and-

The SECOND PARTY: Hadji Fatima Gaguil-Magoyag, also of legal age, married and
a government employee with postal address at Moriatao Balindong, Taraka, Lanao
del Sur

WITNESSETH

That for and in consideration of the sum of TWENTY THOUSAND PESOS: (₱20,000.00), Philippine
Currency which amount has been paid by the Second Party and receipt hereof has been
acknowledge[d] by the First Party, the said First [P]arty does hereby assign, [sell] transfer and
convey unto the Second Party that certain two-storey Market Stall No. CTD 1583 situated in the
Reclamation Area, Marawi City which is made of cement, and lumber and more particularly
described as follows:

Stall No. - - - - - - - - - - - - - - - - - - CTD 1583

Length - - - - - - - - - - - - - - - - - - - - 3 meters

Width - - - - - - - - - - - - - - - - - - - - 2 meters

Adjacent Stall Owner - - - - - - - - - - Rakim Bayabao

Fronting - - - - - - - - - - - - - - - - - - Hadji Cosain Saripada

Back - - - - - - - - - - - - - - - - - - - - - Hadji Alawi Pacati

of which market stall the First Party is the registered holder/owner under the following
terms and conditions:

1. The FIRST PARTY is authorize[d] and empower[ed] to continue engaging in business in

his own sole account on the said stall N[o]. CTD 1583 on a monthly rental of TWO
HUNDRED FIFTY PESOS: (₱250.00) to be paid by said FIRST PARTY to SECOND PARTY
six months in advance the monthly rental to start on December 1, 1985 renewable every
year at the option of the SECOND PARTY.
 2. The FIRST PARTY agrees to pay the SECOND PARTY the first six-month advance rental
in the amount of One Thousand Five Hundred Pesos: (₱1,500.00) on or before December 1,
1985, [a]nd the succeeding monthly rental shall always be payable six-month[s] in advance
on a progressive rate reckoned from the future rental of adjoining stall holder/owner.

3. The FIRST PARTY shall not directly or indirectly lease, assign or mortgage or [in] any way
encumber said Market Stall N[o]. 1583 or any portion thereof without the written permission
of the Second Party; any contract or agreement made in violation thereof shall be null and
void.

4. The FIRST PARTY shall turnover the Market Stall No. CTD 1583 to the SECOND PARTY
should the FIRST PARTY decide to abandon the said Market Stall No. CTD 1583;

5. All repairs within the premises shall be at the sole account and expense of the FIRST
PARTY without right to reimbursement.

6. The FIRST PARTY shall use the said Market Stall No. 1583 exclusively for business and
shall not bring into the said stall any inflammable or explosive goods or materials nor any
article which may expose the said stall from fire or increase the fire hazard.

7. That all charges for water, light, gas, telephone within the stall shall be at the sole account
of the FIRST without right to reimbursement;

8. The FIRST PARTY shall be responsible for the payment of all taxes on the said [S]tall No.
CTD 1583 and the compliance of all laws, ordinances and regulations or order of the
National or City Government authorities arising from or requiring the use, occupation and
utilization of the said Market Stall No. CTD 1583. Failure to comply with said laws,
ordinances, regulations or order shall be at the exclusive risk and expense of the FIRST
PARTY.

By no stretch of imagination can we construe the provisions of the Deed of Assignment as a contract
of loan with mortgage. Crystal clear in the Deed of Assignment are unambiguous provisions that
respondent assigned, sold, transferred, and conveyed the subject market stall to petitioners.
Nowhere in the Deed does it say that respondent obtained a loan of ₱20,000.00, and mortgaged the
subject stall as security.

The most fundamental rule in the interpretation of contracts is that, if the terms are clear and leave
no doubt as to the intention of the contracting parties, the literal meaning of the contract provisions
shall control.14 Its meaning should be determined without reference to extrinsic facts or aids. The
intention of the parties must be gathered from that language, and from that language alone. Stated
differently, where the language of a written contract is clear and unambiguous, the contract must be
taken to mean that which, on its face, it purports to mean, unless some good reason can be
assigned to show that the words should be understood in a different sense. Courts cannot make for
the parties better or more equitable agreements than they themselves have been satisfied to make,
or rewrite contracts because they operate harshly or inequitably as to one of the parties, or alter
them for the benefit of one party and to the detriment of the other, or by construction, relieve one of
the parties from the terms which he voluntarily consented to, or impose on him those which he did
not.15

That respondent sold the subject stall for ₱20,000.00 to petitioners was admitted by respondent in
his Answer,16 although he averred that the sale was with a right to repurchase. Even the
testimony17 of respondent points to no other transaction than a sale in favor of petitioners. The CA,
therefore, committed a serious blunder in making a new contract for the parties, and declaring the
Deed of Assignment as a contract of loan with mortgage.

Indubitably, the transaction between petitioners and respondent was a sale. As such, under ordinary
circumstances, petitioners could recover possession of the property from respondent. Unfortunately
in this case, the Court cannot grant petitioners the relief that they are praying for – recovery of
possession of the subject stall.

The records show that Market Stall No. CTD 1583 is owned by the City Government of
Marawi. Indeed, the RTC and the CA correctly held that it was the City Government of Marawi, not
1avvphi1

respondent, that owned Market Stall No. CTD 1583. Respondent, as a mere grantee of the subject
stall, was prohibited from selling, donating, or otherwise alienating the same without the consent of
the City Government; violation of the condition shall automatically render the sale, donation, or
alienation null and void.18 Thus, we sustain the CA in declaring the Deed of Assignment null and
void, but we cannot abide by the CA’s final disposition.

A void contract is equivalent to nothing; it produces no civil effect. It does not create, modify, or
extinguish a juridical relation. Parties to a void agreement cannot expect the aid of the law; the
courts leave them as they are, because they are deemed in pari delicto or in equal fault. 19 To this
rule, however, there are exceptions that permit the return of that which may have been given under a
void contract. One of the exceptions is found in Article 1412 of the Civil Code, which states:

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has
given by virtue of the contract, or demand the performance of the other's undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given
by reason of the contract, or ask for the fulfillment of what has been promised him. The
other, who is not at fault, may demand the return of what he has given without any obligation
to comply with his promise.

Respondent was well aware that as mere grantee of the subject stall, he cannot sell it without the
consent of the City Government of Marawi. Yet, he sold the same to petitioners. The records,
however, are bereft of any allegation and proof that petitioners had actual knowledge of the status of
respondent’s ownership of the subject stall. Petitioners can, therefore, recover the amount they had
given under the contract.

In Cavite Development Bank v. Spouses Lim,20 and Castillo, et al. v. Abalayan,21 we held that in case
of a void sale, the seller has no right whatsoever to keep the money paid by virtue thereof, and
should refund it, with interest at the legal rate, computed from the date of filing of the complaint until
fully paid. Petitioners can, therefore, recover the amount of ₱20,000.00 from respondent with interest
at 6% per annum from the time of the filing of the complaint until the finality of this Decision, and
12% per annum thereafter until full payment.

WHEREFORE, the petition is PARTLY GRANTED. The April 28, 2006 Decision and August 28,
2007 Resolution of the Court of Appeals in CA G.R. CV No. 75765 are AFFIRMED with
MODIFICATION. The Deed of Assignment dated December 10, 1985 is declared VOID AB INITIO.
Respondent Hadji Abubacar Maruhom is ordered to return to petitioners Hadja Fatima Gaguil
Magoyag and Hadji Hasan Madlawi Magoyag the amount of ₱20,000.00 with interest at 6% per
annum from the time of the filing of the complaint until the finality of this Decision and 12% per
annum thereafter until full payment.

No pronouncement as to costs.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

DIOSDADO M. PERALTA ROBERTO A. ABAD

Associate Justice Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

ATTESTATION

I attest 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.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify 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

1
Penned by Associate Justice Edgardo A. Camello, with Associate Justices Normandie B.
Pizarro and Ricardo R. Rosario, concurring; rollo, pp. 33-44.

2
Id. at 45-46.

3
See Exhibit "1", record, p. 207.
4
Exhibit "A", id. at 131-132.

5
Id. at 1-5.

6
Id. at 14-17.

7
Id. at 245-252.

8
Id. at 251.

9
Id. at 251-252.

10
Rollo, at 43.

11
Id. at 45.

12
Id. at 40.

13
Supra note 3, at 131-132.

14
Continental Cement Corp. v. Filipinas (PREFAB) Systems, Inc., G.R. No. 176917, August
4, 2009, 595 SCRA 215, 225.

15
Benguet Corporation v. Cabildo, G.R. No. 151402. August 22, 2008, 563 SCRA 25, 38.

16
See Answer, record, p. 14.

17
TSN, August 16, 2000 and March 6, 2001.

18
Supra note 3.

19
Menchavez v. Teves, Jr., 490 Phil. 268, 280 (2005).

20
381 Phil 355, 371 (2000).

21
141 Phil. 57, 63 (1969)