FULL CASES ON EVIDENCE (Cays Share )

ASSIGNMENT NO. 8
Case No. 3. Republic vs. Sandiganbayan, G.R. No. 166849, April
12, 2011

For over two decades, the issue of whether the sequestered sizable block of shares
representing 20% of the outstanding capital stock of San Miguel Corporation (SMC) at the time
of acquisition belonged to their registered owners or to the coconut farmers has remained
unresolved. Through this decision, the Court aims to finally resolve the issue and terminate the
uncertainty that has plagued that sizable block of shares since then.

These consolidated cases were initiated on various dates by the Republic of the Philippines
(Republic) via petitions for certiorari in G.R. Nos. 166859[1] and 169023,[2] and via petition for
review on certiorari in 180702,[3] the first two petitions being brought to assail the following
resolutions issued in Civil Case No. 0033-F by the Sandiganbayan, and the third being brought
to appeal the adverse decision promulgated on November 28, 2007 in Civil Case No. 0033-F by
the Sandiganbayan.

Specifically, the petitions and their particular reliefs are as follows:

(a) G.R. No. 166859 (petition for certiorari), to assail the resolution promulgated on
December 10, 2004[4] denying the Republics Motion For Partial Summary Judgment;

(b) G.R. No. 169023 (petition for certiorari), to nullify and set aside, firstly, the resolution
promulgated on October 8, 2003,[5] and, secondly, the resolution promulgated on June 24,
2005[6] modifying the resolution of October 8, 2003; and

(c) G.R. No. 180702 (petition for review on certiorari), to appeal the decision promulgated on
November 28, 2007.[7]

ANTECEDENTS

On July 31, 1987, the Republic commenced Civil Case No. 0033 in the Sandiganbayan by
complaint, impleading as defendants respondent Eduardo M. Cojuangco, Jr. (Cojuangco) and 59
individual defendants. On October 2, 1987, the Republic amended the complaint in Civil Case
No. 0033 to include two additional individual defendants. On December 8, 1987, the Republic
further amended the complaint through its Amended Complaint [Expanded per Court-Approved
Plaintiffs Manifestation/Motion Dated Dec. 8, 1987] albeit dated October 2, 1987.

More than three years later, on August 23, 1991, the Republic once more amended the
complaint apparently to avert the nullification of the writs of sequestration issued against
properties of Cojuangco. The amended complaint dated August 19, 1991, designated as Third
Amended Complaint [Expanded Per Court-Approved Plaintiffs Manifestation/Motion Dated Dec.
8, 1987],[8] impleaded in addition to Cojuangco, President Marcos, and First Lady Imelda R.
Marcos nine other individuals, namely: Edgardo J. Angara, Jose C. Concepcion, Avelino V. Cruz,
Eduardo U. Escueta, Paraja G. Hayudini, Juan Ponce Enrile, Teodoro D. Regala, and Rogelio
Vinluan, collectively, the ACCRA lawyers, and Danilo Ursua, and 71 corporations.

On March 24, 1999, the Sandiganbayan allowed the subdivision of the complaint in Civil Case
No. 0033 into eight complaints, each pertaining to distinct transactions and properties and
impleading as defendants only the parties alleged to have participated in the relevant
transactions or to have owned the specific properties involved. The subdivision resulted into
the following subdivided complaints, to wit:

Subdivided Complaint Subject Matter

1.

Civil Case No. 0033-A

Anomalous Purchase and Use of First United Bank (now United Coconut Planters Bank)

2.

Civil Case No. 0033-B

Creation of Companies Out of Coco Levy Funds

3.

Civil Case No. 0033-C

Creation and Operation of Bugsuk Project and Award of P998 Million Damages to Agricultural
Investors, Inc.

4.

Civil Case No. 0033-D

Disadvantageous Purchases and Settlement of the Accounts of Oil Mills Out of Coco Levy Funds

5.

Civil Case No. 0033-E

Unlawful Disbursement and Dissipation of Coco Levy Funds

6.

Civil Case No. 0033-F

Acquisition of SMC shares of stock

7.

Civil Case No. 0033-G

Acquisition of Pepsi-Cola

8.

Civil Case No. 0033-H

Behest Loans and Contracts

In Civil Case No. 0033-F, the individual defendants were Cojuangco, President Marcos and First
Lady Imelda R. Marcos, the ACCRA lawyers, and Ursua. Impleaded as corporate defendants
were Southern Luzon Oil Mills, Cagayan de Oro Oil Company, Incorporated, Iligan Coconut
Industries, Incorporated, San Pablo Manufacturing Corporation, Granexport Manufacturing
Corporation, Legaspi Oil Company, Incorporated, collectively referred to herein as the CIIF Oil
Mills, and their 14 holding companies, namely: Soriano Shares, Incorporated, Roxas Shares,
Incorporated, Arc Investments, Incorporated, Toda Holdings, Incorporated, ASC Investments,
Incorporated, Randy Allied Ventures, Incorporated, AP Holdings, Incorporated, San Miguel
Corporation Officers, Incorporated, Te Deum Resources, Incorporated, Anglo Ventures,
Incorporated, Rock Steel Resources, Incorporated, Valhalla Properties, Incorporated, and First
Meridian Development, Incorporated.

Allegedly, Cojuangco purchased a block of 33,000,000 shares of SMC stock through the 14
holding companies owned by the CIIF Oil Mills. For this reason, the block of 33,133,266 shares
of SMC stock shall be referred to as the CIIF block of shares.

Also impleaded as defendants in Civil Case No. 0033-F were several corporations[9] alleged to
have been under Cojuangcos control and used by him to acquire the block of shares of SMC
stock totaling 16,276,879 at the time of acquisition (representing approximately 20% percent
of the capital stock of SMC). These corporations are referred to as Cojuangco corporations or
companies, to distinguish them from the CIIF Oil Mills. Reference hereafter to Cojuangco and
the Cojuangco corporations or companies shall be as Cojuangco, et al., unless the context
requires individualization.

The material averments of the Republics Third Amended Complaint (Subdivided)[10] in Civil
Case No. 0033-F included the following:

12. Defendant Eduardo 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. Having fully established himself as the undisputed coconut king with unlimited powers to
deal with the coconut levy funds, the stage was now set for Defendant Eduardo M. Cojuangco,
Jr. to launch his predatory forays into almost all aspects of Philippine economic activity namely:
softdrinks, agribusiness, oil mills, shipping, cement manufacturing, textile, as more fully
described below.

14. Defendant Eduardo Cojuangco, Jr. taking undue advantage of his association, influence and
connection, acting in unlawful concert with Defendants Ferdinand E. Marcos and Imelda R.
Marcos, and the individual defendants, embarked upon devices, schemes and stratagems,
including the use of defendant corporations as fronts, to unjustly enrich themselves at the
expense of Plaintiff and the Filipino people, such as when he misused coconut levy funds to
buy out majority of the outstanding shares of stock of San Miguel Corporation in order to
control the largest agri-business, foods and beverage company in the Philippines, more
particularly described as follows:

(a) Having control over the coconut levy, Defendant Eduardo M. Cojuangco invested the funds
in diverse activities, such as the various businesses SMC was engaged in (e.g. large beer, food,
packaging, and livestock);

(b) He entered SMC in early 1983 when he bought most of the 20 million shares Enrique Zobel
owned in the Company. The shares, worth $49 million, represented 20% of SMC;

(c) Later that year, Cojuangco also acquired the Soriano stocks through a series of complicated
and secret agreements, a key feature of which was a voting trust agreement that stipulated
that Andres, Jr. or his heir would proxy over the vote of the shares owned by Soriano and
Cojuangco. This agreement, which accounted for 30% of the outstanding shares of SMC and
which lasted for five (5) years, enabled the Sorianos to retain management control of SMC for
the same period;

(d) Furthermore, in exchange for an SMC investment of $45 million in non-voting preferred
shares in UCPB, Soriano served as the vice-chairman of the supposed bank of the coconut
farmers, UCPB, and in return, Cojuangco, for investing funds from the coconut levy, was named
vice-chairman of SMC;

(e) Consequently, Cojuangco enjoyed the privilege of appointing his nominees to the SMC
Board, to which he appointed key members of the ACCRA Law Firm (herein Defendants)
instead of coconut farmers whose money really funded the sale;

(f) The scheme of Cojuangco to use the lawyers of the said Firm was revealed in a document
which he signed on 19 February 1983 entitled Principles and Framework of Mutual Cooperation
and Assistance which governed the rules for the conduct of management of SMC and the
disposition of the shares which he bought.

(g) All together, Cojuangco purchased 33 million shares of the SMC through the following 14
holding companies:

a) Soriano Shares, Inc. 1,249,163

b) ASC Investors, Inc. 1,562,449

c) Roxas Shares, Inc. 2,190,860

d) ARC Investors, Inc. 4,431,798

e) Toda Holdings, Inc. 3,424,618

f) AP Holdings, Inc. 1,580,997

g) Fernandez Holdings, Inc. 838,837

h) SMC Officers Corps., Inc. 2,385,987

i) Te Deum Resources, Inc. 2,674,899

j) Anglo Ventures Corp. 1,000.000

k) Randy Allied Ventures, Inc. 1,000,000

l) Rock Steel Resources, Inc. 2,432,625

m) Valhalla Properties Ltd., Inc. 1,361,033

n) First Meridian Development, Inc. 1,000,000

___________

33,133,266

3.1. The same fourteen companies were in turn owned by the following six (6) so-called CIIF
Companies which were:

a) San Pablo Manufacturing Corp. 19%

b) Southern Luzon Coconut Oil Mills, Inc. 11%

c) Granexport Manufacturing Corporation 19%

d) Legaspi Oil Company, Inc. 18%

e) Cagayan de Oro Oil Company, Inc. 18%

f) Iligan Coconut Industries, Inc. 15%

_____

100%

(h) Defendant Corporations are but shell corporations owned by interlocking shareholders who
have previously admitted that they are just nominee stockholders who do not have any
proprietary interest over the shares in their names. The respective affidavits of the following,
namely: Jose C. Concepcion, Florentino M. Herrera III, Teresita J. Herbosa, Teodoro D. Regala,
Victoria C. de los Reyes, Manuel R. Roxas, Rogelio A. Vinluan, Eduardo U. Escuete and Franklin
M. Drilon, who were all, at the time they became such stockholders, lawyers of the Angara
Abello Concepcion Regala & Cruz (ACCRA) Law Offices, the previous counsel who incorporated
said corporations, prove that they were merely nominee stockholders thereof.

(i) Mr. Eduardo M. Cojuangco, Jr., acquired a total of 16,276,879 shares of San Miguel
Corporation from the Ayala group: of said shares, a total of 8,138,440 (broken into 7,128,227
Class A and 1,010,213 Class B shares) were placed in the names of Meadowlark Plantations,
Inc. (2,034,610) and Primavera Farms, Inc. (4,069,220). The Articles of Incorporation of these
three companies show that Atty. Jose C. Concepcion of ACCRA owns 99.6% of the entire
outstanding stock. The same shareholder executed three (3) separate Declaration of Trust and
Assignment of Subscription: in favor of a BLANK assignee pertaining to his shareholdings in
Primavera Farms, Inc., Silver Leaf Plantations, Inc. and Meadowlark Plantations, Inc.
(k) The other respondent Corporations are owned by interlocking shareholders who are
likewise lawyers in the ACCRA Law Offices and had admitted their status as nominee
stockholders only.

(k-1) The corporations: Agricultural Consultancy Services, Inc., Archipelago Realty Corporation,
Balete Ranch, Inc., Black Stallion Ranch, Inc., Discovery Realty Corporation, First United
Transport, Inc., Kaunlaran Agricultural Corporation, LandAir International Marketing
Corporation, Misty Mountains Agricultural Corporation, Pastoral Farms, Inc., Oro Verde Services,
Inc. Radyo Filipino Corporation, Reddee Developers, Inc., Verdant Plantations, Inc. and Vesta
Agricultural Corporation, were incorporated by lawyers of ACCRA Law Offices.

(k-2) With respect to PCY Oil Manufacturing Corporation and Metroplex Commodities, Inc., they
are controlled respectively by HYCO, Inc. and Ventures Securities, Inc., both of which were
incorporated likewise by lawyers of ACCRA Law Offices.

(k-3) The stockholders who appear as incorporators in most of the other Respondents
corporations are also lawyers of the ACCRA Law Offices, who as early as 1987 had admitted
under oath that they were acting only as nominee stockholders.

(l) These companies, which ACCRA Law Offices organized for Defendant Cojuangco to be able
to control more than 60% of SMC shares, were funded by institutions which depended upon the
coconut levy such as the UCPB, UNICOM, United Coconut Planters Assurance Corp. (COCOLIFE),
among others. Cojuangco and his ACCRA lawyers used the funds from 6 large coconut oil mills
and 10 copra trading companies to borrow money from the UCPB and purchase these holding
companies and the SMC stocks. Cojuangco used $150 million from the coconut levy, broken
down as follows:

Amount Source Purpose

(in million)

$22.26 Oil Mills equity in holding

companies

$65.6 Oil Mills loan to holding

companies

$61.2 UCPB loan to holding

companies [164]

The entire amount, therefore, came from the coconut levy, some passing through the Unicom
Oil mills, others directly from the UCPB.
(m) With his entry into the said Company, it began to get favors from the Marcos government,
significantly the lowering of the excise taxes (sales and specific taxes) on beer, one of the
main products of SMC.

(n) Defendant Cojuangco controlled SMC from 1983 until his co-defendant Marcos was deposed
in 1986.

(o) Along with Cojuangco, Defendant Enrile and ACCRA also had interests in SMC, broken down
as follows:

% of SMC Owner

Cojuangco

31.3% coconut levy money

18% companies linked to Cojuangco

5.2% government

5.2% SMC employee retirement fund

Enrile & ACCRA

1.8% Enrile

1.8% Jaka Investment Corporation

1.8% ACCRA Investment Corporation

15. Defendants Eduardo Cojuangco, Jr., Edgardo J. Angara, Jose C. Concepcion, Teodoro Regala,
Avelino Cruz, Rogelio Vinluan, Eduardo U. Escueta and Paraja G. Hayudini of the Angara
Concepcion Cruz Regala and Abello law offices (ACCRA) plotted, devised, schemed, conspired
and confederated with each other in setting up, through the use of coconut levy funds, the
financial and corporate framework and structures that led to the establishment of UCPB,
UNICOM, COCOLIFE, COCOMARK. CIC, and more than twenty other coconut levy-funded
corporations, including the acquisition of San Miguel Corporation shares and its
institutionalization through presidential directives of the coconut monopoly. Through insidious
means and machinations, ACCRA, being the wholly-owned investment arm, ACCRA
Investments Corporation, became the holder of approximately fifteen million shares
representing roughly 3.3% of the total outstanding capital stock of UCPB as of 31 March 1987.
This ranks ACCRA Investments Corporation number 44 among the top 100 biggest
stockholders of UCPB which has approximately 1,400,000 shareholders. On the other hand, the
corporate books show the name Edgardo J. Angara as holding approximately 3,744 shares as of
February, 1984.

16. 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, 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.[11]

On June 17, 1999, Ursua and Enrile each filed his separate Answer with Compulsory
Counterclaims.

Before filing their answer, the ACCRA lawyers sought their exclusion as defendants in Civil
Case No. 0033, averring that even as they admitted having assisted in the organization and
acquisition of the companies included in Civil Case No. 0033, they had acted as mere
nominees-stockholders of corporations involved in the sequestration proceedings pursuant to
office practice. After the Sandiganbayan denied their motion, they elevated their cause to this
Court, which ultimately ruled in their favor in the related cases of Regala, et al. v.
Sandiganbayan, et al.[12] and Hayudini v. Sandiganbayan, et al.,[13] as follows:

WHEREFORE, IN VIEW OF THE FOREGOING, the Resolutions of respondent Sandiganbayan (First

Division) promulgated on March 18, 1992 and May 21, 1992 are hereby ANNULLED and SET
ASIDE. Respondent Sandiganbayan is further ordered to exclude petitioners Teodoro D. Regala,
Edgardo J. Angara, Avelino V. Cruz, Jose C. Concepcion, Victor P. Lazatin, Eduardo U. Escueta
and Paraja G. Hayudini as parties-defendants in SB Civil Case No. 0033 entitled Republic of the
Philippines v. Eduardo Cojuangco, Jr., et al.

SO ORDERED.

Conformably with the ruling, the Sandiganbayan excluded the ACCRA lawyers from the case on
May 24, 2000.[14]

On June 23, 1999, Cojuangco filed his Answer to the Third Amended Complaint,[15] averring
the following affirmative defenses, to wit:

7.00. The Presidential Commission on Good Government (PCGG) is without authority to act in
the name and in behalf of the Republic of the Philippines.

7.01. As constituted in E.O. No. 1, the PCGG was composed of Minister Jovito R. Salonga, as
Chairman, Mr. Ramon Diaz, Mr. Pedro L. Yap, Mr. Raul Daza and Ms. Mary Concepcion Bautista,
as Commissioners. When the complaint in the instant case was filed, Minister Salonga, Mr.
Pedro L. Yap and Mr. Raul Daza had already left the PCGG. By then the PCGG had become
functus officio.
7.02. The Sandiganbayan has no jurisdiction over the complaint or over the transaction alleged
in the complaint.

7.03. The complaint does not allege any cause of action.

7.04. The complaint is not brought in the name of the real parties in interest, assuming any
cause of action exists.

7.05. Indispensable and necessary parties have not been impleaded.

7.06. There is improper joinder of causes of action (Sec. 6, Rule 2, Rules of Civil Procedure).
The causes of action alleged, if any, do not arise out of the same contract, transaction or
relation between the parties, nor are they simply for money, or are of the same nature and
character.

7.07. There is improper joinder of parties defendants (Sec. 11, Rule 3, Rules of Civil
Procedure).The causes of action alleged as to defendants, if any, do not involve a single
transaction or a related series of transactions. Defendant is thus compelled to litigate in a suit
regarding matters as to which he has no involvement. The questions of fact and law involved
are not common to all defendants.

7.08. In so far as the complaint seeks the forfeiture of assets allegedly acquired by defendant
manifestly out of proportion to their salaries, to their other lawful income and income from
legitimately acquired property, under R.A. 1379, the previous inquiry similar to preliminary
investigation in criminal cases required to be conducted under Sec. 2 of that law before any
suit for forfeiture may be instituted, was not conducted; as a consequence, the Court may not
acquire and exercise jurisdiction over such a suit.

7.09. The complaint in the instant suit was filed July 31, 1987, or within one year before the
local election held on January 18, 1988. If this suit involves an action under R.A. 1379, its
institution was also in direct violation of Sec. 2, R.A. No. 1379.

7.10. E.O. No. 1, E.O. No. 2, E.O. No. 14 and 14-A, are unconstitutional. They violate due
process, equal protection, ex post facto and bill of attainder provisions of the Constitution.

7.11. Acts imputed to defendant which he had committed were done pursuant to law and in
good faith.

The Cojuangco corporations Answer[16] had the same tenor as the Answer of Cojuangco.

In his own Answer with Compulsory Counterclaims,[17] Ursua averred affirmative and special
defenses.
In his own Answer with Compulsory Counterclaims,[18] Enrile specifically denied the material
averments of the Third Amended Complaint and asserted affirmative defenses.

The CIIF Oil Mills Answer[19] also contained affirmative defenses.

On December 20, 1999, the Sandiganbayan scheduled the pre-trial in Civil Case No. 0033-F on
March 8, 2000, giving the parties sufficient time to file their Pre-Trial Briefs prior to that date.
Subsequently, the parties filed their respective Pre-Trial Briefs, as follows: Cojuangco and the
Cojuangco corporations, jointly on February 14, 2000; Enrile, on March 1, 2000; the CIIF Oil
Mills, on March 3, 2000; and Ursua, on March 6, 2000. However, the Republic sought several
extensions to file its own Pre-Trial Brief, and eventually did so on May 9, 2000.

In the meanwhile, some non-parties sought to intervene. On November 22, 1999, GABAY
Foundation, Inc. (GABAY) filed its complaint-in-intervention. On February 24, 2000, the
Philippine Coconut Producers Federation, Inc., Maria Clara L. Lobregat, Jose R. Eleazar, Jr.,
Domingo Espina, Jose Gomez, Celestino Sabate, Manuel del Rosario, Jose Martinez, Jr., and
Eladio Chato (collectively referred to as COCOFED, considering that the co-intervenors were its
officers) also sought to intervene, citing the October 2, 1989 ruling in G.R. No. 75713 entitled
COCOFED v. PCGG whereby the Court recognized COCOFED as the private national association
of coconut producers certified in 1971 by the PHILCOA as having the largest membership
among such producers and as such entrusted it with the task of maintaining continuing liaison
with the different sectors of the industry, the government and its mass base. Pending
resolution of its motion for intervention, COCOFED filed a Pre-Trial Brief on March 2, 2000.

On May 24, 2000, the Sandiganbayan denied GABAYs intervention without prejudice because it
found that the allowance of GABAY to enter under the special character in which it presents
itself would be to open the doors to other groups of coconut farmers whether of the same kind
or of any other kind which could be considered a sub-class or a sub-classification of the
coconut planters or the coconut industry of this country.[20]

COCOFEDs intervention as defendant was allowed on May 24, 2000, however, because the
position taken by the COCOFED is relevant to the proceedings herein, if only to state that there
is a special function which the COCOFED and the coconut planters have in the matter of the
coconut levy funds and the utilization of those funds, part of which is in dispute in the instant
matter.[21]

The pre-trial was actually held on May 24, 2000,[22] during which the Sandiganbayan sought
clarification from the parties, particularly the Republic, on their respective positions, but at the
end it found the clarifications inadequately enlightening. Nonetheless, the Sandiganbayan, not
disposed to reset, terminated the pre-trial:

xxx primarily because the Court is given a very clear impression that the plaintiff does not
know what documents will be or whether they are even available to prove the causes of action
in the complaint. The Court has pursued and has exerted every form of inquiry to see if there is
a way by which the plaintiff could explain in any significant particularity the acts and the
evidence which will support its claim of wrong-doing by the defendants. The plaintiff has failed
to do so.[23]
The following material portions of the pre-trial order[24] are quoted to provide a proper
perspective of what transpired during the pre-trial, to wit:

Upon oral inquiry from the Court, the issues which were being raised by plaintiff appear to
have been made on a very generic character. Considering that any claim for violation or
breach of trust or deception cannot be made on generic statements but rather by specific acts
which would demonstrate fraud or breach of trust or deception, together with the evidence in
support thereof, the same was not acceptable to the Court.

The plaintiff through its designated counsel for this morning, Atty. Dennis Taningco, has
represented to this Court that the annexes to its pre-trial brief, more particularly the findings of
the COA in its various examinations, copies of which COA reports are attached to the pre-trial
brief, would demonstrate the wrong, the act or omission attributed to the defendants or to
several of them and the basis, therefore, for the relief that plaintiff seeks in its complaint. It
would appear, however, that the plaintiff through its counsel at this time is not prepared to go
into the specifics of the identification of these wrongs or omissions attributed to plaintiff.

The Court has reminded the plaintiff that a COA report proves itself only in proceedings where
the issue arises from a review of the accountability of particular officers and, therefore, to
show the existence of shortages or deficiencies in an examination conducted for that purpose,
provided that such a report is accompanied by its own working papers and other supporting
documents.

In civil cases such as this, a COA report would not have the same independent probative value
since it is not a review of the accountability of public officers for public property in their
custody as accountable officers. It has been the stated view of this Court that a COA report, to
be of significant evidence, may itself stand only on the basis of the supporting documents that
upon which it is based and upon an analysis made by those who are competent to do so. The
Court, therefore, sought a more specific statement from plaintiff as to what these documents
were and which of them would prove a particular act or omission or a series of acts or
omissions purportedly committed by any, by several or by all of the defendants in any
particular stage of the chain of alleged wrong-doing in this case.

The plaintiff was not in a position to do so.

The Court has remonstrated with the plaintiff, insofar as its inadequacy is concerned, primarily
because this case was set for pre-trial as far back as December and has been reset from its
original setting, with the undertaking by the plaintiff to prepare itself for these proceedings. It
appears to this Court at this time that the failure of the plaintiff to have available responses
and specific data and documents at this stage is not because the matter has been the product
of oversight or notes and papers left elsewhere; rather, the agitation of this Court arises from
the fact that at this very stage, the plaintiff through its counsel does not know what these
documents are, where these documents will be and is still anticipating a submission or a
delivery thereof by COA at an undetermined time. The justification made by counsel for this
stance is that this is only pre-trial and this information and the documents are not needed yet.

The Court is not prepared to postpone the pre-trial anew primarily because the Court is given a
very clear impression that the plaintiff does not know what documents will be or whether they
are even available to prove the causes of action in the complaint. The Court has pursued and
has exerted every form of inquiry to see if there is a way by which the plaintiff could explain in
any significant particularity the acts and the evidence which will support its claim of wrong-
doing by the defendants. The plaintiff has failed to do so.

Defendants Cojuangco have come back and reiterated their previous inquiry as to the
statement of the cause of action and the description thereof. While the Court acknowledges
that logically, that statement along that line would be primary, the Court also recognizes that
sometimes the phrasing of the issue may be determined or may arise after a statement of the
evidence is determined by this Court because the Court can put itself in a position of more
clearly and perhaps more accurately stating what the issues are. The Pre-Trial Order, after all,
is not so much a reflection of merely separate submissions by all of the parties involved,
witnesses by the Court, as to what the subject matter of litigation will be, including the
determination of what matters of fact remain unresolved. At this time, the plaintiff has not
taken the position on any factual statement or any piece of evidence which can be subject of
admission or denial, nor any specifics of any act which could be disputed by the defendants;
what plaintiff through counsel has stated are general conclusions, general statements of abuse
and misuse and opportunism.

After an extended break requested by some of the parties, the sessions were resumed and
nothing anew arose from the plaintiff. The plaintiff sought fifteen (15) days to file a reply to the
comments and observations made by defendant Cojuangco to the pre-trial brief of the plaintiff.
This Court denied this Request since the submissions in preparation for pre-trial are not
litigious or contentious matters. They are mere assertions or positions which may or may not
be meritorious depending upon the view of the Court of the entire case and if useful at the pre-
trial. At this stage, the plaintiff then reiterated its earlier request to consider the pre-trial
terminated. The Court sought the positions of the other parties, whether or not they too were
prepared to submit their respective positions on the basis of what was before the Court at pre-
trial. All of the parties, in the end, have come to an agreement that they were submitting their
own respective positions for purpose of pre-trial on the basis of the submissions made of
record.

With all of the above, the pre-trial is now deemed terminated.

This Order has been overly extended simply because there has been a need to put on record
all of the events that have taken place leading to the conclusions which were drawn herein.

The parties have indicated a desire to make their submissions outside of trial as a
consequence of this terminated pre-trial, with the plea that the transcript of the proceedings
this morning be made available to them, so that they may have the basis for whatever
assertions they will have to make either before this Court or elsewhere. The Court deems the
same reasonable and the Court now gives the parties fifteen (15) days after notice to them
that the transcript of stenographic notes of the proceedings herein are complete and ready for
them to be retrieved. Settings for trial or for any other proceeding hereafter will be fixed by
this Court either upon request of the parties or when the Court itself shall have determined
that nothing else has to be done.

The Court has sought confirmation from the parties present as to the accuracy of the
recapitulation herein of the proceedings this morning and the Court has gotten assent from all
of the parties.
xxx

SO ORDERED.[25]

In the meanwhile, the Sandiganbayan, in order to conform with the ruling in Presidential
Commission on Good Government v. Cojuangco, et al.,[26] resolved COCOFEDs Omnibus
Motion (with prayer for preliminary injunction) relative to who should vote the UCPB shares
under sequestration, holding as follows: [27]

In the light of all of the above, the Court submits itself to jurisprudence and with the
statements of the Supreme Court in G.R. No. 115352 entitled Enrique Cojuangco, Jr., et al. vs.
Jaime Calpo, et al. dated January 27, 1997, as well as the resolution of the Supreme Court
promulgated on January 27, 1999 in the case of PCGG vs. Eduardo Cojuangco, Jr., et al., G.R.
No. 13319 which included the Sandiganbayan as one of the respondents. In these two cases,
the Supreme Court ruled that the voting of sequestered shares of stock is governed by two
considerations, namely:

1. whether there is prima facie evidence showing that the said shares are ill-gotten and thus
belong to the State; and

2. whether there is an imminent danger of dissipation thus necessitating their continued

sequestration and voting by the PCGG while the main issue pends with the Sandiganbayan.

xxx xxx xxx.

In view hereof, the movants COCOFED, et al and Ballares, et al. as well as Eduardo Cojuangco,
et al. who were acknowledged to be registered stockholders of the UCPB are authorized, as are
all other registered stockholders of the United Coconut Planters Bank, until further orders from
this Court, to exercise their rights to vote their shares of stock and themselves to be voted
upon in the United Coconut Planters Bank (UCPB) at the scheduled Stockholders Meeting on
March 6, 2001 or on any subsequent continuation or resetting thereof, and to perform such
acts as will normally follow in the exercise of these rights as registered stockholders.

xxx xxx xxx.

Consequently, on March 1, 2001, the Sandiganbayan issued a writ of preliminary injunction to

enjoin the PCGG from voting the sequestered shares of stock of the UCPB.

On July 25, 2002, before Civil Case No. 0033-F could be set for trial, the Republic filed a Motion
for Judgment on the Pleadings and/or for Partial Summary Judgment (Re: Defendants CIIF
Companies, 14 Holding Companies and COCOFED, et al.).[28]

Cojuangco, Enrile, and COCOFED separately opposed the motion. Ursua adopted COCOFEDs
opposition.
Thereafter, the Republic likewise filed a Motion for Partial Summary Judgment [Re: Shares in
San Miguel Corporation Registered in the Respective Names of Defendant Eduardo M.
Cojuangco, Jr. and the Defendant Cojuangco Companies].[29]

Cojuangco, et al. opposed the motion,[30] after which the Republic submitted its reply.[31]

On February 23, 2004, the Sandiganbayan issued an order,[32] in which it enumerated the
admitted facts or facts that appeared to be without substantial controversy in relation to the
Republics Motion for Judgment on the Pleadings and/or for Partial Summary Judgment [Re:
Defendants CIIF Companies, 14 Holding Companies and COCOFED, et al.].

Commenting on the order of February 23, 2004, Cojuangco, et al. specified the items they
considered as inaccurate, but particularly interposed no objection to item no. 17 (to the extent
that item no. 17 stated that Cojuangco had disclaimed any interest in the CIIF block SMC
shares of stock registered in the names of the 14 corporations listed in item no. 1 of the order).
[33]

The Republic also filed its Comment,[34] but COCOFED denied the admitted facts summarized
in the order of February 23, 2004.[35]

Earlier, on October 8, 2003,[36] the Sandiganbayan resolved the various pending motions and
pleadings relative to the writs of sequestration issued against the defendants, disposing:

IN VIEW OF THE FOREGOING, the Writs of Sequestration Nos. (a) 86-0042 issued on April 8,
1986, (b) 86-0062 issued on April 21, 1986, (c) 86-0069 issued on April 22, 1986, (d) 86-0085
issued on May 9, 1986, (e) 86-0095 issued on May 16, 1986, (f) 86-0096 dated May 16, 1986,
(g) 86-0097 issued on May 16, 1986, (h) 86-0098 issued on May 16, 1986 and (i) 87-0218
issued on May 27, 1987 are hereby declared automatically lifted for being null and void.

Despite the lifting of the writs of sequestration, since the Republic continues to hold a claim on
the shares which is yet to be resolved, it is hereby ordered that the following shall be
annotated in the relevant corporate books of San Miguel Corporation:

(1) any sale, pledge, mortgage or other disposition of any of the shares of the Defendants
Eduardo Cojuangco, et al. shall be subject to the outcome of this case;

(2) the Republic through the PCGG shall be given twenty (20) days written notice by
Defendants Eduardo Cojuangco, et al. prior to any sale, pledge, mortgage or other disposition
of the shares;

(3) in the event of sale, mortgage or other disposition of the shares, by the Defendants
Cojuangco, et al., the consideration therefore, whether in cash or in kind, shall be placed in
escrow with Land Bank of the Philippines, subject to disposition only upon further orders of this
Court; and
(4) any cash dividends that are declared on the shares shall be placed in escrow with the Land
Bank of the Philippines, subject to disposition only upon further orders of this Court. If in case
stock dividends are declared, the conditions on the sale, pledge, mortgage and other
disposition of any of the shares as above-mentioned in conditions 1, 2 and 3, shall likewise
apply.

In so far as the matters raised by Defendants Eduardo Cojuangco, et al. in their Omnibus
Motion dated September 23, 1996 and Reply to PCGGs Comment/Opposition with Motion to
Order PCGG to Complete Inventory, to Nullify Writs of Sequestration and to Enjoin PCGG from
Voting Sequestered Shares of Stock dated January 3, 1997, considering the above conclusion,
this Court rules that it is no longer necessary to delve into the matters raised in the said
Motions.

SO ORDERED.[37]

Cojuangco, et al. moved for the modification of the resolution,[38] praying for the deletion of
the conditions for allegedly restricting their rights. The Republic also sought reconsideration of
the resolution.[39]

Eventually, on June 24, 2005, the Sandiganbayan denied both motions, but reduced the
restrictions thuswise:

WHEREFORE, the Motion for Reconsideration (Re: Resolution dated September 17, 2003
Promulgated on October 8, 2003) dated October 24, 2003 of Plaintiff Republic is hereby
DENIED for lack of merit. As to the Motion for Modification (Re: Resolution Promulgated on
October 8, 2003) dated October 22, 2003, the same is hereby DENIED for lack of merit.
However, the restrictions imposed by this Court in its Resolution dated September 17, 2003
and promulgated on October 8, 2003 shall now read as follows:

Despite the lifting of the writs of sequestration, since the Republic continues to hold a claim on
the shares which is yet to be resolved, it is hereby ordered that the following shall be
annotated in the relevant corporate books of San Miguel Corporation:

a) any sale, pledge, mortgage or other disposition of any of the shares of the Defendants
Eduardo Cojuangco, et al. shall be subject to the outcome of this case.

b) the Republic through the PCGG shall be given twenty (20) days written notice by Defendants
Eduardo Cojuangco, et al. prior to any sale, pledge, mortgage or other disposition of the
shares.

SO ORDERED.[40]
Pending resolution of the motions relative to the lifting of the writs of sequestration, SMC filed
a Motion for Intervention with attached Complaint-in-Intervention,[41] alleging, among other
things, that it had an interest in the matter in dispute between the Republic and defendants
CIIF Companies for being the owner by purchase of a portion (i.e., 25,450,000 SMC shares
covered by Stock Certificate Nos. A0004129 and B0015556 of the so-called CIIF block of SMC
shares of stock sought to be recovered as alleged ill-gotten wealth).

Although Cojuangco, et al. interposed no objection to SMCs intervention, the Republic opposed,
[42] averring that the intervention would be improper and was a mere attempt to litigate anew
issues already raised and passed upon by the Supreme Court. COCOFED similarly opposed
SMCs intervention,[43] and Ursua adopted its opposition.

On May 6, 2004, the Sandiganbayan denied SMCs motion to intervene.[44] SMC sought
reconsideration,[45] and its motion to that effect was opposed by COCOFED and the Republic.

On May 7, 2004, the Sandiganbyan granted the Republics Motion for Judgment on the
Pleadings and/or Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding
Companies and COCOFED, et al.) and rendered a Partial Summary Judgment,[46] the
dispositive portion of which reads 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 IN-
TRUST FOR ALL THE COCONUT FARMERS AND ORDERED RECONVEYED TO THE GOVERNMENT.

Let the trial of this Civil Case proceed with respect to the issues which have not been disposed
of in this partial Summary Judgment, including the determination of whether the CIIF Block of
SMC Shares adjudged to be owned by the Government represents 27% of the issued and
outstanding capital stock of SMC according to plaintiff or 31.3% of said capital stock according
to COCOFED, et al. and Ballares, et al.

SO ORDERED.[47]

In the same resolution of May 7, 2004, the Sandiganbayan considered the Motions to Dismiss
filed by Cojuangco, et al. on August 2, 2000 and by Enrile on September 4, 2000 as overtaken
by the Republics Motion for Judgment on the Pleadings and/or Partial Summary Judgment.[48]

On May 25, 2004, Cojuangco, et al. filed their Motion for Reconsideration.[49]

COCOFED filed its so-called Class Action Omnibus Motion: (a) Motion to Dismiss for Lack of
Subject Matter Jurisdiction and Alternatively, (b) Motion for Reconsideration dated May 26,
2004.[50]

The Republic submitted its Consolidated Comment.[51]

Relative to the resolution of May 7, 2004, the Sandiganbayan issued its resolution of December
10, 2004,[52] denying the Republics Motion for Partial Summary Judgment (Re: Shares in San
Miguel Corporation Registered in the Respective Names of Defendants Eduardo M. Cojuangco,
Jr. and the defendant Cojuangco Companies) upon the following reasons:
In the instant case, a circumspect review of the records show that while there are facts which
appear to be undisputed, there are also genuine factual issues raised by the defendants which
need to be threshed out in a full-blown trial. Foremost among these issues are the following:

1) What are the various sources of funds, which the defendant Cojuangco and his
companies claim they utilized to acquire the disputed SMC shares?

2) Whether or not such funds acquired from alleged various sources can be considered
coconut levy funds;

3) Whether or not defendant Cojuangco had indeed served in the governing bodies of PC,
UCPB and/or CIIF Oil Mills at the time the funds used to purchase the SMC shares were
obtained such that he owed a fiduciary duty to render an account to these entities as well as to
the coconut farmers;

4) Whether or not defendant Cojuangco took advantage of his position and/or close ties
with then President Marcos to obtain favorable concessions or exemptions from the usual
financial requirements from the lending banks and/or coco-levy funded companies, in order to
raise the funds to acquire the disputed SMC shares; and if so, what are these favorable
concessions or exemptions?

Answers to these issues are not evident from the submissions of the plaintiff and must
therefore be proven through the presentation of relevant and competent evidence during trial.
A perusal of the subject Motion shows that the plaintiff hastily derived conclusions from the
defendants statements in their previous pleadings although such conclusions were not
supported by categorical facts but only mere inferences. In the Reply dated October 2, 2003,
the plaintiff construed the supposed meaning of the phrase various sources (referring to the
source of defendant Cojuangcos funds which were used to acquire the subject SMC shares),
which plaintiff said was quite obvious from the defendants admission in his Pre-Trial Brief,
which we quote:

According to Cojuangcos own Pre-Trial Brief, these so-called various sources, i.e., the sources
from which he obtained the funds he claimed to have used in buying the 20% SMC shares are
not in fact various as he claims them to be. He says he obtained loans from UCPB and
advances from the CIIF Oil Mills. He even goes as far as to admit that his only evidence in this
case would have been records of UCPB and a representative of the CIIF Oil Mills obviously the
records of UCPB relate to the loans that Cojuangco claims to have obtained from UCPB of
which he was President and CEO while the representative of the CIIF Oil Mills will obviously
testify on the advances Cojuangco obtained from CIIF Oil Mills of which he was also the
President and CEO.

From the foregoing premises, plaintiff went on to conclude that:

These admissions of defendant Cojuangco are outright admissions that he (1) took money from
the bank entrusted by law with the administration of coconut levy funds and (2) took more
money from the very corporations/oil mills in which part of those coconut levy funds (the CIIF)
was placed treating the funds of UCPB and the CIIF as his own personal capital to buy his SMC
shares.
We cannot agree with the plaintiffs contention that the defendants statements in his Pre-Trial
Brief regarding the presentation of a possible CIIF witness as well as UCPB records, can already
be considered as admissions of the defendants exclusive use and misuse of coconut levy funds
to acquire the subject SMC shares and defendant Cojuangcos alleged taking advantage of his
positions to acquire the subject SMC shares. Moreover, in ruling on a motion for summary
judgment, the court should take that view of the evidence most favorable to the party against
whom it is directed, giving such party the benefit of all inferences. Inasmuch as this issue
cannot be resolved merely from an interpretation of the defendants statements in his brief, the
UCPB records must be produced and the CIIF witness must be heard to ensure that the
conclusions that will be derived have factual basis and are thus, valid.

WHEREFORE, in view of the forgoing, the Motion for Partial Summary Judgment dated July 11,
2003 is hereby DENIED for lack of merit.

SO ORDERED.

Thereafter, on December 28, 2004, the Sandiganbayan resolved the other pending motions,
[53] viz:

WHEREFORE, in view of the foregoing, the Motion for Reconsideration dated May 25, 2004 filed
by defendant Eduardo M. Cojuangco, Jr., et al. and the Class Action Omnibus Motion: (a) Motion
to Dismiss for Lack of Subject Matter Jurisdiction and Alternatively, (b) Motion for
Reconsideration dated May 26, 2004 filed by COCOFED, et al. and Ballares, et al. are hereby
DENIED for lack of merit.

SO ORDERED.[54]

COCOFED moved to set the case for trial,[55] but the Republic opposed the motion.[56] On
their part, Cojuangco, et al. also moved to set the trial,[57] with the Republic similarly
opposing the motion.[58]

On March 23, 2006, the Sandiganbayan granted the motions to set for trial and set the trial on
August 8, 10, and 11, 2006.[59]

In the meanwhile, on August 9, 2005, the Republic filed a Motion for Execution of Partial
Summary Judgment (re: CIIF block of SMC Shares of Stock),[60] contending that an execution
pending appeal was justified because any appeal by the defendants of the Partial Summary
Judgment would be merely dilatory.

Cojuangco, et al. opposed the motion.[61]

The Sandiganbayan denied the Republics Motion for Execution of Partial Summary Judgment
(re: CIIF block of SMC Shares of Stock),[62] to wit:
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 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 IN
TRUST FOR ALL THE COCONUT FARMERS AND ORDERED RECONVEYED TO THE GOVERNMENT.

The aforementioned Partial Summary Judgment is now deemed a separate appealable

judgment which finally disposes of the ownership of the CIIF Block of SMC Shares, without
prejudice to the continuation of proceedings with respect to the remaining claims particularly
those pertaining to the Cojuangco, et al. block of SMC shares.

SO ORDERED.[63]

During the pendency of the Republics motion for execution, Cojuangco, et al. filed a Motion for
Authority to Sell San Miguel Corporation (SMC) shares, praying for leave to allow the sale of
SMC shares to proceed, exempted from the conditions set forth in the resolutions promulgated
on October 3, 2003 and June 24, 2005.[64] The Republic opposed, contending that the
requested leave to sell would be tantamount to removing jurisdiction over the res or the
subject of litigation.[65]

However, the Sandiganbayan eventually granted the Motion for Authority to Sell San Miguel
Corporation (SMC) shares.[66]

Thereafter, Cojuangco, et al. manifested to the Sandiganbayan that the shares would be sold
to the San Miguel Corporation Retirement Plan.[67] Ruling on the manifestations of Cojuangco,
et al., the Sandiganbayan issued its resolution of July 30, 2007 allowing the sale of the shares,
to wit:

This notwithstanding however, while the Court exempts the sale from the express condition
that it shall be subject to the outcome of the case, defendants Cojuangco, et al. may well be
reminded that despite the deletion of the said condition, they cannot transfer to any buyer any
interest higher than what they have. No one can transfer a right to another greater than what
he himself has. Hence, in the event that the Republic prevails in the instant case, defendants
Cojuangco, et al. hold themselves liable to their transferees-buyers, especially if they are
buyers in good faith and for value. In such eventuality, defendants Cojuangco, et al. cannot be
shielded by the cloak of principle of caveat emptor because case law has it that this rule only
requires the purchaser to exercise such care and attention as is usually exercised by ordinarily
prudent men in like business affairs, and only applies to defects which are open and patent to
the service of one exercising such care.

Moreover, said defendants Eduardo M. Cojuangco, et al. are hereby ordered to render their
report on the sale within ten (10) days from completion of the payment by the San Miguel
Corporation Retirement Plan.
SO ORDERED.[68]

Cojuangco, et al. later rendered a complete accounting of the proceeds from the sale of the
Cojuangco block of shares of SMC stock, informing that a total amount of P 4,786,107,428.34
had been paid to the UCPB as loan repayment.[69]

It appears that the trial concerning the disputed block of shares was not scheduled because
the consideration and resolution of the aforecited motions for summary judgment occupied
much of the ensuing proceedings.

At the hearing of August 8, 2006, the Republic manifested[70] that it did not intend to present
any testimonial evidence and asked for the marking of certain exhibits that it would have the
Sandiganbayan take judicial notice of. The Republic was then allowed to mark certain
documents as its Exhibits A to I, inclusive, following which it sought and was granted time
within which to formally offer the exhibits.

On August 31, 2006, the Republic filed its Manifestation of Purposes (Re: Matters Requested or
Judicial Notice on the 20% Shares in San Miguel Corporation Registered in the Respective
Names of defendant Eduardo M. Cojuangco, Jr. and the defendant Cojuangco Companies).[71]

On September 18, 2006, the Sandiganbayan issued the following resolution,[72] to wit:

Acting on the Manifestation of Purposes (Re: Matters Requested or Judicial Notice on the 20%
Shares in San Miguel Corporation Registered in the Respective names of Defendant Eduardo M.
Cojuangco, Jr. and the Defendant Cojuangco Companies) dated 28 August 2006 filed by the
plaintiff, which has been considered its formal offer of evidence, and the Comment of
Defendants Eduardo M. Cojuangco, Jr., et al. on Plaintiffs Manifestation of Purposes Dated
August 30, 2006 dated September 15, 2006, the court resolves to ADMIT all the exhibits
offered, i.e.:

Exhibit A the Answer of defendant Eduardo M. Cojuangco, Jr. to the Third Amended Complaint
(Subdivided) dated June 23, 1999, as well as the sub-markings (Exhibit A-1 to A-4;

Exhibit B the Pre-Trial Brief dated January 11, 2000 of defendant CIIF Oil Mills and fourteen (14)
CIIF Holding Companies, as well as the sub-markings Exhibits B-1 and B-2

Exhibit C the Pre-Trial Brief dated January 11, 2000 of defendant Eduardo M. Cojuangco, Jr. as
well as the sub-markings Exhibits C-1, C-1-a and C-1-b;

Exhibit D the Plaintiffs Motion for Summary Judgment [Re: Shares in San Miguel Corporation
Registered in the Respective Names of Defendant Eduardo M. Cojuangco, Jr. and the Defendant
Cojuangco Companies] dated July 11, 2003, as well as the sub-markings Exhibits D-1 to D-4

the said exhibits being part of the record of the case, as well as

Exhibit E Presidential Decree No. 961 dated July 11, 1976;

Exhibit F Presidential Decree No. 755 dated July 29, 1975;

Exhibit G Presidential Decree No. 1468 dated June 11, 1978;

Exhibit H Decision of the Supreme Court in Republic vs. COCOFED, et al., G.R. Nos. 147062-64,
December 14, 2001, 372 SCRA 462

the aforementioned exhibits being matters of public record.

The admission of these exhibits is being made over the objection of the defendants Cojuangco,
et al. as to the relevance thereof and as to the purposes for which they were offered in
evidence, which matters shall be taken into consideration by the Court in deciding the case on
the merits.

The trial hereon shall proceed on November 21, 2006, at 8:30 in the morning as previously
scheduled.[73]

During the hearing on November 24, 2006, Cojuangco, et al. filed their Submission and Offer of
Evidence of Defendants,[74] formally offering in evidence certain documents to substantiate
their counterclaims, and informing that they found no need to present countervailing evidence
because the Republics evidence did not prove the allegations of the Complaint. On December
5, 2006, after the Republic submitted its Comment,[75] the Sandiganbayan admitted the
exhibits offered by Cojuangco, et al., and granted the parties a non-extendible period within
which to file their respective memoranda and reply-memoranda.

Thereafter, on February 23, 2007, the Sandiganbayan considered the case submitted for
decision.[76]

ISSUES

The various issues submitted for consideration by the Court are summarized hereunder.

G.R. No. 166859

The Republic came to the Court via petition for certiorari[77] to assail the denial of its Motion
for Partial Summary Judgment through the resolution promulgated on December 10, 2004,
insisting that the Sandiganbayan thereby committed grave abuse of discretion: (a) in holding
that the various sources of funds used in acquiring the SMC shares of stock remained disputed;
(b) in holding that it was disputed whether or not Cojuangco had served in the governing
bodies of PCA, UCPB, and/or the CIIF Oil Mills; and (c) in not finding that Cojuangco had taken
advantage of his position and had violated his fiduciary obligations in acquiring the SMC shares
of stock in issue.

The Court will consider and resolve the issues thereby raised alongside the issues presented in
G.R. No. 180702.

G.R. No. 169203

In the resolution promulgated on October 8, 2003, the Sandiganbayan declared as
automatically lifted for being null and void nine writs of sequestration (WOS) issued against
properties of Cojuangco and Cojuangco companies, considering that: (a) eight of them (i.e.,
WOS No. 86-0062 dated April 21, 1986; WOS No. 86-0069 dated April 22, 1986; WOS No. 86-
0085 dated May 9, 1986; WOS No. 86-0095 dated May 16, 1986; WOS No. 86-0096 dated May
16, 1986; WOS No. 86-0097 dated May 16, 1986; WOS No. 86-0098 dated May 16, 1986; and
WOS No. 87-0218 dated May 27, 1987) had been issued by only one PCGG Commissioner,
contrary to the requirement of Section 3 of the Rules of the PCGG for at least two
Commissioners to issue the WOS; and (b) the ninth (i.e., WOS No. 86-0042 dated April 8,
1986), although issued prior to the promulgation of the Rules of the PCGG requiring at least
two Commissioners to issue the WOS, was void for being issued without prior determination by
the PCGG of a prima facie basis for sequestration.

Nonetheless, despite its lifting of the nine WOS, the Sandiganbayan prescribed four conditions
to be still annotated in the relevant corporate books of San Miguel Corporation considering
that the Republic continues to hold a claim on the shares which is yet to be resolved.[78]

In its resolution promulgated on June 24, 2005, the Sandiganbayan denied the Republics
Motion for Reconsideration filed vis-a-vis the resolution promulgated on October 8, 2003, but
reduced the conditions earlier imposed to only two.[79]

On September 1, 2005, the Republic filed a petition for certiorari[80] to annul the resolutions
promulgated on October 8, 2003 and on June 24, 2005 on the ground that the Sandiganbayan
had thereby committed grave abuse of discretion:

I.

XXX IN LIFTING WRIT OF SEQUESTRATION NOS. 86-0042 AND 87-0218 DESPITE EXISTENCE OF
THE BASIC REQUISITES FOR THE VALIDITY OF SEQUESTRATION.

II.

XXX WHEN IT DENIED PETITIONERS ALTERNATIVE PRAYER IN ITS MOTION FOR

RECONSIDERATION FOR THE ISSUANCE OF AN ORDER OF SEQUESTRATION AGAINST ALL THE
SUBJECT SHARES OF STOCK IN ACCORDNCE WITH THE RULING IN REPUBLIC VS.
SANDIGANBAYAN, 258 SCRA 685 (1996).

III.

XXX IN SUBSEQUENTLY DELETING THE LAST TWO (2) CONDITIONS WHICH IT EARLIER IMPOSED
ON THE SUBJECT SHARES OF STOCK.[81]

G.R. No. 180702

On November 28, 2007, the Sandiganbayan promulgated its decision,[82] decreeing as
follows:

WHEREFORE, in view of all the foregoing, the Court is constrained to DISMISS, as it hereby
DISMISSES, the Third Amended Complaint in subdivided Civil Case No. 0033-F for failure of
plaintiff to prove by preponderance of evidence its causes of action against defendants with
respect to the twenty percent (20%) outstanding shares of stock of San Miguel Corporation
registered in defendants names, denominated herein as the Cojuangco, et al. block of SMC
shares. For lack of satisfactory warrant, the counterclaims in defendants Answers are likewise
ordered dismissed.

SO ORDERED.

Hence, the Republic appeals, positing:

I.

COCONUT LEVY FUNDS ARE PUBLIC FUNDS. THE SMC SHARES, WHICH WERE ACQUIRED BY
RESPONDENTS COJUANGCO, JR. AND THE COJUANGCO COMPANIES WITH THE USE OF
COCONUT LEVY FUNDS IN VIOLATION OF RESPONDENT COJUANGCO, JR.S FIDUCIARY
OBLIGATION ARE, NECESSARILY, PUBLIC IN CHARACTER AND SHOULD BE RECONVEYED TO THE
GOVERNMENT.

II.

PETITIONER HAS CLEARLY DEMONSTRATED ITS ENTITLEMENT, AS A MATTER OF LAW, TO THE

RELIEFS PRAYED FOR.[83]

and urging the following issues to be resolved, to wit:

I.

WHETHER THE HONORABLE SANDIGANBAYAN COMMITTED A REVERSIBLE ERROR WHEN IT

DISMISSED CIVIL CASE NO. 0033-F; AND

II.

WHETHER OR NOT THE SUBJECT SHARES IN SMC, WHICH WERE ACQUIRED BY, AND ARE IN THE
RESPECTIVE NAMES OF RESPONDENTS COJUANGCO, JR. AND THE COJUANGCO COMPANIES,
SHOULD BE RECONVEYED TO THE REPUBLIC OF THE PHILIPPINES FOR HAVING BEEN ACQUIRED
USING COCONUT LEVY FUNDS.[84]

On their part, the petitioners-in-intervention[85] submit the following issues, to wit:

I

WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND DECIDED THE CASE A QUO IN
VIOLATION OF LAW AND APPLICABLE RULINGS OF THE HONORABLE COURT IN RULING THAT,
WHILE ADMITTEDLY THE SUBJECT SMC SHARES WERE PURCHASED FROM LOAN PROCEEDS
FROM UCPB AND ADVANCES FROM THE CIIF OIL MILLS, SAID SUBJECT SMC SHARES ARE NOT
PUBLIC PROPERTY

II

WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND DECIDED THE CASE A QUO IN
VIOLATION OF LAW AND APPLICABLE RULINGS OF THE HONORABLE COURT IN FAILING TO RULE
THAT, EVEN ASSUMING FOR THE SAKE OF ARGUMENT THAT LOAN PROCEEDS FROM UCPB ARE
NOT PUBLIC FINDS, STILL, SINCE RESPONDENT COJUANGCO, IN THE PURCHASE OF THE
SUBJECT SMC SHARES FROM SUCH LOAN PROCEEDS, VIOLATED HIS FIDUCIARY DUTIES AND
TOOK A COMMERCIAL OPPORTUNITY THAT RIGHTFULLY BELONGED TO UCPB (A PUBLIC
CORPORATION), THE SUBJECT SMC SHARES SHOULD REVERT BACK TO THE GOVERNMENT.

RULING

We deny all the petitions of the Republic.

Lifting of nine WOS for violation of PCGG Rules

did not constitute grave abuse of discretion

Through its resolution promulgated on June 24, 2005, assailed on certiorari in G.R. No. 169203,
the Sandiganbayan lifted the nine WOS for the following reasons, to wit:

Having studied the antecedent facts, this Court shall now resolve the pending incidents
especially defendants Motion to Affirm that the Writs or Orders of Sequestration Issued on
Defendants Properties Were Unauthorized, Invalid and Never Became Effective dated March 5,
1999.

Section 3 of the PCGG Rules and Regulations promulgated on April 11, 1986, provides:

Sec. 3. Who may issue. A writ of sequestration or a freeze or hold order may be issued by the
Commission upon the authority of at least two Commissioners, based on the affirmation or
complaint of an interested party or motu propio (sic) the issuance thereof is warranted.

In this present case, of all the questioned writs of sequestration issued after the effectivity of
the PCGG Rules and Regulations or after April 11, 1986, only writ no. 87-0218 issued on May
27, 1987 complied with the requirement that it be issued by at least two Commissioners, the
same having been issued by Commissioners Ramon E. Rodrigo and Quintin S. Doromal.
However, even if Writ of Sequestration No. 87-0218 complied with the requirement that the
same be issued by at least two Commissioners, the records fail to show that it was issued with
factual basis or with factual foundation as can be seen from the Certification of the
Commission Secretary of the PCGG of the excerpt of the minutes of the meeting of the PCGG
held on May 26, 1987, stating therein that:

The Commission approved the recommendation of Dir. Cruz to sequester all the shares of
stock, assets, records, and documents of Balete Ranch, Inc. and the appointment of the Fiscal
Committee with ECI Challenge, Inc./Pepsi-Cola for Balete Ranch, Inc. and the Aquacor
Marketing Corp. vice Atty. S. Occena. The objective is to consolidate the Fiscal Committee
activities covering three associated entities of Mr. Eduardo Cojuangco.Upon recommendation
of Comm. Rodrigo, the reconstitution of the Board of Directors of the three companies was
deferred for further study.

Nothing in the above-quoted certificate shows that there was a prior determination of a factual
basis or factual foundation. It is the absence of a prima facie basis for the issuance of a writ of
sequestration and not the lack of authority of two (2) Commissioners which renders the said
writ void ab initio. Thus, being the case, Writ of Sequestration No. 87-0218 must be
automatically lifted.

As declared by the Honorable Supreme Court in two cases it has decided,

The absence of a prior determination by the PCGG of a prima facie basis for the sequestration
order is, unavoidably, a fatal defect which rendered the sequestration of respondent
corporation and its properties void ab initio. And

The corporation or entity against which such writ is directed will not be able to visually
determine its validity, unless the required signatures of at least two commissioners authorizing
its issuance appear on the very document itself. The issuance of sequestration orders requires
the existence of a prima facie case. The two commissioner rule is obviously intended to assure
a collegial determination of such fact. In this light, a writ bearing only one signature is an
obvious transgression of the PCGG Rules.

Consequently, the writs of sequestration nos. 86-0062, 86-0069, 86-0085, 86-0095, 86-0096,
86-0097 and 86-0098 must be lifted for not having complied with the pertinent provisions of
the PCGG Rules and Regulations, all of which were issued by only one Commissioner and after
April 11, 1986 when the PCGG Rules and Regulations took effect, an utter disregard of the
PCGGs Rules and Regulations. The Honorable Supreme Court has stated that:

Obviously, Section 3 of the PCGG Rules was intended to protect the public from improvident,
reckless and needless sequestrations of private property. And since these Rules were issued by
Respondent Commission, it should be the first entity to observe them.

Anent the writ of sequestration no. 86-0042 which was issued on April 8, 1986 or prior to the
promulgation of the PCGG Rules and Regulations on April 11, 1986, the same cannot be
declared void on the ground that it was signed by only one Commissioner because at the time
it was issued, the Rules and Regulations of the PCGG were not yet in effect. However, it again
appears that there was no prior determination of the existence of a prima facie basis or factual
foundation for the issuance of the said writ. The PCGG, despite sufficient time afforded by this
Court to show that a prima facie basis existed prior to the issuance of Writ No. 86-0042, failed
to do so. Nothing in the records submitted by the PCGG in compliance of the Resolutions and
Order of this Court would reveal that a meeting was held by the Commission for the purpose of
determining the existence of a prima facie evidence prior to its issuance. In a case decided by
the Honorable Supreme Court, wherein it involved a writ of sequestration issued by the PCGG
on March 19, 1986 against all assets, movable and immovable, of Provident International
Resources Corporation and Philippine Casino Operators Corporation, the Honorable Supreme
Court enunciated:

The questioned sequestration order was, however issued on March 19, 1986, prior to the
promulgation of the PCGG Rules and Regulations. As a consequence, we cannot reasonably
expect the commission to abide by said rules, which were nonexistent at the time the subject
writ was issued by then Commissioner Mary Concepcion Bautista. Basic is the rule that no
statute, decree, ordinance, rule or regulation (and even policies) shall be given retrospective
effect unless explicitly stated so. We find no provision in said Rules which expressly gives them
retroactive effect, or implies the abrogation of previous writs issued not in accordance with the
same Rules. Rather, what said Rules provide is that they shall be effective immediately, which
in legal parlance, is understood as upon promulgation. Only penal laws are given retroactive
effect insofar as they favor the accused.

We distinguish this case from Republic vs. Sandiganbayan, Romualdez and Dio Island Resort,
G.R. No. 88126, July 12, 1996 where the sequestration order against Dio Island Resort, dated
April 14, 1986, was prepared, issued and signed not by two commissioners of the PCGG, but by
the head of its task force in Region VIII. In holding that said order was not valid since it was not
issued in accordance with PCGG Rules and Regulations, we explained:

(Sec. 3 of the PCGG Rules and Regulations), couched in clear and simple language, leaves no
room for interpretation. On the basis thereof, it is indubitable that under no circumstances can
a sequestration or freeze order be validly issued by one not a commissioner of the PCGG.

xxxxxxxxx

Even assuming arguendo that Atty. Ramirez had been given prior authority by the PCGG to
place Dio Island Resort under sequestration, nevertheless, the sequestration order he issued is
still void since PCGG may not delegate its authority to sequester to its representatives and
subordinates, and any such delegation is valid and ineffective.

We further said:

In the instant case, there was clearly no prior determination made by the PCGG of a prima
facie basis for the sequestration of Dio Island Resort, Inc. x x x

xxxxxxxxx
The absence of a prior determination by the PCGG of a prima facie basis for the sequestration
order is, unavoidably, a fatal defect which rendered the sequestration of respondent
corporation and its properties void ab initio. Being void ab initio, it is deemed nonexistent, as
though it had never been issued, and therefore is not subject to ratification by the PCGG.

What were obviously lacking in the above case were the basic requisites for the validity of a
sequestration order which we laid down in BASECO vs. PCGG, 150 SCRA 181, 216, May 27,
1987, thus:

Section (3) of the Commissions Rules and regulations provides that sequestration or freeze
(and takeover) orders issue upon the authority of at least two commissioners, based on the
affirmation or complaint of an interested party, or motu propio (sic) when the Commission has
reasonable grounds to believe that the issuance thereof is warranted.

In the case at bar, there is no question as to the presence of prima facie evidence justifying
the issuance of the sequestration order against respondent corporations. But the said order
cannot be nullified for lack of the other requisite (authority of at least two commissioners)
since, as explained earlier, such requisite was nonexistent at the time the order was issued.

As to the argument of the Plaintiff Republic that Defendants Cojuangco, et al. have not shown
any contrary prima facie proof that the properties subject matter of the writs of sequestration
were legitimate acquisitions, the same is misplaced. It is a basic legal doctrine, as well as
many times enunciated by the Honorable Supreme Court that when a prima facie proof is
required in the issuance of a writ, the party seeking such extraordinary writ must establish that
it is entitled to it by complying strictly with the requirements for its issuance and not the party
against whom the writ is being sought for to establish that the writ should not be issued
against it.

According to the Republic, the Sandiganbayan thereby gravely abused its discretion in: (a) in
lifting WOS No. 86-0042 and No. 87-0218 despite the basic requisites for the validity of
sequestration being existent; (b) in denying the Republics alternative prayer for the issuance
of an order of sequestration against all the subject shares of stock in accordance with the
ruling in Republic v. Sandiganbayan, 258 SCRA 685, as stated in its Motion For
Reconsideration; and (c) in deleting the last two conditions the Sandiganbayan had earlier
imposed on the subject shares of stock.

We sustain the lifting of the nine WOS for the reasons made extant in the assailed resolution of
October 8, 2003, supra.

Section 3 of the Rules of the PCGG, promulgated on April 11, 1986, provides:

Section 3. Who may issue. A writ of sequestration or a freeze or hold order may be issued by
the Commission upon the authority of at least two Commissioners, based on the affirmation or
complaint of an interested party or motu proprio when the Commission has reasonable
grounds to believe that the issuance thereof is warranted.
Conformably with Section 3, supra, WOS No. 86-0062 dated April 21, 1986; WOS No. 86-0069
dated April 22, 1986; WOS No. 86-0085 dated May 9, 1986; WOS No. 86-0095 dated May 16,
1986; WOS No. 86-0096 dated May 16, 1986; WOS No. 86-0097 dated May 16, 1986; and WOS
No. 86-0098 dated May 16, 1986 were lawfully and correctly nullified considering that only one
PCGG Commissioner had issued them.

Similarly, WOS No. 86-0042 dated April 8, 1986 and WOS No. 87-0218 dated May 27, 1987
were lawfully and correctly nullified notwithstanding that WOS No. 86-0042, albeit signed by
only one Commissioner (i.e., Commissioner Mary Concepcion Bautista), was not at the time of
its issuance subject to the two-Commissioners rule, and WOS No. 87-0218, albeit already
issued under the signatures of two Commissioners considering that both had been issued
without a prior determination by the PCGG of a prima facie basis for the sequestration.

Plainly enough, the irregularities infirming the issuance of the several WOS could not be
ignored in favor of the Republic and resolved against the persons whose properties were
subject of the WOS. Where the Rules of the PCGG instituted safeguards under Section 3, supra,
by requiring the concurrent signatures of two Commissioners to every WOS issued and the
existence of a prima facie case of ill gotten wealth to support the issuance, the non-
compliance with either of the safeguards nullified the WOS thus issued. It is already settled
that sequestration, due to its tendency to impede or limit the exercise of proprietary rights by
private citizens, is construed strictly against the State, conformably with the legal maxim that
statutes in derogation of common rights are generally strictly construed and rigidly confined to
the cases clearly within their scope and purpose.[86]

Consequently, the nullification of the nine WOS, being in implementation of the safeguards the
PCGG itself had instituted, did not constitute any abuse of its discretion, least of all grave, on
the part of the Sandiganbayan.

Nor did the Sandiganbayan gravely abuse its discretion in reducing from four to only two the
conditions imposed for the lifting of the WOS. The Sandiganbayan thereby acted with the best
of intentions, being all too aware that the claim of the Republic to the sequestered assets and
properties might be prejudiced or harmed pendente lite unless the protective conditions were
annotated in the corporate books of SMC. Moreover, the issue became academic following the
Sandiganbayans promulgation of its decision dismissing the Republics Amended Complaint,
which thereby removed the stated reason the Republic continues to hold a claim on the shares
which is yet to be resolved underlying the need for the annotation of the conditions (whether
four or two).

II

The Concept and Genesis of

Ill-Gotten Wealth in the Philippine Setting

A brief review of the Philippine law and jurisprudence pertinent to ill-gotten wealth should
furnish an illuminating backdrop for further discussion.
In the immediate aftermath of the peaceful 1986 EDSA Revolution, the administration of
President Corazon C. Aquino saw to it, among others, that rules defining the authority of the
government and its instrumentalities were promptly put in place. It is significant to point out,
however, that the administration likewise defined the limitations of the authority.

The first official issuance of President Aquino, which was made on February 28, 1986, or just
two days after the EDSA Revolution, was Executive Order (E.O.) No. 1, which created the
Presidential Commission on Good Government (PCGG). Ostensibly, E.O. No. 1 was the first
issuance in light of the EDSA Revolution having come about mainly to address the pillage of
the nations wealth by President Marcos, his family, and cronies.

E.O. No. 1 contained only two WHEREAS Clauses, to wit:

WHEREAS, vast resources of the government have been amassed by former President
Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and
abroad;

WHEREAS, there is an urgent need to recover all ill-gotten wealth;[87]

Paragraph (4) of E.O. No. 2[88] further required that the wealth, to be ill-gotten, must be
acquired by them through or as a result of improper or illegal use of or the conversion of funds
belonging to the Government of the Philippines or any of its branches, instrumentalities,
enterprises, banks or financial institutions, or by taking undue advantage of their official
position, authority, relationship, connection or influence to unjustly enrich themselves at the
expense and to the grave damage and prejudice of the Filipino people and the Republic of the
Philippines.

Although E.O. No. 1 and the other issuances dealing with ill-gotten wealth (i.e., E.O. No. 2, E.O.
No. 14, and E.O. No. 14-A) only identified the subject matter of ill-gotten wealth and the
persons who could amass ill-gotten wealth and did not include an explicit definition of ill-gotten
wealth, we can still discern the meaning and concept of ill-gotten wealth from the WHEREAS
Clauses themselves of E.O. No. 1, in that ill-gotten wealth consisted of the vast resources of
the government amassed by former President Ferdinand E. Marcos, his immediate family,
relatives and close associates both here and abroad. It is clear, therefore, that ill-gotten wealth
would not include all the properties of President Marcos, his immediate family, relatives, and
close associates but only the part that originated from the vast resources of the government.

In time and unavoidably, the Supreme Court elaborated on the meaning and concept of ill-
gotten wealth. In Bataan Shipyard & Engineering Co., Inc. v. Presidential Commission on Good
Government,[89] or BASECO, for the sake of brevity, the Court held that:

xxx until it can be determined, through appropriate judicial proceedings, whether the property
was in truth ill-gotten, i.e., acquired through or as a result of improper or illegal use of or the
conversion of funds belonging to the Government or any of its branches, instrumentalities,
enterprises, banks or financial institutions, or by taking undue advantage of official position,
authority, relationship, connection or influence, resulting in unjust enrichment of the ostensible
owner and grave damage and prejudice to the State. And this, too, is the sense in which the
term is commonly understood in other jurisdictions.[90]

The BASECO definition of ill-gotten wealth was reiterated in Presidential Commission on Good
Government v. Lucio C. Tan,[91] where the Court said:

On this point, we find it relevant to define ill-gotten wealth. In Bataan Shipyard and
Engineering Co., Inc., this Court described ill-gotten wealth as follows:

Ill-gotten wealth is that acquired through or as a result of improper or illegal use of or the
conversion of funds belonging to the Government or any of its branches, instrumentalities,
enterprises, banks or financial institutions, or by taking undue advantage of official position,
authority, relationship, connection or influence, resulting in unjust enrichment of the ostensible
owner and grave damage and prejudice to the State. And this, too, is the sense in which the
term is commonly understood in other jurisdiction.

Concerning respondents shares of stock here, there is no evidence presented by petitioner that
they belong to the Government of the Philippines or any of its branches, instrumentalities,
enterprises, banks or financial institutions. Nor is there evidence that respondents, taking
undue advantage of their connections or relationship with former President Marcos or his
family, relatives and close associates, were able to acquire those shares of stock.

Incidentally, in its 1998 ruling in Chavez v. Presidential Commission on Good Government,[92]

the Court rendered an identical definition of ill-gotten wealth, viz:

xxx. We may also add that ill-gotten wealth, by its very nature, assumes a public character.
Based on the aforementioned Executive Orders, ill-gotten wealth refers to assets and
properties purportedly acquired, directly or indirectly, by former President Marcos, his
immediate family, relatives and close associates through or as a result of their improper or
illegal use of government funds or properties; or their having taken undue advantage of their
public office; or their use of powers, influence or relationships, resulting in their unjust
enrichment and causing grave damage and prejudice to the Filipino people and the Republic of
the Philippines. Clearly, the assets and properties referred to supposedly originated from the
government itself. To all intents and purposes, therefore, they belong to the people. As such,
upon reconveyance they will be returned to the public treasury, subject only to the satisfaction
of positive claims of certain persons as may be adjudged by competent courts. Another
declared overriding consideration for the expeditious recovery of ill-gotten wealth is that it
may be used for national economic recovery.

All these judicial pronouncements demand two concurring elements to be present before
assets or properties were considered as ill-gotten wealth, namely: (a) they must have
originated from the government itself, and (b) they must have been taken by former President
Marcos, his immediate family, relatives, and close associates by illegal means.
But settling the sources and the kinds of assets and property covered by E.O. No. 1 and related
issuances did not complete the definition of ill-gotten wealth. The further requirement was that
the assets and property should have been amassed by former President Marcos, his immediate
family, relatives, and close associates both here and abroad. In this regard, identifying former
President Marcos, his immediate family, and relatives was not difficult, but identifying other
persons who might be the close associates of former President Marcos presented an inherent
difficulty, because it was not fair and just to include within the term close associates everyone
who had had any association with President Marcos, his immediate family, and relatives.

Again, through several rulings, the Court became the arbiter to determine who were the close
associates within the coverage of E.O. No. 1.

In Republic v. Migrio,[93] the Court held that respondents Migrio, et al. were not necessarily
among the persons covered by the term close subordinate or close associate of former
President Marcos by reason alone of their having served as government officials or employees
during the Marcos administration, viz:

It does not suffice, as in this case, that the respondent is or was a government official or
employee during the administration of former Pres. Marcos. There must be a prima facie
showing that the respondent unlawfully accumulated wealth by virtue of his close association
or relation with former Pres. Marcos and/or his wife. This is so because otherwise the
respondents case will fall under existing general laws and procedures on the matter. xxx

In Cruz, Jr. v. Sandiganbayan,[94] the Court declared that the petitioner was not a close
associate as the term was used in E.O. No. 1 just because he had served as the President and
General Manager of the GSIS during the Marcos administration.

In Republic v. Sandiganbayan,[95] the Court stated that respondent Maj. Gen. Josephus Q.
Ramas having been a Commanding General of the Philippine Army during the Marcos
administration d[id] not automatically make him a subordinate of former President Ferdinand
Marcos as this term is used in Executive Order Nos. 1, 2, 14 and 14-A absent a showing that he
enjoyed close association with former President Marcos.

It is well to point out, consequently, that the distinction laid down by E.O. No. 1 and its related
issuances, and expounded by relevant judicial pronouncements unavoidably required
competent evidentiary substantiation made in appropriate judicial proceedings to determine:
(a) whether the assets or properties involved had come from the vast resources of
government, and (b) whether the individuals owning or holding such assets or properties were
close associates of President Marcos. The requirement of competent evidentiary substantiation
made in appropriate judicial proceedings was imposed because the factual premises for the
reconveyance of the assets or properties in favor of the government due to their being ill-
gotten wealth could not be simply assumed. Indeed, in BASECO,[96] the Court made this clear
enough by emphatically observing:

6. Governments Right and Duty to Recover All Ill-gotten Wealth

There can be no debate about the validity and eminent propriety of the Governments plan to
recover all ill-gotten wealth.
Neither can there be any debate about the proposition that assuming the above described
factual premises of the Executive Orders and Proclamation No. 3 to be true, to be
demonstrable by competent evidence, the recovery from Marcos, his family and his minions of
the assets and properties involved, is not only a right but a duty on the part of Government.

But however plain and valid that right and duty may be, still a balance must be sought with
the equally compelling necessity that a proper respect be accorded and adequate protection
assured, the fundamental rights of private property and free enterprise which are deemed
pillars of a free society such as ours, and to which all members of that society may without
exception lay claim.

xxx Democracy, as a way of life enshrined in the Constitution, embraces as its necessary
components freedom of conscience, freedom of expression, and freedom in the pursuit of
happiness. Along with these freedoms are included economic freedom and freedom of
enterprise within reasonable bounds and under proper control. xxx Evincing much concern for
the protection of property, the Constitution distinctly recognizes the preferred position which
real estate has occupied in law for ages. Property is bound up with every aspect of social life in
a democracy as democracy is conceived in the Constitution. The Constitution realizes the
indispensable role which property, owned in reasonable quantities and used legitimately, plays
in the stimulation to economic effort and the formation and growth of a solid social middle
class that is said to be the bulwark of democracy and the backbone of every progressive and
happy country.

a. Need of Evidentiary Substantiation in Proper Suit

Consequently, the factual premises of the Executive Orders cannot simply be assumed. They
will have to be duly established by adequate proof in each case, in a proper judicial
proceeding, so that the recovery of the ill-gotten wealth may be validly and properly adjudged
and consummated; although there are some who maintain that the fact that an immense
fortune, and vast resources of the government have been amassed by former President
Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and
abroad, and they have resorted to all sorts of clever schemes and manipulations to disguise
and hide their illicit acquisitions is within the realm of judicial notice, being of so extensive
notoriety as to dispense with proof thereof. Be this as it may, the requirement of evidentiary
substantiation has been expressly acknowledged, and the procedure to be followed explicitly
laid down, in Executive Order No. 14. [97]

Accordingly, the Republic should furnish to the Sandiganbayan in proper judicial proceedings
the competent evidence proving who were the close associates of President Marcos who had
amassed assets and properties that would be rightly considered as ill-gotten wealth.

III.

Summary Judgment was not warranted;

The Republic should have adduced evidence

to substantiate its allegations against the Respondents

We affirm the decision of November 28, 2007, because the Republic did not discharge its
burden as the plaintiff to establish by preponderance of evidence that the respondents SMC
shares were illegally acquired with coconut-levy funds.

The decision of November 28, 2007 fully explained why the Sandiganbayan dismissed the
Republics case against Cojuangco, et al., viz:

Going over the evidence, especially the laws, i.e., P.D. No. 961, P.D. No. 755, and P.D. No. 1468,
over which plaintiff prayed that Court to take judicial notice of, it is worth noting that these
same laws were cited by plaintiff when it filed its motion for judgment on the pleadings and/or
summary judgment regarding the CIIF block of SMC shares of stock. Thus, the Court has
already passed upon the same laws when it arrived at judgment determining ownership of the
CIIF block of SMC shares of stock. Pertinently, in the Partial Summary Judgment promulgated
on May 7, 2004, the Court gave the following rulings finding certain provisions of the above-
cited laws to be constitutionally infirmed, thus:

In this case, Section 2(d) and Section 9 and 10, Article III, of P.D. Nos. 961 and 1468 mandated
the UCPB to utilize the CIIF, an accumulation of a portion of the CCSF and the CIDF, for
investment in the form of shares of stock in corporations organized for the purpose of
engaging in the establishment and the operation of industries and commercial activities and
other allied business undertakings relating to coconut and other palm oils industry in all
aspects. The investments made by UCPB in CIIF companies are required by the said Decrees to
be equitably distributed for free by the said bank to the coconut farmers (Sec. 10, P.D. No. 961
and Sec. 10, P.D. No. 1468). The public purpose sought to be served by the free distribution of
the shares of stock acquired with the use of public funds is not evident in the laws mentioned.
More specifically, it is not clear how private ownership of the shares of stock acquired with
public funds can serve a public purpose. The mode of distribution of the shares of stock also
left much room for the diversion of assets acquired through public funds into private uses or to
serve directly private interests, contrary to the Constitution. In the said distribution,
defendants COCOFED, et al. and Ballares, et al. admitted that UCPB followed the
administrative issuances of PCA which we found to be constitutionally objectionable in our
Partial Summary Judgment in Civil Case No. 0033-A, the pertinent portions of which are quoted
hereunder:

xxx xx xxx.

The distribution for free of the shares of stock of the CIIF Companies is tainted with the above-
mentioned constitutional infirmities of the PCA administrative issuances. In view of the
foregoing, we cannot consider the provision of P.D. No. 961 and P.D. No. 1468 and the
implementing regulations issued by the PCA as valid legal basis to hold that assets acquired
with public funds have legitimately become private properties.

The CIIF Companies having been acquired with public funds, the 14 CIIF-owned Holding
Companies and all their assets, including the CIIF Block of SMC Shares, being public in
character, belong to the government. Even granting that the 14 Holding Companies acquired
the SMC Shares through CIIF advances and UCPB loans, said advances and loans are still the
obligations of the said companies. The incorporating equity or capital of the 14 Holding
Companies, which were allegedly used also for the acquisition of the subject SMC shares, being
wholly owned by the CIIF Companies, likewise form part of the coconut levy funds, and thus
belong to the government in trust for the ultimate beneficiaries thereof, which are all the
coconut farmers.

xxx xxx xxx.

And, with the above-findings of the Court, the CIIF block of SMC shares were subsequently
declared to be of public character and should be reconveyed to the government in trust for
coconut farmers. The foregoing findings notwithstanding, a question now arises on whether
the same laws can likewise serve as ultimate basis for a finding that the Cojuangco, et al. block
of SMC shares are also imbued with public character and should rightfully be reconveyed to
the government.

On this point, the Court disagrees with plaintiff that reliance on said laws would suffice to
prove that defendants Cojuangco, et al.s acquisition of SMC shares of stock was illegal as
public funds were used. For one, plaintiffs reliance thereon has always had reference only to
the CIIF block of shares, and the Court has already settled the same by going over the laws
and quoting related findings in the Partial Summary judgment rendered in Civil Case No. 0033-
A. For another, the allegations of plaintiff pertaining to the Cojuangco block representing
twenty percent (20%) of the outstanding capital stock of SMC stress defendant Cojuangcos
acquisition by virtue of his positions as Chief Executive Officer of UCPB, a member-director of
the Philippine Coconut Authority (PCA) Governing Board, and a director of the CIIF Oil Mills.
Thus, reference to the said laws would not settle whether there was abuse on the part of
defendants Cojuangco, et al. of their positions to acquire the SMC shares. [98]

Besides, in the Resolution of the Court on plaintiffs Motion for Parial Summary Judgment (Re:
Shares in San Miguel Corporation Registered in the Respective Names of Defendants Eduardo
M. Cojuangco, Jr. and the defendant Cojuangco Companies), the Court already rejected
plaintiffs reference to said laws. In fact, the Court declined to grant plaintiffs motion for partial
summary judgment because it simply contended that defendant Cojuangcos statements in his
pleadings, which plaintiff again offered in evidence herein, regarding the presentation of a
possible CIIF witness as well as UCPB records can already be considered admissions of
defendants exclusive use and misuse of coconut levy funds. In the said resolution, the Court
already reminded plaintiff that the issues cannot be resolved by plaintiffs interpretation of
defendant Cojuangcos statements in his brief. Thus, the substantial portion of the Resolution of
the Court denying plaintiffs motion for partial summary judgment is again quoted for
emphasis: [99]

We cannot agree with the plaintiffs contention that the defendants statements in his Pre-Trial
Brief regarding the presentation of a possible CIIF witness as well as UCPB records, can already
be considered as admissions of the defendants exclusive use and misuse of coconut levy funds
to acquire the subject SMC shares and defendant Cojuangcos alleged taking advantage of his
positions to acquire the subject SMC shares. Moreover, in ruling on a motion for summary
judgment, the court should take that view of the evidence most favorable to the party against
whom it is directed, giving such party the benefit of all favorable inferences. Inasmuch as this
issue cannot be resolved merely from an interpretation of the defendants statements in his
brief, the UCPB records must be produced and the CIIF witness must be heard to ensure that
the conclusions that will be derived have factual basis and are thus, valid. [100]

WHEREFORE, in view of the foregoing, the Motion for Partial Summary Judgment dated July 11,
2003 is hereby DENIED for lack of merit.
SO ORDERED.

(Emphasis supplied)

Even assuming that, as plaintiff prayed for, the Court takes judicial notice of the evidence it
offered with respect to the Cojuangco block of SMC shares of stock, as contained in plaintiffs
manifestation of purposes, still its evidence do not suffice to prove the material allegations in
the complaint that Cojuangco took advantage of his positions in UCPB and PCA in order to
acquire the said shares. As above-quoted, the Court, itself, has already ruled, and hereby
stress that UCPB records must be produced and the CIIF witness must be heard to ensure that
the conclusions that will be derived have factual basis and are thus, valid. Besides, the Court
found that there are genuine factual issues raised by defendants that need to be threshed out
in a full-blown trial, and which plaintiff had the burden to substantially prove. Thus, the Court
outlined these genuine factual issues as follows:

1) What are the various sources of funds, which defendant Cojuangco and his companies claim
they utilized to acquire the disputed SMC shares?

2) Whether or not such funds acquired from alleged various sources can be considered coconut
levy funds;

3) Whether or not defendant Cojuangco had indeed served in the governing bodies of PCA,
UCPB and/or CIIF Oil Mills at the time the funds used to purchase the SMC shares were
obtained such that he owed a fiduciary duty to render an account to these entities as well as to
the coconut farmers;

4) Whether or not defendant Cojuangco took advantage of his position and/or close ties with
then President Marcos to obtain favorable concessions or exemptions from the usual financial
requirements from the lending banks and/or coco-levy funded companies, in order to raise the
funds to acquire the disputed SMC shares; and if so, what are these favorable concessions or
exemptions?[101]

Answers to these issues are not evident from the submissions of plaintiff and must therefore
be proven through the presentation of relevant and competent evidence during trial. A perusal
of the subject Motion shows that the plaintiff hastily derived conclusions from the defendants
statements in their previous pleadings although such conclusions were not supported by
categorical facts but only mere inferences. xxx xxx xxx. (Emphasis supplied) [102]

Despite the foregoing pronouncement of the Court, plaintiff did not present any other evidence
during the trial of this case but instead made its manifestation of purposes, that later served
as its offer of evidence in the instant case, that merely used the same evidence it had already
relied upon when it moved for partial summary judgment over the Cojuangco block of SMC
shares. Altogether, the Court finds the same insufficient to prove plaintiffs allegations in the
complaint because more than judicial notices, the factual issues require the presentation of
admissible, competent and relevant evidence in accordance with Sections 3 and 4, Rule 128 of
the Rules on Evidence.
Moreover, the propriety of taking judicial notice of plaintiffs exhibits is aptly questioned by
defendants Cojuangco, et al. Certainly, the Court can take judicial notice of laws pertaining to
the coconut levy funds as well as decisions of the Supreme Court relative thereto, but taking
judicial notice does not mean that the Court would accord full probative value to these
exhibits. Judicial notice is based upon convenience and expediency for it would certainly be
superfluous, inconvenient, and expensive both to parties and the court to require proof, in the
ordinary way, of facts which are already known to courts. However, a court cannot take judicial
notice of a factual matter in controversy. Certainly, there are genuine factual matters in the
instant case, as above-cited, which plaintiff ought to have proven with relevant and competent
evidence other than the exhibits it offered.

Referring to plaintiffs causes of action against defendants Cojuangco, et al., the Court finds its
evidence insufficient to prove that the source of funds used to purchase SMC shares indeed
came from coconut levy funds. In fact, there is no direct link that the loans obtained by
defendant Cojuangco, Jr. were the same money used to pay for the SMC shares. The scheme
alleged to have been taken by defendant Cojuangco, Jr. was not even established by any paper
trail or testimonial evidence that would have identified the same. On account of his positions in
the UCPB, PCA and the CIIF Oil Mills, the Court cannot conclude that he violated the fiduciary
obligations of the positions he held in the absence of proof that he was so actuated and that
he abused his positions.[103]

It was plain, indeed, that Cojuangco, et al. had tendered genuine issues through their
responsive pleadings and did not admit that the acquisition of the Cojuangco block of SMC
shares had been illegal, or had been made with public funds. As a result, the Republic needed
to establish its allegations with preponderant competent evidence, because, as earlier stated,
the fact that property was ill gotten could not be presumed but must be substantiated with
competent proof adduced in proper judicial proceedings. That the Republic opted not to
adduce competent evidence thereon despite stern reminders and warnings from the
Sandiganbayan to do so revealed that the Republic did not have the competent evidence to
prove its allegations against Cojuangco, et al.

Still, the Republic, relying on the 2001 holding in Republic v. COCOFED,[104] pleads in its
petition for review (G.R. No. 180702) that:

With all due respect, the Honorable Sandiganbayan failed to consider legal precepts and
procedural principles

vis--vis the records of the case showing that the funds or various loans or advances used in the
acquisition of the disputed SMC Shares ultimately came from the coconut levy funds.

As discussed hereunder, respondents own admissions in their Answers and Pre-Trial Briefs
confirm that the various sources of funds utilized in the acquisition of the disputed SMC shares
came from borrowings and advances from the UCPB and the CIIF Oil Mills.[105]

Thereby, the Republic would have the Sandiganbayan pronounce the block of SMC shares of
stock acquired by Cojuangco, et al. as ill-gotten wealth even without the Republic first
presenting preponderant evidence establishing that such block had been acquired illegally and
with the use of coconut levy funds.

The Court cannot heed the Republics pleas for the following reasons:

To begin with, it is notable that the decision of November 28, 2007 did not rule on whether
coconut levy funds were public funds or not. The silence of the Sandiganbayan on the matter
was probably due to its not seeing the need for such ruling following its conclusion that the
Republic had not preponderantly established the source of the funds used to pay the purchase
price of the concerned SMC shares, and whether the shares had been acquired with the use of
coconut levy funds.

Secondly, the ruling in Republic v. COCOFED[106] determined only whether certain

stockholders of the UCPB could vote in the stockholders meeting that had been called. The
issue now before the Court could not be controlled by the ruling in Republic v. COCOFED,
however, for even as that ruling determined the issue of voting, the Court was forthright
enough about not thereby preempting the Sandiganbayans decisions on the merits on ill-
gotten wealth in the several cases then pending, including this one, viz:

In making this ruling, we are in no way preempting the proceedings the Sandiganbayan may
conduct or the final judgment it may promulgate in Civil Case No. 0033-A, 0033-B and 0033-F.
Our determination here is merely prima facie, and should not bar the anti-graft court from
making a final ruling, after proper trial and hearing, on the issues and prayers in the said civil
cases, particularly in reference to the ownership of the subject shares.

We also lay down the caveat that, in declaring the coco levy funds to be prima facie public in
character, we are not ruling in any final manner on their classification whether they are
general or trust or special funds since such classification is not at issue here. Suffice it to say
that the public nature of the coco levy funds is decreed by the Court only for the purpose of
determining the right to vote the shares, pending the final outcome of the said civil cases.

Neither are we resolving in the present case the question of whether the shares held by
Respondent Cojuangco are, as he claims, the result of private enterprise. This factual matter
should also be taken up in the final decision in the cited cases that are pending in the court a
quo. Again, suffice it to say that the only issue settled here is the right of PCGG to vote the
sequestered shares, pending the final outcome of said cases.

Thirdly, the Republics assertion that coconut levy funds had been used to source the payment
for the Cojuangco block of SMC shares was premised on its allegation that the UCPB and the
CIIF Oil Mills were public corporations. But the premise was grossly erroneous and overly
presumptuous, because:
(a) The fact of the UCPB and the CIIF Oil Mills being public corporations or government-owned
or government-controlled corporations precisely remained controverted by Cojuangco, et al. in
light of the lack of any competent to that effect being in the records;

(b) Cojuangco explicitly averred in paragraph 2.01.(b) of his Answer that the UCPB was a
private corporation; and

(c) The Republic did not competently identify or establish which ones of the Cojuangco
corporations had supposedly received advances from the CIIF Oil Mills.

Fourthly, the Republic asserts that the contested block of shares had been paid for with
borrowings from the UCPB and advances from the CIIF Oil Mills, and that such borrowings and
advances had been illegal because the shares had not been purchased for the benefit of the
Coconut Farmers. To buttress its assertion, the Republic relied on the admissions supposedly
made in paragraph 2.01 of Cojuangcos Answer in relation to paragraph 4 of the Republics
Amended Complaint.

The best way to know what paragraph 2.01 of Cojuangcos Answer admitted is to refer to both
paragraph 4 of the Amended Complaint and paragraph 2.01 of his Answer, which are
hereunder quoted:

Paragraph 4 of the Amended Complaint

4. Defendant EDUARDO M. COJUANGCO, JR., was Governor of Tarlac, Congressman of then First
District of Tarlac and Ambassador-at-Large in the Marcos Administration. He was commissioned
Lieutenant Colonel in the Philippine Air Force, Reserve. Defendant Eduardo M. Cojuangco, Jr.,
otherwise known as the Coconut King was head of the coconut monopoly which was instituted
by Defendant Ferdinand E. Marcos, by virtue of the Presidential Decrees. Defendant Eduardo E.
Cojuangco, Jr., who was also one of the closest associates of the Defendant Ferdinand E.
Marcos, held the positions of Director of the Philippine Coconut Authority, the United Coconut
Mills, Inc., President and Board Director of the United Coconut Planters Bank, United Coconut
Planters Life Assurance Corporation, and United Coconut Chemicals, Inc. He was also the
Chairman of the Board and Chief Executive Officer and the controlling stockholder of the San
Miguel Corporation. He may be served summons at 45 Balete Drive, Quezon City or at 136
East 9th Street, Quezon City.

Paragraph 2.01 of Respondent Cojuangcos Answer

2.01. Herein defendant admits paragraph 4 only insofar as it alleges the following:

(a) That herein defendant has held the following positions in government: Governor of Tarlac,
Congressman of the then First District of Tarlac, Ambassador-at-Large, Lieutenant Colonel in
the Philippine Air Force and Director of the Philippines Coconut Authority;
(b) That he held the following positions in private corporations: Member of the Board of
Directors of the United Coconut Oil Mills, Inc.; President and member of the Board of Directors
of the United Coconut Planters Bank, United Coconut Planters Life Assurance Corporation, and
United Coconut Chemicals, Inc.; Chairman of the Board and Chief Executive of San Miguel
Corporation; and

(c) That he may be served with summons at 136 East 9th Street, Quezon City.

Herein defendant specifically denies the rest of the allegations of paragraph 4, including any
insinuation that whatever association he may have had with the late Ferdinand Marcos or
Imelda Marcos has been in connection with any of the acts or transactions alleged in the
complaint or for any unlawful purpose.

It is basic in remedial law that a defendant in a civil case must apprise the trial court and the
adverse party of the facts alleged by the complaint that he admits and of the facts alleged by
the complaint that he wishes to place into contention. The defendant does the former either by
stating in his answer that they are true or by failing to properly deny them. There are two ways
of denying alleged facts: one is by general denial, and the other, by specific denial.[107]

In this jurisdiction, only a specific denial shall be sufficient to place into contention an alleged
fact.[108] Under Section 10,[109] Rule 8 of the Rules of Court, a specific denial of an allegation
of the complaint may be made in any of three ways, namely: (a) a defendant specifies each
material allegation of fact the truth of which he does not admit and, whenever practicable,
sets forth the substance of the matters upon which he relies to support his denial; (b) a
defendant who desires to deny only a part of an averment specifies so much of it as is true and
material and denies only the remainder; and (c) a defendant who is without knowledge or
information sufficient to form a belief as to the truth of a material averment made in the
complaint states so, which has the effect of a denial.

The express qualifications contained in paragraph 2.01 of Cojuangcos Answer constituted

efficient specific denials of the averments of paragraph 2 of the Republics Amended Complaint
under the first method mentioned in Section 10 of Rule 8, supra. Indeed, the aforequoted
paragraphs of the Amended Complaint and of Cojuangcos Answer indicate that Cojuangco
thereby expressly qualified his admission of having been the President and a Director of the
UCPB with the averment that the UCPB was a private corporation; that his Answers allegation
of his being a member of the Board of Directors of the United Coconut Oil Mills, Inc. did not
admit that he was a member of the Board of Directors of the CIIF Oil Mills, because the United
Coconut Oil Mills, Inc. was not one of the CIIF Oil Mills; and that his Answer nowhere contained
any admission or statement that he had held the various positions in the government or in the
private corporations at the same time and in 1983, the time when the contested acquisition of
the SMC shares of stock took place.

What the Court stated in Bitong v. Court of Appeals (Fifth Division)[110] as to admissions is
illuminating:

When taken in its totality, the Amended Answer to the Amended Petition, or even the Answer
to the Amended Petition alone, clearly raises an issue as to the legal personality of petitioner
to file the complaint. Every alleged admission is taken as an entirety of the fact which makes
for the one side with the qualifications which limit, modify or destroy its effect on the other
side. The reason for this is, where part of a statement of a party is used against him as an
admission, the court should weigh any other portion connected with the statement, which
tends to neutralize or explain the portion which is against interest.

In other words, while the admission is admissible in evidence, its probative value is to be
determined from the whole statement and others intimately related or connected therewith as
an integrated unit. Although acts or facts admitted do not require proof and cannot be
contradicted, however, evidence aliunde can be presented to show that the admission was
made through palpable mistake. The rule is always in favor of liberality in construction of
pleadings so that the real matter in dispute may be submitted to the judgment of the court.

And, lastly, the Republic cites the following portions of the joint Pre-Trial Brief of Cojuangco, et
al.,[111] to wit:

IV.

PROPOSED EVIDENCE

xxx

4.01. xxx Assuming, however, that plaintiff presents evidence to support its principal
contentions, defendants evidence in rebuttal would include testimonial and documentary
evidence showing: a) the ownership of the shares of stock prior to their acquisition by
respondents (listed in Annexes A and B); b) the consideration for the acquisition of the shares
of stock by the persons or companies in whose names the shares of stock are now registered;
and c) the source of the funds used to pay the purchase price.

4.02. Herein respondents intend to present the following evidence:

xxx

b. Proposed Exhibits ____, ____, ____

Records of the United Coconut Planters Bank which would show borrowings of the companies
listed in Annexes A and B, or companies affiliated or associated with them, which were used to
source payment of the shares of stock of the San Miguel Corporation subject of this case.

4.03. Witnesses.

xxx

(b) A representative of the United Coconut Planters Bank who will testify in regard the loans
which were used to source the payment of the price of SMC shares of stock.

(c) A representative from the CIIF Oil Mills who will testify in regard the loans or credit
advances which were used to source the payment of the purchase price of the SMC shares of
stock.
The Republic insists that the aforequoted portions of the joint Pre-Trial Brief were Cojuangco, et
al.s admission that:

(a) Cojuangco had received money from the UCPB, a bank entrusted by law with the
administration of the coconut levy funds; and

(b) Cojuangco had received more money from the CIIF Oil Mills in which part of the CIIF funds
had been placed, and thereby used the funds of the UCPB and the CIIF as capital to buy his
SMC shares.[112]

We disagree with the Republics posture.

The statements found in the joint Pre-Trial Brief of Cojuangco, et al. were noticeably written
beneath the heading of Proposed Evidence. Such location indicated that the statements were
only being proposed, that is, they were not yet intended or offered as admission of any fact
stated therein. In other words, the matters stated or set forth therein might or might not be
presented at all. Also, the text and tenor of the statements expressly conditioned the proposal
on the Republic ultimately presenting its evidence in the action. After the Republic opted not to
present its evidence, the condition did not transpire; hence, the proposed admissions,
assuming that they were that, did not materialize.

Obviously, too, the statements found under the heading of Proposed Evidence in the joint Pre-
Trial Brief were incomplete and inadequate on the important details of the supposed
transactions (i.e., alleged borrowings and advances). As such, they could not constitute
admissions that the funds had come from borrowings by Cojuangco, et al. from the UCPB or
had been credit advances from the CIIF Oil Companies. Moreover, the purpose for presenting
the records of the UCPB and the representatives of the UCPB and of the still unidentified or
unnamed CIIF Oil Mills as declared in the joint Pre-Trial Brief did not at all show whether the
UCPB and/or the unidentified or unnamed CIIF Oil Mills were the only sources of funding, or
that such institutions, assuming them to be the sources of the funding, had been the only
sources of funding. Such ambiguousness disqualified the statements from being relied upon as
admissions. It is fundamental that any statement, to be considered as an admission for
purposes of judicial proceedings, should be definite, certain and unequivocal;[113] otherwise,
the disputed fact will not get settled.

Another reason for rejecting the Republics posture is that the Sandiganbayan, as the trial
court, was in no position to second-guess what the non-presented records of the UCPB would
show as the borrowings made by the corporations listed in Annexes A and B, or by the
companies affiliated or associated with them, that were used to source payment of the shares
of stock of the San Miguel Corporation subject of this case, or what the representative of the
UCPB or the representative of the CIIF Oil Mills would testify about loans or credit advances
used to source the payment of the price of SMC shares of stock.

Lastly, the Rules of Court has no rule that treats the statements found under the heading
Proposed Evidence as admissions binding Cojuangco, et al. On the contrary, the Rules of Court
has even distinguished between admitted facts and facts proposed to be admitted during the
stage of pre-trial. Section 6 (b),[114] Rule 18 of the Rules of Court, requires a Pre-Trial Brief to
include a summary of admitted facts and a proposed stipulation of facts. Complying with the
requirement, the joint Pre-Trial Brief of Cojuangco, et al. included the summary of admitted
facts in its paragraph 3.00 of its Item III, separately and distinctly from the Proposed Evidence,
to wit:

III.

SUMMARY OF UNDISPUTED FACTS

3.00. Based on the complaint and the answer, the acquisition of the San Miguel shares by, and
their registration in the names of, the companies listed in Annexes A and B may be deemed
undisputed.

3.01. All other allegations in the complaint are disputed.[115]

The burden of proof, according to Section 1, Rule 131 of the Rules of Court, is the duty of a
party to present evidence on the facts in issue necessary to establish his claim or defense by
the amount of evidence required by law. Here, the Republic, being the plaintiff, was the party
that carried the burden of proof. That burden required it to demonstrate through competent
evidence that the respondents, as defendants, had purchased the SMC shares of stock with the
use of public funds; and that the affected shares of stock constituted ill-gotten wealth. The
Republic was well apprised of its burden of proof, first through the joinder of issues made by
the responsive pleadings of the defendants, including Cojuangco, et al. The Republic was
further reminded through the pre-trial order and the Resolution denying its Motion for
Summary Judgment, supra, of the duty to prove the factual allegations on ill-gotten wealth
against Cojuangco, et al., specifically the following disputed matters:

(a) When the loans or advances were incurred;

(b) The amount of the loans from the UCPB and of the credit advances from the CIIF Oil Mills,
including the specific CIIF Oil Mills involved;

(c) The identities of the borrowers, that is, all of the respondent corporations together, or
separately; and the amounts of the borrowings;

(d) The conditions attendant to the loans or advances, if any;

(e) The manner, form, and time of the payments made to Zobel or to the Ayala Group, whether
by check, letter of credit, or some other form; and

(f) Whether the loans were paid, and whether the advances were liquidated.
With the Republic nonetheless choosing not to adduce evidence proving the factual
allegations, particularly the aforementioned matters, and instead opting to pursue its claims
by Motion for Summary Judgment, the Sandiganbayan became completely deprived of the
means to know the necessary but crucial details of the transactions on the acquisition of the
contested block of shares. The Republics failure to adduce evidence shifted no burden to the
respondents to establish anything, for it was basic that the party who asserts, not the party
who denies, must prove.[116] Indeed, in a civil action, the plaintiff has the burden of pleading
every essential fact and element of the cause of action and proving them by preponderance of
evidence. This means that if the defendant merely denies each of the plaintiffs allegations and
neither side produces evidence on any such element, the plaintiff must necessarily fail in the
action.[117] Thus, the Sandiganbayan correctly dismissed Civil Case No. 0033-F for failure of
the Republic to prove its case by preponderant evidence.

A summary judgment under Rule 35 of the Rules of Court is a procedural technique that is
proper only when there is no genuine issue as to the existence of a material fact and the
moving party is entitled to a judgment as a matter of law.[118] It is a method intended to
expedite or promptly dispose of cases where the facts appear undisputed and certain from the
pleadings, depositions, admissions, and affidavits on record.[119] Upon a motion for summary
judgment the courts sole function is to determine whether there is an issue of fact to be tried,
and all doubts as to the existence of an issue of fact must be resolved against the moving
party. In other words, a party who moves for summary judgment has the burden of
demonstrating clearly the absence of any genuine issue of fact, and any doubt as to the
existence of such an issue is resolved against the movant. Thus, in ruling on a motion for
summary judgment, the court should take that view of the evidence most favorable to the
party against whom it is directed, giving that party the benefit of all favorable inferences.[120]

The term genuine issue has been defined as an issue of fact that calls for the presentation of
evidence as distinguished from an issue that is sham, fictitious, contrived, set up in bad faith,
and patently unsubstantial so as not to constitute a genuine issue for trial. The court can
determine this on the basis of the pleadings, admissions, documents, affidavits, and counter-
affidavits submitted by the parties to the court. Where the facts pleaded by the parties are
disputed or contested, proceedings for a summary judgment cannot take the place of a trial.
[121] Well-settled is the rule that a party who moves for summary judgment has the burden of
demonstrating clearly the absence of any genuine issue of fact.[122] Upon that partys
shoulders rests the burden to prove the cause of action, and to show that the defense is
interposed solely for the purpose of delay. After the burden has been discharged, the
defendant has the burden to show facts sufficient to entitle him to defend.[123] Any doubt as
to the propriety of a summary judgment shall be resolved against the moving party.

We need not stress that the trial courts have limited authority to render summary judgments
and may do so only in cases where no genuine issue as to any material fact clearly exists
between the parties. The rule on summary judgment does not invest the trial courts with
jurisdiction to try summarily the factual issues upon affidavits, but authorizes summary
judgment only when it appears clear that there is no genuine issue as to any material fact.
[124]

IV.

Republics burden to establish by preponderance of evidence that respondents SMC shares had
been illegally acquired with coconut-levy funds was not discharged
Madame Justice Carpio Morales argues in her dissent that although the contested SMC shares
could be inescapably treated as fruits of funds that are prima facie public in character,
Cojuangco, et al. abstained from presenting countervailing evidence; and that with the
Republic having shown that the SMC shares came into fruition from coco levy funds that are
prima facie public funds, Cojuangco, et al. had to go forward with contradicting evidence, but
did not.

The Court disagrees. We cannot reverse the decision of November 28, 2007 on the basis alone
of judicial pronouncements to the effect that the coconut levy funds were prima facie public
funds,[125] but without any competent evidence linking the acquisition of the block of SMC
shares by Cojuangco, et al. to the coconut levy funds.

V.

No violation of the DOSRI and

Single Borrowers Limit restrictions

The Republics lack of proof on the source of the funds by which Cojuangco, et al. had acquired
their block of SMC shares has made it shift its position, that it now suggests that Cojuangco
had been enabled to obtain the loans by the issuance of LOI 926 exempting the UCPB from the
DOSRI and the Single Borrowers Limit restrictions.

We reject the Republics suggestion.

Firstly, as earlier pointed out, the Republic adduced no evidence on the significant particulars
of the supposed loan, like the amount, the actual borrower, the approving official, etc. It did
not also establish whether or not the loans were DOSRI[126] or issued in violation of the Single
Borrowers Limit. Secondly, the Republic could not outrightly assume that President Marcos had
issued LOI 926 for the purpose of allowing the loans by the UCPB in favor of Cojuangco. There
must be competent evidence to that effect. And, finally, the loans, assuming that they were of
a DOSRI nature or without the benefit of the required approvals or in excess of the Single
Borrowers Limit, would not be void for that reason. Instead, the bank or the officers responsible
for the approval and grant of the DOSRI loan would be subject only to sanctions under the law.
[127]

VI.

Cojuangco violated no fiduciary duties

The Republic invokes the following pertinent statutory provisions of the Civil Code, to wit:

Article 1455. When any trustee, guardian or other person holding a fiduciary relationship uses
trust funds for the purchase of property and causes the conveyance to be made to him or to a
third person, a trust is established by operation of law in favor of the person to whom the
funds belong.
Article 1456. If property is acquired through mistake or fraud, the person obtaining it s by force
of law, considered a trustee of an implied trust for the benefit of the person from whom the
property comes.

and the Corporation Code, as follows:

Section 31. Liability of directors, trustees or officers.Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation or acquire any personal
or pecuniary interest in conflict with their duty as such directors, or trustees shall be liable
jointly and severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any
interest adverse to the corporation in respect of any matter which has been reposed in him in
confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall
be liable as a trustee for the corporation and must account for the profits which otherwise
would have accrued to the corporation.

Did Cojuangco breach his fiduciary duties as an officer and member of the Board of Directors
of the UCPB? Did his acquisition and holding of the contested SMC shares come under a
constructive trust in favor of the Republic?

The answers to these queries are in the negative.

The conditions for the application of Articles 1455 and 1456 of the Civil Code (like the trustee
using trust funds to purchase, or a person acquiring property through mistake or fraud), and
Section 31 of the Corporation Code (like a director or trustee willfully and knowingly voting for
or assenting to patently unlawful acts of the corporation, among others) require factual
foundations to be first laid out in appropriate judicial proceedings. Hence, concluding that
Cojuangco breached fiduciary duties as an officer and member of the Board of Directors of the
UCPB without competent evidence thereon would be unwarranted and unreasonable.

Thus, the Sandiganbayan could not fairly find that Cojuangco had committed breach of any
fiduciary duties as an officer and member of the Board of Directors of the UCPB. For one, the
Amended Complaint contained no clear factual allegation on which to predicate the application
of Articles 1455 and 1456 of the Civil Code, and Section 31 of the Corporation Code. Although
the trust relationship supposedly arose from Cojuangcos being an officer and member of the
Board of Directors of the UCPB, the link between this alleged fact and the borrowings or
advances was not established. Nor was there evidence on the loans or borrowings, their
amounts, the approving authority, etc. As trial court, the Sandiganbayan could not presume his
breach of fiduciary duties without evidence showing so, for fraud or breach of trust is never
presumed, but must be alleged and proved.[128]

The thrust of the Republic that the funds were borrowed or lent might even preclude any
consequent trust implication. In a contract of loan, one of the parties (creditor) delivers money
or other consumable thing to another (debtor) on the condition that the same amount of the
same kind and quality shall be paid.[129] Owing to the consumable nature of the thing loaned,
the resulting duty of the borrower in a contract of loan is to pay, not to return, to the creditor
or lender the very thing loaned. This explains why the ownership of the thing loaned is
transferred to the debtor upon perfection of the contract.[130] Ownership of the thing loaned
having transferred, the debtor enjoys all the rights conferred to an owner of property, including
the right to use and enjoy (jus utendi), to consume the thing by its use (jus abutendi), and to
dispose (jus disponendi), subject to such limitations as may be provided by law.[131] Evidently,
the resulting relationship between a creditor and debtor in a contract of loan cannot be
characterized as fiduciary.[132]

To say that a relationship is fiduciary when existing laws do not provide for such requires
evidence that confidence is reposed by one party in another who exercises dominion and
influence. Absent any special facts and circumstances proving a higher degree of
responsibility, any dealings between a lender and borrower are not fiduciary in nature.[133]
This explains why, for example, a trust receipt transaction is not classified as a simple loan and
is characterized as fiduciary, because the Trust Receipts Law (P.D. No. 115) punishes the
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of
another regardless of whether the latter is the owner.[134]

Based on the foregoing, a debtor can appropriate the thing loaned without any responsibility or
duty to his creditor to return the very thing that was loaned or to report how the proceeds were
used. Nor can he be compelled to return the proceeds and fruits of the loan, for there is
nothing under our laws that compel a debtor in a contract of loan to do so. As owner, the
debtor can dispose of the thing borrowed and his act will not be considered misappropriation of
the thing.[135] The only liability on his part is to pay the loan together with the interest that is
either stipulated or provided under existing laws.

WHEREFORE, the Court dismisses the petitions for certiorari in G.R. Nos. 166859 and 169023;
denies the petition for review on certiorari in G.R. No. 180702; and, accordingly, affirms the
decision promulgated by the Sandiganbayan on November 28, 2007 in Civil Case No. 0033-F.

The Court declares that the block of shares in San Miguel Corporation in the names of
respondents Cojuangco, et al. subject of Civil Case No. 0033-F is the exclusive property of
Cojuangco, et al. as registered owners.

Accordingly, the lifting and setting aside of the Writs of Sequestration affecting said block of
shares (namely: Writ of Sequestration No. 86-0062 dated April 21, 1986; Writ of Sequestration
No. 86-0069 dated April 22, 1986; Writ of Sequestration No. 86-0085 dated May 9, 1986; Writ
of Sequestration No. 86-0095 dated May 16, 1986; Writ of Sequestration No. 86-0096 dated
May 16, 1986; Writ of Sequestration No. 86-0097 dated May 16, 1986; Writ of Sequestration
No. 86-0098 dated May 16, 1986; Writ of Sequestration No. 86-0042 dated April 8, 1986; and
Writ of Sequestration No. 87-0218 dated May 27, 1987) are affirmed; and the annotation of the
conditions prescribed in the Resolutions promulgated on October 8, 2003 and June 24, 2005 is
cancelled.

SO ORDERED.

Case No. 12. People vs. Gatbalayan, G.R. No. 186467, July 13,
2011
 This is an appeal from the July 29, 2008 Decision [1] of the Court of Appeals (CA) in CA-
G.R. CR-HC No. 02221, which affirmed the May 10, 2005 Decision [2] of the Regional Trial Court
of San Mateo, Rizal, Branch 77 (RTC), in Criminal Case No. 6384, finding accused Jaime
Gatlabayan y Batara (Gatlabayan) guilty beyond reasonable doubt of violation of Section 5 (1),
Article II of Republic Act (R.A.) No. 9165, otherwise known as the Comprehensive Dangerous
Drugs Act of 2002.

The Information[3] reads:

That on or about the 10th day of September, 2002 in the Municipality of

Rodriguez, Province of Rizal, Philippines and within the jurisdiction of this
Honorable Court, the above-named accused, without being authorized by law, did
then and there willfully, unlawfully and knowingly sell, deliver and give away to
another person one (1) heat-sealed transparent plastic sachet containing 0.03
gram of white crystalline substance which gave positive result to the test for
Methamphetamine Hydrochloride, a dangerous drug, and which substance
produces a physiological action similar to amphetamine or other compound
thereof producing similar physiological effects.

CONTRARY TO LAW.

During the trial, the parties agreed to stipulate on the testimonies of prosecution
witnesses, Police Officer 1 (PO1) Reynaldo Albarico and Police Inspector (P/Insp.) Joseph
Perdido, the forensic chemist. The prosecution, thereafter, presented PO1 Fortunato Jiro III (PIO
Jiro III) and PO1 Jose Gordon Antonio (PO1 Antonio) at the witness stand. The defense, on the
other hand, presented Gatlabayan, the accused himself.

The Version of the Prosecution

The Peoples version of the incident has been summarized by the Office of the Solicitor
General (OSG) in its Brief[4] as follows:

On September 10, 2002, at around 8:30 in the evening, while PO1 Jose
Gordon Antonio, a member of PNP Intelligence Operative Division of Rodriguez,
Rizal, together with his colleagues, PO1 Fortunato Jiro and PO1 Albarico, were
inside their station, they received an information from an asset that appellant
Jaime Gatlabayan alias Pungay was rampantly selling illegal drugs at Carlton
Village, Brgy. Manggahan, Rodriguez, Rizal. On the basis of said information, the
police officers immediately decided to form a composite team for the conduct of a
buy-bust operation against appellant. Consequently, PO1 Antonio was tasked as
the poseur-buyer equipped with a 100.00 bill buy-bust money where his initials
JGA was written thereon, while PO1 Jiro and PO1 Albarico acted as members.
Thereupon, the composite team recorded in their police blotter the planned buy-
bust operation. Thereafter, the three (3) police officers with their asset proceeded
to the target area on board an owner type jeep.

Arriving thereat, the civilian asset pointed appellant to the buy-bust team.
Appellant was then standing under a Sampaloc tree at Carlton Village, Brgy.
Manggahan, Rodriguez, Rizal. Afterwards, poseur-buyer PO1 Antonio, from a
distance of 10 meters away from appellant alighted from the car while the rest of
the composite team and the informer remained in the vehicle. Meanwhile, poseur-
buyer PO1 Antonio walked towards appellant. Upon seeing PO1 Antonio, appellant
asked if he wants to score, (which in local parlance means, if he wants to buy
shabu) to which PO1 Antonio readily answered yes, and simultaneously handed to
appellant the P100 marked money. In turn, appellant gave him a small plastic
sachet containing white crystalline substance suspected of shabu. Upon
consummation of the sale, PO1 Antonio gave the pre-arranged signal of waiving
his hand. Seeing this, police officers Jiro and Albarico rushed to the locus
criminis and simultaneously introduced themselves as police officers. Then, PO1
 Jiro directed appellant to empty his pocket and the 100.00 marked money fell on
the ground. Thereafter, appellant was arrested and was apprised of his
constitutional rights and was likewise informed of the crime he committed.

Appellant was brought to the nearby police station of Rodriguez, Rizal for
investigation. Subsequently, the plastic sachet sold by appellant to poseur-buyer
PO1 Antonio was subjected to a laboratory examination and forensic chemist
Police Inspector Joseph M. Perdido of the PNP Crime Laboratory in his Chemistry
Report No. D-1784-02E found that the subject crystalline substance is positive for
methamphetamine hydrochloride or shabu. Consequently, appellant was charged
for violation of Section 5, Paragraph 1, Article II of R.A. 9165 or for Illegal Sale of
Dangerous Drugs.[5]

The Version of the Defense

In his Brief,[6] Gatlabayan denied that he was caught, in flagrante, selling shabu and claimed
that he was just a victim of police frame-up. The accused presents the following version of
what transpired:

JAIME GATLABAYAN was at the peryahan with a companion on September

10, 2002, at 8:00 oclock in the evening. While the accused was singing, PO1
Antonio along with PO1 Jiro arrived and suddenly handcuffed him. The accused
asked Sir, anong kasalanan ko? PO1 Antonio just replied basta sumama ka na
lang. He was brought to the police station and was incarcerated. The accused was
not frisked when he was arrested. He denied the offense charged against him. [7]

On May 10, 2005, the RTC rendered its judgment rejecting the defense of frame-up
proffered by the accused and declared that the same fell flat in the face of the affirmative
testimony of prosecution witnesses, PO1 Antonio and PO1 Jiro III, who categorically and
forthrightly testified that he was caught in flagrante delicto selling shabu. The trial court ruled
that the presumption of regularity in the performance of duties in favor of the police operatives
had not been overturned in the absence of clear showing that they had been impelled by any
ill motive to falsely testify against him for such serious crime. It added that the alleged
inconsistencies in the testimonies of the police officers pertained to inconsequential or
collateral matters which did not impair their credibility. The dispositive portion of the RTC
decision reads:

WHEREFORE, the guilt of the accused having been proven beyond

reasonable doubt as charged in the information, without any aggravating or
qualifying circumstance, accused JAIME GATLABAYAN Y BATARA is hereby
sentenced to suffer the penalty of LIFE IMPRISONMENT and to pay the fine of FIVE
HUNDRED THOUSAND (500,000.00) PESOS.

SO ORDERED.[8]

On appeal, the CA affirmed the conviction of the accused on the basis of the testimony
of PO1 Antonio and PO1 Jiro, III which it found credible and sufficient to sustain a conviction.
The CA was of the view that the presumption of regularity in the performance of official duty
was not sufficiently controverted by him. It ruled that the prosecution was able to satisfactorily
establish the elements of the crime of illegal sale of dangerous drugs as well as the identity of
the accused. Lastly, the CA debunked his defense that he was a victim of frame-up and that he
was not arrested pursuant to a valid buy-bust operation, for failure to substantiate the same.
The dispositive portion of its Decision reads:
 WHEREFORE, the assailed Decision dated 10 May 2005 of the Regional Trial
Court, Fourth Judicial Region, San Mateo, Rizal, Branch 77, is hereby AFFIRMED.

SO ORDERED.[9]

On August 20, 2008, Gatlabayan filed a Notice of Appeal, [10] which was given due course
by CA in its Minute Resolution[11] dated September 23, 2008.

On April 26, 2010, this Court issued a resolution notifying the parties that they may file
their respective supplemental briefs, if they so desire, within thirty days from notice. The OSG
filed a manifestation dated May 29, 2009 informing the Court that it would no longer file a
supplemental brief. On June 23, 2009, the accused filed his supplemental brief. [12]

THE ISSUES

Maintaining his innocence, Gatlabayan imputes to the trial court the following errors:
I

THE TRIAL COURT GRAVELY ERRED IN FINDING THE ACCUSED-APPELLANT

GUILTY OF VIOLATION OF SECTION 5, ARTICLE II, R.A. 9165 DESPITE THE FAILURE
OF THE PROSECUTION TO PROVE THE OFFENSE CHARGED BEYOND REASONABLE
DOUBT.

II

THE COURT A QUO GRAVELY ERRED IN GIVING WEIGHT AND CREDENCE TO

THE INCONSISTENT AND CONTRADICTING TESTIMONIES OF THE PROSECUTION
WITNESSES.

III

THE TRIAL COURT GRAVELY ERRED IN CONVICTING THE ACCUSED-

APPELLANT OF VIOLATION OF SECTION 5, ARTICLE II, R.A. 9165 DESPITE THE
FAILURE OF THE PROSECUTION TO ESTABLISH THE CHAIN OF CUSTODY OF THE
ILLEGAL DRUG.

In his Supplemental Brief, Gatlabayan presents the following additional assignment of

error:

THE COURT OF APPEALS GRAVELY ERRED IN FINDING THE ACCUSED-

APPELLANT GUILTY OF THE CRIME CHARGED DESPITE THE PROSECUTIONS
FAILURE TO PROVE THE CHAIN OF CUSTODY OF THE ALLEGED SEIZED ILLEGAL
DRUGS, IN VIOLATION OF SECTION 21 AND 86 OF R.A. NO. 9165.

The accused is of the stance that the prosecution failed to prove his guilt beyond
reasonable doubt. He avers that both the RTC and the CA were mistaken in upholding the
presumption of regularity in the performance of official functions in favor of the police officers
and giving undue credence to their testimonies which, he claims, were laced with
inconsistencies that cast serious doubt on their credibility and the validity of the alleged buy-
bust operation. He posits that the prosecution failed to establish the material details of said
entrapment operation and that his arrest was invalid. He argues that the failure of the
apprehending team to observe the procedure outlined by Section 21 of R.A. No. 9165 impaired
the prosecutions case. Finally, he assails the prosecution evidence for its failure to establish
the proper chain of custody of the shabu allegedly seized from him.

The OSG, on the other hand, maintains that the testimonies of PO1 Antonio and PO1 Jiro
III were credible and sufficient to convict. It insists that the culpability of the accused for the
crime of illegal sale of shabu was proven beyond reasonable doubt.

The Courts Ruling:

The core issue in this case is whether or not sufficient evidence exists to support the
conviction of the accused for violation of Section 5, Article II of R.A. No. 9165.

Let it be underscored that appeal in criminal cases throws the whole case open for
review and it is the duty of the appellate court to correct, cite and appreciate errors in the
appealed judgment whether they are assigned or unassigned. [13] Considering that what is at
stake here is no less than the liberty of the accused, this Court has meticulously and
thoroughly reviewed and examined the records of the case, and finds that there is merit in the
appeal.

As a general rule, the trial courts findings of fact, especially when affirmed by the CA,
are entitled to great weight and will not be disturbed on appeal. The rule, however, admits of
exceptions and does not apply where facts of weight and substance with direct and material
bearing on the final outcome of the case have been overlooked, misapprehended or misplaced.
[14]
The case at bench falls under the above exception and, hence, a departure from the general
rule is warranted.

Jurisprudence has firmly entrenched that in prosecution of illegal sale of dangerous

drugs, the following essential elements must be established: (1) the transaction or sale took
place; (2) the corpus delicti or the illicit drug was presented as evidence; and (3) the buyer and
seller were identified.[15] Implicit in all these is the need for proof that the transaction or sale
actually took place, coupled with the presentation in court of the confiscated prohibited or
regulated drug as evidence.

The narcotic substance itself constitutes the very corpus delicti of the offense and the
fact of its existence is vital to sustain a judgment of conviction. It is therefore of prime
importance that the identity of the dangerous drug be likewise established beyond reasonable
doubt.[16] Otherwise stated, it must be proven with exactitude that the substance bought
during the buy-bust operation is the same substance offered in evidence before the court.
Thus, every fact necessary to constitute the offense must be established. The chain of custody
requirement ensures that unnecessary doubts concerning the identity of the evidence are
removed.[17]

Section 1(b) of Dangerous Drugs Board Regulation No. 1, Series of 2002 which
implements R.A. No. 9165 defines Chain of Custody as follows:
 Chain of Custody means the duly recorded authorized movements and
custody of seized drugs or controlled chemicals or plant sources of dangerous
drugs or laboratory equipment of each stage, from the time of
seizure/confiscation to receipt in the forensic laboratory to safekeeping to
presentation in court for destruction. Such record of movements and custody of
seized item shall include the identity and signature of the person who held
temporary custody of the seized item, the date and time when such transfer of
custody were made in the course of safekeeping and use in court as evidence,
and the final disposition.

Particularly instructive is the case of Malillin v. People[18] where the Court explained how
the chain of custody or movement of the seized evidence should be maintained and why this
must be shown by evidence, viz:

As a method of authenticating evidence, the chain of custody rule requires

that the admission of an exhibit be preceded by evidence sufficient to support a
finding that the matter in question is what the proponent claims it to be. It would
include testimony about every link in the chain, from the moment the item was
picked up to the time it is offered into evidence, in such a way that every person
who touched the exhibit would describe how and from whom it was received,
where it was and what happened to it while in the witness possession, the
condition in which it was received and the condition in which it was delivered to
the next link in the chain. These witnesses would then describe the precautions
taken to ensure that there had been no change in the condition of the item and
no opportunity for someone not in the chain to have possession of the same.

In People v. Kamad,[19] the Court enumerated the links that the prosecution must
establish in the chain of custody in a buy-bust situation to be as follows: first, the seizure and
marking, if practicable, of the illegal drug recovered from the accused by the apprehending
officer; second, the turnover of the illegal drug seized by the apprehending officer to the
investigating officer; third, the turnover by the investigating officer of the illegal drug to the
forensic chemist for laboratory examination; and fourth, the turnover and submission of the
marked illegal drug seized by the forensic chemist to the court.

An examination of the case records show that while the identities of the seller and the
buyer and the consummation of the transaction involving the sale of illegal drug on September
10, 2002 have been proven by the prosecution through the testimony of PO1 Antonio as
corroborated by the testimony of PO1 Jiro III, the Court, nonetheless, finds the prosecution
evidence to be deficient for failure to adequately show the essential links in the chain of
custody. This glaring deficiency can be readily seen from the testimony of the poseur buyer
PO1 Antonio which glossed over said required details, thus:

Fiscal Rolando T. Majomot

(On Direct Examination)

Q: Now when this civilian informer pointed to that person whom you called as
alias Pungay, what did you do?
A: I was still ten (10) meters away from alias Pungay when I alighted from the
vehicle and I approached him, sir.

Q: What happened next when you approached alias Pungay?

A: When alias Pungay saw me and when he noticed that I was looking for
somebody he offered me and asked me if I want to iskor, sir.

Q: Were there any other persons in that vicinity, Mr. witness?

A: I did not see any other person in that place, sir.
 Q: When alias Pungay offered to you, what did you do?
A: I gave him the marked money, sir, and he also handed to me a small plastic
sachet containing suspected shabu and after that I wa[i]ved to my
companions, sir.

Q: After wa[i]ving to your companions, what happened next, if any, Mr. witness?
A: I heard that PO1 Jiro directed alias Pungay to invert his pocket, sir, and from it
the One Hundred Peso (P100.00) bill which I used in buying shabu from him
fell on the ground and at that moment my co-police officers arrested him,
sir.

Q: Who picked up the One Hundred Peso (P100.00) bill (sic) fell on the ground?
A: PO1 Albarico, sir.

Q: What happened next after that?

A: We arrested him and informed him of his constitutional rights and we also
informed him of the law which he violated and I also introduced myself to
him as a policeman, sir.

Q: This person whom you arrested was only known as alias Pungay. When did the
first time you know the true name of this person?
A: After he was brought to the police station, sir, we asked him of his true name
and after that we turned over to the police investigator the evidence which
we confiscated from him, sir.

Q: What is the true name of the accused?

A: Jaime Gatlabayan y Batara, sir.[20]

xxxxx xxxxx xxxxx xxxxx xxxxx

Q: After that Mr. witness, what did you do?

A: We forwarded to the PNP Crime Laboratory the evidence which we confiscated
for examination, sir.

Q: I am showing to you a letter request Mr. witness, is this the request you are
referring to?
A: Yes, sir.

Q: Who signed this request?

A: It was signed by our Deputy Chief of Police, sir. [21]

PO1 Jiro, III, on the other hand, has no knowledge or any participation in the chain of
custody as revealed by his testimony, viz:

Q: Now, what happened next, Mr. Witness, when you arrested the accused after
you picked up the money?
A: We informed him of his constitutional rights and thereafter, we brought him to
the police station, sir.

Q: By the way, who arrested the accused?

A: Me and PO1 Albarico, sir.

Q: Where is now the accused?

A: There sir.
(Witness pointing to a certain man inside the Courtroom who when asked
answered to the name of Jaime Gatlabayan).

Q: Do you know also or have knowledge about the one handed to Gordon from
the accused, how many sachet in that buy-bust operation?
A: As far as I know, only one (1) sachet, sir.

Q: Was it shown to you by Gordon?

A: I did not see it, sir.[22] (Underscoring Ours)
 It is significant to note that the foregoing testimonies of the prosecution witnesses
hardly touched on the chain of custody of the seized evidence. The testimony of PO1 Antonio
clearly lacked specifics on how the confiscated shabu was handled immediately after the arrest
of the accused. Although PO1 Antonio testified that he seized the small plastic sachet
containing the shabu from the accused, he never disclosed the identity of the person/s who
had control and possession of the shabu after its seizure and at the time of its transportation
to the police station. Neither did he testify that he retained possession of the seized item from
the place of the arrest to the police station. In the absence of clear evidence, the Court cannot
presume that PO1 Antonio, as the poseur buyer, handled the seized sachet - to the exclusion of
others - during its transfer from the place of arrest and confiscation to the police station.

The prosecution evidence also failed to identify the person who marked the sachet, how
the same was done, and who witnessed the marking. In People v. Martinez,[23] the Court ruled
that the "marking" of the seized items - to truly ensure that they are the same items that enter
the chain and are eventually the ones offered in evidence - should be done (1) in the presence
of the apprehended violator, and (2) immediately upon confiscation in order to protect
innocent persons from dubious and concocted searches, and the apprehending officers as well
from harassment suits based on planting of evidence and on allegations of robbery or theft.

Indeed, the records of the case are bereft of any detail relating to the marking of the
confiscated sachet. All that the prosecution adduced on this score were the respective
Sinumpaang Salaysay[24] of PO1 Antonio and PO1 Jiro III, wherein they declared that after the
apprehension of Gatbalayan, they brought him as well as the seized item to the police station
where the confiscated plastic sachet containing shabu was marked as EXHIBIT 1 dtd 10 Sept
02, and that it was ordered to be submitted (ipinasumite) to the Philippine National
Police (PNP) Crime Laboratory for examination. The identity of the officer who made the
marking and whether the marking was done in the presence of the accused were, however, not
at all clear from the above documentary evidence.

It is likewise noteworthy that the prosecution failed to present evidence pertaining to

the identity of the police investigator to whom the buy-bust team turned over the seized item.
Although the Request for Laboratory Examination [25] was signed by a certain Santiago for and
in behalf of Police Senior Inspector Anastacio Benzon, it was not shown that he was the same
official who received the subject shabu from the buy-bust team or from the police investigator.
A perusal of the Request for Laboratory Examination and the Chemistry Report No. D-1784-
02E[26] reveals that the marking on the plastic sachet containing the subject shabu
was changed to EXHIBIT 1 JBG. The prosecution, however, failed to disclose the name and
identity of the police officer who changed the marking of the specimen. Further, the
prosecution evidence is wanting as to the identity of the person who submitted the specimen
to the PNP Crime Laboratory; as to whether the forensic chemist whose name appeared in the
chemistry report was the one who received the subject shabu when it was forwarded to the
crime laboratory; and as to who exercised custody and possession of the specimen after the
chemical examination and before it was offered in court. Neither was there any evidence
adduced to show how the seized shabu was handled, stored and safeguarded pending its offer
as evidence in court.
 The Court, at this point, takes note of the RTC Order dated July 23, 2003 dispensing with
the testimony of the forensic chemical officer and bearing the matters stipulated upon by the
parties. The Court views the stipulation as confined merely to the handling of the specimen at
the forensic laboratory and to the analytical results obtained. People v. Almorfe[27] teaches that
the testimony of the forensic chemist which is stipulated upon does not cover the manner as to
how the specimen was handled before and after it came to the possession of the forensic
chemist. It bears stressing that although the parties stipulated on the results of the laboratory
examination, no stipulation was made with respect to the ultimate source of the drug
submitted for examination.

While a perfect chain of custody is almost always impossible to achieve, an unbroken

chain becomes indispensable and essential in the prosecution of drug cases owing to
susceptibility of the seized drug to alteration, tampering, contamination and even substitution
and exchange.[28] Hence, each and every link in the custody must be established beginning
from the seizure of the shabu from the accused during the entrapment operation until its
submission by the forensic chemist to the RTC. Indeed, the Court cannot entirely discount the
likelihood or at least the possibility that there could have been alteration, tampering or
substitution of substance in the chain of custody of the subject shabu, inadvertently or
otherwise, from another case with a similar narcotic substance seized or subjected for
chemical analysis.

Moreover, it must be pointed out that the subject 0.03 gram of shabu was never
presented as evidence and marked as an exhibit during the pre-trial or even in the course of
the trial proper. Neither PO1 Antonio nor PO1 Jiro III was confronted with it at the witness stand
for proper identification and observation of the uniqueness of the subject narcotic substance.
They were not able to testify as to the condition of the item while it was in their possession and
control. Said flaw militates against the prosecutions cause for it does not only cast doubt on
the identity of the corpus delicti but it also tends to discredit, if not negate, the claim of
regularity in the conduct of official police operation. Oddly, the plastic sachet containing the
subject shabu was formally offered by the prosecution as Exhibit H [29] and admitted by the RTC
per its Order[30] dated August 31, 2004. The defense was clearly sleeping on its feet when it did
not pose any objection to the prosecutions offer of evidence.

In view of the foregoing loopholes in the evidence adduced against the accused as well
as the gaps in the chain of custody, it can be reasonably concluded that the prosecution failed
to convincingly establish the identity and integrity of the dangerous drug. Accordingly, there
could be no assurance that the specimen of shabu offered in court as evidence against the
accused was the same one seized from him, brought to the police station and afterwards,
submitted for laboratory testing especially considering that since the inception of this case, he
has consistently denied that the supposed plastic sachet of shabu was not recovered from his
possession when he was arrested at the peryahan on September 10, 2002 at 8:00 oclock in the
evening. In effect, the prosecution failed to fully prove the elements of the crime charged
creating reasonable doubt on his criminal liability. As this Court held in Catuiran v. People,
[31]
the failure of the prosecution to offer the testimony of key witnesses to establish a
sufficiently complete chain of custody of a specimen of shabu, and the irregularity which
characterized the handling of the evidence before the same was finally offered in court, fatally
conflicts with every proposition relative to the culpability of the accused. All told, the corpus
delecti in this case is not legally extant.
 In sustaining the conviction, the courts a quo relied on the evidentiary presumption that
official duties have been regularly performed. Admittedly, the defense did not adduce evidence
showing that PO1 Antonio and PO1 Jiro III had any ill motive to falsify their testimony.
Nonetheless, the flagrant procedural lapses the police officers committed in handling the
allegedly confiscated shabu in violation of the chain of custody requirement effectively negate
the presumption of regularity in the performance of duties. Any taint of irregularity affects the
whole performance and should make the presumption unavailable. [32] It must be emphasized
that the presumption of regularity in the performance of official duty cannot by itself overcome
the presumption of innocence nor constitute proof of guilt beyond reasonable doubt. [33]

The weakness of the defense of the accused, mere denial and frame-up, cannot justify
his conviction. The burden is always on the prosecution to prove his guilt beyond reasonable
doubt, and not on him to prove his innocence. The merit of his defense is not the issue here. It
is safely entrenched in our jurisprudence that the evidence for the prosecution must stand or
fall on its own weight and cannot be allowed to draw strength from the weakness of the
defense.[34] A finding of guilt must solely rest on the prosecutions own evidence, not on the
weakness or even absence of that for the defense. Courts cannot magnify the weakness of the
defense and overlook the prosecutions failure to discharge the onus probandi.

In our criminal justice system, the overriding consideration is not whether the court
doubts the innocence of the accused but whether it entertains a reasonable doubt as to his
guilt. In order to convict an accused, the circumstances of the case must exclude all and every
hypothesis consistent with his innocence. In the case at bench, the evidence adduced by the
prosecution failed to overcome the constitutional presumption of innocence of the accused.
What is required is that there be proof beyond reasonable doubt that the crime was committed
and that the accused committed the crime.[35] It is only when the conscience is satisfied that
the crime has indeed been committed by the person on trial that the judgment will be for
conviction.

The Court is not unaware of the drug menace that beset our country and the direct link
of certain crimes to drug abuse. The unrelenting drive of our law enforcers against trafficking
and use of illegal drugs and other substance is indeed commendable. Those who engage in the
illicit trade of dangerous drugs and prey on the misguided members of the society, especially
the susceptible youth, must be caught and properly prosecuted. Although the courts are
committed to assist the government in its campaign against illegal drugs, a conviction under
the Comprehensive Dangerous Drugs Act of 2002 can only be obtained after the prosecution
discharges its constitutional burden to prove guilt beyond reasonable doubt. Otherwise, this
Court is duty-bound to uphold the constitutional presumption of innocence.
WHEREFORE, the appeal is GRANTED. The Decision dated July 29, 2008 of the Court of
Appeals in CA-G.R. CR-HC No. 02221 is hereby REVERSED and SET ASIDE for failure of the
prosecution to prove beyond reasonable doubt the guilt of appellant Jaime Gatlabayan y
Batara who is accordingly hereby ACQUITTED of the crime charged against him and ordered
immediately RELEASED from custody, unless he is being held for some other lawful cause.

The Director of the Bureau of Corrections is ORDERED to implement this decision and to
inform this Court of the date of the actual release from confinement of the accused within five
(5) days from receipt hereof.
SO ORDERED.

Case No. 21. PAL vs. CA, 257 SCRA 33 (1997)

PHILIPPINE AIRLINES, INC., petitioner, vs. COURT OF APPEALS and LEOVIGILDO A.
PANTEJO, respondents.

DECISION
REGALADO, J.:

In this appeal by certiorari, petitioner Philippine Airlines, Inc. (PAL) seeks to set aside the
decision of respondent Court of Appeals, [1] promulgated on December 29, 1994, which affirmed
the award for damages made by the trial court in favor of herein private respondent
Leovegildo A. Pantejo.
On October 23, 1988, private respondent Pantejo, then City Fiscal of Surigao City, boarded
a PAL plane in Manila and disembarked in Cebu City where he was supposed to take his
connecting flight to Surigao City. However, due to typhoon Osang, the connecting flight to
Surigao City was cancelled.
To accommodate the needs of its stranded passengers, PAL initially gave out cash
assistance of P100.00 and, the next day, P200.00, for their expected stay of two days in
Cebu.Respondent Pantejo requested instead that he be billeted in a hotel at PALs expense
because he did not have cash with him at that time, but PAL refused. Thus, respondent Pantejo
was forced to seek and accept the generosity of a co-passenger, an engineer named Andoni
Dumlao, and he shared a room with the latter at Sky View Hotel with the promise to pay his
share of the expenses upon reaching Surigao.
On October 25, 1988 when the flight for Surigao was resumed, respondent Pantejo came to
know that the hotel expenses of his co-passengers, one Superintendent Ernesto Gonzales and
a certain Mrs. Gloria Rocha, an auditor of the Philippine National Bank, were reimbursed by
PAL. At this point, respondent Pantejo informed Oscar Jereza, PALs Manager for Departure
Services at Mactan Airport and who was in charge of cancelled flights, that he was going to sue
the airline for discriminating against him. It was only then that Jereza offered to pay
respondent Pantejo P300.00 which, due to the ordeal and anguish he had undergone, the latter
declined.
On March 18, 199l, the Regional Trial Court of Surigao City, Branch 30, rendered judgment
in the action for damages filed by respondent Pantejo against herein petitioner, Philippine
Airlines, Inc., ordering the latter to pay Pantejo P300.00 for actual damages, P150,000.00 as
moral damages, P100,000.00 as exemplary damages, P15,000.00 as attorneys fees, and 6%
interest from the time of the filing of the complaint until said amounts shall have been fully
paid, plus costs of suit. [2] On appeal, respondent court affirmed the decision of the court a quo,
but with the exclusion of the award of attorneys fees and litigation expenses.
The main issue posed for resolution is whether petitioner airlines acted in bad faith when it
failed and refused to provide hotel accommodations for respondent Pantejo or to reimburse
him for hotel expenses incurred by reason of the cancellation of its connecting flight to Surigao
City due to force majeure.
To begin with, it must be emphasized that a contract to transport passengers is quite
different in kind and degree from any other contractual relation, and this is because of the
relation which an air carrier sustains with the public. Its business is mainly with the travelling
public. It invites people to avail of the comforts and advantages it offers. The contract of air
carriage, therefore, generates a relation attended with a public duty. Neglect or malfeasance of
the carriers employees naturally could give ground for an action for damages. [3]
In ruling for respondent Pantejo, both the trial court and the Court of Appeals found that
herein petitioner acted in bad faith in refusing to provide hotel accommodations for respondent
Pantejo or to reimburse him for hotel expenses incurred despite and in contrast to the fact that
other passengers were so favored.
In declaring that bad faith existed, respondent court took into consideration the following
factual circumstances:
1. Contrary to petitioners claim that cash assistance was given instead because of non-
availability of rooms in hotels where petitioner had existing tie-ups, the evidence shows that
Sky View Hotel, where respondent Pantejo was billeted, had plenty of rooms available.

2. It is not true that the P300.00 paid to Ernesto Gonzales, a co-passenger of respondent, was
a refund for his plane ticket, the truth being that it was a reimbursement for hotel and meal
expenses.

3. It is likewise not denied that said Gonzales and herein respondent came to know about the
reimbursements only because another passenger, Mrs. Rocha, informed them that she was
able to obtain the refund for her own hotel expenses.

4. Petitioner offered to pay P300.00 to private respondent only after he had confronted the
airlines manager about the discrimination committed against him, which the latter realized
was an actionable wrong.

5. Service Voucher No. 199351, presented by petitioner to prove that it gave cash assistance
to its passengers, was based merely on the list of passengers already given cash assistance
and was purportedly prepared at around 10:00 A.M. of October 23, 1988. This was two
hours before respondent came to know of the cancellation of his flight to Surigao, hence
private respondent could not have possibly refused the same. [4]

It must be stressed that these factual findings, which are supported by substantial
evidence, are binding, final and conclusive upon this Court absent any reason, and we find
none, why this settled evidential rule should not apply.
Petitioner theorizes that the hotel accommodations or cash assistance given in case a
flight is cancelled is in the nature of an amenity and is merely a privilege that may be
extended at its own discretion, but never a right that may be demanded by its
passengers. Thus, when respondent Pantejo was offered cash assistance and he refused it,
petitioner cannot be held liable for whatever befell respondent Pantejo on that fateful day,
because it was merely exercising its discretion when it opted to just give cash assistance to its
passengers.
Assuming arguendo that the airline passengers have no vested right to these amenities in
case a flight is cancelled due to force majeure, what makes petitioner liable for damages in
this particular case and under the facts obtaining herein is its blatant refusal to accord the so-
called amenities equally to all its stranded passengers who were bound for Surigao City. No
compelling or justifying reason was advanced for such discriminatory and prejudicial conduct.
More importantly, it has been sufficiently established that it is petitioners standard
company policy, whenever a flight has been cancelled, to extend to its hapless passengers
cash assistance or to provide them accommodations in hotels with which it has existing tie-
ups. In fact, petitioners Mactan Airport Manager for departure services, Oscar Jereza, admitted
that PAL has an existing arrangement with hotels to accommodate stranded passengers, [5] and
that the hotel bills of Ernesto Gonzales were reimbursed [6] obviously pursuant to that policy.
Also, two witnesses presented by respondent, Teresita Azarcon and Nerie Bol, testified that
sometime in November, 1988, when their flight from Cebu to Surigao was cancelled, they were
billeted at Rajah Hotel for two nights and three days at the expense of PAL. [7] This was never
denied by PAL.
Further, Ernesto Gonzales, the aforementioned co-passenger of respondent on that fateful
flight, testified that based on his previous experience hotel accommodations were extended by
PAL to its stranded passengers either in Magellan or Rajah Hotels, or even in Cebu Plaza. Thus,
we view as impressed with dubiety PALs present attempt to represent such emergency
assistance as being merely ex gratia and not ex debito.
While petitioner now insists that the passengers were duly informed that they would be
reimbursed for their hotel expenses, it miserably and significantly failed to explain why the
other passengers were given reimbursements while private respondent was not. Although
Gonzales was subsequently given a refund, this was only so because he came to know about it
by accident through Mrs. Rocha, as earlier explained.
Petitioner could only offer the strained and flimsy pretext that possibly the passengers
were not listening when the announcement was made. This is absurd because when
respondent Pantejo came to know that his flight had been cancelled, he immediately
proceeded to petitioners office and requested for hotel accommodations. He was not only
refused accommodations, but he was not even informed that he may later on be reimbursed
for his hotel expenses. This explains why his co-passenger, Andoni Dumlao, offered to answer
for respondents hotel bill and the latter promised to pay him when they arrive in Surigao. Had
both known that they would be reimbursed by the airline, such arrangement would not have
been necessary.
Respondent Court of Appeals thus correctly concluded that the refund of hotel expenses
was surreptitiously and discriminatorily made by herein petitioner since the same was not
made known to everyone, except through word of mouth to a handful of passengers. This is a
sad commentary on the quality of service and professionalism of an airline company, which is
the countrys flag carrier at that.
On the bases of all the foregoing, the inescapable conclusion is that petitioner acted in bad
faith in disregarding its duties as a common carrier to its passengers and in discriminating
against herein respondent Pantejo. It was even oblivious to the fact that this respondent was
exposed to humiliation and embarrassment especially because of his government position and
social prominence, which altogether necessarily subjected him to ridicule, shame and
anguish. It remains uncontroverted that at the time of the incident, herein respondent was
then the City Prosecutor of Surigao City, and that he is a member of the Philippine Jaycee
Senate, past Lt. Governor of the Kiwanis Club of Surigao, a past Master of the Mount Diwata
Lodge of Free Masons of the Philippines, member of the Philippine National Red Cross, Surigao
Chapter, and past Chairman of the Boy Scouts of the Philippines, Surigao del Norte Chapter. [8]
It is likewise claimed that the moral and exemplary damages awarded to respondent
Pantejo are excessive and unwarranted on the ground that respondent is not totally blameless
because of his refusal to accept the P100.00 cash assistance which was inceptively offered to
him. It bears emphasis that respondent Pantejo had every right to make such refusal since it
evidently could not meet his needs and that was all that PAL claimed it could offer.
His refusal to accept the P300.00 proffered as an afterthought when he threatened suit
was justified by his resentment when he belatedly found out that his co-passengers were
reimbursed for hotel expenses and he was not. Worse, he would not even have known about it
were it not for a co-passenger who verbally told him that she was reimbursed by the airline for
hotel and meal expenses. It may even be said that the amounts, the time and the
circumstances under which those amounts were offered could not salve the moral wounds
inflicted by PAL on private respondent but even approximated insult added to injury.
The discriminatory act of petitioner against respondent ineludibly makes the former liable
for moral damages under Article 21 in relation to Article 2219 (10) of the Civil Code. [9] As held
in Alitalia Airways vs. CA, et al.,[10] such inattention to and lack of care by petitioner airline for
the interest of its passengers who are entitled to its utmost consideration, particularly as to
their convenience, amount to bad faith which entitles the passenger to the award of moral
damages.
Moral damages are emphatically not intended to enrich a plaintiff at the expense of the
defendant. They are awarded only to allow the former to obtain means, diversion, or
amusements that will serve to alleviate the moral suffering he has undergone due to the
defendants culpable action and must, perforce, be proportional to the suffering inflicted.
[11]
However, substantial damages do not translate into excessive damages. [12] Except for
attorneys fees and costs of suit, it will be noted that the Court of Appeals affirmed point by
point the factual findings of the lower court upon which the award of damages had been
based.[13] We, therefore, see no reason to modify the award of damages made by the trial
court.
Under the peculiar circumstances of this case, we are convinced that the awards for actual,
moral and exemplary damages granted in the judgment of respondent court, for the reasons
meticulously analyzed and thoroughly explained in its decision, are just and equitable. It is
high time that the travelling public is afforded protection and that the duties of common
carriers, long detailed in our previous laws and jurisprudence and thereafter collated and
specifically catalogued in our Civil Code in 1950, be enforced through appropriate sanctions.
We agree, however, with the contention that the interest of 6% imposed by respondent
court should be computed from the date of rendition of judgment and not from the filing of the
complaint. The rule has been laid down in Eastern Shipping Lines, Inc. vs. Court of Appeals, et
al.[14] that:

When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally
adjudged.

This is because at the time of the filing of the complaint, the amount of damages to which
plaintiff may be entitled remains unliquidated and not known, until it is definitely ascertained,
assessed and determined by the court, and only after the presentation of proof thereon. [15]
WHEREFORE, the challenged judgment of respondent Court of Appeals is hereby
AFFIRMED, subject to the MODIFICATION regarding the computation of the 6% legal rate of
interest on the monetary awards granted therein to private respondent.
SO ORDERED.

Case No. 30. Nover Bryan Salvador y De Leon vs. People, G.R. No.
164266, July 23, 2008

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by
petitioner Nover Bryan Salvador y De Leon, assailing the Court of Appeals (CA)
[1] [2]
Decision dated February 26, 2004 which affirmed the Regional Trial Court (RTC)
[3]
Decision dated October 26, 2001. Likewise assailed is the appellate courts
[4]
Resolution dated July 6, 2004 denying petitioners motion for reconsideration.

The facts of the case follow:

Spouses Ernesto and Margarita Zuiga had three daughters, namely: Marianne, Mary Ann and
the victim Arlene. Mary Ann was married to the petitioner herein. The Zuiga family, including
Mary Ann and the petitioner were living together at 550 Coloong I, Valenzuela City. Their
residence had three bedrooms one for the Zuiga spouses; the other for Marianne and Arlene;
and the last for Mary Ann and the petitioner.

On September 20, 1997, the Zuiga spouses, together with Marianne, went to Bulacan to attend
the wake of Ernestos mother; while Mary Ann with her new born child, and Arlene, stayed at
their Valenzuela home. Petitioner, at that time, asked permission to attend a birthday party. [5]

At about 9:00 in the evening, petitioner, accompanied by Eduardo Palomares, returned home
to get some karaoke tapes to be used at the birthday party. They thereafter went back to the
party and stayed there until 12 midnight before heading back home.

At 4:30 in the morning, the following day, the Zuiga spouses and Marianne arrived home. They
opened the main door which was then locked. After preparing for sleep, Marianne proceeded to
the room which she was sharing with Arlene. There she saw Arlene, who suffered stab wounds,
already dead. After seeing Arlenes body, the Zuiga spouses rushed to the room of Mary Ann
and the petitioner. While Mary Ann proceeded to Arlenes room, petitioner stayed at
the sala and cried. He was later seen embracing Mary Ann and telling her that he was
innocent.[6]

At around 5:00 in the morning, police investigators arrived. The police found no forcible entry
into the house; no valuables were missing; and no bloodstains in other parts of the house
except Arlenes room. They likewise discovered, on top of the kitchen table, petitioners
underwear (briefs), gray t-shirt and short pants. [7] They further found hair strands on Arlenes
bed. These pieces of evidence were brought to the laboratory for examination.

On September 21, 1997, Dr. Noel Minay (Dr. Minay), a medico-legal of the National Bureau of
Investigation (NBI) conducted an autopsy of the deceased. [8] He found that Arlene suffered 21
stab wounds produced by a pointed instrument, one side of which was sharp like a balisong or
a kitchen knife. He further declared the possibility that Arlene struggled with the assailant
before she died.[9]

The NBI Forensic Biologist also examined petitioners briefs, t-shirt and short pants, and found
that the briefs and shirt were positive of type O human blood, Arlenes blood type. [10] The NBI
Forensic Chemist, subsequently, conducted DNA Analysis on the following specimens:

1. One (1) dirty white Hanford brief[s];

2. One (1) light gray t-shirt with DKNY print infront;
3. Several strands of hair allegedly recovered in the bedroom of [the] victim;
4. Buccal swabs taken from the following:
a. ERNESTO ZUIGA (victims father)
b. MARGARITA ZUIGA (victims mother)
c. NOVER BRYAN SALVADOR (suspect)[11]

The examination of specimen no. 1 yielded a negative result for the presence of human
DNA; while specimen nos. 2, 3, and 4 a-c, yielded positive results. [12]
Petitioner was thus charged with Homicide in an Information dated April 8, 1998, the
accusatory portion of which reads:

That on or about the 20th day of September, 1997, in Valenzuela, Metro

Manila, Philippines and within the jurisdiction of this Honorable Court, the above-
named accused, without any justifiable cause and with deliberate intent to kill,
did then and there willfully, unlawfully and feloniously assault and stab one
ARLENE ZUIGA, hitting on the different parts of her body, which led to the death
of said Arlene Zuiga.

CONTRARY TO LAW.[13]

The aforementioned facts were established during the prosecutions presentation of

evidence. It was further testified to by the witnesses that petitioner owned a knife otherwise
known as balisong, which he usually brought every time he went out. Ill motive was shown by
petitioners previous act of peeping through the bathroom and Arlenes room on two occasions
while she was taking a bath and while she was inside the room with Marianne.
For his part, all that the petitioner could offer was bare denial of the accusations against him.

On October 26, 2001, the RTC rendered a Decision finding the petitioner guilty of
homicide. The dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered finding accused NOVER BRYAN

SALVADOR y DE LEON guilty beyond reasonable doubt and as principal of the
crime of homicide as defined and penalized under Article 249 of the Revised Penal
Code, without any attending mitigating or aggravating circumstance, and,
applying the Indeterminate Sentence Law, hereby sentences him to an
indeterminate penalty of EIGHT (8) YEARS, EIGHT (8) MONTHS and ONE (1) DAY
of prision mayor, as minimum, to FOURTEEN (14) YEARS, EIGHT (8) MONTHS and
ONE (1) DAY of reclusion temporal, as maximum. The accused is further sentence
(sic) to indemnify Spouses Ernesto and Margarita Zuiga the amount of P50,000.00
 for the death of Arlene Zuiga and another amount of P50,000.00 as moral
damages, both without subsidiary imprisonment in case of insolvency. The
accused is further sentenced to pay the costs of suit.

SO ORDERED.[14]

The RTC considered the following circumstantial evidence sufficient to establish petitioners
guilt:

(1) The perpetrator did not use any force or destroy any portion of
the house to get inside the house. This implies that the perpetrator is an occupant
of the house. The accused was, during the time material to this case, residing
with his in-laws. The allegation of the accused that the main door of the house
was open when he returned to get the tape is difficult to believe. It is unthinkable
that the remaining occupants of the house, namely, Arlene and Mary Ann, who
are both female, would not take the necessary precaution for their own protection
such as locking the door of the house. It is as difficult to suppose that the
perpetrator of the crime would go to the house where his intended victim was
sleeping without being sure that he could gain entry to the house or have the
necessary instruments to open the door.

(2) There were no personal belongings missing in the house. This shows
that the person who entered the room of the victim had no intention to steal. This
fact can better be appreciated if we consider the evidence that the accused was
caught many times peeping at Arlene during her lifetime; and that [bloodstains]
were found not in the short pants of the accused but in his Hanford brief and T-
shirt.

(3) The absence of [bloodstains] or spots in any other part of the house
except the room of the victim. This indicates that the assailant must have cleaned
the traces of blood inside the house. The facility and time to clean the area is
more available to an assailant who was an occupant of the house or a member of
the household.

(4) Prior to and up to the date of the commission of the crime on

September 20 or 21, 1997[,] the accused was seen by his parents-in-law Ernesto
and Margarita Zuiga and her sister-in-law Marianne and his friend Dondy Hiponia
in many occasions to have in [his] possession a balisong or beinte (sic) nueve. A
balisong or beinte (sic) nueve is the tagalong name for a knife with folding
blade. There is no reason for the Court to doubt the testimonies of said
witnesses. Being close relatives and friend of the accused[,] they have no motive
to fabricate a story against the accused or to implicate him to the commission of
the crime charged. The claim of the accused that his father-in-law Ernesto Zuiga
is trying to implicate him [for] the killing of Arlene because his father-in-law
disapproved his marrying Mary Ann, and that he accompanied his mother-in-law
to the house of the mistress of his father-in-law is not supported by the facts of
the case. The accused was allowed to stay in the house of the Zuigas, an
indication that he was acceptable to the family. The alleged mistress of Ernesto
was not shown to exist, nor her supposed address revealed by the accused. The
disappearance of said bladed weapon and the denial by the accused that he ever
owned the same are intriguing because, according to expert testimony, the stab
wounds sustained by the victim were produced by a pointed instrument one side
of which is sharp like a balisong or beinte (sic) nueve.

(5) The presence of human blood with type O in the t-shirt and brief of the
accused, the finding that the blood type of the victim belongs to groupd (sic) O,
and the circumstance that the accused had suffered no scratches or wound from
which to come blood to stain his T-shirt and brief are revealing and could only
lead to the conclusion that the victim was the source of the blood found in the T-
shirt and brief of the accused.

(6) The conclusion arrived at by Magsipoc that the DNA Profile of the
[bloodstain] in the light gray t-shirt and the DNA Profile on the hair strands could
come from the accused and the victim.
 (7) The unusual behavior of the accused after the discovery of the dead
body of Arlene betrayed the accused. Ernesto and Margarita Zuiga testified that
soon after the discovery of the death of Arlene[,] they immediately went to the
room of the accused and his wife Mary Ann; that it took Margarita a hard time to
awaken the accused; and that upon being awakened, the accused did not get (sic)
inside the room where Arlene was and instead stayed and cried in the sala telling
his wife that he was innocent even if nobody yet at that time was pointing to him
as the suspect. The actuation of the accused then was that of a perpetrator of the
crime with troubled conscience. [15]

On appeal, the CA affirmed petitioners conviction. [16] Hence, the present petition for review
on certiorari anchored on the following grounds:

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR

WHEN IT RULED THAT THE MOST CONVINCING EVIDENCE OF THE PROSECUTION
IS THE RESULT OF THE DNA ANALYSIS CONDUCTED BY THE NBI FORENSIC
CHEMIST.

II.

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR

WHEN IT RULED THAT BY MEANS OF CIRCUMSTANTIAL EVIDENCE, IT WAS PROVEN
AND ESTABLISHED BEYOND REASONABLE DOUBT THAT ACCUSED-APPELLANT
WAS THE ONE RESPONSIBLE FOR THE DEATH OF ARLENE ZUIGA.

III.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN AFFIRMING THE

DECISION OF THE TRIAL COURT FINDING ACCUSED GUILTY BEYOND REASONABLE
DOUBT OF THE CRIME OF HOMICIDE.[17]

The petition lacks merit.

Direct evidence of the crime is not the only matrix wherefrom a trial court may draw its
conclusion and finding of guilt. The rules of evidence allow a trial court to rely on
circumstantial evidence to support its conclusion of guilt. Circumstantial evidence is that
evidence which proves a fact or series of facts from which the facts in issue may be
established by inference. At times, resort to circumstantial evidence is imperative since to
insist on direct testimony would, in many cases, result in setting felons free and deny proper
protection to the community.[18]

Section 4, Rule 133 of the Rules of Court, provides that circumstantial evidence is sufficient for
conviction if the following requisites are complied with:

(1) There is more than one circumstance;

(2) The facts from which the inferences are derived are proven; and
(3) The combination of all the circumstances is such as to produce a
conviction beyond reasonable doubt.[19]

All the circumstances must be consistent with one another, consistent with the
hypothesis that the accused is guilty, and at the same time inconsistent with the hypothesis
that he is innocent. Thus, conviction based on circumstantial evidence can be upheld, provided
that the circumstances proven constitute an unbroken chain which leads to one fair and
reasonable conclusion that points to the accused, to the exclusion of all others, as the guilty
person.[20]

In the present case, both the trial and appellate courts considered these pieces of
evidence in finding petitioners guilt: 1) the non-employment of force in entering the scene of
the crime; 2) no missing personal belongings; 3) the absence of bloodstains in other parts of
the house except Arlenes room; 4) petitioners ownership of a balisong, the same weapon used
in stabbing the victim; 5) the presence of type O human blood on petitioners T-shirt and briefs;
6) the positive result of the DNA analysis using the bloodstains found in petitioners shirt and
briefs; and 7) petitioners unusual behavior after the discovery of the victims lifeless body. [21]

In his appeal before the CA and likewise in this present petition, petitioner questions the
sufficiency of each and every circumstance enumerated above. He specifically points out the
inconsistent findings of the NBI Forensic Chemist and those of the NBI Forensic Biologist. [22] As
to the circumstance that there was no forcible entry to the house, he insists that the main door
was not locked; and he, in fact, faults Arlene for not locking the door to her bedroom.
[23]
Petitioner adds that the connection between the alleged peeping incident and intent to kill
was so remote; and thus insufficient to convict him. [24] He also persuades this Court to give
credence to his testimony that he owned a samurai(double-bladed knife) and not
a balisong (single-bladed) which thus negates his authorship of the crime, since it would be
contrary to the medico-legals findings that the weapon used was an instrument one side of
which was sharp.[25] Petitioner further asserts that the absence of scratches, wounds and
bruises on his body were more consistent with his innocence rather than his guilt, if we follow
the courts conclusion that Arlene had a chance to struggle with him prior to his death.
[26]
Lastly, petitioner claims that if we were to believe the prosecutions version, it would be
hard to imagine that Mary Ann (petitioners wife), who was then in the other room, was not
awakened.[27]

Prior to the fateful night when Arlenes lifeless body was discovered, several witnesses
saw petitioner in possession of a balisong. The NBI autopsy report, in turn, stated that the
wounds sustained by Arlene were inflicted with the use of a weapon only one side of which was
sharp (such as a balisong). After the discovery of the crime, the balisong was nowhere to be
found. Hence, the trial court was correct in its conclusion that the balisong previously seen in
petitioners possession was the very weapon used in stabbing the victim. While petitioner
admitted owning a different kind of weapon, he failed to produce it in court. As such, it
remained a self-serving allegation that cannot be considered to exonerate him from liability.

As to petitioners shirt and briefs, as correctly held by the trial court (and as affirmed by
the appellate court), they were found to be stained with type O blood (the victims blood
type). Instead of questioning the absence of proof that he was not of the same blood type as
the victim, petitioner should have presented evidence that he indeed has type O blood. The
fact remains that petitioner offered no explanation why his shirt and briefs contained
bloodstains. It is, therefore, correct to conclude that they were stained with the victims blood.

Moreover, the absence of scratches and bruises on petitioners body parts does not
negate the trial courts conclusion that the victim had the chance to struggle with the
petitioner. This is so because, at the time the petitioner attacked the victim
between 1:00 and 4:00 in the morning, she was most likely asleep and was only awakened by
the petitioner; she was, therefore, not in a position to offer strong resistance. This explains why
such struggle produced no bruises and scratches.

The presence of petitioners wife inside the house at that time does not likewise negate
the commission of the crime. Considering that his wife was a nursing mother who definitely
had sleepless nights, she could not be expected to be conscious of everything that happened
outside her room.

More importantly, intent to kill was duly established by the witnesses when they
testified relative to the peeping incident. Although there was no evidence or allegation of
sexual advances, such incident manifested petitioners evil motive. It is a rule in criminal law
that motive, being a state of mind, is established by the testimony of witnesses on the acts or
statements of the accused before or immediately after the commission of the offense, deeds or
words that may express it or from which his motive or reason for committing it may be
inferred.[28] Motive and intent may be considered one and the same, in some instances, as in
the present case.

Lastly, the DNA analysis made by the NBI expert placed the petitioner at the scene of
the crime. Such evidence was considered, together with the other circumstances discussed
earlier. The individual pieces of evidence may not be sufficient to point to the accused as the
author of the crime. However, when taken together, they are more than enough to establish
beyond reasonable doubt that petitioner committed the crime of homicide. We would like to
emphasize at this point that the peculiarity of circumstantial evidence is that the guilt of the
accused cannot be deduced from scrutinizing just one particular piece of evidence. It is more
like a puzzle which, when put together, reveals a remarkable picture pointing towards the
conclusion that the accused is the author of the crime. [29]
The prosecutions evidence, especially the testimonies of the witnesses who happen to
be the victims relatives, was not weakened by the fact of such relationship. The Court notes
that petitioner himself is a relative of the witnesses, albeit by affinity, being the husband of the
victims sister. It is unnatural for a relative, who is interested in vindicating the crime, to accuse
somebody else other than the real culprit. For her/him to do so is to let the guilty go free.
[30]
Where there is nothing to indicate that witnesses were actuated by improper motives on the
witness stand, their positive declarations made under solemn oath deserve full faith and
credence.[31]
We also reiterate the well-settled rule that this Court accords great weight and a high
degree of respect to factual findings of the trial court, especially when affirmed by the CA, as
in the present case. Here, the RTC was unequivocally upheld by the CA, which was clothed with
the power to review whether the trial courts conclusions were in accord with the facts and the
relevant laws.[32] The credibility given by the trial courts to prosecution witnesses is an
important aspect of evidence which appellate courts can rely on, because of the trial courts
unique opportunity to observe the witnesses, particularly their demeanor, conduct, and
attitude, during the direct and cross-examination by counsels. [33]

In view of the foregoing, petitioner was correctly convicted of homicide punishable

by reclusion temporal. Applying the Indeterminate Sentence Law, the minimum of
the indeterminate penalty, absent any modifying circumstances, shall be taken from the full
range of prision mayor and the maximum of which shall be taken from the medium period
of reclusion temporal.[34] Specifically, the indeterminate penalty that should be imposed is
within the range of 6 years and 1 day to 12 years of prision mayor, as minimum; to 14 years, 8
months and 1 day to 17 years and 4 months of reclusion temporal, as maximum. Hence, a
modification of the penalty imposed by the trial court is in order. Instead of 8 years, 8 months
and 1 day, the minimum term of the indeterminate penalty shall be 8 years and 1 day
of prision mayor;[35] while the maximum term shall be that imposed by the trial court.

An appeal in a criminal proceeding throws the whole case open for review. It then
becomes the duty of this Court to correct any error in the appealed judgment, whether or not
included in the assignment of errors.[36]

We affirm the award of P50,000.00 by way of indemnity ex delicto to the Zuiga

spouses. When death occurs as a result of a crime, the heirs of the deceased are entitled to
such amount as indemnity for death without need of any evidence or proof of damages. [37] The
court likewise correctly awarded P50,000.00 as moral damages because of their mental
anguish and moral suffering caused by Arlenes death.

The trial and appellate courts did not award actual damages, obviously because the
victims heirs failed to present proof of the expenses they incurred. However, it has been
repeatedly held by this Court that where the amount of actual damages cannot be determined
because of the absence of receipts to prove the same, temperate damages may be fixed
at P25,000.00.[38]

WHEREFORE, premises considered, the petition is hereby DENIED. The Decision of the
Court of Appeals dated February 26, 2004 in CA-G.R. CR No. 26048
is AFFIRMED with MODIFICATIONS. Petitioner Nover Bryan Salvador y De Leon is hereby
sentenced to suffer the indeterminate penalty of eight (8) years and one (1) day of prision
mayor, as minimum, to fourteen (14) years, eight (8) months and one (1) day of reclusion
temporal, as maximum. In addition to civil indemnity and moral damages, petitioner is ordered
to pay spouses Ernesto and Margarita Zuiga the sum of P25,000.00 as temperate damages.

SO ORDERED.

ASSIGNMENT NO. 9
Case No. 7. Salcedo-Ortaez vs. Court of Appeals, 235 SCRA 111
(1994)
This is a petition for review under Rule 45 of the Rules of Court which seeks to reverse the
decision * of respondent Court of Appeals in CA-G. R. SP No. 28545 entitled "Teresita Salcedo-
Ortanez versus Hon. Romeo F. Zamora, Presiding Judge, Br. 94, Regional Trial Court of Quezon
City and Rafael S. Ortanez".

The relevant facts of the case are as follows:

On 2 May 1990, private respondent Rafael S. Ortanez filed with the Regional Trial Court of
Quezon City a complaint for annulment of marriage with damages against petitioner Teresita
Salcedo-Ortanez, on grounds of lack of marriage license and/or psychological incapacity of the
petitioner. The complaint was docketed as Civil Case No. Q-90-5360 and raffled to Branch 94,
RTC of Quezon City presided over by respondent Judge Romeo F. Zamora.

Private respondent, after presenting his evidence, orally formally offered in evidence Exhibits
"A" to "M".

Among the exhibits offered by private respondent were three (3) cassette tapes of alleged
telephone conversations between petitioner and unidentified persons.

Petitioner submitted her Objection/Comment to private respondent's oral offer of evidence on

9 June 1992; on the same day, the trial court admitted all of private respondent's offered
evidence.

A motion for reconsideration from petitioner was denied on 23 June 1992.

A petition for certiorari was then filed by petitioner in the Court of Appeals assailing the
admission in evidence of the aforementioned cassette tapes.

On 10 June 1993, the Court of Appeals rendered judgment which is the subject of the present
petition, which in part reads:

It is much too obvious that the petition will have to fail, for two basic reasons:

(1) Tape recordings are not inadmissible per se. They and any other variant thereof can be
admitted in evidence for certain purposes, depending on how they are presented and offered
and on how the trial judge utilizes them in the interest of truth and fairness and the even
handed administration of justice.

(2) A petition for certiorari is notoriously inappropriate to rectify a supposed error in

admitting evidence adduced during trial. The ruling on admissibility is interlocutory; neither
does it impinge on jurisdiction. If it is erroneous, the ruling should be questioned in the appeal
from the judgment on the merits and not through the special civil action of certiorari. The
error, assuming gratuitously that it exists, cannot be anymore than an error of law, properly
correctible by appeal and not by certiorari. Otherwise, we will have the sorry spectacle of a
case being subject of a counterproductive "ping-pong" to and from the appellate court as often
as a trial court is perceived to have made an error in any of its rulings with respect to
evidentiary matters in the course of trial. This we cannot sanction.

WHEREFORE, the petition for certiorari being devoid of merit, is hereby DISMISSED. 1

From this adverse judgment, petitioner filed the present petition for review, stating:
Grounds for Allowance of the Petition

10. The decision of respondent [Court of Appeals] has no basis in law nor previous decision
of the Supreme Court.

10.1 In affirming the questioned order of respondent judge, the Court of Appeals has decided
a question of substance not theretofore determined by the Supreme Court as the question of
admissibility in evidence of tape recordings has not, thus far, been addressed and decided
squarely by the Supreme Court.

11. In affirming the questioned order of respondent judge, the Court of Appeals has likewise
rendered a decision in a way not in accord with law and with applicable decisions of the
Supreme Court.

11.1 Although the questioned order is interlocutory in nature, the same can still be [the]
subject of a petition for certiorari. 2

The main issue to be resolved is whether or not the remedy of certiorari under Rule 65 of the
Rules of Court was properly availed of by the petitioner in the Court of Appeals.

The extraordinary writ of certiorari is generally not available to challenge an interlocutory

order of a trial court. The proper remedy in such cases is an ordinary appeal from an adverse
judgment, incorporating in said appeal the grounds for assailing the interlocutory order.

However, where the assailed interlocutory order is patently erroneous and the remedy of
appeal would not afford adequate and expeditious relief, the Court may allow certiorari as a
mode of redress. 3

In the present case, the trial court issued the assailed order admitting all of the evidence
offered by private respondent, including tape recordings of telephone conversations of
petitioner with unidentified persons. These tape recordings were made and obtained when
private respondent allowed his friends from the military to wire tap his home telephone. 4

Rep. Act No. 4200 entitled "An Act to Prohibit and Penalize Wire Tapping and Other Related
Violations of the Privacy of Communication, and for other purposes" expressly makes such
tape recordings inadmissible in evidence. The relevant provisions of Rep. Act No. 4200 are as
follows:

Sec. 1. It shall be unlawful for any person, not being authorized by all the parties to any
private communication or spoken word, to tap any wire or cable, or by using any other device
or arrangement, to secretly overhear, intercept, or record such communication or spoken word
by using a device commonly known as a dictaphone or dictagraph or detectaphone or walkie-
talkie or tape-recorder, or however otherwise described. . . .
Sec. 4. Any communication or spoken word, or the existence, contents, substance,
purport, or meaning of the same or any part thereof, or any information therein contained,
obtained or secured by any person in violation of the preceding sections of this Act shall not be
admissible in evidence in any judicial, quasi-judicial, legislative or administrative hearing or
investigation.

Clearly, respondents trial court and Court of Appeals failed to consider the afore-quoted
provisions of the law in admitting in evidence the cassette tapes in question. Absent a clear
showing that both parties to the telephone conversations allowed the recording of the same,
the inadmissibility of the subject tapes is mandatory under Rep. Act No. 4200.

Additionally, it should be mentioned that the above-mentioned Republic Act in Section 2

thereof imposes a penalty of imprisonment of not less than six (6) months and up to six (6)
years for violation of said Act. 5

We need not address the other arguments raised by the parties, involving the applicability of
American jurisprudence, having arrived at the conclusion that the subject cassette tapes are
inadmissible in evidence under Philippine law.

WHEREFORE, the decision of the Court of Appeals in CA-G. R. SP No. 28545 is hereby SET
ASIDE. The subject cassette tapes are declared inadmissible in evidence.

SO ORDERED.

Case No. 16. Lucido vs. Calupitan, 27 Phil. 148 (1914)

LEONARDO LUCIDO, Plaintiff-Appellee, v. GELASIO CALUPITAN ET AL., Defendants-Appellants.

1. EVIDENCE; ORIGINAL PLEADINGS. The original, withdrawn pleading of the party to an

action may be introduced in evidence as admission against him, especially when it is signed by
himself acting as his own attorney.

2. VENDOR AND PURCHASER; SALE WITH PACTO DE RETRO;" PERIOD OF REDEMPTION.

Where the only condition as to the exercise of the right of redemption is that it shall not be
exercised within a specified time, the duration of the right to redeem, once effective, is four
years, or the balance of the ten-year limit allowed by law. (Rosales v. Reyes and Ordoveza, 25
Phil. Rep., 495.)

3. ID.; ID.; OFFER OF REDEMPTION PRICE SUFFICIENT. The bona fide offer of the redemption
price, where that is fixed and certain, is sufficient to protect the rights of the vendor in case
the vendee refuses to deliver the property. (Rosales v. Reyes and Ordoveza, 25 Phil., Rep.,
495.)

4. ID.; ID.; REDEMPTION; THIRD PERSONS. Subject to the provisions of the Mortgage; Law as
to third persons, the right to redeem, if duly exercised, is effective against whoever is found in
possession of the property
DECISION

TRENT, J. :

In this case it appears that some chattels and real estate belonging to the plaintiff, Lucido,
were regularly sold at an execution sale on February 10, 1903, to one Rosales, who the next
day transferred a one-half interest in the property of Zolaivar. On March 30, 1903, a public
document was executed and signed by all of the above parties and the defendant, Gelasio
Calupitan, wherein it was stated that Rosales and Zolaivar, with the consent of Lucido, sold all
their rights and obligations pertaining to the property in question to Calupitan for the amount
of the purchasers price together with 1 per cent per month interest thereon up to the time of
redemption, of 1,687 Mexican dollars., plus 33.74 Mexican dollars, the amount of the interest.
it will be observed that the computation of the transfer price is in accordance with section 465
of the Code of Civil Procedure. On the same day Lucido and Calupitan executed the following
document:jgc:chanrobles.com.ph

"I, Gerardo Calupitan y Agarao, married, certify that I have delivered this instrument to
Leonardo Lucido y Vidal to witness that his lands, which appear in the instrument I hold from
the deputy sheriff and for which he has accepted money from me, I have ceded to him all the
irrigated lands until such time as he may repurchase all said lands from me (not only irrigated
ones), as also the Vienna chairs, the five-lamp chandelier, a lamp stand, two wall tables, and a
marble table; no coconut tree on said irrigated land is included. Apart from this, our real
agreement is to permit three (3) whole years to elapse, reckoned from the date of this
instrument, which has been draws up on duplicate, before he may redeem or repurchase them
from me."cralaw virtua1aw library

The lower court held that this document constituted a sale with the right to conventional
redemption set forth in articles 1507 et seq. of the Civil code. The present action not having
been instituted until February 17, 1910, the further question arose as to whether the
redemption period had expired, which the lower court decided in the negative. The lower court
further found as a fact that Lucido had prior to the intuition of the action offered the
redemption price to the defendant, who refused it, and that this offer was sufficient
compliance with article 1518 of the Civil Code. The decision of the lower court was that the
property in question should be returned to the plaintiff. From this judgment the defendant
appealed, and all three of the above rulings of the court are assigned as errors.

1. Considerable doubt might arise as to the correctness of the ruling of the lower court upon
the first question, if the document executed by the execution purchasers and the parties of this
action alone. In that document it appears that Calupitan acquired the rights and obligation of
the execution purchasers pertaining to the property in question. These rights and obligations
are defined in the Code of Civil Procedure to be the ownership of the property sold, subject
only to the right of redemption on the part of the judgment debtor or a redemptioner, within
one year from the date of the sale. (Secs. 463-465, Code Civ. Proc.) Were this the nature of the
transaction between the parties, however, the intervention of Lucido in the transfer would be
wholly unnecessary. Hence, the fact that he intervened as an interested party is at least some
indication that the parties intended something more or different by the document in question
than a simple assignment of the rights and obligations of the execution purchasers to a third
person.

Any doubt, however, as to the character of this transaction is removed by the agreement
entered into between Lucido and Calupitan on the same day. In this document it is distinctly
stipulated that the right to redeem the property is preserved to Lucido, to be exercised after
the expiration of three years. The right to repurchase must necessarily imply a former
ownership of the property.
Further indication that Calupitan himself considered this transaction as a sale with the right to
conventional redemption is to be found in his original answer to the complaint. This original
answer was introduced in evidence by the plaintiff over the objection of the defendant. Its
admission was proper, especially in view of the fact that it was signed by Calupitan himself,
who was at the time acting his own attorney.

Jones on Evidence (secs. 272, 272), after remarking that the earlier cases were not in harmony
on the point says:jgc:chanrobles.com.ph

"May of the cases holding that pleadings were inadmissible as admissions were based on the
theory that most of the allegations were merely pleaders matter-fiction stated by counsel and
sanctioned by the courts. The whole modern tendency is to reject this view and to treat
pleadings as statements of the real issues in the cause and hence as admissions of the parties,
having weight according to the circumstances of each case. But some of the authorities still
hold that if the pleading is not signed by the party there should be some proof that he has
authorized it.

"On the same principle where amended pleadings have been filed, allegations in the original
pleadings are held admissible, but in such case the original pleadings can have no effect,
unless formally offered in evidence."cralaw virtua1aw library

In this original answer it was expressly stated that the transaction was one of sale with the
right to repurchase governed by the provisions of articles 1507 et seq. of the Civil Code.

It further appears from the uncontrolled testimony of the plaintiff that he furnished $120
Mexican of the amount necessary to redeem the property from the execution purchasers. It
therefore appears beyond dispute that the redemption of the property from the execution
purchasers was made by the plaintiff himself by means of a loan furnished by the defendant
Calupitan, who took possession of the major portion of the land as his security for its
redemption. The ruling of the lower court that the transaction between Lucido and Calupitan
was one of purchase and sale with the right to redeem was therefore correct.

2. By terms of his agreement with Calupitan the plaintiff could not exercise his right to redeem
the property within three years from March 30, 1903; and the lower court arrived at the date
upon which the right to redeem expired by computing four years from March 30, 1906, on the
ground that there was no express agreement as to how long the right to repurchase, once
available, should continue. Counsel for the appellant admits in his brief that the complaint was
filed forty-three days before the expiration of this period. In accordance with our decision in
Rosales v. Reyes and Ordoveza (25 Phil. Rep., 495), we hold that this ruling of the court was
correct.

3. The court held that the plaintiff had actually tendered the redemption price to the defendant
Calupitan. After an examination of the evidence of record as to this finding of fact, we concur
therein. We discussed the legal sufficiency of such a tender in the above-cited case of Rosales
v. Reyes and Ordoveza, and held that it was sufficient. This assignment of error must therefore
be held to be unfounded.
4. The defendants Oreta and Bueno no interest in the subject matter of this action. It appears
that the defendant Dorado purchased the land from his codefendant Calupitan subsequent to
the tender of the redemption price of the latter by the plaintiff. It does not appear that the
property was ever registered by any one, nor was the document of sale with the right to
repurchase registered by any one, not was the document of sale with the right to repurchase
registered by either Calupitan or Lucido. No evidence of the purchase of the land from
Calupitan by Dorado is of record with the exception of the oral testimony although it may be
taken as established that such a sale actually took place, since all the parties interested agree
on this point. Dorado himself testified that he purchased the property with the knowledge that
Calupitan had purchased the property from Lucido subject to the right redemption, and insists
that he purchased with the knowledge and consent of Lucido. Lucido denies that he was aware
of the sale to Dorado until after it had taken place. Upon this state of facts, it is clear that the
following provisions of article 1510 of the Civil Code are applicable:jgc:chanrobles.com.ph

"The vendor may bring his action against every possessor whose right arises from that of the
vendee, even though in the second contract no mention should have been made of the
conventional redemption; without prejudice to the provisions of the Mortgage Law with regard
to third persons."cralaw virtua1aw library

The provisions of the Mortgage Law with regard to third persons are clearly not applicable to
Dorado. (Manresa, vol. 10, p. 317.)

5. The lower court ordered the redelivery of the land to the plaintiff upon his payment to
Calupitan of P1,600, plus the costs entailed in the execution of the document of repurchase.
The amount paid to the purchasers at the execution sale for the redemption of the property
was $1,720.74 Mexican. Of this amount the plaintiff furnished $120 Mexican, and Calupitan the
balance of $1,600.74 Mexican. No amount is fixed in the document of purchase and sale above
set forth, but the amount borrowed from Calupitan to redeem the land from the execution sale
being thus clearly established no objection can be is made to the plaintiffs paying this
amount. In ordering the payment of this amount to the defendant the lower court failed to
reduce it to the Philippine currency. On this appeal plaintiff alleges that this amount he actually
owes to the defendant by about P100, but that rather than spend the time and incur the
expense attendant to a new trial for the purpose of determining the equivalent of this amount
in Philippine currency he is agree to pay the defendant P1,600.74 Philippine currency, as the
redemption price of the property. In view of this offer and in case it is accepted by the
defendant it will be unnecessary to go through the formality of a new trial for the purpose of
ascertaining the amount of the redemption price in Philippine currency. In view of the fact that
he is claimed that Calupitan has sold the land in question to his codefendant, Macario Dorado,
and it not clearly appearing to whom the plaintiff should pay the P1,600.74 we think this
amount should be turned over to the clerk of the Court of First Instance of the Province of
Laguna to be held by him it is determined in the proper manner who is the owner of this
amount, Calupitan or Dorado.

For the foregoing reasons, judgment will be entered directing the defendants Calupitan and
Dorado to delivered the possession of the land in question to the plaintiff upon the plaintiffs
depositing with the clerk of the court the sum of P1,600.74, to be disposed of in the manner
above set forth. In all other respects the judgment appealed from is affirmed with costs against
the appellants Calupitan and Dorado.

Arellano, C.J., Carson and Araullo, JJ., concur.

Separate Opinions

MORELAND, J., dissenting:chanrob1es virtual 1aw library

I am extremely sorry to be obliged to dissent from the

from the opinion of my brethren. Were it not for the fact that i regard the decision in this case
so fundamental in character and its effects on the law relative to sales with the right of
repurchase so far-reaching, I would be silent. I cannot of permit to pass unchallenged a
doctrine which, in my judgment, if followed in the future, as it is to presumed it will be, renders
entirely ineffective the main provisions of the stature law governing a given subject. This
decision, taken altogether with that of Rosales v. Reyes or Odoveza (25 Phil. Rep., 495), I
regard as an abrogation, a repeal of article 1508 of the Civil Code, together with those articles
which depend upon it. I dissented in the case of Rosales v. Reyes and Ordoveza. Only one
phase of the question was really raised, presented, or argued in that case . A further study in
questions involved both in that case and the one at bar has brought the strong conviction that
the decisions in these cases are not only wrong in a fundamental sense but result in a
destruction of the provisions of the Civil Code governing the contract known as a sale with the
right of repurchase. The question raised and argued in this case covers the whole field,
whereas in Rosales v. Reyes and Ordoveza only one phase was touched by the briefs of the
parties. I feel that the decisions in Rosales v. Reyes and Ordoveza should be examined in view
of the fact that the real questions involved were not presented or argued and, therefore, not
considered in the opinion in that case.

THE FACTS.

The plaintiff, by a written instrument, sold to the defendant certain lands, expressly reserving
to himself the right to repurchase the same at a given price, but without fixing in the
instrument the period within which the repurchase must be made. The conveyance contained
a provision that the repurchase could not be made "until after three years from this date." This
document bears date March 30, 1903. the contract became effective and went into operation
on its date, the vendor receiving his money and the purchaser his title and other rights created
by the contract on that date.

This action was commenced February 17, 1910, nearly seven years after the date of the
contract, to compel the defendant to accept the sum specified in the conveyance as the
repurchase price and to deliver to the plaintiff the premises described therein.

These facts are admitted.

THE LAW APPLICABLE TO THE CASE.

As the facts are admitted so, also, is the law governing the case. It is admitted by all that the
first paragraph of article 1508 of the Civil Code must rule in the decision of this case. I quote
that article as well as those preceding and succeeding, to which it refers or which are
material:jgc:chanrobles.com.ph

"ART. 1506. The sale shall be rescinded for the same causes as all other obligations, and
furthermore for those mentioned in the preceding chapters and by conventional or legal
redemption.

"ART. 1507. Conventional redemption shall exists when the vendor reserves to himself the right
to recover the thing sold, binding himself to fulfill that which is stated in article 1508, and
whatever more may have been stipulated.

"ART. 1508. The right stated in the preceding article, in default of an express stipulation, shall
last four years to be counted from the date of the contract.

"When a stipulation exists, the term shall not exceed ten years.

"ART. 1509. when the vendor does not comply with the provisions of article 1518, the vendee
shall irrevocably acquire the ownership of the thing sold.

x x x

"ART. 1518. A vendor can not exercise the right of redemption without returning to the vendee
the price of the sake, and furthermore:jgc:chanrobles.com.ph

"1. The expenses of the contract and any other legitimate payment made on account of the
sale.

"2. The useful and necessary expenses incurred by the thing sold."cralaw virtua1aw library

The court expressly holds that the period of limitation is four years and not ten, "on the ground
that there was no express agreement as to how long the right to repurchase . . . should
continue." (See opinion.)

The complaint I make against the decision is that, while it is expressly holds that article 1508 is
applicable, it does not apply to it, and bases the refusal to apply on a principle which destroys
the article altogether. It declares that the four year limitation applies," as expressly required by
the article referred to, begins to count it three years from the date of the contract, thus holding
the life of the redemption period to be seven years instead of four.
I regard the findings and conclusions of the court not only fundamentally erroneous but
preeminently destructive in their results. This is so evident to me that I enter upon the further
exposition of the case with the embarrassment which one always feels when he attempts to
demonstrate a proposition which he regards as self-evidence. The mere statement of a correct
proposition is its own greatest support and the bare statement of a proposition inherently bad
is its most perfect refutation. The bald statement that a party is entitled to seven years in
which to redeem when the code expressly says he shall have but four is about all that need be
said to demonstrate the unsoundness of the statement. But in order that all the questions
involved in the case well as the results of the doctrine laid down may be fully developed, I
proceed.

I shall first inquire what the purpose of article 1508 is. After finishing that inquiry I shall
proceed to determine now the article affects the contracts with which it deals.

AS TO THE PURPOSE

Concerning this there can be no questioned That is already very largely settled. We held in the
case of Yadao v. Yadao (20 Phil. Rep., 260):jgc:chanrobles.com.ph

"A pacto de retro is, in a certain aspect, the suspension of the title to the land involved. We are
of the opinion that it was the intention of the legislature to limit the continuance of such a
condition, which the purpose that the title to the real estate in question should be definitely
placed, it being, in the opinion of the legislature, against public policy to permit such an
uncertain condition relative to the title to real estate to continue for more that ten
years."cralaw virtua1aw library

Manresa, commenting on the article under consideration (vol. 10, p.302), says in this
connection:jgc:chanrobles.com.ph

"Above all we should note that the question of the period within which the repurchase may be
made is unanimously considered as a question of public interest. Portalis has already observed
that it is not good thing that the title to property should be left for any long period of time
subject to indefinite conditions of this nature. For this reason, the intention of the code is
restrictive and limitative, and in our opinion all doubts should be resolved having this intention
in mind, as such intention is, without doubt, in better accord with the spirit of the law."cralaw
virtua1aw library

Scaevola (vol. 23, p. 759) refers to the period of redemption created by article 1508 as the
"period within which the party must repurchase so as not to leave longer in an uncertain
condition the title to the premises." he also says:jgc:chanrobles.com.ph

"Yet, with a keen desire for the public good, for the better interests of society and for the
greater order and development of property, every solicitous legislator can not but perceive the
danger that would lurk in redemption by leaving to the unrestricted will of the contacting
parties a remedy which might in the course of time become the means of maintaining the
ownership of things in a pernicious incertitude, perhaps indefinitely, and might possibly
seriously affect the orderly conveyance of property.
"The illustrious Jovellanos said in his superb report on the Agrarian Law, that the appreciation
of property is always the measure of its care . . .; hence it is that the laws which protect its
exclusive utilization strengthen, while those that theater this, lessen and weaken the affection
for it; the former stimulate individual interest and the latter discourage it; the first are
favorable, the second unjust and disastrous, to the development of agriculture." (Scaevola,
Civil Code, vol. 23, p. 749.)

"A long term for redemption renders the tenure of property uncertain and redounds to its
detriment, for neither does the precarious holder cultivate the ground with the same interest
as the owner, not does he properly attend to the preservation of the building, and owing to the
fact that his enjoyment of the property is temporary, he endeavors above all to derive the
greatest benefit therefrom, economizing to that and even the most essential expenses."
(Scaevola, Civil Code, v. 23, p. 767.)

Moreover, there can be doubt that one of the aims of those who framed the law relative to the
retroventa was to protect, as far as possible, the borrower from machinations of usurers. The
purpose in limiting the duration of a sale of this nature was not only to preserve the stability
and certainty of ownership but also to prevent the usurer from fixing his own time for the
repayment of the purchase price. While it may be true that a short term is the joy of the
money-lender, a contended by some, that is so only in a limited sense and in an especially
limited sense when related to a sale with right of repurchase. The purchaser having the
absolute right of repurchase very serious results would follow not only to the vendor but to
society as well as if he were permitted to fix, without limitation, the date when the repurchase
could be made.

Having seen what the purpose of the Civil Code was in fixing periods beyond which the right to
repurchase cannot extend, whether the parties agree upon the time or not, I next proceed to
ascertain how the law impresses itself upon the contract of the parties.

Let us make the law personal and permit it to speak for itself. It says to persons entering into a
contract of sale with the right to repurchase: "You yourselves may fix the time within which the
repurchase may be made; but while you may fix that period and write it in your contract, I, the
law, will myself become a third party to the contract and write therein a provision which
neither of you can evade or escape, which is that the period cannot exceed ten years and that
the ten years shall be counted from the date of the contract. You may also, if you wish, refrain
from fixing in your contract a period within which the repurchase must be made; but do not
think that, by refusing or failing to fix the period , you may thereby let the contract run as it
pleases you and permit the period to drag along indefinitely. If you don not fix the period, I, the
law, will myself become a third party to that contract and will write there in a provision which
neither of you can, by any sort of legerdemain, evade or escape, which is that the repurchase
must be made within four years, and that the said four years shall be counted from the date of
the contract."cralaw virtua1aw library

This is what the law says, in effect, to the parties to the contract which I am discussing. Into
every contract of sale with right of repurchase the law itself writes a term. The parties
themselves are not free to contract as they will. They may make only a part of the contract.
The law makes the remainder. The parties may contract as they will in relation to those
matters within their powers and may create, destroy, alter and suspend rights and obligations
as they please; but may they do the same with regard to the terms which the law writes into
their contract or the rights and obligations which it creates. It would seem not; yet the decision
of the court of this case permits precisely that. The decision of the court in this case permits
precisely that. The decision lays down the proposition and applied it to the case under
discussion that, while the contract between the parties is in full force and effect from its date,
the vendor having received the purchase price and the purchaser his title and his possession
or income on and from that date, nevertheless, the parties may, at will, suspend to force and
operation of the term which the law wrote into the contract. In other words, although a
contract is in full force and effect and in complete operation, the parties may suspend the law
applicable thereto. The contention that, although a contract may be perfected and in
operation, the parties enjoying their respective rights thereunder, they may permit the
application to such contract of only such law or laws as pleases them and when it pleases
them needs only to be stated to provoke its immediate rejection. Yet this is in effect what the
parties to the contract before us have done. They have made a contract to which the four-year
limitation is concededly (the court so finds expressly) applicable. The contract goes into instant
operation, the parties exercising their respective rights and assuming their respective
obligations thereunder. In spite, however, all of this, they are permitted to suspend for three
years the law applicable to the contract and to say that it shall not apply for the period; that it,
they are allowed to say, with full effect, that the four years shall not begin to run from the date
of the contract, as provided by law, but from some other date which they themselves fix.

In order to arrive at this, to me, extraordinary result, the date of a contract of sale with right of
repurchase is held , in effect, without significance in applying article 1508 of the Civil Code of
such contract. This holding is very serious in its results for, next to the period itself, the most
important factor in such a contract is, for the purpose before us, the date thereof. This is too
evident to require words when we note that article 1508, as we have so often see, expressly
requires that the four-year period shall be "counted from the date of the contract."
Nevertheless, no importance seems to have been attached to the date of the contract in the
application of said article. Is the date of the contract mentioned or even remotely referred to in
the decision of this case? Yes, the date is expressly found; but not for the purpose of fixing the
time from which the four years mentioned in the law should be counted; but, rather, for the
purpose of fixing the time from which it should not be counted. Is the date of the contract the
subject of consideration in the case of Rosales v. Reyes and Ordoveza, referred to in the
decision of this case? Yes; it was expressly found therein; but, as I understand it, no
consideration was given to that date with the object of fixing the precise time from which the
four years should run. On the contrary, whatever attention was given to the date, was given
for the purpose, and the sole purpose, of fixing the point from which the three years
suspension of the right to repurchase should be counted. Nowhere, in either case, had the
court, so far as I can see, given the slightest consideration to the date of the contract as an
element in applying article 1508. This seems clearly so, for, after finding and fixing the dates
of the contracts in both cases, as the court expressly did in Rosales v. Reyes and Ordoveza and
expressly and specifically does in the case at bar, the court refuses to count the four years
from that date, as article 1508 absolutely requires, but, instead, counts the four years from a
point placed three years after the date of the contract. It would seem that where the law
requires a thing to be done within four years from a date, the whole problem is solved when
the date is found and fixed. Absolutely nothing remains but plaint addition. No question arises,
and none has been even hinted at by the parties or the court, as to the suspension, or the
setting forward, of the date of the contract three years, or any other time. The court has found
the date and set it our and fixed it in this case as in the other. It has expressly found in this
case over the over again that the date of the contracts is that which it bears namely, March
30, 1903, and not March 30, 1906. The decision said: "On March 30, 1903, a public document
was executed," referring to the contract before us. The decision quotes the contract, which
contains these words: "The lands cannot be redeemed until after three years from this date."
"This date" is March 30, 1903. The court against expressly refers to the date of the contract in
the paragraph of the decision numbered two. There is absolutely no question therefore, or
suspending or setting forward the date of the contract three years, as the court has found that
the parties did not do it or attempt to do it but, instead, fixed the date which it bears as the
date of the contract. Why, the, is the four years not counted from that date instead of March
30, 1906? I find it impossible to explain this satisfactorily to myself. The court itself seems to
give no explanation either in this case or in Rosales v. Reyes and Ordoveza. The only thing we
find in this connection is in the latter case where the court says: "In all such cases it would
seem that the vendor should be allowed four years from the expiration of the time within
which the right to redeem could not be exercised . . . ." This is not an explanation of the action
of the court, as I understand it. It refers to no law, cites no article of the Civil Code , but simply
states that this is what "should be allowed." The point, it seems to me, is what does the law
say? Does the article 1508 provide that the four years shall be counted "from the expiration of
the time within which the right to redeem could not be exercised?" Or does it say that the four
years "shall be counted from the date of the contract?" Whence comes the authority to count
the four years "from the expiration of the time within which the right to redeem could not be
exercised," as something that "should be allowed?" Does article 1508 convey any such
authority? if so, where?" Is there anything which "should be allowed" except what the law
allows? It seems to have the same fundamental misapprehension as appears in the question
propounded in the same decision: "In such case the question arises, Upon what basis must the
duration of the right to repurchase be calculated?" What other basis can there be to calculate
the "duration of the right to repurchase" except the basis fixed by the law? Why look afield for
a "basis" when the law puts it under the very nose? The law says it is "the date of the
contract," as plainly as words can speak. The "time within which the right to redeem could not
be exercised" has, as I view it, nothing to do with the application of the four-year period under
article 1508. it odes not recognize any time or period during which the redemption can not be
made; but the precise contrary; it recognizes only a period in which it can be made. I cannot
see how one can be substituted for the other when they are exact opposites. If the four years
must be counted from the date of the contract, and the parties to the contract have fixed the
date, and the court by solemn declaration has also fixed the date, how can it conceived that
the four years can be counted form a different date?

What I regard as the fallacy of the reasoning employed is demonstrated by the following
syllogism, both premises of which are actual findings in the court, and the conclusion precisely
its conclusion:chanrob1es virtual 1aw library

First premise: Article 1508 provides that the four years shall be "counted from the date of
the contract."cralaw virtua1aw library

Second premise: The "date of the contract is March 30, 1903.

The conclusion: Therefore, the four years must be counted from March 30, 1906.

As I have said before, no explanation is given for this. The mere declaration that the four years
shall be counted "from the expiration of the time within which the right to redeem could not be
exercised" is, it seems to me, no explanation. It merely accentuates the irremediable quality of
the syllogism.

From these remarks it is clear, to my mind, that in this decision the court holds that the date of
the contract is without significance in applying article 1508 to a sale with a right to repurchase.
Although in both of the cases under discussion, the one at bar and Rosales v. Reyes and
Odeveza, the court found and fixed the date of the contract, it apparently held that date to be
of no importance in connection with the express wording of article 1508, disregarded it, and
proceeded to court the four years from a different date.
Nor can it be urged in palliation or explanation of the apparent failure to apply the law, after
having expressly found all the grounds necessary for its application, that it must be presumed
that it was intended to hold that the date of the contract was fixed by the parties, impliedly at
least,. as of the time when the three-year suspension terminated; and that, the true date of
the contract being March 30, 1906, instead of 1903, the four years should be counted from
counted from that date. Such a suggestion cannot be accepted. The date of a contract is fixed
by law in certain cases and for certain purposes and the parties cannot alter or change it.
Manresa (vol. 10, p. 303) says that "the phrase date of the contract must not always be taken
literally. The date of the contract is the date from which that contract begins to produce its
natural effects." That is, "the date which fixed the moment of the consummation of the
purchase, the moment when the vendor is divested of his rights and receives the price that
was in such event stipulated." Scaevola (vol. 23, pp. 769, 770) says:jgc:chanrobles.com.ph

"(A) Computation of the periods. In the solution of problems of computation, the essential
datum is the starting point, and this the code furnishes us with unsurpassable clearness. The
right to recover the thing sold, with the resultant obligations to restore and indemnify, lasts
four years, or the time agreed upon, provided it does not exceed ten years, counted from the
date of the contract. this definiteness with which the legislator has fixed the commencement of
the period implicitly carries in itself the determination of a point discussed by jurists by which
is no longer of moment. May the condition of repurchase be stipulated through consideration
distinct from that of purchase and sale? We find the answer in article 1508: If, in computing the
time, its commencement must necessarily fun from the date of the contract, and it is under
stood that the of sale is alluded to, then the covenant of repurchase must be consubstantial
with the contract, implying a condition of the same, and both the conveyance and the
condition subsequent are governed by one single consent. The subsequent agreement might
be a new contract equivalent to a promise of sale, but it produces a personal, not a real,
action; it does not convert the original indefeasible contract into one revocable by its nature.
Legal redemption is connascent with the contract of purchase and sale; they both came into
juridical life in the same birth."cralaw virtua1aw library

While, as Manresa says, the contract may not be of the precise date which the instrument
actually bears, the real date can not be later than the time when the contract actually takes
effect, that it, the time when the parties obtained their rights and assume their obligations
under it. Parties who, on a particular day, accepted the mutual benefits and assumed the
mutual obligations of a contract between them, in other words, put the contract into operation,
cannot be heard to say that the date was not real date of the contract and that the true date
was three years thence. This is especially so in respect of contracts which, from the nature of
the subject matter and form the covenants, take on a public aspect and so to which laws have
been specially passed for the protection of the public interests.

Therefor, the purpose of article 1508 being, as we have already shown, to prevent the contract
dealt with therein from unsettling the title to the real estate which is the subject matter thereof
for periods beyond those provided for in that section, no person will be permitted, on any sort
of pretense, to produce the result by said section sought to be avoided; and especially not by a
method so wholly without foundation or merits as that of claiming that the true date of a
contract is not that on which the contract goes into full operation but such date as the parties
may be pleased to fix. When contracts operate, the law applicable to them operates. The
proposition that persons may take and enjoy the benefits of contracts and still prevent the law
from operating upon them is one that would, if adhered to, result disastrously.
Notwithstanding, I fear that the result of the decision in this case is to lay down precisely this
proposition. The court says that, while the contract took effect and went into full operation on
the 30th of March, 1903, article 1508 of the Civil Code did not begin to operate upon it till the
30th of March, 1906; and why? simply because, the court seems to say, the parties agreed to
suspend the law until that time. This would seem to be erroneous when confronted with the
proposition that the law held to be suspended was one in the interests of the public as well as
the parties. May parties to contracts suspend laws of this nature?

Moreover, the contention that the parties suspended the contract, or its date, fail, in my
judgment, to perceive the distinction between the suspension of the operation of a contract
and the suspension of the law which governs the contract. As I have already have noted,
parties or contracts, after they are executed, may suspend their operation until such time as
they please. In such case they take no present benefits and incur no present obligations under
the contract. No present rights or interests are transmitted. It is executed and laid away and
nothing is done under it till the date to which its operation was suspended. This is a suspension
of the operation of the contract, of the date, if you please. Such procedure is recognized as
legal. But nothing of this was done in the case before us. The contract took effect at once. It is
the law applicable thereto which was suspended.

As I have already intimated, the doctrine that the parties may, at will, suspend the operation of
the statute and thereby destroy the force and effect of the four-year limitation, is fatal to the
efficacy of the law governing sales with right to repurchase. In effect, it repeals it. It is clear
that, if the parties may suspend the law for three years, they may suspend it for ten years, or
twenty years, or fifty years, or for any period that pleases them. This, of course, makes the law
a farce and destroys its value completely.

It appears that the court in the decisions under the discussion foresaw, to some extent at
least, the fatal results which would follow such a doctrine and apparently sought to avoid, in
part, the evil results thereof. To accomplish this it brought into requisition the ten-year
limitation found in the same article of the code, and declared that, although the four-year
period was applicable to the contract at its origin, the ten-year period also was applicable
thereto; so that, although persons may suspend the operation of the four-year limitation, they
may not do so to such an extent that the period of suspension added to the four years will
exceed ten years. The germ of this strange theory is found in this expression of the
court:jgc:chanrobles.com.ph

"In such a case the question arises: upon what basis must the duration of the right to
repurchase be calculated? Any such contract must necessarily be terminated ten years from
the date of its execution, but should the vendor have the privilege to exercise this right for the
balance of the ten-years, or should he be allowed only four years on the ground that there was
no express agreement of the parties upon this point? In all such cases it would seem that the
vendor should be allowed for four years form the expiration of the time within which the right
to redeem could not be exercised, or in the event that four years would extend the life of the
contract beyond ten years, the balance of the ten year period, on the ground that vendors,
where the right to redeem is not thus suspended and no express agreement as to the length of
time during which it may be exercised is made, are also allowed four years."cralaw virtua1aw
library

The error into which the court appears to me to have fallen in making this suggestion is plain.
It is held by virtue of this suggestion, that the four year period and the ten year period apply to
the same contract. This appears to be impossibility on its face, impossible by virtue of
language itself. When it made the suggestion referred to the court was engaged in interrupting
a contract which, by its express holding, was such a contract in form and nature that the four
year period and not the ten-year period applied to it. That the four-year period was applicable
the court expressly holds. This holding was arrived at by selecting between the four and the
ten-year periods. The very first thing the court had to do in interpreting the contract was to
determine which period was applicable, the four or the ten. It held that the four period was
applicable. That necessarily held that ten-year period was not. Where it is necessary to make a
choice between two periods of limitation, the selection of the one is necessarily the rejection of
the other. Therefore, when the court made the suggestion that the ten-year period was also
applicable, it had already held that it was not. This, in itself, it seems to me, is a complete
refutation of the suggestion; or, perhaps better said, the suggestion is in complete
contradiction of the previous action of the court when it held that the four and not the ten-year
period was applicable.

If anything further were needed to show the fallacy of the proposition involved in this
suggestion that both periods applicable to the same contract, the question might be put; What
is the reason that the court decided that the four-year period was applicable instead of the ten-
year period?

The answer to that question completely destroys the theory now under discussion and shows
how impossible it is to sustain it. Whether the four-year period or the ten-year period applies to
a given contract depends upon the nature of the contract. The four-year period applies to a
contract, not by virtue of the time which is it to run, but by virtue of the nature thereof. The
tests as to whether the four-year period applies is: Did the parties expressly stipulate in their
contract a period within which the repurchase might be made? If they did not, the four year
period is applicable. That is the decisive feature which determines whether the four-year of the
ten-year period of applicable. If the parties did expressly stipulate the time within which the
repurchase might be made, then the ten-year period applies. It is thus clear that the conditions
which determine if favor of the application of the four-year period are precisely the opposite of
those which determine in favor of the ten-year period. In other words, if the conditions are
such that the four-year period is applicable, then they are such as to render it impossible that
the ten-year period be applicable; and we behold a condition in which it is utterly impossible,
legally or logically, that both periods of limitation be applicable to the same contract. In spite
of this, however, it is contended by the decision that, although it is conceded that the parties
did not expressly stipulate the time within which the repurchase might be made and that,
therefore, the period was applicable, nevertheless, the ten-year period was also applicable.
This is impossible in the face of the fact that the court at the threshold of the inquiry expressly
held that the ten-year limitation had no application; and that the reasons given why the ten-
year period had no application were the very reasons why the four-year limitation did apply.
The only reason given, so far as I can gather, for applying both periods to the same contract is
to prevent the first error, namely, permitting the parties to suspend the operation of the four-
year limitation, from destroying the efficacy of the law altogether. For, if the parties may
suspend the operation of the law at will, then not only is the four-year restriction rendered
worthless but the ten-year limitation also. To avoid this result, the decision committed the
other error of applying both limitations to the same sale. But the error of applying both
limitations to the same sale. But the error committed in saying that 2 or 2 make 5 cannot be
corrected by holding thereafter that 2 and 3 make 4.

Besides the error of applying to the same contract two periods of limitation which depend upon
precisely to opposite conditions, the court, in my opinion, has also committed the further error
of confounding the nature of the two limitations. The four-year limitation is really a limitation.
Where the parties say nothing about the time for redemption, then the law imposes a
limitation as to the time. On the other hand, the provisions which contains the ten-year
limitation does not create a limitation upon the power does the first. It simply places a
limitation upon the power of parties as to their stipulations. It provides that they may not
contract for a longer period of redemption than ten years. It is not, therefore, a statute of
limitations, not does it have the significance, force or effect thereof. The ten-year limitation
prohibits an act. the four-year period limits the life of the contract. The ten-year limitation
applies to the acts of the parties. The four-year limitation applies to the contract after it is
executed. The one is a limitation. The other is a prohibition. This distinction is not made in the
decision; and, taken together with the fact that the two periods of limitation depend for their
existence and limitation upon exactly opposite conditions, we see clearly the error committed
in applying both limitations to the same contract. The stature had in mind the covering of two
radically different conditions, one with a limitations and the other with a prohibition. The court,
by its decision, destroyed the limitation and made the prohibition cover both conditions.

That the decision had destroyed one limitation and made the other applicable to both
conditions specified in the code is clear, for, if the parties may suspend the operations of the
four-year period for six years and then, in accordance with the holding of the court, may add
the four-year period to that, they have taken advantage of a ten-year period without fulfilling
the conditions which the law requires before they have a right to do so. It has already been
held by this court that the limitations specified in article 1508 cannot be enlarged, as they
refer to matters of public concern; and any method which extends these limitations, or either
of the, beyond the periods named in the law trenches on the public welfare and destroys to
that extent the value of the provisions designed to preserved and protect it. Therefore, it is a
matter of public concern that the parties who refused to put in their contract the period during
which they desired the right of repurchase to continue, should be restricted in such right to the
period which the law names, namely, four years; whereas, if the parties are willing to state the
period during which the right of repurchase shall run, the law gives them the right to stipulate
a more generous period, namely, ten years. In other words, the law, if we may so speak, places
a premium upon the open and clear expression of the time by giving the parties a ten-year
privilege as against the grant of only four years where the parties refuse to be clear and
definite. It is the policy of the law to destroy uncertainties in contracts of this character, and
where the uncertainty is the greatest the law restricts the period most. Where the uncertainty
is least, the law restricts the period less. The decision puts parties who do not expressly
stipulate the period of redemption in exactly the same position as those who do stipulate, and
gives them exactly the same privileges. In other words, under the hold of the court, the
parties, although they have not expressly stipulated the term of redemption in their contract,
may, nevertheless, by the legerdemain of suspending the operation of the statutory period for
repurchase, obtain exactly the same period for their contract as the parties to another contract
who have expressly stipulated the period. This wipes our the division of classification made in
the law, destroys the difference between the parties who act openly and those who do not, and
gives the same privileges to both.

There is another and fundamental reason which the decision of the court is erroneous; and that
is that the suspension of the application of the four-year limitation destroys the essential
element and changes the distinctive character of the sale with a right to repurchase, as it is
known to the Spanish law, and converts the contract into one of mere loan on security. One of
the essential requisites of the contract of sale with pacto de retro is the right of the vendor to
repurchase when he sill. The code itself speaks in no other way of the period of repurchase
than to declare that the repurchase may be made within the period specified. It is not like a
promissory note or mortgage, under which the indebtedness therein mentioned or secured
must be paid on the date named. The contract under discussion provides always, and no other
description of it is given by any statute or other, that the repurchase may be made within a
given time. This means, of course, that the time when the repurchase is made is left to the will
of the vendor. He can repurchase on any one of the days which constitute the period agreed
upon or fixed by the statute.

This theory corresponds perfectly with the history of the contract. It originated, so far as its
Spanish history is concerned, in the Province of Catalonia and was devised to assist
landholders in cultivating their land. A landholder, not having sufficient funds with which to
properly cultivate his various parcels, would obtain a loan, selling, as security for the loan, one
of the parcels, reserving the right to repurchase the same. The time within which the borrower
could make the repurchase was generally not known. It depended either upon the time when
he could sell the crop which he, perhaps at the time, had in the warehouse, or upon the time
when he could harvest and market the crops for the cultivation and harvesting of which the
money was borrowed. This being so, the precise time for repurchase could not, as a general
rule, be fixed. The borrower could not say that he would repay it six months, or nine months, or
a year from date, or at any other specific time. It depended on when the crop was ripened and
ready for harvest and when it could be marketed thereafter. These things were, in turn,
dependent upon so many uncertainties that it became the custom to leave the time during
which the repurchase could be made entirely to the will of the vendor. So thoroughly was this
understood that the contract in Catalonia was called a venta carta de gracias. This special and
distinctive feature was carried into the Civil Code and, as we have seen, it is provided that the
right to repurchase shall continue (durara) for four years, during any one of the days
constituting which the repurchase can be made. Every author who treats the subject uses, with
reference to the period of redemption, the word "dentro", within, indicating that the right may
be exercised at any time within the period named. The fact is that the right to repurchase at
any moment is such an essential part of a sale with a right to repurchase that its existence is
take for granted by all the authors dealing with the subject. I have found none who directly
discuss the question; but all of them go upon assumptions which sustain the proposition I am
presenting.

If my contention be sustainable, then the purchaser, if he intends to create a sale with right of
repurchase, has no right to prohibit the vendor from repurchasing. Such a prohibition takes
from the vendor a privilege which the law confers upon him and makes use of it for the
enrichment of the purchaser. It is generally stated by Spanish authors dealing with this subject
that the purchaser cannot, by stipulation in the contract, compel the vendor to repurchase;
and that if such a stipulation is placed in the contract, it changes its essential nature and
transform it into a mere contract of loan of security, something in nature of a pledge of real
estate. Scaevola (vol. 23, p.764) says:jgc:chanrobles.com.ph

"If the stipulation were such as to oblige the vendor to avail himself of his right of repurchase,
the juridical institution or organism thus created would be a different thing from a sale with a
right of repurchase, the nature of which does not allow that a covenant introduced for the
benefit of the vendor may be converted into an instrument against him of which the purchaser
may make exclusive use."cralaw virtua1aw library

If this is true, and I regard the proposition stated by Scaevola as universally accepted, then
why should not the same result follow where the purchaser prohibits the vendor from
repurchasing for a given time? Certainly the prohibition against the repurchase is far more
injurious to the vendor and beneficial to the purchaser than the requirement that he must
repurchase. The obligation to repurchase is not necessarily a sever one, whereas the
prohibition against repurchase for six years, for example, may be a very severe blow to the
vendors interests. Not only that, but it enables the lender to obtain by means of this contract,
which the law designed primarily for the benefit of the vendor, not only all of the privileges
which injure to him by virtue thereof, but also the additional advantage which inheres in a
mortgage, or, a long period during which he may draw interest or have complete possession
and control of the property purchased.

In this connection it must not be forgotten that, on the execution of a sale with a right of
repurchase, the purchaser has the right to immediate possession. Now, if the he be permitted,
by a stipulation in the contract, to prohibit the vendor from repurchasing for six years, then he
not only obtains the title to the property itself as security for repayment, but he also deprives
the vendor of the possession of his property for an extremely long period. this is one of the
precise things that the Civil Code sought to prevent. As a necessary consequence, the decision
of the court, that a sale with a right of repurchase is permissible which prohibits the vendor
from repurchasing for six years, appears to me be in direct violation of the spirit which
animated the code, and results in delivering the borrower into the power of the lender, from
whose hands it was the intention and purpose of the Civil Code to rescue him. It is no reply to
my argument to urge that the code permits the parties to stipulate a ten-year period, for under
such stipulation, the vendor may repurchase at any time he pleases during the ten years.

The decision says: "But if it were held that, regardless of such a provision, the redemption right
expires within four years form the date of the contract unless there is a special provision as to
how long this right, once effective, shall continue, many other perfectly valid contracts can be
conceived in which the redemption privilege would be unenforceable. For instance, if the
stipulation in question had provided that the right to redeem should not be exercised within
five years from the date for the contract, it is quite apparent that, according to the argument
adduced by the defendants, the vendor could not have redeemed the property at all for the
right to do so would have expired one year previously."cralaw virtua1aw library

This portion of the decision assumes that a stipulation suspending the application of the four
year period for five years is valid. This is unquestionable true; but it misses the whole question
at issue when viewed from the standpoint from which I am now discussing it. The point is, does
such a stipulation destroy the nature of the relation between the parties; that is, does it
destroy the contract as a sale with a right of repurchase, and transform it into another and
entirely different contract? No one contends that such stipulation is invalid; the sole contention
is that it is not a valid, proper, or permissible stipulation, in a sale with a right to repurchase
and that it destroys the essential nature of the contract and transforms it into something
entirely different. The proposition I am presenting is that such a stipulation converts the sale
with right of repurchase, as the Code knows it, into a mere relation of borrower and the lender,
thereby destroying completely the relation of vendor and vendee; and that none of the
provisions of the Civil Code relating to such a sale are applicable. Such a stipulation may be
valid and its presence may not render the agreement void in the general sense; but it does
render the contract void as a sale with right of repurchase. This is the point. The decision
assumes that the parties, in a contract of sale with a right of repurchase, may do whatever
they please and the contract still remains a sale with a right of repurchase. The contention that
I am making is that such a contract is of a highly special nature, in many of its aspects strictly
statutory, and that, when certain of its elements are destroyed, it ceases to be such a contract
and becomes something different; that when such a contract provides that the vendor must
repurchase, that stipulation changes the nature of the contract and transforms it into
something different, and that where it stipulates that the vendor shall not repurchase, that
stipulation also changes the nature of the contract and converts it into a different species of
relation. To repeat then: A stipulation in a contract of sale with a right to repurchase that the
vendor shall not repurchase during a period of years is a stipulation in violation of the essential
nature of the contract, which deprives the vendor of the protection which the statute gives
him, which places him in the power of the lender form which it was the intention of the law to
rescue him, and transforms and converts it into one of loan on security which is governed by
principles wholly different from those that govern the sale with pacto de retro.

Case No. 25. People vs. Tandoy,192 SCRA 28 (1990)

[G.R. No. 80505 : December 4, 1990.]

192 SCRA 28

THE PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, vs. MARIO TANDOY y LIM, Defendant-
Appellant.
The decision of the Regional Trial Court of Makati, Branch 133 dated October 13, 1987,
convicting Mario Tandoy of the crime of violation of Art. II, Sec. 4 of Rep. Act No. 6425 known
as the Dangerous Drugs Act of 1972, is before us on appeal.

The information against the accused-appellant read as follows:

That on or about the 27th day of May 1986, in the Municipality of Makati, Metro Manila,
Philippines, and within the jurisdiction of this Honorable Court, the above-named accused
without being authorized by law, did then and there willfully, unlawfully and feloniously sell
eight (8) pieces of dried marijuana flowering tops, two (2) pieces of dried marijuana flowering
tops and crushed dried marijuana flowering tops, which are prohibited drug, for and in
consideration of P20.00.

Upon arraignment, Tandoy entered a plea of not guilty. After trial, Judge Buenaventura J.
Guerrero rendered a decision the dispositive portion of which declared:

WHEREFORE, the Court finds Mario Tandoy y Lim guilty beyond reasonable doubt of violation of
Sec. 4, Art. II, Rep. Act No. 6425, as amended, and is hereby sentenced to life imprisonment
and to pay a fine of P20,000.00 and cost.: nad

The marijuana confiscated in this case is declared confiscated and forfeited and ordered turned
over to the Dangerous Drugs Board for proper disposal.

SO ORDERED.

The accused-appellant raises the following assignment of errors in this appeal:

1. The Court a quo erred in finding accused guilty beyond reasonable doubt of the crime
charged despite lack of evidence to prove that he sold marijuana to the poseur-buyer.

2. The Court a quo erred in admitting in evidence against the accused Exh. "E-2-A" which is
merely a xerox copy of the P10.00 bill allegedly used as buy-bust money.

The evidence of the prosecution may be summarized as follows:

On May 27, 1986, at about 3:30 p.m. Lt. Salido, Jr. of the Makati Police Station dispatched Pfc.
Herino de la Cruz, and Detectives Pablo R. Singayan, Nicanor Candolesas, Luisito de la Cruz,
Estanislao Dalumpines, Antonio Manalastas and Virgilio Padua to conduct a buy-bust operation
at Solchuaga St., Barangay Singkamas, Makati.

The target area was a store along the said street, and Singayan was to pose as the buyer. He
stood alone near the store waiting for any pusher to approach. The other members of the team
strategically positioned themselves. Soon, three men approached Singayan. One of them was
the accused-appellant, who said without preamble: "Pare, gusto mo bang umiskor?" Singayan
said yes. The exchange was made then and there two rolls/pieces of marijuana for one
P10.00 and two P5.00 bills marked ANU (meaning Anti-Narcotics Unit).

The team then moved in and arrested Tandoy. Manalastas and Candolesas made a body search
of the accused-appellant and took from him the marked money, as well as eight more rolls/foils
of marijuana and crushed leaves.: nad

The arresting officers brought Tandoy to the Office of the Anti-Narcotics Unit, Makati Police
Station, for investigation by Detective Marvin Pajilan. The accused-appellant chose to remain
silent after having been informed of his constitutional rights.

These events were narrated under oath by De la Cruz, Singayan and Pajilan. 1 Microscopic,
chemical and chromotographic examination was performed on the confiscated marijuana by
Raquel P. Angeles, forensic chemist of the National Bureau of Investigation, who later testified
that the findings were positive. The marijuana was offered as an exhibit. 2

As might be expected, the accused-appellant had a different story. His testimony was that from
1:30 to 4:00 p.m. of the day in question, he was playing "cara y cruz" with 15 other persons
along Solchuaga St. when somebody suddenly said that policemen were making arrests. The
players grabbed the bet money and scampered. However, he and a certain Danny (another
"cara y cruz" player) were caught and taken to the Narcotics Command headquarters in
Makati. There they were mauled and warned that if they did not point to their fellow pushers,
they would rot in jail. The accused-appellant denied he had sold marijuana to Singayan and
insisted the bills taken from him were the bet money he had grabbed at the "cara y cruz"
game. 3

The trial court, which had the opportunity to observe the demeanor of the witnesses and to
listen to their respective testimonies, gave more credence to the statements of the arresting
officers. Applying the presumption that they had performed their duties in a regular manner, it
rejected Tandoy's uncorroborated allegation that he had been manhandled and framed. Tandoy
had not submitted sufficient evidence of his charges, let alone his admission that he had no
quarrel with the peace officers whom he had met only on the day of his arrest.

In People v. Patog, 4 this Court held:

When there is no evidence and nothing to indicate the principal witness for the prosecution
was actuated by improper motives, the presumption is that he was not so actuated and his
testimony is entitled to full faith and credit.

Tandoy submits that "one will not sell this prohibited drug to another who is a total stranger
until the seller is certain of the identity of the buyer."

The conjecture must be rejected.: nad

In People v. Paco, 5 this Court observed:

Drug-pushing when done on a small level as in this case belongs to that class of crimes that
may be committed at anytime and at any place. After the offer to buy is accepted and the
exchange is made, the illegal transaction is completed in a few minutes. The fact that the
parties are in a public place and in the presence of other people may not always discourage
them from pursuing their illegal trade as these factors may even serve to camouflage the
same. Hence, the Court has sustained the conviction of drug pushers caught selling illegal
drugs in a billiard hall (People v. Rubio, G.R. No. 66875, June 19, 1986, 142 SCRA 329; People v.
Sarmiento, G.R. No. 72141, January 12, 1987, 147 SCRA 252), in front of a store (People vs.
Khan, supra) along a street at 1:45 p.m. (People v. Toledo, G.R. No. 67609, November 22, 1985,
140 SCRA 259), and in front of a house (People v. Policarpio, G.R. No. 69844, February 23,
1988).

As the Court has also held, "What matters is not an existing familiarity between the buyer and
the seller but their agreement and the acts constituting the sale and delivery of the marijuana
leaves." 6

Under the second assigned error, the accused-appellant invokes the best evidence rule and
questions the admission by the trial court of the xerox copy only of the marked P10.00 bill.

The Solicitor General, in his Comment, correctly refuted that contention thus:

This assigned error centers on the trial court's admission of the P10.00 bill marked money
(Exh. E-2-A) which, according to the appellant, is excluded under the best evidence rule for
being a mere xerox copy. Apparently, appellant erroneously thinks that said marked money is
an ordinary document falling under Sec. 2, Rule 130 of the Revised Rules of Court which
excludes the introduction of secondary evidence except in the five (5) instances mentioned
therein.:-cralaw

The best evidence rule applies only when the contents of the document are the subject of
inquiry. Where the issue is only as to whether or not such document was actually executed, or
exists, or in the circumstances relevant to or surrounding its execution, the best evidence rule
does not apply and testimonial evidence is admissible. (Cf. Moran, op. cit., pp. 76-77; 4 Martin,
op. cit., p. 78.)

Since the aforesaid marked money was presented by the prosecution solely for the purpose of
establishing its existence and not its contents, other substitutionary evidence, like a xerox
copy thereof, is therefore admissible without the need of accounting for the original.

Moreover, the presentation at the trial of the "buy-bust money" was not indispensable to the
conviction of the accused-appellant because the sale of the marijuana had been adequately
proved by the testimony of the police officers. So long as the marijuana actually sold by the
accused-appellant had been submitted as an exhibit, the failure to produce the marked money
itself would not constitute a fatal omission.
We are convinced from the evidence on record that the prosecution has overcome the
constitutional presumption of innocence in favor of the accused-appellant with proof beyond
reasonable doubt of his guilt. He must therefore suffer the penalty prescribed by law for those
who would visit the scourge of drug addiction upon our people.

WHEREFORE, the appeal is DISMISSED and the challenged decision AFFIRMED in toto, with
costs against the accused-appellant.: nad

SO ORDERED

ASSIGNMENT NO. 10
Case No. 2. U.S. vs. Gregorio, 17 Phil. 522 (1910)
[G.R. No. L-5791. December 17, 1910. ]

THE UNITED STATES, Plaintiff-Appellee, v. BERNARDO GREGORIO and EUSTAQUIO BALISTOY,

Defendants-Appellants.

SYLLABUS

1. FALSIFICATION; THE ORIGINAL DOCUMENT, ALLEGED TO HAVE BEEN FALSIFIED, MUST BE

PRODUCED. In a criminal cause for the falsification of a document, it is indispensable that
the judges and the courts have before them the document alleged to have seen simulated,
counterfeited, or falsified, in order that they may find, pursuant to the evidence produced at
trial, whether or not the crime of falsification was actually committed; in the absence of the
original document, it is improper to conclude, with only a copy of the said original in view, that
there has been a falsification of a document which was neither found nor exhibited, because,
in such a case, even the existence of such original document may be doubted.

DECISION

TORRES, J. :

Appeals were interposed by the defendants Bernardo Gregorio and Eustaquio Balistoy from the
judgment rendered in the two causes prosecuted, No. 1574, against Bernardo Gregorio, and
No. 1575, against Eustaquio Balistoy, which were consolidated and in which but one judgment
was rendered, and forwarded to this court and registered under No. 5791.

In the suit instituted by Pedro Salazar, as a creditor against Eustaquio Balistoy, in the justice of
the peace court of Libog, for the payment of a certain sum of money, judgment was rendered,
on April 4, 1908, wherein the debtor was sentenced to pay to the plaintiff P275.92, with
interest thereon, and the costs. For the execution of the said judgment, two rural properties
belonging to the debtor were attached and the 27th of May, 1908, was set as the date for the
sale and adjudication of the said attached properties to the highest bidder. On the 18th of the
same month, Bernardo Gregorio requested the deputy sheriff to exclude the said realty from
the attachment, alleging that he was the owner of the land situated in Tambogon, one of the
properties levied upon, 400 brazas in circumference, situate in the pueblo of Bacacay, the
location and boundaries of which are expressed in his petition, for the reason that he had
acquired it by purchase from the judgment debtor, Balistoy, in 1905, prior to the filing of the
compliant. By reason of this claim and petition the judgment creditor, Salazar, had to give a
bond, in view of which the sheriff proceeded with the sale of the said property, and of another,
also attached for the sum of P300, and both were adjudicated to the judgment creditor,
according to the certificate, Exhibit C.

In order that the claim of intervention presented to the sheriff might prosper, Bernardo
Gregorio attached thereto the document Exhibit D, at the end of which and among other
particulars appears the memorandum dated in Libog as of February 22, 1905, and signed by
Eustaquio Balistoy, Lorenzo Gregorio, and Cirilo Valla, and in which Balistoy states that he
bought the land referred to in the said document from Luis Balistoy and sold it to Bernardo
Gregorio for P300, wherefore he signed as such vendor.

The charge consists in that Balistoy, with intent to injure his creditor, Pedro Salazar, and for the
purpose of avoiding the attachment and sale of one of the properties belonging to him, to
secure the payment of the judgment obtained by his creditor in the aforementioned suit, did,
with disregard of the truth in the narration of the facts, execute or write the said memorandum
whereby, on February 25, 1905, he made or simulated a conveyance of one of the attached
properties in favor of the said Bernardo Gregorio, according to the aforesaid copy, when in fact
the said memorandum was written in April, 1908.

For the foregoing reasons a complaint was filed in each of the two aforesaid causes in the
Court of First Instance of Albay, charging each of the defendants with the crime of the
falsification of a private document, and proceedings having been instituted in both causes,
which were afterwards, by agreement of the parties thereto, consolidated, the court, on
November 6, 1909, pronounced in both of them the judgment appealed from, written in
duplicate, whereby Balistoy was sentenced to the penalty of one year eight months and
twenty-one days of presidio correccional, to the accessory penalties, to pay a fine of 1,501
pesetas, and, in case of nonpayment thereof through insolvency, to suffer the corresponding
subsidiary imprisonment, provided it should not exceed one-third of the principal sentence,
and to pay the costs incurred in cause No. 1575; and likewise, Bernardo Gregorio was
sentenced to the penalty of three months and eleven days of arresto mayor, to pay a fine of
1,980 pesetas, and, in case of insolvency, to the corresponding subsidiary imprisonment, with
the provision that it should not exceed one-third of the principal penalty, to the accessory
punishments, and to pay the costs occasioned by cause No. 1574. From these sentences the
defendants, respectively, appealed.

This case concerns the falsity of a document alleged to have been written on a date prior to
the one whether it actually was prepared, which instrument simulates the sale of a parcel of
land by its owner to a third party, with the intent to defraud the creditor who, through proper
judicial process, solicited and obtained the attachment and sale of the said property in order,
with the proceeds of such sale, to recover the amount which the owner of the land owed him.
The sale was recorded in a memorandum, made upon a private document, according to the
alleged copy of the latter presented at trial which belonged to the owner of the land; and,
notwithstanding the fact that the sheriff, who carried out the proceedings of attachment and
sale, testified to his having seen the original of the said document, or at least the original
memorandum of the conveyance, the only record that could be of use to the intervener, who
claimed a lien on the land which was to be sold at public auction; certainly the mere exhibition
of a copy of an unauthenticated public document could not legally produce the effect of
suspending the sale of the said land, inasmuch as such copy is not sufficient proof of the right
of the intervener and opponent, being a mere copy of a private document whose legality has
not been proven.

In the charge filed in this cause against the vendor and the vendee of the land in question, it is
stated that these parties, the defendants, simulated the said memorandum of sale or
conveyance of the land with intent to injure the creditor, Pedro Salazar; but as the original
document, setting forth the said memorandum, was not presented, but merely a copy thereof,
and furthermore, as it could not be ascertained who had the original of the document
containing the memorandum in question, nor the exact date when the latter was written; the
said memorandum, presumed to be simulated and false, was not literally compared by the
sheriff who testified that he had seen its original for but a few moments, nor by any other
officer authorized by law to certify to documents and proceedings such as are recorded in
notarial instruments, nor even by two witnesses who might afterwards have been able to
testify before the court that the copy exhibited was in exact agreement with its original;
therefore, on account of these deficiencies, doubt arises as to whether the original of the
document, Exhibit D, really existed at all, and whether the memorandum at the foot of the said
exhibit is an exact copy of that alleged to have been written at the end of the said original
document.

In criminal proceedings for the falsification of a document, it is indispensable that the judges
and courts have before them the document alleged to have been simulated, counterfeited, or
falsified, in order that they may find, pursuant to the evidence produced in the cause, whether
or not the crime of falsification was committed, and also, at the same time, to enable them to
determine the degree of each defendants liability in the falsification under prosecution.
Through the lack of the original document containing the memorandum alleged to be false, it
is improper to hold, with only a copy of the said original in view, that the crime prosecuted was
committed; and although, judging from the testimony of the witnesses who were examined in
the two consolidated causes, there is reason to entertain much doubt as to the defendants
innocence, yet, withal, this case does not furnish decisive and conclusive proof of their
respective guilt as coprincipals of the crime charged. Defendants in a criminal cause are
always presumed to be innocent until their guilt be fully proven, and, in case of reasonable
doubt and when their guilt is not satisfactorily shown, they are entitled to a judgment of
acquittal. In view of the evidence produced in both of the aforesaid criminal causes, said
causes can only be terminated by such a finding.

For the foregoing reasons, it is proper, in our opinion, with a reversal of the judgment appealed
from, to acquit, and we hereby do acquit Eustaquio Balistoy and Bernardo Gregorio, with the
costs of both instances de oficio. So ordered.

Case No. 11. PNB vs. Seeto, 91 Phil. 756 (1952)

G.R. No. L-4388 August 13, 1952

PHILIPPINE NATIONAL BANK, petitioner, vs.BENITO SEETO, respondent.

On March 13, 1948, respondent Benito Seeto called at the branch of the Philippine National
Bank, petitioner herein, at Surigao, and presented a check, No. A-21096, in the amount of
P5,000 dated at Cebu on March 10, 1948, payable to cash or bearer, and drawn by one Gan
Yek Kiao against the Cebu branch of the Philippine National Bank of Communications. After
consultation with the employees of the branch, Seeto made a general and unqualified
indorsement of the check, and petitioner's agency accepted it and paid respondent the
amount of P5,000 therefor. The check was mailed to petitioner's Cebu branch on March 20,
1948, and was presented to the drawee bank for payment on April 9, 1948, but the check was
dishonored for "insufficient funds." So the check was returned to petitioner's Surigao agency,
and upon receipt thereof by it on April 14, 1948, said branch immediately sent a letter to the
respondent herein demanding immediate refund of in the value of the check. A second
communication of the same tenor was sent on April 26, 1948, to which respondent answered
asking that plaintiff's contemplated suit be deferred while he was making inquiries about the
reasons for the dishonor of the check. Thereafter, respondent refused to make the refund
demanded, claiming that at the time of the negotiation o the check the drawer had sufficient
funds in the drawee bank, and that the petitioner's Surigao agency not delayed to forward the
check until the drawer's funds were exhausted, the same would have been paid.

Thereupon petitioner presented a complaint in the Court of First Instance of Surigao, alleging
that respondent Benito Seeto gave assurance to petitioner's agency in Surigao that the drawer
of the check had sufficient funds with the drawee bank, and that upon these assurances
petitioner's agency delivered the P5,000 to the respondent after the latter had made a general
and unqualified indorsement thereon. Respondent denied having made the alleged
assurances. Upon this issue petitioner submitted two witnesses at the time of the trial, who
testified that it was not the practice of petitioner's agency to cash out of town checks, and that
the check was cashed because of the assurances given by the respondent that the drawer had
sufficient funds, and that he (respondent) would refund the amount paid by petitioner's agency
in case the check is dishonored. Respondent denied having given the assurances. The trial
court found notwithstanding respondent's denial to the contrary, that the respondent made an
undertaking to refund the amount of the checks in the event of dishonor. In support of this
finding it found that as the drawee bank is not in Cebu, it was impossible for petitioner's
agency to make an independent verification of the drawer's solvency, and must have taken
precautions to protect itself against loss by requiring the respondent to give assurances that
he would return the amount of the check in the case of nonpayment. It also found that there
was no unreasonable delay in the presentation of the check, and, therefore, rendered
judgment sentencing respondent to refund the amount he had received for the check.

On appeal to the Court of Appeals, this court held that petitioner was guilty of unreasonably
retaining and with-holding the check, and that the delay in the presentment for payment was
inexcusable, so that respondent was thereby discharged from liability. It also held that parol
evidence is incompetent to show that one signing of a check as indorser is merely a surety or
guarantor, rejecting the evidence adduced at the trial court about the respondent's assurance
and promise to refund. It, therefore, reversed the judgment of the trial court and dismissed the
complaint, with costs. Against this judgment an appeal by certiorari has been brought to this
Court, petitioner Philippine National Bank contending that the Court of Appeals erred in
applying sections 143 and 144 of the Negotiable Instruments Law and declaring respondent
Benito Seeto discharged of his liability as indorser of the check, and in not admitting parol
evidence to show that respondent made oral assurances to refund the value of the check in
case of dishonor.

In support of petitioner's first assignment of error, it is argued that inasmuch as a check need
not to be presented for acceptance, unlike a bill of exchange as required by Section 143,
Section 144 of the law is not applicable to the case at bar but Section 84, which provides:
SEC. 84. Liability of person secondarily liable, when instrument dishonored. Subject to the
provisions of this Act, when the instrument is dishonored by nonpayment, as immediate right
of recourse to all parties secondarily liable thereon accrues to the holder.

It is true that Section 143 and 144 of the law are not applicable, because these are provisions
having to do with the presentation of a bill of exchange for acceptance, and are not applicable
to a check, as to which presentment for acceptance is not required.

It is also true that Section 84 is applicable, but its application is subject to the condition
imposed by Section 186, to the effect that the check must be presented for payment within a
reasonable time after its issue.

SEC. 186. Within what time a check must be presented. A check must be presented for
payment within a reasonable time after its issue or the drawer will be discharged from liability
thereon to the extent of the loss caused by the delay.

Counsel for the petitioner, however, argues that inasmuch as the above section expressly
provides for the discharge of the drawer from liability to the extent of the loss caused by the
delay, and, on the other hand, it is silent as to the liability of the indorser, the latter may not
be considered discharged from liability by reason of the delay in the presentment of payment
under the general principle inclusio unius est exclusion alterius. We find no reason nor merit in
the argument. The silence of Section 186 as to the indorser is due to the fact that his
discharge is already expressly covered by the provision of Section 84, the indorser being a
person secondarily liable on the instrument. The reason for the difference between the liability
of the indorser and that of the drawer in case of dishonor is that the drawer is not probably or
necessarily prejudiced thereby, while an indorser is, actually or by legal presumption.

Innumerable decisions have already been rendered in the state courts of the United States to
the effect that although the drawer of a check is discharged only to the extent of loss caused
by unreasonable delay in presentment, an indorser is wholly discharged thereby irrespective of
any question of loss or injury. ( Swift & Co. vs. Miller, 62 Ind. App. 312, 113 N.E. 447, cited in
Brannan's Negotiable Instruments Law, p. 1134, Nuzum vs. Sheppard, 87 W. Va. 243, 104 S.E.
587, 11 A.L.R. 1024, Ibid.)

The proposition maintained in the reported case (Nuzum vs. Sheppard., ante. 1024) that the
indorser of a check, unlike the drawer, is relieved of liability thereon by an unreasonable delay
in presenting the same for payment, whether or not he is injured by the delay, is supported by
the great weight of authority, (Cases cited.)

The Court, in Gough v. Staats (N.Y.) supra, says: "Upon the question of due diligence to charge
an indorser, whether he has been prejudiced or not by the delay is perfectly immaterial. It is
not inquired into. The law presumes he has been prejudiced." According to the Court in Caroll
v. Sweet (1891) 128 N.Y. 19, 13 L.R.A. 43, 27 N.E. 763, "presentment to due time as fixed by
the law merchant was a condition upon performance of which the liability of the defendant, as
indorser, depended, and this delay was not excused, although the drawer of the check had no
funds, or was insolvent, or because presentment would not been unavailing as a means of
procuring payment." Only where there is affirmative proof that the indorser knew when he
cashed the check that there would be no funds in the bank to meet it can the rule be avoided.
Otherwise, the failure to present the check in due course of payment will discharge the
indorser even though such presentment would have been unavailing. Start v. Tupper (Vt.)
supra. (11 A.L.R. Annotation, pp. 1028-1029.)

We have been unable to find any authority sustaining the proposition that an indorser of a
check is not discharged from liability for an unreasonable delay in presentation for payment.
This is contrary to the essential nature and character of negotiable instruments their
negotiability. They are supposed to be passed on with promptness in the ordinary course of
business transactions; not to be retained or kept for such time as the holder may want,
otherwise the smooth flow of commercial transactions would be hindered.

There seems to be an intimation in the decision appealed from that inasmuch as the check was
drawn payable elsewhere than at the place of business of the drawer, it must be presented for
acceptance or negotiable within a reasonable time, and upon failure to do so the drawer and
all indorsers thereof are discharged pursuant to Section 144 of the law. Against this insinuation
the petitioner argues that the application of sections 143 and 144 is not proper, and that it
may not be presumed that the check in question was not drawn and executed in Cebu, the
residence or place of business of the drawer. There is no evidence at all as to the place where
the check was drawn. However, we have already pointed out above that neither Section 143
nor Section 144 is applicable. But our ruling that respondent was discharged upon the dishonor
of the check is based on Sections 84 and 186, the latter expressly requiring that a check must
be presented for payment within a reasonable time after issue.

It is not claimed by the petitioner on this appeal that the conclusion of the Court of Appeals
that there was unreasonable delay in the presentation of the check for payment at the drawee
bank is erroneous. The petitioner concedes the correctness of this conclusion, although for
purposes of argument merely. We find that the conclusion is correct. The fact, admitted by the
witnesses for the petitioner, the checks for the drawer issued subsequent to March 13, 1948,
drawn against the same bank and cashed at the same Surigao agency, were not dishonored
positively shows that the drawer had enough funds when he issued the check in question, and
that had it not been for the unreasonable delay in its presentation for payment, the petitioner
herein would have been able to receive payment therefor. The check is dated March 10, and
was cashed by the petitioner's agency on March 13, 1948. It was not mailed until seven days
thereafter, i.e., on March 20, 1948, or ten days after issue. No excuse was given for this delay.
Assuming that it took one week, or say ten days, or until March 30, for the check to reach
Cebu, neither can there be any excuse for not presenting it for payment at the drawee bank
until April 9, 1948, or 10 days after it reached Cebu. We, therefore, find no reason for
disturbing the conclusion of the Court of Appeals that there was unreasonable delay in the
presentation of the check for payment at the drawee bank, and that is a consequence thereof,
the indorser, respondent herein, was thereby discharged.

With respect to the second assignment of error, petitioner argues that the verbal assurances
given by the respondent to the employees of the bank that he was ready to refund the amount
if the check should be dishonored by the drawee bank is a collateral agreement, separate and
distinct from the indorsement, by virtue of which petitioner herein was induced to cash the
check, and, therefore, admissible as an exception that the parol evidence rule. Petitioners
contention in this respect is not entirely unfounded. In the case of Tan Machan vs. De La
Trinidad, et al., 4 Phil., 684, this court held that parol evidence is admissible to show that
parties signing as principals merely did so as sureties. In the case of Robles vs. Lizarraga
Hermanos, 50 Phil., 387, it was also held by this court that parol evidence is admissible to
prove "an independent thereof." (Ibid., p. 395.) In Philips vs. Preston, 5 How. (U.S.) 278, 12 L.
ed, 152, the Supreme Court of the United States held that any prior or contemporaneous
conversation in connection with a note or its indorsement, may be proved by parol evidence.
And Wigmore states that "an extrinsic agreement between indorser and indorsee which cannot
be embodied in the instrument without impairing its credit is provable by parol." (9 Wigmore
148, section 2445 [3].) If, therefore, the supposed assurances that the drawer had funds and
that the respondent herein would refund the amount of the check if the drawer had no funds,
were the considerations or reasons that induced the branch agency of the petitioners to go out
of its ordinary practice of not cashing out of town checks and accept the check and to pay its
face value, the same would be provable by parol, provided, of course, that the assurances or
inducements offered would not vary, alter, or destroy the obligations attached by law to the
indorsement.

We find, however, that the supposed assurances of refund in case of dishonor of the check are
precisely the ordinary obligations of an indorser, and these obligations are, under the law,
considered discharged by an unreasonable delay in the presentation of the check for payment.

SEC. 66. Liability of general indorser. . . . .

And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as
the case may be, according to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it. (Emphasis ours.)

There was no express obligation assumed by the respondent herein that the drawer would
always have funds, or that he (the indorser) would refund the amount of the check even if
there was delay in its presentation, so that while the Court of Appeals may have committed an
error in disregarding the evidence submitted by petitioner at the trial of the assurances made
by respondent herein at the time of the negotiation of the check, such error was without
prejudice, because the supposed assurances given were part of his obligations as an indorser,
which were discharged by the unreasonable delay in the presentation of the check for
payment.

The judgment appealed from is, therefore, affirmed, with costs against the petitioner.

Case No. 20. People vs. De Jesus, 129 SCRA 4 (1984)

G.R. No. L-39087 April 27, 1984

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs.ROGELIO DE JESUS y QUIZON, alias

"ELIONG," accused-appellant.

The accused, Rogelio de Jesus y Quizon appeals from the decision of the Circuit Criminal Court,
First Judicial District in its Criminal Case No. CCC-1-80, Isabela (II-329) finding him guilty
beyond reasonable doubt, of the crime of rape as defined and penalized under Article 335,
paragraph 2 of the Revised Penal Code and sentencing him, after appreciating in his favor the
mitigating circumstance of voluntary surrender, to suffer the penalty of reclusion perpetua to
indemnify the offended party Clara Mina y Simon in the amount of P10,000.00 plus another
P5,000.00 as moral and exemplary damages, without subsidiary imprisonment in case of
insolvency, and to pay the costs.

The facts are as follows: t.hqw

Clara Mina, an unmarried woman of 28, lived with her parents in barrio Amistad, Alicia, Isabela
(p. 7, tsn., March 21, 1974).

Clara Mina, however, is feeble-minded. She is unable to comb her hair, bathe herself and wash
her clothes (pp. 21, 31, 32, tsn., March 21, 1974). Because of her mental condition, she just
stayed in the house, doing no household chores (p. 31, tsn., Id.).

The accused, Rogelio de Jesus, a 19-year old farmer, who lived in the house of his sister some
15 meters away from the victim's house, knew of Clara's mental infirmity, and has often seen
her left alone in the house (p. 20, tsn., March 21, 1974; pp. 38, 47, 49, tsn., April 25, 1974).

At about 2:00 o'clock in the afternoon of Jan. 3, 1974, Pastora Simon went out to the field in
order to plant palay, leaving her daughter Clara Mina alone in the house. Her husband (Clara's
father), had gone to a place called Soliven four days before, while the other members of the
household had also left for the field (pp. 17, 18, 19, tsn., March 21, 1974).

That afternoon, Clara Mina was seated on top of a trunk when Rogelio de Jesus suddenly
entered the house, carried her in his arms and laid her on the floor (pp. 8, 13, tsn., March 21,
1974). Objecting to what was being done to her, Clara gave an outcry "Madi! Madi!" (which
translated means "I don't like! I don't like!") Rogelio, ignoring her cries, removed her panties as
well as his own trousers. He lay on top of her, inserted his penis into her vagina and performed
the sexual act (pp. 7, 8, 9, 13,14, 15, tsn., Id.).

Meanwhile, Pastora Simon, who had already walked some 150 meters away from their house,
when sensing it was about to rain, hurried back to the house to get cellophane with which to
shield her from the rain (p. 17, tsn., March 21, 1974). Upon her return to the house, she found
Rogelio de Jesus naked lying on top of Clara Mina whose legs were spread apart (p. 19, tsn.,
Id.). Seeing them in that position, she rushed to the kitchen to get a club but Rogelio spotted
her and ran away. (p. 20, tsn., Id.).

The barrio captain, Glicerio Guzman, to whom Pastora Simon had immediately reported the
incident, looked for Rogelio but failed to locate him (p. 20, tsn., March 21, 1974; pp. 10, 20,
tsn., March 22, 1974).

Returning from the barrio captain's house, Pastora Simon investigated Clara, who revealed to
her that she was carried away from the trunk where she was seated, then forcibly laid on the
floor to have sexual intercourse with Rogelio (pp. 20, 21, tsn., March 21, 1974).

The next day January 4, 1974 Clara Mina, accompanied by her parents, denounced
Rogelio de Jesus to the police authorities (p. 20, tsn., March 22, 1974). Clara Mina was
examined by Fernando Babaran, Municipal Health Officer of Echague, lsabela at the Southern
Isabela Emergency Hospital, the municipal health officer of Alicia being then on leave (p. 6,
tsn., March 22, 1974). The medical certificate, Exhibit "C", issued by Dr. Babaran, shows the
following findings:

(1) hymenal lacerations at 3 o'clock, 8 o'clock and 11 o'clock.

(2) vagina admits one finger with ease. Two fingers with difficulty.

(3) fresh perineal abrasion.

(4) smear, not done due to lack of microscope.

(5) contusion left temporal area. Lesions to heal within one week. (p. 3, Record).

According to Dr. Babaran, the abrasions were possibly inflicted the day prior to the
examination and that the contusion on the left temporal area of the girl's head could have
been caused when her head was pushed against a hard object (pp. 11, 12, tsn., March 22,
1974).

Subsequently, Rogelio de Jesus was surrendered by his brother-in-law, a councilor to the Alicia
Police Department. He executed an affidavit, Exhibit "D" subscribed before Alicia Municipal
Judge Flor Egipto on January 5, 1974, admitting that he had sexual intercourse once with Clara
Mina, but denying that he raped her (p. 7, record).

The accused denied that he had forced the complainant to have sexual intercourse with him
and that he only inserted his forefinger inside the complainant's private parts. He testified that
he admitted having sexual intercourse once with complainant in his affidavit 1 because of
maltreatment employed upon him by the jail guards.

While the affidavit executed by the accused is not admissible in evidence for lack of evidence
showing that the accused during the custodial investigation was apprised of his constitutional
rights under Art. IV, Sec. 20, of the New Constitution, 2 still there is sufficient evidence on
record that the accused had performed the sexual act to wit: t.hqw

1. The accused testified that he merely inserted his forefinger into the complainant's
vagina to cure her of her mental malady. The records, however show, from the testimony of
both the prosecution and the defense, that the accused laid on top of complainant. If
appellant's purpose was merely to insert his forefinger into the complainant's vagina, then
there is no necessity of lying on top of complainant.

2. Complainant testified, contrary to the testimony of the accused, that the latter brought
out his penis and inserted it into her vagina which pained her a lot.

3. The hymenal lacerations and the fresh perineal abrasions in complainant's vagina
corroborated her testimony that the accused had sexual intercourse with her.

The accused assailed the competence of the complainant as a witness on the ground that
being feeble minded she is not a competent witness in contemplation of the rules and
therefore her testimony should have been rejected by the lower court. That the complainant
was feeble-minded and had displayed difficulty in comprehending the questions propounded
on her is an undisputed fact. However, there is no showing that she could not convey her Ideas
by words or signs. It appears in the records that complainant gave sufficiently intelligent
answers to the questions propounded by the court and the counsels. The court is satisfied that
the complainant can perceive and transmit in her own way her own perceptions to others. She
is a competent witness.

Having sexual intercourse with a feeble-minded woman is rape. The offense is described under
paragraph 2 of Article 335 of the Revised Penal Code, that is, the offender having carnal
knowledge of a woman deprived of reason. The Court, in the case of People vs. Daing, 3 said:

The offense committed by appellant is rape described under paragraph 2 of Article 335 of the
Revised Penal Code, that is, the offender having carnal knowledge of a woman deprived of
reason. The deprivation of reason contemplated by law does not need to be complete. Mental
abnormality or deficiency is enough. So it was held by the Supreme Court of Spain that a man
having carnal knowledge of a woman whose mental faculties are not normally developed or
who is suffering from hemiplegia and mentally backward or who is an Idiot commits the crime
of rape. ...

Being feeble-minded, complainant is incapable of thinking and reasoning like any normal
human being and not being able to think and reason from birth as aforesaid, and undoubtedly
devoid or deficient in those instincts and other mental faculties that characterize the average
and normal mortal, she really has no will that is free and voluntary of her own; hers is a
defective will, which is incapable of freely and voluntarily giving such consent so necessary
and essential in lifting coitus from the place of criminality. 4 In this connection, the Solicitor
General properly stated: t.hqw

That complainant possesses such a low mental capacity, to the extent of being incapable of
giving consent, could be gleaned from the fact, as testified to by her mother, that she is
unable to do the simple tasks of combing her hair and bathing herself. Thus, even granting it to
be true, as counsel has insinuated, that complainant had submitted to the sexual act without
resistance (p. 9 Appellant's Brief) such cannot be construed as consent on her part, so as to
preclude it from being rape. Incapable of giving consent, she could not thus consent in
intelligently. 5

WHEREFORE, the appealed decision is AFFIRMED in toto.

Case No. 29. Goi vs. Court of Appeals, 144 SCRA 222 (1986)
G.R. No. L-27434 September 23, 1986

GENARO GOI, RUFINA P. vda. DE VILLANUEVA, VIOLA P. VILLANUEVA, OSCAR P. VILLANUEVA,

MARINA P. VILLANUEVA, VERNA P. VILLANUEVA, PRAXEDES P. VILLANUEVA, JR., JOSE P.
VILLANUEVA, SAMUEL P. VILLANUEVA, LOURDES P. VILLANUEVA, MILAGROS P. VILLANUEVA DE
ARRIETA, petitioners-appellants,

vs. THE COURT OF APPEALS and GASPAR VICENTE, respondents-appellees.

This is an appeal by certiorari from the decision of the then Court of Appeals in CA-G.R. No.
27800-R entitled, "Gaspar Vicente, Plaintiff-Appellant, vs. Genaro Goni, et. al., Defendants-
Appellants" as well as from the resolution denying petitioners' motion for reconsideration.

The factual backdrop is as follows:

The three (3) haciendas known as San Sebastian, Sarria and Dulce Nombre de Maria situated
in the Municipality of Bais, Negros Oriental, were originally owned by the Compania General de
Tabacos de Filipinas [TABACALERA]. Sometime in 1949, the late Praxedes T. Villanueva,
predecessor-in-interest of petitioners, negotiated with TABACALERA for the purchase of said
haciendas. However, as he did not have sufficient funds to pay the price, Villanueva with the
consent of TABACALERA, offered to sell Hacienda Sarria to one Santiago Villegas, who was later
substituted by Joaquin Villegas. Allegedly because TABACALERA did not agree to the
transaction between Villanueva and Villegas, without a guaranty private respondent Gaspar
Vicente stood as guarantor, for Villegas in favor of TABACALERA. The guarantee was embodied
in a document denominated as "Escritura de Traspaso de Cuenta." 1

Either because the amount realized from the transaction between Villanueva and Villegas still
fell short of the purchase price of the three haciendas, or in consideration of the guaranty
undertaken by private respondent Vicente, Villanueva contracted or promised to sell to the
latter fields nos. 3, 4 and 13 of Hacienda Dulce Nombre de Maria for the sum of P13,807.00.
This agreement was reduced to writing and signed by petitioner Genaro Goni as attorney-in-
fact of Villanueva, thus:

En consideracion a la garantia que Don Gaspar Vicente assume con la Cia. Gral. de Tabacos de
Filipinas por el saldo de Don Santiago Villegas de P43,539.75 asumido por Don Joaquin Villegas
el que Subscribe Praxedes T. Villanueva se compromete ceder es venta a Don Gaspar Vicente
los campos nos. 3, 4 y 13 del plano de porcelario de la Hacienda Dulce Nombre de Maria, en
compra projectada de la Cia. Gral. de Tabacos de Filipinas. Estas campos representan 6-90-35
hectares por valor de P13,807.00 que Don Gasper Vicente pagara directamente a Praxedes T.
Villanueva

Bais Central, Octubre 24, 1949.

Fdo. Praxedes T. Villanueva

Por: Fdo Genaro Goi Apoderado 2

Private respondent Vicente thereafter advised TABACALERA to debit from his account the
amount of P13,807.00 as payment for the balance of the purchase price. However, as only the
amount of P12,460.24 was actually needed to complete the purchase price, only the latter
amount was debited from private respondent's account. The difference was supposedly paid
by private respondent to Villanueva, but as no receipt evidencing such payment was presented
in court, this fact was disputed by petitioners.
It is alleged by petitioners that subsequent to the execution of the contract/promise to sell,
Villanueva was able to raise funds by selling a property in Ayungon, Negros Oriental. He thus
went to private respondent Vicente for the purpose of rescinding the contract/promise to sell
However, as the amount of P12,460.24 had already been debited from private respondent's
account, it was agreed that lots 4 and 13 of the Hacienda Dulce Nombre de Maria would
merely be leased to private respondent Vicente for a period of five (5) years starting with crop-
year 1950-51 at an annual rental of 15% of the gross income, said rent to be deducted from
the money advanced by private respondent and any balance owing to Villanueva would be
delivered by Vicente together with the lots at the end of the stipulated period of lease.

On December 10, 1949, TABACALERA executed a formal deed of sale covering the three
haciendas in favor of Villanueva. Fields Nos. 3, 4 and 13 of the Hacienda Dulce Nombre de
Maria were thereafter registered in the name of Villanueva under TCT No. T-4780 of the
Register of Deeds of Negros Oriental. The fields were likewise mortgaged by Villanueva to the
Rehabilitation Finance Corporation (RFC), later transferred to the Philippine National Bank on
December 16, 1955, for a total indebtedness of

P334,400.00. 3

Meanwhile, Fields nos. 4 and 13 were delivered to private respondent Vicente after the 1949-
1950 milling season in January and February, 1950.

On June 17, 1950, Villanueva executed a "Documento de la Venta Definitive" in favor of Joaquin
Villegas, covering Lot No. 314 of the Cadastral Survey of Bais with an area of 468,627 square
meters, more or less. (Hacienda Sarria). A supplemental instrument was later executed by
Villanueva in favor of Villegas to include in the sale of June 17, 1950 the sugar quota of the
land.

On November 12, 1951, Villanueva died. Intestate proceedings were instituted on November
24, 1951 before the then Court of First Instance of Negros Oriental, docketed as Special Case
No. 777. Among the properties included in the inventory submitted to the court were fields
nos. 3, 4 and 13 of Hacienda Dulce Nombre de Maria. Field no. 13 with an area of 1 hectare, 44
ares and 95 centares was listed as Lot no. 723 of the inventory while fields nos. 3 and 4, with
areas of 3 hectares, 75 ares and 60 centares, and 1 hectare, 69 ares and 80 centares,
respectively, were included in Lot no. 257 of the inventory.

On October 7, 1954, the day before the intestate proceedings were ordered closed and the
estate of the late Praxedes Villanueva delivered to his heirs, private respondent Vicente
instituted an action for recovery of property and damages before the then Court of First
Instance of Negros Oriental against petitioner Goi in his capacity as administrator of the
intestate estate of Praxedes Villanueva. In his complaint docketed as Civil Case No. 2990,
private respondent Vicente sought to recover field no. 3 of the Hacienda Dulce Nombre de
Maria, basing his entitlement thereto on the contract/promise to sell executed by the late
Praxedes Villanueva in his favor on October 24, 1949. He likewise prayed by way of attorney's
fees and other costs the sum of P2,000.00 and for such other further relief which the court
may deem just and equitable in the premises. 4

On October 25, 1954, petitioner Goni as defendant in Civil Case No. 2990, filed an answer with
counterclaim for accounting of the produce of fields nos. 4 and 13, as well as the surrerder
thereof on June 20, 1955, the end of the fifth crop-year, plus moral damages in the sum of
P30,000.00 and P3,000.00 as attorney's fees. After an answer to the counter-claim had been
filed, private respondent Vicente amended his complaint on September 1, 1955, to include a
prayer for damages representing the produce of field no. 3 from 1949-50 until delivery thereof
to him. An answer with counterclaim to the amended complaint was duly filed, and on April 25,
1956, private respondent Vicente amended his complaint anew to include as parties-
defendants the heirs of the late Praxedes Villanueva.

On July 13, 1957, the parties entered into a stipulation of facts, agreeing, among others, on the
costs of production and produce of the three fields in question. The case thereafter proceeded
to trial. Plaintiff presented two (2) witnesses: then party-plaintiff Gaspar Vicente, himself, who
over the objection of therein defendants testified on facts occurring before the death of
Praxedes Villanueva, and Epifanio Equio a clerk of TABACALERA Agency in the Bais Sugar
Central. Defendants presented Genaro Goni, who testified on the alleged verbal lease
agreement.

On December 18, 1959, the trial court rendered a decision ordering therein defendants-heirs to
deliver to Gaspar Vicente field no 3, to execute a formal deed of sale covering fields nos. 3, 4
and 13 in favor of Vicente, to pay the latter actual or compensatory damages in the amount of
P 81,204.48, representing 15% of the total gross income of field no. 3 for crop-years 1950-51
to 1958-59, and such other amounts as may be due from said field for the crop years
subsequent to crop-year 1958-59, until the field is delivered to Vicente, and to pay the sum of
P2,000.00 as attorney's fees plus costs. Therein defendant Goi was relieved of any civil
liability for damages, either personally or as administrator of the estate. 5

Both parties appealed the decision to the then Court of Appeals; the plaintiff from the portion
awarding damages on a claim that he was entitled to more, and defendants, from the entire
decision.

On December 15, 1966, the Court of Appeals promulgated its decision, affirming that of the
lower court, with the modification that the amount of damages to be paid by defendant-heirs
to the plaintiff should be the total net income from field no. 3 from the crop year 1950-51 until
said field is finally delivered to the plaintiff plus interest thereon at the legal rate per annum. 6

Petitioners filed a motion for reconsideration, but were denied the relief sought in a resolution
dated February 9, 1967. Hence, the present appeal by certiorari whereby petitioners raise the
following questions of law:

MAY RESPONDENT GASPAR VICENTE TESTIFY ON MATTERS OF FACT OCCURRING BEFORE THE
DEATH OF PRAXEDES T. VILLANUEVA, WHICH CONSTITUTES A CLAIM OR DEMAND UPON HIS
ESTATE. IN VIOLATION OF RULE 123, SEC, 26, PAR. (C), NOW RULE 130, SEC. 20 PAR. (A)?

MAY NOT A WRITTEN PROMISE TO SELL DATED OCTOBER 24,1949 BE NOVATED INTO A VERBAL
AGREEMENT OF LEASE DURING THE LIFETIME OF THE PROMISSOR, WHOSE DEATH OCCURRED
ON NOVEMBER 12, 1951, BY FACTS AND CIRCUMSTANCES SUBSTANTIATED BY COMPETENT
ORAL EVIDENCE IN THIS CASE?

SHOULD THE PROMISEE IN A PROMISE TO SELL, WHO PAID P12,460.24 WHICH WAS TO BE
ACCOUNTED AND TO BE CREDITED AS RENTALS AFTER FIVE (5) YEARS OF LEASE, WHO IN HIS
ORIGINAL COMPLAINT DID NOT ALLEGE NOR PROVE DAMAGES, EXCEPT THE SUM OF P2,000.00
AS ATTORNEY'S FEES, RECEIVE A JUDGMENT FOR DAMAGES IN THE AMOUNT OF P74,056.35
WHICH CONSISTS OF P37,121.26 PLUS LEGAL INTEREST FOR THE CROP YEARS 1950-51 TO
1958-59 AND FOR P3,624.18 TO P4,374.78 FOR EVERY CROP YEAR SUBSEQUENT TO 1958-59
PLUS

INTEREST? 7

We find that neither the trial nor appellate court erred in ruling for the admissibility in evidence
of private respondent Vicente's testimony. Under ordinary circumstances, private respondent
Vicente 8 would be disqualified by reason of interest from testifying as to any matter of fact
occurring before the death of Praxedes T. Villanueva, such disqualification being anchored on
Section 20(a) of Rule 130, commonly known as the Survivorship Disqualification Rule or Dead
Man Statute, which provides as follows:

Section 20. Disqualification by reason of interest or relationship.-The following persons cannot

testify as to matters in which they are interested, directly or indirectly, as herein enumerated:

(a) Parties or assignors of parties to a case, or persons in whose behalf a case is

prosecuted, against an executor or administrator or other representative of a deceased person,
or against a person of unsound mind, upon a claim or demand against the estate of such
deceased person or against such person of unsound mind, cannot testify as to any matter of
fact occurring before the death of such deceased person or before such person became of
unsound mind.

The object and purpose of the rule is to guard against the temptation to give false testimony in
regard to the transaction in question on the part of the surviving party and further to put the
two parties to a suit upon terms of equality in regard to the opportunity of giving testimony. 9
It is designed to close the lips of the party plaintiff when death has closed the lips of the party
defendant, in order to remove from the surviving party the temptation to falsehood and the
possibility of fictitious claims against the deceased. 10

The case at bar, although instituted against the heirs of Praxedes Villanueva after the estate of
the latter had been distributed to them, remains within the ambit of the protection. The reason
is that the defendants-heirs are properly the "representatives" of the deceased, not only
because they succeeded to the decedent's right by descent or operation of law, but more
importantly because they are so placed in litigation that they are called on to defend which
they have obtained from the deceased and make the defense which the deceased might have
made if living, or to establish a claim which deceased might have been interested to establish,
if living. 11

Such protection, however, was effectively waived when counsel for petitioners cross-examined
private respondent Vicente. "A waiver occurs when plaintiff's deposition is taken by the
representative of the estate or when counsel for the representative cross-examined the
plaintiff as to matters occurring during deceased's lifetime. 12 It must further be observed that
petitioners presented a counterclaim against private respondent Vicente. When Vicente thus
took the witness stand, it was in a dual capacity as plaintiff in the action for recovery of
property and as defendant in the counterclaim for accounting and surrender of fields nos. 4
and 13. Evidently, as defendant in the counterclaim, he was not disqualified from testifying as
to matters of fact occurring before the death of Praxedes Villanueva, said action not having
been brought against, but by the estate or representatives of the estate/deceased person.
Likewise, under a great majority of statutes, the adverse party is competent to testify to
transactions or communications with the deceased or incompetent person which were made
with an agent of such person in cases in which the agent is still alive and competent to testify.
But the testimony of the adverse party must be confined to those transactions or
communications which were had with the agent. 13 The contract/promise to sell under
consideration was signed by petitioner Goi as attorney-in-fact (apoderado) of Praxedes
Villanueva. He was privy to the circumstances surrounding the execution of such contract and
therefore could either confirm or deny any allegations made by private respondent Vicente
with respect to said contract. The inequality or injustice sought to be avoided by Section 20(a)
of Rule 130, where one of the parties no longer has the opportunity to either confirm or rebut
the testimony of the other because death has permanently sealed the former's lips, does not
actually exist in the case at bar, for the reason that petitioner Goi could and did not negate
the binding effect of the contract/promise to sell. Thus, while admitting the existence of the
said contract/promise to sell, petitioner Goi testified that the same was subsequently novated
into a verbal contract of lease over fields nos. 4 and 13 of the Hacienda Dulce Nombre de
Maria.

Novation takes place when the object or principal condition of an obligation is changed or
altered. 14 In order, however, that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the
old and the new obligations be on every point incompatible with each other. 15 "Novation is
never presumed. It must be established that the old and the new contracts are incompatible in
all points, or that the will to novate appear by express agreement of the parties or in acts of
equivalent import. 16

The novation of the written contract/promise to sell into a verbal agreement of lease was
clearly and convincingly proven not only by the testimony of petitioner Goi, but likewise by
the acts and conduct of the parties subsequent to the execution of the contract/promise to sell.
Thus, after the milling season of crop year 1949-50, only fields nos. 4 and 13 were delivered to
private respondent Vicente. Fields nos. 3, 4 and 13 were subsequently registered in
Villanueva's name and mortgaged with the RFC. Villanueva likewise executed a deed of sale
covering Hacienda Sarria in favor of Joaquin Villegas. All these were known to private
respondent Vicente, yet he did not take any steps toward asserting and/or protecting his claim
over fields nos. 3, 4 and 13 either by demanding during the lifetime of Villanueva that the
latter execute a similar document in his favor, or causing notice of his adverse claim to be
annotated on the certificate of title of said lots. If it were true that he made demands on
Villanueva for the surrender of field no. 3 as well as the execution of the corresponding deed of
sale, he should have, upon refusal of the latter to do so, immediately or within a reasonable
time thereafter, instituted an action for recovery, or as previously observed, caused his
adverse claim to be annotated on the certificate of title. Considering that field no. 3, containing
an area of three (3) hectares, 75 ares and 60 centares, is the biggest among the three lots, an
ordinary prudent man would have taken these steps if he honestly believed he had any right
thereto. Yet, private respondent Vicente did neither. In fact such inaction persisted even during
the pendency of the intestate proceedings wherein he could have readily intervened to seek
exclusion of fields nos. 3, 4 and 13 from the inventory of properties of the late Praxedes
Villanueva.

The reason given by private respondent Vicente that field no. 3 was not delivered to him
together with fields nos. 4 and 13 because there were small sugar cane growing on said field
at that time belonging to TABACALERA, might be taken as a plausible explanation why he could
not take immediate possession of lot no. 3, but it certainly could not explain why it took him
four years before instituting an action in court, and very conveniently, as petitioners noted,
after Villanueva had died and at the time when the verbal contract of lease was about to
expire.

Both the trial and appellate courts chose to believe in the contract/promise to sell rather than
the lease agreement, simply because the former had been reduced to writing, while the latter
was merely verbal. It must be observed, though, that the contract/promise to sell was signed
by petitioner Goi as attorney-in-fact of the late Praxedes Villanueva, an indication, to our
mind, that final arrangements were made by petitioner Goi in the absence of Villanueva. It
was therefore natural for private respondent Vicente to have demanded that the agreement be
in writing to erase any doubt of its binding effect upon Villanueva. On the other hand, the
verbal lease agreement was negotiated by and between Villanueva and private respondent
Vicente themselves. Being close friends and relatives 17 it can be safely assumed that they did
not find it necessary to reduce the same into writing.

In rejecting petitioners' contention respecting the verbal lease agreement, the appellate court
put much weight on the failure of petitioners to demand an accounting of the produce of fields
nos. 4 and 13 from 1950 to 1954, when the action for recovery of property was filed. Such
failure was satisfactorily explained by petitioners in their motion for reconsideration filed
before the then Court of Appeals, in this manner:

... Mr. Genaro Goni is also a farmer by profession and that there was no need for him to
demand a yearly accounting of the total production because the verbal lease agreement was
for a term of 5 years. The defendant Mr. Genaro Goni as a sugar planter has already full
knowledge as to the annual income of said lots nos. 4 and 13, and since there was the amount
of P12,460.25 to be liquidated, said defendant never deemed it wise to demand such a yearly
accounting. It was only after or before the expiration of the 5 year lease that said defendant
demanded the accounting from the herein plaintiff regarding the production of the 2 lots that
were then leased to him.

It is the custom among the sugar planters in this locality that the Lessee usually demands an
advance amount to cover the rental for the period of the lease, and the demand of an
accounting will be only made after the expiration of the lease period. It was adduced during
the trial that the amount of P12,460.75 was considered as an advance rental of the 2 lots
which was leased to the Plaintiff, lots nos. 4 and 13; so we humbly believe that there was no
necessity on the part of defendant Mr. Genaro Goi to make a yearly demand for an
accounting for the total production of 2 parcels leased to the plaintiff. 18

Petitioners, having clearly and sufficiently shown that the contract/promise to sell was
subsequently novated into a verbal lease agreement, it follows that they are entitled to a
favorable decision on their counterclaim. Discussion of the third issue raised therefore
becomes unnecessary.

WHEREFORE, the decision appealed from is hereby reversed. The judicial administrator of the
estate of private respondent Gaspar Vicente and/or his successors-in-interest are hereby
ordered to: a) surrender possession of fields nos. 4 and 13 of the Hacienda Dulce Nombre de
Maria to petitioners; b) render an accounting of the produce of said fields for the period
beginning crop-year 1950-51 until complete possession thereof shall have been delivered to
petitioners; and c) to pay the corresponding annual rent for the said fields in an amount
equivalent to 15% of the gross produce of said fields, for the periods beginning crop-year
1950-51 until said fields shall have been surrendered to petitioners, deducting from the
amount due petitioners the sum of P12,460.24 advanced by private respondent Gaspar
Vicente.

SO ORDERED.