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G.R. No. 151217 September 8, 2006 SPOUSES CESAR R. ROMULO an NEN!"A S. ROMULO, pet#t#oner$, %$. SPOUSES MO!SES P.

LA&UG, 'R., an (EL!SAR!N LA&UG, re$pon ent$. "!NGA, J.)

2i8e1ise, defendants *pouses 6oises P% 2ayug and 7elisarin 2ayug are hereby ordered to pay ?ointly and severally *pouses Cesar R% Ro4ulo and 'enita *% Ro4ulo the follo1ing, to 1itA 1% The a4ount of P199,999%99 as and by 1ay of 4oral da4agesE "% The a4ount of P.9,999%99 as e3e4plary da4agesE

This is an appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure, assailing the Court of Appeals !ecision1 and Resolution" in CA#$%R% C& 'o% ()9(5% *aid !ecision reversed and set aside the !ecision) of the Regional Trial Court +RTC,, -ranch "5., Para/a0ue City, 1hich nullified the !eed of Absolute *ale and Contract of 2ease e3ecuted bet1een herein petitioners and respondents% The follo1ing factual antecedents are 4atters of record% 5n April 11, 199(, petitioners *pouses Cesar and 'enita Ro4ulo filed a verified Co4plaint for Cancellation of Title, Annul4ent of !eed of Absolute *ale and Contract of 2ease 1ith !a4ages against respondents *pouses 6oises and 7elisarin 2ayug% The co4plaint 1as doc8eted as Civil Case 'o% 9(#917" and raffled to -ranch "5. of the RTC of Para/a0ue%4 Petitioners averred in their co4plaint that so4eti4e in 19.(, they obtained fro4 respondents a loan in the a4ount of P59,999%99 1ith a 4onthly interest of 19:, 1hich subse0uently ballooned to P5.9,"9"%99% To secure the pay4ent of the loan, respondents allegedly duped petitioners into signing a Contract of 2ease and a !eed of Absolute *ale covering petitioners house and lot located at Phase ;;, -7 <o4es, *ucat, Para/a0ue and covered by Transfer Certificate of Title +TCT, 'o% *#715".% The !eed of Absolute *ale purportedly facilitated the cancellation of petitioners title on the house and lot and the issuance of TCT 'o% "94.9 in the na4e of respondents% Thus, petitioners prayed for the nullification of the !eed of Absolute *ale, the contract of lease and TCT 'o% "94.9, and the a1ard of 4oral and e3e4plary da4ages%5 Respondents denied petitioners allegations% ;n their Ans1er,( they vouched for the validity of the !eed of Absolute *ale, particularly as having been voluntarily e3ecuted by the parties for the purpose of e3tinguishing petitioners indebtedness to respondents% As consideration of the sale, respondents allegedly paid the a4ount ofP"99,999%99 in addition to the 1riting off of petitioners obligation to the4% That they allo1ed petitioners to occupy the house and lot as lessees thereof 1as founded on the trust they reposed on petitioners, clai4ed respondents%7 Prior to the filing of Civil Case 'o% 9(#917", respondent 6oises 2ayug, =r% +>6oises>, filed Civil Case 'o% 94"", an action for e?ect4ent, against petitioners to co4pel the latter to vacate the house and lot allegedly sold by petitioners to 6oises and subse0uently rented out by hi4 to petitioners% 6oises alleged that petitioners violated the ter4s of the Contract of 2ease 1hen the latter failed to pay any rental or e3ercise their option to repurchase the house and lot and refused to vacate the property despite de4and% The 6etropolitan Trial Court +6eTC,, -ranch 77, Para/a0ue dis4issed the co4plaint for lac8 of cause of action%. The RTC, -ranch "57, Para/a0ue, li8e1ise dis4issed 6oises appeal based on its finding that the parties did not intend to enter into a lease agree4ent%9 The Court of Appeals denied 6oises petition for revie1 on the ground of late filing%19 @pon elevation to this Court, 6oises petition for revie1 on certiorari 1as denied 1ith finality by this Court%11 5n =une "1, 1999, the trial court rendered ?udg4ent in favor of petitioners in Civil Case 'o% 9(#917"% The dispositive portion of the decision readsA B<CRC75RC, the plaintiffs having been able to prove their clai4 by preponderance of evidence, ?udg4ent is hereby rendered in their favor and against spouses 6oises P% 2ayug and 7elisarin 2ayug 1hereby the Contract of 2ease as 1ell as the !eed of *ale allegedly e3ecuted by the herein parties are hereby declared '@22 and &5;! and of no force and effect and the Register of !eeds of the City of Para/a0ue is hereby ordered to cancel Transfer Certificate of Title 'o% "94.9 registered in the na4es of 65;*C* P% 2AD@$ 4arried to 7C2;*AR;' 2AD@$ and to issue a ne1 one in the na4e of *pouses Cesar R% Ro4ulo and 'enita *% Ro4ulo, upon the pay4ent of the re0uired fees by the plaintiffs%

)% The a4ount of P59,999%99 as and by 1ay of attorney s feesE and 4% The costs of suit% *5 5R!CRC!%1" Respondents elevated the 4atter to the Court of Appeals, 0uestioning, a4ong others, the trial court s finding that the contract bet1een petitioners and respondents 1as an e0uitable 4ortgage%1) The Court of Appeals reversed and set aside the RTC !ecision, 4ainly on the ground that petitioners failed to present sufficient evidence to prove their allegation that their signatures to the !eed of Absolute *ale 1ere obtained fraudulently% Their 4otion for reconsideration rebuffed,14 petitioners filed the instant petition raising the lone issue of 1hether or not the transaction bet1een the parties constitutes an e0uitable 4ortgage% 5n this issue, the RTC and the Court of Appeals differ in opinion% The trial court based its declaration that an e0uitable 4ortgage 1as intended by the parties on the finding that petitioners re4ained in possession of the house and lot even after the property 1as supposedly sold to respondents% The trial court also gave evidentiary 1eight to the decisions of the 6eTC and RTC dis4issing the action for e?ect4ent in Civil Case 'o% 94"", 1here both courts found that petitioners neither vacated the property nor paid any rental even after the e3ecution of the !eed of Absolute *ale% The Court of Appeals disagreed and declared that an absolute sale 1as conte4plated by the parties based on the e3press stipulations in the !eed of Absolute *ale and on the acts of o1nership by respondents subse0uent to its e3ecution% Bhether or not the parties intended an e0uitable 4ortgage is a factual issue% As a general rule, factual revie1 is beyond the province of this Court% 5ne of the e3ceptions to the rule is e3e4plified by the instant case 1here the factual findings of the RTC and Court of Appeals are contradictory% That petitioners obtained loans fro4 respondents bet1een 19.5 and 19.7, 1hich re4ained unpaid up to the ti4e of the e3ecution of the assailed !eed of Absolute *ale, is established%15 That petitioners signed the assailed instru4ent is also not disputed% ;ndeed, they ad4itted having signed said docu4ent 0ualifying, ho1ever, that they 1ere forced by respondents to e3ecute the sa4e for the purpose of securing their indebtedness to respondents%1(Respondents, on the other hand, insisted that the parties e3ecuted the !eed of Absolute *ale as an honest#to#goodness sales transaction% Respondents, ho1ever, ad4itted further that in addition to the a4ount of P"99,999%99 stipulated in the !eed of Absolute *ale, the parties agreed to 1rite off petitioners loan as consideration of the sale, although this clause 1as not e3pressed in the instru4ent%17 7ro4 respondents ad4ission, it can be gathered that the assailed !eed of Absolute *ale does not reflect the true arrange4ent of the parties% 'o1, is petitioners sub4ission that the parties actually agreed to sub?ect the house and lot as security for their unpaid obligation supported by the evidenceF !id the parties e3ecute the assailed !eed of Absolute *ale 1ith the intention of sub?ecting petitioners house and lot covered by the deed as a 4ere security for the pay4ent of their debtF The for4 of the instru4ent cannot prevail over the true intent of the parties as established by the evidence% Be have also decreed that in deter4ining the nature of a contract, courts are not bound by the title or na4e given by the parties% The decisive factor in evaluating such agree4ent is the intention of the parties, as sho1n not necessarily by the ter4inology used in the contract but by their conduct, 1ords, actions and deeds prior to, during and i44ediately after e3ecution of the agree4ent%1. ;n order to ascertain the intention of the parties, their conte4poraneous and subse0uent acts should be considered% 5nce the intention of the parties has been ascertained, that ele4ent is dee4ed as an integral part of the contract

as though it has been originally e3pressed in une0uivocal ter4s%19 As such, docu4entary and parol evidence 4ay be sub4itted and ad4itted to prove such intention% And, in case of doubt, a contract purporting to be a sale 1ith right to repurchase shall be construed as an e0uitable 4ortgage%"9 -et1een 19.5 and 19.7, petitioner 'enita Ro4ulo +>'enita>, obtained fro4 respondent 7elisarin 2ayug +>7elisarin>, loans in various a4ounts totaling around P599,999%99% -eing close friends at that ti4e, 7elisarin did not re0uire any 1ritten instru4ent to secure pay4ent, other than the title to the house and lot, 1hich 'enita handed to 7elisarin so4eti4e in 19..%"1 Bhen respondents de4anded pay4ent of the loan, petitioners defaulted% 'evertheless, as ad4itted by 2ayug, despite her repeated de4ands, she allo1ed petitioners so4e 4ore ti4e 1ithin 1hich to pay their debts%"" 7elisarin clai4ed that eventually petitioners offered their house and lot as pay4ent for their debt because petitioners no longer had any 4oney%") <o1ever, even after the e3ecution of the assailed !eed of Absolute *ale, respondents continued to grant petitioners loan acco44odations as evidenced by the three pro4issory notes e3ecuted by petitioner Cesar Ro4ulo%"4 Respondents continuing to lend 4oney to petitioners does not 4a8e sense if the intention of the parties 1as really to e3tinguish petitioners outstanding obligation% The logical and inevitable conclusion is that respondents dee4ed it 1ise to for4aliGe a security instru4ent on petitioners house and lot by e3ecuting the !eed of Absolute *ale after realiGing that petitioners could no longer fully satisfy their obligation to respondents% At that ti4e, as petitioners 1ere hard#pressed to co4e up 1ith funds to pay their loan, they 1ere hardly in a position to bargain% The preponderance of evidence sho1s that they signed 8no1ing that said docu4ents did not e3press their real intention, and if they did so not1ithstanding this, it 1as due to the urgent necessity of obtaining funds% >'ecessitous 4en are not, truly spea8ing, free 4enE but to ans1er a present e4ergency 1ill sub4it to any ter4s that the crafty 4ay i4pose upon the4%>"5 The circu4stances surrounding the e3ecution of the !eed of Absolute *ale, particularly the fact that respondents continued to e3tend so4e loans to petitioners after its e3ecution, precludes the Court fro4 declaring that the parties intended the transfer of the property fro4 one to the other by 1ay of sale% Consistent 1ith the foregoing state of the evidence, Articles 1(94 and 1(9" of the Civil Code co4e into play% The articles provide that 1hen the parties to a contract of sale actually intended such contract to secure the pay4ent of an obligation, it shall be presu4ed to be an e0uitable 4ortgageA Art% 1(9"% The contract shall be presu4ed to be an e0uitable 4ortgage in any of the follo1ing casesA 1, Bhen the price of a sale 1ith right to repurchase is unusually inade0uateE ", *+en t+e %en or rema#n$ #n po$$e$$#on a$ ,e$$ee or ot+er-#$e. ), Bhen upon or after the e3piration of the right to repurchase, another instru4ent e3tending the period of rede4ption or granting a ne1 period is e3ecutedE 4, Bhen the vendor binds hi4self to pay the ta3es on the thing soldE 5, Bhen the purchaser retains for hi4self a part of the purchase priceE (, !n an/ ot+er 0a$e -+ere #t ma/ be 1a#r,/ #n1erre t+at t+e rea, #ntent#on o1 t+e part#e$ #$ t+at t+e tran$a0t#on $+a,, $e02re t+e pa/ment o1 a ebt or t+e per1orman0e o1 an/ ot+er ob,#3at#on. +C4phasis supplied%, Art% 1(94% The provisions of Article 1(9" shall also apply to a contract purporting to be an absolute sale% 7or the presu4ption of e0uitable 4ortgage to arise, t1o re0uisites 4ust be satisfied, na4elyA that the parties entered into a contract deno4inated as a contract of sale and that their intention 1as to secure an e3isting debt by 1ay of 4ortgage% @nder Article 1(94 of the Civil Code, a contract purporting to be an absolute sale shall be presu4ed to be an e0uitable 4ortgage should any of the conditions in Article 1(9" be present%"( To stress, the e3istence of any one of the conditions under Article

1(9", not a concurrence, or an over1hel4ing nu4ber of such circu4stances, suffices to give rise to the presu4ption that the contract is an e0uitable 4ortgage%"7 ;t 4ust be e4phasiGed too, ho1ever, that there is no conclusive test to deter4ine 1hether a deed absolute on its face is really a si4ple loan acco44odation secured by a 4ortgage% ;n fact, it is often a 0uestion difficult to resolve and is fre0uently 4ade to depend on the surrounding circu4stances of each case% Bhen in doubt, courts are generally inclined to construe a transaction purporting to be a sale as an e0uitable 4ortgage, 1hich involves a lesser trans4ission of rights and interests over the property in controversy%". The Court has not hesitated to declare a purported contract of sale as an e0uitable 4ortgage even 1hen only one of the enu4erated circu4stances under Article 1(9" is proved%"9 ;n the case at bar, petitioners re4ained in possession of the house and lot even after the e3ecution of the !eed of Absolute *ale% 6oreover, they re4ained in possession of the property for 4ore than the reasonable ti4e that 1ould suggest that petitioners 1ere 4ere lessees thereof% 7or one, it too8 respondents 4ore than five years fro4 the ti4e of the e3ecution of the !eed of Absolute *ale and the Contract of 2ease to file the action for e?ect4ent% Bithin this period, petitioners neither paid any rental nor e3ercised the option to buy purportedly the leased property fro4 respondents% ;ncidentally, in the decisions of the 6eTC and the RTC in the separate action for e?ect4ent, both lo1er courts observed that 1hen petitioners 1ere 4ade to sign a blan8 docu4ent, 1hich turned out to be a Contract of 2ease of their house and lot, they 1ere of the belief that the blan8 docu4ent 1ould serve only as guaranty for the pay4ent of their obligation to respondents% The clai4 that petitioners possession of the house and lot 1as by sheer tolerance of respondents is specious% Respondents could not e3plain 1hy they allo1ed petitioners 4ore than five years to loo8 for another place to transfer% These circu4stances only support the conclusion that the parties never really intended to transfer title to the property% @nder paragraph " of Article 1(9", 1here the purported vendor re4ains in possession of the property sub?ect of the sale and it can be inferred that the true intention of the parties 1as to secure an e3isting debt, the transaction shall be dee4ed an e0uitable 4ortgage% @nder paragraph 1 of Article 1(9", 1here the purchase price is inade0uate, a contract of sale is also presu4ed to be an e0uitable 4ortgage% -ased on respondents evidence, petitioners property 1as valued at P799,999%99 but the assailed !eed of Absolute *ale stated a consideration of only P"99,999%99% Contrary to the appellate court s declaration that the inade0uacy of the purchase price is not sufficient to set aside the sale, the Court finds the sa4e as clearly indicative of the parties intention to 4a8e the property only a collateral security of petitioners debt% The Court is not convinced that petitioners 1ould allo1 the sale of their residential property for even less than half of its 4ar8et value% The appellate court ruled that petitioners failed to rebut the presu4ption of the genuineness and due e3ecution of the 0uestioned !eed of Absolute *ale% -ased on the e3a4ination of the assailed instru4ent and the Contract of 2ease and the testi4onies of the parties, the Court cannot sustain respondents clai4 that petitioners offered to sell their house and lot in satisfaction of their indebtedness% As observed by the trial court, the Contract of 2ease appears to have been signed so4eti4e in 'ove4ber 19.. or before the e3ecution of the !eed of *ale% Respondents 1ere unable to e3plain 1hy they had leased the property to petitioners before its supposed purchase by respondents% 7urther4ore, the records disclose that it 1as only after the institution of the e?ect4ent case did petitioners learn about the cancellation of their title to the property although under the assailed !eed of Absolute *ale, petitioners 1ere obliged to bear the e3penses of its e3ecution and registration% These circu4stances lend credence to petitioners clai4 of the surreptitious 4anner by 1hich respondents 4ade the4 sign certain docu4ents 1ithout co4pletely disclosing the real i4port thereof% The *upre4e Court is clothed 1ith a4ple authority to revie1 4atters, even if they are not assigned as errors on appeal, if it finds that their consideration is necessary in arriving at a ?ust decision of the case%)9 Though petitioners did not raise in issue the appellate court s reversal of the a1ard of da4ages in their favor, the Court has the discretion to pass upon this 4atter and deter4ine 1hether or not there is sufficient ?ustification for the a1ard of da4ages% The trial court described respondents acts as >4alevolent,> necessitating the a1ard for 4oral and e3e4plary da4ages% An a1ard of 4oral da4ages 1ould re0uire certain conditions to be 4et, to 1itA +1, first, there 4ust be an in?ury, 1hether physical, 4ental or psychological, clearly sustained by the clai4antE +", second, there 4ust be a culpable act or o4ission factually establishedE +), third, the 1rongful act or o4ission of the defendant is the pro3i4ate cause of the in?ury sustained by the clai4antE and +4, fourth, the a1ard of da4ages is predicated on any of the cases stated in Article ""19%)1

<o1ever, petitioners are not co4pletely 1ithout fault% <ad they e3ercised ordinary diligence in their affairs, petitioners could have avoided e3ecuting docu4ents in blan8% Respondents 1rongful act, although the pro3i4ate cause of the in?ury suffered by petitioners, 1as 4itigated by petitioners o1n contributory negligence% <ence, the a1ard of 4oral and e3e4plary da4ages 4ust be reduced to one#half of the a4ounts a1arded by the trial court%)" B<CRC75RC, the petition is $RA'TC!% The !ecision and Resolution of the Court of Appeals in CA#$%R% C& ()9(5 are RC&CR*C! and *CT A*;!C and the !ecision of the Regional Trial Court, -ranch "5., Para/a0ue City in Civil Case 'o% 9(# 917" is RC;'*TATC! 1ith a 65!;7;CAT;5' that the a1ard of 4oral and e3e4plary da4ages is RC!@CC! to P59,999%99 and P49,999%99, respectively% Costs against respondents% *5 5R!CRC!% G.R. No. 166184 'an2ar/ 20, 2006 SPS. "!"O AL5ARO an MAR!A 5ALELO, Pet#t#oner$, %$. SPS. OSMUN6O "ERN!6A an 'UL!"A RE"UR7AN, COUR" O( APPEALS, Re$pon ent$. &NARES8SAN"!AGO, J.: Assailed in this petition for revie1 on certiorari under Rule 45 of the Rules of Court are the =uly )9, "994 !ecision1of the Court of Appeals in CA#$%R% C& 'o% (19.5 and the 'ove4ber ), "994 Resolution" 1hich denied petitioners 4otion for reconsideration% The antecedent facts are as follo1sA Respondent#spouses 5s4undo Ternida and =ulita Returban are the o1ners of the contested property, an .,459 s0% 4% parcel of non#irrigated riceland situated at -arangay 2abney, *an =acinto, Pangasinan% 5n 6ay "(, 19.(, =ulita 4ortgaged the land to the spouses *alvador de &era and =uanita 5rinion for P".,999%99% As testified) to by =ulita, she 1as 4ade to sign a !eed of Pacto de Retro *ale4 1ith *alvador 1ho e3plained to her that 1hat she signed 1as a 4ortgage docu4ent% As 1orded, the docu4ent provided that =ulita has three years fro4 the date of the e3ecution of the docu4ent to repurchase the land% After a year, *alvador e3ecuted a !eed of Transfer of 6ortgage5 in favor of the spouses =ose Calpito and Horaida &alelo for a consideration of P)",999%99% Thereafter, =ulita re0uested fro4 the latter for an additional a4ount of P),999%99, at 1hich point, she 1as as8ed( to sign a !eed of *ale 1ith Right to Repurchase%7 5n 6ay "", 1999, =ulita again as8ed for an additional a4ount of P1,999%99 but she 1as infor4ed by =ose Calpito that they have transferred the 4ortgage to the spouses Tito Alvaro and 6aria &alelo, herein petitioners% =ulita thus 1ent to the petitioners 1ho gave her the additional a4ount of P1,999%99% =ulita clai4ed that petitioners as8ed her to sign a docu4ent that she believed 1as a 4ortgage docu4ent but later on turned out to be a !eed of Absolute *ale. over the contested property% Bhen =ulita tried to redee4 the property fro4 the petitioners, the latter refused and clai4ed that they had purchased the property and 1ere in fact issued Ta3 !eclaration 'o% "747%9 Conse0uently, on 5ctober 1, 1997, respondents filed a co4plaint for Annul4ent of !eed of *ale !ocu4ents and Ta3 !eclaration 'o% "747 1ith the Regional Trial Court of !agupan City, doc8eted as Civil Case 'o% 97#91.7(#!%19 After trial on the 4erits, the trial court dis4issed the co4plaint for lac8 of cause of action%11 Respondents filed a 4otion for reconsideration 1hich 1as ho1ever denied%1" 5n appeal, the Court of Appeals reversed the decision of the trial court, thusA B<CRC75RC, the appeal is granted and the !ecision dated *epte4ber 19, 199. of the trial court is reversed and set aside% The !eed of Absolute *ale dated 6ay "", 1999 bet1een plaintiff#appellant =ulita Returban and defendants#appellees spouses Tito Alvaro and 6aria &alelo shall be construed as an e0uitable 4ortgage and the Ta3 !eclaration "747 issued in

the na4e of spouses Tito Alvaro and 6aria &alelo is annulled% Conse0uently, plaintiffs#appellants are entitled to redee4 the property 1hich shall be effected upon pay4ent of their 4ortgage debt to defendants#appellees% *5 5R!CRC!%1) <ence this petition for revie1 on the follo1ing groundsA 1% T<AT T<C <5'5RA-2C C5@RT 57 APPCA2* C566;TTC! A' CRR5R ;' 2AB B<C' ;T !CC2ARC! T<C TRA'*ACT;5' -CTBCC' T<C PART;C* A* CI@;TA-2C 65RT$A$C A'! '5T A' A-*52@TC *A2CE "% T<AT T<C <5'5RA-2C C5@RT 57 APPCA2* C566;TTC! A' CRR5R ;' 2AB B<C' ;T !CC2ARC! T<C A''@26C'T 57 TAJ !CC2ARAT;5' "747 ;' T<C 'A6C* 57 T<C PCT;T;5'CR*E )% T<AT T<C <5'5RA-2C C5@RT 57 APPCA2* C566;TTC! A' CRR5R ;' 2AB B<C' ;T 7A;2C! T5 APP2D T<C =@R;*PR@!C'T;A2 R@2C 2A;! !5B' ;' A-;22A &*% $5-5'*C'$, =R%, )74 *CRA 51E 4% T<AT T<C <5'5RA-2C C5@RT 57 APPCA2* C566;TTC! A' CRR5R ;' 2AB B<C' ;T 7A;2C! T5 APP2D T<C PR;'C;P2C 57 2AC<C* A'! C*T5PPC2E 5% T<AT T<C <5'5RA-2C C5@RT 57 APPCA2* C566;TTC! A' CRR5R ;' 2AB B<C' ;T 7A;2C! T5 ABAR! !A6A$C* ;' 7A&5R 57 T<C PCT;T;5'CR*%14 Pri4arily, petitioners contend that the Court of Appeals erred 1hen it declared the transaction bet1een the parties to be an e0uitable 4ortgage instead of an absolute sale% The petition lac8s 4erit% An e0uitable 4ortgage is defined as one 1hich although lac8ing in so4e for4ality, or for4 or 1ords, or other re0uisites de4anded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing i4possible or contrary to la1%15 7or the presu4ption of an e0uitable 4ortgage to arise, t1o re0uisites 4ust concurA +1, that the parties entered into a contract deno4inated as a saleE and +", that their intention 1as to secure an e3isting debt by 1ay of a 4ortgage%1( Conse0uently, the nonpay4ent of the debt 1hen due gives the 4ortgagee the right to foreclose the 4ortgage, sell the property and apply the proceeds of the sale to the satisfaction of the loan obligation%17 Be find no 4erit in petitioners contention that in the !eed of Absolute *ale e3ecuted bet1een the4 and =ulita, the latter totally conveyed her o1nership over the disputed property% Be have consistently decreed that the no4enclature used by the contracting parties to describe a contract does not deter4ine its nature% The decisive factor is the intention of the parties to the contract K as sho1n by their conduct, 1ords, actions and deeds K prior to, during and after e3ecuting the agree4ent%1. Bhile there is no single conclusive test to deter4ine 1hether a deed absolute on its face is really a si4ple loan acco44odation secured by a 4ortgage,19 ho1ever, the Civil Code enu4erates several instances 1hen a contract is clothed 1ith the presu4ption that it is an e0uitable 4ortgage, to 1itA Article 1(9"% The contract shall be presu4ed to be an e0uitable 4ortgage, in any of the follo1ing casesA +1, Bhen the price of a sale 1ith right to repurchase is unusually inade0uateE +", Bhen the vendor re4ains in possession as lessee or other1iseE

+), Bhen upon or after the e3piration of the right to repurchase another instru4ent e3tending the period of rede4ption or granting a ne1 period is e3ecutedE +4, Bhen the purchaser retains for hi4self a part of the purchase priceE +5, Bhen the vendor binds hi4self to pay the ta3es on the thing soldE +(, !n an/ ot+er 0a$e -+ere #t ma/ be 1a#r,/ #n1erre t+at t+e rea, #ntent#on o1 t+e part#e$ #$ t+at t+e tran$a0t#on $+a,, $e02re t+e pa/ment o1 a ebt or t+e per1orman0e o1 an/ ot+er ob,#3at#on. ;n any of the foregoing cases, any 4oney, fruits, or other benefit to be received by the vendee as rent or other1ise shall be considered as interest 1hich shall be sub?ect to the usury la1s% +C4phasis added, ;t is an established rule that the presence of even one of the circu4stances set forth in Article 1(9" is sufficient to declare a contract of sale 1ith right to repurchase an e0uitable 4ortgage%"9 Thus, under the 1ise, ?ust and e0uitable presu4ption in Article 1(9", a docu4ent 1hich appears on its face to be a sale K absolute or 1ith pacto de retro K 4ay be proven by the vendor or vendor -a-retro to be one of a loan 1ith 4ortgage% ;n such case, parol evidence beco4es co4petent and ad4issible to prove that the instru4ent 1as in truth and in fact given 4erely as a security for the pay4ent of a loan% And upon proof of the truth of such allegations, the court 1ill enforce the agree4ent or understanding in consonance 1ith the true intent of the parties at the ti4e of the e3ecution of the contract%"1 Applying the foregoing considerations to the instant case, 1e find that the true intention of the parties in the e3ecution of the !eed of Absolute *ale 1as never to convey the o1nership of the disputed property but 4erely to secure the loan obtained by =ulita% As correctly observed by the Court of AppealsA"" The circu4stances surrounding the e3ecution and perfor4ance of the ter4s of the contracts 1hich plaintiff#appellant =ulita Returban 1as 4ade to sign involving the sub?ect property, are inconsistent 1ith the theory that the property 1as sold% Bhen plaintiff#appellant =ulita Returban first 4ortgaged the land in favor of spouses *alvador de &era and =uanita 5rinion for the a4ount of P".,999%99, she 1as 4ade to sign a !eed of Pacto de Retro *ale% *alvador de &era hi4self 1as a1are that the sub?ect property 1as 4erely 4ortgaged, not sold, because he hi4self subse0uently e3ecuted a !eed of Transfer 6ortgage in favor of spouses =ose Calpito and Horaida &alelo 3 3 3A 3 3 3 3 Bhen plaintiff#appellant 1ent to spouses =ose Calpito and Horaida &alelo to re0uest an additional P),999%99, she 1as 4ade to sign a !eed of *ale 1ith Right to Repurchase in favor of =ose Calpito and Horaida &alelo for a purported consideration of P)5,999%99% -ut it 1as ad4itted by defendant#appellee 6aria &alelo during her direct e3a4ination thatA ATTD% !C =C*@*A I% Dou said that the a4ount of P)5,999%99 1as given to =ose Calpito and Horaida &alelo as rede4ption price of the land 4ortgaged by =ulita ReturbanF AA Des, sir% +@nderlining supplied%, Actually, plaintiff#appellant =ulita Returban 1as given P".,999%99 at first and subse0uently, she 1as given the additional a4ounts of P),999%99 by =ose Calpito and Horaida &alelo and P1,999%99 by Tito Alvaro and 6aria &alelo% The *upre4e Court, in an analogous case, said thatA ;f the transactions 1ere a true pacto de retro, the purchase price had been fi3ed +at P),(99%99, not a centavo 4ore and respondents giving of additional a4ounts on +three, different occasions to be aggregated to the rede4ption price >1as absolutely inconsistent> 1ith the concept of a >true sale 1ith pacto de retro%>

7or her part, =ulita testified that during all the ti4es that she 1as as8ed to sign a docu4ent evidencing the release of additional su4s of 4oney to her, she al1ays believed, as she 1as 4ade to believe, that she 1as signing a 4ortgage docu4ent%") &erily, the conduct of =ulita before, during and after the 4ortgage of the disputed property negates petitioners allegation that she intended to sell the land in their favor% 5ther1ise, she 1ould have not e3erted earnest efforts to redee4 the sa4e% The conditions 1hich give rise to a presu4ption of e0uitable 4ortgage, as set out in Article 1(9" of the Civil Code, apply 1ith e0ual force to a contract purporting to be one of absolute sale% 6oreover, the presence of even one of the circu4stances in Article 1(9" is sufficient basis to declare a contract as one of e0uitable 4ortgage% This is in consonance 1ith the rule that the la1 favors the least trans4ission of rights%"4 *9ERE(ORE, the petition is 6EN!E6% The assailed !ecision dated =uly )9, "994 of the Court of Appeals in CA#$%R% C& 'o% (19.5 and its 'ove4ber ), "994 Resolution, are A((!RME6. SO OR6ERE6.

R!CAR6O G. ENR!:UE;, SR., %$. 9E!RS O( SPOUSES N!E5ES AN6 AL(RE6O 7AL6ONA6O, G.R. No. 1<58<< A232$t 10, 2006 CORONA, J.) This petition filed under Rule 45 see8s a revie1 of the ?udg4ent and resolution of the Court of Appeals +CA, in CA#$%R% C& 'o%49."5%The controversy is rooted in the follo1ing facts% ;n consideration of a loan e3tended by Ricardo Cnri0ueG *r%, 'ieves -asaca, 1ife of Alfredo -aldonado, e3ecuted a real estate 4ortgage on 6ay ), 1999% A4ong the ter4s of the contract 1ere as follo1s% This A$RCC6C'T e3ecuted by and bet1een 'ieves -asaca, of legal age, 4arried, resident of -igaa, Cabuyao, 2aguna, hereinafter 8no1n as the 65RT$A$5R, and R;CAR!5 C'R;I@CH, of legal age, L7Milipino, 4arried, resident of !ita, *ta% Rosa, 2aguna, hereinafter 8no1n as the 65RT$A$CC in the su4 of T<;RTD *;J T<5@*A'! +P)(,999%99, PC*5*, Philippine Currency, payable 1ithin a period of *;J 65'T<* +(,A That for and in consideration of said indebtedness the 65RT$A$5R does hereby convey and deliver by 1ay of 65RT$A$C unto said 65RT$A$CC and the latterNs heirs and assigns, the follo1ing realty together 1ith all the i4prove4ents thereon and situated at -igaa, Cabuyao, 2aguna, and 4ore particularly described Lin Ta3 !eclaration 'o% 1""5.M%

333 333333L1Mchanroblesvirtualla1library !ue to additional loans, the parties entered into another agree4ent on =une "7, 1999%The pertinent provisions of the agree4ent readA B<CRCA*, the 7irst Party LRicardo Cnri0ueGM has e3tended to the *econd Party L'ieves -asacaM various loans secured by a house and lot situated at -igaa, Cabuyao, 2aguna covered by Ta3 !eclaration 'o% 1""5., issued by the AssessorNs 5ffice, 6unicipality of Cabuyao, 2aguna in the total a4ount of P15),999%99E 333 333 333 '5B T<CRC75RC, for and in consideration of the foregoing pre4isesL,M the parties LagreeM on the follo1ingA

1% "%

The *econd Party has agreed to settle the loan as they beco4e due including interest thereonE The *econd Party ho1ever 4ay elect to sell the property on her option and for 1hich case the price of the sale 1ould be the value of the property atP"59,999%99 less the a4ount of loan of P15),999%99 including interest LthereonM%L"Mchanroblesvirtualla1library

Na $ung )"a$alit* %indi mabiling muli ng NAG ILI ang lupang nabanggit "a itaa" pag$araan ng pinag$a"unduang taning na pana%on# ang UMILI ay may $arapatang ga(in ang $ina$ailangang %a$bang upang maging ganap ang $anyang pag$amay-ari "a lupa# nang naayon "a itinatad%ana ng bata" at pala$ad ng %u$uman/ Na ang lupang ito ay %indi "a$op ng ata" u$ol "a 5eporma "a Lupa at ng mga $augnay na 0autu"ang Pangpangulu%an at palibot-$alata"/ L5M

The spouses -aldonado 4ade pay4ents a4ounting to P4",999 fro4 =uly 14 to "5, 1999% 5n August 1, 1999, 'ieves -asaca as nagbili +vendor, and Ricardo Cnri0ueG as bumili +vendee, entered into an agree4ent deno4inated as Pagbibili na may Sanglaan +sale 1ith 4ortgage, over the property sub?ect of Ta3 !eclaration 'o% 1""5.% The pertinent portions of the docu4ent readA Na ALANG-ALANG SA HALAGANG DALAWANG DAAN AT LIMAMPUNG LI !+P"59,999%99, "alaping Pilipino# na ang paunang $abayaran "a %alagang &&&&&&&&&& ay pinatunayang tinanggap ngayon ng NAG ILI nang buong $a"iya%ang-loob mula "a UMILI# ang NAG ILI ay NAG I ILI# NAGLILIPAT at NAGSASALIN "a UMILI at "a $anyang tagapagmana at $a%alili ng lupang na"a"aad "a itaa" nito# $a"ama ng la%at ng mga $agalingang matatagpuan doon# ligta" "a anumang "agutin at pananagutan# maliban "a na"a"aad "a ibaba nito' Na ang mga panig ay nag$a"undo na ang natitirang %uling %ulog "a %alagang Dala(ang Daan at Limampung )Libong* Pi"o +P"59,999%99, ay babayaran "a pamamagitan ng "umu"unod' 1% Na ang %alagang P"59,999%99 ay babayaran "a loob ng +,- na bu(an $a"ama ang interest o tubo na P75,999%99 "a 5 por"iyento i"ang bu(an "imula "a pet"ang na$a"aad dito. "% Na $ung tutubu"in ay may %alagang P)"5,999%99E

The records reveal that, prior to and about the ti4e of the e3ecution of the 0a"ulatan, the spouses -aldonado 1ere in dire need of 4oney to defray 'ievesN hospitaliGation e3penses% L(M !ue to the failure of the spouses -aldonado to e3ercise their right of repurchase, petitioner, on =anuary 19, 1991, filed a case in the Regional Trial Court, -ranch JJ;&, -ian, 2aguna for consolidation of o1nership of the t1o properties 4entioned in the 0a"ulatanA +1, an untitled parcel of land covered by Ta3 !eclaration 'o% 1""5. and +", a registered lot covered by Transfer Certificate of Title +TCT, 'o% T#1(1479%This 1as doc8eted as +special civil action, Case 'o% -#)4(1% ;n an ans1er dated =anuary "), 1991, the spouses -aldonado ad4itted the allegations in the petition as to the e3ecution of the 0a"ulatan but denied that it 1as a true sale 1ith right of repurchase%They averred that the docu4ent 1as only a contract of loan 1ith 4ortgage on the properties described therein% Petitioner filed an a4ended petition on April 15, 1991, alleging that the rede4ption period had already e3pired and respondents no longer had the right to hold on to the properties% 5n 'ove4ber "5, 1994, the trial court rendered su44ary ?udg4entL7M in Case 'o% -#)4(1, the dispositive portion of 1hich readA B<CRC75RC, pre4ises considered, su44ary ?udg4ent is hereby rendered in favor of petitioner and against respondents as follo1sA 1% !eclaring the petitioner as the absolute o1ner of the real properties, including the i4prove4ents e3isting thereon, and 4ore particularly described in the docu4ent deno4inated as NOasulatan ng -ilihang 6uling 6abibili dated August 19, 1999E "% 5rdering the Register of !eeds, 2aguna, Cala4ba -ranch, to cancel TCT 'o% T#1(1479 in the na4e of respondents and to issue another one in the na4e of petitionerE )% 5rdering the 6unicipal Assessor of Cabuyao, 2aguna, to cancel Ta3% !ecl% 'o% 1""5. in the na4e of respondents and to issue a ne1 one in the na4e of petitionerE 4% 5rdering the respondents to deliver the duplicate copy of the aforesaid docu4ent and title to the 6unicipal Assessor of Cabuyao, 2aguna and the Register of !eeds of 2aguna, Cala4ba -ranchE 5% 5rdering the respondents to deliver to petitioner the possession of the sub?ect real properties, including the i4prove4ents thereonE and (% 5rdering the respondents to pay petitioner the su4 of P)9,999%99 LforM attorneyNs fees and the su4 of P(,999%99 as litigation e3penses plus the su4 ofP599%99 per appearance in court including the costs of this suit% PetitionerNs clai4 for 4oral and e3e4plary da4ages is hereby dis4issed for 1ant of evidence% *oon after the finality of the su44ary ?udg4ent, let a 1rit of e3ecution and a 1rit of possession be issued accordingly%

Na upang matiya$ ang pagbabayad ng mga %ulog "a mga ara( na nabanggit "a itaa"# at %anggang yaon ay %indi nababayarang la%at# ay ISINASANGLA ng UMILI ang lupang i"ina"ay"ay "a itaa"# "a NAG ILI "a ilalim ng pa"ubali ng $ung "a$ali at mabayaran o maiga(ad ng UMILI"a NAG ILI/ L)M

Ten days later, on August 19, 1999, the sa4e parties and their respective spouses e3ecuted an agree4ent 8no1n as 0a"ulatan ng ili%ang Muling Mabibili +sale 1ith right of repurchase,%The0a"ulatan providedA Na ang NAG ILI ang "iyang na$atalang may-ari ng )mga par"ela ng* lupa# na lalong ma$i$ilala "a pamamagitan ng "umu"unod Lna Ta3 !eclaration 'o% 1""5. at TCT 'o% T#1(1479L4MM% Na )ALANG-ALANG* SA HALAGANG TATL!NG DAAN AT LIMAMPUNG LI !NG PIS!+P)59,999%99,, "alaping Pilipino# na ibinayad ng UMILI at "uma$amay nang buong $a"iya%an-loob ng NAG ILI# itong %uli ay NAG I ILI# NAGLILIPAT AT NAGSASALIN "a pamamagitan nang ILIHANG MA I ILI MULI# "a UMILI# at "a $anyang tagapagmana at $a%alili# ng lupang i"inaad "a itaa"# $a"ama na ang la%at ng $agalingang naroroon# ligta" "a la%at ng pag$a$autang o "agutin. Na INILAAN ng NAG ILI "a $anyang "arili# at "a $anyang tagapagmana at $a%alili ang $arapatang MULING ILHIN ang lupang binabanggit "a itaa" pag$araan ng taning na "imula MA1! 23 %anggang N! 14M 54 23# 2667# mula "a pag"a"aga(a ng 0ASULATANG ito# "a $atulad ding %alagang TATL!NG DAAN AT LIMAMPUNG LI !NG PIS! +P)59,999%99, "alaping Pilipino# at ang UMILI ay "uma"ang-ayon na $anyang IPAG I ILING MULI "a NAG ILI# at "a $anyang tagapagmana at $a%alili ang lupang i"ina"aad "a itaa"# pag$araan ng taning na pana%on "a $atulad ding %alagang tatlong daan at limampung libong pi"o +P)59,999%99, "alaping Pilipino.

*5 5R!CRC!% 5n appeal, the CA heldA B<CRC75RC, the decision appealed fro4 is hereby *CT A*;!C% The NOA*@2ATA' '$ -;2;<A'$ 6@2;'$ 6A-;-;2; is +ereb/ e0,are a$ an e=2#tab,e mort3a3e an re$pon ent$ are e0,are ent#t,e to re eem t+e mort3a3e propert#e$ , 1hich shall be effected upon pay4ent by the4 of their outstanding indebtedness to petitioner 1ith legal rate of interest fro4 'ove4ber 17, 1999, the ti4e L1henM the loan 4atured, until it is fully paid% *5 5R!CRC!%L.M +e4phasis ours,

RespondentsN ans1er to petitionerNs co4plaint raised a genuine issue regarding the true nature of their contract%The trial court should have thus heard the case on the 4erits% To this e3tent, the CA erred in upholding the trial courtNs recourse to su44ary ?udg4ent% ;t is settled ?urisprudence that the clarity of contractual ter4s and the na4e given to the contract do not bar the courts fro4 deter4ining the true intent of the parties% RespondentsN ad4issions on the e3istence, e3ecution and authenticity of the 0a"ulatan never conceded that the deno4ination of the contract defined the legal relationship bet1een the4 and petitioner%;ndeed, in 9amora :/ ;ourt o< Appeal"# 1e said thatA LiMn deter4ining the nature of a contract, courts are not bound by the title or na4e given by the parties% The decisive factor in evaluating such agree4ent is the intention of the parties, as sho1n not necessarily by the ter4inology used in the contract but by their conduct, 1ords, actions and deeds prior to, during and i44ediately after e3ecuting the agree4ent% As such therefore, docu4entary and parol evidence 4ay be sub4itted and ad4itted to prove such intention% L1"Mchanroblesvirtualla1library The petition 4ainly as8s 1hy an alleged sale 1ith right to repurchase should be treated as an e0uitable 4ortgage%5n this substantive point, 1e are not inclined to reverse the CA decision and resolution finding the transaction bet1een the parties to be an e0uitable 4ortgage and not a sale% A contract of sale 1ith right to repurchase is fre0uently used to conceal the true agree4ent 1hich is one of loan 1ith 4ortgage%L1)M The e3istence of any of the circu4stances in Article 1(9" of the Civil Code is sufficient basis to declare a contract of sale 1ith right to repurchase as an e0uitable 4ortgage% Article 1(9" providesA

PetitionerNs 4otion for reconsideration 1as denied but the CA ruled on the point that, having already found the contract to be one of e0uitable 4ortgage, the CA should have proceeded to fi3 the rede4ption period% The appellate court statedA LBMe need only to cite the rule enunciated by the *upre4e Court in the case of$loria#!iaG v% Court of Appeals, .4 *CRA 4.) Lat 499M +197.,, 1here it held that 1hen a contract purporting to be a sale 1ith right to repurchase is construed as one of e0uitable 4ortgage, the vendor has a period of thirty +)9, days 1ithin 1hich to redee4 the sub?ect property fro4 the finality of the ?udg4ent rendered in the civil action%L9M

Petitioner sub4its the follo1ing issues for our considerationA 1, B<CT<CR 5R '5T RC*P5'!C'T C5@RT $RA&C2D CRRC! ;' *CTT;'$ A*;!C T<C *@66ARD =@!$6C'T RC'!CRC! -D T<C C5@RT A 8U! B<C' ;T* !CC;*;5' ;T*C27 N CATC$5R;CA22D *TATC* T<AT ;T *@PP5RT* T<C TR;A2 C5@RTN* ACT;5' ;' RC'!CR;'$ A *@66ARD =@!$6C'TLEM ", B<CT<CR 5R '5T T<C RC*P5'!C'T C5@RT $RA&C2D CRRC! ;' !CC2AR;'$ T<C A$RCC6C'T -CTBCC' T<C PART;C* A* 5'C 57 CI@;TA-2C 65RT$A$C B<C' T<C 5'2D ;**@C T5 -C RC*52&C! ;* B<CT<CR 5R '5T T<C R;$<T 57 T<C RC*P5'!C'T* T5 RC!CC6 @'!CR T<C;R A$RCC6C'T N LCJP;RC!M A'! C5'*CI@C'T2D B<CT<CR 5R '5T -D 5PCRAT;5' 57 2AB PCT;T;5'CR ;* C'T;T2C! T5 A*O 75R T<C C5'*52;!AT;5' 57 T<C T;T2C ;' <;* 'A6CLEM ), B<CT<CR 5R '5T T<C RC*P5'!C'T C5@RT $RA&C2D CRRC! ;' '5T C5'7;R6;'$ T<C ABAR! 57 !A6A$C* ;' 7A&5R 57 PCT;T;5'CRL%ML19M

Art% 1(9"% The contract shall be pre$2me to be an e=2#tab,e mort3a3e, in an/ of the follo1ing casesA +1, +", +), +4, +5, +(, Bhen the price of a sale 1ith the right to repurchase is unusually inade0uateE Bhen the vendor re4ains in possession as lessee or other1iseE Bhen upon or after the e3piration of the right to repurchase another instru4ent e3tending the period of rede4ption or granting a ne1 period is e3ecutedE Bhen the purchaser retains for hi4self a part of the purchase priceE Bhen the vendor binds hi4self to pay the ta3es on the thing soldE ;n any other case 1here it 4ay be fairly inferred that the real intention of the parties is that the transaction shall secure the pay4ent of a debt or the perfor4ance of any other obligation%

;n any of the foregoing cases, any 4oney, fruits, or other benefit to be received by the vendee as rent or other1ise shall be considered as interest 1hich shall be sub?ect to the usury la1s% +e4phases supplied, The presu4ption in Article 1(9" that an alleged contract of sale is, in reality, an e0uitable 4ortgage ?ibes 1ith the rule that the la1 favors the least trans4ission of property rights% ;t is the e3istence of any of the conditions under Article 1(9", not a concurrence nor an over1hel4ing nu4ber, 1hich creates the presu4ption that the contract is an e0uitable 4ortgage%L14M The circu4stances in this case defy the logic of petitionerNs argu4ents% Cven prior to the e3ecution of the 0a"ulatan on August 19, 1999, various agree4ents clearly 4anifesting the intention to secure the spouses -aldonadoNs loans had been entered into by the parties%The original loan secured by a real estate 4ortgage on the properties sub?ect of this case 1as rene1ed several ti4es in barely four 4onths, until its Nreincarnation as a sale 1ith right to repurchase% Petitioner never contradicted respondentsN allegations that fro4 the date of e3ecution of the0a"ulatan to the presentA +1, respondents +or their heirs, re4ained in possession of the sub?ect propertiesE +", they continued to pay the realty ta3es on the land and +), they en?oyed the fruits of the properties to the e3clusion of the petitioner% 'either did petitioner challenge

7irst of all, the issue of procedure% *ection ), Rule )5 of the Rules of Court providesA *ec% )%6otion and proceedings thereon%P 333 After the hearing, the ?udg4ent sought shall be rendered forth1ith if the pleadings, supporting affidavits, depositions, and ad4issions on file, sho1 that, e3cept as to the a4ount of da4ages, t+ere #$ no 3en2#ne #$$2e a$ to an/ mater#a,1a0t and that the 4oving party is entitled to a ?udg4ent as a 4atter of la1% +e4phasis supplied,

The trial court 4ay render su44ary ?udg4ent as ?ustice 4ay re0uire if, at the pre#trial, it finds that facts e3ist 1arranting such ?udg4ent% -ut there can be no su44ary ?udg4ent 1here 0uestions of fact are in issue or 1here 4aterial allegations of the pleadings are in dispute%L11Mchanroblesvirtualla1library

respondentsN contention that the supposed purchase price of P)59,999 in the 0a"ulatan 1as unusually inade0uate for the t1o lots, considering that one had an area of 1,"99 s0uare 4eters and the other, )(1 s0uare 4eters% 6ore revealing of the true intention of the parties 1as the undisputed creditor#debtor relationship bet1een Cnri0ueG and the spouses -aldonado% This circu4stance, ta8en together 1ith the others already discussed, convinces this Court that the sale 1ith right to repurchase 1as e3ecuted to serve 4erely as additional security for the loans e3tended to the spouses -aldonado% L15M 5eye" :/ ;ourt o< Appeal" echoes our senti4entsA ;n deter4ining 1hether a deed absolute in for4 is a 4ortgage, the court is not li4ited to the 1ritten 4e4orials of the transaction% "+e e0#$#%e 1a0tor #n e%a,2at#n3 $20+ a3reement #$ t+e #ntent#on o1 t+e part#e$, a$ $+o-n not ne0e$$ar#,/ b/ t+e term#no,o3/ 2$e #n t+e 0ontra0t b2t b/ a,, t+e $2rro2n #n3 0#r02m$tan0e$, $20+ a$ t+e re,at#%e $#t2at#on o1 t+e part#e$ at t+at t#me, t+e att#t2 e, a0t$, 0on 20t, e0,arat#on$ o1 t+e part#e$, t+e ne3ot#at#on$ bet-een t+em ,ea #n3 to t+e ee , an 3enera,,/, a,, pert#nent 1a0t$ +a%#n3 a ten en0/ to 1#> an eterm#ne t+e rea, nat2re o1 t+e#r e$#3n an 2n er$tan #n3.L1(M +e4phasis and underscoring ours, *9ERE(ORE, the petition is hereby 6EN!E6% Costs against petitioner% SO OR6ERE6%

Respondent and petitioner also e3ecuted a separate deed of sale 1ith right to repurchase, 11 specifying, a4ong others, thatA +1, respondent, as vendor, shall pay capital gains ta3, current real estate ta3es and utility bills pertaining to the propertyE +", if respondent fails to repurchase the property 1ithin )9 days fro4 the date of the deed, she and her assigns shall i44ediately vacate the pre4ises and deliver its possession to petitioner 1ithout need of a ?udicial orderE and +), respondentNs refusal to do so 1ill entitle petitioner to ta8e i44ediate possession of the property%1" Respondent failed to repurchase the property 1ithin the stipulated period% As a result, petitioner filed, on =une 5, 199., a co4plaint for specific perfor4ance or recovery of possession, for su4 of 4oney, for consolidation of o1nership and da4ages against respondent and other unna4ed persons before the RTC of 5longapo City% ;n his co4plaint,1) petitioner alleged, a4ong others, that after respondent failed to repurchase the sub?ect realty, he caused the registration of the deed of sale 1ith the Register of !eeds and the transfer of the ta3 declarations in his na4eE that respondent failed to pay the capital gains ta3es and update the real estate ta3es forcing hi4 to pay said a4ounts in the su4 of P71,1"9%95 and P11,99)%7", respectivelyE and that respondent violated the ter4s of the deed 1hen she, as 1ell as the other unna4ed persons, refused to vacate the sub?ect property despite repeated de4ands% 14 Petitioner prayed before the RTC that an order be issued in his favor directing respondents toA +1, surrender the possession of the propertyE +", pay P159,999%99 for the reasonable co4pensation for its use fro4 6arch 7, 1997 to =une 7, 199., plus P19,999%99 per 4onth after1ardE +), pay the a4ount advanced by petitioner, to 1itAP71,1"9%95 and P11,99)%7" for the pay4ent of capital gains ta3 and real estate ta3es, respectivelyE andP79,999%99 for attorneyNs fees%15 5n =une 1(, 199., petitioner filed an a4ended co4plaint, 1( reiterating his previous allegations but 1ith the added prayer for consolidation of o1nership pursuant to Article 1(97 of the Civil Code%17 5n the other hand, respondents controverted the allegations in the co4plaint and averred in their Ans1er, 1.a4ong others, that plaintiff had no cause of action inas4uch as respondent @nangst signed the sub?ect deed of sale under duress and inti4idation e4ployed by petitioner and his cohortsE that, assu4ing that her consent 1as freely given, the contract of sale 1as si4ulated and fictitious since the vendor never received the stipulated considerationE that the sale should be construed as an e0uitable 4ortgage pursuant to Articles 1(9" and 1(94 of the Civil Code because of its onerous conditions and shoc8ingly lo1 considerationE that their indebtedness in the for4 of arrears in car rentals 4erely a4ounts to P99,999%99E and that the instant action 1as pre4ature as plaintiff had not yet consolidated o1nership over the property% !efendants counterclai4ed for 4oral da4ages in the a4ount of P599,999%99 and attorneyNs fees in the a4ount of P59,999%99, plus P599%99 per appearance%19 5n =uly "9, "994, after due proceedings, the RTC rendered a decision in favor of petitioner, disposing as follo1sA B<CRC75RC, ?udg4ent is rendered finding the !eed of *ale 1ith Right to Repurchase +C3h% >C>, as, indeed, a docu4ent of sale e3ecuted by the defendant in favor of the plaintiff covering the parcel of land house +sic, situated at 2ot )#-, -l8% 19, Baterda4 Road, $ordon <eights, 5longapo City, declared under Ta3 !eclaration 'os% 994#775(R and 7757R +C3hs% >;> and >;#1>,% The defendant and any person ta8ing rights fro4 her is +sic, ordered to i44ediately vacate fro4 the place and turn over its possession to the plaintiff% They are li8e1ise directed not to re4ove any part of the building on the lot% The o1nership of the said property is properly consolidated in the na4e of the plaintiff%

G.R. No. 174002 '2,/ <, 2008 7EN'AM!N 7AU"!S"A, petitioner, vs% S9!RLE& G. UNANGS" an O"9ER UN?NO*N PERSONS, respondent*% RE&ES, R."., J.) T<C presu4ption of e0uitable 4ortgage i4poses a burden on the buyer to present clear evidence to rebut it% <e 4ust overthro1 it, lest it persist%1 To overturn that prima <acie presu4ption, the buyer needs to adduce substantial and credible evidence to prove that the contract 1as a bona fide deed of sale 1ith right to repurchase% This petition for revie1 on certiorari i4pugns the !ecision" of the Court of Appeals +CA, in CA#$%R% C& 'o% .594" ) 1hich reversed and set aside that4 of the Regional Trial Court +RTC, in an action for specific perfor4ance or recovery of possession, for su4 of 4oney, for consolidation of o1nerships and da4ages% "+e (a0t$ 5n 'ove4ber 15, 199(, <a4ilton *ala8 rented a car fro4 $A- Rent#A#Car, a car rental shop o1ned by petitioner -en?a4in -autista% The lease 1as for three +), consecutive days at a rental fee of P1,999%99 per day%5 <o1ever, *ala8 failed to return the car after three +), days pro4pting petitioner to file a co4plaint against hi4 for e"ta<a, violation of -atas Pa4bansa -lg% "" and carnapping%( 5n 7ebruary ", 1997, *ala8 and his co44on#la1 1ife, respondent *hirley $% @nangst, 1ere arrested by officers of the Cri4inal ;nvestigation *ervice $roup +C;*$, of the Philippine 'ational Police 1hile riding the rented car along IueGon City% The ne3t day, petitioner de4anded fro4 *ala8 at the C;*$ 5ffice the su4 of P")",)7"%99 as pay4ent for car rental fees, fees incurred in locating the car, attorneyNs fees, capital gains ta3, transfer ta3, and other incidental e3penses% 7 *ala8 and respondent e3pressed 1illingness to pay but since they 1ere then short on cash, *ala8 proposed to sell to petitioner a house and lot titled in the na4e of respondent% Petitioner 1elco4ed the proposal after consulting his 1ife, Cynthia% Cynthia, on the other hand, further agreed to pay the 4ortgage loan of respondent over the sub?ect property to a certain =o?o 2ee in the a4ount of P"95,999%99 as the property 1as then set to be publicly auctioned on 7ebruary 17, 1997% . To for4aliGe their a4icable settle4ent, Cynthia, *ala8 and respondent e3ecuted a 1ritten agree4ent% 9 They stipulated that respondent 1ould sell, sub?ect to repurchase, her residential property in favor of Cynthia for the total a4ount of P5"7,)7"%99 bro8en do1n, as follo1sA +1, P"95,999%99 for the a4ount paid by Cynthia to 2ee to release the 4ortgage on the propertyE and +", P")",)7"%99, 1hich is the a4ount due to $A- Rent#A#Car% Cynthia also agreed to desist fro4 pursuing the co4plaint against *ala8 and respondent%19

The defendant is further ordered to pay to the plaintiff the a4ount of P19,999%99 a 4onth fro4 6arch 7, 1997 up to the ti4e possession of the lot and house is restored to the plaintiff representing the reasonable value for the use of the propertyE the a4ount of P71,1"9%95 representing the pay4ent 4ade by the plaintiff on the capital gain ta3es and the further a4ount of P79,999%99 for attorneyNs fees and the costs of suit% *5 5R!CRC!%"9

Respondents failed to interpose a ti4ely appeal% <o1ever, on *epte4ber 19, "994, respondent @nangst filed a petition for relief pursuant to *ection ). of the 1997 Rules on Civil Procedure% *he argued that she learned of the decision of the RTC only on *epte4ber (, "994 1hen she received a copy of the 4otion for e3ecution filed by petitioner% "1 Petitioner, on the other hand, 4oved for the dis4issal of respondentNs petition on the ground that the latter paid an insufficient su4 of P"99%99 as doc8et fees%"" ;t appears that respondent @nangst initially paid P"99%99 as doc8et fees as this 1as the a4ount assessed by the Cler8 of Court of the RTC%") *aid a4ount 1as insufficient as the proper filing fees a4ount to P1,715%99% 'evertheless, the correct a4ount 1as subse0uently paid by said respondent on 7ebruary "", "995% "4 ;n their co44ent,"5 respondents countered that they should not be faulted for paying deficient doc8et fees as it 1as due to an erroneous assess4ent of the Cler8 of Court%"( The RTC granted the petition for relief% *ubse0uently, it directed respondents to file a notice of appeal 1ithin t1enty#four +"4, hours fro4 receipt of the order%"7 Accordingly, on 7ebruary "), "995, respondents filed their notice of appeal% ". Respondents contended before the CA that the RTC erred inA +1, not annulling the deed of sale 1ith right to repurchaseE +", declaring that the deed of sale 1ith right to repurchase is a real contract of saleE +), ordering the consolidation of o1nership of the sub?ect property in the na4e of petitioner% "9 They argued that respondent @nangstNs consent to the deed of sale 1ith right to repurchase 1as procured under duress and that even assu4ing that her consent 1as freely given, the contract parta8es of the nature of an e0uitable 4ortgage% )9 5n the other hand, petitioner insisted, a4ong others, that although the petition for relief of respondents 1as filed on ti4e, the proper filing fees for said petition 1ere paid beyond the (9#day regle4entary period% <e posited that ?urisdiction is ac0uired by the court over the action only upon full pay4ent of prescribed doc8et fees% )1 CA 6#$po$#t#on ;n a !ecision)" dated April 7, "99(, the CA reversed and set aside the RTC ?udg4ent% )) The dispositive part of the appellate courtNs decision reads, thusA ;' &;CB 57 A22 T<C 75RC$5;'$, the instant appeal is hereby $RA'TC!, the challenged !ecision dated =uly "9, "994 hereby +sic, RC&CR*C! and *CT A*;!C, and a ne1 one entered declaring the !eed of *ale Bith Right 5f Repurchase dated 7ebruary 4, 1997 as an e0uitable 4ortgage% 'o cost% *5 5R!CRC!%)4 The CA declared that the !eed of *ale 1ith Right of Repurchase e3ecuted by the parties 1as an e0uitable 4ortgage% 5n the procedural aspect pertaining to the petition for relief filed by respondent @nangst, the CA ruled that >the trial court, in opting to apply the rules liberally, cannot be faulted for giving due course to the 0uestioned petition for relief 1hich enabled appellants to interpose the instant appeal%>)5 ;t ratiocinatedA Appellee recogniGes the ti4ely filing of appellantsN petition for relief to be able to appeal ?udg4ent but nonetheless points out that the proper filing fees 1ere paid beyond the (9#day regle4entary period% Arguing that the court ac0uires ?urisdiction over the action only upon full pay4ent of the prescribed doc8et fees, he sub4its that the trial court erred in granting appellantsN petition for relief despite the late pay4ent of the filing fees% Bhile this Court is fully a1are of the 4andatory nature of the re0uire4ent of pay4ent of appellate doc8et fee, the <igh Court has recogniGed that its strict application is 0ualified by the follo1ingA first, failure to pay those fees 1ithin the regle4entary period allo1s only discretionary, not auto4atic, dis4issalE second, such po1er should be used by the court in con?unction 1ith its e3ercise of sound discretion in accordance 1ith the tenets of ?ustice and fair play, as 1ell as 1ith a great deal of circu4spection in consideration of all attendant

circu4stances +Meatma"ter" International ;orporation :/ Leli" Integrated De:elopment ;orporation , 45" *CRA ("( L"995M, citing La Salette ;ollege :/ Pilotin, 41. *CRA ).9 L"99)M,% Applied in the instant case, the doc8et fees 1ere ad4ittedly paid only on 7ebruary "", "995, or a little less than t1o +", 4onths after the period for filing the petition lapsed% Det, this 4atter 1as sufficiently e3plained by appellants% The records bear out that appellants initially paid P"99%99 as doc8et fees because this 1as the a4ount assessed by the Cler8 of Court of the RTC of 5longapo City +p% "7), Records,% As it turned out, the fees paid 1as insufficient, the proper filing fees being P1,715%99, 1hich 1as eventually paid by appellants on 7ebruary 1, "995 +p% "9(, Records,% As such, appellants cannot be faulted for their failure to pay the proper doc8et fees for, given the prevailing circu4stances, such failure 1as clearly not a dilatory tactic nor intended to circu4vent the Rules of Court% 5n the contrary, appellants de4onstrated their 1illingness to pay the doc8et fees 1hen they subse0uently paid on the sa4e day they 1ere assessed the correct fees +p% "99, Records,% 'otably, in 1ambao :/ ;ourt o< Appeal" +)4( *CRA 141 L"999M,, the <igh Court declared therein that >the appellate court 4ay e3tend the ti4e for the pay4ent of the doc8et fees if appellants is able to sho1 that there is a ?ustifiable reason for his failure to pay the correct a4ount of doc8et fees 1ithin the prescribed period, li8e fraud, accident, 4ista8e, e3cusable negligence, or a si4ilar supervening casualty, 1ithout fault on the part of appellant%> &erily, the trial court, in opting to apply the rules liberally, cannot be faulted for giving due course to the 0uestioned petition for relief 1hich enabled appellants to interpose the instant appeal%)( 5n the substantial issues, the CA concluded that >Bhile the records is bereft of any proof or evidence that appellee e4ployed unla1ful or i4proper pressure against appellant @nangst to give her consent to the contract of sale, there is, nevertheless, sufficient basis to hold the sub?ect contract as one of e0uitable 4ortgage%> )7 ;t e3plainedA =urisprudence has consistently held that the no4enclature used by the contracting parties to describe a contract does not deter4ine its nature% The decisive factor in deter4ining the true nature of the transaction bet1een the parties is the intent of the parties, as sho1n not necessarily by the ter4inology used in the contract but by all the surrounding circu4stances, such as the relative situations of the parties at that ti4eE the attitudes, acts, conduct, and declarations of the partiesE the negotiations bet1een the4 leading to the deedE and generally, all pertinent facts having a tendency to fi3 and deter4ine the real nature of their design and understanding + Lega"pi :/ !ng, 459 *CRA 1"" L"995M,% ;t 4ust be stressed, ho1ever, that there is no conclusive test to deter4ine 1hether a deed absolute on its face is really a si4ple loan acco44odation secured by a 4ortgage% ;n fact, it is often a 0uestion difficult to resolve and is fre0uently 4ade to depend on the surrounding circu4stances of each case% Bhen in doubt, courts are generally inclined to construe a transaction purporting to be a sale as an e0uitable 4ortgage, 1hich involves a lesser trans4ission of rights and interests over the property in controversy +Lega"pi, ibid%,% Article 1(9" of the Civil Code enu4erates the instances 1here a contract shall be presu4ed to be an e0uitable 4ortgage 1hen # +a, the price of a sale 1ith right to repurchase is unusually inade0uateE +b, the vendor re4ains in possession as lessee or other1iseE +c, upon or after the e3piration of the right to repurchase another instru4ent e3tending the period of rede4ption or granting a ne1 period is e3ecutedE +d, the purchaser retains for hi4self a part of the purchase priceE +e, the vendor binds hi4self to pay ta3es on the thing soldE and, +f, in any other case 1here it 4ay be fairly inferred that the real intention of the parties is that the transaction shall secure the pay4ent of a debt or the perfor4ance of any other obligation +Lega"pi, supraE Martine= :/ ;ourt o< Appeal", )5. *CRA ). L"991M,% 7or the presu4ption of an e0uitable 4ortgage to arise under Article 1(9", t1o +", re0uisites 4ust concurA +a, that the parties entered into a contract deno4inated as a contract of saleE and, +b, that their intention 1as to secure an e3isting debt by 1ay of a 4ortgage% Any of the circu4stance laid out in Article 1(9", not the concurrence nor an over1hel4ing nu4ber of the circu4stances therein enu4erated, suffices to construe a contract of sale to be one of e0uitable 4ortgage +Lorbe" :/ ;ourt o< Appeal", )51 *CRA 71( L"991M,% Applying the foregoing considerations in the instant case, there is hardly any doubt that the true intention of the parties is that the transaction shall secure the pay4ent of a debt% ;t is not contested that before e3ecuting the

sub?ect deed, @nangst and *ala8 1ere under police custody and 1ere sorely pressed for 4oney% *uch urgent prospect of prolonged detention helps e3plain 1hy appellants 1ould subscribe to an agree4ent li8e the deed in the instant case% This 4ight very 1ell e3plain appellantsN insistence that @nangst 1as not truly free 1hen she signed the 0uestioned deed% -esides, there is no gainsaying that 1hen appellee allo1ed appellants to retain possession of the realty sold for )9 days, as part of the agree4ent, that period of ti4e surely signaled a ti4e allotted to *ala8 and @nangst, as debtors, 1ithin 1hich to pay their 4ortgage indebtedness% The <igh Court, in several cases involving si4ilar situations, has declared that >1hile it 1as true that plaintiffs 1ere a1are of the contents of the contracts, the preponderance of the evidence sho1ed, ho1ever, that they signed 8no1ing that said contracts did not e3press their real intention, and if they did so not1ithstanding this, it 1as due to the urgent necessity of obtaining funds% 'ecessitous 4en are not, truly spea8ing, free 4enE but to ans1er a present e4ergency, 1ill sub4it to any ter4s that the crafty 4ay i4pose upon the4> + Lorbe", ibid%E 5eye" :/ ;ourt o< Appeal", ))9 *CRA 97 L"999ME Lao :/ ;ourt o< Appeal", "75 *CRA ")7 L1997*. 9amora :/ ;ourt o< Appeal", "(9 *CRA 19 L199(ME Laba"an :/ Lacue"ta, .( *CRA 1( L197.M,% After all, Article 1(9"+(, provides that a contract of sale 1ith right to repurchase is presu4ed to be an e0uitable 4ortgage in any other case 1here it 4ay be fairly inferred that the real intention of the parties is that the transaction shall secure the pay4ent of a debt or the perfor4ance of any obligation% ;n fine, a careful revie1 of the records convincingly sho1s that the obtaining facts in this case 0ualify the controversial agree4ent bet1een the parties as an e0uitable 4ortgage under Article 1(9" of the 'e1 Civil Code%). !$$2e$ Petitioner has resorted to the present recourse under Rule 45, assigning to the CA the follo1ing errorsA +a, The <onorable Court of Appeals co44itted grave error in finding that the respondent perfected an appeal via Petition for Relief To -e Able To Appeal =udg4ent even 1hen the proper doc8et fees 1ere paid beyond the period prescribed to bring such action under *ection ) of Rule ). of the 1997 Rules of Civil Procedure in relation to the pronounce4ents by the <onorable Court in the cases of P%ilippine 5abbit u" Line"# Inc/ :/ Arciaga L14. *CRA 4))M, P%ilippine Pryce A""urance ;orp/ :/ ;ourt o< Appeal" L14. *CRA 4))M and Sun In"urance !<<ice# Ltd/ :/ A"uncion L179 *CRA "74M% +b, The <onorable Court of Appeals erred on a 0uestion of la1 in reversing the !ecision of the Court a 0uo finding the !eed of *ale 1ith Right to Repurchase a docu4ent of sale e3ecuted by the respondent in favor of the petitioner and in further holding such contract as one of e0uitable 4ortgage% )9 O2r R2,#n3 5n the first issue, petitioner contends that respondentsN >Petition for Relief to -e Able to Appeal =udg4ent,> 1hich paved the 1ay for the allo1ance of respondentsN appeal of the RTC decision, 1as filed 1ithin the prescriptive period but the proper doc8et fees for it 1ere belatedly paid%49 <e thus posits that the RTC did not ac0uire ?urisdiction over said petition% <aving no ?urisdiction, the RTC could not have allo1ed respondents to appeal% 5n this issue, respondent counters that the belated pay4ent of proper doc8et fees 1as not due to their fault but to the i4proper assess4ent by the Cler8 of Court% Respondent asserts the ruling of the CA that the court 4ay e3tend the ti4e for the pay4ent of the doc8et fees if there is a ?ustifiable reason for the failure to pay the correct a4ount% 6oreover, respondent argues that petitioner failed to contest the RTC 5rder dated 7ebruary "1, "994 that allo1ed the pay4ent of supple4entary doc8et fees% Petitioner failed to file a 4otion for reconsideration or a petition for certiorari to the higher court to 0uestion said order% Be agree 1ith respondents% Their failure to pay the correct a4ount of doc8et fees 1as due to a ?ustifiable reason% The right to appeal is a purely statutory right% 'ot being a natural right or a part of due process, the right to appeal 4ay be e3ercised only in the 4anner and in accordance 1ith the rules provided therefor% 41 7or this reason, pay4ent of the full a4ount

of the appellate court doc8et and other la1ful fees 1ithin the regle4entary period is 4andatory and ?urisdictional%4" 'evertheless, as this Court ruled in Arana" :/ 4ndona,4) the strict application of the ?urisdictional nature of the above rule on pay4ent of appellate doc8et fees 4ay be 4itigated under e3ceptional circu4stances to better serve the interest of ?ustice% ;t is al1ays 1ithin the po1er of this Court to suspend its o1n rules, or to e3cept a particular case fro4 their operation, 1henever the purposes of ?ustice re0uire it%44 ;n not a fe1 instances, the Court rela3ed the rigid application of the rules of procedure to afford the parties the opportunity to fully ventilate their cases on the 4erits% This is in line 1ith the ti4e#honored principle that cases should be decided only after giving all parties the chance to argue their causes and defenses% 45 7or, it is far better to dispose of a case on the 4erit 1hich is a pri4ordial end, rather than on a technicality, if it be the case, that 4ay result in in?ustice% 4( The e4erging trend in the rulings of this Court is to afford every party#litigant the a4plest opportunity for the proper and ?ust deter4ination of his cause, free fro4 the constraints of technicalities%47 As early as 194(, in Sego:ia :/ arrio",4. the Court ruled that 1here an appellant in good faith paid less than the correct a4ount for the doc8et fee because that 1as the a4ount he 1as re0uired to pay by the cler8 of court, and he pro4ptly paid the balance, it is error to dis4iss his appeal because >+e,very citiGen has the right to assu4e and trust that a public officer charged by la1 1ith certain duties 8no1s his duties and perfor4s the4 in accordance 1ith la1% To penaliGe such citiGen for relying upon said officer in all good faith is repugnant to ?ustice%>49 Technicality and procedural i4perfections should thus not serve as bases of decisions% 59 ;n that 1ay, the ends of ?ustice 1ould be better served% 7or, indeed, the general ob?ective of procedure is to facilitate the application of ?ustice to the rival clai4s of contending parties, bearing al1ays in 4ind that procedure is not to hinder but to pro4ote the ad4inistration of ?ustice% 51 Be go no1 to the cru3 of the petition% *hould the deed of sale 1ith right to repurchase e3ecuted by the parties be construed as an e0uitable 4ortgageF This is the pivotal 0uestion here% According to petitioner, the deed should not be construed as an e0uitable 4ortgage as it does not fall under any of the instances 4entioned in Article 1(9" of the Civil Code 1here the agree4ent can be construed as an e0uitable 4ortgage% <e added that the >language and ter4s of the !eed of *ale 1ith Right to Repurchase e3ecuted by respondent in favor of the petition are clear and une0uivocal% *aid contract 4ust be construed 1ith its literal sense%> 5" Be cannot agree% Respondent is correct in alleging that the deed of sale 1ith right to repurchase 0ualifies as an e0uitable 4ortgage under Article 1(9"% *he 4erely secured the pay4ent of the unpaid car rentals and the a4ount advanced by petitioner to =o?o 2ee% The transaction bet1een the parties is one of e0uitable 4ortgage and not a sale 1ith right to purchase as 4aintained by petitioners% Article 1(9" of the 'e1 Civil Code provides that the contract is presu4ed to be an e0uitable 4ortgage in any of the follo1ing casesA +1, Bhen the price of a sale 1ith right to repurchase is unusually inade0uateE +", Bhen the vendor re4ains in possession as lessee or other1iseE +), Bhen upon or after the e3piration of the right to repurchase another instru4ent e3tending the period of rede4ption or granting a ne1 period is e3ecutedE +4, Bhen the purchaser retains for hi4self a part of the purchase priceE +5, Bhen the vendor binds hi4self to pay the ta3es on the thing soldE +(, !n an/ ot+er 0a$e -+ere #t ma/ be 1a#r,/ #n1erre t+at t+e rea, #ntent#on o1 t+e part#e$ #$ t+at t+e tran$a0t#on $+a,, $e02re t+e pa/ment o1 a ebt or t+e per1orman0e o1 an/ ot+er ob,#3at#on %

;n any of the foregoing cases, any 4oney, fruits, or other benefit to be received by the vendee as rent or other1ise shall be considered as interest 1hich shall be sub?ect to the usury la1s% 5) +C4phasis ours, The conclusion that the deed of sale 1ith right to repurchase is an e0uitable 4ortgage is buttressed by the follo1ingA (#r$t, before e3ecuting the deed, respondent and *ala8 1ere under police custody due to the co4plaint lodged against the4 by petitioner% They 1ere sorely pressed for 4oney, as they 1ould not be released fro4 custody unless they paid petitioner% ;t 1as at this point that respondent 1as constrained to e3ecute a deed of sale 1ith right to repurchase% Respondent 1as in no position 1hatsoever to bargain 1ith their creditor, petitioner% 'el consensui ta4 contrariu4 est 0ua4 vis at0ui 4etus% There can be no consent 1hen under force or duress% Bale wala ang pagsang-ayon kung ito'y nakuha sa pamimilit o paraang di malaya% ;t is established that respondent signed the deed only because of the urgent necessity of obtaining funds% 2a::p%i2 Bhen the vendor is in urgent need of 4oney 1hen he e3ecutes the sale, the alleged sale 1ith pacto de retro 1ill be construed as an e0uitable 4ortgage%54 >'ecessitous 4en are not, truly spea8ing, free 4enE but to ans1er a present e4ergency 1ill sub4it to any ter4s that the crafty 4ay i4pose upon the4%>55 Se0on , petitioner allo1ed respondent and *ala8 to retain the possession of the property despite the e3ecution of the deed% ;n fact, respondent and *ala8 1ere not bound to deliver the possession of the property to petitioner if they 1ould pay hi4 the a4ount he de4anded%5( Bhere in a contract of sale 1ith pacto de retro, the vendor re4ains in possession, as a lessee or other1ise, the contract shall be presu4ed to be an e0uitable 4ortgage% 57 The reason for the presu4ption lies in the fact that in a contract of sale 1ith pacto de retro, the legal title to the property is i44ediately transferred to the vendee, sub?ect to the vendorNs right to redee4% Retention, therefore, by the vendor of the possession of the property is inconsistent 1ith the vendeeNs ac0uisition of the right of o1nership under a true sale% 5. ;t discloses, in the alleged vendee, a lac8 of interest in the property that belies the truthfulness of the sale a retro%59 "+#r , it is li8e1ise undisputed that the deed 1as e3ecuted by reason ofA +1, the alleged indebtedness of *ala8 to petitioner, that is, car rental pay4entsE and +", respondentNs o1n obligation to petitioner, that is, rei4burse4ent of 1hat petitioner paid to the 4ortgagee, =o?o 2ee% 7act is, the purchase price stated in the deed 1as the a4ount of the indebtedness of both respondent and *ala8 to petitioner%(9 Apparently, the deed purports to be a sale 1ith right to purchase% <o1ever, since it 1as e3ecuted in consideration of the aforesaid loans andQor indebtedness, said contract is indubitably an e0uitable 4ortgage% The rule is fir4ly settled that 1henever it is clearly sho1n that a deed of sale 1ith pacto de retro, regular on its face, is given as security for a loan, it 4ust be regarded as an e0uitable 4ortgage%(1 The above#4entioned circu4stances preclude the Court fro4 declaring that the parties intended the transfer of the property fro4 one to the other by 1ay of sale% They are 4ore than sufficient to sho1 that the true intention of the parties is to secure the pay4ent of said debts% &erily, an e0uitable 4ortgage under paragraphs " and ( of Article 1(9" e3ists here% *ettled is the rule that to create the presu4ption enunciated by Article 1(9", the e3istence of one circu4stance is enough% (" 6oreover, under Article 1(9) of the Civil Code it is provided thatA >+i,n case of doubt, a contract purporting to be a sale 1ith right to repurchase shall be construed as an e0uitable 4ortgage%> ;n this case, Be have no doubt that the transaction bet1een the parties is that of a loan secured by said property by 1ay of 4ortgage% ;n Lorbe" :/ ;ourt o< Appeal",() the Court held thatA The decisive factor in evaluating such agree4ent is the intention of the parties, as sho1n not necessarily by the ter4inology used in the contract but by all the surrounding circu4stances, such as the relative situation of the parties at that ti4e, the attitude, acts, conduct, declarations of the parties, the negotiations bet1een the4 leading to the deed, and generally, all pertinent facts having a tendency to fi3 and deter4ine the real nature of their

design and understanding% As such, docu4entary and parol evidence 4ay be sub4itted and ad4itted to prove the intention of the parties% *ales 1ith rights to repurchase, as defined by the Civil Code, are not favored% Be 1ill not construe instru4ents to be sales 1ith a right to repurchase, 1ith the stringent and onerous effects 1hich follo1, unless the ter4s of the docu4ent and the surrounding circu4stances re0uire it% Bhenever, under the ter4s of the 1riting, any other construction can fairly and reasonably be 4ade, such construction 1ill be adopted and the contract 1ill be construed as a 4ere loan unless the court can see that, if enforced according to its ter4s, it is not an unconscionable one%(4 Article 1(9" of the Civil Code is designed pri4arily to curtail the evils brought about by contracts of sale 1ith right of repurchase, such as the circu4vention of the la1s against usury and pactum commi""orium%(5 *9ERE(ORE, the petition is 6EN!E6 for lac8 of 4erit%SO OR6ERE6%

G.R. No. 14@88< (ebr2ar/ 15, 2001 SPOUSES OC"A5!O an EP!(AN!A LOR7ES, pet#t#oner$, %$.COUR" O( APPEALS, R!CAR6O 6ELOS RE&ES an 'OSE(!NA CRU;, re$pon ent$. GON;AGA8RE&ES, J.) This petition for revie1 on certiorari arose fro4 an action for refor4ation of instru4ent and da4ages originally filed 1ith the Regional Trial Court of Antipolo, RiGal, -ranch 74, the decision on 1hich 1as revie1ed and reversed by the Third !ivision of the Court of Appeals% Petitioners 1ere the registered o1ners of a ""5#s0uare 4eter parcel of land located in Antipolo, RiGal covered by Transfer Certificate of Title 'o% 1(5999% *o4eti4e in August 1991, petitioners 4ortgaged this property to 7lorencio and 'estor Carlos in the a4ount of P159,999%99% About a year later, the 4ortgage obligation had increased to P599,999%99 and fearing foreclosure of the property, petitioners as8ed their son#in#la1, herein private respondent Ricardo delos Reyes, for help in redee4ing their property% Private respondent delos Reyes agreed to redee4 the property but because he allegedly had no 4oney then for the purpose he solicited the assistance of private respondent =osefina CruG, a fa4ily friend of the delos Reyeses and an e4ployee of the 2and -an8 of the Philippines%2>(p%i2/n?t ;t 1as agreed that petitioners 1ill sign a deed of sale conveying the 4ortgaged property in favor of private respondent CruG and thereafter, CruG 1ill apply for a housing loan 1ith 2and -an8, using the sub?ect property as collateral% ;t 1as further agreed that out of the proceeds of the loan, P599,999%99 1ill be paid to the Carloses as 4ortgagees, and an such balance 1ill be applied by petitioners for capital gains ta3, e3penses for the cancellation of the 4ortgage to the Carloses, transfer of title to =osefina CruG, and registration of a 4ortgage in favor of 2and -an8% 1 6oreover, the 4onthly a4ortiGation on the housing loan 1hich 1as supposed to be deducted fro4 the salary of private respondent CruG 1ill be rei4bursed by private respondent delos Reyes% 5n *epte4ber "9, 199", the 2and -an8 issued a letter of guarantee in favor of the Carloses, infor4ing the4 that CruG s loan had been approved% 5n 5ctober "", 199", Transfer Certificate of Title 'o% 1(5999 1as cancelled and Transfer Certificate of Title 'o% ""9.91 in the na4e of =osefina CruG 1as issued in lieu thereof% " 5n 'ove4ber "5, 199", the 4ortgage 1as discharged% *o4eti4e in 199), petitioners notified private respondent delos Reyes that they 1ere ready to redee4 the property but the offer 1as refused% Aggrieved, petitioners filed on =uly "", 1994 a co4plaint for refor4ation of instru4ent and da4ages 1ith the RTC of Antipolo, RiGal, doc8eted as Civil Case 'o% 94#)"9(%

;n the co4plaint, petitioners clai4ed that the deed 1as 4erely a for4ality to 4eet the re0uire4ents of the ban8 for the housing loan, and that the real intention of the parties in securing the loan 1as to apply the proceeds thereof for the pay4ent of the 4ortgage obligation%) They alleged that the deed of sale did not reflect the true intention of the parties, and that the transaction 1as not an absolute sale but an e0uitable 4ortgage, considering that the price of the sale 1as inade0uate considering the 4ar8et value of the sub?ect property and because they continued paying the real estate ta3es thereto even after the e3ecution of the said deed of sale% Petitioners averred that they did not see any reason 1hy private respondents 1ould retract fro4 their original agree4ent other than that they +petitioners, and the 4e4bers of their fa4ily resigned en ma""e fro4 the 6ahal 'a4in 5rganiGation, of 1hich private respondent delos Reyes 1as the president and chair4an of the board of directors, and private respondent CruG 1as the treasurer% ;n the sa4e co4plaint, they de4anded 4oral da4ages, e3e4plary da4ages, and attorney s fees% 5n =uly "9, 199(, the trial court issued a te4porary restraining order en?oining private respondents fro4 e?ecting petitioners fro4 the pre4ises of the disputed propertyE this 1as soon replaced by a 1rit of preli4inary in?unction% *u44ons and a copy of the co4plaint 1ere served upon private respondents on August 1, 1994% Private respondents filed their ans1er beyond the regla4entary period, or only on *epte4ber 1, 1994% Thus, on *epte4ber 5, 1994, petitioners filed a 4otion to declare private respondents in default, 1hich the trial court granted in an order dated *epte4ber 1(, 1994% 5n *epte4ber )9 of the sa4e year, petitioners presented their evidence e@ parte before the trial court% The principal 1itness presented 1as petitioner 5ctavio 2orbes, 1hose testi4ony 1as corroborated by his son, Atty% *alvador 2orbes% 5n 5ctober 1", 1994, private respondents filed a 4otion to lift order of default and to stri8e out evidence presented e@ parte, 1hich the court denied in an order dated 5ctober "(, 1994% 5n =une "9, 1995, the trial court rendered ?udg4ent in favor of petitioners, upon finding thatA +1, the !eed of Absolute *ale dated 5ctober "1, 199" did not reflect the true intention of the parties, and +", the transaction entered into bet1een petitioners and CruG 1as not an absolute sale but an e0uitable 4ortgage, considering that the price stated in the !eed of Absolute *ale 1as insufficient co4pared to the value of the property, petitioners are still in possession of the property, and petitioners had continued to pay the real estate ta3es thereon after the e3ecution of the said deed of sale% As e3plained by the trial court in its decisionA The foregoing uncontroverted facts clearly sho1 that the transaction entered into bet1een the plaintiffs and the defendants is not an absolute sale but 4erely an e0uitable 4ortgage as the sale 1as e3ecuted in order to secure a loan fro4 a certain ban8 to save the property fro4 the danger of foreclosure and to use it as collateral thereof for ban8 loan purposes and that the sa4e does not reflect the real intention of the parties in e3ecuting the said !eed of *ale% The court notes that at the ti4e the transaction and the !eed of Absolute *ale 1as e3ecuted by the plaintiffs so4eti4e in 199", the prevailing 4ar8et value of the lot alone 1as P499,999%99 per s0uare 4eter such that the lot alone consisting of "55 s0uare 4eters, e3cluding the house and i4prove4ents thereon 1ould already cost 4ore than a 4illion pesos already hence, the consideration of P(99,999%99 in the said !eed of *ale is considerably insufficient co4pared to the value of the property% 7urther, the plaintiffs are still in possession of the sub?ect property and had been paying the realty ta3es thereon even after the e3ecution of the sale and the transfer of the title fro4 the plaintiffs to defendant =osephine CruG 1hich clearly evinces the true badge of the transaction 1hich occurred bet1een the plaintiffs and defendants as that of an e0uitable 4ortgage and not an absolute sale and that the plaintiffs 1ere only co4pelled to enter into the said transaction of sale 1ith the defendants as the for4er 1ere in e3tre4e need of 4oney in order to redee4 their only con?ugal property and to save it fro4 being foreclosed for non#pay4ent of the 4ortgage obligation and that it 1as never the intention of the plaintiffs to sell the property to the defendants, as it 1as their agree4ent that plaintiffs can redee4 the property or any 4e4ber of the fa4ily thereof, 1hen they beco4e financially stable% 4 The dispositive portion of the trial court s decision thus providesA B<CRC75RC, in vie1 of the foregoing, ?udg4ent is hereby rendered in favor of the plaintiffs and against the defendants, ordering the latter ?ointly and severally, as follo1sA

1% To reconvey the sub?ect property to the plaintiffs upon pay4ent of the price stipulated in the contract of saleE "% To pay plaintiffs the su4 of P59,999%99 as 4oral da4agesE )% To pay plaintiffs the su4 of P59,999%99 as and by 1ay of attorney s fees plus P1,999%99 per court appearanceE 4% To pay the costs of suit% *5 5R!CRC!%5 The Court of Appeals reversed the above decision, finding that private respondents 1ere denied due process by the refusal of the trial court to lift the order of default against the4, and that the transaction bet1een petitioners and CruG 1as one of absolute sale, not of e0uitable 4ortgage% ;t also held the RTC decision to be constitutionally infir4 for its failure to clearly and distinctly state the facts and the la1 on 1hich it is based% The Court of Appeals held that the refor4ation of the !eeds of Absolute *ale in the instant case is i4proper because there is no sho1ing that such instru4ent failed to e3press the true intention of the parties by reason of 4ista8e, fraud, ine0uitable conduct, or accident in the e3ecution thereof% ( To the Court of Appeals, the transaction 1as un4ista8ably a contract of sale, as evidenced by the nu4erous supporting docu4ents thereto, such as the Contract to *ell dated =une 199", Affidavit of BaiverQAssign4ent dated August 14, 199", Receipt of Partial Advance Pay4ent dated *epte4ber 9, 199", and Transfer Certificate of Title 'o% ""9.91 issued in the na4e of private respondent CruG% $oing over the indicators giving rise to a presu4ption of e0uitable 4ortgage cited in the decision of the RTC, the Court of Appeals heldA +1, inade0uacy of price is 4aterial only in a sale 1ith right to repurchase, 1hich is not the case 1ith herein petitioners and CruGE 4oreover, the esti4ate of the 4ar8et value of the property ca4e only fro4 the bare testi4ony of petitioner 5ctavio 2orbes, +", petitioners re4aining in possession of the property resulted only fro4 their refusal to vacate the sa4e despite the la1ful de4ands of private respondent CruG, and +), there 1as no docu4entary evidence that petitioners continued paying the ta3es on the disputed property after the e3ecution of the !eed of Absolute *ale% ;n its decision, the Court of Appeals also pointed out that under the usual arrange4ent of pacto de retro the vendor of the property is a debtor of the vendee, and the property is used as security for his obligation% ;n the instant case, the 4ortgage creditors +the Carloses, are third persons to the !eed of Absolute *ale% This petition raises three issues before the CourtA +1, 1hether respondent court erred in ruling that the !eed of Absolute *ale dated 5ctober "1, 199" 1as an e0uitable 4ortgage, +", 1hether respondent court erred in ruling that by declaring private respondents in default they 1ere denied due process of la1, and +), 1hether respondent court erred in ruling that the trial court s decision violates the constitutional re0uire4ent that it should clearly and distinctly state the facts and the la1 on 1hich it is based%7 Be shall first deal 1ith the second and third issues, these being preli4inary 4atters% Bell#settled is the rule that courts should be liberal in setting aside orders of default for ?udg4ents of default are fro1ned upon, unless in cases 1here it clearly appears that the reopening of the case is intended for delay% . The issuance of orders of default should be the e3ception rather than the rule, to be allo1ed only in clear cases of obstinate refusal by the defendant to co4ply 1ith the orders of the trial court%9 @nder the factual 4ilieu of this case, the RTC 1as indeed re4iss in denying private respondents 4otion to lift the order of default and to stri8e out the evidence presented by petitioners e@ parte, especially considering that an ans1er 1as filed, though out of ti4e% Be thus sustain the holding of the Court of Appeals that the default order of the RTC 1as i44oderate and in violation of private respondents due process rights% <o1ever, 1e do not thin8 that the violation 1as of a degree as to ?ustify a re4and of the proceedings to the trial court, first, because such relief 1as not prayed for by private respondents, and

second, because the affir4ative defenses and evidence that private respondents 1ould have presented before the RTC 1ere capably ventilated before respondent court, and 1ere ta8en into account by the latter in revie1ing the correctness of the evaluation of petitioners evidence by the RTC and ulti4ately, in reversing the decision of the RTC% This is evident fro4 the discussions in the decision of the Court of Appeals, 1hich cited 1ith approval a nu4ber of private respondents argu4ents and evidence, including the docu4ents anne3ed to their opposition to the issuance of a 1rit of preli4inary in?unction filed 1ith the RTC%19 To e4phasiGe, the reversal of respondent court 1as not si4ply on due process grounds but on the 4erits, going into the issue of 1hether the transaction 1as one of e0uitable 4ortgage or of sale, and so 1e find that 1e can properly ta8e cogniGance of the substantive issue in this case, 1hile of course bearing in 4ind the inordinate 4anner by 1hich the RTC issued its default order% As regards the third issue, 1e reverse for being unfounded the holding of the Court of Appeals since the RTC decision, so4e parts of 1hich 1e even reproduced in our earlier discussions, clearly co4plied 1ith the constitutional re0uire4ent to state clearly and distinctly the facts and the la1 on 1hich it 1as based% Thus, the one issue essential to the resolution of this case is the nature of the transaction bet1een petitioners and private respondent CruG concerning the sub?ect parcel of land% !id the parties intend for the contested !eed of Absolute *ale to be a bona <ide and absolute conveyance of the property, or 4erely an e0uitable 4ortgageF 5n the outset, it 4ust be e4phasiGed that there is no conclusive test to deter4ine 1hether a deed absolute on its face is really a si4ple loan acco44odation secured by a 4ortgage% 11 >The decisive factor in evaluating such agree4ent is the intention of the parties, as sho1n not necessarily by the ter4inology used in the contract but by all the surrounding circu4stances, such as the relative situation of the parties at that ti4e, the attitude, acts, conduct, declarations of the parties, the negotiations bet1een the4 leading to the deed, and generally, all pertinent facts having a tendency to fi3 and deter4ine the real nature of their design and understanding% As such, docu4entary and parol evidence 4ay be sub4itted and ad4itted to prove the intention of the parties%> 1" The conditions 1hich give 1ay to a presu4ption of e0uitable 4ortgage, as set out in Article 1(9" of the Civil Code, apply 1ith e0ual force to a contract purporting to be one of absolute sale% 1) 6oreover, the presence of even one of the circu4stances laid out in Article 1(9", and not a concurrence of the circu4stances therein enu4erated, suffices to construe a contract of sale to be one of e0uitable 4ortgage% 14 This is si4ply in consonance 1ith the rule that the la1 favors the least trans4ission of property rights%15 Thus, under Article 1(9" of the Civil Code, a contract shall be presu4ed to be an e0uitable 4ortgage 1hen ### +a, the price of a sale 1ith right to repurchase is unusually inade0uateE +b, the vendor re4ains in possession as lessee or other1iseE +c, upon or after the e3piration of the right of repurchase another instru4ent e3tending the period of rede4ption or granting a ne1 period is e3ecutedE +d, the purchaser retains for hi4self a part of the purchase priceE +e, the vendor binds hi4self to pay the ta3es on the thing soldE and, +f, in any other case 1here it 4ay be fairly inferred that the real intention of the parties is that the transaction shall secure the pay4ent of a debt or the perfor4ance of any other obligation% Applying the foregoing considerations to the instant case, the Court finds that the true intention bet1een the parties for e3ecuting the !eed of Absolute *ale 1as not to convey o1nership of the property in 0uestion but 4erely to secure the housing loan of CruG, in 1hich petitioners had a direct interest since the proceeds thereof 1ere to be i44ediately applied to their outstanding 4ortgage obligation to the Carloses% ;t is not disputed that before the e3ecution of the !eed of Absolute *ale petitioners 4ortgage obligation to the Carloses as nearing 4aturity and they 1ere in dire need of 4oney to 4eet the sa4e% <ence, they as8ed for the help of their son#in#la1 delos Reyes 1ho in turn re0uested CruG to ta8e out a housing loan 1ith 2and -an8% *ince collateral is a standard re0uire4ent of ban8s in giving out loans, it 1as 4ade to appear that the sub?ect property 1as sold to CruG so she can declare the sa4e as collateral for the housing loan% This 1as si4ply in line 1ith the basic re0uire4ent in our la1s that the 4ortgagor be the absolute o1ner of the property sought to be 4ortgaged% 1(Consistent 1ith their agree4ent, as soon as the housing loan 1as approved, the full a4ount of the proceeds 1ere i44ediately turned over to petitioners, 1ho pro4ptly paid P599,999%99 therefro4 to the Carloses in full satisfaction of their 4ortgage obligation% The balance 1as spent by petitioners in transferring title to the property to CruG and registering the ne1 4ortgage 1ith 2and -an8%

@nderstandably, the !eed of Absolute *ale and its supporting docu4ents do not reflect the true arrange4ent bet1een the parties as to ho1 the loan proceeds are to be actually applied because it 1as not the intention of the parties for these docu4ents to do so% The sole purpose for preparing these docu4ents 1as to satisfy 2and -an8 that the re0uire4ent of collateral relative to CruG s application for a housing loan 1as 4et% Bere 1e to accept, as respondent court had, that the loan that CruG too8 out 1ith 2and -an8 1as indeed a housing loan, then it is rather curious that CruG 8ept none of the loan proceeds but allo1ed for the bul8 thereof to be i44ediately applied to the pay4ent of petitioners outstanding 4ortgage obligation% ;t also strains credulity that petitioners, 1ho 1ere e3hausting all 4eans to save their sole con?ugal real property fro4 being foreclosed by the Carloses, 1ould concurrently part 1ith the sa4e in favor of CruG% *uch urgent prospect of foreclosure helps to e3plain 1hy petitioners 1ould subscribe to an agree4ent li8e the !eed of Absolute *ale in the herein case, 1hich on its face represents their unconditional relin0uish4ent of o1nership over their property% Passing upon previous si4ilar situations the Court has declared that >1hile it 1as true that plaintiffs 1ere a1are of the contents of the contracts, the preponderance of the evidence sho1ed ho1ever that they signed 8no1ing that said contracts did not e3press their real intention, and if they did so not1ithstanding this, it (a" due to t%e urgent nece""ity o< obtaining <und"/ ANece""itou" men are not# truly "pea$ing# <ree men. but to an"(er a pre"ent emergency# (ill "ubmit to any term" t%at t%e cra<ty may impo"e upon t%em/BA17 The facts further bear out that petitioners re4ained in possession of the disputed property after the e3ecution of the !eed of Absolute *ale and the transfer of registered title to CruG in 5ctober 199"% CruG 4ade no de4and on petitioners to vacate the sub?ect pre4ises until 6arch 19, 1994E 1. interestingly, this 1as t1o days after petitioners signified their intention to redee4 the property by paying the full a4ount of P(99,999%99% 19 5n this basis, the finding of respondent court that petitioners re4ained in possession of the property only because they refused to vacate on CruG s de4and is not accurate because the records reflect that no such de4and 1as 4ade until 4ore than a year since the purported sale of the property% Copies of realty ta3 receipts attached to the record also sho1 that petitioners continued paying for the ta3es on the property for the period 199" to 1994,"9 or after the property 1as supposed to have been sold to CruG% 7ro4 the above, the Court is satisfied that enough of the circu4stances set out in Article 1(9" of the Civil Code are attendant in the instant case, as to sho1 that the true arrange4ent bet1een petitioners and private respondent CruG 1as an e0uitable 4ortgage% That a transfer certificate of title 1as issued in favor of private respondent CruG also does not i4port conclusive evidence of o1nership or that the agree4ent bet1een the parties 1as one of sale% As 1as stated in !ronce :"/ ;ourt o< Appeal","1 citing Macapinlac :"/ Gutierre= 5epide""A 333 it 4ust be borne in 4ind that the e0uitable doctrine 333 to the effect that any conveyance intended as security for a debt 1ill be held in effect to be a 4ortgage, 1hether so actually e3pressed in the instru4ent or not, operates regardless of the for4 of the agree4ent chosen by the contracting parties as the repository of their 1ill% C0uity loo8s through the for4 and considers the substanceE and no 8ind of engage4ent can be adopted 1hich 1ill enable the parties to escape fro4 the e0uitable doctrine to 1hich reference is 4ade% ;n other 1ords, a conveyance of land, acco4panied by registration in the na4e of the transferee and the issuance of a ne1 certificate, is no 4ore secured fro4 the operation of the e0uitable doctrine than the 4ost infor4al conveyance that could be devised% -efore 1e fully set aside this issue, it 1ill be recalled that the instant petition originated as a co4plaint for refor4ation filed before the RTC of Antipolo, RiGal% The Court of Appeals found petitioners action for refor4ation un4eritorious because there 1as no sho1ing that the failure of the deed of sale to e3press the parties true intention 1as because of 4ista8e, fraud, ine0uitable conduct, or accident%") ;ndeed, under the facts of the present case, refor4ation 4ay not be proper for failure to fully 4eet the re0uisites in Article 1)59 of the Civil Code, and because as the evidence eventually bore out the contested !eed of Absolute *ale 1as not intended to reflect the true agree4ent bet1een the parties but 1as 4erely to co4ply 1ith the

collateral re0uire4ents of 2and -an8% <o1ever, the fact that the co4plaint filed by petitioners before the trial court 1as categoriGed to be one for refor4ation of instru4ent should not preclude the Court fro4 passing upon the issue of 1hether the transaction 1as in fact an e0uitable 4ortgage as the sa4e has been s0uarely raised in the co4plaint and had been the sub?ect of argu4ents and evidence of the parties% Thus 1e have held that it is not the caption of the pleading but the allegations therein that deter4ine the nature of the action, and the Court shall grant relief 1arranted by the allegations and the proof even if no such relief is prayed for%"4 7inally, on the a1ard of da4ages% Considering the due process fla1s that attended the default ?udg4ent of the RTC, and applying the rule adopted by this Court that in instances 1here no actual da4ages are ad?udicated the a1ards for 4oral and e3e4plary da4ages 4ay be reduced,"5 1e reduce the a1ard for 4oral da4ages in the instant case fro4 P59,999%99 to P)9,999%99% At the sa4e ti4e, 1e sustain the a1ard of attorney s fees in the a4ount of P59,999%99, it being clear that petitioners 1ere co4pelled to incur e3penses and undergo the rigors of litigation to recover their property% 2>(p%i2/n?t *9ERE(ORE, the decision of the Court of Appeals is RE5ERSE6 and SE" AS!6E% The decision of the Regional Trial Court of Antipolo, RiGal is RE!NS"A"E6, 1ith the MO6!(!CA"!ON that the a1ard of 4oral da4ages is reduced to P)9,999%99, and in all other respects A((!RME6. Costs against private respondents% SO OR6ERE6.

serious doubts upon the poll body s ability and capacity to conduct auto4ated elections% Truly, the pith and soul of de4ocracy ## credible, orderly, and peaceful elections ## has been put in ?eopardy by the illegal and gravely abusive acts of Co4elec% "+e Ca$e -efore us is a Petition4 under Rule (5 of the Rules of Court, see8ing +1, to declare null and void Resolution 'o% (974 of the Co44ission on Clections +Co4elec,, 1hich a1arded >Phase ;; of the 6oderniGation Pro?ect of the Co44ission to 6ega Pacific Consortiu4 +6PC,E> +", to en?oin the i4ple4entation of any further contract that 4ay have been entered into by Co4elec >either 1ith 6ega Pacific Consortiu4 andQor 6ega Pacific e*olutions, ;nc% +6PC;,E> and +), to co4pel Co4elec to conduct a re#bidding of the pro?ect% "+e (a0t$ The follo1ing facts are not disputed% They 1ere culled fro4 official docu4ents, the parties pleadings, as 1ell as fro4 ad4issions during the 5ral Argu4ent on 5ctober 7, "99)% 5n =une 7, 1995, Congress passed Republic Act .94(, 5 1hich authoriGed Co4elec to conduct a nation1ide de4onstration of a co4puteriGed election syste4 and allo1ed the poll body to pilot#test the syste4 in the 6arch 199( elections in the Autono4ous Region in 6usli4 6indanao +AR66,% 5n !ece4ber "", 1997, Congress enacted Republic Act .4)( ( authoriGing Co4elec to use an auto4ated election syste4 +AC*, for the process of voting, counting votes and canvassingQconsolidating the results of the national and local elections% ;t also 4andated the poll body to ac0uire auto4ated counting 4achines +AC6s,, co4puter e0uip4ent, devices and 4aterialsE and to adopt ne1 electoral for4s and printing 4aterials% ;nitially intending to i4ple4ent the auto4ation during the 6ay 11, 199. presidential elections, Co4elec ## in its Resolution 'o% "9.5 dated 7ebruary 9, 199. 7 ## eventually decided against full national i4ple4entation and li4ited the auto4ation to the Autono4ous Region in 6usli4 6indanao +AR66,% <o1ever, due to the failure of the 4achines to read correctly so4e auto4ated ballots in one to1n, the poll body later ordered their 4anual count for the entire Province of *ulu% . ;n the 6ay "991 elections, the counting and canvassing of votes for both national and local positions 1ere also done 4anually, as no additional AC6s had been ac0uired for that electoral e3ercise allegedly because of ti4e constraints% 5n 5ctober "9, "99", Co4elec adopted in its Resolution 9"#9179 a 4oderniGation progra4 for the "994 elections% ;t resolved to conduct biddings for the three +), phases of its Auto4ated Clection *yste4E na4ely, Phase ; # &oter Registration and &alidation *yste4E Phase ;; # Auto4ated Counting and Canvassing *yste4E and Phase ;;; # Clectronic Trans4ission% 5n =anuary "4, "99), President $loria 6acapagal#Arroyo issued C3ecutive 5rder 'o% 17", 1hich allocated the su4 of P"%5 billion to fund the AC* for the 6ay 19, "994 elections% @pon the re0uest of Co4elec, she authoriGed the release of an additional P599 4illion% 5n =anuary "., "99), the Co44ission issued an >;nvitation to Apply for Cligibility and to -id,> 1hich 1e 0uote as follo1sA

G.R. No. 15@14@ 'an2ar/ 14, 200< !N(ORMA"!ON "EC9NOLOG& (OUN6A"!ON O( "9E P9!L!PP!NES, MA. CORA;ON M. A?OL, M!GUEL U&, E6UAR6O 9. LOPE;, AUGUS"O C. LAGMAN, REA C. 6R!LON, M!GUEL 9!LA6O, LE& SALCE6O, an MANUEL ALCUA; 'R., pet#t#oner$, %$.COMM!SS!ON ON ELEC"!ONS. COMELEC C9A!RMAN 7EN'AM!N A7ALOS SR.. COMELEC 7!66!NG an A*AR6 COMM!""EE C9A!RMAN E6UAR6O 6. ME'OS an MEM7ERS G!6EON 6E GU;MAN, 'OSE (. 7AL7UENA, LAM7ER"O P. LLAMAS, an 7AR"OLOME S!NOCRU; 'R.. MEGA PAC!(!C eSOLU"!ONS, !NC.. an MEGA PAC!(!C CONSOR"!UM, re$pon ent$. PANGAN!7AN, J.) There is grave abuse of discretion +1, 1hen an act is done contrary to the Constitution, the la1 or ?urisprudenceE 1or +", 1hen it is e3ecuted 1hi4sically, capriciously or arbitrarily out of 4alice, ill 1ill or personal bias% " ;n the present case, the Co44ission on Clections approved the assailed Resolution and a1arded the sub?ect Contract not only in clear violation of la1 and ?urisprudence, but also in rec8less disregard of its o1n bidding rules and procedure% 7or the auto4ation of the counting and canvassing of the ballots in the "994 elections, Co4elec a1arded the Contract to >6ega Pacific Consortiu4> an entity that had not participated in the bidding% !espite this grant, the poll body signed the actual auto4ation Contract 1ith >6ega Pacific e*olutions, ;nc%,> a co4pany that ?oined the bidding but had not 4et the eligibility re0uire4ents% Co4elec a1arded this billion#peso underta8ing 1ith ine3plicable haste, 1ithout ade0uately chec8ing and observing 4andatory financial, technical and legal re0uire4ents% ;t also accepted the proferred co4puter hard1are and soft1are even if, at the ti4e of the a1ard, they had undeniably failed to pass eight critical re0uire4ents designed to safeguard the integrity of elections, especially the follo1ing three ite4sA R They failed to achieve the accuracy rating criteria of 99%9995 percent set#up by the Co4elec itself

>;'&;TAT;5' T5 APP2D 75R C2;$;-;2;TD A'! T5 -;! R They 1ere not able to detect previously do1nloaded results at various canvassing or consolidation levels and to prevent these fro4 being inputted again R They 1ere unable to print the statutorily re0uired audit trails of the countQcanvass at different levels 1ithout any loss of data -ecause of the foregoing violations of la1 and the glaring grave abuse of discretion co44itted by Co4elec, the Court has no choice but to e3ercise its sole4n >constitutional duty>) to void the assailed Resolution and the sub?ect Contract% The illegal, i4prudent and hasty actions of the Co44ission have not only desecrated legal and ?urisprudential nor4s, but have also cast The Co44ission on Clections +C56C2CC,, pursuant to the 4andate of Republic Act 'os% .1.9 and .4)(, invites interested offerors, vendors, suppliers or lessors to apply for eligibility and to bid for the procure4ent by purchase, lease, lease 1ith option to purchase, or other1ise, supplies, e0uip4ent, 4aterials and services needed for a co4prehensive Auto4ated Clection *yste4, consisting of three +), phasesA +a, registrationQverification of voters, +b, auto4ated counting and consolidation of votes, and +c, electronic trans4ission of election results, 1ith an approved budget of TB5 -;22;5' 7;&C <@'!RC! 6;22;5' +Php",599,999,999, Pesos% 5nly bids fro4 the follo1ing entities shall be entertainedA

a% !uly licensed 7ilipino citiGensQproprietorshipsE b% Partnerships duly organiGed under the la1s of the Philippines and of 1hich at least si3ty percent +(9:, of the interest belongs to citiGens of the PhilippinesE c% Corporations duly organiGed under the la1s of the Philippines, and of 1hich at least si3ty percent +(9:, of the outstanding capital stoc8 belongs to citiGens of the PhilippinesE d% 6anufacturers, suppliers andQor distributors for4ing the4selves into a ?oint venture, i%e%, a group of t1o +", or 4ore 4anufacturers, suppliers andQor distributors that intend to be ?ointly and severally responsible or liable for a particular contract, provided that 7ilipino o1nership thereof shall be at least si3ty percent +(9:,E and e% Cooperatives duly registered 1ith the Cooperatives !evelop4ent Authority% -id docu4ents for the three +), phases 4ay be obtained starting 19 7ebruary "99), during office hours fro4 the -ids and A1ards Co44ittee +-AC, *ecretariatQ5ffice of Co44issioner Resurreccion H% -orra, 7th 7loor, Palacio del $overnador, ;ntra4uros, 6anila, upon pay4ent at the Cash !ivision, Co44ission on Clections, in cash or cashier s chec8, payable to the Co44ission on Clections, of a non#refundable a4ount of 7;7TCC' T<5@*A'! PC*5* +Php15,999%99, for each phase% 7or this purpose, interested offerors, vendors, suppliers or lessors have the option to participate in any or all of the three +), phases of the co4prehensive Auto4ated Clection *yste4% A Pre#-id Conference is scheduled on 1) 7ebruary "99), at 9A99 a%4% at the *ession <all, Co44ission on Clections, Postigo *treet, ;ntra4uros, 6anila% *hould there be 0uestions on the bid docu4ents, bidders are re0uired to sub4it their 0ueries in 1riting to the -AC *ecretariat prior to the scheduled Pre#-id Conference% !eadline for sub4ission to the -AC of applications for eligibility and bid envelopes for the supply of the co4prehensive Auto4ated Clection *yste4 shall be at the *ession <all, Co44ission on Clections, Postigo *treet, ;ntra4uros, 6anila on ". 7ebruary "99) at 9A99 a%4% The C56C2CC reserves the right to revie1 the 0ualifications of the bidders after the bidding and before the contract is e3ecuted% *hould such revie1 uncover any 4isrepresentation 4ade in the eligibility state4ents, or any changes in the situation of the bidder to 4aterially do1ngrade the substance of such state4ents, the C56C2CC shall dis0ualify the bidder upon due notice 1ithout any obligation 1hatsoever for any e3penses or losses that 4ay be incurred by it in the preparation of its bid%>9 5n 7ebruary 11, "99), Co4elec issued Resolution 'o% 59"9 clarifying certain eligibility criteria for bidders and the schedule of activities for the pro?ect bidding, as follo1sA >1%, 5pen to 7ilipino and foreign corporation duly registered and licensed to do business and is actually doing business in the Philippines, sub?ect to *ec% 4) of RA 91.4 +An Act providing ;n the 6oderniGation *tandardiGation and Regulation of the Procure4ent Activities of the $overn4ent and for other purposes etc%, "%, Trac8 RecordA a, 7or counting 4achines K should have been used in at least one +1, political e3ercise 1ith no less than T1enty 6illion &otersE b, 7or verification of voters K the reference site of an e3isting data base installation using Auto4ated 7ingerprint ;dentification *yste4 +A7;*, 1ith at least T1enty 6illion% )%, Ten percent +19:, e0uity re0uire4ent shall be based on the total pro?ect costE and 4%, Perfor4ance bond shall be t1enty percent +"9:, of the bid offer%

RC*52&C! 4oreover, thatA 1, A% !ue to the decision that the eligibility re0uire4ents and the rest of the -id docu4ents shall be released at the sa4e ti4e, and the 4e4orandu4 of Co44% Resurreccion H% -orra dated 7ebruary 7, "99), the docu4ents to be released on 7riday, 7ebruary 14, "99) at "A99 o cloc8 p%4% shall be the eligibility criteria, Ter4s of Reference +T5R, and other pertinent docu4entsE -% Pre#-id conference shall be on 7ebruary 1., "99)E and C% !eadline for the sub4ission and receipt of the -ids shall be on 6arch 5, "99)% ", The afore4entioned docu4ents 1ill be available at the follo1ing officesA a, &oters &alidationA 5ffice of Co44% =avier b, Auto4ated Counting 6achinesA 5ffice of Co44% -orra c, Clectronic Trans4issionA 5ffice of Co44% Tancangco> 19 5n 7ebruary 17, "99), the poll body released the Re0uest for Proposal +R7P, to procure the election auto4ation 4achines% The -ids and A1ards Co44ittee +-AC, of Co4elec convened a pre#bid conference on 7ebruary 1., "99) and gave prospective bidders until 6arch 19, "99) to sub4it their respective bids% A4ong others, the R7P provided that bids fro4 4anufacturers, suppliers andQor distributors for4ing the4selves into a ?oint venture 4ay be entertained, provided that the Philippine o1nership thereof shall be at least (9 percent% Coint :enture is defined in the R7P as >a group of t1o or 4ore 4anufacturers, suppliers andQor distributors that intend to be ?ointly and severally responsible or liable for a particular contract%>11 -asically, the public bidding 1as to be conducted under a t(o-en:elopeDt(o "tage "y"tem% The bidder s first envelope or the Cligibility Cnvelope should establish the bidder s eligibility to bid and its 0ualifications to perfor4 the acts if accepted% 5n the other hand, the second envelope 1ould be the -id Cnvelope itself% The R7P outlines the bidding procedures as follo1sA >"5% Determination o< 4ligibility o< Pro"pecti:e idder" >"5%1 The eligibility envelopes of prospective -idders shall be opened first to deter4ine their eligibility% ;n case any of the re0uire4ents specified in Clause "9 is 4issing fro4 the first bid envelope, the -AC shall declare said prospective -idder as ineligible to bid% -id envelopes of ineligible -idders shall be i44ediately returned unopened% >"5%" The eligibility of prospective -idders shall be deter4ined using si4ple SpassQfail criteria and shall be deter4ined as either eligible or ineligible% ;f the prospective -idder is rated Spassed for all the legal, technical and financial re0uire4ents, he shall be considered eligible% ;f the prospective -idder is rated Sfailed in any of the re0uire4ents, he shall be considered ineligible% >"(% id 4@aminationD4:aluation >"(%1 The -AC 1ill e3a4ine the -ids to deter4ine 1hether they are co4plete, 1hether any co4putational errors have been 4ade, 1hether re0uired securities have been furnished, 1hether the docu4ents have been properly signed, and 1hether the -ids are generally in order% >"(%" The -AC shall chec8 the sub4itted docu4ents of each -idder against the re0uired docu4ents enu4erated under Clause "9, to ascertain if they are all present in the *econd bid envelope +Technical Cnvelope,% ;n case one +1, or 4ore of the re0uired docu4ents is 4issing, the -AC shall

rate the -id concerned as Sfailed and i44ediately return to the -idder its Third bid envelope +7inancial Cnvelope, unopened% 5ther1ise, the -AC shall rate the first bid envelope as Spassed % >"(%) The -AC shall i44ediately open the 7inancial Cnvelopes of the -idders 1hose Technical Cnvelopes 1ere passed or rated on or above the passing score% 5nly -ids that are deter4ined to contain all the bid re0uire4ents for both co4ponents shall be rated Spassed and shall i44ediately be considered for evaluation and co4parison% >"(%4 ;n the opening and e3a4ination of the 7inancial Cnvelope, the -AC shall announce and tabulate the Total -id Price as calculated% Arith4etical errors 1ill be rectified on the follo1ing basisA ;f there is a discrepancy bet1een 1ords and figures, the a4ount in 1ords 1ill prevail% ;f there is a discrepancy bet1een the unit price and the total price that is obtained by 4ultiplying the unit price and the 0uantity, the unit price shall prevail and the total price shall be corrected accordingly% ;f there is a discrepancy bet1een the Total -id Price and the su4 of the total prices, the su4 of the total prices prevail and the Total -id Price shall be corrected accordingly% >"(%5 7inancial Proposals 1hich do not clearly state the Total -id Price shall be re?ected% Also, Total -id Price as calculated that e3ceeds the approved budget for the contract shall also be re?ected% "7% ;ompari"on o< id"

5ut of the 57 bidders,1) the -AC found 6PC and the Total ;nfor4ation 6anage4ent Corporation +T;6C, eligible% 7or technical evaluation, they 1ere referred to the -AC s Technical Bor8ing $roup +TB$, and the !epart4ent of *cience and Technology +!5*T,% ;n its Report on the Cvaluation of the Technical Proposals on Phase ;;, !5*T said that both 6PC and T;6C had obtained a nu4ber of failed 4ar8s in the technical evaluation% 'ot1ithstanding these failures, Co4elec en banc, on April 15, "99), pro4ulgated Resolution 'o% (974 a1arding the pro?ect to 6PC% The Co44ission publiciGed this Resolution and the a1ard of the pro?ect to 6PC on 6ay 1(, "99)% 5n 6ay "9, "99), five individuals and entities +including the herein Petitioners ;nfor4ation Technology 7oundation of the Philippines, represented by its president, Alfredo 6% TorresE and 6a% CoraGon A8ol, 1rote a letter 14 to Co4elec Chair4an -en?a4in Abalos *r% They protested the a1ard of the Contract to Respondent 6PC >due to glaring irregularities in the 4anner in 1hich the bidding process had been conducted%> Citing therein the nonco4pliance 1ith eligibility as 1ell as technical and procedural re0uire4ents +4any of 1hich have been discussed at length in the Petition,, they sought a re#bidding% ;n a letter#reply dated =une (, "99), 15 the Co4elec chair4an ## spea8ing through Atty% =ai4e PaG, his head e3ecutive assistant ## re?ected the protest and declared that the a1ard >1ould stand up to the strictest scrutiny%> <ence, the present Petition%1( "+e !$$2e$

"7%1 The bid price shall be dee4ed to e4brace all costs, charges and fees associated 1ith carrying out all the ele4ents of the proposed Contract, including but not li4ited to, license fees, freight charges and ta3es% "7%" The -AC shall establish the calculated prices of all -ids rated Spassed and ran8 the sa4e in ascending order% 333333333 >"9% Po"tEuali<ication >"9%1 The -AC 1ill deter4ine to its satisfaction 1hether the -idder selected as having sub4itted the lo1est calculated bid is 0ualified to satisfactorily perfor4 the Contract% >"9%" The deter4ination 1ill ta8e into account the -idder s financial, technical and production capabilitiesQresources% ;t 1ill be based upon an e3a4ination of the docu4entary evidence of the -idder s 0ualification sub4itted by the -idder as 1ell as such other infor4ation as the -AC dee4s necessary and appropriate% >"9%) A bid deter4ined as not substantially responsive 1ill be re?ected by the -AC and 4ay not subse0uently be 4ade responsive by the -idder by correction of the non#confor4ity% >"9%4 The -AC 4ay 1aive any infor4ality or non#confor4ity or irregularity in a bid 1hich does not constitute a 4aterial deviation, provided such 1aiver does not pre?udice or affect the relative ran8ing of any -idder% >"9%5 *hould the -AC find that the -idder co4plies 1ith the legal, financial and technical re0uire4ents, it shall 4a8e an affir4ative deter4ination 1hich shall be a prere0uisite for a1ard of the Contract to the -idder% 5ther1ise, it 1ill 4a8e a negative deter4ination 1hich 1ill result in re?ection of the -idder s bid, in 1hich event the -AC 1ill proceed to the ne3t lo1est calculated bid to 4a8e a si4ilar deter4ination of that -idder s capabilities to perfor4 satisfactorily%> 1"

;n their 6e4orandu4, petitioners raise the follo1ing issues for our considerationA >1% The C56C2CC a1arded and contracted 1ith a non#eligible entityE 3 3 3 >"% Private respondents failed to pass the Technical Test as re0uired in the R7P% 'ot1ithstanding, such failure 1as ignored% ;n effect, the C56C2CC changed the rules after the bidding in effect changing the nature of the contract bidded upon% >)% Petitioners have locu" "tandi% >4% ;nstant Petition is not pre4ature% !irect resort to the *upre4e Court is ?ustified%> 17 ;n the 4ain, the "ub"tanti:e i""ue is 1hether the Co44ission on Clections, the agency vested 1ith the e3clusive constitutional 4andate to oversee elections, gravely abused its discretion 1hen, in the e3ercise of its ad4inistrative functions, it a1arded to 6PC the contract for the second phase of the co4prehensive Auto4ated Clection *yste4% -efore discussing the validity of the a1ard to 6PC, ho1ever, 1e dee4 it proper to first pass upon the procedural issuesA the legal standing of petitioners and the alleged pre4aturity of the Petition% "+#$ Co2rtB$ R2,#n3 The Petition is 4eritorious% (#r$t Pro0e 2ra, !$$2e) Locus Standi of Petitioners Respondents chorus that petitioners do not possess locu" "tandi, inas4uch as they are not challenging the validity or constitutionality of RA .4)(% 6oreover, petitioners supposedly ad4itted during the 5ral Argu4ent that no la1 had been violated by the a1ard of the Contract% 7urther4ore, they allegedly have no actual and 4aterial interest in the Contract and, hence, do not stand to be in?ured or pre?udiced on account of the a1ard%

5n the other hand, petitioners ## suing in their capacities as ta3payers, registered voters and concerned citiGens ## respond that the issues central to this case are >of transcendental i4portance and of national interest%> Allegedly, Co4elec s fla1ed bidding and 0uestionable a1ard of the Contract to an un0ualified entity 1ould i4pact directly on the success or the failure of the electoral process% Thus, any taint on the sanctity of the ballot as the e3pression of the 1ill of the people 1ould inevitably affect their faith in the de4ocratic syste4 of govern4ent% Petitioners further argue that the a1ard of any contract for auto4ation involves disburse4ent of public funds in gargantuan a4ountsE therefore, public interest re0uires that the la1s governing the transaction 4ust be follo1ed strictly% Be agree 1ith petitioners% 5ur nation s political and econo4ic future virtually hangs in the balance, pending the outco4e of the "994 elections% <ence, there can be no serious doubt that the sub?ect 4atter of this case is >a 4atter of public concern and i4bued 1ith public interest>E 1. in other 1ords, it is of >para4ount public interest> 19and >transcendental i4portance%> "9 This fact alone 1ould ?ustify rela3ing the rule on legal standing, follo1ing the liberal policy of this Court 1henever a case involves >an issue of overarching significance to our society%>"1Petitioners legal standing should therefore be recogniGed and upheld% 6oreover, this Court has held that ta3payers are allo1ed to sue 1hen there is a clai4 of >illegal disburse4ent of public funds,>"" or if public 4oney is being >deflected to any i4proper purpose>E ") or 1hen petitioners see8 to restrain respondent fro4 >1asting public funds through the enforce4ent of an invalid or unconstitutional la1%> "4 ;n the instant case, individual petitioners, suing as ta3payers, assert a 4aterial interest in seeing to it that public funds are properly and la1fully used% ;n the Petition, they clai4 that the bidding 1as defective, the 1inning bidder not a 0ualified entity, and the a1ard of the Contract contrary to la1 and regulation% Accordingly, they see8 to restrain respondents fro4 i4ple4enting the Contract and, necessarily, fro4 4a8ing any un1arranted e3penditure of public funds pursuant thereto% Thus, 1e hold that petitioners possess locu" "tandi/ Se0on Pro0e 2ra, !$$2e) Alleged Prematurity ue to !on-"#haustion of Administrati$e %emedies Respondents clai4 that petitioners acted pre4aturely, since they had not first utiliGed the protest 4echanis4 available to the4 under RA 91.4, the $overn4ent Procure4ent Refor4 Act, for the settle4ent of disputes pertaining to procure4ent contracts% *ection 55 of RA 91.4 states that protests against decisions of the -idding and A1ards Co44ittee in all stages of procure4ent 4ay be lodged 1ith the head of the procuring entity by filing a verified position paper and paying a protest fee% *ection 57 of the sa4e la1 4andates that in no case shall any such protest stay or delay the bidding process, but it 4ust first be resolved before any a1ard is 4ade% 5n the other hand, *ection 5. provides that court action 4ay be resorted to only after the protests conte4plated by the statute shall have been co4pleted% Cases filed in violation of this process are to be dis4issed for lac8 of ?urisdiction% Regional trial courts shall have ?urisdiction over final decisions of the head of the procuring entity, and court actions shall be instituted pursuant to Rule (5 of the 1997 Rules of Civil Procedure% Respondents assert that throughout the bidding process, petitioners never 0uestioned the -AC Report finding 6PC eligible to bid and reco44ending the a1ard of the Contract to it +6PC,% According to respondents, the Report should have been appealed to the Co4elc en banc, pursuant to the afore4entioned sections of RA 91.4% ;n the absence of such appeal, the deter4ination and reco44endation of the -AC had beco4e final% The Court is not persuaded% Respondent Co4elec ca4e out 1ith its en banc Resolution 'o% (974 dated April 15, "99), a1arding the pro?ect to Respondent 6PC even before the -AC 4anaged to issue its 1ritten report and reco44endation on April "1, "99)% Thus, ho1 could petitioners have appealed the -AC s reco44endation or report to the head of the procuring entity +the chair4an of Co4elec,, 1hen the Co4elec en banc had already approved the a1ard of the contract to 6PC even before petitioners learned of the -AC reco44endationF

;t is clai4ed"5 by Co4elec that during its April 15, "99) session, it received and approved the verbal report and reco44endation of the -AC for the a1ard of the Contract to 6PC, and that the -AC subse0uently re#affir4ed its verbal report and reco44endation by sub4itting it in 1riting on April "1, "99)% Respondents insist that the la1 does not re0uire that the -AC Report be in 1riting before Co4elec can act thereonE therefore, there is allegedly nothing irregular about the Report as 1ell as the en banc Resolution% <o1ever, it is obvious that petitioners could have appealed the -AC s report and reco44endation to the head of the procuring entity +the Co4elec chair, only upon their discovery thereof, 1hich at the very earliest 1ould have been on April "1, "99), 1hen the -AC actually put its report in 1riting and finally released it% Cven then, 1hat 1ould have been the use of protestingQappealing the report to the Co4elec chair, 1hen by that ti4e the Co44ission en banc + including t%e c%airman %im"el<, had already approved the -AC Report and a1arded the Contract to 6PCF And even assu4ing arguendo that petitioners had so4eho1 gotten 1ind of the verbal -AC report on April 15, "99) +i44ediately after the en banc session,, at that point the Co44ission en banc had already given its approval to the -AC Report along 1ith the a1ard to 6PC% To put it bluntly# t%e ;omelec en banc it"el< made it legally impo""ible <or petitioner" to a:ail t%em"el:e" o< t%e admini"trati:e remedy t%at t%e ;ommi""ion i" "o impiou"ly %arping on/ There is no doubt that they had not been accorded the opportunity to avail the4selves of the process provided under *ection 55 of RA 91.4, according to 1hich a protest against a decision of the -AC 4ay be filed (it% t%e %ead o< t%e procuring entity/ Nemo tenetur ad impo""ible,"( to borro1 private respondents favorite 2atin e3cuse% "7 Some &'ser$ations on the BA( %eport to the (omelec Be shall return to this issue of alleged pre4aturity shortly, but at this interstice, 1e 1ould ?ust 1ant to put for1ard a fe1 observations regarding the -AC Report and the Co4elec en banc s approval thereof% Fir"t, Co4elec contends that there 1as nothing unusual about the fact that the Report sub4itted by the -AC ca4e only after the for4er had already a1arded the Contract, because the latter had been as8ed to render its report and reco44endation orally during the Co44ission s en banc session on April 15, "99)% Accordingly, Co4elec supposedly acted upon such oral reco44endation and approved the a1ard to 6PC on the sa4e day, follo1ing 1hich the reco44endation 1as subse0uently reduced into 1riting on April "1, "99)% Bhile not entirely outside the real4 of the possible, this interesting and uni0ue spiel does not spea8 1ell of the process that Co4elec supposedly 1ent through in 4a8ing a critical decision 1ith respect to a 4ulti# billion#peso contract% Be can i4agine that anyone else standing in the shoes of the <onorable Co44issioners 1ould have been e3tre4ely conscious of the overarching need for utter transparency% They 1ould have scrupulously avoided the slightest hint of i4propriety, preferring to 4aintain an e3acting regularity in the perfor4ance of their duties, instead of trying to brea8 a speed record in the a1ard of 4ulti#billion#peso contracts% After all, bet1een April 15 and April "1 1ere a 4ere si3 +(, days% Could Co4elec not have 1aited out si3 4ore days for the 1ritten report of the -AC, instead of rushing pell#4ell into the ar4s of 6PCF Certainly, respondents never cared to e3plain the nature of the Co44ission s dire need to act i44ediately 1ithout a1aiting the for4al, 1ritten -AC Report% ;n short, the Court finds it difficult to reconcile the unco44on dispatch 1ith 1hich Co4elec acted to approve the 4ulti#billion# peso deal, 1ith its clai4 of having been i4pelled by only the purest and 4ost noble of 4otives% At any rate, as 1ill be discussed later on, several other factors co4bine to lend negative credence to Co4elec s tale% Second, 1ithout necessarily ascribing any pre4ature 4alice or pre4editation on the part of the Co4elec officials involved, it should nevertheless be conceded that this cart#before#the#horse 4aneuver +a1arding of the Contract ahead of the -AC s 1ritten report, 1ould definitely serve as a clever and effective 1ay of averting and frustrating any i4pending protest under *ection 55% <aving 4ade the foregoing observations, 1e no1 go bac8 to the 0uestion of e3hausting ad4inistrative re4edies% Respondents 4ay not have realiGed it, but the letter addressed to Chair4an -en?a4in Abalos *r% dated 6ay "9, "99)". serves to eli4inate the pre4aturity issue as it 1as an actual 1ritten protest against the decision of the poll body to

a1ard the Contract% The letter 1as signed byQfor, inter alia, t1o of herein petitionersA the ;nfor4ation Technology 7oundation of the Philippines, represented by its president, Alfredo 6% TorresE and 6a% CoraGon A8ol% *uch letter#protest is sufficient co4pliance 1ith the re0uire4ent to e3haust ad4inistrative re4edies particularly because it he1s closely to the procedure outlined in *ection 55 of RA 91.4% And even 1ithout that 6ay "9, "99) letter#protest, the Court still holds that petitioners need not e3haust ad4inistrative re4edies in the light of Paat v% Court of Appeals% "9 Paat enu4erates the instances 1hen the rule on e3haustion of ad4inistrative re4edies 4ay be disregarded, as follo1sA >+1, 1hen there is a violation of due process, +", 1hen the issue involved is purely a legal 0uestion, +), 1hen the ad4inistrative action is patently illegal a4ounting to lac8 or e3cess of ?urisdiction, +4, 1hen there is estoppel on the part of the ad4inistrative agency concerned, +5, 1hen there is irreparable in?ury, +(, 1hen the respondent is a depart4ent secretary 1hose acts as an alter ego of the President bears the i4plied and assu4ed approval of the latter, +7, 1hen to re0uire e3haustion of ad4inistrative re4edies 1ould be unreasonable, +., 1hen it 1ould a4ount to a nullification of a clai4, +9, 1hen the sub?ect 4atter is a private land in land case proceedings, +19, 1hen the rule does not provide a plain, speedy and ade0uate re4edy, and +11, 1hen there are circu4stances indicating the urgency of ?udicial intervention%> )9 The present controversy precisely falls 1ithin the e3ceptions listed as 'os% 7, 19 and 11A >+7, 1hen to re0uire e3haustion of ad4inistrative re4edies 1ould be unreasonableE +19, 1hen the rule does not provide a plain, speedy and ade0uate re4edy, and +11, 1hen there are circu4stances indicating the urgency of ?udicial intervention%> As already stated, Co4elec itself 4ade the e3haustion of ad4inistrative re4edies legally i4possible or, at the very least, >unreasonable%> ;n any event, the peculiar circu4stances surrounding the unconventional rendition of the -AC Report and the precipitate a1arding of the Contract by the Co4elec en banc ## plus the fact that it 1as racing to have its Contract 1ith 6PC i4ple4ented in ti4e for the elections in 6ay "994 +barely four 4onths a1ay, ## have co4bined to bring about the urgent need for ?udicial intervention, thus pro4pting this Court to dispense 1ith the procedural e3haustion of ad4inistrative re4edies in this case% Ma#n S2b$tant#%e !$$2e) )alidity of the Award to *P( Be co4e no1 to the 4eat of the controversy% Petitioners contend that the a1ard is invalid, since Co4elec gravely abused its discretion 1hen it did the follo1ingA 1% A1arded the Contract to 6PC though it did not even participate in the bidding "% Allo1ed 6PC; to participate in the bidding despite its failure to 4eet the 4andatory eligibility re0uire4ents A%

)% ;ssued its Resolution of April 15, "99) a1arding the Contract to 6PC despite the issuance by the -AC of its Report, 1hich for4ed the basis of the assailed Resolution, only on April "1, "99))1 4% A1arded the Contract, not1ithstanding the fact that during the bidding process, there 1ere violations of the 4andatory re0uire4ents of RA .4)( as 1ell as those set forth in Co4elec s o1n Re0uest for Proposal on the auto4ated election syste4 5% Refused to declare a failed bidding and to conduct a re#bidding despite the failure of the bidders to pass the technical tests conducted by the !epart4ent of *cience and Technology (% 7ailed to follo1 strictly the provisions of RA .4)( in the conduct of the bidding for the auto4ated counting 4achines After revie1ing the sle1 of pleadings as 1ell as the 4atters raised during the 5ral Argu4ent, the Court dee4s it sufficient to focus discussion on the follo1ing 4a?or areas of concern that i4pinge on the issue of grave abuse of discretionA A% 6atters pertaining to the identity, e3istence and eligibility of 6PC as a bidder -% 7ailure of the auto4ated counting 4achines +AC6s, to pass the !5*T technical tests C% Re4edial 4easures and re#testings underta8en by Co4elec and !5*T after the a1ard, and their effect on the present controversy

7ailure to Cstablish the ;dentity, C3istence and Cligibility of the Alleged Consortiu4 as a -idder 5n the 0uestion of the identity and the e3istence of the real bidder, respondents insist that, contrary to petitioners allegations, the bidder 1as not 6ega Pacific e*olutions, ;nc% +6PC;,, 1hich 1as incorporated only on 7ebruary "7, "99), or 11 days prior to the bidding itself% Rather, the bidder 1as 6ega Pacific Consortiu4 +6PC,, of 1hich 6PC; 1as but a part% As proof thereof, they point to the 6arch 7, "99) letter of intent to bid, signed by the president of 6PC; allegedly for and on behalf of 6PC% They also call attention to the official receipt issued to 6PC, ac8no1ledging pay4ent for the bidding docu4ents, as proof that it 1as the >consortiu4> that participated in the bidding process% Be do not agree% The 6arch 7, "99) letter, signed by only one signatory ## >Billy @% Du, President, 6ega Pacific e*olutions, ;nc%, +2ead Co4panyQ Proponent, 7orA 6ega Pacific Consortiu4> ## and 1ithout any further proof, does not by itself prove the e3istence of the consortiu4% ;t does not sho1 that 6PC; or its president have been duly pre#authoriGed by the other 4e4bers of the putative consortiu4 to represent the4, to bid on their collective behalf and, 4ore i4portant, to co44it the4 ?ointly and severally to the bid underta8ings% The letter is purely self#serving and uncorroborated% 'either does an official receipt issued to 6PC, ac8no1ledging pay4ent for the bidding docu4ents, constitute proof that it 1as the purported consortiu4 that participated in the bidding% *uch receipts are issued by cashiers 1ithout any legally sufficient in0uiry as to the real identity ore3istence of the supposed payor% To assure itself properly of the due e3istence +as 1ell as eligibility and 0ualification, of the putative consortiu4, Co4elec s -AC should have e3a4ined the bidding docu4ents sub4itted on behalf of 6PC% They 1ould have easily discovered the follo1ing fatal fla1s% +wo-"n$elope, +wo-Stage System As stated earlier in our factual presentation, the public bidding syste4 designed by Co4elec under its R7P +Re0uest for Proposal for the Auto4ation of the "994 Clection, 4andated the use of a t1o#envelope, t1o#stage syste4% A bidder s first

envelope +Cligibility Cnvelope, 1as 4eant to establish its eligibility to bid and its 0ualifications and capacity to perfor4 the contract if its bid 1as accepted, 1hile the second envelope 1ould be the -id Cnvelope itself% The Cligibility Cnvelope 1as to contain legal docu4ents such as articles of incorporation, business registrations, licenses and per4its, 4ayor s per4it, &AT certification, and so forthE technical docu4ents containing docu4entary evidence to establish the trac8 record of the bidder and its technical and production capabilities to perfor4 the contractE and financial docu4ents, including audited financial state4ents for the last three years, to establish the bidder s financial capacity% ;n the case of a consortiu4 or ?oint venture desirous of participating in the bidding, it goes 1ithout saying that the Cligibility Cnvelope 1ould necessarily have to include a copy of the ?oint venture agree4ent, the consortiu4 agree4ent or 4e4orandu4 of agree4ent ## or a business plan or so4e other instru4ent of si4ilar i4port ## establishing the due e3istence, co4position and scope of such aggrupation% 5ther1ise, ho1 1ould Co4elec 8no1 1ho it 1as dealing 1ith, and 1hether these parties are 0ualified and capable of delivering the products and services being offered for biddingF )" ;n the instant case, no such instru4ent 1as sub4itted to Co4elec during the bidding process% This fact can be conclusively ascertained by scrutiniGing the t1o#inch thic8 >Cligibility Re0uire4ents> file sub4itted by Co4elec last 5ctober 9, "99), in partial co4pliance 1ith this Court s instructions given during the 5ral Argu4ent% This file purports to replicate the eligibility docu4ents originally sub4itted to Co4elec by 6PC; allegedly on behalf of 6PC, in connection 1ith the bidding conducted in 6arch "99)% ;ncluded in the file are the incorporation papers and financial state4ents of the 4e4bers of the supposed consortiu4 and certain certificates, licenses and per4its issued to the4% <o1ever, there is no sign 1hatsoever of any ?oint venture agree4ent, consortiu4 agree4ent, 4e4orandu4 of agree4ent, or business plan e3ecuted a4ong the 4e4bers of the purported consortiu4% The only logical conclusion is that no such agree4ent 1as ever sub4itted to the Co4elec for its consideration, as part of the bidding process% ;t thus follo1s that, prior the a1ard of the Contract, there 1as no docu4entary or other basis for Co4elec to conclude that a consortiu4 had actually been for4ed a4ongst 6PC;, *O CTC and Be*olv, along 1ith Clection%co4 and eP2!T% )) 'either 1as there anything to indicate the e3act relationships bet1een and a4ong these fir4sE their diverse roles, underta8ings and prestations, if any, relative to the prosecution of the pro?ect, the e3tent of their respective invest4ents +if any, in the supposed consortiu4 or in the pro?ectE and the precise nature and e3tent of their respective liabilities 1ith respect to the contract being offered for bidding% And apart fro4 the self#serving letter of 6arch 7, "99), there 1as not even any indication that 6PC; 1as the lead co4pany duly authoriGed to act on behalf of the others% *o, it necessarily follo1s that, during the bidding process, Co4elec had no basis at all for deter4ining that the alleged consortiu4 really e3isted and 1as eligible and 0ualifiedE and that the arrange4ents a4ong the 4e4bers 1ere satisfactory and sufficient to ensure delivery on the Contract and to protect the govern4ent s interest% 'ot1ithstanding such deficiencies, Co4elec still dee4ed the >consortiu4> eligible to participate in the bidding, proceeded to open its *econd Cnvelope, and eventually a1arded the bid to it, even though ## per the Co4elec s o1n R7P ## the -AC should have declared the 6PC ineligible to bid and returned the *econd +-id, Cnvelope unopened% ;nas4uch as Co4elec should not have considered 6PC; et al% as co4prising a consortiu4 or ?oint venture, it should not have allo1ed the4 to avail the4selves of the provision in *ection 5%4 +b, +i, of the ;RR for RA (957 +the -uild#5perate#Transfer 2a1,, as a4ended by RA 771.% This provision states in part that a ?oint ventureQconsortiu4 proponent shall be evaluated based on the individual or collective e3perience of the 4e4ber#fir4s of the ?oint venture or consortiu4 and of the contractor+s, that it has engaged for the pro?ect% Parenthetically, respondents have unifor4ly argued that the said ;RR of RA (957, as a4ended, have suppletory application to the instant case% <ence, had the proponent 6PC; been evaluated based solely on its o1n e3perience, financial and operational trac8 record or lac8 thereof, it 1ould surely not have 0ualified and 1ould have been i44ediately considered ineligible to bid, as respondents readily ad4it%

At any rate, it is clear that Co4elec gravely abused its discretion in arbitrarily failing to observe its o1n rules, policies and guidelines 1ith respect to the bidding process, thereby negating a fair, honest and co4petitive bidding% (ommissioners !ot Aware of (onsortium ;n this regard, the Court is beguiled by the state4ents of Co44issioner 7lorentino Tuason =r%, given in open court during the 5ral Argu4ent last 5ctober 7, "99)% The good co44issioner affir4ed that he 1as a1are, of his o1n personal 8no1ledge, that there had indeed been a 1ritten agree4ent a4ong the >consortiu4> 4e4bers, )4although it 1as an internal 4atter a4ong the4,)5 and of the fact that it 1ould be presented by counsel for private respondent% )( <o1ever, under 0uestioning by Chief =ustice <ilario $% !avide =r% and =ustice =ose C% &itug, Co44issioner Tuason in effect ad4itted that, 1hile he 1as the co44issioner#in#charge of Co4elec s 2egal !epart4ent, he had never seen, even up to that late date, the agree4ent he spo8e of% )7 @nder further 0uestioning, he 1as li8e1ise unable to provide any infor4ation regarding the a4ounts invested into the pro?ect by several 4e4bers of the clai4ed consortiu4% ). A short 1hile later, he ad4itted that the Co44ission had not ta8en a loo8 at the agree4ent +if any,%)9 <e tried to ?ustify his position by clai4ing that he 1as not a 4e4ber of the -AC% 'either 1as he the co44issioner#in#charge of the Phase ;; 6oderniGation pro?ect +the auto4ated election syste4,E but that, in any case, the -AC and the Phase ;; 6oderniGation Pro?ect Tea4 did loo8 into the aspect of the co4position of the consortiu4% ;t see4s to the Court, though, that even if the -AC or the Phase ;; Tea4 had ta8en charge of evaluating the eligibility, 0ualifications and credentials of the consortiu4#bidder, still, in all probability, the for4er 1ould have referred the tas8 to Co44issioner Tuason, head of Co4elec s 2egal !epart4ent% That tas8 1as the appreciation and evaluation of the legal effects and conse0uences of the ter4s, conditions, stipulations and covenants contained in any ?oint venture agree4ent, consortiu4 agree4ent or a si4ilar docu4ent ## assu4ing of course that any of these 1as available at the ti4e% The fact that Co44issioner Tuason 1as barely a1are of the situation bespea8s the co4plete absence of such docu4ent, or the utter failure or neglect of the Co4elec to e3a4ine it ## assu4ing it 1as available at all ## at the ti4e the a1ard 1as 4ade on April 15, "99)% ;n any event, the Court notes for the record that Co44issioner Tuason basically contradicted his state4ents in open court about there being one 1ritten agree4ent a4ong all the consortiu4 4e4bers, 1hen he subse0uently referred 49 to the four +4, 6e4oranda of Agree4ent +65As, e3ecuted by the4% 41 At this ?uncture, one 4ight as8A Bhat, then, if there are four 65As instead of one or none at allF ;sn t it enough that there are these corporations co4ing together to carry out the auto4ation pro?ectF ;sn t it true, as respondent aver, that no1here in the R7P issued by Co4elec is it re0uired that the 4e4bers of the ?oint venture e3ecute a single 1ritten agree4ent to prove the e3istence of a ?oint venture% ;ndeed, the intention to be ?ointly and severally liable 4ay be evidenced not only by a single ?oint venture agree4ent, but also by supple4entary docu4ents e3ecuted by the parties signifying such intention% Bhat then is the big dealF The proble4 is not that there are four agree4ents instead of only one% The proble4 is that Co4elec never bothered to chec8% ;t never based its decision on docu4ents or other proof that 1ould concretely establish the e3istence of the clai4ed consortiu4 or ?oint venture or agglo4eration% ;t relied 4erely on the self#serving representation in an uncorroborated letter signed by only one individual, clai4ing that his co4pany represented a >consortiu4> of several different corporations% ;t concluded forth1ith that a consortiu4 indeed e3isted, co4posed of such and such 4e4bers, and thereafter declared that the entity 1as eligible to bid% True, copies of financial state4ents and incorporation papers of the alleged >consortiu4> 4e4bers 1ere sub4itted% -ut these papers did not establish the e3istence of a consortiu4, as they could have been provided by the co4panies concerned for purposes other than to prove that they 1ere part of a consortiu4 or ?oint venture% 7or instance, the papers 4ay have been intended to sho1 that those co4panies 1ere each 0ualified to be a sub#contractor +and nothing 4ore, in a 4a?or pro?ect% Those docu4ents did not by the4selves support the assu4ption that a consortiu4 or ?oint venture e3isted a4ong the co4panies%

;n brief, despite the absence of co4petent proof as to the e3istence and eligibility of the alleged consortiu4 +6PC,, its capacity to deliver on the Contract, and the 4e4bers ?oint and several liability therefor, Co4elec nevertheless assu4ed that such consortiu4 e3isted and 1as eligible% ;t then 1ent ahead and considered the bid of 6PC, to 1hich the Contract 1as eventually a1arded, in gross violation of the for4er s o1n bidding rules and procedures contained in its R7P% Therein lies Co4elec s grave abuse of discretion% Sufficiency of the -our Agreements ;nstead of one 4ultilateral agree4ent e3ecuted by, and effective and binding on, all the five >consortiu4 4e4bers> ## as earlier clai4ed by Co44issioner Tuason in open court ## it turns out that 1hat 1as actually e3ecuted 1ere four +4, separate and distinct bilateral Agree4ents% 4" 5bviously, Co4elec 1as furnished copies of these Agree4ents only after the bidding process had been ter4inated, as these 1ere not included in the Cligibility !ocu4ents% These Agree4ents are as follo1sA R A 6e4orandu4 of Agree4ent bet1een 6PC; and *O CTC R A 6e4orandu4 of Agree4ent bet1een 6PC; and Be*olv R A >Tea4ing Agree4ent> bet1een 6PC; and Clection%co4 2td% R A >Tea4ing Agree4ent> bet1een 6PC; and eP2!T ;n su4, each of the four different and separate bilateral Agree4ents is valid and binding only bet1een 6PC; and the other contracting party, leaving the other >consortiu4> 4e4bers total strangers thereto% @nder this setup, 6PC; dealt separately 1ith each of the >4e4bers,> and the latter +Be*olv, *O CTC, Clection%co4, and eP2!T, in turn had nothing to do 1ith one another, each dealing only 1ith 6PC;% Respondents assert that these four Agree4ents 1ere sufficient for the purpose of enabling the corporations to still 0ualify +even at that late stage, as a consortiu4 or ?oint venture, since the first t1o Agree4ents had allegedly set forth the ?oint and several underta8ings a4ong the parties, 1hereas the latter t1o clarified the parties respective roles 1ith regard to the Pro?ect, 1ith 6PC; being the independent contractor and Clection%co4 and eP2!T the subcontractors% Additionally, the use of the phrase >particular contract> in the Co4elec s Re0uest for Proposal +R7P,, in connection 1ith the ?oint and several liabilities of co4panies in a ?oint venture, is ta8en by the4 to 4ean that all the 4e4bers of the ?oint venture need not be solidarily liable for the entire pro?ect or ?oint venture, because it is sufficient that the lead co4pany and the 4e4ber in charge of a particular contract or aspect of the ?oint venture agree to be solidarily liable% At this point, it 4ust be stressed 4ost vigorously that the sub4ission of the four bilateral Agree4ents to Co4elec after the end of the bidding process did nothing to eli4inate the grave abuse of discretion it had already co44itted on April 15, "99)% eficiencies .a$e !ot Been /(ured/ ;n any event, it is also clai4ed that the auto4ation Contract a1arded by Co4elec incorporates all docu4ents e3ecuted by the >consortiu4> 4e4bers, even if these docu4ents are not referred to therein% The basis of this assertion appears to be the passages fro4 *ection 1%4 of the Contract, 1hich is reproduced as follo1sA >All Contract !ocu4ents shall for4 part of the Contract even if they or any one of the4 is not referred to or 4entioned in the Contract as for4ing a part thereof% Cach of the Contract !ocu4ents shall be 4utually co4ple4entary and e3planatory of each other such that 1hat is noted in one although not sho1n in the other shall be considered contained in all, and 1hat is re0uired by any one shall be as binding as if re0uired by all, unless one ite4 is a correction of the other% >The intent of the Contract !ocu4ents is the proper, satisfactory and ti4ely e3ecution and co4pletion of the Pro?ect, in accordance 1ith the Contract !ocu4ents% Conse0uently, all ite4s necessary for the proper and ti4ely e3ecution and co4pletion of the Pro?ect shall be dee4ed included in the Contract%>

Thus, it is argued that 1hatever perceived deficiencies there 1ere in the supple4entary contracts ## those entered into by 6PC; and the other 4e4bers of the >consortiu4> as regards their ?oint and several underta8ings ## have been cured% -etter still, such deficiencies have supposedly been prevented fro4 arising as a result of the above#0uoted provisions, fro4 1hich it can be i44ediately established that each of the 4e4bers of 6PC assu4es the sa4e ?oint and several liability as the other 4e4bers% The foregoing argu4ent is unpersuasive% 7irst, the contract being referred to, entitled >The Auto4ated Counting and Canvassing Pro?ect Contract,> is bet1een Co4elec and 6PC;, not the alleged consortiu4, 6PC% To repeat, it is 6PC; ## not 6PC ## that is a party to the Contract% 'o1here in that Contract is there any 4ention of a consortiu4 or ?oint venture, of 4e4bers thereof, 4uch less of ?oint and several liability% *upposedly e3ecuted so4eti4e in 6ay "99), 4) the Contract bears a notariGation date of =une )9, "99), and contains the signature of Billy @% Du signing as president of 6PC; +not for and on behalf of 6PC,, along 1ith that of the Co4elec chair% ;t provides in *ection )%" that 6PC; +not 6PC, is to supply the C0uip4ent and perfor4 the *ervices under the Contract, in accordance 1ith the appendices thereofE nothing 1hatsoever is said about any consortiu4 or ?oint venture or partnership% *econd, the portions of *ection 1%4 of the Contract reproduced above do not have the effect of curing +4uch less preventing, deficiencies in the bilateral agree4ents entered into by 6PC; 1ith the other 4e4bers of the >consortiu4,> 1ith respect to their ?oint and several liabilities% The ter4 >Contract !ocu4ents,> as used in the 0uoted passages of *ection 1%4, has a 1ell# defined 4eaning and actually refers only to the follo1ing docu4entsA R The Contract itself along 1ith its appendices R The Re0uest for Proposal +also 8no1n as >Ter4s of Reference>, issued by the Co4elec, including the Tender ;n0uiries and -id -ulletins R The Tender Proposal sub4itted by 6PC; ;n other 1ords, the ter4 >Contract !ocu4ents> cannot be understood as referring to or including the 65As and the Tea4ing Agree4ents entered into by 6PC; 1ith *O CTC, Be*olv, Clection%co4 and eP2!T% This 4uch is very clear and ad4its of no debate% The atte4pt to use the provisions of *ection 1%4 to shore up the 65As and the Tea4ing Agree4ents is si4ply un1arranted% Third and last, 1e fail to see ho1 respondents can arrive at the conclusion that, fro4 the above#0uoted provisions, it can be i44ediately established that each of the 4e4bers of 6PC assu4es the sa4e ?oint and several liability as the other 4e4bers% Carlier, respondents clai4ed e3actly the opposite ## that the t1o 65As +bet1een 6PC; and *O CTC, and bet1een 6PC; and Be*olv, had set forth the ?oint and several underta8ings a4ong the partiesE 1hereas the t1o Tea4ing Agree4ents clarified the parties respective roles 1ith regard to the Pro?ect, 1ith 6PC; being the independent contractor and Clection%co4 and eP2!T the subcontractors% 5bviously, given the differences in their relationships, their respective liabilities cannot be the sa4e% Precisely, the very clear ter4s and stipulations contained in the 65As and the Tea4ing Agree4ents ## entered into by 6PC; 1ith *O CTC, Be*olv, Clection%co4 and eP2!T ## negate the idea that these >4e4bers> are on a par 1ith one another and are, as such, assu4ing the sa4e ?oint and several liability% 6oreover, respondents have earlier seiGed upon the use of the ter4 >particular contract> in the Co4elec s Re0uest for Proposal +R7P,, in order to argue that all the 4e4bers of the ?oint venture did not need to be solidarily liable for the entire pro?ect or ?oint venture% ;t 1as sufficient that the lead co4pany and the 4e4ber in charge of a particular contract or aspect of the ?oint venture 1ould agree to be solidarily liable% The glaring lac8 of consistency leaves us at a loss% Are respondents trying to establish the sa4e ?oint and solidary liability a4ong all the >4e4bers> or notF "nforcement of Lia'ilities Pro'lematic 'e3t, it is also 4aintained that the auto4ation Contract bet1een Co4elec and the 6PC; confir4s the solidary underta8ing of the lead co4pany and the consortiu4 4e4ber concerned for each particular Contract, inas4uch as the position of 6PC; and

anyone else perfor4ing the services conte4plated under the Contract is described therein as that of an independent contractor% The Court does not see, ho1ever, ho1 this conclusion 1as arrived at% ;n the first place, the contractual provision being relied upon by respondents is Article 14, >;ndependent Contractors,> 1hich statesA >'othing contained herein shall be construed as establishing or creating bet1een the C56C2CC and 6C$A the relationship of e4ployee and e4ployer or principal and agent, it being understood that the position of 6C$A and of anyone perfor4ing the *ervices conte4plated under this Contract, is that of an independent contractor%> 5bviously, the intent behind the provision 1as si4ply to avoid the creation of an e4ployer#e4ployee or a principal#agent relationship and the co4plications that it 1ould produce% <ence, the Article states that the role or position of 6PC;, or anyone else perfor4ing on its behalf, is that of an independent contractor% ;t is obvious to the Court that respondents are stretching 4atters too far 1hen they clai4 that, because of this provision, the Contract in effect confir4s the solidary underta8ing of the lead co4pany and the consortiu4 4e4ber concerned for the particular phase of the pro?ect% This assertion is an absolute non se0uitur% "nforcement of Lia'ilities 0nder the (i$il (ode !ot Possi'le ;n any event, it is clai4ed that Co4elec 4ay still enforce the liability of the >consortiu4> 4e4bers under the Civil Code provisions on partnership, reasoning that 6PC; et al% represented the4selves as partners and 4e4bers of 6PC for purposes of bidding for the Pro?ect% They are, therefore, liable to the Co4elec to the e3tent that the latter relied upon such representation% Their liability as partners is solidary 1ith respect to everything chargeable to the partnership under certain conditions% The Court has t1o points to 4a8e 1ith respect to this argu4ent% 7irst, it 4ust be recalled that *O CTC, Be*olv, Clection%co4 and eP2!T never represented the4selves as partners and 4e4bers of 6PC, 1hether for purposes of bidding or for so4ething else% ;t 1as 6PC; alone that represented the4 to be 4e4bers of a >consortiu4> it supposedly headed% Thus, its acts 4ay not necessarily be held against the other >4e4bers%> *econd, this argu4ent of the 5*$ in its 6e4orandu4 44 4ight possibly apply in the absence of a ?oint venture agree4ent or so4e other 1riting that discloses the relationship of the >4e4bers> 1ith one another% -ut precisely, this case does not deal 1ith a situation in 1hich there is nothing in 1riting to serve as reference, leaving Co4elec to rely on 4ere representations and therefore ?ustifying a falling bac8 on the rules on partnership% 7or, again, the ter4s and stipulations of the 65As entered into by 6PC; 1ith *O CTC and Be*olv, as 1ell as the Tea4ing Agree4ents of 6PC; 1ith Clection%co4 and eP2!T +copies of 1hich have been furnished the Co4elec, are very clear 1ith respect to the e3tent and the li4itations of the fir4s respective liabilities% ;n the case of Be*olv and *O CTC, their 65As state that their liabilities, 1hile ?oint and several 1ith 6PC;, are li4ited only to the particular areas of 1or8 1herein their services are engaged or their products utiliGed% As for Clection%co4 and eP2!T, their separate >Tea4ing Agree4ents> specifically ascribe to the4 the role of subcontractor vis#U#vis 6PC; as contractor and, based on the ter4s of their particular agree4ents, neither Clection%co4 nor eP2!T is, 1ith 6PC;, ?ointly and severally liable to Co4elec%45 ;t follo1s then that in the instant case, there is no ?ustification for anyone, 4uch less Co4elec, to resort to the rules on partnership and partners liabilities% "ligi'ility of a (onsortium Based on the (ollecti$e 1ualifications of 2ts *em'ers Respondents declare that, for purposes of assessing the eligibility of the bidder, the 4e4bers of 6PC should be evaluated on a collective basis% Therefore, they contend, the failure of 6PC; to sub4it financial state4ents +on account of its recent incorporation, should not by itself dis0ualify 6PC, since the other 4e4bers of the >consortiu4> could 4eet the criteria set out in the R7P% Thus, according to respondents, the collective nature of the underta8ing of the 4e4bers of 6PC, their contribution of assets and sharing of ris8s, and the co44unity of their interest in the perfor4ance of the Contract lead to these reasonable conclusionsA +1, that their collective 0ualifications should be the basis for evaluating their eligibilityE +", that the sheer enor4ity

of the pro?ect renders it i4probable to e3pect any single entity to be able to co4ply 1ith all the eligibility re0uire4ents and underta8e the pro?ect by itselfE and +), that, as argued by the 5*$, the R7P allo1s bids fro4 4anufacturers, suppliers andQor distributors that have for4ed the4selves into a ?oint venture, in recognition of the virtual i4possibility of a single entity s ability to respond to the ;nvitation to -id% Additionally, argues the Co4elec, the ;4ple4enting Rules and Regulations of RA (957 +the -uild#5perate#Transfer 2a1, as a4ended by RA 771. 1ould be applicable, as proponents of -5T pro?ects usually for4 ?oint ventures or consortiu4s% @nder the ;RR, a ?oint ventureQconsortiu4 proponent shall be evaluated based on the individual or the collective e3perience of the 4e4ber#fir4s of the ?oint ventureQconsortiu4 and of the contractors the proponent has engaged for the pro?ect% @nfortunately, this argu4ent see4s to assu4e that the >collective> nature of the underta8ing of the 4e4bers of 6PC, their contribution of assets and sharing of ris8s, and the >co44unity> of their interest in the perfor4ance of the Contract entitle 6PC to be treated as a ?oint venture or consortiu4E and to be evaluated accordingly on the basis of the 4e4bers collective 0ualifications 1hen, in fact, the evidence before the Court suggest other1ise% This Court in Oilosbayan v% $uingona 4( defined ?oint venture as >an association of persons or co4panies ?ointly underta8ing so4e co44ercial enterpriseE generally, all contribute assets and share ris8s% ;t re0uires a co44unity of interest in the perfor4ance of the sub?ect 4atter, a right to direct and govern the policy in connection there1ith, and LaM duty, 1hich 4ay be altered by agree4ent to share both in profit and losses%> $oing bac8 to the instant case, it should be recalled that the auto4ation Contract 1ith Co4elec 1as not e3ecuted by the >consortiu4> 6PC ## or by 6PC; for and on behalf of 6PC ## but by 6PC;, period% The said Contract contains no 4ention 1hatsoever of any consortiu4 or 4e4bers thereof% This fact alone see4s to contradict all the suppositions about a ?oint underta8ing that 1ould nor4ally apply to a ?oint venture or consortiu4A that it is a co44ercial enterprise involving a co44unity of interest, a sharing of ris8s, profits and losses, and so on% 'o1 let us consider the four bilateral Agree4ents, starting 1ith the 6e4orandu4 of Agree4ent bet1een 6PC; and Be*olv 5pen Co4puting, ;nc%, dated 6arch 5, "99)% The body of the 65A consists of ?ust seven +7, short paragraphs that 1ould easily fit in one pageV ;t reads as follo1sA >1% The parties agree to cooperate in successfully i4ple4enting the Pro?ect in the substance and for4 as 4ay be 4ost beneficial to both parties and other subcontractors involved in the Pro?ect% >"% 6ega Pacific shall be responsible for any contract negotiations and signing 1ith the C56C2CC and, sub?ect to the latter s approval, agrees to give Be*olv an opportunity to be present at 4eetings 1ith the C56C2CC concerning Be*olv s portion of the Pro?ect% >)% Be*olv shall be ?ointly and severally liable 1ith 6ega Pacific only for the particular products andQor services supplied by the for4er for the Pro?ect% >4% Cach party shall bear its o1n costs and e3penses relative to this agree4ent unless other1ise agreed upon by the parties% >5% The parties underta8e to do all acts and such other things incidental to, necessary or desirable or the attain4ent of the ob?ectives and purposes of this Agree4ent% >(% ;n the event that the parties fail to agree on the ter4s and conditions of the supply of the products and services including but not li4ited to the scope of the products and services to be supplied and pay4ent ter4s, Be*olv shall cease to be bound by its obligations stated in the afore4entioned paragraphs% >7% Any dispute arising fro4 this Agree4ent shall be settled a4icably by the parties 1henever possible% *hould the parties be unable to do so, the parties hereby agree to settle their dispute through arbitration in accordance 1ith the e3isting la1s of the Republic of the Philippines%> +@nderscoring supplied%,

Cven shorter is the 6e4orandu4 of Agree4ent bet1een 6PC; and *O CTC Co% 2td%, dated 6arch 9, "99), the body of 1hich consists of only si3 +(, paragraphs, 1hich 1e 0uoteA >1% All parties agree to cooperate in achieving the Consortiu4 s ob?ective of successfully i4ple4enting the Pro?ect in the substance and for4 as 4ay be 4ost beneficial to the Consortiu4 4e4bers and in accordance 1Q the de4and of the R7P% >"% 6ega Pacific shall have full po1ers and authority to represent the Consortiu4 1ith the Co4elec, and to enter and sign, for and in behalf of its 4e4bers any and all agree4entQs 1hich 4aybe re0uired in the i4ple4entation of the Pro?ect% >)% Cach of the individual 4e4bers of the Consortiu4 shall be ?ointly and severally liable 1ith the 2ead 7ir4 for the particular products andQor services supplied by such individual 4e4ber for the pro?ect, in accordance 1ith their respective underta8ing or sphere of responsibility% >4% Cach party shall bear its o1n costs and e3penses relative to this agree4ent unless other1ise agreed upon by the parties% >5% The parties underta8e to do all acts and such other things incidental to, necessary or desirable for the attain4ent of the ob?ectives and purposes of this Agree4ent% >(% Any dispute arising fro4 this Agree4ent shall be settled a4icably by the parties 1henever possible% *hould the parties be unable to do so, the parties hereby agree to settle their dispute through arbitration in accordance 1ith the e3isting la1s of the Republic of the Philippines%> +@nderscoring supplied%, ;t 1ill be noted that the t1o Agree4ents 0uoted above are very si4ilar in 1ording% 'either of the4 contains any specifics or details as to the e3act nature and scope of the parties respective underta8ings, perfor4ances and deliverables under the Agree4ent 1ith respect to the auto4ation pro?ect% 2i8e1ise, the t1o Agree4ents are 0uite bereft of pesos#and#centavos data as to the a4ount of invest4ents each party contributes, its respective share in the revenues andQor profit fro4 the Contract 1ith Co4elec, and so forth ## all of 1hich are nor4al for agree4ents of this nature% Det, according to public and private respondents, the participation of 6PC;, Be*olv and *O CTC co4prises fully 99 percent of the entire underta8ing 1ith respect to the election auto4ation pro?ect, 1hich is 1orth about P1%) billion% As for Clection%co4 and eP2!T, the separate >Tea4ing Agree4ents> they entered into 1ith 6PC; for the re4aining 19 percent of the entire pro?ect underta8ing are ironically 4uch longer and 4ore detailed than the 65As discussed earlier% Although specifically ascribing to the4 the role of subcontractor vis#U#vis 6PC; as contractor, these Agree4ents are, ho1ever, co4pletely devoid of any pricing data or pay4ent ter4s% Cven the appended *chedules supposedly containing prices of goods and services are shorn of any price data% Again, as 4entioned earlier, based on the ter4s of their particular Agree4ents, neither Clection%co4 nor eP2!T ## 1ith 6PC; ## is ?ointly and severally liable to Co4elec% ;t is difficult to i4agine ho1 these bare Agree4ents ## especially the first t1o ## could be i4ple4ented in practiceE and ho1 a dispute bet1een the parties or a clai4 by Co4elec against the4, for instance, could be resolved 1ithout lengthy and debilitating litigations% Absent any clear#cut state4ent as to the e3act nature and scope of the parties respective underta8ings, co44it4ents, deliverables and covenants, one party or another can easily dodge its obligation and deny or contest its liability under the Agree4entE or clai4 that it is the other party that should have delivered but failed to% 2i8e1ise, in the absence of definite indicators as to the a4ount of invest4ents to be contributed by each party, disburse4ents for e3penses, the parties respective shares in the profits and the li8e, it see4s to the Court that this situation could readily give rise to all 8inds of 4isunderstandings and disagree4ents over 4oney 4atters% @nder such a scenario, it 1ill be e3tre4ely difficult for Co4elec to enforce the supposed ?oint and several liabilities of the 4e4bers of the >consortiu4%> The Court is not even 4entioning the possibility of a situation arising fro4 a failure of Be*olv and 6PC; to agree on the scope, the ter4s and the conditions for the supply of the products and services under the Agree4ent% ;n that situation, by virtue of paragraph ( of its 65A, Be*olv 1ould perforce cease to be bound by its obligations

## including its ?oint and solidary liability 1ith 6PC; under the 65A ## and could forth1ith disengage fro4 the pro?ect% Cffectively, Be*olv could at any ti4e unilaterally e3it fro4 its 65A 1ith 6PC; by si4ply failing to agree% Bhere 1ould that outco4e leave 6PC; and Co4elecF To the Court, this strange and beguiling arrange4ent of 6PC; 1ith the other co4panies does not 0ualify the4 to be treated as a consortiu4 or ?oint venture, at least of the type that govern4ent agencies li8e the Co4elec should be dealing 1ith% Bith 4ore reason is it unable to agree to the proposal to evaluate the 4e4bers of 6PC on a collective basis% ;n any event, the 6PC 4e4bers clai4 to be a ?oint ventureQconsortiu4E and respondents have consistently been arguing that the ;RR for RA (957, as a4ended, should be applied to the instant case in order to allo1 a collective evaluation of consortiu4 4e4bers% *urprisingly, considering these facts, respondents have not dee4ed it necessary for 6PC 4e4bers to co4ply 1ith *ection 5%4 +a, +iii, of the ;RR for RA (957 as a4ended% According to the afore4entioned provision, if the pro?ect proponent is a ?oint venture or consortiu4, the 4e4bers or participants thereof are re0uired to sub4it a s1orn state4ent that, if a1arded the contract, they shall bind the4selves to be ?ointly, severally and solidarily liable for the pro?ect proponent s obligations thereunder% This provision 1as supposed to 4irror *ection 5 of RA (957, as a4ended, 1hich statesA >;n all cases, a consortiu4 that participates in a bid 4ust present proof that the 4e4bers of the consortiu4 have bound the4selves ?ointly and severally to assu4e responsibility for any pro?ect% The 1ithdra1al of any 4e4ber of the consortiu4 prior to the i4ple4entation of the pro?ect could be a ground for the cancellation of the contract%> The Court has certainly not seen any ?oint and several underta8ing by the 6PC 4e4bers that even appro3i4ates the tenor of that 1hich is described above% Be fail to see 1hy respondents should invo8e the ;RR if it is for their benefit, but refuse to co4ply 1ith it other1ise% B. &S+ +echnical +ests -lunked 'y the Automated (ounting *achines 2et us no1 4ove to the second subtopic, 1hich deals 1ith the substantive issueA the AC6 s failure to pass the tests of the !epart4ent of *cience and Technology +!5*T,% After respondent >consortiu4> and the other bidder, T;6, had sub4itted their respective bids on 6arch 19, "99), the Co4elec s -AC ## through its Technical Bor8ing $roup +TB$, and the !5*T ## evaluated their technical proposals% Re0uire4ents that 1ere highly technical in nature and that re0uired the use of certain e0uip4ent in the evaluation process 1ere referred to the !5*T for testing% The !epart4ent reported thusA "ES" RESUL"S MA"R!A<7 "e0+n#0a, E%a,2at#on o1 A2tomate Co2nt#n3 Ma0+#ne MEGA8PAC!(!C CONSOR"!UM "O"AL !N(ORMA"!ON MANAGEMEN"

?E& :UES"!ONS

RE:U!REMEN"S

DC*

'5

DC*

'5

1% !oes the 4achine have an accuracy rating of at least 99%995 W percent

At C52! environ4ental condition

At '5R6A2 environ4ental conditions

11% Port to allo1 use of dot#4atri3 printersF

At <AR*< environ4ental conditions

1"% $enerates printouts of the election returns in a for4at specified by the C56C2CCF W W $enerates printouts W W

"% Accurately records and reports the date and ti4e of the start and end of counting of ballots per precinctF

)% Prints election returns 1ithout any loss of date during generation of such reportsF

;n for4at specified by C56C2CC

4% @ninterruptible bac8#up po1er syste4, that 1ill engage i44ediately to allo1 operation of at least 19 4inutes after W outage, po1er surge or abnor4al electrical occurrencesF

1)% Prints election returns 1ithout any loss of data during generation of such reportF W 14% $enerates an audit trail of the counting 4achine, both hard copy and soft copyF W 'oteA This particular re0uire4ent needs further verification <ard copy

5% 6achine reads t1o#sided ballots in one passF

*oft copy

W 'oteA This particular re0uire4ent needs further verification

(% 6achine can detect previously counted ballots and prevent previously counted ballots fro4 being counted 4ore than onceF

7% *tores results of counted votes by precinct in e3ternal +re4ovable, storage deviceF

W 'oteA This particular re0uire4ent needs further verification

15% !oes the CityQ6unicipal Canvassing *yste4 consolidate W results fro4 all precincts 1ithin it using the encrypted soft copy of the data generated by the counting 4achine and stored on the re4ovable data storage deviceF

W 'oteA This particular re0uire4ent needs further verification

.% !ata stored in e3ternal 4edia is encryptedF

W 'oteA This particular re0uire4ent needs further verification

1(% !oes the CityQ6unicipal Canvassing *yste4 consolidate results fro4 all precincts 1ithin it using the encrypted soft copy of the data generated by the counting 4achine and trans4itted through an electronic trans4ission 4ediaF

W 'oteA This particular re0uire4ent needs further verification

W 'oteA This particular re0uire4ent needs further verification

9% Physical 8ey or si4ilar device allo1s, li4its, or restricts W operation of the 4achineF

19% CP@ speed is at least 4994<GF

W 'oteA This particular re0uire4ent needs further verification

17% !oes the syste4 output a Hero CityQ6unicipal Canvass W Report, 1hich is printed on election day prior to the conduct of the actual canvass operation, that sho1s that all totals for all the votes for all the candidates and other infor4ation, are indeed Gero or nullF

W 'oteA This particular re0uire4ent needs further verification

1.% !oes the syste4 consolidate results fro4 all precincts in the W cityQ4unicipality using the data storage device co4ing fro4 the

counting 4achineF

'oteA This particular re0uire4ent needs further verification

*yste4F

'oteA This particular re0uire4ent needs further verification

19% ;s the 4achine 199: accurateF

W 'oteA This particular re0uire4ent needs further verification

"(% The *yste4 is able to print the specified reports and the audit trail 1ithout any loss of data during generation of the above4entioned reportsF

Prints specified reports "9% ;s the Progra4 able to detect previously do1nloaded precinct results and prevent these fro4 being inputted again into the *yste4F W W Audit Trail 'oteA This particular re0uire4ent needs further verification

W 'oteA This particular re0uire4ent needs further verification

"1% The *yste4 is able to print the specified reports and the audit trail 1ithout any loss of data during generation of the above# 4entioned reportsF

"7% Can the results of the provincialQdistrictQnational consolidation W be stored in a data storage deviceF

W 'oteA This particular re0uire4ent needs further verification

Prints specified reports

Audit Trail

W According to respondents, it 1as only after the TB$ and the !5*T had conducted their separate tests and sub4itted their respective reports that the -AC, on the basis of these reports for4ulated its co44entsQreco44endations on the bids of the consortiu4 and T;6% The -AC, in its Report dated April "1, "99), reco44ended that the Phase ;; pro?ect involving the ac0uisition of auto4ated counting 4achines be a1arded to 6PC;% ;t saidA >After incisive analysis of the technical reports of the !5*T and the Technical Bor8ing $roup for Phase ;; K Auto4ated Counting 6achine, the -AC considers adaptability to advances in 4odern technology to ensure an effective and efficient 4ethod, as 1ell as the security and integrity of the syste4% >The results of the evaluation conducted by the TB$ and that of the !5*T +14 April "99) report,, 1ould sho1 the apparent advantage of 6ega#Pacific over the other co4petitor, T;6% >The -AC further noted that both 6ega#Pacific and T;6 obtained so4e Sfailed 4ar8s in the technical evaluation% ;n general, the Sfailed 4ar8s of Total ;nfor4ation 6anage4ent as enu4erated above affect the counting 4achine itself 1hich are 4aterial in nature, constituting non#co4pliance to the R7P% 5n the other hand, the Sfailed 4ar8s of 6ega#Pacific are 4ere for4alities on certain docu4entary re0uire4ents 1hich the -AC 4ay 1aive as clearly indicated in the ;nvitation to -id% >;n the !5*T test, T;6 obtained 1" failed 4ar8s and 4ostly attributed to the counting 4achine itself as stated earlier% These are re0uire4ents of the R7P and therefore the -AC cannot disregard the sa4e%

""% Can the result of the cityQ4unicipal consolidation be stored in a data storage deviceF

W 'oteA This particular re0uire4ent needs further verification

")% !oes the syste4 consolidate results fro4 all precincts in the W provincialQdistrictQ national using the data storage device fro4 different levels of consolidationF

W 'oteA This particular re0uire4ent needs further verification

"4% ;s the syste4 199: accurateF

W 'oteA This particular re0uire4ent needs further verification

"5% ;s the Progra4 able to detect previously do1nloaded precinct results and prevent these fro4 being inputted again into the

W >6ega#Pacific failed in . ite4s ho1ever these are 4ostly on the soft1are 1hich can be corrected by reprogra44ing the soft1are and therefore can be readily corrected%

>The -AC verbally in0uired fro4 !5*T on the status of the retest of the counting 4achines of the T;6 and 1as infor4ed that the report 1ill be forthco4ing after the holy 1ee8% The -AC 1as infor4ed that the retest is on a different para4eters they re being t1o different 4achines being tested% 5ne purposely to test if previously read ballots 1ill be read again and the other for the other features such as t1o sided ballots% >The said 4achine and the soft1are therefore 4ay not be considered the sa4e 4achine and progra4 as sub4itted in the Technical proposal and therefore 4ay be considered an enhance4ent of the original proposal% >Advance infor4ation relayed to the -AC as of 1A49 P6 of 15 April "99) by C3ecutive !irector Ronaldo T% &iloria of !5*T is that the result of the test in the t1o counting 4achines of T;6 contains substantial errors that 4ay lead to the failure of these 4achines based on the specific ite4s of the R7P that !5*T has to certify% &P"!2!3 &- -2!A!(2AL B2 S >The -AC on 15 April "99), after notifying the concerned bidders opened the financial bids in their presence and the results 1ere as follo1sA 6ega#PacificA 5ption 1 K 5utright purchaseA -id Price if Php1,"4.,949,9..%99 5ption " K 2ease optionA 79: !o1n pay4ent of cost of hard1are or Php(4",755,757%97 Re4ainder payable over 59 4onths or a total of Php(4",755,757%97 !iscount rate of 15: p%a% or 1%"5)": per 4onth% Total 'u4ber of Auto4ated Counting 6achine K 1,7(9 AC6s +'ation1ide, T;6A Total -id Price K Php1,"97,.(9,5(9%99 Total 'u4ber of Auto4ated Counting 6achine K ","7" AC6s +6indanao and 'CR only, >Pre4ises considered, it appears that the bid of 6ega Pacific is the lo1est calculated responsive bid, and therefore, the -ids and A1ards Co44ittee +-AC, reco44ends that the Phase ;; pro?ect re Auto4ated Counting 6achine be a1arded to 6ega Pacific e*olutions, ;nc%>4. The -AC, ho1ever, also stated on page 4 of its ReportA >-ased on the 14 April "99) report +Table (, of the !5*T, it appears that both 6ega#Pacific and T;6 +Total ;nfor4ation 6anage4ent Corporation, failed to 4eet so4e of the re0uire4ents% -elo1 is a co4parative presentation of the re0uire4ents 1herein 6ega#Pacific or T;6 or both of the4 failedA 3 3 3%> Bhat follo1ed 1as a list of >8ey re0uire4ents,> referring to technical re0uire4ents, and an indication of 1hich of the t1o bidders had failed to 4eet the4% -ailure to *eet the %e4uired Accuracy %ating The first of the 8ey re0uire4ents 1as that the counting 4achines 1ere to have an a002ra0/ rat#n3 o1 at ,ea$t @@.@@@5 per0ent% The -AC Report indicates that both 6ega Pacific and T;6 failed to 4eet this standard% The 8ey re0uire4ent of accuracy rating happens to be part and parcel of the Co4elec s Re0uest for Proposal +R7P,% The R7P, on page "(, even states that the ballot counting 4achines and ballot counting soft1are > mu"t %a:e an accuracy rating o< 66/666GH +not 4erely 99%995:, or better a" certi<ied by a reliable independent te"ting agency %>

Bhen 0uestioned on this 4atter during the 5ral Argu4ent, Co44issioner -orra tried to 1ash his hands by clai4ing that the re0uired accuracy rating of 99%9995 percent had been set by a private sector group in tande4 1ith Co4elec% <e added that the Co44ission had 4erely adopted the accuracy rating as part of the group s reco44ended bid re0uire4ents, 1hich it had not bothered to a4end even after being advised by !5*T that such standard 1as unachievable% This e3cuse, ho1ever, does not in any 1ay lessen Co4elec s responsibility to adhere to its o1n published bidding rules, as 1ell as to see to it that the consortiu4 indeed 4eets the accuracy standard% W%ic%e:er accuracy rating i" t%e rig%t "tandard -- (%et%er 66/66G or 66/666G percent -- t%e <act remain" t%at t%e mac%ine" o< t%e "o-called Acon"ortiumA <ailed to e:en reac% t%e le""er o< t%e t(o/ 5n this basis alone, it ought to have been dis0ualified and its bid re?ected outright% At this point, the Court stresses that the essence of public bidding is violated by the practice of re0uiring very high standards or unrealistic specifications that cannot be 4et ## li8e the 99%9995 percent accuracy rating in this case ## only to 1ater the4 do1n after the bid has been a1ard% *uch sche4e, 1hich discourages the entry of prospective bona fide bidders, is in fact a sure indication of fraud in the bidding, designed to eli4inate fair co4petition% Certainly, if no bidder 4eets the 4andatory re0uire4ents, standards or specifications, then no a1ard should be 4ade and a failed bidding declared% -ailure of Software to etect Pre$iously ownloaded ata 7urther4ore, on page ( of the -AC Report, it appears that the >consortiu4> as 1ell as T;6 failed to 4eet another 8ey re0uire4ent ## for the counting 4achine s soft1are progra4 to be ab,e to ete0t pre%#o2$,/ o-n,oa e pre0#n0t re$2,t$ an to pre%ent t+e$e 1rom be#n3 entere a3a#n #nto t+e 0o2nt#n3 ma0+#ne % This sa4e deficiency on the part of both bidders reappears on page 7 of the -AC Report, as a result of the recurrence of their failure to 4eet the said 8ey re0uire4ent% That the ability to detect previously do1nloaded data at different canvassing or consolidation levels is dee4ed of ut4ost i4portance can be seen fro4 the fact that it is repeated three ti4es in the R7P% 5n page )9 thereof, 1e find the re0uire4ent that the cityDmunicipal canvassing syste4 soft1are 4ust be able to detect previously do1nloaded precinct results and prevent these fro4 being >inputted> again into the syste4% Again, on page )" of the R7P, 1e read that the pro:incialDdi"trict canvassing syste4 soft1are 4ust be able to detect previously do1nloaded cityQ4unicipal results and prevent these fro4 being >inputted> again into the syste4% And once 4ore, on page )5 of the R7P, 1e find the re0uire4ent that the national canvassing syste4 soft1are 4ust be able to detect previously do1nloaded provincialQdistrict results and prevent these fro4 being >inputted> again into the syste4% 5nce again, though, Co4elec chose to ignore this crucial deficiency, 1hich should have been a cause for the gravest concern% Co4e 6ay "994, unscrupulous persons 4ay ta8e advantage of and e3ploit such deficiency by repeatedly do1nloading and feeding into the co4puters results favorable to a particular candidate or candidates% 5e are thus confronted with the grim prospect of election fraud on a massi$e scale 'y means of 6ust a few key strokes. +he mar$els and woes of the electronic age7 2na'ility to Print the Audit +rail -ut that gri4 prospect is not all% The -AC Report, on pages ( and 7, indicate that the AC6s of both bidders 1ere 2nab,e to pr#nt t+e a2 #t tra#, 1ithout any loss of data% ;n the case of 6PC, the audit trail syste4 1as >not yet incorporated> into its AC6s% This particular deficiency is significant, not only to this bidding but to the cause of free and credible elections% The purpose of re0uiring audit trails is to enable Co4elec to trace and verify the identities of the AC6 operators responsible for data entry and do1nloading, as 1ell as the ti4es 1hen the various data 1ere do1nloaded into the canvassing syste4, in order to forestall fraud and to identify the perpetrators% Thus, the R7P on page "7 states that the ballot counting mac%ine" and ballot counting "o<t(are 4ust print an audit trail of all 4achine operations for docu4entation and verification purposes% 7urther4ore, the audit trail 4ust be stored on the internal storage device and be available on de4and for future printing and verifying% 5n pages )9#)1, the R7P also re0uires that the cityDmunicipal canvassing syste4 "o<t(are be able to print an audit trail of the canvassing operations, including therein such data as the date and ti4e the canvassing progra4 1as started, the log#in of the authoriGed users +the identity of the 4achine operators,, the date and ti4e the canvass data 1ere do1nloaded into the canvassing syste4, and so on and so

forth% 5n page )) of the R7P, 1e find the sa4e audit trail re0uire4ent 1ith respect to the pro:incialDdi"trict canvassing syste4 "o<t(areE and again on pages )5#)( thereof, the sa4e audit trail re0uire4ent 1ith respect to the national canvassing syste4 "o<t(are% That this re0uire4ent for printing audit trails is not to be lightly brushed aside by the -AC or Co4elec itself as a 4ere for4ality or technicality can be readily gleaned fro4 the provisions of *ection 7 of RA .4)(, 1hich authoriGes the Co44ission to use an auto4ated syste4 for elections% The said provision 1hich respondents have 0uoted several ti4es, provides that AC6s are to possess certain features divided into t1o classesA those that the statute itself considers 4andatory and other features or capabilities that the la1 dee4s optional% A4ong those considered 4andatory are >provisions for audit trails>V *ection 7 reads as follo1sA > T%e Sy"tem shall contain t%e <ollo(ing <eature"' +a- u"e o< appropriate ballot". +b- "tand-alone mac%ine (%ic% can count :ote" and an automated "y"tem (%ic% can con"olidate t%e re"ult" immediately. +c- with pro$isions for audit trails. +d- minimum %uman inter:ention. and +e- adeEuate "a<eguardD"ecurity mea"ure"/> +;talics and e4phases supplied%, ;n brief, respondents cannot deny that the provision re0uiring audit trails is indeed 4andatory, considering the 1ording of *ection 7 of RA .4)(% 'either can Respondent Co4elec deny that it has relied on the -AC Report, 1hich indicates that the 4achines or the soft1are 1as deficient in that respect% And yet, the Co44ission si4ply disregarded this shortco4ing and a1arded the Contract to private respondent, thereby violating the very la1 it 1as supposed to i4ple4ent% (. 2nade4uacy of Post -acto %emedial *easures Respondents argue that the deficiencies relating to the detection of previously do1nloaded data, as 1ell as provisions for audit trails, are 4ere shortco4ings or 4inor deficiencies in soft1are or progra44ing, 1hich can be rectified% Perhaps Co4elec si4ply relied upon the -AC Report, 1hich states on page . thereof that > Mega Paci<ic <ailed in I item").* %o(e:er t%e"e are mo"tly on t%e "o<t(are (%ic% can be corrected by re-programming @ @ @ and t%ere<ore can be readily corrected/ > The undersigned ponenteB" 0uestions, so4e of 1hich 1ere addressed to Co44issioner -orra during the 5ral Argu4ent, re4ain unans1ered to this day% 7irst of all, 1ho 4ade the deter4ination that the eight >fail> 4ar8s of 6ega Pacific 1ere on account of the soft1are ## 1as it !5*T or TB$F <o1 can 1e be sure these failures 1ere not the results of 4achine defectsF <o1 1as it deter4ined that the soft1are could actually be re#progra44ed and thereby rectifiedF !id a 0ualified technical e3pert read and analyGe the "ource code49 for the progra4s and conclude that these could be saved and re4ediedF +*uch deter4ination cannot be done by any other 4eans save by the e3a4ination and analysis of the source code%, Bho 1as this 0ualified technical e3pertF Bhen did he carry out the studyF !id he prepare a 1ritten report on his findingsF 5r did the Co4elec ?ust 4a8e a 1ild guessF ;t does not follo1 that all defects in soft1are progra4s can be rectified, and the progra4s saved% ;n the infor4ation technology sector, it is co44on 8no1ledge that there are 4any badly 1ritten progra4s, 1ith significant progra44ing errors 1ritten into the4E hence it does not 4a8e econo4ic sense to try to correct the progra4sE instead, progra44ers si4ply abandon the4 and ?ust start fro4 scratch% There s no telling if any of these progra4s is unrectifiable, unless a 0ualified progra44er reads the source code% And if indeed a 0ualified e3pert revie1ed the source code, did he also deter4ine ho1 4uch 1or8 1ould be needed to rectify the progra4sF And ho1 4uch ti4e and 4oney 1ould be spent for that effortF Bho 1ould carry out the 1or8F After the rectification process, 1ho 1ould ascertain and ho1 1ould it be ascertained that the progra4s have indeed been properly rectified, and that they 1ould 1or8 properly thereafterF And of course, the 4ost i4portant 0uestion to as8A could the rectification be done in ti4e for the elections in "994F Clearly, none of the respondents bothered to thin8 the 4atter through% Co4elec si4ply too8 the 1ord of the -AC as gospel truth, 1ithout even bothering to in0uire fro4 !5*T 1hether it 1as true that the deficiencies noted could possibly be re4edied by re#progra44ing the soft1are% Apparently, Co4elec did not care about the soft1are, but focused only on purchasing the 4achines%

Bhat really adds to the Court s dis4ay is the ad4ission 4ade by Co44issioner -orra during the 5ral Argu4ent that the soft1are currently being used by Co4elec 1as 4erely the >de4o> version, inas4uch as the final version that 1ould actually be used in the elections 1as still being developed and had not yet been finaliGed% ;t is not clear 1hen the final version of the soft1are 1ould be ready for testing and deploy4ent% ;t see4s to the Court that Co4elec is ?ust 8eeping its fingers crossed and hoping the final product 1ould 1or8% ;s there a >Plan -> in case it does notF Bho 8no1sF -ut all these soft1are progra4s are part and parcel of the bidding and the Contract a1arded to the Consortiu4% W%y i" it t%at t%e mac%ine" are already being broug%t in and paid <or# (%en t%ere i" a" yet no (ay o< $no(ing i< t%e <inal :er"ion o< t%e "o<t(are (ould be able to run t%em properly# a" (ell a" can:a"" and con"olidate t%e re"ult" in t%e manner reEuiredF The counting 4achines, as 1ell as the canvassing syste4, 1ill never 1or8 properly (it%out t%e correct "o<t(are program" % There is an old adage that is still valid to this dayA >$arbage in, garbage out%> 'o 4atter ho1 po1erful, advanced and sophisticated the co4puters and the servers are, if the soft1are being utiliGed is defective or has been co4pro4ised, the results 1ill be no better than garbage% And to thin8 that 1hat is at sta8e here is the "994 national elections ## the very basis of our de4ocratic life% Corre0t#on o1 6e1e0t$C To their 6e4orandu4, public respondents proudly appended 19 Certifications issued by !5*T declaring that so4e ".5 counting 4achines had been tested and had passed the acceptance testing conducted by the !epart4ent on 5ctober .#1., "99)% A4ong those tested 1ere so4e 4achines that had failed previous tests, but had undergone ad?ust4ents and thus passed re#testing% @nfortunately, the Certifications fro4 !5*T fail to divulge in 1hat 4anner and by 1hat standards or criteria the condition, perfor4ance andQor readiness of the 4achines 1ere re#evaluated and re#appraised and thereafter given the passing 4ar8% Apart fro4 that fact, the re4edial efforts of respondents 1ere, not surprisingly, apparently focused again on the 4achines ## the hard1are% 'othing 1as said or done about the soft1are ## the deficiencies as to detection and prevention of do1nloading and entering previously do1nloaded data, as 1ell as the capability to print an audit trail% No matter %o( many time" t%e mac%ine" (ere te"ted and re-te"ted# i< not%ing (a" done about t%e programming de<ect" and de<iciencie"# t%e "ame danger o< ma""i:e electoral <raud remain"/ As anyone 1ho has a 4odicu4 of 8no1ledge of co4puters 1ould say, >That s ele4entaryV> And only last !ece4ber 5, "99), an ;n07%net ne1s report 0uoted the Co4elec chair as saying that the ne1 auto4ated poll syste4 1ould be used nation1ide in 6ay "994, e:en a" t%e "o<t(are <or t%e "y"tem remained un<ini"%ed % ;t also reported that a certain Titus 6anuel of the Philippine Co4puter *ociety, 1hich 1as helping Co4elec test the hard1are and soft1are, "aid t%at t%e "o<t(are <or t%e counting "till %ad to be "ubmitted on December 2G# (%ile t%e "o<t(are <or t%e can:a""ing (a" due in early Canuary% Cven as Co4elec continues 4a8ing pay4ents for the AC6s, 1e 8eep as8ing ourselvesA 1ho is going to ensure that the soft1are 1ould be tested and 1ould 1or8 properlyF At any rate, the re#testing of the 4achines andQor the 199 percent testing of all 4achines +testing of every single unit, 1ould not serve to eradicate the grave abuse of discretion already co44itted by Co4elec 1hen it a1arded the Contract on April 15, "99), despite the obvious and ad4itted fla1s in the bidding process, the failure of the >1inning bidder> to 0ualify, and the inability of the AC6s and the intended soft1are to 4eet the bid re0uire4ents and rules% (omelec8s Latest /Assurances/ Are 0npersuasi$e Cven the latest pleadings filed by Co4elec do not serve to allay our apprehensions% They 4erely affir4 and co4pound the serious violations of la1 and gravely abusive acts it has co44itted% 2et us e3a4ine the4% The Resolution issued by this Court on !ece4ber 9, "99) re0uired respondents to infor4 it as to the nu4ber of AC6s delivered and paid for, as 1ell as the total pay4ent 4ade to date for the purchase thereof% They 1ere li8e1ise instructed to

sub4it a certification fro4 the !5*T attesting to the nu4ber of AC6s tested, the nu4ber found to be defectiveE and > (%et%er t%e reprogrammed "o<t(are %a" been te"ted and <ound to %a:e complied (it% t%e reEuirement" under 5epublic Act No/ IJK,%>59 ;n its >Partial Co4pliance and 6anifestation> dated !ece4ber "9, "99), Co4elec infor4ed the Court that 1,991 AC6s had already been delivered to the Co44ission as of that date% ;t further certified that it had already paid the supplier the su4 of P.49,1(7,(97%41, 1hich corresponded to 1,97) AC6 units that had passed the acceptance testing procedures conducted by the 6;R!C#!5*T51 and 1hich had therefore been accepted by the poll body% ;n the sa4e sub4ission, <or t%e :ery <ir"t time, Co4elec also disclosed to the Court the follo1ingA >The Auto4ated Counting and Canvassing Pro?ect involves not only the 4anufacturing of the AC6 hard1are but also the develop4ent of three +), types of soft1are, 1hich are intended for use in the follo1ingA 1% Cvaluation of Technical -ids "% Testing and Acceptance Procedures )% Clection !ay @se%> Purchase of the -irst +ype of Software 5ithout "$aluation ;n other 1ords, the first type of soft1are 1as to be developed solely for the purpose of enabling the evaluation of the bidder s technical bid% Co4elec e3plained thusA >In addition to t%e pre"entation o< t%e A;M %ard(are# t%e bidder" (ere reEuired to de:elop a Lba"eB "o<t(are program t%at (ill enable t%e A;M to <unction properly/ Since t%e "o<t(are program utili=ed during t%e e:aluation o< bid" i" not t%e actual "o<t(are program to be employed on election day# t%ere being t(o +M- ot%er type" o< "o<t(are program t%at (ill "till %a:e to be de:eloped and t%oroug%ly te"ted prior to actual election day u"e# de<ect" in t%e Lba"eB "o<t(are t%at can be readily corrected by reprogramming are con"idered minor in nature# and may t%ere<ore be (ai:ed/> ;n short, Co4elec clai4s that it evaluated the bids and 4ade the decision to a1ard the Contract to the >1inning> bidder partly on the basis of the operation of the AC6s running a >base> soft1are% That soft1are 1as therefore nothing but a sa4ple or >de4o> soft1are, 1hich 1ould not be the actual one that 1ould be used on election day% Oeeping in 4ind that the Contract involves the ac0uisition of not ?ust the AC6s or the hard1are, but also the soft1are that 1ould run the4, it is no1 even clearer that the Contract 1as a1arded 1ithout Co4elec having seen, 4uch less evaluated, the final product ## the soft1are that 1ould finally be utiliGed co4e election day% +'ot even the >near-<inal> product, for that 4atter,% Bhat then 1as the point of conducting the bidding, 1hen the soft1are that 1as the sub?ect of the Contract 1as "till to be created and could conceivably undergo innu4erable changes before being considered as being in final for4F And that is not allV !o "#planation for Lapses in the Second +ype of Software The second phase, allegedly involving the second type of soft1are, is si4ply deno4inated >Testing and Acceptance Procedures%> As best as 1e can construe, Co4elec is clai4ing that this second type of soft1are is also to be de:eloped and delivered by the supplier in connection 1ith the >testing and acceptance> phase of the ac0uisition process% The previous pleadings, though ## including the !5*T reports sub4itted to this Court ## have not heretofore 4entioned any state4ent, allegation or representation to the effect that a particular set of soft1are 1as to be developed andQor delivered by the supplier in connection 1ith the testing and acceptance of delivered AC6s% Bhat the records do sho1 is that the i4ported AC6s 1ere sub?ected to the testing and acceptance process conducted by the !5*T% *ince the initial batch delivered included a high percentage of 4achines that had failed the tests, Co4elec as8ed the !5*T to conduct a 199 percent testingE that is, to test every single one of the AC6s delivered% A4ong the 4achines tested on 5ctober . to 1., "99), 1ere so4e units that had failed previous tests but had subse0uently been re#tested and had

passed% To repeat, ho1ever, until no1, there has never been any 4ention of a second set or type of soft1are pertaining to the testing and acceptance process% ;n any event, apart fro4 4a8ing that 4isplaced and uncorroborated clai4, Co4elec in the sa4e sub4ission also professes +in response to the concerns e3pressed by this Court, that t+e repro3ramme $o1t-are +a$ been te$te an 1o2n to +a%e 0omp,#e -#t+ t+e re=2#rement$ o1 RA 8<46 % ;t reasoned thusA >Since t%e "o<t(are program i" an in%erent element in t%e automated counting "y"tem# t%e certi<ication i""ued by t%e MI5D;-D!ST t%at one t%ou"and nine %undred "e:enty-t%ree +2#63K- unit" pa""ed t%e acceptance te"t procedure" i" an o<<icial recognition by t%e MI5D;-D!ST t%at t%e "o<t(are component o< t%e automated election "y"tem# (%ic% %a" been reprogrammed to comply (it% t%e pro:i"ion" o< 5epublic Act No/ IJK, a" pre"cribed in t%e Ad Hoc Tec%nical 4:aluation ;ommitteeB" A;M Te"ting and Acceptance Manual# %a" pa""ed t%e MI5D;-D!ST te"t"/> The facts do not support this s1eeping state4ent of Co4elec% A scrutiny of the 6;R!C#!5*T letter dated !ece4ber 15, "99),5" 1hich it relied upon, does not ?ustify its grand conclusion% 7or clarity s sa8e, 1e 0uote in full the letter#certification, as follo1sA >15 !ece4ber "99) ><5'% RC*@RRCCC;5' H% -5RRA Co44issioner#in#Charge Phase ;;, 6oderniGation Pro?ect Co44ission on Clections ;ntra4uros, 6anila AttentionA Atty% =ose 6% Tolentino, =r% Pro?ect !irector >!ear Co44issioner -orraA >Be are pleased to sub4it 11 !5*T Test Certifications representing 11 lots and covering 15. units of auto4ated counting 4achines +AC6s, that 1e have tested fro4 9"#1" !ece4ber "99)% >To date, 1e have tested all the 1,991 units of AC6s, bro8en do1n as follo1A +sic, 1st batch # )9 units 4th batch # 4). units "nd batch # ".. units 5th batch # 4). units )rd batch # 414 units (th batch # ).) units >;t should be noted that a total of 1. units have failed the test% 5ut of these 1. units, only one +1, unit has failed the retest% >Than8 you and 1e hope you 1ill find everything in order% >&ery truly yours, >R52A'!5 T% &;25R;A, CC*5 ;;; C3ecutive !irector cu4

Chair4an, !5*T#Technical Cvaluation Co44ittee> Cven a cursory glance at the foregoing letter sho1s that it is co4pletely bereft of anything that 1ould re4otely support Co4elec s contention that the >soft1are co4ponent of the auto4ated election syste4 3 3 3 has been reprogra44ed to co4ply 1ith> RA .4)(, and >has passed the 6;R!C#!5*T tests%> There is no 4ention at all of any soft1are reprogra44ing% ;f the 6;R!C#!5*T had indeed underta8en the supposed reprogra44ing and the process turned out to be successful, that agency 1ould have proudly tru4peted its singular achieve4ent% <o1 Co4elec ca4e to believe that such reprogra44ing had been underta8en is unclear% ;n any event, the Co44ission is not forthright and candid 1ith the factual details% ;f reprogra44ing has been done, 1ho perfor4ed it and 1henF Bhat e3actly did the process involveF <o1 can 1e be assured that it 1as properly perfor4edF *ince the facts attendant to the alleged reprogra44ing are still shrouded in 4ystery, the Court cannot give any 1eight to Co4elec s bare allegations% The fact that a total of 1,97) of the 4achines has ulti4ately passed the 6;R!C#!5*T tests does not by itself serve as an endorse4ent of the soundness of the soft1are progra4, 4uch less as a proof that it has been reprogra44ed% ;n the first place, nothing on record sho1s that the tests and re#tests conducted on the 4achines 1ere intended to address the serious deficiencies noted earlier% As a 4atter of fact, the 6;R!C#!5*T letter does not even indicate 1hat 8inds of tests or re#tests 1ere conducted, their e3act nature and scope, and the specific ob?ectives thereof% 5) The absence of relevant supporting docu4ents, co4bined 1ith the utter vagueness of the letter, certainly fails to inspire belief or to ?ustify the e3pansive confidence displayed by Co4elec% In any e:ent# it goe" (it%out "aying t%at remedial mea"ure" "uc% a" t%e alleged reprogramming cannot in any (ay mitigate t%e gra:e abu"e o< di"cretion already committed a" early a" April 2G# M77K/ %ationale of Pu'lic Bidding !egated 'y the +hird +ype of Software Respondent Co4elec tries to assuage this Court s an3iety in these 1ordsA >The reprogra44ed soft1are that has already passed the re0uire4ents of Republic Act 'o% .4)( during the 6;R!C#!5*T testing and acceptance procedures 1ill re0uire further custo4iGation since the follo1ing additional ele4ents, a4ong other things, 1ill have to be considered before the final soft1are can be used on election dayA 1% 7inal Certified 2ist of Candidates 3 3 3 "% Pro?ect of Precincts 3 3 3 )% 5fficial -allot !esign and *ecurity 7eatures 3 3 3 4% Cncryption, digital certificates and digital signatures 3 3 3% T%e certi<ied li"t o< candidate" <or national electi:e po"ition" (ill be <inali=ed on or be<ore MK Canuary M77J (%ile t%e <inal li"t o< proNect" o< precinct" (ill be prepared al"o on t%e "ame date/ !nce all t%e abo:e element" are incorporated in t%e "o<t(are program# t%e Te"t ;erti<ication Group created by t%e Ad Hoc Tec%nical 4:aluation ;ommittee (ill conduct meticulou" te"ting o< t%e <inal "o<t(are be<ore t%e "ame can be u"ed on election day/ In addition to t%e te"ting to be conducted by "aid Te"t ;erti<ication Group# t%e ;omelec (ill conduct moc$ election" in "elected area" nation(ide not only <or purpo"e" o< public in<ormation but al"o to <urt%er te"t t%e <inal election day program/ Public re"pondent ;omelec# t%ere<ore# reEue"t" t%at it be gi:en up to 2, February M77J to comply (it% t%i" reEuirement%> The foregoing passage sho1s the i4prudent approach adopted by Co4elec in the bidding and ac0uisition process% The Co44ission says that before the soft1are can be utiliGed on election day, it 1ill re0uire >custo4iGation> through addition of data ## li8e the list of candidates, pro?ect of precincts, and so on% And inas4uch as such data 1ill beco4e available only in =anuary "994 any1ay, there is therefore no perceived need on Co4elec s part to rush the supplier into producing the final +or near#final, version of the soft1are before that ti4e% ;n any case, Co4elec argues that the soft1are needed for the electoral e3ercise can be continuously developed, tested, ad?usted and perfected, practically all the 1ay up to election day, at the sa4e ti4e that the Co44ission is underta8ing all the other distinct and diverse activities pertinent to the elections% $iven such a fra4e of 4ind, it is no 1onder that Co4elec paid little attention to the counting and canvassing soft1are during the entire bidding process, 1hich too8 place in 7ebruary#6arch "99)% $ranted that the soft1are 1as defective, could not detect and prevent the re#use of previously do1nloaded data or produce the audit trail ## aside fro4 its other shortco4ings ## nevertheless, all those deficiencies could still be corrected do1n the road% At any rate, the soft1are used for bidding purposes 1ould not be the sa4e one that 1ill be used on election day, so 1hy pay any attention to its defectsF 5r to the Co4elec s o1n bidding rules for that 4atterF

Clearly, such ?u4bled ratiocinations co4pletely negate the rationale underlying the bidding process 4andated by la1% At the very outset, the Court has e3plained that Co4elec flagrantly violated the public policy on public biddings +1, by allo1ing 6PCQ6PC; to participate in the bidding even though it 1as not 0ualified to do soE and +", by eventually a1arding the Contract to 6PCQ6PC;% 'o1, 1ith the latest e3planation given by Co4elec, it is clear that the Co44ission further desecrated the la1 on public bidding by per4itting the 1inning bidder to change and alter the sub?ect of the Contract +the soft1are,, in effect allo1ing a substantive a4end4ent 1ithout public bidding% This stance is contrary to settled ?urisprudence re0uiring the strict application of pertinent rules, regulations and guidelines for public bidding for the purpose of placing eac% bidder# actual or potential# on t%e "ame <ooting % The essence of public bidding is, after all, an opportunity for fair co4petition, and a fair basis for the precise co4parison of bids% ;n co44on parlance, public bidding ai4s to >level the playing field%> That 4eans each bidder 4ust bid under the sa4e conditionsE and be sub?ect to the sa4e guidelines, re0uire4ents and li4itations, so that the best offer or lo1est bid 4ay be deter4ined, all ot%er t%ing" being eEual% Thus, it is contrary to the very concept of public bidding to per4it a variance bet1een the conditions under 1hich bids are invited and those under 1hich proposals are sub4itted and approvedE or, as in this case, the conditions under 1hich the bid is 1on and those under 1hich the a1arded Contract 1ill be co4plied 1ith% The substantive a4end4ent of the contract bidded out, 1ithout any public bidding ## a<ter the bidding process had been concluded ## is violative of the public policy on public biddings, as 1ell as the spirit and intent of RA .4)(% T%e (%ole point in going t%roug% t%e public bidding e@erci"e (a" completely lo"t/ T%e :ery rationale o< public bidding (a" totally "ub:erted by t%e ;ommi""ion/ 7ro4 another perspective, the Co4elec approach also fails to 4a8e sense% $ranted that, before election day, the soft1are 1ould still have to be custo4iGed to each precinct, 4unicipality, city, district, and so on, there still 1as nothing at all to prevent Co4elec fro4 re0uiring prospective suppliersQbidders to produce, at t%e :ery "tart o< t%e bidding proce"" , the >ne3t#to#final> versions of the soft1are +the best soft1are the suppliers had, ## pre#tested and ready to be custo4iGed to the final list of candidates and pro?ect of precincts, a4ong others, and ready to be deployed thereafter% The satisfaction of such re0uire4ent 1ould probably have provided far better bases for evaluation and selection, as bet1een suppliers, than the so#called de4o soft1are%Respondents contend that the bidding suppliers counting 4achines 1ere previously used in at least one political e3ercise 1ith no less than "9 4illion voters% ;f so, it stands to reason that the soft1are used in that past electoral e3ercise 1ould probably still be available and, in all li8elihood, could have been adopted for use in this instance% Paying for 4achines and soft1are of that category +already tried and proven in actual elections and ready to be adopted for use, 1ould definitely 4a8e 4ore sense than paying the sa4e hundreds of 4illions of pesos for de4o soft1are and e4pty pro4ises of usable progra4s in the future% -ut there is still another gut#level reason 1hy the approach ta8en by Co4elec is reprehensible% ;t rides on the perilous assu4ption that nothing 1ould go 1rongE and that, co4e election day, the Co44ission and the supplier 1ould have developed, ad?usted and >re#progra44ed> the soft1are to the point 1here the auto4ated syste4 could function as envisioned% -ut 1hat if such opti4istic pro?ection does not 4aterialiGeF Bhat if, despite all their herculean efforts, the soft1are no1 being hurriedly developed and tested for the auto4ated syste4 perfor4s dis4ally and inaccurately or, 1orse, is hac8ed andQor 4anipulatedF54 Bhat then 1ill 1e do 1ith all the 4achines and defective soft1are already paid for in the a4ount of P.49 4illion of our ta3 4oneyF Cven 4ore i4portant, (%at (ill %appen to our country in ca"e o< <ailure o< t%e automationF The Court cannot grant the plea of Co4elec that it be given until 7ebruary 1(, "994 to be able to sub4it a >certification relative to the additional ele4ents of the soft1are that 1ill be custo4iGed,> because for us to do so 1ould unnecessarily delay the resolution of this case and 1ould ?ust give the poll body an un1arranted e3cuse to postpone the "994 elections% 5n the other hand, because such certification 1ill not cure the gravely abusive actions co4plained of by petitioners, it 1ill be utterly useless% ;s this Court being overly pessi4istic and perhaps even engaging in speculationF <ardly% Rather, the Court holds that Co4elec should not have ga4bled on the unrealistic opti4is4 that the supplier s soft1are develop4ent efforts 1ould turn out 1ell% The Co44ission should have adopted a 4uch 4ore prudent and ?udicious approach to ensure the delivery of tried and tested soft1are, and readied alternative courses of action in case of failure% Considering that the nation s future is at sta8e here, it should have done no less%

"pilogue *!LLAR6, J.) 5nce again, the Court finds itself at the crossroads of our nation s history% At sta8e in this controversy is not ?ust the business of a co4puter supplier, or a 0uestionable procla4ation by Co4elec of one or 4ore public officials% 'either is it about 1hether this country should s1itch fro4 the 4anual to the auto4ated syste4 of counting and canvassing votes% At its core is the ability and capacity of the Co44ission on Clections to perfor4 properly, legally and prudently its legal 4andate to i4ple4ent the transition fro4 4anual to auto4ated elections% @nfortunately, Co4elec has failed to 4easure up to this historic tas8% As stated at the start of this !ecision, Co4elec has not 4erely gravely abused its discretion in a1arding the Contract for the auto4ation of the counting and canvassing of the ballots% ;t has also put at grave ris8 the holding of credible and peaceful elections by shoddily accepting electronic hard1are and soft1are that ad4ittedly failed to pass legally 4andated technical re0uire4ents% ;nade0uate as they are, the re4edies it proffers post facto do not cure the grave abuse of discretion it already co44itted +1, on April 15, "99), 1hen it illegally 4ade the a1ardE and +", >so4eti4e> in 6ay "99) 1hen it e3ecuted the Contract for the purchase of defective 4achines and non# e3istent soft1are fro4 a non#eligible bidder% 7or these reasons, the Court finds it totally unacceptable and unconscionable to place its i4pri4atur on this void and illegal transaction that seriously endangers the brea8do1n of our electoral syste4% 7or this Court to cop#out and to close its eyes to these illegal transactions, 1hile convenient, 1ould be to abandon its constitutional duty of safeguarding public interest% As a necessary conse0uence of such nullity and illegality, the purchase of the 4achines and all appurtenances thereto including the still#to#be#produced +or in Co4elec s 1ords, to be >reprogra44ed>, soft1are, as 1ell as all the pay4ents 4ade therefor, have no basis 1hatsoever in la1% The public funds e3pended pursuant to the void Resolution and Contract 4ust therefore be recovered fro4 the payees andQor fro4 the persons 1ho 4ade possible the illegal disburse4ents, 1ithout pre?udice to possible cri4inal prosecutions against the4% 7urther4ore, Co4elec and its officials concerned 4ust bear full responsibility for the failed bidding and a1ard, and held accountable for the electoral 4ess 1rought by their grave abuse of discretion in the perfor4ance of their functions% The *tate, of course, is not bound by the 4ista8es and illegalities of its agents and servants% True, our country needs to transcend our slo1, 4anual and archaic electoral process% -ut before it can do so, it 4ust first have a diligent and co4petent electoral agency that can properly and prudently i4ple4ent a 1ell#conceived auto4ated election syste4% At botto4, before the country can hope to have a speedy and fraud#free auto4ated election, it 4ust first be able to procure the proper co4puteriGed hard1are and soft1are legally, based on a transparent and valid syste4 of public bidding% As in any de4ocratic syste4, the ulti4ate goal of auto4ating elections 4ust be achieved by a legal, valid and above#board proce"" of ac0uiring the necessary tools and s8ills therefor% Though the Philippines needs an auto4ated electoral process, it cannot accept ?ust any syste4 shoved into its boso4 through i4proper and illegal 4ethods% As the saying goes, the end never ?ustifies the 4eans% Penu4bral contracting 1ill not produce enlightened results% *9ERE(ORE, the Petition is G5ANT4D% The Court hereby declares NULL and O!ID Co4elec Resolution 'o% (974 a1arding the contract for Phase ;; of the AC* to 6ega Pacific Consortiu4 +6PC,% Also declared null and void is the sub?ect Contract e3ecuted bet1een Co4elec and 6ega Pacific e*olutions +6PC;,% 55 Co4elec is further !5D454D to refrain fro4 i4ple4enting any other contract or agree4ent entered into 1ith regard to this pro?ect% 2et a copy of this !ecision be furnished the 5ffice of the 54buds4an 1hich shall deter4ine the cri4inal liability, if any, of the public officials +and conspiring private individuals, if any, involved in the sub?ect Resolution and Contract% 2et the 5ffice of the *olicitor $eneral also ta8e 4easures to protect the govern4ent and vindicate public interest fro4 the ill effects of the illegal disburse4ents of public funds 4ade by reason of the void Resolution and Contract%SO OR6ERE6. 5n the "9th day of 5ctober, 1994, =% $% Bhite T Co% i4ported through the plaintiffs, as bro8ers, certain goods 1hich in their declaration 1ere described as Xone stea4 turbine, condensing 4achinery, hot 1ell and pu4ps, co4plete 1ith parts and accessories%Y The stea4 turbine 1as classified by the officers of the custo4s under paragraph "57, letter +b,, of the Tariff Act of 1991 +'o% ")9,, and the condensing 4achinery under the sa4e paragraph% The i4porters appealed fro4 this decision to the Collector of Custo4s of the Philippine ;slands, 1ho affir4ed the classification as to the stea4 turbine and the condensers, but sustained the protest as to the pu4ps% The i4porters thereupon stated that they 1ould abide by the ruling as to the pu4ps, but appealed to the Court of first ;nstance fro4 the ruling of the Collector so far as it related to the stea4 turbine and the condensers% That court reversed the decision of the Collector and held that all of the 4achinery should be classified under paragraph "59, as 4achinery for the generation of electricity for lighting or for po1er% 7ro4 that decision the $overn4ent has appealed to this court% The paragraphs of the Tariff 2a1 in 0uestion are as follo1sA MJK/ Marine engine" and "team pump". %ydraulic# petroleum# ga"# and %ot or compre""ed air motor"# N/ W/# 277 $ilo" P2/G7 MJ,/ Locomoti:e"# including tender" and traction engine" o< all $ind" u"ing "team or ot%er po(er# G/ W/# 277 $ilo" 2/77 MG7/ Dynamo"# generator"# e@citer"# and all ot%er mac%inery <or t%e generation o< electricity <or lig%tning or <or po(er# al"o tran"<ormer"# N/ W/# 277 $ilo" G/77 MG3/ !t%er mac%inery and detac%ed part" not ot%er(i"e pro:ided <or' +a- !< copper and it" alloy"# N/ W/# 277 $ilo" J/77 +b- !< ot%er material# N/ W/# 277 $ilo" 2/77 Pro:ided# T%at none o< t%e article" cla""i<ied under paragrap%" t(o %undred and <i<ty-t(o# t(o %undred and <i<ty-t%ree# t(o %undred and <i<ty-<our# t(o %undred and <i<ty-<i:e# t(o %undred and <i<ty-"i@# and t(o %undred and <i<ty-"e:en "%all pay a le"" rate o< duty t%an t(enty per centum ad :alorem/ Bhen the i4porters 4ade their declaration for entry, they clai4ed that all of the 4achinery should be classified under paragraph "4)% @pon their appeal to the Collector of Custo4s, they clai4ed that the 4achinery should either be classified under paragraph "4) or under paragraph "59, as being 4achinery for the generation of electricity% The 4achinery 1as i4ported for use, and is no1 actually used by the 6anila Clectric Railroad and 2ight Co4pany in its plant in 6anila, and it is apparently clai4ed by the i4porters that it constitutes a co4plete 4achine for the generation of electricity and should have been classified as one 4achine% ;t 1ill be noticed that 1hen the i4porters 4ade the entry they did not the4selves so classify it% They separated the 4achinery into the turbine, and the condensers, 1ells, and pu4ps and did not then clai4 that it should be classed under the paragraph relating to dyna4os% ;t is said in the brief of the appellee Xthat the turbine engine and the generator being one co4plete 4achine, and designed to be used for the generating of electricity, and for no other purpose, the turbine engine should be classified as clai4ed, as a co4ponent part of the generator%Y That this 4achinery as i4ported 1as not a co4plete 4achine for the generation of electricity is clear because no dyna4o 1as i4ported 1ith it% ;t 4ust therefore be separated into its co4ponent parts as 1as done by the Collector, and these parts 4ust be considered separately%

O0tober 16, 1@08 G.R. No. <608 MURP9&, MORR!S D CO., p,a#nt#11$8appe,,ee$,%$."9E COLLEC"OR O( CUS"OMS, e1en ant8appe,,ant.

The stea4 turbine is a stea4 engine for furnishing po1er% ;t does not by itself generate electricity% 7or that purpose another engine is added to the stea4 engine, the purpose of the additional engine being to transfor4 the 4otion of the stea4 engine to the stea4 engine, do not agree 1ith the contention of the appellee that every 8ind of 4achinery used in an electric light and po1er plant is Xother 4achinery for the generation of electricity%Y As said by the Attorney#$eneralA Bhere a statute describes things of a particular class or 8ind acco4panied by 1ords of generic character preceded by the 1ord XotherY, the generic 1ords 1ill usually be li4ited to things of a 8indred nature 1ith those particularly enu4erated unless there be so4ething in the conte3t or the history of the statute to repel such as inference% This is on the principle of no"citur a "ocii", 1hich is held applicable to revenue la1s as 1ell as penal enact4ents% +Ada4s vs% -ancroft, ) *u44er, ).4E 1 7ed% Cases, .4, % % % % The application of these rules of statutory interpretation and construction to the present case 4a8es it very clear that all the classification Xdyna4os, generators, e3citers, and all other 4achinery for the generation of electricity for lighting or of po1er, also transfor4ers, 1ould not include a stea4 turbine and pu4ps and condensers because there are not of the sa4e class or 8ind of 4achinery as dyna4os, generators, and e3citers% As said also by the Collector in his decisionA Suc% mac%inery and apparatu" i" not mac%inery <or t%e generation o< electricity# but <urni"%e" po(er <or t%e operation o< mac%inery <or t%e generation o< electricity/ ;f this stea4 turbine can be considered a 4achine for the generation of electricity, then a turbine 1ater 1heel 1ould have to be so considered% The decision of the court belo1 holding that it is 4achinery for the generation of electricity can not be sustained% ;t is clai4ed by the i4porters, ho1ever, that even if it can not be classified under paragraph "59, it should yet be classified under paragraph "4) as a 4arine engine% The evidence ta8en before the Collector and that ta8en before the Court of 7irst ;nstance sho1s that the 4achinery 1as not intended for use in a hip, that this engine could not reverse, and that the essential feature of a 4arine engine is that be reversible% ;f this engine 1ere placed in a ship it could not operate itE it 1ould be necessary, as a 1itness said, to add au3iliary parts to it for the purpose of 4a8ing it a reversing engine% A further clai4 is 4ade by the i4porter to the effect that, even if it is not technically a 4arine engine, yet as long as stationary engines are not any1here 4entioned in the Tariff Act of 1991, Xit 1as the purpose of the legislature to 4a8e but t1o classes of stea4 enginesA one, the loco4otive or traction engine, and the other, the stationary or 4arine engine, because all stationary engines 4ay be used for 4arine purposes, 1hile the loco4otive engine is not adopted to such purposes% The language of the section supports this vie1% 6arine engines therefore 1ill be held to 4ean stea4 4otors%Y This contention can not be sustained, for it 1as held by this court in the case of Cadler and Co%, vs% The @nited *tates +. Phil% Rep%, )9), that a probate stea4 engine used as a 4otor for a rice#cleaning plant 4ust be classified under paragraph "57 as Xother 4achineryY because it 1as no1here else specifically 4entioned in the act% Be thin8 that the stea4 turbine 1as properly classified by the Collector under the last na4ed paragraph% 'o 4ention is 4ade of the condensers in the brief of the appellee and 1e are of the opinion, also, that these 1ere properly classified by the Collector under the sa4e paragraph% The ?udg4ent of the court belo1 is reversed, and the case re4anded 1ith directions to affir4 the decision of the Collector% 'o costs 1ill be allo1ed to either party in this court% *o ordered%

Calle?o, *r%, =% =ai4e $uinha1a 1as engaged in the business of selling brand ne1 4otor vehicles, including 6itsubishi vans, under the business na4e of $uinro3 6otor *ales% <is office and display roo4 for cars 1ere located along Panganiban Avenue, 'aga City% <e e4ployed $il AGotea as his sales 4anager% 5n 6arch 17, 1995, $uinha1a purchased a brand ne1 6itsubishi 2#)99 &ersa &an 1ith 6otor 'o% 4!5(A# C.9"9 and *erial 'o% 29(9BIH=2#97979 fro4 the @nion 6otors Corporation +@6C, in Paco, 6anila% The van bore Plate 'o% !2O 49(% $uinha1a s driver, 2eopoldo 5layan, drove the van fro4 6anila to 'aga City% <o1ever, 1hile the van 1as traveling along the high1ay in 2abo, !aet, Ca4arines 'orte, 5layan suffered a heart attac8% The van 1ent out of control, traversed the high1ay onto the opposite lane, and 1as ditched into the canal parallel to the high1ay% L1M The van 1as da4aged, and the left front tire had to be replaced% The incident 1as reported to the local police authorities and 1as recorded in the police blotter% L"M The van 1as repaired and later offered for sale in $uinha1a s sho1roo4%L)M *o4eti4e in 5ctober 1995, the spouses Ralph and =osephine *ilo 1anted to buy a ne1 van for their gar4ent businessE they purchased ite4s in 6anila and sold the4 in 'aga City% L4M They 1ent to $uinha1a s office, and 1ere sho1n the 2#)99 &ersa &an 1hich 1as on display% The couple inspected its interior portion and found it beautiful% They no longer inspected the under chassis since they presu4ed that the vehicle 1as brand ne1% L5M @na1are that the van had been da4aged and repaired on account of the accident in !aet, the couple decided to purchase the van for P591,999%99% AGotea suggested that the couple 4a8e a do1npay4ent of P11.,"99%99, and pay the balance of the purchase price by install4ents :ia a loan fro4 the @nited Coconut Planters -an8 +@CP-,, 'aga -ranch, 1ith the 2#)99 &ersa &an as collateral% AGotea offered to 4a8e the necessary arrange4ents 1ith the @CP- for the consu44ation of the loan transaction% The couple agreed% 5n 'ove4ber 19, 1995, the spouses e3ecuted a Pro4issory 'ote L(M for the a4ount of P(9",(7(%99 as pay4ent of the balance on the purchase price, and as evidence of the chattel 4ortgage over the van in favor of @CP-% 5n 5ctober 11, 1995, the couple arrived in $uinha1a s office to ta8e delivery of the van% $uinha1a e3ecuted the deed of sale, and the couple paid the P1(1,479%99 do1npay4ent, for 1hich they 1ere issued Receipt 'o% 9)99% L7M They 1ere furnished a *ervice 6anualL.M 1hich contained the 1arranty ter4s and conditions% AGotea instructed the couple on ho1 to start the van and to operate its radio% Ralph *ilo no longer conducted a test driveE he and his 1ife assu4ed that there 1ere no defects in the van as it 1as brand ne1% L9M 5n 5ctober 1", 1995, =osephine *ilo, acco4panied by $lenda Pingol, 1ent to 6anila on board the 2#)99 &ersa &an, 1ith $lenda s husband, -ayani Pingol ;;;, as the driver% Their trip to 6anila 1as uneventful% <o1ever, on the return trip to 'aga fro4 6anila on 5ctober 15 or 1(, 1995, -ayani Pingol heard a s0uea8ing sound 1hich see4ed to be co4ing fro4 underneath the van% They 1ere in Calauag, IueGon, 1here there 1ere no hu4ps along the road% L19M Pingol stopped the van in !aet, Ca4arines 'orte, and e3a4ined the van underneath, but found no abnor4alities or defects% L11M -ut as he drove the van to 'aga City, the s0uea8ing sound persisted% -elieving that the van 4erely needed grease, Pingol stopped at a *hell gasoline station 1here it 1as e3a4ined% The 4echanic discovered that so4e parts underneath the van had been 1elded% Bhen Pingol co4plained to $uinha1a, the latter told hi4 that the defects 1ere 4ere factory defects% As the defects persisted, the spouses *ilo re0uested that $uinha1a change the van 1ith t1o Charade#!aihatsu vehicles 1ithin a 1ee8 or t1o, 1ith the additional costs to be ta8en fro4 their do1npay4ent% 6ean1hile, the couple stopped paying the 4onthly a4ortiGation on their loan, pending the replace4ent of the van% $uinha1a initially agreed to the couple s proposal, but later changed his 4ind and told the4 that he had to sell the van first% The spouses then brought the vehicle to the R3 Auto Clinic in 'aga City for e3a4ination% =esus Re3 Ra0uitico, =r%, the 4echanic, e3a4ined the van and discovered that it 1as the left front stabiliGer that 1as producing the annoying sound, and that it had been repaired% L1"M Ra0uitico prepared a =ob 5rder containing the follo1ing notations and reco44endationsA 1% C<CCO @P *@*PC'*;5' +7R5'T, "% RCP2ACC T<C R5! C'! )% RCP2ACC -@*<;'$

G.R. NO. 162822 A232$t 25, 2005 'A!ME GU!N9A*A %$. PEOPLE O( "9E P9!L!PP!NES

'5TCA 7R5'T *TCP -5AR! <A* -CC' A2RCA!D !A6A$C! A'! RCPA;RC!% '5TCA 7R5'T 2C7T *@*PC'*;5' A2;$'6C'TQ6CA*@RC6C'TL1)M 65@'T;'$ ;* '5T 5' *PCC;7;C!

The accused clai4ed that the couple filed a Co4plaint L""M against hi4 1ith the !T; on =anuary "5, 199(, only to 1ithdra1 it later%L")M The couple then failed to pay the a4ortiGations for the van, 1hich caused the @CP- to file a petition for the foreclosure of the chattel 4ortgage and the sale of the van at public auction% L"4M AGotea testified that he had been a car sales4an for 1( years and that he sold brand ne1 vans% L"5M -efore the couple too8 delivery of the vehicle, Pingol inspected its e3terior, interior, and underside, and even drove it for the couple% L"(M <e 1as present 1hen the van 1as brought to the R3 Auto Clinic, 1here he noticed the dent on its front side% L"7M <e clai4ed that the van never figured in any vehicular accident in 2abo, !aet, Ca4arines 'orte on 6arch 17, 1995% L".M ;n fact, he declared, he found no police record of a vehicular accident involving the van on the said date% L"9M <e ad4itted that 5layan 1as their driver, and 1as in charge of ta8ing delivery of cars purchased fro4 the 4anufacturer in 6anila%L)9M 5n 'ove4ber (, "991, the trial court rendered ?udg4ent convicting $uinha1a% The <allo of the decision readsA B<CRC75RC, pre4ises considered, ?udg4ent is hereby rendered declaring the accused, =A;6C $@;'<ABA, guilty of the cri4e of 5ther !eceits defined and penaliGed under Art% )1.+1, of the Revised Penal Code, the prosecution having proven the guilt of the accused beyond reasonable doubt and hereby i4poses upon hi4 the penalty of i4prison4ent fro4 " 4onths and 1 day to 4 4onths of Arre"to Mayor and a fine of 5ne <undred Cighty Thousand *even <undred and Cleven Pesos +P1.9,711%99, the total a4ount of the actual da4ages caused to private co4plainant% As to the civil aspect of this case 1hich have been dee4ed instituted 1ith this cri4inal case, Articles ""91 and ""9" of the Civil Code providesA XArt% ""91% ;n contracts and 0uasi#contracts, the da4ages for 1hich the obligor 1ho acted in good faith is liable shall be those that are the natural and probable conse0uences of the breach of the obligation, and 1hich the parties have foreseen or could have reasonably foreseen at the ti4e the obligation 1as constituted% X;n case of fraud, 4alice or 1anton attitude, the obligor shall be responsible for all da4ages 1hich 4ay be reasonably attributed to the non# perfor4ance of the obligation%Y XArt% ""9"% ;n cri4es and 0uasi#delicts, the defendant shall be liable for all da4ages 1hich are the natural and probable conse0uences of the act or o4ission co4plained of% ;t is not necessary that such da4ages have been foreseen or could have reasonably been foreseen by the defendant%Y Thus, accused is conde4ned to pay actual da4ages in the a4ount of 5ne <undred Cighty Thousand *even <undred and Cleven Pesos +Php1.9,711%99,, 1hich represents the "9: do1npay4ent and other 4iscellaneous e3penses paid by the co4plainant plus the a4ount of 'ineteen Thousand T1o <undred 7orty#5ne +Php19,"41%99, Pesos, representing the 1st install4ent pay4ent 4ade by the private co4plainant to the ban8% Accused is, li8e1ise, ordered to pay 4oral da4ages in the a4ount of 5ne <undred Thousand Pesos +Php199,999%99, in vie1 of the 4oral pain suffered by the co4plainantE for e3e4plary da4ages in the a4ount of T1o <undred Thousand Pesos +Php"99,999%99, to serve as deterrent for those business4en si4ilarly inclined to ta8e undue advantage over the public s innocence% As for attorney s fees, the reasonable a4ount of 5ne <undred Thousand Pesos +Php199,999%99, is hereby a1arded% *5 5R!CRC!%L)1M

=osephine *ilo filed a co4plaint for the rescission of the sale and the refund of their 4oney before the !epart4ent of Trade and ;ndustry +!T;,% !uring the confrontation bet1een her and $uinha1a, =osephine learned that $uinha1a had bought the van fro4 @6C before it 1as sold to the4, and after it 1as da4aged in !aet% *ubse0uently, the spouses *ilo 1ithdre1 their co4plaint fro4 the !T;% 5n 7ebruary 14, 199(, =osephine *ilo filed a cri4inal co4plaint for violation of paragraph 1, Article )1. of the Revised Penal Code against $uinha1a in the 5ffice of the City Prosecutor of 'aga City% After the re0uisite investigation, an ;nfor4ation 1as filed against $uinha1a in the 6unicipal Trial Court +6TC, of 'aga City% The inculpatory portion readsA The undersigned Assistant Prosecutor of 'aga City accuses =ai4e $uinha1a of the cri4e of 5T<CR !CCC;T* defined and penaliGed under Art% )1., par% 1 of the Revised Penal Code, co44itted as follo1sA XThat on or about 5ctober 11, 1995, in the City of 'aga, Philippines, and 1ithin the ?urisdiction of this <onorable Court, the said accused, being a 4otor vehicle dealer using the trade na4e of $uinha1a 6otor *ales at Panganiban Avenue, 'aga City, and a dealer of brand ne1 cars, by 4eans of false pretenses and fraudulent acts, did then and there 1illfully, unla1fully and feloniously defraud private co4plainant, =5*CP<;'C P% *;25, as follo1sA said accused by 4eans of false 4anifestations and fraudulent representations, sold to said private co4plainant, as brand ne1, an auto4obile 1ith trade na4e 2#)99 &ersa &an colored beige and the latter paid for the sa4e in the a4ount of P591,999%99, 1hen, in truth and in fact, the sa4e 1as not brand ne1 because it 1as discovered less than a 4onth after it 1as sold to said =osephine P% *ilo that said 2#)99 &ersa &an had defects in the underchassis and stepboard and repairs had already been done thereat even before said sale, as 1as found upon chec8#up by an auto 4echanicE that private co4plainant returned said 2#)99 &ersa &an to the accused and de4anded its replace4ent 1ith a ne1 one or the return of its purchase price fro4 said accused but despite follo1#up de4ands no replace4ent 1as 4ade nor 1as the purchase price returned to private co4plainant up to the present to her da4age and pre?udice in the a4ount of P591,999%99, Philippine Currency, plus other da4ages that 4ay be proven in court%Y L14M $uinha1a testified that he 1as a dealer of brand ne1 Toyota, 6aGda, <onda and 6itsubishi cars, under the business na4e $uinro3 6otor *ales% <e purchased Toyota cars fro4 Toyota Philippines, and 6itsubishi cars fro4 @6C in Paco, 6anila%L15M <e bought the van fro4 the @6C in 6arch 1995, but did not use itE he 4erely had it displayed in his sho1roo4 in 'aga City%L1(M <e insisted that the van 1as a brand ne1 unit 1hen he sold it to the couple% L17M The spouses *ilo bought the van and too8 delivery only after inspecting and ta8ing it for a road tests% L1.M <is sales 4anager, AGotea, infor4ed hi4 so4eti4e in 'ove4ber 1995 that the spouses *ilo had co4plained about the defects under the left front portion of the van% -y then, the van had a 8ilo4eter reading of 4,999 8ilo4eters% L19M <e insisted that he did not 4a8e any false state4ent or fraudulent 4isrepresentation to the couple about the van, either before or si4ultaneous 1ith its purchase% <e posited that the defects noticed by the couple 1ere not 4a?or ones, and could be repaired% <o1ever, the couple refused to have the van repaired and insisted on a refund of their pay4ent for the van 1hich he could not allo1% <e then had the defects repaired by the @6C%L"9M <e clai4ed that the van 1as never involved in any accident, and denied that his driver, 5layan, 4et an accident and sustained physical in?uries 1hen he drove the van fro4 6anila to 'aga City% L"1M <e even denied 4eeting -ayani Pingol%

The trial court declared that the accused 4ade false pretenses or 4isrepresentations that the van 1as a brand ne1 one 1hen, in fact, it had figured in an accident in 2abo, !aet, Ca4arines 'orte, and sustained serious da4ages before it 1as sold to the private co4plainant% $uinha1a appealed the decision to the Regional Trial Court +RTC, of 'aga City, -ranch 19, in 1hich he alleged thatA 1% The lo1er court erred in its finding that the repair 1or8s on the left front portion and underchassis of the van 1as the result of the accident in 2abo, Ca4arines 'orte, 1here its driver suffered an attac8 of hypertension% "% The lo1er court erred in its four +4, findings of fact that accused#appellant 4ade 4isrepresentation or false pretenses Xthat the van 1as a brand ne1 car,Y 1hich constituted deceit as defined in Article )1., paragraph 1 of the Revised Penal Code% )% The lo1er court erred in finding accused#appellant civilly liable to co4plainant =osephine *ilo% -ut, even if there be such liability, the action therefor has already prescribed and the a4ount a1arded 1as e3horbitant, e3cessive and unconscionable%L)"M

;% T<C C5@RT A 8U! CRRC! ;' '5T <52!;'$ T<AT T<C ;'75R6AT;5' C<AR$C! A$A;'*T PCT;T;5'CR !;! '5T ;'75R6 <;6 57 A C<AR$C 57 5T<CR !CCC;T*% ;;% T<C C5@RT A 8U! CRRC! ;' <52!;'$ T<AT PCT;T;5'CR C6P25DC! 7RA@! 5R !CCC;T A* !C7;'C! @'!CR ART;C2C )1., RC&;*C! PC'A2 C5!C% ;;;% T<C C5@RT A 8U! CRRC! ;' '5T C5'*;!CR;'$ T<C C;RC@6*TA'CC* P5;'T;'$ T5 T<C ;''5CC'CC 57 T<C PCT;T;5'CR%L)(M The issues for resolution are +1, 1hether, under the ;nfor4ation, the petitioner 1as charged of other deceits under paragraph 1, Article )1. of the Revised Penal CodeE and +", 1hether the respondent adduced proof beyond reasonable doubt of the petitioner s guilt for the cri4e charged% The petitioner asserts that based on the allegations in the ;nfor4ation, he 1as charged 1ith e"ta<a through false pretenses under paragraph ", Article )15 of the Revised Penal Code% Considering the allegation that the private co4plainant 1as defrauded ofP591,999%99, it is the RTC, not the 6TC, 1hich has e3clusive ?urisdiction over the case% The petitioner 4aintains that he is not estopped fro4 assailing this 4atter because the trial court s lac8 of ?urisdiction can be assailed at any ti4e, even on appeal, 1hich defect cannot even be cured by the evidence adduced during the trial% The petitioner further avers that he 1as convicted of other deceits under paragraph 1, Article )1. of the Revised Penal Code, a cri4e for 1hich he 1as not chargedE hence, he 1as deprived of his constitutional right to be infor4ed of the nature of the charge against hi4% And in any case, even if he had been charged of other deceits under paragraph 1 of Article )1., the CA erred in finding hi4 guilty% <e insists that the private co4plainant 4erely assu4ed that the van 1as brand ne1, and that he did not 4a8e any 4isrepresentation to that effect% <e avers that deceit cannot be co44itted by conceal4ent, the absence of any notice to the public that the van 1as not brand ne1 does not a4ount to deceit% <e posits that based on the principle of ca:eat emptor, if the private co4plainant purchased the van 1ithout first inspecting it, she 4ust suffer the conse0uences% 6oreover, he did not attend to the private co4plainant 1hen they e3a4ined the vanE thus, he could not have deceived the4% The petitioner 4aintains that, absent evidence of conspiracy, he is not cri4inally liable for any representation AGotea 4ay have 4ade to the private co4plainant, that the van 1as brand ne1% <e insists that the respondent 1as estopped fro4 adducing evidence that the vehicle 1as involved in an accident in !aet, Ca4arines 'orte on 6arch 17, 1995, because such fact 1as not alleged in the ;nfor4ation% ;n its co44ent on the petition, the 5ffice of the *olicitor $eneral avers that, as gleaned fro4 the 4aterial aver4ents of the ;nfor4ation, the petitioner 1as charged 1ith other deceits under paragraph 1, Article )1. of the Revised Penal Code, a felony 1ithin the e3clusive ?urisdiction of the 6TC% The petitioner 1as correctly charged and convicted, since he falsely clai4ed that the vehicle 1as brand ne1 1hen he sold the sa4e to the private co4plainant% The petitioner s conceal4ent of the fact that the van sustained serious da4ages as an after4ath of the accident in !aet, Ca4arines 'orte constituted deceit 1ithin the 4eaning of paragraph 1 of Article )1.% The ;nfor4ation filed against the petitioner readsA

$uinha1a insisted that he never tal8ed to the couple about the sale of the vanE hence, could not have 4ade any false pretense or 4isrepresentation% 5n August 1, "99", the RTC affir4ed the appealed ?udg4ent%L))M $uinha1a filed a petition for revie1 1ith the Court of Appeals +CA,, 1here he averred thatA ; T<C C5@RT A 8U! CRRC! ;' C5'&;CT;'$ PCT;T;5'CR 57 T<C CR;6C 57 5T<CR !CCC;T* A'! *C'TC'C;'$ <;6 T5 *@77CR ;6PR;*5'6C'T 57 TB5 65'T<* A'! 5'C !AD T5 75@R 65'T<* 57 A554ST! MA1!5 A'! T5 PAD 7;'C ;' T<C A65@'T 57 P1.9,711%99% ;; T<C C5@RT A 8U! CRRC! ;' 5R!CR;'$ PCT;T;5'CR T5 PAD PR;&ATC C56P2A;'A'T P1.9,711%99 A* !5B'PAD6C'T,P19,"41%99 A* 7;R*T ;'*TA226C'T B;T< @CP- 'A$A, P199,999%99 A* 65RA2 !A6A$C*, P"99,999%99 A* CJC6P2ARD !A6A$C* A'! P199,999%99 A* ATT5R'CD * 7CC*%L)4M 5n =anuary 5, "994, the CA rendered ?udg4ent affir4ing 1ith 4odification the decision of the RTC% The <allo of the decision readsA *9ERE(ORE, pre4ises considered, the instant petition is hereby partially granted insofar as the follo1ing are concernedA a, the a1ard of 4oral da4ages is hereby RE6UCE6 to P19,999%99 and b, the a1ard of attorney s fees and e3e4plary da4ages are hereby 6ELE"E6 for lac8 of factual basis% ;n all other respects, Be affir4 the decision under revie1%Costs against petitioner% *5 5R!CRC!%L)5M The CA ruled that the private co4plainant had the right to assu4e that the van 1as brand ne1 because $uinha1a held hi4self out as a dealer of brand ne1 vans% According to the appellate court, the act of displaying the van in the sho1roo4 1ithout notice to any 1ould#be buyer that it 1as not a brand ne1 unit 1as tanta4ount to deceit% Thus, in concealing the van s true condition fro4 the buyer, $uinha1a co44itted deceit% The appellate court denied $uinha1a s 4otion for reconsideration, pro4pting hi4 to file the present petition for revie1 oncertiorari, 1here he contendsA

That on or about 5ctober 11, 1995, in the City of 'aga, Philippines, and 1ithin the ?urisdiction of this <onorable Court, the said accused, being a 4otor vehicle dealer using the trade na4e of $uinha1a 6otor *ales at Panganiban Avenue, 'aga City, and dealer of brand ne1 cars, by 4eans of false pretenses and fraudulent acts, did then and there, 1illfully, unla1fully and feloniously defraud private co4plainant, =5*CP<;'C P% *;25, as follo1sA said accused by 4eans of false 4anifestations and fraudulent representations, sold to said private co4plainant, as brand ne1, an auto4obile 1ith trade na4e 2#)99 &ersa &an colored beige and the latter paid for the sa4e in the a4ount of P591,999%99, 1hen, in truth and in fact, the sa4e 1as not brand ne1 because it 1as discovered less than a 4onth after it 1as sold to said =osephine P% *ilo that said 2#)99 &ersa &an had defects in the underchassis and stepboard and repairs have already been done thereat even before said sale, as 1as found upon chec8#up by an auto 4echanicE that private co4plainant returned said 2#)99 &ersa &an to the accused and de4anded its replace4ent 1ith a ne1 one or the

return of its purchase price fro4 said accused but despite follo1#up de4ands no replace4ent 1as 4ade nor 1as the purchase price returned to private co4plainant up to the present to her da4age and pre?udice in the a4ount of P591,999%99, Philippine Currency, plus other da4ages that 4ay be proven in court% C5'TRARD T5 2AB%L)7M

"%

-y 4eans of any of the follo1ing false pretenses or fraudulent acts e3ecuted prior to or si4ultaneously 1ith the co44ission of the fraudA +a, -y using fictitious na4e, or falsely pretending to possess po1er, influence, 0ualifications, property, credit, agency, business or i4aginary transactionsE or by 4eans of other si4ilar deceits%

*ection (, Rule 119 of the Rules of Cri4inal Procedure re0uires that the ;nfor4ation 4ust allege the acts or o4issions co4plained of as constituting the offenseA *CC% (% Su<<iciency o< complaint or in<ormation % K A co4plaint or infor4ation is sufficient if it states the na4e of the accusedE the designation of the offense given by the statuteE the acts or o4issions co4plained of as constituting the offenseE the na4e of the offended partyE the appro3i4ate date of the co44ission of the offenseE and the place 1here the offense 1as co44itted% Bhen an offense is co44itted by 4ore than one person, all of the4 shall be included in the co4plaint or infor4ation% The real nature of the offense charged is to be ascertained by the facts alleged in the body of the ;nfor4ation and the punish4ent provided by la1, not by the designation or title or caption given by the Prosecutor in the ;nfor4ation% L).M The ;nfor4ation 4ust allege clearly and accurately the ele4ents of the cri4e charged% L)9M As can be gleaned fro4 its aver4ents, the ;nfor4ation alleged the essential ele4ents of the cri4e under paragraph 1, Article )1. of the Revised Penal Code% The false or fraudulent representation by a seller that 1hat he offers for sale is brand ne1 +1hen, in fact, it is not, is one of those deceitful acts envisaged in paragraph 1, Article )1. of the Revised Penal Code% The provision readsA Art% )1.% !t%er deceit"/ K The penalty of arre"to mayor and a fine of not less than the a4ount of the da4age caused and not 4ore than t1ice such a4ount shall be i4posed upon any person 1ho shall defraud or da4age another by any other deceit not 4entioned in the preceding articles of this chapter%

The fraudulent representation of the seller, in this case, that the van to be sold is brand ne1, is not the deceit conte4plated in the la1% @nder the principle of eNu"dem generi", 1here a state4ent ascribes things of a particular class or 8ind acco4panied by 1ords of a generic character, the generic 1ords 1ill usually be li4ited to things of a si4ilar nature 1ith those particularly enu4erated unless there be so4ething in the conte3t to the contrary% L4)M =urisdiction is conferred by the Constitution or by la1% ;t cannot be conferred by the 1ill of the parties, nor di4inished or 1aived by the4% The ?urisdiction of the court is deter4ined by the aver4ents of the co4plaint or ;nfor4ation, in relation to the la1 prevailing at the ti4e of the filing of the cri4inal co4plaint or ;nfor4ation, and the penalty provided by la1 for the cri4e charged at the ti4e of its co44ission% *ection )" of -atas Pa4bansa -lg% 1"9, as a4ended by Republic Act 'o% 7(91, provides that the 6TC has e3clusive ?urisdiction over offenses punishable 1ith i4prison4ent not e3ceeding si3 years, irrespective of the a4ount of the fineA *ec% )"% Curi"diction o< Metropolitan Trial ;ourt"# Municipal Trial ;ourt" and Municipal ;ircuit Trial ;ourt" in ;riminal ;a"e" % K C3cept in cases falling 1ithin the e3clusive original ?urisdiction of Regional Trial Courts and of the *andiganbayan, the 6etropolitan Trial Courts, 6unicipal Trial Courts, and 6unicipal Circuit Trial Courts shall e3erciseA +1, C3clusive original ?urisdiction over all violations of city or 4unicipal ordinances co44itted 1ithin their respective territorial ?urisdictionE and +", C3clusive original ?urisdiction over all offenses punishable 1ith i4prison4ent not e3ceeding si3 +(, years irrespective of the a4ount of fine, and regardless of other i4posable accessory or other penalties, including the civil liability arising fro4 such offenses or predicated thereon, irrespective of 8ind, nature, value or a4ount thereofA Pro:ided# %o(e:er, That in offenses involving da4age to property through cri4inal negligence, they shall have e3clusive original ?urisdiction thereof% *ince the felony of other deceits is punishable by arre"to mayor, the 6TC had e3clusive ?urisdiction over the offense lodged against the petitioner% 5n the 4erits of the petition, the Court agrees 1ith the petitioner s contention that there is no evidence on record that he 4ade direct and positive representations or assertions to the private co4plainant that the van 1as brand ne1% The record sho1s that the private co4plainant and her husband Ralph *ilo 1ere, in fact, attended to by AGotea% <o1ever, it bears stressing that the representation 4ay be in the for4 of 1ords, or conduct resorted to by an individual to serve as an advantage over another% ;ndeed, as declared by the CA based on the evidence on recordA Petitioner cannot barefacedly clai4 that he 4ade no personal representation that the herein sub?ect van 1as brand ne1 for the si4ple reason that no1here in the records did he ever refute the allegation in the co4plaint, 1hich held hi4 out as a dealer of brand ne1 cars% ;t has thus beco4e ad4itted that the petitioner 1as dealing 1ith brand ne1 vehicles K a fact 1hich, up to no1, petitioner has not categorically denied% Therefore, 1hen private co4plainant 1ent to petitioner s sho1roo4, the for4er had every right to assu4e that she 1as being sold brand ne1 vehicles there being nothing to indicate other1ise% -ut as it turned out, not only did private co4plainant get a

This provision 1as ta8en fro4 Article 554 of the *panish Penal Code 1hich providesA 4l Eue de<raudare o perNudicare a otro# u"ando de cualEuier engaQo Eue no "e %alle e@pre"ado en lo" artRculo" anteriore" de e"ta "ecciSn# "erT ca"tigado con una multa del tanto al duplo del perNuicio Eue irrogare. y en ca"o de reincidencia# con la del duplo y arre"to mayor en "u grado medio al mT@imo% 7or one to be liable for Xother deceitsY under the la1, it is re0uired that the prosecution 4ust prove the follo1ing essential ele4entsA +a, false pretense, fraudulent act or pretense other than those in the preceding articlesE +b, such false pretense, fraudulent act or pretense 4ust be 4ade or e3ecuted prior to or si4ultaneously 1ith the co44ission of the fraudE and +c, as a result, the offended party suffered da4age or pre?udice% L49M ;t is essential that such false state4ent or fraudulent representation constitutes the very cause or the only 4otive for the private co4plainant to part 1ith her property% The provision includes any 8ind of conceivable deceit other than those enu4erated in Articles )15 to )17 of the Revised Penal Code%L41M ;t is intended as the catchall provision for that purpose 1ith its broad scope and intend4ent% L4"M Thus, the petitioner s reliance on paragraph "+a,, Article )15 of the Revised Penal Code is 4isplaced% The said provision readsA

defective and used van, the vehicle had also earlier figured in a road accident 1hen driven by no less than petitioner s o1n driver%L44M

repairedE they 4aintained that the van 1as brand ne1, 8no1ing that the private co4plainant 1as going to use it for her gar4ent business% Thus, the private co4plainant bought the van, believing it 1as brand ne1% *ignificantly, even 1hen the petitioner 1as apprised that the private co4plainant had discovered the van s defects, the petitioner agreed to replace the van, but changed his 4ind and insisted that it 4ust be first sold% The petitioner is not relieved of his cri4inal liability for deceitful conceal4ent of 4aterial facts, even if the private co4plainant 4ade a visual inspection of the van s interior and e3terior before she agreed to buy it and failed to inspect its under chassis% Case la1 has it that 1here the vendee 4ade only a partial investigation and relies, in part, upon the representation of the vendee, and is deceived by such representation to his in?ury, he 4ay 4aintain an action for such deceit% L54M The seller cannot be heard to say that the vendee should not have relied upon the fraudulent conceal4entE that negligence, on the part of the vendee, should not be a defense in order to prevent the vendor fro4 un?ustifiably escaping 1ith the fruits of the fraud% ;n one case,L55M the defendant 1ho repainted an auto4obile, 1or8ed it over to rese4ble a ne1 one and delivered it to the plaintiff 1as found to have 1arranted and represented that the auto4obile being sold 1as ne1% This 1as found to be Xa false representation of an e3isting factE and, if it 1as 4aterial and induced the plaintiff to accept so4ething entirely different fro4 that 1hich he had contracted for, it clearly 1as a fraud 1hich, upon its discovery and a tender of the property bac8 to the seller, LitM entitled the plaintiff to rescind the trade and recover the purchase 4oney%Y L5(M 5n the petitioner s insistence that the private co4plainant 1as proscribed fro4 charging hi4 1ith e"ta<a based on the principle of ca:eat emptor, case la1 has it that this rule only re0uires the purchaser to e3ercise such care and attention as is usually e3ercised by ordinarily prudent 4en in li8e business affairs, and only applies to defects 1hich are open and patent to the service of one e3ercising such care%L57M ;n an avuncular case, it 1as held thatA Z The rule of caveat e4ptor, li8e the rule of s1eet charity, has often been invo8ed to cover a 4ultitude of sinsE but 1e thin8 its protecting 4antle has never been stretched to this e3tent% ;t can only be applied 1here it is sho1n or conceded that the parties to the contract stand on e0ual footing and have e0ual 8no1ledge or e0ual 4eans of 8no1ledge and there is no relation of trust or confidence bet1een the4% -ut, 1here one party underta8es to sell to another property situated at a distance and of 1hich he has or clai4s to have personal 8no1ledge and of 1hich the buyer 8no1s nothing e3cept as he is infor4ed by the seller, the buyer 4ay rightfully rely on the truth of the seller s representations as to its 8ind, 0uality, and value 4ade in the course of negotiation for the purpose of inducing the purchase% ;f, in such case, the representations prove to be false, neither la1 nor e0uity 1ill per4it the seller to escape responsibility by the plea that the buyer ought not to have believed hi4 or ought to have applied to other sources to ascertain the facts% ZL5.M

;ndeed, the petitioner and AGotea obdurately insisted in the trial court that the van 1as brand ne1, and that it had never figured in vehicular accident% This representation 1as accentuated by the fact that the petitioner gave the *ervice 6anual to the private co4plainant, 1hich 4anual contained the 1arranty ter4s and conditions, signifying that the van 1as Xbrand ne1%Y -elieving this good faith, the private co4plainant decided to purchase the van for her buy#and#sell and gar4ent business, and even 4ade a do1npay4ent of the purchase price% As supported by the evidence on record, the van 1as defective 1hen the petitioner sold it to the private co4plainant% ;t had ditched onto the shoulder of the high1ay in !aet, Ca4arines 'orte on its 1ay fro4 6anila to 'aga City% The van 1as da4aged and had to be repairedE the rod end and bushing had to be replaced, 1hile the left front stabiliGer 1hich gave out a persistent annoying sound 1as repaired% *o4e parts underneath the van 1ere even 1elded together% AGotea and the petitioner deliberately concealed these facts fro4 the private co4plainant 1hen she bought the van, obviously so as not to derail the sale and the profit fro4 the transaction% The CA is correct in ruling that fraud or deceit 4ay be co44itted by o4ission% As the Court held in People :/ ala"aAL45M 7raud, in its general sense, is dee4ed to co4prise anything calculated to deceive, including all acts, o4issions, and conceal4ent involving a breach of legal or e0uitable duty, trust, or confidence ?ustly reposed, resulting in da4age to another, or by 1hich an undue and unconscientious advantage is ta8en of another% ;t is a generic ter4 e4bracing all 4ultifarious 4eans 1hich hu4an ingenuity can device, and 1hich are resorted to by one individual to secure an advantage over another by false suggestions or by suppression of truth and includes all surprise, tric8, cunning, disse4bling and any unfair 1ay by 1hich another is cheated% !n t%e ot%er %and# deceit i" t%e <al"e repre"entation o< a matter o< <act (%et%er by (ord" or conduct# by <al"e or mi"leading allegation"# or by concealment o< t%at (%ic% "%ould %a:e been di"clo"ed (%ic% decei:e" or i" intended to decei:e anot%er "o t%at %e "%all act upon it to %i" legal inNury%L4(M ;t is true that 4ere silence is not in itself conceal4ent% Conceal4ent 1hich the la1 denounces as fraudulent i4plies a purpose or design to hide facts 1hich the other party sought to 8no1% L47M 7ailure to reveal a fact 1hich the seller is, in good faith, bound to disclose 4ay generally be classified as a deceptive act due to its inherent capacity to deceive% L4.M *uppression of a 4aterial fact 1hich a party is bound in good faith to disclose is e0uivalent to a false representation% L49M 6oreover, a representation is not confined to 1ords or positive assertionsE it 4ay consist as 1ell of deeds, acts or artifacts of a nature calculated to 4islead another and thus allo1 the fraud#feasor to obtain an undue advantage% L59M 7raudulent nondisclosure and fraudulent conceal4ent are of the sa4e genre% 7raudulent conceal4ent presupposes a duty to disclose the truth and that disclosure 1as not 4ade 1hen opportunity to spea8 and infor4 1as presented, and that the party to 1ho4 the duty of disclosure, as to a 4aterial fact 1as due, 1as induced thereby to act to his in?ury%L51M Article 1).9 of the 'e1 Civil Code provides that failure to disclose facts 1hen there is a duty to reveal the4 constitutes fraud% ;n a contract of sale, a buyer and seller do not deal fro4 e0ual bargaining positions 1hen the latter has 8no1ledge, a 4aterial fact 1hich, if co44unicated to the buyer, 1ould render the grounds unacceptable or, at least, substantially less desirable%L5"M ;f, in a contract of sale, the vendor 8no1ingly allo1ed the vendee to be deceived as to the thing sold in a 4aterial 4atter by failing to disclose an intrinsic circu4stance that is vital to the contract, 8no1ing that the vendee is acting upon the presu4ption that no such fact e3ists, deceit is acco4plished by the suppression of the truth% L5)M ;n the present case, the petitioner and AGotea 8ne1 that the van had figured in an accident, 1as da4aged and had to be repaired% 'evertheless, the van 1as placed in the sho1roo4, thus 4a8ing it appear to the public that it 1as a brand ne1 unit% The petitioner 1as 4andated to reveal the foregoing facts to the private co4plainant% -ut the petitioner and AGotea even obdurately declared 1hen they testified in the court a Euo that the vehicle did not figure in an accident, nor had it been

;t bears stressing that AGotea and the petitioner had every opportunity to reveal to the private co4plainant that the van 1as defective% They resolved to 4aintain their silence, to the pre?udice of the private co4plainant, 1ho 1as a gar4ent 4erchant and 1ho had no special 8no1ledge of parts of 4otor vehicles% -ased on the surrounding circu4stances, she relied on her belief that the van 1as brand ne1% ;n fine, she 1as the innocent victi4 of the petitioner s fraudulent nondisclosure or conceal4ent% The petitioner cannot pin cri4inal liability for his fraudulent o4ission on his general 4anager, AGotea% The t1o are e0ually liable for their collective fraudulent silence% Case la1 has it that 1herever the doing of a certain act or the transaction of a given affair, or the perfor4ance of certain business is confided to an agent, the authority to so act 1ill, in accordance 1ith a general rule often referred to, carry 1ith it by i4plication the authority to do all of the collateral acts 1hich are the natural and ordinary incidents of the 4ain act or business authoriGed% L59M The 6TC sentenced the petitioner to suffer i4prison4ent of fro4 t1o 4onths and one day, as 4ini4u4, to four 4onths ofarre"to mayor, as 4a3i4u4% The CA affir4ed the penalty i4posed by the trial court% This is erroneous% *ection " of Act 419), as a4ended, other1ise 8no1n as the ;ndeter4inate *entence 2a1, provides that the la1 1ill not apply if the 4a3i4u4 ter4 of i4prison4ent does not e3ceed one yearA

*CC% "% This Act shall not apply to persons convicted of offenses punished 1ith death penalty or life#i4prison4entE to those convicted of treason, conspiracy or proposal to co44it treasonE to those convicted of 4isprision of treason, rebellion, sedition or espionageE to those convicted of piracyE to those 1ho are habitual delin0uentsE to those 1ho shall have escaped fro4 confine4ent or evaded sentenceE to those 1ho having been granted conditional pardon by the Chief C3ecutive shall have violated the ter4s thereofE to those 1hose 4a3i4u4 ter4 of i4prison4ent does not e3ceed one year, not to those already sentenced by final ?udg4ent at the ti4e of approval of this Act, e3cept as provided in *ection 5 hereof% +As a4ended by Act 'o% 4""5%,

;n this case, the 4a3i4u4 ter4 of i4prison4ent i4posed on the petitioner 1as four 4onths and one day of arre"to mayor% <ence, the 6TC 1as proscribed fro4 i4posing an indeter4inate penalty on the petitioner% An indeter4inate penalty 4ay be i4posed if the 4ini4u4 of the penalty is one year or less, and the 4a3i4u4 e3ceeds one year% 7or e3a4ple, the trial court 4ay i4pose an indeter4inate penalty of si3 4onths of arre"to mayor, as 4ini4u4, to t1o years and four 4onths of pri"ion correccional, as 4a3i4u4, since the 4a3i4u4 ter4 of i4prison4ent it i4posed e3ceeds one year% ;f the trial court opts to i4pose a penalty of i4prison4ent of one year or less, it should not i4pose an indeter4inate penalty, but a straight penalty of one year or less instead% Thus, the petitioner 4ay be sentenced to a straight penalty of one year, or a straight penalty of less than one year, i/e/# ten 4onths or eleven 4onths% Be believe that considering the attendant circu4stances, a straight penalty of i4prison4ent of si3 4onths is reasonable% Confor4ably 1ith Article )9 in relation to paragraph ), Article ). of the Revised Penal Code, the petitioner shall suffer subsidiary i4prison4ent if he has no property 1ith 1hich to pay the penalty of fine% !N L!G9" O( ALL "9E (OREGO!NG, the petition is 6EN!E6% The assailed !ecision and Resolution areA((!RME6 *!"9 MO6!(!CA"!ON% Considering the surrounding circu4stances of the case, the petitioner is hereby sentenced to suffer a straight penalty of si3 +(, 4onths i4prison4ent% The petitioner shall suffer subsidiary i4prison4ent in case of insolvency% Costs against the petitioner% SO OR6ERE6%

5n *epte4ber ), 191), defendant filed his ans1er in 1riting, ad4itting certain paragraphs of the foregoing co4plaint but specifically denying the rest, and alleging as a special defense that the building the plaintiff occupies had been recently finished, the construction thereof having been under the direction and inspection of an engineer, after approval of the plans and specifications by the engineering and sanitation depart4ents of the city of 6anilaE that it 1as opened for use after acceptation of the 1or8 by the city engineer and approval by the said depart4ents of engineering and sanitationE that about 5 oNcloc8 in the afternoon of April 14, 191), there fell over the city of 6anila a torrential rain the heaviest fro4 the 4onth of =anuary of that yearE that because of the large a4ount of 1ater and the e3traordinary violence of the do1npour 4any buildings in the Cscolta and ad?acent business sections, not only 4any buildings of 1ood 4erely, but even those of reinforced concrete, 1ere flooded by the overflo1ing of the drains, gutters, and by filtrations, because the gutters of the eaves and roofs 1ere inade0uate for holding the e3traordinarily e3cessive rainfall on that occasionE that the 1etting the plaintiffNs 4erchandise sustained fro4 that rainfall 1as not caused 1holly by the lea8s and drips but 1as in large part due to the i4proper situation or location of said 4erchandise inside the buildingE that in neither case 1as there fault of negligence on defendantNs part, said occurrence having been unforeseen, or, even being foreseen, unavoidableE that it is true an inventory of the plaintiffNs da4aged goods 1as 4ade in the presence of the interested parties before a notary publicE that said plaintiff presented to the defendant his clai4 for the da4ages sustained, as8ing the latter to pay the4E that the truth is that the defendant never authoriGed plaintiff to sell the said 4erchandise inventoried, as set forth in the co4plaintE that it is not the truth the defendant pro4ised, either e3pressly or tacitly, to 4a8e good to the plaintiff any loss sustained through the difference bet1een the price of the articles in good condition and the price thereof after being da4aged, for, as recorded in the docu4ent dra1n up on April 15, 191), signed by the plaintiff, the defendantNs intervention therein did not signify a tacit acceptance of any liability for the alleged loss sustained by the plaintiff, but 1as 4erely to deter4ine the cause thereof and the 4anner in 1hich the 1ater got into the building% As another special defense he alleged that on August ", 191), defendant transferred all his o1n rights, clai4s, and obligations in the lease, as 1ell as the absolute o1nership of the building occupied by plaintiffNs store, to *e/oras Ro4ana, Cecilia, 2uisa, and 6aria, of the surna4e Tantungco y $uepangco 1ho, by agree4ent set do1n in the instru4ent of transfer, too8 over all the pre4ises covered by the lease 4ade by the defendant to the plaintiff fro4 the date thereof, to 1it, 6arch 15, 191), and subse0uently they 1ere parties directly interested in the present suit% After trial and introduction of the evidence by both parties, the court rendered the ?udg4ent that has been set forth, 1hereupon defendant saved his e3ception and filed a 1ritten 4otion for reopening of the case and a ne1 trial% This 4otion 1as denied, 1ith e3ception on appellantNs part and presentation of the corresponding bill of e3ceptions, 1hich 1as approved and for1arded to the cler8 of this court% The 0uestion raised in this case 'o% 1999(, and in t1o others of the sa4e nature, 'os% 19997 and 1999., is 1hether the o1ner of a tene4ent occupied by each of the defendants in the three cases cited, each in his respective roo4s or apart4ent, is responsible for the deterioration through the 1etting of the cloth and other goods that said plaintiffs as tenants had in sa4e and its storeroo4s, as a result of the torrential and e3traordinary rain 1hich fell upon the city for nearly an hour in the afternoon of April 14, 191)% !efendantNs building, co4posed of four apart4ents, had ?ust been finished and a fe1 4onths ago 1as inspected by the city engineer and approved for the use for 1hich it 1as intended% There is no record that said building presented any indication or sign of having defects in its roof such as 4ight cause lea8s and da4age to the 4erchandise placed therein, to enable the Chinese contractor 6achuca to hand over the sa4e, as finished, the 1or8 1as previously approved by the architect 1ho superintended the construction and finally by the city engineer, 1ho authoriGed the use and occupancy of the building for leasing, therefore it is to be presu4ed, in the absence of proof to the contrary, that the o1ner 1ho invested 4any thousands of pesos in the construction 1ould not have approved or accepted the 1or8 on his building unless he had been convinced that the building, finished by the contractor, and approved by his architect 1ho superintended the 1or8 and by the city engineer, had been properly construed, and therefore that in leasing it to the plaintiff#tenants he acted in the greatest good faithE that they on their part, in ta8ing over and occupying the leased pre4ises, did so satisfied and persuaded that the building 1as ade0uate and 1ould serve for the use they had for it and that it had no defect 1hich 1ould cause any in?ury or loss to their interests% The principal rights and obligations of lessor and lessee are co4prised in the t1o follo1ing articles of the Civil Code %>ART% 1554% The lessee is obligedA 1% To deliver to the lessee the thing 1hich is the ob?ect of the contract% "% To 4a8e thereon, during the lease, all the necessary repairs in order to preserve it in condition to serve for the purpose to 1hich it 1as destined%

G.R. No. 10006 September 18, 1@15 &AP ?!M C9UAN, plaintiff#appellee, vs%AL(ONSO M ."!AO:U!, defendant#appellant% "ORRES, J.: This is an appeal filed through a bill of e3ceptions by counsel for the defendant fro4 the ?udg4ent of 6arch "9, 1914, 1hereby the <onorable A%*% Crossfield, ?udge, sentenced hi4 to pay to the plaintiff the su4 of P1,919 1ith legal interest at the rate of ( per cent a year, fro4 August 4, 199), and the costs% @nder the rate of August 4, 191), counsel for the plaintiff filed a 1ritten co4plaint in the Court of 7irst ;nstance of 6anila, alleging as his first cause of action that on 6arch 15, 191), plaintiff leased the building at 'o% "1. Calle Rosario, o1ned by the defendant, up to !ece4ber )1 of the sa4e year, underta8ing to pay therefor the su4 of P)19 fro4 said 6arch 15 to =une )9, 191), and P)15 fro4 the subse0uent first of =uly until the ter4ination of the leaseE and that on April 14, 191), because of the lea8s in the roof of the storeroo4 of said building, 1ithout fault or negligence on the plaintiffNs part, so4e of his 4erchandise stored in said storeroo4 1as so 1et and da4aged as to cause hi4 a loss a4ounting to P1,1(9% <e set forth as his second cause of action that subse0uent to this occurrence, to 1it, on April 15, 191), a list of the da4aged goods 1as 4ade out in the presence of the plaintiff, the defendant and a notary publicE that after1ards the defendant e3pressly authoriGed the plaintiff to sell he da4aged goods at any price, pro4ising to pay the difference bet1een the selling price and the regular price of the articles in good conditionE that by virtue of said authoriGation and pro4ise, plaintiff accordingly disposed of all the da4aged goods that could be sold, at a loss of P1,1(9E and that not1ithstanding the repeated de4ands 4ade upon hi4 to pay this a4ount, according to pro4ise, said defendant had refused and refuses to pay% Therefore, ?udg4ent is prayed against the defendant, sentencing hi4 to pay to the plaintiff the su4 of P1,1(9 1ith legal interest, and the costs%

)% To 4aintain the lessee in the peaceful en?oy4ent of the lease during all the ti4e of the contract% ART% 1555% The lessee is obligedA 1% To pay the price of the lease in the 4anner agreed upon% "% To use the thing leased as a diligent father of a fa4ily 1ould, applying the sa4e to the use agreed uponE and, in the absence of an agree4ent, to the use 1hich 4ay be inferred fro4 the nature of the thing leased according to the custo4 of the land% )% To pay the e3penses arising fro4 the instru4ent constituting the contract% ART% 155(% ;f the lessor or lessee should not co4ply 1ith the obligations 4entioned in the preceding articles, they 4ay re0uest the rescission of the contract and inde4nity for losses and da4ages, or only the latter, leaving the contract in force%> !id the defendant o1ner of the building in 0uestion fail to carry out any obligation i4posed by the la1 in the foregoing articles, or at least so4e obligation i4posed in the leaseF There is no evidence in the case that he failed in the perfor4ance of the obligations he assu4ed in e3ecuting the lease, nor does there appear to have been stipulated therein the liability no1 i4puted to hi4% Article 15(" of the sa4e code readsA >;f, at the ti4e of the lease of the estate, the condition of the sa4e 1as not 4entioned, the la1 presu4es that the lessee received it in good condition, unless there be proof to the contrary%> <ave the plaintiffs proven that 1hen they accepted defendantNs building it 1as uninhabitable and inade0uate for the use for 1hich they leased itF There is no evidence in the case to prove such a circu4stance% 'or have the plaintiffs the4selves even in the least 1ay proven that the three of the4, or any one of the4, notified the defendant after they had occupied the pre4ises that repairs 1ere necessary thereon for 8eeping the sa4e in condition suitable for the use intended, and never did they notify the defendant that the roof 1as defective or had holes or crac8s that 4ight cause lea8age and the 1etting of the 4erchandise 1ithin the building% The fact is that neither the lessor no the lessees 8ne1 that the roof 1as defective and 1as going to lea8 1hen it rained, for they only beca4e a1are of the lea8s during the rainstor4 on the afternoon of the day 4entioned, April 14E and therefore only on the hypothesis that the lessor had 8no1n of such defect and had concealed it fro4 the plaintiffs could he be held responsible for the conse0uences thereof on account of the lea8ages that occurred, especially 1hen it has not been duly proven that the defendant lessor failed to perfor4 any of the obligations i4posed by the la1 in the article 0uoted, 1554, by 1hich he 4ight be held responsible to the plaintiffs for da4ages and losses for 1hich inde4nity is un1arrantedly sought% -esides the articles 0uoted therein is nothing in the Civil Code by virtue 1hereof the lessor 4ay be declared responsible for the da4ages and losses the lessees 4ay have sustained as a conse0uence of the lea8s in the roof of the building leased and for the other troubles they have encountered% ;f a a conse0uence of the torrential rainfall 4entioned, 1hich in scarcely an hour filled the s0uares, streets and lots of the city of 6anila, and if as a result of the large 0uantity of 1ater that fell the yard of the pre4ises in 0uestion 1as flooded and the roof lea8ed, there being no outlet for the 1ater through the drain#pipes, by reason 1hereof the plaintiffs had to brea8 open four bell traps in the yard so that the 1ater 1ould 0uic8ly and s1iftly flo1 a1ay thus preventing a greater inundation of the yard of the pre4ises, the occurrence 1as undoubtedly due to <orce maNeure, being a fortuitous event 1hich could not have been foreseen by the o1ner or the plaintiffs#tenants, or 4any other proprietors of stores 1hose interiors 1ere flooded as a result of that heavy rainfall, and conse0uently the da4ages and losses the 1ater inflicted upon the plaintiffs could not be ascribed to the o1ner of the pre4ises so as to hold hi4 liable for the inde4nity% Article 1195 of the sa4e Code prescribesA >'o one shall be liable for events 1hich could not be foreseen, or 1hich having been foreseen 1ere inevitable, 1ith the e3ception of the cases e3pressly 4entioned in the la1 or those in 1hich the obligation so declares%> The 1etting sustained by the goods and 4erchandise of the plaintiffs as a conse0uence of the heavy torrential rainfall on the afternoon 4entioned, 1hich caused lea8s in the building and flooded the yard, is not a case e3pressly 4entioned by the la1 for 1hich the o1ner of the pre4ises is responsible, and further it does not appear to have been provided against in the lease to be seen in folio 15, letter A, by virtue 1hereof the lessor 1ould be liable to an inde4nity for the da4ages and losses cause

his tenants by that rainfallE and so, in accordance 1ith the provisions of the article 0uoted above, the defendant is not responsible for the results of the torrential rainfall that has been described% A fortuitous event is an accident independent of the obligorNs 1ill to carry out so4e stipulation and it is plain that for hi4 to escape the i4putation of not perfor4ing his obligation he 4ust be placed in a situation arising fro4 an unforeseen event, or in one 1here, even if he had foreseen it, still he could not have avoided it, by reason of the fact that its une3pectedness and inevitability places it beyond hu4an control% ;t 1as not stipulated in the lease e3ecuted bet1een the defendant and the plaintiffs that, if the goods and 4erchandise the defendant#tenants 4ight have on the pre4ises should get 1et, the defendant 1ould as lessor thereof be liable to inde4nity , nor have the plaintiffs been able to allege such liability in their clai4E and 1e do not 8no1 of any article of the Civil Code included in the chapter 1hich deals 1ith leasing of urban property that 4a8es any provision for such liability on the part of the o1ner of the property% ;f, on the said afternoon of April 14, it rained so heavily and so abundantly that the proof of the building occupied by the plaintiffs, even though in good condition, according to the 4unicipal architectNs certificate, lea8ed, and if as a conse0uence of that torrential rainfall said 4erchandise of the plaintiffs got 1et, the occurrence is not i4putable to the lessor o1ner of the building, nor according to any evidence in the case to the lessorNs fault% -eing evidently a fortuitous event, unforeseeable by any of the litigating parties, inevitable on account of <orce maNeure, the case discloses no proof of any 8ind that the defendant Tiao0ui 8ne1 that the roof of the building leased to the plaintiffs had crac8s or defects in it that 1ould cause lea8ages, ?ust as the plaintiff#tenants did not 8no1 that fact the4selves, for other1ise they 1ould have notified the defendant#lessor in due season and de4anded repair thereof so as to avoid in?ury to their interests% 'obody, neither the defendant nor the plaintiffs, could have been foreseen that on the said afternoon of April 14 it 1as going to rain in torrents and in an e3traordinary 4anner, 1herefore it is neither right nor proper to ascribe the 1etting of the 4erchandise of the plaintiff#tenants to negligence, carelessness, or fault on the defendantNs part% ;t 1as a case of accident and <orce maNeure 1hich could not have been foreseen and 1hich nobody could have prevented, and the fact that the defendant repaired and fi3ed the lea8s in the roof the ne3t day cannot be ta8en as proof of his liability, for he did not 8no1 and could not have foreseen that it 1as going to rain in torrents the said afternoon and that the roof of the building 1ould lea8 and sho1 defects% ;t 1ould be an absurdity 1hich the la1 cannot authoriGe for said tenant to be entitled to clai4 da4ages fro4 the o1ner because the roof a building lea8ed and so4e of the tenantNs good got 1et, for no provision of the la1 relating to leases of urban property places any such obligation on the o1ner to pay inde4nity for da4ages, 1hen he hi4self did not 8no1 that there 1as any defect to accuse such da4ages% Article 155) of the Civil Code declares that the provisions relating to 1arranty contained in the title of purchase and sale are applicable to leases% ;n connection 1ith a lease 1arranty is the obligation to repair or correct the error 1hereunder the lessee too8 over the property leased, but 1hen the la1 declares that the lessor 4ust 1arrant the thing leased, but 1hen the la1 declares that the lessor 4ust 1arrant the thing leased, it is not to be understood that he 4ust also inde4nify the lessee% 2iability for the 1arranty is not e0uivalent to liability in da4ages, as the latter is an obligation distinct fro4 the for4er% 7or proper understanding of the provisions of articles 14.4 and 14.5 of the Civil Code dealing 1ith 1arranty it is necessary to re4e4ber that under their provisions the lessor is liable for the 1arranty of the thing leased against any hidden defects this liability for 1arranty of the thing leased does not a4ount to an obligation to inde4nify the tenant for da4ages, 1hich is only to be allo1ed 1hen there is proof that the lessor acted 1ith fraud and in bad faith by concealing to the lessee% Article 14.( of the Code readsA

;n the cases of the t1o preceding articles +14.4 and 14.5, the vendee +"c/ lessee, 4ay choose bet1een 1ithdra1ing fro4 the contract, the e3penses 1hich he 4ay have incurred being returned to hi4, or de4anding a proportional reduction of the price, according to the ?udg4ent of e3perts% ;f the vendor +"c/ lessor, 8ne1 of the faults or hidden defects in the thing sold +"c/ leased, and did not give notice thereof to the vendee +"c/ lessee,, the latter shall have the sa4e option, and further4ore, be i4de4nified for the lossess and da4ages should be choose the rescission% ;t 4ust be 8ept in 4ind that the foregoing article and the t1o previously 0uoted appear in the title on contracts of purchase and sale and are in every 1ay applicable, according to article 155) of the sa4e code, to leases% <ence, 1hile the lessor is obligated by the general rule to 1arranty of the thing leased, 1hether or not he 4ay 8no1 of the e3istence therein of defects that render it inade0uate for the use the tenant intends, he is only liable for an inde4nity for da4ages in addition to the 1arranty 1hen he 8ne1 of the defects in the thing leased and had not revealed the4 to the lessee, a procedure 1hich induces the presu4ption that he acted 1ith fraud and in bad faithE but in order to hold hi4 responsible for the da4ages and losses caused by such defects there 4ust be the e3press condition that the lessee should choose rescission of the contract, according to the prescription of the second paragraph of the article 0uoted above, 1hence it is inferred that, should the lessee insist upon continuing the contract by occupying the property, he 4ust be understood to have 1aived the inde4nity% The plaintiffs, 1ithout choosing 1arranty of the property leased, supposing that they 1ere entitled to re0uire it, set up a direct clai4 for inde4nity for losses and da4ages fro4 the lessor, 1ithout having proven that the latter had 8no1ledge of the defects in the roof of the building leased and in spite of such 8no1ledge did not reveal it to the plaintiff# tenants, thus acting 1ith 4alice and bad faithE and yet they continued to occupy the property 1ithout having sought or de4anded rescission of the contractE 1herefore, even supposing that the lessor 1ere liable under the la1 for losses and da4ages, the plaintiffs 1ere not and are not entitled to clai4 such, because they in fact 1aived the inde4nity% Read the above#0uoted article of the code carefully% As for the rest, article 1191 of the Civil Code readsA Those 1ho in fulfilling their obligations are guilty of fraud, negligence, or delay, and those 1ho in any 4anner 1hatsoever act in contravention of the stipulations of the sa4e, shall be sub?ect to inde4nity for the losses and da4ages caused thereby% ;t has not been de4onstrated in the that the defendant lessor failed to fulfill the conditions of the lease or that he acted 1ith fraud, negligence or delay in the fulfill4ent of said conditions% +Arts% 119"#1194, Civil Code%,% ;n a ?udg4ent on appeal of 5ctober "9, 1..7, the supre4e court of *pain, in applying said article 1191 of the civil code of that country, identical 1ith the one in force in these ;slands, laid do1n the principle that, according to established ?urisprudence, inde4nity for losses and da4ages cannot be clai4ed 1hen they are caused by a fortuitous event% As for the other facts alleged by the parties, 1hich have been the sub?ect of the evidence adduced by the4, the record contains a certificate fro4 the 5bservatory in this city to the effect that the rain 1hich fell over the city of April 14, 191), 1as the heaviest fro4 =anuary to the said 4onth of April of that year, for 4.%) 44% of 1ater 1ere registered in the rain#gauge, an a4ount of rainfall notably e3cessive and the greatest during that period of four 4onths% Counsel for the plaintiffs has strongly insisted in his briefs that the defendant#lessor agreed and stipulated to pay the a4ount of the deterioration or depreciation of the goods and 4erchandise that 1ere 1et% ;t has not been duly proven in the case that the lessor Tiao0ui ad4itted, or agreed to pay, the a4ount of the losses and da4ages sustained by the plaintiffs because they sold the 4erchandise, 1et by the rainfall that afternoon, for a lo1er price than it 1as really 1orth% The declarations of the three plaintiffs do not constitute sufficient proof to offset the positive denial of

the defendant Tiao0uiE and the 1itnesses called by said plaintiffs, far fro4 confir4ing their allegations, 4ade affir4ations contradictory a4ong the4selves and at variance 1ith the assertion of the plaintiffs interested, for the latter aver that t1o of the4 de4anded of Tiao0ui and 1ere pro4ised by hi4 that he 1ould pay a half of the difference caused by the lo1er price at the sale of the goods, 1hile the 1itnesses cited stated under oath that Tiao0ui agreed to pay the 1hole a4ount resulting fro4 the depreciation in the value of the 4erchandise% ;n fact, the record reveals that the defendant Tiao0ui denied in a s1orn state4ent +folios "5 and "., that he had agreed to pay da4ages to the plaintiffs and alleged that, not only did he 4a8e plain that his intervention in the notarial instru4ent dra1n up the day after the disaster did not signify that he tacitly accepted any responsibility arising fro4 the alleged losses in the 4erchandise, but further4ore, 1hen de4and 1as 4ade by t1o of the4 that he pay the a4ount averred as the e3tent of said respective losses, he replied that he could not pay itE and he added that, 1hen for the second ti4e the plaintiffs sa1 hi4 for the purpose he 1ould investigate 1hether there 1ere defects in the roof of the building to cause lea8s, in 1hich case he 1ould collect fro4 the contractor 6achuca and that the su4 the latter 4ight pay he 1ould deliver to the plaintiffs to cover said losses and da4ages, but that if said contractor did not pay up or if the lea8s had resulted fro4 the torrential rain 1hich fell over 6anila he 1ould not pay the4 a cent% The pro4ise contained in the first part of the defendantNs ans1er plainly has a condition attached to it, and there is no record that the plaintiffs accepted it or that they agreed to the condition 4entioned, and therefore it cannot serve as ground for an adverse finding% The contractor Rafael 6achuca $otauco testified that he constructed the defendantNs building, located in Calle Rosario, according to plans and specifications 1hich 1ere 8ept before hi4, and that after the 1or8 had been finished the architect certified that said building 1as 1ell constructedE and he added that he did not 8no1 1hy the 1ater penetrated at the ?unction of the roof of the building 1ith the fire1all, for that ?unction had been carefully 4ade, but thought it 4ust have been due to that torrential rainfall% The attorney, &icente 6iranda, testified in his s1orn state4ent that on the afternoon in 0uestion he 1as in Clar8eNs situated in the Cscolta and that as a conse0uence of the rainfall the persons there had to put their feet on the tables because the 1ater rose so high that it overflo1ed the side1al8% This the 1itness Aurelio Acu/a corroborates in his testi4ony by saying that his store at 'o% "1 Calle Rosario 1as filled 1ith 1ater flo1ing fro4 the yard and the street, so that he sustained da4ages, and that he sa1 his neighbors had to bail the 1ater out of the interior of their stores or shops 1ith pails and 1ashbasins% Attorney 6iranda added that over a 1ee8 after a occurrence he had intervie1s 1ith Attorney 5N-rien, counsel for the plaintiff Tan Tiap, and they t1o tal8ed about the liability of the defendant for the losses and da4ages sustained by the plaintiff Tan Tiap, and he did not then hear that the defendant Tiao0ui had pro4ised to pay the plaintiffs a part or all of the a4ount of the losses and da4ages they 4ay have sustained through the 1etting of their goods and 4erchandise% *u44ing up, the record fully de4onstrates that the defendant Alfonso 6% Tiao0ui is not liable under the la1 to pay inde4nity for losses and da4ages because of the 1etting of the goods and 4erchandise of Dap Oi4 Chuan, plaintiff in case 'o% 1999(E of 6arciano 5ng Iui *ing plaintiff in case 'o% 19997E and Tan Tiap, plaintiff in case 'o% 1999.E and that on the other hand these cases do not reveal satisfactory and conclusive evidence that the defendant lessor Tiao0ui to 4a8e up all or part of the loss or depreciation on the sale of the goods and 4erchandise that 1as 1et% ;t is be observed that as the three said cases are based on analogous facts, having the sa4e origin, they 1ere tried together and the parol and docu4entary evidence adduced by the parties in each of said cases all ta8en in 'o% 1999(E and as the 0uestions of fact and of la1 raised in all three cases are the sa4e, the legal grounds for the final decision in all three cases are set forth only in the decision of the first of the4, in order to avoid useless and unnecessary repetition% Ro4an Tantungco and three others, represented by the sa4e counsel for the defendant, as o1ners of the building leased to the plaintiffs after August ", 191), through the transfer 4ade by her defendant, prayed that they be allo1ed to intervene in these three cases, that the said cases be finally dis4issed and that they be absolved fro4 the co4plaints filed% These contentions 1ere opposed by the plaintiffs, but the record does not sho1 that any action 1as ta8en on the 4otions presented by the parties%

7or the foregoing reasons the ?udg4ent appealed fro4, as rendered in this case 'o% 1999(, 4ust be reversed, and the defendant Alfonso 6% Tiao0ui absolved, as 1e do absolve hi4, fro4 the co4plaint filed by Dap Oi4 Chuan, 1ithout special finding as to costs in both instances% *o ordered%

After trial on the 4erits, the RTC rendered its !ecision ( dated =anuary 1", 199), dis4issing respondents co4plaint as 1ell as petitioners counterclai4% The RTC held that petitioner *ica4 could not be 4ade personally liable for a clai4 arising out of a corporate transactionE that in the A4ended Co4plaint of respondents, they asserted that >plaintiff pa1ned assorted ?e1elries in defendantsN pa1nshop>E and that as a conse0uence of the separate ?uridical personality of a corporation, the corporate debt or credit is not the debt or credit of a stoc8holder% The RTC further ruled that petitioner corporation could not be held liable for the loss of the pa1ned ?e1elry since it had not been rebutted by respondents that the loss of the pledged pieces of ?e1elry in the possession of the corporation 1as occasioned by ar4ed robberyE that robbery is a fortuitous event 1hich e3e4pts the victi4 fro4 liability for the loss, citing the case of Au"tria :/ ;ourt o< Appeal"E7 and that the parties transaction 1as that of a pledgor and pledgee and under Art% 1174 of the Civil Code, the pa1nshop as a pledgee is not responsible for those events 1hich could not be foreseen% Respondents appealed the RTC !ecision to the CA% ;n a !ecision dated 6arch )1, "99), the CA reversed the RTC, the dispositive portion of 1hich reads as follo1sA B<CRC75RC, pre4ises considered, the instant Appeal is $RA'TC!, and the !ecision dated =anuary 1", 199),of the Regional Trial Court of 6a8ati, -ranch (", is hereby RC&CR*C! and *CT A*;!C, ordering the appellees to pay appellants the actual value of the lost ?e1elry a4ounting to P"7",999%99, and attorneyN fees of P"7,"99%99%. ;n finding petitioner *ica4 liable together 1ith petitioner corporation, the CA applied the doctrine of piercing the veil of corporate entity reasoning that respondents 1ere 4isled into thin8ing that they 1ere dealing 1ith the pa1nshop o1ned by petitioner *ica4 as all the pa1nshop tic8ets issued to the4 bear the 1ords > Agencia de R%C% *ica4>E and that there 1as no indication on the pa1nshop tic8ets that it 1as the petitioner corporation that o1ned the pa1nshop 1hich e3plained 1hy respondents had to a4end their co4plaint i4pleading petitioner corporation% The CA further held that the corresponding diligence re0uired of a pa1nshop is that it should ta8e steps to secure and protect the pledged ite4s and should ta8e steps to insure itself against the loss of articles 1hich are entrusted to its custody as it derives earnings fro4 the pa1nshop trade 1hich petitioners failed to doE that Au"tria is not applicable to this case since the robbery incident happened in 19(1 1hen the cri4inality had not as yet reached the levels attained in the present dayE that they are at least guilty of contributory negligence and should be held liable for the loss of ?e1elriesE and that robberies and hold#ups are foreseeable ris8s in that those engaged in the pa1nshop business are e3pected to foresee% The CA concluded that both petitioners should be ?ointly and severally held liable to respondents for the loss of the pa1ned ?e1elry% Petitioners 4otion for reconsideration 1as denied in a Resolution dated August ., "99)% <ence, the instant petition for revie1 1ith the follo1ing assign4ent of errorsA T<C C5@RT 57 APPCA2* CRRC! A'! B<C' ;T !;!, ;T 5PC'C! ;T*C27 T5 RC&CR*A2, B<C' ;T A!5PTC! @'CR;T;CA22D +;' 7ACT ;T RCPR5!@CC! A* ;T* 5B' B;T<5@T ;' T<C 6CA'T;6C ACO'5B2C!$;'$ ;T, B<AT T<C RC*P5'!C'T* AR$@C! ;' T<C;R -R;C7, B<;C< AR$@6C'T BA* PA2PA-2D @'*@*TA;'A-2C% T<C C5@RT 57 APPCA2* CRRC!, A'! B<C' ;T !;!, ;T 5PC'C! ;T*C27 T5 RC&CR*A2 -D T<;* <5'5RA-2C C5@RT, B<C' ;T A$A;' A!5PTC! @'CR;T;CA22D +-@T B;T<5@T ACO'5B2C!$;'$ ;T, T<C *@-6;**;5'* 57 T<C RC*P5'!C'T* ;' T<C;R -R;C7 B;T<5@T A!!;'$ A'DT<;'$ 65RC T<CRCT5 !C*P;TC T<C 7ACT T<AT T<C *A;! AR$@6C'T 57 T<C RC*P5'!C'T* C5@2! '5T <A&C -CC' *@*TA;'C! ;' &;CB 57 @'RC-@TTC! C&;!C'CC 5' RCC5R!% 9

G.R. No. 15@617 A232$t 8, 2007 RO7ER"O C. S!CAM an AGENC!A 'ORGE, re$pon ent$. AUS"R!A8MAR"!NE;, J.)

e R.C. S!CAM, !NC., pet#t#oner$, %$. LULU 5. 'ORGE an

CESAR

-efore us is a Petition for Revie1 on ;ertiorari filed by Roberto C% *ica4, =r% +petitioner *ica4, and Agencia deR%C% *ica4, ;nc% +petitioner corporation, see8ing to annul the !ecision 1 of the Court of Appeals dated 6arch )1, "99), and its Resolution" dated August ., "99), in CA $%R% C& 'o% 5(())% ;t appears that on different dates fro4 *epte4ber to 5ctober 19.7, 2ulu &% =orge +respondent 2ulu, pa1ned several pieces of ?e1elry 1ith Agencia de R% C% *ica4 located at 'o% 17 Aguirre Ave%, -7 <o4es Para/a0ue, 6etro 6anila, to secure a loan in the total a4ount of P59,599%99% 5n 5ctober 19, 19.7, t1o ar4ed 4en entered the pa1nshop and too8 a1ay 1hatever cash and ?e1elry 1ere found inside the pa1nshop vault% The incident 1as entered in the police blotter of the *outhern Police !istrict, Para/a0ue Police *tation as follo1sA ;nvestigation sho1s that at above T!P5, 1hile victi4s 1ere inside the office, t1o +", 4ale unidentified persons entered into the said office 1ith guns dra1n% *uspects+sic, +1, 1ent straight inside and po8ed his gun to1ard Ro4eo *ica4 and thereby tied hi4 1ith an electric 1ire 1hile suspects +sic, +", po8ed his gun to1ard !ivina 6ata and ;sabelita RodrigueG and ordered the4 to lay +sic, face flat on the floor% *uspects as8ed forcibly the case and assorted pa1ned ?e1elries ite4s 4entioned above% *uspects after ta8ing the 4oney and ?e1elries fled on board a 6arson Toyota unidentified plate nu4ber% ) Petitioner *ica4 sent respondent 2ulu a letter dated 5ctober 19, 19.7 infor4ing her of the loss of her ?e1elry due to the robbery incident in the pa1nshop% 5n 'ove4ber ", 19.7, respondent 2ulu then 1rote a letter 4 to petitioner *ica4 e3pressing disbelief stating that 1hen the robbery happened, all ?e1elry pa1ned 1ere deposited 1ith 7ar Cast -an8 near the pa1nshop since it had been the practice that before they could 1ithdra1, advance notice 4ust be given to the pa1nshop so it could 1ithdra1 the ?e1elry fro4 the ban8% Respondent 2ulu then re0uested petitioner *ica4 to prepare the pa1ned ?e1elry for 1ithdra1al on 'ove4ber (, 19.7 but petitioner *ica4 failed to return the ?e1elry% 5n *epte4ber "., 19.., respondent 2ulu ?oined by her husband, Cesar =orge, filed a co4plaint against petitioner *ica4 1ith the Regional Trial Court of 6a8ati see8ing inde4nification for the loss of pa1ned ?e1elry and pay4ent of actual, 4oral and e3e4plary da4ages as 1ell as attorneyNs fees% The case 1as doc8eted as Civil Case 'o% ..#"9)5% Petitioner *ica4 filed his Ans1er contending that he is not the real party#in#interest as the pa1nshop 1as incorporated on April "9, 19.7 and 8no1n as Agencia de R%C% *ica4, ;ncE that petitioner corporation had e3ercised due care and diligence in the safe8eeping of the articles pledged 1ith it and could not be 4ade liable for an event that is fortuitous% Respondents subse0uently filed an A4ended Co4plaint to include petitioner corporation% Thereafter, petitioner *ica4 filed a 6otion to !is4iss as far as he is concerned considering that he is not the real party#in# interest% Respondents opposed the sa4e% The RTC denied the 4otion in an 5rder dated 'ove4ber ., 19.9% 5

Anent the first assigned error, petitioners point out that the CA s finding that petitioner *ica4 is personally liable for the loss of the pa1ned ?e1elries is >a virtual and uncritical reproduction of the argu4ents set out on pp% 5#( of the Appellants brief%> 19 Petitioners argue that the reproduced argu4ents of respondents in their Appellants -rief suffer fro4 infir4ities, as follo1sA +1, Respondents conclusively asserted in paragraph " of their A4ended Co4plaint that Agencia de R%C% *ica4, ;nc% is the present o1ner of Agencia de R%C% *ica4 Pa1nshop, and therefore, the CA cannot rule against said conclusive assertion of respondentsE +", The issue resolved against petitioner *ica4 1as not a4ong those raised and litigated in the trial courtE and +), -y reason of the above infir4ities, it 1as error for the CA to have pierced the corporate veil since a corporation has a personality distinct and separate fro4 its individual stoc8holders or 4e4bers% Anent the second error, petitioners point out that the CA finding on their negligence is li8e1ise an unedited reproduction of respondents brief 1hich had the follo1ing defectsA +1, There 1ere unrebutted evidence on record that petitioners had observed the diligence re0uired of the4, i%e, they 1anted to open a vault 1ith a nearby ban8 for purposes of safe8eeping the pa1ned articles but 1as discouraged by the Central -an8 +C-, since C- rules provide that they can only store the pa1ned articles in a vault inside the pa1nshop pre4ises and no other placeE +", Petitioners 1ere ad?udged negligent as they did not ta8e insurance against the loss of the pledged ?el1eries, but it is ?udicial notice that due to high incidence of cri4es, insurance co4panies refused to cover pa1nshops and ban8s because of high probability of losses due to robberiesE +), ;n Hernande= :/ ;%airman# ;ommi""ion on Audit +179 *CRA )9, 45#4(,, the victi4 of robbery 1as e3onerated fro4 liability for the su4 of 4oney belonging to others and lost by hi4 to robbers% Respondents filed their Co44ent and petitioners filed their Reply thereto% The parties subse0uently sub4itted their respective 6e4oranda% Be find no 4erit in the petition% To begin 1ith, although it is true that indeed the CA findings 1ere e3act reproductions of the argu4ents raised in respondents +appellants , brief filed 1ith the CA, 1e find the sa4e to be not fatally infir4ed% @pon e3a4ination of the !ecision, 1e find that it e3pressed clearly and distinctly the facts and the la1 on 1hich it is based as re0uired by *ection ., Article &;;; of the Constitution% The discretion to decide a case one 1ay or another is broad enough to ?ustify the adoption of the argu4ents put forth by one of the parties, as long as these are legally tenable and supported by la1 and the facts on records%11 5ur ?urisdiction under Rule 45 of the Rules of Court is li4ited to the revie1 of errors of la1 co44itted by the appellate court% $enerally, the findings of fact of the appellate court are dee4ed conclusive and 1e are not duty#bound to analyGe and calibrate all over again the evidence adduced by the parties in the court a Euo%1" This rule, ho1ever, is not 1ithout e3ceptions, such as 1here the factual findings of the Court of Appeals and the trial court are conflicting or contradictory 1) as is obtaining in the instant case% <o1ever, after a careful e3a4ination of the records, 1e find no ?ustification to absolve petitioner *ica4 fro4 liability%

The CA correctly pierced the veil of the corporate fiction and ad?udged petitioner *ica4 liable together 1ith petitioner corporation% The rule is that the veil of corporate fiction 4ay be pierced 1hen 4ade as a shield to perpetrate fraud andQor confuse legiti4ate issues% 14 The theory of corporate entity 1as not 4eant to pro4ote unfair ob?ectives or other1ise to shield the4%15 'otably, the evidence on record sho1s that at the ti4e respondent 2ulu pa1ned her ?e1elry, the pa1nshop 1as o1ned by petitioner *ica4 hi4self% As correctly observed by the CA, in all the pa1nshop receipts issued to respondent 2ulu in *epte4ber 19.7, all bear the 1ords >Agencia de R% C% *ica4,> not1ithstanding that the pa1nshop 1as allegedly incorporated in April 19.7% The receipts issued after such alleged incorporation 1ere still in the na4e of > Agencia de R% C% *ica4,> thus inevitably 4isleading, or at the very least, creating the 1rong i4pression to respondents and the public as 1ell, that the pa1nshop 1as o1ned solely by petitioner *ica4 and not by a corporation% Cven petitioners counsel, Atty% 6arcial T% -algos, in his letter 1( dated 5ctober 15, 19.7 addressed to the Central -an8, e3pressly referred to petitioner *ica4 as the proprietor of the pa1nshop not1ithstanding the alleged incorporation in April 19.7% Be also find no 4erit in petitionersN argu4ent that since respondents had alleged in their A4ended Co4plaint that petitioner corporation is the present o1ner of the pa1nshop, the CA is bound to decide the case on that basis% *ection 4 Rule 1"9 of the Rules of Court provides that an ad4ission, verbal or 1ritten, 4ade by a party in the course of the proceedings in the sa4e case, does not re0uire proof% The ad4ission 4ay be contradicted only by sho1ing that it 1as 4ade through palpable 4ista8e or that no such ad4ission 1as 4ade% Thus, the general rule that a ?udicial ad4ission is conclusive upon the party 4a8ing it and does not re0uire proof, ad4its of t1o e3ceptions, to 1itA +1, 1hen it is sho1n that such ad4ission 1as 4ade through palpable 4ista8e, and +", 1hen it is sho1n that no such ad4ission 1as in fact 4ade% "+e ,atter e>0ept#on a,,o-$ one to 0ontra #0t an a m#$$#on b/ en/#n3 t+at +e ma e $20+ an a m#$$#on.17 The Co44ittee on the Revision of the Rules of Court e3plained the second e3ception in this 1iseA 3 3 3 if a party invo8es an >ad4ission> by an adverse party, but cites the ad4ission >out of conte3t,> then the one 4a8ing the >ad4ission> 4ay sho1 that he 4ade no >such> ad4ission, or t+at +#$ a m#$$#on -a$ taEen o2t o1 0onte>t. > > > t+at t+e part/ 0an a,$o $+o- t+at +e ma e no F$20+ a m#$$#onF, i.e., not #n t+e $en$e #n -+#0+ t+e a m#$$#on #$ ma e to appear. That is the reason for the 4odifier >such> because if the rule si4ply states that the ad4ission 4ay be contradicted by sho1ing that >no ad4ission 1as 4ade,> the rule 1ould not really be providing for a contradiction of the ad4ission but ?ust a denial%1. +C4phasis supplied,% Bhile it is true that respondents alleged in their A4ended Co4plaint that petitioner corporation is the present o1ner of the pa1nshop, they did so only because petitioner *ica4 alleged in his Ans1er to the original co4plaint filed against hi4 that he 1as not the real party#in#interest as the pa1nshop 1as incorporated in April 19.7% 6oreover, a reading of the A4ended Co4plaint in its entirety sho1s that respondents referred to both petitioner *ica4 and petitioner corporation 1here they +respondents, pa1ned their assorted pieces of ?e1elry and ascribed to both the failure to observe due diligence co44ensurate 1ith the business 1hich resulted in the loss of their pa1ned ?e1elry% 6ar8edly, respondents, in their 5pposition to petitioners 6otion to !is4iss A4ended Co4plaint, insofar as petitioner *ica4 is concerned, averred as follo1sA

Roberto C% *ica4 1as na4ed the defendant in the original co4plaint because the pa1nshop tic8ets involved in this case did not sho1 that the R%C% *ica4 Pa1nshop 1as a corporation% ;n paragraph 1 of his Ans1er, he ad4itted the allegations in paragraph 1 and " of the Co4plaint% <e 4erely added >that defendant is not no1 the real party in interest in this case%> ;t 1as defendant *ica4Ns o4ission to correct the pa1nshop tic8ets used in the sub?ect transactions in this case 1hich 1as the cause of the instant action% <e cannot no1 as8 for the dis4issal of the co4plaint against hi4 si4ply on the 4ere allegation that his pa1nshop business is no1 incorporated% ;t is a 4atter of defense, the 4erit of 1hich can only be reached after consideration of the evidence to be presented in due course% 19 @n4ista8ably, the alleged ad4ission 4ade in respondentsN A4ended Co4plaint 1as ta8en >out of conte3t> by petitioner *ica4 to suit his o1n purpose% ;neluctably, the fact that petitioner *ica4 continued to issue pa1nshop receipts under his na4e and not under the corporationNs na4e 4ilitates for the piercing of the corporate veil% Be li8e1ise find no 4erit in petitionersN contention that the CA erred in piercing the veil of corporate fiction of petitioner corporation, as it 1as not an issue raised and litigated before the RTC% Petitioner *ica4 had alleged in his Ans1er filed 1ith the trial court that he 1as not the real party#in#interest because since April "9, 19.7, the pa1nshop business initiated by hi4 1as incorporated and 8no1n as Agencia deR%C% *ica4% ;n the pre#trial brief filed by petitioner *ica4, he sub4itted that as far as he 1as concerned, the basic issue 1as 1hether he is the real party in interest against 1ho4 the co4plaint should be directed% "9 ;n fact, he subse0uently 4oved for the dis4issal of the co4plaint as to hi4 but 1as not favorably acted upon by the trial court% 6oreover, the issue 1as s0uarely passed upon, although erroneously, by the trial court in its !ecision in this 4annerA 3 3 3 The defendant Roberto *ica4, =r li8e1ise denies liability as far as he is concerned for the reason that he cannot be 4ade personally liable for a clai4 arising fro4 a corporate transaction% This Court sustains the contention of the defendant Roberto C% *ica4, =r% The a4ended co4plaint itself asserts that >plaintiff pa1ned assorted ?e1elries in defendantNs pa1nshop%> ;t has been held that > as a conse0uence of the separate ?uridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stoc8holder, nor is the stoc8holderNs debt or credit that of a corporation% "1 Clearly, in vie1 of the alleged incorporation of the pa1nshop, the issue of 1hether petitioner *ica4 is personally liable is ine3tricably connected 1ith the deter4ination of the 0uestion 1hether the doctrine of piercing the corporate veil should or should not apply to the case% The ne3t 0uestion is 1hether petitioners are liable for the loss of the pa1ned articles in their possession% Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at all% Be are not persuaded% Article 1174 of the Civil Code providesA Art% 1174% C3cept in cases e3pressly specified by the la1, or 1hen it is other1ise declared by stipulation, or 1hen the nature of the obligation re0uires the assu4ption of ris8, no person shall be responsible for those events 1hich could not be foreseen or 1hich, though foreseen, 1ere inevitable%

7ortuitous events by definition are e3traordinary events not foreseeable or avoidable% ;t is therefore, not enough that the event should not have been foreseen or anticipated, as is co44only believed but it 4ust be one i4possible to foresee or to avoid% The 4ere difficulty to foresee the happening is not i4possibility to foresee the sa4e% "" To constitute a fortuitous event, the follo1ing ele4ents 4ust concurA +a, the cause of the unforeseen and une3pected occurrence or of the failure of the debtor to co4ply 1ith obligations 4ust be independent of hu4an 1illE +b, it 4ust be i4possible to foresee the event that constitutes the ca"o <ortuito or, if it can be foreseen, it 4ust be i4possible to avoidE +c, the occurrence 4ust be such as to render it i4possible for the debtor to fulfill obligations in a nor4al 4annerE and, +d, the obligor 4ust be free fro4 any participation in the aggravation of the in?ury or loss% ") The burden of proving that the loss 1as due to a fortuitous event rests on hi4 1ho invo8es it% "4 And, in order for a fortuitous event to e3e4pt one fro4 liability, it is necessary that one has co44itted no negligence or 4isconduct that 4ay have occasioned the loss% "5 ;t has been held that an act of $od cannot be invo8ed to protect a person 1ho has failed to ta8e steps to forestall the possible adverse conse0uences of such a loss% 5neNs negligence 4ay have concurred 1ith an act of $od in producing da4age and in?ury to anotherE nonetheless, sho1ing that the i44ediate or pro3i4ate cause of the da4age or in?ury 1as a fortuitous event 1ould not e3e4pt one fro4 liability% Bhen the effect is found to be partly the result of a personNs participation ## 1hether by active intervention, neglect or failure to act ## the 1hole occurrence is hu4aniGed and re4oved fro4 the rules applicable to acts of $od% "( Petitioner *ica4 had testified that there 1as a security guard in their pa1nshop at the ti4e of the robbery% <e li8e1ise testified that 1hen he started the pa1nshop business in 19.), he thought of opening a vault 1ith the nearby ban8 for the purpose of safe8eeping the valuables but 1as discouraged by the Central -an8 since pa1ned articles should only be stored in a vault inside the pa1nshop% The very 4easures 1hich petitioners had allegedly adopted sho1 that to the4 the possibility of robbery 1as not only foreseeable, but actually foreseen and anticipated% Petitioner *ica4 s testi4ony, in effect, contradicts petitioners defense of fortuitous event% 6oreover, petitioners failed to sho1 that they 1ere free fro4 any negligence by 1hich the loss of the pa1ned ?e1elry 4ay have been occasioned% Robbery per se, ?ust li8e carnapping, is not a fortuitous event% ;t does not foreclose the possibility of negligence on the part of herein petitioners% ;n ;o :/ ;ourt o< Appeal","7 the Court heldA ;t is not a defense for a repair shop of 4otor vehicles to escape liability si4ply because the da4age or loss of a thing la1fully placed in its possession 1as due to carnapping% Carnapping per se cannot be considered as a fortuitous event% "+e 1a0t t+at a t+#n3 -a$ 2n,a-12,,/ an 1or0e12,,/ taEen 1rom anot+erG$ r#3+t12, po$$e$$#on, a$ #n 0a$e$ o1 0arnapp#n3, oe$ not a2tomat#0a,,/ 3#%e r#$e to a 1ort2#to2$ e%ent. "o be 0on$# ere a$ $20+, 0arnapp#n3 enta#,$ more t+an t+e mere 1or0e12, taE#n3 o1 anot+erG$ propert/. !t m2$t be pro%e an e$tab,#$+e t+at t+e e%ent -a$ an a0t o1 Go or -a$ one $o,e,/ b/ t+#r part#e$ an t+at ne#t+er t+e 0,a#mant nor t+e per$on a,,e3e to be ne3,#3ent +a$ an/ part#0#pat#on. !n a00or an0e -#t+ t+e R2,e$ o1 E%# en0e, t+e b2r en o1 pro%#n3 t+at t+e ,o$$ -a$ 2e to a 1ort2#to2$ e%ent re$t$ on +#m -+o #n%oEe$ #t H -+#0+ #n t+#$ 0a$e #$ t+e pr#%ate re$pon ent. <o1ever, other than the police report of the alleged carnapping incident, no other evidence 1as presented by private respondent to the effect that the incident 1as not due to its fault% A police report of an alleged cri4e, to 1hich only private respondent is privy, does not suffice to establish the carnapping% 'either does it prove that there 1as no fault on the part of private respondent not1ithstanding the partiesN agree4ent at the pre#trial that the car 1as carnapped% Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent% ".

=ust li8e in ;o, petitioners 4erely presented the police report of the Para/a0ue Police *tation on the robbery co44itted based on the report of petitionersN e4ployees 1hich is not sufficient to establish robbery% *uch report also does not prove that petitioners 1ere not at fault% 5n the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are guilty of concurrent or contributory negligence as provided in Article 1179 of the Civil Code, to 1itA Art% 1179% Those 1ho in the perfor4ance of their obligations are guilty of fraud, negligence, or delay, and those 1ho in any 4anner contravene the tenor thereof, are liable for da4ages% "9 Article "1") of the Civil Code provides that 1ith regard to pa1nshops and other establish4ents 1hich are engaged in 4a8ing loans secured by pledges, the special la1s and regulations concerning the4 shall be observed, and subsidiarily, the provisions on pledge, 4ortgage and antichresis% The provision on pledge, particularly Article "999 of the Civil Code, provides that the creditor shall ta8e care of the thing pledged 1ith the diligence of a good father of a fa4ily% This 4eans that petitioners 4ust ta8e care of the pa1ns the 1ay a prudent person 1ould as to his o1n property% ;n this connection, Article 117) of the Civil Code further providesA Art% 117)% The fault or negligence of the obligor consists in the o4ission of that diligence 1hich is re0uired by the nature of the obligation and corresponds 1ith the circu4stances of the persons, of ti4e and of the place% Bhen negligence sho1s bad faith, the provisions of Articles 1171 and ""91, paragraph " shall apply% ;f the la1 or contract does not state the diligence 1hich is to be observed in the perfor4ance, that 1hich is e3pected of a good father of a fa4ily shall be re0uired% Be e3pounded in ;ru= :/ Gangan)9 that negligence is the o4ission to do so4ething 1hich a reasonable 4an, guided by those considerations 1hich ordinarily regulate the conduct of hu4an affairs, 1ould doE or the doing of so4ething 1hich a prudent and reasonable 4an 1ould not do%)1 ;t is 1ant of care re0uired by the circu4stances% A revie1 of the records clearly sho1s that petitioners failed to e3ercise reasonable care and caution that an ordinarily prudent person 1ould have used in the sa4e situation% Petitioners 1ere guilty of negligence in the operation of their pa1nshop business% Petitioner *ica4 testified, thusA CourtA I% !o you have security guards in your pa1nshopF A% Des, your honor% I% Then ho1 co4e that the robbers 1ere able to enter the pre4ises 1hen according to you there 1as a security guardF A% *ir, if these robbers can rob a ban8, ho1 4uch 4ore a pa1nshop%

A% At the ti4e of the incident 1hich happened about 1A99 and "A99 oNcloc8 in the afternoon and it happened on a *aturday and everything 1as 0uiet in the area -7 <o4es Para/a0ue they pretended to pa1n an article in the pa1nshop, so one of 4y e4ployees allo1ed hi4 to co4e in and it 1as only 1hen it 1as announced that it 1as a hold up% I% !id you co4e to 8no1 ho1 the vault 1as openedF A% Bhen the pa1nshop is official +sic, open your honor the pa1nshop is partly open% The co4bination is off% I% 'o one open +sic, the vault for the robbersF A% 'o one your honor it 1as open at the ti4e of the robbery% I% ;t is clear no1 that at the ti4e of the robbery the vault 1as open the reason 1hy the robbers 1ere able to get all the ite4s pa1ned to you inside the vault% A% Des sir%)" revealing that there 1ere no security 4easures adopted by petitioners in the operation of the pa1nshop% Cvidently, no sufficient precaution and vigilance 1ere adopted by petitioners to protect the pa1nshop fro4 unla1ful intrusion% There 1as no clear sho1ing that there 1as any security guard at all% 5r if there 1as one, that he had sufficient training in securing a pa1nshop% 7urther, there is no sho1ing that the alleged security guard e3ercised all that 1as necessary to prevent any unto1ard incident or to ensure that no suspicious individuals 1ere allo1ed to enter the pre4ises% ;n fact, it is even doubtful that there 1as a security guard, since it is 0uite i4possible that he 1ould not have noticed that the robbers 1ere ar4ed 1ith caliber %45 pistols each, 1hich 1ere allegedly po8ed at the e4ployees% )) *ignificantly, the alleged security guard 1as not presented at all to corroborate petitioner *ica4Ns clai4E not one of petitionersN e4ployees 1ho 1ere present during the robbery incident testified in court% 7urther4ore, petitioner *ica4Ns ad4ission that the vault 1as open at the ti4e of robbery is clearly a proof of petitionersN failure to observe the care, precaution and vigilance that the circu4stances ?ustly de4anded% Petitioner *ica4 testified that once the pa1nshop 1as open, the co4bination 1as already off% Considering petitioner *ica4Ns testi4ony that the robbery too8 place on a *aturday afternoon and the area in -7 <o4es Para/a0ue at that ti4e 1as 0uiet, there 1as 4ore reason for petitioners to have e3ercised reasonable foresight and diligence in protecting the pa1ned ?e1elries% ;nstead of ta8ing the precaution to protect the4, they let open the vault, providing no difficulty for the robbers to cart a1ay the pa1ned articles% Be, ho1ever, do not agree 1ith the CA 1hen it found petitioners negligent for not ta8ing steps to insure the4selves against loss of the pa1ned ?e1elries% @nder *ection 17 of Central -an8 Circular 'o% )74, Rules and Regulations for Pa1nshops, 1hich too8 effect on =uly 1), 197), and 1hich 1as issued pursuant to Presidential !ecree 'o% 114, Pa1nshop Regulation Act, it is provided that pa1ns pledged 4ust be insured, to 1itA *ec% 17% ;nsurance of 5ffice -uilding and Pa1ns# The place of business of a pa1nshop and the pa1ns pledged to it 4ust be insured a3a#n$t 1#re an a3a#n$t b2r3,ar/ as 1ell as for the latter+sic,, by an insurance co4pany accredited by the ;nsurance Co44issioner% <o1ever, this *ection 1as subse0uently a4ended by C- Circular 'o% 7(4 1hich too8 effect on 5ctober 1, 19.9, to 1itA

I% ; a4 as8ing you ho1 1ere the robbers able to enter despite the fact that there 1as a security guardF

*ec% 17 ;nsurance of 5ffice -uilding and Pa1ns K The office buildingQpre4ises and pa1ns of a pa1nshop 4ust be insured a3a#n$t 1#re% +e4phasis supplied,% 1here the re0uire4ent that insurance against burglary 1as deleted% 5bviously, the Central -an8 considered it not feasible to re0uire insurance of pa1ned articles against burglary% The robbery in the pa1nshop happened in 19.7, and considering the above#0uoted a4end4ent, there is no statutory duty i4posed on petitioners to insure the pa1ned ?e1elry in 1hich case it 1as error for the CA to consider it as a factor in concluding that petitioners 1ere negligent% 'evertheless, the preponderance of evidence sho1s that petitioners failed to e3ercise the diligence re0uired of the4 under the Civil Code% The diligence 1ith 1hich the la1 re0uires the individual at all ti4es to govern his conduct varies 1ith the nature of the situation in 1hich he is placed and the i4portance of the act 1hich he is to perfor4% )4 Thus, the cases ofAu"tria :/ ;ourt o< Appeal",)5 Hernande= :/ ;%airman# ;ommi""ion on Audit )( and ;ru= :/ Gangan)7 cited by petitioners in their pleadings, 1here the victi4s of robbery 1ere e3onerated fro4 liability, find no application to the present case% ;n Au"tria, 6aria Abad received fro4 $uiller4o Austria a pendant 1ith dia4onds to be sold on co44ission basis, but 1hich Abad failed to subse0uently return because of a robbery co44itted upon her in 19(1% The incident beca4e the sub?ect of a cri4inal case filed against several persons% Austria filed an action against Abad and her husband +Abads, for recovery of the pendant or its value, but the Abads set up the defense that the robbery e3tinguished their obligation% The RTC ruled in favor of Austria, as the Abads failed to prove robberyE or, if co44itted, that 6aria Abad 1as guilty of negligence% The CA, ho1ever, reversed the RTC decision holding that the fact of robbery 1as duly established and declared the Abads not responsible for the loss of the ?e1elry on account of a fortuitous event% Be held that for the Abads to be relieved fro4 the civil liability of returning the pendant under Art% 1174 of the Civil Code, it 1ould only be sufficient that the unforeseen event, the robbery, too8 place 1ithout any concurrent fault on the debtor s part, and this can be done by preponderance of evidenceE that to be free fro4 liability for reason of fortuitous event, the debtor 4ust, in addition to the casus itself, be free of any concurrent or contributory fault or negligence%). Be found in Au"tria that under the circu4stances prevailing at the ti4e the !ecision 1as pro4ulgated in 1971, the City of 6anila and its suburbs had a high incidence of cri4es against persons and property that rendered travel after nightfall a 4atter to be sedulously avoided 1ithout suitable precaution and protectionE that the conduct of 6aria Abad in returning alone to her house in the evening carrying ?e1elry of considerable value 1ould have been negligence per se and 1ould not e3e4pt her fro4 responsibility in the case of robbery% <o1ever 1e did not hold Abad liable for negligence since, the robbery happened ten years previouslyE i%e%, 19(1, 1hen cri4inality had not reached the level of incidence obtaining in 1971% ;n contrast, the robbery in this case too8 place in 19.7 1hen robbery 1as already prevalent and petitioners in fact had already foreseen it as they 1anted to deposit the pa1n 1ith a nearby ban8 for safe8eeping% 6oreover, unli8e in Au"tria, 1here no negligence 1as co44itted, 1e found petitioners negligent in securing their pa1nshop as earlier discussed% ;n Hernande=, Teodoro <ernandeG 1as the 5;C and special disbursing officer of the Ternate -each Pro?ect of the Philippine Touris4 in Cavite% ;n the 4orning of =uly 1, 19.), a 7riday, he 1ent to 6anila to encash t1o chec8s covering the 1ages of the e4ployees and the operating e3penses of the pro?ect% <o1ever for so4e reason, the processing of the chec8 1as delayed and 1as co4pleted at about ) p%4% 'evertheless, he decided to encash the chec8 because the pro?ect e4ployees 1ould be 1aiting for their pay the follo1ing dayE other1ise, the 1or8ers 1ould have to 1ait until =uly 5, the earliest ti4e, 1hen the 4ain office 1ould open% At that ti4e, he had t1o choicesA +1, return to Ternate, Cavite that sa4e afternoon and arrive early eveningE or +", ta8e the 4oney 1ith hi4 to his house in 6arilao, -ulacan, spend the night there, and leave for Ternate the follo1ing day% <e chose the second option, thin8ing it 1as the safer one% Thus, a little past ) p%4%, he too8 a passenger ?eep bound for -ulacan% Bhile the ?eep 1as on Cpifanio de los *antos Avenue, the ?eep 1as held up and the 4oney 8ept by <ernandeG 1as ta8en, and the robbers ?u4ped out of the ?eep and ran% <ernandeG chased the robbers and caught up 1ith

one robber 1ho 1as subse0uently charged 1ith robbery and pleaded guilty% The other robber 1ho held the stolen 4oney escaped% The Co44ission on Audit found <ernandeG negligent because he had not brought the cash proceeds of the chec8s to his office in Ternate, Cavite for safe8eeping, 1hich is the nor4al procedure in the handling of funds% Be held that <ernandeG 1as not negligent in deciding to encash the chec8 and bringing it ho4e to 6arilao, -ulacan instead of Ternate, Cavite due to the lateness of the hour for the follo1ing reasonsA +1, he 1as 4oved by unselfish 4otive for his co#e4ployees to collect their 1ages and salaries the follo1ing day, a *aturday, a non#1or8ing, because to encash the chec8 on =uly 5, the ne3t 1or8ing day after =uly 1, 1ould have caused disco4fort to laborers 1ho 1ere dependent on their 1ages for sustenanceE and +", that choosing 6arilao as a safer destination, being nearer, and in vie1 of the co4parative haGards in the trips to the t1o places, said decision see4ed logical at that ti4e% Be further held that the fact that t1o robbers attac8ed hi4 in broad daylight in the ?eep 1hile it 1as on a busy high1ay and in the presence of other passengers could not be said to be a result of his i4prudence and negligence% @nli8e in Hernande= 1here the robbery happened in a public utility, the robbery in this case too8 place in the pa1nshop 1hich is under the control of petitioners% Petitioners had the 4eans to screen the persons 1ho 1ere allo1ed entrance to the pre4ises and to protect itself fro4 unla1ful intrusion% Petitioners had failed to e3ercise precautionary 4easures in ensuring that the robbers 1ere prevented fro4 entering the pa1nshop and for 8eeping the vault open for the day, 1hich paved the 1ay for the robbers to easily cart a1ay the pa1ned articles% ;n ;ru=, !r% 7ilonila 5% CruG, Ca4anava !istrict !irector of Technological Cducation and *8ills !evelop4ent Authority +TC*!A,, boarded the 2ight Rail Transit +2RT, fro4 *en% Puyat Avenue to 6onu4ento 1hen her handbag 1as slashed and the contents 1ere stolen by an unidentified person% A4ong those stolen 1ere her 1allet and the govern4ent#issued cellular phone% *he then reported the incident to the police authoritiesE ho1ever, the thief 1as not located, and the cellphone 1as not recovered% *he also reported the loss to the Regional !irector of TC*!A, and she re0uested that she be freed fro4 accountability for the cellphone% The Resident Auditor denied her re0uest on the ground that she lac8ed the diligence re0uired in the custody of govern4ent property and 1as ordered to pay the purchase value in the total a4ount of P4,").%99% The C5A found no sufficient ?ustification to grant the re0uest for relief fro4 accountability% Be reversed the ruling and found that riding the 2RT cannot per se be denounced as a negligent act 4ore so because CruG s 4ode of transit 1as influenced by ti4e and 4oney considerationsE that she boarded the 2RT to be able to arrive in Caloocan in ti4e for her ) p4 4eetingE that any prudent and rational person under si4ilar circu4stance can reasonably be e3pected to do the sa4eE that possession of a cellphone should not hinder one fro4 boarding the 2RT coach as CruG did considering that 1hether she rode a ?eep or bus, the ris8 of theft 1ould have also been presentE that because of her relatively lo1 position and pay, she 1as not e3pected to have her o1n vehicle or to ride a ta3icabE she did not have a govern4ent assigned vehicleE that placing the cellphone in a bag a1ay fro4 covetous eyes and holding on to that bag as she did is ordinarily sufficient care of a cellphone 1hile traveling on board the 2RTE that the records did not sho1 any specific act of negligence on her part and negligence can never be presu4ed% @nli8e in the ;ru= case, the robbery in this case happened in petitionersN pa1nshop and they 1ere negligent in not e3ercising the precautions ?ustly de4anded of a pa1nshop% B<CRC75RC, e3cept for the insurance aspect, the !ecision of the Court of Appeals dated 6arch )1, "99) and its Resolution dated August ., "99), are A((!RME6%Costs against petitioners%SO OR6ERE6%

G.R. No. 110741 '2,/ 26, 1@@6 S9OPPERS GA!N SUPERMAR", 'ERR& "AN, 'AC? "AN an 9E!RS O( 'AMES "AN, petitioners, vs% NA"!ONAL LA7OR RELA"!ONS COMM!SS!ON, S9OPPERS GA!N SUPERMAR" EMPLO&EES UN!ON8UMP an E6UAR6O "ARROSA, *ARL!"O A:UA!A6AN, ARREO 'OSE, MAG6ALENA AR;AGA, 'EROGE 7ANAGA, CORA 7OLO"AOLO, ELMAR 6OLUN"AR, (RANC!SCO CA7ULA6A, E5EL&N CENA, RO:U!"O CENA, 'UAN!"O 6A&MON, PA7L!"O ESMAS, AR"EM!O GERE, ROSAL!N6A GO, ROL!"O 9AN6!G, AL7ER"O 9OLAN6A, A!6A 'A5!ER, A5EL!NO 'A5!ER, 'R., 'ESUS LEGASP!, MAR!E"A LEGASP!, PE6RO LOPE;, ELAR!O LOS 7ANES, GEORGE MANAL, EMMA MA"!RA,

RA(AEL MENO6!A6O, LUC!LA MONARES, M&RNA OR"!;, "ERES!"A PANGA9!N, AL(RE6O PERLAS, 'R., PAC!"A MANALO, ORLAN6O SAN 'OSE, "ERES!"A SAN"OS, "ERES!"A SENGSENG, an NARC!"O "UA;ON. respondents% PANGAN!7AN, J.:p ;n this !ecision, the Court rules, inter alia, on the tests for deter4ining the e3istence of e4ployer#e4ployee relations, as they relate to the grant of 4onetary benefits due to closure of a business establish4ent% -efore this Court is a special civil action for certiorari to reverse the !ecision 1 of the 'ational 2abor Relations Co44ission pro4ulgated on 6ay "(, 199) in '2RC 'CR CA Case 'o% 99"95)#9" 1hich affir4ed 1ith 4odifications the labor arbiterNs 4onetary a1ards in favor of private respondents% T%e Fact" ;t appears that the )4 private respondents had 1or8ed for at least one year each +fro4 19." to 1999, in the *hoppers $ain *uper4ar8et +*$*, in various capacities as >4erchandiser, cashier, bagger, chec8#out personnel, sales lady, printerQfil4 and 1arehouse4an>% *aid respondents 1ere part of a pool of 1or8ers fro4 three 4anpo1er agencies 1hich supplied petitioner 1ith 1or8ers under >labor only> contracts% ;n !ece4ber 1999, due to the non#rene1al of its lease contract over the pre4ises it 1as using as a grocery and super4ar8et, petitioner corporation 1as constrained to ter4inate its contracts 1ith the >labor only> agency contractors and to apply for business retire4ent% ;t paid separation benefits to its regular e4ployees but not to private respondents, 1ith 1ho4 it believed it had no e4ployer#e4ployee relationship% Ruling on the co4plaint for illegal dis4issal, the labor arbiter rendered his decision dated !ece4ber "7, 1991, the dispositive portion 2 of 1hich readsA B<CRC75RC, ?udg4ent is hereby renderedA +1, finding the respondents *hoppers $ain *uper4art +*$* 6ar8eting Corporation, andQor =a4es Tan, =ac8 Tan and =erry Tan to be guilty of labor only contractingE +", ordering the respondents *hoppers $ains *uper4art +*$* 6ar8eting Corp%, andQor =a4es Tan, =ac8 Tan and =erry Tan, and Respondents +4anpo1er agencies, 2ipercon *ervices, ;nc%E $olden *ervices, ;nc%E &ersatile Consultative and Radiu4 6ulti Resources to pay ?ointly and severally co4plainants the follo1ingA a, 5ne +1, 4onth bac81ages as a conse0uences of the illegal closure in the a4ount of P),9(.%99 for each of the )4 co4plainantsE +e3cluding -enilda Pableo, in the total a4ount of P194,)1"%99E b, *eparation pay of one +1, 4onth for every year of service +including co4plainant Pablito Cs4as,, in lieu of reinstate4ent as regular 1or8ers considering that reinstate4ent is no longer feasible due to the closure of the business of *hoppers $ain *uper4ar8et in the follo1ing a4ounts ofA 1% Barlito Ac0uiadan P1.,49.%99 333 333 333 c, @nderpay4ent of 1ages, unpaid salaries, 5 days service incentive leave 1ith pay, proportionate 1)th 4onth pay and cash bond in the a4ount of P499%99 refund of Teresita Pangahin, in the follo1ing a4ounts ofA La4ounts o4ittedM d, Ten +19:, Percent attorneyNs fees in the a4ount of P59,591%)" based on the total ?udg4ent a1ard of P595,91)%""E ;;;%

+), !is4issing the co4plaint for unfair labor practice for lac8 of evidence% 5n appeal, the respondent '2RC affir4ed the labor arbiter in the assailed !ecision, 1ith the follo1ing dispositionA 4 B<CRC75RC, pre4ises considered, the assailed decision is hereby affir4ed 1ith the 4odification that the a4ount of 1)th 4onth and service incentive leave pay already paid to the e4ployees recruited and hired by respondent 2ipercon *ervices, ;nc% should be deducted fro4 the a4ount due the4 as stated in the assailed decision% <ence, this recourse% T%e I""ue" The petition < as 1ell as the petitionersN 4e4orandu4 5 allege the follo1ing groundsA ;% Public Respondent gravely abused its discretion 1hen it affir4ed that there e3ist an e4ployer# e4ployee relationship bet1een petitioner Corporation and respondentsE ;;% Public Respondent gravely abused its discretion 1hen it declared respondents illegally dis4issed by petitioner CorporationE

Public Respondent gravely abused its discretion in affir4ing that Pablito Cs4as 1as not paid his separation pay 1ithout discussing said issue in the body of the decisionE ;&% Public respondent gravely abused its discretion in holding petitioner Corporation liable bac81ages, separation pay, underpay4ent, and attorneyNs feesE &% Public respondent gravely abused its discretion in holding individual petitioner+s, =a4es Tan, =erry Tan, and =ac8 Tan ?ointly and severally liable 1ith Petitioner Corporation for the above 4entioned 4onetary obligationsE T%e Fir"t 4@i"tence o< 4mployer-4mployee 5elation"%ip and Pi:otal I""ueA

;n affir4ing the findings of the labor arbiter that the 4anpo1er agencies 1ere >labor only> contractors, the respondent '2RC heldA 6

;t is li8e1ise our considered vie1 that respondents 4anpo1er agencies 1ere >labor only> contractors, 1ho had acted as 4ere suppliers of 4anpo1er for respondent *$*% Prescinding on this finding, it is the unavoidable conclusion that e4ployer#e4ployee relations e3isted bet1een co4plainants and respondent *$*% As held by the *upre4e Court in the case of Indu"trial Timber ;orporation :"%NL5;, 1(9 *CRA )41, thusA <ence, a finding that a contractor is a >labor only> contractor is e0uivalent to a finding that there e3ists an e4ployer#e4ployee relationship bet1een the o1ner of the pro?ect and the e4ployees of the >labor only> contractor since that relationship is defined and prescribed by the la1 itself% *uffice it for us to point out that despite the ad4ission of respondent 4anpo1er agencies that herein co4plainants 1ere their contractual e4ployees assigned only to respondent *$* and that they have direct control and supervision over their 1or8 perfor4ance including pay4ent of 1ages, the obvious fact re4ains that co4plainants 1ere e4ployees of respondent *$* as provided by la1 4ore particularly under Articles 19( and 197, and *ection+s, . and 9 of Rule &;;; of -oo8 ;;; of the 54nibus Rules ;4ple4enting the 2abor Code% ;t 4ust be so for the si4ple reason that all respondent agencies are >labor only> contractors% As such, they are agents of respondent *$* and the latter assu4es responsibility of an e4ployer% Thus, the contention of respondent *$* that co4plainants 1ere +not, its e4ployees because it did not have control over the4 is untenable% ;t is not denied that all co4plainants had 1or8ed 1ithin the pre4ises of respondent and not 1ithin the pre4ises of each respondent agency% As such, co4plainants 4ust have been sub?ected to at least the sa4e control and supervision that respondent e3ercised over any other person physically 1ithin its pre4ises or rendering services for it% ;t is 0uite unbelievable that co4plainants 1ould be allo1ed to 1or8 1ithin the pre4ises 1ithout being sub?ected to a substantial 4easure of control and supervision, 1hether in respect of the 4anner in 1hich they discharged their functions, or in respect of the end results of their functions or activities or both% 6oreover, it appears that co4plainantsN 1or8 had +beco4e, regular in nature% Aside fro4 the fact that co4plainants+N, ?ob+s, as cashier, bagger, sales lady, 4erchandiser, chec8#out personnel, printerQfil4 and 1arehouse4an is directly related to the day#to#day operation of the respondent super4ar8et, they have also rendered 4ore than one year of service doing the sa4e ?ob in respondent% Apparently, their assign4ent had beco4e for an indefinite period or for unstated period of ti4e% As such, they have beco4e regular e4ployees 1ho 4ay not be dis4issed e3cept for a ?ust cause% ;t is not difficult to see that to uphold the contractual agree4ent bet1een the respondent *$* and the different 4anpo1er agencies 1ould in effect be to per4it e4ployers to avoid the necessity of hiring regular or per4anent e4ployees to enable the4 to 8eep their e4ployees indefinitely on a te4porary or casual status, thus to deny the4 security of tenure in their ?obs% Article 19( of the 2abor Code is precisely designed to prevent such a result% +P-C vs% '2RC, 14( *CRA )47,%> 5n the other hand, petitioners [ citing Singer Se(ing Mac%ine ;ompany :"% Drilon, et al%, 7 [ argue that perfor4ance of >activities 1hich are desirable and necessary for the business of the e4ployer> is not deter4inative of the e3istence of e4ployer#e4ployee relationships% ;n said case, this Court specifically statedA The Court finds the contention of the respondents that the union 4e4bers are e4ployees under the Article ".9 of the 2abor Code to have no basis% The definition that regular e4ployees are those 1ho perfor4 activities 1hich are desirable and necessary for the business of the e4ployer is not deter4inative in this case% Any agree4ent 4ay provide that one party shall render services for and in behalf of another for a consideration +no 4atter ho1 necessary for the latterNs business, even 1ithout being hired as an e4ployee% This is precisely true in the case of an independent contractorship as 1ell as in an agency agree4ent% The Court agrees 1ith the petitionerNs argu4ent that Article ".9 is not the yardstic8 for deter4ining the e3istence of an e4ploy4ent relationship because it 4erely

distinguishes bet1een t1o 8inds of e4ployees, i%e% regular e4ployees and casual e4ployees, for purposes of deter4ining the right of an e4ployee to certain benefits, to ?oin or for4 a union, or to security of tenure% Article ".9 does not apply 1here the e3istence of an e4ploy4ent relationship is in dispute% Citing various decisions 8 of this Court, petitioners essay that >the e3istence of e4ployer#e4ployee relationship is deter4ined by four +4, ele4ents, na4elyA +1, selection and engage4ent of the e4ployeesE +", the pay4ent of 1agesE +), the po1er of dis4issalE and +4, the po1er to control e4ployeesN conduct%> Petitioners then argue that since the 4anpo1er or labor agencies ad4itted in their respective position papers that they selected, hired, paid, disciplined, dis4issed and controlled the private respondents, perforce, the latter are not the e4ployees of the petitioner corporation but of the agencies only% Be do not agree% The applicable la1 is not Article ".9 of the 2abor Code 1hich is cited by petitioners, but Art% 19(, 1hich providesA Art% 19(% Contractor or subcontractor [ Bhenever an e4ployer enters into a contract 1ith another person for the perfor4ance of the for4erNs 1or8, the e4ployees of the contractor and of the latterNs subcontractor, if any, shall be paid in accordance 1ith the provisions of this Code% ;n the event that the contractor or subcontractor fails to pay the 1ages of his e4ployees in accordance 1ith the Code, the e4ployer shall be ?ointly and severally liable 1ith his contractor or subcontractor to such e4ployees to the e3tent of the 1or8 perfor4ed under the contract, in the sa4e 4anner and e3tent that he is liable to e4ployees directly e4ployed by hi4% The *ecretary of 2abor 4ay, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of 1or8ers established under this Code% ;n so prohibiting or restricting, he 4ay 4a8e appropriate distinctions bet1een labor#only contracting and ?ob contracting as 1ell as differentiations 1ithin these types of contracting and deter4ine 1ho a4ong the parties involved shall be considered the e4ployer for purposes of the this Code, to prevent any violation of circu4vention of any provision of this Code% There is >labor#only> contracting 1here the person supplying 1or8ers to an e4ployer does not have substantial capital or invest4ent in the for4 of tools, e0uip4ent, 4anchineries, 1or8 pre4ises, a4ong others, and the 1or8ers recruited and placed by such persons are perfor4ing activities 1hich are directly related to the principal business of such e4ployer% ;n such cases, the person or inter4ediary shall be considered 4erely as an agent of the e4ployer 1ho shall be responsible to the 1or8ers in the sa4e 4anner and e3tent as if the latter 1ere directly e4ployed by hi4% +e4phasis supplied, ;n accordance 1ith the above provision, petitioner corporation is dee4ed the direct e4ployer of the private respondents and thus liable for all benefits to 1hich such 1or8ers are entitled, li8e ages, separation benefits and so forth% There is no denying the fact that private respondentsN 1or8 as 4erchandisers, cashiers, baggers, chec8#out personnel, sales ladies, 1arehouse4en and so forth 1ere directly related, necessary and vital to the day#to#day operations of the super4ar8etE their ?obs involved nor4al and regular functions in the ordinary business of the petitioner corporation% $iven the nature of their functions and responsibilities, it is i4probable that petitioner did not e3ercise direct control over their 1or8% 6oreover, there is no evidence [ as in fact, petitioners do not even allege [ that aside fro4 supplying the 4anpo1er, the labor agencies have >substantial capital or invest4ent in the for4 of tools, e0uip4ent, 4achineries, 1or8 pre4ises, a4ong others%>

Singer ;a"e :i"-a-:i" t%e in"tant ca"e At this ?uncture, it 1ould be useful to dra1 4aterial distinction bet1een Singer and the instant case% The for4er case involved collectors of the -aguio City branch of the *inger *e1ing 6achine Co4pany 1ho for4ed a union and petitioned to be certified as sole and e3clusive bargaining agentE the co4pany opposed on the ground that these so#called union 4e4bers 1ere not e4ployees but independent contractors, as evidenced by the collection agency agree4ent they signed% This Court held that there did not e3ist any e4ploy4ent relationship bet1een the co4pany and its collectors% The collection agency agree4ent stipulated in plain language that the designation of the collectors as collection agents of the co4pany shall not create an e4ploy4ent relationship, and that the collectors 1ere at all ti4es to be considered independent contractors% 'aturally, the literal 4eaning of the provisions in the agree4ent is controlling% 7urther4ore, the agree4ent did not fi3 the a4ount for 1ages, nor the re0uired 1or8ing hours% The collectorsN earnings 1ere deter4ined solely on the basis of the tangible results they produced + i%e%, total collections 4ade,% They 1or8ed at their pleasure and 1ere not re0uired to observe office hours nor to report to the co4panyNs pre4ises, e3cept only to re4it collectionsE neither 1ere they re0uired to devote their ti4e e3clusively for the co4pany% The 4anner and 4ethod of effecting collections 1ere left entirely to their discretion 1ithout any interference on the part of the co4pany% The collectors even spent for their o1n transportation and other e3penses incurred in collecting% 6oreover, the grounds specified in the collection agency agree4ent for ter4ination of the relationship had no relation to the 4eans and 4ethods of 1or8 that are ordinarily re0uired of or i4posed upon e4ployees, and hence do not support the vie1 that the co4pany e3ercised control over the collectors% Therefore, the Court held that the last and 4ost i4portant ele4ent of the control test 1as not satisfied by the ter4s and conditions of said agree4ent, as there 1as nothing in the agree4ent 1hich indicated control by the co4pany over not only the end to be achieved, but also the 4eans and 4ethods in achieving the end% The Court 1as convinced that the co4pany and the collecting agents intended that the for4er 1ould ta8e control only over the amount" o< collection, 1hich are the end results of the ?ob perfor4ed% ;n contrast, in the case before us, it cannot be clai4ed that private respondents 1ere being paid purely on the basis of tangible results% 'either is it possible that they 1ere not controlled by petitioner corporation in the perfor4ance of their 1or8 as 4erchandiser, cashier, bagger, 1arehouse4an, etc%, insofar as the 1or8 pre4ises, hours of 1or8, 4eans and 4ethods of perfor4ing their assigned tas8s, and end results 1ere concerned% 'or could it be said that they 1or8ed at their pleasure and did not have to devote full ti4e to their ?obs% 5bviously, the Singer ruling cannot apply to the instant case% Second and Illegal Di"mi""al and Monetary A(ard" Fourt% I""ue"A

underta8ing unless the closing is for the purpose of circu4venting the provisions of this Title, by serving 1ritten notice on the 1or8ers and the 6inistry of 2abor and C4ploy4ent at least one +1, 4onth before the intended date thereof% ;n case of ter4ination due to the installation of labor saving devices or redundancy, the 1or8er affected thereby shall be entitled to a separation pay e0uivalent to at least his one +1, 4onth pay or to at least one +1, 4onth pay for every year of service, 1hichever is higher% ;n case of retrench4ent to prevent losses and in ca"e o< clo"ure" or ce""ation o< operation" o< e"tabli"%ment or underta$ing not due to "eriou" bu"ine"" lo""e" or <inancial re:er"e"# t%e "eparation pay "%all be eEui:alent to one +2- mont% pay or at lea"t one-%al< +2DM- mont% pay <or e:ery year o< "er:ice# (%ic%e:er i" %ig%er % A fraction of at least si3 +(, 4onths shall be considered one +1, 1hole year% +C4phasis added, The non#rene1al of petitioner corporationNs lease contract and its conse0uent closure and cessation of operations 4ay be considered an event beyond the control of petitioners, in the nature of a <orce maNeure situation% As such it a4ounts to a Nu"t cau"e for ter4ination of the private respondents% <o1ever, as the latter are dee4ed by la1 to have been e4ployees of the petitioner corporation, they are entitled to receive separation pay e0uivalent to one +1, 4onth pay or at least one#half +1Q", 4onth pay for every year of service, 1hichever is higher, on account of such ter4ination due to closure% 5n the other hand, the due proce"" re0uire4ent in this situation consists of serving 1ritten notice upon each 1or8er to be ter4inated and upon the !epart4ent of 2abor and C4ploy4ent at least one +1, 4onth prior to the date of ter4ination% As held in ;entury Te@tile Mill", Inc% :"% NL5; @, >the rights of an e4ployee % % % to be infor4ed beforehand of his proposed dis4issal +or suspension, as 1ell as of the reasons therefor, % % % are rig%t" per"onal to t%e employee %> ;n short, an e4ployee is entitled to be personally infor4edE and this re0uire4ent is not a 4ere technicality or for4ality 1hich the e4ployer 4ay dispense 1ith% 7ro4 the foregoing, it is clear that the dis4issal of private respondents failed to fully satisfy this re0uire4ent for validity and legality% The 4ere posting of petitionersN notice to ter4inate private respondentsN e4ploy4ent on the e4ployeesN bulletin board is not sufficient co4pliance 1ith the statutory re0uire4ent% As held by the '2RCA Anent the contention of respondent *$* that co4plainants 1ere sufficiently notified of the closure by reason of the notice posted in the bulletin board )9 days prior to the closure untenable% The la1 is very clear than an e4ployer 1ho see8s to ter4inate the e4ploy4ent of its e4ployee 4ust notify hi4 in 1riting at least )9 days before the intended dis4issal% The re0uisite of notice is intended to infor4 the e4ployee concerned of the e4ployerNs intent to dis4iss hi4 and the reason for the proposed dis4issal% *ince the notice posted in the bulletin board cannot be considered co4pliance 1ith the notice re0uired by la1, it follo1s that the dis4issal is illegal% ;nas4uch as the dis4issal had been tainted 1ith illegality, the 4onetary a1ard for bac81ages, separation pay and attorneyNs fees, as 4odified by public respondent '2RC, are ?ustified% -esides, the 4atter of establishing the bases for the a1ards constitute factual issues, and as a rule, the factual findings of the labor tribunals are not disturbed by the *upre4e Court, particularly 1here both the labor arbiter and the '2RC are in agree4ent% 10 T%ird Separation Pay o< Pablito 4"ma" I""ueA Non-payment o<

<aving established that there e3isted an e4ploy4ent relationship bet1een petitioner corporation and the private respondents, it is no1 necessary to deter4ine if private respondents 1ere dis4issed in accordance 1ith la1% $enerally spea8ing, to validate a dis4issal, the e4ployer 4ust sho1 that +1, there 1as sufficient or ?ust cause therefor and that +", due process 1as observed% ;t is indisputable that petitioner corporationNs situation co4es under Art% ".) of the 2abor Code, 1hich reads as follo1sA Art% ".)% ;lo"ure o< e"tabli"%ment and reduction o< per"onnel % [ The e4ployer 4ay also ter4inate the e4ploy4ent of any e4ployee due to the installation of labor saving devices, redundancy, retrench4ent to prevent losses or the closing or cessation of operation of the establish4ent or

Petitioners argue that the '2RC erred 1hen it affir4ed the labor arbiterNs holding the Pablito Cs4as >1as not paid his separation pay> 1ithout discussing the 4atter in its assailed !ecision% *uffice it to say that 1hen an appellate tribunal or court affir4s a decision, it adopts the affir4ed decision as its o1n and there is thus no need to re1rite every 1ord or ite4, or re#discuss every piece of evidence or argu4ent so affir4ed% 5n the other hand, the labor arbiter held Cs4as to be entitled to separation pay on the basis of Cs4asN evidence, as pointed out by private respondentsN counsel, including >a police report 1hen he filed a co4plaint against petitioners% % % %> Fi<t% I""ueA Coint and Se:eral Liability

Bith respect to the last issue, it is 1ell#settled that the responsible officers of a corporation can be held liable for non#pay4ent of bac8 1ages% 11 6ore so, 1here the corporation has been dissolved% 12 After petitioner Corporation closed its super4ar8et business, it applied 1ith the City <all of 6anila for a bu"ine"" retirement% 5n =anuary 19, 1991 the office of the City Treasurer of 6anila through Asst% City Treasurer &ictor -% Cndriga approved the business retire4ent of respondent co4pany% Conse0uently the contract of the agency e4ployers 1ere li8e1ise ter4inated% 14 B<CRC75RC, there being no clear sho1ing of any grave abuse of discretion on the part of respondent '2RC, the petition 4ust be as it is hereby !;*6;**C!, 1ith costs against petitioners% *5 5R!CRC!%

already suspended by her e4ployer until her case 1ould be ter4inated% Be have done ?ustice to the 1or8ing4an in the pastE today 1e 1ill do no less by resolving all doubts in favor of the hu4ble e4ployee in faithful obeisance to the constitutional 4andate to afford full protection to labor%L)M Bhat follo1s is the pathetic story of private respondent Cusebia R% $alGote as recorded by the Civil *ervice Co44ission, adopted and sustained by the Court of AppealsA Private respondent 1as e4ployed as a cler8 in the !epart4ent of Cngineering and Public Bor8s of 6a8atiCity%L4M 5n ( *epte4ber 1991 she 1as arrested 1ithout 1arrant and detained allegedly for 8idnapping for ranso4 1ith physical in?uries, and thereafter sub?ected to in0uest proceedings L5M 1ith the cri4inal case eventually doc8eted as Cri4% Case 'o% ..)57 of the Regional Trial Court ofPasig, 6etro 6anila% L(M ;ncarcerated fro4 then on, she could not report for 1or8 as a result of 1hich she 1as suspended fro4 office by petitionerCity $overn4ent starting 9 *epte4ber 1991 until the final disposition of her case%L7M @nfortunately, ho1ever, the City $overn4ent thereafter changed its policy% Bithout infor4ing private respondent 1ho 1as then already detained at the RiGal Provincial =ail,L.M and even as her trial for the cri4inal case 1as going on, she 1as dropped fro4 the rolls of 4unicipal e4ployees effective "1 =anuary 199) for having been absent fro4 1or8 for 4ore than one +1, year 1ithout official leave% L9M Three +), years later, or on "" *epte4ber 1994, private respondent $alGote 1as ac0uitted of the cri4e charged% The trial court strongly noted the failure of the prosecution to prove any act establishing her co4plicity in the cri4e, and thus ordered her i44ediate release fro4 detention%L19M 5n 19 5ctober 1994 she re0uested the 6unicipal Personnel 5fficer as 1ell as 6ayor =e?o4ar -inay, both of petitioner city govern4ent, for the lifting of her suspension and for her reinstate4ent to her position in accordance 1ith the 9 *epte4ber 1991 4e4orandu4%L11M 5n 4 August 1995, or nearly a year after she 4ade her re0uest for reinstate4ent fro4 petitioner City $overn4ent and no action 1as ta8en thereon, private respondent filed a letter#re0uest 1ith the C*C for the sa4e cause% L1"M Conse0uently, in Resolution 'o% 9(915) the C*C found 4erit in her sub4issions and ordered her i44ediate reinstate4ent to the position of Cler8 ;;; 1ith bac8 1ages fro4 19 5ctober 1994, 1hich 1as the day she presented herself as reporting for 1or8 after her detention, until her actual resu4ption of duty% L1)M The City $overn4ent of 6a8ati City filed a Petition for Revie1 of the Resolution of the C*C but the sa4e 1as denied by the Court of Appeals, thus sustaining the assailed Resolution of the C*C% As 4ay be gleaned fro4 the pleadings of the parties, the issues areA +a, 1hether private respondent Cusebia R% $alGote 4ay be considered absent 1ithout leaveE +b, 1hether due process had been observed before she 1as dropped fro4 the rollsE and, +c, 1hether she 4ay be dee4ed to have abandoned her position, hence, not entitled to reinstate4ent 1ith bac8 salaries for not having filed a for4al application for leave% Cncapsulated, the issues 4ay be reduced to 1hether private respondent 4ay be considered absent 1ithout leave or 1hether she abandoned her ?ob as to ?ustify being dropped fro4 the service for not filing a for4al application for leave% Petitioner 1ould have private respondent declared on AB52 and faults her for failing to file an application for leave of absence under *ecs% "9L14M and )5L15M of the C*C Rules and re?ects the C*CNs ruling of an >auto4atic leave of absence for the period of her detention> since the >current ;i:il Ser:ice La( and 5ule" do not contain any specific provision on automatic leave of absence%> The Court believes that private respondent cannot be faulted for failing to file prior to her detention an application for leave and obtain approval thereof% The records clearly sho1 that she had been advised three +), days after her arrest, or on 9 *epte4ber 1991, that petitionerCity $overn4ent of 6a8ati City had placed her under suspension until the final disposition of her cri4inal case%L1(M This act of petitioner indubitably recogniGed private respondentNs predica4ent and thus allo1ed her to forego reporting for 1or8 during the pendency of her cri4inal case 1ithout the needless e3ercise of strict for4alities% At the very least, this official co44unication should be ta8en as an e0uivalent of a prior approved leave of absence since it 1as her e4ployer itself 1hich placed her under suspension and thus e3cused her fro4 further for4alities in applying for such leave% 6oreover, the arrange4ent bound the City $overn4ent to allo1 private respondent to return to her 1or8 after the ter4ination of her case, i%e%, if ac0uitted of the cri4inal charge% This pledge sufficiently served as legiti4ate reason for her to altogether dispense 1ith the for4al application for leaveE there 1as no reason to, as in fact it 1as not re0uired, since she 1as for all practical purposes incapacitated or disabled to do so% ;ndeed, private respondent did not have the least intention to go on AB52 fro4 her post as Cler8 ;;; of petitioner, for AB52 4eans the e4ployee leaving or abandoning his post 1ithout ?ustifiable reason and 1ithout notifying his e4ployer% ;n

IG.R. No. 1414@2. (ebr2ar/ 6, 2002J C!"& GO5ERNMEN" O( MA?A"! C!"& repre$ente +ere#n b/ 'E'OMAR C. 7!NA& #n +#$ 0apa0#t/ a$ Ma/or o1 MaEat# C#t/, petitioner, $s. C!5!L SER5!CE COMM!SS!ON an EUSE7!A R. GAL;O"E, respondents. 7ELLOS!LLO, J.) ;s a govern4ent e4ployee 1ho has been ordered arrested and detained for a non#bailable offense and for 1hich he 1as suspended for his inability to report for 1or8 until the ter4ination of his case, still re0uired to file a for4al application for leave of absence to ensure his reinstate4ent upon his ac0uittal and thus protect his security of tenureF Conco4itantly, 1ill his prolonged absence fro4 office for 4ore than one +1, year auto4atically ?ustify his being dropped fro4 the rolls 1ithout prior notice despite his being already placed under suspension by his e4ployer until the ter4ination of his case, 1hich finally resulted in his ac0uittal for lac8 of evidenceF C@*C-;A R% $A2H5TC 1as e4ployed as a lo1ly cler8 in the service of the City $overn4ent of 6a8ati City% Bith her 4eager inco4e she 1as the lone provider for her children% -ut her si4ple life 1as disrupted abruptly 1hen she 1as arrested 1ithout 1arrant and detained for 4ore than three +), years for a cri4e she did not co44it% Throughout her ordeal in detention she trusted the city govern4ent that the suspension i4posed on her 1as only until the final disposition of her case% As she dre1 near her vindication she never did e3pect the 1orst to co4e to her% 5n the third year of her detention the city govern4ent lifted her suspension, dropped her fro4 the rolls 1ithout prior notice and 1ithout her 8no1ledge, 4uch less gave her an opportunity to forth1ith correct the o4ission of an application for leave of absence belatedly laid on her% @pon her ac0uittal for lac8 of evidence and her release fro4 detention she 1as denied reinstate4ent to her position% *he 1as forced to see8 recourse in the Civil *ervice Co44ission 1hich ordered her i44ediate reinstate4ent 1ith bac8 1ages fro4 19 5ctober 1994, the date 1hen she presented herself for reassu4ption of duties but 1as turned bac8 by the city govern4ent, up to the ti4e of her actual reinstate4ent% Petitioner 1ent to the Court of Appeals, but private respondent 1as sustained and the petition 1as dis4issed% ;n other 1ords, in both the Civil *ervice Co44issionL1M and the Court of Appeals,L"M private respondent obtained favorable relief% Plainly, the case of petitioner City $overn4ent of 6a8ati City revolves around a rotunda of doubt, a dile44a concerning the legal status and i4plication of its suspension of private respondent Cusebia R% $alGote and the automatic leave of absence espoused by the Civil *ervice Co44ission% Against this concern is the punctilious adherence to technicality, the re0uire4ent that private respondent should have filed an application for leave of absence in proper for4% The instant case is therefore a dispute bet1een, at its 1orst, private respondentNs substantial co4pliance 1ith the standing rules, and the City $overn4entNs insistence that the lo1ly cler8 should have still gone through the for4alities of applying for leave despite her detention, of 1hich petitioner had actual notice, and the suspension order couched in si4ple language that she 1as being suspended until the final disposition of her cri4inal case% The 4eaning of her suspension until the final disposition of her case is that should her case be dis4issed she should be reinstated to her position 1ith pay4ent of bac8 1ages% *he did not have to apply for leave of absence since she 1as

the instant case, private respondent had a valid reason for failing to report for 1or8 as she 1as detained 1ithout bail% <ence, right after her release fro4 detention, and 1hen finally able to do so, she presented herself to the 6unicipal Personnel 5fficer of petitioner City $overn4ent to report for 1or8% Certainly, had she been told that it 1as still necessary for her to file an application for leave despite the 9 *epte4ber 1991 assurance fro4 petitioner, private respondent 1ould have lost no ti4e in filing such piece of docu4ent% -ut the situation 4o4entarily suspending her fro4 1or8 persistedA petitioner City$overn4ent did not alter the modu" :i:endi 1ith private respondent and lulled her into believing that its co44it4ent that her suspension 1as only until the ter4ination of her case 1as true and reliable% @nder the circu4stances private respondent 1as in, prudence 1ould have dictated petitioner, 4ore particularly the incu4bent city e3ecutive, in patria pote"ta", to advise her that it 1as still necessary # although indeed unnecessary and a useless cere4ony # to file such application despite the suspension order, before depriving her of her legiti4ate right to return to her position% Patria pote"ta" in pietate debet# non in atrocitate# con"i"tere/ Paternal po1er should consist or be e3ercised in affection, not in atrocity% ;t is clear fro4 the records that private respondent $alGote 1as arrested and detained 1ithout a 1arrant on ( *epte4ber 1991 for 1hich reason she and her co#accused 1ere sub?ected i44ediately to in0uest proceedings% This fact is evident fro4 the instant petition itself L17M and its attach4ents, na4ely, the In<ormation filed against the4 on 17 *epte4ber 1991 as 1ell as the Deci"ion of the trial court ac0uitting private respondent of 8idnapping and physical in?uries% <ence, her ordeal in ?ail began on ( *epte4ber 1991 and ended only after her ac0uittal, thus leaving her no ti4e to to attend to the for4ality of filing a leave application% -ut petitioner City $overn4ent 1ould uncere4oniously set aside its 9 *epte4ber 1991 suspension order clai4ing that it 1as superseded three +), years later by a 4e4orandu4 dropping her fro4 the rolls effective "1 =anuary 199) for absence >for 4ore than one +1, year 1ithout official leave%> L1.M <ence, the suspension order 1as void since there 1as no pending ad4inistrative charge against private respondent so that she 1as not e3cused fro4 filing an application for leave% Be do not agree% ;n placing private respondent under suspension until the final disposition of her cri4inal case, the 6unicipal Personnel 5fficer acted 1ith co4petence, so he presu4ably 8ne1 that his order of suspension 1as not a8in to either suspension as penalty or preventive suspension since there 1as no ad4inistrative case against private respondent% As co4petence on the part of the 6P5 is presu4ed, any error on his part should not pre?udice private respondent, and that 1hat he had in 4ind 1as to consider her as being on leave of absence 1ithout pay and their e4ployer#e4ployee relationship being 4erely dee4ed suspended, not severed, in the 4ean1hile% This construction of the order of suspension is actually 4ore consistent 1ith logic as 1ell as fairness and 8indness to its author, the 6P5% *ignificantly, the idea of a "u"pended employer-employee relation"%ip is 1idely accepted in labor la1 to account for situations 1herein laborers 1ould have no 1or8 to perfor4 for causes not attributable to the4% L19M Be find no basis for denying the application of this principle to the instant case 1hich also involves a lo1ly 1or8er in the public service% 6oreover, 1e certainly cannot nullify the City $overn4entNs order of suspension, as 1e have no reason to do so, 4uch less retroactively apply such nullification to deprive private respondent of a co4pelling and valid reason for not filing the leave application% 7or as 1e have held, a void act though in la1 a 4ere scrap of paper nonetheless confers legiti4acy upon past acts or o4issions done in reliance thereof% L"9MConse0uently, the e3istence of a statute or e3ecutive order prior to its being ad?udged void is an operative fact to 1hich legal conse0uences are attached% L"1M ;t 1ould indeed be ghastly unfair to prevent private respondent fro4 relying upon the order of suspension in lieu of a for4al leave application% At any rate, state4ents are, or should be, construed against the one responsible for the confusionE other1ise stated, petitioner 4ust assu4e full responsibility for the conse0uences of its o1n act, hence, should be 4ade to ans1er for the 4i3# up of private respondent as regards the leave application% At the very least, it should be considered estopped fro4 clai4ing that its order of suspension is void or that it did not e3cuse private respondent fro4 filing an application for leave on account of her incarceration% ;t is a fact that she relied upon this order, issued barely three +), days fro4 the date of her arrest, and assu4ed that 1hen the cri4inal case 1ould be settled she could return to 1or8 1ithout need of any other prior act% L""M ;n Laurel :/ ;i:il Ser:ice ;ommi""ion 1e held # The sole ground invo8ed by hi4 for e3e4ption fro4 the rule on nepotis4 is, as above indicatedA the rule does not apply to designation # only to appoint4ent% <e changed his 4ind only after the public respondent, in its Resolution 'o% .)#)5., ruled that the >prohibitive 4antle on nepotis4 1ould include designation, because 1hat cannot be done directly cannot be done indirectly> and, 4ore specifically, only 1hen he filed his 4otion to reconsider said resolution% *trictly spea8ing,estoppel has

bound petitioner to his prior ad4ission% Per Article 14)1 of the Civil Code, through estoppel an ad4ission or representation is rendered conclusive upon the person 4a8ing it, and cannot be denied or disproved as against the person relying thereon% L")M ;f it is true that the City $overn4ent of 6a8ati City 1anted to change its stance and consider the suspension 4e4orandu4 as an error, it should have re0uired private respondent to file an application for leave as it 1as its obligation to infor4 her of such re0uire4ent% ;n particular, the subse0uent 4e4orandu4 dropping $alGote fro4 the rolls effective "1 =anuary 199) should have been sent to her at the RiGal Provincial =ail 1here she had been detained and 1here she could have received it% This Court 1ill not confer validity upon the later 4e4orandu4 1hich violates due process% As 1e ruled in Gon=ale" :/ ;i:il Ser:ice ;ommi""ionL"4M # ;t is the ruling of the respondent Civil *ervice Co44ission that the sending of the said notice to the residence of petitioner constitutes XsubstantialY co4pliance 1ith the de4ands of due process% The ruling 1ould have so4e allure if the address of petitioner in the @nited *tates 1as not 8no1n to the officials of AT; and if his Philippine address 1as his last 8no1n address% -ut as stressed above, they 8ne1 of petitionerNs e3act address in the @nited *tates and there appears no i4pedi4ent for the4 to send the notice in this correct address 3 3 3 3 The disputed ruling cuts too deeply on petitionerNs right to continue his e4ploy4ent in the govern4ent and unduly dilutes the protection of due process% 3 3 3 3 'othing less than strict co4pliance 1ith the de4ands of due process should have been de4anded by the respondent Co44ission fro4 the officials of AT; in light of the e0uities of the case% 'or can 1e give our concurrence to the further ruling of the respondent Co44ission that the denial of due process to the petitioner 1as cured by the publication of said notice in three +), issues of the Philippine =ournal% 'otice by publication 4ight have been proper if the address of petitioner 1ere un8no1n% *ince the officials of AT; 8ne1 the 1hereabouts of petitioner, they have no legal 1arrant to notify hi4 thru the ne1spapers% Be find no relevance to the reference of petitioner City $overn4ent to the presu4ption of regularity in the perfor4ance of duties as regards the service of the 4e4orandu4 upon private respondent 1hich dropped her fro4 the rolls% ;n the first place, the presu4ption 1ould only cover the proposition that the City $overn4ent did serve the 4e4orandu4 at the house of private respondent% ;t does not prove ho1ever that she received the 4e4orandu4 or 1as sufficiently infor4ed that she had been dropped fro4 the rolls% *till and all, the presu4ption stands on sha8y foundation since, as noted by the Court of Appeals, even the delivery of the 4e4orandu4 to private respondentNs house is of doubtful veracity >in light of the non#sub4ission by the petitioner of the corresponding proof of service, i%e%, the affidavit of the party serving, containing a full state4ent of the date, place and 4anner of service%> L"5M -esides, petitioner City $overn4ent of 6a8ati City had actual and official 8no1ledge of private respondentNs incarceration by virtue of a valid process of detention +beginning *epte4ber 1991 until she 1as declared innocent of the charges in 1994, as obvious fro4 the ad4issions in the instant petition that left her no choice but to follo1 and obey, and even suffer in silence, a la1ful order of the court, although actually un?ust to her% PetitionerNs 8no1ledge thereof, 1hich obliges it to send the notice to 1here private respondent 1as detained, cannot be denied% Thus # 3 3 3 3 "%9" 5n *epte4ber 11, 1991, she 1as arrested on a charge of 8idnapping 1ith serious physical in?uries and conse0uently Cri4inal Case 'o% ..)57 1as filed against her at the Regional Trial Court of Pasig, 6etro 6anila, -ranch 1(( 3 3 3 3 "%9) !uring the pendency of the cri4inal case, $alGote re4ained in ?ail 1ithout filing any application for leave 1ith the then 6unicipality of 6a8ati% 5n =anuary "1, 199) she 1as dropped fro4 the rolls for her continued absence 1ithout official leave for 4ore than a year%L"(M The attention of the Court is invited to the cases of 5amo :/ 4le<aQoL"7M and 8ue=on :/ orromeo,L".M 1hich d1ell on the i44ateriality of sending the notice to drop the e4ployees concerned fro4 the rolls% -ut these cases, sadly, are not in point% ;n 5amo the !ean of the $raduate *tudies of the 2eyte 'or4al *chool abandoned the deanship of the school and transferred to the 'ational 6anpo1er and Douth Council fro4 1here she 1as deriving her salary fro4 the ti4e she 1ent on leave fro4 the school% ;t 4ust be stressed that it 1as the !ean herself 1ho by desire and choice refused to report for 1or8 at the 2eyte 'or4al *chool, her for4er e4ployer% The case of 8ue=on involved an erring Chief 'urse of the ;ligan City <ospital 1ho 1ent on an e3tended study leave despite the clear instructions for her to return to 1or8 i44ediately, and the absence of any legal i4pedi4ent to her pro4pt co4pliance 1ith the order% -esides the voluntary act of the Chief 'urse to refuse the e4ploy4ent, her e4ployer did not also e3cuse her fro4 filing a leave application%

;n other 1ords, 1hat the 5amo and 8ue=on cases resolved 1as the ada4ant refusal of the e4ployees concerned to return to 1or8 by their o1n choosing and the consistent de4and of their respective e4ployers to i44ediately resu4e their duties% ;n contrast, the instant case involves the technicality of private respondentNs failure to file a leave application on account of the representation of petitioner City $overn4ent to suspend her fro4 1or8 until her cri4inal case 1as ter4inated% ;t also refers to the legal and physical i4pedi4ent of a pending cri4inal case that prevented her fro4 reporting for 1or8, a situation she did not 1ish for, 4uch less cherish% -eing the sole provider of her children, the e4ploy4ent could not have but 4eant so 4uch to her and her fa4ily% Clearly, therefore, 5amo and 8ue=on cases do not apply to the case before us% Bhat should indeed apply is our ruling in Gon=ale" :/ ;i:il Ser:ice ;ommi""ionL"9M 1here 1e held that due process de4ands serving upon the e4ployee hi4self the notice dropping hi4 fro4 the rolls% ;nGon=ale", the govern4ent sat on the application for leave for an unreasonable period of ti4e and the only ti4e it acted on the application 1as to drop the e4ployee uncere4oniously fro4 the rolls% This factual setting in Gon=ale" fits snugly into the instant case 1here the City $overn4ent of6a8ati City slept on the re0uest of private respondent to reinstate her on the basis of the condition in the order suspending her, i%e%, her reinstate4ent upon her ac0uittalE instead, after three +), long years, 1ithout prior 1arning and out of the blue, petitioner acted adversely by dropping her fro4 the service for not filing an application for leave% The action of herein petitioner cuts too deeply into private respondentNs right to continue her e4ploy4ent in the govern4ent and unduly dilutes the constitutional guarantees of security of tenure and due process% The holding of the Civil *ervice Co44ission that private respondent 1as on automatic leave of absence during the period of her detention 4ust be sustained% The C*C is the constitutionally 4andated central personnel agency of the $overn4ent tas8ed to >establish a career service and adopt 4easures to pro4ote 4orale, efficiency, integrity, responsiveness, progressiveness and courtesy in the civil service> L)9M and >strengthen the 4erit and re1ards syste4, integrate all hu4an resources develop4ent progra4s for all levels and ran8s, and institutionaliGe a 4anage4ent cli4ate conducive to public accountability%>L)1M -esides, the Admini"trati:e ;ode o< 26I3 further e4po1ers the C*C to >prescribe, a4end, and enforce rules and regulations for carrying into effect the provisions of the Civil *ervice 2a1 and other pertinent la1s,> L)"Mand for 4atters concerning leaves of absence, the Code specifically vests the C*C to ordain # *ec% (9% 2eave of Absence% # 5fficers and e4ployees in the Civil *ervice shall be entitled to leave of absence, 1ith or 1ithout pay, as 4ay be provided by la1 and the rules and regulations of the Civil *ervice Co44ission in the interest of the service% Pursuant thereto the C*C pro4ulgated Resolution 'o% 91#1()1 dated "7 !ece4ber 1991 entitled Rules ;4ple4enting -oo8 & of C3ecutive 5rder 'o% "9" and 5ther Pertinent Civil *ervice 2a1s 1hich it has several ti4es a4ended through 4e4orandu4 circulars% ;t devotes Rule J&; to leaves of absence% Petitioner City $overn4ent relies upon *ecs% "9 and )5 to debun8 the C*C ruling of an auto4atic leave of absence% *ignificantly, these provisions have been a4ended so that *ec% "9 of the Civil *ervice Rules is no1 *ec% 5" of Rule J&;, on 2eave of Absence, of Resolution 'o% 91#1()1 dated "7 !ece4ber 1991 as a4ended by C*C 6C 'o% 41, s% 199., and *ec% )5 is no1 *ec% () as a4ended by C*C 6C 'os% 41, s% 199. and 14, s% 1999% Bhile *ec% "9 or *ec% 5" still reads # Appro:al o< :acation lea:e% # 2eave of absence for any reason other than illness of an official or e4ployee or of any 4e4ber of his i44ediate fa4ily 4ust be contingent upon the needs of the service% <ence, the grant of vacation leave shall be at the discretion of the head of depart4entQagency, *ec% )5 or *ec% () no1 provides # 4<<ect o< ab"ence" (it%out appro:ed lea:e % # An official or an e4ployee 1ho is continuously absent 1ithout approved leave for at least thirty +)9, 1or8ing days shall be considered on absence 1ithout official leave +AB52, and shall be separated fro4 the service or dropped fro4 the rolls 1ithout prior notice% <e shall, ho1ever, be infor4ed, at his address appearing on his "91 files or at his last 8no1n 1ritten address, of his separation fro4 the service, not later than five +5, days fro4 its effectivity 3 3 3 3

As a general rule *ecs% "9 and 5", as 1ell as *ecs% )5 and (), re0uire an approved leave of absence to avoid being on AB52%L))M<o1ever, these provisions cannot be interpreted as e3clusive and referring only to one 4ode of securing the approval of a leave of absence 1hich 1ould re0uire an e4ployee to apply for it, for4alities and all, before e3ceeding thirty +)9, days of absence in order to avoid being dropped fro4 the rolls% L)4M There are, after all, other 4eans of see8ing and granting an approved leave of absence, one of 1hich is the C*C recogniGed rule of automatic leave of absence under specified circu4stances% As the C*C states in its assailed Resolution # ;n a si4ilar case +Cenon &argas, C*C Resolution 'os% 94#"795 and 95#5559,, the Co44ission said # Bhen 6r% &argas 1as in ?ail, his services 1ere considered auto4atically suspended% <e could not be e3pected to file his corresponding application for leave of absence, because 1hether he li8es it or not he could not possibly report to 1or8% <e is considered on auto4atic leave of absence for the period of his detention in ?ail% 7inally, &argas had been ac0uitted of the cri4inal charges levelled against hi4% *ince no separate ad4inistrative case 1as filed against hi4, there is no basis to separate hi4 fro4 the service% -ased on the above4entioned decision, $alGote is e3cused fro4 filing her leave of absence because she could not report to 1or8% *he is therefore on auto4atic leave of absence for the period of her detention there being no evidence to sho1 that $alGote deliberately absented herself fro4 1or8% -esides, her act of re0uesting the 6unicipal Personnel 5fficer for reinstate4ent after she 1as released fro4 ?ail sho1s that she had no intention to go on AB52% L)5M As properly noted, C*C 1as only interpreting its o1n rules on leave of absence and not a statutory provision L)(M in co4ing up 1ith this unifor4 rule% @ndoubtedly, the C*C li8e any other agency has the po1er to interpret its o1n rules and any phrase contained in the4L)7M 1ith its interpretation significantly beco4ing part of the rules the4selves% As observed in We"t Te@a" ;ompre"" U Ware%ou"e ;o/ :/ Pan%andle U S/F/ 5ailing ;o/ # ;n construing the above and si4ilar antecedent rules bearing on the sa4e sub?ect, the railroad co44ission of this state has, for 4any years, unifor4ly officially construed it to give to the railroad co4pany the right to designate and select the co4press at 1hich the cotton is to be co4pressed either at origin, in transit or at destination% *ince the co44ission is an instru4entality of the state, e3ercising delegated po1ers, its orders are of the sa4e force as 1ould be a li8e enact4ent by the 2egislature% ;t therefore follo1s that the interpretation officially placed on the order or rule by the co44ission beco4es a part of the rule% 7urther, the rule is susceptible of no other interpretation +underscoring supplied,% L).M This principle is not ne1 to us% ;n Geu$e$o :/ AranetaL)9M this Court upheld the interpretation of the !epart4ent of Agriculture and Co44erce of its o1n rules of procedure in suspending the period of appeal even if such action 1as no1here stated therein% Be said # The 4ain 0uestion at issue hinges on the interpretation of *ection " of the 2ands Ad4inistrative 5rder 'o% (, pro4ulgated by the *ecretary of Agriculture and Co44erce on 6ay 1, 19)4, providing for the filing of appeals fro4 decisions or orders of the !irector of 2ands to the said !epart4ent *ecretary, 1hich reads as follo1sA *CC% "% APPCA2 7R56 !CC;*;5' 5R 5R!CR 57 T<C !;RCCT5R 57 2A'!*, 65T;5' 75R RCC5'*;!CRAT;5'% [ An appeal shall lie fro4 a decision of the !irector of 2ands to the *ecretary of Agriculture and Co44erce 1ithin a period of si3ty +(9, days to be counted fro4 the date the interested party received notice thereof unless a 4otion for reconsideration is filed 1ithin the said period, in 1hich case, appeal shall be 4ade 1ithin si3ty +(9, days fro4 his receipt of notice of the order or decision of the !irector of 2ands disposing of the 4otion for reconsideration 3 3 3 3 This 2ands Ad4inistrative 5rder 'o% ( governing the pro4ulgation of decisions and orders of the !irector of 2ands and providing for the prescriptive period 1ithin 1hich appeals 4ay be interposed 1as issued pursuant to the provisions of section 79+b, of the Revised Ad4inistrative Code, section 5 of Act 'o% ".74 and Act 'o% )9).% 3 3 3 3 2oo8ing at the 0uestion at issue in this case independently of the aforecited authorities, it 4ay be as8edA After the civil cases filed by the sub#lessees 1ere thro1n out of court, could they still invo8e ad4inistrative relief by appealing to the *ecretary of Agriculture and 'atural

ResourcesF *aid Ad4inistrative official ans1ers in the affir4ative, 4aintaining that the period of (9 days provided for by section " of the 2ands Ad4inistrative 5rder 'o% (afore0uoted has not yet prescribed, it being the adopted policy of their office to consider the filing of civil actions in court as suspending the running of said period% ;t 4ust be re4e4bered that 2ands Ad4inistrative 5rder 'o% ( is in the nature of procedural rules pro4ulgated by the *ecretary of Agriculture and 'atural Resources pursuant to the po1er besto1ed on said ad4inistrative agency to pro4ulgate rules and regulations necessary for the proper discharge and 4anage4ent of the functions i4posed by la1 upon said office% 3 3 3 3 RecogniGing the e3istence of such rule#4a8ing authority, 1hat is the 1eight of an interpretation given by an ad4inistrative agency to its o1n rules or regulationsF Authorities sustain the doctrine that the interpretation given to a rule or regulation by those charged 1ith its e3ecution is entitled to the greatest 1eight by the Court construing such rule or regulation, and such interpretation 1ill be follo1ed unless it appears to be clearly unreasonable or arbitrary +4" A4% =ur% 4)1,% ;t has also been said thatA An ad4inistrative body has po1er to interpret its o1n rules 1hich have the force and effect of la1, and such an interpretation beco4es part of the rule +7oley vs% -enedict, 1"" Te3 19), 55 *B L"dM .95, .( A2R 477,% 3 3 3 3 The conte4poraneous construction of a statute +and si4ilarly of rules and regulations, by the e3ecutive officers of the govern4ent 1hose duty it is to e3ecute it is entitled to great respect, and should ordinarily control the construction of the statute by the courts +@nited *tates vs% Philbric8, 1"9 @%*% 5", )9 2 Cd% 559,% 3 3 3 3 ;n this connection, Be can also say that the interpretation given by the !epart4ent of Agriculture and 'atural Resources to the provisions of section " of 2ands Ad4inistrative 5rder 'o% ( appears to be reasonable for it 4erely reflects the intent of the la1 in placing the disposition of lands 1ithin the Ta4bobong Cstate in the hands of the officials of the 2and !epart4ent +C3ecutive 5rder 'o% )7(E Co44on1ealth Act 'o% 5)9E 2ands Ad4inistrative 5rder 'o% R#),% The underlying idea see4s to be that those officials are considered in a better position to decide controversies regarding the disposition of said Cstate +underscoring supplied,% The sa4e precept 1as enunciated in agat"ing :/ ;ommittee on Pri:ati=ationL49M 1here 1e upheld the action of the Co44ission on Audit +C5A, in validating the sale of Petron Corporation to Ara4co 5verseas Corporation on the basis of C5ANs interpretation of its o1n circular that set bidding and audit guidelines on the disposal of govern4ent assets # The C5A itself, the agency that adopted the rules on bidding procedure to be follo1ed by govern4ent offices and corporations, had upheld the validity and legality of the 0uestioned bidding% The interpretation of an agency of its o1n rules should be given 4ore 1eight than the interpretation by that agency of the la1 it is 4erely tas8ed to ad4inister +under"coring "upplied,% $iven the greater 1eight accorded to an agencyNs interpretation of its o1n rules than to its understanding of the statute it see8s to i4ple4ent, 1e si4ply cannot set aside the for4er on the sa4e grounds as 1e 1ould overturn the latter% 6ore specifically, in cases 1here the dispute concerns the interpretation by an agency of its o1n rules, 1e should apply only these standardsA >Bhether the delegation of po1er 1as validE 1hether the regulation 1as 1ithin that delegationE and if so, 1hether it 1as a reasonable regulation under a due process test%> L41M An affir4ative ans1er in each of these 0uestions should caution us fro4 discarding the agencyNs interpretation of its o1n rules% To set aside the C*C ruling 1ill not be consistent 1ith the established principle above stated% Re?ecting the C*C ruling on an automaticleave of absence solely for 1ant of a provision e3pressly and specifically allo1ing such leave 1ould erroneously repudiate the difference bet1een the agencyNs o1n understanding of its rules and its interpretation of a statute% The difference is i4portant and should not be glossed over to avoid co4pro4ising the authority of the C*C as the constitutionally 4andated central personnel agency of the $overn4ent% ;n this regard, the rule of automatic leave of absence clearly falls 1ithin the constitutionally delegated po1er of the C*C and is reasonable under the circu4stances to address absences fro4 1or8 1hich are not attributable to the concerned govern4ent e4ployee% &erily, if petitioner City $overn4ent plainly applied the proper standards, it 1ould have easily i4ple4ented the C*C s institution of an automatic leave of absence, and conse0uently avoided declaring private respondent on AB52% ;t is hinted that the purported automatic leave of absence is a non#e3istent rule hence C*C has no po1er to interpret such non#e3istent provisionE further, that the C*C has no po1er to provide for e3e4ptions since none is stated in the C*C rules%

;f the rule on automatic leave of absence 1ere already 1ritten in the C*C rules or truly an e@i"ting provision therein, then there 1ould have been no reason for the instant case to ensue and be vigorously disputed% ;n fact, if such legal concept 1ere already in place, the C*C 1ould have no basis for interpreting its rules since all it had to do 1as to i4ple4ent the4% Actually, 1hat the C*C interpreted in the case at bar 1ere*ecs% "9, )5 and other related provisions of the C*C rules on the re0uire4ent of an approved leave of absence% *ection "9 of the C*C Rules allo1s absences even 1ithout prior approved leave, e%g%, in case of illness% Thus, >LlMeave of absence for any reason other than illness of an official or e4ployee or of any 4e4ber of his i44ediate fa4ily 4ust be contingent upon the needs of the service% <ence, the grant of vacation leave shall be at the discretion of the head of depart4entQagency%> 5bviously, illness cannot be scheduled and is beyond the control of the absent e4ployee so that contingency upon the needs of the service 1ould be irrelevant% ;t is enough that the e4ployer be infor4ed of the absent e4ployeeNs illness, 1hich infor4ation is the effective substitute for a prior leave application% -ut situations of illness are not the only instances of <orce maNeureE other events beyond the control of the e4ployee 4ay also force hi4 to be absent fro4 1or8, such as 1hen the e4ployee hi4self is 8idnapped or arrested and detained for alleged cri4es% ;t is the latter cases, a8in to predica4ents of illness, that the C*C sought to address in interpreting the C*C rules on leave of absence as including or conte4plating an automatic leave of absence% ;n these ite4s of <orce maNeure, the e4ployee is e3cused fro4 filing an application for leave of absence provided that he infor4s the e4ployer of the unfortunate event underlying his absence% ;n the instant case, 1e believe that private respondent has sufficiently infor4ed petitioner City $overn4ent of her predica4ent for 1hich no logical purpose arises for a prior leave application% *ignificantly, the rule on auto4atic leave of absence is part and parcel of the authority to drop e4ployees fro4 the rolls under *ec% )5 or *ec% () of the C*C Rules for it te4pers the e3ercise of such authority 1here the absences are beyond the control of the concerned e4ployee% As e3plained by C*C # !ropping fro4 the rolls of an e4ployee 1ho fails to file an application for leave during her absence is a non#disciplinary 4easure provided for under *ection )5, Rule J&; of the 54nibus Rules ;4ple4enting -oo8 & of C3ecutive 5rder 'o% "9" 3 3 3 3 -e it noted that the 4ain concept of Xdropping fro4 the rollsY is the refusal of an e4ployee to report for 1or8 or to go on absence 1ithout official leave +AB52, despite the e4ployer s notice to report% *uch refusal to be a ground therefor is, of course, anchored on the fact that there is no other i4pedi4ent on the part of the e4ployee concerned 1hich 1ould prevent hi4 fro4 filing said leave application +under"coring "upplied,%L4"M ;ndeed no tinge of arbitrariness can be ascribed to the concept of auto4atic leave of absence% This 8ind of leave of absence is the substantial e0uivalent in the public sector of our ruling in Magtoto :/ NL5;L4)M 1here 1e considered a 1or8er to have been on leave of absence 1ithout pay pending resolution of a cri4inal co4plaint for rebellion against hi4% Be ruled # The e4ployer tries to distance itself fro4 the detention by stressing that the petitioner 1as dis4issed due to prolonged absence% <o1ever, 6r% 6agtoto could not report for 1or8 because he 1as in a prison cell% The detention cannot be divorced fro4 prolonged absence% 5ne caused the other% *ince the causes for the detention, 1hich in turn gave the e4ployer a ground to dis4iss the petitioner, proved to be non#e3istent, 1e rule that the ter4ination 1as illegal and reinstate4ent is 1arranted 3 3 3 3 ;t 1as beyond the petitionerNs po1er to li4it the duration of his unfounded detention% ;t 1as a 4atter purely 1ithin the discretion of the 4ilitary authorities% ;t 1as then the contention of the 4ilitary that not even the courts of ?ustice should in0uire into the causes and the duration of detentions for rebellion#related offenses 3 3 3 3 C0uitable considerations favor the petitioner% The e4ployer is a stable co4pany 1ith a large 1or8 force 3 3 3% The petitioner is a 4ere cler8% ;t should not be difficult to find another ite4 for hi4% As bet1een the e4ployee and the e4ployer, the latter is in a singularly better position to shoulder the unfortunate conse0uences of the unfounded detention% Thus, the re4edy left for the petitioner is reinstate4ent to a substantially e0uivalent position 3 3 3 3Y +underscoring supplied,% L44M The sa4e concept 4ay also be found in *ec% (77 of T%e 5e:i"ed Manual In"truction" to Trea"urer" L45M # The attendance of a 1itness in his o1n behalf, to secure his e3oneration of charges or 4atter alleged against hi4 is attendance for his o1n benefit% ;f he is not under suspension, the ti4e consu4ed in such attendance shall be charged to his leave, if he has any% 5ther1ise he shall be considered on leave 1ithout pay 3 3 3 3 Bhen the cri4inal charges filed are not the direct result of an act perfor4ed by hi4 in connection 1ith his official duties, his forced absences fro4 duty resulting fro4

his arrest and re0uired attendance in court 4ay not be considered official% <e shall not in such case be entitled to salary +underscoring supplied,% 'either do 1e doubt that the C*C has the po1er to allo1 e3e4ptions fro4 prior filing of leave applications% This po1er logically flo1s fro4 the tas8 of the C*C to regulate civil service in the country as ordained in the ;on"titution and 4andated in the Admini"trati:e ;ode o< 26I3/ The C*C Rules the4selves +*ec% "9 or *ec% )5, do not li4it the po1ers of the C*C in this regard to cases of illness only% Bith reasonableness as the standard, the C*C is far fro4 being presu4ptuous 1hen it states that other instances of <orce maNeure +such as the arrest and detention of a civil servant for a cri4e she did not co44it, 4ay e3cuse the prior filing of an approved leave of absence% This deter4ination is an e3ercise of the C*CNs constitutional 4andates # certainly these 4andates are not 4atters of 4ere e3cuses% The case of private respondent $alGote is not the first ti4e that this Court has done a1ay 1ith the re0uire4ent of an approved leave of absence% ;n Uni:er"ity o< t%e P%ilippine" :/ ;i:il Ser:ice ;ommi""ionL4(M 1e disregarded the literal i4port of *ec% ))L47M +e0uivalent of *ecs% )5 and () above#0uoted, of Rule J&; of the 5e:i"ed ;i:il Ser:ice 5ule" in recognition of @PNs constitutionally guaranteed acade4ic freedo4 to allo1 the university to continue e4ploying a teacher#e4ployee 1ho had been on AB52% UP teaches that although acade4ic freedo4 is not 1ritten in the C*C Rules on leave of absence, 1e can factor such freedo4 in establishing the validity of @PNs action to override it% Be therefore advocate e0ual treat4ent for C*CNs reasonable i4ple4entation of its o1n rules in the specific and actual case of private respondent, an e3ercise 1hich li8e @PNs acade4ic freedo4 also has the ;on"titution as its basis% Truly, if 1e could accept the e3e4ption of @P fro4 the C*C Rules on grounds not stated therein, i/e/ acade4ic freedo4, then e0ually, if not 1ith 4ore reason, 4ust 1e recogniGe the C*CNs accepted authority to incorporate as part of the C*C Rules its o1n interpretations thereof% ;n t1o +", other decisions of this Court, 1e treated 1ith co4passion an absence although 1ithout prior leave for causes beyond the control of the absent e4ployee% ;n ReA Pedro P% Tiongson,L4.M 1e ruled that >the 4isfortunes that 1ere visited upon his fa4ily and 1hich prevented hi4 fro4 attending office 1ere not of his o1n 4a8ing and 1ere beyond his control% ;t 1as but natural for hi4 to 4ove his fa4ily in the face of danger fro4 his sonNs ene4ies and 1hen he 1as in the province, even if he 1anted to return, he could not do so on account of the floods%> L49M ;nMa$abu%ay :/ ManuelL59M 1e recogniGed that an e4ployee 4ay be forced to go on leave even if he no longer has any leave credits because of the ad4inistrative case that 1as filed against hi4% 2astly, petitioner City $overn4ent cannot pin the bla4e on private respondent $alGote for her failure to assu4e her 1or8% Clearly, she reported for 1or8 as soon as she 1as free to do so, but 1as unfortunately turned bac8 by petitioner City $overn4ent% ;n loc8ing her out of her ?ob, the City $overn4ent illegally deprived her of the opportunity to 1or8 and so 4ust be held liable for such unla1ful action% All in all, 1e hold that private respondent 4ust be reinstated as Cler8 ;;; or a position of e0uivalent ran8 and co4pensation in the City $overn4ent% *he 4ust also be paid bac8 1ages and other benefits la1fully due her counted fro4 19 5ctober 1994 1hen she presented herself for resu4ption of duties but 1as refused% This is very 4uch consistent 1ith the ele4entary rule that a govern4ent official or e4ployee 1ho had been illegally dis4issed and 1hose reinstate4ent had later been ordered is considered as not having left his office, so that he is entitled to all the rights and privileges that should accrue to hi4 by virtue of the office that he held% 'eedless to stress, if private respondentNs re0uest for reinstate4ent 1ith bac8 1ages is granted, the benefits she 1ill derived 1ill not even be enough to co4pensate her for the untold sufferings and privations she 1ent through 1hile in ?ail, a1ay fro4 her gro1ing children% Perhaps only a 4iracle could have provided for the4 in her forced absence% 'o1 1e say, enough should be enough% @nder RA ((5( +An Act to Protect t%e Security o< Tenure o< ;i:il Ser:ice !<<icer" and 4mployee" in t%e Implementation o< Go:ernment 5eorgani=ation, and RA 71(9 +T%e Local Go:ernment ;ode o< 2662 ,, civil servants 1ho are found illegally dis4issed or retrenched are entitled to full pay for the period of their separation% 5ur final point% An efficient and honest bureaucracy is never inconsistent 1ith the e4phasis on and the recognition of the basic rights and privileges of our civil servants or, for that 4atter, the constitutional 4andates of the Civil *ervice Co44ission% ;n fact only fro4 an enlightened corps of govern4ent 1or8ers and an effective C*C gro1s the professionaliGation of the bureaucracy% ;ndeed the govern4ent cannot be left in the lurchE but neither could 1e decree that govern4ent personnel be separated fro4 their ?obs indiscri4inately regardless of fault% The fine line bet1een these

concerns 4ay be difficult to clearly dra1 but if 1e only e3erted e3tra effort to rebel against the allure of legal over# si4plification, ?ustice 1ould have been done 1here it is truly due% *9ERE(ORE, the petition of the City $overn4ent of 6a8ati City is !C';C! and the !ecision of the Court of Appeals affir4ing Resolution 'o% 9(915) of the Civil *ervice Co44ission ordering the i44ediate reinstate4ent of private respondent C@*C-;A R% $A2H5TC as Cler8 ;;; or a position of e0uivalent ran8 and co4pensation in the ran8 and file service of petitioner City $overn4ent of 6a8ati City 1ith bac8 1ages fro4 19 5ctober 1994 up to the ti4e of her actual reinstate4ent is li8e1ise A77;R6C!% SO OR6ERE6. G.R. No. 12620< No%ember 20, 2001 NA"!ONAL PO*ER CORPORA"!ON, petitioner, vs%P9!L!PP 7RO"9ERS OCEAN!C, !NC., respondent% SAN6O5AL8GU"!ERRE;, J.) Bhere a person 4erely uses a right pertaining to hi4, 1ithout bad faith or intent to in?ure, the fact that da4ages are thereby suffered by another 1ill not 4a8e hi4 liable%1 This principle finds useful application to the present case% -efore us is a petition for revie1 of the !ecision " dated August "7, 199( of the Court of Appeals affir4ing in toto the !ecision) dated =anuary 1(, 199" of the Regional Trial Court, -ranch 57, 6a8ati City% The facts areA 5n 6ay 14, 19.7, the 'ational Po1er Corporation +'AP5C5R, issued invitations to bid for the supply and delivery of 1"9,999 4etric tons of i4ported coal for its -atangas Coal#7ired Ther4al Po1er Plant in Calaca, -atangas% The Philipp -rothers 5ceanic, ;nc% +P<;-R5, pre0ualified and 1as allo1ed to participate as one of the bidders% After the public bidding 1as conducted, P<;-R5Ns bid 1as accepted% 'AP5C5RNs acceptance 1as conveyed in a letter dated =uly ., 19.7, 1hich 1as received by P<;-R5 on =uly 15, 19.7%The >-idding Ter4s and *pecifications> 4provide for the 4anner of ship4ent of coals, thusA AS4;TI!N O SHIPM4NT The 1inning TC'!CRCR 1ho then beco4es the *C22CR shall arrange and provide gearless bul8 carrier for the ship4ent of coal to arrive at discharging port on or before thirty +)9, calendar days after receipt of the 2etter of Credit by the *C22CR or its no4inee as per *ection J;& hereof to 4eet the vessel arrival schedules at Calaca, -atangas, Philippines as follo1sA (9,999 \Q # 19 : =uly "9, 19.7 (9,999 \Q # 19: *epte4ber 4, 19.7>5 5n =uly 19, 19.7, P<;-R5 sent 1ord to 'AP5C5R that industrial disputes 4ight soon plague Australia, the ship4entNs point of origin, 1hich could seriously ha4per P<;-R5Ns ability to supply the needed coal% ( 7ro4 =uly ") to =uly )1, 19.7, P<;-R5 again apprised 'AP5C5R of the situation in Australia, particularly infor4ing the latter that the ship o1ners therein are not 1illing to load cargo unless a >stri8e#free> clause is incorporated in the charter party or the contract of carriage% 7 ;n order to hasten the transfer of coal, P<;-R5 proposed to 'AP5C5R that they e0ually share the burden of a >stri8e#free> clause% 'AP5C5R refused%

5n August (, 19.7, P<;-R5 received fro4 'AP5C5R a confir4ed and 1or8able letter of credit% ;nstead of delivering the coal on or before the thirtieth day after receipt of the 2etter of Credit, as agreed upon by the parties in the =uly contract, P<;-R5 effected its first ship4ent only on 'ove4ber 17, 19.7% Conse0uently, in 5ctober 19.7, 'AP5C5R once 4ore advertised for the delivery of coal to its Calaca ther4al plant% P<;-R5 participated ane1 in this subse0uent bidding% 5n 'ove4ber "4, 19.7, 'AP5C5R disapproved P<;-R5Ns application for pre# 0ualification to bid for not 4eeting the 4ini4u4 re0uire4ents% . @pon further in0uiry, P<;-R5 found that the real reason for the disapproval 1as its purported failure to satisfy 'AP5C5RNs de4and for da4ages due to the delay in the delivery of the first coal ship4ent% This pro4pted P<;-R5 to file an action for da4ages 1ith application for in?unction against 'AP5C5R 1ith the Regional Trial Court, -ranch 57, 6a8ati City%9 ;n its co4plaint, P<;-R5 alleged that 'AP5C5RNs act of dis0ualifying it in the 5ctober 19.7 bidding and in all subse0uent biddings 1as tainted 1ith 4alice and bad faith% P<;-R5 prayed for actual, 4oral and e3e4plary da4ages and attorneyNs fees% ;n its ans1er, 'AP5C5R averred that the stri8es in Australia could not be invo8ed as reason for the delay in the delivery of coal because P<;-R5 itself ad4itted that as of =uly "., 19.7 those stri8es had already ceased% And, even assu4ing that the stri8es 1ere still ongoing, P<;-R5 should have shouldered the burden of a >stri8e#free> clause because their contract 1as >C and 7 Calaca, -atangas, Philippines,> 4eaning, the co"t and <reig%t fro4 the point of origin until the point of destination 1ould be for the account of P<;-R5% 7urther4ore, 'AP5C5R clai4ed that due to P<;-R5Ns failure to deliver the coal on ti4e, it 1as co4pelled to purchase coal fro4 A*CA at a higher price% 'AP5C5R clai4ed for actual da4ages in the a4ount of P1",4)(,1.5%7), representing the increase in the price of coal, and a clai4 of P599,999%99 as litigation e3penses% 19 Thereafter, trial on the 4erits ensued% 5n =anuary 1(, 199", the trial court rendered a decision in favor of P<;-R5, the dispositive portion of 1hich readsA >B<CRC75RC, ?udg4ent is hereby rendered in favor of plaintiff Philipp -rothers 5ceanic ;nc% +P<;-R5, and against the defendant 'ational Po1er Corporation +'AP5C5R, ordering the said defendant 'AP5C5RA 1% To reinstate Philipp -rothers 5ceanic, ;nc% +P<;-R5, in the defendant 'ational Po1er CorporationNs list of accredited bidders and allo1 P<;-R5 to participate in any and all future tenders of 'ational Po1er Corporation for the supply and delivery of i4ported stea4 coalE "% To pay Philipp -rothers 5ceanic, ;nc% +P<;-R5,E a% The peso e0uivalent at the ti4e of pay4ent of ].(4,999 as actual da4ages, b% The peso e0uivalent at the ti4e of pay4ent of ]199,999 as 4oral da4agesE c% The peso e0uivalent at the ti4e of pay4ent of ]59,999 as e3e4plary da4agesE d% The peso e0uivalent at the ti4e of pay4ent of ]7),")1%91 as rei4burse4ent for e3penses, cost of litigation and attorneyNs feesE )% To pay the costs of suitE 4% The counterclai4s of defendant 'AP5C5R are dis4issed for lac8 of 4erit%

*5 5R!CRC!%>11 @nsatisfied, 'AP5C5R, through the *olicitor $eneral, elevated the case to the Court of Appeals% 5n August "7, 199(, the Court of Appeals rendered a !ecision affir4ing in toto the !ecision of the Regional Trial Court% ;t ratiocinated thatA >There is a4ple evidence to sho1 that although P<;-R5Ns delivery of the ship4ent of coal 1as delayed, the delay 1as in fact caused by a, 'apocorNs o1n delay in opening a 1or8able letter of creditE and b, the stri8es 1hich pla0ued the Australian coal industry fro4 the first 1ee8 of =uly to the third 1ee8 of *epte4ber 19.7% *tri8es are included in the definition of force maNeure in *ection J&;; of the -idding Ter4s and *pecifications, +"upra,, so Phibro is not liable for any delay caused thereby% Phibro 1as infor4ed of the acceptance of its bid on =uly ., 19.7% !elivery of coal 1as to be effected thirty +)9, days fro4 'apocorNs opening of a confir4ed and 1or8able letter of credit% 'apocor 1as only able to do so on August (, 19.7% -y that ti4e, AustraliaNs coal industry 1as in the 4iddle of a seething controversy and unrest, occasioned by stri8es, overti4e bans, 4ine stoppages% The origin, the scope and the effects of this industrial unrest are lucidly described in the uncontroverted testi4ony of =a4es Archibald, an e4ployee of Phibro and 4e4ber of the C3port Co44ittee of the Australian Coal Association during the ti4e these events transpired% 333 333 333

The records also attest that Phibro periodically infor4ed 'apocor of these develop4ents as early as =uly 1, 19.7, even before the bid 1as approved% Det, 'apocor did not forth1ith open the letter of credit in order to avoid delay 1hich 4ight be caused by the stri8es and their after#effects% >*tri8es> are undoubtedly included in the force maNeure clause of the -idding Ter4s and *pecifications + "upra,% The reno1ned civilist, Prof% Arturo Tolentino, defines force maNeure as >an event 1hich ta8es place by accident and could not have been foreseen%> +Civil Code of the Philippines, &olu4e ;&, 5bligations and Contracts, 1"(, L1991M, <e further statesA >7ortuitous events 4ay be produced by t1o general causesA +1, by 'ature, such as earth0ua8es, stor4s, floods, epide4ics, fires, etc%, and +", by the act of 4an, such as an ar4ed invasion, attac8 by bandits, govern4ental prohibitions, robbery, etc%> Tolentino adds that the ter4 generally applies, broadly spea8ing, to natural accidents% ;n order that acts of 4an such as a stri8e, 4ay constitute fortuitous event, it is necessary that they have the force of an i4position 1hich the debtor could not have resisted% <e cites a parallel e3a4ple in the case of P%ilippine National an$ :/ ;ourt o< Appeal", 94 *CRA )57 +1979,, 1herein the *upre4e Court said that the outbrea8 of 1ar 1hich prevents perfor4ance e3e4pts a party fro4 liability% <ence, by la1 and by stipulation of the parties, the stri8es 1hich too8 place in Australia fro4 the first 1ee8 of =uly to the third 1ee8 of *epte4ber, 19.7, e3e4pted Phibro fro4 the effects of delay of the delivery of the ship4ent of coal%>1" T1ice th1arted, 'AP5C5R co4es to us via a petition for revie1 ascribing to the Court of Appeals the follo1ing errorsA ;

>Respondent Court of Appeals gravely and seriously erred in concluding and so holding that P<;-R5Ns delay in the delivery of i4ported coal 1as due to 'AP5C5RNs alleged delay in opening a letter of credit and to force maNeure, and not to P<;-R5Ns o1n deliberate acts and faults%>1) ;;

7orce MaNeure%> *pecifically, they defined force maNeure as >any disabling cause beyond the control of and 1ithout fault or negligence of the party, 1hich causes 4ay include but are not restricted to Acts of $od or of the public ene4yE acts of the $overn4ent in either its sovereign or contractual capacityE govern4ental restrictionsE stri8es, fires, floods, 1ars, typhoons, stor4s, epide4ics and 0uarantine restrictions%> The la1 is clear and so is the contract bet1een 'AP5C5R and P<;-R5% Therefore, 1e have no reason to rule other1ise%

>Respondent Court of Appeals gravely and seriously erred in concluding and so holding that 'AP5C5R acted 4aliciously and un?ustifiably in dis0ualifying P<;-R5 fro4 participating in the !ece4ber ., 19.7 and future biddings for the supply of i4ported coal despite the e3istence of valid grounds therefor such as serious i4pair4ent of its trac8 record%> 14 ;;; >Respondent Court of Appeals gravely and seriously erred in concluding and so holding that P<;-R5 1as entitled to in?unctive relief, to actual or co4pensatory, 4oral and e3e4plary da4ages, attorneyNs fees and litigation e3penses despite the clear absence of legal and factual bases for such a1ard%> 15 ;& >Respondent Court of Appeals gravely and seriously erred in absolving P<;-R5 fro4 any liability for da4ages to 'AP5C5R for its un?ustified and deliberate refusal andQor failure to deliver the contracted i4ported coal 1ithin the stipulated period%> 1( & >Respondent Court of Appeals gravely and seriously erred in dis4issing 'AP5C5RNs counterclai4s for da4ages and litigation e3penses%>17 ;t is a3io4atic that only 0uestions of la1, not 0uestions of fact, 4ay be raised before this Court in a petition for revie1 under Rule 45 of the Rules of Court% 1. The findings of facts of the Court of Appeals are conclusive and binding on this Court 19 and they carry even 4ore 1eight 1hen the said court affir4s the factual findings of the trial court% "9 *tated differently, the findings of the Court of %Appeals, by itself, 1hich are supported by substantial evidence, are al4ost beyond the po1er of revie1 by this Court%"1 Bith the foregoing settled ?urisprudence, 1e find it pointless to delve lengthily on the factual issues raised by petitioner% The e3istence of stri8es in Australia having been duly established in the lo1er courts, 1e are left only 1ith the burden of deter4ining 1hether or not 'AP5C5R acted 1rongfully or 1ith bad faith in dis0ualifying P<;-R5 fro4 participating in the subse0uent public bidding% 2et us consider the case in its proper perspective% The Court of Appeals is ?ustified in sustaining the Regional Trial CourtNs decision e3onerating P<;-R5 fro4 any liability for da4ages to 'AP5C5R as it 1as clearly established fro4 the evidence, testi4onial and docu4entary, that 1hat prevented P<;-R5 fro4 co4plying 1ith its obligation under the =uly 19.7 contract 1as the industrial disputes 1hich besieged Australia during that ti4e% C3tant in our Civil Code is the rule that no person shall be responsible for those events 1hich could not be foreseen, or 1hich, though foreseen, 1ere inevitable% "" This 4eans that 1hen an obligor is unable to fulfill his obligation because of a fortuitous event or force maNeure, he cannot be held liable for da4ages for non#perfor4ance% ") ;n addition to the above legal precept, it is 1orthy to note that P<;-R5 and 'AP5C5R e3plicitly agreed in *ection J&;; of the >-idding Ter4s and *pecifications> "4 that >neither seller +P<;-R5, nor buyer +'AP5C5R, shall be liable for any delay in or failure of the perfor4ance of its obligations, other than the pay4ent of 4oney due, if any such delay or failure is due to

<o1ever, proceeding fro4 the pre4ise that P<;-R5 1as prevented by force maNeure fro4 co4plying 1ith its obligation, does it necessarily follo1 that 'AP5C5R acted un?ustly, capriciously, and unfairly in disapproving P<;-R5Ns application for pre# 0ualification to bidF 7irst, it 4ust be stressed that 'AP5C5R 1as not bound under any contract to approve P<;-R5Ns pre#0ualification re0uire4ents% ;n fact, 'AP5C5R had e3pressly reserved its right to re?ect bids% The ;nstruction to -idders found in the >Post# Iualification !ocu4entsQ*pecifications for the *upply and !elivery of Coal for the -atangas Coal#7ired Ther4al Po1er Plant ; at Calaca, -atangas Philippines,>"5 is e3plicit, thusA >;-#17 RC*CR&AT;5' 57 'AP5C5R T5 RC=CCT -;!* 'AP5C5R reserves the right to re?ect any or all bids, to 1aive any 4inor infor4ality in the bids received% T%e rig%t i" al"o re"er:ed to reNect t%e bid" o< any bidder (%o %a" pre:iou"ly <ailed to properly per<orm or complete on time any and all contract" <or deli:ery o< coal or any "upply underta$en by a bidder %>"(+C4phasis supplied, This Court has held that 1here the right to re?ect is so reserved, the lo1est bid or any bid for that 4atter 4ay be re?ected on a 4ere technicality%"7 And 1here the govern4ent as advertiser, availing itself of that right, 4a8es its choice in re?ecting any or all bids, the losing bidder has no cause to co4plain nor right to dispute that choice unless an unfairness or in?ustice is sho1n% Accordingly, a bidder has no ground of action to co4pel the $overn4ent to a1ard the contract in his favor, nor to co4pel it to accept his bid% Cven the lo1est bid or any bid 4ay be re?ected%". ;n ;ele"te :/ ;ourt o< Appeal","9 1e had the occasion to ruleA >6oreover, paragraph 15 of the ;nstructions to -idders states that Vt%e Go:ernment %ereby re"er:e" t%e rig%t to reNect any or all bid" "ubmitted%N ;n the case of A%C% Csguerra and *ons v% Aytona, 4 *CRA 1"45, 1"49 +19(",, 1e heldA N3 3 3 L;Mn the invitation to bid, there is a condition i4posed upon the bidders to the effect that the bidders shall be sub?ect to the right of the govern4ent to re?ect any and all bids sub?ect to its discretion% <ere t%e go:ernment %a" made it" c%oice# and unle"" an un<airne"" or inNu"tice i" "%o(n# t%e lo"ing bidder" %a:e no cau"e to complain, nor right to dispute that choice%N Since t%ere i" no e:idence to pro:e bad <ait% and arbitrarine"" on t%e part o< t%e petitioner" in e:aluating t%e bid"# (e rule t%at t%e pri:ate re"pondent" are not entitled to damage" repre"enting lo"t pro<it" %> +C4phasis supplied, &erily, a reservation of the govern4ent of its right to re?ect any bid, generally vests in the authorities a 1ide discretion as to 1ho is the best and 4ost advantageous bidder% The e3ercise of such discretion involves in0uiry, investigation, co4parison, deliberation and decision, 1hich are 0uasi#?udicial functions, and 1hen honestly e3ercised, 4ay not be revie1ed by the court%)9 ;n ureau Oerita" :/ !<<ice o< t%e Pre"ident,)1 1e decreedA >T%e di"cretion to accept or reNect a bid and a(ard contract" i" :e"ted in t%e Go:ernment agencie" entru"ted (it% t%at <unction/ T%e di"cretion gi:en to t%e aut%oritie" on t%i" matter i" o< "uc% (ide latitude t%at t%e ;ourt" (ill not inter<ere t%ere(it%# unle"" it i" apparent t%at it i" u"ed a" a "%ield to a <raudulent a(ard % +Calandoni :/ NA55A, 19. Phil% 4.( L19(9M, 3 3 3% The e3ercise of this discretion is a policy decision that necessitates prior

in0uiry, investigation, co4parison, evaluation, and deliberation% This tas8 can best be discharged by the $overn4ent agencies concerned, not by the Courts% The role of the Courts is to ascertain 1hether a branch or instru4entality of the $overn4ent has transgresses its constitutional boundaries% -ut the Courts 1ill not interfere 1ith e3ecutive or legislative discretion e3ercised 1ithin those boundaries% 5ther1ise, it strays into the real4 of policy decision#4a8ing% 3 3 3%> +C4phasis supplied, 51ing to the discretionary character of the right involved in this case, the propriety of 'AP5C5RNs act should therefore be ?udged on the basis of the general principles regulating hu4an relations, the forefront provision of 1hich is Article 19 of the Civil Code 1hich provides that >every person 4ust, in the e3ercise of his rights and in the perfor4ance of his duties, act 1ith ?ustice, give everyone his due, and observe honesty and good faith%> )"Accordingly, a person 1ill be protected only 1hen he acts in the legiti4ate e3ercise of his right, that is, 1hen he acts 1ith prudence and in good faithE but not 1hen he acts 1ith negligence or abuse%)) !id 'AP5C5R abuse its right or act un?ustly in dis0ualifying P<;-R5 fro4 the public biddingF Be rule in the negative% ;n practice, courts, in the sound e3ercise of their discretion, 1ill have to deter4ine under all the facts and circu4stances 1hen the e3ercise of a right is un?ust, or 1hen there has been an abuse of right% )4 Be 1ent over the record of the case 1ith painsta8ing solicitude and 1e are convinced that 'AP5C5RNs act of disapproving P<;-R5Ns application for pre#0ualification to bid 1as 1ithout any intent to in?ure or a purposive 4otive to perpetrate da4age% Apparently, 'AP5C5R acted on the strong conviction that P<;-R5 had a >seriously#i4paired> trac8 record% 'AP5C5R cannot be faulted fro4 believing so% At this ?uncture, it is 1orth 4entioning that at the ti4e 'AP5C5R issued its subse0uent ;nvitation to -id, i%e%, 5ctober 19.7, P<;-R5 had not yet delivered the first ship4ent of coal under the =uly 19.7 contract, 1hich 1as due on or before *epte4ber 5, 19.7% 'aturally, 'AP5C5R is ?ustified in entertaining doubts on P<;-R5Ns 0ualification or capability to assu4e an obligation under a ne1 contract% 6oreover, P<;-R5Ns actuation in 19.7 raised doubts as to the real situation of the coal industry in Australia% ;t appears fro4 the records that 1hen 'AP5C5R 1as constrained to consider an offer fro4 another coal supplier +A*CA, at a price of @*]))%44 per 4etric ton, P<;-R5 une3pectedly offered the i44ediate delivery of (9,999 4etric tons of @lan stea4 coal at @*])1%99 per 4etric ton for arrival at Calaca, -atangas on *epte4ber "9#"1, 19.7%> )5 5f course, 'AP5C5R had reason to ponder W %o( come PHI 5! could a""ure t%e immediate deli:ery o< ,7#777 metric ton" o< coal <rom t%e "ame "ource to arri:e at ;alaca not later t%an September M7DM2# 26I3 but it could not deli:er t%e coal it %ad underta$en under it" contract F *ignificantly, one characteristic of a fortuitous event, in a legal sense, and conse0uently in relations to contracts, is that >the concurrence 4ust be such as to render it i4possible for the debtor to fulfill his obligation in a nor4al 4anner%> )( 7aced 1ith the above circu4stance, 'AP5C5R is ?ustified in assu4ing that, 4ay be, there 1as really no fortuitous event or force maNeure 1hich could render it i4possible for P<;-R5 to effect the delivery of coal% Correspondingly, it is also ?ustified in treating P<;-R5Ns failure to deliver a serious i4pair4ent of its trac8 record% That the trial court, thereafter, found P<;-R5Ns une3pected offer actually a result of its desire to 4ini4iGe losses on the part of 'AP5C5R is inconse0uential% ;n deter4ining the e3istence of good faith, the yardstic8 is the fra4e of 4ind of the actor at the ti4e he co44itted the act, disregarding actualities or facts outside his 8no1ledge% Be cannot fault 'AP5C5R if it 4istoo8 P<;-R5Ns une3pected offer a 4ere atte4pt on the latterNs part to undercut A*CA or an indication of P<;-R5Ns inconsistency% The circu4stances 1arrant such conte4plation% That 'AP5C5R believed all along that P<;-R5Ns failure to deliver on ti4e 1as unfounded is 4anifest fro4 its letters)7 re4inding P<;-R5 that it 1as bound to deliver the coal 1ithin )9 days fro4 its +P<;-R5Ns, receipt of the 2etter of Credit, other1ise it 1ould be constrained to ta8e legal action% The sa4e honest belief can be deduced fro4 'AP5C5RNs -oard Resolution, thusA

>!n t%e legal a"pect# Management "tre""ed t%at <ailure o< P ! to deli:er under t%e contract ma$e" t%em liable <or damage"# con"idering t%at t%e rea"on" in:o$ed (ere not :alid/ T%e mea"ure o< t%e damage" (ill be limited to actual and compen"atory damage"% <o1ever, it 1as reported that Philipp -rothers advised they 1ould li8e to have continuous business relation 1ith 'PC so they are 1illing to sit do1n or even proposed that the case be sub4itted to the !epart4ent of =ustice as to avoid a court action or arbitration% 333 333 333

5n the technical#econo4ic aspect, 6anage4ent clai4s that if P-5 delivers in 'ove4ber 19.7 and =anuary 19.., there are so4e advantages% ;f P-5 reacts to any legal action and fails to deliver, the options areA one, to use 199: *e4irara and second, to go into urgent coal order% The first option 1ill result in a 75 6B derating and oil 1ill be needed as supple4ent% We (ill "tand to lo"e around PK7 M % 5n the other hand, if 'PC goes into an urgent coal order, there 1ill be an additional e3pense of ]7.(,999 or P1(%11 6, considering the price of the latest purchase 1ith A*CA% !n bot% point"# reliability i" decrea"ed %>). The very purpose of re0uiring a bidder to furnish the a1arding authority its pre#0ualification docu4ents is to ensure that only those >responsible> and >0ualified> bidders could bid and be a1arded 1ith govern4ent contracts% ;t bears stressing that the a1ard of a contract is 4easured not solely by the s4allest a4ount of bid for its perfor4ance, but also by the >responsibility> of the bidder% Conse0uently, the integrity, honesty, and trust1orthiness of the bidder is to be considered% An a1arding official is ?ustified in considering a bidder not 0ualified or not responsible if he has previously defrauded the public in such contracts or if, on the evidence before hi4, the official bona fide believes the bidder has co44itted such fraud, de"pite t%e <act t%at t%ere i" yet no Nudicial determination to t%at e<<ect %)9 5ther1ise stated, if the a1arding body bona fide believes that a bidder has seriously i4paired its trac8 record because of a particular conduct, it is ?ustified in dis0ualifying the bidder% This policy is necessary to protect the interest of the a1arding body against irresponsible bidders% Thus, one 1ho acted pursuant to the sincere belief that another 1illfully co44itted an act pre?udicial to the interest of the govern4ent cannot be considered to have acted in bad faith% -ad faith has al1ays been a 0uestion of intention% ;t is that corrupt 4otive that operates in the 4ind% As understood in la1, it conte4plates a state of 4ind affir4atively operating 1ith furtive design or 1ith so4e 4otive of self#interest or ill#1ill or for ulterior purpose% 49Bhile confined in the real4 of thought, its presence 4ay be ascertained through the partyNs actuation or through circu4stantial evidence% 41 The circu4stances under 1hich 'AP5C5R disapproved P<;-R5Ns pre#0ualification to bid do not sho1 an intention to cause da4age to the latter% The 4easure it adopted 1as one of self#protection% Conse0uently, 1e cannot penaliGe 'AP5C5R for the course of action it too8% 'AP5C5R cannot be 4ade liable for actual, 4oral and e3e4plary da4ages% Corollarily, in a1arding to P<;-R5 actual da4ages in the a4ount of ].(4,999, the Regional Trial Court co4puted 1hat could have been the profits of P<;-R5 had 'AP5C5R allo1ed it to participate in the subse0uent public bidding% ;t ruled that >P<;-R5 1ould have 1on the tenders for the supply of about 9(9,999 4etric tons out of at least 1,"99,999 4etric tons> fro4 the public bidding of !ece4ber 19.7 to 1999% Be 0uote the trial courtNs ruling, thusA >% % % P<;-R5 1as un?ustly e3cluded fro4 participating in at least five +5, tenders beginning !ece4ber 19.7 to 1999, for the supply and delivery of i4ported coal 1ith a total volu4e of about 1,"99,999 4etric tons valued at no less than @*])" 6illion% +C3hs% >AA,> >AA#1#1,> to >AA#">,% The price of i4ported coal for delivery in 19.. 1as 0uoted in =une 19.. by bidders at @*]41%)5 to @*]4)%95 per 4etric ton +C3h% >==>,E in *epte4ber 19.. at @*]41%59 to @*]49%59 per 4etric ton +C3h% >=#1>,E in 'ove4ber 19.. at @*])9%99 to @*]4.%59 per 4etric ton +C3h% >=#">, and for the 19.9 deliveries, at @*]44%)5 to @*]47%)5 per 4etric ton +C3h% >=#)>, and @*]).%99 to @*]4.%"5 per 4etric ton in *epte4ber 1999 +C3h% >==#(> and >==#7>,% P<;-R5 1ould have 1on the tenders for the supply and delivery of about 9(9,999 4etric tons of coal out of at least 1,"99,999 4etric tons a1arded during said period based on its proven trac8 record of .9:% T%e ;ourt# t%ere<ore <ind" t%at a" a re"ult o< it" di"Euali<ication# PHI 5! "u<<ered damage" eEui:alent to it" "tandard KH margin in 6,7#777 metric ton" o< coal at t%e mo"t con"er:ati:e price o< USPK7#777 per metric ton# or t%e total o< USPI,J#777 (%ic% PHI 5! (ould %a:e earned %ad it been allo(ed to participate in bidding" in (%ic% it (a" di"Euali<ied and in "ub"eEuent tender" <or "upply and deli:ery o< imported coal%>

Be find this to be erroneous% -asic is the rule that to recover actual da4ages, the a4ount of loss 4ust not only be capable of proof but 4ust actually be proven 1ith reasonable degree of certainty, pre4ised upon co4petent proof or best evidence obtainable of the actual a4ount thereof%4" A court cannot 4erely rely on speculations, con?ectures, or guess1or8 as to the fact and a4ount of da4ages% Thus, 1hile inde4nification for da4ages shall co4prehend not only the value of the loss suffered, but also that of the profits 1hich the obligee failed to obtain, 4) it is i4perative that the basis of the alleged unearned profits is not too speculative and con?ectural as to sho1 the actual da4ages 1hich 4ay be suffered on a future period% ;n Pantranco Nort% 4@pre""# Inc/ :/ ;ourt o< Appeal" ,44 this Court denied the plaintiffNs clai4 for actual da4ages 1hich 1as pre4ised on a contract he 1as about to negotiate on the ground that there 1as still the re0uisite public bidding to be co4plied 1ith, thusA >As to the alleged contract he 1as about to negotiate 1ith 6inister <ipolito, there is no sho1ing that the sa4e has been a1arded to hi4% ;f Tandoc 1as about to negotiate a contract 1ith 6inister <ipolito, there 1as no assurance that the for4er 1ould get it or that the latter 1ould a1ard the contract to hi4 since there 1as the re0uisite public bidding% T%e claimed lo"" o< pro<it ari"ing out o< t%at alleged contract (%ic% (a" "till to be negotiated i" a mere e@pectancy/ TandocV" claim t%at %e could %a:e earned PM million in pro<it" i" %ig%ly "peculati:e and no concrete e:idence (a" pre"ented to pro:e t%e "ame % The only unearned inco4e to 1hich Tandoc is entitled to fro4 the evidence presented is that for the one#4onth period, during 1hich his business 1as interrupted, 1hich is P(,1"5%99, considering that his annual net inco4e 1as P7),599%99%> ;n Lu<t%an"a German Airline" :/ ;ourt o< Appeal" ,45 this Court li8e1ise disallo1ed the trial courtNs a1ard of actual da4ages for unrealiGed profits in the a4ount of @*]75,999%99 for being highly speculative% ;t 1as held that >the realiGation of profits by respondent % % % 1as not a certainty, but depended on a nu4ber of factors, fore4ost of 1hich 1as his ability to invite investors and to (in t%e bid%> This Court 1ent further saying that actual or co4pensatory da4ages cannot be presu4ed, but 4ust be duly proved, and proved 1ith reasonable degree of certainty% And in National Po(er ;orporation :/ ;ourt o< Appeal" ,4( the Court, in denying the bidderNs clai4 for unrealiGed co44issions, ruled that even if 'AP5C5R does not deny its +bidderNs, clai4s for unrealiGed co44issions, and that these clai4s have been trans4uted into ?udicial ad4issions, these ad4issions cannot prevail over the rules and regulations governing the bidding for 'AP5C5R contracts, 1hich necessarily and inherently include the reservation by the 'AP5C5R of its right to re?ect any or all bids% The a1ard of 4oral da4ages is li8e1ise i4proper% To reiterate, 'AP5C5R did not act in bad faith% 6oreover, 4oral da4ages are not, as a general rule, granted to a corporation% 47 Bhile it is true that bes4irched reputation is included in 4oral da4ages, it cannot cause 4ental anguish to a corporation, unli8e in the case of a natural person, for a corporation has no reputation in the sense that an individual has, and besides, it is inherently i4possible for a corporation to suffer 4ental anguish% 4. ;n L ; 4@pre""# Inc/ :/ ;ourt o< Appeal",49 1e ruledA >6oral da4ages are granted in reco4pense for physical suffering, 4ental anguish, fright, serious an3iety, bes4irched reputation, 1ounded feelings, 4oral shoc8, social hu4iliation, and si4ilar in?ury% A corporation, being an artificial person and having e3istence only in legal conte4plation, has no feelings, no e4otions, no sensesE therefore, it cannot e3perience physical suffering and 4ental anguish% 6ental suffering can be e3perienced only by one having a nervous syste4 and it flo1s fro4 real ills, sorro1s, and griefs of life [ all of 1hich cannot be suffered by respondent ban8 as an artificial person%> 'either can 1e a1ard e3e4plary da4ages under Article "")4 of the Civil Code% -efore the court 4ay consider the 0uestion of 1hether or not e3e4plary da4ages should be a1arded, the plaintiff 4ust sho1 that he is entitled to 4oral, te4perate, or co4pensatory da4ages%

'AP5C5R, in this petition, li8e1ise contests the ?udg4ent of the lo1er courts a1arding P<;-R5 the a4ount of ]7),")1%91 as rei4burse4ent for e3penses, cost of litigation and attorneyNs fees% Be agree 1ith 'AP5C5R% This Court has laid do1n the rule that in the absence of stipulation, a 1inning party 4ay be a1arded attorneyNs fees only in case plaintiffNs action or defendantNs stand is so untenable as to a4ount to gross and evident bad faith% 59 This cannot be said of the case at bar% 'AP5C5R is ?ustified in resisting P<;-R5Ns clai4 for da4ages% As a 4atter of fact, 1e partially grant the prayer of 'AP5C5R as 1e find that it did not act in bad faith in disapproving P<;-R5Ns pre#0ualification to bid% Trial courts 4ust be re4inded that attorneyNs fees 4ay not be a1arded to a party si4ply because the ?udg4ent is favorable to hi4, for it 4ay a4ount to i4posing a pre4iu4 on the right to redress grievances in court% Be adopt the sa4e policy 1ith respect to the e3penses of litigation% A 1inning party 4ay be entitled to e3penses of litigation only 1here he, by reason of plaintiffNs clearly un?ustifiable clai4s or defendantNs unreasonable refusal to his de4ands, 1as co4pelled to incur said e3penditures% Cvidently, the facts of this case do not 1arrant the granting of such litigation e3penses to P<;-R5% At this point, 1e believe that, in the interest of fairness, 'AP5C5R should give P<;-R5 another opportunity to participate in future public bidding% As earlier 4entioned, the delay on its part 1as due to a fortuitous event% -ut before 1e dispose of this case, 1e ta8e this occasion to re4ind P<;-R5 of the indispensability of coal to a coal#fired ther4al plant% Bith households and businesses being entirely dependent on the electricity supplied by 'AP5C5R, the delivery of coal cannot be ventureso4e% ;ndeed, public interest de4ands that one 1ho offers to deliver coal at an appointed ti4e 4ust give a reasonable assurance that it can carry through% Bith the deleterious possible conse0uences that 4ay result fro4 failure to deliver the needed coal, 1e believe there is greater strain of co44it4ent in this 8ind of obligation% B<CRC75RC, the decision of the Court of Appeals in CA#$%R% C& 'o% 1"("94 dated August "7, 199( is hereby 65!;7;C!% The a1ard, in favor of P<;-R5, of actual, 4oral and e3e4plary da4ages, rei4burse4ent for e3penses, cost of litigation and attorneyNs fees, and costs of suit, is !C2CTC!% *5 5R!CRC!%