Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-4935 May 28, 1954
J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAÑOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
REYES, J.:
This is an action originally brought in the Court of First Instance of Rizal, Quezon City Branch, to recover possesion of
registered land situated in barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times with respect to the extent and description of the land sought to be
recovered. The original complaint described the land as a portion of a lot registered in plaintiff's name under Transfer
Certificate of Title No. 37686 of the land record of Rizal Province and as containing an area of 13 hectares more or less.
But the complaint was amended by reducing the area of 6 hectares, more or less, after the defendant had indicated the
plaintiff's surveyors the portion of land claimed and occupied by him. The second amendment became necessary and
was allowed following the testimony of plaintiff's surveyors that a portion of the area was embraced in another
certificate of title, which was plaintiff's Transfer Certificate of Title No. 37677. And still later, in the course of trial, after
defendant's surveyor and witness, Quirino Feria, had testified that the area occupied and claimed by defendant was
about 13 hectares, as shown in his Exhibit 1, plaintiff again, with the leave of court, amended its complaint to make its
allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open, continuous, exclusive and public and
notorious possession (of land in dispute) under claim of ownership, adverse to the entire world by defendant and his
predecessor in interest" from "time in-memorial". The answer further alleges that registration of the land in dispute was
obtained by plaintiff or its predecessors in interest thru "fraud or error and without knowledge (of) or interest either
personal or thru publication to defendant and/or predecessors in interest." The answer therefore prays that the
complaint be dismissed with costs and plaintiff required to reconvey the land to defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any right to the land in
question and ordering him to restore possession thereof to plaintiff and to pay the latter a monthly rent of P132.62 from
January, 1940, until he vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property involved, defendant makes the following
assignment or errors:
I. The trial court erred in not dismissing the case on the ground that the case was not brought by the real property in
interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in the litigation.
V. The trial court erred in holding that the land in dispute is covered by transfer certificates of Title Nos. 37686 and
37677.
Vl. The trial court erred in not finding that the defendant is the true and lawful owner of the land.
VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the amount of P132.62 monthly from
January, 1940, until he vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to the defendant.
As to the first assigned error, there is nothing to the contention that the present action is not brought by the real party
in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require is that an action be brought in the name
of, but not necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-law to
bring the action, that is to file the complaint, in the name of the plaintiff. That practice appears to have been followed in
this case, since the complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences
with the statement "comes now plaintiff, through its undersigned counsel." It is true that the complaint also states that
the plaintiff is "represented herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but there is
nothing against one corporation being represented by another person, natural or juridical, in a suit in court. The
contention that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on the theory that it is illegal for two
corporations to enter into a partnership is without merit, for the true rule is that "though a corporation has no power to
enter into a partnership, it may nevertheless enter into a joint venture with another where the nature of that venture is
in line with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2
Fletcher Cyc. of Corp., 1082.) There is nothing in the record to indicate that the venture in which plaintiff is represented
by Gregorio Araneta, Inc. as "its managing partner" is not in line with the corporate business of either of them.
Errors II, III, and IV, referring to the admission of the third amended complaint, may be answered by mere reference to
section 4 of Rule 17, Rules of Court, which sanctions such amendment. It reads:
Sec. 4. Amendment to conform to evidence. — When issues not raised by the pleadings are tried by express or implied
consent of the parties, they shall be treated in all respects, as if they had been raised in the pleadings. Such amendment
of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made
upon motion of any party at my time, even of the trial of these issues. If evidence is objected to at the trial on the
ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall
be so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to
satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the
merits. The court may grant a continuance to enable the objecting party to meet such evidence.
Under this provision amendment is not even necessary for the purpose of rendering judgment on issues proved though
not alleged. Thus, commenting on the provision, Chief Justice Moran says in this Rules of Court:
Under this section, American courts have, under the New Federal Rules of Civil Procedure, ruled that where the facts
shown entitled plaintiff to relief other than that asked for, no amendment to the complaint is necessary, especially
where defendant has himself raised the point on which recovery is based, and that the appellate court treat the
pleadings as amended to conform to the evidence, although the pleadings were not actually amended. (I Moran, Rules
of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage of the trial, that the land in
dispute "is that described or represented in Exhibit A and in Exhibit B enclosed in red pencil with the name Quirino
Bolaños," defendant later changed his lawyer and also his theory and tried to prove that the land in dispute was not
covered by plaintiff's certificate of title. The evidence, however, is against defendant, for it clearly establishes that
plaintiff is the registered owner of lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3
square meters, more or less, covered by transfer certificate of title No. 37686 of the land records of Rizal province, and
of lot No. 4-B-4, situated in the same barrio, having an area of 74,789 square meters, more or less, covered by transfer
certificate of title No. 37677 of the land records of the same province, both lots having been originally registered on July
8, 1914 under original certificate of title No. 735. The identity of the lots was established by the testimony of Antonio
Manahan and Magno Faustino, witnesses for plaintiff, and the identity of the portion thereof claimed by defendant was
established by the testimony of his own witness, Quirico Feria. The combined testimony of these three witnesses clearly
shows that the portion claimed by defendant is made up of a part of lot 4-B-3-C and major on portion of lot 4-B-4, and is
well within the area covered by the two transfer certificates of title already mentioned. This fact also appears admitted
in defendant's answer to the third amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered in 1914, the decree of
registration can no longer be impugned on the ground of fraud, error or lack of notice to defendant, as more than one
year has already elapsed from the issuance and entry of the decree. Neither court the decree be collaterally attacked by
any person claiming title to, or interest in, the land prior to the registration proceedings. (Soroñgon vs. Makalintal,1 45
Off. Gaz., 3819.) Nor could title to that land in derogation of that of plaintiff, the registered owner, be acquired by
prescription or adverse possession. (Section 46, Act No. 496.) Adverse, notorious and continuous possession under claim
of ownership for the period fixed by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc., 45
Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure possession under a decree of registration does
not prescribed. (Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that
rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that defendant should be sentenced to
pay plaintiff P132.62 monthly from January, 1940, until he vacates the premises.' But it appears from the record that
that reasonable compensation for the use and occupation of the premises, as stipulated at the hearing was P10 a month
for each hectare and that the area occupied by defendant was 13.2619 hectares. The total rent to be paid for the area
occupied should therefore be P132.62 a month. It is appears from the testimony of J. A. Araneta and witness Emigdio
Tanjuatco that as early as 1939 an action of ejectment had already been filed against defendant. And it cannot be
supposed that defendant has been paying rents, for he has been asserting all along that the premises in question 'have
always been since time immemorial in open, continuous, exclusive and public and notorious possession and under claim
of ownership adverse to the entire world by defendant and his predecessors in interest.' This assignment of error is thus
clearly without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for further consideration.
During the pendency of this case in this Court appellant, thru other counsel, has filed a motion to dismiss alleging that
there is pending before the Court of First Instance of Rizal another action between the same parties and for the same
cause and seeking to sustain that allegation with a copy of the complaint filed in said action. But an examination of that
complaint reveals that appellant's allegation is not correct, for the pretended identity of parties and cause of action in
the two suits does not appear. That other case is one for recovery of ownership, while the present one is for recovery of
possession. And while appellant claims that he is also involved in that order action because it is a class suit, the
complaint does not show that such is really the case. On the contrary, it appears that the action seeks relief for each
individual plaintiff and not relief for and on behalf of others. The motion for dismissal is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.
Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.

Footnotes
1
80 Phil., 259.
2 80 Phil., 415.
DIGEST
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. 113375 May 5, 1994

KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V.
VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, SEN. FREDDIE WEBB, SEN. WIGBERTO TAÑADA, and REP. JOKER P.
ARROYO, petitioners,
vs.
TEOFISTO GUINGONA, JR., in his capacity as Executive Secretary, Office of the President; RENATO CORONA, in his capacity as
Assistant Executive Secretary and Chairman of the Presidential review Committee on the Lotto, Office of the President; PHILIPPINE
CHARITY SWEEPSTAKES OFFICE; and PHILIPPINE GAMING MANAGEMENT CORPORATION, respondents.
Jovito R. Salonga, Fernando Santiago, Emilio C. Capulong, Jr. and Felipe L. Gozon for petitioners.
Renato L. Cayetano and Eleazar B. Reyes for PGMC.
Gamaliel G. Bongco, Oscar Karaan and Jedideoh Sincero for intervenors.

DAVIDE, JR., J.:

This is a special civil action for prohibition and injunction, with a prayer for a temporary restraining order and preliminary injunction,
which seeks to prohibit and restrain the implementation of the "Contract of Lease" executed by the Philippine Charity Sweepstakes
Office (PCSO) and the Philippine Gaming Management Corporation (PGMC) in connection with the on- line lottery system, also known
as "lotto."
Petitioner Kilosbayan, Incorporated (KILOSBAYAN) avers that it is a non-stock domestic corporation composed of civic-spirited
citizens, pastors, priests, nuns, and lay leaders who are committed to the cause of truth, justice, and national renewal. The rest of the
petitioners, except Senators Freddie Webb and Wigberto Tañada and Representative Joker P. Arroyo, are suing in their capacities as
members of the Board of Trustees of KILOSBAYAN and as taxpayers and concerned citizens. Senators Webb and Tañada and
Representative Arroyo are suing in their capacities as members of Congress and as taxpayers and concerned citizens of the
Philippines.
The pleadings of the parties disclose the factual antecedents which triggered off the filing of this petition.
Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended by B.P. Blg. 42) which grants it the authority to hold and
conduct "charity sweepstakes races, lotteries and other similar activities," the PCSO decided to establish an on- line lottery system for
the purpose of increasing its revenue base and diversifying its sources of funds. Sometime before March 1993, after learning that the
PCSO was interested in operating an on-line lottery system, the Berjaya Group Berhad, "a multinational company and one of the ten
largest public companies in Malaysia," long "engaged in, among others, successful lottery operations in Asia, running both Lotto and
Digit games, thru its subsidiary, Sports Toto Malaysia," with its "affiliate, the International Totalizator Systems, Inc., . . . an American
public company engaged in the international sale or provision of computer systems, softwares, terminals, training and other technical
services to the gaming industry," "became interested to offer its services and resources to PCSO." As an initial step, Berjaya Group
Berhad (through its individual nominees) organized with some Filipino investors in March 1993 a Philippine corporation known as the
Philippine Gaming Management Corporation (PGMC), which "was intended to be the medium through which the technical and
management services required for the project would be offered and delivered to PCSO." 1
Before August 1993, the PCSO formally issued a Request for Proposal (RFP) for the Lease Contract of an on-line lottery system for the
PCSO. 2 Relevant provisions of the RFP are the following:
1. EXECUTIVE SUMMARY
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1.2. PCSO is seeking a suitable contractor which shall build, at its own expense, all the facilities ('Facilities') needed to operate and
maintain a nationwide on-line lottery system. PCSO shall lease the Facilities for a fixed percentage ofquarterly gross receipts. All
receipts from ticket sales shall be turned over directly to PCSO. All capital, operating expenses and expansion expenses and risks shall
be for the exclusive account of the Lessor.
xxx xxx xxx
1.4. The lease shall be for a period not exceeding fifteen (15) years.
1.5. The Lessor is expected to submit a comprehensive nationwide lottery development plan ("Development Plan") which will include
the game, the marketing of the games, and the logistics to introduce the games to all the cities and municipalities of the country
within five (5) years.
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1.7. The Lessor shall be selected based on its technical expertise, hardware and software capability, maintenance support, and
financial resources. The Development Plan shall have a substantial bearing on the choice of the Lessor. The Lessor shall be a domestic
corporation, with at least sixty percent (60%) of its shares owned by Filipino shareholders.
xxx xxx xxx
The Office of the President, the National Disaster Control Coordinating Council, the Philippine National Police, and the National
Bureau of Investigation shall be authorized to use the nationwide telecommunications system of the Facilities Free of Charge.
1.8. Upon expiration of the lease, the Facilities shall be owned by PCSO without any additional consideration. 3
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2.2. OBJECTIVES
The objectives of PCSO in leasing the Facilities from a private entity are as follows:
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2.2.2. Enable PCSO to operate a nationwide on-line Lottery system at no expense or risk to the government.
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2.4. DUTIES AND RESPONSIBILITIES OF THE LESSOR
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2.4.2. THE LESSOR
The Proponent is expected to furnish and maintain the Facilities, including the personnel needed to operate the computers, the
communications network and sales offices under a build-lease basis. The printing of tickets shall be undertaken under the supervision
and control of PCSO. The Facilities shall enable PCSO to computerize the entire gaming system.
The Proponent is expected to formulate and design consumer-oriented Master Games Plan suited to the marketplace, especially
geared to Filipino gaming habits and preferences. In addition, the Master Games Plan is expected to include a Product Plan for each
game and explain how each will be introduced into the market. This will be an integral part of the Development Plan which PCSO will
require from the Proponent.
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The Proponent is expected to provide upgrades to modernize the entire gaming system over the life ofthe lease contract.
The Proponent is expected to provide technology transfer to PCSO technical personnel. 4
7. GENERAL GUIDELINES FOR PROPONENTS
xxx xxx xxx
Finally, the Proponent must be able to stand the acid test of proving that it is an entity able to take on the role of responsible
maintainer of the on-line lottery system, and able to achieve PSCO's goal of formalizing an on-line lottery system to achieve its
mandated objective. 5
xxx xxx xxx
16. DEFINITION OF TERMS
Facilities: All capital equipment, computers, terminals, software, nationwide telecommunication network, ticket sales offices,
furnishings, and fixtures; printing costs; cost of salaries and wages; advertising and promotion expenses; maintenance costs;
expansion and replacement costs; security and insurance, and all other related expenses needed to operate nationwide on-line
lottery system.6
Considering the above citizenship requirement, the PGMC claims that the Berjaya Group "undertook to reduce its equity stakes in
PGMC to 40%," by selling 35% out of the original 75% foreign stockholdings to local investors.
On 15 August 1993, PGMC submitted its bid to the PCSO.7
The bids were evaluated by the Special Pre-Qualification Bids and Awards Committee (SPBAC) for the on-line lottery and its Bid Report
was thereafter submitted to the Office of the President. 8 The submission was preceded by complaints by the Committee's
Chairperson, Dr. Mita Pardo de Tavera. 9
On 21 October 1993, the Office of the President announced that it had given the respondent PGMC the go-signal to operate the
country's on-line lottery system and that the corresponding implementing contract would be submitted not later than 8 November
1993 "for final clearance and approval by the Chief Executive." 10 This announcement was published in the Manila Standard, Philippine
Daily Inquirer, and the Manila Times on 29 October 1993. 11
On 4 November 1993, KILOSBAYAN sent an open letter to Presidential Fidel V. Ramos strongly opposing the setting up to the on-line
lottery system on the basis of serious moral and ethical considerations. 12
At the meeting of the Committee on Games and Amusements of the Senate on 12 November 1993, KILOSBAYAN reiterated its
vigorous opposition to the on-line lottery on account of its immorality and illegality. 13
On 19 November 1993, the media reported that despite the opposition, "Malacañang will push through with the operation of an on-
line lottery system nationwide" and that it is actually the respondent PCSO which will operate the lottery while the winning corporate
bidders are merely "lessors." 14
On 1 December 1993, KILOSBAYAN requested copies of all documents pertaining to the lottery award from Executive Secretary
Teofisto Guingona, Jr. In his answer of 17 December 1993, the Executive Secretary informed KILOSBAYAN that the requested
documents would be duly transmitted before the end of the month. 15. However, on that same date, an agreement denominated as
"Contract of Lease" was finally executed by respondent PCSO and respondent PGMC. 16 The President, per the press statement issued
by the Office of the President, approved it on 20 December 1993.17
In view of their materiality and relevance, we quote the following salient provisions of the Contract of Lease:
1. DEFINITIONS
The following words and terms shall have the following respective meanings:
1.1 Rental Fee — Amount to be paid by PCSO to the LESSOR as compensation for the fulfillment of the obligations of the LESSOR
under this Contract, including, but not limited to the lease of the Facilities.
xxx xxx xxx
1.3 Facilities — All capital equipment, computers, terminals, software (including source codes for the On-Line Lottery application
software for the terminals, telecommunications and central systems), technology, intellectual property rights, telecommunications
network, and furnishings and fixtures.
1.4 Maintenance and Other Costs — All costs and expenses relating to printing, manpower, salaries and wages, advertising and
promotion, maintenance, expansion and replacement, security and insurance, and all other related expenses needed to operate an
On-Line Lottery System, which shall be for the account of the LESSOR. All expenses relating to the setting-up, operation and
maintenance of ticket sales offices of dealers and retailers shall be borne by PCSO's dealers and retailers.
1.5 Development Plan — The detailed plan of all games, the marketing thereof, number of players, value of winnings and the logistics
required to introduce the games, including the Master Games Plan as approved by PCSO, attached hereto as Annex "A", modified as
necessary by the provisions of this Contract.
xxx xxx xxx
1.8 Escrow Deposit — The proposal deposit in the sum of Three Hundred Million Pesos (P300,000,000.00) submitted by the LESSOR to
PCSO pursuant to the requirements of the Request for Proposals.
2. SUBJECT MATTER OF THE LEASE
The LESSOR shall build, furnish and maintain at its own expense and risk the Facilities for the On-Line Lottery System of PCSO in the
Territory on an exclusive basis. The LESSOR shall bear all Maintenance and Other Costs as defined herein.
xxx xxx xxx
3. RENTAL FEE
For and in consideration of the performance by the LESSOR of its obligations herein, PCSO shall pay LESSOR a fixed Rental Fee equal to
four point nine percent (4.9%) of gross receipts from ticket sales, payable net of taxes required by law to be withheld, on a semi-
monthly basis. Goodwill, franchise and similar fees shall belong to PCSO.
4. LEASE PERIOD
The period of the lease shall commence ninety (90) days from the date of effectivity of this Contract and shall run for a period of eight
(8) years thereafter, unless sooner terminated in accordance with this Contract.
5. RIGHTS AND OBLIGATIONS OF PCSO AS OPERATOR OF THE ON-LINE LOTTERY SYSTEM
PCSO shall be the sole and individual operator of the On-Line Lottery System. Consequently:
5.1 PCSO shall have sole responsibility to decide whether to implement, fully or partially, the Master Games Plan of the LESSOR. PCSO
shall have the sole responsibility to determine the time for introducing new games to the market. The Master Games Plan included in
Annex "A" hereof is hereby approved by PCSO.
5.2 PCSO shall have control over revenues and receipts of whatever nature from the On-Line Lottery System. After paying the Rental
Fee to the LESSOR, PCSO shall have exclusive responsibility to determine the Revenue Allocation Plan; Provided, that the same shall
be consistent with the requirement of R.A. No. 1169, as amended, which fixes a prize fund of fifty five percent (55%) on the average.
5.3 PCSO shall have exclusive control over the printing of tickets, including but not limited to the design, text, and contents thereof.
5.4 PCSO shall have sole responsibility over the appointment of dealers or retailers throughout the country. PCSO shall appoint the
dealers and retailers in a timely manner with due regard to the implementation timetable of the On-Line Lottery System. Nothing
herein shall preclude the LESSOR from recommending dealers or retailers for appointment by PCSO, which shall act on said
recommendation within forty-eight (48) hours.
5.5 PCSO shall designate the necessary personnel to monitor and audit the daily performance of the On-Line Lottery System. For this
purpose, PCSO designees shall be given, free of charge, suitable and adequate space, furniture and fixtures, in all offices of the
LESSOR, including but not limited to its headquarters, alternate site, regional and area offices.
5.6 PCSO shall have the responsibility to resolve, and exclusive jurisdiction over, all matters involving the operation of the On-Line
Lottery System not otherwise provided in this Contract.
5.7 PCSO shall promulgate procedural and coordinating rules governing all activities relating to the On-Line Lottery System.
5.8 PCSO will be responsible for the payment of prize monies, commissions to agents and dealers, and taxes and levies (if any)
chargeable to the operator of the On-Line Lottery System. The LESSOR will bear all other Maintenance and Other Costs, except as
provided in Section 1.4.
5.9 PCSO shall assist the LESSOR in the following:
5.9.1 Work permits for the LESSOR's staff;
5.9.2 Approvals for importation of the Facilities;
5.9.3 Approvals and consents for the On-Line Lottery System; and
5.9.4 Business and premises licenses for all offices of the LESSOR and licenses for the telecommunications network.
5.10 In the event that PCSO shall pre-terminate this Contract or suspend the operation of the On-Line Lottery System, in breach of this
Contract and through no fault of the LESSOR, PCSO shall promptly, and in any event not later than sixty (60) days, reimburse the
LESSOR the amount of its total investment cost associated with the On-Line Lottery System, including but not limited to the cost of
the Facilities, and further compensate the LESSOR for loss of expected net profit after tax, computed over the unexpired term of the
lease.
6. DUTIES AND RESPONSIBILITIES OF THE LESSOR
The LESSOR is one of not more than three (3) lessors of similar facilities for the nationwide On-Line Lottery System of PCSO. It is
understood that the rights of the LESSOR are primarily those of a lessor of the Facilities, and consequently, all rights involving the
business aspects of the use of the Facilities are within the jurisdiction of PCSO. During the term of the lease, the LESSOR shall.
6.1 Maintain and preserve its corporate existence, rights and privileges, and conduct its business in an orderly, efficient, and
customary manner.
6.2 Maintain insurance coverage with insurers acceptable to PCSO on all Facilities.
6.3 Comply with all laws, statues, rules and regulations, orders and directives, obligations and duties by which it is legally bound.
6.4 Duly pay and discharge all taxes, assessments and government charges now and hereafter imposed of whatever nature that may
be legally levied upon it.
6.5 Keep all the Facilities in fail safe condition and, if necessary, upgrade, replace and improve the Facilities from time to time as new
technology develops, in order to make the On-Line Lottery System more cost-effective and/or competitive, and as may be required by
PCSO shall not impose such requirements unreasonably nor arbitrarily.
6.6 Provide PCSO with management terminals which will allow real-time monitoring of the On-Line Lottery System.
6.7 Upon effectivity of this Contract, commence the training of PCSO and other local personnel and the transfer of technology and
expertise, such that at the end of the term of this Contract, PCSO will be able to effectively take-over the Facilities and efficiently
operate the On-Line Lottery System.
6.8 Undertake a positive advertising and promotions campaign for both institutional and product lines without engaging in negative
advertising against other lessors.
6.9 Bear all expenses and risks relating to the Facilities including, but not limited to, Maintenance and Other Costs and:
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6.10 Bear all risks if the revenues from ticket sales, on an annualized basis, are insufficient to pay the entire prize money.
6.11 Be, and is hereby, authorized to collect and retain for its own account, a security deposit from dealers and retailers, in an amount
determined with the approval of PCSO, in respect of equipment supplied by the LESSOR. PCSO's approval shall not be unreasonably
withheld.
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6.12 Comply with procedural and coordinating rules issued by PCSO.
7. REPRESENTATIONS AND WARRANTIES
The LESSOR represents and warrants that:
7.1 The LESSOR is corporation duly organized and existing under the laws of the Republic of the Philippines, at least sixty percent
(60%) of the outstanding capital stock of which is owned by Filipino shareholders. The minimum required Filipino equity participation
shall not be impaired through voluntary or involuntary transfer, disposition, or sale of shares of stock by the present stockholders.
7.2 The LESSOR and its Affiliates have the full corporate and legal power and authority to own and operate their properties and to
carry on their business in the place where such properties are now or may be conducted. . . .
7.3 The LESSOR has or has access to all the financing and funding requirements to promptly and effectively carry out the terms of this
Contract. . . .
7.4 The LESSOR has or has access to all the managerial and technical expertise to promptly and effectively carry out the terms of this
Contract. . . .
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10. TELECOMMUNICATIONS NETWORK
The LESSOR shall establish a telecommunications network that will connect all municipalities and cities in the Territory in accordance
with, at the LESSOR's option, either of the LESSOR's proposals (or a combinations of both such proposals) attached hereto as Annex
"B," and under the following PCSO schedule:
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PCSO may, at its option, require the LESSOR to establish the telecommunications network in accordance with the above Timetable in
provinces where the LESSOR has not yet installed terminals. Provided, that such provinces have existing nodes. Once a municipality or
city is serviced by land lines of a licensed public telephone company, and such lines are connected to Metro Manila, then the
obligation of the LESSOR to connect such municipality or city through a telecommunications network shall cease with respect to such
municipality or city. The voice facility will cover the four offices of the Office of the President, National Disaster Control Coordinating
Council, Philippine National Police and the National Bureau of Investigation, and each city and municipality in the Territory except
Metro Manila, and those cities and municipalities which have easy telephone access from these four offices. Voice calls from the four
offices shall be transmitted via radio or VSAT to the remote municipalities which will be connected to this voice facility through wired
network or by radio. The facility shall be designed to handle four private conversations at any one time.
xxx xxx xxx
13. STOCK DISPERSAL PLAN
Within two (2) years from the effectivity of this Contract, the LESSOR shall cause itself to be listed in the local stock exchange and
offer at least twenty five percent (25%) of its equity to the public.
14. NON-COMPETITION
The LESSOR shall not, directly or indirectly, undertake any activity or business in competition with or adverse to the On-Line Lottery
System of PCSO unless it obtains the latter's prior written consent thereto.
15. HOLD HARMLESS CLAUSE
15.1 The LESSOR shall at all times protect and defend, at its cost and expense, PCSO from and against any and all liabilities and claims
for damages and/or suits for or by reason of any deaths of, or any injury or injuries to any person or persons, or damages to property
of any kind whatsoever, caused by the LESSOR, its subcontractors, its authorized agents or employees, from any cause or causes
whatsoever.
15.2 The LESSOR hereby covenants and agrees to indemnify and hold PCSO harmless from all liabilities, charges, expenses (including
reasonable counsel fees) and costs on account of or by reason of any such death or deaths, injury or injuries, liabilities, claims, suits or
losses caused by the LESSOR's fault or negligence.
15.3 The LESSOR shall at all times protect and defend, at its own cost and expense, its title to the facilities and PCSO's interest therein
from and against any and all claims for the duration of the Contract until transfer to PCSO of ownership of the serviceable Facilities.
16. SECURITY
16.1 To ensure faithful compliance by the LESSOR with the terms of the Contract, the LESSOR shall secure a Performance Bond from a
reputable insurance company or companies acceptable to PCSO.
16.2 The Performance Bond shall be in the initial amount of Three Hundred Million Pesos (P300,000,000.00), to its U.S. dollar
equivalent, and shall be renewed to cover the duration of the Contract. However, the Performance Bond shall be reduced
proportionately to the percentage of unencumbered terminals installed; Provided, that the Performance Bond shall in no case be less
than One Hundred Fifty Million Pesos (P150,000,000.00).
16.3 The LESSOR may at its option maintain its Escrow Deposit as the Performance Bond. . . .
17. PENALTIES
17.1 Except as may be provided in Section 17.2, should the LESSOR fail to take remedial measures within seven (7) days, and rectify
the breach within thirty (30) days, from written notice by PCSO of any wilfull or grossly negligent violation of the material terms and
conditions of this Contract, all unencumbered Facilities shall automatically become the property of PCSO without consideration and
without need for further notice or demand by PCSO. The Performance Bond shall likewise be forfeited in favor of PCSO.
17.2 Should the LESSOR fail to comply with the terms of the Timetables provided in Section 9 and 10, it shall be subject to an initial
Penalty of Twenty Thousand Pesos (P20,000.00), per city or municipality per every month of delay; Provided, that the Penalty shall
increase, every ninety (90) days, by the amount of Twenty Thousand Pesos (P20,000.00) per city or municipality per month, whilst
shall failure to comply persists. The penalty shall be deducted by PCSO from the rental fee.
xxx xxx xxx
20. OWNERSHIP OF THE FACILITIES
After expiration of the term of the lease as provided in Section 4, the Facilities directly required for the On-Line Lottery System
mentioned in Section 1.3 shall automatically belong in full ownership to PCSO without any further consideration other than the Rental
Fees already paid during the effectivity of the lease.
21. TERMINATION OF THE LEASE
PCSO may terminate this Contract for any breach of the material provisions of this Contract, including the following:
21.1 The LESSOR is insolvent or bankrupt or unable to pay its debts, stops or suspends or threatens to stop or suspend payment of all
or a material part of its debts, or proposes or makes a general assignment or an arrangement or compositions with or for the benefit
of its creditors; or
21.2 An order is made or an effective resolution passed for the winding up or dissolution of the LESSOR or when it ceases or threatens
to cease to carry on all or a material part of its operations or business; or
21.3 Any material statement, representation or warranty made or furnished by the LESSOR proved to be materially false or
misleading;
said termination to take effect upon receipt of written notice of termination by the LESSOR and failure to take remedial action within
seven (7) days and cure or remedy the same within thirty (30) days from notice.
Any suspension, cancellation or termination of this Contract shall not relieve the LESSOR of any liability that may have already accrued
hereunder.
xxx xxx xxx
Considering the denial by the Office of the President of its protest and the statement of Assistant Executive Secretary Renato Corona
that "only a court injunction can stop Malacañang," and the imminent implementation of the Contract of Lease in February 1994,
KILOSBAYAN, with its co-petitioners, filed on 28 January 1994 this petition.
In support of the petition, the petitioners claim that:
. . . X X THE OFFICE OF THE PRESIDENT, ACTING THROUGH RESPONDENTS EXECUTIVE SECRETARY AND/OR ASSISTANT EXECUTIVE
SECRETARY FOR LEGAL AFFAIRS, AND THE PCSO GRAVELY ABUSE[D] THEIR DISCRETION AND/OR FUNCTIONS TANTAMOUNT TO LACK
OF JURISDICTION AND/OR AUTHORITY IN RESPECTIVELY: (A) APPROVING THE AWARD OF THE CONTRACT TO, AND (B) ENTERING INTO
THE SO-CALLED "CONTRACT OF LEASE" WITH, RESPONDENT PGMC FOR THE INSTALLATION, ESTABLISHMENT AND OPERATION OF THE
ON-LINE LOTTERY AND TELECOMMUNICATION SYSTEMS REQUIRED AND/OR AUTHORIZED UNDER THE SAID CONTRACT,
CONSIDERING THAT:
a) Under Section 1 of the Charter of the PCSO, the PCSO is prohibited from holding and conducting lotteries "in collaboration,
association or joint venture with any person, association, company or entity";
b) Under Act No. 3846 and established jurisprudence, a Congressional franchise is required before any person may be allowed to
establish and operate said telecommunications system;
c) Under Section 11, Article XII of the Constitution, a less than 60% Filipino-owned and/or controlled corporation, like the PGMC, is
disqualified from operating a public service, like the said telecommunications system; and
d) Respondent PGMC is not authorized by its charter and under the Foreign Investment Act (R.A. No. 7042) to install, establish and
operate the on-line lotto and telecommunications systems.18
Petitioners submit that the PCSO cannot validly enter into the assailed Contract of Lease with the PGMC because it is an arrangement
wherein the PCSO would hold and conduct the on-line lottery system in "collaboration" or "association" with the PGMC, in violation
of Section 1(B) of R.A. No. 1169, as amended by B.P. Blg. 42, which prohibits the PCSO from holding and conducting charity
sweepstakes races, lotteries, and other similar activities "in collaboration, association or joint venture with any person, association,
company or entity, foreign or domestic." Even granting arguendo that a lease of facilities is not within the contemplation of
"collaboration" or "association," an analysis, however, of the Contract of Lease clearly shows that there is a "collaboration,
association, or joint venture between respondents PCSO and PGMC in the holding of the On-Line Lottery System," and that there are
terms and conditions of the Contract "showing that respondent PGMC is the actual lotto operator and not respondent PCSO."19
The petitioners also point out that paragraph 10 of the Contract of Lease requires or authorizes PGMC to establish a
telecommunications network that will connect all the municipalities and cities in the territory. However, PGMC cannot do that
because it has no franchise from Congress to construct, install, establish, or operate the network pursuant to Section 1 of Act No.
3846, as amended. Moreover, PGMC is a 75% foreign-owned or controlled corporation and cannot, therefore, be granted a franchise
for that purpose because of Section 11, Article XII of the 1987 Constitution. Furthermore, since "the subscribed foreign capital" of the
PGMC "comes to about 75%, as shown by paragraph EIGHT of its Articles of Incorporation," it cannot lawfully enter into the contract
in question because all forms of gambling — and lottery is one of them — are included in the so-called foreign investments negative
list under the Foreign Investments Act (R.A. No. 7042) where only up to 40% foreign capital is allowed. 20
Finally, the petitioners insist that the Articles of Incorporation of PGMC do not authorize it to establish and operate an on-line lottery
and telecommunications systems.21
Accordingly, the petitioners pray that we issue a temporary restraining order and a writ of preliminary injunction commanding the
respondents or any person acting in their places or upon their instructions to cease and desist from implementing the challenged
Contract of Lease and, after hearing the merits of the petition, that we render judgment declaring the Contract of Lease void and
without effect and making the injunction permanent. 22
We required the respondents to comment on the petition.
In its Comment filed on 1 March 1994, private respondent PGMC asserts that "(1) [it] is merely an independent contractor for a piece
of work, (i.e., the building and maintenance of a lottery system to be used by PCSO in the operation of its lottery franchise); and (2) as
such independent contractor, PGMC is not a co-operator of the lottery franchise with PCSO, nor is PCSO sharing its franchise, 'in
collaboration, association or joint venture' with PGMC — as such statutory limitation is viewed from the context, intent, and spirit of
Republic Act 1169, as amended by Batas Pambansa 42." It further claims that as an independent contractor for a piece of work, it is
neither engaged in "gambling" nor in "public service" relative to the telecommunications network, which the petitioners even
consider as an "indispensable requirement" of an on-line lottery system. Finally, it states that the execution and implementation of
the contract does not violate the Constitution and the laws; that the issue on the "morality" of the lottery franchise granted to the
PCSO is political and not judicial or legal, which should be ventilated in another forum; and that the "petitioners do not appear to
have the legal standing or real interest in the subject contract and in obtaining the reliefs sought." 23
In their Comment filed by the Office of the Solicitor General, public respondents Executive Secretary Teofisto Guingona, Jr., Assistant
Executive Secretary Renato Corona, and the PCSO maintain that the contract of lease in question does not violate Section 1 of R.A.
No. 1169, as amended by B.P. Blg. 42, and that the petitioner's interpretation of the phrase "in collaboration, association or joint
venture" in Section 1 is "much too narrow, strained and utterly devoid of logic" for it "ignores the reality that PCSO, as a corporate
entity, is vested with the basic and essential prerogative to enter into all kinds of transactions or contracts as may be necessary for
the attainment of its purposes and objectives." What the PCSO charter "seeks to prohibit is that arrangement akin to a "joint venture"
or partnership where there is "community of interest in the business, sharing of profits and losses, and a mutual right of control," a
characteristic which does not obtain in a contract of lease." With respect to the challenged Contract of Lease, the "role of PGMC is
limited to that of a lessor of the facilities" for the on-line lottery system; in "strict technical and legal sense," said contract "can be
categorized as a contract for a piece of work as defined in Articles 1467, 1713 and 1644 of the Civil Code."
They further claim that the establishment of the telecommunications system stipulated in the Contract of Lease does not require a
congressional franchise because PGMC will not operate a public utility; moreover, PGMC's "establishment of a telecommunications
system is not intended to establish a telecommunications business," and it has been held that where the facilities are operated "not
for business purposes but for its own use," a legislative franchise is not required before a certificate of public convenience can be
granted. 24 Even granting arguendo that PGMC is a public utility, pursuant to Albano S.
Reyes, 25 "it can establish a telecommunications system even without a legislative franchise because not every public utility is required
to secure a legislative franchise before it could establish, maintain, and operate the service"; and, in any case, "PGMC's establishment
of the telecommunications system stipulated in its contract of lease with PCSO falls within the exceptions under Section 1 of Act No.
3846 where a legislative franchise is not necessary for the establishment of radio stations."
They also argue that the contract does not violate the Foreign Investment Act of 1991; that the Articles of Incorporation of PGMC
authorize it to enter into the Contract of Lease; and that the issues of "wisdom, morality and propriety of acts of the executive
department are beyond the ambit of judicial review."
Finally, the public respondents allege that the petitioners have no standing to maintain the instant suit, citing our resolution
in Valmonte vs. Philippine Charity Sweepstakes Office. 26
Several parties filed motions to intervene as petitioners in this case, 27 but only the motion of Senators Alberto Romulo, Arturo
Tolentino, Francisco Tatad, Gloria Macapagal-Arroyo, Vicente Sotto III, John Osmeña, Ramon Revilla, and Jose Lina 28 was granted, and
the respondents were required to comment on their petition in intervention, which the public respondents and PGMC did.
In the meantime, the petitioners filed with the Securities and Exchange Commission on 29 March 1994 a petition against PGMC for
the nullification of the latter's General Information Sheets. That case, however, has no bearing in this petition.
On 11 April 1994, we heard the parties in oral arguments. Thereafter, we resolved to consider the matter submitted for resolution
and pending resolution of the major issues in this case, to issue a temporary restraining order commanding the respondents or any
person acting in their place or upon their instructions to cease and desist from implementing the challenged Contract of Lease.
In the deliberation on this case on 26 April 1994, we resolved to consider only these issues: (a) the locus standi of the petitioners, and
(b) the legality and validity of the Contract of Lease in the light of Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, which
prohibits the PCSO from holding and conducting lotteries "in collaboration, association or joint venture with any person, association,
company or entity, whether domestic or foreign." On the first issue, seven Justices voted to sustain the locus standi of the petitioners,
while six voted not to. On the second issue, the seven Justices were of the opinion that the Contract of Lease violates the exception to
Section 1(B) of R.A. No. 1169, as amended by B.P. Blg. 42, and is, therefore, invalid and contrary to law. The six Justices stated that
they wished to express no opinion thereon in view of their stand on the first issue. The Chief Justice took no part because one of the
Directors of the PCSO is his brother-in-law.
This case was then assigned to this ponente for the writing of the opinion of the Court.
The preliminary issue on the locus standi of the petitioners should, indeed, be resolved in their favor. A party's standing before this
Court is a procedural technicality which it may, in the exercise of its discretion, set aside in view of the importance of the issues
raised. In the landmark Emergency Powers Cases, 29 this Court brushed aside this technicality because "the transcendental importance
to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must, technicalities of
procedure. (Avelino vs. Cuenco, G.R. No. L-2821)." Insofar as taxpayers' suits are concerned, this Court had declared that it "is not
devoid of discretion as to whether or not it should be entertained," 30 or that it "enjoys an open discretion to entertain the same or
not." 31 In De La Llana vs. Alba, 32 this Court declared:
1. The argument as to the lack of standing of petitioners is easily resolved. As far as Judge de la Llana is concerned, he certainly falls
within the principle set forth in Justice Laurel's opinion in People vs. Vera [65 Phil. 56 (1937)]. Thus: "The unchallenged rule is that the
person who impugns the validity of a statute must have a personal and substantial interest in the case such that he has sustained, or
will sustain, direct injury as a result of its enforcement [Ibid, 89]. The other petitioners as members of the bar and officers of the court
cannot be considered as devoid of "any personal and substantial interest" on the matter. There is relevance to this excerpt from a
separate opinion in Aquino, Jr. v. Commission on Elections [L-40004, January 31, 1975, 62 SCRA 275]: "Then there is the attack on the
standing of petitioners, as vindicating at most what they consider a public right and not protecting their rights as individuals. This is to
conjure the specter of the public right dogma as an inhibition to parties intent on keeping public officials staying on the path of
constitutionalism. As was so well put by Jaffe; "The protection of private rights is an essential constituent of public interest and,
conversely, without a well-ordered state there could be no enforcement of private rights. Private and public interests are, both in a
substantive and procedural sense, aspects of the totality of the legal order." Moreover, petitioners have convincingly shown that in
their capacity as taxpayers, their standing to sue has been amply demonstrated. There would be a retreat from the liberal approach
followed in Pascual v. Secretary of Public Works, foreshadowed by the very decision of People v. Vera where the doctrine was first
fully discussed, if we act differently now. I do not think we are prepared to take that step. Respondents, however, would hard back to
the American Supreme Court doctrine in Mellon v. Frothingham, with their claim that what petitioners possess "is an interest which is
shared in common by other people and is comparatively so minute and indeterminate as to afford any basis and assurance that the
judicial process can act on it." That is to speak in the language of a bygone era, even in the United States. For as Chief Justice Warren
clearly pointed out in the later case of Flast v. Cohen, the barrier thus set up if not breached has definitely been lowered.
In Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan,33 reiterated in Basco vs. Philippine Amusements and
Gaming Corporation,34 this Court stated:
Objections to taxpayers' suits for lack of sufficient personality standing or interest are, however, in the main procedural matters.
Considering the importance to the public of the cases at bar, and in keeping with the Court's duty, under the 1987 Constitution, to
determine whether or not the other branches of government have kept themselves within the limits of the Constitution and the laws
and that they have not abused the discretion given to them, this Court has brushed aside technicalities of procedure and has taken
cognizance of these petitions.
and in Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform,35 it declared:
With particular regard to the requirement of proper party as applied in the cases before us, we hold that the same is satisfied by the
petitioners and intervenors because each of them has sustained or is in danger of sustaining an immediate injury as a result of the
acts or measures complained of. [Ex Parte Levitt, 303 US 633]. And even if, strictly speaking, they are not covered by the definition, it is
still within the wide discretion of the Court to waive the requirement and so remove the impediment to its addressing and resolving the
serious constitutional questions raised.
In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to question the constitutionality of several
executive orders issued by President Quirino although they were invoking only an indirect and general interest shared in common
with the public. The Court dismissed the objective that they were not proper parties and ruled that the transcendental importance to
the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must, technicalities of
procedure. We have since then applied this exception in many other cases. (Emphasis supplied)
In Daza vs. Singson, 36 this Court once more said:
. . . For another, we have early as in the Emergency Powers Cases that where serious constitutional questions are involved, "the
transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we
must, technicalities of procedure." The same policy has since then been consistently followed by the Court, as in Gonzales vs.
Commission on Elections [21 SCRA 774] . . .
The Federal Supreme Court of the United States of America has also expressed its discretionary power to liberalize the rule on locus
standi. In United States vs. Federal Power Commission and Virginia Rea Association vs. Federal Power Commission,37 it held:
We hold that petitioners have standing. Differences of view, however, preclude a single opinion of the Court as to both petitioners. It
would not further clarification of this complicated specialty of federal jurisdiction, the solution of whose problems is in any event
more or less determined by the specific circumstances of individual situations, to set out the divergent grounds in support of standing
in these cases.
In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even association of planters,
and non-profit civic organizations were allowed to initiate and prosecute actions before this Court to question the constitutionality or
validity of laws, acts, decisions, rulings, or orders of various government agencies or instrumentalities. Among such cases were those
assailing the constitutionality of (a) R.A. No. 3836 insofar as it allows retirement gratuity and commutation of vacation and sick leave
to Senators and Representatives and to elective officials of both Houses of Congress;38 (b) Executive Order No. 284, issued by
President Corazon C. Aquino on 25 July 1987, which allowed members of the cabinet, their undersecretaries, and assistant secretaries
to hold other government offices or positions; 39 (c) the automatic appropriation for debt service in the General Appropriations
Act; 40 (d) R.A. No. 7056 on the holding of desynchronized elections; 41 (d) R.A. No. 1869 (the charter of the Philippine Amusement and
Gaming Corporation) on the ground that it is contrary to morals, public policy, and order; 42 and (f) R.A. No. 6975, establishing the
Philippine National
Police. 43
Other cases where we have followed a liberal policy regarding locus standi include those attacking the validity or legality of (a) an
order allowing the importation of rice in the light of the prohibition imposed by R.A. No. 3452; 44 (b) P.D. Nos. 991 and 1033 insofar as
they proposed amendments to the Constitution and P.D. No. 1031 insofar as it directed the COMELEC to supervise, control, hold, and
conduct the referendum-plebiscite on 16 October 1976; 45 (c) the bidding for the sale of the 3,179 square meters of land at Roppongi,
Minato-ku, Tokyo, Japan; 46 (d) the approval without hearing by the Board of Investments of the amended application of the Bataan
Petrochemical Corporation to transfer the site of its plant from Bataan to Batangas and the validity of such transfer and the shift of
feedstock from naphtha only to naphtha and/or liquefied petroleum gas; 47 (e) the decisions, orders, rulings, and resolutions of the
Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs, and the Fiscal Incentives
Review Board exempting the National Power Corporation from indirect tax and duties; 48 (f) the orders of the Energy Regulatory Board
of 5 and 6 December 1990 on the ground that the hearings conducted on the second provisional increase in oil prices did not allow
the petitioner substantial cross-examination; 49 (g) Executive Order No. 478 which levied a special duty of P0.95 per liter or P151.05
per barrel of imported crude oil and P1.00 per liter of imported oil products; 50 (h) resolutions of the Commission on Elections
concerning the apportionment, by district, of the number of elective members of Sanggunians; 51 and (i) memorandum orders issued
by a Mayor affecting the Chief of Police of Pasay City.52
In the 1975 case of Aquino vs. Commission on Elections, 53 this Court, despite its unequivocal ruling that the petitioners therein had no
personality to file the petition, resolved nevertheless to pass upon the issues raised because of the far-reaching implications of the
petition. We did no less in De Guia vs. COMELEC 54 where, although we declared that De Guia "does not appear to have locus standi, a
standing in law, a personal or substantial interest," we brushed aside the procedural infirmity "considering the importance of the
issue involved, concerning as it does the political exercise of qualified voters affected by the apportionment, and petitioner alleging
abuse of discretion and violation of the Constitution by respondent."
We find the instant petition to be of transcendental importance to the public. The issues it raised are of paramount public interest
and of a category even higher than those involved in many of the aforecited cases. The ramifications of such issues immeasurably
affect the social, economic, and moral well-being of the people even in the remotest barangays of the country and the counter-
productive and retrogressive effects of the envisioned on-line lottery system are as staggering as the billions in pesos it is expected to
raise. The legal standing then of the petitioners deserves recognition and, in the exercise of its sound discretion, this Court hereby
brushes aside the procedural barrier which the respondents tried to take advantage of.
And now on the substantive issue.
Section 1 of R.A. No. 1169, as amending by B.P. Blg. 42, prohibits the PCSO from holding and conducting lotteries "in collaboration,
association or joint venture with any person, association, company or entity, whether domestic or foreign." Section 1 provides:
Sec. 1. The Philippine Charity Sweepstakes Office. — The Philippine Charity Sweepstakes Office, hereinafter designated the Office,
shall be the principal government agency for raising and providing for funds for health programs, medical assistance and services and
charities of national character, and as such shall have the general powers conferred in section thirteen of Act Numbered One
thousand four hundred fifty-nine, as amended, and shall have the authority:
A. To hold and conduct charity sweepstakes races, lotteries and other similar activities, in such frequency and manner, as shall be
determined, and subject to such rules and regulations as shall be promulgated by the Board of Directors.
B. Subject to the approval of the Minister of Human Settlements, to engage in health and welfare-related investments,
programs, projects and activities which may be profit-oriented, by itself or in collaboration, association or joint venture with any
person, association, company or entity, whether domestic or foreign, except for the activities mentioned in the preceding
paragraph (A), for the purpose of providing for permanent and continuing sources of funds for health programs, including the
expansion of existing ones, medical assistance and services, and/or charitable grants: Provided, That such investment will not
compete with the private sector in areas where investments are adequate as may be determined by the National Economic and
Development Authority. (emphasis supplied)
The language of the section is indisputably clear that with respect to its franchise or privilege "to hold and conduct charity
sweepstakes races, lotteries and other similar activities," the PCSO cannot exercise it "in collaboration, association or joint venture"
with any other party. This is the unequivocal meaning and import of the phrase "except for the activities mentioned in the preceding
paragraph (A)," namely, "charity sweepstakes races, lotteries and other similar activities."
B.P. Blg. 42 originated from Parliamentary Bill No. 622, which was covered by Committee Report No. 103 as reported out by the
Committee on Socio-Economic Planning and Development of the Interim Batasang Pambansa. The original text of paragraph B,
Section 1 of Parliamentary Bill No. 622 reads as follows:
To engage in any and all investments and related profit-oriented projects or programs and activities by itself or in collaboration,
association or joint venture with any person, association, company or entity, whether domestic or foreign, for the main purpose of
raising funds for health and medical assistance and services and charitable grants. 55
During the period of committee amendments, the Committee on Socio-Economic Planning and Development, through Assemblyman
Ronaldo B. Zamora, introduced an amendment by substitution to the said paragraph B such that, as amended, it should read as
follows:
Subject to the approval of the Minister of Human Settlements, to engage in health-oriented investments, programs, projects and
activities which may be profit- oriented, by itself or in collaboration, association, or joint venture with any person, association,
company or entity, whether domestic or foreign, for the purpose of providing for permanent and continuing sources of funds for
health programs, including the expansion of existing ones, medical assistance and services and/or charitable grants. 56
Before the motion of Assemblyman Zamora for the approval of the amendment could be acted upon, Assemblyman Davide
introduced an amendment to the amendment:
MR. DAVIDE.
Mr. Speaker.
THE SPEAKER.
The gentleman from Cebu is recognized.
MR. DAVIDE.
May I introduce an amendment to the committee amendment? The amendment would be to insert after "foreign" in the amendment
just read the following: EXCEPT FOR THE ACTIVITY IN LETTER (A) ABOVE.
When it is joint venture or in collaboration with any entity such collaboration or joint venture must not include activity activity letter
(a) which is the holding and conducting of sweepstakes races, lotteries and other similar acts.
MR. ZAMORA.
We accept the amendment, Mr. Speaker.
MR. DAVIDE.
Thank you, Mr. Speaker.
THE SPEAKER.
Is there any objection to the amendment? (Silence) The amendment, as amended, is approved. 57
Further amendments to paragraph B were introduced and approved. When Assemblyman Zamora read the final text of paragraph B
as further amended, the earlier approved amendment of Assemblyman Davide became "EXCEPT FOR THE ACTIVITIES MENTIONED IN
PARAGRAPH (A)"; and by virtue of the amendment introduced by Assemblyman Emmanuel Pelaez, the word PRECEDING was inserted
before PARAGRAPH. Assemblyman Pelaez introduced other amendments. Thereafter, the new paragraph B was approved. 58
This is now paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42.
No interpretation of the said provision to relax or circumvent the prohibition can be allowed since the privilege to hold or conduct
charity sweepstakes races, lotteries, or other similar activities is a franchise granted by the legislature to the PCSO. It is a settled rule
that "in all grants by the government to individuals or corporations of rights, privileges and franchises, the words are to be taken most
strongly against the grantee .... [o]ne who claims a franchise or privilege in derogation of the common rights of the public must prove
his title thereto by a grant which is clearly and definitely expressed, and he cannot enlarge it by equivocal or doubtful provisions or by
probable inferences. Whatever is not unequivocally granted is withheld. Nothing passes by mere implication." 59
In short then, by the exception explicitly made in paragraph B, Section 1 of its charter, the PCSO cannot share its franchise with
another by way of collaboration, association or joint venture. Neither can it assign, transfer, or lease such franchise. It has been said
that "the rights and privileges conferred under a franchise may, without doubt, be assigned or transferred when the grant is to the
grantee and assigns, or is authorized by statute. On the other hand, the right of transfer or assignment may be restricted by statute or
the constitution, or be made subject to the approval of the grantor or a governmental agency, such as a public utilities commission,
exception that an existing right of assignment cannot be impaired by subsequent legislation." 60
It may also be pointed out that the franchise granted to the PCSO to hold and conduct lotteries allows it to hold and conduct a species
of gambling. It is settled that "a statute which authorizes the carrying on of a gambling activity or business should be strictly construed
and every reasonable doubt so resolved as to limit the powers and rights claimed under its authority." 61
Does the challenged Contract of Lease violate or contravene the exception in Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42,
which prohibits the PCSO from holding and conducting lotteries "in collaboration, association or joint venture with" another?
We agree with the petitioners that it does, notwithstanding its denomination or designation as a (Contract of Lease). We are neither
convinced nor moved or fazed by the insistence and forceful arguments of the PGMC that it does not because in reality it is only an
independent contractor for a piece of work, i.e., the building and maintenance of a lottery system to be used by the PCSO in the
operation of its lottery franchise. Whether the contract in question is one of lease or whether the PGMC is merely an independent
contractor should not be decided on the basis of the title or designation of the contract but by the intent of the parties, which may be
gathered from the provisions of the contract itself. Animus hominis est anima scripti. The intention of the party is the soul of the
instrument. In order to give life or effect to an instrument, it is essential to look to the intention of the individual who executed
it. 62 And, pursuant to Article 1371 of the Civil Code, "to determine the intention of the contracting parties, their contemporaneous
and subsequent acts shall be principally considered." To put it more bluntly, no one should be deceived by the title or designation of a
contract.
A careful analysis and evaluation of the provisions of the contract and a consideration of the contemporaneous acts of the PCSO and
PGMC indubitably disclose that the contract is not in reality a contract of lease under which the PGMC is merely an independent
contractor for a piece of work, but one where the statutorily proscribed collaboration or association, in the least, or joint venture, at
the most, exists between the contracting parties. Collaboration is defined as the acts of working together in a joint
project. 63 Association means the act of a number of persons in uniting together for some special purpose or business. 64 Joint venture is
defined as an association of persons or companies jointly undertaking some commercial enterprise; generally all contribute assets and
share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in
connection therewith, and duty, which may be altered by agreement to share both in profit and
losses.65
The contemporaneous acts of the PCSO and the PGMC reveal that the PCSO had neither funds of its own nor the expertise to operate
and manage an on-line lottery system, and that although it wished to have the system, it would have it "at no expense or risks to the
government." Because of these serious constraints and unwillingness to bear expenses and assume risks, the PCSO was candid
enough to state in its RFP that it is seeking for "a suitable contractor which shall build, at its own expense, all the facilities needed to
operate and maintain" the system; exclusively bear "all capital, operating expenses and expansion expenses and risks"; and submit "a
comprehensive nationwide lottery development plan . . . which will include the game, the marketing of the games, and the logistics to
introduce the game to all the cities and municipalities of the country within five (5) years"; and that the operation of the on-line
lottery system should be "at no expense or risk to the government" — meaning itself, since it is a government-owned and controlled
agency. The facilities referred to means "all capital equipment, computers, terminals, software, nationwide telecommunications
network, ticket sales offices, furnishings and fixtures, printing costs, costs of salaries and wages, advertising and promotions expenses,
maintenance costs, expansion and replacement costs, security and insurance, and all other related expenses needed to operate a
nationwide on-line lottery system."
In short, the only contribution the PCSO would have is its franchise or authority to operate the on-line lottery system; with the rest,
including the risks of the business, being borne by the proponent or bidder. It could be for this reason that it warned that "the
proponent must be able to stand to the acid test of proving that it is an entity able to take on the role of responsible maintainer of the
on-line lottery system." The PCSO, however, makes it clear in its RFP that the proponent can propose a period of the contract which
shall not exceed fifteen years, during which time it is assured of a "rental" which shall not exceed 12% of gross receipts. As admitted
by the PGMC, upon learning of the PCSO's decision, the Berjaya Group Berhad, with its affiliates, wanted to offer its services and
resources to the PCSO. Forthwith, it organized the PGMC as "a medium through which the technical and management services
required for the project would be offered and delivered to PCSO." 66
Undoubtedly, then, the Berjaya Group Berhad knew all along that in connection with an on-line lottery system, the PCSO had nothing
but its franchise, which it solemnly guaranteed it had in the General Information of the RFP. 67 Howsoever viewed then, from the very
inception, the PCSO and the PGMC mutually understood that any arrangement between them would necessarily leave to the PGMC
the technical, operations, and management aspects of the on-line lottery system while the PCSO would, primarily, provide the
franchise. The words Gaming and Management in the corporate name of respondent Philippine Gaming Management Corporation
could not have been conceived just for euphemistic purposes. Of course, the RFP cannot substitute for the Contract of Lease which
was subsequently executed by the PCSO and the PGMC. Nevertheless, the Contract of Lease incorporates their intention and
understanding.
The so-called Contract of Lease is not, therefore, what it purports to be. Its denomination as such is a crafty device, carefully
conceived, to provide a built-in defense in the event that the agreement is questioned as violative of the exception in Section 1 (B) of
the PCSO's charter. The acuity or skill of its draftsmen to accomplish that purpose easily manifests itself in the Contract of Lease. It is
outstanding for its careful and meticulous drafting designed to give an immediate impression that it is a contract of lease. Yet, woven
therein are provisions which negate its title and betray the true intention of the parties to be in or to have a joint venture for a period
of eight years in the operation and maintenance of the on-line lottery system.
Consistent with the above observations on the RFP, the PCSO has only its franchise to offer, while the PGMC represents and warrants
that it has access to all managerial and technical expertise to promptly and effectively carry out the terms of the contract. And, for a
period of eight years, the PGMC is under obligation to keep all the Facilities in safe condition and if necessary, upgrade, replace, and
improve them from time to time as new technology develops to make the on-line lottery system more cost-effective and competitive;
exclusively bear all costs and expenses relating to the printing, manpower, salaries and wages, advertising and promotion,
maintenance, expansion and replacement, security and insurance, and all other related expenses needed to operate the on-line
lottery system; undertake a positive advertising and promotions campaign for both institutional and product lines without engaging in
negative advertising against other lessors; bear the salaries and related costs of skilled and qualified personnel for administrative and
technical operations; comply with procedural and coordinating rules issued by the PCSO; and to train PCSO and other local personnel
and to effect the transfer of technology and other expertise, such that at the end of the term of the contract, the PCSO will be able to
effectively take over the Facilities and efficiently operate the on-line lottery system. The latter simply means that, indeed, the
managers, technicians or employees who shall operate the on-line lottery system are not managers, technicians or employees of the
PCSO, but of the PGMC and that it is only after the expiration of the contract that the PCSO will operate the system. After eight years,
the PCSO would automatically become the owner of the Facilities without any other further consideration.
For these reasons, too, the PGMC has the initial prerogative to prepare the detailed plan of all games and the marketing thereof, and
determine the number of players, value of winnings, and the logistics required to introduce the games, including the Master Games
Plan. Of course, the PCSO has the reserved authority to disapprove them. 68 And, while the PCSO has the sole responsibility over the
appointment of dealers and retailers throughout the country, the PGMC may, nevertheless, recommend for appointment dealers and
retailers which shall be acted upon by the PCSO within forty-eight hours and collect and retain, for its own account, a security deposit
from dealers and retailers in respect of equipment supplied by it.
This joint venture is further established by the following:
(a) Rent is defined in the lease contract as the amount to be paid to the PGMC as compensation for the fulfillment of its obligations
under the contract, including, but not limited to the lease of the Facilities. However, this rent is not actually a fixed amount. Although
it is stated to be 4.9% of gross receipts from ticket sales, payable net of taxes required by law to be withheld, it may be drastically
reduced or, in extreme cases, nothing may be due or demandable at all because the PGMC binds itself to "bear all risks if the revenue
from the ticket sales, on an annualized basis, are insufficient to pay the entire prize money." This risk-bearing provision is unusual in a
lessor-lessee relationship, but inherent in a joint venture.
(b) In the event of pre-termination of the contract by the PCSO, or its suspension of operation of the on-line lottery system in breach
of the contract and through no fault of the PGMC, the PCSO binds itself "to promptly, and in any event not later than sixty (60) days,
reimburse the Lessor the amount of its total investment cost associated with the On-Line Lottery System, including but not limited to
the cost of the Facilities, and further compensate the LESSOR for loss of expected net profit after tax, computed over the unexpired
term of the lease." If the contract were indeed one of lease, the payment of the expected profits or rentals for the unexpired portion
of the term of the contract would be enough.
(c) The PGMC cannot "directly or indirectly undertake any activity or business in competition with or adverse to the On-Line Lottery
System of PCSO unless it obtains the latter's prior written consent." If the PGMC is engaged in the business of leasing equipment and
technology for an on-line lottery system, we fail to see any acceptable reason why it should allow a restriction on the pursuit of such
business.
(d) The PGMC shall provide the PCSO the audited Annual Report sent to its stockholders, and within two years from the effectivity of
the contract, cause itself to be listed in the local stock exchange and offer at least 25% of its equity to the public. If the PGMC is
merely a lessor, this imposition is unreasonable and whimsical, and could only be tied up to the fact that the PGMC will actually
operate and manage the system; hence, increasing public participation in the corporation would enhance public interest.
(e) The PGMC shall put up an Escrow Deposit of P300,000,000.00 pursuant to the requirements of the RFP, which it may, at its option,
maintain as its initial performance bond required to ensure its faithful compliance with the terms of the contract.
(f) The PCSO shall designate the necessary personnel to monitor and audit the daily performance of the on-line lottery system; and
promulgate procedural and coordinating rules governing all activities relating to the on-line lottery system. The first further confirms
that it is the PGMC which will operate the system and the PCSO may, for the protection of its interest, monitor and audit the daily
performance of the system. The second admits the coordinating and cooperative powers and functions of the parties.
(g) The PCSO may validly terminate the contract if the PGMC becomes insolvent or bankrupt or is unable to pay its debts, or if it stops
or suspends or threatens to stop or suspend payment of all or a material part of its debts.
All of the foregoing unmistakably confirm the indispensable role of the PGMC in the pursuit, operation, conduct, and management of
the On-Line Lottery System. They exhibit and demonstrate the parties' indivisible community of interest in the conception, birth and
growth of the on-line lottery, and, above all, in its profits, with each having a right in the formulation and implementation of policies
related to the business and sharing, as well, in the losses — with the PGMC bearing the greatest burden because of its assumption of
expenses and risks, and the PCSO the least, because of its confessed unwillingness to bear expenses and risks. In a manner of
speaking, each is wed to the other for better or for worse. In the final analysis, however, in the light of the PCSO's RFP and the above
highlighted provisions, as well as the "Hold Harmless Clause" of the Contract of Lease, it is even safe to conclude that the
actual lessor in this case is the PCSO and the subject matter thereof is its franchise to hold and conduct lotteries since it is, in reality,
the PGMC which operates and manages the on-line lottery system for a period of eight years.
We thus declare that the challenged Contract of Lease violates the exception provided for in paragraph B, Section 1 of R.A. No. 1169,
as amended by B.P. Blg. 42, and is, therefore, invalid for being contrary to law. This conclusion renders unnecessary further discussion
on the other issues raised by the petitioners.
WHEREFORE, the instant petition is hereby GRANTED and the challenged Contract of Lease executed on 17 December 1993 by
respondent Philippine Charity Sweepstakes Office (PCSO) and respondent Philippine Gaming Management Corporation (PGMC) is
hereby DECLARED contrary to law and invalid.
The Temporary Restraining Order issued on 11 April 1994 is hereby MADE PERMANENT.
No pronouncement as to costs.
SO ORDERED.
Regalado, Romero and Bellosillo, JJ., concur.
Narvasa, C.J., took no part.

Separate Opinions

CRUZ, J., concurring:

I am happy to join Mr. Justice Hilario G. Davide, Jr. in his excellent ponencia. I will add the following personal observations only for
emphasis as it is not necessary to supplement his thorough exposition.
The respondents take great pains to cite specific provisions of the contract to show that it is PCSO that is actually operating the on-
line lottery, but they have not succeeded in disproving the obvious, to wit, that the document was intentionally so crafted to make it
appear that the operation is not a joint undertaking of PCSO and PGMC but a mere lease of services. It is a clever instrument, to be
sure, but we are, gratifyingly, not deluded. Lawyers have a special talent to disguise the real intention of the parties in a contract to
make it come ostensibly within the provisions of a law although the real if furtive purpose is to violate it. That talent has been
exercised in this case, but not convincingly enough.
It should be quite clear, from the adroit way the contract has been drafted, that the primary objective was to avoid the conclusion
that PCSO will be operating a lottery "in association, collaboration or joint venture with any person, association, company or entity,"
which is prohibited by Section 1 of Rep. Act No. 1169 as amended by B.P. Blg. 42. Citing the self-serving provisions of the contract, the
respondents would have us believe that the contract is perfectly lawful because all it does is provide for the lease to PCSO of the
technical know-how and equipment of PGMC, with PCSO acting as "the sole and individual operator" of the lottery. I am glad we are
not succumbing to this sophistry.
Despite the artfulness of the contract (authorship of which was pointedly denied by both counsel for the government and the private
respondent during the oral argument on this case), a careful study will reveal telling stipulations that it is PGMC and not PCSO that
will actually be operating the lottery. Thus, it is provided inter alia that PGMC shall furnish all capital equipment and other facilities
needed for the operation; bear all expenses relating to the operation, including those for the salaries and wages of the administrative
and technical personnel; undertake a positive advertising and promotion campaign for public support of the lottery; establish a radio
communications network throughout the country as part of the operation; and assume all risks if the revenues from ticket sales are
insufficient to pay the entire prize money. Most significantly, to show that it is only after eight years from the effectivity of the
contract that PCSO will actually operate the lottery, Par. 6.7 of the agreement provides that PGMC shall:
6.7. Upon effectivity of this Contract, commence the training of PCSO and other local personnel and the transfer of technology and
expertise, such that at the end of the term of this Contract, PCSO will be able to effectively take-over the Facilities and efficiently
operate the On-Line Lottery System. (Emphasis supplied).
In the meantime, that is to say during the entire 8-year term of the contract, it will be PGMC that will be operating the lottery. Only
"at the end of the term of this Contract" will PCSO "be able to effectively take-over the Facilities and efficiently operate the On-Line
Lottery System."
Even on the assumption that it is PCSO that will be operating the lottery at the very start, the authority granted to PGMC by the
agreement will readily show that PCSO will not be acting alone, as the respondents pretend. In fact, it cannot. PGMC is an
indispensable co-worker because it has the equipment and the technology and the management skills that PCSO does not have at this
time for the operation of the lottery, PCSO cannot deny that it needs the assistance of PGMC for this purpose, which was its reason
for entering into the contract in the first place.
And when PCSO does avail itself of such assistance, how will it be operating the lottery? Undoubtedly, it will be doing so "in
collaboration, association or joint venture" with PGMC, which, let it be added, will not be serving as a mere "hired help" of PCSO
subject to its control. PGMC will be functioning independently in the discharge of its own assigned role as stipulated in detail under
the contract. PGMC is plainly a partner of PCSO in violation of law, no matter how PGMC's assistance is called or the contract is
denominated.
Even if it be conceded that the assistance partakes of a lease of services, the undeniable fact is that PCSO would still be collaborating
or cooperating with PGMC in the operation of the lottery. What is even worse is that PCSO and PGMC may be actually engaged in a
joint venture, considering that PGMC does not collect the usual fixed rentals due an ordinary lessor but is entitled to a special "Rental
Fee," as the contract calls it, "equal to four point nine percent (4.9%) of gross receipts from ticket sales."
The flexibility of this amount is significant. As may be expected, it will induce in PGMC an active interest and participation in the
success of PCSO that is not expected of an ordinary detached lessor who gets to be paid his rentals — not a rental fee — whether the
lessee's business prospers or not. PGMC's share in the operation depends on its own performance and the effectiveness of its
collaboration with PCSO. Although the contract pretends otherwise, PGMC is a co-investor with PCSO in what is practically, if not in a
strictly legal sense, a joint venture.
Concerning the doctrine of locus standi, I cannot agree that out of the sixty million Filipinos affected by the proposed lottery, not a
single solitary citizen can question the agreement. Locus standi is not such an absolute rule that it cannot admit of exceptions under
certain conditions or circumstances like those attending this transaction. As I remarked in my dissent in Guazon v. De Villa, 181 SCRA
623, "It is not only the owner of the burning house who has the right to call the firemen. Every one has the right and responsibility to
prevent the fire from spreading even if he lives in the other block."
What is especially galling is that the transaction in question would foist upon our people an essentially immoral activity through the
instrumentality of a foreign corporation, which naturally does not have the same concern for our interests as we ourselves have. I am
distressed that foreigners should be allowed to exploit the weakness of some of us for instant gain without work, and with the active
collaboration and encouragement of our own government at that.
Feliciano, J., concurring
I agree with the conclusions reached by my distinguished brother in the Court Davide, Jr., J., both in respect of the question of locus
standi and in respect of the merits of this case, that is, the issues of legality and constitutionality of the Contract of Lease entered into
between the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Gaming Management Corporation (PGMC).
In this separate opinion, I propose to address only the question of locus standi. It is with some hesitation that I do so, considering the
extensive separate opinions on this question written by my learned brothers Melo, Puno and Vitug, JJ. I agree with the great deal of
what my brothers Melo, Puno and Vitug say about locus standi in their separate opinions and there is no need to go over the ground
that I share with them. Because, however, I reach a different conclusion in respect of the presence or absence of locus standi on the
part of the petitioners in the case before the Court, there is an internal need (a need internal to myself) to articulate the
considerations which led me to that conclusion.
There is no dispute that the doctrine of locus standi reflects an important constitutional principle, that is, the principle of separation
of powers which, among other things, mandates that each of the great Departments of government is responsible for performance of
its constitutionally allotted tasks. Insofar as the Judicial Department is concerned, the exercise of judicial power and carrying out of
judicial functions commonly take place within the context of actual cases or controversies. This, in turn, reflects the basic notion of
judicial power as the power to resolve actual disputes and of the traditional business of courts as the hearing and deciding of specific
controversies brought before them. In our own jurisdiction, and at least since the turn of the present century, judicial power has
always included the power of judicial review, understood as the authority of courts (more specifically the Supreme Court) to assay
contested legislative and executive acts in terms of their constitutionality or legality. Thus, the general proposition has been that a
petitioner who assails the legal or constitutional quality of an executive or legislative act must be able to show that he has locus
standi. Otherwise, the petition becomes vulnerable to prompt dismissal by the court.
There is, upon the other hand, little substantive dispute that the possession of locus standi 1 is not, in each and every case, a rigid and
absolute requirement for access to the courts. Certainly that is the case where great issues of public law are at stake, issues which
cannot be approached in the same way that a court approaches a suit for the collection of a sum of money or a complaint for the
recovery of possession of a particular piece of land. The broad question is when, or in what types of cases, the court should insist on a
clear showing of locus standi understood as a direct and personal interest in the subject matter of the case at bar, and when the court
may or should relax that apparently stringent requirement and proceed to deal with the legal or constitutional issues at stake in a
particular case.
I submit, with respect, that it is not enough for the Court simply to invoke "public interest" or even "paramount considerations of
national interest," and to say that the specific requirements of such public interest can only be ascertained on a "case to case" basis.
For one thing, such an approach is not intellectually satisfying. For another, such an answer appears to come too close to saying
that locus standi exists whenever at least a majority of the Members of this Court participating in a case feel that an appropriate case
for judicial intervention has arisen.
This is not, however, to say that there is somewhere an over-arching juridical principle or theory, waiting to be discovered, that
permits a ready answer to the question of when, or in what types of cases, the need to show locus standi may be relaxed in greater or
lesser degree. To my knowledge, no satisfactory principle or theory has been discovered and none has been crafted, whether in our
jurisdiction or in the United States. 2 I have neither the competence nor the opportunity to try to craft such principle or formula. It
might, however, be useful to attempt to indicate the considerations of principle which, in the present case, appear to me to require
an affirmative answer to the question of whether or not petitioners are properly regarded as imbued with the standing necessary to
bring and maintain the present petition.
Firstly, the character of the funds or other assets involved in the case is of major importance. In the case presently before the Court,
the funds involved are clearly public in nature. The funds to be generated by the proposed lottery are to be raised from the
population at large. Should the proposed operation be as successful as its proponents project, those funds will come from well-nigh
every town and barrio of Luzon. The funds here involved are public in another very real sense: they will belong to the PCSO, a
government owned or controlled corporation and an instrumentality of the government and are destined for utilization in social
development projects which, at least in principle, are designed to benefit the general public. My learned brothers Melo, Puno and
Vitug, JJ. concede that taxpayers' suits have been recognized as an exception to the traditional requirement of recognized as an
exception to the traditional requirement of locus standi. They insist, however, that because the funds here involved will not have
been generated by the exercise of the taxing power of the Government, the present petition cannot be regarded as a taxpayer's suit
and therefore, must be dismissed by the Court. It is my respectful submission that that constitutes much too narrow a conception of
the taxpayer's suit and of the public policy that it embodies. It is also to overlook the fact that tax monies, strictly so called, constitute
only one (1) of the major categories of funds today raised and used for public purposes. It is widely known that the principal sources
of funding for government operations today include, not just taxes and customs duties, but also revenues derived from activities of
the Philippine Amusement Gaming Corporation (PAGCOR), as well as the proceeds of privatization of government owned or
controlled corporations and other government owned assets. The interest of a private citizen in seeing to it that public funds, from
whatever source they may have been derived, go only to the uses directed and permitted by law is as real and personal and
substantial as the interest of a private taxpayer in seeing to it that tax monies are not intercepted on their way to the public treasury
or otherwise diverted from uses prescribed or allowed by law. It is also pertinent to note that the more successful the government is
in raising revenues by non-traditional methods such as PAGCOR operations and privatization measures, the lesser will be the pressure
upon the traditional sources of public revenues, i.e., the pocket books of individual taxpayers and importers.
A second factor of high relevance is the presence of a clear case of disregard of a constitutional or statutory prohibition by the public
respondent agency or instrumentality of the government. A showing that a constitutional or legal provision is patently being
disregarded by the agency or instrumentality whose act is being assailed, can scarcely be disregarded by court. The concept of locus
standi — which is part and parcel of the broader notion of ripeness of the case — "does not operate independently and is not alone
decisive. . . . [I]t is in substantial part a function of a judge's estimate of the merits of the constitutional [or legal] issue." 3 The notion
of locus standi and the judge's conclusions about the merits of the case, in other words, interact with each other. Where the Court
perceives a serious issue of violation of some constitutional or statutory limitation, it will be much less difficult for the Court to
find locus standi in the petitioner and to confront the legal or constitutional issue. In the present case, the majority of the Court
considers that a very substantial showing has been made that the Contract of Lease between the PCSO and the PGMC flies in the face
of legal limitations.
A third consideration of importance in the present case is the lack of any other party with a more direct and specific interest in raising
the questions here being raised. Though a public bidding was held, no losing or dissatisfied bidder has come before the Court. The
Office of the Ombudsman has not, to the knowledge of the Court, raised questions about the legality or constitutionality of the
Contract of Lease here involved. The National Government itself, through the Office of the Solicitor General, is defending the PCSO
Contract (though it had not participated in the drafting thereof). In a situation like that here obtaining, the submission may be made
that the institution, so well known in corporation law and practice, of the corporate stockholders' derivative suit furnishes an
appropriate analogy and that on the basis of such an analogy, a taxpayer's derivative suit should be recognized as available.
The wide range of impact of the Contract of Lease here assailed and of its implementation, constitutes still another consideration of
significance. In the case at bar, the agreement if implemented will be practically nationwide in its scope and reach (the PCSO-PGMC
Contract is limited in its application to the Island of Luzon; but if the PCSO Contracts with the other two [2] private "gaming
management" corporations in respect of the Visayas and Mindanao are substantially similar to PCSO's Contract with PGMC, then the
Contract before us may be said to be national indeed in its implications and consequences). Necessarily, the amounts of money
expected to be raised by the proposed activities of the PCSO and PGMC will be very substantial, probably in the hundreds of millions
of pesos. It is not easy to conceive of a contract with greater and more far-reaching consequences, literally speaking, for the country
than the Contract of Lease here involved. Thus, the subject matter of the petition is not something that the Court may casually pass
over as unimportant and as not warranting the expenditure of significant judicial resources.
In the examination of the various features of this case, the above considerations have appeared to me to be important and as
pressing for acceptance and exercise of jurisdiction on the part of this Court. It is with these considerations in mind that I vote to grant
due course to the Petition and to hold that the Contract of Lease between the PCSO and PGMC in its present form and content, and
given the present state of the law, is fatally defective.
PADILLA, J., concurring:
My views against gambling are a matter of judicial record. In Basco v. PAGCOR, (G.R. No. 91649, 14 May 1991, 197 SCRA 52) I
expressed these views in a separate opinion where I was joined by that outstanding lady jurist, Mme. Justice A. Melencio-Herrera
whose incisive approach to legal problems is today missed in this Court. I reproduce here those views because they are highly
persuasive to the conclusions I reach in the present controversy:
I concur in the result of the learned decision penned by my brother Mr. Justice Paras. This means that I agree with the decision insofar
as it holds that the prohibition, control, and regulation of the entire activity known as gambling properly pertain to "state policy." It is,
therefore, the political departments of government, namely, the legislative and the executive that should decide on what government
should do in the entire area of gambling, and assume full responsibility to the people for such policy.
The courts, as the decision states, cannot inquire into the wisdom, morality or expediency of policies adopted by the political
departments of government in areas which fall within their authority, except only when such policies pose a clear and present danger
to the life, liberty or property of the individual. This case does not involve such a factual situation.
However, I hasten to make of record that I do not subscribe to gambling in any form. It demeans the human personality, destroys self-
confidence and eviscerates one's self-respect, which in the long run will corrode whatever is left of the Filipino moral character.
Gambling has wrecked and will continue to wreck families and homes; it is an antithesis to individual reliance and reliability as well as
personal industry which are the touchstones of real economic progress and national development.
Gambling is reprehensible whether maintained by government or privatized. The revenues realized by the government out of
"legalized" gambling will, in the long run, be more than offset and negated by the irreparable damage to the people's moral values.
Also, the moral standing of the government in its repeated avowals against "illegal gambling" is fatally flawed and becomes untenable
when it itself engages in the very activity it seeks to eradicate.
One can go through the Court's decision today and mentally replace the activity referred to therein as gambling, which is legal only
because it is authorized by law and run by the government, with the activity known as prostitution. Would prostitution be any less
reprehensible were it to be authorized by law, franchised, and "regulated" by the government, in return for the substantial revenues
it would yield the government to carry out its laudable projects, such as infrastructure and social amelioration? The question, I
believe, answers itself. I submit that the sooner the legislative department outlaws all forms of gambling, as a fundamental state
policy, and the sooner the executive implements such policy, the better it will be for the nation.
We presently have the sweepstakes lotteries; we already have the PAGCOR's gambling casinos; the Filipino people will soon, if plans
do not miscarry, be initiated into an even more sophisticated and encompassing nationwide gambling network known as the "on-line
hi-tech lotto system." To be sure, it is not wealth producing; it is not export oriented. It will draw from existing wealth in the hands of
Filipinos and transfer it into the coffers of the PCSO and its foreign partners at a price of further debasement of the moral standards
of the Filipino people, the bulk of whom are barely subsisting below the poverty line.
1. It is said that petitioners 1 have no locus standi to bring this suit even as they challenge the legality and constitutionality of a
contract of lease between the PCSO, a government-owned corporation and the PGMC, a private corporation with substantial (if not
controlling) foreign composition and content. Such contract of lease contains the terms and conditions under which an "on-line hi-
tech lotto system" will operate in the country.
As the ponente of the extended, unsigned en banc resolution in Valmonte v. PCSO, (G.R. No. 78716 and G.R. No. 79084, 22 September
1987), I would be the last to downgrade the rule, therein reiterated, that in order to maintain a suit challenging the constitutionality
and/or legality of a statute, order or regulation or assailing a particular governmental action as done with grave abuse of discretion or
with lack of jurisdiction, the petitioner must show that he has a clear personal or legal right that would be violated with the
enforcement of the challenged statute, order or regulation or the implementation of the questioned governmental action. But, in my
considered view, this rule maybe (and should be) relaxed when the issue involved or raised in the petition is of such paramount
national interest and importance as to dwarf the above procedural rule into a barren technicality. As a unanimous Court en banc aptly
put it in De Guia vs. COMELEC, G.R. No. 104712, 6 May 1992, 208 SCRA 420.
Before addressing the crux of the controversy, the Court observes that petitioner does not allege that he is running for re-election,
much less, that he is prejudiced by the election, by district, in Parañaque. As such, he does not appear to have locus standi, a standing
in law, a personal or substantial interest. (Sanidad vs. COMELEC, G.R. No. L-4640, October 12, 1976. 73 SCRA 333; Municipality of
Malabang vs. Benito, G.R. No. L-28113, March 28, 1969, 27 SCRA 533) He does not also allege any legal right that has been violated by
respondent. If for this alone, petitioner does not appear to have any cause of action.
However, considering the importance of the issue involved, concerning as it does the political exercise of qualified voters affected by
the apportionment, and petitioner alleging abuse of discretion and violation of the Constitution by respondent, We resolved to brush
aside the question of procedural infirmity, even as We perceive the petition to be one of declaratory relief. We so held similarly
through Mr. Justice Edgardo L. Paras in Osmeña vs. Commission on Elections.
I view the present case as falling within the De Guia case doctrine. For, when the contract of lease in question seeks to establish and
operate a nationwide gambling network with substantial if not controlling foreign participation, then the issue is of paramount
national interest and importance as to justify and warrant a relaxation of the above-mentioned procedural rule on locus standi.
2. The charter of the PCSO — Republic Act No. 1169 as amended by BP No. 42 — insofar as relevant, reads:
Sec. 1. The Philippine Charity Sweepstakes Office. — The Philippine Charity Sweepstakes Office, hereinafter designated the Office,
shall be the principal government agency for raising and providing for funds for health programs, medical assistance and services and
charities of national character, and as such shall have the general powers conferred in section thirteen of Act Numbered One
Thousand Four Hundred Fifty-Nine, as amended, and shall have the authority:
A. To hold and conduct charity sweepstakes races, lotteries and other similar activities, in such frequency and manner, as shall be
determined, and subject to such rules and regulations as shall be promulgated by the Board of Directors.
B. Subject to the approval of the Minister of Human Settlements, to engage in health and welfare-related investments, programs,
projects and activities which may be profit-oriented, by itself or in collaboration, association or joint venture with any person,
association, company or entity, whether domestic or foreign, except for the activities mentioned in the preceding paragraph (A), for
the purpose of providing for permanent and continuing sources of funds for health programs, including the expansion of existing
ones, medical assistance and services, and/or charitable grants: Provided, That such investments will not compete with the private
sector in areas where investments are adequate as may be determined by the National Economic and Development Authority.
It is at once clear from the foregoing legal provisions that, while the PCSO charter allows the PCSO to itself engage in lotteries, it does
not however permit the PCSO to undertake or engage in lotteries in "collaboration, association or joint venture" with others. The
palpable reason for this prohibition is, that PCSO should not and cannot be made a vehicle for an otherwise prohibited foreign or
domestic entity to engage in lotteries (gambling activities) in the Philippines.
The core question then is whether the lease contract between PCSO and PGMC is a device whereby PCSO will engage in lottery in
collaboration, association or joint venture with another, i.e. PGMC. I need not go here into the details and different specific features
of the contract to show that it is a joint venture between PCSO and PGMC. That has been taken care of in the opinion of Mr. Justice
Davide to which I fully subscribe.
On a slightly different plane and, perhaps simplified, I consider the agreement or arrangement between the PCSO and PGMC a joint
venture because each party to the contract contributes its share in the enterprise or project. PGMC contributes its facilities,
equipment and know-how (expertise). PCSO contributes (aside from its charter) the market, directly or through dealers — and this to
me is most important — in the totality or mass of the Filipino gambling elements who will invest in lotto tickets. PGMC will get its
4.9% of gross receipts (with assumption of certain risks in the course of lotto operations); the residue of the whole exercise will go to
PCSO. To any person with a minimum of business know-how, this is a joint venture between PCSO and PGMC, plain and simple.
But assuming ex gratia argumenti that such arrangement between PCSO and PGMC is not a joint venture between the two of them to
install and operate an "on-line hi-tech lotto system" in the country, it can hardly be denied that it is, at the very least, an association
or collaboration between PCSO and PGMC. For one cannot do without the other in the installation, operation and, most importantly,
marketing of the entire enterprise or project in this country.
Indeed, the contract of lease in question is a clear violation of Republic Act No. 1169 as amended by BP No. 42 (the PCSO charter).
Having arrived at the conclusion that the contract of lease in question between the PCSO and PGMC is illegal and, therefore, invalid, I
find it unnecessary to dwell on the other issues raised in the pleadings and arguments of the parties.
I, therefore, vote to give DUE COURSE to the petition and to declare the contract of lease in question between PCSO and PGMC, for
the reasons aforestated, of no force and effect.
MELO, J., dissenting:
I submit that the petition before the Court deserves no less than outright dismissal for the reason that petitioners, as concerned
citizens and as taxpayers and as members of Congress, do not possess the necessary legal standing to assail the validity of the
contract of lease entered into by the Philippine Charity Sweepstakes Office and the Philippine Gaming Management Corporation
relative to the establishment and operation of an "On-line Hi-Tech Lottery System" in the country.
As announced in Lamb vs. Phipps (22 Phil. [1912], 559), "[J]udicial power in its nature, is the power to hear and decide causes pending
between parties who have the right to sue and be sued in the courts of law and equity." Necessarily, this implies that a party must
show a personal stake in the outcome of the controversy or an injury to himself that can be addressed by a favorable decision so as to
warrant his invocation of the court's jurisdiction and to justify the court's remedial powers in his behalf (Warth vs. Seldin, 422 U.S.
490; Guzman vs. Marrero, 180 U.S. 81; McMicken vs. United States, 97 U.S. 204). Here, we have yet to see any of petitioners acquiring
a personal stake in the outcome of the controversy or being placed in a situation whereby injury may be sustained if the contract of
lease in question is implemented. It may be that the contract has somehow evoked public interest which petitioners claim to
represent. But the alleged public interest which they pretend to represent is not only broad and encompassing but also strikingly and
veritably indeterminate that one cannot truly say whether a handful of the public, like herein petitioners, may lay a valid claim of
representation in behalf of the millions of citizens spread all over the land who may have just as many varied reactions relative to the
contract in question.
Any effort to infuse personality on petitioners by considering the present case as a "taxpayer's suit" could not cure the lack of locus
standi on the part of petitioners. As understood in this jurisdiction, a "taxpayer's suit" refers to a case where the act complained of
directly involves the illegal disbursement of public funds derived from taxation (Pascual vs. Secretary of Public Works, 110 Phil. [1960]
331; Maceda vs. Macaraig, 197 SCRA [1991]; Lozada vs. COMELEC, 120 SCRA [1983] 337; Dumlao vs. COMELEC, 95 SCRA [1980] 392;
Gonzales vs. Marcos, 65 SCRA [1975] 624). It cannot be overstressed that no public fund raised by taxation is involved in this case. In
fact, it is even doubtful if the rentals which the PCSO will pay to the lessor for its operation of the lottery system may be regarded as
"public fund". The PCSO is not a revenue- collecting arm of the government. Income or money realized by it from its operations will
not and need not be turned over to the National Treasury. Rather, this will constitute corporate funds which will remain with the
corporation to finance its various activities as authorized in its charter. And if ever some semblance of "public character" may be said
to attach to its earnings, it is simply because PCSO is a government-owned or controlled entity and not a purely private enterprise.
It must be conceded though that a "taxpayer's suit" had been allowed in a number of instances in this jurisdiction. For sure, after the
trial was blazed by Pascual vs. Secretary of Public Works, supra, several more followed. It is to be noted, however, that in those
occasions where this Court allowed such a suit, the case invariably involved either the constitutionality of a statute or the legality of
the disbursement of public funds through the enforcement of what was perceived to be an invalid or unconstitutional statute or
legislation (Pascual, supra; Philippine Constitution Association, Inc. vs. Jimenez, 15 SCRA [1965] 479; Philippine Constitution
Association, Inc. vs. Mathay, 18 SCRA [1966] 300; Tolentino vs. COMELEC, 41 SCRA [1971] 702; Pelaez vs. Auditor General, 15 SCRA
[1965] 569; Iloilo Palay and Corn Planters Association vs. Feliciano, 13 SCRA [1965] 377).
The case before us is not a challenge to the validity of a statute or an attempt to restrain expenditure of public funds pursuant to an
alleged invalid congressional enactment. What petitioners ask us to do is to nullify a simple contract of lease entered into by a
government-owned corporation with a private entity. That contract, as earlier pointed out, does not involve the disbursement of
public funds but of strictly corporate money. If every taxpayer, claiming to have interest in the contract, no matter how remote, could
come to this Court and seek nullification of said contract, the day may come when the activities of government corporate entities will
ground to a standstill on account of nuisance suits filed against them by persons whose supposed interest in the contract is as remote
and as obscure as the interest of any man in the street. The dangers attendant thereto are not hard to discern and this Court must not
allow them to come to pass.
One final observation must be emphasized. When the petition at bench was filed, the Court decided to hear the case on oral
argument on the initial perception that a constitutional issue could be involved. However, it now appears that no question of
constitutional dimension is at stake as indeed the majority barely touches on such an issue, concentrating as it does on its
interpretation of the contract between the Philippine Charity Sweepstakes Office and the Philippine Gaming Management
Corporation.
I, therefore, vote to dismiss the petition.
PUNO, J., dissenting:
At the outset, let me state that my religious faith and family upbringing compel me to regard gambling, regardless of its garb, with
hostile eyes. Such antagonism tempts me to view the case at bench as a struggle between good and evil, a fight between the forces of
light against the forces of darkness. I will not, however, yield to that temptation for we are not judges of the Old Testament type who
were not only arbiters of law but were also high priests of morality.
I will therefore strictly confine the peregrinations of my mind to the legal issues for resolution: (1) whether or not the petitioners have
the Locus standi to file the petition at bench; and (2) assuming their locus standi, whether or not the Contract of Lease between PCSO
and PGMC is null and void considering: (a) section 1 of R.A. No. 1169, as amended by B.P. Blg. 42 (Charter of PCSO) which prohibits
PCSO from holding and conducting lotteries "in collaboration, association or joint venture with any person, association, company or
entity"; (b) Act No. 3836 which requires a congressional franchise before any person or entity can establish and operate a
telecommunication system; (c) section 11, Art. XII of the Constitution, which requires that for a corporation to operate a public utility,
at least 60% of its capital must be owned by Filipino citizens; and (d) R.A. No. 7042, otherwise known as the "Foreign Investments
Act", which includes all forms of gambling in its "negative list."
While the legal issues abound, I deferentially submit that the threshold issue is the locus standi, or standing to sue, of petitioners. The
petition describes petitioner Kilosbayan, Inc., as a non-stock corporation composed of "civic spirited citizens, pastors, priests, nuns,
and lay leaders who are committed to the cause of truth, justice, and national renewal." 1 Petitioners Jovito R. Salonga, Cirilo A. Rigos,
Ernie Camba, Emilio C. Capulong, Jr., Jose Abcede, Christine Tan, Felipe L. Gozon, Rafael G. Fernando, Raoul V. Victorino, Jose
Cunanan, and Quintin S. Doromal joined the petition in their capacity as trustees of Kilosbayan, Inc., and as taxpayers and concerned
citizens. 2 Petitioners Freddie Webb and Wigberto Tañada joined the petition as senators, taxpayers and concerned
citizens. 3 Petitioner Joker P. Arroyo joined the petition as a member of the House of Representative, a taxpayer and a concerned
citizen. 4
With due respect to the majority opinion, I wish to focus on the interstices of locus standi, a concept described by Prof. Paul Freund as
"among the most amorphous in the entire domain of public law." The requirement of standing to sue inheres from the definition of
judicial power. It is not merely a technical rule of procedure which we are at liberty to disregard. Section 1, Article VIII of the
Constitution provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable
and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government. (Italics supplied)
The phrase "actual controversies involving rights which are legally demandable and enforceable" has acquired a cultivated meaning
given by courts. It spells out the requirements that must be satisfied before one can come to court to litigate a constitutional issue.
Our distinguished colleague, Mr. Justice Isagani A. Cruz, gives a shorthand summary of these requirements when he states that no
constitutional question will be heard and decided by courts unless there is a showing of the following: . . . (1) there must be an actual
case or controversy; (2) the question of constitutionality must be raised by the proper party; (3) the constitutional question must be
raised at the earliest possible opportunity; and (4) the decision of the constitutional question must be necessary to the determination
of the case itself. 5
The complexion of the rule on locus standi has been undergoing a change. Mr. Justice Cruz has observed the continuing relaxation of
the rule on
standing, 6 thus:
xxx xxx xxx
A proper party is one who has sustained or is in immediate danger of sustaining an injury as a result of the act complained of. Until
and unless such actual or potential injury is established, the complainant cannot have the legal personality to raise the constitutional
question.
In Tileson v. Ullmann, a physician questioned the constitutionality of a law prohibiting the use of contraceptives, upon the ground that
it might prove dangerous to the life or health of some of his patients whose physical condition would not enable them to bear the
rigors of childbirth. The court dismissed the challenge, holding that the patients of the physician and not the physician himself were
the proper parties.
In Cuyegkeng v. Cruz, the petitioner challenged in a quo warranto proceeding the title of the respondent who, he claimed, had been
appointed to the board of medical examiners in violation of the provisions of the Medical Act of 1959. The Supreme Court dismissed
the petition, holding that Cuyegkeng had not made a claim to the position held by Cruz and therefore could not be regarded as a
proper party who had sustained an injury as a result of the questioned act.
In People v. Vera, it was held that the Government of the Philippines was a proper party to challenge the constitutionality of the
Probation Act because, more than any other, it was the government itself that should be concerned over the validity of its own laws.
In Ex Parte Levitt, the petitioner, an American taxpayer and member of the bar, filed a motion for leave to question the qualifications
of Justice Black who, he averred, had been appointed to the U.S. Supreme Court in violation of the Constitution of the United States.
The Court dismissed the petition, holding that Levitt was not a proper party since he was not claiming the position held by Justice
Black.
The rule before was that an ordinary taxpayer did not have the proper party personality to question the legality of an appropriation
law since his interest in the sum appropriated was not substantial enough. Thus, in Custodio v. Senate President, a challenge by an
ordinary taxpayer to the validity of a law granting back pay to government officials, including members of Congress, during the period
corresponding to the Japanese Occupation was dismissed as having been commenced by one who was not a proper party.
Since the first Emergency Powers Cases, however, the rule has been changed and it is now permissible for an ordinary taxpayer, or a
group of taxpayers, to raise the question of the validity of an appropriation law. As the Supreme Court then put it. "The
transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we
must, technicalities of procedure."
In Tolentino v. Commission on Elections, it was held that a senator had the proper party personality to seek the prohibition of a
plebiscite for the ratification of a proposed constitutional amendment. In PHILCONSA v. Jimenez, an organization of taxpayers and
citizens was held to be a proper party to question the constitutionality of a law providing for special retirement benefits for members
of the legislature.
In Sanidad v. Commission on Elections, the Supreme Court upheld the petitioners as proper parties, thus —
As a preliminary resolution, We rule that the petitioners in L-44640 (Pablo C. Sanidad and Pablito V. Sanidad) possess locus standi to
challenge the constitutional premise of Presidential Decree Nos. 991, 1031, and 1033. It is now an ancient rule that the valid source of
a statute — Presidential Decrees are of such nature — may be contested by one who will sustain a direct injury as a result of its
enforcement. At the instance of taxpayers, laws providing for the disbursement of public funds may be enjoined, upon the theory that
the expenditure of public funds by an officer of the State for the purpose of executing an unconstitutional act constitutes a
misapplication of such funds. The breadth of Presidential Decree No. 991 carries an appropriation of Five Million Pesos for the
effective implementation of its purposes. Presidential Decree No. 1031 appropriates the sum of Eight Million Pesos to carry out its
provisions. The interest of the aforenamed petitioners as taxpayers in the lawful expenditure of these amounts of public money
sufficiently clothes them with that personality to litigate the validity of the Decrees appropriating said funds. Moreover, as regard
taxpayer's suits, this Court enjoys that open discretion to entertain the same or not. For the present case, We deem it sound to
exercise that discretion affirmatively so that the authority upon which the disputed Decrees are predicated may be inquired into.
In Lozada v. Commission on Elections, however, the petitioners were held without legal standing to demand the filling of vacancies in
the legislature because they had only "a generalized interest' shared with the rest of the citizenry."
Last July 30, 1993, we further relaxed the rule on standing in Oposa, et al. v. Hon. Fulgencio S. Factoran, Jr., 7 where we recognized
the locus standi of minors representing themselves as well as generations unborn to protect their constitutional right to a balanced
and healthful ecology.
I am perfectly at peace with the drift of our decisions liberalizing the rule on locus standi. The once stubborn disinclination to decide
constitutional issues due to lack of locus standi is incompatible with the expansion of judicial power mandated in section 1 of Article
VIII of the Constitution, i.e., "to determine whether or not there has been a grave abuse of discretion, amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the government." As we held thru the ground breaking ponencia of Mr.
Justice Cruz in Daza v. Singson, 8 this provision no longer precludes the Court from resolving political questions in proper cases. But
even perusing this provision as a constitutional warrant for the court to enter the once forbidden political thicket, it is clear that the
requirement of locus standi has not been jettisoned by the Constitution for it still commands courts in no uncertain terms to
settle only "actual controversies involving rights which are legally demandable and enforceable." Stated otherwise, courts are neither
free to decide all kinds of cases dumped into their laps nor are they free to open their doors to all parties or entities claiming a
grievance. The rationale for this constitutional requirement of locus standi is by no means trifle. It is intended "to assure a vigorous
adversary presentation of the case, and, perhaps more importantly to warrant the judiciary's overruling the determination of a
coordinate, democratically elected organ of government." 9 It thus goes to the very essence of representative democracies. As Mr.
Justice Powell carefully explained in U.S. v.
Richardson, 10 viz:
Relaxation of standing requirements is directly related to the expansion of judicial power. It seems to me inescapable that allowing
unrestricted taxpayer or citizen standing would significantly alter the allocation of power at the national level, with a shift away from
a democratic form of government. I also believe that repeated and essentially head-on confrontations between the life-tenured
branch and the representative branches of government will not, in the long run, be beneficial to either. The public confidence
essential to the former and the vitality critical to the latter may well erode if we do not exercise self- restraint in the utilization of our
power to negative the actions of the other branches. We should be ever mindful of the contradictions that would arise if a democracy
were to permit at large oversight of the elected branches of government by a non-representative, and in large measure insulated,
judicial branch. Moreover, the argument that the Court should allow unrestricted taxpayer or citizen standing underestimates the
ability of the representative branches of the Federal Government to respond to the citizen pressure that has been responsible in large
measure for the current drift toward expanded standing. Indeed, taxpayer or citizen advocacy, given its potentially broad base, is
precisely the type of leverage that in a democracy ought to be employed against the branches that were intended to be responsive to
public attitudes about the appropriate operation of government. "We must as judges recall that, as Mr. Justice Holmes wisely
observed, the other branches of Government are ultimate guardians of the liberties and welfare of the people in quite as great a
degree as the courts."
Unrestrained standing in federal taxpayer or citizen suits would create a remarkably illogical system of judicial supervision of the
coordinate branches of the Federal Government. Randolph's proposed Council of Revision, which was repeatedly rejected by the
Framers, at least had the virtue of being systematic; every law passed by the legislature automatically would have been previewed by
the judiciary before the law could take effect. On the other hand, since the judiciary cannot select the taxpayers or citizens who bring
suit or the nature of the suits, the allowance of public actions would produce uneven and sporadic review, the quality of which would
be influenced by the resources and skill of the particular plaintiff. And issues would be presented in abstract form, contrary to the
Court's recognition that "judicial review is effective largely because it is not available simply at the behest of a partisan faction, but is
exercised only to remedy a particular, concrete injury." Sierra Club v. Morton, 405 U.S. 727, 740-741, n. 16 (1972).
A lesser but not insignificant reason for screening the standing of persons who desire to litigate constitutional issues is economic in
character. Given the sparseness of our resources, the capacity of courts to render efficient judicial service to our people is severely
limited. For courts to indiscriminately open their doors to all types of suits and suitors is for them to unduly overburden their dockets,
and ultimately render themselves ineffective dispensers of justice. To be sure, this is an evil that clearly confronts our judiciary today.
Prescinding from these premises, and with great reluctance, I am not prepared to concede the standing to sue of petitioners. On a
personal level, they have not shown that elemental injury in fact which will endow them with a standing to sue. It must be stressed
that petitioners are in the main, seeking the nullity not of a law but of a Contract of Lease. Not one of the petitioners is a party to the
Contract of Lease executed between PCSO and PGMC. None of the petitioners participated in the bidding, and hence they are not
losing bidders. They are complete strangers to the contract. They stand neither to gain nor to lose economically by its enforcement. It
seems to me unusual that an unaffected third party to a contract could be allowed to question its validity. Petitioner Kilosbayan
cannot justify this officious interference on the ground of its commitment to "truth, justice and national renewal." Such commitment
to truth, justice and national renewal, however noble it may be, cannot give Kilosbayan a roving commission to check the validity of
contracts entered into by the government and its agencies. Kilosbayan is not a private commission on audit.
Neither can I perceive how the other petitioners can be personally injured by the Contract of Lease between PCSO and PGMC even if
petitioner Salonga assails as unmitigated fraud the statistical probability of winning the lotto as he compared it to the probability of
being struck twice by lightning. The reason is obvious: none of the petitioners will be exposed to this alleged fraud for all of them
profess to abjure playing the lotto. It is self-evident that lotto cannot physically or spiritually injure him who does not indulge in it.
Petitioners also contend they have locus standi as taxpayers. But the case at bench does not involve any expenditure of public money
on the part of PCSO. In fact, paragraph 2 of the Contract of Lease provides that it is PGMC that shall build, furnish, and maintain at its
own expense and risk the facilities for the On-Line Lottery System of PCSO and shall bear all maintenance and other costs. Thus, PGMC
alleged it has already spent P245M in equipment and fixtures and would be investing close to P1 billion to supply adequately the
technology and other requirements of PCSO. 11 If no tax money is being illegally deflected in the Contract of Lease between PCSO and
PGMC, petitioners have no standing to impugn its validity as taxpayers. Our ruling in Dumlao v. Comelec, 12 settled this issue well
enough, viz:
However, the statutory provisions questioned in this case, namely, sec. 7, BP Blg. 51, and sections 4, 1, and 5 BP Blg. 52, do not
directly involve the disbursement of public funds. While, concededly, the elections to be held involve the expenditure of public
moneys, nowhere in their Petition do said petitioners allege that their tax money is "being extracted and spent in violation of specific
constitutional protections against abuses of legislative power" (Flast v. Cohen, 392 U.S. 83 [1960]), or that there is a misapplication of
such funds by respondent COMELEC (see Pascual vs. Secretary of Public Works, 110 Phil. 331 [1960]), or that public money is being
deflected to any improper purpose. Neither do petitioners seek to restrain respondent from wasting public funds through the
enforcement of an invalid or unconstitutional law. (Philippine Constitution Association vs. Mathay, 18 SCRA 300 [1966]),
citing Philippine Constitution Association vs. Gimenez, 15 SCRA 479 [1965]). Besides, the institution of a taxpayer's suit, per se, is no
assurance of judicial review. As held by this Court in Yan vs. Macapagal (43 SCRA 677 [1972]), speaking through our present Chief
Justice, this Court is vested with discretion as to whether or not a taxpayer's suit should be entertained.
Next, petitioners plead their standing as "concerned citizens." As citizens, petitioners are pleading that they be allowed to advocate
the constitutional rights of other persons who are not before the court and whose protection is allegedly their concern. A
citizen qua citizen suit urges a greater relaxation of the rule on locus standi. I feel no aversion to the further relaxation of the rule on
standing to accommodate what in other jurisdictions is known as an assertion of jus tertii in constitutional litigation provided the
claimant can demonstrate: (1) an injury in fact to himself, and (2) the need to prevent the erosion of a preferred constitutional right of
a third person. As stressed before, the first requirement of injury in fact cannot be abandoned for it is an essential element for the
exercise of judicial power. Again, as stressed by Mr. Justice Powell, viz: 13
The revolution in standing doctrine that has occurred, particularly in the 12 years since Baker v. Carr, supra, has not meant, however,
that standing barriers have disappeared altogether. As the Court noted in Sierra Club, "broadening the categories of injury that may
be alleged in support of standing is a different matter from abandoning the requirement that the party seeking review must himself
have suffered an injury." 405 U.S., at 738 . . . Indeed, despite the diminution of standing requirements in the last decade, the Court
has not broken with the traditional requirement that, in the absence of a specific statutory grant of the right of review, a plaintiff
must allege some particularized injury that sets him apart from the man on the street.
I recognize that the Court's allegiance to a requirement of particularized injury has on occasion required a reading of the concept that
threatens to transform it beyond recognition. E.G., Baker v. Carr, supra; Flast v. Cohen, supra. But despite such occasional digressions,
the requirement remains, and I think it does so for the reasons outlined above. In recognition of those considerations, we should
refuse to go the last mile towards abolition of standing requirements that is implicit in broadening the "precarious opening" for
federal taxpayers created by Flast, see 392 U.S., at 116 (Mr. Justice Fortas, concurring) or in allowing a citizen qua citizen to invoke the
power of the federal courts to negative unconstitutional acts of the Federal Government.
In sum, I believe we should limit the expansion of federal taxpayer and citizen standing in the absence of specific statutory
authorization to an outer boundary drawn by the results in Flast and Baker v. Carr. I think we should face up to the fact that all such
suits are an effort "to employ a federal court as a forum in which to air . . . generalized grievances about the conduct of government
or the allocation of power in the Federal System." Flast v. Cohen, 392 U.S., at 106. The Court should explicitly reaffirm traditional
prudential barriers against such public actions. My reasons for this view are rooted in respect for democratic processes and in the
conviction that "[t]he powers of the federal judiciary will be adequate for the great burdens placed upon them only if they are
employed prudently, with recognition of the strengths as well as the hazards that go with our kind of representative government." Id.,
at 131
The second requirement recognizes society's right in the protection of certain preferred rights in the Constitution even when the
rightholders are not before the court. The theory is that their dilution has a substantial fall out detriment to the rights of others,
hence the latter can vindicate them.
In the case at bench, it is difficult to see how petitioners can satisfy these two requirements to maintain a jus tertii claim. They claim
violation of two constitutional provisions, to wit:
Section 1, Article XIII. — The Congress shall give highest priority to the enactment of measures that protect and enhance the right of
all the people to human dignity, reduce social, economic, and political inequalities, and remove cultural inequities by equitably
diffusing wealth and political power for the common good.
To this end, the State shall regulate the acquisition, ownership, use, and disposition of property and its increments.
and
Section 11, Article XII. - No franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least
sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate, or authorizations be exclusive in
character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it
shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage
equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such
corporation or association must be citizen of the Philippines.
Section 1, Article XIII of the Constitution cannot be the matrix of petitioners' jus tertii claim for it expresses no more than a policy
direction to the legislative in the discharge of its ordained duty — to give highest priority to the enactment of measures that protect
and enhance the right of all the people to human dignity, reduce social, economic, and political inequalities and remove cultural
inequities by equitably diffusing wealth and political power for the common good. Whether the act of the legislature in amending the
charter of PCSO by giving it the authority to conduct lotto and whether the Contract of Lease entered into between PCSO and PGMC
are incongruent to the policy direction of this constitutional provision is a highly debatable proposition and can be endlessly argued.
Respondents steadfastly insist that the operation of lotto will increase the revenue base of PCSO and enable government to provide a
wider range of social services to the people. They also allege that the operation of high-tech lotto will eradicate illegal jueteng.
Petitioners are scandalized by this submission. They dismiss gambling as evil per se and castigate government for attempting to
correct a wrong by committing another wrong. In any event, the proper forum for this debate, however cerebrally exciting it may be,
is not this court but congress. So we held in PCSO v. Inopiquez, to wit: 14
By bringing their suit in the lower court, the private respondents in G.R. No. 79084 do not question the power of PCSO to conduct the
Instant Sweepstakes game. Rather, they assail the wisdom of embarking upon this project because of their fear of the "pernicious
repercussions" which may be brought about by the Instant Sweepstakes Game which they have labelled as "the worst form of
gambling" which thus "affects the moral values" of the people.
The Court, as held in several cases, does not pass upon questions of wisdom, justice, or expediency of legislation and executive acts. It
is not the province of the courts to supervise legislation or executive orders as to keep them within the bounds of propriety, moral
values and common sense. That is primarily and even exclusively a concern of the political departments of the government; otherwise,
there will be a violation of the principle of separation of powers. (Italics supplied)
I am not also convinced that petitioners can justify their locus standi to advocate the rights of hypothetical third parties not before the
court by invoking the need to keep inviolate section 11, Article XII of the Constitution which imposes a nationality requirement on
operators of a public utility. For even assuming arguendo that PGMC is a public utility, still, the records do not at the moment bear
out the claim of petitioners that PGMC is a foreign owned and controlled corporation. This factual issue remains unsettled and is still
the subject of litigation by the parties in the Securities and Exchange Commission. We are not at liberty to anticipate the verdict on
this contested factual issue. But over and above this consideration, I respectfully submit that this constitutional provision does not
confer on third parties any right of a preferred status comparable to the Bill of Rights whose dilution will justify petitioners to
vindicate them in behalf of its rightholders. The legal right of hypothetical third parties they profess to advocate is to my mind too
impersonal, too unsubstantial, too indirect, too amorphous to justify their access to this Court and the further lowering of the
constitutional barrier of locus standi.
Again, with regret, I do not agree that the distinguished status of some of the petitioners as lawmakers gives them the
appropriate locus standi. I cannot perceive how their constitutional rights and prerogatives as legislators can be adversely affected by
the contract in question. Their right to enact laws for the general conduct of our society remains unimpaired and
undiminished. 15 Their status as legislators, notwithstanding, they have to demonstrate that the said contract has caused them to
suffer a personal, direct, and substantial injury in fact. They cannot simply advance a generic grievance in common with the people in
general.
I am not unaware of our ruling in De Guia v. Comelec, 16 viz:
Before addressing the crux of the controversy, the Court observes that petitioner does not allege that he is running for reelection,
much less, that he is prejudiced by the election, by district, in Parañaque. As such, he does not appear to have locus standi, a standing
in law, a personal or substantial interest. (Sanidad vs. COMELEC, G.R. No. L-44640, October 12, 1976, 73 SCRA 333; Municipality of
Malabang vs. Benito, G.R. No. L-28113, March 28, 1969, 27 SCRA 533). He does not also allege any legal right that has been violated
by respondent. If for this alone, petitioner does not appear to have any cause of action.
However, considering the importance of the issue involved, concerning as it does the political exercise of qualified voters affected by
the apportionment, and petitioner alleging abuse of discretion and violation of the Constitution by respondent, We resolved to brush
aside the question of procedural infirmity, even as We perceive the petition to be one of declaratory relief. We so held similarly
through Mr. Justice Edgardo L. Paras in Osmena vs. Commission on Elections.
It is my respectful submission, however, that we should re-examine de Guia. It treated the rule on locus standi as a mere procedural
rule. It is not a plain procedural rule but a constitutional requirement derived from section 1, Article VIII of the Constitution which
mandates courts of justice to settle only "actual controversies involving rights which are legally demandable and enforceable." The
phrase has been construed since time immemorial to mean that a party in a constitutional litigation must demonstrate a standing to
sue. By downgrading the requirement on locus standi as a procedural rule which can be discarded in the name of public interest, we
are in effect amending the Constitution by judicial fiat.
De Guia would also brush aside the rule on locus standi if a case raises an important issue. In this regard, I join the learned
observation of Mr. Justice Feliciano: "that it is not enough for the Court simply to invoke 'public interest' or even 'paramount
considerations of national interest,' and to say that the specific requirements of such public interest can only be ascertained on a
'case to case' basis. For one thing, such an approach is not intellectually satisfying. For another, such an answer appears to come too
close to saying that locus standi exists whenever at least a majority of the Members of this Court participating in a case feel that an
appropriate case for judicial intervention has arisen."
I also submit that de Guia failed to perceive that the rule on locus standi has little to do with the issue posed in a case, however,
important it may be. As well pointed out in Flast v. Cohen: 17
The fundamental aspect of standing is that it focuses on the party seeking to get his complaint before a federal court and not on the
issues he wishes to have adjudicated. The "gist of the question of standing" is whether the party seeking relief has "alleged such a
personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues
upon which the court so largely depends for illumination of difficult constitutional questions." Baker v. Carr, 369 U.S. 186, 204 (1962).
In other words, when standing is placed in issue in a case, the question is whether the person whose standing is challenged is a proper
party to request an adjudication of a particular issue and not whether the issue itself is justiciable. Thus, a party may have standing in
a particular case, but the federal court may nevertheless decline to pass on the merits of the case because, for example, it presents a
political question. A proper party is demanded so that federal courts will not be asked to decide "ill-defined controversies over
constitutional issues," United public Workers v. Mitchell, 330 U.S. 75, 90 (1947), or a case which is of "a hypothetical or abstract
character," Aetna Life Insurance Co. v. Haworth, 300 U.S. 227, 240 (1937).
It is plain to see that in de Guia, the court took an unorthodox posture, to say the least. It held there was no proper party before it,
and yet it resolved the issues posed by the petition. As there was no proper party before the court, its decision is vulnerable to be
criticized as an advisory opinion.
With due respect, the majority decision appears to have set a dangerous precedent by unduly trivializing the rule on locus standi. By
its decision, the majority has entertained a public action to annul a private contract. In so doing, the majority may have given sixty
(60) million Filipinos the standing to assail contracts of government and its agencies. This is an invitation for chaos to visit our law on
contract, and certainly will not sit well with prospective foreign investors. Indeed, it is difficult to tread the path of the majority on this
significant issue. The majority granted locus standi to petitioners because of lack of any other party with more direct and specific
interest. But one has standing because he has standing on his own and standing cannot be acquired because others with standing
have refused to come to court. The thesis is also floated that petitioners have standing as they can be considered taxpayers with right
to file derivative suit like a stockholder's derivative suit in private corporations. The fact, however, is that PCSO is not a private but a
quasi-public corporation. Our law on private corporation categorically sanctions stockholder's derivative suit. In contrast, our law on
public corporation does not recognize this so-called taxpayer's derivative suit. Hence, the idea of a taxpayer's derivative suit, while
alluring, has no legal warrant.
Our brethren in the majority have also taken the unprecedented step of striking down a contrast at the importunings of strangers
thereto, but without justifying the interposition of judicial power on any felt need to prevent violation of an important constitutional
provision. The contract in question was voided on the sole ground that it violated an ordinary statute, section 1 of R.A. 1169, as
amended by B.P. Blg. 42. If there is no provision of the Constitution that is involved in the case at bench, it boggles the mind how the
majority can invoke considerations of national interest to justify its abandonment of the rule on locus standi. The volume of noise
created by the case cannot magically convert it to a case of paramount national importance. By its ruling, the majority has pushed the
Court in unchartered water bereft of any compass, and it may have foisted the false hope that it is the repository of all remedies.
If I pay an unwavering reverence to the rule of locus standi, it is because I consider it as a touchstone in maintaining the proper
balance of power among the three branches of our government. The survival of our democracy rests in a large measure on our ability
to maintain this delicate equipoise of powers. For this reason, I look at judicial review from a distinct prism. I see it both as a power
and a duty. It is a power because it enables the judiciary to check excesses of the Executive and the Legislative. But, it is also a duty
because its requirement of locus standi, among others, Executive and the Legislative. But, it is also a duty because its requirement
of locus standi, among others, keeps the judiciary from overreaching the powers of the other branches of government. By balancing
this duality, we are able to breathe life to the principle of separation of powers and prevent tyranny. To be sure, it is our eternal
concern to prevent tyranny but that includes tyranny by ourselves. The Constitution did not install a government by the judiciary, nay,
not a government by the unelected. In offering this submission, I reject the sublimal fear that an unyielding insistence on the rule
on locus standi will weaken the judiciary vis-a-vis the other branches of government. The hindsight of history ought to tell us that it is
not power per se that strengthens. Power unused is preferable than power misused. We contribute to constitutionalism both by the
use of our power to decide and its non use. As well said, the cases we decide are as significant as the cases we do not decide. Real
power belongs to him who has power over power.
IN VIEW WHEREOF, and strictly on the ground of lack of locus standi on the part of petitioners, I vote to DENY the petition.
VITUG, J., dissenting:
Judicial power encompasses both an authority and duty to resolve "actual controversies involving rights which are legally demandable
and enforceable" (Article VIII, Section 1, 1987 Constitution). As early as the case of Lamb vs. Phipps, 1 this Court ruled: "Judicial power,
in its nature, is the power to hear and decide causes pending between parties who have the right to sue in the courts of law and
equity." 2 An essential part of, and corollary to, this principle is the locus standi of a party litigant, referring to one who is directly
affected by, and whose interest is immediate and substantial in, the controversy. The rule requires that a party must show a personal
stake in the outcome of the case or an injury to himself that can be redressed by a favorable decision so as to warrant his invocation
of the court's jurisdiction and to justify the exercise of the court's remedial powers in his behalf. 3 If it were otherwise, the exercise of
that power can easily become too unwieldy by its sheer magnitude and scope to a point that may, in no small degree, adversely affect
its intended essentiality, stability and consequentiality.
Locus standi, nevertheless, admits of the so-called "taxpayer's suit." Taxpayer's suits are actions or proceedings initiated by one or
more taxpayers in their own behalf or, conjunctively, in representation of others similarly situated for the purpose of declaring illegal
or unauthorized certain acts of public officials which are claimed to be injurious to their common interests as such taxpayers (Cf. 71
Am Jur 2d., 179-180). The principle is predicated upon the theory that taxpayers are, in equity, the cestui que trust of tax funds, and
any illegal diminution thereof by public officials constitutes a breach of trust even as it may result in an increased burden on taxpayers
(Haddock vs. Board of Public Education, 86 A 2d 157; Henderson vs. McCormick, 17 ALR 2d 470).
Justice Brandeis of the United States Supreme Court, in his concurring opinion in Ashwander vs. Tennessee Valley Authority (297 U.S.
288), said:
. . . . The Court will not pass upon the validity of a statute upon complaint of one who fails to show that he is injured by its
operation. Tyler v. The Judges, 179 U.S. 405; Hendrick v. Maryland, 234 U.S. 610, 621. Among the many applications of this rule, none
is more striking than the denial of the right of challenge to one who lacks a personal or property right. Thus, the challenge by a public
official interested only in the performance of his official duty will not be entertained. Columbus & Greenville Ry. v. Miller, 283 U.S. 96,
99-100. In Fairchild v. Hughes, 258 U.S. 126, the Court affirmed the dismissal of a suit brought by a citizen who sought to have the
Nineteenth Amendment declared unconstitutional. In Massachusetts v. Mellon, 262 U.S. 447, the challenge of the federal Maternity
Act was not entertained although made by the Commonwealth on behalf of all its citizens."
Justice Brandeis' view, shared by Justice Frankfurter in Joint Anti-Fascist Refugee Commission vs. McGrath (351 U.S. 123), was
adopted by the U.S. Supreme Court in Flast vs. Cohen (392 U.S. 83) which held that it is only when a litigant is able to show such a
personal stake in the controversy as to assure a concrete adverseness in the issues submitted that legal standing can attach.
A "taxpayer's suit," enough to confer locus standi to a party, we have held before, is understood to be a case where the act
complained of directly involves the illegal disbursement of public funds derived from taxation.4 It is not enough that the dispute
concerns public funds. A contrary rule could easily lead to a limitless application of the term "taxpayer's suit," already by itself a broad
concept, since a questioned act of government would almost so invariably entail, as a practical matter, a financial burden of some
kind.
To be sure, serious doubts have even been raised on the propriety and feasibility of unqualifiedly recognizing the "taxpayer's suit" as
an exception from the standard rule of requiring a party who invokes the exercise of judicial power to have a real and personal
interest or a direct injury in the outcome of a controversy. This Court has heretofore spoken on the matter, at times even venturing
beyond the usual understanding of its applicability in the name of national or public interest. It is remarkable, nevertheless, that the
accepted connotation of locus standi has still managed to be the rule, sanctioning, by way of exception, the so-called "taxpayer's suit"
which courts accept on valid and compelling reasons.
A provision which has been introduced by the 1987 Constitution is a definition, for the first time in our fundamental law, of the term
"judicial power," as such authority and duty of courts of justice "to settle actual controversies involving rights which are legally
demandable and enforceable and to determine whether or not there has been a grave abuse of discretion, amounting to lack or
excess of jurisdiction, on the part of any branch or instrumentality of the Government" (Article VIII, Section 1, Constitution). I take it
that the provision has not been intended to unduly mutate, let alone to disregard, the long established rules on locus standi. Neither
has it been meant, I most respectfully submit, to do away with the principle of separation of powers and its essential incidents such as
by, in effect, conferring omnipotence on, or allowing an intrusion by, the courts in respect to purely political decisions, the exercise of
which is explicitly vested elsewhere, and subordinate, to that of their own, the will of either the Legislative Department or the
Executive Department — both co- equal, independent and coordinate branches, along with the Judiciary, in our system of
government. Again, if it were otherwise, there indeed would be truth to the charge, in the words of some constitutionalists, that
"judicial tyranny" has been institutionalized by the 1987 Constitution, an apprehension which should, I submit, rather be held far from
truth and reality.
In sum, while any act of government, be it executive in nature or legislative in character, may be struck down and declared a nullity
either because it contravenes an express provision of the Constitution or because it is perceived and found to be attended by or the
result of grave abuse of discretion, amounting to lack or excess of jurisdiction, that issue, however, must first be raised in a proper
judicial controversy. The Court's authority to look into and grant relief in such cases would necessitate locus standi on the part of
party litigants. This requirement, in my considered view, is not merely procedural or technical but goes into the essence of jurisdiction
and the competence of courts to take cognizance of justiciable disputes.
In Bugnay Construction and Development Corporation vs. Laron, 5 this Court ruled:
. . . . Considering the importance to the public of a suit assailing the constitutionality of a tax law, and in keeping with the Court's duty,
specially explicated in the 1987 Constitution, to determine whether or not the other branches of the Government have kept
themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the
Supreme Court may brush aside technicalities of procedure and take cognizance of the suit. (Citing Kapatiran vs. Tan, G.R. No. 81311,
June 30, 1988.)
However, for the above rule to apply, it is exigent that the taxpayer-plaintiff sufficiently show that he would be benefited or injured
by the judgment or entitled to the avails of the suit as a real party in interest. (Citing Estate of George Litton vs. Mendoza, G.R. No.
49120, June 30, 1988.) Before he can invoke the power of judicial review, he must specifically prove that he has sufficient interest in
preventing the illegal expenditure of money raised by taxation (citing 11 Am. Jur. 761; Dumlao, et al. vs. Commission on Elections, 95
SCRA 392) and that he will sustain a direct injury as a result of the enforcement of the questioned statute or contract. (Citing Sanidad,
et al. vs. Commission on Elections, et al., 73 SCRA 333.) It is not sufficient that he has merely a general interest common to all
members of the public. (Citing Ex Parte Levitt, 302 U.S. 633, cited in 15 SCRA 497, Annotation.)
As so well pointed out by Mr. Justice Camilo D. Quiason during the Court's deliberations, "due respect and proper regard for the rule
on locus standi would preclude the rendition of advisory opinions and other forms of pronouncement on abstract issues, avoid an
undue interference on matters which are not justiciable in nature and spare the Court from getting itself involved in political
imbroglio."
The words of Senate President Edgardo J. Angara, carry wisdom; we quote:
The powers of the political branches of our government over economic policies is rather clear: the Congress is to set in broad but
definite strokes the legal framework and structures for economic development, while the Executive provides the implementing details
for realizing the economic ends identified by Congress and executes the same.
xxx xxx xxx
If each economic decision made by the political branches of government, particularly by the executive, are fully open to re-
examination by the judicial branch, then very little, if any, reliance can be placed by private economic actors on those decisions.
Investors would always have to factor in possible costs arising from judicially-determined changes affecting their immediate business,
notwithstanding assurances by executive authorities.
Judicial decisions are, in addition, inflexible and can never substitute for sound decision-making at the level of those who are assigned
to execute the laws of the land. Since judicial power cannot be exercised unless an actual controversy is brought before the courts for
resolution, decisions cannot be properly modified unless another appropriate controversy arises." (Sen. Edgardo J. Angara, "The
Supreme Court in Economic Policy Making," Policy Review — A Quarterly Journal of Policy Studies, Vol. 1, No. 1, January-March 1994,
published by the Senate Policy Studies Group, pp. 2-3.)
A further set-back in entertaining the petition is that it unfortunately likewise strikes at factual issues. The allegations to the effect
that irregularities have been committed in the processing and evaluation of the bids to favor respondent PGMC; that the Malacañang
Special Review Committee did not verify warranties embodied in the contract; that the operation of telecommunication facilities is
indispensable in the operation of the lottery system; the involvement of multi-national corporations in the operation of the on-line
"hi-tech" lottery system, and the like, require the submission of evidence. This Court is not a trier of facts, and it cannot, at this time,
resolve the above issues. Just recently, the Court has noted petitioners' manifestation of its petition with the Securities and Exchange
Commission "for the nullification of the General Information Sheets of PGMC" in respect particularly to the nationality holdings in the
corporation. The doctrine of primary jurisdiction would not justify a disregard of the jurisdiction of, nor would it permit us to now
preempt, said Commission on the matter.
Petitioners strongly assert, in an attempt to get the Court's concurrence in accepting the petition, that since lottery is a game of
chance, the "lotto" system would itself be a "crime against morals" defined by Articles 195-199 6 of the Revised Penal Code.
Being immoral and a criminal offense under the Revised Penal Code, petitioners contend, any special law authorizing gambling must,
by all canons of statutory constructions, be interpreted strictly against the grantee. Citing previous decisions of this Court, they
maintain that lottery is gambling, pure and simple, 7 and that this Court has consistently condemned the immorality and illegality of
gambling to be a "national offense and not a minor transgression;" 8 "that it is a social scourge which must be stamped out;" 9 and,
"that it is pernicious to the body politic and detrimental to the nation and its citizens."10
I most certainly will not renounce this Court's above concerns. Nevertheless, the Court must recognize the limitations of its own
authority. Courts neither legislate nor ignore legal mandates. Republic Act No. 1169, as amended, explicitly gives public respondent
PCSO the authority and power "to hold and conduct sweepstakes races, lotteries, and other similar activities." In addition, it is
authorized:
c. To undertake any other activity that will enhance its funds generation, operations and funds management capabilities, subject to
the same limitations provided for in the preceding paragraph.
It shall have a Board of Directors, hereinafter designated the Board, composed of five members who shall be appointed, and whose
compensation and term of office shall be fixed, by the President.
xxx xxx xxx
Sec.9. Powers and functions of the Board of Directors. — The Board of Directors of the Office shall have the following powers and
functions.
(a) To adopt or amend such rules and regulations to implement the provisions of this Act.
xxx xxx xxx
(d) To promulgate rules and regulations for the operation of the Office and to do such act or acts as may be necessary for the
attainment of its purposes and objectives. (Emphasis supplied).
In People vs. Dionisio, 11 cited by the petitioners themselves, we remarked: "What evils should be corrected as pernicious to the body
politic, and how correction should be done, is a matter primarily addressed to the discretion of the legislative department, not of the
courts . . . ." In Valmonte vs. PCSO, 12 we also said:
The Court, as held in several cases, does not pass upon questions of wisdom, justice or expediency of legislation and executive acts. It
is not the province of the courts to supervise legislation or executive orders as to keep them within the bounds of propriety, moral
values and common sense. That is primarily and even exclusively a concern of the political departments of the government;
otherwise, there will be a violation of the principle of separation of powers.
The constraints on judicial power are clear. I feel, the Court must thus beg off, albeit not without reluctance, from giving due course
to the instant petition.
Accordingly, I vote for the dismissal of the petition.
KAPUNAN, J., dissenting:
I regret that I am unable to join my colleagues in the majority in spite of my own personal distaste for gambling and other gaming
operations. Such considerations aside, I feel there are compelling reasons why the instant petition should be dismissed. I shall
forthwith state the reasons why.
Petitioners anchor their principal objections against the contract entered into between the Philippine Charity Sweepstakes Office
(PCSO) and the PGMC on the ground that the contract entered into by the PCSO with the PGMC violates the PCSO Charter (R.A. No.
1169 as amended by B.P. Blg 427, specifically section 1 thereof which bars the said body from holding conducting lotteries "in
collaboration, association or joint venture with any person association, company or entity."). However, a perusal of the petition
reveals that the compelling reasons behind it, while based on apparently legal questions involving the contract between the PCSO and
the PGMC, are prompted by the petitioners' moral objections against the whole idea of gambling operations operated by the
government through the PCSO. The whole point of the petition, in essence, is a fight between good and evil, between the morality or
amorality of lottery operations conducted on a wide scale involving millions of individuals and affecting millions of lives. Their media
of opposition are the above stated defects in the said contract which they assail to be fatally defective. They come to this Court, as
taxpayers and civic spirted citizens, asserting a right of standing on a transcendental issue which they assert to be of paramount
public interest.
Moral or legal questions aside, I believe that there are unfortunately certain standards1 that have to be followed in the exercise of this
Court's awesome power of review before this Court could even begin to assay the validity of the contract between the PCSO and the
PGMC. This, in spite of the apparent expansion of judicial power granted by Section 1 of Article VIII of the 1987 Constitution. It is
fundamental that such standards be complied with before this Court could even begin to explore the substantive issues raised by any
controversy brought before it, for no issue brought before this court could possibly be so fundamental and paramount as to warrant a
relaxation of the requisite rules for judicial review developed by settled jurisprudence inorder to avoid entangling this court in
controversies which properly belong to the legislative or executive branches of our government. The potential harm to our system of
government, premised on the concept of separation of powers, by the Court eager to exercise its powers and prerogatives at every
turn, cannot be gainsaid. The Constitution does not mandate this Court to wield the power of judicial review with excessive vigor and
alacrity in every area or at every turn, except in appropriate cases and controversies which meet established requirements for
constitutional adjudication. Article VIII Sec. 1 of the Constitution notwithstanding, there are questions which I believe are still beyond
the pale of judicial power. Moreover, it is my considered opinion that the instant petition does not meet the requirements set by this
court for a valid exercise of judicial review.
Our Constitution expressly defines judicial power as including "the duty to settle actual cases and controversies involving rights which
are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to a
lack or excess of jurisdiction on the part of any branch or instrumentality of the government." 2 This constitutional requirement for an
actual case and controversy limits this Court's power of review to precisely those suits between adversary litigants with real interests
at stake2 thus preventing it from making all sorts of hypothetical pronouncements on abstract, contingent and amorphous issues. The
Court will therefore not pass upon the validity of an act of government or a statute passed by a legislative body without a requisite
showing of injury. 3 A personal stake is essential, which absence renders our pronouncements gratuitous and certainly violative of the
constitutional requirement for actual cases and controversies.
The requirement for standing based on personal injury may of course be bypassed, as the petitioners in this case attempt to do, by
considering the case as a "taxpayer suit" which would thereby clothe them with the personality they would lack under ordinary
circumstances. However, the act assailed by the petitioners on the whole involves the generation rather than disbursement of public
funds. In a line of cases starting from Pascual v. Secretary of Public Works 4 "taxpayer suits" have been understood to refer only to
those cases where the act or statute assailed involves the illegal or unconstitutional disbursement of public funds derived from
taxation. The main premise behind the "taxpayer suit" is that the pecuniary interest of the taxpayer is involved whenever there is an
illegal or wasteful use of public funds which grants them the right to question the appropriation or disbursement on the basis of their
contribution to government funds. 5 Since it has not been alleged that an illegal appropriation or disbursement of a fund derived from
taxation would be made in the instant case, I fail to see how the petitioners in this case would be able to satisfy the locus
standi requirement on the basis of a "taxpayer's suit". This alone should inhibit this Court from proceeding with the case at bench.
The interest alleged and the potential injury asserted are far too general and hypothetical for us to rush into a judicial determination
of what to me appears to be judgment better left to executive branch of our government.
This brings me to one more important point: The idea that a norm of constitutional adjudication could be lightly brushed aside on the
mere supposition that an issue before the Court is of paramount public concern does great harm to a democratic system which
espouses a delicate balance between three separate but co-equal branches of government. It is equally of paramount public concern,
certainly paramount to the survival of our democracy, that acts of the other branches of government are accorded due respect by this
Court. Such acts, done within their sphere of competence, have been — and should always be — accorded with a presumption of
regularity. When such acts are assailed as illegal or unconstitutional, the burden falls upon those who assail these acts to prove that
they satisfy the essential norms of constitutional adjudication, because when we finally proceed to declare an act of the executive or
legislative branch of our government unconstitutional or illegal, what we actually accomplish is the thwarting of the will of the elected
representatives of the people in the executive or legislative branches government.6 Notwithstanding Article VIII, Section 1 of the Constitution, since the
exercise of the power of judicial review by this Court is inherently antidemocratic, this Court should exercise a becoming modesty in acting as a revisor of an act of the executive or legislative
branch. The tendency of a frequent and easy resort to the function of judicial review, particularly in areas of economic policy has become lamentably too common as to dwarf the political capacity
of the people expressed through their representatives in the policy making branches of government and to deaden their sense of moral responsibility. 7
This court has been accused, of late, of an officious tendency to delve into areas better left to the political branches of
government. 8 This tendency, if exercised by a court running riot over the other co-equal branches of government, poses a greater
danger to our democratic system than the perceived danger — real or imagined — of an executive branch espousing economic or
social policies of doubtful moral worth. Moreover economic policy decisions in the current milieu- including the act challenged in the
instant case-involve complex factors requiring flexibility and a wide range of discretion on the part of our economic managers which
this Court should respect because our power of review, under the constitution, is a power to check, not to supplant those acts or
decisions of the elected representatives of the people.
Finally, the instant petition was brought to this Court on the assumption that the issue at bench raises primarily constitutional issues.
As it has ultimately turned out, the core foundation of the petitioners' objections to the LOTTO operations was based on the validity
of the contract between the PCSO and the PGMC in the light of Section 1 of R.A. 1169 as amended by B.P. Blg. 427. It might have been
much more appropriate for the issue to have taken its normal course in the courts below.
I vote to deny the petition.

# Separate Opinions

CRUZ, J., concurring:

I am happy to join Mr. Justice Hilario G. Davide, Jr. in his excellent ponencia. I will add the following personal observations only for
emphasis as it is not necessary to supplement his thorough exposition.
The respondents take great pains to cite specific provisions of the contract to show that it is PCSO that is actually operating the on-
line lottery, but they have not succeeded in disproving the obvious, to wit, that the document was intentionally so crafted to make it
appear that the operation is not a joint undertaking of PCSO and PGMC but a mere lease of services. It is a clever instrument, to be
sure, but we are, gratifyingly, not deluded. Lawyers have a special talent to disguise the real intention of the parties in a contract to
make it come ostensibly within the provisions of a law although the real if furtive purpose is to violate it. That talent has been
exercised in this case, but not convincingly enough.
It should be quite clear, from the adroit way the contract has been drafted, that the primary objective was to avoid the conclusion
that PCSO will be operating a lottery "in association, collaboration or joint venture with any person, association, company or entity,"
which is prohibited by Section 1 of Rep. Act No. 1169 as amended by B.P. Blg. 42. Citing the self-serving provisions of the contract, the
respondents would have us believe that the contract is perfectly lawful because all it does is provide for the lease to PCSO of the
technical know-how and equipment of PGMC, with PCSO acting as "the sole and individual operator" of the lottery. I am glad we are
not succumbing to this sophistry.
Despite the artfulness of the contract (authorship of which was pointedly denied by both counsel for the government and the private
respondent during the oral argument on this case), a careful study will reveal telling stipulations that it is PGMC and not PCSO that
will actually be operating the lottery. Thus, it is provided inter alia that PGMC shall furnish all capital equipment and other facilities
needed for the operation; bear all expenses relating to the operation, including those for the salaries and wages of the administrative
and technical personnel; undertake a positive advertising and promotion campaign for public support of the lottery; establish a radio
communications network throughout the country as part of the operation; and assume all risks if the revenues from ticket sales are
insufficient to pay the entire prize money. Most significantly, to show that it is only after eight years from the effectivity of the
contract that PCSO will actually operate the lottery, Par. 6.7 of the agreement provides that PGMC shall:
6.7. Upon effectivity of this Contract, commence the training of PCSO and other local personnel and the transfer of technology and
expertise, such that at the end of the term of this Contract, PCSO will be able to effectively take-over the Facilities and efficiently
operate the On-Line Lottery System. (Emphasis supplied).
In the meantime, that is to say during the entire 8-year term of the contract, it will be PGMC that will be operating the lottery. Only
"at the end of the term of this Contract" will PCSO "be able to effectively take-over the Facilities and efficiently operate the On-Line
Lottery System."
Even on the assumption that it is PCSO that will be operating the lottery at the very start, the authority granted to PGMC by the
agreement will readily show that PCSO will not be acting alone, as the respondents pretend. In fact, it cannot. PGMC is an
indispensable co-worker because it has the equipment and the technology and the management skills that PCSO does not have at this
time for the operation of the lottery, PCSO cannot deny that it needs the assistance of PGMC for this purpose, which was its reason
for entering into the contract in the first place.
And when PCSO does avail itself of such assistance, how will it be operating the lottery? Undoubtedly, it will be doing so "in
collaboration, association or joint venture" with PGMC, which, let it be added, will not be serving as a mere "hired help" of PCSO
subject to its control. PGMC will be functioning independently in the discharge of its own assigned role as stipulated in detail under
the contract. PGMC is plainly a partner of PCSO in violation of law, no matter how PGMC's assistance is called or the contract is
denominated.
Even if it be conceded that the assistance partakes of a lease of services, the undeniable fact is that PCSO would still be collaborating
or cooperating with PGMC in the operation of the lottery. What is even worse is that PCSO and PGMC may be actually engaged in a
joint venture, considering that PGMC does not collect the usual fixed rentals due an ordinary lessor but is entitled to a special "Rental
Fee," as the contract calls it, "equal to four point nine percent (4.9%) of gross receipts from ticket sales."
The flexibility of this amount is significant. As may be expected, it will induce in PGMC an active interest and participation in the
success of PCSO that is not expected of an ordinary detached lessor who gets to be paid his rentals — not a rental fee — whether the
lessee's business prospers or not. PGMC's share in the operation depends on its own performance and the effectiveness of its
collaboration with PCSO. Although the contract pretends otherwise, PGMC is a co-investor with PCSO in what is practically, if not in a
strictly legal sense, a joint venture.
Concerning the doctrine of locus standi, I cannot agree that out of the sixty million Filipinos affected by the proposed lottery, not a
single solitary citizen can question the agreement. Locus standi is not such an absolute rule that it cannot admit of exceptions under
certain conditions or circumstances like those attending this transaction. As I remarked in my dissent in Guazon v. De Villa, 181 SCRA
623, "It is not only the owner of the burning house who has the right to call the firemen. Every one has the right and responsibility to
prevent the fire from spreading even if he lives in the other block."
What is especially galling is that the transaction in question would foist upon our people an essentially immoral activity through the
instrumentality of a foreign corporation, which naturally does not have the same concern for our interests as we ourselves have. I am
distressed that foreigners should be allowed to exploit the weakness of some of us for instant gain without work, and with the active
collaboration and encouragement of our own government at that.
Feliciano, J., concurring
I agree with the conclusions reached by my distinguished brother in the Court Davide, Jr., J., both in respect of the question of locus
standi and in respect of the merits of this case, that is, the issues of legality and constitutionality of the Contract of Lease entered into
between the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Gaming Management Corporation (PGMC).
In this separate opinion, I propose to address only the question of locus standi. It is with some hesitation that I do so, considering the
extensive separate opinions on this question written by my learned brothers Melo, Puno and Vitug, JJ. I agree with the great deal of
what my brothers Melo, Puno and Vitug say about locus standi in their separate opinions and there is no need to go over the ground
that I share with them. Because, however, I reach a different conclusion in respect of the presence or absence of locus standi on the
part of the petitioners in the case before the Court, there is an internal need (a need internal to myself) to articulate the
considerations which led me to that conclusion.
There is no dispute that the doctrine of locus standi reflects an important constitutional principle, that is, the principle of separation
of powers which, among other things, mandates that each of the great Departments of government is responsible for performance of
its constitutionally allotted tasks. Insofar as the Judicial Department is concerned, the exercise of judicial power and carrying out of
judicial functions commonly take place within the context of actual cases or controversies. This, in turn, reflects the basic notion of
judicial power as the power to resolve actual disputes and of the traditional business of courts as the hearing and deciding of specific
controversies brought before them. In our own jurisdiction, and at least since the turn of the present century, judicial power has
always included the power of judicial review, understood as the authority of courts (more specifically the Supreme Court) to assay
contested legislative and executive acts in terms of their constitutionality or legality. Thus, the general proposition has been that a
petitioner who assails the legal or constitutional quality of an executive or legislative act must be able to show that he has locus
standi. Otherwise, the petition becomes vulnerable to prompt dismissal by the court.
There is, upon the other hand, little substantive dispute that the possession of locus standi 1 is not, in each and every case, a rigid and
absolute requirement for access to the courts. Certainly that is the case where great issues of public law are at stake, issues which
cannot be approached in the same way that a court approaches a suit for the collection of a sum of money or a complaint for the
recovery of possession of a particular piece of land. The broad question is when, or in what types of cases, the court should insist on a
clear showing of locus standi understood as a direct and personal interest in the subject matter of the case at bar, and when the court
may or should relax that apparently stringent requirement and proceed to deal with the legal or constitutional issues at stake in a
particular case.
I submit, with respect, that it is not enough for the Court simply to invoke "public interest" or even "paramount considerations of
national interest," and to say that the specific requirements of such public interest can only be ascertained on a "case to case" basis.
For one thing, such an approach is not intellectually satisfying. For another, such an answer appears to come too close to saying
that locus standi exists whenever at least a majority of the Members of this Court participating in a case feel that an appropriate case
for judicial intervention has arisen.
This is not, however, to say that there is somewhere an over-arching juridical principle or theory, waiting to be discovered, that
permits a ready answer to the question of when, or in what types of cases, the need to show locus standi may be relaxed in greater or
lesser degree. To my knowledge, no satisfactory principle or theory has been discovered and none has been crafted, whether in our
jurisdiction or in the United States. 2 I have neither the competence nor the opportunity to try to craft such principle or formula. It
might, however, be useful to attempt to indicate the considerations of principle which, in the present case, appear to me to require
an affirmative answer to the question of whether or not petitioners are properly regarded as imbued with the standing necessary to
bring and maintain the present petition.
Firstly, the character of the funds or other assets involved in the case is of major importance. In the case presently before the Court,
the funds involved are clearly public in nature. The funds to be generated by the proposed lottery are to be raised from the
population at large. Should the proposed operation be as successful as its proponents project, those funds will come from well-nigh
every town and barrio of Luzon. The funds here involved are public in another very real sense: they will belong to the PCSO, a
government owned or controlled corporation and an instrumentality of the government and are destined for utilization in social
development projects which, at least in principle, are designed to benefit the general public. My learned brothers Melo, Puno and
Vitug, JJ. concede that taxpayers' suits have been recognized as an exception to the traditional requirement of recognized as an
exception to the traditional requirement of locus standi. They insist, however, that because the funds here involved will not have
been generated by the exercise of the taxing power of the Government, the present petition cannot be regarded as a taxpayer's suit
and therefore, must be dismissed by the Court. It is my respectful submission that that constitutes much too narrow a conception of
the taxpayer's suit and of the public policy that it embodies. It is also to overlook the fact that tax monies, strictly so called, constitute
only one (1) of the major categories of funds today raised and used for public purposes. It is widely known that the principal sources
of funding for government operations today include, not just taxes and customs duties, but also revenues derived from activities of
the Philippine Amusement Gaming Corporation (PAGCOR), as well as the proceeds of privatization of government owned or
controlled corporations and other government owned assets. The interest of a private citizen in seeing to it that public funds, from
whatever source they may have been derived, go only to the uses directed and permitted by law is as real and personal and
substantial as the interest of a private taxpayer in seeing to it that tax monies are not intercepted on their way to the public treasury
or otherwise diverted from uses prescribed or allowed by law. It is also pertinent to note that the more successful the government is
in raising revenues by non-traditional methods such as PAGCOR operations and privatization measures, the lesser will be the pressure
upon the traditional sources of public revenues, i.e., the pocket books of individual taxpayers and importers.
A second factor of high relevance is the presence of a clear case of disregard of a constitutional or statutory prohibition by the public
respondent agency or instrumentality of the government. A showing that a constitutional or legal provision is patently being
disregarded by the agency or instrumentality whose act is being assailed, can scarcely be disregarded by court. The concept of locus
standi — which is part and parcel of the broader notion of ripeness of the case — "does not operate independently and is not alone
decisive. . . . [I]t is in substantial part a function of a judge's estimate of the merits of the constitutional [or legal] issue." 3 The notion
of locus standi and the judge's conclusions about the merits of the case, in other words, interact with each other. Where the Court
perceives a serious issue of violation of some constitutional or statutory limitation, it will be much less difficult for the Court to
find locus standi in the petitioner and to confront the legal or constitutional issue. In the present case, the majority of the Court
considers that a very substantial showing has been made that the Contract of Lease between the PCSO and the PGMC flies in the face
of legal limitations.
A third consideration of importance in the present case is the lack of any other party with a more direct and specific interest in raising
the questions here being raised. Though a public bidding was held, no losing or dissatisfied bidder has come before the Court. The
Office of the Ombudsman has not, to the knowledge of the Court, raised questions about the legality or constitutionality of the
Contract of Lease here involved. The National Government itself, through the Office of the Solicitor General, is defending the PCSO
Contract (though it had not participated in the drafting thereof). In a situation like that here obtaining, the submission may be made
that the institution, so well known in corporation law and practice, of the corporate stockholders' derivative suit furnishes an
appropriate analogy and that on the basis of such an analogy, a taxpayer's derivative suit should be recognized as available.
The wide range of impact of the Contract of Lease here assailed and of its implementation, constitutes still another consideration of
significance. In the case at bar, the agreement if implemented will be practically nationwide in its scope and reach (the PCSO-PGMC
Contract is limited in its application to the Island of Luzon; but if the PCSO Contracts with the other two [2] private "gaming
management" corporations in respect of the Visayas and Mindanao are substantially similar to PCSO's Contract with PGMC, then the
Contract before us may be said to be national indeed in its implications and consequences). Necessarily, the amounts of money
expected to be raised by the proposed activities of the PCSO and PGMC will be very substantial, probably in the hundreds of millions
of pesos. It is not easy to conceive of a contract with greater and more far-reaching consequences, literally speaking, for the country
than the Contract of Lease here involved. Thus, the subject matter of the petition is not something that the Court may casually pass
over as unimportant and as not warranting the expenditure of significant judicial resources.
In the examination of the various features of this case, the above considerations have appeared to me to be important and as
pressing for acceptance and exercise of jurisdiction on the part of this Court. It is with these considerations in mind that I vote to grant
due course to the Petition and to hold that the Contract of Lease between the PCSO and PGMC in its present form and content, and
given the present state of the law, is fatally defective.
PADILLA, J., concurring:
My views against gambling are a matter of judicial record. In Basco v. PAGCOR, (G.R. No. 91649, 14 May 1991, 197 SCRA 52) I
expressed these views in a separate opinion where I was joined by that outstanding lady jurist, Mme. Justice A. Melencio-Herrera
whose incisive approach to legal problems is today missed in this Court. I reproduce here those views because they are highly
persuasive to the conclusions I reach in the present controversy:
I concur in the result of the learned decision penned by my brother Mr. Justice Paras. This means that I agree with the decision insofar
as it holds that the prohibition, control, and regulation of the entire activity known as gambling properly pertain to "state policy." It is,
therefore, the political departments of government, namely, the legislative and the executive that should decide on what government
should do in the entire area of gambling, and assume full responsibility to the people for such policy.
The courts, as the decision states, cannot inquire into the wisdom, morality or expediency of policies adopted by the political
departments of government in areas which fall within their authority, except only when such policies pose a clear and present danger
to the life, liberty or property of the individual. This case does not involve such a factual situation.
However, I hasten to make of record that I do not subscribe to gambling in any form. It demeans the human personality, destroys self-
confidence and eviscerates one's self-respect, which in the long run will corrode whatever is left of the Filipino moral character.
Gambling has wrecked and will continue to wreck families and homes; it is an antithesis to individual reliance and reliability as well as
personal industry which are the touchstones of real economic progress and national development.
Gambling is reprehensible whether maintained by government or privatized. The revenues realized by the government out of
"legalized" gambling will, in the long run, be more than offset and negated by the irreparable damage to the people's moral values.
Also, the moral standing of the government in its repeated avowals against "illegal gambling" is fatally flawed and becomes untenable
when it itself engages in the very activity it seeks to eradicate.
One can go through the Court's decision today and mentally replace the activity referred to therein as gambling, which is legal only
because it is authorized by law and run by the government, with the activity known as prostitution. Would prostitution be any less
reprehensible were it to be authorized by law, franchised, and "regulated" by the government, in return for the substantial revenues
it would yield the government to carry out its laudable projects, such as infrastructure and social amelioration? The question, I
believe, answers itself. I submit that the sooner the legislative department outlaws all forms of gambling, as a fundamental state
policy, and the sooner the executive implements such policy, the better it will be for the nation.
We presently have the sweepstakes lotteries; we already have the PAGCOR's gambling casinos; the Filipino people will soon, if plans
do not miscarry, be initiated into an even more sophisticated and encompassing nationwide gambling network known as the "on-line
hi-tech lotto system." To be sure, it is not wealth producing; it is not export oriented. It will draw from existing wealth in the hands of
Filipinos and transfer it into the coffers of the PCSO and its foreign partners at a price of further debasement of the moral standards
of the Filipino people, the bulk of whom are barely subsisting below the poverty line.
1. It is said that petitioners 1 have no locus standi to bring this suit even as they challenge the legality and constitutionality of a
contract of lease between the PCSO, a government-owned corporation and the PGMC, a private corporation with substantial (if not
controlling) foreign composition and content. Such contract of lease contains the terms and conditions under which an "on-line hi-
tech lotto system" will operate in the country.
As the ponente of the extended, unsigned en banc resolution in Valmonte v. PCSO, (G.R. No. 78716 and G.R. No. 79084, 22 September
1987), I would be the last to downgrade the rule, therein reiterated, that in order to maintain a suit challenging the constitutionality
and/or legality of a statute, order or regulation or assailing a particular governmental action as done with grave abuse of discretion or
with lack of jurisdiction, the petitioner must show that he has a clear personal or legal right that would be violated with the
enforcement of the challenged statute, order or regulation or the implementation of the questioned governmental action. But, in my
considered view, this rule maybe (and should be) relaxed when the issue involved or raised in the petition is of such paramount
national interest and importance as to dwarf the above procedural rule into a barren technicality. As a unanimous Court en banc aptly
put it in De Guia vs. COMELEC, G.R. No. 104712, 6 May 1992, 208 SCRA 420.
Before addressing the crux of the controversy, the Court observes that petitioner does not allege that he is running for re-election,
much less, that he is prejudiced by the election, by district, in Parañaque. As such, he does not appear to have locus standi, a standing
in law, a personal or substantial interest. (Sanidad vs. COMELEC, G.R. No. L-4640, October 12, 1976. 73 SCRA 333; Municipality of
Malabang vs. Benito, G.R. No. L-28113, March 28, 1969, 27 SCRA 533) He does not also allege any legal right that has been violated by
respondent. If for this alone, petitioner does not appear to have any cause of action.
However, considering the importance of the issue involved, concerning as it does the political exercise of qualified voters affected by
the apportionment, and petitioner alleging abuse of discretion and violation of the Constitution by respondent, We resolved to brush
aside the question of procedural infirmity, even as We perceive the petition to be one of declaratory relief. We so held similarly
through Mr. Justice Edgardo L. Paras in Osmeña vs. Commission on Elections.
I view the present case as falling within the De Guia case doctrine. For, when the contract of lease in question seeks to establish and
operate a nationwide gambling network with substantial if not controlling foreign participation, then the issue is of paramount
national interest and importance as to justify and warrant a relaxation of the above-mentioned procedural rule on locus standi.
2. The charter of the PCSO — Republic Act No. 1169 as amended by BP No. 42 — insofar as relevant, reads:
Sec. 1. The Philippine Charity Sweepstakes Office. — The Philippine Charity Sweepstakes Office, hereinafter designated the Office,
shall be the principal government agency for raising and providing for funds for health programs, medical assistance and services and
charities of national character, and as such shall have the general powers conferred in section thirteen of Act Numbered One
Thousand Four Hundred Fifty-Nine, as amended, and shall have the authority:
A. To hold and conduct charity sweepstakes races, lotteries and other similar activities, in such frequency and manner, as shall be
determined, and subject to such rules and regulations as shall be promulgated by the Board of Directors.
B. Subject to the approval of the Minister of Human Settlements, to engage in health and welfare-related investments, programs,
projects and activities which may be profit-oriented, by itself or in collaboration, association or joint venture with any person,
association, company or entity, whether domestic or foreign, except for the activities mentioned in the preceding paragraph (A), for
the purpose of providing for permanent and continuing sources of funds for health programs, including the expansion of existing
ones, medical assistance and services, and/or charitable grants: Provided, That such investments will not compete with the private
sector in areas where investments are adequate as may be determined by the National Economic and Development Authority.
It is at once clear from the foregoing legal provisions that, while the PCSO charter allows the PCSO to itself engage in lotteries, it does
not however permit the PCSO to undertake or engage in lotteries in "collaboration, association or joint venture" with others. The
palpable reason for this prohibition is, that PCSO should not and cannot be made a vehicle for an otherwise prohibited foreign or
domestic entity to engage in lotteries (gambling activities) in the Philippines.
The core question then is whether the lease contract between PCSO and PGMC is a device whereby PCSO will engage in lottery in
collaboration, association or joint venture with another, i.e. PGMC. I need not go here into the details and different specific features
of the contract to show that it is a joint venture between PCSO and PGMC. That has been taken care of in the opinion of Mr. Justice
Davide to which I fully subscribe.
On a slightly different plane and, perhaps simplified, I consider the agreement or arrangement between the PCSO and PGMC a joint
venture because each party to the contract contributes its share in the enterprise or project. PGMC contributes its facilities,
equipment and know-how (expertise). PCSO contributes (aside from its charter) the market, directly or through dealers — and this to
me is most important — in the totality or mass of the Filipino gambling elements who will invest in lotto tickets. PGMC will get its
4.9% of gross receipts (with assumption of certain risks in the course of lotto operations); the residue of the whole exercise will go to
PCSO. To any person with a minimum of business know-how, this is a joint venture between PCSO and PGMC, plain and simple.
But assuming ex gratia argumenti that such arrangement between PCSO and PGMC is not a joint venture between the two of them to
install and operate an "on-line hi-tech lotto system" in the country, it can hardly be denied that it is, at the very least, an association
or collaboration between PCSO and PGMC. For one cannot do without the other in the installation, operation and, most importantly,
marketing of the entire enterprise or project in this country.
Indeed, the contract of lease in question is a clear violation of Republic Act No. 1169 as amended by BP No. 42 (the PCSO charter).
Having arrived at the conclusion that the contract of lease in question between the PCSO and PGMC is illegal and, therefore, invalid, I
find it unnecessary to dwell on the other issues raised in the pleadings and arguments of the parties.
I, therefore, vote to give DUE COURSE to the petition and to declare the contract of lease in question between PCSO and PGMC, for
the reasons aforestated, of no force and effect.
MELO, J., dissenting:
I submit that the petition before the Court deserves no less than outright dismissal for the reason that petitioners, as concerned
citizens and as taxpayers and as members of Congress, do not possess the necessary legal standing to assail the validity of the
contract of lease entered into by the Philippine Charity Sweepstakes Office and the Philippine Gaming Management Corporation
relative to the establishment and operation of an "On-line Hi-Tech Lottery System" in the country.
As announced in Lamb vs. Phipps (22 Phil. [1912], 559), "[J]udicial power in its nature, is the power to hear and decide causes pending
between parties who have the right to sue and be sued in the courts of law and equity." Necessarily, this implies that a party must
show a personal stake in the outcome of the controversy or an injury to himself that can be addressed by a favorable decision so as to
warrant his invocation of the court's jurisdiction and to justify the court's remedial powers in his behalf (Warth vs. Seldin, 422 U.S.
490; Guzman vs. Marrero, 180 U.S. 81; McMicken vs. United States, 97 U.S. 204). Here, we have yet to see any of petitioners acquiring
a personal stake in the outcome of the controversy or being placed in a situation whereby injury may be sustained if the contract of
lease in question is implemented. It may be that the contract has somehow evoked public interest which petitioners claim to
represent. But the alleged public interest which they pretend to represent is not only broad and encompassing but also strikingly and
veritably indeterminate that one cannot truly say whether a handful of the public, like herein petitioners, may lay a valid claim of
representation in behalf of the millions of citizens spread all over the land who may have just as many varied reactions relative to the
contract in question.
Any effort to infuse personality on petitioners by considering the present case as a "taxpayer's suit" could not cure the lack of locus
standi on the part of petitioners. As understood in this jurisdiction, a "taxpayer's suit" refers to a case where the act complained of
directly involves the illegal disbursement of public funds derived from taxation (Pascual vs. Secretary of Public Works, 110 Phil. [1960]
331; Maceda vs. Macaraig, 197 SCRA [1991]; Lozada vs. COMELEC, 120 SCRA [1983] 337; Dumlao vs. COMELEC, 95 SCRA [1980] 392;
Gonzales vs. Marcos, 65 SCRA [1975] 624). It cannot be overstressed that no public fund raised by taxation is involved in this case. In
fact, it is even doubtful if the rentals which the PCSO will pay to the lessor for its operation of the lottery system may be regarded as
"public fund". The PCSO is not a revenue- collecting arm of the government. Income or money realized by it from its operations will
not and need not be turned over to the National Treasury. Rather, this will constitute corporate funds which will remain with the
corporation to finance its various activities as authorized in its charter. And if ever some semblance of "public character" may be said
to attach to its earnings, it is simply because PCSO is a government-owned or controlled entity and not a purely private enterprise.
It must be conceded though that a "taxpayer's suit" had been allowed in a number of instances in this jurisdiction. For sure, after the
trial was blazed by Pascual vs. Secretary of Public Works, supra, several more followed. It is to be noted, however, that in those
occasions where this Court allowed such a suit, the case invariably involved either the constitutionality of a statute or the legality of
the disbursement of public funds through the enforcement of what was perceived to be an invalid or unconstitutional statute or
legislation (Pascual, supra; Philippine Constitution Association, Inc. vs. Jimenez, 15 SCRA [1965] 479; Philippine Constitution
Association, Inc. vs. Mathay, 18 SCRA [1966] 300; Tolentino vs. COMELEC, 41 SCRA [1971] 702; Pelaez vs. Auditor General, 15 SCRA
[1965] 569; Iloilo Palay and Corn Planters Association vs. Feliciano, 13 SCRA [1965] 377).
The case before us is not a challenge to the validity of a statute or an attempt to restrain expenditure of public funds pursuant to an
alleged invalid congressional enactment. What petitioners ask us to do is to nullify a simple contract of lease entered into by a
government-owned corporation with a private entity. That contract, as earlier pointed out, does not involve the disbursement of
public funds but of strictly corporate money. If every taxpayer, claiming to have interest in the contract, no matter how remote, could
come to this Court and seek nullification of said contract, the day may come when the activities of government corporate entities will
ground to a standstill on account of nuisance suits filed against them by persons whose supposed interest in the contract is as remote
and as obscure as the interest of any man in the street. The dangers attendant thereto are not hard to discern and this Court must not
allow them to come to pass.
One final observation must be emphasized. When the petition at bench was filed, the Court decided to hear the case on oral
argument on the initial perception that a constitutional issue could be involved. However, it now appears that no question of
constitutional dimension is at stake as indeed the majority barely touches on such an issue, concentrating as it does on its
interpretation of the contract between the Philippine Charity Sweepstakes Office and the Philippine Gaming Management
Corporation.
I, therefore, vote to dismiss the petition.
PUNO, J., dissenting:
At the outset, let me state that my religious faith and family upbringing compel me to regard gambling, regardless of its garb, with
hostile eyes. Such antagonism tempts me to view the case at bench as a struggle between good and evil, a fight between the forces of
light against the forces of darkness. I will not, however, yield to that temptation for we are not judges of the Old Testament type who
were not only arbiters of law but were also high priests of morality.
I will therefore strictly confine the peregrinations of my mind to the legal issues for resolution: (1) whether or not the petitioners have
the Locus standi to file the petition at bench; and (2) assuming their locus standi, whether or not the Contract of Lease between PCSO
and PGMC is null and void considering: (a) section 1 of R.A. No. 1169, as amended by B.P. Blg. 42 (Charter of PCSO) which prohibits
PCSO from holding and conducting lotteries "in collaboration, association or joint venture with any person, association, company or
entity"; (b) Act No. 3836 which requires a congressional franchise before any person or entity can establish and operate a
telecommunication system; (c) section 11, Art. XII of the Constitution, which requires that for a corporation to operate a public utility,
at least 60% of its capital must be owned by Filipino citizens; and (d) R.A. No. 7042, otherwise known as the "Foreign Investments
Act", which includes all forms of gambling in its "negative list."
While the legal issues abound, I deferentially submit that the threshold issue is the locus standi, or standing to sue, of petitioners. The
petition describes petitioner Kilosbayan, Inc., as a non-stock corporation composed of "civic spirited citizens, pastors, priests, nuns,
and lay leaders who are committed to the cause of truth, justice, and national renewal." 1 Petitioners Jovito R. Salonga, Cirilo A. Rigos,
Ernie Camba, Emilio C. Capulong, Jr., Jose Abcede, Christine Tan, Felipe L. Gozon, Rafael G. Fernando, Raoul V. Victorino, Jose
Cunanan, and Quintin S. Doromal joined the petition in their capacity as trustees of Kilosbayan, Inc., and as taxpayers and concerned
citizens. 2 Petitioners Freddie Webb and Wigberto Tañada joined the petition as senators, taxpayers and concerned
citizens. 3 Petitioner Joker P. Arroyo joined the petition as a member of the House of Representative, a taxpayer and a concerned
citizen. 4
With due respect to the majority opinion, I wish to focus on the interstices of locus standi, a concept described by Prof. Paul Freund as
"among the most amorphous in the entire domain of public law." The requirement of standing to sue inheres from the definition of
judicial power. It is not merely a technical rule of procedure which we are at liberty to disregard. Section 1, Article VIII of the
Constitution provides:
xxx xxx xxx
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable
and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government. (Italics supplied)
The phrase "actual controversies involving rights which are legally demandable and enforceable" has acquired a cultivated meaning
given by courts. It spells out the requirements that must be satisfied before one can come to court to litigate a constitutional issue.
Our distinguished colleague, Mr. Justice Isagani A. Cruz, gives a shorthand summary of these requirements when he states that no
constitutional question will be heard and decided by courts unless there is a showing of the following: . . . (1) there must be an actual
case or controversy; (2) the question of constitutionality must be raised by the proper party; (3) the constitutional question must be
raised at the earliest possible opportunity; and (4) the decision of the constitutional question must be necessary to the determination
of the case itself. 5
The complexion of the rule on locus standi has been undergoing a change. Mr. Justice Cruz has observed the continuing relaxation of
the rule on
standing, 6 thus:
xxx xxx xxx
A proper party is one who has sustained or is in immediate danger of sustaining an injury as a result of the act complained of. Until
and unless such actual or potential injury is established, the complainant cannot have the legal personality to raise the constitutional
question.
In Tileson v. Ullmann, a physician questioned the constitutionality of a law prohibiting the use of contraceptives, upon the ground that
it might prove dangerous to the life or health of some of his patients whose physical condition would not enable them to bear the
rigors of childbirth. The court dismissed the challenge, holding that the patients of the physician and not the physician himself were
the proper parties.
In Cuyegkeng v. Cruz, the petitioner challenged in a quo warranto proceeding the title of the respondent who, he claimed, had been
appointed to the board of medical examiners in violation of the provisions of the Medical Act of 1959. The Supreme Court dismissed
the petition, holding that Cuyegkeng had not made a claim to the position held by Cruz and therefore could not be regarded as a
proper party who had sustained an injury as a result of the questioned act.
In People v. Vera, it was held that the Government of the Philippines was a proper party to challenge the constitutionality of the
Probation Act because, more than any other, it was the government itself that should be concerned over the validity of its own laws.
In Ex Parte Levitt, the petitioner, an American taxpayer and member of the bar, filed a motion for leave to question the qualifications
of Justice Black who, he averred, had been appointed to the U.S. Supreme Court in violation of the Constitution of the United States.
The Court dismissed the petition, holding that Levitt was not a proper party since he was not claiming the position held by Justice
Black.
The rule before was that an ordinary taxpayer did not have the proper party personality to question the legality of an appropriation
law since his interest in the sum appropriated was not substantial enough. Thus, in Custodio v. Senate President, a challenge by an
ordinary taxpayer to the validity of a law granting back pay to government officials, including members of Congress, during the period
corresponding to the Japanese Occupation was dismissed as having been commenced by one who was not a proper party.
Since the first Emergency Powers Cases, however, the rule has been changed and it is now permissible for an ordinary taxpayer, or a
group of taxpayers, to raise the question of the validity of an appropriation law. As the Supreme Court then put it. "The
transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we
must, technicalities of procedure."
In Tolentino v. Commission on Elections, it was held that a senator had the proper party personality to seek the prohibition of a
plebiscite for the ratification of a proposed constitutional amendment. In PHILCONSA v. Jimenez, an organization of taxpayers and
citizens was held to be a proper party to question the constitutionality of a law providing for special retirement benefits for members
of the legislature.
In Sanidad v. Commission on Elections, the Supreme Court upheld the petitioners as proper parties, thus —
As a preliminary resolution, We rule that the petitioners in L-44640 (Pablo C. Sanidad and Pablito V. Sanidad) possess locus standi to
challenge the constitutional premise of Presidential Decree Nos. 991, 1031, and 1033. It is now an ancient rule that the valid source of
a statute — Presidential Decrees are of such nature — may be contested by one who will sustain a direct injury as a result of its
enforcement. At the instance of taxpayers, laws providing for the disbursement of public funds may be enjoined, upon the theory that
the expenditure of public funds by an officer of the State for the purpose of executing an unconstitutional act constitutes a
misapplication of such funds. The breadth of Presidential Decree No. 991 carries an appropriation of Five Million Pesos for the
effective implementation of its purposes. Presidential Decree No. 1031 appropriates the sum of Eight Million Pesos to carry out its
provisions. The interest of the aforenamed petitioners as taxpayers in the lawful expenditure of these amounts of public money
sufficiently clothes them with that personality to litigate the validity of the Decrees appropriating said funds. Moreover, as regard
taxpayer's suits, this Court enjoys that open discretion to entertain the same or not. For the present case, We deem it sound to
exercise that discretion affirmatively so that the authority upon which the disputed Decrees are predicated may be inquired into.
In Lozada v. Commission on Elections, however, the petitioners were held without legal standing to demand the filling of vacancies in
the legislature because they had only "a generalized interest' shared with the rest of the citizenry."
Last July 30, 1993, we further relaxed the rule on standing in Oposa, et al. v. Hon. Fulgencio S. Factoran, Jr., 7 where we recognized
the locus standi of minors representing themselves as well as generations unborn to protect their constitutional right to a balanced
and healthful ecology.
I am perfectly at peace with the drift of our decisions liberalizing the rule on locus standi. The once stubborn disinclination to decide
constitutional issues due to lack of locus standi is incompatible with the expansion of judicial power mandated in section 1 of Article
VIII of the Constitution, i.e., "to determine whether or not there has been a grave abuse of discretion, amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the government." As we held thru the ground breaking ponencia of Mr.
Justice Cruz in Daza v. Singson, 8 this provision no longer precludes the Court from resolving political questions in proper cases. But
even perusing this provision as a constitutional warrant for the court to enter the once forbidden political thicket, it is clear that the
requirement of locus standi has not been jettisoned by the Constitution for it still commands courts in no uncertain terms to
settle only "actual controversies involving rights which are legally demandable and enforceable." Stated otherwise, courts are neither
free to decide all kinds of cases dumped into their laps nor are they free to open their doors to all parties or entities claiming a
grievance. The rationale for this constitutional requirement of locus standi is by no means trifle. It is intended "to assure a vigorous
adversary presentation of the case, and, perhaps more importantly to warrant the judiciary's overruling the determination of a
coordinate, democratically elected organ of government." 9 It thus goes to the very essence of representative democracies. As Mr.
Justice Powell carefully explained in U.S. v.
Richardson, 10 viz:
Relaxation of standing requirements is directly related to the expansion of judicial power. It seems to me inescapable that allowing
unrestricted taxpayer or citizen standing would significantly alter the allocation of power at the national level, with a shift away from
a democratic form of government. I also believe that repeated and essentially head-on confrontations between the life-tenured
branch and the representative branches of government will not, in the long run, be beneficial to either. The public confidence
essential to the former and the vitality critical to the latter may well erode if we do not exercise self- restraint in the utilization of our
power to negative the actions of the other branches. We should be ever mindful of the contradictions that would arise if a democracy
were to permit at large oversight of the elected branches of government by a non-representative, and in large measure insulated,
judicial branch. Moreover, the argument that the Court should allow unrestricted taxpayer or citizen standing underestimates the
ability of the representative branches of the Federal Government to respond to the citizen pressure that has been responsible in large
measure for the current drift toward expanded standing. Indeed, taxpayer or citizen advocacy, given its potentially broad base, is
precisely the type of leverage that in a democracy ought to be employed against the branches that were intended to be responsive to
public attitudes about the appropriate operation of government. "We must as judges recall that, as Mr. Justice Holmes wisely
observed, the other branches of Government are ultimate guardians of the liberties and welfare of the people in quite as great a
degree as the courts."
Unrestrained standing in federal taxpayer or citizen suits would create a remarkably illogical system of judicial supervision of the
coordinate branches of the Federal Government. Randolph's proposed Council of Revision, which was repeatedly rejected by the
Framers, at least had the virtue of being systematic; every law passed by the legislature automatically would have been previewed by
the judiciary before the law could take effect. On the other hand, since the judiciary cannot select the taxpayers or citizens who bring
suit or the nature of the suits, the allowance of public actions would produce uneven and sporadic review, the quality of which would
be influenced by the resources and skill of the particular plaintiff. And issues would be presented in abstract form, contrary to the
Court's recognition that "judicial review is effective largely because it is not available simply at the behest of a partisan faction, but is
exercised only to remedy a particular, concrete injury." Sierra Club v. Morton, 405 U.S. 727, 740-741, n. 16 (1972).
A lesser but not insignificant reason for screening the standing of persons who desire to litigate constitutional issues is economic in
character. Given the sparseness of our resources, the capacity of courts to render efficient judicial service to our people is severely
limited. For courts to indiscriminately open their doors to all types of suits and suitors is for them to unduly overburden their dockets,
and ultimately render themselves ineffective dispensers of justice. To be sure, this is an evil that clearly confronts our judiciary today.
Prescinding from these premises, and with great reluctance, I am not prepared to concede the standing to sue of petitioners. On a
personal level, they have not shown that elemental injury in fact which will endow them with a standing to sue. It must be stressed
that petitioners are in the main, seeking the nullity not of a law but of a Contract of Lease. Not one of the petitioners is a party to the
Contract of Lease executed between PCSO and PGMC. None of the petitioners participated in the bidding, and hence they are not
losing bidders. They are complete strangers to the contract. They stand neither to gain nor to lose economically by its enforcement. It
seems to me unusual that an unaffected third party to a contract could be allowed to question its validity. Petitioner Kilosbayan
cannot justify this officious interference on the ground of its commitment to "truth, justice and national renewal." Such commitment
to truth, justice and national renewal, however noble it may be, cannot give Kilosbayan a roving commission to check the validity of
contracts entered into by the government and its agencies. Kilosbayan is not a private commission on audit.
Neither can I perceive how the other petitioners can be personally injured by the Contract of Lease between PCSO and PGMC even if
petitioner Salonga assails as unmitigated fraud the statistical probability of winning the lotto as he compared it to the probability of
being struck twice by lightning. The reason is obvious: none of the petitioners will be exposed to this alleged fraud for all of them
profess to abjure playing the lotto. It is self-evident that lotto cannot physically or spiritually injure him who does not indulge in it.
Petitioners also contend they have locus standi as taxpayers. But the case at bench does not involve any expenditure of public money
on the part of PCSO. In fact, paragraph 2 of the Contract of Lease provides that it is PGMC that shall build, furnish, and maintain at its
own expense and risk the facilities for the On-Line Lottery System of PCSO and shall bear all maintenance and other costs. Thus, PGMC
alleged it has already spent P245M in equipment and fixtures and would be investing close to P1 billion to supply adequately the
technology and other requirements of PCSO. 11 If no tax money is being illegally deflected in the Contract of Lease between PCSO and
PGMC, petitioners have no standing to impugn its validity as taxpayers. Our ruling in Dumlao v. Comelec, 12 settled this issue well
enough, viz:
However, the statutory provisions questioned in this case, namely, sec. 7, BP Blg. 51, and sections 4, 1, and 5 BP Blg. 52, do not
directly involve the disbursement of public funds. While, concededly, the elections to be held involve the expenditure of public
moneys, nowhere in their Petition do said petitioners allege that their tax money is "being extracted and spent in violation of specific
constitutional protections against abuses of legislative power" (Flast v. Cohen, 392 U.S. 83 [1960]), or that there is a misapplication of
such funds by respondent COMELEC (see Pascual vs. Secretary of Public Works, 110 Phil. 331 [1960]), or that public money is being
deflected to any improper purpose. Neither do petitioners seek to restrain respondent from wasting public funds through the
enforcement of an invalid or unconstitutional law. (Philippine Constitution Association vs. Mathay, 18 SCRA 300 [1966]),
citing Philippine Constitution Association vs. Gimenez, 15 SCRA 479 [1965]). Besides, the institution of a taxpayer's suit, per se, is no
assurance of judicial review. As held by this Court in Yan vs. Macapagal (43 SCRA 677 [1972]), speaking through our present Chief
Justice, this Court is vested with discretion as to whether or not a taxpayer's suit should be entertained.
Next, petitioners plead their standing as "concerned citizens." As citizens, petitioners are pleading that they be allowed to advocate
the constitutional rights of other persons who are not before the court and whose protection is allegedly their concern. A
citizen qua citizen suit urges a greater relaxation of the rule on locus standi. I feel no aversion to the further relaxation of the rule on
standing to accommodate what in other jurisdictions is known as an assertion of jus tertii in constitutional litigation provided the
claimant can demonstrate: (1) an injury in fact to himself, and (2) the need to prevent the erosion of a preferred constitutional right of
a third person. As stressed before, the first requirement of injury in fact cannot be abandoned for it is an essential element for the
exercise of judicial power. Again, as stressed by Mr. Justice Powell, viz: 13
The revolution in standing doctrine that has occurred, particularly in the 12 years since Baker v. Carr, supra, has not meant, however,
that standing barriers have disappeared altogether. As the Court noted in Sierra Club, "broadening the categories of injury that may
be alleged in support of standing is a different matter from abandoning the requirement that the party seeking review must himself
have suffered an injury." 405 U.S., at 738 . . . Indeed, despite the diminution of standing requirements in the last decade, the Court
has not broken with the traditional requirement that, in the absence of a specific statutory grant of the right of review, a plaintiff
must allege some particularized injury that sets him apart from the man on the street.
I recognize that the Court's allegiance to a requirement of particularized injury has on occasion required a reading of the concept that
threatens to transform it beyond recognition. E.G., Baker v. Carr, supra; Flast v. Cohen, supra. But despite such occasional digressions,
the requirement remains, and I think it does so for the reasons outlined above. In recognition of those considerations, we should
refuse to go the last mile towards abolition of standing requirements that is implicit in broadening the "precarious opening" for
federal taxpayers created by Flast, see 392 U.S., at 116 (Mr. Justice Fortas, concurring) or in allowing a citizen qua citizen to invoke the
power of the federal courts to negative unconstitutional acts of the Federal Government.
In sum, I believe we should limit the expansion of federal taxpayer and citizen standing in the absence of specific statutory
authorization to an outer boundary drawn by the results in Flast and Baker v. Carr. I think we should face up to the fact that all such
suits are an effort "to employ a federal court as a forum in which to air . . . generalized grievances about the conduct of government
or the allocation of power in the Federal System." Flast v. Cohen, 392 U.S., at 106. The Court should explicitly reaffirm traditional
prudential barriers against such public actions. My reasons for this view are rooted in respect for democratic processes and in the
conviction that "[t]he powers of the federal judiciary will be adequate for the great burdens placed upon them only if they are
employed prudently, with recognition of the strengths as well as the hazards that go with our kind of representative government." Id.,
at 131
The second requirement recognizes society's right in the protection of certain preferred rights in the Constitution even when the
rightholders are not before the court. The theory is that their dilution has a substantial fall out detriment to the rights of others,
hence the latter can vindicate them.
In the case at bench, it is difficult to see how petitioners can satisfy these two requirements to maintain a jus tertii claim. They claim
violation of two constitutional provisions, to wit:
Section 1, Article XIII. — The Congress shall give highest priority to the enactment of measures that protect and enhance the right of
all the people to human dignity, reduce social, economic, and political inequalities, and remove cultural inequities by equitably
diffusing wealth and political power for the common good.
To this end, the State shall regulate the acquisition, ownership, use, and disposition of property and its increments.
and
Section 11, Article XII. - No franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least
sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate, or authorizations be exclusive in
character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it
shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage
equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such
corporation or association must be citizen of the Philippines.
Section 1, Article XIII of the Constitution cannot be the matrix of petitioners' jus tertii claim for it expresses no more than a policy
direction to the legislative in the discharge of its ordained duty — to give highest priority to the enactment of measures that protect
and enhance the right of all the people to human dignity, reduce social, economic, and political inequalities and remove cultural
inequities by equitably diffusing wealth and political power for the common good. Whether the act of the legislature in amending the
charter of PCSO by giving it the authority to conduct lotto and whether the Contract of Lease entered into between PCSO and PGMC
are incongruent to the policy direction of this constitutional provision is a highly debatable proposition and can be endlessly argued.
Respondents steadfastly insist that the operation of lotto will increase the revenue base of PCSO and enable government to provide a
wider range of social services to the people. They also allege that the operation of high-tech lotto will eradicate illegal jueteng.
Petitioners are scandalized by this submission. They dismiss gambling as evil per se and castigate government for attempting to
correct a wrong by committing another wrong. In any event, the proper forum for this debate, however cerebrally exciting it may be,
is not this court but congress. So we held in PCSO v. Inopiquez, to wit: 14
By bringing their suit in the lower court, the private respondents in G.R. No. 79084 do not question the power of PCSO to conduct the
Instant Sweepstakes game. Rather, they assail the wisdom of embarking upon this project because of their fear of the "pernicious
repercussions" which may be brought about by the Instant Sweepstakes Game which they have labelled as "the worst form of
gambling" which thus "affects the moral values" of the people.
The Court, as held in several cases, does not pass upon questions of wisdom, justice, or expediency of legislation and executive acts. It
is not the province of the courts to supervise legislation or executive orders as to keep them within the bounds of propriety, moral
values and common sense. That is primarily and even exclusively a concern of the political departments of the government; otherwise,
there will be a violation of the principle of separation of powers. (Italics supplied)
I am not also convinced that petitioners can justify their locus standi to advocate the rights of hypothetical third parties not before the
court by invoking the need to keep inviolate section 11, Article XII of the Constitution which imposes a nationality requirement on
operators of a public utility. For even assuming arguendo that PGMC is a public utility, still, the records do not at the moment bear
out the claim of petitioners that PGMC is a foreign owned and controlled corporation. This factual issue remains unsettled and is still
the subject of litigation by the parties in the Securities and Exchange Commission. We are not at liberty to anticipate the verdict on
this contested factual issue. But over and above this consideration, I respectfully submit that this constitutional provision does not
confer on third parties any right of a preferred status comparable to the Bill of Rights whose dilution will justify petitioners to
vindicate them in behalf of its rightholders. The legal right of hypothetical third parties they profess to advocate is to my mind too
impersonal, too unsubstantial, too indirect, too amorphous to justify their access to this Court and the further lowering of the
constitutional barrier of locus standi.
Again, with regret, I do not agree that the distinguished status of some of the petitioners as lawmakers gives them the
appropriate locus standi. I cannot perceive how their constitutional rights and prerogatives as legislators can be adversely affected by
the contract in question. Their right to enact laws for the general conduct of our society remains unimpaired and
undiminished. 15 Their status as legislators, notwithstanding, they have to demonstrate that the said contract has caused them to
suffer a personal, direct, and substantial injury in fact. They cannot simply advance a generic grievance in common with the people in
general.
I am not unaware of our ruling in De Guia v. Comelec, 16 viz:
Before addressing the crux of the controversy, the Court observes that petitioner does not allege that he is running for reelection,
much less, that he is prejudiced by the election, by district, in Parañaque. As such, he does not appear to have locus standi, a standing
in law, a personal or substantial interest. (Sanidad vs. COMELEC, G.R. No. L-44640, October 12, 1976, 73 SCRA 333; Municipality of
Malabang vs. Benito, G.R. No. L-28113, March 28, 1969, 27 SCRA 533). He does not also allege any legal right that has been violated
by respondent. If for this alone, petitioner does not appear to have any cause of action.
However, considering the importance of the issue involved, concerning as it does the political exercise of qualified voters affected by
the apportionment, and petitioner alleging abuse of discretion and violation of the Constitution by respondent, We resolved to brush
aside the question of procedural infirmity, even as We perceive the petition to be one of declaratory relief. We so held similarly
through Mr. Justice Edgardo L. Paras in Osmena vs. Commission on Elections.
It is my respectful submission, however, that we should re-examine de Guia. It treated the rule on locus standi as a mere procedural
rule. It is not a plain procedural rule but a constitutional requirement derived from section 1, Article VIII of the Constitution which
mandates courts of justice to settle only "actual controversies involving rights which are legally demandable and enforceable." The
phrase has been construed since time immemorial to mean that a party in a constitutional litigation must demonstrate a standing to
sue. By downgrading the requirement on locus standi as a procedural rule which can be discarded in the name of public interest, we
are in effect amending the Constitution by judicial fiat.
De Guia would also brush aside the rule on locus standi if a case raises an important issue. In this regard, I join the learned
observation of Mr. Justice Feliciano: "that it is not enough for the Court simply to invoke 'public interest' or even 'paramount
considerations of national interest,' and to say that the specific requirements of such public interest can only be ascertained on a
'case to case' basis. For one thing, such an approach is not intellectually satisfying. For another, such an answer appears to come too
close to saying that locus standi exists whenever at least a majority of the Members of this Court participating in a case feel that an
appropriate case for judicial intervention has arisen."
I also submit that de Guia failed to perceive that the rule on locus standi has little to do with the issue posed in a case, however,
important it may be. As well pointed out in Flast v. Cohen: 17
The fundamental aspect of standing is that it focuses on the party seeking to get his complaint before a federal court and not on the
issues he wishes to have adjudicated. The "gist of the question of standing" is whether the party seeking relief has "alleged such a
personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues
upon which the court so largely depends for illumination of difficult constitutional questions." Baker v. Carr, 369 U.S. 186, 204 (1962).
In other words, when standing is placed in issue in a case, the question is whether the person whose standing is challenged is a proper
party to request an adjudication of a particular issue and not whether the issue itself is justiciable. Thus, a party may have standing in
a particular case, but the federal court may nevertheless decline to pass on the merits of the case because, for example, it presents a
political question. A proper party is demanded so that federal courts will not be asked to decide "ill-defined controversies over
constitutional issues," United public Workers v. Mitchell, 330 U.S. 75, 90 (1947), or a case which is of "a hypothetical or abstract
character," Aetna Life Insurance Co. v. Haworth, 300 U.S. 227, 240 (1937).
It is plain to see that in de Guia, the court took an unorthodox posture, to say the least. It held there was no proper party before it,
and yet it resolved the issues posed by the petition. As there was no proper party before the court, its decision is vulnerable to be
criticized as an advisory opinion.
With due respect, the majority decision appears to have set a dangerous precedent by unduly trivializing the rule on locus standi. By
its decision, the majority has entertained a public action to annul a private contract. In so doing, the majority may have given sixty
(60) million Filipinos the standing to assail contracts of government and its agencies. This is an invitation for chaos to visit our law on
contract, and certainly will not sit well with prospective foreign investors. Indeed, it is difficult to tread the path of the majority on this
significant issue. The majority granted locus standi to petitioners because of lack of any other party with more direct and specific
interest. But one has standing because he has standing on his own and standing cannot be acquired because others with standing
have refused to come to court. The thesis is also floated that petitioners have standing as they can be considered taxpayers with right
to file derivative suit like a stockholder's derivative suit in private corporations. The fact, however, is that PCSO is not a private but a
quasi-public corporation. Our law on private corporation categorically sanctions stockholder's derivative suit. In contrast, our law on
public corporation does not recognize this so-called taxpayer's derivative suit. Hence, the idea of a taxpayer's derivative suit, while
alluring, has no legal warrant.
Our brethren in the majority have also taken the unprecedented step of striking down a contrast at the importunings of strangers
thereto, but without justifying the interposition of judicial power on any felt need to prevent violation of an important constitutional
provision. The contract in question was voided on the sole ground that it violated an ordinary statute, section 1 of R.A. 1169, as
amended by B.P. Blg. 42. If there is no provision of the Constitution that is involved in the case at bench, it boggles the mind how the
majority can invoke considerations of national interest to justify its abandonment of the rule on locus standi. The volume of noise
created by the case cannot magically convert it to a case of paramount national importance. By its ruling, the majority has pushed the
Court in unchartered water bereft of any compass, and it may have foisted the false hope that it is the repository of all remedies.
If I pay an unwavering reverence to the rule of locus standi, it is because I consider it as a touchstone in maintaining the proper
balance of power among the three branches of our government. The survival of our democracy rests in a large measure on our ability
to maintain this delicate equipoise of powers. For this reason, I look at judicial review from a distinct prism. I see it both as a power
and a duty. It is a power because it enables the judiciary to check excesses of the Executive and the Legislative. But, it is also a duty
because its requirement of locus standi, among others, Executive and the Legislative. But, it is also a duty because its requirement
of locus standi, among others, keeps the judiciary from overreaching the powers of the other branches of government. By balancing
this duality, we are able to breathe life to the principle of separation of powers and prevent tyranny. To be sure, it is our eternal
concern to prevent tyranny but that includes tyranny by ourselves. The Constitution did not install a government by the judiciary, nay,
not a government by the unelected. In offering this submission, I reject the sublimal fear that an unyielding insistence on the rule
on locus standi will weaken the judiciary vis-a-vis the other branches of government. The hindsight of history ought to tell us that it is
not power per se that strengthens. Power unused is preferable than power misused. We contribute to constitutionalism both by the
use of our power to decide and its non use. As well said, the cases we decide are as significant as the cases we do not decide. Real
power belongs to him who has power over power.
IN VIEW WHEREOF, and strictly on the ground of lack of locus standi on the part of petitioners, I vote to DENY the petition.
VITUG, J., dissenting:
Judicial power encompasses both an authority and duty to resolve "actual controversies involving rights which are legally demandable
and enforceable" (Article VIII, Section 1, 1987 Constitution). As early as the case of Lamb vs. Phipps, 1 this Court ruled: "Judicial power,
in its nature, is the power to hear and decide causes pending between parties who have the right to sue in the courts of law and
equity." 2 An essential part of, and corollary to, this principle is the locus standi of a party litigant, referring to one who is directly
affected by, and whose interest is immediate and substantial in, the controversy. The rule requires that a party must show a personal
stake in the outcome of the case or an injury to himself that can be redressed by a favorable decision so as to warrant his invocation
of the court's jurisdiction and to justify the exercise of the court's remedial powers in his behalf. 3 If it were otherwise, the exercise of
that power can easily become too unwieldy by its sheer magnitude and scope to a point that may, in no small degree, adversely affect
its intended essentiality, stability and consequentiality.
Locus standi, nevertheless, admits of the so-called "taxpayer's suit." Taxpayer's suits are actions or proceedings initiated by one or
more taxpayers in their own behalf or, conjunctively, in representation of others similarly situated for the purpose of declaring illegal
or unauthorized certain acts of public officials which are claimed to be injurious to their common interests as such taxpayers (Cf. 71
Am Jur 2d., 179-180). The principle is predicated upon the theory that taxpayers are, in equity, the cestui que trust of tax funds, and
any illegal diminution thereof by public officials constitutes a breach of trust even as it may result in an increased burden on taxpayers
(Haddock vs. Board of Public Education, 86 A 2d 157; Henderson vs. McCormick, 17 ALR 2d 470).
Justice Brandeis of the United States Supreme Court, in his concurring opinion in Ashwander vs. Tennessee Valley Authority (297 U.S.
288), said:
. . . . The Court will not pass upon the validity of a statute upon complaint of one who fails to show that he is injured by its
operation. Tyler v. The Judges, 179 U.S. 405; Hendrick v. Maryland, 234 U.S. 610, 621. Among the many applications of this rule, none
is more striking than the denial of the right of challenge to one who lacks a personal or property right. Thus, the challenge by a public
official interested only in the performance of his official duty will not be entertained. Columbus & Greenville Ry. v. Miller, 283 U.S. 96,
99-100. In Fairchild v. Hughes, 258 U.S. 126, the Court affirmed the dismissal of a suit brought by a citizen who sought to have the
Nineteenth Amendment declared unconstitutional. In Massachusetts v. Mellon, 262 U.S. 447, the challenge of the federal Maternity
Act was not entertained although made by the Commonwealth on behalf of all its citizens."
Justice Brandeis' view, shared by Justice Frankfurter in Joint Anti-Fascist Refugee Commission vs. McGrath (351 U.S. 123), was
adopted by the U.S. Supreme Court in Flast vs. Cohen (392 U.S. 83) which held that it is only when a litigant is able to show such a
personal stake in the controversy as to assure a concrete adverseness in the issues submitted that legal standing can attach.
A "taxpayer's suit," enough to confer locus standi to a party, we have held before, is understood to be a case where the act
complained of directly involves the illegal disbursement of public funds derived from taxation.4 It is not enough that the dispute
concerns public funds. A contrary rule could easily lead to a limitless application of the term "taxpayer's suit," already by itself a broad
concept, since a questioned act of government would almost so invariably entail, as a practical matter, a financial burden of some
kind.
To be sure, serious doubts have even been raised on the propriety and feasibility of unqualifiedly recognizing the "taxpayer's suit" as
an exception from the standard rule of requiring a party who invokes the exercise of judicial power to have a real and personal
interest or a direct injury in the outcome of a controversy. This Court has heretofore spoken on the matter, at times even venturing
beyond the usual understanding of its applicability in the name of national or public interest. It is remarkable, nevertheless, that the
accepted connotation of locus standi has still managed to be the rule, sanctioning, by way of exception, the so-called "taxpayer's suit"
which courts accept on valid and compelling reasons.
A provision which has been introduced by the 1987 Constitution is a definition, for the first time in our fundamental law, of the term
"judicial power," as such authority and duty of courts of justice "to settle actual controversies involving rights which are legally
demandable and enforceable and to determine whether or not there has been a grave abuse of discretion, amounting to lack or
excess of jurisdiction, on the part of any branch or instrumentality of the Government" (Article VIII, Section 1, Constitution). I take it
that the provision has not been intended to unduly mutate, let alone to disregard, the long established rules on locus standi. Neither
has it been meant, I most respectfully submit, to do away with the principle of separation of powers and its essential incidents such as
by, in effect, conferring omnipotence on, or allowing an intrusion by, the courts in respect to purely political decisions, the exercise of
which is explicitly vested elsewhere, and subordinate, to that of their own, the will of either the Legislative Department or the
Executive Department — both co- equal, independent and coordinate branches, along with the Judiciary, in our system of
government. Again, if it were otherwise, there indeed would be truth to the charge, in the words of some constitutionalists, that
"judicial tyranny" has been institutionalized by the 1987 Constitution, an apprehension which should, I submit, rather be held far from
truth and reality.
In sum, while any act of government, be it executive in nature or legislative in character, may be struck down and declared a nullity
either because it contravenes an express provision of the Constitution or because it is perceived and found to be attended by or the
result of grave abuse of discretion, amounting to lack or excess of jurisdiction, that issue, however, must first be raised in a proper
judicial controversy. The Court's authority to look into and grant relief in such cases would necessitate locus standi on the part of
party litigants. This requirement, in my considered view, is not merely procedural or technical but goes into the essence of jurisdiction
and the competence of courts to take cognizance of justiciable disputes.
In Bugnay Construction and Development Corporation vs. Laron, 5 this Court ruled:
. . . . Considering the importance to the public of a suit assailing the constitutionality of a tax law, and in keeping with the Court's duty,
specially explicated in the 1987 Constitution, to determine whether or not the other branches of the Government have kept
themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the
Supreme Court may brush aside technicalities of procedure and take cognizance of the suit. (Citing Kapatiran vs. Tan, G.R. No. 81311,
June 30, 1988.)
However, for the above rule to apply, it is exigent that the taxpayer-plaintiff sufficiently show that he would be benefited or injured
by the judgment or entitled to the avails of the suit as a real party in interest. (Citing Estate of George Litton vs. Mendoza, G.R. No.
49120, June 30, 1988.) Before he can invoke the power of judicial review, he must specifically prove that he has sufficient interest in
preventing the illegal expenditure of money raised by taxation (citing 11 Am. Jur. 761; Dumlao, et al. vs. Commission on Elections, 95
SCRA 392) and that he will sustain a direct injury as a result of the enforcement of the questioned statute or contract. (Citing Sanidad,
et al. vs. Commission on Elections, et al., 73 SCRA 333.) It is not sufficient that he has merely a general interest common to all
members of the public. (Citing Ex Parte Levitt, 302 U.S. 633, cited in 15 SCRA 497, Annotation.)
As so well pointed out by Mr. Justice Camilo D. Quiason during the Court's deliberations, "due respect and proper regard for the rule
on locus standi would preclude the rendition of advisory opinions and other forms of pronouncement on abstract issues, avoid an
undue interference on matters which are not justiciable in nature and spare the Court from getting itself involved in political
imbroglio."
The words of Senate President Edgardo J. Angara, carry wisdom; we quote:
The powers of the political branches of our government over economic policies is rather clear: the Congress is to set in broad but
definite strokes the legal framework and structures for economic development, while the Executive provides the implementing details
for realizing the economic ends identified by Congress and executes the same.
xxx xxx xxx
If each economic decision made by the political branches of government, particularly by the executive, are fully open to re-
examination by the judicial branch, then very little, if any, reliance can be placed by private economic actors on those decisions.
Investors would always have to factor in possible costs arising from judicially-determined changes affecting their immediate business,
notwithstanding assurances by executive authorities.
Judicial decisions are, in addition, inflexible and can never substitute for sound decision-making at the level of those who are assigned
to execute the laws of the land. Since judicial power cannot be exercised unless an actual controversy is brought before the courts for
resolution, decisions cannot be properly modified unless another appropriate controversy arises." (Sen. Edgardo J. Angara, "The
Supreme Court in Economic Policy Making," Policy Review — A Quarterly Journal of Policy Studies, Vol. 1, No. 1, January-March 1994,
published by the Senate Policy Studies Group, pp. 2-3.)
A further set-back in entertaining the petition is that it unfortunately likewise strikes at factual issues. The allegations to the effect
that irregularities have been committed in the processing and evaluation of the bids to favor respondent PGMC; that the Malacañang
Special Review Committee did not verify warranties embodied in the contract; that the operation of telecommunication facilities is
indispensable in the operation of the lottery system; the involvement of multi-national corporations in the operation of the on-line
"hi-tech" lottery system, and the like, require the submission of evidence. This Court is not a trier of facts, and it cannot, at this time,
resolve the above issues. Just recently, the Court has noted petitioners' manifestation of its petition with the Securities and Exchange
Commission "for the nullification of the General Information Sheets of PGMC" in respect particularly to the nationality holdings in the
corporation. The doctrine of primary jurisdiction would not justify a disregard of the jurisdiction of, nor would it permit us to now
preempt, said Commission on the matter.
Petitioners strongly assert, in an attempt to get the Court's concurrence in accepting the petition, that since lottery is a game of
chance, the "lotto" system would itself be a "crime against morals" defined by Articles 195-199 6 of the Revised Penal Code.
Being immoral and a criminal offense under the Revised Penal Code, petitioners contend, any special law authorizing gambling must,
by all canons of statutory constructions, be interpreted strictly against the grantee. Citing previous decisions of this Court, they
maintain that lottery is gambling, pure and simple, 7 and that this Court has consistently condemned the immorality and illegality of
gambling to be a "national offense and not a minor transgression;" 8 "that it is a social scourge which must be stamped out;" 9 and,
"that it is pernicious to the body politic and detrimental to the nation and its citizens."10
I most certainly will not renounce this Court's above concerns. Nevertheless, the Court must recognize the limitations of its own
authority. Courts neither legislate nor ignore legal mandates. Republic Act No. 1169, as amended, explicitly gives public respondent
PCSO the authority and power "to hold and conduct sweepstakes races, lotteries, and other similar activities." In addition, it is
authorized:
c. To undertake any other activity that will enhance its funds generation, operations and funds management capabilities, subject to
the same limitations provided for in the preceding paragraph.
It shall have a Board of Directors, hereinafter designated the Board, composed of five members who shall be appointed, and whose
compensation and term of office shall be fixed, by the President.
xxx xxx xxx
Sec.9. Powers and functions of the Board of Directors. — The Board of Directors of the Office shall have the following powers and
functions.
(a) To adopt or amend such rules and regulations to implement the provisions of this Act.
xxx xxx xxx
(d) To promulgate rules and regulations for the operation of the Office and to do such act or acts as may be necessary for the
attainment of its purposes and objectives. (Emphasis supplied).
In People vs. Dionisio, 11 cited by the petitioners themselves, we remarked: "What evils should be corrected as pernicious to the body
politic, and how correction should be done, is a matter primarily addressed to the discretion of the legislative department, not of the
courts . . . ." In Valmonte vs. PCSO, 12 we also said:
The Court, as held in several cases, does not pass upon questions of wisdom, justice or expediency of legislation and executive acts. It
is not the province of the courts to supervise legislation or executive orders as to keep them within the bounds of propriety, moral
values and common sense. That is primarily and even exclusively a concern of the political departments of the government;
otherwise, there will be a violation of the principle of separation of powers.
The constraints on judicial power are clear. I feel, the Court must thus beg off, albeit not without reluctance, from giving due course
to the instant petition.
Accordingly, I vote for the dismissal of the petition.
KAPUNAN, J., dissenting:
I regret that I am unable to join my colleagues in the majority in spite of my own personal distaste for gambling and other gaming
operations. Such considerations aside, I feel there are compelling reasons why the instant petition should be dismissed. I shall
forthwith state the reasons why.
Petitioners anchor their principal objections against the contract entered into between the Philippine Charity Sweepstakes Office
(PCSO) and the PGMC on the ground that the contract entered into by the PCSO with the PGMC violates the PCSO Charter (R.A. No.
1169 as amended by B.P. Blg 427, specifically section 1 thereof which bars the said body from holding conducting lotteries "in
collaboration, association or joint venture with any person association, company or entity."). However, a perusal of the petition
reveals that the compelling reasons behind it, while based on apparently legal questions involving the contract between the PCSO and
the PGMC, are prompted by the petitioners' moral objections against the whole idea of gambling operations operated by the
government through the PCSO. The whole point of the petition, in essence, is a fight between good and evil, between the morality or
amorality of lottery operations conducted on a wide scale involving millions of individuals and affecting millions of lives. Their media
of opposition are the above stated defects in the said contract which they assail to be fatally defective. They come to this Court, as
taxpayers and civic spirted citizens, asserting a right of standing on a transcendental issue which they assert to be of paramount
public interest.
Moral or legal questions aside, I believe that there are unfortunately certain standards1 that have to be followed in the exercise of this
Court's awesome power of review before this Court could even begin to assay the validity of the contract between the PCSO and the
PGMC. This, in spite of the apparent expansion of judicial power granted by Section 1 of Article VIII of the 1987 Constitution. It is
fundamental that such standards be complied with before this Court could even begin to explore the substantive issues raised by any
controversy brought before it, for no issue brought before this court could possibly be so fundamental and paramount as to warrant a
relaxation of the requisite rules for judicial review developed by settled jurisprudence inorder to avoid entangling this court in
controversies which properly belong to the legislative or executive branches of our government. The potential harm to our system of
government, premised on the concept of separation of powers, by the Court eager to exercise its powers and prerogatives at every
turn, cannot be gainsaid. The Constitution does not mandate this Court to wield the power of judicial review with excessive vigor and
alacrity in every area or at every turn, except in appropriate cases and controversies which meet established requirements for
constitutional adjudication. Article VIII Sec. 1 of the Constitution notwithstanding, there are questions which I believe are still beyond
the pale of judicial power. Moreover, it is my considered opinion that the instant petition does not meet the requirements set by this
court for a valid exercise of judicial review.
Our Constitution expressly defines judicial power as including "the duty to settle actual cases and controversies involving rights which
are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to a
lack or excess of jurisdiction on the part of any branch or instrumentality of the government." 2 This constitutional requirement for an
actual case and controversy limits this Court's power of review to precisely those suits between adversary litigants with real interests
at stake2 thus preventing it from making all sorts of hypothetical pronouncements on abstract, contingent and amorphous issues. The
Court will therefore not pass upon the validity of an act of government or a statute passed by a legislative body without a requisite
showing of injury. 3 A personal stake is essential, which absence renders our pronouncements gratuitous and certainly violative of the
constitutional requirement for actual cases and controversies.
The requirement for standing based on personal injury may of course be bypassed, as the petitioners in this case attempt to do, by
considering the case as a "taxpayer suit" which would thereby clothe them with the personality they would lack under ordinary
circumstances. However, the act assailed by the petitioners on the whole involves the generation rather than disbursement of public
funds. In a line of cases starting from Pascual v. Secretary of Public Works 4 "taxpayer suits" have been understood to refer only to
those cases where the act or statute assailed involves the illegal or unconstitutional disbursement of public funds derived from
taxation. The main premise behind the "taxpayer suit" is that the pecuniary interest of the taxpayer is involved whenever there is an
illegal or wasteful use of public funds which grants them the right to question the appropriation or disbursement on the basis of their
contribution to government funds. 5 Since it has not been alleged that an illegal appropriation or disbursement of a fund derived from
taxation would be made in the instant case, I fail to see how the petitioners in this case would be able to satisfy the locus
standi requirement on the basis of a "taxpayer's suit". This alone should inhibit this Court from proceeding with the case at bench.
The interest alleged and the potential injury asserted are far too general and hypothetical for us to rush into a judicial determination
of what to me appears to be judgment better left to executive branch of our government.
This brings me to one more important point: The idea that a norm of constitutional adjudication could be lightly brushed aside on the
mere supposition that an issue before the Court is of paramount public concern does great harm to a democratic system which
espouses a delicate balance between three separate but co-equal branches of government. It is equally of paramount public concern,
certainly paramount to the survival of our democracy, that acts of the other branches of government are accorded due respect by this
Court. Such acts, done within their sphere of competence, have been — and should always be — accorded with a presumption of
regularity. When such acts are assailed as illegal or unconstitutional, the burden falls upon those who assail these acts to prove that
they satisfy the essential norms of constitutional adjudication, because when we finally proceed to declare an act of the executive or
legislative branch of our government unconstitutional or illegal, what we actually accomplish is the thwarting of the will of the elected
representatives of the people in the executive or legislative branches government.6 Notwithstanding Article VIII, Section 1 of the Constitution, since the
exercise of the power of judicial review by this Court is inherently antidemocratic, this Court should exercise a becoming modesty in acting as a revisor of an act of the executive or legislative
branch. The tendency of a frequent and easy resort to the function of judicial review, particularly in areas of economic policy has become lamentably too common as to dwarf the political capacity
of the people expressed through their representatives in the policy making branches of government and to deaden their sense of moral responsibility. 7
This court has been accused, of late, of an officious tendency to delve into areas better left to the political branches of
government. 8 This tendency, if exercised by a court running riot over the other co-equal branches of government, poses a greater
danger to our democratic system than the perceived danger — real or imagined — of an executive branch espousing economic or
social policies of doubtful moral worth. Moreover economic policy decisions in the current milieu- including the act challenged in the
instant case-involve complex factors requiring flexibility and a wide range of discretion on the part of our economic managers which
this Court should respect because our power of review, under the constitution, is a power to check, not to supplant those acts or
decisions of the elected representatives of the people.
Finally, the instant petition was brought to this Court on the assumption that the issue at bench raises primarily constitutional issues.
As it has ultimately turned out, the core foundation of the petitioners' objections to the LOTTO operations was based on the validity
of the contract between the PCSO and the PGMC in the light of Section 1 of R.A. 1169 as amended by B.P. Blg. 427. It might have been
much more appropriate for the issue to have taken its normal course in the courts below.
I vote to deny the petition.
# Footnotes

1 PGMC's Comment, 3-4; Rollo, 181-182.

2 Annex "A," Id.; Id., 207-220.
3 Rollo, 210-211.
4 Rollo, 213.
5 Id., 215.
6 Id., 220.
7 PGMC's Comment, 7; Rollo, 184.
8 Annex "P" of Petition.
9 Annexes "L" and "N" of Petition.
10 Petition, 9; Rollo, 10. The announcement also stated that G-Tech Philippines, Inc. and the Tanjong Public Limited Company had
likewise been authorized to operate separate lotto systems.
11 Id.; Id.
12 Annex "C" of Petition.
13 Petition, 10; Rollo, 11. The meeting was called to deliberate on the proposed nationwide on-line lottery program.
14 Id.; Id.
15 Id.; Id.
16 Annex "J" of Petition.
17 Annex "H" of Petition.
18 Rollo, 13-14.
19 Rollo, 16-19.
20 Id., 27-28; 30-32.
21 Id., 27.
22 Rollo, 35.
23 Id., 180-181.
24 Citing Teresa Electric & Power Co., Inc. vs. Public Service Commission, 21 SCRA 198 [1967].
25 175 SCRA 262 [1989].
26 G.R. No. 78716, 22 September 1987.
27 Philippine Christian Lawyers Fellowship, Inc., Gamaliel G. Bongco, Oscar Karaan, and Jedideoh Sincero (Rollo, 147); Catholic
Lawyer's Guild of the Philippines, Inc., Enrique Syquia, and Pacifico Ma. Castro (Id., 154).
28 Rollo, 249 et seq.
29 G.R. No. L-2044 (Araneta vs. Dinglasan); G.R. No. L-2756 (Araneta vs. Angeles); G.R. No. L-3054 (Rodriguez vs. Tesorero de
Filipinas); G.R No. L-3055 (Guerrero vs. Commissioner of Customs); and G.R. No. L-3056 (Barredo vs. Commission on Elections), 84
Phil. 368 [1949].
30 Tan vs. Macapagal, 43 SCRA 677, 680 [1972].
31 Sanidad vs. Commission on Elections, 73 SCRA 333 [1976].
32 112 SCRA 294, 314-315 [1982].
33 163 SCRA 371, 378 [1988].
34 197 SCRA 52, 60 [1991].
35 175 SCRA 343, 364-365 [1989] (emphasis supplied).
36 180 SCRA 496, 502 [1988].
37 345 US 153, L ed 918, 735 Ct 609.
38 Philippine Constitution Association, Inc. vs. Gimenez, 15 SCRA 479 [1965].
39 Civil Liberties Union vs. Executive Secretary, 194 SCRA 317 [1991].
40 Guingona vs. Carague, 196 SCRA 221 [1991].
41 Osmeña vs. Commission on Elections, 199 SCRA 750 [1991].
42 Basco vs. Philippine Gaming and Amusement Corp., 197 SCRA 52 [1991].
43 Carpio vs. Executive Secretary, 206 SCRA 290 [1992].
44 Iloilo Palay and Corn Planters Association, Inc. vs. Feliciano, 13 SCRA 377 [1965].
45 Sanidad vs. Commission on Elections, supra.
46 Laurel vs. Garcia, 187 SCRA 797 [1990].
47 Garcia vs. Board of Investments, 177 SCRA 374 [1989]; Garcia vs. Board of Investments, 191 SCRA 288 [1990].
48 Maceda vs. Macaraig, 197 SCRA 771 [1991].
49 Maceda vs. Energy Regulatory Board, 199 SCRA 454 [1991].
50 Garcia vs. Executive Secretary, 211 SCRA 219 [1992].
51 De Guia vs. Commission on Elections, 208 SCRA 420 [1992].
52 Pasay Law and Conscience Union, Inc. vs. Cuneta, 101 SCRA 662 [1980].
53 62 SCRA 275 [1975].
54 Supra.
55 Record of the Batasan, vol. Two, 993.
56 Id., 1006-1007.
57 Record of the Batasan, vol. Two, 1007 (emphasis supplied).
58 Id.
59 36 AM. JUR. 2d Franchises § 26 (1968).
60 36 AM. JUR. 2d Franchises § 63 (1968).
61 38§ AM. JUR. 2d Gambling S 18 (1968).
62 Black's Law Dictionary, Sixth Ed., 88.
63 Id., 261.
64 Id., 121.
65 Id., 839.
66 PGMC's Comment; Rollo, 181-182.
67 It declares therein that it "has the legal authority under R.A. 1169, as amended, to hold and conduct sweepstakes races, lotteries,
and other similar activities."
68 Attached to the Contract of Lease as Annex "A" is the Master Games Plan prepared by the PGMC and approved by the PCSO.
FELICIANO, J. concurring:
1 The requirement of locus standi forms part of the "application of ordinary law technique to the Constitution" which historically, in
the United States, promoted and reinforced the "legalization" or acceptance of the power of judicial review; S. Snowiss, Judicial
Review and the Law of the Constitution, p. 197 (1990).
2 A stimulating effort is offered by Prof. Laurence H. Tribe, Constitutional Choices (1985), Chap. 8, where he examined certain trends
in, and circumstances relating to, the caselaw of the Supreme Court of the United States which "make a satisfactory theory of
standing specially elusive" (p. 100).
3 A.M. Bickel, The Least Dangerous Branch: The Supreme Court at the Bar of Politics 169 (1962); brackets supplied.
PADILLA, J. separate concurring:
1 KILOSBAYAN, INCORPORATED, a non-stock corporation composed of civic-spirited citizens, pastors, priests, nuns and lay leaders
who are committed to the cause of truth, justice and national renewal as well as members of the Board of Trustees of KILOSBAYAN as
taxpayers and concerned citizens and senators Freddie Webb, Wigberto Tañada and Representative Joker P. Arroyo as taxpayers,
concerned citizens and legislators.
PUNO, J. dissenting:
1 Petition, pp. 5-6.
2 Ibid, p. 6.
3 Ibid, p. 7.
4 Ibid.
5 Philippine Political Law, 1989 ed., p. 18 citing Dumlao v. COMELEC, 95 SCRA 392.
6 Ibid., citations omitted.
7 G.R. No. 101083.
8 G.R. No. 86344, 180 SCRA 496 [1989].
9 Dorsen, Bender, Neuborne, Political and Civil Rights in the United, States, Vol. I, 4th ed., p. 1200.
10 418 U.S. 166, 194 S. Ct. 2940, 41 L. Ed. 2d 678 [1974].
11 Manila Bulletin, April 21, 1994, pp. 1 and 8.
12 95 SCRA 392, 403.
13 US v. Richardson, op. cit.
14 G.R. No. 79084, September 22, 1987.
15 Compare Coleman v. Miller, 307 US 433 [1939]; Mitchell v. Laird, 488 F2d 611 CD.C. Cir. 1973; Kennedy v. Sampson, 511 F2d 430
CD.C. Cir. 1974.
16 G.R. No. 104712, May 6, 1992, 208 SCRA 420.
17 392 U.S. 83, 88 S. Ct. 1942, 20 L ed. 2d. 947 [1968].
VITUG, J. separate opinion:
1 22 Phil. 456, 559.
2 See also Lopez vs. Roxas, 17 SCRA 761.
3 Warth vs. Seldin, 422 U.S. 490, 498-499, 45 L.Ed. 2d 343, 95 S. Ct. 2197 (1975); Guzman vs. Marrero, 180 U.S. 81, 45 L.Ed. 436, 21
S.Ct. 293 (1901); McMicken vs. United States, 97 U.S. 204, 24 L.Ed. 947 (1978); Silver Star Citizens' Committee vs. Orlando Fla. 194 So.
2d 681 (1967); In Re Kenison's Guardianship, 72 S.D. 180, 31 N.W. 2d 326 (1948).
4 See Pascual v. Secretary of Public Works, 110 Phil. 331; Maceda v. Macaraig, 197 SCRA 771; Lozada v. COMELEC, 120 SCRA 337;
Dumlao vs. COMELEC, 95 SCRA 392; Gonzales v. Marcos, 65 SCRA 624.
5 176 SCRA 240, 251.
6 The provision of Arts. 195-199 of the Revised Penal Code (Forms of Gambling and Betting), Republic Act No. 3063 (Horse Racing
Bookies), Presidential Decree No. 483 (Penalizing Betting, Game-fixing or Pointshaving and Machinations in Sports Contests); No. 449,
as amended (Cockfighting Law of 1974); No. 510 (Slot Machines) in relation to Opinion Nos. 33 and 97 of the Ministry of Justice; No.
1306 (Jai-Alai Bookies) have been repealed by Presidential Decree No. 1602, otherwise known as the New Gambling Law (Prescribing
Stiffer Penalties on Illegal Gambling). Subsequently, Letter of Instruction No. 816 was issued which excluded certain prohibited games
under Presidential Decree No. 1602.
7 U.S. v. Filart, 30 Phil. 80, 83 /1915/; U.S. v. Baguio, 39 Phil. 962, 966.
8 Ly Hong v. Republic, 109 Phil. 635.
9 People v. De Gorostiza, et al., 77 Phil. 88.
10 People v. Dionisio, 22 SCRA 129.
11 22 SCRA 1299, 1302.
12 G.R. No. 78716 and G.R. No. 79084, En Banc Resolution, 22 September 1987.
KAPUNAN, J. dissenting:
1 People v. Vera, 65 Phil. 56 (1937)
2 JACKSON, The Supreme Court in the American System of Government in McKay, An American Constitutional Law Reader 30 (1958).
3 Ashwander v. Tennessee Valley Authority, 297 US 288, at 346-348 (1936).
4 110 Phil. 331 (1960). See also Lozada v. COMELEC 120 SCRA 337 (1983); Dumlao v. COMELEC, 95 SCRA 392 (1980); Maceda v.
Macaraig, 197 SCRA 771, (1991).
5 Appeal of Sears, Roebuck and Co., 123 Ind., App.; 109 NE 2d., 620 (1952).
6 See A. BICKEL, THE LEAST DANGEROUS BRANCH: THE SUPREME COURT AT THE BAR OF POLITICS 16-17 (1962).
7 Id., citing J.B.Thayer, JOHN MARSHALL, 106-107 (1901).
8 See Romulo, The Supreme Court and Economic Policy: A Plea for Judicial Abstinence 67 Phil. L.J. 348-353 (1993). See also Fernandez,
Judicial Overreaching in Selected Supreme Court Decisions Affecting Economic Policy, 67 Phil. L.J. 332-347 (1993) and Castro & Pison,
The Economic Policy Determining Function of the Supreme Court in Times of National Crisis, 67 Phil. L.J. 354-411 (1993).
The Lawphil Project - Arellano Law Foundation
DIGEST
Kilosbayan, Inc. v Guingona (Constitution)
Kilosbayan, Inc. v Guingona, Corona GR No. 113375 May 5, 1994

Section 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may be
established by law.
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which
are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
Government. c ralaw

Davide, Jr., J:

FACTS:
(1) Petitioners contend that denial by the Office of the President of its protest and the statement of
Assistant Executive Secretary Renato Corona that "only a court injunction can stop Malacañang," and the imminent implementation of the
Contract of Lease in February 1994, KI LOSBAYAN, with its co-petitioners, filed on 28 January 1994 this petition.
In support of the petition, the petitioners claim that:
. . . X X THE OFFICE OF THE PRESI DENT, ACTING THROUGH RESPONDENTS EXECUTIVE SECRETARY AND/OR ASSISTANT EXECUTIVE
SECRETARY FOR LEGAL AFFAIRS, AND THE PCSO GRAVELY ABUSE[D] THEI R DI SCRETI ON AND/OR FUN CTI ONS TANTAMOUN T TO
LACK OF JURISDI CTI ON AND/OR AUTHORI TY IN RESPECTIVELY:
(A) APPROVING THE AWARD OF THE CONTRACT TO, AND
(B) ENTERING INTO THE SO-CALLED "CONTRACT OF LEASE" WITH, RESPONDENT PGMC FOR THE INSTALLATION, ESTABLISHMENT AND
OPERATI ON OF THE ON-LINE LOTTERY AND TELECOMMUNICATION SYSTEMS REQUIRED AND/OR AUTHORIZED UNDER THE SAID
CONTRACT, CONSI DERING THAT:
a) Under Section 1 of the Charter of the PCSO, the PCSO is prohibited from holding and conducting
lotteries "in collaboration, association or joint venture with any person, association, company or entity";
b) Under Act No. 3846 and established jurisprudence, a Congressional franchise is required before
Any person may be allowed to establish and operate said telecommunications system;
c) Under Section 11, Article XII of the Constitution, a less than 60% Filipino-owned and/or controlled corporation, like the PGMC, is
disqualified from operating a public service, like the said telecommunications system; and
d) Respondent PGMC is not authorized by its charter and under the Foreign Investment Act (R.A. No. 7042)to install, establish and operate
the on-line lot to and telecommunications systems.
(2) Public respondents Executive Secretary Teofisto Guingona, J r., Assistant Executive Secretary Renato Corona, and the PCSO maintain that
the contract of lease in question does not violate Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, and that the petitioner's
interpretation of the phrase "in collaboration, association or joint venture" in Section 1 is "much too narrow, strained and utterly devoid of
logic" for it "ignores the reality that PCSO, as a corporate entity, is vested with the basic and essential prerogative to enter into all kinds of
transactions or contracts as may be necessary for the attainment of itspurposes and objectives."

ISSUE:
(a) the locus standi of the petitioners, and
(b) the legality and validity of the Contract of Lease in the light of Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, which prohibits the
PCSO from holding and conducting lotteries "in collaboration, association or joint venture with any person, association, company or entity,
whether domestic or foreign."

HELD:
WHEREFORE, the instant petition is hereby GRANTED and the challenged Contract of Lease executed on 17 December 1993 by respondent
Philippine Charity Sweepstakes Office (PCSO) and respondent Philippine Gaming Management Corporation (PGMC)is hereby DECLARED
contrary to law and invalid.

RATIO:
No interpretation of the said provision to relax or circumvent the prohibition can be allowed since the privilege to hold or conduct charity
sweepstakes races, lotteries, or other similar activities is a franchise granted by the legislature to the PCSO. It is a settled rule that "in all
grants by the government to individuals or corporations of rights, privileges and franchises, the words are to be taken most strongly against
the grantee .... [o]ne who claims a franchise or privilege in derogation of the common rights of the public must prove his title thereto by a
grant which is clearly and definitely expressed, and he cannot enlarge it by equivocal or doubtful provisions or by probable inferences.
Whatever is not unequivocally granted is withheld. Nothing passes by mere implication.
G.R. No. 159139 June 15, 2005
INFORMATION TECHNOLOGY FOUNDATION OF THE PHILIPPINES, MA. CORAZON M. AKOL, MIGUEL UY,
EDUARDO H. LOPEZ, AUGUSTO C. LAGMAN, REX C. DRILON, MIGUEL HILADO, LEY SALCEDO, and MANUEL
ALCUAZ JR., Petitioners,
vs.
COMMISSION ON ELECTIONS; COMELEC CHAIRMAN BENJAMIN ABALOS SR.; COMELEC BIDDING and
AWARD COMMITTEE CHAIRMAN EDUARDO D. MEJOS and MEMBERS GIDEON DE GUZMAN, JOSE F.
BALBUENA, LAMBERTO P. LLAMAS, and BARTOLOME SINOCRUZ JR.; MEGA PACIFIC eSOLUTIONS, INC.; and
MEGA PACIFIC CONSORTIUM, Respondents.
RESOLUTION
PANGANIBAN, J.:

Our Decision1 in the present case voided the Contract entered into by the Commission on Elections (Comelec) for the
supply of automated counting machines (ACMs) because of "clear violation of law and jurisprudence" and "reckless
disregard of [Comelec’s] own bidding rules and procedure." Moreover, "Comelec awarded this billion-dollar undertaking
with inexplicable haste, without adequately checking and observing mandatory financial, technical and legal
requirements. x x x. The illegal, imprudent and hasty actions of the Commission have not only desecrated legal and
jurisprudential norms, but have also cast serious doubts upon the poll body’s ability and capacity to conduct automated
elections." As a result, the ACMs illegally procured and improvidently paid for by Comelec were not used during the
2004 national elections.
In its present Motion, the poll body expressly admits that the Decision "has become final and executory," and that
"COMELEC and MPC-MPEI are under obligation to make mutual restitution." Otherwise stated, this admission implies
that the ACMs are to be returned to MPC-MPEI, and that the sum of over one billion pesos illegally paid for them be
refunded to the public purse.2 In short, ownership of the ACMs never left MPC-MPEI and the money paid for them still
belongs, and must be returned, to the government.
Consequently, the ACMs, which "admittedly failed to pass legally mandated technical requirements" cannot be used
during the forthcoming elections in the Autonomous Region for Muslim Mindanao (ARMM). Apart from formidable
legal, jurisprudential, technical and financial obstacles, the use of the machines would expose the ARMM elections to
the same electoral pitfalls and frauds pointed out in our Decision. If the ACMs were not good enough for the 2004
national elections, why should they be good enough now for the 2005 ARMM elections, considering that nothing has
been done by Comelec to correct the legal, jurisprudential and technical flaws underscored in our final and executory
Decision?
The Motion
Before us is the Commission on Election’s "Most Respectful Motion for Leave to Use the Automated Counting Machines
in [the] Custody of the Commission on Elections for use (sic) in the August 8, 2005 Elections in the Autonomous Region
for Muslim Mindanao (ARMM)," dated December 9, 2004. In its January 18, 2005 Resolution, the Court required the
parties to comment. After careful deliberation on all pleadings at hand, we now resolve the Motion.
Background Information
At the outset, we stress that the Decision in the present case, promulgated on January 13, 2004, has long attained
finality.3 In our February 17, 2004 Resolution, we denied with finality Comelec’s Motion for Reconsideration dated
January 28, 2004, as well as private respondents’ Omnibus Motion dated January 26, 2004. The Decision was recorded in
the Book of Entries of Judgments on March 30, 2004.
Recall that our Decision declared Comelec to have acted with grave abuse of discretion when, by way of its Resolution
No. 6074, it awarded the Contract for the supply of automated counting machines (ACMs) to private respondents. It did
so, not only in clear violation of law and jurisprudence, but also with inexplicable haste and reckless disregard of its own
bidding rules and procedures; particularly the mandatory financial, technical and legal requirements. It further
manifested such grave abuse of discretion when it accepted the subject computer hardware and software even though,
at the time of the award, these had patently failed to pass eight critical requirements designed to safeguard the integrity
of the elections. Consequently, this Court was constrained to exercise its constitutional duty by voiding the assailed
Resolution No. 6074 awarding the Contract to Mega Pacific Consortium, as well as the subject Contract itself executed
between Comelec and Mega Pacific eSolutions, Inc.
Comelec was further ordered to refrain from implementing any other contract or agreement it had entered into with
regard to the said project. We also declared that, as a necessary consequence of such nullity and illegality, the purchase
of the ACMs and the software, along with all payments made for them, had no basis in law. Hence, the public funds
spent must be recovered from the payees and/or the persons who made the illegal disbursements possible, without
prejudice to possible criminal prosecutions against them.4
Likewise, our February 17, 2004 Resolution denying reconsideration found movants to have raised the same procedural
and substantive issues already exhaustively discussed and definitively passed upon in our Decision. In that Resolution,
we emphasized (and we reiterate here) that the Decision did not prohibit automation of the elections. Neither did the
Court say that it was opposed to such project (or the use of ACMs) as a general proposition. We repeated our
explanation that the reason for voiding the assailed Resolution and the subject Contract was the grave abuse of
discretion on the part of Comelec; as well as its violations of law -- specifically RA 9184, RA 8436, and RA 6955 as
amended by RA 7718; prevailing jurisprudence (the latest of which was Agan v. Philippine International Air Terminals
Co., Inc.5); and the bidding rules and policies of the Commission itself.
Comelec’s Claims
Notwithstanding our Decision and Resolution, the present Motion claims, inter alia, that the ARMM elections are slated
to be held on August 8, 2005, and are mandated by RA 9333 to be automated; that the government has no available
funds to finance the automation of those elections; that considering its present fiscal difficulties, obtaining a special
appropriation for the purpose is unlikely; that, on the other hand, there are in Comelec’s custody at present 1,991
ACMs, which were previously delivered by private respondents; that these machines would deteriorate and become
obsolete if they remain idle and unused; that they are now being stored in the Comelec Maxilite Warehouse along UN
Avenue, at "storage expenses of ₱329,355.26 a month, or ₱3,979,460.24 annually."
The Motion further alleges that "information technology experts," who purportedly supervised all stages of the software
development for the creation of the final version to be used in the ACMs, have unanimously confirmed that this
undertaking is in line with the internationally accepted standards (ISO/IEC 12207) for software life cycle processes, "with
its quality assurance that it would be fit for use in the elections x x x."
Comelec also points out that the process of "enhancement" of the counting and canvassing software has to be
commenced at least six (6) months prior to the August 8, 2005 ARMM elections, in order to be ready by then. It asserts
that its Motion is (a) without prejudice to the ongoing Civil Case No. 04-346 pending before the Regional Trial Court of
Makati City, Branch 59, entitled "Mega Pacific eSolutions, Inc. v. Republic of the Philippines (represented by the
Commission on Elections)," for the collection of a purported ₱200 million balance due from Comelec under the voided
Contract; and (b) with a continuing respectful recognition of the finality and legal effects of our aforesaid Decision. At
bottom, Comelec prays that it be granted leave to use the ACMs in its custody during the said ARMM elections.
Private Respondents’ Contentions
Commenting on the present Motion, private respondents take the position that, since the subject ACMs have already
been delivered to, paid for and used by Comelec, the Republic of the Philippines is now their owner, without prejudice
to Mega Pacific eSolutions, Inc.’s claim for damages in the case pending before the RTC of Makati; and that,
consequently, as far as private respondents are concerned, the question of using the subject ACMs for the ARMM
elections is dependent solely on the discretion of the owner, the Republic of the Philippines.
Petitioners’ Comment
On the other hand, petitioners contend that Comelec is asking this Court to render an advisory opinion, in contravention
of the constitutional provision6 that explicitly states that the exercise of judicial power is confined to (1) settling actual
controversies involving rights that are legally demandable and enforceable; and (2) determining whether there has been
a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of
government.
Petitioners assert that there is no longer any live case or controversy to speak of -- an existing case or controversy that is
appropriate or ripe for determination, not merely conjectural or anticipatory; and that Comelec’s allegations in its
Motion do not amount to an actual case or controversy that would require this Court to render a decision or resolution
in the legitimate exercise of its judicial power. This lack of actual controversy is clearly seen in the relief prayed for in the
Motion: the grant of a leave to use the ACMs during the ARMM elections. Obviously, Comelec merely seeks an advisory
opinion from this Court on whether its proposal to use the ACMs during the said elections might be in violation of this
Court’s Decision dated January 13, 2004, and Resolution dated February 17, 2004.
Assuming arguendo that the present Motion might somehow be justified by the government’s fiscal difficulties,
petitioners further argue that permitting Comelec to use the ACMs would nevertheless allow it to do indirectly what it
was not permitted by this Court to do directly. They argue that the instant Motion is merely a subterfuge on the poll
body’s part to resurrect a lost case via a request for an advisory opinion.
The OSG’s Comment
The Office of the Solicitor General (OSG) declares in its Comment that, in compliance with this Court’s directive for it to
"take measures to protect the government and vindicate public interest from the ill effects of the illegal disbursements
of public funds made by reason of the void [Comelec] Resolution and Contract," it filed on behalf of the Republic on July
7, 2004, an Answer with Counterclaim in Civil Case No. 04-346. The OSG prayed for the return of all payments made by
Comelec to Mega Pacific under the void Contract, amounting to ₱1,048,828,407.
The OSG also manifests that it received a copy of the Complaint-Affidavit dated September 15, 2004, filed with the
Office of the Ombudsman by the Bantay Katarungan Foundation and the Kilosbayan Foundation against the Comelec
commissioners who had awarded the Contract for the ACMs; and the private individuals involved, including the
incorporators and officers of Mega Pacific eSolutions, Inc. This Complaint-Affidavit was for violation of the Anti-Plunder
Law (RA 7030), the Anti-Graft and Corrupt Practices Act (RA 3019 as amended), and the Code of Conduct and Ethical
Standards for Public Officials and Employees (RA 6713).
The complainants alleged immense kickbacks and horrendous overpricing involved in the purchase of the 1,991 ACMs.
Based on the OSG’s available records, it appears that Comelec withdrew from Land Bank ₱1.03 billion, but actually paid
Mega Pacific only ₱550.81 million. Furthermore, commercial invoices and bank applications for documentary credits
reveal that each ACM cost only ₱276,650.00, but that Comelec agreed to pay Mega Pacific ₱430,394.17 per unit -- or a
differential of ₱153,744.17 per unit or an aggregate differential of ₱306.10 million. Moreover, Mega Pacific charged
₱83.924 million for value-added taxes (VAT) and ₱81.024 million more for customs duties and brokerage fees, when in
fact -- under the nullified Contract -- it was supposed to be exempt from VAT, customs duties and brokerage fees. Lastly,
Comelec agreed to peg the ACM price at the exchange rate of ₱58 to $1, when the exchange rate was ₱55 to $1 at the
time of the bidding, resulting in additional losses for the government amounting to about ₱30 million.
The OSG hews to the view that the automation of elections, if properly carried out, is a desirable objective, but is
mindful of the need for mutual restitution by the parties as a result of the final Decision nullifying the Contract for the
ACMs. Nevertheless, in apparent response to Comelec’s clamor to use the ACMs in the ARMM elections, the OSG
manifests that it has no objection to the proposal to use the machines, provided however that (1) Comelec should show
with reasonable certainty that the hardware and software of the ACMs can be effectively used for the intended purpose;
(2) Mega Pacific should be made to return to the Republic at least a substantial portion of the overprice they charged for
the purchase of the ACMs; and (3) the use of these machines, if authorized by this Court, should be without prejudice to
the prosecution of the related criminal cases pending before the Office of the Ombudsman (OMB).
The OMB’s Manifestation
For its part, the Office of the Ombudsman manifested that as a result of the nullification of the Contract, various fact-
finding investigations had been conducted, and criminal and administrative charges filed before it against the persons
who appeared to be responsible for the anomalous Contract; and that the various cases had been consolidated, and
preliminary investigation conducted in respect of the non-impeachable Comelec officials and co-conspirators/private
individuals. Furthermore, the OMB is in the process of determining whether a verified impeachment complaint may be
filed against the poll body’s impeachable officials concerned.
A Supplemental Complaint prepared and filed by the Field Investigation Office of the Ombudsman reveals that the ACMs
were overpriced by about ₱162,000.00 per unit; that, additionally, Mega Pacific unduly benefited by including VAT and
import duties amounting to ₱194.60 million in its bid price for the ACMs, despite Section 8 of RA 8436 exempting such
equipment from taxes and duties; that Comelec nonetheless awarded the Contract to Mega Pacific at the same bid price
of ₱1.249 billion, inclusive of VAT, import duties and so on; and that the Commission allowed Mega Pacific to peg the
ACM price using an exchange rate of ₱58 to $1 instead of ₱53 to $1, which further inflated Mega Pacific’s windfall.
The foregoing notwithstanding, the OMB had allegedly prepared a comment on the present Motion, stating its position
on the issue of utilizing the ACMs, but upon further reflection decided not to file that comment. It came to the
conclusion that ventilating its position on the matter might engender certain impressions that it had already resolved
factual and/or legal issues closely intertwined with the elements of the offenses charged in the criminal and
administrative cases pending before it. "For one, utilizing illegally procured goods or the intentional non-return thereof
to the supplier may have a bearing on the determination of evident bad faith or manifest partiality, an essential element
in any prosecution under the anti-graft law, and may, at the same time, be constitutive of misconduct penalized under
relevant disciplinary laws."
Consequently, out of prudential considerations, the OMB prayed to be excused from commenting on the merits of the
present Motion, to avoid any perception of prejudgment, bias or partiality on its part, in connection with the criminal
and administrative cases pending before it.
The Court’s Ruling
Decision Subverted by the Motion
There are several reasons why the present Motion must be denied. First, although it professes utmost respect for the
finality of our Decision of January 13, 2004 -- an inescapable and immutable fact from which spring equally ineludible
consequences -- granting it would have the effect of illegally reversing and subverting our final Decision. Plainly
stated, our final Decision bars the grant of the present Motion.
To stress, as a direct result of our January 13, 2004 Decision, the Contract for the supply of the subject ACMs was
voided, and the machines were not used in the 2004 national elections. Furthermore, the OSG was directed "to take
measures to protect the government and vindicate public interest from the ill-effects of the illegal disbursements of
public funds made by reason of the void Resolution." Accordingly, in Civil Case No. 04-346, the government counsel has
prayed for mutual restitution; and for the "return of all payments, amounting to ₱1,048,828,407.00 made by Comelec to
Mega Pacific under the void Contract."
In the meantime, Comelec has done nothing -- at least, nothing has been reported in the present Motion -- to abide by
and enforce our Decision. Apparently, it has not done anything to rectify its violations of laws, jurisprudence and its own
bidding rules referred to in our judgment. Neither has it reported any attempt to correct and observe the "mandatory
financial, technical and legal requirements" needed to computerize the elections.
Apparently, it has simply filed the present Motion asking permission to do what it has precisely been prohibited from
doing under our final and executory Decision. If law and jurisprudence bar it from using the subject ACMs during the last
elections, why should it even propose to use these machines in the forthcoming ARMM elections? True, these elections
are important. But they cannot be more important than the 2004 national elections. Note that the factual premises and
the laws involved in the procurement and use of the ACMs have not changed. Indeed, Comelec has not even alleged,
much less proven, any supervening factual or legal circumstances to justify its Motion.
Basic and primordial is the rule that when a final judgment becomes executory, it thereby becomes immutable and
unalterable. In other words, such a judgment may no longer undergo any modification, much less any reversal, even if it
is meant to correct what is perceived to be an erroneous conclusion of fact or law; and even if it is attempted by the
court rendering it or by this Court.7 Equally well-entrenched is the doctrine that what is not permitted to be
done directly may not be done indirectly either. In the instant case, it is unarguable that the inexorable result of granting
the present Motion will precisely be a subversion of the Decision, or at least a modification that would render the latter
totally ineffective and nugatory.
To support its present Motion, Comelec appended as Annex 1 a letter dated January 22, 2004. Addressed to its
chairman, the Annex was signed by four8 self-proclaimed "information technology experts,"9 who had gratuitously
contended that this Court’s Decision was "one of the most inopportune rulings ever to come out of the hallowed halls of
that High Tribunal"; blame the Decision for supposedly forcing our people "to entrust their votes to a manual system of
counting and canvassing that have been proven to be prone to massive fraud in the past"; and mouth legal/technical
arguments that have already been repeatedly debunked in the Decision and Resolution here. The letter also included a
long-winded, tortuous discussion of the software development life cycle.
A quick check of the case records confirmed our suspicion. The very same letter dated January 22, 2004 had previously
been appended as Annex 2 to private respondents’ "Omnibus Motion A) for reconsideration of the Decision dated 13
January 2004; b) to admit exhibits in refutation of the findings of fact of the Court; c) to have the case set for hearing
and/or reception of evidence if deemed necessary by the Court." The only difference is that this time around, Comelec
overlooked or failed to photocopy the last page (page 17) of the letter, bearing the signatures of the four other
purported "information technology experts."10 In other words, to support its present Motion, it merely recycled an
earlier exhibit that had already been used in seeking reconsideration of our aforesaid Decision.
While expressing utmost reverence for the finality of the Decision, Comelec implicitly seeks, nevertheless, to have this
Court take up anew matters that have already been passed upon and disposed of with finality.
It is a hornbook doctrine that courts are presumed to have passed upon all points that were raised by the parties in their
various pleadings, and that form part of the records of the case. Our Resolution, disposing of respondents’ arguments on
reconsideration, did not explicitly and specifically address all of the matters raised in the said letter of January 22, 2004.
It is presumed however, that all matters within an issue raised in a case were passed upon by the Court,11 as indeed they
were in the instant case. And as we have held elsewhere,12 courts will refuse to reopen what has been decided; they will
not allow the same parties or their privies to litigate anew a question that has been considered and decided with finality.
Besides, the letter of January 22, 2004, laden as it is with technical jargon and impressive concepts, does not serve to
alter by even the minutest degree our finding of grave abuse of discretion by Comelec, on account of its clear violations
of law and jurisprudence and its unjustifiable and reckless disregard of its own bidding rules and procedures.
Furthermore, the letter would obviously not contain anything that might serve to persuade us that the situation
obtaining in January 2004 has so changed in the interim as to justify the use of the ACMs in August 2005.
The Commission seems to think that it can resurrect the dead case by waving at this Court a letter replete with technical
jargon, much like a witch doctor muttering unintelligible incantations to revive a corpse.
In its main text, the Motion concedes that our Decision "has become final and executory," and that all that remains to be
done is "to make mutual restitution."13 So, what is the relevance of all these useless argumentations and pontifications
in Annex 1 by the Commission’s self-proclaimed "experts"? For its own illegal acts, imprudence and grave abuse of
discretion, why blame this Court? For Comelec to know immediately which culprit should bear full responsibility for its
miserable failure to automate our elections, it should simply face the mirror.
Recovery of Government Funds Barred by the Motion
Second, the grant of the Motion will bar or jeopardize the recovery of government funds improvidently paid to private
respondents, funds that to date the OSG estimates to be over one billion pesos. At the very least, granting the Motion
will be antagonistic to the directive in our Decision for the OSG to recover the "illegal disbursements of public funds
made by reason of the void Resolution and Contract."
Indeed, if the government is conned into not returning the ACMs but instead keeping and utilizing them, there would be
no need for Mega Pacific to refund the payments made by Comelec. In fact, such recovery will no longer be possible.
Consequently, all those who stood to benefit (or have already benefited) financially from the deal would no longer be
liable for the refund. They can argue that there was nothing wrong with the voided Resolution and Contract, nothing
wrong with the public bidding, nothing wrong with the machines and software, since the government has decided to
keep and utilize them. This argument can be stretched to abate the criminal prosecutions pending before the OMB and
the impeachment proceedings it is considering. After all, "reasonable doubt" is all that is needed to secure acquittal in a
criminal prosecution.
In brief, the poll body’s Motion not only asks for what is legally impossible to do (to reverse and subvert a final and
executory Decision of the highest court of the land), but also prevents the Filipino people from recovering illegally
disbursed public funds running into billions of pesos. Verily, by subverting the Decision of this Court, the Motion would
be unduly favoring and granting virtual immunity from criminal prosecution to the parties responsible for the illegal
disbursement of scarce public funds.
Use of the ACMs and Software Detrimental to ARMM Elections
Third, the use of the unreliable ACMs and the nonexistent software that is supposed to run them will expose the ARMM
elections to the same electoral ills pointed out in our final and executory Decision. Be it remembered that this Court
expressly ruled that the proffered hardware and software had undeniably failed to pass eight critical requirements
designed to safeguard the integrity of elections, especially the following three items:
"· They failed to achieve the accuracy rating criterion of 99.9995 percent set up by the Comelec itself.
"· They were not able to detect previously downloaded results at various canvassing or consolidation levels and to
prevent these from being inputted again.
"· They were unable to print the statutorily required audit trails of the count/canvass at different levels without any loss
of data."14
The Motion has not at all demonstrated that these technical requirements have been addressed from the time our
Decision was issued up to now. In fact, Comelec is merely asking for leave to use the machines, without mentioning any
specific manner in which the foregoing requirements have been satisfactorily met.
Equally important, we stressed in our Decision that "[n]othing was said or done about the software -- the deficiencies as
to detection and prevention of downloading and entering previously downloaded data, as well as the capability to print
an audit trail. No matter how many times the machines were tested and retested, if nothing was done about the
programming defects and deficiencies, the same danger of massive electoral fraud remains."15
Other than vaguely claiming that its four so-called "experts" have "unanimously confirmed that the software
development which the Comelec undertook, [was] in line with the internationally accepted standards (ISO/IEC 12207)
[for] software life cycle processes," the present Motion has not shown that the alleged "software development" was
indeed extant and capable of addressing the "programming defects and deficiencies" pointed out by this Court.
At bottom, the proposed use of the ACMs would subject the ARMM elections to the same dangers of massive electoral
fraud that would have been inflicted by the projected automation of the 2004 national elections.
Motion Inadequate and Vague
Fourth, assuming arguendo that the foregoing formidable legal, financial and technical obstacles could be overcome or
set aside, still, the Motion cannot be granted because it is vague; it does not contain enough details to enable this Court
to act appropriately.
The sham nature of the Motion is evident from the following considerations. While Comelec asserts a pressing need for
the ACMs to be used in the ARMM elections, strangely enough, it has not bothered to determine the number of units
that will be required for the purpose, much less tried to justify such quantification. It contracted for a total of 1,991
ACMs, intended for use throughout the entire country during the 2004 elections. Are we to believe that all 1,991 units
would be utilized to count and canvass the votes cast in the ARMM elections? Such a scenario is highly unlikely, even
ridiculous.
A genuine, bona fide proposal for the utilization of the ACMs would naturally have included a well-thought-out plan of
action, indicating the number of units to be deployed, places of utilization, number of operators and other personnel
required, methods/periods of deployment and recovery or retrieval, assessments of costs and risks involved in
implementing the proposal, and concomitant justifications, among other things. Now, either "The Plan" is being kept
absolutely top secret, or it is completely nonexistent.
Furthermore, once the ACMs are deployed and utilized, they will no longer be in the same condition as when they were
first delivered to Comelec. In fact, it is quite probable that by the time election day comes around, some of the machines
would have been mishandled and damaged, maybe even beyond repair. What steps has the poll body taken to make
certain that such eventualities, if not altogether preventable, can at least be minimized so as to ensure the eventual
return of the ACMs and the full recovery of the payments made for them? A scrutiny of the 4-page Motion16 ends in
futility. It is all too clear that a failure or inability of Comelec to return the machines sans damage would most assuredly
be cited as a ground to refuse the refund of the moneys paid. Yet, if Comelec has given any thought at all to this or any
other contingency, such fact has certainly not been made evident to us.
ARMM Elections Not Jeopardized by Nonuse of ACMs
Fifth, there is no basis for the claim that unless the subject ACMs are used, the ARMM elections would not be held.
At the outset, if such elections are not held, the blame must be laid squarely at the doorstep of Comelec. To stress, had
it not gravely abused its discretion, the automation of the vote counting and canvassing processes would have already
become a reality over a year ago, and the ACMs that would have been used in the 2004 national elections would now be
available for the ARMM elections.
In any event, the Commission in its Motion argues that the government, given its present fiscal difficulties, has no
available funds to finance the automation of the ARMM elections. Without even asking under what authority it has
assumed the role of Treasury spokesman, we emphasize that there would not now be any lack of funds for election
automation had it not improvidently turned over ₱1 billion of taxpayers’ moneys to Mega Pacific’s bank accounts.
Nevertheless, had the poll body been honestly and genuinely intent on implementing automated counting and
canvassing for the ARMM elections, it ought to have informed Congress of the non-availability of the subject ACMs due
to our Decisions and of the need for special appropriations, instead of wasting this Court’s time on its unmeritorious
Motion. In fact, if only it had taken proper heed of our Decision of January 13, 2004, it could have conducted an above-
board public bidding for the supply of acceptable ACMs.
Certainly, this option or course of action was not foreclosed by our Decision. Moreover, there was sufficient time within
which to conduct the public bidding process. RA 9333, which set the second Monday of August 2005 (August 8, 2005) as
the date of the ARMM elections, was enacted on September 21, 2004. Undoubtedly, Comelec was made aware of the
proposed date of the ARMM elections way before the passage of RA 9333. Thus, the poll body had about ten (10)
months at the very least (between the end of September 2004, when RA 9333 came into force and effect, and August 8,
2005) to lobby Congress, properly conduct a public bidding, award the appropriate contracts, deliver and test the new
machines, and make final preparations for the election.
Even assuming that a new public bidding for ACMs was not a viable option, still, Comelec has had more than sufficient
lead time -- about ten months counted from the end of September 2004 until August 8, 2005 -- to prepare for manual
counting and canvassing in the ARMM elections. It publicly declared, sometime in late January 2004, that
notwithstanding our Decision nullifying the Mega Pacific Contract, it would still be able to implement such manualization
for the May 10, 2004 national elections. It made this declaration even though it had a mere three months or so to set up
the mechanics. In this present instance involving elections on a much smaller scale, it will definitely be able to
implement manual processes if it wants to.
There is therefore absolutely no basis for any apprehension that the ARMM elections would not push through simply
because the present Motion cannot pass muster. More to the point, it would be ridiculous to regard the grant of
permission to use the subject ACMs as the conditio sine qua non for the holding of the ARMM elections.
What is most odious is the resort to the present Motion seeking the use of the subject ACMs despite the availability of
viable alternative courses of action17 that will not tend to disturb or render this Court’s final Decision ineffectual. Thus,
the present Motion is wholly unnecessary and unwarranted. Upon it, however has Comelec pinned all its hopes, instead
of focusing on what the poll body can and ought to do under the circumstances. The consequences of granting its
lamentable Motion, we repeat, will indubitably subvert and thwart the Decision of this Court in the instant case.
Equally reprehensible is the attempt of the Commission to pass the onus of its mismanagement problems on to this
Court. For instance, the Motion quotes the cost of storage of the ACMs in its Maxilite Warehouse at ₱329,355.26 per
month or ₱3,979,460.24 per annum. Assuming for the nonce that the machines have to be held in storage pending the
decision in the civil case (as it would simply not do to throw the machines out into the streets), why must it assume the
cost of storage? Per our Decision, the machines are to be returned to Mega Pacific. If it refuses to accept them back, it
does not follow that Comelec must pick up the tab. Instead of further wasting the taxpayers’ money, it can simply send
the bill to Mega Pacific for collection.
It would be entirely improper, bordering on unmitigated contempt of court, for the Commission to try to pass on the
problem to this Court through its Motion.
No Actual Case or Controversy
Finally, the Motion presents no actual justiciable case or controversy over which this Court can exercise its judicial
authority. It is well-established in this jurisdiction that "x x x for a court to exercise its power of adjudication, there must
be an actual case or controversy -- one which involves a conflict of legal rights, an assertion of opposite legal claims
susceptible of judicial resolution; the case must not be moot or academic or based on extra-legal or other similar
considerations not cognizable by a court of justice. x x x [C]ourts do not sit to adjudicate mere academic questions to
satisfy scholarly interest, however intellectually challenging."18 The controversy must be justiciable -- definite and
concrete, touching on the legal relations of parties having adverse legal interests.19 In other words, the pleadings must
show an active antagonistic assertion of a legal right, on the one hand, and a denial thereof on the other; that is, it must
concern a real and not a merely theoretical question or issue.20 There ought to be an actual and substantial controversy
admitting of specific relief through a decree conclusive in nature, as distinguished from an opinion advising what the law
would be upon a hypothetical state of facts.21
A perusal of the present Motion will readily reveal the utter absence of a live case before us, involving a clash of legal
rights or opposing legal claims. At best, it is merely a request for an advisory opinion, which this Court has no jurisdiction
to grant.22
EPILOGUE
We close this Resolution by repeating the last two paragraphs of our final and executory Decision:
"True, our country needs to transcend our slow, manual and archaic electoral process. But before it can do so, it must
first have a diligent and competent electoral agency that can properly and prudently implement a well-conceived
automated election system.
"At bottom, before the country can hope to have a speedy and fraud-free automated election, it must first be able to
procure the proper computerized hardware and software legally, based on a transparent and valid system of public
bidding. As in any democratic system, the ultimate goal of automating elections must be achieved by a legal, valid and
above-board process of acquiring the necessary tools and skills therefor. Though the Philippines needs an automated
electoral process, it cannot accept just any system shoved into its bosom through improper and illegal methods. As the
saying goes, the end never justifies the means. Penumbral contracting will not produce enlightened results."23
Comelec must follow and not skirt our Decision. Neither may it short-circuit our laws and jurisprudence. It should return
the ACMs to MPC-MPEI and recover the improvidently disbursed funds. Instead of blaming this Court for its illegal
actions and grave abuse of discretion, the Commission should, for a change, devise a legally and technically sound plan
to computerize our elections and show our people that it is capable of managing the transition from an archaic to a
modern electoral system.
WHEREFORE, the Motion is hereby DENIED for utter lack of merit.
SO ORDERED.
ARTEMIO V. PANGANIBAN
Associate Justice
WE CONCUR:
HILARIO G. DAVIDE, JR.
Chief Justice

REYNATO S. PUNO LEONARDO A. QUISUMBING

Associate Justice Associate Justice

CONSUELO YNARES-SANTIAGO ANGELINA SANDOVAL-GUTIERREZ

Associate Justice Associate Justice

ANTONIO T. CARPIO MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice Associate Justice

RENATO C. CORONA CONCHITA CARPIO MORALES

Associate Justice Associate Justice

ROMEO J. CALLEJO, SR. ADOLFO S. AZCUNA

Associate Justice Associate Justice

DANTE O. TINGA MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

CANCIO C. GARCIA
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of the opinion of the Court.
HILARIO G. DAVIDE, JR.
Chief Justice

Footnotes
1 419 SCRA 141, January 13, 2004.

2 "As a necessary consequence of such nullity and illegality, the purchase of the machines and all appurtenances thereto

including the still-to-be-produced (or in Comelec’s words, to be ‘reprogrammed’) software, as well as all the payments
made therefor, have no basis whatsoever in law. The public funds expended pursuant to the void Resolution and
Contract must therefore be recovered from the payees and/or from the persons who made possible the illegal
disbursements, without prejudice to possible criminal prosecutions against them.
"Furthermore, Comelec and its officials concerned must bear full responsibility for the failed bidding and award, and
held accountable for the electoral mess wrought by their grave abuse of discretion in the performance of their functions.
The State, of course, is not bound by the mistakes and illegalities of its agents and servants." (Id., pp. 203-204.)
3 The Comelec Motion expressly recognizes this fact on page 2, which we quote:

"Since the Decision has become final and executory, COMELEC and MPC-MPEI are under obligation to make mutual
restitution."
4 The dispositive portion of our Decision reads:

"WHEREFORE, the Petition is GRANTED. The Court hereby declares NULL and VOID Comelec Resolution No. 6074
awarding the contract for Phase II of the AES [Automated Election System] to Mega Pacific Consortium (MPC). Also
declared null and void is the subject Contract executed between Comelec and Mega Pacific eSolutions (MPEI). Comelec
is further ORDERED to refrain from implementing any other contract or agreement entered into with regard to this
project.
"Let a copy of this Decision be furnished the Office of the Ombudsman which shall determine the criminal liability, if any,
of the public officials (and conspiring private individuals, if any) involved in the subject Resolution and Contract. Let the
Office of the Solicitor General also take measures to protect the government and vindicate public interest from the ill
effects of the illegal disbursements of public funds made by reason of the void Resolution and Contract."
5 402 SCRA 612, May 5, 2003 and 420 SCRA 575, January 21, 2004.

6 Art. VIII, Sec. 1, par. 2, 1987 Constitution.

7 Philippine Veterans Bank v. Estrella, 405 SCRA 168, June 27, 2003. While there are recognized exceptions to the rule --

viz., the correction of clerical errors, nunc pro tunc entries that cause no prejudice to any party, and of course when the
judgment is void -- movants have not claimed or shown that any such exceptions apply here.
8 There are actually more than four signatories, as will be explained presently.

9 They are Nelson J. Celis, Ma. Elena P. Van Tooren, Antonio G. Tinsay and Carlos Manuel.

10 The latter four are Romeo Monteclaro, Allan Borra, Ma. Leonora Padero and Alfonso Palpal-latoc Jr.

11 Rule 131, Sec. 3(o) of the Rules of Court. See Toh v. Solid Bank Corporation, 408 SCRA 544, August 7, 2003.

12 Vide Heirs of De Leon vda. de Roxas v. CA, 422 SCRA 101, February 6, 2004 (citing Buaya v. Stronghold Insurance Co.,

Inc., 342 SCRA 576, October 11, 2000.)

13 Comelec Motion, p. 2.

14 Decision, supra, p. 148.

15 Id., p. 193; italics in the original.

16 The text of the main Motion contains only four pages, not counting the annexes thereof.

17 For instance, during the 13th International Judicial Conference held in Kiev, Ukraine, on May 25-27, 2005, Carlos

Velloso, president of the Superior Electoral Tribunal of Brazil, publicly offered the free use of the automated counting
machines that had been successfully utilized in the automation of the elections in that country, which has many more
voters than the Philippines.
18 Republic v. Tan, 426 SCRA 485, March 30, 2004, per Carpio Morales, J.

19 See Aetna Life Insurance Co. v. Hayworth, 300 U.S. 227 (1937).

20 Vide: De Lumen v. Republic, 50 OG No. 2, February 14, 1952, p. 578.

21 Aetna Life Insurance Co. v. Hayworth, supra.

22 See also Automotive Industry Workers Alliance v. Romulo, GR No. 157509, January 18, 2005.

23 Decision, supra, p. 204.

G.R. No. 124293 January 31, 2005
J.G. SUMMIT HOLDINGS, INC., petitioner,
vs.
COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET PRIVATIZATION
TRUST; and PHILYARDS HOLDINGS, INC., respondents.
RESOLUTION
PUNO, J.:
For resolution before this Court are two motions filed by the petitioner, J.G. Summit Holdings, Inc. for reconsideration of
our Resolution dated September 24, 2003 and to elevate this case to the Court En Banc. The petitioner questions the
Resolution which reversed our Decision of November 20, 2000, which in turn reversed and set aside a Decision of the
Court of Appeals promulgated on July 18, 1995.
I. Facts
The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are as follows:
On January 27, 1997, the National Investment and Development Corporation (NIDC), a government corporation, entered
into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the
construction, operation and management of the Subic National Shipyard, Inc. (SNS) which subsequently became the
Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute
₱330 million for the capitalization of PHILSECO in the proportion of 60%-40% respectively. One of its salient features is
the grant to the parties of the right of first refusal should either of them decide to sell, assign or transfer its interest in
the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any third party without
giving the other under the same terms the right of first refusal. This provision shall not apply if the transferee is a
corporation owned or controlled by the GOVERNMENT or by a KAWASAKI affiliate.
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the Philippine National Bank
(PNB). Such interests were subsequently transferred to the National Government pursuant to Administrative Order No.
14. On December 8, 1986, President Corazon C. Aquino issued Proclamation No. 50 establishing the Committee on
Privatization (COP) and the Asset Privatization Trust (APT) to take title to, and possession of, conserve, manage and
dispose of non-performing assets of the National Government. Thereafter, on February 27, 1987, a trust agreement was
entered into between the National Government and the APT wherein the latter was named the trustee of the National
Government's share in PHILSECO. In 1989, as a result of a quasi-reorganization of PHILSECO to settle its huge obligations
to PNB, the National Government's shareholdings in PHILSECO increased to 97.41% thereby reducing KAWASAKI's
shareholdings to 2.59%.
In the interest of the national economy and the government, the COP and the APT deemed it best to sell the National
Government's share in PHILSECO to private entities. After a series of negotiations between the APT and KAWASAKI, they
agreed that the latter's right of first refusal under the JVA be "exchanged" for the right to top by five percent (5%) the
highest bid for the said shares. They further agreed that KAWASAKI would be entitled to name a company in which it
was a stockholder, which could exercise the right to top. On September 7, 1990, KAWASAKI informed APT that Philyards
Holdings, Inc. (PHI)1 would exercise its right to top.
At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of the JVA between
NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for the National Government's 87.6% equity
share in PHILSECO. The provisions of the ASBR were explained to the interested bidders who were notified that the
bidding would be held on December 2, 1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National Government's equity in
PHILSECO consisting of 896,869,942 shares of stock (representing 87.67% of PHILSECO's outstanding capital stock),
which will be sold as a whole block in accordance with the rules herein enumerated.
xxx xxx xxx
2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board of Trustees and the
Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the National
Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION (₱1,300,000,000.00).
xxx xxx xxx
6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting following the bidding,
for the purpose of determining whether or not it should be endorsed by the APT Board of Trustees to the COP, and the
latter approves the same. The APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS]
Holdings, Inc., that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or
[PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such advice
from APT within which to exercise their "Option to Top the Highest Bid" by offering a bid equivalent to the highest bid
plus five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise their "Option to Top the Highest
Bid," they shall so notify the APT about such exercise of their option and deposit with APT the amount equivalent to ten
percent (10%) of the highest bid plus five percent (5%) thereof within the thirty (30)-day period mentioned in paragraph
6.0 above. APT will then serve notice upon Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. declaring
them as the preferred bidder and they shall have a period of ninety (90) days from the receipt of the APT's notice within
which to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to exercise their "Option to Top the
Highest Bid" within the thirty (30)-day period, APT will declare the highest bidder as the winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the official bid forms,
including any addenda or amendments thereto issued during the bidding period. The bidder shall likewise be responsible
for informing itself with respect to any and all conditions concerning the PHILSECO Shares which may, in any manner,
affect the bidder's proposal. Failure on the part of the bidder to so examine and inform itself shall be its sole risk and no
relief for error or omission will be given by APT or COP. . . .
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc.2 submitted a bid of Two Billion and Thirty
Million Pesos (₱2,030,000,000.00) with an acknowledgment of KAWASAKI/[PHILYARDS'] right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on APT's
recommendation based on the result of this bidding. Should the COP approve the highest bid, APT shall advise Kawasaki
Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc. that the highest bid is acceptable to the National
Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period of thirty (30)
calendar days from the date of receipt of such advice from APT within which to exercise their "Option to Top the Highest
Bid" by offering a bid equivalent to the highest bid plus five (5%) percent thereof.
As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993 "subject to the right of
Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as specified in the bidding rules."
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid on the grounds that:
(a) the KAWASAKI/PHI consortium composed of KAWASAKI, [PHILYARDS], Mitsui, Keppel, SM Group, ICTSI and Insular
Life violated the ASBR because the last four (4) companies were the losing bidders thereby circumventing the law and
prejudicing the weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the same option to
top to PHI constituted unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a public
bidding or auction sale; and (e) the JG Summit consortium was not estopped from questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase price of the subject
bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised its option to top the highest bid and
that the COP had approved the same on January 6, 1994. On February 24, 1994, the APT and PHI executed a Stock
Purchase Agreement. Consequently, petitioner filed with this Court a Petition for Mandamus under G.R. No. 114057. On
May 11, 1994, said petition was referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied the
same for lack of merit. It ruled that the petition for mandamus was not the proper remedy to question the
constitutionality or legality of the right of first refusal and the right to top that was exercised by KAWASAKI/PHI, and that
the matter must be brought "by the proper party in the proper forum at the proper time and threshed out in a full
blown trial." The Court of Appeals further ruled that the right of first refusal and the right to top are prima facie legal
and that the petitioner, "by participating in the public bidding, with full knowledge of the right to top granted to
KAWASAKI/[PHILYARDS] is…estopped from questioning the validity of the award given to [PHILYARDS] after the latter
exercised the right to top and had paid in full the purchase price of the subject shares, pursuant to the ASBR." Petitioner
filed a Motion for Reconsideration of said Decision which was denied on March 15, 1996. Petitioner thus filed a Petition
for Certiorari with this Court alleging grave abuse of discretion on the part of the appellate court.
On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that the Court of Appeals erred when
it dismissed the petition on the sole ground of the impropriety of the special civil action of mandamus because the
petition was also one of certiorari. It further ruled that a shipyard like PHILSECO is a public utility whose capitalization
must be sixty percent (60%) Filipino-owned. Consequently, the right to top granted to KAWASAKI under the Asset
Specific Bidding Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government in PHILSECO is illegal
— not only because it violates the rules on competitive bidding — but more so, because it allows foreign corporations to
own more than 40% equity in the shipyard. It also held that "although the petitioner had the opportunity to examine the
ASBR before it participated in the bidding, it cannot be estopped from questioning the unconstitutional, illegal and
inequitable provisions thereof." Thus, this Court voided the transfer of the national government's 87.67% share in
PHILSECO to Philyard[s] Holdings, Inc., and upheld the right of JG Summit, as the highest bidder, to take title to the said
shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and Resolution of the Court
of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its bid price of Two Billion Thirty Million
Pesos (₱2,030,000,000.00), less its bid deposit plus interests upon the finality of this Decision. In turn, APT is ordered to:
(a) accept the said amount of ₱2,030,000,000.00 less bid deposit and interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6% of PHILSECO's total
capitalization;
(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million Five Hundred
Thousand Pesos (₱2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.
SO ORDERED.
In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x x resolution: (1) Whether
PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI can exercise its right of first refusal only up to
40% of the total capitalization of PHILSECO; and (3) Whether the right to top granted to KAWASAKI violates the
principles of competitive bidding.3 (citations omitted)
In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On the first issue, we held that
Philippine Shipyard and Engineering Corporation (PHILSECO) is not a public utility, as by nature, a shipyard is not a public
utility4 and that no law declares a shipyard to be a public utility.5 On the second issue, we found nothing in the 1977 Joint
Venture Agreement (JVA) which prevents Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) from acquiring
more than 40% of PHILSECO’s total capitalization.6 On the final issue, we held that the right to top granted to KAWASAKI
in exchange for its right of first refusal did not violate the principles of competitive bidding.7
On October 20, 2003, the petitioner filed a Motion for Reconsideration8 and a Motion to Elevate This Case to the
Court En Banc.9 Public respondents Committee on Privatization (COP) and Asset Privatization Trust (APT), and private
respondent Philyards Holdings, Inc. (PHILYARDS) filed their Comments on J.G. Summit Holdings, Inc.’s (JG Summit’s)
Motion for Reconsideration and Motion to Elevate This Case to the Court En Banc on January 29, 2004 and February 3,
2004, respectively.
II. Issues
Based on the foregoing, the relevant issues to resolve to end this litigation are the following:
1. Whether there are sufficient bases to elevate the case at bar to the Court en banc.
2. Whether the motion for reconsideration raises any new matter or cogent reason to warrant a reconsideration of this
Court’s Resolution of September 24, 2003.
Motion to Elevate this Case to the
Court En Banc
The petitioner prays for the elevation of the case to the Court en banc on the following grounds:
1. The main issue of the propriety of the bidding process involved in the present case has been confused with the policy
issue of the supposed fate of the shipping industry which has never been an issue that is determinative of this case.10
2. The present case may be considered under the Supreme Court Resolution dated February 23, 1984 which included
among en banc cases those involving a novel question of law and those where a doctrine or principle laid down by the
Court en banc or in division may be modified or reversed.11
3. There was clear executive interference in the judicial functions of the Court when the Honorable Jose Isidro Camacho,
Secretary of Finance, forwarded to Chief Justice Davide, a memorandum dated November 5, 2001, attaching a copy of
the Foreign Chambers Report dated October 17, 2001, which matter was placed in the agenda of the Court and noted by
it in a formal resolution dated November 28, 2001.12
Opposing J.G. Summit’s motion to elevate the case en banc, PHILYARDS points out the petitioner’s inconsistency in
previously opposing PHILYARDS’ Motion to Refer the Case to the Court En Banc. PHILYARDS contends that J.G. Summit
should now be estopped from asking that the case be referred to the Court en banc. PHILYARDS further contends that
the Supreme Court en banc is not an appellate court to which decisions or resolutions of its divisions may be appealed
citing Supreme Court Circular No. 2-89 dated February 7, 1989.13 PHILYARDS also alleges that there is no novel question
of law involved in the present case as the assailed Resolution was based on well-settled jurisprudence. Likewise,
PHILYARDS stresses that the Resolution was merely an outcome of the motions for reconsideration filed by it and the
COP and APT and is "consistent with the inherent power of courts to ‘amend and control its process and orders so as to
make them conformable to law and justice.’ (Rule 135, sec. 5)"14 Private respondent belittles the petitioner’s allegations
regarding the change in ponente and the alleged executive interference as shown by former Secretary of Finance Jose
Isidro Camacho’s memorandum dated November 5, 2001 arguing that these do not justify a referral of the present case
to the Court en banc.
In insisting that its Motion to Elevate This Case to the Court En Banc should be granted, J.G. Summit further argued that:
its Opposition to the Office of the Solicitor General’s Motion to Refer is different from its own Motion to Elevate;
different grounds are invoked by the two motions; there was unwarranted "executive interference"; and the change
in ponente is merely noted in asserting that this case should be decided by the Court en banc.15
We find no merit in petitioner’s contention that the propriety of the bidding process involved in the present case has
been confused with the policy issue of the fate of the shipping industry which, petitioner maintains, has never been an
issue that is determinative of this case. The Court’s Resolution of September 24, 2003 reveals a clear and definitive
ruling on the propriety of the bidding process. In discussing whether the right to top granted to KAWASAKI in exchange
for its right of first refusal violates the principles of competitive bidding, we made an exhaustive discourse on the rules
and principles of public bidding and whether they were complied with in the case at bar.16 This Court categorically ruled
on the petitioner’s argument that PHILSECO, as a shipyard, is a public utility which should maintain a 60%-40% Filipino-
foreign equity ratio, as it was a pivotal issue. In doing so, we recognized the impact of our ruling on the shipbuilding
industry which was beyond avoidance.17
We reject petitioner’s argument that the present case may be considered under the Supreme Court Resolution dated
February 23, 1984 which included among en banc cases those involving a novel question of law and those where a
doctrine or principle laid down by the court en banc or in division may be modified or reversed. The case was resolved
based on basic principles of the right of first refusal in commercial law and estoppel in civil law. Contractual obligations
arising from rights of first refusal are not new in this jurisdiction and have been recognized in numerous cases.18 Estoppel
is too known a civil law concept to require an elongated discussion. Fundamental principles on public bidding were
likewise used to resolve the issues raised by the petitioner. To be sure, petitioner leans on the right to top in a public
bidding in arguing that the case at bar involves a novel issue. We are not swayed. The right to top was merely a
condition or a reservation made in the bidding rules which was fully disclosed to all bidding parties. In Bureau Veritas,
represented by Theodor H. Hunermann v. Office of the President, et al., 19 we dealt with this conditionality, viz:
x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L-18751, 28 April 1962, 4 SCRA
1245), that in an "invitation to bid, there is a condition imposed upon the bidders to the effect that the bidding shall be
subject to the right of the government to reject any and all bids subject to its discretion. In the case at bar, the
government has made its choice and unless an unfairness or injustice is shown, the losing bidders have no cause to
complain nor right to dispute that choice. This is a well-settled doctrine in this jurisdiction and elsewhere."
The discretion to accept or reject a bid and award contracts is vested in the Government agencies entrusted with that
function. The discretion given to the authorities on this matter is of such wide latitude that the Courts will not interfere
therewith, unless it is apparent that it is used as a shield to a fraudulent award (Jalandoni v. NARRA, 108 Phil. 486
[1960]). x x x The exercise of this discretion is a policy decision that necessitates prior inquiry, investigation, comparison,
evaluation, and deliberation. This task can best be discharged by the Government agencies concerned, not by the
Courts. The role of the Courts is to ascertain whether a branch or instrumentality of the Government has transgressed
its constitutional boundaries. But the Courts will not interfere with executive or legislative discretion exercised within
those boundaries. Otherwise, it strays into the realm of policy decision-making.
It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the award of a contract made by
a government entity. Grave abuse of discretion implies a capricious, arbitrary and whimsical exercise of power (Filinvest
Credit Corp. v. Intermediate Appellate Court, No. 65935, 30 September 1988, 166 SCRA 155). The abuse of discretion
must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform a duty
enjoined by law, as to act at all in contemplation of law, where the power is exercised in an arbitrary and despotic
manner by reason of passion or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.], L-40867, 26 July 1988, 163
SCRA 489).
The facts in this case do not indicate any such grave abuse of discretion on the part of public respondents when they
awarded the CISS contract to Respondent SGS. In the "Invitation to Prequalify and Bid" (Annex "C," supra), the CISS
Committee made an express reservation of the right of the Government to "reject any or all bids or any part thereof or
waive any defects contained thereon and accept an offer most advantageous to the Government." It is a well-settled
rule that where such reservation is made in an Invitation to Bid, the highest or lowest bidder, as the case may be, is not
entitled to an award as a matter of right (C & C Commercial Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA 112).
Even the lowest Bid or any Bid may be rejected or, in the exercise of sound discretion, the award may be made to
another than the lowest bidder (A.C. Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur., 788). (emphases supplied) 1awphi1. nét

Like the condition in the Bureau Veritas case, the right to top was a condition imposed by the government in the bidding
rules which was made known to all parties. It was a condition imposed on all bidders equally, based on the APT’s
exercise of its discretion in deciding on how best to privatize the government’s shares in PHILSECO. It was not a
whimsical or arbitrary condition plucked from the ether and inserted in the bidding rules but a condition which the APT
approved as the best way the government could comply with its contractual obligations to KAWASAKI under the JVA and
its mandate of getting the most advantageous deal for the government. The right to top had its history in the mutual
right of first refusal in the JVA and was reached by agreement of the government and KAWASAKI.
Further, there is no "executive interference" in the functions of this Court by the mere filing of a memorandum by
Secretary of Finance Jose Isidro Camacho. The memorandum was merely "noted" to acknowledge its filing. It had no
further legal significance. Notably too, the assailed Resolution dated September 24, 2003 was decided unanimously by
the Special First Division in favor of the respondents.
Again, we emphasize that a decision or resolution of a Division is that of the Supreme Court20 and the Court en banc is
not an appellate court to which decisions or resolutions of a Division may be appealed.21
For all the foregoing reasons, we find no basis to elevate this case to the Court en banc.
Motion for Reconsideration
Three principal arguments were raised in the petitioner’s Motion for Reconsideration. First, that a fair resolution of the
case should be based on contract law, not on policy considerations; the contracts do not authorize the right to top to be
derived from the right of first refusal.22 Second, that neither the right of first refusal nor the right to top can be legally
exercised by the consortium which is not the proper party granted such right under either the JVA or the Asset Specific
Bidding Rules (ASBR).23 Third, that the maintenance of the 60%-40% relationship between the National Investment and
Development Corporation (NIDC) and KAWASAKI arises from contract and from the Constitution because PHILSECO is a
landholding corporation and need not be a public utility to be bound by the 60%-40% constitutional limitation.24
On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been able to show compelling
reasons to warrant a reconsideration of the Decision of the Court.25 PHILYARDS denies that the Decision is based mainly
on policy considerations and points out that it is premised on principles governing obligations and contracts and
corporate law such as the rule requiring respect for contractual stipulations, upholding rights of first refusal, and
recognizing the assignable nature of contracts rights.26 Also, the ruling that shipyards are not public utilities relies on
established case law and fundamental rules of statutory construction. PHILYARDS stresses that KAWASAKI’s right of first
refusal or even the right to top is not limited to the 40% equity of the latter.27 On the landholding issue raised by J.G.
Summit, PHILYARDS emphasizes that this is a non-issue and even involves a question of fact. Even assuming that this
Court can take cognizance of such question of fact even without the benefit of a trial, PHILYARDS opines that
landholding by PHILSECO at the time of the bidding is irrelevant because what is essential is that ultimately a qualified
entity would eventually hold PHILSECO’s real estate properties.28 Further, given the assignable nature of the right of first
refusal, any applicable nationality restrictions, including landholding limitations, would not affect the right of first refusal
itself, but only the manner of its exercise.29 Also, PHILYARDS argues that if this Court takes cognizance of J.G. Summit’s
allegations of fact regarding PHILSECO’s landholding, it must also recognize PHILYARDS’ assertions that PHILSECO’s
landholdings were sold to another corporation.30 As regards the right of first refusal, private respondent explains that
KAWASAKI’s reduced shareholdings (from 40% to 2.59%) did not translate to a deprivation or loss of its contractually
granted right of first refusal.31 Also, the bidding was valid because PHILYARDS exercised the right to top and it was of no
moment that losing bidders later joined PHILYARDS in raising the purchase price.32
In cadence with the private respondent PHILYARDS, public respondents COP and APT contend:
1. The conversion of the right of first refusal into a right to top by 5% does not violate any provision in the JVA between
NIDC and KAWASAKI.
2. PHILSECO is not a public utility and therefore not governed by the constitutional restriction on foreign ownership.
3. The petitioner is legally estopped from assailing the validity of the proceedings of the public bidding as it voluntarily
submitted itself to the terms of the ASBR which included the provision on the right to top.
4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI and the fact that PHILYARDS formed a
consortium to raise the required amount to exercise the right to top the highest bid by 5% does not violate the JVA or
the ASBR.
5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of lands does not apply to PHILSECO
because as admitted by petitioner itself, PHILSECO no longer owns real property.
6. Petitioner’s motion to elevate the case to the Court en banc is baseless and would only delay the termination of this
case.33
In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments of the public and private
respondents in this wise:
1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with losing bidders through the exercise of a right
to top, which is contrary to law and the constitution is null and void for being violative of substantive due process and
the abuse of right provision in the Civil Code.
a. The bidders[’] right to top was actually exercised by losing bidders.
b. The right to top or the right of first refusal cannot co-exist with a genuine competitive bidding.
c. The benefits derived from the right to top were unwarranted.
2. The landholding issue has been a legitimate issue since the start of this case but is shamelessly ignored by the
respondents.
a. The landholding issue is not a non-issue.
b. The landholding issue does not pose questions of fact.
c. That PHILSECO owned land at the time that the right of first refusal was agreed upon and at the time of the bidding
are most relevant.
d. Whether a shipyard is a public utility is not the core issue in this case.
3. Fraud and bad faith attend the alleged conversion of an inexistent right of first refusal to the right to top.
a. The history behind the birth of the right to top shows fraud and bad faith.
b. The right of first refusal was, indeed, "effectively useless."
4. Petitioner is not legally estopped to challenge the right to top in this case.
a. Estoppel is unavailing as it would stamp validity to an act that is prohibited by law or against public policy.
b. Deception was patent; the right to top was an attractive nuisance.
c. The 10% bid deposit was placed in escrow.
J.G. Summit’s insistence that the right to top cannot be sourced from the right of first refusal is not new and we have
already ruled on the issue in our Resolution of September 24, 2003. We upheld the mutual right of first refusal in the
JVA.34 We also ruled that nothing in the JVA prevents KAWASAKI from acquiring more than 40% of PHILSECO’s total
capitalization.35 Likewise, nothing in the JVA or ASBR bars the conversion of the right of first refusal to the right to top. In
sum, nothing new and of significance in the petitioner’s pleading warrants a reconsideration of our ruling.
Likewise, we already disposed of the argument that neither the right of first refusal nor the right to top can legally be
exercised by the consortium which is not the proper party granted such right under either the JVA or the ASBR. Thus, we
held:
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life Assurance, Mitsui and
ICTSI), has joined PHILYARDS in the latter's effort to raise ₱2.131 billion necessary in exercising the right to top is not
contrary to law, public policy or public morals. There is nothing in the ASBR that bars the losing bidders from joining
either the winning bidder (should the right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to top as
it did), to raise the purchase price. The petitioner did not allege, nor was it shown by competent evidence, that the
participation of the losing bidders in the public bidding was done with fraudulent intent. Absent any proof of fraud, the
formation by [PHILYARDS] of a consortium is legitimate in a free enterprise system. The appellate court is thus correct in
holding the petitioner estopped from questioning the validity of the transfer of the National Government's shares in
PHILSECO to respondent.36
Further, we see no inherent illegality on PHILYARDS’ act in seeking funding from parties who were losing bidders. This is
a purely commercial decision over which the State should not interfere absent any legal infirmity. It is emphasized that
the case at bar involves the disposition of shares in a corporation which the government sought to privatize. As such, the
persons with whom PHILYARDS desired to enter into business with in order to raise funds to purchase the shares are
basically its business. This is in contrast to a case involving a contract for the operation of or construction of a
government infrastructure where the identity of the buyer/bidder or financier constitutes an important consideration. In
such cases, the government would have to take utmost precaution to protect public interest by ensuring that the parties
with which it is contracting have the ability to satisfactorily construct or operate the infrastructure.
On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding company, KAWASAKI could exercise
its right of first refusal only up to 40% of the shares of PHILSECO due to the constitutional prohibition on landholding by
corporations with more than 40% foreign-owned equity. It further argues that since KAWASAKI already held at least 40%
equity in PHILSECO, the right of first refusal was inutile and as such, could not subsequently be converted into the right
to top. 37 Petitioner also asserts that, at present, PHILSECO continues to violate the constitutional provision on
landholdings as its shares are more than 40% foreign-owned.38 PHILYARDS admits that it may have previously held land
but had already divested such landholdings.39 It contends, however, that even if PHILSECO owned land, this would not
affect the right of first refusal but only the exercise thereof. If the land is retained, the right of first refusal, being a
property right, could be assigned to a qualified party. In the alternative, the land could be divested before the exercise
of the right of first refusal. In the case at bar, respondents assert that since the right of first refusal was validly converted
into a right to top, which was exercised not by KAWASAKI, but by PHILYARDS which is a Filipino corporation (i.e., 60% of
its shares are owned by Filipinos), then there is no violation of the Constitution.40 At first, it would seem that questions
of fact beyond cognizance by this Court were involved in the issue. However, the records show that PHILYARDS admits it
had owned land up until the time of the bidding.41 Hence, the only issue is whether KAWASAKI had a valid right of first
refusal over PHILSECO shares under the JVA considering that PHILSECO owned land until the time of the bidding and
KAWASAKI already held 40% of PHILSECO’s equity.
We uphold the validity of the mutual rights of first refusal under the JVA between KAWASAKI and NIDC. First of all, the
right of first refusal is a property right of PHILSECO shareholders, KAWASAKI and NIDC, under the terms of their JVA. This
right allows them to purchase the shares of their co-shareholder before they are offered to a third party. The agreement
of co-shareholders to mutually grant this right to each other, by itself, does not constitute a violation of the provisions of
the Constitution limiting land ownership to Filipinos and Filipino corporations. As PHILYARDS correctly puts it, if
PHILSECO still owns land, the right of first refusal can be validly assigned to a qualified Filipino entity in order to maintain
the 60%-40% ratio. This transfer, by itself, does not amount to a violation of the Anti-Dummy Laws, absent proof of any
fraudulent intent. The transfer could be made either to a nominee or such other party which the holder of the right of
first refusal feels it can comfortably do business with. Alternatively, PHILSECO may divest of its landholdings, in which
case KAWASAKI, in exercising its right of first refusal, can exceed 40% of PHILSECO’s equity. In fact, it can even be said
that if the foreign shareholdings of a landholding corporation exceeds 40%, it is not the foreign stockholders’ ownership
of the shares which is adversely affected but the capacity of the corporation to own land – that is, the corporation
becomes disqualified to own land. This finds support under the basic corporate law principle that the corporation and its
stockholders are separate juridical entities. In this vein, the right of first refusal over shares pertains to the shareholders
whereas the capacity to own land pertains to the corporation. Hence, the fact that PHILSECO owns land cannot deprive
stockholders of their right of first refusal. No law disqualifies a person from purchasing shares in a landholding
corporation even if the latter will exceed the allowed foreign equity, what the law disqualifies is the corporation from
owning land. This is the clear import of the following provisions in the Constitution:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential
energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With
the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and
utilization of natural resources shall be under the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with
Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens.
Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years,
and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of
the grant.
xxx xxx xxx
Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain.42 (emphases supplied)
The petitioner further argues that "an option to buy land is void in itself (Philippine Banking Corporation v. Lui She, 21
SCRA 52 [1967]). The right of first refusal granted to KAWASAKI, a Japanese corporation, is similarly void. Hence, the
right to top, sourced from the right of first refusal, is also void."43 Contrary to the contention of petitioner, the case of Lui
She did not that say "an option to buy land is void in itself," for we ruled as follows:
x x x To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien the right to buy real
property on condition that he is granted Philippine citizenship. As this Court said in Krivenko vs. Register of Deeds:
[A]liens are not completely excluded by the Constitution from the use of lands for residential purposes. Since their
residence in the Philippines is temporary, they may be granted temporary rights such as a lease contract which is not
forbidden by the Constitution. Should they desire to remain here forever and share our fortunes and misfortunes,
Filipino citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which the Filipino owner
cannot sell or otherwise dispose of his property, this to last for 50 years, then it becomes clear that the arrangement is a
virtual transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land (jus
possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to dispose of it (jus disponendi) — rights the sum
total of which make up ownership. It is just as if today the possession is transferred, tomorrow, the use, the next day,
the disposition, and so on, until ultimately all the rights of which ownership is made up are consolidated in an alien. And
yet this is just exactly what the parties in this case did within this pace of one year, with the result that Justina Santos'[s]
ownership of her property was reduced to a hollow concept. If this can be done, then the Constitutional ban against
alien landholding in the Philippines, as announced in Krivenko vs. Register of Deeds, is indeed in grave peril.44 (emphases
supplied; Citations omitted)
In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of ownership as the owner could
not sell or dispose of his properties. The contract in Lui She prohibited the owner of the land from selling, donating,
mortgaging, or encumbering the property during the 50-year period of the option to buy. This is not so in the case at bar
where the mutual right of first refusal in favor of NIDC and KAWASAKI does not amount to a virtual transfer of land to a
non-Filipino. In fact, the case at bar involves a right of first refusal over shares of stock while the Lui She case involves
an option to buy the land itself. As discussed earlier, there is a distinction between the shareholder’s ownership of
shares and the corporation’s ownership of land arising from the separate juridical personalities of the corporation and
its shareholders.
We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO continues to violate the Constitution
as its foreign equity is above 40% and yet owns long-term leasehold rights which are real rights.45 It cites Article 415 of
the Civil Code which includes in the definition of immovable property, "contracts for public works, and servitudes and
other real rights over immovable property."46 Any existing landholding, however, is denied by PHILYARDS citing its recent
financial statements.47 First, these are questions of fact, the veracity of which would require introduction of evidence.
The Court needs to validate these factual allegations based on competent and reliable evidence. As such, the Court
cannot resolve the questions they pose. Second, J.G. Summit misreads the provisions of the Constitution cited in its own
pleadings, to wit:
29.2 Petitioner has consistently pointed out in the past that private respondent is not a 60%-40% corporation, and this
violates the Constitution x x x The violation continues to this day because under the law, it continues to own real
property…
xxx xxx xxx
32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973 Constitution (the JVA was signed
in 1977), provided:
"Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain."
32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.
32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the public domain are corporations at
least 60% of which is owned by Filipino citizens (Sec. 22, Commonwealth Act 141, as amended). (emphases supplied)
As correctly observed by the public respondents, the prohibition in the Constitution applies only to ownership of
land.48 It does not extend to immovable or real property as defined under Article 415 of the Civil Code. Otherwise, we
would have a strange situation where the ownership of immovable property such as trees, plants and growing fruit
attached to the land49 would be limited to Filipinos and Filipino corporations only.
III.
WHEREFORE, in view of the foregoing, the petitioner’s Motion for Reconsideration is DENIED WITH FINALITY and the
decision appealed from is AFFIRMED. The Motion to Elevate This Case to the Court En Banc is likewise DENIED for lack of
merit.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Corona, and Tinga, JJ., concur.

Footnotes
1 Also referred to in this Resolution as "PHILYARDS."

2 Also referred to as J G Summit.

3 Resolution promulgated on September 24, 2003, pp. 2 – 10.

4 Id. at 10 – 13.

5 Id. at 14 – 22.

6 Id. at 22 – 25.

7 Id. at 26 – 32.

8 Rollo, p. 1854.

9 Rollo, p. 1876.

10 J.G. Summit’s Motion to Elevate this Case to the Court En Banc dated October 17, 2003, p. 3; Rollo, p. 1878.

11 Id.

12 Id.

13 2. A decision or resolution of a Division of the Court, when concurred in by a majority of its Members who actually

took part in the deliberations on the issues in a case and voted thereon, and in no case without the concurrence of at
least three of such Members, is a decision or resolution of the Supreme Court (Section 4[3], Article VIII, 1987
Constitution).
3. The Court en banc is not an Appellate Court to which decisions or resolutions of a Division may be appealed.
xxx xxx xxx
5. A resolution of the Division denying a party’s motion for referral to the Court en banc of any Division case, shall be
final and not appealable to the Court en banc.
6. When a decision or resolution is referred by a Division to the Court en banc, the latter may, in the absence of
sufficiently important reasons, decline to take cognizance of the same, in which case, the decision or resolution shall be
returned to the referring Division.
7. No motion for reconsideration of the action of the Court en banc declining to take cognizance of a referral by a
Division, shall be entertained.
14 PHILYARDS’ Comment dated February 3, 2004, pp. 26-27; Rollo, pp. 1996-1997.

15 J.G. Summit’s Consolidated Comment dated March 8, 2004.

16 Resolution dated September 24, 2003, pp. 26-32.

17 Id., pp. 10-22.

18 See Bastida and Ysmael & Co., Inc. v. Dy Buncio & Co., Inc., 93 Phil. 195 (1953); Garcia v. Burgos , 291 SCRA 546

(1998); Sadhwani v. CA , 281 SCRA 75 (1997); Parañaque Kings Enterprises, Incorporated v. CA , 268 SCRA 727
(1997); Polytechnic University of the Philippines v. CA , 368 SCRA 691 (2001); and Guzman, Bocaling & Co. v. Bonnevie,
206 SCRA 668 (1992).
19 G.R. No. 101678, February 3, 1992, 205 SCRA 705.

20 Sec. 4(3), Art. VIII, Constitution.

21 Supreme Court Circular No. 2-89, February 7, 1989.

22 J.G. Summit’s Motion for Reconsideration dated October 17, 2003, pp. 8-9; Rollo, pp. 1861-1862.

23 Id. at 10-13; Rollo, pp. 1863-1866.

24 Id. at 13-19; Rollo, pp. 1866-1872.

25 PHILYARDS’ Comment dated February 3, 2004, p. 1; Rollo, p. 1971.

26 Id. at 2; Rollo, p. 1972.

27 Id. at 5; Rollo, p. 1975.

28 Id. at 9; Rollo, p. 1979.

29 Id. at 12; Rollo, p. 1982.

30 Id.

31 Id. at 14; Rollo, p. 1984.

32 Id. at 19; Rollo, p. 1989.

33 COP and APT’s Comment dated January 14, 2004, pp. 14-15; Rollo, pp. 1927-1928.
34 Resolution dated September 24, 2003, pp. 23-24.
35 Id. at 22.
36 Resolution dated September 24, 2003, pp. 31-32.

37 J.G. Summit’s Consolidated Reply dated March 11, 2004, p. 14; Rollo, p. 2109.

38 Id.

39 PHILYARDS’ Manifestation and Comment dated June 26, 2002, p. 10; Rollo, p. 1334.

40 PHILYARDS’ Comment dated February 3, 2004, pp. 8-16; Rollo, pp. 1978-1986.

41 PHILYARDS’ Manifestation and Comment dated June 26, 2002, p. 10; Rollo, p. 1334.

42 Constitution, Article XII, National Economy and Patrimony.

43 J.G. Summit’s Consolidated Comment dated March 8, 2004, p. 17; Rollo, p. 2112.

44 Philippine Banking Corporation v. Lui She, No. L-17587, September 12, 1967, 21 SCRA 52.

45 J.G. Summit’s Motion for Reconsideration dated October 17, 2003, p. 14; Rollo, p. 1867.

46 Id. at 15; Rollo, p. 1868.

47 PHILYARDS’ Manifestation and Comment dated June 26, 2002, p. 10; Rollo, p. 1334.

48 COP and APT’s Comment dated January 14, 2004, p. 36; Rollo, p. 1949.

49 Art. 415(2), Civil Code.

JG Summit Holdings Inc. vs. CA
on 7:00 AM in Case Digests, Commercial Law
0
G.R. No. 124293, November 20, 2000
FACTS:

The National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint
Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. for the construction, operation and
management of the Subic National Shipyard, Inc., later became the Philippine Shipyard and Engineering
Corporation (PHILSECO). Under the JVA, NIDC and Kawasaki would maintain a shareholding proportion of
60%-40% and that the parties have the right of first refusal in case of a sale.

Through a series of transfers, NIDC’s rights, title and interest in PHILSECO eventually went to the National
Government. In the interest of national economy, it was decided that PHILSECO should be privatized by
selling 87.67% of its total outstanding capital stock to private entities. After negotiations, it was agreed that
Kawasaki’s right of first refusal under the JVA be “exchanged” for the right to top by five percent the highest bid
for said shares. Kawasaki that Philyards Holdings, Inc. (PHI), in which it was a stockholder, would exercise this
right in its stead.

During bidding, Kawasaki/PHI Consortium is the losing bidder. Even so, because of the right to top by 5%
percent the highest bid, it was able to top JG Summit’s bid. JG Summit protested, contending that PHILSECO,
as a shipyard is a public utility and, hence, must observe the 60%-40% Filipino-foreign capitalization. By
buying 87.67% of PHILSECO’s capital stock at bidding, Kawasaki/PHI in effect now owns more than 40% of
the stock.

ISSUE:

Whether or not PHILSECO is a public utility

Whether or not Kawasaki/PHI can purchase beyond 40% of PHILSECO’s stocks

HELD:

In arguing that PHILSECO, as a shipyard, was a public utility, JG Summit relied on sec. 13, CA No. 146. On
the other hand, Kawasaki/PHI argued that PD No. 666 explicitly stated that a “shipyard” was not a “public
utility.” But the SC stated that sec. 1 of PD No. 666 was expressly repealed by sec. 20, BP Blg. 391 and when
BP Blg. 391 was subsequently repealed by EO 226, the latter law did not revive sec. 1 of PD No. 666.
Therefore, the law that states that a shipyard is a public utility still stands.

A shipyard such as PHILSECO being a public utility as provided by law is therefore required to comply with the
60%-40% capitalization under the Constitution. Likewise, the JVA between NIDC and Kawasaki manifests an
intention of the parties to abide by this constitutional mandate. Thus, under the JVA, should the NIDC opt to
sell its shares of stock to a third party, Kawasaki could only exercise its right of first refusal to the extent that its
total shares of stock would not exceed 40% of the entire shares of stock. The NIDC, on the other hand, may
purchase even beyond 60% of the total shares. As a government corporation and necessarily a 100% Filipino-
owned corporation, there is nothing to prevent its purchase of stocks even beyond 60% of the capitalization as
the Constitution clearly limits only foreign capitalization.

Kawasaki was bound by its contractual obligation under the JVA that limits its right of first refusal to 40% of the
total capitalization of PHILSECO. Thus, Kawasaki cannot purchase beyond 40% of the capitalization of the
joint venture on account of both constitutional and contractual proscriptions.
J. TIOSEJO INVESTMENT CORP., G.R. No. 174149
Petitioner,

Present:

CORONA, C.J.,
Chairperson,
- versus - VELASCO, JR.,
LEONARDO-DE CASTRO,
PEREZ, and
MENDOZA,* JJ.

SPOUSES BENJAMIN AND ELEANOR Promulgated:

ANG,
Respondents. September 8, 2010
x --------------------------------------------------x

DECISION

PEREZ, J.:

Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for review at bench seeks the reversal of
the Resolutions dated 23 May 2006 and 9 August 2006 issued by the Third Division of the Court of Appeals (CA) in CA-
G.R. SP No. 93841 which, respectively, dismissed the petition for review of petitioner J. Tiosejo Investment Corp. (JTIC)
for having been filed out of time[1] and denied the motion for reconsideration of said dismissal.[2]

The Facts

On 28 December 1995 petitioner entered into a Joint Venture Agreement (JVA) with Primetown Property Group,
Inc. (PPGI) for the development of a residential condominium project to be known as The Meditel on the former’s 9,502
square meter property along Samat St., Highway Hills, Mandaluyong City.[3] With petitioner contributing the same
property to the joint venture and PPGI undertaking to develop the condominium, the JVA provided, among other terms
and conditions, that the developed units shall be shared by the former and the latter at a ratio of 17%-83%,
respectively.[4] While both parties were allowed, at their own individual responsibility, to pre-sell the units pertaining to
them,[5] PPGI further undertook to use all proceeds from the pre-selling of its saleable units for the completion of the
Condominium Project.” [6]

On 17 June 1996, the Housing and Land Use Regulatory Board (HLURB) issued License to Sell No. 96-06-2854 in
favor of petitioner and PPGI as project owners.[7] By virtue of said license, PPGI executed Contract to Sell No. 0212 with
Spouses Benjamin and Eleanor Ang on 5 February 1997, over the 35.45-square meter condominium unit denominated as
Unit A-1006, for the agreed contract price of P52,597.88 per square meter or a total P2,077,334.25.[8] On the same
date PPGI and respondents also executed Contract to Sell No. 0214 over the 12.50 square meter parking space identified
as Parking Slot No. 0405, for the stipulated consideration of P26,400.00 square meters or a total of P313,500.00.[9]

On 21 July 1999, respondents filed against petitioner and PPGI the complaint for the rescission of the aforesaid
Contracts to Sell docketed before the HLURB as HLURB Case No. REM 072199-10567. Contending that they were
assured by petitioner and PPGI that the subject condominium unit and parking space would be available for turn-over
and occupancy in December 1998, respondents averred, among other matters, that in view of the non-completion of the
project according to said representation, respondents instructed petitioner and PPGI to stop depositing the post-dated
checks they issued and to cancel said Contracts to Sell; and, that despite several demands, petitioner and PPGI have
failed and refused to refund the P611,519.52 they already paid under the circumstances. Together with the refund of
said amount and interests thereon at the rate of 12% per annum, respondents prayed for the grant of their claims for
moral and exemplary damages as well as attorney’s fees and the costs.[10]

Specifically denying the material allegations of the foregoing complaint, PPGI filed its 7 September 1999 answer
alleging that the delay in the completion of the project was attributable to the economic crisis which affected the
country at the time; that the unexpected and unforeseen inflation as well as increase in interest rates and cost of
building materials constitute force majeure and were beyond its control; that aware of its responsibilities, it offered
several alternatives to its buyers like respondents for a transfer of their investment to its other feasible projects and for
the amounts they already paid to be considered as partial payment for the replacement unit/s; and, that the complaint
was prematurely filed in view of the on-going negotiations it is undertaking with its buyers and prospective joint venture
partners. Aside from the dismissal of the complaint, PPGI sought the readjustment of the contract price and the grant of
its counterclaims for attorney’s fees and litigation expenses.[11]

Petitioner also specifically denied the material allegations of the complaint in separate answer dated 5 February
[12]
2002 which it amended on 20 May 2002. Calling attention to the fact that its prestation under the JVA consisted in
contributing the property on which The Meditel was to be constructed, petitioner asseverated that, by the terms of the
JVA, each party was individually responsible for the marketing and sale of the units pertaining to its share; that not being
privy to the Contracts to Sell executed by PPGI and respondents, it did not receive any portion of the payments made by
the latter; and, that without any contributory fault and negligence on its part, PPGI breached its undertakings under the
JVA by failing to complete the condominium project. In addition to the dismissal of the complaint and the grant of its
counterclaims for exemplary damages, attorney’s fees, litigation expenses and the costs, petitioner interposed a cross-
claim against PPGI for full reimbursement of any sum it may be adjudged liable to pay respondents.[13]

Acting on the position papers and draft decisions subsequently submitted by the parties,[14] Housing and Land Use
(HLU) Arbiter Dunstan T. San Vicente went on to render the 30 July 2003 decision declaring the subject Contracts to Sell
cancelled and rescinded on account of the non-completion of the condominium project. On the ground that the JVA
created a partnership liability on their part, petitioner and PPGI, as co-owners of the condominium project, were
ordered to pay: (a) respondents’ claim for refund of the P611,519.52 they paid, with interest at the rate of 12% per
annum from 5 February 1997; (b) damages in the sum of P75,000.00; (c) attorney’s fees in the sum of P30,000.00; (d)
the costs; and, (e) an administrative fine in the sum of P10,000.00 for violation of Sec. 20 in relation to Sec. 38 of
Presidential Decree No. 957. [15] Elevated to the HLURB Board of Commissioners via the petition for review filed by
petitioner,[16] the foregoing decision was modified to grant the latter’s cross-claim in the 14 September 2004 decision
rendered by said administrative body’s Second Division in HLURB Case No. REM-A-031007-0240,[17] to wit:

Wherefore, the petition for review of the respondent Corporation is dismissed. However, the decision of the
Office below dated July 30, 2003 is modified, hence, its dispositive portion shall read:

1. Declaring the contracts to sell, both dated February 5, 1997, as cancelled and rescinded, and ordering the
respondents to immediately pay the complainants the following:
a. The amount of P611,519.52, with interest at the legal rate reckoned from February 5, 1997 until fully paid;
b. Damages of P75,000.00;
c. Attorney’s fees equivalent to P30,000.00; and
d. The Cost of suit;

2. Ordering respondents to pay this Office administrative fine of P10,000.00 for violation of Section 20 in relation to
Section 38 of P.D. 957; and

3. Ordering respondent Primetown to reimburse the entire amount which the respondent Corporation will be
constrained to pay the complainants.

So ordered.[18]

With the denial of its motion for reconsideration of the foregoing decision,[19] petitioner filed a Notice of Appeal
dated 28 February 2005 which was docketed before the Office of the President (OP) as O.P. Case No. 05-B-072.[20] On 3
March 2005, the OP issued an order directing petitioner to submit its appeal memorandum within 15 days from receipt
thereof.[21] Acting on the motion therefor filed, the OP also issued another order on the same date, granting petitioner
a period of 15 days from 28 February 2005 or until 15 March 2005 within which to file its appeal memorandum.[22] In
view of petitioner’s filing of a second motion for extension dated 15 March 2005,[23] the OP issued the 18 March 2005
order granting the former an additional 10 days from 15 March 2005 or until 25 March 2005 within which to file its
appeal memorandum, “provided no further extension shall be allowed.”[24] Claiming to have received the aforesaid 3
March 2005 order only on 16 March 2005, however, petitioner filed its 31 March 2005 motion seeking yet another
extension of 10 days or until 10 April 2005 within which to file its appeal memorandum.[25]

On 7 April 2005, respondents filed their opposition to the 31 March 2005 motion for extension of
petitioner[26] which eventually filed its appeal memorandum by registered mail on 11 April 2005 in view of the fact that
10 April 2005 fell on a Sunday.[27] On 25 October 2005, the OP rendered a decision dismissing petitioner’s appeal on the
ground that the latter’s appeal memorandum was filed out of time and that the HLURB Board committed no grave abuse
of discretion in rendering the appealed decision.[28] Aggrieved by the denial of its motion for reconsideration of the
foregoing decision in the 3 March 2006 order issued by the OP,[29] petitioner filed before the CA its 29 March 2006
motion for an extension of 15 days from 31 March 2006 or until 15 April 2006 within which to file its petition for
review.[30] Accordingly, a non-extendible period of 15 days to file its petition for review was granted petitioner in the 31
March 2006 resolution issued by the CA Third Division in CA-G.R, SP No. 93841.[31]

Maintaining that 15 April 2006 fell on a Saturday and that pressures of work prevented its counsel from finalizing its
petition for review, petitioner filed a motion on 17 April 2006, seeking for an additional time of 10 days or until 27 April
2006 within which to file said pleading.[32] Although petitioner filed by registered mail a motion to admit its attached
petition for review on 19 April 2006,[33] the CA issued the herein assailed 23 May 2006 resolution,[34] disposing of the
former’s pending motion for extension as well as the petition itself in the following wise:

We resolve to DENY the second extension motion and rule to DISMISS the petition for being filed late.

Settled is that heavy workload is by no means excusable (Land Bank of the Philippines vs. Natividad, 458 SCRA 441
[2005]). If the failure of the petitioners’ counsel to cope up with heavy workload should be considered a valid
justification to sidestep the reglementary period, there would be no end to litigations so long as counsel had not been
sufficiently diligent or experienced (LTS Philippine Corporation vs. Maliwat, 448 SCRA 254, 259-260 [2005], citing Sublay
vs. National Labor Relations Commission, 324 SCRA 188 [2000]).
Moreover, lawyers should not assume that their motion for extension or postponement will be granted the length of
time they pray for (Ramos vs. Dajoyag, 378 SCRA 229 [2002]).

SO ORDERED.[35]

Petitioner’s motion for reconsideration of the foregoing resolution[36] was denied for lack of merit in the CA’s second
assailed 9 August 2006 resolution,[37] hence, this petition.
The Issues
Petitioner seeks the reversal of the assailed resolutions on the following grounds, to wit:

I. THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION ON MERE TECHNICALITY;

II. THE COURT OF APPEALS ERRED IN REFUSING TO RESOLVE THE PETITION ON THE MERITS THEREBY AFFIRMING
THE OFFICE OF THE PRESIDENT’S DECISION (A) DISMISSING JTIC’S APPEAL ON A MERE TECHNICALITY; (B) AFFIRMING
THE HLURB BOARD’S DECISION INSOFAR AS IT FOUND JTIC SOLIDARILY LIABLE WITH PRIMETOWN TO PAY SPOUSES
ANG DAMAGES, ATTORNEY’S FEES AND THE COST OF THE SUIT; AND (C) AFFIRMING THE HLURB BOARD’S DECISION
INSOFAR AS IT FAILED TO AWARD JITC ITS COUNTERCLAIMS AGAINST SPOUSES ANG. [38]

The Court’s Ruling

We find the petition bereft of merit.

While the dismissal of an appeal on purely technical grounds is concededly frowned upon,[39] it bears
emphasizing that the procedural requirements of the rules on appeal are not harmless and trivial technicalities that
litigants can just discard and disregard at will.[40] Neither being a natural right nor a part of due process, the rule is
settled that the right to appeal is merely a statutory privilege which may be exercised only in the manner and in
accordance with the provisions of the law.[41] The perfection of an appeal in the manner and within the period
prescribed by law is, in fact, not only mandatory but jurisdictional.[42] Considering that they are requirements which
cannot be trifled with as mere technicality to suit the interest of a party,[43] failure to perfect an appeal in the prescribed
manner has the effect of rendering the judgment final and executory.[44]

Fealty to the foregoing principles impels us to discount the error petitioner imputes against the CA for denying its
second motion for extension of time for lack of merit and dismissing its petition for review for having been filed out of
time. Acting on the 29 March 2006 motion filed for the purpose, after all, the CA had already granted petitioner an
inextendible period of 15 days from 31 March 2006 or until 15 April 2006 within which to file its petition for review. Sec.
4, Rule 43 of the 1997 Rules of Civil Procedure provides as follows:

Sec. 4. Period of appeal. – The appeal shall be taken within fifteen (15) days from notice of the award, judgment,
final order or resolution, or from the date of its last publication, if publication is required by law for its effectivity, or of
the denial of petitioner’s motion for new trial or reconsideration duly filed in accordance with the governing law of the
court or agency a quo. Only one (1) motion for reconsideration shall be allowed. Upon proper motion and payment of
the full amount of the docket fee before the expiration of the reglementary period, the Court of Appeals may grant an
additional period of fifteen (15) days only within which to file the petition for review. No further extension shall be
granted except for the most compelling reason and in no case to exceed fifteen (15) days.” (Underscoring supplied)

The record shows that, having been granted the 15-day extension sought in its first motion, petitioner filed a
second motion for extension praying for an additional 10 days from 17 April 2006 within which to file its petition for
review, on the ground that pressures of work and the demands posed by equally important cases prevented its counsel
from finalizing the same. As correctly ruled by the CA, however, heavy workload cannot be considered as a valid
justification to sidestep the reglementary period[45] since to do so would only serve to encourage needless delays and
interminable litigations. Indeed, rules prescribing the time for doing specific acts or for taking certain proceedings are
considered absolutely indispensable to prevent needless delays and to orderly and promptly discharge judicial
business.[46] Corollary to the principle that the allowance or denial of a motion for extension of time is addressed to the
sound discretion of the court,[47] moreover, lawyers cannot expect that their motions for extension or postponement
will be granted[48] as a matter of course.

Although technical rules of procedure are not ends in themselves, they are necessary for an effective and
expeditious administration of justice and cannot, for said reason, be discarded with the mere expediency of claiming
substantial merit.[49] This holds particularly true in the case at bench where, prior to the filing of its petition for review
before the CA, petitioner’s appeal before the OP was likewise dismissed in view of its failure to file its appeal
memorandum within the extensions of time it had been granted by said office. After being granted an initial extension
of 15 days to do the same, the records disclose that petitioner was granted by the OP a second extension of 10 days
from 15 March 2005 or until 25 March 2005 within which to file its appeal memorandum, on the condition that no
further extensions shall be allowed. Aside from not heeding said proviso, petitioner had, consequently, no more time to
extend when it filed its 31 March 2005 motion seeking yet another extension of 10 days or until 10 April 2005 within
which to file its appeal memorandum.

With the foregoing procedural antecedents, the initial 15-day extension granted by the CA and the injunction
under Sec. 4, Rule 43 of the 1997 Rules of Civil Procedure against further extensions “except for the most compelling
reason”, it was clearly inexcusable for petitioner to expediently plead its counsel’s heavy workload as ground for seeking
an additional extension of 10 days within which to file its petition for review. To our mind, petitioner would do well to
remember that, rather than the low gate to which parties are unreasonably required to stoop, procedural rules are
designed for the orderly conduct of proceedings and expeditious settlement of cases in the courts of law. Like all rules,
they are required to be followed[50] and utter disregard of the same cannot be expediently rationalized by harping on
the policy of liberal construction[51] which was never intended as an unfettered license to disregard the letter of the law
or, for that matter, a convenient excuse to substitute substantial compliance for regular adherence thereto. When it
comes to compliance with time rules, the Court cannot afford inexcusable delay.[52]

Even prescinding from the foregoing procedural considerations, we also find that the HLURB Arbiter and Board
correctly held petitioner liable alongside PPGI for respondents’ claims and the P10,000.00 administrative fine imposed
pursuant to Section 20 in relation to Section 38 of P.D. 957. By the express terms of the JVA, it appears that petitioner
not only retained ownership of the property pending completion of the condominium project [53] but had also bound
itself to answer liabilities proceeding from contracts entered into by PPGI with third parties. Article VIII, Section 1 of the
JVA distinctly provides as follows:

“Sec. 1. Rescission and damages. Non-performance by either party of its obligations under this Agreement shall
be excused when the same is due to Force Majeure. In such cases, the defaulting party must exercise due diligence to
minimize the breach and to remedy the same at the soonest possible time. In the event that either party defaults or
breaches any of the provisions of this Agreement other than by reason of Force Majeure, the other party shall have the
right to terminate this Agreement by giving notice to the defaulting party, without prejudice to the filing of a civil case
for damages arising from the breach of the defaulting party.

In the event that the Developer shall be rendered unable to complete the Condominium Project, and such failure
is directly and solely attributable to the Developer, the Owner shall send written notice to the Developer to cause the
completion of the Condominium Project. If the developer fails to comply within One Hundred Eighty (180) days from
such notice or, within such time, indicates its incapacity to complete the Project, the Owner shall have the right to take
over the construction and cause the completion thereof. If the Owner exercises its right to complete the Condominium
Project under these circumstances, this Agreement shall be automatically rescinded upon written notice to the
Developer and the latter shall hold the former free and harmless from any and all liabilities to third persons arising from
such rescission. In any case, the Owner shall respect and strictly comply with any covenant entered into by the
Developer and third parties with respect to any of its units in the Condominium Project. To enable the owner to comply
with this contingent liability, the Developer shall furnish the Owner with a copy of its contracts with the said buyers on a
month-to-month basis. Finally, in case the Owner would be constrained to assume the obligations of the Developer to
its own buyers, the Developer shall lose its right to ask for indemnity for whatever it may have spent in the Development
of the Project.

Nevertheless, with respect to the buyers of the Developer for the First Phase, the area intended for the Second
Phase shall not be bound and/or subjected to the said covenants and/or any other liability incurred by the Developer in
connection with the development of the first phase.” (Underscoring supplied)

Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid liability by claiming that it was not
in any way privy to the Contracts to Sell executed by PPGI and respondents. As correctly argued by the latter, moreover,
a joint venture is considered in this jurisdiction as a form of partnership and is, accordingly, governed by the law of
partnerships.[54] Under Article 1824 of the Civil Code of the Philippines, all partners are solidarily liable with the
partnership for everything chargeable to the partnership, including loss or injury caused to a third person or penalties
incurred due to any wrongful act or omission of any partner acting in the ordinary course of the business of the
partnership or with the authority of his co-partners.[55] Whether innocent or guilty, all the partners are solidarily liable
with the partnership itself.[56]

WHEREFORE, premises considered, the petition for review is DENIED for lack of merit.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

PRESBITERO J. VELASCO, JR.

Associate Justice TERESITA J. LEONARDO-DE CASTRO
Associate Justice
JOSE CATRAL MENDOZA
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

* Per raffle dated 1 March 2010, Associate Justice Jose Catral Mendoza is designated as additional member in
place of Associate Justice Mariano C. Del Castillo, who was a signatory in the questioned Resolution dated 23 May 2006.
[1]
Record, CA-G.R. SP No. 93841, pp. 818-819.
[2]
Id. at 859-860.
[3]
Record, HLURB Case No. REM-A-031007-0240/REM-072199-10567, pp. 246-255.
[4]
Id. at 251-252.
[5]
Id. at 249-250.
[6]
Id. at 253.
[7]
Id. at 2.
[8]
Id. at 6-8.
[9]
Id. at 3-5.
[10]
Id. at 9-12.
[11]
Id. at 23-29.
[12]
Id. at 101-110.
[13]
Id. at 133-147.
[14]
Id. at 41-54; 56-77; 157-175; 178-210.
[15]
Id. at 211-214.
[16]
Id. at 263-274.
[17]
Id. at 396-399.
[18]
Id. at 396.
[19]
Id. at 401-408; 413-414.
[20]
Rollo, 263-264.
[21]
Record, HLURB Case No. REM-A-031007-0240/REM-072199-10567, at 424-425.
[22]
Id. at 423.
[23]
Rollo, pp. 270-271.
[24]
Id. at 274.
[25]
Id. at 278-279.
[26]
Id. at 378-381.
[27]
Id. at 282-296.
[28]
Id. at 405-409.
[29]
Id. at 410-416; 420.
[30]
Record, CA-G.R. SP No. 93841, pp. 2-3.
[31]
Id. at 7.
[32]
Id. at 8-10.
[33]
Id. at 415-421; 422-452.
[34]
Id. at 818-819.
[35]
Id. at 819.
[36]
Id. at 820-841.
[37]
Id. at 859-860.
[38]
Rollo, pp. 25-26.
[39]
Ace Navigation Co., Inc. v. Court of Appeals, 392 Phil. 606, 613 (2000).
[40]
Casim v. Flordeliza, 425 Phil. 210, 220 (2002).
[41]
Producer’s Bank of the Philippines v. Court of Appeals, 430 Phil. 812, 828 (2002).
[42]
Dayrit v. Philippine Bank of Communication, 435 Phil. 120, 128-129 (2002).
[43]
Cuevas v. Bais Steel Corporation, 439 Phil. 793, 806 (2002).
[44]
Heirs of Teofilo Gaudiano v. Benemerito, G.R. No. 174247, 21 February 2007, 516 SCRA 416, 424.
[45]
LTS Philippines. Corp. v. Maliwat, 489 Phil. 230, 235 (2005).
[46]
Laguna Metts Corporation v. Court of Appeals, G.R. No. 185220, July 27, 2009, 594 SCRA 139,143.
[47]
Videogram Regulatory Board v. Court of Appeals, 332 Phil. 820, 830 (1996).
[48]
R. Transport Corporation v. Philhino Sales Corporation, G.R. No. 148150, 12 July 2006, 494 SCRA 630, 639.
[49]
Sy v. ALC Industries, Inc. G.R. No. 168339, 10 October 2008, 568 SCRA 367, 375.
[50]
Republic v. Kenrick Development Corporation, G.R. No. 149576, 8 August 2006, 498 SCRA 220, 231.
[51]
Digital Microwave Corporation v. Court of Appeals, 384 Phil. 842, 848 (2000).
[52]
Moneytrend Lending Corporation v. Court of Appeals, G.R. No. 165580, 20 February 2006, 482 SCRA 705, 713.
[53]
Art. I. Sec. 6. Pending the completion of the Condominium Project, the ownership of the Property shall remain with the
Owner. Upon the organization of the condominium corporation for the Condominium Project, the Owner shall transfer the
ownership over the Property to the said corporation, shall cause the registration of the transfer with the appropriate Registry of
Deeds and issuance of a new torrens title in the name of the said corporation.

[54]
Primelink Properties and Development Corporation v. Lazatin-Magat, G.R. No. 167379, 27 June 2006, 493 SCRA
444, 467; Aurbach v. Sanitary Wares Manufacturing Corporation, 259 Phil. 606, 624 (1989).
[55]
Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the
partnership or with authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any
penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act.
[56]
Muñasque vs. Court of Appeals, 224 Phil. 79, 90 (1985).
FIRST DIVISION
G.R. No. 167379 June 27, 2006
PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO W. LOPEZ, Petitioners,
vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T. LAZATIN and JOSE
MARCOS T. LAZATIN, Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure of the Decision1 of the
Court of Appeals (CA) in CA-G.R. CV No. 69200 and its Resolution2 denying petitioners’ motion for reconsideration
thereof.
The factual and procedural antecedents are as follows:
Primelink Properties and Development Corporation (Primelink for brevity) is a domestic corporation engaged in real
estate development. Rafaelito W. Lopez is its President and Chief Executive Officer.3
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin and Jose Marcos T. Lazatin (the
Lazatins for brevity), are co-owners of two (2) adjoining parcels of land, with a combined area of 30,000 square meters,
located in Tagaytay City and covered by Transfer Certificate of Title (TCT) No. T-108484 of the Register of Deeds of
Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as President, entered into a Joint
Venture Agreement5 (JVA) for the development of the aforementioned property into a residential subdivision to be
known as "Tagaytay Garden Villas." Under the JVA, the Lazatin siblings obliged themselves to contribute the two parcels
of land as their share in the joint venture. For its part, Primelink undertook to contribute money, labor, personnel,
machineries, equipment, contractor’s pool, marketing activities, managerial expertise and other needed resources to
develop the property and construct therein the units for sale to the public. Specifically, Primelink bound itself to
accomplish the following, upon the execution of the deed:
a.) Survey the land, and prepare the projects master plans, engineering designs, structural and architectural plans, site
development plans, and such other need plans in accordance with existing laws and the rules and regulations of
appropriate government institutions, firms or agencies;
b.) Secure and pay for all the licenses, permits and clearances needed for the projects;
c.) Furnish all materials, equipment, labor and services for the development of the land in preparation for the
construction and sale of the different types of units (single-detached, duplex/twin, cluster and row house);
d.) Guarantee completion of the land development work if not prevented by force majeure or fortuitous event or by
competent authority, or other unavoidable circumstances beyond the DEVELOPER’S control, not to exceed three years
from the date of the signing of this Joint Venture Agreement, except the installation of the electrical facilities which is
solely MERALCO’S responsibility;
e.) Provide necessary manpower resources, like executive and managerial officers, support personnel and marketing
staff, to handle all services related to land and housing development (administrative and construction) and marketing
(sales, advertising and promotions).6
The Lazatins and Primelink covenanted that they shall be entitled to draw allowances/advances as follows:
1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can draw allowances or make
advances not exceeding a total of twenty percent (20%) of the net revenue for that period, on the basis of sixty percent
(60%) for the DEVELOPER and forty percent (40%) for the LANDOWNERS.
The drawing allowances/advances are limited to twenty percent (20%) of the net revenue for the first two years, in
order to have sufficient reserves or funds to protect and/or guarantee the construction and completion of the different
types of units mentioned above.
2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawing allowances and/or advances
equivalent to sixty percent (60%) and forty percent (40%), respectively, of the total net revenue or income of the sale of
the units.7
They also agreed to share in the profits from the joint venture, thus:
1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or income of the Joint Venture project,
after deducting all expenses incurred in connection with the land development (such as administrative management and
construction expenses), and marketing (such as sales, advertising and promotions), and
2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or income of the Joint Venture project,
after deducting all the above-mentioned expenses.8
Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the project:
SALES-INCOME-COST PROJECTION
lawphil.net

SELLING PRICE COST PRICE DIFFERENCE INCOME

CLUSTER:
A1 3,200,000 - A2 1,260,000 = 1,940,000 x 24 = P 46,560,000.00
TWIN:
B1 2,500,000 - B2 960,000 = 1,540,000 x 24 = 36,960,000.00
SINGLE:
C1 3,500,000 - C2 1,400,000 = 2,100,000 x 16 = 33,600,000.00
ROW-TYPE TOWNHOMES:
D1 1,600,000 - D2 700,000 = 900,000 x 24 = 21,600,000.00

₱138,720,000.00
(GROSS) Total Cash Price (A1+B1+C1+D1) = ₱231,200,000.00
Total Building Expense (A2+B2+C2+D2) = 92,480,000.00
COMPUTATION OF ADD’L. INCOME ON INTEREST
TCP x 30% D/P = P 69,360,000 P 69,360,000.00
Balance = 70% = 161,840,000
x .03069 x 48 = P238,409,740 238,409,740.00
Total Amount (TCP + int. earn.) P307,769,740.00
EXPENSES:
less: A Building expenses P 92,480,000.00
B Commission (8% of TCP) 18,496,000.00
C Admin. & Mgmt. expenses (2% of TCP) 4,624,000.00
D Advertising & Promo exp. (2% of TCP) 4,624,000.00
E Building expenses for the open
spaces and Amenities (Development
cost not incl. Housing) 400 x 30,000 sqms. 12,000,000.00

TOTAL EXPENSES (A+B+C+D+E) P132,224,000.00

RECONCILIATION OF INCOME VS. EXPENSES
Total Projected Income (incl. income from interest earn.) P307,769,740.00

less: 132,224,000.00
Total Expenses P175,545,740.009
The parties agreed that any unsettled or unresolved misunderstanding or conflicting opinions between the parties
relative to the interpretation, scope and reach, and the enforcement/implementation of any provision of the agreement
shall be referred to Voluntary Arbitration in accordance with the Arbitration Law.10
The Lazatins agreed to subject the title over the subject property to an escrow agreement. Conformably with the escrow
agreement, the owner’s duplicate of the title was deposited with the China Banking Corporation.11 However, Primelink
failed to immediately secure a Development Permit from Tagaytay City, and applied the permit only on August 30, 1995.
On October 12, 1995, the City issued a Development Permit to Primelink.12
In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that Primelink comply with its obligations
under the JVA, otherwise the appropriate action would be filed against it to protect their rights and interests. This
impelled the officers of Primelink to meet with the Lazatins and enabled the latter to review its business records/papers.
In another Letter14 dated October 22, 1997, the Lazatins informed Primelink that they had decided to rescind the JVA
effective upon its receipt of the said letter. The Lazatins demanded that Primelink cease and desist from further
developing the property.
Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC) of Tagaytay City, Branch 18, a
complaint for rescission accounting and damages, with prayer for temporary restraining order and/or preliminary
injunction against Primelink and Lopez. The case was docketed as Civil Case No. TG-1776. Plaintiffs alleged, among
others, that, despite the lapse of almost four (4) years from the execution of the JVA and the delivery of the title and
possession of the land to defendants, the land development aspect of the project had not yet been completed, and the
construction of the housing units had not yet made any headway, based on the following facts, namely: (a) of the 50
housing units programmed for Phase I, only the following types of houses appear on the site in these condition: (aa)
single detached, one completed and two units uncompleted; (bb) cluster houses, one unit nearing completion; (cc)
duplex, two units completed and two units unfinished; and (dd) row houses, two units, completed; (b) in Phase II
thereof, all that was done by the defendants was to grade the area; the units so far constructed had been the object of
numerous complaints by their owners/purchasers for poor workmanship and the use of sub-standard materials in their
construction, thus, undermining the project’s marketability. Plaintiffs also alleged that defendants had, without
justifiable reason, completely disregarded previously agreed accounting and auditing procedures, checks and balances
system installed for the mutual protection of both parties, and the scheduled regular meetings were seldom held to the
detriment and disadvantage of plaintiffs. They averred that they sent a letter through counsel, demanding compliance of
what was agreed upon under the agreement but defendants refused to heed said demand. After a succession of letters
with still no action from defendants, plaintiffs sent a letter on October 22, 1997, a letter formally rescinding the JVA.
Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted by defendants, they (plaintiffs)
stood to receive the amount of P70,218,296.00 as their net share in the joint venture project; to date, however, after
almost four (4) years and despite the undertaking in the JVA that plaintiffs shall initially get 20% of the agreed net
revenue during the first two (2) years (on the basis of the 60%-40% sharing) and their full 40% share thereafter,
defendants had yet to deliver these shares to plaintiffs which by conservative estimates would amount to no less
than P40,000,000.00.15
Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus:
WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary restraining order be forthwith issued
enjoining the defendants to immediately stop their land development, construction and marketing of the housing units
in the aforesaid project; after due proceedings, to issue a writ of preliminary injunction enjoining and prohibiting said
land development, construction and marketing of housing units, pending the disposition of the instant case.
After trial, a decision be rendered:
1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the defendants;
2. Immediately restoring to the plaintiffs possession of the subject parcels of land;
3. Ordering the defendants to render an accounting of all income generated as well as expenses incurred and
disbursement made in connection with the project;
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty Million Pesos (P40,000,000.00) in
actual and/or compensatory damages;
6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of Two Million Pesos (P2,000,000.00)
in exemplary damages;
7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount equivalent to ten percent (10%) of the
total amount due as and for attorney’s fees; and
8. To pay the costs of this suit.
Other reliefs and remedies as are just and equitable are likewise being prayed for.16
Defendants opposed plaintiffs’ plea for a writ of preliminary injunction on the ground that plaintiffs’ complaint was
premature, due to their failure to refer their complaint to a Voluntary Arbitrator pursuant to the JVA in relation to
Section 2 of Republic Act No. 876 before filing their complaint in the RTC. They prayed for the dismissal of the complaint
under Section 1(j), Rule 16 of the Rules of Court:
WHEREFORE, it is respectfully prayed that an Order be issued:
a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited Rules of Court, or, in the alternative,
b) requiring the plaintiffs to make initiatory step for arbitration by filing the demand to arbitrate, and then asking the
parties to resolve their controversies, pursuant to the Arbitration Law, or in the alternative;
c) staying or suspending the proceedings in captioned case until the completion of the arbitration, and
d) denying the plaintiffs’ prayer for the issuance of a temporary restraining order or writ of preliminary injunction.
Other reliefs and remedies just and equitable in the premises are prayed for.17
In the meantime, before the expiration of the reglementary period to answer the complaint, defendants, invoking their
counsel’s heavy workload, prayed for a 15-day extension18 within which to file their answer. The additional time prayed
for was granted by the RTC.19 However, instead of filing their answer, defendants prayed for a series of 15-day
extensions in eight (8) successive motions for extensions on the same justification.20 The RTC again granted the
additional time prayed for, but in granting the last extension, it warned against further extension.21 Despite the
admonition, defendants again moved for another 15-day extension,22 which, this time, the RTC denied. No answer
having been filed, plaintiffs moved to declare the defendants in default,23 which the RTC granted in its Order24 dated
June 24, 1998.
On June 25, 1998, defendants filed, via registered mail, their "Answer with Counterclaim and Opposition to the Prayer
for the Issuance of a Writ of Preliminary Injunction."25 On July 8, 1998, defendants filed a Motion to Set Aside the Order
of Default.26 This was opposed by plaintiffs.27 In an Order28 dated July 14, 1998, the RTC denied defendants’ motion to set
aside the order of default and ordered the reception of plaintiffs’ evidence ex parte. Defendants filed a motion for
reconsideration29 of the July 14, 1998 Order, which the RTC denied in its Order30 dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA assailing the Order declaring them in default, as well as the Order
denying their motion to set aside the order of default, alleging that these were contrary to facts of the case, the law and
jurisprudence.31 On September 16, 1999, the appellate court issued a Resolution32 dismissing the appeal on the ground
that the Orders appealed from were interlocutory in character and, therefore, not appealable. No motion for
reconsideration of the Order of the dismissal was filed by defendants.
In the meantime, plaintiffs adduced ex parte their testimonial and documentary evidence. On April 17, 2000, the RTC
rendered a Decision, the dispositive part of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows:
1. Ordering the rescission of the Joint Venture Agreement as of the date of filing of this complaint;
2. Ordering the defendants to return possession, including all improvements therein, of the real estate property
belonging to the plaintiffs which is described in, and covered by Transfer Certificate of Title No. T-10848 of the Register
of Deeds of Tagaytay City, and located in Barangay Anulin, City of Tagaytay;
3. Ordering the defendants to turn over all documents, records or papers that have been executed, prepared and
retained in connection with any contract to sell or deed of sale of all lots/units sold during the effectivity of the joint
venture agreement;
4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26 representing their share of the net income of
the P2,603,810.64 as of September 30, 1995, as stipulated in the joint venture agreement;
5. Ordering the defendants to pay the plaintiffs’ attorney’s fees in the amount of P104,152.40;
6. Ordering the defendants to pay the costs.
SO ORDERED.33
The trial court anchored its decision on the following findings:
x x x Evidence on record have shown patent violations by the defendants of the stipulations particularly paragraph II
covering Developer’s (defendant) undertakings, as well as paragraph III and paragraph V of the JVA. These violations are
not limited to those made against the plaintiffs alone as it appears that some of the unit buyers themselves have their
own separate gripes against the defendants as typified by the letters (Exhibits "G" and "H") of Mr. Emmanuel Enciso.
xxxx
Rummaging through the evidence presented in the course of the testimony of Mrs. Maminta on August 6, 1998 (Exhibits
"N," "O," "P," "Q" and "R" as well as submarkings, pp. 60 to 62, TSN August 6, 1998) this court has observed, and is thus
convinced, that a pattern of what appears to be a scheme or plot to reduce and eventually blot out the net income
generated from sales of housing units by defendants, has been established. Exhibit "P-2" is explicit in declaring that, as
of September 30, 1995, the joint venture project earned a net income of about P2,603,810.64. This amount, however,
was drastically reduced in a subsequent financial report submitted by the defendants to P1,954,216.39. Shortly
thereafter, and to the dismay of the plaintiffs, the defendants submitted an income statement and a balance sheet
(Exhibits "R" and "R-1") indicating a net loss of P5,122,906.39 as of June 30, 1997.
Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have received the sum
of P1,041,524.26 representing their 40% share under paragraph II and V of the JVA. But this was not to be so. Even
before the plaintiffs could get hold of their share as indicated above, the defendants closed the chance altogether by
declaring a net loss. The court perceives this to be one calculated coup-de-grace that would put to thin air plaintiffs’
hope of getting their share in the profit under the JVA.
That this matter had reached the court is no longer a cause for speculation. The way the defendants treated the JVA and
the manner by which they handled the project itself vis-à-vis their partners, the plaintiffs herein, there is bound to be
certain conflict as the latter repeatedly would received the losing end of the bargain.
Under the intolerable circumstances, the plaintiffs could not have opted for some other recourse but to file the present
action to enforce their rights. x x x34
On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal35 alleging defendants’ dilatory tactics for its
allowance. This was opposed by defendants.36
On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor of plaintiffs.37 Upon posting a bond
of P1,000,000.00 by plaintiffs, a writ of execution pending appeal was issued on June 20, 2000.38
Defendants appealed the decision to the CA on the following assignment of errors:
I
THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING THE COMPLAINT FOR VOLUNTARY
ARBITRATION (RA NO. 876), CONTRARY TO THE MANDATED VOLUNTARY ARBITRATION CLAUSE UNDER THE JOINT
VENTURE AGREEMENT, AND THE DOCTRINE IN "MINDANAO PORTLAND CEMENT CORPORATION V. MCDONOUGH
CONSTRUCTION COMPANY OF FLORIDA" (19 SCRA 814-815).
II
THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL EVEN IN THE ABSENCE OF GOOD AND
COMPELLING REASONS TO JUSTIFY SAID ISSUANCE, AND DESPITE PRIMELINK’S STRONG OPPOSITION THERETO.
III
THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINK’S MOTION TO QUASH THE WRIT OF EXECUTION PENDING
APPEAL AND THE MOTION FOR RECONSIDERATION, ALTHOUGH THE COURT HAS RETAINED ITS JURISDICTION TO RULE
ON ALL QUESTIONS RELATED TO EXECUTION.
IV
THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT ALTHOUGH PRIMELINK HAS SUBSTANTIALLY
DEVELOPED THE PROJECT AND HAS SPENT MORE OR LESS FORTY MILLION PESOS, AND DESPITE APPELLEES’ FAILURE TO
PRESENT SUFFICIENT EVIDENCE JUSTIFYING THE SAID RESCISSION.
V
THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT TO TAKE OVER THE SUBDIVISION AND TO
APPROPRIATE FOR THEMSELVES ALL THE EXISTING IMPROVEMENTS INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH
SAID RIGHT WAS NEITHER ALLEGED NOR PRAYED FOR IN THE COMPLAINT, MUCH LESS PROVEN DURING THE EX PARTE
HEARING, AND EVEN WITHOUT ORDERING APPELLEES TO FIRST REIMBURSE PRIMELINK OF THE SUBSTANTIAL
DIFFERENCE BETWEEN THE MARKET VALUE OF APPELLEES’ RAW, UNDEVELOPED AND UNPRODUCTIVE LAND
(CONTRIBUTED TO THE PROJECT) AND THE SUM OF MORE OR LESS FORTY MILLION PESOS WHICH PRIMELINK HAD
SPENT FOR THE HORIZONTAL AND VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY ALLOWING APPELLEES TO
UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE OF PRIMELINK.39
The appeal was docketed in the CA as CA-G.R. CV No. 69200.
On August 9, 2004, the appellate court rendered a decision affirming, with modification, the appealed decision. The fallo
of the decision reads:
WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court of Tagaytay City, Branch 18,
promulgated on April 17, 2000 in Civil Case No. TG-1776, is hereby AFFIRMED. Accordingly, Transfer Certificate of Title
No. T-10848 held for safekeeping by Chinabank pursuant to the Escrow Agreement is ordered released for return to the
plaintiffs-appellees and conformably with the affirmed decision, the cancellation by the Register of Deeds of Tagaytay
City of whatever annotation in TCT No. 10848 by virtue of the Joint Venture Agreement, is now proper.
SO ORDERED.40
Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing Corporation,41 the appellate court ruled that,
under Philippine law, a joint venture is a form of partnership and is to be governed by the laws of partnership. The
aggrieved parties filed a motion for reconsideration,42 which the CA denied in its Resolution43 dated March 7, 2005.
Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:
1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND REVERSIBLE LEGAL ERROR AND/OR GRAVE ABUSE
OF DISCRETION IN ORDERING THE RETURN TO THE RESPONDENTS OF THE PROPERTY WITH ALL IMPROVEMENTS
THEREON, EVEN WITHOUT ORDERING/REQUIRING THE RESPONDENTS TO FIRST PAY OR REIMBURSE PRIMELINK OF ALL
EXPENSES INCURRED IN DEVELOPING AND MARKETING THE PROJECT, LESS THE ORIGINAL VALUE OF THE PROPERTY,
AND THE SHARE DUE RESPONDENTS FROM THE PROFITS (IF ANY) OF THE JOINT VENTURE PROJECT?
2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE AND UNCONSCIONABLE, CONTRARY TO THE
TENETS OF GOOD HUMAN RELATIONS AND VIOLATIVE OF EXISTING LAWS AND JURISPRUDENCE ON JUDICIAL NOTICE,
DEFAULT, UNJUST ENRICHMENT AND RESCISSION OF CONTRACT WHICH REQUIRES MUTUAL RESTITUTION, NOT
UNILATERAL APPROPRIATION, OF PROPERTY BELONGING TO ANOTHER?44
Petitioners maintain that the aforesaid portion of the decision which unconditionally awards to respondents "all
improvements" on the project without requiring them to pay the value thereof or to reimburse Primelink for all
expenses incurred therefore is inherently and essentially illegal and confiscatory, oppressive and unconscionable,
contrary to the tenets of good human relations, and will allow respondents to unjustly enrich themselves at Primelink’s
expense. At the time respondents contributed the two parcels of land, consisting of 30,000 square meters to the joint
venture project when the JVA was signed on March 10, 1994, the said properties were worth not more than P500.00 per
square meter, the "price tag" agreed upon the parties for the purpose of the JVA. Moreover, before respondents
rescinded the JVA sometime in October/November 1997, the property had already been substantially developed as
improvements had already been introduced thereon; petitioners had likewise incurred administrative and marketing
expenses, among others, amounting to more or less P40,000,000.00.45
Petitioners point out that respondents did not pray in their complaint that they be declared the owners and entitled to
the possession of the improvements made by petitioner Primelink on the property; neither did they adduce evidence to
prove their entitlement to said improvements. It follows, petitioners argue, that respondents were not entitled to the
improvements although petitioner Primelink was declared in default.
They also aver that, under Article 1384 of the New Civil Code, rescission shall be only to the extent necessary to cover
the damages caused and that, under Article 1385 of the same Code, rescission creates the obligation to return the things
which were not object of the contract, together with their fruits, and the price with its interest; consequently, it can be
effected only when respondents can return whatever they may be obliged to return. Respondents who sought the
rescission of the JVA must place petitioner Primelink in the status quo. They insist that respondents cannot rescind and,
at the same time, retain the consideration, or part of the consideration received under the JVA. They cannot have the
benefits of rescission without assuming its burden. All parties must be restored to their original positions as nearly as
possible upon the rescission of a contract. In the event that restoration to the status quo is impossible, rescission may be
granted if the Court can balance the equities and fashion an appropriate remedy that would be equitable to both parties
and afford complete relief.
Petitioners insist that being defaulted in the court a quo would in no way defeat their claim for reimbursement because
"[w]hat matters is that the improvements exist and they cannot be denied."46 Moreover, they point out, the ruling of
this Court in Aurbach v. Sanitary Wares Manufacturing Corporation47 cited by the CA is not in point.
On the other hand, the CA ruled that although respondents therein (plaintiffs below) did not specifically pray for their
takeover of the property and for the possession of the improvements on the parcels of land, nevertheless, respondents
were entitled to said relief as a necessary consequence of the ruling of the trial court ordering the rescission of the JVA.
The appellate court cited the ruling of this Court in the Aurbach case and Article 1838 of the New Civil Code, to wit:
As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the agreement is
silent on any particular issue, the general principles of partnership may be resorted to.48
Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal with rescissible contracts. What
applies is Article 1191 of the New Civil Code, which reads:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages
in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.
They insist that petitioners are not entitled to rescission for the improvements because, as found by the RTC and the CA,
it was petitioner Primelink that enriched itself at the expense of respondents. Respondents reiterate the ruling of the
CA, and argue as follows:
PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove and did not pray that they are and
should be entitled to take over the development of the project, and that the improvements and existing structures
which were introduced by PRIMELINK after spending more or less Forty Million Pesos – be awarded to them. They
merely asked in the complaint that the joint venture agreement be rescinded, and that the parcels of land they
contributed to the project be returned to them.
PRIMELINK’s argument lacks merit. The order of the court for PRIMELINK to return possession of the real estate property
belonging to the LAZATINs including all improvements thereon was not a judgment that was different in kind than what
was prayed for by the LAZATINs. The order to return the property with all the improvements thereon is just a necessary
consequence to the order of rescission.
As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the agreement is
silent on any particular issue, the general principles of partnership may be resorted to. In Aurbach v. Sanitary Wares
Manufacturing Corporation, the Supreme Court discussed the following points regarding joint ventures and partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally
understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is,
in fact, hardly distinguishable from the partnership, since elements are similar – community of interest in the business,
sharing of profits and losses, and a mutual right of control. (Blackner v. McDermott, 176 F.2d 498 [1949]; Carboneau v.
Peterson, 95 P.2d 1043 [1939]; Buckley v. Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The main
distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a general business
with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of
a temporary nature. (Tuffs v. Mann, 116 Cal.App. 170, 2 P.2d 500 [1931]; Harmon v. Martin, 395 III. 595, 71 N.E.2d 74
[1947]; Gates v. Megargel, 266 Fed. 811 [1920]) This observation is not entirely accurate in this jurisdiction, since under
the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It would seem therefore that, under Philippine law, a joint venture is a form
of partnership and should thus be governed by the laws of partnership. The Supreme Court has, however, recognized a
distinction between these two business forms, and has held that although a corporation cannot enter into a partnership
contract, it may, however, engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954];
Campos and Lopez – Campos Comments, Notes and Selected Cases, Corporation Code 1981) (Emphasis Supplied)
The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the words of the court a quo, was a
pattern of what appears to be a scheme or plot to reduce and eventually blot out the net incomes generated from sales
of housing units by the defendants. Under Article 1838 of the Civil Code, where the partnership contract is rescinded on
the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without
prejudice to any other right is entitled to a lien on, or right of retention of, the surplus of the partnership property after
satisfying the partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest in
the partnership and for any capital or advance contributed by him. In the instant case, the joint venture still has
outstanding liabilities to third parties or the buyers of the property.
It is not amiss to state that title to the land or TCT No. T-10848 which is now held by Chinabank for safekeeping pursuant
to the Escrow Agreement executed between Primelink Properties and Development Corporation and Ma. Clara T.
Lazatin-Magat should also be returned to the LAZATINs as a necessary consequence of the order of rescission of
contract. The reason for the existence of the Escrow Agreement has ceased to exist when the joint venture agreement
was rescinded.49
Respondents stress that petitioners must bear any damages or losses they may have suffered. They likewise stress that
they did not enrich themselves at the expense of petitioners.
In reply, petitioners assert that it is unjust and inequitable for respondents to retain the improvements even if their
share in the P1,041,524.26 of the net income of the property and the sale of the land were to be deducted from the
value of the improvements, plus administrative and marketing expenses in the total amount of P40,000,000.00.
Petitioners will still be entitled to an accounting from respondents. Respondents cannot deny the existence and nature
of said improvements as they are visible to the naked eye.
The threshold issues are the following: (1) whether respondents are entitled to the possession of the parcels of land
covered by the JVA and the improvements thereon introduced by petitioners as their contribution to the JVA; (2)
whether petitioners are entitled to reimbursement for the value of the improvements on the parcels of land.
The petition has no merit.
On the first issue, we agree with petitioners that respondents did not specifically pray in their complaint below that
possession of the improvements on the parcels of land which they contributed to the JVA be transferred to them.
Respondents made a specific prayer in their complaint that, upon the rescission of the JVA, they be placed in possession
of the parcels of land subject of the agreement, and for other "reliefs and such other remedies as are just and equitable
in the premises." However, the trial court was not precluded from awarding possession of the improvements on the
parcels of land to respondents in its decision. Section 2(c), Rule 7 of the Rules of Court provides that a pleading shall
specify the relief sought but it may add as general prayer for such further or other relief as may be deemed just and
equitable. Even without the prayer for a specific remedy, proper relief may be granted by the court if the facts alleged in
the complaint and the evidence introduced so warrant.50 The court shall grant relief warranted by the allegations and
the proof even if no such relief is prayed for.51 The prayer in the complaint for other reliefs equitable and just in the
premises justifies the grant of a relief not otherwise specifically prayed for.52
The trial court was not proscribed from placing respondents in possession of the parcels of land and the improvements
on the said parcels of land. It bears stressing that the parcels of land, as well as the improvements made thereon, were
contributed by the parties to the joint venture under the JVA, hence, formed part of the assets of the joint venture.53 The
trial court declared that respondents were entitled to the possession not only of the parcels of land but also of the
improvements thereon as a consequence of its finding that petitioners breached their agreement and defrauded
respondents of the net income under the JVA.
On the second issue, we agree with the CA ruling that petitioner Primelink and respondents entered into a joint venture
as evidenced by their JVA which, under the Court’s ruling in Aurbach, is a form of partnership, and as such is to be
governed by the laws on partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence on record that petitioners willfully
and persistently committed a breach of the JVA, the court thereby dissolved/cancelled the partnership.54 With the
rescission of the JVA on account of petitioners’ fraudulent acts, all authority of any partner to act for the partnership is
terminated except so far as may be necessary to wind up the partnership affairs or to complete transactions begun but
not yet finished.55 On dissolution, the partnership is not terminated but continues until the winding up of partnership
affairs is completed.56 Winding up means the administration of the assets of the partnership for the purpose of
terminating the business and discharging the obligations of the partnership.
The transfer of the possession of the parcels of land and the improvements thereon to respondents was only for a
specific purpose: the winding up of partnership affairs, and the partition and distribution of the net partnership assets as
provided by law.57 After all, Article 1836 of the New Civil Code provides that unless otherwise agreed by the parties in
their JVA, respondents have the right to wind up the partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal
representative of the last surviving partner, not insolvent, has the right to wind up the partnership affairs, provided,
however, that any partner, his legal representative or his assignee, upon cause shown, may obtain winding up by the
court.
It must be stressed, too, that although respondents acquired possession of the lands and the improvements thereon,
the said lands and improvements remained partnership property, subject to the rights and obligations of the parties,
inter se, of the creditors and of third parties under Articles 1837 and 1838 of the New Civil Code, and subject to the
outcome of the settlement of the accounts between the parties as provided in Article 1839 of the New Civil Code,
absent any agreement of the parties in their JVA to the contrary.58 Until the partnership accounts are determined, it
cannot be ascertained how much any of the parties is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding that it be indemnified for the value of the
improvements on the parcels of land owned by the joint venture/partnership. Notably, the JVA of the parties does not
contain any provision designating any party to wind up the affairs of the partnership.
Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution is caused in contravention of
the partnership agreement are as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully, to damages for breach of the
agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same
name either by themselves or jointly with others, may do so, during the agreed term for the partnership and for that
purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or
pay to any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the
dissolution, less any damages recoverable under the second paragraph, No. 1(b) of this article, and in like manner
indemnify him against all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of a partner under
the first paragraph, subject to liability for damages in the second paragraph, No. 1(b), of this article.
(b) If the business is continued under the second paragraph, No. 2, of this article, the right as against his co-partners and
all claiming through them in respect of their interests in the partnership, to have the value of his interest in the
partnership, less any damage caused to his co-partners by the dissolution, ascertained and paid to him in cash, or the
payment secured by a bond approved by the court, and to be released from all existing liabilities of the partnership; but
in ascertaining the value of the partner’s interest the value of the good-will of the business shall not be considered.
And under Article 1838 of the New Civil Code, the party entitled to rescind is, without prejudice to any other right,
entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities
to third persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital
or advances contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for
any payments made by him in respect of the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation against all debts and liabilities of
the partnership.
The accounts between the parties after dissolution have to be settled as provided in Article 1839 of the New Civil Code:
Art. 1839. In settling accounts between the partners after dissolution, the following rules shall be observed, subject to
any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this article to the satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the
contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the contributions specified in No. 4, to the
extent of the amount which he has paid in excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the contributions specified in No. 4.
(8) When partnership property and the individual properties of the partners are in possession of a court for distribution,
partnership creditors shall have priority on partnership property and separate creditors on individual property, saving
the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate property shall rank in
the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in
CA-G.R. CV No. 69200 are AFFIRMED insofar as they conform to this Decision of the Court.
Costs against petitioners.
SO ORDERED.
ROMEO J. CALLEJO, SR.
Associate Justice
WE CONCUR:
ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson
CONSUELO YNARES-SANTIAGO MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice Asscociate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision
were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.
ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes
1 Penned by Associate Justice Regalado E. Maambong, with Associate Justices Eloy R. Bello, Jr. and Lucenito N. Tagle,

concurring; rollo, pp. 33-53.

2 Rollo, pp. 72-74.

3 Id. at 12.

4 Records, pp. 12-13.

5 Id. at 14.

6 Id. at 15.

7 Id. at 16.

8 Id.

9 Id. at 23.

10 Id. at 16.

11 Id. at 15.

12 Id. at 70.

13 Id. at 20.

14 Id. at 22.

15 Id. at 6.

16 Id. at 6.

17 Id. at 34.

18 Id. at 37.

19 Id. at 38.

20 March 3, 1998; March 17, 1998; March 31, 1998; April 15, 1998; April 29, 1998; May 14, 1998; May 28, 1998; June 11,

1998. Records, pp. 39, 55, 90, 104, 107, 110, 115 and 117, respectively.
21 Records, p. 119.

22 Id. at 120.

23 Id. at 122.

24 Id. at 125.

25 Id. at 126.

26 Id. at 134.

27 Id. at 139.
28 Id. at 143.
29 Id. at 146.
30 Id. at 164.

31 Id. at 165.

32 Id. at 204-205.

33 Id. at 215.

34 Id. at 212-214.

35 Id. at 216-220.

36 Id. at 221-228.

37 Id. at 231-232.

38 Id. at 236.

39 CA rollo, pp. 63-65.

40 Rollo, p. 53.

41 G.R. Nos. 75875, 75951 and 75975-76, December 15, 1989, 180 SCRA 130, 147.

42 Rollo, p. 55.

43 Id. at 72-74.

44 Id. at 14.

45 Id. at 21-22.

46 Id. at 26.

47 Supra note 41.

48 Rollo, pp. 50-51.

49 Id. at 50-52.

50 Eugenio v. Velez, G.R. No. 85140, May 17, 1990, 185 SCRA 425, 432-433.

51 Banco Filipino Savings and Mortgage Bank v. Court of Appeals, 388 Phil. 27, 41 (2000).

52 Arroyo, Jr. v. Taduran, G.R. No. 147012, January 29, 2004, 421 SCRA 423, 427.

53 Lipscomb v. Aulenbacker, 272 S.W. 363, 168 Ark. 1066.

54 Article 1831 in relation to Article 1831(4)(b), New Civil Code.

55 Article 1832 in relation to Article 1834, New Civil Code.

56 Article 1829, New Civil Code.

57 Sy v. Court of Appeals, 372 Phil. 207, 299 (1999).

58 Ortega v. Court of Appeals, 315 Phil. 573, 581-582 (1995).

DIGEST
PRIMELINK PROPERTIES v. MA. CLARITA T. LAZATIN-MAGAT, GR NO.
167379, 2006-06-27

Facts:
Primelink Properties and Development Corporation (Primelink for brevity) is a domestic corporation engaged in real
estate development. Rafaelito W. Lopez is its President and Chief Executive Officer
Lazatin-Magat and her brothers,... are co-owners of two (2) adjoining parcels of land, with a combined area of 30,000
square meters, located in Tagaytay City and covered by
Transfer Certificate of Title (TCT)... the Lazatins and Primelink, represented by Lopez, in his capacity as President,
entered into a Joint Venture Agreement
(JVA) for the development of the aforementioned property into a residential subdivision to be known as
"Tagaytay Garden Villas." Under the JVA, the Lazatin siblings obliged themselves to contribute the two parcels of land as
their share in the joint venture.
For its part, Primelink undertook to contribute money, labor, personnel, machineries, equipment,... contractor's pool,
marketing activities, managerial expertise and other needed resources to develop the property and construct therein
the units for sale to the public. Specifically, Primelink bound itself to accomplish the following, upon the execution of
the deed:... a.)

Survey the land, and prepare the projects master plans, engineering designs, structural and architectural plans, site
development plans, and such other need plans in accordance with existing laws and the rules and regulations of
appropriate government institutions, firms or... agencies;
... b.)

Secure and pay for all the licenses, permits and clearances needed for the projects;
... c.)

Furnish all materials, equipment, labor and services for the development of the land in preparation for the construction
and sale of the different types of units (single-detached, duplex/twin, cluster and row house);
... d.)

Guarantee completion of the land development work if not prevented by force majeure or fortuitous event or by
competent authority, or other unavoidable circumstances beyond the DEVELOPER'S control, not to exceed three years
from the date of the signing of this
Joint Venture Agreement, except the installation of the electrical facilities which is solely MERALCO'S responsibility;
... e.)

Provide necessary manpower resources, like executive and managerial officers, support personnel and marketing staff,
to handle all services related to land and housing development (administrative and construction) and marketing (sales,
advertising and promotions)
The Lazatins and Primelink covenanted that they shall be entitled to draw allowances/advances as follows:
During the first two years of the Project, the DEVELOPER and the LANDOWNER can draw allowances or make advances
not exceeding a total of twenty percent (20%) of the net revenue for that period, on the basis of sixty percent (60%) for
the DEVELOPER and forty percent (40%) for... the LANDOWNERS.
The drawing allowances/advances are limited to twenty percent (20%) of the net revenue for the first two years, in
order to have sufficient reserves or funds to protect and/or guarantee the construction and completion of the different
types of units mentioned above.
After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawing allowances and/or advances
equivalent to sixty percent (60%) and forty percent (40%), respectively, of the total net revenue or income of the sale of
the units.
They also agreed to share in the profits from the joint venture, thus:
The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or income of the Joint Venture project, after
deducting all expenses incurred in connection with the land development (such as administrative management and
construction expenses), and marketing (such... as sales, advertising and promotions), and
The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or income of the Joint Venture project,
after deducting all the above-mentioned expenses.
The parties agreed that any unsettled or unresolved misunderstanding or conflicting opinions between the parties
relative to the interpretation, scope and reach, and the enforcement/implementation of any provision of the agreement
shall be referred to Voluntary Arbitration in... accordance with the Arbitration Law
The Lazatins agreed to subject the title over the subject property to an escrow agreement. Conformably with the
escrow agreement, the owner's duplicate of the title was deposited with the China Banking Corporation
However, Primelink failed... to immediately secure a Development Permit from Tagaytay City,... On October 12, 1995,
the City issued a Development Permit to Primelink
Lazatins, through counsel, demanded that Primelink comply with its obligations under the JVA, otherwise the
appropriate action would be filed against it to protect their rights and interests.
In another Letter[14] dated October 22, 1997, the Lazatins informed Primelink that they had decided to rescind the JVA
effective upon its... receipt of the said letter. The Lazatins demanded that Primelink cease and desist from further
developing the property.
Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC) of Tagaytay City, Branch 18, a
complaint for rescission accounting and damages, with prayer for temporary restraining order and/or preliminary
injunction against Primelink and Lopez.
Plaintiffs alleged, among others, that, despite the lapse of almost four (4) years from the execution of the JVA and the
delivery of the title and possession of the land to defendants, the land development aspect of... the project had not yet
been completed, and the construction of the housing units had not yet made any headway,... (a) of the 50 housing units
programmed for Phase I, only the following types of houses appear on the site in these condition:
(aa) single detached, one completed and two units uncompleted; (bb) cluster houses, one unit nearing completion; (cc)
duplex, two units completed and two units unfinished; and (dd) row houses, two units, completed; (b) in Phase II
thereof, all that was done by the defendants was... to grade the area; the units so far constructed had been the object of
numerous complaints by their owners/purchasers for poor workmanship and the use of sub-standard materials in their
construction, thus, undermining the project's marketability.
Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted by defendants, they (plaintiffs)
stood to receive the amount of P70,218,296.00 as their net share in the joint venture project; to date, however, after
almost four (4) years and despite the... undertaking in the JVA that plaintiffs shall initially get 20% of the agreed net
revenue during the first two (2) years (on the basis of the 60%-40% sharing) and their full 40% share thereafter,
defendants had yet to deliver these shares to plaintiffs which by conservative... estimates would amount to no less than
P40,000,000.00.
Defendants opposed plaintiffs' plea for a writ of preliminary injunction on the ground that plaintiffs' complaint was
premature, due to their failure to refer their complaint to a Voluntary Arbitrator pursuant to the JVA in relation to
Section 2 of Republic Act No. 876 before... filing their complaint in the RTC.
Defendants thereafter interposed an appeal to the CA assailing the Order declaring them in default, as well as the Order
denying their motion to set aside the order of default, alleging that these were contrary to facts of the case, the law and
jurisprudence
In the meantime, plaintiffs adduced ex parte their testimonial and documentary evidence. On April 17, 2000, the RTC
rendered a Decision
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows:
Ordering the rescission of the Joint Venture Agreement as of the date of filing of this complaint;
The trial court anchored its decision on the following findings:... this court has observed, and is thus convinced, that a
pattern of what appears... to be a scheme or plot to reduce and eventually blot out the net income generated from
sales of housing units by defendants, has been established.
the joint venture project earned a net income of about
P2,603,810.64. This amount, however, was drastically reduced in a subsequent financial report submitted by the
defendants to P1,954,216.39. Shortly thereafter, and to the dismay of the plaintiffs, the defendants submitted an
income statement and a balance sheet
Of the reported net income of P2,603,810.64... the plaintiffs should have received the sum of P1,041,524.26
representing their 40% share under paragraph II and V of the JVA. But this was not to be so. Even before the plaintiffs
could get hold of their share as... indicated above, the defendants closed the chance altogether by declaring a net loss.
The court perceives this to be one calculated coup-de-grace that would put to thin air plaintiffs' hope of getting their
share in the profit under the JVA.
Defendants appealed the decision to the CA... the appellate court rendered a decision affirming, with modification, the
appealed decision.
Petitioners maintain that the aforesaid portion of the decision which unconditionally awards to respondents "all
improvements" on the project without requiring them to pay the value thereof or to reimburse Primelink for all
expenses incurred therefore is inherently and... essentially illegal and confiscatory, oppressive and unconscionable
At the time respondents contributed the two parcels of land, consisting of
30,000 square meters to the joint venture project when the JVA was signed on March 10, 1994, the said properties were
worth not more than P500.00 per square meter, the "price tag" agreed upon the parties for the purpose of the
JVA. Moreover, before respondents rescinded... the JVA sometime in October/November 1997, the property had
already been substantially developed as improvements had already been introduced thereon; petitioners had likewise
incurred administrative and marketing expenses, among others, amounting to more or less
P40,000,000.00
All parties must be... restored to their original positions as nearly as possible upon the rescission of a contract. In the
event that restoration to the status quo is impossible, rescission may be granted if the Court can balance the equities
and fashion an appropriate remedy that... would be equitable to both parties and afford complete relief.
On the other hand, the CA ruled that although respondents therein (plaintiffs below) did not specifically pray for their
takeover of the property and for the possession of the improvements on the parcels of land, nevertheless, respondents
were entitled to said relief as a... necessary consequence of the ruling of the trial court ordering the rescission of the
JVA. The appellate court cited the ruling of this Court in the Aurbach case and Article 1838 of the New Civil Code, to wit:
As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the agreement is
silent on any particular issue, the general principles of partnership may be resorted to.
They insist that petitioners are not entitled to rescission for the improvements because, as found by the RTC and the CA,
it was petitioner Primelink that enriched itself at the expense of respondents.
Issues:
(1) whether respondents are entitled to the possession of the parcels of land covered by the JVA and the improvements
thereon introduced by petitioners as their contribution to the JVA; (2) whether petitioners are entitled to
reimbursement... for the value of the improvements on the parcels of land.
Ruling:
The petition has no merit.
On the first issue, we agree with petitioners that respondents did not specifically pray in their complaint below that
possession of the improvements on the parcels of land which they contributed to the JVA be transferred to them
However, the trial court was not precluded from... awarding possession of the improvements on the parcels of land to
respondents in its decision. Section 2(c), Rule 7 of the Rules of Court provides that a pleading shall specify the relief
sought but it may add as general prayer for such further or other relief as may be... deemed just and equitable.
Even without the prayer for a specific remedy, proper relief may be granted by the court if the facts alleged in the
complaint and the evidence introduced so warrant.
The trial court was not proscribed from placing respondents in possession of the parcels of land and the improvements
on the said parcels of land. It bears stressing that the parcels of land, as well as the improvements made thereon, were
contributed by the parties to the... joint venture under the JVA, hence, formed part of the assets of the joint venture
When the RTC rescinded the JVA on complaint of respondents based on the evidence on record that petitioners willfully
and persistently committed a breach of the JVA, the court thereby dissolved/cancelled the partnership.
With the rescission of the
JVA on account of petitioners' fraudulent acts, all authority of any partner to act for the partnership is terminated except
so far as may be necessary to wind up the partnership affairs or to complete transactions begun but not yet finished
The transfer of the possession of the parcels of land and the improvements thereon to respondents was only for a
specific purpose: the winding up of partnership affairs, and the partition and distribution of the net partnership assets as
provided by law
After all, Article 1836 of the New Civil Code provides that unless otherwise agreed by the parties in their JVA,
respondents have the right to wind up the partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal
representative of the last surviving partner, not insolvent, has the right to wind up the partnership affairs, provided,
however, that any partner,... his legal representative or his assignee, upon cause shown, may obtain winding up by the
court.
It must be stressed, too, that although respondents acquired possession of the lands and the improvements thereon,
the said lands and improvements remained partnership property, subject to the rights and obligations of the parties,
inter se, of the creditors and of... third parties under Articles 1837 and 1838 of the New Civil Code, and subject to the
outcome of the settlement of the accounts between the parties as provided in Article 1839 of the New Civil Code,
absent any agreement of the parties in their JVA to the contrary
It was thus premature for petitioner Primelink to be demanding that it be indemnified for the value of the
improvements on the parcels of land owned by the joint venture/partnership. Notably, the JVA of the parties does not
contain any provision designating any party to... wind up the affairs of the partnership.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals
in CA-G.R. CV No. 69200 are AFFIRMED insofar as they conform to this Decision of the Court.
Costs against petitioners.
SO ORDERED.
Principles:
G.R. No. 148187 April 16, 2008
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the June 30, 2000 Decision1 of the Court of Appeals in CA-G.R. SP No. 49385,
which affirmed the Decision2 of the Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed is the April 3, 2001
Resolution3 denying the motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an agreement4 with Baguio Gold
Mining Company ("Baguio Gold") for the former to manage and operate the latter’s mining claim, known as the Sto.
Nino mine, located in Atok and Tublay, Benguet Province. The parties’ agreement was denominated as "Power of
Attorney" and provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make available to the MANAGERS (Philex
Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as from time to time may be required by the
MANAGERS within the said 3-year period, for use in the MANAGEMENT of the STO. NINO MINE. The said ELEVEN
MILLION PESOS (P11,000,000.00) shall be deemed, for internal audit purposes, as the owner’s account in the Sto. Nino
PROJECT. Any part of any income of the PRINCIPAL from the STO. NINO MINE, which is left with the Sto. Nino PROJECT,
shall be added to such owner’s account.
5. Whenever the MANAGERS shall deem it necessary and convenient in connection with the MANAGEMENT of the STO.
NINO MINE, they may transfer their own funds or property to the Sto. Nino PROJECT, in accordance with the following
arrangements:
(a) The properties shall be appraised and, together with the cash, shall be carried by the Sto. Nino PROJECT as a special
fund to be known as the MANAGERS’ account.
(b) The total of the MANAGERS’ account shall not exceed P11,000,000.00, except with prior approval of the PRINCIPAL;
provided, however, that if the compensation of the MANAGERS as herein provided cannot be paid in cash from the Sto.
Nino PROJECT, the amount not so paid in cash shall be added to the MANAGERS’ account.
(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT until termination of this
Agency.
(d) The MANAGERS’ account shall not accrue interest. Since it is the desire of the PRINCIPAL to extend to the MANAGERS
the benefit of subsequent appreciation of property, upon a projected termination of this Agency, the ratio which the
MANAGERS’ account has to the owner’s account will be determined, and the corresponding proportion of the entire
assets of the STO. NINO MINE, excluding the claims, shall be transferred to the MANAGERS, except that such transferred
assets shall not include mine development, roads, buildings, and similar property which will be valueless, or of slight
value, to the MANAGERS. The MANAGERS can, on the other hand, require at their option that property originally
transferred by them to the Sto. Nino PROJECT be re-transferred to them. Until such assets are transferred to the
MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto. Nino PROJECT before
income tax. It is understood that the MANAGERS shall pay income tax on their compensation, while the PRINCIPAL shall
pay income tax on the net profit of the Sto. Nino PROJECT after deduction therefrom of the MANAGERS’ compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and, in the future, may incur other
obligations in favor of the MANAGERS. This Power of Attorney has been executed as security for the payment and
satisfaction of all such obligations of the PRINCIPAL in favor of the MANAGERS and as a means to fulfill the same.
Therefore, this Agency shall be irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS is
outstanding, inclusive of the MANAGERS’ account. After all obligations of the PRINCIPAL in favor of the MANAGERS have
been paid and satisfied in full, this Agency shall be revocable by the PRINCIPAL upon 36-month notice to the
MANAGERS.
17. Notwithstanding any agreement or understanding between the PRINCIPAL and the MANAGERS to the contrary, the
MANAGERS may withdraw from this Agency by giving 6-month notice to the PRINCIPAL. The MANAGERS shall not in any
manner be held liable to the PRINCIPAL by reason alone of such withdrawal. Paragraph 5(d) hereof shall be operative in
case of the MANAGERS’ withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining made advances of cash and property in accordance
with paragraph 5 of the agreement. However, the mine suffered continuing losses over the years which resulted to
petitioner’s withdrawal as manager of the mine on January 28, 1982 and in the eventual cessation of mine operations on
February 20, 1982.6
Thereafter, on September 27, 1982, the parties executed a "Compromise with Dation in Payment"7 wherein Baguio Gold
admitted an indebtedness to petitioner in the amount of P179,394,000.00 and agreed to pay the same in three
segments by first assigning Baguio Gold’s tangible assets to petitioner, transferring to the latter Baguio Gold’s equitable
title in its Philodrill assets and finally settling the remaining liability through properties that Baguio Gold may acquire in
the future.
On December 31, 1982, the parties executed an "Amendment to Compromise with Dation in Payment"8 where the
parties determined that Baguio Gold’s indebtedness to petitioner actually amounted to P259,137,245.00, which sum
included liabilities of Baguio Gold to other creditors that petitioner had assumed as guarantor. These liabilities pertained
to long-term loans amounting to US$11,000,000.00 contracted by Baguio Gold from the Bank of America NT & SA and
Citibank N.A. This time, Baguio Gold undertook to pay petitioner in two segments by first assigning its tangible assets for
P127,838,051.00 and then transferring its equitable title in its Philodrill assets for P16,302,426.00. The parties then
ascertained that Baguio Gold had a remaining outstanding indebtedness to petitioner in the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding indebtedness of Baguio Gold
by charging P112,136,000.00 to allowances and reserves that were set up in 1981 and P2,860,768.00 to the 1982
operations.
In its 1982 annual income tax return, petitioner deducted from its gross income the amount of P112,136,000.00 as "loss
on settlement of receivables from Baguio Gold against reserves and allowances."9 However, the Bureau of Internal
Revenue (BIR) disallowed the amount as deduction for bad debt and assessed petitioner a deficiency income tax of
P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be allowed since all requisites for a bad debt
deduction were satisfied, to wit: (a) there was a valid and existing debt; (b) the debt was ascertained to be worthless;
and (c) it was charged off within the taxable year when it was determined to be worthless.
Petitioner emphasized that the debt arose out of a valid management contract it entered into with Baguio Gold. The bad
debt deduction represented advances made by petitioner which, pursuant to the management contract, formed part of
Baguio Gold’s "pecuniary obligations" to petitioner. It also included payments made by petitioner as guarantor of Baguio
Gold’s long-term loans which legally entitled petitioner to be subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Gold’s irreversible losses, it became evident that it would not be able to
recover the advances and payments it had made in behalf of Baguio Gold. For a debt to be considered worthless,
petitioner claimed that it was neither required to institute a judicial action for collection against the debtor nor to sell or
dispose of collateral assets in satisfaction of the debt. It is enough that a taxpayer exerted diligent efforts to enforce
collection and exhausted all reasonable means to collect.
On October 28, 1994, the BIR denied petitioner’s protest for lack of legal and factual basis. It held that the alleged debt
was not ascertained to be worthless since Baguio Gold remained existing and had not filed a petition for bankruptcy;
and that the deduction did not consist of a valid and subsisting debt considering that, under the management contract,
petitioner was to be paid fifty percent (50%) of the project’s net profit.10
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for lack of merit. The assessment
in question, viz: FAS-1-82-88-003067 for deficiency income tax in the amount of P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY respondent Commissioner of Internal
Revenue the amount of P62,811,161.39, plus, 20% delinquency interest due computed from February 10, 1995, which is
the date after the 20-day grace period given by the respondent within which petitioner has to pay the deficiency amount
x x x up to actual date of payment.
SO ORDERED.11
The CTA rejected petitioner’s assertion that the advances it made for the Sto. Nino mine were in the nature of a loan. It
instead characterized the advances as petitioner’s investment in a partnership with Baguio Gold for the development
and exploitation of the Sto. Nino mine. The CTA held that the "Power of Attorney" executed by petitioner and Baguio
Gold was actually a partnership agreement. Since the advanced amount partook of the nature of an investment, it could
not be deducted as a bad debt from petitioner’s gross income.
The CTA likewise held that the amount paid by petitioner for the long-term loan obligations of Baguio Gold could not be
allowed as a bad debt deduction. At the time the payments were made, Baguio Gold was not in default since its loans
were not yet due and demandable. What petitioner did was to pre-pay the loans as evidenced by the notice sent by
Bank of America showing that it was merely demanding payment of the installment and interests due. Moreover,
Citibank imposed and collected a "pre-termination penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the CTA.12 Hence, upon denial of its motion for
reconsideration,13 petitioner took this recourse under Rule 45 of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the advances made by Philex in the management of the Sto. Nino Mine
pursuant to the Power of Attorney partook of the nature of an investment rather than a loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto. Nino Mine indicates that
Philex is a partner of Baguio Gold in the development of the Sto. Nino Mine notwithstanding the clear absence of any
intent on the part of Philex and Baguio Gold to form a partnership.
III.
The Court of Appeals erred in relying only on the Power of Attorney and in completely disregarding the Compromise
Agreement and the Amended Compromise Agreement when it construed the nature of the advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad debts write-off.14
Petitioner insists that in determining the nature of its business relationship with Baguio Gold, we should not only rely on
the "Power of Attorney", but also on the subsequent "Compromise with Dation in Payment" and "Amended
Compromise with Dation in Payment" that the parties executed in 1982. These documents, allegedly evinced the parties’
intent to treat the advances and payments as a loan and establish a creditor-debtor relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the instrument that is material in determining the true
nature of the business relationship between petitioner and Baguio Gold. Before resort may be had to the two
compromise agreements, the parties’ contractual intent must first be discovered from the expressed language of the
primary contract under which the parties’ business relations were founded. It should be noted that the compromise
agreements were mere collateral documents executed by the parties pursuant to the termination of their business
relationship created under the "Power of Attorney". On the other hand, it is the latter which established the juridical
relation of the parties and defined the parameters of their dealings with one another.
The execution of the two compromise agreements can hardly be considered as a subsequent or contemporaneous act
that is reflective of the parties’ true intent. The compromise agreements were executed eleven years after the "Power of
Attorney" and merely laid out a plan or procedure by which petitioner could recover the advances and payments it
made under the "Power of Attorney". The parties entered into the compromise agreements as a consequence of the
dissolution of their business relationship. It did not define that relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a partnership or joint venture was indeed intended by the
parties. Under a contract of partnership, two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves.15 While a corporation, like
petitioner, cannot generally enter into a contract of partnership unless authorized by law or its charter, it has been held
that it may enter into a joint venture which is akin to a particular partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally
understood to mean an organization formed for some temporary purpose. x x x It is in fact hardly distinguishable from
the partnership, since their elements are similar – community of interest in the business, sharing of profits and losses,
and a mutual right of control. x x x The main distinction cited by most opinions in common law jurisdictions is that the
partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary nature. x x x This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may
have for its object a specific undertaking. x x x It would seem therefore that under Philippine law, a joint venture is a
form of partnership and should be governed by the law of partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with others. x x x (Citations omitted) 16
Perusal of the agreement denominated as the "Power of Attorney" indicates that the parties had intended to create a
partnership and establish a common fund for the purpose. They also had a joint interest in the profits of the business as
shown by a 50-50 sharing in the income of the mine.
Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute money, property and industry to
the common fund known as the Sto. Niño mine.17 In this regard, we note that there is a substantive equivalence in the
respective contributions of the parties to the development and operation of the mine. Pursuant to paragraphs 4 and 5 of
the agreement, petitioner and Baguio Gold were to contribute equally to the joint venture assets under their respective
accounts. Baguio Gold would contribute P11M under its owner’s account plus any of its income that is left in the project,
in addition to its actual mining claim. Meanwhile, petitioner’s contribution would consist of its expertise in the
management and operation of mines, as well as the manager’s account which is comprised of P11M in funds and
property and petitioner’s "compensation" as manager that cannot be paid in cash.
However, petitioner asserts that it could not have entered into a partnership agreement with Baguio Gold because it did
not "bind" itself to contribute money or property to the project; that under paragraph 5 of the agreement, it was only
optional for petitioner to transfer funds or property to the Sto. Niño project "(w)henever the MANAGERS shall deem it
necessary and convenient in connection with the MANAGEMENT of the STO. NIÑO MINE."18
The wording of the parties’ agreement as to petitioner’s contribution to the common fund does not detract from the
fact that petitioner transferred its funds and property to the project as specified in paragraph 5, thus rendering effective
the other stipulations of the contract, particularly paragraph 5(c) which prohibits petitioner from withdrawing the
advances until termination of the parties’ business relations. As can be seen, petitioner became bound by its
contributions once the transfers were made. The contributions acquired an obligatory nature as soon as petitioner had
chosen to exercise its option under paragraph 5.
There is no merit to petitioner’s claim that the prohibition in paragraph 5(c) against withdrawal of advances should not
be taken as an indication that it had entered into a partnership with Baguio Gold; that the stipulation only showed that
what the parties entered into was actually a contract of agency coupled with an interest which is not revocable at will
and not a partnership.
In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal due to an
interest of a third party that depends upon it, or the mutual interest of both principal and agent.19 In this case, the non-
revocation or non-withdrawal under paragraph 5(c) applies to the advances made by petitioner who is supposedly
the agent and not the principal under the contract. Thus, it cannot be inferred from the stipulation that the parties’
relation under the agreement is one of agency coupled with an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the parties was one of
agency and not a partnership. Although the said provision states that "this Agency shall be irrevocable while any
obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the MANAGERS’ account," it does not
necessarily follow that the parties entered into an agency contract coupled with an interest that cannot be withdrawn
by Baguio Gold.
It should be stressed that the main object of the "Power of Attorney" was not to confer a power in favor of petitioner to
contract with third persons on behalf of Baguio Gold but to create a business relationship between petitioner and
Baguio Gold, in which the former was to manage and operate the latter’s mine through the parties’ mutual contribution
of material resources and industry. The essence of an agency, even one that is coupled with interest, is the agent’s
ability to represent his principal and bring about business relations between the latter and third persons.20 Where
representation for and in behalf of the principal is merely incidental or necessary for the proper discharge of one’s
paramount undertaking under a contract, the latter may not necessarily be a contract of agency, but some other
agreement depending on the ultimate undertaking of the parties.21
In this case, the totality of the circumstances and the stipulations in the parties’ agreement indubitably lead to the
conclusion that a partnership was formed between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally obligated to return the advances made by petitioner
under the agreement. Paragraph 5 (d) thereof provides that upon termination of the parties’ business relations, "the
ratio which the MANAGER’S account has to the owner’s account will be determined, and the corresponding proportion
of the entire assets of the STO. NINO MINE, excluding the claims" shall be transferred to petitioner.22 As pointed out by
the Court of Tax Appeals, petitioner was merely entitled to a proportionate return of the mine’s assets upon dissolution
of the parties’ business relations. There was nothing in the agreement that would require Baguio Gold to make
payments of the advances to petitioner as would be recognized as an item of obligation or "accounts payable" for
Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided for a distribution of assets of the Sto. Niño mine
upon termination, a provision that is more consistent with a partnership than a creditor-debtor relationship. It should be
pointed out that in a contract of loan, a person who receives a loan or money or any fungible thing acquires ownership
thereof and is bound to pay the creditor an equal amount of the same kind and quality.23 In this case, however, there
was no stipulation for Baguio Gold to actually repay petitioner the cash and property that it had advanced, but only the
return of an amount pegged at a ratio which the manager’s account had to the owner’s account.
In this connection, we find no contractual basis for the execution of the two compromise agreements in which Baguio
Gold recognized a debt in favor of petitioner, which supposedly arose from the termination of their business relations
over the Sto. Nino mine. The "Power of Attorney" clearly provides that petitioner would only be entitled to the return of
a proportionate share of the mine assets to be computed at a ratio that the manager’s account had to the owner’s
account. Except to provide a basis for claiming the advances as a bad debt deduction, there is no reason for Baguio Gold
to hold itself liable to petitioner under the compromise agreements, for any amount over and above the proportion
agreed upon in the "Power of Attorney".
Next, the tax court correctly observed that it was unlikely for a business corporation to lend hundreds of millions of
pesos to another corporation with neither security, or collateral, nor a specific deed evidencing the terms and conditions
of such loans. The parties also did not provide a specific maturity date for the advances to become due and demandable,
and the manner of payment was unclear. All these point to the inevitable conclusion that the advances were not loans
but capital contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto Niño mine is the fact that it would receive 50% of the
net profits as "compensation" under paragraph 12 of the agreement. The entirety of the parties’ contractual stipulations
simply leads to no other conclusion than that petitioner’s "compensation" is actually its share in the income of the joint
venture.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of a share in the profits of a business
is prima facie evidence that he is a partner in the business." Petitioner asserts, however, that no such inference can be
drawn against it since its share in the profits of the Sto Niño project was in the nature of compensation or "wages of an
employee", under the exception provided in Article 1769 (4) (b).24
On this score, the tax court correctly noted that petitioner was not an employee of Baguio Gold who will be paid
"wages" pursuant to an employer-employee relationship. To begin with, petitioner was the manager of the project and
had put substantial sums into the venture in order to ensure its viability and profitability. By pegging its compensation to
profits, petitioner also stood not to be remunerated in case the mine had no income. It is hard to believe that petitioner
would take the risk of not being paid at all for its services, if it were truly just an ordinary employee.
Consequently, we find that petitioner’s "compensation" under paragraph 12 of the agreement actually constitutes its
share in the net profits of the partnership. Indeed, petitioner would not be entitled to an equal share in the income of
the mine if it were just an employee of Baguio Gold.25 It is not surprising that petitioner was to receive a 50% share in
the net profits, considering that the "Power of Attorney" also provided for an almost equal contribution of the parties to
the St. Nino mine. The "compensation" agreed upon only serves to reinforce the notion that the parties’ relations were
indeed of partners and not employer-employee.
All told, the lower courts did not err in treating petitioner’s advances as investments in a partnership known as the Sto.
Nino mine. The advances were not "debts" of Baguio Gold to petitioner inasmuch as the latter was under no
unconditional obligation to return the same to the former under the "Power of Attorney". As for the amounts that
petitioner paid as guarantor to Baguio Gold’s creditors, we find no reason to depart from the tax court’s factual finding
that Baguio Gold’s debts were not yet due and demandable at the time that petitioner paid the same. Verily, petitioner
pre-paid Baguio Gold’s outstanding loans to its bank creditors and this conclusion is supported by the evidence on
record.26
In sum, petitioner cannot claim the advances as a bad debt deduction from its gross income. Deductions for income tax
purposes partake of the nature of tax exemptions and are strictly construed against the taxpayer, who must prove by
convincing evidence that he is entitled to the deduction claimed.27 In this case, petitioner failed to substantiate its
assertion that the advances were subsisting debts of Baguio Gold that could be deducted from its gross income.
Consequently, it could not claim the advances as a valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 49385 dated June 30, 2000,
which affirmed the decision of the Court of Tax Appeals in C.T.A. Case No. 5200 is AFFIRMED. Petitioner Philex Mining
Corporation is ORDERED to PAY the deficiency tax on its 1982 income in the amount of P62,811,161.31, with 20%
delinquency interest computed from February 10, 1995, which is the due date given for the payment of the deficiency
income tax, up to the actual date of payment.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:
*CONCHITA CARPIO MORALES
Associate Justice

MINITA V. CHICO-NAZARIO ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice

Footnotes
* In lieu of Associate Justice Ma. Alicia Austria-Martinez.
1 Rollo, pp. 46-57; penned by Associate Justice Portia Aliño-Hormachuelos and concurred in by Associate Justices Ma.

Alicia Austria-Martinez (now an Associate Justice of the Supreme Court) and Elvi John S. Asuncion.
2 Id. at 169-196; penned by Justice Amancio Q. Saga.

3 Id. at 59.

4 Id. at 60-69.

5 Id. at 62-63, 66 & 68.

6 Id. at 124.

7 Id. at 89-97.

8 Id. at 98-106.

9 Id. at 129.

10 Id. at 148-149.

11 Id. at 195.

12 Id. at 46-57.

13 Id. at 59.

14 Id. at 18.
15 CIVIL CODE, Art. 1767.
16 Aurbach v. Sanitary Wares Manufacturing Corporation, G.R. No. 75875, December 15, 1989, 180 SCRA 130, 146-147.
17 Power of Attorney, paragraph 2(a), rollo, p. 61.

18 Rollo, p. 62.

19 CIVIL CODE, Art. 1927. An agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of

fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract of
partnership and his removal from the management is unjustifiable.
20 Partnership, Agency and Trusts, 1996 Ed., De Leon and De Leon, Jr., p. 330.

21 See Nielson & Company, Inc. v. Lepanto Consolidated Mining Company, 135 Phil. 532, 542 (1968).

22 Rollo, p. 63.

23 CIVIL CODE, Art. 1953.

24 Article 1769 (4) (b) of the Civil Code states:

Art. 1769. In determining whether a partnership exists, these rules shall apply:
xxxx
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the
business, but no such inference shall be drawn if such profits were received in payment:
xxxx
(b) As wages of an employee or rent to a landlord;
xxxx
25 See Tocao v. Court of Appeals, 396 Phil. 166, 180-182 (2000).

26 Rollo, pp. 81-88.

27 See Law of Basic Taxation in the Philippines, 2001 Revised Ed., Benjamin B. Aban, p. 119.
DIGEST
PHILEX MINING CORPORATION v. CIR, GR No. 125704, 1998-08-28
Facts:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals... affirming the Court of Tax Appeals decision...
ordering it to pay the amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to
the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249
of the Tax Code of

BIR sent a letter to Philex asking it to settle its tax liabilities for the... in the total amount of P123,821,982.52
PERIOD COVERED
Philex protested the demand... stating that it has pending claims for VAT input credit/refund for the taxes it paid for the
years 1989 to 1991 in the amount of P119,977,037.02 plus... interest.
Therefore... should be applied against the tax liabilities
BIR... found no merit in Philex's position
Since these pending claims have not yet been established or determined with certainty
Hence
Philex settle the amount
Philex raised the issue to the Court of Tax Appeals
BIR issued a Tax Credit Certificate... which... effectively lowered the latter's tax obligation of P110,677,688.52.
CTA still ordered Philex to pay the remaining balance... elucidating its reason... for legal compensation to take place,
both obligations must be liquidated and demandable.
Liquidated' debts are those where the exact amount has already been determined
In the... instant case,... refund is still pending litigation... the liquidated debt... cannot... be set-off against the
unliquidated... claim
Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation since claim for taxes
is not a debt or contract.
Philex appealed the case before the Court of Appeals... affirmed the Court of Tax Appeals
Philex was able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and
1994
Philex now contends that the same should... off-set its excise tax liabilities... since both had already become "due and
demandable, as well as fully liquidated
Issues:
legal compensation can properly take place... had no obligation... to pay the excise liabilities within the prescribed
period since, after all, it still has pending claims for VAT input credit/refund with BIR
BIR violated Section 106(e)... of the National Internal Revenue Code of 1977... which requires the refund of input taxes
within 60 days,... when it took five years for the latter to... grant its tax claim for VAT input credit/refund.
Ruling:
We see no merit in this contention.
taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors
and debtors of each other.
There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while
taxes are due to the Government in its sovereign capacity.
in Francia v. Intermediate Appellate Court... taxes cannot be subject to set-off or compensation, thus:
"We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount
equal to or greater than the... tax being collected. The collection of tax cannot await the results of a lawsuit against the
government."
Caltex Philippines, Inc. v. Commission on Audit
"x x x a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be
the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each
other and a claim for taxes is... not such a debt, demand, contract or judgment as is allowed to be set-off."
Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc., wherein we ruled that
a pending refund may be set off against an existing tax liability even though the refund has not yet been approved by
the
Commissioner,... is no longer without any support in statutory law.
when the National Internal Revenue Code of 1977 was enacted, the same provision upon which the
Itogon-Suyoc pronouncement was based was omitted.
this is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should
be collected without unnecessary hindrance.
we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund
or credit against the government which has not yet been granted. It must be noted that a distinguishing feature of a tax
is... that it is compulsory rather than a matter of bargain.
a tax does not depend upon the consent of the taxpayer
Corollarily... pending claims... is immaterial for the imposition of charges and penalties prescribed under Section 248 and
249 of the Tax Code of 1977.
we agree with Philex.
once the claimant has submitted all the... required documents, it is the function of the BIR to assess these documents
with purposeful dispatch. After all, since taxpayers owe honesty to government it is but just that government render fair
service to the taxpayers.
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid taxes
was only granted in 1996.
had the BIR been more diligent and judicious with their duty, it could have granted the refund earlier.
while we understand Philex's predicament, it must be stressed that the same is not valid reason for the non- payment of
its tax liabilities.
Principles:
THIRD DIVISION

AURELIO K. LITONJUA, JR., G.R. NOS. 166299-300

Petitioner,

- versus '
Present:
EDUARDO K. LITONJUA, SR., ROBERT
T. YANG, ANGLO PHILS. MARITIME,
INC., CINEPLEX, INC., DDM PANGANIBAN, J., Chairman
GARMENTS, INC., EDDIE K. LITONJUA SANDOVAL- GUTIERREZ,
SHIPPING AGENCY, INC., EDDIE K. CORONA,
LITONJUA SHIPPING CO., INC., CARPIO MORALES and
LITONJUA SECURITIES, INC. GARCIA, JJ.
(formerly E. K. Litonjua Sec), LUNETA
THEATER, INC., E & L REALTY,
(formerly E & L INTL SHIPPING Promulgated:
CORP.), FNP CO., INC., HOME
ENTERPRISES, INC., BEAUMONT DEV.
REALTY CO., INC., GLOED LAND December 13, 2005
CORP., EQUITY TRADING CO., INC.,
3D CORP., 'L DEV. CORP, LCM
THEATRICAL ENTERPRISES, INC.,
LITONJUA SHIPPING CO. INC.,
MACOIL INC., ODEON REALTY CORP.,
SARATOGA REALTY, INC., ACT
THEATER INC. (formerly General
Theatrical & Film Exchange, INC.),
AVENUE REALTY, INC., AVENUE
THEATER, INC. and LVF PHILIPPINES,
INC., (Formerly VF PHILIPPINES),
Respondents.
x-------------------------------------------------x

DECISION
GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K. Litonjua, Jr. seeks to
nullify and set aside the Decision of the Court of Appeals (CA) dated March 31, 2004 [1] in consolidated
cases C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution dated December 07,
2004, [2] denying petitioner's motion for reconsideration.

The recourse is cast against the following factual backdrop:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr. (Eduardo) are
brothers. The legal dispute between them started when, on December 4, 2002, in the Regional Trial Court
(RTC) at Pasig City, Aurelio filed a suit against his brother Eduardo and herein respondent Robert T. Yang
(Yang) and several corporations for specific performance and accounting. In his complaint, [3] docketed as
Civil Case No. 69235 and eventually raffled to Branch 68 of the court, [4] Aurelio alleged that, since June
1973, he and Eduardo are into a joint venture/partnership arrangement in the Odeon Theater business
which had expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty
Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among
other corporations. Yang is described in the complaint as petitioner's and Eduardo's partner in their Odeon
Theater investment. [5] The same complaint also contained the following material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership for the
continuation of their family business and common family funds '.

3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed by Eduardo
to his siblings, parents and other relatives. Copy of this memorandum is attached hereto and made an
integral part as Annex 'A and the portion referring to [Aurelio] submarked as Annex 'A-1.

3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelio's ] retaining
his share in the remaining family businesses (mostly, movie theaters, shipping and land development) and
contributing his industry to the continued operation of these businesses, [Aurelio] will be given P1 Million or
10% equity in all these businesses and those to be subsequently acquired by them whichever is greater. . . .

4.01 ' from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and Eduardo had
accumulated in their joint venture/partnership various assets including but not limited to the corporate
defendants and [their] respective assets.

4.02 In addition . . . the joint venture/partnership ' had also acquired [various other assets], but Eduardo
caused to be registered in the names of other parties' .

xxx xxx ' xxx

4.04 The substantial assets of most of the corporate defendants consist of real properties '. A list of some of
these real properties is attached hereto and made an integral part as Annex 'B.
xxx ' xxx xxx

5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that [Aurelio]
requested for an accounting and liquidation of his share in the joint venture/partnership [but these
demands for complete accounting and liquidation were not heeded].

xxx xxx xxx

5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate defendants
as well as Bobby [Yang], are transferring . . . various real properties of the corporations belonging to the
joint venture/partnership to other parties in fraud of [Aurelio]. In consequence, [Aurelio] is therefore
causing at this time the annotation on the titles of these real properties' a notice of lis pendens '. (Emphasis
in the original; underscoring and words in bracket added.)

For ease of reference, Annex 'A-1 of the complaint, which petitioner asserts to have been meant for him by
his brother Eduardo, pertinently reads:

10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:

You have now your own life to live after having been married. '.

I am trying my best to mold you the way I work so you can follow the pattern '. You
will be the only one left with the company, among us brothers and I will ask you to
stay as I want you to run this office every time I am away. I want you to run it the
way I am trying to run it because I will be all alone and I will depend entirely to you
(sic). My sons will not be ready to help me yet until about maybe 15/20 years from
now. Whatever is left in the corporation, I will make sure that you get ONE MILLION
PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two will
gamble the whole thing of what I have and what you are entitled to. '. It will be you
and me alone on this. If ever I pass away, I want you to take care of all of this. You
keep my share for my two sons are ready take over but give them the chance to run
the company which I have built.

'xxx ' xxx xxx

Because you will need a place to stay, I will arrange to give you first ONE HUNDRED THOUSANDS PESOS:
(P100, 000.00) in cash or asset, like Lt. Artiaga so you can live better there. The rest I will give you in form of
stocks which you can keep. This stock I assure you is good and saleable. I will also gladly give you the share
of Wack-Wack 'and Valley Golf ' because you have been good. The rest will be in stocks from all the
corporations which I repeat, ten percent (10%) equity. [6]

On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, filed a
joint ANSWER With Compulsory Counterclaim denying under oath the material allegations of the
complaint, more particularly that portion thereof depicting petitioner and Eduardo as having entered into a
contract of partnership. As affirmative defenses, Eduardo, et al., apart from raising a jurisdictional matter,
alleged that the complaint states no cause of action, since no cause of action may be derived from the
actionable document, i.e., Annex ' A-1', being void under the terms of Article 1767 in relation to Article
1773 of the Civil Code, infra. It is further alleged that whatever undertaking Eduardo agreed to do, if any,
under Annex ' A-1', are unenforceable under the provisions of the Statute of Frauds. [7]

For his part, Yang - who was served with summons long after the other defendants submitted their answer '
moved to dismiss on the ground, inter alia, that, as to him, petitioner has no cause of action and the
complaint does not state any. [8] Petitioner opposed this motion to dismiss.

On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses. [9] To this motion,
petitioner interposed an Opposition with ex-Parte Motion to Set the Case for Pre-trial. [10]

Acting on the separate motions immediately adverted to above, the trial court, in an Omnibus Order dated
March 5, 2003, denied the affirmative defenses and, except for Yang, set the case for pre-trial on April 10,
2003. [11]

In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et al., for
reconsideration [12] and Yang's motion to dismiss. The following then transpired insofar as Yang is
concerned:

1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek
reconsideration of the April 2, 2003 Omnibus Order and to pursue his failed motion to
dismiss [13] to its full resolution.

2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2,
2003, but his motion was denied in an Order of July 4, 2003. [14]

3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition
for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No.
78774, [15] to nullify the separate orders of the trial court, the first denying his
motion to dismiss the basic complaint and, the second, denying his motion for
reconsideration.
Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of discretion and
injudicious haste attended the issuance of the trial court's aforementioned Omnibus Orders dated March 5,
and April 2, 2003, sought relief from the CA via similar recourse. Their petition for certiorari was docketed
as CA G.R. SP No. 76987 . '

Per its resolution dated October 2, 2003, [16] the CA's 14th Division ordered the consolidation of CA G.R. SP
No. 78774 with CA G.R. SP No. 76987.

Following the submission by the parties of their respective Memoranda of Authorities, the appellate court
came out with the herein assailed Decision dated March 31, 2004, finding for Eduardo and Yang, as
lead petitioners therein, disposing as follows:

WHEREFORE, judgment is hereby rendered granting the issuance of the writ of certiorari in these
consolidated cases annulling, reversing and setting aside the assailed orders of the court a quo dated March
5, 2003, April 2, 2003 and July 4, 2003 and the complaint filed by private respondent [now petitioner
Aurelio] against all the petitioners [now herein respondents Eduardo, et al.] with the court a quo is
hereby dismissed .
SO ORDERED. [17] (Emphasis in the original; words in bracket added.)

Explaining its case disposition, the appellate court stated, inter alia, that the alleged partnership, as
evidenced by the actionable documents, Annex ' A and ' A-1 attached to the complaint, and upon which
petitioner solely predicates his right/s allegedly violated by Eduardo, Yang and the corporate defendants a
quo is 'void or legally inexistent.
In time, petitioner moved for reconsideration but his motion was denied by the CA in its equally
assailed Resolution of December 7, 2004. [18] .

Hence, petitioner's present recourse, on the contention that the CA erred:

A. When it ruled that there was no partnership created by the actionable document
because this was not a public instrument and immovable properties were contributed
to the partnership.

B. When it ruled that the actionable document did not create a demandable right in favor of petitioner.

C. When it ruled that the complaint stated no cause of action against [respondent] Robert Yang; and

D. When it ruled that petitioner has changed his theory on appeal when all that Petitioner had done was to
support his pleaded cause of action by another legal perspective/argument.

The petition lacks merit.

Petitioner's demand, as defined in the petitory portion of his complaint in the trial court, is for delivery or
payment to him, as Eduardo's and Yang's partner, of his partnership/joint venture share, after an accounting
has been duly conducted of what he deems to be partnership/joint venture property. [19]

A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful
commerce or business, with the understanding that there shall be a proportionate sharing of the profits and
losses between them. [20] A contract of partnership is defined by the Civil Code as one where two or more
persons bound themselves to contribute money, property, or industry to a common fund with the intention
of dividing the profits among themselves. [21] A joint venture, on the other hand, is hardly distinguishable
from, and may be likened to, a partnership since their elements are similar, i.e., community of interests in
the business and sharing of profits and losses. Being a form of partnership, a joint venture is generally
governed by the law on partnership. [22]

The underlying issue that necessarily comes to mind in this proceedings is whether or not petitioner and
respondent Eduardo are partners in the theatre, shipping and realty business, as one claims but which the
other denies. And the issue bearing on the first assigned error relates to the question of what legal provision
is applicable under the premises, petitioner seeking, as it were, to enforce the actionable document - Annex
' A-1 - which he depicts in his complaint to be the contract of partnership/joint venture between himself
and Eduardo. Clearly, then, a look at the legal provisions determinative of the existence, or defining the
formal requisites, of a partnership is indicated. Foremost of these are the following provisions of the Civil
Code:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights
are contributed thereto, in which case a public instrument shall be necessary.

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or
property, shall appear in a public instrument, which must be recorded in the Office of the Securities and
Exchange Commission.

Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an
inventory of said property is not made, signed by the parties, and attached to the public instrument.

Annex ' A-1 ', on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an
unsigned document, there can be no quibbling that Annex ' A-1 does not meet the public instrumentation
requirements exacted under Article 1771 of the Civil Code. Moreover, being unsigned and doubtless
referring to a partnership involving more than P3,000.00 in money or property, Annex ' A-1 cannot be
presented for notarization, let alone registered with the Securities and Exchange Commission (SEC), as called
for under the Article 1772 of the Code. And inasmuch as the inventory requirement under the succeeding
Article 1773 goes into the matter of validity when immovable property is contributed to the partnership, the
next logical point of inquiry turns on the nature of petitioner's contribution, if any, to the supposed
partnership.

The CA, addressing the foregoing query, correctly stated that petitioner's contribution consisted of
immovables and real rights. Wrote that court:

A further examination of the allegations in the complaint would show that [petitioner's ] contribution to the
so-called 'partnership/joint venture was his supposed share in the family business that is consisting of movie
theaters, shipping and land development under paragraph 3.02 of the complaint. In other words, his
contribution as a partner in the alleged partnership/joint venture consisted of immovable properties and
real rights. '. [23]

Significantly enough, petitioner matter-of-factly concurred with the appellate court's observation that,
prescinding from what he himself alleged in his basic complaint, his contribution to the partnership
consisted of his share in the Litonjua family businesses which owned variable immovable properties.
Petitioner's assertion in his motion for reconsideration [24] of the CA's decision, that 'what was to be
contributed to the business [of the partnership] was [petitioner's ] industry and his share in the
family [theatre and land development] business' leaves no room for speculation as to what petitioner
contributed to the perceived partnership.

Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the Civil Code
applies as long real property or real rights are initially brought into the partnership. In short, it is really of no
moment which of the partners, or, in this case, who between petitioner and his brother Eduardo,
contributed immovables. In context, the more important consideration is that real property was
contributed, in which case an inventory of the contributed property duly signed by the parties should be
attached to the public instrument, else there is legally no partnership to speak of.

Petitioner, in an obvious bid to evade the application of Article 1773, argues that the immovables in
question were not contributed, but were acquired after the formation of the supposed partnership.
Needless to stress, the Court cannot accord cogency to this specious argument. For, as earlier stated,
petitioner himself admitted contributing his share in the supposed shipping, movie theatres and realty
development family businesses which already owned immovables even before Annex ' A-1 was allegedly
executed.

Considering thus the value and nature of petitioner's alleged contribution to the purported partnership, the
Court, even if so disposed, cannot plausibly extend Annex ' A-1 the legal effects that petitioner so desires
and pleads to be given. Annex ' A-1 , in fine, cannot support the existence of the partnership sued upon and
sought to be enforced. The legal and factual milieu of the case calls for this disposition. A partnership may
be constituted in any form, save when immovable property or real rights are contributed thereto or when
the partnership has a capital of at least P3,000.00, in which case a public instrument shall be
necessary. [25] And if only to stress what has repeatedly been articulated, an inventory to be signed by the
parties and attached to the public instrument is also indispensable to the validity of the partnership
whenever immovable property is contributed to it.

Given the foregoing perspective, what the appellate court wrote in its assailed Decision [26] about the
probative value and legal effect of Annex ' A-1 commends itself for concurrence:

Considering that the allegations in the complaint showed that [petitioner] contributed
immovable properties to the alleged partnership, the 'Memorandum (Annex 'A of the
complaint) which purports to establish the said 'partnership/joint venture is NOT a
public instrument and there was NO inventory of the immovable property duly signed
by the parties. As such, the said 'Memorandum ' is null and void for purposes of
establishing the existence of a valid contract of partnership. Indeed, because of the
failure to comply with the essential formalities of a valid contract, the purported
'partnership/joint venture is legally inexistent and it produces no effect whatsoever.
Necessarily, a void or legally inexistent contract cannot be the source of any
contractual or legal right. Accordingly, the allegations in the complaint, including the
actionable document attached thereto, clearly demonstrates that [petitioner] has NO
valid contractual or legal right which could be violated by the [individual respondents]
herein. As a consequence, [petitioner's ] complaint does NOT state a valid cause of
action because NOT all the essential elements of a cause of action are
present. (Underscoring and words in bracket added.)

Likewise well-taken are the following complementary excerpts from the CA's equally assailed Resolution of
December 7, 2004 [27] denying petitioner's motion for reconsideration:

Further, We conclude that despite glaring defects in the allegations in the complaint as
well as the actionable document attached thereto (Rollo, p. 191), the [trial] court did
not appreciate and apply the legal provisions which were brought to its attention by
herein [respondents] in the their pleadings. In our evaluation of [petitioner's ]
complaint, the latter alleged inter alia to have contributed immovable properties to the
alleged partnership but the actionable document is not a public document and there
was no inventory of immovable properties signed by the parties. Both the allegations
in the complaint and the actionable documents considered, it is crystal clear that
[petitioner] has no valid or legal right which could be violated by [respondents].
(Words in bracket added.)

Under the second assigned error, it is petitioner's posture that Annex ' A-1 ', assuming its inefficacy or
nullity as a partnership document, nevertheless created demandable rights in his favor. As petitioner
succinctly puts it in this petition:

43. Contrariwise, this actionable document, especially its above-quoted provisions,

established an actionable contract even though it may not be a partnership. This
actionable contract is what is known as an innominate contract (Civil Code, Article
1307).

44. It may not be a contract of loan, or a mortgage or whatever, but surely the
contract does create rights and obligations of the parties and which rights and
obligations may be enforceable and demandable. Just because the relationship created
by the agreement cannot be specifically labeled or pigeonholed into a category of
nominate contract does not mean it is void or unenforceable.
Petitioner has thus thrusted the notion of an innominate contract on this' Court - and earlier on the CA after
he experienced a reversal of fortune thereat - as an afterthought. The appellate court, however, cannot
really be faulted for not yielding to petitioner's dubious stratagem of altering his theory of joint
venture/partnership to an innominate contract. For, at bottom, the appellate court's certiorari jurisdiction
was circumscribed by what was alleged to have been the order/s issued by the trial court in grave abuse of
discretion. As respondent Yang pointedly observed, [28] since the parties' basic position had been well-
defined, that of petitioner being that the actionable document established a partnership/joint venture, it is
on those positions that the appellate court exercised its certiorari jurisdiction. Petitioner's act of changing
his original theory is an impermissible practice and constitutes, as the CA aptly declared, an admission of the
untenability of such theory in the first place.

[Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he has

now contended that the actionable instrument may be considered an innominate
contract . xxx Verily, this now changes [petitioner's ] theory of the case which is not
only prohibited by the Rules but also is an implied admission that the very theory he
himself ' has adopted, filed and prosecuted before the respondent court is erroneous.

Be that as it may . '. We hold that this new theory contravenes [petitioner's ] theory of
the actionable document being a partnership document. If anything, it is so obvious we
do have to test the sufficiency of the cause of action on the basis of partnership law
xxx. [29] (Emphasis in the original; Words in bracket added).

But even assuming in gratia argumenti that Annex ' A-1 partakes of a perfected innominate contract,
petitioner's complaint would still be dismissible as against Eduardo and, more so, against Yang. It cannot be
over-emphasized that petitioner points to Eduardo as the author of Annex ' A-1 . Withal, even on this
consideration alone, petitioner's claim against Yang is doomed from the very start.

'As it were, the only portion of Annex ' A-1 which could perhaps be remotely regarded as vesting petitioner
with a right to demand from respondent Eduardo the observance of a determinate conduct, reads:
' xxx You will be the only one left with the company, among us brothers and I will ask
you to stay as I want you to run this office everytime I am away. I want you to run it
the way I am trying to run it because I will be alone and I will depend entirely to you,
My sons will not be ready to help me yet until about maybe 15/20 years from
now. Whatever is left in the corporation, I will make sure that you get ONE MILLION
PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater.
(Underscoring added)

It is at once apparent that what respondent Eduardo imposed upon himself under the above passage, if he
indeed wrote Annex ' A-1 ', is a promise which is not to be performed within one year from 'contract
execution on June 22, 1973. Accordingly, the agreement embodied in Annex ' A-1 is covered by the Statute
of Frauds and ergo unenforceable for non-compliance therewith. [30] By force of the statute of frauds, an
agreement that by its terms is not to be performed within a year from the making thereof shall be
unenforceable by action, unless the same, or some note or memorandum thereof, be in writing
and subscribed by the party charged. Corollarily, no action can be proved unless the requirement exacted by
the statute of frauds is complied with. [31]
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10% equity of the family
businesses supposedly promised by Eduardo to give in the near future. Any suggestion that the stated
amount or the equity component of the promise was intended to go to a common fund would be to read
something not written in Annex ' A-1 . Thus, even this angle alone argues against the very idea of a
partnership, the creation of which requires two or more contracting minds mutually agreeing to contribute
money, property or industry to a common fund with the intention of dividing the profits between or among
themselves. [32]
In sum then, the Court rules, as did the CA, that petitioner's complaint for specific performance anchored on
an actionable document of partnership which is legally inexistent or void or, at best, unenforceable does not
state a cause of action as against respondent Eduardo and the corporate defendants. And if no of action can
successfully be maintained against respondent Eduardo because no valid partnership existed between him
and petitioner, the Court cannot see its way clear on how the same action could plausibly prosper against
Yang. Surely, Yang could not have become a partner in, or could not have had any form of business
relationship with, an inexistent partnership.

As may be noted, petitioner has not, in his complaint, provide the logical nexus that would tie Yang to him as
his partner. In fact, attendant circumstances would indicate the contrary. Consider:

'1. Petitioner asserted in his complaint that his so-called joint venture/partnership with
Eduardo was 'for the continuation of their family business and common family funds
which were theretofore being mainly managed by Eduardo. [33] But Yang denies
kinship with the Litonjua family and petitioner has not disputed the disclaimer.

2. In some detail, petitioner mentioned what he had contributed to the joint

venture/partnership with Eduardo and what his share in the businesses will be. No
allegation is made whatsoever about what Yang contributed, if any, let alone his
proportional share in the profits. But such allegation cannot, however, be made
because, as aptly observed by the CA, the actionable document did not contain such
provision, let alone mention the name of Yang. How, indeed, could a person be
considered a partner when the document purporting to establish the partnership
contract did not even mention his name.

3. Petitioner states' in par. 2.01 of the complaint that '[he] and Eduardo are business
partners in the [respondent] corporations, while 'Bobby is his and Eduardo's partner in
their Odeon Theater investment (par. 2.03). This means that the partnership between
petitioner and Eduardo came first; Yang became their partner in their Odeon Theater
investment thereafter. Several paragraphs later, however, petitioner would contradict
himself by alleging that his 'investment and that of Eduardo and Yang in the Odeon
theater business has expanded through a reinvestment of profit income and direct
investments in several corporation including but not limited to [six] corporate
respondents' This simply means that the 'Odeon Theatre business' came before the
corporate respondents. Significantly enough, petitioner refers to the corporate
respondents as 'progeny of the Odeon Theatre business. [34]

Needless to stress, petitioner has not sufficiently established in his complaint the legal vinculum whence he
sourced his right to drag Yang into the fray. The Court of Appeals, in its assailed decision, captured and
formulated the legal situation in the following wise:

[Respondent] Yang, ' is impleaded because, as alleged in the complaint, he is a

'partner of [Eduardo] and the [petitioner] in the Odeon Theater Investment which
expanded through reinvestments of profits and direct investments in several
corporations, thus:

xxx xxx xxx

Clearly, [petitioner's ] claim against ' Yang arose from his alleged partnership with
petitioner and the 'respondent. However, there was NO allegation in the complaint
which directly alleged how the supposed contractual relation was created between
[petitioner] and 'Yang. More importantly, however, the foregoing ruling of this Court
that the purported partnership between [Eduardo] is void and legally inexistent directly
affects said claim against 'Yang. Since [petitioner] is trying to establish his claim
against ' Yang by linking him to the legally inexistent partnership . . . such attempt had
become futile because there was NOTHING that would contractually connect
[petitioner] and ' Yang. To establish a valid cause of action, the complaint should have
a statement of fact upon which to connect [respondent] Yang to the alleged
partnership between [petitioner] and respondent [Eduardo], including their alleged
investment in the Odeon Theater. A statement of facts on those matters is pivotal to
the complaint as they would constitute the ultimate facts necessary to establish the
elements of a cause of action against ' Yang. [35]

Pressing its point, the CA later stated in its resolution denying petitioner's motion for reconsideration the
following:

xxx Whatever the complaint calls it, it is the actionable document attached to the
complaint that is controlling. Suffice it to state, We have not ignored the actionable
document ' As a matter of fact, We emphasized in our decision ' that insofar as [Yang]
is concerned, he is not even mentioned in the said actionable document. We are
therefore puzzled how a person not mentioned in a document purporting to establish a
partnership could be considered a partner. [36] (Words in bracket ours).

The last issue raised by petitioner, referring to whether or not he changed his theory of the case, as
peremptorily determined by the CA, has been discussed at length earlier and need not detain us long.
Suffice it to say that after the CA has ruled that the alleged partnership is inexistent, petitioner took a
different tack. Thus, from a joint venture/partnership theory which he adopted and consistently pursued in
his complaint, petitioner embraced the innominate contract theory. Illustrative of this shift is petitioner's
statement in par. #8 of his motion for reconsideration of the CA's decision combined with what he said in
par. # 43 of this petition, as follows:
8. Whether or not the actionable document creates a partnership, joint venture, or
whatever, is a legal matter. What is determinative for purposes of sufficiency of the
complainant's allegations, is whether the actionable document bears out an actionable
contract ' be it a partnership, a joint venture or whatever or some innominate contract
' It may be noted that one kind of innominate contract is what is known as du ut
facias (I give that you may do). [37]

43. Contrariwise, this actionable document, especially its above-quoted provisions,

established an actionable contract even though it may not be a partnership. This
actionable contract is what is known as an innominate contract (Civil Code, Article
1307). [38]

Springing surprises on the opposing party is offensive to the sporting idea of fair play, justice and due
process; hence, the proscription against a party shifting from one theory at the trial court to a new and
different theory in the appellate court. [39] On the same rationale, an issue which was neither averred in
the complaint cannot be raised for the first time on appeal. [40] It is not difficult, therefore, to agree with
the CA when it made short shrift of petitioner's innominate contract theory on the basis of the foregoing
basic reasons.
Petitioner's protestation that his act of introducing the concept of innominate contract was not a case of
changing theories but of supporting his pleaded cause of action ' that of the existence of a partnership - by
another legal perspective/argument, strikes the Court as a strained attempt to rationalize an untenable
position. Paragraph 12 of his motion for reconsideration of the CA's decision virtually relegates partnership
as a fall-back theory. Two paragraphs later, in the same notion, petitioner faults the appellate court for
reading, with myopic eyes, the actionable document solely as establishing a partnership/joint venture.
Verily, the cited paragraphs are a study of a party hedging on whether or not to pursue the original cause of
action or altogether abandoning the same, thus:

12. Incidentally, assuming that the actionable document created a partnership

between [respondent] Eduardo, Sr. and [petitioner], no immovables were contributed
to this partnership. xxx

14. All told, the Decision takes off from a false premise that the actionable document
attached to the complaint does not establish a contractual relationship between
[petitioner] and ' Eduardo, Sr. and Roberto T Yang simply because his document does
not create a partnership or a joint venture. This is ' a myopic reading of the actionable
document.

Per the Court's own count, petitioner used in his complaint the mixed words 'joint
venture/partnership nineteen (19) times and the term 'partner four (4) times. He made reference to the
'law of joint venture/partnership [being applicable] to the business relationship ' between [him],
Eduardo and Bobby [Yang] and to his 'rights in all specific properties' of their joint
venture/partnership. Given this consideration, petitioner's right of action against respondents Eduardo and
Yang doubtless pivots on the existence of the partnership between the three of them, as purportedly
evidenced by the undated and unsigned Annex 'A-1 . A void Annex 'A-1', as' an actionable document of
partnership, would strip petitioner of a cause of action under the premises. A complaint for delivery and
accounting of partnership property based on such void or legally non-existent actionable document is
dismissible for failure to state of action. So, in gist, said the Court of Appeals. The Court agrees.
WHEREFORE , the instant petition is DENIED and the impugned Decision and Resolution of the Court of
Appeals AFFIRMED.
Cost against the petitioner.

SO ORDERED.

CANCIO C. GARCIA
Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN
Associate Justice

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice

CONCHITA CARPIO MORALES

Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.

ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman's Attestation, it is hereby
certified that the conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court.

HILARIO G. DAVIDE, JR.

Chief Justice

Endnotes:

[1] Penned by Associate Justice Bienvenido L. Reyes, concurred in by Associate Justices Conrado M. Vasquez, Jr. and Arsenio
J. Magpale; Rollo, pp. 27 et seq.
[2] Rollo, pp. 58 et seq.
[3] Ibid, pp. 63 et seq.
[4] Presided by Hon. Santiago G. Estrella.
[5] Par. 2.03 of the Complaint.
[6] ' Rollo, p. 552.
[7] 'Id., pp. 70 et seq.
[8] 'Id., pp. 99 et seq.
[9] ' Id., pp.87 et seq.
[10] ' Id., pp. 93 et seq.
[11] ' Id., pp. 97-98.
[12] Id., pp. 135 et seq.
[13] See Note No. 8, supra.
[14] Rollo, p. 161.
[15] Ibid, pp. 206 et seq.
[16] Id., p. 253.
[17] As corrected per CA Resolution dated July 14, 2004 to conform to the actual dates of the assailed orders; Rollo, pp.
326 et seq. The correction consisted of changing the dates 'March 5, 2002, April 2, 2002 and July 2, 2003 appearing in the
original CA decision to 'March 5, 2003, April 2, 2003 and July 4, 2003', respectively.
[18] See Note #2, supra.
[19] ' Complaint, p. 6; Rollo, p. 68.
[20] Black's Law Dictionary, 6th ed., p. 1120.
[21] ' Art. 1767.
[22] ' Heirs of Tan Eng Kee vs. CA, 341 SCRA 740 [2000], citing Aurbach vs. Sanitary Wares' Manufacturing Corp. , 180 SCRA
130 [1989].
[23] At. p. 6 of the Decision, Rollo, p. 42.
[24] At p. 6 of the motion for reconsideration; Rollo, p. 55.
[25] Vitug, COMPENDIUM of CIVIL LAW and JURISPRUDENCE, Rev. ed., (1993), p. 712.
[26] See Note #1, supra.
[27] See Note #2, supra.
[28] Page 26 of Yang's Memorandum; Rollo, p. 494.
[29] ' Page 4 of the CA's assailed Resolution; Rollo, p. 61.
[30] ' #2 (a) of Art. 1403 of the Civil Code.
[31] Tolentino, CIVIL CODE OF THE PHILIPPINES, Vol. IV, 1991 ed., p. 617.
[32] ' Heirs of Tan Eng Kee vs. CA, supra.
[33] Par. 3.01 of the Complaint; Rollo, p. 64.
[34] Petition, p. 18; Rollo, p. 20.
[35] ' Rollo, p. 45.
[36] Ibid, p. 61.
[37] Rollo, p. 53; Citations omitted.
[38] Ibid, p. 19.
[39] San Agustin vs. Barrios, 68 Phil. 475 [1939] citing other cases.
[40] Union Bank vs. CA, 359 SCRA 480 [2001].

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DIGEST
AURELIO K. LITONJUA v. EDUARDO K. LITONJUA,
GR NOS. 166299-300, 2005-12-13
Facts:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The
legal dispute between them started when, on
2002, in the
RTC
Aurelio filed a suit against his brother
Eduardo and... respondent Robert T. Yang (Yang) and several corporations for specific performance and accounting.
In his complaint
Aurelio... alleged that, since
1973, he and Eduardo are into a joint venture/partnership arrangement in the Odeon Theater business which had
expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of Odeon I
and II theatres), Avenue
Realty, Inc., owner of lands and buildings, among other corporations. Yang is described in the complaint as petitioner's
and Eduardo's partner in their Odeon Theater investment.
The same complaint also contained the following material averments:
It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelio's] retaining his share in the
remaining family businesses... and contributing his industry to the continued operation of... these businesses, [Aurelio]
will be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired by them whichever
is greater. . . .
In addition... the joint venture/partnership... had also acquired [various other assets], but Eduardo caused to be
registered in the names of other parties....
Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that [Aurelio] requested for an
accounting and liquidation of his share in the joint venture/partnership [but these demands for complete accounting
and liquidation were not heeded].
What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate defendants as well as Bobby
[Yang], are transferring... various real properties of the corporations belonging to the joint venture/partnership to other
parties in fraud of
[Aurelio]. In consequence, [Aurelio] is therefore causing at this time the annotation on the titles of these real properties'
a notice of lis pendens
Eduardo and the corporate respondents, as defendants a quo, filed a joint ANSWER... denying under oath the material
allegations of the complaint, more particularly that portion... depicting petitioner... and Eduardo as having entered into
a contract of partnership.
For his part, Yang... moved to dismiss on the ground... that... as to him, petitioner has no cause of action and the
complaint does not state any.
Petitioner's demand... in the petitory portion of his complaint... is for delivery or payment to him, as Eduardo's and
Yang's partner, of his partnership/joint venture share, after an accounting has been duly conducted of what he deems to
be... partnership/joint venture property.
Issues:
whether or not petitioner and respondent Eduardo are partners in the theatre, shipping and realty business
Ruling:
The petition lacks merit.
Petitioner's demand... in the petitory portion of his complaint... is for delivery or payment to him, as Eduardo's and
Yang's partner, of his partnership/joint venture share, after an accounting has been duly conducted of what he deems to
be... partnership/joint venture property.
A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce
or business, with the understanding that there shall be a proportionate sharing of the profits and losses between them.
A contract of... partnership is defined by the Civil Code as one where two or more persons bound themselves to
contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves.
A joint venture, on the other hand, is... hardly distinguishable from, and may be likened to, a partnership since their
elements are similar, i.e., community of interests in the business and sharing of profits and losses. Being a form of
partnership, a joint venture is generally governed by the law on... partnership.
Clearly,... a look at the legal provisions determinative of the existence, or defining the formal requisites, of a partnership
is indicated. Foremost of these are the following provisions of the Civil Code:
Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are
contributed thereto, in which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall
appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.
Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the partnership and
the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said
property is not made, signed by the parties, and attached to the public instrument.
Annex "A-1", on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned
document, there can be no quibbling that Annex "A-1" does not meet the public instrumentation requirements exacted
under Article 1771... of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership involving more
than P3,000.00 in money or property, Annex "A-1" cannot be presented for notarization, let alone registered with the
Securities and Exchange Commission (SEC), as... called for under the Article 1772 of the Code. And inasmuch as the
inventory requirement under the succeeding Article 1773 goes into the matter of validity when immovable property is
contributed to the partnership, the next logical point of inquiry turns on the nature of... petitioner's contribution, if any,
to the supposed partnership.
A partnership may be constituted in any form, save when immovable property or real rights are... contributed thereto or
when the partnership has a capital of at least P3,000.00, in which case a public instrument shall be necessary.
And if only to stress what has repeatedly been articulated, an inventory to be signed by the parties and attached to... the
public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to
it.
Considering that the allegations in the complaint showed that [petitioner] contributed immovable properties to the
alleged partnership, the "Memorandum"... which purports to establish the said "partnership/joint venture" is NOT a
public... instrument and there was NO inventory of the immovable property duly signed by the parties. As such, the said
"Memorandum" ... is null and void for purposes of establishing the existence of a valid contract of partnership. Indeed,
because of the failure to comply with the... essential formalities of a valid contract, the purported "partnership/joint
venture" is legally inexistent and it produces no effect whatsoever. Necessarily, a void or legally inexistent contract
cannot be the source of any contractual or legal right. Accordingly, the... allegations in the complaint, including the
actionable document attached thereto, clearly demonstrates that [petitioner] has NO valid contractual or legal right
which could be violated by the [individual respondents] herein. As a consequence, [petitioner's] complaint does
NOT state a valid cause of action because NOT all the essential elements of a cause of action are present.
Principles:
MARSMAN DRYSDALE TRAVEL Present
HISTORY Still growing

HISTORY 1922
Goid prospecting in Baguio
1918
Jan and Mary Meet
1929
Marsman and Company, Inc. is born
1924
Ilogon Mining Company
1933
Mining Interests are expanded
1936
Marsman's HQ moved to Manila
1939
PATCO started
1941
Marsman aquires Pacific Commercial
1948
Expansion into Pharmaceuticals
1945
Rebuilding after the wars
1956
Mary Marsman takes the helm
1954
Quicksilver Palawan Mines
1968
Marsman expands under Drysdale's leadership
1960
Marsman shifts focus
1969
Marsman expands into bananas
1967
Marsman foundation founded
1976
Camarines Minerals created
1971
Nova Vista formed
1987
Zuelig aquires Marsman Pharmaceuticals
1979
Marsman Tours and Travel
1993
Pelican Agro acquired
1986
Mango production begins
1994
Asparagus juices and telecoms
1990
Marsman Drysdale founded
1997
George M. Drysdale takes the helm
1996
Alta Vista Agri-Ventures begun
1999
Expansion of medical products
1998
MDAHI established
Late 1880s
Jan Hendrik Marsman was born in 1892 and was raised and schooled as a civil engineer in the Netherlands. Hank, as he was known to friends,
worked for Norit, a company specializing in the use of activated carbon for industrial refinery purposes. During the years of the First World War, he
was assigned by Norit in Indonesia, known at the time as the Dutch East Indies.
Mary Angus Blythe was born in 1888 and raised in Scotland. She came to the US as a young adult and came to work for Marshall Fields, a major
department store in the city of Chicago. It was in Marshall Fields that she met Nels Petersen, anSwedish-American Engineer, whom she married.
Petersen brought his young wife to the Philippines where he partly-owned the Benguet Gold Mines along with two other businessmen, Judge
Hauserman and Judge Bean.
1918
Jan Hendrik Marsman came to the Philippines when he was assigned by Norit to supervise the construction of a sugar refinery in Malabon. Norit
specialized in the use of activated carbon for refining purposes. In this case, the carbon was used to refine sugar. Hank was asked to stay on and
manage the refinery he had built for Norit and Malabon Sugar.
Nels Petersen died of influenza in 1919 during an epidemic that killed millions worldwide. His death left Mary a young widow with gold claims in
the Benguet area. Some time later, Mary Petersen and Hank Marsman met in Manila and decided to get marriedin 1922. They were convinced that
their future lay in the hills and relocated to Baguio to prospect for gold.
1922
Jan Hendrik Marsman and Mary Blythe Petersen Marsman leave the comforts and security of Manila to prospect for gold in the mountains near
Baguio. The first Marsman business venture in the Philippines was in the highly risky and speculative field of mining.
1924
After several years of prospecting, Hank and Mary Marsman organized the Itogon Mining Company in 1924. The Marsmans transform the relatively
low-grade Itogon gold mine into a viable and dividend-paying project. Their proceeds allowed them to diversify their business interests into the
forestry and construction industries, a natural progression for Hank's engineering knowledge.
1929
Marsman and Company, Inc. formed to fill the necessity of establishing a trading firm to service the needs of the Marsmans' mining operations as
well as those of other companies in the Baguio district. Its first office was set up along Session Road in Baguio City. The Marsmans later formed the
Suyoc Consolidated Mining Company in Benguet and M.P. Tranco, Inc., the first public transportation system to service mining communities in the
Mountain Province.
1933
The Marsmans ventured out of the Mountain Province and initiated a large-scale mining development project in the Paracale-Mamburao area in
the Bicol Region. They reopened gold mines formerly used by Spanish prospectors and established the United Paracale Mining Company. Their
success stirred them to establish Coco Grove Inc., which became the largest placer mining operation in the Philippines, and San Mauricio Mining
Company which produced the richest gold content per ton of ore compared to any mine in the country.
1936
Marsman business ventures had grown and diversified into other fields -- engineering, insurance, air transportation, machinery, hardware,
pharmaceuticals and foodstuffs. Due to these expansion activities and the growing involvement in the trading business, the organization's
headquarters were moved from Baguio to Port Area, Manila. The Marsman Building in Intramuros was built to accommodate the growing work
force that manned the Marsmans' various business interests. During the Japanese Occupation, the building was used as the headquarters of the
Japanese Navy. After the war, the Company resumed its operations at a new location in Intramuros. The original Marsman Building still stands
today and is presently owned by the Philippine government.
1939
By 1941, the Marsmans had built one of the top business organizations in the Philippines. Its construction projects included the Nielsen Tower in
the Manila Airport, one of the first airports in the country where they operated the Philippine Air Taxi Company (PATCO). This air transport service
offered regular trips from Manila to Baguio as well as chartered flights to various destinations in the country.
The Soriano family later became involved in PATCO, which they later took over and developed into what is now Philippine Airlines. The original
airport runway is now known as Paseo de Roxas in the heart of Makati's bustling business district while Nielsen Tower now houses the Filipinas
Heritage Library where various cultural and literary events regularly take place.
1941
The Japanese Imperial Army occupies most of the Asian region, prompting many American and European-owned businesses to relocate their
operations. At this time, Marsman and Company acquired Pacific Commercial Company (PCC), the largest trading company in the Philippines.
Despite the imminent outbreak of war, the Marsmans continued the distribution of various products including office equipment, foodstuffs,
farming equipment, hardware, heavy equipment and pharmaceuticals, demonstrating their commitment to the Philippines.
1945
The Second World War devastated the Marsman enterprises, which suffered losses and damages in excess of US$50 million. Not to be daunted, the
Marsmans began to rebuild from the ruins after the war with the reactivation of five gold mines and the trading business. Marsman and Company
represented all the major companies with interests in food, pharmaceuticals and construction.
After the Japanese army retreated, the first shipments of flour and milk into a war-ravaged Philippines were financed by the Marsmans using their
personal funds and credit to bring food to starving Filipinos. Construction and engineering departments were likewise reactivated to help in the
task of reconstruction. Among their accomplishments were the UP Engineering Building, the Ambuklao Hydroelectric project and the Nichols Air
Base, now the domestic airport.
1948
Walter Dumermuth, a Swiss national, was hired by Marsman and Company in 1948 to develop the company's pharmaceutical distribution. All the
various businesses were undergoing expansion at this point, with Pharmaceuticals aggressively promoted by Dumermuth.
1954
The Palawan Quicksilver Mines was established in 1954. This was a highly successful mining operation. Mercury from the mines was shipped to
Japan until 1975 when the company ceased mining operations in Palawan.
1956
The strength of the Marsman organization was put to test by the death of Jan Marsman. Mary assumed the management of the business and
competently carried on with the tasks left by her husband. However, the organization was beset by problems including the repayment of loans
availed of for the rehabilitation of companies during the post-war years. Three mining companies in Bicol had to be shut down and control of the
Itogon-Suyoc mines was lost. Mary Marsman passed away in 1963 leaving the company under the management of able caretakers.
1960
The Retail Trade Nationalization law, which was created to break the control foreign businesses enjoyed on Philippine retail trade, inadvertantly
affected most of the Marsmans' food and equipment distribution businesses since it would necessitate setting up alliances with middlemen. This
led the company to focus its resources on its Pharmaceutical distribution business. This division, begun in one of the company's warehouses in the
1940's, grew considerably, expanding into repackaging and manufacturing in the latter part of the 1970s.
1967
The Mary Blythe Petersen Marsman Foundation, Inc. was established on March 17, 1967 four years after her death, to administer and manage the
assets left in trust under the last will and testament of Mrs. Mary Marsman and to devote its income to scientific, educational and charitable
purposes. The Marsman Foundation was placed in control of 50% of all the company's assets. Through the years, MFI has faithfully complied with
its mandate, expanding its projects from scholarships and donations to genuine community development work including health care, livelihood and
cooperative development and values formation..
1968
The year 1968 heralded a new era for the Marsman organization when management returned to family hands under the leadership of George W.
Drysdale, whose wife, Anne, is the only child of Jan and Mary Marsman. The two met at Northwestern University in the United States in 1949 and
got married soon after. George Drysdale had worked for the US Steel Corporation before coming to the Philippines to work in the different
Divisions of Marsman and Company from 1954 to 1957.
Under his management, Marsman & Company, Inc. was able to free itself from all legal and financial obligations it had assumed for some of its
associated mining companies. George Drysdale was instrumental in focusing the company's investments towards development, expansion and
diversification into agribusiness, food processing, tours and travel, real estate and health care.
1969
In 1950, the dreaded mosaic virus disease wiped out the Marsmans' 7,500-hectare abaca plantation in Davao. This event eventually directed the
Marsmans toward bananas and in 1969, The Marsman Estate Plantation, Inc. (MEPI) was established, one of the first banana plantations in
Mindanao.
At present, MEPI produces the highest per-hectare yield in the banana industry. Since its creation in 1969, MEPI has become one of the brightest
points in Philippine agriculture, a shining example of Philippine presence in the dynamic and competitive global agribusiness industry.
1971
The Nova Vista Management and Development Corporation, established in 1971, traces its roots as far back as the 1940's when it was still an abaca
plantation called the Moro Improvement and Trading Corporation. The area was converted into a coconut plantation after the widespread mosaic
disease devastated the abaca plants. The coconut plantation, renamed Tagnanan Estate, Inc., was placed under CARP and was awarded to its 332
beneficiaries.
In 1992, the property was converted from a coconut plantation to a banana plantation now known as Nova Vista. In May 1999, a 180 hectare
section of the plantation was spun off to create the MD Isalon Organic Banana Agri Ventures, Inc.
1976
Camarines Minerals, Inc. (CMI) was organized in 1976 to manage and oversee the mining properties, operations and interests of the Marsman-
Drysdale Group in the Bicol Region. As the holding and management company of the Group's mining interests, it controls more than 3,000 hectares
of the Group's gold mining claims in the Philippines.
1979
Marsman Tours and Travel was organized in 1979 in response to the government's call to develop the booming tourist industry. The Inbound Tours
division was established when Marsman's European pharmaceutical principals suggested that the Marsmans should venture into tourism.
Marsman's pharmaceutical distributors, constantly travelling throughout the Philippines, were considered to be highly knowledgeable about the
country's potential tourist attractions. Encouraged to develop the country's tourism industry, Marsman and Company sought assistance from the
government, which readily gave support by providing in-depth training and seminars.
1986
The Oro Verde plantation is one of the pioneers in the Philippine mango industry. It was incorporated in 1986 as a member of MDAHI and began its
commercial operations in 1997.
1987
By 1987, Marsman & Company, Inc. had grown to become one of the country's leading trading firms. The Company's success in the pharmaceutical
promotion and distribution business attracted the interest of several local and foreign investors. After ensuring that the interests of the employees,
principals and stockholders were amply protected, the Board decided to accept a very attractive offer from Zuellig, a major pharmaceutical
distribution firm, to acquire Marsman & Company, Inc. The new owners were granted the right to use the Marsman name for 10 years.
1990
The sale of Marsman and Company, Inc. in 1987 paved the way for another expansion and diversification effort by the group. In 1990, Marsman's
remaining businesses became known as the Marsman-Drysdale Group. After a redefinition of corporate direction, the Group focused on food-
related operations which then accounted for 57% of the Group's total assets at the operating company level. The Group also continued its interests
in health care by establishing the Medical and Industrial Products Division in 1990. From only three employees in 1990, the division has grown into
a group of 40 dedicated, service-oriented professionals.
1993
The acquisition of Pelican Agro-Products in 1993 allowed the Group to complement its agribusiness plantation operations with food processing
capabilities. A vapor-heat treatment (VHT) facility was operated in the FTI complex in Taguig. Here, fresh carabao mangoes from the Oro Verde
orchards on Guimaras Island are VHT-treated before being shipped to the Japanese market.
1994
Marsman-Drysdale Agri Ventures, Inc. (MDAVI), incorporated March 1994, is one of only two major asparagus plantations in the country. MDAVI's
asparagus and okra growing facilities received the prestigious ISO 9002 certificate on September 1999, making MDAVI the only ISO 9002 Certified
asparagus packing plant in the Philippines, and possibly the world.
In 1994, the Group began operating the Mobilcom wireless communications network and, through the foresight of George Marsman Drysdale Jr.,
the Group invested in various telecommunications companies (Skycable, RCPI, Pocketbell and BayanTel) as well.
Also in 1994, the acquisition of Philippine Far East Agro-Products, Inc. expanded the MDG's food processing operations into fruit puree and
bottling, which led to the production of Drysdale juice drinks.
1996
The Alta Vista Agri-Ventures Corporation (AVAVC) was established in 1996. It is now a subsidiary of MDAHI engaged in producing export-quality
Cavendish bananas to help Marsman-Drysdale satisfy the demand of the growing global market. The plantation was originally formed in 1994 in
partnership with an Italian company, the De Nadai management, represented by Oribanex Services, Inc.
1997
The management of the Marsman-Drysdale Group was passed onto George Marsman Drysdale when he was named Chairman and CEO of the
Marsman-Drysdale Group. The son of Anne and George W. Drysdale, and grandson of the pioneering Jan and Mary Marsman, he was raised and
educated in both the United States and the Philippines. He is a Juris Doctor recipient from the Stanford Law School and earned an MBA degree
from the Stanford Business School. Mr. Drysdale is committed to take the Marsman-Drysdale organization to new heights of accomplishment and
success.
1998
The Group's agribusiness interests were consolidated with the establishment of Marsman-Drysdale Agribusiness Holding, Inc. (MDAHI) in 1998. This
holding company coordinates the Group's various farms, creating a synergy for continued growth.
1999
Four new banana farms were incorporated as wholly owned subsidiaries of MDAHI. These were the Marsman Drysdale Organic Farms, Inc. (MDOFI)
and MD Rio Vista Agri Ventures, Inc. both in July 1999, followed by MD Isalon Organic Banana Agri Ventures, Inc. (MDIOBAVI) in August 1999 and
MD Panabo Agri Ventures, Inc. in December 1999. MDOFI and MDIOBAVI were pioneering efforts in organic banana production in the Philippines.
Before the year ended, another banana plantation, the MD Davao Agri Ventures, Inc. was also incorporated.
The Marsman Drysdale Biotech and Research Corporation was formed in August 1999 to focus on the nutrition as well as the pest and disease
control requirements of the various farms.
The Marsman Drysdale Medical Products, Inc. was also incorporated in December 1999 after existing under the moniker of the Marsman Drysdale
Group Medical Products Division since 1990. The company bested the expected transition period from division to corporation by two years and has
since been consistently achieving its sales targets every year.
2000
Two more banana farms were established in August 2000 under the umbrella of MDAHI. These were the MD Nabunturan Agri Ventures, Inc. and
the MD New Corella Agri Ventures, Inc. In December 2000, SF Holdings Corporation was formed as the joint venture vehicle between MD Real
Estate Corp and FTK Properties, Inc. to own and develop a property in Forbes Park, Makati.
Present
The Marsman-Drysdale Group currently engages in the following industries, providing employment to over 3,500 Filipinos: agribusiness (cavendish
bananas, asparagus, and carabao mangoes), travel and tourism, mining, property development and investment management. Significant minority
investments are in telecommunications (Mobilcom andSkycable), bottling operation (Pepsi), mining (United Paragon) and financial sectors.
Committed to caring for its workers and the communities in which it operates its businesses, the Group has a role to play in the future of the
Philippines. Continuously driven by the vision, mission and entrepreneurial spirit of its founders, the Marsman-Drysdale Group is aiming for
industry leadership in all the various business it operates.
THIRD DIVISION
March 9,2015
G.R. No. 207133
SWIRE REALTY DEVELOPMENT CORPORATION, Petitioner,
vs.
JAYNE YU, Respondent.
DECISION
PERALTA, J.:

This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure which seeks to reverse and
set aside the Decision1 dated January 24, 2013 and Resolution2 dated April 30, 2013 of the Court of Appeals (CA) in CA-
G.R. SP No. 121175.
The facts follow.
Respondent Jayne Yu and petitioner Swire Realty Development Corporation entered into a Contract to Sell on July 25,
1995 covering one residential condominium unit, specifically Unit 3007 of the Palace of Makati, located at P. Burgos
comer Caceres Sts., Makati City, with an area of 137.30 square meters for the total contract price of P7,519,371.80,
payable in equal monthly installments until September 24, 1997. Respondent likewise purchased a parking slot in the
same condominium building for P600,000.00.
On September 24, 1997, respondent paid the full purchase price of P7,519,371.80 for the unit while making a down
payment of P20,000.00 for the parking lot. However, notwithstanding full payment of the contract price, petitioner
failed to complete and deliver the subject unit on time. This prompted respondent to file a Complaint for Rescission of
Contract with Damages before the Housing and Land Use Regulatory Board (HLURB) Expanded National Capital Region
Field Office (ENCRFO).
On October 19, 2004, the HLURB ENCRFO rendered a Decision3 dismissing respondent’s complaint. It ruled that
rescission is not permitted for slight or casual breach of the contract but only for such breaches as are substantial and
fundamental as to defeat the object of the parties in making the agreement. It disposed of the case as follows:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered ordering [petitioner] the following:
1.To finish the subject unit as pointed out in the inspection Report
2.To pay [respondent] the following:
a.the amount of P100,000 as compensatory damages for the minor irreversible defects in her unit [respondent], or, in
the alternative, conduct the necessary repairs on the subject unit to conform to the intended specifications;
b.moral damages of P20,000.00
c.Attorney’s fees of P20,000.00
On the other hand, [respondent] is hereby directed to immediately update her account insofar as the parking slot is
concerned, without interest, surcharges or penalties charged therein.
All other claims and counterclaims are hereby dismissed for lack of merit.
IT IS SO ORDERED.4
Respondent then elevated the matter to the HLURB Board of Commissioners.
In a Decision5 dated March 30, 2006, the HLURB Board of Commissioners reversed and set aside the ruling of the HLURB
ENCRFO and ordered the rescission of the Contract to Sell, ratiocinating:
We find merit in the appeal. The report on the ocular inspection conducted on the subject condominium project and
subject unit shows that the amenities under the approved plan have not yet been provided as of May 3, 2002, and that
the subject unit has not been delivered to [respondent] as of August 28, 2002, which is beyond the period of
development of December 1999 under the license to sell. The delay in the completion of the project as well as of the
delay in the delivery of the unit are breaches of statutory and contractual obligations which entitles [respondent] to
rescind the contract, demand a refund and payment of damages.
The delay in the completion of the project in accordance with the license to sell also renders [petitioner] liable for the
payment of administrative fine.
Wherefore, the decision of the Office below is set aside and a new decision is rendered as follows:
1.Declaring the contract to sell as rescinded and directing [petitioner] to refund to [respondent] the amount of
P7,519,371.80 at 6% per annum from the time of extrajudicial demand on January 05, 2001: subject to computation and
payment of the correct filing fee;
2.Directing [petitioner] to pay respondent attorney’s fees in the amount of P20,000.00;
3.Directing [petitioner] to pay an administrative fine of P10,000.00 for violation of Section 20, in relation to Section 38 of
P.D. 957:
SO ORDERED.6
Petitioner moved for reconsideration, but the same was denied by the HLURB Board of Commissioners in a
Resolution7 dated June 14, 2007.
Unfazed, petitioner appealed to the Office of the President (OP) on August 7, 2007.
In a Decision8 dated November 21, 2007, the OP, through then Deputy Executive Secretary Manuel Gaite, dismissed
petitioner’s appeal on the ground that it failed to promptly file its appeal before the OP. It held:
Records show that [petitioner] received its copy of the 30 March 2006 HLURB Decision on 17 April 2006 and instead of
filing an appeal, it opted first to file a Motion for Reconsideration on 28 April 2006 or eleven (11) days thereafter. The
said motion interrupted the 15-day period to appeal.
On 23 July 2007, [petitioner] received the HLURB Resolution dated 14 June 2007 denying the Motion for
Reconsideration.
Based on the ruling in United Overseas Bank Philippines, Inc. v. Ching (486 SCRA 655), the period to appeal decisions of
the HLURB Board of Commissioners to the Office of the President is 15 days from receipt thereof pursuant to Section 15
of P.D. No. 957 and Section 2 of P.D. No. 1344 which are special laws that provide an exception to Section 1 of
Administrative Order No. 18.
Corollary thereto, par. 2, Section 1 of Administrative Order No. 18, Series of 1987 provides that:
The time during which a motion for reconsideration has been pending with the Ministry/Agency concerned shall be
deducted from the period of appeal. But where such a motion for reconsideration has been filed during office hours of
the last day of the period herein provided, the appeal must be made within the day following receipt of the denial of
said motion by the appealing party (Underscoring supplied)
xxxx
Accordingly, the [petitioner] had only four (4) days from receipt on 23 July 2007 of HLURB Resolution dated 14 June
2007, or until 27 July 2007 to file the Notice of Appeal before this Office. However, [petitioner] filed its appeal only on 7
August 2007 or eleven (11) days late.
Thus, this Office need not delve on the merits of the appeal filed as the records clearly show that the said appeal was
filed out of time.
WHEREFORE, premises considered, [petitioner]’s appeal is hereby DISMISSED, and the HLURB Decision dated 30 March
2006 and HLURB Resolution dated 14 June 2007 are hereby AFFIRMED.
SO ORDERED.9
Immediately thereafter, petitioner filed a motion for reconsideration against said decision.
In a Resolution10 dated February 17, 2009, the OP, through then Executive Secretary Eduardo Ermita, granted petitioner’s
motion and set aside Deputy Executive Secretary Gaite’s decision. It held that after a careful and thorough evaluation
and study of the records of the case, the OP was more inclined to agree with the earlier decision of the HLURB ENCRFO
as it was more in accord with facts, law and jurisprudence relevant to the case. Thus:
WHEREFORE, premises considered, the instant Motion for Reconsideration is hereby GRANTED. The Decision and
Resolution of the HLURB Third Division Board of Commissioners, dated March 30, 2006 and June 14, 2007, respectively,
are hereby SET ASIDE, and the HLURB ENCRFO Decision dated October 19, 2004 is hereby REINSTATED.
SO ORDERED.11
Respondent sought reconsideration of said resolution, however, the same was denied by the OP in a Resolution12 dated
August 18, 2011.
Consequently, respondent filed an appeal to the CA.
In a Decision dated January 24, 2013, the CA granted respondent’s appeal and reversed and set aside the Order of the
OP. The fallo of its decision reads:
WHEREFORE, the Petition is hereby GRANTED. The assailed Resolution dated 17 February 2009 and Order dated 18
August 2011 of the Office of the President, in O.P. Case No. 07-H-283, are hereby REVERSED and SET ASIDE. Accordingly,
the Decision dated 30 March 2006 and Resolution dated 14 June 2007 of the HLURB Board of Commissioners in HLURB
Case No. REM-A-050127-0014, are REINSTATED.
SO ORDERED.13
Petitioner moved for reconsideration, however, the CA denied the same in a Resolution dated April 30, 2013.
Hence, the present petition wherein petitioner raises the following grounds to support its petition:
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING THE LEGAL PRECEPTS THAT:
A.TECHNICAL RULES ARE NOT BINDING UPON ADMINISTRATIVE AGENCIES; and
B.RESCISSION WILL BE ORDERED ONLY WHERE THE BREACH COMPLAINED OF IS SUBSTANTIAL AS TO DEFEAT THE
OBJECT OF THE PARTIES IN ENTERING INTO THE AGREEMENT.14
In essence, the issues are: (1) whether petitioner’s appeal was timely filed before the OP; and (2) whether rescission of
the contract is proper in the instant case.
We shall resolve the issues in seriatim.
First, the period to appeal the decision of the HLURB Board of Commissioners to the Office of the President has long
been settled in the case of SGMC Realty Corporation v. Office of the President,15 as reiterated in the cases of Maxima
Realty Management and Development Corporation v. Parkway Real Estate Development Corporation16 and United
Overseas Bank Philippines, Inc. v. Ching.17
In the aforementioned cases, we ruled that the period to appeal decisions of the HLURB Board of Commissioners is
fifteen (15) days from receipt thereof pursuant to Section 1518 of PD No. 95719 and Section 220 of PD No. 134421 which are
special laws that provide an exception to Section 1 of Administrative Order No. 18. Thus, in the SGMC Realty
Corporation v. Office of the President case, the Court explained:
As pointed out by public respondent, the aforecited administrative order allows aggrieved party to file its appeal with
the Office of the President within thirty (30) days from receipt of the decision complained of. Nonetheless, such thirty-
day period is subject to the qualification that there are no other statutory periods of appeal applicable. If there are
special laws governing particular cases which provide for a shorter or longer reglementary period, the same shall prevail
over the thirty-day period provided for in the administrative order. This is in line with the rule in statutory construction
that an administrative rule or regulation, in order to be valid, must not contradict but conform to the provisions of the
enabling law.
We note that indeed there are special laws that mandate a shorter period of fifteen (15) days within which to appeal a
case to public respondent. First, Section 15 of Presidential Decree No. 957 provides that the decisions of the National
Housing Authority (NHA) shall become final and executory after the lapse of fifteen (15) days from the date of receipt of
the decision. Second, Section 2 of Presidential Decree No. 1344 states that decisions of the National Housing Authority
shall become final and executory after the lapse of fifteen (15) days from the date of its receipt. The latter decree
provides that the decisions of the NHA is appealable only to the Office of the President. Further, we note that the
regulatory functions of NHA relating to housing and land development has been transferred to Human Settlements
Regulatory Commission, now known as HLURB. x x x22
Records show that petitioner received a copy of the HLURB Board of Commissioners’ decision on April 17, 2006.
Correspondingly, it had fifteen days from April 17, 2006 within which to file its appeal or until May 2, 2006. However, on
April 28, 2006, or eleven days after receipt of the HLURB Board of Commissioner’s decision, it filed a Motion for
Reconsideration, instead of an appeal.
Concomitantly, Section 1 of Administrative Order No. 1823 provides that the time during which a motion for
reconsideration has been pending with the ministry or agency concerned shall be deducted from the period for appeal.
Petitioner received the HLURB Board Resolution denying its Motion for Reconsideration on July 23, 2007 and filed its
appeal only on August 7, 2007. Consequently therefore, petitioner had only four days from July 23, 2007, or until July 27,
2007, within which to file its appeal to the OP as the filing of the motion for reconsideration merely suspended the
running of the 15-day period. However, records reveal that petitioner only appealed to the OP on August 7, 2007, or
eleven days late. Ergo, the HLURB Board of Commissioners’ decision had become final and executory on account of the
fact that petitioner did not promptly appeal with the OP.
In like manner, we find no cogent reason to exempt petitioner from the effects of its failure to comply with the rules.
In an avuncular case, we have held that while the dismissal of an appeal on purely technical grounds is concededly
frowned upon, it bears emphasizing that the procedural requirements of the rules on appeal are not
harmless and trivial technicalities that litigants can just discard and disregard at will. Neither being a natural right nor a
part of due process, the rule is settled that the right to appeal is merely a statutory privilege which may be exercised
only in the manner and in accordance with the provisions of the law.24
Time and again, we have held that rules of procedure exist for a noble purpose, and to disregard such rules, in the guise
of liberal construction, would be to defeat such purpose. Procedural rules are not to be disdained as mere technicalities.
They may not be ignored to suit the convenience of a party.25 The reason for the liberal application of the rules before
quasi- judicial agencies cannot be used to perpetuate injustice and hamper the just resolution of the case. Neither is the
rule on liberal construction a license to disregard the rules of procedure.26
Thus, while there may be exceptions for the relaxation of technical rules principally geared to attain the ends of justice,
petitioner’s fatuous belief that it had a fresh 15-day period to elevate an appeal with the OP is not the kind of
exceptional circumstance that merits relaxation.
Second, Article 1191 of the Civil Code sanctions the right to rescind the obligation in the event that specific performance
becomes impossible, to wit:
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages
in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law.
Basic is the rule that the right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated
on a breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the said
provision is the obligor’s failure to comply with an existing obligation. When the obligor cannot comply with what is
incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for the court to determine the
period of compliance, the court shall decree the rescission.27
In the instant case, the CA aptly found that the completion date of the condominium unit was November 1998 pursuant
to License No. 97-12-3202 dated November 2, 1997 but was extended to December 1999 as per License to Sell No. 99-
05-3401 dated May 8, 1999. However, at the time of the ocular inspection conducted by the HLURB ENCRFO, the unit
was not yet completely finished as the kitchen cabinets and fixtures were not yet installed and the agreed amenities
were not yet available. Said inspection report states:
May 3, 2002:
1.The unit of the [respondent] is Unit 3007, which was labeled as P2-07, at the Palace of Makati, located at the corner of
P. Burgos Street and Caceres Street, Poblacion, Makati City. Based on the approved plans, the said unit is at the 26th
Floor.
2.During the time of inspection, the said unit appears to be completed except for the installation of kitchen cabinets and
fixtures.
3.Complainant pinpointed to the undersigned the deficiencies as follows:
a.The delivered unit has high density fiber (HDF) floorings instead of narra wood parquet.
b.The [petitioners] have also installed baseboards as borders instead of pink porrino granite boarders.
c.Walls are newly painted by the respondent and the alleged obvious signs of cladding could not be determined.
d.Window opening at the master bedroom conforms to the approved plans. As a result it leaves a 3 inches (sic) gap
between the glass window and partitioning of the master’s bedroom.
e.It was verified and confirmed that a square column replaced the round column, based on the approved plans.
f.At the time of inspection, amenities such as swimming pool and change room are seen at the 31st floor only. These
amenities are reflected on the 27th floor plan of the approved condominium plans. Health spa for men and women,
Shiatsu Massage Room, Two-Level Sky Palace Restaurant and Hall for games and entertainments, replete with billiard
tables, a bar, indoor golf with spectacular deck and karaoke rooms were not yet provided by the [petitioner].
g.The [master’s] bedroom door bore sign of poor quality of workmanship as seen below.
h.The stairs have been installed in such manner acceptable to the undersigned.
i.Bathrooms and powder room have been installed in such manner acceptable to the undersigned.28
From the foregoing, it is evident that the report on the ocular inspection conducted on the subject condominium project
and subject unit shows that the amenities under the approved plan have not yet been provided as of May 3, 2002, and
that the subject unit has not been delivered to respondent as of August 28, 2002, which is beyond the period of
development of December 1999 under the license to sell. Incontrovertibly, petitioner had incurred delay in the
performance of its obligation amounting to breach of contract as it failed to finish and deliver the unit to respondent
within the stipulated period. The delay in the completion of the project as well as of the delay in the delivery of the unit
are breaches of statutory and contractual obligations which entitle respondent to rescind the contract, demand a refund
and payment of damages.
WHEREFORE, premises considered, the instant petition is DENIED. The Decision dated January 24, 2013 and Resolution
dated April 30, 2013 of the Court of Appeals in CA-G.R. SP No. 121175 are hereby AFFIRMED, with MODIFICATION that
moral damages be awarded in the amount of P20,000.00.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson
MARTIN S. VILLARAMA, JR. BIENVENIDO L. REYES
Associate Justice Associate Justice
FRANCIS H. JARDELEZA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court's Division.
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice

Footnotes
1 Penned by Associate Justice Japar B. Dimaampao, with Associate Justices Elihu A. Ybanez and Edwin D. Sorongon,

concurring; rollo, pp. 43-52.

2 Id. at 54-55.

3 Id. at 75-79.

4 Id. at 78-79.

5 Id. at 66-68.

6 Id. at 67-68.

7 Id. at 71-73.

8 Id. at 80-82.

9 Id. at 81-82. (Emphasis in the original)

10 Id. at 56-61.

11 Id. at 61. (Emphasis in the original)

12 Id. at 62-64.

13 Id. at 51. (Emphasis in the original)

14 Id. at 23.

15 393 Phil. 697 (2000).

16 467 Phil. 190 (2004).

17 521 Phil. 146 (2006).

18 Section 15. Decision. The case shall be decided within thirty (30) days from the time the same is submitted for decision.

The Decision may order the revocation of the registration of the subdivision or condominium project, the suspension,
cancellation, or revocation of the license to sell and/or forfeiture, in whole or in part, of the performance bond
mentioned in Section 6 hereof. In case forfeiture of the bond is ordered, the Decision may direct the provincial or city
engineer to undertake or cause the construction of roads and other requirements for the subdivision or condominium as
stipulated in the bond, chargeable to the amount forfeited. Such decision shall be immediately executory and shall
become final after the lapse of 15 days from the date of receipt of the Decision.
19 REGULATING THE SALE OF SUBDIVISION LOTS AND CONDOMINIUMS, PROVIDING PENALTIES FOR VIOLATIONS

THEREOF.
20 Section 2. The decision of the National Housing Authority shall become final and executory after the lapse of fifteen

(15) days from the date of its receipt. It is appealable only to the President of the Philippines and in the event the appeal
is filed and the decision is not reversed and/or amended within a period of thirty (30) days, the decision is deemed
affirmed. Proof of the appeal of the decision must be furnished the National Housing Authority.
21 EMPOWERING THE NATIONAL HOUSING AUTHORITY TO ISSUE WRIT OF EXECUTION IN THE ENFORCEMENT OF ITS

DECISION UNDER PRESIDENTIAL DECREE NO. 957.

22 SGMC Realty Corporation v. Office of the President, supra note 15, at 703-704.

23 PRESCRIBING RULES AND REGULATIONS GOVERNING APPEALS TO THE OFFICE OF THE PRESIDENT OF THE PHILIPPINES.

24 J. Tiosejo Investment Corp. v. Ang, G.R. No. 174149, September 8, 2010, 630 SCRA 334, 343.

25 Po v. Dampal, 622 Phil. 523, 529 (2009).

26 Loon v. Power Master, Inc., G.R. No. 189404, December 11, 2013, 712 SCRA 440, 453.

27 Spouses Velarde v. Court of Appeals, 413 Phil. 360, 373 (2001)

28 Rollo, pp. 76-77.

THIRD DIVISION
March 9,2015
G.R. No. 207133
SWIRE REALTY DEVELOPMENT CORPORATION, Petitioner,
vs.
JAYNE YU, Respondent.
DECISION
PERALTA, J.:

This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure which seeks to
reverse and set aside the Decision1 dated January 24, 2013 and Resolution2 dated April 30, 2013 of the Court of
Appeals (CA) in CA-G.R. SP No. 121175.
The facts follow.
Respondent Jayne Yu and petitioner Swire Realty Development Corporation entered into a Contract to Sell on
July 25, 1995 covering one residential condominium unit, specifically Unit 3007 of the Palace of Makati,
located at P. Burgos comer Caceres Sts., Makati City, with an area of 137.30 square meters for the total
contract price of P7,519,371.80, payable in equal monthly installments until September 24, 1997. Respondent
likewise purchased a parking slot in the same condominium building for P600,000.00.
On September 24, 1997, respondent paid the full purchase price of P7,519,371.80 for the unit while making a
down payment of P20,000.00 for the parking lot. However, notwithstanding full payment of the contract price,
petitioner failed to complete and deliver the subject unit on time. This prompted respondent to file a
Complaint for Rescission of Contract with Damages before the Housing and Land Use Regulatory Board
(HLURB) Expanded National Capital Region Field Office (ENCRFO).
On October 19, 2004, the HLURB ENCRFO rendered a Decision3 dismissing respondent’s complaint. It ruled
that rescission is not permitted for slight or casual breach of the contract but only for such breaches as are
substantial and fundamental as to defeat the object of the parties in making the agreement. It disposed of the
case as follows:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered ordering [petitioner] the following:
1.To finish the subject unit as pointed out in the inspection Report
2.To pay [respondent] the following:
a.the amount of P100,000 as compensatory damages for the minor irreversible defects in her unit
[respondent], or, in the alternative, conduct the necessary repairs on the subject unit to conform to the
intended specifications;
b.moral damages of P20,000.00
c.Attorney’s fees of P20,000.00
On the other hand, [respondent] is hereby directed to immediately update her account insofar as the parking
slot is concerned, without interest, surcharges or penalties charged therein.
All other claims and counterclaims are hereby dismissed for lack of merit.
IT IS SO ORDERED.4
Respondent then elevated the matter to the HLURB Board of Commissioners.
In a Decision5 dated March 30, 2006, the HLURB Board of Commissioners reversed and set aside the ruling of
the HLURB ENCRFO and ordered the rescission of the Contract to Sell, ratiocinating:
We find merit in the appeal. The report on the ocular inspection conducted on the subject condominium
project and subject unit shows that the amenities under the approved plan have not yet been provided as of
May 3, 2002, and that the subject unit has not been delivered to [respondent] as of August 28, 2002, which is
beyond the period of development of December 1999 under the license to sell. The delay in the completion of
the project as well as of the delay in the delivery of the unit are breaches of statutory and contractual
obligations which entitles [respondent] to rescind the contract, demand a refund and payment of damages.
The delay in the completion of the project in accordance with the license to sell also renders [petitioner] liable
for the payment of administrative fine.
Wherefore, the decision of the Office below is set aside and a new decision is rendered as follows:
1.Declaring the contract to sell as rescinded and directing [petitioner] to refund to [respondent] the amount of
P7,519,371.80 at 6% per annum from the time of extrajudicial demand on January 05, 2001: subject to
computation and payment of the correct filing fee;
2.Directing [petitioner] to pay respondent attorney’s fees in the amount of P20,000.00;
3.Directing [petitioner] to pay an administrative fine of P10,000.00 for violation of Section 20, in relation to
Section 38 of P.D. 957:
SO ORDERED.6
Petitioner moved for reconsideration, but the same was denied by the HLURB Board of Commissioners in a
Resolution7 dated June 14, 2007.
Unfazed, petitioner appealed to the Office of the President (OP) on August 7, 2007.
In a Decision8 dated November 21, 2007, the OP, through then Deputy Executive Secretary Manuel Gaite,
dismissed petitioner’s appeal on the ground that it failed to promptly file its appeal before the OP. It held:
Records show that [petitioner] received its copy of the 30 March 2006 HLURB Decision on 17 April 2006 and
instead of filing an appeal, it opted first to file a Motion for Reconsideration on 28 April 2006 or eleven (11)
days thereafter. The said motion interrupted the 15-day period to appeal.
On 23 July 2007, [petitioner] received the HLURB Resolution dated 14 June 2007 denying the Motion for
Reconsideration.
Based on the ruling in United Overseas Bank Philippines, Inc. v. Ching (486 SCRA 655), the period to appeal
decisions of the HLURB Board of Commissioners to the Office of the President is 15 days from receipt thereof
pursuant to Section 15 of P.D. No. 957 and Section 2 of P.D. No. 1344 which are special laws that provide an
exception to Section 1 of Administrative Order No. 18.
Corollary thereto, par. 2, Section 1 of Administrative Order No. 18, Series of 1987 provides that:
The time during which a motion for reconsideration has been pending with the Ministry/Agency concerned
shall be deducted from the period of appeal. But where such a motion for reconsideration has been filed
during office hours of the last day of the period herein provided, the appeal must be made within the day
following receipt of the denial of said motion by the appealing party (Underscoring supplied)
xxxx
Accordingly, the [petitioner] had only four (4) days from receipt on 23 July 2007 of HLURB Resolution dated 14
June 2007, or until 27 July 2007 to file the Notice of Appeal before this Office. However, [petitioner] filed its
appeal only on 7 August 2007 or eleven (11) days late.
Thus, this Office need not delve on the merits of the appeal filed as the records clearly show that the said
appeal was filed out of time.
WHEREFORE, premises considered, [petitioner]’s appeal is hereby DISMISSED, and the HLURB Decision dated
30 March 2006 and HLURB Resolution dated 14 June 2007 are hereby AFFIRMED.
SO ORDERED.9
Immediately thereafter, petitioner filed a motion for reconsideration against said decision.
In a Resolution10 dated February 17, 2009, the OP, through then Executive Secretary Eduardo Ermita, granted
petitioner’s motion and set aside Deputy Executive Secretary Gaite’s decision. It held that after a careful and
thorough evaluation and study of the records of the case, the OP was more inclined to agree with the earlier
decision of the HLURB ENCRFO as it was more in accord with facts, law and jurisprudence relevant to the case.
Thus:
WHEREFORE, premises considered, the instant Motion for Reconsideration is hereby GRANTED. The Decision
and Resolution of the HLURB Third Division Board of Commissioners, dated March 30, 2006 and June 14, 2007,
respectively, are hereby SET ASIDE, and the HLURB ENCRFO Decision dated October 19, 2004 is hereby
REINSTATED.
SO ORDERED.11
Respondent sought reconsideration of said resolution, however, the same was denied by the OP in a
Resolution12 dated August 18, 2011.
Consequently, respondent filed an appeal to the CA.
In a Decision dated January 24, 2013, the CA granted respondent’s appeal and reversed and set aside the
Order of the OP. The fallo of its decision reads:
WHEREFORE, the Petition is hereby GRANTED. The assailed Resolution dated 17 February 2009 and Order
dated 18 August 2011 of the Office of the President, in O.P. Case No. 07-H-283, are hereby REVERSED and SET
ASIDE. Accordingly, the Decision dated 30 March 2006 and Resolution dated 14 June 2007 of the HLURB Board
of Commissioners in HLURB Case No. REM-A-050127-0014, are REINSTATED.
SO ORDERED.13
Petitioner moved for reconsideration, however, the CA denied the same in a Resolution dated April 30, 2013.
Hence, the present petition wherein petitioner raises the following grounds to support its petition:
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING THE LEGAL PRECEPTS THAT:
A.TECHNICAL RULES ARE NOT BINDING UPON ADMINISTRATIVE AGENCIES; and
B.RESCISSION WILL BE ORDERED ONLY WHERE THE BREACH COMPLAINED OF IS SUBSTANTIAL AS TO DEFEAT
THE OBJECT OF THE PARTIES IN ENTERING INTO THE AGREEMENT.14
In essence, the issues are: (1) whether petitioner’s appeal was timely filed before the OP; and (2) whether
rescission of the contract is proper in the instant case.
We shall resolve the issues in seriatim.
First, the period to appeal the decision of the HLURB Board of Commissioners to the Office of the President
has long been settled in the case of SGMC Realty Corporation v. Office of the President, 15 as reiterated in the
cases of Maxima Realty Management and Development Corporation v. Parkway Real Estate Development
Corporation16 and United Overseas Bank Philippines, Inc. v. Ching.17
In the aforementioned cases, we ruled that the period to appeal decisions of the HLURB Board of
Commissioners is fifteen (15) days from receipt thereof pursuant to Section 15 18 of PD No. 95719 and Section
220 of PD No. 134421 which are special laws that provide an exception to Section 1 of Administrative Order No.
18. Thus, in the SGMC Realty Corporation v. Office of the President case, the Court explained:
As pointed out by public respondent, the aforecited administrative order allows aggrieved party to file its
appeal with the Office of the President within thirty (30) days from receipt of the decision complained of.
Nonetheless, such thirty-day period is subject to the qualification that there are no other statutory periods of
appeal applicable. If there are special laws governing particular cases which provide for a shorter or longer
reglementary period, the same shall prevail over the thirty-day period provided for in the administrative
order. This is in line with the rule in statutory construction that an administrative rule or regulation, in order to
be valid, must not contradict but conform to the provisions of the enabling law.
We note that indeed there are special laws that mandate a shorter period of fifteen (15) days within which to
appeal a case to public respondent. First, Section 15 of Presidential Decree No. 957 provides that the decisions
of the National Housing Authority (NHA) shall become final and executory after the lapse of fifteen (15) days
from the date of receipt of the decision. Second, Section 2 of Presidential Decree No. 1344 states that
decisions of the National Housing Authority shall become final and executory after the lapse of fifteen (15)
days from the date of its receipt. The latter decree provides that the decisions of the NHA is appealable only to
the Office of the President. Further, we note that the regulatory functions of NHA relating to housing and land
development has been transferred to Human Settlements Regulatory Commission, now known as HLURB. x x x
Records show that petitioner received a copy of the HLURB Board of Commissioners’ decision on April 17,
2006. Correspondingly, it had fifteen days from April 17, 2006 within which to file its appeal or until May 2,
2006. However, on April 28, 2006, or eleven days after receipt of the HLURB Board of Commissioner’s
decision, it filed a Motion for Reconsideration, instead of an appeal. Concomitantly, Section 1 of
Administrative Order No. 1823 provides that the time during which a motion for reconsideration has been
pending with the ministry or agency concerned shall be deducted from the period for appeal. Petitioner
received the HLURB Board Resolution denying its Motion for Reconsideration on July 23, 2007 and filed its
appeal only on August 7, 2007. Consequently therefore, petitioner had only four days from July 23, 2007, or
until July 27, 2007, within which to file its appeal to the OP as the filing of the motion for reconsideration
merely suspended the running of the 15-day period. However, records reveal that petitioner only appealed to
the OP on August 7, 2007, or eleven days late. Ergo, the HLURB Board of Commissioners’ decision had become
final and executory on account of the fact that petitioner did not promptly appeal with the OP. In like manner,
we find no cogent reason to exempt petitioner from the effects of its failure to comply with the rules. In an
avuncular case, we have held that while the dismissal of an appeal on purely technical grounds is concededly
frowned upon, it bears emphasizing that the procedural requirements of the rules on appeal are not harmless
and trivial technicalities that litigants can just discard and disregard at will. Neither being a natural right nor a
part of due process, the rule is settled that the right to appeal is merely a statutory privilege which may be
exercised only in the manner and in accordance with the provisions of the law. 24
Time and again, we have held that rules of procedure exist for a noble purpose, and to disregard such rules, in
the guise of liberal construction, would be to defeat such purpose. Procedural rules are not to be disdained as
mere technicalities. They may not be ignored to suit the convenience of a party.25 The reason for the liberal
application of the rules before quasi- judicial agencies cannot be used to perpetuate injustice and hamper the
just resolution of the case. Neither is the rule on liberal construction a license to disregard the rules of
procedure.26 Thus, while there may be exceptions for the relaxation of technical rules principally geared to
attain the ends of justice, petitioner’s fatuous belief that it had a fresh 15-day period to elevate an appeal with
the OP is not the kind of exceptional circumstance that merits relaxation.
Second, Article 1191 of the Civil Code sanctions the right to rescind the obligation in the event that specific
performance becomes impossible, to wit:
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission
claimed, unless there be just cause authorizing the fixing of a period.This is understood to be without
prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and
1388 and the Mortgage Law.Basic is the rule that the right of rescission of a party to an obligation under
Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity
between them. The breach contemplated in the said provision is the obligor’s failure to comply with an
existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek
rescission and, in the absence of any just cause for the court to determine the period of compliance, the court
shall decree the rescission.27In the instant case, the CA aptly found that the completion date of the
condominium unit was November 1998 pursuant to License No. 97-12-3202 dated November 2, 1997 but was
extended to December 1999 as per License to Sell No. 99-05-3401 dated May 8, 1999. However, at the time of
the ocular inspection conducted by the HLURB ENCRFO, the unit was not yet completely finished as the
kitchen cabinets and fixtures were not yet installed and the agreed amenities were not yet available. Said
inspection report states:
May 3, 2002:
1.The unit of the [respondent] is Unit 3007, which was labeled as P2-07, at the Palace of Makati, located at the
corner of P. Burgos Street and Caceres Street, Poblacion, Makati City. Based on the approved plans, the said
unit is at the 26th Floor.
2.During the time of inspection, the said unit appears to be completed except for the installation of kitchen
cabinets and fixtures.
3.Complainant pinpointed to the undersigned the deficiencies as follows:
a.The delivered unit has high density fiber (HDF) floorings instead of narra wood parquet.
b.The [petitioners] have also installed baseboards as borders instead of pink porrino granite boarders.
c.Walls are newly painted by the respondent and the alleged obvious signs of cladding could not be
determined.
d.Window opening at the master bedroom conforms to the approved plans. As a result it leaves a 3 inches
(sic) gap between the glass window and partitioning of the master’s bedroom.
e.It was verified and confirmed that a square column replaced the round column, based on the approved
plans.
f.At the time of inspection, amenities such as swimming pool and change room are seen at the 31st floor only.
These amenities are reflected on the 27th floor plan of the approved condominium plans. Health spa for men
and women, Shiatsu Massage Room, Two-Level Sky Palace Restaurant and Hall for games and entertainments,
replete with billiard tables, a bar, indoor golf with spectacular deck and karaoke rooms were not yet provided
by the [petitioner].
g.The [master’s] bedroom door bore sign of poor quality of workmanship as seen below.
h.The stairs have been installed in such manner acceptable to the undersigned.
i.Bathrooms and powder room have been installed in such manner acceptable to the undersigned. 28
From the foregoing, it is evident that the report on the ocular inspection conducted on the subject
condominium project and subject unit shows that the amenities under the approved plan have not yet been
provided as of May 3, 2002, and that the subject unit has not been delivered to respondent as of August 28,
2002, which is beyond the period of development of December 1999 under the license to sell.
Incontrovertibly, petitioner had incurred delay in the performance of its obligation amounting to breach of
contract as it failed to finish and deliver the unit to respondent within the stipulated period. The delay in the
completion of the project as well as of the delay in the delivery of the unit are breaches of statutory and
contractual obligations which entitle respondent to rescind the contract, demand a refund and payment of
damages.
WHEREFORE, premises considered, the instant petition is DENIED. The Decision dated January 24, 2013 and
Resolution dated April 30, 2013 of the Court of Appeals in CA-G.R. SP No. 121175 are hereby AFFIRMED, with
MODIFICATION that moral damages be awarded in the amount of P20,000.00.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson
MARTIN S. VILLARAMA, JR. BIENVENIDO L. REYES
Associate Justice Associate Justice
FRANCIS H. JARDELEZA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that
the conclusions in the above Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice
Footnotes
1
Penned by Associate Justice Japar B. Dimaampao, with Associate Justices Elihu A. Ybanez and Edwin D.
Sorongon, concurring; rollo, pp. 43-52.
2 Id. at 54-55.

3 Id. at 75-79.

4 Id. at 78-79.

5 Id. at 66-68.

6 Id. at 67-68.

7
Id. at 71-73.
8 Id. at 80-82.

9 Id. at 81-82. (Emphasis in the original)

10 Id. at 56-61.

11 Id. at 61. (Emphasis in the original)

12 Id. at 62-64.

13
Id. at 51. (Emphasis in the original)
14 Id. at 23.

15 393 Phil. 697 (2000).

16 467 Phil. 190 (2004).

17
521 Phil. 146 (2006).
18
Section 15. Decision. The case shall be decided within thirty (30) days from the time the same is submitted
for decision. The Decision may order the revocation of the registration of the subdivision or condominium
project, the suspension, cancellation, or revocation of the license to sell and/or forfeiture, in whole or in part,
of the performance bond mentioned in Section 6 hereof. In case forfeiture of the bond is ordered, the
Decision may direct the provincial or city engineer to undertake or cause the construction of roads and other
requirements for the subdivision or condominium as stipulated in the bond, chargeable to the amount
forfeited. Such decision shall be immediately executory and shall become final after the lapse of 15 days from
the date of receipt of the Decision.
19
REGULATING THE SALE OF SUBDIVISION LOTS AND CONDOMINIUMS, PROVIDING PENALTIES FOR
VIOLATIONS THEREOF.
20 Section 2. The decision of the National Housing Authority shall become final and executory after the lapse of

fifteen (15) days from the date of its receipt. It is appealable only to the President of the Philippines and in the
event the appeal is filed and the decision is not reversed and/or amended within a period of thirty (30) days,
the decision is deemed affirmed. Proof of the appeal of the decision must be furnished the National Housing
Authority.
21 EMPOWERING THE NATIONAL HOUSING AUTHORITY TO ISSUE WRIT OF EXECUTION IN THE ENFORCEMENT

OF ITS DECISION UNDER PRESIDENTIAL DECREE NO. 957.

22 SGMC Realty Corporation v. Office of the President, supra note 15, at 703-704.

23 PRESCRIBING RULES AND REGULATIONS GOVERNING APPEALS TO THE OFFICE OF THE PRESIDENT OF THE

PHILIPPINES.
24
J. Tiosejo Investment Corp. v. Ang, G.R. No. 174149, September 8, 2010, 630 SCRA 334, 343.
25 Po v. Dampal, 622 Phil. 523, 529 (2009).

26 Loon v. Power Master, Inc., G.R. No. 189404, December 11, 2013, 712 SCRA 440, 453.

27 Spouses Velarde v. Court of Appeals, 413 Phil. 360, 373 (2001)

28 Rollo, pp. 76-77.

DIGEST
SECOND DIVISION
G.R. No. 178782 September 21, 2011
JOSEFINA P. REALUBIT, Petitioner,
vs.
PROSENCIO D. JASO and EDEN G. JASO, Respondents.
DECISION
PEREZ, J.:
The validity as well as the consequences of an assignment of rights in a joint venture are at issue in this petition for
review filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure,1 assailing the 30 April 2007
Decision2 rendered by the Court of Appeals’ (CA) then Twelfth Division in CA-G.R. CV No. 73861,3 the
dispositive portion of which states:
WHEREFORE, the Decision appealed from is SET ASIDE and we order the dissolution of the joint venture
between defendant-appellant Josefina Realubit and Francis Eric Amaury Biondo and the subsequent conduct
of accounting, liquidation of assets and division of shares of the joint venture business.
Let a copy hereof and the records of the case be remanded to the trial court for appropriate proceedings.4
The Facts
On 17 March 1994, petitioner Josefina Realubit (Josefina) entered into a Joint Venture Agreement with Francis
Eric Amaury Biondo (Biondo), a French national, for the operation of an ice manufacturing business. With
Josefina as the industrial partner and Biondo as the capitalist partner, the parties agreed that they would each
receive 40% of the net profit, with the remaining 20% to be used for the payment of the ice making machine
which was purchased for the business.5 For and in consideration of the sum of ₱500,000.00, however, Biondo
subsequently executed a Deed of Assignment dated 27 June 1997, transferring all his rights and interests in
the business in favor of respondent Eden Jaso (Eden), the wife of respondent Prosencio Jaso. 6 With Biondo’s
eventual departure from the country, the Spouses Jaso caused their lawyer to send Josefina a letter dated 19
February 1998, apprising her of their acquisition of said Frenchman’s share in the business and formally
demanding an accounting and inventory thereof as well as the remittance of their portion of its profits. 7
Faulting Josefina with unjustified failure to heed their demand, the Spouses Jaso commenced the instant suit
with the filing of their 3 August 1998 Complaint against Josefina, her husband, Ike Realubit (Ike), and their
alleged dummies, for specific performance, accounting, examination, audit and inventory of assets and
properties, dissolution of the joint venture, appointment of a receiver and damages. Docketed as Civil Case
No. 98-0331 before respondent Branch 257 of the Regional Trial Court (RTC) of Parañaque City, said complaint
alleged, among other matters, that the Spouses Realubit had no gainful occupation or business prior to their
joint venture with Biondo; that with the income of the business which earned not less than ₱3,000.00 per day,
they were, however, able to acquire the two-storey building as well as the land on which the joint venture’s
ice plant stands, another building which they used as their office and/or residence and six (6) delivery vans;
and, that aside from appropriating for themselves the income of the business, the Spouses Realubit have
fraudulently concealed the funds and assets thereof thru their relatives, associates or dummies. 8
Served with summons, the Spouses Realubit filed their Answer dated 21 October 1998, specifically denying the
material allegations of the foregoing complaint. Claiming that they have been engaged in the tube ice trading
business under a single proprietorship even before their dealings with Biondo, the Spouses Realubit, in turn,
averred that their said business partner had left the country in May 1997 and could not have executed the
Deed of Assignment which bears a signature markedly different from that which he affixed on their Joint
Venture Agreement; that they refused the Spouses Jaso’s demand in view of the dubious circumstances
surrounding their acquisition of Biondo’s share in the business which was established at Don Antonio Heights,
Commonwealth Avenue, Quezon City; that said business had already stopped operations on 13 January 1996
when its plant shut down after its power supply was disconnected by MERALCO for non-payment of utility
bills; and, that it was their own tube ice trading business which had been moved to 66-C Cenacle Drive,
Sanville Subdivision, Project 6, Quezon City that the Spouses Jaso mistook for the ice manufacturing business
established in partnership with Biondo.9
The issues thus joined and the mandatory pre-trial conference subsequently terminated, the RTC went on to
try the case on its merits and, thereafter, to render its Decision dated 17 September 2001, discounting the
existence of sufficient evidence from which the income, assets and the supposed dissolution of the joint
venture can be adequately reckoned. Upon the finding, however, that the Spouses Jaso had been nevertheless
subrogated to Biondo’s rights in the business in view of their valid acquisition of the latter’s share as capitalist
partner,10 the RTC disposed of the case in the following wise:
WHEREFORE, defendants are ordered to submit to plaintiffs a complete accounting and inventory of the assets
and liabilities of the joint venture from its inception to the present, to allow plaintiffs access to the books and
accounting records of the joint venture, to deliver to plaintiffs their share in the profits, if any, and to pay the
plaintiffs the amount of ₱20,000. for moral damages. The claims for exemplary damages and attorney’s fees
are denied for lack of basis.11
On appeal before the CA, the foregoing decision was set aside in the herein assailed Decision dated 30 April
2007, upon the following findings and conclusions: (a) the Spouses Jaso validly acquired Biondo’s share in the
business which had been transferred to and continued its operations at 66-C Cenacle Drive, Sanville
Subdivision, Project 6, Quezon City and not dissolved as claimed by the Spouses Realubit; (b) absent showing
of Josefina’s knowledge and consent to the transfer of Biondo’s share, Eden cannot be considered as a partner
in the business, pursuant to Article 1813 of the Civil Code of the Philippines; (c) while entitled to Biondo’s
share in the profits of the business, Eden cannot, however, interfere with the management of the partnership,
require information or account of its transactions and inspect its books; (d) the partnership should first be
dissolved before Eden can seek an accounting of its transactions and demand Biondo’s share in the business;
and, (e) the evidence adduced before the RTC do not support the award of moral damages in favor of the
Spouses Jaso.12
The Spouses Realubit’s motion for reconsideration of the foregoing decision was denied for lack of merit in the
CA’s 28 June 2007 Resolution,13 hence, this petition.
The Issues
The Spouses Realubit urge the reversal of the assailed decision upon the negative of the following issues, to
wit:
A. WHETHER OR NOT THERE WAS A VALID ASSIGNMENT OF RIGHTS TO THE JOINT VENTURE.
B. WHETHER THE COURT MAY ORDER PETITIONER [JOSEFINA REALUBIT] AS PARTNER IN THE JOINT VENTURE
TO RENDER [A]N ACCOUNTING TO ONE WHO IS NOT A PARTNER IN SAID JOINT VENTURE.
C. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO] HAVE ANY RIGHT IN THE JOINT VENTURE AND IN THE
SEPARATE ICE BUSINESS OF PETITIONER[S].14
The Court’s Ruling
We find the petition bereft of merit.
The Spouses Realubit argue that, in upholding its validity, both the RTC and the CA inordinately gave premium
to the notarization of the 27 June 1997 Deed of Assignment executed by Biondo in favor of the Spouses Jaso.
Calling attention to the latter’s failure to present before the RTC said assignor or, at the very least, the
witnesses to said document, the Spouses Realubit maintain that the testimony of Rolando Diaz, the Notary
Public before whom the same was acknowledged, did not suffice to establish its authenticity and/or validity.
They insist that notarization did not automatically and conclusively confer validity on said deed, since it is still
entirely possible that Biondo did not execute said deed or, for that matter, appear before said notary
public.15 The dearth of merit in the Spouses Realubit’s position is, however, immediately evident from the
settled rule that documents acknowledged before notaries public are public documents which are admissible
in evidence without necessity of preliminary proof as to their authenticity and due execution. 16
It cannot be gainsaid that, as a public document, the Deed of Assignment Biondo executed in favor of Eden not
only enjoys a presumption of regularity17 but is also considered prima facie evidence of the facts therein
stated.18 A party assailing the authenticity and due execution of a notarized document is, consequently,
required to present evidence that is clear, convincing and more than merely preponderant. 19 In view of the
Spouses Realubit’s failure to discharge this onus, we find that both the RTC and the CA correctly upheld the
authenticity and validity of said Deed of Assignment upon the combined strength of the above-discussed
disputable presumptions and the testimonies elicited from Eden 20 and Notary Public Rolando Diaz.21 As for the
Spouses’ Realubit’s bare assertion that Biondo’s signature on the same document appears to be forged,
suffice it to say that, like fraud,22 forgery is never presumed and must likewise be proved by clear and
convincing evidence by the party alleging the same.23 Aside from not being borne out by a comparison of
Biondo’s signatures on the Joint Venture Agreement24 and the Deed of Assignment,25 said forgery is, moreover
debunked by Biondo’s duly authenticated certification dated 17 November 1998, confirming the transfer of his
interest in the business in favor of Eden.26
Generally understood to mean an organization formed for some temporary purpose, a joint venture is likened
to a particular partnership or one which "has for its object determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or vocation."27 The rule is settled that joint ventures are governed
by the law on partnerships28 which are, in turn, based on mutual agency or delectus personae.29 Insofar as a
partner’s conveyance of the entirety of his interest in the partnership is concerned, Article 1813 of the Civil
Code provides as follows:
Art. 1813. A conveyance by a partner of his whole interest in the partnership does not itself dissolve the
partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the
continuance of the partnership, to interfere in the management or administration of the partnership business
or affairs, or to require any information or account of partnership transactions, or to inspect the partnership
books; but it merely entitles the assignee to receive in accordance with his contracts the profits to which the
assigning partners would otherwise be entitled. However, in case of fraud in the management of the
partnership, the assignee may avail himself of the usual remedies.
In the case of a dissolution of the partnership, the assignee is entitled to receive his assignor’s interest and
may require an account from the date only of the last account agreed to by all the partners.
From the foregoing provision, it is evident that "(t)he transfer by a partner of his partnership interest does not
make the assignee of such interest a partner of the firm, nor entitle the assignee to interfere in the
management of the partnership business or to receive anything except the assignee’s profits. The assignment
does not purport to transfer an interest in the partnership, but only a future contingent right to a portion of
the ultimate residue as the assignor may become entitled to receive by virtue of his proportionate interest in
the capital."30 Since a partner’s interest in the partnership includes his share in the profits, 31 we find that the
CA committed no reversible error in ruling that the Spouses Jaso are entitled to Biondo’s share in the profits,
despite Juanita’s lack of consent to the assignment of said Frenchman’s interest in the joint venture. Although
Eden did not, moreover, become a partner as a consequence of the assignment and/or acquire the right to
require an accounting of the partnership business, the CA correctly granted her prayer for dissolution of the
joint venture conformably with the right granted to the purchaser of a partner’s interest under Article 1831 of
the Civil Code.321âwphi1

Considering that they involve questions of fact, neither are we inclined to hospitably entertain the Spouses
Realubit’s insistence on the supposed fact that Josefina’s joint venture with Biondo had already been dissolved
and that the ice manufacturing business at 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City was
merely a continuation of the same business they previously operated under a single proprietorship. It is well-
entrenched doctrine that questions of fact are not proper subjects of appeal by certiorari under Rule 45 of the
Rules of Court as this mode of appeal is confined to questions of law.33 Upon the principle that this Court is not
a trier of facts, we are not duty bound to examine the evidence introduced by the parties below to determine
if the trial and the appellate courts correctly assessed and evaluated the evidence on record. 34 Absent showing
that the factual findings complained of are devoid of support by the evidence on record or the assailed
judgment is based on misapprehension of facts, the Court will limit itself to reviewing only errors of law. 35
Based on the evidence on record, moreover, both the RTC36 and the CA37 ruled out the dissolution of the joint
venture and concluded that the ice manufacturing business at the aforesaid address was the same one
established by Juanita and Biondo. As a rule, findings of fact of the CA are binding and conclusive upon this
Court,38 and will not be reviewed or disturbed on appeal39 unless the case falls under any of the following
recognized exceptions: (1) when the conclusion is a finding grounded entirely on speculation, surmises and
conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is a
grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the
findings of fact are conflicting; (6) when the CA, in making its findings, went beyond the issues of the case and
the same is contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to
those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in the petitioners' main and reply
briefs are not disputed by the respondents; and, (10) when the findings of fact of the CA are premised on the
supposed absence of evidence and contradicted by the evidence on record.40 Unfortunately for the Spouses
Realubit’s cause, not one of the foregoing exceptions applies to the case.
WHEREFORE, the petition is DENIED for lack of merit and the assailed CA Decision dated 30 April 2007 is,
accordingly, AFFIRMED in toto.
SO ORDERED.
JOSE PORTUGAL PEREZ
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.*
Associate Justice
ROBERTO A. ABAD***
ARTURO D. BRION**
Associate Justice
Associate Justice
Acting Chairperson
MARIA LOURDES P. A. SERENO
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.
ARTURO D. BRION
Associate Justice
Acting Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is hereby
certified that the conclusions in the above Decision were reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.
RENATO C. CORONA
Chief Justice

Footnotes
* Associate Justice Presbitero J. Velasco, Jr. is designated Additional Member as per Special Order No. 1084
dated 13 September 2011.
** Associate Justice Arturo D. Brion is designated as Acting Chairperson per Special Order No. 1083 dated 13
September 2011.
*** Associate Justice Roberto A. Abad is designated Additional Member per Raffle dated 19 September 2011.
1
Rollo, pp. 8-17, Realubit’s 9 August 2007 Petition.
2
Penned by Justice Apolinario D. Bruselas, Jr. and concurred in by Justices Bienvenido L. Reyes and Aurora
Santiago-Lagman
3
Record, CA-G.R. CV No. 178782, CA’s 30 April 2007 Decision, pp. 124-134.
4
Id. at 133.
5
Exhibits "B" and "1," record, Civil Case No. 98-0331, 17 March 1994 Joint Venture Agreement, p. 210.
6
Exhibits "A" and "2," 27 June 1997 Deed of Assignment, id. at 207.
7
Exhibit "C," 19 February 1998 Demand Letter, id. at 211.
8
Spouses Jaso’s 3 August 1998 Complaint, id. at 2-7.
9
Spouses Realubit’s 21 October 1998 Answer, id. at 24-32.
10
RTC’s 17 September 2001 Decision, id at 427-431.
11
Id. at 431.
12
CA rollo, CA-G.R. C.V. No. 73861, CA’s 30 April 2007 Decision, pp. 124-134.
13
Id. at 177-178.
14
Rollo, pp. 11-13.
15
Id. at 131-133.
16
Cavile v. Heirs of Clarita Cavile, 448 Phil. 302, 315 (2003).
17
Potenciano v. Reynoso, 449 Phil. 396, 408 (2003).
18
Spouses Caoili v. Court of Appeals, 373 Phil. 122, 139 (1999).
19
Manongsong v. Estimo, 452 Phil. 862, 877-878 (2003).
20
TSN, 22 September 1999, pp. 3-5.
21
TSN, 12 January 2000, pp. 4-8.
22
Maestrado v. Court of Appeals, 384 Phil. 418, 435 (2000).
23
Aloria v. Clemente, 518 Phil. 764, 776 (2006).
24
Exhibit "1-A," record, Civil Case No. 98-0331, p. 210.
25
Exhibits "A-3" and "2-A," id. at 207.
26
Exhibit "D-1," id. at 215.
27
Art. 1783, Civil Code of the Philippines.
28
Heirs of Tan Eng Kee v. Court of Appeals, 396 Phil. 68, 80-81(2000).
29
Tocao v. Court of Appeals, 396 Phil. 166, 184 (2000).
30
Tolentino, Civil Code of the Philippines, 1959 ed., Vol. V, pp. 297-298.
31
Art. 1812, Civil Code of the Philippines.
32
Art. 1831. On application by or for a partner, the court shall decree a dissolution x x x
xxx
On the application of the purchaser of a partner’s interest under Article 1813 or 1814:
(1) After the termination of the specified term or particular undertaking;
(2) At any time if the partnership was a partnership at will when the interest was assigned or when the
charging order was issued.
33
Goyena v. Ledesma-Gustilo, 443 Phil. 150, 158 (2003).
34
Romualdez-Licaros v. Licaros, 449 Phil. 824, 837 (2003).
35
Tsai v. Court of Appeals, 418 Phil. 606, 617 (2001).
36
Record, Civil Case No. 98-0331, p. 430.
37
Record, CA-G.R. CV No. 73861, pp. 163-164.
38
Spouses Batingal v. Court of Appeals, 403 Phil. 780, 788 (2001)
39
Bank of the Phil. Islands v. Leobrera, 461 Phil. 461, 465 (2003).
40
Spouses Sevilla v. Court of Appeals, G.R. No. 150284, 22 November 2010, 635 SCRA 508, 514-515.
JOSEFINA P. REALUBIT vs. PROSENCIO D. JASO and
EDENG JASO
G.R. No. 178782 September 21, 2011
FACTS

Petitioner Josefina Realubit entered into a Joint Venture Agreement with Francis Eric Amaury Biondo, a French
national, for the operation of an ice manufacturing business. With Josefina as the industrial partner and Biondo as the
capitalist partner, the parties agreed that they would each receive 40% of the net profit, with the remaining 20% to be used
for the payment of the ice making machine which was purchased for the business. For and in consideration of the sum
of P500,000.00, however, Biondo subsequently executed a Deed of Assignment transferring all his rights and interests in
the business in favor of respondent Eden Jaso, the wife of respondent Prosencio Jaso. With Biondo’s eventual departure
from the country, the Spouses Jaso caused their lawyer to send Josefina a letter apprising her of their acquisition of said
Frenchmans share in the business and formally demanding an accounting and inventory thereof as well as the remittance
of their portion of its profits.

Faulting Josefina with unjustified failure to heed their demand, the Spouses Jaso commenced the instant suit for
specific performance, accounting, examination, audit and inventory of assets and properties, dissolution of the joint
venture, appointment of a receiver and damages. The said complaint alleged that the Spouses Realubit had no gainful
occupation or business prior to their joint venture with Biondo and that aside from appropriating for themselves the
income of the business, they have fraudulently concealed the funds and assets thereof thru their relatives, associates or
dummies. The Spouses Realubit claimed that they have been engaged in the tube ice trading business under a single
proprietorship even before their dealings with Biondo.

The RTC rendered its Decision discounting the existence of sufficient evidence from which the income, assets
and the supposed dissolution of the joint venture can be adequately reckoned. Upon the finding, however, that the Spouses
Jaso had been nevertheless subrogated to Biondos rights in the business in view of their valid acquisition of the latters
share as capitalist partner. On appeal before the CA, the foregoing decision was set aside

upon the following findings that the Spouses Jaso validly acquired Biondos share in the business which had been
transferred to and continued its operations and not dissolved as claimed by the Spouses Realubit.

ISSUES

1. Whether there was a valid assignment or rights to the joint venture

2. Whether the joint venture is a contract of partnership

3. Whether Jaso acquired the title of being a partner based on the Deed of Assignment

RULING

1. Yes. As a public document, the Deed of Assignment Biondo executed in favor of Eden not only enjoys a
presumption of regularity but is also considered prima facie evidence of the facts therein stated. A party assailing the
authenticity and due execution of a notarized document is, consequently, required to present evidence that is clear,
convincing and more than merely preponderant. In view of the Spouses Realubits failure to discharge this onus, we find
that both the RTC and the CA correctly upheld the authenticity and validity of said Deed of Assignment upon the
combined strength of the above-discussed disputable presumptions and the testimonies elicited from Eden and Notary
Public Rolando Diaz.

2. Yes. Generally understood to mean an organization formed for some temporary purpose, a joint venture is likened
to a particular partnership or one which has for its object determinate things, their use or fruits, or a specific undertaking,
or the exercise of a profession or vocation. The rule is settled that joint ventures are governed by the law on
partnerships which are, in turn, based on mutual agency or delectus personae.

3. No. It is evident that the transfer by a partner of his partnership interest does not make the assignee of such interest
a partner of the firm, nor entitle the assignee to interfere in the management of the partnership business or to receive
anything except the assignees profits. The assignment does not purport to transfer an interest in the partnership, but only a
future contingent right to a portion of the ultimate residue as the assignor may become entitled to receive by virtue of his
proportionate interest in the capital. Since a partner’s interest in the partnership includes his share in the profits, we find
that the CA committed no reversible error in ruling that the Spouses Jaso are entitled to Biondos share in the profits,
despite Juanitas lack of consent to the assignment of said Frenchmans interest in the joint venture. Although Eden did not,
moreover, become a partner as a consequence of the assignment and/or acquire the right to require an accounting of the
partnership business, the CA correctly granted her prayer for dissolution of the joint venture conformably with the right
granted to the purchaser of a partner’s interest under Article 1831 of the Civil Code.
EN BANC
[G.R. No. 44372. November 3, 1938.]
BENITO GARCIA, Plaintiff-Appellee, v. THE COLLECTOR OF INTERNAL REVENUE, Defendant-
Appellant.
Solicitor-General Hilado, for Appellant.
Apolonio Suntay, for Appellee.

SYLLABUS
1. INTERNAL REVENUE; SPECIFIC TAX ON LOCAL PRODUCTS; ACTION TO RECOVER TAX ON ALCOHOL. — In order to avoid
disputes and to determine easily the person who should pay the specific tax (in the present case on alcohol of local
manufacture), section 1479 of the Revised Administrative Code has farsightedly provided that it should be paid by the
manufacturer, producer, owner of the person having possession of the article, immediately before the removal of the
article from the place of production. The law does not say that the tax may be paid immediately before the sale.

2. ID.; ID.; ID.; CRIMINAL CASE IS NO BAR TO ACTION TO RECOVER SPECIFIC TAX. — After plaintiff was sentenced in a
criminal case to pay a fine for taking from a distillery a certain amount of alcohol to remove the same to a distant store,
without first paying the corresponding specific tax, he was required by the herein defendant, as Collector of Internal
Revenue, to pay the amount of said tax. The plaintiff paid the tax under protest and thereafter filed this complaint to
recover the amount paid. In view of the fact that in the former criminal case against the herein plaintiff, for violation of
section 2727 of the Administrative Code, the payment of the tax owing from him was not sought, inasmuch as its sole
object was to impose upon the offender the corresponding penalty, the said tax should have been collected by the
Government in an independent action, as was done, because the confiscation in the criminal case was nothing more
than an accessory penalty imposed by article 25 of the Revised Penal Code and the penalty is an entirely different thing
from the payment of the tax. A violator of a law should suffer the consequences of his own acts, and one of these
consequences is the aforesaid confiscation.

DECISION

CONCEPCION, J.:

The Collector of Internal Revenue, defendant herein, required Benito Garcia to pay a specific tax of P204.08 after the
latter had been sentenced in a criminal case to pay a fine for having taken six hundred and sixteen liters of alcohol from
the distillery of Jose B. Suntay for the purpose of removing the same to a distant store without having previously paid
the corresponding specific tax therefor. Appellee paid the tax under protest, filing afterwards a complaint to recover its
amount. The court decided the case in favor of plaintiff, and the Collector of Internal Revenue appealed from the
decision to this court.

Appellant, in his brief, assigned the following as errors committed by the lower court: jgc:chanr obles. com.ph

"The lower court erred in holding that the Government had made a claim against Benito Garcia for the amount of
P204.08 as specific tax, in criminal case No. 5922 of the Court of First Instance of Bulacan, and that the court, in its
decision, declined to award it to the Government.

"The lower court erred in holding that the manufacturer of alcohol ordinarily pays the tax and that, as he manufacturer
of the alcohol in question was Jose B. Suntay, and Benito Garcia was a mere employee, the latter cannot be made to pay
the tax in question.

"The lower court erred in ordering the defendant to pay the plaintiff the amount of P204.08, plus costs.

"The lower court erred in denying the motion for new trial filed by the defendant." cralaw virtua1aw library

In the decision appealed from the court has proceeded upon the assumption that in the criminal case filed against
plaintiff herein, the Government has sought payment from him of the amount of P204.08 as specific tax; but that the
court in its decision refused to impose the same for the alleged reason that, as the alcohol in question had been
confiscated and as the value of the same was probably greater than the amount of the tax, the Government already has
had an opportunity to recover it. In truth, however, the payment of the tax was not sought in the criminal case above
referred to because the object of the information was the imposition upon the offender of the corresponding penalty
for violation of section 2727 of the Revised Administrative Code. The tax should have been recovered by the Collector of
Internal Revenue independently of the criminal action instituted by the People of the Philippines against the accused
Benito Garcia. Therefore, the fact that in the judgment rendered in said case no pronouncement whatsoever as regard
said tax had been made, was no bar to the Government’s recovering it afterwards, as the Collector of Internal Revenue,
appellant herein, has done in his own name.

Furthermore, the confiscation in the criminal case was an accessory penalty imposed by article 25 of the Revised Penal
Code, which is entirely different from the payment of the tax.

Another ground of the appealed decision, according to the reasoning of the court, is that the payment of the tax is in
reality made by the consumer, although the distiller has to pay it first, charging the same later in the price of the sale. In
the present case, says the court, the plaintiff Garcia never had the opportunity to sell the alcohol and consequently
would never be reimbursed for the amount of the corresponding specific tax. All this loses its apparent merit by the
single consideration that one who violates the law must suffer all the consequences of his own acts. One of the
consequences of violating the law is confiscation.

According to section 1479 of the Revised Administrative Code, the tax should be paid immediately before the removal of
the article from the place of production. The law does not say that the tax may be paid immediately before the sale.

The second error committed by the court consists in holding that the distiller of alcohol ordinarily is the one who pays
the tax and inasmuch as Jose B. Suntay was the distiller of the alcohol in question, while Benito Garcia was a mere
employee, the latter could not be compelled to pay the tax referred to. This is an inaccurate interpretation of the law.
Section 1479 aforecited of the Revised Administrative Code provides that the specific taxes on domestic products shall
be paid by the manufacturer, producer, owner or person having possession of the same. It is a fact that the six hundred
and sixteen liters of alcohol were found in the possession of plaintiff when he transferred them from the factory to a
distant store and there is neither allegation nor evidence that plaintiff had taken the alcohol from the distillery to
remove the same to the store by order of his principal, Jose B. Suntay. In order to avoid disputes and to determine easily
the person who should pay the specific tax, section 1479 of the Revised Administrative Code has farsightedly provided
that the manufacturer, producer, owner or person having possession of the article shall pay the tax.

The judgment appealed from is reversed without a special pronouncement as to costs. So ordered.

Avanceña, C.J., Villa-Real, Abad Santos, Imperial, Diaz and Laurel, JJ., concur.
G.R. No. 144653 August 28, 2001
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision, dated April 14, 2000, of the Court of Appeals,1 affirming the
decision of the Court of Tax Appeals (which denied petitioner Bank of the Philippine Islands' claim for tax refund for
1985), and the appeals court's resolution, dated August 21, 2000, denying reconsideration.
The facts are as follows:
Prior to its merger with petitioner Bank of the Philippine Islands (BPI) on July 1985, The Family Bank and Trust Co. (FBTC)
earned income consisting of rentals from its leased properties and interest from its treasury notes for the period January
1 to June 30, 1985. As required by the Expanded Withholding Tax Regulation, the lessees of FBTC withheld 5 percent of
the rental income, in the amount of P118,609.17, while the Central Bank, from which the treasury notes were purchased
by FBTC, withheld P55,456.60 from the interest earned thereon. Creditable withholding taxes in the total amount of
P174,065.77 were remitted to respondent Commissioner of Internal Revenue.
FBTC, however, suffered a new loss of about P64,000,000.00 during the period in question. It also had an excess credit
of P2,146,072.57 from the previous year. Thus, upon its dissolution in 1985, FBTC had a refundable of P2,320,138.34,
representing that year's tax credit of P174,065.77 and the previous year's excess credit of P2,146,072.57.
As FBTC's successor-in-interest, petitioner BPI claimed this amount as tax refund, but respondent Commissioner of
Internal Revenue refunded only the amount of P2,146,072.57, leaving a balance of P174,065.77. Accordingly, petitioner
filed a petition for review in the Court of Tax Appeals on December 29, 1987, seeking the refund of the aforesaid
amount.2 However, in its decision rendered on July 19, 1994, the Court of Tax Appeals dismissed petitioner's petition for
review and denied its claim for refund on the ground that the claim had already prescribed.3 In its resolution, dated
August 4, 1995, the Court of Tax Appeals denied petitioner's motion for reconsideration.4
Petitioner appealed to the Court of Appeals, but, in its decision rendered on April 14, 2000, the appeals court affirmed
the decision of the CTA.5 The appeals court subsequently denied petitioner's motion for reconsideration.6 Hence this
petition.
The sole issue in this case is whether petitioner's claim is barred by prescription. The resolution of this question requires
determination of when the two-year period of prescription under §292 of the Tax Code started to run. This provision
states:
Recovery of tax erroneously or illegally collected. – No suit or proceedings shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been
excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid
under protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the
tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears clearly to have been erroneously paid.
There is no dispute that FBTC ceased operations on June 30, 1985 upon its merger with petitioner BPI. The merger was
approved by the Securities and Exchange Commission on July 1, 1985. Petitioner contends, however that its claim for
refund has yet prescribed because the two-year prescriptive period commenced to run only after it had filed FBTC's Final
Adjustment Return on April 15 1986, pursuant to §46(a) of the National Internal Revenue Code of 1977 (the law
applicable at the time of this transaction) which provided that –
Corporation returns. – (a) Requirement. – Every corporation, subject to the tax herein imposed, except foreign
corporations not engaged in trade or business in the Philippines shall render, in duplicate, a true and accurate quarterly
income tax return and final or adjustment return in accordance with the provisions of Chapter X of this Title. The return
shall be filed by the president, vice-president, or other principal officer, and shall be sworn to by such officer and by the
treasurer or assistant treasurer.
On the other hand, the Court of Tax Appeals ruled that the prescriptive period should be counted from July 31, 1985, 30
days after the approval by the SEC of the plan of dissolution in view of §78 of the Code which provided that –
Every corporation shall, within thirty days after the adoption by the corporation of a resolution or plan for the
dissolution of the corporation or for the liquidation of the whole or any part of its capital stock, including corporations
which have been notified of the possible involuntary dissolution by the Securities and Exchange Commission, render a
correct return to the Commission of Internal Revenue, verified under oath, setting forth the terms of such resolution or
plan and such other information as the Minister of Finance shall, by regulations, prescribe. The dissolving corporation
prior to the issuance of the Certificate of Dissolution by the Securities and Exchange Commission shall secure a
certificate of tax clearance from the Bureau of Internal Revenue which certificate shall be submitted to the Securities
and Exchange Commission.
Failure to render the return and secure the certificate of tax clearance as above-mentioned shall subject the officer (s) of
the corporation required by law to file the return under Section 46(a) of this Code, to a fine of not less than Five
Thousand Pesos or imprisonment of not less than two years and shall make them liable for all outstanding or unpaid tax
liabilities of the dissolving corporation.
Its ruling was sustained by the Court of Appeals.
After due consideration of the parties' arguments, we are of the opinion that, in case of the dissolution of a corporation,
the period of prescription should be reckoned from the date of filing of the return required by §78 of the Tax Code.
Accordingly, we hold that petitioner's claim for refund is barred by prescription.
First. Generally speaking, it is the Final Adjustment Return, in which amounts of the gross receipts and deductions have
been audited and adjusted, which is reflective of the results of the operations of a business enterprise. It is only when
the return, covering the whole year, is filed that the taxpayer will be able to ascertain whether a tax is still due or a
refund can be claimed based on the adjusted and audited figures.7 Hence, this Court has ruled that at the earliest, the
two-year prescriptive period for claiming a refund commences to run on the date of filing of the adjusted final tax
return.8
In the case at bar, however, the Court of Tax Appeals, applying §78 of the Tax Code, held:
Before this Court can be rule on the issue of prescription, it is noteworthy to point out that based on the financial
statements of FBTC and the independent auditor's opinion (Exh. "A-7" to "A-17"), FBTC operates on a calendar year
basis. Its twelve (12) months accounting period was shortened at the time it was merged with BPI. Thereby, losing its
corporate existence on July 1, 1985 when the Articles of Merger was approved by the Security and Exchange
Commission. Thus, respondent('s) stand that FBTC operates on a fiscal year basis, based on its income tax return, holds
no ground. Third Court believes that FBTC is operating on a calendar year period based on the audited financial
statements and the opinion thereof. The fiscal period ending June 30, 1985 on the upper left corner of the income tax
return can be concluded as an error on the part of FBTC. It should have been for the six month period ending June 30,
1985. It should also be emphasized that "where one corporation succeeds another both are separate entities and the
income earned by the predecessor corporation before organization of its successor is not income to the successor"
(Mertens, Law of Federal Income Taxation, Vol. 7 S 38.36).
Ruling now on the issue of prescription, this Court finds that the petition for review is filed out of time. FBTC, after the
end of its corporate life on June 30, 1985, should have filed its income tax return within thirty days after the cessation of
its business or thirty days after the approval of the Articles of Merger. This is bolstered by Sec. 78 of the tax Code and
under Sec. 244 of Revenue Regulation No. 2…9
As the FBTC did not file its quarterly income tax returns for the year 1985, there was no need for it to file a Final
adjustment Return because there was nothing for it to adjust or to audit. After it ceased operations on June 30, 1985, its
taxable year was shortened to six months, from January 1, 1985 to June 30, 1985 The situation of FBTC is precisely what
was contemplated under §78 of the Tax Code. It thus became necessary for FBTC to file its income tax return within 30
days after approval by the SEC of its plan or resolution of dissolution. Indeed, it would be absurd for FBTC to wait until
the fifteenth day of April, or almost 10 months after it ceased its operations, before filing its income tax return.
Thus, §46(a) of the Tax Code applies only to instances in which the corporation remains subsisting and its business
operations are continuing. In instances in which the corporation is contemplating dissolution, §78 of the Tax Code
applies. It is a rule of statutory construction that "[w]here there is in the same statute a particular enactment and also a
general one which in its most comprehensive sense would include what is embraced in the former, the particular
enactment must be operative, and the general enactment must be taken to affect only such cases within its general
language as are not within the provisions of the particular enactment.10
Petitioner argues that to hold, as the Court of Tax Appeals and the Court of Appeals do, that §78 applies in case a
corporation contemplates dissolution would lead to absurd results. It contends that it is not feasible for the certified
public accountants to complete their report and audited financial statements, which are required to be submitted
together with the plan of dissolution to the SEC, within the period contemplated by §78. It maintains that, in turn, the
SEC would not have sufficient time to process the papers considering that §78 also requires the submission of a tax
clearance certificate before the SEC can approve the plan of dissolution.
As the Court of Tax Appeals observed, however, petitioner could have asked for an extension of time of file its income
tax return under §47 of the NIRC which provides:
Extension of time to file returns. – The Commissioner of Internal Revenue may, in meritorious cases, grant a reasonable
extension of time for filing returns of income (or final and adjustment returns in the case of corporations), subject to the
provisions of section fifty-one of this Code.
Petitioner further argues that the filing of a Final Adjustment Return would fall due on July 30, 1985, even before the
due date for filing the quarterly return. This argument begs the question. It assumes that a quarterly return was required
when the fact is that, because its taxable year was shortened, the FBTC did not have to file a quarterly return. In fact,
petitioner presented no evidence that the FBTC ever filed such quarterly return in 1985.
Finally, petitioner cites a hypothetical situation wherein the directors of a corporation would convene on June 30, 2000
to plan the dissolution of the corporation on December 31, 2000, but would submit the plan for dissolution earlier with
the SEC, which, in turn, would approve the same on October 1, 2000. Following §78 of the Tax Code, the corporation
would be required to submit its complete return on October 31, 2000, although its actual dissolution would take place
only on December 31, 2000.
Suffice it to say that such a situation may likewise be remedied by resort to §47 of the Tax Code. The corporation can ask
for an extension of time to file a complete income tax return until December 31, 2000, when it would cease operations.
This would obviate any difficulty which may arise out of the discrepancies not covered by §78 of the Tax Code.
In any case, as held in Commissioner of Internal Revenue v. Santos,11 "Debatable questions are for the legislature to
decide. The courts do not sit to resolve the merits of conflicting issues."
Second. Petitioner contends that what §78 required was an information return, not an income tax return. It cites
Revenue Memorandum Circular No. 14-85, of then Acting Commissioner of Internal Revenue Ruben B. Ancheta,
referring to an "information return" in interpreting Executive Order No. 1026, which amended §78.12
The contention has no merit. The circular in question must be considered merely as an administrative interpretation of
the law which in no case is binding on the courts.13 The opinion in question cannot be given any effect inasmuch as it is
contrary to 244 of Revenue Regulation No. 2, as amended, which was issued by the Minister of Finance pursuant to the
authority to him by §78 of the Tax Code. This provision states:
SEC. 244. Return of corporations contemplating dissolution or retiring from business. – All corporations, partnership joint
accounts and associations, contemplating dissolution or retiring from business without formal dissolution shall, within
30 days after the approval of such resolution authorizing their dissolution, and within the same period after their
retirement from business, file their income tax returns covering the profit earned or business done by them from the
beginning of the year up to the date of such dissolution or retirement and pay the corresponding income tax due
thereon upon demand by the Commissioner of Internal Revenue …
This regulation prevails over the memorandum circular of the Acting Commissioner of Internal Revenue, which
petitioner invokes.
Thus, as required by §244 of Revenue Regulation No. 2, any corporation contemplating dissolution must submit tax
return on the income earned by it from the beginning of the year up to the date of its dissolution or retirement and pay
the corresponding tax due upon demand by the Commissioner of Internal Revenue. Nothing in §78 of the Tax Code
limited the return to be filed by the corporation concerned to a mere information return.
It is noteworthy that §78 of the Tax Code was substantially reproduced first in §45 (c), of the amendments to the same
tax Code, and later in §52 (C) of the National Internal Revenue Code of 1997. Through all the re-enactments of the law,
there has been no change in the authority granted to the Secretary (formerly Minister) of Finance to require
corporations to submit such other information as he may prescribe. Indeed, Revenue Regulation No. 2 had been in
existence prior to these amendments. Had Congress intended only information returns, it would have expressly
provided so.
Third. Considering that §78 of the Tax Code, in relation to §244 of Revenue Regulation No. 2 applies to FBTC, the two-
year prescriptive period should be counted from July 30, 1985, i.e., 30 days after the approval by the SEC of its plan for
dissolution. In accordance with §292 of the Tax Code, July 30, 1985 should be considered the date of payment by FBTC
of the taxes withheld on the earned income. Consequently, the two-year period of prescription ended on July 30, 1987.
As petitioner's claim for tax refund before the Court of Tax Appeals was filed only on December 29, 1987, it is clear that
the claim is barred by prescription.
WHEREFORE, the petition is DENIED for lack of merit. 1âwphi1.nêt

SO ORDERED.
Bellosillo, Quisumbing, Buena, and De Leon, Jr., JJ., concur.

Footnotes:
1 Per Justice Hilarion L. Aquino and concurred in by Justices Buenaventura J. Guerrero and Mercedes Gozo-Dadole.

2 Petition, pp. 2-3; CA Decision, pp. 1-2.

3 Rollo, pp. 41-47.

4 Id., pp. 65-73.

5 CA Decision, p. 9; Rollo, p. 33.

6 Resolution, dated August 21, 2000; id., p. 35.

7 Commissioner of Internal Revenue v. TMX Sales, Inc., 205 SCRA 184 (1992).

8 ACCRA Investments Corp. v. Court of Appeals, 204 SCRA 957 (1991).

9 CTA Decision, pp. 4-5; CA Rollo, pp. 28-29.

10 Manila Railroad Co. v. Collector of Customs, 52 Phil. 950, 952 (1929).

11 277 SCRA 617, 630 (1997).

12 Annex A to Supplement to Motion for Reconsideration; Rollo, pp. 61-62.

13 See Victorias Milling Co., Inc. v. Social Security Commission, 4 SCRA 627 (1962) for the distinction between an

interpretative rule and a legislative rule.