Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. Nos. L-55963 & 61045 February 27, 1991

SPOUSES JOSE FONTANILLA and VIRGINIA FONTANILLA, petitioners,

vs.
HONORABLE INOCENCIO D. MALIAMAN and NATIONAL IRRIGATION
ADMINISTRATION, respondents.

NATIONAL IRRIGATION ADMINISTRATION, appellant,

vs.
SPOUSES JOSE FONTANILLA and VIRGINIA FONTANILLA, appellees.

RESOLUTION

PARAS, J.:

In its Motion for Reconsideration1 of the Court's Second Division decision in G.R. No. 55963 and
G.R. No. 61045, the National Irrigation Administration (NIA, for brevity), through the Solicitor
General, maintains that, on the strength of Presidential Decree No. 552 (which amended certain
provisions of Republic Act 3601, the law creating the NIA) and the case of Angat River Irrigation
System, et al. vs. Angat River Workers' Union, et al., 102 Phil. 790 "the NIA does not perform solely
and primarily proprietary functions but is an agency of the government tasked with governmental
functions, and is therefore not liable for the tortious act of its driver Hugo Garcia, who was not its
special agent."

Although the majority opinion in the cited case of Angat System declares that the Angat
System (like the NIA) exercised a governmental function because the nature of the powers
and functions of said agency does not show that it was intended to "bring to the Government
any special corporate benefit or pecuniary profit," there is a strong dissenting opinion penned
by then Associate Justice and later Chief Justice Roberto Concepcion and concurred in by
then Associate Justice J.B.L. Reyes which held the contrary view that the Angat River
System is a government entity exercising proprietary functions. To buttress said stand, the
former Chief Justice cited some authorities which will be useful in the proper resolution of
this case.

Quoting from said dissenting opinion which cited McQuillin's The Law of Municipal Corporations, 3rd
ed., Vol. 18, pp. 423424:

In undertaking to supply water at price, municipality is not performing governmental function

but is engaged in trade, and is liable first as private company would be for any negligence in
 laying out of its pipes, in keeping them in repair, or in furnishing potable water through them.
Harvard Furniture Co., Inc. vs. City of Cambridge, 320 Mass. 227, 68 N.E. (2d) 684.

Municipality in contracting to provide water supply acts under its proprietary power and not
under its legislative, public or governmental powers. Farmers' State Bank vs. Conrad, 100
Mont. 415,47 P. (2d) 853.

In this connection, the opinion is that irrigation districts in the United States are basically identical to
our irrigation systems under Act No. 2152. Because of such similarity, it is found appropriate to
consider certain doctrines from American jurisprudence, which are as follows, to wit:

An irrigation district is a public quasi corporation, organized, however, to conduct a business

for the private benefit of the owners of land within its limits. They are members of the
corporation, control its affairs, and alone are benefited by its operations. It is, in the
administration of its business, the owner of its system in a proprietary rather than a public
capacity, and must assume and bear the burdens of proprietary ownership. (Nampa vs.
Nampa & M. Irrig. Dist. 19 Idaho, 779,115 Pac. 979)

. . . the plaintiff sought damages for injuries to crops on his land during 1923, 1924, 1925,
and 1926, caused by water seeping, percolating, and escaping from the defendant's canal.
The defendant contended that irrigation districts were agencies of the state, and were,
therefore, not liable for the negligent construction or operation of their canals or ditches. The
court, after a careful review of the authorities defining an irrigation district, conceded that
such a quasi public corporation possessed some governmental powers and exercised some
governmental functions, but held that the construction and operation of its irrigation canals
and ditches was a proprietary rather than a governmental function, and hence the district
was responsible in damages for the negligent construction or operation of its canal system.
(69 A.L.R., p. 1233)

It may not be amiss to state at this point that the functions of government have been classified into
governmental or constituent and proprietary or ministrant. The former involves the exercise of
sovereignty and considered as compulsory; the latter connotes merely the exercise of proprietary
functions and thus considered as optional. The Solicitor General argues that the reasons presented
by P.D. 552 for the existence of the NIA (the WHEREAS clauses of said decree) indubitably reveal
that the responsibility vested in said agency concerns public welfare and public benefit, and is
therefore an exercise of sovereignty. On the contrary, We agree with the former Chief Justice
Concepcion in saying that the same purpose such as public benefit and public welfare may be found
in the operation of certain enterprises (those engaged in the supply of electric power, or in supplying
telegraphic, telephonic, and radio communication, or in the production and distribution of prime
necessities, etc.) yet it is certain that the functions performed by such enterprises are basically
proprietary in nature. Thus, as held in Holderbaum vs. Hidalgo County Water Improvement District
(297 S.W. 865, aff'd in 11 S.W. [2d] 506) cited in the dissenting opinion by Justice Concepcion:

. . . Primarily, a water improvement district is in no better position than a city is when

exercising its purely local powers and duties. Its general purposes are not essentially public
in their nature, but are only incidentally so; those purposes may be likened to those of a city
which is operating a waterworks system, or an irrigation system. . . . A water improvement
district can do nothing, it has and furnishes no facilities, for the administration of the
sovereign government. Its officers have no power or authority to exercise any of the
functions of the general government, or to enforce any of the laws of the state or any of its
other subdivisions, or collect taxes other than those assessed by the district. They have no
more power or authority than that of the officers of a private corporation organized for like
 purposes. As a practical matter, the primary objects and purposes of such district are of a
purely local nature, for the district is created and operated for the sole benefit of its own
members, and an analysis of those objects and purposes discloses that they directly benefit
only the landowners who reside within and whose lands form a part of the district, to the
exclusion of all other residents therein. It is true, of course, that the state and the general
public are greatly benefited by the proper operation of the district, and to that extent its
objects and accomplishments are public in their nature, but this characteristic is only
incidental to the primary and chief object of the corporation, which is the irrigation of lands
forming a part of the district. It is obvious, then, that the purposes and duties of such districts
do not come within the definition of public rights, purposes, and duties which would entitle
the district to the exemption raised by the common law as a protection to corporations having
a purely public purpose and performing essentially public duties.

Of equal importance is the case of National Waterworks and Sewerage Authority (NAWASA) vs.
NWSA Consolidated Unions, 11 SCRA 766, which propounds the thesis that "the NAWASA is not an
agency performing governmental functions; rather it performs proprietary functions . . . ." The
functions of providing water supply and sewerage service are regarded as mere optional functions of
government even though the service rendered caters to the community as a whole and the goal is
for the general interest of society. The business of furnishing water supply and sewerage service, as
held in the case of Metropolitan Water District vs. Court of Industrial Relations, et al., 91 Phil. 840,
"may for all practical purposes be likened to an industry engaged in by coal companies, gas
companies, power plants, ice plants, and the like." Withal, it has been enunciated that "although the
State may regulate the service and rates of water plants owned and operated by municipalities, such
property is not employed for governmental purposes and in the ownership and operation thereof the
municipality acts in its proprietary capacity, free from legislative interference." (1 McQuillin, p. 683)

Like the NAWASA, the National Irrigation Administration was not created for purposes of local
government. While it may be true that the NIA was essentially a service agency of the government
aimed at promoting public interest and public welfare, such fact does not make the NIA essentially
and purely a "government-function" corporation. NIA was created for the purpose of "constructing,
improving, rehabilitating, and administering all national irrigation systems in the Philippines, including
all communal and pump irrigation projects." Certainly, the state and the community as a whole are
largely benefited by the services the agency renders, but these functions are only incidental to the
principal aim of the agency, which is the irrigation of lands.

We must not lose sight of the fact that the NIA is a government agency invested with a corporate
personality separate and distinct from the government, thus is governed by the Corporation Law.
Section 1 of Republic Act No. 3601 provides:

Sec. 1. Name and Domicile A body corporate is hereby created which shall be known as
the National Irrigation Administration. . . . which shall be organized immediately after the
approval of this Act. It shall have its principal seat of business in the City of Manila and shall
have representatives in all provinces, for the proper conduct of its business. (Emphasis for
emphasis).

Besides, Section 2, subsection b of P.D. 552 provides that:

(b) To charge and collect from the beneficiaries of the water from all irrigation systems
constructed by or under its administration, such fees or administration charges as may be
necessary to cover the cost of operation, maintenance and insurance, and to recover the
cost of construction within a reasonable period of time to the extent consistent with
government policy; to recover funds or portions thereof expended for the construction and/or
 rehabilitation of communal irrigation systems which funds shall accrue to a special fund for
irrigation development under section 2 hereof;

Unpaid irrigation fees or administration charges shall be preferred liens first, upon the land
benefited, and then on the crops raised thereon, which liens shall have preference over all
other liens except for taxes on the land, and such preferred liens shall not be removed until
all fees or administration charges are paid or the property is levied upon and sold by the
National Irrigation Administration for the satisfaction thereof. . . .

The same section also provides that NIA may sue and be sued in court. Thus,

b) . . . Judicial actions for the collection of unpaid irrigation fees or charges, drainage fees or
other charges which the National Irrigation Administration is authorized to impose and
collect, shall henceforth be governed by the provisions of the Rules of Court of the
Philippines for similar actions, the provisions of other laws to the contrary notwithstanding.

xxx xxx xxx

(e) . . . .

xxx xxx xxx

All actions for the recovery of compensation and damages against the National Irrigation
Administration under paragraphs (1), (2), and (3) hereof, shall be filed with a competent court
within five (5) years from the date of entry of the land or destruction of the improvements or
crops, after which period, the right of possession and/or ownership of the National Irrigation
Administration shall be considered vested and absolute. All other actions for the recovery of
compensation and damages to private property and improvements occasioned by the
construction, operation and maintenance of irrigation facilities and other hydraulic structures
under the administration of the National Irrigation Administration, which have accrued ten
(10) or more years prior to the approval of this decree are deemed to have prescribed and
are barred forever.

It has its own assets and liabilities. It also has corporate powers to be exercised by a Board of
Directors. To quote Section 2, subsection (f):

(f) . . . and to transact such business, as are directly or indirectly necessary, incidental or
conducive to the attainment of the above powers and objectives, including the power to
establish and maintain subsidiaries, and in general, to exercise all the powers of a
corporation under the Corporation Law, insofar as they are not inconsistent with the
provisions of this Act. (Emphasis supplied).

On the basis of the foregoing considerations, We conclude that the National Irrigation Administration
is a government agency with a juridical personality separate and distinct from the government. It is
not a mere agency of the government but a corporate body performing proprietary functions.
Therefore, it may be held liable for the damages caused by the negligent act of its driver who was
not its special agent.

ACCORDINGLY, the Motion for Reconsideration dated January 26, 1990 is DENIED WITH
FINALITY. The decision of this Court in G.R. No. 55963 and G.R. No. 61045 dated December 1,
1989 is hereby AFFIRMED.
Gancayco, Bidin, Sarmiento, Grio-Aquino, Medialdea and Regalado, JJ., concur.

Gutierrez, Jr., Fernan, C.J. and Melencio-Herrera, JJ., concur in the result.

, J., concur in the result and in Mr. Justice Feliciano's concurrence.

Separate Opinions

FELICIANO, J., concurring:

I agree with the result reached by my distinguished brother in the Court, Mr. Justice Edgardo L.
Paras, both in the Decision of the Court's Second Division dated 1 December 1989 (179 SCRA 685
[1989]) and in the present Resolution on the motion for reconsideration, which has been referred to
the Court En Banc.

I agree, in other words, that the National Irrigation Administration (NIA) is liable for the acts of its
employee Hugo Garcia which resulted in injury to the spouses Jose Fontanilla and Virginia
Fontanilla. However, I reach this result through a slightly different route which is traced below.

In the original decision of the Court's Second Division, it is stated that:

Certain functions and activities, which can be performed only by the Government, are more
or less generally agreed to be "governmental" in character, and so the State is immune from
tort liability. On the other hand, a service which night as well be provided by a private
corporation, and particularly when it collects revenues from it, the function is considered a
"proprietary" one, as to which there may be liability for the torts of agents within the scope of
their employment.

The original Decision and the Resolution on the motion for reconsideration hold that the NIA is "an
agency of the government exercising proprietary functions."

I would respectfully submit that the liability of an agency or instrumentality of the Government for
torts of its employees under Article 2180, 6th paragraph, of the Civil Code is not contingent upon the
technical characterization of the functions or activities carried out by that agency or instrumentality
as "governmental," on the one hand, or "proprietary," upon the other.

In the first place, it is merely commonplace to note that governments in our day and age do not
restrict themselves to the original basic and primitive functions of repelling invasion by a foreign
enemy, maintaining peace and order in society and protecting the physical integrity or the food
supplies of its citizens or inhabitants, but instead assumed and carry out all kinds of activities which
they may determine to redound to the general interest and benefit of the population. Thus, the
classical laissez-faire concept of a state, which prevailed during the 19th century, has today been
replaced by the concept of the welfare state. Moreover, activities which in other states more
economically advanced than our own have been undertaken by private enterprise, are here still
being carried out by the Government or, more generally, the public sector in view of the inadequacy
of private capital and private entrepreneurial spirit.

Secondly, under Section 2(l) of Article IX of the Constitution, whether or not a government owned or
controlled corporation or entity forms part of the Government and is embraced within the civil service
depends, not upon the "governmental," as distinguished from "proprietary," nature of the activities
performed by such entity or corporation, but rather upon whether or not the corporation or entity is
possessed of an "original charter." Thus, it appears to me that the framers of the 1987 Constitution
had given up the notion of trying to distinguish between "governmental" and "proprietary" functions
for purposes of determining whether employees of a particular agency or instrumentality should be
governed by the Civil Service Law and Regulations or, alternatively, by the Labor Code and its
Implementing Regulations administered by the National Labor Relations Commission and the
Department of Labor and Employment.

Article 2180 of the Civil Code provides in part as follows:

xxx xxx xxx

Employers shall be liable for the damage caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in
any business or entity.

The State is responsible in like manner when it acts through a special agent; but not when
the damage has been caused by the official to whom the task done properly pertains, in
which case what is provided in Article 2176 shall be applicable.

xxx xxx xxx

(Emphasis supplied)

My basic submission that the term "State" as used above properly refers to the "Government of the
Republic of the Philippines." This latter term is defined in Section 2 of the Revised Administrative
Code of 1987 in the following manner:

The Government of the Republic of the Philippines refers to the corporate governmental
entity through which the functions of government are exercised throughout the Philippines,
including save as the contrary appears from the context, the various arms through
which political authority is made effective in the Philippines, whether pertaining to the
autonomous regions, the provincial, city, municipal or barangay subdivisions or other forms
of local government. (Emphasis supplied)

In other words, the term "State" as used in Article 2180 of the Civil Code refers to that juridical
person that is constituted b the Government of the Republic of the Philippines and logically does not
include agencies, instrumentalities or other entities which their enabling laws have invested
with juridical personality separate and distinct from that of the Republic of the Philippines.

It should be noted in this connection, that in Merritt v. Government of the Philippine Islands (34 Phil.
311 [1960]), the Court said:

It is therefore evident that the State (the Government of the Philippine Islands) is only liable,
according to the above quoted decisions of the Supreme Court of Spain, for acts of its
 agents, officers and employees when they act as special agents within the meaning of
paragraph 5 of Article 1903 [of the Civil Code of Spain of 1889] and that the chauffeur of the
ambulance of the General Hospital was not such an agent. (Emphasis supplied; parentheses
in the original; 34 Phil. at 323)

Clearly, Mr. Justice Trent considered "the State" and "the Government of the Philippine Islands" as
equivalent terms. The decision of the Supreme Court of Spain dated 7 January 1898 which the Court
in Merritt cited, read in part as follows:

That the obligation to indemnify for damages, which a third person causes to another by his
fault or negligence is based, as is evidenced by the same Law 3, title 15, Partida 7, on that
the person obligated, by his own fault or negligence, takes part in the act or omission of the
third party who caused the damage. It follows therefrom that the State, by virtue of such
provisions of law, is not responsible for the damages suffered by private individual in
consequence of acts performed by its employees in the discharge of the functions pertaining
to their office, because neither fault nor even negligence can be presumed on the part of the
State in the organization of branches of the public service and in the appointment of its
agents; on the contrary, we must presuppose all foresight humanly possible on its part in
order that each branch of service serves the general weal and that of private persons
interested in its operation. Between these latter and the State, therefore, no relations of a
Private nature governed by the civil law can arise except in a case where the state acts as a
[juridical] person capable of acquiring rights and contracting obligation (Emphases and
brackets supplied)

The term "juridical" person was translated (by Mr. Justice Trent?) as "judicial" person. This appears
plain error for the judgment of 7 January 1898 in fact read:

. . . entre los cuales y el Estado, por tanto, no pueden surgir relaciones de orden privado
regidas por el derecho civil, salvo el caso de que el mismo Estado obre como persona
juridica capaz de adquirir derechos y contraer obligaciones:

xxx xxx xxx

(Emphasis supplied; 83 Jurisprudencia Civil 36 [1898])

Thus, the decision of the Supreme Court of Spain itself recognized that between private persons and
the State, relations of a private nature governed by the Civil Code can arise where the State acts as
or through the medium of a separate juridical person that is capable of acquiring lights and entering
into obligations.

In the present case, there is no question that the NIA has juridical personality separate and distinct
from that of the Government of the Republic of the Philippines which owns all NIA's capital and
assets. In other words, the NIA is not part of the "State" or of the "Government of the Republic of the
Philippines"; it follows, I respectfully submit, that the NIA should not be regarded as part of the State
for purposes of application of Article 2180 of the Civil Code.

What I have outlined above is in fact very close to the position taken by Mr. Justice Paras in the
Resolution on the motion for reconsideration. For he has rightly stressed that the NIA has clearly
been invested with a distinct legal personality and thus with capacity to sue and be sued. Judicial
actions may be brought by the NIA for the collection of unpaid irrigation fees, drainage fees or other
charges which the NIA is authorized to impose and collect, under the provisions of the Rules of
Court. Correlatively, actions against the NIA for the recovery of compensation and damages are
expressly allowed and prescribe in either five (5) or ten (10) years depending upon the subject
matter thereof. The State itself has determined, in other words, that the NIA shall not be covered by
the general immunity from suit without its consent pertaining to the State.

Finally, the Resolution underscores the fact that under Section 2(f) of the NIA charter, the NIA is
generally authorized "to exercise all the powers of a corporation under the Corporation Law, insofar
as they are not inconsistent with the provisions of [the NIA charter]." Since the NIA has been vested
with an the powers of a corporate person, it seems only reasonable to believe that it is at the same
time subjected to all the ordinary liabilities of a corporate person: one of those liabilities is the
vicarious liability of an employer under Article 2180 of the Civil Code, 6th paragraph, for injurious
acts done by its employees within the scope of their assigned tasks.

I suggest then that the investing of an agency or instrumentality of the Government with separate
juridical personality is not a matter of "form" as suggested by my equally distinguished brother in the
Court, Mr. Justice Padilla, in his dissenting opinion. The effect of the foregoing provisions of its
charter may be seen to be clearly a matter of "substance": to render the NIA both suable and liable
on the same causes of action which may be asserted against any corporate entity that is a separate
juridical person.

It seems also relevant to point out that the Philippine General Hospital (PGH), the agency or
instrumentality involved in the Merritt case, did not (in contrast with the NIA) have legal personality
separate and distinct from that of the Philippine Government at the time that Merritt was decided.
The PGH was established under Act No. 1688 of the Philippine Commission as a division of the
Bureau of Health, a non-incorporated entity. Later, it was removed from the administrative
jurisdiction of the Bureau of Health and made into an independent bureau under the supervision of
the Department of the Interior. Still later, the PGH was placed under the Department of Instruction
and subsequently, under the Office of the President. In 1947, by virtue of Executive Order No. 94,
the PGH was made a part of the University of the Philippines, itself a separate corporate entity.
Clearly, therefore, at the time Merritt was decided, the PGH was part and parcel of the Government
of the Republic of the Philippines as defined by the Revised Administrative Code of 1917.

For all the foregoing, I vote to DENY the motion for reconsideration and to AFFIRM the Decision
dated 1 December 1989 in G.R. Nos. 55963 and 61045.

Narvasa and Cruz, JJ., concur.

PADILLA, J., dissenting:

On 1 December 1989, this Court, through its Second Division, rendered a decision declaring
petitioner National Irrigation Administration (NIA, for brevity) a government agency performing
proprietary functions. Like an ordinary employer, NIA was held liable for the injuries, resulting in
death, of Francisco Fontanilla, caused by the fault and/or negligence of NIA's driver employee Hugo
Garcia; and NIA was ordered to pay petitioner spouses Fontanilla, the victim's parents, the amounts
of P12,000.00 for the death of the victim; P3,389.00 for hospitalization and burial expenses;
P30,000.00 as moral damages; P8,000.00 as exemplary damages, and attorney's fees of 20% of the
total award.

Assailing the said decision of this Court, NIA filed the present Motion for Reconsideration, alleging
that NIA does not perform solely or primarily proprietary functions but is an agency of the
government tasked with governmental functions; thus, it may not be held liable for damages for
injuries caused by its employee to a third person. Citing PD 552, NIA argues that its functions and
responsibilities directly concern public benefit and public welfare.
To start with, NIA is an agency of the government with an original charter.1 Section 1 of Republic Act
3601 provides:

Sec. 1. Name and domicile. A body corporate is hereby created which shall be known as
the National Irrigation Administration, hereinafter called the NIA for short, which shall be
organized immediately after the approval of this Act. It shall have its principal seat of
business in the City of Manila and shall have representatives in all provinces for the proper
conduct of its business.

NIA's said charter confers upon it a separate juridical personality to exercise all the powers of a
corporation under the Corporation Law, insofar as they are not inconsistent with said charter.2

Under PD 552 amending NIA's original charter, it is made clear that said agency was created
primarily for the purpose of undertaking integrated irrigation projects, by the construction of multiple-
purpose water resource projects to increase agricultural production for the financial upliftment of the
people. In relation to its purpose, NIA has the power and authority to undertake concomitant
projects, such as, flood control, drainage, land reclamation, hydraulic power development, domestic
water supply, road or highway construction, reforestation and projects to maintain ecological
balance, in coordination with other agencies concerned. Thus

WHEREAS, the enunciation policy is for a comprehensive development, utilization and

conservation of water resources of the Philippines, and in pursuit of its policy, one of the
primary objectives of the National Irrigation Administration is to effectuate an economic
means of achieving the optimal and diversified utilization and control of water by undertaking
integrated litigation projects.

WHEREAS, the National Irrigation Administration assumes as its primary responsibility, the
implementation of the irrigation integrated program of the government and the attainment of
the "Irrigation Age", as envisioned under Republic Act No. 3601;

WHEREAS, an effective means of implementing multiple-purpose projects in line with

program-oriented and comprehensive water resources development necessitates broader
powers and authority of the NIA to undertake concomitant projects such as flood control,
drainage, land reclamation, hydraulic power development, domestic water supply, road or
highway construction, reforestation, and projects to maintain ecological balance, in
coordination with the agencies concerned;

WHEREAS, the construction of multiple-purpose water resources projects involves

substantial investment of government funds to increase agricultural production for the
financial upliftment of the People for them to be able to assume and comply with their
obligations and responsibilities to the government.

NIA is thus maintained and operated by the government in the performance of its governmental
function of providing the Filipino people, particularly, the farmers nationwide, improved irrigation
systems to increase the country's agricultural production. Only the government has the capacity and
facilities to successfully undertake a project or venture of such magnitude. That the NIA is
empowered to charge minimal fees from all the beneficiaries of the irrigation systems that it
establishes and operates, does not change the nature of the function or purpose for which it was
created. The fees that are collected by NIA are used to cover the cost of operation, maintenance,
insurance, cost of construction, and the rehabilitation of irrigation systems.3 Such monetary charges
do not constitute monetary gain or profit to NIA, but are merely reimbursements of the operational
cost of the agency's projects.
It cannot be denied that public service is the thrust in the creation of NIA in contrast to a business
venture or proprietary enterprise for monetary gain. That the NIA is also empowered to enter into
transactions in order to acquire real and personal properties, appurtenant rights, easements,
privileges in the development of its projects4and enter into other business transactions, does not
mean that it performs proprietary functions, for it is expressly provided in its charter that the business
transactions it may enter into are only those which are directly or indirectly necessary, incidental or
conducive to the attain-judgment of its purposes and objectives.5

Furthermore, the fact that its charter treats the NIA as incorporated under the Corporation Law, and
confers upon it a separate juridical personality, is not the test in determining whether it is performing
a governmental or proprietary function. The spirit, intent or purpose behind its creation determines its
true character. It has been held that were the nature of the duties imposed on an agency and
performed by it does not reveal that it was intended to bring any special corporate benefit or
pecuniary profit to the government, said agency is deemed to be exercising a governmental
function.6

After having established that the NIA is a government agency, with an original charter, possessed of
juridical personality under the Corporation Law, and performing governmental functions, it is equally
important to determine whether (1) the sovereign immunity of the state from suit is enjoyed, or has
been waived by NIA and (2) the NIA is liable for damages arising from tort committed by its
employees.

For incorporated agencies of the government, the test of its suability is found in its charter. The
simple rule is that it is suable if its charter says so, and this is true regardless of the functions it is
performing.7 The charter of the NIA provides that it may sue and be sued, thus, consent of the state
for NIA to be sued has been given,8 so that the rule, on immunity from suit normally extended to
government agencies performing governmental functions is no longer available to NIA. By waiving
that immunity from suit in its charter, it would appear that NIA has opened itself to suits based on
causes of action arising from law, contracts, quasi-contracts, delicts, and even quasi-delicts.

But to say that NIA has opened itself to suit is one thing; to say that it is liable for damages arising
from tort committed by its employees, is still another thing.

As discussed in the now assailed decision, pursuant to the provisions of substantive law on quasi-
delict, whoever by his act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage caused.9 The obligation imposed by the foregoing rule is demandable
not only for one's own acts or omissions, but also for those of persons for whom one is responsible,
such that an employer is held liable for damages caused by its employees who were acting within
the scope of their assigned tasks.10

But the state or a government agency performing governmental functions may be held liable for tort
committed by its employees only when it acts through a special agent.11

This is not the first time this Court is confronted with a situation akin to the one at bar. In Merritt vs.
Government of the Phil. Islands,12 the plaintiff was hit by an ambulance of the Philippine General
Hospital, while operated by its regular driver. Since the Philippine government was immune from
suit, Act No. 2457 was approved by the Philippine legislature which authorized Merritt to sue the
Philippine government in the CFI in order to fix the responsibility for the collision and to determine
the amount or extent of the damages.
In due course, it was determined that the ambulance operated by the General Hospital's regular
driver was responsible for the mishap. The damages sustained by Merritt as a result of the accident
was likewise quantified by the trial court and ultimately increased by the Supreme Court.

But then the crucial question remained thus

Did the defendant, in enacting the above quoted Act, simply waive its immunity from suit or
did it also concede its liability to the plaintiff? If only the former, then it cannot be held that no
Act created any new cause of action in favor of the plaintiff or extended the defendant's
liability to any case not previously recognized.

The Court answered its own query thus

In the United States the rule that the state is not liable for the torts committed by its officers
or agents whom it employs, except when expressly made so by legislative enactment, is well
settled. "The Government," says Justice Story, "does not undertake to guarantee to any
person the fidelity of the officers or agents whom it employs, since that would involve it in all
its operations in endless embarrassments, difficulties and losses, which would be subversive
of the public interest. (Claussen vs. City of Luverne 103 Minn 491 citing U.S. vs. Kirkpatrick 9
Wheat, 720; 6 L.Ed., 199; and Beers vs. State, 20 How., 527; 15 L.Ed., 991.)

xxx xxx xxx

. . . we will now examine the substantive law touching the defendant's liability for the
negligent acts of its officers, agents, and employees. Paragraph 5 of article 1903 of the Civil
Code reads:

The state is liable in this sense when it acts through a special agent, but not when the
damage should have been caused by the official to whom properly it pertained to do the act
performed, in which case the provisions of the preceding article shall be applicable.

The Supreme Court of Spain in defining the scope of this paragraph said:

That the obligation to indemnify for damages which a third person causes to another by his
fault or negligence is based, as is evidenced by the same Law 3, Title 15, Partida 7, on that
the person obligated, by his own fault or negligence, takes part in the act or omission of the
third party who caused the damage. It follows therefrom that the state, by virtue of such
provisions of law, is not responsible for the damages suffered by private individuals in
consequence of acts performed by its employees in the discharge of the functions pertaining
to their office, because neither fault nor even negligence can be presumed on the part of the
state organization of branches of the public service and in the appointment of its agents; on
the contrary, we must presuppose all foresight humanly possible on its part in order that
each branch of service serves the general weal and that of private persons interested in its
operation. Between these latter and the state, therefore, no relations of a private nature
governed by the civil law can arise except in a case where the state acts as a judicial person
capable of acquiring rights and contracting obligations. (Supreme Court of Spain, January 7,
1988; 83 Jur. Civ. 24.)

The dispositive part of the Merritt decision states:

 For the foregoing reasons, the judgment appealed from must be reversed, without costs in
this instance. Whether the Government intends to make itself legally liable for the amount of
damages above set forth, which the plaintiff has sustained by reason of the negligent acts of
one of its employees, by legislative enactment and by appropriating sufficient funds therefor,
we are not called upon to determine. This matter rests solely with the Legislature and not
with the courts.

This Court in the now assailed decision found that NIA was negligent in the supervision of its driver
Hugo Garcia who bumped petitioner-spouses' son, causing the death of the latter

It should be emphasized that the accident happened along the Marikina National Road within
the city limits of San Jose City, an urban area. Considering the fact that the victim was
thrown 50 meters away from the point of impact, there is a strong indication that driver
Garcia was driving at a high speed. This is confirmed by the fact that the pick-up suffered
substantial and heavy damage as above-described and the fact that the NIA group was then
"in a hurry to reach the campsite as early as possible", as shown by their not stopping to find
out what they bumped as would have been their normal and initial reaction.

Evidently, there was negligence in the supervision of the driver for the reason that they were
traveling at a high speed within the city limits and yet the supervisor of the group, Ely
Salonga, failed to caution and make the driver observe the proper and allowed speed limit
within the City. Under the situation, such negligence is further aggravated by their desire to
reach their destination without even checking whether or not the vehicle suffered damage
from the object it bumped, thus showing imprudence and recklessness on the part of both
the driver and the supervisor in the
group.13

There is thus no doubt that NIA should be held responsible for the negligent acts of its regular driver,
resulting in the death of petitioner-spouses' son, except that under Article 2180, par. 6 in relation to
Article 2176 of the Civil Code, the state is not liable for tort save when it acts through a special
agent, and Hugo Garcia was not a special agent but NIA's regular driver.

Under the circumstances, and in order not to perpetuate a cruel injustice, I believe that this Court,
while granting the Solicitor General's motion for reconsideration, should recommend to Congress the
enactment of the appropriate legislation to compensate the petitioner-spouses, parents of the victim
Francisco Fontanilla, and to appropriate the necessary funds therefor, which could be equal to the
amount of damages already determined by this Court.

During the deliberations of this case, it was suggested that the term "State" as used in Article 2180,
par. 6 of the Civil Code14 could be limited to the State proper and not construed to include
incorporated entities even if performing governmental functions, such as the NIA. The intended
effect of this suggestion would be to render only the State, meaning, the government of the Republic
of the Philippines and its unincorporated agencies, such as government bureaus, exempt from
liability for tort committed by their officials and employees, except their special agents, but
incorporated governmental entities, even if performing governmental (as distinguished from business
functions) will be liable for the tort committed by their officials and employees.

I am of the considered opinion that the aforestated suggestion is untenable because it would lay
stress on formrather than substance. To me, the test should still be whether the governmental entity
performs governmental and, therefore, sovereign functions, regardless of whether it is incorporated
or not. If the government agency performs governmental and, therefore, sovereign functions, such
as the NIA, it is within the context of the term "State" as used in Art. 2180, par. 6 of the Civil Code
and may not, as a consequence, be held liable for tort committed by its officials and employees,
except when they are "special agents."

From the ruling of this Court in Manila Hotel Employees Asso. vs. Manila Hotel,15 which states that by
"engaging in a particular business thru the instrumentality of a corporation, the government divests
itself pro hoc vice of its sovereign character, so as to render the corporation subject to the rules
governing private corporations," it can be reasonably inferred that it is the business character of the
corporation and not its corporate form which divests it of the immunity (and, similarly, exemption
from liability for tort committed by its employees) which its owner-sovereign enjoys. In the case
of Prisco vs.
CIR,16 the suability and liability under labor laws of the Price Stabilization Corporation was based not
really on its corporate form but on its abdication of sovereign prerogatives by its descent to the level
of an ordinary business operation.17

In an advisory opinion of the Supreme Court of the State of Michigan with respect to the creation of
the state housing authority, it was held that a state agency intended to take measures to promote
construction of housing, performs a proper governmental function, and that the grant of corporate
powers to such an agency makes it a quasi-corporation only but it remains an instrumentality of the
state. Such quasi-corporations are described as bodies of citizens who have no personal nor private
interests to be subserved, but are simply required by the state to do some public work. The state
merely clothes one of its agencies or instrumentalities with such corporate powers. It is neither a
private corporation but a class of artificial entity.18 The NIA qualifies as a quasi-corporation, retaining
at all times the attributes and prerogatives of the sovereign State which entirely owns and operates
it.

FOR THE FOREGOING REASONS, I vote to GRANT the Motion for Reconsideration and to SET
ASIDE the decision of this Court dated 1 December 1989, subject to the recommendation to
Congress as earlier stated.

Separate Opinions

FELICIANO, J., concurring:

I agree with the result reached by my distinguished brother in the Court, Mr. Justice Edgardo L.
Paras, both in the Decision of the Court's Second Division dated 1 December 1989 (179 SCRA 685
[1989]) and in the present Resolution on the motion for reconsideration, which has been referred to
the Court En Banc.

I agree, in other words, that the National Irrigation Administration (NIA) is liable for the acts of its
employee Hugo Garcia which resulted in injury to the spouses Jose Fontanilla and Virginia
Fontanilla. However, I reach this result through a slightly different route which is traced below.

In the original decision of the Court's Second Division, it is stated that:

Certain functions and activities, which can be performed only by the Government, are more
or less generally agreed to be "governmental" in character, and so the State is immune from
tort liability. On the other hand, a service which night as well be provided by a private
 corporation, and particularly when it collects revenues from it, the function is considered a
"proprietary" one, as to which there may be liability for the torts of agents within the scope of
their employment.

The original Decision and the Resolution on the motion for reconsideration hold that the NIA is "an
agency of the government exercising proprietary functions."

I would respectfully submit that the liability of an agency or instrumentality of the Government for
torts of its employees under Article 2180, 6th paragraph, of the Civil Code is not contingent upon the
technical characterization of the functions or activities carried out by that agency or instrumentality
as "governmental," on the one hand, or "proprietary," upon the other.

In the first place, it is merely commonplace to note that governments in our day and age do not
restrict themselves to the original basic and primitive functions of repelling invasion by a foreign
enemy, maintaining peace and order in society and protecting the physical integrity or the food
supplies of its citizens or inhabitants, but instead assumed and carry out all kinds of activities which
they may determine to redound to the general interest and benefit of the population. Thus, the
classical laissez-faire concept of a state, which prevailed during the 19th century, has today been
replaced by the concept of the welfare state. Moreover, activities which in other states more
economically advanced than our own have been undertaken by private enterprise, are here still
being carried out by the Government or, more generally, the public sector in view of the inadequacy
of private capital and private entrepreneurial spirit.

Secondly, under Section 2(l) of Article IX of the Constitution, whether or not a government owned or
controlled corporation or entity forms part of the Government and is embraced within the civil service
depends, not upon the "governmental," as distinguished from "proprietary," nature of the activities
performed by such entity or corporation, but rather upon whether or not the corporation or entity is
possessed of an "original charter." Thus, it appears to me that the framers of the 1987 Constitution
had given up the notion of trying to distinguish between "governmental" and "proprietary" functions
for purposes of determining whether employees of a particular agency or instrumentality should be
governed by the Civil Service Law and Regulations or, alternatively, by the Labor Code and its
Implementing Regulations administered by the National Labor Relations Commission and the
Department of Labor and Employment.

Article 2180 of the Civil Code provides in part as follows:

xxx xxx xxx

Employers shall be liable for the damage caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in
any business or entity.

The State is responsible in like manner when it acts through a special agent; but not when
the damage has been caused by the official to whom the task done properly pertains, in
which case what is provided in Article 2176 shall be applicable.

xxx xxx xxx

(Emphasis supplied)
My basic submission that the term "State" as used above properly refers to the "Government of the
Republic of the Philippines." This latter term is defined in Section 2 of the Revised Administrative
Code of 1987 in the following manner:

The Government of the Republic of the Philippines refers to the corporate governmental
entity through which the functions of government are exercised throughout the Philippines,
including save as the contrary appears from the context, the various arms through
which political authority is made effective in the Philippines, whether pertaining to the
autonomous regions, the provincial, city, municipal or barangay subdivisions or other forms
of local government. (Emphasis supplied)

In other words, the term "State" as used in Article 2180 of the Civil Code refers to that juridical
person that is constituted b the Government of the Republic of the Philippines and logically does not
include agencies, instrumentalities or other entities which their enabling laws have invested
with juridical personality separate and distinct from that of the Republic of the Philippines.

It should be noted in this connection, that in Merritt v. Government of the Philippine Islands (34 Phil.
311 [1960]), the Court said:

It is therefore evident that the State (the Government of the Philippine Islands) is only liable,
according to the above quoted decisions of the Supreme Court of Spain, for acts of its
agents, officers and employees when they act as special agents within the meaning of
paragraph 5 of Article 1903 [of the Civil Code of Spain of 1889] and that the chauffeur of the
ambulance of the General Hospital was not such an agent. (Emphasis supplied; parentheses
in the original; 34 Phil. at 323)

Clearly, Mr. Justice Trent considered "the State" and "the Government of the Philippine Islands" as
equivalent terms. The decision of the Supreme Court of Spain dated 7 January 1898 which the Court
in Merritt cited, read in part as follows:

That the obligation to indemnify for damages, which a third person causes to another by his
fault or negligence is based, as is evidenced by the same Law 3, title 15, Partida 7, on that
the person obligated, by his own fault or negligence, takes part in the act or omission of the
third party who caused the damage. It follows therefrom that the State, by virtue of such
provisions of law, is not responsible for the damages suffered by private individual in
consequence of acts performed by its employees in the discharge of the functions pertaining
to their office, because neither fault nor even negligence can be presumed on the part of the
State in the organization of branches of the public service and in the appointment of its
agents; on the contrary, we must presuppose all foresight humanly possible on its part in
order that each branch of service serves the general weal and that of private persons
interested in its operation. Between these latter and the State, therefore, no relations of a
Private nature governed by the civil law can arise except in a case where the state acts as a
[juridical] person capable of acquiring rights and contracting obligation (Emphases and
brackets supplied)

The term "juridical" person was translated (by Mr. Justice Trent?) as "judicial" person. This appears
plain error for the judgment of 7 January 1898 in fact read:

. . . entre los cuales y el Estado, por tanto, no pueden surgir relaciones de orden privado
regidas por el derecho civil, salvo el caso de que el mismo Estado obre como persona
juridica capaz de adquirir derechos y contraer obligaciones:
 xxx xxx xxx

(Emphasis supplied; 83 Jurisprudencia Civil 36 [1898])

Thus, the decision of the Supreme Court of Spain itself recognized that between private persons and
the State, relations of a private nature governed by the Civil Code can arise where the State acts as
or through the medium of a separate juridical person that is capable of acquiring lights and entering
into obligations.

In the present case, there is no question that the NIA has juridical personality separate and distinct
from that of the Government of the Republic of the Philippines which owns all NIA's capital and
assets. In other words, the NIA is not part of the "State" or of the "Government of the Republic of the
Philippines"; it follows, I respectfully submit, that the NIA should not be regarded as part of the State
for purposes of application of Article 2180 of the Civil Code.

What I have outlined above is in fact very close to the position taken by Mr. Justice Paras in the
Resolution on the motion for reconsideration. For he has rightly stressed that the NIA has clearly
been invested with a distinct legal personality and thus with capacity to sue and be sued. Judicial
actions may be brought by the NIA for the collection of unpaid irrigation fees, drainage fees or other
charges which the NIA is authorized to impose and collect, under the provisions of the Rules of
Court. Correlatively, actions against the NIA for the recovery of compensation and damages are
expressly allowed and prescribe in either five (5) or ten (10) years depending upon the subject
matter thereof. The State itself has determined, in other words, that the NIA shall not be covered by
the general immunity from suit without its consent pertaining to the State.

Finally, the Resolution underscores the fact that under Section 2(f) of the NIA charter, the NIA is
generally authorized "to exercise all the powers of a corporation under the Corporation Law, insofar
as they are not inconsistent with the provisions of [the NIA charter]." Since the NIA has been vested
with an the powers of a corporate person, it seems only reasonable to believe that it is at the same
time subjected to all the ordinary liabilities of a corporate person: one of those liabilities is the
vicarious liability of an employer under Article 2180 of the Civil Code, 6th paragraph, for injurious
acts done by its employees within the scope of their assigned tasks.

I suggest then that the investing of an agency or instrumentality of the Government with separate
juridical personality is not a matter of "form" as suggested by my equally distinguished brother in the
Court, Mr. Justice Padilla, in his dissenting opinion. The effect of the foregoing provisions of its
charter may be seen to be clearly a matter of "substance": to render the NIA both suable and liable
on the same causes of action which may be asserted against any corporate entity that is a separate
juridical person.

It seems also relevant to point out that the Philippine General Hospital (PGH), the agency or
instrumentality involved in the Merritt case, did not (in contrast with the NIA) have legal personality
separate and distinct from that of the Philippine Government at the time that Merritt was decided.
The PGH was established under Act No. 1688 of the Philippine Commission as a division of the
Bureau of Health, a non-incorporated entity. Later, it was removed from the administrative
jurisdiction of the Bureau of Health and made into an independent bureau under the supervision of
the Department of the Interior. Still later, the PGH was placed under the Department of Instruction
and subsequently, under the Office of the President. In 1947, by virtue of Executive Order No. 94,
the PGH was made a part of the University of the Philippines, itself a separate corporate entity.
Clearly, therefore, at the time Merritt was decided, the PGH was part and parcel of the Government
of the Republic of the Philippines as defined by the Revised Administrative Code of 1917.
For all the foregoing, I vote to DENY the motion for reconsideration and to AFFIRM the Decision
dated 1 December 1989 in G.R. Nos. 55963 and 61045.

Narvasa and Cruz, JJ., concur.

PADILLA, J., dissenting:

On 1 December 1989, this Court, through its Second Division, rendered a decision declaring
petitioner National Irrigation Administration (NIA, for brevity) a government agency performing
proprietary functions. Like an ordinary employer, NIA was held liable for the injuries, resulting in
death, of Francisco Fontanilla, caused by the fault and/or negligence of NIA's driver employee Hugo
Garcia; and NIA was ordered to pay petitioner spouses Fontanilla, the victim's parents, the amounts
of P12,000.00 for the death of the victim; P3,389.00 for hospitalization and burial expenses;
P30,000.00 as moral damages; P8,000.00 as exemplary damages, and attorney's fees of 20% of the
total award.

Assailing the said decision of this Court, NIA filed the present Motion for Reconsideration, alleging
that NIA does not perform solely or primarily proprietary functions but is an agency of the
government tasked with governmental functions; thus, it may not be held liable for damages for
injuries caused by its employee to a third person. Citing PD 552, NIA argues that its functions and
responsibilities directly concern public benefit and public welfare.

To start with, NIA is an agency of the government with an original charter.1 Section 1 of Republic Act
3601 provides:

Sec. 1. Name and domicile. A body corporate is hereby created which shall be known as
the National Irrigation Administration, hereinafter called the NIA for short, which shall be
organized immediately after the approval of this Act. It shall have its principal seat of
business in the City of Manila and shall have representatives in all provinces for the proper
conduct of its business.

NIA's said charter confers upon it a separate juridical personality to exercise all the powers of a
corporation under the Corporation Law, insofar as they are not inconsistent with said charter.2

Under PD 552 amending NIA's original charter, it is made clear that said agency was created
primarily for the purpose of undertaking integrated irrigation projects, by the construction of multiple-
purpose water resource projects to increase agricultural production for the financial upliftment of the
people. In relation to its purpose, NIA has the power and authority to undertake concomitant
projects, such as, flood control, drainage, land reclamation, hydraulic power development, domestic
water supply, road or highway construction, reforestation and projects to maintain ecological
balance, in coordination with other agencies concerned. Thus

WHEREAS, the enunciation policy is for a comprehensive development, utilization and

conservation of water resources of the Philippines, and in pursuit of its policy, one of the
primary objectives of the National Irrigation Administration is to effectuate an economic
means of achieving the optimal and diversified utilization and control of water by undertaking
integrated litigation projects.
 WHEREAS, the National Irrigation Administration assumes as its primary responsibility, the
implementation of the irrigation integrated program of the government and the attainment of
the "Irrigation Age", as envisioned under Republic Act No. 3601;

WHEREAS, an effective means of implementing multiple-purpose projects in line with

program-oriented and comprehensive water resources development necessitates broader
powers and authority of the NIA to undertake concomitant projects such as flood control,
drainage, land reclamation, hydraulic power development, domestic water supply, road or
highway construction, reforestation, and projects to maintain ecological balance, in
coordination with the agencies concerned;

WHEREAS, the construction of multiple-purpose water resources projects involves

substantial investment of government funds to increase agricultural production for the
financial upliftment of the People for them to be able to assume and comply with their
obligations and responsibilities to the government.

NIA is thus maintained and operated by the government in the performance of its governmental
function of providing the Filipino people, particularly, the farmers nationwide, improved irrigation
systems to increase the country's agricultural production. Only the government has the capacity and
facilities to successfully undertake a project or venture of such magnitude. That the NIA is
empowered to charge minimal fees from all the beneficiaries of the irrigation systems that it
establishes and operates, does not change the nature of the function or purpose for which it was
created. The fees that are collected by NIA are used to cover the cost of operation, maintenance,
insurance, cost of construction, and the rehabilitation of irrigation systems.3

Such monetary charges do not constitute monetary gain or profit to NIA, but are merely
reimbursements of the operational cost of the agency's projects.

It cannot be denied that public service is the thrust in the creation of NIA in contrast to a business
venture or proprietary enterprise for monetary gain. That the NIA is also empowered to enter into
transactions in order to acquire real and personal properties, appurtenant rights, easements,
privileges in the development of its projects4and enter into other business transactions, does not
mean that it performs proprietary functions, for it is expressly provided in its charter that the business
transactions it may enter into are only those which are directly or indirectly necessary, incidental or
conducive to the attain-judgment of its purposes and objectives.5

Furthermore, the fact that its charter treats the NIA as incorporated under the Corporation Law, and
confers upon it a separate juridical personality, is not the test in determining whether it is performing
a governmental or proprietary function. The spirit, intent or purpose behind its creation determines its
true character. It has been held that were the nature of the duties imposed on an agency and
performed by it does not reveal that it was intended to bring any special corporate benefit or
pecuniary profit to the government, said agency is deemed to be exercising a governmental
function.6

After having established that the NIA is a government agency, with an original charter, possessed of
juridical personality under the Corporation Law, and performing governmental functions, it is equally
important to determine whether (1) the sovereign immunity of the state from suit is enjoyed, or has
been waived by NIA and (2) the NIA is liable for damages arising from tort committed by its
employees.

For incorporated agencies of the government, the test of its suability is found in its charter. The
simple rule is that it is suable if its charter says so, and this is true regardless of the functions it is
performing.7 The charter of the NIA provides that it may sue and be sued, thus, consent of the state
for NIA to be sued has been given,8 so that the rule, on immunity from suit normally extended to
government agencies performing governmental functions is no longer available to NIA. By waiving
that immunity from suit in its charter, it would appear that NIA has opened itself to suits based on
causes of action arising from law, contracts, quasi-contracts, delicts, and even quasi-delicts.

But to say that NIA has opened itself to suit is one thing; to say that it is liable for damages arising
from tort committed by its employees, is still another thing.

As discussed in the now assailed decision, pursuant to the provisions of substantive law on quasi-
delict, whoever by his act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage caused.9 The obligation imposed by the foregoing rule is demandable
not only for one's own acts or omissions, but also for those of persons for whom one is responsible,
such that an employer is held liable for damages caused by its employees who were acting within
the scope of their assigned tasks.10

But the state or a government agency performing governmental functions may be held liable for tort
committed by its employees only when it acts through a special agent.11

This is not the first time this Court is confronted with a situation akin to the one at bar. In Merritt vs.
Government of the Phil. Islands,12 the plaintiff was hit by an ambulance of the Philippine General
Hospital, while operated by its regular driver. Since the Philippine government was immune from
suit, Act No. 2457 was approved by the Philippine legislature which authorized Merritt to sue the
Philippine government in the CFI in order to fix the responsibility for the collision and to determine
the amount or extent of the damages.

In due course, it was determined that the ambulance operated by the General Hospital's regular
driver was responsible for the mishap. The damages sustained by Merritt as a result of the accident
was likewise quantified by the trial court and ultimately increased by the Supreme Court.

But then the crucial question remained thus

Did the defendant, in enacting the above quoted Act, simply waive its immunity from suit or
did it also concede its liability to the plaintiff? If only the former, then it cannot be held that no
Act created any new cause of action in favor of the plaintiff or extended the defendant's
liability to any case not previously recognized.

The Court answered its own query thus

In the United States the rule that the state is not liable for the torts committed by its officers
or agents whom it employs, except when expressly made so by legislative enactment, is well
settled. "The Government," says Justice Story, "does not undertake to guarantee to any
person the fidelity of the officers or agents whom it employs, since that would involve it in all
its operations in endless embarrassments, difficulties and losses, which would be subversive
of the public interest. (Claussen vs. City of Luverne 103 Minn 491 citing U.S. vs. Kirkpatrick 9
Wheat, 720; 6 L.Ed., 199; and Beers vs. State, 20 How., 527; 15 L.Ed., 991.)

xxx xxx xxx

 . . . we will now examine the substantive law touching the defendant's liability for the
negligent acts of its officers, agents, and employees. Paragraph 5 of article 1903 of the Civil
Code reads:

The state is liable in this sense when it acts through a special agent, but not when the
damage should have been caused by the official to whom properly it pertained to do the act
performed, in which case the provisions of the preceding article shall be applicable.

The Supreme Court of Spain in defining the scope of this paragraph said:

That the obligation to indemnify for damages which a third person causes to another by his
fault or negligence is based, as is evidenced by the same Law 3, Title 15, Partida 7, on that
the person obligated, by his own fault or negligence, takes part in the act or omission of the
third party who caused the damage. It follows therefrom that the state, by virtue of such
provisions of law, is not responsible for the damages suffered by private individuals in
consequence of acts performed by its employees in the discharge of the functions pertaining
to their office, because neither fault nor even negligence can be presumed on the part of the
state organization of branches of the public service and in the appointment of its agents; on
the contrary, we must presuppose all foresight humanly possible on its part in order that
each branch of service serves the general weal and that of private persons interested in its
operation. Between these latter and the state, therefore, no relations of a private nature
governed by the civil law can arise except in a case where the state acts as a judicial person
capable of acquiring rights and contracting obligations. (Supreme Court of Spain, January 7,
1988; 83 Jur. Civ. 24.)

The dispositive part of the Merritt decision states:

For the foregoing reasons, the judgment appealed from must be reversed, without costs in
this instance. Whether the Government intends to make itself legally liable for the amount of
damages above set forth, which the plaintiff has sustained by reason of the negligent acts of
one of its employees, by legislative enactment and by appropriating sufficient funds therefor,
we are not called upon to determine. This matter rests solely with the Legislature and not
with the courts.

This Court in the now assailed decision found that NIA was negligent in the supervision of its driver
Hugo Garcia who bumped petitioner-spouses' son, causing the death of the latter

It should be emphasized that the accident happened along the Marikina National Road within
the city limits of San Jose City, an urban area. Considering the fact that the victim was
thrown 50 meters away from the point of impact, there is a strong indication that driver
Garcia was driving at a high speed. This is confirmed by the fact that the pick-up suffered
substantial and heavy damage as above-described and the fact that the NIA group was then
"in a hurry to reach the campsite as early as possible", as shown by their not stopping to find
out what they bumped as would have been their normal and initial reaction.

Evidently, there was negligence in the supervision of the driver for the reason that they were
traveling at a high speed within the city limits and yet the supervisor of the group, Ely
Salonga, failed to caution and make the driver observe the proper and allowed speed limit
within the City. Under the situation, such negligence is further aggravated by their desire to
reach their destination without even checking whether or not the vehicle suffered damage
from the object it bumped, thus showing imprudence and recklessness on the part of both
the driver and the supervisor in the group.13
There is thus no doubt that NIA should be held responsible for the negligent acts of its regular driver,
resulting in the death of petitioner-spouses' son, except that under Article 2180, par. 6 in relation to
Article 2176 of the Civil Code, the state is not liable for tort save when it acts through a special
agent, and Hugo Garcia was not a special agent but NIA's regular driver.

Under the circumstances, and in order not to perpetuate a cruel injustice, I believe that this Court,
while granting the Solicitor General's motion for reconsideration, should recommend to Congress the
enactment of the appropriate legislation to compensate the petitioner-spouses, parents of the victim
Francisco Fontanilla, and to appropriate the necessary funds therefor, which could be equal to the
amount of damages already determined by this Court.

During the deliberations of this case, it was suggested that the term "State" as used in Article 2180,
par. 6 of the Civil Code14 could be limited to the State proper and not construed to include
incorporated entities even if performing governmental functions, such as the NIA. The intended
effect of this suggestion would be to render only the State, meaning, the government of the Republic
of the Philippines and its unincorporated agencies, such as government bureaus, exempt from
liability for tort committed by their officials and employees, except their special agents, but
incorporated governmental entities, even if performing governmental (as distinguished from business
functions) will be liable for the tort committed by their officials and employees.

I am of the considered opinion that the aforestated suggestion is untenable because it would lay
stress on formrather than substance. To me, the test should still be whether the governmental entity
performs governmental and, therefore, sovereign functions, regardless of whether it is incorporated
or not. If the government agency performs governmental and, therefore, sovereign functions, such
as the NIA, it is within the context of the term "State" as used in Art. 2180, par. 6 of the Civil Code
and may not, as a consequence, be held liable for tort committed by its officials and employees,
except when they are "special agents."

From the ruling of this Court in Manila Hotel Employees Asso. vs. Manila Hotel,15 which states that by
"engaging in a particular business thru the instrumentality of a corporation, the government divests
itself pro hoc vice of its sovereign character, so as to render the corporation subject to the rules
governing private corporations," it can be reasonably inferred that it is the business character of the
corporation and not its corporate form which divests it of the immunity (and, similarly, exemption
from liability for tort committed by its employees) which its owner-sovereign enjoys. In the case
of Prisco vs. CIR,16 the suability and liability under labor laws of the Price Stabilization Corporation
was based not really on its corporate form but on its abdication of sovereign prerogatives by its
descent to the level of an ordinary business operation.17

In an advisory opinion of the Supreme Court of the State of Michigan with respect to the creation of
the state housing authority, it was held that a state agency intended to take measures to promote
construction of housing, performs a proper governmental function, and that the grant of corporate
powers to such an agency makes it a quasi-corporation only but it remains an instrumentality of the
state. Such quasi-corporations are described as bodies of citizens who have no personal nor private
interests to be subserved, but are simply required by the state to do some public work. The state
merely clothes one of its agencies or instrumentalities with such corporate powers. It is neither a
private corporation but a class of artificial entity.18 The NIA qualifies as a quasi-corporation, retaining
at all times the attributes and prerogatives of the sovereign State which entirely owns and operates
it.

FOR THE FOREGOING REASONS, I vote to GRANT the Motion for Reconsideration and to SET
ASIDE the decision of this Court dated 1 December 1989, subject to the recommendation to
Congress as earlier stated.
Footnotes

1
This motion was referred to the court en banc per resolution dated May 9, 1990.

PADILLA, J. dissenting opinion:

1
Republic Act No. 3601, entitled "An Act creating the National Irrigation Administration", as
amended by PD 552.

2
Section 2(f) of PD 552.

3
Section 2(b) of PD 552.

4
Section 2(e) of PD 552.

5
Section 2(f) of PD 552.

6
Angat River Irrigation System v. Angat River Worker Union, 102 Phil. 790.

7
Comment of Justice Isagani Cruz, Philippine Political Law, Vol. I, p. 39, 1989 Edition.

8
Olizon v. Central Bank, G.R. No. L-16524, 30 June 1954, 11 SCRA 357.

9
Civil Code, Article 2176.

10
Ibid., Article 2180.

11
Ibid., par. (6).

12
34 Phil. 311 (21 March 1916).

13
Decision dated 1 December 1989, pp. 10-11.

14
Art. 2180. par. 6, Civil Code states: The obligation imposed by article 2176 is demandable
not only for one's own acts or omissions, but also for those of persons for whom one is
responsible.

xxx xxx xxx

The State is responsible in like manner when it acts through a special agent; but not
when the damage has been caused by the official to whom the task done properly
pertains, in which case what is provided in article 2176 shall be applicable."

15
73 Phil. 374.

16
102 Phil. 515.
 17
Phil. Constitutional Law by J. Bernas, p. 783, Vol. 1, 1984 Edition.

In re: Advisory Opinion on the Constitutionality of Act No. 346 of Public Acts of 1966,158
18

N.W. 2d 416.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. Nos. 93530-36 February 27, 1991

COCA-COLA BOTTLERS (PHILS.), INC.,* petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and COCA-COLA WAREHOUSE BOTTLERS
EMPLOYEES ASSOCIATION (CCWBEA-PASSLU), respondents.

Sobrevias Diaz, Hayudini & Bodegon for petitioner.

Leonardo C. Fernandez for private respondent.

RESOLUTION

FELICIANO, J.:

On 13 January 1987, private respondent union filed against petitioner a complaint for illegal
dismissal of twenty-one (21) of its members.

An amended complaint dated 2 May 1988 and several original complaints were subsequently filed
by private respondent union alleging that other union members were similarly dismissed by
petitioner, making a total of ninety-eight (98) workers allegedly illegally dismissed and ten (10)
workers allegedly illegally transferred by petitioner. The complaints also asserted claims by
members of private respondent union for 13th month pay, service incentive leave pay, interest and
attorney's fees, and included a prayer for reinstatement and backwages. Complainants also claimed
that their dismissal was tainted with unfair labor practice.

Petitioner denied the charges in the several complaints, claiming that the complainant workers were
not its employees but rather were employees of one Juanita C. Arcibal, a service contractor, who
had detailed them with petitioner company in order to carry out his contractual obligations with
petitioner company. Petitioner further claimed that its service contract with Arcibal had already
expired and that the same had not been renewed because petitioner no longer needed the services
theretofore rendered by the service contractor.1

Pending resolution of the illegal dismissal cases, private respondent union filed with the Bureau of
Labor Relations ("BLR") a petition for a certification election docketed as BLR Case No. A-10-325-87
among the rank-and-file workers assigned to petitioner's warehouse facility in Las Pias Metro
Manila. Petitioner company opposed the petition for a certification election, asserting the same
ground pleaded in the illegal dismissal cases that there existed no employer-employee relationship
between itself and the members of private respondent union. The proceedings in the illegal dismissal
cases were held in abeyance pending resolution of the certification election case before the BLR.

On 18 September 1987, Med-Arbiter Tomas Falcotin issued an Order finding that an employer-
employee relationship did exist between petitioner company and the members of respondent union,
and ordering a certification election to be held among the rank-and-file employees of petitioner
company working in the warehouse facility located at Pamplona, Las Pias, Metro Manila.

On Appeal by petitioner, the BLR on 15 December 1987 affirmed the findings and Order of the Med-
Arbiter.

Petitioner company then went on a Petition for Certiorari to this Court, docketed as G.R. No. 82195,
asking for the setting aside of the decision of the BLR in the certification election case. In a
Resolution dated 27 July 1988, this Court dismissed the Petition for Certiorari holding that petitioner
company bad not sufficiently shown that the BLR had committed a grave abuse of discretion in
rendering its appealed decision.

The illegal dismissal cases were consolidated and hearing thereon then resumed. The cases were
set for hearing on 13 April 1989. Because of petitioner's failure to appear on that date, the hearing
was reset to 10 May 1989. At the hearing on 10 May 1989, petitioner company promised to submit
its memorandum while the members of private respondent union manifested that they would file a
reply memorandum, after which the case would be deemed submitted for resolution.

Petitioner company failed to submit its memorandum. The Labor Arbiter considered this omission as
a waiver of petitioner's right to file a memorandum and accordingly rendered a Decision on 15 June
1989. The Labor Arbiter found that since the issue of existence of an employer-employee
relationship between petitioner company and the members of respondent union had been resolved
by the Resolution of the Supreme Court in G.R. No. 82195, and since petitioner company had not
thereafter submitted any argument in respect of the charge of illegal dismissal, there appeared no
valid cause for such dismissals and accordingly held those dismissals as illegal. The Labor Arbiter
required petitioner to reinstate the complaining union members with full backwages and without loss
of seniority rights, as well as to pay 13th month pay and service incentive leave pay to those
complainants who had not yet received such benefits.

Petitioner company then went on appeal to the National Labor Relations Commission ("NLRC"),
contending that the Labor Arbiter had erroneously found the complaining workers to have been
illegally dismissed solely on the basis of this Court's Resolution in G.R. No. 82195, and contending
that it had been deprived of due process not having been given an opportunity to prove that the
termination of the services of the complaining workers had been effected for a valid and legal cause.
Petitioner company protested that it had not received notice from the Labor Arbiter about the
resumption of the hearings.

On 26 September 1989, petitioner company filed a Supplemental Appeal2 with the NLRC arguing
that, on the supposition that petitioner had been guilty of illegal dismissal, the order of the Labor
Arbiter still must be modified because reinstatement had become "no longer feasible." Petitioner
claimed that there were no positions which were substantially equivalent to those previously
occupied by the complainant workers; that reinstatement of the dismissed workers would result in
requiring petitioner to hire ninety-eight (98) more workers than its business operations actually
demanded; that the service contract of petitioner with Juanita C. Arcibal was terminated precisely
because petitioner no longer needed the services of the workers. Thus, petitioner contended, it
would either be compelled to create positions unnecessary for its business or to displace ninety-
eight (98) of its current employees.
The NLRC, apparently acting under the belief that petitioner had not been notified of the resumption
of the hearings on the illegal dismissal cases, initially ordered the remand of those cases to the
Labor Arbiter for reception of evidence on the illegal dismissal, illegal transfer and non-payment of
13th month pay and service incentive leave pay.3

On motion for reconsideration by private respondent union, the NLRC reversed itself and in its
Decision dated 14 March 1990,4 upheld and affirmed the Decision of the Labor Arbiter of 15 June
1989. The NLRC noted that petitioner company had in fact been notified of the resumption of the
hearings and had undertaken to submit its memorandum but had failed to do so, thus opting to
remain silent until the Labor Arbiter had rendered his decision. Petitioner company moved for
reconsideration petition of the NLRC's Decision, without success.

The instant Petition for certiorari was filed on 8 June 1990, and asks this Court to set aside the
Decision of the NLRC, raising the same arguments it had already raised in its Supplemental Appeal
to the NLRC and its motion for reconsideration of the NLRC's Decision of 14 March 1990.

In a Consolidated Reply, dated 25 October 1990, to the Comments filed by private respondent union
and the Solicitor General on behalf of the NLRC, petitioner raises an additional argument, the
cessation of its business operations at its warehouse in Pamplona, Las Pias due to alleged
expiration of its lease contract with the owner of the warehouse and premises. In this Consolidated
Reply, petitioner stated that it had filed a motion to dismiss in the certification election proceedings
(In Re: Petition for Certification Election at the Coca-Cola Bottlers [Phils.], Inc., Las Pias Metro
Manila, OS-MA-A-3-75-90). In an Order dated 5 September 1990, Undersecretary of Labor
Bienvenido E. Laguesma ruled as follows:

On 17 August 1990, the respondent while seeking for a reconsideration of the

aforementioned resolution alleged among others that the parties have been meeting and
discussing the possibility of settling the controversy between them and that some workers
have opted for the payment of their separation pay.

On 30 August 1990, petitioner Coca-Cola Warehouse Bottlers Employees Association-

PSSLU alleging that the warehouse of the company in Las Pias had already ceased
operations and that the subject employees have already received their separation pay or in
the process of receiving it, moved that this case be closed and terminated.

This being the factual situation, we are left with no alternative than to grant the relief being
prayed for.

PREMISES CONSIDERED, the Motion to Dismiss is hereby granted and the Motion for
Reconsideration considered moot and academic.

SO ORDERED.5

In a manifestation dated 14 November 1990, petitioner company stated that only eight (8) members
of private respondent union had not yet entered into an amicable settlement with petitioner company.

Upon the other hand, private respondent union, in a "Rejoinder to Petitioner's Consolidated Reply"
dated 24 November 1990, opposed the setting aside of the NLRC's Decision and in effect asked that
such Decision be upheld.
Deliberating upon the instant Petition for Certiorari, the Court considers that petitioner company has
failed to show any grave abuse of discretion or any act without or in excess of jurisdiction on the part
of public respondent NLRC in rendering its decision dated 14 March 1990.

Public respondent NLRC correctly held that the question of the existence of an employer-employee
relationship between petitioner company and the workers here involved, was finally resolved by this
Court in its Resolution dated 27 July 1988 in G.R. No. 82195. That Resolution was, of course,
binding on both petitioner company and the members of private respondent union. The illegal
dismissal cases were thus in effect brought and resumed by the members of private respondent
union as employees of petitioner company. The burden of proving that the termination of the
services of the members of respondent union was for a valid or authorized cause, lay upon petitioner
employer.6 That burden was not discharged by petitioner which, for reasons satisfactory to itself,
chose not to submit any memorandum or other pleadings before the Labor Arbiter after this Court
had resolved the issue of the worker's employment status. Thus, the Labor Arbiter and the NLRC
were correct in holding that the members of private respondent union had been illegally dismissed
by petitioner company. Petitioner's assertion of denial of due process was properly rejected as
entirely bereft of merit.

It follows that the complainant members of private respondent union are entitled to backwages as
well as to their 13th month pay and service incentive leave pay (i.e., those who have not already
received such pay).

We turn to the question of whether petitioner should also be required to reinstate complaining
members of private respondent union. Ordinarily, the closing of a warehouse facility and the
1w phi 1

termination of the services of employees there assigned is a matter that is left to the determination of
the employer in the good faith exercise of its management prerogatives. The applicable law in such
a case is Article 283 of the Labor Code which permits "closure or cessation of operation of an
establishment or undertaking not due to serious business losses or financial reverses," which, in our
reading, includes both the complete cessation of operations and the cessation of only part of a
company's activities. In such a case, however, the company is required to notify both the employees
concerned and the Department of Labor and Employment ("DOLE") at least one (1) month before
the intended date of closure. The notice to the DOLE is, of course, intended to enable the proper
authorities to determine after hearing whether such closure is being done in good faith, i.e.,
for bonafide business reasons, or whether, to the contrary, the closure is being resorted to as a
means of evading compliance with the just obligations of the employer to the employees affected.7

In the instant case, we note that the alleged expiration of petitioner's lease contract covering its
warehouse facility was for the first time alleged in its Consolidated Reply dated 25 October 1990,
almost four (4) years after petitioner first dismissed the complainant members of private respondent
union. That Consolidated Reply, however, makes no mention of when that lease contract expired
and no copy of the lease contract was submitted to this Court. Moreover, petitioner has notably
failed to indicate when its operations in its Las Pias warehouse actually ceased. There is, in other
words, a substantial doubt as to whether the alleged closure of petitioner's Las Pias warehouse
operations was resorted to for the purpose of evading petitioner's obligations either under the
certification election proceedings or in the present illegal dismissal proceedings. In the total
circumstances of this case, we do not feel justified in simply setting aside the NLRC's Decision in
respect of reinstatement upon the bare assertions of petitioner company.

For all the foregoing, the Court Resolved to DISMISS the Petition for Certiorari for lack of merit and
to AFFIRM the decision of public respondent NLRC with the modification that complainant members
of private respondent union shall be entitled to three (3) years backwages and regular allowances,
without deduction or qualification. In all other respects, the Decision dated 14 March 1990 of the
NLRC is hereby AFFIRMED.

This decision is, however, without prejudice to the right of petitioner company to file, if it wishes, a
notice of closure of its Las Pias warehouse facility with the DOLE, furnishing a copy of such notice
to the employees concerned, proceeding under Article 283 of the Labor Code. It is understood,
however, that the filing of such a notice of closure and any proceedings before the DOLE shall not
suspend the effectivity of this Resolution.

Costs against petitioner. This Resolution is immediately executory.

Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.

Footnotes

* The title used by petitioner in its Petition was: "Coca-Cola Bottlers (Philippines), Inc.
(Warehouse, Las Pias)." Petitioner's operations in its warehouse in Las Pias were not,
however, incorporated into a distinct legal person; hence, the name used by petitioner in its
Petition before this Court was incorrect.

1
Rollo, 20.

2
Id., p. 61.

3
Decision of the NLRC, dated 31 October 1989, Rollo, p. 76.

4
Rollo, p. 17.

5
Id., p. 190.

6
Article 277 (b), Labor Code. See also Indino v. National Labor Relations Commission, 178
SCRA 168 (1989).

7
Wiltshire File Co., Inc. v. National Labor Relations Commission, et al., G.R. No. 82249,
promulgated 7 February 1991.

G.R. No. L-57490 February 27, 1991

GLORIA F. BERIN AND TEODOREDO P. BERIN, petitioners,

vs.
HON. COURT OF APPEALS AND SIMEON F. ESTURAS, respondents.

Pio P. Cordero for petitioners.

Pedro E. Bacorro for private respondents.
MEDIALDEA, J.:

This petition seeks the reversal of the decision of the Court of Appeals in CA-G.R. No. 59857-R
entitled, "Simeon Esturas, Plaintiff-Appellee v. Gloria F. Berin, Teodoredo F. Berin, Mariano H. C.
Cervo and Bartolome Matanguihan, Defendants-Appellants, Bartolome Matanguihan, Cross-
Claimant-Appellant, Mariano H. C. Cervo, Cross-Defendant," affirming the decision of then Court of
First Instance of Camarines Norte, Branch I.

The facts are gathered from the records are as follows:

Private respondent Simeon Esturas was a grantee of Homestead Patent No. 47317 dated March 28,
1938, covering a parcel of land described as follows:

A parcel of coconut land, together with improvements thereon, containing an area of 16.6863
hectares, more or less, situated at Camagsaan, Capalonga, Camarines Norte; bounded on
the North by Pedro Base; on the North East by Manuel Esturas; on the East by Marcelo
Oliva and Marciano Parale; on the South East by Jorge Murillo; on the South West by J.
Murillo; on the North West by Tumba Creek, Marcelino Olit, Cerila Diozmo and Gonzalo Aler;
on the South by Tumba Creek and Marcelino Olit . . . . (p. 48, Rollo).

The land was registered with the Register of Deeds of Camarines Norte and covered by Original
Certificate of Title No. 961. On May 11, 1967, Esturas sold the property to Gloria F. Berin for Seven
Thousand (P7,000.00) Pesos. The transaction was embodied in a Deed of Absolute Sale with a right
to repurchase within a period of thirty (30) days from the date of sale. Gloria Berin claims that the
period within which the land may be repurchased was only for ten (10) days.

On May 24, 1967, Gloria Berin, with the consent of her husband Teodoredo sold the same property
to Mariano Cervo for Ten Thousand (P10,000.00) Pesos. Cervo in turn, sold the property to
Bartolome Matanguihan for fifteen thousand (P15,000.00) Pesos on October 10, 1967.

Meanwhile, on May 27, 1967 and June 5, 1967, Esturas offered to repurchase the property from
Gloria Berin in two telegrams sent to the latter. He received no response from Gloria. Esturas then
deposited the money to repurchase the property with the Clerk of Court of then Court of First
Instance of Camarines Norte.

On January 26, 1968, Esturas filed an action to repurchase against Gloria Berin, Teodoredo Berin,
Mariano Cervo and Bartolome Matanguihan. The property was then already registered in the name
of Matanguihan. The defendants filed their respective answers. On January 28, 1969, Bartolome
Matanguihan filed a cross-claim against his co-defendants, Gloria and Teodoredo Berin and Mariano
Cervo.

Mariano Cervo was declared in default for failure to answer the cross-claim of Matanguihan and for
failure to appear at the pre-trial.

In their answers, the defendants raised two defenses: (1) that Esturas' right to redeem already
expired before he manifested his offer to redeem; and (2) that defendants were purchasers in good
faith and for value.

After trial, judgment was rendered in favor of Esturas, the dispositive portion of which states:

WHEREFORE, judgment is rendered:

 a) annulling the sale made by defendant Gloria F. Berin and Teodoredo P. Berin of
the property subject matter of the present litigation to and in favor of defendant
Mariano H. C. Cervo, as well as the entry of said sale in the records of the Register
of Deeds of Camarines Norte; and likewise, annulling the sale of the same property
made by the defendant Mariano H. C. Cervo to Bartolome Matanguihan, as well as
the entry of said sale in the records of the Register of Deeds of Camarines Norte;

b) Ordering defendants Gloria F. Berin and Teodoredo P. Berin to allow plaintiff

Simeon Esturas to repurchase the property aforementioned for the amount
corresponding to the original selling price of P7,000.00 with legal interest starting
from the time of the execution of the Deed of Sale on May 11, 1967 up to and
including the period of actual redemption, within thirty (30) days after the finality of
this decision.

c) Insofar as defendant Mariano H. C. Cervo, who was declared in default is

concerned, sentencing Gloria F. Berin and Teodoredo P. Berin to return to said
defendant the purchase price of the land in question in the amount of P10,000.00,
with legal rate of interest from the time of the execution of the sale on May 24, 1967
up to and including the time of the return of the said purchase price;

d) Insofar as cross-claimant Bartolome Matanguihan is concerned, sentencing

Mariano H. C. Cervo to return to the said cross-claimant the purchase price of the
land in question in the amount of P15,000.00 with legal interest from the time of the
execution of the sale on October 10, 1967 up to and including the time of the return
of the said purchase price.

No findings as to further damages and attorney's fees; and costs to be paid in equal parts by all the
defendants.

SO ORDERED. (pp. 354-355, Record on Appeal)

Defendants Gloria and Teodoredo Berin and defendant Matanguihan filed separate motions for
reconsideration which the trial court denied on November 6, 1975 (p. 382, Record on Appeal). The
defendants filed their respective appeals to the Court of Appeals.

On April 28, 1981, the Court of Appeals promulgated its decision affirming in toto the decision of the
trial court (pp. 46-54, Rollo). The motion for reconsideration filed by the appellants were denied on
July 6, 1981 (p. 74, Rollo).

In this petition, the petitioners raised the following arguments:

1) The Court of Appeals gravely erred in totally disregarding evidence clearly showing that
Simeon F. Esturas wanted to recover the land in question (a homestead) only to dispose of it
for greater profit;

2) The Court of Appeals gravely erred in not finding that in view of aforementioned intention
of respondent Esturas, his right to repurchase the property under the Public Land Act should
not be upheld and enforced.

It is noted that the herein petitioners' defenses before the trial court focused on the validity of the
deed of absolute sale between Gloria Berin and private respondent Esturas and the lapse of the ten
(10) day period to repurchase agreed upon by them. This is the core of their appeal before the
respondent Court of Appeals which concluded that:

Whether or not the deed of sale (Exhibit A) executed by and between the appellee and the
appellant Gloria Berin is valid and binding is beside the point. The same is not in issue as its
validity was never questioned by appellee. What is material in the instant case is whether the
appellee, or Ms widow or legal heirs of the case may be, can still exercise the right to
repurchase even as to the transfer of property took place outside of the prohibited five-year
period and by means of an absolute deed of sale (sic). (P. 51, Rollo)

None of them, as the defendants in the trial court, raised the defense that private respondent is not
entitled to repurchase the property because he had no intention to preserve and keep it for himself
and his family.

This court in several decisions has repeatedly adhered to the principle that points of law, theories,
issues of fact and arguments not adequately brought to the attention of the trial court need not be,
and ordinarily will not be considered by a reviewing court, as they cannot be raised for the first time
on appeal (Santos v. IAC, No. 74243, November 14, 1986, 145 SCRA 592). 1w phi 1

But, even if the matter was raised before the lower court, dealing as it is with findings of facts, it is
beyond the jurisdiction of this Court to review in the absence of any compelling reason to do so. The
petitioners allege that private respondent indeed had intentions to sell the property for a profit.
However, the appellate court found no valid proof to support the allegation, thus:

The record is also devoid of any evidence to support the contention of appellants Berins that
appellee had no intention of preserving the land for himself and his family. The fact that
appellee merely mortgaged the property with the bank and redeem (sic) it with (sic) the five-
year period from conveyance, and the fact also that appellee tried to exercise his right of
redemption in less than one year from sale to appellant Gloria Berin are enough to show that
appellee has no intention of finally disposing his property. Furthermore, sustaining
appellants-spouses' argument (with no valid and strong supporting proof) would run contrary
to the aim of the law. The right was granted precisely "as part of public policy to provide
home and decent living for destitutes, aimed at promoting a class of independent small
landholders, which, needless to say, is the bulwark of peace and order" (Gramos vs.
Garcia, supra). It is intended to give the homesteader every chance to preserve and keep for
himself and his family the land that the State had gratuitously granted him as reward for his
labor in clearing and cultivating it (Pascua vs. Talens, 80 Phil. 972) (p. 52, Rollo).

The property was sold on May 11, 1967. With or without the provision in the Deed of Absolute Sale,
giving Esturas the right to repurchase the property, he is entitled to repurchase by provision of law.
Section 119 of CA 141 provides:

Sec. 119. Every conveyance of land acquired under the free patent or homestead provisions,
when proper, shall be subject to repurchase by the applicant, his widow, or legal heirs, within
a period of five years from the date of the conveyance.

ACCORDINGLY, the petition is DISMISSED. The assailed decision of the appellate court is
AFFIRMED.

SO ORDERED.

Narvasa, Cruz, Gancayco and Grio-Aquino, JJ., concur.

G.R. No. 92710 February 27, 1991

CARLITO TULOD, doing business under the name and style of "PRECISION MOTOR
WORKS," petitioner,
vs.
FIRST CITY LINE TRANSPORTATION COMPANY, * respondent.

Salvador Y. Apurillo for petitioner.

L. Emmanuel B. Canilao for private respondent.

GANCAYCO, J.:

The sole issue raised in this petition for certiorari concerning a suit for a sum of money is whether
the Court of Appeals and the Regional Trial Court may ignore the documentary evidence presented
by petitioner and decide the case solely on the basis of the credibility of the witnesses.

The facts of the case are as follows:

Petitioner is the owner/operator of Precision Motor Works, a firm engaged in the business of
repairing vehicles and supplying spare parts, while respondent is a corporation engaged in the
transportation business. Petitioner alleges that in May 1984, Antonio Acua made several
representations for the former to supply motor vehicle spare parts to respondent, of which Acua
was the maintenance manager. An agreement was subsequently entered into whereby petitioner
was to supply respondent with various spare parts on a 10-day credit arrangement.1 Petitioner
further alleges that from June to July of 1984, he made several deliveries of spare parts to the place
of business of respondent. As proof of said deliveries, petitioner presented in evidence several
delivery receipts, to wit:

Exhibit B-1 Delivery receipt dated June 12, 1984 worth P59,416.00 signed by the
stockman of the respondent, Regino Juanillas.

Exhibit C-1 Delivery receipt dated June 13, 1984 worth P23,236.00 signed by
respondent's maintenance manager, Antonio Acua.

Exhibit D-1 Delivery receipt dated July 7, 1984 worth P20,328.00 signed by respondent's
stockman, Regino Juanillas.

Exhibit E Delivery receipt dated July 5, 1984 worth P8,200.00 signed by respondent's
maintenance manager, Antonio Acua.2

Petitioner also presented the purchase orders and sales invoices for said deliveries, as well as
several demands for payment, both verbal and written, which he made to respondent.3

When the latter failed to pay, petitioner filed a suit for collection before the Regional Trial Court of
Makati. The suit was raffled to Branch 142 thereof and docketed as Civil Case No. 10642.4

Respondent denied knowledge of the transactions. It alleged that it does not have records of the
same, and never had any occasion to transact business with petitioner.5
During the trial of the case, respondent tried to show that the purchases of spare parts were
irregular, anomalous and fictitious, through the following:

Eduardo Vega, Purchasing Officer of respondent, testified that the questioned transactions did not
follow established company procedure, which he described on the witness stand as follows:

Under company procedure, before any order and purchase of spare parts is made, the
maintenance department makes a requisition addressed to the purchasing department; the
requisition slip is signed by the maintenance supervisor who forwards the same to me; I then
verify whether there is a need to purchase the same; afterwards, the purchase order is
prepared by the clerk typist, who initials the said purchase order, the purchase order is then
forwarded to me for my initial; thereafter, the purchase order is forwarded to Antonio Acua,
the maintenance manager, for his approval.6

Vega also testified that Acua was forced to resign allegedly because of an anomaly, but no criminal
or civil case was ever filed against him, and neither was Vega aware of any memorandum or
minutes of the alleged investigation of Acua by respondent.7

Respondent also noted that the purchase orders for the spare parts allegedly supplied were dated
later than the corresponding delivery receipts, which fact further establishes the irregular nature of
the purchases.8

Respondent likewise presented a comparison of the price listings of its regular suppliers and that of
petitioner's covering the same period, said comparison indicating that the regular suppliers offered
the best price. Consequently, respondent avers that it could not have gone against its own company
policy to purchase from supplies who offer the best price by ordering supplies from petitioner.9

It was then noted by respondent that some of the transactions were entered into on June 12, 1984, a
holiday. Respondent avers that they could not have occurred, since Acua was absent from work on
that date, as shown by his time record.10

The trial court sustained the position of respondent, holding that the questioned transactions are
simulated and fictitious, and that the evidence presented by respondent is more credible than that of
petitioner.

In a decision dated February 12, 1990, the Court of Appeals affirmed the findings of the lower court.
Hence, the instant petition.

Petitioner alleges that certain facts of substance were overlooked and/or ignored, which, if
considered, might affect the outcome of the case. Petitioner concedes that, as a general rule,
findings of fact of the trial court and of the Court of Appeals are generally binding on the Supreme
Court, and that this Court is not a trier of facts. However, he claims that the instant petition falls
under one of the exceptions to the aforestated general rule, as enunciated in People vs. Carido.11 It
was held therein that "findings of the trial court on this issue of credibility of witnesses are entitled to
great respect, but the rule will not apply if the court overlooked certain facts of substance and value
which, if considered, might affect the outcome of the case." Petitioner adds that factual findings of
the Court of Appeals, by way of exception, are not binding on the Supreme Court where there is a
showing that there has been a misapprehension of facts, or that a grave abuse of discretion was
committed in the appreciation of evidence.12

The petition is impressed with merit.

A careful review of the evidence presented by both parties shows that there was indeed a
misapprehension of facts by both the trial court and the appellate court.

We agree with the contention of petitioner that the Regional Trial Court and the Court of Appeals
could not have decided the case on the basis of mere credibility of the witnesses alone, in the face
of clear documentary evidence proving the existence of the transactions in question.

The arguments presented by respondent to deny its liability are not only self-serving but are largely
unsupported by concrete evidence.

Non-compliance with alleged company procedure is not sufficient to establish the non-existence of
the alleged orders and deliveries of spare parts made to respondent. The record shows that Antonio
Acua was authorized as maintenance manager to approve all purchase orders in behalf of
respondent, which fact is confirmed by the testimony of Eduardo Vega, respondent's Purchasing
Officer.13 The purchase orders in question were all signed by him and two of the deliveries made
were even received by him. when called to appear in court, Acua testified that the spare parts were
actually received and used by respondent, and that all along, he thought that they were already fully
paid for.14 All these show that the transactions in question could have been entered into by
respondent notwithstanding that the company procedure was not strictly followed.

The dismissal of Acua does not at all serve to prove the nonexistence of the questioned
transactions. In fact, the alleged dismissal of Acua has no relation whatsoever to the issue in the
case. If respondent intended to show thereby that Acua acted on his own and without authority in
ordering and accepting the supplies from petitioner, thus negating any liability of respondent
therefor, it has failed miserably in its effort to do so. Respondent did not even bother to explain the
"anomaly" in which Acua was purportedly involved. Had respondent categorically stated that the
cause or part of the cause for the termination of Acua was due to his unauthorized business
dealings with petitioner, and submitted proof thereof, then the dismissal would have been material in
proving the claim of respondent that it has no liability toward petitioner. But respondent did no such
thing. The only logical purpose for the averment on Acua's dismissal is to discredit his testimony as
an adverse witness. Standing alone, however, the said averment cannot serve to override the strong
evidence presented by petitioner.

Corollarily, it is worth noting that respondent did not present Regino Juanillas, its
stockman/warehouseman, before the trial court, who could have easily testified that he did not
accept two deliveries from petitioner and did not affix his signature on the corresponding delivery
receipts. Such direct testimony could have proven that at least two of the deliveries allegedly made
by petitioner were simulated and fictitious. Such an omission must be construed against respondent,
following the ruling in Orfanel vs. People,15 that "a party's failure to produce evidence which if
favorable would naturally have been produced, is open to the inference that the facts were
unfavorable to his cause."

Further, the comparison of the price listings submitted by respondent likewise proves nothing. The
fact that petitioner's prices may be higher than those of the regular suppliers of respondent does not
give rise to the inference that it was totally impossible for respondent to have ordered supplies from
petitioner.

By the same token, the fact that the purchase orders were dated later than the corresponding
delivery receipts does not discount the occurrence of the disputed deliveries. Petitioner satisfactorily
explained the discrepancy by averring that Antonio Acua made the orders verbally through the
telephone, and that the deliveries were in response to said orders. It was only at the start of the
processing for payment, or after delivery, that respondent issued the corresponding purchase
orders, thus creating the disparity in the dates of the two sets of documents.16

Similarly, there is no merit to the contention of respondent that the delivery made dated June 12,
1984 could not have taken place because Acua was absent on said date. It is clear from the
delivery receipt of June 12, 1984 that it was Regino Juanillas, and not Acua who received the
delivery of spare parts from petitioner on that date.

Finally, the most telling consideration against respondent is the utter absurdity of the conclusion that
may be drawn from its contentions that petitioner went to ridiculous lengths just to have the
questioned transactions simulated with the end in view of making respondent pay for auto spare
parts which it never ordered and which were never supplied to it by petitioner, to the point of
pursuing the matter all the way up to the Supreme Court. To sustain such a conclusion would be to
go against the ordinary dictates of logic and human experience. It it highly unlikely that petitioner
would go to the outrageous extreme of concocting transactions with respondent, falsifying business
documents in the process, and bothering to waste much time, effort and funds to hold respondent
liable for a wholly inexistent monetary obligation.

We thus hold that the transactions in question are not simulated or fictitious. The evidence on record
firmly establishes that they were indeed entered into by the parties to this case. Consequently,
respondent is liable to pay for the auto supplies it received from petitioner, pursuant to said
transactions.

The Court urges that the worth of documentary evidence presented should not be lightly taken in
judicial controversies. As a matter of fact, when duly identified, or otherwise, its due execution had
1wphi 1

been established, such type of evidence should be given much weight in relation with other evidence
adduced before the Court. While the credibility of the witnesses is a valuable aid in determination of
what theory or cause of action should be sustained, the written or printed word of a transaction or
agreement, should be just as seriously considered, to insure just and fair determination of a
litigation.

WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals dated
February 12, 1990 is hereby REVERSED and SET ASIDE. Respondent First City Interlink
Transportation Co., Inc. is hereby ordered to pay petitioner Carlito Tulod, doing business under the
name and style of "Precision Motor Works" the sum of P111,180.00 plus legal interest as payment
for auto supplies delivered by petitioner and accordingly received and used by respondent.
Respondent is likewise ordered to pay petitioner the sum of P15,000.00 for attorney's fees and to
pay the costs.

SO ORDERED.

Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.

Footnotes

1
Page 8, Rollo. (TSN, August 15, 1985, pp. 5-8).

2
Page 78, Ibid.
 3
Exhs. "F," "F-1," and "F-2," page 79, Ibid.

4
Page 17, Ibid.

5
Page 82, Ibid. (TSN, July 26, 1985, pp. 14-15 and p. 4).

6
Pp. 18-19, Ibid.

7
Page 80, Ibid. (TSN, January 30, 1986, pp. 65-66).

8
Page 82, Ibid.

9
Page 19, Ibid.

10
Ibid. (Exhibit "11")

11
167 SCRA 462 (1988).

12
Gimeno vs. Court of Appeals, 80 SCRA 623 (1977).

13
Page 18, Rollo (Exhibit "1," p. 1).

14
Pages 79-80, Ibid.

15
30 SCRA 819 (1969).

16
Page, 82, Rollo.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 92305 February 27, 1991

PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
LOUIE EUGENIO, accused-appellant.

The Solicitor General for plaintiff-appellee.

Virgilio Y. Morales for accused-appellant.

GRIO-AQUINO, J.:
This is an appeal from the decision dated January 5, 1990, of the Regional Trial Court of Manila
which found the appellant, Louie Eugenio guilty beyond reasonable doubt of murder qualified by
treachery.

As found by the trial court, the crime was committed as follows:

. . . at about 6:30 o'clock in the early evening of May 29, 1985, while a basketball game was
in progress in an elevated basketball court by the side of Adonis St., in Pandacan, Manila,
the accused, Louie Eugenio went up to the said court and looked around among the several
spectators. Having seen the deceased Leopoldo Paltoub who was then sitting by the side of
the court watching the game, he sidled to the right side of Leopoldo and as he neared, he
suddenly shouted "Hoy!" and when the victim turned, the accused without saying anything
more, suddenly fired at him with what looked like a Cal. 45 handgun, hitting him on the face
below the right eye. The slug exited below the victim's left ear. As a result of the gunshot
wound he sustained, the deceased died on the spot and could not be brought anymore by
his kin to the hospital. After hitting the victim, the accused retreated backwards with the gun
still in his hand and then ran away in the direction of Adonis Street, where his family lives.
(pp. 21-22, Rollo,)

An information for murder was filed against Eugenio on October 2, 1985 by the Assistant City Fiscal
of Manila. It alleged:

That on or about May 29, 1985, in the City of Manila, Philippines, the said accused did then
and there wilfully, unlawfully, and feloniously, with intent to kill, with treachery and evident
premeditation, attack, assault and used personal violence upon one LEOPOLDO C.
PALTOUB by then and there shooting him with a .45 cal. gun in the face, thereby inflicting
upon said LEOPOLDO C. PALTOUB a mortal gunshot wound which was the direct and
immediate cause of his death thereafter.

Contrary to law. (p. 11, Rollo.)

After trial, the Regional Trial Court of Manila rendered judgment finding the accused guilty beyond
reasonable doubt of the crime of murder qualified by treachery, but with neither mitigating nor
aggravating circumstances, and sentencing him:

. . . to suffer the penalty of reclusion perpetua and its accessory penalties; to pay the heirs of
the victim, Leopoldo C. Paltoub in the sum of P30,000.00; and to pay the costs. (p.
23, Rollo.)

In this appeal, the accused has assigned the following errors against the trial court's decision:

1. The trial court erred in not considering and noting the flagrant lies and inconsistencies in
the testimonies of prosecution witnesses Laureano Paltoub and Lorenzo Paltoub both
brothers of the victim, Leopoldo Paltoub.

2. It erred in relying on the testimonies of prosecution witnesses Leopoldo Medina and

Teresa Endonila whose testimonies were apparently concocted, defying both logic and
human experience.

3. It erred in not acquitting defendant-appellant.

The first two assigned errors assail the trial court's appreciation of the evidence given by the
prosecution witnesses, Laureano Paltoub, Lorenzo Paltoub, Leopoldo Medina, and Teresa Endonila.

The appellant contends that the testimony of Lorenzo and Laureano Paltoub that they saw him shoot
their brother Leopoldo, is a fabrication for the natural reaction of a person upon hearing a shot, as
the other persons in the basketball court did, is to run to a safe place without stopping to find out
what had happened and who did it. It also cannot possibly be true that they saw appellant linger a
while after shooting the victim, because the killer would have immediately fled after shooting his
victim. Their identification of the accused as the killer of their brother was based on conjecture that
the accused had a grudge against the deceased for he suspected the deceased of having killed his
father. Furthermore, as said prosecution witnesses are close relatives of the victim, their evidence is
necessarily biased and untrustworthy.

Those arguments have no merit.

The accused was identified as the person who shot Leopoldo Paltoub not only by Laureano and
Lorenzo Paltoub but by three other eyewitnesses, namely: Alberto Medina, Leilani Medina, and Ma.
Teresa Endonila who were very near the spot where appellant was standing when he shot the
victim, Leopoldo ("Bobot") Paltoub. These eyewitnesses disclosed that the scene of the crime was
brightly illuminated by a lamp post which lighted up the basketball court. They could not possibly be
mistaken as to the appellant's identity for they had personally known him since childhood; they and
the appellant have been residing in the same neighborhood in Pandacan since they were children.
The three eyewitnesses positively and categorically fingered the appellant as the killer of Leopoldo
Paltoub Alberto Medina, an 18-year-old student, testified that he was standing, by the lamp post
beside the basketball court, watching the game, when the shooting occurred:

Q Will you tell the court t what was that you witnessed?

A At the height of the game and when it was about to be finished and I was about to go
home also, somebody said "hoy" and when I looked at the direction where the voice came
from, I saw him fired a gun.

Q Towards whom?

A He fired a gun at Bobot.

Q How far were you when you saw Louie Eugenio fire that gun towards Bobot?

A Around 8 arm's length, sir.

Q Was the place lighted also at the place of shooting?

A Yes, sir.

Q What kind of light?

A The lights coming from the basketball court and the light coming from the lamppost.

Q How many times have you heard that shot?

A One shot, sir.

 Q What happened to Bobot after that shot was fired?

A He fell but somebody took hold of him. (p. 14, Brief for Plaintiff-appellee.)

The trial court correctly dismissed the appellant's alibi that he was in the house of his employer, Col.
Arthur Custodia in Kamuning, Quezon City when the crime was committed. Said the trial court:

. . . This alibi is weak and does not compel belief. At best, it is of dubious credibility. There
were several persons mentioned by the accused himself and his witness as residing there in
Col. Custodio's residence. Only one a supposed maid was called to testify. How about
Col. Custodia or his wife? Why were they not presented to affirm that the accused was
indeed their houseboy and was there with them on the night of the killing? Moreover, the
defense failed to conclusively show that it was impossible for him granting as true his claim
that he was then a houseboy of Col. Custodio at the latter's residence at #155 K-3rd
Kamuning St., Quezon City, to be at the scene of the crime at Adonis St., Pandacan, Manila,
where his family also had their residence. It is an established rule of jurisprudence that alibi,
in order to be considered a valid defense, must be supported by strong and convincing
evidence of the impossibility of the accused being physically at the scene of the crime at the
time of its commission. (People vs. Espinosa, 198 Phil. 147.) In this case, as well as in the
case of People vs. Motiong, 198 Phil. 552, and in a long line of previous decisions, our
Supreme Court has consistently held that alibi cannot prevail over the positive identification
made by witnesses to the crime. (p. 22, Rollo.)

The crime committed was murder with treachery. The victim, who was absorbed in watching a
basketball game, was completely unaware of the impending assault as the accused quietly sidled up
to him, and shouted "Hoy!" so that the victim would face him before he shot the victim point blank in
the face. It took no more than that single shot to kill the latter (People vs. Solares, 173 SCRA 203;
People vs. Guardo, 156 SCRA 152).

Murder qualified by treachery is punishable with reclusion temporal in its maximum period to death
(Art. 248, Revised Penal Code). However, in consonance with the 1987 Constitution, the death
penalty is no longer imposable. Therefore, the trial court correctly sentenced the accused to suffer
the penalty of reclusion perpetua. However, the civil indemnity of P30,000 for the death of Leopoldo
Paltoub should be increased to P50,000 in accordance with the Court's recent decisions (People vs.
Sison, G.R. No. 86455, September 14, 1990; People vs. Bartulay, G.R. No. 83696, December 13,
1990).

WHEREFORE, as above modified, the appealed decision is affirmed with costs de oficio.

SO ORDERED.

Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 90173 February 27, 1991

MANGGAGAWA NG KOMUNIKASYON SA PILIPINAS AND BARTOLOME O.
ANDRADA, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION AND PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY (PLDT), respondents.

Jose C. Espinas for petitioners.

Nicanor G. Nuevas for private respondent.

GRIO-AQUINO, J.:

On May 28, 1985, Deo Motus of 107 General del Pilar Street, South Cembo, Fort Bonifacio, Metro
Manila, applied for a telephone service connection under Republic Act No. 12738 for his residence.
On February 7, 1986, under the same RA, he changed his address to No. 1308 Corregidor Street,
Bo. Guadalupe, Makati, Metro Manila. His application was approved two weeks later, for which he
paid the required service connection fee. Per entry in the applications for Telephone Service, he was
assigned telephone number 818-5116.

Three weeks later, a PLDT installer was dispatched to install his telephone at 1308 Corregidor
Street, his friend's house in Bo. Guadalupe. However, Motus really wanted the telephone to be
installed in his own house at 107 General del Pilar Street, which is adjacent to Corregidor Street but
separated from it by a creek. So he cajoled and tried to convince the installer to use the same cable
facilities, terminal, and drop wire in traversing the creek to install the telephone unit in his own
residence. The installer, however, refused to make the telephone installation at a place other than
that appearing in the service order, so he returned the unit to the PLDT office.

Actually, Motus was duplicating the tactics of his neighbor, Venancia Pulido, who was successful in
having a telephone connected at her residence in that manner (by changing her address) allegedly
on advice of Bartolome Andrada, a Senior Testboardman in PLDT's SPC-South, Las Pias office.
Motus' mother, Florentina Motus, met Andrada once in Mrs. Pulido's house.

Three more changes of address were requested by Motus: from 1308 to 1313 Corregidor Street;
then from 1313 to 1309-E Corregidor and finally back to 107 General del Pilar Street. All of these
happened in the months of April, May and June, 1986. Each time an installer came by, Motus tried to
persuade him to install the service at 107 General del Pilar Street, to no avail. It seems that he could
have a telephone anywhere except in his own house.

Despite several follow-up calls to Andrada, Motus failed to get a telephone for his house. Grown
weary of waiting for his telephone unit, Motus lodged a complaint against Andrada with the PLDT.

On July 24, 1986, PLDT's quality inspection engineers, Fidel Paulino and Ronald Junio, inspected
Motus' unconnected telephone number 818-5116 based on his complaint. On August 5, 1986, his
mother, Florentina Motus executed a sworn statement accusing Bartolome Andrada of having
promised to install the telephone in her house within three weeks for a consideration of P1,500
which she allegedly paid on February 16, 1986 through Mrs. Pulido (for she [Mrs. Motus] had to go
somewhere else). Mrs. Pulido allegedly told her later that she gave the money to Andrada on the
same day (Salaysay-Annex D, p. 37, Rollo). Mrs. Motus further alleged that Andrada called her up
later on her neighbor's, Mrs. Lao's telephone number 818-7752, to inform her that her application
had been approved. However, no telephone service has been installed at her residence despite her
several changes of address the procedure she adopted upon Andrada's advice. Andrada
allegedly promised again and again to facilitate the installation of their telephone but nothing
happened. She gave Andrada an ultimatum that if by July 15, 1986, no telephone was installed at
her residence, she would report the matter to the proper authorities, to which Andrada allegedly
replied: "Bahala kayo!" (p. 38, Rollo). That was the reason why she lodged a complaint against him
at the Quality Control and Inspection Department before investigator Rogelio Ymasa in the presence
of Leopoldo Cabelin.

On August 6, 1986, Andrada was invited by the Quality Control Office to explain his side of the case.
The investigation was reset on August 13, 1986 to enable him to obtain the assistance of counsel.
On August 15, 1986, Andrada submitted a letter dated August 13, 1986, informing the investigator
that he would not submit to the investigation, invoking his fight against self-incrimination.

In an Inter-Office Memorandum dated October 21, 1986, PLDT SPC-South Manager A.C. Rowan,
Jr. required Andrada to explain in writing within 72 hours why no disciplinary action should be taken
against him for demanding P1,500 from Mrs. Motus as consideration for a telephone connection at
the latter's residence. Andrada asked for a copy of the complaint. In another Inter-Office
Memorandum dated February 5, 1987, LATS Exchange Manager A.S. Paguio informed Andrada
that the written complaint would be shown to him "only if he submits himself for investigation at the
QCI Department at Makati" (p. 68, Rollo). He was given another 72 hours within which to explain
why no disciplinary action should be taken against him.

In an inter-office memo dated February 9,1987, Andrada formalized his intention to submit himself to
a formal hearing before the PLDT's Legal Department. After the hearing, Andrada was found guilty
of "serious misconduct in office" (p. 68, Rollo) for demanding and receiving P1,500 from Mrs. Motus,
a telephone subscriber, in consideration of the latter's application for telephone service.

In a June 23, 1987 inter-office memo, LATS Exchange Manager Paguio dismissed Andrada from the
service effective June 30, 1987 based on the evidence adduced at the hearing of Mrs. Motus'
complaint.

Andrada and his union, the Manggagawa ng Komunikasyon sa Pilipinas (MKP), flied a complaint for
illegal dismiss against PLDT on July 3, 1987 in NLRC NCR Case No. 00-07-02361-87. The
petitioners alleged that Mrs. Motus complaint had no factual basis, hence, Andrada's dismissal was
illegal.

Andrada admitted that he was introduced to Mrs. Motus by Mrs. Pulido, that he allowed her to call
him at his PLDT office to inquire about the status of her application for telephone service, but he
denied having asked for and received P1,500 from her. The petitioners submitted in evidence a
Sworn Statement of Venancia Pulido denying that she received P1,500 from Mrs. Motus and that
she gave that amount to Andrada. Another statement, executed by Socorro Lao, disputed Mrs.
Motus' allegation that she (Mrs. Motus) received a call from Andrada on Mrs. Lao's telephone.

In a decision dated April 21, 1988, the labor arbiter found for Andrada and ordered PLDT to reinstate
him to his former position without loss of seniority rights and to pay his backwages from the time he
was illegally dismissed until he is actually reinstated, but not to exceed three years (pp. 14-
20, Rollo).

PLDT appealed to the NLRC which, in a decision promulgated on March 20, 1989, reversed the
labor arbiter's decision and dismissed the complaint for lack of merit (pp. 21-35, Rollo). Hence, this
petition for review on certiorari.
After carefully deliberating on the petition and the comment thereon of the respondents, the Court
resolved to grant the petition for review.

The Court notes that PLDT failed to prove by substantial evidence that the petitioner committed
serious misconduct in office justifying his dismissal from the service.

Considering the diametrically opposite versions of Mrs. Motus and Andrada regarding the
transaction between them, the sworn statements of Venancia Pulido and Socorro Lao refuting Mrs.
Motus' allegations should tilt the scale in favor of Andrada.

The NLRC gravely abused its discretion in not giving more credit to the declarations of these two
witnesses who, being neighbors and friends of Mrs. Motus, should have been partial to her but
instead deserted her to be on the side of truth.

Indeed, it is not quite believable that, for a pittance of P1,500, Andrada would jeopardize his job as a
senior testboardman at PLDT.

In termination cases, the burden of proving that the employee's dismissal was for a just cause rests
upon the employer in view of the security of tenure that employees enjoy under the Constitution and
the Labor Code (Art. XIII, Section 3, 1987 Constitution; Section 280, Labor Code; Century Textile
Mills, Inc., et al. vs. NLRC, 161 SCRA 528). Extreme caution should be exercised in terminating the
services of a worker for his job may be the only lifeline on which he and his family depend for
survival in these difficult times. That lifeline should not be cut off except for a serious, just, and lawful
cause, for, to a worker, the loss of his job may well mean the loss of hope for a decent life for him
and his loved ones.

WHEREFORE, the petition is granted. The decision of the NLRC in NLRC NCR Case No. 00-07-
02361-87 (March 20, 1989) is hereby annulled and set aside and that of the labor arbiter is
reinstated. Costs against the private respondent Philippine Long Distance Telephone.

SO ORDERED.

Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 89734 February 27, 1991

MACARIA JOYA and ROMEO DUMAWAL, petitioners,

vs.
COURT OF APPEALS (TWELFTH DIVISION) and HCL PROPERTIES, INC., respondents.

G.R. Nos. 90844-48 February 27, 1991

HCL PROPERTIES, INC., petitioner,

vs.
COURT OF APPEALS (SIXTH DIVISION), HON. BALTAZAR DIZON, Presiding Judge of Branch
113, Regional Trial Court, Pasay City, GUIAT GO, LUIS MATRIS, AMELIA GUIANAN, AMOR
VILLANUEVA and JULIAN CERVANTES, respondents.

G.R.No. 91299 February 27, 1991

EDWIN KANTONG, petitioner,

vs.
HON. COURT OF APPEALS (Former EIGHTH DIVISION) and HCL PROPERTIES,
INC., respondents.

GRIO-AQUINO, J.:

The issue in these petitions for review is whether or not the transfer of a parcel of land to a
corporation organized by the owners of the land, in exchange for shares of stock of the said
corporation, may be considered a "sale," within the contemplation of Presidential Decree No. 1517
(Urban Land Reform Law), which grants to the tenants of the land a right of first refusal or pre-
emption.

A parcel of land with an area of 1,386 square meters, situated at 662 Dimasalang Street, Bo. San
Roque, Pasay City, was owned by the spouses Eutiquio and Herminia Capco. The property was
occupied by the houses of Macaria Joya and twenty-one (21) other persons for over ten years. They
were supposed to pay a nominal monthly rental, but many of them defaulted.

Upon the death of Eutiquio his widow Herminia and their children Jaime, Myrla, Romeo, all
surnamed Capco, and Celia Capco Atendido, formed the HCL Properties, Inc. (hereafter HCL and
assigned the property to the corporation in exchange for no par value shares of stock worth
P400,000 of the said corporation.

HCL caused the cancellation of the title in the name of the original owners and a new TCT No.
117304 was issued on May 28, 1987 in the name of the corporation.

Dimasalang Street in barrio San Roque, Pasay City, is located within an Area for Priority
Development (APD) listed in Proclamation No. 1967 and certified by the Housing and Land Use
Regulatory Board No. 112 (pp. 38-39, Rollo of G.R. No. 91299; p. 27, Rollo of G.R. Nos. 90844-48).

Sections 3(f) and 6 of P.D. No. 1517, as amended by P.D. No. 2016 dated January 23, 19861,
provide:

Sec. 3(f). Tenant refers to the rightful occupant of land and its structures, but does not
include those whose presence on the land is merely tolerated and without the benefit of
contract, those who enter the land by force or deceit, or those whose possession is under
litigation.

Sec. 6. Land Tenancy in Urban Land Reform Areas. Within the Urban Zones, legitimate
tenants who have resided on the land for ten years or more, who have built their homes on
the land, and residents who have legally occupied the land by contract continuously for the
last ten years shall not be dispossessed of the land and shall be allowed the right of first
refusal to purchase the same within a reasonable time and at reasonable prices, under terms
 and conditions to be determined by the Urban Zone Expropriation and Land Management
Committee created by Section 8 of this Decree.

Because the lessees (petitioners Macaria Joya and Romeo Dumawal in G.R. No. 89734, petitioner
Edwin Kantong in G.R. No. 91299, and respondents Guiat Go, Luis Matris, Amelia Guianan, Amor
Villanueva and Julian Cervantes in G.R. No. 90844) failed to pay their rentals and incurred arrears
which they did not pay despite repeated demands, HCL filed ejectment complaints against them in
the different branches of the Metropolitan Trial Court in Pasay City.

Joya's arrears for 17 months, at P85 per month, amounted to P1,445. However, in her answer to the
ejectment complaint, Joya alleged lack of cause of action against her because she no longer resides
in the premises; she had already transferred her house to Romeo Dumawal. Nevertheless, she
claimed a right of first refusal under P.D. 1517, for having been a tenant of the land for more than ten
years.

The Metropolitan Trial Court, Branch 46, rendered judgment for the lot owners, holding that the
Urban Land Reform Law (P.D. 1517), may not be invoked by Joya or Dumawal because: (1) there
was no sale, only an assignment, of the land by the owners to the family corporation; (2) the land is
not listed as an area for priority development under Proclamation No. 1967; and (3) Joya and
Dumawal have violated the lease by failing to pay the rentals for 17 months.

On appeal by Joya, et al., the Regional Trial Court, Branch 118, reversed the trial court. It held that
the property is among the 245 areas for priority development listed in Proclamation No. 1967, as
amended by Proclamation No. 2284; that the Deed of Exchange whereby the property was
transferred to HCL for shares of stock of that corporation was in effect a sale; and that the petitioner
has a right of first refusal for having resided on the property for more than ten years. Upon a petition
for review filed by HCL in the Court of Appeals (CA-G.R. SP No. 17128), the Court of Appeals,
Twelfth Division, * on July 12, 1989 set aside the regional trial court's decision. It ordered Joya and
Dumawal and all persons claiming under them, to vacate the premises and to pay their rental arrears
to HCL.

The Appellate Court held that the transfer of the property to the family corporation of the Capcos
"merely changed their ownership from one form to another. The ownership of the property remained
in the same hands inasmuch as the Capco heirs are the stockholders of the HCL Corporation. There
was no transfer of actual ownership interest by the Capco heirs to a third party. Since there was no
sale of the land in dispute . . . there was no basis for the private respondents to invoke in their favor
the right of first refusal provided for in P.D. 1517" (p. 33, Rollo of G.R. No. 89734).

The ejectment complaints against Gauiat Go, et al. alleged that they were delinquent in the payment
of their monthly rentals as follows:

1. Guiat Go P1,727 (for July 1987 to July 1988)

2. Luis Matris P2,000 (for December 1986 to July 1988

3. Amelia Guianan P1,275 (for March 1987 to July 1988)

4. Amor Villanueva P1,740 (for February 1987 to July 1988)

5. Julian Cervantes no lease, occupancy merely tolerated.

The Metropolitan Trial Court, Branch 48, Pasay City, rendered a decision on March 6, 1989
dismissing the complaint. It held that Guiat Go, et al., were entitled to the right of first refusal under
P.D. 1517.

This decision was affirmed by the Regional Trial Court, Branch 113, and the Court of Appeals (Sixth
Division **) in CA-G.R. SP Nos. 18417-18421, on October 30, 1989. The appellate court held that
the HCL Corporation, even as a family corporation, was a separate and distinct person from the
incorporators, the members of the Capco family.

The Deed of Exchange is an outright act of disposition of the land and transfer of ownership
thereof to a third person. In incorporating HCL Corporation, even as a family corporation, the
corporation became a separate and distinct personality from the members of the Capco
family the incorporators. In transferring the land to the new entity called HCL Corporation,
it did so for valuable consideration. The Articles of Incorporation fixed the consideration for
the Capcos' (vendors') interest on the land in terms of pesos even if the shares of stock
issued in consideration thereof have no fixed par value, unlike a share of stock with par
value. The fact that the property was transferred to the corporation and a new TCT No.
117304 was issued in the name of the corporation, strongly indicates that the transaction
was not simply an exchange of interest of the same owner but an outright transfer or
disposition of ownership of real property from the Capcos to a third party the HCL
Corporation. And therefore, may justify the exercise by the defendants of the right of refusal.
(p. 32, Rollo of G.R. Nos. 90844-48.)

Although the Court of Appeals held that "deliberate and intentional" non-payment of rent by Guiat
Go, et al. was "violative of the lease agreement . . . and, is a sufficient cause for ejectment" (p.
33, Rollo of G.R. Nos. 90844-48), it nevertheless upheld the tenant's right of first refusal in view of
"national policy" underlying the Urban Land Reform Law (P.D. 1517) (p. 33, Rollo of G.R. Nos.
90844-48).

The ejectment complaint against Edwin Kantong was decided by the Pasay City Metropolitan Trial
Court in favor of the HCL Properties, Inc. It ordered petitioner to pay private respondent his arrears
and to vacate the premises.

On appeal, the Regional Trial Court, Branch 111 reversed the trial court's decision and dismissed
the case for lack of jurisdiction because the property is covered by the Urban Land Reform Law.

The Court of Appeals, Eighth Division *** (CA-G.R. SP No. 17908, December 6, 1989), reversed the
regional trial court and reinstated the metropolitan trial court's decision in favor of HCL. The Court of
Appeals held that as respondent Kantong had violated his lease by refusing to pay rent since March
1987, he was not a "legitimate tenant" (p. 44, Rollo of G.R. Nos. 90844-48) within the purview of
Section 6, P.D. 1517 for his possession had been rendered illegal by his unjustifiable refusal to
comply with his obligation to pay rental to HCL.

The Court is here confronted with conflicting decisions of the Court of Appeals two in favor of HCL
Properties, Inc. and one against on the issue of whether, under the peculiar factual situation in
these cases, the lessees may claim a right of first refusal or pre-emption to the lot in question which
the owners transferred to the family corporation, HCL in exchange for shares of stock of said
corporation.

The Court holds that the lessees in these cases may not claim a right of first refusal for two reasons:
First, because the lessees herein, all of whom have violated their lease contracts by defaulting in the
payment of their rentals, have not been legally occupying" the leased premises. Their right to occupy
the property ceased when they violated the lease and the lessor asked them to vacate its property.
They thereafter became deforciants or illegal occupants of the property. Since Section 6 of P.D.
1517 grants the right of first refusal only to "legitimate tenants who have resided on the land for ten
years or more" and "residents who have legally occupied the land by contract continuously for the
last ten years," petitioners Dumawal and Kantong (in G.R. No. 89734 and 91299), and respondents
Guiat Go, Luis Matris, Amelia Guianan and Amor Villanueva (in G.R. Nos. 90844-48) who have been
illegally residing on the land without paying rent, are not entitled to exercise the right of first refusal
under Section 6 of the Urban Land Reform Law.

Secondly, the assignment of the land to HCL the family corporation of the Capco family, in exchange
for shares of stock of said corporation, was, as correctly ruled by the Twelfth Division of the Court of
Appeals in CA-G.R. SP No. 17128, not a sale but a change in the form of ownership, from
communal to corporate.

The sale contemplated in Section 6 of P.D. 1517 is a conveyance of the property from the owners to
third persons. Under the law, such a transfer of title may not be consummated without first giving to
1wphi1

the "legitimate tenants" of the land a preferential right to purchase it under terms and conditions to
be determined by the Urban Zone Expropriation and Land Management Committee created by
Section 8 of the Decree. We see in this case, however, no intention of the owners to part with the
ownership of their land. They merely incorporated bringing their property with them into their
corporation so that instead of belonging to them as co-owners, it now belongs to them as
stockholders of the corporation. Against said corporation, the tenants cannot claim a preferential
right to the property for it is not the purpose of P.D. 1517 to grant such a preference to the lessees
over the owners themselves.

WHEREFORE, the petitions for review of the petitioners Macaria Joya and Romeo Dumawal and
Edwin Kantong in G.R. No. 89734 and G.R. No. 91299 are dismissed for lack of merit, and the
decisions of the Court of Appeals in CA-G.R. SP No. 17128 and CA-G.R. SP No. 17908 are hereby
affirmed. The petition for review filed by HCL Properties, Inc. in G.R. Nos. 90844-48 is granted and
the decision of the Court of Appeals (Sixth Division) in CA-G.R. SP Nos. 18417-18421 is hereby
annulled and set aside. The private respondents, Guiat Go, Luis Matris, Amelia Guianan Amor
Villanueva and Julian Cervantes, are ordered to vacate the property in question and to pay their
rental arrears, with legal rate of interest from July 1988 until they actually vacate the leased
premises. No costs.

SO ORDERED.

Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

Footnotes

* Justice Gloria C. Paras as the actg. chairman, with Justices Luis L. Victor and Regina G.
Ordoez-Benitez, as members.

** Justice Jose C. Campos, Jr. as the chairman, with Justices Emeterio C. Cui and Nicolas,
P. Lapea, Jr. as members.
 *** Justice Oscar M. Herrera as the chairman, with Justices Lorna S. Lombos-dela Fuente
and Fernando A. Santiago, as members.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 83372 February 27, 1991

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
MARLON RUEDAS y TARA-TARA, accused-appellant.

The Solicitor General for plaintiff-appellee.

Meliton V. Angeles for accused-appellant.

MEDIALDEA, J.:

The accused-appellant, Marlon Ruedas, was charged with violation of Section 4, Article II of
Republic Act No. 6425, * otherwise known as the Dangerous Drugs Act in Criminal Case No. 85-587
before the Regional Trial Court, Fourth Judicial Region, Branch 60, Lucena City. The information
filed in said case reads, as follows (p. 24, Rollo):

That on or about the 19th day of September, 1985, in the City of Lucena, Province of
Quezon, Philippines, and within the jurisdiction of this Honorable Court, the said accused,
without authority of law, did then and there wilfully, unlawfully and feloniously sell 1.35 grams
of marijuana dried leaves contained in two (2) small plastic bags, in violation of the
aforementioned law.

Upon being arraigned, the accused-appellant entered the plea of not guilty to the crime charged.
After trial on the merits, the trial court rendered its decision on March 17, 1988, the dispositive
portion of which, reads (p. 28, Rollo):

IN VIEW OF THE FOREGOING, the Court finds Marlon Ruedas y Tara-tara guilty beyond
reasonable doubt for Violation of Article II, Section 4 of Republic Act No. 6425, as amended,
and the Court taking into consideration Article 63 of the Revised Penal Code hereby
sentences him to suffer an imprisonment of Reclusion Perpetua and to pay the fine of
P20,000.00.

SO ORDERED.

Hence, the present appeal.

The antecedent facts, as stated in the plaintiff-appellee's brief are, as follows (pp. 3-6, Brief for
plaintiff-appellee; p. 59, Rollo):
 In the morning of September 19, 1985, the 4th PC Narcotics Regional Unit at Camp Nakar,
Lucena City received a telephone call from its "asset" or confidential informer that a certain
Marlon Ruedas was indulged in the "rampant selling of marijuana leaves" in the interior
("looban") of Malvar Street, Lucena City. (pp. 3-5, tsn, Feb. 21, 1986; pp. 7-8, tsn, April 11,
1986; pp. 9-10, tsn, May 9, 1986).

Acting thereon, Sgt. Rico Atienza organized a team composed of himself as team leader,
with Sgt. Arnel Angsioco and CIC Alberto Colambo as members thereof Initially, a
surveillance was conducted by Colambo and the Informer. After the Informer had pointed to
Colambo the house of the suspect, and the "ins" and "outs" of the place, they returned to
where the two other members of the team were waiting inside the jeep and informed them of
the veracity of the information. (pp. 9-13, tsn, April 11, 1986; pp. 10-15, tsn, May 9, 1986; pp.
2-4, tsn, July 3, 1986).

Thereafter, the team conducted a "buy-bust" operation, with Colambo and the Informer to
pose as buyers of marijuana while the two other members of the team were to wait for
Colambo's signal to arrest the suspect. When the Informer and Colambo returned to the
place of the suspect, they were able to contact the latter who was later identified as the
accused Marlon Ruedas. When the Informer asked the suspect if he has marijuana leaves
for sale, the latter answered in the affirmative and left. A short while later, the suspect
returned with two tea-bags of marijuana leaves, which he handed to the Informer for P20.00.
At this juncture, Colambo, who was about two arms length from the two, made the pre-
arranged signal to his two companions to arrest the suspect. This made the accused
suspicious so much so that he ran away to escape arrest (pp. 13-16, 18-19, tsn, April 11,
1986).

The following day, when the two tea-bags of suspected marijuana leaves were brought to the
Philippine Crime Laboratory at Camp Vicente Lim, Canlubang, Laguna, for examination
(Exhibit "A"), the same were found to be positive for marijuana (Exhibit "C") (pp. 15-18, tsn,
April 11, 1986; pp. 10-13, tsn, Feb. 21, 1986).

Meantime, finding nobody in the house where the two tea-bags of marijuana leaves were
sold, Sgt. Angsioco called for the Barangay Captain of the place, who confirmed to them the
name of the suspect as Marlon Ruedas (pp. 7-9, tsn, Feb. 21, 1986). Thereafter, the latter
was apprehended by the police on the strength of a warrant of arrest issued as a
consequence of the filing of a complaint against him for Violation of Section 4, Article 11 of
Rep. Act No. 06425, (sic) as amended, with the Fiscal's Office of Lucena City (p. 19, tsn,
April 11, 1986).

In this appeal, the accused-appellant assigns a single error committed by the trial court, that is,
having given credence to the testimony of CIC Alberto Colambo. In support of this assignment of
error, he alleges that from the outstart, CIC Colambo did not know his identity because Sgt.
Angsioco had to ask the Barangay Chairman as to the person who resides in the place where the
selling of marijuana took place.

That is not so. The identity of the accused-appellant was known to CIC Colambo, as revealed by his
testimony in the direct examination:

Q Upon reaching the place, as pointed to you by the confidential informer, did you see
anybody there?

A Yes, sir.
 Q And what did you do next?

A Our confidential informer told me about the suspect or the seller, the exit and entrance of
the place and also the house of the suspect, ma'am.

Q Did you see the suspect as pointed by the confidential informer?

ATTY. AYUMA:

Leading, your Honor.

COURT:

Reform your question.

FISCAL:

Q Did he tell you the name of the suspect?

A Yes, ma'am. (p. 11, tsn, April 11, 1986)

Moreover, CIC Colambo testified that he actually saw the accused-appellant when the latter sold and
delivered the two (2) tea bags of marijuana leaves to the informer:

Q What did you do, Mr. Witness in connection with your buy-bust operation?

A Our informer and I returned to the place and we conducted the buy-bust operation. Our
informer approached the suspect while I was still two (2) arm stretches away from him he
asked the suspect if they have the stub of marijuana and the suspect answered they have
and then the suspect left the place for a while (madali lang). Upon the returned (sic) of the
suspect, he gave the two (2) tea bags to the informer and in return he gave the suspect
P20.00 and when I (sic) saw that I gave the pre-arranged signal to my team to apprehend
the suspect but the suspicion of the suspect was arose so, he ran away, ma'am.

Q Now, your are referring to (sic) your testimony about the suspect, can you recognize that
suspect if you see him again?

A Yes, ma'am.

Q Is he present in the courtroom?

A Yes, ma'am.

Q Please point to him? (sic)

A There, ma'am. (Witness pointed to a person inside the courtroom who stood up and when
asked his name he said that he is Marlon Ruedas.) (pp. 13-15, tsn, April 11, 1986)

Inasmuch as the transaction occurred in broad daylight and while CIC Colambo was near the
accused-appellant, it was easy for the former to have recognized the latter.
The team conferred with the Barangay Chairman merely to verify the name of the accused-appellant
as previously supplied by the informer. In so doing, the information given by the Barangay Chairman
as to the name of the resident of the house where the two (2) tea bags of marijuana leaves were
sold bolstered the identity of the suspect as the accused-appellant Marlon Ruedas. Sgt. Atienza, in
the direct examination, testified:

Q Were you able to apprehend the person/persons who sold the tea bags of suspected
marijuana?

A They were not there anymore, sir.

Q Why were they not there anymore?

A I do not know, ma'am.

Q Upon reaching the place and seeing nobody in the house, what did you do next?

A Sgt. Angsioco called for the barangay captain, ma'am.

Q Who was that barangay captain?

A Barangay Captain Aurora Garcia, ma'am.

Q Was he able to talk with her?

A Yes, sir.

Q What was the nature of this conversation?

A The Sgt. asked her as to the other persons who reside in the place where the selling of
marijuana took place, ma'am.

What was the answer?

A Marlon Ruedas, Ma'am. (pp. 8-9, tsn, Feb. 21, 1986)

Even the cross-examination conducted on CIC Colambo failed to discredit his positive identification
of the accused-appellant:

Q As a matter of fact, you will admit, Mr. Witness that it was only at 2:00 o'clock when you
were already conducting this buy bust operation when you first saw the person who was
allegedly (sic) selling dried marijuana leaves?

A Yes, sir.

xxx xxx xxx

Q And you were able to identify this person only because of what the Barangay Captain has
conveyed to you, is that right?
 A No, sir. When we were already facing with (sic) each other and when it was already the
buying and selling of marijuana, I came to know him.

Q You asked him the name when you were confronting with each other, Mr. Witness?

A It was our informant who informed me about that. He told me to remember that person that
he is Marlon Ruedas to (sic) whom he will buy marijuana and when they were already
dealing with each other I can arrest him right there.

Q So you want to impress the Court that all along you will be arresting a certain Marlon
Ruedas, is that right?

A Yes, sir.

Q Because that was the name your informant has given you?

A Yes, sir. (pp. 6-7, tsn, July 3, 1986)

The accused-appellant contends also that it was not necessary for CIC Colambo to give a pre-
arranged signal to his teammates to apprehend him when he was then alone and unarmed whereas
he (CIC Colambo) himself together with the informer could easily arrest him (the accused-appellant).
It is of judicial notice that a Philippine Constabulary officer, especially those attached to the Narcom
Unit are adequately armed with guns, at least a sidearm.

On the contrary, CIC Colambo's actuation was in accordance with the usual practice in "buy-bust"
operations against illegal transactions involving prohibited drugs. Those who pose as buyers are
usually unarmed so as not to arouse the suspicion of the suspect.

The other "arguments" of the accused-appellant regarding the credibility of CIC Colambo are no
arguments at all. According to the accused-appellant, the fact that CIC Colambo was not able to
identify him was buttressed by his (CIC Colambo) own statement "[t]hat thru the assistance of Brgy.
Captain Aurora Garcia of stated place, we were able to identify the suspect as one Marion Ruedas y
Tara-tara, 23 years old, single, married, jobless, residing at Malvar Interior, Lucena City" (p. 12, Brief
for accused-appellant; p. 40, Rollo). Disagreeing, the accused-appellant asserts that this statement
is not correct insofar as his status is concerned. The truth of the matter is that he is single. What is
more intriguing in the testimony of CIC Colambo which renders him incredible and ineffective, the
accused-appellant continues, is his articulation to the effect that they conducted a buy-bust operation
to apprehend him (the accused-appellant) when nothing was mentioned about the quantity of
marijuana to be purchased and the corresponding amount to be paid therefor. Allegations of this
kind, being nonsense, waste the precious time of the Court.

We find no cogent reason to depart from the well-settled rule that the findings of fact of the trial court
on the credibility of witnesses should be accorded the highest respect because it has the advantage
of observing the demeanor of witnesses and can discern if a witness is telling the truth (People v.
Samson, G.R. No. 55520, August 25, 1989, 176 SCRA 710; People v. Orita, G.R. No. 88724, April
3, 1990, 184 SCRA 105). The trial court, which had the opportunity to observe the demeanor of the
witnesses and to listen to their respective testimonies, correctly gave more credence to the
statements of the arresting officers (People v. Tandoy, G.R. No. 80505, December 4, 1990). In
People v. Patog, et al., G.R. No. 69620, September 24, 1986, 144 SCRA 429, this Court held that
when there is no evidence and nothing to indicate that the principal witness for the prosecution was
actuated by improper motives, the presumption is that he was not so actuated and his testimony is
entitled to full faith and credit. Thus, it was the trial court's finding that (p. 28, Rollo):
 . . . Considering that there is no credible evidence submitted by the accused to show ill
motive on the part of the police officer Alberto Colambo who positively identified Marlon
Ruedas as the person who handed to them the marijuana leaves, the Court gives credit to
his testimony as against the mere denial of the charge by the accused.

Although not in any way related to the assignment of error, the accused-appellant attacks also the
prosecution's failure to present as witnesses the informer and the Barangay Chairman from whom
CIC Colambo allegedly came to know his identity and to introduce as evidence the P20.00 big
allegedly paid by the informer to him.

Suffice it to say that it is up to the prosecution to determine who should be presented as witnesses
on the basis of its own assessment of their necessity (Tugbang v. Court of Appeals, et al., G.R. No.
56679, June 29, 1989, 174 SCRA 424; People v. Somera, G.R. No. 65589, May 31, 1989, 173
SCRA 684; People v. Orita, supra). The failure of the prosecution to present in evidence the P20.00
bill paid by the informer to the accused-appellant is consistent with CIC Colambo's testimony that the
accused-appellant ran away and escaped arrest after having been paid for the two (2) tea bags of
marijuana leaves. At any rate, the presentation at the trial of the "buy-bust money" was not
indispensable to the conviction of the accused-appellant because the sale of the marijuana had been
adequately proved by the testimony of the police officers. So long as the marijuana actually sold by
the accused-appellant had been submitted as an exhibit, like in this case, the failure to produce the
marked money itself would not constitute a fatal omission (People v. Tandoy, supra).

For the accused-appellant's defense, he reiterates the alibi that he was in Manila when the alleged
crime happened. He went there on August 20, 1985 and worked at the Najjar Garment Factory
located at Vito Cruz, Makati. He returned to Lucena City only on September 30, 1985 when he was
informed by his sister that a case was filed against him. He presented as evidence a bus ticket to
prove that he returned to Lucena City only on said date. His defense was corroborated by Teresita
Atentar.

We are in conformity with the ruling of the trial court that (pp. 26-27, Rollo):

After careful examination of the defense of the accused, the Court rejects the same in view
of the positive identification by prosecution witness CIC Alberto Colambo that the accused
was the one who handed and sold to them two (2) tea bags containing marijuana leaves
("People vs. Ubaldo", L-19490, Aug. 26, 1968, 24 SCRA 24, 752).

It must be emphasized that defense of alibi is one of the weakest defense that could be
resorted to by an accused. The reason is that oral evidence of alibi is so easily manufactured
and usually so unreliable that it can rarely be given credence ("People vs. Badilla", 48 Phil.
718). While it is true that the accused presented a fare ticket (Exhibit "1") when he allegedly
returned from Manila to Lucena City, a scrutiny of the said ticket shows that it was dated
September 30, 1985 or long after the date when he was caught handing marijuana leaves to
the police officers on September 19, 1985. In other words, since the accused was able to
escape from the raiding team on September 19, 1985, he could have so easily went to
Manila and returned to Lucena City on September 30, 1985 to prove his alleged alibi.

Besides, no evidence whatsoever from the accused-appellant's employer was submitted to

corroborate his self-serving testimony, which the latter could have easily done if indeed he was
employed in Makati. Instead, the accused-appellant presented Teresita Atentar. However, her
testimony cannot be said to have sufficiently corroborated the alibi of the accused-appellant:
 Q By the way, Mrs. Witness, do you know where Marlon Ruedas was on September 19,
1985?

A What I know is that he was in Manila, sir.

Q And will you please tell this Court when did he leave Purok Maligaya when he went to
Manila?

FISCAL SIA:

Objection, your Honor, the witness is incompetent to testify.

ATTY. AYUMA:

If she knows, your Honor.

COURT:

Is the defense of the accused alibi?

ATTY. AYUMA:

Yes, your Honor, the affidavit of the accused states that he was in Manila during the time of
the incident.

COURT:

I think you should have presented first the accused.

ATTY. AYUMA:

But we are taking the opportunity to present this witness, your Honor. Anyway, the accused
is available any time.

COURT:

All right, witness may answer.

WITNESS:

From the month of August, I have not seen him and according to the sister, he had gone to
Manila and from that time on, I have not seen him anymore, sir. (pp. 7-8, tsn, March 20,
1987)

Even assuming that the accused-appellant was employed in Makati at the time of the incident, it was
not physically impossible for him to have returned to Lucena City and committed the crime charged
on September 19, 1985, taking into account modern means of transportation (People v. Villapando,
G.R. No. 73656, October 5, 1989, 178 SCRA 341). The rule is too well-known that the defense of
alibi can prosper only if it is so convincing as to preclude any doubt that the accused could not have
been physically present at the scene of the crime or its vicinity at the time of its commission (People
v. Yeban, et al., G.R. Nos. 90279-81, October 11, 1990).

We, therefore, find that the guilt of the accused-appellant for the crime charged has been proven
beyond reasonable doubt. However, the penalty of reclusion perpetua imposed by the trial court is
improper as it is not the penalty provided for the offense charged. Section 4, Article II of Republic Act
No. 6425, as amended, provides the penalty of life imprisonment to death and a fine ranging from
P20,000.00 to P30,000.00. The penalty of reclusion perpetua, a penalty provided in the Revised
Penal Code which carries accessory penalties is completely different from life imprisonment.

ACCORDINGLY, the appealed decision of the Regional Trial Court of Lucena City is AFFIRMED
insofar as it imposed a fine of P20,000.00 but MODIFIED with regard to the penalty of reclusion
perpetua which is changed to life imprisonment.

SO ORDERED.

Narvasa, Cruz, Gancayco and Grio-Aquino, JJ., concur.

Footnotes

* Section 4, Article II of Republic Act No. 6425 provides:

SEC. 4. Sale, Administration, Delivery, Distribution and Transportation of Prohibited

Drugs. The penalty of life imprisonment to death and a fine ranging from twenty
thousand to thirty thousand pesos shall be imposed upon any person who, unless
authorized by law, shall sell, administer, deliver, give away to another, distribute,
dispatch in transit or transport any prohibited drug, or shall act as a broker in any of
such transactions. If the victim of the offense is a minor, or should a prohibited drug
involved in any offense under this Section be the proximate cause of the death of a
victim thereof, the minimum penalty herein provided shall be imposed. (As amended
by PD No. 1675 February 17, 1980.).

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 82797 February 27, 1991

GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners,

vs.
HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC., respondents.

A.E. Dacanay for petitioners.

Antonio Quintos Law Office for private respondent.
PARAS, J.:

This is a petition for review on certiorari of the December 29, 1987 decision * of the Court of Appeals
in CA-G.R. No. 11960 entitled "ROCES-REYES REALTY, INC. vs. HONORABLE JUDGE
REGIONAL TRIAL COURT OF MANILA, BRANCH 44, GOOD EARTH EMPORIUM, INC. and LIM
KA PING" reversing the decision of respondent Judge ** of the Regional Trial Court of Manila,
Branch 44 in Civil Case No. 85-30484, which reversed the resolution of the Metropolitan Trial Court
Of Manila, Branch 28 in Civil Case No. 09639, *** denying herein petitioners' motion to quash the alias writ of execution
issued against them.

As gathered from the records, the antecedent facts of this case, are as follows:

A Lease Contract, dated October 16, 1981, was entered into by and between ROCES-REYES
REALTY, INC., as lessor, and GOOD EARTH EMPORIUM, INC., as lessee, for a term of three years
beginning November 1, 1981 and ending October 31, 1984 at a monthly rental of P65,000.00 (Rollo,
p. 32; Annex "C" of Petition). The building which was the subject of the contract of lease is a five-
storey building located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz, Manila.

From March 1983, up to the time the complaint was filed, the lessee had defaulted in the payment of
rentals, as a consequence of which, private respondent ROCES-REYES REALTY, INC., (hereinafter
designated as ROCES for brevity) filed on October 14, 1984, an ejectment case (Unlawful Detainer)
against herein petitioners, GOOD EARTH EMPORIUM, INC. and LIM KA PING, hereinafter
designated as GEE, (Rollo, p. 21; Annex "B" of the Petition). After the latter had tendered their
responsive pleading, the lower court (MTC, Manila) on motion of Roces rendered judgment on the
pleadings dated April 17, 1984, the dispositive portion of which states:

Judgment is hereby rendered ordering defendants (herein petitioners) and all persons
claiming title under him to vacate the premises and surrender the same to the plaintiffs
(herein respondents); ordering the defendants to pay the plaintiffs the rental of P65,000.00 a
month beginning March 1983 up to the time defendants actually vacate the premises and
deliver possession to the plaintiff; to pay attorney's fees in the amount of P5,000.00 and to
pay the costs of this suit. (Rollo, p. 111; Memorandum of Respondents)

On May 16, 1984, Roces filed a motion for execution which was opposed by GEE on May 28, 1984
simultaneous with the latter's filing of a Notice of Appeal (Rollo, p. 112, Ibid.). On June 13, 1984, the
trial court resolved such motion ruling:

After considering the motion for the issuance of a writ of execution filed by counsel for the
plaintiff (herein respondents) and the opposition filed in relation thereto and finding that the
defendant failed to file the necessary supersedeas bond, this court resolved to grant the
same for being meritorious. (Rollo, p. 112)

On June 14, 1984, a writ of execution was issued by the lower court. Meanwhile, the appeal was
assigned to the Regional Trial Court (Manila) Branch XLVI. However, on August 15, 1984, GEE thru
counsel filed with the Regional Trial Court of Manila, a motion to withdraw appeal citing as reason
that they are satisfied with the decision of the Metropolitan Trial Court of Manila, Branch XXVIII,
which said court granted in its Order of August 27, 1984 and the records were remanded to the trial
court (Rollo, p. 32; CA Decision). Upon an ex-parte Motion of ROCES, the trial court issued
an Alias Writ of Execution dated February 25, 1985 (Rollo, p. 104; Annex "D" of Petitioner's
Memorandum), which was implemented on February 27, 1985. GEE thru counsel filed a motion to
quash the writ of execution and notice of levy and an urgent Ex-parte Supplemental Motion for the
issuance of a restraining order, on March 7, and 20, 1985, respectively. On March 21, 1985, the
lower court issued a restraining order to the sheriff to hold the execution of the judgment pending
hearing on the motion to quash the writ of execution (Rollo, p. 22; RTC Decision). While said motion
was pending resolution, GEE filed a Petition for Relief from judgment before another court, Regional
Trial Court of Manila, Branch IX, which petition was docketed as Civil Case No. 80-30019, but the
petition was dismissed and the injunctive writ issued in connection therewith set aside. Both parties
appealed to the Court of Appeals; GEE on the order of dismissal and Roces on denial of his motion
for indemnity, both docketed as CA-G.R. No. 15873-CV. Going back to the original case, the
Metropolitan Trial Court after hearing and disposing some other incidents, promulgated the
questioned Resolution, dated April 8, 1985, the dispositive portion of which reads as follows:

Premises considered, the motion to quash the writ is hereby denied for lack of merit.

The restraining orders issued on March 11 and 23, 1985 are hereby recalled, lifted and set
aside. (Rollo, p. 20, MTC Decision)

GEE appealed and by coincidence. was raffled to the same Court, RTC Branch IX. Roces moved to
dismiss the appeal but the Court denied the motion. On certiorari, the Court of Appeals dismissed
Roces' petition and remanded the case to the RTC. Meantime, Branch IX became vacant and the
case was re-raffled to Branch XLIV.

On April 6, 1987, the Regional Trial Court of Manila, finding that the amount of P1 million evidenced
by Exhibit "I" and another P1 million evidenced by the pacto de retro sale instrument (Exhibit "2")
were in full satisfaction of the judgment obligation, reversed the decision of the Municipal Trial Court,
the dispositive portion of which reads:

Premises considered, judgment is hereby rendered reversing the Resolution appealed from
quashing the writ of execution and ordering the cancellation of the notice of levy and
declaring the judgment debt as having been fully paid and/or Liquidated. (Rollo, p. 29).

On further appeal, the Court of Appeals reversed the decision of the Regional Trial Court and
reinstated the Resolution of the Metropolitan Trial Court of Manila, the dispositive portion of which is
as follows:

WHEREFORE, the judgment appealed from is hereby REVERSED and the Resolution dated
April 8, 1985, of the Metropolitan Trial Court of Manila Branch XXXIII is hereby
REINSTATED. No pronouncement as to costs. (Rollo, p. 40).

GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p. 43). Hence, this petition.

The main issue in this case is whether or not there was full satisfaction of the judgment debt in favor
of respondent corporation which would justify the quashing of the Writ of Execution.

A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that nowhere in any of said
exhibits was there any writing alluding to or referring to any settlement between the parties of
petitioners' judgment obligation (Rollo, pp. 45-48).

Moreover, there is no indication in the receipt, Exhibit "1", that it was in payment, full or partial, of the
judgment obligation. Likewise, there is no indication in the pacto de retro sale which was drawn in
favor of Jesus Marcos Roces and Marcos V. Roces and not the respondent corporation, that the
obligation embodied therein had something to do with petitioners' judgment obligation with
respondent corporation.

Finding that the common exhibit, Exhibit 1/A had been signed by persons other than judgment
creditors (Roces-Reyes Realty, Inc.) coupled with the fact that said exhibit was not even alleged by
GEE and Lim Ka Ping in their original motion to quash the alias writ of execution (Rollo, p. 37) but
produced only during the hearing (Ibid.) which production resulted in petitioners having to
claim belatedly that there was an "overpayment" of about half a million pesos (Rollo, pp. 25-27) and
remarking on the utter absence of any writing in Exhibits "1/A" and "2/B" to indicate payment of the
judgment debt, respondent Appellate Court correctly concluded that there was in fact no payment of
the judgment debt. As aptly observed by the said court:

What immediately catches one's attention is the total absence of any writing alluding to or
referring to any settlement between the parties of private respondents' (petitioners') judgment
obligation. In moving for the dismissal of the appeal Lim Ka Ping who was then assisted by
counsel simply stated that defendants (herein petitioners) are satisfied with the decision of
the Metropolitan Trial Court (Records of CA, p. 54).

Notably, in private respondents' (petitioners') Motion to Quash the Writ of Execution and
Notice of Levy dated March 7, 1985, there is absolutely no reference to the alleged payment
of one million pesos as evidenced by Exhibit 1 dated September 20, 1984. As pointed out by
petitioner (respondent corporation) this was brought out by Linda Panutat, Manager of Good
Earth only in the course of the latter's testimony. (Rollo, p. 37)

Article 1240 of the Civil Code of the Philippines provides that:

Payment shall be made to the person in whose favor the obligation has been constituted, or
his successor in interest, or any person authorized to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or to its
successor in interest nor is there positive evidence that the payment was made to a person
authorized to receive it. No such proof was submitted but merely inferred by the Regional Trial Court
(Rollo, p. 25) from Marcos Roces having signed the Lease Contract as President which was
witnessed by Jesus Marcos Roces. The latter, however, was no longer President or even an officer
of Roces-Reyes Realty, Inc. at the time he received the money (Exhibit "1") and signed the sale
with pacto de retro (Exhibit "2"). He, in fact, denied being in possession of authority to receive
payment for the respondent corporation nor does the receipt show that he signed in the same
capacity as he did in the Lease Contract at a time when he was President for respondent corporation
(Rollo, p. 20, MTC decision).

On the other hand, Jesus Marcos Roces testified that the amount of P1 million evidenced by the
receipt (Exhibit "1") is the payment for a loan extended by him and Marcos Roces in favor of Lim Ka
Ping. The assertion is home by the receipt itself whereby they acknowledged payment of the loan in
their names and in no other capacity.

A corporation has a personality distinct and separate from its individual stockholders or members.
Being an officer or stockholder of a corporation does not make one's property also of the
corporation, and vice-versa, for they are separate entities (Traders Royal Bank v. CA-G.R. No.
78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA 482). Shareowners are in no legal sense
the owners of corporate property (or credits) which is owned by the corporation as a distinct legal
person (Concepcion Magsaysay-Labrador v. CA-G.R. No. 58168, December 19, 1989). As a
consequence of the separate juridical personality of a corporation, the corporate debt or credit is not
the debt or credit of the stockholder, nor is the stockholder's debt or credit that of the corporation
(Prof. Jose Nolledo's "The Corporation Code of the Philippines, p. 5, 1988 Edition, citing Professor
Ballantine).

The absence of a note to evidence the loan is explained by Jesus Marcos Roces who testified that
the IOU was subsequently delivered to private respondents (Rollo, pp. 97-98). Contrary to the
Regional Trial Court's premise that it was incumbent upon respondent corporation to prove that the
amount was delivered to the Roces brothers in the payment of the loan in the latter's favor, the
delivery of the amount to and the receipt thereof by the Roces brothers in their names raises the
presumption that the said amount was due to them. There is a disputable presumption that money
1wphi 1

paid by one to the other was due to the latter (Sec. 5(f) Rule 131, Rules of Court). It is for GEE and
Lim Ka Ping to prove otherwise. In other words, it is for the latter to prove that the payments made
were for the satisfaction of their judgment debt and not vice versa.

The fact that at the time payment was made to the two Roces brothers, GEE was also indebted to
respondent corporation for a larger amount, is not supportive of the Regional Trial Court's
conclusions that the payment was in favor of the latter, especially in the case at bar where the
amount was not receipted for by respondent corporation and there is absolutely no indication in the
receipt from which it can be reasonably inferred, that said payment was in satisfaction of the
judgment debt. Likewise, no such inference can be made from the execution of the pacto de
retro sale which was not made in favor of respondent corporation but in favor of the two Roces
brothers in their individual capacities without any reference to the judgment obligation in favor of
respondent corporation.

In addition, the totality of the amount covered by the receipt (Exhibit "1/A") and that of the sale
with pacto de retro(Exhibit "2/B") all in the sum of P2 million, far exceeds petitioners' judgment
obligation in favor of respondent corporation in the sum of P1,560,000.00 by P440,000.00, which
militates against the claim of petitioner that the aforesaid amount (P2M) was in full payment of the
judgment obligation.

Petitioners' explanation that the excess is interest and advance rentals for an extension of the lease
contract (Rollo, pp. 25-28) is belied by the absence of any interest awarded in the case and of any
agreement as to the extension of the lease nor was there any such pretense in the Motion to Quash
the Alias Writ of Execution.

Petitioners' averments that the respondent court had gravely abused its discretion in arriving at the
assailed factual findings as contrary to the evidence and applicable decisions of this Honorable
Court are therefore, patently unfounded. Respondent court was correct in stating that it "cannot go
beyond what appears in the documents submitted by petitioners themselves (Exhibits "1" and "2") in
the absence of clear and convincing evidence" that would support its claim that the judgment
obligation has indeed been fully satisfied which would warrant the quashal of the Alias Writ of
Execution.

It has been an established rule that when the existence of a debt is fully established by the evidence
(which has been done in this case), the burden of proving that it has been extinguished by payment
devolves upon the debtor who offers such a defense to the claim of the plaintiff creditor (herein
respondent corporation) (Chua Chienco v. Vargas, 11 Phil. 219; Ramos v. Ledesma, 12 Phil. 656;
Pinon v. De Osorio, 30 Phil. 365). For indeed, it is well-entrenched in Our jurisprudence that each
party in a case must prove his own affirmative allegations by the degree of evidence required by law
(Stronghold Insurance Co. v. CA, G.R. No. 83376, May 29,1989; Tai Tong Chuache & Co. v.
Insurance Commission, 158 SCRA 366).
The appellate court cannot, therefore, be said to have gravely abused its discretion in finding lack of
convincing and reliable evidence to establish payment of the judgment obligation as claimed by
petitioner. The burden of evidence resting on the petitioners to establish the facts upon which their
action is premised has not been satisfactorily discharged and therefore, they have to bear the
consequences.

PREMISES CONSIDERED, the petition is hereby DENIED and the Decision of the Respondent
court is hereby AFFIRMED, reinstating the April 8, 1985 Resolution of the Metropolitan Trial Court of
Manila.

SO ORDERED.

Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.

Footnotes

* Penned by Associate Justice Oscar M. Herrera and concurred in by Associate Justices

Leonor Ines Luciano and Justo P. Torres, Jr.

** Judge Marcelo R. Obien.

*** Penned by Judge Alicia G. Decano.