Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-44347 September 29, 1988

VICENTE TAN, petitioner,

vs.
CITY OF DAVAO, respondent.
Occeña Law Office for petitioner.
The City Legal Officer for respondent.

GRIÑO-AQUINO, J.:

This 26-year old case involves what is probably now a valuable lot in the City of Davao whose owner left for
China with her entire family in 1923 and never returned. Like all such estates facing escheat proceedings, it is
fair game for poseurs and fakers claiming to be the missing heir of the deceased owner.

The spouses Cornelia Pizarro and Baltazar Garcia, during their lifetime, were residents of Davao City. As they
were childless, they adopted a three-year old girl whom they named Dominga Garcia and brought up as their
own. At the age of nineteen years, Dominga Garcia married a Chinaman, Tan Seng alias Seng Yap, with whom
she had three children, named Vicente, who was born in 1916, Mariano who was born in 1918, and Luis who
was born in 1921. In 1923, Dominga Garcia and her three children emigrated to Canton, China. In less than a
year, Tan Seng followed his family to his country of origin.

According to the petitioner, Dominga Garcia died intestate in 1955 (Extra-judicial Settlement of the Estate of
Dominga Garcia dated May 27, 1966, p. 8, Rollo). She left in the Philippines a 1,966-square-meter lot on Claveria
Street, Townsite of Davao, District of Davao, registered in her name under T.C.T. No. 296 (T-2774) of the
Registry of Deeds of Davao City. Since her departure for China with her family, neither she, nor her husband,
nor any of their children has returned to the Philippines to claim the lot.

Dominga's adoptive parent, Cornelia Pizarro, died in May 1936. In 1948, her nephew, Ramon Pizarro, occupied
a part of Dominga's property and collected the rentals from the owners of other houses occupying the land.
Another nephew of Cornelia, Segundo Reyes, in a burst of civic spirit, informed the Solicitor General about the
property. The City Fiscal and NBI agents, Antonio Gonzaga and Felix Valencia, investigated Segundo Reyes,
Ramon Pizarro and Aurelio Pizarro regarding the whereabouts of Dominga Garcia, Tan Seng, and their children.

During the investigation, Ramon Pizarro alleged that Vicenta Tan, daughter of Dominga, was married and living
in Bacolod City, but he did not know her exact address. Aurelio Pizarro, on the other hand, controverted that
statement because as far as he knew, Vicenta Tan left for China with her mother and brothers in 1923.

On September 12,1962, the City of Davao filed a petition in the Court of First Instance of Davao, Branch I (Special
Civil Case No. 1220) to declare Dominga Garcia's land escheated in its favor. It alleged that Dominga Garcia and
her children are presumed to be dead and since Dominga Garcia left no heir person by law entitled to inherit
her estate, the same should be escheated pursuant to Rule 92 of the Rules of Court (pp. 1-5, Record on Appeal).

The court set the petition for hearing and directed the City to cause (as it did ) the publication of its petition in
the 'Mindanao Times," a newspaper of general circulation in the city and province of Davao, and in the Official
Gazette, once a week for six (6) consecutive weeks (pp. 6-8, Record on Appeal).
Ramon Pizarro opposed the escheat petition on the ground that courts are not authorized to declare that a
person is presumed to be dead and that Dominga Garcia's being in Red China is not a sufficient ground to
deprive her of her property by escheat proceedings (pp. 8-9, Record on Appeal).

On June 15, 1966, Pizarro filed a motion to dismiss the escheat petition (pp. 13-15, Record on Appeal), but he
withdrew his motion three days later (p. 15, Record on Appeal).

Numerous incidents delayed the trial of the case, among them: (1) the court's order denying the oppositor's
motion to dismiss the escheat petition, which reached the Court of Appeals and the Supreme Court (L-38423);
(2) the court's order requiring Pizarro to render an accounting which also reached the Court of Appeals and
Supreme Court (L-38642); and (3) the court's order for receivership which reached the Court of Appeals and
the Supreme Court (L-39224).

At the trial, the petitioner's evidence on the Identity of the land; the fact that the registered owner, Dominga
Garcia, and her children and husband had left for China in 1923; that she died intestate in 1955; and that none
of her heirs is found in the Philippines, were not seriously disputed.

The controversy centers on whether Dominga's daughter, Vicenta Tan, is alive in China or in Hongkong, as
alleged by Pizarro who tried to prove it through: (1) supposed pictures of the missing heir (Exhs. 1, 2, and 3);
(2) an Extrajudicial Settlement and Adjudication of Dominga's Estate (Exh. 19, pp. 8-9, Rollo) allegedly executed
by Vicenta in Hongkong on May 27, 1966; and (3) a Special Power of Attorney (Exh. 20) that she supposedly
signed (thumbmarked) in favor of Pizarro on the same date also in Hongkong (pp. 53-56, Rollo).

Pizarro testified that his aunt Cornelia Pizarro gave him the papers pertaining to the land and told him to take
care of it before she died in 1936.

On cross-examination, he alleged that in 1960 he met Vicenta on Claveria Street, that she told him to take care
of her property because she would come again later; that they met again in Hongkong in 1966; and he
recognized her from her pictures
(Exhs. 1, 2, and 3).

On still another occasion, Pizarro testified that the title of the land was given to him by Dominga Garcia when
she and her husband returned to Davao before the war and borrowed money from him for their trip to China.

Pizarro's witness, a septuagenarian Arsenio Suazo, who claimed to be a distant relative of Cornelia Pizarro and
Dominga Garcia, testified that the last time he saw Vicenta was when she was 5 years old. He Identified her as
the woman with buck teeth in the pictures (Exhs. 1, 2 and 3) because he remembered that, even as a 5-year-
old, "her teeth were not in good form and were somewhat protruding."

Another witness, Ramon Regino, a nephew of Pizarro, calculated that Vicenta was 7 years old when he last saw
her. He testified that the pictures (Exhs. 1, 2, and 3) bore a similarity to Vicenta whose face, he recalled, was
"somewhat long."

The trial court found Suazos testimony "not credible" or "improbable" for it was impossible for him to Identify
the woman in the picture as Vicenta on the basis only of his recollection that she had protruding teeth as a child,
because, the court argued, "it is a matter of common knowledge ... that the teeth of children of five years of age
are temporary, and are replaced by permanent teeth at the age of seven or eight years."
(p. 185, Record on Appeal.)

The court also found Regino's testimony "Incredible, patently incredible" (p. 185, Record on Appeal).
Neither did the trial court believe Pizarro's allegation that the pictures, Exhibits 1, 2, and 3, were those of
Vicenta Tan. The court observed that the woman in the picture, who supposedly made the Extrajudicial
Settlement and Special Power of Attorney (Exhs. 19 and 20) did not know how to sign her name, thus
contradicting Pizarro's statement that Vicente, at age 7, already knew how to write and that when they met in
Hongkong, they conversed in Chavacano and in English. On the other hand, the court pointed out, since Vicenta
left for China in 1923 when she was only 7 years old, and as she grew up in China, it could not be true that she
spoke Chavacano and could write in the Roman alphabet
(p. 194, Record on Appeal).

The Court did not believe that Pizarro and Vicenta met in Davao in 1960, for if that were true, he did not need
to be shown the scar on Vicenta's thigh in order for him to recognize her. Furthermore, it is improbable that a
woman whom he had not seen for 43 years would bare her thigh to him. The trial court pointed out in its
decision that:

... There is no proof that Vicenta Tan, daughter of Dominga Garcia, was the one who in fact sent
the picture other than the claim of Pizarro that he received the same from her. Likewise, there
is no proof that the woman in Exhibit I is Vicenta Tan, daughter of Dominga Garcia, except the
testimony of Pizarro that he received the picture from her. An impostor might have sent her
picture to Pizarro foist herself upon him as the daughter of Dominga Garcia. And this is the
woman whom Pizarro met in Hongkong (p. 196, Record on Appeal.)

The trial court found that Pizarro's testimonies "ring with untruthfulness; they are replete with
inconsistencies" (p. 17, Record on Appeal) and the witnesses who corroborated him were "unworthy of belief"
(p. 198, Record on Appeal).

On March 23, 1972, the trial court rendered judgment whose dispositive portion is quoted below:

WHEREFORE, the land in the name of Dominga Garcia covered by Transfer Certificate of Title
No. 296 (T-2774) of the Register of Deeds of Davao City, as well as the rentals thereon, shall
escheat and the same are hereby assigned to the City of Davao for the benefit of public schools
and public charitable institutions and centers in the said city.

Ramon Pizarro shall make an accounting of the income he collected from himself and those
who are occupying the land from the time he took possession of it in 1936 when his aunt
Cornelia Pizarro died until the City of Davao takes possession of the property and shall deliver
the same to the city.

Ramon Pizarro shall likewise deliver to the City of Davao the owner's duplicate of Transfer
Certificate of Title No. 296 (T-2774) which is in his possession, without costs. (p. 198, Record
on Appeal.)

Pizarro appealed to the Court of Appeals (CA-G.R. No. L-51786-R). He passed away on June 16, 1975 during the
pendency of the appeal.

On August 19,1975, a certain Luis Tan, alias Chen Yek An claiming to be the long missing son of Dominga Garcia,
filed a motion for intervention in the Court of Appeals. He alleged that he had been living in mainland China;
that he failed to come to the trial because of a government prohibition barring his entry to the Philippines; that
after diplomatic relations with China were restored, he returned to this country to oppose the escheat
proceedings on the properties of his mother, Dominga Garcia.

The City of Davao opposed the motion for intervention for tardiness. The Court of Appeals disallowed it because
the trial had long been terminated, and the intervention, if allowed, would unduly delay the adjudication of the
rights of the original parties
(p. 26, Rollo).

On April 2, 1976, the Court of Appeals affirmed the appealed decision of the trial court. Vicenta Tan and/or her
attorney-in-fact, Ramon Pizarro, appealed by petition for certiorari to this Court, alleging that the Court of
Appeals erred:

1. in ruling that the city of Davao had personality to file the escheat petition; and

2. in declaring that petitioner Vicenta Tan may be presumed dead.

We find no merit in the petition for review.

With respect to the argument that only the Republic of the Philippines, represented by the Solicitor-General,
may file the escheat petition under Section 1, Rule 91 of the Revised (1964) Rules of Court, the Appellate Court
correctly ruled that the case did not come under Rule 91 because the petition was filed on September 12,1962,
when the applicable rule was still Rule 92 of the 1940 Rules of Court which provided:

Sec. 1. When and by whom,petition filed.—When a person dies intestate, seized of real or
personal property in the Philippines, leaving no heirs or person by law entitled to the same,
the municipality or city where the deceased last resided, if he resided in the Philippines, or
the municipality or city in which he had estate if he resided out of the Philippines, may file a
petition in the court of first instance of the province setting forth the facts, and praying that
the estate of the deceased be declared escheated. (Emphasis supplied.)

Rule 91 of the Revised rules of Court, which provides that only the Republic of the Philippines, through the
Solicitor General, may commence escheat proceedings, did not take effect until January 1, 1964. Although the
escheat proceedings were still pending then, the Revised Rules of Court could not be applied to the petition
because to do so would work injustice to the City of Davao. Rule 144 of the 1964 Rules of Court contains this
"saving" clause:

These rules shall take effect on January 1, 1964. They shall govern all cases brought after they
take effect, and also all further proceedings in cases pending, except to the extent that in the
opinion of the court, their application would not be feasible or would work injustice, in which
event the former procedure shall apply.

The Court of Appeals should have dismissed the appeal of Vicenta Tan and Ramon Pizarro earlier because the
records show that Vicenta was never a party in the escheat proceedings. The trial court's order dated February
4, 1972 ordering that she be substituted for Ramon Pizarro as oppositor (p. 16, Record on Appeal) was set
aside by the same court in its Order of March 23, 1972 (p. 178, Record on Appeal) which was not appealed.

Vicenta Tan, if she still exists, was never served with summons extra-territorially under Section 17, Rule 14 of
the Rules of Court. She never appeared in the trial court by herself, or counsel and never filed a pleading therein,
hence, she never submitted to the court's jurisdiction.

Every action must be prosecuted and defended in the name of the real party-in-interest (Sec. 2, Rule 3, Rules of
Court; Ferrer vs. Villamor, 60 SCRA 106; Filipinas Industrial Corp. vs. San Diego, 23 SCRA 706; 1 Moran 144).
Ramon Pizarro, the alleged administrator of Dominga Garcia's property, was not a real party in interest. He had
no personality to oppose the escheat petition.

The Court of Appeals did not err in affirming the trial court's ruling that Dominga Garcia and her heirs may be
presumed dead in the escheat proceedings as they are, in effect, proceedings to settle her estate. Indeed, while
a petition instituted for the sole purpose of securing a judicial declaration that a person is presumptively dead
cannot be entertained if that were the only question or matter involved in the case, the courts are not barred
from declaring an absentee presumptively dead as an incident of, or in connection with, an action or proceeding
for the settlement of the intestate estate of such absentee. Thus ruled this Court in In re Szatraw 81 Phil 461:

... This presumption ... may arise and be invoked and trade in a case, either in an action or in a
special proceeding, which is tried or heard by, and submitted for-decision to, competent court.
Independently of such an action or special proceeding, the presumption of death cannot be
invoked, nor can it be made the subject of an action or special proceeding. (Emphasis added.)

Direct evidence proving that Dominga Garcia, her husband and her children are in fact dead, is not necessary.
It may be presumed under Article 390 of the New Civil Code which provides:

ART. 390. After an absence of seven years, it being unknown whether or not the absentee still
lives, he shall be presumed dead for all purposes, except for those of succession.

The absentee shall not be presumed dead for the purpose of opening his succession till after
an absence of ten years ...

The Court of Appeals found that the City of Davao was able to prove the facts from which the presumption
arises. It said:

... Its evidence preponderantly shows that in 1923 Dominga Garcia and her family left the
Philippines bound for China. Since then until the instant petition was filed on September 12,
1962, a period covering about 39 years, nothing had been heard about them. It is not known
whether all or any of them is still alive at present. No heir, devisee or any other person entitled
to the estate of Dominga Garcia has appeared and claimed the same up to this time except Luis
Tan whose status as alleged heir has still to be proven in the proper court.

The assertion of appellant Pizarro that in 1960 he met and talked with Vicenta Tan in Claveria,
Davao City, before she went to China, and again in 1966, when he went to Hongkong, was not
believed by the court below. After assessing and evaluating the evidence, we find no sufficient
cause to disturb the conclusion of the trial court made on a finding of fact based on conflicting
testimony and depending largely upon the credibility of witnesses who testified before it. In
our review of the evidence, we have not come across any material fact or circumstance which
the court a quo has overlooked and failed to consider, or has misunderstood and misapplied,
and which if properly appreciated and accurately were held would change the result of this
litigation.

For one thing, if it is true that Vicenta Tan left the Philippines only in 1960, as oppositor
Pizarro would like the court to believe, it has not been explained why he omitted to secure
copies of her departure papers from either the Department of Foreign Affairs, the Bureau of
Immigration or the former Chinese Embassy, and present them to the court to establish her
existence as late as 1960.

For another, if it is also true that he met her in Hongkong in 1966, we are at a loss why he
failed to arrange for her return to the Philippines. We do not believe it would have been
difficult to do so, considering that she had been a resident of this country for more than 40
years and had been absent for only about six years and that her return was imperative on
account of a court action against her property which required her personal presence. But even
if this were impossible, oppositor Pizarro would not be left without any other remedy. He
could have arranged for the taking of her deposition in Hongkong by means of letters rogatory
 under Sections 11 and 12, Rule 24 of the Revised Rules of Court, in the same manner that,
according to him, he arranged their meeting in the Crown Colony sometime in 1966.

The unexplained failure of oppositor Pizarro to take advantage of any of these remedies
available to him heavily tilts the scale against the credibility of his claim.
(pp. 30-31, Rollo.)

These factual findings of the Court of Appeals are binding on Us. They may not be disturbed in this petition for
review where only legal questions may be raised
(Sec. 2, Rule 45).

WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R. No. 51786-R, the
petition for review is denied for lack of merit.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-42215 July 13, 1976

ENCARNACION LOPEZ VDA. DE BALUYUT, petitioner,

vs.
HON. JUDGE LEONOR INES LUCIANO, Presiding Judge, Juvenile & Domestic Relations Court, Quezon
City, CRISTETA DE CUESTA and GUADALUPE DE VIRAY, respondents.

Santiago, Salunat & Agbayani for petitioner.

Bengzon, Bengzon, Villaroman & De Vera for respondents.

AQUINO, J.:

Encarnacion Lopez Vda. de Baluyut appealed by certiorari from (1) the order dated September 25, 1975 of the
Juvenile and Domestic Relations Court of Quezon City, declaring her an incompetent and scheduling hearing to
determine who should be appointed as her guardian and (2) its order of December 10, 1975, denying her
motion to set aside the declaration of incompetency, which was issued before her counsel could cross-examine
the psychiatrist, and scheduling the cross-examination on January 21, 1976 (Special Proceeding No. QC-00939).
The antecedents of the appeal are as follows:
Sotero Baluyut, a resident of 59 Quezon Boulevard Extension Quezon City, died at the age of eighty-six years,
leaving an estate allegedly valued at not less than two million pesos. He was survived by Encarnacion Lopez,
his seventy-five-year old widow.

Soon after Sotero Baluyut's death, his alleged nephew, Alfredo G. Baluyut, exerted efforts to control the
decedent's estate. Assisting him in the attainment of that goal were the widow's sisters, Cristeta Lopez Vda. de
la Cuesta and Guadalupe Lopez Viray. Their antagonists were the widow and her ally, Jose G. Espino an alleged
natural child of Sotero Baluyut.

On February, 20, 1975, or forty-five days after Sotero Baluyut's demise, Alfredo filed a petition in the Court of
First Instance of Quezon City for the settlement of the decedent's estate. He alleged that Mrs. Baluyut was
mentally incapable of administering her affairs and the decedent's estate or of acting as executrix of his will, if
any. He prayed that, after hearing, he be appointed administrator and, in the meantime, special administrator
(Special Proceeding No. Q-19794. See L-42088, Baluyut vs. Judge Pano, May 7, 1976).

Alfredo did not content himself with the filing of the administration proceeding. On that same day, February
20, he filed in the Juvenile and Domestic Relations Court of Quezon City a petition to declare Mrs. Baluyut an
incompetent and to place her under guardianship.

He alleged that due to a head injury she "has suffered impairment of her mental faculties" and that "she is no
longer competent, physically and mentally", to manage her affairs. He claimed that he was able, qualified and
ready to act as her guardian. Evidently, Alfredo sought to immobilize Mrs. Baluyut and prevent her from
administering the decedent's estate, supposely a conjugal estate (Special Proceeding No. Q-00925).

After the petition was partially heard, Mrs. Baluyut learned of the guardianship proceeding. She filed a verified
opposition wherein she denied the allegations regarding her alleged mental incompetency. She alleged that the
petition was filed after Alfredo's attempts to get possession of the decedent's estate were aborted and after
Mrs. Baluyut's residence was ransacked on February 12, resulting in the loss of important papers and cash of
not less than one hundred thousand pesos.

She alleged that the documents being used by Alfredo against her were "the product not only of an illegal
seizure but of a plain and simple robbery"; that the filing of the petition was "an act of disrespect to the
deceased", since Alfredo and his cohorts were "cuddled and reared" by the spouses Sotero Baluyut and
Encarnacion Lopez; that there could be no justice in declaring her an incompetent just to enable Alfredo to take
her properties, and that Because of the malicious petition she suffered sleepless nights and serious anxiety.

On April 7 Alfredo filed a motion praying that Mrs. Baluyut be subjected to a neuropsychiatric examination. She
filed a countermotion to expunge that motion from the record.

On April 15, Alfredo filed an amended petition praying that Mrs Cuesta and Mrs. Viray be appointed guardians
of the person and property of their sister, Mrs. Baluyut. The latter vehemently opposed the amended petition.
Later, Alfredo moved orally that he be considered disqualified to act as guardian in view of his appointment as
special administrator.

The lower court in its order of April 28, 1975, granted Alfredo's motions that he be considered disqualified to
act as guardian and that Mrs. Baluyut should undergo a neuropsychiatric examination which was scheduled on
May 7 at the Philippine General Hospital before Doctors Lourdes V. Lapuz or Baltazar Reyes. The lower court
advised Mrs. Cuesta and Mrs. Viray to file their own petition for appointment as guardians of Mrs. Baluyut.

The lower court in its order of June 20, 1975 dismissed Alfredo's petition for guardianship. That ended round
one of the guardianship incident.
The second round started on May 6, 1975 when Mrs. Cuesta and Mrs. Viray filed in the same court their petition
dated April 28, praying that Mrs. Baluyut be declared an incompetent and that they he appointed as her
guardian. They repleaded the material allegations of Alfredo's amended petition (Special Proceeding No. QC-
00.939). *

On the following day, May 7, Mrs. Cuesta and Mrs. Viray filed an urgent ex-parte motion praying that Mrs.
Baluyut be ordered to remain at the conjugal residence and that she be placed under the court's protection or
in her sisters' custody so that she could be available for psychiatric examination. Without hearing Mrs. Baluyut,
the lower court on May 8 granted the motion.

On May 16 Mrs. Cuesta and Mrs. Viray filed an amended petition dated May 8 to cure the deficiencies of their
original petition. On May 21, Mrs. Baluyut filed a motion to set aside the May 8 order. On the following day, May
22, Mrs. Baluyut filed a motion to strike out the original petition for guardianship. The motion was alternatively
labelled as an opposition to the petition. Those motions were denied in the lower court's order of June 23, 1975.

On June 18 Mrs. Cuesta and Mrs. Viray filed a new petition for guardianship, without mentioning their petitions
of April 28 and May 8. Mrs. Baluyut's counsel claims that no filing fee was paid for docketing the petition.

On July 21 the lower court issued an order appointing Doctor Lapuz as commissioner to determine the
competency of Mrs. Baluyut at an examination scheduled on August 12 at her residence and to report whether
she should be placed under guardianship. On August 11 Mrs. Baluyut's counsel manifested that she was ready
to submit to neuropsychiatric examination at her new domicile, 53 East Maya Street, Phil-Am Life Homes,
Quezon City.

On September 25 the lower court issued the questioned order declaring Mrs. Baluyut an incompetent on the
basis of the report of Doctor Lapuz. Mrs. Baluyut was first examined by Ma. Paz U. Guzman, a psychologist. The
latter found that as of September 11 Mrs. Baluyut was "an integrated well-functioning individual", "an aware
and responsive individual who has a mind of her own", and "competent enough to understand her Position
relative to the case involving her".

Doctor Lapuz found that Mrs. Baluyut was aware of what the present court case was all about; that Mrs. Baluyut
spontaneously declared that she preferred to associate with the Espino spouses because they treated her
kindly, and that Mrs. Baluyut said that her other relatives were probably envious and desired to get hold of her
assets.

The evaluations of the psychologist and the psychiatrist, which according to Mrs. Baluyut's counsel do not
sustain the declaration of incompetency, are reproduced below:

Psychological Evaluation

Observation and Interview. — Subject came smartly dressed in a jersey gown and looking well
groomed. She was bejeweled with several bracelets on both arms, 5 rings, a necklace and
watch. She appeared in good physical condition. She walked and seated herself unassisted.
She moved about with comfort. She took the test independently except the Personal Data
Sheet which she filled out with the assistance of Mr. and Mrs. Espino.

Her testing behavior was positive. She followed instructions without questions or signs of
resistance. She displayed appropriate affect, (sic) was coherent and spontaneously made
several relevant remarks in relation to the various test stimuli presented to her. She was
friendly and pleasant, However, she reacted indignantly when the Examiner encouraged her
to try her best at the tests because the result would be presented to Dra. Lapuz. She denied
having met Dra. Lapuz and momentarily refused to go on with the tests saying that she did not
care if people thought she was crazy. She was appeased and reassured and was able to resume
working at the tests with her full cooperation. She later apologized to the Examiner for her
outbursts and for having taken so much of the Examiner's time.

Test Results. — The Wechsler Adult Intelligence Scale yielded a Performance Scale IQ of 80
which places the Subject's intellectual functioning at, the Dull Normal range. This represent
her current functioning and how she compares with her peer group. The subject scores
indicate her weakest area to be in visual motor functioning. This deterioratiori appears to be
purely a function of impaired vision and reduced motoric speed due to her advanced age
rather than a psychogenically based depression.

Similar impressions were gathered from the Bender-Gestalt reproductions of subject. Her
figures showed integration and accurate perception of the stimuli although her motoric
expression is characterized by mild tremors and poor control of the movements of her arm
and hand.

The subject's immediate recall is impaired. However, her long term memory for past events
appears to be relatively intact. Specifically, she failed to reproduce from memory a single
figure out of several she had previously copied. However, she could recall and recount a
conversation that she carried or with her companion some 30 minutes earlier.

The test data showed no signs of psychosis or severe personality disturbance. Her responses
to the projective tests showed that her perception of stimuli is very much like those of the
majority. Her percepts tended to be common place and ordinary but accurate. There were no
bizarre responses. She is aware and is in adequate touch with reality. Allowing for some
neurological deterioration due to her age, the subject's cognitive and affective functioning
indicates that she is intellectually and emotionally competent. She knows what she wants, and
is in control of her volition. However, although she has a strong will and is determined, she is
not often physically able to carry out her desires.

Summary: — The subject's test data point up an integrated well-functioning individual. She
reaches Dull Normal limits on the Wechsler Adult Intelligence Scale in comparison to her age
group. She is relevant and in touch with reality. No gross pathology is gathered from the tests,
Rather the results show an aware and responsive individual who has a mind of her own. She
is competent enough to understand her position relative to the case involving her.

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Psychiatric Evaluation

Patient: Encarnacion Baluyot

Widow, 74 years old

Childless

The patient was referred by the Juvenile and Domestic Relations Court, Quezon City, for a
psychiatric evaluation to help determine her competence in handling her finances. She was
seen twice by the undersigned in the latter's office at St. Luke's Hospital. At each visit, she was
accompanied by Mrs. Jose Espino, a relative, but was interviewed alone.

She is stylishly dressed and groomed, wearing much jewelry. She cooperates in a friendly
manner but grows impatient and irritable when the questions obviously test her capacity for
intellectual concentrating on the discussion, but on the whole, she gave relevant and coherent
answers, which tended to be quite brief. There was prolonged reaction time to questions
which tested memory and orientation, indicating quite clearly that memory and orientation
are impaired. She seemed to best remember discreet tidbits about the highlights of her life
when her late husband was at the peak of his public career. However, she cannot integrate
such bits of memory into a full recollection of how her life was at that time. The same was true
in response to inquiry about any aspect of her life. She can give one or two very brief
 statements but fails to pursue further the discussion. There is clearly an impairment of
thought processes.

She is aware however of what the present court case is all about. She declares quite
spontaneously that she likes being with the Espino's because she is treated kindly and thought
fully by them. She mentions other relatives who are probably envious and wish to get hold of
her assets.

Her personal history, pieced together with information from Mrs. Espino, the wife of an
adopted son, indicate that she has been a mother to many of her late husband's nieces and
nephews, who were sent to school and given a start in life by the couple. She has always been
over-concerned with money to the point of eccentricity but has a generous heart. Pampered
by her husband, she has always enjoyed being with friends, socializing and still goes off to
dance session with friends her age. The death of her husband has obviously made her even
more dependent and helpless.

In summary, the subject is a 74 year-old woman in whom the ageing process has rendered the
intellectual capacity sufficiently impaired to warrant a recommendation for kind and
consistent guidance in the handling of her affairs. She would best be helped by people who are
truly interested in her welfare. Being of a kind and dependent nature herself, she need to be
looked after. She would be more confused and lost if continuously in the center of hostilities.
She needs a simple, well-directed life among kind people who will tend to her day-to-day
activities. She may be able to grasp a situation correctly and superficially but she will need
help regarding details and more complex procedures. Psychological testing (Weschler Adult
Intelligence; Bender-Gestalt; Roscharch) shows functions at the dull normal, but otherwise
integrated and in touch with reality. The test also showed impairment for recent memory and
in visual-motor functions.

Lourdes V. Lapuz, M.D.

Mrs. Baluyut's counsel observed that the lower court's order was "issued in a blitz manner", without any
hearing on the psychiatriat's report, without giving notice to her, and without giving her a copy of the report.
On October 6 she filed a motion for the reconsideration of the order declaring her an incompetent. She called
attention to the fact that in the administration proceeding Judge Vicente G. Ericta had declared her "competent"
in his order of March 24, 1975 and that Judge Ernani Cruz Pano (the successsor of Judge Ericta) in his order of
November 27, 1975 appointed Mrs. Baluyut as administratrix after concluding that she was competent to act
as such, considering the findings of Judge Ericta and of the psychologist and Doctor Lapuz.

The lower court had scheduled a hearing on October 8 to determine who should be appointed guardian of Mrs.
Baluyut. Her counsel did not appear at the hearing may be because of his pending motion for reconsideration.
At that hearing, Mrs. Cuesta, Mrs. Viray, her husband Atty. Fortunato Viray, Sr. and Alfredo G. Baluyut testified
upon direct examination by Atty. Fortunato Viray, Jr. The oral evidence was presented for the purpose of
proving that Mrs. Viray was competent to act as guardian of her sister, Mrs. Baluyut.

On October 20 the lower court motu proprio issued another order justifying its prior declaration that Mrs.
Baluyut is an incompetent. It scheduled the cross-examination of Doctor Lapuz on October 24. The hearing was
not held due to the indisposition of Doctor Lapuz. In the meantime, Mrs. Baluyut filed another motion to set
aside the declaration of incompetency.

On December 10 the lower court issued an order denying Mrs. Baluyut's motion for reconsideration. In ruled,
that as a socio-legal court, in was duly empowered under section 29-B of the charter of Quezon City to avail
itself of the consultative services of psychiatrists, psychologists and other qualified specialists (Republic Act
No. 4836, creating the Juvenile and Domestic Relations Court by amending Republic Act No. 537, the charter of
Quezon City).

The lower court further held that the declaration of incompetency was interlocutory and that a prompt
resolution of the issue as to Mrs. Baluyut's incompetency was imperative in view of the verified statements of
her two sisters and nephew-in-law that more than one million pesos had been "withdrawn by her through the
machinations of third persons".

The instant petition for review was filed on December 29, 1975. In that petition Mrs. Baluyut's counsel assails
for the first time the lower court's jurisdiction to declare her an incompetent. She contends that her competency
is involved in the administration proceedings pending in Branch XVIII of the Court of First Instance of Quezon
city which court (not the Juvenile and Domestic Relations Court) has jurisdiction over the issue as to her
competency. She invokes section 29-A of the Quezon City charter which provides that the Juvenile and Domestic
Relations Court has exclusive original jurisdiction in guardianship cases (paragraph 2), but which also provides
an exception in its last sentence quoted below:

If any question involving any of the above matters (the seven classes of cases over which the
court has exclusive original jurisdiction) should arise as an incident in any case pending in the
ordinary court, said incident shall be determined in the main case.

The issues are (1) whether the resolution in the guardianship proceeding of the question as to Mrs. Baluyut's
alleged incompetency should await the adjudication in the administrative proceeding (pending in the probate
court) of the issue as to her competency to act as administratrix and (2) whether she was denied due process
when the Juvenile and Domestic Relations Court summarily declared her an incompetent just one day after it
received the psychiatrist's report and before that report was set for hearing.

Jurisdictional issue. — The lower court has exclusive original jurisdiction to entertain the proceeding for the
guardianship of Mrs. Baluyut as an alleged incompetent. (As to rulings on the original exclusive jurisdiction of
Juvenile and Domestic Relations Court, see Perez vs. Tuason de Perez, 109 Phil. 54; In re Angela Tuason de
Perez,
L-28114, October 30, 1970, 35 SCRA 608; Rayray vs. Chae Kyung Lee, L-18176, October 26, 1966, 18 SCRA 450;
Paterno vs. Paterno, L-23060, June 30, 1967, 20 SCRA 585; Bartolome vs. Bartolome, L-23661, December 20,
1967, 21 SCRA 1324; Eusebio vs. Eusebio, L-39581, March 31, 1976).

However, as noted earlier, Mrs. Baluyut's competency to act as administratrix is in issue in Special Proceeding
No. Q-19794 of the Court of First Instance of Rizal, Quezon city Branch XVIII. That proceeding was instituted by
Alfredo G. Baluyut for the settlement of the estate of Sotero Baluyut, the deceased spouse of Mrs. Baluyut.
Alfredo alleged in his petition that Mrs. Baluyut was mentally incapable of administering the estate. She
characterized that allegation as libelous. She prayed in a counter-petition that she be appointed administratrix.

The probate court appointed her as administratrix after finding that she was sui juris or was still in possession
of her capacidad de obrar o capacidad de ejercicio. In fact, she qualified as administratrix on November 29, 1975.
This Court in Baluyut vs. Judge Paño, supra, set aside that appointment, not because Mrs. Baluyut was an
incompetent but because that adequate opportunity to be heard and to present evidence.

We hold that in consonance with the last sentence of section 29-A of the charter of Quezon City the guardianship
proceedings should be suspended and should await the adjudication await the adjudication of the issue as to
Mrs. Baluyut's competency to act as administratrix.

It is true, as observed by Justices Barredo and Antonio during the deliberation on this case, that the
incompetency to act as executor or administrator cannot be equated with the incompetency that justifies the
placing of a person under guardianship. From the fact that a person may be incompetent to act as executor or
administrator, it does not follow that he could be placed under guardianship. But if a person is competent to
act as executor or administrator, then he is not the incompetent person envisaged in the law of guardianship.

Section 29-A in divesting the Juvenile and Domestic Relations Court of jurisdiction or authority to resolve
questions already in issue as an incident in any case pending in the ordinary court has a salutary purpose. That
provision or exception is designed to obviate the rendition of conflicting rulings on the same issue by the Court
of First Instance and the Juvenile and Domestic Relations Court.

Issue as to alleged denial of the process. — As previously stated, the lower court appointed Doctor Lapuz as
"commissioner to determine the competency" of Mrs. Baluyut. She was directed to recommend whether Mrs.
Baluyut needed a guardian for her person and property. Doctor Lapuz took her oath as commissioner. She
referred Mrs. Baluyut to Mr. Paz U. de Guzman for psychological evaluation. The psychologist found that Mrs.
Baluyut was "an integrated well-functioning individual", "competent enough to understand her position
relative to the case involving her"

Doctor Lapuz interviewed Mrs. Baluyut alone "for a psychiatric evaluation". The psychiatrist in her report did
not categorically recommend that a guardian be appointed for the person and property of Mrs. Baluyut. Doctor
Lapuz said that Mrs. Baluyut needed "kind and consistent guidance in the handling of her affairs" and required
"help regarding details and more complex procedures". (Mrs. Baluyut's counsel volunteered the hearsay
information that the psychologist and psychiatrist were allegedly surprised that the court declared her an
incompetent on the basis of their reports, considering that their evaluations were favorable to her. Pages 10
and 20 of memorandum).

The lower court did not notify the parties of the filing of the psychiatrist's report, did not give them a chance to
register their objections and did not set the report for hearing as required in sections 9 to 11, Rule 33 of the
Rules of Court. Instead, on the day following the receipt of the report, the lower court declared Mrs. Baluyut an
incompetent within the meaning of Rule 92 of the Rules of Court, which provides that the word "incompetent"
includes "persons not being of unsound mind, but by reason of age, disease, weak mind, and other similar
causes, cannot, without outside aid, take care of themselves and manage their property, becoming thereby an
easy prey for deceit and exploitation" (Sec. 2).

The declaration was made although the guardianship court had not examined the alleged incompetent. Mrs.
Baluyut's counsel in a pleading dated October 21, 1975 called the guardianship court's attention to the fact that
in the administration proceeding Judge Ericta had already found in his order of March 24, 1975 that she was
"healthy and mentally qualified". That conclusion was based on the following examination made by Judge
Ericta:

COURT: Will you (addressing Mrs. Baluyut) take the witness stand and we
will find out if you are mentally deranged as alleged in the petition (for letters
of administration filed by Alfredo G. Baluyut).

Interpreter (To the witness):

Q Do you swear to tell the truth and nothing but the truth? — A. yes, I do.

A Please state your name, age, address, civil status, and your other personal
circumstances?— A. ENCARNACION LOPEZ VDA. DE BALUYUT, 70 years old,
widow, and residing at Quezon Boulevard, corner Banawe, Quezon City.

Court: Ready?

Atty. Santiago: Yes, Your Honor.

Court: No, I will be the on to ask the question...

Court (to Mrs. baluyut): When were you born? — A. March 25, 1901.

Q (by Court): Where? — A. Lingayen, Pangasinan.

Q Who is your father? — A. Jose Lopez.

Q Who is your mother? — A. Carmen Escaño.

Q Did you go to school? — A. Yes, you Honor.

Q What is your highest educational attainment? — A. I am a teacher.

Atty. Salunat: At this juncture, your Honor, may we ask that the question(s)
of the court be translated in the Spanish dialect (language)?

Court: She can answer and understand my question in English.

Atty. Salunat: She finds difficulty, you Honor.

Court: If she finds difficulty, advise her to do so.

Atty. Salunat: Yes, you Honor.

Court: All right, What is your highest education attainment? — E. Lopez Vda.
de Baluyut: I am a teacher but I never teach. I don't need to work.

Court: What? — A. I am a senior teacher, you honor.

Q Do you have any children? — A. I had one who died.

Q Do you have any grandchildren of that child of yours who died? — A. None,
sir. He was very young when he died.

Q How do you earn your livelihood? — A. From my properties.

Q Where are your properties located? — a. They are in San Jose, Nueva Ecija.

Q Where else? — A. In my house.

Q Where is your house? — A. At the corner of Quezon Boulevard and Banawe,

Quezon City.

Court: All right, I think that is enough in the meantime.

xxx xxx xxx

Court: All right.

 ORDER

Submitted for resolution is a motion dated March 19, 1975, asking for the setting aside for the
appointment of Alfredo G. Baluyut as special administrator by order of the court dated
February 24, 1975.

This Court was misled in appointing him as special administrator by the allegation in the
petition that the widow Encarnacion Lopez Vda. de Baluyut is no longer mentally capable of
administrator (administering) her personal properties.

During the hearing of this motion for reconsideration, the Court placed the widow
Encarnacion Lopez Vda. de Baluyut on the witness stand and asked a series of questiones to
determine her mental capacity.

The cross-examination by the Court shows this woman is healthy and mentally qualified.

In view hereof, the Court sets aside the order dated February 24, 1975, appointing Alfredo G.
Baluyut petitioner here as special administrator...

The lower court, upon being apprised of the foregoing conclusion of the probate judge, should have at least
tried to take judicial notice of what was happening in the administration proceeding. The voice of prudence
should have cautioned the guardianship court to avoid the issuance of a declaration contracting the probate
court's pronouncement on Mrs. Baluyut's capacity to act.

As shown in Baluyut vs. Judge Paño, supra, Judge Ernani Cruz Paño, who succeeded Judge Ericta, confirmed the
latter's finding in his (Judge Paño's) order of November 27, 1975. After interrogating Mrs. Baluyutm he was
convinced on her supposed incompetency.

In this appeal, Mrs. Baluyut contends that she was denied due process of law when the guardianship court
summarily announced its verdict on her incompetency notwithstanding that her lawyer had not cross-
examined the psychiatrist.

We hold that Mrs. Baluyut's contention is tanable. A finding that a person is incompetent should be anchored
on clear, positive and definite evidence (Yangco vs. Court of First Instance of Manila, 29 Phil. 183, 190). That
kind of proof has not yet been presented to the guardianship court to justify its precipitate conclusion that Mrs,
Baluyut is an incompetent.

Here, we have the sorry spectacle of two court of Quezon City making divergent findings on Mrs. Baluyut's
capacity to act (Art. 37, Civil Code). What the guardianship court did (as the saying goes) was to take the second
step before having taken the first step. It declared Mrs. Baluyut as an incompetent and then scheduled the cross-
examination of the psychiatrist so that the parties could ascertain whether the declaration of incompetency is
correct or not.

In the nature of things, the guardianship court should have first set for hearing the psychiatrist's report and
examined Mrs. Baluyut before prematurely adjudging that she is an incompetent. Its hasty and premature
pronouncement, with its derogatory implications, was not the offspring of fundamental fairness which is the
essence of due process.

Moreover, the lower court should have adhered strictly to the procedure laid down in Rule 93 of the Rules of
Court for appointment of guardians. Rule 93 provides that after the filing of the petition, the court should fix a
time and place for hearing and give the proper notices. At the hearing, "the alleged incompetent must be present
if able to attend, and it must be shown that the required notice has been given. Thereupon, the court shall hear
the evidence of the parties in support of their respective allegations" (Sec. 5, Rule 93).

In the instant case, the lower court before hearing the evidence of the parties, particularly Mrs. Baluyutm
immediately subjected her to a psychiatric examination. That unorthodox procedure was not warranted.
Undoubtedly, the lower court could consult a psychiatrist but the normal procedure is to hear first the evidence
of the parties and examine the prospective ward. The testimony of the alleged incompetent himself has peculiar
cogency in the determination of whether he should be placed under guardianship (22 ALR 2nd 762).

Issue as to filing and legal research fees. — Mrs. Baluyut's counsel repeatedly assets that Mrs. Viray and Mrs.
Cuesta did not pay the corresponding filing and legal research fees for the docketing of their petition for
guardianship.

The cover of the expediente of Special Proceeding No. QC-00939 shows that on May 6, 1975 the sums of thirty-
two pesos and two pesos were paid as docket fee and legal research fee under Official Receipts Nos. 8981855
and 8982309, respectively. Mrs. Baluyut's counsel contends that those payments corresponded to the petition
of Mrs. Viray and Mrs. Cuesta in Special Proceeding No. QC-00925 which was dismissed.

As Mrs. Baluyut did not ask the lower court to resolve this point squarely and as the order being questioned
herein are silent on that matter, we hold that he lower court should first determine whether the legal fees fixed
in section 5[e], Rule 141 of the Rules of court were duly paid by Mrs. Viray and Mrs. Cuesta.

WHEREFORE, the lower court's orders of September 25 and December 10, 1975 are set aside.

The Court a quo is directed to suspend the guardianship proceeding and to await the final verdict of the Court
of First Instance of Rizal, Quezon City Branch XVII of the competency of Encarnacion Lopez Vda. de Baluyut to
act as executing or administratrix of the estate of her deceased husband, Sotero Baluyut.

Should it be finally ruled therein that Mrs. Baluyut is competent to act as executrix or administratrix and should
there be no other supervening circumstances that justify the continuation of the guardianship proceeding, then
the same should be dismissed.

The lower court is further directed to determine whether Cristeta Lopez Vda. de Cuesta and Guadalupe Lopez
Viray paid docket and legal research fees for their petition. Costs against private respondents.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 178158 December 4, 2009

STRATEGIC ALLIANCE DEVELOPMENT CORPORATION, Petitioner,

vs.
RADSTOCK SECURITIES LIMITED and PHILIPPINE NATIONAL CONSTRUCTION
CORPORATION, Respondents.
ASIAVEST MERCHANT BANKERS BERHAD, Intervenor.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 180428

LUIS SISON, Petitioner,

vs.
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION and RADSTOCK SECURITIES
LIMITED, Respondents.

DECISION

CARPIO, J.:

Prologue

This case is an anatomy of a ₱6.185 billion1 pillage of the public coffers that ranks among one of the most brazen
and hideous in the history of this country. This case answers the questions why our Government perennially
runs out of funds to provide basic services to our people, why the great masses of the Filipino people wallow
in poverty, and why a very select few amass unimaginable wealth at the expense of the Filipino people.

On 1 May 2007, the 30-year old franchise of Philippine National Construction Corporation (PNCC) under
Presidential Decree No. 1113 (PD 1113), as amended by Presidential Decree No. 1894 (PD 1894), expired.
During the 13th Congress, PNCC sought to extend its franchise. PNCC won approval from the House of
Representatives, which passed House Bill No. 57492 renewing PNCC’s franchise for another 25 years. However,
PNCC failed to secure approval from the Senate, dooming the extension of PNCC’s franchise. Led by Senator
Franklin M. Drilon, the Senate opposed PNCC’s plea for extension of its franchise. 3 Senator Drilon’s privilege
speech4 explains why the Senate chose not to renew PNCC’s franchise:

I repeat, Mr. President. PNCC has agreed in a compromise agreement dated 17 August 2006 to transfer to
Radstock Securities Limited ₱17,676,063,922, no small money, Mr. President, my dear colleagues, ₱17.6 billion.

What does it consist of? It consists of the following: 19 pieces of real estate properties with an appraised value
of ₱5,993,689,000. Do we know what is the bulk of this? An almost 13-hectare property right here in the
Financial Center. As we leave the Senate, as we go out of this Hall, as we drive thru past the GSIS, we will see on
the right a vacant lot, that is PNCC property. As we turn right on Diosdado Macapagal, we see on our right new
buildings, these are all PNCC properties. That is 12.9 hectares of valuable asset right in this Financial Center
that is worth ₱5,993,689.000.
What else, Mr. President? The 20% of the outstanding capital stock of PNCC with a par value of ₱2,300,000,000-
- I repeat, 20% of the outstanding capital stock of PNCC worth ₱2,300 billion-- was assigned to Radstock.

In addition, Mr. President and my dear colleagues, please hold on to your seats because part of the agreement
is 50% of PNCC’s 6% share in the gross toll revenue of the Manila North Tollways Corporation for 27 years,
from 2008 to 2035, is being assigned to Radstock. How much is this worth? It is worth ₱9,382,374,922. I repeat,
₱9,382,374,922.

xxxx

Mr. President, ₱17,676,000,000, however, was made to appear in the agreement to be only worth
₱6,196,156,488. How was this achieved? How was an aggregate amount of ₱17,676,000,000 made to appear to
be only ₱6,196,156,488? First, the 19 pieces of real estate worth ₱5,993,689,000 were only assigned a value of
₱4,195,000,000 or only 70% of their appraised value.

Second, the PNCC shares of stock with a par value of ₱2.3 billion were marked to market and therefore were
valued only at ₱713 million.

Third, the share of the toll revenue assigned was given a net present value of only ₱1,287,000,000 because of a
15% discounted rate that was applied.

In other words, Mr. President, the toll collection of ₱9,382,374,922 for 27 years was given a net present value
of only ₱1,287,000,000 so that it is made to appear that the compromise agreement is only worth
₱6,196,000,000.

Mr. President, my dear colleagues, this agreement will substantially wipe out all the assets of PNCC. It will be
left with nothing else except, probably, the collection for the next 25 years or so from the North Luzon
Expressway. This agreement brought PNCC to the cleaners and literally cleaned the PNCC of all its assets. They
brought PNCC to the cleaners and cleaned it to the tune of ₱17,676,000,000.

xxxx

Mr. President, are we not entitled, as members of the Committee, to know who is Radstock Securities Limited?

Radstock Securities Limited was allegedly incorporated under the laws of the British Virgin Islands. It has no
known board of directors, except for its recently appointed attorney-in-fact, Mr. Carlos Dominguez.

Mr. President, are the members of the Committee not entitled to know why 20 years after the account to
Marubeni Corporation, which gave rise to the compromise agreement 20 years after the obligation was
allegedly incurred, PNCC suddenly recognized this obligation in its books when in fact this obligation was not
found in its books for 20 years?

In other words, Mr. President, for 20 years, the financial statements of PNCC did not show any obligation to
Marubeni, much less, to Radstock. Why suddenly on October 20, 2000, ₱10 billion in obligation was recognized?
Why was it recognized?

During the hearing on December 18, Mr. President, we asked this question to the Asset Privatization Trust
(APT) trustee, Atty. Raymundo Francisco, and he was asked: "What is the basis of your recommendation to
recognize this?" He said: "I based my recommendation on a legal opinion of Feria and Feria." I asked him: "Who
knew of this opinion?" He said: "Only me and the chairman of PNCC, Atty. Renato Valdecantos." I asked him:
"Did you share this opinion with the members of the board who recognized the obligation of ₱10 billion?" He
said: "No." "Can you produce this opinion now?" He said: "I have no copy."
Mysteriously, Mr. President, an obligation of ₱10 billion based on a legal opinion which, even Mr. Arthur Aguilar,
the chairman of PNCC, is not aware of, none of the members of the PNCC board on October 20, 2000 who
recognized this obligation had seen this opinion. It is mysterious.

Mr. President, are the members of our Committee not entitled to know why Radstock Securities Limited is given
preference over all other creditors notwithstanding the fact that this is an unsecured obligation? There is no
mortgage to secure this obligation.

More importantly, Mr. President, equally recognized is the obligation of PNCC to the Philippine government to
the tune of ₱36 billion. PNCC owes the Philippine government ₱36 billion recognized in its books, apart from
₱3 billion in taxes. Why in the face of all of these is Radstock given preference? Why is it that Radstock is given
preference to claim ₱17.676 billion of the assets of PNCC and give it superior status over the claim of the
Philippine government, of the Filipino people to the extent of ₱36 billion and taxes in the amount of P3 billion?
Why, Mr. President? Why is Radstock given preference not only over the Philippine government claims of ₱39
billion but also over other creditors including a certain best merchant banker in Asia, which has already a final
and executory judgment against PNCC for about ₱300 million? Why, Mr. President? Are we not entitled to know
why the compromise agreement assigned ₱17.676 billion to Radstock? Why was it executed? 5 (Emphasis
supplied)

Aside from Senator Drilon, Senator Sergio S. Osmeña III also saw irregularities in the transactions involving the
Marubeni loans, thus:

SEN. OSMEÑA. Ah okay. Good.

Now, I'd like to point out to the Committee that – it seems that this was a politically driven deal like IMPSA.
Because the acceptance of the 10 billion or 13 billion debt came in October 2000 and the Radstock assignment
was January 10, 2001. Now, why would Marubeni sell for $2 million three months after there was a recognition
that it was owed ₱10 billion. Can you explain that, Mr. Dominguez?

MR. DOMINGUEZ. Your Honor, I am not aware of the decision making process of Marubeni. But my
understanding was, the Japanese culture is not a litigious one and they didn't want to get into a, you know, a
court situation here in the Philippines having a lot of other interest, et cetera.

SEN. OSMEÑA. Well, but that is beside the point, Mr. Dominguez. All I am asking is does it stand to reason that
after you get an acceptance by a debtor that he owes you 10 billion, you sell your note for 100 million.

Now, if that had happened a year before, maybe I would have understood why he sold for such a low amount.
But right after, it seems that this was part of an orchestrated deal wherein with certain powerful interest would
be able to say, "Yes, we will push through. We'll fix the courts. We'll fix the board. We'll fix the APT. And we will
be able to do it, just give us 55 percent of whatever is recovered," am I correct?

MR. DOMINGUEZ. As I said, Your Honor, I am not familiar with the decision making process of Marubeni. But
my understanding was, as I said, they didn't want to get into a …

SEN. OSMEÑA. All right.

MR. DOMINGUEZ. ...litigious situation.6

xxxx

SEN. OSMEÑA. All of these financial things can be arranged. They can hire a local bank, Filipino, to be trustee
for the real estate. So ...
SEN. DRILON. Well, then, that’s a dummy relationship.

SEN. OSMEÑA. In any case, to me the main point here is that a third party, Radstock, whoever owns it, bought
Marubeni’s right for $2 million or ₱100 million. Then, they are able to go through all these legal machinations
and get awarded with the consent of PNCC of 6 billion. That’s a 100 million to 6 billion. Now, Mr. Aguilar, you
have been in the business for such a long time. I mean, this hedge funds whether it’s Radstock or New Bridge
or Texas Pacific Group or Carlyle or Avenue Capital, they look at their returns. So if Avenue Capital buys
something for $2 million and you give him $4 million in one year, it’s a 100 percent return. They’ll walk away
and dance to their stockholders. So here in this particular case, if you know that Radstock only bought it for $2
million, I would have gotten board approval and say, "Okay, let’s settle this for $4 million." And Radstock would
have jumped up and down. So what looks to me is that this was already a scheme. Marubeni wrote it off already.
Marubeni wrote everything off. They just got a $2 million and they probably have no more residual rights or
maybe there’s a clause there, a secret clause, that says, "I want 20 percent of whatever you’re able to eventually
collect." So $2 million. But whatever it is, Marubeni practically wrote it off. Radstock’s liability now or exposure
is only $2 million plus all the lawyer fees, under-the-table, etcetera. All right. Okay. So it’s pretty obvious to me
that if anybody were using his brain, I would have gone up to Radstock and say, "Here’s $4 million. Here’s P200
million. Okay." They would have walked away. But evidently, the "ninongs" of Radstock – See, I don’t care who
owns Radstock. I want to know who is the ninong here who stands to make a lot of money by being able to get
to courts, the government agencies, OGCC, or whoever else has been involved in this, to agree to 6 billion or
whatever it was. That’s a lot of money. And believe me, Radstock will probably get one or two billion and four
billion will go into somebody else’s pocket. Or Radstock will turn around, sell that claim for ₱4 billion and let
the new guy just collect the payments over the years.

x x x x7

SEN. OSMEÑA. x x x I just wanted to know is CDCP Mining a 100 percent subsidiary of PNCC?

MR. AGUILAR. Hindi ho. Ah, no.

SEN. OSMEÑA. If they’re not a 100 percent, why would they sign jointly and severally? I just want to plug the
loopholes.

MR. AGUILAR. I think it was – if I may just speculate. It was just common ownership at that time.

SEN. OSMEÑA. Al right. Now – Also, the ...

MR. AGUILAR. Ah, 13 percent daw, Your Honor.

SEN. OSMEÑA. Huh?

MR. AGUILAR. Thirteen percent ho.

SEN. OSMEÑA. What’s 13 percent?

MR. AGUILAR. We owned ...

xxxx

SEN. OSMEÑA. x x x CDCP Mining, how many percent of the equity of CDCP Mining was owned by PNCC,
formerly CDCP?

MS. PASETES. Thirteen percent.

SEN. OSMEÑA. Thirteen. And as a 13 percent owner, they agreed to sign jointly and severally?

MS. PASETES. Yes.

SEN. OSMEÑA. One-three? So poor PNCC and CDCP got taken to the cleaners here. They sign for a 100 percent
and they only own 13 percent.

x x x x8 (Emphasis supplied)

I.
The Case

Before this Court are the consolidated petitions for review9 filed by Strategic Alliance Development
Corporation (STRADEC) and Luis Sison (Sison), with a motion for intervention filed by Asiavest Merchant
Bankers Berhad (Asiavest), challenging the validity of the Compromise Agreement between PNCC and
Radstock. The Court of Appeals approved the Compromise Agreement in its Decision of 25 January 2007 10 in
CA-G.R. CV No. 87971.

II.
The Antecedents

PNCC was incorporated in 1966 for a term of fifty years under the Corporation Code with the name
Construction Development Corporation of the Philippines (CDCP).11 PD 1113, issued on 31 March 1977,
granted CDCP a 30-year franchise to construct, operate and maintain toll facilities in the North and South Luzon
Tollways. PD 1894, issued on 22 December 1983, amended PD 1113 to include in CDCP’s franchise the Metro
Manila Expressway, which would "serve as an additional artery in the transportation of trade and commerce
in the Metro Manila area."

Sometime between 1978 and 1981, Basay Mining Corporation (Basay Mining), an affiliate of CDCP, obtained
loans from Marubeni Corporation of Japan (Marubeni) amounting to 5,460,000,000 yen and US$5 million. A
CDCP official issued letters of guarantee for the loans, committing CDCP to pay solidarily for the full amount of
the 5,460,000,000 yen loan and to the extent of ₱20 million for the US$5 million loan. However, there was no
CDCP Board Resolution authorizing the issuance of the letters of guarantee. Later, Basay Mining changed its
name to CDCP Mining Corporation (CDCP Mining). CDCP Mining secured the Marubeni loans when CDCP and
CDCP Mining were still privately owned and managed.

Subsequently in 1983, CDCP changed its corporate name to PNCC to reflect the extent of the Government's
equity investment in the company, which arose when government financial institutions converted their loans
to PNCC into equity following PNCC’s inability to pay the loans.12 Various government financial institutions held
a total of seventy-seven point forty-eight percent (77.48%) of PNCC’s voting equity, most of which were later
transferred to the Asset Privatization Trust (APT) under Administrative Orders No. 14 and 64, series of 1987
and 1988, respectively.13 Also, the Presidential Commission on Good Government holds some 13.82% of PNCC’s
voting equity under a writ of sequestration and through the voluntary surrender of certain PNCC shares. In
fine, the Government owns 90.3% of the equity of PNCC and only 9.70% of PNCC’s voting equity is under private
ownership.14

Meanwhile, the Marubeni loans to CDCP Mining remained unpaid. On 20 October 2000, during the short-lived
Estrada Administration, the PNCC Board of Directors15 (PNCC Board) passed Board Resolution No. BD-092-
2000 admitting PNCC’s liability to Marubeni for ₱10,743,103,388 as of 30 September 1999. PNCC Board
Resolution No. BD-092-2000 reads as follows:

RESOLUTION NO. BD-092-2000

RESOLVED, That the Board recognizes, acknowledges and confirms PNCC’s obligations as of September 30,
1999 with the following entities, exclusive of the interests and other charges that may subsequently accrue and
still become due therein, to wit:

a). the Government of the Republic of the Philippines in the amount of ₱36,023,784,751.00;
and

b). Marubeni Corporation in the amount of ₱10,743,103,388.00. (Emphasis supplied)

This was the first PNCC Board Resolution admitting PNCC’s liability for the Marubeni loans. Previously, for two
decades the PNCC Board consistently refused to admit any liability for the Marubeni loans.

Less than two months later, or on 22 November 2000, the PNCC Board passed Board Resolution No. BD-099-
2000 amending Board Resolution No. BD-092-2000. PNCC Board Resolution No. BD-099-2000 reads as follows:

RESOLUTION NO. BD-099-2000

RESOLVED, That the Board hereby amends its Resolution No. BD-092-2000 dated October 20, 2000 so as to
read as follows:

RESOLVED, That the Board recognizes, acknowledges and confirms its obligations as of September 30, 1999
with the following entities, exclusive of the interests and other charges that may subsequently accrue and still
due thereon, subject to the final determination by the Commission on Audit (COA) of the amount of obligation
involved, and subject further to the declaration of the legality of said obligations by the Office of the Government
Corporate Counsel (OGCC), to wit:

a). the Government of the Republic of the Philippines in the amount of ₱36,023,784,751.00;
and

b). Marubeni Corporation in the amount of ₱10,743,103,388.00. (Emphasis supplied)

In January 2001, barely three months after the PNCC Board first admitted liability for the Marubeni loans,
Marubeni assigned its entire credit to Radstock for US$2 million or less than ₱100 million. In short, Radstock
paid Marubeni less than 10% of the ₱10.743 billion admitted amount. Radstock immediately sent a notice and
demand letter to PNCC.

On 15 January 2001, Radstock filed an action for collection and damages against PNCC before the Regional Trial
Court of Mandaluyong City, Branch 213 (trial court). In its order of 23 January 2001, the trial court issued a
writ of preliminary attachment against PNCC. The trial court ordered PNCC’s bank accounts garnished and
several of its real properties attached. On 14 February 2001, PNCC moved to set aside the 23 January 2001
Order and to discharge the writ of attachment. PNCC also filed a motion to dismiss the case. The trial court
denied both motions. PNCC filed motions for reconsideration, which the trial court also denied. PNCC filed a
petition for certiorari before the Court of Appeals, docketed as CA-G.R. SP No. 66654, assailing the denial of the
motion to dismiss. On 30 August 2002, the Court of Appeals denied PNCC’s petition. PNCC filed a motion for
reconsideration, which the Court of Appeals also denied in its 22 January 2003 Resolution. PNCC filed a petition
for review before this Court, docketed as G.R. No. 156887.

Meanwhile, on 19 June 2001, at the start of the Arroyo Administration, the PNCC Board, under a new President
and Chairman, revoked Board Resolution No. BD-099-2000.

The trial court continued to hear the main case. On 10 December 2002, the trial court ruled in favor of Radstock,
as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and the defendant is
directed to pay the total amount of Thirteen Billion One Hundred Fifty One Million Nine Hundred Fifty Six
thousand Five Hundred Twenty Eight Pesos (₱13,151,956,528.00) with interest from October 15, 2001 plus
Ten Million Pesos (₱10,000,000.00) as attorney’s fees.

SO ORDERED.16

PNCC appealed the trial court’s decision to the Court of Appeals, docketed as CA-G.R. CV No. 87971.

On 19 March 2003, this Court issued a temporary restraining order in G.R. No. 156887 forbidding the trial court
from implementing the writ of preliminary attachment and ordering the suspension of the proceedings before
the trial court and the Court of Appeals. In its 3 October 2005 Decision, this Court ruled as follows:

WHEREFORE, the petition is partly GRANTED and insofar as the Motion to Set Aside the Order and/or
Discharge the Writ of Attachment is concerned, the Decision of the Court of Appeals on August 30, 2002 and its
Resolution of January 22, 2003 in CA-G.R. SP No. 66654 are REVERSED and SET ASIDE. The attachments over
the properties by the writ of preliminary attachment are hereby ordered LIFTED effective upon the finality of
this Decision. The Decision and Resolution of the Court of Appeals are AFFIRMED in all other respects. The
Temporary Restraining Order is DISSOLVED immediately and the Court of Appeals is directed to PROCEED
forthwith with the appeal filed by PNCC.

No costs.

SO ORDERED.17

On 17 August 2006, PNCC and Radstock entered into the Compromise Agreement where they agreed to reduce
PNCC’s liability to Radstock, supposedly from ₱17,040,843,968, to ₱6,185,000,000. PNCC and Radstock
submitted the Compromise Agreement to this Court for approval. In a Resolution dated 4 December 2006 in
G.R. No. 156887, this Court referred the Compromise Agreement to the Commission on Audit (COA) for
comment. The COA recommended approval of the Compromise Agreement. In a Resolution dated 22 November
2006, this Court noted the Compromise Agreement and referred it to the Court of Appeals in CA-G.R. CV No.
87971. In its 25 January 2007 Decision, the Court of Appeals approved the Compromise Agreement.

STRADEC moved for reconsideration of the 25 January 2007 Decision. STRADEC alleged that it has a claim
against PNCC as a bidder of the National Government’s shares, receivables, securities and interests in PNCC.
The matter is subject of a complaint filed by STRADEC against PNCC and the Privatization and Management
Office (PMO) for the issuance of a Notice of Award of Sale to Dong-A Consortium of which STRADEC is a partner.
The case, docketed as Civil Case No. 05-882, is pending before the Regional Trial Court of Makati, Branch 146
(RTC Branch 146).

The Court of Appeals treated STRADEC’s motion for reconsideration as a motion for intervention and denied it
in its 31 May 2007 Resolution. STRADEC filed a petition for review before this Court, docketed as G.R. No.
178158.

Rodolfo Cuenca (Cuenca), a stockholder and former PNCC President and Board Chairman, filed an intervention
before the Court of Appeals. Cuenca alleged that PNCC had no obligation to pay Radstock. The Court of Appeals
also denied Cuenca’s motion for intervention in its Resolution of 31 May 2007. Cuenca did not appeal the denial
of his motion.

On 2 July 2007, this Court issued an order directing PNCC and Radstock, their officers, agents, representatives,
and other persons under their control, to maintain the status quo ante.
Meanwhile, on 20 February 2007, Sison, also a stockholder and former PNCC President and Board Chairman,
filed a Petition for Annulment of Judgment Approving Compromise Agreement before the Court of Appeals. The
case was docketed as CA-G.R. SP No. 97982.

Asiavest, a judgment creditor of PNCC, filed an Urgent Motion for Leave to Intervene and to File the Attached
Opposition and Motion-in-Intervention before the Court of Appeals in CA-G.R. SP No. 97982.

In a Resolution dated 12 June 2007, the Court of Appeals dismissed Sison’s petition on the ground that it had
no jurisdiction to annul a final and executory judgment also rendered by the Court of Appeals. In the same
resolution, the Court of Appeals also denied Asiavest’s urgent motion.

Asiavest filed its Urgent Motion for Leave to Intervene and to File the Attached Opposition and Motion-in-
Intervention in G.R. No. 178158.18

Sison filed a motion for reconsideration. In its 5 November 2007 Resolution, the Court of Appeals denied Sison’s
motion.

On 26 November 2007, Sison filed a petition for review before this Court, docketed as G.R. No. 180428.

In a Resolution dated 18 February 2008, this Court consolidated G.R. Nos. 178158 and 180428.

On 13 January 2009, the Court held oral arguments on the following issues:

1. Does the Compromise Agreement violate public policy?

2. Does the subject matter involve an assumption by the government of a private entity’s obligation in
violation of the law and/or the Constitution? Is the PNCC Board Resolution of 20 October 2000
defective or illegal?

3. Is the Compromise Agreement viable in the light of the non-renewal of PNCC’s franchise by Congress
and its inclusion of all or substantially all of PNCC’s assets?

4. Is the Decision of the Court of Appeals annullable even if final and executory on grounds of fraud and
violation of public policy and the Constitution?

III.
Propriety of Actions

The Court of Appeals denied STRADEC’s motion for intervention on the ground that the motion was filed only
after the Court of Appeals and the trial court had promulgated their respective decisions.

Section 2, Rule 19 of the 1997 Rules of Civil Procedure provides:

SECTION 2. Time to intervene.– The motion to intervene may be filed at any time before rendition of judgment
by the trial court. A copy of the pleading-in-intervention shall be attached to the motion and served on the
original parties.

The rule is not absolute. The rule on intervention, like all other rules of procedure, is intended to make the
powers of the Court completely available for justice.19 It is aimed to facilitate a comprehensive adjudication of
rival claims, overriding technicalities on the timeliness of the filing of the claims. 20 This Court has ruled:
[A]llowance or disallowance of a motion for intervention rests on the sound discretion of the court after
consideration of the appropriate circumstances. Rule 19 of the Rules of Court is a rule of procedure whose
object is to make the powers of the court fully and completely available for justice. Its purpose is not to hinder
or delay but to facilitate and promote the administration of justice. Thus, interventions have been allowed even
beyond the prescribed period in the Rule in the higher interest of justice. Interventions have been granted to
afford indispensable parties, who have not been impleaded, the right to be heard even after a decision has been
rendered by the trial court, when the petition for review of the judgment was already submitted for decision
before the Supreme Court, and even where the assailed order has already become final and executory. In Lim
v. Pacquing (310 Phil. 722 (1995)], the motion for intervention filed by the Republic of the Philippines was
allowed by this Court to avoid grave injustice and injury and to settle once and for all the substantive issues
raised by the parties.21

In Collado v. Court of Appeals,22 this Court reiterated that exceptions to Section 2, Rule 12 could be made in the
interest of substantial justice. Citing Mago v. Court of Appeals,23 the Court stated:

It is quite clear and patent that the motions for intervention filed by the movants at this stage of the proceedings
where trial had already been concluded x x x and on appeal x x x the same affirmed by the Court of Appeals and
the instant petition for certiorari to review said judgments is already submitted for decision by the Supreme
Court, are obviously and, manifestly late, beyond the period prescribed under x x x Section 2, Rule 12 of the
Rules of Court.

But Rule 12 of the Rules of Court, like all other Rules therein promulgated, is simply a rule of procedure, the
whole purpose and object of which is to make the powers of the Court fully and completely available for justice.
The purpose of procedure is not to thwart justice. Its proper aim is to facilitate the application of justice to the
rival claims of contending parties. It was created not to hinder and delay but to facilitate and promote the
administration of justice. It does not constitute the thing itself which courts are always striving to secure to
litigants. It is designed as the means best adopted to obtain that thing. In other words, it is a means to an end.

Concededly, STRADEC has no legal interest in the subject matter of the Compromise Agreement. Section 1, Rule
19 of the 1997 Rules of Civil Procedure states:

SECTION 1. Who may intervene. - A person who has a legal interest in the matter in litigation, or in the success
of either of the parties, or an interest against both, or is so situated as to be adversely affected by a distribution
or other disposition of property in the custody of the court or of an officer thereof may, with leave of court, be
allowed to intervene in the action. The Court shall consider whether or not the intervention will unduly delay
or prejudice the adjudication of the rights of the original parties, and whether or not the intervenor’s rights
may be fully protected in a separate proceeding.

STRADEC’s interest is dependent on the outcome of Civil Case No. 05-882. Unless STRADEC can show that RTC
Branch 146 had already decided in its favor, its legal interest is simply contingent and expectant.

However, Asiavest has a direct and material interest in the approval or disapproval of the Compromise
Agreement. Asiavest is a judgment creditor of PNCC in G.R. No. 110263 and a court has already issued a writ of
execution in its favor. Asiavest’s interest is actual and material, direct and immediate characterized by either
gain or loss from the judgment that this Court may render. 24 Considering that the Compromise Agreement
involves the disposition of all or substantially all of the assets of PNCC, Asiavest, as PNCC’s judgment creditor,
will be greatly prejudiced if the Compromise Agreement is eventually upheld.

Sison has legal standing to challenge the Compromise Agreement. Although there was no allegation that Sison
filed the case as a derivative suit in the name of PNCC, it could be fairly deduced that Sison was assailing the
Compromise Agreement as a stockholder of PNCC. In such a situation, a stockholder of PNCC can sue on behalf
of PNCC to annul the Compromise Agreement.
A derivative action is a suit by a stockholder to enforce a corporate cause of action. 25 Under the Corporation
Code, where a corporation is an injured party, its power to sue is lodged with its board of directors or
trustees.26 However, an individual stockholder may file a derivative suit on behalf of the corporation to protect
or vindicate corporate rights whenever the officials of the corporation refuse to sue, or are the ones to be sued,
or hold control of the corporation.27 In such actions, the corporation is the real party-in-interest while the suing
stockholder, on behalf of the corporation, is only a nominal party.28

In this case, the PNCC Board cannot conceivably be expected to attack the validity of the Compromise
Agreement since the PNCC Board itself approved the Compromise Agreement. In fact, the PNCC Board
steadfastly defends the Compromise Agreement for allegedly being advantageous to PNCC.

Besides, the circumstances in this case are peculiar. Sison, as former PNCC President and Chairman of the PNCC
Board, was responsible for the approval of the Board Resolution issued on 19 June 2001 revoking the previous
Board Resolution admitting PNCC’s liability for the Marubeni loans. 29 Such revocation, however, came after
Radstock had filed an action for collection and damages against PNCC on 15 January 2001. Then, when the trial
court rendered its decision on 10 December 2002 in favor of Radstock, Sison was no longer the PNCC President
and Chairman, although he remains a stockholder of PNCC.

When the case was on appeal before the Court of Appeals, there was no need for Sison to avail of any remedy,
until PNCC and Radstock entered into the Compromise Agreement, which disposed of all or substantially all of
PNCC’s assets. Sison came to know of the Compromise Agreement only in December 2006. PNCC and Radstock
submitted the Compromise Agreement to the Court of Appeals for approval on 10 January 2007. The Court of
Appeals approved the Compromise Agreement on 25 January 2007. To require Sison at this stage to exhaust all
the remedies within the corporation will render such remedies useless as the Compromise Agreement had
already been approved by the Court of Appeals. PNCC’s assets are in danger of being dissipated in favor of a
private foreign corporation. Thus, Sison had no recourse but to avail of an extraordinary remedy to protect
PNCC’s assets.

Besides, in the interest of substantial justice and for compelling reasons, such as the nature and importance of
the issues raised in this case,30 this Court must take cognizance of Sison’s action. This Court should exercise its
prerogative to set aside technicalities in the Rules, because after all, the power of this Court to suspend its own
rules whenever the interest of justice requires is well recognized.31 In Solicitor General v. The Metropolitan
Manila Authority,32 this Court held:

Unquestionably, the Court has the power to suspend procedural rules in the exercise of its inherent power, as
expressly recognized in the Constitution, to promulgate rules concerning ‘pleading, practice and procedure in
all courts.’ In proper cases, procedural rules may be relaxed or suspended in the interest of substantial justice,
which otherwise may be miscarried because of a rigid and formalistic adherence to such rules. x x x

We have made similar rulings in other cases, thus:

Be it remembered that rules of procedure are but mere tools designed to facilitate the attainment of justice.
Their strict and rigid application, which would result in technicalities that tend to frustrate rather than promote
substantial justice, must always be avoided. x x x Time and again, this Court has suspended its own rules and
excepted a particular case from their operation whenever the higher interests of justice so require.

IV.
The PNCC Board Acted in Bad Faith and with Gross Negligence

in Directing the Affairs of PNCC

In this jurisdiction, the members of the board of directors have a three-fold duty: duty of obedience, duty of
diligence, and duty of loyalty.33 Accordingly, the members of the board of directors (1) shall direct the affairs
of the corporation only in accordance with the purposes for which it was organized;34 (2) shall not willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or act in bad faith or with gross
negligence in directing the affairs of the corporation;35 and (3) shall not acquire any personal or pecuniary
interest in conflict with their duty as such directors or trustees.36

In the present case, the PNCC Board blatantly violated its duty of diligence as it miserably failed to act in good
faith in handling the affairs of PNCC.

First. For almost two decades, the PNCC Board had consistently refused to admit liability for the Marubeni loans
because of the absence of a PNCC Board resolution authorizing the issuance of the letters of guarantee.

There is no dispute that between 1978 and 1980, Marubeni Corporation extended two loans to Basay Mining
(later renamed CDCP Mining): (1) US$5 million to finance the purchase of copper concentrates by Basay Mining;
and (2) Y5.46 billion to finance the completion of the expansion project of Basay Mining including working
capital.

There is also no dispute that it was only on 20 October 2000 when the PNCC Board approved a resolution
expressly admitting PNCC’s liability for the Marubeni loans. This was the first Board Resolution admitting
liability for the Marubeni loans, for PNCC never admitted liability for these debts in the past. Even Radstock
admitted that PNCC’s 1994 Financial Statements did not reflect the Marubeni loans. 37 Also, former PNCC
Chairman Arthur Aguilar stated during the Senate hearings that "the Marubeni claim was never in the balance
sheet x x x nor was it in a contingent account."38 Miriam M. Pasetes, SVP Finance of PNCC, and Atty. Herman R.
Cimafranca of the Office of the Government Corporate Counsel, confirmed this fact, thus:

SEN. DRILON. x x x And so, PNCC itself did not recognize this as an obligation but the board suddenly recognized
it as an obligation. It was on that basis that the case was filed, is that correct? In fact, the case hinges on – they
knew that this claim has prescribed but because of that board resolution which recognized the obligation they
filed their complaint, is that correct?

MR. CIMAFRANCA. Apparently, it's like that, Senator, because the filing of the case came after the
acknowledgement.

SEN. DRILON. Yes. In fact, the filing of the case came three months after the acknowledgement.

MR. CIMAFRANCA. Yes. And that made it difficult to handle on our part.

SEN. DRILON. That is correct. So, that it was an obligation which was not recognized in the financial statements
of PNCC but revived – in the financial statements because it has prescribed but revived by the board effectively.
That's the theory, at least, of the plaintiff. Is that correct? Who can answer that?

Ms. Pasetes, yes.

MS. PASETES. It is not an obligation of PNCC that is why it is not reflected in the financial
statements.39 (Emphasis supplied)

In short, after two decades of consistently refuting its liability for the Marubeni loans, the PNCC Board suddenly
and inexplicably reversed itself by admitting in October 2000 liability for the Marubeni loans. Just three months
after the PNCC Board recognized the Marubeni loans, Radstock acquired Marubeni's receivable and filed the
present collection case.

Second. The PNCC Board admitted liability for the Marubeni loans despite PNCC’s total liabilities far exceeding
its assets. There is no dispute that the Marubeni loans, once recognized, would wipe out the assets of PNCC,
"virtually emptying the coffers of the PNCC."40 While PNCC insists that it remains financially viable, the figures
in the COA Audit Reports tell otherwise.41 For 2006 and 2005, "the Corporation has incurred negative gross
margin of ₱84.531 Million and ₱80.180 Million, respectively, and net losses that had accumulated in a deficit of
₱14.823 Billion as of 31 December 2006."42 The COA even opined that "unless [PNCC] Management addresses
the issue on net losses in its financial rehabilitation plan, x x x the Corporation may not be able to continue its
operations as a going concern."

Notably, during the oral arguments before this Court, the Government Corporate Counsel admitted the PNCC’s
huge negative net worth, thus:

JUSTICE CARPIO

x x x what is the net worth now of PNCC? Negative what? Negative 6 Billion at least[?]

ATTY. AGRA

Yes, your Honor.43 (Emphasis supplied)

Clearly, the PNCC Board’s admission of liability for the Marubeni loans, given PNCC’s huge negative net worth
of at least ₱6 billion as admitted by PNCC’s counsel, or ₱14.823 billion based on the 2006 COA Audit Report,
would leave PNCC an empty shell, without any assets to pay its biggest creditor, the National Government with
an admitted receivable of ₱36 billion from PNCC.

Third. In a debilitating self-inflicted injury, the PNCC Board revived what appeared to have been a dead claim
by abandoning one of PNCC’s strong defenses, which is the prescription of the action to collect the Marubeni
loans.

Settled is the rule that actions prescribe by the mere lapse of time fixed by law.44 Under Article 1144 of the Civil
Code, an action upon a written contract, such as a loan contract, must be brought within ten years from the time
the right of action accrues. The prescription of such an action is interrupted when the action is filed before the
court, when there is a written extrajudicial demand by the creditor, or when there is any written
acknowledgment of the debt by the debtor.45

In this case, Basay Mining obtained the Marubeni loans sometime between 1978 and 1981. While Radstock
claims that numerous demand letters were sent to PNCC, based on the records, the extrajudicial demands to
pay the loans appear to have been made only in 1984 and 1986. Meanwhile, the written acknowledgment of
the debt, in the form of Board Resolution No. BD-092-2000, was issued only on 20 October 2000.

Thus, more than ten years would have already lapsed between Marubeni’s extrajudicial demands in 1984 and
1986 and the acknowledgment by the PNCC Board of the Marubeni loans in 2000. However, the PNCC Board
suddenly passed Board Resolution No. BD-092-2000 expressly admitting liability for the Marubeni loans. In
short, the PNCC Board admitted liability for the Marubeni loans despite the fact that the same might no longer
be judicially collectible. Although the legal advantage was obviously on its side, the PNCC Board threw in the
towel even before the fight could begin. During the Senate hearings, the matter of prescription was discussed,
thus:

SEN. DRILON. ... the prescription period is 10 years and there were no payments – the last demands were made,
when? The last demands for payment?

MS. OGAN. It was made January 2001 prior to the filing of the case.
SEN. DRILON. Yes, all right. Before that, when was the last demand made? By the time they filed the complaint
more than 10 years already lapsed.

MS. OGAN. On record, Mr. Chairman, we have demands starting from - - a series of demands which started from
May 23, 1984, letter from Marubeni to PNCC, demand payment. And we also have the letter of September 3,
1986, letter of Marubeni to then PNCC Chair Mr. Jaime. We have the June 24, 1986 letter from Marubeni to the
PNCC Chairman. Also the March 4, 1988 letter...

SEN. DRILON. The March 4, 1988 letter is not a demand letter.

MS. OGAN. It is exactly addressed to the Asset Privatization Trust.

SEN. DRILON. It is not a demand letter? Okay.

MS. OGAN. And we have also...

SEN. DRILON. Anyway...

THE CHAIRMAN. Please answer when you are asked, Ms. Ogan. We want to put it on the record whether it is
"yes" or "no".

MS. OGAN. Yes, sir.

SEN. DRILON. So, even assuming that all of those were demand letters, the 10 years prescription set in and it
should have prescribed in 1998, whatever is the date, or before the case was filed in 2001.

MR. CIMAFRANCA. The 10-year period for – if the contract is written, it's 10 years and it should have prescribed
in 10 years and we did raise that in our answer, in our motion to dismiss.

SEN. DRILON. I know. You raised this in your motion to dismiss and you raised this in your answer. Now, we
are not saying that you were negligent in not raising that. What we are just putting on the record that indeed
there is basis to argue that these claims have prescribed.

Now, the reason why there was a colorable basis on the complaint filed in 2001 was that somehow the board
of PNCC recognized the obligation in a special board meeting on October 20, 2000. Hindi ba ganoon 'yon?

MS. OGAN. Yes, that is correct.

SEN. DRILON. Why did the PNCC recognize this obligation in 2000 when it was very clear that at that point
more than 10 years have lapsed since the last demand letter?

MR. AGUILAR. May I volunteer an answer?

SEN. DRILON. Please.

MR. AGUILAR. I looked into that, Mr. Chairman, Your Honor. It was as a result of and I go to the folder letter "N."
In our own demand research it was not period, Your Honor, that Punongbayan in the big folder, sir, letter "N"
it was the period where PMO was selling PNCC and Punongbayan and Araullo Law Office came out with an
investment brochure that indicated liabilities both to national government and to Marubeni/Radstock. So, PMO
said, "For good order, can you PNCC board confirm that by board resolution?" That's the tone of the letter.
SEN. DRILON. Confirm what? Confirm the liabilities that are contained in the Punongbayan investment
prospectus both to the national government and to PNCC. That is the reason at least from the record, Your
Honor, how the PNCC board got to deliberate on the Marubeni.

THE CHAIRMAN. What paragraph? Second to the last paragraph?

MR. AGUILAR. Yes. Yes, Mr. Chairman. Ito po 'yong – that"s to our recollection, in the records, that was the
reason.

SEN. DRILON. Is that the only reason why ...

MR. AGUILAR. From just the records, Mr. Chairman, and then interviews with people who are still around.

SEN. DRILON. You mean, you acknowledged a prescribed obligation because of this paragraph?

MR. AGUILAR. I don’t know what legal advice we were following at that time, Mr. Chairman. 46 (Emphasis
supplied)

Besides prescription, the Office of the Government Corporate Counsel (OGCC) originally believed that PNCC
had another formidable legal weapon against Radstock, that is, the lack of authority of Alfredo Asuncion, then
Executive Vice-President of PNCC, to sign the letter of guarantee on behalf of CDCP. During the Senate hearings,
the following exchange reveals the OGCC’s original opinion:

THE CHAIRMAN. What was the opinion of the Office of the Government Corporate Counsel?

MS. OGAN. The opinion of the Office of the Government Corporate Counsel is that PNCC should exhaust all
means to resist the case using all defenses available to a guarantee and a surety that there is a valid ground for
PNCC's refusal to honor or make good the alleged guarantee obligation. It appearing that from the documents
submitted to the OGCC that there is no board authority in favor or authorizing Mr. Asuncion, then EVP, to sign
or execute the letter of guarantee in behalf of CDCP and that said letter of guarantee is not legally binding upon
or enforceable against CDCP as principals, your Honors.47

xxxx

SEN. DRILON. Now that we have read this, what was the opinion of the Government Corporate Counsel, Mr.
Cimafranca?

MR. CIMAFRANCA. Yes, Senator, we did issue an opinion upon the request of PNCC and our opinion was that
there was no valid obligation, no valid guarantee. And we incorporated that in our pleadings in
court.48 (Emphasis supplied)

Clearly, PNCC had strong defenses against the collection suit filed by Radstock, as originally opined by the OGCC.
It is quite puzzling, therefore, that the PNCC Board, which had solid grounds to refute the legitimacy of the
Marubeni loans, admitted its liability and entered into a Compromise Agreement that is manifestly and grossly
prejudicial to PNCC.

Fourth. The basis for the admission of liability for the Marubeni loans, which was an opinion of the Feria Law
Office, was not even shown to the PNCC Board.

Atty. Raymundo Francisco, the APT trustee overseeing the proposed privatization of PNCC at the time, was
responsible for recommending to the PNCC Board the admission of PNCC’s liability for the Marubeni loans. Atty.
Francisco based his recommendation solely on a mere alleged opinion of the Feria Law Office. Atty. Francisco
did not bother to show this "Feria opinion" to the members of the PNCC Board, except to Atty. Renato
Valdecantos, who as the then PNCC Chairman did not also show the "Feria opinion" to the other PNCC Board
members. During the Senate hearings, Atty. Francisco could not produce a copy of the "Feria opinion." The
Senators grilled Atty. Francisco on his recommendation to recognize PNCC’s liability for the Marubeni loans,
thus:

THE CHAIRMAN. x x x You were the one who wrote this letter or rather this memorandum dated 17 October
2000 to Atty. Valdecantos. Can you tell us the background why you wrote the letter acknowledging a debt which
is non-existent?

MR. FRANCISCO. I was appointed as the trustee in charge of the privatization of the PNCC at that time, sir. And
I was tasked to do a study and engage the services of financial advisors as well as legal advisors to do a legal
audit and financial study on the position of PNCC. I bidded out these engagements, the financial advisership
went to Punongbayan and Araullo. The legal audit went to the Feria Law Offices.

THE CHAIRMAN. Spell it. Boy Feria?

MR. FRANCISCO. Feria-- Feria.

THE CHAIRMAN. Lugto?

MR. FRANCISCO. Yes. Yes, Your Honor. And this was the findings of the Feria Law Office – that the Marubeni
account was a legal obligation.

So, I presented this to our board. Based on the findings of the legal audit conducted by the Ferial Law Offices,
sir.

THE CHAIRMAN. Why did you not ask the government corporate counsel? Why did you have to ask for the
opinion of an outside counsel?

MR. FRANCISCO. That was the – that was the mandate given to us, sir, that we have to engage the ...

THE CHAIRMAN. Mandate given by whom?

MR. FRANCISCO. That is what we usually do, sir, in the APT.

THE CHAIRMAN. Ah, you get outside counsel?

MR. FRANCISCO. Yes, we...

THE CHAIRMAN. Not necessarily the government corporate counsel?

MR. FRANCISCO. No, sir.

THE CHAIRMAN. So, on the basis of the opinion of outside counsel, private, you proceeded to, in effect,
recognize an obligation which is not even entered in the books of the PNCC? You probably resuscitated a non-
existing obligation anymore?

MR. FRANCISCO. Sir, I just based my recommendation on the professional findings of the law office that we
engaged, sir.
THE CHAIRMAN. Did you not ask for the opinion of the government corporate counsel?

MR. FRANCISCO. No, sir.

THE CHAIRMAN. Why?

MR. FRANCISCO. I felt that the engagements of the law office was sufficient, anyway we were going to raise it
to the Committee on Privatization for their approval or disapproval, sir.

THE CHAIRMAN. The COP?

MR. FRANCISCO. Yes, sir.

THE CHAIRMAN. That’s a cabinet level?

MR. FRANCISCO. Yes, sir. And we did that, sir.

THE CHAIRMAN. Now... So you sent your memo to Atty. Renato B. Valdecantos, who unfortunately is not here
but I think we have to get his response to this. And as part of the minutes of special meeting with the board of
directors on October 20, 2000, the board resolved in its Board Resolution No. 092-2000, the board resolved to
recognize, acknowledge and confirm PNCC’s obligations as of September 30, 1999, etcetera, etcetera. (A), or
rather (B), Marubeni Corporation in the amount of ₱10,740,000.

Now, we asked to be here because the franchise of PNCC is hanging in a balance because of the – on the
questions on this acknowledgement. So we want to be educated.

Now, the paper trail starts with your letter. So, that’s it – that’s my kuwan, Frank.

Yes, Senator Drilon.

SEN. DRILON. Thank you, Mr. Chairman.

Yes, Atty. Francisco, you have a copy of the minutes of October 20, 2000?

MR. FRANCISCO. I’m sorry, sir, we don’t have a copy.

SEN. DRILON. May we ask the corporate secretary of PNCC to provide us with a copy?

Okay naman andiyan siya.

(Ms. Ogan handing the document to Mr. Francisco.)

You have familiarized yourselves with the minutes, Atty. Francisco?

MR. FRANCISCO. Yes, sir.

SEN. DRILON. Now, mention is made of a memorandum here on line 8, page 3 of this board’s minutes. It says,
"Director Francisco has prepared a memorandum requesting confirmation, acknowledgement, and ratification
of this indebtedness of PNCC to the national government which was determined by Bureau of Treasury as of
September 30, 1999 is 36,023,784,751. And with respect to PNCC’s obligation to Marubeni, this has been
determined to be in the total amount of 10,743,103,388, also as of September 30, 1999; that there is need to
ratify this because there has already been a representation made with respect to the review of the financial
records of PNCC by Punongbayan and Araullo, which have been included as part of the package of APT’s
disposition to the national government’s interest in PNCC."

You recall having made this representation as found in the minutes, I assume, Atty. Francisco?

MR. FRANCISCO. Yes, sir. But I’d like to be refreshed on the memorandum, sir, because I don’t have a copy.

SEN. DRILON. Yes, this memorandum was cited earlier by Senator Arroyo, and maybe the secretary can give
him a copy? Give him a copy?

MS. OGAN. (Handing the document to Mr. Francisco.)

MR. FRANCISCO. Your Honor, I have here a memorandum to the PNCC board through Atty. Valdecantos, which
says that – in the last paragraph, if I may read? "May we request therefore, that a board resolution be adopted,
acknowledging and confirming the aforementioned PNCC obligations with the national government and
Marubeni as borne out by the due diligence audit."

SEN. DRILON. This is the memorandum referred to in these minutes. This memorandum dated 17 October 2000
is the memorandum referred to in the minutes.

MR. FRANCISCO. I would assume, Mr. Chairman.

SEN. DRILON. Right.

Now, the Punongbayan representative who was here yesterday, Mr...

THE CHAIRMAN. Navarro.

SEN. DRILON. ... Navarro denied that he made this recommendation.

THE CHAIRMAN. He asked for opinion, legal opinion.

SEN. DRILON. He said that they never made this representation and the transcript will bear us out. They said
that they never made this representation that the account of Marubeni should be recognized.

MR. FRANCISCO. Mr. Chairman, in the memorandum, I only mentioned here the acknowledgement and
confirmation of the PNCC obligations. I was not asking for a ratification. I never mentioned ratification in the
memorandum. I just based my memo based on the due diligence audit of the Feria Law Offices.

SEN. DRILON. Can you say that again? You never asked for a ratification...

MR. FRANCISCO. No. I never mentioned in my memorandum that I was asking for a ratification. I was just – in
my memo it says, "acknowledging and confirming the PNCC obligation." This was what ...

SEN. DRILON. Isn’t it the same as ratification? I mean, what’s the difference?

MR. FRANCISCO. I – well, my memorandum was meant really just to confirm the findings of the legal audit as ...

SEN. DRILON. In your mind as a lawyer, Atty. Francisco, there’s a difference between ratification and – what’s
your term? -- acknowledgment and confirmation?
MR. FRANCISCO. Well, I guess there’s no difference, Mr. Chairman.

SEN. DRILON. Right.

Anyway, just of record, the Punongbayan representatives here yesterday said that they never made such
representation.

In any case, now you’re saying it’s the Feria Law Office who rendered that opinion? Can we – you know,
yesterday we were asking for a copy of this opinion but we were never furnished one. The ... no less than the
Chairman of this Committee was asking for a copy.

THE CHAIRMAN. Well, copy of the opinion...

MS. OGAN. Yes, Mr. Chairman, we were never furnished a copy of this opinion because it’s opinion rendered for
the Asset Privatization Trust which is its client, not the PNCC, Mr. Chairman.

THE CHAIRMAN. All right. The question is whether – but you see, this is a memorandum of Atty. Francisco to
the Chairman of the Asset Privatization Trust. You say now that you were never furnished a copy because that’s
supposed to be with the Asset ...

MS. OGAN. Yes, Mr. Chairman.

THE CHAIRMAN. ... but yet the action of – or rather the opinion of the Feria Law Offices was in effect adopted
by the board of directors of PNCC in its minutes of October 20, 2000 where you are the corporate secretary, Ms.
Ogan.

MS. OGAN. Yes, Mr. Chairman.

THE CHAIRMAN. So, what I am saying is that this opinion or rather the opinion of the Feria Law Offices of which
you don’t have a copy?

MS. OGAN. Yes, sir.

THE CHAIRMAN. And the reason being that, it does not concern the PNCC because that’s an opinion rendered
for APT and not for the PNCC.

MS. OGAN. Yes, Mr. Chairman, that was what we were told although we made several requests to the APT, sir.

THE CHAIRMAN. All right. Now, since it was for the APT and not for the PNCC, I ask the question why did PNCC
adopt it? That was not for the consumption of PNCC. It was for the consumption of the Asset Privatization Trust.
And that is what Atty. Francisco says and it’s confirmed by you saying that this was a memo – you don’t have a
copy because this was sought for by APT and the Feria Law Offices just provided an opinion – provided the APT
with an opinion. So, as corporate secretary, the board of directors of PNCC adopted it, recognized the Marubeni
Corporation.

You read the minutes of the October 20, 2000 meeting of the board of directors on Item V. The resolution speaks
of .. so, go ahead.

MS. OGAN. I gave my copies. Yes, sir.

THE CHAIRMAN. In effect the Feria Law Offices’ opinion was for the consumption of the APT.
MS. OGAN. That was what we were told, Mr. Chairman.

THE CHAIRMAN. And you were not even provided with a copy.

THE CHAIRMAN. Yet you adopted it.

MS. OGAN. Yes, sir.

SEN DRILON. Considering you were the corporate secretary.

THE CHAIRMAN. She was the corporate secretary.

SEN. DRILON. She was just recording the minutes.

THE CHAIRMAN. Yes, she was recording.

Now, we are asking you now why it was taken up?

MS. OGAN. Yes, sir, Mr. Chairman, this was mentioned in the memorandum of Atty. Francisco, memorandum to
the board.

SEN. DRILON. Mr. Chairman, Mr. Francisco represented APT in the board of PNCC. And is that correct, Mr.
Francisco?

THE CHAIRMAN. You’re an ex-officio member.

SEN. DRILON. Yes.

MR. FRANCISCO. Ex-officio member only, sir, as trustee in charge of the privatization of PNCC.

SEN. DRILON. With the permission of Mr. Chair, may I ask a question...

THE CHAIRMAN. Oh, yes, Senator Drilon.

SEN. DRILON. Atty. Francisco, you sat in the PNCC board as APT representative, you are a lawyer, there was a
legal opinion of Feria, Feria, Lugto, Lao Law Offices which you cited in your memorandum. Did you discuss –
first, did you give a copy of this opinion to PNCC?

MR. FRANCISCO. I gave a copy of this opinion, sir, to our chairman who was also a member of the board of PNCC,
Mr. Valdecantos, sir.

SEN. DRILON. And because he was...

MR. FRANCISCO. Because he was my immediate boss in the APT.

SEN. DRILON. Apparently, [it] just ended up in the personal possession of Mr. Valdecantos because the
corporate secretary, Glenda Ogan, who is supposed to be the custodian of the records of the board never saw a
copy of this.

MR. FRANCISCO. Well, sir, my – the copy that I gave was to Mr. Valdecantos because he was the one sitting in
the PNCC board, sir.
SEN. DRILON. No, you sit in the board.

MR. FRANCISCO. I was just an ex-officio member. And all my reports were coursed through our Chairman, Mr.
Valdecantos, sir.

SEN. DRILON. Now, did you ever tell the board that there is a legal position taken or at least from the documents
it is possible that the claim has prescribed?

MR. FRANCISCO. I took this up in the board meeting of the PNCC at that time and I told them about this matter,
sir.

SEN. DRILON. No, you told them that the claim could have, under the law, could have prescribed?

MR. FRANCISCO. No, sir.

SEN. DRILON. Why? You mean, you didn’t tell the board that it is possible that this liability is no longer a valid
liability because it has prescribed?

MR. FRANCISCO. I did not dwell into the findings anymore, sir, because I found the professional opinion of the
Feria Law Office to be sufficient.49 (Emphasis supplied)

Atty. Francisco’s act of recommending to the PNCC Board the acknowledgment of the Marubeni loans based
only on an opinion of a private law firm, without consulting the OGCC and without showing this opinion to the
members of the PNCC Board except to Atty. Valdecantos, reflects how shockingly little his concern was for
PNCC, contrary to his claim that "he only had the interest of PNCC at heart." In fact, if what was involved was
his own money, Atty. Francisco would have preferred not just two, but at least three different opinions on how
to deal with the matter, and he would have maintained his non-liability.

SEN. OSMEÑA. x x x

All right. And lastly, just to clear our minds, there has always been this finger-pointing, of course, whenever –
this is typical Filipino. When they're caught in a bind, they always point a finger, they pretend they don't know.
And it just amazes me that you have been appointed trustees, meaning, representatives of the Filipino people,
that's what you were at APT, right? You were not Erap's representatives, you were representative of the Filipino
people and you were tasked to conserve the assets that that had been confiscated from various cronies of the
previous administration. And here, you are asked to recognize the P10 billion debt and you point only to one
law firm. If you have cancer, don't you to a second opinion, a second doctor or a third doctor? This is just a
question. I am just asking you for your opinion if you would take the advice of the first doctor who tells you that
he's got to open you up.

MR. FRANCISCO. I would go to three or more doctors, sir.

SEN. OSMEÑA. Three or more. Yeah, that's right. And in this case the APT did not do so.

MR. FRANCISCO. We relied on the findings of the …

SEN. OSMEÑA. If these were your money, would you have gone also to obtain a second, third opinion from other
law firms. Kung pera mo itong 10 billion na ito. Siguro you're not gonna give it up that easily ano, 'di ba?

MR. FRANCISCO. Yes, sir.

SEN. OSMEÑA. You'll probably keep it in court for the next 20 years.
x x x x50 (Emphasis supplied)

This is a clear admission by Atty. Francisco of bad faith in directing the affairs of PNCC - that he would not have
recognized the Marubeni loans if his own funds were involved or if he were the owner of PNCC.

The PNCC Board admitted liability for the ₱10.743 billion Marubeni loans without seeing, reading or discussing
the "Feria opinion" which was the sole basis for its admission of liability. Such act surely goes against ordinary
human nature, and amounts to gross negligence and utter bad faith, even bordering on fraud, on the part of the
PNCC Board in directing the affairs of the corporation. Owing loyalty to PNCC and its stockholders, the PNCC
Board should have exercised utmost care and diligence in admitting a gargantuan debt of ₱10.743 billion that
would certainly force PNCC into insolvency, a debt that previous PNCC Boards in the last two decades
consistently refused to admit.

Instead, the PNCC Board admitted PNCC’s liability for the Marubeni loans relying solely on a mere opinion of a
private law office, which opinion the PNCC Board members never saw, except for Atty. Valdecantos and Atty.
Francisco. The PNCC Board knew that PNCC, as a government owned and controlled corporation (GOCC), must
rely "exclusively" on the opinion of the OGCC. Section 1 of Memorandum Circular No. 9 dated 27 August 1998
issued by the President states:

SECTION 1. All legal matters pertaining to government-owned or controlled corporations, their subsidiaries,
other corporate off-springs and government acquired asset corporations (GOCCs) shall be exclusively referred
to and handled by the Office of the Government Corporate Counsel (OGCC). (Emphasis supplied)

The PNCC Board acted in bad faith in relying on the opinion of a private lawyer knowing that PNCC is required
to rely "exclusively" on the OGCC’s opinion. Worse, the PNCC Board, in admitting liability for ₱10.743 billion,
relied on the recommendation of a private lawyer whose opinion the PNCC Board members have not even seen.

During the oral arguments, Atty. Sison explained to the Court that the intention of APT was for the PNCC Board
merely to disclose the claim of Marubeni as part of APT's full disclosure policy to prospective buyers of PNCC.
Atty. Sison stated that it was not the intention of APT for the PNCC Board to admit liability for the Marubeni
loans, thus:

x x x It was the Asset Privatization Trust A-P-T that was tasked to sell the company. The A-P-T, for purposes of
disclosure statements, tasked the Feria Law Office to handle the documentation and the study of all legal issues
that had to be resolved or clarified for the information of prospective bidders and or buyers. In the performance
of its assigned task the Feria Law Office came upon the Marubeni claim and mentioned that the APTC and/or
PNCC must disclose that there is a claim by Marubeni against PNCC for purposes of satisfying the requirements
of full disclosure. This seemingly innocent statement or requirement made by the Feria Law Office was then
taken by two officials of the Asset Privatization Trust and with malice aforethought turned it into the basis for
a multi-billion peso debt by the now government owned and/or controlled PNCC. x x x.51 (Emphasis supplied)

While the PNCC Board passed Board Resolution No. BD-099-2000 amending Board Resolution No. BD-092-
2000, such amendment merely added conditions for the recognition of the Marubeni loans, namely, subjecting
the recognition to a final determination by COA of the amount involved and to the declaration by OGCC of the
legality of PNCC’s liability. However, the PNCC Board reiterated and stood firm that it "recognizes,
acknowledges and confirms its obligations" for the Marubeni loans. Apparently, Board Resolution No. BD-099-
2000 was a futile attempt to "revoke" Board Resolution No. BD-092-2000. Atty. Alfredo Laya, Jr., a former PNCC
Director, spoke on his protests against Board Resolution No. BD-092-2000 at the Senate hearings, thus:

MR. LAYA. Mr. Chairman, if I can …

THE CHAIRMAN. Were you also at the board?

MR. LAYA. At that time, yes, sir.

THE CHAIRMAN. Okay, go ahead.

MR. LAYA. That's why if – maybe this can help clarify the sequence. There was this meeting on October 20. This
matter of the Marubeni liability or account was also discussed. Mr. Macasaet, if I may try to refresh. And there
was some discussion, sir, and in fact, they were saying even at that stage that there should be a COA or an OGCC
audit. Now, that was during the discussion of October 20. Later on, the minutes came out. The practice, then,
sir, was for the minutes to come out at the start of the meeting of the subsequent. So the minutes of October 20
came out on November 22 and then we were going over it. And that is in the subsequent minutes of the meeting
…

THE CHAIRMAN. May I interrupt. You were taking up in your November 22 meeting the October 20 minutes?

MR. LAYA. Yes, sir.

THE CHAIRMAN. This minutes that we have?

MR. LAYA. Yes, sir.

THE CHAIRMAN. All right, go ahead.

MR. LAYA. Now, in the November 22 meeting, we noticed this resolution already for confirmation of the board
– proceedings of October 20. So immediately we made – actually, protest would be a better term for that – we
protested the wording of the resolution and that's why we came up with this resolution amending the October
20 resolution.

SEN. DRILON. So you are saying, Mr. Laya, that the minutes of October 20 did not accurately reflect the decisions
that you made on October 20 because you were saying that this recognition should be subject to OGCC and
COA? You seem to imply and we want to make it – and I want to get that for the record. You seem to imply that
there was no decision to recognize the obligation during that meeting because you wanted it to subject it to
COA and OGCC, is that correct?

MR. LAYA. Yes, your Honor.

SEN. DRILON. So how did...

MR. LAYA. That's my understanding of the proceedings at that time, that's why in the subsequent November 22
meeting, we raised this point about obtaining a COA and OGCC opinion.

SEN. DRILON. Yes. But you know, the November 22 meeting repeated the wording of the resolution previously
adopted only now you are saying subject to final determination which is completely of different import from
what you are saying was your understanding of the decision arrived at on October 20.

MR. LAYA. Yes, sir. Because our thinking then...

SEN. DRILON. What do you mean, yes, sir?

MR. LAYA. It's just a claim under discussion but then the way it is translated, as the minutes of October 20 were
not really verbatim.
SEN. DRILON. So, you never intended to recognize the obligation.

MR. LAYA. I think so, sir. That was our – personally, that was my position.

SEN. DRILON. How did it happen, Corporate Secretary Ogan, that the minutes did not reflect what the board …

THE CHAIRMAN. Ms. Pasetes …

MS. PASETES. Yes, Mr. Chairman.

THE CHAIRMAN. … you are the chief financial officer of PNCC.

MS. PASETES. Your Honor, before that November 22 board meeting, management headed by Mr. Rolando
Macasaet, myself and Atty. Ogan had a discussion about the recognition of the obligations of 10 billion of
Marubeni and 36 billion of the national government on whether to recognize this as an obligation in our books
or recognize it as an obligation in the pro forma financial statement to be used for the privatization of PNCC
because recognizing both obligations in the books of PNCC would defeat our going concern status and that is
where the position of the president then, Mr. Macasaet, stemmed from and he went back to the board and
moved to reconsider the position of October 20, 2000, Mr. Chair.52 (Emphasis supplied)

In other words, despite Atty. Laya’s objections to PNCC’s admitting liability for the Marubeni loans, the PNCC
Board still admitted the same and merely imposed additional conditions to temper somehow the devastating
effects of Board Resolution No. BD-092-2000.

The act of the PNCC Board in issuing Board Resolution No. BD-092-2000 expressly admitting liability for the
Marubeni loans demonstrates the PNCC Board’s gross and willful disregard of the requisite care and diligence
in managing the affairs of PNCC, amounting to bad faith and resulting in grave and irreparable injury to PNCC
and its stockholders. This reckless and treacherous move on the part of the PNCC Board clearly constitutes a
serious breach of its fiduciary duty to PNCC and its stockholders, rendering the members of the PNCC Board
liable under Section 31 of the Corporation Code, which provides:

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

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

Soon after the short-lived Estrada Administration, the PNCC Board revoked its previous admission of liability
for the Marubeni loans. During the oral arguments, Atty. Sison narrated to the Court:

x x x After President Estrada was ousted, I was appointed as President and Chairman of PNCC in April of 2001,
this particular board resolution was brought to my attention and I immediately put the matter before the board.
I had no problem in convincing them to reverse the recognition as it was illegal and had no basis in fact. The
vote to overturn that resolution was unanimous. Strange to say that some who voted to overturn the
recognition were part of the old board that approved it. Stranger still, Renato Valdecantos who was still a
member of the Board voted in favor of reversing the resolution he himself instigated and pushed. Some of the
board members who voted to recognize the obligation of Marubeni even came to me privately and said "pinilit
lang kami." x x x.53 (Emphasis supplied)

In approving PNCC Board Resolution Nos. BD-092-2000 and BD-099-2000, the PNCC Board caused undue
injury to the Government and gave unwarranted benefits to Radstock, through manifest partiality, evident bad
faith or gross inexcusable negligence of the PNCC Board. Such acts are declared under Section 3(e) of RA 3019
or the Anti-Graft and Corrupt Practices Act, as "corrupt practices xxx and xxx unlawful." Being unlawful and
criminal acts, these PNCC Board Resolutions are void ab initio and cannot be implemented or in any way given
effect by the Executive or Judicial branch of the Government.

Not content with forcing PNCC to commit corporate suicide with the admission of liability for the Marubeni
loans under Board Resolution Nos. BD-092-2000 and BD-099-2000, the PNCC Board drove the last nail on
PNCC’s coffin when the PNCC Board entered into the manifestly and grossly disadvantageous Compromise
Agreement with Radstock. This time, the OGCC, headed by Agnes DST Devanadera, reversed itself and
recommended approval of the Compromise Agreement to the PNCC Board. As Atty. Sison explained to the Court
during the oral arguments:

x x x While the case was pending in the Court of Appeals, Radstock in a rare display of extreme generosity,
conveniently convinced the Board of PNCC to enter into a compromise agreement for ½ the amount of the
judgment rendered by the RTC or ₱6.5 Billion Pesos. This time the OGCC, under the leadership of now Solicitor
General Agnes Devanadera, approved the compromise agreement abandoning the previous OGCC position that
PNCC had a meritorious case and would be hard press to lose the case. What is strange is that although the
compromise agreement we seek to stop ostensibly is for ₱6.5 Billion only, truth and in fact, the agreement
agrees to convey to Radstock all or substantially all of the assets of PNCC worth ₱18 Billion Pesos. There are
three items that are undervalued here, the real estate that was turned over as a result of the controversial
agreement, the toll revenues that were being assigned and the value of the new shares of PNCC the difference
is about ₱12 Billion Pesos. x x x (Emphasis supplied)

V.
The Compromise Agreement is Void
for Being Contrary to the Constitution,
Existing Laws, and Public Policy

For a better understanding of the present case, the pertinent terms and conditions of the Compromise
Agreement between PNCC and Radstock are quoted below:

COMPROMISE AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Agreement made and entered into this 17th day of August 2006, in Mandaluyong City, Metro Manila,
Philippines, by and between:

PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, a government acquired asset corporation, created

and existing under the laws of the Republic of the Philippines, with principal office address at EDSA corner
Reliance Street, Mandaluyong City, Philippines, duly represented herein by its Chairman ARTHUR N. AGUILAR,
pursuant to a Board Resolution attached herewith as Annex "A" and made an integral part hereof, hereinafter
referred to as PNCC;

- and -

RADSTOCK SECURITIES LIMITED, a private corporation incorporated in the British Virgin Islands, with office
address at Suite 1402 1 Duddell Street, Central Hongkong duly-represented herein by its Director, CARLOS G.
DOMINGUEZ, pursuant to a Board Resolution attached herewith as Annex "B" and made an integral part hereof,
hereinafter referred to as RADSTOCK.

WITNESSETH:

WHEREAS, on January 15, 2001, RADSTOCK, as assignee of Marubeni Corporation, filed a complaint for sum of
money and damages with application for a writ of preliminary attachment with the Regional Trial Court (RTC),
Mandaluyong City, docketed as Civil Case No. MC-01-1398, to collect on PNCC’s guarantees on the unpaid loan
obligations of CDCP Mining Corporation as provided under an Advance Payment Agreement and Loan
Agreement;

WHEREAS, on December 10, 2002, the RTC of Mandaluyong rendered a decision in favor of plaintiff RADSTOCK
directing PNCC to pay the total amount of Thirteen Billion One Hundred Fifty One Million Nine Hundred Fifty-
Six Thousand Five Hundred Twenty-Eight Pesos (₱13,151,956,528.00) with interest from October 15, 2001
plus Ten Million Pesos (₱10,000,000.00) as attorney's fees.

WHEREAS, PNCC had elevated the case to the Court of Appeals (CA-G.R. SP No. 66654) on Certiorari and
thereafter, to the Supreme Court (G.R. No. 156887) which Courts have consistently ruled that the RTC did not
commit grave abuse of discretion when it denied PNCC’s Motion to Dismiss which sets forth similar or
substantially the same grounds or defenses as those raised in PNCC's Answer;

WHEREAS, the case has remained pending for almost six (6) years even after the main action was appealed to
the Court of Appeals;

WHEREAS, on the basis of the RTC Decision dated December 10, 2002, the current value of the judgment debt
against PNCC stands at ₱17,040,843,968.00 as of July 31, 2006 (the "Judgment Debt");

WHEREAS, RADSTOCK is willing to settle the case at the reduced Compromise Amount of Six Billion One
Hundred Ninety-Six Million Pesos (₱6,196,000,000.00) which may be paid by PNCC, either in cash or in kind to
avoid the trouble and inconvenience of further litigation as a gesture of goodwill and cooperation;

WHEREAS, it is an established legal policy or principle that litigants in civil cases should be encouraged to
compromise or amicably settle their claims not only to avoid litigation but also to put an end to one already
commenced (Articles 2028 and 2029, Civil Code);

WHEREAS, this Compromise Agreement has been approved by the respective Board of Directors of both PNCC
and RADSTOCK, subject to the approval of the Honorable Court;

NOW, THEREFORE, for and in consideration of the foregoing premises, and the mutual covenants, stipulations
and agreements herein contained, PNCC and RADSTOCK have agreed to amicably settle the above captioned
Radstock case under the following terms and conditions:

1. RADSTOCK agrees to receive and accept from PNCC in full and complete settlement of the
Judgment Debt, the reduced amount of Six Billion, One Hundred Ninety-Six Million Pesos
(₱6,196,000,000.00) (the "Compromise Amount").

2. This Compromise Amount shall be paid by PNCC to RADSTOCK in the following manner:

a. PNCC shall assign to a third party assignee to be designated by RADSTOCK all its rights and interests to the
following real properties provided the assignee shall be duly qualified to own real properties in the Philippines;
(1) PNCC’s rights over that parcel of land located in Pasay City with a total area of One Hundred
Twenty-Nine Thousand Five Hundred Forty-Eight (129,548) square meters, more or less, and
which is covered by and more particularly described in Transfer Certificate of Title No. T-
34997 of the Registry of Deeds for Pasay City. The transfer value is ₱3,817,779,000.00.

PNCC’s rights and interests in Transfer Certificate of Title No. T-34997 of the Registry of Deeds
for Pasay City is defined and delineated by Administrative Order No. 397, Series of 1998, and
RADSTOCK is fully aware and recognizes that PNCC has an undertaking to cede at least 2
hectares of this property to its creditor, the Philippine National Bank; and that furthermore,
the Government Service Insurance System has also a current and existing claim in the nature
of boundary conflicts, which undertaking and claim will not result in the diminution of area or
value of the property. Radstock recognizes and acknowledges the rights and interests of GSIS
over the said property.

(2) T-452587 (T-23646) - Parañaque (5,123 sq. m.) subject to the clarification of the
Privatization and Management Office (PMO) claims thereon. The transfer value is
₱45,000,900.00.

(3) T-49499 (529715 including T-68146-G (S-29716) (1,9747-A)-Parañaque (107 sq. m.) (54
sq. m.) subject to the clarification of the Privatization and Management Office (PMO) claims
thereon. The transfer value is ₱1,409,100.00.

(4) 5-29716-Parañaque (27,762 sq. m.) subject to the clarification of the Privatization and
Management Office (PMO) claims thereon. The transfer value is ₱242,917,500.00.

(5) P-169 - Tagaytay (49,107 sq. m.). The transfer value is ₱13,749,400.00.

(6) P-170 - Tagaytay (49,100 sq. m.). The transfer value is ₱13,749,400.00.

(7) N-3320 - Town and Country Estate, Antipolo (10,000 sq. m.). The transfer value is
₱16,800,000.00.

(8) N-7424 - Antipolo (840 sq. m.). The transfer value is ₱940,800.00.

(9) N-7425 - Antipolo (850 sq. m.). The transfer value is ₱952,000.00.

(10) N-7426 - Antipolo (958 sq. m.). The transfer value is ₱1,073,100.00.

(11) T-485276 - Antipolo (741 sq. m.). The transfer value is ₱830,200.00.

(12) T-485277 - Antipolo (680 sq. m.). The transfer value is ₱761,600.00.

(13) T-485278 - Antipolo (701 sq. m.). The transfer value is ₱785,400.00.

(14) T-131500 - Bulacan (CDCP Farms Corp.) (4,945 sq, m.). The transfer value is
₱6,475,000.00.

(15) T-131501 - Bulacan (678 sq. m.). The transfer value is ₱887,600.00.

(16) T-26,154 (M) - Bocaue, Bulacan (2,841 sq. m.). The transfer value is ₱3,779,300.00.
 (17) T-29,308 (M) - Bocaue, Bulacan (733 sq. m.). The transfer value is ₱974,400.00.

(18) T-29,309 (M) Bocaue, Bulacan (1,141 sq. m.). The transfer value is ₱1,517,600.00.

(19) T-260578 (R. Bengzon) Sta. Rita, Guiguinto, Bulacan (20,000 sq. m.). The transfer value
is ₱25,200,000.00.

The transfer values of the foregoing properties are based on 70% of the appraised value of the respective
properties.

b. PNCC shall issue to RADSTOCK or its assignee common shares of the capital stock of PNCC issued at par value
which shall comprise 20% of the outstanding capital stock of PNCC after the conversion to equity of the debt
exposure of the Privatization Management Office (PMO) and the National Development Company (NDC) and
other government agencies and creditors such that the total government holdings shall not fall below 70%
voting equity subject to the approval of the Securities and Exchange Commission (SEC) and ratification of
PNCC’s stockholders, if necessary. The assigned value of the shares issued to RADSTOCK is ₱713 Million based
on the approximate last trading price of PNCC shares in the Philippine Stock Exchange as the date of this
agreement, based further on current generally accepted accounting standards which stipulates the valuation
of shares to be based on the lower of cost or market value.

Subject to the procurement of any and all necessary approvals from the relevant governmental authorities,
PNCC shall deliver to RADSTOCK an instrument evidencing an undertaking of the Privatization and
Management Office (PMO) to give RADSTOCK or its assignee the right to match any offer to buy the shares of
the capital stock and debts of PNCC held by PMO, in the event the same shares and debt are offered for
privatization.

c. PNCC shall assign to RADSTOCK or its assignee 50% of the PNCC's 6% share in the gross toll revenue of the
Manila North Tollways Corporation (MNTC), with a Net Present Value of ₱1.287 Billion computed in the
manner outlined in Annex "C" herein attached as an integral part hereof, that shall be due and owing to PNCC
pursuant to the Joint Venture Agreement between PNCC and First Philippine Infrastructure Development Corp.
dated August 29, 1995 and other related existing agreements, commencing in 2008. It shall be understood that
as a result of this assignment, PNCC shall charge and withhold the amounts, if any, pertaining to taxes due on
the amounts assigned.

Under the Compromise Agreement, PNCC shall pay Radstock the reduced amount of ₱6,185,000,000.00 in full
settlement of PNCC’s guarantee of CDCP Mining’s debt allegedly totaling ₱17,040,843,968.00 as of 31 July 2006.
To satisfy its reduced obligation, PNCC undertakes to (1) "assign to a third party assignee to be designated by
Radstock all its rights and interests" to the listed real properties therein; (2) issue to Radstock or its assignee
common shares of the capital stock of PNCC issued at par value which shall comprise 20% of the outstanding
capital stock of PNCC; and (3) assign to Radstock or its assignee 50% of PNCC’s 6% share, for the next 27 years
(2008-2035), in the gross toll revenues of the Manila North Tollways Corporation.

A. The PNCC Board has no power to compromise

the ₱6.185 billion amount.

Does the PNCC Board have the power to compromise the ₱6.185 billion "reduced" amount? The answer is in
the negative.1avvphi1

The Dissenting Opinion asserts that PNCC has the power, citing Section 36(2) of Presidential Decree No. 1445
(PD 1445), otherwise known as the Government Auditing Code of the Philippines, enacted in 1978. Section 36
states:
SECTION 36. Power to Compromise Claims. — (1) When the interest of the government so requires, the
Commission may compromise or release in whole or in part, any claim or settled liability to any government
agency not exceeding ten thousand pesos and with the written approval of the Prime Minister, it may likewise
compromise or release any similar claim or liability not exceeding one hundred thousand pesos, the application
for relief therefrom shall be submitted, through the Commission and the Prime Minister, with their
recommendations, to the National Assembly.

(2) The respective governing bodies of government-owned or controlled corporations, and self-governing
boards, commissions or agencies of the government shall have the exclusive power to compromise or release
any similar claim or liability when expressly authorized by their charters and if in their judgment, the interest
of their respective corporations or agencies so requires. When the charters do not so provide, the power to
compromise shall be exercised by the Commission in accordance with the preceding paragraph. (Emphasis
supplied)

The Dissenting Opinion asserts that since PNCC is incorporated under the Corporation Code, the PNCC Board
has all the powers granted to the governing boards of corporations incorporated under the Corporation Code,
which includes the power to compromise claims or liabilities.

Section 36 of PD 1445, enacted on 11 June 1978, has been superseded by a later law -- Section 20(1), Chapter
IV, Subtitle B, Title I, Book V of Executive Order No. 292 or the Administrative Code of 1987, which provides:

Section 20. Power to Compromise Claims. - (1) When the interest of the Government so requires, the
Commission may compromise or release in whole or in part, any settled claim or liability to any government
agency not exceeding ten thousand pesos arising out of any matter or case before it or within its jurisdiction,
and with the written approval of the President, it may likewise compromise or release any similar claim or
liability not exceeding one hundred thousand pesos. In case the claim or liability exceeds one hundred thousand
pesos, the application for relief therefrom shall be submitted, through the Commission and the President, with
their recommendations, to the Congress[.] x x x (Emphasis supplied)

Under this provision,54 the authority to compromise a settled claim or liability exceeding ₱100,000.00 involving
a government agency, as in this case where the liability amounts to ₱6.185 billion, is vested not in COA but
exclusively in Congress. Congress alone has the power to compromise the ₱6.185 billion purported liability of
PNCC. Without congressional approval, the Compromise Agreement between PNCC and Radstock involving
₱6.185 billion is void for being contrary to Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the
Administrative Code of 1987.

PNCC is a "government agency" because Section 2 on Introductory Provisions of the Revised Administrative
Code of 1987 provides that –

Agency of the Government refers to any of the various units of the Government, including a department, bureau,
office, instrumentality, or government-owned or controlled corporation, or a local government or a distinct
unit therein. (Boldfacing supplied)

Thus, Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the Administrative Code of 1987 applies to PNCC,
which indisputably is a government owned or controlled corporation.

In the same vein, the COA’s stamp of approval on the Compromise Agreement is void for violating Section 20(1),
Chapter IV, Subtitle B, Title I, Book V of the Administrative Code of 1987. Clearly, the Dissenting Opinion’s
reliance on the COA’s finding that the terms and conditions of the Compromise Agreement are "fair and above
board" is patently erroneous.
Citing Benedicto v. Board of Administrators of Television Stations RPN, BBC and IBC, 55 the Dissenting Opinion
views that congressional approval is not required for the validity of the Compromise Agreement because the
liability of PNCC is not yet "settled."

In Benedicto, the PCGG filed in the Sandiganbayan a civil case to recover from the defendants (including
Roberto S. Benedicto) their ill-gotten wealth consisting of funds and other properties. The PCGG executed a
compromise agreement with Roberto S. Benedicto ceding to the latter a substantial part of his ill-gotten assets
and the State granting him immunity from further prosecution. The Court held that prior congressional
approval is not required for the PCGG to enter into a compromise agreement with persons against whom it has
filed actions for recovery of ill-gotten wealth.

In Benedicto, the Court found that the government’s claim against Benedicto was not yet settled unlike here
where the PNCC Board expressly admitted the liability of PNCC for the Marubeni loans. In Benedicto, the
ownership of the alleged ill-gotten assets was still being litigated in the Sandiganbayan and no party ever
admitted any liability, unlike here where the PNCC Board had already admitted through a formal Board
Resolution PNCC’s liability for the Marubeni loans. PNCC’s express admission of liability for the Marubeni loans
is essentially the premise of the execution of the Compromise Agreement. In short, Radstock’s claim against
PNCC is settled by virtue of PNCC’s express admission of liability for the Marubeni loans. The Compromise
Agreement merely reduced this settled liability from ₱17 billion to ₱6.185 billion.

The provision of the Revised Administrative Code on the power to settle claims or liabilities was precisely
enacted to prevent government agencies from admitting liabilities against the government, then compromising
such "settled" liabilities. The present case is exactly what the law seeks to prevent, a compromise agreement
on a creditor’s claim settled through admission by a government agency without the approval of Congress for
amounts exceeding ₱100,000.00. What makes the application of the law even more necessary is that the PNCC
Board’s twin moves are manifestly and grossly disadvantageous to the Government. First, the PNCC admitted
solidary liability for a staggering ₱10.743 billion private debt incurred by a private corporation which PNCC
does not even control. Second, the PNCC Board agreed to pay Radstock ₱6.185 billion as a compromise
settlement ahead of all other creditors, including the Government which is the biggest creditor.

The Dissenting Opinion further argues that since the PNCC is incorporated under the Corporation Code, it has
the power, through its Board of Directors, to compromise just like any other private corporation organized
under the Corporation Code. Thus, the Dissenting Opinion states:

Not being a government corporation created by special law, PNCC does not owe its creation to some charter or
special law, but to the Corporation Code. Its powers are enumerated in the Corporation Code and its articles of
incorporation. As an autonomous entity, it undoubtedly has the power to compromise, and to enter into a
settlement through its Board of Directors, just like any other private corporation organized under the
Corporation Code. To maintain otherwise is to ignore the character of PNCC as a corporate entity organized
under the Corporation Code, by which it was vested with a personality and identity distinct and separate from
those of its stockholders or members. (Boldfacing and underlining supplied)

The Dissenting Opinion is woefully wide off the mark. The PNCC is not "just like any other private corporation"
precisely because it is not a private corporation but indisputably a government owned corporation. Neither is
PNCC "an autonomous entity" considering that PNCC is under the Department of Trade and Industry, over
which the President exercises control. To claim that PNCC is an "autonomous entity" is to say that it is a lost
command in the Executive branch, a concept that violates the President's constitutional power of control over
the entire Executive branch of government.56

The government nominees in the PNCC Board, who practically compose the entire PNCC Board, are public
officers subject to the Anti-Graft and Corrupt Practices Act, accountable to the Government and the Filipino
people. To hold that a corporation incorporated under the Corporation Code, despite its being 90.3% owned
by the Government, is "an autonomous entity" that could solely through its Board of Directors compromise,
and transfer ownership of, substantially all its assets to a private third party without the approval required
under the Administrative Code of 1987,57 is to invite the plunder of all such government owned corporations.

The Dissenting Opinion’s claim that PNCC is an autonomous entity just like any other private corporation is
inconsistent with its assertion that Section 36(2) of the Government Auditing Code is the governing law in
determining PNCC's power to compromise. Section 36(2) of the Government Auditing Code expressly states
that it applies to the governing bodies of "government-owned or controlled corporations." The phrase
"government-owned or controlled corporations" refers to both those created by special charter as well as those
incorporated under the Corporation Code. Section 2, Article IX-D of the Constitution provides:

SECTION 2. (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle
all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned
or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities,
including government-owned or controlled corporations with original charters, and on a post-audit basis: (a)
constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution;
(b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and
their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly,
from or through the Government, which are required by law or the granting institution to submit to such audit
as a condition of subsidy or equity. However, where the internal control system of the audited agencies is
inadequate, the Commission may adopt such measures, including temporary or special pre-audit, as are
necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the Government and,
for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining
thereto.

(2) The Commission shall have exclusive authority, subject to the limitations in this Article, to define the scope
of its audit and examination, establish the techniques and methods required therefor, and promulgate
accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and
properties. (Emphasis supplied)

In explaining the extent of the jurisdiction of COA over government owned or controlled corporations, this
Court declared in Feliciano v. Commission on Audit:58

The COA's audit jurisdiction extends not only to government "agencies or instrumentalities," but also to
"government-owned and controlled corporations with original charters" as well as "other government-owned
or controlled corporations" without original charters.

xxxx

Petitioner forgets that the constitutional criterion on the exercise of COA's audit jurisdiction depends on the
government's ownership or control of a corporation. The nature of the corporation, whether it is private, quasi-
public, or public is immaterial.

The Constitution vests in the COA audit jurisdiction over "government-owned and controlled corporations with
original charters," as well as "government-owned or controlled corporations" without original charters. GOCCs
with original charters are subject to COA pre-audit, while GOCCs without original charters are subject to COA
post-audit. GOCCs without original charters refer to corporations created under the Corporation Code but are
owned or controlled by the government. The nature or purpose of the corporation is not material in
determining COA's audit jurisdiction. Neither is the manner of creation of a corporation, whether under a
general or special law.

Clearly, the COA’s audit jurisdiction extends to government owned or controlled corporations incorporated
under the Corporation Code. Thus, the COA must apply the Government Auditing Code in the audit and
examination of the accounts of such government owned or controlled corporations even though incorporated
under the Corporation Code. This means that Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the
Administrative Code of 1987 on the power to compromise, which superseded Section 36 of the Government
Auditing Code, applies to the present case in determining PNCC’s power to compromise. In fact, the COA has
been regularly auditing PNCC on a post-audit basis in accordance with Section 2, Article IX-D of the
Constitution, the Government Auditing Code, and COA rules and regulations.

B. PNCC’s toll fees are public funds.

PD 1113 granted PNCC a 30-year franchise to construct, operate and maintain toll facilities in the North and
South Luzon Expressways. Section 1 of PD 111359 provides:

Section 1. Any provision of law to the contrary notwithstanding, there is hereby granted to the Construction
and Development Corporation of the Philippines (CDCP), a corporation duly organized and registered under
the laws of the Philippines, hereinafter called the GRANTEE, for a period of thirty (30) years from May 1, 1977
the right, privilege and authority to construct, operate and maintain toll facilities covering the expressways
from Balintawak (Station 9 + 563) to Carmen, Rosales, Pangasinan and from Nichols, Pasay City (Station 10 +
540) to Lucena, Quezon, hereinafter referred to collectively as North Luzon Expressway, respectively.

The franchise herein granted shall include the right to collect toll fees at such rates as may be fixed and/or
authorized by the Toll Regulatory Board hereinafter referred to as the Board created under Presidential Decree
No. 1112 for the use of the expressways above-mentioned. (Emphasis supplied)

Section 2 of PD 1894,60 which amended PD 1113 to include in PNCC’s franchise the Metro Manila expressway,
also provides:

Section 2. The term of the franchise provided under Presidential Decree No. 1113 for the North Luzon
Expressway and the South Luzon Expressway which is thirty (30) years from 1 May 1977 shall remain the
same; provided that, the franchise granted for the Metro Manila Expressway and all extensions linkages,
stretches and diversions that may be constructed after the date of approval of this decree shall likewise have a
term of thirty (30) years commencing from the date of completion of the project. (Emphasis supplied)

Based on these provisions, the franchise of the PNCC expired on 1 May 2007 or thirty years from 1 May 1977.

PNCC, however, claims that under PD 1894, the North Luzon Expressway (NLEX) shall have a term of 30 years
from the date of its completion in 2005. PNCC argues that the proviso in Section 2 of PD 1894 gave "toll road
projects completed within the franchise period and after the approval of PD No. 1894 on 12 December 1983
their own thirty-year term commencing from the date of the completion of the said project, notwithstanding
the expiry of the said franchise."

This contention is untenable.

The proviso in Section 2 of PD 1894 refers to the franchise granted for the Metro Manila Expressway and all
extensions linkages, stretches and diversions constructed after the approval of PD 1894. It does not pertain to
the NLEX because the term of the NLEX franchise, "which is 30 years from 1 May 1977, shall remain the same,"
as expressly provided in the first sentence of the same Section 2 of PD 1894. To construe that the NLEX
franchise had a new term of 30 years starting from 2005 glaringly conflicts with the plain, clear and unequivocal
language of the first sentence of Section 2 of PD 1894. That would be clearly absurd.

There is no dispute that Congress did not renew PNCC’s franchise after its expiry on 1 May 2007. However,
PNCC asserts that it "remains a viable corporate entity even after the expiration of its franchise under
Presidential Decree No. 1113." PNCC points out that the Toll Regulatory Board (TRB) granted PNCC a "Tollway
Operation Certificate" (TOC) which conferred on PNCC the authority to operate and maintain toll facilities,
which includes the power to collect toll fees. PNCC further posits that the toll fees are private funds because
they represent "the consideration given to tollway operators in exchange for costs they incurred or will incur
in constructing, operating and maintaining the tollways."

This contention is devoid of merit.

With the expiration of PNCC’s franchise, the assets and facilities of PNCC were automatically turned over, by
operation of law, to the government at no cost. Sections 2(e) and 9 of PD 1113 and Section 5 of PD 1894 provide:

Section 2 [of PD 1113]. In consideration of this franchise, the GRANTEE shall:

(e) Turn over the toll facilities and all equipment directly related thereto to the government upon expiration of
the franchise period without cost.

Section 9 [of PD 1113]. For the purposes of this franchise, the Government, shall turn over to the GRANTEE
(PNCC) not later than April 30, 1977 all physical assets and facilities including all equipment and appurtenances
directly related to the operations of the North and South Toll Expressways: Provided, That, the extensions of
such Expressways shall also be turned over to GRANTEE upon completion of their construction or of functional
sections thereof: Provided, However, That upon termination of the franchise period, said physical assets and
facilities including improvements thereon, together with equipment and appurtenances directly related to
their operations, shall be turned over to the Government without any cost or obligation on the part of the latter.
(Emphasis supplied)

Section 5 [of PD No. 1894]. In consideration of this franchise, the GRANTEE shall:

(a) Construct, operate and maintain at its own expense the Expressways; and

(b) Turn over, without cost, the toll facilities and all equipment, directly related thereto to the
Government upon expiration of the franchise period. (Emphasis supplied)

The TRB does not have the power to give back to PNCC the toll assets and facilities which were automatically
turned over to the Government, by operation of law, upon the expiration of the franchise of the PNCC on 1 May
2007. Whatever power the TRB may have to grant authority to operate a toll facility or to issue a "Tollway
Operation Certificate," such power does not obviously include the authority to transfer back to PNCC ownership
of National Government assets, like the toll assets and facilities, which have become National Government
property upon the expiry of PNCC’s franchise. Such act by the TRB would repeal Section 5 of PD 1894 which
automatically vested in the National Government ownership of PNCC’s toll assets and facilities upon the expiry
of PNCC’s franchise. The TRB obviously has no power to repeal a law. Further, PD 1113, as amended by PD
1894, granting the franchise to PNCC, is a later law that must necessarily prevail over PD 1112 creating the
TRB. Hence, the provisions of PD 1113, as amended by PD 1894, are controlling.

The government’s ownership of PNCC's toll assets and facilities inevitably results in the government’s
ownership of the toll fees and the net income derived from these toll assets and facilities. Thus, the toll fees
form part of the National Government’s General Fund, which includes public moneys of every sort and other
resources pertaining to any agency of the government.61 Even Radstock’s counsel admits that the toll fees are
public funds, to wit:

ASSOCIATE JUSTICE CARPIO:

Okay. Now, when the franchise of PNCC expired on May 7, 2007, under the terms of the franchise under PD
1896, all the assets, toll way assets, equipment, etcetera of PNCC became owned by government at no cost,
correct, under the franchise?
DEAN AGABIN:

Yes, Your Honor.

ASSOCIATE JUSTICE CARPIO:

Okay. So this is now owned by the national government. [A]ny income from these assets of the national
government is national government income, correct?

DEAN AGABIN:

Yes, Your Honor.62

xxxx

ASSOCIATE JUSTICE CARPIO:

x x x My question is very simple x x x Is the income from these assets of the national government (interrupted)

DEAN AGABIN:

Yes, Your Honor.63

xxxx

ASSOCIATE JUSTICE CARPIO:

So, it’s the government [that] decides whether it goes to the general fund or another fund. [W]hat is that other
fund? Is there another fund where revenues of the government go?

DEAN AGABIN:

It’s the same fund, Your Honor, except that (interrupted)

ASSOCIATE JUSTICE CARPIO:

So it goes to the general fund?

DEAN AGABIN:

Except that it can be categorized as a private fund in a commercial sense, and it can be categorized as a public
fund in a Public Law sense.

ASSOCIATE JUSTICE CARPIO:

Okay. So we agree that, okay, it goes to the general fund. I agree with you, but you are saying it is categorized
still as a private funds?

DEAN AGABIN:
Yes, Your Honor.

ASSOCIATE JUSTICE CARPIO:

But it’s part of the general fund. Now, if it is part of the general fund, who has the authority to spend that money?

DEAN AGABIN:

Well, the National Government itself.

ASSOCIATE JUSTICE CARPIO:

Who in the National Government, the Executive, Judiciary or Legislative?

DEAN AGABIN:

Well, the funds are usually appropriated by the Congress.

ASSOCIATE JUSTICE CARPIO:

x x x you mean to say there are exceptions that money from the general fund can be spent by the Executive
without going t[hrough] Congress, or xxx is [that] the absolute rule?

DEAN AGABIN:

Well, in so far as the general fund is concerned, that is the absolute rule set aside by the National Government.

ASSOCIATE JUSTICE CARPIO:

x x x you are saying this is general fund money - the collection from the assets[?]

DEAN AGABIN:

Yes.64 (Emphasis supplied)

Forming part of the General Fund, the toll fees can only be disposed of in accordance with the fundamental
principles governing financial transactions and operations of any government agency, to wit: (1) no money
shall be paid out of the Treasury except in pursuance of an appropriation made by law, as expressly mandated
by Section 29(1), Article VI of the Constitution; and (2) government funds or property shall be spent or used
solely for public purposes, as expressly mandated by Section 4(2) of PD 1445 or the Government Auditing
Code.65

Section 29(1), Article VI of the Constitution provides:

Section 29(1). No money shall be paid out of the Treasury except in pursuance of an appropriation made by
law.

The power to appropriate money from the General Funds of the Government belongs exclusively to the
Legislature. Any act in violation of this iron-clad rule is unconstitutional.
Reinforcing this Constitutional mandate, Sections 84 and 85 of PD 1445 require that before a government
agency can enter into a contract involving the expenditure of government funds, there must be an
appropriation law for such expenditure, thus:

Section 84. Disbursement of government funds.

1. Revenue funds shall not be paid out of any public treasury or depository except in pursuance of an
appropriation law or other specific statutory authority.

xxxx

Section 85. Appropriation before entering into contract.

1. No contract involving the expenditure of public funds shall be entered into unless there is an appropriation
therefor, the unexpended balance of which, free of other obligations, is sufficient to cover the proposed
expenditure.

xxxx

Section 86 of PD 1445, on the other hand, requires that the proper accounting official must certify that funds
have been appropriated for the purpose.66 Section 87 of PD 1445 provides that any contract entered into
contrary to the requirements of Sections 85 and 86 shall be void, thus:

Section 87. Void contract and liability of officer. Any contract entered into contrary to the requirements of the
two immediately preceding sections shall be void, and the officer or officers entering into the contract shall be
liable to the government or other contracting party for any consequent damage to the same extent as if the
transaction had been wholly between private parties. (Emphasis supplied)

Applying Section 29(1), Article VI of the Constitution, as implanted in Sections 84 and 85 of the Government
Auditing Code, a law must first be enacted by Congress appropriating ₱6.185 billion as compromise money
before payment to Radstock can be made.67 Otherwise, such payment violates a prohibitory law and thus void
under Article 5 of the Civil Code which states that "[a]cts executed against the provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their validity."

Indisputably, without an appropriation law, PNCC cannot lawfully pay ₱6.185 billion to Radstock. Any contract
allowing such payment, like the Compromise Agreement, "shall be void" as provided in Section 87 of the
Government Auditing Code. In Comelec v. Quijano-Padilla,68 this Court ruled:

Petitioners are justified in refusing to formalize the contract with PHOTOKINA. Prudence dictated them not to
enter into a contract not backed up by sufficient appropriation and available funds. Definitely, to act otherwise
would be a futile exercise for the contract would inevitably suffer the vice of nullity. In Osmeña vs. Commission
on Audit, this Court held:

The Auditing Code of the Philippines (P.D. 1445) further provides that no contract involving the expenditure of
public funds shall be entered into unless there is an appropriation therefor and the proper accounting official
of the agency concerned shall have certified to the officer entering into the obligation that funds have been duly
appropriated for the purpose and the amount necessary to cover the proposed contract for the current fiscal
year is available for expenditure on account thereof. Any contract entered into contrary to the foregoing
requirements shall be VOID.

Clearly then, the contract entered into by the former Mayor Duterte was void from the very beginning since the
agreed cost for the project (₱,368,920.00) was way beyond the appropriated amount (₱,419,180.00) as
certified by the City Treasurer. Hence, the contract was properly declared void and unenforceable in COA's 2nd
Indorsement, dated September 4, 1986. The COA declared and we agree, that:

The prohibition contained in Sec. 85 of PD 1445 (Government Auditing Code) is explicit and mandatory. Fund
availability is, as it has always been, an indispensable prerequisite to the execution of any government contract
involving the expenditure of public funds by all government agencies at all levels. Such contracts are not to be
considered as final or binding unless such a certification as to funds availability is issued (Letter of Instruction
No. 767, s. 1978). Antecedent of advance appropriation is thus essential to government liability on contracts
(Zobel vs. City of Manila, 47 Phil. 169). This contract being violative of the legal requirements aforequoted, the
same contravenes Sec. 85 of PD 1445 and is null and void by virtue of Sec. 87.

Verily, the contract, as expressly declared by law, is inexistent and void ab initio. This is to say that the proposed
contract is without force and effect from the very beginning or from its incipiency, as if it had never been
entered into, and hence, cannot be validated either by lapse of time or ratification. (Emphasis supplied)

Significantly, Radstock’s counsel admits that an appropriation law is needed before PNCC can use toll fees to
pay Radstock, thus:

ASSOCIATE JUSTICE CARPIO:

Okay, I agree with you. Now, you are saying that money can be paid out of the general fund only through an
appropriation by Congress, correct? That’s what you are saying.

DEAN AGABIN:

Yes, Your Honor.

ASSOCIATE JUSTICE CARPIO:

I agree with you also. Okay, now, can PNCC xxx use this money to pay Radstock without Congressional
approval?

DEAN AGABIN:

Well, I believe that that may not be necessary. Your Honor, because earlier, the government had already
decreed that PNCC should be properly paid for the reclamation works which it had done. And so (interrupted)

ASSOCIATE JUSTICE CARPIO:

No. I am talking of the funds.

DEAN AGABIN:

And so it is like a foreign obligation.

ASSOCIATE JUSTICE CARPIO:

Counsel, I'm talking of the general funds, collection from the toll fees. Okay. You said, they go to the general
fund. You also said, money from the general fund can be spent only if there is an appropriation law by Congress.

DEAN AGABIN:
Yes, Your Honor.

There is no law.

DEAN AGABIN:

Yes, except that, Your Honor, this fund has not yet gone to the general fund.

ASSOCIATE JUSTICE CARPIO:

No. It’s being collected everyday. As of May 7, 2007, national government owned those assets already. All those
x x x collections that would have gone to PNCC are now national government owned. It goes to the general fund.
And any body who uses that without appropriation from Congress commits malversation, I tell you.

DEAN AGABIN:

That is correct, Your Honor, as long as it has already gone into the general fund.

ASSOCIATE JUSTICE CARPIO:

Oh, you mean to say that it’s still being held now by the agent, PNCC. It has not been remitted to the National
Government?

DEAN AGABIN:

Well, if PNCC (interrupted)

ASSOCIATE JUSTICE CARPIO:

But if (interrupted)

DEAN AGABIN:

If this is the share that properly belongs to PNCC as a private entity (interrupted)

ASSOCIATE JUSTICE CARPIO:

No, no. I am saying that – You just agreed that all those collections now will go to the National Government
forming part of the general fund. If, somehow, PNCC is holding this money in the meantime, it holds xxx it in
trust, correct? Because you said, it goes to the general fund, National Government. So it must be holding this in
trust for the National Government.

DEAN AGABIN:

Yes, Your Honor.

ASSOCIATE JUSTICE CARPIO:

Okay. Can the person holding in trust use it to pay his private debt?

DEAN AGABIN:
No, Your Honor.

ASSOCIATE JUSTICE CARPIO:

Cannot be.

DEAN AGABIN:

But I assume that there must be some portion of the collections which properly pertain to PNCC.

ASSOCIATE JUSTICE CARPIO:

If there is some portion that xxx may be [for] operating expenses of PNCC. But that is not

DEAN AGABIN:

Even profit, Your Honor.

ASSOCIATE JUSTICE CARPIO:

Yeah, but that is not the six percent. Out of the six percent, that goes now to PNCC, that’s entirely national
government. But the National Government and the PNCC can agree on service fees for collecting, to pay toll
collectors.

DEAN AGABIN:

Yes, Your Honor.

ASSOCIATE JUSTICE CARPIO:

But those are expenses. We are talking of the net income. It goes to the general fund. And it’s only Congress that
can authorize that expenditure. Not even the Court of Appeals can give its stamp of approval that it goes to
Radstock, correct?

DEAN AGABIN:

Yes, Your Honor.69 (Emphasis supplied)

Without an appropriation law, the use of the toll fees to pay Radstock would constitute malversation of public
funds. Even counsel for Radstock expressly admits that the use of the toll fees to pay Radstock constitutes
malversation of public funds, thus:

ASSOCIATE JUSTICE CARPIO:

x x x As of May 7, 2007, [the] national government owned those assets already. All those x x x collections that
would have gone to PNCC are now national government owned. It goes to the general fund. And any body who
uses that without appropriation from Congress commits malversation, I tell you.

DEAN AGABIN:

That is correct, Your Honor, as long as it has already gone into the general fund.
ASSOCIATE JUSTICE CARPIO:

Oh, you mean to say that it’s still being held now by the agent, PNCC. It has not been remitted to the National
Government?

DEAN AGABIN:

Well, if PNCC (interrupted)

ASSOCIATE JUSTICE CARPIO:

But if (interrupted)

DEAN AGABIN:

If this is the share that properly belongs to PNCC as a private entity (interrupted)

ASSOCIATE JUSTICE CARPIO:

No, no. I am saying that – You just agreed that all those collections now will go to the National Government
forming part of the general fund. If, somehow, PNCC is holding this money in the meantime, it holds x x x it in
trust, correct? Because you said, it goes to the general fund, National Government. So it must be holding this in
trust for the National Government.

DEAN AGABIN:

Yes, Your Honor.70 (Emphasis supplied)

Indisputably, funds held in trust by PNCC for the National Government cannot be used by PNCC to pay a private
debt of CDCP Mining to Radstock, otherwise the PNCC Board will be liable for malversation of public funds.

In addition, to pay Radstock ₱6.185 billion violates the fundamental public policy, expressly articulated in
Section 4(2) of the Government Auditing Code,71 that government funds or property shall be spent or used
solely for pubic purposes, thus:

Section 4. Fundamental Principles. x x x (2) Government funds or property shall be spent or used solely for
public purposes. (Emphasis supplied)

There is no question that the subject of the Compromise Agreement is CDCP Mining’s private debt to Marubeni,
which Marubeni subsequently assigned to Radstock. Counsel for Radstock admits that Radstock holds a private
debt of CDCP Mining, thus:

ASSOCIATE JUSTICE CARPIO:

So your client is holding a private debt of CDCP Mining, correct?

DEAN AGABIN:

Correct, Your Honor.72 (Emphasis supplied)

CDCP Mining obtained the Marubeni loans when CDCP Mining and PNCC (then CDCP) were still privately owned
and managed corporations. The Government became the majority stockholder of PNCC only because
government financial institutions converted their loans to PNCC into equity when PNCC failed to pay the loans.
However, CDCP Mining have always remained a majority privately owned corporation with PNCC owning only
13% of its equity as admitted by former PNCC Chairman Arthur N. Aguilar and PNCC SVP Finance Miriam M.
Pasetes during the Senate hearings, thus:

SEN. OSMEÑA. x x x – I just wanted to know is CDCP Mining a 100 percent subsidiary of PNCC?

MR. AGUILAR. Hindi ho. Ah, no.

SEN. OSMEÑA. If they’re not a 100 percent, why would they sign jointly and severally? I just want to plug the
loopholes.

MR. AGUILAR. I think it was – if I may just speculate. It was just common ownership at that time.

SEN. OSMEÑA. Al right. Now – Also, the ...

MR. AGUILAR. Ah, 13 percent daw, your Honor.

SEN. OSMEÑA. Huh?

MR. AGUILAR. Thirteen percent ho.

SEN. OSMEÑA. What’s 13 percent?

MR. AGUILAR. We owned ...

MS. PASETES. Thirteen percent of ...

SEN. OSMEÑA. PNCC owned ...

MS. PASETES. (Mike off) CDCP ...

SEN. DRILON. Use the microphone, please.

MS. PASETES. Sorry. Your Honor, the ownership of CDCP of CDCP Basay Mining ...

SEN. OSMEÑA. No, no, the ownership of CDCP. CDCP Mining, how many percent of the equity of CDCP Mining
was owned by PNCC, formerly CDCP?

MS. PASETES. Thirteen percent.

SEN. OSMEÑA. Thirteen. And as a 13 percent owner, they agreed to sign jointly and severally?

MS. PASETES. Yes.

SEN. OSMEÑA. One-three?

So poor PNCC and CDCP got taken to the cleaners here. They sign for a 100 percent and they only own 13
percent.
x x x x73 (Emphasis supplied)

PNCC cannot use public funds, like toll fees that indisputably form part of the General Fund, to pay a private
debt of CDCP Mining to Radstock. Such payment cannot qualify as expenditure for a public purpose. The toll
fees are merely held in trust by PNCC for the National Government, which is the owner of the toll fees.

Considering that there is no appropriation law passed by Congress for the ₱6.185 billion compromise amount,
the Compromise Agreement is void for being contrary to law, specifically Section 29(1), Article VI of the
Constitution and Section 87 of PD 1445. And since the payment of the ₱6.185 billion pertains to CDCP Mining’s
private debt to Radstock, the Compromise Agreement is also void for being contrary to the fundamental public
policy that government funds or property shall be spent or used solely for public purposes, as provided in
Section 4(2) of the Government Auditing Code.

C. Radstock is not qualified to own land in the Philippines.

Radstock is a private corporation incorporated in the British Virgin Islands. Its office address is at Suite 14021
Duddell Street, Central Hongkong. As a foreign corporation, with unknown owners whose nationalities are also
unknown, Radstock is not qualified to own land in the Philippines pursuant to Section 7, in relation to Section
3, Article XII of the Constitution. These provisions state:

Section. 3. Lands of the public domain are classified into agricultural, forest or timber, mineral lands, and
national parks. Agricultural lands of the public domain may be further classified by law according to the uses
to which they may be devoted. Alienable lands of the public domain shall be limited to agricultural lands.
Private corporations or associations may not hold such lands of the public domain except by lease, for a period
not exceeding twenty-five years, renewable for not more than twenty-five years, and not to exceed one hundred
thousand hectares in area. Citizens of the Philippines may lease not more than five hundred hectares, or acquire
not more than twelve hectares thereof by purchase, homestead, or grant.

Taking into account the requirements of conservation, ecology, and development, and subject to the
requirements of agrarian reform, the Congress shall determine, by law, the size of lands of the public domain
which may be acquired, developed, held, or leased and the conditions therefor.

xxxx

Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to
individuals, corporations, or associations qualified to acquire or hold lands of the public domain.

The OGCC admits that Radstock cannot own lands in the Philippines. However, the OGCC claims that Radstock
can own the rights to ownership of lands in the Philippines, thus:

ASSOCIATE JUSTICE CARPIO:

Under the law, a foreigner cannot own land, correct?

ATTY. AGRA:

Yes, Your Honor.

ASSOCIATE JUSTICE CARPIO:

Can a foreigner who xxx cannot own land assign the right of ownership to the land?
ATTY. AGRA:

Again, Your Honor, at that particular time, it will be PNCC, not through Radstock, that chain of events should
be, there’s a qualified nominee (interrupted)

ASSOCIATE JUSTICE CARPIO:

Yes, xxx you said, Radstock will assign the right of ownership to the qualified assignee[.] So my question is, can
a foreigner own the right to ownership of a land when it cannot own the land itself?

ATTY. AGRA:

The foreigner cannot own the land, Your Honor.

ASSOCIATE JUSTICE CARPIO:

But you are saying it can own the right of ownership to the land, because you are saying, the right of ownership
will be assigned by Radstock.

ATTY. AGRA:

The rights over the properties, Your Honors, if there’s a valid assignment made to a qualified party, then the
assignment will be made.

ASSOCIATE JUSTICE CARPIO:

Who makes the assignment?

ATTY. AGRA:

It will be Radstock, Your Honor.

ASSOCIATE JUSTICE CARPIO:

So, if Radstock makes the assignment, it must own its rights, otherwise, it cannot assign it, correct?

ATTY. AGRA:

Pursuant to the compromise agreement, once approved, yes, Your Honors.

ASSOCIATE JUSTICE CARPIO:

So, you are saying that Radstock can own the rights to ownership of the land?

ATTY. AGRA:

Yes, Your Honors.

ASSOCIATE JUSTICE CARPIO:

Yes?

ATTY. AGRA:

The premise, Your Honor, you mentioned a while ago was, if this Court approves said compromise (interrupted)

ASSOCIATE JUSTICE CARPIO:

No, no. Whether there is such a compromise agreement - - It’s an academic question I am asking you, can a
foreigner assign rights to ownership of a land in the Philippines?

ATTY. AGRA:

Under the Compromise Agreement, Your Honors, these rights should be respected.

ASSOCIATE JUSTICE CARPIO:

So, it can?

ATTY. AGRA:

It can. Your Honor. But again, this right must, cannot be perfected or cannot be, could not take effect.

ASSOCIATE JUSTICE CARPIO:

But if it cannot - - It’s not perfected, how can it assign?

ATTY. AGRA:

Not directly, Your Honors. Again, there must be a qualified nominee assigned by Radstock.

ASSOCIATE JUSTICE CARPIO:

It’s very clear, it’s an indirect way of selling property that is prohibited by law, is it not?

ATTY. AGRA:

Again, Your Honor, know, believe this is a Compromise Agreement. This is a dacion en pago.

ASSOCIATE JUSTICE CARPIO:

So, dacion en pago is an exception to the constitutional prohibition.

ATTY. AGRA:

No, Your Honor. PNCC, will still hold on to the property, absent a valid assignment of properties.

ASSOCIATE JUSTICE CARPIO:

But what rights will PNCC have over that land when it has already signed the compromise? It is just waiting for
instruction xxx from Radstock what to do with it? So, it’s a trustee of somebody, because it does not, it cannot,
[it] has no dominion over it anymore? It’s just holding it for Radstock. So, PNCC becomes a dummy, at that point,
of Radstock, correct?

ATTY. AGRA:

No, Your Honor, I believe it (interrupted)

ASSOCIATE JUSTICE CARPIO:

Yeah, but it does not own the land, but it still holding the land in favor of the other party to the Compromise
Agreement

ATTY. AGRA:

Pursuant to the compromise agreement, that will happen.

ASSOCIATE JUSTICE CARPIO:

Okay. May I (interrupted)

ATTY. AGRA:

Again, Your Honor, if the compromise agreement ended with a statement that Radstock will be the owner of
the property (interrupted)

ASSOCIATE JUSTICE CARPIO:

Yeah. Unfortunately, it says, to a qualified assignee.

ATTY. AGRA:

Yes, Your Honor.

ASSOCIATE JUSTICE CARPIO:

And at this point, when it is signed and execut[ed] and approved, PNCC has no dominion over that land
anymore. Who has dominion over it?

ATTY. AGRA:

Pending the assignment to a qualified party, Your Honor, PNCC will hold on to the property.

ASSOCIATE JUSTICE CARPIO:

Hold on, but who x x x can exercise acts of dominion, to sell it, to lease it?

ATTY. AGRA:
Again, Your Honor, without the valid assignment to a qualified nominee, the compromise agreement in so far
as the transfer of these properties will not become effective. It is subject to such condition. Your
Honor.74 (Emphasis supplied)

There is no dispute that Radstock is disqualified to own lands in the Philippines. Consequently, Radstock is also
disqualified to own the rights to ownership of lands in the Philippines. Contrary to the OGCC’s claim, Radstock
cannot own the rights to ownership of any land in the Philippines because Radstock cannot lawfully own the
land itself. Otherwise, there will be a blatant circumvention of the Constitution, which prohibits a foreign
private corporation from owning land in the Philippines. In addition, Radstock cannot transfer the rights to
ownership of land in the Philippines if it cannot own the land itself. It is basic that an assignor or seller cannot
assign or sell something he does not own at the time the ownership, or the rights to the ownership, are to be
transferred to the assignee or buyer.75

The third party assignee under the Compromise Agreement who will be designated by Radstock can only
acquire rights duplicating those which its assignor (Radstock) is entitled by law to exercise.76 Thus, the assignee
can acquire ownership of the land only if its assignor, Radstock, owns the land. Clearly, the assignment by PNCC
of the real properties to a nominee to be designated by Radstock is a circumvention of the Constitutional
prohibition against a private foreign corporation owning lands in the Philippines. Such circumvention renders
the Compromise Agreement void.

D. Public bidding is required for

the disposal of government properties.

Under Section 79 of the Government Auditing Code,77 the disposition

of government lands to private parties requires public bidding.78 COA Circular No. 89-926, issued on 27 January
1989, sets forth the guidelines on the disposal of property and other assets of the government. Part V of the
COA Circular provides:

V. MODE OF DISPOSAL/DIVESTMENT: -

This Commission recognizes the following modes of disposal/divestment of assets and property of national
government agencies, local government units and government-owned or controlled corporations and their
subsidiaries, aside from other such modes as may be provided for by law.

1. Public Auction

Conformably to existing state policy, the divestment or disposal of government property as contemplated
herein shall be undertaken primarily thru public auction. Such mode of divestment or disposal shall observe
and adhere to established mechanics and procedures in public bidding, viz:

a. adequate publicity and notification so as to attract the greatest number of interested parties; (vide,
Sec. 79, P.D. 1445)

b. sufficient time frame between publication and date of auction;

c. opportunity afforded to interested parties to inspect the property or assets to be disposed of;

d. confidentiality of sealed proposals;

e. bond and other prequalification requirements to guarantee performance; and

 f. fair evaluation of tenders and proper notification of award.

It is understood that the Government reserves the right to reject any or all of the tenders. (Emphasis supplied)

Under the Compromise Agreement, PNCC shall dispose of substantial parcels of land, by way of dacion en pago,
in favor of Radstock. Citing Uy v. Sandiganbayan,79 PNCC argues that a dacion en pago is an exception to the
requirement of a public bidding.

PNCC’s reliance on Uy is misplaced. There is nothing in Uy declaring that public bidding is dispensed with in a
dacion en pago transaction. The Court explained the transaction in Uy as follows:

We do not see any infirmity in either the MOA or the SSA executed between PIEDRAS and respondent banks.
By virtue of its shareholdings in OPMC, PIEDRAS was entitled to subscribe to 3,749,906,250 class "A" and
2,499,937,500 class "B" OPMC shares. Admittedly, it was financially sound for PIEDRAS to exercise its pre-
emptive rights as an existing shareholder of OPMC lest its proportionate shareholdings be diluted to its
detriment. However, PIEDRAS lacked the necessary funds to pay for the additional subscription. Thus, it
resorted to contract loans from respondent banks to finance the payment of its additional subscription. The
mode of payment agreed upon by the parties was that the payment would be made in the form of part of the
shares subscribed to by PIEDRAS. The OPMC shares therefore were agreed upon by the parties to be equivalent
payment for the amount advanced by respondent banks. We see the wisdom in the conditions of the loan
transaction. In order to save PIEDRAS and/or the government from the trouble of selling the shares in order to
raise funds to pay off the loans, an easier and more direct way was devised in the form of the dacion en pago
agreements.

Moreover, we agree with the Sandiganbayan that neither PIEDRAS nor the government sustained any loss in
these transactions. In fact, after deducting the shares to be given to respondent banks as payment for the shares,
PIEDRAS stood to gain about 1,540,781,554 class "A" and 710,550,000 class "B" OPMC shares virtually for free.
Indeed, the question that must be asked is whether or not PIEDRAS, in the exercise of its pre-emptive rights,
would have been able to acquire any of these shares at all if it did not enter into the financing agreements with
the respondent banks.80

Suffice it to state that in Uy, neither PIEDRAS81 nor the government suffered any loss in the dacion en
pago transactions, unlike here where the government stands to lose at least ₱6.185 billion worth of assets.

Besides, a dacion en pago is in essence a form of sale, which basically involves a disposition of a property. In
Filinvest Credit Corp. v. Philippine Acetylene, Co., Inc.,82 the Court defined dacion en pago in this wise:

Dacion en pago, according to Manresa, is the transmission of the ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of obligation. In dacion en pago, as a special mode of
payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an
outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really
buying the thing or property of the debtor, payment for which is to be charged against the debtor's debt.As
such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration
must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of
the obligation where the thing offered as an accepted equivalent of the performance of an obligation is
considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case,
common consent is an essential prerequisite, be it sale or innovation to have the effect of totally extinguishing
the debt or obligation.83 (Emphasis supplied)

E. PNCC must follow rules on preference of credit.

Radstock is only one of the creditors of PNCC. Asiavest is PNCC’s judgment creditor. In its Board Resolution No.
BD-092-2000, PNCC admitted not only its debt to Marubeni but also its debt to the National Government 84 in
the amount of ₱36 billion.85 During the Senate hearings, PNCC admitted that it owed the Government ₱36
billion, thus:

SEN. OSMEÑA. All right. Now, second question is, the management of PNCC also recognize the obligation to the
national government of 36 billion. It is part of the board resolution.

MS. OGAN. Yes, sir, it is part of the October 20 board resolution.

SEN. OSMEÑA. All right. So if you owe the national government 36 billion and you owe Marubeni 10 billion, you
know, I would just declare bankruptcy and let an orderly disposition of assets be done. What happened in this
case to the claim, the 36 billion claim of the national government? How was that disposed of by the PNCC? Mas
malaki ang utang ninyo sa national government, 36 billion. Ang gagawin ninyo, babayaran lahat ang utang ninyo
sa Marubeni without any assets left to satisfy your obligations to the national government. There should have
been, at least, a pari passu payment of all your obligations, 'di ba?

MS. PASETES. Mr. Chairman...

SEN. OSMEÑA. Yes.

MS. PASETES. PNCC still carries in its books an equity account called equity adjustments arising from transfer
of obligations to national government - - 5.4 billion - - in addition to shares held by government amounting to
1.2 billion.

SEN. OSMEÑA. What is the 36 billion?

THE CHAIRMAN. Ms. Pasetes...

SEN. OSMEÑA. Wait, wait, wait.

THE CHAIRMAN. Baka ampaw yun eh.

SEN. OSMEÑA. Teka muna. What is the 36 billion that appear in the resolution of the board in September 2000
(sic)? This is the same resolution that recognizes, acknowledges and confirms PNCC's obligations to Marubeni.
And subparagraph (a) says "Government of the Philippines, in the amount of 36,023,784,000 and change. And
then (b) Marubeni Corporation in the amount of 10,743,000,000. So, therefore, in the same resolution, you
acknowledged that had something like P46.7 billion in obligations. Why did PNCC settle the 10 billion and did
not protect the national government's 36 billion? And then, number two, why is it now in your books, the 36
billion is now down to five? If you use that ratio, then Marubeni should be down to one.

MS. PASETES. Sir, the amount of 36 billion is principal plus interest and penalties.

SEN. OSMEÑA. And what about Marubeni? Is that just principal only?

MS. PASETES. Principal and interest.

SEN. OSMEÑA. So, I mean, you know, it's equal treatment. Ten point seven billion is principal plus penalties
plus interest, hindi ba?

MS. PASETES. Yes, sir. Yes, Your Honor.

SEN. OSMEÑA. All right. So now, what you are saying is that you gonna pay Marubeni 6 billion and change and
the national government is only recognizing 5 billion. I don't think that's protecting the interest of the national
government at all.86

In giving priority and preference to Radstock, the Compromise Agreement is certainly in fraud of PNCC’s other
creditors, including the National Government, and violates the provisions of the Civil Code on concurrence and
preference of credits.

This Court has held that while the Corporation Code allows the transfer of all or substantially all of the assets
of a corporation, the transfer should not prejudice the creditors of the assignor corporation. 87 Assuming that
PNCC may transfer all or substantially all its assets, to allow PNCC to do so without the consent of its creditors
or without requiring Radstock to assume PNCC’s debts will defraud the other PNCC creditors 88 since the
assignment will place PNCC’s assets beyond the reach of its other creditors.89 As this Court held in Caltex (Phil.),
Inc. v. PNOC Shipping and Transport Corporation:90

While the Corporation Code allows the transfer of all or substantially all the properties and assets of a
corporation, the transfer should not prejudice the creditors of the assignor. The only way the transfer can
proceed without prejudice to the creditors is to hold the assignee liable for the obligations of the assignor. The
acquisition by the assignee of all or substantially all of the assets of the assignor necessarily includes the
assumption of the assignor's liabilities, unless the creditors who did not consent to the transfer choose to
rescind the transfer on the ground of fraud. To allow an assignor to transfer all its business, properties and
assets without the consent of its creditors and without requiring the assignee to assume the assignor's
obligations will defraud the creditors. The assignment will place the assignor's assets beyond the reach of its
creditors. (Emphasis supplied)

Also, the law, specifically Article 138791 of the Civil Code, presumes that there is fraud of creditors when
property is alienated by the debtor after judgment has been rendered against him, thus:

Alienations by onerous title are also presumed fraudulent when made by persons against whom some
judgment has been rendered in any instance or some writ of attachment has been issued. The decision or
attachment need not refer to the property alienated, and need not have been obtained by the party seeking
rescission. (Emphasis supplied)

As stated earlier, Asiavest is a judgment creditor of PNCC in G.R. No. 110263 and a court has already issued a
writ of execution in its favor. Thus, when PNCC entered into the Compromise Agreement conveying several
prime lots in favor of Radstock, by way of dacion en pago, there is a legal presumption that such conveyance is
fraudulent under Article 1387 of the Civil Code.92 This presumption is strengthened by the fact that the
conveyance has virtually left PNCC’s other creditors, including the biggest creditor – the National Government
- with no other asset to garnish or levy.

Notably, the presumption of fraud or intention to defraud creditors is not just limited to the two instances set
forth in the first and second paragraphs of Article 1387 of the Civil Code. Under the third paragraph of the same
article, "the design to defraud creditors may be proved in any other manner recognized by the law of evidence."
In Oria v. Mcmicking,93 this Court considered the following instances as badges of fraud:

1. The fact that the consideration of the conveyance is fictitious or is inadequate.

2. A transfer made by a debtor after suit has begun and while it is pending against him.

3. A sale upon credit by an insolvent debtor.

4. Evidence of large indebtedness or complete insolvency.

 5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly
embarrassed financially.

6. The fact that the transfer is made between father and son, when there are present other of the above
circumstances.

7. The failure of the vendee to take exclusive possession of all the property. (Emphasis supplied)

Among the circumstances indicating fraud is a transfer of all or nearly all of the debtor’s assets, especially when
the debtor is greatly embarrassed financially. Accordingly, neither a declaration of insolvency nor the
institution of insolvency proceedings is a condition sine qua non for a transfer of all or nearly all of a debtor’s
assets to be regarded in fraud of creditors. It is sufficient that a debtor is greatly embarrassed financially.

In this case, PNCC’s huge negative net worth - at least ₱6 billion as expressly admitted by PNCC’s counsel during
the oral arguments, or ₱14 billion based on the 2006 COA Audit Report - necessarily translates to an extremely
embarrassing financial situation. With its huge negative net worth arising from unpaid billions of pesos in debt,
PNCC cannot claim that it is financially stable. As a consequence, the Compromise Agreement stipulating a
transfer in favor of Radstock of substantially all of PNCC’s assets constitutes fraud. To legitimize the
Compromise Agreement just because there is still no judicial declaration of PNCC’s insolvency will work fraud
on PNCC’s other creditors, the biggest creditor of which is the National Government. To insist that PNCC is very
much liquid, given its admitted huge negative net worth, is nothing but denial of the truth. The toll fees that
PNCC collects belong to the National Government. Obviously, PNCC cannot claim it is liquid based on its
collection of such toll fees, because PNCC merely holds such toll fees in trust for the National Government. PNCC
does not own the toll fees, and such toll fees do not form part of PNCC’s assets.

PNCC owes the National Government ₱36 billion, a substantial part of which constitutes taxes and fees, thus:

SEN. ROXAS. Thank you, Mr. Chairman.

Mr. PNCC Chairman, could you describe for us the composition of your debt of about five billion – there are in
thousands, so this looks like five and half billion. Current portion of long-term debt, about five billion. What is
this made of?

MS. PASETES. The five billion is composed of what is owed the Bureau of Treasury and the Toll Regulatory
Board for concession fees that’s almost three billion and another 2.4 billion owed Philippine National Bank.

SEN. ROXAS. So, how much is the Bureau of Treasury?

MS. PASETES. Three billion.

SEN. ROXAS. Three – Why do you owe the Bureau of Treasury three billion?

MS. PASETES. That represents the concession fees due Toll Regulatory Board principal plus interest, Your
Honor.

x x x x94 (Emphasis supplied)

In addition, PNCC’s 2006 Audit Report by COA states as follows:

TAX MATTERS
The Company was assessed by the Bureau of Internal Revenue (BIR) of its deficiencies in various taxes.
However, no provision for any liability has been made yet in the Company’s financial statements.

• 1980 deficiency income tax, deficiency contractor’s tax and deficiency documentary stamp tax assessments
by the BIR totaling ₱212.523 Million.

xxxx

• Deficiency business tax of ₱64 Million due the Belgian Consortium, PNCC’s partner in its LRT Project.

• 1992 deficiency income tax, deficiency value-added tax and deficiency expanded withholding tax of ₱1.04
Billion which was reduced to ₱709 Million after the Company’s written protest.

xxxx

• 2002 deficiency internal revenue taxes totaling ₱72.916 Million.

x x x x.95 (Emphasis supplied)

Clearly, PNCC owes the National Government substantial taxes and fees amounting to billions of pesos.

The ₱36 billion debt to the National Government was acknowledged by the PNCC Board in the same board
resolution that recognized the Marubeni loans. Since PNCC is clearly insolvent with a huge negative net worth,
the government enjoys preference over Radstock in the satisfaction of PNCC’s liability arising from taxes and
duties, pursuant to the provisions of the Civil Code on concurrence and preference of credits. Articles
2241,96 224297 and 224398 of the Civil Code expressly mandate that taxes and fees due the National
Government "shall be preferred" and "shall first be satisfied" over claims like those arising from the Marubeni
loans which "shall enjoy no preference" under Article 2244.99

However, in flagrant violation of the Civil Code, the PNCC Board favored Radstock over the National
Government in the order of credits. This would strip PNCC of its assets leaving virtually nothing for the National
Government. This action of the PNCC Board is manifestly and grossly disadvantageous to the National
Government and amounts to fraud.

During the Senate hearings, Senator Osmeña pointed out that in the Board Resolution of 20 October 2000, PNCC
acknowledged its obligations to the National Government amounting to ₱36,023,784,000 and to Marubeni
amounting to ₱10,743,000,000. Yet, Senator Osmeña noted that in the PNCC books at the time of the hearing,
the ₱36 billion obligation to the National Government was reduced to ₱5 billion. PNCC’s Miriam M. Pasetes
could not properly explain this discrepancy, except by stating that the ₱36 billion includes the principal plus
interest and penalties, thus:

SEN. OSMEÑA. Teka muna. What is the 36 billion that appear in the resolution of the board in September 2000
(sic)? This is the same resolution that recognizes, acknowledges and confirms PNCC's obligations to Marubeni.
And subparagraph (a) says "Government of the Philippines, in the amount of 36,023,784,000 and change. And
then (b) Marubeni Corporation in the amount of 10,743,000,000. So, therefore, in the same resolution, you
acknowledged that had something like P46.7 billion in obligations. Why did PNCC settle the 10 billion and did
not protect the national government's 36 billion? And then, number two, why is it now in your books, the 36
billion is now down to five? If you use that ratio, then Marubeni should be down to one.

MS. PASETES. Sir, the amount of 36 billion is principal plus interest and penalties.

SEN. OSMEÑA. And what about Marubeni? Is that just principal only?
MS. PASETES. Principal and interest.

SEN. OSMEÑA. So, I mean, you know, it's equal treatment. Ten point seven billion is principal plus penalties
plus interest, hindi ba?

MS. PASETES. Yes, sir. Yes, Your Honor.

SEN. OSMEÑA. All right. So now, what you are saying is that you gonna pay Marubeni 6 billion and change and
the national government is only recognizing 5 billion. I don't think that's protecting the interest of the national
government at all.100

PNCC failed to explain satisfactorily why in its books the obligation to the National Government was reduced
when no payment to the National Government appeared to have been made. PNCC failed to justify why it made
it appear that the obligation to the National Government was less than the obligation to Marubeni. It is another
obvious ploy to justify the preferential treatment given to Radstock to the great prejudice of the National
Government.

VI.
Supreme Court is Not Legitimizer of Violations of Laws

During the oral arguments, counsels for Radstock and PNCC admitted that the Compromise Agreement violates
the Constitution and existing laws. However, they rely on this Court to approve the Compromise Agreement to
shield their clients from possible criminal acts arising from violation of the Constitution and existing laws. In
their view, once this Court approves the Compromise Agreement, their clients are home free from prosecution,
and can enjoy the ₱6.185 billion loot. The following exchanges during the oral arguments reveal this view:

ASSOCIATE JUSTICE CARPIO:

If there is no agreement, they better remit all of that to the National Government. They cannot just hold that.
They are holding that [in] trust, as you said, x x x you agree, for the National Government.

DEAN AGABIN:

Yes, that’s why, they are asking the Honorable Court to approve the compromise agreement.

ASSOCIATE JUSTICE CARPIO:

We cannot approve that if the power to authorize the expenditure [belongs] to Congress. How can we usurp x
x x the power of Congress to authorize that expenditure[?] It’s only Congress that can authorize the expenditure
of funds from the general funds.

DEAN AGABIN:

But, Your Honor, if the Honorable Court would approve of this compromise agreement, I believe that this would
be binding on Congress.

ASSOCIATE JUSTICE CARPIO:

Ignore the Constitutional provision that money shall be paid out of the National Treasury only pursuant to an
appropriation by law. You want us to ignore that[?]
DEAN AGABIN:

Not really, Your Honor, but I suppose that Congress would have no choice, because this is a final judgment of
the Honorable Court. 101

xxxx

ASSOCIATE JUSTICE CARPIO:

So, if Radstock makes the assignment, it must own its rights, otherwise, it cannot assign it, correct?

ATTY. AGRA:

Pursuant to the compromise agreement, once approved, yes, Your Honors.

ASSOCIATE JUSTICE CARPIO:

So, you are saying that Radstock can own the rights to ownership of the land?

ATTY. AGRA:

Yes, Your Honors.

ASSOCIATE JUSTICE CARPIO:

Yes?

ATTY. AGRA:

The premise, Your Honor, you mentioned a while ago was, if this Court approves said compromise
(interrupted).102 (Emphasis supplied)

This Court is not, and should never be, a rubber stamp for litigants hankering to pocket public funds for their
selfish private gain. This Court is the ultimate guardian of the public interest, the last bulwark against those
who seek to plunder the public coffers. This Court cannot, and must never, bring itself down to the level of
legitimizer of violations of the Constitution, existing laws or public policy.

Conclusion

In sum, the acts of the PNCC Board in (1) issuing Board Resolution Nos. BD-092-2000 and BD-099-2000
expressly admitting liability for the Marubeni loans, and (2) entering into the Compromise Agreement,
constitute evident bad faith and gross inexcusable negligence, amounting to fraud, in the management of
PNCC’s affairs. Being public officers, the government nominees in the PNCC Board must answer not only to
PNCC and its stockholders, but also to the Filipino people for grossly mishandling PNCC’s finances.

Under Article 1409 of the Civil Code, the Compromise Agreement is "inexistent and void from the beginning,"
and "cannot be ratified," thus:

Art. 1409. The following contracts are inexistent and void from the beginning:
 (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or
public policy;

xxx

(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. x x x. (Emphasis supplied)

The Compromise Agreement is indisputably contrary to the Constitution, existing laws and public policy. Under
Article 1409, the Compromise Agreement is expressly declared void and "cannot be ratified." No court, not even
this Court, can ratify or approve the Compromise Agreement. This Court must perform its duty to defend and
uphold the Constitution, existing laws, and fundamental public policy. This Court must not shirk in declaring
the Compromise Agreement inexistent and void ab initio.

WHEREFORE, we GRANT the petition in G.R. No. 180428. We SET ASIDE the Decision dated 25 January 2007
and the Resolutions dated 12 June 2007 and 5 November 2007 of the Court of Appeals. We DECLARE (1) PNCC
Board Resolution Nos. BD-092-2000 and BD-099-2000 admitting liability for the Marubeni loans VOID AB
INITIO for causing undue injury to the Government and giving unwarranted benefits to a private party,
constituting a corrupt practice and unlawful act under Section 3(e) of the Anti-Graft and Corrupt Practices Act,
and (2) the Compromise Agreement between the Philippine National Construction Corporation and Radstock
Securities Limited INEXISTENT AND VOID AB INITIO for being contrary to Section 29(1), Article VI and Sections
3 and 7, Article XII of the Constitution; Section 20(1), Chapter IV, Subtitle B, Title I, Book V of the Administrative
Code of 1987; Sections 4(2), 79, 84(1), and 85 of the Government Auditing Code; and Articles 2241, 2242, 2243
and 2244 of the Civil Code.

We GRANT the intervention of Asiavest Merchant Bankers Berhad in G.R. No. 178158 but DECLARE that
Strategic Alliance Development Corporation has no legal standing to sue.

SO ORDERED.
 SECOND DIVISION
[G.R. No. L-27402 : July 25, 1981.]
GUARDIANSHIP OF THE INCOMPETENT LEONORA NAVARRO AND THE MINORS ADOLFO YUSON AND
OTHERS, ELDEGARDES YUSON DE PUA, Judicial Guardian-Appellant, vs. JUSTINIANO SAN
AGUSTIN, Movant-Appellee.

DECISION

BARREDO, J.:

Appeal from the order dated November 12, 1966 approving the "Motion for Confirmation of Deed Of Transfer
of Right on Lots Nos. 632 and 633, Cadastre No. 102 in favor of Justiniano San Agustin" of the Court of First
Instance of Davao, Branch I, Hon. Vicente N. Cusi, Jr. presiding, in Special Proceedings cranad(Case) No. 282,
entitled "Guardianship of the Incompetent Leonora Navarro and the Minors Adolfo Yuson and Others."
The records disclose the following antecedents of this appeal:
The spouses Enrique Navarro and Maximina Bonleon died intestate in 1945 — on March 18 and February 15,
1945, respectively — leaving as heirs the following:
a) Benita Navarro, legitimate daughter, of legal age, and residing at Lasang, Davao City.
b) Leonora Navarro, legitimate daughter, of legal age, and residing in Lasang, Davao City, under the judicial
guardianship of Atty. Eriberto A. Unson — later Eldegardes Yuson de Pua — Davao City.
c) Ramon Navarro and Delia Navarro, legitimate grandchildren cranad(children of predeceased child
Antonio Navarro), eight and seven years of age respectively, represented by their mother Filipinas
Catalan.
In the course of the settlement of the estate of the deceased spouses in Special Proceeding No. 64-R, entitled
"Intestate Estate of the Deceased Spouses Enrique Navarro and Maximina Bonleon" of the Court of First
Instance of Davao, Branch I, Hon. Wenceslao L. Fernan then presiding, a Project of Partition dated June 11, 1956,
executed by all the above-named heirs with the assistance of their respective guardian and counsel, was
presented to the court for approval, which the court approved in its order dated August 31, 1956. Among the
properties awarded to Leonora Navarro in said Project of Partition were:
xxx
"b) The parcel of land situated at Lasang, Davao City, designated as Lot 634-A, with an area of 89,430 square
meters, more or less . cra .
"c) All rights and interests under the portion of Lot No. cranad(632 and 633) situated at Panabo, Davao
with an area of 1.5 hectares, more or less adjacent to the parcel of land described in Transfer Certificate
of Title No. T-1297."
On October 13, 1958, Eldegardes Yuson de Pua, eldest legitimate daughter and judicial guardian of the
incompetent Leonora Navarro Yuson, filed a verified petition with the court below, praying for authority to sell
Lot No. 634-A. On October 25, 1958, the court issued an order granting the judicial guardian authority to sell
Lot No. 634-A on the ground that "the sale of the aforesaid property will be beneficial to the ward and her minor
children because the proceeds thereof could be expended for their maintenance." Accordingly, Lot No. 634-A
was sold to herein appellee, Justiniano San Agustin, for P13,750.00 as evidenced by a Deed of Absolute Sale
dated January 19, 1959. This sale was approved by the court on January 23, 1959, and Eldegardes Yuson de
Pua was directed in the same order "to deposit with the Philippine National Bank, Davao Branch, the amount
of Thirteen Thousand Seven Hundred Fifty Pesos cranad(P13,750.00), consideration of the aforesaid sale, in
the name of the above-entitled guardianship, to be withdrawn only upon previous approval of the court."
Subsequently, or on January 20, 1959, the same guardian Mrs. de Pua filed a second petition in the court a quo,
praying for authority to sell Lots Nos. 632 and 633 on the following ground, to wit:
"That in view of the standing account of the estate of the insane, Leonora Yuson and the expenses for
maintenance of her children, the herein petitioner deems it wise that the above-mentioned property,
which the estate cannot maintain or improve, be sold.” chanroblesvirtualawlibrary(Record on Appeal,
p. 2.)
However, the true area of the two lots — i.e., eleven cranad(11) instead of only one and one-half cranad(1-1/2)
hectares — was disclosed in this petition, thus:
"That among the properties of the insane, Leonora Navarro, as inheritance from the deceased spouses,
Enrique Navarro and Maximina Bonleon, are two cranad(2) parcels of land known as Lots Nos. 632
and 633 Cad. 102, consisting of 11 hectares, more or less, and situated at Lasang,
Davao.” chanroblesvirtualawlibrary(Emphasis supplied) cranad(Id., p. 2)
On the same day that this second petition was filed, Mrs. de Pua also filed a "Motion to Approve Sale of Property"
because Lots Nos. 632 and 633 had in the meantime been already sold by her to Dr. Justiniano San Agustin the
day before, i.e., on January 19, 1959, as evidenced by an instrument titled "Transfer of Rights", that is to say,
simultaneously with the other deed which was duly authorized and approved by the court.
Acting on this second motion, on February 7, 1959, the Court denied the petition to sell Lots Nos. 632 and 633,
thus:
"Inasmuch as the judicial guardian sold just recently Lot No. 634-A, TCT No. 1296, belonging to the
ward, in the amount of Thirteen Thousand Seven Hundred Fifty Pesos cranad(P13,750.00), the sale of
the property mentioned in her petition filed on January 20, 1959, is not necessary or would not be
beneficial to the ward; hence, the petition to sell is hereby denied.” chanroblesvirtualawlibrary(Id., pp.
26-27).
Meanwhile, because the co-heirs of the ward, Leonora Navarro — namely, Benita Navarro, Delia Navarro and
Ramon Navarro, in aforementioned Special Case No. 64-R learned thru the sale by appellant guardian Mrs. de
Pua to Dr. San Agustin that Lots Nos. 632 and 633 consisted not merely of 1.5 hectares but 11, steps were taken
towards the return of the said properties and they were correspondingly returned to the estate for proper
disposition, and as a result, a Supplemental Project of Partition dated June 9, 1960 was arrived at, submitted to
the court but subsequently amended on July 29, 1960. The amended Supplemental Project of Partition was also
approved by the court in Case No. 64-R on August 29, 1960. Under the terms of the Supplemental Project of
Partition and the amendment thereto, the heirs agreed that —
". cra . th(e) Estate shall recognize and confirm the conveyance of the rights over said Lots Nos. 632-
633, Cad. 102, with an area of 11 hectares, in favor of JUSTINIANO SAN AGUSTIN, for the stipulated
price of P8,250.00; and
". cra . the heirs Benita Navarro and the minors Ramon and Delia, both surnamed Navarro, hereby cede
and assign in favor of the heir Leonora Navarro, all of their rights, interests in the aforecited lots nos.
632-633, Cad. No. 102 and all its improvements under the consideration that said Leonora Navarro
shall pay to the aforenamed co-heirs, namely, Benita Navarro and the minors Ramon and Delia, all
surnamed Navarro, the sum of ONE THOUSAND TWO HUNDRED PESOS cranad(P1,200.00) and in
addition, shall release and rescind the respective mortgage obligations of the said co-heirs in favor of
said Leonora Navarro, and with the corresponding cancellation of the annotation of mortgage
encumbrance appearing in TCT No. T-8363 of Benita Navarro and the titles in the name of the minors
Ramon and Delia, all surnamed Navarro, which properties were assigned to said co-heirs under the
project of partition dated June 11, 1956, approved by this Honorable Court in its Order of August 31,
1956.” chanroblesvirtualawlibrary(Id., pp. 47-48).
On August 21, 1962, Mrs. de Pua filed an "Ex-Parte Motion" manifesting her desire to return to Dr. San Agustin
the amount of P7,375.00 advanced by him, so that the possession of Lots Nos. 632 and 633 may be returned to
the guardianship. This motion was granted in an order dated September 1, 1962, pertinent portion of which
provides:
 xxx
". cra . conformably with her ex-parte motion filed on August 31, 1962, P7,375.00 of said amount shall
be paid to Justiniano San Agustin so that he could return possession of Lots Nos. 632 and 633, Cad. 102,
belonging to the incompetent, to the judicial guardian . cra . .” chanroblesvirtualawlibrary(Id., pp. 29-
30)
On September 4, 1962, she followed this with an "Amended Ex-Parte Motion" with the following
relevant allegations:
xxx
"2. That since January 19, 1959, said Dr. San Agustin has been in continuous possession of the said lots
and has been enjoying the fruits thereof, which fact was not alleged as it should be, in the aforestated
ex-parte motion of August 31st. cranad(should be 21st)
xxx
"WHEREFORE, it is respectfully prayed that the undersigned guardian be allowed to return the sum of
P7,375.00 to Dr. Justiniano San Agustin, less the total value of the fruits he realized from his possession
of the land in question from January 19, 1959 until he returns the possession thereof to the
undersigned-movant, the amount of which may be ascertained from the doctor's record of production
and sales of the coconuts thereon.” chanroblesvirtualawlibrary(Id., p. 31)
The record does not disclose the lower court's action on this "Amended Ex-Parte Motion," Neither does it
appear there that appellee ever took any step to enforce the sale to him of the two lots in question evidently
because, as he very well knew, the Court had disapproved the same. According to appellant on page 11 of her
brief, it was only after she filed a civil action, docketed as Civil Case No. 5160, seeking the reconveyance of the
said lots that appellee began to move by filing on September 28, 1966 a "Motion for Confirmation of Deed of
Transfer of Rights Over Lots 632 and 633, Cad. 102" in his favor. He prayed that ". cra . in the interest of justice
and equity . cra . the Transfer of Rights over Lots 632 and 633 in favor of Justiniano San Agustin be approved
and confirmed by the Honorable Court." He based his alleged right over the two lots on the "Supplemental
Project of Partition" of June 9, 1960 and the "Amendment to the Supplemental Project of Partition" of July 29,
1960, which were executed by the Judicial Administrator and by the heirs, respectively, and approved by the
probate court in the intestate proceeding, to modify, as already stated earlier, the original Project of Partition
because of the discovery of the true area of Lots Nos. 632 and 633, which is eleven cranad(11) hectares and not
one and one-half cranad(1.5) hectares only, and that all the heirs agreed in said "Supplemental Project of
Partition" and the amendment thereto, among other things, to recognize and confirm the sale of Lots Nos. 632
and 633 in his favor, instead of partitioning the same in some other manner.
On November 12, 1966, Mrs. de Pua filed an "Opposition to the Motion for Confirmation, contending that:
"1. The transfer of rights over Lots Nos. 632 and 633, Cad. 102 had been passed upon and disapproved
by an order of this Honorable Court which has become final. cranad(Referring to order of February
7, 1959 disapproving the sale of the same lots.)
"2. The petition cranad(motion for confirmation) is self-serving and states on ground to warrant
approval of the transfer of rights."
Over said opposition, the court issued the following order, granting Dr. San Agustin's motion for confirmation:
"Finding the Motion for Confirmation of Deed of Transfer of Right over Lots Nos. 632 and 633, Cad. 102
in favor of Justiniano San Agustin filed by his counsel on September 28, 1966, meritorious, the Order
of this Court of February 7, 1959, based on erroneous facts, is hereby set aside and the aforesaid
transfer of rights signed by Justiniano San Agustin and Leanora Navarro represented by Eldegardes
Yuson de Pua, her judicial guardian . cra . is hereby approved.” chanroblesvirtualawlibrary(Emphasis
supplied)
Her motion for reconsideration having been denied "for lack of merit," the judicial guardian, Mrs. de Pua, is now
before Us and urges the following assignment of errors:
FIRST ASSIGNMENT OF ERROR
 THE ORDER OF THE LOWER COURT APPROVING THE TRANSFER OF RIGHTS IN FAVOR OF
JUSTINIANO SAN AGUSTIN IS CONTRARY TO LAW ON THE FOLLOWING GROUNDS:
I. THE TRANSFER OF RIGHTS IS VOID AB INITIO; HENCE, COULD NOT BE APPROVED NOR
CONFIRMED.
II. THE TRANSFER OF RIGHTS IS NOT NECESSARY NOR BENEFICIAL TO THE WARD.
SECOND ASSIGNMENT OF ERROR
THE ORDER OF THE LOWER COURT IN SETTING ASIDE ITS ORDER DATED FEBRUARY 7, 1959 IS
CONTRARY TO LAW ON THE GROUND THAT IT SETS ASIDE AN ORDER WHICH HAS BECOME FINAL
AND EXECUTORY.
In support of the first assigned error, judicial guardian-appellant Mrs. de Pua argues through counsel that the
transfer of rights is void ab initio and cannot be approved nor confirmed, because under Rule 95, Sec. 1 of the
Rules of Court, property under guardianship can be sold only by prior authority granted by the guardianship
court; that in the instant case "not only was the transfer of rights executed by the judicial guardian without any
authority, but the petition seeking authority to sell, which was filed a day after the actual execution of the
transfer of rights, was expressly denied by the lower court"; and, therefore, the transfer of rights is void because
"a sale of the ward's realty by the guardian without authority from the court is void," citing Inton vs.
Quintana, cranad(81 Phil. 97). Furthermore, she adds that the transfer of rights is not necessary nor beneficial
to the ward. In fact, there is no allegation at all to such effect in appellee's motion for confirmation.
Relative to the second assigned error, judicial guardian-appellant argues that the Order of the lower court of
February 7, 1959, which denied her petition to sell Lots 632 and 633 completely disposed of her petition and,
therefore, the challenged Order of November 12, 1966, which summarily set aside the said previous order is
contrary to law.
The foregoing assignment of errors/arguments raise only one decisive issue, which is: Whether or not, under
the circumstances related above, the lower court acted correctly in issuing the order of November 12, 1966,
approving the Motion for Confirmation of Sale of Lots 632 and 633 filed by the appellee Dr. San Agustin and
setting aside its previous order of February 7, 1959, which earlier disapproved the sale of the same lots.
We agree with appellant that the impugned order cannot stand legal scrutiny.
To start with, it must be emphasized that what appellee asked the court to confirm was a sale in 1959, or seven
years before the filing of said motion, and what is more, it was a sale which the court refused to authorize in its
order of February 7, 1959, for the simple reason that in its opinion, considering that a previous sale of Lot 634-
A for P13,750.00 had just been approved, it could not see why it would again be "necessary," after just a few
days, "or beneficial to the ward" that the two lots, Lots 632 and 633 should still be sold.
Reiteratedly, this Court has ruled that under Sections 2 and 3 of Rule 96 cranad(now Rule 95) that the
properties of Leonora, the ward of appellant Mrs. de Pua could be sold only under authority of the guardianship
court in Special Proceedings No. 282. Without such authority, any sale would necessarily be illegal. Indeed, even
on the assumption posited by appellee that the lack of authority from the guardianship court resulted only in a
voidable sale which could be ratified, there is no showing in the record that there was any such ratification. We
cannot go along with the proposition that the approval by the probate court in Case No. 64-R of the amended
"Supplemental Project of Partition" may be deemed in law as tantamount to the required ratification.
It is quite true that appellant-guardian Mrs. de Pua, did sign, assisted by her lawyer, Atty. Pedro S. Castillo, the
motion to approve said "Supplemental Project of Partition" of July 29, 1960, and that said motion was approved
by the probate court on August 29, 1960. It is further true that in the first "Supplemental Project of Partition"
it was specifically stipulated in paragraph 7(a) "that this Estate shall recognize and confirm the conveyance of
the rights over said Lots Nos. 632 and 633, Cad. 102, with an area of 11 hectares, in favor of Justiniano San
Agustin, for the stipulated price of P8,250.00." But legally speaking, the approval by the probate court of such
project of partition cranad(the stipulation just quoted was specifically reiterated in the amended project dated
July 29, 1960), did not in any degree confer upon Mrs. de Pua the power to dispose of the lots in question
without prior permission of the guardianship court. Indeed, the motion to approve referred to was signed only
by Flor A. Unson, the Judicial Administrator in the probate court in Case No. 64-R. We hold that court had no
jurisdiction to authorize the sale of any property belonging to an heir who is under guardianship without first
requiring the guardian to secure the corresponding authority from the guardianship court. Worse, much less
could the probate court have any power to effectively approve a sale of an heir-ward which had, as in this case,
been actually disapproved by the guardianship court.
In arriving at this conclusion, We are not overlooking the fact that the same judge, the Honorable Vicente N.
Cusi, Jr. who had issued the order denying authority to sell Lots 632 and 633 was the very one who in his order
of November 12, 1966, here being assailed, approved the motion for confirmation on the lame excuse, as We
see it, that his previous order of February 7, 1959 was "based on erroneous facts." What "erroneous facts " he
did not state, which circumstance readily places the order in question subject to the omission to comply with
the constitutional requirement that final orders or decisions of courts of record should state the facts on which
it is based, which means, of course, that at least the main elemental facts must be stated in a manner such as to
enable the parties to comprehend intelligently what they are.
Another equally important consideration lies in the way to Our giving Our sanction to the questioned order. In
the order of February 7, 1959, Judge Cusi held the sale was neither necessary nor beneficial to the ward. The
motion for confirmation of appellee of September 28, 1966 had no allegation at all that could induce anyone to
alter the conclusion in the February 7, 1959 order. If indeed there was already need on the part of the ward
Leonora for additional funds in 1966, the court could not just assume that such was the case, absent any
allegation, much less any proof to such effect before it.
Besides, We cannot but wonder how Lot 634-A with an area of a little less than nine(9) hectares was sold for
P13,750.00 and yet two lots, numbered 632 and 633, indicating that they must be either contiguous to Lot 634-
A or within its immediate vicinity could be sold on the same day for only P8,250.00. A guardianship court is
designed purposely to see to it that the interests of wards under its jurisdiction are taken care of by the court's
appointed guardian with the diligence and prudence of a bonus pater familiae. We are not convinced that such
standard of care was observed in the impugned order of November 12, 1966.
We hold that appellant had every right to require the reconveyance by deed of said lots, without prejudice to
her returning to appellee the P7,375.00 he appears to have paid, but not before appellee San Agustin has
accounted for the fruits of the lots in question which have remained in his possession since 1959 and a proper
set-off of the amount of any possible additional payment has been determined.:onad
WHEREFORE, judgment is hereby rendered setting aside the impugned order of November 12, 1966, and
ordering the guardianship court in Case No. 282 of the Court of First Instance of Davao, Branch I, to proceed
with the accounting pursuant to the above opinion.
 THIRD DIVISION

[G.R. NO. 156403. March 31, 2005]

JOSEPHINE PAHAMOTANG and ELEANOR PAHAMOTANG-BASA, Petitioners, v. THE PHILIPPINE

NATIONAL BANK (PNB) and the HEIRS OF ARTURO ARGUNA, Respondents.

DECISION

GARCIA, J.:

Assailed and sought to be set aside in this appeal by way of a Petition for Review on Certiorari under Rule 45
of the Rules of Court are the following issuances of the Court of Appeals in CA-G.R. CV No. 65290, to wit:

1. Decision dated March 20, 2002,1 granting the appeal and reversing the appealed August 7, 1998 decision of
the Regional Trial Court at Davao City; andcralawlibrary

2. Resolution dated November 20, 2002, denying herein petitioners' motion for reconsideration.2

The factual background:

On July 1, 1972, Melitona Pahamotang died. She was survived by her husband Agustin Pahamotang, and their
eight (8) children, namely: Ana, Genoveva, Isabelita, Corazon, Susana, Concepcion and herein
petitioners Josephine and Eleonor, all surnamed Pahamotang.

On September 15, 1972, Agustin filed with the then Court of First Instance of Davao City a petition for issuance
of letters administration over the estate of his deceased wife. The petition, docketed as Special Case No. 1792,
was raffled to Branch VI of said court, hereinafter referred to as the intestate court.

In his petition, Agustin identified petitioners Josephine and Eleonor as among the heirs of his deceased spouse.
It appears that Agustin was appointed petitioners' judicial guardian in an earlier case - Special Civil Case No.
1785 - also of the CFI of Davao City, Branch VI.

On December 7, 1972, the intestate court issued an order granting Agustin's petition.

On July 6, 1973, respondent Philippine National Bank (PNB) and Agustin executed an Amendment of Real and
Chattel Mortgages with Assumption of Obligation. It appears that earlier, or on December 14, 1972, the
intestate court approved the mortgage to PNB of certain assets of the estate to secure an obligation in the
amount of P570,000.00. Agustin signed the document in behalf of (1) the estate of Melitona; (2) daughters Ana
and Corazon; and (3) a logging company named Pahamotang Logging Enterprises, Inc. (PLEI) which appeared
to have an interest in the properties of the estate. Offered as securities are twelve (12) parcels of registered
land, ten (10) of which are covered by transfer certificates of title (TCT) No. 2431, 7443, 8035, 11465, 21132,
4038, 24327, 24326, 31226 and 37786, all of the Registry of Deeds of Davao City, while the remaining two (2)
parcels by TCTs No. (3918) 1081 and (T-2947) 562 of the Registry of Deeds of Davao del Norte and Davao del
Sur, respectively.

On July 16, 1973, Agustin filed with the intestate court a Petition for Authority To Increase Mortgage on the
above mentioned properties of the estate.

In an Order dated July 18, 1973, the intestate court granted said petition.
On October 5, 1974, Agustin again filed with the intestate court another petition, Petition for Declaration of
Heirs And For Authority To Increase Indebtedness, whereunder he alleged the necessity for an additional loan
from PNB to capitalize the business of the estate, the additional loan to be secured by additional collateral in
the form of a parcel of land covered by Original Certificate of Title (OCT) No. P-7131 registered in the name of
Heirs of Melitona Pahamotang. In the same petition, Agustin prayed the intestate court to declare him and Ana,
Genoveva, Isabelita, Corazon, Susana, Concepcion and herein petitioners Josephine and Eleonor as the only
heirs of Melitona.

In an Order of October 19, 1974, the intestate court granted Agustin authority to seek additional loan from PNB
in an amount not exceeding P5,000,000.00 to be secured by the land covered by OCT No. P-7131 of the Registry
of Deeds of Davao Oriental, but denied Agustin's prayer for declaration of heirs for being premature.

On October 22, 1974, a real estate mortgage contract for P4,500,000.00 was executed by PNB and Agustin in
his several capacities as: (1) administrator of the estate of his late wife; (2) general manager of PLEI; (3)
attorney-in-fact of spouses Isabelita Pahamotang and Orlando Ruiz, and spouses Susana Pahamotang and
Octavio Zamora; and (4) guardian of daughters Concepcion and Genoveva and petitioners Josephine and
Eleonor. Offered as securities for the additional loan are three (3) parcels of registered land covered by TCTs
No. T-21132, 37786 and 43264.

On February 19, 1980, Agustin filed with the intestate court a Petition (Request for Judicial Authority To Sell
Certain Properties of the Estate), therein praying for authority to sell to Arturo Arguna the properties of the
estate covered by TCTs No. 7443, 8035, 11465, 24326 and 31226 of the Registry of Deeds of Davao City, and
also TCT No. (T-3918) T-1081 of the Registry of Deeds of Davao del Norte.

On February 27, 1980, Agustin yet filed with the intestate court another petition, this time a Petition To Sell the
Properties of the Estate, more specifically referring to the property covered by OCT No. P-7131, in favor of PLEI.

In separate Orders both dated February 25, 1980, the intestate court granted Agustin authority to sell estate
properties, in which orders the court also required all the heirs of Melitona to give their express conformity to
the disposal of the subject properties of the estate and to sign the deed of sale to be submitted to the same
court. Strangely, the two (2) orders were dated two (2) days earlier than February 27, 1980, the day Agustin
supposedly filed his petition.

In a motion for reconsideration, Agustin prayed the intestate court for the amendment of one of its February
25, 1980 Orders by canceling the requirement of express conformity of the heirs as a condition for the disposal
of the aforesaid properties.

In its Order of January 7, 1981, the intestate court granted Agustin's prayer.

Hence, on March 4, 1981, estate properties covered by TCTs No. 7443,11465, 24326, 31226, 8035, (T-2947)
662 and (T-3918) T-1081, were sold to respondent Arturo Arguna, while the property covered by OCT No. P-
7131 was sold to PLEI. Consequent to such sales, vendees Arguna and PLEI filed witt the intestate court a
motion for the approval of the corresponding deeds of sale in their favor. And, in an Order dated March 9, 1981,
the intestate court granted the motion.

Thereafter, three (3) daughters of Agustin, namely, Ana, Isabelita and Corazon petitioned the intestate court
for the payment of their respective shares from the sales of estate properties, which was granted by the
intestate court.

Meanwhile, the obligation secured by mortgages on the subject properties of the estate was never satisfied.
Hence, on the basis of the real estate mortgage contracts dated July 6, 1973 and October 22, 1974, mortgagor
PNB filed a petition for the extrajudicial foreclosure of the mortgage.
Petitioner Josephine filed a motion with the intestate court for the issuance of an order restraining PNB from
extrajudicially foreclosing the mortgage. In its Order dated August 19, 1983, the intestate court denied
Josephine's motion. Hence, PNB was able to foreclose the mortgage in its favor.

Petitioners Josephine and Eleanor, together with their sister Susana Pahamatong-Zamora, filed motions with
the intestate court to set aside its Orders of December 14, 1972 [Note: the order dated July 18, 1973 contained
reference to an order dated December 14, 1972 approving the mortgage to PNB of certain properties of the
estate], July 18, 1973, October 19, 1974 and February 25, 1980.

In an Order dated September 5, 1983, the intestate court denied the motions, explaining:

"Carefully analyzing the aforesaid motions and the grounds relied upon, as well as the opposition thereto, the
Court holds that the supposed defects and/or irregularities complained of are mainly formal or procedural and
not substantial, for which reason, the Court is not persuaded to still disturb all the orders, especially that
interests of the parties to the various contracts already authorized or approved by the Orders sought to be set
aside will be adversely affected".3

Such was the state of things when, on March 20, 1984, in the Regional Trial Court at Davao City, petitioners
Josephine and Eleanor, together with their sister Susana, filed their complaint for Nullification of Mortgage
Contracts and Foreclosure Proceedings and Damages against Agustin, PNB, Arturo Arguna, PLEI, the Provincial
Sheriff of Mati, Davao Oriental, the Provincial Sheriff of Tagum, Davao del Norte and the City Sheriff of Davao
City. In their complaint, docketed as Civil Case No. 16,802 which was raffled to Branch 12 of the court, the
sisters Josephine, Eleanor and Susana prayed for the following reliefs:

"1.) The real estate mortgage contracts of July 6, 1973 and that of October 2, 1974, executed by and between
defendants PNB AND PLEI be declared null and void ab initio;

2.) Declaring the foreclosure proceedings conducted by defendants-sheriffs, insofar as they pertain to the assets
of the estate of Melitona L. Pahamotang, including the auction sales thereto, and any and all proceedings taken
thereunder, as null and void ab initio;

3.) Declaring the Deed of Absolute Sale, Doc. No. 473; Page No.96; Book No.VIII, Series of 1981 of the Notarial
Registry of Paquito G. Balasabas of Davao City evidencing the sale/transfer of the real properties described
therein to defendant Arturo S. Arguna, as null and void ab initio;

4.) Declaring the Deed of Absolute Sale, Doc. No. 474; Page No. 96, Book No. VIII, series of 1981 of the Notarial
Registry of Paquito G. Balasabas of Davao City, evidencing the sale/transfer of real properties to PLEI as null
and void ab initio;

5.) For defendants to pay plaintiffs moral damages in such sums as may be found to be just and equitable under
the premises;

6.) For defendants to pay plaintiffs, jointly and severally, the expenses incurred in connection with this
litigation;

7.) For defendants to pay plaintiffs, jointly and severally attorney's fees in an amount to be proven during the
trial;

8.) For defendants to pay the costs of the suit".4

PNB moved to dismiss the complaint, which the trial court granted in its Order of January 11, 1985.
However, upon motion of the plaintiffs, the trial court reversed itself and ordered defendant PNB to file its
answer.

Defendant PNB did file its answer with counterclaim, accompanied by a cross-claim against co-defendants
Agustin and PLEI.

During the ensuing pre-trial conference, the parties submitted the following issues for the resolution of the trial
court, to wit:

"1. Whether or not the Real Estate Mortgage contracts executed on July 6, 1973 and October 2, 1974 (sic) by
and between defendants Pahamotang Logging Enterprises, Inc. and the Philippine National Bank are null and
void?cralawlibrary

2. Whether or not the foreclosure proceedings conducted by defendants-Sheriffs, insofar as they affect the
assets of the Estate of Melitona Pahamotang, including the public auction sales thereof, are null and
void?cralawlibrary

3. Whether or not the Deed of Absolute Sale in favor of defendant Arturo Arguna entered as Doc. No. 473; Page
No. 96; Book No. VIII, series of 1981 of the Notarial Register of Notary Public Paquito Balasabas is null and
void?cralawlibrary

4. Whether or not the Deed of Absolute Sale in favor of defendant Pahamotang Logging Enterprises, Inc. entered
as Doc. No. 474; Page No. 96; Book No. VIII, series of 1981 of the Notarial Register of Notary Public Paquito
Balasabas is null and void?cralawlibrary

5. On defendant PNB's cross-claim, in the event the mortgage contracts and the foreclosure proceedings are
declared null and void, whether or not defendant Pahamotang Logging Enterprises, Inc. is liable to the
PNB?cralawlibrary

6. Whether or not the defendants are liable to the plaintiffs for damages?cralawlibrary

7. Whether or not the plaintiffs are liable to the defendants for damages"? 5

With defendant Arturo Arguna's death on October 31, 1990, the trial court ordered his substitution by his heirs:
Heirs of Arturo Alguna.

In a Decision dated August 7, 1998, the trial court in effect rendered judgment for the plaintiffs. We quote the
decision's dispositive portion:

"WHEREFORE, in view of all the foregoing, judgment is hereby rendered as follows:

1. Declaring the Mortgage Contracts of July 6, 1973 and October 22, 1974, as well as the foreclosure
proceedings, void insofar as it affects the share, interests and property rights of the plaintiffs in the assets of
the estate of Melitona Pahamotang, but valid with respect to the other parties;

2. Declaring the deeds of sale in favor of defendants Pahamotang Logging Enterprises, Inc. and Arturo Arguna
as void insofar as it affects the shares, interests and property rights of herein plaintiffs in the assets of the estate
of Melitona Pahamotang but valid with respect to the other parties to the said deeds of sale.

3. Denying all the other claims of the parties for lack of strong, convincing and competent evidence.

No pronouncement as to costs.
SO ORDERED".6

From the aforementioned decision of the trial court, PNB, PLEI and the Heirs of Arturo Arguna went on appeal
to the Court of Appeals in CA-G.R. CV No. 65290. While the appeal was pending, the CA granted the motion of
Susana Pahamatong-Zamora to withdraw from the case.

As stated at the threshold hereof, the Court of Appeals, in its Decision dated March 20, 2002,7 reversed the
appealed decision of the trial court and dismissed the petitioners' complaint in Civil Case No. 16,802, thus:

WHEREFORE, the appeal is hereby GRANTED. The assailed August 07, 1998 Decision rendered by the Regional
Trial Court of Davao City, Branch 12, is hereby REVERSED and SET ASIDE and a new one is entered DISMISSING
the complaint filed in Civil Case No. 16,802.

SO ORDERED.

The appellate court ruled that petitioners, while ostensibly questioning the validity of the contracts of mortgage
and sale entered into by their father Agustin, were essentially attacking collaterally the validity of the four (4)
orders of the intestate court in Special Case No. 1792, namely:

1. Order dated July 18, 1973, granting Agustin's Petition for Authority to Increase Mortgage;

2. Order dated October 19, 1974, denying Agustin's petition for declaration of heirs but giving him authority to
seek additional loan from PNB;

3. Order dated February 25, 1980, giving Agustin permission to sell properties of the estate to Arturo Arguna
and PLEI; andcralawlibrary

4. Order dated January 7, 1981, canceling the requirement of express conformity by the heirs as a condition for
the disposal of estate properties.

To the appellate court, petitioners committed a fatal error of mounting a collateral attack on the foregoing
orders instead of initiating a direct action to annul them. Explains the Court of Appeals:

"A null and void judgment is susceptible to direct as well as collateral attack. A direct attack against a judgment
is made through an action or proceeding the main object of which is to annul, set aside, or enjoin the
enforcement of such judgment, if not carried into effect; or if the property has been disposed of, the aggrieved
party may sue for recovery. A collateral attack is made when, in another action to obtain a different relief, an
attack on the judgment is made as an incident in said action. This is proper only when the judgment, on its fact,
is null and void, as where it is patent that the court which rendered such judgment has no jurisdiction. A
judgment void on its face may also be attacked directly.

xxx

Perusing the above arguments and comparing them with the settled ruling, the plaintiffs-appellees [now
petitioners], we believe had availed themselves of the wrong remedy before the trial court. It is clear that they
are collaterally attacking the various orders of the intestate court in an action for the nullification of the subject
mortgages, and foreclosure proceedings in favor of PNB, and the deeds of sale in favor of Arguna. Most of their
arguments stemmed from their allegations that the various orders of the intestate court were issued without a
notification given to them. An examination, however, of the July 18, 1973 order shows that the heirs of Melitona
have knowledge of the petition to increase mortgage filed by Agustin, thus:
`The petitioner testified that all his children including those who are of age have no objection to this petition
and, as matter of fact, Ana Pahamotang, one of the heirs of Melitona Pahamotang, who is the vice-president of
the logging corporation, is the one at present negotiating for the increase of mortgage with the Philippine
National Bank.'

The presumption arising from those statements of the intestate court is that the heirs were notified of the
petition for the increase of mortgage.

The same can be seen in the October 19, 1974 order:

`The records show that all the known heirs, namely Ana, Isabelita, Corazon, Susana, including the incompetent
Genoveva, and the minors Josephine, Eleanor and Concepcion all surnamed were notified of the hearing of the
petition.'

On the other hand, the February 25, 1980 order required Agustin to obtain first express conformity from the
heirs before the subject property be sold to Arguna. The fact that this was reconsidered by the intestate court
in its January 07, 1981 is of no moment. The questioned orders are valid having been issued in accordance with
law and procedure. The problem with the plaintiffs-appellees is that, in trying to nullify the subject mortgages
and the foreclosure proceedings in favor of PNB and the deeds of sale in favor of Arguna, they are assailing the
aforesaid orders of the intestate court and in attacking the said orders, they attached documents that they
believe would warrant the conclusion that the assailed orders are null and void. This is a clear collateral attack
of the orders of the intestate court which is not void on its face and which cannot be allowed in the present
action. The defects alleged by the plaintiff-appellees are not apparent on the face of the assailed orders. Their
recourse is to ask for the declaration of nullity of the said orders, not in a collateral manner, but a direct action
to annul the same".8

The same court added that petitioners' failure to assail said orders at the most opportune time constitutes
laches:

"In their complaint below, plaintiffs, appellees are assailing in their present action, four orders of the intestate
court namely: July 18, 1973, October 19, 1974, February 25, 1980 and January 07, 1981 orders which were
then issued by Judge Martinez. It should be recalled that except for the January 07, 1981 order, Judge Jacinto,
upon taking over Sp. No. 1792, denied the motion of the plaintiffs-appellees to set aside the aforesaid orders.
Aside from their motion before Judge Jacinto, nothing on the records would show that the plaintiffs-appellees
availed of other remedies to set aside the questioned orders. Further, the records would not show that the
plaintiffs-appellees appealed the order of Judge Jacinto. If an interval of two years, seven months and ninety
nine days were barred by laches, with more reason should the same doctrine apply to the present case,
considering that the plaintiffs-appellees did not avail of the remedies provided by law in impugning the various
orders of the intestate court. Thus, the questioned orders of the intestate court, by operation of law became
final. It is a fundamental principle of public policy in every jural system that at the risk of occasional errors,
judgments of courts should become final at some definite time fixed by law (interest rei publicae ut finis sit
litum). The very object of which the courts were constituted was to put an end to controversies. Once a
judgment or an order of a court has become final, the issues raised therein should be laid to rest. To date, except
as to the present action which we will later discuss as improper, the plaintiff-appellees have not availed
themselves of other avenues to have the orders issued by Judge Martinez and Judge Jacinto annulled and set
aside. In the present case, when Judge Jacinto denied the motion of the plaintiffs-appellees, the latter had
remedies provided by the rules to assail such order. The ruling by Judge Jacinto denying plaintiffs-appellees
motion to set aside the questioned orders of Judge Martinez has long acquired finality. It is well embedded in
our jurisprudence, that judgment properly rendered by a court vested with jurisdiction, like the RTC, and which
has acquired finality becomes immutable and unalterable, hence, may no longer be modified in any respect
except only to correct clerical errors or mistakes. Litigation must have and always has an end. If not, judicial
function will lose its relevance".
In time, petitioners moved for a reconsideration but their motion was denied by the appellate court in
its Resolution of November 20, 2002.

Hence, petitioners' present recourse, basically praying for the reversal of the CA decision and the reinstatement
of that of the trial court.

We find merit in the petition.

It is petitioners' posture that the mortgage contracts dated July 6, 1973 and October 22, 1974 entered into by
Agustin with respondent PNB, as well as his subsequent sale of estate properties to PLEI and Arguna on March
4, 1981, are void because they [petitioners] never consented thereto. They assert that as heirs of their mother
Melitona, they are entitled to notice of Agustin's several petitions in the intestate court seeking authority to
mortgage and sell estate properties. Without such notice, so they maintain, the four orders of the intestate court
dated July 18, 1973, October 19, 1974, February 25, 1980 and January 7, 1981, which allowed Agustin to
mortgage and sell estate properties, are void on account of Agustin's non-compliance with the mandatory
requirements of Rule 89 of the Rules of Court.

Prescinding from their premise that said orders are completely void and hence, could not attain finality,
petitioners maintain that the same could be attacked directly or collaterally, anytime and anywhere.

For its part, respondent PNB asserts that petitioners cannot raise as issue in this proceedings the validity of the
subject orders in their desire to invalidate the contracts of mortgage entered into by Agustin. To PNB, the
validity of the subject orders of the intestate court can only be challenged in a direct action for such purpose
and not in an action to annul contracts, as the petitioners have done. This respondent adds that the mortgage
on the subject properties is valid because the same was made with the approval of the intestate court and with
the knowledge of the heirs of Melitona, petitioners included.9

Upon the other hand, respondent Heirs of Arturo Arguna likewise claim that petitioners knew of the filing with
the intestate court by Agustin of petitions to mortgage and sell the estate properties. They reecho the CA's
ruling that petitioners are barred by laches in filing Civil Case No. 16,802. 10

As we see it, the determinative question is whether or not petitioners can obtain relief from the effects of
contracts of sale and mortgage entered into by Agustin without first initiating a direct action against the orders
of the intestate court authorizing the challenged contracts.

We answer the question in the affirmative.

It bears emphasizing that the action filed by the petitioners before the trial court in Civil Case No. 16,802 is for
the annulment of several contracts entered into by Agustin for and in behalf of the estate of Melitona, namely:
(a) contract of mortgage in favor of respondent PNB, (b) contract of sale in favor of Arguna involving seven (7)
parcels of land; and (c) contract of sale of a parcel of land in favor of PLEI.

The trial court acquired jurisdiction over the subject matter of the case upon the allegations in the complaint
that said contracts were entered into despite lack of notices to the heirs of the petition for the approval of those
contracts by the intestate court.

Contrary to the view of the Court of Appeals, the action which petitioners lodged with the trial court in Civil
Case No. 16,802 is not an action to annul the orders of the intestate court, which, according to CA, cannot be
done collaterally. It is the validity of the contracts of mortgage and sale which is directly attacked in the action.

And, in the exercise of its jurisdiction, the trial court made a factual finding in its decision of August 7, 1998 that
petitioners were, in fact, not notified by their father Agustin of the filing of his petitions for permission to
mortgage/sell the estate properties. The trial court made the correct conclusion of law that the challenged
orders of the intestate court granting Agustin's petitions were null and void for lack of compliance with the
mandatory requirements of Rule 89 of the Rules of Court, particularly Sections 2, 4, 7 thereof, which
respectively read:

"Sec. 2. When court may authorize sale, mortgage, or other encumbrance of realty to pay debts and legacies
through personalty not exhausted. - When the personal estate of the deceased is not sufficient to pay the debts,
expenses of administration, and legacies, or where the sale of such personal estate may injure the business or
other interests of those interested in the estate, and where a testator has not otherwise made sufficient
provision for the payment of such debts, expenses, and legacies, the court, on the application of the executor or
administrator and on written notice to the heirs, devisees, and legatees residing in the Philippines, may
authorize the executor or administrator to sell, mortgage, or otherwise encumber so much as may be necessary
of the real estate, in lieu of personal estate, for the purpose of paying such debts, expenses, and legacies, if it
clearly appears that such sale, mortgage, or encumbrance would be beneficial to the persons interested; and if
a part cannot be sold, mortgaged, or otherwise encumbered without injury to those interested in the remainder,
the authority may be for the sale, mortgage, or other encumbrance of the whole of such real estate, or so much
thereof as is necessary or beneficial under the circumstances".

"Sec. 4. When court may authorize sale of estate as beneficial to interested persons. Disposal of proceeds. - When
it appears that the sale of the whole or a part of the real or personal estate, will be beneficial to the heirs,
devisees, legatees, and other interested persons, the court may, upon application of the executor or
administrator and on written notice to the heirs, devisees and legatees who are interested in the estate to be
sold, authorize the executor or administrator to sell the whole or a part of said estate, although not necessary
to pay debts, legacies, or expenses of administration; but such authority shall not be granted if inconsistent
with the provisions of a will. In case of such sale, the proceeds shall be assigned to the persons entitled to the
estate in the proper proportions".

"Sec. 7. Regulations for granting authority to sell, mortgage, or otherwise encumber estate. - The court having
jurisdiction of the estate of the deceased may authorize the executor or administrator to sell personal estate,
or to sell, mortgage, or otherwise encumber real estate; in cases provided by these rules and when it appears
necessary or beneficial, under the following regulations:

(a) The executor or administrator shall file a written petition setting forth the debts due from the deceased, the
expenses of administration, the legacies, the value of the personal estate, the situation of the estate to be sold,
mortgaged, or otherwise encumbered, and such other facts as show that the sale, mortgage, or other
encumbrance is necessary or beneficial;

(b) The court shall thereupon fix a time and place for hearing such petition, and cause notice stating the nature
of the petition, the reason for the same, and the time and place of hearing, to be given personally or by mail to
the persons interested, and may cause such further notice to be given, by publication or otherwise, as it shall
deem proper; (Emphasis supplied)".

xxx

Settled is the rule in this jurisdiction that when an order authorizing the sale or encumbrance of real property
was issued by the testate or intestate court without previous notice to the heirs, devisees and legatees as
required by the Rules, it is not only the contract itself which is null and void but also the order of the court
authorizing the same.11

Thus, in Maneclang v. Baun,12 the previous administrator of the estate filed a petition with the intestate court
seeking authority to sell portion of the estate, which the court granted despite lack of notice of hearing to the
heirs of the decedent. The new administrator of the estate filed with the Regional Trial Court an action for the
annulment of the sales made by the previous administrator. After trial, the trial court held that the order of the
intestate court granting authority to sell, as well as the deed of sale, were void. On appeal directly to this Court,
We held that without compliance with Sections 2, 4 and 7 of Rule 89 of the Rules of Court, "the authority to sell,
the sale itself and the order approving it would be null and void ab initio".

In Liu v. Loy, Jr.,13 while the decedent was still living, his son and attorney-in-fact sold in behalf of the alleged
decedent certain parcels of land to Frank Liu. After the decedent died, the son sold the same properties to two
persons. Upon an ex parte motion filed by the 2nd set of buyers of estate properties, the probate court approved
the sale to them of said properties. Consequently, certificates of title covering the estate properties were
cancelled and new titles issued to the 2nd set of buyers. Frank Liu filed a complaint for reconveyance/
annulment of title with the Regional Trial Court. The trial court dismissed the complaint and the Court of
Appeals affirmed the dismissal. When the case was appealed to us, we set aside the decision of the appellate
court and declared the probate court's approval of the sale as completely void due to the failure of the 2nd set
of buyers to notify the heir-administratrix of the motion and hearing for the sale of estate property.

Clearly, the requirements of Rule 89 of the Rules of Court are mandatory and failure to give notice to the heirs
would invalidate the authority granted by the intestate/probate court to mortgage or sell estate assets.

Here, it appears that petitioners were never notified of the several petitions filed by Agustin with the intestate
court to mortgage and sell the estate properties of his wife.

According to the trial court, the "[P]etition for Authority to Increase Mortgage" and "[P]etition for Declaration of
Heirs and for Authority to Increase Indebtedness", filed by Agustin on July 16, 1973 and October 5, 1974,
respectively, do not contain information that petitioners were furnished with copies of said petitions. Also,
notices of hearings of those petitions were not sent to the petitioners. 14 The trial court also found in Civil Case
No. 16,802 that Agustin did not notify petitioners of the filing of his petitions for judicial authority to sell estate
properties to Arturo Arguna and PLEI.15

As it were, the appellate court offered little explanation on why it did not believe the trial court in its finding
that petitioners were ignorant of Agustin's scheme to mortgage and sell the estate properties.

Aside from merely quoting the orders of July 18, 1973 and October 19, 1974 of the intestate court, the Court of
Appeals leaves us in the dark on its reason for disbelieving the trial court. The appellate court did not publicize
its appraisal of the evidence presented by the parties before the trial court in the matter regarding the
knowledge, or absence thereof, by the petitioners of Agustin's petitions. The appellate court cannot casually set
aside the findings of the trial court without stating clearly the reasons therefor. Findings of the trial court are
entitled to great weight, and absent any indication to believe otherwise, we simply cannot adopt the conclusion
reached by the Court of Appeals.

Laches is negligence or omission to assert a right within a reasonable time, warranting the presumption that
the party entitled to assert it has either abandoned or declined the right.16 The essential elements of laches are:
(1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which
complaint is made and for which the complaint seeks a remedy; (2) delay in asserting the complainant's rights,
the complainant having had knowledge or notice of the defendant's conduct and having been afforded an
opportunity to institute a suit; (3) lack of knowledge or notice on the part of the defendant that the complainant
would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in the event relief
is accorded to the complainant, or the suit is not held barred.17

In the present case, the appellate court erred in appreciating laches against petitioners. The element of delay
in questioning the subject orders of the intestate court is sorely lacking. Petitioners were totally unaware of the
plan of Agustin to mortgage and sell the estate properties. There is no indication that mortgagor PNB and
vendee Arguna had notified petitioners of the contracts they had executed with Agustin. Although petitioners
finally obtained knowledge of the subject petitions filed by their father, and eventually challenged the July 18,
1973, October 19, 1974, February 25, 1980 and January 7, 1981 orders of the intestate court, it is not clear from
the challenged decision of the appellate court when they (petitioners) actually learned of the existence of said
orders of the intestate court. Absent any indication of the point in time when petitioners acquired knowledge
of those orders, their alleged delay in impugning the validity thereof certainly cannot be established. And the
Court of Appeals cannot simply impute laches against them.

WHEREFORE, the assailed issuances of the Court of Appeals are hereby REVERSED and SET ASIDE and the
decision dated August 7, 1998 of the trial court in its Civil Case No. 16,802 REINSTATED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-33152 January 30, 1982

LUIS PARCO and VIRGINIA BAUTISTA, petitioners,

vs.
HONORABLE COURT OF APPEALS, HON. UNION C. KAYANAN, Judge, COURT OF FIRST INSTANCE OF
QUEZON (BRANCH IV), CALAUAG, and FRANCISCO RODRIGUEZ, JR., Legal Guardian of the Incompetent
SOLEDAD RODRIGUEZ, respondents.

DE CASTRO, J.:

By this petition for review on certiorari, petitioners seek to set aside the Resolution of the Court of Appeals
dated January 20, 1971 1 which revived and declared in full force and effect its decision on August 20,
1970 2 dismissing the petition for certiorari with preliminary injunction in CA-G.R. No. 43732, entitled "Luis
Parco, et al. vs. Hon. Judge of the Court of First Instance of Quezon, Branch IV, Calauag, et al., " and pray that the
decision dated April 15, 1969 3 and all subsequent orders 4 issued by respondent Judge of Branch IV-Calauag,
Court of First Instance of Quezon in Special Proceedings No. 2641 be declared as null and void.

This case, G. R. No. L-33152, started from Special Proceedings No. 2641. a guardianship proceedings for the
incompetent Soledad Rodriguez of Sriaya, Quezon, which originally pertained to Branch 1, Court of First
Instance of Quezon, then presided by the late Hon. Judge Vicente Arguelles, 5 later on succeded by Hon. Judge
Ameurfina Melencio-Herrera (now Associate Justice of the Supreme Court). In 1966, respondent Judge of
Branch IV-Calauag of the Court of First Instance of Quezon, Hon. Union C. Kayanan, took cognizance of Special
Proceedings No. 2641 when the Secretary of Justice authorized respondent Judge to help unclog the docket of
Branch I at Lucena City, Quezon.
For clarity, We have hereunder summarized the sequence of events and material dates as it appears in the
records from the time respondent Judge of Branch IV of the Court of First Instance of Quezon took cognizance
of Special Proceedings No. 2641.

On December 20, 1966, respondent Judge authorized and approved, upon motion of Fransisco Rodriguez, Jr.
(guardian of Soledad Rodriguez), hereinafter referred to as private respondent, the sale to Luis Parco and
Virginia Bautista, hereinafter referred to as the petitioners, of Lot Nos. 3437 (613 sq. meters) and 4389 (4,068
sq. meters) covered by TCT Nos. 16939 and 18035, respectively, for the sum of P4,400.00 for the support,
maintenance and medical treatment of the ward Soledad Rodriguez.

On January 6, 1967, respondent Judge again approved and authorized, upon motion of private respondent, the
sale to petitioners of Lot No. 1207 covered by TCT No. 16944 containing an area of 63,598 sq. meters, more or
less, for the same reason. All the sales of the three (3) lots being absolute, new transfer certificates of title were
issued in the name of petitioners.

On May 13, 1968, or almost one year and five months from the approval of the sale of Lot Nos. 3437, 4389, and
1207, private respondent filed an urgent petition in the Court of First Instance of Quezon, Ninth Judicial District,
invoking Section 6 Rule 96 of the Revised Rules of Court, praying that an order be immediately issued requiring
petitioners to appear before the court so that they can be examined as regards the three (3) lots in question
which are allegedly in danger of being lost, squandered, concealed and embezzled and upon failure to do so or
to comply with any order that may be issued in relation therewith to hold them in contempt of court. The
pertinent allegations read as follows:

xxx xxx xxx

1. That as legal guardian (private respondent) of the abovenamed incompetent and upon
authorization by this Hon. Court he has transferred in good faith to the spouses LUIS PARCO
and VIRGINIA (UY) BAUTISTA, both of Atimonan, Quezon, the titles over the following realties
belonging to his ward, namely:

a. A parcel of land (Lot No. 3437 of the Cadastral Survey of Sariaya) with the
improvements thereon situated in the Municipality of Sariaya ... containing
an area of Six Hundred Thirteen (613) sq. meters, more or less;

b. A parcel of land (Lot No. 4389 of the Cadastral Survey of Sariaya) situated
in the Municipality of Sariaya ... containing an area of Four Thousand And
Sixty-Eight (4,068) sq. meters, more or less;

c. A parcel of land (Lot No. 1207 of the Cadastral Survey of Sariaya) situated
in the Municipality of Sariaya ... containing an area of Sixty-three Thousand
Five Hundred and Ninety-eight (63,598) sq. meters, more or less.

2. That anent the first TWO (2) PARCELS above-described he transferred the titles thereto in
favor of the recited spouses under a loan agreement (not an absolute sale thereto and with the
express commitment in writing that he can recover the same within three (3) months from
December 19, 1966, ...

That prior to the expiration of the cited period of three months, he tried to recover the stated
two parcels of land from them, however, the same was not carried out because he was then
transacting with them the sale of PARCEL THREE and under the Agreement that they will not
sell cede, or convey the mentioned two (2) lots to anyone (except to petitioner now private
respondent herein) and once the stated PARCEL THREE has been sold at the price of
 P48,000.00 the borrowed amount of P4,400.00 shall be deducted therefrom and said two
parcels shall be returned to him;

3. That recently, he discovered that the cited couple, in bad faith and in violation of their
agreement and of the trust and confidence which he had reposed upon them, have
fraudulently ceded and transferred the titles over the stated two parcels of land to another
person, allegedly for a price of (over P30,000.00) and in spite of his repeated request upon
them to reconvey to him the titles thereto or to turn over to him the total proceeds they have
received (minus the sum of P4,400.00), they have maliciously and unjustly refused to do so,
and are intending to keep and retain said amount for their own personal use and benefit;

4. That as already adverted to in the previous paragraph hereof, the mentioned couple induced
him to transfer to them the title of parcel three, so that they can sell the same for the agreed
price of P48,000.00 and believing in good faith that the cited spouses are honest and
trustworthy, he agreed and executed the requisite document transferring the title to them
subject to the following conditions:

a. They shall pay to him the amount of Twelve Thousand (Pl2,000.00) Pesos
after they have secured a buyer of the property, ...

b. They shall pay to NIEVES ALCALA and PURA AGCAOILE (who are private
respondent's agents and representatives in negotiating the sale of parcel
three) the sum of Fifteen Thousand (P15,000.00) Pesos after they have sold
the realty, ...

5. That recently, he discovered that the cited couple have already sold and ceded the
mentioned parcel three to another person, and despite his repeated request upon them to pay
and deliver to him or to Nieves Alcala the sum of money specified in the foregoing paragraph,
they have maliciously and unjustly failed and refused to do so, and have fraudulently retained
the said amount of money for thier own personal use and benefit;

6. That the enumerated parcels of land together with all the proceeds derived therefrom,
undeniably belonged to his ward as trust properties, which are subject to the disposition of
this Hon. Court, and due to the mentioned fraudulent, malicious and dishonest acts of the
above- named couple, are in danger of being lost, squandered, concealed and embezzled;

xxx xxx xxx

In an answer dated June 5, 1968, petitioners contended mainly, among others, that the three lots have been
conveyed to them by deeds of absolute sale which were duly approved by the guardianship court.

Pre-trial hearings were set for possible amicable settlement beginning on September 6, 1968 but was
postponed and reset to October 9, 1968 on petitioners' counsel motion. On October 9, 1968, both parties and
their counsels appeared but failed to reach any amicable settlement. Again, the pre-trial hearing was reset to
November 28 and 29, 1968 but was likewise postponed to January 8, 1969 at petitioners' counsel motion.

On January 8, 1969, for failure to petitioners and their counsel to appear although there was a telegram
requesting for postponement, respondent Judge issued an order, 6 authorizing private respondent to present
evidence before the Clerk of Court who was instructed to make the corresponding report which shall be made
as the basis of this decision.

In a petition dated January 30, 1969, petitioners prayed for the reconsideration of the order of January 8, 1969
pointing out, among others, that there was a First Order dated July 29, 1968, 7 issued by then Judge Ameurfina
M. Herrera, Presiding Judge of Branch I, Court of First Instance of Quezon that said branch "will henceforth take
cognizance of this case" and thus, asked for the transfer of the incident sought before Branch IV to Branch I for
proper action.

On February 20, 1969, respondent Judge, finding the petition for reconsideration well-grounded, issued an
order directing the Clerk of Court to transmit the records of the case to the Court of First Instance, Branch I,
Lucena City, quoted below:

ORDER

Acting on the Petition for Reconsideration filed by counsel for the respondent on February 4,
1969, considering that Hon. A. Melencio-Herrera, Presiding Judge of Branch 1, CFI, Lucena
City, issued an order on July 29, 1968, the dispositive portion of which is quoted as follows.
'WHEREFORE, it is hereby confirmed that this court will henceforth take cognizance of this
case,' and considering that this special proceedings actually belongs to Branch I, although
incidents therein were taken cognizance of by the Presiding Judge of CFI, Branch IV when he
was holding court session in Lucena City and notwithstanding Administrative Order No. 261
dated October 7, 1968 which states that 'This administrative order shall not apply to cases
pending in the different salas which have been partially tried and shall remain therein for final
disposition', because to case was originally filed during the incumbency of the late Judge
Vicente Arguelles, finding therefore the said petition to be well-grounded, the Clerk of Court
is hereby authorized to transmit these records to the Deputy Clerk of Court, CFI, Branch I, of
Lucena City.

SO ORDERED.

Given at Calauag, Quezon this 20th day of February, 1969.

(SGD.) UNION C. KAYANAN Judge

On March 24, 1969, Private respondent, without the assistance of a counsel, filed before Branch IV, Court of
First Instance of Quezon an amended petition praying that the three (3) lots subject matter of the original
urgent petition be ordered reconveyed to the ward in said Special Proceedings No. 2641 for he was informed
that petitioners win transfer and properties to third person.

On March 26, 1969, the Clerk of Court of Branch IV, Court of First Instance of Quezon, issued the notice of
hearing of the amended petition filed by private respondent dated March 24, 1969 notifying counsel for both
parties that the case will be heard before Branch IV on April 10, 1969 at 2:30 p.m. at Calauag, Quezon. On the
date set for hearing, counsels for both parties appeared but for failure of the petitioners to appear respondent
Judge issued an order 8 reiterating its previous order dated January 8, 1969 allowing private respondent to
present his evidence ex-parte and considered the case submitted for resolution.

On April 15, 1969, respondent Judge rendered a decision 9 on the basis of the report of the Clerk of Court dated
February 19, 1969 ordering petitioners to reconvey the three (3) parcels of land to private respondent.

On June 14, 1969, petitioners moved to reconsider the decision stating, among others, that respondent Judge
has no authority to take cognizance of the case which, according to petitioners, is an issue raised in the petition
for reconsideration of the court order of January 8, 1969, and that the decision was without legal basis.
Petitioners prayed that the case or incident be transferred to the proper court which had taken cognizance of
this case.

On June 23, 1969, respondent Judge denied the petition for reconsideration for lack of merit. Petitioners'
counsel received the said order of denial on June 26, 1969.
Meanwhile, on June 21, 1969, private respondent filed an urgent motion in Branch IV praying that petitioners
be required to appear before the court to be examined as regards the properties of the ward and to explain why
they should not be cited for contempt for not complying with a final order of the court directing the
reconveyance of the three (3) parcels of land to private respondent.

On June 23, 1969, respondent Judge, acting on the urgent motion, issued an order 10 directing petitioners to
explain why they should not be cited for contempt of court pursuant to par. (b) Section 3 Rule 71 of the Revised
Rules of Court.

On June 27, 1969, petitioners filed an urgent motion claiming that the urgent motion for contempt of court was
premature considering that the decision ordering the reconveyance of the properties in question has not yet
become final and executory and is still subject to appeal. In their prayer for the setting aside of the order of June
23, 1969, petitioners informed the court that they win appeal the decision to the Court of Appeals and that the
corresponding notice of appeal, appeal bond and the record on appeal will be filed in due time.

The following day, June 28, 1969, petitioners filed the notice of appeal and appeal bond with a manifestation
that the record on appeal will be filed in due time.

On July 3, 1963, respondent Judge issued an order 11 denying for lack of merit petitioners' urgent motion of
June 27, 1969, thus declaring that the order dated June 23, 1969 stands considering that petitioners' right to
appeal has already lapsed. In the same order, petitioners were given ten (10) days upon receipt to explain why
they should not be cited for contempt pursuant to Section 4, Rule 71 in relation to Section 6, Rule 96 of the
Revised Rules of Court.

On July 7, 1969, petitioners filed a petition for extension of ten (10) days to expire on July 20, 1969 within which
to file the record on appeal. In an order 12 dated July 9, 1969, respondent Judge denied the said petition for
having been filed beyond the reglementary period.

On July 10, 1969, petitioners filed an unverified second petition for reconsideration of the decision dated April
15, 1969 and the order of July 3, 1969 contending that Branch IV lost its jurisdiction over the raise from the
time the order dated February 20, 1969 was issued by Judge A. Melencio- Herrera; that the proceedings under
Section 6 Rule 96 do not authorize the Hon. Court (Branch IV) to determine the question of right over the
property or to order delivery thereof; that the purpose is merely to elicit information or secure evidence from
the person suspected of having embezzled, concealed or conveyed away any personal property of the ward;
that if the court finds sufficient evidence showing ownership on the part of the ward, it is the duty of the
guardian to bring the proper action.

On the other hand, on July 17, 1969, a motion for reconsideration of the order dated July 9, 1969 was filed by
petitioners claiming that all the pleadings related to the intended appeal were filed within the period allowed
by the Revised Rules of Court. After an opposition was filed, respondent Judge issued an order on 13 July 18,
1969 denying the second petition for reconsideration for lack of basis and on the ground that the period to
appeal either the decision or any of the previous orders had already expired.

On August 20, 1969, petitioners went to the Court of Appeals on a petition for certiorari with preliminary
injunction pleading nullity of the decision of the Court of First Instance, Branch IV,

Quezon dated April 15, 1969 on grounds of lack of jurisdiction and grave abuse of discretion in denying their
right of appeal.

On September 27, 1969, the Court of Appeals dismissal the petition for lack of merit. 14 On motion by
petitioners, the dismissal was reconsidered in a split resolution dated December 15, 1969 thereby giving due
course to the petition, and private respondent was required to answer.
After private respondent filed their answer and the parties submitted their respective memoranda, the Court
of Appeals, in a three-to-two vote decision 15 dated August 21, 1970 dismissed the petition.

On motion for reconsideration filed by petitioners, the Court of Appeals, in a split resolution 16 dated October
10, 1970 granted the motion for reconsideration and set aside the decision dated August 20,1970.

However, upon motion for reconsideration filed by private respondent, the Court of Appeals, in a three-to-two
vote resolution 17 dated January 20, 1971, reverted to its decision of August 21, 1970 dismissing the petition.

Hence, the instant petition for review on the following assignment of errors, to wit:

THE MAJORITY OF THE DIVISION OF FIVE JUSTICES OF THE COURT OF APPEALS ERRED IN
SUSTAINING THE RETENTION BY THE RESPONDENT JUDGE OF BRANCH IV-CALAUAG OF
THE CASE OF BRANCH I-LUCENA CITY AFTER HE ORDERED THE RETURN OF THE CASE TO
BRANCH I,LUCENA CITY TO WHICH THE CASE BELONGS AND AFTER THE PRESIDING JUDGE
OF BRANCH I LUCENA CITY HAD RESUMED AND EXERCISED HER JURISDICTION OVER SAID
CASE.

II

ASSUMING THAT THE RESPONDENT JUDGE COULD LEGALLY AND VALIDLY RETAIN
JURISDICTION OVER THE CASE OF BRANCH I LUCENA CITY DESPITE THE CIRCUMSTANCES
ADVERTED TO IN THE FIRST ASSIGNED ERROR, THE MAJORITY OF THE DIVISION OF FIVE
JUSTICES OF THE COURT OF APPEALS ERRED IN SANCTIONING THE RESPONDENT JUDGE'S
ASSUMPTION OF JURISDICTION TO ADJUDICATE THE ISSUE OF OWNERSHIP AND/OR
ORDER RECONVEYANCE OF PETITIONERS' PROPERTY SOLD TO THEM AND TITLED IN
THEIR NAMES, NOTWITHSTANDING THE LIMITED JURISDICTION OF A GUARDIANSHIP
COURT.

III

THE MAJORITY OF THE DIVISION OF FIVE JUSTICES OF THE COURT OF APPEALS ERRED IN
NOT HOLDING THAT THE JUDICIAL AUTHORITY AND APPROVAL OF THE SALES ARE
CONCLUSIVE UPON THE VALIDITY AND REGULARITY OF SAID SALES BETWEEN THE
PARTIES AND THEIR SUCCESSORS IN INTEREST.

IV

THE MAJORITY OF THE DIVISION OF FIVE JUSTICES OF THE COURT OF APPEALS ERRED IN
SANCTIONING BY SILENCE THE QUESTIONED ORDER OF THE RESPONDENT JUDGE
ENFORCING HIS DECISION BY CONTEMPT PROCEEDINGS.

THE MAJORITY OF THE DIVISION OF FIVE JUSTICES OF THE COURT OF APPEALS ERRED IN
SANCTIONING DENIAL OF PETITIONERS' RIGHT TO APPEAL.

This petition was given due course in view of the peculiar incidents during its trial stage where, as borne out
by the records, two (2) branches of the Court of First Instance of Quezon Province, 9th Judicial District assert
jurisdiction over Special Proceedings No. 2641, which, when the decision rendered by one branch was brought
in the Court of Appeals on certiorari with preliminary injunction, the Special Division of Five Justices, in a three-
to-two vote resolution in four (4) occasions after its dismissal for lack of merit on September 27, 1968,
reconsidered the same and was given due course on December 15, 1968, again dismissed on August 21, 1970,
but again reconsidered on October 10, 1970, until finally dismissed on January 20, 1971 when the Special
Division of Five reverted to its August 21, 1970 resolution. The Special Division was equally split on the issue
whether or not the Court of First Instance, Branch IV, Calauag, Quezon, acting with limited jurisdiction as a
guardianship court under Section 6 Rule 96 of the Rules of Court, has the authority to adjudicate the question
of ownership and order the reconveyance of the three (3) parcels of land in question to private respondent,
guardian of the ward Soledad Rodriguez. On these two (2) principal issues, We are called upon to finally resolve
the legal controversy peculiar on this case.

After the parties submitted their respective briefs, the case was deemed submitted for decision on October 28,
1971.

In a Resolution 18 of this Court dated November 29, 1978, the urgent manifestation and motion of Leonisa S.
Rodriguez, the surviving spouse of Mario Rodriguez (brother of the ward) that the ward Soledad Rodriguez
died on September 15, 1970 and private respondent Francisco Rodriguez, Jr. died on October 24, 1973; and
that the heirs of the ward be substituted as the private respondents in this case was noted. To begin with, the
principal issue al hand is whether or not respondent Judge of the Court of First Instance of Quezon, Branch IV-
Calauag has the authority or power to take further action in Special Proceedings No. 2641 after the Presiding
Judge of the Court of First Instance of Quezon, Branch I-Lucena City asserted its jurisdiction by issuing two (2)
orders dated July 29, 1968 and respondent Judge correspondingly ordered the return of the case to Branch I in
an order dated February 20,1969.

Petitioners maintain that respondent Judge of Branch IV, Court of First Instance of Quezon has no power or
authority to retain jurisdiction over Special Proceedings No. 2641 which, at its inception, originally pertained
to Branch I-Lucena City, Court of First Instance of Quezon. To support such chum, petitioners contend that the
Second Order dated July 29, 1968 requiring private respondent for an inventory and accounting of the ward's
property confirms that the Presiding Judge of Branch I has resumed its jurisdiction over said case, more so,
when respondent Judge ordered on February 20, 1969 the transmittal of the records of the case to the Deputy
Clerk of Court, Court of First Instance, Branch I-Lucena City.

Private respondent, on the other hand, justifies the retention of jurisdiction by respondent Judge over Special
Proceedings No. 2641 contending, among others, that the two (2) orders dated July 29, 1968 issued by then
Judge A. Melencio-Herrera are not sufficient bases for claiming that Branch IV has been deprived of its,
jurisdiction because jurisdiction is vested upon the court not upon any particular branch or judge thereof and
the issuance of such orders constitute undue interference with the processes and proceedings already
undertaken by respondent Judge; that petitioners are guilty of estoppel when they failed to raise the issue of
jurisdiction from the very beginning and when they voluntarily appeared before respondent Judge, filed their
answer and other pleadings, and moved for postponements of the scheduled dates of hearing.

We sustain petitioners' stand. Of course, jurisdiction is vested in the court not in any particular branch or judge,
and as a corollary rule, the various branches of the Court of First Instance of a judicial district are a coordinate
and co-equal courts 19 one branch stands on the same level as the other. Undue interference by one on the
proceedings and processes of another is prohibited by law. In the language of this Court, the various branches
of the Court of First Instance of a province or city, having as they have the same or equal authority and
exercising as they do concurrent and coordinate jurisdiction should not, cannot, and are not permitted to
interfere with their respective cases, much less with their orders or judgments. 20 A contrary rule would
obviously lead to confusion and might seriously hinder the administration of justice. A judge is competent to
act so long as the case remains before him, but after it passed from his branch to the other, the case could be
acted upon by the judge of the latter branch. 21 Otherwise, an anomalous situation would occur at the detriment
of the party litigants who are likewise confused where to appear and plead their cause.

In the case before Us, there is no dispute that both Branch I and Branch IV of the Court of First Instance of
Quezon, have jurisdiction over the subject matter, a guardianship proceedings under Section 1, Rule 92 of the
Rules of Court and Section 44(a) of the Judiciary Act of 1948. While it is recognized that when a case is filed in
one branch, jurisdiction over the case does not attach to the branch or judge alone, to the exclusion of the other
branches, 22 We are of the view however, considering the unusual circumstances and incidents attendant in this
case the situation in the case at bar is different. Here, it must be noted that the Presiding Judge of Branch I
asserted and resumed its prior jurisdiction by issuing two (2) orders, one of which requires private respondent
to render an inventory and accounting of the property of the ward. On the other hand, respondent Judge of
Branch IV, in confirmation of such resumption of jurisdiction, ordered the return of the records of Special
Proceedings No. 2641 to Branch I-Lucena City, Court of First Instance of Quezon, but, instead of regularly
relinquishing jurisdiction over the case, respondent Judge continued to take further action on the case in total
disregard of the two (2) orders of the Presiding Judge of Branch I. Should one branch be permitted to equally
assert, assume or retain jurisdiction over a case or controversy over which another coordinate or co-equal
branch has already resumed its jurisdiction, We would then sanction undue interference by one branch over
another. With that, the judicial stability of the decrees or orders of the courts would be a meaningless precept
in a well-ordered administration of justice.

There is no question that the prior proceedings had in Branch IV by respondent Judge were valid and regular
as they were admittedly authorized by the Secretary of Justice. It must be emphasized however, that Branch IV
lost its jurisdiction over Special Proceedings No. 2641 when respondent Judge ordered the return of the records
to Branch I after having been informed in a motion for reconsideration filed on January 30, 1969 of the existence
of the two (2) orders issued by the Presiding Judge of Branch 1. From that point of time, all subsequent
proceedings and processes in connection with or related to Special Proceedings No. 2641 undertaken by the
respondent Judge became irregular. It amounted to an undue interference with the processes and proceedings
of Branch I.

Nevertheless, from the standpoint of the pertinent law on the matter, it may be observed that the detail of
respondent Judge of Branch IV stationed permanently in Calauag, Quezon to Branch I in Lucena City, Quezon
authoritatively rests on the provision of Section 51 of the Judiciary Act of 1948 which reads:

Section 51. Detail of judge to another district or province.-Whenever a judge stationed in. any
province or branch of a court in a province shag certify to the Secretary of Justice that the
condition of the docket in his court is such as to require the assistance of an additional judge,
or when there is any vacancy in any court or branch of a court in a province, the Secretary of
Justice may, in the interest of justice, with the approval of the Supreme Court and for a period
of not more than three months for each time, assign any judge of any court or province, whose
docket permits his temporary absence from said court, to hold sessions in the court needing
such assistance or whether such vacancy exists. No judge so detailed shall take cognizance of
any case when any of the parties thereto objects and the objection is sustained by the Supreme
Court. (emphasis supplied)

xxx xxx xxx

Apparently, when the circumstances contemplated under Section 51 of the Judiciary Act of 1948 occur, the
detailed Judge holds sessions in the court needing such assistance or where such vacancy exists as if he is the
presiding judge of that particular branch where the clogged docket or vacancy exists. The detailed Judge does
not hold sessions therein as if he is the Presiding Judge of the branch where he is originally or permanently
designated. In the case before Us, respondent Judge Kayanan was duly authorized to help unclog the docket of
Branch I stationed in Lucena City, Quezon which at that time was rendered vacant due to the death of Judge
Vicente Arguelles. When respondent Judge Kayanan took cognizance of the cases left by Judge Arguelles,
pending the designation of a replacement, he merely sits as a judge of Branch I, Court of First Instance of Quezon
Province. In the event of designation of a new Presiding Judge of Branch 1, accepted practice and procedure of
speedy administration of justice requires that the detailed judge turns over the cases he took cognizance of to
the new Presiding Judge. Justification for the continued retention of jurisdiction over those cases in the case at
bar appears to be not convincing.
We find no plausible indication how estoppel could operate against petitioners. It is true that petitioners filed
their answer to the urgent petition of private respondent and appeared before respondent Judge of Branch IV
without questioning the latter's authority to hear the case. The answer to the urgent petition of private
respondent dated May 13, 1968 was filed by petitioners on June 5, 1968 or almost two (2) months before Judge
Melencio-Herrera of Branch I issued the two (2) orders dated July 29, 1968 asserting jurisdiction over the case.
The appearances of petitioners and counsel in the sala of respondent Judge during the intervening period from
July 29, 1968 were apparently due to the fact that petitioners came to know only of the two orders of Branch I
when they examined the records of the case prompted by the manifestation of the counsel of private
respondent, in the course of the proceedings in Branch IV, to submit for an accounting in connection with the
administration of the properties of the ward Soledad Rodriguez. Petitioners manifested such information to
respondent Judge in a petition for reconsideration of the order of January 8, 1968 authorizing the presentation
of evidence ex parte. The silence or inaction of petitioners was therefore due to their lack of knowledge of
respondent Judge's lack of authority to retain or take further action on the case. Such lack of authority was
confirmed when respondent Judge, acting on the petition for reconsideration dated January 30, 1969, issued
on February 20, 1969 an order authorizing the return of the records of the case to Branch I. In claiming that the
records referred to by the order concern the first portion of the records of Special Proceedings No. 2641 and
not the second portion containing the urgent petition filed by private respondent on May 13, 1968, private
respondent would then encourage split jurisdiction of courts which is abhorred by the law.

Assuming that Branch IV-Calauag, Court of First Instance of Quezon has jurisdiction over Special Proceedings
No. 2641 notwithstanding the attendant circumstances adverted to earlier, We now dwell on another issue,
which standing alone would decisively resolve the assigned errors raised in this petition, that is, whether or
not Branch IV exercising limited and special, jurisdiction as a guardianship court under Section 6 Rule 96 of the
Rules of Court has jurisdiction to order the delivery or reconveyance of the three parcels of land in question to
the ward, represented herein by private respondent.

In two leading cases, Castillo vs. Bustamante, 64 Phil. 839 and Cui vs. Piccio et al, 91 Phil. 712, this Court laid the
rule on the issue raised before Us as interpreted in the light of Section 6 Rule 96 of the Rules of Court which
reads:

Section 6. Proceedings when person suspected of embezzling or concealing property of the

ward.— Upon complaint of the guardian or ward, or of any person having actual or
prospective interest in the estate of the ward as creditor, heir, or otherwise, that anyone is
suspected of having embezzled, concealed, or conveyed away any money, goods, or interest,
or a written instrument, belonging to the ward or his estate, the court may cite the suspected
person to appear for examination touching such money, goods, interests, or instrument, and
make such orders as will secure the estate against such embezzlement, concealment or
conveyance.

In Cui vs. Piccio et al., supra, this Court held that the jurisdiction of the court in guardianship proceedings,
ordinarily, is to cite persons suspected of having embezzled, concealed or conveyed the property belonging to
the ward for the purpose of obtaining information which may be used in an action later to be instituted by the
guardian to protect the right of the ward. Generally, the guardianship court exercising special and limited
jurisdiction cannot actually order the delivery of the property of the ward found to be embezzled, concealed or
conveyed. In a categorical language of this Court, only in extreme cases, where property clearly belongs to the
ward or where his title thereto has been already judicially decided, may the court direct its delivery to the
guardian. 23 In effect, there can only be delivery or return of the embezzled, concealed or conveyed property of
the ward, where the right or title of said ward is clear and undisputable. However, where title to any property
said to be embezzled, concealed or conveyed is in dispute, under the Cui case, the determination of said title or
right whether in favor of the person said to have embezzled, concealed or conveyed the property must be
determined in a separate ordinary action and not in guardianship proceedings.

In the case at bar, We are not prepared to say, at this premature stage, whether or not, on the basis alone of the
pleadings of the parties in the trial court, the title or right of the ward Soledad Rodriguez over the three (3)
parcels of land in question is clear and undisputable. What is certain here is the fact that the sale of the
properties in question were duly approved by the respondent Judge in accordance with the provisions on
selling and encumbering of the property of the ward under Rule 97 of the Rules of Court. It must be noted that
while the original urgent petition dated May 13, 1968 prayed for the examination of petitioners herein
regarding the alleged concealing, conveyancing and embezzling of the questioned properties, the amended
petition dated March 24, 1969 asked for reconveyance.

Moreover, it may be observed that private respondent contended that the sale of the first two lots was actually
a loan agreement with right of recovery while that of the third lot was subject to condition, hence, a fictitious
or simulated sale. On the other hand, according to petitioners, the sales were all absolute and protected by the
Torrens System since new transfer certificate of titles were issued in their name. Apparently, there is a cloud
of doubt as to who has a better right or title to the disputed properties. This, We believe, requires the
determination of title or ownership of the three parcels of land in dispute which is beyond the jurisdiction of
the guardianship court and should be threshed out in a separate ordinary action not a guardianship
proceedings as held in Cui vs. Piccio supra.

The ruling in Castillo vs. Bustamante, 64 Phil. 839, relied upon by private respondent finds no application in the
instant case. As differentiated from the case at bar, in Castillo case, the right or title of the ward to the property
in dispute was clear and undisputable as the same was donated to her through compromise agreement
approved by the court which title had the authority of res judicata. As enunciated above, the right or title of the
ward to the properties in question is in dispute and as such should be determined in a separate ordinary action.

Furthermore, private respondent's claim that petitioners are barred by laches to raise the issue of jurisdiction
is without merit. In support of such claim, private respondent invoked the exception laid down in Tijam vs.
Sibonghanoy, 23 SCRA 29, to the rule that the lack of jurisdiction over the subject matter is fatal and may be
raised at any stage of the proceedings; that it is conferred only by law, and in the manner prescribed by law
and an objection on the lack of jurisdiction cannot be waived by the parties; and the infirmity cannot be cured
by silence, acquiescence, or even by express consent, or win of the parties. 24

The doctrine laid down in Tijam vs. Sibonghanoy, supra, and in the latter case of Rodriguez vs. Court of
Appeals, 29 SCRA 419 is not applicable in the case at bar. In Tijam case, the appellant had all the opportunity to
challenged the court's jurisdiction in the court a quo as well as in the Court of Appeals but instead invoked its
jurisdiction to obtain affirmative relief and submitted its case for final adjudication on the merits. It was only
after an adverse decision was rendered by the Court of Appeals and fifteen (15) years later from the inception
of the case that it finally chose to raise the question of j jurisdiction. I t is clear that t the circumstances present
in Tijam case are not present here. The petitioners in the instant case challenged the authority of the trial court
to take further cognizance of the case the moment they become aware of Branch I assuming jurisdiction. The
lack of jurisdiction was raised in a petition for reconsideration of the order dated January 8, 1969, in a petition
for reconsideration of the decision dated April 15, 1969, in a second petition for reconsideration of the said
decision, and alleged as an additional ground in the petition for certiorari in the Court of Appeals. In any case,
the operation of the principle of estoppel on the question of jurisdiction seemingly depends upon whether the
lower court actually had jurisdiction. If it had no jurisdiction, but the case was tried and decided upon the
theory that it had jurisdiction, the parties are not barred, on appeal, from assailing such jurisdiction, for the
same must exist as a matter of law, and may not be conferred by consent of the parties or by estoppel. 25

As respondent trial court has no jurisdiction, We deem it unnecessary to pass upon the assigned errors raised
in the petition.

WHEREFORE, the Resolution of the Court of Appeals dated January 20, 1971 is hereby reversed and set aside,
and the decision rendered by respondent Judge of Branch IV-Calauag, Court of First Instance of Quezon dated
April 15, 1969 and the orders issued thereafter are declared null and void, and the case is hereby remanded to
Branch I-Lucena City, Court of First Instance of Quezon for further proceedings. SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 162421 August 31, 2007

NELSON CABALES and RITO CABALES, Petitioners,

vs.
COURT OF APPEALS, JESUS FELIANO and ANUNCIACION FELIANO, Respondents.

DECISION

PUNO, C.J.:

This is a petition for review on certiorari seeking the reversal of the decision 1 of the Court of Appeals dated
October 27, 2003, in CA-G.R. CV No. 68319 entitled "Nelson Cabales and Rito Cabales v. Jesus Feliano and
Anunciacion Feliano," which affirmed with modification the decision2 of the Regional Trial Court of Maasin,
Southern Leyte, Branch 25, dated August 11, 2000, in Civil Case No. R-2878. The resolution of the Court of
Appeals dated February 23, 2004, which denied petitioners’ motion for reconsideration, is likewise herein
assailed.

The facts as found by the trial court and the appellate court are well established.

Rufino Cabales died on July 4, 1966 and left a 5,714-square meter parcel of land located in Brgy. Rizal, Sogod,
Southern Leyte, covered by Tax Declaration No. 17270 to his surviving wife Saturnina and children Bonifacio,
Albino, Francisco, Leonora, Alberto and petitioner Rito.

On July 26, 1971, brothers and co-owners Bonifacio, Albino and Alberto sold the subject property to Dr.
Cayetano Corrompido for ₱2,000.00, with right to repurchase within eight (8) years. The three (3) siblings
divided the proceeds of the sale among themselves, each getting a share of ₱666.66.

The following month or on August 18, 1971, Alberto secured a note ("vale") from Dr. Corrompido in the amount
of ₱300.00.

In 1972, Alberto died leaving his wife and son, petitioner Nelson.

On December 18, 1975, within the eight-year redemption period, Bonifacio and Albino tendered their payment
of ₱666.66 each to Dr. Corrompido. But Dr. Corrompido only released the document of sale with pacto de retro
after Saturnina paid for the share of her deceased son, Alberto, including his "vale" of ₱300.00.

On even date, Saturnina and her four (4) children Bonifacio, Albino, Francisco and Leonora sold the subject
parcel of land to respondents-spouses Jesus and Anunciacion Feliano for ₱8,000.00. The Deed of Sale provided
in its last paragraph, thus:

It is hereby declared and understood that the amount of TWO THOUSAND TWO HUNDRED EIGHTY SIX PESOS
(P2,286.00) corresponding and belonging to the Heirs of Alberto Cabales and to Rito Cabales who are still
minors upon the execution of this instrument are held

in trust by the VENDEE and to be paid and delivered only to them upon reaching the age of 21.
On December 17, 1985, the Register of Deeds of Southern Leyte issued Original Certificate of Title No. 17035
over the purchased land in the names of respondents-spouses.

On December 30, 1985, Saturnina and her four (4) children executed an affidavit to the effect that petitioner
Nelson would only receive the amount of ₱176.34 from respondents-spouses when he reaches the age of 21
considering that Saturnina paid Dr. Corrompido ₱966.66 for the obligation of petitioner Nelson’s late father
Alberto, i.e., ₱666.66 for his share in the redemption of the sale with pacto de retro as well as his "vale" of
₱300.00.

On July 24, 1986, 24-year old petitioner Rito Cabales acknowledged receipt of the sum of ₱1,143.00 from
respondent Jesus Feliano, representing the former’s share in the proceeds of the sale of subject property.

In 1988, Saturnina died. Petitioner Nelson, then residing in Manila, went back to his father’s hometown in
Southern Leyte. That same year, he learned from his uncle, petitioner Rito, of the sale of subject property. In
1993, he signified his intention to redeem the subject land during a barangay conciliation process that he
initiated.

On January 12, 1995, contending that they could not have sold their respective shares in subject property when
they were minors, petitioners filed before the Regional Trial Court of Maasin, Southern Leyte, a complaint for
redemption of the subject land plus damages.

In their answer, respondents-spouses maintained that petitioners were estopped from claiming any right over
subject property considering that (1) petitioner Rito had already received the amount corresponding to his
share of the proceeds of the sale of subject property, and (2) that petitioner Nelson failed to consign to the court
the total amount of the redemption price necessary for legal redemption. They prayed for the dismissal of the
case on the grounds of laches and prescription.

No amicable settlement was reached at pre-trial. Trial ensued and on August 11, 2000, the trial court ruled
against petitioners. It held that (1) Alberto or, by his death, any of his heirs including petitioner Nelson lost
their right to subject land when not one of them repurchased it from Dr. Corrompido; (2) Saturnina was
effectively subrogated to the rights and interests of Alberto when she paid for Alberto’s share as well as his
obligation to Dr. Corrompido; and (3) petitioner Rito had no more right to redeem his share to subject property
as the sale by Saturnina, his legal guardian pursuant to Section 7, Rule 93 of the Rules of Court, was perfectly
valid; and it was shown that he received his share of the proceeds of the sale on July 24, 1986, when he was 24
years old.

On appeal, the Court of Appeals modified the decision of the trial court. It held that the sale by Saturnina of
petitioner Rito’s undivided share to the property was unenforceable for lack of authority or legal
representation but that the contract was effectively ratified by petitioner Rito’s receipt of the proceeds on July
24, 1986. The appellate court also ruled that petitioner Nelson is co-owner to the extent of one-seventh (1/7)
of subject property as Saturnina was not subrogated to Alberto’s rights when she repurchased his share to the
property. It further directed petitioner Nelson to pay the estate of the late Saturnina Cabales the amount of
₱966.66, representing the amount which the latter paid for the obligation of petitioner Nelson’s late father
Alberto. Finally, however, it denied petitioner Nelson’s claim for redemption for his failure to tender or consign
in court the redemption money within the period prescribed by law.

In this petition for review on certiorari, petitioners contend that the Court of Appeals erred in (1) recognizing
petitioner Nelson Cabales as co-owner of subject land but denied him the right of legal redemption, and (2) not
recognizing petitioner Rito Cabales as co-owner of subject land with similar right of legal redemption.

First, we shall delineate the rights of petitioners to subject land.

When Rufino Cabales died intestate, his wife Saturnina and his six (6) children, Bonifacio, Albino, Francisco,
Leonora, Alberto and petitioner Rito, survived and succeeded him. Article 996 of the New Civil Code provides
that "[i]f a widow or widower and legitimate children or descendants are left, the surviving spouse has in the
succession the same share as that of each of the children." Verily, the seven (7) heirs inherited equally on
subject property. Petitioner Rito and Alberto, petitioner Nelson’s father, inherited in their own rights and with
equal shares as the others.

But before partition of subject land was effected, Alberto died. By operation of law, his rights and obligations
to one-seventh of subject land were transferred to his legal heirs – his wife and his son petitioner Nelson.

We shall now discuss the effects of the two (2) sales of subject land to the rights of the parties.

The first sale with pacto de retro to Dr. Corrompido by the brothers and co-owners Bonifacio, Albino and
Alberto was valid but only as to their pro-indiviso shares to the land. When Alberto died prior to repurchasing
his share, his rights and obligations were transferred to and assumed by his heirs, namely his wife and his son,
petitioner Nelson. But the records show that it was Saturnina, Alberto’s mother, and not his heirs, who
repurchased for him. As correctly ruled by the Court of Appeals, Saturnina was not subrogated to Alberto’s or
his heirs’ rights to the property when she repurchased the share.

In Paulmitan v. Court of Appeals,3 we held that a co-owner who redeemed the property in its entirety did not
make her the owner of all of it. The property remained in a condition of co-ownership as the redemption did
not provide for a mode of terminating a co-ownership.4 But the one who redeemed had the right to be
reimbursed for the redemption price and until reimbursed, holds a lien upon the subject property for the
amount due.5 Necessarily, when Saturnina redeemed for Alberto’s heirs who had then acquired his pro-indiviso
share in subject property, it did not vest in her ownership over the pro-indiviso share she redeemed. But she
had the right to be reimbursed for the redemption price and held a lien upon the property for the amount due
until reimbursement. The result is that the heirs of Alberto, i.e., his wife and his son petitioner Nelson, retained
ownership over their pro-indiviso share.

Upon redemption from Dr. Corrompido, the subject property was resold to respondents-spouses by the co-
owners. Petitioners Rito and Nelson were then minors and as indicated in the Deed of Sale, their shares in the
proceeds were held in trust by respondents-spouses to be paid and delivered to them upon reaching the age of
majority.

As to petitioner Rito, the contract of sale was unenforceable as correctly held by the Court of Appeals. Articles
320 and 326 of the New Civil Code6 state that:

Art. 320. The father, or in his absence the mother, is the legal administrator of the property pertaining to the
child under parental authority. If the property is worth more than two thousand pesos, the father or mother
shall give a bond subject to the approval of the Court of First Instance.

Art. 326. When the property of the child is worth more than two thousand pesos, the father or mother shall be
considered a guardian of the child’s property, subject to the duties and obligations of guardians under the Rules
of Court.

In other words, the father, or, in his absence, the mother, is considered legal administrator of the property
pertaining to the child under his or her parental authority without need of giving a bond in case the amount of
the property of the child does not exceed two thousand pesos. 7 Corollary to this, Rule 93, Section 7 of the
Revised Rules of Court of 1964, applicable to this case, automatically designates the parent as legal guardian of
the child without need of any judicial appointment in case the latter’s property does not exceed two thousand
pesos,8 thus:
Sec. 7. Parents as guardians. – When the property of the child under parental authority is worth two thousand
pesos or less, the father or the mother, without the necessity of court appointment, shall be his legal guardian
x x x x9

Saturnina was clearly petitioner Rito’s legal guardian without necessity of court appointment considering that
the amount of his property or one-seventh of subject property was ₱1,143.00, which is less than two thousand
pesos. However, Rule 96, Sec. 110 provides that:

Section 1. To what guardianship shall extend. – A guardian appointed shall have the care and custody of the
person of his ward, and the management of his estate, or the management of the estate only, as the case may
be. The guardian of the estate of a nonresident shall have the management of all the estate of the ward within
the Philippines, and no court other than that in which such guardian was appointed shall have jurisdiction over
the guardianship.

Indeed, the legal guardian only has the plenary power of administration of the minor’s property. It does not
include the power of alienation which needs judicial authority. 11 Thus, when Saturnina, as legal guardian of
petitioner Rito, sold the latter’s pro-indiviso share in subject land, she did not have the legal authority to do so.

Article 1403 of the New Civil Code provides, thus:

Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers;

xxxx

Accordingly, the contract of sale as to the pro-indiviso share of petitioner Rito was unenforceable. However,
when he acknowledged receipt of the proceeds of the sale on July 24, 1986, petitioner Rito effectively ratified
it. This act of ratification rendered the sale valid and binding as to him.

With respect to petitioner Nelson, on the other hand, the contract of sale was void. He was a minor at the time
of the sale. Saturnina or any and all the other co-owners were not his legal guardians with judicial authority to
alienate or encumber his property. It was his mother who was his legal guardian and, if duly authorized by the
courts, could validly sell his undivided share to the property. She did not. Necessarily, when Saturnina and the
others sold the subject property in its entirety to respondents-spouses, they only sold and transferred title to
their pro-indiviso shares and not that part which pertained to petitioner Nelson and his mother. Consequently,
petitioner Nelson and his mother retained ownership over their undivided share of subject property. 12

But may petitioners redeem the subject land from respondents-spouses? Articles 1088 and 1623 of the New
Civil Code are pertinent:

Art. 1088. Should any of the heirs sell his hereditary rights to a stranger before the partition, any or all of the
co-heirs may be subrogated to the rights of the purchaser by reimbursing him for the price of the sale, provided
they do so within the period of one month from the time they were notified in writing of the sale by the vendor.

Art. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from
the notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not
be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given
written notice thereof to all possible redemptioners.

The right of redemption of co-owners excludes that of adjoining owners.

Clearly, legal redemption may only be exercised by the co-owner or co-owners who did not part with his or
their pro-indiviso share in the property held in common. As demonstrated, the sale as to the undivided share
of petitioner Rito became valid and binding upon his ratification on July 24, 1986. As a result, he lost his right
to redeem subject property.

However, as likewise established, the sale as to the undivided share of petitioner Nelson and his mother was
not valid such that they were not divested of their ownership thereto. Necessarily, they may redeem the subject
property from respondents-spouses. But they must do so within thirty days from notice in writing of the sale
by their co-owners vendors. In reckoning this period, we held in Alonzo v. Intermediate Appellate Court, 13 thus:

x x x we test a law by its results; and likewise, we may add, by its purposes. It is a cardinal rule that, in seeking
the meaning of the law, the first concern of the judge should be to discover in its provisions the intent of the
lawmaker. Unquestionably, the law should never be interpreted in such a way as to cause injustice as this is
never within the legislative intent. An indispensable part of that intent, in fact, for we presume the good motives
of the legislature, is to render justice.

Thus, we interpret and apply the law not independently of but in consonance with justice. Law and justice are
inseparable, and we must keep them so. x x x x

x x x x While we may not read into the law a purpose that is not there, we nevertheless have the right to read
out of it the reason for its enactment. In doing so, we defer not to "the letter that killeth" but to "the spirit that
vivifieth," to give effect to the lawmaker’s will.

In requiring written notice, Article 1088 (and Article 1623 for that matter)14 seeks to ensure that the
redemptioner is properly notified of the sale and to indicate the date of such notice as the starting time of the
30-day period of redemption. Considering the shortness of the period, it is really necessary, as a general rule,
to pinpoint the precise date it is supposed to begin, to obviate the problem of alleged delays, sometimes
consisting of only a day or two.1awph!1

In the instant case, the right of redemption was invoked not days but years after the sale was made in 1978. We
are not unmindful of the fact that petitioner Nelson was a minor when the sale was perfected. Nevertheless, the
records show that in 1988, petitioner Nelson, then of majority age, was informed of the sale of subject property.
Moreover, it was noted by the appellate court that petitioner Nelson was likewise informed thereof in 1993
and he signified his intention to redeem subject property during a barangay conciliation process. But he only
filed the complaint for legal redemption and damages on January 12, 1995, certainly more than thirty days from
learning about the sale.

In the face of the established facts, petitioner Nelson cannot feign ignorance of the sale of subject property in
1978. To require strict proof of written notice of the sale would be to countenance an obvious false claim of
lack of knowledge thereof, thus commending the letter of the law over its purpose, i.e., the notification of
redemptioners.

The Court is satisfied that there was sufficient notice of the sale to petitioner Nelson. The thirty-day redemption
period commenced in 1993, after petitioner Nelson sought the barangay conciliation process to redeem his
property. By January 12, 1995, when petitioner Nelson filed a complaint for legal redemption and damages, it
is clear that the thirty-day period had already expired.

As in Alonzo, the Court, after due consideration of the facts of the instant case, hereby interprets the law in a
way that will render justice.15

Petitioner Nelson, as correctly held by the Court of Appeals, can no longer redeem subject property. But he and
his mother remain co-owners thereof with respondents-spouses. Accordingly, title to subject property must
include them.
IN VIEW WHEREOF, the petition is DENIED. The assailed decision and resolution of the Court of Appeals of
October 27, 2003 and February 23, 2004 are AFFIRMED WITH MODIFICATION. The Register of Deeds of
Southern Leyte is ORDERED to cancel Original Certificate of Title No. 17035 and to issue in lieu thereof a new
certificate of title in the name of respondents-spouses Jesus and Anunciacion Feliano for the 6/7 portion, and
petitioner Nelson Cabales and his mother for the remaining 1/7 portion, pro indiviso.

SO ORDERED.

FIRST DIVISION

G.R. No. 109557 November 29, 2000

JOSE UY and his Spouse GLENDA J. UY and GILDA L. JARDELEZA, petitioners,

vs.
COURT OF APPEALS and TEODORO L. JARDELEZA, respondents.

DECISION

PARDO, J.:

The case is an appeal via certiorari from the decision1 of the Court of Appeals and its resolution denying
reconsideration2 reversing that of the Regional Trial Court, Iloilo, Branch 32 3 and declaring void the special
proceedings instituted therein by petitioners to authorize petitioner Gilda L. Jardeleza, in view of the comatose
condition of her husband, Ernesto Jardeleza, Sr., with the approval of the court, to dispose of their conjugal
property in favor of co-petitioners, their daughter and son in law, for the ostensible purpose of "financial need
in the personal, business and medical expenses of her ‘incapacitated’ husband."

The facts, as found by the Court of Appeals, are as follows:

"This case is a dispute between Teodoro L. Jardeleza (herein respondent) on the one hand, against his mother
Gilda L. Jardeleza, and sister and brother-in-law, the spouses Jose Uy and Glenda Jardeleza (herein petitioners)
on the other hand. The controversy came about as a result of Dr. Ernesto Jardeleza, Sr.’s suffering of a stroke
on March 25, 1991, which left him comatose and bereft of any motor or mental faculties. Said Ernesto Jardeleza,
Sr. is the father of herein respondent Teodoro Jardeleza and husband of herein private respondent Gilda
Jardeleza.

"Upon learning that one piece of real property belonging to the senior Jardeleza spouses was about to be sold,
petitioner Teodoro Jardeleza, on June 6, 1991, filed a petition (Annex "A") before the R.T.C. of Iloilo City, Branch
25, where it was docketed as Special Proceeding No. 4689, in the matter of the guardianship of Dr. Ernesto
Jardeleza, Sr. The petitioner averred therein that the present physical and mental incapacity of Dr. Ernesto
Jardeleza, Sr. prevent him from competently administering his properties, and in order to prevent the loss and
dissipation of the Jardelezas’ real and personal assets, there was a need for a court-appointed guardian to
administer said properties. It was prayed therein that Letters of Guardianship be issued in favor of herein
private respondent Gilda Ledesma Jardeleza, wife of Dr. Ernesto Jardeleza, Sr. It was further prayed that in the
meantime, no property of Dr. Ernesto Jardeleza, Sr. be negotiated, mortgaged or otherwise alienated to third
persons, particularly Lot No. 4291 and all the improvements thereon, located along Bonifacio Drive, Iloilo City,
and covered by T.C.T. No. 47337.

"A few days later, or on June 13, 1991, respondent Gilda L. Jardeleza herself filed a petition docketed as Special
Proceeding NO. 4691, before Branch 32 of the R.T.C. of Iloilo City, regarding the declaration of incapacity of
Ernesto Jardeleza, Sr., assumption of sole powers of administration of conjugal properties, and authorization
to sell the same (Annex "B"). Therein, the petitioner Gilda L. Jardeleza averred the physical and mental
incapacity of her husband, who was then confined for intensive medical care and treatment at the Iloilo Doctor’s
Hospital. She signified to the court her desire to assume sole powers of administration of their conjugal
properties. She also alleged that her husband’s medical treatment and hospitalization expenses were piling up,
accumulating to several hundred thousands of pesos already. For this, she urgently needed to sell one piece of
real property, specifically Lot No. 4291 and its improvements. Thus, she prayed for authorization from the court
to sell said property.

"The following day, June 14, 1991, Branch 32 of the R.T.C. of Iloilo City issued an Order (Annex "C") finding the
petition in Spec. Proc. No. 4691 to be sufficient in form and substance, and setting the hearing thereof for June
20, 1991. The scheduled hearing of the petition proceeded, attended by therein petitioner Gilda Jardeleza, her
counsel, her two children, namely Ernesto Jardeleza, Jr., and Glenda Jardeleza Uy, and Dr. Rolando Padilla, one
of Ernesto Jardeleza, Sr.’s attending physicians.

"On that same day, June 20, 1991, Branch 32 of the RTC of Iloilo City rendered its Decision (Annex "D"), finding
that it was convinced that Ernesto Jardeleza, Sr. was truly incapacitated to participate in the administration of
the conjugal properties, and that the sale of Lot No. 4291 and the improvements thereon was necessary to
defray the mounting expenses for treatment and Hospitalization. The said court also made the pronouncement
that the petition filed by Gilda L. Jardeleza was "pursuant to Article 124 of the Family Code, and that the
proceedings thereon are governed by the rules on summary proceedings sanctioned under Article 253 of the
same Code x x x.

"The said court then disposed as follows:

"WHEREFORE, there being factual and legal bases to the petition dated June 13, 1991, the Court hereby renders
judgment as follows:

"1) declaring Ernesto Jardeleza, Sr., petitioner’s husband, to be incapacitated and unable to participate in the
administration of conjugal properties;

"2) authorizing petitioner Gilda L. Jardeleza to assume sole powers of administration of their conjugal
properties; and

"3) authorizing aforesaid petitioner to sell Lot No. 4291 of the Cadastral Survey of Iloilo, situated in Iloilo City
and covered by TCT No. 47337 issued in the names of Ernesto Jardeleza, Sr. and Gilda L. Jardeleza and the
buildings standing thereof.

"SO ORDERED.

"On June 24, 1991, herein petitioner Teodoro Jardeleza filed his Opposition to the proceedings before Branch
32 in Spec. Proc. Case No. 4691, said petitioner being unaware and not knowing that a decision has already
been rendered on the case by public respondent.

"On July 3, 1991, herein petitioner Teodoro Jardeleza filed a motion for reconsideration of the judgment in Spec.
Proc. No. 4691 and a motion for consolidation of the two cases (Annex "F"). He propounded the argument that
the petition for declaration of incapacity, assumption of sole powers of administration, and authority to sell the
conjugal properties was essentially a petition for guardianship of the person and properties of Ernesto
Jardeleza, Sr. As such, it cannot be prosecuted in accordance with the provisions on summary proceedings set
out in Article 253 of the Family Code. It should follow the rules governing special proceedings in the Revised
Rules of Court which require procedural due process, particularly the need for notice and a hearing on the
merits. On the other hand, even if Gilda Jardeleza’s petition can be prosecuted by summary proceedings, there
was still a failure to comply with the basic requirements thereof, making the decision in Spec. Proc. No. 4691 a
defective one. He further alleged that under the New Civil Code, Ernesto Jardeleza, Sr. had acquired vested
rights as a conjugal partner, and that these rights cannot be impaired or prejudiced without his consent. Neither
can he be deprived of his share in the conjugal properties through mere summary proceedings. He then restated
his position that Spec. Proc. No. 4691 should be consolidated with Spec. Proc. No. 4689 which was filed earlier
and pending before Branch 25.

"Teodoro Jardeleza also questioned the propriety of the sale of Lot No. 4291 and the improvements thereon
supposedly to pay the accumulated financial obligations arising from Ernesto Jardeleza, Sr.’s hospitalization.
He alleged that the market value of the property would be around Twelve to Fifteen Million Pesos, but that he
had been informed that it would be sold for much less. He also pointed out that the building thereon which
houses the Jardeleza Clinic is a monument to Ernesto Jardeleza Sr.’s industry, labor and service to his
fellowmen. Hence, the said property has a lot of sentimental value to his family. Besides, argued Teodoro
Jardeleza, then conjugal partnership had other liquid assets to pay off all financial obligations. He mentioned
that apart from sufficient cash, Jardeleza, Sr. owned stocks of Iloilo Doctors’ Hospital which can be off-set
against the cost of medical and hospital bills. Furthermore, Ernesto Jardeleza, Sr. enjoys certain privileges at
the said hospital which allows him to pay on installment basis. Moreover, two of Ernesto Jardeleza Sr.’s
attending physicians are his own sons who do not charge anything for their professional services.

"On July 4, 1991, Teodoro Jardeleza filed in Spec. Proc. No. 4691 a supplement to his motion for reconsideration
(Annex "G"). He reiterated his contention that summary proceedings was irregularly applied. He also noted
that the provisions on summary proceedings found in Chapter 2 of the Family Code comes under the heading
on "Separation in Fact Between Husband and Wife" which contemplates of a situation where both spouses are
of disposing mind. Thus, he argued that were one spouse is "comatose without motor and mental faculties," the
said provisions cannot be made to apply.

"While the motion for reconsideration was pending, Gilda Jardeleza disposed by absolute sale Lot No. 4291 and
all its improvements to her daughter, Ma. Glenda Jardeleza Uy, for Eight Million Pesos (P8,000,000.00), as
evidenced by a Deed Absolute Sale dated July 8, 1991 executed between them (p. 111, Rollo). Under date of July
23, 1991, Gilda Jardeleza filed an urgent ex-parte motion for approval of the deed of absolute sale.

"On August 12, 1991 Teodoro Jardeleza filed his Opposition to the motion for approval of the deed of sale on
the grounds that: (1) the motion was prematurely filed and should be held in abeyance until the final resolution
of the petition; (2) the motion does not allege nor prove the justifications for the sale; and (3) the motion does
not allege that had Ernesto Jardeleza, Sr. been competent, he would have given his consent to the sale.

"Judge Amelita K. del Rosario-Benedicto of Branch 32 of the respondent Court, who had penned the decision in
Spec. Proc. No. 4691 had in the meantime formally inhibited herself from further acting in this case (Annex "I").
The case was then reraffled to Branch 28 of the said court.

"On December 19, 1991, the said court issued an Order (Annex "M") denying herein petitioner’s motion for
reconsideration and approving respondent Jardeleza’s motion for approval of the deed of absolute sale. The
said court ruled that:

"After a careful and thorough perusal of the decision, dated June 20, 1991, the Motion for Reconsideration, as
well as its supplements filed by "oppositor", Teodoro L. Jardeleza, through counsel, and the opposition to the
Motion for Reconsideration, including its supplements, filed by petitioner, through counsel, this Court is of the
opinion and so holds, that her Honor, Amelita K. del Rosario-Benedicto, Presiding Judge of Branch 32, of this
Court, has properly observed the procedure embodied under Article 253, in relation to Article 124, of the
Family Code, in rendering her decision dated June 20, 1991.

"Also, as correctly stated by petitioner, through counsel, that "oppositor" Teodor L. Jardeleza does not have the
personality to oppose the instant petition considering that the property or properties, subject of the petition,
belongs to the conjugal partnership of the spouses Ernesto and Gilda Jardeleza, who are both still alive.

"In view thereof, the Motion for Reconsideration of "oppositor" Teodoro L. Jardeleza, is hereby denied for lack
of merit.

"Considering the validity of the decision dated June 20, 1991, which among others, authorized Gilda L. Jardeleza
to sell Lot No. 4291 of the Cadastral Survey of Iloilo, covered by Transfer Certificate of Title No. 47337 issued
in the names of Ernesto Jardeleza, Sr., and Gilda L. Jardeleza and the building standing thereon, the Urgent Ex-
Parte Motion for Approval of Deed of Absolute Sale dated July 23, 1991, filed by petitioner, through counsel, is
hereby granted and the deed of absolute sale, executed and notarized on July 8, 1991, by and between Gilda L.
Jardeleza, as vendor, and Ma. Glenda Jardeleza, as vendee, is hereby approved, and the Register of Deeds of
Iloilo City, is directed to register the sale and issue the corresponding transfer certificate of title to the vendee.

"SO ORDERED."4

On December 9, 1992, the Court of Appeals promulgated its decision reversing the appealed decision and
ordering the trial court to dismiss the special proceedings to approve the deed of sale, which was also declared
void.5

On December 29, 1992, petitioners filed a motion for reconsideration,6 however, on March 29, 1993, the Court
of Appeals denied the motion, finding no cogent and compelling reason to disturb the decision. 7

Hence, this appeal.8

The issue raised is whether petitioner Gilda L. Jardeleza as the wife of Ernesto Jardeleza, Sr. who suffered a
stroke, a cerebrovascular accident, rendering him comatose, without motor and mental faculties, and could not
manage their conjugal partnership property may assume sole powers of administration of the conjugal
property under Article 124 of the Family Code and dispose of a parcel of land with its improvements, worth
more than twelve million pesos, with the approval of the court in a summary proceedings, to her co-petitioners,
her own daughter and son-in-law, for the amount of eight million pesos.

The Court of Appeals ruled that in the condition of Dr. Ernesto Jardeleza, Sr., the procedural rules on summary
proceedings in relation to Article 124 of the Family Code are not applicable. Because Dr. Jardeleza, Sr. was
unable to take care of himself and manage the conjugal property due to illness that had rendered him comatose,
the proper remedy was the appointment of a judicial guardian of the person or estate or both of such
incompetent, under Rule 93, Section 1, 1964 Revised Rules of Court. Indeed, petitioner earlier had filed such a
petition for judicial guardianship.

Article 124 of the Family Code provides as follows:

"ART. 124. The administration and enjoyment of the conjugal partnership property shall belong to both spouses
jointly. In case of disagreement, the husband’s decision shall prevail, subject to recourse to the court by the wife
for a proper remedy which must be availed of within five years from the date of the contract implementing such
decision.

"In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the
conjugal properties, the other spouse may assume sole powers of administration. These powers do not include
the powers of disposition or encumbrance which must have the authority of the court or the written consent
of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void.
However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the
third person, and may be perfected as a binding contract upon the acceptance by the other spouse or
authorization by the court before the offer is withdrawn by either or both offerors. (165a)."

In regular manner, the rules on summary judicial proceedings under the Family Code govern the proceedings
under Article 124 of the Family Code. The situation contemplated is one where the spouse is absent, or
separated in fact or has abandoned the other or consent is withheld or cannot be obtained. Such rules do not
apply to cases where the non-consenting spouse is incapacitated or incompetent to give consent. In this case,
the trial court found that the subject spouse "is an incompetent" who was in comatose or semi-comatose
condition, a victim of stroke, cerebrovascular accident, without motor and mental faculties, and with a
diagnosis of brain stem infarct.9 In such case, the proper remedy is a judicial guardianship proceedings under
Rule 93 of the 1964 Revised Rules of Court.

Even assuming that the rules of summary judicial proceedings under the Family Code may apply to the wife's
administration of the conjugal property, the law provides that the wife who assumes sole powers of
administration has the same powers and duties as a guardian under the Rules of Court. 10

Consequently, a spouse who desires to sell real property as such administrator of the conjugal property must
observe the procedure for the sale of the ward’s estate required of judicial guardians under Rule 95, 1964
Revised Rules of Court, not the summary judicial proceedings under the Family Code.

In the case at bar, the trial court did not comply with the procedure under the Revised Rules of
Court.1âwphi1 Indeed, the trial court did not even observe the requirements of the summary judicial
proceedings under the Family Code. Thus, the trial court did not serve notice of the petition to the incapacitated
spouse; it did not require him to show cause why the petition should not be granted.

Hence, we agree with the Court of Appeals that absent an opportunity to be heard, the decision rendered by the
trial court is void for lack of due process. The doctrine consistently adhered to by this Court is that a denial of
due process suffices to cast on the official act taken by whatever branch of the government the impress of
nullity.11 A decision rendered without due process is void ab initio and may be attacked directly or
collaterally.12 "A decision is void for lack of due process if, as a result, a party is deprived of the opportunity of
being heard."13 "A void decision may be assailed or impugned at any time either directly or collaterally, by
means of a separate action, or by resisting such decision in any action or proceeding where it is invoked."14

WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals in CA-G. R. SP No. 26936, in toto.

Costs against petitioners.

SO ORDERED.