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G.R. No. L-16318 October 21, 1921

PANG LIM and BENITO GALVEZ, plaintiffs-appellees,vs.LO SENG, defendant-appellant.

Cohn, Fisher and DeWitt for appellant.No appearance for appellees.

STREET, J.:

For several years prior to June 1, 1916, two of the litigating parties herein, namely, Lo Sengand Pang Lim, Chinese residents of the City of Manila, were partners, under the firm name of LoSeng and Co., in the business of running a distillery, known as "El Progreso," in the Municipality ofPaombong, in the Province of Bulacan. The land on which said distillery is located as well as thebuildings and improvements originally used in the business were, at the time to which reference is

now made, the property of another Chinaman, who resides in Hongkong, named Lo Yao, who, inSeptember, 1911, leased the same to the firm of Lo Seng and Co. for the term of three years.

Upon the expiration of this lease a new written contract, in the making of which Lo Yao wasrepresented by one Lo Shui as attorney in fact, became effective whereby the lease was extendedfor fifteen years. The reason why the contract was made for so long a period of time appears to havebeen that the Bureau of Internal Revenue had required sundry expensive improvements to be madein the distillery, and it was agreed that these improvements should be effected at the expense of thelessees. In conformity with this understanding many thousands of pesos were expended by Lo Sengand Co., and later by Lo Seng alone, in enlarging and improving the plant.

Among the provisions contained in said lease we note the following:

Know all men by these presents:

x x x x x x x x x

1. That I, Lo Shui, as attorney in fact in charge of the properties of Mr. Lo Yao ofHongkong, cede by way of lease for fifteen years more said distillery "El Progreso" toMessrs. Pang Lim and Lo Seng (doing business under the firm name of Lo Seng andCo.), after the termination of the previous contract, because of the fact that they arerequired, by the Bureau of Internal Revenue, to rearrange, alter and clean up thedistillery.

2. That all the improvements and betterments which they may introduce, such asmachinery, apparatus, tanks, pumps, boilers and buildings which the business mayrequire, shall be, after the termination of the fifteen years of lease, for the benefit ofMr. Lo Yao, my principal, the buildings being considered as improvements.

3. That the monthly rent of said distillery is P200, as agreed upon in the previouscontract of September 11, 1911, acknowledged before the notary public D. VicenteSantos; and all modifications and repairs which may be needed shall be paid for byMessrs. Pang Lim and Lo Seng.


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We, Pang Lim and Lo Seng, as partners in said distillery "El Progreso," which we areat present conducting, hereby accept this contract in each and all its parts, said contract tobe effective upon the termination of the contract of September 11, 1911.

Neither the original contract of lease nor the agreement extending the same was inscribed inthe property registry, for the reason that the estate which is the subject of the lease has never at any

time been so inscribed.

On June 1, 1916, Pang Lim sold all his interest in the distillery to his partner Lo Seng, thusplacing the latter in the position of sole owner; and on June 28, 1918, Lo Shui, again acting asattorney in fact of Lo Yao, executed and acknowledged before a notary public a deed purporting toconvey to Pang Lim and another Chinaman named Benito Galvez, the entire distillery plant includingthe land used in connection therewith. As in case of the lease this document also was neverrecorded in the registry of property. Thereafter Pang Lim and Benito Galvez demanded possessionfrom Lo Seng, but the latter refused to yield; and the present action of unlawful detainer wasthereupon initiated by Pang Lim and Benito Galvez in the court of the justice of the peace ofPaombong to recover possession of the premises. From the decision of the justice of the peace thecase was appealed to the Court of First Instance, where judgment was rendered for the plaintiffs;and the defendant thereupon appealed to the Supreme Court.

The case for the plaintiffs is rested exclusively on the provisions of article 1571 of the CivilCode, which reads in part as follows:

ART. 1571. The purchaser of a leased estate shall be entitled to terminate any lease inforce at the time of making the sale, unless the contrary is stipulated, and subject to theprovisions of the Mortgage Law.

In considering this provision it may be premised that a contract of lease is personally bindingon all who participate in it regardless of whether it is recorded or not, though of course theunrecorded lease creates no real charge upon the land to which it relates. The Mortgage Law wasdevised for the protection of third parties, or those who have not participated in the contracts which

are by that law required to be registered; and none of its provisions with reference to leasesinterpose any obstacle whatever to the giving of full effect to the personal obligations incident tosuch contracts, so far as concerns the immediate parties thereto. This is rudimentary, and the lawappears to be so understood by all commentators, there being, so far as we are aware, no authoritysuggesting the contrary. Thus, in the commentaries of the authors Galindo and Escosura, on theMortgage Law, we find the following pertinent observation: "The Mortgage Law is enacted in aid ofand in respect to third persons only; it does not affect the relations between the contracting parties,nor their capacity to contract. Any question affecting the former will be determined by thedispositions of the special law [i.e., the Mortgage Law], while any question affecting the latter will bedetermined by the general law." (Galindo y Escosura, Comentarios a la Legislacion Hipotecaria, vol.I, p. 461.)

Although it is thus manifest that, under the Mortgage Law, as regards the personal obligationsexpressed therein, the lease in question was from the beginning, and has remained, binding upon allthe parties thereto among whom is to be numbered Pang Lim, then a member of the firm of LoSeng and Co. this does not really solve the problem now before us, which is, whether theplaintiffs herein, as purchasers of the estate, are at liberty to terminate the lease, assuming that itwas originally binding upon all parties participating in it.

Upon this point the plaintiffs are undoubtedly supported, prima facie, by the letter of article1571 of the Civil Code; and the position of the defendant derives no assistance from the merecircumstance that the lease was admittedly binding as between the parties thereto. 1awph!l.net


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The words "subject to the provisions of the Mortgage Law," contained in article 1571, expressa qualification which evidently has reference to the familiar proposition that recorded instruments areeffective against third persons from the date of registration (Co-Tiongco vs. Co-Guia, 1 Phil., 210);from whence it follows that a recorded lease must be respected by any purchaser of the estatewhomsoever. But there is nothing in the Mortgage Law which, so far as we now see, would preventa purchaser from exercising the precise power conferred in article 1571 of the Civil Code, namely, of

terminating any lease which is unrecorded; nothing in that law that can be considered as arrestingthe force of article 1571 as applied to the lease now before us.

Article 1549 of the Civil Code has also been cited by the attorneys for the appellant assupplying authority for the proposition that the lease in question cannot be terminated by one who,like Pang Lim, has taken part in the contract. That provision is practically identical in terms with thefirst paragraph of article 23 of the Mortgage Law, being to the effect that unrecorded leases shall beof no effect as against third persons; and the same observation will suffice to dispose of it that wasmade by us above in discussing the Mortgage Law, namely, that while it recognizes the fact that anunrecorded lease is binding on all persons who participate therein, this does not determine thequestion whether, admitting the lease to be so binding, it can be terminated by the plaintiffs underarticle 1571.

Having thus disposed of the considerations which arise in relation with the Mortgage Law, aswell as article 1549 of the Civil Coded all of which, as we have seen, are undecisive we arebrought to consider the aspect of the case which seems to us conclusive. This is found in thecircumstance that the plaintiff Pang Lim has occupied a double role in the transactions which gaverise to this litigation, namely, first, as one of the lessees; and secondly, as one of the purchasersnow seeking to terminate the lease. These two positions are essentially antagonistic andincompatible. Every competent person is by law bond to maintain in all good faith the integrity of hisown obligations; and no less certainly is he bound to respect the rights of any person whom he hasplaced in his own shoes as regards any contract previously entered into by himself.

While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in the creation of thislease, and when he sold out his interest in that firm to Lo Seng this operated as a transfer to Lo

Seng of Pang Lim's interest in the firm assets, including the lease; and Pang Lim cannot now bepermitted, in the guise of a purchaser of the estate, to destroy an interest derived from himself, andfor which he has received full value.

The bad faith of the plaintiffs in seeking to deprive the defendant of this lease is strikinglyrevealed in the circumstance that prior to the acquisition of this property Pang Lim had been partnerwith Lo Seng and Benito Galvez an employee. Both therefore had been in relations of confidencewith Lo Seng and in that position had acquired knowledge of the possibilities of the property andpossibly an experience which would have enabled them, in case they had acquired possession, toexploit the distillery with profit. On account of his status as partner in the firm of Lo Seng and Co.,Pang Lim knew that the original lease had been extended for fifteen years; and he knew the extentof valuable improvements that had been made thereon. Certainly, as observed in the appellant'sbrief, it would be shocking to the moral sense if the condition of the law were found to be such thatPang Lim, after profiting by the sale of his interest in a business, worthless without the lease, couldintervene as purchaser of the property and confiscate for his own benefit the property which he hadsold for a valuable consideration to Lo Seng. The sense of justice recoils before the mere possibilityof such eventuality.

Above all other persons in business relations, partners are required to exhibit towards eachother the highest degree of good faith. In fact the relation between partners is essentially fiduciary,each being considered in law, as he is in fact, the confidential agent of the other. It is thereforeaccepted as fundamental in equity jurisprudence that one partner cannot, to the detriment ofanother, apply exclusively to his own benefit the results of the knowledge and information gained inthe character of partner. Thus, it has been held that if one partner obtains in his own name and forhis own benefit the renewal of a lease on property used by the firm, to commence at a date


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subsequent to the expiration of the firm's lease, the partner obtaining the renewal is held to be aconstructive trustee of the firm as to such lease. (20 R. C. L., 878-882.) And this rule has even beenapplied to a renewal taken in the name of one partner after the dissolution of the firm and pending itsliquidation. (16 R. C. L., 906; Knapp vs. Reed, 88 Neb., 754; 32 L. R. A. [N. S.], 869;Mitchell vs. Reed 61 N. Y., 123; 19 Am. Rep., 252.)

An additional consideration showing that the position of the plaintiff Pang Lim in this case isuntenable is deducible from articles 1461 and 1474 of the Civil Code, which declare that everyperson who sells anything is bound to deliver and warrant the subject-matter of the sale and isresponsible to the vendee for the legal and lawful possession of the thing sold. The pertinence ofthese provisions to the case now under consideration is undeniable, for among the assets of thepartnership which Pang Lim transferred to Lo Seng, upon selling out his interest in the firm to thelatter, was this very lease; and while it cannot be supposed that the obligation to warrant recognizedin the articles cited would nullify article 1571, if the latter article had actually conferred on theplaintiffs the right to terminate this lease, nevertheless said articles (1461, 1474), in relation withother considerations, reveal the basis of an estoppel which in our opinion precludes Pang Lim fromsetting up his interest as purchaser of the estate to the detriment of Lo Seng.

It will not escape observation that the doctrine thus applied is analogous to the doctrinerecognized in courts of common law under the head of estoppel by deed, in accordance with which itis held that if a person, having no title to land, conveys the same to another by some one or anotherof the recognized modes of conveyance at common law, any title afterwards acquired by the vendorwill pass to the purchaser; and the vendor is estopped as against such purchaser from assertingsuch after-acquired title. The indenture of lease, it may be further noted, was recognized as one ofthe modes of conveyance at common law which created this estoppel. (8 R. C. L., 1058, 1059.)

From what has been said it is clear that Pang Lim, having been a participant in the contract oflease now in question, is not in a position to terminate it: and this is a fatal obstacle to themaintenance of the action of unlawful detainer by him. Moreover, it is fatal to the maintenance of theaction brought jointly by Pang Lim and Benito Galvez. The reason is that in the action of unlawfuldetainer, under section 80 of the Code of Civil Procedure, the only question that can be adjudicated

is the right to possession; and in order to maintain the action, in the form in which it is herepresented, the proof must show that occupant's possession is unlawful, i. e., that he is unlawfullywithholding possession after the determination of the right to hold possession. In the case before usquite the contrary appears; for, even admitting that Pang Lim and Benito Galvez have purchased theestate from Lo Yao, the original landlord, they are, as between themselves, in the position of tenantsin common or owners pro indiviso, according to the proportion of their respective contribution to thepurchase price. But it is well recognized that one tenant in common cannot maintain a possessoryaction against his cotenant, since one is as much entitled to have possession as the other. Theremedy is ordinarily by an action for partition. (Cornista vs. Ticson, 27 Phil., 80.) It follows that as LoSeng is vested with the possessory right as against Pang Lim, he cannot be ousted either by PangLim or Benito Galvez. Having lawful possession as against one cotenant, he is entitled to retain itagainst both. Furthermore, it is obvious that partition proceedings could not be maintained at theinstance of Benito Galvez as against Lo Seng, since partition can only be effected where thepartitioners are cotenants, that is, have an interest of an identical character as among themselves.(30 Cyc., 178-180.) The practical result is that both Pang Lim and Benito Galvez are bound torespect Lo Seng's lease, at least in so far as the present action is concerned.

We have assumed in the course of the preceding discussion that the deed of sale under whichthe plaintiffs acquired the right of Lo Yao, the owner of the fee, is competent proof in behalf of theplaintiffs. It is, however, earnestly insisted by the attorney for Lo Seng that this document, havingnever been recorded in the property registry, cannot under article 389 of the Mortgage Law, be usedin court against him because as to said instrument he is a third party. The important question thusraised is not absolutely necessary to the decision of this case, and we are inclined to pass it withoutdecision, not only because the question does not seem to have been ventilated in the Court of First


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Instance but for the further reason that we have not had the benefit of any written brief in this case inbehalf of the appellees.

The judgment appealed from will be reversed, and the defendant will be absolved from thecomplaint. It is so ordered, without express adjudication as to costs.

Johnson, Araullo, Avancea and Villamor, JJ., concur.


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G.R. No. 106436 December 3, 1994

VIRGILIO D. IMSON, petitioner,vs.HON. COURT OF APPEALS, HOLIDAY HILLS STOCK AND BREEDING FARM CORPORATION,FNCB FINANCE CORPORATION, respondents.

Polotan Law Office for petitioner.

Felix R. Solomon for private respondents.

PUNO, J .:

The case at bench arose from a vehicular collision on December 11, 1983, involving petitioner'sToyota Corolla and a Hino diesel truck registered under the names of private respondents FNCBFinance Corporation and Holiday Hills Stock and Breeding Farm Corporation. The collision seriously

injured petitioner and totally wrecked his car.

On January 6, 1984, petitioner filed with the RTC Baguio City 1 a Complaint for Damages 2 Suedwere private respondents as registered owners of the truck; truck driver Felix B. Calip, Jr.; thebeneficial owners of the truck, Gorgonio Co Adarme, Felisa T. Co (also known as Felisa Tan), andCirilia Chua Siok Bieng, and the truck insurer, Western Guaranty Corporation.

The Complaint prayed that defendants be ordered to pay, jointly and severally, two hundred seventythousand pesos (P270,000.00) as compensatory damages, fifty thousand pesos (P50,000.00) eachas moral and exemplary damages, and attorney's fees, litigation expenses, and cost of suit. 8

Defendants driver and beneficial owners failed to answer and were declared in default. 4 On May 29,

1987, however, petitioner and defendant insurer, entered into a compromise agreement whichprovided, inter alia:

1. Defendant Western Guaranty Corporation (Western Guaranty for short) admitsthat its total liability under the laws and the insurance contract sued upon isP70,000.00;

2. In full settlement of its liability under the laws and the said insurance contract,defendant Western Guaranty shall pay plaintiff (herein petitioner) the amount ofP70,000.00 upon the signing of this compromise agreement;

3. This compromise agreement shall in no way waive nor prejudice plaintiffs (herein

petitioner's) rights to proceed against the other defendants with respect theremainder of his claims;

4. This compromise agreement shall be a full and final settlement of the issuesbetween plaintiff (herein petitioner) and defendant Western Guaranty in theircomplaint and answer and, from now on, they shall have no more right against oneanother except the enforcement of this compromise agreement.

In consequence of the compromise agreement, the trial court dismissed the Complaint for Damagesagainst Western Guaranty Corporation on June 16, 1987. 8 A copy of the Order of dismissal wasreceived by private respondent Holiday Hills Stock and Breeding Farm Corporation on July 13, 1987.Nearly eighteen (18) months later, said private respondent moved to dismiss the case against all the


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other defendants. It argued that since they are all indispensable parties under a common cause ofaction, the dismissal of the case against defendant insurer must result in the dismissal of the suitagainst all of them. The trial court denied the motion.

Private respondent Holiday Hills Stock and Breeding Farm Corporation assailed the denial orderthrough a Petition forCertiorari, Prohibition and Mandamus With Restraining Order filed with

respondent Court of Appeals. The Petition was docketed as CA-G.R. SP No. 17651. On July 10,1992, the Court of Appeals, 7 through its Special Sixth Division, 8 reversed the trial court, as it ruled:

The petitioner (herein private respondent Holiday Hills Stock and Breeding Farm Corporation) citesthe doctrine laid down in Lim Tanhu v. Hon. Ramolete, 66 SCRA 425, as applied later in Co v.

Acosta, 134 SCRA 185, to support its averment that the court a quo gravely abused its discretion inrefusing to dismiss the case.

Essentially, the doctrine adverted to essays that in a common cause of action where all thedefendants are indispensable parties, the court's power to act is integral and cannot be split, suchthat it cannot relieve any of them and at the same time render judgment against the rest.

We find applicability of the doctrine to the case at bar.

A cursory reading of the complaint . . . reveals that the cause of action was the alleged bad faith andgross negligence of the defendants resulting in the injuries complained of and for which the actionfor damages was filed. The inclusion of Western Guaranty Corporation was vital to the claim, it beingthe insurer of the diesel truck without which, the claim could be set for naught. Stated otherwise, it isan indispensable party as the petitioner (herein private respondent stock and breeding farmcorporation) . . . . Private respondent's (herein petitioner's argument that the said insurancecompany was sued on a different cause of action, i.e., its bounden duty under the insurance law topay or settle claims arising under its policy coverage, is untenable, for the cited law perceives theexistence of a just cause, and according to the answer filed by the Western Guaranty Corporation . .. the proximate cause of the accident was the fault of the plaintiff (herein petitioner), hence it was notliable for damages. There is in fact a congruence of affirmative defense among the answering

defendants.

Moreover, it is undisputed that the injury caused is covered by the insurance company concerned.Thus, when the said insurer settled its liability with the private respondent (petitioner herein) . . . , theother defendants, as the insured and indispensable parties to a common cause of action,necessarily benefited from such settlement including the defaulted defendants, for as stated in theaforecited cases, it is deemed that anything done by or for the answering defendant is done by or forthe ones in default since it is implicit in the rule that default is in essence a mere formality thatdeprives them of no more than to take part in the trial, but if the complaint is dismissed as to theanswering defendant, it should also be dismissed as to them. 9 (Citations omitted.)

Petitioner now comes to this Court with the following assignments of error:

A.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR INRULING THAT THE DEFENDANTS IN CIVIL CASE NO. 248-R AREINDISPENSABLE PARTIES;

B.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR INRULING THAT IN CIVIL CASE NO. 248-R THERE IS A COMMON CAUSE OF

ACTION AGAINST THE DEFENDANTS THEREIN;


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C.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR INRULING THAT IN CIVIL CASE NO. 248-R THE RULING OF THIS HONORABLECOURT IN LIM TAN HU VS. RAMOLETEIS APPLICABLE;

D.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR INRULING THAT THE DOCTRINE OF ESTOPPEL AND LACHES ON MATTERS OFJURISDICTION IS NOT APPLICABLE IN CIVIL CASE NO. 248-R.

There is merit to the petition,.

In the case ofLim Tanhu v. Ramolete, 66 SCRA 425, 458-459 (1975) this court held that:

. . . (I)n all instances where a common cause of action is alleged against severaldefendants, some of whom answer and the others do not, the latter or those in

default acquire a vested right not only to own the defense interposed in the answer oftheir co-defendant or co-defendants not in default but also to expect a result of thelitigation totally common with them in kind and in amount whether favorable orunfavorable. The substantive unity of the plaintiffs cause against all the defendants iscarried through to its adjective phase as ineluctably demanded by the homogeneityand indivisibility of justice itself. . . . The integrity of the common cause of actionagainst all the defendants and the indispensability of all of them in the proceedingsdo not permit any possibility of waiver of the plaintiffs right only as to one or some ofthem, without including all of them, and so, as a rule, withdrawal must be deemed tobe a confession of weakness as to all. . . . . Where all the defendants areindispensable parties, for which reason the absence of any of them in the case wouldresult in the court losing its competency to act validly, any compromise that theplaintiff might wish to make with any of them must, as a matter of correct procedure,have to await until after the rendition of the judgment, at which stage the plaintiff maythen treat the matter of its execution and the satisfaction of his claim as variably ashe might please. Accordingly, in the case now before Us together with the dismissalof the complaint against the non-defaulted defendants, the court should have orderedalso the dismissal thereof as to petitioner (referring to the defaulting defendants inthe case).

In sum, Lim Tanhu states that where a complaint alleges a common cause of action againstdefendants who are all indispensable parties to the case, its dismissal against any of them by virtueof a compromise agreement with the plaintiff necessarily results in the dismissal of the case againstthe other defendants, including those in default. The ruling is rooted on the rationale that the court'spower to act in a case involving a common cause of action against indispensable parties "is integral

and cannot be split such that it cannot relieve any of them and at the same time render judgmentagainst the rest. 10

ForLim Tanhu to apply to the case at bench, it must be established that: (1) petitioner has commoncause of action against private respondents and the other defendants in Civil Case No. 248-R; and(2) all the defendants are indispensable parties to the case.

Cause of action has a fixed meaning in this jurisdiction. It is the delict or wrong by which the right ofthe plaintiff is violated by the defendant. 11 The question as to whether a plaintiff has a cause ofaction is determined by the averments in the pleadings pertaining to the acts of the defendant.Whether such acts give him a right of action is determined by substantive law. 12


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In the case at bench, it is clear that petitioner has different and separate causes of action against thedefendants in the case. The allegations in the Complaint show that petitioner seeks to recover fromthe truck driver for his wrong which caused injury to petitioner and his car. The cause of actionagainst him is based on quasi-delict under Article 2176 of the New Civil Code. Quasi-delict, too, isthe basis of the cause of action against defendants beneficial and registered owners. But in theircase, it is Article 2180 of the same Code which governs the rights of the parties.

However, with respect to defendant Western Guaranty Corporation, petitioner's cause of action isbased on contract. He seeks to recover from the insurer on the basis of the third party liability clauseof its insurance contract with the owners of the truck. This is acknowledged by the second paragraphof the compromise agreement between petitioner and defendant insurer, thus:

2. In full settlement of its liability under the laws and the said insurance contract,defendant Western Guaranty shall pay plaintiff (herein petitioner) the amount ofP70,000.00 upon the signing of this compromise agreement.

Quite clearly then, Lim Tanhu will not apply to the case at bench for there is no showing thatpetitioner has a common cause of action against the defendants in Civil Case No. 248-R.

But this is not all. Defendants in Civil Case No. 248-R are not all indispensable parties. Anindispensable party is one whose interest will be affected by the court's action in the litigation, andwithout whom no final determination of the case can be had. The party's interest in the subjectmatter of the suit and in the relief sought are so inextricably intertwined with the other parties' that hislegal presence as a party to the proceeding is an absolute necessity. 13 In his absence there cannotbe a resolution of the dispute of the parties before the court which is effective, complete, orequitable. 14

Conversely, a party is not indispensable to the suit if his interest in the controversy or subject matteris distinct and divisible from the interest of the other parties and will not necessarily be prejudiced bya judgment which does complete justice to the parties in court. 15 He is not indispensable if hispresence would merely permit complete relief between him and those already parties to the action,

or will simply avoid multiple litigation. 16

It is true that all of petitioner's claims in Civil Case No. 248-R is premised on the wrong committed bydefendant truck driver. Concededly, the truck driver is an indispensable party to the suit. The otherdefendants, however, cannot be categorized as indispensable parties. They are merely properparties to the case. Proper parties have been described as parties whose presence is necessary inorder to adjudicate the whole controversy, but whose interests are so far separable that a finaldecree can be made in their absence without affecting them. 17 It is easy to see that if any of themhad not been impleaded as defendant, the case would still proceed without prejudicing the party notimpleaded. Thus, if petitioner did not sue Western Guaranty Corporation, the omission would notcause the dismissal of the suit against the other defendants. Even without the insurer, the trial courtwould not lose its competency to act completely and validly on the damage suit. The insurer, clearly,

is not an indispensable party in Civil Case No. 248-R.

IN VIEW WHEREOF, the instant petition is GRANTED. The Decision, dated July 10, 1992, of theCourt of Appeals in CA-G.R. SP No. 17651 is REVERSED AND SET ASIDE. The Complaint in CivilCase No. 248-R is REINSTATED and REMANDED to the trial court for further proceedings. Nocosts.

SO ORDERED.

Narvasa C.J., Regalado and Mendoza, JJ., concur.

#Footnotes


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1 The case was raffled off to Branch 5 of the trial court, presided by JudgeSalvador J. Valdez, Jr.

2 Civil Case No. 248-R.

3 Petition, Annex "B" (Complaint, Civil Case No. 248-R), pp. 13-14; Rollo, pp.

48-49.

4 Petition, Annex "A" (Decision of the Court of Appeals in CA-G.R. SP No.17651), pp. 1-2;Rollo, pp. 31-32.

5 Petition, Annex "C," Rollo, p. 51.

6 Petition, Annex "E", Rollo, p. 54.

7 Petition, Annex "A", p. 4; Rollo, p. 35.

8 Composed of Associate Justices Emeterio C. Cui (ponente and chairman),

Nicolas P. Lapea, Jr. and Justo P. Torres, Jr.

10 Ibid.

11 Racoma v. Fortich, 39 SCRA 520 (1971).

12 Espaol v. Chairman, Philippine Veterans Administration (1985).

13 See Co v. Intermediate Appellate Court, 162 SCRA 390 (1988). Seealso Tam Chun Suy v. Court of Appeals, 212 SCRA 713 (1992); Quisumbingv. Court of Appeals, 189 SCRA 325 (1990); Alberto v. Mananghala, 89 Phil.188 (1951).

14 67A C.J.S. Parties, Sec. 4, citingInsurance Co. of North America v. AlliedCrude Vegetable Oil Refining Corp., 215 A. 2d 579; Brown v. Lavine, 358N.Y.S. 2d 579; Writers Guild of America, West, Inc. v. Screen Gems, Inc.,250 C.A. 2d 596; Hall v. Wood, 174 N.Y.S. 2d 16; Layne v. Huffman, 333N.E. 2d 147; and Morrison Homes Corp. v. City of Pleasanton, 58 C.A. 3d724.

15 Ibid., citingPeterson v. Sucro, 93 F. 2d 878; and Colman v. Shimer, 163F. Supp. 347.

16 Id., citingPetroleum Anchor Equipment, Inc. v. Tyra, 406 S.W. 2d 891;

and Layne v. Huffman, op. cit.

17 FLORENZ D. REGALADO, Remedial Law Compendium (1988), p.57, citingWyoga Gas & Oil Corp. v. Schrack, 1 Fed. Rules Service 292.


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G.R. No. L-14617 December 9, 1920

R. Y. HANLON, plaintiff-appellee,vs.JOHN W. HAUSSERMANN and A. W. BEAM, defendants-appellants.GEORGE C. SELLNER, intervener.1

Cohn and Fisher for appellantsThomas D. Aitken and Gibbs, McDonough & Johnson for appellee.

STREET, J.:

We take occasion, from the presentation of a motion to rehear, to add a few words to an opinionalready perhaps unduly extended. Directing attention again to the interpretation of clause (d) ofparagraph II of the profit sharing agreement, which is the central feature of the case, we note thatthe proponents of the motion reiterate their contention to the effect that the discharge contemplated

in that clause is merely a discharge of the guaranty, so-called, to raise the capital which Sellner onthe one part, and Haussermann and Beam on the other, had respectively agreed to raise on orbefore May 6, 1914; and that the discharge of Haussermann and Beam from this obligation left intactthe broad obligation, expressed in paragraph I of the same contract, to do all in their power topromote the Hanlon project. Upon this point counsel say that not only the language but thepunctuation of clause (d) shows conclusively that the antecedent of the word "obligation," twiceemployed therein, is the guaranty, or promise, to obtain the subscriptions within the period stated.

This may possibly be true, but the statement is apparently barren of significance; for when thecontract is carefully examined, it will be found that his promise (guaranty?) expresses exactly theprincipal thing that these parties had agreed to do towards realizing the projects. To be morespecific: In one of the introductory clauses of the contract it is recited that the parties have agreed tocooperate and assist Hanlon in the flotation of the project for the rehabilitation of the BenguetConsolidated Mining Company; in paragraph I it is stipulated that each shall do all in his power tofloat said project and make the same a success; and in paragraph II it is agreed that said projectshall be floated by the raising of capital in a certain manner and within a certain time. In other words,that which in the beginning is expressed in general terms as an undertaking to cooperate is finallyreduced by a process of definition to the precise obligation indicated in the mutual promises ofSellner, Haussermann, and Beam, to raise the necessary capital within the period of six months. Ofcourse nobody will be misled, by the use of the very guarantee in clause (d), into supposing that theobligation there created is of a distinct type, different from that created by any ordinary and directpromise. In its ordinary significance the word "guarantee" implies the creation of a collateralobligation, but here it is evidently used for emphasis simply in the sense of promise.

What has been said shows the impossibility of separating the duty of the three associates above-

mentioned to assist in the promotion of the Hanlon project from the more specific duty to raise thenecessary capital in the particular manner set forth in clause (d). When the one obligation wasdischarged the other was necessarily extinguished also. lawphi1.net

A single observation will be made upon another point, which may be indicated in the followingquestion: What are the conditions under which an attorney in fact is bound to exercise a power inbehalf of and for the benefit of his principal? Manifestly, before the attorney in fact can be held liablefor the breach of duty towards his principal there must have existed a specific obligation on the partof the attorney in fact to act for the principal. Such obligation is sometimes discoverable from anexamination of the power itself, but is more often discoverable by implication in the circumstancessurrounding the parties and their special relations with reference to each other and the subject-matter of the power.


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In the present case the specific power of attorney executed by Hanlon in favor of Beam onNovember 10, 1913, prior to Hanlon's departure for the United States, clearly shows that it wasexecuted in relation with the contract of November 5 and 6, and was to be used in carrying thosecontracts into effect. Those contracts, however, as we have shown in the principal opinion, failedand became inoperative without fault of the defendants on May 6, 1914; and so far as the recordshows, there was no act which could have been done in furtherance of those contracts prior to that

date which was neglected by Beam under that power.

Burt it will be said that, even conceding that Beam was under no positive duty to act for Hanlonunder the power of attorney in the matter of rehabilitating the mine after the sixth of May,nevertheless as he did afterwards in fact proceed in that matter under new and different auspices,he must now be held in equity to have been acting, in cooperation with Haussermann, for the benefitof the old joint enterprise. The difficulty here is and this we consider to be one of the fundamentalfallacies underlying the case that the plaintiff is attempting to enforce an equitable obligationinconsistent with the specific contract. It is a well-known rule that no implied obligation, either legal orequitable, is ever created or imposed by law in respect to a matter which has been made the subjectof express contract. Likewise, no implied duty can ever spring from the same solid where an expresscontract has existed and has been discharged. It follows that the discharge of Haussermann andBeam under the express provisions of clause (d), paragraph I, of the profit-sharing agreement, is afatal obstacle to the creation of any implied duty, legal or equitable, derived from that contract orfrom the relation of the parties as incident thereto. the rights of the parties must be determined bythe contract. And this applied not only with reference to the extent of the contractual obligation but tothe conditions under which the obligation was extinguished. itc-alf

The motion to rehear is denied. So ordered.

Mapa, C.J., Araullo, Malcolm, Avancea and Villamor, JJ., concur.

Footnotes

1 See main decision in 40 Phil., 796.


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Sancho vs. Lizarraga, 55 Phil. 601, No. 33580, February 06, 1931

G.R. No. L-33580 February 6, 1931MAXIMILIANO SANCHO, plaintiff-appellant,

vs.

SEVERIANO LIZARRAGA, defendant-appellee.

Jose Perez Cardenas and Jose M. Casal for appellant.

Celso B. Jamora and Antonio Gonzalez for appellee.ROMUALDEZ, J.:The plaintiff brought an action for the rescission of a partnership contract between himself and the defendant, entered into on

October 15, 1920, the reimbursement by the latter of his 50,000 peso investment therein, with interest at 12 per cent per

annum form October 15, 1920, with costs, and any other just and equitable remedy against said defendant.The defendant denies generally and specifically all the allegations of the complaint which are incompatible with his special

defenses, cross-complaint and counterclaim, setting up the latter and asking for the dissolution of the partnership, and the

payment to him as its manager and administrator of P500 monthly from October 15, 1920, until the final dissolution, with

interest, one-half of said amount to be charged to the plaintiff. He also prays for any other just and equitable remedy.The Court of First Instance of Manila, having heard the cause, and finding it duly proved that the defendant had not contributed

all the capital he had bound himself to invest, and that the plaintiff had demanded that the defendant liquidate the

partnership, declared it dissolved on account of the expiration of the period for which it was constituted, and ordered the

defendant, as managing partner, to proceed without delay to liquidate it, submitting to the court the result of the liquidation

together with the accounts and vouchers within the period of thirty days from receipt of notice of said judgment, without costs.

The plaintiff appealed from said decision making the following assignments of error:1. In holding that the plaintiff and appellant is not entitled to the rescission of the partnership contract, Exhibit A, and that

article 1124 of the Civil Code is not applicable to the present case. 2. In failing to order the defendant to return the sum of P50,000 to the plaintiff with interest from October 15, 1920, until fully

paid.3. In denying the motion for a new trial. In the brief filed by counsel for the appellee, a preliminary question is raised purporting to show that this appeal is premature

and therefore will not lie. The point is based on the contention that inasmuch as the liquidation ordered by the trial court, and

the consequent accounts, have not been made and submitted, the case cannot be deemed terminated in said court and its

ruling is not yet appealable. In support of this contention counsel cites section 123 of the Code of Civil Procedure, and the

decision of this court in the case ofNatividad vs. Villarica (31 Phil., 172).

This contention is well founded. Until the accounts have been rendered as ordered by the tr ial court, and until they have been

either approved or disapproved, the litigation involved in this action cannot be considered as completely decided; and, as it was

held in said case of Natividad vs .Villarica, also with reference to an appeal taken from a decision ordering the rendition of

accounts following the dissolution of partnership, the appeal in the instant case must be deemed premature.But even going into the merits of the case, the affirmation of the judgment appealed from is inevitable. In view of the lower

court's findings referred to above, which we cannot revise because the parol evidence has not been forwarded to this court,

articles 1681 and 1682 of the Civil Code have been properly applied. Owing to the defendant's failure to pay to the partnership

the whole amount which he bound himself to pay, he became indebted to it for the remainder, with interest and any damages

occasioned thereby, but the plaintiff did not thereby acquire the right to demand rescission of the partnership contract

according to article 1124 of the Code. This article cannot be applied to the case in question, because it refers to the resolution

of obligations in general, whereas article 1681 and 1682 specifically refer to the contract of partnership in particular. And it is a

well known principle that special provisions prevail over general provisions.By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision appealed from in full force, without special

pronouncement of costs. So ordered.

Avancea, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and Villa-Real, JJ., concur


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April 27, 1960

G.R. No. L-13680

MAURO LOZANA, plaintiff-appellee,

vs.

SERAFIN DEPAKAKIBO, defendant-appellant.

Antonio T. Lozada for appellee.

Agustin T. Misola and Tomas D. Dominado for appellant.

Labrador, J.:

This is an appeal from a judgment of the Court of First Instance of Iloilo, certified to us by the Court of

Appeals, for the reason that only questions of law are involved in said appeal.

The record discloses that on November 16, 1954 plaintiff Mauro Lozana entered into a contract with

defendant Serafin Depakakibo wherein they established a partnership capitalized at the sum of

P30,000, plaintiff furnishing 60% thereof and the defendant, 40%, for the purpose of maintaining,

operating and distributing electric light and power in the Municipality of Dumangas, Province of Iloilo,

under a franchise issued to Mrs. Piadosa Buenaflor. However, the franchise or certificate of public

necessity and convenience in favor of the said Mrs. Piadosa Buenaflor was cancelled and revoked by

the Public Service Commission on May 15, 1955. But the decision of the Public Service Commission

was appealed to Us on October 21, 1955. A temporary certificate of public convenience was issued in

the name of Olimpia D. Decolongon on December 22, 1955 (Exh. B). Evidently because of the

cancellation of the franchise in the name of Mrs. Piadosa Buenaflor, plaintiff herein Mauro Lozana sold

a generator, Buda (diesel), 75 hp. 30 KVA capacity, Serial No. 479, to the new grantee Olimpia D.

Decolongon, by a deed dated October 30, 1955 (Exhibit C). Defendant Serafin Depakakibo, on the

other hand, sold one Crossly Diesel Engine, 25 h. p., Serial No. 141758, to the spouses Felix Jimeneaand Felina Harder, by a deed dated July 10, 1956.

On November 15, 1955, plaintiff Mauro Lozana brought an action against the defendant, alleging that

he is the owner of the Generator Buda (Diesel), valued at P8,000 and 70 wooden posts with the wires

connecting the generator to the different houses supplied by electric current in the Municipality of

Dumangas, and that he is entitled to the possession thereof, but that the defendant has wrongfully

detained them as a consequence of which plaintiff suffered damages. Plaintiff prayed that said

properties be delivered back to him. Three days after the filing of the complaint, that is on November

18, 1955, Judge Pantaleon A. Pelayo issued an order in said case authorizing the sheriff to take

possession of the generator and 70 wooden posts, upon plaintiffs filing of a bond in the amount of

P16,000 in favor of the defendant (for subsequent delivery to the plaintiff). On December 5, 1955,

defendant filed an answer, denying that the generator and the equipment mentioned in the complaint

belong to the plaintiff and alleging that the same had been contributed by the plaintiff to the

partnership entered into between them in the same manner that defendant had contributed

equipments also, and therefore that he is not unlawfully detaining them. By way of counterclaim,

defendant alleged that under the partnership agreement the parties were to contribute equipments,

plaintiff contributing the generator and the defendant, the wires for the purpose of installing the main

and delivery lines; that the plaintiff sold his contribution to the partnership, in violation of the terms of

their agreement. He, therefore, prayed that the complaint against him be dismissed; that plaintiff be


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adjudged guilty of violating the partnership contract and be ordered to pay the defendant the sum of

P3,000, as actual damages, P600.00 as attorneys fees and P2,600 annually as actual damages; that

the court order dissolution of the partnership, after the accounting and liquidation of the same.

On September 27, 1956, the defendant filed a motion to declare plaintiff in default on his

counterclaim, but this was denied by the court. Hearings on the case were conducted on October 25,

1956 and November 5, 1956, and on the latter date the judge entered a decision declaring plaintiff

owner of the equipment and entitled to the possession thereof, with costs against defendant. It is

against this judgment that the defendant has appealed.

The above judgment of the court was rendered on a stipulation of facts, which is as follows:

1. That on November 16, 1954, in the City of Iloilo, the aforementioned plaintiff, and the defendant

entered into a contract of Partnership, a copy of which is attached as Annex A of defendants answer

and counterclaim, for the purpose set forth therein and under the national franchise granted to Mrs.

Piadosa Buenaflor;

2. That according to the aforementioned Partnership Contract, the plaintiff Mr. Mauro Lozana,

contributed the amount of Eighteen Thousand Pesos (P18,000.00); said contributions of both parties

being the appraised values of their respective properties brought into the partnership;

3. That the said Certificate of Public Convenience and Necessity was revoked and cancelled by order of

the Public Service Commission dated March 15, 1955, promulgated in case No. 58188, entitled,

Piadosa Buenaflor, applicant, which order has been appealed to the Supreme Court by Mrs.

Buenaflor;

4. That on October 30, 1955, the plaintiff sold properties brought into by him to the said partnership

in favor of Olimpia Decolongon in the amount of P10,000.00 as per Deed of Sale dated October 30,

1955 executed and ratified before Notary Public, Delfin Demaisip, in and for the Municipality of

Dumangas, Iloilo and entered in his Notarial Registry as Doc. No. 832; Page No. 6; Book No. XIII; and

Series of 1955, a copy thereof is made as Annex B ofdefendants answer and counterclaim;

5. That there was no liquidation of partnership and that at the time of said Sale on October 30, 1955,

defendant was the manager thereof;

6. That by virtue of the Order of this Honorable Court dated November 18, 1955, those properties sold

were taken by the Provincial Sheriff on November 20, 1955 and delivered to the plaintiff on November

25, 1955 upon the latter posting the required bond executed by himself and the Luzon Surety Co.,

dated November 17, 1955 and ratified before the Notary Public, Eleuterio del Rosario in and for the

province of Iloilo known as Doc. No. 200; Page 90; Book No. VII; and Series of 1955; of said Notary

Public;

7. That the said properties sold are now in the possession of Olimpia Decolongon, the purchaser, who

is presently operating an electric light plant in Dumangas, Iloilo;

8. That the defendant sold certain properties in favor of the spouses, Felix Jimenea and Felisa Harder

contributed by him to the partnership for P3,500.00 as per Deed of Sale executed and ratified before


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the Notary Public Rodrigo J. Harder in and for the Province of Iloilo, known as Doc. No. 76; Page 94;

Book No. V; and Series of 1955, a certified copy of which is hereto attached marked as Annex A, and

made an integral part hereof; (pp, 27-29 ROA).

As it appears from the above stipulation of facts that the plaintiff and the defendant entered into the

contract of partnership, plaintiff contributing the amount of P18,000, and as it is not stated therein

that there bas been a liquidation of the partnership assets at the time plaintiff sold the Buda Diesel

Engine on October 15, 1955, and since the court below had found that the plaintiff had actually

contributed one engine and 70 posts to the partnership, it necessarily follows that the Buda diesel

engine contributed by the plaintiff had become the property of the partnership. As properties of the

partnership, the same could not be disposed of by the party contributing the same without the

consent or approval of the partnership or of the other partner. (Clemente vs. Galvan, 67 Phil. 565).

The lower court declared that the contract of partnership was null and void, because by the contract of

partnership, the parties thereto have become dummies of the owner of the franchise. The reason for

this holding was the admission by defendant when being cross-examined by the court that he and theplaintiff are dummies. We find that this admission by the defendant is an error of law, not a statement

of a fact. The Anti-Dummy law has not been violated as parties plaintiff and defendant are not aliens

but Filipinos. The Anti-Dummy law refers to aliens only (Commonwealth Act 108 as amended).

Upon examining the contract of partnership, especially the provision thereon wherein the parties

agreed to maintain, operate and distribute electric light and power under the franchise belonging to

Mrs. Buenaflor, we do not find the agreement to be illegal, or contrary to law and public policy such as

to make the contract of partnership, null and void ab initio. The agreement could have been submitted

to the Public Service Commission if the rules of the latter require them to be so presented. But the

fact of furnishing the current to the holder of the franchise alone, without the previous approval of thePublic Service Commission, does not per se make the contract of partnership null and void from the

beginning and render the partnership entered into by the parties for the purpose also void and non-

existent. Under the circumstances, therefore, the court erred in declaring that the contract was illegal

from the beginning and that parties to the partnership are not bound therefor, such that the

contribution of the plaintiff to the partnership did not pass to it as its property. It also follows that the

claim of the defendant in his counterclaim that the partnership be dissolved and its assets liquidated is

the proper remedy, not for each contributing partner to claim back what he had contributed.

For the foregoing considerations, the judgment appealed from as well as the order of the court for the

taking of the property into custody by the sheriff must be, as they hereby are set aside and the case

remanded to the court below for further proceedings in accordance with law.

Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Concepcion, Endencia, Barrera and Gutierrez

David, JJ., concur.


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G.R. No. 144256 June 8, 2005

ALTERNATIVE CENTER FOR ORGANIZATIONAL REFORMS AND DEVELOPMENT, INC. (ACORD),BALAY MINDANAW FOUNDATION, INC. (BMFI); BARRIOS, INC.; CAMARINES SUR NGO-PODEVELOPMENT NETWORK, INC. (CADENET); CENTER FOR PARTICIPATORY GOVERNANCE (CPAG);ENVIRONMENTAL LEGAL ASSISTANCE CENTER, INC. (ELAC); FELLOWSHIP FOR ORGANIZINGENDEAVORS (FORGE); FOUNDATION FOR LOCAL AUTONOMY AND GOOD GOVERNNANCE, INC.(FLAGG); INSTITUTE OF POLITICS AND GOVERNANCE (IPG); KAISAHAN PARA SA KAUNLARAN NGKANAYUNAN AT REPORMANG PANSAKAHAN (KAISAHAN); MANGGAGAGAWANG KABABAIHANGMITHI AY PAGLAYA (MAKALAYA); NAGA CITY PEOPLE'S COUNCIL (NCPC); NGO-PO COUNCIL OFCAMARINES SUR FOR COMMUNITY PARTICIPATION AND EMPOWERMENT, INC. (NPCCS); PAILIGDEVELOPMENT FOUNDATION INC. (PDFI); PHILIPPINE ECUMENICAL ACTION FOR COMMUNITYEMPOWERMENT FOUNDATION, INC. (PEACE FOUNDATION, INC.); PHILIPPINE PARTNERSHIP FORTHE DEVELOPMENT OF HUMAN RESOURCES IN RURAL AREAS (PHILDHRRA); PILIPINA, INC. (ANGKILUSAN NG KABABAIHANG PILIPINO); SENTRO NG ALTERNATIBONG LINGAP PANLIGAL(SALIGAN); URBAN LAND REFORM TASK FORCE (ULR-TF); ADELINO C. LAVADOR; PUNONGBARANGAY ISABEL MENDEZ; PUNONG BARANGAY CAROLINA ROMANOS,petitioners,vs.HON. RONALDO ZAMORA, in his capacity as Executive Secretary, HON. BENJAMIN DIOKNO, in hiscapacity as Secretary, Department of Budget and Management, HON. LEONOR MAGTOLIS-BRIONES, inher capacity as National Treasurer, and the COMMISSION ON AUDIT,respondents.

D E C I S I O N

CARPIO MORALES, J .:

Pursuant to Section 22, Article VII of the Constitution1mandating the President to submit to Congress a budgetof expenditures within thirty days before the opening of every regular session, then President Joseph EjercitoEstrada submitted the National Expenditures Program for Fiscal Year 2000. In the said Program, the Presidentproposed an Internal Revenue Allotment (IRA) in the amount ofP121,778,000,000 following the formulaprovided for in Section 284 of the Local Government Code of 1992, viz:

SECTION 284.Allotment of Internal Revenue Taxes. - Local government units shall have a share in the

national internal revenue taxes based on the collection of the third fiscal year preceding the current fiscal yearas follows:

(a) On the first year of the effectivity of this Code, thirty percent (30%);

(b) On the second year, thirty-five percent (35%); and

(c) On the third year and thereafter, forty percent (40%).

x x x (Emphasis supplied)

On February 16, 2000, the President approved House Bill No. 8374 - a bill sponsored in the Senate by thenSenator John H. Osmea who was the Chairman of the Committee on Finance. This bill became Republic Act

No. 8760, "AN ACT APPROPRIATING FUNDS FOR THE OPERATION OF THE GOVERNMENT OF THEREPUBLIC OF THE PHILIPPINES FROM JANUARY ONE TO DECEMBER THIRTY-ONE, TWO THOUSAND,AND FOR OTHER PURPOSES".

The act, otherwise known as the General Appropriations Act (GAA) for the Year 2000, provides under theheading "ALLOCATIONS TO LOCAL GOVERNMENT UNITS" that the IRA for local government units shallamount toP111,778,000,000:1avvphi1.zw+

XXXVII. ALLOCATIONS TO LOCAL

GOVERNMENT UNITSA. INTERNAL REVENUE ALLOTMENT
http://www.lawphil.net/judjuris/juri2005/jun2005/gr_144256_2005.html#fnt1http://www.lawphil.net/judjuris/juri2005/jun2005/gr_144256_2005.html#fnt1http://www.lawphil.net/judjuris/juri2005/jun2005/gr_144256_2005.html#fnt1


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For apportionment of the shares of local government units in the internal revenue taxes in accordance with thepurpose indicated hereunder ...P111,778,000,000

New Appropriations, by Purpose

Current Operating Expenditures

Maintenanceand Other

PersonalServices

OperatingExpenses

CapitalOutlays

Total

A. PURPOSE(S)

a. Internal RevenueAllotment P111,778,000,000 P111,778,000,000

x x x

TOTAL NEW

APPROPRIATIONS P111,778,000,000

In another part of the GAA, under the heading "UNPROGRAMMED FUND," it is provided that an amountofP10,000,000,000 (P10 Billion), apart from the P111,778,000,000 mentioned above, shall be used to fund theIRA, which amount shall be released only when the original revenue targets submitted by the President toCongress can be realized based on a quarterly assessment to be conducted by certain committees which theGAA specifies, namely, the Development Budget Coordinating Committee, the Committee on Finance of theSenate, and the Committee on Appropriations of the House of Representatives.

LIV. UNPROGRAMMED FUND

For fund requirements in accordance with the purposes indicated hereunder P48,681,831,000

A. PURPOSE(S)

x x x x

6. AdditionalOperationalRequirementsand Projects ofAgencies P14,788,764,000

x x x x

Special Provisions

1. Release of the Fund. The amounts herein appropriated shall be released only when the revenue collectionsexceed the original revenue targets submitted by the President of the Philippines to Congress pursuant toSection 22, Article VII of the Constitution or when the corresponding funding or receipts for the purpose havebeen realized except in the special cases covered by specific procedures in Special Provision Nos. 2, 3, 4, 5, 7,8, 9, 13 and 14 herein: PROVIDED, That in cases of foreign-assisted projects, the existence of a perfected loanagreement shall be sufficient compliance for the issuance of a Special Allotment Release Order covering theloan proceeds: PROVIDED, FURTHER, That no amount of the Unprogrammed Fund shall be funded out of thesavings generated from programmed items in this Act.

x x x x


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4. Additional Operational Requirements and Projects of Agencies. The appropriations for Purpose 6 - AdditionalOperational Requirements and Projects of Agencies herein indicated shall be released only when the originalrevenue targets submitted by the President of the Philippines to Congress pursuant to Section 22, Article VII ofthe Constitution can be realized based on a quarterly assessment of the Development Budget CoordinatingCommittee, the Committee on Finance of the Senate and the Committee on Appropriations of the House ofRepresentatives and shall be used to fund the following:

x x x x

Internal Revenue Allotments

Maintenance andOther OperatingExpenses P10,000,000,000

total IRA--------------------P10,000,000,000

x x x x

Total P14,788,764,000

x x x x (Emphasis supplied)

Thus, while the GAA appropriates P111,778,000,000 of IRA as Programmed Fund, it appropriates a separateamount of P10 Billion of IRA under the classification ofUnprogrammed Fund, the latter amount to be releasedonly upon the occurrence of the condition stated in the GAA.

On August 22, 2000, a number of non-governmental organizations (NGOs) and people's organizations, alongwith three barangay officials filed with this Court the petition at bar, forCertiorari, Prohibition and MandamusWith Application for Temporary Restraining Order, against respondents then Executive Secretary RonaldoZamora, then Secretary of the Department of Budget and Management Benjamin Diokno, then National

Treasurer Leonor Magtolis-Briones, and the Commission on Audit, challenging the constitutionality of above-quoted provision of XXXVII (ALLOCATIONS TO LOCAL GOVERNMENT UNITS) referred to by petitioners asSection 1, XXXVII (A), and LIV (UNPROGRAMMED FUND) Special Provisions 1 and 4 of the GAA (the GAAprovisions).

Petitioners contend that:

1. SECTION 1, XXXVII (A) AND LIV, SPECIAL PROVISIONS 1 AND 4, OF THE YEAR 2000 GAA ARE NULLAND VOID FOR BEING UNCONSTITUTIONAL AS THEY VIOLATE THE AUTONOMY OF LOCALGOVERNMENTS BY UNLAWFULLY REDUCING BY TEN BILLION PESOS (P10 BILLION) THE INTERNALREVENUE ALLOTMENTS DUE TO THE LOCAL GOVERNMENTS AND WITHHOLDING THE RELEASE OFSUCH AMOUNT BY PLACING THE SAME UNDER "UNPROGRAMMED FUNDS." THIS VIOLATES THECONSTITUTIONAL MANDATE IN ART. X, SEC. 6, THAT THE LOCAL GOVERNMENT UNITS' JUST SHARE

IN THE NATIONAL TAXES SHALL BE AUTOMATICALLY RELEASED TO THEM. IT ALSO VIOLATES THELOCAL GOVERNMENT CODE, SPECIFICALLY, SECS. 18, 284, AND 286.

2. SECTION 1, XXXVII (A) AND LIV, SPECIAL PROVISIONS 1 AND 4, OF THE YEAR 2000 GAA ARE NULLAND VOID FOR BEING UNCONSTITUTIONAL AS THEY VIOLATE THE AUTONOMY OF LOCALGOVERNMENTS BY PLACING TEN BILLION PESOS (P10 BILLION) OF THE INTERNAL REVENUEALLOTMENTS DUE TO THE LOCAL GOVERNMENTS, EFFECTIVELY AND PRACTICALLY, WITHIN THECONTROL OF THE CENTRAL AUTHORITIES.

3. SECTION 1, XXXVII (A) AND LIV, SPECIAL PROVISIONS 1 AND 4, OF THE YEAR 2000 GAA ARE NULLAND VOID FOR BEING UNCONSTITUTIONAL AS THE PLACING OF P10 BILLION PESOS OF THE IRAUNDER "UNPROGRAMMED FUNDS" CONSTITUTES AN UNDUE DELEGATION OF LEGISLATIVE POWERTO THE RESPONDENTS.


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4. SECTION 1, XXXVII (A) AND LIV, SPECIAL PROVISIONS 1 AND 4, OF THE YEAR 2000 GAA ARE NULLAND VOID FOR BEING UNCONSTITUTIONAL AS THE PLACING OF P10 BILLION PESOS OF THE IRAUNDER "UNPROGRAMMED FUNDS" CONSTITUTES AN AMENDMENT OF THE LOCAL GOVERNMENTCODE OF 1991, WHICH CANNOT BE DONE IN A GENERAL APPROPRIATIONS ACT AND WHICHPURPOSE WAS NOT REFLECTED IN THE TITLE OF THE YEAR 2000 GAA.

5. THE YEAR 2000 GAA'S REDUCTION OF THE IRA UNDERMINES THE FOUNDATION OF OUR LOCALGOVERNANCE SYSTEM WHICH IS ESSENTIAL TO THE EFFICIENT OPERATION OF THE GOVERNMENTAND THE DEVELOPMENT OF THE NATION.

6. THE CONGRESS AND THE EXECUTIVE, IN PASSING AND APPROVING, RESPECTIVELY, THE YEAR2000 GAA, AND THE RESPONDENTS, IN IMPLEMENTING THE SAID YEAR 2000 GAA, INSOFAR ASSECTION 1, XXXVII (A) AND LIV, SPECIAL PROVISIONS 1 AND 4, ARE CONCERNED, ACTED WITHGRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION ASTHEY TRANSGRESSED THE CONSTITUTION AND THE LOCAL GOVERNMENT CODE'S PROHIBITIONON ANY INVALID REDUCTION AND WITHHOLDING OF THE LOCAL GOVERNMENTS' IRA. (Underscoringsupplied)

After the parties had filed their respective memoranda, a "MOTION FOR INTERVENTION/MOTION TO ADMITATTACHED PETITION FOR INTERVENTION" was filed on October 22, 2001 by the Province of Batangas,

represented by then Governor Hermilando I. Mandanas.

On November 6, 2001, the Province of Nueva Ecija, represented by Governor Tomas N. Joson III, likewise fileda "MOTION FOR LEAVE OF COURT TO INTERVENE AND FILE PETITION-IN-INTERVENTION".

The motions for intervention, both of which adopted the arguments of the main petition,2were granted by thisCourt.3

Although the effectivity of the Year 2000 GAA has ceased, this Court shall nonetheless proceed to resolve theissues raised in the present case, it being impressed with public interest. The ruling of this Court in the caseofThe Province of Batangas v. Romulo,4wherein GAA provisions relating to the IRA were likewise challenged,is in point, to wit:

Granting arguendo that, as contended by the respondents, the resolution of the case had already beenovertaken by supervening events as the IRA, including the LGSEF, for 1999, 2000 and 2001, had already beenreleased and the government is now operating under a new appropriations law, still, there is compelling reasonfor this Court to resolve the substantive issue raised by the instant petition. Supervening events, whetherintended or accidental, cannot prevent the Court from rendering a decision if there is a grave violation of theConstitution. Even in cases where supervening events had made the cases moot, the Court did not hesitate toresolve the legal or constitutional issues raised to formulate controlling principles to guide the bench, bar andpublic.

Another reason justifying the resolution by this Court of the substantive issue now before it is the rule thatcourts will decide a question otherwise moot and academic if it is "capable of repetition, yet evading review."For the GAAs in the coming years may contain provisos similar to those now being sought to be invalidated,and yet, the question may not be decided before another GAA is enacted. It, thus, behooves this Court to makea categorical ruling on the substantive issue now.5

Passing on the arguments of all parties, bearing in mind the dictum that "the court should not form a rule ofconstitutional law broader than is required by the precise facts to which it is applied,"6this Court finds that onlythe following issues need to be resolved in the present petition: (1) whether the petition contains properverifications and certifications against forum-shopping, (2) whether petitioners have the requisite standing to filethis suit, and (3) whether the questioned provisions violate the constitutional injunction that the just share oflocal governments in the national taxes or the IRA shall be automatically released.

Sufficiency of Verification and Certification Against Forum-Shopping

Respondents assail as improperly executed petitioners' verifications and certifications against forum-shoppingas they merely state that the allegations of the Petition are "true of our knowledge and belief" instead of "true
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and correct of our personal knowledge or based on authentic records" as required under Rule 7, Section 4 ofthe Rules of Court.7

Jurisprudence is on petitioners' side. In Decano v. Edu,8this Court held:

Respondents finally raise a technical point referring to the allegedly defective verification of the petition filed in

the trial court, contending that the clause in the verification statement "that I have read the contents of the saidpetition; and that [to] the best of my knowledge are true and correct" is insufficient since under section 6 of Rule7, it is required that the person verifying must have read the pleading and that the allegations thereof are true ofhis own knowledge. We do not see any reason for rendering the said verification void. The statement "to thebest of my knowledge are true and correct" referring to the allegations in the petition does not mean mere"knowledge, information and belief." It constitutes substantial compliance with the requirement of section 6 ofRule 7, as held in Madrigal vs. Rodas (80 Phil. 252.). At any rate, this petty technicality deserves scantconsideration where the question at issue is one purely of law and there is no need of delving into the veracityof the allegations in the petition, which are not disputed at all by respondents. As we have held time andagain, imperfections of form and technicalities of procedure are to be disregarded except where substantialrights would otherwise be prejudiced. (Emphasis and underscoring supplied)

Respondents go on to claim that the same verifications were signed by persons who were not authorized bythe incorporated cause-oriented groups which they claim to represent, hence, the Petition should be treated as

an unsigned pleading.

Indeed, only duly authorized natural persons may execute verifications in behalf of juridical entities such aspetitioners NGOs and people's organizations. As this Court held inSantos v. CA, "In fact, physical actions, e.g.,signing and delivery of documents, may be performed on behalf of the corporate entity only by specificallyauthorized individuals."9

Nonetheless, the present petition cannot be treated as an unsigned pleading. For even if the rule thatrepresentatives of corporate entities must present the requisite authorization were to be strictly applied, therewould remain among the multi-group-petitioners the individuals who validly executed verifications in their ownnames, namely, petitioners Adelino C. Lavador, Punong Barangay Isabel Mendez, and Punong BarangayCarolina Romanos.

At all events, in light of the following ruling of this Court inShipside Inc. v. CA:10

. . . in Loyola, Roadway, and Uy, the Court excused non-compliance with the requirement as to the certificate ofnon-forum shopping. With more reason should we allow the instant petition since petitioner herein did submit acertification on non-forum shopping, failing only to show proof that the signatory was authorized to doso. Thatpetitioner subsequently submitted a secretary's certificate attesting that Balbin was authorized to file anaction on behalf of petitioner likewise mitigates this oversight.

It must also be kept in mind that while the requirement of the certificate of non-forum shopping is mandatory,nonetheless the requirements must not be interpreted too literally and thus defeat the objective of preventingthe undesirable practice of forum-shopping (Bernardo v. NLRC, 255 SCRA 108 [1996]). Lastly, technical rulesof procedure should be used to promote, not frustrate justice. While the swift unclogging of court dockets is alaudable objective, the granting of substantial justice is an even more urgent ideal. (Underscoring supplied),

a too literal interpretation must be avoided if it defeats the objective of preventing the practice of forumshopping.

Standing

Respondents assail petitioners' standing in this controversy, proffering that it is the local government units -each having a separate juridical entity - which stand to be injured.

The subsequent intervention of the provinces of Batangas and Nueva Ecija which have adopted the argumentsof petitioners has, however, made the question of standing academic.11
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Respondents, contending that petitioners have no cause of action against them as they claim to have noresponsibility with respect to the mandate of the GAA provisions, proffer that the committees mentioned in theGAA provisions, namely, the Development Budget Coordinating Committee, Committee on Finance of theSenate, and Committee on Appropriations of the House of Representatives, should instead have beenimpleaded.

Respondents' position does not lie.

The GAA provisions being challenged were not to be implemented solely by the committees specificallymentioned therein, for they being in the nature of appropriations provisions, they were also to be implementedby the executive branch, particularly the Department of Budget and Management (DBM) and the NationalTreasurer. The task of the committees related merely to the conduct of the quarterly assessment required inthe provisions, and not in the actual release of the IRA which is the duty of the executive. Since the presentcontroversy centers on the proper manner ofreleasingthe IRA, the impleaded respondents are the properparties to this suit.

In fact in earlier petitions likewise involving the constitutionality of provisions of previous general appropriationsacts which this Court granted, the therein respondent officials were the same as those in the presentcase, e.g.,Guingona v. Carague12and PHILCONSA v. Enriquez.13

Constitutionality of the GAA Provisions

Article X, Section 6 of the Constitution provides:

SECTION 6. Local government units shall have a just share, as determined by law, in the national taxes whichshall be automatically released to them.

Petitioners argue that the GAA violated this constitutional mandate when it made the release of IRA contingenton whether revenue collections could meet the revenue targets originally submitted by the President, ratherthan making the release automatic.

Respondents counterargue that the above constitutional provision is addressed not to the legislature but tothe executive, hence, the same does not prevent the legislature from imposing conditions upon the release ofthe IRA. They cite the exchange between Commissioner (now Chief Justice) Davide and CommissionerNolledo in the deliberations of the Constitutional Commission on the above-quoted Sec. 6, Art. X of theConstitution, to wit:

THE PRESIDENT. How about the second sentence?

MR. DAVIDE. The second sentence would be a new section that would be Section 13. As modified it will readas follows: "LOCAL GOVERNMENT UNITS SHALL HAVE A JUST SHARE, AS DETERMINED BY LAW, in thenational taxes WHICH SHALL BE automatically PERIODICALLY released to them."

MR. NOLLEDO. That will be Section 12, subsection (1) in the amendment.

MR. DAVIDE. No, we will just delete that because the second would be another section so Section 12 wouldonly be this: "LOCAL GOVERNMENT UNITS SHALL HAVE A JUST SHARE, AS DETERMINED BY LAW, inthe national taxes WHICH SHALL BE automatically PERIODICALLY released to them."

MR. NOLLEDO. But the word "PERIODICALLY" may mean possibly withholding the automatic release to themby adopting certain periods of automatic release. If we use the word "automatically" without "PERIODICALLY,"the latter may be already contemplated by "automatically." So, the Committee objects to the word"PERIODICALLY."

MR. DAVIDE. If we do not say PERIODICALLY, it might be very, very difficult to comply with it because theseare taxes collected and actually released by the national government every quarter. It is not that uponcollection a portion should immediately be released. It is quarterly. Otherwise, the national government willhave to remit everyday and that would be very expensive.
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MR. NOLLEDO. That is not hindered by the word "automatically." But if we put "automatically" and"PERIODICALLY" at the same time, that means certain periods have to be observed as will be set forth bytheBudget Officerthereby negating the meaning of "automatically."

MR. DAVIDE. On the other hand, if we do not state PERIODICALLY, it may be done every semester; it may bedone at the end of the year. It is still automatic release.

MR. NOLLEDO. As far as the Committee is concerned, we vigorously object to the word "PERIODICALLY."

MR. DAVIDE. Only the word PERIODICALLY?

MR. NOLLEDO. If the Commissioner is amenable to deleting that, we will accept the amendment.

MR. DAVIDE. I will agree to the deletion of the word PERIODICALLY.

MR. NOLLEDO. Thank you.

The Committee accepts the amendment. (Emphasis supplied)14

In the above exchange of statements, it is clear that although Commissioners Davide and Nolledo held differentviews with regard to the proper wording of the constitutional provision, they shared a common assumption thatthe entity which would execute the automatic release of internal revenue was the executive department.

Commissioner Davide referred to the national government as the entity that collects and remits internalrevenue. Similarly, Commissioner Nolledo alluded to the Budget Officer, who is clearly under the executivebranch.

Respondents thus infer that the subject constitutional provision merely prevents the executive branch of thegovernment from "unilaterally" withholding the IRA, but not the legislature from authorizing the executivebranch to withhold the same. In the words of respondents, "This essentially means that the President or anymember of the Executive Department cannot unilaterally, i.e., without the backing of statute, withhold therelease of the IRA."15

Respondents' position does not lie.

As the Constitution lays upon the executive the duty to automatically release the just share of localgovernments in the national taxes, so it enjoins the legislature not to pass laws that might prevent the executivefrom performing this duty. To hold that the executive branch may disregard constitutional provisions whichdefine its duties, provided it has the backing of statute, is virtually to make the Constitution amendable bystatute - a proposition which is patently absurd.

Moreover, there is merit in the argument of the intervenor Province of Batangas that, if indeed the framersintended to allow the enactment of statutes making the release of IRA conditional instead of automatic, thenArticle X, Section 6 of the Constitution would have been worded differently. Instead of reading "Localgovernment units shall have a just share, as determined by law, in the national taxes which shall be

automatically released to them" (italics supplied), it would have read as follows, so the Province of Batangasposits:

"Local government units shall have a just share, as determined by law, in the national taxes which shall be[automatically] released to them as provided by law," or,

"Local government units shall have a just share in the national taxes which shall be [automatically] released tothem as provided by law," or

"Local government units shall have a just share, as determined by law, in the national taxes which shall beautomatically released to them subject to exceptions Congress may provide."16(Italics supplied)
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Since, under Article X, Section 6 of the Constitution, only the just share of local governments is qualified by thewords "as determined by law," and not the release thereof, the plain implication is that Congress is notauthorized by the Constitution to hinder or impede the automatic release of the IRA.

Indeed, that Article X, Section 6 of the Constitution did bind the legislative just as much as the executive branchwas presumed in the ruling of this Court in the case ofThe Province of Batangas v. Romulo17which isanalogous in many respects to the one at bar.

In Batangas, the petitioner therein challenged the constitutionality of certain provisos of the GAAs for FY 1999,2000, and 2001 which set up the Local Government Service Equalization Fund (LGSEF). The LGSEF was aportion of the IRA which was to be released only upon a finding of the Oversight Committee on Devolution thatthe LGU concerned had complied with the guidelines issued by said committee. This Court measured thechallenged legislative acts against Article X, Section 6 and declared them unconstitutional - a ruling whichpresupposes that the legislature, like the executive, is mandated by said constitutional provision to ensure thatthe just share of local governments in the national taxes are automatically released.

Respondents, in further support of their claim that the automatic release requirement in the Constitutionconstrains only the executive branch and not the legislature, cite three statutory provisions whereby thelegislature authorized the executive branch to withhold the IRA in certain circumstances, namely, Section 70 ofthe Philippine National Police Reform and Reorganization Act of 1998,18Section 531(e) of the Local

Government Code,19and Section 10 of Republic Act 7924 (1995).20Towards the same end, respondents alsocite Rule XXXII, Article 383(c) of the Rules and Regulations Implementing the Local Government Code.21

While statutes and implementing rules are entitled to great weight in constitutional construction as indicators ofcontemporaneous interpretation, such interpretation is not necessarily binding or conclusive on the courts.InTaada v. Cuenco, the Court held:

As a consequence, "where the meaning of a constitutional provision is clear, a contemporaneous or practical . .. executive interpretation thereof is entitled to no weight and will not be allowed to distort or in any way changeits natural meaning." The reason is that "the application of the doctrine of contemporaneous constructionis more restricted as applied to the interpretation ofconstitutional provisions than when applied to statutoryprovisions," and that "except as to matters committed by the constitution itself to the discretion of some otherdepartment, contemporaneous or practical construction is not necessarily binding upon the courts, even in a

doubtful case." Hence, "if in the judgment of the court, such construction is erroneous and its further applicationis not made imperative by any paramount considerations of public policy, it may be rejected." (Emphasis andunderscoring supplied, citations omitted)22

The validity of the legislative acts assailed in the present case should, therefore, be assessed in light of ArticleX, Section 6 of the Constitution.

Again, in Batangas,23this Court interpreted the subject constitutional provision as follows:

When parsed, it would be readily seen that this provision mandates that (1) the LGUs shall have a "just share"

in the national taxes; (2) the "just share" shall be determined by law; and (3) the "just share" shall beautomatically released to the LGUs.

x x x

Webster's Third New International Dictionary defines "automatic" as "involuntary either wholly or to a majorextent so that any activity of the will is largely negligible; of a reflex nature; without volition; mechanical; like orsuggestive of an automaton." Further, the word "automatically" is defined as "in an automatic manner: withoutthought or conscious intention." Being "automatic," thus, connotes something mechanical, spontaneous andperfunctory. x x x" (Emphasis and underscoring supplied)24

Further on, the Court held:

To the Court's mind, the entire process involving the distribution and release of the LGSEF is constitutionallyimpermissible. The LGSEF is part of the IRA or "just share" of the LGUs in the national taxes. To subject itsdistribution and release to the vagaries of the implementing rules and regulations, including the guidelines and
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