Vol.32 No.1 2006 Ibp Journal

The IBP Journal
INTEGRATED BAR OF THE PHILIPPINES
The IBP Journal

INTEGRATED BAR OF THE PHILIPPINES
Board of Editors
RUDYARD A. AVILA III Editor-in-Chief ELPIDIO G. SORIANO III Managing Editor PETER M. BANTILAN ANDRES S. BAUTISTA RODELLE B. BOLANTE GREGORIO V. CABANTAC IBARRA M. GUTIERREZ III RITA LINDA V. JIMENO EDUARDO A. LABITAG VICTORIA V. LOANZON ERIC HENRY F. MALLONGA ALFREDO B. MOLO III ROWENA E.V. DAROY-MORALES AUGUSTO M. PEREZ, JR. MA. VERENA KASILAG-VILLANUEVA ROGELIO A. VINLUAN WALTER T. YOUNG AMADO D. VALDEZ
VICMUND Q. CAMACHO Layout/Design AURORA G. GERONIMO Administrative Assistant VIVIAN C. CAPIZNON Editorial Assistant
The IBP JOURNAL (ISSN 0118-9247) is an official publication of the Integrated Bar of the Philippines Subscription Rates (inclusive of postage): Php1,000.00 (local), US $20.00 (Foreign Individual), US $25.00 (Foreign Institution). Editorial and Subscription Office Integrated Bar of the Philippines 15 J. Vargas Avenue, Ortigas Center, Pasig City 1600 Telephone: (632) 631-3014/18 Fax: (632) 634-4697 Website: www.ibp.org.ph Email: tech@ibp.org.ph The IBP Journal accepts submissions of papers examining legal developments and issues, contemporary social, economic and political issues related to legal problems. Only manuscripts accompanied by a soft copy (diskette, CD, e-mail, etc.) including an abstract and the curriculum vitae of the author shall be accepted. The style should be simple and easy to read. All papers must be original. The Board of Editors shall not assume any responsibility for manuscripts received, and materials will be returned only if a written request for these is made by the author/s accompanied by a self-addressed-stamped envelope. The articles in the IBP Journal do not represent the views of the Board of Editors nor the IBP itself. The editors are not responsible for the views expressed in any article published in this journal and the responsibility is that of the author.
CONTENTS
Law and Equity in the Changing Landscape of Judicial Adjudication Oscar G. Raro................................................................................................... 1 Workers Preference in Case of Bankruptcy
(Under Article 110 of the Labor Code and Related Laws)
Manuel D. Yngson, Jr.................................................................................... 23 Abu Ghraib and Guantanamo: The Importance of Religion in Analyzing the Effects of Torture Adel A. Tamano .............................................................................................. 69 From Santos to Ferraris: Secularizing Psychological Incapacity Rudyard A. Avila III..................................................................................... 87 Reinventing the Corporate Wheel: A Discourse on the Limited Liability Company Joseph Emmanuel L. Angeles ...................................................................... 117 Survey of 2005 Cases in Property and Land Registration Eduardo A. Labitag .....................................................................................143
EDITORS NOTE
The thirty second volume of the Journal marks the appointment of a new editorial board which includes a mix of legal experts from all fields of the law, as well as academics and law deans, present and past. The Board in its first meeting saw little need for radical changes in editorial policy and will essentially maintain the tested policies of the preceding Boards of Editors. This issue also introduces a new and much more contemporary look for the Journal symbolizing the state of flux of legal developments in the country, mainly in the areas of constitutional change, individual rights, judicial review, family law, corporate responsibility, and the role of equity in jurisprudence. This is reflected not only symbolically in the change in the Journals look but in many of the articles in this issue. For the purpose of updating lawyers all over the country, we shall continue to publish legal developments in the form of analytical reviews, such as Manuel D. Yngson, Jr.s article on Workers Preference in Case of Bankruptcy or the article on Psychological Incapacity by this writer as well as Professor Eduardo A. Labitags comprehensive analytical survey of developments in Property Law in 2005. Developments in the area of human rights, in legal theory and in the field of corporate law are highlighted by the articles of Adel A. Tamano, Oscar G. Raro, and Joseph Emmanuel L. Angeles, respectively in this issue of the Journal. The Board recently sponsored a symposium on Constitutional Change inviting experts in Constitutional Law to discuss possible amendments or revisions to the 1987 Constitution including the acceptability, feasibility and propriety of changes to the fundamental law at this time. The proceedings of the symposium will be published in the second issue of this volume.
RUDYARD A. AVILA III Editor-in-Chief
Law and Equity in the Changing Landscape of Judicial Adjudication

Oscar G. Raro*
When I hear of an equity in a case like this, I am reminded of a blind man in a dark room looking for a black hat - which isnt there.
Charles Bowen
Shoot all the bluejays you want, if you can hit em, But remember its a sin to kill a mockingbird. Harper Lee, To Kill a Mockingbird Ethics and equity and the principles of justice do not change with the calendar.
David Herbert Lawrence
I Introduction: Equity In The Garb of Kings

There was a time when the exercise of equity jurisdiction in the settlement of disputes was the sole prerogative of the king. That was in 14th century England when parties, unsatisfied with the burdensome and inflexible procedures of the royal courts, applied to the king instead for redress.1 We may say that at that time forum shopping was an acceptable practice sanctioned by no less than the sovereign. Later, as the number of equity cases increased, the responsibility of deciding them devolved to the chancellor, the highest administrative official of the realm.2 The first chancellors were men of the cloth or ecclesiastics who were chosen because they belong to a small class of people considered learned. They were required to pass judgment guided by conscience and based on morals and equity.3 These chancellors had no formal legal training until 1529 when a lawyer, Sir Thomas
* 1 2 3 A.B., Ll.B., University of the Philippines, Ll.M. (candidate) San Beda Graduate School of Law, Editor-in-Chief, San Beda Graduate School of Law Journal A.G Tarr, JUDICIAL PROCESS AND JUDICIAL POLICYMAKING 12, West/Wadsworth (1999 ed.) Id. T. Cockburn & M. Shirley, EQUITY IN A NUTSHELL, Lawbook Co., Sydney, (2005) cited at Wikipedia, http:// en.wikipedia.org/wiki/Equity (last visited 31 August 2006).
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More, was appointed as chancellor, marking the beginning of a new era where, thereafter, lawyers were appointed as chancellors. By the 18th century, petitions for equitable relief had become institutionalized in a Court of Chancery,4 presided over by a chancellor, but still independent of the regular courts.5
A. Supremacy of Equity Over the Common Law

As the law of equity developed, friction and competition with the common law followed. Throughout the 16th century, more and more petitions were brought to the Chancery to remedy the harshness of the common law. This came to a head in the 17th century in the famous Earl of Oxfords Case (1615),6 when a defendant in a common law action before Chief Justice Sir Edward Coke deigned to apply to Lord Chancellor Ellesmere of the Chancery Court for an injunction, on the ground of fraud, against Cokes common law judgment. At that time, any person refusing to honor an injunction issued by the Chancery against a common law judgment may be imprisoned for contempt.7 The dispute between these two courts was ultimately resolved in 1616 by King James I who, on the advice of his Attorney-General Sir Francis Bacon,8 ruled in favor of the Chancery Court, and thereby establishing the supremacy of equity as a means of escaping the common law jurisdiction.9 However, supremacy carries its own weight. By the early 19th century, despite the creation of a chief Chancery Master to sit as a second judge, and a Vice Chancellor as a third judge in 1813,10 the Chancery, began to collapse with the burden of the ever increasing number of cases heaped upon it for disposition. In an attempt to lighten the burden of the Chancery, the Court of Chancery Act 1850 and the Court of Chancery Procedure Act 1852 were passed. It was not until 1873, however, when a judiciary bill was introduced in the Parliament which came into force in 1875, now known as Judicature Acts 1873-1875, where a Supreme Court Judicature was established with concurrent jurisdiction to administer the rules of equity and law within a uniform procedure,11 thereby fusing equity and law in the adjudication of cases in one court. Thus, the kingly garb of equity was shed to acquire secular character when the divine proved unequal to the task.
4 Although the Chancery was the earliest and best known court of equity, there were others, such as the Exchequer which also heard equity suits from Elizabethan times (W.J. Jones, THE ELIZABETHAN COURT OF CHANCERY, [Oxford, 1967]) and various local courts, including those of the counties palatine of Chester, Lancaster, and Durham. (D. Gerhold, COURTS OF EQUITY: A GUIDE TO CHANCERY AND OTHER LEGAL RECORDS FOR LOCAL AND FAMILY HISTORIANS (Newport, Isle of Wight, 1994). The Court of Requests and the Court of Star Chamber, from the late 15th century, while not strictly courts of equity, used similar procedures and left similar records. (J.A. Guy, THE COURT OF STAR CHAMBER AND ITS RECORDS TO THE REIGN OF ELIZABETH I [London, 1985]). A.G Tarr, JUDICIAL PROCESS AND JUDICIAL POLICYMAKING 12, West/Wadsworth (1999 ed.) 1 Rep Ch 1. Gary Watt, TRUSTS TEXTBOOK 3, Oxford University Press (2nd ed, 2006). Bacon would later succeed Lord Ellesmere as Chancellor (Id.). Gary Watt, op. cit. supra Note 7 at 4. Id. Id.
5 6 7 8 9 10 11
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B. Equity Courts in Early America

In the United States, in the early colonial period, courts were organized before the fusion in England of law and equity jurisdictions in one court which may perhaps explain the fact that, as in England, there were also separate courts of equity and law where the former may overrule the latter. 12 However, after the American Revolution, equity courts were widely distrusted in the northeastern United States, while northern states eliminated their equity courts by the late 1700s.13 Even when the U.S. Constitution was finally ratified in New Hampshire on 21 June 178814 which contained the provision that [j]udicial Power shall extend to all Cases, in Law and Equity,15 the mid-Atlantic and southern states persisted in maintaining their equity courts in that even the organization of the federal courts did not abandon the old law and equity separation until the promulgation of the Federal Rules of Civil Procedure much later in 1938 except for several states which still maintain separate courts for law and equity such as in Delaware.16
II Grasping at Straws: Equity Jurisdiction in Early Philippine Cases

In the last fifty years of Spanish rule, Spain extended to the Philippines its own Spanish Civil Code of 1889, (along with other Spanish laws and statutes).17 This civil code referred to equity in only two provisions: in Article 1544 where the judge is empowered to equitably modify a penal clause in case of partial or irregular performance, and in Article 1690, where designation of profits and losses entrusted by the partners to a third party may be assailed if the same is clearly inequitable. It is Article 6,18 however, which allowed application of the general principles of law
12 13 14
Zephaniah Swift (1759-1823), A SYSTEM
OF THE
LAWS OF
THE
STATE
OF
CONNECTICUT (Volume 2, 1796).
Wikipedia, http://en.wikipedia.org/wiki/Equity (last visited 31 August 2006). Robert G. McCloskey, THE AMERICAN SUPREME COURT 3 (1960 ed.); New Hampshire was the ninth state to ratify and [b]y the terms of the Constitution nine States were sufficient for its establishment among the States so ratifying. The advocates of the new Constitution realized, however, that the new Government could not succeed without the addition of New York and Virginia, neither of which had ratified on 21 June 1788. Virginia, however, ratified the Constitution four days later on 25 June 1788 and New York, more than a month later on 26 July 1788. It was only on 13 September 1788, however, that the irregularly functioning Continental Congress passed the resolution putting the new Constitution in effect and in operation. North Carolina added her ratification on November 21, 1789 and Rhode Island on May 29, 1790. (See E.S. Morgan, THE BIRTH OF THE REPUBLIC 195 (3rd ed. 1992). U.S. CONST. (1787), Article III, Section 2. Wikipedia, http://en.wikipedia.org/wiki/Equity (last visited 31 August 2006). Code of Commerce of 1885, Penal Code of 1870, Code of Civil Procedure (Ley de Enjuiciamiento Civil) of 1853; Marriage Law of 1870, among others. (See F. Gupit, Jr. & D.T. Martinez, A GUIDE TO PHILIPPINE LEGAL MATERIALS 44 (1993 ed.). No counterpart provision in the New Civil Code but see Articles 8, 10, and 11.
15 16 17
18
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in the absence of local customs or laws, in the adjudication of cases,19 which may arguably be open to equity application as within the broad sweep of general principles of law.20 When the Americans came in 1898, they organized an independent judicial system patterned after their own with the passage of the Judiciary Act of 1901.21 This law provided for a three-tiered court system composed of the Supreme Court, the Courts of First Instance, and the municipal and justice of the peace courts. It was, however, a largely experimental judiciary system where the Philippine Supreme Court was anything but supreme: American justices sat on the Bench and its decisions may be appealed to the U.S. Supreme Court.22 Decisions were drawn from the meager organic acts imposed by the U.S. and from a hodgepodge of U.S. and Spanish statutes, precedents, and commentaries. At that time until 1938, equity courts existed in the U.S. independent of courts of law.23 But here, equity jurisdiction fused with law jurisdiction in one court and was the shape of the concept that came to our shores. In U.S. v. Tamparong,24 the Supreme Court said: Under the system of procedure which obtains in the Philippine Islands, both legal and equitable relief is dispensed in the same tribunal. We have no courts of law and courts of equity as they are known and distinguished in England and the United States. All cases (law and equity) are presented and tried in the same manner, including their final disposition in the Supreme Court. Therefore, the word appeal, as used in section 43 (supra), does not necessarily imply the removal of the cause from one tribunal to another in its entirety, subjecting the facts, as well as the law, to a review or a retrial, but it is to be interpreted by the ordinary rules of construction. It took a while though, and ever on shaky and gingerly footsteps, for equity to gain a foothold in court decisions. Justice J.B.L. Reyes once observed that it is only
19 20 F. Gupit, Jr. & D.T. Martinez, A GUIDE TO PHILIPPINE LEGAL MATERIALS 45 (1993 ed.). Since the essential mission of courts is to do justice, and a decision must always be rendered in a given case, general principles of law must be given a broad meaning, with the only limitation that decisions should not establish rules contrary to the essence and the fundamental purpose of the existing social order. The phrase may therefore be considered as equivalent to equity, to natural law, to the fundamental principles of juridical science, so long as in applying them the Judge complies with his duty to do justice. (Tolentino, 1 CIVIL CODE OF THE PHILIPPINES: COMMENTARIES AND JURISPRUDENCE 42-43 (1990 ed.); We are a court of law and of equity, the case at bar must be resolved on the general principles of law on constructive trust which basically rest on equitable considerations in order to satisfy the demands of justice, morality, conscience and fair dealing and thus protect the innocent against fraud. (Roa, Jr. v. Court of Appeals, G.R. No. L-27294. June 28, 1983). It is true that there is nothing in the special law (Act No. 4054) on which we may predicate the right of a landlord to deduct the income which a dismissed tenant may have earned during his ejectment from the damages be may be liable to pay as a result of the ejectment, but in such a case the general principles of law should apply. This is a matter of equity. (Potenciano vs. Estafani, G. R. No. L-7690, July 27, 1955). 21 22 23 24 Act No. 136. F. Gupit, Jr. & D.T. Martinez, op. cit. supra Note 19 at 51. See Note 15. 31 Phil. 296 (1915)
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from and after American Sovereignty was implanted in these Islands that the term equity appears commonly used by our Supreme Court and it was employed in reference to remedies obtainable under chancery practice.25
A. A Failed Attempt at Positivism

At the start, there was an attempt by the Supreme Court to lean on strict positivist attitude: relief was denied in the absence of applicable law even when equitable principles may be drawn to resolve the dispute and better serve the end of justice. Benedicto v. De La Rama,26 a 1903 case, will illustrate this point. In that case, the Supreme Court denied a petition for divorce27 filed by plaintiff-wife due to the adultery of the defendant-husband upon finding, from its review of the factual basis of the trial court, that the plaintiff was also guilty of adultery. The Court stated that even the allegation by the wife of condonation by the husband would not have the far-reaching effect to entitle her to a divorce against him in a case like the present one. In short, the previous adultery by the wife, even if condoned, forever bars her from seeking a divorce on ground of adultery committed later by the husband because there is no law which covers the situation to resolve this immoral impasse! Justice Cooper dissented on plainly equitable grounds: But it is stated in the majority opinion that there is no law to be found in the partidas which says that the effect of pardon would be so farreaching as to make it applicable to this case. By condonation the offending party is restored to the same position he or she occupied before the offense was committed, the only condition being that the offense must not be repeated. To say that the effect of pardon would not be so far-reaching as to entitle the plaintiff to divorce, in a case like the present one, is equivalent to saying that because the plaintiff has been once guilty she would forever lose her right to a divorce for offenses of a like character thereafter committed by the husband. This makes condonation conditioned, not only that the parties receiving it will not again commit the same offense, but it adds the further condition that the party granting it shall forever have the right to commit the same offense himself with impunity.
25 J.B.L. Reyes, The Trend Toward Equity Versus Positive Law in Philippine Jurisprudence, Speech delivered in 1983 in the seminar Analytical Survey of Selected Supreme Court Decisions in Civil Law conducted by the U.P. Law Center. 3 Phil. 34 (1903), G.R. No. 1056, December 8, 1903. Divorce even at that time does not mean dissolution of the marriage bond (Benedicto v. De La Rama, supra); In this case, although the Court of First Instance of Palawan had jurisdiction to take cognizance of complaints for divorce, such jurisdiction was limited to divorce quoad thorum et mutuam habitationem, or relative divorce, on the ground of adultery, because Law II, Title X, Partida IV, which was the only divorce law then in force, did not authorize divorce quoad vinculum, or absolute divorce. (Francisco v. Jason, G.R. No. 39871. August 30, 1934 citing Benedicto vs. De la Rama, 3 Phil. 34; 50 Law. ed., 765; Ibaez vs. Ortiz, 5 Phil. 325; Goitia vs. Campos Rueda, 35 Phil., 252; U. S. vs. Joanino, 27 Phil. 477; Del Prado vs. De la Fuente, 28 Phil. 23; De Jesus vs. Palma, 34 Phil. 483; Garcia Valdez vs. Soteraa Tuason, 40 Phil. 943).
26 27
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. . .
To deprive the plaintiff of the judgment which she has obtained and make a final determination of the case here without giving her an opportunity of correcting this error, if such exists, is INEQUITABLE AND UNJUST. (emphasis ours) Justice Coopers dissent would be vindicated later. The case was appealed by the plaintiff to the United States Supreme Court which reversed the decision of the Philippine Supreme Court almost three years later on 2 April 1906.28 It may be worthy to note, however, that while Justice Coopers dissent was both on grounds of equity and improper review of facts by the Philippine Supreme Court, the United States Supreme Court, in sustaining Justice Coopers dissent and in reversing the majority opinion, relied merely on the ground of improper factual review. Thus, while this initial bent at strict formalism of the law failed, it was curious that before the reversal of the Benedicto ruling, the Philippine Supreme Court would decide cases along equitable lines in Justice Coopers dissent.
B. Equity in Procedure: Supreme Courts Review of Facts Found by the Trial Court
Thus, before this reversal of the Benedicto ruling, the Philippine Supreme Court in 1904, in E. C. McCullough v. R. Aenlle & Co ., 29 relied on Benedicto for equity jurisdiction to review facts on appeal. E. C. McCullough is a case where the plaintiff who bought tobacco bales on the basis of quantity, would later sue on the basis of inferior quality delivered. The Supreme Court found for the defendant and dismissed the complaint, noting that the purpose of the plaintiff in buying the tobacco was secondary, the primary purpose being to occupy the building where they were warehoused for his own business. In determining these facts not apparent on the contract of sale, the Supreme Court said that it is authorized in cases of this kind to find the facts from the evidence and render such final judgment as justice and equity require. The fact is that the plaintiff in order to get the building had to buy the factory and everything that went with it. He saw himself obliged to take all the tobacco which the defendant had, no matter what its quality was. The defendant was not willing to sell him the building and the good tobacco which it had on hand, retaining itself that of poorer quality. He had to take it all or not get the building. . . . . . . . . .
28 29
De la Rama vs. De la Rama, 201 U. S. 303 [1906]; See De La Rama v. De La Rama, G.R. No. L-1056, March 13, 1907. G.R. No. 1300, February 3, 1904.
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By section 497, Code of Civil Procedure, we are authorized in cases of this kind to find the facts from the evidence and render such final judgment as justice and equity require. ( Benedicto vs. de la Rama, December 8, 1903.) Still, in January 1906, in Tan Dangseng Tan Sui Pic v. Suico,30 the Court, would cite Benedicto once more to justify its review of the factual findings of the trial court, as a matter of justice and equity. Here, since the documents by both parties were written in Chinese, they agreed to refer the matter to a referee for determination of the import of the documents and the facts of the case. The facts as found by the referee, were adopted by the trial court which formed the basis of its decision. The Supreme Court, however, appreciated facts absent in the report but were actually present in the evidence submitted by the parties. Up to this time, the power to rely on equity was being used by the Supreme Court in support of its professed authority to examine the facts of the case found by the trial court, which basis, as stated earlier, would be reversed later by the U.S. Supreme Court on 2 April 1906.31
C. Equity in Substantive Law Adjudication

In 1916, however, a case in substantive law would be decided on patently equitable grounds. In Goitia v. Campos Rueda32 the Supreme Court allowed an action by the wife against her husband for support outside of the conjugal domicile. Article 149 of the Civil Code at that time,33 provided that support by the husband to his wife, at his option, was either by paying her a fixed pension or by receiving and maintaining her in his own home. Support for the wife outside of the conjugal abode would clearly amount to deprivation of this option of the husband, not to mention being further deprived of mutual assistance and support from the wife, even morally and psychologically. In addition, there was the further provision that the wife must obey and live with her husband and follow him when he changes his domicile or residence, except when he removes to a foreign country. Obviously, this obligation refers to the wife physically living with her husband, as shown by the exception of the husbands physical geographical location outside of the country. In preferring equity over law, the Court simply said that the Code is not absolute, because the option given by article 149 of the Civil Code may not be exercised in any and all cases. On the other hand, the underlying equitable reason here for allowing support for the wife was succinctly captured in the concurring opinion of Justice Moreland, equity
30 31 32 33 G.R. No. 1973, January 8, 1906. See Note 26. G.R. No. 11263, November 2, 1916. ART. 149. The person obliged to give support may, at his option, satisfy it, either by paying the pension that may be fixed or by receiving and maintaining in his own home the person having the right to the same. (Civil Code).
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being all the more accentuated by his loose legal justification that despite physical estrangement, the wife remains an inmate34 of the conjugal domicile: I based my vote in this case upon the ground that a husband cannot, by his own wrongful acts, relieve himself from the duty to support his wife imposed by law; and where a husband, by wrongful, illegal, and unbearable conduct, drives his wife from the domicile fixed by him, he cannot take advantage of her departure to abrogate the law applicable to the marital relation and repudiate his duties thereunder. In law and for all purposes within its purview, the wife still remains an inmate of the conjugal domicile; for I regard it as a principle of law universally recognized that where a person by his wrongful and illegal acts creates a condition which under ordinary circumstances would produce the loss of rights or status pertaining to another, the law will, whenever necessary to protect fully the rights or status of the person affected by such acts, regard the condition by such acts created as not existing and will recur to and act upon the original situation of the parties to determine their relative rights or the status of the person adversely affected. In 1923, in the leading case of Severino v. Severino,35 equity would prevail over the letter of the law when an uncle who was acting as agent or administrator of a property belonging to an estate had procured a Torrens title over the property in his own name. After one year from the issuance of the fraudulently obtained title, his niece, the rightful heir to the property, sued for transfer of the property back to the estate. By law, however, title issued under the Torrens system is final and unassailable after a period of one year and res judicata sets in for any further question on the registered owner. The Supreme Court again justified equity application by pirouetting around the law: the nieces action was not for nullification of the Torrens title, an action in rem which had clearly lapsed and may no longer be disturbed, but one in personam for the reconveyance or transfer of the title and the property back to the estate. Thus, what we have here is the rather incongruous legal proposition that the act of an impostor and a non-owner who fraudulently registered in his name a property belonging to another is valid under the Torrens system, but which validity may not be maintained since he is duty bound to reconvey the property to the genuine owner. In the end though, the Court would admit that such construction was dictated by the demand of superior equitable right. Severinos 1923 equitable dictate would later reverberate in succeeding court decisions through the years36 starting as early as 1924 in the case of Roman Catholic Bishop of Nueva Caceres v. Municipality of Tobaco37
34 Even then, when we speak of inmate the reference is always physical: a person living in an institution such as a prison or hospital; [archaic] one of several occupants of a house (The New Oxford Dictionary of English, electronic). 44 Phil. 343 (1923); Justice J.B.L. Reyes, op. cit. supra Note 24. Barreto v. Tuason, G.R. No. 23923. March 23, 1926.; Clemente v. Lukban, G.R. No. 30190. November 14, 1928.; Yumul v. Rivera, G.R. No. 43243. January 26, 1937; People v. Cainglet, G.R. Nos. L-21493-94. April 29, 1966; Arguelles v. Timbancaya, G.R. No. L-29052. July 30, 1976; Marcelo v. Court of Appeals, G.R. No. 131803. April 14, 1999; Adriano v. Court of Appeals, G.R. No. 124118. March 27, 2000, among others. 46 Phil., 271, 276 [1924].
35 36
37
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until as late as 2003 in Arlegui v. Court of Appeals.38 Severino, appeared to have established the rule, although always on a balancing act between the two norms, that equity follows the law. Thus, we leave this point on this note. The historical antecedents of equity cases in this jurisdiction were first insisted on the power of the Supreme Court to review findings of facts by the lower court. The cases when equity was placed above the letter of the law on substantive law issues appeared then to be isolated incidents not dictated by facts which cry for equity justification. The consideration of equity in both procedural and substantive law issues in these early cases, however, appeared to be more of a Pavlovian reaction rather than design. The country then was at a transition from a legal system of Spanish civil law tradition to the emerging AngloAmerican common law. Equity, of course, is a concept more at home in the common law than in the civil law tradition.39
III The Ever Shifting Dichotomy Between Equity and Law

The first attempt at codification of private law in the Philippines was made in 1940, during the time of President Manuel L. Quezon. The effort, however, was aborted when the records of the Code Committee were destroyed in the battle for the liberation of Manila in 1945.40 Under President Manuel A. Roxas, the effort was revived by the creation of new Code Commission on 20 March 1947 which successfully finished its work on 15 December 1947. Congress approved the draft of the Code on 18 June 1949 as Republic Act No. 386,41 our current Civil Code of the Philippines.
A. The Code Commissions Intent: Equity Above Formalism

From the deliberation of the Code Commission, it is apparent that it intended to place equity and justice above strict legalism or form. 42 Thus, equity consideration permeates the Code provisions on human relations, quieting of title, reformation of instruments, estoppel, implied trusts, and natural obligations, among
38 39 40 41 42
G.R. No. 126437, March 6, 2002. F. Gupit, Jr. & D.T. Martinez, op. cit. supra Note 19 at 88. Tolentino, 1 CIVIL CODE OF THE PHILIPPINES: COMMENTARIES AND JURISPRUDENCE 6-7 (1990) Id. N.R. Malolos & T.C. Martin, REPORT OF THE CODE COMMISSION ON THE PROPOSED CIVIL CODE OF THE PHILIPPINES, WITH ANNOTATIONS 26, Domerte Book Supply (1951 ed.).
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others.43 In judicial adjudication, the new Code is likewise suggestive of the judges authority to consider equity in Article 9 which provides that he shall not decline to render judgment by reason of the silence, obscurity or insufficiency of the laws and in Article 10 where it is presumed that in case of doubt in the interpretation or application of laws . . . the lawmaking body intended right and justice to prevail. However, despite this clear intent of placing equity above the positivity of law, the Supreme Court, thereafter, would decide cases with evolving positivist inclination in that equity would be ruled as justice outside legality. The phrase would come to mean that equity may only fill the gaps in the law when there are such gaps, but would uphold the law when there are none. A few illustrative cases may be helpful.
B. Equity as Justice Outside Legality

In Reyes v. Lim (2003),44 the Supreme Court sustained the trial court in ordering the defendant to deposit in court the amount of P10 Million pending litigation despite the fact that deposit is not among the provisional remedies enumerated in Rules 57 to 61 of the Rules of Court. There was no issue that the amount represented the down payment made by the plaintiff to the defendant for a property which defendant later sold to a third party. The Supreme Court in support of allowing the deposit pendente lite stated that the instant case is precisely one where there is a hiatus in the law and in the Rules of Court, which hiatus, if left alone, will result in unjust enrichment to the seller at the expense of the aborted buyer here since the seller has already sold the property to somebody else. The Court further stressed that this is not a case of equity overruling a positive provision of law or judicial rule for there is none that governs this particular case, but a case of silence or insufficiency of the law and the Rules of Court which calls for the application of equity which fills the open spaces in the law. What happened then to the principle in law of inclusio unius est exclusio alterius? But in Go v. Anti-Chinese League of the Philippines (1949),45 the Supreme Court would reverse the trial courts denial of the application for Filipino citizenship of a Chinese national on the ground that it is the sworn duty of the trial court to apply the law without fear or favor, to follow its mandate not to tamper with it. The Supreme Court, in castigating the trial court further stated that the court cannot adopt a policy different from that of the law and that [w]hat the law grants, the court cannot deny. Here, the trial court denied the application for citizenship on the judges belief that a more rigid policy in granting Filipino citizenship is desirable that there should be a policy that the grant of citizenship may still be discretionary to the court even though the applicant shall have satisfactorily proven that he has all the qualifications and none of the disqualifications provided for by law.
43 44 45 Id. G.R. No. 134241, August 11, 2003. 84 Phil. 468 (1949).
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In Aguila v. Court of First Instance of Batangas (1988),46 the Supreme Court denied continued occupancy of the premises by the lessee on the ground that equitable consideration cannot serve to justify such occupancy, when the matter in issue had already been previously decided despite the alleged ineptness of previous counsel, adding that [f]or all its conceded merits, equity is available only in the absence of law and not as its replacement. In Alvendia v. Intermediate Appellate Court (1990),47 citing Arsenal v. IAC, (1986) 48 petitioners attempt to recover a property sold by virtue of a writ of execution, by offering cash to satisfy the judgment, was denied by the Court, on the pronouncement that [c]ourts exercising equity jurisdiction are bound by rules of law and have no arbitrary discretion to disregard them and that equitable reasons will not control against any well-settled rule of law or public policy, In Imperial Shipping Agency v. National Labor Relations Commission, (1991)49 the Supreme Court sustained the decision of the National Labor Relations Commission making Imperial Shipping liable for death benefits of an employee placed through it despite the fact that the manning agreement between Imperial Shipping and its principal had already been terminated before the death of the employee. The Court said that [o]ur courts are basically courts of law not courts of equity and [i]t is a long standing principle that equity follows the law.
C. Emerging Ascendancy Of Equity Over Legality

But this secondary gap-filling role of equity, where law is preferred over doubtful equity application, is far from being a settled practice in judicial adjudication. In several instances, the Supreme Court would render judgment with clear leanings on equity over clear provisions of the law when, by its own appreciation, the facts of the case dictate a deviation. We will not attempt here at comprehensiveness, but will resort to few selected illustrative cases50 to bring home the point. In Elcano v. Hill (1973),51 the father was held civilly liable in subsidiary capacity for the damages caused by the negligence of his minor child. The minor, however, had already been emancipated by marriage even before the negligence was caused. The Supreme Court justified the ruling under Article 2180, par. 2 of the Civil Code which mandates liability of the father, and in case of his death or incapacity, of the mother, for the damages caused by the minor child who lives in their company. More, the Supreme Court said that inasmuch as it is evident that [the son] is now of
46 47 48 49 50 51 G.R. No. L-48335, April 15, 1988; 160 SCRA 352, 360 [1988]). G.R. No. 72138, 22 January 1990, 181 SCRA 252 (1990). 227 Phil. 36 (1986). G.R. No. 84672, August 5, 1991 200 SCRA 178 (1991) citing Zabat, Jr. v. CA, 226 Phil. 489 [1986]). J.B.L. Reyes, op. cit. supra Note 24. G.R. No. 24803, May 26, 1973.
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age, the liability of the father has become merely subsidiary to that of his son as a matter of equity. But as Justice J.B.L. Reyes would observe52 from this case, the conclusion of the Court is not only curious but downright anomalous: for it has been uniformly ruled that the liability of a parent or employer under Article 2180 is principal and direct, not subsidiary in that the minor answers for his own tortious act; the parent responds for his own carelessness in the training or vigilance of the son.53 As this is clear in law and jurisprudence, Justice Reyes was tempted to ask: Where does equity here come in? How can the Court amend the rule of the positive law through application of equity?54 In Carbonell v. Court of Appeals(1976),55 a possessor in bad faith was allowed to remove his improvements if this costs would not be refunded by the lawful possessor. But a possessor in bad faith forfeits any improvement under Article 449 of the Civil Code: He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right to indemnity. Here, the Supreme Court again danced with the provisions of the Civil Code thereafter applying by analogy and as a matter of equity, Article 549 on improvements for pure luxury or mere pleasure despite the fact that the improvements here were not for luxury or pleasure. Ten years later, in Metropolitan Waterworks and Sewerage System v. Court of Appeals (1986),56 the Supreme Court would refuse to apply Carbonell on the ground that said decision does not establish a precedent since only four Members (of the court) concurred in ruling that respondents were possessors in bad faith and two Members ruled that they were possessors in good faith in addition to its findings that equitable consideration present in said case are not present in the case at bar. In Legarda Hermanos v. Saldaa (1974),57 the buyer of two (2) subdivision lots at an agreed price of Php1,500.00 each was declared defaulted by the seller for failure to pay succeeding installments. At the time of default, however, the buyer had already paid a total of Php1,682.28 on the principal for the two lots or Php841.14 for each lot. Upon considerations of justice and equity and in light of the provision of Article 1234 on substantial compliance, the Court directed the conveyance of one of the lots to the buyer since he had already paid more than the value thereof. What happened to the basic rule that the agreement of the parties is the law between them? And may the payment of Php841.14 against a price of Php1,500.00 for each lot be construed as substantial compliance? In effect, the Court, on its own novated the agreement between the parties and substituted its own terms on equitable consideration to that of the parties clear intentions.
52 53 54 55 56 57
J.B.L. Reyes, op. cit. supra Note 24. Id., Justice Reyes citation: Cango v. Manila Railroad Co., 38 Phil. 768 (1918); Standard Vacuum Oil Co. v. Tan, 107 Phil. 109 (1960); Cuadra v. Monfort, 35 SCRA 160 (1970) See Note 24. G.R. No. 29972, January 26, 1976 G.R. No. L-54526, August 25, 1986 G.R. No. 26578, January 28, 1974.
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In New Pacific Timber & Supply co. v. Judge Seneris (1980), the Court ruled that payment in cashier check to satisfy a writ of execution to prevent the sale of the property in public auction was valid as it operates as an assignment of funds to the payee, citing Section 63 of the General Banking Act. But the said legal provision merely states that a check cleared and credited to the account of the creditor shall be equivalent to delivery in cash. Here, the check was refused by the judgment creditor who insisted payment in cash. Obviously, the provision has no application in this case since for a check to be cleared and credited, it must first be accepted by the creditor and presented for payment. More, under Article 1249 of the Civil Code, payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. A managers, cashiers, or ordinary check is not a legal tender and when offered in payment may be legally refused.58 The equity consideration of the Court here, however, is apparent from its observation that [o]bviously, the private respondent is more interested in the levied properties than in the mere satisfaction of the judgment obligation. Where does this seemingly haphazard and flip-flopping application of equity or law lead us in our attempt to divine the rationality of these decisions or at least, discover an underlying symmetry of purpose or parameters in equity application in judicial adjudication? This transports us to the next point.
IV JUDICIAL FLUIDITY FOR THE SAKE OF INDIVIDUAL JUSTICE AS E MERGING N ORM

From the seeming incoherence of this jurisprudence on the dichotomy between equity and law, a clear pattern may be discerned: The resort to equity depends to a large extent on the factual milieu of a case. In short, equity application is factspecific. Thus, new trails are not blazed in jurisprudence in the name of equity. Equity decision, more often than not, is peculiar to a case, that a precedent is not set than a singular case resolved. Forest of laws is blazed not to set new trails in jurisprudence but to create a clearing upon which a particular case may placed, viewed, and decided. This is exactly the thoughts urged in Co v. Philippine National Bank,59 where the Court allowed the redemption of properties foreclosed by the bank for an amount less than the costs to it of the entire credit including taxes and expenses, but ordering the mortgagor-debtor to pay the difference even beyond the redemption period of one year:
58 A check, whether a managers check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. (Tibajia, Jr. v. Court of Appeals, G.R. No. 100290, June 4, 1993 citing Philippine Airlines, Inc. vs. Court of Appeals, G.R. No. 49188, 30 January 1990, 181 SCRA 557 and Roman Catholic Bishop of Malolos, Inc. vs. Intermediate Appellate Court, G.R. No. 72110, 16 November 1990, 191 SCRA 411). G.R. No. L-51767, June 29, 1982.
59
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Of course, peculiar instances are naturally excepted. That is why this decision cannot be invoked as a precedent for other parties not exactly similarly situated as the appellee in this case. Should there be any thought that our resolution of this case is not strictly according to legal principles, let everyone be reminded that this Court has inherent equity jurisdiction that can always exercise in settings attended by unusual circumstances to prevent manifest injustice that could result from bare technical adherence to the letter of the law and unprecise jurisprudence under it.
A. The Hazard of Equity Decision

Justice J.B.L. Reyes, however, would lament this emerging development in equity adjudication in his usual lapidary prose: Every judgment on the basis of equity becomes an ad hoc adjudication, unusable for other cases, so that previous awards do not serve as a guide, a variability that adversely affect the peoples quest for justice, since situations basically similar can lead to different solutions.60 Justice J.B.L. Reyes misgivings appeared to have been justified in the differing and unpredictable postures taken by the Supreme Court on the issue of the right of the criminally accused to speedy disposition of his case even during preliminary investigation. Starting in Tatad v. Sandiganbayan,61 a case with equitable underpinnings within the context of the Due Process Clause, the right to speedy trial was ruled to apply even during preliminary investigation. The reasoning in Tatad is lofty: [s]ubstantial adherence to the requirements of the law governing the conduct of preliminary investigation including substantial compliance with the time limitation prescribed by the law for the resolution of the case by the prosecutor is part of the procedural due process constitutionally guaranteed by the fundamental law. Tatad, however, persistently resisted development to precedent as the Supreme Court would later deny application of Tatad in succeeding cases. Thus, Tatads invocation was refused in Magsaysay vs. Sandiganbayan,62 because [a] mere mathematical reckoning of the time involved, would not be sufficient . . . particular regard must also be taken of the facts and circumstances peculiar to each case. In Dansal v. Fernandez,63 where the preliminary investigation took more than one year and four months to finish, because [s]uch a happenstance alone, or any like delay, for that matter, should not be cause for an unfettered abdication by the court of its duty to try cases and to finally make a determination of the controversy after the presentation of evidence; in Ty-Dazo v. Sandiganbayan,64 where the preliminary investigation took
60 61 62 63 64 J.B.L. Reyes, op. cit. supra Note 25. G.R. Nos. L-72335-39, March 21, 1988. G.R. No. 128136, October 1, 1999. G.R. No. 126814, March 2, 2000. G.R. No. 143885-86, January 21, 2002.
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three (3) years, because[t]here is no showing that the filing of the cases against petitioners was politically motivated, among others. Socrates v. Sandiganbayan,65 where the preliminary investigation took six (6) years, because the political motive, while alleged, was not proved and that the respondent therein contributed to the delay. Yet, in Angchangco v. Ombudsman,66 the delay of six (6) years alone in the preliminary investigation merited the application of Tatad, and therefore, the dismissal of the criminal case because [f]or all these past 6 years, petitioner has remained under a cloud, and since his retirement has been deprived of the fruits of his retirement after serving the government for over 42 years all because of the inaction of respondent Ombudsman.
B. The Value of Isolation or The Need for Variance

While here in Tatad and companion cases, we are left with slash-and-burn spots of jurisprudence but not precedents; an individual kaingin of sort for this particular crop of cases, they are still instructive and imperative. Instructive, because from the cases we realized that equity application is not the sole monopoly of the accused, the State may likewise be protected from being hampered in its right to prosecute so that the right to speedy disposition of cases becomes a relative term and a flexible concept which calls for a balancing test of several factors such as the length and reasons for, the prejudice caused by, and the contribution of the accused to the delay.67 Imperative, because we discovered that equity serves the function of safety valves from, at times, the overpowering and blind devotion to laws supremacy, if not unintended tyranny in its application. After all, justice cannot be uniformly legislated nor decided nor constructed like Lego bricks where all pieces fit to meet the challenges of the differing and varying facts of every case. The facts are not always presented in black-and-white where mechanical application of a norm may be imposed with scientific precision, rather than as mysterious figures in that gray penumbra between light and shadow which must be illumined in their varying hues and shades for justice to be served.
EQUITY
AS
V WALKING A WAY FROM OMELAS
A. The Metaphysical Argument for Equity

Welfare of society as within the compass of equity decisions should include welfare of everyone in that society. However, the legal positivists of utilitarian
65 66 67 G.R. Nos. 116259-60, February 20, 1996. G.R. No. 122728, February 13, 1997. De La Pea v. Sandiganbayan, G.R. No. 144542. June 29, 2001.
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tradition suggest that in securing the greatest happiness to the greatest number,68 the welfare of one or a few may be sacrificed. Thus, equity which at times overpowers the law to do justice to a single man may not sit well with legal positivism of such strain. At the extreme side of the debate, however, is William James, who, in his The Moral Philosopher and the Moral Life, a lecture he delivered to the Yale Philosophical Club in 1891, said: Or if the hypothesis were offered us of a world in which Messrs. Fouriers and Bellamys and Morriss utopias should all be outdone, and millions kept permanently happy on the one simple condition that a certain lost soul on the far-off edge of things should lead a life of lonely torture, what except a specifical and independent sort of emotion can it be which would make us immediately feel, even though an impulse arose within us to clutch at the happiness so offered, how hideous a thing would be its enjoyment when deliberately accepted as the fruit of such a bargain? Ursula K. Le Guins tale, The Ones Who Walk Away From Omelas, 69 subtitled Variations on a Theme by William James is, however, more appropriate for graphical illustration than James. In Omelas, the inhabitants happiness is secured by observance of a single law which requires that a child be maintained in abject misery, filth, and sufferings at all times. Some of those who have been informed of the law upon their coming of age and after having seen the sacrificed child in squalor, in a cage not even fit for dogs and beasts of burden, and upon hearing his constant and ill-fated beseeching and entreaty, Please let me out . I will be good. . I will be good , have decided to walk away from Omelas. They walk away from this life of eternal bliss to the uncertainties of existence beyond the towns borders, but where the lingering memories of Omelas and its dark secret would not continue to haunt them. Here, indeed, the law not only protects them all but provides for their eternal bliss. Yet, in observing this law may conscience rest? What indeed, therefore, is the law for? The echoes of Justice Benjamin N. Cardozos ponderings in the Storrs Lectures at Yale University reverberate to this day: The final cause of law is the welfare of society. The rule that misses its aim cannot permanently justify its existence. Ethical considerations can no more be excluded from the administration of justice which is the end and purpose of all civil laws than one can exclude the vital air from his room and live. Logic and history and custom have their place. We will shape the law to conform to them when we may; but only within bounds. The end which the law serves will dominate them all. There is an old legend that on one occasion God prayed, and his prayer was Be it my will that my justice be ruled by my mercy. That is a prayer which we all need to utter at times when the demon of formalism tempts the intellect with the lure of scientific order.70
68 69 70 Jeremy Bentham, ON UTILITARINISM AND GOVERNMENT, Wordsworth Classics (2000 ed.) Ursula K. Le Guins short story, The Ones Who Walk Away From Omelas, (included in her short story collection, The Winds Twelve Quarters Gollancz, [New Ed. October 19, 2000]). Benjamin N. Cardozo, THE NATURE OF THE JUDICIAL PROCESS 66 (Yale University Press)
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B. The Empirical Argument for Equity: Salvacion v. Central Bank of the Philippines
While formalism may not actually be a demon in Justice Cardozos extreme phraseology, it could have been so in Salvacion v. Central Bank of the Philippines,71 a case which amply illustrates the point for equity against the strict formalism of law, a shivering case of Omelan proportion in the real world except that our magistrates, thank God for their sense of equity, are the ones who walk away. Karen E. Salvacion was then an innocent girl of twelve years, fond of fun and play and easily delighted by stuffed teddy bears, as most children are in their tender years. One day in February, Karen, while waiting for a ride home, was approached by an American tourist, Greg Bartelli, and on pretext of needing a Filipino language tutor for his niece, lured the child to his apartment. There was no niece at the apartment, only a stuffed teddy bear and a vicious Bartelli of deviant sexual preferences. For four days, Karen had been detained in the apartment and raped repeatedly, at least ten times in four days, by Bartelli. Rescued from her harrowing ordeal with the help of neighbors, Bartelli was later charged with multiple rape and serious illegal detention. Simultaneously, Karen, through his father, filed a civil case for damages with application for preliminary attachment against the American. Bartelli, however, escaped from jail on the day of the hearing on his petition for bail in the criminal cases. The criminal cases were later archived pending the arrest of Bartelli. In the civil case, the court issued the writ of attachment which was served on China Banking Corporation where Bartelli maintains a dollar deposit account. China Bank resisted the writ invoking finally Section 113 of Central Bank Circular No. 960 (taken from Republic Act No. 6426 as amended) on the sanctity of dollar deposits by foreigners in that such deposit may not be attached, garnished, or touched at all by any order or process of any court, legislative body, or government agency. In short, the three branches of our government are rendered powerless, by law, against this Holy Grail of currencies. The Central Bank, upon inquiry, sustained China Banks position. Later, judgment was rendered by the trial court against Bartelli in the civil case, after summons had been served by publication and declaration of default of the defendant for failure to file answer. Bartelli being still at large, was again notified of the decision by publication. Upon finality of the judgment, counsel for Karen went back to China Bank to execute on Bartellis dollar account. Again, the bank invoked the legal untouchability of the dollar deposit. Karen went to the Supreme Court on a petition for declaratory relief. Meanwhile, the effect of Karens ordeal began to take its toll: she avoided playing with her brother and sister and refused to even venture out of the house for one reason or the other. She was likewise in
71 G.R. No. 94723, August 21, 1997.
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constant shock and depression. Once, she was refused transfer of school to Jose Abad Santos, Arellano University, because the school officials were afraid to be implicated in the case. Karen was clearly becoming alone, mired in the filth and dirt of her shoved experience; a virtual Omelan sacrifice except that, this time, we are not talking of a fictional short story or character. Karen is flesh and blood in a world of men and steel. The lachrymose reader will note that the Central Banks position on the supremacy of the law as justification in refusing to honor the writ of execution here, while perhaps unknowing, echoed of utilitarian positivism dictating the greatest happiness to the greatest, number, a failed philosophy in the context of the Omelan sacrifice of a single child for the happiness of the entire community: [The questioned provision is needed to promote the public interest and the general welfare; that the State cannot just stand idly by while a considerable segment of the society suffers from economic distress; that the State had to take some measures to encourage economic development; and that in so doing persons and property may be subjected to some kinds of restraints or burdens to secure the general welfare or public interest. But the Supreme Court will not be deterred from administering justice. It resolved the main question for Karen by sustaining her claim on the dollar deposit and ordering its release to her in such amount as would satisfy the judgment.72 In a language bristling in righteous indignation and resonating with equity considerations, the Court said: If Karens sad fate had happened to anybodys own kin, it would be difficult for him to fathom how the incentive for foreign currency deposit could be more important than his childs rights to said award of damages; in this case, the victims claim for damages from this alien who had the gall to wrong a child of tender years of a country where he is a mere visitor. This further illustrates the flaw in the questioned provisions. It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time when the countrys economy was in a shambles; when foreign investments were minimal and presumable, this was the reason why said statute was enacted. But the realities of the present times show that the country has recovered economically; and even if not, the questioned law still denies those entitled to due process of law for being unreasonable and oppressive. The intention of the questioned law may be good when enacted. The law failed to anticipate the iniquitous effects producing outright injustice and inequality such as the case before us.
72 A little over than One Million Pesos: Php500,000.00 as moral damages for Karen; Php300,000.00 for her parents; Php100,000.00 in exemplary damages; 25% of the total amount of damages awarded for attorneys fee; and Php10,000.00 for litigation expenses plus the cost of suit.
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In fine, the application of the law depends on the extent of its justice. Eventually, if we rule that the questioned Section 113 of Central Bank Circular No. 960 which exempts from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever, is applicable to a foreign transient, injustice would result specially to a citizen aggrieved by a foreign guest like accused Greg Bartelli. This would negate Article 10 of the New Civil Code which provides that in case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right and justice to prevail. Ninguno non deue enriquecerse tortizeramente con dano de otro. Simply stated, when the statute is silent or ambiguous, this is one of those fundamental solutions that would respond to the vehement urge of conscience. (Padilla vs. Padilla, 74 Phil. 377). It would be unthinkable, that the questioned Section 113 of Central Bank No. 960 would be used as a device by accused Greg Bartelli for wrongdoing, and in so doing, acquitting the guilty at the expense of the innocent. Call it what it may but is there no conflict of legal policy here? Dollar against Peso? Upholding the final and executory judgment of the lower court against the Central Bank Circular protecting the foreign depositor? Shielding or protecting the dollar deposit of a transient alien depositor against injustice to a national and victim of a crime? This situation calls for fairness against legal tyranny. We definitely cannot have both ways and rest in the belief that we have served the ends of justice. (Italics ours) In an apocryphal anecdote where a professor of law supposedly asked a sitting Justice who participated in the deliberation in Salvacion on why the Court ruled in such wise, our unnamed Justice replied: The law? But its so unfair!
VI CONCLUSION
Who can argue against the Supreme Courts preference for equity over law in Salvacion and face his God later in self-righteousness? And, therefore, who can argue against equity as basis for adjudication when, at times, the facts of the case cry to High Heavens for justice and restitution? For all its worth and logical imperfections, Salvacion, is a shining beacon of light for those trapped and mired in the complexities V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 19
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of law and rules who, bereft of understanding on the purpose for which the law was crafted, enshrined them as unseeing and unfeeling idols of worship in a vicious cycle of deification and self-justification. Even Justice Oliver Wendell Holmes, Jr. perhaps, in his legal realism which allows the influence of social sciences to law, but grudgingly of morals and equity, in rare moments of conceding, would approve his own words for our purpose here: If you want to know the law and nothing else, you must look at it as a bad man, who cares only for the material consequences which such knowledge enables him to predict, not as a good one, who finds his reasons for conduct, whether inside the law or outside of it, in the vaguer sanctions of conscience.73 Indeed, for against these androids of the law, a righteous cause must be shielded by equity. The individual must be kept safe in his basic human rights against the collective, yet abstract, public interests justification protected and advanced by the formalism or strict positivism of law. After all, in figurative sense, there may be other Karens out there as the Bartellis of the world with their dear dollar deposits and cheap teddy bears continue to prowl the landscape of this hapless land. Thus, the proper mindset here is that there should be no conflict between law and equity in adjudication. Each has its own occasion and purpose. On one hand, law cannot conceivably cover all future events and totally address with scientific precision the ever shifting combinations of facts of prospective disputes and cases. On the other, equity which is rooted in mans conscience and fundamental sense of fairness and justice, may always be relied upon for all time and seasons as permanent lodestar for our dimming humanity in a sea of diktat and fiat and laws and rules. Dr. Jorge Bocobo, once said, every good law draws its breath of life from morals, from those principles which are written with words of fire in the conscience of man.74 As Justice Somer of the New Zealand High Court would summarize the relationship between the two norms: Neither law nor equity is now stifled by its origin and the fact that both are administered by one Court has inevitably meant that each has borrowed from the other in furthering the harmonious development of the law as a whole. 75 On this note, we end as we started, as the wisdom of Medieval England revisits us once again: recourse to equity is always an option to temper the harshness of the law. Yet, when the law itself is clear but still inadequate or tyrannical to serve elementary demands of individual fairness, fluidity is a virtue in judicial adjudication. This may, of course, be susceptible to judicial abuse, as the king even in the exercise
73 74 75 O. W. Holmes, Jr., THE PATH OF THE LAW, 10 Harvard Law Review 457 (1987); also in Richard A. Posner (editor), THE ESSENTIAL HOLMES 160, The University of Chicago Press (1992). Juan Rivera, THE FATHER OF
THE
FIRST BROWN RACE CIVIL CODE 57 (1978).
Elders Pastoral Ltd. V. Bank of New Zealand, 2 NZLR 180 at 193, [1989] cited in Gary Watt, TRUSTS TEXTBOOK 14, Oxford University Press (2006, 2nd ed.).
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of his professed divine rights is so susceptible. But then we cannot have them both ways unless in blind faith we grant that Nietzches Ubermensch76 has already come to us all in robes. Magistrates are men and women of imperfections as all of us are, and at the risk of occasional error, we keep the faith in this system of judicial justice that, to a great extent and for most of the time, honestly endeavors to serve us all.
76
Accurately translated as overman (one who towers over us all by the continuing perfection of his faculties) instead of the more popular and sarcastic superman, (of superhuman powers). The idea received more comprehensive exposition in Nietzches Thus Spoke Zarathustra (in Walter Kaufmanns translation), The Modern Library (1995).
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Workers Preference in Case of Bankruptcy

(Under Article 110 of the Labor Code and Related Laws)
Manuel D. Yngson, Jr.*
Part I
1. Backgrounder
1.01. Prefatory Statement

As insolvency and bankruptcy specialists, one of the most interesting issues that we came across with in the course of our continuing survey of Supreme Court decisions on insolvency and related topics such as liquidation, bankruptcy and dissolution (especially of corporations), concurrence and preference of credits, corporate rehabilitation, intra-corporate cases and the like, has to do with the preference accorded by law to the workers claim for unpaid wages and other monetary claims. This issue gains double significance from the fact that not only is there a specific law that extends to workers special preference in case of bankruptcy, but also, no less than the Constitution of the Philippines exhorts the protection of labor by the State. Especially so when the rights of workers are juxtaposed against the right of the State to collect taxes which is likewise amply protected by basic legal postulates as well as by the Constitution. The clash of these titanic claimants with its explosive social implication is not helped any by the preferential rights afforded to secured creditors who claim either legal or contractual liens over particular personal or real properties, thereby resulting in the triangular battle of giant claimants, namely (a) workers for unpaid wages and other monetary claims, (b) the State and its local subdivisions for taxes, and (c) secured creditors for their liens on particular properties.
Atty. Manuel D. Yngson, Jr., AA (with honors) 1960, AB (cum laude) 1962, LLB 1966 and MBA 1981 all from the University of Philippines, is a former member of the Consultants Group of the Philippine Judicial Academy (Philja) and has been an insolvency law practitioner since 1984 when he was appointed as the first external counsel of the then Central Bank of the Philippines to represent a number of banks closed by the Central Bank for insolvency. Prior to that, he specialized on litigation, taxation, labor and corporate services for seventeen (17) years. He is the Founding President of both the Tax Management Association of the Philippines (TMAP), and the Corporate Recovery and Insolvency Practitioners Association of the Philippines, Inc. (INSOLPHIL). Atty. Florante A. Cayunda, Jr., of San Beda Law Class 2005 assisted in the research of this legal essay.
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This clash is so intense, so much so that the Supreme Court itself, starting from 1982 in the case of PCIB vs. National Mines and Allied Workers Union, 115 SCRA 873, is seen by some quarters to have been flip-flopping in its decisions in resolving the matter. Apparently, in the Supreme Court, there were two (2) distinct schools of thought on this subject of workers preference: one that exalted the unbridled and absolute preference of workers claims, and the other that sought to maintain the technical structure and symmetry of the Rules on Concurrence and Preference of Credits provided under the Civil Code - one of the most carefully crafted and harmoniously balanced set of rules that our country ever had. Prompted by the foregoing background and urged further by recent reports that certain rating companies allegedly hesitate to give the Philippines a better economic evaluation for foreign loan purposes because their legal advisers purportedly conclude, among others, that under existing Philippines Laws the claim of workers are given more preference than the claim of the State for taxes, we urgently proceeded to make this brief study. Since the decisions of the Supreme Court were generally self-arguing and self-justifying in the sense that the pro-worker and pro-legal structure decisions tend to find support in the earlier decisions advocating their respective positions even if such decisions were already subsequently overturned, it is easy for any practitioner or for that matter, even a judge to get lost in the maze of seemingly conflicting decisions. Actually, we found harmony and consistency in the Supreme Court decisions, for we noted that some justices who were earlier ponentes of pro-worker decisions, eventually became ponentes of pro-legal structure decisions, attesting to the strength of logical and objective reasoning over the passionate temptation to protect the rights of labor at all cost, even if it tears down the very heart of insolvency proceedings, the distribution of assets or the proceeds of liquidation pursuant to the Rules on Concurrence and Preference of Credits. We made this discovery by simply putting together the Supreme Court decisions in chronological order and assuming that a later decision automatically supercedes an earlier decision, pursuant to the precepts of res judicata and stare decisis. In this way we arrived at what we call as the majority decision, since being most recent and by sheer force of number, these decisions upholding the symmetrical legal structure set by the Rules on Concurrence and Preference of Credits, are now supported by majority of the members of the Supreme Court, at least based on the latest decisions.
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Workers Preference in Case of Bankruptcy (Under Article 110 of the Labor Code and Related Laws)
1.02. Quick Review of Insolvency Concepts

But first, lets take a quick review of insolvency concepts: 1.02.1. Bankruptcy - occurs when the realizable assets of a corporation are less than its liabilities 1.02.2. Dissolution of a corporation - is the termination of the legal existence of the juridical corporate entity arising from either the expiration of its term or withdrawal of its certificate of registration. 1.02.3. Insolvency of a corporation is its state, status or condition of being unable to pay its obligations as they fall due in the ordinary or usual course of trade or business.1
1.02.4. Meaning of Insolvency as used in the Insolvency Law (Act 1956) is Liquidation 1.02.5. Liquidation of a corporation is the process of reducing or conversion of its assets to cash and the distribution thereof to its creditors, discharging liabilities and dividing surplus or loss in the process.2 1.02.6. Rehabilitation of a corporation means restoring it to its former capacity as such corporation, clothing it again with its right, authority or dignity. It also includes the totality of the efforts to cure the sickness of the corporation. 1.02.7. Solvent Corporation- one that has more assets than liabilities and can meet its financial obligations as they fall due in the ordinary course of business. 1.02.8. Technical Insolvency or Illiquidity is a situation in which a firm is unable to meet its current obligations as they come due, even though the value of its assets may exceed its liabilities.3
1 2 3
Blacks Law Dictionary Id. Id.
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1.03. The Contending Laws

Before proceeding further, let us examine the relevant laws involved. Aside from the Constitutional provisions involved4, there is a direct clash between two (2) great body of laws: the Civil Code, and the Labor Code. 1.03.1. Civil Code of the Philippines (Rep. Act No. 386), enacted on 18 June 1949 In one corner, are the relevant provisions of the Civil Code of the Philippines laying down the Rules on Concurrence and Preference of Credits, particularly: Article 2237. Insolvency shall be governed by special laws insofar as they are not inconsistent with this Code . (Emphasis added) Article 2241. With reference to specific movable property of the debtor, the following claims or liens shall be preferred: (1) Duties, taxes and fees due thereon to the State or any subdivision thereof; xxxxx (4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a chattel mortgage, upon the things pledged or mortgaged, up to the value thereof; xxxxx (6) Claims for laborers wages, on the goods manufactured or the work done. (Emphasis added). xxxxx Article 2242. With reference to specific immovable property and real rights of the debtor, the following claims, mortgages and liens shall be preferred, and shall constitute an encumbrance on the immovable or real right:
4 The State affirms labor as a primary social economic force. It shall protect the rights of workers and promote their welfare (Art. II, Sec. 18) x x x x The State shall afford full protection to labor, local and overseas, organized and unorganized and promote full employment and equality of employment opportunities for allx x x x (Art. XIII, Sec. 3).
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(1) Taxes due upon the land or building; xxxxx (3) Claims of laborers, masons, mechanics and other workmen, as well as of architects, engineers, and contractors, engaged in the construction, reconstruction, or repair of buildings, canals, or other works; xxxxx (5) Mortgage credits recorded in the Registry of Property , upon the real estate mortgaged; (Emphasis added). xxxxx Article 2243. The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing insolvency. Taxes mentioned in No. 1, Article 2241 and No. 1, Article 2242, shall first be satisfied. (Emphasis added). xxxxx Article 2244. With reference to other property, real and personal of the debtor, the following claims or credits shall be preferred in the order named: xxxxx (1) Proper funeral expenses for the debtor, or children under his or her parental authority who have no property of their own, when approved by the court; (2) Credits for services rendered the insolvent by employees, laborers, or household helpers for one year preceding the commencement of the proceedings in insolvency; xxxxx (9) Taxes and assessments due the national government, other than those mentioned in Articles 2241 No. 1, and 2242, No. 1; (10) Taxes and assessments due any province, other than those referred to in Articles 2241 No. 1, and 2242, No. 1;
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(11) Taxes and assessments due any city or municipality, other than those indicated in Articles 2241 No. 1, and 2242, No. 1; (Emphasis added). xxxxx Article 2245. Credits of any other kind or class, or by any other right or title not comprised in the four preceding articles shall enjoy no preference. xxxxx Article 2247. If there are two or more credits with respect to the same specific movable property, they shall be satisfied pro rata, after the payment of duties, taxes and fees due the State or any subdivision thereof. (Emphasis added). xxxxx Article 2249. If there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro rata , after the payment of duties, taxes and fees due the State or any subdivision thereof. (Emphasis added). 1.03.2 . Labor Code of the Philippines (PD No. 442) enacted on 01 November 1974 In the other corner is the Labor Code of the Philippines, Article 110 of which originally provided, that: Article 110. Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of the employers business, his workers shall enjoy first preference as regards wages due them for the services rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer . (Emphasis added). In the implementation of the foregoing provision, Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code, as amended, provides: Section 10. Payment of wages in case of bankruptcy. Unpaid wages earned by the employees before the declaration of bankruptcy or 28 IBP JOURNAL
judicial liquidation of an employers business shall be given first preference and shall be paid in full before the other creditors may establish any claim to a share in the assets of the employer. Subsequently, on 21 March 1989, Section 1 of Republic Act No. 6715 amended this provision of the Labor Code to read as follows: Article 110. Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of the employers business, his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages and other monetary claims shall be paid in full before claims of the Government and other creditors may be paid . (Emphasis added). Section 10, Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code has also been correspondingly amended, and now provides: Section 10. Payment of wages and other monetary claims in case of bankruptcy. In case of bankruptcy or liquidation of the employers business, the unpaid wages and other monetary claims of the employees shall be given first preference and shall be paid in full before the claims of the government and other creditors may be paid.
1.04. More Definitions

1.04.1. Classification of Credits (as to Preference) Under the provisions of the Civil Code quoted above, the claims or credits against an insolvent corporation/partnership (or for that matter, an insolvent individual) may be classified into three (3) general categories, namely: (a) special preferred credits listed in Articles 2241 and 2242; (b) ordinary preferred credits listed in Article 2244; and (c) common credits under Article 2245. The special preferred credits may still be further classified into: (a.1) Taxes mentioned in Articles 2241 No. 1 and 2242 No. 1 or what this writer calls super special preferred credits; and (a.2) other special preferred credits.
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1.04.2. Concurrence of credits Concurrence of credits occurs when the same specific property of the debtor or all of his property is subjected to the claims of several creditors. The concurrence of credits raises no questions of consequence where the value of the property or the value of all assets of the debtor is sufficient to pay in full all the creditors. However, it becomes material when said assets are insufficient for then some creditors of necessity will not be paid or some creditors will not obtain the full satisfaction of their claims. In this situation, the question of preference will then arise, that is to say who of the creditors will be paid ahead of the others. (Caguioa, Comments and Cases on Civil Law, 1970 ed., Vol. VI, p. 472). 1.04.3. Preference of Credit xxx A preference of credit points out solely the order in which creditors would be paid from the properties of a debtor inventoried and appraised during bankruptcy, insolvency or liquidation proceedings. xxx A preference does not exist in any effective way prior to, and apart from, the institution of these proceedings, for it is only then that the legal provisions on concurrence and preference of credits begin to apply. Unlike a lien, a preference of credit does not create in favor of the preferred creditor a charge or proprietary interest upon any particular property of the debtor. Neither does it vest as a matter of course upon the mere accrual of a money claim against the debtor [Kuenzle & Streiff vs. Villuaneva, 41 Phil. 611 (1916)] 1.04.4. Special Preferred Credits The credits mentioned in Articles 2241 and 2242 (whether tax or nontax) are called special preferred credits because they constitute liens or encumbrances on the specific movable or immovable property to which they are attached. They take precedence over ordinary preferred credits so far as concerns such specific properties. These specially preferred credits must be discharged first out of the proceeds of the property over which they have a lien, before ordinary preferred credits may be paid.
1.05. Legal Issues Encountered

In this survey, we strove to answer the following specific questions enroute to resolving the main issues on workers preference: 1.05.1. Considering that it provides for preference in bankruptcy which is governed by the Civil Code, how should Article 110 of the Labor Code, as amended, be interpreted?
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1.05.2. In the light of the provision that In the event of the bankruptcy or liquidation of an employers business, his workers shall enjoy first preference as regards their unpaid wages and other monetary claims any provision of law to the contrary notwithstanding embodied in Article 110 of the Labor Code, as amended, should this law be construed to mean as giving absolute preference to labor or workers claims? 1.05.3. Considering that under Art. 110 of the Labor Code, workers unpaid wages and monetary claims shall be paid in full before claims of the government and other creditors may be paid, are workers claims under said law given more preference than the claims of the government, whether national or local, for taxes, duties and fees? 1.05.4. Are taxes, duties and fees not constituting liens or encumbrances on specific movable or immovable properties of taxpayers subordinate to labor or workers claims under Article 110 of the Labor Code, as amended? 1.05.5. Is there any legal way whereby said taxes, duties and fees not constituting liens or encumbrances on specific properties may be made superior to said labor claims? 1.05.6. Are the liens of secured creditors and the other special preferred credits under Articles 2241 and 2242 of the Civil Code, subordinate to the claims of workers under Article 110 of the Labor Code, as amended? How about workers claims under the same Civil Code articles? 1.05.7. Considering the deletion of the phrase declaration of bankruptcy or judicial liquidation of the employers business in Sec. 10 Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code, what are the effects of the amendments introduced by R.A. No. 6715 on Article 110 of the Labor Code if any? 1.05.8. Under the Rules on Concurrence and Preference of Credits, what are the levels of liens and preferences concerning taxes as well as credits secured by pledges or mortgages, vis--vis workers claims under Article 110 of the Labor Code, as amended? 1.05.9. What kind of proceedings, if any, are required before the workers preference mentioned in Article 110 of the Labor Code, as amended, may be enforced? Does the same requirement apply to other preferred as well as secured credits under the Rules on Concurrence and Preference of Credits? 1.05.10. Can workers preference be invoked if the proceedings involved are Corporate Rehabilitation proceedings?
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2.
Survey of Supreme Court Decisions on Workers Preference in Bankruptcy

Now we are ready to tackle the case survey. 2.01. De Barretto vs. Villanueva 01 SCRA 288 (28 January 1961) and 06 SCRA 928 (29 December 1962) This case was basically a contest between an unpaid vendor claiming the vendors lien and a mortgage creditor claiming the mortgagees lien. Although it did not pertain to a workers claim, it is included in this compilation because it is the first key en-banc decision that pertains to concurrence and preference of credit and insolvency after the effectivity of the New Civil Code. Also, the change in the ruling of the Supreme Court after a Motion for Reconsideration was filed in this case, heralded the dichotomy of thinking that the Supreme Court would subsequently adopt starting two (2) decades later. 2.01.1. On the necessity of a proceeding for the prorating of preferred credits, the initial ruling of the Supreme Court was: As to the point made that the articles of the Civil Code on concurrence and preference of credits are applicable only to the insolvent debtor, suffice it to say that nothing in the law shows any such limitation. If we are to interpret this portion of the Code as intended only for insolvency cases, then other creditor-debtor relationships where there are concurrence of credits would be left without any rules to govern them, and it would render purposeless the special laws on insolvency. 2.01.2. Upon Motion for Reconsideration, however, the Supreme Court reversed its ruling on the same subject of necessity of liquidation proceedings in this wise: We have given protracted and mature consideration to the facts and law of this case, and have reached the conclusion that our original decision must be reconsidered and set aside, for the following reasons: A. The previous decision failed to take fully into account the radical changes introduced by the Civil Code of the Philippines into the system of priorities among creditors ordained by the Civil Code of 1889. Pursuant to the former Code, conflicts among creditors entitled to
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preference as to specific real property under Article 1923 were to be resolved according to an order of priorities established by Article 1927, whereby one class of creditors could exclude the creditors of lower order until the claims of the former were fully satisfied out of the proceeds of the sale of the real property subject of the preference, and could even exhaust proceeds if necessary. Under the system of the Civil Code of the Philippines however, only taxes enjoy a similar absolute preference. All the remaining nine classes of preferred creditors under Article 2242 enjoy no priority among themselves, but must be paid pro rata, i.e., in proportion to the amount of the respective credits . Thus 2249 provides: If there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro rata, after the payment of the taxes and assessments upon the immovable property or real rights. But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 10 of Article 2242 (or such of them as have credits outstanding) must necessarily be convened, and the import of their claims ascertained. It is thus apparent that the full application of Articles 2249 and 2242 demands that there must be first some proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of decedents estate under Rule 87 of the Rules of Court, or other liquidation proceedings of similar import. (Emphasis added) Score: Mortgagees lien-1; Vendors lien- 0.
2.02. Philippine Commercial and Industrial Bank (PCIB) vs. National Mines & Allied Workers Union (NAMAWU-MIF), 115 SCRA 873 (19 August 1982) This was the first in a series of cases of the Supreme Court with tug-ofwar decisions on the preference of workers claim, especially versus a foreclosing mortgagees claim, a tax claim or the claim of some other secured lien-holder. After quoting the workers preference under Article 110 of said Code and citing the principles of social justice and the protection afforded to labor under the Constitution, the Supreme Court, thru Justice Barredo held:
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2.02.1. Mere application for clearance tolls workers preference We hold that the right of the Union members over the properties or assets of PIM became vested from the date the Minister of Labor approved PIMs application for clearance on May 7, 1975. In the most legal sense and, again, consonant with the principles of social justice and protection to labor under the Constitution of the Philippines above referred to the NLRC decision was only confirmatory of such right, not unlike the juridical effect of the issuance of a Torrens title over a piece of land already covered by a legitimate Spanish title. And so, when petitioners acquired the properties of PIM in the foreclosure sales, those properties were already encumbered in favor of the Union members/claimants by force of law. 2.02.2. Rationale behind the provisions of the Labor Code giving preference to labor claims The reason behind the provisions of the Labor Code giving preference to claims of labor in the liquidation of a business or industrial concern is patent and manifest. It is but humane and partakes of the divine that labor, as human beings, must be treated over and above chattels, machineries and other kinds of properties and the interests of the employer who can afford and survive the hardships of life better than their workers. Universal sense of human justice, not to speak of our specific social justice and protection to labor constitutional injunctions dictate the preferential lien that the above provisions accord to labor. (Emphasis added). Score: Workers preference- 1; Mortgagees lien- 0. 2.03. Philippine Savings Bank (PSB) vs. Lantin, 124 SCRA 476 (02 September1983) The conflict in this case was between a buyer in a foreclosure sale claiming the mortgagees lien and an unpaid contractor claiming the contractors lien. Again, while this case did not involve a workers claim, it is included in this compilation because it clarified when concurrence of credits occurs, when it becomes material and when the Rules on Concurrence and Preference of Credits are applicable, stressing the need for insolvency or some other type of in rem liquidation proceeding before the Rules could apply, thereby making this case one of the most quoted cases on concurrence and preference of credits. In this case, the Supreme Court held: 34 IBP JOURNAL
2.03.1. Need for proceedings where preferred claims may be bindingly adjudicated Under the De Barreto decision, the full application of Articles 2242 and 2249 demands that there must first be some proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of a decedents estate under Rule 87 of the Rules of Court, or other liquidation proceedings of similar import. (Emphasis added) xxxxx 2.03.2. When concurrence of credits occurs Concurrence of credits occurs when the same specific property of the debtor or all of his property is subjected to the claims of several creditors. The concurrence of credits raises no questions of consequence where the value of the property or the value of all assets of the debtor is sufficient to pay in full all the creditors. However, it becomes material when said assets are insufficient for then some creditors of necessity will not be paid or some creditors will not obtain the full satisfaction of their claims . In this situation, the question of preference will then arise, that is to say who of the creditors will be paid ahead of the others [Caguioa, Comments and Cases on Civil Law, 1970 ed., Vol. VI, p. 472]. (Emphasis added) xxxxx 2.03.3. Among Special Preferred Credits, only taxes enjoy absolute preference Under the system established by Article 2249 of the Civil Code of the Philippines, only taxes and assessments upon immovable property enjoy absolute preference . All the remaining specified classes of preferred creditors under Article 2242 enjoy no priority among themselves. Their credits shall be satisfied pro-rata, i.e., in proportion to the amount of the respective credits. (Emphasis added). xxxxx 2.03.4. Insolvency and liquidation proceedings are proceedings in rem
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Insolvency proceedings and settlement of a decedents estate are both proceedings in rem which are binding against the whole world. All persons having interest in the subject matter involved, whether they were notified or not, are equally bound. Consequently, a liquidation of similar import or other equivalent general liquidation must also necessarily be a proceeding in rem so that all interested persons whether known to the parties or not may be bound by such proceedings. (Emphasis added) Score: Mortgagees lien-1; Contractors lien- 0.
2.04. Republic vs. Peralta, 150 SCRA 37 (20 May 1987)

This en-banc decision penned by Justice Feliciano is the most instructive decision on concurrence and preference of credits. In this case which involved tax claims versus workers claims under Art. 110 of the Labor Code, the Supreme Court not only described in detail the classification of credits and the order of preference under the Civil Code as well as discussed the distinction between a preference and a lien, but also stressed on the need for a harmonious interpretation of the Rules on Concurrence and Preference of Credits under the Civil Code and the Insolvency Law and kindred provisions such as those under Art. 110 of the Labor Code, without totally ignoring the impact of Art. 110 on such Rules. More importantly, this case tolled the first major shift of the sentiment of the Supreme Court in favor of the structural scheme of the rules on concurrence and preference of credits, thereby abandoning the prolabor ruling in PCIB vs. NAMAWU-MIF, supra. Notably, Justice Cruz dissented from the Courts ruling, invoking the superiority of a subsequent law i.e. Art. 110 of the Labor Code, over an older one, i.e. the Civil Code, as a later expression of the legislative will. He also invoked social justice, arguing that it is not a mere catchphrase. The Supreme Court held: 2.04.1. Interpretation to harmonize laws; Art. 110 of the Labor Code cannot be viewed in isolation The resolution of the issue of priority among the several claims filed in the insolvency proceedings instituted by the Insolvent cannot, however, rest on a reading of Article 110 of the Labor Code alone. Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in isolation. Rather, Article 110 must be read in relation to the provisions of the Civil Code concerning the classification, concurrence and preference of credits, which provisions find particular application in insolvency 36 IBP JOURNAL
proceedings where the claims of all creditors, preferred or nonpreferred, may be adjudicated in a binding manner. (Emphasis added) 2.04.2. Classification of Credits under the Civil Code It is thus important to begin by outlining the scheme constituted by the provisions of the Civil Code on this subject. Those provisions may be seen to classify credits against a particular insolvent into three general categories , namely: (a) special preferred credits listed in Articles 2241 and 2242; (b) ordinary preferred credits listed in Article 2244; and (c) common credits under Articles 2245. (Emphasis added) 2.04.3. Special Preferred Credits constitute liens or encumbrances Turning first to special preferred credits under Articles 2241 and 2242, it should be noted at once that these credits constitute liens or encumbrances on the specific movable or immovable property to which they relate. Article 2243 makes clear that these credits shall be considered as mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing insolvency. It should be emphasized in this connection that duties, taxes and fees due [on specific movable property of the insolvent] to the State or any subdivision thereof (Article 2241 [1]) and taxes due upon the [insolvents] land or building (2242 [1]) stand first in preference in respect of the particular movable or immovable property to which the tax liens have attached. Article 2243 is quite explicit: [T]axes mentioned in number 1, Article 2241 and number 1, Article 2242 shall first be satisfied. The claims listed in numbers 2 to 13 in Articles 2241 and in numbers 2 to 10 in Article 2242, all come after taxes in order of precedence; such claims enjoy their privileged character as liens and may be paid only to the extent that taxes have been paid from the proceeds of the specific property involved (or from any other sources) and only in respect of the remaining balance of such proceeds. What is more these other (non-tax) credits, although constituting liens attaching to particular property, are not preferred one over another inter se . Provided tax liens shall have been satisfied, non-tax liens or special preferred credits which subsist in respect of specific movable or immovable property are to be treated on an equal basis and to be satisfied concurrently and proportionately. (Emphasis added). V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 37
2.04.4. Two-Tier Order of Preference among Special Preferred Credits Put succinctly, Articles 2241 and 2242 jointly with Articles 2246 to 2249 established a two-tier order of preference. The first tier includes only taxes, duties and fees due on specific movable or immovable property. All other special preferred credits stand on the same second tier to be satisfied, pari passu and pro rata, out of any residual value of the specific property to which such other credits relate. (Emphasis added). 2.0.4.5. Special Preferred vs. Ordinary Preferred Credits Credits which are specially preferred because they constitute liens (tax or non-tax) in turn, take precedence over ordinary preferred credits so far as concerns the property to which the liens have attached. The specially preferred credits must be discharged first out of the proceeds of the property to which they relate, before ordinary preferred creditors may lay claim to any part of such proceeds. (Emphasis added) 2. 0.4.6. Order of Preference under Article 2244 of the Civil Code In contrast with Articles 2241 and 2242, Article 2244 creates no liens on determinate property which follow such property. What Articles 2244 creates are simply rights in favor of certain creditors to have the cash and other assets of the insolvent applied in a certain sequence or order of priority (Emphasis added). 2.0.4.7. Article 110 of the Labor Code creates a preference, not a lien Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are already covered by Article 2241, number 6: claims for laborers wages, on the goods manufactured or the work done; or by Article 2242, number 3: claims of laborers and other workers engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals or other works. To the extent that claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they would 38 IBP JOURNAL
come within the ambit of the category of ordinary preferred credits under Article 2244. (Emphasis added). 2.04.8. Impact of Art. 110 on the Rules of Concurrence and Preference of Credits.We come to the question of what impact Article 110 of the Labor Code has had upon the complete scheme of classification, concurrence and preference of credits in insolvency set out in the Civil Code. We believe and so hold that Article 110 of the Labor code did not sweep away the overriding preference accorded under the scheme of the Civil Code to tax claims of the government or any subdivision thereof which constitute a lien upon properties of the Insolvent. The use of the phrase first preference in Article 110 indicates that what Article 110 intended to modify is the order of preference found in Article 2244, which order relates, as we have seen, to property of the Insolvent that is not burdened with the liens or encumbrances created or recognized by Articles 2241 and 2242. (Emphasis added). 2.04.9. On changes brought about by Art. 110.Thus, very substantial effect may be given to the provisions of Article 110 without grievously distorting the framework established in the Civil Code by holding, as we so hold, that Article 110 of the Labor Code has modified Article 2244 of the Civil Code in two respects: (a) firstly, by removing the one year limitation found in Article 2244, number 2; and (b) secondly, by moving up claims for unpaid wages of laborers or workers of the Insolvent from second priority to first priority in the order of preference established by Article 2244 . (Emphasis added) 2.04.10. Cruz J., Dissenting.I regret I cannot give my concurrence to the majority opinion because it reads into the law an exception that is not there. In so doing, it arrogates for the Court a power rightfully belonging to the legislature. It seems to me that the erudite ponencia doth protest too much. The language of the provision in question is clear and categorical. Article 110 of P.D. No. 442 states quite plainly: V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 39
Art. 110 Worker preference in case of bankruptcy.- In the event of bankruptcy or liquidation of an employers business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer. (Emphasis mine). I take the phrase any provision of law to the contrary notwithstanding to mean exactly what it says. I submit that if the law had intended an exception, it would have-and could easily have-provided for it. xxxxx Social justice is not a mere catchphrase to be mouthed with sham fervor in Labor Day celebrations for the delectation and seduction of the working class. It is a mandate we should pursue with energy and sincerity if we are to truly insure the dignity and well-sign of the laborer Score: Tax claim-1; Workers preference 0
2.05. A.C R ansom Labor Union-CCLU vs. National Labor Relations Commission (NLRC) 150 SCRA 498 (29 May 1987)
After the flip, now comes the flop. Amazingly, only nine (9) days after the promulgation of the scholarly en-banc decision in Republic vs. Peralta, 150 SCRA 37 (20 May 1987), the Supreme Court reverted to its pro-Labor stance in this Ransom case. Justice Melencio-Herrera who voted with the majority in Peralta, penned the Decision in this case which involved a contest between the buyer of mortgaged corporate assets and the sellers workers claim under Art. 110 of the Labor Code. The Highest Court did not bother to explain in detail its sudden departure from the Peralta doctrine. Instead, it cited the pro-labor ruling in PCIB vs. NAMAWU-CIF, which was in fact already superceded by the Peralta ruling. Notably, however, it appears that the Decision in the Ransom case was not really a departure from the Peralta doctrine because there was a finding of fraud in the sale of the assets of the insolvent obligor . This obviously made the Court decide the case in favor of labor, without any hesitation. There was no need however, for the Court to cite Art. 110 of the Labor Code which according to the Peralta doctrine confers only a preference under Art 2244 of the Civil Code, and not a lien. The Supreme Court held: 2.05.1. In case of corporate bankruptcy, wages of laborers must first be paid before other creditors 40 IBP JOURNAL
The alleged bankruptcy of RANSOM furnishes no justification for non-payment of backwages to the employees concerned taking into consideration Article 110 of the Labor Code , which provides: ART. 110. Worker preference in case of bankruptcy. - In the event of bankruptcy or liquidation of an employers business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer. The term wages refers to all remunerations, earnings and other benefits in terms of money accruing to the employees or workers for services rendered. They are to be paid in full before other creditors may establish any claim to a share in the assets of the employer. Section 10. Payment of wages in case of bankruptcy.-Unpaid wages earned by the employees before the declaration of bankruptcy or judicial liquidation of the employers business shall be given first preference and shall be paid in full before other creditors may establish any claim to a share in the assets of the employer. The foregoing provisions are but in consonance with the principles of social justice and protection to labor guaranteed by past and present Constitutions and are not really being given any retroactive effect when applied herein. (Emphasis added) 2.05.2. Sale of Corporate Assets Cannot Prejudice Rights of Employees The workers preference applies even if the employers properties are encumbered by means of a mortgage contract, as in this case. So that, when machinery and equipment of RANSOM were sold to Revelations Manufacturing Corporation for P2M in 1975, the right of the 22 laborers to be paid from the proceeds should have been recognized, even though it is claimed that those proceeds were turned over to the Commercial Bank and Trust Company (Comtrust) in payment of RANSOM obligations, since the workers preference is over and above the claim of other creditors. (Emphasis added) 2.05.3. When sale of assets is in fraud of workers, the buyer corporation shall be required to absorb the illegally dismissed workers and pay them backwages and separation pay solidarily with the officers. V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 41
Aggravating RANSOMs clear evasion of payment of its financial obligations is the organization of a run-away corporation, ROSARIO, in 1969 at the time the unfair labor practice case was pending before the CIR by the same persons who were the officers and stockholders of RANSOM, engaged in the same line of business as RANSOM, producing the same line of products, occupying the same compound, using the same machineries, buildings, laboratory, bodega and sales and accounts departments used by RANSOM, and which is still in existence. Both corporations were closed corporations owned and managed by members of the same family. Its organization proved to be a convenient instrument to avoid payment of backwages and the reinstatement of the 22 workers. This is another instance where the fiction of separate and distinct corporate entities should be disregarded. (Emphasis added). Score: Workers preference 2; Mortgagees lien- 0
2.06. Development Bank of the Philippines (DBP) vs. Santos et al., 171 SCRA 138 (08 March 1989).This is the first of eleven (11) decided cases in a span of twelve (12) years, involving the claim of the DBP as a foreclosing mortgagee, versus the claim of the workers of the mortgagor for preference under Art. 110 of the Labor Code. Relying on the rulings in Republic vs. Peralta, supra and PSB vs. Lantin, supra, the Supreme Court, speaking thru Justice Gutierrez, Jr., in this case stressed on the need for a declaration of bankruptcy or a judicial liquidation proceedings before workers preference under Art. 110 may be enforced . Notably, however, the Supreme Court did not again bother to explain its departure from the Decision in the Ransom case and abandon its pro-labor stance in favor of the pro-legal structure sentiment. The Highest Court thus ruled: 2.06.1. Reiterating Republic vs. Peralta.We apply the rule expressed in Republic vs. Peralta (150 SCRA 37 [1988]), where we stated: Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in isolation. Rather, Article 110 must be read in relation to the provisions of the Civil Code concerning the classification, concurrence and preference of credits, which provisions find particular application in insolvency proceedings where the claims of all creditors, preferred or non-preferred, may be adjudicated in a binding manner. [Barreto v. Villanueva, 1 SCRA 288 pp. 44-45 (1961)] xxxxx 42 IBP JOURNAL
It is quite clear from the provisions that a declaration of bankruptcy or a judicial liquidation must be present before the workers preference may be enforced. Thus, Article 110 of the Labor Code and its implementing rule cannot be invoked by the respondents in this case absent a formal declaration of bankruptcy or a liquidation order. Following the rule in Republic vs. Peralta, supra , to hold that Article 110 is also applicable in extra-judicial proceedings would be putting the worker in a better position than the State which could only assert its own prior preference in case of a judicial proceeding . Therefore, as stated earlier, Article 110 must not be viewed in isolation and must always be reckoned with the provisions of the Civil Code. There was no issue of judicial vis-a-vis extra-judicial proceedings in the Republic v. Peralta interpretation of Article 110 but the necessity of a judicial adjudication was pointed out when we explained the impact of Article 110 on the concurrence and preference of credits provided in the Civil Code. We stated: We come to the question of what impact Article 110 of the Labor Code has had upon the complete scheme of classification, concurrence and preference of credits in insolvency set out in the Civil Code. We believe and so hold that Article 110 of the Labor Code did not sweep away the overriding preference accorded under the scheme of the Civil Code to tax claims of the government or any subdivision thereof which constitute a lien upon properties of the Insolvent. ... It cannot be assumed simpliciter that the legislative authority, by using Article 110 of the words first preference and any provision of law to the contrary notwithstanding intended to disrupt the elaborate and symmetrical structure set up in the Civil Code. Neither can it be assumed casually that Article 110 intended to subsume the sovereign itself within the term other creditors, in stating that unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer. Insistent considerations of public policy prevent us from giving to other creditors a linguistically unlimited scope that would embrace the universe of creditors save only unpaid employees. (Emphasis added). 2.06.2. Reiterating rationale in Philippine Savings Bank vs. Lantin Moreover, the reason behind the necessity for a judicial proceeding or a proceeding in rem before the concurrence and preference of credits may be applied was explained by this Court in the case of V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 43
Philippine Savings Bank v. Lantin [124 SCRA 476 (1983)]. We said: The proceedings in the court below do not partake of the nature of the insolvency proceedings or settlement of a decedents estate. The action filed by Ramos was only to collect the unpaid cost of the construction of the duplex apartment. It is far from being a general liquidation of the estate of the Tabligan spouses. xxx. Score: Workers preference 2; Mortgagees lien -1
2.07. DBP vs. Secretary of Labor, 179 SCRA 630 (28 November 1989)
In this second DBP case involving the rights of a foreclosing mortgagee versus the rights of the mortgagors workers, the Supreme Court, speaking thru Justice Cortes, reiterated its pro-legal structure sentiment. This time, the Court categorically ruled on the status of workers preference in bankruptcy, under Art. 110 of the Labor Code. Citing the recent case (at the time) of DBP vs. Santos, ibid, as well as the earlier rulings in Barretto vs. Villanueva, supra; PSB vs. Lantin, and Republic vs. Peralta, supra; and debunking the ruling in the PCIB vs. NAMAWU-CIF case supra as a misconception which must be corrected, the Supreme Court once again clarified that the workers right under Art. 110 of the Labor Code is just a preference, not a lien; that there is no such thing as an automatic first lien in favor of labor; and that a bankruptcy, insolvency or general judicial liquidation proceedings provide the only proper venue for the enforcement of creditors rights such as those under Art. 110. In doing so, the Supreme Court did not ignore the amendment of Art. 110 but instead clarified the legal implication of such amendment in relation to the Rules on Concurrence and Preference of Credits. In another scholarly Decision on the subject of Art. 110, the Highest Court ruled: 2.07.1. On the need for bankruptcy or judicial liquidation proceedings It is clear from the wording of the law that the preferential right accorded to employees and workers under Article 110 may be invoked only during the bankruptcy or judicial liquidation proceedings against the employer. The law is unequivocal and admits of no other construction. (Emphasis added) xxxxx In this jurisdiction, bankruptcy, insolvency and general judicial liquidation proceedings provide the only proper venue for the enforcement of a creditors preferential right such as that established in Article 110 of the Labor Code, for these are in rem proceedings binding against the whole world where all persons having any interest in the assets of the debtor are given the opportunity to establish their respective credits [Philippine Savings Bank vs. Lantin, supra; Development Bank of the Philippines vs. Santos supra]. (Emphasis added). 44 IBP JOURNAL
2.07.2. Rationale for Ruling The rationale for making the application of Article 110 of the Labor Code contingent upon the institution of bankruptcy or judicial liquidation proceedings against the employer is premised upon the very nature of a preferential right of credit . A preference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first ahead of other claims which may be established against the debtor. Logically, it becomes material only when the properties and assets of the debtor are insufficient to pay his debts in full; for if the debtor is amply able to pay his various creditors in full, how can the necessity exist to determine which of his creditors shall be paid first or whether they shall be paid out of the proceeds of the sale of the debtors specific property? Indubitably, the preferential right of credit attains significance only after the properties of the debtor have been inventoried and liquidated, and the claims held by his various creditors have been established [Kuenzle & Streiff (Ltd.) v. Villanueva, 41 Phil. 611 (1916); Barretto v. Villanueva, G.R. No. L-14938, December 29, 1962, 6 SCRA 928; Philippine Savings Bank v. Lantin, G.R. No. L-33929, September 2, 1983, 124 SCRA 476]. (Emphasis added) 2.07.3. Ruling in PCIB Case a Misconception.However, respondents, in citing the case of PCIB v. NAMAWU-MIF [supra], argue that by virtue of Article 110 of the Labor Code, an automatic first lien was created in favor of private respondents on RMC propertiesa lien which predated the foreclosure of the subject properties by petitioner, and remained vested on these properties even after its sale to petitioner and other parties. There is no merit to this contention. misconception which must be corrected. It proceeds from a
What Article 110 of the Labor Code establishes is not a lien, but a preference of credit in favor of employees [See Republic v. Peralta, G.R. No. 56568, May 20, 1987, 150 SCRA 37]. This simply means that during bankruptcy, insolvency or liquidation proceedings involving the existing properties of the employer, the employees have the advantage of having their unpaid wages satisfied ahead of certain claims which may be proved therein. (Emphasis added) 2.07.4. Preference cannot exist without proceedings on bankruptcy, Insolvency or Liquidation It bears repeating that a preference of credit points out solely the order in which creditors would be paid from the properties of a debtor inventoried V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 45
and appraised during bankruptcy, insolvency or liquidation proceedings. Moreover, a preference does not exist in any effective way prior to, and apart from, the institution of these proceedings, for it is only then that the legal provisions on concurrence and preference of credits begin to apply. Unlike a lien, a preference of credit does not create in favor of the preferred creditor a charge or proprietary interest upon any particular property of the debtor. Neither does it vest as a matter of course upon the mere accrual of a money claim against the debtor. Certainly, the debtor could very well sell, mortgage or pledge his property, and convey good title thereon, to third parties free from such preference [Kuenzle & Streiff vs. Villanueva, supra]. (Emphasis added) 2.07.5. Highest Court not unmindful of amendments to Art. 110 of the Labor Code.Incidentally, the Court is not unmindful of the 1989 amendments to the article introduced by Section 1, R.A. No. 6715 [March 21, 1989]. Article 110 of the Labor Code as amended reads: WORKER PREFERENCE IN CASE OF BANKRUPTCY. In the event of bankruptcy or liquidation of an employers business, his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before the claims of the Government and other creditors may be paid. [Amendments indicated.] However, these amendments only relate to the scheme of concurrence and preference of credits; they do not affect the issues heretofore discussed regarding the applicability of Article 110 to the attendant facts. (Emphasis added). Score: Workers preference- 2; Mortgagees lien -2.
2.08. Philippine National Bank (PNB) vs. Cruz et al., 180 SCRA 206 (18 December 1989)
Only twenty (20) days after the promulgation of the Decision in DBP vs. Secretary of Labor supra, the Supreme Court, this time speaking thru Justice Gancayco who voted with the majority in the case of A.C. Ransom Labor UnionCCLU vs. NLRC, supra, again reversed itself and decided in favor of the workers on the same issue of preference between the claim of a mortgage creditor versus the claim of the workers of the mortgagor. As in the case of Ransom which involved a fraudulent transfer of the mortgaged properties in question, the Highest Court has a good legal excuse to decide in favor of the workers in the PNB case because Petitioner PNB did not initially question the validity of the workers 46 IBP JOURNAL
claim for unpaid wages with respect to the mortgaged properties in question, nor raised the issue of priority of mortgagees lien over workers preference on appeal. Hence, the court could not really have allowed PNB to alter its stance in the Supreme Court inasmuch as it had already acquiesced in the decision of the Labor Arbiter concerning unpaid wages. Unfortunately, however, the Supreme Court did not stop there but instead, proceeded to explain that the Court must uphold the preference accorded to the workers in view of the provisions of Art. 110 of the Labor Code which are clear and which admit of no other interpretation. Expectedly, the Court cited the pro-labor Decision in Ransom, that workers preference prevails over mortgagees claim, without however, pointing out that the main reason for the Decision in favor of the workers in the Ransom case was the fraud committed by the mortgagor in effecting the transfer of its property. Worse, in this PNB case, the Supreme Court even tried to debunk the ruling in Republic vs. Peralta by in effect limiting its applicability only to conflicts between a tax lien and the workers preference under Art. 110 of the Labor Code. Worst of all, not only did the Highest Court also cite the equitable principle enunciated in PCIB vs. NAMAWU-CIF, the Decision of which was just described by the Court twenty (20) days earlier as having proceeded from a misconception which must be corrected, but it also volunteered the interpretation, despite the fact that the subject was not even raised as an issue, that not even tax claims could have preference over workers claim Notably, Justice Cruz concurred in this Decision, stressing that in Republic vs. Peralta, he was the only one who held the view that the claims of laborers should take precedence over those of even the Government under Art. 110 of the Labor Code. The Supreme Court held: 2.08.1. On PNBs failure to timely raise the issue of mortgagees lien prior to its appeal.At the outset, petitioner PNB did not question the validity of the workers claim for unpaid wages with respect to the mortgaged properties of AMEX, provided that the same be limited to the unpaid wages, and to the exclusion of termination pay. In the instant petition however, PNB starts off with the question of whether or not the workers lien take precedence over any other claim considering that this Court has ruled otherwise in Republic vs. Peralta [150 SCRA 37 (1987)] This Court cannot allow the petitioner to alter its stance at this stage inasmuch as it is deemed to have acquiesced in the decision of the Labor Arbiter concerning payment of unpaid wages. The records reveal that the petitioner failed to question the same on appeal. Hence V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 47
it is now barred from claiming that the workers lien applied only to the products of their labor and not to the properties of the employer which are encumbered by mortgage contracts or otherwise. (Emphasis added). 2.08.2. Even absent such failure, the provisions of the Labor Code on workers preference as regards monetary claims, must still prevail Notwithstanding the foregoing, an attempt on the part of the petitioner to seek relief from that portion of the decision would still be in vain. Article 110 of the Labor Code provides that: Art. 110. Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of an employers business his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages and monetary claims, shall be paid in full before claims of the government and other creditors may be paid. (Emphasis added). This Court must uphold the preference accorded to the private respondents in view of the provisions of Article 110 of the Labor Code which are clear and which admit of no other interpretation . The phrase any provision of law to the contrary notwithstanding indicates that such preference shall prevail despite the order set forth in Articles 2241 to 2245 of the Civil Code. No exceptions were provided under the said article, henceforth, none shall be considered. Furthermore, the Labor Code was signed into Law decades after the Civil Code took effect . (Emphasis added). 3.3.3. Invoking The Ransom Case Once Again Moreover, Our pronouncement in A. C. Ransom Labor Union-CCLU vs. NLRC , reinforces the above-mentioned interpretation where this Court, speaking through Associate Justice Melencio-Herrera, explicitly stated that (t)he worker preference applies even if the employers properties are encumbered by means of a mortgage contract ... So that, when (the) machinery and equipment of RANSOM were sold to Revelations Manufacturing Corporation for P2M in 1975, the right of the 22 laborers to be paid from the proceeds should have been recognized ... xxxxx Consistent with the ruling of this Court in Volkschel Labor Union vs. Bureau of Labor Relations, this court adopts the doctrine that (i)n the implementation and interpretation of the provisions of the Labor Code and its 48 IBP JOURNAL
implementing regulations, the workingmans welfare should be the primordial and paramount consideration. Bearing this in mind, this Court must reiterate the dictum laid down in A.C. Ransom that the conflict between Article 110 of the Labor Code and Article 2241 to 2245 of the Civil Code must be resolved in favor of the former. A contrary ruling would defeat the purpose for which Article 110 was intended; that is, for the protection of the working class, pursuant to the never-ending quest for social justice. (Emphasis added) 2.08.4. Delimiting the Ruling in Republic vs. Peralta Reliance by the petitioners on Republic vs. Peralta is without basis. The said case involved a question of workers preference as against the tax claims of the State. In the said case the Court held that the State must prevail in that instance since it has been frequently said that taxes are the very lifeblood of government. The effective collection of taxes is a task of highest importance for the sovereign. It is critical indeed for its own survival . (Emphasis added) 2.08.5. Even Demoting Tax Liens Nevertheless, under Article 110 of the Labor Code as amended, the unpaid wages and other monetary claims of workers should be paid in full before the claims of the Government and other creditors. Thus not even tax claims could have preference over the workers claim. (Emphasis added). 2.08.6. Finally, Quoting From The PCIB Case Again Lastly, it must be noted that the amount claimed by petitioner PNB for the satisfaction of the obligations of AMEX is relatively insubstantial and is not significant enough as to drain its coffers. By contrast, that same amount could mean subsistence or starvation for the workingman. Quoting further from Philippine Commercial and Industrial Bank, this Court supports the equitable principle that it is but humane and partakes of the divine that labor, as human beings, must be treated over and above chattels, machineries and other kinds of properties and the interests of the employer who can afford and survive the hardships of life better than their workers. Universal sense of human justice, not to speak of our specific social justice and protection to labor constitutional injunctions dictate the preferential lien that the above provision accord to labor. In line with this policy, measures must be undertaken to ensure that such constitutional mandate on protection to labor is not rendered meaningless by an erroneous interpretation of the applicable laws. (Emphasis added) Score: Workers preference -3; Mortgagees lien 2. V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 49
Notably, in the three (3) cases decided in favor of workers preference, the first was declared a misconception, the second involved fraud against the workers while in the third there was failure to appeal the Labor Arbiters decision.
2.09. DBP vs. NLRC, 183 SCRA 328 (19 March 1990)
Exactly three (3) months after the foregoing PNB ruling was promulgated, the Supreme Court, in another en-banc Decision, this time written by Justice MelencioHerrera who was the ponente in the Ransom case, and concurred in by Justice Gancayco who was also the ponente in the just discussed PNB case, once again decided in favor of the foreclosing mortgagee and against the workers of the mortgagor, as regards the mortgaged properties of the mortgagor, thereby once again upholding the harmony of the kindred provisions of the Insolvency Law, the Civil Code and the Labor Code on the classification and concurrence of credits. In this third DBP case, the Supreme Court reverted once again to its rulings in Republic vs. Peralta, supra, as well as in the first DBP case decided only a year prior to this third DBP case. Stressing that the workers right under Art. 110 of the Labor Code confers only a preference which do not attach to specific properties unlike a lien such as a mortgagees lien which creates a charge on particular property and that the preference of workers under Art. 110 can only exist in a distribution proceeding such as insolvency, and citing the cases of both De Barretto vs. Villanueva, supra, and PSB vs. Lantin, supra, the Supreme Court spoke in the words of Republic vs. Peralta all over again, reiterating that Art. 110 of the Labor Code cannot be viewed in isolation, that kindred provisions of said Code must be made to harmonize with the Civil Code and the Insolvency Law, the principal objective being to effect an equitable distribution of the insolvents property among its creditors, etc. Notably, Justice Cruz who dissented in the Peralta case, again dissented in this case, this time together with Justices Padilla and Sarmiento. Also, Justice Paras concurred with the Dissent of Justice Padilla. 2.09.1. The Court thus reiterated the following rulings, which for convenience, they even numbered 1. Because of its impact on the entire system of credit, Article 110 of the Labor Code cannot be viewed in isolation but must be read in relation to the Civil Code scheme on classification and preference of credits. (Emphasis added) xxxxx 2 . In the same way that the Civil Code provisions on classification of credits and the Insolvency Law have been brought into harmony, so also must the kindred provisions of the Labor Law be made to harmonize with those laws. (Emphasis added) 50 IBP JOURNAL
3. In the event of insolvency, a principal objective should be to effect an equitable distribution of the insolvents property among his creditors. To accomplish this there must first be some proceeding where notice to all of the insolvents creditors may be given and where the claims of preferred creditors may be bindingly adjudicated (De Barretto vs. Villanueva, No. L-14938, December 29, 1962, 6 SCRA 928). The rationale therefor has been expressed in the recent case of DBP vs. Secretary of Labor (G.R. No. 79351, 28 November 1989). (Emphasis added) xxxxx 4. A distinction should be made between a preference of credit and a lien. A preference applies only to claims which do not attach to specific properties. A lien creates a charge on a particular property. The right of first preference as regards unpaid wages recognized by Article 110 does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in application. It is a method adopted to determine and specify the order in which credits should be paid in the final distribution of the proceeds of the insolvents assets. It is a right to a first preference in the discharge of the funds of the judgment debtor. (Emphasis added) xxxxx 5. The DBP anchors its claims on a mortgage credit. A mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted (Article 2176, Civil Code). It creates a real right which is enforceable against the whole world. It is a lien on an identified immovable property, which a preference is not . A recorded mortgage credit is a special preferred credit under Article 2242 (5) of the Civil Code on classification of credits. The preference given by Article 110, when not falling within Article 2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific property, is an ordinary preferred credit although its impact is to move it from second priority to first priority in the order of preference established by Article 2244 of the Civil Code (Republic vs. Peralta, supra). (Emphasis added) However, as if it still had some lingering doubts, the Supreme Court made two (2) statements in this third DBP case which we believe requires some special attention. The Supreme Court ruled: V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 51
2.09.2. On the superiority of workers preference over Government claims The amendment expands worker preference to cover not only unpaid wages but also other monetary claims to which even claims of the Government must be deemed subordinate. With regard to the above statement, we respectfully hazard the view that since the Highest Court reiterated the distinction between a preference and a lien in this case, the only Government claims which could be deemed subordinate to workers preference under Art. 110 of the Labor Code, are those provided in Art. 2244 of the Civil Code, particularly paragraph nos. 9, 10 and 11 on taxes and assessments due the national, provincial and municipal/city governments, respectively. Surely, it cannot possibly refer to the Duties, taxes and fees due thereon to the State or any subdivision thereof, or to Taxes due upon the land or building provided under Art. 2241 paragraph No. 1, and Art. 2242 paragraph No. 1, concerning movables and immovables/ real rights, respectively. This is because while Art. 2244 (under which workers preference is considered number 1 because of Art. 110 of the Labor Code) pertains only to the order of preference of claims as enumerated in said Article, Arts. 2241 and 2242 pertain to the liens on particular movables and immovables/ real rights to which they attach. 2.09.3. Granting Arguendo that workers have absolute preference pursuant to Art. 110 of the Labor Code Even if Article 110 and its Implementing Rule, as amended, should be interpreted to mean absolute preference, the same should be given only prospective effect in line with the cardinal rule that laws shall have no retroactive effect, unless the contrary is provided (Article 4, Civil Code). On the understanding of the aforequoted statement to mean that the Supreme Court, while ruling against workers claim and in favor of mortgagees claim, nevertheless entertains the idea of ruling in favor of workers if the mortgage is not in place at the time of liquidation, again, we respectfully hazard the opinion that this statement of the Highest Court of the land, does not necessarily mean acceptance of the absolute preference of workers claim, because it is merely a supposition, hence an obiter dictum. If is not treated as an obiter statement, it could throw havoc on the stability of the Courts rulings on workers preference.
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2.09.4. Dissenting Opinions (a) CRUZ, J., dissenting: I was the lone dissenter in Republic v. Peralta, 150 SCRA 37, which is the mainstay of the present majority ponencia. Even then, I was convinced that it was the intention of the legislature to give absolute preference to the workers claims pursuant to the social justice policy. The amendment of Article 110 of the Labor Code only strengthens that conviction and, I like to think, vindicates my original position. I reiterate it now and repeat that: Social Justice is not a mere catchphrase to be mouthed with sham fervor in Labor Day celebrations for the delectation and seduction of the working class. It is a mandate we should pursue with energy and sincerity if we are to truly insure the dignity and well-being of the laborer. I am proud to dissent once again on the side of labor. (b) PADILLA, J., dissenting: The majority holds that LAND may not enforce its first preference in the satisfaction of unpaid monetary claims of its members, viz. LIRAGs worker, over that of DBP, in the absence of a formal declaration of bankruptcy or judicial liquidation of LIRAGs business. I regret that I cannot join the majority ruling in the light of the amendment to Article 110 of the Labor Code by Republic Act 6715, approved on 2 March 1989, and the resultant amendment of Section 10, Rule VIII Book III of the Revised Rules and Regulations Implementing the Labor Code. The majority, in my considered opinion, has failed to fully take into account the radical change introduced by Republic Act 6715 into the system of priorities or preferences among credits or creditors ordained by the Civil Code. Under the provisions of the Civil Code, specifically, Articles 2241 and 2242, jointly with Articles 2246 to 2249, a two-tier order of preference of credits is established. The first tier includes only taxes, duties and fees on specific movable or immovable property. All other special preferred credits stand on a second tier. With the amendment of Article 110 of the Labor Code by Republic Act 6715, a three-tier order of preference is established wherein unpaid wages and other monetary claims of workers enjoy absolute preference over all other claims, including those of the Government, in cases where a debtor-employer is unable to pay in full all his obligations. The absolute preference given to monetary claims of workers, to which claims of the Government, i.e., taxes, are now subordinated, manifests the clear and deliberate intent of our lawmaker to put flesh and blood into the expressed Constitutional policy of protecting the rights of workers and promoting their welfare. V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 53
I thus take exception to the proposition that a prior formal declaration of insolvency or bankruptcy or a judicial liquidation of the employers business is a condition sine qua non to the operation of the preference accorded to workers under Article 110 of the Labor Code, for the following specific reasons: First, the majority reads into the aforesaid law and implementing rule a qualification that is not there . Nowhere is it stated in the present law and its new implementing rule that a prior declaration of bankruptcy or judicial liquidation is a condition sine qua non to the operation of Article 110. In fact, it will be noted that the phrase declaration of bankruptcy or judicial liquidation of the employers business, which formerly appeared in Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code has been deleted in the new implementing rule. What is to me even more obvious and, therefore, significant in the present law and implementing new rule is the unconditional and unqualified grant of priority to workers monetary claims over and above all other claims as against all the assets of an employer incapable of fully paying his obligations. Second, a proceeding in rem, by its nature, seeks to bar any other person who claims any interest in the property or right subject of the suit. To my mind, such a proceeding is not essential or necessary to enforce the workers preferential right over the assets of the insolvent debtor as against other creditors of the lower tier, as Article 110 of the Labor Code itself bars the satisfaction of claims of other creditors, including the Government, until unpaid wages and monetary claims of the workers are first satisfied in full. Further, it appears that such a proceeding is essential only where the credits are concurring and enjoy no preference over one another, but not when the law accords to one of the credits absolute priority and undisputed supremacy. In sum, it is to me clear that, whether or not there be a judicial proceeding in rem, i.e., insolvency, bankruptcy or liquidation proceedings, the fact remains that Congress intends that the assets of the insolvent debtor be held, first and above all else, to satisfy in full the unpaid wages and monetary claims of its workers. Translated into the case at bar, a formal declaration of insolvency or bankruptcy or judicial liquidation of the employers business should not be a price imposed upon the workers to enable them to get their much needed and already adjudicated unpaid wages. This position, I believe, is only in keeping with a fundamental state policy enshrined in the Constitutional mandate to accord protection to labor. The legislative intent being clear and manifest, it is the duty of this Court, I submit, not to decimate but to give it breath and life. ACCORDINGLY, I vote to DISMISS the DBP petition and to AFFIRM the resolution of the NLRC in favor of LAND. (Emphasis added)
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(c) SARMIENTO, J., Dissenting: I join Mr. Justice Teodoro Padilla in his dissent. It is also my considered opinion that under Republic Act No. 6715, the payment of unpaid wages and other benefits to labor enjoys preference over all other indebtedness, including taxes, of management, with or without a declaration of insolvency. It is likewise so, because labor enjoys protection not only from statute but from the very Constitution. Thus: Sec. 18. The State affirms labor as a primary social economic force. It shall protect the rights of workers and promote their welfare. (Article II) xxxxx Sec. 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full employment and equality or employment opportunities for all. It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities, including the right to strike in accordance with law. They shall be entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate in policy and decision-making processes affecting their rights and benefits as may be provided by law. The State shall promote the principle of shared responsibility between workers and employers and the preferential use of voluntary modes in settling disputes, including conciliation, and shall enforce their mutual compliance therewith to foster industrial peace. The State shall regulate the relations between workers and employers recognizing the right of labor to its just share in the fruits of production and the right of enterprises to reasonable returns on investments, and to expansion and growth. (Article XIII) (Emphasis added) (d) PARAS J., dissenting: I concur with J. Padillas dissent. Score: Workers preference 3; Mortgagees lien 3.
2.10. Bolinao, Jr. vs. Padolina, 186 SCRA 368 (06 June 1990)
In this case involving the claim of garnishing creditors versus the claim of workers under Art. 110 of the Labor Code, the Supreme Court, thru Justice Paras, again upheld the need for a declaration of bankruptcy or a judicial liquidation proceedings V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 55
before the workers preference may be enforced. Citing Republic vs. Peralta, supra, and DBP vs. Santos (the first DBP case), the Highest Court reiterated that: 2.10.1. On the need for declaration of bankruptcy or a judicial liquidation proceedings It is quite clear from the provisions of Article 110 of the Labor Code and Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code, that a declaration of bankruptcy or a judicial liquidation must be present before the workers preference may be enforced. Thus, it was held that Article 110 of the Labor Code and its implementing rule cannot be invoked absent a formal declaration of bankruptcy or a liquidation order (Development Bank of the Philippines vs. Labor Arbiter, G.R. Nos. 78261-62, March 8, 1989). (Emphasis supplied) In the case at bar, there was no showing of any insolvency proceeding or declaration of bankruptcy or judicial liquidation that was being filed by Sabena Mining Corporation. It is only an extra-judicial foreclosure that was being enunciated as when DBP extra-judicially foreclosed the assets of Sabena Mining Corporation. Conversely, to hold that Article 110 is also applicable in extrajudicial proceedings would be putting the worker in a better position than the State which could only assert its own prior preference in case of a judicial proceeding. Article 110 must not be viewed in isolation and must always be reckoned with the provisions of the Civil Code (DBP v. Labor Arbiter, supra). Amazingly, the Decision did not bother to cite the third DBP case which was decided along the same legal arguments, only two-and a half (2 ) months earlier. Justices Padilla and Sarmiento also dissented from the Decision in this Bolinao case.
2.10.2. Dissenting Opinions (a) PADILLA, J. dissenting: I dissent for the same reasons stated in my dissent in DBP vs. NLRC, G.R. Nos. 82763- 64, 19 March 1990. (b) SARMIENTO, J. dissenting: I reiterate my dissent in Development Bank of the Philippines vs. National Labor Relations Commission. I also adopt Mr. Justice Teodoro Padillas dissent therein, insofar as he holds that under Article 110 of the Labor Code, as amended, by Republic Act No. 6715, workers enjoy absolute preference as and for unpaid wages and other monetary claims, 56 IBP JOURNAL
over and above taxes due to the government and claims of creditors, and subject to no prior declaration of bankruptcy or judicial order of liquidation. I find his opinion to be not only in accord with the explicit language of Republic Act No. 6715, but, as I held in my own dissent, consistent with the express decree of the Constitution affording full protection to labor. While I agree that prior to its amendment, Article 110 was couched in arguable terms, that is, a declaration of insolvency was necessary before labor may claim preference, Republic Act No. 6715 has laid the debate to rest. The very language of the Act: SECTION 1. Article 110 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines, is hereby further amended to read as follows: ART. 110. Worker Preference in case of bankruptcy. In the event of bankruptcy or liquidation of an employers business, his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before the claims of the Government and other creditors may be paid. convinces this writer that the Congressional intent was precisely to settle the argument-in favor of absolute worker preference.(Emphasis added). Score: Workers preference -3; Mortgagees lien 4.
2.11. DBP vs. NLRC, 186 SCRA 841 (27 June 1990)
This fourth DBP case on workers preference was decided only three (3) weeks after the Bolinao case. The Supreme Court, thru Justice Regalado, denied the monetary claims of the employees of mortgagor Philippine Smelters Corp. whose mortgage was foreclosed by DBP citing the first DBP case, DBP vs. Santos, supra, and the earlier cases of De Barretto and PSB vs. Lantin, supra, The Supreme Court reiterated the need for a declaration of bankruptcy or a judicial liquidation proceeding before workers preference may be enforced. Ruled the Supreme Court: 2.11.1. On the need for a declaration of bankruptcy or a judicial liquidation proceeding The pivotal issue for resolution is whether DBP, as foreclosing creditor, could be held liable for the unpaid wages, 13th month pay, incentive leave pay and separation pay of the employees of PSC. We rule in the negative. V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 57
During the dates material to the foregoing proceedings, Article 110 of the Labor Code read: Art. 110. Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of an employers business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer. xxxxx Interpreting the above provisions, this Court, in Development Bank of the Philippines vs. Hon. Labor Arbiter Ariel C. Santos, et al. 171 SCRA 138 (1989), explicated as follows: It is quite clear from the provisions that a declaration of bankruptcy or a judicial liquidation must be present before the workers preference may be enforced. ... . (Emphasis added). 2.11.2. Rationale for the necessity of a judicial proceedings Moreover, the reason behind the necessity for a judicial proceeding or a proceeding in rem before the concurrence and preference of credits may be applied was explained by this Court in the case of Philippine Savings Bank v. Lantin (124 SCRA 476 [1983]). We said: The proceedings in the court below do not partake of the nature of the insolvency proceedings or settlement of a decedents estate. The action filed by Ramos was only to collect the unpaid cost of the construction of the duplex apartment. It is far from being a general liquidation of the estate of the Tabligan spouses. Insolvency proceedings and settlement of a decedents estate are both proceedings in rem which are binding against the whole world. All persons having interest in the subject matter involved, whether they were notified or not, are equally bound. Consequently, a liquidation of similar import or other equivalent general liquidation must also necessarily be a proceeding in rem so that all interested persons whether known to the parties or not may be bound by such proceeding . xxxxx The claims of all creditors whether preferred or non- preferred, the Identification of the preferred ones and the totality of the employers asset 58 IBP JOURNAL
should be brought into the picture. There can then be an authoritative, fair, and binding adjudication instead of the piece meal settlement which would result from the questioned decision in this case. (Emphasis added) 2.11.3. On the effects of the amendments of Art. 110 .- The Supreme Court, citing the cases of DBP vs. Santos supra, and the third DBP case, DBP vs. NLRC 183 SCRA 328 (19 march 1990) which was decided by the Court enbanc, noted that the same interpretation was earlier adopted in those cases. Despite said amendments, however, the same interpretation of Article 110 as applied in the aforesaid case of Development Bank of the Philippines vs. Hon. Labor Arbiter Ariel C. Santos, et al., supra, was adopted by this Court in the recent case of Development Bank of the Philippines vs. National Labor Relations Commission, et. al., 183 SCRA 328 (19 March 1990) For facility of reference, especially the rationalization for the conclusions reached therein, we reproduce the salient portions of the decision in this later case. Notably, the terms declaration of bankruptcy or judicial liquidation have been eliminated. Does this mean then that liquidation proceedings have been done away with? We opine in the negative, upon the following considerations: 1. Because of its impact on the entire system of credit, Article 110 of the Labor Code cannot be viewed in isolation but must be read in relation to the Civil Code scheme on classification and preference of credits. xxxxx 2. In the same way that the Civil Code provisions on classification of credits and the Insolvency Law have been brought into harmony, so also must the kindred provisions of the Labor Law be made to harmonize with those laws . 3.In the event of insolvency, a principal objective should be to effect an equitable distribution of the insolvents property among his creditors. To accomplish this there must first be some proceeding where notice to all of the insolvents creditors may be given and where the claims of preferred creditors may be bindingly adjudicated (De Barretto vs. Villanueva, No. L-14938, December 29, 1962, 6 SCRA 928). The rationale therefor has been expressed in the recent case of DBP vs. Secretary of Labor (G.R. No. 79351, 28 November 1989) xxxxx 4. A distinction should be made between a preference of credit and a lien. A preference applies only to claims which do not attach to specific V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 59
properties. A lien creates a charge on a particular property. The right of first preference as regards unpaid wages recognize by Article 110 does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in application. It is a method adopted to determine and specify the order in which credits should be paid in the final distribution of the proceeds of the insolvents assets- It is a right to a first preference in the discharge of the funds of the judgment debtor. xxxxx 5.The DBP anchors its claim on a mortgage credit. A mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted (Article 2176, Civil Code). It creates a real right which is enforceable against the whole world. It is a lien on an identified immovable property, which a preference is not . xxxxx 6. Even if Article 110 and its Implementing Rule, as amended, should be interpreted to mean absolute preference, the same should be given only prospective effect in line with the cardinal rule that laws shall have no retroactive effect, unless the contrary is provided (Article 4, Civil Code) xxxxx In fine, the right to preference given to workers under Article 110 of the Labor Code cannot exist in any effective way prior to the time of its presentation in distribution proceedings. It will find application when, in proceedings such as insolvency, such unpaid wages shall be paid in full before the claims of the Government and other creditors may be paid. (Emphasis added). 2.11.4. SARMIENTO, J., dissenting: As I held in DBP vs. NLRC and more recently, in Bolinao vs. Padolina, that on account of the amendment introduced by Republic Act No. 6715. workers now enjoy absolute preference in the payment of labor claims, above and beyond taxes due from the Government, and credits belonging to private persons. As I said therein, Republic Act No. 6715 was enacted, precisely, to work more favorable terms to labor- because prior to the amendment, labor enjoyed no preference. I am afraid that the majority has misread the clear intent of the legislature. Score: Workers preference 3; Mortgagees lien 5. 60 IBP JOURNAL
2.12. Banco Filipino Savings and Mortgage Bank vs. NLRC, 188 SCRA 700 (20 August 1990)
This case the Decision of which was penned by Justice Midealdea, involved the money claim of a worker against a bank employer which was placed under receivership and later ordered liquidated by the Monetary Board of the Central Bank, although the liquidation was subsequently enjoined by the Supreme Court. In such case, the Supreme Court ruled that the labor arbiter whose jurisdiction is not lost, may continue to hear the workers money claim. As regards the payment of the workers claim, however, the Supreme Court, quoting Barretto vs. Villanueva supra, ruled that the payment may not yet be effected until the free property is determined. The Highest Court also reiterated its position as to the significance of Art. 110 of the Labor Code in the scheme of concurrence and preference of credit by quoting Peralta and the third DBP case (DBP vs. NLRC, 183 SCRA 328; 19 March 1990). The Supreme Court ruled: 2.12.1. On the significance of Art. 110 In Republic v. Peralta, supra the majority of this Court was of the opinion that the above quoted provision did not upgrade the workers claim as absolutely preferred credit. There We explained that the provision did not alter Articles 2241 and 2242 of the Civil Code so much so that creditors with liens over a certain property are still given special preference over the proceeds of that property. And it is only after these specially preferred credits are satisfied may the ordinary preferred credits enumerated in Article 2244 of the Civil Code be paid according to their order of priority. The significance of Article 110 in the scheme of concurrence and preference of credit is to raise the workers money claim into first priority under Article 2244. (See also Development Bank of the Philippines v. NLRC, G.R. Nos. 82763-64, March 19, 1990). (Emphasis added) 2.12.2. As to when the workers claim may be paid Not being an absolutely preferred credit, as taxes are under Articles 2241 (1) and 2242 (1), Dizons claims cannot be paid ahead of other credits and outside of the liquidation proceeding because the free property or the property left after the creditors mentioned in Articles 2241 and 2242 are paid has not yet been determined (See Barreto v. Villanueva, No. L-14938, December 29, 1962, 6 SCRA 928). In the words of Lipana v. Development Bank of Rizal, No. 73884, September 24, 1987, 154 SCRA 257, 261, to execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other [depositors and] creditors.
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Thus, Dizons adjudicated claims should be submitted to the liquidators for processing. If, of course, it is later determined that Banco Filipinos liquidation is improper then the NLRCS decision may be executed under normal procedure. If the contrary is proven, however, and the banks liquidation should proceed, Dizons established claims should be treated as an ordinary preferred credit enjoying first preference under Art. 2244 of the Civil Code. (Emphasis added). Score: Employer 0; Workers 1 2.13. Philippine Veterans Bank Employees Union-NUBE vs. Philippine Veterans Bank , 189 SCRA 14 (24 August 1990) Just when jurisprudence on the matter appears stable already, only four (4) days later, another ruling is issued in a case involving workers and their employer which may be misinterpreted to mean that workers claim of first preference under Art. 2244 of the Civil Code may supercede all Government claims including those for Duties, taxes and fees under Art. 2241 No. 1 and Taxes due upon the land or building under Art. 2242 No. 1. In its en-banc Decision, the Supreme Court, thru Justice Cruz, ruled that even members of the Board of Directors of a bank under liquidation may claim retirement benefits if this is so provided in the retirement Plan of the Bank; but their claim as managerial employees, is subordinate to that of the rank-and-file employees. The Supreme Court also added, rather matter-of-factly because this was not raised as an issue, that such workers claims must be accorded priority over all other claims, even of the Government itself, quoting Art. 110. The Supreme Court ruled: 2.13.1. Directors can claim retirement benefits if they are covered by the employers Retirement Plan As regards the claims of Marking and Mejia for the payment of their retirement benefits, which we restrained temporarily x x x we find with the public respondents that such payment is in order. We so hold, considering that although the said retirees are members of the board of directors, they are nevertheless covered by the Retirement Plan of the Bank.. xxxxx 2.13.2. Claim of rank and file employees under Art. 110 of the Labor Code accorded priority over all other claims, including those of directors and all other creditors and even of the Government itself However, for purposes of the application of Article 110 of the Labor Code, the said directors must be considered managerial employees, or officers, 62 IBP JOURNAL
and so not entitled to the preference of claims granted thereunder to workers in general or the rank-and-file employees. The claims of these workers must be accorded priority over all other claims, including those of the said directors, and indeed even of the Government itself. This provision as amended by Republic Act No. 6715, reads as follows: Article 110. Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of an employers business, his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before the claims of the Government and other creditors may be paid. (Amendments italicized). Score: Employer - 0; Workers - 2. Keeping tab on the score, the Decision in this case was in favor of the workers and against the Government. Notably, however, there was no tax claim involved whatsoever, and the issue was not even raised in the case. Obviously, the courts reference to the Government claim was an obiter, because the issue only involved the workers and their employer.
2.14.
Chua vs. NLRC, 190 SCRA 558 (17 October 1990)
This case the Decision of which was penned by Justice Gutierrez, Jr., involved liquidation proceedings in the Securities and Exchange Commission (SEC). The Supreme Court, citing PSB vs. Lantin, supra and DBP vs. Santos, supra, (first DBP case), reiterated that liquidation proceedings are proceedings in rem wherein all claims of creditors whether preferred or not may be filed. Where labor claims are filed in such proceedings, the labor arbiter may not insist on exercising its jurisdiction over the workers money claims. The Supreme Court held: 2.14.1. Insolvency proceedings are proceedings in rem An insolvency proceeding is similar to the settlement of a decedents estate in that it is a proceeding in rem and is binding against the whole world. Therefore, all persons which have interest in the subject matter involved, whether or not they are given notice are equally bound. Thus, a liquidation of similar import or other equivalent general liquidation must also necessarily be a proceeding in rem so that all other interested persons whether known to the parties or not may be bound by such proceedings. (Philippine Savings Bank vs. Lantin, 124 SCRA 476 [1983]; (Emphasis supplied) xxxxx V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 63
2.14.2. All claims of creditors must be filed in the judicial liquidation proceedings xxxxx The rule is that a declaration of bankruptcy or a judicial liquidation must be present before preferences over various money claims may be enforced. Since a liquidation proceeding is a proceeding in rem, all claims of creditors whether preferred or non-preferred, the Identification of the preferred ones and the totality of the employers asset should be brought into the picture. There can then be an authoritative, fair and binding adjudication . (See Development Bank of the Philippines v. Santos, 171 SCRA 138 [1989]). (Emphasis added) 2.14.3. NLRC cannot continue to exercise jurisdiction over money claims of workers apart from judicial liquidation proceedings if workers themselves reject NLRC jurisdiction The money claims of workers pose a special problem of jurisdiction when liquidation proceedings are on-going because of the highly preferred nature given by law to said claims. In these cases, however, the problem poses no particular difficulty because the workers themselves have voluntarily opted to participate in the liquidation proceedings . Their representatives in the MOA Liquidation Committee participated in the discussions and proceedings which led to the orders to distribute payments to the various claimants. The workers themselves oppose the orders of the NLRC which have denied them to speedy receipt of funds they urgently need. It is a grave abuse of discretion on the part of NLRC to raise a technical question of its own jurisdiction when the workers over whom it is raised reject the assertion of that jurisdiction. Consequently, the Solicitor Generals submission that the money claims of Stanfords former employees pending with respondent Labor Arbiter Dominador M. Cruz should be allowed to continue and that the money awards be later presented to the Stanford Liquidation Committee is not the correct solution. It would only spawn needless controversy, delays, and confusion. (Emphasis added). Notably, however, isnt jurisdiction conferred by law and the choice of the litigants as to the court of proper jurisdiction does not matter for what matters is what the law says? Also, if the rule is that if there are judicial liquidation proceedings all claims must be filed with the Liquidator in such proceedings, the workers have really no choice but to pursue their claim with the Liquidator, not with anyone else, 64 IBP JOURNAL
such as thru the NLRC or the Labor Arbiter. This rule must be followed, regardless of what the creditors want. No Score
2.15. National Development Co. vs. Philippine Veterans Bank, 192 SCRA 257 (10 December 1990)
In its en-banc Decision penned by Justice Cruz in this case which primarily involved the constitutionality of PD No. 1717 (which Decree cancelled mortgage liens and accrued interest and placed secured and unsecured creditors on equal footing among others), the Supreme Court, quoting the third DBP case, (DBP vs. NLRC, 183 SCRA 328 [19 March 1990]), once again upheld the superiority of the claim of mortgage creditors over workers claim. En route to this decision however, the Court declared that the Government cannot decree the extinguishment of mortgage and accrued interest since these are protected by the due process and contract clauses of the Constitution. It thus declared PD No. 1717 unconstitutional, ruling that: 2.15.1. Disturbing provisions of PD No. 1717 The Court is especially disturbed by Section 4(1) of the decree, quoted above, extinguishing all mortgages and other liens attaching to the assets of AGRIX. It also notes, with equal concern, the restriction in Subsection (ii) thereof that all unsecured obligations shall not bear interest and in Subsection (iii) that all accrued interests, penalties or charges as of date hereof pertaining to the obligations, whether secured or unsecured, shall not be recognized. 2.15.2. Invalid exercise of police power if public interest is not sufficiently involved A legislative act based on the police power requires the concurrence of a lawful subject and a lawful method . In more familiar words, a) the interest of the public generally, as distinguished from those of a particular class, should justify the interference of the state; and b) the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. Applying these criteria to the case at bar, the Court finds first of all that the interest of the public are not sufficiently involved to warrant the interference of the government with the private contracts of AGRIX. (Emphasis added) 2.15.3. Invalid exercise of police power if public interest is not identified or explained The public interest supposedly involved is not identified or explained. It has not been shown that by the creation of the New Agrix, Inc. and the V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 65
extinction of the property rights of the creditors of AGRIX, the interests of the public as a whole, as distinguished from those of a particular class, would be promoted or protected. 2.15.4. Invalid exercise of police power if means employed are unduly aggressive Assuming there is a valid public interest involved, the Court still finds that the means employed to rehabilitate AGRIX fall far short of the requirement that they shall not be unduly oppressive. 2.15.5. Mortgage lien and interest on loan are property rights protected by the Bill of Rights A mortgage lien is a property right derived from contract and so comes under the protection of the Bill of Rights. So do interests on loans, as well as penalties and charges, which are also vested rights once they accrue. Private property cannot simply be taken by law from one person and given to another without compensation and any known public purpose. This is plain arbitrariness and is not permitted under the Constitution. And not only is there arbitrary taking, there is discrimination as well. In extinguishing the mortgage and other liens, the decree lumps the secured creditors with the unsecured creditors and places them on the same level in the prosecution of their respective claims. In this respect, all of them are considered unsecured creditors. 2.15.6. Equal protection clause Under the equal protection clause, all persons or things similarly situated must be treated alike, both in the privileges conferred and the obligations imposed. Conversely, all persons or things differently situated should be treated differently. In the case at bar, persons differently situated are similarly treated, in disregard of the principle that there should be equality only among equals. 2.15.7. Superiority of Mortgage creditors claim It is worth noting that only recently in the case of the Development bank of the Philippines v. NLRC (GR Nos. 82763-64, March 19, 1990), we sustained the preference in payment of a mortgage creditor as against the argument that the claims of laborers should take precedence over all other claims, including those of the government. In arriving at this ruling the Court recognized the mortgage lien as a property right protected by the due process and 66 IBP JOURNAL
contract clauses notwithstanding the argument that the amendment in Section 110 of the Labor Code was a proper exercise of the police power. (Emphasis added). Score: Workers preference - 3; Mortgagees lien - 6.
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Abu Ghraib and Guantanamo: The Importance of Religion in Analyzing the Effects of Torture
By Adel A. Tamano*
You have heard that it was said, You shall love your neighbor and hate your enemy. But I say to you, love your enemies, and pray for those who persecute you, That you may be children of your heavenly Father, for he makes his sun rise on the bad and the good, and causes rain to fall on the just and the unjust. For if you love those who love you, what recompense will you have? Do not the tax collectors do the same? And if you greet your brothers only, what is unusual about that? Do not the pagans do the same? So be perfect, just as your heavenly Father is perfect. - 5 Matthew, Verses 43 - 48
Introduction
It might seem inappropriate to begin a legal article on torture and cruel, inhuman, or degrading treatment with a reference to religion; however, specifically in regard the atrocities committed at the prison facility at Abu Ghraib in Iraq and at the detention centre1 at Guantanamo Bay, Cuba, which were committed by the U.S. Military, it becomes self-evident that religion is a significant element to consider in the analysis of what constitutes torture and cruel, inhuman, or degrading treatment. That religion is important is apparent when one considers that the detainees at both Abu Ghraib and Guantanamo were all of the Islamic faith and that a number of the interrogation techniques used by the U.S authorities were specifically designed to undermine and offend the religious sensitivities of the detainees.2
* The author obtained his Masters Degree in Law from Harvard Law School (2005) and his Masters Degree in Public Administration from the University of the Philippines (2003). Atty. Tamano is a Professor of Law of the Far Eastern University. He is the author of the Handbook on Impeachment under the 1987 Constitution. Over 700 persons, some of them children as young as 13 years old, from forty-four countries have been detained here. (See: http://hrw.org/; http://www.hrw.org/english/docs/2004/01/29/usint7117_txt.htm) Paisley Dodds, Gitmo Soldier Details Sexual Tactics, Associated Press, January 28, 2005 (Available at: http:// abcnews.go.com/International/wireStory?id=448004, Site last visited: February 8, 2005 )
1 2
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On a more fundamental level, the reference to religion is appropriate as these biblical verses fittingly point to the moral ethos that forms the foundation of the modern proscription against torture and underscores the need for humane treatment of those who, in the current socio-political climate within the context of the global war on terrorism, are seen as the most terrible of enemies. Torture and cruel, inhuman, or degrading treatment, regrettably, remains a bane of the modern world in spite of the condemnation of the practice by the international community. It persists as an indiscriminate worldwide phenomenon afflicting all - democracies and dictatorships, Muslims and Christians, Asians and Americans alike. Yet despite its universality, the offence has a significant subjective and personal component, which is where religion as a factor for analysis and study comes into play. This paper shall show, through the experience of Abu Ghraib and Guantanamo, that torture and cruel, inhuman, or degrading treatment should be viewed through the victims perspective taking into account the subjective element of the individual and, appropriately, the persons religious background. Accordingly, religion is submitted to be one of the important factors that must be considered in the analysis of what constitutes torture and cruel, inhuman, and degrading treatment. While objective legal standards are important in analyzing what constitutes torture and cruel, inhuman, or degrading treatment - such as the definitions under international conventions proscribing torture and cruel, inhuman, or degrading treatment - it is likewise essential to consider the subjective element, which is the identity and personhood of the victim and how the acts may have special meaning or consequences for him. The paper will begin with a brief discussion on the history of torture in order to establish the development of the modern conception of torture and cruel, inhuman, or degrading treatment culminating in the present-day covenants that define and proscribe the same. Afterwards, torture and cruel, inhuman, or degrading treatment shall be defined in greater detail and particularly in order to provide the objective element of the offence as well as to show the distinction, under International Criminal Law, between torture, as a distinct crime, and cruel, inhuman, or degrading treatment, which has its own specific concept. The definition shall utilize recent cases on torture and cruel, inhuman, or degrading treatment such as the Furundzija (1998) case of the International Criminal Tribunal for Yugoslavia (ICTY) and the recent Van Der Ven v. Netherlands (2003) case of the European court of Human Rights (ECHR) as well as commentaries of specialists on the field of International Criminal Law to flesh out the meaning of the term. More specifically, the landmark - and controversial - case of Ireland v. the United Kingdom (1978) decided by the ECHR will be used to discuss the distinction between torture and cruel, inhuman, or degrading treatment. 70 IBP JOURNAL
This distinction is important, as this will be the basis to show how the subjective element of the victims personality and perspective becomes even more vital in determining if an act constitutes cruel, inhuman, or degrading treatment. Specifically, the atrocities in Abu Ghraib and Guantanamo will be used to demonstrate the immense import that something as subjective as the victims religion has in the legal analysis of torture and cruel, inhuman, and degrading treatment.
Focus on Cruel, Inhuman, and Degrading Treatment

This paper will primarily focus on the issue of what constitutes cruel, inhuman, or degrading treatment under International Criminal Law. As stated earlier, a discussion and analysis of torture will be necessary as this concept is deeply interlinked with the notion of cruel, inhuman, or degrading treatment. However, it should be emphasized that this paper shall deal primarily with the latter concept for the simple reason that the specific atrocities committed at Abu Ghraib and Guantanamo were so terrible and were such obvious acts of torture. In fact, the U.S. Militarys own investigations on the matter produced a wealth of evidence detailing and thus explicitly admitting - the torture committed at Abu Ghraib.3 Consequently, as a matter of legal analysis, it is the inhuman treatment afforded to the Abu Ghraib and Guantanamo detainees that were not as blatant and evident violations of the torture conventions, which is of greater interest and will be the centre of this study. This is because the subjective factors may play a greater role in the assessment of what constitutes cruel, inhuman, or degrading treatment as compared to actions that are more clearly and objectively torture.
History of Torture
The modern reader may be surprised to discover that the universal condemnation of torture is a fairly recent phenomenon. In fact, for centuries torture was viewed as a legitimate means of obtaining evidence. As history clearly demonstrates, torture was not always prohibited.4 On the contrary, it was deemed, for a long period, perfectly legal.5 The Greeks and Romans, ironically the founders of the modern democratic system, were the first to systematically use torture.6 Demosthenes and Aristotle expressed the view that torture was an effective method
3 4 5 6 See: Taguba Report On Treatment of Abu Ghraib Prisoners in Iraq (Also available on: http://news.findlaw.com/ hdocs/docs/iraq/tagubarpt.html#ThR1.9, Site last visited on February 3, 2005) M. Cherif Bassiouni, Crimes Against Humanity in International Criminal Law, Second Edition, Kluwer Law International Publisher, p. 333 (1999). Id. Matthew Lippman, The Development And Drafting Of The United Nations Convention Against Torture And Other Cruel Inhuman Or Degrading Treatment Or Punishment, Boston College International & Comparative Law Review (1994).
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for obtaining evidence.7 Torture was initially employed only on slaves. Since slaves were thought to lack moral rectitude, torture was therefore deemed a useful method of ensuring testimonial reliability.8 Eventually, the Romans started using torture on citizens as well; specifically in regard the crime of treason.9 The reasoning behind the use of torture on citizens was that the commission of the crime of treason caused a person to lose his rights.10 Over time, political dissenters were subjected to torture.11 The technique of choice for torture under the Romans was the rack: a wooden frame mounted on rails that could be manoeuvred in order to agonizingly distend the joints and muscles of the victim.12 The Romans would also use hooks to tear parts of the victims flesh and brands to burn a persons skin.13 Roman lawyers, however, acknowledged that torture did not always achieve the intended results with victims admitting crimes in order to avoid pain.14 Nonetheless, the use of torture was never seriously questioned and the legal basis for torture under Roman Law became the basis for the practice of torture in later times.15 Later, from the fourth to the middle of the thirteenth century, the official practice of torture by the State decreased as it was thought, under Christian Doctrine, that the practice was inhuman.16 Only when Pope Innocentius III granted authority for torture of those considered as apostates, which was a precursor of the inquisition, did torture become predominant.17 Thus, from this time till the eighteenth century, European jurists relied heavily on evidence extracted via torture.18 The use of torture was so rampant that it was termed the queen of proofs.19 Eventually, the use of torture was considered inconsistent and irreconcilable with the historical tide of rationality and humanity.20 In 1764, Cesare Beccaria, an Italian criminologist, wrote the most influential critique of torture arguing that the use of torture was contrary to the principle that a finding of guilt had first to be reached before the application of punishment and, more importantly, that the use of torture rarely led to truthful testimony.21
7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Dodds, supra, Note 2. Bassiouni, supra, Note 4. Id. Id. Id. Id. Id. Chris Inglese, The UN Committee on Torture An Assessment, Kluwer Law International Publisher, pp. 24-25 (2001) Id. Id., p. 27. Id. Lippman, supra, Note 6. Id. Id. Id.
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Towards, the end of the seventeenth century, there was a change in the system of legal evidence wherein absolute certainty in regard criminal guilt then only reached, in the minds of the judges, after the use of torture was no longer absolutely necessary for conviction and that the new benchmark was the judges inner subjective certainty, based on evidence presented that a crime had been committed. 22 Accordingly, there was no longer any need for torture because suspects could be convicted upon other valid evidentiary bases aside from their confessions.23 It was this watershed moment in the law of evidence that served as the catalyst for the subsequent abolition of torture as an official state practice.24 Concerning U.S. history, most Americans would answer in the negative if asked whether torture has been a prominent part of the nations past.25 However, torture, in its different guises and labels, has been consistent feature of U.S. history.26 Slaves were often whipped for offences and, in the South, after the Civil war and well into the 1930s, lynching of black men were committed in the interest of maintaining a racist social order.27 Moreover, the third degree, a euphemism for police brutality in interrogation of suspects regardless of race, has also been an unfortunate part of American history.28
History of the Torture Conventions

It has been stated that the evolution of modern human rights law was in response to World War II atrocities.29 Modern human rights law, including the condemnation of torture, was thus an effort to provide a moral and judicial reckoning in response to the legacy of the conflict.30 Totalitarian regimes, such as those of Hitler and Stalin, had used torture as a means to subdue its people and maintain their hold on power.31 After the Second World War, the Allies, through the Tokyo and Nuremberg Trials, sent a clear signal that torture was now held to be morally unacceptable and that national law could no longer be used to justify the use of torture.32
22 23 24 25 26 27 28 29 30 31 32
Inglese, supra, Note 14, p. 28. Id. Id. Sanford Levinson (Editor), Torture A Collection, Oxford University Press, p. 105 (2004) Id. Id. Id., p.112-113 Winston P. Nagan and Lucy Atkins, The International Law of Torture: From Universal Proscription to Effective Application and Enforcement, 14 Harv. Hum. Rts. J. 87 Id. Inglese, supra, Note 14, p. 30. Id.
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Later, the UN Charter of 1945 became the embodiment of an effort to prescribe obligations on States as a means to prevent the recurrence of atrocities.33 Aggression, peace, security, and fundamental human rights were the obligations that under girded the establishment of the UN.34 Later the UN would be the vehicle for declarations and conventions specifically outlawing the use of torture. The prohibition against torture and cruel, inhuman, or degrading treatment on a worldwide level predates the Convention Against Torture and Other Cruel Inhuman or Degrading Treatment or Punishment (1984) (hereinafter the Torture Convention). As early as 1948, the Universal Declaration of Human Rights explicitly proscribed torture in these terms: No one shall be subjected to torture or cruel, inhuman or degrading punishment.35 Later, on December 9, 1975, the United Nations General Assembly adopted the Declaration on the Protection of All Persons from Being Subjected to Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment.36 Although non-binding, it was deemed a historic step towards the eradication of torture.37 Subsequently, this prohibition on torture was adopted in a number of other international human rights instruments, inter alia, the American Convention on Human Rights (Article 5[3]), the International Covenant on Civil and Political Rights (Article 7), and the Convention on the Rights of the Child, and the European Convention on Human Rights.38 As shall be discussed later in Furundzija (1998), the prohibition against torture has ripened into customary law. The fact that numerous international covenants contain a proscription against this offense strongly supports the Furundzija ruling.
Definition of Torture
Torture is defined under the Torture Convention in Article 1 as follows: 1. For the purposes of this Convention, torture means any act by which severe pain or suffering, whether physical or mental, is intentionally inflicted on a person for such purposes as obtaining from him or a third person information or a confession, punishing him for an act he or a third person has committed or is suspected of having committed, or intimidating or coercing him or a third person, or for any reason based
33 34 35 36 37 38 Nagan, supra, Note 29 Id. Article 5, Universal Declaration of Human Rights Adopted by General Assembly resolution 3452 (XXX) of 9 December 1975 Lippman, supra, Note 6. Anthony Cullen, Defining Torture in International Law: A Critique of the Concept Employed by the European Court of Human Rights, California Western International Law Journal (2003)
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on discrimination of any kind, when such pain or suffering is inflicted by or at the instigation of or with the consent or acquiescence of a public official or other person acting in an official capacity. It does not include pain or suffering arising only from, inherent in or incidental to lawful sanctions. It should be noted that the proscription against torture is not merely a right established by convention but is deemed a part of Customary International Law.39 In the Furundzija case decided by the International Criminal Tribunal for the former Yugoslavia (ICTY), the Court stated that a number of factors indicated that the torture prohibition is no longer a mere conventional - meaning based solely upon treaty or convention - obligation upon States: That these treaty provisions have ripened into customary rules is evinced by various factors. First, these treaties and in particular the Geneva Conventions have been ratified by practically all States of the world. Admittedly those treaty provisions remain as such and any contracting party is formally entitled to relieve itself of its obligations by denouncing the treaty (an occurrence that seems extremely unlikely in reality); nevertheless the practically universal participation in these treaties shows that all States accept among other things the prohibition of torture. In other words, this participation is highly indicative of the attitude of States to the prohibition of torture. Secondly, no State has ever claimed that it was authorised to practice torture in time of armed conflict, nor has any State shown or manifested opposition to the implementation of treaty provisions against torture. When a State has been taken to task because its officials allegedly resorted to torture, it has normally responded that the allegation was unfounded, thus expressly or implicitly upholding the prohibition of this odious practice. Thirdly, the International Court of Justice has authoritatively, albeit not with express reference to torture, confirmed this custom-creating process: in the Nicaragua case it held that common article 3 of the 1949 Geneva Conventions, which inter alia prohibits torture against persons taking no active part in hostilities, is now well-established as belonging to the corpus of customary international law and is applicable both to international and internal armed conflicts. It therefore seems incontrovertible that torture in time of armed conflict is prohibited by a general rule of international law. In armed conflicts this rule may be applied both as part of international customary law and if the requisite conditions are met - qua treaty law, the content of the prohibition being the same. (Emphasis supplied)
39 Prosecutor v. Furundzija, Case No.: IT-95-17/1-T, International Criminal Tribunal for the former Yugoslavia (1988)
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Objective Elements of Torture

Under the Torture Convention, the following elements define the offence of torture: 40 a. b. c. d. e. f. g. h. There must be an act or omission; It results in pain or suffering; The pain or suffering is of a certain gravity; It is inflicted intentionally; The infliction of pain or suffering has a specific objective; It is carried out by the State; It is imposed on someone who has been deprived of his liberty; and It is not inherent or incidental to lawful sanctions.
These elements constitute the hard core or the unambiguous elements of the definition of torture under the Torture Convention.41 Although, there may still be, admittedly, vague areas, these elements have attained wide consensus.42 For the purposes of this paper, additional comment is necessary for the element of severity or gravity as this relates to the issue of what differentiates or distinguishes torture from cruel, inhuman, or degrading treatment. The pain inflicted must be of a certain intensity or power.43 However, the threshold of intensity of pain or the standards to measure the intensity is not provided in the definition and it is, therefore, only the victim that can bear witness to the severity of the pain inflicted.44 This vagueness of standards, not merely in the Torture Convention but in other conventions prohibiting torture, has been a basis for the claim of some accused of torture that their acts have not reached such a level of severity as to amount to torture. Examples of this are seen in the Ireland vs. United Kingdom case and in the memoranda on torture issued by the U.S. Department of Justice for the Counsel to the President (hereinafter Torture Memo).45 According to the Torture Memo, which was issued to address concerns about the treatment of detainees outside the United States subject to the U.S. war on terror such as those in Afghanistan and Iraq, the U.S. standard for an act to be deemed torture is that it must be of such gravity or severity to be equivalent to the intensity of the pain accompanying serious physical injury such as organ failure, impairment of bodily functions, or even death.46 In regard mental pain or suffering,
40 41 42 43 44 45 46 Inglese, supra, Note 14, pp. 208-211 (See also: Antonio Cassese, International Criminal Law, Oxford Press, pp. 119-120). Id. Id. Id. Id. U.S. Department of Justice, Office of Legal Counsel, Memorandum for R. Alberto Gonzalez, Counsel to the President (Re: Standards of Conduct for Interrogation under 18 USCSS 2340-2340A), August 1, 2002 Id., paragraph 2, p. 1
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it must be of such intensity to create psychological damage that lasts for months or even years.47 It is noted that there have been subsequent changes to the American position on the torture issue. Nonetheless, the Torture Memo remains an important document, especially for this papers analysis on the subjective element of torture. The changes in the U.S. stance on torture is well captured by the following: In a memorandum signed on February 7, 2002, President Bush stated that he accept[ed] the legal conclusion of the Attorney General and the Department of Justice that I have the authority under the Constitution to suspend [Geneva Accord provisions dealing with the treatment of prisoners] as between the United States and Afghanistan, but I decline to exercise that authority at this time. [I] reserve the right to exercise this authority in this or future conflicts. The memorandum goes on to assert that our values as a Nation [call] for us to treat detainees humanely, including those who are not legally entitled to such treatment. [As] a matter of policy, the United States Armed Forces shall continue to treat detainees humanely and, to the extent appropriate and consistent with military necessity, in a manner consistent with the principles of Geneva. After the Office of Legal counsel memorandum became public in Spring, 2004, the President disavowed its conclusions.48
Concerns About the Meaning of Severity: The Ireland Case and the Torture Memo
The issue of what level of severity is needed to constitute torture is not new. As early as 1978, in the case of Ireland v. United Kingdom (1978), the ECHR formulated a concept of torture that explained the level severity needed to be deemed torture. The Court stated that there was a minimum level of severity needed for an act that was merely ill-treatment to become torture. The case makes a distinction between torture and cruel, inhuman, and degrading punishment based upon the intensity of suffering inflicted. The concept of torture in the Ireland case required an extreme amount of suffering and that the pain applied had to be severe. Consequently, the test of severity is an objective one and not necessarily considering the viewpoint of the victim in regard that amount or nature of pain that is inflicted.49 This objective test of severity, that it must be an extreme type of suffering or pain that is inflicted, is in accordance
47 48 49
Id. Geoffrey Stone, et al., Constitutional Law, 2004 Supplement, Aspen Publishers, p. 89 Anthony Cullen, Defining Torture In International Law A Critique of the Concept Employed by the European Court of Human Rights, California Western International Law Journal (2003)
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with the U.S. position on what constitutes the offence as shown by the Torture Memo. Both the American approach and the ECHRs methodology did not consider using a subjective test that would take into account the victims own assessment of the pain or suffering inflicted.50 The U.S. and ECHRs view on torture is very problematic in the sense that it removes an extremely important factor in determining the gravity of suffering inflicted, which is, very ironically, the victim himself.51 In fact, in the Ireland case the ECHR chose not to even call the witnesses to testify as to their own perceptions of the ill-treatment that they received.52 On a more elemental level, the focus on the objective standard fails to consider the important fact that suffering is fundamentally subjective53 the victim is the best judge to say how much he has suffered at the hands of his tormentors. An even greater concern that has been raised in critiquing the ECHR decision and by analogy the U.S. position in the Torture Memo is that it is an overly narrow concept of torture such that only the most exceptionally brutal of acts would constitute torture.54 The Torture Memo clearly takes the narrow view in defining torture as needing to cause pain or suffering equivalent to the amount of pain associated with serious physical injury such as organ failure, impairment of bodily functions, or even death and that mental torture must be of such power to create psychological injury that lasts for months or even years.55
Distinction between Torture and Cruel, Inhuman, or Degrading Treatment

The Torture Convention not only proscribes torture but also cruel, inhuman, or degrading treatment or punishment. The very definition of torture in the Convention, excluding an explicit definition of cruel, inhuman, and degrading treatment or punishment, implies a distinction between torture and cruel, inhuman, or degrading treatment or punishment.56 No definition of what constitutes cruel, inhuman, or degrading treatment or punishment is found in the Torture Convention.57 At the time of the Conventions drafting, there was no universal agreement on the definition of cruel, inhuman, or degrading treatment or punishment.58 However, in the case of ECRM, Denmark,
50 51 52 53 54 55 56 57 58 Id. Id. Id. Id. Id. Supra, Note 45. Inglese, supra, Note 14, pp. 206-207. Id. Id.
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Norway, Sweden and the Netherlands v. Greece (Greek Case)59 of the ECHR, indicators of whether an act constituted torture or cruel, inhuman, or degrading treatment or punishment were implied:60 a. Firstly, there must be a prohibition against the infliction of torture or human or degrading treatment; and All torture is considered to be a form of inhuman and degrading treatment. The notion of inhuman treatment covers treatment that deliberately causes severe suffering, mental or physical, which, in the particular situation, is unjustified.
b.
Accordingly, it is validly deduced that firstly, cruel, inhuman, or degrading treatment or punishment is deemed a subset or a lower form of torture. As stated explicitly be the ECHR in the above-cited case: torture constitutes an aggravated and deliberated form of cruel, inhuman, or degrading treatment or punishment. Secondly, as in the Ireland case, the line of distinction between torture and cruel, inhuman, or degrading treatment is one of degree. Thus, torture is a higher level of cruel, inhuman, or degrading treatment. In Van Der Ven v. Netherlands (2003), the ECHR stated that in the analysis of what constitutes the minimum standards of ill-treatment to constitute a violation of the European Convention for the Prevention of Torture and Inhuman or Degrading Treatment or Punishment (1984), it was essential to consider the all circumstances of the case including the individual or subjective aspect of the victim his sex, age, and state of health: 1. The Court reiterates at the outset that Article 3 of the Convention enshrines one of the most fundamental values of democratic society. It prohibits in absolute terms torture or inhuman or degrading treatment or punishment, irrespective of the circumstances and the victims behaviour (see, for example, Labita v. Italy [GC], no. 26772/95, 119, ECHR 2000-IV). 2. The Court further reiterates that, according to its case-law, ill-treatment must attain a minimum level of severity if it is to fall within the scope of Article 3. The assessment of this minimum is relative; it depends on all the circumstances of the case, such as the duration of the treatment, its physical and mental effects and, in some cases, the sex, age and state of health of the victim (see, among other authorities, Ireland v. the United Kingdom, judgment of 18 January 1978, Series A no. 25, p. 65, 162).
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Report of November 5, 1969, Yearbook 12 (1969), p. 186 Bassiouni, Supra, Note 4
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3. Treatment has been held by the Court to be inhuman because, inter alia, it was premeditated, was applied for hours at a stretch and caused either actual bodily injury or intense physical and mental suffering, and also degrading because it was such as to arouse in the victims feeling of fear, anguish and inferiority capable of humiliating and debasing them (see, for example, KudBa v. Poland [GC], no. 30210/96, 92, ECHR 2000-XI). In order for a punishment or treatment associated with it to be inhuman or degrading, the suffering or humiliation involved must in any event go beyond that inevitable element of suffering or humiliation connected with a given form of legitimate treatment or punishment. (Emphasis supplied) The definitions provided by the foregoing cases do not provide a clear baseline or point of demarcation between torture and cruel, inhuman, or degrading treatment. This is problematic because it opens the possibility for the legal position that by raising the baseline of what is considered torture so high, as in the Torture Memo that equivocates torture to serious physical injury, that the acts committed, as long as these do not reach very high levels of severity or suffering, will not be considered as torture but are merely cruel, inhuman, or degrading treatment.
Importance of Subjective Element Islam And the Victims Experience and Personhood
The foregoing discussions point to the importance of including the subjective factor in the analysis of what constitutes torture and cruel, inhuman, or degrading treatment. In Van Der Ven v. Netherlands (2003), the ECHR, in an apparent departure from the objective test employed in the Ireland case, provided several subjective factors to consider in assessing the minimum level of severity for an act to be considered cruel, inhuman, or degrading treatment: sex, age and state of health of the victim. These three personal factors need not exclusive bases for assessment and it is submitted that another important factor should be considered religion. A persons faith, his religious beliefs, traditions, and culture, may be very significant in affecting how he experiences particular types of treatment, which, given the persons religio-cultural context, likewise affects the assessment of when an act becomes cruel, inhuman, or degrading treatment. Specifically relevant is the ruling in Van Der Ven v. Netherlands (2003) that treatment may be deemed inhuman if it was such as to arouse in the victims feeling of fear, anguish and inferiority capable of humiliating and debasing them. This method of analysis opens the way for a more subjective approach to assessing the occurrence of cruel, inhuman, or degrading treatment. This is because an act may be more humiliating or cause more fear, anguish, or inferiority when inflicted on a victim with a specific religio-cultural background than on a person with a different one. 80 IBP JOURNAL
Abu Ghraib and Guantanamo provide good examples of how religion should be used in the assessment of what acts constitute cruel, inhuman, or degrading treatment: All the detainees were Muslim and, as shall be demonstrated, the interrogation techniques as well as the other torments inflicted upon the detainees would be deemed much more offensive and severe when perceived with the victims Islamic viewpoint. Again, the critique of the ruling in Ireland is relevant here - that it is the victim, the very object of attack and torment, who is in the best position to testify as to what extent he has suffered. The importance of a subjective test to fully appreciate the gravity of not only torture but also what would be deemed as cruel, inhuman, or degrading treatment becomes clear. Before elaborating on how some acts may be deemed more offensive or severe using a subjective test of the victims religion, in this case Islam, it is important to take note of some of the religious principles and concepts of the Islamic faith and how theses would relate to the acts inflicted on the detainees. This is not the place to indulge in a long discussion of Islamic doctrine and strictures; however, it is relevant to this papers analysis to state a few clear Islamic injunctions.
Islam and Respect for the Human Being

The broad and general aims and aspirations of what an Islamic society should be and the formula of the Muslim religious ethic is contained in the Muslim holy book or Quran.61 Fundamentally, Islam is a deeply ethical way of life enjoining righteousness, 62 kindness towards parents, 63 upholding equity, maintaining truthfulness,64 and constant striving towards goodness.65 Islam is a complete way of life that encompasses all matters including mundane aspects as eating and dressing.66 Accordingly, a number of Islamic schools of thought do not maintain dichotomies between secular and spiritual or moral and legal as in modern secular States.67 In regard dietary restrictions, Islamic law forbids the eating of pork68 as such is considered unclean as well as the consumption of alcohol.69 On what a woman
61 62 63 64 65 66 67 68 69 Noel J. Coulson, A History of Islamic Law, Edinburg University Press, p. 11 (1978) The Quran, Surah 3, Verse 110 Id., Surah 29, Verse 8 Id., Surah 4, Verse 135 Id., Surah 3, Verse 114 Id., Surah V, Verse 3: This day have I perfected your religion for you and completed My favors unto you and have chosen for you as religion, al-Islam. Frank Vogel, Islamic Law and Legal systems: Studies of Saudi Arabia, Brill (Publisher) p. 22 (2000) Supra Note 61, Surah II, Verse 173 Id., Verse 219 and Surah V, Verses 90-91
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may properly wear, Islam enjoins women to wear clothes that are, in the modern parlance conservative and which do not overly expose the female body.70 In fact, in more traditional Muslim societies, the women are made to wear the hijab or veil. Men similarly must dress conservatively and not expose certain parts of their body in public. These seemingly mundane matters are part of a total system of life wherein a Muslim submits himself to the will of God. It is a way of life that upholds human dignity and promotes goodness and justice.
Abuses Committed at Abu Ghraib And Guantanamo

The abuses committed at Abu Ghraib and Guantanamo have attained worldwide infamy. The images of detainees treated with utter cruelty will continue to haunt the conscience of mankind for decades to come. The U.S. military investigation into allegations of torture of the detainees at Abu Ghraib gave a detailed account of the abuses inflicted upon the detainees: 6. I find that the intentional abuse of detainees by military police personnel included the following acts: a. b. c. d. e. f. Punching, slapping, and kicking detainees; jumping on their naked feet; Videotaping and photographing naked male and female detainees; Forcibly arranging detainees in various sexually explicit positions for photographing; Forcing detainees to remove their clothing and keeping them naked for several days at a time; Forcing naked male detainees to wear womens underwear; Forcing groups of male detainees to masturbate themselves while being photographed and videotaped; Arranging naked male detainees in a pile and then jumping on them; Positioning a naked detainee on a MRE Box, with a sandbag on his head, and attaching wires to his fingers, toes, and penis to simulate electric torture;
g. h.
70
Id., Surah XXIV, Verse 31 and Surah XXXIII, Verse 59
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i.
Writing I am a Rapest (sic) on the leg of a detainee alleged to have forcibly raped a 15-year old fellow detainee, and then photographing him naked; Placing a dog chain or strap around a naked detainees neck and having a female Soldier pose for a picture; A male MP guard having sex with a female detainee; Using military working dogs (without muzzles) to intimidate and frighten detainees, and in at least one case biting and severely injuring a detainee; Taking photographs of dead Iraqi detainees.71
j.
k. l.
m.
In 2005, an insiders account by one of the translators at the detention facility in Cuba, stated that some interrogation techniques adopted by the military authorities at Guantanamo had been specifically designed to offend the religious sensibilities of the detainees, specifically in regard sex. Specifically, he alleged that female interrogators attempted to break the spirit of Muslims detainees by sexual touching, wearing miniskirt and thong underwear, removing their uniforms and exposing a tight-fitting top, touching their breasts and rubbing them against the detainees, and smearing their faces with fake menstrual blood.72 In the prosecution of Spc. Charles Graner, the supposed ringleader of the group that tortured Muslim detainees at Abu Ghraib, the victims alleged that they were forced to eat pork and consume alcohol.73 It is noted that the interrogation techniques at Guantanamo and some of the acts committed in Abu Ghraib would not constitute torture using either the ECHRs formulation under the Ireland case or under the concept of the Torture Memo. Among these acts would be feeding of pork and alcohol, forcing victims to wear female underwear, smearing a detainees face with fake menstrual blood, and having female interrogators rub their breasts on the detainees backs. Both the ECHR and the U.S. positions would consider the aforesaid acts and techniques as lacking the requisite severity, using a purely objective test, to be deemed torture.
71 72 73
Taguba, supra, Note 3. Supra Note 2. See: BBC World News, UK Edition, January 12, 2005, http://news.bbc.co.uk/1/hi/world/americas/4165627.stm, Site last visited on Febraury 7, 2005
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Importance of Religion in Analysis of Cruel, Inhuman, and Degrading Treatment

The foregoing acts vary in degrees to the most seemingly innocuous, in terms of being considered as cruel, inhuman, or degrading treatment, which, arguably, is the rubbing of breasts on the detainees backs. But viewed through the lens of the victims Islamic belief, these acts in all its varied degrees attain a higher level of offensiveness and inhumanity. Thus, the most ostensibly innocuous act becomes highly offensive when understood in the light of the Islamic conservative view of women in both what they may wear and in their conduct. So although some acts may not be considered as offences under the legal definition of torture, whether under the Torture convention or the overly high levels necessitated by the Torture Memo, these act constitute inhuman treatment when viewed in a Muslim context. Similarly, technically, feeding detainees pork and alcohol would not cause any physical injury and thus would hardly be thought of as cruel, inhuman, or degrading treatment when applied to another non-Muslim group. However, forcing Muslims to consume things believed to be unclean and forbidden would, using the language of the ECHR, arouse in the victims feeling of fear, anguish and inferiority capable of humiliating and debasing them. The point being made here is that subjective elements in this case that of religion should play a significant role in the analysis of what constitutes cruel, inhuman, or degrading treatment. This point is not made for merely theoretical or academic purposes but rather to emphasize the obligation of States under the Torture Convention to treat detainees humanely specifically by taking into account the special circumstances of the individual whether it is religious belief, or sex, or health. In a way, the analysis must be then turned on its head in order to focus on the need for States to be sensitive to the religion in regard to its obligations under the Torture Convention. For precisely the conventions on torture were established as a historical response to the commission of atrocities to the effect that the practice of torture would no longer be countenanced. By emphasizing the importance of religion as a factor that affect the victims subjective perception of cruel, inhuman, or degrading treatment, States and State actors should bear in mind to be more circumspect in the treatment of detainees.
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Conclusion
One of the legacies of the abuses at Abu Ghraib and Guantanamo is that it has provided the world with a new iconography of torture and inhuman treatment.74 The shocking images of the detainees - hooded and standing on a box with arms outstretched and wires dangling from his body in apparent danger of electric torture, naked and forced into sexual positions amidst a background of smiling soldiers, and bound and tied while being beaten mercilessly serve as a grave reminder of what States , even those who claim to be committed to the high principles of democracy and freedom, are capable of when it ignores its obligations under International Law to treat detainees humanely and not to commit torture . It is undeniable that the atrocities committed at Abu Ghraib and Guantanamo were especially offensive and painful to the Muslim detainees. The fact that the religion of the detainees was an aggravating factor in their suffering is a reminder that States must take into account subjective factors, i.e. religion, as this relates to the treatment of detainees and, more importantly, of the moral principles that have served to give birth to the international covenants that proscribe torture and cruel, inhuman, or degrading treatment. The moral principles uphold the dignity of the all human beings that all men, regardless of race, religion, or creed, are worthy of international protection from inhuman treatment. Consequently, while it may not be reasonably expected for any of the leaders and policy-makers of any State to be perfect, as St. Matthew suggests; however acting in accordance with the conventional obligations proscribing torture should certainly be a bare minimum expectation. For while the aforesaid standard of loving the enemy may be an impossible one given the context of the global war on terrorism, nevertheless, at the least, it should force us to recognize the fact that under International Law, even those accused of terrorism, who are among the most hated and feared at this point in human history, must still be accorded human rights protection - not for their sake but in respect and protection of our own humanity - and treated in a manner that is civilized and just.
74
See: USA: Human dignity denied: Torture and accountability in the war on terror, AI Index: AMR 51/145/2004, October 2004, http://web.amnesty.org/library/Index/ENGAMR511452004.
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From Santos to Ferraris: Secularizing Psychological Incapacity

Rudyard A. Avila III*
I Introduction: The Most Liberal Divorce Procedure in the World

Marriage is an institution the maintenance of which in its purity the public is deeply interested.1 Since the protection of the marriage relation is deemed essential to the public welfare,2 the preservation of marriage as a sacred institution requires not just the defense of a true and genuine union but the exposure of an invalid one as well.3 Divorce is generally an option available to married couples in many modern societies in cases of an invalid marriage4 or a failure of marriage. However acceptable it may be in many countries, divorce remains a controversial option because of the staunch and unrelenting opposition of the church to the idea. Consequently, as an alternative to the politically volatile issue of divorce, members of the Civil Code Revision Committee prudently opted to adopt a solution that would allow the termination of invalid marriages, lifting from Art. 1095 of the Code of Canon Law a ground that is not in conflict with the civil law concept of voidable marriages.5 That the whole concept was borrowed from grounds allowed by the church itself - which was made perfectly clear in the deliberations of the committee - avoided suspicion that Article 36 was a subterfuge for divorce and eliminated any possible
B.S. and Ll.B., University of the Philippines. Editor-in-Chief, IBP Journal, Senior Lecturer, University of the Philippines College of Law, former Assistant Professor, U.P. College of Law, former Dean, Araullo University College of Law, Professorial Lecturer, U.P. College of Medicine and San Beda University College of Medicine. Maynard vs. Hill, 125 U.S. 190, 8 S. Ct. 723, 31 L. Ed. 654. Hood vs. Roleson, 125 Ark. 30, 187 SW 1059. G.R. No. 137590, March 26, 2001, 284 SCRA 355 Annulment is another option although many annullable marriages are terminated by divorce. SEMPIO-DIY, HANDBOOK ON THE FAMILY CODE OF THE PHILIPPINES, 36 (1988).
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opposition from the church. However, the Roman Catholic concept of psychological incapacity is entirely separate and distinct from divorce. Its purpose is the preservation of an institution that formalizes the surrender of the husband and wife to each other,6 creating a partnership (consortium to tius vitae)7 whose primary ends include the pursuit of the good of the spouses and the procreation and education of offspring.8 Provisions allowing termination of marriages under Canon Law preserve these principles by exposing unions incapable of meeting the primary ends of partnership through the inability to perform essential matrimonial obligations from the onset of marriage. The idea that psychological incapacity is a substitute for a divorce law9 has consistently been turned down by the Supreme Court in its growing body of decisions involving Article 36 of the Family Code. From Santos vs. Court of Appeals10 and Republic vs. Molina11 up to its recent Resolution in Perez-Ferraris vs. Ferraris12, the Court has taken a firm stand against trivializing the concept of psychological incapacity limiting its application only to the most serious cases of incapacity grave enough to bring about disability on the part of one or both of the parties to assume the essential obligations of marriage.13 In Carating Siyangco vs.Siyangco14, the Court held: Article 36 of the Family Code, we stress, is not to be confused with a divorce law that cuts the marital bond at the time the causes therefore manifest themselves. It refers to a serious psychological illness afflicting a party even before the celebration of the marriage. It is a malady so grave and so permanent as to deprive one of awareness of the duties and responsibilities of the matrimonial bond one is about to assume.15 Notwithstanding the Supreme Courts views that psychological incapacity should not be treated as an alternative for divorce, no less than the Solicitor General in Molina commented that in its application in the lower courts, Article 36 may have created the most liberal divorce procedure in the world. Professor Florin Hilbay of the University of the Philippines has observed that given the propensity with
6 7 8 9
Ephesians 5:21-33. Id, at 369. Id., at 371.0 The Solicitor General has in fact commented that the provision on psychological incapacity in the Family Code is the most liberal divorce procedure in the world. Prior to the establishment of strict guidelines on the procedure involved in such cases, many courts, in the early years immediately following the affectivity of the Family Code, granted petitions for nullity on the basis merely of trial by a commissioner upon the agreement and urging of the parties themselves. 240 SCRA 20 (1995).. G.R. No. 108763, February 13, 1997,268 SCRA 198. (1997). G.R. No. 162368, July 17, 2006. Molina, supra note 11. Carating Siyangco vs. Siyangco, G.R. No. 158896. October 27, 2004. Id.
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From Santos and Molina to Ferraris: Secularizing Psychological Incapacity
which lower courts almost routinely grant petitions for declaration of nullity under Article 36, trial courts have created a subculture of divorce, away from the Churchs prying eyes, and, since most of these cases are never appealed, from the Supreme Courts own views on psychological incapacity. The emerging body of jurisprudence16 from the higher court on the matter however makes it crystal clear that cases of psychological incapacity are not common and are very difficult to prove.
Proving Supervening and Natal Factors: When Expert testimony Fails to Prove a Case
The difficulty of proving cases of psychological incapacity arises partly from the fact that most of the grounds adduced in support of a petition for a declaration of nullity under Article 36 may likewise be grounds for annulment of marriage17 or
16
See, 16 Ferraris vs. Ferraris, G.R. No. 162368, July 17, 2006; Republic of the Philippines vs. Iyoy, G.R. No. 152577, September 21, 2005; Carating-Siayngco v. Siayngco, G.R. No. 158896, 27 October 2004, 441 SCRA 422; Dedel v. Court of Appeals and Corpuz-Dedel, G.R. No. 151867, 29 January 2004, 421 SCRA 461; Guillen-Pesca v. Pesca, G.R. No. 136921, 17 April 2001, 356 SCRA 588; Marcos v. Marcos, ; Hernandez v. Court of Appeals, G.R. No. 126010, 08 December 1999, 320 SCRA 76. Art. 45. A marriage may be annulled for any of the following causes, existing at the time of the marriage: (1) That the party in whose behalf it is sought to have the marriage annulled was eighteen years of age or over but below twenty-one, and the marriage was solemnized without the consent of the parents, guardian or person having substitute parental authority over the party, in that order, unless after attaining the age of twenty-one, such party freely cohabited with the other and both lived together as husband and wife; (2) That either party was of unsound mind, unless such party after coming to reason, freely cohabited with the other as husband and wife; (3) That the consent of either party was obtained by fraud, unless such party afterwards, with full knowledge of the facts constituting the fraud, freely cohabited with the other as husband and wife; (4) That the consent of either party was obtained by force, intimidation or undue influence, unless the same having disappeared or ceased, such party thereafter freely cohabited with the other as husband and wife; (5) That either party was physically incapable of consummating the marriage with the other, and such incapacity continues and appears to be incurable; or (6) That either party was afflicted with a sexually-transmissible disease found to be serious and appears to be incurable. (85a) Art. 46. Any of the following circumstances shall constitute fraud referred to in Number 3 of the preceding Article: (1) Non-disclosure of a previous conviction by final judgment of the other party of a crime involving moral turpitude; (2) Concealment by the wife of the fact that at the time of the marriage, she was pregnant by a man other than her husband; (3) or Concealment of sexually transmissible disease, regardless of its nature, existing at the time of the marriage;
17
(4) Concealment of drug addiction, habitual alcoholism or homosexuality or lesbianism existing at the time of the marriage. No other misrepresentation or deceit as to character, health, rank, fortune or chastity shall constitute such fraud as will give grounds for action for the annulment of marriage. (86a)
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for legal separation. 18 Early discussions on psychological incapacity generally enumerated causes common to legal separation and annulment routinely adding that: (1) these grounds should exist at the time of the celebration of the marriage; and (2) render the affected spouse incapable of performing the essential marital obligations.19 Looking at the most recent cases decided by the Supreme Court a true case for psychological incapacity may not be as mathematically simple as merely alleging grounds for voidable marriage or legal separation and adding allegations of antecedence and gravity. a) The Conceptual Problems of Ferraris vs. Ferraris The Courts recent Resolution in the petition for declaration of nullity under Art. 36 involving of two celebrities, the television personality Amy Perez Ferraris and band soloist Brix Ferraris demonstrates the difficulties encountered in making allegations that overlap with the grounds for either legal separation or for voidable marriages. It also demonstrates the difficulty and ethical propriety of psychiatrists and psychologists making a diagnosis where the person being diagnosed is actually unavailable to undergo interviews and tests. In Ferraris, petitioner Amy Perez Ferraris filed an action for a declaration of nullity of marriage against her husband Brix, alleging that the latter was psychologically incapacitated to perform the essential obligations of marriage as he was suffering from mixed personality disorder. Since it appears that her spouse refused to cooperate by having himself undergo diagnostic tests, the diagnosis of the expert witness, Dr. Dayan was presumably reached without Dayan taking routine and directed tests with the subject to confirm her diagnosis. In medicine, diagnosis made at arms length culled from second hand data is generally suspect. Most of the data for Dayans evaluation was furnished by petitioner herself who appeared to be the most interested in obtaining a declaration of nullity. The
18 Art. 55. A petition for legal separation may be filed on any of the following grounds: (1) Repeated physical violence or grossly abusive conduct directed against the petitioner, a common child, or a child of the petitioner; (2) Physical violence or moral pressure to compel the petitioner to change religious or political affiliation; (3) Attempt of respondent to corrupt or induce the petitioner, a common child, or a child of the petitioner, to engage in prostitution, or connivance in such corruption or inducement; (4) (5) (6) (7) (8) (9) Final judgment sentencing the respondent to imprisonment of more than six years, even if pardoned; Drug addiction or habitual alcoholism of the respondent; Lesbianism or homosexuality of the respondent; Contracting by the respondent of a subsequent bigamous marriage, whether in the Philippines or abroad; Sexual infidelity or perversion; Attempt by the respondent against the life of the petitioner; or
(10) Abandonment of petitioner by respondent without justifiable cause for more than one year. For purposes of this Article, the term child shall include a child by nature or by adoption. (9a) 19 See. Edlyn Frances V. Versola and Marie Cecile T. Roque, The Concept of Psychological Incapacity Under Article 36 of the Family Code., 66 Phil. L. J., 535, 548 (1992).
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allegations in made in support of the petition included the following, among others: 1) leaving-the-house whenever the couple quarreled; 1) violent tendencies during epileptic attacks, 3) sexual infidelity; 4) abandonment and lack of support; and the husbands preference to spend more time with his band mates than his family. These manifestations were summed up by petitioners expert witness, Dr. Dayan as evidence of a mixed personality disorder called a schizoid personality of the dependent and avoidant type. What Dayan failed to do, however, was to explain exactly how this disorder came about and how the same constituted a condition grave enough to amount to psychological incapacity. The Court pointed out that Dayans testimony fell within the realm of speculation since she did not provide enough specificity to convince the Court that petitioner satisfied the threshold of proof required in such cases. Said the Court: At any rate, Dr. Dayan did not explain how she arrived at her diagnosis that respondent has a mixed personality disorder called schizoid, and why he is the dependent and avoidant type. In fact, Dr. Dayans statement that one suffering from such mixed personality disorder is dependent on others for decision x x x lacks specificity; it seems to belong to the realm of theoretical speculation.20 The lack of specificity which caused Dayans testimony to be, in the Courts own words, speculative, may have been due to the fact that the subject himself may not have been directly interviewed or tested by Dayan, a professional flaw which would likely be pointed out even in medical (psychiatric) audits and grand rounds. Obviously, Dayan may have had to rely on second hand sources leading the doctor to provide testimony that was inappropriate and which may have breached the ethics of her profession by dragging innocent parties who may not have wanted to be part of the proceedings, and likely without their informed consent, into the picture.21 The Court observed: Notably, when asked as to the root cause of respondents alleged psychological incapacity, Dr. Dayans answer was vague, evasive and inconclusive. She replied that such disorder can be part of his family upbringing x x x. She stated that there was a history of respondents parents having difficulties in their relationship. But this input on the supposed problematic history of respondents parents also came from petitioner.22 (Emphasis ours)
20 21 22 Supra, note 12. Id. In their over-eagerness to testify for one of the parties, experts should zealously guard against ethical violations. Forensic expert Dr. Raquel Fortun, in her lectures touching on expert testimony suggests that a good expert witness is not an advocate even if he/she testifies for only one side of the case. Further, the ethical expert witness opinions and conclusions should be reached independently of interests of litigants. He or she should be objective, neutral, independent and sincere. Id.
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In any case, the Court concluded that Dr. Dayan failed to clearly demonstrate that there was really a natal or supervening disabling factor on the part of respondent, or an adverse integral element in respondents character that effectively incapacitated him from accepting, and, thereby complying with, the essential marital obligations. Proof of respondents supposed psychological or mental malady existing even before the marriage was likewise severely lacking.23 From the Courts disquisitions on the diagnosis in this case, it appears that diagnosis of a psychological or mental condition must be fully supported by evidence: 1) of the diagnosis itself; 2) the basis of the diagnosis from the history of the problem, results of interviews; and 3) specific results of tests - medical, psychiatric, psychological or psychometric - appropriate to reach a proper diagnosis. These elements may be culled through an expert or from various pieces of evidence (since an expert is no longer an absolute necessity) that would demonstrate the elements of gravity, juridical antecedence and incurability necessary for petitions under Article 36. b. Juridical Antecedence As stated earlier, there is a significant degree of overlap between the causes of psychological incapacity and voidable marriages. The most common allegations made in support of petitions under Art. 36 include abandonment, failure of support, sexual difficulties, sexual problems, habitual alcoholism, dependency and dependent personalities and various forms of psychological disorders, psychiatric disorders, personality disorders, personality quirks, etc. However, all individuals possess attributes of personality disorders and quirks. People who suffer from neurosis, neurological illnesses and one or another form of mental deviation enter into successful and lasting marriages. Ultimately this depends on how successful coping mechanisms help individuals adjust to their problems. The Family Code recognizes that many of the defects causing individuals to fail to fulfill their marital obligations may actually exist at the time of the marriage but would show no manifestations. The responsibilities of marriage itself may be a trigger for some of these manifestations to come out. Problems in determining whether or not the grounds for psychological incapacity exist at the time of the celebration of the marriage however arise where there were no signs and symptoms of incapacity and for sometime after the marriage, the union seemed to be blessed with stability. As general proposition seen in many recent cases where evidence exists that the couple seemed to be happy, contented and fairly adjusted to the requirements and responsibilities of marriage it would be very difficult to meet one of the requirements established by the case of Santos that of juridical antecedence.
23
Id.
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Moreover, when, as a result of problems that occur later in the marriage, one of the spouses fails to perform his or her marital obligations, the courts must distinguish whether or not the non-performance was due to a supervening or natal course or whether or not the same constitutes simply a refusal to carry out responsibilities of fidelity, support, love, respect, etc. The Court, in Ferraris, in fact distinguished between the actual existence of psychological incapacity and a mere refusal. As with many marriages that end up in trouble at some point of the union, the relationship between Ms. Perez-Ferraris and her husband seemed to be a good one. As noted by the Court the couples relationship before the marriage and even during their brief union (for well about a year or so) was not all bad. During that relatively short period of time, petitioner was happy and contented with her life in the company of respondent. In fact, by petitioners own reckoning, respondent was a responsible and loving husband. Problems began when Ms. Perez-Ferraris started doubting respondents fidelity and they began fighting about the calls from women. Because of Ms. Perezs persistent nagging, respondent began to withdraw into his shell and corner, and failed to perform his so-called marital obligations. As the Court observed: Respondent could not understand petitioners lack of trust in him and her constant nagging. He thought her suspicious and irrational. Respondent could not relate to her anger, temper and jealousy. In the end, the Court concluded that the evidence on record did not convincingly establish that respondent was suffering from psychological incapacity. The Court noted that There is absolutely no showing that his defects were already present at the inception of the marriage, or that those are incurable. Moreover the Court stressed that the defects alleged by Ms. Ferraris were not rooted on some debilitating psychological condition but a mere refusal or unwillingness to assume the essential obligations of marriage. Citing Republic vs. Molina,24 the Court stressed that one must distinguish between incapacity on one hand as opposed to mere difficulty, refusal or neglect. c. The Supreme Court and the Family Courts in Cases of Psychological Incapacity The ease with which parties are able to obtain favorable judgments in petitions for declaration of nullity from Family Courts stands in direct contrast to the difficulty of getting these judgments affirmed once a case reaches the Supreme Court on appeal. In a study at the University of the Philippines College of Law on trial court judgments in psychological incapacity cases, it was found that in certain family courts the success rate reached 90%. At least two Family Courts studied granted petitions in 100% of cases filed in the year 2005.25
24 25 Id. Supra , note 11.
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Republic of the Philippines vs. Iyoy,26 penned by Justice Chico-Nazario illustrates this point. The Regional Trial Court of Cebu entered a favorable judgment in a psychological incapacity case in spite of the fact that the evidence produced by the complainant in court clearly did not meet the threshold required for such cases. Moreover, the Complaint in Iyoy was filed thirty six (36) years after the couples marriage and after they had raised their children into adulthood. What the trial court in fact granted in this case was the equivalent of a divorce, as seen form the facts below. On March 25, 1997 Crasus Iyoy filed a complaint for declaration of nullity of marriage with Branch 22 of the Regional Trial Court (RTC) of Cebu City. According to the facts averred in the Complaint, Crasus married his wife Fely on December 16, 1961 in Cebu City. From their union came five children who, at the time of the Supreme Courts decision were all of legal age. Crasus alleged that following the celebration of their marriage in 1961 he discovered that his wife Fely was hottempered, a nagger and extravagant. In 1984, Fely left the Philippines for the United States, leaving all of their children, the youngest being only six years old, to the care of her husband. Barely a year after Fely left for the U.S.A., Crasus received a letter from his wife asking for a divorce. He ignored the request. In 1985, Crasus learned that Fely got married to an American, with whom she eventually bore a child. In 1987, Fely visited the Philippines with her American family. However, Crasus and his wife did not get to meet or talk to each other. He avoided seeing her as he was afraid he might not be able to bear the sorrow and the pain she had caused him. Fely returned to the Philippines several times thereafter for the wedding of their eldest child; for the brain operation of their fourth child, Calvert; and in 1995, for reasons unstated. In her visits, Fely openly used the surname of her American husband. For the wedding of Crasus, Jr., Fely herself had invitations made in which she was named as Mrs. Fely Ada Micklus. At the time the Complaint was filed, it had been 13 years since Fely left and abandoned her husband, and there was clearly no more possibility of reconciliation between the spouses. In his Complaint, Crasus alleged that Felys acts brought danger and dishonor to the family, which he considered indications of her psychological incapacity to perform the essential obligations of marriage. In her Answer, Fely averred that she was already an American citizen since 1988 and was married to Stephen Micklus. Admitting that she was previously married to Crasus having five children with him, Fely however denied the other allegations, countering that she was no more hot-tempered than any normal person, and that she may have been angry at Crasus on certain occasions but this was because of the latters drunkenness, womanizing, and lack of any sincere efforts to find employment
26 ARTICLE 36 OF THE FAMILY CODE: A DECADE AFTER SANTOS VS. COURT OF APPEALS AND BEDIA-SANTOS, 19-21 (2006).
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or to contribute to the support or maintenance of their household. She claimed she could not have been extravagant since the family hardly had enough money for basic needs. In fact, she left for the United States for financial reasons since Crasus was unemployed and she had to be the sole breadwinner of the family in the Philippines. Her income in Cebu was inadequate to meet the needs of her family. She denied abandoning her family because she continued to provide financial support to them while in the U.S. Subsequently, Fely was able to bring her children to the U.S.A., except for one, Calvert, who had to stay behind for medical reasons. After securing a divorce from respondent Crasus, Fely married her American husband and acquired American citizenship. She argued that her marriage to her American husband was legal because now being an American citizen, her status shall be governed by the law of her present nationality. In her counterclaim, Fely also pointed out that Crasus himself was presently living with another woman who bore him a child. She also accused him of misusing funds advanced to finance the brain operation of their son, Calvert. On the basis of these allegations, Fely likewise prayed that the trial court declare her marriage to respondent Crasus null and void.
Confusing Divorce for Psychological Incapacity

The Supreme Court has time and again emphasized that any doubts in cases of void or voidable marriages, legal separation and, of late, psychological incapacity should be resolved in favor of the validity of the marriage. Consequently, courts should adopt a high index of suspicion in cases under Article 36 with the aim of preserving the institution as much as they can. It is recognized that many marriages eventually encounter serious difficulties, some irreconcilable. The absence of a divorce law does not provide an excuse for trial courts to substitute the article on psychological incapacity to terminate marriages merely on findings of serious and irreconcilable differences if the evidence is weak and does not satisfy the elements of gravity, incurability and juridical antecedence. In Iyoy, the trial court entered favorable judgment in favor of the husband stating the following reasons: [D]efendant had indeed exhibited unmistakable signs of psychological incapacity to comply with her marital duties such as striving for family unity, observing fidelity, mutual love, respect, help and support. From the evidence presented, plaintiff adequately established that the defendant practically abandoned him. She obtained a divorce decree in the United States of America and married another man and has establish [sic] another family of her own. Plaintiff is in an anomalous situation, wherein he is V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 95
married to a wife who is already married to another man in another country. 27 The anomalous situation described by the court, i.e., the subsequent marriage of Mrs. Iyoy in the United States in spite of the existence of a valid and subsisting marriage in the Philippines is either a ground for Bigamy or legal separation (infidelity) or both. Without much evidence the trial Court, in bending backwards to fulfill the element of juridical antecedence further stated: Defendants intolerable traits may not have been apparent or manifest before the marriage, the FAMILY CODE nonetheless allows the annulment of the marriage provided that these were eventually manifested after the wedding. It appears to be the case in this instance. Certainly defendants posture being an irresponsible wife erringly reveals her very low regard for that sacred and inviolable institution of marriage which is the foundation of human society throughout the civilized world. It is quite evident that the defendant is bereft of the mind, will and heart to comply with her marital obligations, such incapacity was already there at the time of the marriage in question is shown by defendants own attitude towards her marriage to plaintiff. In sum, the ground invoked by plaintiff which is defendants psychological incapacity to comply with the essential marital obligations which already existed at the time of the marriage in question has been satisfactorily proven. The evidence in herein case establishes the irresponsibility of defendant Fely Ada Rosal Iyoy, firmly.28 In reversing the trial courts decision, the Supreme Court found that the totality of evidence presented by Crasus failed miserably to establish the alleged psychological incapacity of his wife Fely. Moreover the Court held that there was no basis for declaring their marriage null and void under Article 36 of the Family Code of the Philippines as the evidence presented by the husband in this case was not only weak but wanting and insufficient. The Court observed: The only substantial evidence presented by respondent Crasus before the RTC was his testimony, which can be easily put into question for being self-serving, in the absence of any other corroborating evidence. He submitted only two other pieces of evidence: (1) the Certification on the recording with the Register of Deeds of the Marriage Contract between
27 28 Supra, note 12. Id.
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respondent Crasus and Fely, such marriage being celebrated on 16 December 1961; and (2) the invitation to the wedding of Crasus, Jr., their eldest son, in which Fely used her American husbands surname. Even considering the admissions made by Fely herself in her Answer to respondent Crasuss Complaint filed with the RTC, the evidence is not enough to convince this Court that Fely had such a grave mental illness that prevented her from assuming the essential obligations of marriage.29 One is tempted to ask why, in spite of the obvious insufficiency and weakness of the evidence, the trial court rendered judgment favoring the husband in this case. Two reasons are apparent from the decision of the Court of Appeals which affirmed the trial courts decision in Iyoy (which likewise explains the propensity of some family courts to grant petitions for psychological incapacity against the clear guidelines of Santos vs. Court of Appeals and Republic vs. Molina): 1. Where one of the spouses has gone abroad and remarried, some courts will try to find an equitable solution to reverse what they would consider an untenable situation, leaving something for the spouse who may have been abandoned. In doing this, the court misappreciated Article 26 of the Family Code. It held: The rationale behind the second paragraph of the above-quoted provision (Art. 26) is to avoid the absurd and unjust situation of a Filipino citizen still being married to his or her alien spouse, although the latter is no longer married to the Filipino spouse because he or she has obtained a divorce abroad. In the case at bench, the defendant has undoubtedly acquired her American husbands citizenship and thus has become an alien as well. This Court cannot see why the benefits of Art. 26 aforequoted can not be extended to a Filipino citizen whose spouse eventually embraces another citizenship and thus becomes herself an alien.30 Unfortunately, Art. 26 applies only to a situation where the spouse who obtained a second marriage was already an alien at the time of his or her marriage abroad. From the facts of this case, Mrs. Iyoy became an American Citizen as a result of and following her marriage to her second husband. This is not the situation contemplated by the second paragraph of Article 26. 2. The second reason is that the court, out of sheer compassion may actually be granting a divorce, not sanctioned by law, knowingly or unknowingly, however using Art. 36 as its instrument. The following statement from the lower appellate court is quite revealing. The lower appellate court considered it unfair that Mrs. Iyoy could remarry in the United States while the husband under Philippine law cannot. It stated:
29 30
Id. Id.
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It would be the height of unfairness if, under these circumstances, plaintiff would still be considered as married to defendant, given her total incapacity to honor her marital covenants to the former. To condemn plaintiff to remain shackled in a marriage that in truth and in fact does not exist and to remain married to a spouse who is incapacitated to discharge essential marital covenants, is verily to condemn him to a perpetual disadvantage which this Court finds abhorrent and will not countenance. Justice dictates that plaintiff be given relief by affirming the trial courts declaration of the nullity of the marriage of the parties.31 Obviously, considerations of justice and equity permeated the decisions of both the trial court and the Court of Appeals. However, equity follows law and the law in this case allows no room for divorce under the guise of psychological incapacity even when an unfair situation is created where the spouse remaining in the Philippines cannot remarry while the guilty spouse has already married. The Court in Iyoy reiterated the principle that Article 36 should not be confused with a divorce law that cuts the marital bond at the time the causes therefore manifest themselves. It is a malady that is both so grave and so permanent as to deprive one of awareness of the duties and responsibilities of the matrimonial bond one is about to assume. a. Degree of Suffering Not an Index: Pesca vs. Pesca32 The degree of suffering endured by the innocent spouse in a case for psychological incapacity does not constitute the measure of gravity required by the Bedia Santos doctrine. Gravity refers to the seriousness of the psychological condition suffered by the spouse against whom the action for declaration of nullity is directed not the recipient of the manifestations of psychological incapacity. Repeated physical or psychological violence by itself constitutes a ground for legal separation unless it is clearly established by the evidence that this trait existed at the time of the marriage and rendered the guilty spouse incapable of fulfilling his obligations towards family. However, emotional immaturity leading one spouse to beat up the other does not standing alone constitute psychological incapacity as the case hereunder illustrates. From the facts culled by the trial court, Lorna G. Pesca and Zosimo A. Pesca first met in 1975 while on board an inter-island vessel bound for Bacolod City. After a whirlwind courtship, they got married on March 3, 1975. For thirteen years, the marriage was uneventful. Their union begot four children: Ruhem, 19; Rez, 17; Ryan, 11 and Richie, 9. Sometime in 1988, Lorna noticed that Zosimo showed signs of psychological incapacity. He manifested signs of being emotionally immature and irresponsible,
31 32 Id. G.R. No. 136921, April 17, 2001; 358 SCRA 588.
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he was cruel and violent, and he became a habitual drinker, staying with friends daily from 4:00 oclock in the afternoon until 1:00 oclock in the morning. When asked to stop or reduce his drinking Zosimo would beat, slap and kick her.33 The violence got worse and at one point, Zosimo chased Lorna with a loaded shotgun and threatened to kill her in the presence of the children. The children themselves were not spared from physical violence. Things did not get better. In the morning of March 22 1994, about eight oclock, Zosimo beat up Lorna black and blue for about half an hour in the presence of the children. A case was filed against Zosimo for slight physical injuries where he was convicted by the Metropolitan Trial Court of Caloocan City and sentenced to eleven days of imprisonment. After this incident, petitioner and her children left Zosimo for good. Petitioner sued respondent before the Regional Trial Court for the declaration of nullity of their marriage under Art. 36, seeking custody of her minor children and praying for support pendente lite. On November 15, 1995, the trial court rendered its decision declaring the marriage between petitioner and respondent to be null and void ab initio on the basis of psychological incapacity on the part of Zosimo and ordered the liquidation of the conjugal partnership. The Court of Appeals reversed, declaring the marriage between then spouses still valid and subsisting. In sustaining the lower appellate courts findings and conclusions in the case, the Supreme Court stressed that: At all events, petitioner has utterly failed, both in her allegations in the complaint and in her evidence, to make out a case of psychological incapacity on the part of respondent, let alone at the time of solemnization of the contract, so as to warrant a declaration of nullity of the marriage. Emotional immaturity and irresponsibility, invoked by her, cannot be equated with psychological incapacity. The Court reiterates its reminder that marriage is an inviolable social institution and the foundation of the family that the State cherishes and protects. While the Court commiserates with petitioner in her unhappy marital relationship with respondent, totally terminating that relationship, however, may not necessarily be the fitting denouement to it. In these cases, the law has not quite given up, neither should we.34 b. Alleging Ones Own Psychological Incapacity It is fairly settled that both parties in a case based on Article 36 may be psychologically incapacitated, or the petitioner himself or herself may allege that he or she is psychologically incapacitated to perform the essential obligations of marriage. It may be that in the latter case, the petitioner is genuinely afflicted with a disorder that meets the stringent criteria of the high court, or it is possible that the petitioner
33 34 Id, at 590. Id, at 594.
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would not want to antagonize the other spouse and risk vigorous opposition that would lead to losing the case by alleging some defect of the respondent. In such instances, courts should exercise a greater degree of skepticism to avoid possible collusion between the spouses and look very closely at expert evidence that may have been canned to suit the petitioners needs, from a professional lacking the neutrality and objectivity of an honest expert. In cases where the expert opinion though obviously canned meets little opposition from the other side, the magistrate must act as the devils advocate and determine for himself whether or not a genuine case of psychological incapacity actually exists. Where the petitioner alleges his own psychological incapacity as a matter of strategy to minimize the possibility of opposition, the tactic might backfire if the other spouse nonetheless actively opposes the petition and presents superior expert evidence from a board certified psychiatrist. This appears to be the situation in Villalon vs. Villalon. In this case, the husband, Jaime F. Villalon, filed a petition for the annulment of his marriage against his wife, Ma. Corazon N. Villalon before Branch 69 of the Regional Trial Court of Pasig City. He alleged his own psychological incapacity which he claimed existed even prior to his marriage. However, as found by the Court, the expert testimony and evaluations of the psychologist, Dr. Natividad Dayan appeared to be based only on interviews with the petitioner and was found to be insufficient to establish a case for psychological incapacity. Villalon alleged the following manifestations of his psychological incapacity in support of his petition: (a) a chronic refusal to maintain harmonious family relations and lack of interest in a normal married life; (b) immaturity and irresponsibility in refusing to accept the essential obligations of marriage; (c) a desire for other women and a desire for a life unchained from any spousal obligation; and (d) false assumption of the fundamental obligations of companionship and consortium towards respondent. However, the petition for declaration of nullity was opposed by his wife, Corazon. Corazon asserted that her 18-year marriage to petitioner was actually fruitful, joyous, contented and promising. She alleged that had her husband not strayed, there was genuine opportunity for more growth in their relationship. The occasional marital squabbles, she claimed, were normal based on community standards. Moreover, her husband had a successful career, allowing him to adequately support his family as husband, father, and provider. Corazon claimed that her husbands commitment to his paternal and marital responsibilities was beyond reproach. The trial court ordered the prosecution to determine whether or not there was collusion between the spouses. The report submitted to the trial court stated that there was no such collusion. However, the Office of the Solicitor General (OSG) subsequently entered its appearance in behalf of the Republic of the Philippines and opposed the petition. 100 IBP JOURNAL
Petitioner claimed that he married respondent because he believed that it was the right time to raise a family and that she would be a good mother to his children. In mid-1993, however, petitioner decided to leave the respondent because, according to him, his marriage reached a point where genuine communication, affection, love and respect between him and his wife was no longer possible. He claimed that this was caused by his philandering ways, a trait he admitted existed even before his marriage since he was seeing other women even when he was engaged to his future wife. Even before meeting his wife, he usually had two girlfriends at the same time. Before he left the conjugal abode petitioner claims that he and his wife spoke to their three children who, at that time, were 14, 8, and 6 years old, respectively. Prior to this, petitioner consulted a child psychologist. He considered himself to be a good and loving father and despite the separation, would regularly visit his children who stayed with him on alternate weekends. He voluntarily gave adequate support to the children and his wife. Dr. Natividad Dayan, a clinical psychologist, testified in behalf of petitioner, claiming that he suffered from a condition known as Narcissistic Histrionic Personality Disorder with a Casanova Complex. In her testimony, Dr. Dayan described the disorder as a pervasive maladaptation in terms of interpersonal and occupational functioning with main symptoms of grand ideation about oneself, self-centeredness, thinking he is unique and wanting to always be the one followed, the I personality. She claimed that an individual person afflicted with this disorder is self-centered and selfish and engaged in activities geared towards personal gratification, including the constant satisfaction of his emotional and sexual feelings thereby engaging in serial infidelity. An individual with a Casanova Complex exhibits habitual adulterous behavior and goes from one relationship to another. Dr. Dayan submitted a psychological report on both petitioner and respondent based on clinical interviews and psychological tests. In her testimony, Corazon claimed that she knew of only two instances of infidelity which occurring 13 years apart. She also theorized that petitioner wanted to have their marriage annulled so he could marry her old friend. She stated that she has not closed her doors to petitioner but the latter would have to give up his extra-marital relationship. Dr. Cecilia Villegas, a board certified psychiatrist, testifying for Corazon, averred that Dr. Dayans findings were incomplete. She explained that a team approach was necessary in evaluating an individuals personality for the purpose of psychological incapacity since the latter is a relative term requiring the expertise of a psychiatrist and investigation and opinion from social worker who will have to look into the actual environment, the interactions and relationships from which the psychological incapacity was supposed to have manifested. V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 101
In spite of the evidence presented by Corazon, the Regional Trial Court, Branch 39 of Pasig City declared the marriage null and void ab initio on the ground of psychological incapacity. On appeal by both Corazon and the Office of the Solicitor General, the Court of Appeals reversed the trial courts decision holding that petitioner failed to prove the juridical antecedence, gravity and incurability of his alleged psychological incapacity. Commenting on the insufficiency of Dr. Dayans process at arriving at her conclusions the lower appellate court noted that: Although Dr. Dayan testified that petitioners psychological incapacity preceded the marriage, she failed to give sufficient basis for such a finding. Dr. Dayan also stated that parental marital instability was the root cause of petitioners psychological incapacity but failed to elaborate thereon or link the two variables. Moreover, petitioners sexual infidelity was made to appear as symptomatic of a grave psychological disorder when, in reality, the same merely resulted from a general dissatisfaction with the marriage.
Ordinary Dissatisfaction Not Psychological Incapacity

The arcane technical terms of the fields of psychology and psychiatry would fail to impress the courts if these are unsupported by an explanation of the process by which an expert arrived at his or her conclusions. As the lower appellate court explained in Villalon (likewise in Iyoy where Dr. Dayans testimony was likewise found to be lacking), not only should the expert explain the procedure followed in arriving at his or her conclusions, but that the latter should also establish a causal link between his findings and the alleged psychological incapacity. As explained in Marcos, infra, examination by a psychologist is unnecessary if the evidence presented clearly provides the root cause of the problem and the picture created by the totality of the facts and circumstances of a case establishes psychological incapacity. Courts should look with suspicion at psychologists reports that routinely drop complicated technical terms, aimed at dazzling the former (like a lawyer who uses legalisms and archaic language to try to impress a client) with insufficient supporting data. In the appeal from the decision of the Court of Appeals against Jaime Villalon to the high court, the latter upheld the findings of the lower appellate court to the effect that petitioner was a good husband to respondent for a substantial period of time prior to their separation, a loving father to their children and a good provider of the family for a substantial period of time prior to their separation. As to the averment of infidelity, the court concluded: Although he engaged in marital infidelity in at least two occasions, the same does not appear to be symptomatic of a grave psychological 102 IBP JOURNAL
disorder which rendered him incapable of performing his spousal obligations. The same appears as the result of a general dissatisfaction with his marriage rather than a psychological disorder rooted in petitioners personal history. xxx Moreover, we are not convinced that petitioner is a serial or habitual adulterer, as he wants the court to believe. As stated by respondent herself, it cannot be said that two instances of infidelity which occurred 13 years apart could be deemed womanizing, especially considering that these instances involved the same woman. In fact, at the time of respondents testimony, petitioners illicit relationship has been going on for six years. This is not consistent with the symptoms of a person suffering from Casanova Complex who, according to Dr. Dayan, is one who jumps from one relationship to another. Agreeing with the lower appellate court in respect to the insufficiency of Dr. Dayans findings, the Court noted: [A]lthough Dr. Dayan testified that petitioner suffered from Narcissistic Histrionic Personality Disorder with Casanova Complex even before the marriage and thus had the tendency to cheat on his wife, such conclusion was not sufficiently backed by concrete evidence showing that petitioner indeed had several affairs and finds it difficult to be faithful. Except for petitioners general claim that on certain occasions he had two girlfriends at the same time, no details or explanations were given of such circumstances that would demonstrate petitioners inability to be faithful to respondent either before or at the time of the celebration of their marriage. xxx While Dr. Dayan described the symptoms of one afflicted with Narcissistic Histrionic Personality Disorder as selfcentered, characterized by grandiose ideation and lack of empathy in relating to others, and one with Casanova Complex as a serial adulterer, the evidence on record betrays the presence of any of these symptoms. The Court emphasized that simple loss of love leading to a refusal to cohabit or stay married to the other spouse as held in Republic vs. Molina is not psychological incapacity within the meaning of the law.
Psychological Incapacity Without Expert Evidence

For sometime, the requirement for expert evidence coming from psychiatrists, psychologists and other clinicians created a cottage industry that allowed a few V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 103
unscrupulous practitioners to provide opinions demand, tailoring their testimonies to the requirements of the party paying for their services. The possibility of ethical breach was noted several years ago by the Philippine Psychiatric Association when it issued a memorandum letter reminding its members to guard against practices that would constitute violations of the Code of Ethics of the association, the Medical Act of 1959 and the Philippine Medical Association. One important difference between psychologists and psychiatrists is that the latter are professionals who have to secure their licenses to practice their profession from the Professional Regulations Commission by passing tests given by the Board of Medicine. After obtaining their license to practice, they will have to undergo three or four years (more if they pursue post residency fellowship) of formal study and training either with a teaching institution or with a major medical center whose psychiatry program meets the rigid standards followed by psychiatry residency programs here, the United States, the United Kingdom and in other countries. The process of reaching expertise is described in the landmark case of Felix vs. Buenaseda penned by Justice Santiago M. Kapunan. In Marcos vs. Marcos35 the Supreme Court clarified that there is no requirement that the party alleged to be incapacitated should be personally examined by a physician, psychiatrist or psychologist as a condition sine qua non for the declaration of nullity of marriage based on psychological incapacity.36 Accordingly, the Court held that it is no longer necessary to allege expert opinion in a petition under Article 36 of the Family Code, however, it required that psychological incapacity, must be established by the totality of the evidence presented during the trial.37 One of the main issues discussed by the Court in the Marcos case was whether or not the Court of Appeals acted correctly when it reversed the decision of the Regional Trial Court granting a decree for nullity under Article 36 on the ground that the trial court failed to establish incapacity through a proper psychological evaluation. Although a psychological report was actually made, coincidentally again in this case by Dr. Natividad Dayan, the Court of Appeals observed that the appellant was not subjected to any psychological or psychiatric examination. It noted that: The psychological findings about the appellant by psychiatrist38 Natividad Dayan was based only on the interviews conducted with the appellee.39
35 36 37 38 G.R. No. 136490, October 19, 2000, 343 SCRA 755. Id. Id. Curiously, the lower appellate court used the term Psychiatrist in describing Dr. Dayan. In two other cases in which Dr. Dayan was the expert witness, the court used the terms Clinical Psychologist or Psychiatrist to describe her. A psychiatrist is different from a psychologist. The former is a professional accredited as a physician by the PRC. However, a psychiatrist may also be a psychologist if the former took psychology as an undergraduate course or took further courses in clinical psychology. In fairness to Dr. Dayan, an interview is part of a psychologic evaluation. The clinician, after conducting the interview may decide to proceed to other tests and most likely will, However, if the interview is satisfactory and establishes the diagnosis, that is the evaluation itself.
39
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A psychological evaluation by either a psychiatrist or a psychologist is an added expense by the parties to a case that could actually be dispensed with if the totality of the evidence presented adequately established the partys psychological condition. It is submitted, though that it would be next to impossible to have a proper evaluation and assessment of an individuals psychological or mental state without consulting an expert. The Court nonetheless affirmed the lower appellate courts reversal of the trial courts decision stating that this was not quite the case.
II Constitutional and Statutory Genesis

The seriousness with which courts should limit cases of psychological incapacity to only those which are clearly characterized by gravity, juridical antecedence and incurability, has both statutory and constitutional reasons. The 1987 Constitution accords to marriage and to the family primacy as an institution40 that requires protection by the courts.41 It is an inviolable social institution and the foundation of the family,42 for which the State is committed to strengthen its solidarity and promote its development.43 In its revision of the definition of marriage for the Family Code, the Family Code Committee characterized marriage as a special contract of permanent union entered into in accordance with law for the purpose of family life44 which the state is mandated to uphold and strengthen. The absence of a divorce law apart from the Catholic Churchs staunch opposition against the introduction of divorce in the country - emphatically indicates the States policy to safeguard the institution by disallowing the creation of laws that would undermine and erode this bedrock upon which the State itself is founded.45 Given these considerations and the Supreme Courts low level of tolerance for attempts by litigants to turn Art. 36 into a de facto divorce law, family courts should follow the high courts lead and confine the application of the provision only to
40 41 42 43 44
Id. Const., art. II, sec. 12. Const., art. XV, sec. 2. Const., art. XV, sec. 1. Art. 1 of the Family Code Provides: Article 1. Marriage is a special contract of permanent union between a man and a woman entered into in accordance with law for the establishment of conjugal and family life. It is the foundation of the family and an inviolable social institution whose nature, consequences, and incidents are governed by law and not subject to stipulation, except that marriage settlements may fix the property relations during the marriage within the limits provided by this Code. The Civil Code provides: Art. 52. Marriage is not a mere contract but an inviolable social institution. Its nature, consequences and incidents are governed by law and not subject to stipulation, except that the marriage settlements may to a certain extent fix the property relations during the marriage. Const., art. II, sec. 12: The State recognizes the sanctity of family life and shall protect and strengthen the family as a basic autonomous social institution. It shall equally protect the life of the mother and the life of the unborn from conception. The natural and primary right and duty of parents in the rearing of the youth for civic efficiency and the development of moral character shall receive the support of the Government.
45
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those cases which conform to the guidelines established in Santos46 and Molina47 in relation to its disquisitions in Marcos vs. Marcos48 and recent cases. In Santos vs. Court of Appeals, the Court held that: There is hardly any doubt that the intendment of the law has been to confine the meaning of psychological incapacity to the most serious cases of personality disorders clearly demonstrative of an utter insensitivity or inability to give meaning and significance to the marriage. This psychologic condition must exist at the time the marriage is celebrated. In Republic vs. Molina, the Court instituted the following guidelines to be strictly observed by courts in deciding cases of psychological incapacity: (1) The burden of proof to show the nullity of marriage belongs to the plaintiff. Any doubt should be resolved in favor of the existence and continuation of the marriage and against its dissolution and nullity. This is rooted in the fact that both our Constitution and our laws cherish the validity of marriage and unity of the family. Thus, our Constitution devotes an entire Article on the Family, recognizing it as the foundation of the nation. It decrees marriage as legally inviolable, thereby protecting it from dissolution at the whim of the parties. Both the family and marriage are to be protected by the state. The Family Code echoes this constitutional edict on marriage and the family and emphasizes their permanence, inviolability and solidarity. (2) The root cause of the psychological incapacity must be: a) medically or clinically identified, b) alleged in the complaint, c) sufficiently proven by experts and d) clearly explained in the decision. Article 36 of the Family Code requires that the incapacity must be psychological not physical, although its manifestations and/or symptoms may be physical. The evidence must convince the court that the parties, or one of them, was mentally or physically ill to such an extent that the person could not have known the obligations he was assuming, or knowing them, could not have given valid assumption thereof. Although no example of such incapacity need be given here so as not to limit the application of the provision under the principle of ejusdem generis, nevertheless such root cause must be identified as a psychological illness and its incapacitating nature fully explained. Expert evidence may be given by qualified psychiatrists and clinical psychologists.
46 47 48 Supra, note 10. Supra , note 11. Marcos v. Marcos, G.R. No. 136490, October 19, 2000, 343 SCRA 755, clarified that there is no requirement that the defendant/respondent spouse should be personally examined by a physician or psychologist as a condition sine qua non for the declaration of nullity of marriage based on psychological incapacity. Accordingly, it is no longer necessary to allege expert opinion in a petition under Article 36 of the Family Code of the Philippines. Psychological incapacity, however, must be established by the totality of the evidence presented during the trial.
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(3) The incapacity must be proven to be existing at the time of the celebration of the marriage. The evidence must show that the illness was existing when the parties exchanged their I dos. The manifestation of the illness need not be perceivable at such time, but the illness itself must have attached at such moment, or prior thereto. (4) Such incapacity must also be shown to be medically or clinically permanent or incurable. Such incurability may be absolute or even relative only in regard to the other spouse, not necessarily absolutely against everyone of the same sex. Furthermore, such incapacity must be relevant to the assumption of marriage obligations, not necessarily to those not related to marriage like the exercise of a profession or employment in a job. Hence, a pediatrician may be effective in diagnosing illnesses of children and prescribing medicine to cure them but may not be psychologically capacitated to procreate, bear and raise his/her own children as an essential obligation of marriage. (5) Such illness must be grave enough to bring about the disability of the party to assume the essential obligations of marriage. Thus, mild characteriological peculiarities, mood changes, occasional emotional outbursts cannot be accepted as root causes. The illness must be shown as downright incapacity or inability, not a refusal, neglect or difficulty, much less ill will. In other words, there is a natal or supervening disabling factor in the person, an adverse integral element in the personality structure that effectively incapacitates the person from really accepting and thereby complying with the obligations essential to marriage. (6) The essential marital obligations must be those embraced by Articles 68 up to 71 of the Family Code as regards the husband and wife as well as Articles 220, 221 and 225 of the same Code in regard to parents and their children. Such non-complied marital obligation(s) must also be stated in the petition, proven by evidence and included in the text of the decision. (6) The essential marital obligations must be those embraced by Articles 68 up to 71 of the Family Code as regards the husband and wife as well as Articles 220, 221 and 225 of the same Code in regard to parents and their children. Such non-complied marital obligation(s) must also be stated in the petition, proven by evidence and included in the text of the decision. (7) Interpretations given by the National Appellate Matrimonial Tribunal of the Catholic Church in the Philippines, while not controlling or decisive, should be given great respect by our courts. The trial court must order the prosecuting attorney or fiscal and the Solicitor General to appear as counsel for the State. (8) No decision shall be handed down unless the Solicitor General issues a certification, which will be quoted in the decision, briefly stating therein V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 107
his reasons for his agreement or opposition, as the case may be, to the petition.49
Objective Standards and Subjective Factors: The Emerging Psychological Incapacity

In his dissenting opinion in Republic vs. Molina, Justice Teodoro Padilla suggested that every case of psychological incapacity must be judged not on the basis of a priori assumptions, predilections or generalizations but according to its own facts50. Clarifying that the absence of a psychological examination or a psychiatric evaluation is not fatal to petitions under Art. 36 the Court, in Marcos vs. Marcos likewise stated that personal medical or psychological exams are not a sine qua non for necessary in proving psychological incapacity51 because what is important in such cases is the actual presence of evidence that can adequately establish the partys psychological condition.52 This may be inferred from the totality of the picture created by the evidence adduced in the proceeding in the trial court and not from isolated snippets given by a medical (psychiatric) professional acting either as a consultant or expert. From a provision that began as a nebulous concept, the picture that has gradually emerged from the cases coming out of the Supreme Court is that psychological incapacity is less a legal than a clinical construct. In Santos vs. Court of Appeals, the Court clarified that the condition refers to no less than a mental (not physical) incapacity that causes a party to be truly cognitive of the basic marital covenants that concomitantly must be assumed and discharged by the parties to the marriage53 in which the clear intent of the law was to confine its meaning only to the most serious cases of personality disorders clearly demonstrative of an utter insensitivity or inability to give meaning and significance to the marriage. 54 Emphasizing that psychological incapacity is a clinical concept, Chief Justice Artemio Panganiban in Republic vs. Molina55 required that the cause of the problem must be medically or clinically identified.56 For this purpose, the evidence must convince the court that the parties, or one of them, was mentally or psychically ill.57 Further, Justice
49 50 51 Supra, note 11, at 210-213. Supra, note 11. Padilla J, Dissenting. Supra, note 50..The statement by the Court must however be seen in the context of the facts of Marcos. The Court of Appeals reversed the trial courts finding of psychological incapacity because the appellate court found that psychological incapacity was not sufficiently established since the defendant did not undergo psychological evaluation. The Supreme Court ruled that this was not an absolute requirement in cases where other pieces of evidence or the total picture would in fact establish psychological incapacity. Id. The Court held: [I] is no longer necessary to allege expert opinion in a petition under Article 36 of the Family Code of the Philippines. Supra, note 11, at 34. Id. Id., at 210. Id. (Italics supplied). Id.
52 53 54 55 56 57
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Panganiban required that the cause of the alleged psychological incapacity must be identified as a psychological illness and its incapacitating nature fully explained. In a case in which sexual infidelity and perversion were alleged as the reasons for filing a petition for psychological incapacity, the Court stated that the acts of perversion and sexual infidelity must be shown to be manifestations of a disordered personality which [would] make respondent completely unable to discharge the essential obligations of the marital state.58 The Supreme Court there further held that youth, immaturity or sexual promiscuity by themselves do not make a case of psychological incapacity.59 Consistently, these cases have characterized time and again the nature of psychological incapacity as a mental60 disorder or a personality disorder61 or an incapacity of a psychological nature62 in which one or both of the parties is mentally or psychically ill63 and one which has to be medically or clinically identified.64 Aside from the fact of juridical antecedence, the mental disorder must be grave and incurable but not grave enough like dementia, polar disorders or schizophrenia, for instance to vitiate consent,65 otherwise the marriage would be merely voidable. The picture that emerges from Santos vs. Court of Appeals up to Ferraris, i.e., of psychological incapacity as a clinical state clearly diverges from the concept of the condition originally envisioned by the Family Code Committee. It is the writers opinion that this development is for the better since the objective parameters and measurements of the disciplines of psychiatry, psychology, the behavioral sciences and medicine would balance the subjectivity that has characterized the early cases and would help the magistrate understand the root causes of the problem partly assisted in formulating a total picture by the more or less impartial accoutrements of science.
Confusion of Concept Confusion of Origin

The origins of the concept of psychological incapacity from Canon Law are thoroughly threshed out in the deliberations of the Family Code Committee, the discussions in Congress and the Philippine Supreme Courts disquisitions in the case of Santos vs. Santos. For a while, a uniform understanding of psychological
58 59 60 61 62 63 64 65 See, Dedel vs. Court of Appeals, G.R. No. 151867. January 29, 2004 (Italics supplied).. Id. Supra, note 11, at 34. Id. Hernandez vs. Court of Appeals, G.R. No. 126010, December 8, 1999. Supra, note 10. Id. It is not enough that the disorder be medically or clinically identified. In Ferraris, supra, the Court require Even in such cases (psychiatric illness or disorders), where it is clearly shown that the consent was given during a lucid interval, the marriage is not voidable.
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incapacity was elusive because of the absence not only of a definition of psychological incapacity but also of a definite and coherent framework which judges could work on. The deliberations of the Family Code Committee were not of great help because committee members themselves were confused as to the concept and nature of psychological incapacity. Some of the reasons for this confusion are explained below: First, many psychological problems vitiate consent and a psychological problem may both affect consent and an individuals capacity to understand his fundamental marital obligations. This dilemma is clearly recognized and capsulized in the following exchange between members of the Committee: On subparagraph (7), which as lifted from the Canon Law, Justice (Jose B.L.) Reyes suggested that they say wanting in sufficient use, but Justice (Eduardo) Caguioa preferred to say wanting in the sufficient use. On the other hand, Justice Reyes proposed that they say wanting in sufficient reason. Justice Caguioa, however, pointed out that the idea is that one is not lacking in judgment but that he is lacking in the exercise of judgment. He added that lack of judgment would make the marriage voidable. Judge (Alicia Sempio-) Diy remarked that lack of judgment is more serious than insufficient use of judgment and yet the latter would make the marriage null and void and the former only voidable. Justice Caguioa suggested that subparagraph (7) be modified to read: That contracted by any party who, at the time of the celebration, was psychologically incapacitated to discharge the essential marital obligations, even if such lack of incapacity is made manifest after the celebration. Justice Caguioa explained that the phrase was wanting in sufficient use of reason of judgment to understand the essential nature of marriage refers to defects in the mental faculties vitiating consent, which is not the idea in subparagraph (7), but lack of appreciation of ones marital obligations. Judge Diy raised the question: Since insanity is also a psychological or mental incapacity, why is insanity only a ground for annulment and not for declaration or nullity? In reply, Justice Caguioa explained that in insanity, there is the appearance of consent, which is the reason why it is a ground for voidable marriages, while subparagraph (7) does not refer to consent but to the very essence of marital obligations. Prof. (Araceli) Baviera suggested that, in subparagraph (7), the word mentally be deleted, with which Justice Caguioa concurred. Judge Diy, however, prefers to retain the word mentally. Justice Caguioa remarked that subparagraph (7) refers to psychological 110 IBP JOURNAL
impotence. Justice (Ricardo) Puno stated that sometimes a person may be psychologically impotent with one but not with another. Justice (Leonor Ines-) Luciano said that it is called selective impotency. Dean (Fortunato) Gupit stated that the confusion lies in the fact that in inserting the Canon Law annulment in the Family Code, the Committee used a language which describes a ground for voidable marriages. Dean Gupit said that this is precisely the reason why they should make a distinction. Justice Puno remarked that in Canon Law, the defects in marriage cannot be cured. Justice Reyes pointed out that the problem is: Why is insanity a ground for void ab initio marriages? In reply, Justice Caguioa explained that insanity is curable and there are lucid intervals, while psychological incapacity is not. On another point, Justice Puno suggested that the phrase even if such lack or incapacity is made manifest be modified to read even if such lack or incapacity becomes manifest. Justice Reyes remarked that in insanity, at the time of the marriage, it is not apparent. Justice Caguioa stated that there are two interpretations of the phrase psychological or mentally incapacitated in the first one, there is vitiation of consent because one does not know all the consequences of the marriages, and if he had known these completely, he might not have consented to the marriage. xxx xxx xxx
Prof. Bautista stated that he is in favor of making psychological incapacity a ground for voidable marriages since otherwise it will encourage one who really understood the consequences of marriage to claim that he did not and to make excuses for invalidating the marriage by acting as if he did not understand the obligations of marriage. Dean Gupit added that it is a loose way of providing for divorce.66 Dean Fortunato Gupit hit the nail straight on the head when he observed that that the confusion lies in the fact that in inserting the Canon Law annulment in the Family Code, the Committee used a language which describes a ground for voidable marriages. As will be pointed out later, in the Canon Law concept of psychological
66 Supra, note 11 citing A. SEMPIO DY, HANDBOOK OF THE FAMIY CODE OF THE PHILIPPINES 43 (1995)
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incapacity, the whole idea of incapacity is inextricably linked to consent. When an individual fails to appreciate what his obligations are, he does not know what he is consenting to. Thus, even Justice Caguioa, who appears from the above-quoted portion of the Family Code Committees deliberations to be the most vigorous exponent of psychological incapacity concedes that psychological incapacity may be a ground for voidable marriage.67 This is apparent from the following paragraph quoted from the committees minutes: Justice Caguioa stated that there are two interpretations of the phrase psychological or mentally incapacitated in the first one, there is vitiation of consent because one does not know all the consequences of the marriages, and if he had known these completely, he might not have consented to the marriage.68 Second, some members of the committee asserted that psychological incapacity is in fact a legal concept and should not be treated as a medical, clinical, psychological or psychiatric disorder. However, all legal concepts involving psychiatric, psychological and personality disorders are rooted in medical science and in developments in the field of psychiatry and psychology. The clinical and technical criteria of various mental or psychological disorders that constitute incapacity cannot be totally ignored or dispensed with. Again, the treatment of psychological incapacity as a legal concept abetted greater confusion because members of the committee itself, in various fora following the enactment of the Family Code, themselves considered psychological incapacity as being principally a psychological or a psychiatric disorder. For instance, in a symposium following the passage of Article 36 held at the University of the Philippines Law Center on November 19, 1988, Justice Puno gave the following as examples of psychological incapacity: neuroses, psychosis or epilepsy, nymphomania, satyriasis, extremely low intelligence among others. Psychosis should not be confused with psychological incapacity because the same clearly affects reason, judgment and consent. Epilepsy has demonstrated organic causes generally unrelated to the genesis of psychological and mental disorders. An epileptic individual is a disabled person and should not be discriminated against, even in marriage. Severe cases of epilepsy may affect an individuals ability to perform the essential obligations of marriage but that would be a failure of performance, not a failure of appreciation. In any case, a person marrying one who suffers from severe epilepsy to a degree that incapacitates that persons ability to perform marital obligations enters into the relationship with eyes wide open since the cause and manifestations of epilepsy would have existed
67 A position strongly advanced by Professor Esteban Bautista who preferred to make psychological incapacity a ground for voidable marriages to avoid a situation where one of the spouses who really understood the consequences of marriage to claim that he did not and to make excuses for invalidating the marriage by acting as if he did not understand the obligations of marriage. Id.
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prior to the marriage, or on the date of the marriage itself. Being an organic illness, a definite date of onset can actually be identified. In fact, the problem can be organically identified through electroencephalograms, magnetic resonance imaging, computerized axial tomography or other tests. Lastly, while Canon Law may have played a central role in the formulation of the Family Codes provision on Article 36, they should be merely persuasive and courts should not feel bound by the positions taken by the Churchs matrimonial tribunals in cases of psychological incapacity. There are compelling reasons why this should be so.
Article 36s Origins from Canon Law

In the guidelines enunciated by the Philippine Supreme Court in Republic vs. Molina the Court while pursuing a clinical approach to psychological incapacity69 suggested that the [i]nterpretations given by the National Appellate Matrimonial Tribunal of the Catholic Church in the Philippines, while not controlling or decisive, should be given great respect by our courts. Otherwise stated, where interpretations given by the National Appellate Matrimonial Tribunal may help in providing greater understanding of the root causes of psychological incapacity, looking at the totality of circumstances of the case then they should be respected or considered. Parenthetically, this portion of the Molina Guidelines, unlike Guidelines No. 2 and 3 which are mandatory, is merely directive. Thus where the clinical picture coming from the evidence contradicts with the interpretations given by the matrimonial tribunal, the former should prevail. While the Court concedes the origins of Art. 36 of the Family Code from paragraph 3, Canon 1095 of the Code of Canon Law, courts have steadfastly maintained that decisions of the marital tribunals of the church are at best persuasive in cases decided under the article. A civil court must be fully satisfied with its own determination of psychological incapacity and a simple invocation of a declaration of nullity by a church tribunal is in most cases neither controlling nor sufficient.70
69
The Court required the following in its Molina Guidelines: (2) The root cause of the psychological incapacity must be: a) medically or clinically identified, b) alleged in the complaint, c) sufficiently proven by experts and d) clearly explained in the decision. Article 36 of the Family Code requires that the incapacity must be psychological not physical, although its manifestations and/or symptoms may be physical. The evidence must convince the court that the parties, or one of them, was mentally or physically ill to such an extent that the person could not have known the obligations he was assuming, or knowing them, could not have given valid assumption thereof. Although no example of such incapacity need be given here so as not to limit the application of the provision under the principle of ejusdem generis , nevertheless such root cause must be identified as a psychological illness and its incapacitating nature fully explained. Expert evidence may be given by qualified psychiatrists and clinical psychologists. Note 3, supra.
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The view taken by the Court in Molina with respect to the influence of Canon Law in the understanding of Psychological Incapacity appears to diverge only slightly from the view taken by the Family Code Committee and by some writers. However, Molina and the cases that followed it clearly signal the Courts drift towards a more secular, clinical and scientific concept of psychological incapacity although respect for the origins of Article 36 from Canon Law remains. In any case, even Justice Puno, during the committees deliberations observed that Civil Law should not reconcile with Canon Law because [psychological incapacity] is a new ground even under Canon Law
Finding New Ground Divorced form Canon Law

In its final Resolution of the case of Perez-Ferraris vs. Ferraris,71 the Philippine Supreme Court held that it relies heavily on psychological experts for its understanding of the human personality. However, the root cause must be identified as a psychological illness and its incapacitating nature must be fully explained.72 In Republic vs. Molina, the Courts drift towards further clarifying the nature of psychological incapacity veered towards a more secular approach, highlighting the clinical nature of psychological incapacity rather than leaning towards the opinions of the Churchs marital tribunals. In Marcos vs. Marcos, the Court further underscored the need for the root cause of psychological incapacity to be (i) medically or clinically identified, (ii) alleged in the complaint, (iii) sufficiently proven, and (iv) clearly explained in the decision. Prof. Michael Anthony Dizon, in his article tracing the genesis of Art. 36 to Canon Law explains that Art. 1095 of the Code of Canon law is inextricably linked to the requirement of consent in the sacrament of matrimony. Under this formulation, consent includes an understanding or appreciation of the fundamental marital obligations, the failure of which renders the consent ineffectual. This view is diametrically opposed to the concept of psychological incapacity under the Family Code which Justice Caguioa and other members of the Committee took pains to separate from consent, vitiation of which merely renders the marriage voidable. It must be noted however, that members of the committee themselves, including Justice Caguioa, toyed with the idea of considering psychological incapacity as a ground for a voidable marriage, not one which considers the marriage a nullity from its inception. Given the conceptual differences between the treatment of psychological incapacity in Canon Law and its counterpart in the Family Code, which generates fundamental difficulties in looking at and understanding the nature of psychological incapacity, the Court should find new ground in viewing and interpreting these cases,
71 72 Penned by Justice Consuelo Ynares-Santiago, G.R. No. 162368, July 17, 2008. Id.
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which it in fact has begun to undertake beginning with Santos vs. Court of Appeals up to the case of Ferraris. Its gradual evolution from a concept rooted in the religious sacrament of matrimony to one which is secular, i.e., one which can be clinically and medically identified from objective parameters should eradicate any further confusion about its nature. This was probably the intention of the Committee in refusing to define and enumerate instances of psychological incapacity, leaving the concept room for evolution and growth enriched by wisdom gained from actual experience.
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Reinventing the Corporate Wheel: A Discourse on the Limited Liability Company

Joseph Emmanuel L. Angeles
Introduction
The Filipino entrepreneurs choice of business entity is relatively limited compared to other jurisdictions. Each of these alternatives has significant flaws that stifle the growth of small and medium sized enterprises (SME). This article seeks to dissect the characteristics of the limited liability company1 and expose the advantages of using this juridical form as an investment vehicle.
Origins of the Limited Liability Company (LLC)

The origin of the LLC is generally attributed to the German law of 1892, authorizing the creation of Gesellschaft mit beschrnkter Haftung.2 However, an author has expressed the view that the American LLC was an original creation based on an amalgam of English and American partnership law, since European LLCs lacked the contractual freedom of their American counterparts.3 The LLCs success in Germany subsequently became a discussion point for commercial law reform. Within a short period of time after the enactment of the GmbH law in Germany, the following countries followed suit: Portugal (1917), Brazil (1919), Chile (1923), France (1925), Turkey (1926), Cuba (1929), Argentina (1932), Uruguay (1933), Mexico (1934), Belgium (1935), Switzerland (1936), Italy (1936), Peru (1936), Columbia (1937), Costa Rica (1942), Guatemala (1942), and Honduras (1950). Today, organizations similar to the LLC are common throughout Europe and Latin America.4 In addition to providing for limited liability, the LLC laws of the cited countries have the following four basic characteristics, which distinguish
1 2 3 4
For the purposes of this article, all references to limited liability company shall mean that described in the Uniform Limited Liability Company Act of 1996 (ULLCA), unless the context otherwise requires. Carney, Limited Liability Companies: Origins and Antecedents, 66 U. Colo. L. Rev. 855 (1995). Id. Bahls, Application of Corporate Common Law Doctrines to Limited Liability Companies, 55 Montana L. Rev. 43, 46 (1994) citing Friedmann & Kalmanoff, Joint International Business Ventures 214, 216-17 (1961); Bagley & Whynott, The Limited Liability Company: The Better Alternative 1.502-.503 (1991).
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this entity from other business forms: (1) use of the word limited in the entitys name; (2) juridical personality; (3) the partnership concept of delectus personae, permitting a member to control admission of new members to the entity; and (4) inclusion of a members death as an event of dissolution, unless otherwise expressly stated in the articles of association.5 In 1977, Wyoming became the first U.S. state to enact an LLC act. However, the Wyoming LLC Act was not an immediate success.6 Due to conflicting taxation laws and regulations, few entrepreneurs used the LLC entity as an investment vehicle.7 In 1988, the U.S. Internal Revenue Service finally resolved the conflict between the proposed regulations and the private letter rulings, and issued Revenue Ruling 8876, which provided that a Wyoming LLC could be classified as a partnership for tax purposes.8 Within six years, LLC statutes were adopted in nearly all states of the U.S.9 The speed with which the LLC was embraced is remarkable considering that changes in corporate laws normally take at least twenty-five years to percolate through the states.10
Advantages of the LLC over the current Philippine commercial law regime
Entrepreneurs have the following options under the present Philippine commercial law framework: the sole proprietorship, the general partnership,11 the limited partnership, 12 the open corporation,13 the close corporation,14 and the cooperative.15 This writer shall discuss the following aspects of each vis a vis the LLC: a) incorporation requirements; b) flexibility; c) management; d) transferability of interests; e) tax treatment; f) asset protection; and g) continuity of life. Incorporation requirements Sole proprietorships do not constitute juridical entities separate from the person constituting it.16 As such, compliance with incorporation requirements is not a prerequisite for the use of a sole proprietorship as an investment vehicle. However,
5 6 7 8 9 10 11 12 13 14 15 16 Eder, Limited Liability Firms Abroad, 13 Univ Pitt L Rev 193 (1952). Carney, Limited Liability Companies: Origins and Antecedents, 66 U. Colo. L. Rev. 855 (1995). Id. Id. Id. Id. Republic Act No. 386, Article 1767 (1949). Republic Act No. 386, Article 1843 (1949). Batas Pambansa Blg. 68, Section 3 (1980). Batas Pambansa Blg. 68, Section 96 (1980). Republic Act No. 6938 (1990). Republic Act No. 386, Article 44 (1949).
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compliance with other laws is required prior to transacting business. These requirements are generally applicable to the other juridical entities discussed.17 General and limited partnerships require at least two persons to form.18 By and large, the constitution of a general partnership only requires the following: a) contract between the parties to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves;19 b) consent of each party;20 c) capacity to contract of each party;21 and d) lawful subject matter and cause. 22 However, where immovable property or real rights are contributed, the contract of partnership must be set forth in a public instrument23 and an inventory of the property must be signed by the parties and attached thereto. 24 A public instrument is likewise necessary where the value of the partnership capital is Php3,000.00 or more.25 However, this does not affect the partnerships acquisition of juridical personality but is merely a condition precedent for it to engage in business or trade.26 Persons seeking to form a limited partnership must: a) sign and swear to a certificate27 and b) file the certificate for record with the Securities and Exchange Commission (SEC).28 The certificate must state: a) the name of the partnership, adding thereto the word Limited; b) the character of the business; c) the location of the principal place of business; d) the name and place of residence of each partner; e) the term for which the partnership is to exist; f) the amount of cash and a description and value of other property contributed by each limited partner; and g) the share of the profits or the other compensation that each limited partner shall receive.29 The certificate may also provide for: a) the right of a limited partner to substitute an assignee as contributor in his place; b) the right of the partners to admit additional limited partners; c) the right of limited partners to priority over other limited partners as to contributions or as to compensation by way of income; d) the right of the remaining general partners to continue the business on the death, retirement, civil interdiction, insanity, or insolvency of a general partner; and e) the right of a limited partner to demand and receive property other than cash in return for his
17 18 19 20 21 22 23 24 25 26 27 28 29
Act No. 3883, Section 1-2 (1931); Republic Act No. 7160, Section 16 (1991); Republic Act No. 8424, Section 236 (1997). Republic Act No. 386, Article 1767 (1949). Republic Act No. 386, Article 1767 (1949); Bautista, Treatise on Philippine Partnership Law, p. 5 (1995). Republic Act No. 386, Article 1318(1) (1949); Bautista, Treatise on Philippine Partnership Law, p. 5 (1995). Republic Act No. 386, Article 1327, 1329, 1782, etc. (1949); Bautista, Treatise on Philippine Partnership Law, p. 11 (1995). Republic Act No. 386, Article 1770 (1949); Bautista, Treatise on Philippine Partnership Law, p. 15 (1995). Republic Act No. 386, Article 1771 (1949). Republic Act No. 386, Article 1773 (1949). Republic Act No. 386, Article 1772 (1949). Bautista, Treatise on Philippine Partnership Law, p. 71 (1995). Republic Act No. 386, Article 1844(1) (1949); Bautista, Treatise on Philippine Partnership Law, p. 338 (1995). Republic Act No. 386, Article 1844(2) (1949); Bautista, Treatise on Philippine Partnership Law, p. 338 (1995). Republic Act No. 386, Article 1844 (1949).
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contribution.30 Substantial compliance in good faith with the following requirements is sufficient to form the limited partnership.31 Moreover, partnerships may only be formed for lawful purposes.32 The open corporation requires at least five incorporators, all of legal age and a majority of whom are residents of the Philippines.33 Each of the incorporators must own or be a subscriber to at least one share of the corporation.34 At least twenty-five percent of the authorized capital stock as stated in the articles of incorporation must be subscribed at the time of incorporation and at least twentyfive percent of the total subscription must be paid upon subscription, with a minimum paid-up capital of Php5,000.00. 35 The incorporators must also draft articles of incorporation stating the following: a) the name of the corporation; b) the specific purpose or purposes for which the corporation is being incorporated; c) the place where the principal office of the corporation is to be located within the Philippines; d) the term for which the corporation is to exist; e) the names, nationalities, and residences of the incorporators; f) the number of directors or trustees, which shall not be less than five nor more than fifteen; g) the names, nationalities, and residences of persons who shall act as directors or trustees until the first regular directors or trustees are duly elected and qualified; and h) the amount of its authorized capital stock in lawful money of the Philippines, the number of shares into which it is divided, and the par value of par value shares; and i) the names, nationalities, and residences of the original subscribers, and the amount subscribed and paid-up by each.36 The incorporators must file the articles of incorporation with the SEC along with the following documents: a) SEC name verification slip; b) by-laws; c) sworn statement of the Treasurer attesting to compliance with the subscribed and paid-up capital requirements;37 d) authority to verify bank account; e) bank certificates of deposit notarized in the place where the bank is located; f) written undertaking to change corporate name; and g) clearance from other government agencies when needed.38 The corporation may only be formed for a lawful purpose39 and commences its corporate existence from the date the SEC issues the certificate of incorporation.40 A close corporation has incorporation requirements almost identical to the open corporation. The former differs in that its articles of incorporation provide that: a) all the corporations issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty
30 31 32 33 34 35 36 37 38 39 40 Id. Republic Act No. 386, Article 1844 (1949). Republic Act No. 386, Article 1306 (1949). Batas Pambansa Blg. 68, Section 10 (1980). Id. Batas Pambansa Blg. 68, Section 13 (1980). Batas Pambansa Blg. 68, Section 14 (1980). Id. SEC Regulations Batas Pambansa Blg. 68, Section 10 (1980). Batas Pambansa Blg. 68, Section 19 (1980).
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(20); b) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer, which shall not be more onerous than a right of first refusal; and c) the corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.41 Moreover, at least two-thirds (2/3) of its voting stock or voting rights must not be owned or controlled by another corporation that is not a close corporation.42 On the other hand, cooperatives require at least fifteen persons who are all citizens of the Philippines who reside or work in the intended area of operation to incorporate.43 The organizers must file four copies of the articles of cooperation, bylaws and general statement of structure, purposes, and feasibility with the Cooperative Development Authority (CDA).44 Additionally, the organizers must file the bonds of its accountable officers and a sworn statement of the treasurer indicating compliance with the subscribed and paid-up share capital requirements. 45 The articles of cooperation must be signed by each of the organizers and acknowledged by them if natural persons, and by the presidents or secretaries, if juridical persons, before a notary public. 46 The articles of cooperation shall include: a) the name of the cooperative; b) the purposes and scope of business for which the cooperative is to be registered; c) the term of existence of the cooperative; d) the area of operation and the postal address of its principal office; e) the names, nationalities, and the postal addresses of the registrants; f) the common bond of membership; g) the list of names of the directors who shall manage the cooperative; h) the amount of its share capital, the names and residences of its contributors; and i) a statement of whether the cooperative is primary, secondary, or tertiary.47 On the other hand, the by-laws shall include: a) the qualifications for admission to membership; b) the rights and liabilities of membership; c) how membership is acquired, maintained, and lost; d) the procedure in cases of termination of membership; e) the requirements for the transfer of a share or interest of the members; f) the rules on matters relative to the business affairs of the general assembly, board of directors, and committees; g) the general conduct of the affairs of the cooperative, including the powers and duties of the general assembly, the board of directors, committees, and the officers; h) the manner in which the capital may be raised and the purposes for which it can be utilized; i) the mode of custody and of investment of net surplus; j) the accounting and auditing systems; k) the manner of loaning and borrowing; l) the method of distribution of net surplus; m) the manner of adopting, amending, repealing, and abrogating bylaws; and n) a conciliation or mediation mechanism for the amicable settlement of intra-cooperative disputes.48 The cooperative acquires juridical personality from the
41 42 43 44 45 46 47 48 Batas Pambansa Blg. 68, Section 96 (1980). Id. Republic Act No. 6938, Article 10 (1990). Republic Act No. 6938, Article 14(1) and 14(4) (1990). Republic Act No. 6938, Article 14(5) (1990). Republic Act No. 6938, Article 14 (1990). Id. Republic Act No. 6938, Article 15(2) (1990).
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date the CDA issues a certificate of registration under its official seal49 and this is conclusive evidence that the cooperative therein mentioned is duly registered unless proven cancelled.50 Cooperatives may only be formed for purposes enumerated under the Cooperative Code, which purposes must also be lawful and not in restraint of trade.51 In contrast, incorporating an LLC is relatively simple. Only one person is needed to organize an LLC.52 Articles of organization must be drafted and filed with the administrative agency designated by law. The articles must provide the following: a) the name of the company; b) the address of the initial designated office; c) the name and street address of the initial agent for service of process; d) the name and address of each organizer; e) whether the company is to be a term company and, if so, the term specified; f) whether the company is to be manager-managed, and, if so, the name and address of each initial manager; and g) whether one or more of the members are to be personally liable for the LLCs debts and obligations.53 The organizers must pay filing fees required by the administrative agency and ensure that the articles of organization are in a medium permitted by agency and are compliant with the form required by the ULLCA.54 The articles must be acknowledged before a notary public.55 The existence of an LLC begins when the articles of organization are accepted for filing by the designated administrative agency designated by law, unless a delayed effective date is specified.56 The filing of the articles of organization by the designated administrative agency is conclusive proof that the organizers satisfied all conditions precedent to the creation of a limited liability company57 while no similar guarantee exists for corporations. 58 Moreover, LLCs may be formed for any lawful purpose,59 compared to the limited purposes for which a cooperative may be formed.60 Flexibility The sole proprietorship and general partnership are relatively flexible entities. The former attributes its litheness to the relatively sparse amount of regulatory legislation governing it; the latter, to its civil law genealogy. A number of provisions in the Civil Code on general partnerships may be overridden by agreement, such as:
49 50 51 52 53 54 55 56 57 58 59 60 Republic Act No. 6938, Article 16 (1990). Republic Act No. 6938, Article 17 (1990). Republic Act No. 6938, Article 6, 8 (1990). ULLCA, Section 202(a). ULLCA, Section 203(a). ULLCA, Section 206(a). Id. ULLCA, Section 202(b). ULLCA, Section 202(c). Batas Pambansa Blg. 68, Section 19 (1980). 1A Fletcher, Cyclopedia of the Law of Private Corporations 93 (2004). Republic Act No. 6938, Article 6, 8 (1990).
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a) amount of capital to be contributed to the partnership;61 b) fiduciary duty owed by a partner to the other partners;62 c) amount of participation of a partner in partnership profits and losses; 63 d) right to possess partnership property; 64 e) rights in the management and conduct of partnership business;65 and f) events causing dissolution and winding up of partnership business.66 Partnership records are required to be maintained by law67 and both sole proprietorships and partners must maintain books of accounts for tax purposes.68 The latter requirement is common to all juridical entities discussed in this article. Comparatively, limited partnerships, open and close corporations, and cooperatives are subject to greater regulation. Limited partnerships must follow certain formalities where amendments are made to the contract of partnership. Copies thereof signed and sworn to by all the partners must be filed with the SEC.69 The amendments shall only take effect upon compliance with the foregoing requirements.70 A limited partner may not act in a manner that may be construed as taking part in the control of the business without losing his limited liability status71 and this provision cannot overridden by agreement of the partners.72 Also, a limited partner may not contribute services to a limited partnership.73 Similarly, corporations are subject to a number of formalities. Open corporations are subject to voting requirements for meetings of the board of directors and shareholders in such areas as a) amendments to the articles of incorporation74 or by-laws;75 b) extend or shorten the corporate term;76 c) increase or decrease capital stock;77 d) incur or increase bonded indebtedness;78 e) sale of all or substantially all of the corporate property; 79 f) investment of corporate funds for a secondary
61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79
Republic Act No. 386, Article 1790 (1949). Republic Act No. 386, Article 1789 and 1808 (1949). Republic Act No. 386, Article 1797 (1949). Republic Act No. 386, Article 1811(1) (1949). Republic Act No. 386, Article 1803 (1949). Republic Act No. 386, Article 1830 (1949). Republic Act No. 386, Article 1805 (1949). Republic Act No. 8424, Section 232 (1997). Republic Act No. 386, Article 1865 (1949). Id. Republic Act No. 386, Article 1848 (1949). Id. Republic Act No. 386, Article 1845 (1949). Batas Pambansa Blg. 68, Section 16 (1980). Batas Pambansa Blg. 68, Section 48 (1980). Batas Pambansa Blg. 68, Section 37 (1980). Batas Pambansa Blg. 68, Section 38 (1980). Id. Batas Pambansa Blg. 68, Section 40 (1980).
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purpose; 80 and g) other corporate transactions.81 Except for ordinary corporate transactions whose voting and quorum requirements may be increased or decreased,82 the voting and quorum requirements of other corporate transactions may only be increased by the articles of incorporation or by-laws.83 However, voting and quorum requirements for election of directors84 and changes in capital stock and increase of bonded indebtedness85 may not be altered.86 Likewise, common shares cannot be deprived of voting rights by stipulation, articles of incorporation, or bylaws.87 Votes of the board of directors and shareholders may not be cast by mail88 and directors cannot vote by proxy.89 Directors may only hold office for a year.90 Amendments of articles of incorporation and by-laws as well as the adoption of the latter are subject to formal and procedural requirements of the Corporation Code and SEC, and only become effective upon approval of the SEC or its failure to act within six months.91 Records of business transactions, minutes of meetings, and stock and transfer books are required to be maintained,92 and financial statements must be provided to stockholders at regular meetings or upon request.93 Close corporations are likewise subject to the formalities of open corporations with the exception of relaxed restrictions on quorum and voting requirements,94 participation of members in management,95 and pre-emptive rights.96 However, the stocks of close corporations are subject to restrictions on transferability and the number of shareholders. 97 Cooperatives are equally restricted by their enabling law. Open membership is required by law.98 Each member is entitled to cast only one vote regardless of share capital contributed99 and may only receive a rate of interest on share capital
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99
Batas Pambansa Blg. 68, Section 42 (1980). Batas Pambansa Blg. 68, Section 23, 25 (1980). Batas Pambansa Blg. 68, Section 25 (1980). Batas Pambansa Blg. 68, Section 14, 47, 97 (1980); I Campos, The Corporation Code: Comments, Notes and Selected Cases, pp. 419-420 (1990). Batas Pambansa Blg. 68, Section 24 (1980). Batas Pambansa Blg. 68, Section 38 (1980). I Campos, The Corporation Code: Comments, Notes and Selected Cases, p. 420 (1990). Batas Pambansa Blg. 68, Section 6 (1980). Batas Pambansa Blg. 68, Section 25, 58, 89 (1980). Batas Pambansa Blg. 68, Section 25 (1980). Batas Pambansa Blg. 68, Section 23 (1980). Batas Pambansa Blg. 68, Section 15-16, 46-48, 143 (1980). Batas Pambansa Blg. 68, Section 74 (1980). Batas Pambansa Blg. 68, Section 75 (1980). Batas Pambansa Blg. 68, Section 97 (1980). Id. Batas Pambansa Blg. 68, Section 102 (1980). Batas Pambansa Blg. 68, Section 96, 98 (1980). Republic Act No. 6938, Article 4(1) (1990). Republic Act No. 6938, Article 4(2) and 37 (1990).
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limited by the CDA.100 Notably, vote pooling agreements, voting trusts, and similar arrangements which circumvent the one member-one vote policy are void ab initio.101 This is a significant issue for entrepreneurs. More often than not, entrepreneurs desire control over the investments in the entity in direct proportion to the amounts they contribute due to the greater risk and extent of loss. In addition, a member may only own or hold 20% of the cooperatives share capital.102 Cooperatives are also subject to voting requirements for meetings of the board of directors and shareholders in such areas as a) amendments of articles of cooperation and by-laws;103 b) merger and consolidation of cooperatives;104 and c) removal of officers, directors, or committee members.105 These meeting and voting requirements may not be overridden by agreement, articles of cooperation, or by-laws.106 Amendments of articles of cooperation and by-laws as well as the adoption of the latter are subject to formal and procedural requirements of the Cooperative Code and CDA, and are only effective upon approval of the CDA or after its failure to act within 30 days.107 Votes of the board of directors and shareholders may not be cast by mail108 and directors may not vote by proxy.109 Directors may only serve for a maximum of two years.110 Changes of postal address must be registered with the CDA111 and records are required to be kept by the enabling law.112 Conversely, the LLC is a model of contractual freedom. The ULLCA states that it governs the relations among members, managers, and company to the extent that the articles of organization113 or operating agreement does not provide.114 It also provides certain instances where the operating agreement may not vary the terms of the ULLCA.115 Therefore, to the extent not otherwise mentioned in Section 103(b) of the ULLCA, every section of thereof is simply a default rule, regardless of whether the language of the section appears to be otherwise mandatory. 116 This gives entrepreneurs a vast amount of flexibility in setting up the investment vehicle and specifying the relations between the organizers, as well as present and future
100 Republic Act No. 6938, Article 4(3) and 76 (1990). 101 Republic Act No. 6938, Article 37(2) (1990). 102 Republic Act No. 6938, Article 74 (1990). 103 Republic Act No. 6938, Article 18 (1990). 104 Republic Act No. 6938, Article 21 (1990). 105 Republic Act No. 6938, Article 51 (1990). 106 Republic Act No. 386, Article 1306 (1949); Republic Act No. 6938, Article 14-15 (1990). 107 Republic Act No. 6938, Article 18 (1990). 108 Republic Act No. 6938, Article 37(3) and 41 (1990). 109 Republic Act No. 6938, Article 41 (1990). 110 Republic Act No. 6938, Article 38 (1990). 111 Republic Act No. 6938, Article 52 (1990). 112 Republic Act No. 6938, Article 53 (1990). 113 ULLCA, Sec. 203(b) and (c). 114 ULLCA, Sec. 103(a). 115 ULLCA, Sec. 103(b). 116 Report of the National Conference of Commissioners on Uniform State Laws, p. 11.
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stakeholders. Moreover, the operating agreement need not be in writing.117 This caters to the needs of SMEs, which conduct business in a relatively informal manner compared to larger enterprises. However, as a practical matter, prudence dictates that the operating agreement be reduced into writing and acknowledged before a notary public to prevent costly inter-corporate disputes as well as obviate the necessity of proving authenticity and due execution in court proceedings.118 Amendments to the articles of organization are subject to requirements set by the designated administrative agency as to form and filing fees119 and become effective upon acceptance for filing by the latter unless the document otherwise specifies.120 Annual reports must be filed with the designated administrative agency.121 An LLC must likewise maintain an office and a resident agent for service of process.122 LLCs are not required to maintain records under the ULLCA. However, as earlier stated, LLCs must maintain books of accounts for tax purposes.123 Management The sole proprietor is the despots equivalent in commercial law. Consensus is not a prerequisite for a sole proprietors management decisions. A sole proprietor may do acts of administration and disposition as to property solely owned by him except where limited by law or stipulation.124 Also, a sole proprietor may delegate the management of his enterprise to another without changing his status to a partnership. 125 In a general partnership, all partners have equal rights in the management and conduct of the partnership business126 unless otherwise stipulated by agreement127 or where a partner registers his opposition to an act done in the exercise of the said power.128 However, such powers are limited to acts of administration and do not encompass acts of disposition or acts not apparently for carrying on the partnership business in the usual manner; nor does it extend to acts that have the effect of modifying the articles of partnership.129 Acts that are not apparently for carrying on the usual business of the partnership do not bind the partnership unless authorized
117 ULLCA, Sec. 103(a). 118 Rules of Court, Rule 132, Section 19-20 (1997). 119 ULLCA, Sec. 206(a). 120 ULLCA, Sec. 206(c). 121 ULLCA, Sec. 211. 122 ULLCA, Sec. 108. 123 ULLCA, Sec. 408. 124 Republic Act No. 386, Article 428 (1949). 125 Republic Act No. 386, Article 1767 (1949). 126 Republic Act No. 386, Article 1803(1) and 1818 (1949). 127 Republic Act No. 386, Article 1800-1803 (1949). 128 Republic Act No. 386, Article 1801 (1949). 129 Republic Act No. 386, Article 1803(2), 1818 (1949); V Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, pp. 342-343 (1992); Bautista, Treatise on Philippine Partnership Law, p. 198 (1995).
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by the other partners.130 Moreover, certain acts require the consent of all the partners such as: a) assignment of partnership property in trust for creditors; b) disposition of the partnerships goodwill; c) acts that would render impossible the carrying on of the partnership business; and d) confession of judgment.131 With regard to limited partnerships, only general partners shall have the power to manage the business thereof,132 but written consent by all limited partners is required in areas stated by the Civil Code.133 The scope of these powers only includes acts of administration or for carrying on the partnership business, unless otherwise stipulated.134 Should limited partners take part in management, they shall be subject to the same liabilities as a general partner135 and the general partner may dissolve the partnership.136 The corporate powers and business of open corporations are generally exercised and conducted through the board of directors, which is composed of five to fifteen members. 137 The exercise of certain corporate powers, however, requires stockholders approval.138 Most powers of the board of directors may be delegated to an executive committee,139 or to other agents or corporate officers.140 Open corporations are subject to voting requirements for meetings of the board of directors and shareholders in such areas as a) amendments to the articles of incorporation141 or by-laws; 142 b) extending or shortening the corporate term;143 c) increasing or decreasing capital stock;144 d) incurring or increasing bonded indebtedness;145 e) sale of all or substantially all of the corporate property;146 f) investment of corporate funds for a secondary purpose;147 and g) other corporate transactions.148 Except for ordinary corporate transactions whose voting and quorum requirements may be
130 Republic Act No. 386, Article 1818 (1949). 131 Id. 132 Republic Act No. 386, Article 1850 (1949); Bautista, Treatise on Philippine Partnership Law, p. 346 (1995). 133 Republic Act No. 386, Article 1850 (1949); Bautista, Treatise on Philippine Partnership Law, p. 347 (1995). 134 Republic Act No. 386, Article 1803(2), 1818, 1850 (1949); V Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, pp. 342-343 (1992); Bautista, Treatise on Philippine Partnership Law, pp. 198, 346 (1995). 135 Republic Act No. 386, Article 1848 (1949); Bautista, Treatise on Philippine Partnership Law, p. 357 (1995). 136 Bautista, Treatise on Philippine Partnership Law, p. 346 (1995). 137 Batas Pambansa Blg. 68, Section 14, 23 (1980). 138 Batas Pambansa Blg. 68, Section 16, 37-44, 46, 48 (1980). 139 Batas Pambansa Blg. 68, Section 35 (1980). 140 Batas Pambansa Blg. 68, Section 25 (1980); Republic Act No. 386, Article 1868 (1949); I Campos, The Corporation Code: Comments, Notes and Selected Cases, pp. 383-389. 141 Batas Pambansa Blg. 68, Section 16 (1980). 142 Batas Pambansa Blg. 68, Section 48 (1980). 143 Batas Pambansa Blg. 68, Section 37 (1980). 144 Batas Pambansa Blg. 68, Section 38 (1980). 145 Id. 146 Batas Pambansa Blg. 68, Section 40 (1980). 147 Batas Pambansa Blg. 68, Section 42 (1980). 148 Batas Pambansa Blg. 68, Section 23, 25 (1980).
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increased or decreased,149 the voting and quorum requirements of other corporate transactions may only be increased by the articles of incorporation or by-laws.150 However, voting and quorum requirements for the election of directors151 and changes in capital stock and increase of bonded indebtedness152 may not be varied.153 Although common shares may be classified so as to provide unique privileges, rights, and restrictions, common shares cannot be deprived of voting rights.154 Directors and shareholders may not cast votes by mail155 and directors cannot vote by proxy.156 Directors may only hold office for a year.157 Close corporations conduct business in the same manner as open corporations, but have the option to provide in the articles of incorporation that the corporation shall be managed by its stockholders.158 Most of the powers and business of cooperatives are likewise exercised and conducted by a board of directors, which is composed of five to fifteen members.159 As earlier stated, approval by the general assembly is required in certain cases160 and these meeting and voting requirements may not be overridden by agreement, articles of cooperation, or by-laws.161 For the disposition of the usual business of the cooperative, the quorum and voting requirements of the board of directors and general assembly may be modified by the articles of cooperation or by-laws.162 Each member is entitled to cast only oneg vote regardless of share capital contributed.163 Notably, vote pooling agreements, voting trusts, and the like are void ab initio.164 Votes of the board of directors and shareholders may not be cast by mail165 or by proxy.166 However, members may vote by proxy if provided in the by-laws.167 Directors may only serve for a maximum of two years.168
149 Batas Pambansa Blg. 68, Section 25 (1980). 150 Batas Pambansa Blg. 68, Section 14, 47, 97 (1980); I Campos, The Corporation Code: Comments, Notes and Selected Cases, pp. 419-420 (1990). 151 Batas Pambansa Blg. 68, Section 24 (1980). 152 Batas Pambansa Blg. 68, Section 38 (1980). 153 I Campos, The Corporation Code: Comments, Notes and Selected Cases, p. 420 (1990). 154 Batas Pambansa Blg. 68, Section 6 (1980). 155 Batas Pambansa Blg. 68, Section 25, 58, 89 (1980). 156 Batas Pambansa Blg. 68, Section 25 (1980). 157 Batas Pambansa Blg. 68, Section 23 (1980). 158 Batas Pambansa Blg. 68, Section 97 (1980). 159 Republic Act No. 6938, Article 40 (1990). 160 Republic Act No. 6938, Article 18, 21, 51 (1990). 161 Republic Act No. 386, Article 1306 (1949); Republic Act No. 6938, Article 14-15 (1990). 162 Republic Act No. 6938, Article 36, 41 (1990). 163 Republic Act No. 6938, Article 4(2) and 37 (1990). 164 Republic Act No. 6938, Article 37(2) (1990). 165 Republic Act No. 6938, Article 37(3) and 41 (1990). 166 Republic Act No. 6938, Article 41 (1990). 167 Republic Act No. 6938, Article 37(3) (1990). 168 Republic Act No. 6938, Article 38 (1990).
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In contrast, an LLC may approximate a sole proprietorship in that in can be incorporated by only one person.169 It may be member-managed170 or managermanaged,171 with the former being the choice by default.172 Each of the members of a member-managed LLC have equal rights in the management and conduct of the companys business, and any matter relating to the business of the company may be decided by a majority of the members.173 Each member is an agent of the LLC for the purpose of its business, and an act of a member binds the LLC if it was done in the ordinary course of the companys business, unless the member had no authority for the LLC in the matter and the person had notice thereof.174 If the act was not done in the ordinary course of the LLCs business, the members acts do not bind the LLC unless he was authorized by other members.175 In a manager-managed LLC, each of the managers has equal rights in the management and conduct of the companys business, and any matter relating to the business of the company may be decided by the manager or a majority of the managers.176 Every manager is an agent of the company for the purpose of its business, and an act of a manager binds the company if it was done in the ordinary course of the companys business, unless the manager had no authority to act for the LLC in the matter and the person had notice thereof.177 If the act was not done in the ordinary course of the LLCs business, the managers acts do not bind the LLC unless he was authorized by other members.178 A member in a manager-managed LLC is not an agent of the company for the purpose of its business solely by reason of being a member.179 However, where dispositions of interest in real property are involved, any member of a membermanaged company or manager of a manager-managed company may sign and deliver any instrument transferring or affecting the companys interest in real property to a purchaser in good faith and for value, unless the articles of organization limit their authority.180 The only matters of a member or manager-managed companys business requiring the consent of all of the members are: 1) amendments to the operating agreement; 2) authorization or ratification of acts that which violate the duty of loyalty; 3) amendments to the articles of organization; 4) compromise of obligations to contribute; 5) compromise, as among members, of a members obligation to make
169 ULLCA, Sec. 202(a). 170 ULLCA, Sec. 101(12), 404(a). 171 ULLCA, Sec. 101(11), 404(b). 172 ULLCA, Sec. 101(11), 404(b)(3). 173 ULLCA, Sec. 404(a). 174 ULLCA, Sec. 301(a). 175 ULLCA, Sec. 301(b). 176 ULLCA, Sec. 404(b)(2). 177 ULLCA, Sec. 301(b). 178 ULLCA, Sec. 301(b)(2). 179 ULLCA, Sec. 301(b)(1). 180 ULLCA, Sec. 301(c).
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contributions or return property distributed in violation of the ULLCA; 6) making of interim distributions; 7) admission of new members; 8) use of companys property to redeem interest subject to charging order; 9) dissolution of the company; 10) waiver of the right to have the company business wound up and the company terminated; 11) merger with another entity; and 12) disposal of substantially all the companys property.181 Actions of members or managers may be taken without a meeting182 and votes may be made by proxy, mail, teleconference, or otherwise.183 Notably, all the foregoing rules may be amended by the articles of organization or operating agreement, except for matters that: 1) unreasonably restrict a right to information or access to records; 2) eliminate the duty of loyalty; 3) unreasonably reduce the duty of care; 4) eliminate the obligation of good faith and fair dealing; 5) vary the right to expel a member in specified events; 6) vary the requirement to wind up the limited liability companys business in specified events; and 7) restrict the rights of a person, other than a manager, member, and transferee of a members distributional interest.184 As business transactions take infinite forms, an entitys organizational flexibility is often indispensable to consummate an agreement among parties. In this regard, the LLC has the requisite litheness to adapt and satisfy the needs of all parties. Moreover, unlike limited partners, members of a LLC who take part in management do not ipso facto lose their limited liability protection.185 Transferability of interests Both acts of administration and disposition may be done by the sole proprietor as to property solely owned by him, except where limited by law or stipulation.186 On the other hand, owing to the personal character of the partnership contract, consent of the all partners is necessary to admit another into a general partnership.187 However, a general partner may freely assign his own partnership interest188 except where otherwise stipulated by the partners.189 This only entitles the assignee to receive profits to which the assigning partner may otherwise be entitled, as well as secure remedies against fraudulent acts.190 The assignee cannot interfere in the
181 ULLCA, Sec. 404(c). 182 ULLCA, Sec. 404(d). 183 ULLCA, Sec. 404(d) and (e). 184 ULLCA, Sec. 103(a) and (b). 185 ULLCA, Sec. 303(a) and (b). 186 Republic Act No. 386, Article 428 (1949). 187 Republic Act No. 386, Article 1804 (1949). 188 Republic Act No. 386, Article 428 (1949); Republic Act No. 386, Article 1813 (1949). 189 Bautista, Treatise on Philippine Partnership Law, p. 177 (1995) citing Pokrzywnicki vs. Kozak, 47 A.2d 144 (1946); Chaiken vs. Employment Security Commission, 274 A.2d 707 (1971). 190 Republic Act No. 386, Article 1813 (1949).
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management or administration of the partnership business, nor require an accounting or provision of information regarding the partnership business.191 A partner cannot assign his rights in specific partnership property due to the partnerships status as a separate juridical entity.192 Similarly, third parties may only be admitted to the limited partnership with the consent of all the partners.193 As an exception to the rule, a general partner may be delegated the authority to admit limited partners where provided in the certificate of limited partnership.194 General and limited partners may freely assign their partnership interests to third parties without the consent of the other partners.195 The assignment of partnership interest only entitles the assignee to receive profits to which the assigning partner may otherwise be entitled, as well as to remedies against fraudulent acts.196 Moreover, assignees of general and limited partners cannot interfere in the management or administration of the partnership business, nor require an accounting or provision of information regarding the partnership business.197 The partners cannot assign their rights in specific partnership property as only they have the right to possess and use the property for partnership purposes. 198 The shares of open corporations are freely transferable by delivery of the certificates endorsed by the shareholder.199 No restrictions on transferability may be imposed except those made in compliance with nationality requirements.200 Shareholders do not have the right to specific corporate property due to the separate juridical personality thereof, but merely have an expectancy or inchoate right to the same should any remain upon dissolution of the corporation after all corporate creditors have been paid.201 Shareholders may likewise do other acts of ownership with their shares, such as using the same as collateral in a contract of pledge.202 On the other hand, the shares in close corporations may be subject to restrictions on transferability.203 The close corporation may refuse to register transfers of stock
191 Republic Act No. 386, Article 1813 (1949). 192 Republic Act No. 386, Article 1811 (1949); Bautista, Treatise on Philippine Partnership Law, p. 162 (1995). 193 Republic Act No. 386, Article 1850 (1949). 194 Id. 195 Republic Act No. 386, Article 1850, 1859 (1949). 196 Republic Act No. 386, Article 1813, 1859 (1949). 197 Republic Act No. 386, Article 1813, 1859 (1949). 198 Republic Act No. 386, Article 1811, 1850-1851 (1949); Bautista, Treatise on Philippine Partnership Law, p. 162 (1995). 199 Batas Pambansa Blg. 68, Section 63 (1980). 200 Batas Pambansa Blg. 68, Section 15, 63, 98 (1980); I Campos, The Corporation Code: Comments, Notes and Selected Cases, pp. 321-324 (1990). 201 I Campos, The Corporation Code: Comments, Notes and Selected Cases, p. 137 (1990). 202 Republic Act No. 386, Article 428 (1949); Batas Pambansa Blg. 68, Section 55 (1980). 203 Batas Pambansa Blg. 68, Section 98 (1980); I Campos, The Corporation Code: Comments, Notes and Selected Cases, pp. 322-324 (1990).
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done in violation of the said restrictions.204 Like shareholders of open corporations, those of close corporations do not have rights to specific corporate property.205 Conversely, members of cooperatives cannot transfer their interests or share capital as easily as corporate shareholders. Members may only assign their interests inter vivos when a) the member has held such share capital contribution or interest for not less than one (1) year; b) the assignee is the cooperative, a member of the cooperative or a person who falls within the cooperatives field of membership; and c) the board of directors has approved such assignment.206 Assignments of share capital, however, may be made mortis causa regardless of the said restrictions.207 Only natural persons may be members of a primary cooperative.208 On the other hand, consent of all the members in an LLC is required to admit other members as a default rule.209 This requirement, however, may be overridden by the articles of organization or the operating agreement. 210 Consequently, membership to an LLC may be as restricted as a close corporation, partnership, or cooperative or as unregulated as an open corporation. Members may also freely assign their distributional interest.211 A transfer of distributional interest does not entitle the transferee to become or to exercise any rights of a member, but merely entitles the transferee to receive, to the extent transferred, the distributions to which the transferor would be entitled. 212 The transferee may also seek a judicial determination that it is equitable to dissolve and wind up the companys business.213 Owing to the separate juridical entity of the LLC, members are not co-owners of the LLCs property214 and may not assign rights to the LLCs property.215 Tax treatment Under the present internal revenue code, a sole proprietor is subject to taxes on income derived from the conduct of a trade or business within the taxable year.216 These taxes are computed at a graduated rate, which is directly proportional to the
204 Batas Pambansa Blg. 68, Section 99(4), 99(5) (1980). 205 I Campos, The Corporation Code: Comments, Notes and Selected Cases, p. 137 (1990). 206 Republic Act No. 6938, Article 75 (1990). 207 Republic Act No. 6938, Article 74(1990). 208 Republic Act No. 6938, Article 26 (1990). 209 ULLCA, Sec. 404(c). 210 ULLCA, Sec. 103, 203(b), 203(c). 211 ULLCA, Sec. 501(b). 212 ULLCA, Sec. 502, 503(d), 503(e). 213 ULLCA, Sec. 503(e)(3). 214 ULLCA, Sec. 501(a). 215 Republic Act No. 386, Article 428 (1949). 216 Republic Act No. 8424, Section 32(A)(2) (1997).
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income earned.217 A sole proprietor is not subject to dividends tax on income derived from the conduct of the business.218 General and limited partnerships as well as open and close corporations are likewise subject to taxes on income within the taxable year.219 Notably, in lieu of the graduated tax rate used for individuals, a flat rate of 32% is applied against the taxable income of partnerships and corporations.220 Moreover, the partners and shareholders must pay a final tax of 10% on dividends actually or constructively received from the partnership or corporation. 221 However, general professional partnerships are not taxed separately and the partners thereof are liable for income taxes on their distributive shares actually or constructively received from the partnership. 222 Cooperatives are a favored class with regard to taxation law. Registered cooperatives that do not transact any business with nonmembers or the general public are not subject to any government taxes or fees imposed under the internal revenue laws and other tax laws.223 Cooperatives are subject to indirect taxes since the Cooperative Code does not expressly exempt them,224 but some classes of cooperatives are not subject to value-added taxes.225 Cooperatives transacting business with both members and nonmembers are exempt from taxes on all transactions where their accumulated reserves and undivided net savings are not more than Php10,000,000.00.226 These cooperatives are likewise exempt from all national and local government taxes of whatever nature, as well as customs duties on their importation of machineries, equipment, and spare parts used by them that are not available locally as certified by the Department of Trade and Industry.227 Generally, where the cooperative transacting business with members and non-members has accumulated reserves and undivided net savings of more than Php10,000,000.00, it shall only pay taxes on transactions with non-members. Sales by agricultural and electric cooperatives to non-members are an exception to the general rule as they are exempt from value-added tax.228 On the other hand, sales by non-agricultural,
217 Republic Act No. 8424, Section 24(A) (1997). 218 Republic Act No. 8424, Section 24(B)(2) (1997). 219 Republic Act No. 8424, Section 22(B), 27(A) (1997). 220 Id. 221 Republic Act No. 8424, Section 24(B)(2) (1997). 222 Republic Act No. 8424, Section 26 (1997). 223 Republic Act No. 6938, Article 61 (1990); Revenue Regulations No. 20-01, Section 3 (2001) 224 Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue, 20 SCRA 1056 (1967); Revenue Regulations No. 20-01, Section 3 (2001) 225 Republic Act No. 8424, Section 109(r)-109(u) (1997); Revenue Regulations No. 20-01, Section 3 (2001) 226 Republic Act No. 6938, Article 62(1) (1990); Revenue Regulations No. 20-01, Section 3 (2001) 227 Republic Act No. 6938, Article 62 (1990). 228 Republic Act No. 8424, Section 109(r)-109(s) (1997).
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non-electric and non-credit cooperatives where the capital contribution of any member exceeds Php15,000.00 are subject to value-added tax. 229 However, individual members are liable for income taxes on net surplus received.230 On the other hand, based on current U.S. income tax law, LLCs may structure themselves to be treated as non-corporate or corporate entities. The treatment of non-corporate entities in the U.S. is similar to the sole proprietorship and general professional partnership in our jurisdiction. The earnings of these entities are deemed constructively received by the sole proprietor or partner and taxed accordingly.231 Corporate entities are treated like our partnerships and corporations and are taxed separately with separate dividends taxes imposed on distributions of profit to partners or shareholders.232 U.S. courts have identified certain factors that are considered in determining whether an entity is a corporate or non-corporate entity.233 These include joint profit intent, continuity of life, centralization of management, limited liability, and free transferability of interests.234 Due to the flexibility afforded LLCs by their enabling law, an entity may be purposely structured to fail any of the tests for corporate tax treatment. Therefore, depending on the circumstances, an entrepreneur may elect non-corporate tax treatment due to the advantages thereof at present and subsequently elect to change to corporate tax treatment when the situation so merits. The advantages of this flexibility in tax treatment may be illustrated by the following example. An entrepreneur may expect his venture to incur a net loss in the first few years using tax accounting standards. This net loss may be used to offset taxable income of the individual to reduce his tax obligations. However, where the entity begins to earn income, the pass-through tax treatment is no longer advantageous due to the increased taxes that an individual must shoulder based on the graduated tax system. The entrepreneur may be better served by electing corporate tax treatment and accessing corporate income through means that would avoid dividends taxes, like conversion to compensation and other similar devices. Although our taxation law regime does not make the same clear-cut distinction between corporate and non-corporate entities since partnerships are taxed in the same manner as corporations, this writer submits that this tax scheme is worth considering at this time where there is renewed interest in amending the internal revenue code and promoting entrepreneurship. Another alternative would be to provide for exemptions from the dividends taxes for distributions of an LLC to its members where a certain gross income and total asset value is met. This would ensure that only individuals that may be classified as budding entrepreneurs are qualified to avail of the exemptions. The amendment of these statutory income and asset levels may then be delegated to the Philippine Bureau of Internal Revenue in order to ensure that they are reflective of current economic policy and conditions. It goes without saying that
229 Republic Act No. 8424, Section 109(u) (1997). 230 Revenue Regulations No. 20-01, Section 5 (2001). 231 14A Fletcher Cyclopedia of the Law of Private Corporations 6970.08 (2004). 232 14A Fletcher Cyclopedia of the Law of Private Corporations 6970.03 (2004). 233 Id. 234 Id.
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the delegation of authority should be subject to proper standards laid out in the enabling law.235 The enabling LLC law must also be self-executing to preclude the difficulties encountered with the Special Purpose Vehicle Act when pertinent government agencies failed to immediately promulgate its implementing rules. Asset protection As sole proprietors contract on their own behalf and not on behalf of a juridical person, they are personally liable for any and all obligations incurred by them in the course of trade or business, whether through contract, tort, or otherwise.236 Moreover, the extent of the sole proprietors liability extends to both present and future property.237 Even community and conjugal property may be liable for the obligations of the sole proprietor considering that business transactions redound to the benefit of the family.238 The property of the sole proprietor used in the business or otherwise is also liable for obligations not incurred in the course of trade or business of the sole proprietorship.239 Similarly, general partners are liable pro rata with all their property, after all the partnership assets have been exhausted, for contracts that may be entered into in the name of the partnership.240Any stipulation to the contrary is void against third persons but is binding among the partners.241 All partners are solidarily liable with the partnership for torts and delicts committed by a partner against third persons in the ordinary course of the partnership business.242 As earlier stated, community and conjugal property may be liable for the personal obligations of the general partner since business transactions redound to the benefit of the family.243 In a limited partnership, only the general partners thereof are subject to the aforesaid liabilities.244 Limited partners are not personally liable for partnership obligations to third parties.245 Their liability is limited to the extent of their contributions made to the partnership.246 However, should the limited partner take part in the control of the partnership business, he shall be subject to the same liabilities as a general partner
235 Edu vs. Ericta, 35 SCRA 481 (1970). 236 Republic Act No. 386, Article 37, 1170, 2236 (1949). 237 Republic Act No. 386, Article 2236 (1949). 238 Executive Order No. 209, Article 94, 122 (1987); I Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, pp. 458-459 (1990). 239 Republic Act No. 386, Article 37, 1170, 2236 (1949). 240 Republic Act No. 386, Article 1816 (1949). 241 Republic Act No. 386, Article 1817 (1949). 242 Republic Act No. 386, Article 1822-1824 (1949); Bautista, Treatise on Philippine Partnership Law, pp. 259-262 (1995). 243 Executive Order No. 209, Article 94, 122 (1987); I Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, pp. 458-459 (1990). 244 Republic Act No. 386, Article 1850 (1949); Bautista, Treatise on Philippine Partnership Law, p. 355 (1995) citing Kitchell Corporation vs. Hermansen, 446 P.2d 934 (1968). 245 Republic Act No. 386, Article 1843, 1848 (1949). 246 V Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, pp. 382 (1992).
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to third persons.247 One unique and interesting feature of both partnerships is the charging order procedure. Judgment creditors of general or limited partners may not execute against the partners right in specific partnership property.248 The proper remedy of judgment creditors is to apply for an order with a competent court a) charging the interest of the debtor partner with the payment of the unsatisfied judgment debt; b) appointing a receiver of the profits or other amounts due; c) directing the sale of the interest; or d) directing other matters as the circumstances may require.249 This provides some measure of protection from the disruption of partnership business. Conversely, members of open and close corporations are not personally liable for corporate obligations. 250 This is due to the separate and distinct juridical personality of the corporation from its stockholders.251 Should the corporation become bankrupt, the extent of the shareholders loss would be limited to the loss of value of the shares of stock. Although limited liability applies as a general rule, where the corporate entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons and hold pertinent stockholders personally liable. 252 With regard to obligations of stockholders, their personal creditors may attach and execute on the formers shares of stock to satisfy the judgment obligation.253 However, they cannot proceed against property owned by the corporation due to its separate juridical personality.254 The asset protection provided by the charging order procedure in partnerships has no exact equivalent in corporations. Although a judgment debtor has the option to choose which property may be levied upon by the court officer, failure to immediately do so allows the officer to levy on personal and real properties of the judgment debtor in that order.255 Therefore, should the shareholder seek to place all his properties in a holding corporation, leaving shares of stock in his possession, the court officer would simply levy on the shares of stock, which would most likely be sold to the judgment creditor due to their non-marketability.256 Upon transfer of ownership, the judgment creditor may then proceed to dissolve the corporation and liquidate its assets as he may see fit.257
247 Republic Act No. 386, Article 1848 (1949). 248 Republic Act No. 386, Article 1811(3), 1862 (1949); Bautista, Treatise on Philippine Partnership Law, pp. 164, 377 (1995); V Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, p. 352 (1992). 249 Republic Act No. 386, Article 1814 (1949). 250 I Campos, The Corporation Code: Comments, Notes and Selected Cases, p. 137 (1990). 251 Republic Act No. 386, Article 44(3) (1949); Batas Pambansa Blg. 68, Section 19 (1980); I Campos, The Corporation Code: Comments, Notes and Selected Cases, p. 137 (1990). 252 Laguna Transportation Co., Inc. vs. Social Security System, 107 Phil. 833 (1960); I Campos, The Corporation Code: Comments, Notes and Selected Cases, pp. 149-150 (1990). 253 Rules of Court, Rule 39, Section 9(b) (1997). 254 Batas Pambansa Blg. 68, Section 19 (1980); Rules of Court, Rule 39, Section 8 (1997); I Campos, The Corporation Code: Comments, Notes and Selected Cases, p. 137 (1990). 255 Rules of Court, Rule 39, Section 9(b) (1997). 256 Rules of Court, Rule 39, Section 21 (1997). 257 Batas Pambansa Blg. 68, Section 117-120 (1980).
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By comparison, members of a cooperative are not subject to personal liability for the obligations of the cooperative.258 Cooperative members are only liable for the debts of the cooperative to the extent of their contribution to the cooperatives share capital. 259 Though this may be the general rule, this writer submits that corporate rules with regard to piercing the corporate veil also apply to cooperatives. With regard to personal debts of cooperative members, judgment creditors of cooperative members cannot attach or execute upon specific properties of the cooperative due its separate juridical personality.260 There are no provisions in the Cooperative Code or other laws exempting a members share capital and interest to attachment and execution. Therefore, a cooperative members share capital and interest are not exempt from attachment and execution.261 In like manner, a member or manager of an LLC is not personally liable for a debt, obligation, or liability of the company solely by reason of being or acting as a member or manager; the debts, obligations, and liabilities of a LLC, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the LLC.262 However, members of a LLC may be liable for debts, obligations, or liabilities of the company if a provision to that effect is contained in the articles of organization and the member so liable has consented in writing to the adoption of the provision or to be bound by the provision.263 Failure to strictly follow the formalities observed by bigger enterprises does not result in the loss of limited liability protection.264 Though this may be the general rule, this writer submits that corporate rules with regard to piercing the corporate veil are applicable to LLCs as well. This is supported by the equitable nature of the remedy of piercing the corporate veil265 and the inclusion of a provision in the ULLCA stating that other principles of law and equity are applicable suppletorily.266 With regard to personal debts of LLC members, judgment creditors of LLC members cannot attach or execute upon specific properties of the LLC due to its separate juridical personality,267 nor can the creditor of a member attach and sell the members LLC interest.268 The exclusive remedy available to the judgment creditor is to apply for a charging order with a court of competent jurisdiction.269 This provides superior asset protection to any person who uses the LLC as an investment vehicle.
258 Republic Act No. 6938, Article 30 (1990). 259 Id. 260 Republic Act No. 6938, Article 16 (1990); Rules of Court, Rule 39, Section 8 (1997). 261 Rules of Court, Rule 39, Section 13 (1997) 262 ULLCA, Sec. 303(a). 263 ULLCA, Sec. 303(c). 264 ULLCA, Sec. 303(b). 265 1 Fletcher, Cyclopedia of the Law of Private Corporations, 41.25 (2004) citing Intergen N.V. vs. Grina, 344 F3d 134 (CA1 2003); In re Cambridge Biotech Corp., 186 F3d 1356 (CA Fed 1999); Internal Revenue Service vs. State of Kansas, 151 F3d 1295 (CA10 1998) and other cases. 266 ULLCA, Sec. 104(a). 267 ULLCA, Sec. 201; Rules of Court, Rule 39, Section 8 (1997). 268 ULLCA, Sec. 504(e). 269 ULLCA, Sec. 504(a), 504(e).
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Continuity of life. Since a sole proprietorship does not have a separate juridical personality from the sole proprietor, its existence is dependent on the latter. Thus, the existence of the sole proprietorship terminates upon the death of the sole proprietor. The sole proprietors insolvency, insanity, and other vices of consent necessarily cripple the sole proprietorships business. In general partnerships, the enabling law provides for numerous events of dissolution. These include: a) termination of the term or particular undertaking specified in the agreement; b) express will of any or all of the partners; c) expulsion of any partner from the business bona fide in accordance with partnership agreement; d) events which make it unlawful to carry on the business of the partnership; e) the loss of the specific thing that the partner promised to contribute to the partnership, before delivery; f) the loss of the specific thing after delivery to the partnership, where its usufruct was contributed; g) death of any partner; h) insolvency of any partner or of the partnership; i) civil interdiction of any partner; or j) decree of court upon application of a partner or a purchaser of a partners interest in specified cases.270 A general partnerships juridical existence is extremely volatile due to the number of involuntary events of dissolution and each event is potentially disruptive to the maintenance of the partnership business as a going concern. In limited partnerships, the partnership is dissolved by the retirement, death, insolvency, insanity, or civil interdiction of a general partner.271 However, the business may continued by the remaining general partners under a right to do so stated in the limited partnership certificate, or with the consent of all members.272 A limited partner may have the partnership dissolved when he a) rightfully but unsuccessfully demands the return of his contribution, or b) the liabilities of the partnership have not been paid and the limited partner would otherwise be entitled to the return of his contribution.273 The retirement, death, insolvency, insanity, or civil interdiction of a limited partner does not affect the existence of the partnership.274 A limited partnerships juridical existence is similarly evanescent due to the number of involuntary events of dissolution associated with the general partner. This issue may be remedied, however, by making a corporation the sole general partner of the limited partnership.275 Realistically though, the solution may not be within the grasp of an SME that lacks access to expert legal advisers. On the other hand, corporations may have a term of existence not exceeding fifty years, subject to extension through amendment of the articles of incorporation
270 Republic Act No. 386, Article 1830-1831 (1949). 271 Republic Act No. 386, Article 1860 (1949). 272 Id. 273 Republic Act No. 386, Article 1857 (1949). 274 Republic Act No. 386, Article 1860 (1949); Bautista, Treatise on Philippine Partnership Law, p. 385 (1995). 275 Bautista, Treatise on Philippine Partnership Law, pp. 6-11 (1995).
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Recent Decision of the Philippine Supreme court and Property Law
by periods not exceeding fifty years in any single instance.276 Amendments of the articles of incorporation to extend the corporate term, however, are subject to the discretion of the SEC.277 A corporation may be dissolved through a) voluntary dissolution by securing a majority vote of the board of directors and the votes of stockholders holding 2/3 of the outstanding capital stock;278 b) involuntary dissolution after notice and hearing held by the SEC;279 or c) amendment of the articles of incorporation to shorten the corporate term.280 The non-use of corporate charter and continuous inoperation of a corporation281 do not cause its automatic dissolution, since the Corporation Code itself provides for defenses that may be raised by management282 and Presidential Decree 902-A states that the SEC may only revoke a corporations certificate of registration after notice and hearing.283 The retirement, death, insolvency, insanity, or civil interdiction of the directors or other shareholders does not affect the existence of the corporation,284 nor can the corporation be dissolved at the will of a particular stockholder per se.285 Similarly, cooperatives may have a term of existence not exceeding fifty years, subject to extension through amendment of the articles of cooperation by periods not exceeding fifty years in any single instance.286 Amendments of the articles of cooperation, however, are subject to the discretion of the CDA.287 A cooperative may be dissolved through a) voluntary dissolution by securing a majority vote of the board of directors and the votes of 2/3 of all members where no creditors are affected;288 b) voluntary dissolution by securing a majority vote of the board of directors where creditors are affected;289 c) involuntary dissolution after notice and hearing held by a competent court;290 d) involuntary dissolution after notice and hearing held by the CDA;291 or e) amendment of the articles of incorporation to shorten the corporate term.292 The failure to commence business or continuous inoperation of a cooperative293 does not cause its automatic dissolution since the
276 Batas Pambansa Blg. 68, Section 11 (1980). 277 Batas Pambansa Blg. 68, Section 16 (1980). 278 Batas Pambansa Blg. 68, Section 117-119 (1980). 279 Batas Pambansa Blg. 68, Section 121 (1980); Presidential Decree No. 902-A, Section 6 (1976). 280 Batas Pambansa Blg. 68, Section 120 (1980). 281 Batas Pambansa Blg. 68, Section 22 (1980). 282 Id. 283 Presidential Decree No. 902-A, Section 6 (1976). 284 Batas Pambansa Blg. 68, Section 2, 22, 117-121 (1980); Presidential Decree No. 902-A, Section 6 (1976). 285 Id. 286 Republic Act No. 6938, Article 13 (1990). 287 Republic Act No. 6938, Article 18 (1990). 288 Republic Act No. 6938, Article 65 (1990). 289 Republic Act No. 6938, Article 66 (1990). 290 Republic Act No. 6938, Article 67 (1990). 291 Republic Act No. 6938, Article 68 (1990). 292 Republic Act No. 6938, Article 69 (1990). 293 Id.
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Cooperative Code itself provides for defenses that may be raised by management.294 The retirement, death, insolvency, insanity, or civil interdiction of the directors or other members does not affect the existence of the cooperative,295 nor can the cooperative be dissolved at the will of a particular member per se.296 On this point, LLCs are extremely versatile. A LLC may be an at-will or term company with the former as the default choice.297 LLCs are term companies where the articles of organization so provide.298 No term limits are provided in the enabling law.299 The common events of dissolution for both types of LLCs are the occurrence of a) an event specified in the operating agreement; b) illegality of continuing the LLC business; or c) entry of judicial decree upon application by either a current or disassociated member or a transferee of a members interest.300 Dissolution through judicial decree may be sought by a current or dissociated member for the following reasons: a) the LLCs economic purpose is likely to be unreasonably frustrated; b) another member engaging in conduct related to the LLCs business making it impracticable to carry on business with that member; c) impracticability of carrying on the LLCs business in conformity with the articles of organization and the operating agreement; d) failure of the LLC to purchase petitioners distributional interest when required by the ULLCA; or e) where managers or members in control of the LLC have acted, are acting, or will act in a manner that is illegal, oppressive, fraudulent, or unfairly prejudicial to the petitioner. A transferee of a members distributional interest may seek the issuance of a judicial decree for LLC dissolution where it is equitable to wind up the LLC business a) after the expiration of term, for a term LLC;301 b) at any time, for an at-will LLC.302 For an at-will LLC, dissolution may also be effected through the consent of members, the number of which is specified in the operating agreement.303 In a term LLC, dissolution also occurs upon the expiration of the term specified in the articles of organization. 304 Notably, the members305 may unanimously waive the right to have the companys business wound up and the company terminated.306 The dissolution rules of this section are mostly default rules and may be modified by an operating agreement. 307 However, an
294 Id. 295 Republic Act No. 6938, Article 65-69 (1990). 296 Id. 297 ULLCA, Sec. 101(2), 101(19). 298 ULLCA, Sec. 101(19). 299 Id. 300 ULLCA, Sec. 801(1), 801(3)-801(5). 301 ULLCA, Sec. 801(5)(i). 302 ULLCA, Sec. 801(5)(ii). 303 ULLCA, Sec. 801(2). 304 ULLCA, Sec. 801(6). 305 Members include former members whose dissociation caused the dissolution. 306 ULLCA, Sec. 802(b). 307 ULLCA, Sec. 103(a).
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operating agreement may not modify or eliminate a) the illegality of the LLC business and b) the entry of judicial decree after member application as dissolution events.308
Weaknesses of the LLC

There appear to be three weaknesses to the LLC form based on the ULLCA. Firstly, due to the default selection of restrictive membership by law and its flexibility of organizational form, capital infusion through securities trading markets may not be achievable as a practical matter unless the LLC is converted to an open corporation. However, the present ULLCA does not provide for conversion from the LLC form to a corporate form. This oversight may be rectified by adopting some of the provisions of the Delaware or California LLC Act which provide for conversion between the LLC and corporate forms and vice versa. 309 Secondly, the lack of jurisprudential precedents in both the U.S. and our jurisdiction may be a cause of concern as stability and predictability in jural relations is vital to business transactions. The National Conference of Commissioners on Uniform State Laws sought to correct this lacuna by inserting a provision providing that other principles of law and equity apply suppletorily.310 This may be further improved on by codifying other principles of law that may apply analogously to the LLC to obviate the possibility of the judiciary introducing an unfavorable precedent. Lastly, the ULLCA provides that where dispositions of interest in real property are involved, any member of a membermanaged company or manager of a manager-managed company may sign and deliver any instrument transferring or affecting the companys interest in real property to a purchaser in good faith and for value, unless the articles of organization limit their authority.311 This is the converse of the rules provided in the Civil Code and may cause confusion in the conduct of LLC business.312 This may be resolved by deleting the pertinent portion of the ULLCA.313
Conclusion
There are significant issues as regards the ULLCA that must to be addressed prior to use in the Philippines. Despite these concerns, this writer submits that LLCs are generally superior to presently available entities for a majority of business transactions. Moreover, due to the popularity of LLCs in a number of jurisdictions, providing an LLC investment option will help promote foreign direct investment.
308 ULLCA, Sec. 103(b)(6); Report of the National Conference of Commissioners on Uniform State Laws, p. 77. 309 See Cal Code 17540.1 et seq.; Del Code Ann 18-216. 310 ULLCA, Section 104(a). 311 ULLCA, Sec. 301(c). 312 Republic Act No. 386, Article 1818, 1877-1878 (1949). 313 ULLCA, Sec. 301(c).
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This writer recommends that this juridical entity be incorporated into the Philippine commercial law regime using the ULLCA with modifications.
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Survey of 2005 Cases in Property and Land Registration

Eduardo A. Labitag*
PROPERT Y
I. CL ASSIFICATION OF PROPERTY
USERO vs. COURT OF APPEALS G.R. No. 152115. January 26, 2005 Corona, J. FACTS : Petitioners Lutgarda R. Samela and Nimfa Usero are the respectively owners of Lots 1 and 2, Block 5, Golden Acres Subdivision, Barrio Almanza, Las Pias City. Private respondent spouses Polinar are the registered owners of a parcel of land at No. 18 Anahaw St., Pilar Village, Las Pias City, behind the lots of petitioners Samela and Usero. Situated between the lots of the parties is a low-level strip of land, with a stagnant body of water filled with floating water lilies. Abutting and perpendicular to the lot of petitioner Samela, the lot of the Polinars and the low-level strip of land, is the perimeter wall of Pilar Village Subdivision. Apparently, every time a storm or heavy rains occur, the water in said strip of land rises and the strong current passing through it causes considerable damage to the house of respondent Polinars. Frustrated by their predicament, private respondent spouses, on July 30, 1998, erected a concrete wall on the bank of the low-level strip of land about three meters from their house and rip-rapped the soil on that portion of the strip of land. Petitioners Samela and Usero, believing themselves to be the owners of the strip of land, demanded that respondent Polinars stop their construction. The Polinars, however, offered to pay for the strip of land. Despite the offer, the parties failed to settle their differences. Petitioners filed their separate complaints before the MTC. They presented, as evidence, TCTs covering their respective properties. The MTC sustained the petitioners and held that the subject strip of land was part of their property. However, upon appeal, to the RTC, held that the said strip of land was a creek and was thus, part of the public dominion. Petitioners appealed to the CA, which dismissed both their petitions.
* Professor of Law, University of the Philippines College of Law
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ISSUE: Whether the strip of land belongs to the public dominion HELD: Yes. That the subject strip of land is a creek is evidenced by: (1) a barangay certification that a creek exists in the disputed strip of land; (2) a certification from the Second Manila Engineering District, NCR-DPWH, that the western portion of Pilar Village, where the subject strip of land is located, is bounded by a tributary of Talon Creek; and (3) photographs showing the abundance of water lilies in the subject strip of land. The Court of Appeals was correct: the fact that water lilies thrive in that strip of land can only mean that there is a permanent stream of water or creek there. In contrast, petitioners failed to present sufficient proof to support their claim. Petitioners presented the TCTs of their respective lots to prove that there is no creek between their properties and that of the Polinars. However, an examination of the said TCTs reveals that the descriptions thereon are incomplete. In petitioner Samelas TCT No. T-30088, there is no boundary description relative to the northwest portion of the property pertaining to the site of the creek. Likewise in TCT No. T-22329-A of the spouses Polinar, the southeast portion, which pertains to the site of the creek has no described boundary. Moreover, the tax declaration presented by petitioner is devoid of any entry on the west boundary, vis-a-vis the location of the creek. Taking all the pieces of evidence together, the Court can only conclude that the adjoining portion of these boundaries is in fact a creek and belongs to no one but the State. Property is either of public dominion or of private ownership. Concomitantly, Article 420 of the Civil Code provides: ART. 420. The following things are property of public dominion: (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character; The phrase, others of similar character, includes a creek which is a recess or an arm of a river. It is property belonging to the public domain which is not susceptible to private ownership. Being public water, a creek cannot be registered under the Torrens System in the name of any individual. Accordingly, the Polinar spouses may utilize the rip-rapped portion of the creek to prevent the erosion of their property.
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II. OWNERSHIP
A. Accion Reivindicatoria/Accion Publiciana HILARIO vs. SALVADOR G.R. No. 160384. April 29, 2005, CALLEJO, SR., J. FACTS : Petitioners herein are co-owners of a parcel of land located in Romblon. In 1996, they filed a complaint with the RTC of Romblon against herein, respondent, alleging that as co-owners, they are entitled to possession of the lot, and that respondent constructed his house thereon without their knowledge and refused to vacate the property despite demands to do so. They prayed for the private respondent to vacate the property and restore possession thereof to them. The complaint, however, failed to allege the assessed value of the land. Nevertheless, petitioners were able to present during the trial the most recent tax declaration, which shows that the assessed value of the property was Php 5,950.00. The respondent filed a Motion to Dismiss on the ground of lack of jurisdiction because of the failure to allege the value of the land. The motion was denied. Respondent then filed an Answer, traversing the material allegations of the complaint, contending that petitioners had no cause of action against him since the property in dispute was the conjugal property of his grandparents, the spouses Salustiano Salvador and Concepcion Mazo-Salvador. The RTC ruled in favor of the petitioners. On appeal, the CA reversed the decision, holding that the action was one for the recovery of ownership and possession of real property, and that absent any allegation in the complaint of the assessed value of the property, the MTC had exclusive jurisdiction over the action (citing Sec. 33 of R.A. No. 7691). The CA then ordered the refiling of the case in the proper court. ISSUES: Whether the RTC has jurisdiction over the action HELD: NO. Petitioner argues that the RTC has jurisdiction since their action is an accion reivindicatoria, an action incapable of pecuniary estimation. Thus, regardless of the assessed value of the subject property, exclusive jurisdiction falls within the said court. This argument is without merit. The jurisdiction of the court over an action involving title to or possession of land is now determined by the assessed value of the said property and not the market value thereof. [] In the case at bar, the complaint does not contain an allegation stating the assessed value of the property subject of the complaint. The court cannot take judicial notice of the assessed or market value of lands. V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 145
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The Court noted that during the trial, the petitioners adduced in evidence a tax declaration, showing that the assessed value of the property in 1991 was Php5,950.00. The petitioners, however, did not bother to adduce in evidence the tax declaration containing the assessed value of the property when they filed their complaint in 1996. Even assuming that the assessed value of the property in 1991 was the same in 1995 or 1996, the MTC, and not the RTC had jurisdiction over the action of the petitioners, since the case involved title to or possession of real property with an assessed value of less than Php20,000.00. As the Court of Appeals had held: The determining jurisdictional element for the accion reinvindicatoria [sic] is, as RA 7691 discloses, the assessed value of the property in question. For properties in the provinces, the RTC has jurisdiction if the assessed value exceeds Php20,000.00, and the MTC, if the value is Php20,000.00 or below. An assessed value can have reference only to the tax rolls in the municipality where the property is located, and is contained in the tax declaration. In the case at bench, the most recent tax declaration secured and presented by the plaintiffs-appellees is Exhibit B. The loose remark made by them that the property was worth 3.5 million pesos, not to mention that there is absolutely no evidence for this, is irrelevant in the light of the fact that there is an assessed value. It is the amount in the tax declaration that should be consulted and no other kind of value, and as appearing in Exhibit B, this is Php5,950.00. The case, therefore, falls within the exclusive original jurisdiction of the Municipal Trial Court of Romblon which has jurisdiction over the territory where the property is located, and not the court a quo. 24 In an obiter, the Court discussed the nature of an accion publiciana, thus: The action of the petitioners was an accion publiciana, or one for the recovery of possession of the real property subject matter thereof. It does not involve a claim of ownership over the property. An accion reinvindicatoria is a suit which has for its object the recovery of possession over the real property as owner. It involves recovery of ownership and possession based on the said ownership. On the other hand, an accion publiciana is one for the recovery of possession of the right to possess . It is also referred to as an ejectment suit filed after the expiration of one year after the occurrence of the cause of action or from the unlawful withholding of possession of the realty. [] The Supreme Court finally held that all proceedings before the RTC, including the RTC decision, are null and void, since the RTC had no jurisdiction over the action of the petitioners. Criticism of the ponencia: The discussion about the distinction between an accion reivindicatoria and an accion publiciana is inappropriate. The issue to be resolved by the court is: which court has jurisdiction, the MTC or the RTC? It is immaterial 146 IBP JOURNAL
whether the case is one for accion reivindicatoria or accion publiciana; only one court will have exclusive jurisdiction. I submit that what should have been discussed in the obiter is that if the claim of co-ownership by the defendant is true, may a plaintiff co-owner then file an action in ejectment against another co-owner? Dr. Tolentino is of the opinion that a co-owner may bring such an action against another co-owner who takes exclusive possession of and asset ownership in himself alone. The effect of the action will be to obtain recognition of the co-ownership. The defendant co-owner, however, cannot be excluded from possession because as co-owner, he also has the right to possess.
PERALTA-LABRADOR vs. BUGARIN G.R. No. 165177. August 25, 2005 YNARES-SANTIAGO, J. FACTS: Petitioner Peralta-Labrador was the owner of a 400 sq. m. parcel of land, purchased in 1976 from the spouses Pronto. In 1990, the DPWH constructed a road which traversed her lot and separated 108 sq. m. from it. She was subsequently issued Tax Declaration No. 02-2460R for the separated lot. Sometime in 1994, respondent Silverio Bugarin forcibly took possession of the 108 sq. m. lot and refused to vacate the same despite the pleas of petitioner. Hence, on January 18, 1996, she instituted a complaint for recovery of possession and ownership against respondent before the MTC. In his Answer with Counterclaims, respondent Bugarin contended that the area claimed by petitioner is included in the 4,473 square-meter lot, covered by the Original Certificate of Title (OCT) No. P-13011, and that he has been in continuous possession and occupation thereof since 1955. In his Amended Answer with Counterclaim, respondent failed to allege that the questioned lot is covered by the OCT No. P-13011 and instead asserted that he planted fruit-bearing trees in the property. Respondent further pleaded the defenses of lack of cause of action and prescription. The MTC decided in favor of respondent declaring him as the owner of the controverted lot on the basis of the OCT No. P-13011. The complaint was dismissed for failure of petitioner to prove prior physical possession and ownership thereof. The decision was affirmed by the RTC. Petitioner further filed a petition for review before the CA, but the same was denied for insufficiency of evidence and petitioners failure to adduce evidence to prove either ownership or prior physical possession. ISSUE: Whether petitioner has a cause of action for forcible entry against respondent HELD: NO. In Lopez vs. David Jr., it was held that an action for forcible entry is a quieting process and the one year time bar for filing a suit is in pursuance of the summary nature of the action. Thus, the Court has nullified proceedings in the V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 147
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MTCs when it improperly assumed jurisdiction of a case in which the unlawful deprivation or withholding of possession had exceeded one year. After the lapse of the one year period, the suit must be commenced in the RTC via an accion publiciana, a suit for recovery of the right to possess. It is an ordinary civil proceeding to determine the better right of possession of realty independently of title. It also refers to an ejectment suit filed after the expiration of one year from the accrual of the cause of action or from the unlawful withholding of possession of the realty independently of title. Likewise, the case may be instituted before the same court as an accion reivindicatoria, which is an action to recover ownership as well as possession. It is clear that petitioners averment make out a case for forcible entry because she alleged prior physical possession of the subject lot way back in 1976, and the forcible entry thereon by respondent. Considering her allegation that the unlawful possession of respondent occurred two years prior to the filing of the complaint on January 18, 1996, the cause of action for forcible entry has prescribed and the MTC had no jurisdiction to entertain the case. Therefore petitioners complaint should have been filed with the proper RTC. On this point, the Court held in Bongato vs. Malvar that: It is wise to be reminded that forcible entry is a quieting process, and that the restrictive time-bar is prescribed to complement the summary nature of such process. Indeed, the one-year period within which to bring an action for forcible entry is generally counted from the date of actual entry to the land. However, when entry is made through stealth, then the one-year period is counted from the time the plaintiff learned about it. After the lapse of the one-year period, the party dispossessed of a parcel of land may file either an accion publiciana, which is a plenary action to recover the right of possession; or an accion reivindicatoria, which is an action to recover ownership as well as possession. B. Forcible Entry/Unlawful Detainer
SAMPAYAN vs. COURT OF APPEALS G.R. No. 156360. January 14, 2005 GARCIA, J. FACTS : On July 8, 1992, in the MCTC of Bayugan and Sibagat, Agusan del Sur, the siblings Crispulo Vasquez and Florencia Vasquez-Gilsano filed complaint for forcible entry against Cesar Sampayan for allegedly having entered and occupied a parcel of land, identified as Lot No. 1959, PLS-225, and built a house thereon without their knowledge, consent or authority, the entry having been supposedly effected through strategy and stealth. In their complaint, Crispulo and Florencia asserted that they were co-owners pro-indiviso of the said lot, their mother Cristita Quita being the owner 148 IBP JOURNAL
and actual possessor thereof. Upon the latters death and while they were absent from the said lot, Cesar Sampayan, through strategy and stealth, allegedly built a house on the lot, to their exclusion. After repeated demands, Cesar Sampayan allegedly refused to vacate the said lot. Thus, they filed an action for unlawful detainer. In his defense, Cesar Sampayan asserted that his occupation of the lot was by tolerance of the lots true owners, Mr. and Mrs. Terrado, who were then residing in Cebu. The permission was given by the lots overseer, Maria Ybanez. Sampayan further asserted that Crispulo and Valencias action had long prescribed, inasmuch as the said lot had already been owned and possessed by the spouses Oriol since 1960, as evidenced by the latters payment of taxes. The Oriols, in turn, sold half the land to the Terrados. Together, they maintained possession of their respective portions. Both the plaintiff siblings and defendant Sampayan submitted their respective evidence consisting of affidavits and tax declarations. Meanwhile, the MCTC judge also conducted an ocular inspection of the premises, where he found improvements. The findings in the ocular inspection have confirmed the allegation of the defendant that his predecessors-in-interest have introduced improvements by planting caimito trees, coconut trees, and others on the land in question. The MCTC dismissed the complaint. It held that it is clear that defendants have been in possession for more than one year and that the appropriate remedy would have been accion publiciana or plenaria de possession. Upon appeal to the RTC, it reversed the decision, relying on the involvement of Cristita Quita, plaintiffs mother, in a cadastral case involving the lot in 1957. Sampayan then appealed to the CA, which denied the same. Thus this petition for certiorari. ISSUE: Whether or not the complaint for forcible entry would prosper HELD: YES. In Sarmiento vs. CA, the Court held: [t]o give the court jurisdiction to effect the ejectment of an occupant or deforciant on the land, it is necessary that the complaint should embody such a statement of facts as brings the party clearly within the class of cases for which the statutes provide a remedy, as these proceedings are summary in nature. The complaint must show enough on its face to give the court jurisdiction without resort to parol testimony. The jurisdictional facts must appear on the face of the complaint. . . . It is clear it is from the above that for the MCTC to acquire jurisdiction over a forcible entry case, it is enough that the complaint avers the jurisdictional facts, i.e. that the plaintiff had prior physical possession and that he was deprived thereof by the defendant through force, intimidation, threats, strategy and stealth. The complaint in this case makes such an averment. Hence, the irrelevant circumstance that the evidence adduced during the hearing rendered improper an action for forcible entry V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 149
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is of no moment and cannot deprive the MCTC of its jurisdiction over the case. The MCTC continues to have that jurisdiction. ISSUE: Whether or not the petitioner had prior physical possession HELD: YES. To begin with, the Court is at once confronted by the uncontested findings of the MCTC judge himself during his ocular inspection of the premises in dispute that what he saw thereat confirmed the allegations of the defendant [now petitioner Sampayan] that his predecessors-in-interest have introduced improvements by planting caimito trees, coconut trees, and others on the land in question, adding that [N]othing can be seen on the land that plaintiff had once upon a time been in possession of the land, and categorically stating that [T]he allegation that Cristita Quita, the predecessor-in-interest of the plaintiffs had been in possession of the said property since 1957, openly, exclusively, continuously, adversely and in the concept of an owner is a naked claim, unsupported by any evidence. x x x The Court noted that in the assailed decision herein, the Court of Appeals attached much significance to the fact that private respondents mother, Cristita Quita, was an oppositor in Cadastral Case No. 149. The Court ruled and held that the mothers being an oppositor in said cadastral case does not, by itself, establish prior physical possession because not all oppositors in cadastral cases are actual possessors of the lots or lands subject thereof.
SANTOS vs. AYON G.R. No. 137013, May 6, 2005, SANDOVAL -GUTIERREZ, J. FACTS : In 1996, the petitioner, Santos, filed with the Municipal Trial Court in Cities (MTCC) in Davao City a complaint for illegal detainer against the respondents, spouses Ayon. In his complaint, he averred that a building used by the respondents as a warehouse, encroached on a portion of his land. As early as 1985, he had allegedly already informed respondents that the said building occupies a portion of his land, but allowed them to continue using the building. In 1996, needing the entire portion of his lot, he demanded that respondents remove the part of the building encroaching on his property, but respondents refused and continued to occupy the contested portion. The MTCC ruled in favor of petitioner and ordered the respondents to vacate and surrender possession of the property. On appeal, the RTC affirmed in toto the MTCC judgment, and upheld the finding that respondents occupation of the contested portion was by mere tolerance. On petition for review however, the CA held that petitioners proper remedy should have been an accion publiciana before the RTC and not an 150 IBP JOURNAL
action for unlawful detainer, and thus dismissing the complaint. ISSUE: Whether the MTCC properly exercised jurisdiction over the complaint. HELD: YES. All actions for forcible entry or unlawful detainer shall be filed with the proper Metropolitan Trial Courts, the Municipal Trial Courts and the Municipal Circuit Trial Courts, which actions shall include not only the plea for restoration of possession but also all claims for damages and costs arising therefrom. The said courts are not divested of jurisdiction over such cases even if the defendants therein raises the question of ownership over the litigated property in his pleadings and the question of possession cannot be resolved without deciding the issue of ownership. The Court found no error in the MTCC assuming jurisdiction over petitioners complaint. A complaint for unlawful detainer is sufficient if it alleges that the withholding of the possession or the refusal to vacate is unlawful, without necessarily employing the terminology of the law. Here, there is an allegation in petitioners complaint that respondents occupancy on the portion of his property is by virtue of his tolerance. Petitioners cause of action for unlawful detainer springs from respondents failure to vacate the questioned premises upon his demand sometime in 1996. It bears stressing that possession by tolerance is lawful, but such possession becomes unlawful when the possessor by tolerance refuses to vacate upon demand made by the owner. Our ruling in Roxas vs. Court of Appeals 391 SCRA 351 is applicable in this case: A person who occupies the land of another at the latters tolerance or permission, without any contract between them, is necessarily bound by an implied promise that he will vacate upon demand, failing which, a summary action for ejectment is the proper remedy against him.
RUDY LAO vs. JAIME LAO G.R. No. 149599. May 16, 2000, CALLEJO, SR., J. FACTS : Alava was the owner of a parcel of land in Iloilo. As early as 1956, he allowed the spouses Julian and Anita Lao to construct a building on a portion of the property, and to occupy and lease the same without a written agreement. In 1982, a Contract of Lease was executed by Alava (as lessor) and Anita Lao (as lessee), which stipulated that the lease was to be for a period of 35 years, for a fee Php120.00 per year. This lease agreement was however not filed with the Register of Deeds, and hence, not annotated on Alavas TCT. Petitioner Rudy Lao, a lessee of another portion of the same property, eventually purchased the entire property from Alava. In 1997, he filed a complaint V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 151
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for unlawful detainer against respondent Jaime Lao (son of the Lao spouses), alleging that latter had occupied a portion of his property without any lease agreement and without paying any rentals, and prayed that an order be rendered directing respondent to vacate the premises. In his Answer to the complaint, the respondent alleged that the petitioner had no cause of action against him, the truth being that the lessee of the property was his mother, Anita Lao, as evidenced by a Contract of Lease executed by Alava, the former owner thereof. He further alleged that she had been paying the annual rentals therefor, and that she had designated him as manager to maintain the building, pay rentals and operate the business. The MCTC rendered a judgment in favor of the petitioner. On appeal, the RTC affirmed the MCTC and ruled that under Article 1676 of the New Civil Code, the petitioner was the purchaser of the property and had the right to terminate the lease between Alava and Anita Lao, it appearing that the lease contract was not registered with the Office of the Register of Deeds. The trial court also held that the respondent, not his mother, was the real party as defendant in the MCTC, since it was he who was in actual possession of the property. The RTC maintained that if Anita Lao was sued as defendant and was ordered evicted, the decision would not be binding on the respondent since he was not impleaded as defendant. The CA reversed the RTC and ruled that the real party-in-interest as defendant in the MCTC was Anita Lao, the lessee of the property, and not the respondent who was merely the administrator/manager of Anita Laos building and the occupant of the property. Hence, the CA dismissed the complaint. ISSUE: (1) Whether the CA properly dismissed the complaint; (2) Who is the real party-in-interest as defendant in this action for unlawful detainer? HELD: (1) YES; (2) Respondents mother, Anita Lao (party to the lease agreement). The records in this case show that the respondent has been in possession of the property in question, not by mere tolerance or generosity of the petitioner, but as the manager of his mother, Anita Lao, who conducted her business in the building/ warehouse which stood on a portion of the property leased from Alava, the former owner. Contrary to the petitioners claim, the respondents possession of the property was in behalf of his mother, the lessee thereof, and not in his own right, independently of that of his mother. The petitioner cannot feign ignorance of the existence of the lease of the subject property by Anita Lao, the existence of the building and her business thereon, and the fact that the respondent managed his mothers building and business. It must be stressed that during the preliminary conference of the parties before the MCTC, the petitioner admitted his knowledge of the foregoing facts. 152 IBP JOURNAL
It is true that the Contract of Lease between Alava and Anita Lao was not filed in the Office of the Register of Deeds and annotated at the dorsal portion of the petitioners title over the property; nevertheless, the petitioner was bound by the terms and conditions of the said Contract of Lease. The lease, in effect, became a part of the Contract of Sale. Under Section 2, Rule 70 of the Rules of Court, the petitioner, as the vendee of the property, had the right to file an action for unlawful detainer against Anita Lao upon demand, but for breach of the contract of lease. If the petitioner had done so and judgment was rendered in his favor, ordering Anita Lao to vacate the property, the respondent herein, who is in possession of the property for and in her behalf, would then have to abide by the decision and vacate the same. Apparently, the petitioner believed that it was unfair for Anita Lao to be paying an annual rental of only Php120.00 for the portion of the property leased by her, considering that the said lot had already been classified as commercial property. Moreover, it was not Anita Lao who stayed in the leased premises, but her son. However, the petitioner had no cause of action for unlawful detainer against Anita Lao because of the subsisting Contract of Lease; hence, he could not file the complaint against her.
GANILA vs. COURT OF APPEALS G.R. No. 150755, 06/28/2005 QUISUMBING, J. FACTS : Private respondent, Violeta Herrera, filed 21 ejectment complaints in the MCTC, which ordered the 21 defendants, now petitioners, to vacate the property in question (Lot 1227). The RTC sustained the decision as to 19 defendants but dismissed the case against 2. The 19 defendants who were ordered to vacate Lot 1227 filed a petition for review with the CA based on two arguments, namely: first, that they possessed lot 1227 in good faith for more than 30 years in the concept of owners, and second, that there was no withholding of possession since private respondent was not in prior possession of the lot. ISSUES/HELD : Whether prior physical possession by the plaintiff is necessary for a complaint for unlawful detainer to prosper NO While petitioners assert that this case involves only deprivation of possession, they confuse the remedy of an action for forcible entry with that of unlawful detainer. In unlawful detainer, prior physical possession by the plaintiff is not necessary. It is enough that plaintiff has a better right of possession. Actual and prior physical possession of a property by a party is indispensable only in forcible entry cases. V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 153
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In unlawful detainer cases, the defendant is necessarily in prior lawful possession of the property but his possession eventually becomes unlawful upon termination or expiration of his right to possess. Thus, the fact that petitioners are in possession of the lot does not automatically entitle them to remain in possession. And the issue of prior lawful possession by the defendants does not arise at all in a suit for unlawful detainer simply because prior lawful possession by virtue of contract or other reasons is given or admitted. Unlike in a forcible entry where defendants, by force, intimidation, threat, strategy or stealth, deprive the palintiff or the prior physical possessor of possession, here there is no evidence to show that petitioners entered the lot by any of these acts. Whether private respondent properly filed complaints for unlawful detainer YES If only to stress the fundamental principles related to the present controversy, jurisdiction over unlawful detainer suits is vested in Municipal Trial Courts. And in ejectment cases, the jurisdiction of the court is determined by the allegations of the complaint. In the case for ejectment, private respondents allegations sufficiently present a case of unlawful detainer. She alleged that (1) she owns Lot 1227, (2) she tolerated petitioners to construct their houses thereon; (3) she withdrew her tolerance; and (4) petitioners refused to heed her demand to vacate the lot. The Complaints were also filed within one year from the date of her demand. The cause of action for unlawful detainer between the parties springs from the failure of petitioners to vacate the lot upon lawful demand of the private respondent. When they refused to vacate the lot after her demand, petitioners continued possession became unlawful. Her complaint for ejectment against respondent, to put it simply, is not without sufficient basis. Whether private respondent should have filed an action to recover possession de jure , as argued by petitioners on appeal NO Petitioners contention that private respondent should have filed an action to recover possession de jure with the TC is not supported by law or jurisprudence. The distinction between a summary action of ejectment and a plenary action for recovery of possession and/or ownership of the land is settled in our jurisprudence. Petitioners present contention was first raised only in their appeal to the RTC. Raising it before the appellate tribunal is barred by estoppel. They should have raised it in the proceedings before the MCTC. In our view, this issue is a mere afterthought, when the MCTC decided against them. Basic rules of fair play, justice and due process require that as a rule an issue cannot be raised by the petitioners for the first time on appeal. The Court noted with dismay petitioners insistence that it must order the MCTC to conduct the requisite preliminary conference. The summary character of ejectment suits will be disregarded if the Court would allow petitioners to further 154 IBP JOURNAL
delay this case by allowing a second preliminary conference. Ejectment by way of forcible entry and unlawful detainer cases are summary proceedings, designed to provide an expeditious means of protecting actual possession or the right to possession over the property involved. It is a timely procedure designed to remedy the delay in the resolution of such cases. In sum, the Court found no reversible error much less any grave abuse of discretion committed by the Court of Appeals. A person who occupies the land of another at the latters tolerance or permission, without any contract between them, is necessarily bound by an implied promise that he will vacate upon demand, failing which a summary action for ejectment is the proper remedy against him. His status is analogous to that of a lessee or tenant whose term of lease has expired but whose occupancy continued by tolerance of the owner. In such a case, the date of unlawful deprivation or withholding of possession is to be counted from the date of the demand to vacate.
ROSS RICA SALES CENTER vs. SPS. ONG G.R. No. 132197. 08/16/2005, TINGA, J. FACTS : The spouses Ong are the original owners of 3 parcels of land which they occupy. They sold it to Mandaue Prime Estate Realty, which then sold it to Ross Rica Sales Center, Inc. The spouses Ong filed an action to annul the sale and transfer of property to Mandaue Prime Estate Realty and at present, the case is still pending. In the meantime, an ejectment case was filed against spouses Ong in the MTC, which ruled against the latter. On appeal to the RTC, the judgment was affirmed by a decision dated March 1, 1997. The spouses Ong received a copy of the decision on April 28, 1997. The spouses Ong first filed a Notice of Appeal with the RTC (May 8, 1997) but on the very next day filed a Motion for Reconsideration, which was denied on June 23, 1997. The spouses Ong received a copy of the order on July 9, 1997. On July 24, 1997 respondents filed with the CA a motion for an additional 10 days to file their Petition for Review, which they would eventually file on July 30, 1997. The CA gave their petition for review due course and reversed the decision of the RTC on the finding that the action filed was not one for unlawful detainer based on two grounds: that the allegations fail to show that petitioners were deprived of possession by force, intimidation, threat, strategy or stealth; and that there is no contract, express or implied, between the parties that would qualify the case as one of unlawful detainer.
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ISSUES/HELD Whether the complaint satisfies the jurisdictional requirements for a case of unlawful detainer properly cognizable by the MTC - YES Well-settled is the rule that what determines the nature of an action as well as which court has jurisdiction over it are the allegations of the complaint and the character of the relief sought. In Javelosa vs. Court of the Appeals, it was held that the allegation in the complaint that there was unlawful withholding of possession is sufficient to make out a case for unlawful detainer. It is equally settled that in an action for unlawful detainer, an allegation that the defendant is unlawfully withholding possession from the plaintiff is deemed sufficient, without necessarily employing the terminology of the law. Hence, the phrase unlawful withholding has been held to imply possession on the part of defendant, which was legal in the beginning, having no other source than a contract, express or implied, and which later expired as a right and is being withheld by defendant. In Rosanna B. Barba vs. Court of Appeals, the Supreme Court held that a simple allegation that the defendant is unlawfully withholding possession from plaintiff is sufficient. Based on this premise, the allegation in the Complaint that: . . . . despite demand to vacate, the defendants have refused and still refuse to vacate said lots, thus, unlawfully withholding possession of said lots from plaintiffs and depriving plaintiffs of the use of their lots; is already sufficient to constitute an unlawful detainer case. Likewise, the case of Co Tiamco vs. Diaz provides for a liberal approach in considering the sufficiency of a complaint for unlawful detainer, thus: . . . The principle underlying the brevity and simplicity of pleadings in forcible entry and unlawful detainer cases rests upon considerations of public policy. Cases of forcible entry and detainer are summary in nature, for they involve perturbation of social order which must be restored as promptly as possible and, accordingly, technicalities or details of procedure should be carefully avoided. Whether the case should be considered as one for accion reivindicatoria, and thus the jurisdiction would lie with the RTC - NO The issue involved in accion reivindicatoria is the recovery of ownership of real property. This differs from accion publiciana where the issue is the better right of possession or possession de jure, and accion interdictal where the issue is material possession or possession de facto. In an action for unlawful detainer, the question of possession is primordial, while the issue of ownership is generally unessential. 156 IBP JOURNAL
Petitioners, in all their pleadings, only sought to recover physical possession of the subject property. The mere fact that they claim ownership over the parcels of land as well did not deprive the MTC of jurisdiction to try the ejectment case. Even if respondents claim ownership as a defense to the complaint for ejectment, the conclusion would be the same, for mere assertion of ownership by the defendant in an ejectment case will not oust the municipal court of its summary jurisdiction. This Court in Ganadin vs. Ramos stated that if what is prayed for is ejectment or recovery of possession, it does not matter if ownership is claimed by either party. Therefore, the pending actions for Declaration of Nullity of Deed of Sale and Transfer Certificates of Title and quieting of title in Civil Case No. MAN-2356 will not abate the ejectment case. In Drilon vs. Gaurana , this Court ruled that the filing of an action for reconveyance of title over the same property or for annulment of the deed of sale over the land does not divest the MTC of its jurisdiction to try the forcible entry or unlawful detainer case before it, the rationale being that, while there may be identity of parties and subject matter in the forcible entry case and the suit for annulment of title and/or reconveyance, the rights asserted and the relief prayed for are not the same. The long settled rule is that the issue of ownership cannot be the subject of a collateral attack. In Apostol vs. Court of Appeals, this Court had the occasion to clarify this: . . . Under Section 48 of Presidential Decree No. 1529, a certificate of title shall not be subject to collateral attack. It cannot be altered, modified or cancelled, except in a direct proceeding for that purpose in accordance with law. The issue of the validity of the title of the respondents can only be assailed in an action expressly instituted for that purpose. Whether or not the petitioners have the right to claim ownership over the property is beyond the power of the court a quo to determine in an action for unlawful detainer.
C. Builder, Planter, Sower SPOUSES NUGUID vs. COURT OF APPEALS G.R. No.151815. 02/23/2005 QUISUMBING, J. FACTS: Pedro P. Pecson owned a commercial lot located at 27 Kamias Road, Quezon City, on which he built a four-door two-storey apartment building. For failure to pay realty taxes, the lot was sold at public auction by the City Treasurer of Quezon City to Mamerto Nepomuceno, who in turn sold it for Php103,000.00 to the spouses, V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 157
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Juan and Erlinda Nuguid. Pecson challenged the validity of the sale before the RTC of Quezon City. The RTC upheld the validity of the sale but also held that the twostorey, 4-door apartment building was not included in the sale. This ruling was subsequently affirmed by the Court of Appeals and the Supreme Court. By virtue of the said ruling, the spouses became the uncontested owners of the lot. The spouses subsequently moved for the delivery of possession of the said lot and apartment. In its order, the trial court held that Pecson was entitled to a reimbursement of Php53,000.00 for the apartment building, following which the possession of said lot and apartment shall be transferred to the spouses Nuguid. Pecson moved for a reconsideration of the said order. The same was denied. He then brought a special civil action for certiorari and prohibition before the CA. The latter held that Pecson was entitled to indemnity for the apartment but held that the issue of possession has been rendered moot. Pecson filed a petition for review before the SC, which ordered the remand of the case to the trial court for determination of the fair market value of the apartment. The Supreme Court held further that: (1) Article 448 of the Civil Code is not apposite to the case at bar where the owner of the land is the builder, sower, or planter, who then later lost ownership of the land by sale, but may, however, be applied by analogy; (2) the current market value of the improvements should be made as the basis of reimbursement; (3) Pecson was entitled to retain ownership of the building and necessarily, the income therefrom; (4) the Court of Appeals erred not only in upholding the trial courts determination of the indemnity, but also in ordering Pecson to account for the rentals of the apartment building from June 23, 1993 to September 23, 1993. Pecson filed a motion to restore possession pending determination of the value of the apartment but the same was denied. The parties eventually arrived at a compromise agreement, where the spouses Nuguid would pay Pecson Php400,000.00; of this amount Php300,000.00 was already paid to Pecson when he moved before the RTC that the Spouses should pay him rentals. The trial court eventually ordered the spouses Nuguid to pay Pecson Php1,344,000.00. The amount was based on the trial courts finding that Pecson was entitled to the rentals from the time of his dispossession of the property via writ of possession in November 1993 to the time of full payment in December 1997, a total of 48 months. The rate was computed on the basis that each of the apartment units could be rented at Php7,000.00 per month, multiplied by the number of units, which is four. The Spouses moved for a reconsideration of the said order but the same was denied. Upon appeal to the CA, the CA modified the judgment, reducing the rentals to Php288,000.00. Thus, this appeal.
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ISSUE: Whether Pecson is entitled to the rentals. HELD: YES. It is not disputed that the construction of the four-door two-storey apartment, subject of this dispute, was undertaken at the time when Pecson was still the owner of the lot. When the Nuguids became the uncontested owner of the lot on June 23, 1993 by virtue of entry of judgment of the Courts decision, dated May 25, 1993, in G.R. No. 105360, the apartment building was already in existence and occupied by tenants. In its decision dated May 26, 1995 in G.R. No. 115814, the Court declared the rights and obligations of the litigants in accordance with Articles 448 and 546 of the Civil Code. These provisions of the Code are directly applicable to the instant case: Under Article 448, the landowner is given the option, either to appropriate the improvement as his own upon payment of the proper amount of indemnity or to sell the land to the possessor in good faith. Relatedly, Article 546 provides that a builder in good faith is entitled to full reimbursement for all the necessary and useful expenses incurred; it also gives him right of retention until full reimbursement is made. While the law aims to concentrate in one person the ownership of the land and the improvements thereon in view of the impracticability of creating a state of forced co-ownership, it guards against unjust enrichment insofar as the good-faith builders improvements are concerned. The right of retention is considered as one of the measures devised by the law for the protection of builders in good faith. Its object is to guarantee full and prompt reimbursement as it permits the actual possessor to remain in possession while he has not been reimbursed (by the person who defeated him in the case for possession of the property) for those necessary expenses and useful improvements made by him on the thing possessed. Accordingly, a builder in good faith cannot be compelled to pay rentals during the period of retention nor be disturbed in his possession by ordering him to vacate. In addition, as in this case, the owner of the land is prohibited from offsetting or compensating the necessary and useful expenses with the fruits received by the builder-possessor in good faith. Otherwise, the security provided by law would be impaired. This is so because the right to the expenses and the right to the fruits both pertain to the possessor, making compensation juridically impossible, and one cannot be used to reduce the other. As the Court held earlier, since petitioners opted to appropriate the improvement for themselves as early as June 1993, when they applied for a writ of execution despite knowledge that the auction sale did not include the apartment building, they could not benefit from the lots improvement until they reimbursed the improver in full, based on the current market value of the property. Despite the Courts recognition of Pecsons right of ownership over the apartment building, the petitioners still insisted on dispossessing Pecson by filing for a writ of possession to cover both the lot and the building. Clearly, this resulted in a violation of respondents right of retention. Worse, petitioners took advantage V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 159
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of the situation to benefit from the highly-valued, income-yielding, four-unit apartment building by collecting rentals thereon before they paid for the cost of the apartment building. It was only four years later that they finally paid its full value to the respondent. Petitioners interpretation of our holding in G.R. No. 115814 has neither factual nor legal basis. The decision of May 26, 1995, should be construed in connection with the legal principles which form the basis of the decision, guided by the precept that judgments are to have a reasonable intendment to do justice and avoid wrong. The text of the decision in G.R. No. 115814 expressly exempted Pecson from liability to pay rentals, for the Supreme Court found that the Court of Appeals erred not only in upholding the trial courts determination of the indemnity, but also in ordering him to account for the rentals of the apartment building from June 23, 1993 to September 23, 1993, the period from entry of judgment until Pecsons dispossession. As pointed out by Pecson, the dispositive portion of our decision in G.R. No. 115814 need not specifically include the income derived from the improvement in order to entitle him, as a builder in good faith, to such income. The right of retention, which entitles the builder in good faith to the possession as well as the income derived therefrom, is already provided for under Article 546 of the Civil Code. Given the circumstances of the instant case, where the builder in good faith has been clearly denied his right of retention for almost half a decade, the Court held that the increased award of rentals by the RTC was reasonable and equitable. The petitioners had reaped all the benefits from the improvement introduced by the respondent during said period, without paying any amount to the latter as reimbursement for his construction costs and expenses. They should account and pay for such benefits. Comment: This case was spawned by a tax delinquency sale of a parcel of land back in 1982. Pecson, the owner-delinquent taxpayer tried to annul the tax delinquency sale of the land. Pecson appealed this issue to the Supreme Court but he lost. The RTC of Quezon City dismissed the complaint and ruled the auction sale valid but upheld Pecsons contention that the sale did not include the 4-door apartment building erected thereon. This ruling became the subject matter of another appeal before the Court of Appeals and was the subject of a ponencia by Justice Davide in 1995 (G.R. No. 115814 May 26, 1995), which remanded the case to the trial court for the determination of the current market value of the apartment building on the lot: The value so determined shall be forthwith paid to the petitioner [Pecson]; otherwise, the petitioner shall be restored to the possession of the apartment building until payment of the required indemnity.
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If the Davide ponencia did not use the indemnity provision of Article 448 of the Civil Code by analogy, the case would not have spawned another petition for review on certiorari in 2005. The Court was correct in adverting to the rule that of the one who built, planted or sowed is the owner of the land himself, Article 448 cannot be used. Then it could have determined what should be done about the building without reference to Article 448, because the obligation of paying indemnity is corollary to the option of acquiring the building, planting and sowing. This option carries with it the right of the builder, etc. to the right of retention. This right of retention allows the builder, planter or sower to remain in possession ob both the land and improvement without need of paying any rentals, but with no more right to the fruits, because the builder is no longer in good faith at the time of retention; he was already in bad faith. A retentioner is essentially analogous to the antichretic creditorit is a means for the builder, planter or sower to compel the payment of a debt and to subsequently extinguish the obligation. [Ortiz vs. Kayanan G.R. No. L-32974. July 30, 1979]
D. Expropriation REPUBLIC vs. CA G.R. No. 147245. March 31, 2005 CARPIO, J. Manuel Diaz owned approximately 172 hectares of tenanted agricultural land in Nueva Ecija devoted to the planting of palay. After Manuel Diazs death, his son, Franciso Diaz (respondent), was appointed administrator of the Property. In 1972, the National Irrigation Administration (NIA) bulldozed about ten (10) hectares of the property to build two irrigation canals. Although the canals when finished occupied only a portion of the 10 hectares, the entire area became prone to flooding two months out of every year because of the side-burrow method NIA used in the construction of the canals. NIA completed the canals without instituting expropriation proceedings or indemnifying the propertys owners. Respondent sought compensation from NIA for the land affected by the canals, as well as for losses due to unrealized profits. In 1980, NIA belatedly offered to buy the portions of the property occupied by the canals. Respondent and then NIA Acting Administrator Gamad, Jr. signed three deeds of sale to convey a total of 22,073 square meters of the property to NIA. For reasons that neither party has adequately explained, NIA and respondent did not push through with the sale. On 20 August 1993, respondent, as administrator of the property, filed an action for damages and just compensation against NIA. NIA countered that respondents right to bring the action had prescribed in accordance with RA 3601, V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 161
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as amended by PD 552. NIA also argued that respondents failure to pursue the implementation of the 1980 deeds of sale amounted to laches. The RTC (which was later upheld by the CA) held that the respondent was entitled to compensation in the sum of four million pesos. ISSUE (1): WHETHER NIA was deprived of due process when the trial court determined the compensation due to respondent without the assistance of commissioners HELD: NO. NIA invokes Section 5, Rule 67 of the 1964 Rules of Court: SEC. 5. Ascertainment of compensation. Upon the entry of the order of condemnation, the court shall appoint not more than three (3) competent and disinterested persons as commissioners to ascertain and report to the court the just compensation for the property sought to be taken. The order of appointment shall designate the time and place of the first session of the hearing to be held by the commissioners and specify the time within which their report is to be filed with the court. Rule 67, however, presupposes that NIA exercised its right of eminent domain by filing a complaint for that purpose before the appropriate court. Judicial determination of the propriety of the exercise of the power of eminent domain and the just compensation for the subject property then follows The proceedings give the property owner the chance to object to the taking of his property and to present evidence on its value and on the consequential damage to other parts of his property. Respondent was not given these opportunities, as NIA did not observe the procedure in Rule 67. Worse, NIA refused to pay respondent just compensation. The seizure of ones property without payment, even though intended for public use, is a taking without due process of law and a denial of the equal protection of the laws NIA, not respondent, transgressed the requirements of due process. When a government agency itself violates procedural requirements, it waives the usual procedure prescribed in Rule 67. ISSUE (2): WHETHER the award (of P4M as just compensation) made by the trial court is correct HELD: NO. Just compensation is the fair value of the property as between one who receives, and one who desires to sell, fixed at the time of the actual taking by the government. 162 IBP JOURNAL
This rule holds true when the property is taken before the filing of an expropriation suit, and even if it is the property owner who brings the action for compensation. In affirming the trial courts award, the Court of Appeals cited Garcia vs. Court of Appeals [G.R. No. L-47553 (1981)] which provides an exception to the rule. In Garcia, the Court held that when the government takes property, not for the purpose of eminent domain, and the government does not initiate condemnation proceedings or other attempts to acquire such property, just compensation should be reckoned not at the time of taking but at the time the trial court made its order of expropriation. However, the Garcia ruling does not apply to the present case. The 22,073 square meters of the Property identified in the 1980 deeds of sale are occupied by irrigation canals. There is no dispute that the Canal Sites serve a public purpose because the canals provide much-needed irrigation to farms in the locality. There is also no dispute that when NIA actually took over the Canal Sites, the purpose was to exercise NIAs delegated power of eminent domain. Just compensation for the Canal Sites must thus be computed as of the time of taking. [] The concept of just compensation, however, does not imply fairness to the property owner alone. Compensation must be just not only to the property owner, but also to the public which ultimately bears the cost of expropriation. The property owner is entitled to compensation only for what he actually loses, and what he loses is only the actual value of the property at the time of the taking.
ATO and MCIAA vs GAPUCO G.R. No.158563, 6/30/2005 CHICO-NAZARIO, J. FACTS : In 1947 lots surrounding the Lahug Airport were purchased by the government on the assurance that lot owners could repurchase their properties once the airport was abandoned. Gopuco refused to enter in such an arrangement but was finally forced to convey his property by virtue of a 1961 decision of the CFI, which he did not appeal. In 1987 Lahug airport was ordered closed by then President Aquino as the Mactan International Airport had commenced operations. Thereafter, in 1992 Gopuco filed an amended complaint for the recovery of his property against the Air Transportation Office (ATO) and the Mactan-Cebu International Airport Authority (MCIAA), which held title over the disputed lot. The trial court dismissed the complaint but on appeal the CA ordered the return of the property to Gopuco. The motion for reconsideration was denied.
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Issues/Held: WHETHER cessation of public purpose warrants recovery of property IT DEPENDS The character of the title acquired by the expropriator determines the answer to this question. Where the expropriation is explicitly for a particular purpose and that alone, with the condition that when that purpose is ended or abandoned the property shall return to its former owner, then of course when the purpose is ended or abandoned the former owner reacquires the property so expropriated. If on the contrary the decree of expropriation gives to the entity a fee simple title then the land becomes the absolute property of the expropriator, and in that case non-usage does not have the effect of defeating title acquired through expropriation. WHETHER Gopuco may validly recover his expropriated property NO The SC has already stated that the title of the MCIAA is of a fee simple character in the case of Chiongbian, which involves similar facts. Respondent argues that the Fery case indicated that the expropriation was subject to the abandonment of Lahug airport (as at that time the Mactan International Airport was already in construction) and that the existence of repurchase agreements (by which some landowners had successfully recovered their properties) further bolstered such argument. However, Gopuco failed to adduce evidence showing that he and the expropriator actually entered into any such compromise agreement. Indeed, his similarly unfounded claim that there is an implied contract betrays the fact that there was no express one. In sum, the fact of abandonment or closure of the Lahug Airport as admitted by the petitioners cannot by itself result in the reversion of the subject property back to the Gopuco. Nor did it vest in the latter the right to demand reconveyance of the said property. When real property has been acquired for public use unconditionally, either by eminent domain or by purchase, the abandonment or non-use of the real property does not ipso facto give to the previous owners of said property any right to recover the same.
REPUBLIC vs. LIM G.R. No. 161656, 6/29/2005, SANDOVAL -GUTIERREZ, J. FACTS : In 1938, the petitioner Republic of the Philippines instituted a special civil action for expropriation with the CFI of Cebu and, after depositing Php9,500.00 as ordered by the latter court, took possession of the lots in question. In 1940 the CFI rendered its decision which ordered the Republic to pay the Denzons (the lot owners) 164 IBP JOURNAL
Php4,500.00. The Denzons filed an appeal with the CA but the latter court eventually dismissed it on 1948. Years later however, the compensation remained unpaid so the Denzons successors-in-interest, Valdehueza and Panerio, filed for the recovery of the lots in question. In 1966 the SC ruled that indeed they are still the registered owners of the lots but they can only demand payment of (adjusted) just compensation and not the recovery of the property, pursuant to the prevailing doctrine. It appears that in 1964 Valdehueza and Panerio had mortgaged one of the lots to herein respondent Vicente Lim and for failure to pay the latter had the mortgage foreclosed in 1976. After securing a new TCT in his name, respondent Lim filed a complaint for quieting of title against the Republic in 1992. In 2001, the RTC decided in his favor and declared that Lim was the absolute and exclusive owner of the lot in question (lot 932) and was entitled to its possession. The CA sustained this decision in 2003 and likewise the SC denied the petition for certiorari in its Resolution dated March 1, 2004. Petitioners filed an urgent motion for reconsideration which the SC also denied with finality in its Resolution dated May 17, 2004. Still, the petitioners filed an urgent motion for clarification which is actually a second motion for reconsideration, which is prohibited and therefore was effectively denied with the SC Resolution dated September 6, 2004. ISSUES/HELD: WHETHER title to the lot in question vested with the petitioner Republic NO While the prevailing doctrine is that the non-payment of just compensation does not entitle the private landowner to recover possession of the expropriated lots, in cases where the government failed to pay just compensation within five years from the finality of the judgment in the expropriation proceedings, the owners concerned shall have the right to recover possession of their property. This is in consonance with the principle that the government cannot keep the property and dishonor the judgment and thus will encourage the government to pay just compensation punctually. Just compensation, it should be noted, not only connotes a reasonable amount of payment but also a reasonable time for it. WHETHER respondent Lim has a right of possession over the property - YES A mortgage is merely an accessory contract intended to secure the performance of the principal obligation. It is inseparable from the property and adheres to it no matter who may be the owner. The Republic and its military arm has no better right to it as in fact it has not title over it. Lot 932 is no longer used as an airport and so there is no irreparable damage as claimed by the petitioners if possession is given to Lim.
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D. Co-Ownership BORBAJO vs. HIDDEN VIEW HOMEOWNERS G.R. No. 152440. January 31, 2005 TINGA, J. FACTS : Jose C. Bontuyan, Lucy Solon, Georgina Solon, Helen Solon and Vicente Solon, Jr. were the registered owners of a parcel of agricultural land, covering an area of 13,910 square meters situated at Barangay Bacayan, Cebu City. At the instance of Bontuyan, the property was surveyed on 19 May 1991 to convert it into a subdivision. The corresponding subdivision plan included 3 road lots. Bontuyan, with the consent of the Solons, subsequently sold the lots included in the subdivision plan, including the 3 road lots. The 3 road lots were sold to Felicitacion Borbajo. Bontuyan used the money to develop the property, then named as the Hidden View Subdivision I. Meanwhile, Borbajo also decided to develop into a subdivision the other properties adjacent to Hidden View Subdivision I which she acquired. The residents of Hidden View Subdivision I, however, heard reports to the effect that Borbajo had purchased the entire subdivision from Bontuyan through an oral agreement. They also heard that they have no right to use the road lots, since the lots have already been registered in Borbajos name. As a consequence, the Hidden View Homeowners, Inc. invited Borbajo to a meeting. When confronted by the homeowners about her claim that she had bought the subdivision from Bontuyan, Borbajo confirmed her claim of ownership over the subdivision and the road lots. She also told them that they have no right regarding the road right-of-way. In retaliation, the homeowners caused the construction of a guardhouse at the entrance of Hidden View Subdivision I and hired the services of a security guard to prevent unauthorized persons and construction vehicles from passing through their subdivision. The measures adversely affected the residents of the subdivisions at the back, as well as Borbajo herself since her delivery trucks and heavy equipment used in the construction of her on-going housing projects had been effectively prevented from passing through the road lots. Borbajo brought an action in the RTC for injuction and damages against the Hidden View Homeowners, Inc. and its officers. The RTC ruled in favor of Borbajo and enjoined the respondent homeowners from closing the road lots. The court further ordered Borbajo to donate the said road lots to the City of Cebu. On appeal, the CA reversed the RTCs decision and dismissed the complaint. Thus this appeal by Borbajo. ISSUE: Whether Borbajo is entitled to the use of the lots HELD: Yes. As a registered co-owner of the road lots, Borbajo is entitled to avail of all the attributes of ownership under the Civil Code jus utendi, fruendi, abutendi, 166 IBP JOURNAL
disponendi et vindicandi. Article 428 of the New Civil Code is explicit that the owner has the right to enjoy and dispose of a thing, without other limitations than those established by law. A co-owner, such as Borbajo, is entitled to use the property owned in common under Article 486 of the Civil Code. Therefore, respondents cannot close the road lots to prevent Borbajo from using the same.
RESUENA vs. COURT OF APPEALS G.R. No. 128338. March 28, 2005 FACTS: Private respondent, the late Juanito Borromeo, Sr., is the co-owner and overseer of certain parcels of land located in Pooc, Talisay, Cebu, designated as Lots Nos. 2587 and 2592 of the Talisay-Manglanilla Estate. Respondent owns six-eighths (6/8) of Lot No. 2587 while the late spouses Inocencio Bascon and Basilisa Maneja (Spouses Bascon) own two-eighths (2/8) thereof. On the other hand, Lot No. 2592 is owned in common by respondent and the heirs of one Nicolas Maneja. However, the proportion of their undivided shares was not determined a quo. Prior to the institution of the present action, petitioners Tining Resuena, Alejandra Garay, Lorna Resuena, Eleuterio Resuena, and Unisima Resuena resided in the upper portion of Lot No. 2587, allegedly under the acquiescence of the Spouses Bascon and their heir, Andres Bascon. On the other hand, petitioner Eutiquia Rosario occupied a portion of Lot No. 2592, allegedly with the permission of the heirs of Nicolas Maneja, one of the original co-owners of Lot No. 2587. Respondent claims that all petitioners have occupied portions of the subject property by virtue of his own liberality. Respondent developed portions of Lots Nos. 2587 and 2592 occupied by him into a resort known as the Borromeo Beach Resort. In his desire to expand and extend the facilities of the resort that he established on the subject properties, respondent demanded that petitioners vacate the property. Petitioners, however, refused to vacate their homes. Respondent filed a complaint for ejectment before the MTC. After a summary proceeding, the MTC ruled against respondent and held that respondent did not have a preferential right of possession over the portions occupied by petitioners, since Lots Nos. 2587 and 2592 were not yet partitioned nor the disputed portions assigned to respondent as his determinate share. Thus, the MTC held that respondent had no right to evict petitioners therefrom. Consequently, respondents Complaint was dismissed. On appeal to the RTC, the latter held that under Article 487 of the Civil Code, which allows any one of the co-owners to bring an action in ejectment, may successfully be invoked by the respondent because, in a sense, a co-owner is the owner and possessor of the whole, and that the suit for ejectment is deemed to be instituted for the benefit of all co-owners. The RTC thus reversed the MTC. The CA affirmed the decision of the RTC. V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 167
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ISSUE: Whether or not respondent is entitled to eject petitioners from the property HELD: YES. Article 487 of the Civil Code, which provides simply that [a]ny one of the co-owners may bring an action in ejectment, is a categorical and an unqualified authority in favor of respondent to evict petitioners from the portions of Lot No. 2587. This provision is a departure from Palarca vs. Baguisi, which held that an action for ejectment must be brought by all the co-owners. Thus, a co-owner may bring an action to exercise and protect the rights of all. When the action is brought by one coowner for the benefit of all, a favorable decision will benefit them; but an adverse decision cannot prejudice their rights. Respondents action for ejectment against petitioners is deemed to be instituted for the benefit of all co-owners of the property since petitioners were not able to prove that they are authorized to occupy the same. Petitioners lack of authority to occupy the properties, coupled with respondents right under Article 487, clearly settles respondents prerogative to eject petitioners from Lot No. 2587. Time and again, this Court has ruled that persons who occupy the land of another at the latters tolerance or permission, without any contract between them, are necessarily bound by an implied promise that they will vacate the same upon demand, failing in which a summary action for ejectment is the proper remedy against them. xxx Thus, in order that the petition may acquire any whiff of merit, petitioners are obliged to establish a legal basis for their continued occupancy of the properties. The mere tolerance of one of the co-owners, assuming that there was such, does not suffice to establish such right. Tolerance in itself does not bear any legal fruit, and it can easily be supplanted by a sudden change of heart on the part of the owner. ISSUE: Whether petitioners are entitled to reimbursement for necessary expenses HELD: NO. All six (6) petitioners claim the right to be reimbursed necessary expenses for the cost of constructing their houses in accordance with Article 546 of the Civil Code. It is well-settled that while the Article allows full reimbursement of useful improvements and retention of the premises until reimbursement is made, applies only to a possessor in good faith, i.e., one who builds on land with the belief that he is the owner thereof. Verily, persons whose occupation of a realty is by sheer tolerance of its owners are not possessors in good faith. The lower courts have made a common factual finding that petitioners are occupying portions of Lots No. 2587 and 2592 by mere tolerance. Thus, petitioners 168 IBP JOURNAL
have no right to get reimbursed for the expenses they incurred in erecting their houses thereon.
ACABAL vs. ACABAL G.R. No. 148376. March 31, 2005, CARPIO MORALES, J RULING: While Villaner owns five-ninths (5/9) of the disputed property, he could not claim title to any definite portion of the community property until its actual partition by agreement or judicial decree. Prior to partition, all that he has is an ideal or abstract quota or proportionate share in the property. 85 Villaner, however, as a coowner of the property has the right to sell his undivided share thereof. The Civil Code provides so: ART. 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership. Thus, every co-owner has absolute ownership of his undivided interest in the co-owned property and is free to alienate, assign or mortgage his interest except as to purely personal rights. While a co-owner has the right to freely sell and dispose of his undivided interest, nevertheless, as a co-owner, he cannot alienate the shares of his other co-owners nemo dat qui non habet. Villaner, however, sold the entire property without obtaining the consent of the other co-owners. Following the well-established principle that the binding force of a contract must be recognized as far as it is legally possible to do so quando res non valet ut ago, valeat quantum valere potest the disposition affects only Villaners share pro indiviso, and the transferee gets only what corresponds to his grantors share in the partition of the property owned in common. As early as 1923, the Court has ruled that even if a co-owner sells the whole property as his, the sale will affect only his own share but not those of the other coowners who did not consent to the sale. This is because under the aforementioned codal provision, the sale or other disposition affects only his undivided share and the transferee gets only what would correspond to this grantor in the partition of the thing owned in common. Consequently, by virtue of the sales made by Rosalia and Gaudencio Bailon which are valid with respect to their proportionate shares, and the subsequent transfers which culminated in the sale to private respondent Celestino Afable, the said Afable thereby became a co-owner of the disputed parcel V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 169
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of land as correctly held by the lower court since the sales produced the effect of substituting the buyers in the enjoyment thereof. From the foregoing, it may be deduced that since a co-owner is entitled to sell his undivided share, a sale of the entire property by one co-owner without the consent of the other co-owners is not null and void. However, only the rights of the co-ownerseller are transferred, thereby making the buyer a co-owner of the property. The proper action in cases like this is not for the nullification of the sale or the recovery of possession of the thing owned in common from the third person who substituted the co-owner or co-owners who alienated their shares, but the DIVISION of the common property as if it continued to remain in the possession of the coowners who possessed and administered it. Thus, it is now settled that the appropriate recourse of co-owners in cases where their consent were not secured in a sale of the entire property as well as in a sale merely of the undivided shares of some of the co-owners is an action for PARTITION under Rule 69 of the Revised Rules of Court. Neither recovery of possession nor restitution can be granted since the defendant buyers are legitimate proprietors and possessors in joint ownership of the common property claimed.
CRUZ vs. COURT OF APPEALS G.R. No. 122904. April 15, 2005, TINGA, J FACTS : Petitioners Adoracion, Gerry, Thelma, Gerry and Nerissa, all surnamed Cruz are co-owners of a parcel of land, together with Arnel Cruz. The property was covered by a TCT No. 495225 which was in the name of Arnel Cruz alone. The petitioners and Arnel Cruz executed a deed of partial partition, which distributed to each of the co-owners their share in the property. Arnel Cruz received a portion of the property covered by TCT No. 495225. The petitioners and Arnel Cruz subsequently executed a memorandum of agreement providing that they shall share in the proceeds of the sale of the properties even though the same had been individually titled in their names. Petitioner Thelma Cruz discovered that TCT No. 495225 had been cancelled and that a new TCT has been executed in favor of Summit Realty, private respondent herein. Apparently, Arnel Cruz mortgaged the property covered by TCT No. 495225 to Summit Realty and was unable to pay the loan secured by the mortgage. Summit Realty foreclosed the mortgage. Petitioners filed a complaint before the RTC, alleging that the mortgage was void because the memorandum of agreement that they had executed maintained a state of co-ownership between them. The RTC sustained this position and held that with the execution of the memorandum of agreement, petitioners and Arnel Cruz intended to maintain the co-ownership and that Summit 170 IBP JOURNAL
Realty was negligent in failing to ascertain the title of its mortgagee Arnel Cruz. On appeal, the Court of Appeals held that there was nothing in the memorandum of agreement prohibiting the mortgage of the property , although it provided that the co-owners would share in the proceeds of the sale in case the property is sold. Thus, the CA reversed the RTC. Hence, this appeal by petitioners. ISSUE: Whether the mortgage was valid HELD: YES. Co-ownership is terminated upon judicial or extra-judicial partition of the properties owned in common. Partition, in general, is the separation, division and assignment of a thing held in common among those to whom it may belong. Every act which is intended to put an end to indivision among co-heirs and legatees or devisees is deemed to be a partition, although it should purport to be a sale, an exchange, a compromise, or any other transaction. From a reading of the Deed of Partial Partition, no other meaning can be gathered other than that petitioners and Arnel Cruz had put an end to the co-ownership. Since a partition legally made confers upon each heir the exclusive ownership of the property adjudicated to him, it follows that Arnel Cruz acquired absolute ownership over the specific parcels of land assigned to him in the Deed of Partial Partition, including the property subject of this case. As the absolute owner thereof then, Arnel Cruz had the right to enjoy and dispose of the property, as well as the right to constitute a real estate mortgage over the same without securing the consent of petitioners. There is absolutely nothing in the Memorandum of Agreement which diminishes the right of Arnel Cruz to alienate or encumber the properties allotted to him in the deed of partition. The following provisions of the agreement, which recognize the effects of partition, negate petitioners claim that their consent is required to make the mortgage in favor of respondent Summit valid. Among the provisions are: That despite the execution of this Deed of Partial Partition and the eventual disposal or sale of their respective shares, the contracting parties herein covenanted and agreed among themselves and by these presents do hereby bind themselves to one another that they shall share alike and receive equal shares from the proceeds of the sale of any lot or lots allotted to and adjudicated in their individual names by virtue of this deed of partial partition The agreement does not direct reconveyance of the properties to reinstate the common ownership of the parties. To insist that the parties also intended to reestablish co-ownership after the properties had been partitioned is to read beyond the clear import of the agreement and to render nugatory the effects of partition, which is not the obvious or implied intent of the parties.
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VDA. DE APE vs. CA [G.R. No. 133638, April 15, 2005, CHICO-NAZARIO, J.] FACTS : Cleofas Ape was the registered owner of a parcel of land (Lot No. 2319 ) in Negros Occidental. When he died, the property passed on to his wife and eleven (11) children, one of whom is Fortunato Ape (deceased). Respondent Lumayno, in a complaint for specific performance for execution of a deed of sale, alleges that Fortunato entered into a contract of sale of his share in the said lot, evidenced by a receipt. Lumayno also avers that the Fortunatos co-heirs have been previously sold their shares in the lot to her. Petitioner Vda. de Ape, wife of the deceased Fortunato, on the other hand, contends that Fortunato never sold his 1/11 share to the respondent, that his signature in the receipt was forged, and that she had the right of redemption over the shares previously sold to respondent because the co-owners have not formally subdivided the property. The petitioner also claims she was not furnished of any written notice of the said sales by the co-heirs. ISSUE: Whether or not the petitioner may exercise right of redemption HELD: NO. Article 1623 of the Civil Code provides: 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. In this case, the records are bereft of any indication that Fortunato was given any written notice of prospective or consummated sale of the portions of Lot No. 2319 by the vendors or would-be vendors. The thirty (30)-day redemption period under the law, therefore, has not commenced to run. Despite this, however, the Court still ruled that petitioner could no longer invoke her right to redeem from private respondent for the exercise of this right presupposes the existence of a co-ownership at the time the conveyance is made by a co-owner and when it is demanded by the other co-owner or co-owners. The regime of co-ownership exists when ownership of an undivided thing or right belongs to different persons. By the nature of a co-ownership, a co-owner cannot point to specific portion of the property owned in common as his own because his share therein remains intangible. As legal redemption is intended to minimize co-ownership, once the property is subdivided 172 IBP JOURNAL
and distributed among the co-owners, the community ceases to exist and there is no more reason to sustain any right of legal redemption. In this case, records reveal that although Lot No. 2319 had not yet been formally subdivided, still, the particular portions belonging to the heirs of Cleofas Ape had already been ascertained and they in fact took possession of their respective parts. This can be deduced from the testimony of petitioner herself. Similarly telling of the partition is the stipulation of the parties during the pretrial wherein it was admitted that Lot No. 2319 had not been subdivided. Yet despite this, Fortunato Ape had possessed a specific portion of the land ostensibly corresponding to his share. From the foregoing, it is evident that the partition of Lot No. 2319 had already been effected by the heirs of Cleopas Ape. Although the partition might have been informal, it is of no moment for even an oral agreement of partition is valid and binding upon the parties. Likewise, the fact that the respective shares of Cleopas Apes heirs are still embraced in one and the same certificate of title and have not been technically apportioned does not make said portions less determinable and identifiable from one another nor does it, in any way, diminish the dominion of their respective owners.
HEIRS OF FLORES RESTAR vs. HEIRS OF DOLORES CICHON G.R. No. 161720, November 22, 2005, CARPIO-MORALES, J. In 1935, Emilio Restar died intestate, leaving eight (8) children. In 1960, Restars eldest child, Flores caused the cancellation of Tax Declaration No. 6696 in Restars name covering a parcel of land in Aklan (the lot), which was among the properties left by Restar, and the issuance of Tax Declaration No. 11134 in his name. In 1998, the co-heirs of Flores discovered the cancellation of Restars Tax Declaration. In 1999, herein respondents (the heirs of Flores sisters together with Flores surviving sisters) filed a complaint against heirs of Flores (Flores died in 1989) for partition of the lot and declaration of nullity of the documents before the RTC of Aklan. After trial, the RTC ruled that Flores share in Restars estate was not the lot. Nevertheless, the RTC, holding that Flores and his heirs had performed acts sufficient to constitute repudiation of the co-ownership, concluded that they had acquired the lot by prescription. The complaint for partition was thus dismissed. The CA, on appeal, reversed the decision of the trial court, finding that the Heirs of Flores, herein petitioners, failed to prove that their possession of the lot excluded their co-owners or that they derived title to it from a separate conveyance to them by Restar. The CA further found that there was no adequate notice by V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 173
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Flores to his other co-heirs/co-owners of the repudiation of the co-ownership and neither was there a categorical assertion by the petitioners of their exclusive right to the entire lot that barred the respondents claim of ownership. ISSUE: WHETHER the petitioners (as Heirs of Flores) acquired ownership over the lot by extraordinary acquisitive prescription HELD: YES. While the action to demand partition of a co-owned property does not prescribe, a co-owner may acquire ownership thereof by prescription, where there exists a clear repudiation of the co-ownership, and the co-owners are apprised of the claim of adverse and exclusive ownership. In the case at bar, the records amply support petitioners claim that the requirements for extraordinary prescription have been duly met. When Restar died in 1935, his eight children became pro indiviso co-owners of the lot by intestate succession. However, respondents never possessed the lot, much less asserted their claim thereto until 1999 when they filed the complaint for partition subject of the present petition. In contrast, Flores took possession of the lot after Restars death and exercised acts of dominion thereon tilling and cultivating the land, introducing improvements, and enjoying the produce thereof. The statutory period of prescription, however, commenced not in 1935 but in 1960 when Flores, who had neither title nor good faith, secured a tax declaration in his name and may, therefore, be said to have adversely claimed ownership of the lot. On said date, respondents were also deemed to have become aware of the adverse claim. Flores possession thus ripened into ownership through acquisitive prescription after the lapse of thirty years in accordance with the earlier quoted Article 1137 of the New Civil Code.
II. EASEMENTS SPS. DE LA CRUZ vs. RAMISCAL G.R. No. 137882. February 4, 2005 FACTS : Respondent Ramiscal is the registered owner of a parcel of land located at the corner of 18th Avenue and Boni Serrano Avenue, Murphy, Quezon City. Petitioners Spouses de la Cruz are occupants of a parcel of land, with an area of eighty-five (85) square meters, located at the back of Ramiscals property. The subject matter of this case is a 1.10-meter wide by 12.60-meter long strip of land owned by respondent which is being used by petitioners as their pathway to and from 18th Avenue, the 174 IBP JOURNAL
nearest public highway from their property. Petitioners had enclosed the same with a gate, fence, and roof. Respondent demanded that petitioners demolish the same. The latter refused such that a case was filed with the RTC seeking the demolition of the said structure. Respondent Ramiscal asserted in her petition before the RTC that an existing right of way existed for the Spouses De la Cruz, adducing in evidence a subdivision plan issued in favor of Concepcion de la Cruz, mother of Alfredo de la Cruz, petitioner in this case. Ramiscal further adduced evidence that the isolation of de la Cruzs property was due to their own acts which consisted of constructing portions of their house on the easement and allowing a lessee to occupy another portion. Petitioner Spouses de la Cruz, for their part, asserted that when respondent Ramiscal initiated the construction of a motor shop on her lot in 1976, Ramiscal herself offered them the easement towards 18th Avenue in lieu of an easement towards Boni, through her foreman, a certain Mang Puling. They allegedly accepted the offer. The RTC ruled in favor of respondent. Petitioner Spouses failed to file their brief on time with the Court of Appeals and the latter dismissed their appeal. Thus this petition before the Supreme Court.
ISSUE: WHETHER respondent voluntarily accord the petitioners a right of way HELD: NO. An easement or servitude is a real right, constituted on the corporeal immovable property of another, by virtue of which the owner has to refrain from doing, or must allow someone to do, something on his property, for the benefit of another thing or person. The statutory basis for this right is Article 613, in connection with Article 619, of the Civil Code, which states: Art. 613. An easement or servitude is an encumbrance imposed upon an immovable for the benefit of another immovable belonging to a different owner. The immovable in favor of which the easement is established is called the dominant estate; that which is subject thereto, the servient estate. Art. 619. Easements are established either by law or by the will of the owners. The former are called legal and the latter voluntary easements. Petitioners herein (failed to show by competent evidence) that they and their tenants, spouses Manuel and Cecilia Bondoc and Carmelino Masangkay, entered into an agreement with respondent, through her foreman, Mang Puling, to use the pathway to 18th Avenue, which would be reciprocated with an equivalent 1.50-meter wide easement by the owner of another adjacent estate. A bare claim made without evidence is insufficient. V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 175
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x x x Likewise futile are petitioners attempts to show that they are legally entitled to the aforesaid pathway under Article 649 of the Civil Code, to wit: Art. 649. The owner, or any person who by virtue of a real right may cultivate or use any immovable, which is surrounded by other immovables pertaining to other persons, and without adequate outlet to a public highway, is entitled to demand a right of way through the neighboring estates, after payment of the proper indemnity. The conferment of a legal easement of right of way under Article 649 is subject to proof of the following requisites: (1) it is surrounded by other immovables and has no adequate outlet to a public highway; (2) payment of proper indemnity; (3) the isolation is not the result of its own acts; (4) the right of way claimed is at the point least prejudicial to the servient estate; and (5) to the extent consistent with the foregoing rule, where the distance from the dominant estate to a public highway may be the shortest. The first three requisites present in the instant case. The trial court found from the records that Concepcion de la Pea had provided petitioners with an adequate ingress and egress towards Boni Serrano Avenue. The trial court, gave weight to TCT No. RT-56958 (100547) covering the property denominated as Lot 1-B in the name of Concepcion de la Pea, mother of petitioner herein Alfredo de la Cruz. Said TCT indicates that a portion of Lot 1-B, consisting of 85 square meters and denominated as Lot 1-B-2, is the one being occupied by petitioners. In this connection, a copy of the plan of a subdivision survey for Concepcion de la Pea and Felicidad Manalo prepared in 1965 and subdivision plan for Concepcion de la Pea prepared in 1990 revealed an existing 1.50-meter wide alley, identified as Lot 1-B-1, on the lot of Concepcion de la Pea, which serves as passageway from the lot being occupied by petitioners (Lot 1-B-2) to Boni Serrano Avenue. In the trial courts rationale: . . . Article 649 of the Civil Code provides that the easement of right of way is not compulsory if the isolation of the immovable is due to the proprietors own acts. To allow defendants access to plaintiffs property towards 18th Avenue simply because it is a shorter route to a public highway, despite the fact that a road right of way, which is even wider, although longer, was in fact provided for them by Concepcion de la Pea towards Boni Serrano Avenue would ignore what jurisprudence has consistently maintained through the years regarding an easement of right of way, that mere convenience for the dominant estate is not enough to serve as its basis. To justify the imposition of this servitude, there must be a real, not a fictitious or artificial necessity for it. . . . In Francisco vs. 176 IBP JOURNAL
Intermediate Appellate Court, 177 SCRA 527, it was likewise held that a person who had been granted an access to the public highway through an adjacent estate cannot claim a similar easement in an alternative location if such existing easement was rendered unusable by the owners own act of isolating his property from a public highway, such as what Concepcion de la Pea allegedly did to her property by constructing houses on the 1.50 meter wide alley leading to Boni Serrano Avenue. And, if it were true that defendants had already bought Lot 1-B-2, the portion occupied by them, from Concepcion de la Pea, then the latter is obliged to grant defendants a right of way without indemnity. The Court hastened to add that under the above-quoted Article 649 of the Civil Code, it is the owner, or any person who by virtue of a real right may cultivate or use any immovable surrounded by other immovable pertaining to other persons, who is entitled to demand a right of way through the neighboring estates. In this case, petitioners fell short of proving that they are the owners of the supposed dominant estate. Petitioners have not proven such inasmuch as the TCT to the land is still under the name of Concepcion de la Pena.
III. USUFRUCT NATIONAL HOUSING AUTHORITY vs. COURT OF APPEALS, BULACAN GARDEN CORPORATION and MANILA SEEDLING BANK FOUNDATION, INC. G.R. No. 148830. April 13, 2005, CARPIO, J. FACTS : On 24 October 1968, Proclamation No. 481 issued by then President Ferdinand Marcos set aside a 120-hectare portion of land in Quezon City owned by the NHA 4 as reserved property for the site of the National Government Center (NGC). On 19 September 1977, President Marcos issued Proclamation No. 1670 which removed a seven-hectare portion from the coverage of the NGC. Proclamation No. 1670 gave MSBF (Manila Seedling Bank Foundation) usufructuary rights over this segregated portion. The same proclamation left the determination of the 7-hectare area to a future survey. MSBF occupied the area but its occupancy eventually exceeded the 7 hectares allocated to it. MSBF leased a portion of the area to BGC (Bulacan Garden Foundation). On 11 November 1987, President Corazon Aquino issued Memorandum Order No. 127 (MO 127) which revoked the reserved status of the 50 hectares, more or less, remaining out of the 120 hectares of the NHA property reserved as site of the National Government Center. MO 127 also authorized the NHA to commercialize V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 177
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the area and to sell it to the public. On 15 August 1988, acting on the power granted under MO 127, the NHA gave BGC ten days to vacate its occupied area. Any structure left behind after the expiration of the ten-day period would be demolished by NHA. BGC filed a complaint for injunction before the trial court, asserting that Proclamation No. 1670 gave MSBF the right to conduct the survey, which would establish that the seven-hectare area was covered by MSBFs usufructuary rights. However, the trial court held that MSBF failed to act seasonably on this right to conduct the survey. The trial court ruled that the previous surveys conducted by MSBF covered 16 hectares, and were thus inappropriate to determine the sevenhectare area. The trial court concluded that to allow MSBF to determine the sevenhectare area now would be grossly unfair to the grantor of the usufruct.. The complaint was dismissed. As a result, the NHA demolished BGCs structures in the area. BGC appealed to the CA which reversed the ruling of the trial court and held that MSBF had conducted two surveys and that BGCs structures were located in the allocated 7 hectares. Thus this appeal by NHA. ISSUE: Whether BGCs structures are within the 7 hectare usufruct area HELD: The Court remanded the petition to the trial court for a joint survey to determine finally the metes and bounds of the seven-hectare area subject to MSBFs usufructuary rights. x x x A usufruct may be constituted for a specified term and under such conditions as the parties may deem convenient subject to the legal provisions on usufruct. A usufructuary may lease the object held in usufruct. Thus, the NHA may not evict BGC if the 4,590 square meter portion MSBF leased to BGC is within the sevenhectare area held in usufruct by MSBF. The owner of the property must respect the lease entered into by the usufructuary so long as the usufruct exists. However, the NHA has the right to evict BGC if BGC occupied a portion outside of the sevenhectare area covered by MSBFs usufructuary rights x x x Article 565 of the Civil Code states: ART. 565. The rights and obligations of the usufructuary shall be those provided in the title constituting the usufruct; in default of such title, or in case it is deficient, the provisions contained in the two following Chapters shall be observed.
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In the present case, Proclamation No. 1670 is the title constituting the usufruct. Proclamation No. 1670 categorically states that the seven-hectare area shall be determined by future survey under the administration of the Foundation subject to private rights if there be any. The appellate court and the trial court agree that MSBF has the latitude to determine the location of its seven-hectare usufruct portion within the 16-hectare area. The appellate court and the trial court disagree, however, whether MSBF seasonably exercised this right. It is clear that MSBF conducted at least two surveys. Although both surveys covered a total of 16 hectares, the second survey specifically indicated a seven-hectare area shaded in yellow. MSBF made the first survey in 1984 and the second in 1986, way before the present controversy started. MSBF conducted the two surveys before the lease to BGC. The trial court ruled that MSBF did not act seasonably in exercising its right to conduct the survey. Confronted with evidence that MSBF did in fact conduct two surveys, the trial court dismissed the two surveys as self-serving. This is clearly an error on the part of the trial court. Proclamation No. 1670 authorized MSBF to determine the location of the seven-hectare area. This authority, coupled with the fact that Proclamation No. 1670 did not state the location of the sevenhectare area, leaves no room for doubt that Proclamation No. 1670 left it to MSBF to choose the location of the seven-hectare area under its usufruct. x x x To prefer the NHAs survey to MSBFs survey will strip MSBF of most of its main facilities. Only the main building of MSBF will remain with MSBF since the main building is near the corner of EDSA and Quezon Avenue. The rest of MSBFs main facilities will be outside the seven-hectare area. On the other hand, this Court cannot countenance MSBFs act of exceeding the seven-hectare portion granted to it by Proclamation No. 1670. A usufruct is not simply about rights and privileges. A usufructuary has the duty to protect the owners interests. One such duty is found in Article 601 of the Civil Code which states: ART. 601. The usufructuary shall be obliged to notify the owner of any act of a third person, of which he may have knowledge, that may be prejudicial to the rights of ownership, and he shall be liable should he not do so, for damages, as if they had been caused through his own fault. A usufruct gives a right to enjoy the property of another with the obligation of preserving its form and substance, unless the title constituting it or the law otherwise provides. This controversy would not have arisen had MSBF respected the limit of the beneficial use given to it. MSBFs encroachment of its benefactors property gave birth to the confusion that attended this case. To put this matter entirely to rest, it is not enough to remind the NHA to respect MSBFs choice of the location of its seven-hectare area. MSBF, for its part, must vacate the area that is not part of its usufruct. MSBFs rights begin and end within the seven-hectare portion of its usufruct. V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 179
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This Court agrees with the trial court that MSBF has abused the privilege given it under Proclamation No. 1670. The direct corollary of enforcing MSBFs rights within the seven-hectare area is the negation of any of MSBFs acts beyond it. The seven-hectare portion of MSBF is no longer easily determinable considering the varied structures erected within and surrounding the area. Both parties advance different reasons why their own surveys should be preferred. At this point, the determination of the seven-hectare portion cannot be made to rely on a choice between the NHAs and MSBFs survey. There is a need for a new survey, one conducted jointly by the NHA and MSBF, to remove all doubts on the exact location of the seven-hectare area and thus avoid future controversies. This new survey should consider existing structures of MSBF. It should as much as possible include all of the facilities of MSBF within the seven-hectare portion without sacrificing contiguity. A final point. Article 605 of the Civil Code states: ART. 605. Usufruct cannot be constituted in favor of a town, corporation, or association for more than fifty years. If it has been constituted, and before the expiration of such period the town is abandoned, or the corporation or association is dissolved, the usufruct shall be extinguished by reason thereof. The law clearly limits any usufruct constituted in favor of a corporation or association to 50 years. A usufruct is meant only as a lifetime grant. Unlike a natural person, a corporation or associations lifetime may be extended indefinitely. The usufruct would then be perpetual. This is especially invidious in cases where the usufruct given to a corporation or association covers public land. Proclamation No. 1670 was issued 19 September 1977, or 28 years ago. Hence, under Article 605, the usufruct in favor of MSBF has 22 years left.
IV. DONATION CJ YULO AND SONS vs. ROMAN CATHOLIC BISHOP OF SAN PABLO G.R. No. 133705. March 31, 2005 GARCIA, J. FACTS : Petitioner CJ Yulo and Sons, Inc. donated to respondent Roman Catholic Bishop of San Pablo on September 24, 1977 a parcel of land with a total area of 41, 117 square meters. Among the conditions stipulated in the deed of donation was that the respondent would construct on the said land a home for the aged and the infirm. The deed further stipulated that any other use or conveyance of the property may only be done with the consent of the donor. 180 IBP JOURNAL
Sometime in 1980, the respondent entered into a lease contract with one Martin Gomez, for which the latter was to plant the land with sugar cane. The funds generated from such lease were to be used to construct a fence on the said land. In 1986, after the termination of the lease with Gomez, the respondent again entered into a lease agreement with Jose Bostre, who used the land as a ranch. At this stage, a building, named Casa de la Merced was already erected and the proceeds of the lease with Bostre were used for the electrification of the building. After the termination of this lease, respondent entered into a third lease with one Rudy Caballes, who used the land for fattening cattle. The proceeds of this lease, according to respondent, were to be used to complete the building Casa de la Merced. In all three leases, respondent did not notify nor obtain the consent of the donor. In 1990, the donor CJ Yulo and Sons Inc., with the concurrence of its board, wrote a letter to respondent asking for the revocation of the donation and the turnover of the donated property. The respondent denied any material breach of the conditions of the donation, manifested its compliance with the conditions and refused the turn-over of the property. The donor filed a complaint before the RTC of Calamba, Laguna for revocation of the donation on account of non-comliance with the donations condition that a home for aged and infirm would be constructed on the property. The complaint further alleged that the consent of the donor was not obtained for the use of the property. The RTC decided in favor of the donor and ordered the revocation of the donation and the return of the TCT in the donors name. On appeal, however, the CA reversed the decision of the RTC and held that the donation was onerous and was governed by the law on contracts. It held that the acts of the donee were merely casual breaches which did not detract from the purpose for which the donation was made. ISSUE: Whether or not the donation should be revoked HELD: NO. Petitioner contends that the case at bar is similar to the 1995 case of Central Philippine University vs. Court of Appeals, where the donee failed for more than 50 years to establish, as required, a medical school on the land donated, and where this Court declared the donation to have been validly revoked. To the mind of the Court, what is applicable to this case is the more recent [2001] case of Republic vs. Silim, where respondent Silim donated a 5,600-square meter parcel of land in favor of the Bureau of Public Schools, Municipality of Malangas, Zamboanga del Sur with the condition that the said property should be used exclusively and forever for school purposes only. Although a school building was constructed on the property through the efforts of the Parent-Teachers Association of Barangay Kauswagan, the funds for a Bagong Lipunan school building could not be released because the government required that it be built on a one-hectare parcel V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 181
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of land. This led the donee therein to exchange the donated property for a bigger one. In Silim, the Court distinguished the four (4) types of donations: Donations, according to its purpose or cause, may be categorized as: (1) pure or simple; (2) remuneratory or compensatory; (3) conditional or modal; and (4) onerous. A pure or simple donation is one where the underlying cause is plain gratuity. This is donation in its truest form. On the other hand, a remuneratory or compensatory donation is one made for the purpose of rewarding the donee for past services, which services do not amount to a demandable debt. A conditional or modal donation is one where the donation is made in consideration of future services or where the donor imposes certain conditions, limitations or charges upon the donee, the value of which is inferior than that of the donation given. Finally, an onerous donation is that which imposes upon the donee a reciprocal obligation or, to be more precise, this is the kind of donation made for a valuable consideration, the cost of which is equal to or more than the thing donated. Of all the foregoing classifications, donations of the onerous type are the most distinct. This is because, unlike the other forms of donation, the validity of and the rights and obligations of the parties involved in an onerous donation is completely governed not by the law on donations but by the law on contracts. In this regard, Article 733 of the New Civil Code provides: ARTICLE 733 Donations with onerous cause shall be governed by the rules on contracts, and remuneratory donations by the provisions of the present Title as regards that portion which exceeds the value of the burden imposed. The donation involved in the present controversy is one which is onerous since there is a burden imposed upon the donee to build a school on the donated property. Here, the Court of Appeals correctly applied the law on contracts instead of the law on donations because the donation involved in this case is onerous, saddled as it is by a burden imposed upon the donee to put up and operate a home for the aged and the infirm.
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BAUTISTA et al. vs. POBLETE G.R. No. 141007, 09/13/2005 CORONA, J. FACTS : This petition was made to assail a decision of the CA which allowed the registration of a parcel of land, lot 1243. The registration of the said parcel of land was initially denied by the trial court as the applicants failed to produce the deed of donation, as the latter was lost in a fire which consumed the applicants house. However, on appeal the CA allowed the registration. The petitioners appear to be engaged in a fishing expedition. On one hand they claim that the original owner of the property, their father, Marcelo Sr., had a practice of giving land to all of his children from each of his 3 wives, but they fail to produce proof that lot 1243 was given to them. On the other hand, they allege coownership by pointing to the fact that theyve received shares of the harvest from lot 1243. Private respondent, on the other hand, was consistent in her assertion that she had possessed the land and exercised dominion over it since it was donated to her in 1934. ISSUE: Whether the respondent acquired the land through prescription HELD: YES. The fact that petitioner Dominador Sino allegedly received share of the harvest twice does not disprove that the entire harvest belongs to Socorro. At most, these two occasions only proved Socorros generosity to him, considering that he was an illegitimate child and received almost nothing by way of inheritance. Marcelo Sr., died in 1932 under the regime of the old Civil Code which granted no successional rights to illegitimate children. Corollarily, the inheritance rights established by the new Civil Code in favor of illegitimate children could be claimed only by those whose parents died after the effectivity of the law on August 30, 1950. Thus, petitioners Jose, Leonila and Dominador never really had any cause of action against private respondents. Quite telling too was the admission of Felino Quiambao, petitioners attorneyin-fact, that neither he nor any of the petitioners (except Jose Sino) had ever been to the disputed land despite the fact that they lived only 150 meters away from the residence of Socorro in Carmona, Cavite. Another telling fact it that they never filed any answer or objection to the claim of Socorro in the cadastral proceedings over Lot 1243. There is a close parallelism between this case and Pensader vs. Pensader wherein the Court held that: It was not shown that such possession was in common with the plaintiffs. As above stated, the origin of said possession is adverse to such community, namely, the donation, which although it is not established by V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 183
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a sufficient documentary evidence, stands in this case as a circumstance explaining the exclusive character of the possession of Maria Revelar and Alejandra Pensader and that of their common successor in interest Silverio P. Revelar. The ruling was reiterated in Espique vs. Espique where the Court made the following pronouncement: There is no question that the donation in question is invalid because it involves an immovable property and the donation was not made in a public document as required by Article 633 of the old Civil Code, in connection with Article 1328 of the same Code (concerning gifts propter nuptias), but it does not follow that said donation may not serve as basis of acquisitive prescription when on the strength thereof the donee has taken possession of the property adversely and in the concept of owner. The appellate court, upon meticulous review of the records, found that private respondents possession of Lot 1243 since 1934 was adverse, continuous, open, public, peaceful and uninterrupted, and in the concept of an owner. This case was filed only in 1991. All this time, Socorro was exercising acts of dominion over the land such as enjoying its fruits to the exclusion of all others, having the land cadastrally surveyed in her name and faithfully paying realty taxes on Lot 1243 in her name. Assuming but not conceding that there existed an implied trust between the parties, Socorros aforementioned acts of dominion clearly repudiated such trust. It is the essence of the statute of limitations that, whether the party had the right to the possession or not, if he entered under the claim of such right and remained in possession for the period required for acquisitive prescription, the right of action of a party claiming title is barred by that adverse possession. The right given by the statute of limitations does not depend on and has no necessary connection to the validity of the claim under which the possession is held. The donation of Lot 1243 to Socorro was made in 1932. She took possession of the land immediately thereafter. Under the Code of Civil Procedure which was then in force, ten years of adverse possession by the person claiming to be the owner, in whatever way such occupancy may have commenced, shall vest in the actual possessor of the land a full and complete title.
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V. LEASE DULA vs. MARAVILLA G.R. No. 134267. May 9, 2005, GARCIA, J. FACTS : In 1993, herein respondents purchased a 5-door apartment building in Makati, Unit A of which is occupied by herein petitioner since 1968 at a monthly rental of Php2,112.00 under an oral month-to-month contract of lease with the former owner. In January 1994, respondents addressed a notice to petitioner formally informing the latter of the termination of his lease and giving him three (3) months within which to vacate. Petitioner refused. Hence, respondents filed a complaint for ejectment against petitioner with the Metropolitan Trial Court (MeTC) of Makati. Two (2) grounds are relied upon by the respondents in seeking petitioners ejectment from the premises in question, namely: (a) respondents need of the leased premises for their own personal use; and (b) expiration of the lease contract with the termination of the month-to-month lease effective January 31, 1994. These grounds for judicial ejectment are expressly provided for in B.P. Blg. 877, entitled An Act Providing for the Stabilization and Regulation of Rentals of Certain Residential Units and for other Purposes. ISSUE (1): Determination of the period of lease HELD: Applying Art. 1687, the period of lease is to be considered from month-tomonth. It is acknowledged that there was neither any written nor verbal agreement as to a fixed period of lease between the respondents and the petitioner. There was, however, a verbal agreement for the payment of rental at Php2,112.00 on a monthly basis. By express provision of Article 1687 of the Civil Code, the term of the lease in the case at bar is from month-to-month. Admittedly, there was a written notice served by the respondents on January 10, 1994 upon petitioner for the termination of the lease effective January 31, 1994. Citing this Courts ruling in De Vera vs. Court of Appeals [260 SCRA 396 (1996)], the CA held that the period of lease thereby expired by the end of the month of January, 1994. Petitioner, however, contends otherwise. He argues that the operation of Article 1687 was suspended with the suspension of Article 1673 by Section 6 of B.P. Blg. 877, which states: Section 6. Application of the Civil Code and Rules of Court of the Philippines. Except when the lease is for a definite period, the provisions of paragraph (1) of Article 1673 of the Civil Code of the Philippines, insofar as they refer to residential units covered by this Act, shall be suspended during the effectivity of this Act, but other provisions of the Civil Code and the V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 185
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Rules of Court on lease contracts, insofar as they are not in conflict with the provisions of this Act shall apply. The Court disagrees. In the case of De Vera vs. Court of Appeals (supra) and Rivera vs. Florendo [227 SCRA 258 (1986)], the Court held that Art. 1687 of the Civil Code, which provides: Art. 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the Courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the Courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month. has not been affected by the suspension in 6 of B.P. Blg. 877, and that was been suspended is Art. 1673 of the Civil Code. The effect of said suspension is that independently of the grounds for ejectment enumerated in B.P. Blg. 25, the owner/lessor cannot eject the tenant by reason of the expiration of the period of lease as fixed or determined under Article 1687. It does not mean that the provisions of Article 1687 itself had been suspended. Thus, the determination of the period of a lease agreement can still be made in accordance with said Article 1687. Similar to the case at bar, in Rivera, there was admittedly no definite period of lease agreed upon by the parties. However, it was established that the rent was paid on a monthly basis. The Courts conclusion in Rivera that the period of lease is considered to be from month to month in accordance with Article 1687 is, therefore, applicable to the present case as well. When the respondent spouses gave petitioner notice on January 10, 1994 of their personal need to use the property, demanding that petitioner vacate the same, the contract of lease is deemed to have expired as of the end of that month or on January 31, 1994 as indicated in the said notice to vacate.
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ISSUE (2): WHETHER the lease contract has expired HELD: YES. Recapitulating, the Court stresses that Article 1687 of the Civil Code has not been suspended by Section 6 of Blg. 877, such that the period of the lease contract may be made deemed to expire in accordance with Article 1687. Accordingly, a lease agreement though not having a fixed period, but rentals are paid monthly, is deemed to be from month to month, thereby considered to be for a definite period, nonetheless. Such a lease contract expires after the last day of any given 30-day period repeating the same cycle of the 30-day period until either party expresses his intention to terminate the month-to-month lease agreement.
LIMITLESS POTENTIALS, INC. vs. QUILALA G.R. No. 157391, 07/15/2005 CALLEJO Sr., J. FACTS : Limitless Potentials, Inc. (LPI) leased certain areas of the property of the Roman Catholic Archbishop of Manila (RCAM) for the purpose of setting up billboards. Later on LPI granted a sublease on some of the areas to another firm, ASTRO, which put up its own billboards. When the sublease expired, however, the areas were leased by RCAM to another firm, MCIC. LPI demanded that it be given possession over the subject areas but it was ignored. RCAM alleged that not only did LPI fail to pay rentals for the areas it occupied but it also failed to remit the payments of ASTRO, and as such RCAM sought to rescind the lease contract. LPI contested RCAMs allegations and in order to protect its interests filed a complaint against RCAM for consignation of Php300,000.00 as rentals with a plea for a writ of preliminary injunction and temporary restraining order. Although the RTC issued an order enjoining RCAM to maintain the status quo, and thus allowing LPI to use the advertising spaces, it eventually dismissed the case. Meanwhile, RCAM filed a complaint for unlawful detainer against LPI with the MTC. In its decision, the MTC declared that LPI had lawful possession but found that it had deficiencies in payments. LPI appealed the decision to the RTC, which affirmed it with modification in that LPI was found to have overpaid RCAM. LPI filed a motion for partial reconsideration and thus the RTC issued an amended decision which ordered RCAM to return the amount overpaid by LPI as well as to restore possession of the leased property to the latter. Thereafter, LPI filed a motion to execute the amended judgment but such was denied. LPI filed a motion for reconsideration but it too was denied. Thus LPI filed this petition for certiorari and mandamus. V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 187
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ISSUES/HELD: WHETHER the amended decision may be validly executed by LPI pending appeal - NO The execution of the judgment pending appeal is proper only if the judgment is in favor of the plaintiff and against the defendant, and not vice versa. This is in accordance with Section 19, Rule 70 of the Rules of Court. What LPI should have done when RCAM dismantle its billboards on October 5, 1996 while the ejectment case was still pending in the MTC was to file a motion with the said court to compel RCAM to restore the possession of the property to it pending the resolution of the ejectment case. However, LPI failed to do so. WHETHER LPI has a right to the possession of the property - YES As lessor, RCAM was obliged to maintain LPIs peaceful and adequate possession and enjoyment of the lease for the entire duration of the contract. Indeed, it is the duty of the lessor to place the lessee in the legal possession of the premises and to maintain the peaceful possession thereof during the entire term of the lease. The lessee has the right to be respected in his possession and should he be disturbed therein, he shall be restored to said possession by the means established by the law or by the Rules of Court. Every possessor, under the law, includes all kinds of possession, including that of a mere holder. Possession is not protection against a right but against the exercise of a right by ones own authority. If the owner/lessor forcibly dispossesses a lessee, the lessor would be acting illegally, and the lessee shall be entitled to be restored to his possession via an action for forcible entry with a plea for a writ of preliminary mandatory injunction within five (5) days from the filing of the complaint to restore him to his possession, by an accion publiciana or by an action to compel the lessor to comply with his obligation under the contract of lease. WHETHER LPI may possess the property for the unused period of the lease - YES The lessee may ask for the rescission of the lease contract and indemnification for damages, or only the latter, allowing the contract to remain in force. A lessee unlawfully evicted by the lessor is entitled to be restored to the possession of the property leased for the unused period of the lease contract, counted from his eviction; such unexpired portion of the contract cannot be affected by the lapse of the period pending the final resolution of the complaint for ejectment filed by the lessor. It bears stressing that in a reciprocal contract, like a lease, the period of the lease must be deemed to have been agreed upon for the benefit of both parties, absent any language therein showing that the term was deliberately fixed for the benefit of either the lessor or the lessee alone. Its continuance, effectivity or fulfillment 188 IBP JOURNAL
cannot be made to depend exclusively upon the free and uncontrolled choice of just one party to a lease contract. Thus, LPI is entitled to remain in the property, as lessee, for the unused portion of the four-year period provided for in the MOA. By so ruling, the Court would not be extending the period of the lease contrary to the MOA; the Court would thereby be merely enforcing the same. As covenanted, LPI must remain in possession of the property, as lessee, for a period of four (4) years - not a day less. For the Court to do otherwise would be to enrich RCAM at the expense of LPI, allowing the former to profit by its misdeeds. WHETHER RCAM is party to the sublease agreement between LPI and ASTRO - NO The contention of LPI that RCAM is a party to the sublease agreement is belied by the records. As gleaned from the agreement, RCAM was merely a witness to the deed. It bears stressing that in a sublease agreement, there are two distinct leases involved: the principal lease and the sublease. In a contract of sublease, the lessor is not a party. Except in those cases provided by the New Civil Code, the lessor is a stranger to the relationship between the lessee and sublessee. The latter has no right or authority to pay the sublease rentals to the lessor, the said rentals being due and payable to the lessee. However, the lessor may demand the payment by the sublessee of the rentals due from the lessee if the latter fails to pay the same. WHETHER the sublease agreement between LPI and ASRO contained a stipulation pour autrui in favor of RCAM - YES Central to the issue is the second paragraph of Article 1311 of the New Civil Code, which provides: Art. 1311. Contracts If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. The requisites for such stipulation are the following: (a) the stipulation in favor of a third person, the third-party beneficiary which should be a part, not the whole, of the contract; (b) the contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or interest; (c) the favorable stipulations should not be conditioned or compensated by any kind of obligation whatsoever; (d) the third person must have communicated his acceptance to the obligor before its revocation; and (e) neither of the contracting parties bear the legal representation or authorization of the third party. V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 189
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The intent of the promisee to benefit a third person as a primary party-ininterest is generally said to be controlling. It is not enough that the contract may operate to the benefit of a third-party. It must appear that the parties intent to recognize him as the primary party-in-interest and privy to the promise. Such intent may be gleaned from the construction of the contract in the light of the surrounding circumstances. Intent, in a legal sense, is defined as the purpose to use a particular manner to effect a certain result. As for the manner of acceptance, in Florentino vs. Encarnacion, Sr., the Court ruled that: The acceptance does not have to be in any particular form, even when the stipulation is for the third person an act of liberality or generosity on the part of the promisor or promisee. It need not be made expressly and formally. Notification of acceptance, other than such as is involved in the making of demand, is unnecessary. LPI remitted its rentals to RCAM periodically during the said period without any preconditions. Not only that LPI likewise failed to demand from RCAM that it be credited for the rental payments of ASTRO. LPI continued to remit its rental payments to RCAM as provided for in no less than the lease agreement. It is true that, after the execution of the MOA, the rental payments of ASTRO during the second period (February 1995 to October 1995) were credited to the LPI; this does not mean, however, that the rental payments of ASTRO during the first period should, likewise, be similarly credited. Based on the pleadings of the parties, RCAM and LPI had agreed to revoke the stipulation pour autrui in the sublease agreement during the second period.
VI. MISCELLANEOUS SPs. VALDERAMA vs. MACALDE G.R. No. 165005. September 16, 2005, CALLEJO, SR., J.
F ACTS : On June 11, 1978, then President Marcos issued P.D. No. 1517 proclaiming specific parcels of urban lands as Urban Zones. Section 6 of the decree provides that, [L]egitimate tenants within the urban zones who had been residing on the land for ten years or more, who have built their homes on the land, and residents who have legally occupied the lands by contract continuously for the last ten years, shall not be dispossessed of the land and shall be allowed the right of first refusal to purchase the same within a reasonable time and at reasonable prices, under terms and conditions to be 190 IBP JOURNAL
determined by the Urban Zone Expropriation and Land Management Committee created by Section 8 of this Decree. On May 14, 1980, former President Marcos issued Proc. No. 1967, declaring the Metropolitan Manila area as an Urban Zone. Sometime in November 1990, Albano, owner of a parcel of land in Tondo, offered to sell the 2/3 portion of the property to Macalde and her siblings, who had been leasing the lot from Albano since 1977 (their predecessors began renting the lot years before the war). Macalde informed Albano of her desire and readiness to buy 2/3s portion of the property, where their ancestral house was constructed; however, Albano did not respond to this offer. In 1991, Macalde learned that Albano had already sold the property to the spouses Valderama (lessees of the other 1/3 portion of the lot). When Albano and Valderama refused to accept Macaldes offer to buy the two-thirds portion, the Macaldes filed a complaint against Albano and the spouses Valderama for annulment of sale, cancellation of title, reconveyance and damages with the RTC of Manila. ISSUE (1): WHETHER the sale to the petitioners (Sps. Valderama) is invalid for violation of P.D. 1517 HELD: YES. The respondents (Macaldes) had the right of first refusal under Sec. 6 of P.D. No. 1517, which they never waived. They were deprived of this right when, without their knowledge, Albano sold the property to the petitioners. Under P.D. No. 1517, Albano was also mandated to declare to the Land Management Committee her proposal to sell the property. However, Albano failed to comply with the law, and instead executed a deed of absolute sale over the property in favor of the petitioners. ISSUE (2): WHETHER the petitioners are entitled to monthly rentals and interest on the purchase price on equitable grounds HELD: NO. First. Contrary to their contention, the respondents paid rentals for the property to Albano up to March 5, 1991. Second. Even if the petitioners filed a complaint for ejectment against the respondents, the same would not have prospered because Section 6 of P.D. No. 1517 prohibits the latters eviction from the property. Third. The petitioners and Albano violated P.D. No. 1517 when they clandestinely consummated the sale of the entire property. Worse, they undervalued the property to enable the petitioners to evade the payment of the lawful capital V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 191
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gains tax, registration, and other fees/charges of the sale. The petitioners should not be rewarded by obliging the respondents to pay 12% per annum interest on the aforesaid amount of Php500,000.00. It is a well-established principle in law that as between two parties, he who, by his acts, caused the loss shall bear the same. He who comes to court for equity must do so with clean hands.
LAND REGISTRATION
Suits to Quiet Title Characterized as Proceedings Quasi in Rem Spouses Portic vs. Cristobal (G.R. No. 156171, 04/22/2005) Technically, Suits to quiet title are neither in rem nor in personam and as such, they are characterized as proceedings quasi in rem. In an action quasi in rem, an individual is named as defendant. However, unlike suits in rem , a quasi in rem judgment is conclusive only between the parties. Generally, the registered owner of a property is the proper party to bring an action to quiet title. However, it has been held that this remedy may also be availed of by a person other than the registered owner because, in the Article reproduced above, title does not necessarily refer to the original or transfer certificate of title. Thus, lack of an actual certificate of title to a property does not necessarily bar an action to quiet title. Homestead Patent Registration Grants Indefeasibility Spouses Garingan vs. Garingan, et al. (G.R. No. 144095, 04/12/2005) A homestead patent, once registered, becomes as indefeasible as a Torrens title. A person deprived of the land, estate, or interest therein by virtue of a decree of registration may avail of the remedy provided under Section 38 of Act 496. The fraud contemplated in Section 38 of Act 496 refers to extrinsic or collateral fraud. The fraud being attributed to Andaang is not extrinsic and collateral. In Libudan, the Court ruled that the allegation that neither the applicant nor his alleged successor - in - interest has ever been in actual possession of the property in question since time immemorial does not constitute extrinsic fraud. Granting that Andaang committed extrinsic and collateral fraud, Hadji Munib, et al. failed to avail of the remedy provided under Section 38 of Act 496 within the prescribed period. In Nelayan, et al. vs. Nelayan, et al., this Court ruled that in the case of public land grants (patents), the one year period under Section 38 is counted from the issuance of the patent by the government. The Letters of Patent were issued on 17 February 1955. The brothers and sisters of Saupi Moro filed Civil Case No. 41 for annulment of title only in July 1956, more than a year after the issuance of the Letters of 192 IBP JOURNAL
Patent. Hadji Munib, et al. did not do anything to protect their interest, not even after the records of Civil Case No. 41 were burned. Instead of availing of the remedy under Section 38 of Act 496, Hadji Munib, et al. filed an action for partition on 23 February 1993, which must fail because a Torrens title is not susceptible to collateral attack. Homestead Patent Application does not defeat Torrens Title Heirs of Conahap vs. Heirs of Regana (G.R. No. 152021, 05/17/2005) Since the property is titled to the respondents, they are entitled to possess the same. It bears stressing that a certificate of title serves as evidence of an indefeasible and incontrovertible title to the property in favor of the person whose name appears therein. The ruling of this Court in Government of the Philippine Islands vs. Franco does not apply in this case. In the said case, the Court awarded the property to a certain Franco who took possession of property on the erroneous belief that it was public land, with the intention of holding and claiming it under the homestead law; he acquired title over the property by actual possession as against the owner. In this case, however, when Ponciano filed his application for a homestead patent over the property in 1982, the property was already private land. Moreover, his application was not acted upon, much less approved by the Bureau of Lands; hence, Ponciano never acquired any rights over the property. By the time the complaint of the respondents was filed in the RTC, Ponciano had already died.
Indefeasibility of Torrens Title Direct Attack vs. Collateral Attack Teoville Homeowners Association, Inc. vs. Ferreira, et al. (G.R. No. 140086, 06/08/2005) Once a decree of registration is made under the Torrens system, and the reglementary period has passed within which the decree may be questioned, the title is perfected and cannot be collaterally questioned later on. To permit a collateral attack on his title, such as what petitioner now attempts, would reduce the vaunted legal indeafeasibility of Torrens Title to meaningless verbiage. A Torrens Title cannot be collaterally attacked. 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 yet 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. It has, therefore, become an ancient rule that the issue on the validity of title, i.e., whether or not it was fraudulently issued, can only be raised in an action expressly instituted for that purpose. V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 193
Eduardo A. Labitag
Action to Recover Ownership - Requirements Sps. Hutchison, et al. vs. Buscas, (G.R. No. 158554, 05/26/2005) Article 434 of the New Civil Code provides that to successfully maintain an action to recover the ownership of a real property, the person who claims a better right to it must prove two (2) things: first, the identity of the land claimed, and; second, his title thereto. In the case at bar, the Court finds that respondent failed to establish these two (2) legal requirements. The first requisite: the identity of the land. In an accion reinvindicatoria, the person who claims that he has a better right to the property must first fix the identity of the land he is claiming by describing the location, area and boundaries thereof. Anent the second requisite, i.e., the claimants title over the disputed area, the rule is that a party can claim a right of ownership only over the parcel of land that was the object of the deed. Respondent sought to prove these legal requisites by anchoring his claim on the Quitclaim Deed over a portion of land which was executed by Arrastia in his favor. However, the Quitclaim Deed specified only the extent of the area sold, i.e., 7,581 sq. m. of Arrastias land. Annex A of the Deed, where the entire lot of Arrastia was particularly described and where the specific portion of the property sold to respondent was marked, was not presented by respondent at the trial. As the Deed itself failed to mention the metes and bounds of the land subject of the sale, it cannot be successfully used by respondent to identify the area he was claiming and prove his ownership thereof. Indeed, the presentation of the Annex A is essential as what defines a piece of land is not the size mentioned in the instrument but the boundaries thereof which enclose the land and indicate its exact limits. Moreover, the rules on evidence provide that where the contents of the document are the facts in issue, the best evidence is the instrument itself. In the case at bar, the identity of the land claimed and respondents ownership thereof are the very facts in issue. The best evidence to prove these facts is the Quitclaim Deed and its Annex A where respondent derives his title and where the land from which he purchased a part was described with particularity, indicating the metes and bounds thereof. Respondents failure to adduce in evidence Annex A of the Quitclaim Deed or produce secondary evidence, after proof of its loss, destruction or unavailability, is fatal to his cause. Finally, it bears stress that in an action to recover real property, the settled rule is that the plaintiff must rely on the strength of his title, not on the weakness of the defendants title. This requirement is based on two (2) reasons: first, it is possible that neither the plaintiff nor the defendant is the true owner of the property in dispute and second, the burden of proof lies on the party who substantially asserts the affirmative of an issue for he who relies upon the existence of a fact should be 194 IBP JOURNAL
called upon to prove that fact. In the case at bar, as respondent failed to prove his title to and identity of the contested land, there exists no legal ground upon which to turn over the possession of the disputed area to him. Indefeasibility of Torrens Title Not a Bar to Investigation by the Director of Lands Sherwill Development Corporation vs. Sitio Sto. Nino Residents Association, Inc, (G.R. No. 158455, 06/28/2005) The Court in Republic vs. Court of Appeals stated that a Torrens title issued on the basis of a free patent or a homestead patent is as indefeasible as one judicially secured. And in repeated previous decisions of this Court that indefeasibility has been emphasized by our holding that not even the Government can file an action for annulment, but at the same time, it has been made clear that an action for reversion may be instituted by the Solicitor General, in the name of the Republic of the Philippines. It is also to the public interest that one who succeeds in fraudulently acquiring title to a public land should not be allowed to benefit therefrom, and the State should, therefore, have an even existing authority, thru its duly-authorized officers, to inquire into the circumstances surrounding the issuance of any such title. In other words, the indefeasibility of a title over land previously public is not a bar to an investigation by the Director of Lands as to how such title has been acquired, if the purpose of such investigation is to determine whether or not fraud had been committed in securing such title in order that the appropriate action for reversion may be filed by the Government. Indefeasibility of Torrens Title Collateral Attack Unavailing Vda. de Gualberto, et al., vs. Go, et al. (G.R. No. 139843, 07/21/2005) In Trinidad vs. Intermediate Appellate Court, the Supreme Court reiterated the doctrine on the indefeasibility of a torrens title in this wise: Under the Land Registration Act, title to the property covered by a Torrens certificate becomes indefeasible after the expiration of one year from the entry of the decree of registration. Such decree of registration is incontrovertible and is binding on all persons whether or not they were notified of or participated in the registration proceedings. If such title is to be challenged, it may not be done collaterally, as in the present case, because the judicial action required is a direct attack. Section 48 of the Property Registration Decree expressly provides that a certificate of title cannot be subject to collateral attack and can be altered, modified or cancelled only in a direct proceeding V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 195
Eduardo A. Labitag
in accordance with law. This was the same rule under Act 496. To stress, the action filed by petitioners is one for Conveyance, Accion Publiciana, and Quieting of Title With Damages, and not an action for annulment of OCT No. 1388 issued to Rosa Javier Go. The Supreme Court, therefore, cannot entertain the issue in the present petition for review on certiorari.
Indefeasibility of Torrens Title A Certificate of Title Does Not Create Instead Merely Confirms a Valid and Existing Title Spouses De Pedro vs. Romasan Development Corporation, et al., (G.R. No. 158002, 02/28/2005) It has been held that a certificate of title, once registered, should not thereafter be impugned, altered, changed, modified, enlarged or diminished except in a direct proceeding permitted by law. The action of the petitioners against the respondents, based on the material allegations of the complaint, is one for recovery of possession of the subject property and damages. However, such action is not a direct, but a collateral attack of TCT No. 236044. The petitioners anchor their claim of lawful possession of the subject property on their allegation that said property is a portion of the property covered by OCT No. P-691 in the name of petitioner Aurora de Pedro. The petitioners were burdened to prove not only their ownership over the property covered by OCT No. P-691 but also that the subject property is a portion of the property covered by the said title and, if they fail to do so, the complaint must be dismissed. The Supreme Court agrees with the petitioners that, generally, a certificate of title shall be conclusive as to all matters contained therein and conclusive evidence of the ownership of the land referred to therein. However, it bears stressing that while certificates of title are indefeasible, unassailable and binding against the whole world, including the government itself, they do not create or vest title. They merely confirm or record title already existing and vested. They cannot be used to protect a usurper from the true owner, nor can they be sued as a shield for the commission of fraud; neither do they permit one to enrich himself at the expense of others.
Indefeasibility of Torrens Title Multiple Certificates of Titles Over the Same Land Sanches vs. Quinio, et al. (G.R. No. 133545, 07/15/2005) Santiago sold the subject land in July 1979 to respondents, who lost no time in registering the conveying deed of sale and securing title in their names. From that time on, ownership and other rights flowing therefrom over the land in question 196 IBP JOURNAL
pertained to respondents. In other words, Santiago was no longer possessed of transmissible rights over such property when she executed on 22 February 1993 a deed of sale in favor of Renato Sanding. And although the records do not provide clear answer on how the second vendee, Renato Sanding, was able to secure a certificate of title despite the existence of an outstanding valid certificate of title in the hands and name of the first vendee, herein respondents, the later deed could not have conveyed valid title over the land. It is a settled rule that when two certificates of title are issued to different persons covering the same land in whole or in part, the earlier in date must prevail, and, in case of successive registrations where more than one certificate is issued over the land, the person holding a prior certificate is entitled to the land as against a person who relies on a subsequent certificate. As the saying goes, the spring cannot rise higher than its source. Even if petitioner and Romeo S. Abel, the formers immediate predecessor-ininterest, are to be accorded the status of innocent purchasers for value, as the term is juridically understood, the superior right of respondents will still have to be posited and recognized. Baltazar vs. Court of Appeals explains why: We might assume for the moment and for purposes of argument only that Baltazars vendees had successfully proven they were purchasers in good faith and for value. Even so, as between two persons both of whom are in good faith and both innocent of any negligence, the law must protect and prefer the lawful holder of registered title over the transferee of a vendor bereft of any transmissible rights. It may be that one dealing with property brought under the Torrens system of land registration may rely, as petitioner did with respect to the land in question, on what appears on the face of the covering certificate without inquiring further as to the title of the seller or mortgagor. But the guarantee generally accorded a Torrens title holder to be secured in his ownership as long as he has not voluntarily disposed of any right over the covered property admits of a couple of exceptions. One such exception is that the claim of indefeasibility of a Torrens Title would be defeated if a previous valid title to the same parcel of land existed, as held in C.N. Hodges vs. Dy Buncio & Co., Inc. Land Titles Mirror Principle Navotas Industrian Corp. vs. Cruz G.R. No. 159212, September 12, 2005 The general rule is that a person dealing with registered land is not required to go behind the register to determine the condition of the property. However, such person is charged with notice of the burden on the property which is noted on the face of the register or certificate of title. A person who deals with registered land is V O LU M E 32 N U M B E R 1 ( JANUARY - MARCH 2 0 0 6 ) 197
Eduardo A. Labitag
bound by the liens and encumbrances including adverse claim annotated therein. In the present action, the petitioner caused the annotation of the July 30, 1977 Supplementary Lease Agreement and Contract of Sale only on September 14, 1977, long after the annotation of the respondents adverse claim at the dorsal portion of TCT No. 81574 on June 30, 1977. Thus, as of that date, the petitioner had constructive knowledge of the Deed of Sale with Assumption of Mortgage Carmen Cruz executed on December 31, 1974 in favor of her children. Even before July 30, 1977, the petitioner had knowledge that Carmen Cruz was no longer the owner of the property, and had no more right to execute the July 30, 1977 Supplementary Lease Agreement and Contract of Lease. The registration of the said lease contracts was of no moment, since it is understood to be without prejudice to the better rights of third parties.
198
IBP JOURNAL
Integrated Bar of the Philippines

BOARD OF GOVERNORS
(2005-2007) JOSE VICENTE B. SALAZAR (July 2006 - June 2007) JOSE ANSELMO I. CADIZ (July 2005 - June 2006) Chairman FELICIANO M. BAUTISTA Vice Chairman & Governor for Central Luzon ABELARDO C. ESTRADA OIC for Northern Luzon JOSE AMOR M. AMORADO Governor for Southern Luzon ALICIA A. RISOS-VIDAL Governor for Greater Manila FELIMON C. ABELITA III Governor for Bicolandia MANUEL P. LEGASPI Governor for Eastern Visayas J.B. JOVY C. BERNABE Governor for Western Visayas BERNARD L. DAGCUTA Governor for Eastern Mindanao ROGELIO V. GARCIA Governor for Western Mindanao
NATIONAL OFFICERS
(July 2006 - June 2007) JOSE VICENTE B. SALAZAR National President FELICIANO M. BAUTISTA Executive Vice President MA. TERESA M. TRINIDAD National Secretary JAIME M. VIBAR Executive Director-Operations TOMAS N. PRADO Assistant National Secretary ROSARIO T. SETIAS-REYES National Director for Legal Aid JUSTICE HECTOR L. HOFILEA General Counsel RUDYARD A. AVILA III Editor-in-Chief, IBP Journal ESTER SISON CRUZ National Treasurer LLEWELLYN L. LLANILLO Executive Director-Planning MARIA TERESITA C. SISON GO Assistant National Treasurer ROGELIO A. VINLUAN National Director for Bar Discipline BRIAN KEITH F. HOSAKA Deputy General Counsel ELPIDIO G. SORIANO III Managing Editor, IBP Journal
ANTONIO A. OPOSA, JR. Chairman, National Environmental Action Team
Integrated Bar of the Philippines 15 J. Vargas Avenue, Ortigas Center, Pasig City 1600 Telephone: (632) 631-3014/18 Fax: (632) 634-4697 Website: www.ibp.org.ph Email: tech@ibp.org.ph
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Vol.32 No.1 2006 Ibp Journal

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The IBP Journal

INTEGRATED BAR OF THE PHILIPPINES

The IBP Journal

RUDYARD A. AVILA III Editor-in-Chief

Law and Equity in the Changing Landscape of Judicial Adjudication

I Introduction: Equity In The Garb of Kings

A. Supremacy of Equity Over the Common Law

Law and Equity in the Changing Landscape of Judicial Adjudication

B. Equity Courts in Early America

II Grasping at Straws: Equity Jurisdiction in Early Philippine Cases

Zephaniah Swift (1759-1823), A SYSTEM

CONNECTICUT (Volume 2, 1796).

Law and Equity in the Changing Landscape of Judicial Adjudication

A. A Failed Attempt at Positivism

Law and Equity in the Changing Landscape of Judicial Adjudication

C. Equity in Substantive Law Adjudication

Law and Equity in the Changing Landscape of Judicial Adjudication

III The Ever Shifting Dichotomy Between Equity and Law

A. The Code Commissions Intent: Equity Above Formalism

B. Equity as Justice Outside Legality

Law and Equity in the Changing Landscape of Judicial Adjudication

C. Emerging Ascendancy Of Equity Over Legality

Law and Equity in the Changing Landscape of Judicial Adjudication

IV JUDICIAL FLUIDITY FOR THE SAKE OF INDIVIDUAL JUSTICE AS E MERGING N ORM

A. The Hazard of Equity Decision

Law and Equity in the Changing Landscape of Judicial Adjudication

B. The Value of Isolation or The Need for Variance

V WALKING A WAY FROM OMELAS

A. The Metaphysical Argument for Equity

Law and Equity in the Changing Landscape of Judicial Adjudication

Law and Equity in the Changing Landscape of Judicial Adjudication

FIRST BROWN RACE CIVIL CODE 57 (1978).

Law and Equity in the Changing Landscape of Judicial Adjudication

Workers Preference in Case of Bankruptcy

1.01. Prefatory Statement

Manuel D. Yngson, Jr.

1.02. Quick Review of Insolvency Concepts

Blacks Law Dictionary Id. Id.

Manuel D. Yngson, Jr.

1.03. The Contending Laws

Manuel D. Yngson, Jr.

1.04. More Definitions

Manuel D. Yngson, Jr.

1.05. Legal Issues Encountered

Manuel D. Yngson, Jr.

Survey of Supreme Court Decisions on Workers Preference in Bankruptcy

Manuel D. Yngson, Jr.

Manuel D. Yngson, Jr.

2.04. Republic vs. Peralta, 150 SCRA 37 (20 May 1987)

Manuel D. Yngson, Jr.

Manuel D. Yngson, Jr.

Manuel D. Yngson, Jr.

Manuel D. Yngson, Jr.

Manuel D. Yngson, Jr.

Manuel D. Yngson, Jr.

Manuel D. Yngson, Jr.

Manuel D. Yngson, Jr.

Manuel D. Yngson, Jr.

Manuel D. Yngson, Jr.

Manuel D. Yngson, Jr.

Manuel D. Yngson, Jr.

Manuel D. Yngson, Jr.

Chua vs. NLRC, 190 SCRA 558 (17 October 1990)

Manuel D. Yngson, Jr.