RULE 129 SECTION 4 JUDICIAL ADMISSIONS

Sec. 4 . Judicial admissions. An admission, verbal or written, made by the party in the course
of the proceedings in the same case, does not require proof. The admission may be contradicted
only by showing that it was made through palpable mistake or that no such admission was
made. (2a)

[G.R. NO. 163684 : April 16, 2008]

FAUSTINA CAMITAN and DAMASO LOPEZ, Petitioners, v. FIDELITY INVESTMENT CORPORATION,

Respondent.

NACHURA, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court of the Decision 1 dated
November 28, 2003 and of the Resolution2 dated May 12, 2004, both of the Court of Appeals (CA) in CA-G.R.
SP No. 37291 entitled Fidelity Investment Corporation v. Alipio Camitan, Faustina Camitan, Damaso Lopez,
the Regional Trial Court of Calamba, Laguna (Branch 37) and the Register of Deeds of Calamba, Laguna.

The case arose from the Petition3 for the issuance of another duplicate copy of Certificate of Title No. T -
(12110) T-4342 (TCT) filed in 1993 by herein petitioners, together with Alipio Camitan, before the Regional
Trial Court (RTC) of Calamba, Laguna. The case was raffled to Branch 37 of the said court and was docketed
as SLRC Case No. 1198-93-C.

The petition contained, among others, the allegations that: (1) the petitioners are the true and lawful
registered co-owners of a parcel of land located at Maunong, Calamba, Laguna, consisting of 30,000 square
meters covered by the TCT; (2) the lot is declared for tax purposes under Tax Declaration No. 14187; (3)
petitioners paid the realty taxes on the said property until 1993; (4) the owner's duplicate copy was lost and
could not be found despite diligent efforts to locate it; (5) per Certification 4 dated June 21, 1993 of the
Register of Deeds of Calamba, Laguna, there were no legal claims annotated at the back of the TCT filed with
that office; (6) petitioners filed with the Register of Deeds an affidavit of loss of the said owner's duplicate
copy; (7) they secured a certified true copy of the original TCT from the Register of Deeds with the affidavit
of loss annotated at the back thereof; (8) at the last page of the original certificate of title, a mortgage was
annotated, which upon verification was found to have already been paid; (9) the Register of Deeds of
Calamba could not cancel the mortgage from the original copy of the title until presentation of the owner's
duplicate copy to the bank; and (10) petitioners were in possession of the subject property.

After due proceedings, the RTC, in its Order5 dated April 8, 1994, granted the petition, directed the Register
of Deeds of Calamba, Laguna to issue a second owner's duplicate copy of the TCT, and declared void the first
owner's duplicate copy thereof.

Later, on May 25, 1995, herein respondent Fidelity Investment Corporation (Fidelity) filed a Petition 6 for
annulment of judgment and cancellation of title before the CA. According to Fidelity, on December 16, 1967,
it purchased the property covered by the subject certificate of title from the registered owners thereof
pursuant to a Deed of Absolute Sale7 of the same date. It said that upon execution of the Deed of Absolute
Sale and the payment in full of the purchase price, the vendors delivered to Fidelity their owner's duplicate
copy of the TCT, which has been in its possession since. It also alleged that it had been in actual physical
possession and continuous occupation of the subject property and that it had been paying the real estate
taxes due thereon.

It further said that, sometime in March 1995, upon verification with the Register of Deeds of Calamba,
Laguna, it learned for the first time of the issuance of a second owner's duplicate copy as recorded under
Entry No. 357701 dated May 26, 1994 and annotated on the TCT. Thus, it caused the sale of the property in
its favor to be annotated on the TCT. The notice of the sale was annotated on March 28, 1995 as Entry No.
384954. Fidelity then filed, on April 26, 1995, a Notice of Adverse Claim with the concerned Register of
Deeds, which was annotated on the TCT as Entry No. 387483.

In fine, Fidelity argued that the Order dated April 18, 1994 is null and void, the RTC having no jurisdiction to
issue the same as the owner's duplicate copy of the TCT was in its possession all along and the respondents
therein had no standing to file the petition on account of the Deed of Absolute Sale they executed in its favor.
It claimed that the petitioners perjured themselves before the RTC when they stated that the duplicate copy
of the TCT was lost and that they gave notice to all who had interest in the property, because they failed to
notify Fidelity despite knowledge of the latter's possession of the property.

In their Comment,8 private respondents [herein petitioners] Faustina Camitan, Damaso Lopez, and the
surviving heirs of deceased Alipio Camitan, denied having committed falsehoods in their petition before the
trial court, which they claimed had jurisdiction over the case. They submitted that the long, unexplained, and
questionable silence of Fidelity on its alleged possession of the owner's duplicate copy of the TCT and the
Deed of Absolute Sale over the property and the non-registration and titling thereof in its name for about 27
years since the purported sale, was tainted with malice and bad faith, thus, subjecting it to estoppel and
laches.

By its Resolution dated May 27, 1997, the CA gave due course to the petition for annulment of judgment, and
a preliminary conference was set, directing Fidelity to bring the owner's duplicate copy of the TCT. At the
preliminary conference, Fidelity's counsel presented what was claimed to be the owner's duplicate copy of
the TCT. Counsel for private respondents examined the certificate of title and admitted that it is the genuine
owner's copy thereof. Thereafter, counsel for Fidelity manifested that they were no longer presenting other
evidence. On the other hand, counsel for private respondents prayed that an additional issue, the question of
the validity of the deed of sale in favor of Fidelity, be likewise resolved. Fidelity's counsel objected on the
ground of irrelevancy. However, in order to expedite the proceedings, he agreed to have private respondents
amplify their position in their memorandum.

In their Memorandum, private respondents retracted their counsel's admission on the genuineness of the
owner's duplicate copy of the TCT presented by Fidelity, citing honest mistake and negligence owing to his
excitement and nervousness in appearing before the CA. They pointed to some allegedly irreconcilable
discrepancies between the copy annexed to the petition and the exhibit presented by Fidelity during the
preliminary conference. They also reiterated the issue on the validity of the purported deed of sale of the
property in favor of Fidelity.

In its Comment to the Memorandum, Fidelity countered that there were no discrepancies between the
owner's duplicate copy it presented and the original copy on file with the Registry of Deeds of Calamba,
Laguna. It argued that private respondents are bound by the judicial admission made by their counsel during
the preliminary conference. It, likewise, objected to the inclusion of the issue on the validity of the deed of
sale over the property.

In the Decision dated November 28, 2003, the CA ruled in favor of Fidelity. It declared that the RTC was
without jurisdiction to issue a second owner's duplicate copy of the title in light of the existence of the
genuine owner's duplicate copy in the possession of petitioner, as admitted by private respondents through
counsel. According to the CA, a judicial admission is conclusive upon the party making it and cannot be
contradicted unless previously shown to have been made through palpable mistake or that no such
admission was made. It said that honest mistake and negligence, as raised by private respondents in
retracting their counsel's admission, are not sufficient grounds to invalidate the admission.

Hence, this petition, raising the sole issue of '

WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT DID NOT CONSIDER THAT THE JUDICIAL
ADMISSION OF THE COUNSEL OF THE PETITIONERS DURING THE HEARING IN C.A.-G.R. SP. NO. 37291 WAS A
PALPABLE MISTAKE.
Herein petitioners argue that despite the existence of a judicial admission, there is still some leeway for the
court to consider other evidence presented. They point out that, even as early as in their Memorandum
before the CA, they had already retracted their counsel's admission on the genuineness of the owner's
duplicate copy of the TCT presented by Fidelity, and claim that their counsel was honestly mistaken and
negligent in his admission owing to his excitement and nervousness in appearing before the CA. Petitioners
likewise cite, in support of their position, the circumstances they alleged in their petition before the RTC
which convinced the latter to issue them a new owner's duplicate copy of the TCT. Further, petitioners raise
in issue the discrepancies between the certificate of title on file with the Register of Deeds of Calamba,
Laguna and that submitted by Fidelity during the preliminary conference before the CA.

In its Comment,9 Fidelity reiterate the arguments it presented before the CA.

We find for the respondent.

At the outset, we emphasize that the core issue in this case is the validity of the issuance by the RTC of a
new owner's duplicate copy of the TCT in favor of petitioners. The applicable law is Section 109 of
Presidential Decree (P.D.) No. 1529 (Property Registration Decree), which states:

SEC. 109. Notice and replacement of lost duplicate certificate. - In case of loss or theft of an owner's
duplicate certificate of title, due notice under oath shall be sent by the owner or by someone in his behalf to
the Register of Deeds of the province or city where the land lies as soon as the loss or theft is discovered. If a
duplicate certificate is lost or destroyed, or cannot be produced by a person applying for the entry of a new
certificate to him or for the registration of any instrument, a sworn statement of the fact of such loss or
destruction may be filed by the registered owner or other person in interest and registered.

Upon the petition of the registered owner or other person in interest, the court may, after notice and due
hearing, direct the issuance of a new duplicate certificate, which shall contain a memorandum of the fact
that it is issued in place of the lost duplicate certificate, but shall in all respects be entitled to like faith and
credit as the original duplicate, and shall thereafter be regarded as such for all purposes of this decree.

Petitioners were able to convince the RTC that their owner's duplicate copy had indeed been lost. They
appeared to have complied with the requirements of the law. This led the RTC to grant their petition.

Upon discovery of the issuance of a new owner's duplicate copy of the TCT, Fidelity went to the CA seeking to
annul the judgment of the RTC. Unfortunately for petitioners, their counsel admitted the genuineness of the
owner's duplicate copy of the TCT presented by Fidelity during the preliminary conference at the CA. The
following exchange is revealing:

J. MARTIN:

Counsel for the private respondent, will you go over the owner's copy and manifest to the court
whether that is a genuine owner's copy?

ATTY. MENDOZA:

Yes, Your Honor.

J. MARTIN:

Alright. Make it of record that after examining the owner's copy of TCT NO. (T-12110) T-4342,
counsel for the private respondent admitted that the same appears to be a genuine owner's
copy of the transfer certificate of title. Do you have a certified true copy of this or any machine copy
that you can compare?
ATTY. QUINTOS:

Yes, Your Honor.

J. REYES:

Including all the entries at the back page.

ATTY. QUINTOS:

Yes, Your Honor.

J. MARTIN:

Does it include all the list of the encumbrances?

ATTY. QUINTOS:

Yes, Your Honor.

ATTY. MENDOZA:

We do not admit, Your Honor this being only a xerox copy and not certified . . .

J. MARTIN:

It is only for purposes of substitution. Will you compare that with the other copy which you already
admitted to be a genuine owner's copy.

ATTY. MENDOZA:

Yes, Your Honor.

J. MARTIN:

Alright. Counsel, are you marking that?

ATTY. QUINTOS:

Your Honor, we request that this copy of the transfer certificate of title No. T-12110, T-4342 be marked as
Exhibit A to A-3 for the petitioner?

J. MARTIN:

Preliminary conference.

Alright, after examining the machine copy consisting of three pages and comparing the same
with the admittedly genuine owner's copy of the transfer certificate of title, counsel prayed for
the substitution of the machine copy - after marking them as Exhibits A-A-3 inclusive. We will
return the owner's copy to you so that you can submit this already in lieu thereof.
This is a preliminary conference. Unless you have other incidents to thresh out, I think that we can terminate
the conference this morning. Counsel for the private respondents? 10

The foregoing transcript of the preliminary conference indubitably shows that counsel for petitioners made a
judicial admission and failed to refute that admission during the said proceedings despite the opportunity to
do so. A judicial admission is an admission, verbal or written, made by a party in the course of the
proceedings in the same case, which dispenses with the need for proof with respect to the matter or fact
admitted. It may be contradicted only by a showing that it was made through palpable mistake or that no
such admission was made.11

Petitioners, in their Memorandum before the CA, attempted to retract their counsel's judicial admission on
the authenticity of the owner's duplicate copy of TCT in the possession of Fidelity. Petitioners explicate that
the wrong admission was an honest mistake and negligence attributable to the counsel's nervousness and
excitement in appearing for the first time before the CA. However, as correctly pointed out by the CA, such
an admission may only be refuted upon a proper showing of palpable mistake or that no such admission was
made. Thus, the claim of "honest mistake and negligence" on the part of the counsel due to his excitement
and nervousness in appearing before the CA did not suffice.

Petitioners now claim that the "honest mistake and negligence" of their counsel amount to palpable mistake.
They also enumerate observed discrepancies between the original TCT on file with the Register of Deeds of
Calamba, Laguna and the owner's duplicate copy presented by Fidelity, to wit:

1. On the above left margin of the xerox copy of the ORIGINAL COPY of TCT No. (T-12110) T-4342 on file with
the Register of Deeds, Calamba, Laguna in question, (Annex A, Respondent's Petition in question before the
Court of Appeals) Annex C, supra, the PRINTED WORDS were:

"(JUDICIAL FORM NO. 109)

(Revised September, 1954.)

However, in the belated submission of the alleged xerox copy of the alleged duplicate copy of the title in
question by the respondent to the Court of Appeals (Exh. A; Annex "H", supra,) the following PRINTED
WORDS appeared:

"(JUDICIAL FORM NO. 109-D)

(Revised September, 1954.)" (Emphasis supplied)cralawlibrary

xxx

[2.] The Serial Number of the Xerox copy of the original copy of the title in question on file with the Register
of Deeds of Calamba City was written in handwriting as "158640".

However, the Serial Number of the purported duplicate copy of the original title in question of the respondent
was PRINTED in letters and in figures: "No. 158640".

3. The typewritten words "PROVINCE OF LAGUNA" on the heading of the xerox copy of the original copy of
the said title on file with the said Register of Deeds were written in big type of letters.

However, in Exh. "A", Annex H, supra, of the respondent, it was typewritten with small type of letters.

4. In the FIGURES of the xerox copy of the original copy of the said title: NO. (T-12110) T-4342 in question,
they were written in a big type of letters. The same is true in the letters "T" and DASH after the letter "T".
The figures "4342" were printed in big letters.
However, the printed and handwritten figures and words in Exh. A, Annex C, supra, were small. The figures
4342 were in handwriting.

5. In the xerox copy of the original copy of title of the property in question covered by TCT No. (T-12110) T-
4342, which cancelled TCT No. T-10700, the type of letter "T", figures, 10700 and dash thereof were in big
letters.

However, the purported duplicate copy of the original copy of the title in question submitted to the Court of
Appeals by the respondent, the type of the letter, dash and figures thereof were in small letters.

6. The type of the printed words, dashes, and figures in the body of the Xerox copy of the original title in
question, it was typewritten with big letters and figures.

The purported duplicate copy of the original title of the property in question submitted to the Court of
Appeals by the respondent, the letters, dashes and figures there of were typewritten in small letters.

7. The letters, dashes, and figures of the xerox copy of the original title in question were typewritten in a
manual typewriter with big letters.

In Exh. "A", Annex H, supra, the purported duplicate copy of the original title in question submitted to the
Court of Appeals by the respondent, they were typewritten in a manual typewriter with small letters and
figures.

8. The signatures of the Registrar of Deeds in the xerox of the original copy of the title in question; had loop
in small letter "d" and the rest had no loops.

In Exh. A, Annex H, supra, of the purported duplicate copy of the title in question submitted by the
respondent to the Court of Appeals, there was no loop, except there were two (2) open vertical lines below
thereof after four letters.

9. The xerox copy of the original copy of the title in question after TCT No. T-10700 was cancelled, it was
entered in the Register of Deeds of Sta. Cruz, Laguna since September 24, 1957 at 9:10 a.m.

10. In view thereof, it is but NATURAL that the judicial forms and descriptions of letters and figures of the
original copy of title in question and file with the Register of Deeds its duplicate copy since September 24,
1954, were the SAME and already OLD.

11. However, in Exh. "A", Annex H, supra, the purported duplicate copy of the title in question submitted by
the respondent to the Court of Appeals, the judicial form thereof was already small and it clearly appeared
that it might have been NEWLY ISSUED NEW COPY OF TITLE. It might be the revised new form in 1988 that is
presently used in the Register of Deeds. 12

Upon examination of the said exhibits on record, it appears that the alleged discrepancies are more imagined
than real. Had these purported discrepancies been that evident during the preliminary conference, it would
have been easy for petitioners' counsel to object to the authenticity of the owner's duplicate copy of the TCT
presented by Fidelity. As shown in the transcript of the proceedings, there was ample opportunity for
petitioners' counsel to examine the document, retract his admission, and point out the alleged discrepancies.
But he chose not to contest the document. Thus, it cannot be said that the admission of the petitioners'
counsel was made through palpable mistake.

Every counsel has the implied authority to do all acts which are necessary or incidental to the prosecution
and management of the suit in behalf of his client. Any act performed by counsel within the scope of his
general and implied authority is, in the eyes of the law, regarded as the act of the client himself.
Consequently, the mistake or negligence of the client's counsel, which may result in the rendition of an
unfavorable judgment, generally binds the client. To rule otherwise would encourage every defeated party, in
order to salvage his case, to claim neglect or mistake on the part of his counsel. Then, there would be no end
to litigation, as every shortcoming of counsel could be the subject of challenge by his client through another
counsel who, if he is also found wanting, would likewise be disowned by the same client through another
counsel, and so on, ad infinitum.

This rule admits of exceptions, i.e., where the counsel's mistake is so great and serious that the client is
deprived of his day in court or of his property without due process of law. In these cases, the client is not
bound by his counsel's mistakes and the case may even be reopened in order to give the client another
chance to present his case.13 In the case at bar, however, these exceptional circumstances do not obtain.

With proof that the owner's duplicate copy of the TCT was in the possession of Fidelity, the RTC Decision
dated April 8, 1994 was properly annulled. In a catena of cases, we have consistently ruled that if an owner's
duplicate copy of a certificate of title has not been lost but is in fact in the possession of another person, the
reconstituted title is void, as the court rendering the decision never acquires jurisdiction. Consequently, the
decision may be attacked at any time. 14

The circumstances cited by petitioners in support of their petition, i.e., the TCT is still in their names; the
property in question is declared for tax purposes in their names; they were the persons informed by the
Municipal Treasurer of Calamba, Laguna for the non-payment of real estate taxes for the years 1990-1993;
they paid the real estate taxes due on the property; no one was claiming the property per the certification of
the

Register of Deeds of Calamba, Laguna; the questionable delay of Fidelity in registering its claim over the
property under the purported sale of December 13, 1967; and the validity of the Absolute Deed of Sale, all
pertain to the issue of ownership over the property covered by the TCT.

In a petition for the issuance of a new owner's duplicate copy of a certificate of title in lieu of one allegedly
lost, on which this case is rooted, the RTC, acting only as a land registration court with limited jurisdiction,
has no jurisdiction to pass upon the question of actual ownership of the land covered by the lost owner's
duplicate copy of the certificate of title.15 Consequently, any question involving the issue of ownership must
be threshed out in a separate suit where the trial court will conduct a full-blown hearing with the parties
presenting their respective evidence to prove ownership over the subject realty. 16

At this point, we reiterate the principle that possession of a lost owner's duplicate copy of a certificate of title
is not necessarily equivalent to ownership of the land covered by it. Registration of real property under the
Torrens System does not create or vest title because it is not a mode of acquiring ownership. The certificate
of title, by itself, does not vest ownership; it is merely an evidence of title over the particular property
described therein.17

WHEREFORE, the petition is DENIED. The Decision dated November 28, 2003 and the Resolution dated May
12, 2004 of the Court of Appeals in CA-G.R. SP No. 37291 are AFFIRMED. No pronouncement as to costs.

SO ORDERED.

[G.R. No. 74336. April 7, 1997]

J. ANTONIO AGUENZA, petitioner, vs. METROPOLITAN BANK & TRUST CO., VITALIADO P. ARRIETA, LILIA PEREZ,
PATRICIO PEREZ and THE INTERMEDIATE APPELLATE COURT, respondents.

HERMOSISIMA, JR., J.:

Before us is a petition for review on certiorari seeking the reversal of the Decision i[1] of the Intermediate
Appellate Court (now the Court of Appeals) ii[2] finding petitioner J. Antonio Aguenza liable under a continuing
surety agreement to pay private respondent Metropolitan Bank & Trust Company (hereafter, Metrobank) a
loan jointly obtained by the General Manager and a bookkeeper of Intertrade, a corporation of which
petitioner is President and in whose behalf petitioner had, in the past, obtained credit lines.
The following facts are not disputed:

On February 28, 1977, the Board of Directors of Intertrade, through a Board Resolution, authorized and
empowered petitioner and private respondent Vitaliado Arrieta, Intertrade's President and Executive Vice-
President, respectively, to jointly apply for and open credit lines with private respondent Metrobank. Pursuant
to such authority, petitioner and private respondent Arrieta executed several trust receipts from May to June,
1977, the aggregate value of which amounted to P562,443.46, with Intertrade as the entrustee and private
respondent Metrobank as the entruster.

On March 14, 1977, petitioner and private respondent Arrieta executed a Continuing Suretyship Agreement
whereby both bound themselves jointly and severally with Intertrade to pay private respondent Metrobank
whatever obligation Intertrade incurs, but not exceeding the amount of P750,000.00.

In this connection, private respondent Metrobank's Debit Memo to Intertrade dated March 22, 1978 showed
full settlement of the letters of credit covered by said trust receipts in the total amount of P562,443.46.

On March 21, 1978, private respondents Arrieta and Lilia P. Perez, a bookkeeper in the employ of Intertrade,
obtained a P500,000.00 loan from private respondent Metrobank. Both executed a Promissory Note in favor
of said bank in the amount of P500,000.00. Under said note, private respondents Arrieta and Perez promised
to pay said amount, jointly and severally, in twenty five (25) equal installments of P20,000.00 each starting
on April 20, 1979 with interest of 18.704% per annum, and in case of default, a further 8% per annum.

Private respondents Arrieta and Perez defaulted in the payment of several installments, thus resulting in the
entire obligation becoming due and demandable. In 1979, private respondent Metrobank instituted suit
against Intertrade, Vitaliado Arrieta, Lilia Perez and her husband, Patricio Perez, to collect not only the unpaid
principal obligation, but also interests, fees and penalties, exemplary damages, as well as attorney's fees
and costs of suit.

More than a year after private respondent Metrobank filed its original complaint, it filed an Amended
Complaint dated August 30, 1980 for the sole purpose of impleading petitioner as liable for the loan made by
private respondents Arrieta and Perez on March 21, 1978, notwithstanding the fact that such liability is being
claimed on account of a Continuing Suretyship Agreement dated March 14, 1977 executed by petitioner and
private respondent Arrieta specifically to guarantee the credit line applied for by and granted to, Intertrade,
through petitioner and private respondent Arrieta who were specially given authority by Intertrade on
February 28, 1977 to open credit lines with private respondent Metrobank. The obligations incurred by
Intertrade under such credit lines were completely paid as evidenced by private respondent Metrobank's
debit memo in the full amount of P562,443.46.

After hearing on the merits, the trial court rendered its decision absolving petitioner from liability and
dismissing private respondent Metrobank's complaint against him, the dispositive portion of which reads:

"WHEREFORE, judgment is hereby rendered as follows:

1)Declaring that the Promissory Note dated March 21, 1978, marked as Exhibit A, is the responsibility only of
defendant Vitaliado P. Arrieta and Lilia P. Perez, in their personal capacity and to the exclusion of defendant
Intertrade and Marketing Co. Inc.;

2) Ordering defendants Vitaliado P. Arrieta and Lilia P. Perez to pay, jointly and severally, the plaintiff the sum
of P1,062,898.92, due as of September 15, 1982, plus interest, fees and penalties due from that date
pursuant to the stipulations in the promissory note until the whole obligations shall have been paid and
finally settled;

3)Ordering defendants Vitaliado P. Arrieta and Lilia Perez to pay, jointly and severally, the plaintiff the sum of
P44,000.00 by way of attorney's fees and other litigation expenses, albeit there is no award for exemplary
damages;

4)Declaring defendant Patricio Perez, as conjugal partner of defendant Lilia Perez, as jointly and severally
liable with her for what the latter is ordered to pay per this Decision;
5)Dismissing this case insofar as defendants Intertrade and Marketing Co., Inc. and J. Antonio Aguenza are
concerned, although their respective counterclaims against the plaintiff are also ordered dismissed.

Costs of suit shall be paid, jointly and severally, by defendant Vitaliado Arrieta and Lilia Perez. SO
ORDERED."iii[3]

Private respondents Arrieta and spouses Perez appealed the foregoing decision to the respondent Court of
Appeals.

On February 11, 1986, respondent appellate court promulgated the herein assailed decision, the dispositive
portion of which reads:

"WHEREFORE, the appealed decision is SET ASIDE and another one entered ordering Intertrade & Marketing
Co., Inc., and J. Antonio Aguenza, jointly and severally:

1)to pay the Bank the principal of P440,000.00 plus its interest of 18.704% per annum computed from April
15, 1979 until full payment;
2) to pay the Bank the sum equivalent to 8% of P440,000.00 as penalty, computed from July 19, 1978 until
full payment;
3)to pay the Bank the sum of P15,000.00 as attorney's fees.
The complaint is dismissed as against Lilia Perez, Patricio Perez and Vitaliado P. Arrieta who are absolved
from liability.
All counterclaims are dismissed.
Costs against Intertrade and Aguenza, jointly and severally.
SO ORDERED."

In setting aside the decision of the trial court, respondent Court of Appeals ratiocinated such reversal in this
wise:

"No dispute exists as to the promissory note and the suretyship agreement. The controversy centers on
whether the note was a corporate undertaking and whether the suretyship agreement covered the obligation
in the note.

As far as Intertrade is concerned, it seems clear from its answer that the loan evidenced by the note was a
corporate liability. Paragraph 1.3 of the answer admits 'x x x defendant's obtention of the loan from the
plaintiff x x x'; the affirmative defenses admit default, and invoking the defense of usury, plead adjustment
of excessive interest which Intertrade refused to make.

On the basis of this admission, it is no longer in point to discuss, as the appealed decision does, the question
of the capacity in which Arrieta and Perez signed the promissory note, Intertrade's admission of its corporate
liability being admission also that the signatories signed the note in a representative capacity. The Bank itself
gave corroboration with its insistence on Intertrade's liability under the note. x x x

The stated purpose of the note is 'operating capital.' It cannot be contended that the words 'operating
capital' refer to the capital requirements of Perez and Arrieta. In the first place, it was not shown that they
were in business for themselves. Besides, Perez was only a bookkeeper of Intertrade with a salary of P800.00
a month x x x Their combined resources would not have been sufficient to justify a business loan of the
note's magnitude. From these follows the only logical conclusion: that Arrieta and the Perez spouses are not
liable on the note.

The surety agreement presents a different problem.

There is no question that Aguenza signed the agreement x x x Its second paragraph shows, typewritten in
bold capitals, that the agreement was executed 'for and in consideration of any existing indebtedness to the
Bank of INTERTRADE & MARKETING COMPANY, INC.' Nowhere in its entire text is it shown that its execution
was for the benefit of Perez or Arrieta.

Aguenza feigns ignorance of the promissory note and claims his knowledge of it came only when he received
summons. This is difficult to believe. As Intertrade's first letter to the Bank x x x shows, the Board of
Directors and principal stockholders met to discuss the obligation. Aguenza was at the time president of
Intertrade and acting chairman of its board x x x.

Aguenza also argues that the suretyship was executed to enable Intertrade to avail of letters of credit to
finance importations, which had all been paid in full, and therefore the agreement was thereby terminated.
Again, the agreement shows up the fallacy of this argument. The document is boldly denominated
'CONTINUING SURETYSHIP,' and paragraph VI thereof stipulates it to be a continuing one, 'to remain in force
until written notice shall have been received by the Bank that it has been revoked by the surety x x x' In
other words, the option to cancel, in writing, was given to the sureties; the evidence does not show any
written notice of such cancellation. x x x

And, the argument that the agreement was executed as security for letters of credit that had already been
paid is in itself confirmation that the suretyship was meant to benefit Intertrade. The trust receipts x x x and
the bills of exchange x x x are all in the name of Intertrade.

The suretyship is both retrospective and prospective in its operation. Its wording covers all obligations of
Intertrade existing as of its date as well as those that may exist thereafter. Hence, its coverage extends to
the promissory note as well."iv[4]

Understandably, petitioner lost no time in bringing this case before us via a petition for review on certiorari
on the following grounds:

"THE RESPONDENT COURT ERRED IN REVERSING AND [SETTING] ASIDE THE FINDING OF THE TRIAL COURT
THAT THE LOAN OF P500,000.00 PROCURED 21 MARCH 1978 BY RESPONDENTS VITALIADO ARRIETA AND
LILIA PEREZ IS NOT A CORPORATE LIABILITY OF RESPONDENT INTERTRADE AND THAT PETITIONER IS NOT
LIABLE THEREON UNDER THE 'CONTINUING SURETYSHIP AGREEMENT' DATED 4 MARCH 1977.

THE CONCLUSION OF THE RESPONDENT COURT THAT THE LOAN OF P500,000.00 PROCURED 21 MARCH 1978
BY RESPONDENT VITALIADO ARRIETA AND LILIA PEREZ IS A CORPORATE LIABILITY OF RESPONDENT
INTERTRADE AND CONSEQUENTLY RENDERING PETITIONER LIABLE IN HIS PERSONAL CAPACITY AS A SURETY
UNDER THE 'CONTINUING SURETYSHIP' OF 4 MARCH 1977, IS GROSSLY ERRONEOUS AND PREMISED ON A
MISAPPREHENSION OF FACTS.

THE CONCLUSIONS AND CONSTRUCTION REACHED BY RESPONDENT COURT FROM THE FACTS AND EVIDENCE
OF RECORD, ARE INCORRECT RESULTING IN AN ERRONEOUS DECISION GRAVELY PREJUDICIAL TO THE
SUBSTANTIAL RIGHTS OF PETITIONER."v[5]

The petition has merit.

The principal reason for respondent appellate court's reversal of the trial court's absolution of petitioner is its
finding that the loan made by private respondent Arrieta and Lilia Perez were admitted by Intertrade to be its
own obligation.

After a careful scrutiny of the records, however, we find and we so rule that there is neither factual nor legal
basis for such a finding by respondent Appellate Court.

First, the general rule that "the allegations, statements, or admissions contained in a pleading are conclusive
as against the pleader"vi[6] is not an absolute and inflexible rule vii[7] and is subject to exceptions. Rule 129,
Section 4, of the Rules of Evidence, provides:

"Section 4. Judicial admissions. An admission, verbal or written, made by a party in the course of the
proceedings in the same case, does not require proof. The admission may be contradicted only by showing
that it was made through palpable mistake or that no such admission was made." (Underlining supplied)

In other words, an admission in a pleading on which a party goes to trial may be contradicted by showing
that it was made by improvidence or mistake or that no such admission was made, i.e., "not in the sense in
which the admission was made to appear or the admission was taken out of context." viii[8]
In the case at bench, we find that the respondent Court of Appeals committed an error in appreciating the
"Answer" filed by the lawyer of Intertrade as an admission of corporate liability for the subject loan. A careful
study of the responsive pleading filed by Atty. Francisco Pangilinan, counsel for Intertrade, would reveal that
there was neither express nor implied admission of corporate liability warranting the application of the
general rule. Thus, the alleged judicial admission may be contradicted and controverted because it was
taken out of context and no admission was made at all.

In any event, assuming arguendo that the responsive pleading did contain the aforesaid admission of
corporate liability, the same may not still be given effect at all. As correctly found by the trial court, the
alleged admission made in the answer by the counsel for Intertrade was "without any enabling act or
attendant ratification of corporate act," ix[9] as would authorize or even ratify such admission. In the absence
of such ratification or authority, such admission does not bind the corporation.

Second, the respondent appellate court likewise adjudged Intertrade liable because of the two letters
emanating from the office of Mr. Arrieta which the respondent court considered "as indicating the corporate
liability of the corporation."x[10] These documents and admissions cannot have the effect of a ratification of
an unauthorized act. As we elucidated in the case of Vicente v. Geraldez, xi[11] "ratification can never be
made on the part of the corporation by the same persons who wrongfully assume the power to make the
contract, but the ratification must be by the officer as governing body having authority to make such
contract." In other words, the unauthorized act of respondent Arrieta can only be ratified by the action of the
Board of Directors and/or petitioner Aguenza jointly with private respondent Arrieta.

We must emphasize that Intertrade has a distinct personality separate from its members. The corporation
transacts its business only through its officers or agents. Whatever authority these officers or agents may
have is derived from the Board of Directors or other governing body unless conferred by the charter of the
corporation. An officer's power as an agent of the corporation must be sought from the statute, charter, the
by-laws, as in a delegation of authority to such officer, or the acts of the Board of Directors formally
expressed or implied from a habit or custom of doing business. xii[12]

Thirdly, we note that the only document to evidence the subject transaction was the promissory note dated
March 21, 1978 signed by private respondents Arrieta and Lilia Perez. There is no indication in said document
as to what capacity the two signatories had in affixing their signatures thereon.

It is noted that the subject transaction is a loan contract for P500,000.00 under terms and conditions which
are stringent, if not onerous. The power to borrow money is one of those cases where even a special power
of attorney is required.xiii[13] In the instant case, there is invariably a need of an enabling act of the
corporation to be approved by its Board of Directors. As found by the trial court, the records of this case is
bereft of any evidence that Intertrade through its Board of Directors, conferred upon Arrieta and Lilia Perez
the authority to contract a loan with Metrobank and execute the promissory note as a security therefor.
Neither a board resolution nor a stockholder's resolution was presented by Metrobank to show that Arrieta
and Lilia Perez were empowered by Intertrade to execute the promissory note. xiv[14]

The respondents may argue that the actuation of Arrieta and Lilia Perez was in accordance with the ordinary
course of business usages and practices of Intertrade. However, this contention is devoid of merit because
the prevailing practice in Intertrade was to explicitly authorize an officer to contract loans in behalf of the
corporation. This is evidenced by the fact that previous to the controversy, the Intertrade Board of Directors,
through a board resolution, jointly empowered and authorized petitioner and respondent Arrieta to negotiate,
apply for, and open credit lines with Metrobank. xv[15] The participation of these two was mandated to be
joint and not separate and individual.

In the case at bench, only respondent Arrieta, together with a bookkeeper of the corporation, signed the
promissory notes, without the participation and approval of petitioner Aguenza. Moreover, the enabling
corporate act on this particular transaction has not been obtained. Neither has it been shown that any
provision of the charter or any other act of the Board of Directors exists to confer power on the Executive
Vice President acting alone and without the concurrence of its President, to execute the disputed
document.xvi[16]

Thus, proceeding from the premise that the subject loan was not the responsibility of Intertrade, it follows
that the undertaking of Arrieta and the bookkeeper was not an undertaking covered by the Continuing
Suretyship Agreement. The rule is that a contract of surety is never presumed; it must be express and cannot
extend to more than what is stipulated.xvii[17] It is strictly construed against the creditor, every doubt being
resolved against enlarging the liability of the surety.

The present obligation incurred in subject contract of loan, as secured by the Arrieta and Perez promissory
note, is not the obligation of the corporation and petitioner Aguenza, but the individual and personal
obligation of private respondents Arrieta and Lilia Perez.

WHEREFORE, the petition is GRANTED, and the questioned decision of the Court of Appeals xviii[18] dated
February 11, 1986 is REVERSED and SET ASIDE. The judgment of the trial court dated February 29, 1984 is
hereby REINSTATED.

No Costs. SO ORDERED.
Padilla (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.

G.R. No. 87434 August 5, 1992

PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. and TAGUM PLASTICS, INC., petitioners, vs.
SWEET LINES, INC., DAVAO VETERANS ARRASTRE AND PORT SERVICES, INC. and HON. COURT OF
APPEALS, respondents.

REGALADO, J.:

A maritime suit 1 was commenced on May 12, 1978 by herein Petitioner Philippine American General
Insurance Co., Inc. (Philamgen) and Tagum Plastics, Inc. (TPI) against private respondents Sweet Lines, Inc.
(SLI) and Davao Veterans Arrastre and Port Services, Inc. (DVAPSI), along with S.C.I. Line (The Shipping
Corporation of India Limited) and F.E. Zuellig, Inc., as co-defendants in the court a quo, seeking recovery of
the cost of lost or damaged shipment plus exemplary damages, attorney's fees and costs allegedly due to
defendants' negligence, with the following factual backdrop yielded by the findings of the court below and
adopted by respondent court:

It would appear that in or about March 1977, the vessel SS "VISHVA YASH" belonging to or operated by
the foreign common carrier, took on board at Baton Rouge, LA, two (2) consignments of cargoes for
shipment to Manila and later for transhipment to Davao City, consisting of 600 bags Low Density
Polyethylene 631 and another 6,400 bags Low Density Polyethylene 647, both consigned to the order
of Far East Bank and Trust Company of Manila, with arrival notice to Tagum Plastics, Inc., Madaum,
Tagum, Davao City. Said cargoes were covered, respectively, by Bills of Lading Nos. 6 and 7 issued by
the foreign common carrier (Exhs. E and F). The necessary packing or Weight List (Exhs. A and B), as
well as the Commercial Invoices (Exhs. C and D) accompanied the shipment. The cargoes were
likewise insured by the Tagum Plastics Inc. with plaintiff Philippine American General Insurance Co.,
Inc., (Exh. G).

In the course of time, the said vessel arrived at Manila and discharged its cargoes in the Port of Manila
for transhipment to Davao City. For this purpose, the foreign carrier awaited and made use of the
services of the vessel called M/V "Sweet Love" owned and operated by defendant interisland carrier.

Subject cargoes were loaded in Holds Nos. 2 and 3 of the interisland carrier. These were commingled
with similar cargoes belonging to Evergreen Plantation and also Standfilco.

On May 15, 1977, the shipment(s) were discharged from the interisland carrier into the custody of the
consignee. A later survey conducted on July 8, 1977, upon the instance of the plaintiff, shows the
following:
 Of the cargo covered by Bill of Lading No. 25 or (2)6, supposed to contain 6,400 bags of Low Density
Polyethylene 647 originally inside 160 pallets, there were delivered to the consignee 5,413 bags in
good order condition. The survey shows shortages, damages and losses to be as follows:

Undelivered/Damaged bags as tallied during discharge from vessel-173 bags;

undelivered and damaged as noted and observed whilst stored at the pier-699
bags; and shortlanded-110 bags (Exhs. P and P-1).

Of the 600 bags of Low Density Polyethylene 631, the survey conducted on the same day shows
an actual delivery to the consignee of only 507 bags in good order condition. Likewise noted
were the following losses, damages and shortages, to wit:

Undelivered/damaged bags and tally sheets during discharge from vessel-17 bags.

Undelivered and damaged as noted and observed whilst stored at the pier-66 bags;
Shortlanded-10 bags.

Therefore, of said shipment totalling 7,000 bags, originally contained in 175 pallets, only a total
of 5,820 bags were delivered to the consignee in good order condition, leaving a balance of 1,080
bags. Such loss from this particular shipment is what any or all defendants may be answerable to
(sic).

As already stated, some bags were either shortlanded or were missing, and some of the 1,080
bags were torn, the contents thereof partly spilled or were fully/partially emptied, but, worse, the
contents thereof contaminated with foreign matters and therefore could no longer serve their
intended purpose. The position taken by the consignee was that even those bags which still had
some contents were considered as total losses as the remaining contents were contaminated
with foreign matters and therefore did not (sic) longer serve the intended purpose of the
material. Each bag was valued, taking into account the customs duties and other taxes paid as
well as charges and the conversion value then of a dollar to the peso, at P110.28 per bag (see
Exhs. L and L-1 M and O). 2

Before trial, a compromise agreement was entered into between petitioners, as plaintiffs, and defendants
S.C.I. Line and F.E. Zuellig, upon the latter's payment of P532.65 in settlement of the claim against them.
Whereupon, the trial court in its order of August 12, 1981 3 granted plaintiffs' motion to dismiss grounded on
said amicable settlement and the case as to S.C.I. Line and F.E. Zuellig was consequently "dismissed with
prejudice and without pronouncement as to costs."

The trial court thereafter rendered judgment in favor of herein petitioners on this dispositive portion:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff Philippine General American
Insurance Company Inc. and against the remaining defendants, Sweet Lines Inc. and Davao Veterans
Arrastre Inc. as follows:

Defendant Sweet Lines, Inc. is ordered to pay said plaintiff the sum of P34,902.00, with legal interest
thereon from date of extrajudicial demand on April 28, 1978 (Exh. M) until fully paid;

Defendant Sweet Lines Inc. and Davao Veterans Arrastre and (Port) Services Inc. are directed to pay
jointly and severally, the plaintiff the sum of P49,747.55, with legal interest thereon from April 28,
1978 until fully paid;

Each of said defendants are ordered to pay the plaintiffs the additional sum of P5,000 is reimbursable
attorney's fees and other litigation expenses;
 Each of said defendants shall pay one-fourth (1/4) costs. 4

Due to the reversal on appeal by respondent court of the trial court's decision on the ground of prescription, 5

in effect dismissing the complaint of herein petitioners, and the denial of their motion for reconsideration, 6
petitioners filed the instant petition for review on certiorari, faulting respondent appellate court with the
following errors: (1) in upholding, without proof, the existence of the so-called prescriptive period; (2)
granting arguendo that the said prescriptive period does exist, in not finding the same to be null and void;
and (3) assuming arguendo that the said prescriptive period is valid and legal, in failing to conclude that
petitioners substantially complied therewith. 7

Parenthetically, we observe that herein petitioners are jointly pursuing this case, considering their common
interest in the shipment subject of the present controversy, to obviate any question as to who the real party
in interest is and to protect their respective rights as insurer and insured. In any case, there is no
impediment to the legal standing of Petitioner Philamgen, even if it alone were to sue herein private
respondents in its own capacity as insurer, it having been subrogated to all rights of recovery for loss of or
damage to the shipment insured under its Marine Risk Note No. 438734 dated March 31, 1977 8 in view of
the full settlement of the claim thereunder as evidenced by the subrogation receipt 9 issued in its favor by
Far East Bank and Trust Co., Davao Branch, for the account of petitioner TPI.

Upon payment of the loss covered by the policy, the insurer's entitlement to subrogation pro tanto, being of
the highest equity, equips it with a cause of action against a third party in case of contractual breach. 10
Further, the insurer's subrogatory right to sue for recovery under the bill of lading in case of loss of or
damage to the cargo is jurisprudentially upheld. 11 However, if an insurer, in the exercise of its subrogatory
right, may proceed against the erring carrier and for all intents and purposes stands in the place and in
substitution of the consignee, a fortiori such insurer is presumed to know and is just as bound by the
contractual terms under the bill of lading as the insured.

On the first issue, petitioners contend that it was error for the Court of Appeals to reverse the appealed
decision on the supposed ground of prescription when SLI failed to adduce any evidence in support thereof
and that the bills of lading said to contain the shortened periods for filing a claim and for instituting a court
action against the carrier were never offered in evidence. Considering that the existence and tenor of this
stipulation on the aforesaid periods have allegedly not been established, petitioners maintain that it is
inconceivable how they can possibly comply therewith. 12 In refutation, SLI avers that it is standard practice
in its operations to issue bills of lading for shipments entrusted to it for carriage and that it in fact issued bills
of lading numbered MD-25 and MD-26 therefor with proof of their existence manifest in the records of the
case. 13 For its part, DVAPSI insists on the propriety of the dismissal of the complaint as to it due to
petitioners' failure to prove its direct responsibility for the loss of and/or damage to the cargo. 14

On this point, in denying petitioner's motion for reconsideration, the Court of Appeals resolved that although
the bills of lading were not offered in evidence, the litigation obviously revolves on such bills of lading which
are practically the documents or contracts sued upon, hence, they are inevitably involved and their
provisions cannot be disregarded in the determination of the relative rights of the parties thereto. 15

Respondent court correctly passed upon the matter of prescription, since that defense was so considered and
controverted by the parties. This issue may accordingly be taken cognizance of by the court even if not
inceptively raised as a defense so long as its existence is plainly apparent on the face of relevant pleadings.
16
In the case at bar, prescription as an affirmative defense was seasonably raised by SLI in its answer, 17
except that the bills of lading embodying the same were not formally offered in evidence, thus reducing the
bone of contention to whether or not prescription can be maintained as such defense and, as in this case,
consequently upheld on the strength of mere references thereto.

As petitioners are suing upon SLI's contractual obligation under the contract of carriage as contained in the
bills of lading, such bills of lading can be categorized as actionable documents which under the Rules must
be properly pleaded either as causes of action or defenses, 18 and the genuineness and due execution of
which are deemed admitted unless specifically denied under oath by the adverse party. 19 The rules on
actionable documents cover and apply to both a cause of action or defense based on said documents. 20

In the present case and under the aforestated assumption that the time limit involved is a prescriptive
period, respondent carrier duly raised prescription as an affirmative defense in its answer setting forth
paragraph 5 of the pertinent bills of lading which comprised the stipulation thereon by parties, to wit:

5. Claims for shortage, damage, must be made at the time of delivery to consignee or agent, if container
shows exterior signs of damage or shortage. Claims for non-delivery, misdelivery, loss or damage must
be filed within 30 days from accrual. Suits arising from shortage, damage or loss, non-delivery or
misdelivery shall be instituted within 60 days from date of accrual of right of action. Failure to file claims
or institute judicial proceedings as herein provided constitutes waiver of claim or right of action. In no
case shall carrier be liable for any delay, non-delivery, misdelivery, loss of damage to cargo while cargo
is not in actual custody of carrier. 21

In their reply thereto, herein petitioners, by their own assertions that

2. In connection with Pars. 14 and 15 of defendant Sweet Lines, Inc.'s Answer, plaintiffs state that such
agreements are what the Supreme Court considers as contracts of adhesion (see Sweet Lines, Inc. vs.
Hon. Bernardo Teves, et al., G.R. No. L-37750, May 19, 1978) and, consequently, the provisions therein
which are contrary to law and public policy cannot be availed of by answering defendant as valid
defenses. 22

thereby failed to controvert the existence of the bills of lading and the aforequoted provisions therein, hence
they impliedly admitted the same when they merely assailed the validity of subject stipulations.

Petitioners' failure to specifically deny the existence, much less the genuineness and due execution, of the
instruments in question amounts to an admission. Judicial admissions, verbal or written, made by the parties
in the pleadings or in the course of the trial or other proceedings in the same case are conclusive, no
evidence being required to prove the same, and cannot be contradicted unless shown to have been made
through palpable mistake or that no such admission was made. 23 Moreover, when the due execution and
genuineness of an instrument are deemed admitted because of the adverse party's failure to make a specific
verified denial thereof, the instrument need not be presented formally in evidence for it may be considered
an admitted fact. 24

Even granting that petitioners' averment in their reply amounts to a denial, it has the procedural earmarks of
what in the law on pleadings is called a negative pregnant, that is, a denial pregnant with the admission of
the substantial facts in the pleading responded to which are not squarely denied. It is in effect an admission
of the averment it is directed to. 25 Thus, while petitioners objected to the validity of such agreement for
being contrary to public policy, the existence of the bills of lading and said stipulations were nevertheless
impliedly admitted by them.

We find merit in respondent court's comments that petitioners failed to touch on the matter of the non-
presentation of the bills of lading in their brief and earlier on in the appellate proceedings in this case, hence
it is too late in the day to now allow the litigation to be overturned on that score, for to do so would mean an
over-indulgence in technicalities. Hence, for the reasons already advanced, the non-inclusion of the
controverted bills of lading in the formal offer of evidence cannot, under the facts of this particular case, be
considered a fatal procedural lapse as would bar respondent carrier from raising the defense of prescription.
Petitioners' feigned ignorance of the provisions of the bills of lading, particularly on the time limitations for
filing a claim and for commencing a suit in court, as their excuse for non-compliance therewith does not
deserve serious attention.

It is to be noted that the carriage of the cargo involved was effected pursuant to an "Application for Delivery
of Cargoes without Original Bill of Lading" issued on May 20, 1977 in Davao City 26 with the notation therein
that said application corresponds to and is subject to the terms of bills of lading MD-25 and MD-26. It would
be a safe assessment to interpret this to mean that, sight unseen, petitioners acknowledged the existence of
said bills of lading. By having the cargo shipped on respondent carrier's vessel and later making a claim for
loss on the basis of the bills of lading, petitioners for all intents and purposes accepted said bills. Having
done so they are bound by all stipulations contained therein. 27 Verily, as petitioners are suing for recovery
on the contract, and in fact even went as far as assailing its validity by categorizing it as a contract of
adhesion, then they necessarily admit that there is such a contract, their knowledge of the existence of
which with its attendant stipulations they cannot now be allowed to deny.

On the issue of the validity of the controverted paragraph 5 of the bills of lading above quoted which
unequivocally prescribes a time frame of thirty (30) days for filing a claim with the carrier in case of loss of or
damage to the cargo and sixty (60) days from accrual of the right of action for instituting an action in court,
which periods must concur, petitioners posit that the alleged shorter prescriptive period which is in the
nature of a limitation on petitioners' right of recovery is unreasonable and that SLI has the burden of proving
otherwise, citing the earlier case of Southern Lines, Inc. vs. Court of Appeals, et al. 28 They postulate this on
the theory that the bills of lading containing the same constitute contracts of adhesion and are, therefore,
void for being contrary to public policy, supposedly pursuant to the dictum in Sweet Lines, Inc. vs. Teves, et
al. 29

Furthermore, they contend, since the liability of private respondents has been clearly established, to bar
petitioners' right of recovery on a mere technicality will pave the way for unjust enrichment. 30 Contrarily, SLI
asserts and defends the reasonableness of the time limitation within which claims should be filed with the
carrier; the necessity for the same, as this condition for the carrier's liability is uniformly adopted by nearly
all shipping companies if they are to survive the concomitant rigors and risks of the shipping industry; and
the countervailing balance afforded by such stipulation to the legal presumption of negligence under which
the carrier labors in the event of loss of or damage to the cargo. 31

It has long been held that Article 366 of the Code of Commerce applies not only to overland and river
transportation but also to maritime
transportation. 32 Moreover, we agree that in this jurisdiction, as viewed from another angle, it is more
accurate to state that the filing of a claim with the carrier within the time limitation therefor under Article
366 actually constitutes a condition precedent to the accrual of a right of action against a carrier for
damages caused to the merchandise. The shipper or the consignee must allege and prove the fulfillment of
the condition and if he omits such allegations and proof, no right of action against the carrier can accrue in
his favor. As the requirements in Article 366, restated with a slight modification in the assailed paragraph 5
of the bills of lading, are reasonable conditions precedent, they are not limitations of action. 33 Being
conditions precedent, their performance must precede a suit for enforcement 34 and the vesting of the right
to file spit does not take place until the happening of these conditions. 35

Now, before an action can properly be commenced all the essential elements of the cause of action must be
in existence, that is, the cause of action must be complete. All valid conditions precedent to the institution of
the particular action, whether prescribed by statute, fixed by agreement of the parties or implied by law
must be performed or complied with before commencing the action, unless the conduct of the adverse party
has been such as to prevent or waive performance or excuse non-performance of the condition. 36

It bears restating that a right of action is the right to presently enforce a cause of action, while a cause of
action consists of the operative facts which give rise to such right of action. The right of action does not arise
until the performance of all conditions precedent to the action and may be taken away by the running of the
statute of limitations, through estoppel, or by other circumstances which do not affect the cause of action. 37
Performance or fulfillment of all conditions precedent upon which a right of action depends must be
sufficiently alleged, 38 considering that the burden of proof to show that a party has a right of action is upon
the person initiating the suit. 39

More particularly, where the contract of shipment contains a reasonable requirement of giving notice of loss
of or injury to the goods, the giving of such notice is a condition precedent to the action for loss or injury or
the right to enforce the carrier's liability. Such requirement is not an empty formalism. The fundamental
reason or purpose of such a stipulation is not to relieve the carrier from just liability, but reasonably to inform
it that the shipment has been damaged and that it is charged with liability therefor, and to give it an
opportunity to examine the nature and extent of the injury. This protects the carrier by affording it an
opportunity to make an investigation of a claim while the matter is fresh and easily investigated so as to
safeguard itself from false and fraudulent claims. 40

Stipulations in bills of lading or other contracts of shipment which require notice of claim for loss of or
damage to goods shipped in order to impose liability on the carrier operate to prevent the enforcement of
the contract when not complied with, that is, notice is a condition precedent and the carrier is not liable if
notice is not given in accordance with the stipulation, 41 as the failure to comply with such a stipulation in a
contract of carriage with respect to notice of loss or claim for damage bars recovery for the loss or damage
suffered. 42

On the other hand, the validity of a contractual limitation of time for filing the suit itself against a carrier
shorter than the statutory period therefor has generally been upheld as such stipulation merely affects the
shipper's remedy and does not affect the liability of the carrier. In the absence of any statutory limitation and
subject only to the requirement on the reasonableness of the stipulated limitation period, the parties to a
contract of carriage may fix by agreement a shorter time for the bringing of suit on a claim for the loss of or
damage to the shipment than that provided by the statute of limitations. Such limitation is not contrary to
public policy for it does not in any way defeat the complete vestiture of the right to recover, but merely
requires the assertion of that right by action at an earlier period than would be necessary to defeat it through
the operation of the ordinary statute of limitations. 43

In the case at bar, there is neither any showing of compliance by petitioners with the requirement for the
filing of a notice of claim within the prescribed period nor any allegation to that effect. It may then be said
that while petitioners may possibly have a cause of action, for failure to comply with the above condition
precedent they lost whatever right of action they may have in their favor or, token in another sense, that
remedial right or right to relief had prescribed. 44

The shipment in question was discharged into the custody of the consignee on May 15, 1977, and it was from
this date that petitioners' cause of action accrued, with thirty (30) days therefrom within which to file a claim
with the carrier for any loss or damage which may have been suffered by the cargo and thereby perfect their
right of action. The findings of respondent court as supported by petitioners' formal offer of evidence in the
court below show that the claim was filed with SLI only on April 28, 1978, way beyond the period provided in
the bills of lading 45 and violative of the contractual provision, the inevitable consequence of which is the loss
of petitioners' remedy or right to sue. Even the filing of the complaint on May 12, 1978 is of no remedial or
practical consequence, since the time limits for the filing thereof, whether viewed as a condition precedent
or as a prescriptive period, would in this case be productive of the same result, that is, that petitioners had
no right of action to begin with or, at any rate, their claim was time-barred.

What the court finds rather odd is the fact that petitioner TPI filed a provisional claim with DVAPSI as early as
June 14, 1977 46 and, as found by the trial court, a survey fixing the extent of loss of and/or damage to the
cargo was conducted on July 8, 1977 at the instance of petitioners. 47 If petitioners had the opportunity and
awareness to file such provisional claim and to cause a survey to be conducted soon after the discharge of
the cargo, then they could very easily have filed the necessary formal, or even a provisional, claim with SLI
itself 48 within the stipulated period therefor, instead of doing so only on April 28, 1978 despite the vessel's
arrival at the port of destination on May 15, 1977. Their failure to timely act brings us to no inference other
than the fact that petitioners slept on their rights and they must now face the consequences of such inaction.

The ratiocination of the Court of Appeals on this aspect is worth reproducing:

xxx xxx xxx

 It must be noted, at this juncture, that the aforestated time limitation in the presentation of claim for loss
or damage, is but a restatement of the rule prescribed under Art. 366 of the Code of Commerce which
reads as follows:

Art. 366. Within the twenty-four hours following the receipt of the merchandise, the claim against
the carrier for damage or average which may be found therein upon opening the packages, may
be made, provided that the indications of the damage or average which gives rise to the claim
cannot be ascertained from the outside part of the packages, in which case the claims shall be
admitted only at the time of the receipt.

After the periods mentioned have elapsed, or the transportation charges have been paid, no claim
shall be admitted against the carrier with regard to the condition in which the goods transported
were delivered.

Gleanable therefrom is the fact that subject stipulation even lengthened the period for presentation of
claims thereunder. Such modification has been sanctioned by the Supreme Court. In the case of Ong Yet
(M)ua Hardware Co., Inc. vs. Mitsui Steamship Co., Ltd., et al., 59 O.G. No. 17, p. 2764, it ruled that Art.
366 of the Code of Commerce can be modified by a bill of lading prescribing the period of 90 days after
arrival of the ship, for filing of written claim with the carrier or agent, instead of the 24-hour time limit
after delivery provided in the aforecited legal provision.

Tested, too, under paragraph 5 of said Bill of Lading, it is crystal clear that the commencement of the
instant suit on May 12, 1978 was indeed fatally late. In view of the express provision that "suits arising
from
. . . damage or loss shall be instituted within 60 days from date of accrual of right of action," the present
action necessarily fails on ground of prescription.

In the absence of constitutional or statutory prohibition, it is usually held or recognized that it is

competent for the parties to a contract of shipment to agree on a limitation of time shorter than
the statutory period, within which action for breach of the contract shall be brought, and such
limitation will be enforced if reasonable . . . (13 C.J.S. 496-497)

A perusal of the pertinent provisions of law on the matter would disclose that there is no constitutional or
statutory prohibition infirming paragraph 5 of subject Bill of Lading. The stipulated period of 60 days is
reasonable enough for appellees to ascertain the facts and thereafter to sue, if need be, and the 60-day
period agreed upon by the parties which shortened the statutory period within which to bring action for
breach of contract is valid and binding. . . . (Emphasis in the original text.) 49

As explained above, the shortened period for filing suit is not unreasonable and has in fact been generally
recognized to be a valid business practice in the shipping industry. Petitioners' advertence to the Court's
holding in the Southern Lines case, supra, is futile as what was involved was a claim for refund of excess
payment. We ruled therein that non-compliance with the requirement of filing a notice of claim under Article
366 of the Code of Commerce does not affect the consignee's right of action against the carrier because said
requirement applies only to cases for recovery of damages on account of loss of or damage to cargo, not to
an action for refund of overpayment, and on the further consideration that neither the Code of Commerce
nor the bills of lading therein provided any time limitation for suing for refund of money paid in excess,
except only that it be filed within a reasonable time.

The ruling in Sweet Lines categorizing the stipulated limitation on venue of action provided in the subject bill
of lading as a contract of adhesion and, under the circumstances therein, void for being contrary to public
policy is evidently likewise unavailing in view of the discrete environmental facts involved and the fact that
the restriction therein was unreasonable. In any case, Ong Yiu vs. Court of Appeals, et al., 50 instructs us that
"contracts of adhesion wherein one party imposes a ready-made form of contract on the other . . . are
contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if
he adheres he gives his consent." In the present case, not even an allegation of ignorance of a party excuses
non-compliance with the contractual stipulations since the responsibility for ensuring full comprehension of
the provisions of a contract of carriage devolves not on the carrier but on the owner, shipper, or consignee as
the case may be.

While it is true that substantial compliance with provisions on filing of claim for loss of or damage to cargo
may sometimes suffice, the invocation of such an assumption must be viewed vis-a-vis the object or purpose
which such a provision seeks to attain and that is to afford the carrier a reasonable opportunity to determine
the merits and validity of the claim and to protect itself against unfounded impositions. 51 Petitioners' would
nevertheless adopt an adamant posture hinged on the issuance by SLI of a "Report on Losses and Damages,"
dated May 15, 1977, 52 from which petitioners theorize that this charges private respondents with actual
knowledge of the loss and damage involved in the present case as would obviate the need for or render
superfluous the filing of a claim within the stipulated period.

Withal, it has merely to be pointed out that the aforementioned report bears this notation at the lower part
thereof: "Damaged by Mla. labor upon unloading; B/L noted at port of origin," as an explanation for the cause
of loss of and/or damage to the cargo, together with an iterative note stating that "(t)his Copy should be
submitted together with your claim invoice or receipt within 30 days from date of issue otherwise your claim
will not be honored."

Moreover, knowledge on the part of the carrier of the loss of or damage to the goods deducible from the
issuance of said report is not equivalent to nor does it approximate the legal purpose served by the filing of
the requisite claim, that is, to promptly apprise the carrier about a consignee's intention to file a claim and
thus cause the prompt investigation of the veracity and merit thereof for its protection. It would be an unfair
imposition to require the carrier, upon discovery in the process of preparing the report on losses or damages
of any and all such loss or damage, to presume the existence of a claim against it when at that time the
carrier is expectedly concerned merely with accounting for each and every shipment and assessing its
condition. Unless and until a notice of claim is therewith timely filed, the carrier cannot be expected to
presume that for every loss or damage tallied, a corresponding claim therefor has been filed or is already in
existence as would alert it to the urgency for an immediate investigation of the soundness of the claim. The
report on losses and damages is not the claim referred to and required by the bills of lading for it does not fix
responsibility for the loss or damage, but merely states the condition of the goods shipped. The claim
contemplated herein, in whatever form, must be something more than a notice that the goods have been
lost or damaged; it must contain a claim for compensation or indicate an intent to claim. 53

Thus, to put the legal effect of respondent carrier's report on losses or damages, the preparation of which is
standard procedure upon unloading of cargo at the port of destination, on the same level as that of a notice
of claim by imploring substantial compliance is definitely farfetched. Besides, the cited notation on the
carrier's report itself makes it clear that the filing of a notice of claim in any case is imperative if carrier is to
be held liable at all for the loss of or damage to cargo.

Turning now to respondent DVAPSI and considering that whatever right of action petitioners may have
against respondent carrier was lost due to their failure to seasonably file the requisite claim, it would be
awkward, to say the least, that by some convenient process of elimination DVAPSI should proverbially be left
holding the bag, and it would be pure speculation to assume that DVAPSI is probably responsible for the loss
of or damage to cargo. Unlike a common carrier, an arrastre operator does not labor under a presumption of
negligence in case of loss, destruction or deterioration of goods discharged into its custody. In other words,
to hold an arrastre operator liable for loss of and/or damage to goods entrusted to it there must be
preponderant evidence that it did not exercise due diligence in the handling and care of the goods.

Petitioners failed to pinpoint liability on any of the original defendants and in this seemingly wild goose-
chase, they cannot quite put their finger down on when, where, how and under whose responsibility the loss
or damage probably occurred, or as stated in paragraph 8 of their basic complaint filed in the court below,
whether "(u)pon discharge of the cargoes from the original carrying vessel, the SS VISHVA YASH," and/or
upon discharge of the cargoes from the interisland vessel the MV "SWEET LOVE," in Davao City and later
while in the custody of defendant arrastre operator. 54
The testimony of petitioners' own witness, Roberto Cabato, Jr., Marine and Aviation Claims Manager of
petitioner Philamgen, was definitely inconclusive and the responsibility for the loss or damage could still not
be ascertained therefrom:

Q In other words, Mr. Cabato, you only computed the loss on the basis of the figures submitted
to you and based on the documents like the survey certificate and the certificate of the arrastre?

A Yes, sir.

Q Therefore, Mr. Cabato, you have no idea how or where these losses were incurred?

A No, sir.

xxx xxx xxx

Q Mr. Witness, you said that you processed and investigated the claim involving the shipment in
question. Is it not a fact that in your processing and investigation you considered how the
shipment was transported? Where the losses could have occurred and what is the extent of the
respective responsibilities of the bailees and/or carriers involved?

xxx xxx xxx

A With respect to the shipment being transported, we have of course to get into it in order to
check whether the shipment coming in to this port is in accordance with the policy condition,
like in this particular case, the shipment was transported to Manila and transhipped through an
interisland vessel in accordance with the policy. With respect to the losses, we have a general
view where losses could have occurred. Of course we will have to consider the different bailees
wherein the shipment must have passed through, like the ocean vessel, the interisland vessel
and the arrastre, but definitely at that point and time we cannot determine the extent of each
liability. We are only interested at that point and time in the liability as regards the underwriter
in accordance with the policy that we issued.

xxx xxx xxx

Q Mr. Witness, from the documents, namely, the survey of Manila Adjusters and Surveyors
Company, the survey of Davao Arrastre contractor and the bills of lading issued by the
defendant Sweet Lines, will you be able to tell the respective liabilities of the bailees and/or
carriers concerned?

A No, sir. (Emphasis ours.) 55

Neither did nor could the trial court, much less the Court of Appeals, precisely establish the stage in the
course of the shipment when the goods were lost, destroyed or damaged. What can only be inferred from the
factual findings of the trial court is that by the time the cargo was discharged to DVAPSI, loss or damage had
already occurred and that the same could not have possibly occurred while the same was in the custody of
DVAPSI, as demonstrated by the observations of the trial court quoted at the start of this opinion.

ACCORDINGLY, on the foregoing premises, the instant petition is DENIED and the dismissal of the complaint
in the court a quo as decreed by respondent Court of Appeals in its challenged judgment is hereby
AFFIRMED. SO ORDERED.

[G.R. No. 111244. December 15, 1997]

ARTURO ALANO, petitioner, vs. THE HONORABLE COURT OF APPEALS, HON. ENRICO A.
LANZANAS, Presiding Judge, Regional Trial Court, National Capital Judicial Region, Manila,
Branch 37, and ROBERTO CARLOS, respondents.

ROMERO, J.:

Petitioner Arturo Alano has filed this petition for review of the decision xix[1] of the Court of Appeals in CA-G.R.
SP No. 28150 which affirmed in toto the order of the Regional Trial Court of Manila, Branch 37 xx[2] denying
petitioners motion for the suspension of proceeding of Criminal Case No. 90-84933, entitled People of the
Philippines vs. Arturo Alano as well as his motion for reconsideration.

Criminal Case No. 90-84933 is a prosecution for the crime of estafa. The information xxi[3] alleges:

That on or about June 10, 1986, in the City of Manila, Philippines, the said accused did then and there
wilfully, unlawfully and feloniously defraud Roberto S. Carlos in the following manner, to wit: the said
accused, pretending to be still the owner of a parcel of land with an area of 1,172 square meters, more or
less, located at Bicutan, Taguig, Metro Manila, covered by Tax Declaration No. 120-004-00398, well knowing
that he had previously sold the same to the said Roberto S. Carlos for P30,000.00, sold the aforesaid
property for the second time to one Erlinda B. Dandoy for P87,900.00, thereby depriving the said Roberto S.
Carlos of his rightful ownership/possession of the said parcel of land, to the damage and prejudice of the said
Roberto S. Carlos in the aforesaid amount of P30,000.00, Philippine currency.

Contrary to law.

Petitioner moved for the suspension of the criminal case on the ground that there was a prejudicial question
pending resolution in another case being tried in the Regional Trial Court, National Capital Region, Pasig,
Branch 68. The case, docketed as Civil Case No. 55103 and entitled Roberto Carlos and Trinidad M. Carlos v.
Arturo Alano, et al., concerns the nullity of the sale and recovery of possession and damages. In the
aforementioned Civil Case, private respondent filed a complaint against the petitioner seeking the annulment
of the second sale of said parcel of land made by the petitioner to a certain Erlinda Dandoy on the premise
that the said land was previously sold to them. In his answer, petitioner contends that he never sold the
property to the private respondents and that his signature appearing in the deed of absolute sale in favor of
the latter was a forgery, hence, the alleged sale was fictitious and inexistent. At this juncture, it is worth
mentioning that the civil case was filed on March 1, 1985, five years before June 19, 1990 when the criminal
case for estafa was instituted.

On October 3, 1991, the trial court denied the petitioners motion as well as a subsequent motion for
reconsideration.

Aggrieved, petitioner filed a petition for certiorari and prohibition before the Court of Appeals seeking the
nullification of the assailed order.

On July 26, 1993,xxii[4] the Court of Appeals dismissed the petition for lack of merit, the decretal portion of
which reads:

WHEREFORE, finding no merit to the petition, the same is hereby DISMISSED, with cost against petitioner.

Hence, this petition.

The only issue in this petition is whether the pendency of Civil Case No. 55103, is a prejudicial question
justifying the suspension of the proceedings in Criminal Case No. 90-84933 filed against the petitioner.

Petitioner alleges that his signature appearing in the first deed of absolute sale in favor of private respondent
was a forgery, such that there was no second sale covering the said parcel of land. Otherwise stated, if the
Court in the said Civil Case rules that the first sale to herein private respondent was null and void, due to the
forgery of petitioners signature in the first deed of sale, it follows that the criminal case for estafa would not
prosper.
While at first blush there seems to be merit in petitioners claim, we are compelled to affirm the Court of
Appeals findings.

The doctrine of prejudicial question comes into play in a situation where a civil action and a criminal action
are both pending and there exists in the former an issue which must be preemptively resolved before the
criminal action may proceed, because howsoever the issue raised in the civil action is resolved such
resolution would be determinative of the guilt or innocence of the accused in the criminal action. xxiii[5] In
other words, if both civil and criminal cases have similar issues or the issue in one is intimately related to the
issues raised in the other, then a prejudicial question would likely exist, provided the other element or
characteristic is satisfied.xxiv[6]

On the basis of the foregoing and a perusal of the facts obtaining in the case at bar, the disposition of the
issue raised need not unduly detain us. We have already ruled that a criminal action for estafa (for alleged
double sale of property) is a prejudicial question to a civil action for nullity of the alleged deed of sale and the
defense of the alleged vendor is the forgery of his signature in the deed. xxv[7]

Notwithstanding the apparent prejudicial question involved, the Court of Appeals still affirmed the Order of
the trial court denying petitioners motion for the suspension of the proceeding on the ground that petitioner,
in the stipulation of facts, had already admitted during the pre-trial order dated October 5, 1990 of the
criminal case the validity of his signature in the first deed of sale between him and the private respondent,
as well as his subsequent acknowledgment of his signature in twenty-three (23) cash vouchers evidencing
the payments made by the private respondent. xxvi[8] Moreover, it was also noted by the Court of Appeals
that petitioner even wrote to the private respondent offering to refund whatever sum the latter had paid. xxvii
[9]

In this regard, the pre-trial provision on criminal procedure found in Rule 118 of the Rules of Court provides:

Sec. 2. Pre-trial conference; subjects. x x x. The pre-trial conference shall consider the following:

(a) Plea bargaining

(b)Stipulation of facts

From the foregoing, there is no question that a stipulation of facts by the parties in a criminal case is
recognized as declarations constituting judicial admissions, hence, binding upon the parties xxviii[10] and by
virtue of which the prosecution dispensed with the introduction of additional evidence and the defense
waived the right to contest or dispute the veracity of the statement contained in the exhibit. xxix[11]

Accordingly, the stipulation of facts stated in the pre-trial order amounts to an admission by the petitioner
resulting in the waiver of his right to present evidence on his behalf. While it is true that the right to present
evidence is guaranteed under the Constitution, xxx[12] this right may be waived expressly or impliedly. xxxi[13]

Since the suspension of the criminal case due to a prejudicial question is only a procedural matter, the same
is subject to a waiver by virtue of the prior acts of the accused. After all, the doctrine of waiver is made solely
for the benefit and protection of the individual in his private capacity, if it can be dispensed with and
relinquished without infringing on any public right and without detriment to the community at large. xxxii[14]

Accordingly, petitioners admission in the stipulation of facts during the pre-trial of the criminal amounts to a
waiver of his defense of forgery in the civil case. Hence, we have no reason to nullify such waiver, it being
not contrary to law, public order, public policy, morals or good customs, or prejudicial to a third person with a
right recognized by law.xxxiii[15] Furthermore, it must be emphasized that the pre-trial order was signed by
the petitioner himself. As such, the rule that no proof need be offered as to any facts admitted at a pre-trial
hearing applies.xxxiv[16]

WHEREFORE, in view of the foregoing, the appealed decision of the Court of Appeals dated July 26, 1993 is
AFFIRMED. Costs against petitioner. SO ORDERED.

G.R. No. 119220 September 20, 1996

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. NILO SOLAYAO, accused-appellant.
ROMERO, J.:
Accused-appellant Nilo Solayao was charged before the Regional Trial Court of Naval, Biliran, Branch 16, with
the crime of illegal possession of firearm and ammunition 1 defined and penalized under Presidential Decree
No. 1866.

The lone prosecution witness, SPO3 Jose Nio, narrated that at about 9:00 o'clock in the evening of July 9,
1992, with CAFGU members Teofilo Llorad, Jr. and Cecilio Cenining, he went to Barangay Caulangohan,
Caibiran, Biliran. They were to conduct an intelligence patrol as required of them by their intelligence officer
to verify reports on the presence of armed persons roaming around the barangays of Caibiran. 2

From Barangay Caulangohan, the team of Police Officer Nio proceeded to Barangay Onion where they met
the group of accused-appellant Nilo Solayao numbering five. The former became suspicious when they
observed that the latter were drunk and that accused-appellant himself was wearing a camouflage uniform
or a jungle suit. Accused-appellant's companions, upon seeing the government agents, fled. 3

Police Officer Nio told accused-appellant not to run away and introduced himself as "PC," after which he
seized the dried coconut leaves which the latter was carrying and found wrapped in it a 49-inch long
homemade firearm locally know as "latong." When he asked accused-appellant who issued him a license to
carry said firearm or whether he was connected with the military or any intelligence group, the latter
answered that he had no permission to possess the same. Thereupon, SPO3 Nio confiscated the firearm and
turned him over to the custody of the policemen of Caibiran who subsequently investigated him and charged
him with illegal possession of firearm. 4

Accused-appellant, in his defense, did not contest the confiscation of the shotgun but averred that this was
only given to him by one of his companions, Hermogenes Cenining, when it was still wrapped in coconut
leaves. He claimed that he was not aware that there was a shotgun concealed inside the coconut leaves
since they were using the coconut leaves as a torch. He further claimed that this was the third torch handed
to him after the others had been used up. 5 Accused-appellant's claim was corroborated by one Pedro Balano
that he indeed received a torch from Hermogenes Cenining which turned out to be a shotgun wrapped in
coconut leaves. 6

On August 25, 1994, the trial court found accused-appellant guilty of illegal possession of firearm under
Section 1 of Presidential Decree No. 1866 and imposed upon him the penalty of imprisonment ranging from
reclusion temporal maximum to reclusion perpetua. The trial court, having found no mitigating but one
aggravating circumstance of nighttime, sentenced accused-appellant to suffer the prison term of reclusion
perpetua with the accessory penalties provided by law. 7 It found that accused-appellant did not contest the
fact that SPO3 Nio confiscated the firearm from him and that he had no permit or license to possess the
same. It hardly found credible accused-appellant's submission that he was in possession of the firearm only
by accident and that upon reaching Barangay Onion, he followed four persons, namely, Hermogenes
Cenining, Antonio Sevillano, Willie Regir and Jovenito Jaro when he earlier claimed that he did not know his
companions. 8

Accused-appellant comes to this Court on appeal and assigns the following errors:

I. The trial court erred in admitting in evidence the homemade firearm.

II. The trial court erred in appreciating the aggravating circumstance of nighttime in the imposition of the
maximum penalty against the accused-appellant. 9

This court, in the case of People v. Lualhati 10 ruled that in crimes involving illegal possession of firearm, the
prosecution has the burden of proving the elements thereof, viz: (a) the existence of the subject firearm and
(b) the fact that the accused who owned or possessed it does not have the corresponding license or permit
to possess the same.

In assigning the first error, accused-appellant argued that the trial court erred in admitting the subject
firearm in evidence as it was the product of an unlawful warrantless search. He maintained that the search
made on his person violated his constitutional right to be secure in his person and effects against
unreasonable searches and seizures. Not only was the search made without a warrant but it did not fall
under any of the circumstances enumerated under Section 5, Rule 113 of the 1985 Rules on Criminal
Procedure which provides, inter alia:

A peace officer or a private person may, without a warrant, arrest a person when in his presence, the person
to be arrested has committed, is actually committing, or is attempting to commit an offense.
Hence, the search being unlawful, the homemade firearm confiscated from him is inadmissible in evidence
for being "the fruit of the poisonous
tree." 11 As such, the prosecution's case must necessarily fail and the accused-appellant acquitted.

Accused-appellant's arguments follow the line of reasoning in People v. Cuizon, et al. 12 where this Court
declared: ". . . emphasis is to be laid on the fact that the law requires that the search be incident to a lawful
arrest, in order that the search itself may likewise be considered legal. Therefore, it is beyond cavil that a
lawful arrest must precede the search of a person and his belongings. Were a search first undertaken, then
an arrest effected based on evidence produced by the search, both such search and arrest would be
unlawful, for being contrary to law."

Under the circumstances obtaining in this case, however, accused-appellant's arguments are hardy tenable.
He and his companions' drunken actuations aroused the suspicion of SPO3 Nio's group, as well as the fact
that he himself was attired in a camouflage uniform or a jungle suit 13 and that upon espying the peace
officers, his companions fled. It should be noted that the peace officers were precisely on an intelligence
mission to verify reports that armed persons were roaming around the barangays of Caibiran. 14

The circumstances in this case are similar to those obtaining in Posadas v. Court of Appeals 15 where this
Court held that "at the time the peace officers identified themselves and apprehended the petitioner as he
attempted to flee, they did not know that he had committed, or was actually committing the offense of illegal
possession of firearm and ammunitions. They just suspended that he was hiding something in the buri bag.
They did not know what its contents were. The said circumstances did not justify an arrest without a
warrant."

This Court, nevertheless, ruled that the search and seizure in the Posadas case brought about by the
suspicious conduct of Posadas himself can be likened to a "stop and frisk" situation. There was probable
cause to conduct a search even before an arrest could be made.

In the present case, after SPO3 Nio told accused-appellant not to run away, the former identified himself as
a government agents. 16 The peace officers did not know that he had committed, or was actually committing,
the offense of illegal possession of firearm. Tasked with verifying the report that there were armed men
roaming in the barangays surrounding Caibiran, their attention was understandably drawn to the group that
had aroused their suspicion. They could not have known that the object wrapped in coconut leaves which
accused-appellant was carrying hid a firearm.

As with Posadas, the case at bar constitutes an instance where a search and seizure may be effected without
first making an arrest. There was justifiable cause to "stop and frisk" accused-appellant when his companions
filed upon seeing the government agents. Under the circumstances, the government agents could not
possibly have procured a search warrant first.

Thus, there was no violation of the constitutional guarantee against unreasonable searches and seizures. Nor
was there error on the part of the trial court when it admitted the homemade firearm as evidence.

As to the question of whether or not the prosecution was able to prove the second element, that is, the
absence of a license or permit to possess the subject firearm, this Court agrees with the Office of the Solicitor
General which pointed out that the prosecution failed to prove that accused-appellant lacked the necessary
permit or license to possess the subject firearm. 17

Undoubtedly, it is the constitutional presumption of innocence that lays such burden upon the prosecution.
The absence of such license and legal authority constitutes an essential ingredient of the offense of illegal
possession of firearm, and every ingredient or essential element of an offense must be shown by the
prosecution by proof beyond reasonable doubt. 18

In People v. Tiozon, 19
this Court said:

It is true that People vs. Lubo, 101 Phil. 179 and People vs. Ramos, 8 SCRA 758 could be invoked to support
the view that it is incumbent upon a person charged with illegal possession of a firearm to prove the issuance
to him of a license to possess the firearm, but we are of the considered opinion that under the provisions of
Section 2, Rule 131 of the Rules of Court which provide that in criminal cases the burden of proof as to the
offense charged lies on the prosecution and that a negative fact alleged by the prosecution must be proven if
"it is an essential ingredient of the offense charged," the burden of proof was with the prosecution in this
case to prove that the firearm used by appellant in committing the offense charged was not properly
licensed.
It cannot be denied that the lack or absence of a license is an essential ingredient of the offense of illegal
possession of a firearm. The information filed against appellant in Criminal Case No. 3558 of the lower court
(now G.R. No. 27681) specifically alleged that he had no "license or permit to possess" the .45 caliber pistol
mentioned therein. Thus it seems clear that it was the prosecution's duty not merely to allege that negative
fact but to prove it. This view is supported by similar adjudicated cases. In U.S. vs. Tria, 17 Phil. 303, the
accused was charged with "having criminally inscribed himself as a voter knowing that he had none of the
qualifications required to be a voter. It was there held that the negative fact of lack of qualification to be a
voter was an essential element of the crime charged and should be proved by the prosecution. In another
case (People vs. Quebral. 68 Phil. 564) where the accused was charged with illegal practice of medicine
because he had diagnosed, treated and prescribed for certain diseases suffered by certain patients from
whom he received monetary compensation, without having previously obtained the proper certificate of
registration from the Board of Medical Examiners, as provided in Section 770 of the Administrative Code, this
Court held that if the subject of the negative averment like, for instance, the act of voting without the
qualifications provided by law is an essential ingredient of the offense charged, the prosecution has the
burden of proving the same, although in view of the difficulty of proving a negative allegation, the
prosecution, under such circumstance, need only establish a prima facie case from the best evidence
obtainable. In the case before Us, both appellant and the Solicitor General agree that there was not even a
prima facie case upon which to hold appellant guilty of the illegal possession of a firearm. Former Chief
Justice Moral upholds this view as follows:

The mere fact that the adverse party has the control of the better means of proof of the fact alleged, should
not relieve the party making the averment of the burden of proving it. This is so, because a party who alleges
a fact must be assumed to have acquired some knowledge thereof, otherwise he could not have alleged it.
Familiar instance of this is the case of a person prosecuted for doing an act or carrying on a business, such
as, the sale of liquor without a license. How could the prosecution aver the want of a license if it had
acquired no knowledge of that fact? Accordingly, although proof of the existence or non-existence of such
license can, with more facility, be adduced by the defendant, it is nevertheless, encumber upon the party
alleging the want of the license to prove the allegation. Naturally, as the subject matter of the averment is
one which lies peculiarly within the control or knowledge of the accused prima facie evidence thereof on the
part of the prosecution shall suffice to cast the onus upon him." (6 Moran, Comments on the Rules of Court,
1963 edition, p. 8).

Finally, the precedents cited above have been crystallized as the present governing case law on this
question. As this Court summed up the doctrine in People v. Macagaling: 20

We cannot see how the rule can be otherwise since it is the inescapable duty of the prosecution to prove all
the ingredients of the offense as alleged against the accused in an information, which allegations must
perforce include any negative element provided by the law to integrate that offense. We have reiterated
quite recently the fundamental mandate that since the prosecution must allege all the elements of the
offense charged, then it must prove by the requisite quantum of evidence all the elements it has thus
alleged.

In the case at bar, the prosecution was only able to prove by testimonial evidence that accused-appellant
admitted before Police Officer Nio at the time that he was accosted that he did not have any authority or
license to carry the subject firearm when he was asked if he had one. 21 In other words, the prosecution relied
on accused-appellant's admission to prove the second element.

Is this admission sufficient to prove beyond reasonable doubt the second element of illegal possession of
firearm which is that accused-appellant does not have the corresponding license? Corollary to the above
question is whether an admission by the accused-appellant can take the place of any evidentiary means
establishing beyond reasonable doubt the fact averred in the negative in the pleading and which forms an
essential ingredient of the crime charged.

This Court answers both questions in the negative. By its very nature, an "admission is the mere
acknowledgment of a fact or of circumstance from which guilt may be inferred, tending to incriminate the
speaker, but not sufficient of itself to establish his guilt." 22 In other words, it is a "statement by defendant of
fact or facts pertinent to issues pending, in connection with proof of other facts or circumstances, to prove
guilt, but which is, of itself, insufficient to authorize conviction." 23 From the above principles, this Court can
infer that an admission in criminal cases is insufficient to prove beyond reasonable doubt the commission of
the crime charged.

Moreover, said admission is extra-judicial in nature. As such, it does not fall under Section 4 of Rule 129 of
the Revised Rules of Court which states:
An admission, verbal or written, made by a party in the course of the trial or other proceedings in the same
case does not require proof.

Not being a judicial admission, said statement by accused-appellant does not prove beyond reasonable
doubt the second element of illegal possession of firearm. It does not even establish a prima facie case. It
merely bolsters the case for the prosecution but does not stand as proof of the fact of absence or lack of a
license.

This Court agrees with the argument of the Solicitor General that "while the prosecution was able to establish
the fact that the subject firearm was seized by the police from the possession of appellant, without the latter
being able to present any license or permit to possess the same, such fact alone is not conclusive proof that
he was not lawfully authorized to carry such firearm. In other words, such fact does not relieve the
prosecution from its duty to establish the lack of a license or permit to carry the firearm by clear and
convincing evidence, like a certification from the government agency concerned." 24

Putting it differently, "when a negative is averred in a pleading, or a plaintiff's case depends upon the
establishment of a negative, and the means of proving the fact are equally within the control of each party,
then the burden of proof is upon the party averring the negative." 25

In this case, a certification from the Firearms and Explosives Unit of the Philippine National Police that
accused-appellant was not a licensee of a firearm of any kind or caliber would have sufficed for the
prosecution to prove beyond reasonable doubt the second element of the crime of illegal possession of
firearm.

In view of the foregoing, this Court sees no need to discuss the second assigned error.

WHEREFORE, the assailed judgment of the court a quo is REVERSED and SET ASIDE. Accused-appellant Nilo
Solayao is hereby ACQUITTED for insufficiency of evidence and ordered immediately released unless there
are other legal grounds for his continued detention, with cost de oficio.

SO ORDERED.
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