Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-3422             June 13, 1952

HIDALGO ENTERPRISES, INC., petitioner,

vs.
GUILLERMO BALANDAN, ANSELMA ANILA and THE COURT OF APPEALS, respondents.

Quisumbing, Sycip, Quisumbing and Salazar for petitioner.

Antonio M. Moncado for respondents.

BENGZON, J.:

This is an appeal by certiorari, from a decision of the Court of Appeals requiring Hidalgo Enterprises, Inc. to
pay Guillermo Balandan and his wife, damages in the sum of P2,000 for the death of their son Mario.

It appears that the petitioner Hidalgo Enterprises, Inc. "was the owner of an ice-plant factory in the City of
San Pablo, Laguna, in whose premises were installed two tanks full of water, nine feet deep, for cooling
purposes of its engine. While the factory compound was surrounded with fence, the tanks themselves were
not provided with any kind of fence or top covers. The edges of the tanks were barely a foot high from the
surface of the ground. Through the wide gate entrance, which is continually open, motor vehicles hauling
ice and persons buying said commodity passed, and any one could easily enter the said factory, as he
pleased. There was no guard assigned on the gate. At about noon of April 16, 1948, plaintiff's son, Mario
Balandan, a boy barely 8 years old, while playing with and in company of other boys of his age entered the
factory premises through the gate, to take a bath in one of said tanks; and while thus bathing, Mario sank to
the bottom of the tank, only to be fished out later, already a cadaver, having been died of "asphyxia
secondary to drowning."

The Court of Appeals, and the Court of First Instance of Laguna, took the view that the petitioner
maintained an attractive nuisance (the tanks), and neglected to adopt the necessary precautions to avoid
accidents to persons entering its premises. It applied the doctrine of attractive nuisance, of American origin,
recognized in this Jurisdiction in Taylor vs. Manila Electric 16 Phil., 8.

The doctrine may be stated, in short, as follows: One who maintains on his premises dangerous
instrumentalities or appliances of a character likely to attract children in play, and who fails to exercise
ordinary care to prevent children from playing therewith or resorting thereto, is liable to a child of tender
years who is injured thereby, even if the child is technically a trespasser in the premises. (See 65 C.J.S., p.
455.)

The principle reason for the doctrine is that the condition or appliance in question although its danger is
apparent to those of age, is so enticing or alluring to children of tender years as to induce them to
approach, get on or use it, and this attractiveness is an implied invitation to such children (65 C.J.S., p.
458).

Now, is a swimming pool or water tank an instrumentality or appliance likely to attract the little children in
play? In other words is the body of water an attractive nuisance?

The great majority of American decisions say no.

The attractive nuisance doctrine generally is not applicable to bodies of water, artificial as well as
natural, in the absence of some unusual condition or artificial feature other than the mere water and
its location.

There are numerous cases in which the attractive nuisance doctrine has not been held not to be
applicable to ponds or reservoirs, pools of water, streams, canals, dams, ditches, culverts, drains,
 cesspools or sewer pools, . . . (65 C.J.S., p. 476 et seg. citing decisions of California, Georgia,
Idaho, Illinois, Kansas, Iowa, Louisiana, Miss., Missouri, Montana, Oklahoma, Pennsylvania,
Tennessee, Texas, Nebraska, Wisconsin.)

In fairness to the Court of Appeals it should be stated that the above volume of Corpus Juris Secundum
was published in 1950, whereas its decision was promulgated on September 30, 1949.

The reason why a swimming pool or pond or reservoir of water is not considered an attractive nuisance
was lucidly explained by the Indiana Appellate Court as follows:

Nature has created streams, lakes and pools which attract children. Lurking in their waters is always
the danger of drowning. Against this danger children are early instructed so that they are sufficiently
presumed to know the danger; and if the owner of private property creates an artificial pool on his
own property, merely duplicating the work of nature without adding any new danger, . . . (he) is not
liable because of having created an "attractive nuisance." Anderson vs. Reith-Riley Const. Co., N.
E., 2nd, 184, 185; 112 Ind. App., 170.

Therefore, as petitioner's tanks are not classified as attractive nuisance, the question whether the petitioner
had taken reasonable precautions becomes immaterial. And the other issue submitted by petitioner — that
the parents of the boy were guilty of contributory negligence precluding recovery, because they left for
Manila on that unlucky day leaving their son under the care of no responsible individual — needs no further
discussion.

The appealed decision is reversed and the Hidalgo Enterprises, Inc. is absolved from liability. No costs.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-33722 July 29, 1988

FEDERICO YLARDE and ADELAIDA DORONIO petitioners,

vs.
EDGARDO AQUINO, MAURO SORIANO and COURT OF APPEALS, respondents.

Buenaventura C. Evangelista for petitioners.

Modesto V. Cabanela for respondent Edgardo Aquino.

Manuel P. Pastor for respondent Mauro Soriano.

GANCAYCO, J.:

In this petition for review on certiorari seeking the reversal of the decision of the Court of Appeals in CA-
G.R. No. 36390-R entitled "Federico Ylarde, et al. vs. Edgardo Aquino, et al.," a case which originated from
the Court of First Instance of Pangasinan, We are again caned upon determine the responsibility of the
principals and teachers towards their students or pupils.

In 1963, private respondent Mariano Soriano was the principal of the Gabaldon Primary School, a public
educational institution located in Tayug, Pangasinan-Private respondent Edgardo Aquino was a teacher
therein. At that time, the school was fittered with several concrete blocks which were remnants of the old
school shop that was destroyed in World War II. Realizing that the huge stones were serious hazards to the
schoolchildren, another teacher by the name of Sergio Banez started burying them one by one as early as
1962. In fact, he was able to bury ten of these blocks all by himself.

Deciding to help his colleague, private respondent Edgardo Aquino gathered eighteen of his male pupils,
aged ten to eleven, after class dismissal on October 7, 1963. Being their teacher-in-charge, he ordered
them to dig beside a one-ton concrete block in order to make a hole wherein the stone can be buried. The
work was left unfinished. The following day, also after classes, private respondent Aquino called four of the
original eighteen pupils to continue the digging. These four pupils — Reynaldo Alonso, Francisco
Alcantara, Ismael Abaga and Novelito Ylarde, dug until the excavation was one meter and forty centimeters
deep. At this point, private respondent Aquino alone continued digging while the pupils remained inside the
pit throwing out the loose soil that was brought about by the digging.

When the depth was right enough to accommodate the concrete block, private respondent Aquino and his
four pupils got out of the hole. Then, said private respondent left the children to level the loose soil around
the open hole while he went to see Banez who was about thirty meters away. Private respondent wanted to
borrow from Banez the key to the school workroom where he could get some rope. Before leaving. , private
respondent Aquino allegedly told the children "not to touch the stone."

A few minutes after private respondent Aquino left, three of the four kids, Alonso, Alcantara and Ylarde,
playfully jumped into the pit. Then, without any warning at all, the remaining Abaga jumped on top of the
concrete block causing it to slide down towards the opening. Alonso and Alcantara were able to scramble
out of the excavation on time but unfortunately fo Ylarde, the concrete block caught him before he could get
out, pinning him to the wall in a standing position. As a result thereof, Ylarde sustained the following
injuries:

1. Contusion with hematoma, left inguinal region and suprapubic region.

2. Contusion with ecchymosis entire scrotal region.

 3. Lacerated wound, left lateral aspect of penile skin with phimosis

4. Abrasion, gluteal region, bilateral.

5. Intraperitoneal and extrapertitoneal extravasation of blood and urine about 2 liters.

6. Fracture, simple, symphesis pubis

7. Ruptured (macerated) urinary bladder with body of bladder almost entirely separated from
its neck.

REMARKS:

1. Above were incurred by crushing injury.

2. Prognosis very poor.

(Sgd.) MELQUIADES A. BRAVO

Physician on
Duty. 1

Three days later, Novelito Ylarde died.

Ylarde's parents, petitioners in this case, filed a suit for damages against both private respondents Aquino
and Soriano. The lower court dismissed the complaint on the following grounds: (1) that the digging done
by the pupils is in line with their course called Work Education; (2) that Aquino exercised the utmost
diligence of a very cautious person; and (3) that the demise of Ylarde was due to his own reckless
imprudence. 2

On appeal, the Court of Appeals affirmed the Decision of the lower court.

Petitioners base their action against private respondent Aquino on Article 2176 of the Civil Code for his
alleged negligence that caused their son's death while the complaint against respondent Soriano as the
head of school is founded on Article 2180 of the same Code.

Article 2176 of the Civil Code provides:

Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre- existing contractual relation between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.

On the other hand, the applicable provision of Article 2180 states:

Art. 2180. x x x

xxx xxx xxx

Lastly, teachers or heads of establishments of arts and trades shall be liable for damages
caused by their pupils and students or apprentices, so long as they remain in their custody. 3

The issue to be resolved is whether or not under the cited provisions, both private respondents can be held
liable for damages.

As regards the principal, We hold that he cannot be made responsible for the death of the child Ylarde, he
being the head of an academic school and not a school of arts and trades. This is in line with Our ruling
in Amadora vs. Court of Appeals, 4 wherein this Court thoroughly discussed the doctrine that under Article
2180 of the Civil Code, it is only the teacher and not the head of an academic school who should be
answerable for torts committed by their students. This Court went on to say that in a school of arts and
trades, it is only the head of the school who can be held liable. In the same case, We explained:

After an exhaustive examination of the problem, the Court has come to the conclusion that
the provision in question should apply to all schools, academic as well as non-academic.
Where the school is academic rather than technical or vocational in nature, responsibility for
the tort committed by the student will attach to the teacher in charge of such student,
following the first part of the provision. This is the general rule. In the case of establishments
of arts and trades, it is the head thereof, and only he, who shall be held liable as an
exception to the general rule. In other words, teachers in general shall be liable for the acts
of their students except where the school is technical in nature, in which case it is the head
thereof who shall be answerable. Following the canon of reddendo singula
sinquilis 'teachers' should apply to the words "pupils and students' and 'heads of
establishments of arts and trades to the word "apprentices."

Hence, applying the said doctrine to this case, We rule that private respondent Soriano, as principal, cannot
be held liable for the reason that the school he heads is an academic school and not a school of arts and
trades. Besides, as clearly admitted by private respondent Aquino, private respondent Soriano did not give
any instruction regarding the digging.

From the foregoing, it can be easily seen that private respondent Aquino can be held liable under Article
2180 of the Civil Code as the teacher-in-charge of the children for being negligent in his supervision over
them and his failure to take the necessary precautions to prevent any injury on their persons. However, as
earlier pointed out, petitioners base the alleged liability of private respondent Aquino on Article 2176 which
is separate and distinct from that provided for in Article 2180.

With this in mind, the question We need to answer is this: Were there acts and omissions on the part of
private respondent Aquino amounting to fault or negligence which have direct causal relation to the death
of his pupil Ylarde? Our answer is in the affirmative. He is liable for damages.

From a review of the record of this case, it is very clear that private respondent Aquino acted with fault and
gross negligence when he: (1) failed to avail himself of services of adult manual laborers and instead
utilized his pupils aged ten to eleven to make an excavation near the one-ton concrete stone which he
knew to be a very hazardous task; (2) required the children to remain inside the pit even after they had
finished digging, knowing that the huge block was lying nearby and could be easily pushed or kicked aside
by any pupil who by chance may go to the perilous area; (3) ordered them to level the soil around the
excavation when it was so apparent that the huge stone was at the brink of falling; (4) went to a place
where he would not be able to check on the children's safety; and (5) left the children close to the
excavation, an obviously attractive nuisance.

The negligent act of private respondent Aquino in leaving his pupils in such a dangerous site has a direct
causal connection to the death of the child Ylarde. Left by themselves, it was but natural for the children to
play around. Tired from the strenuous digging, they just had to amuse themselves with whatever they
found. Driven by their playful and adventurous instincts and not knowing the risk they were facing three of
them jumped into the hole while the other one jumped on the stone. Since the stone was so heavy and the
soil was loose from the digging, it was also a natural consequence that the stone would fall into the hole
beside it, causing injury on the unfortunate child caught by its heavy weight. Everything that occurred was
the natural and probable effect of the negligent acts of private respondent Aquino. Needless to say, the
child Ylarde would not have died were it not for the unsafe situation created by private respondent Aquino
which exposed the lives of all the pupils concerned to real danger.

We cannot agree with the finding of the lower court that the injuries which resulted in the death of the child
Ylarde were caused by his own reckless imprudence, It should be remembered that he was only ten years
old at the time of the incident, As such, he is expected to be playful and daring. His actuations were natural
to a boy his age. Going back to the facts, it was not only him but the three of them who jumped into the hole
while the remaining boy jumped on the block. From this, it is clear that he only did what any other ten-year
old child would do in the same situation.
In ruling that the child Ylarde was imprudent, it is evident that the lower court did not consider his age and
maturity. This should not be the case. The degree of care required to be exercised must vary with the
capacity of the person endangered to care for himself. A minor should not be held to the same degree of
care as an adult, but his conduct should be judged according to the average conduct of persons of his age
and experience. 5 The standard of conduct to which a child must conform for his own protection is that
degree of care ordinarily exercised by children of the same age, capacity, discretion, knowledge and
experience under the same or similar circumstances. 6 Bearing this in mind, We cannot charge the child
Ylarde with reckless imprudence.

The court is not persuaded that the digging done by the pupils can pass as part of their Work Education. A
single glance at the picture showing the excavation and the huge concrete block 7 would reveal a
dangerous site requiring the attendance of strong, mature laborers and not ten-year old grade-four pupils.
We cannot comprehend why the lower court saw it otherwise when private respondent Aquino himself
admitted that there were no instructions from the principal requiring what the pupils were told to do. Nor
was there any showing that it was included in the lesson plan for their Work Education. Even the Court of
Appeals made mention of the fact that respondent Aquino decided all by himself to help his co-teacher
Banez bury the concrete remnants of the old school shop. 8 Furthermore, the excavation should not be
placed in the category of school gardening, planting trees, and the like as these undertakings do not
expose the children to any risk that could result in death or physical injuries.

The contention that private respondent Aquino exercised the utmost diligence of a very cautious person is
certainly without cogent basis. A reasonably prudent person would have foreseen that bringing children to
an excavation site, and more so, leaving them there all by themselves, may result in an accident. An
ordinarily careful human being would not assume that a simple warning "not to touch the stone" is sufficient
to cast away all the serious danger that a huge concrete block adjacent to an excavation would present to
the children. Moreover, a teacher who stands in loco parentis to his pupils would have made sure that the
children are protected from all harm in his company.

We close by categorically stating that a truly careful and cautious person would have acted in all contrast to
the way private respondent Aquino did. Were it not for his gross negligence, the unfortunate incident would
not have occurred and the child Ylarde would probably be alive today, a grown- man of thirty-five. Due to
his failure to take the necessary precautions to avoid the hazard, Ylarde's parents suffered great anguish all
these years.

WHEREFORE, in view of the foregoing, the petition is hereby GRANTED and the questioned judgment of
the respondent court is REVERSED and SET ASIDE and another judgment is hereby rendered ordering
private respondent Edagardo Aquino to pay petitioners the following:

(1) Indemnity for the death of Child Ylarde P30,000.00

(2) Exemplary damages 10,000.00

(3) Moral damages 20,000.00

SO ORDERED.
 SPECIAL FIRST DIVISION

G.R. No. 124293             January 31, 2005

J.G. SUMMIT HOLDINGS, INC., petitioner,

vs.
COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET
PRIVATIZATION TRUST; and PHILYARDS HOLDINGS, INC., respondents.

RESOLUTION

PUNO, J.:

For resolution before this Court are two motions filed by the petitioner, J.G. Summit Holdings, Inc. for
reconsideration of our Resolution dated September 24, 2003 and to elevate this case to the Court En Banc.
The petitioner questions the Resolution which reversed our Decision of November 20, 2000, which in turn
reversed and set aside a Decision of the Court of Appeals promulgated on July 18, 1995.

I. Facts

The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are as follows:

On January 27, 1997, the National Investment and Development Corporation (NIDC), a government
corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe,
Japan (KAWASAKI) for the construction, operation and management of the Subic National Shipyard, Inc.
(SNS) which subsequently became the Philippine Shipyard and Engineering Corporation (PHILSECO).
Under the JVA, the NIDC and KAWASAKI will contribute ₱330 million for the capitalization of PHILSECO in
the proportion of 60%-40% respectively. One of its salient features is the grant to the parties of the right of
first refusal should either of them decide to sell, assign or transfer its interest in the joint venture, viz:

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any third
party without giving the other under the same terms the right of first refusal. This provision shall not apply if
the transferee is a corporation owned or controlled by the GOVERNMENT or by a KAWASAKI affiliate.

On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the Philippine
National Bank (PNB). Such interests were subsequently transferred to the National Government pursuant
to Administrative Order No. 14. On December 8, 1986, President Corazon C. Aquino issued Proclamation
No. 50 establishing the Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take
title to, and possession of, conserve, manage and dispose of non-performing assets of the National
Government. Thereafter, on February 27, 1987, a trust agreement was entered into between the National
Government and the APT wherein the latter was named the trustee of the National Government's share in
PHILSECO. In 1989, as a result of a quasi-reorganization of PHILSECO to settle its huge obligations to
PNB, the National Government's shareholdings in PHILSECO increased to 97.41% thereby reducing
KAWASAKI's shareholdings to 2.59%.

In the interest of the national economy and the government, the COP and the APT deemed it best to sell
the National Government's share in PHILSECO to private entities. After a series of negotiations between
the APT and KAWASAKI, they agreed that the latter's right of first refusal under the JVA be "exchanged" for
the right to top by five percent (5%) the highest bid for the said shares. They further agreed that
KAWASAKI would be entitled to name a company in which it was a stockholder, which could exercise the
right to top. On September 7, 1990, KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) 1 would
exercise its right to top.

At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of the
JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for the
National Government's 87.6% equity share in PHILSECO. The provisions of the ASBR were explained to
the interested bidders who were notified that the bidding would be held on December 2, 1993. A portion of
the ASBR reads:

1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National
Government's equity in PHILSECO consisting of 896,869,942 shares of stock (representing 87.67% of
PHILSECO's outstanding capital stock), which will be sold as a whole block in accordance with the rules
herein enumerated.

xxx xxx xxx

2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board of
Trustees and the Committee on Privatization (COP).

2.1 APT reserves the right in its sole discretion, to reject any or all bids.

3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the
National Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED
MILLION (₱1,300,000,000.00).

xxx xxx xxx

6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting following
the bidding, for the purpose of determining whether or not it should be endorsed by the APT Board of
Trustees to the COP, and the latter approves the same. The APT shall advise Kawasaki Heavy Industries,
Inc. and/or its nominee, [PHILYARDS] Holdings, Inc., that the highest bid is acceptable to the National
Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period
of thirty (30) calendar days from the date of receipt of such advice from APT within which to exercise their
"Option to Top the Highest Bid" by offering a bid equivalent to the highest bid plus five (5%) percent
thereof.

6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise their "Option to
Top the Highest Bid," they shall so notify the APT about such exercise of their option and deposit with APT
the amount equivalent to ten percent (10%) of the highest bid plus five percent (5%) thereof within the thirty
(30)-day period mentioned in paragraph 6.0 above. APT will then serve notice upon Kawasaki Heavy
Industries, Inc. and/or [PHILYARDS] Holdings, Inc. declaring them as the preferred bidder and they shall
have a period of ninety (90) days from the receipt of the APT's notice within which to pay the balance of
their bid price.

6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to exercise their
"Option to Top the Highest Bid" within the thirty (30)-day period, APT will declare the highest bidder as the
winning bidder.

xxx xxx xxx

12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the official bid
forms, including any addenda or amendments thereto issued during the bidding period. The bidder shall
likewise be responsible for informing itself with respect to any and all conditions concerning the PHILSECO
Shares which may, in any manner, affect the bidder's proposal. Failure on the part of the bidder to so
examine and inform itself shall be its sole risk and no relief for error or omission will be given by APT or
COP. . . .
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. 2 submitted a bid of Two Billion
and Thirty Million Pesos (₱2,030,000,000.00) with an acknowledgment of KAWASAKI/[PHILYARDS'] right
to top, viz:

4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on APT's
recommendation based on the result of this bidding. Should the COP approve the highest bid, APT shall
advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc. that the highest
bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such advice
from APT within which to exercise their "Option to Top the Highest Bid" by offering a bid equivalent to the
highest bid plus five (5%) percent thereof.

As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993 "subject to
the right of Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as
specified in the bidding rules."

On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid on the
grounds that: (a) the KAWASAKI/PHI consortium composed of KAWASAKI, [PHILYARDS], Mitsui, Keppel,
SM Group, ICTSI and Insular Life violated the ASBR because the last four (4) companies were the losing
bidders thereby circumventing the law and prejudicing the weak winning bidder; (b) only KAWASAKI could
exercise the right to top; (c) giving the same option to top to PHI constituted unwarranted benefit to a third
party; (d) no right of first refusal can be exercised in a public bidding or auction sale; and (e) the JG Summit
consortium was not estopped from questioning the proceedings.

On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase price of the
subject bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised its option to top
the highest bid and that the COP had approved the same on January 6, 1994. On February 24, 1994, the
APT and PHI executed a Stock Purchase Agreement. Consequently, petitioner filed with this Court a
Petition for Mandamus under G.R. No. 114057. On May 11, 1994, said petition was referred to the Court of
Appeals. On July 18, 1995, the Court of Appeals denied the same for lack of merit. It ruled that the petition
for mandamus was not the proper remedy to question the constitutionality or legality of the right of first
refusal and the right to top that was exercised by KAWASAKI/PHI, and that the matter must be brought "by
the proper party in the proper forum at the proper time and threshed out in a full blown trial." The Court of
Appeals further ruled that the right of first refusal and the right to top are prima facie legal and that the
petitioner, "by participating in the public bidding, with full knowledge of the right to top granted to
KAWASAKI/[PHILYARDS] is…estopped from questioning the validity of the award given to [PHILYARDS]
after the latter exercised the right to top and had paid in full the purchase price of the subject shares,
pursuant to the ASBR." Petitioner filed a Motion for Reconsideration of said Decision which was denied on
March 15, 1996. Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse of
discretion on the part of the appellate court.

On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that the Court of
Appeals erred when it dismissed the petition on the sole ground of the impropriety of the special civil action
of mandamus because the petition was also one of certiorari. It further ruled that a shipyard like PHILSECO
is a public utility whose capitalization must be sixty percent (60%) Filipino-owned. Consequently, the right
to top granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR) drafted for the sale of the
87.67% equity of the National Government in PHILSECO is illegal — not only because it violates the rules
on competitive bidding — but more so, because it allows foreign corporations to own more than 40% equity
in the shipyard. It also held that "although the petitioner had the opportunity to examine the ASBR before it
participated in the bidding, it cannot be estopped from questioning the unconstitutional, illegal and
inequitable provisions thereof." Thus, this Court voided the transfer of the national government's 87.67%
share in PHILSECO to Philyard[s] Holdings, Inc., and upheld the right of JG Summit, as the highest bidder,
to take title to the said shares, viz:

WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and
Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its
bid price of Two Billion Thirty Million Pesos (₱2,030,000,000.00), less its bid deposit plus interests upon the
finality of this Decision. In turn, APT is ordered to:

(a) accept the said amount of ₱2,030,000,000.00 less bid deposit and interests from petitioner;
 (b) execute a Stock Purchase Agreement with petitioner;

(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6% of
PHILSECO's total capitalization;

(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million
Five Hundred Thousand Pesos (₱2,131,500,000.00); and

(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED.

In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x x resolution: (1)
Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI can exercise its right
of first refusal only up to 40% of the total capitalization of PHILSECO; and (3) Whether the right to top
granted to KAWASAKI violates the principles of competitive bidding.3 (citations omitted)

In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On the first issue,
we held that Philippine Shipyard and Engineering Corporation (PHILSECO) is not a public utility, as by
nature, a shipyard is not a public utility 4 and that no law declares a shipyard to be a public utility. 5 On the
second issue, we found nothing in the 1977 Joint Venture Agreement (JVA) which prevents Kawasaki
Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) from acquiring more than 40% of PHILSECO’s total
capitalization.6 On the final issue, we held that the right to top granted to KAWASAKI in exchange for its
right of first refusal did not violate the principles of competitive bidding. 7

On October 20, 2003, the petitioner filed a Motion for Reconsideration 8 and a Motion to Elevate This Case
to the Court En Banc.9 Public respondents Committee on Privatization (COP) and Asset Privatization Trust
(APT), and private respondent Philyards Holdings, Inc. (PHILYARDS) filed their Comments on J.G. Summit
Holdings, Inc.’s (JG Summit’s) Motion for Reconsideration and Motion to Elevate This Case to the Court En
Banc on January 29, 2004 and February 3, 2004, respectively.

II. Issues

Based on the foregoing, the relevant issues to resolve to end this litigation are the following:

1. Whether there are sufficient bases to elevate the case at bar to the Court en banc.

2. Whether the motion for reconsideration raises any new matter or cogent reason to warrant a
reconsideration of this Court’s Resolution of September 24, 2003.

Motion to Elevate this Case to the

Court En Banc

The petitioner prays for the elevation of the case to the Court en banc on the following grounds:

1. The main issue of the propriety of the bidding process involved in the present case has been
confused with the policy issue of the supposed fate of the shipping industry which has never been
an issue that is determinative of this case.10

2. The present case may be considered under the Supreme Court Resolution dated February 23,
1984 which included among en banc cases those involving a novel question of law and those where
a doctrine or principle laid down by the Court en banc or in division may be modified or reversed.11

3. There was clear executive interference in the judicial functions of the Court when the Honorable
Jose Isidro Camacho, Secretary of Finance, forwarded to Chief Justice Davide, a memorandum
dated November 5, 2001, attaching a copy of the Foreign Chambers Report dated October 17,
2001, which matter was placed in the agenda of the Court and noted by it in a formal resolution
dated November 28, 2001.12
Opposing J.G. Summit’s motion to elevate the case en banc, PHILYARDS points out the petitioner’s
inconsistency in previously opposing PHILYARDS’ Motion to Refer the Case to the Court En
Banc. PHILYARDS contends that J.G. Summit should now be estopped from asking that the case be
referred to the Court en banc. PHILYARDS further contends that the Supreme Court en banc is not an
appellate court to which decisions or resolutions of its divisions may be appealed citing Supreme Court
Circular No. 2-89 dated February 7, 1989. 13 PHILYARDS also alleges that there is no novel question of law
involved in the present case as the assailed Resolution was based on well-settled jurisprudence. Likewise,
PHILYARDS stresses that the Resolution was merely an outcome of the motions for reconsideration filed
by it and the COP and APT and is "consistent with the inherent power of courts to ‘amend and control its
process and orders so as to make them conformable to law and justice.’ (Rule 135, sec. 5)" 14 Private
respondent belittles the petitioner’s allegations regarding the change in ponente and the alleged executive
interference as shown by former Secretary of Finance Jose Isidro Camacho’s memorandum dated
November 5, 2001 arguing that these do not justify a referral of the present case to the Court en banc.

In insisting that its Motion to Elevate This Case to the Court En Banc should be granted, J.G. Summit
further argued that: its Opposition to the Office of the Solicitor General’s Motion to Refer is different from its
own Motion to Elevate; different grounds are invoked by the two motions; there was unwarranted "executive
interference"; and the change in ponente is merely noted in asserting that this case should be decided by
the Court en banc.15

We find no merit in petitioner’s contention that the propriety of the bidding process involved in the present
case has been confused with the policy issue of the fate of the shipping industry which, petitioner
maintains, has never been an issue that is determinative of this case. The Court’s Resolution of September
24, 2003 reveals a clear and definitive ruling on the propriety of the bidding process. In discussing whether
the right to top granted to KAWASAKI in exchange for its right of first refusal violates the principles of
competitive bidding, we made an exhaustive discourse on the rules and principles of public bidding and
whether they were complied with in the case at bar.16 This Court categorically ruled on the petitioner’s
argument that PHILSECO, as a shipyard, is a public utility which should maintain a 60%-40% Filipino-
foreign equity ratio, as it was a pivotal issue. In doing so, we recognized the impact of our ruling on the
shipbuilding industry which was beyond avoidance.17

We reject petitioner’s argument that the present case may be considered under the Supreme Court
Resolution dated February 23, 1984 which included among en banc cases those involving a novel question
of law and those where a doctrine or principle laid down by the court en banc or in division may be modified
or reversed. The case was resolved based on basic principles of the right of first refusal in commercial law
and estoppel in civil law. Contractual obligations arising from rights of first refusal are not new in this
jurisdiction and have been recognized in numerous cases. 18 Estoppel is too known a civil law concept to
require an elongated discussion. Fundamental principles on public bidding were likewise used to resolve
the issues raised by the petitioner. To be sure, petitioner leans on the right to top in a public bidding in
arguing that the case at bar involves a novel issue. We are not swayed. The right to top was merely a
condition or a reservation made in the bidding rules which was fully disclosed to all bidding parties.
In Bureau Veritas, represented by Theodor H. Hunermann v. Office of the President, et al., 19 we dealt
with this conditionality, viz:

x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L-18751, 28 April
1962, 4 SCRA 1245), that in an "invitation to bid, there is a condition imposed upon the bidders to the
effect that the bidding shall be subject to the right of the government to reject any and all bids
subject to its discretion. In the case at bar, the government has made its choice and unless an
unfairness or injustice is shown, the losing bidders have no cause to complain nor right to dispute
that choice. This is a well-settled doctrine in this jurisdiction and elsewhere."

The discretion to accept or reject a bid and award contracts is vested in the Government agencies
entrusted with that function. The discretion given to the authorities on this matter is of such wide latitude
that the Courts will not interfere therewith, unless it is apparent that it is used as a shield to a fraudulent
award (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x The exercise of this discretion is a policy decision
that necessitates prior inquiry, investigation, comparison, evaluation, and deliberation. This task can best
be discharged by the Government agencies concerned, not by the Courts. The role of the Courts is to
ascertain whether a branch or instrumentality of the Government has transgressed its constitutional
boundaries. But the Courts will not interfere with executive or legislative discretion exercised within those
boundaries. Otherwise, it strays into the realm of policy decision-making.
It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the award of a
contract made by a government entity. Grave abuse of discretion implies a capricious, arbitrary and
whimsical exercise of power (Filinvest Credit Corp. v. Intermediate Appellate Court, No. 65935, 30
September 1988, 166 SCRA 155). The abuse of discretion must be so patent and gross as to amount to an
evasion of positive duty or to a virtual refusal to perform a duty enjoined by law, as to act at all in
contemplation of law, where the power is exercised in an arbitrary and despotic manner by reason of
passion or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.], L-40867, 26 July 1988, 163 SCRA 489).

The facts in this case do not indicate any such grave abuse of discretion on the part of public respondents
when they awarded the CISS contract to Respondent SGS. In the "Invitation to Prequalify and Bid" (Annex
"C," supra), the CISS Committee made an express reservation of the right of the Government to
"reject any or all bids or any part thereof or waive any defects contained thereon and accept an
offer most advantageous to the Government." It is a well-settled rule that where such reservation is
made in an Invitation to Bid, the highest or lowest bidder, as the case may be, is not entitled to an
award as a matter of right (C & C Commercial Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA
112). Even the lowest Bid or any Bid may be rejected or, in the exercise of sound discretion, the award may
be made to another than the lowest bidder (A.C. Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur.,
788). (emphases supplied)1awphi1.nét

Like the condition in the Bureau Veritas case, the right to top was a condition imposed by the government
in the bidding rules which was made known to all parties. It was a condition imposed on all bidders
equally, based on the APT’s exercise of its discretion in deciding on how best to privatize the
government’s shares in PHILSECO. It was not a whimsical or arbitrary condition plucked from the ether
and inserted in the bidding rules but a condition which the APT approved as the best way the government
could comply with its contractual obligations to KAWASAKI under the JVA and its mandate of getting the
most advantageous deal for the government. The right to top had its history in the mutual right of first
refusal in the JVA and was reached by agreement of the government and KAWASAKI.

Further, there is no "executive interference" in the functions of this Court by the mere filing of a
memorandum by Secretary of Finance Jose Isidro Camacho. The memorandum was merely "noted" to
acknowledge its filing. It had no further legal significance. Notably too, the assailed Resolution dated
September 24, 2003 was decided unanimously by the Special First Division in favor of the
respondents.

Again, we emphasize that a decision or resolution of a Division is that of the Supreme Court 20 and the
Court en banc is not an appellate court to which decisions or resolutions of a Division may be appealed.21

For all the foregoing reasons, we find no basis to elevate this case to the Court en banc.

Motion for Reconsideration

Three principal arguments were raised in the petitioner’s Motion for Reconsideration. First, that a fair
resolution of the case should be based on contract law, not on policy considerations; the contracts do not
authorize the right to top to be derived from the right of first refusal. 22 Second, that neither the right of first
refusal nor the right to top can be legally exercised by the consortium which is not the proper party granted
such right under either the JVA or the Asset Specific Bidding Rules (ASBR). 23 Third, that the maintenance
of the 60%-40% relationship between the National Investment and Development Corporation (NIDC) and
KAWASAKI arises from contract and from the Constitution because PHILSECO is a landholding
corporation and need not be a public utility to be bound by the 60%-40% constitutional limitation.24

On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been able to show
compelling reasons to warrant a reconsideration of the Decision of the Court.25 PHILYARDS denies that the
Decision is based mainly on policy considerations and points out that it is premised on principles governing
obligations and contracts and corporate law such as the rule requiring respect for contractual stipulations,
upholding rights of first refusal, and recognizing the assignable nature of contracts rights. 26 Also, the ruling
that shipyards are not public utilities relies on established case law and fundamental rules of statutory
construction. PHILYARDS stresses that KAWASAKI’s right of first refusal or even the right to top is not
limited to the 40% equity of the latter. 27 On the landholding issue raised by J.G. Summit, PHILYARDS
emphasizes that this is a non-issue and even involves a question of fact. Even assuming that this Court can
take cognizance of such question of fact even without the benefit of a trial, PHILYARDS opines that
landholding by PHILSECO at the time of the bidding is irrelevant because what is essential is that ultimately
a qualified entity would eventually hold PHILSECO’s real estate properties. 28 Further, given the assignable
nature of the right of first refusal, any applicable nationality restrictions, including landholding limitations,
would not affect the right of first refusal itself, but only the manner of its exercise. 29 Also, PHILYARDS
argues that if this Court takes cognizance of J.G. Summit’s allegations of fact regarding PHILSECO’s
landholding, it must also recognize PHILYARDS’ assertions that PHILSECO’s landholdings were sold to
another corporation.30 As regards the right of first refusal, private respondent explains that KAWASAKI’s
reduced shareholdings (from 40% to 2.59%) did not translate to a deprivation or loss of its contractually
granted right of first refusal.31 Also, the bidding was valid because PHILYARDS exercised the right to top
and it was of no moment that losing bidders later joined PHILYARDS in raising the purchase price.32

In cadence with the private respondent PHILYARDS, public respondents COP and APT contend:

1. The conversion of the right of first refusal into a right to top by 5% does not violate any provision
in the JVA between NIDC and KAWASAKI.

2. PHILSECO is not a public utility and therefore not governed by the constitutional restriction on
foreign ownership.

3. The petitioner is legally estopped from assailing the validity of the proceedings of the public
bidding as it voluntarily submitted itself to the terms of the ASBR which included the provision on the
right to top.

4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI and the fact that
PHILYARDS formed a consortium to raise the required amount to exercise the right to top the
highest bid by 5% does not violate the JVA or the ASBR.

5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of lands does not
apply to PHILSECO because as admitted by petitioner itself, PHILSECO no longer owns real
property.

6. Petitioner’s motion to elevate the case to the Court en banc is baseless and would only delay the
termination of this case.33

In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments of the public and
private respondents in this wise:

1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with losing bidders
through the exercise of a right to top, which is contrary to law and the constitution is null and void for
being violative of substantive due process and the abuse of right provision in the Civil Code.

a. The bidders[’] right to top was actually exercised by losing bidders.

b. The right to top or the right of first refusal cannot co-exist with a genuine competitive
bidding.
c. The benefits derived from the right to top were unwarranted.
2. The landholding issue has been a legitimate issue since the start of this case but is shamelessly
ignored by the respondents.
a. The landholding issue is not a non-issue.
b. The landholding issue does not pose questions of fact.
c. That PHILSECO owned land at the time that the right of first refusal was agreed upon and
at the time of the bidding are most relevant.
d. Whether a shipyard is a public utility is not the core issue in this case.

3. Fraud and bad faith attend the alleged conversion of an inexistent right of first refusal to the right
to top.

a. The history behind the birth of the right to top shows fraud and bad faith.
b. The right of first refusal was, indeed, "effectively useless."
4. Petitioner is not legally estopped to challenge the right to top in this case.
 a. Estoppel is unavailing as it would stamp validity to an act that is prohibited by law or
against public policy.
b. Deception was patent; the right to top was an attractive nuisance.
c. The 10% bid deposit was placed in escrow.

J.G. Summit’s insistence that the right to top cannot be sourced from the right of first refusal is not new and
we have already ruled on the issue in our Resolution of September 24, 2003. We upheld the mutual right of
first refusal in the JVA.34 We also ruled that nothing in the JVA prevents KAWASAKI from acquiring more
than 40% of PHILSECO’s total capitalization.35 Likewise, nothing in the JVA or ASBR bars the conversion
of the right of first refusal to the right to top. In sum, nothing new and of significance in the petitioner’s
pleading warrants a reconsideration of our ruling.

Likewise, we already disposed of the argument that neither the right of first refusal nor the right to top can
legally be exercised by the consortium which is not the proper party granted such right under either the JVA
or the ASBR. Thus, we held:

The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life
Assurance, Mitsui and ICTSI), has joined PHILYARDS in the latter's effort to raise ₱2.131 billion necessary
in exercising the right to top is not contrary to law, public policy or public morals. There is nothing in the
ASBR that bars the losing bidders from joining either the winning bidder (should the right to top is not
exercised) or KAWASAKI/PHI (should it exercise its right to top as it did), to raise the purchase price. The
petitioner did not allege, nor was it shown by competent evidence, that the participation of the losing
bidders in the public bidding was done with fraudulent intent. Absent any proof of fraud, the formation by
[PHILYARDS] of a consortium is legitimate in a free enterprise system. The appellate court is thus correct
in holding the petitioner estopped from questioning the validity of the transfer of the National Government's
shares in PHILSECO to respondent.36

Further, we see no inherent illegality on PHILYARDS’ act in seeking funding from parties who were losing
bidders. This is a purely commercial decision over which the State should not interfere absent any legal
infirmity. It is emphasized that the case at bar involves the disposition of shares in a corporation which the
government sought to privatize. As such, the persons with whom PHILYARDS desired to enter into
business with in order to raise funds to purchase the shares are basically its business. This is in contrast to
a case involving a contract for the operation of or construction of a government infrastructure where the
identity of the buyer/bidder or financier constitutes an important consideration. In such cases, the
government would have to take utmost precaution to protect public interest by ensuring that the parties with
which it is contracting have the ability to satisfactorily construct or operate the infrastructure.

On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding company,
KAWASAKI could exercise its right of first refusal only up to 40% of the shares of PHILSECO due to the
constitutional prohibition on landholding by corporations with more than 40% foreign-owned equity. It
further argues that since KAWASAKI already held at least 40% equity in PHILSECO, the right of first
refusal was inutile and as such, could not subsequently be converted into the right to top. 37 Petitioner also
asserts that, at present, PHILSECO continues to violate the constitutional provision on landholdings as its
shares are more than 40% foreign-owned.38 PHILYARDS admits that it may have previously held land but
had already divested such landholdings. 39 It contends, however, that even if PHILSECO owned land, this
would not affect the right of first refusal but only the exercise thereof. If the land is retained, the right of first
refusal, being a property right, could be assigned to a qualified party. In the alternative, the land could be
divested before the exercise of the right of first refusal. In the case at bar, respondents assert that since the
right of first refusal was validly converted into a right to top, which was exercised not by KAWASAKI, but by
PHILYARDS which is a Filipino corporation (i.e., 60% of its shares are owned by Filipinos), then there is no
violation of the Constitution.40 At first, it would seem that questions of fact beyond cognizance by this Court
were involved in the issue. However, the records show that PHILYARDS admits it had owned land up
until the time of the bidding.41 Hence, the only issue is whether KAWASAKI had a valid right of first
refusal over PHILSECO shares under the JVA considering that PHILSECO owned land until the time
of the bidding and KAWASAKI already held 40% of PHILSECO’s equity.

We uphold the validity of the mutual rights of first refusal under the JVA between KAWASAKI and NIDC.
First of all, the right of first refusal is a property right of PHILSECO shareholders, KAWASAKI and NIDC,
under the terms of their JVA. This right allows them to purchase the shares of their co-shareholder before
they are offered to a third party. The agreement of co-shareholders to mutually grant this right to each
other, by itself, does not constitute a violation of the provisions of the Constitution limiting land
ownership to Filipinos and Filipino corporations. As PHILYARDS correctly puts it, if PHILSECO still
owns land, the right of first refusal can be validly assigned to a qualified Filipino entity in order to maintain
the 60%-40% ratio. This transfer, by itself, does not amount to a violation of the Anti-Dummy Laws, absent
proof of any fraudulent intent. The transfer could be made either to a nominee or such other party which the
holder of the right of first refusal feels it can comfortably do business with. Alternatively, PHILSECO may
divest of its landholdings, in which case KAWASAKI, in exercising its right of first refusal, can exceed 40%
of PHILSECO’s equity. In fact, it can even be said that if the foreign shareholdings of a landholding
corporation exceeds 40%, it is not the foreign stockholders’ ownership of the shares which is
adversely affected but the capacity of the corporation to own land – that is, the corporation becomes
disqualified to own land. This finds support under the basic corporate law principle that the corporation and
its stockholders are separate juridical entities. In this vein, the right of first refusal over shares pertains to
the shareholders whereas the capacity to own land pertains to the corporation. Hence, the fact that
PHILSECO owns land cannot deprive stockholders of their right of first refusal. No law disqualifies a
person from purchasing shares in a landholding corporation even if the latter will exceed the
allowed foreign equity, what the law disqualifies is the corporation from owning land. This is the
clear import of the following provisions in the Constitution:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources
are owned by the State. With the exception of agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of natural resources shall be under the full control
and supervision of the State. The State may directly undertake such activities, or it may enter into co-
production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by such citizens. Such agreements
may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and
under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the
measure and limit of the grant.

xxx xxx xxx

Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed
except to individuals, corporations, or associations qualified to acquire or hold lands of the public
domain.42 (emphases supplied)

The petitioner further argues that "an option to buy land is void in itself (Philippine Banking Corporation v.
Lui She, 21 SCRA 52 [1967]). The right of first refusal granted to KAWASAKI, a Japanese corporation, is
similarly void. Hence, the right to top, sourced from the right of first refusal, is also void." 43 Contrary to the
contention of petitioner, the case of Lui She did not that say "an option to buy land is void in itself," for we
ruled as follows:

x x x To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien
the right to buy real property on condition that he is granted Philippine citizenship. As this Court
said in Krivenko vs. Register of Deeds:

[A]liens are not completely excluded by the Constitution from the use of lands for residential purposes.
Since their residence in the Philippines is temporary, they may be granted temporary rights such as a lease
contract which is not forbidden by the Constitution. Should they desire to remain here forever and share our
fortunes and misfortunes, Filipino citizenship is not impossible to acquire.

But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of
which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years,
then it becomes clear that the arrangement is a virtual transfer of ownership whereby the owner
divests himself in stages not only of the right to enjoy the land (jus possidendi, jus utendi, jus
fruendi and jus abutendi) but also of the right to dispose of it (jus disponendi) — rights the sum
total of which make up ownership. It is just as if today the possession is transferred, tomorrow, the
use, the next day, the disposition, and so on, until ultimately all the rights of which ownership is
made up are consolidated in an alien. And yet this is just exactly what the parties in this case did within this
pace of one year, with the result that Justina Santos'[s] ownership of her property was reduced to a hollow
concept. If this can be done, then the Constitutional ban against alien landholding in the Philippines, as
announced in Krivenko vs. Register of Deeds, is indeed in grave peril.44 (emphases supplied; Citations
omitted)

In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of ownership as the
owner could not sell or dispose of his properties. The contract in Lui She prohibited the owner of the land
from selling, donating, mortgaging, or encumbering the property during the 50-year period of the option to
buy. This is not so in the case at bar where the mutual right of first refusal in favor of NIDC and KAWASAKI
does not amount to a virtual transfer of land to a non-Filipino. In fact, the case at bar involves a  right of
first refusal over shares of stock while the Lui She case involves an option to buy the land itself. As
discussed earlier, there is a distinction between the shareholder’s ownership of shares and the
corporation’s ownership of land arising from the separate juridical personalities of the corporation and its
shareholders.

We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO continues to violate the
Constitution as its foreign equity is above 40% and yet owns long-term leasehold rights which are real
rights.45 It cites Article 415 of the Civil Code which includes in the definition of immovable property,
"contracts for public works, and servitudes and other real rights over immovable property." 46 Any existing
landholding, however, is denied by PHILYARDS citing its recent financial statements. 47 First, these are
questions of fact, the veracity of which would require introduction of evidence. The Court needs to validate
these factual allegations based on competent and reliable evidence. As such, the Court cannot resolve the
questions they pose. Second, J.G. Summit misreads the provisions of the Constitution cited in its own
pleadings, to wit:

29.2 Petitioner has consistently pointed out in the past that private respondent is not a 60%-40%
corporation, and this violates the Constitution x x x The violation continues to this day because under the
law, it continues to own real property…

xxx xxx xxx

32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973 Constitution (the
JVA was signed in 1977), provided:

"Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to

individuals, corporations, or associations qualified to acquire or hold lands of the public domain."

32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.

32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the public domain are
corporations at least 60% of which is owned by Filipino citizens (Sec. 22, Commonwealth Act 141, as
amended). (emphases supplied)

As correctly observed by the public respondents, the prohibition in the Constitution applies only to
ownership of land.48 It does not extend to immovable or real property as defined under Article 415 of
the Civil Code. Otherwise, we would have a strange situation where the ownership of immovable property
such as trees, plants and growing fruit attached to the land49 would be limited to Filipinos and Filipino
corporations only.

III.

WHEREFORE, in view of the foregoing, the petitioner’s Motion for Reconsideration is DENIED WITH
FINALITY and the decision appealed from is AFFIRMED. The Motion to Elevate This Case to the Court En
Banc is likewise DENIED for lack of merit.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

[G.R. No. 129792. December 21, 1999]

JARCO MARKETING CORPORATION, LEONARDO KONG, JOSE TIOPE and ELISA PANELO,
Petitioners, v. HONORABLE COURT OF APPEALS, CONRADO C. AGUILAR and CRISELDA R.
AGUILAR, Respondents.

DECISION

DAVIDE, JR., C.J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioners seek the reversal of
the 17 June 1996 decision1 of the Court of Appeals in C.A. G.R. No. CV 37937 and the resolution2denying
their motion for reconsideration. The assailed decision set aside the 15 January 1992 judgment of the
Regional Trial Court (RTC), Makati City, Branch 60 in Civil Case No. 7119 and ordered petitioners to pay
damages and attorneys fees to private respondents Conrado and Criselda (CRISELDA) Aguilar.

Petitioner Jarco Marketing Corporation is the owner of Syvels Department Store, Makati City. Petitioners
Leonardo Kong, Jose Tiope and Elisa Panelo are the stores branch manager, operations manager, and
supervisor, respectively. Private respondents are spouses and the parents of Zhieneth Aguilar
(ZHIENETH).

In the afternoon of 9 May 1983, CRISELDA and ZHIENETH were at the 2nd floor of Syvels Department
Store, Makati City. CRISELDA was signing her credit card slip at the payment and verification counter
when she felt a sudden gust of wind and heard a loud thud. She looked behind her. She then beheld her
daughter ZHIENETH on the floor, her young body pinned by the bulk of the stores gift-wrapping
counter/structure. ZHIENETH was crying and screaming for help. Although shocked, CRISELDA was quick
to ask the assistance of the people around in lifting the counter and retrieving ZHIENETH from the floor.3

ZHIENETH was quickly rushed to the Makati Medical Center where she was operated on. The next day
ZHIENETH lost her speech and thereafter communicated with CRISELDA by writing on a magic slate. The
injuries she sustained took their toil on her young body. She died fourteen (14) days after the accident or on
22 May 1983, on the hospital bed. She was six years old.4

The cause of her death was attributed to the injuries she sustained. The provisional medical certificate5
issued by ZHIENETHs attending doctor described the extent of her injuries:

Diagnoses:

1. Shock, severe, sec. to intra-abdominal injuries due to blunt injury

2. Hemorrhage, massive, intraperitoneal sec. to laceration, (L) lobe liver

3. Rupture, stomach, anterior & posterior walls

4. Complete transection, 4th position, duodenum

5. Hematoma, extensive, retroperitoneal

6. Contusion, lungs, severe

CRITICAL

After the burial of their daughter, private respondents demanded upon petitioners the reimbursement of the
hospitalization, medical bills and wake and funeral expenses6 which they had incurred. Petitioners refused
to pay. Consequently, private respondents filed a complaint for damages, docketed as Civil Case No. 7119
wherein they sought the payment of P157,522.86 for actual damages, P300,000 for moral damages,
P20,000 for attorneys fees and an unspecified amount for loss of income and exemplary damages.

In their answer with counterclaim, petitioners denied any liability for the injuries and consequent death of
ZHIENETH. They claimed that CRISELDA was negligent in exercising care and diligence over her daughter
by allowing her to freely roam around in a store filled with glassware and appliances. ZHIENETH too, was
guilty of contributory negligence since she climbed the counter, triggering its eventual collapse on her.
Petitioners also emphasized that the counter was made of sturdy wood with a strong support; it never fell
nor collapsed for the past fifteen years since its construction.

Additionally, petitioner Jarco Marketing Corporation maintained that it observed the diligence of a good
father of a family in the selection, supervision and control of its employees. The other petitioners likewise
raised due care and diligence in the performance of their duties and countered that the complaint was
malicious for which they suffered besmirched reputation and mental anguish. They sought the dismissal of
the complaint and an award of moral and exemplary damages and attorneys fees in their favor.

In its decision7 the trial court dismissed the complaint and counterclaim after finding that the
preponderance of the evidence favored petitioners. It ruled that the proximate cause of the fall of the
counter on ZHIENETH was her act of clinging to it. It believed petitioners witnesses who testified that
ZHIENETH clung to the counter, afterwhich the structure and the girl fell with the structure falling on top of
her, pinning her stomach. In contrast, none of private respondents witnesses testified on how the counter
fell. The trial court also held that CRISELDAs negligence contributed to ZHIENETHs accident.

In absolving petitioners from any liability, the trial court reasoned that the counter was situated at the end or
corner of the 2nd floor as a precautionary measure hence, it could not be considered as an attractive
nuisance.8 The counter was higher than ZHIENETH. It has been in existence for fifteen years. Its structure
was safe and well-balanced. ZHIENETH, therefore, had no business climbing on and clinging to it.

Private respondents appealed the decision, attributing as errors of the trial court its findings that: (1) the
proximate cause of the fall of the counter was ZHIENETHs misbehavior; (2) CRISELDA was negligent in
her care of ZHIENETH; (3) petitioners were not negligent in the maintenance of the counter; and (4)
petitioners were not liable for the death of ZHIENETH.

Further, private respondents asserted that ZHIENETH should be entitled to the conclusive presumption that
a child below nine (9) years is incapable of contributory negligence. And even if ZHIENETH, at six (6) years
old, was already capable of contributory negligence, still it was physically impossible for her to have
propped herself on the counter. She had a small frame (four feet high and seventy pounds) and the counter
was much higher and heavier than she was. Also, the testimony of one of the stores former employees,
Gerardo Gonzales, who accompanied ZHIENETH when she was brought to the emergency room of the
Makati Medical Center belied petitioners theory that ZHIENETH climbed the counter. Gonzales claimed that
when ZHIENETH was asked by the doctor what she did, ZHIENETH replied, [N]othing, I did not come near
the counter and the counter just fell on me.9 Accordingly, Gonzales testimony on ZHIENETHs spontaneous
declaration should not only be considered as part of res gestae but also accorded credit.
Moreover, negligence could not be imputed to CRISELDA for it was reasonable for her to have let go of
ZHIENETH at the precise moment that she was signing the credit card slip.

Finally, private respondents vigorously maintained that the proximate cause of ZHIENETHs death, was
petitioners negligence in failing to institute measures to have the counter permanently nailed.

On the other hand, petitioners argued that private respondents raised purely factual issues which could no
longer be disturbed. They explained that ZHIENETHs death while unfortunate and tragic, was an accident
for which neither CRISELDA nor even ZHIENETH could entirely be held faultless and blameless. Further,
petitioners adverted to the trial courts rejection of Gonzales testimony as unworthy of credence.

As to private respondents claim that the counter should have been nailed to the ground, petitioners justified
that it was not necessary. The counter had been in existence for several years without any prior accident
and was deliberately placed at a corner to avoid such accidents. Truth to tell, they acted without fault or
negligence for they had exercised due diligence on the matter. In fact, the criminal case10 for homicide
through simple negligence filed by private respondents against the individual petitioners was dismissed; a
verdict of acquittal was rendered in their favor.

The Court of Appeals, however, decided in favor of private respondents and reversed the appealed
judgment. It found that petitioners were negligent in maintaining a structurally dangerous counter. The
counter was shaped like an inverted L11 with a top wider than the base. It was top heavy and the weight of
the upper portion was neither evenly distributed nor supported by its narrow base. Thus, the counter was
defective, unstable and dangerous; a downward pressure on the overhanging portion or a push from the
front could cause the counter to fall. Two former employees of petitioners had already previously brought to
the attention of the management the danger the counter could cause. But the latter ignored their concern.
The Court of Appeals faulted the petitioners for this omission, and concluded that the incident that befell
ZHIENETH could have been avoided had petitioners repaired the defective counter. It was inconsequential
that the counter had been in use for some time without a prior incident.

The Court of Appeals declared that ZHIENETH, who was below seven (7) years old at the time of the
incident, was absolutely incapable of negligence or other tort. It reasoned that since a child under nine (9)
years could not be held liable even for an intentional wrong, then the six-year old ZHIENETH could not be
made to account for a mere mischief or reckless act. It also absolved CRISELDA of any negligence, finding
nothing wrong or out of the ordinary in momentarily allowing ZHIENETH to walk while she signed the
document at the nearby counter.

The Court of Appeals also rejected the testimonies of the witnesses of petitioners. It found them biased and
prejudiced. It instead gave credit to the testimony of disinterested witness Gonzales. The Court of Appeals
then awarded P99,420.86 as actual damages, the amount representing the hospitalization expenses
incurred by private respondents as evidenced by the hospital's statement of account.12 It denied an award
for funeral expenses for lack of proof to substantiate the same. Instead, a compensatory damage of
P50,000 was awarded for the death of ZHIENETH.

We quote the dispositive portion of the assailed decision,13 thus:

WHEREFORE, premises considered, the judgment of the lower court is SET ASIDE and another one is
entered against [petitioners], ordering them to pay jointly and severally unto [private respondents] the
following:

1. P50,000.00 by way of compensatory damages for the death of Zhieneth Aguilar, with legal interest (6%
p.a.) from 27 April 1984;
2. P99,420.86 as reimbursement for hospitalization expenses incurred; with legal interest (6% p.a.) from 27
April 1984;

3. P100,000.00 as moral and exemplary damages;

4. P20,000.00 in the concept of attorneys fees; and

5. Costs.

Private respondents sought a reconsideration of the decision but the same was denied in the Court of
Appeals resolution14 of 16 July 1997.

Petitioners now seek the reversal of the Court of Appeals decision and the reinstatement of the judgment of
the trial court. Petitioners primarily argue that the Court of Appeals erred in disregarding the factual findings
and conclusions of the trial court. They stress that since the action was based on tort, any finding of
negligence on the part of the private respondents would necessarily negate their claim for damages, where
said negligence was the proximate cause of the injury sustained. The injury in the instant case was the
death of ZHIENETH. The proximate cause was ZHIENETHs act of clinging to the counter. This act in turn
caused the counter to fall on her. This and CRISELDAs contributory negligence, through her failure to
provide the proper care and attention to her child while inside the store, nullified private respondents claim
for damages. It is also for these reasons that parents are made accountable for the damage or injury
inflicted on others by their minor children. Under these circumstances, petitioners could not be held
responsible for the accident that befell ZHIENETH.

Petitioners also assail the credibility of Gonzales who was already separated from Syvels at the time he
testified; hence, his testimony might have been tarnished by ill-feelings against them.

For their part, private respondents principally reiterated their arguments that neither ZHIENETH nor
CRISELDA was negligent at any time while inside the store; the findings and conclusions of the Court of
Appeals are substantiated by the evidence on record; the testimony of Gonzales, who heard ZHIENETH
comment on the incident while she was in the hospitals emergency room should receive credence; and
finally, ZHIENETHs part of the res gestae declaration that she did nothing to cause the heavy structure to
fall on her should be considered as the correct version of the gruesome events.

We deny the petition.

The two issues to be resolved are: (1) whether the death of ZHIENETH was accidental or attributable to
negligence; and (2) in case of a finding of negligence, whether the same was attributable to private
respondents for maintaining a defective counter or to CRISELDA and ZHIENETH for failing to exercise due
and reasonable care while inside the store premises.

An accident pertains to an unforeseen event in which no fault or negligence attaches to the defendant.15 It
is a fortuitous circumstance, event or happening; an event happening without any human agency, or if
happening wholly or partly through human agency, an event which under the circumstances is unusual or
unexpected by the person to whom it happens.16

On the other hand, negligence is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something
which a prudent and reasonable man would not do.17 Negligence is the failure to observe, for the
protection of the interest of another person, that degree of care, precaution and vigilance which the
circumstances justly demand, whereby such other person suffers injury.18

Accident and negligence are intrinsically contradictory; one cannot exist with the other. Accident occurs
when the person concerned is exercising ordinary care, which is not caused by fault of any person and
which could not have been prevented by any means suggested by common prudence.19

The test in determining the existence of negligence is enunciated in the landmark case of Picart v. Smith,20
thus: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence.21

We rule that the tragedy which befell ZHIENETH was no accident and that ZHIENETHs death could only be
attributed to negligence.

We quote the testimony of Gerardo Gonzales who was at the scene of the incident and accompanied
CRISELDA and ZHIENETH to the hospital:

Q While at the Makati Medical Center, did you hear or notice anything while the child was being treated?

A At the emergency room we were all surrounding the child. And when the doctor asked the child what did
you do, the child said nothing, I did not come near the counter and the counter just fell on me.

Q (COURT TO ATTY. BELTRAN)

You want the words in Tagalog to be translated?

ATTY. BELTRAN

Yes, your Honor.

COURT

Granted. Intercalate wala po, hindi po ako lumapit doon. Basta bumagsak.22

This testimony of Gonzales pertaining to ZHIENETHs statement formed (and should be admitted as) part of
the res gestae under Section 42, Rule 130 of the Rules of Court, thus:

Part of res gestae. Statements made by a person while a startling occurrence is taking place or
immediately prior or subsequent thereto with respect to the circumstances thereof, may be given in
evidence as part of the res gestae. So, also, statements accompanying an equivocal act material to the
issue, and giving it a legal significance, may be received as part of the res gestae.

It is axiomatic that matters relating to declarations of pain or suffering and statements made to a physician
are generally considered declarations and admissions.23 All that is required for their admissibility as part of
the res gestae is that they be made or uttered under the influence of a startling event before the declarant
had the time to think and concoct a falsehood as witnessed by the person who testified in court. Under the
circumstances thus described, it is unthinkable for ZHIENETH, a child of such tender age and in extreme
pain, to have lied to a doctor whom she trusted with her life. We therefore accord credence to Gonzales
testimony on the matter, i.e., ZHIENETH performed no act that facilitated her tragic death. Sadly,
petitioners did, through their negligence or omission to secure or make stable the counters base.

Gonzales earlier testimony on petitioners insistence to keep and maintain the structurally unstable gift-
wrapping counter proved their negligence, thus:
Q When you assumed the position as gift wrapper at the second floor, will you please describe the gift
wrapping counter, were you able to examine?

A Because every morning before I start working I used to clean that counter and since it is not nailed and it
was only standing on the floor, it was shaky.

xxx

Q Will you please describe the counter at 5:00 oclock [sic] in the afternoon on [sic] May 9 1983?

A At that hour on May 9, 1983, that counter was standing beside the verification counter. And since the top
of it was heavy and considering that it was not nailed, it can collapse at anytime, since the top is heavy.

xxx

Q And what did you do?

A I informed Mr. Maat about that counter which is [sic] shaky and since Mr. Maat is fond of putting display
decorations on tables, he even told me that I would put some decorations. But since I told him that it not
[sic] nailed and it is shaky he told me better inform also the company about it. And since the company did
not do anything about the counter, so I also did not do anything about the counter.24 [Emphasis supplied]

Ramon Guevarra, another former employee, corroborated the testimony of Gonzales, thus:

Q Will you please described [sic] to the honorable Court the counter where you were assigned in January
1983?

xxx

A That counter assigned to me was when my supervisor ordered me to carry that counter to another place.
I told him that the counter needs nailing and it has to be nailed because it might cause injury or accident to
another since it was shaky.

Q When that gift wrapping counter was transferred at the second floor on February 12, 1983, will you
please describe that to the honorable Court?

A I told her that the counter wrapper [sic] is really in good [sic] condition; it was shaky. I told her that we had
to nail it.

Q When you said she, to whom are you referring to [sic]?

A I am referring to Ms. Panelo, sir.

Q And what was the answer of Ms. Panelo when you told her that the counter was shaky?

A She told me Why do you have to teach me. You are only my subordinate and you are to teach me? And
she even got angry at me when I told her that.

xxx

Q From February 12, 1983 up to May 9, 1983, what if any, did Ms. Panelo or any employee of the
management do to that (sic)
xxx

Witness:

None, sir. They never nailed the counter. They only nailed the counter after the accident happened.25
[Emphasis supplied]

Without doubt, petitioner Panelo and another store supervisor were personally informed of the danger
posed by the unstable counter. Yet, neither initiated any concrete action to remedy the situation nor ensure
the safety of the stores employees and patrons as a reasonable and ordinary prudent man would have
done. Thus, as confronted by the situation petitioners miserably failed to discharge the due diligence
required of a good father of a family.

On the issue of the credibility of Gonzales and Guevarra, petitioners failed to establish that the formers
testimonies were biased and tainted with partiality. Therefore, the allegation that Gonzales and Guevarras
testimonies were blemished by ill feelings against petitioners since they (Gonzales and Guevarra) were
already separated from the company at the time their testimonies were offered in court was but mere
speculation and deserved scant consideration.

It is settled that when the issue concerns the credibility of witnesses, the appellate courts will not as a
general rule disturb the findings of the trial court, which is in a better position to determine the same. The
trial court has the distinct advantage of actually hearing the testimony of and observing the deportment of
the witnesses.26 However, the rule admits of exceptions such as when its evaluation was reached
arbitrarily or it overlooked or failed to appreciate some facts or circumstances of weight and substance
which could affect the result of the case.27 In the instant case, petitioners failed to bring their claim within
the exception.

Anent the negligence imputed to ZHIENETH, we apply the conclusive presumption that favors children
below nine (9) years old in that they are incapable of contributory negligence. In his book,28 former Judge
Cezar S. Sangco stated:

In our jurisdiction, a person under nine years of age is conclusively presumed to have acted without
discernment, and is, on that account, exempt from criminal liability. The same presumption and a like
exemption from criminal liability obtains in a case of a person over nine and under fifteen years of age,
unless it is shown that he has acted with discernment. Since negligence may be a felony and a quasi-delict
and required discernment as a condition of liability, either criminal or civil, a child under nine years of age
is, by analogy, conclusively presumed to be incapable of negligence; and that the presumption of lack of
discernment or incapacity for negligence in the case of a child over nine but under fifteen years of age is a
rebuttable one, under our law. The rule, therefore, is that a child under nine years of age must be
conclusively presumed incapable of contributory negligence as a matter of law. [Emphasis supplied]

Even if we attribute contributory negligence to ZHIENETH and assume that she climbed over the counter,
no injury should have occurred if we accept petitioners theory that the counter was stable and sturdy. For if
that was the truth, a frail six-year old could not have caused the counter to collapse. The physical analysis
of the counter by both the trial court and Court of Appeals and a scrutiny of the evidence29on record reveal
otherwise, i.e., it was not durable after all. Shaped like an inverted L, the counter was heavy, huge, and its
top laden with formica. It protruded towards the customer waiting area and its base was not secured.30

CRISELDA too, should be absolved from any contributory negligence. Initially, ZHIENETH held on to
CRISELDAs waist, later to the latters hand.31 CRISELDA momentarily released the childs hand from her
clutch when she signed her credit card slip. At this precise moment, it was reasonable and usual for
CRISELDA to let go of her child. Further, at the time ZHIENETH was pinned down by the counter, she was
just a foot away from her mother; and the gift-wrapping counter was just four meters away from
CRISELDA.32 The time and distance were both significant. ZHIENETH was near her mother and did not
loiter as petitioners would want to impress upon us. She even admitted to the doctor who treated her at the
hospital that she did not do anything; the counter just fell on her.

WHEREFORE, in view of all the foregoing, the instant petition is DENIED and the challenged decision of
the Court of Appeals of 17 June 1996 in C.A. G.R. No. CV 37937 is hereby AFFIRMED.

Costs against petitioners.

SO ORDERED.