cases-admin law. ii

SUPREME COURT

Manila

EN BANC

G.R. No. 97149 March 31, 1992

FIDENCIO Y. BEJA, SR., petitioner, vs.COURT OF APPEALS, HONORABLE REINERIO O. REYES, in his capacity as Secretary of the Department of Transportation and Communications; COMMODORE ROGELIO A. DAYAN, in his capacity as General Manager of the Philippine Ports Authority; DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, ADMINISTRATIVE ACTION BOARD; and JUSTICE ONOFRE A. VILLALUZ, in his capacity as Chairman of the Administrative Action Board, DOTC, respondents.

ROMERO, J.:

The instant petition for certiorari questions the jurisdiction of the Secretary of the Department of Transportation and Communications (DOTC) and/or its Administrative Action Board (AAB) over administrative cases involving personnel below the rank of Assistant General Manager of the Philippine Ports Authority (PPA), an agency attached to the said Department.

Petitioner Fidencio Y. Beja, Sr. 1 was first employed by the PPA as arrastre supervisor in 1975. He became Assistant Port Operations Officer in 1976 and Port Operations Officer in 1977. In February 1988, as a result of the reorganization of the PPA, he was appointed Terminal Supervisor.

On October 21, 1988, the PPA General Manager, Rogelio A. Dayan, filed Administrative Case No. 11-04-88 against petitioner Beja and Hernando G. Villaluz for grave dishonesty, grave misconduct, willful violation of reasonable office rules and regulations and conduct prejudicial to the best interest of the service. Beja and Villaluz allegedly erroneously assessed storage fees resulting in the loss of P38,150.77 on the part of the PPA. Consequently, they were preventively suspended for the charges. After a preliminary investigation conducted by the district attorney for Region X, Administrative Case No. 11-04-88 was "considered closed for lack of merit."

On December 13, 1988, another charge sheet, docketed as Administrative Case No. 12-01-88, was filed against Beja by the PPA General Manager also for dishonesty, grave misconduct, violation of reasonable office rules and regulations, conduct prejudicial to the best interest of the service and for being notoriously undesirable. The charge consisted of six (6) different specifications of administrative offenses including fraud against the PPA in the total amount of P218,000.00. Beja was also placed under preventive suspension pursuant to Sec. 41 of P.D. No. 807.

The case was redocketed as Administrative Case No. PPA-AAB-1-049-89 and thereafter, the PPA general manager indorsed it to the AAB for "appropriate action." At the scheduled hearing, Beja asked for continuance on the ground that he needed time to study the charges against him. The AAB proceeded to hear the case and gave Beja an opportunity to present evidence. However, on February 20, 1989, Beja filed a petition for certiorari with preliminary injunction before the Regional Trial Court of Misamis Oriental. 2 Two days later, he filed with the AAB a manifestation and motion to suspend the hearing of

Administrative Case No. PPA-AAB-1-049-89 on account of the pendency of the certiorari proceeding before the court. AAB denied the motion and continued with the hearing of the administrative case.

Thereafter, Beja moved for the dismissal of the certiorari case below and proceeded to file before this Court a petition for certiorari with preliminary injunction and/or temporary restraining order. The case was docketed as G.R. No. 87352 captioned "Fidencio Y. Beja v. Hon. Reinerio 0. Reyes, etc., et al." In the en banc resolution of March 30, 1989, this Court referred the case to the Court of Appeals for "appropriate action." 3 G.R. No. 87352 was docketed in the Court of Appeals as CA-G.R. SP No. 17270.

Meanwhile, a decision was rendered by the AAB in Administrative Case No. PPA-AAB-049-89. Its dispositive portion reads:

WHEREFORE, judgment is hereby rendered, adjudging the following, namely:

a) That respondents Geronimo Beja, Jr. and Hernando Villaluz are exonerated from the charge against them;

b) That respondent Fidencio Y. Beja be dismissed from the service;

c) That his leave credits and retirement benefits are declared forfeited;

d) That he be disqualified from re-employment in the government service;

e) That his eligibility is recommended to be cancelled.

Pasig, Metro Manila, February 28, 1989.

On December 10, 1990, after appropriate proceedings, the Court of Appeals also rendered a decision 4 in CA-G.R. SP No. 17270 dismissing the petition for certiorari for lack of merit. Hence, Beja elevated the case back to this Court through an "appeal by certiorari with preliminary injunction and/or temporary restraining order."

We find the pleadings filed in this case to be sufficient bases for arriving at a decision and hence, the filing of memoranda has been dispensed with.

In his petition, Beja assails the Court of Appeals for having "decided questions of substance in a way probably not in accord with law or with the applicable decisions" of this Court. 5 Specifically, Beja contends that the Court of Appeals failed to declare that: (a) he was denied due process; (b) the PPA general manager has no power to issue a preventive suspension order without the necessary approval of the PPA board of directors; (c) the PPA general manager has no power to refer the administrative case filed against him to the DOTC-AAB, and (d) the DOTC Secretary, the Chairman of the DOTC-AAB and DOTC-AAB itself as an adjudicatory body, have no jurisdiction to try the administrative case against him. Simply put, Beja challenges the legality of the preventive suspension and the jurisdiction of the DOTC Secretary and/or the AAB to initiate and hear administrative cases against PPA personnel below the rank of Assistant General Manager.

Petitioner anchors his contention that the PPA general manager cannot subject him to a preventive suspension on the following provision of Sec. 8, Art. V of Presidential Decree No. 857 reorganizing the PPA:

(d) the General Manager shall, subject to the approval of the Board, appoint and remove personnel below the rank of Assistant General Manager. (Emphasis supplied.)

Petitioner contends that under this provision, the PPA Board of Directors and not the PPA General Manager is the "proper disciplining authority. 6

As correctly observed by the Solicitor General, the petitioner erroneously equates "preventive suspension" as a remedial measure with "suspension" as a penalty for administrative dereliction. The imposition of preventive suspension on a government employee charged with an administrative offense is subject to the following provision of the Civil Service Law, P.D. No. 807:

Sec. 41. Preventive Suspension. — The proper disciplining authority may preventively suspend any subordinate officer or employee under his authority pending an investigation, if the charge against such officer or employee involves dishonesty, oppression or grave misconduct, or neglect in the performance of duty, or if there are reasons to believe that the respondent is guilty of charges which would warrant his removal from the service.

Imposed during the pendency of an administrative investigation, preventive suspension is not a penalty in itself. It is merely a measure of precaution so that the employee who is charged may be separated, for obvious reasons, from the scene of his alleged misfeasance while the same is being investigated. 7 Thus, preventive suspension is distinct from the administrative penalty of removal from office such as the one mentioned in Sec. 8(d) of P.D. No 857. While the former may be imposed on a respondent during the investigation of the charges against him, the latter is the penalty which may only be meted upon him at the termination of the investigation or the final disposition of the case.

The PPA general manager is the disciplining authority who may, by himself and without the approval of the PPA Board of Directors, subject a respondent in an administrative case to preventive suspension. His disciplinary powers are sanctioned, not only by Sec. 8 of P.D. No. 857 aforequoted, but also by Sec. 37 of P.D. No. 807 granting heads of agencies the "jurisdiction to investigate and decide matters involving disciplinary actions against officers and employees" in the PPA.

Parenthetically, the period of preventive suspension is limited. It may be lifted even if the disciplining authority has not finally decided the administrative case provided the ninety-day period from the effectivity of the preventive suspension has been exhausted. The employee concerned may then be reinstated. 8 However, the said ninety-day period may be interrupted. Section 42 of P.D. No. 807 also mandates that any fault, negligence or petition of a suspended employee may not be considered in the computation of the said period. Thus, when a suspended employee obtains from a court of justice a restraining order or a preliminary injunction inhibiting proceedings in an administrative case, the lifespan of such court order should be excluded in the reckoning of the permissible period of the preventive suspension. 9

With respect to the issue of whether or not the DOTC Secretary and/or the AAB may initiate and hear administrative cases against PPA Personnel below the rank of Assistant General Manager, the Court qualifiedly rules in favor of petitioner.

The PPA was created through P.D. No. 505 dated July 11, 1974. Under that Law, the corporate powers of the PPA were vested in a governing Board of Directors known as the Philippine Port Authority Council. Sec. 5(i) of the same decree gave the Council the power "to appoint, discipline and remove, and determine the composition of the technical staff of the Authority and other personnel."

On December 23, 1975, P.D. No. 505 was substituted by P.D. No. 857, See. 4(a) thereof created the Philippine Ports Authority which would be "attached" to the then Department of Public Works, Transportation and Communication. When Executive Order No. 125 dated January 30, 1987 reorganizing the Ministry of Transportation and Communications was issued, the PPA retained its "attached" status. 10 Even Executive Order No. 292 or the Administrative Code of 1987 classified the PPA as an agency "attached" to the Department of Transportation and Communications (DOTC). Sec. 24 of Book IV,

Title XV, Chapter 6 of the same Code provides that the agencies attached to the DOTC "shall continue to operate and function in accordance with the respective charters or laws creating them, except when they conflict with this Code."

Attachment of an agency to a Department is one of the three administrative relationships mentioned in Book IV, Chapter 7 of the Administrative Code of 1987, the other two being supervision and control and administrative supervision. "Attachment" is defined in Sec. 38 thereof as follows:

(3) Attachment. — (a) This refers to the lateral relationship between the Department or its equivalent and the attached agency or corporation for purposes of policy and program coordination. The coordination shall be accomplished by having the department represented in the governing board of the attached agency or corporation, either as chairman or as a member, with or without voting rights, if this is permitted by the charter; having the attached corporation or agency comply with a system of periodic reporting which shall reflect the progress of programs and projects; and having the department or its equivalent provide general policies through its representative in the board, which shall serve as the framework for the internal policies of the attached corporation or agency;

(b) Matters of day-to-day administration or all those pertaining to internal operations shall he left to the discretion or judgment of the executive officer of the agency or corporation. In the event that the Secretary and the head of the board or the attached agency or corporation strongly disagree on the interpretation and application of policies, and the Secretary is unable to resolve the disagreement, he shall bring the matter to the President for resolution and direction;

(c) Government-owned or controlled corporations attached to a department shall submit to the Secretary concerned their audited financial statements within sixty (60) days after the close of the fiscal year; and

(d) Pending submission of the required financial statements, the corporation shall continue to operate on the basis of the preceding year's budget until the financial statements shall have been submitted. Should any government-owned or controlled corporation incur an operation deficit at the close of its fiscal year, it shall be subject to administrative supervision of the department; and the corporation's operating and capital budget shall be subject to the department's examination, review, modification and approval. (emphasis supplied.)

An attached agency has a larger measure of independence from the Department to which it is attached than one which is under departmental supervision and control or administrative supervision. This is borne out by the "lateral relationship" between the Department and the attached agency. The attachment is merely for "policy and program coordination." With respect to administrative matters, the independence of an attached agency from Departmental control and supervision is further reinforced by the fact that even an agency under a Department's administrative supervision is free from Departmental interference with respect to appointments and other personnel actions "in accordance with the decentralization of personnel functions" under the Administrative Code of 1987. 11 Moreover, the Administrative Code explicitly provides that Chapter 8 of Book IV on supervision and control shall not apply to chartered institutions attached to a Department. 12

Hence, the inescapable conclusion is that with respect to the management of personnel, an attached agency is, to a certain extent, free from Departmental interference and control. This is more explicitly shown by P.D. No. 857 which provides:

Sec. 8. Management and Staff. — a) The President shall, upon the recommendation of the Board, appoint the General Manager and the Assistant General Managers.

(b) All other officials and employees of the Authority shall be selected and appointed on the basis of merit and fitness based on a comprehensive and progressive merit system to be established by the Authority immediately upon its organization and consistent with Civil Service rules and regulations. The recruitment, transfer, promotion, and dismissal of all personnel of the Authority, including temporary workers, shall be governed by such merit system.

(c) The General Manager shall, subject to the approval of the Board, determine the staffing pattern and the number of personnel of the Authority, define their duties and responsibilities, and fix their salaries and emoluments. For professional and technical positions, the General Manager shall recommend salaries and emoluments that are comparable to those of similar positions in other government-owned corporations, the provisions of existing rules and regulations on wage and position classification notwithstanding.

(d) The General Manager shall, subject to the approval by the Board, appoint and remove personnel below the rank of Assistant General Manager.

xxx xxx xxx

(emphasis supplied.)

Although the foregoing section does not expressly provide for a mechanism for an administrative investigation of personnel, by vesting the power to remove erring employees on the General Manager, with the approval of the PPA Board of Directors, the law impliedly grants said officials the power to investigate its personnel below the rank of Assistant Manager who may be charged with an administrative offense. During such investigation, the PPA General Manager, as earlier stated, may subject the employee concerned to preventive suspension. The investigation should be conducted in accordance with the procedure set out in Sec. 38 of P.D. No. 807. 13 Only after gathering sufficient facts may the PPA General Manager impose the proper penalty in accordance with law. It is the latter action which requires the approval of the PPA Board of Directors. 14

From an adverse decision of the PPA General Manager and the Board of Directors, the employee concerned mayelevate the matter to the Department Head or Secretary. Otherwise, he may appeal directly to the Civil Service Commission. The permissive recourse to the Department Secretary is sanctioned by the Civil Service Law (P.D. No. 807) under the following provisions:

Sec. 37. Disciplinary Jurisdiction. — (a) The Commission shall decide upon appeal all administrative disciplinary cases involving the imposition of a penalty of suspension for more than thirty days, or fine in an amount exceeding thirty days salary, demotion in rank or salary or transfer, removal or dismissal from office. A complaint may be filed directly with the Commission by a private citizen against a government official or employee in which case it may hear and decide the case or it may deputize any department or agency or official or group of officials to conduct the investigation. The results of the investigation shall be submitted to the Commission with recommendation as to the penalty to be imposed or other action to be taken.

(b) The heads of departments, agencies and instrumentalities, provinces, cities and municipalities shall have jurisdiction to investigate and decide matters involving disciplinary action against officers and employees under their jurisdiction. The decisions shall be final in case the penalty imposed is suspension for not more than thirty days or fine in an amount not exceeding thirty days' salary. In case the decision rendered by a bureau or office head is appealable to the Commission, the same may be initially appealed to the department and finally to the Commission and pending appeal, the same

shall be executory except when the penalty is removal, in which case the same shall be executory only after confirmation by the department head.

xxx xxx xxx

(Emphasis supplied.)

It is, therefore, clear that the transmittal of the complaint by the PPA General Manager to the AAB was premature. The PPA General Manager should have first conducted an investigation, made the proper recommendation for the imposable penalty and sought its approval by the PPA Board of Directors. It was discretionary on the part of the herein petitioner to elevate the case to the then DOTC Secretary Reyes. Only then could the AAB take jurisdiction of the case.

The AAB, which was created during the tenure of Secretary Reyes under Office Order No. 88-318 dated July 1, 1988, was designed to act, decide and recommend to him "all cases of administrative malfeasance, irregularities, grafts and acts of corruption in the Department." Composed of a Chairman and two (2) members, the AAB came into being pursuant to Administrative Order No. 25 issued by the President on May 25, 1987. 15 Its special nature as a quasi-judicial administrative body notwithstanding, the AAB is not exempt from the observance of due process in its proceedings. 16 We are not satisfied that it did so in this case the respondents protestation that petitioner waived his right to be heard notwithstanding. It should be observed that petitioner was precisely questioning the AAB's jurisdiction when it sought judicial recourse.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED insofar as it upholds the power of the PPA General Manager to subject petitioner to preventive suspension and REVERSED insofar as it validates the jurisdiction of the DOTC and/or the AAB to act on Administrative Case No. PPA-AAB-1-049-89 and rules that due process has been accorded the petitioner.

The AAB decision in said case is hereby declared NULL and VOID and the case in REMANDED to the PPA whose General Manager shall conduct with dispatch its reinvestigation.

The preventive suspension of petitioner shall continue unless after a determination of its duration, it is found that he had served the total of ninety (90) days in which case he shall be reinstated immediately.

SO ORDERED.

Narvasa, C.J., Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Bidin, Griño-Aquino, Medialdea, Regalado, Davide, Jr. and Nocon JJ., concur.

Padilla and Bellosillo, JJ., took no part.

Feliciano, J., is on leave.

Footnotes

1 Petitioner was referred to as "Fidencio Y. Beja" in the proceedings below. He appears as "Fidencio Y. Beja, Sr." for the first time in this forum.

2 Case No. 89-053.

3 Two other cases involving substantially the same issues were likewise referred by the Court to the Court of Appeals: G.R. Nos. 86468-69 (Leopoldo F. Bungubung v. Hon. Reinerio 0. Reyes, et al.) and G.R. No. 86646 (Reinerio 0. Reyes, et al. vs. Cristeto O. Dinopol, et al.).

4 Penned by Justice Venancio D. Aldecoa, Jr. and concurred in by Justices Fidel P. Purisima and Abelardo M. Dayrit.

5 Petition, p. 3; Rollo, p. 4.

6 Petition, pp. 13-14; Rollo, pp. 14-15.

7 Bautista v. Peralta, L-21967, September 29, 1966, 18 SCRA 223,225-226.

8 See. 42, P.D. No. 807.

9 Orbos v. Bungubung, G.R. No. 92358, November 21, 1990, 191SCRA 563.

10 Sec. 18 (a).

11 Sec. 38 (2), par. (b).

12 Sec. 39 (2).

13 Sec. 38. Procedure in Administrative Cases Against Non - Presidential Appointees. — (a) Administrative proceedings may be commenced against a subordinate officer or employee by the head of department or office of equivalent rank, or head of local government, or chiefs of agencies, or regional directors, or upon sworn written complaint of any other persons.

(b) In the case of a complaint filed by any other persons, the complainant submit sworn statements covering his testimony and those of his witnesses together with his documentary evidence. If on the basis of such papers a prima facie case is found not to exist, the disciplining authority shall dismiss the case. If a prima facie case exists, he shall notify the respondent in writing, of the charges against the latter, to which shall he attached copies of the complaint, sworn statements and other documents submitted, and the respondent shall be allowed not less than seventy-two hours after receipt of the complaint to answer the charges in writing under oath, together with supporting sworn statements and documents, in which he shall indicate whether or not he elects a formal investigation if his answer is not considered satisfactory. If the answer is found satisfactory, the disciplining authority shall dismiss the case.

(c) Although a respondent does not request a formal investigation, one shall nevertheless be conducted when from the allegations of the complaint and the answer of the respondent, including the supporting documents, the merits of the case cannot be decided judiciously without conducting such an investigation.

(d) The investigation shall be held not earlier than five days nor later than ten days from the date of receipt of respondent's answer by the disciplining authority, and shall be finished within thirty days from the filing of the charges, unless the period is extended by the Commission in meritorious cases. The decision shall be rendered by the disciplining authority within thirty days from the termination of the investigation or submission of the

report of the investigator, which report shall be submitted within fifteen days from the conclusion of the investigation.

(e) The direct evidence for the complainant and the respondent shall consist of the sworn statement and documents submitted in support of the complaint or answer, as the case may be, without prejudice to the presentation of additional evidence deemed necessary but was unavailable at the time of the filing of the complaint or answer, upon which the cross-examination, by respondent and the complainant, respectively, shall be based. Following cross-examination, there may be redirect and recross-examination.

(f) Either party may avail himself of the service of counsel and may require the attendance of witnesses and the production of documentary evidence in his favor through the compulsory process of subpoena or subpoena duces tecum.

Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. 97149 March 31, 1992

FIDENCIO Y. BEJA, SR., petitioner, vs.COURT OF APPEALS, HONORABLE REINERIO O. REYES, in his capacity as Secretary of the Department of Transportation and Communications; COMMODORE ROGELIO A. DAYAN, in his capacity as General Manager of the Philippine Ports Authority; DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, ADMINISTRATIVE ACTION BOARD; and JUSTICE ONOFRE A. VILLALUZ, in his capacity as Chairman of the Administrative Action Board, DOTC, respondents.

ROMERO, J.:

The instant petition for certiorari questions the jurisdiction of the Secretary of the Department of Transportation and Communications (DOTC) and/or its Administrative Action Board (AAB) over administrative cases involving personnel below the rank of Assistant General Manager of the Philippine Ports Authority (PPA), an agency attached to the said Department.

Petitioner Fidencio Y. Beja, Sr. 1 was first employed by the PPA as arrastre supervisor in 1975. He became Assistant Port Operations Officer in 1976 and Port Operations Officer in 1977. In February 1988, as a result of the reorganization of the PPA, he was appointed Terminal Supervisor.

On October 21, 1988, the PPA General Manager, Rogelio A. Dayan, filed Administrative Case No. 11-04-88 against petitioner Beja and Hernando G. Villaluz for grave dishonesty, grave misconduct, willful violation of reasonable office rules and regulations and conduct prejudicial to the best interest of the service. Beja and Villaluz allegedly erroneously assessed storage fees resulting in the loss of P38,150.77 on the part of the PPA. Consequently, they were preventively suspended for the charges. After a preliminary investigation conducted by the district attorney for Region X, Administrative Case No. 11-04-88 was "considered closed for lack of merit."

On December 13, 1988, another charge sheet, docketed as Administrative Case No. 12-01-88, was filed against Beja by the PPA General Manager also for dishonesty, grave misconduct, violation of reasonable office rules and regulations, conduct prejudicial to the best interest of the service and for being notoriously undesirable. The charge consisted of six (6) different specifications of administrative offenses including fraud against the PPA in the total amount of P218,000.00. Beja was also placed under preventive suspension pursuant to Sec. 41 of P.D. No. 807.

The case was redocketed as Administrative Case No. PPA-AAB-1-049-89 and thereafter, the PPA general manager indorsed it to the AAB for "appropriate action." At the scheduled hearing, Beja asked for continuance on the ground that he needed time to study the charges against him. The AAB proceeded to hear the case and gave Beja an opportunity to present evidence. However, on February 20, 1989, Beja filed a petition for certiorari with preliminary injunction before the Regional Trial Court of Misamis Oriental. 2 Two days later, he filed with the AAB a manifestation and motion to suspend the hearing of Administrative Case No. PPA-AAB-1-049-89 on account of the pendency of the certiorari proceeding before the court. AAB denied the motion and continued with the hearing of the administrative case.

Thereafter, Beja moved for the dismissal of the certiorari case below and proceeded to file before this Court a petition for certiorari with preliminary injunction and/or temporary restraining order. The case was docketed as G.R. No. 87352 captioned "Fidencio Y. Beja v. Hon. Reinerio 0. Reyes, etc., et al." In the en banc resolution of March 30,

1989, this Court referred the case to the Court of Appeals for "appropriate action." 3 G.R. No. 87352 was docketed in the Court of Appeals as CA-G.R. SP No. 17270.

Meanwhile, a decision was rendered by the AAB in Administrative Case No. PPA-AAB-049-89. Its dispositive portion reads:

WHEREFORE, judgment is hereby rendered, adjudging the following, namely:

a) That respondents Geronimo Beja, Jr. and Hernando Villaluz are exonerated from the charge against them;

b) That respondent Fidencio Y. Beja be dismissed from the service;

c) That his leave credits and retirement benefits are declared forfeited;

d) That he be disqualified from re-employment in the government service;

e) That his eligibility is recommended to be cancelled.

Pasig, Metro Manila, February 28, 1989.

On December 10, 1990, after appropriate proceedings, the Court of Appeals also rendered a decision 4 in CA-G.R. SP No. 17270 dismissing the petition for certiorari for lack of merit. Hence, Beja elevated the case back to this Court through an "appeal by certiorari with preliminary injunction and/or temporary restraining order."

We find the pleadings filed in this case to be sufficient bases for arriving at a decision and hence, the filing of memoranda has been dispensed with.

In his petition, Beja assails the Court of Appeals for having "decided questions of substance in a way probably not in accord with law or with the applicable decisions" of this Court. 5 Specifically, Beja contends that the Court of Appeals failed to declare that: (a) he was denied due process; (b) the PPA general manager has no power to issue a preventive suspension order without the necessary approval of the PPA board of directors; (c) the PPA general manager has no power to refer the administrative case filed against him to the DOTC-AAB, and (d) the DOTC Secretary, the Chairman of the DOTC-AAB and DOTC-AAB itself as an adjudicatory body, have no jurisdiction to try the administrative case against him. Simply put, Beja challenges the legality of the preventive suspension and the jurisdiction of the DOTC Secretary and/or the AAB to initiate and hear administrative cases against PPA personnel below the rank of Assistant General Manager.

Petitioner anchors his contention that the PPA general manager cannot subject him to a preventive suspension on the following provision of Sec. 8, Art. V of Presidential Decree No. 857 reorganizing the PPA:

(d) the General Manager shall, subject to the approval of the Board, appoint and remove personnel below the rank of Assistant General Manager. (Emphasis supplied.)

Petitioner contends that under this provision, the PPA Board of Directors and not the PPA General Manager is the "proper disciplining authority. 6

As correctly observed by the Solicitor General, the petitioner erroneously equates "preventive suspension" as a remedial measure with "suspension" as a penalty for administrative dereliction. The imposition of preventive suspension on a government employee charged with an administrative offense is subject to the following provision of the Civil Service Law, P.D. No. 807:

Sec. 41. Preventive Suspension. — The proper disciplining authority may preventively suspend any subordinate officer or employee under his authority pending an investigation, if the charge against such officer or employee involves dishonesty, oppression or grave misconduct, or neglect in the performance of duty, or if there are reasons to believe that the respondent is guilty of charges which would warrant his removal from the service.

Imposed during the pendency of an administrative investigation, preventive suspension is not a penalty in itself. It is merely a measure of precaution so that the employee who is charged may be separated, for obvious reasons, from the scene of his alleged misfeasance while the same is being investigated. 7 Thus, preventive suspension is distinct from the administrative penalty of removal from office such as the one mentioned in Sec. 8(d) of P.D. No 857. While the former may be imposed on a respondent during the investigation of the charges against him, the latter is the penalty which may only be meted upon him at the termination of the investigation or the final disposition of the case.

The PPA general manager is the disciplining authority who may, by himself and without the approval of the PPA Board of Directors, subject a respondent in an administrative case to preventive suspension. His disciplinary powers are sanctioned, not only by Sec. 8 of P.D. No. 857 aforequoted, but also by Sec. 37 of P.D. No. 807 granting heads of agencies the "jurisdiction to investigate and decide matters involving disciplinary actions against officers and employees" in the PPA.

Parenthetically, the period of preventive suspension is limited. It may be lifted even if the disciplining authority has not finally decided the administrative case provided the ninety-day period from the effectivity of the preventive suspension has been exhausted. The employee concerned may then be reinstated. 8 However, the said ninety-day period may be interrupted. Section 42 of P.D. No. 807 also mandates that any fault, negligence or petition of a suspended employee may not be considered in the computation of the said period. Thus, when a suspended employee obtains from a court of justice a restraining order or a preliminary injunction inhibiting proceedings in an administrative case, the lifespan of such court order should be excluded in the reckoning of the permissible period of the preventive suspension. 9

With respect to the issue of whether or not the DOTC Secretary and/or the AAB may initiate and hear administrative cases against PPA Personnel below the rank of Assistant General Manager, the Court qualifiedly rules in favor of petitioner.

The PPA was created through P.D. No. 505 dated July 11, 1974. Under that Law, the corporate powers of the PPA were vested in a governing Board of Directors known as the Philippine Port Authority Council. Sec. 5(i) of the same decree gave the Council the power "to appoint, discipline and remove, and determine the composition of the technical staff of the Authority and other personnel."

On December 23, 1975, P.D. No. 505 was substituted by P.D. No. 857, See. 4(a) thereof created the Philippine Ports Authority which would be "attached" to the then Department of Public Works, Transportation and Communication. When Executive Order No. 125 dated January 30, 1987 reorganizing the Ministry of Transportation and Communications was issued, the PPA retained its "attached" status. 10 Even Executive Order No. 292 or the Administrative Code of 1987 classified the PPA as an agency "attached" to the Department of Transportation and Communications (DOTC). Sec. 24 of Book IV, Title XV, Chapter 6 of the same Code provides that the agencies attached to the DOTC "shall continue to operate and function in accordance with the respective charters or laws creating them, except when they conflict with this Code."

Attachment of an agency to a Department is one of the three administrative relationships mentioned in Book IV, Chapter 7 of the Administrative Code of 1987, the other two being supervision and control and administrative supervision. "Attachment" is defined in Sec. 38 thereof as follows:

(3) Attachment. — (a) This refers to the lateral relationship between the Department or its equivalent and the attached agency or corporation for purposes of policy and program coordination. The coordination shall be accomplished by having the department represented in the governing board of the attached agency or corporation, either as chairman or as a member, with or without voting rights, if this is permitted by the charter; having the attached corporation or agency comply with a system of periodic reporting which shall reflect the progress of programs and projects; and having the department or its equivalent provide general policies through its representative in the board, which shall serve as the framework for the internal policies of the attached corporation or agency;

(b) Matters of day-to-day administration or all those pertaining to internal operations shall he left to the discretion or judgment of the executive officer of the agency or corporation. In the event that the Secretary and the

head of the board or the attached agency or corporation strongly disagree on the interpretation and application of policies, and the Secretary is unable to resolve the disagreement, he shall bring the matter to the President for resolution and direction;

(c) Government-owned or controlled corporations attached to a department shall submit to the Secretary concerned their audited financial statements within sixty (60) days after the close of the fiscal year; and

(d) Pending submission of the required financial statements, the corporation shall continue to operate on the basis of the preceding year's budget until the financial statements shall have been submitted. Should any government-owned or controlled corporation incur an operation deficit at the close of its fiscal year, it shall be subject to administrative supervision of the department; and the corporation's operating and capital budget shall be subject to the department's examination, review, modification and approval. (emphasis supplied.)

An attached agency has a larger measure of independence from the Department to which it is attached than one which is under departmental supervision and control or administrative supervision. This is borne out by the "lateral relationship" between the Department and the attached agency. The attachment is merely for "policy and program coordination." With respect to administrative matters, the independence of an attached agency from Departmental control and supervision is further reinforced by the fact that even an agency under a Department's administrative supervision is free from Departmental interference with respect to appointments and other personnel actions "in accordance with the decentralization of personnel functions" under the Administrative Code of 1987. 11 Moreover, the Administrative Code explicitly provides that Chapter 8 of Book IV on supervision and control shall not apply to chartered institutions attached to a Department. 12

Hence, the inescapable conclusion is that with respect to the management of personnel, an attached agency is, to a certain extent, free from Departmental interference and control. This is more explicitly shown by P.D. No. 857 which provides:

Sec. 8. Management and Staff. — a) The President shall, upon the recommendation of the Board, appoint the General Manager and the Assistant General Managers.

(b) All other officials and employees of the Authority shall be selected and appointed on the basis of merit and fitness based on a comprehensive and progressive merit system to be established by the Authority immediately upon its organization and consistent with Civil Service rules and regulations. The recruitment, transfer, promotion, and dismissal of all personnel of the Authority, including temporary workers, shall be governed by such merit system.

(c) The General Manager shall, subject to the approval of the Board, determine the staffing pattern and the number of personnel of the Authority, define their duties and responsibilities, and fix their salaries and emoluments. For professional and technical positions, the General Manager shall recommend salaries and emoluments that are comparable to those of similar positions in other government-owned corporations, the provisions of existing rules and regulations on wage and position classification notwithstanding.

(d) The General Manager shall, subject to the approval by the Board, appoint and remove personnel below the rank of Assistant General Manager.

xxx xxx xxx

(emphasis supplied.)

Although the foregoing section does not expressly provide for a mechanism for an administrative investigation of personnel, by vesting the power to remove erring employees on the General Manager, with the approval of the PPA Board of Directors, the law impliedly grants said officials the power to investigate its personnel below the rank of Assistant Manager who may be charged with an administrative offense. During such investigation, the PPA General Manager, as earlier stated, may subject the employee concerned to preventive suspension. The investigation should be conducted in accordance with the procedure set out in Sec. 38 of P.D. No. 807. 13 Only after gathering sufficient facts may the PPA General Manager impose the proper penalty in accordance with law. It is the latter action which requires the approval of the PPA Board of Directors. 14

From an adverse decision of the PPA General Manager and the Board of Directors, the employee concerned may elevate the matter to the Department Head or Secretary. Otherwise, he may appeal directly to the Civil Service Commission. The permissive recourse to the Department Secretary is sanctioned by the Civil Service Law (P.D. No. 807) under the following provisions:

Sec. 37. Disciplinary Jurisdiction. — (a) The Commission shall decide upon appeal all administrative disciplinary cases involving the imposition of a penalty of suspension for more than thirty days, or fine in an amount exceeding thirty days salary, demotion in rank or salary or transfer, removal or dismissal from office. A complaint may be filed directly with the Commission by a private citizen against a government official or employee in which case it may hear and decide the case or it may deputize any department or agency or official or group of officials to conduct the investigation. The results of the investigation shall be submitted to the Commission with recommendation as to the penalty to be imposed or other action to be taken.

(b) The heads of departments, agencies and instrumentalities, provinces, cities and municipalities shall have jurisdiction to investigate and decide matters involving disciplinary action against officers and employees under their jurisdiction. The decisions shall be final in case the penalty imposed is suspension for not more than thirty days or fine in an amount not exceeding thirty days' salary. In case the decision rendered by a bureau or office head is appealable to the Commission, the same may be initially appealed to the department and finally to the Commission and pending appeal, the same shall be executory except when the penalty is removal, in which case the same shall be executory only after confirmation by the department head.

xxx xxx xxx

(Emphasis supplied.)

It is, therefore, clear that the transmittal of the complaint by the PPA General Manager to the AAB was premature. The PPA General Manager should have first conducted an investigation, made the proper recommendation for the imposable penalty and sought its approval by the PPA Board of Directors. It was discretionary on the part of the herein petitioner to elevate the case to the then DOTC Secretary Reyes. Only then could the AAB take jurisdiction of the case.

The AAB, which was created during the tenure of Secretary Reyes under Office Order No. 88-318 dated July 1, 1988, was designed to act, decide and recommend to him "all cases of administrative malfeasance, irregularities, grafts and acts of corruption in the Department." Composed of a Chairman and two (2) members, the AAB came into being pursuant to Administrative Order No. 25 issued by the President on May 25, 1987. 15 Its special nature as a quasi-judicial administrative body notwithstanding, the AAB is not exempt from the observance of due process in its proceedings. 16 We are not satisfied that it did so in this case the respondents protestation that petitioner waived his right to be heard notwithstanding. It should be observed that petitioner was precisely questioning the AAB's jurisdiction when it sought judicial recourse.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED insofar as it upholds the power of the PPA General Manager to subject petitioner to preventive suspension and REVERSED insofar as it validates the jurisdiction of the DOTC and/or the AAB to act on Administrative Case No. PPA-AAB-1-049-89 and rules that due process has been accorded the petitioner.

The AAB decision in said case is hereby declared NULL and VOID and the case in REMANDED to the PPA whose General Manager shall conduct with dispatch its reinvestigation.

The preventive suspension of petitioner shall continue unless after a determination of its duration, it is found that he had served the total of ninety (90) days in which case he shall be reinstated immediately.

SO ORDERED.

Narvasa, C.J., Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Bidin, Griño-Aquino, Medialdea, Regalado, Davide, Jr. and Nocon JJ., concur.

Padilla and Bellosillo, JJ., took no part.

Feliciano, J., is on leave.

Footnotes

1 Petitioner was referred to as "Fidencio Y. Beja" in the proceedings below. He appears as "Fidencio Y. Beja, Sr." for the first time in this forum.

2 Case No. 89-053.

3 Two other cases involving substantially the same issues were likewise referred by the Court to the Court of Appeals: G.R. Nos. 86468-69 (Leopoldo F. Bungubung v. Hon. Reinerio 0. Reyes, et al.) and G.R. No. 86646 (Reinerio 0. Reyes, et al. vs. Cristeto O. Dinopol, et al.).

4 Penned by Justice Venancio D. Aldecoa, Jr. and concurred in by Justices Fidel P. Purisima and Abelardo M. Dayrit.

5 Petition, p. 3; Rollo, p. 4.

6 Petition, pp. 13-14; Rollo, pp. 14-15.

7 Bautista v. Peralta, L-21967, September 29, 1966, 18 SCRA 223,225-226.

8 See. 42, P.D. No. 807.

9 Orbos v. Bungubung, G.R. No. 92358, November 21, 1990, 191SCRA 563.

10 Sec. 18 (a).

11 Sec. 38 (2), par. (b).

12 Sec. 39 (2).

13 Sec. 38. Procedure in Administrative Cases Against Non - Presidential Appointees. — (a) Administrative proceedings may be commenced against a subordinate officer or employee by the head of department or office of equivalent rank, or head of local government, or chiefs of agencies, or regional directors, or upon sworn written complaint of any other persons.

(b) In the case of a complaint filed by any other persons, the complainant submit sworn statements covering his testimony and those of his witnesses together with his documentary evidence. If on the basis of such papers a prima facie case is found not to exist, the disciplining authority shall dismiss the case. If a prima facie case exists, he shall notify the respondent in writing, of the charges against the latter, to which shall he attached copies of the complaint, sworn statements and other documents submitted, and the respondent shall be allowed not less than seventy-two hours after receipt of the complaint to answer the charges in writing under oath, together with supporting sworn statements and documents, in which he shall indicate whether or not he elects a formal investigation if his answer is not considered satisfactory. If the answer is found satisfactory, the disciplining authority shall dismiss the case.

(c) Although a respondent does not request a formal investigation, one shall nevertheless be conducted when from the allegations of the complaint and the answer of the respondent, including the supporting documents, the merits of the case cannot be decided judiciously without conducting such an investigation.

(d) The investigation shall be held not earlier than five days nor later than ten days from the date of receipt of respondent's answer by the disciplining authority, and shall be finished within thirty days from the filing of the charges, unless the period is extended by the Commission in meritorious cases. The decision shall be rendered by the disciplining authority within thirty days from the termination of the investigation or submission of the report of the investigator, which report shall be submitted within fifteen days from the conclusion of the investigation.

(e) The direct evidence for the complainant and the respondent shall consist of the sworn statement and documents submitted in support of the complaint or answer, as the case may be, without prejudice to the presentation of additional evidence deemed necessary but was unavailable at the time of the filing of the complaint or answer, upon which the cross-examination, by respondent and the complainant, respectively, shall be based. Following cross-examination, there may be redirect and recross-examination.

(f) Either party may avail himself of the service of counsel and may require the attendance of witnesses and the production of documentary evidence in his favor through the compulsory process of subpoena or subpoena duces tecum.

(g) The investigation shall be conducted only for the purpose of ascertaining the truth and without necessarily adhering to technical rules applicable in judicial proceedings. It shall be conducted by the disciplining authority concerned or his authorized representative.

The phrase any other party shall be understood to be a complainant other than those referred to in subsection (a) hereof.

14 Under the last paragraph of Sec. 36 of P.D. No. 807, the disciplining authority may impose the penalty of removal from the service, transfer, demotion in rank, suspension for not more than one year without pay, fine in an amount not exceeding six months' salary, or reprimand.

15 Respondents' Comment, p. 1; Rollo, p. 85.

16 Lupo v. Administrative Action Board, G.R. No. 89687, September 26, 1990, 190 SCRA 69.

Malaga v. Penachos GR 86695 1992FIRST DIVISION

[G.R. No. 86695, September 03, 1992]

MARIA ELENA MALAGA, DOING BUSINESS UNDER THE NAME B.E. CONSTRUCTION; JOSIELEEN NAJARRO, DOING BUSINESS UNDER THE NAME BEST BUILT CONSTRUCTION; JOSE N. OCCEÃ‘A, DOING BUSINESS UNDER THE NAME THE FIRM OF JOSE N. OCCEÃ‘A; AND THE ILOILO BUILDERS CORPORATION, PETITIONERS, VS. MANUEL R. PENACHOS, JR., ALFREDO MATANGGA, ENRICO TICAR AND TERESITA VILLANUEVA, IN THEIR RESPECTIVE CAPACITIES AS CHAIRMAN AND MEMBERS OF THE PRE-QUALIFICATION BIDS AND AWARDS COMMITTEE (PBAC) - BENIGNO PANISTANTE, IN HIS CAPACITY AS PRESIDENT OF ILOILO STATE COLLEGE OF FISHERIES, AS WELL AS IN THEIR RESPECTIVE PERSONAL CAPACITIES; AND HON. LODRIGIO L. LEBAQUIN, RESPONDENTS.

D E C I S I O N

CRUZ, J.:

This controversy involves the extent and applicability of P.D. 1818, which prohibits any court from issuing injunctions in cases involving infrastructure projects of the government.

The facts are not disputed.

The Iloilo State College of Fisheries (henceforth ISCOF) through its Pre-qualification, Bids and Awards Committee (henceforth PBAC) caused the publication in the November 25, 26, 28, 1988 issues of the Western Visayas Daily an Invitation to Bid for the construction of a Micro Laboratory Building at ISCOF. The notice announced that the last day for the submission of pre-qualification requirements (PRE C-1)*was December 2, 1988, and that the bids would be received and opened on December 12, 1988, at 3 o'clock in the afternoon.[1]

Petitioners Maria Elena Malaga and Josieleen Najarro, respectively doing business under the name of B.E. Construction and Best Built Construction, submitted their pre-qualification documents at two o'clock in the afternoon of December 2, 1988. Petitioner Jose OcceÃ±a submitted his own PRE-C1 on December 5, 1988. All three of them were not allowed to participate in the bidding because their documents were considered late, having been submitted after the cut-off time of ten o'clock in the morning of December 2, 1988.

On December 12, 1988, the petitioners filed a complaint with the Regional Trial Court of Iloilo against the chairman and members of PBAC in their official and personal capacities. The plaintiffs claimed that although they had submitted their PRE-C1 on time, the PBAC refused

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without just cause to accept them. As a result, they were not included in the list of pre-qualified bidders, could not secure the needed plans and other documents, and were unable to participate in the scheduled bidding.

In their prayer, they sought the resetting of the December 12, 1988 bidding and the acceptance of their PRE-C1 documents. They also asked that if the bidding had already been conducted, the defendants be directed not to award the project pending resolution of their complaint.

On the same date, Judge Lodrigio L. Lebaquin issued a restraining order prohibiting PBAC from conducting the bidding and awarding the project.[2]

On December 16, 1988, the defendants filed a motion to lift the restraining order on the ground that the court was prohibited from issuing restraining orders, preliminary injunctions and preliminary mandatory injunctions by P.D. 1818.

The decree reads pertinently as follows:Section 1. No Court in the Philippines shall have jurisdiction to issue any restraining order, preliminary injunction, or preliminary mandatory injunction in any case, dispute, or controversy involving an infrastructure project, or amining, fishery, forest or other natural resource development project of the government, or any public utility operated by the government, including among others public utilities for the transport of the goods or commodities, stevedoring and arrastre contracts, to prohibit any person or persons, entity or government official from proceeding with, or continuing the execution or implementation of any such project, or the operation of such public utility, or pursuing any lawful activity necessary for such execution, implementation or operation.

The movants also contended that the question of the propriety of a preliminary injunction had become moot and academic because the restraining order was received late, at 2 o'clock in the afternoon of December 12, 1988, after the bidding had been conducted and closed at eleven thirty in the morning of that date.

In their opposition to the motion, the plaintiffs argued against the applicability of P.D. 1818, pointing out that while ISCOF was a state college, it had its own charter and separate existence and was not part of the national government or of any local political subdivision. Even if P.D.1818 were applicable, the prohibition presumed a valid and legal government project, not one tainted with anomalies like the project at bar.

They also cited Filipinas Marble Corp. vs. IAC,[3] where the Court allowed the issuance of a writ of preliminary injunction despite a similar prohibition found in P.D. 385. The Court therein stated that:The government, however, is bound by basic principles of fairness and decency under the due process clause of the Bill of Rights. P.D. 385 was never meant to protect officials of government-lending institutions who take over the management of a borrower corporation, lead that corporation to bankruptcy through mismanagement or misappropriation of its funds, and who, after ruining it, use the mandatory provisions of the decree to avoid the consequences of their misdeeds (p. 188, underscoring supplied).



On January 2, 1989, the trial court lifted the restraining order and denied the petition for preliminary injunction. It declared that the building sought to be constructed at the ISCOF was an infrastructure project of the government falling within the coverage of P.D. 1818. Even if it were not, the petition for the issuance of a writ of preliminary injunction would still fail because the sheriff's return showed that PBAC was served a copy of the restraining order after the bidding sought to be restrained had already been held. Furthermore, the members of the PBAC could not be restrained from awarding the project because the authority to do so was lodged in the President of the ISCOF, who was not a party to the case.[4]

In the petition now before us, it is reiterated that P.D. 1818 does not cover the ISCOF because of its separate and distinct corporate personality. It is also stressed again that the prohibition under P.D. 1818 could not apply to the present controversy because the project was vitiated with irregularities, to wit:1. The invitation to bid as published fixed the deadline of submission of pre-qualification document on December 2, 1988 without indicating any time, yet after 10:00 o'clock of the given date, the PBAC already refused to accept petitioners' documents.2. The time and date of bidding was published as December 12, 1988 at 3:00 p.m. yet it was held at 10:00 o'clock in the morning.3. Private respondents, for the purpose of inviting bidders to participate, issued a mimeographed "Invitation to Bid" form, which by law (P.D. 1594 and Implementing Rules, Exh. B-1) is to contain the particulars of the project subject of bidding for the purposes of(i) enabling bidders to make an intelligent and accurate bids;(ii) for PBAC to have a uniform basis for evaluating the bids;(iii) to prevent collusion between a bidder and the PBAC, by opening to all the particulars of a project.

Additionally, the Invitation to Bid prepared by the respondents and the Itemized Bill of Quantities therein were left blank.[5] And although the project in question was a "Construction," the private respondents used an Invitation to Bid form for "Materials."[6]

The petitioners also point out that the validity of the writ of preliminary injunction had not yet become moot and academic because even if the bids had been opened before the restraining order was issued, the project itself had not yet been awarded. The ISCOF president was not an indispensable party because the signing of the award was merely a ministerial function which he could perform only upon the recommendation of the Award Committee. At any rate, the complaint had already been duly amended to include him as a party defendant.

In their Comment, the private respondents maintain that since the members of the board of trustees of the ISCOF are all government officials under Section 7 of P.D. 1523 and since the operations and maintenance of the ISCOF are provided for in the General Appropriations Law, it should be considered a government institution whose infrastructure project is covered by P.D. 1818.

Regarding the schedule for pre-qualification, the private respondents insist that PBAC posted on the ISCOF bulletin board an announcement that the deadline for the submission of pre-




qualification documents was at 10 o'clock of December 2, 1988, and the opening of bids would be held at 1 o'clock in the afternoon of December 12, 1988. As of ten o'clock in the morning of December 2, 1988, B.E. Construction and Best Built Construction had filed only their letters of intent. At two o'clock in the afternoon, B.E. and Best Built file through their common representative, Nenette Garuello, their pre-qualification documents which were admitted but stamped "submitted late." The petitioners were informed of their disqualification on the same date, and the disqualification became final on December 6, 1988. Having failed to take immediate action to compel PBAC to pre-qualify them despite their notice of disqualification, they cannot now come to this Court to question the bidding proper in which they had not participated.

In the petitioners' Reply, they raise as an additional irregularity the violation of the rule that where the estimated project cost is from P1M to P5M, the issuance of plans, specifications and proposal book forms should be made thirty days before the date of bidding.[7] They point out that these forms were issued only on December 2, 1988, and not at the latest on November 12, 1988, the beginning of the 30-day period prior to the scheduled bidding.

In their Rejoinder, the private respondents aver that the documents of B.E. and Best Built were received although filed late and were reviewed by the Award Committee, which discovered that the contractors had expired licenses. B.E.'s temporary certificate of Renewal of Contractor's License was valid only until September 30, 1988, while Best Built's license was valid only up to June 30, 1988.

The Court has considered the arguments of the parties in light of their testimonial and documentary evidence and the applicable laws and jurisprudence. It finds for the petitioners.

The 1987 Administrative Code defines a government instrumentality as follows:Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions, and government-owned or controlled corporations. (Sec. 2 (5) Introductory Provisions).

The same Code describes a chartered institution thus:Chartered institution - refers to any agency organized or operating under a special charter, and vested by law with functions relating to specific constitutional policies or objectives. This term includes the state universities and colleges, and the monetary authority of the state. (Sec. 2 (12) Introductory Provisions).

It is clear from the above definitions that ISCOF is a chartered institution and is therefore covered by P.D. 1818.

There are also indications in its charter that ISCOF is a government instrumentality. First, it was created in pursuance of the integrated fisheries development policy of the State, a priority program of the government to effect the socio-economic life of the nation. Second, the Treasurer of the Republic of the Philippines shall also be the ex-officio Treasurer of the state college with


its accounts and expenses to be audited by the Commission on Audit or its duly authorized representative. Third, heads of bureaus and offices of the National Government are authorized to loan or transfer to it, upon request of the president of the state college, such apparatus, equipment, or supplies and even the services of such employees as can be spared without serious detriment to public service. Lastly, an additional amount of P1.5M had been appropriated out of the funds of the National Treasury and it was also decreed in its charter that the funds and maintenance of the state college would henceforth be included in the General Appropriations Law.[8]

Nevertheless, it does not automatically follow that ISCOF is covered by the prohibition in the said decree.

In the case of Datiles and Co. vs. Sucaldito,[9] this Court interpreted a similar prohibition contained in P.D. 605, the law after which P.D. 1818 was patterned. It was there declared that the prohibition pertained to the issuance of injunctions or restraining orders by courts against administrative acts in controversies involving facts or the exercise of discretion in technical cases. The Court observed that to allow the courts to judge these matters would disturb the smooth functioning of the administrative machinery. Justice Teodoro Padilla made it clear, however, that on issues definitely outside of this dimension and involving questions of law, courts could not be prevented by P.D. No. 605 from exercising their power to restrain or prohibit administrative acts.

We see no reason why the above ruling should not apply to P.D. 1818.

There are at least two irregularities committed by PBAC that justified injunction of the bidding and the award of the project.

First, PBAC set deadlines for the filing of the PRE-C1 and the opening of bids and then changed these deadlines without prior notice to prospective participants.

Under the Rules Implementing P.D. 1594, prescribing policies and guidelines for government infrastructure contracts, PBAC shall provide prospective bidders with the Notice to Pre-qualification and other relevant information regarding the proposed work. Prospective contractors shall be required to file their ARC-Contractors Confidential Application for Registration & Classifications & the PRE-C2 Confidential Pre-qualification Statement for the Project (prior to the amendment of the rules, this was referred to as Pre-C1) not later than the deadline set in the published Invitation to Bid, after which date no PRE-C2 shall be submitted and received. Invitations to Bid shall be advertised for at least three times within a reasonable period but in no case less than two weeks in at least two newspapers of general circulations.[10]

PBAC advertised the pre-qualification deadline as December 2, 1988, without stating the hour thereof, and announced that the opening of bids would be at 3 o'clock in the afternoon of December 12, 1988. This schedule was changed and a notice of such change was merely posted at the ISCOF bulletin board. The notice advanced the cut-off time for the submission of pre-qualification documents to 10 o'clock in the morning of December 2, 1988, and the opening of bids to 1 o'clock in the afternoon of December 12, 1988.




The new schedule caused the pre-disqualification of the petitioners as recorded in the minutes of the PBAC meeting held on December 6, 1988. While it may be true that there were fourteen contractors who were pre-qualified despite the change in schedule, this fact did not cure the defect of the irregular notice. Notably, the petitioners were disqualified because they failed to meet the new deadline and not because of their expired licenses.**

We have held that where the law requires a previous advertisement before government contracts can be awarded, non-compliance with the requirement will, as a general rule, render the same void and of no effect.[11] The fact that an invitation for bids has been communicated to a number of possible bidders is not necessarily sufficient to establish compliance with the requirements of the law if it is shown that other possible bidders have not been similarly notified.[12]

Second, PBAC was required to issue to pre-qualified applicants the plans, specifications and proposal book forms for the project to be bid thirty days before the date of bidding if the estimated project cost was between P1M and P5M. PBAC has not denied that these forms were issued only on December 2, 1988, or only ten days before the bidding scheduled for December 12, 1988. At the very latest, PBAC should have issued them on November 12, 1988, or 30 days before the scheduled bidding.

It is apparent that the present controversy did not arise from the discretionary acts of the administrative body nor does it involve merely technical matters. What is involved here is non-compliance with the procedural rules on bidding which required strict observance. The purpose of the rules implementing P.D. 1594 is to secure competitive bidding and to prevent favoritism, collusion and fraud in the award of these contracts to the detriment of the public. This purpose was defeated by the irregularities committed by PBAC.

It has been held that the three principles in public bidding are the offer to the public, an opportunity for competition and a basis for exact comparison of bids. A regulation of the matter which excludes any of these factors destroys the distinctive character of the system and thwarts the purpose of its adoption.[13]

In the case at bar, it was the lack of proper notice regarding the pre-qualification requirement and the bidding that caused the elimination of petitioners B.E. and Best Built. It was not because of their expired licenses, as private respondents now claim. Moreover, the plans and specifications which are the contractors' guide to an intelligent bid, were not issued on time, thus defeating the guaranty that contractors be placed on equal footing when they submit their bids. The purpose of competitive bidding is negated if some contractors are informed ahead of their rivals of the plans and specifications that are to be the subject of their bids.

P.D. 1818 was not intended to shield from judicial scrutiny irregularites committed by administrative agencies such as the anomalies above described. Hence, the challenged restraining order was not improperly issued by the respondent judge and the writ of preliminary injunction should not have been denied. We note from Annex Q of the private respondent's memorandum, however, that the subject project has already been "100% completed as to the Engineering





Standard." This fait accompli has made the petition for a writ of preliminary injunction moot and academic.

We come now to the liabilities of the private respondents.

It has been held in a long line of cases that a contract granted without the competitive bidding required by law is void, and the party to whom it is awarded cannot benefit from it.[14] It has not been shown that the irregularities committed by PBAC were induced by or participated in by any of the contractors. Hence, liability shall attach only to the private respondents for the prejudice sustained by the petitioners as a result of the anomalies described above.

As there is no evidence of the actual loss suffered by the petitioners, compensatory damage may not be awarded to them. Moral damages do not appear to be due either. Even so, the Court cannot close its eyes to the evident bad faith that characterized the conduct of the private respondents, including the irregularities in the announcement of the bidding and their efforts to persuade the ISCOF president to award the project after two days from receipt of the restraining order and before they moved to lift such order. For such questionable acts, they are liable in nominal damages at least in accordance with Article 2221 of the Civil Code, which states:Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant may be vindicated or, recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.

These damages are to be assessed against the private respondents in the amount of P10,000.00 each, to be paid separately for each of petitioners B.E. Construction and Best Built Construction. The other petitioner, OcceÃ±a Builders, is not entitled to relief because it admittedly submitted its pre-qualification documents on December 5, 1988, or three days after the deadline.

WHEREFORE, judgment is hereby rendered: a) upholding the restraining order dated December 12, 1988, as not covered by the prohibition in P.D. 1818; b) ordering the chairman and the members of the PBAC board of trustees, namely, Manuel R. Penachos, Jr., Alfredo Matangga, Enrico Ticar, and Teresita Villanueva, to each pay separately to petitioners Maria Elena Malaga and Josieleen Najarro nominal damages of P10,000.00 each; and c) removing the said chairman and members from the PBAC board of trustees, or whoever among them is still incumbent therein, for their malfeasance in office. Costs against PBAC.

Let a copy of this decision be sent to the Office of the Ombudsman.

SO ORDERED.GriÃ±o-Aquino, Medialdea, and Bellosillo, JJ., concur.

* Implementing Rules and Regulations on PD 1594 (Prescribing Policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts) as amended. Official Gazette, Vol. 84, No. 23, p.3340-3365, June 6, 1988.

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[1] Annex A, Rollo, p. 134.

[2] Annex B, Rollo, p. 31.

[3] 142 SCRA 180.

[4] Annex F, Rollo, pp. 44-48.

[5] Exhibit E-2, Rollo of Exhibits.

[6] Exhibit E-3-a, Rollo of Exhibits.

[7] Rollo, p. 87.

[8] Presidential Decree No. 1523.

[9] 186 SCRA 704.

[10] IB 13Â 1.2-19, Implementing Rules and Regulations of P.D. 1594 as amended.

** B.E. & Best Built's licenses were valid until June 30, 1989. (Ex. P & O respectively: both were marked on December 28, 1988)

[11] Caltex Phil. v. Delgado Bros., 96 Phil. 368.

[12] 51 CT. Cl. 211, 214, 249, U.S. 313, 39 S. Ct. 300 25 Comp. Gen. 859.

[13] Hannan v. Board of Education, 25 Okla. 372.

[14] Johnson County Savings Bank, et al. v. City of Creston, 212 Iowa 929, 231 N.W. 705; Zottman v. San Francisco, 20 Cal. 96, 81 Am. Dec. 96; Richardson v. Grant County (c.c.) 27 F. 495; People v. Gleason, 121 N.Y. 631; 25 N.E. 4; Wagner v. Milwaukee, 196 Wis. 328, 220 N.W. 207.
















Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 120319 October 6, 1995

LUZON DEVELOPMENT BANK, petitioner, vs.ASSOCIATION OF LUZON DEVELOPMENT BANK EMPLOYEES and ATTY. ESTER S. GARCIA in her capacity as VOLUNTARY ARBITRATOR, respondents.

ROMERO, J.:

From a submission agreement of the Luzon Development Bank (LDB) and the Association of Luzon Development Bank Employees (ALDBE) arose an arbitration case to resolve the following issue:

Whether or not the company has violated the Collective Bargaining Agreement provision and the Memorandum of Agreement dated April 1994, on promotion.

At a conference, the parties agreed on the submission of their respective Position Papers on December 1-15, 1994. Atty. Ester S. Garcia, in her capacity as Voluntary Arbitrator, received ALDBE's Position Paper on January 18, 1995. LDB, on the other hand, failed to submit its Position Paper despite a letter from the Voluntary Arbitrator reminding them to do so. As of May 23, 1995 no Position Paper had been filed by LDB.

On May 24, 1995, without LDB's Position Paper, the Voluntary Arbitrator rendered a decision disposing as follows:

WHEREFORE, finding is hereby made that the Bank has not adhered to the Collective Bargaining Agreement provision nor the Memorandum of Agreement on promotion.

Hence, this petition for certiorari and prohibition seeking to set aside the decision of the Voluntary Arbitrator and to prohibit her from enforcing the same.

In labor law context, arbitration is the reference of a labor dispute to an impartial third person for determination on the basis of evidence and arguments presented by such parties who have bound themselves to accept the decision of the arbitrator as final and binding.

Arbitration may be classified, on the basis of the obligation on which it is based, as either compulsory or voluntary.

Compulsory arbitration is a system whereby the parties to a dispute are compelled by the government to forego their right to strike and are compelled to accept the resolution of their dispute through arbitration by a third party. 1 The essence of arbitration remains since a resolution of a dispute is arrived at by resort to a disinterested third party whose decision is final and binding on the parties, but in compulsory arbitration, such a third party is normally appointed by the government.

Under voluntary arbitration, on the other hand, referral of a dispute by the parties is made, pursuant to a voluntary arbitration clause in their collective agreement, to an impartial third person for a final and binding resolution. 2Ideally, arbitration awards are supposed to be complied with by both parties without delay, such that once an award has been rendered by an arbitrator, nothing is left to be done by both parties but to comply with the same. After all, they are presumed to have freely chosen arbitration as the mode of settlement for that particular dispute. Pursuant thereto, they have chosen a mutually acceptable arbitrator who shall hear and decide their case. Above all, they have mutually agreed to de bound by said arbitrator's decision.

In the Philippine context, the parties to a Collective Bargaining Agreement (CBA) are required to include therein provisions for a machinery for the resolution of grievances arising from the interpretation or implementation of the CBA or company personnel policies. 3 For this purpose, parties to a CBA shall name and designate therein a voluntary arbitrator or a panel of arbitrators, or include a procedure for their selection, preferably from those accredited by the National Conciliation and Mediation Board (NCMB). Article 261 of the Labor Code accordingly provides for exclusive original jurisdiction of such voluntary arbitrator or panel of arbitrators over (1) the interpretation or implementation of the CBA and (2) the interpretation or enforcement of company personnel policies. Article 262 authorizes them, but only upon agreement of the parties, to exercise jurisdiction over other labor disputes.

On the other hand, a labor arbiter under Article 217 of the Labor Code has jurisdiction over the following enumerated cases:

. . . (a) Except as otherwise provided under this Code the Labor Arbiters shall have original and exclusive jurisdiction to hear and

decide, within thirty (30) calendar days after the submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay, hours of work and other terms and conditions of employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions involving the legality of strikes and lockouts;

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims, arising from employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement.

xxx xxx xxx

It will thus be noted that the jurisdiction conferred by law on a voluntary arbitrator or a panel of such arbitrators is quite limited compared to the original jurisdiction of the labor arbiter and the appellate jurisdiction of the National Labor Relations Commission (NLRC) for that matter. 4 The state of our present law relating to voluntary arbitration provides that "(t)he award or decision of the Voluntary Arbitrator . . . shall be final and executory after ten (10) calendar days from receipt of the copy of the award or decision by the parties," 5 while the "(d)ecision, awards, or orders of the Labor Arbiter are final and executory unless appealed to the Commission by any or both parties within ten (10) calendar days from receipt of such decisions, awards, or orders." 6 Hence, while there is an express mode of appeal from the decision of a labor arbiter, Republic Act No. 6715 is silent with respect to an appeal from the decision of a voluntary arbitrator.

Yet, past practice shows that a decision or award of a voluntary arbitrator is, more often than not, elevated to the Supreme Court itself on a petition

for certiorari, 7 in effect equating the voluntary arbitrator with the NLRC or the Court of Appeals. In the view of the Court, this is illogical and imposes an unnecessary burden upon it.

In Volkschel Labor Union, et al. v. NLRC, et al., 8 on the settled premise that the judgments of courts and awards of quasi-judicial agencies must become final at some definite time, this Court ruled that the awards of voluntary arbitrators determine the rights of parties; hence, their decisions have the same legal effect as judgments of a court. In Oceanic Bic Division (FFW), et al. v. Romero, et al., 9 this Court ruled that "a voluntary arbitrator by the nature of her functions acts in a quasi-judicial capacity." Under these rulings, it follows that the voluntary arbitrator, whether acting solely or in a panel, enjoys in law the status of a quasi-judicial agency but independent of, and apart from, the NLRC since his decisions are not appealable to the latter. 10

Section 9 of B.P. Blg. 129, as amended by Republic Act No. 7902, provides that the Court of Appeals shall exercise:

xxx xxx xxx

(B) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions, including the Securities and Exchange Commission, the Employees Compensation Commission and the Civil Service Commission, except those falling within the appellate jurisdiction of the Supreme Court in accordance with the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442, as amended, the provisions of this Act, and of subparagraph (1) of the third paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948.

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Assuming arguendo that the voluntary arbitrator or the panel of voluntary arbitrators may not strictly be considered as a quasi-judicial agency, board or commission, still both he and the panel are comprehended within the concept of a "quasi-judicial instrumentality." It may even be stated that it was to meet the very situation presented by the quasi-judicial functions of the voluntary arbitrators here, as well as the subsequent arbitrator/arbitral tribunal operating under the Construction Industry Arbitration Commission, 11 that the broader term "instrumentalities" was purposely included in the above-quoted provision.

An "instrumentality" is anything used as a means or agency. 12 Thus, the terms governmental "agency" or "instrumentality" are synonymous in the sense that either of them is a means by which a government acts, or by which a certain government act or function is performed. 13 The word "instrumentality," with respect to a state, contemplates an authority to which the state delegates governmental power for the performance of a state function.14 An individual person, like an administrator or executor, is a judicial instrumentality in the settling of an estate, 15 in the same manner that a sub-agent appointed by a bankruptcy court is an instrumentality of the court, 16 and a trustee in bankruptcy of a defunct corporation is an instrumentality of the state. 17

The voluntary arbitrator no less performs a state function pursuant to a governmental power delegated to him under the provisions therefor in the Labor Code and he falls, therefore, within the contemplation of the term "instrumentality" in the aforequoted Sec. 9 of B.P. 129. The fact that his functions and powers are provided for in the Labor Code does not place him within the exceptions to said Sec. 9 since he is a quasi-judicial instrumentality as contemplated therein. It will be noted that, although the Employees Compensation Commission is also provided for in the Labor Code, Circular No. 1-91, which is the forerunner of the present Revised Administrative Circular No. 1-95, laid down the procedure for the appealability of its decisions to the Court of Appeals under the foregoing rationalization, and this was later adopted by Republic Act No. 7902 in amending Sec. 9 of B.P. 129.

A fortiori, the decision or award of the voluntary arbitrator or panel of arbitrators should likewise be appealable to the Court of Appeals, in line with the procedure outlined in Revised Administrative Circular No. 1-95, just like those of the quasi-judicial agencies, boards and commissions enumerated therein.

This would be in furtherance of, and consistent with, the original purpose of Circular No. 1-91 to provide a uniform procedure for the appellate review of adjudications of all quasi-judicial entities 18 not expressly excepted from the coverage of Sec. 9 of B.P. 129 by either the Constitution or another statute. Nor will it run counter to the legislative intendment that decisions of the NLRC be reviewable directly by the Supreme Court since, precisely, the cases within the adjudicative competence of the voluntary arbitrator are excluded from the jurisdiction of the NLRC or the labor arbiter.

In the same vein, it is worth mentioning that under Section 22 of Republic Act No. 876, also known as the Arbitration Law, arbitration is deemed a special proceeding of which the court specified in the contract or submission, or if none be specified, the Regional Trial Court for the province or city in which one of the parties resides or is doing business, or in which the arbitration is held, shall have

jurisdiction. A party to the controversy may, at any time within one (1) month after an award is made, apply to the court having jurisdiction for an order confirming the award and the court must grant such order unless the award is vacated, modified or corrected. 19

In effect, this equates the award or decision of the voluntary arbitrator with that of the regional trial court. Consequently, in a petition for certiorari from that award or decision, the Court of Appeals must be deemed to have concurrent jurisdiction with the Supreme Court. As a matter of policy, this Court shall henceforth remand to the Court of Appeals petitions of this nature for proper disposition.

ACCORDINGLY, the Court resolved to REFER this case to the Court of Appeals.

SO ORDERED.

Padilla, Regalado, Davide, Jr., Bellosillo, Puno, Vitug, Kapunan, Mendoza, Francisco and Hermosisima, Jr., JJ., concur.

Feliciano, J., concurs in the result.

Narvasa, C.J. and Melo, J. are on leave.

Footnotes

18 First Lepanto Ceramics, Inc. v. CA, et al., 231 SCRA 30 (1994).

19 Section 23, R.A. No. 876.

1 Seide, A Dictionary of Arbitration (1970).

2 Ibid.

3 Art. 260, Labor Code.


5 Art. 262-A, par. 4, Labor Code.


7 Oceanic Bic Division (FFW), et al. v. Romero, et al., 130 SCRA 392 (1984); Sime Darby Pilipinas, Inc. v. Magsalin, et al., 180 SCRA 177 (1989).

8 98 SCRA 314 (1980).

9 Supra.

10 Art. 262-A, in relation to Art. 217 (b) and (c), Labor Code, as amended by Sec. 9, R.A. 6715.

11 Executive Order No. 1008.

12 Laurens Federal Sav. and Loan Ass'n v. South Carolina Tax Commission, 112 S.E. 2d 716, 719, 236 S.C. 2.

13 Govt. of P.I. v. Springer, et al., 50 Phil. 259, 334 (1927).

14 Ciulla v. State, 77 N.Y.S. 2d 545, 550, 191 Misc. 528.

15 In re Turncock's Estate, 300 N.W. 155, 156, 238 Wis. 438.

16 In re Brown Co., D.C. Me., 36 F. Supp. 275, 277.

17 Gagne v. Brush, D.C.N.H., 30 F. Supp. 714, 716.


Manila

THIRD DIVISION

G.R. No. 102976 October 25, 1995

IRON AND STEEL AUTHORITY, petitioner, vs.THE COURT OF APPEALS and MARIA CRISTINA FERTILIZER CORPORATION, respondents.

FELICIANO, J.:

Petitioner Iron and Steel Authority ("ISA") was created by Presidential Decree (P.D.) No. 272 dated 9 August 1973 in order, generally, to develop and promote the iron and steel industry in the Philippines. The objectives of the ISA are spelled out in the following terms:

Sec. 2. Objectives — The Authority shall have the following objectives:

(a) to strengthen the iron and steel industry of the Philippines and to expand the domestic and export markets for the products of the industry;

(b) to promote the consolidation, integration and rationalization of the industry in order to increase industry capability and viability to service the domestic market and to compete in international markets;

(c) to rationalize the marketing and distribution of steel products in order to achieve a balance between demand and supply of iron and steel products for the country and to ensure that industry prices and profits are at levels that provide a fair balance between the interests of investors, consumers suppliers, and the public at large;

(d) to promote full utilization of the existing capacity of the industry, to discourage investment in excess capacity, and in coordination,

with appropriate government agencies to encourage capital investment in priority areas of the industry;

(e) to assist the industry in securing adequate and low-cost supplies of raw materials and to reduce the excessive dependence of the country on imports of iron and steel.

The list of powers and functions of the ISA included the following:

Sec. 4. Powers and Functions. — The authority shall have the following powers and functions:

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(j) to initiate expropriation of land required for basic iron and steel facilities for subsequent resale and/or lease to the companies involved if it is shown that such use of the State's power is necessary to implement the construction of capacity which is needed for the attainment of the objectives of the Authority;

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(Emphasis supplied)

P.D. No. 272 initially created petitioner ISA for a term of five (5) years counting from 9 August 1973. 1 When ISA's original term expired on 10 October 1978, its term was extended for another ten (10) years by Executive Order No. 555 dated 31 August 1979.

The National Steel Corporation ("NSC") then a wholly owned subsidiary of the National Development Corporation which is itself an entity wholly owned by the National Government, embarked on an expansion program embracing, among other things, the construction of an integrated steel mill in Iligan City. The construction of such a steel mill was considered a priority and major industrial project of the Government. Pursuant to the expansion program of the NSC, Proclamation No. 2239 was issued by the President of the Philippines on 16 November 1982 withdrawing from sale or settlement a large tract of public land (totalling about 30.25 hectares in area) located in Iligan City, and reserving that land for the use and immediate occupancy of NSC.

Since certain portions of the public land subject matter Proclamation No. 2239 were occupied by a non-operational chemical fertilizer plant and related facilities owned by private respondent Maria Cristina Fertilizer Corporation ("MCFC"),

Letter of Instruction (LOI), No. 1277, also dated 16 November 1982, was issued directing the NSC to "negotiate with the owners of MCFC, for and on behalf of the Government, for the compensation of MCFC's present occupancy rights on the subject land." LOI No. 1277 also directed that should NSC and private respondent MCFC fail to reach an agreement within a period of sixty (60) days from the date of LOI No. 1277, petitioner ISA was to exercise its power of eminent domain under P.D. No. 272 and to initiate expropriation proceedings in respect of occupancy rights of private respondent MCFC relating to the subject public land as well as the plant itself and related facilities and to cede the same to the NSC. 2

Negotiations between NSC and private respondent MCFC did fail. Accordingly, on 18 August 1983, petitioner ISA commenced eminent domain proceedings against private respondent MCFC in the Regional Trial Court, Branch 1, of Iligan City, praying that it (ISA) be places in possession of the property involved upon depositing in court the amount of P1,760,789.69 representing ten percent (10%) of the declared market values of that property. The Philippine National Bank, as mortgagee of the plant facilities and improvements involved in the expropriation proceedings, was also impleaded as party-defendant.

On 17 September 1983, a writ of possession was issued by the trial court in favor of ISA. ISA in turn placed NSC in possession and control of the land occupied by MCFC's fertilizer plant installation.

The case proceeded to trial. While the trial was ongoing, however, the statutory existence of petitioner ISA expired on 11 August 1988. MCFC then filed a motion to dismiss, contending that no valid judgment could be rendered against ISA which had ceased to be a juridical person. Petitioner ISA filed its opposition to this motion.

In an Order dated 9 November 1988, the trial court granted MCFC's motion to dismiss and did dismiss the case. The dismissal was anchored on the provision of the Rules of Court stating that "only natural or juridical persons or entities authorized by law may be parties in a civil case." 3 The trial court also referred to non-compliance by petitioner ISA with the requirements of Section 16, Rule 3 of the Rules of Court. 4

Petitioner ISA moved for reconsideration of the trial court's Order, contending that despite the expiration of its term, its juridical existence continued until the winding up of its affairs could be completed. In the alternative, petitioner ISA urged that the Republic of the Philippines, being the real party-in-interest, should be allowed to be substituted for petitioner ISA. In this connection, ISA referred to

a letter from the Office of the President dated 28 September 1988 which especially directed the Solicitor General to continue the expropriation case.

The trial court denied the motion for reconsideration, stating, among other things that:

The property to be expropriated is not for public use or benefit [__] but for the use and benefit [__] of NSC, a government controlled private corporation engaged in private business and for profit, specially now that the government, according to newspaper reports, is offering for sale to the public its [shares of stock] in the National Steel Corporation in line with the pronounced policy of the present administration to disengage the government from its private business ventures. 5 (Brackets supplied)

Petitioner went on appeal to the Court of Appeals. In a Decision dated 8 October 1991, the Court of Appeals affirmed the order of dismissal of the trial court. The Court of Appeals held that petitioner ISA, "a government regulatory agency exercising sovereign functions," did not have the same rights as an ordinary corporation and that the ISA, unlike corporations organized under the Corporation Code, was not entitled to a period for winding up its affairs after expiration of its legally mandated term, with the result that upon expiration of its term on 11 August 1987, ISA was "abolished and [had] no more legal authority to perform governmental functions." The Court of Appeals went on to say that the action for expropriation could not prosper because the basis for the proceedings, the ISA's exercise of its delegated authority to expropriate, had become ineffective as a result of the delegate's dissolution, and could not be continued in the name of Republic of the Philippines, represented by the Solicitor General:

It is our considered opinion that under the law, the complaint cannot prosper, and therefore, has to be dismissed without prejudice to the refiling of a new complaint for expropriation if the Congress sees it fit." (Emphases supplied)

At the same time, however, the Court of Appeals held that it was premature for the trial court to have ruled that the expropriation suit was not for a public purpose, considering that the parties had not yet rested their respective cases.

In this Petition for Review, the Solicitor General argues that since ISA initiated and prosecuted the action for expropriation in its capacity as agent of the Republic of the Philippines, the Republic, as principal of ISA, is entitled to be

substituted and to be made a party-plaintiff after the agent ISA's term had expired.

Private respondent MCFC, upon the other hand, argues that the failure of Congress to enact a law further extending the term of ISA after 11 August 1988 evinced a "clear legislative intent to terminate the juridical existence of ISA," and that the authorization issued by the Office of the President to the Solicitor General for continued prosecution of the expropriation suit could not prevail over such negative intent. It is also contended that the exercise of the eminent domain by ISA or the Republic is improper, since that power would be exercised "not on behalf of the National Government but for the benefit of NSC."

The principal issue which we must address in this case is whether or not the Republic of the Philippines is entitled to be substituted for ISA in view of the expiration of ISA's term. As will be made clear below, this is really the only issue which we must resolve at this time.

Rule 3, Section 1 of the Rules of Court specifies who may be parties to a civil action:

Sec. 1. Who May Be Parties. — Only natural or juridical persons or entities authorized by law may be parties in a civil action.

Under the above quoted provision, it will be seen that those who can be parties to a civil action may be broadly categorized into two (2) groups:

(a) those who are recognized as persons under the law whether natural, i.e., biological persons, on the one hand, or juridical person such as corporations, on the other hand; and

(b) entities authorized by law to institute actions.

Examination of the statute which created petitioner ISA shows that ISA falls under category (b) above. P.D. No. 272, as already noted, contains express authorization to ISA to commence expropriation proceedings like those here involved:

Sec. 4. Powers and Functions. — The Authority shall have the following powers and functions:

xxx xxx xxx

(j) to initiate expropriation of land required for basic iron and steel facilities for subsequent resale and/or lease to the companies involved if it is shown that such use of the State's power is necessary to implement the construction of capacity which is needed for the attainment of the objectives of the Authority;

xxx xxx xxx

(Emphasis supplied)

It should also be noted that the enabling statute of ISA expressly authorized it to enter into certain kinds of contracts "for and in behalf of the Government" in the following terms:

xxx xxx xxx

(i) to negotiate, and when necessary, to enter into contracts for and in behalf of the government, for the bulk purchase of materials, supplies or services for any sectors in the industry, and to maintain inventories of such materials in order to insure a continuous and adequate supply thereof and thereby reduce operating costs of such sector;

xxx xxx xxx

(Emphasis supplied)

Clearly, ISA was vested with some of the powers or attributes normally associated with juridical personality. There is, however, no provision in P.D. No. 272 recognizing ISA as possessing general or comprehensive juridical personality separate and distinct from that of the Government. The ISA in fact appears to the Court to be a non-incorporated agency or instrumentality of the Republic of the Philippines, or more precisely of the Government of the Republic of the Philippines. It is common knowledge that other agencies or instrumentalities of the Government of the Republic are cast in corporate form, that is to say, are incorporated agencies or instrumentalities, sometimes with and at other times without capital stock, and accordingly vested with a juridical personality distinct from the personality of the Republic. Among such incorporated agencies or instrumentalities are: National Power Corporation; 6 Philippine Ports Authority; 7 National Housing Authority; 8 Philippine National Oil Company; 9Philippine National Railways; 10 Public Estates Authority; 11 Philippine Virginia Tobacco Administration, 12 and so forth. It is worth

noting that the term "Authority" has been used to designate both incorporated and non-incorporated agencies or instrumentalities of the Government.

We consider that the ISA is properly regarded as an agent or delegate of the Republic of the Philippines. The Republic itself is a body corporate and juridical person vested with the full panoply of powers and attributes which are compendiously described as "legal personality." The relevant definitions are found in the Administrative Code of 1987:

Sec. 2. General Terms Defined. — Unless the specific words of the text, or the context as a whole, or a particular statute, require a different meaning:

(1) Government of the Republic of the Philippines refers to the corporate governmental entity through which the functions of government are exercised throughout the Philippines, including, save as the contrary appears from the context, the various arms through which political authority is made effective in the Philippines, whether pertaining to the autonomous regions, the provincial, city, municipal or barangay subdivisions or other forms of local government.

xxx xxx xxx

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

xxx xxx xxx

(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled corporations.

xxx xxx xxx

(Emphases supplied)

When the statutory term of a non-incorporated agency expires, the powers, duties and functions as well as the assets and liabilities of that agency revert back to, and are re-assumed by, the Republic of the Philippines, in the absence of special provisions of law specifying some other disposition thereof such as, e.g., devolution or transmission of such powers, duties, functions, etc. to some other identified successor agency or instrumentality of the Republic of the Philippines. When the expiring agency is an incorporated one, the consequences of such expiry must be looked for, in the first instance, in the charter of that agency and, by way of supplementation, in the provisions of the Corporation Code. Since, in the instant case, ISA is a non-incorporated agency or instrumentality of the Republic, its powers, duties, functions, assets and liabilities are properly regarded as folded back into the Government of the Republic of the Philippines and hence assumed once again by the Republic, no special statutory provision having been shown to have mandated succession thereto by some other entity or agency of the Republic.

The procedural implications of the relationship between an agent or delegate of the Republic of the Philippines and the Republic itself are, at least in part, spelled out in the Rules of Court. The general rule is, of course, that an action must be prosecuted and defended in the name of the real party in interest. (Rule 3, Section 2) Petitioner ISA was, at the commencement of the expropriation proceedings, a real party in interest, having been explicitly authorized by its enabling statute to institute expropriation proceedings. The Rules of Court at the same time expressly recognize the role of representative parties:

Sec. 3. Representative Parties. — A trustee of an expressed trust, a guardian, an executor or administrator, or a party authorized by statute may sue or be sued without joining the party for whose benefit the action is presented or defended; but the court may, at any stage of the proceedings, order such beneficiary to be made a party. . . . . (Emphasis supplied)

In the instant case, ISA instituted the expropriation proceedings in its capacity as an agent or delegate or representative of the Republic of the Philippines pursuant to its authority under P.D. No. 272. The present expropriation suit was brought on behalf of and for the benefit of the Republic as the principal of ISA. Paragraph 7 of the complaint stated:

7. The Government, thru the plaintiff ISA, urgently needs the subject parcels of land for the construction and installation of iron and steel manufacturing facilities that are indispensable to the integration of the iron and steel making industry which is vital to the promotion of public interest and welfare. (Emphasis supplied)

The principal or the real party in interest is thus the Republic of the Philippines and not the National Steel Corporation, even though the latter may be an ultimate user of the properties involved should the condemnation suit be eventually successful.

From the foregoing premises, it follows that the Republic of the Philippines is entitled to be substituted in the expropriation proceedings as party-plaintiff in lieu of ISA, the statutory term of ISA having expired. Put a little differently, the expiration of ISA's statutory term did not by itself require or justify the dismissal of the eminent domain proceedings.

It is also relevant to note that the non-joinder of the Republic which occurred upon the expiration of ISA's statutory term, was not a ground for dismissal of such proceedings since a party may be dropped or added by order of the court, on motion of any party or on the court's own initiative at any stage of the action and on such terms as are just.13 In the instant case, the Republic has precisely moved to take over the proceedings as party-plaintiff.

In E.B. Marcha Transport Company, Inc. v. Intermediate Appellate Court, 14 the Court recognized that the Republic may initiate or participate in actions involving its agents. There the Republic of the Philippines was held to be a proper party to sue for recovery of possession of property although the "real" or registered owner of the property was the Philippine Ports Authority, a government agency vested with a separate juridical personality. The Court said:

It can be said that in suing for the recovery of the rentals, the Republic of the Philippines acted as principal of the Philippine Ports Authority, directly exercising the commission it had earlier conferred on the latter as its agent. . . . 15 (Emphasis supplied)

In E.B. Marcha, the Court also stressed that to require the Republic to commence all over again another proceeding, as the trial court and Court of Appeals had required, was to generate unwarranted delay and create needless repetition of proceedings:

More importantly, as we see it, dismissing the complaint on the ground that the Republic of the Philippines is not the proper party would result in needless delay in the settlement of this matter and also in derogation of the policy against multiplicity of suits. Such a decision would require the Philippine Ports Authority to refile the very same complaint already proved by the Republic of the Philippines and bring back as it were to square one. 16(Emphasis supplied)

As noted earlier, the Court of Appeals declined to permit the substitution of the Republic of the Philippines for the ISA upon the ground that the action for expropriation could not prosper because the basis for the proceedings, the ISA's exercise of its delegated authority to expropriate, had become legally ineffective by reason of the expiration of the statutory term of the agent or delegated i.e., ISA. Since, as we have held above, the powers and functions of ISA have reverted to the Republic of the Philippines upon the termination of the statutory term of ISA, the question should be addressed whether fresh legislative authority is necessary before the Republic of the Philippines may continue the expropriation proceedings initiated by its own delegate or agent.

While the power of eminent domain is, in principle, vested primarily in the legislative department of the government, we believe and so hold that no new legislative act is necessary should the Republic decide, upon being substituted for ISA, in fact to continue to prosecute the expropriation proceedings. For the legislative authority, a long time ago, enacted a continuing or standing delegation of authority to the President of the Philippines to exercise, or cause the exercise of, the power of eminent domain on behalf of the Government of the Republic of the Philippines. The 1917 Revised Administrative Code, which was in effect at the time of the commencement of the present expropriation proceedings before the Iligan Regional Trial Court, provided that:

Sec. 64. Particular powers and duties of the President of the Philippines. — In addition to his general supervisory authority, the President of the Philippines shall have such other specific powers and duties as are expressly conferred or imposed on him by law, and also, in particular, the powers and duties set forth in this Chapter.

Among such special powers and duties shall be:

xxx xxx xxx

(h) To determine when it is necessary or advantageous to exercise the right of eminent domain in behalf of the Government of the Philippines; and to direct the Secretary of Justice, where such act is deemed advisable, to cause the condemnation proceedings to be begun in the court having proper jurisdiction. (Emphasis supplied)

The Revised Administrative Code of 1987 currently in force has substantially reproduced the foregoing provision in the following terms:

Sec. 12. Power of eminent domain. — The President shall determine when it is necessary or advantageous to exercise the power of eminent domain in behalf of the National Government, anddirect the Solicitor General, whenever he deems the action advisable, to institute expopriation proceedings in the proper court. (Emphasis supplied)

In the present case, the President, exercising the power duly delegated under both the 1917 and 1987 Revised Administrative Codes in effect made a determination that it was necessary and advantageous to exercise the power of eminent domain in behalf of the Government of the Republic and accordingly directed the Solicitor General to proceed with the suit. 17

It is argued by private respondent MCFC that, because Congress after becoming once more the depository of primary legislative power, had not enacted a statute extending the term of ISA, such non-enactment must be deemed a manifestation of a legislative design to discontinue or abort the present expropriation suit. We find this argument much too speculative; it rests too much upon simple silence on the part of Congress and casually disregards the existence of Section 12 of the 1987 Administrative Code already quoted above.

Other contentions are made by private respondent MCFC, such as, that the constitutional requirement of "public use" or "public purpose" is not present in the instant case, and that the indispensable element of just compensation is also absent. We agree with the Court of Appeals in this connection that these contentions, which were adopted and set out by the Regional Trial Court in its order of dismissal, are premature and are appropriately addressed in the proceedings before the trial court. Those proceedings have yet to produce a decision on the merits, since trial was still on going at the time the Regional Trial Court precipitously dismissed the expropriation proceedings. Moreover, as a pragmatic matter, the Republic is, by such substitution as party-plaintiff, accorded an opportunity to determine whether or not, or to what extent, the proceedings should be continued in view of all the subsequent developments in the iron and steel sector of the country including, though not limited to, the partial privatization of the NSC.

WHEREFORE, for all the foregoing, the Decision of the Court of Appeals dated 8 October 1991 to the extent that it affirmed the trial court's order dismissing the expropriation proceedings, is hereby REVERSED and SET ASIDE and the case is REMANDED to the court a quo which shall allow the substitution of the Republic of the Philippines for petitioner Iron and Steel Authority and for further proceedings consistent with this Decision. No pronouncement as to costs.

SO ORDERED.

Romero, Melo, Vitug and Panganiban, JJ., concur.

Footnotes

1 Second paragraph, Section 1, P.D. No. 272.

2 The relevant terms of LOI No. 1277 read as follows:

"(2) In the event that NSC and MCFC fail to agree on the foregoing within sixty (60) days from the date hereof, the Iron and Steel Authority (ISA) shall exercise its authority under Presidential Decree (PD) No. 272, as amended, to initiate the expropriation of the aforementioned occupancy rights of MCFC on the subject lands as well as the plant, structures, equipment, machinery and related facilities, for and on behalf of NSC, and thereafter cede the same to NSC. During the pendency of the expopriation proceedings, NSC shall take possession of the property, subject to bonding and other requirements of P.D. No. 1533.

xxx xxx xxx

3 Section 1, Rule 3.

4 Section 16, Rule 3 of the Rules of Court reads:

"Sec. 16. Duty of attorney upon death, incapacity or incompetency of party. — Whenever a party to a pending case dies becomes incapacitated or incompetent, it shall be the duty of his attorney to inform the court promptly of such death, incapacity or incompetency, and to give the name and residence of his executor, administrator, guardian or other legal representative."

5 RTC Order dated 22 March 1989, p. 2; CA Rollo, p. 24.

6 Section 2, Republic Act No. 6395, 10 September 1971.

7 Section 4, Presidential Decree No. 857, 23 December 1975.

8 Section 2, Presidential Decree No. 757, 31 July 1975.

9 Section 3, Presidential Decree No. 334, 9 November 1973.

10 Section 1, Republic Act No. 4156, 20 June 1964.

11 Sections 3 and 5, Presidential Decree No. 1084, 4 February 1977.

12 Sections 3 and 4(k), Republic Act No. 2265, 19 June 1959.

13 Rule 3, Section 11, Rules of Court. See, in this connection, St. Anne Medical Center v. Parel (176 SCRA 755 [1989]), where the petition had been filed in the name of "St. Anne Medical Center" which was not a juridical person and where this Court invoked Rule 3, Section 11 and impleaded the real party-in-interest.

14 147 SCRA 276 (1987).

15 147 SCRA at 279.

16 146 SCRA at 279. In Lagazon v. Reyes (166 SCRA 386 [1988]), the Court said that

"the aim of [Rule 3, Section 11] is that all persons materially interested, legally or beneficially, in the subject matter of the suit should be made parties to it in order that the whole matter in dispute may be determined once and for all in one litigation, thus avoiding multiplicity of suits . . . ." (166 SCRA at 392)

17 Letter of 28 September 1988; Records, p. 1297.


Manila

EN BANC

G.R. No. L-49705-09 February 8, 1979

TOMATIC ARATUC, SERGIO TOCAO, CISCOLARIO DIAZ, FRED TAMULA, MANGONTAWAR GURO and BONIFACIO LEGASPI, petitioners, vs.The COMMISSION ON ELECTIONS, REGIONAL BOARD OF CANVASSERS for Region XII (Central Mindanao), ABDULLAH DIMAPORO, JESUS AMPARO, ANACLETO BADOY, et al., respondents.

Nos. L-49717-21 February 8,1979.

LINANG MANDANGAN, petitioner, vs.THE COMMISSION ON ELECTIONS, THE REGIONAL BOARD OF CANVASSERS for Region XII, and ERNESTO ROLDAN, respondents.

L-49705-09 — Lino M. Patajo for petitioners.

Estanislao A. Fernandez for private respondents.

L-49717-21 — Estanislao A. Fernandez for petitioner.

Lino M. Patajo for private respondent.

Office of the Solicitor General, for Public respondents.

BARREDO, J.:

Petition in G. R. Nos. L-49705-09 for certiorari with restraining order and preliminary injunction filed by six (6) independent candidates for representatives to tile Interim Batasang Pambansa who had joined together under the banner of the Kunsensiya ng Bayan which, however, was not registered as a political party or group under the 1976 Election Code, P.D. No. 1296, namely Tomatic Aratuc, Sorgio Tocao, Ciscolario Diaz, Fred Tamula, Mangontawar Guro and Bonifacio Legaspi her referred to as petitioners, to review the decision of the respondent Commission on Election (Comelec) resolving their appeal from the Of the respondent Regional Board of Canvasses for Region XII regarding the canvass of the results of the election in said region for representatives to the I.B.P. held on April 7, 1978. Similar petition in G.R. Nos. L49717-21, for certiorari with restraining order and preliminary injunction filed by Linang Mandangan, abo a candidate for representative in the same election in that region, to review the decision of the Comelec declaring respondent Ernesto Roldan as entitled to be proclaimed as one of the eight winners in said election.

The instant proceedings are sequels of Our decision in G.R. No. L- 48097, wherein Tomatic Aratuc et al. sought the suspension of the canvass then being undertaken by respondent dent Board in Cotabato city and in which canvass, the returns in 1966 out of a total of 4,107 voting centers in the whole region had already been canvassed showing partial results as follows:

NAMES OF CANDIDATES

NO. OF VOTES

1. Roldan, Ernesto (KB)

225,674

2. Valdez, Estanislao (KBL)

217,789

3. Dimporo, Abdullah (KBL)

199,244

4. Tocao, Sergio (KB)

199,062

5. Badoy, Anacleto (KBL)

198,966

6. Amparo, Jesus (KBL)

184,764

7. Pangandaman, Sambolayan (KBL)

183,646

8. Sinsuat, Datu Blah (KBL)

182,457

9. Baga, Tomas (KBL)

171,656

10. Aratuc, Tomatic (KB)

165,795

11. Mandangan, Linang(KB)

165,032

12. Diaz, Ciscolario (KB)

159,977

13. Tamalu, Fred (KB)

153,734

14. Legaspi 148,200

Bonifacio (KB)

15. Guro, Mangontawar (KB)

139,386

16. Loma, Nemesio (KB)

107,455

17. Macapeges, Malamama (Independent)

101,350

(Votes Of the independent candidates who actually were not in contention omitted)" (Page 6, Record, L-49705-09.)

A supervening panel headed by Commissioner of Elections, Hon- Venancio S. Duque, had conducted of the complaints of the petitioners therein of alleged irregularities in the election records in all the voting centers in the whole province of Lanao del Sur, the whole City of Marawi, eight (8) towns of Lanao del Norte, namely, Baloi, Karomatan, Matungao, Munai, Nunungan, Pantao Ragat, Tagoloan and Tangcal, seven (7) towns in Maguindanao, namely, Barrira, Datu Piang, Dinaig, Matanog Parang, South Upi and Upi, ten (10) towns in North Cotabato, namely, Carmen, Kabacan, Kidapwan, Magpet, Matalam Midsayap, Pigcawayan, Pikit, Pres. Roxas and Tulonan, and eleven (11) towns in Sultan Kudarat, namely, Bagumbayan, Columbia Don Mariano Marcos, Esperanza, Isulan, Kalamansig, Lebak, Lutayan, Palimbang, President Quirino and Tacurong, by reason for which, petitioners had asked that the returns from said voting centers be excluded from the canvass. Before the start of the hearings, the canvass was suspended but after the supervisory panel presented its report, on May 15, 1978, the Comelec lifted its order of suspension and directed the resumption of the canvass to be done in Manila. This order was the one assailed in this Court. We issued a restraining order.

After hearing the parties, the Court allowed the resumption of the canvass but issued the following guidelines to be observed thereat:

1. That the resumption of said canvass shall be held in the Comelec main office in Manila starting not later than June 1, 1978;

2. That in preparation therefor, respondent Commission on Elections shall see to it that all the material election paragraph corresponding to all the voting center involved in Election Nos. 78-8, 78-9, 78-10, 78-11 and 78-12 are taken to its main office in Manila, more particularly, the ballot boxes, with the contents, used during the said elections, the books of voters or records of voting and the lists or records of registered voters, on or before May 31, 1978;

3. That as soon as the corresponding records are available, petitioners and their counsel shall be allowed to examine the same under such security measures as the respondent Board may determine, except the contents of the ballot boxes which shall be opened only upon orders of either the respondent Board or respondent Commission, after the need therefor has become evident, the purpose of such examination being to enable petitioners, and their counsel to expeditiously determine which of them they would wish to be scrutinized and passed upon by the Board as

supporting their charges of election frauds and anomalies, petitioners and their counsel being admonished in this connection, that no dilatory tactics should be in by them and that only such records substantial objections should be offered by them for the scrutiny by the Board;

4. That none of the election returns reffered to in the petition herein shall be canvassed without first giving the herein petitioners ample opportunity to make their specific objections thereto, if they have any, and to show sufficient basis for the rejection of any of the returns, and, in this connection, the respondent Regional Board of Canvassers should give due consideration to the points raised in the memorandum filed by said petitioners with the Commission on Election in the above cases dated April 26, 1978;

5. That should it appear to the board upon summary scrutiny of the records to be offered by petitioners indication that in the voting center actually held and/or that election returns were prepared either before the day of the election returns or at any other time, without regard thereto or that there has been massive substitution of voters, or that ballots and/or returns were prepared by the same groups of persons or individuals or outside of the voting centers, the Board should exclude the corresponding returns from the canvass;

6. That appeals to the commission on Election of the Board may be made only after all the returns in question in all the above, the above five cases shall have been passed upon by the Board and, accordingly, no proclamation made until after the Commission shall have finally resolved the appeal without prejudice to recourse to this court, if warranted as provided by the Code and the Constitution, giving the parties reasonable time therefor;

7. That the copies of the election returns found in the corresponding ballot boxes shall be the one used in the canvass;

8. That the canvass shall be conducted with utmost dispatch, to the end that a proclamation, if feasible, may be made not later than June 10, 1978; thus, the canvass may be terminated as soon as it is evident that the possible number of votes in the still uncanvassed returns with no longer affect the general results of the elections here in controversy;

9. That respondent Commission shall promulgate such other directive not inconsistent with this resolution y necessary to expedite the proceedings herein contemplated and to accomplish the purposes herein intended. (Pp. 8-9, Record.

On June 1, 1978, upon proper motion, said guidelines were modified:

... in the sense that the ballot boxes for the voting centers just referred to need not be taken to Manila, EXCEPT those of the particular voting centers as to which the petitioners have the right to demand that the corresponding ballot boxes be opened in order that the votes therein may be counted because said ballots unlike the election returns, have not been tampered with or substituted, which instances the results of the counting shall be specified and made known by petitioners to the Regional Board of Canvassers not later than June 3, 1978; it being understood, that for the purposes of the canvass, the petitioners shall not be allowed to invoke any

objection not already alleged in or comprehend within the allegations in their complaint in the election cases abovementioned. (Page 8, Id.)

Thus respondent Board proceeded with the canvass, with the herein petitioners presenting objections, most of them supported by the report of handwriting and finger print experts who had examined the voting records and lists of voters in 878 voting centers, out of 2,700 which they specified in their complaints or petitions in Election Cases 78-8, 78-9, 78-10, 78-11 and 7812 in the Comelec. In regard to 501 voting centers, the records cf. which, consisting of the voters lists and voting records were not available- and could not be brought to Manila, petitions asked that the results therein be completely excluded from the canvass. On July 11, 1978, respondent Board terminated its canvass and declared the result of the voting to be as follows:

NAME OF CANDIDATE VOTES OBTAIN

VALDEZ, Estanislao

436,069

DIMAPORO, Abdullah

429,351

PANGANDAMAN, Sambolayan

406,106

SINSUAT, Blah 403,445

AMPARO, Jesus 399,997

MANDANGAN, Linang

387,025

BAGA, Tomas 386,393

BADOY,Anacleto 374,933

ROLDAN, Ernesto

275,141

TOCAO, Sergio 239,914

ARATUC, Tomatic

205,829

GURO, Mangontawar

190,489

DIAZ, Ciscolario 190,077

TAMULA, Fred 180,280

LEGASPI, Bonifacio

174,396

MACAPEGES, Malamana

160,271

(Pp. 11-12, Record.)

Without loss of time, the petitioners brought the resolution of respondent Board to the Comelec. Hearing was held on April 25, 1978, after which , the case was declared submitted for decision. However, on August 30,1978, the Comelec issued a resolution stating inter alia that :

In order to enable the Commission to decide the appeal properly :

a. It will have to go deeper into the examination of the voting records and registration records and in the case of voting centers whose voting and registration records which have not yet been submitted for the Commission to decide to open the ballot boxes; and

b. To interview and get statements under oath of impartial and disinterested persons from the area to determine whether actual voting took place on April 7, 1978, as well as those of the military authorities in the areas affects (Page 12). Record, L-49705-09 .)

On December 11, 1978, the Comelec required the parties "to file their respective written comments on the reports they shall periodically receive from the NBI-Comelec team of finger-print and signature experts within the inextendible period of seven (7) days from their receipt thereof". According to counsel for Aratuc, et al., "Petitioners submitted their various comments on the report 4, the principal gist of which was that it would appear uniformly in all the reports submitted by the Comelec-NBI experts that the registered voters were not the ones who voted as shown by the fact that the thumbprints appearing in Form 1 were different from the thumbprints of the voters in Form 5. " But the Comelec denied a motion of petitioners asking that the ballot boxes corresponding to the voting centers the record of which are not available be opened and that a date be set when the statements of witnesses referred to in the August 30, 1978 resolution would be taken, on the ground that in its opinion, it was no longer necessary to proceed with such opening of ballot boxes and taking of statements.

For his part, counsel for petitioner M in G.R. No. L-49717-21 filed with Comelec on December 19,1978 a Memorandum. To quote from the petition:

On December 19, 1978, the KBL, through counsel, filed a Memorandum for the Kilusang Bagong Lipunan (KBL) Candidates on the Comelec's Resolution of December 11, 1978, a xerox copy of which is attached hereto and made a part hereof as Annex 2, wherein they discussed the following topics: (I) Brief History of the President Case; (II) Summary of Our Position and Submission Before the Honorable commission; and (III) KBL's AppealAd Cautelam. And the fourth topic, because of its relevance to the case now before this Honorable Court, we hereby quote for ready reference:

IV

OUR POSITION WITH RESPECT TO THE

ESOLUTION OF THE HONORABLE

COMMISSION OF DECEMBER 11, 1978

We respectfully submit that the Resolution of this case by this Honorable Commission should be limited to the precincts and municipalities involved in the KB'S Petitions in Cases Nos. 78-8 to 78-12, on which evidence had been submitted by the parties, and on which the KB submitted the reports of their handwriting-print. Furthermore, it should be limited by the appeal of the KB. For under the Supreme Court Resolution of May 23, 1978, original jurisdiction was given to the Board, with appeal to this Honorable Commission-Considerations of other matters beyond these would be, in our humble opinion, without jurisdiction.

For the present, we beg to inform this Honorable Commission that we stand by the reports and findings of the COMELEC/NBI experts as submitted by them to the Regional Board of Canvassers and as confirmed by the said Regional Board of Canvassers in its Resolution of July 11, 1978, giving the 8 KBL candidates the majorities we have already above mentioned. The Board did more than make a summary scrutiny of the records' required by the Supreme Court Resolution, Guideline No. 5, of May 23, 1978. Hence, if for lack of material time we cannot file any Memorandum within the non-extendible period of seven (7) days, we would just stand by said COMELEC/NBI experts' reports to the Regional Board, as confirmed by the Board (subject to our appeal ad cautelam).

The COMELEC sent to the parties copies of the reports of the NBI-COMELEC experts. For lack of material time due to the voluminous reports and number of voting centers involved, the Christmas holidays, and our impression that the COMELEC will exercise only its appellate jurisdiction, specially as per resolution of this Honorable Court of May 23, 1978 (in G.R. No. L-48097), we, the KBL, did not comment any more on said reports. (Pp. 5-6, Record, L-49717-21.)

On January 13, 1979, the Comelec rendered its resolution being assailed in these cases, declaring the final result of the canvass to be as follows:

CANDIDATES VOTES

VALDEZ, Estanislao

319,514

DIMAPORO, Abdullah

289.751

AMPARO, Jesus 286,180

BADOY, Anacleto 285,985

BAGA, Tomas 271,473

PANGANDAMAN, Sambolayan

271,393

SINSUAT, Blah 269,905

ROLDAN, Ernesto

268,287

MANDANGAN, Linang

251,226

TACAO, Sergio 229,124

DIAZ, Ciscolario 187,986

ARATUC, Tomatic

183,316

LEGASPI, Bonifacio

178,564

TAMULA, Fred 177,270

GURO, Mangontawar

163,449

LOMA, Nemesio 129,450

(Page 14, Record, L-49705-09.)

It is alleged in the Aratuc petition that:

The Comelec committee grave abuse of dicretion, amounting to lack of jurisdiction:

1. In not pursuing further the examination of the registration records and voting records from the other voting centers questioned by petitioners after it found proof of massive substitute voting in all of the voting records and registration records examined by Comelec and NBI experts;

2. In including in the canvass returns from the voting centers whose book of voters and voting records could not be recovered by the Commission in spite of its repeated efforts to retrieve said records;

3. In not excluding from the canvass returns from voting centers showing a very high percentage of voting and in not considering that high percentage of voting, coupled with massive substitution of voters is proof of manufacturing of election returns;

4. In denying petitioners' petition for the opening of the ballot boxes from voting centers whose records are not available for examination to determine whether or not there had been voting in said voting centers;

5. In not Identifying the ballot boxes that had no padlocks and especially those that were found to be empty while they were shipped to Manila pursuant to the directive of the Commission in compliance with the guidelines of this Honorable Court;

6. In not excluding from the canvass returns where the results of examination of the voting records and registration records show that the thumbprints of the voters in CE Form 5 did not correspond to those of the registered voters as shown in CE Form 1;

7. In giving more credence to the affidavits of chairmen and members of the voting centers, municipal treasurers and other election officials in the voting centers where irregularities had been committed and not giving credence to the affidavits of watchers of petitioners;

8. In not including among those questioned before the Board by petitioners those included among the returns questioned by them in their Memorandum filed with the Commission on April 26, 1978, which Memorandum was attached as Annex 'I' to their petition filed with this Honorable Court G.R. No. L-48097 and which the Supreme Court said in its Guidelines should be considered by the Board in the course of the canvass (Guidelines No. 4). (Pp. 15-16, Record, Id.)

On the other hand, the Mandangan petition submits that the Comelec comitted the following errors:

1. In erroneously applying the earlier case of Diaz vs. Commission on Elections (November 29, 1971; 42 SCRA 426), and particularly the highly restrictive criterion that when the votes obtained by the candidates with the highest number of votes exceed the total number of highest possible valid votes, the COMELEC ruled to exclude from the canvass the election return reflecting such rests, under which the COMELEC excluded 1,004 election returns, involving around 100,000 votes, 95 % of which are for KBL candidates, particularly the petitioner Linang Mandangan, and which rule is so patently unfair, unjust and oppressive.

2. In not holding that the real doctrine in the Diaz Case is not the total exclusion of election returns simply because the total number of votes exceed the total number of highest possible valid votes, but 'even if all the votes cast by persons Identified as registered voters were added to the votes cast by persons who can not be definitely ascertained as registered or not, and granting, ad arguendo, that all of them voted for respondent Daoas, still the resulting total is much below the number of votes credited to the latter in returns for Sagada, 'and that 'of the 2,188 ballots cast in Sagada, nearly one-half (1,012) were cast by persons definitely Identified as not registered therein or still more than 40 % of substitute voting which was the rule followed in the later case of Bashier/Basman (Diaz Case, November 19,1971,42 SCRA 426,432).

3. In not applying the rule and formula in the later case of Bashier and Basman vs. Commission on Election(February 24, 1972, 43 SCRA 238) which was the one followed by the Regional Board of Canvassers, to wit:

In Basman vs Comelec (L-33728, Feb. 24, 1972) the Supreme Court upheld the Supreme Court upheld the ruling of the Commission setting the standard of 40 % excess votes to justify the exclusion of election returns. In line with the above ruling, the Board of Canvassers may likewise set aside election returns with 40 % substitute votes. Likewise, where excess voting occured and the excess was such as to destroy the presumption of innocent mistake, the returns was excluded.

(COMELEC'S Resolution, Annex I hereof, p. 22), which this Honorable Court must have meant when its Resolution of May 23, 1978 (G.R. No. 7), it referred to "massive substitution of voters.

4. In examining, through the NBI/COMELEC experts, the records in more than 878 voting centers examined by the KB experts and passed upon by the Regional Board of Canvassers which was all that was within its appellate jurisdiction is examination of more election records to make a total of 1,085 voting centers (COMELEC'S Resolution, Annex 1 hereof, p. 100), being beyond its jurisdiction and a denial of due process as far as the KBL, particularly the petitioner Mandangan, were concerned because they were informed of it only on December, 1978, long after the case has been submitted for decision in September, 1978; and the statement that the KBL acquiesced to the same is absolutely without foundation.

5. In excluding election returns from areas where the conditions of peace and order were allegedly unsettled or where there was a military operation going on immediately before and during election and where the voter turn out was high (90 % to 100 %), and where the people had been asked to evacuate, as a ruling without jurisdiction and in violation of due process because no evidence was at all submitted by the parties before the Regional Board of Canvasssers. (Pp. 23-25, Record, L-47917-21.)

Now before discussing the merits of the foregoing contentions, it is necessary to clarify first the nature and extent of the Supreme Court's power of review in the premises. The Aratuc petition is expressly predicated on the ground that respondent Comelec "committed grave abuse of discretion, amounting to lack of jurisdiction" in eight specifications. On the other hand, the Mandangan petition raises pure questions of law and jurisdiction. In other words, both petitions invoked the Court's certiorari jurisdiction, not its appellate authority of review.

This is as it should be. While under the Constitution of 1935, "the decisions, orders and rulings of the Commission shall be subject to review by the Supreme Court" (Sec. 2, first paragraph, Article X) and pursuant to the Rules of Court, the petition for "certiorari or review" shall be on the ground that the Commission "has decided a question of substance not theretofore determined by the Supreme Court, or has decided it in a way not in accord with law or the applicable decisions of the Supreme Court" (Sec. 3. Rule 43), and such provisions refer not only to election contests but even to pre-proclamation proceedings, the 1973 Constitution provides somewhat differently thus: "Any decision, order or ruling of the Commission may be brought to the Supreme Court on certiorari by the aggrieved party within thirty days from his receipt of a copy thereof" (Section 11, Article XII c), even as it ordains that the Commission shall "be the sole judge of all contests relating to the elections, returns and qualifications of all members of the National Assembly and elective provincial and city official" (Section 2(2).)

Correspondingly, the ElectionCode of 1978, which is the first legislative constructionof the pertinent constitutional provisions, makes the Commission also the "sole judge of all pre-proclamation controversies" and further provides that "any of its decisions, orders or rulings (in such contoversies) shall be final and executory", just as in election contests, "the decision of the Commission shall be final, and executory and inappealable." (Section 193)

It is at once evident from these constitutional and statutory modifications that there is a definite tendency to enhance and invigorate the role of the Commission on Elections as the independent constitutinal body charged with the safeguarding of free, peaceful and honest elections. The framers of the new Constitution must be presumed ot have definite knowledge of what it means to make the

decisions, orders and rulings of the Commission "subject to review by the Supreme Court". And since instead of maintaining that provision intact, it ordained that the Commission's actuations be instead "brought to the Supreme Court on certiorari", We cannot insist that there was no intent to change the nature of the remedy, considering that the limited scope of certiorari, compared to a review, is well known in remedial law.

Withal, as already stated, the legislative construction of the modified peritinent constitutional provision is to the effect that the actuations of the Commission are final, executory and even inappealable. While such construction does not exclude the general certiorari jurisdiction of the Supreme Court which inheres in it as the final guardian of the Constitution, particularly, of its imperious due process mandate, it correspondingly narrows down the scope and extent of the inquiry the Court is supposed to undertake to what is strictly the office of certiorari as distinguished from review. We are of the considered opinion that the statutory modifications are consistent with the apparent new constitional intent. Indeed, it is obvious that to say that actuations of the Commission may be brought to the Supreme Court on certiorari technically connotes something less than saying that the same "shall be subject to review by the Supreme Court", when it comes to the measure of the Court's reviewing authority or prerogative in the premises.

A review includes digging into the merits and unearthing errors of judgment, while certiorari deals exclusively with grave abuse of discretion, which may not exist even when the decision is otherwise erroneous. certiorari implies an indifferent disregard of the law, arbitrariness and caprice, an omission to weight pertinent considerations, a decision arrived at without rational deliberation. While the effecdts of an error of judgment may not differ from that of an indiscretion, as a matter of policy, there are matters taht by their nature ought to be left for final determination to the sound discretion of certain officers or entities, reserving it to the Supreme Court to insure the faithful observance of due process only in cases of patent arbitrariness.

Such, to Our mind, is the constitutional scheme relative to the Commission on Elections. Conceived by the charter as the effective instrument to preserve the sanctity of popular suffrage, endowed with independence and all the needed concommittant powers, it is but proper that the Court should accord the greatest measure of presumption of regularity to its course of action and choice of means in performing its duties, to the end that it may achieve its designed place in the democratic fabric of our government. Ideally, its members should be free from all suspicions of partisan inclinations, but the fact that actually some of them have had stints in the arena of politics should not, unless the contrary is shown, serve as basis for denying to its actuations the respect and consideration that the Constitution contemplates should be accorded to it, in the same manner that the Supreme Court itself which from time to time may have members drawn from the political ranks or even from military is at all times deemed insulated from every degree or form of external pressure and influence as well as improper internal motivations that could arise from such background or orientation.

We hold, therefore that under the existing constitution and statutory provisions, the certiorari jurisdiction of the Court over orders, and decisions of the Comelec is not as broad as it used to be and should be confined to instances of grave abuse of discretion amounting to patent and substantial denial of due process. Accordingly, it is in this light that We the opposing contentions of the parties in this cases.

THE MANDANGAN CASE

Being more simple in Our view, We shall deal with the petition in G.R. No. L-49717-21 first.

The errors assigned in this petition boil down to two main propositions, namely, (1) that it was an error of law on the part of respondent Comelec to have applied to the extant circumstances hereof

the ruling of this Court in Diaz vs. Comelec 42 SCRA 426 instead of that of Bashier vs. Comelec 43 SCRA 238; and (2) that respondent Comelec exceeded its jurisdiction and denied due process to petitioner Mandangan in extending its inquiry beyond the election records of "the 878 voting centers examined by the KB experts and passed upon by the Regional Board of Canvassers" and in excluding from the canvass the returns showing 90 to 100 % voting, from voting centers where military operations were by the Army to be going on, to the extent that said voting centers had to be transferred to the poblaciones the same being by evidence.

Anent the first proposition, it must be made clear that the Diaz and Bashier rulings are not mutually exclusive of each other, each being an outgrowth of the basic rationale of statistical improbability laid down in Lagumbay vs. Comelec and , 16 SCRA 175. Whether they be apply together or separately or which of them be applied depends on the situation on hand. In the factual milieu of the instant case as found by the Comelec, We see no cogent reason, and petitioner has not shown any, why returns in voting centers showing that the votes of the candidate obtaining highest number of votes of the candidate obtaining the highest number of votes exceeds the highest possible number of valid votes cast therein should not be deemed as spurious and manufactured just because the total number of excess votes in said voting centers were not more than 40 %. Surely, this is not the occasion, consider the historical antecedents relative to the highly questionable manner in which elections have been bad in the past in the provinces herein involved, of which the Court has judicial notice as attested by its numerous decisions in cases involving practically every such election, of the Court to move a whit back from the standards it has enunciated in those decisions.

In regard to the jurisdictional and due process points raised by herein petitioner, it is of decisive importance to bear in mind that under Section 168 of the Revised Election Code of 1978, "the Commission (on Elections) shall have direct control and supervision on over the board of canvassers" and that relatedly, Section 175 of the same Code provides that it "shall be the sole judge of all pre-proclamation controversies." While nominally, the procedure of bringing to the Commission objections to the actuations of boards of canvassers has been quite loosely referred to in certain quarters, even by the Commission and by this Court, such as in the guidelines of May 23,1978 quoted earlier in this opinion, as an appeal, the fact of the matter is that the authority of the Commission in reviewing such actuations does not spring from any appellate jurisdiction conferred by any specific provision of law, for there is none such provision anywhere in the Election Code, but from the plenary prerogative of direct control and supervision endowed to it by the above-quoted provisions of Section 168. And in administrative law, it is a too well settled postulate to need any supporting citation here, that a superior body or office having supervision and control over another may do directly what the latter is supposed to do or ought to have done.

Consequently, anything said in Lucman vs. Dimaporo, 33 SCRA 387, cited by petitioner, to the contrary notwithstanding, We cannot fault respondent Comelec for its having extended its inquiry beyond that undertaken by the Board of Canvass On the contrary, it must be stated that Comelec correctly and commendably asserted its statutory authority born of its envisaged constitutional duties vis-a-vis the preservation of the purity of elections and electoral processes and p in doing what petitioner it should not have done. Incidentally, it cannot be said that Comelec went further than even what Aratuc et al. have asked, since said complaints had impugned from the outset not only the returns from the 878 voting centers examined by their experts but all those mentioned in their complaints in the election cases filed originally with the Comelec enumerated in the opening statements hereof, hence respondent Comelec had that much field to work on.

The same principle should apply in respect to the ruling of the Commission regarding the voting centers affected by military operations. It took cognizance of the fact, not considered by the board of canvass, that said voting centers had been transferred to the poblaciones. And, if only for purposes of pre-proclamation proceedings, We are persuaded it did not constitute a denial of due process for

the Commission to have taken into account, without the need or presentation of evidence by the parties, a matter so publicly notorious as the unsettled situation of peace and order in localities in the provinces herein involved that their may perhaps be taken judicial notice of, the same being capable of unquestionable demonstration. (See 1, Rule 129)

In this connection, We may as well perhaps, say here as later that regrettably We cannot, however, go along with the view, expressed in the dissent of our respected Chief Justice, that from the fact that some of the voting centers had been transferred to the poblaciones there is already sufficient basis for Us to rule that the Commission should have also subjected all the returns from the other voting centers of the some municipalities, if not provinces, to the same degree of scrutiny as in the former. The majority of the Court feels that had the Commission done so, it would have fallen into the error by petitioner Mandangan about denial of due process, for it is relatively unsafe to draw adverse conclusions as to the exact conditions of peace and order in those other voting centers without at list some prima facie evidence to rely on considering that there is no allegation, much less any showing at all that the voting centers in question are so close to those excluded by the Comelec on as to warrant the inescapable conclusion that the relevant circumstances by the Comelec as obtaining in the latter were Identical to those in the former.

Premises considered the petition in G.R. Nos. L-49717-21 is hereby dismiss for lack of merit.

THE ARATUC ET AL. PETITION

Of the eight errors assigned by herein petitioners earlier adverted to, the seventh and the sight do not require any extended disquisition. As to the issue of whether the elections in the voting centers concerned were held on April 7, 1978, the date designated by law, or earlier, to which the seventh alleged error is addressed, We note that apparently petitioners are not seriously pressing on it anymore, as evidenced by the complete absence of any reference thereto during the oral argument of their counsel and the practically cavalier discussion thereof in the petition. In any event, We are satisfied from a careful review of the analysis by the Comelec in its resolution now before Us that it took pains to consider as meticulously as the nature of the evidence presented by both parties would permit all the contentions of petitioners relative to the weight that should be given to such evidence. The detailed discussion of said evidence is contained in not less than nineteen pages (pp. 70-89) of the resolution. In these premises, We are not prepared to hold that Comelec acted wantonly and arbitrarily in drawing its conclusions adverse to petitioners' position. If errors there are in any of those conclusions, they are errors of judgment which are not reviewable in certiorari, so long as they are founded on substantial evidence.

As to eighth assigned error. the thrust of respondents, comment is that the results in the voting centers mentioned in this assignment of error had already been canvassed at the regional canvass center in Cotabato City. Again, We cannot say that in sustaining the board of canvassers in this regard, Comelec gravely abused its discretion, if only because in the guidelines set by this Court, what appears to have been referred to is, rightly or wrongly, the resumption only of the canvass, which does not necessarily include the setting aside and repetition of the canvass already made in Cotabato City.

The second and fourth assignments of error concern the voting centers the corresponding voters' record (C.E. Form 1) and record of voting, (C.E. Form 5) of which have never been brought to Manila because they, were not available The is not clear as to how many are these voting centers. According to petitioners they are 501, but in the Comelec resolution in question, the number mentioned is only 408, and this number is directly challenged in the petition. Under the second assignment, it is contended that the Comelec gravely abused its discretion in including in the canvass the election returns from these voting centers and, somewhat alternatively, it is alleged as

fourth assignment that the petitioners motion for the opening of the ballot boxes pertaining to said voting centers was arbitraly denied by respondent Comelec.

The resolution under scrutiny explains the situation that confronted the Commission in regard to the 408 voting centers reffered to as follows :

The Commission had the option of excluding from the canvass the election returns under category. By deciding to exclude, the Commission would be summarily disenfranchising the voters registered in the voting centers affected without any basis. The Commission could also order the inclusion in the canvass of these elections returns under the injunction of the Supreme Court that extremes caution must be exercised in rejecting returns unless these are palpably irregular. The Commission chose to give prima facie validity to the election returns mentioned and uphold the votes cast by the voters in those areas. The Commission held the view that the failure of some election officials to comply with Commission orders(to submit the records) should not parties to such official disobedience. In the case of Lino Luna vs. Rodriguez, 39 Phil. 208, the Supreme Court ruled that when voters have honestly cast their ballots, the same should not be nullified because the officers appointed under the law to direct the election and guard the purity of the ballot have not complied with their duty. (cited in Laurel on Elections, p. 24)

On page 14 of the comment of the Solicitor General, however, it is stated that:

At all events, the returns corresponding to these voting centers were examined by the Comelec and 141 of such returns were excluded, as follows:

SUMMARY

PROVINCE TOTAL EXCLUDED INCLUDED

Lanao del Norte 30 — 30

Lanao del Sur 342 137 205

Maguindanao 21 1 20

North Cotabato 7 1 6

Sultan Kudarat 12 2 10

totals ----- 412 141 271

(Page 301, Record.)

This assertion has not been denied by petitioners.

Thus, it appears that precisely use of the absence or unavailability of the CE Forms 1 and 5 corresponding to the more than 400 voting centers concerned in our present discussion the Comelec examined the returns from said voting centers to determine their trustworthiness by scrutinizing the purported relevant data appearing on their faces, believing that such was the next best thing that could be done to avoid total disenfranchisement of the voters in all of them On the Other hand, Petitioners' insist that the right thing to do was to order the opening of the ballot boxes involved.

In connection with such opposing contentions, Comelec's explanation in its resolution is:

... The commission had it seen fit to so order, could have directed the opening of the ballot boxes. But the Commission did not see the necessity of going to such length in a that was in nature and decided that there was sufficient bases for the revolution of the appeal. That the Commission has discretion to determine when the ballot boxes should be opened is implicit in the guidelines set by the Supreme Court which states that '. . . the ballot bones [which] shall be opened only upon orders of either the respondent Board or respondent Commission, after the need therefor has become evident ... ' (guideline No. 3; emphasissupplied). Furthermore, the Court on June 1, 1978, amended the guidelines that the "ballot boxes for the voting centers ... need not be taken to Manila EXCEPT those of the centers as to which the petitioners have the right to demand that the corresponding ballot boxes be opened ... provided that the voting centers concerned shall be specified and made known by petitioners to the Regional Board of Canvassers not later than June 3,1978 ... ' (Emphasis supplied). The KB, candidates did not take advantage of the option granted them under these guidelines.( Pp 106-107, Record.)

Considering that Comelec, if it had wished to do so, had the facilities to Identify on its own the voting centers without CE Forms I and 5, thereby precluding the need for the petitioners having to specify them, and under the circumstances the need for opening the ballot boxes in question should have appeared to it to be quite apparent, it may be contended that Comelec would have done greater service to the public interest had it proceeded to order such opening, as it had announced it had thoughts of doing in its resolution of August 30, 1978. On the other hand, We cannot really blame the Commission too much, since the exacting tenor of the guidelines issued by Us left it with very little elbow room, so to speak, to use its own discretion independently of what We had ordered. What could have saved matters altogether would have been a timely move on the part of petitioners on or before June 3, 1978, as contemplated in Our resolution. After all come to think of it, that the possible outcome of the opening of the ballot boxes would favor the petitioners was not a certainty — the contents them could conceivably boomerang against them, such as, for example, if the ballots therein had been found to be regular and preponderantly for their opponents. Having in mind that significantly, petitioners filed their motion for only on January 9, 1979, practically on the eve of the promulgation of the resolution, We hold that by having adhered to Our guidelines of June 1, 1978, Comelec certainly cannot be held to be guilty of having gravely abused its discretion, in examining and passing on the returns from the voting centers reffered to in the second and fourth assignments of error in the canvass or in denying petitioners' motion for the of the ballot boxes concerned.

The first, third and sixth assignment of involve related matters and maybe discussed together. They all deal with the inclusion in or exclusion from the canvass of returns on the basis of the percentage of voting in specified voting centers and the corresponding findings of the Comelec on the extent of substitute voting therein as indicated by the result of either the technical examination by experts of the signatures and thumb-prints of the voters threat.

To begin with, petitioners' complaint that the Comelec did not examine and study 1,694 of the records in an the 2,775 voting centers questioned by them is hardly accurate. To be more exact, the Commission excluded a total of 1,267 returns coming under four categories namely: 1,001 under the Diaz, supra, ruling, 79 because of 90-100 % turnout of voters despite military operations, 105 palpably manufactured owe and 82 returns excluded by the board of canvass on other grounds. Thus, 45.45 % of the of the petitioners were sustained by the Comelec. In contrast, in the board of canvassers, only 453 returns were excluded. The board was reversed as to 6 of these, and 821 returns were excluded by Comelec over and above those excluded by the board. In other words, the Comelec almost doubled the exclusions by the board.

Petitioners would give the impression by their third assignment of error that Comelec refused to consider high percentage of voting, coupled with mass substitute voting, as proof that the pertinent returns had been manufactured. That such was not the case is already shown in the above specifications. To add more, it can be gleaned from the resolution that in t to the 1,065 voting centers in Lanao del Sur and Marawi City where a high percentage of voting appeared, the returns from the 867 voting centers were excluded by the Comelec and only 198 were included a ratio of roughly 78 % to 22 %. The following tabulation drawn from the figures in the resolution shows how the Comelec went over those returns center by center and acted on them individually:

90% — 100% VOTING

MARAWI CITY AND LANAO DEL SUR

NO. OF V/C THAT V/C WITH 90% to 100%

MUNICIPALITIES FUNCTIONED VOTING

No. of V/C

Excluded

Included

Marawi City

151

112

107

5

Bacolod Grande

28 28

27

1

Balabagan

53 53

49

4

Balindong

22 22

15

7

Bayang

29 20

13

7

Binidayan

37 33

29

4

Buadiposo Bunton

41 10

10

0

Bubong

24 23

21

2

Bumbaran

21 (All excluded)

Butig 35 33

32

1

Calanogas

23 21

21

0

Ditsaan-Ramain

42 39

38

1

Ganassi

39 38

23

15

Lumba Bayabao

64 63

47

16

Lumbatan

30 28

17

11

Lumbayanague

37 33

28

5

Madalum

14 13

6 7

Madamba

20 20

5 15

Maguing

57 55

53

2

Malabang

59 47

5 42

Marantao

79 63

41

22

Marugong

37 35

32

3

Masiu 27 26

24

2

Pagayawan

15 13

9 4

Piagapo

39 39

36

3

Poona-Bayabao

44 44

42

2

Pualas 23 20

20

0

Saguiaran

36 32

21

11

Sultan Gumander

35 31

31

0

Tamparan

24 21

15

6

Taraka 31 31

31

0

Tubaran

23 19

19

0

TOTALS: Marawi &

Lanao del Sur

1,218

1,065

867

198

We are convinced, apart from presuming regularity in the performance of its duties, that there is enough showing in the record that it did examine and study the returns and pertinent records corresponding to all the 2775 voting centers subject of petitioners' complaints below. In one part of its resolution the Comelec states:

The Commission as earlier stated examined on its own the Books of Voters (Comelec Form No. 1) and the Voters Rewards Comelec Form No. 5) to determine for itself which of these elections form needed further examination by the COMELEC-NBI experts. The Commission, aware of the nature of this pre-proclamation

controversy, believes that it can decide, using common sense and perception, whether the election forms in controversy needed further examination by the experts based on the presence or absence of patent signs of irregularity. (Pp. 137-138, Record.)

In the face of this categorical assertion of fact of the Commission, the bare charge of petitioners that the records pertaining to the 1,694 voting centers assailed by them should not create any ripple of serious doubt. As We view this point under discussion, what is more factually accurate is that those records complained of were not examined with the aid of experts and that Comelec passed upon the returns concerned "using common sense and perception only." And there is nothing basically objectionable in this. The defunct Presidential Senate and House Electoral Tribunals examine passed upon and voided millions of votes in several national elections without the assistance of experts and "using" only common sense and perception". No one ever raised any eyebrows about such procedure. Withal, what we discern from the resolution is that Comelec preliminary screened the records and whatever it could not properly pass upon by "using common sense and perception" it left to the experts to work on. We might disagree with he Comelec as to which voting center should be excluded or included, were We to go over the same records Ourselves, but still a case of grave abuse of discretion would not come out, considering that Comelec cannot be said to have acted whimsically or capriciously or without any rational basis, particularly if it is considered that in many respects and from the very nature of our respective functions, becoming candor would dictate to Us to concede that the Commission is in a better position to appreciate and assess the vital circumstances closely and accurately. By and large, therefore, the first, third and sixth assignments of error of the petitioners are not well taken.

The fifth assignment of error is in Our view moot and academic. The Identification of the ballot boxes in defective condition, in some instances open and allegedly empty, is at best of secondary import because, as already discussed, the records related thereto were after all examined, studied and passed upon. If at all, deeper inquiry into this point would be of real value in an electoral protest.

CONCLUSION

Before closing, it may not be amiss to state here that the Court had initially agreed to dispose of the cases in a minute resolution, without prejudice to an extended or reasoned out opinion later, so that the Court's decision may be known earlier. Considering, however, that no less than the Honorable Chief Justice has expressed misgivings as to the propriety of yielding to the conclusions of respondent Commission because in his view there are strong considerations warranting farther meticulous inquiry of what he deems to be earmarks of seemingly traditional faults in the manner elections are held in the municipalities and provinces herein involved, and he is joined in this pose by two other distinguished colleagues of Ours, the majority opted to ask for more time to put down at least some of the important considerations that impelled Us to see the matters in dispute the other way, just as the minority bidded for the opportunity to record their points of view. In this manner, all concerned will perhaps have ample basis to place their respective reactions in proper perspective.

In this connection, the majority feels it is but meet to advert to the following portion of the ratiocination of respondent Board of Canvassers adopted by respondent Commission with approval in its resolution under question:

First of all this Board was guided by the legal doctrine that canvassing boards must exercise "extreme caution" in rejecting returns and they may do so only when the returns are palpably irregular. A conclusion that an election return is obviously manufactured or false and consequently should be disregarded in the canvass must be approached with extreme caution, and only upon the most convincing proof. Any

plausible explanation one which is acceptable to a reasonable man in the light of experience and of the probabilities of the situation, should suffice to avoid outright nullification, with the resulting t of those who exercised their right of suffrage. (Anni vs. Isquierdo et at L-35918, Jude 28,1974; Villavon v. Comelec L-32008, August 31,1970; Tagoranao v. Comelec 22 SCRA 978). In the absence of strong evidence establishing the spuriousness of the return, the basis rule of their being accorded prima facie status as bona fide reports of the results of the count of the votes for canvassing and proclamation purposes must be applied, without prejudice to the question being tried on the merits with the presentation of evidence, testimonial and real in the corresponding electoral protest. (Bashier vs. Comelec L-33692, 33699, 33728, 43 SCRA 238, February 24, 1972). The decisive factor is that where it has been duly de ed after investigation and examination of the voting and registration records hat actual voting and election by the registered voters had taken place in the questioned voting centers, the election returns cannot be disregarded and excluded with the resting disenfranchisement of the voters, but must be accorded prima facie status as bona fide reports of the results of the voting for canvassing and registration purposes. Where the grievances relied upon is the commission of irregularities and violation of the Election Law the proper remedy is election protest. (Anni vs. Isquierdo et al. Supra). (P. 69, Record, L-49705-09).

The writer of this opinion has taken care to personally check on the citations to be doubly sure they were not taken out of context, considering that most, if not all of them arose from similar situations in the very venues of the actual milieu of the instant cases, and We are satisfied they do fit our chosen posture. More importantly, they actually came from the pens of different members of the Court, already retired or still with Us, distinguished by their perspicacity and their perceptive prowess. In the context of the constitutional and legislative intent expounded at the outset of this opinion and evident in the modifications of the duties and responsibilities of the Commission on Elections vis-a-vis the matters that have concerned Us herein, particularly the elevation of the Commission as the "sole judge of pre-proclamation controversies" as well as of all electoral contests, We find the afore-quoted doctrines compelling as they reveal through the clouds of existing jurisprudence the pole star by which the future should be guided in delineating and circumscribing separate spheres of action of the Commission as it functions in its equally important dual role just indicated bearing as they do on the purity and sanctity of elections in this country.

In conclusion, the Court finds insufficient merit in the petition to warrant its being given due course. Petition dismissed, without pronouncement as to costs. Justices Fernando, Antonio and Guerrero who are presently on official missions abroad voted for such dismissal.

Fernando, Antonio, Concepcion Jr., Santos Fernandez, and Guerrero, JJ., concur.

Teehankee, J. took no part.

Aquino and Abad Santos, Jr., took no part.

Separate Opinions

CASTRO, C.J., dissenting:

1

At the outset I must state that constraints of time effectively prevent me from writing an extended dissent. Hence, this abbreviated exposition of my views.

For a clear understanding of the issues, a summary of the essential events relative to these cases is necessary.

On April 7, 1978, elections of representatives to the Batasang Pambansa were held throughout the Philippines. The cases at bar concern only the results of the elections in Region XII (Central Mindanao) which compromises the p s Of Lanao del Sur, Lanao del Norte, Maguindanao, North Cotabato and Sultan Kudarat, and the cities of Marawi, Iligan and Cotabato. (The entire Region had a total of 4,107 voting center but only 3,984 were functions).

On June 11, 1978, the Region Board of Canvassers issued a resolution, Over the objection of the Konsensiya ng Bayan (KB) candidates d all the eight Kilusang ng Bagong Lipunan (KBL) candidates elected. Appeal was taken by the KB candidates to the On January 13, 1979, the Comelec its questioned resolution KBL can candidates and one KB candidate as having obtained the first eight places, and ordering the Regional Board of Can to p the winning candidates. The KB candidate forewith the present petition ; in due time the respondents filed their comments.

Oral argument was had before the Court for two days, specifically on January 31 and February 1, 1979. Atty. Lino Patajo argued for and in behalf of the KB candidates, Assemblyman Estanislao Fernandez for the KBL and the private respondents and Solicitor General Estelito P. Mendoza for the public respondents. The Court subjected the three counsels to intensive interrogation. The cases were then sub. muted for decision in the afternoon of February 1.

2

I have carefully read the entire record, more particularly the Comelec resolution of January 13, 1979, and I must confess that until now my mind cannot rest easy on a number of questions sharply in issue, some of which are hereunder briefly discussed.

a. After the Comelec examined very closely the voting returns, books of voting and voting records from 1, 116 voting centers protested by the KB candidates, to the extent of subjecting them to detailed documentary examination and finger print comparison by Comelec experts, and thereafter annulled 31.84% of the votes cast, why did it refuse to proceed to subject all the records of the remaining 1,659 voting centers protested by the KB candidates to the same manner of close scrutiny?

b. Why did not the Comelec examine, utilizing the same meticulous method, similar documents and records appertaining to a total of 164 voting centers in Lanao del Sur and 19 voting centers in Lanao del Norte—two provinces where concededly there had been military operations—and an additional number of voting centers in the other provinces, all of which registered a 100 % turnout of voters? The peace and order conditions in the two cities of Iligan and Cotabato on the day of the elections were normal and yet the total percentages of voting were only 73 % and 52 %, lively. How then can the Comelec explained why and how in many voting centers located in areas where there had been military operations there was a voting turnout of 100 %? Assuming that the KB candidates did not call the attention of the Comelec—although they actually did—to the stark improbability of 100 %

vote turnout in the said places, because the peace and order conditions were far from normal it perforce devolved on the Comelec to conduct, motu propio, an in-depth and full-blown inquiry into this paradox. The record shows that there was l00 % voting in the whole of each of three municipalities, over 99 % viting in each of thirteen other municipalities, and an average 97 % turnout in five more municipalities. Of inescapable significance is the fact that most of these municipalities are located in the provinces of Lanao del Sur and Lanao del Norte, the past election history of which is replete with the perpetration of massive frauds, terrorism and scandalous substitutions of voters.

c. Why did the Comelec deny the motion of the KB candidates for the opening of ballot boxes Pertaining to a total of 408 voting centers — the voting record of which were not available as they had somehow mysteriously disappeared — to determine whether or not the election in each of the said voting centers was a sham? This remedial measure was resorted to by the Comelec in 1969 when it Order the opening of a number of ballot boxes in the pre-proclamation contest in Lucman vs. Dimaporo in order to see whether or not there were ballots, and determine whether there had been an actual election in each of the disputed precincts. In that case to almost 200 ballot boxes found to be without padlocks?

3

Of incalculable significance is the abscence of any statement in the Comelec resolution that indicates that, granting that all the questions I have above raised would be resolved in favor of the KB candidates, the election results would not be materially altered.Upon the other hand , the KB candidates state categorically, with benefit of extrapolation, that the election results would be considerably changed in their favor.

4

The majority of my brethren anchor their denial of the petition on two principal grounds, namely:

a. The issues raised by the KB candidates would be better and properly ventilated in an election protest; and

b. No grave abuse of discretion is discernible from the actuations of the Comelec.

Anent the first ground, it is a notorious fact in the history of Philippine politics that an election protest not only is usually inordinately protracted but as well entails heavy and prohibitive expenditure of time, money and effort on the part of the protestant. More than this, should the protestant in the end win, very little time or none at all is left for him to assume and discharge the duties of his office. In the meantime, the person previously proclaimed elected continues to fraudulently represent the people who had in law and in fact duly elected someone else to represent them.

Besides, taking a broad view of the fundamental issues raised by the KB candidates, I am of the opinion that resolution of these issues by the Comelec would not take more than six months of conscientious labor—and surely this period is short, very short indeed, compared to the time that win be wasted by the Comelec in deciding a formal electoral protest. Is it not time the Supreme Court asserted its powers in order to excise completely the Old Society pernicious evil of "grab the proclamation at all costs"?

Anent the second ground, I squarely traverse the statement that no grave abuse of discretion can be imputed to the Comelec. The grave misgivings I have above articulated demonstrate what to my mind constitute the size and shape of the remissness of the Comelec. And more compelling and

over-riding a consideration than the overwrought technicality of "grave abuse of discretion" is the fundamental matter of the faith of the people of Region XII in the electoral process. There will always be the nagging question in the minds of the voters in that Region as to the legitimacy of those who will be proclaimed elected under the Comelec resolution should the Court refuse to direct that body to continue the meticulous for legitimacy and truth.

5

Upon all the foregoing, it behooves the Court to remand these cases to the Comelec, with the direction that body immediately convene and within an unextendible period and as speedily as possible, resolve with definitiveness all the questions I have above posed, under such unequivocal guidelines as the Court may prescribe.

For my part, unless and until this is done, I shall continue to enter grave doubt as to the correctness and validity of the results already reached by the Comelec, especially when political history, placed in perspective, pointedly reminds me of the massive frauds, terrorism and scandalous substitutions of voters that have characterized past elections in the two Lanao provinces.

DE CASTRO, J., concuring:

The present case has afforded Us an early opportunity to examine and define the extent of the power of judicial review as granted to the Supreme Court over any decision, order or ruling of the Commission on Elections under the new Constitution the pertinent provision of which reads:

Section 11. Any decision order or ruling of the on may be brought to the Supreme Court on certiorari by the party within thirty days from his receipt of a copy thereof XII, Constitution).

The Commission on Elections has been granted powers under the new Constitution which, under the old Constitution, belonged either to the legislative body(Electoral Tribunals) or the courts. This evident from the provision of the new Constitution which reads:

(2) Be the sole judge of all contents relating to the elections, returns, and quallifications of all Members of the National Assembly and elective provincial and city officials. (Section 2, Article XII, Constitution).

The Commission is thus envisioned to exercise exclusive powers on all electoral matters except the right to vote, such as the enforcement and administration of laws relative to the conduct of elections deciding administrative questions affecting elections, except those involving the right to vote, but also those that heretofore have been agreed as matters for strictly judicial inquiry, such as the hearing and disposition of election contests, as is doubtlessly shown by the transfer thereto of the powers previously conferred upon the Electoral Tribunal of Congress and the Courts. (see Section 2, par. 2, Article XII, New Constitution). This change may properly be viewed as having the intention to relieve the Courts, particularly the Supreme Court, of those burdens placed upon them relating to the conduct of election and matters incident thereto. It could have been, likewise, intended to insulate judicial bodies from the baneful effects of partisan politics, the more deleterious ones being those that could come from the higher mats of political power, such a those in the Assembly and in the provincial and city government levels.

It is, therefore, my view that what was intended by the new Constitution is to limit the intervention of the Supreme Court in the acts of the Commission as constitutional body like said Court, but with

broadened powers, allocating to it a domain as exclusive as that of the legislative body (which includes the President or Prime Minister) on matters of lawmaking , to that of "judicial inquiry". This power is confined to justifiable questions not of political nature, and always involving alleged violation of constitutional rights or the constitution itself.. For a controversy of a political character, commonly referred to as "Political questions", is excluded from the scope of the Supreme Courts power of judicial inquiry. 1 The exclusive character of the Power conferred upon the Commission on Elections, and considering that political rights, as distinguished from civil and personal Or Property rights, 2 are for the most part, if not in their totality, the subject of its authority, should counsel an expansive intervention by the Supreme Court in the acts of the Commission on Election. With the confernment of exclusive authority on the electoral process upon it, the Commission may be said to have been given hill discretionary authority, the exercise of which would give rise to a controversy involving a political question. 3

What then is the test or criterion in de whether the Supreme Court may exercise its power under Article XII, Section 11 of the new Constitution? It is my humble submission that the aforecited provision is merely a reassertion of the power of the Supreme Court as guardian of the Constitution and protector of constitutional rights, of which, under no circumstance, could it be deprived, if our present Constitution system is to be maintained. For it is a power constitutionally assigned to it as the essence of the high judicial power of the Supreme Court, for the orderly and salutary apportionment of governmental powers among the different b of the government, as well as the Constitution bodies created to deal more effectively with specific matters requiring governmental actions.

Examining the instant petition, nothing reveals itself as raising more than questions merely affecting the conduct of the election held on April 7, 1978, much less a truly constitutional question, aside perhaps from the alegation that the COMELEC undertook an examination of election records beyond those examined during the pendency of the controversy before the Regional Board of Canvassers, allegedly without notice to the petitioners, thus intimating a violation of due process. This particular matter, however, can easily be disposed of by citing the provision of Section 175 of the Electoral Code of 1978 which reads:

... The Commission shall be the sole judge of all pre-proclamation controversies and any of its decisions, orders or rulings shall be final and executory. It may, motu proprio or upon written petition, and after due notice and heating order the suspension of the proclamation of a candidate-elect or annul any proclamation, if one has been made, on any of the grounds mentioned in Sections 172, 173 and 174 hereof.

If the Commission has the power to suspend motu proprio the proclamation of a candidate-elect it must have the power to conduct inquiry into the cause for which it ordains the suspension of the proclamation such as making its own examination of the integrity of election returns or inquiring into any relevant matter affecting the purity of the ballot. Notice is required by the legal provision cited, but this must be notice to the party adversely affected, the candidate-elect whose proclamation is suspended. The action taken by the COMELEC in e additional election documents to those examined by the KB experts during the pendency of the controversy with the Regional Board of Canvassers was, therefore, one of which petitioners cannot be heard, nor have any reason, one of which petitioners cannot be heard, nor have any reason, to complain, for it even resulted in one KB candidate getting into the winners column. If the COMELEC stopped at a certain point in its examination, instead of going through all those questioned by the petitioners, evidently due to time constraint as fixed in the guidelines, set by this Court, and the character of pre-proclamation proceedings , it cannot be charged with abuse of discretion, much less a grave one. it did not have to conduct the additional examination, in the first place. The controversy which was heard and

decided in the first instance, by the Regional Board of Canvassers, with guidelines set by this Court, was appealed to the COMELEC. The latter's appellate authority was thus limited to a review of the decision of the Board on the basis of the evidence presented before it, rendering its own decision on the basis of the evidence, and no more. It incorporated the result of its own examination of additional election returns, and found one KB as one of the candidate, a fact clearly showing that COMELEC did examine the said documents, otherwise , the result as previously declared by the Board of Canvassers with a clean sweep of the KBL candidate would have remained unaltered.

Expounding more on the one circumstance inclining me to the theory that with the enlarged power and broadened authority of the COMELEC which to and cover virtually the entire electoral process, as exclusively as the power of legislation is constitutionally lodged in the law-making body, what is given to the Supreme Court as its reviewing authority over acts of the COMELEC is no more than what it could exercise under its power of judicial inquiry with to acts of the legislative body, which is the transfer to the COMELEC of the powers pertaining to the Electoral Tribunals and the courts under the old Constitution over election contests, it must not be hard to concede that with the composition of the electoral tribunals in which six of the justices of the Supreme Court sit in said bodies, the Supreme Court crowd no longer exercise any reviewing authority over the acts of the said electoral tribunals except possibly when violation of the Constitution or constitution rights are involved. With this limited concept of this Court's authority over the defunct electoral tribunals now applied to an equally constitutional body that the COMELEC is that took over the function of the Election Tribunal would hesitate to hold that Supreme Court may grant the relief as in prayed for in the present petition

If this is so under the law and the Constitution, it should also be upon consideration of public policy. The last elections were called by the President as a test or t as to how the vital reforms and changes of political and social discipline and moral values he has instituted to evolve a new order have affected the thinking and the attitudes of our Tribunal should be extreme caution, if not restraint, in any act on our part that might reflect on the success or failure of that experiment intended, at the time as a big stride in the way back to normalization. This is specially true in the field of politics where the ills of the Old Society has been most grave, because our elections then as a democratic process, have tarnished the image of our country as a representative democracy. Except on very compelling reasons then, which I believe do not exist in the case before Us, should we make any pronouncement that would detract on how successful the last political exercise had been, as the first election held under the new Constitution. We must refrain from imputing to the COMELEC which has been enlarged with fresh mandate and a bigger trust by the Constitution failure in the performance of

its functions either by willfull negleneglect, official incompetence, much less by deliberate partiality, in the first real test of its capability.

In the light of the foregoing, I vote, in concurrence with the majority, to dismiss the petition, first, as to the matter allegedly involving a violation of the petitioners' right of due process on the ground that there was no denial thereof, and second, as to the other matters involving no violation of constitutional rights, on the ground they are purely political questions, and that in any case, no grave abuse of discretion has been committed by, much leas is there lack or excess of jurisdiction on the part of, the Commission on Elections.

#Footnotes

1 Mabanag vs. Lopez Vito, 78 Phil. 1; Tanada & Macapagal vs. Cuenco, L-10520, February 28, 1957; Gonzalez vs. Comelec, L-28l96 and L-28224, November 9, 1967; The Plebiscite Cases, 50 SCRA 30 (1973); Peralta vs. Commission on Elections, et al., L-4771, March 11,1978; Juan T. David vs. Commission on Elections, et al., L-47816, March 11, 1978; Youth Democratic Movement vs. Commission on Elections et al., L-47816, March 11, 1978; Sanidad vs. Commission on Elections, 73 SCRA 333.

2 Political right consists in the power to participate directly or indirectly in the establishment of the government. (Avelino vs. Cuenco, 77 Phil.., 192).

3 A Political question relates to "those question which under the Constitution, are to be decided by the people in their sovereign capacity, or in regard to which discretionary authority has been delegated to the legislative or the executive branch of the government. Tanada vs. Macapagal, G.R. No. L-10520, February 28, 1957).

SECOND DIVISION

[G.R. No. 134990. April 27, 2000]

MANUEL M. LEYSON JR., petitioner, vs. OFFICE OF THE OMBUDSMAN, TIRSO ANTIPORDA, Chairman, UCPB and CIIF Oil Mills, and OSCAR A. TORRALBA, President, CIIF Oil Mills, respondents. ALEX

D E C I S I O N

BELLOSILLO, J.:

On 7 February 1996 International Towage and Transport Corporation (ITTC), a domestic corporation engaged in the lighterage or shipping business, entered into a one (1)-year contract with Legaspi Oil Company, Inc. (LEGASPI OIL), Granexport Manufacturing Corporation (GRANEXPORT) and United Coconut Chemicals, Inc. (UNITED COCONUT), comprising the Coconut Industry Investment Fund (CIIF) companies, for the transport of coconut oil in bulk through MT Transasia. The majority shareholdings of these CIIF companies are owned by the United Coconut Planters Bank (UCPB) as administrator of the CIIF. Under the terms of the contract, either party could terminate the agreement provided a three (3)-month advance notice was given to the other party. However, in August 1996, or prior to the expiration of the contract, the CIIF companies with their new President, respondent Oscar A. Torralba, terminated the contract without the requisite advance notice. The CIIF companies engaged the services of another vessel, MT Marilag, operated by Southwest Maritime Corporation. miso

On 11 March 1997 petitioner Manuel M. Leyson Jr., Executive Vice President of ITTC, filed with public respondent Office of the Ombudsman a grievance case against respondent Oscar A. Torralba. The following is a summary of the irregularities and corrupt practices allegedly committed by respondent Torralba: (a) breach of contract - unilateral cancellation of valid and existing contract; (b) bad faith - falsification of documents and reports to stop the operation of MT Transasia; (c) manipulation - influenced their insurance to disqualify MT Transasia; (d) unreasonable denial of requirement imposed; (e) double standards and inconsistent in favor of MT Marilag;(f) engaged and entered into a contract with Southwest Maritime Corp. which is not the owner of MT Marilag, where liabilities were waived and whose paid-up capital is only P250,000.00; and, (g) overpricing in the freight rate causing losses of millions of pesos to Cocochem.[1]

On 2 January 1998 petitioner charged respondent Tirso Antiporda, Chairman of UCPB and CIIF Oil Mills, and respondent Oscar A. Torralba with violation of The Anti-Graft and Corrupt Practices Act also before the Ombudsman anchored on the aforementioned alleged irregularities and corrupt practices. spped

On 30 January 1998 public respondent dismissed the complaint based on its finding that –

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The case is a simple case of breach of contract with damages which should have been filed in the regular court. This Office has no jurisdiction to determine the legality or validity of the termination of the contract entered into by CIIF and ITTC. Besides the entities involved are private corporations (over) which this Office has no jurisdiction.[2]

On 4 June 1998 reconsideration of the dismissal of the complaint was denied. The Ombudsman was unswayed in his finding that the present controversy involved breach of contract as he also took into account the circumstance that petitioner had already filed a collection case before the Regional Trial Court of Manila-Br. 15, docketed as Civil Case No. 97-83354. Moreover, the Ombudsman found that the filing of the motion for reconsideration on 31 March 1998 was beyond the inextendible period of five (5) days from notice of the assailed resolution on 19 March 1998.[3] miso

Petitioner now imputes grave abuse of discretion on public respondent in dismissing his complaint. He submits that inasmuch asPhilippine Coconut Producers Federation, Inc. (COCOFED) v. PCGG[4] and Republic v. Sandiganbayan[5] have declared that the coconut levy funds are public funds then, conformably with Quimpo v. Tanodbayan,[6] corporations formed and organized from those funds or whose controlling stocks are from those funds should be regarded as government owned and/or controlled corporations. As in the present case, since the funding or controlling interest of the companies being headed by private respondents was given or owned by the CIIF as shown in the certification of their Corporate Secretary,[7] it follows that they are government owned and/or controlled corporations. Corollarily, petitioner asserts that respondents Antiporda and Torralba are public officers subject to the jurisdiction of the Ombudsman. Sdaadsc

Petitioner alleges next that public respondent's conclusion that his complaint refers to a breach of contract is whimsical, capricious and irresponsible amounting to a total disregard of its main point, i. e., whether private respondents violated The Anti-Graft and Corrupt Practices Act when they entered into a contract with Southwest Maritime Corporation which was grossly disadvantageous to the government in general and to the CIIF in particular. Petitioner admits that his motion for reconsideration was filed out of time. Nonetheless, he advances that public respondent should have relaxed its rules in the paramount interest of justice; after all, the delay was just a matter of days and he, a layman not aware of technicalities, personally filed the complaint. Rtcspped

Private respondents counter that the CIIF companies were duly organized and are existing by virtue of the Corporation Code. Their stockholders are private individuals and entities. In addition, private respondents contend that they are not public officers as defined under The Anti-Graft and Corrupt Practices Act but are private executives appointed by the Boards of Directors of the CIIF companies. They asseverate that petitioner's motion for reconsideration was filed through the expert assistance of a learned counsel. They then charge petitioner with forum shopping since he had similarly filed a case for collection of a sum of money plus damages before the trial court.







The Office of the Solicitor General maintains that the Ombudsman approved the recommendation of the investigating officer to dismiss the complaint because he sincerely believed there was no sufficient basis for the criminal indictment of private respondents. spped

We find no grave abuse of discretion committed by the Ombudsman. COCOFED v. PCGG referred to in Republic v. Sandiganbayanreviewed the history of the coconut levy funds. I These funds actually have four (4) general classes: (a) the Coconut Investment Fund created under R. A. No. 6260;[8] (b) the Coconut Consumers Stabilization Fund created under P. D. No. 276;[9] (c) the Coconut Industry Development Fund created under P. D. No. 582;[10] and, (d) the Coconut Industry Stabilization Fund created under P. D. No. 1841.[11]

The various laws relating to the coconut industry were codified in 1976. On 21 October of that year, P. D. No. 961[12] was promulgated. On 11 June 1978 it was amended by P. D. No. 1468[13] by inserting a new provision authorizing the use of the balance of the Coconut Industry Development Fund for the acquisition of "shares of stocks in corporations organized for the purpose of engaging in the establishment and operation of industries x x x commercial activities and other allied business undertakings relating to coconut and other palm oil indust(ries)."[14] From this fund thus created, or the CIIF, shares of stock in what have come to be known as the "CIIF companies" were purchased. miso

We then stated in COCOFED that the coconut levy funds were raised by the State's police and taxing powers such that the utilization and proper management thereof were certainly the concern of the Government. These funds have a public character and are clearly affected with public interest.

Quimpo v. Tanodbayan involved the issue as to whether PETROPHIL was a government owned or controlled corporation the employees of which fell within the jurisdictional purview of the Tanodbayan for purposes of The Anti-Graft and Corrupt Practices Act. We upheld the jurisdiction of the Tanodbayan on the ratiocination that -

While it may be that PETROPHIL was not originally "created" as a government-owned or controlled corporation, after it was acquired by PNOC, which is a government-owned or controlled corporation, PETROPHIL became a subsidiary of PNOC and thus shed-off its private status. It is now funded and owned by the government as, in fact, it was acquired to perform functions related to government programs and policies on oil, a vital commodity in the economic life of the nation. It was acquired not temporarily but as a permanent adjunct to perform essential government or government-related functions, as the marketing arm of the PNOC to assist the latter in selling and distributing oil and petroleum products to assure and maintain an adequate and stable domestic supply. Korte

But these jurisprudential rules invoked by petitioner in support of his claim that the CIIF companies are government owned and/or controlled corporations are incomplete without resorting to the definition of "government owned or controlled corporation" contained in par. (13), Sec. 2, Introductory Provisions of the Administrative Code of 1987, i. e., any agency organized as a stock or non-stock corporation vested with functions relating to public needs








whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock. The definition mentions three (3) requisites, namely, first, any agency organized as a stock or non-stock corporation; second, vested with functions relating to public needs whether governmental or proprietary in nature; and, third, owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock. Sclaw

In the present case, all three (3) corporations comprising the CIIF companies were organized as stock corporations. The UCPB-CIIF owns 44.10% of the shares of LEGASPI OIL, 91.24% of the shares of GRANEXPORT, and 92.85% of the shares of UNITED COCONUT.[15] Obviously, the below 51% shares of stock in LEGASPI OIL removes this firm from the definition of a government owned or controlled corporation. Our concern has thus been limited to GRANEXPORT and UNITED COCONUT as we go back to the second requisite. Unfortunately, it is in this regard that petitioner failed to substantiate his contentions. There is no showing that GRANEXPORT and/ or UNITED COCONUT was vested with functions relating to public needs whether governmental or proprietary in nature unlike PETROPHIL in Quimpo. The Court thus concludes that the CIIF companies are, as found by public respondent, private corporations not within the scope of its jurisdiction. Sclex

With the foregoing conclusion, we find it unnecessary to resolve the other issues raised by petitioner.

A brief note on private respondents' charge of forum shopping. Executive Secretary v. Gordon[16] is instructive that forum shopping consists of filing multiple suits involving the same parties for the same cause of action, either simultaneously or successively, for the purpose of obtaining a favorable judgment. It is readily apparent that the present charge will not prosper because the cause of action herein, i. e., violation of The Anti-Graft and Corrupt Practices Act, is different from the cause of action in the case pending before the trial court which is collection of a sum of money plus damages. miso

WHEREFORE, the petition is DISMISSED. The Resolution of public respondent Office of the Ombudsman of 30 January 1998 which dismissed the complaint of petitioner Manuel M. Leyson Jr., as well as its Order of 4 June 1998 denying his motion for reconsideration, is AFFIRMED. Costs against petitioner.

SO ORDERED.apdc

Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.

[1] Rollo, pp. 21-22.[2] Resolution of Graft Investigation Officer II David B. Corpuz approved by Director Angel C. Mayoralgo, Assistant ombudsman Abelardo L. Aportadera and Ombudsman Aniano A. Desierto; Rollo, p. 22.[3] Rollo, pp. 56-57.

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[4] G.R. No. 75713, 2 October 1989, 178 SCRA 236.[5] G.R. No. 96073, 16 February 1993, En Banc Resolution.[6] G.R. No. 72553, 2 December 1986, 146 SCRA 137.[7] Annexes "k," "L" to "L-1," and "M" to "M-1" of Petition; Rollo, pp. 80-84.[8] Effective 19 June 1971.[9] Effective 20 August 1973.[10] Effective 14 November 1974.[11] Effective 2 October 1981.[12] Coconut Industry Code.[13] Revised Coconut Industry Code.[14] Sec. 9, PD No. 1468.[15] See Note 7.[16] G.R. No. 134171, 18 November 1998, 298 SCRA 736.














THIRD DIVISION

[G.R. Nos. 147706-07. February 16, 2005]

PEOPLE OF THE PHILIPPINES, petitioner, vs. THE HONORABLE SANDIGANBAYAN (Fifth Division) and EFREN L. ALAS, respondents.

D E C I S I O N

CORONA, J.:

Does the Sandiganbayan have jurisdiction over presidents, directors or trustees, or managers of government-owned or controlled corporations organized and incorporated under the Corporation Code for purposes of the provisions of RA 3019, otherwise known as the Anti-Graft and Corrupt Practices Act? The petitioner, represented by the Office of the Special Prosecutor (OSP), takes the affirmative position in this petition for certiorari under Rule 65 of the Rules of Court. Respondent Efren L. Alas contends otherwise, together with the respondent court.

Pursuant to a resolution dated September 30, 1999 of the Office of the Ombudsman, two separate informations[1] for violation of Section 3(e) of RA 3019, otherwise known as the Anti-Graft and Corrupt Practices Act, were filed with the Sandiganbayan on November 17, 1999 against Efren L. Alas. The charges emanated from the alleged anomalous advertising contracts entered into by Alas, in his capacity as President and Chief Operating Officer of the Philippine Postal Savings Bank (PPSB), with Bagong Buhay Publishing Company which purportedly caused damage and prejudice to the government.

On October 30, 2002, Alas filed a motion to quash the informations for lack of jurisdiction, which motion was vehemently opposed by the prosecution. After considering the arguments of both parties, the respondent court ruled that PPSB was a private corporation and that its officers, particularly herein respondent Alas, did not fall under Sandiganbayan jurisdiction. According to the Sandiganbayan:

After a careful consideration of the arguments of the accused-movant as well as of that of the prosecution, we are of the considered opinion that the instant motion of the accused is well taken. Indeed, it is the basic thrust of Republic Act as well as (sic) Presidential Decree No. 1606 as amended by President Decree No. 1486 and Republic Act No. 7975 and Republic Act No. 8249 that the Sandiganbayan has jurisdiction only over public officers unless private persons are charged with them in the commission of the offenses.

The records disclosed that while Philippine Postal Savings Bank is a subsidiary of the Philippine Postal Corporation which is a government owned corporation, the same is not created by a special law. It was organized and incorporated under the Corporation Code which is Batas Pambansa Blg. 68. It was registered with the Securities and Exchange Commission under SEC

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No. AS094-005593 on June 22, 1994 with a lifetime of fifty (50) years. Under its Articles of Incorporation the purpose for which said entity is formed was primarily for business, xxx

Likewise, a scrutiny of the seven (7) secondary purposes of the corporation points to the conclusion that it exists for business. Obviously, it is not involved in the performance of a particular function in the exercise of government power. Thus, its officers and employees are not covered by the GSIS and are under the SSS law, and actions for reinstatement and backwages are not within the jurisdiction of the Civil Service Commission but by the National Labor Relations Commission (NLRC).

The Supreme Court, in the case of Trade Unions of the Philippines and Allied Services vs. National Housing Corp., 173 SCRA 33, held that the Civil Service now covers only government owned or controlled corporations with original or legislative charters, those created by an act of Congress or by special law, and not those incorporated under and pursuant to a general legislation. The Highest Court categorically ruled that the Civil Service does not include government-owned or controlled corporation which are organized as subsidiaries of government-owned or controlled corporation under the general corporation law.

In Philippine National Oil Company – Energy Development Corporation vs. Leogardo, 175 SCRA 26, the Supreme Court emphasized that:

The test in determining whether a government-owned or controlled corporation is subject to the Civil Service Law is the manner of its creation such that government corporation created by special charter are subject to its provision while those incorporated under the general corporation law are not within its coverage.

Likewise in Davao City Water District vs. Civil Service Commission, 201 SCRA 601 it was held that “by government-owned or controlled corporation with original charter we mean government-owned or controlled corporation created by a special law and not under the Corporation Code of the Philippines” while in Llenes vs. Dicdican, et al., 260 SCRA 207, a public officer has been ruled, as a person whose duties involve the exercise of discretion in the performance of the function of government.

Clearly, on the basis of the foregoing pronouncements of the Supreme Court, the accused herein cannot be considered a public officer. Thus, this Court may not exercise jurisdiction over his act.[2]

Dissatisfied, the People, through the Office of the Special Prosecutor (OSP), filed this petition[3] arguing, in essence, that the PPSB was a government-owned or controlled corporation as the term was defined under Section 2(13) of the Administrative Code of 1987.[4]Likewise, in further defining the jurisdiction of the Sandiganbayan, RA 8249 did not make a distinction as to the manner of creation of the government-owned or controlled corporations for their officers to fall under its jurisdiction. Hence, being President and Chief Operating Officer of the PPSB at the time of commission of the crimes charged, respondent Alas came under the jurisdiction of the Sandiganbayan.




Quoting at length from the assailed resolution dated February 15, 2001, respondent Alas, on the other hand, practically reiterated the pronouncements made by the respondent court in support of his conclusion that the PPSB was not created by special law, hence, its officers did not fall within the jurisdiction of the Sandiganbayan.[5]

We find merit in the petition.

Section 2(13) of EO 292[6] defines government-owned or controlled corporations as follows:

Sec. 2. General Terms Defined – Unless the specific words of the text or the context as a whole or a particular statute, shall require a different meaning:

xxx xxx xxx

(13) government owned or controlled corporations refer to any agency organized as a stock or non-stock corporation vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the government directly or indirectly or through its instrumentalities either wholly, or where applicable as in the case of stock corporations to the extent of at least 51% of its capital stock: provided, that government owned or controlled corporations maybe further categorized by the department of the budget, the civil service commission and the commission on audit for the purpose of the exercise and discharge of their respective powers, functions and responsibilities with respect to such corporations.

From the foregoing, PPSB fits the bill as a government-owned or controlled corporation, and organized and incorporated under the Corporation Code as a subsidiary of the Philippine Postal Corporation (PHILPOST). More than 99% of the authorized capital stock of PPSB belongs to the government while the rest is nominally held by its incorporators who are/were themselves officers of PHILPOST. The creation of PPSB was expressly sanctioned by Section 32 of RA 7354, otherwise known as the Postal Service Act of 1992, for purposes of, among others, “to encourage and promote the virtue of thrift and the habit of savings among the general public, especially the youth and the marginalized sector in the countryside xxx” and to facilitate postal service by “receiving collections and making payments, including postal money orders.”[7]

It is not disputed that the Sandiganbayan has jurisdiction over presidents, directors or trustees, or managers of government-owned or controlled corporations with original charters whenever charges of graft and corruption are involved. However, a question arises whether the Sandiganbayan has jurisdiction over the same officers in government-owned or controlled corporations organized and incorporated under the Corporation Code in view of the delimitation provided for in Article IX-B Section 2(1) of the 1987 Constitution which states that:

SEC. 2. (1) The Civil Service embraces all branches, subdivisions, instrumentalities, and agencies of the government, including government-owned or controlled corporations with original charters.

It should be pointed out however, that the jurisdiction of the Sandiganbayan is separate and distinct from the Civil Service Commission. The same is governed by Article XI, Section 4 of the 1987 Constitution which provides that “the present anti-graft court known as the Sandiganbayan shall continue to function and exercise its jurisdiction as now or hereafter may




be provided by law.” This provision, in effect, retained the jurisdiction of the anti-graft court as defined under Article XIII, Section 5 of the 1973 Constitution which mandated its creation, thus:

Sec. 5. The Batasang Pambansa shall create a special court, to be known as Sandiganbayan, which shall have jurisdiction over criminal and civil cases involving graft and corrupt practices and such other offense committed by public officers and employees, including those in government-owned or controlled corporations, in relation to their office as may be determined by law. (Italics ours)

On March 30, 1995, Congress, pursuant to its authority vested under the 1987 Constitution, enacted RA 7975[8] maintaining the jurisdiction of the Sandiganbayan over presidents, directors or trustees, or managers of government-owned or controlled corporations without any distinction whatsoever. Thereafter, on February 5, 1997, Congress enacted RA 8249[9] which preserved the subject provision:

Section 4, Jurisdiction. The Sandiganbayan shall exercise exclusive original jurisdiction in all cases involving:

a. Violations of Republic Act No. 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act, Republic Act No. 1379, and Chapter II, Section, Title VII, Book II of the Revised Penal Code, where one or more of the accused are officials occupying the following positions in the government, whether in a permanent, acting or interim capacity, at the time of the commission of the offense,

(1) Officials of the executive branch occupying the positions of regional director, and higher, otherwise classified as grade “27” and higher, of the Compensation and Position Classification Act of 1989 (Republic Act No. 6758) specifically including:

xxx xxx xxx

(g) Presidents, directors or trustees, or managers of government-owned or controlled corporations, state universities or educational institutions or foundations. (Italics ours)

The legislature, in mandating the inclusion of “presidents, directors or trustees, or managers of government-owned or controlled corporations” within the jurisdiction of the Sandiganbayan, has consistently refrained from making any distinction with respect to the manner of their creation.

The deliberate omission, in our view, clearly reveals the intention of the legislature to include the presidents, directors or trustees, or managers of both types of corporations within the jurisdiction of the Sandiganbayan whenever they are involved in graft and corruption. Had it been otherwise, it could have simply made the necessary distinction. But it did not.

It is a basic principle of statutory construction that when the law does not distinguish, we should not distinguish. Ubi lex non distinguit nec nos distinguere debemos. Corollarily, Article XI Section 12 of the 1987 Constitution, on the jurisdiction of the Ombudsman (the government’s



prosecutory arm against persons charged with graft and corruption), includes officers and employees of government-owned or controlled corporations, likewise without any distinction.

In Quimpo v. Tanodbayan,[10] this Court, already mindful of the pertinent provisions of the 1987 Constitution, ruled that the concerned officers of government-owned or controlled corporations, whether created by special law or formed under the Corporation Code, come under the jurisdiction of the Sandiganbayan for purposes of the provisions of the Anti-Graft and Corrupt Practices Act. Otherwise, as we emphasized therein, a major policy of Government, which is to eradicate, or at the very least minimize, the graft and corruption that has permeated the fabric of the public service like a malignant social cancer, would be seriously undermined. In fact, Section 1 of the Anti-Graft and Corrupt Practices Act embodies this policy of the government, that is, to repress certain acts not only of public officers but also of private persons constituting graft or corrupt practices or which may lead thereto.

The foregoing pronouncement has not outlived its usefulness. On the contrary, it has become even more relevant today due to the rampant cases of graft and corruption that erode the people’s faith in government. For indeed, a government-owned or controlled corporation can conceivably create as many subsidiary corporations under the Corporation Code as it might wish, use public funds, disclaim public accountability and escape the liabilities and responsibilities provided by law. By including the concerned officers of government-owned or controlled corporations organized and incorporated under the Corporation Code within the jurisdiction of the Sandiganbayan, the legislature evidently seeks to avoid just that.

WHEREFORE, in view of the foregoing, the petition is hereby GRANTED and the assailed resolution dated February 15, 2001 of the respondent court is hereby REVERSED and SET ASIDE.

SO ORDERED.

Panganiban, (Chairman), Sandoval-Gutierrez, Carpio-Morales, and Garcia, JJ., concur.

[1] Docketed as Criminal Cases Nos. 25750-25751.[2] Resolution dated February 15, 2001, Annex “A”, Rollo, pp. 18-22.[3] Rollo, pp. 2-17.[4] EO No. 292.[5] Comment, Rollo, pp. 38-49.[6] Administrative Code of 1987.[7] Articles of Incorporation of PPSB, Annex “C”, Rollo, pp. 27-35.[8] Entitled: ACT TO STRENGTHEN THE FUNCTIONAL AND STRUCTURAL ORGANIZATION OF THE SANDIGANBAYAN, AMENDING FOR THAT PURPOSE PD 1606, AS AMENDED.

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[9] Entitled: AN ACT FURTHER DEFINING THE JURISDICTION OF THE SANDIGANBAYAN. AMENDING FOR THE PURPOSE PRESIDENTIAL DECREE NO. 1606, AS AMENDED, PROVIDING FUNDS THEREFOR, AND FOR OTHER PURPOSES.[10] 230 Phil. 232 (1986).



THIRD DIVISION

[G.R. No. 143672. April 24, 2003]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. GENERAL FOODS (PHILS.), INC., respondent.

D E C I S I O N

CORONA, J.:

Petitioner Commissioner of Internal Revenue (Commissioner) assails the resolution[1] of the Court of Appeals reversing the decision[2] of the Court of Tax Appeals which in turn denied the protest filed by respondent General Foods (Phils.), Inc., regarding the assessment made against the latter for deficiency taxes.

The records reveal that, on June 14, 1985, respondent corporation, which is engaged in the manufacture of beverages such as “Tang,” “Calumet” and “Kool-Aid,” filed its income tax return for the fiscal year ending February 28, 1985. In said tax return, respondent corporation claimed as deduction, among other business expenses, the amount of P9,461,246 for media advertising for “Tang.”

On May 31, 1988, the Commissioner disallowed 50% or P4,730,623 of the deduction claimed by respondent corporation. Consequently, respondent corporation was assessed deficiency income taxes in the amount of P2,635, 141.42. The latter filed a motion for reconsideration but the same was denied.

On September 29, 1989, respondent corporation appealed to the Court of Tax Appeals but the appeal was dismissed:

With such a gargantuan expense for the advertisement of a singular product, which even excludes “other advertising and promotions” expenses, we are not prepared to accept that such amount is reasonable “to stimulate the current sale of merchandise” regardless of Petitioner’s explanation that such expense “does not connote unreasonableness considering the grave economic situation taking place after the Aquino assassination characterized by capital fight, strong deterioration of the purchasing power of the Philippine peso and the slacking demand for consumer products” (Petitioner’s Memorandum, CTA Records, p. 273). We are not convinced with such an explanation. The staggering expense led us to believe that such expenditure was incurred “to create or maintain some form of good will for the taxpayer’s trade or business or for the industry or profession of which the taxpayer is a member.” The term “good will” can hardly be said to have any precise signification; it is generally used to denote the benefit arising from connection and reputation (Words and Phrases, Vol. 18, p. 556 citing Douhart vs. Loagan, 86 III. App. 294). As held in the case of Welch vs. Helvering, efforts to establish reputation are akin to acquisition of capital assets and, therefore, expenses related thereto are not business expenses but capital expenditures. (Atlas Mining and Development Corp. vs. Commissioner of

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Internal Revenue, supra). For sure such expenditure was meant not only to generate present sales but more for future and prospective benefits. Hence, “abnormally large expenditures for advertising are usually to be spread over the period of years during which the benefits of the expenditures are received” (Mertens, supra, citing Colonial Ice Cream Co., 7 BTA 154).

WHEREFORE, in all the foregoing, and finding no error in the case appealed from, we hereby RESOLVE to DISMISS the instant petition for lack of merit and ORDER the Petitioner to pay the respondent Commissioner the assessed amount of P2,635,141.42 representing its deficiency income tax liability for the fiscal year ended February 28, 1985.”[3]

Aggrieved, respondent corporation filed a petition for review at the Court of Appeals which rendered a decision reversing and setting aside the decision of the Court of Tax Appeals:

Since it has not been sufficiently established that the item it claimed as a deduction is excessive, the same should be allowed.

WHEREFORE, the petition of petitioner General Foods (Philippines), Inc. is hereby GRANTED. Accordingly, the Decision, dated 8 February 1994 of respondent Court of Tax Appeals is REVERSED and SET ASIDE and the letter, dated 31 May 1988 of respondent Commissioner of Internal Revenue is CANCELLED.

SO ORDERED.[4]

Thus, the instant petition, wherein the Commissioner presents for the Court’s consideration a lone issue: whether or not the subject media advertising expense for “Tang” incurred by respondent corporation was an ordinary and necessary expense fully deductible under the National Internal Revenue Code (NIRC).

It is a governing principle in taxation that tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority;[5] and he who claims an exemption must be able to justify his claim by the clearest grant of organic or statute law. An exemption from the common burden cannot be permitted to exist upon vague implications.[6]

Deductions for income tax purposes partake of the nature of tax exemptions; hence, if tax exemptions are strictly construed, then deductions must also be strictly construed.

We then proceed to resolve the singular issue in the case at bar. Was the media advertising expense for “Tang” paid or incurred by respondent corporation for the fiscal year ending February 28, 1985 “necessary and ordinary,” hence, fully deductible under the NIRC? Or was it a capital expenditure, paid in order to create “goodwill and reputation” for respondent corporation and/or its products, which should have been amortized over a reasonable period?

Section 34 (A) (1), formerly Section 29 (a) (1) (A), of the NIRC provides:

(A) Expenses.-

(1) Ordinary and necessary trade, business or professional expenses.-





(a) In general.- There shall be allowed as deduction from gross income all ordinary and necessary expenses paid or incurred during the taxable year in carrying on, or which are directly attributable to, the development, management, operation and/or conduct of the trade, business or exercise of a profession.

Simply put, to be deductible from gross income, the subject advertising expense must comply with the following requisites: (a) the expense must be ordinary and necessary; (b) it must have been paid or incurred during the taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer; and (d) it must be supported by receipts, records or other pertinent papers.[7]

The parties are in agreement that the subject advertising expense was paid or incurred within the corresponding taxable year and was incurred in carrying on a trade or business. Hence, it was necessary. However, their views conflict as to whether or not it was ordinary. To be deductible, an advertising expense should not only be necessary but also ordinary. These two requirements must be met.

The Commissioner maintains that the subject advertising expense was not ordinary on the ground that it failed the two conditions set by U.S. jurisprudence: first, “reasonableness” of the amount incurred and second, the amount incurred must not be a capital outlay to create “goodwill” for the product and/or private respondent’s business. Otherwise, the expense must be considered a capital expenditure to be spread out over a reasonable time.

We agree.

There is yet to be a clear-cut criteria or fixed test for determining the reasonableness of an advertising expense. There being no hard and fast rule on the matter, the right to a deduction depends on a number of factors such as but not limited to: the type and size of business in which the taxpayer is engaged; the volume and amount of its net earnings; the nature of the expenditure itself; the intention of the taxpayer and the general economic conditions. It is the interplay of these, among other factors and properly weighed, that will yield a proper evaluation.

In the case at bar, the P9,461,246 claimed as media advertising expense for “Tang” alone was almost one-half of its total claim for “marketing expenses.” Aside from that, respondent-corporation also claimed P2,678,328 as “other advertising and promotions expense” and another P1,548,614, for consumer promotion.

Furthermore, the subject P9,461,246 media advertising expense for “Tang” was almost double the amount of respondent corporation’s P4,640,636 general and administrative expenses.

We find the subject expense for the advertisement of a single product to be inordinately large. Therefore, even if it is necessary, it cannot be considered an ordinary expense deductible under then Section 29 (a) (1) (A) of the NIRC.

Advertising is generally of two kinds: (1) advertising to stimulate the current sale of merchandise or use of services and (2) advertising designed to stimulate the future sale of merchandise or use of services. The second type involves expenditures incurred, in whole or in part, to create or maintain some form of goodwill for the taxpayer’s trade or business or for the industry or profession of which the taxpayer is a member. If the expenditures are for the


advertising of the first kind, then, except as to the question of the reasonableness of amount, there is no doubt such expenditures are deductible as business expenses. If, however, the expenditures are for advertising of the second kind, then normally they should be spread out over a reasonable period of time.

We agree with the Court of Tax Appeals that the subject advertising expense was of the second kind. Not only was the amount staggering; the respondent corporation itself also admitted, in its letter protest[8] to the Commissioner of Internal Revenue’s assessment, that the subject media expense was incurred in order to protect respondent corporation’s brand franchise, a critical point during the period under review.

The protection of brand franchise is analogous to the maintenance of goodwill or title to one’s property. This is a capital expenditure which should be spread out over a reasonable period of time.[9]

Respondent corporation’s venture to protect its brand franchise was tantamount to efforts to establish a reputation. This was akin to the acquisition of capital assets and therefore expenses related thereto were not to be considered as business expenses but as capital expenditures.[10]

True, it is the taxpayer’s prerogative to determine the amount of advertising expenses it will incur and where to apply them.[11] Said prerogative, however, is subject to certain considerations. The first relates to the extent to which the expenditures are actually capital outlays; this necessitates an inquiry into the nature or purpose of such expenditures.[12] The second, which must be applied in harmony with the first, relates to whether the expenditures are ordinary and necessary. Concomitantly, for an expense to be considered ordinary, it must be reasonable in amount. The Court of Tax Appeals ruled that respondent corporation failed to meet the two foregoing limitations.

We find said ruling to be well founded. Respondent corporation incurred the subject advertising expense in order to protect its brand franchise. We consider this as a capital outlay since it created goodwill for its business and/or product. The P9,461,246 media advertising expense for the promotion of a single product, almost one-half of petitioner corporation’s entire claim for marketing expenses for that year under review, inclusive of other advertising and promotion expenses of P2,678,328 and P1,548,614 for consumer promotion, is doubtlessly unreasonable.

It has been a long standing policy and practice of the Court to respect the conclusions of quasi-judicial agencies such as the Court of Tax Appeals, a highly specialized body specifically created for the purpose of reviewing tax cases. The CTA, by the nature of its functions, is dedicated exclusively to the study and consideration of tax problems. It has necessarily developed an expertise on the subject. We extend due consideration to its opinion unless there is an abuse or improvident exercise of authority.[13] Since there is none in the case at bar, the Court adheres to the findings of the CTA.

Accordingly, we find that the Court of Appeals committed reversible error when it declared the subject media advertising expense to be deductible as an ordinary and necessary expense on the ground that “it has not been established that the item being claimed as deduction is excessive.” It is not incumbent upon the taxing authority to prove that the amount of items being claimed is unreasonable. The burden of proof to establish the validity of claimed deductions is on the taxpayer.[14] In the present case, that burden was not discharged satisfactorily.








WHEREFORE, premises considered, the instant petition is GRANTED. The assailed decision of the Court of Appeals is hereby REVERSED and SET ASIDE. Pursuant to Sections 248 and 249 of the Tax Code, respondent General Foods (Phils.), Inc. is hereby ordered to pay its deficiency income tax in the amount of P2,635,141.42, plus 25% surcharge for late payment and 20% annual interest computed from August 25, 1989, the date of the denial of its protest, until the same is fully paid.

SO ORDERED.

Puno, (Chairman), Panganiban, Sandoval-Gutierrez, and Carpio-Morales, JJ., concur.

[1] Penned by Associate Justice Andres B. Reyes and concurred in by Associate Justices Quirino D. Abad Santos, Jr. and Romeo A. Brawner of the Third Division.[2] Penned by Associate Judge Manuel K. Gruba and concurred in by Associate Judge Ramon O. de Veyra.[3] Rollo, pp. 22-23.[4] Id., p. 24.[5] Commissioner of Internal Revenue vs. Visayan Electric Co., 23 SCRA 715 [1968].[6] Asiatic Petrolium Co. vs. Llanas, 49 Phil 466 [1926] cited in Davao Light & Power Co. vs. Commissioner of Customs, 44 SCRA 122 [1972].[7] Zamora vs. Collector, 8 SCRA 163 [1963].[8] Dated June 14, 1988; Petition for Review, p. 8 citing BIR Records, pp. 198-199; Rollo, p. 15.[9] Mertens, Vol. 4A 25.38 p. 190 citing Colonial Ice Cream Co., 7 BTA 154.[10] Welch vs. Helvering, 290 US 111 [1933].[11] Revenue Audit Memorandum Order No. 1-87.[12] Mertens, Vol. 4A 25.38 p.190, citing E.H. Sheldon & Co., 19 TC 481 [1952].[13] Commissioner vs. Court of Tax Appeals & Atlas Consolidated Mining and Development Co., 204 SCRA 182 [1991].[14] Commissioner vs. Algue, Inc., 158 SCRA 9 [1988].

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Manila

EN BANC

G.R. Nos. L-10123 and L-10355 April 26, 1957

GENARO URSAL, as City Assessor of Cebu, petitioner, vs.COURT OF TAX APPEALS and CONSUELO NOEL, respondents.

GENARO URSAL, as City Assessor of Cebu, petitioner, vs.COURT OF TAX APPEALS and JESUSA SAMSON, respondents.

City Fiscal of Cebu Jose L. Abad for petitioner.Francisco M. Alonso for respondents.

BENGZON, J.:

In these two cases Genaro Ursal as City Assessor of Cebu challenges the correctness of the order of the Court of Tax Appeals dismissing his appeals to that body from two rulings of the Cebu Board of Assessment Appeals.

The record shows that said city assessors in the exercise of his powers assessed for taxation certain real properties of Consuelo Noel and Jesusa Samson in the City of Cebu, and that upon protest of the taxpayers, the Cebu Board of Assessment Appeals reduced the assessments. It also shows he took the matter to the Court of Tax Appeals insisting on his valuation; but said Court refused to entertain the appeal saying it was late, and, besides, the assessor had no personality to bring the matter before it under section 11 of Republic Act No. 1125, which reads as follows:

SEC. 11. Who may appeal; effect of appeal. — Any person, association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling.

We share the view that the assessor had no personality to resort to the Court of Tax Appeals. The rulings of the Board of Assessment Appeals did not "adversely affect" him. At most it was the City of Cebu1 that had been adversely affected in the sense that it could not thereafter collect higher realty taxes from the abovementioned property owners. His opinion, it is true had been overruled; but the overruling inflicted no material damage upon him or his office. And the Court of Tax Appeals was not created to decide mere conflicts of opinion between administrative officers or agencies. Imagine an income tax examiner resorting to the Court of Tax Appeals whenever the Collector of Internal Revenue modifies, or lower his assessment on the return of a tax payer!

Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket authority to decide any and all tax disputes. Defining such special court's jurisdiction, the Act necessarily limited its authority to those matters enumerated therein. In line with this idea we recently approved said court's order rejecting an appeal to it by Lopez & Sons from the decision of the Collector of Customs, because in our opinion its jurisdiction extended only to a review of the decisions of

the Commissioner of Customs, as provided by the statute — and not to decisions of theCollector of Customs. (Lopez & Sons vs. The Court of Tax Appeals, 100 Phil., 850, 53 Off. Gaz., [10] 3065).

The appellant invites attention to the fact that the Court of Appeals is the successor of the former Central Board of Tax Appeals created by Commonwealth Act No. 530 and of the Board of Tax Appeals established by Executive Order No. 401-A, and that said Commonwealth Act No. 530 (section 2) explicitly authorized the city assessor to appeal to the Central Board of Tax Appeals. Here is precisely another argument against his position: as Republic Act No. 1125 failed to reenact such express permission, it is deemed with held.

Oversight could not have been the clause of such withholding, since there were proper grounds therefor: (a) discipline and command responsibility in the executive branches; and (b) instead of being another superior administrative agency as was the former Board of Tax Appeals2 the Court of Tax Appeals as created by Republic Act No. 1125 is a part of the judicial system presumably to act only on protests of private persons adversely affected by the tax, custom, or assessment.

There is no merit to the contention that section 2 of Commonwealth Act No. 530 is still in force and justifies Ursal's appeal. Apart from the reasons already advanced, Republic Act No. 1125 is a complete law by itself and expressly enumerates the matters which the Court of Tax Appeals may consider; such enumeration excludes all others by implication. Expressio unius est exclusio alterius.

parts of an original act which act omitted from the act as revised are to be considered as annulled and repealed, provided it clearly appears to have been the intention of the legislature to cover the whole subject by the revision. (82 C. J. S. p. 501.)

Inasmuch as we agree to the appellant's lack of personality before the Court of Tax Appeals, we find it unnecessary to review the question whether or not his appeal had been perfected in due time.

Wherefore, the challenge order is hereby affirmed.

Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia and Felix, JJ.,concur.

Footnotes

1 We do not now decide whether the City of Cebu may repudiate the acts of its own Board of Assessment Appeals by appeal to the Court of Tax Appeals.

2 "to hear and decide administratively". (Executive Order 401-A. series 1951)

FIRST DIVISION

[G.R. No. 126212. March 2, 2000]

SEA-LAND SERVICE, INC., petitioner, vs. COURT OF APPEALS, A.P. MOLLER/MAERSK LINE and MAERSK-TABACALERA SHIPPING AGENCY (FILIPINAS), INC., respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

This petition for review on certiorari seeks to annul and set aside the decision of the Court of Appeals dated September 29, 1995 in CA-G.R. SP No. 35777,[1] dismissing the petition for certiorari filed by petitioner to annul the two (2) orders issued by the Regional Trial Court of Quezon City, Branch 216, in Civil Case No. Q-92-12593.

The facts are as follows:

On April 29, 1991, petitioner Sea-Land Services, Inc. and private respondent A.P. Moller/Maersk Line (hereinafter referred to as "AMML"), both carriers of cargo in containerships as well as common carriers, entered into a contract entitled, "Co-operation in the Pacific"[2] (hereinafter referred to as the "Agreement"), a vessel sharing agreement whereby they mutually agreed to purchase, share and exchange needed space for cargo in their respective containerships. Under the Agreement, they could be, depending on the occasion, either a principal carrier (with a negotiable bill of lading or other contract of carriage with respect to cargo) or a containership operator (owner, operator or charterer of containership on which the cargo is carried).

During the lifetime of the said Agreement, or on 18 May 1991, Florex International, Inc. (hereinafter referred to as "Florex") delivered to private respondent AMML cargo of various foodstuffs, with Oakland, California as port of discharge and San Francisco as place of delivery. The corresponding Bill of Lading No. MAEU MNL110263 was issued to Florex by respondent AMML. Pursuant to the Agreement, respondent AMML loaded the subject cargo on MS Sealand Pacer, a vessel owned by petitioner. Under this arrangement, therefore, respondent AMML was the principal carrier while petitioner was the containership operator.

The consignee refused to pay for the cargo, alleging that delivery thereof was delayed. Thus, on June 26, 1992, Florex filed a complaint against respondent Maersk-Tabacalera Shipping Agency (Filipinas), Inc. for reimbursement of the value of the cargo and other charges.[3] According to Florex, the cargo was received by the consignee only on June 28, 1991, since it was discharged in Long Beach, California, instead of in Oakland, California on June 5, 1991 as stipulated.

Respondent AMML filed its Answer[4] alleging that even on the assumption that Florex was entitled to reimbursement, it was petitioner who should be liable. Accordingly, respondent

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AMML filed a Third Party Complaint[5] against petitioner on November 10, 1992, averring that whatever damages sustained by Florex were caused by petitioner, which actually received and transported Florex’s cargo on its vessels and unloaded them.

On January 1, 1993, petitioner filed a Motion to Dismiss the Third Party Complaint[6] on the ground of failure to state a cause of action and lack of jurisdiction, the amount of damages not having been specified therein. Petitioner also prayed either for dismissal or suspension of the Third Party Complaint on the ground that there exists an arbitration agreement between it and respondent AMML. On September 27, 1993, the lower court issued an Order denying petitioner’s Motion to Dismiss. Petitioner’s Motion for Reconsideration was likewise denied by the lower court in its August 22, 1994 Order.

Undaunted, petitioner filed a petition for certiorari[7] with the Court of Appeals on November 23, 1994. Meanwhile, petitioner also filed its Answer to the Third Party Complaint in the trial court.

On September 29, 1995, respondent Court of Appeals rendered the assailed Decision dismissing the petition for certiorari. With the denial of its Motion for Reconsideration, petitioner filed the instant petition for review, raising the following issues –

I.

THE COURT OF APPEALS DISREGARDED AN AGREEMENT TO ARBITRATE IN VIOLATION OF STATUTE AND SUPREME COURT DECISIONS HOLDING THAT ARBITRATION IS A CONDITION PRECEDENT TO SUIT WHERE SUCH AN AGREEMENT TO ARBITRATE EXISTS.

II.

THE COURT OF APPEALS HAS RULED IN A MANNER NOT IN ACCORD WITH JURISPRUDENCE WHEN IT REFUSED TO HAVE THE THIRD-PARTY COMPLAINT DISMISSED FOR FAILURE TO STATE A CAUSE OF ACTION AND FOR RULING THAT THE FAILURE TO STATE A CAUSE OF ACTION MAY BE REMEDIED BY REFERENCE TO ITS ATTACHMENTS.[8]

Resolving first the issue of failure to state a cause of action, respondent Court of Appeals did not err in reading the Complaint of Florex and respondent AMML’s Answer together with the Third Party Complaint to determine whether a cause of action is properly alleged. InFil-Estate Golf and Development, Inc. vs. Court of Appeals,[9] this Court ruled that in the determination of whether or not the complaint states a cause of action, the annexes attached to the complaint may be considered, they being parts of the complaint.

Coming now to the main issue of arbitration, the pertinent clauses of the "Co-operation in the Pacific" contract entered into by the parties provide:






16.2 For the purposes of this agreement the Containership Operator shall be deemed to have issued to the Principal Carrier for good consideration and for both loaded and empty containers its non-negotiable memo bills of lading in the form attached hereto as Appendix 6, consigned only to the Principal Carrier or its agents, provisions of which shall govern the liability between the Principal Carrier and the Containership Operator and that for the purpose of determining the liability in accordance with either Lines’ memo bill of lading, the number of packages or customary freight units shown on the bill of lading issued by the Principal Carrier to its shippers shall be controlling.

16.3 The Principal Carrier shall use all reasonable endeavours to defend all in personam and in rem suits for loss of or damage to cargo carried pursuant to bills of lading issued by it, or to settle such suits for as low a figure as reasonably possible. The Principal Carrier shall have the right to seek damages and/or an indemnity from the Containership Operator by arbitration pursuant to Clause 32 hereof. Notwithstanding the provisions of the Lines’ memo bills of lading or any statutory rules incorporated therein or applicable thereto, the Principal Carrier shall be entitled to commence such arbitration at any time until one year after its liability has been finally determined by agreement, arbitration award or judgment, such award or judgment not being the subject of appeal, provided that the Containership Operator has been given notice of the said claim in writing by the Principal Carrier within three months of the Principal Carrier receiving notice in writing of the claim. Further the Principal Carrier shall have the right to grant extensions of time for the commencement of suit to any third party interested in the cargo without prior reference to the Containership Operator provided that notice of any extension so granted is given to the Containership Operator within 30 days of any such extension being granted.

x x x x x x x x x

32. ARBITRATION

32.1 If at any time a dispute or claim arises out of or in connection with the Agreement the Lines shall endeavour to settle such amicably, failing which it shall be referred to arbitration by a single arbitrator in London, such arbitrator to be appointed by agreement between the Lines within 14 days after service by one Line upon the other of a notice specifying the nature of the dispute or claim and requiring reference of such dispute or claim to arbitration pursuant to this Article.

32.2 Failing agreement upon an arbitrator within such period of 14 days, the dispute shall be settled by three Arbitrators, each party appointing one Arbitrator, the third being appointed by the President of the London Maritime Arbitrators Association.

32.3 If either of the appointed Arbitrators refuses or is incapable of acting, the party who appointed him shall appoint a new Arbitrator in his place.

32.4 If one of the parties fails to appoint an Arbitrator – either originally or by way of substitution – for two weeks after the other party having appointed his Arbitrator has sent the party making default notice by mail, fax or telex to make the appointment, the party appointing the third Arbitrator shall, after application from the party having appointed his Arbitrator, also appoint an Arbitrator in behalf of the party making default.

32.5 Any such arbitration shall be in accordance with the Arbitration Act 1950 as amended by the Arbitration Act 1979 or any other subsequent legislation and the arbitrator’s award shall be final and binding upon Lines. To the extent permitted by the Arbitration Act 1979 the Lines hereto exclude pursuant to S 3(1) of that Act the jurisdiction of the English High Court of Justice to entertain any appeal or application under Section 1 and 2 of the Arbitration Act 1979.[10]

From the foregoing, the following matters are clear: First, disputes between the Principal Carrier and the Containership Operator arising from contracts of carriage shall be governed by the provisions of the bills of lading issued to the Principal Carrier by the Containership Operator. Second, the Principal Carrier shall use its best efforts to defend or settle all suits against it for loss of or damage to cargo pursuant to bills of lading issued by it. Third, the Principal Carrier shall have the right to seek damages and/or indemnity from the Containership Operator by arbitration, pursuant to Clause 32 of the agreement. Fourth, the Principal Carrier shall have the right to commence such arbitration any time until one year after its liability has been finally determined by agreement, arbitration award or judgment, provided that the Containership Operator was given notice in writing by the Principal Carrier within three months of the Principal Carrier receiving notice in writing of said claim.

Prescinding from the foregoing matters, we find that both the trial court and the Court of Appeals erred in denying petitioner’s prayer for arbitration.

To begin with, allowing respondent AMML’s Third Party Claim against petitioner to proceed would be in violation of Clause 16.2 of the Agreement. As summarized, the clause provides that whatever dispute there may be between the Principal Carrier and the Containership Operator arising from contracts of carriage shall be governed by the provisions of the bills of lading deemed issued to the Principal Carrier by the Containership Operator. On the other hand, to sustain the Third Party Complaint would be to allow private respondent to hold petitioner liable under the provisions of the bill of lading issued by the Principal Carrier to Florex, under which the latter is suing in its Complaint, not under the bill of lading petitioner, as containership operator, issued to respondent AMML, as Principal Carrier, contrary to what is contemplated in Clause 16.2.

The Court of Appeals ruled that the terms of the Agreement "explicitly required that the principal carrier’s claim against the containership operator first be finally determined by, among others, a court judgment, before the right to arbitration accrues." However, the Court of Appeals failed to


consider that, precisely, arbitration is the mode by which the liability of the Containership Operator may be finally determined. This is clear from the mandate of Clause 16.3 that "(T)he Principal Carrier shall have the right to seek damages and/or an indemnity from the Containership Operator by arbitration" and that it "shall be entitled to commence such arbitration at any time until one year after its liability has been finally determined by agreement, arbitration award or judgment".

For respondent Court of Appeals to say that the terms of the contract do not require arbitration as a condition precedent to judicial action is erroneous. In the light of the Agreement clauses aforequoted, it is clear that arbitration is the mode provided by which respondent AMML as Principal Carrier can seek damages and/or indemnity from petitioner, as Containership Operator. Stated differently, respondent AMML is barred from taking judicial action against petitioner by the clear terms of their Agreement.

As the Principal Carrier with which Florex directly dealt with, respondent AMML can and should be held accountable by Florex in the event that it has a valid claim against the former. Pursuant to Clause 16.3 of the Agreement, respondent AMML, when faced with such a suit "shall use all reasonable endeavours to defend" itself or "settle such suits for as low a figure as reasonably possible". In turn, respondent AMML can seek damages and/or indemnity from petitioner as Containership Operator for whatever final judgment may be adjudged against it under the Complaint of Florex. The crucial point is that collection of said damages and/or indemnity from petitioner should be by arbitration.

All told, when the text of a contract is explicit and leaves no doubt as to its intention, the court may not read into it any other intention that would contradict its plain import.[11] Arbitration being the mode of settlement between the parties expressly provided for by their Agreement, the Third Party Complaint should have been dismissed.

This Court has previously held that arbitration is one of the alternative methods of dispute resolution that is now rightfully vaunted as "the wave of the future" in international relations, and is recognized worldwide. To brush aside a contractual agreement calling for arbitration in case of disagreement between the parties would therefore be a step backward.[12]

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 35777 is REVERSED and SET ASIDE. The Regional Trial Court of Quezon City, Branch 77, is ordered to DISMISS Respondent AMML’s Third Party Complaint in Civil Case No. Q-92-12593. No pronouncement as to costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.



[1] Petition, Annex "A"; Rollo, pp. 71-83.[2] Id., Annex "O" of Annex "L"; Rollo, pp. 298-352.[3] Id., Annex "D"; Rollo, pp. 88-110.[4] Id., Annex "A-1" of Annex "E"; Rollo, pp. 122-125.[5] Id., Annex "E"; Rollo, pp. 111-127.[6] Id., Annex "F"; Rollo, pp. 128-135.[7] Id., Annex "L"; Rollo, p. 170-186.[8] Id., p. 7; Rollo, p. 53.[9] G.R. No. 120958, 265 SCRA 614 [1996].[10] Rollo, pp. 326-327, 336-337; emphasis provided.[11] Cruz vs. Court of Appeals, G.R. No. 126713, 293 SCRA 239 [1998].[12] BF Corporation vs. Court of Appeals, G.R. No. 120105, 288 SCRA 267, 286 [1998].

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SECOND DIVISION LUZ R. YAMANE, in her G.R. No. 154993capacity as the CITY TREASURER OF MAKATI Present:CITY, Petitioner, PUNO, J.,

Chairman, AUSTRIA-MARTINEZ, CALLEJO, SR., - versus - TINGA, and

CHICO-NAZARIO, JJ.

BA LEPANTO CONDOMINUM Promulgated:CORPORATION, Respondent. October 25, 2005 x-------------------------------------------------------------------x D E C I S I O N

TINGA, J.: Petitioner City Treasurer of Makati, Luz Yamane (City Treasurer), presents for resolution of this Court two novel questions: one procedural, the other substantive, yet both of obvious significance. The first pertains to the proper mode of judicial review undertaken from decisions of the regional trial courts resolving the denial of tax protests made by local government treasurers, pursuant to the Local Government Code. The second is whether a local government unit can, under the Local Government Code, impel a condominium corporation to pay business taxes.[1]

While we agree with the City Treasurer’s position on the first issue, there ultimately is sufficient justification for the Court to overlook what is essentially a procedural error. We uphold respondents on the second issue. Indeed, there are disturbing aspects in both procedure and substance that attend the attempts by the City of Makati to flex its taxing muscle. Considering that the tax imposition now in question has utterly no basis in law, judicial relief is imperative. There are fewer indisputable causes for the exercise of judicial review over the exercise of the taxing power than when the tax is based on whim, and not on law. The facts, as culled from the record, follow. Respondent BA-Lepanto Condominium Corporation (the “Corporation”) is a duly organized condominium corporation constituted in accordance with the Condominium Act,

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[2] which owns and holds title to the common and limited common areas of the BA-Lepanto Condominium (the “Condominium”), situated in Paseo de Roxas, Makati City. Its membership comprises the various unit owners of the Condominium. The Corporation is authorized, under Article V of its Amended By-Laws, to collect regular assessments from its members for operating expenses, capital expenditures on the common areas, and other special assessments as provided for in the Master Deed with Declaration of Restrictions of the Condominium. On 15 December 1998, the Corporation received a Notice of Assessment dated 14 December 1998 signed by the City Treasurer. The Notice of Assessment stated that the Corporation is “liable to pay the correct city business taxes, fees and charges,” computed as totaling P1,601,013.77 for the years 1995 to 1997.[3] The Notice of Assessment was silent as to the statutory basis of the business taxes assessed. Through counsel, the Corporation responded with a written tax protest dated 12 February 1999, addressed to the City Treasurer. It was evident in the protest that the Corporation was perplexed on the statutory basis of the tax assessment.

With due respect, we submit that the Assessment has no basis as the Corporation is not liable for business taxes and surcharges and interest thereon, under the Makati [Revenue] Code or even under the [Local Government] Code. The Makati [Revenue] Code and the [Local Government] Code do not contain any provisions on which the Assessment could be based. One might argue that Sec. 3A.02(m) of the Makati [Revenue] Code imposes business tax on owners or operators of any business not specified in the said code. We submit, however, that this is not applicable to the Corporation as the Corporation is not an owner or operator of any business in the contemplation of the Makati [Revenue] Code and even the [Local Government] Code.[4]

Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the Makati Revenue Code, the Corporation proceeded to argue that under both the Makati Code and the Local Government Code, “business” is defined as “trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit.” It was submitted that the Corporation, as a condominium corporation, was organized not for profit, but to hold title over the common areas of the Condominium, to manage the Condominium for the unit owners, and to hold title to the parcels of land on which the Condominium was located. Neither was the Corporation authorized, under its articles of incorporation or by-laws to engage in profit-making activities. The assessments it did collect from the unit owners were for capital expenditures and operating expenses.[5]

The protest was rejected by the City Treasurer in a letter dated 4 March 1999. She insisted that the collection of dues from the unit owners was effected primarily “to sustain and maintain the expenses of the common areas, with the end in view [sic] of getting full appreciative living





values [sic] for the individual condominium occupants and to command better marketable [sic] prices for those occupants” who would in the future sell their respective units.[6] Thus, she concluded since the “chances of getting higher prices for well-managed common areas of any condominium are better and more effective that condominiums with poor [sic] managed common areas,” the corporation activity “is a profit venture making [sic]”.[7]

From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court (RTC) of Makati.[8] On 1 March 2000, the Makati RTC Branch 57 rendered a Decision[9] dismissing the appeal for lack of merit. Accepting the premise laid by the City Treasurer, the RTC acknowledged, in sadly risible language:

Herein appellant, to defray the improvements and beautification of the common areas, collect [sic] assessments from its members. Its end view is to get appreciate living rules for the unit owners [sic], to give an impression to outsides [sic] of the quality of service the condominium offers, so as to allow present owners to command better prices in the event of sale.[10]

With this, the RTC concluded that the activities of the Corporation fell squarely under the definition of “business” under Section 13(b) of the Local Government Code, and thus subject to local business taxation.[11]

From this Decision of the RTC, the Corporation filed a Petition for Review under Rule 42 of the Rules of Civil Procedure with the Court of Appeals. Initially, the petition was dismissed outright[12] on the ground that only decisions of the RTC brought on appeal from a first level court could be elevated for review under the mode of review prescribed under Rule 42.[13]However, the Corporation pointed out in its Motion for Reconsideration that under Section 195 of the Local Government Code, the remedy of the taxpayer on the denial of the protest filed with the local treasurer is to appeal the denial with the court of competent jurisdiction.[14] Persuaded by this contention, the Court of Appeals reinstated the petition.[15]

On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered the Decision[16] now assailed before this Court. The appellate court reversed the RTC and declared that the Corporation was not liable to pay business taxes to the City of Makati.[17] In doing so, the Court of Appeals delved into jurisprudential definitions of profit,[18] and concluded that the Corporation was not engaged in profit. For one, it was held that the very statutory concept of a condominium corporation showed that it was not a juridical entity intended to make profit, as its sole purpose was to hold title to the common areas in the condominium and to maintain the condominium.[19]

The Court of Appeals likewise cited provisions from the Corporation’s Amended Articles of Incorporation and Amended By-Laws that, to its estimation, established that the Corporation was not engaged in business and the assessment collected from unit owners limited to those necessary to defray the expenses in the maintenance of the common areas and management the condominium.[20]
















Upon denial of her Motion for Reconsideration,[21] the City Treasurer elevated the present Petition for Review under Rule 45. It is argued that the Corporation is engaged in business, for the dues collected from the different unit owners is utilized towards the beautification and maintenance of the Condominium, resulting in “full appreciative living values” for the condominium units which would command better market prices should they be sold in the future. The City Treasurer likewise avers that the rationale for business taxes is not on the income received or profit earned by the business, but the privilege to engage in business. The fact that theCorporation is empowered “to acquire, own, hold, enjoy, lease, operate and maintain, and to convey sell, transfer or otherwise dispose of real or personal property” allegedly qualifies “as incident to the fact of [the Corporation’s] act of engaging in business.[22]

The City Treasurer also claims that the Corporation had filed the wrong mode of appeal before the Court of Appeals when the latter filed its Petition for Review under Rule 42. It is reasoned that the decision of the Makati RTC was rendered in the exercise of original jurisdiction, it being the first court which took cognizance of the case. Accordingly, with the Corporation having pursued an erroneous mode of appeal, the RTC Decision is deemed to have become final and executory. First, we dispose of the procedural issue, which essentially boils down to whether the RTC, in deciding an appeal taken from a denial of a protest by a local treasurer under Section 195 of the Local Government Code, exercises “original jurisdiction” or “appellate jurisdiction.” The question assumes a measure of importance to this petition, for the adoption of the position of the City Treasurer that the mode of review of the decision taken by the RTC is governed by Rule 41 of the Rules of Civil Procedure means that the decision of the RTC would have long become final and executory by reason of the failure of the Corporation to file a notice of appeal.[23]

There are discernible conflicting views on the issue. The first, as expressed by the Court of Appeals, holds that the RTC, in reviewing denials of protests by local treasurers, exercises appellate jurisdiction. This position is anchored on the language of Section 195 of the Local Government Code which states that the remedy of the taxpayer whose protest is denied by the local treasurer is “to appeal with the court of competent jurisdiction.”[24] Apparently though, the Local Government Code does not elaborate on how such “appeal” should be undertaken. The other view, as maintained by the City Treasurer, is that the jurisdiction exercised by the RTC is original in character. This is the first time that the position has been presented to the court for adjudication. Still, this argument does find jurisprudential mooring in our ruling in Garcia v. De Jesus,[25] where the Court proffered the following distinction between original jurisdiction and appellate jurisdiction: “Original jurisdiction is the power of the Court to take judicial cognizance of a case instituted for judicial action for the first time under conditions provided by law.






Appellate jurisdiction is the authority of a Court higher in rank to re-examine the final order or judgment of a lower Court which tried the case now elevated for judicial review.”[26]

The quoted definitions were taken from the commentaries of the esteemed Justice Florenz Regalado. With the definitions as beacon, the review taken by the RTC over the denial of the protest by the local treasurer would fall within that court’s original jurisdiction. In short, the review is the initial judicial cognizance of the matter. Moreover, labeling the said review as an exercise of appellate jurisdiction is inappropriate, since the denial of the protest is not the judgment or order of a lower court, but of a local government official. The stringent concept of original jurisdiction may seemingly be neutered by Rule 43 of the 1997 Rules of Civil Procedure, Section 1 of which lists a slew of administrative agencies and quasi-judicial tribunals or their officers whose decisions may be reviewed by the Court of Appeals in the exercise of its appellate jurisdiction. However, the basic law of jurisdiction, Batas Pambansa Blg. 129 (B.P. 129),[27] ineluctably confers appellate jurisdiction on the Court of Appeals over final rulings of quasi-judicial agencies, instrumentalities, boards or commission, by explicitly using the phrase “appellate jurisdiction.”[28] The power to create or characterize jurisdiction of courts belongs to the legislature. While the traditional notion of appellate jurisdiction connotes judicial review over lower court decisions, it has to yield to statutory redefinitions that clearly expand its breadth to encompass even review of decisions of officers in the executive branches of government. Yet significantly, the Local Government Code, or any other statute for that matter, does not expressly confer appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by a local treasurer. On the other hand, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction of the Regional Trial Courts, confining as it does said appellate jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit Trial Courts. Unlike in the case of the Court of Appeals, B.P. 129 does not confer appellate jurisdiction on Regional Trial Courts over rulings made by non-judicial entities. From these premises, it is evident that the stance of the City Treasurer is correct as a matter of law, and that the proper remedy of the Corporation from the RTC judgment is an ordinary appeal under Rule 41 to the Court of Appeals. However, we make this pronouncement subject to two important qualifications. First, in this particular case there are nonetheless significant reasons for the Court to overlook the procedural error and ultimately uphold the adjudication of the jurisdiction exercised by the Court of Appeals in this case. Second, the doctrinal weight of the pronouncement is confined to cases and controversies that emerged prior to the enactment of Republic Act No. 9282, the law which expanded the jurisdiction of the Court of Tax Appeals (CTA). Republic Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA exercises exclusive appellate jurisdiction to review on appeal decisions, orders or resolutions of the Regional Trial Courts in local tax cases original decided or resolved by them in the exercise of their originally or appellate jurisdiction. Moreover, the provision also states that the review is triggered “by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure.”[29]





Republic Act No. 9282, however, would not apply to this case simply because it arose prior to the effectivity of that law. To declare otherwise would be to institute a jurisdictional rule derived not from express statutory grant, but from implication. The jurisdiction of a court to take cognizance of a case should be clearly conferred and should not be deemed to exist on mere implications,[30] and this settled rule would be needlessly emasculated should we declare that the Corporation’s position is correct in law. Be that as it may, characteristic of all procedural rules is adherence to the precept that they should not be enforced blindly, especially if mechanical application would defeat the higher ends that animates our civil procedure—the just, speedy and inexpensive disposition of every action and proceeding.[31] Indeed, we have repeatedly upheld—and utilized ourselves—the discretion of courts to nonetheless take cognizance of petitions raised on an erroneous mode of appeal and instead treat these petitions in the manner as they should have appropriately been filed.[32] The Court of Appeals could very well have treated the Corporation’s petition for review as an ordinary appeal. Moreover, we recognize that the Corporation’s error in elevating the RTC decision for review via Rule 42 actually worked to the benefit of the City Treasurer. There is wider latitude on the part of the Court of Appeals to refuse cognizance over a petition for review under Rule 42 than it would have over an ordinary appeal under Rule 41. Under Section 13, Rule 41, the stated grounds for the dismissal of an ordinary appeal prior to the transmission of the case records are when the appeal was taken out of time or when the docket fees were not paid.[33] On the other hand, Section 6, Rule 42 provides that in order that the Court of Appeals may allow due course to the petition for review, it must first make a prima facie finding that the lower court has committed an error that would warrant the reversal or modification of the decision under review.[34] There is no similar requirement of a prima facie determination of error in the case of ordinary appeal, which is perfected upon the filing of the notice of appeal in due time.[35]

Evidently, by employing the Rule 42 mode of review, the Corporation faced a greater risk of having its petition rejected by the Court of Appeals as compared to having filed an ordinary appeal under Rule 41. This was not an error that worked to the prejudice of the City Treasurer. We now proceed to the substantive issue, on whether the City of Makati may collect business taxes on condominium corporations. We begin with an overview of the power of a local government unit to impose business taxes. The power of local government units to impose taxes within its territorial jurisdiction derives from the Constitution itself, which recognizes the power of these units “to create its own sources of revenue and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy.”[36] These








guidelines and limitations as provided by Congress are in main contained in the Local Government Code of 1991 (the “Code”), which provides for comprehensive instances when and how local government units may impose taxes. The significant limitations are enumerated primarily in Section 133 of the Code, which include among others, a prohibition on the imposition of income taxes except when levied on banks and other financial institutions.[37] None of the other general limitations under Section 133 find application to the case at bar. The most well-known mode of local government taxation is perhaps the real property tax, which is governed by Title II, Book II of the Code, and which bears no application in this case. A different set of provisions, found under Title I of Book II, governs other taxes imposable by local government units, including business taxes. Under Section 151 of the Code, cities such as Makati are authorized to levy the same taxes fees and charges as provinces and municipalities. It is in Article II, Title II, Book II of the Code, governing municipal taxes, where the provisions on business taxation relevant to this petition may be found.[38]

Section 143 of the Code specifically enumerates several types of business on which municipalities and cities may impose taxes. These include manufacturers, wholesalers, distributors, dealers of any article of commerce of whatever nature; those engaged in the export or commerce of essential commodities; contractors and other independent contractors; banks and financial institutions; and peddlers engaged in the sale of any merchandise or article of commerce. Moreover, the localsanggunian is also authorized to impose taxes on any other businesses not otherwise specified under Section 143 which thesanggunian concerned may deem proper to tax. The coverage of business taxation particular to the City of Makati is provided by the Makati Revenue Code (“Revenue Code”), enacted through Municipal Ordinance No. 92-072. The Revenue Code remains in effect as of thiswriting. Article A, Chapter III of the Revenue Code governs business taxes in Makati, and it is quite specific as to the particular businesses which are covered by business taxes. To give a sample of the specified businesses under the Revenue Code which are not enumerated under the Local Government Code, we cite Section 3A.02(f) of the Code, which levies a gross receipt tax :

(f) On contractors and other independent contractors defined in Sec. 3A.01(q) of Chapter III of this Code, and on owners or operators of business establishments rendering or offering services such as: advertising agencies; animal hospitals; assaying laboratories; belt and buckle shops; blacksmith shops; bookbinders; booking officers for film exchange; booking offices for transportation on commission basis; breeding of game cocks and other sporting animals belonging to others; business management services; collecting agencies; escort services; feasibility studies; consultancy services; garages; garbage disposal contractors; gold and silversmith shops; inspection services for incoming and outgoing cargoes; interior decorating services; janitorial services; job placement or recruitment agencies; landscaping contractors; lathe machine shops; management consultants not subject to professional tax; medical and dental laboratories; mercantile agencies; messsengerial services; operators of shoe shine stands; painting shops; perma press establishments; rent-a-plant



services; polo players; school for and/or horse-back riding academy; real estate appraisers; real estate brokerages; photostatic, white/blue printing, Xerox, typing, and mimeographing services; rental of bicycles and/or tricycles, furniture, shoes, watches, household appliances, boats, typewriters, etc.; roasting of pigs, fowls, etc.; shipping agencies; shipyard for repairing ships for others; shops for shearing animals; silkscreen or T-shirt printing shops; stables; travel agencies; vaciador shops; veterinary clinics; video rentals and/or coverage services; dancing schools/speed reading/EDP; nursery, vocational and other schools not regulated by the Department of Education, Culture and Sports, (DECS), day care centers; etc.[39]

Other provisions of the Revenue Code likewise subject hotel and restaurant owners and operators[40], real estate dealers, and lessors of real estate[41] to business taxes. Should the comprehensive listing not prove encompassing enough, there is also a catch-all provision similar to that under the Local Government Code. This is found in Section 3A.02(m) of the Revenue Code, which provides:

(m) On owners or operators of any business not specified above shall pay the tax at the rate of two percent (2%) for 1993, two and one-half percent (2 ½%) for 1994 and 1995, and three percent (3%) for 1996 and the years thereafter of the gross receipts during the preceding year.[42]

The initial inquiry is what provision of the Makati Revenue Code does the City Treasurer rely on to make the Corporation liable for business taxes. Even at this point, there already stands a problem with the City Treasurer’s cause of action. Our careful examination of the record reveals a highly disconcerting fact. At no point has the City Treasurer been candid enough to inform the Corporation, the RTC, the Court of Appeals, or this Court for that matter, as to what exactly is the precise statutory basis under the Makati Revenue Code for the levying of the business tax on petitioner. We have examined all of the pleadings submitted by the City Treasurer in all the antecedent judicial proceedings, as well as in this present petition, and also the communications by the City Treasurer to the Corporation which form part of the record. Nowhere therein is there any citation made by the City Treasurer of any provision of the Revenue Code which would serve as the legal authority for the collection of business taxes from condominiums in Makati. Ostensibly, the notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax. Section 195 of the Local Government Code does not go as far as to expressly require that the notice of assessment specifically cite the provision of the ordinance involved but it does require that it state the nature of the tax, fee or charge, the amount of deficiency, surcharges, interests and penalties. In this case, the notice of assessment sent to the Corporation did state that the assessment was for business taxes, as well as the amount of the assessment. There may have been prima facie compliance with the requirement under Section





195. However in this case, the Revenue Code provides multiple provisions on business taxes, and at varying rates. Hence, we could appreciate the Corporation’s confusion, as expressed in its protest, as to the exact legal basis for the tax.[43] Reference to the local tax ordinance is vital, for the power of local government units to impose local taxes is exercised through the appropriate ordinance enacted by the sanggunian, and not by the Local Government Code alone.[44]What determines tax liability is the tax ordinance, the Local Government Code being the enabling law for the local legislative body. Moreover, a careful examination of the Revenue Code shows that while Section 3A.02(m) seems designed as a catch-all provision, Section 3A.02(f), which provides for a different tax rate from that of the former provision, may be construed to be of similar import. While Section 3A.02(f) is quite exhaustive in enumerating the class of businesses taxed under the provision, the listing, while it does not include condominium-related enterprises, ends with the abbreviation “etc.”, or “et cetera”. We do note our discomfort with the unlimited breadth and the dangerous uncertainty which are the twin hallmarks of the words “et cetera.” Certainly, we cannot be disposed to uphold any tax imposition that derives its authority from enigmatic and uncertain words such as “et cetera.” Yet we cannot even say with definiteness whether the tax imposed on the Corporation in this case is based on “et cetera,” or on Section 3A.02(m), or on any other provision of the Revenue Code. Assuming that the assessment made on the Corporation is on a provision other than Section 3A.02(m), the main legal issue takes on a different complexion. For example, if it is based on “et cetera” under Section 3A.02(f), we would have to examine whether the Corporation faces analogous comparison with the other businesses listed under that provision. Certainly, the City Treasurer has not been helpful in that regard, as she has been silent all through out as to the exact basis for the tax imposition which she wishes that this Court uphold. Indeed, there is only one thing that prevents this Court from ruling that there has been a due process violation on account of the City Treasurer’s failure to disclose on paper the statutory basis of the tax–that the Corporation itself does not allege injury arising from such failure on the part of the City Treasurer. We do not know why the Corporation chose not to put this issue into litigation, though we can ultimately presume that no injury was sustained because the City Treasurer failed to cite the specific statutory basis of the tax. What is essential though is that the local treasurer be required to explain to the taxpayer with sufficient particularity the basis of the tax, so as to leave no doubt in the mind of the taxpayer as to the specific tax involved. In this case, the Corporation seems confident enough in litigating despite the failure of the City Treasurer to admit on what exact provision of the Revenue Code the tax liability ensued. This is perhaps because the Corporation has anchored its central argument on the position that the Local Government Code itself does not sanction the imposition of business taxes against it. This position was sustained by the Court of Appeals, and now merits our analysis. As stated earlier, local tax on businesses is authorized under Section 143 of the Local Government Code. The word “business” itself is defined under Section 131(d) of the Code as



“trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit.”[45] This definition of “business” takes on importance, since Section 143 allows local government units to impose local taxes on businesses other than those specified under the provision. Moreover, even those business activities specifically named in Section 143 are themselves susceptible to broad interpretation. For example, Section 143(b) authorizes the imposition of business taxes on wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature. It is thus imperative that in order that the Corporation may be subjected to business taxes, its activities must fall within the definition of business as provided in the Local Government Code. And to hold that they do is to ignore the very statutory nature of a condominium corporation. The creation of the condominium corporation is sanctioned by Republic Act No. 4726, otherwise known as the Condominium Act. Under the law, a condominium is an interest in real property consisting of a separate interest in a unit in a residential, industrial or commercial building and an undivided interest in common, directly or indirectly, in the land on which it is located and in other common areas of the building.[46] To enable the orderly administration over these common areas which are jointly owned by the various unit owners, the Condominium Act permits the creation of a condominium corporation, which is specially formed for the purpose of holding title to the common area, in which the holders of separate interests shall automatically be members or shareholders, to the exclusion of others, in proportion to the appurtenant interest of their respectiveunits.[47] The necessity of a condominium corporation has not gained widespread acceptance[48], and even is merely permissible under the Condominium Act.[49] Nonetheless, the condominium corporation has been resorted to by many condominium projects, such as the Corporation in this case. In line with the authority of the condominium corporation to manage the condominium project, it may be authorized, in the deed of restrictions, “to make reasonable assessments to meet authorized expenditures, each condominium unit to be assessed separately for its share of such expenses in proportion (unless otherwise provided) to its owner’s fractional interest in any common areas.”[50] It is the collection of these assessments from unit owners that form the basis of the City Treasurer’s claim that the Corporation is doing business. The Condominium Act imposes several limitations on the condominium corporation that prove crucial to the disposition of this case. Under Section 10 of the law, thecorporate purposes of a condominium corporation are limited to the holding of the common areas, either in ownership or any other interest in real property recognized by law; to the management of the project; and to such other purposes as may be necessary, incidental or convenient to the accomplishment of such purpose.[51] Further, the same provision prohibits the articles of incorporation or by-laws of the condominium corporation from containing any provisions which are contrary to the provisions of the Condominium Act, the enabling or master deed, or the declaration of restrictions of the condominium project.[52]

We can elicit from the Condominium Act that a condominium corporation is precluded by statute from engaging in corporate activities other than the holding of the common areas, the









administration of the condominium project, and other acts necessary, incidental or convenient to the accomplishment of such purposes. Neither the maintenance of livelihood, nor the procurement of profit, fall within the scope of permissible corporate purposes of a condominium corporation under the Condominium Act. The Court has examined the particular Articles of Incorporation and By-Laws of the Corporation, and these documents unmistakably hew to the limitations contained in the Condominium Act. Per the Articles of Incorporation, the Corporation’s corporate purposes are limited to: (a) owning and holding title to the common and limited common areas in the Condominium Project; (b) adopting such necessary measures for the protection and safeguard of the unit owners and their property, including the power to contract for security services and for insurance coverage on the entire project; (c) making and adopting needful rules and regulations concerning the use, enjoyment and occupancy of the units and common areas, including the power to fix penalties and assessments for violation of such rules; (d) to provide for the maintenance, repair, sanitation, and cleanliness of the common and limited common areas; (e) to provide and contract for public utilities and other services to the common areas; (f) to contract for the services of persons or firms to assist in the management and operation of the Condominium Project; (g) to discharge any lien or encumbrances upon the Condominium Project; (h) to enforce the terms contained in the Master Deed with Declaration of Restrictions of the Project; (i) to levy andcollect those assessments as provided in the Master Deed, in order to defray the costs, expenses and losses of the condominium; (j) to acquire, own, hold, enjoy, lease operate and maintain, and to convey, sell transfer, mortgage or otherwise dispose of real or personal property in connection with the purposes and activities of the corporation; and (k) to exercise and perform such other powers reasonably necessary, incidental or convenient to accomplish the foregoing purposes.[53]

Obviously, none of these stated corporate purposes are geared towards maintaining a livelihood or the obtention of profit. Even though the Corporation is empowered to levy assessments or dues from the unit owners, these amounts collected are not intended for the incurrence of profit by the Corporation or its members, but to shoulder the multitude of necessary expenses that arise from the maintenance of the Condominium Project. Just as much is confirmed by Section 1, Article V of the Amended By-Laws, which enumerate the particular expenses to be defrayed by the regular assessments collected from the unit owners. These would include the salaries of the employees of the Corporation, and the cost of maintenance and ordinary repairs of the common areas.[54]

The City Treasurer nonetheless contends that the collection of these assessments and dues are “with the end view of getting full appreciative living values” for the condominium units, and as a result, profit is obtained once these units are sold at higher prices. The Court cites with approval the two counterpoints raised by the Court of Appeals in rejecting this contention. First, if any profit is obtained by the sale of the units, it accrues not to the corporation but to the unit owner. Second, if the unit owner does obtain profit from the sale of the corporation, the owner is already required to pay capital gains tax on the appreciated value of the condominium unit.[55]




Moreover, the logic on this point of the City Treasurer is baffling. By this rationale, every Makati City car owner may be considered as being engaged in business, since the repairs or improvements on the car may be deemed oriented towards appreciating the value of the car upon resale. There is an evident distinction between persons who spend on repairs and improvements on their personal and real property for the purpose of increasing its resale value, and those who defray such expenses for the purpose of preserving the property. The vast majority of persons fall under the second category, and it would be highly specious to subject these persons to local business taxes. The profit motive in such cases is hardly the driving factor behind such improvements, if it were contemplated at all. Any profit that would be derived under such circumstances would merely be incidental, if not accidental. Besides, we shudder at the thought of upholding tax liability on the basis of the standard of “full appreciative living values”, a phrase that defies statutory explication, commonsensical meaning, the English language, or even definition from Google. The exercise of the power of taxation constitutes a deprivation of property under the

due process clause,[56] and the taxpayer’s right to due process is violated when arbitrary or oppressive methods are used in assessing and collecting taxes.[57] The fact that the Corporation did not fall within the enumerated classes of taxable businesses under either the Local Government Code or the Makati Revenue Code already forewarns that a clear demonstration is essential on the part of the City Treasurer on why the Corporation should be taxed anyway. “Full appreciative living values” is nothing but blather in search of meaning, and to impose a tax hinged on that standard is both arbitrary and oppressive. The City Treasurer also contends that the fact that the Corporation is engaged in business is evinced by the Articles of Incorporation, which specifically empowers the Corporation “to acquire, own, hold, enjoy, lease, operate and maintain, and to convey, sell, transfer mortgage or otherwise dispose of real or personal property.”[58] What the City Treasurer fails to add is that every corporation

organized under the Corporation Code[59] is so specifically empowered. Section 36(7) of the Corporation Code states that every corporation incorporated under the Code has the power and capacity “to purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property . . . as the transaction of the lawful business of the corporation may reasonably and necessarily require . . . .”[60] Without this power, corporations, as juridical persons, would be deprived of the capacity to engage in most meaningful legal relations.






Again, whatever capacity the Corporation may have pursuant to its power to exercise acts of ownership over personal and real property is limited by its stated corporate purposes, which are by themselves further limited by the Condominium Act. A condominium corporation, while enjoying such powers of ownership, is prohibited by law from transacting its properties for the purpose of gainful profit. Accordingly, and with a significant degree of comfort, we hold that condominium corporations are generally exempt from local business taxation under the Local Government Code, irrespective of any local ordinance that seeks to declare otherwise. Still, we can note a possible exception to the rule. It is not unthinkable that the unit owners of a condominium would band together to engage in activities for profit under the shelter of the condominium corporation.[61] Such activity would be prohibited under the Condominium Act, but if the fact is established, we see no reason why the condominium corporation may be made liable by the local government unit for business taxes. Even though such activities would be considered as ultra vires, since they are engaged in beyond the legal capacity of the condominium corporation[62], the principle of estoppel would preclude the corporation or its officers and members from invoking the void nature of its undertakings for profit as a means of acquitting itself of tax liability. Still, the City Treasurer has not posited the claim that the Corporation is engaged in business activities beyond the statutory purposes of a condominium corporation. The assessment appears to be based solely on the Corporation’s collection of assessments from unit owners, such assessments being utilized to defray the necessary expenses for the Condominium Project and the common areas. There is no contemplation of business, no orientation towards profit in this case. Hence, the assailed tax assessment has no basis under the Local Government Code or the Makati Revenue Code, and the insistence of the city in its collection of the void tax constitutes an attempt at deprivation of property without due process of law. WHEREFORE, the petition is DENIED. No costs. SO ORDERED.

DANTE O. TINGA Associate Justice

WE CONCUR:

REYNATO S. PUNOAssociate Justice



Chairman MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR. Associate Justice Associate Justice (On Leave)

MINITA V. CHICO-NAZARIOAssociate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been in consultation before the case was assigned to the writer of the opinion of the Court’s Division. REYNATO S. PUNO Associate Justice Chairman, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairman’s Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division. HILARIO G. DAVIDE, JR.

Chief Justice

[1]The general authority for local government units to create their own sources of revenue through taxation is established under Section 5, Article X of the Constitution, as affirmed under Section 129 of Republic Act No. 7160 (Local Government Code). [2]Republic Act No. 4726 [3]Broken down as follows: Tax Deficiency from 1995 to 1997 – P800,855.66; 25% surcharge – P200,213.91; Interest – P601,944.20. See RTC Records, pp. 72-73. [4]Id. at 74. [5]Records, pp. 20-21. [6]RTC Rollo, p. 16. [7]Ibid. [8]Docketed as Civil Case No. 99-748. [9]Penned by Judge Reinato G. Quilala. [10]Rollo, p. 106. [11]Ibid. [12]In a Resolution dated 18 May 2000. [13]Id. at 64. [14]Id. at 144. [15]In a Resolution dated 25 July 2000. [16]Penned by Justice H. Aquino, concurred in by Justices E. de los Santos and R. Maambong. [17]Id. at 22.

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[18]Citing among others, Madrigal v. Rafferty, 38 Phil 414; and Lynch v. Turrish, 264 US 221. [19]Id. at 21. [20]Ibid. [21]In a Resolution dated 28 August 2002. [22]Rollo, p. 33. [23]“This Court has invariably ruled that perfection of an appeal in the manner and within the period laid down by law is not only mandatory but also jurisdictional. The failure to perfect an appeal as required by the rules has the effect of defeating the right to appeal of a party and precluding the appellate court from acquiring jurisdiction over the case. The right to appeal is not a natural right nor a part of due process; it is merely a statutory privilege, and may be exercised only in the manner and in accordance with the provisions of the law. The party who seeks to avail of the same must comply with the requirement of the rules. Failing to do so, the right to appeal is lost.” See Balgami v. Court of Appeals, G.R. No. 131287, 9 December 2004, 445 SCRA 591. [24]See Section 195, Rep. Act No. 7160 (1991). [25]G.R. Nos. 88158 & 97108-09, 4 March 1992, 206 SCRA 779. [26]Ibid. . [27]Otherwise known as the Judiciary Reorganization Act of 1980 and since amended several times. [28]See Section 9, B.P. 129. [29]See Section 9, Rep. Act No. 9282. [30]Philippine Ports Authority v. Fuentes, G.R. No. 91259, 16 April 1991, 195 SCRA 790, 796, citing Victorias Milling Co. v. CTA, G.R. No. 66381, Feburary 29, 1984. [31]See Section 6, Rule 1, 1997 Rules of Civil Procedure. [32]“The rules of procedure ought not to be applied in a very rigid technical sense, as they are used only to help secure, not override substantial justice. If a technical and rigid enforcement of the rules is made, their aim would be defeated. Consequently, in the interest of justice, the instant petition for review may be treated as a special civil action on certiorari. [A] petition which should have been brought under Rule 65 and not under Rule 45 of the Rules of Court, is not an inflexible rule. The strict application of procedural technicalities should not hinder the speedy disposition of the case on the merits.” Ramiscal v. Sandiganbayan, G.R. Nos. 140576-99, 13


December 2004, 446 SCRA 166. See also e.g., Abcede v. Workman’s Compensation Commission, G.R. No. L-42400, August 7, 1985; Lagua v. Cusi, G.R. No. L-44649, April 15, 1988; Longos Rural Waterworks v. Desierto, G.R. No. 135496, July 30, 2002; Rubenito v. Lagata, G.R. No. 140959. December 21, 2004; [33]See Section 13, Rule 41, 1997 Rules of Civil Procedure. [34]See Section 6, Rule 42, 1997 Rules of Civil Procedure. [35]See Section 9, Rule 41, 1997 Rules of Civil Procedure. [36]See Section 5, Article X, Constitution. [37]See Section 133(a), Local Government Code. [38]Article I, Book II, Title II, concerning provincial taxes, authorize the imposition of taxes on the business of printing and publication, on businesses enjoying a franchise, and on persons exercising a profession requiring government examination. While these are admittedly taxes imposed on businesses, they find no relevance to the present case. [39]See Section 3A.02(f), Makati Revenue Code. [40]See Section 3A.02(h), Makati Revenue Code. [41]See Section 3A.02(k), Makati Revenue Code. [42]Section 3A.02(m), Makati Revenue Code. [43]Supra note 4. [44]See Section 132, Local Government Code. Indeed, even as the Local Government Code enumerates specific examples of local taxes, the provisions therein clarify that “the [local government unit] may impose a tax”, thus characterizing local taxes as optional on the part of local government unit, and not mandatory according to the Code. Certainly, a local government unit may choose not to impose the local tax at all, even if it is authorized to do so under the Local Government Code. [45]See Section 131(e), Local Government Code. [46]See Section 2, Rep. Act No. 4726. [47]Ibid.


[48]“The suggestion has been cautiously advanced that the unit owners might form a corporation to operate the condominium and in this way probably avoid unlimited personal liability.” See §12, Alberto Ferrer and Karl Stecher, I Law of Condominium (1967 ed.) [49]See Section 2, Rep. Act No. 4726. [50]See Section 9(d), Rep. Act No. 4726. [51]See Section 10, Rep. Act No. 4726, [52]Ibid. [53]See RTC Records, pp. 44-46. [54]Id. at 35-36. [55]Rollo, p. 20. [56]“This is not to say though that the constitutional injunction against deprivation of property without due process of law may be passed over under the guise of the taxing power, except when the taking of the property is in the lawful exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is observed; (3) either the person or property taxed is within the jurisdiction of the government levying the tax; and (4) in the assessment and collection of certain kinds of taxes notice and opportunity for hearing are provided.” Pepsi-Cola Bottling Company v. Municipality of Tanauan, 161 Phil. 591. [57]Ibid. [58]Rollo, p. 33. [59]Batas Pambansa Blg. 68. [60]See Section 36(7), Corporation Code. [61]Indeed, at least one commentator on American condominium law has offered the following explanation on how this may be accomplished:

Under certain conditions it is possible for the owners of a condominium project to engage in a business, the income of which would be subject to the Federal income tax. . . . To meet these conditions, however, the owners of the condominium, acting through their association of owners, must generally fall into one of two general classifications insofar as the Internal Revenue Code is concerned, either as a partnership or as a corporation. The Federal income tax regulations define a partnership as including a syndicate, group, pool, joint venture or other unincorporated organization through


or by means of which any business, financial operation or venture is carried on and which is not a corporation, trust or estate within the meaning of the Internal Revenue Code. A corporation includes association, which are taxable as corporation, and joint-stock companies. . . . The individual apartment owners are generally tenants in common of the common areas and joint owners of the personal property of the organization. Almost invariably they are not partners and the mere fact that they agree to share expenses does not make the arrangement a partnership. The Federal regulations specifically prescribe that a joint undertaking merely to share expenses is not a partnership. Mere co-ownership or property which is maintained, kept in repair, and rented or leased does not constitute a partnership. . . . Tenants in common may, however, be partners if they actively carry on a trade, business, financial operation or venture and divide the profits thereof. Consequently a partnership may be created if the co-owners of an apartment building lease space and provide services to the occupants. The principal question is whether the owners are engaged in a business for profit. . . . Accordingly where portions of a condominium project are leased or rented as barber shops, drug stores, beauty shops, or other comer enterprises, the income therefrom will be subject to taxation. If the condominium owners are conducting a business for profit, it must also be determined whether the business is a partnership or a corporation. If it meets the tests prescribed for a corporate entity by the Revenue Service its income will be subject to taxation as a corporation, otherwise it will be considered as some other form of taxable entity.

See Ferrer and Stecher, supra note 48, at §454. Under Philippine law though, a condominium corporation may not adopt purposes other than those provided under the Condominium Act. Infra. [62]“The term ultra vires refers to an act outside or beyond corporate powers, including those that may ostensibly be within such powers but are, by general or special laws, prohibited or declared illegal.“ Twin Towers Condominium Corp. v. Court of Appeals, 446 Phil. 280 (2003).

FIRST DIVISION

[G. R. No. 141658. March 18, 2005]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE PHILIPPINE AMERICAN ACCIDENT INSURANCE COMPANY, INC., THE PHILIPPINE AMERICAN ASSURANCE COMPANY, INC., and THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., respondents.

D E C I S I O N

CARPIO, J.:

The Case

Before the Court is a petition for review[1] assailing the Decision[2] of 7 January 2000 of the Court of Appeals in CA-G.R. SP No. 36816. The Court of Appeals affirmed the Decision[3] of 5 January 1995 of the Court of Tax Appeals (“CTA”) in CTA Cases Nos. 2514, 2515 and 2516. The CTA ordered the Commissioner of Internal Revenue (“petitioner”) to refund a total of P29,575.02 to respondent companies (“respondents”).

Antecedent Facts

Respondents are domestic corporations licensed to transact insurance business in the country. From August 1971 to September 1972, respondents paid the Bureau of Internal Revenue under protest the 3% tax imposed on lending investors by Section 195-A[4] of Commonwealth Act No. 466 (“CA 466”), as amended by Republic Act No. 6110 (“RA 6110”) and other laws. CA 466 was the National Internal Revenue Code (“NIRC”) applicable at the time.

Respondents paid the following amounts: P7,985.25 from Philippine American (“PHILAM”) Accident Insurance Company;P7,047.80 from PHILAM Assurance Company; and P14,541.97 from PHILAM General Insurance Company. These amounts represented 3% of each company’s interest income from mortgage and other loans. Respondents also paid the taxes required of insurance companies under CA 466.

On 31 January 1973, respondents sent a letter-claim to petitioner seeking a refund of the taxes paid under protest. When respondents did not receive a response, each respondent filed on 26 April 1973 a petition for review with the CTA. These three petitions, which were later consolidated, argued that respondents were not lending investors and as such were not subject to the 3% lending investors’ tax under Section 195-A.

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The CTA archived respondents’ case for several years while another case with a similar issue was pending before the higher courts. When respondents’ case was reinstated, the CTA ruled that respondents were entitled to their refund.

The Ruling of the Court of Tax Appeals

The CTA held that respondents are not taxable as lending investors because the term “lending investors” does not embrace insurance companies. The CTA traced the history of the tax on lending investors, as follows:

Originally, a person who was engaged in lending money at interest was taxed as a money lender. [Sec. 1464(x), Rev. Adm. Code] The term money lenders was defined as including “all persons who make a practice of lending money for themselves or others at interest.” [Sec. 1465(v), id.] Under this law, an insurance company was not considered a money lender and was not taxable as such. To quote from an old BIR Ruling:

“The lending of money at interest by insurance companies constitutes a necessary incident of their regular business. For this reason, insurance companies are not liable to tax as money lenders or real estate brokers for making or negotiating loans secured by real property. (Ruling, February 28, 1920; BIR 135.2)” (The Internal Revenue Law, Annotated, 2nd ed., 1929, by B.L. Meer, page 143)

The same rule has been applied to banks.

“For making investments on salary loans, banks will not be required to pay the money lender’s tax imposed by this subsection, for the reason that money lending is considered a mere incident of the banking business. [See Ruling No. 43, (October 8, 1926) 25 Off. Gaz. 1326)” (The Internal Revenue Law, Annotated, id.)

The term “money lenders” was later changed to “lending investors” but the definition of the term remains the same. [Sec. 1464(x), Rev. Adm. Code, as finally amended by Com. Act No. 215, and Sec. 1465(v) of the same Code, as finally amended by Act No. 3963] The same law is embodied in the present National Internal Revenue Code (Com. Act No. 466) without change, except in the amount of the tax. [See Secs. 182(A) (3) (dd) and 194(u), National Internal Revenue Code.]

It is a well-settled rule that an administrative interpretation of a law which has been followed and applied for a long time, and thereafter the law is re-enacted without substantial change, such administrative interpretation is deemed to have received legislative approval. In short, the administrative interpretation becomes part of the law as it is presumed to carry out the legislative purpose.[5]

The CTA held that the practice of lending money at interest is part of the insurance business. CA 466 already taxes the insurance business. The CTA pointed out that the law recognizes and even regulates this practice of lending money by insurance companies.


The CTA observed that CA 466 also treated differently insurance companies from lending investors in regard to fixed taxes. Under Section 182(A)(3)(gg), insurance companies were subject to the same fixed tax as banks and finance companies. The CTA reasoned that insurance companies were grouped with banks and finance companies because the latter’s lending activities were also integral to their business. In contrast, lending investors were taxed at a different fixed tax under Section 182(A)(3)(dd) of CA 466. The CTA stated that “insurance companies xxx had never been required by respondent [CIR] to pay the fixed tax imposed on lending investors xxx.”[6]

The dispositive portion of the Decision of 5 January 1995 of the Court of Tax Appeals (“CTA Decision”) reads:

WHEREFORE, premises considered, petitioners Philippine American Accident Insurance Co., Philippine American Assurance Co., and Philippine American General Insurance Co., Inc. are not taxable on their lending transactions independently of their insurance business. Accordingly, respondent is hereby ordered to refund to petitioner[s] the sum of P7,985.25, P7,047.80 and P14,541.97 in CTA Cases No. 2514, 2515 and 2516, respectively representing the fixed and percentage taxes when (sic) paid by petitioners as lending investor from August 1971 to September 1972.

No pronouncement as to cost.

SO ORDERED.[7]

Dissatisfied, petitioner elevated the matter to the Court of Appeals.[8]

The Ruling of the Court of Appeals

The Court of Appeals ruled that respondents are not taxable as lending investors. In its Decision of 7 January 2000 (“CA Decision”), the Court of Appeals affirmed the ruling of the CTA, thus:

WHEREFORE, premises considered, the petition is DISMISSED, hereby AFFIRMING the decision, dated January 5, 1995, of the Court of Tax Appeals in CTA Cases Nos. 2514, 2515 and 2516.

SO ORDERED.[9]

Petitioner appealed the CA Decision to this Court.

The Issues

Petitioner raises the sole issue:





WHETHER RESPONDENT INSURANCE COMPANIES ARE SUBJECT TO THE 3% PERCENTAGE TAX AS LENDING INVESTORS UNDER SECTIONS 182(A)(3)(DD) AND 195-A, RESPECTIVELY IN RELATION TO SECTION 194(U), ALL OF THE NIRC.[10]

The Ruling of the Court

The petition lacks merit.

On the Additional Issue Raised by Petitioner

Section 182(A)(3)(dd) of CA 466 imposes an annual fixed tax on lending investors, depending on their location.[11] The sole question before the CTA was whether respondents were subject to the percentage tax on lending investors under Section 195-A. Petitioner raised for the first time the issue of the fixed tax in the Petition for Review[12] petitioner filed before the Court of Appeals.

Ordinarily, a party cannot raise for the first time on appeal an issue not raised in the trial court.[13] The Court of Appeals should not have taken cognizance of the issue on respondents’ supposed liability under Section 182(A)(3)(dd). However, we cannot entirely fault the Court of Appeals or petitioner. Even if the percentage tax on lending investors was the sole issue before it, the CTA ordered petitioner to refund to the PHILAM companies “the fixed and percentage taxes [t]hen paid by petitioners as lending investor.”[14]Although the amounts for refund consisted only of what respondents paid as percentage taxes, the CTA Decision also ordered the refund to respondents of the fixed tax on lending investors. Respondents in their pleadings deny any liability under Section 182(A)(3)(dd), on the same ground that they are not lending investors.

The question of whether respondents should pay the fixed tax under Section 182(A)(3)(dd) revolves around the same issue of whether respondents are taxable as lending investors. In similar circumstances, the Court has held that an appellate court may consider an unassigned error if it is closely related to an error that was properly assigned.[15] This rule properly applies to the present case. Thus, we shall consider and rule on the issue of whether respondents are subject to the fixed tax under Section 182(A)(3)(dd).

Whether Insurance Companies areTaxable as Lending Investors

Invoking Sections 195-A and 182(A)(3)(dd) in relation to Section 194(u) of CA 466, petitioner argues that insurance companies are subject to two fixed taxes and two percentage taxes. Petitioner alleges that:







As a lending investor, an insurance company is subject to an annual fixed tax of P500.00 and another P500.00 under Section 182 (A)(3)(dd) and (gg) of the Tax Code. As an underwriter, an insurance company is subject to the 3% tax of the total premiums collected and another 3% on the gross receipts as a lending investor under Sections 255 and 195-A, respectively of the same Code. xxx[16]

Petitioner also contends that the refund granted to respondents is in the nature of a tax exemption, and cannot be allowed unless granted explicitly and categorically.

The rule that tax exemptions should be construed strictly against the taxpayer presupposes that the taxpayer is clearly subject to the tax being levied against him. Unless a statute imposes a tax clearly, expressly and unambiguously, what applies is the equally well-settled rule that the imposition of a tax cannot be presumed.[17] Where there is doubt, tax laws must be construed strictly against the government and in favor of the taxpayer.[18] This is because taxes are burdens on the taxpayer, and should not be unduly imposed or presumed beyond what the statutes expressly and clearly import.[19]

Section 182(A)(3)(dd) of CA 466 also provides:

Sec. 182. Fixed taxes. – (A) On business xxxxxx(3) Other fixed taxes. – The following fixed taxes shall be collected as follows, the amount stated being for the whole year, when not otherwise specified;xxx(dd) Lending investors –

1. In chartered cities and first class municipalities, five hundred pesos;2. In second and third class municipalities, two hundred and fifty pesos;3. In fourth and fifth class municipalities and municipal districts, one hundred and twenty-five pesos; Provided, That lending investors who do business as such in more than one province shall pay a tax of five hundred pesos.

Section 195-A of CA 466 provides:

Sec. 195-A. Percentage tax on dealers in securities; lending investors. – Dealers in securities and lending investors shall pay a tax equivalent to three per centum on their gross income.

Neither Section 182(A)(3)(dd) nor Section 195-A mentions insurance companies. Section 182(A)(3)(dd) provides for the taxation of lending investors in different localities. Section 195-A refers to dealers in securities and lending investors. The burden is thus on petitioner to show that insurance companies are lending investors for purposes of taxation.

In this case, petitioner does not dispute that respondents are in the insurance business. Petitioner merely alleges that the definition of lending investors under CA 466 is broad enough to encompass insurance companies. Petitioner insists that because of Section 194(u), the two principal activities of the insurance business, namely, underwriting and investment, are separately taxable.[20]

Section 194(u) of CA 466 states:






(u) “Lending investor” includes all persons who make a practice of lending money for themselves or others at interest.

xxx

As can be seen, Section 194(u) does not tax the practice of lending per se. It merely defines what lending investors are. The question is whether the lending activities of insurance companies make them lending investors for purposes of taxation.

We agree with the CTA and Court of Appeals that it does not. Insurance companies cannot be considered lending investors under CA 466, as amended.

Definition of LendingInvestors under CA 466 DoesNot Include InsuranceCompanies.

The definition in Section 194(u) of CA 466 is not broad enough to include the business of insurance companies. The Insurance Code of 1978[21] is very clear on what constitutes an insurance company. It provides that an insurer or insurance company “shall include all individuals, partnerships, associations or corporations xxx engaged as principals in the insurance business, excepting mutual benefit associations.”[22] More specifically, respondents fall under the category of insurance corporations as defined in Section 185 of the Insurance Code, thus:

SECTION 185. Corporations formed or organized to save any person or persons or other corporations harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debts of others shall be known as “insurance corporations.”

Plainly, insurance companies and lending investors are different enterprises in the eyes of the law. Lending investors cannot, for a consideration, hold anyone harmless from loss, damage or liability, nor provide compensation or indemnity for loss. The underwriting of risks is the prerogative of insurers, the great majority of which are incorporated insurance companies[23] like respondents.

Granting of Mortgage andother Loans are InvestmentPractices that are Part of theInsurance Business.

True, respondents granted mortgage and other kinds of loans. However, this was not done independently of respondents’ insurance business. The granting of certain loans is one of several




means of investment allowed to insurance companies. No less than the Insurance Code mandates and regulates this practice.[24]

Unlike the practice of lending investors, the lending activities of insurance companies are circumscribed and strictly regulated by the State. Insurance companies cannot freely lend to “themselves or others” as lending investors can,[25] nor can insurance companies grant simply any kind of loan. Even prior to 1978, the Insurance Code prescribed strict rules for the granting of loans by insurance companies.[26] These provisions on mortgage, collateral and policy loans were reiterated in the Insurance Code of 1978 and are still in force today.

Petitioner concedes that respondents’ investment practices are as much a part of the insurance business as the task of underwriting. Nevertheless, petitioner argues that such investment practices are separately taxable under CA 466.

The CTA and the Court of Appeals found that the investment of premiums and other funds received by respondents – through the granting of mortgage and other loans – was necessary to respondents’ business and hence, should not be taxed separately.

Insurance companies are required by law to possess and maintain substantial legal reserves to meet their obligations to policyholders.[27] This obviously cannot be accomplished through the collection of premiums alone, as the legal reserves and capital and surplus insurance companies are obligated to maintain run into millions of pesos. As such, the creation of “investment income” has long been held to be generally, if not necessarily, essential to the business of insurance.[28]

The creation of investment income in the manner sanctioned by the laws on insurance is thus part of the business of insurance, and the fruits of these investments are essentially income from the insurance business. This is particularly true if the invested assets are held either as reserved funds to provide for policy obligations or as capital and surplus to provide an extra margin of safety which will be attractive to insurance buyers.[29]

The Court has also held that when a company is taxed on its main business, it is no longer taxable further for engaging in an activity or work which is merely a part of, incidental to and is necessary to its main business.[30] Respondents already paid percentage and fixed taxes on their insurance business. To require them to pay percentage and fixed taxes again for an activity which is necessarily a part of the same business, the law must expressly require such additional payment of tax. There is, however, no provision of law requiring such additional payment of tax.

Sections 195-A and 182(A)(3)(dd) of CA 466 do not require insurance companies to pay double percentage and fixed taxes. They merely tax lending investors, not lending activities. Respondents were not transformed into lending investors by the mere fact that they granted loans, as these investments were part of, incidental and necessary to their insurance business.

Different Tax Treatment ofInsurance Companies andLending Investors.








Section 182(A)(3) of CA 466 accorded different tax treatments to lending investors and insurance companies. The relevant portions of Section 182 state:

Sec. 182. Fixed taxes. – (A) On business xxx

(3) Other fixed taxes. – The following fixed taxes shall be collected as follows, the amount stated being for the whole year, when not otherwise specified;

xxx

(dd) Lending investors –1. In chartered cities and first class municipalities, five hundred pesos;2. In second and third class municipalities, two hundred and fifty pesos;3. In fourth and fifth class municipalities and municipal districts, one hundred and twenty-five pesos; Provided, That lending investors who do business as such in more than one province shall pay a tax of five hundred pesos.

xxx

(gg) Banks, insurance companies, finance and investment companies doing business in the Philippines and franchise grantees, five hundred pesos.

xxx (Emphasis supplied.)

The separate provisions on lending investors and insurance companies demonstrate an intention to treat these businesses differently. If Congress intended insurance companies to be taxed as lending investors, there would be no need for Section 182(A)(3)(gg). Section 182(A)(3)(dd) would have been sufficient. That insurance companies were included with banks, finance and investment companies also supports the CTA’s conclusion that insurance companies had more in common with the latter enterprises than with lending investors. As the CTA pointed out, banks also regularly lend money at interest, but are not taxable as lending investors.

We find no merit in petitioner’s contention that Congress intended to subject respondents to two percentage taxes and two fixed taxes. Petitioner’s argument goes against the doctrine of strict interpretation of tax impositions.

Petitioner’s argument is likewise not in accord with existing jurisprudence. In Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.,[31] the Court ruled that the different tax treatment accorded to pawnshops and lending investors in the NIRC of 1977 and the NIRC of 1986 showed “the intent of Congress to deal with both subjects differently.” The same reasoning applies squarely to the present case.

Even the current tax law does not treat insurance companies as lending investors. Under Section 108(A)[32] of the NIRC of 1997, lending investors and non-life insurance companies, except for their crop insurances, are subject to value-added tax (“VAT”). Life insurance companies are exempt from VAT, but are subject to percentage tax under Section 123 of the NIRC of 1997.



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Indeed, the fact that Sections 195-A and 182(A)(3)(dd) of CA 466 failed to mention insurance companies already implies the latter’s exclusion from the coverage of these provisions. When a statute enumerates the things upon which it is to operate, everything else by implication must be excluded from its operation and effect.[33]

Definition of LendingInvestors in CA 466 is NotNew.

Petitioner does not dispute that it issued a ruling in 1920 to the effect that the lending of money at interest was a necessary incident of the insurance business, and that insurance companies were thus not subject to the tax on money lenders. Petitioner argues only that the 1920 ruling does not apply to the instant case because RA 6110 introduced the definition of lending investors to CA 466 only in 1969.

The subject definition was actually introduced much earlier, at a time when lending investors were still referred to as money lenders. Sections 45 and 46 of the Internal Revenue Law of 1914[34] (“1914 Tax Code”) state:

SECTION 45. Amount of Tax on Business. — Fixed taxes on business shall be collected as follows, the amount stated being for the whole year, when not otherwise specified:

xxx(x) Money lenders, eighty pesos;xxxSECTION 46. Words and Phrases Defined. — In applying the provisions of the preceding section words and phrases shall be taken in the sense and extension indicated below:xxx

“Money lender” includes all persons who make a practice of lending money for themselves or others at interest. (Emphasis supplied)

As can be seen, the definitions of “money lender” under the 1914 Tax Code and “lending investor” under CA 466 are identical. The term “money lender” was merely changed to “lending investor” when Act No. 3963 amended the Revised Administrative Code in 1932.[35] This same definition of lending investor has since appeared in Section 194(u) of CA 466 and later tax laws.

Note that insurance companies were not included among the businesses subject to an annual fixed tax under the 1914 Tax Code.[36] That Congress later saw the need to introduce Section 182(A)(3)(gg) in CA 466 bolsters our view that there was no legislative intent to tax insurance companies as lending investors. If insurance companies were already taxed as lending investors, there would have been no need for a separate provision specifically requiring insurance companies to pay fixed taxes.

The Court Accords GreatWeight to the Factual Findings





of the CTA.

Dedicated exclusively to the study and consideration of tax problems, the CTA has necessarily developed an expertise in the subject of taxation that this Court has recognized time and again. For this reason, the findings of fact of the CTA, particularly when affirmed by the Court of Appeals, are generally conclusive on this Court absent grave abuse of discretion or palpable error,[37] which are not present in this case.

WHEREFORE, we DENY the instant petition and AFFIRM the Decision of 7 January 2000 of the Court of Appeals in CA-G.R. SP No. 36816.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

[1] Under Rule 45 of the Rules of Civil Procedure.[2] Rollo, pp. 20-30. Penned by Associate Justice Ramon Mabutas, Jr. with Associate Justices Artemio G. Tuquero and Mercedes Gozo Dadole concurring.[3] Ibid., pp. 32-43. Penned by Associate Judge Manuel K. Gruba with Presiding Judge Ernesto D. Acosta and Associate Judge Ramon O. De Veyra concurring.[4] Section 195-A was added to CA 466 by RA 6110. It states: Sec. 195-A. Percentage tax on dealers in securities; lending investors. – Dealers in securities and lending investors shall pay a tax equivalent to three per centum on their gross income.[5] Rollo, pp. 34-35.[6] Ibid., p. 39.[7] Ibid., p. 42.[8] Note that under Republic Act No. 9282, decisions of the CTA are now appealable to the Supreme Court via a verified petition for review on certiorari.[9] Rollo, p. 30.[10] Ibid., p. 10.[11] Sec. 182. Fixed taxes. – (A) On business xxx

xxx

(3) Other fixed taxes. – The following fixed taxes shall be collected as follows, the amount stated being for the whole year, when not otherwise specified;

xxx

(dd) Lending investors –

1. In chartered cities and first class municipalities, five hundred pesos;

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2. In second and third class municipalities, two hundred and fifty pesos;

3. In fourth and fifth class municipalities and municipal districts, one hundred and twenty-five pesos; Provided, That lending investors who do business as such in more than one province shall pay a tax of five hundred pesos.

[12] CA Rollo, pp. 7-18.[13] Lim v. Queensland Tokyo Commodities, Inc., 424 Phil. 35 (2002).[14] Rollo, p. 42.[15] Garrido v. Court of Appeals, G.R. No. 101262, 14 September 1994, 236 SCRA 450. See also F.F. Mañacop Construction Co., Inc. v. Court of Appeals, G.R. No. 122196, 15 January 1997, 266 SCRA 235.[16] Rollo, p. 112.[17] CIR v. CA, 338 Phil. 322 (1997).[18] Lincoln Philippine Life Insurance Co., Inc. v. CA, 354 Phil. 896 (1998); CIR v. CA, supra.[19] Ibid.[20] Rollo, pp. 12-13.[21] Presidential Decree No. 1460 (1978), as amended.[22] Section 184, ibid.[23] Maria Clara L. Campos, Insurance 7 (University of the Philippines Law Center 1983); 43 Am Jur 2d, Insurance, §188.[24] See Sections 198 to 203 of Presidential Decree No. 1460. Loans are not even the chief means of investment. According to the Insurance Commission, loans accounted for only 16.61% of the investments made by the insurance industry in 2002. Compare this with the industry’s investment in bonds and government securities, which amounted to 45.75% (http://www.ic.gov.ph/main.asp?pages=statper2002).[25] In fact, pursuant to Insurance Circular Letter No. 064-60 (1960), reiterated in the Insurance Circular Letter of 20 May 1985, no insurance company could grant a loan to any of its officers or directors without the prior approval of the Insurance Commissioner.[26] Presidential Decree No. 612 (1974) provided:

Sec. 198. No insurance company shall loan any of its money or deposits to any person, corporation or association, except upon first mortgage or deeds of trust of unencumbered, improved or unimproved real estate, including condominiums, in cities and centers of population of municipalities in the Philippines when the amount of such loan is not in excess of seventy per centum of the market value of such real estate; or upon the security of first mortgages or deeds of trust of actually cultivated, improved and unencumbered agricultural lands in the Philippines when the amount of such loan is not in excess of fortyper centum of the market value of such land; or upon the purchase money mortgages or like securities received by it upon the sale or exchange of real property acquired



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pursuant to sections two hundred and two hundred two; or upon bonds or other evidences of debt of the Government of the Philippines or its political subdivisions authorized by law to issue bonds, or upon bonds or other evidences of debt of government-owned or controlled corporations and instrumentalities including the Central Bank or upon obligations issued or guaranteed by the International Bank for Reconstruction and Development; or upon stocks, bonds or other evidences of debt as are specified in section two hundred.

A life insurance company, however, may lend to any of its policyholders upon the security of the value of its policy such sum as may be determined pursuant to the provisions of the policy.

Loans granted upon the security of real estate for a period longer than five years shall be amortized in monthly, quarterly, semi-annual or annual installments; Provided, That no such loans shall have a maturity in excess of twenty years.

The phrase “improved real estate” used above is hereby defined to mean land with permanent building or buildings erected or being erected thereon. Except as otherwise approved by the Commissioner, in case the building or buildings on land do not belong to the owner of the latter, no loan shall be granted on the security of the real estate in question unless both the owner of the building or buildings and the owner of the land sign the deed of mortgage, and unless the owner of the land is the Government of the Philippines or one of its political subdivisions, in which event the owner is not required to sign the deed of mortgage.

Sec. 199. No loan by any insurance company on the security of real estate shall be made unless the title to such real estate shall have first been registered in accordance with the existing Land Registration Act, or shall be a titulo real duly registered, or have been previously registered under the provisions of the existing Mortgage Law.

These provisions were carried over in the Insurance Code of 1978.[27] Spouses Tibay v. CA, 326 Phil. 931 (1996). See also Sections 194, 210 to 214 of Presidential Decree No. 1460.[28] Bowers v. Lawyers’ Mortg. Co., 285 U.S. 182 (1932).[29] Justice Jose C. Vitug and Justice Ernesto D. Acosta, Tax Law and Jurisprudence, 2nd ed., 256, citing Commissioner of Internal Revenue v. Court of Tax Appeals, CA-G.R. SP No. 39511 to 39513, 30 September 1996. This CA decision was never appealed to this Court.[30] Standard-Vacuum Oil Co. v. Antigua, etc., et al., 96 Phil. 909 (1955).[31] G.R. No. 150947, 15 July 2003, 406 SCRA 178.[32] The relevant portion of Sec. 108(A) states:

(A) Rate and Base of Tax. – There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties.







The phrase “sale or exchange of services” means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by xxx lending investors; xxx services of banks, non-bank financial intermediaries and finance companies; and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; xxx. (Emphasis supplied)[33] Applying the maxim expressio unius est exclusio alterius. See Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc., supra note 31.[34] Act No. 2339 (1914).[35] Act No. 3963 (1932) provides:

Sec. 2 Paragraph (v) of section fourteen hundred and sixty-five of the Revised Administrative Code is hereby amended so as to read as follows:

“(v) ‘Lending investor’ includes all persons who make a practice of lending money for themselves or others at interest.” xxx[36] The receipts of insurance companies were instead subject to internal revenue taxes under Sec. 21(e) of the 1914 Tax Code.[37] Supra note 17.






SECOND DIVISION

[G.R. No. 135548. September 29, 2000]

FAR EAST BANK AND TRUST COMPANY, petitioner, vs. COURT OF APPEALS and SMP, INC.,respondents.

D E C I S I O N

BELLOSILLO, J.:

FAR EAST BANK AND TRUST COMPANY filed a Complaint against Clothespak Manufacturing Phils., Inc. (hereafter CLOTHESPAK) for recovery of sums of money before the Regional Trial Court of Pasig City.[1]

On 14 March 1995 the trial court issued a Writ of Preliminary Attachment by virtue of which the Sheriff levied on the personal properties found in the premises of CLOTHESPAK. On 28 March 1995 respondent SMP, Inc. (hereafter SMP) filed an Affidavit of Third-Party Claim asserting ownership over 4,000 bags of General Purpose (GPS) polystyrene products included among the attached properties. On 6 April 1995 petitioner posted a Sheriff's Indemnity Bond issued by Siddcor Insurance Corporation (hereafter SIDDCOR).

On 21 May 1996 the trial court ruled that the third-party claim can be best and fully ventilated in a vindicatory action under Sec. 17, Rule 39, of the Rules of Court.[2] On 13 January and 7 March 1997 it denied reconsideration.[3] Thereafter, a Decision was rendered in favor of petitioner and a Writ of Execution was accordingly issued upon the judgment becoming final and executory. Petitioner acquired the attached goods as highest bidder in the public auction.

Meanwhile, on 26 February 1997 respondent SMP filed a Complaint for damages against petitioner, the Sheriff and SIDDCOR before the Regional Trial Court of Quezon City, docketed as Civil Case No. Q-97-30372, pertinent portions of which read -

5. Plaintiff is engaged in the manufacture, production, formulation, tolling, distribution, trading, selling, import and export of polystyrene products and such other businesses related to or connected with polystyrene products.

6. On January 19, 1995, Maria Teresa Michaela Ong, one of the Sales Executives of plaintiff, personally undertook the acceptance and servicing of a purchase order of CLOTHESPAK MANUFACTURING PHILS., INC. (CLOTHESPAK for brevity) for 4,000 bags or sacks of General Purpose (GPS) polystyrene products to be made by CLOTHESPAK into "plastic hangers" x x x x

7. Pursuant to such Purchase Order, the ordered products (4,000 bags) were delivered on January 23, 24, 25, and 27, 1995 to the plant of CLOTHESPAK located at Bo. Panungyanan, General Trias, Cavite City, for which Delivery Receipts were issued x x x x

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8. The total selling price of the above delivered products amounted to U.S. $118,500, as evidenced by Sales Invoices Nos. 5509, 5510, and 5511 x x x x

9. As "payment" for the goods ordered and duly delivered, CLOTHESPAK issued postdated checks in favor of plaintiff SMP, INC. and delivered the same to Maria Teresa Michaela Ong upon delivery of the ordered goods x x x x As agreed upon, the ownership over the goods delivered was explicitly retained by SMP until all the above-enumerated postdated checks shall have cleared and honored as good by the bank, with the understanding that SMP can get back the goods delivered at any time in case the check(s) are dishonored and returned by the bank for any reason, as contained in the Provisional Receipt issued by SMP to CLOTHESPAK upon receipt by SMP of the above postdated checks x x x x

10. When the above checks were deposited by SMP on their maturity dates, the drawee bank dishonored and returned them for the reason "Account Closed" x x x x

14. Deputy Sheriff Alejandro Loquinario of RTC-Pasig City x x x made an actual levy/attachment on the properties found on the premises of CLOTHESPAK at Panungyanan, Gen. Trias, Cavite on various dates in March 1995 before several witnesses including the representative of FEBTC.Among the properties levied/attached were "plastic resins" and "plastic hangers," as evidenced by the Notice of Levy/Attachment issued and submitted by Deputy Sheriff Loquinario for March 14, 1995 (plastic resins), March 15, 1995 (plastic resins) and March 16, 1995 (plastic hangers) x x x x

The LISTS OF INVENTORY attached to the Notice of Levy/Attachment did not fully describe with specificity the materials or goods attached; most of the sacks were described merely as "RAW MATERIALS' and 'GRINDED;' a few were labeled "DOW" which indicates a foreign brand and therefore probably imported. This would seem to indicate that FEBTC directed the Sheriff to attach any and all goods found in the premises of CLOTHESPAK without regard as to whether they are those "goods intended to be attached," and most likely in order to make it difficult to trace, verify or check, the Sheriff just listed the goods without detailed description or identification. Since FEBTC was desperate in recovering whatever it can recover from its credit exposure to CLOTHESPAK, even goods clearly not owned by FEBTC by virtue of its alleged Trust Receipts just had to be attached for any reason.

Yet, it is clear from the allegations made in FEBTC's Complaint (Annex "G") that it was only after goods imported by CLOTHESPAK and allegedly paid for through LC/TR. Hence, FEBTC should have attached only those plastic products that were imported and not those that are locally produced like those of SMP.

15. Yet, the main bulk of the plastic goods/materials attached by the sheriff belonged to the plaintiff as can easily be seen from the pictures of the sacks of goods attached which show clearly the labels "TOPRENE" (a brand name) and "SMP INCORPORATED" and Paseo de Blas, Valenzuela, Philippines", all of which indicate that the goods/materials are owned by plaintiff and locally made. The pictures were taken in the place where the sheriff brought the goods for safe-keeping, i.e, at the Tacoma Warehouse, Port Area, Manila x x x x[4]


On 8 April 1997 SIDDCOR filed a Motion to Dismiss the Complaint on the assertion that no action was filed by respondent SMP against the Sheriff within 120 days from the filing of the bond as provided in Sec. 17, Rule 39, of the Rules of Court. On 10 April 1997 petitioner and the Sheriff filed a Manifestation and Motion for a Bill of Particulars and Production of Documents. Movants averred that CLOTHESPAK was an indispensable party; that the Complaint did not state a cause of action; and, that certain allegations therein should be particularized.

On 15 July 1997 the trial court granted the Motion of SIDDCOR. It found that indeed the case was filed beyond the 120-day period, relieving SIDDCOR from any liability. On the other hand, it denied the Motion of petitioner and the Sheriff. It expressed the view that CLOTHESPAK was not responsible for the attachment and necessarily could not be made defendant in the present case; that the allegations in the Complaint were sufficient bases for them to properly formulate their defenses; and, that the matters they sought to be particularized were evidentiary in character and should therefore be threshed out during the trial proper.

On 12 August 1997 petitioner filed another Motion this time seeking the dismissal of the Complaint anchored on these grounds: (a) the Complaint stated no cause of action; and, (b) the cause of action, if any, was barred by prior judgment since the third-party claim of respondent SMP was denied in Civil Case No. 65006.

On 24 October 1997 the trial court denied petitioner's Motion explaining that the Complaint alleged ultimate facts constituting a cause of action and that from the denial of respondent SMP's third- party claim, SMP could file a separate action to vindicate its claim to the properties.[5] On 25 November 1997 reconsideration was denied.[6]

Through a Petition for Certiorari and Mandamus petitioner assailed the 24 October and 25 November 1997 Orders of the trial court before the Court of Appeals. On 31 July 1998 the Petition was dismissed. The appellate court concurred in the finding of the trial court that the Complaint stated a cause of action and held that neither certiorari nor mandamus was a proper remedy.[7] On 16 September 1998 reconsideration was denied.[8]

Petitioner asserts that the Complaint of respondent SMP does not state a cause of action because on the basis of the allegations therein, subject goods were already owned by CLOTHESPAK at the time of attachment. Petitioner also claims that respondent SMP raised a new theory in Civil Case No. Q-97-30372, i.e., that respondent SMP retained ownership of the goods based on a provisional receipt wherein its collector acknowledged having received postdated checks drawn by CLOTHESPAK and wherein the same collector placed a handwritten statement thereon that "materials belong to SMP until your checks clear." Petitioner argues that the statement is a unilateral condition inserted by a mere collector after delivery of the goods which cannot supersede the covering Sales Invoices prepared before delivery and signed by CLOTHESPAK stating that the sale was on credit "60 PDC."[9] Petitioner thus maintains that the trial court acted with grave abuse of discretion tantamount to lack or excess of jurisdiction when it did not dismiss the Complaint and respondent Court of Appeals committed serious error by sustaining the trial court.

There is no merit in the petition. A cause of action is an act or omission of one party in violation of the legal right of the other. Its essential elements are: (a) the existence of a legal right in the plaintiff; (b) a correlative legal duty in the defendant; and, (c) an act or omission of the defendant






in violation of plaintiff's right with consequential injury or damage to the plaintiff for which he may maintain an action for the recovery of damages or other appropriate relief.[10] Readily discernible from the face of respondent SMP's Complaint is that there is a statement of causes of action. Assuming the facts to be true, (a) respondent SMP still owns subject goods on account of an agreement with CLOTHESPAK contained in a provisional receipt that "SMP can get back the goods delivered at any time in case the check(s) are dishonored and returned by the bank for any reason;" (b) petitioner has a correlative duty to respect such ownership; and, (c) the act of petitioner in including the goods among the attached properties violated the right of respondent SMP and entitled it to recover damages or other appropriate relief. On the basis of those allegations, the trial court can render a valid judgment.

It appears that petitioner outrightly regards as untrue the claim of respondent SMP that it retained ownership of subject goods; in effect, petitioner contradicts the allegations in the Complaint. This is improper. In a motion to dismiss a complaint based on lack of cause of action, the question submitted to the court for determination is the sufficiency of the allegations in the complaint to constitute a cause of action and not whether those allegations of fact are true, for such motion must hypothetically admit the truth of the facts alleged in the complaint.[11] Otherwise stated, the test of the sufficiency of the facts alleged in the complaint is whether, admitting the facts alleged, the court could render a valid judgment upon the same in accordance with the prayer of the complaint.[12] An inquiry regarding the veracity of respondent SMP's allegations is not proper in resolving the Motion to Dismiss. As to whether respondent SMP is still the owner of subject goods is an issue necessitating a full-blown trial on the merits.

An order denying a motion to dismiss is interlocutory and cannot be the subject of the extraordinary petition for certiorari ormandamus. The remedy of the aggrieved party is to file an answer and to interpose as defenses the objections raised in his motion to dismiss, proceed to trial, and in case of an adverse decision, to elevate the entire case by appeal in due course.[13] However, the rule is not ironclad. Under certain situations, recourse to certiorari or mandamus is considered appropriate, i.e., (a) when the trial court issued the order without or in excess of jurisdiction;[14] (b) where there is patent grave abuse of discretion by the trial court;[15] or, (c) appeal would not prove to be a speedy and adequate remedy as when an appeal would not promptly relieve a defendant from the injurious effects of the patently mistaken order maintaining the plaintiff's baseless action and compelling the defendant needlessly to go through a protracted trial and clogging the court dockets by another futile case.[16] At any rate, we find that the Petition for Certiorari andMandamus filed by petitioner before the Court of Appeals is not the available remedy. The trial court did not issue the assailed Orders with grave abuse of discretion, or without or in excess of jurisdiction. The Orders did not produce any injurious effect on petitioner.Rather, the trial court issued the Orders based on a correct appreciation of the evidence which made them withstand appellate scrutiny twice.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals of 31 July 1998 sustaining the Orders of the Regional Trial Court-Br.92, Quezon City, which denied petitioner Far East Bank and Trust Company's Motion to Dismiss respondent SMP, Inc.'s Complaint, and its Resolution of 16 September 1998 denying reconsideration are AFFIRMED. Costs against petitioner.

SO ORDERED.

Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.








[1] Filed on 9 March 1995, docketed as Civil Case No. 65996.[2] Order issued by Judge Celso D. Lavina, RTC-Br. 71, Pasig City; CA Rollo, pp. 94 - 95.[3] Orders issued by Judge Alfredo C. Flores, RTC-Br. 167, Pasig City; CA Rollo, pp. 22-33, 96 and 98. The case was re-assigned to this Branch.[4] Rollo, pp. 70-74.[5] Order issued by Judge Juan Q. Enriquez Jr. of RTC-Br. 92, Quezon City; Rollo, pp. 61 - 62.[6] Rollo, p. 63.[7] Decision penned by Justice Ramon Mabutas Jr. with the concurrence of Justices Arturo B. Buena (now a Member of the Supreme Court) and Hilarion L. Aquino;Rollo, p. 41.[8] Rollo, p. 43.[9] Meaning sixty (60) days postdated check.[10] Mathay v. Consolidated Bank and Trust Company, No. L-23136, 26 August 1974, 58 SCRA 559.[11] Garcon v. Redemptorist Fathers, No. L-23510, 30 May 1966, 17 SCRA 341; Philippine National Bank v. Court of Appeals, G.R. No. 121251, 26 June 1998, 291 SCRA 271.[12] Ramos v. Condez, No. L-22072, 30 August 1967, 20 SCRA 1146.[13] National Investment and Development Corp. v. Aquino, No. L-34192, 30 June 1988, 163 SCRA 153.[14] Casil v. Court of Appeals, G.R. No. 121534, 28 January 1998, 285 SCRA 264.[15] Pineda v. Bartolome, 95 Phil. 930 (1954); Mead v. Argel, No. L-41958, 20 July 1982, 115 SCRA 256.[16] MB Finance Corporation v. Abesamis, G. R. No. 93875, 22 March 1991, 195 SCRA 592.

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U.S. Supreme Court

Humphrey's Executor v. United States, 295 U.S. 602 (1935)

Humphrey's Executor v. United States *

No. 637

Argued 1, 1935

Decided May 27, 1935

295 U.S. 602

CERTIFICATE FROM THE COURT OF CLAIMS

Syllabus

1. The Federal Trade Commission Act fixes the terms of the Commissioners and provides that any Commissioner may be removed by the President for inefficiency, neglect of duty, or malfeasance in office. Held that Congress intended to restrict the power of removal to one or more of those causes. Shurtleff v. United States, 189 U. S. 311, distinguished. Pp. 295 U. S. 621, 295 U. S. 626.

2. This construction of the Act is confirmed by a consideration of the character of the Commission -- an independent, nonpartisan body of experts, charged with duties neither political nor executive, but predominantly quasi-judicial and quasi-legislative, and by the legislative history of the Act. P. 295 U. S. 624.

3. When Congress provides for the appointment of officers whose functions, like those of the Federal Trade Commissioners, are of Legislative and judicial quality, rather than executive, and limits the grounds upon which they may be removed from office, the President has no constitutional power to remove them for reasons other than those so specified. Myers v. United States, 272 U. S. 52, limited, and expressions in that opinion in part disapproved. Pp. 295 U. S. 626, 295 U. S. 627.

Page 295 U. S. 603

The Myers case dealt with the removal of a postmaster, an executive officer restricted to executive functions and charged with no duty at all related to either the legislative or the judicial power. The actual decision in the Myers case finds support in the theory that such an officer is merely one of the units in the executive department, and, hence, inherently subject to the exclusive and illimitable power of removal by the Chief Executive, whose subordinate he is. That decision goes no farther than to include purely executive officers. The Federal Trade Commission, in contrast, is an administrative body created by Congress to carry into effect legislative policies embodied in the statute in accordance with the legislative standard therein prescribed, and to perform other specified duties as a legislative or as a judicial aid. Such a body cannot in any proper sense be characterized as an arm or an eye of the executive. Its duties are performed without executive leave, and,

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in the contemplation of the statute, must be free from executive control. To the extent that it exercises any executive function -- as distinguished from executive power in the constitutional sense -- it does so in the discharge and effectuation of its quasi-legislative or quasi-judicial powers, or as an agency of the legislative or judicial departments of the Government. Pp. 295 U. S. 627-628.

4. The authority of Congress, in creating quasi-legislative or quasi-judicial agencies, to require them to act in discharge of their duties independently of executive control cannot well be doubted, and that authority includes, as an appropriate incident, power to fix the period during which they shall continue in office, and to forbid their removal except for cause in the meantime. P. 295 U. S. 629.

5. The fundamental necessity of maintaining each of the three general departments of government entirely free from the control or coercive influence, direct or indirect, of either of the others has often been stressed, and is hardly open to serious question. So much is implied in the very fact of the separation of the powers of these departments by the Constitution, and in the rule which recognizes their essential coequality. P. 295 U. S. 629.

6. Whether the power of the President to remove an officer shall prevail over the authority of Congress to condition the power by fixing a definite term and precluding a removal except for cause will depend upon the character of the office. To the extent that, between the decision in the Myers case, which sustains the unrestrictable power of the President to remove purely executive officers, and the present decision that such power does not extend to an office

Page 295 U. S. 604

such as that here involved there shall remain a field of doubt, such cases as may fall within it are left for future consideration and determination as they may arise. P. 295 U. S. 631.

7. While the general rule preclude the use of congressional debates to explain the meaning of the words of a statute, they may be considered as reflecting light upon its general purposes and the evils which it sought to remedy. P. 295 U. S. 625.

8. Expressions in an opinion which are beyond the point involved do not come within the rule of stare decisis. P. 295 U. S. 626.

CERTIFICATE from the Court of Claims, propounding questions arising on a claim for the salary withheld from the plaintiff's testator, from the time when the President undertook to remove him from office to the time of his death.

Page 295 U. S. 618

MR. JUSTICE SUTHERLAND delivered the opinion of the Court.






Plaintiff brought suit in the Court of Claims against the United States to recover a sum of money alleged to be due the deceased for salary as a Federal Trade Commissioner from October 8, 1933, when the President undertook to remove him from office, to the time of his death on February 14, 1934. The court below has certified to this court two questions (Act of February 13, 1925, § 3(a), c. 229, 43 Stat. 936, 939; 28 U.S.C. § 288) in respect of the power of the President to make the removal. The material facts which give rise to the questions are as follows:

William E. Humphrey, the decedent, on December 10, 1931, was nominated by President Hoover to succeed himself as a member of the Federal Trade Commission, and was confirmed by the United States Senate. He was duly commissioned for a term of seven years expiring September 25, 1938; and, after taking the required oath of office, entered upon his duties. On July 25, 1933, President Roosevelt addressed a letter to the commissioner asking for his resignation, on the ground

"that the aims and purposes of the Administration with respect to the work of the Commission can be carried out most effectively with personnel of my own selection,"

but disclaiming any reflection upon the commissioner personally or upon his services. The commissioner replied, asking time to consult

Page 295 U. S. 619

his friends. After some further correspondence upon the subject, the President, on August 31, 1933, wrote the commissioner expressing the hope that the resignation would be forthcoming, and saying:

"You will, I know, realize that I do not feel that your mind and my mind go along together on either the policies or the administering of the Federal Trade Commission, and, frankly, I think it is best for the people of this country that I should have a full confidence."

The commissioner declined to resign, and on October 7, 1933, the President wrote him:

"Effective as of this date, you are hereby removed from the office of Commissioner of the Federal Trade Commission."

Humphrey never acquiesced in this action, but continued thereafter to insist that he was still a member of the commission, entitled to perform its duties and receive the compensation provided by law at the rate of $10,000 per annum. Upon these and other facts set forth in the certificate, which we deem it unnecessary to recite, the following questions are certified:

"1. Do the provisions of section 1 of the Federal Trade Commission Act, stating that 'any commissioner may be removed by the President for inefficiency, neglect of duly, or malfeasance in office,' restrict or limit the power of the President to remove a commissioner except upon one or more of the causes named?"

"If the foregoing question is answered in the affirmative, then -- "

"2. If the power of the President to remove a commissioner is restricted or limited as shown by the foregoing interrogatory and the answer made thereto, is such a restriction or limitation valid under the Constitution of the United States?"

The Federal Trade Commission Act, c. 311, 38 Stat. 717; 15 U.S.C. §§ 41, 42, creates a commission of five

Page 295 U. S. 620

members to be appointed by the President by and with the advice and consent of the Senate, and § 1 provides:

"Not more than three of the commissioners shall be members of the same political party. The first commissioners appointed shall continue in office for terms of three, four, five, six, and seven years, respectively, from the date of the taking effect of this Act, the term of each to be designated by the President, but their successors shall be appointed for terms of seven years, except that any person chosen to fill a vacancy shall be appointed only for the unexpired term of the commissioner whom he shall succeed. The commission shall choose a chairman from its own membership. No commissioner shall engage in any other business, vocation, or employment. Any commissioner may be removed by the President for inefficiency, neglect of duty, or malfeasance in office. . . ."

Section 5 of the act in part provides:

"That unfair methods of competition in commerce are hereby declared unlawful."

"The commission is hereby empowered and directed to prevent persons, partnerships, or corporations, except banks, and common carriers subject to the Acts to regulate commerce, from using unfair methods of competition in commerce."

In exercising this power, the commission must issue a complaint stating its charges and giving notice of hearing upon a day to be fixed. A person, partnership, or corporation proceeded against is given the right to appear at the time and place fixed and show cause why an order to cease and desist should not be issued. There is provision for intervention by others interested. If the commission finds the method of competition is one prohibited by the act, it is directed to make a report in writing stating its findings as to the facts, and to issue and cause to be served a cease and desist order. If the order is disobeyed, the commission may apply to the appropriate circuit court of

Page 295 U. S. 621

appeals for its enforcement. The party subject to the order may seek and obtain a review in the circuit court of appeals in a manner provided by the act.

Section 6, among other things, gives the commission wide powers of investigation in respect of certain corporations subject to the act and in respect of other matters, upon

which it must report to Congress with recommendations. Many such investigations have been made, and some have served as the basis of congressional legislation.

Section 7 provides:

"That in any suit in equity brought by or under the direction of the Attorney General as provided in the antitrust Acts, the court may, upon the conclusion of the testimony therein, if it shall be then of opinion that the complainant is entitled to relief, refer said suit to the commission, as a master in chancery, to ascertain and report an appropriate form of decree therein. The commission shall proceed upon such notice to the parties and under such rules of procedure as the court may prescribe, and upon the coming in of such report such exceptions may be filed and such proceedings had in relation thereto as upon the report of a master in other equity causes, but the court may adopt or reject such report, in whole or in part, and enter such decree as the nature of the case may in its judgment require."

First. The question first to be considered is whether, by the provisions of § 1 of the Federal Trade Commission Act, already quoted, the President's power is limited to removal for the specific causes enumerated therein. The negative contention of the government is based principally upon the decision of this court in Shrutleff v. United States, 189 U. S. 311. That case involved the power of the President to remove a general appraiser of merchandise appointed under the Act of June 10, 1890, 26 Stat. 131. Section 12 of the act provided for the appointment by the President, by and with the advice and consent

Page 295 U. S. 622

of the Senate, of nine general appraisers of merchandise, who "may be removed from office at any time by the President for inefficiency, neglect of duty, or malfeasance in office." The President removed Shurtleff without assigning any cause therefor. The Court of Claims dismissed plaintiff's petition to recover salary, upholding the President's power to remove for causes other than those stated. In this court, Shurtleff relied upon the maxim expressio unius est exclusio alterius, but this court held that, while the rule expressed in the maxim was a very proper one, and founded upon justifiable reasoning in many instances, it

"should not be accorded controlling weight when to do so would involve the alteration of the universal practice of the government for over a century and the consequent curtailment of the powers of the executive in such an unusual manner."

What the court meant by this expression appears from a reading of the opinion. That opinion -- after saying that no term of office was fixed by the act and that, with the exception of judicial officers provided for by the Constitution, no civil officer had ever held office by life tenure since the foundation of the government -- points out that to construe the statute as contended for by Shurtleff would give the appraiser the right to hold office during his life or until found guilty of some act specified in the statute, the


result of which would be a complete revolution in respect of the general tenure of office, effected by implication with regard to that particular office only.

"We think it quite inadmissible," the court said (pp. 189 U. S. 316, 189 U. S. 318),

"to attribute an intention on the part of Congress to make such an extraordinary change in the usual rule governing the tenure of office, and one which is to be applied to this particular office only, without stating such intention in plain and explicit language, instead of leaving it to be implied from doubtful inferences. . . . We cannot bring ourselves to the belief that Congress ever

Page 295 U. S. 623

intended this result while omitting to use language which would put that intention beyond doubt."

These circumstances, which led the court to reject the maxim as inapplicable, are exceptional. In the face of the unbroken precedent against life tenure, except in the case of the judiciary, the conclusion that Congress intended that, from among all other civil officers, appraisers alone should be selected to hold office for life was so extreme as to forbid, in the opinion of the court, any ruling which would produce that result if it reasonably could be avoided. The situation here presented is plainly and wholly different. The statute fixes a term of office, in accordance with many precedents. The first commissioners appointed are to continue in office for terms of three, four, five, six, and seven years, respectively, and their successors are to be appointed for terms of seven years -- any commissioner being subject to removal by the President for inefficiency, neglect of duty, or malfeasance in office. The words of the act are definite and unambiguous.

The government says the phrase "continue in office" is of no legal significance, and, moreover, applies only to the first commissioners. We think it has significance. It may be that, literally, its application is restricted as suggested; but it nevertheless lends support to a view contrary to that of the government as to the meaning of the entire requirement in respect of tenure; for it is not easy to suppose that Congress intended to secure the first commissioners against removal except for the causes specified, and deny like security to their successors. Putting this phrase aside, however, the fixing of a definite term subject to removal for cause, unless there be some countervailing provision or circumstance indicating the contrary, which here we are unable to find, is enough to establish the legislative intent that the term is not to be curtailed in the absence of such cause. But if the intention of

Page 295 U. S. 624

Congress that no removal should be made during the specified term except for one or more of the enumerated causes were not clear upon the face of the statute, as we think it is, it would be made clear by a consideration of the character of the commission and the legislative history which accompanied and preceded the passage of the act. The



commission is to be nonpartisan, and it must, from the very nature of its duties, act with entire impartiality. It is charged with the enforcement of no policy except the policy of the law. Its duties are neither political nor executive, but predominantly quasi-judicial and quasi-legislative. Like the Interstate Commerce Commission, its members are called upon to exercise the trained judgment of a body of experts "appointed by law and informed by experience." Illinois Central R. Co. v. Interstate Commerce Comm'n,206 U. S. 441, 206 U. S. 454; Standard Oil Co. v. United States, 283 U. S. 235, 283 U. S. 238-239. The legislative reports in both houses of Congress clearly reflect the view that a fixed term was necessary to the effective and fair administration of the law. In the report to the Senate (No. 597, 63d Cong., 2d Sess., pp. 10-11) the Senate Committee on Interstate Commerce, in support of the bill which afterwards became the act in question, after referring to the provision fixing the term of office at seven years, so arranged that the membership would not be subject to complete change at any one time, said:

"The work of this commission will be of a most exacting and difficult character, demanding persons who have experience in the problems to be met -- that is, a proper knowledge of both the public requirements and the practical affairs of industry. It is manifestly desirable that the terms of the commissioners shall be long enough to give them an opportunity to acquire the expertness in dealing with these special questions concerning industry that comes from experience. "

Page 295 U. S. 625

The report declares that one advantage which the commission possessed over the Bureau of Corporations (an executive subdivision in the Department of Commerce which was abolished by the act) lay in the fact of its independence, and that it was essential that the commission should not be open to the suspicion of partisan direction. The report quotes (p. 22) a statement to the committee by Senator Newlands, who reported the bill, that the tribunal should be of high character and

"independent of any department of the government . . . a board or commission of dignity, permanence, and ability, independent of executive authority, except in its selection, and independent in character."

The debates in both houses demonstrate that the prevailing view was that the commission was not to be "subject to anybody in the government, but . . . only to the people of the United States"; free from "political domination or control" or the "probability or possibility of such a thing"; to be "separate and apart from any existing department of the government -- not subject to the orders of the President."

More to the same effect appears in the debates, which were long and thorough, and contain nothing to the contrary. While the general rule precludes the use of these debates to explain the meaning of the words of the statute, they may be considered as reflecting light upon its general purposes and the evils which it sought to remedy.Federal Trade Comm'n v. Raladam Co., 283 U. S. 643, 283 U. S. 650.








Thus, the language of the act, the legislative reports, and the general purposes of the legislation as reflected by the debates all combine to demonstrate the Congressional intent to create a body of experts who shall gain experience by length of service -- a body which shall be independent of executive authority except in its selection, and free to exercise its judgment without the leave or hindrance

Page 295 U. S. 626

of any other official or any department of the government. To the accomplishment of these purposes it is clear that Congress was of opinion that length and certainty of tenure would vitally contribute. And to hold that, nevertheless, the members of the commission continue in office at the mere will of the President might be to thwart, in large measure, the very ends which Congress sought to realize by definitely fixing the term of office.

We conclude that the intent of the act is to limit the executive power of removal to the causes enumerated, the existence of none of which is claimed here, and we pass to the second question.

Second. To support its contention that the removal provision of § 1, as we have just construed it, is an unconstitutional interference with the executive power of the President, the government's chief reliance is Myers v. United States, 272 U. S. 52. That case has been so recently decided, and the prevailing and dissenting opinions so fully review the general subject of the power of executive removal, that further discussion would add little of value to the wealth of material there collected. These opinions examine at length the historical, legislative and judicial data bearing upon the question, beginning with what is called "the decision of 1789" in the first Congress and coming down almost to the day when the opinions were delivered. They occupy 243 pages of the volume in which they are printed. Nevertheless, the narrow point actually decided was only that the President had power to remove a postmaster of the first class without the advice and consent of the Senate as required by act of Congress. In the course of the opinion of the court, expressions occur which tend to sustain the government's contention, but these are beyond the point involved, and, therefore do not come within the rule of stare decisis. Insofar as they are out of harmony with the views here set forth, these expressions are disapproved. A like situation was

Page 295 U. S. 627

presented in the case of Cohens v. Virginia, 6 Wheat. 264, 19 U. S. 399, in respect of certain general expressions in the opinion in Marbury v. Madison, 1 Cranch 137. Chief Justice Marshall, who delivered the opinion in the Marbury case, speaking again for the court in the Cohens case, said:

"It is a maxim not to be disregarded that general expressions, in every opinion, are to be taken in connection with the case in which those expressions are used. If they go beyond the case, they may be respected, but ought not to control the judgment in a subsequent suit when the very point is presented for decision. The reason of this maxim is obvious.





The question actually before the Court is investigated with care, and considered in its full extent. Other principles which may serve to illustrate it are considered in their relation to the case decided, but their possible bearing on all other cases is seldom completely investigated."

And he added that these general expressions in the case of Marbury v. Madison were to be understood with the limitations put upon them by the opinion in the Cohens case.See also Carroll v. Lessee of Carroll, 16 How. 275, 57 U. S. 286-287; O'Donoghue v. United States, 289 U. S. 516, 289 U. S. 550.

The office of a postmaster is so essentially unlike the office now involved that the decision in the Myers case cannot be accepted as controlling our decision here. A postmaster is an executive officer restricted to the performance of executive functions. He is charged with no duty at all related to either the legislative or judicial power. The actual decision in the Myers case finds support in the theory that such an officer is merely one of the units in the executive department, and, hence, inherently subject to the exclusive and illimitable power of removal by the Chief Executive, whose subordinate and aid he is. Putting aside dicta, which may be followed if sufficiently persuasive but which are not controlling, the necessary reach of the decision goes far enough to include

Page 295 U. S. 628

all purely executive officers. It goes no farther; much less does it include an officer who occupies no place in the executive department, and who exercises no part of the executive power vested by the Constitution in the President.

The Federal Trade Commission is an administrative body created by Congress to carry into effect legislative policies embodied in the statute in accordance with the legislative standard therein prescribed, and to perform other specified duties as a legislative or as a judicial aid. Such a body cannot in any proper sense be characterized as an arm or an eye of the executive. Its duties are performed without executive leave, and, in the contemplation of the statute, must be free from executive control. In administering the provisions of the statute in respect of "unfair methods of competition" -- that is to say, in filling in and administering the details embodied by that general standard -- the commission acts in part quasi-legislatively and in part quasi-judicially. In making investigations and reports thereon for the information of Congress under 6, in aid of the legislative power, it acts as a legislative agency. Under § 7, which authorizes the commission to act as a master in chancery under rules prescribed by the court, it acts as an agency of the judiciary. To the extent that it exercises any executive function -- as distinguished from executive power in the constitutional sense -- it does so in the discharge and effectuation of its quasi-legislative or quasi-judicial powers, or as an agency of the legislative or judicial departments of the government. *

Page 295 U. S. 629





If Congress is without authority to prescribe causes for removal of members of the trade commission and limit executive power of removal accordingly, that power at once becomes practically all-inclusive in respect of civil officers with the exception of the judiciary provided for by the Constitution. The Solicitor General, at the bar, apparently recognizing this to be true, with commendable candor, agreed that his view in respect of the removability of members of the Federal Trade Commission necessitated a like view in respect of the Interstate Commerce Commission and the Court of Claims. We are thus confronted with the serious question whether not only the members of thesequasi-legislative and quasi-judicial bodies, but the judges of the legislative Court of Claims, exercising judicial power (Williams v. United States, 289 U. S. 553, 289 U. S. 565-567), continue in office only at the pleasure of the President.

We think it plain under the Constitution that illimitable power of removal is not possessed by the President in respect of officers of the character of those just named. The authority of Congress, in creating quasi-legislative or quasi-judicial agencies, to require them to act in discharge of their duties independently of executive control cannot well be doubted, and that authority includes, as an appropriate incident, power to fix the period during which they shall continue in office, and to forbid their removal except for cause in the meantime. For it is quite evident that one who holds his office only during the pleasure of another cannot be depended upon to maintain an attitude of independence against the latter's will.

The fundamental necessity of maintaining each of the three general departments of government entirely free from the control or coercive influence, direct or indirect, of either of the others has often been stressed, and is hardly open to serious question. So much is implied in

Page 295 U. S. 630

the very fact of the separation of the powers of these departments by the Constitution, and in the rule which recognizes their essential coequality. The sound application of a principle that makes one master in his own house precludes him from imposing his control in the house of another who is master there. James Wilson, one of the framers of the Constitution and a former justice of this court, said that the independence of each department required that its proceedings "should be free from the remotest influence, direct or indirect, of either of the other two powers." Andrews, The Works of James Wilson (1896), vol. 1, p. 367. And Mr. Justice Story, in the first volume of his work on the Constitution, 4th ed., § 530, citing No. 48 of the Federalist, said that neither of the departments in reference to each other "ought to possess, directly or indirectly, an overruling influence in the administration of their respective powers." And see O'Donoghue v. United States, supra., at pp. 289 U. S. 530-531.

The power of removal here claimed for the President falls within this principle, since its coercive influence threatens the independence of a commission which is not only wholly disconnected from the executive department, but which, as already fully appears, was




created by Congress as a means of carrying into operation legislative and judicial powers, and as an agency of the legislative and judicial departments.

In the light of the question now under consideration, we have reexamined the precedents referred to in the Myers case, and find nothing in them to justify a conclusion contrary to that which we have reached. The so-called "decision of 1789" had relation to a bill proposed by Mr. Madison to establish an executive Department of Foreign Affairs. The bill provided that the principal officer was "to be removable from office by the President of the United States." This clause was changed to read "whenever the principal officer shall be removed

Page 295 U. S. 631

from office by the President of the United States," certain things should follow, thereby, in connection with the debates, recognizing and confirming, as the court thought in theMyers case, the sole power of the President in the matter. We shall not discuss the subject further, since it is so fully covered by the opinions in the Myers case, except to say that the office under consideration by Congress was not only purely executive, but the officer one who was responsible to the President, and to him alone, in a very definite sense. A reading of the debates shows that the President's illimitable power of removal was not considered in respect of other than executive officers. And it is pertinent to observe that, when, at a later time, the tenure of office for the Comptroller of the Treasury was under consideration, Mr. Madison quite evidently thought that, since the duties of that office were not purely of an executive nature, but partook of the judiciary quality as well, a different rule in respect of executive removal might well apply. 1 Annals of Congress, cols. 611-612.

In Marbury v. Madison, supra, pp. 5 U. S. 162, 5 U. S. 165-166, it is made clear that Chief Justice Marshall was of opinion that a justice of the peace for the District of Columbia was not removable at the will of the President, and that there was a distinction between such an officer and officers appointed to aid the President in the performance of his constitutional duties. In the latter case, the distinction he saw was that "their acts are his acts," and his will, therefore, controls; and, by way of illustration, he adverted to the act establishing the Department of Foreign Affairs, which was the subject of the "decision of 1789."

The result of what we now have said is this: whether the power of the President to remove an officer shall prevail over the authority of Congress to condition the power by fixing a definite term and precluding a removal except for cause will depend upon the character of the office; the Myers decision, affirming the power of the President

Page 295 U. S. 632

alone to make the removal, is confined to purely executive officers, and, as to officers of the kind here under consideration, we hold that no removal can be made during the prescribed term for which the officer is appointed except for one or more of the causes



named in the applicable statute. To the extent that, between the decision in the Myerscase, which sustains the unrestrictable power of the President to remove purely executive officers, and our present decision that such power does not extend to an office such as that here involved, there shall remain a field of doubt, we leave such cases as may fall within it for future consideration and determination as they may arise. In accordance with the foregoing, the questions submitted are answered.

Question No. 1, Yes. Question No. 2, Yes.

* The docket title of this case is: Rathbun, Executor v. United States.

* The provision of § 6(d) of the act which authorizes the President to direct an investigation and report by the commission in relation to alleged violations of the antitrust acts is so obviously collateral to the main design of the act as not to detract from the force of this general statement as to the character of that body.

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Manila

EN BANC

G.R. No. 83578 March 16, 1989

THE PRESIDENTIAL ANTI-DOLLAR SALTING TASK FORCE, petitioner, vs.HONORABLE COURT OF APPEALS, HONORABLE TEOFILO L, GUADIZ, JR.,Presiding Judge, REGIONAL TRIAL COURT, Branch 147: NCR (MAKATI), and KARAMFIL IMPORT-EXPORT CO., INC., respondents.

K. V. Faylona & Associates for respondents.

SARMIENTO, J.:

The petitioner, the Presidential Anti-Dollar Salting Task Force, the President's arm assigned to investigate and prosecute so-called "dollar salting" activities in the country (per Presidential Decree No. 1936 as amended by Presidential Decree No. 2002), asks the Court to hold as null and void two Resolutions of the Court of Appeals, dated September 24, 1987 1 and May 20, 1988, 2 reversing its Decision, dated October 24, 1986. 3 The Decision set aside an Order, dated April 16, 1985, of the Regional Trial Court, 4 as well as its Order, dated August 21, 1985. The Resolution, dated September 24, 1987 disposed of, and granted, the private respondent Karamfil Import-Export Co., Inc.'s motion for reconsideration of the October 24, 1986 Decision; the Resolution dated May 20, 1988, in turn, denied the petitioner's own motion for reconsideration.

The facts are not in controversy. We quote:

On March 12, 1985, State Prosecutor Jose B. Rosales, who is assigned with the Presidential Anti-Dollar Salting Task Force hereinafter referred to as PADS Task Force for purposes of convenience, issued search warrants Nos. 156, 157, 158, 159, 160 and 161 against the petitioners Karamfil Import-Export Co., Inc., P & B Enterprises Co., Inc., Philippine Veterans Corporation, Philippine Veterans Development Corporation, Philippine Construction Development Corporation, Philippine Lauan Industries Corporation, Inter-trade Development (Alvin Aquino), Amelili U. Malaquiok Enterprises and Jaime P. Lucman Enterprises.

The application for the issuance of said search warrants was filed by Atty. Napoleon Gatmaytan of the Bureau of Customs who is a deputized member of the PADS Task Force. Attached to the said application is the affidavit of Josefin M. Castro who is an operative and investigator of the PADS Task Force. Said Josefin M. Castro is likewise the sole deponent in the purported deposition to support the application for the issuance of the six (6) search warrants involved in this case. The application filed by Atty. Gatmaytan, the affidavit and deposition of Josefin M. Castro are all dated March 12, 1985. 5

Shortly thereafter, the private respondent (the petitioner below) went to the Regional Trial Court on a petition to enjoin the implementation of the search warrants in question. 6 On March 13, 1985, the

trial court issued a temporary restraining order [effective "for a period of five (5) days notice " 7 ] and set the case for hearing on March 18, 1985.

In disposing of the petition, the said court found the material issues to be:

1) Competency of this Court to act on petition filed by the petitioners;

2) Validity of the search warrants issued by respondent State Prosecutor;

3) Whether or not the petition has become moot and academic because all the search warrants sought to be quashed had already been implemented and executed. 8

On April 16, 1985, the lower court issued the first of its challenged Orders, and held:

WHEREFORE, in view of all the foregoing, the Court hereby declares Search Warrant Nos. 156, 157, 158, 159, 160, and 161 to be null and void. Accordingly, the respondents are hereby ordered to return and surrender immediately all the personal properties and documents seized by them from the petitioners by virtue of the aforementioned search warrants.

SO ORDERED. 9

On August 21, 1985, the trial court denied reconsideration.

On April 4, 1986, the Presidential Anti-Dollar Salting Task Force went to the respondent Court of Appeals to contest, on certiorari, the twin Order(s) of the lower court.

In ruling initially for the Task Force, the Appellate Court held:

Herein petitioner is a special quasi-judicial body with express powers enumerated under PD 1936 to prosecute foreign exchange violations defined and punished under P.D. No. 1883.

The petitioner, in exercising its quasi-judicial powers, ranks with the Regional Trial Courts, and the latter in the case at bar had no jurisdiction to declare the search warrants in question null and void.

Besides as correctly pointed out by the Assistant Solicitor General the decision of the Presidential Anti-Dollar Salting Task Force is appealable to the Office of the President.10

On November 12, 1986, Karamfil Import-Export Co., Inc. sought a reconsideration, on the question primarily of whether or not the Presidential Anti-Dollar Salting Task Force is "such other responsible officer' countenanced by the 1973 Constitution to issue warrants of search and seizure.

As we have indicated, the Court of Appeals, on Karamfil's motion, reversed itself and issued its Resolution, dated September 1987, and subsequently, its Resolution, dated May 20, 1988, denying the petitioner's motion for reconsideration.

In its petition to this Court, the petitioner alleges that in so issuing the Resolution(s) above-mentioned, the respondent Court of Appeals "committed grave abuse of discretion and/or acted in excess of its appellate jurisdiction," 11 specifically:

a) In deviating from the settled policy and rulings of the Supreme Court that no Regional Trial Courts may countermand or restrain the enforcement of lawful writs or decrees issued by a quasi-judicial body of equal and coordinate rank, like the PADS Task Force;

b) For resorting to judicial legislation to arrive at its erroneous basis for reconsidering its previous Decision dated October 24, 1986 (see Annex "I") and thus promulgated the questioned Resolutions (Annexes "A" and "B"), which violated the constitutional doctrine on separation of powers;

c) In not resolving directly the other important issues raised by the petitioner in its Petition in CA-G.R. No. 08622-SP despite the fact that petitioner has demonstrated sufficiently and convincingly that respondent RTC, in issuing the questioned Orders in Special Proceeding No. M-624 (see Annexes "C" and 'D"), committed grave abuse of discretion and/or acted in excess of jurisdiction:

1. In ruling that (a) the description of the things to be seized as stated in the contested search warrant were too general which allegedly render the search warrants null and void; (b) the applications for the contested search warrants actually charged two offenses in contravention of the 2nd paragraph, Section 3, Rule 126 of the Rules of Court; and (c) this case has not become moot and academic, even if the contested search warrants had already been fully implemented with positive results; and

2. In ruling that the petitioner PADS Task Force has not been granted under PD 1936 'judicial or quasi-judicial jurisdiction. 12

We find, upon the foregoing facts, that the essential questions that confront us are- (i) is the Presidential Anti-Dollar Salting Task Force a quasi-judicial body, and one co-equal in rank and standing with the Regional Trial Court, and accordingly, beyond the latter's jurisdiction; and (ii) may the said presidential body be said to be "such other responsible officer as may be authorized by law" to issue search warrants under the 1973 Constitution questions we take up seriatim.**

In submitting that it is a quasi-judicial entity, the petitioner states that it is endowed with "express powers and functions under PD No. 1936, to prosecute foreign exchange violations as defined and punished under PD No. 1883." 13 "By the very nature of its express powers as conferred by the laws," so it is contended, "which are decidedly quasi-judicial or discretionary function, such as to conduct preliminary investigation on the charges of foreign exchange violations, issue search warrants or warrants of arrest, hold departure orders, among others, and depending upon the evidence presented, to dismiss the charges or to file the corresponding information in court of Executive Order No. 934, PD No. 1936 and its Implementing Rules and Regulations effective August 26, 1984), petitioner exercises quasi-judicial power or the power of adjudication ." 14

The Court of Appeals, in its Resolution now assailed, 15 was of the opinion that "[t]he grant of quasi-judicial powers to petitioner did not diminish the regular courts' judicial power of interpretation. The right to interpret a law and, if necessary to declare one unconstitutional, exclusively pertains to the judiciary. In assuming this function, courts do not proceed on the theory that the judiciary is superior to the two other coordinate branches of the government, but solely on the theory that they are required to declare the law in every case which come before them." 16

This Court finds the Appellate Court to be in error, since what the petitioner puts to question is the Regional Trial Court's act of assuming jurisdiction over the private respondent's petition below and

its subsequent countermand of the Presidential Anti-Dollar Salting Task Force's orders of search and seizure, for the reason that the presidential body, as an entity (allegedly) coordinate and co-equal with the Regional Trial Court, was (is) not vested with such a jurisdiction. An examination of the Presidential Anti-Dollar Salting Task Force's petition shows indeed its recognition of judicial review (of the acts of Government) as a basic privilege of the courts. Its objection, precisely, is whether it is the Regional Trial Court, or the superior courts, that may undertake such a review.

Under the Judiciary Reorganization Act of 1980, 17 the Court of Appeals exercises:

(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of Regional Trial Court and quasi-judicial agencies, instrumentalities, boards or commissions, except those falling within the appellate jurisdiction of the Supreme Court in accordance with the Constitution, the provisions of this Act, and of subparagraph (1) of the third paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948. 18

xxx xxx xxx

Under the present Constitution, with respect to its provisions on Constitutional Commissions, it is provided, in part that:

... Unless otherwise provided by this Constitution or by law, any decision, order, or ruling of each Commission may be brought to the Supreme Court on certiorari by the aggrieved party within thirty days from receipt of a copy thereof. 19

On the other hand, Regional Trial Courts have exclusive original jurisdiction:

(6) In all cases not within the exclusive jurisdiction of any court, tribunal, person or body exercising judicial or quasi-judicial functions. 20

xxx xxx xxx

Likewise:

... The Supreme Court may designate certain branches of the Regional Trial Court to handle exclusively criminal cases, juvenile and domestic relations cases, agrarian case, urban land reform cases which do not fall under the jurisdiction of quasi- judicial bodies and agencies and/or such other special cases as the Supreme Court may determine in the interest of a speedy and efficient administration of justice. 21

xxx xxx xxx

Under our Resolution dated January 11, 1983: 22

... The appeals to the Intermediate Appellate Court [now, Court of Appeals] from quasi-judicial bodies shall continue to be governed by the provisions of Republic Act No. 5434 insofar as the same is not inconsistent with the provisions of B.P. Blg. 129. 23

The pertinent provisions of Republic Act No. 5434 are as follows:

SECTION 1. Appeals from specified agencies.— Any provision of existing law or Rule of Court to the contrary notwithstanding, parties aggrieved by a final ruling, award, order,

decision, or judgment of the Court of Agrarian Relations; the Secretary of Labor under Section 7 of Republic Act Numbered Six hundred and two, also known as the "Minimum Wage Law"; the Department of Labor under Section 23 of Republic Act Numbered Eight hundred seventy-five, also known as the "Industrial Peace Act"; the Land Registration Commission; the Securities and Exchange Commission; the Social Security Commission; the Civil Aeronautics Board; the Patent Office and the Agricultural Inventions Board, may appeal therefrom to the Court of Appeals, within the period and in the manner herein provided, whether the appeal involves questions of fact, mixed questions of fact and law, or questions of law, or all three kinds of questions. From final judgments or decisions of the Court of Appeals, the aggrieved party may appeal by certiorari to the Supreme Court as provided in Rule 45 of the Rules of Court. 24

Because of subsequent amendments, including the abolition of various special courts, 25 jurisdiction over quasi-judicial bodies has to be, consequently, determined by the corresponding amendatory statutes. Under the Labor Code, decisions and awards of the National Labor Relations Commission are final and executory, but, nevertheless, 'reviewable by this Court through a petition for certiorari and not by way of appeal." 26

Under the Property Registration Decree, decisions of the Commission of Land Registration, en consults, are appealable to the Court of Appeals. 27

The decisions of the Securities and Exchange Commission are likewise appealable to the Appellate Court, 28 and so are decisions of the Social Security Commission.29

As a rule, where legislation provides for an appeal from decisions of certain administrative bodies to the Court of Appeals, it means that such bodies are co-equal with the Regional Trial Courts, in terms of rank and stature, and logically, beyond the control of the latter.

As we have observed, the question is whether or not the Presidential Anti-Dollar Salting Task Force is, in the first place, a quasi-judicial body, and one whose decisions may not be challenged before the regular courts, other than the higher tribunals the Court of Appeals and this Court.

A quasi-judicial body has been defined as "an organ of government other than a court and other than a legislature, which affects the rights of private parties through either adjudication or rule making." 30 The most common types of such bodies have been listed as follows:

(1) Agencies created to function in situations wherein the government is offering some gratuity, grant, or special privilege, like the defunct Philippine Veterans Board, Board on Pensions for Veterans, and NARRA, and Philippine Veterans Administration.

(2) Agencies set up to function in situations wherein the government is seeking to carry on certain government functions, like the Bureau of Immigration, the Bureau of Internal Revenue, the Board of Special Inquiry and Board of Commissioners, the Civil Service Commission, the Central Bank of the Philippines.

(3) Agencies set up to function in situations wherein the government is performing some business service for the public, like the Bureau of Posts, the Postal Savings Bank, Metropolitan Waterworks & Sewerage Authority, Philippine National Railways, the Civil Aeronautics Administration.

(4) Agencies set up to function in situations wherein the government is seeking to regulate business affected with public interest, like the Fiber Inspections Board, the Philippine Patent Office, Office of the Insurance Commissioner.

(5) Agencies set up to function in situations wherein the government is seeking under the police power to regulate private business and individuals, like the Securities & Exchange Commission, Board of Food Inspectors, the Board of Review for Moving Pictures, and the Professional Regulation Commission.

(6) Agencies set up to function in situations wherein the government is seeking to adjust individual controversies because of some strong social policy involved, such as the National Labor Relations Commission, the Court of Agrarian Relations, the Regional Offices of the Ministry of Labor, the Social Security Commission, Bureau of Labor Standards, Women and Minors Bureau. 31

As may be seen, it is the basic function of these bodies to adjudicate claims and/or to determine rights, and unless its decision are seasonably appealed to the proper reviewing authorities, the same attain finality and become executory. A perusal of the Presidential Anti-Dollar Salting Task Force's organic act, Presidential Decree No. 1936, as amended by Presidential Decree No. 2002, convinces the Court that the Task Force was not meant to exercise quasi-judicial functions, that is, to try and decide claims and execute its judgments. As the President's arm called upon to combat the vice of "dollar salting" or the blackmarketing and salting of foreign exchange, 32 it is tasked alone by the Decree to handle the prosecution of such activities, but nothing more. We quote:

SECTION 1. Powers of the Presidential Anti-Dollar Salting Task Force.-The Presidential Anti-Dollar Salting Task Force, hereinafter referred to as Task Force, shall have the following powers and authority:

a) Motu proprio or upon complaint, to investigate and prosecute all dollar salting activities, including the overvaluation of imports and the undervaluation of exports;

b) To administer oaths, summon persons or issue subpoenas requiring the attendance and testimony of witnesses or the production of such books, papers, contracts, records, statements of accounts, agreements, and other as may be necessary in the conduct of investigation;

c) To appoint or designate experts, consultants, state prosecutors or fiscals, investigators and hearing officers to assist the Task Force in the discharge of its duties and responsibilities; gather data, information or documents; conduct hearings, receive evidence, both oral and documentary, in all cases involving violation of foreign exchange laws or regulations; and submit reports containing findings and recommendations for consideration of appropriate authorities;

d) To punish direct and indirect contempts with the appropriate penalties therefor under Rule 71 of the Rules of Court; and to adopt such measures and take such actions as may be necessary to implement this Decree.

xxx xxx xxx

f. After due investigation but prior to the filing of the appropriate criminal charges with the fiscal's office or the courts as the case may be, to impose a fine and/or administrative sanctions as the circumstances warrant, upon any person found

committing or to have committed acts constituting blackmarketing or salting abroad of foreign exchange, provided said person voluntarily admits the facts and circumstances constituting the offense and presents proof that the foreign exchange retained abroad has already been brought into the country.

Thereafter, no further civil or criminal action may be instituted against said person before any other judicial regulatory or administrative body for violation of Presidential Decree No. 1883.

The amount of the fine shall be determined by the Chairman of the Presidential Anti- Dollar Salting Task Force and paid in Pesos taking into consideration the amount of foreign exchange retained abroad, the exchange rate differentials, uncollected taxes and duties thereon, undeclared profits, interest rates and such other relevant factors.

The fine shall be paid to the Task Force which shall retain Twenty percent (20 %) thereof. The informer, if any, shall be entitled to Twenty percent (20 %) of the fine. Should there be no informer, the Task Force shall be entitle to retain Forty percent (40 %) of the fine and the balance shall accrue to the general funds of the National government. The amount of the fine to be retained by the Task Force shall form part of its Confidential Fund and be utilized for the operations of the Task Force . 33

The Court sees nothing in the aforequoted provisions (except with respect to the Task Force's powers to issue search warrants) that will reveal a legislative intendment to confer it with quasi-judicial responsibilities relative to offenses punished by Presidential Decree No. 1883. Its undertaking, as we said, is simply, to determine whether or not probable cause exists to warrant the filing of charges with the proper court, meaning to say, to conduct an inquiry preliminary to a judicial recourse, and to recommend action "of appropriate authorities". It is not unlike a fiscal's office that conducts a preliminary investigation to determine whether or not prima facie evidence exists to justify haling the respondent to court, and yet, while it makes that determination, it cannot be said to be acting as a quasi-court. For it is the courts, ultimately, that pass judgment on the accused, not the fiscal.

It is not unlike the Presidential Commission on Good Government either, the executive body appointed to investigate and prosecute cases involving "ill-gotten wealth". It had been vested with enormous powers, like the issuance of writs of sequestration, freeze orders, and similar processes, but that did not, on account thereof alone, make it a quasi-judicial entity as defined by recognized authorities. It cannot pronounce judgement of the accused's culpability, the jurisdiction to do which is exclusive upon the Sandiganbayan. 34

If the Presidential Anti-Dollar Salting Task Force is not, hence, a quasi-judicial body, it cannot be said to be co-equal or coordinate with the Regional Trial Court. There is nothing in its enabling statutes that would demonstrate its standing at par with the said court.

In that respect, we do not find error in the respondent Court of Appeal's resolution sustaining the assumption of jurisdiction by the court a quo.

It will not do to say that the fact that the Presidential Task Force has been empowered to issue warrants of arrest, search, and seizure, makes it, ergo, a "semi-court". Precisely, it is the objection interposed by the private respondent, whether or not it can under the 1973 Charter, issue such kinds of processes.

It must be observed that under the present Constitution, the powers of arrest and search are exclusive upon judges.35 To that extent, the case has become moot and academic. Nevertheless, since the question has been specifically put to the Court, we find it unavoidable to resolve it as the final arbiter of legal controversies, pursuant to the provisions of the 1973 Constitution during whose regime the case was commenced.

Since the 1973 Constitution took force and effect and until it was so unceremoniously discarded in 1986, its provisions conferring the power to issue arrest and search warrants upon an officer, other than a judge, by fiat of legislation have been at best controversial. In Lim v. Ponce de Leon, 36 a 1975 decision, this Court ruled that a fiscal has no authority to issue search warrants, but held in the same vein that, by virtue of the responsible officer" clause of the 1973 Bill of Rights, "any lawful officer authorized by law can issue a search warrant or warrant of arrest.37Authorities, however, have continued to express reservations whether or not fiscals may, by statute, be given such a power. 38

Less than a year later, we promulgated Collector of Customs v. Villaluz, 39 in which we categorically averred: Until now only the judge can issue the warrant of arrest." 40 "No law or presidential decree has been enacted or promulgated vesting the same authority in a particular responsible officer ." 41

Apparently, Villaluz had settled the debate, but the same question persisted following this Courts subsequent rulings upholding the President's alleged emergency arrest powers .42 [Mr. Justice Hugo Gutierrez would hold, however, that a Presidential Commitment Order (PCO) is (was) not a species of "arrest" in its technical sense, and that the (deposed) Chief Executive, in issuing one, does not do so in his capacity as a "responsible officer" under the 1973 Charter, but rather, as Commander-in-Chief of the Armed Forces in times of emergency, or in order to carry out the deportation of undesirable aliens.43 In the distinguished Justice's opinion then, these are acts that can be done without need of judicial intervention because they are not, precisely, judicial but Presidential actions.]

In Ponsica v. Ignalaga,44 however, we held that the mayor has been made a "responsible officer' by the Local Government Code, 45 but had ceased to be one with the approval of the 1987 Constitution according judges sole authority to issue arrest and search warrants. But in the same breath, we did not rule the grant under the Code unconstitutional based on the provisions of the former Constitution. We were agreed, though, that the "responsible officer" referred to by the fundamental law should be one capable of approximating "the cold neutrality of an impartial judge." 46

In striking down Presidential Decree No. 1936 the respondent Court relied on American jurisprudence, notably, Katz v. United States, 47 Johnson v. United States, 48 and Coolidge v. New Hampshire 49 in which the American Supreme Court ruled that prosecutors (like the petitioner) cannot be given such powers because of their incapacity for a "detached scrutiny" 50 of the cases before them. We affirm the Appellate Court.

We agree that the Presidential Anti-Dollar Salting Task Force exercises, or was meant to exercise, prosecutorial powers, and on that ground, it cannot be said to be a neutral and detached "judge" to determine the existence of probable cause for purposes of arrest or search. Unlike a magistrate, a prosecutor is naturally interested in the success of his case. Although his office "is to see that justice is done and not necessarily to secure the conviction of the person accused," 51 he stands, invariably, as the accused's adversary and his accuser. To permit him to issue search warrants and indeed, warrants of arrest, is to make him both judge and jury in his own right, when he is neither. That makes, to our mind and to that extent, Presidential Decree No. 1936 as amended by Presidential Decree No. 2002, unconstitutional.

It is our ruling, thus, that when the 1973 Constitution spoke of "responsible officer" to whom the authority to issue arrest and search warrants may be delegated by legislation, it did not furnish the legislator with the license to give that authority to whomsoever it pleased. It is to be noted that the Charter itself makes the qualification that the officer himself must be "responsible". We are not saying, of course, that the Presidential Anti-Dollar Salting Task Force (or any similar prosecutor) is or has been irresponsible in discharging its duty. Rather, we take "responsibility", as used by the Constitution, to mean not only skill and competence but more significantly, neutrality and independence comparable to the impartiality presumed of a judicial officer. A prosecutor can in no manner be said to be possessed of the latter qualities.

According to the Court of Appeals, the implied exclusion of prosecutors under the 1973 Constitution was founded on the requirements of due process, notably, the assurance to the respondent of an unbiased inquiry of the charges against him prior to the arrest of his person or seizure of his property. We add that the exclusion is also demanded by the principle of separation of powers on which our republican structure rests. Prosecutors exercise essentially an executive function (the petitioner itself is chaired by the Minister, now Secretary, of Trade and Industry), since under the Constitution, the President has pledged to execute the laws. 52 As such, they cannot be made to issue judicial processes without unlawfully impinging the prerogative of the courts.

At any rate, Ponsica v. Ignalaga should foreclose all questions on the matter, although the Court hopes that this disposition has clarified a controversy that had generated often bitter debates and bickerings.

The Court joins the Government in its campaign against the scourge of "dollar- salting", a pernicious practice that has substantially drained the nation's coffers and has seriously threatened its economy. We recognize the menace it has posed (and continues to pose) unto the very stability of the country, the urgency for tough measures designed to contain if not eradicate it, and foremost, the need for cooperation from the citizenry in an all-out campaign. But while we support the State's efforts, we do so not at the expense of fundamental rights and liberties and constitutional safeguards against arbitrary and unreasonable acts of Government. If in the event that as a result of this ruling, we prove to be an "obstacle" to the vital endeavour of stamping out the blackmarketing of valuable foreign exchange, we do not relish it and certainly, do not mean it. The Constitution simply does not leave us much choice.

WHEREFORE, the petition is DISMISSED. No costs. SO ORDERED.

Fernan, C.J., Narvasa, Gutierrez, Jr., Paras, Gancayco, Padilla, Bidin, Griño-Aquino, Medialdea and Regalado, JJ., concur.

Cruz, Feliciano and Cortes, JJ. concur in the result.

Melencio-Herrera, J., took no part.

Footnotes

1 Herrera, Manuel, J., Camilon and Magsino, JJ., Concurring.

2 Herrera, Manuel, J., Bellosillo and Magsino, JJ., Concurring.

3 Herrera, Manuel, J., Camilon and Magsino, JJ., Concurring.

4 Guadiz, Teofilo, presiding Judge, Branch CXLVII Makati, Metro Manila.

5 Order, dated April 16, 1985, 1.

6 Id.

7 Id.

8 Id., 2. Reference to "Court" is Regional Trial Court.

9 Id., 9.

10 Decision, dated October 24, 1986, 4-5.

11 Petition, 6.

12 Id., 7-9.

** We decide this case notwithstanding the private respondent's prayer for extension to file a memorandum. (The Solicitor General has asked that he be excused from filing one). We do so since the pleadings on file with the Court have sufficiently shown the respective positions of the parties and since only questions of law are involved, questions we can already resolve without the aid of any more other pleading or paper.

13 Id., 15-16.

14 Id., 16.

15 Dated May 20, 1988.

16 Id., 2-3.

17 Batas Pambansa Blg. 129.

18 Supra, sec. 9, Par. (3).

19 CONST. (1987), art. IX (B), sec. 7.

20 Supra, sec. 19, par. (6).

21 Supra, sec. 23.

22 RESOLUTION OF THE COURT EN BANC, DATED JANUARY 11, 1983, PROVIDING FOR THE INTERIM OR TRANSITIONAL RULES AND GUIDELINES

RELATIVE TO THE IMPLEMENTATION OF THE JUDICIARY REORGANIZATION ACT OF 1981 (B.P. BLG. 129).

23 Supra, par. 22, subpar. (c).

24 Rep. Act. No. 5434, sec. 1.

25 The Court of Agrarian Relations for instance, was abolished by Batas Blg. 129, sec. 44. The Labor Code, sec. 298, on the other hand, abolished the Court of Industrial Relations.

26 Asiaworld Publishing House, Inc. v. Ople, No. L-56398, July 23, 1987, 152 SCRA 219, 225.

27 Pres. Decree No. 1529, sec. 117; Rep. Act No. 5434, sec. 1, supra.

28 Batas Blg. 129, supra, sec. 9(3), amending Pres. Decree No. 902-A, sec. 6.

29 Supra.

30 GONZALES, ADMINISTRATIVE LAW, A TEXT 13 (1979).

31 Id., 14-15.

32 See Pres. Decree No. 1883 as amended by Pres. Decree No. 2002.

33 Pres. Decree No. 1936, sec. 1; Pres. Decree No. 2002, supra, sec. 2; emphasis in original.

34 Presidential Commission on Good Government v. Pena, G.R. No. 77663, April 12, 1988; Feliciano, J., Concurring with qualifications. While the Regional Trial Courts may not take cognizance of cases involving the Commission, this is so because the various Executive Orders creating it specifically invested the Sandiganbayan of the jurisdiction, and not because it is co-equal with the said courts.

35 CONST. (1987), art. III, Sec. 2.

36 No. L-22554, August 29, 1975, 66 SCRA 299.

37 Supra, 306, fn. 7; emphasis supplied.

38 BERNAS, THE 1973 PHILIPPINE CONSTITUTION A REVIEWER-PRIMER 37 (1981).

39 Nos. L-34038, 34243, 36376, 38688, 39525, 40031, June 18, 1976, 71 SCRA 356.

40 Supra, 380.

41 Supra.

42 See Cruz v. Gatan No. 1,449 10, November 29, 1976, 74 SCRA 226 in which the Court sustained the Arrest, Search, and Seizure Order (ASSO) under General Order No. 2-A; Garcia-Padilla v. Enrile, No. L-61398, April 20,1983,121 SCRA 472 and Morales, Jr. v. Enrile, Nos. L-61016-7, April 26,1983,121 SCRA 538, in which we held valid Presidential Commitment Orders) (PCOS) pursuant to Letters of Instructions Nos. 1125-A and 121 1; and Garcia-Padilla v. Enrile, No. L-61388, July 19, 1985, 137 SCRA 647, in which we recognized the validity of Presidential Detention Action(s) PDAs per Presidential Decree Nos. 1877 and 1877-A.

43 Morales, Jr. v. Enrile, supra, 604, Gutierrez, Jr., J., Concurring.

44 No. L-72301, July 31, 1987, 152 SCRA 647.

45 Batas Pambansa Blg. 337, sec. 143, pars. (1), (3).

46 Ponsica v. Ignalaga, supra, 662.

47 389 US 347 (1967).

48 333 US 10 (1948).

49 403 US 433 (197 1).

50 Resolution, dated September 24, 1987, id., 2.

51 Crespo v. Mogul, No. L-53373, June 30, 1987, 151 SCRA 462, 470.

52 CONST. (1987), art. VII, sec. 5.


Manila

SECOND DIVISION

G.R. No. 73140 May 29, 1987

RIZAL EMPIRE INSURANCE GROUP AND/OR SERGIO CORPUS, petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION, TEODORICO L. RUIZ, as Labor Arbiter and ROGELIO R. CORIA, respondents.

Ambrosio Padilla, Mempin & Reyes Law Offices for petitioners.

Guillermo H. Pulia for private respondent.

PARAS, J.:

This is a petition for review on certiorari of the March 14, 1985 Decision of Labor Arbiter Teodorico L. Ruiz which held that herein private respondent Rogelio R. Coria was illegally dismissed; and of the Resolution of the National Labor Relations Commission which dismissed petitioner's appeal on the ground that the same was filed out of time.

In August, 1977, herein private respondent Rogelio R. Coria was hired by herein petitioner Rizal Empire Insurance Group as a casual employee with a salary of P10.00 a day. On January 1, 1978, he was made a regular employee, having been appointed as clerk-typist, with a monthly salary of P300.00. Being a permanent employee, he was furnished a copy of petitioner company's "General Information, Office Behavior and Other Rules and Regulations." In the same year, without change in his position-designation, he was transferred to the Claims Department and his salary was increased to P450,00 a month. In 1980, he was transferred to the Underwriting Department and his salary was increased to P580.00 a month plus cost of living allowance, until he was transferred to the Fire Department as filing clerk. In July, 1983, he was made an inspector of the Fire Division with a monthly salary of P685.00 plus allowances and other benefits.

On October 15, 1983, private respondent Rogelio R. Coria was dismissed from work, allegedly, on the grounds of tardiness and unexcused absences. Accordingly, he filed a complaint with the Ministry of Labor and Employment (MOLE), and in a Decision dated March 14, 1985 (Record, pp. 80-87), Labor Arbiter Teodorico L. Ruiz reinstated him to his position with back wages. Petitioner filed an appeal with the National labor Relations Commission (NLRC) but, in a Resolution dated November 15, 1985 (Ibid, pp. 31-32), the appeal was dismissed on the ground that the same had been filed out of time. Hence, the instant petition (Ibid, pp. 2-22).

In compliance with the resolution of the Second Division of this Court dated April 30, 1986 (Ibid., p. 94), private respondent filed his Comment on May 23, 1986 (Ibid., pp. 97-101) and public respondent on July 2, 1986 (Ibid., pp. 120-124).

On June 6, 1986, petitioners filed their Reply to private respondent's Comment (Ibid, pp. 102-105) and on July 25, 1986, their Reply to public respondent's Comment (Ibid., pp. 126-131).

In a Resolution dated August 18, 1986, the Second Division of this Court resolved to give due course to the petition and to require the parties to submit their respective memoranda (Ibid., P. 132).

In compliance with the above mentioned Resolution, petitioners filed the,.r memorandum on November 10, 1986; while private respondent filed his Memorandum on October 17, 1986 (Ibid, pp. 139-144), and public respondent on November 16, 1986 (Ibid., pp. 160-166).

Before going however, into the merits of the case, an important point to consider is whether or not it is still within the jurisdiction of this Court to review.

Rule VIII of the Revised Rules of the National Labor Relations Commission on appeal, provides:

SECTION 1. (a) Appeal. — Decision or orders of a labor Arbiter shall be final and executory unless appealed to the Commission by any or both of the parties within ten (10) calendar days from receipt of notice thereof.

xxx xxx xxx

SECTION 6. No extension of period. — No motion or request for extension of the period within which to perfect an appeal shall be entertained.

The record shows that the employer (petitioner herein) received a copy of the decision of the Labor Arbiter on April 1, 1985. It filed a Motion for Extension of Time to File Memorandum of Appeal on April 11, 1985 and filed the Memorandum of Appeal on April 22, 1985. Pursuant to the "no extension policy" of the National Labor Relations Commission, aforesaid motion for extension of time was denied in its resolution dated November 15, 1985 and the appeal was dismissed for having been filed out of time (Rollo, pp. 31-32).

Petitioners claim, among other things, that respondent Commission committed a grave abuse of discretion amounting to lack of jurisdiction in arbitrarily dismissing petitioners' appeal on a technicality (Rollo, p. 9). It invokes the Rules of Court provision on liberal construction of the Rules in the interest of substantial justice.

It will be noted however, that the foregoing provision refers to the Rules of Court. On the other hand, the Revised Rules of the National Labor Relations Commission are clear and explicit and leave no room for interpretation.

Moreover, it is an elementary rule in administrative law that administrative regulations and policies enacted by administrative bodies to interpret the law which they are entrusted to enforce, have the force of law, and are entitled to great respect (Espanol v. Philippine Veterans Administration, 137 SCRA 314 [1985]).

Under the above-quoted provisions of the Revised NLRC Rules, the decision appealed from in this case has become final and executory and can no longer be subject to appeal.

Even on the merits, the ruling of the Labor Arbiter appears to be correct; the consistent promotions in rank and salary of the private respondent indicate he must have been a highly efficient worker, who should be retained despite occasional lapses in punctuality and attendance. Perfection cannot after all be demanded.

WHEREFORE, this petition is DISMISSED.

SO ORDERED.

Fernan (Chairman), Gutierrez, Jr., Bidin and Cortes, JJ., concur.

Padilla, J., took no part.