statcon cases for midterms

7/27/2019 Statcon Cases for Midterms

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THIRD DIVISION

[G.R. No. 141314. November 15, 2002]

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ENERGYREGULATORY BOARD pet i t ioner, vs. MANILA ELECTRICCOMPANY, respondent.

[G.R. No. 141369. November 15, 2002]

LAWYERS AGAINST MONOPOLY AND POVERTY (LAMP) consistingof CEFERINO PADUA, Chairman, G. FULTON ACOSTA,GALILEOBRION, ANATALIA BUENAVENTURA, PEDRO CASTILLO,NAPOLEON CORONADO, ROMEO ECHAUZ, FERNANDO GAITE,ALFREDO DE GUZMAN, ROGELIO KARAGDAG, JR., MA. LUZARZAGA-MENDOZA, ANSBERTO PAREDES, AQUILINOPIMENTEL III, MARIO REYES, EMMANUEL SANTOS,RUDEGELIO TACORDA, members, and ROLANDO ARZAGA,

Secretary-General, JUSTICE ABRAHAM SARMIENTO, SENATORAQUILINO PIMENTEL, JR. and COMMISSIONER BARTOLOMEFERNANDEZ, JR., Board of Consultants, and Lawyer GENAROLUALHATI,pet i t ioners, vs. MANILA ELECTRIC COMPANY(MERALCO), respondent.

D E C I S I O N

PUNO, J .:

In third world countries like the Philippines, equal justice will have a

synthetic ring unless the economic rights of the people, especially the poor,are protected with the same resoluteness as their right to liberty. The cases atbar are of utmost significance for they concern the right of our people toelectricity and to be reasonably charged for their consumption. In configuringthe contours of this economic right to a basic necessity of life, the Court shalldefine the limits of the power of respondent MERALCO, a giant public utility


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and a monopoly, to charge our people for their electric consumption. Thequestion is: should public interest prevail over private profits?

The facts are brief and undisputed. On December 23, 1993, MERALCOfiled with the ERB an application for the revision of its rate schedules. The

application reflected an average increase of 21 centavos per kilowatthour(kwh) in its distribution charge. The application also included a prayer forprovisional approval of the increase pursuant to Section 16(c) of the PublicService Act and Section 8 of Executive Order No. 172.

On January 28, 1994, the ERB issued an Order granting a provisionalincrease of P0.184 per kwh, subject to the following condition:

In the event, however, that the Board finds, after hearing and submission by the

Commission on Audit of an audit report on the books and records of the applicant that

the latter is entitled to a lesser increase in rates, all excess amounts collected from the

applicants customers as a result of this Order shall either be refunded to them orcorrespondingly credited in their favor for application to electric bills covering future

consumptions.[1]

In the same Order, the ERB requested the Commission on Audit (COA) toconduct an audit and examination of the books and other records of accountof the applicant for such period of time, which in no case shall be less than 12consecutive months, as it may deem appropriate and to submit a copythereof to the ERB immediately upon completion.[2]

On February 11, 1997, the COA submitted its Audit Report SAO No. 95-07(the COA Report) which contained, among others, the recommendation notto include income taxes paid by MERALCO as part of its operating expensesfor purposes of rate determination and the use of the net average investmentmethod for the computation of the proportionate value of the properties usedby MERALCO during the test year for the determination of the rate base.[3]

Subsequently, the ERB rendered its decision adopting the aboverecommendations and authorized MERALCO to implement a rate adjustmentin the average amount of P0.017 per kwh, effective with respect toMERALCOs billing cycles beginning February 1994. The ERB further orderedthat the provisional relief in the amount of P0.184 per kilowatthour grantedunder the Boards Order dated January 28, 1994 is hereby superseded andmodified and the excess average amount of P0.167 per kilowatthour startingwith [MERALCOs] billing cycles beginning February 1994 until its billingcycles beginning February 1998, be refunded to [MERALCOs] customers orcorrespondingly credited in their favor for future consumption.[4]
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The ERB held that income tax should not be treated as operating expenseas this should be borne by the stockholders who are recipients of the incomeor profits realized from the operation of their business hence, should not bepassed on to the consumers.[5]Further, in applying the net average investmentmethod, the ERB adopted the recommendation of COA that in computing therate base, only the proportionate value of the property should be included,determined in accordance with the number of months the same was actuallyused in service during the test year.[6]

On appeal, the Court of Appeals set aside the ERB decision insofar as itdirected the reduction of the MERALCO rates by an average of P0.167 perkwh and the refund of such amount to MERALCOs customers beginningFebruary 1994 and until its billing cycle beginning February 1998.[7]SeparateMotions for Reconsideration filed by the petitioners were denied by the Courtof Appeals.[8]

Petitioners are now before the Court seeking a reversal of the decision ofthe Court of Appeals by arguing primarily that the Court of Appeals erred: a) inruling that income tax paid by MERALCO should be treated as part of itsoperating expenses and thus considered in determining the amount ofincrease in rates imposed by MERALCO and b) in rejecting the net averageinvestment method used by the COA and the ERB and instead adopted theaverage investment method used by MERALCO.

We grant the petition.

The regulation of rates to be charged by public utilities is founded upon thepolice powers of the State and statutes prescribing rules for the control andregulation of public utilities are a valid exercise thereof. When private propertyis used for a public purpose and is affected with public interest, it ceases tobejuris privationly and becomes subject to regulation. The regulation is topromote the common good. Submission to regulation may be withdrawn bythe owner by discontinuing use; but as long as use of the property iscontinued, the same is subject to public regulation.[9]

In regulating rates charged by public utilities, the State protects the publicagainst arbitrary and excessive rates while maintaining the efficiency and

quality of services rendered. However, the power to regulate rates does notgive the State the right to prescribe rates which are so low as to deprive thepublic utility of a reasonable return on investment. Thus, the rates prescribedby the State must be one that yields a fair return on the public utility upon thevalue of the property performing the service and one that is reasonable to thepublic for the services rendered.[10]The fixing of just and reasonable ratesinvolves a balancing of the investor and the consumer interests.[11]
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In his famous dissenting opinion in the 1923 case ofSouthwestern BellTel. Co. v. Public Service Commission,[12]Mr. Justice Brandeis wrote:

The thing devoted by the investor to the public use is not specific property, tangible

and intangible, but capital embarked in an enterprise. Upon the capital so invested, the

Federal Constitution guarantees to the utility the opportunity to earn a fairreturn The Constitution does not guarantee to the utility the opportunity to earn a

return on the value of all items of property used by the utility, or of any of them.

.

The investor agrees, by embarking capital in a utility, that its charges to the public

shall be reasonable. His company is the substitute for the State in the

performance of the public service, thus becoming a public servant. The

compensation which the Constitution guarantees an opportunity to earn is the

reasonable cost of conducting the business.

While the power to fix rates is a legislative function, whether exercised bythe legislature itself or delegated through an administrative agency, adetermination of whether the rates so fixed are reasonable and just is a purely

judicial question and is subject to the review of the courts.[13]

The ERB was created under Executive Order No. 172 to regulate, amongothers, the distribution of energy resources and to fix rates to be charged bypublic utilities involved in the distribution of electricity. In the fixing of rates, the

only standard which the legislature is required to prescribe for the guidanceof the administrative authority is that the rate be reasonable and just. It hasbeen held that even in the absence of an express requirement as toreasonableness, this standard may be implied.[14]What is a just andreasonable rate is a question of fact calling for the exercise ofdiscretion, good sense, and a fair, enlightened and independent

judgment. The requirement of reasonableness comprehends such rateswhich must not be so low as to be confiscatory, or too high as to beoppressive. In determining whether a rate is confiscatory, it is essential alsoto consider the given situation, requirements and opportunities of the utility.[15]

Settled jurisprudence holds that factual findings of administrative bodieson technical matters within their area of expertise should be accorded not onlyrespect but even finality if they are supported by substantial evidence even ifnot overwhelming or preponderant.[16]In one case,[17]we cautioned that courtsshould "refrain from substituting their discretion on the weight of the evidencefor the discretion of the Public Service Commission on questions of fact andwill only reverse or modify such orders of the Public Service Commission
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when it really appears that the evidence is insufficient to support theirconclusions."[18]

In the cases at bar, findings and conclusions of the ERB on the rate thatcan be charged by MERALCO to the public should be respected.[19]The

function of the court, in exercising its power of judicial review, is to determinewhether under the facts and circumstances, the final order entered by theadministrative agency is unlawful or unreasonable.[20]Thus, to the extent thatthe administrative agency has not been arbitrary or capricious in the exerciseof its power, the time-honored principle is that courts should not interfere. Theprinciple of separation of powers dictates that courts should hesitate to reviewthe acts of administrative officers except in clear cases of grave abuse ofdiscretion.[21]

In determining the just and reasonable rates to be charged by apublic utility, three major factors are considered by the regulatingagency: a) rate of return; b) rate base and c) the return itself or thecomputed revenue to be earned by the public utility based on the rate ofreturn and rate base.[22]The rate of return is a judgment percentage which, ifmultiplied with the rate base, provides a fair return on the public utility for theuse of its property for service to the public.[23]The rate of return of a publicutility is not prescribed by statute but by administrative and judicialpronouncements. This Court has consistently adopted a 12% rate of return forpublic utilities.[24]The rate base, on the other hand, is an evaluation of theproperty devoted by the utility to the public service or the value of invested

capital or property which the utility is entitled to a return.[25]

In the cases at bar, the resolution of the issues involved hinges on thedetermination of the kind and the amount of operating expenses thatshould be allowed to a public utility to generate a fair return and theproper valuation of the rate base or the value of the property entitled to areturn.I

Income Tax as Operating Expense Cannot be Allowed For Rate-

Determination Purposes

In determining whether or not a rate yields a fair return to the utility, theoperating expenses of the utility must be considered. The return allowed to apublic utility in accordance with the prescribed rate must be sufficient toprovide for the payment of such reasonable operating expenses incurred bythe public utility in the provision of its services to the public. Thus, the public
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utility is allowed a return on capital over and above operating expenses.However, only such expenses and in such amounts as are reasonable for theefficient operation of the utility should be allowed for determination of the ratesto be charged by a public utility.

The ERB correctly ruled that income tax should not be included in thecomputation of operating expenses of a public utility. Income tax paid bya public utility is inconsistent with the nature of operating expenses. Ingeneral, operating expenses are those which are reasonably incurred inconnection with business operations to yield revenue or income. They areitems of expenses which contribute or are attributable to the production ofincome or revenue. As correctly put by the ERB, operating expenses shouldbe a requisite of or necessary in the operation of a utility, recurring, and that itredounds to the service or benefit of customers.[26]

Income tax, it should be stressed, is imposed on an individual or entity asa form of excise tax or a tax on the privilege of earning income.[27]In exchangefor the protection extended by the State to the taxpayer, the governmentcollects taxes as a source of revenue to finance its activities. Clearly, by itsnature, income tax payments of a public utility are not expenses whichcontribute to or are incurred in connection with the production of profit of apublic utility. Income tax should be borne by the taxpayer alone as they arepayments made in exchange for benefits received by the taxpayer from theState. No benefit is derived by the customers of a public utility for the taxespaid by such entity and no direct contribution is made by the payment of

income tax to the operation of a public utility for purposes of generatingrevenue or profit. Accordingly, the burden of paying income tax should beMeralcos alone and should not be shifted to the consumers by including thesame in the computation of its operating expenses.

The principle behind the inclusion of operating expenses in thedetermination of a just and reasonable rate is to allow the public utility torecoup the reasonable amount of expenses it has incurred in connection withthe services it provides. It does not give the public utility the license toindiscriminately charge any and all types of expenses incurred without regardto the nature thereof, i.e., whether or not the expense is attributable to the

production of services by the public utility. To charge consumers for expensesincurred by a public utility which are not related to the service or benefitderived by the customers from the public utility is unjustified and inequitable.

While the public utility is entitled to a reasonable return on the fair value ofthe property being used for the service of the public, no less than the FederalSupreme Court of the United States emphasized: [t]he public cannot properly
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be subjected to unreasonable rates in order simply that stockholders mayearn dividends If a corporation cannot maintain such a [facility] and earndividends for stockholders, it is a misfortune for it and them which theConstitution does not require to be remedied by imposing unjust burdens onthe public.[28]

We are not impressed by the reliance by MERALCO on some Americancase law allowing the treatment of income tax paid by a public utility asoperating expense for rate-making purposes. Suffice to state that with regardto rate-determination, the government is not hidebound to apply any particularmethod or formula.[29]The question of what constitutes a reasonable return forthe public utility is necessarily determined and controlled by its peculiarenvironmental milieu. Aside from the financial condition of the public utility,there are other critical factors to consider for purposes of rate regulation.

Among others, they are: particular reasons involved for the request of the rate

increase, the quality of services rendered by the public utility, the existence ofcompetition, the element of risk or hazard involved in the investment, thecapacity of consumers, etc.[30]Rate regulation is the art of reaching a result thatis good for the public utility and is best for the public.

For these reasons, the Court cannot give in to the importunings ofMERALCO that we blindly apply the rulings of American courts on thetreatment of income tax as operating expenses in rate regulation cases. Anapproach allowing the indiscriminate inclusion of income tax payments asoperating expenses may create an undesirable precedent and serve as a

blanket authority for public utilities to charge their income tax payments tooperating expenses and unjustly shift the tax burden to the customer. To besure, public utility taxation in the United States is going through the eye ofcriticism. Some commentators are of the view that by allowing the public utilityto collect its income tax payment from its customers, a form of sales tax is, ineffect, imposed on the public for consumption of public utility services. Bycharging their income tax payments to their customers, public utilities virtuallybecome tax collectors rather than taxpayers.[31]In the cases at bar,MERALCO has not justified why its income tax should be treated as anoperating expense to enable it to derive a fair return for its services.

It is also noteworthy that under American laws, public utilities are taxeddifferently from other types of corporations and thus carry a heavier taxburden. Moreover, different types of taxes, charges, tolls or fees are assessedon a public utility depending on the state or locality where it operates. At afederal level, public utilities are subject to corporate income taxes and SocialSecurity taxesin the same manner as other business corporations. At thestate and local levels, public utilities are subject to a wide variety of taxes, not
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all of which are imposed on each state. Thus, it is not unusual to find differenttaxes or combinations of taxes applicable to respective utility industries withina particular state.[32]A significant aspect of state and local taxation of publicutilities in the United States is that they have been singled out for specialtaxation, i.e., they are required to pay one or more taxes that are not leviedupon other industries. In contrast, in this jurisdiction, public utilities are subjectto the same tax treatment as any other corporation and local taxes paid by itto various local government units are substantially the same. The reason forthis is that the power to tax resides in our legislature which may prescribe thelimits of both national and local taxation, unlike in the federal system of theUnited States where state legislature may prescribe taxes to be levied in theirrespective jurisdictions.

MERALCO likewise cites decisions of the ERB [33]allowing the application ofa tax recovery clause for the imposition of an additional charge on consumers

for taxes paid by the public utility. A close look at these decisions will showthey are inappropos. In the said cases, the ERB approved the adoption of aformula which will allow the public utility to recover from its customers taxesalready paid by it. However, in the cases at bar, the income tax componentadded to the operating expenses of a public utility is based on an estimate orapproximate figure of income tax to be paid by the public utility. It is thisestimated amount of income tax to be paid by MERALCO which is included inthe amount of operating expenses and used as basis in determining thereasonable rate to be charged to the customers. Accordingly, the varyingfactual circumstances in the said cases prohibit a square application of the

rule under the previous ERB decisions.II

Use of Net Average Investment Method is Not Unreasonable

In the determination of the rate base, property used in the operation of thepublic utility must be subject to appraisal and evaluation to determine the fairvalue thereof entitled to a fair return. With respect to those properties which

have not been used by the public utility for the entire duration of the testyear, i.e., the year subject to audit examination for rate-making purposes, avaluation method must be adopted to determine the proportionate value of theproperty. Petitioners maintain that the net average investment method (alsoknown as actual number of months use method) recommended by COA andadopted by the ERB should be used, while MERALCO argues that the
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average investment method (also known as the trending method) todetermine the proportionate value of properties should be applied.

Under the net average investment method, properties and equipmentused in the operation of a public utility are entitled to a return only on the

actual number of months they are in service during the period.[34]

In contrast,the average investment method computes the proportionate value of theproperty by adding the value of the property at the beginning and at the end ofthe test year with the resulting sum divided by two.[35]

The ERB did not abuse its discretion when it applied the net averageinvestment method. The reasonableness of net average investment method isborne by the records of the case. In its report, the COA explained that thecomputation of the proportionate value of the property and equipment inaccordance with the actual number of months such property or equipment isin service for purposes of determining the rate base is favored, as against thetrending method employed by MERALCO, to reflect the real status of theproperty.[36]By using the net average investment method, the ERB and theCOA considered for determination of the rate base the value of properties andequipment used by MERALCO in proportion to the period that the same wereactually used during the period in question. This treatment is consistent withthe settled rule in rate regulation that the determination of the rate base of apublic utility entitled to a return must be based on properties and equipmentactually being used or are useful to the operations of the public utility.[37]

MERALCO does not seriously contest this treatment of actual usage of

property but opposes the method of computation or valuation thereof adoptedby the ERB and the COA on the ground that the net average investmentmethod assumes an ideal situation where a utility, like MERALCO, is able torecord in its books within any given month the value of all the propertiesactually placed in service during that month.[38]MERALCO contends thatimmediate recordal in its books of the property or equipment is not possible asMERALCOs franchise covers a wide area and that due to the volume ofproperties and equipment put into service and the amount of paper workrequired to be accomplished for recording in the books of the company, ittakes three to six months (often longer) before an asset placed in service isrecorded in the books of MERALCO.[39]Hence, MERALCO adopted theaverage investment method or the trending method which computes theaverage value of the property at the beginning and at the end of the test yearto compensate for the irregular recording in its books.

MERALCOS stance is belied by the COA Report which states that theverification of the records, as confirmed by the Management Staff, disclosed
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that properties are recorded in the books as these are actually placed inservice.[40]Moreover, while the case was pending trial before the ERB, theERB conducted an ocular inspection to examine the assets in service, recordsand books of accounts of MERALCO to ascertain the physical existence,ownership, valuation and usefulness of the assets contained in the COAReport.[41]Thus, MERALCOs contention that the date of recordal in the booksdoes not reflect the date when the asset is placed in service is baseless.

Further, computing the proportionate value of assets used in service inaccordance with the actual number of months the same is used during the testyear is a more accurate method of determining the value of the properties of apublic utility entitled to a return. If, as determined by COA, the date of recordalin the books of MERALCO reflects the actual date the equipment or propertyis used in service, there is no reason for the ERB to adopt the trendingmethod applied by MERALCO if a more precise method is available for

determining the proportionate value of the assets placed in service.If we were to sustain the application of the trending method, the public

utility may easily manipulate the valuation of its property entitled to a return(rate base) by simply including a highly capitalized asset in the computation ofthe rate base even if the same was used for a limited period of time during thetest year. With the inexactness of the trending method and the possibility thatthe valuation of certain properties may be subject to the control of and abuseby the public utility, the Court finds no reasonable basis to overturn therecommendation of COA and the decision of the ERB.

MERALCO further insists that the Court should sustain the trendingmethod in view of previous decisions by the Public Service Commission andof this Court which upheld the use of this method. By refusing to adopt thetrending method, MERALCO argues that the ERB violated the rule on staredecisis.

Again, we are not impressed. It is a settled rule that the goal of rate-making is to arrive at a just and reasonable rate for both the public utility andthe public which avails of the formers products and services. [42]However, whatis a just and reasonable rate cannot be fixed by any immutable method or

formula. Hence, it has been held that no public utility has a vested right to anyparticular method of valuation.[43]Accordingly, with respect to a determinationof the proper method to be used in the valuation of property and equipmentused by a public utility for rate-making purposes, the administrative agency isnot bound to apply any one particular formula or method simply because thesame method has been previously used and applied. In fact, nowhere in theprevious decisions cited by MERALCO which applied the trending method did
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the Court rule that the same should be the only method to be applied in allinstances.

At any rate, MERALCO has not adequately shown that the ratesprescribed by the ERB are unjust or confiscatory as to deprive its stockholders

a reasonable return on investment. In the early case of Ynchausti S.S. Co. v.Public Utility Commissioner, this Court held: [t]here is a legal presumptionthat the rates fixed by an administrative agency are reasonable, and it mustbe conceded that the fixing of rates by the Government, through its authorizedagents, involves the exercise of reasonable discretion and, unless there is anabuse of that discretion, the courts will not interfere.[44]Thus, the burden isupon the oppositor, MERALCO, to prove that the rates fixed by the ERB areunreasonable or otherwise confiscatory as to merit the reversal of the ERB. Inthe instant cases, MERALCO was unable to discharge this burden.

WHEREFORE, in view of the foregoing, the instant petitions areGRANTED and the decision of the Court of Appeals in C.A. G.R. SP No.46888 is REVERSED. Respondent MERALCO is authorized to adopt a rateadjustment in the amount of P0.017 per kilowatthour, effective with respect toMERALCOs billing cycles beginning February 1994. Further, in accordancewith the decision of the ERB dated February 16, 1998, the excess averageamount of P0.167 per kilwatthour starting with the applicants billing cyclesbeginning February 1998 is ordered to be refunded to MERALCOs customersor correspondingly credited in their favor for future consumption.

SO ORDERED.

Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales,JJ., concur.
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THIRD DIVISION

[G.R. No. 141314. April 9, 2003]

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ENERGYREGULATORY BOARD, peti t ioner, vs. MANILA ELECTRICCOMPANY, respondent.

[G.R. No. 141369. April 9, 2003]

LAWYERS AGAINST MONOPOLY AND POVERTY (LAMP) consistingof CEFERINO PADUA, Chairman, G. FULTON ACOSTA, GALILEOBRION, ANATALIA BUENAVENTURA, PEDRO CASTILLO,NAPOLEON CORONADO, ROMEO ECHAUZ, FERNANDO GAITE,ALFREDO DE GUZMAN, ROGELIO KARAGDAG, JR., MA. LUZARZAGA-MENDOZA, ANSBERTO PAREDES, AQUILINOPIMENTEL III, MARIO REYES, EMMANUEL SANTOS,

RUDEGELIO TACORDA, members, and ROLANDO ARZAGA,Secretary-General, JUSTICE ABRAHAM SARMIENTO, SENATORAQUILINO PIMENTEL, JR. and COMMISSIONER BARTOLOMEFERNANDEZ, JR., Board of Consultants, and Lawyer GENAROLUALHATI,pet i t ioners, vs. MANILA ELECTRICCOMPANY (MERALCO), respondent.

R E S O L U T I O N

PUNO, J.:

The business and operations of a public utility are imbued with publicinterest. In a very real sense, a public utility is engaged in public service--providing basic commodities and services indispensable to the interest of thegeneral public. For this reason, a public utility submits to the regulation ofgovernment authorities and surrenders certain business prerogatives,including the amount of rates that may be charged by it. It is the imperative


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duty of the State to interpose its protective power whenever too much profitsbecome the priority of public utilities.

For resolution is the Motion for Reconsideration filed by respondent ManilaElectric Company (MERALCO) on December 5, 2002 from the decision of this

Court dated November 15, 2002 reducing MERALCOs rate adjustment in theamount of P0.017 per kilowatthour (kwh) for its billing cycles beginning 1994and further directing MERALCO to credit the excess average amountofP0.167 per kwh to its customers starting with MERALCOs billing cyclesbeginning February 1994.[1]

First, we leapfrog through the facts. On December 23, 1993, MERALCOfiled with the Energy Regulatory Board (ERB) an application for revised rates,with an average increase of P0.21 per kwh in its distribution charge. OnJanuary 28, 1994 the ERB granted a provisional increase of P0.184 perkwh subject to the condition that in the event the ERB determines thatMERALCO is entitled to a lesser increase in rates, all excess amountscollected by MERALCO shall be refunded to its customers or credited in theirfavor. The Commission on Audit (COA) conducted an examination of thebooks of accounts and records of MERALCO and thereafter recommended,among others, that: (1) income taxes paid by MERALCO should not beincluded as part of MERALCOs operating expenses and (2) the net averageinvestment method or the number of months use method should be appliedin determining the proportionate value of the properties used by MERALCOduring the test year.

In its decision dated February 16, 1998, the ERB adopted therecommendations of the COA and authorized MERALCO to adopt a rateadjustment ofP0.017 per kilowatthour (kwh)for its billing cycles beginning1994. The ERB further directed MERALCO to credit the excess averageamount of P0.167 per kwh to its customersstarting with MERALCOsbilling cycles beginning February 1994. The said ruling of the ERB wasaffirmed by this Court in its decision dated November 15, 2002.

In its Motion for Reconsideration, respondent MERALCO contends that:(1) the deduction of income tax from revenues allowed for rate determination

of public utilities is part of its constitutional right to property; (2) it correctlyused the average investment method or the simple average in computingthe value of its properties entitled to a return instead of the net averageinvestment method or the number of months use method; and (3) thedecision of the ERB ordering the refund of P0.167 per kwh to its customersshould not be given retroactive effect.[2]
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The Republic of the Philippines through the ERB, now Energy RegulatoryCommission (ERC), represented by the Office of the Solicitor General, filed itsComment on March 7, 2003. Surprisingly, in its Comment, the ERC proffereda divergent view from the Office of the Solicitor General. The ERC submitsthat income taxes are not operating expenses but are reasonable costs thatmay be recoverable from the consuming public. While the ERC admits thatthere is still no categorical determination on whether income tax shouldindeed be deducted from revenues of a public utility, it agrees withMERALCO that to disallow public utilities from recovering its income taxpayments will effectively lower the return on rate base enjoyed by a publicutility to 8%. The ERC, however, agrees with this Courts ruling that the use ofthe net average investment method or the number of months use methodis not unreasonable.[3]

The Office of the Solicitor General, under its solemn duty to protect the

interests of the people, defended the thesis that income tax payments by apublic utility should not be recovered as costs from the consuming public. Itcontended that: (1) the foreign jurisprudence cited by MERALCO in supportof its position is not applicable in this jurisdiction; (2) MERALCO was given afair rate of return; (3) the COA and the ERB followed the National Accountingand Auditing Manual which expressly disallows the treatment of income tax asoperating expense; (4) Executive Order No. 72 does not grant electric utilitiesthe privilege of treating income tax as operating expense; (5) the COA and theERB have been consistent in not allowing income tax as part of operatingexpenses; (6) ERB decisions allowing the application of a tax recovery clause

are inapropos; (7) allowing MERALCO to treat income tax as an operatingexpense would set a dangerous precedent; (8) assuming that thedisallowance of income tax as operating expense would discourage foreigninvestors and lenders, the government is not precluded from enacting lawsand instituting measures to lure them back; and (9) the findings andconclusions of the ERB carry great weight and should be binding on thecourts in the absence of grave abuse of discretion. The Solicitor Generalagrees with the ERC that the net average investment method is areasonable method for property valuation. Finally, the Solicitor General arguesthat the ERB decision may be applied retroactively and the use of a test

period to determine the rate base and allowable rates to be collected by apublic utility is an accepted practice.[4]

We shall discuss the main issues in seriatim.

I

MERALCO argues that deduction of all kinds of taxes, including incometax, from the gross revenues of a public utility is firmly entrenched in American


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jurisprudence. It contends that the Public Service Act (Commonwealth Act No.146) was patterned after Act 2306 of the Philippine Commission, which, inturn, was borrowed from American state public utility laws such as the NewJersey Public Utility Act. Hence, it maintains that American jurisprudence onthe inclusion of income taxes as a lawful charge to operating expenses shouldbe controlling. It cites the rule on statutory construction that a statute adoptedfrom a foreign country will be presumed to be adopted with the constructionplaced upon it by the courts of that country before its adoption.[5]

We are not persuaded. American decisions and authorities arenot per secontrolling in this jurisdiction. At best, they are persuasivefor no court holds a patent on correct decisions. Our laws must beconstrued in accordance with the intention of our own lawmakers and suchintent may be deduced from the language of each law and the context of otherlocal legislation related thereto. More importantly, they must be construed to

serve our own public interest which is the be-all and the end-all of all ourlaws. And it need not be stressed that our public interest is distinct anddifferent from others.

Rate regulation calls for a careful consideration of the totality of facts andcircumstances material to each application for an upward rate revision. Rateregulators should strain to strike a balance between the clashinginterests of the public utility and the consuming public and the balancemust assure a reasonable rate of return to public utilities without beingunreasonable to the consuming public. What is reasonable or

unreasonable depends on a calculus of changing circumstances thatebb and flow with time. Yesterday cannot govern today, no more than todaycan determine tomorrow.

Prescinding from these premises, we reject MERALCOs insistence thatthe non-inclusion of income tax payments as a legitimate operating expensewill deny public utilities a fair return of their investment. This stubborn stanceis belied by the report submitted by the COA on the audit conducted onMERALCOs books of accounts and the findings of the ERB.[6]

Upon the instructions of the ERB, the COA conducted an audit of the

operations of MERALCO covering the period from February 1, 1994 toJanuary 31, 1995, or the period immediately after the implementation ofthe provisional rate increase.[7]Hence, amounts culled by the COA from itsexamination of the books of MERALCO already included the provisional rateincrease of P0.184 granted by the ERB.

From the figures submitted by the COA, the ERB was able to determinethat MERALCO derived excess revenue during the test year in the amount
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ofP2,448,378,000.[8]This means that during the test year, and after the rateswere increased by P0.184, MERALCO earned P2,448,378,000 or 8.15%more than the amount it should have earned at a 12% rate of return onrate base. Accordingly, based on this amount of excess revenue, the ERBdetermined that the provisional rate granted by it to MERALCO was P0.167per kwh more than the amount MERALCO ought to charge its customersto obtain the prescribed 12% rate of return on rate base. Thus, the ERBcorrespondingly lowered the provisional increase by P0.167 per kwhandordered MERALCO to increase its rates at a reduced amount ofP0.017 perkwh, computed as follows:[9]

At appraised value

Total Invested Capital Entitled P 30,059,614,000[10]

to Return

12% return thereon P 3,607,154,000

Add: Total Operating expenses P 38,260,420,000[11]

for Rate Determination

Purposes

Computed Revenue P 41,867,573,000

Actual Revenue P 44,315,951,000

Excess Revenue P 2,448,378,000

Percent of Excess Revenue to 8.15%

Invested Capital

Authorized Rate of Return 12.00%

Actual Rate of Return 20.15%

Total kwh sold 14,640,094,000

Ratio of Excess Revenue toTotal kwh Sold P 0.167

In fact, even if MERALCOs income tax liability would be included asan operating expense, MERALCO would still enjoy excess revenueof P312,738,000.00 or 1.04% above the authorized rate of return of
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12%. Based on its audit, the COA determined that the provision for incometax liability of MERALCO amounted to P2,135,639,000.00.[12]Thus, even ifsuch amount of income tax liability would be included as operatingexpense, the amount of excess revenue earned by MERALCO during thetest year would be more than sufficient to cover the additional incometax expense. Thus:

At appraised value

Total Invested Capital Entitled P 30,059,614,000

to Return

12% return thereon P 3,607,154,000

Add: Total Operating expenses P 40,396,059,000[13]

for Rate DeterminationPurposes

Computed Revenue P 44,003,213,000

Actual Revenue P 44,315,951,000

Excess Revenue P 312,738,000

Percent of Excess Revenue

to Invested Capital 1.04%

Authorized Rate of Return 12.00%

Actual Rate of Return 13.04%

It is crystal clear, therefore, that even if income tax is to be included as anoperating expense and hence, recoverable from the consuming public,MERALCO would still enjoy a rate of return that is above the authorized rateof 12%. Public utilities cannot be allowed to overcharge at the expense

of the public and worse, they cannot complain that they are notovercharging enough.

Be that as it may, MERALCO contends that considering income taxpayments of public utilities constitute one-third of their net income, publicutilities will effectively get, not the 12% rate of return on rate base allowedthem, but only about 8%.[14]Again, we are not persuaded.
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electric power industry, the UFR seeks to facilitate this process by properlyidentifying the accounts or information required for proper evaluation by theERB. Thus, the introductory statements of the UFR provide:

These uniform rate filing requirements are intended to promote consistency and

completeness in the rate filings required by Republic Act No. 9136 (RA 9136),Section 36. To that end, the filing requirements only specify minimum form and

content. A rate application in all its aspects continues to be subject to subsequent

Commission review and deliberation.[22]

At the onset, it is clear that the UFR does not seek to determine whichaccounting method will be used by the ERC for determination of ratebase or the items of expenses that may be recovered by a public utilityfrom its customers. The UFR only seeks to prescribe a uniform system orformat to standardize or facilitate the process of unbundling of rates

mandated by the EPIRA. At best, the UFR prescribes the set of raw data orfigures to be disclosed by a distribution facility that the ERC will need todetermine the authorized rates that a distribution facility may charge. TheUFR does not, in any way, determine the manner by which the set ofdata or figures indicated in the rate application will be evaluated by theERC for rate determination purposes.

II

MERALCO also challenges the use of the net average investmentmethod or the number of months use method on the ground that MERALCO

and the Public Service Commission (PSC) have been consistently applyingthe average investment method or simple average, which it alleged wasalso affirmed by this Court in the case ofMERALCO v. PSC[23]and Republicv. Medina.[24]

It is true that in MERALCO v. PSC,[25]the issue of the proper valuationmethod to be used in determining the value of MERALCOs utility plants forrate fixing purposes was brought to fore. In the said case, MERALCO appliedthe average investment method or simple average by obtaining theaverage value of the utility plants, using its values at the beginning and at the

end of the test year. In contrast, the General Auditing Office used theappraisal method which fixes the value of the utility plants by ascertainingthe cost of production per kilowatt and multiplying the same by the totalcapacity of said plants, less the corresponding depreciation.[26]In upholding theaverage investment method used by MERALCO, this Court adopted thefindings of the PSC for being by and large, supported by the records of thecase.[27]This Court did not make an independent assessment of the validity or
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applicability of the average investment method but simply did not disturb thefindings of the PSC for being supported by substantial evidence. To concludethat the said decision affirmed the use of the average investment methodthereby implying that the said method is the only method to be applied in allinstances, is a strained reading of the decision.

In fact, in the case ofRepublic v. Medina,[28]also cited by MERALCO tohave affirmed the use of the average investment method, this Court ruled:

The decided weight of authority, however, is to the effect that property valuation is

not to be solved by formula but depends upon the particular circumstances andrelevant facts affecting each utility as to what constitutes a just rate base and what

would be a fair return, just to both the utility and the public.[29]

Further, Mr. Justice Castro in his concurring opinion in the same case

elucidated:A regulatory commissions field of inquiry, however, is not confined to the

computation of the cost of service or capital nor to a mere prognostication of the

future behavior of the money and capital markets. It must also balance investor and

consumer expectations in such a way that broad requirements of public interest may

be meaningfully realized. It would hence appear in keeping with its public duty if

a regulatory body is allowed wide discretion in the choice of methods rationally

related to the achievement of this end.[30]

Thus, the rule then as it is now, is that rate regulating authorities are nothidebound to use any single formula or combination of formulas for propertyvaluation purposes because the rate-making process involves the balancingof investor and consumer interests which takes into account various factorsthat may be unique or peculiar to a particular rate revision application.

We again stress the long established doctrine that findings ofadministrative or regulatory agencies on matters which are within theirtechnical area of expertise are generally accorded not only respect but attimes even finality if such findings and conclusions are supported bysubstantial evidence.[31]Rate fixing calls for a technical examination and aspecialized review of specific details which the courts are ill-equipped to enter,hence, such matters are primarily entrusted to the administrative or regulatingauthority.[32]

Thus, this Court finds no reversible error on the part of the COA and theERB in adopting the net average investment method or the number ofmonths use method for property valuation purposes in the cases at bar.
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III

MERALCO also rants against the retroactive application of the rateadjustment ordered by the ERB and affirmed by this Court. In its decision, theERB, after authorizing MERALCO to adopt a rate adjustment in the amount

of P0.017 per kwh, directed MERALCO to refund or credit to its customersfuture consumption the excess average amount of P0.167 per kwh from itsbilling cycles beginning February 1994 [33]until its billing cycles beginningFebruary 1998.[34]In the decision appealed from, this Court likewise orderedthat the refund in the average amount of P0.167 per kwh be made to retroactfrom MERALCOs billing cycles beginning February 1994.

MERALCO contends that the refund cannot be given retroactive effect asthe figures determined by the ERB only apply to the test year or the periodsubject of the COA Audit, i.e., February 1, 1994 to January 31, 1995. Itreasoned that the amounts used to determine the proper rates to be charged

by MERALCO would vary from year to year and thus the computation of theexcess average charge of P0.167 would hold true only for the test year. Thus,MERALCO argues that if a refund of P0.167 would be uniformly applied to itsbilling cycles beginning 1994, with respect to periods after January 31, 1995,there will be instances wherein its operating revenues would fall below the12% authorized rate of return. MERALCO therefore suggests that thedispositive portion be modified and order that the refund applicable to theperiods after January 31, 1995 is to be computed on the basis of the excesscollection in proportion to the excess over the 12% return.[35]

The purpose of the audit procedures conducted in a rate applicationproceeding is to determine whether the rate applied for will generate areasonable return for the public utility, which, in accordance with settled lawsand jurisprudence, is 12% on rate base or the present value of the assetsused in the operations of a public utility. For audit purposes, however, there isa need to obtain a sample set of data-- usually derived from figures within adesignated period of time-- to determine the amount of returns obtained by apublic utility during such period. In the cases at bar, the COA conducted anaudit for the test year beginning February 1, 1994 and ending January 31,1995 or a 12-month period immediately after the order of the ERB granting a

provisional increase in the amount of P0.184 per kwh was issued. Thus, theultimate issue resolved by the COA when it conducted its audit was whetherthe provisional increase granted by the ERB generated an amount of returnwell within the rates authorized by law. As stated earlier, based on thefindings of the ERB, with the increase of P0.184 per kwh, MERALCO obtaineda rate of return which was 8.15% more than the authorized rate of return of
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12%.[36]Thus, a refund in the amount of P0.167 was determined and orderedby ERB.

The essence of the use of a test year for auditing purposes is to obtain asample or representative set of figures to enable the examining authority to

arrive at a conclusion or finding based on the gathered data. The use of atest year does not mean that the information and conclusions so derivedwould only be correct for that year and would be incorrect on the succeedingyears. The use of a test year assumes that within a reasonable period aftersuch test year, figures used to determine the amount of return would only varyslightly from the figures culled during the test year such that the impact on theutilitys rate of return would not be very significant. Thus, in the event thatthere is a substantial change in circumstances significantly affecting thevariable amounts that would determine the reasonableness of a return, anevent which would normally occur after a certain period of time has elapsed,

the public utility may subsequently apply for a rate revision.We agree with the Solicitor General that following MERALCOs reasoning

that the figures culled from a test year would only be relevant during suchyear, there would be a need for public utilities to apply for a rateadjustment every yearand perform an audit examination on a public utilitysbooks of accounts every yearas the amount of a utilitys revenue may fallabove or below the authorized rates at any given year. Needless to say, thetrajectory of MERALCOs arguments will lead to an absurdity.

From the time the order granting a provisional increase was issued by the

ERB, nowhere in the records does it appear that the subsequent refundof P0.167 per kwh ordered by the ERB was ever implemented or executed byMERALCO.[37]Accordingly, from January 28, 1994 MERALCO imposed on itscustomers a charge that is P0.167 in excess of the proper amount. In fact, anyapplication for rate adjustment that may have been applied for and/or grantedto MERALCO during the intervening period would have to be reckoned fromrates increased by P0.184 per kwh as these were the rates prevailing at thetime any application for rate adjustment was made by MERALCO.

While we agree that the amounts used to determine the utilitys rate of

return would vary from year to year, we are unable to subscribe to the viewthat the refund applicable to the periods after January 31, 1995 should becomputed on the basis of the excess collection in proportion to the excessover the 12% return. MERALCOs contention that the refund for periods afterJanuary 31, 1995 should be computed on the basis of revenue of each year inexcess of the 12% authorized rate of return calls for a year-by-yearcomputation of MERALCOs revenues and assets which would be contrary to


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the essence of an audit examination of a public utility based on a test year. Togrant MERALCOs prayer would, in effect, allow MERALCO the benefit of ayear-by-year adjustment of rates not normally enjoyed by any other publicutility required to adopt a subsequent rate modification. Indeed, had the ERBordered an increasein the provisional rates it previously granted, saidincrease in rates would apply retroactively and would not have varied fromyear to year, depending on the variable amounts used to determine theauthorized rates that may be charged by MERALCO. We find no significantcircumstance prevailing in the cases at bar that would justify the application ofa yearly adjustment as requested by MERALCO.

WHEREFORE, in view of the foregoing, the petitioners Motion forReconsideration is DENIED WITH FINALITY.

SO ORDERED.

Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.Panganiban, J., pleasesee separate opinion.
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Republic of the Philippines

SUPREME COURTManila

FIRST DIVISION

G.R. No. L-49774 February 24, 1981

SAN MIGUEL CORPORATION (CAGAYAN COCA-COLA PLANT), petitioner,vs.Hon. AMADO G. INCIONG, Deputy Minister of Labor and CAGAYAN COCA-COLA FREE WORKERSUNION,respondents.

DE CASTRO, J.:

Petition for certiorari and prohibition, with preliminary injunction to review the Order1

dated December 19, 1978rendered by the Deputy Minister of Labor in STF ROX Case No. 009-77 docketed as "Cagayan Coca-Cola FreeWorkers Union vs. Cagayan Coca-Cola Plant, San Miguel Corporation, " which denied herein petitioner's motion forreconsideration and ordered the immediate execution of a prior Order2dated June 7, 1978.

On January 3, 1977, Cagayan Coca-Cola Free Workers Union, private respondent herein, filed a complaint againstSan Miguel Corporation (Cagayan Coca-Cola Plant), petitioner herein, alleging failure or refusal of the latter toinclude in the computation of 13th- month pay such items as sick, vacation or maternity leaves, premium for workdone on rest days and special holidays, including pay for regular holidays and night differentials.

An Order3 dated February 15, 1977 was issued by Regional Office No. X where the complaint was filed requiringherein petitioner San Miguel Corporation (Cagayan Coca-Cola Plant) "to pay the difference of whatever earnings andthe amount actually received as 13th month pay excluding overtime premium and emergency cost of living allowance."

Herein petitioner appealed from that Order to the Minister of Labor in whose behalf the Deputy Minister of LaborAmado G. Inciong issued an Order4 dated June 7, 1978 affirming the Order of Regional Office No. X and dismissingthe appeal for lack of merit. Petitioner's motion for reconsideration having been denied, it filed the instant petition.

On February 14, 1979, this Court issued a Temporary Restraining Order5 enjoining respondents from enforcing theOrder dated December 19, 1978.

The crux of the present controversy is whether or not in the computation of the 13th-month pay under PresidentialDecree 851, payments for sick, vacation or maternity leaves, premium for work done on rest days and specialholidays, including pay for regular holidays and night differentials should be considered.

Public respondent's consistent stand on the matter since the effectivity of Presidential Decree 851 is that "payments

for sick leave, vacation leave, and maternity benefits, as well as salaries paid to employees for work performed onrest days, special and regular holidays are included in the computation of the 13th-month pay. 6On its part, privaterespondent cited innumerable past rulings, opinions and decisions rendered by then Acting Labor Secretary AmadoG. Inciong to the effect that, "in computing the mandatory bonus, the basis is the total gross basic salary paid by theemployer during the calendar year. Such gross basic salary includes: (1) regular salary or wage; (2) payments forsick, vacation and maternity leaves; (3) premium for work performed on rest days or holidays: (4) holiday pay forworked or unworked regular holiday; and (5) emergency allowance if given in the form of a wage adjustment." 7

Petitioner, on the other hand, assails as erroneous the aforesaid order, ruling and opinions, vigorously contends thatPresidential Decree 851 speaks only ofbasic salaryas basis for the determination of the 13th-month pay; submits


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that payments for sick, vacation, or maternity leaves, night differential pay, as well as premium paid for workperformed on rest days, special and regular holidays do not form part of the basic salary; and concludes that theinclusion of those payments in the computation of the 13th-month pay is clearly not sanctioned by PresidentialDecree 851.

The Court finds petitioner's contention meritorious.

The provision in dispute is Section 1 of Presidential Decree 851 and provides:

All employers are hereby required to pay all their employees receiving a basic salary of not morethan Pl,000 a month, regardless of the nature of the employment, a 13th-month pay not later thanDecember 24 of every year.

Section 2 of the Rules and Regulations for the implementation of Presidential Decree 851 provides:

a) Thirteenth-month pay shall mean one twelfth (1/12) of the basic salary of an employee within acalendar year

b) Basic salary shall include all remunerations on earnings paid by an employer to an employee forservices rendered but may not include cost-of-living allowances granted pursuant to Presidential

Decree No. 525 or Letter of Instructions No. 174, profit sharing payments and all allowances andmonetary benefits which are not considered or integrated as part of the regular or basic salary ofthe employee at the time of the promulgation of the Decree on December 16, 1975.

Under Presidential Decree 851 and its implementing rules, the basic salaryof an employee is used as the basis in thedetermination of his 13th-month pay. Any compensations or remunerations which are deemed not part of the basicpay is excluded as basis in the computation of the mandatory bonus.

Under the Rules and Regulations Implementing Presidential Decree 851, the following compensations are deemednot part of the basic salary:

a) Cost-of-living allowances granted pursuant to Presidential Decree 525 and Letter of InstructionsNo. 174;

b) Profit sharing payments;

c) All allowances and monetary benefits which are not considered or integrated as part of theregular basic salary of tile employee at the time of the promulgation of the Decree on December 16,1975.

Under a later set of Supplementary Rules and Regulations Implementing Presidential Decree 851 issued by the thenLabor Secretary Blas Ople, overtime pay, earnings and other remunerations are excluded as part of the basic salaryand in the computation of the 13th-month pay.

The exclusion of cost-of-living allowances under Presidential Decree 525 and Letter of Instructions No. 174, and profitsharing payments indicate the intention to strip basic salary of other payments which are properly considered as"fringe" benefits. Likewise, the catch-all exclusionary phrase "all allowances and monetary benefits which are not

considered or integrated as part of the basic salary" shows also the intention to strip basic salary of any and alladditions which may be in the form of allowances or "fringe" benefits.

Moreover, the Supplementary Rules and Regulations Implementing Presidential Decree 851 is even more emphaticin declaring that earnings and other remunerations which are not part of the basic salary shall not be included in thecomputation of the 13th-month pay.

While doubt may have been created by the prior Rules and Regulations Implementing Presidential Decree 851 whichdefines basic salary to include all remunerations or earnings paid by an employer to an employee, this cloud isdissipated in the later and more controlling Supplementary Rules and Regulations which categorically, exclude from


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THIRD DIVISION

[G.R. No. 121075. July 24, 1997]

DELTA MOTORS CORPORATION, peti t ioner, vs. COURT OFAPPEALS, HON. ROBERTO M. LAGMAN, and STATEINVESTMENT HOUSE, INC.,respondents.

D E C I S I O N

DAVIDE, JR., J.:

This is a Petition forCertiorari[1]under Rule 65 of the Revised Rules of Courtseeking the reversal of the Resolutions of the Court of Appeals in CA-G.R. SP No.29147 dated 5 January 1995 [2]and 14 July 1995.[3]The former denied the OmnibusMotion filed by petitioner Delta Motors Corporation (hereinafter DELTA), while the latteramended the earlier Resolution.

The pleadings and annexes in the record of CA-G.R. SP No. 29147 disclose thefollowing material operative facts:

Private respondent State Investment House, Inc. (hereinafter, SIHI) brought an action

for a sum of money against DELTA in the Regional Trial Court (RTC) of Manila,Branch VI. The case was docketed as Civil Case No. 84-23019. DELTA was

declared in default, and on 5 December 1984, the RTC, per Judge Ernesto Tengco,

rendered a decision[4]the dispositive portion of which reads as follows:

WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered

ordering the defendant to pay unto plaintiff the amount of P20,061,898.97 as its total

outstanding obligation and to pay 25% of the total obligation as and for attorney's

fees, plus cost of suit.

The decision could not be served on DELTA, either personally or by registered mail,due to its earlier dissolution. However, Delta had been taken over by the PhilippineNational Bank (PNB) in the meantime. This notwithstanding, SIHI moved, on 4November 1986, for service of the decision by way of publication, which the trial courtallowed in its order of 6 December 1986. The decision was published in the Thunderer,a weekly newspaper published in Manila. After publication, SIHI moved for execution ofthe judgment, which the trial court granted in its order of 11 March 1987 on the groundthat no appeal had been taken by DELTA despite publication of the decision. The writ
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of execution was issued and pursuant thereto certain properties of DELTA in Iloilo andBacolod City were levied upon and sold. The sheriff likewise levied on some otherproperties of DELTA.

DELTA then commenced a special civil action forcertiorariwith the Court ofAppeals, which was docketed as CA-G.R. SP No. 23068, wherein DELTA insisted that:

(a) the trial court did not acquire jurisdiction over the person of the defendant (DELTA)since there was no valid/proper service of summons, thus rendering the decision nulland void; and (b) the void decision never became final and executory.

In its decision of 22 January 1991 [5]the Court of Appeals ruled against DELTA onthe first ground, but found that the record before it "is bereft of any showing that a copyof the assailed judgment had been properly served on P.N.B. which assumed DELTA'soperation upon the latter's dissolution." Accordingly the Court of Appeals ruled that:

[T]he [decision] did not become executory (Vda. de Espiritu v. CFI, L-30486,

Oct. 31, 1972; Tuazon v. Molina, L-55697, Feb. 26, 1981).

It further opined that service by publication did not cure the fatal defect and thusdecreed as follows:

WHEREFORE, while the assailed decision was validly rendered by the

respondent court, nonetheless it has not attained finality pending service of a

copy thereof on petitioner DELTA, which may appeal therefore within the

reglementary period.[6]

In a motion for reconsideration, DELTA insisted that there was no valid service ofsummons and the decision of the RTC was not in accordance with the Rules, hence,void.[7]SIHI also filed a motion for reconsideration claiming that DELTA was notdissolved, and even if it were, its corporate personality to receive service of processessubsisted; moreover, its right to appeal had been lost. [8]These motions were denied bythe Court of Appeals in its resolution of 27 May 1991.[9]Unsatisfied, DELTA filed with thisCourt a petition for review on certiorari(G.R. No. 100366) which was denied in theresolution of 16 September 1991 for non-compliance with Circular No. 1-88. A motionfor reconsideration was denied in the resolution of 9 October 1991, a copy of which wasreceived by DELTA on 31 October 1991.[10]

On 12 November 1991, DELTA filed a Notice of Appeal[11]with the RTC in Civil CaseNo. 84-23019, indicating therein that it was appealing from the 5 December 1984decision, and prayed as follows:

WHEREFORE, it is most respectfully prayed of this Honorable Court that this

Notice of Appeal be noted and the records of this case be elevated to the Court

of Appeals.

SIHI filed on 2 December 1991 a motion to dismiss DELTA's appeal[12]on the groundthat it was filed out of time, since DELTA obtained a certified true copy of the decisionfrom the RTC on 21 September 1990, hence it had only fifteen days therefrom withinwhich to appeal from the decision. Despite DELTA's opposition,[13]the trial court
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