VICTORIAS MILLING COMPANY, INC.
, petitioner- renders an opinion or gives a statement of policy, it
appellant,
vs.
SOCIAL SECURITY COMMISSION, respondent-appellee.
Ross, Selph and Carrascoso for petitioner-appellant.
Office of the Solicitor General and Ernesto T. Duran for
respondent-appellee.
BARRERA, J.:
On October 15, 1958, the Social Security Commission
issued its Circular No. 22 of the following tenor: .
Effective November 1, 1958, all Employers in
computing the premiums due the System, will take
into consideration and include in the Employee's
remuneration all bonuses and overtime pay, as
well as the cash value of other media of
remuneration. All these will comprise the
Employee's remuneration or earnings, upon which
the 3-1/2% and 2-1/2% contributions will be based,
up to a maximum of P500 for any one month.
Upon receipt of a copy thereof, petitioner Victorias Milling
Company, Inc., through counsel, wrote the Social Security
Commission in effect protesting against the circular as
contradictory to a previous Circular No. 7, dated October 7,
1957 expressly excluding overtime pay and bonus in the
computation of the employers' and employees' respective
monthly premium contributions, and submitting, "In order to
assist your System in arriving at a proper interpretation of the
term 'compensation' for the purposes of" such computation,
their observations on Republic Act 1161 and its amendment
and on the general interpretation of the words
"compensation", "remuneration" and "wages". Counsel
further questioned the validity of the circular for lack of
authority on the part of the Social Security Commission to
promulgate it without the approval of the President and for
lack of publication in the Official Gazette.
Overruling these objections, the Social Security Commission
ruled that Circular No. 22 is not a rule or regulation that
needed the approval of the President and publication in the
Official Gazette to be effective, but a mere administrative
interpretation of the statute, a mere statement of general
policy or opinion as to how the law should be construed.
Not satisfied with this ruling, petitioner comes to this Court
on appeal.
The single issue involved in this appeal is whether or not
Circular No. 22 is a rule or regulation, as contemplated in
Section 4(a) of Republic Act 1161 empowering the Social
Security Commission "to adopt, amend and repeal
subject to the approval of the President such rules and
regulations as may be necessary to carry out the
provisions and purposes of this Act."
There can be no doubt that there is a distinction between an
administrative rule or regulation and an administrative
interpretation of a law whose enforcement is entrusted to an
administrative body. When an administrative agency
promulgates rules and regulations, it "makes" a new law
with the force and effect of a valid law, while when it
merely interprets a pre-existing law (Parker,
Administrative Law, p. 197; Davis, Administrative Law, p.
194). Rules and regulations when promulgated in pursuance
of the procedure or authority conferred upon the
administrative agency by law, partake of the nature of a
statute, and compliance therewith may be enforced by a
penal sanction provided in the law. This is so because
statutes are usually couched in general terms, after
expressing the policy, purposes, objectives, remedies and
sanctions intended by the legislature. The details and the
manner of carrying out the law are often times left to the
administrative agency entrusted with its enforcement. In this
sense, it has been said that rules and regulations are the
product of a delegated power to create new or additional
legal provisions that have the effect of law. (Davis, op. cit., p.
194.) .
A rule is binding on the courts so long as the procedure fixed
for its promulgation is followed and its scope is within the
statutory authority granted by the legislature, even if the
courts are not in agreement with the policy stated therein or
its innate wisdom (Davis, op. cit., 195-197). On the other
hand, administrative interpretation of the law is at best
merely advisory, for it is the courts that finally determine
what the law means.
Circular No. 22 in question was issued by the Social Security
Commission, in view of the amendment of the provisions of
the Social Security Law defining the term "compensation"
contained in Section 8 (f) of Republic Act No. 1161 which,
before its amendment, reads as follows: .
(f) Compensation — All remuneration for
employment include the cash value of any
remuneration paid in any medium other than cash
except (1) that part of the remuneration in excess
of P500 received during the month; (2) bonuses,
allowances or overtime pay; and (3) dismissal and
all other payments which the employer may make,
although not legally required to do so.
Republic Act No. 1792 changed the definition of
"compensation" to:
(f) Compensation — All remuneration for
employment include the cash value of any
remuneration paid in any medium other than cash
except that part of the remuneration in excess of
P500.00 received during the month.
It will thus be seen that whereas prior to the amendment,
bonuses, allowances, and overtime pay given in addition to
the regular or base pay were expressly excluded, or
exempted from the definition of the term "compensation",
such exemption or exclusion was deleted by the amendatory
law. It thus became necessary for the Social Security
Commission to interpret the effect of such deletion or
elimination. Circular No. 22 was, therefore, issued to apprise
those concerned of the interpretation or understanding of the
Commission, of the law as amended, which it was its duty to
enforce. It did not add any duty or detail that was not already
in the law as amended. It merely stated and circularized the
opinion of the Commission as to how the law should be
construed. 1äwphï1.ñët
The case of People v. Jolliffe (G.R. No. L-9553, promulgated
on May 30, 1959) cited by appellant, does not support its
contention that the circular in question is a rule or regulation.
What was there said was merely that a regulation may be
incorporated in the form of a circular. Such statement simply
meant that the substance and not the form of a regulation is
decisive in determining its nature. It does not lay down a
general proposition of law that any circular, regardless of its
substance and even if it is only interpretative, constitutes a
rule or regulation which must be published in the Official
Gazette before it could take effect.
The case of People v. Que Po Lay (50 O.G. 2850) also cited
by appellant is not applicable to the present case, because
the penalty that may be incurred by employers and
employees if they refuse to pay the corresponding premiums
on bonus, overtime pay, etc. which the employer pays to his
employees, is not by reason of non-compliance with Circular
No. 22, but for violation of the specific legal provisions
contained in Section 27(c) and (f) of Republic Act No. 1161.
We find, therefore, that Circular No. 22 purports merely to
advise employers-members of the System of what, in the
light of the amendment of the law, they should include in
determining the monthly compensation of their employees
upon which the social security contributions should be
based, and that such circular did not require presidential
approval and publication in the Official Gazette for its
effectivity.
It hardly need be said that the Commission's interpretation of
the amendment embodied in its Circular No. 22, is correct.
The express elimination among the exemptions excluded in
the old law, of all bonuses, allowances and overtime pay in
the determination of the "compensation" paid to employees
makes it imperative that such bonuses and overtime pay
must now be included in the employee's remuneration in
pursuance of the amendatory law. It is true that in previous
cases, this Court has held that bonus is not demandable
because it is not part of the wage, salary, or compensation of
the employee. But the question in the instant case is not
whether bonus is demandable or not as part of
compensation, but whether, after the employer does, in fact,
give or pay bonus to his employees, such bonuses shall be
considered compensation under the Social Security Act after
they have been received by the employees. While it is true
that terms or words are to be interpreted in accordance with
their well-accepted meaning in law, nevertheless, when such
term or word is specifically defined in a particular law, such
interpretation must be adopted in enforcing that particular
law, for it can not be gainsaid that a particular phrase or term
may have one meaning for one purpose and another
meaning for some other purpose. Such is the case that is
now before us. Republic Act 1161 specifically defined what
"compensation" should mean "For the purposes of this Act".
Republic Act 1792 amended such definition by deleting
same exemptions authorized in the original Act. By virtue of
this express substantial change in the phraseology of the
law, whatever prior executive or judicial construction may
have been given to the phrase in question should give way
to the clear mandate of the new law.
IN VIEW OF THE FOREGOING, the Resolution appealed
from is hereby affirmed, with costs against appellant. SO
ORDERED.
G.R. No. L-6355-56 August 31, 1953
PASTOR M. ENDENCIA and FERNANDO JUGO, plaintiffs-
appellees,
vs.
SATURNINO DAVID, as Collector of Internal
Revenue, defendant-appellant.
Office of the Solicitor General Juan R. Liwag and Solicitor
Jose P. Alejandro for appellant.
Manuel O. Chan for appellees.
MONTEMAYOR, J.:
This is a joint appeal from the decision of the Court of First
Instance of Manila declaring section 13 of Republic Act No.
590 unconstitutional, and ordering the appellant Saturnino
David as Collector of Internal Revenue to re-fund to Justice
Pastor M. Endencia the sum of P1,744.45, representing the
income tax collected on his salary as Associate Justice of
the Court of Appeals in 1951, and to Justice Fernando Jugo
the amount of P2,345.46, representing the income tax
collected on his salary from January 1,1950 to October 19,
1950, as Presiding Justice of the Court of Appeals, and from
October 20, 1950 to December 31,1950, as Associate
Justice of the Supreme Court, without special
pronouncement as to costs.
Because of the similarity of the two cases, involving as they
do the same question of law, they were jointly submitted for
determination in the lower court. Judge Higinio B. Macadaeg
presiding, in a rather exhaustive and well considered
decision found and held that under the doctrine laid down by
this Court in the case of Perfecto vs. Meer, 85 Phil., 552, the
collection of income taxes from the salaries of Justice Jugo
and Justice Endencia was a diminution of their
compensation and therefore was in violation of the
Constitution of the Philippines, and so ordered the refund of
said taxes.
We see no profit and necessity in again discussing and
considering the proposition and the arguments pro and cons
involved in the case of Perfecto vs. Meer, supra, which are
raised, brought up and presented here. In that case, we have
held despite the ruling enunciated by the United States
Federal Supreme Court in the case of O 'Malley vs.
Woodrought 307 U. S., 277, that taxing the salary of a
judicial officer in the Philippines is a diminution of such salary
and so violates the Constitution. We shall now confine our-
selves to a discussion and determination of the remaining
question of whether or not Republic Act No. 590, particularly
section 13, can justify and legalize the collection of income
tax on the salary of judicial officers.
According to the brief of the Solicitor General on behalf of
appellant Collector of Internal Revenue, our decision in the
case of Perfecto vs. Meer, supra, was not received favorably
by Congress, because immediately after its promulgation,
Congress enacted Republic Act No. 590. To bring home his
point, the Solicitor General reproduced what he considers
the pertinent discussion in the Lower House of House Bill
No. 1127 which became Republic Act No. 590.
For purposes of reference, we are reproducing section 9,
Article VIII of our Constitution:.
SEC. 9. The members of the Supreme Court and
all judges of inferior courts shall hold office during
good behavior, until they reach the age of seventy
years, or become incapacitated to discharge the
duties of their office. They shall receive such
compensation as may be fixed by law, which shall
not be diminished during their continuance in
office. Until the Congress shall provide otherwise,
the Chief Justice of the Supreme Court shall
receive an annual compensation of sixteen
thousand pesos, and each Associate Justice,
fifteen thousand pesos.
As already stated construing and applying the above
constitutional provision, we held in the Perfecto case that
judicial officers are exempt from the payment of income tax
on their salaries, because the collection thereof by the
Government was a decrease or diminution of their salaries
during their continuance in office, a thing which is expressly
prohibited by the Constitution. Thereafter, according to the
Solicitor General, because Congress did not favorably
receive the decision in the Perfecto case, Congress
promulgated Republic Act No. 590, if not to counteract the
ruling in that decision, at least now to authorize and legalize
the collection of income tax on the salaries of judicial
officers. We quote section 13 of Republic Act No. 590:
SEC 13. No salary wherever received by any
public officer of the Republic of the Philippines
shall be considered as exempt from the income
tax, payment of which is hereby declared not to be
dimunition of his compensation fixed by the
Constitution or by law.
So we have this situation. The Supreme Court in a decision
interpreting the Constitution, particularly section 9, Article
VIII, has held that judicial officers are exempt from payment
of income tax on their salaries, because the collection
thereof was a diminution of such salaries, specifically
prohibited by the Constitution. Now comes the Legislature
and in section 13, Republic Act No. 590, says that "no salary
wherever received by any public officer of the Republic
(naturally including a judicial officer) shall be considered as
exempt from the income tax," and proceeds to declare that
payment of said income tax is not a diminution of his
compensation. Can the Legislature validly do this? May the
Legislature lawfully declare the collection of income tax on
the salary of a public official, specially a judicial officer, not a
decrease of his salary, after the Supreme Court has found
and decided otherwise? To determine this question, we shall
have to go back to the fundamental principles regarding
separation of powers.
Under our system of constitutional government, the
Legislative department is assigned the power to make and
enact laws. The Executive department is charged with the
execution of carrying out of the provisions of said laws. But
the interpretation and application of said laws belong
exclusively to the Judicial department. And this authority to
interpret and apply the laws extends to the Constitution.
Before the courts can determine whether a law is
constitutional or not, it will have to interpret and ascertain the
meaning not only of said law, but also of the pertinent portion
of the Constitution in order to decide whether there is a
conflict between the two, because if there is, then the law will
have to give way and has to be declared invalid and
unconstitutional.
Defining and interpreting the law is a judicial
function and the legislative branch may not limit or
restrict the power granted to the courts by the
Constitution. (Bandy vs. Mickelson et al., 44N. W.,
2nd 341, 342.)
When it is clear that a statute transgresses the
authority vested in the legislature by the
Constitution, it is the duty of the courts to declare
the act unconstitutional because they cannot
shrink from it without violating their oaths of office.
This duty of the courts to maintain the Constitution
as the fundamental law of the state is imperative
and unceasing; and, as Chief Justice Marshall
said, whenever a statute is in violation of the
fundamental law, the courts must so adjudge and
thereby give effect to the Constitution. Any other
course would lead to the destruction of the
Constitution. Since the question as to the
constitutionality of a statute is a judicial matter, the
courts will not decline the exercise of jurisdiction
upon the suggestion that action might be taken by
political agencies in disregard of the judgment of
the judicial tribunals. (11 Am. Jur., 714-715.)
Under the American system of constitutional
government, among the most important functions
in trusted to the judiciary are the interpreting of
Constitutions and, as a closely connected power,
the determination of whether laws and acts of the
 legislature are or are not contrary to the provisions
of the Federal and State Constitutions. (11 Am.
Jur., 905.).
By legislative fiat as enunciated in section 13, Republic Act
NO. 590, Congress says that taxing the salary of a judicial
officer is not a decrease of compensation. This is a clear
example of interpretation or ascertainment of the meaning of
the phrase "which shall not be diminished during their
continuance in office," found in section 9, Article VIII of the
Constitution, referring to the salaries of judicial officers. This
act of interpreting the Constitution or any part thereof by the
Legislature is an invasion of the well-defined and established
province and jurisdiction of the Judiciary.
The rule is recognized elsewhere that the
legislature cannot pass any declaratory act, or act
declaratory of what the law was before its
passage, so as to give it any binding weight with
the courts. A legislative definition of a word as
used in a statute is not conclusive of its meaning
as used elsewhere; otherwise, the legislature
would be usurping a judicial function in defining a
term. (11 Am. Jur., 914, emphasis supplied)
The legislature cannot, upon passing a law which
violates a constitutional provision, validate it so as
to prevent an attack thereon in the courts, by a
declaration that it shall be so construed as not to
violate the constitutional inhibition. (11 Am. Jur.,
919, emphasis supplied)
We have already said that the Legislature under our form of
government is assigned the task and the power to make and
enact laws, but not to interpret them. This is more true with
regard to the interpretation of the basic law, the Constitution,
which is not within the sphere of the Legislative department.
If the Legislature may declare what a law means, or what a
specific portion of the Constitution means, especially after
the courts have in actual case ascertain its meaning by
interpretation and applied it in a decision, this would surely
cause confusion and instability in judicial processes and
court decisions. Under such a system, a final court
determination of a case based on a judicial interpretation of
the law of the Constitution may be undermined or even
annulled by a subsequent and different interpretation of the
law or of the Constitution by the Legislative department. That
would be neither wise nor desirable, besides being clearly
violative of the fundamental, principles of our constitutional
system of government, particularly those governing the
separation of powers.
So much for the constitutional aspect of the case.
Considering the practical side thereof, we believe that the
collection of income tax on a salary is an actual and evident
diminution thereof. Under the old system where the in-come
tax was paid at the end of the year or sometime thereafter,
the decrease may not be so apparent and clear. All that the
official who had previously received his full salary was called
upon to do, was to fulfill his obligation and to exercise his
privilege of paying his income tax on his salary. His salary
fixed by law was received by him in the amount of said tax
comes from his other sources of income, he may not fully
realize the fact that his salary had been decreased in the
amount of said income tax. But under the present system of
withholding the income tax at the source, where the full
amount of the income tax corresponding to his salary is
computed in advance and divided into equal portions
corresponding to the number of pay-days during the year
and actually deducted from his salary corresponding to each
payday, said official actually does not receive his salary in
full, because the income tax is deducted therefrom every
payday, that is to say, twice a month. Let us take the case of
Justice Endencia. As Associate Justice of the Court of
Appeals, his salary is fixed at p12,000 a year, that is to say,
he should receive P1,000 a month or P500 every payday, —
fifteenth and end of month. In the present case, the amount
collected by the Collector of Internal Revenue on said salary
is P1,744.45 for one year. Divided by twelve (months) we
shall have P145.37 a month. And further dividing it by two
paydays will bring it down to P72.685, which is the income
tax deducted form the collected on his salary each half
month. So, if Justice Endencia's salary as a judicial officer
were not exempt from payment of the income tax, instead of
receiving P500 every payday, he would be actually receiving
P427.31 only, and instead of receiving P12,000 a year, he
would be receiving but P10,255.55. Is it not therefor clear
that every payday, his salary is actually decreased by
P72.685 and every year is decreased by P1,744.45?
Reading the discussion in the lower House in connection
with House Bill No. 1127, which became Republic Act No.
590, it would seem that one of the main reasons behind the
enactment of the law was the feeling among certain
legislators that members of the Supreme Court should not
enjoy any exemption and that as citizens, out of patriotism
and love for their country, they should pay income tax on
their salaries. It might be stated in this connection that the
exemption is not enjoyed by the members of the Supreme
Court alone but also by all judicial officers including Justices
of the Court of Appeals and judges of inferior courts. The
exemption also extends to other constitutional officers, like
the President of the Republic, the Auditor General, the
members of the Commission on Elections, and possibly
members of the Board of Tax Appeals, commissioners of the
Public Service Commission, and judges of the Court of
Industrial Relations. Compares to the number of all these
officials, that of the Supreme Court Justices is relatively
insignificant. There are more than 990 other judicial officers
enjoying the exemption, including 15 Justices of the Court of
Appeals, about 107 Judges of First Instance, 38 Municipal
Judges and about 830 Justices of the Peace. The reason
behind the exemption in the Constitution, as interpreted by
the United States Federal Supreme Court and this Court, is
to preserve the independence of the Judiciary, not only of
this High Tribunal but of the other courts, whose present
membership number more than 990 judicial officials.
The exemption was not primarily intended to benefit judicial
officers, but was grounded on public policy. As said by
Justice Van Devanter of the United States Supreme Court in
the case of Evans vs. Gore (253 U. S., 245):
The primary purpose of the prohibition against
diminution was not to benefit the judges, but, like
the clause in respect of tenure, to attract good and
competent men to the bench and to promote that
independence of action and judgment which is
essential to the maintenance of the guaranties,
limitations and pervading principles of the
Constitution and to the administration of justice
without respect to person and with equal concern
for the poor and the rich. Such being its purpose, it
is to be construed, not as a private grant, but as a
limitation imposed in the public interest; in other
 words, not restrictively, but in accord with its spirit under the laws of the United States administered by the
and the principle on which it proceeds. United States Veterans Administration are exempt from
taxation. (Republic Act No. 360). Funds received by officers
and enlisted men of the Philippine Army who served in the
Having in mind the limited number of judicial officers in the
Armed Forces of the United States, allowances earned by
Philippines enjoying this exemption, especially when the
virtue of such services corresponding to the taxable years
great bulk thereof are justices of the peace, many of them
1942 to 1945, inclusive, are exempted from income tax.
receiving as low as P200 a month, and considering further
(Republic Act No. 210). The payment of wages and
the other exemptions allowed by the income tax law, such as
allowances of officers and enlisted men of the Army Forces
P3,000 for a married person and P600 for each dependent,
of the Philippines sent to Korea are also exempted from
the amount of national revenue to be derived from income
taxation. (Republic Act No. 35). In other words, for reasons
tax on the salaries of judicial officers, were if not for the
of public policy and public interest, a citizen may justifiably
constitutional exemption, could not be large or substantial.
by constitutional provision or statute be exempted from his
But even if it were otherwise, it should not affect, much less
ordinary obligation of paying taxes on his income. Under the
outweigh the purpose and the considerations that prompted
same public policy and perhaps for the same it not higher
the establishment of the constitutional exemption. In the
considerations, the framers of the Constitution deemed it
same case of Evans vs. Gore, supra, the Federal Supreme
wise and necessary to exempt judicial officers from paying
Court declared "that they (fathers of the Constitution)
taxes on their salaries so as not to decrease their
regarded the independence of the judges as far as greater
compensation, thereby insuring the independence of the
importance than any revenue that could come from taxing
Judiciary.
their salaries.

In conclusion we reiterate the doctrine laid down in the case

When a judicial officer assumed office, he does not exactly
of Perfecto vs. Meer, supra, to the effect that the collection of
ask for exemption from payment of income tax on his salary,
income tax on the salary of a judicial officer is a diminution
as a privilege . It is already attached to his office, provided
thereof and so violates the Constitution. We further hold that
and secured by the fundamental law, not primarily for his
the interpretation and application of the Constitution and of
benefit, but based on public interest, to secure and preserve
statutes is within the exclusive province and jurisdiction of
his independence of judicial thought and action. When we
the Judicial department, and that in enacting a law, the
come to the members of the Supreme Court, this excemption
Legislature may not legally provide therein that it be
to them is relatively of short duration. Because of the limited
interpreted in such a way that it may not violate a
membership in this High Tribunal, eleven, and due to the
Constitutional prohibition, thereby tying the hands of the
high standards of experience, practice and training required,
courts in their task of later interpreting said statute, specially
one generally enters its portals and comes to join its
when the interpretation sought and provided in said statute
membership quite late in life, on the aver-age, around his
runs counter to a previous interpretation already given in a
sixtieth year, and being required to retire at seventy,
case by the highest court of the land.
assuming that he does not die or become incapacitated
earlier, naturally he is not in a position to receive the benefit
of exemption for long. It is rather to the justices of the peace In the views of the foregoing considerations, the decision
that the exemption can give more benefit. They are relatively appealed from is hereby affirmed, with no pronouncement as
more numerous, and because of the meager salary they to costs.
receive, they can less afford to pay the income tax on it and
its diminution by the amount of the income tax if paid would
G.R. No. 96779 November 10, 1993
be real, substantial and onerous.

PINE CITY EDUCATIONAL CENTER and EUGENIO

Considering exemption in the abstract, there is nothing
BALTAO, petitioners,
unusual or abhorrent in it, as long as it is based on public
vs.
policy or public interest. While all other citizens are subject to
THE NATIONAL LABOR RELATIONS COMMISSION
arrest when charged with the commission of a crime,
(THIRD DIVISION) and DANGWA BENTREZ, ROLAND
members of the Senate and House of Representatives
PICART, APOLLO RIBAYA, SR., RUPERTA RIBAYA,
except in cases of treason, felony and breach of the peace
VIRGINIA BOADO, CECILIA EMOCLING, JANE
are exempt from arrest, during their attendance in the
BENTREZ, LEILA DOMINGUEZ, ROSE ANN BERMUDEZ
session of the Legislature; and while all other citizens are
and LUCIA CHAN, respondents.
generally liable for any speech, remark or statement, oral or
written, tending to cause the dishonor, discredit or contempt
of a natural or juridical person or to blacken the memory of Tenefrancia, Agranzamendez, Liceralde & Associates for
one who is dead, Senators and Congressmen in making petitioners.
such statements during their sessions are extended
immunity and exemption.
Reynaldo B. Cajucom for private respondents.

And as to tax exemption, there are not a few citizens who

enjoy this exemption. Persons, natural and juridical, are
exempt from taxes on their lands, buildings and
improvements thereon when used exclusively for educational NOCON, J.:
purposes, even if they derive income therefrom. (Art. VI,
Sec. 22 [3].) Holders of government bonds are exempted
from the payment of taxes on the income or interest they The is a petition for certiorari seeking the reversal of the
receive therefrom (sec. 29 (b) [4], National Internal Revenue resolution of public respondent National Labor Relations
Code as amended by Republic Act No. 566). Payments or Commission dated November 29, 1990, in NLRC Case No.
income received by any person residing in the Philippines
01-04-0056-89, which affirmed in toto the decision of the Thus respondents should pay
Labor Arbiter dated February 28,1990. complainants the following:

The antecedent facts are, a follows: BACKWAGES

Private respondents Dangwa Bentrez, Roland Picart, Apollo NOTE: Computation covers
Ribaya, Sr., Ruperta Ribaya, Virginia Boado, Cecilia only the period complainants
Emocling, Jane Bentrez, Leila Dominguez, Rose Ann were terminated up to January
Bermudez and Lucia Chan were all employed as teachers on 31, 1990 or 10 months and
probationary basis by petitioner Pines City Educational does not include backwages
Center, represented in this proceedings by its President, from January 31, 1990 up to
Eugenio Baltao. With the exception of Jane Bentrez who was their actual reinstatement.
hired as a grade school teacher, the remaining private
respondents were hired as college instructors. All the private
1) ROLAND PICART
respondents, except Roland Picart and Lucia Chan, signed
contracts of employment with petitioner for a fixed duration.
On March 31, 1989, due to the expiration of private a) Latest salary per month P2,136.00
respondents' contracts and their poor performance as b) Multiplied by period covered
teachers, they were notified of petitioners' decision not to (March 31, 1989 to January 31, 1990) x
renew their contracts anymore. 10 months
—————
c) Equals backwages due P21,360.00
On April 10, 1989, private respondents filed a complaint for
illegal dismissal before the Labor Arbiter, alleging that their
dismissals were without cause and in violation of due 2) LUCIA CHAN
process. Except for private respondent Leila Dominguez who
worked with petitioners for one semester, all other private
respondents were employed for one to two years. They were a) Latest salary per month P1,600.00
never informed in writing by petitioners regarding the b) Multiplied by period covered x 10
months
standards or criteria of evaluation so as to enable them to
meet the requirements for appointment as regular —————
employees. They were merely notified in writing by c) Equals backwages due P16,000.00
petitioners, through its chancellor, Dra. Nimia R.
Concepcion, of the termination of their respective services as 3) LEILA DOMINGUEZ
on March 31, 1989, on account of their below-par
performance as teachers.
a) Latest salary per month P1,648.24
b) Multiplied by period covered x 10
For their part, petitioners contended that private months
respondents' separation from employment, apart from their —————
poor performance, was due to the expiration of the periods c) Equals backwages due P16,482.40
stipulated in their respective contracts. In the case of private
respondent Dangwa Bentrez, the duration of his employment
contract was for one year, or beginning June, 1988 to March 4) RUPERTA RIBAYA
1989 whereas in the case of the other private respondents,
the duration of their employment contracts was for one a) Latest salary per month P1,856.00
semester, or beginning November, 1988 to March 1989. b) Multiplied by period covered x 10
These stipulations were the laws that governed their months
relationships, and there was nothing in said contracts which —————
was contrary to law, morals, good customs and public policy. c) Equals backwages due P18,560.00
They argued further that they cannot be compelled o enter
into new contracts with private respondents. they concluded
that the separation of private respondents from the service 5) CECILIA EMOCLING
was justified.
a) Latest salary per month P1,648.00
On February 28, 1990, the Labor Arbiter rendered judgment b) Multiplied by period covered x 10
in favor of private respondents, the dispositive portion of months
which reads: —————
c) Equals backwages due P16,480.00

WHEREFORE, in the light of the

foregoing considerations, judgment is
hereby rendered ORDERING the
respondents to reinstate the
complainants immediately to their former
positions and to pay their full backwages
and other benefits and privileges without
qualification and deduction from the time
they were dismissed up to their actual
reinstatement.
6) ROSE ANN BERMUDEZ
a) Latest salary per month P2,600.00
b) Multiplied by period covered x 10
months
—————
c) Equals backwages due P26,000.00
7) DANGWA BENTREZ SO ORDERED.1

a) Latest salary per month P1,700.00
b) Multiplied by period covered x 10
months
—————
c) Equals backwages due P17,000.00
8) JANE BENTREZ
a) Latest salary per month P1,315.44
b) ultiplied by period covered x 10
months
—————
c) Equals backwages due P13,154.40
9) APOLLO RIBAYA
a) Latest salary per month P1,875.00
b) Multiplied by period covered x 10
months
—————
c) Equals backwages due P18,7500.00
In support of this decision, the Labor Arbiter rationalized that
the teacher's contracts2 are vague and do not include the
specific description of duties and assignments of private
respondents. They do not categorically state that there will
be no renewal because their appointments automatically
terminate at the end of the semester. Petitioners did not
present any written evidence to substantiate their allegation
that the Academic Committee has evaluated private
respondents' performance during their one semester
employment. On the contrary, they were hastily dismissed.
On appeal to the National Labor Relations Commission, the
decision was affirmed in toto in its resolution dated
November 29, 1990, with the additional reasoning that "the
stipulation in the contract providing for a definite period in the
employment of complainant is obviously null and void, as
such stipulation directly assails the safeguards laid down in
Article 280 (of the Labor Code), 3 which explicitly abhors the
consideration of written or oral agreements pertaining to
definite period in regular employments. 4 Hence, the present
petition for certiorari with prayer for the issuance of a
temporary restraining order.

As prayed for, this Court issued a temporary restraining

10) VIRGINIA BOADO order on March 11, 1991, enjoining respondents from
enforcing the questioned resolution.5
a) Latest salary per month P1,648.24
b) Multiplied by period covered x 10 Petitioners raise this sole issue: "THAT THERE IS PRIMA
months FACIE EVIDENCE OF GRAVE ABUSE OF DISCRETION
————— ON THE PART OF THE LABOR ARBITER BY WANTONLY,
c) Equals backwages due P16,482.40 CAPRICIOUSLY AND MALICIOUSLY DISREGARDING
PROVISIONS OF THE LAW AND JURISPRUDENCE LAID
SUMMARY DOWN IN DECISIONS OF THE HONORABLE SUPREME
COURT."6
1) Roland Picart
21,360.00 Petitioners reiterate their previous arguments, relying heavily
2) Lucia Chan in the case of Brent School, Inc. et al., v. Zamora, et al. 7
16,000.00
3) Leila Dominguez It is quite easy to resolve the present controversy because
16,482.40 the Brent case, which is a product of extensive research,
4) Ruperta Ribaya
already provides the answer. We were categorical therein
18,560.00 that:
5) Cecilia Emocling
16,480.00
6) Rose Ann Accordingly, and since the entire
Bermudez purpose behind the development of
26,000.00 legislation culminating in the present
7) Dangwa Bentrez Article 280 of the Labor Code clearly
17,000.00 appears to have been, as already
8) Jane Bentrez observed, to prevent circumvention of
13,154.40 the employee's right to be secure in his
9) Apollo Ribaya tenure, the clause in said article
18,750.00 indiscriminately and completely ruling
10) Virginia Boado out all written and oral agreements
16,482.40 conflicting with the concept of regular
————— employment as defined therein should
GRAND TOTAL be construed to refer to the substantive
(Backwages) evil that the Code itself has singled out:
P180,269.20 agreements entered into precisely to
prevent security of tenure. It should
have no application to instances where
Complainants claims for indemnity pay, a fixed period of employment was
premium pay for holidays and rest days,
agreed upon knowingly and voluntarily
illegal deduction, 13th month pay and by the parties, without any force, duress
underpayment are hereby DENIED for or improper pressure brought to bear
lack of merit.
 upon the employee and absent any
other circumstances vitiating his
consent, or where it satisfactorily
appears that the employer or employee
dealt with each other on more or less
equal terms with no moral dominance
whatever being exercised by the former
over the latter. Unless thus limited in its
purview, the law would be made to apply
to purposes other than those expressly
stated by its framers; it thus becomes
pointless and arbitrary, unjust in its
effects and apt to lead to absurd and
unintended consequences. (Emphasis
supplied.)
The ruling was reiterated in Pakistan International
Airlines Corporation v. Ople, etc., et al.8 and La
Sallete of Santiago, Inc. v. NLRC, et al.9
In the present case, however, We have to make a distinction.
Insofar as the private respondents who knowingly and
voluntarily agreed upon fixed periods of employment are
concerned, their services were lawfully terminated by reason
of the expiration of the periods of their respective contracts.
These are Dangwa Bentrez, Apollo Ribaya, Sr., Ruperta
Ribaya, Virginia Boado, Cecilia Emocling, Jose Bentrez,
Leila Dominguez and Rose Ann Bermudez. Thus, public
respondent committed grave abuse of discretion in affirming
the decision of the Labor Arbiter ordering the reinstatement
and payment of full backwages and other benefits and
privileges.
With respect to private respondents Roland Picart and Lucia
Chan, both of whom did not sign any contract fixing the
periods of their employment nor to have knowingly and
voluntarily agreed upon fixed periods of employment,
petitioners had the burden of proving that the termination of
their services was legal. As probationary employees, they
are likewise protected by the security of tenure provision of
the Constitution. Consequently, they cannot be removed
from their positions unless for cause. 10 On the other hand,
petitioner contended that base don the evaluation of the
Academic Committee their performance as teachers was
poor. The Labor Arbiter, however, was not convinced. Thus
he found as follows:
Respondents likewise aver that the
Academic Committee has evaluated
their performance during their one
semester employment (see Annexes
"M" to "X" of complainants' position
paper). However, they did not present
any written proofs or evidence to
support their allegation. 11
xxx xxx xxx
There is absolutely nothing in the record
which will show that the complainants
were afforded even an iota of chance to
refute respondents' allegations that the
complainants did not meet the
reasonable standards and criteria set by
the school. . . .12
We concur with these factual findings, there being no
showing that they were resolved arbitrarily. 13 Thus, the order
for their reinstatement and payment of full backwages and
other benefits and privileges from the time they were
dismissed up to their actual reinstatement is proper,
conformably with Article 279 of the Labor Code, as amended
by Section 34 of Republic Act No. 6715, 14 which took effect
on March 21, 1989. 15 It should be noted that private
respondents Roland Picart and Lucia Chan were dismissed
illegally on March 31, 1989, or after the effectivity of said
amendatory law. However, in ascertaining the total amount
of backwages payable to them, we go back to the rule prior
to the mercury drug rule 16 that the total amount derived from
employment elsewhere by the employee from the date of
dismissal up to the date of reinstatement, if any, should be
deducted therefrom. 17 We restate the underlying reason that
employees should not be permitted to enrich themselves at
the expense of their employer.18In addition, the law abhors
double compensation.19 to this extent, our ruling in Alex
Ferrer, et al., v. NLRC, et al.,G.R. No. 100898, promulgated
on July 5, 1993, is hereby modified.
Public respondent cannot claim not knowing the ruling in
the Brent case because in its questioned resolution, it is
stated that one of the cases invoked by petitioners in their
appeal is said case.20 This notwithstanding, it disregarded
Our ruling therein without any reason at all and expressed
the erroneous view that:
The agreement of the parties fixing a
definite date for the termination of the
employment relations is contrary to the
specific provision of Article 280. being
contrary to law, the agreement cannot
be legitimized. . . . 21
Stare decisis et no quieta movere. Once a case ha been
decided one way, then another case, involving exactly the
same point at issue, should be decided in the same manner.
Public respondent had no choice on the matter. It could not
have ruled in any other way. This Tribunal having spoken in
the Brent case, its duty was to obey. 22 Let it be warned that
to defy its decisions is to court contempt. 23
WHEREFORE, the resolution of public respondent National
Labor Relations Commission dated November 29, 1990 is
hereby MODIFIED. private respondents Roland Picart and
Lucia Chan are ordered reinstated without loss of seniority
rights and other privileges and their backwages paid in full
inclusive of allowances, and to their other benefits or their
monetary equivalent pursuant to Article 279 of the Labor
Code, as amended by Section 34 of Republic Act No. 6715,
subject to deduction of income earned elsewhere during the
period of dismissal, if any, to be computed from the time they
were dismissed up to the time of their actual reinstatement.
the rest of the Labor Arbiter's decision dated February 28,
1990, as affirmed by the NLRC is set aside. The temporary
restraining order issued on March 11, 1991 is made
permanent.
SO ORDERED.
G.R. No. L-4316 May 28, 1952
PEOPLE OF THE PHILIPPINES, petitioner,
vs.
HON. HIGINIO MACADAEG, HON. POTENCIANO
PECSON, HON. RAMON SAN JOSE, as Chairman and
Members, respectively; of the Seventh Guerrilla
Amnesty Commission, and ANTONIO GUILLERMO,
alias, SLIVER, as an interested party, respondents.
First Assistant Solicitor General Roberto A. Gianzon and
Solicitor Esmeraldo Umali for petitioner.
Hon. Higinio B. Macadaeg, Hon. Potenciano Pecson and
Hon. Ramon R. San Jose in their own behalf. Antonio V.
Raquiza and Marcelino N. Sayo for respondent Antonio
Guillermo.
LABRADOR, J.:
This is an action of prohibition against the Seventh Guerilla
Amnesty Commission, composed of Honorables Higinio
Macadaeg, Potenciano Pecson, and Ramon R. San Jose,
Judges of the Court of First Instance of Manila, to restrain
and prevent it from taking jurisdiction and cognizance of a
petition for amnesty filed by respondent Antonio Guillermo,
alias Silver, who was convicted and sentenced by this Court
on May 19, 1950, for murder in G.R. No. L-2188. * The
grounds upon which the petition are based are (1) that this
Court has already expressly ruled in its judgment of
conviction of said case that said Antonio Guillermo is not
entitled to the benefits of amnesty, because the murders of
which he was convicted were committed "not in furtherance
of the resistance movement but in the course of a fratricidal
strife between two rival guerilla units," and (2) that the
Seventh Guerilla Amnesty Commission can take cognizance
only of cases pending appeal in the Supreme Court on
October 2, 1946 (date of Administrative Order No. 1 of the
President), at that time. The respondents filed answers
independently of each other, and with the exception of Judge
Ramon R. San Jose, they oppose the petition, alleging (1)
that the decision of this Court does not prevent the
respondent Antonio Guillermo from invoking his right to the
provisions of the amnesty, because said right was not an
issue at the trial on the case against him, and the
pronouncement of this Court thereon is not final and
conclusive and is merely an obiter dictum, and (2) that under
a liberal interpretation of the administrative orders
implementing the President's Amnesty Proclamation, the
respondent Commission has jurisdiction of said petition.
The record discloses that the original information against
respondent Antonio Guillermo was filed in the Court of First
Instance of Ilocos Norte on September 16, 1946, and as
amended information, on July 15, 1947. The Court of First
Instance rendered judgment on March 29, 1948. Thereupon,
Guillermo presented an appeal to this Court, and this Court
rendered its judgement on May 19, 1950. On June 5, 1950,
Guillermo's Counsel filed a motion for reconsideration, but
this motion was denied on July 13, 1950. On June 20, 1950,
even before his motion for reconsideration was acted upon,
respondent Guillermo filed a motion with this Court for the
suspension of the proceedings and the reference of the case
to the Seventh Guerilla Amnesty Commission, but this
motion was denied by this Court on July 13, 1950. Antonio
Guillermo filed his petition for amnesty for respondent
Commission on July 8, 1950. On August 2, 1950, the records
of the case against Guillermo were remanded to the clerk of
the Court of First Instance of Ilocos Norte for the execution of
the judgment, and on October 17, 1950, the respondent
Commission required the clerk of the Court of First Instance
of Ilocos Norte to forward the records of the case to it, and
on November 9, 1950, it is set the case for hearing over the
opposition of the Solicitor General. It was at this stage that
this action of prohibition was filed in this Court.
The first ground upon which the opposition to the petition is
based, namely, that the holding of this Court that the
respondent Guillermo is not entitled to the benefits of the
amnesty proclamation, is merely an obiter dictum, is without
any legal foundation, and must be dismissed. An obiter
dictum is an opinion "uttered by the way, not upon the point
or question pending, as if turning aside from the main topic
of the case to collateral subjects" (Newman vs.Kay, 49 S.E.
926, 931, 57 W. Va. 98, 68 L.R.A. 908, 4 Ann. Cas. 39 citing
United States ex rel. Johnston vs. Clark County Court, 96
U.S. 211, 24 Ed. 628), or the opinion of the court upon any
point or principle which it is not required to decide (29 Words
& Phrases 15), or an opinion of the court which does not
embody its determination and is made without argument or
full consideration of the point, and is not professed deliberate
determinations of the judge himself (29 Words & Phrases
13.). A cursory reading of the decision of this Court in G. R.
No. L-2188 **against respondent Antonio Guillermo discloses
that the ruling of the Court that the said respondent is not
entitled to the benefits of the amnesty is not an obiter dictum,
but is a ruling of the Court on an issue expressly raised by
the party appellant on facts or evidence adduced in the
course of the trial of his case. It is not an opinion uttered by
the way; it is a direct ruling on an issue expressly raised by a
party. It was not unnecessary to make that ruling; the ruling
was absolutely essential to a determination of a question of
fact and of law directly in issue. It was not made without
argument or full consideration of the point; it was deliberately
entered by the Court after arguments on both sides had
been heard. This Could not have avoided determining the
issue without the peril of rendering an incomplete decision.
Hereinbelow we quote portions of the decision of this Court,
from it which it can readily be seen that it had before it
evidence of the claim of amnesty expressly raised before the
Court, and its ruling that appellant was not entitled thereto.
xxx xxx xxx
Apparently realizing the inconsistency and
untenability of that position appellant also
contends that granting for the sake of argument
that the accused was the author of the crime, there
is proof "that the ill-starred seven were charged of
(with) being spies for the Japanese.
The insincerity and weakness of this last-ditch plea
is manifest. Appellant does not claim that he killed
the seven victims because he had proof and
believe that they were spies for the Japanese. He
merely says that they were charged (by Sagad)
with being spies for the Japanese.
xxx xxx xxx
At any rate, the amnesty proclamation now
invoked is not applicable. We are satisfied from
the proofs that the massacre in question was
 committed not in furtherance of the resistance
movement but in the course of a fracticidad strife
between two rival guerrilla units. That was to
hinder and not a further the resistance against the
Japanese enemy. It was a shame: and it would be
adding insult to injury to stigmatize the memory of
the unfortunate victims of such lust for power of
and supremacy as spies and traitors to their
country, in the absence of the competent proof as
they really were. We spurn the baseless
suggestion as rank injustice.
A more serious contention is, May not respondent Guillermo
raise the issue before the corresponding guerrilla amnesty
commission in view of our ruling in the case of Viray vs.
Crisologo, et al.*** G. R. No. L-2540, in which we held that the
fact that the defendant has declined to take advantage of the
amnesty proclamation at the beginning of his trial before a
court martial does not preclude him from invoking it after he
was found guilty and convicted. The express holding of this
Court is that case is as follows:
In our opinion the fact that respondent Crisologo
had declined to take advantage of the amnesty
proclamation at the beginning of his trial before the
court martial does not now preclude him from
invoking it, specially after he was found guilty and
convicted. Before his trial he may and he must
have entertained the idea and the belief that the
killing was justified and was done in the
performance of his duties as an official according
to the criminal law, and that consequently there
was no need for amnesty. However, after the court
martial had disagreed with him and disabused him
of his belief, he realized the necessity of invoking
amnesty. There is nothing in the law that stands in
his way toward seeking the benefits of a law which
in his opinion covers and obliterates the act of
which he had been found criminally responsible.
We hold that the above cited is not applicable to the case at
bar, for in that case the defendant did not invoke the benefits
of the amnesty at the time of the trial or on appeal, and only
did so after he had been adjudge guilty and convicted, while
in the case at bar he did so. It is true that the appellant
Guillermo did not expressly plead amnesty, but the facts and
circumstances surrounding the commission of the act
charged against him as an offense were disclosed at the
trial, from which facts and circumstances he later predicated
the issue, before this Court, that he was entitled to the
benefits of the amnesty. It may be true that the appellant
Guillermo did not expressly plead amnesty as a defense at
the trial of his case. But the rules on the criminal procedure
do not include to be expressly pleaded. (Section 1, Rule 113,
Rule of Court.) Even without an express plea of amnesty, a
defendant may submit evidence that the commission of the
act imputed to him falls within the provisions of the amnesty
proclamation, without a previous formal announcement of
such a defense before or during the trial. And even without
such express plea, if the court finds that the case falls under
the provisions of the amnesty proclamation, it is the duty of
the court to declare the fact, if the fact justify such a finding,
and extend the benefits of the amnesty to him.
. . .; and the accused, during such trial, may
present evidence to prove that his case falls within
the terms of this amnesty. If the fact is legally
proved, the trial judge shall so declare and this
amnesty shall be immediately affective as to the
accused, who shall forthwith be released or
discharged. (Proclamation No. 8, September 7,
1946, 42 Off. Gaz., No. 9 p. 2073.)
That the respondent herein Guillermo did not submit
evidence to that effect is inferred from the claim of his
counsel in the case against him that "there is proof that the ill
starred seven were charged with being spies for the
Japanese." Not only that, he expressly raised that issue in
this Court on appeal. May he rise this issue again before the
guerrilla amnesty commission, and thus have this
administrative body reverse or change the finding of this
Court?
Under the circumstances of the present case, we hold that
he should no longer be permitted to do so in view of "the
general rule common to all civilized systems of jurisprudence
that the solemn and deliberate sentence of the law,
pronounced by its appointed organs, upon a disputed fact or
state of facts, should be regarded as a final and conclusive
determination of the question litigated, and should forever
set the controversy at rest. Indeed it has been well said that
this more maxim is more than a rule of law, more even than
an important principle of public policy; and that it is a
fundamental concept in the organization of every jural
society." (Peñalosa vs. Tuason, 22 Phil., 303, 310; section
44, Rule 39, Rules of Court).
It is also argued, in support of the claim that this Court had
no jurisdiction to make the ruling that respondent Guillermo
is not entitled to amnesty, that the guerrilla amnesty
commissions are the first ones to pass upon petitions for
amnesty, that regular judicial tribunals can not rule upon
such an issue (of amnesty) unless it has first been resolved
by a commission, and that these are not judicial tribunals but
administrative bodies acting as arms of the executive in
carrying out the purposes of the amnesty proclamation,
which is merely a form of executive clemency. It is true that
the grant of amnesty originates in an exclusive act. But the
proclamation was issued under expressly authority in the
Constitution [Article VII, section 10 (6)], was expressly
sanctioned by the Congress (Resolution No. 13 dated
September 18, 1946), and has the nature, force, effect, and
operation of a law. That the cognizance of applications for
amnesty is vested in the guerrilla amnesty commissions are
mere screening bodies is not denied, but there is nothing in
the proclamation to support the contention that the authority
to decide any claim for amnesty is to be exercised but said
commissions alone, to the exclusion of the courts. Neither
can it be denied that any one charged before the courts may
claim as a defense, waive the filing of an application therefor,
and submit evidence thereof in the trial of his case. In this
latter case it would be a cumbersome procedure, indeed, if
said defense were first required to be submitted to
commission for decision, latter to be reviewed by a court.
The only sensible interpretation of the law is that while
all applications should be passed upon by commissions, an
accused may, instead of filing an application, choose the
alternative remedy of just raising the issue in a court of
justice in the trial of his case. And if this second alternative is
chosen, the applicant should be declared estopped from
contesting the decision, as well as the authority of the court
that adversely passed upon his claim.
But there are further and other considerations, also weighty
and important, that attend respondent Guillermo's petition for
amnesty. He is not one filed during the pendency of this case
in the Court of First Instance it is a petition filed after final
judgment of conviction in this Supreme Court. It does not
appear in the record that during the one and a half-year
period (September 16, 1946, to March 29, 1948) that this
case was being coursed and tried in the Court of First
Instance of Ilocos Norte, that he ever filed an application for
amnesty. Neither does it appear that the provincial fiscal has
ever reported Guillermo's case to the Guerrilla Amnesty
Commission for Ilocos Norte, pursuant to the direct mandate
of the amnesty proclamation. Nor did Guillermo ever claim
amnesty as his defense at the time of the trial. May we not
justly infer from these positive circumstances that, during all
the time the case was pending and up to the filling of
appellant's brief in the Supreme Court, amnesty was never
thought of as a defense, either by the accused himself or by
the fiscal, or by the judge trying the case? As a matter of
fact, this Court found that the issue of amnesty raised in this
Court of Appeal was a "last-ditch plea." Guillermo only
thought of amnesty on June 20, 1950, after this Court had
found him guilty, overruling his defense of amnesty, and
before his motion for reconsideration was denied. We are
therefore, constrained to hold that his present petition is not
entirely free from a reasonable suspicion as to its ends and
purposes. It seems to us to be a last desperate attempt by
technicality to avert or delay the execution of the judgment of
conviction rendered against him. Of course, no court of
justice would countenance such ill-advised attempt.
The second ground upon which the petition for prohibition is
based is that the Seventh Guerilla Amnesty Commission has
no jurisdiction to take cognizance of respondent Guillermo's
application. We also find this contention to be correct.
Administrative Order No. 11, which creates the guerrilla
amnesty commission, expressly assigns to the Seventh
"cases from the different provinces and cities now pending
appeal in the Supreme Court." (Emphasis ours.) Said
administrative order was promulgated on October 2, 1946,
DELTA MOTORS CORPORATION, petitioner, vs. COURT
OF APPEALS, HON. ROBERTO M. LAGMAN, and STATE
INVESTMENT HOUSE, INC., respondents.
DECISION
DAVIDE, JR., J.:
This is a Petition for Certiorari[1] under Rule 65 of the
Revised Rules of Court seeking 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 Omnibus Motion filed by petitioner Delta Motors
Corporation (hereinafter DELTA), while the latter amended
the earlier Resolution.
The pleadings and annexes in the record of CA-G.R. SP
No. 29147 disclose the following 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:
on which date the criminal case against respondent
Guillermo was still pending in the Court of First Instance of
Ilocos Norte. His case was a case in the province (Ilocos
Norte) assigned to the Second Guerrilla Amnesty
Commission. Respondents cite administrative Order No. 217
of the Department of Justice dated December 1, 1948 to
support their claim that the Seventh has jurisdiction of the
application, because of that date Guillermo's case was
already pending in the Supreme Court. This department
order was issued, as it expressly states, "in view of the
appointments of new Judges of First Instances," not for the
purpose of setting forth cases cognizable by each of the
different commissions, which the President had already
done. Besides, it can not be interpreted to modify the
President's administrative order apportioning the cases
among the amnesty commissions.
In resume of our conclusions, we state (1) that the finding of
this Court that Guillermo is not entitled to the benefits of
amnesty, is not an obiter dictum but a pronouncement on a
material issue, and is final and conclusive against him and
may not, under the principle of res judicata, be again raised
in issue by him in any tribunal, judicial or administrative; (2)
that having voluntarily raised the issue in this Court during
the consideration of his case, he is now estopped from
contesting the judgment, of the jurisdiction of the court that
rendered the adverse ruling; (3) that this petition is an ill-
advised attempt of doubtful good faith, to arrest or delay the
execution of a final judgement of conviction; and (4) that the
respondent Commission has no jurisdiction to take
cognizance of the application for amnesty.
Wherefore, the petition for prohibition is hereby granted, and
the preliminary injunction issued by this Court on November
24, 1950, made absolute, with costs against respondent
Antonio Guillermo, alias Silver.
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
Philippine National Bank (PNB) in the meantime. This
notwithstanding, SIHI moved, on 4 November 1986, for
service of the decision by way of publication, which the trial
court allowed 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 of the judgment, which the trial court granted in its
order of 11 March 1987 on the ground that no appeal had
been taken by DELTA despite publication of the decision. The
writ of execution was issued and pursuant thereto certain
properties of DELTA in Iloilo and Bacolod City were levied
upon and sold. The sheriff likewise levied on some other
properties of DELTA.
DELTA then commenced a special civil action
for certiorari with the Court of Appeals, 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 null and 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 on the first ground, but found
that the record before it "is bereft of any showing that a copy
of the assailed judgment had been properly served on P.N.B.
which assumed DELTA's operation 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 thus decreed 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 of summons 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 not dissolved, and even if it were, its
corporate personality to receive service of processes
subsisted; moreover, its right to appeal had been lost.[8] These
motions were denied by the Court of Appeals in its resolution
of 27 May 1991.[9] Unsatisfied, DELTA filed with this Court a
petition for review on certiorari (G.R. No. 100366) which was
denied in the resolution of 16 September 1991 for non-
compliance with Circular No. 1-88. A motion for
reconsideration was denied in the resolution of 9 October
1991, a copy of which was received by DELTA on 31 October
1991.[10]
On 12 November 1991, DELTA filed a Notice of
Appeal[11] with the RTC in Civil Case No. 84-23019, indicating
therein that it was appealing from the 5 December 1984
decision, 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 ground that it was filed out of time,
since DELTA obtained a certified true copy of the decision
from the RTC on 21 September 1990, hence it had only fifteen
days therefrom within which to appeal from the
decision. Despite DELTA's opposition,[13] the trial court
dismissed the Notice of Appeal.[14] DELTA moved to
reconsider,[15] which SIHI opposed.[16] In its order[17] of 14
September 1992 the trial court denied Deltas motion.
DELTA then filed with the Court of Appeals a petition
for certiorari under Rule 65 of the Rules of Court. The case
was docketed as CA-G.R. SP NO. 29147.[18] In its petition,
Delta prayed for the: (a) annulment of the order of the trial
court dated 3 June 1992 dismissing the Notice of Appeal
dated 6 November 1991; (b) annulment of the order of the trial
court dated 14 September 1992 denying the motion for
reconsideration of the former; and (c) elevation of the original
records of Civil Case No. 84-23019 to the Court of Appeals.
On 30 October 1992 the Court of Appeals issued in CA-
G.R. SP No. 29147 a restraining order enjoining respondents
and any and all other persons acting on their behalf "from
enforcing or directing the enforcement of the Decision, subject
of the petition."[19]Thereafter, in its resolution promulgated on
22 December 1992,[20] the Court of Appeals gave due course
to the petition in said case, considered the comments of
private respondents therein as its answer and required the
parties to submit their respective memoranda.
On 17 June 1993 the Court of Appeals promulgated its
decision[21] in CA-G.R. SP No. 29147, the dispositive portion
providing:
WHEREFORE, the questioned order of the respondent court
dated June 3, 1992, dismissing the notice of appeal dated
November 6, 1991; and the order dated September 14, 1992
of the same court denying the motion for reconsideration
filed by the petitioner, through counsel, are hereby SET
ASIDE; and respondent court hereby ordered
to ELEVATE the records of the case to the Court of Appeals,
on appeal.
On 18 January 1993, the RTC elevated the record of Civil
Case No. 84-23019 to the Court of Appeals.
SIHI appealed to this Court from the decision by way of
a petition for review.[22] It contended that DELTA had lost the
right to appeal in view of the lapse of more than 15 days from
DELTAs receipt of a certified true copy of the RTC decision in
Civil Case No. 84-23019. This petition for review was
docketed as G.R. No. 110677.[23]
While SIHI's petition in G.R. No. 110677 was pending
before this Court, DELTA filed on 14 February 1994, in CA
G.R. SP No. 29147 of the Court of Appeals, an Omnibus
Motion[24] to:
1) DECLARE AS NULL AND VOID AB INITIO
AND WITHOUT ANY FORCE AND EFFECT
THE ORDER OF RESPONDENT COURT
DATED MARCH 11, 1987 ORDERING THE
ISSUANCE OF THE WRIT OF EXECUTION;
2) DECLARE AS NULL AND VOID AB INITIO
AND WITHOUT ANY FORCE AND EFFECT
THE WRIT OF EXECUTION ISSUED
PURSUANT TO THE ORDER DATED
MARCH 11, 1987;
3) ALL OTHER PROCEEDINGS HELD,
CONDUCTED AND EXECUTED BY
RESPONDENT SHERIFF IMPLEMENTING
THE AFORESAID WRIT OF EXECUTION.
SIHI opposed the motion[25] on grounds that: a) there
was a pending appeal by certiorari with this Court, thus the
Court of Appeals was without jurisdiction to entertain the
Omnibus Motion; b) the Omnibus Motion was barred by res
judicata; and c) the filing of the Omnibus Motion was a clear
act of forum-shopping and should then be denied outright.
In its resolution of 7 June 1994, the Court of Appeals
merely noted the Omnibus Motion and stated:
It appearing that there is a pending petition for
review with the Supreme Court of this Court's
Decision dated June 17, 1993, it would be
improper for this Court to act on the Omnibus
Motion filed by petitioner Delta Motor Corporation
x x x.[26]
 On 18 July 1994 this Courts Second Division issued a
resolution[27] in G.R. No. 110677 denying the petition therein
for failure to sufficiently show that the Court of Appeals
committed reversible error in the questioned judgment. SIHI's
motion for reconsideration was denied in the resolution of this
Court of 21 September 1994.[28]
On 26 October 1994 DELTA filed a manifestation and
motion[29] to resolve its Omnibus Motion of February 10, 1994.
In its resolution of 5 January 1995,[30] the Court of
Appeals denied DELTA's Omnibus Motion, holding:
[T]he matters prayed for in the Omnibus Motion
of petitioner Delta Motor Corporation dated
February 10, 1994 and abovequoted are matters
which were not raised as issues by petitioner in
the instant petition and, therefore, not within the
jurisdiction and power of this Court in the instant
petition to decide.[31]
On 27 January 1995 DELTA filed a motion for
reconsideration and/or clarification[32] wherein it alleged that:
(a) while it was true that the matters prayed for in the Omnibus
Motion of petitioner were not raised in the instant petition, they
were, nevertheless, included in the general prayer in the
petition for such other reliefs and remedies just and equitable
in the premises; (b) it could not file the Omnibus Motion with
the RTC since the records of Civil Case No. 84-23019 had
already been elevated to the Court of Appeals and upon the
perfection of the appeal, the trial court lost jurisdiction over the
case; and (c) the matters raised in the Omnibus Motion were
incidental to and included in the appellate jurisdiction of the
Court of Appeals.
On the other hand, on 2 February 1995, SIHI filed a
motion for clarification[33] wherein it asked for the deletion, for
being mere obiter dictum, the following paragraph in the
Resolution of 5 January 1995, to wit:
While it is true that as a necessary consequence
the decision of the Court of Appeals dated
January 22, 1991 ruling that the decision in Civil
Case No. 84-23019 "has not attained finality
pending service of a copy thereof on petitioner
Delta, which may appeal therefrom within the
reglementary period", all proceedings and/or
orders arising from the trial court's decision in
Civil Case No. 84-23019 are null and void x x x .
SIHI argued that this paragraph was not necessary to
the decision of the case before it[34] and cannot be considered
binding for the purpose of establishing precedent; [35] likewise,
the Resolution itself did not decide the incident on its merits
or consider and dispose of the issues, nor determine the
respective rights of the parties concerned.
In its resolution of 14 July 1995,[36] the Court of Appeals
granted SIHI's motion for clarification and denied DELTA's
motion for reconsideration. As to the latter, it ruled that:
[P]etitioner DELTA is not without remedy,
especially considering the ruling of the Court of
Appeals in the first petition for certiorari (CA-G.R.
SP No. 23068) which ruled thus:
"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 therefrom within
the reglementary period."
Clearly, the only issue in this petition (CA-
G.R. SP No. 29147) is as to the validity of the
questioned orders of respondent court dated
June 3, 1992 (dismissing the notice of appeal
dated November 6, 1991) and the Order dated
September 14, 1992 of the same court (denying
the motion for reconsideration filed by the
petitioner through counsel).[37]
It then decreed to amend its Resolution of 5 January 1995 by
deleting the assailed paragraph.
DELTA then filed the instant petition, insisting that the
matters raised in the Omnibus Motion were incidental to and
included in the appellate jurisdiction of the Court of Appeals;
hence, it had jurisdiction to rule on said motion. As regards the
grant of SIHI's motion to strike out a paragraph in the
resolution of 5 January 1995 for being obiter dictum, DELTA
submitted that the latter contained a finding or affirmation of
fact, thus could not have constituted obiter dictum.
After SIHI filed its comment, we gave due course to the
petition and required the parties to submit their respective
memoranda. DELTA and SIHI did so on 16 April 1996 and on
13 May 1996, respectively.
After a painstaking review of the record in CA-G.R. SP
No. 29147, we are more than convinced that respondent
Court of Appeals committed no reversible error in denying
DELTAs Omnibus Motion. The decision of the Court of
Appeals of 17 June 1993 in CA-G.R. SP No. 29147 had long
become final insofar as DELTA was concerned, and it very
well knew that the only issues raised therein concerned the
trial courts orders of 3 June 1992 and 14 September 1992. As
a matter of fact, at the time Delta filed the petition in CA-G.R.
SP No. 29147, the orders sought to be declared null and void
in the Omnibus Motion had already been issued, they having
been so issued at the commencement of CA-G.R. SP No.
23068. In short, if DELTA intended such orders to be
challenged in CA-G.R. SP No. 29147, it could have explicitly
alleged them as sources of additional causes of action and
prayed for the corresponding affirmative relief therefrom, and
if this course of action initially proved unavailing then DELTA
could and should have moved for reconsideration on that
aspect. After the finality of the decision in said case, any
attempt to introduce or revive the issue had become
procedurally impermissible. Plainly, the issues raised in the
Omnibus Motion could have been allowed during the
pendency of said case by way of amendments to the petition.
Moreover, the Court of Appeals correctly denied
petitioner's Omnibus Motion in keeping with
jurisprudence[38] concerning Section 7 of Rule 51 of the Rules
of Court on the Procedure in the Court of Appeals, which
mandates that:
Sec. 7. Questions that may be decided. -- No
error which does not affect the jurisdiction over
the subject matter will be considered unless
stated in the assignment of errors and properly
argued in the brief, save as the court, at its
option, may notice plain errors not specified, and
also clerical errors.
Clearly then, the Court of Appeals could only consider
errors raised by petitioner in CA-G.R. SP No. 29147, which
were limited to the trial court's orders of 3 June 1992 and 14
September 1992. These were the only errors Delta argued
extensively in its brief. To allow DELTA's Omnibus Motion
which it filed more than eight months from promulgation of the
decision in CA-G.R. SP No. 29147, or long after finality of said
case, would result in abandonment of sound judicial process.
In light of the dispositive portions of the Court of Appeals
decisions of 22 January 1991 in CA-G.R. SP No. 23068, and
of 17 June 1993 in CA-G.R. SP No. 29147, we cannot agree
with SIHI that DELTA is barred by res judicata. This
conclusion is further fortified by the unequivocal statements of
the Court of Appeals in its challenged resolution of 14 July
1995 that:
[P]etitioner DELTA is not without remedy,
especially considering the ruling of the Court of
Appeals in the first petition for certiorari (CA-G.R.
SP No. 23068) ...
xxx
Clearly, the only issue in this petition (CA-G.R.
SP No. 29147) is as to the validity of the
questioned orders of respondent court dated
June 3, 1992 (dismissing the notice of appeal
dated November 6, 1991) and the Order dated
September 14, 1992 of the same court (denying
the motion for reconsideration filed by the
petitioner through counsel).
G.R. No. L-47673 October 10, 1946
KOPPEL (PHILIPPINES), INC., plaintiff-appellant,
vs.
ALFREDO L. YATCO, Collector of Internal
Revenue, defendant-appellee.
Padilla, Carlos and Fernando for appellant.
Office of the Solicitor General Ozaeta, First Assistant
Solicitor General Reyes and.
Office of the Solicitor General Reyes and Solicitor Cañizanes
for appellee.
HILADO, J.:
This is an appeal by Koppel (Philippines), Inc., from the
judgment of the Court of First Instance of Manila in civil case
No. 51218 of said court dismissing said corporation's
complaint for the recovery of the sum of P64,122.51 which it
had paid under protest to the Collector of Internal Revenue
on October 30, 1936, as merchant sales tax. The main facts
of the case were stipulated in the court below as follows:
AGREED STATEMENT OF FACTS
Now come the plaintiff by attorney Eulogio P.
Revilla and the defendant by the Solicitor General
and undersigned Assistant Attorney of the Bureau
of Justice and, with leave of this Honorable Court,
hereby respectfully stipulated and agree to the
following facts, to wit:
The Court of Appeals likewise did not commit reversible
error in deleting the phrase SIHI protested as obiter dictum.
An obiter dictum has been defined as an opinion
expressed by a court upon some question of law which is not
necessary to the decision of the case before it.[39] It is a remark
made, or opinion expressed, by a judge, in his decision upon
a cause, "by the way," that is, incidentally or collaterally, and
not directly upon the question before him, or upon a point not
necessarily involved in the determination of the cause, or
introduced by way of illustration, or analogy or
argument. Such are not binding as precedent.[40]
The assailed phrase was indeed obiter dictum as it
touched upon a matter not raised by petitioner expressly in its
petition assailing the dismissal of its notice of appeal. It was
not a prerequisite in disposing of the aforementioned issue.
The body of the resolution did not contain any discussion on
such matter nor mention any principle of law to support such
statement.
WHEREFORE, the instant petition is DISMISSED and
the challenged resolutions of 5 January 1995 and 14 July
1995 in C.A. G.R.-SP. NO. 29147 are AFFIRMED.
Costs against petitioner.
SO ORDERED.
I. That plaintiff is a corporation duly organized and
existing under and by virtue of the laws of the
Philippines, with principal office therein at the City
of Manila, the capital stock of which is divided into
thousand (1,000) shares of P100 each. The
Koppel Industrial Car and Equipment company, a
corporation organized and existing under the laws
of the State of Pennsylvania, United States of
America, and not licensed to do business in the
Philippines, owned nine hundred and ninety-five
(995) shares out of the total capital stock of the
plaintiff from the year 1928 up to and including the
year 1936, and the remaining five (5) shares only
were and are owned one each by officers of the
plaintiff corporation.
II. That plaintiff, at all times material to this case,
was and now is duly licensed to engage in
business as a merchant and commercial broker in
the Philippines; and was and is the holder of the
corresponding merchant's and commercial
broker's privilege tax receipts.
III. That the defendant Collector of Internal
revenue is now Mr. Bibiano L. Meer in lieu of Mr.
Alfredo L. Yatco.
IV. That during the period from January 1, 1929,
up to and including December 31, 1932, plaintiff
transacted business in the Philippines in the
following manner, with the exception of the
transactions which are described in paragraphs V
and VI of this stipulation:
When a local buyer was interested in the purchase
of railway materials, machinery, and supplies, it
asked for price quotations from plaintiff. Atypical
form of such request is attached hereto and made
a part hereof as Exhibit A. (Exhibit A represents
typical transactions arising from written requests
for quotations, while Exhibits B to G, inclusive, are
typical transactions arising from verbal requests
for quotation.) Plaintiff then cabled for the
quotation desired for Koppel Industrial Car and
Equipment Company. A sample of the pertinent
cable is hereto attached and made a part hereof
as Exhibit B. Koppel Industrial Car and Equipment
Company answered by cable quoting its cost
price, usually A. C. I. F. Manila cost price, which
was later followed by a letter of confirmation. A
sample of the said cable quotation and of the letter
of confirmation are hereto attached and made a
part hereof as Exhibits C and C-1. Plaintiff,
however, quoted by Koppel Industrial Car and
Equipment Company. Copy of the plaintiff's letter
to purchaser is hereto attached and made a part
hereof as Exhibit D. On the basis of these
quotations, orders were placed by the local
purchasers, copies of which orders are hereto
attached as Exhibits E and E-1.
A cable was then sent to Koppel Industrial Car and
Equipment company giving instructions to ship the
merchandise to Manila forwarding the customer's
order. Sample of said cable is hereto attached as
Exhibit F. The bills of lading were usually made to
"order" and indorsed in blank with notation to the
effect that the buyer be notified of the shipment of
the goods covered in the bills of lading;
commercial invoices were issued by Koppel
Industrial Car and Equipment Company in the
names of the purchasers and certificates of
insurance were likewise issued in their names, or
in the name of Koppel Industrial Car and
Equipment Company but indorsed in blank and
attached to drafts drawn by Koppel Industrial Car
and Equipment Company on the purchasers,
which were forwarded through foreign banks to
local banks. Samples of the bills of lading are
hereto attached as Exhibits F-1, I-1, I-2 and I-3.
Bills of ladings, Exhibits I-1, I-2 and I-3, may
equally have been employed, but said Exhibits I-1,
I-2 and I-3 have no connection with the transaction
covered by Exhibits B to G, inclusive. The
purchasers secured the shipping papers by
arrangement with the banks, and thereupon
received and cleared the shipments. If the
merchandise were of European origin, and if there
was not sufficient time to forward the documents
necessary for clearance, through foreign banks to
local banks, to the purchasers, the Koppel
Industrial Car and Equipment company did, in
many cases, send the documents directly from
Europe to plaintiff with instructions to turn these
documents over to the purchasers. In many cases,
where sales was effected on the basis of C. I. F.
Manila, duty paid, plaintiff advanced the sums
required for the payment of the duty, and these
sums, so advanced, were in every case
reimbursed to plaintiff by Koppel Industrial Car and
Equipment Company. The price were payable by
drafts agreed upon in each case and drawn by
Koppel Industrial Car and Equipment Company on
respective purchasers through local banks, and
payments were made to the banks by the
purchasers on presentation and delivery to them of
the above-mentioned shipping documents or
copies thereof. A sample of said drafts is hereto
attached as Exhibit G. Plaintiff received by way of
compensation a percentage of the profits realized
on the above transactions as fixed in paragraph 6
of the plaintiff's contract with Koppel Industrial Car
and Equipment Company, which contract is hereto
attached as Exhibit H, and suffered its
corresponding share in the losses resulting from
some of the transactions.
That the total gross sales from January 1, 1929,
up to and including December 31, 1932, effected
in the foregoing manner and under the above
specified conditions, amount to P3, 596,438.84.
V. That when a local sugar central was interested
in the purchase of railway materials, machinery
and supplies, it secured quotations from, and
placed the corresponding orders with, the plaintiff
in substantially the same manner as outlined in
paragraph IV of this stipulation, with the only
difference that the purchase orders which were
agreed to by the central and the plaintiff are similar
to the sample hereto attached and made a part
hereof as Exhibit I. Typical samples of the bills of
lading covering the herein transaction are hereto
attached and made a part hereto as Exhibits I-1, I-
2 and I-3. The value of the sales carried out in the
manner mentioned in this paragraph is
P133,964.98.
VI. That sometime in February, 1929, Miguel J.
Ossorio, of Manila, Philippines, placed an option
with Koppel Industrial Car and Equipment
Company, through plaintiff, to purchase within
three months a pair of Atlas-Diesel Marine
Engines. Koppel Industrial Car and Equipment
Company purchased said Diesel Engines in
Stockholm, Sweden, for $16,508.32. The suppliers
drew a draft for the amount of $16,508.32 on the
Koppel Industrial Car and Equipment Company,
which paid the amount covered by the draft. Later,
Miguel J. Ossorio definitely called the deal off, and
as Koppel Industrial Car and Equipment Company
could not ship to or draw on said Mr. Miguel J.
Ossorio, it in turn drew another draft on plaintiff for
the same amount at six months sight, with the
understanding that Koppel Industrial Car and
Equipment Company would reimburse plaintiff
when said engines were disposed of. Plaintiff
honored the draft and debited the said sum of
$16,508.32 to merchandise account. The engines
were left stored at Stockholm, Sweden. On April 1,
1930, a new local buyer, Mr. Cesar Barrios, of
Iloilo, Philippines, was found and the same
engines were sold to him for $21,000 (P42,000) C.
I. F. Hongkong. The engines were shipped to
Hongkong and a draft for $21,000 was drawn by
Koppel Industrial Car and Equipment Company on
Mr. Cesar Barrios. After the draft was fully paid by
Mr. Barrios, Koppel Industrial Car and Equipment
Company reimbursed plaintiff with cost price of
$16,508.32 and credited it with $1,152.95 as its
share of the profit on the transaction. Exhibits J
and J-1 are herewith attached and made integral
parts of this stipulation with particular reference to
paragraph VI hereof.
VII. That plaintiff's share in the profits realized out
of these transactions described in paragraphs IV,
V and VI hereof totaling P3,772,403.82, amounts
to P132,201.30; and that plaintiff within the time
provided by law returned the aforesaid amount
P132,201.30 for the purpose of the commercial
broker's 4 per cent tax and paid thereon the sum
P5,288.05 as such tax.
VIII. That defendant demanded of the plaintiff the
sum of P64,122.51 as the merchants' sales tax of
1% per cent on the amount of P3,772,403.82,
representing the total gross value of the sales
mentioned in paragraphs IV, V and VI hereof,
including the 25 per cent surcharge for the late
payment of the said tax, which tax and surcharge
were determined after the amount of P5,288.05
mentioned in paragraph VI hereof was deducted.
IX. That plaintiff, on October 30, 1936, paid under
protest said sum of P64,122.51 in order to avoid
further penalties, levy and distraint proceedings.
X. That defendant, on November 10, 1936,
overruled plaintiff's protest, and defendant has
failed and refused and still fails and refuses,
notwithstanding demands by plaintiff, to return to
the plaintiff said sum of P64,122.51 or any part
thereof.
xxx xxx xxx
That the parties hereby
reserve the right to present
additional evidence in support
of their respective
contentions.
Manila, Philippines, December
26, 1939
(Sgd.) ROMAN
OZAETA
Solicitor General
(Sgd.) ANTONIO
CAÑIZARES
Assistant Attorney
(Sgd.) E. P. REVILLA
Attorney for the Plaintiff
3rd Floor, Perez Samanillo
Bldg., Manila
Both parties adduced some oral evidence in
clarification of or addition to their agreed statement
of facts. A preponderance of evidence has
established, besides the facts thus stipulated, the
following:
(a) The shares of stock of plaintiff
corporation were and are all owned by
Koppel Industries Car and Equipment
Company of Pennsylvania, U. S. A.,
exceptive which were necessary to
qualify the Board of Directors of said
plaintiff corporation;
(b) In the transactions involved herein
the plaintiff corporation acted as the
representative of Koppel Industrial Car
and Equipment Company only, and not
as the agent of both the latter company
and the respective local purchasers —
plaintiff's principal witness, A.H. Bishop,
its resident Vice-President, in his
testimony invariably referred to Koppel
Industrial Car and Equipment Co. as
"our principal" 9 t. s. n., pp. 10, 11, 12,
19, 75), except that at the bottom of
page 10 to the top of page 11, the
witness stated that they had "several
principal" abroad but that "our principal
abroad was, for the years in question,
Koppel Industrial Car and Equipment
Company," and on page 68, he testified
that what he actually said was ". . . but
our principal abroad" and not "our
principal abroad" — as to which it is very
significant that neither this witness nor
any other gave the name of even a
single other principal abroad of the
plaintiff corporation;
(c) The plaintiff corporation bore alone
incidental expenses — as, for instance,
cable expenses-not only those of its own
cables but also those of its "principal"
(t.s.n., pp. 52, 53);
(d) the plaintiff's "share in the profits"
realized from the transactions in which it
intervened was left virtually in the hands
of Koppel Industrial Car and Equipment
Company (t.s.n., p. 51);
(e) Where drafts were not paid by the
purchasers, the local banks were
instructed not to protest them but to
refer them to plaintiff which was fully
empowered by Koppel Industrial Car
and Equipment company to instruct the
banks with regards to disposition of the
drafts and documents (t.s.n., p. 50;
Exhibit G);lawphil.net
(f) Where the goods were European
origin, consular invoices, bill of lading,
and, in general, the documents
necessary for clearance were sent
directly to plaintiff (t.s.n., p. 14);
(g) If the plaintiff had in stock the
merchandise desired by local buyers, it
immediately filled the orders of such
local buyers and made delivery in the
Philippines without the necessity of
cabling its principal in America either for
price quotations or confirmation or
rejection of that agreed upon between it
and the buyer (t.s.n., pp. 39-43);
 (h) Whenever the deliveries made by
Koppel Industrial Car and Equipment
Company were incomplete or insufficient
to fill the local buyer's orders, plaintiff
used to make good the deficiencies by
deliveries from its own local stock, but in
such cases it charged its principal only
the actual cost of the merchandise thus
delivered by it from its stock and in such
transactions plaintiff did not realize any
profit (t.s.n., pp. 53-54);
(i) The contract of sale involved herein
were all perfected in the Philippines.
Those described in paragraph IV of the agreed
statement of facts went through the following
process: (1) "When a local buyer was interested in
the purchase of railway materials, machinery, and
supplies, it asked for price quotations from
plaintiff"; (2) "Plaintiff then cabled for the quotation
desired from Koppel Industrial Car and Equipment
Company"; (3) "Plaintiff, however, quoted to the
purchaser a selling price above the figures quoted
by Koppel Industrial Car and Equipment
Company"; (4) "On the basis of these quotations,
orders were placed by the local purchasers . . ."
Those described in paragraph V of said agreed
statement of facts were transacted "in substantially
the same manner as outlined in paragraph IV."
As to the single transaction described in paragraph
VI of the same agreed statement of facts,
discarding the Ossorio option which anyway was
called off, "On April 1, 1930, a new local buyer, Mr.
Cesar Barrios, of Iloilo, Philippines, was found and
the same engines were sold to him for
$21,000(P42,000) C.I.F. Hongkong." (Emphasis
supplied.).
(j) Exhibit H contains the following
paragraph:
It is clearly understood that the intent of this
contract is that the broker shall perform only the
functions of a broker as set forth above, and shall
not take possession of any of the materials or
equipment applying to said orders or perform any
acts or duties outside the scope of a broker; and in
no sense shall this contract be construed as
granting to the broker the power to represent the
principal as its agent or to make commitments on
its behalf.
The Court of First Instance held for the defendant and
dismissed plaintiff's complaint with costs to it.
Upon this appeal, seven errors are assigned to said
judgment as follows:.
1. That the court a quo erred in not holding that
appellant is a domestic corporation distinct and
separate from, and not a mere branch of Koppel
Industrial Car and Equipment Co.;
2. the court a quo erred in ignoring the ruling of the
Secretary of Finance, dated January 31, 1931,
Exhibit M;
3. the court a quo erred in not holding that a
character of a broker is determined by the nature
of the transaction and not by the basis or measure
of his compensation;
4. The court a quo erred in not holding that
appellant acted as a commercial broker in the
transactions covered under paragraph VI of the
agreed statement of facts;
5. The court a quo erred in not holding that
appellant acted as a commercial broker in the
transactions covered under paragraph v of the
agreed statement of facts;
6. The court a quo erred in not holding that
appellant acted as a commercial broker in the sole
transaction covered under paragraph VI of the
agreed statement of facts;
7. the court a quo erred in dismissing appellant's
complaint.
The lower court found and held that Koppel (Philippines),
Inc. is a mere dummy or brach ("hechura") of Koppel
industrial Car and Equipment Company. The lower court did
not deny legal personality to Koppel (Philippines), Inc. for
any and all purposes, but in effect its conclusion was that, in
the transactions involved herein, the public interest and
convenience would be defeated and what would amount to a
tax evasion perpetrated, unless resort is had to the doctrine
of "disregard of the corporate fiction."
I. In its first assignment of error appellant submits that the
trial court erred in not holding that it is a domestic
corporation distinct and separate from and not a mere
branch of Koppel Industrial Car and Equipment Company. It
contends that its corporate existence as Philippine
corporation can not be collaterally attacked and that the
Government is estopped from so doing. As stated above, the
lower court did not deny legal personality to appellant for any
and all purposes, but held in effect that in the transaction
involved in this case the public interest and convenience
would be defeated and what would amount to a tax evasion
perpetrated, unless resort is had to the doctrine of "disregard
of the corporate fiction." In other words, in looking through
the corporate form to the ultimate person or corporation
behind that form, in the particular transactions which were
involved in the case submitted to its determination and
judgment, the court did so in order to prevent the
contravention of the local internal revenue laws, and the
perpetration of what would amount to a tax evasion,
inasmuch as it considered — and in our opinion, correctly —
that appellant Koppel (Philippines), Inc. was a mere branch
or agency or dummy ("hechura") of Koppel Industrial Car
and Equipment Co. The court did not hold that the corporate
personality of Koppel (Philippines), Inc., would also be
disregarded in other cases or for other purposes. It would
have had no power to so hold. The courts' action in this
regard must be confined to the transactions involved in the
case at bar "for the purpose of adjudging the rights and
liabilities of the parties in the case. They have no jurisdiction
to do more." (1 Flethcer, Cyclopedia of Corporation,
Permanent ed., p. 124, section 41.)
A leading and much cited case puts it as follows:
If any general rule can be laid down, in the present
state of authority, it is that a corporation will be
looked upon as a legal entity as a general rule,
and until sufficient reason to the contrary appears;
but, when the notion of legal entity is used to
defeat public convinience, justify wrong, protect
fraud, or defend crime, the law will regard the
corporation as an association of persons. (1
Fletcher Cyclopedia of Corporation [Permanent
Edition], pp. 135, 136; United States vs.
Milwaukee Refrigeration Transit Co., 142 Fed.,
247, 255, per Sanborn, J.)
In his second special defense appellee alleges "that the
plaintiff was and is in fact a branch or subsidiary of Koppel
Industrial Car and Equipment Co., a Pennsylvania
corporation not licensed to do business in the Philippines but
actually doing business here through the plaintiff; that the
said foreign corporation holds 995 of the 1,000 shares of the
plaintiff's capital stock, the remaining five shares being held
by the officers of the plaintiff herein in order to permit the
incorporation thereof and to enable its aforesaid officers to
act as directors of the plaintiff corporation; and that plaintiff
was organized as a Philippine corporation for the purpose of
evading the payment by its parent foreign corporation of
merchants' sales tax on the transactions involved in this
case and others of similar nature."
By most courts the entity is normally regarded but
is disregarded to prevent injustice, or the distortion
or hiding of the truth, or to let in a just defense. (1
Fletcher, Cyclopedia of Corporation, Permanent
Edition, pp. 139,140; emphasis supplied.)
Another rule is that, when the corporation is the
mere alter ego, or business conduit of a person, it
may de disregarded." (1 Fletcher, Cyclopedia of
Corporation, Permanent Edition, p. 136.)
Manifestly, the principle is the same whether the "person" be
natural or artificial.
A very numerous and growing class of cases
wherein the corporate entity is disregarded is that
(it is so organized and controlled, and its affairs
are so conducted, as to make it merely an
instrumentality, agency, conduit or adjunct of
another corporation)." (1 Fletcher, Cyclopedia of
Corporation, Permanent ed., pp. 154, 155.)
While we recognize the legal principle that a
corporation does not lose its entity by the
ownership of the bulk or even the whole of its
stock, by another corporation (Monongahela Co.
vs. Pittsburg Co., 196 Pa., 25; 46 Atl., 99; 79 Am.
St. Rep., 685) yet it is equally well settled and
ignore corporate forms." (Colonial Trust Co. vs.
Montello Brick Works, 172 Fed., 310.)
Where it appears that two business enterprises
are owned, conducted and controlled by the same
parties, both law and equity will, when necessary
to protect the rights of third persons, disregard the
legal fiction that two corporations are distinct
entities, and treat them as identical. (Abney vs.
Belmont Country Club Properties, Inc., 279 Pac.,
829.)
. . . the legal fiction of distinct corporate existence
will be disregarded in a case where a corporation
is so organized and controlled and its affairs are
so conducted, as to make it merely an
instrumentality or adjunct of another corporation.
(Hanter vs. Baker Motor Vehicle Co., 190 Fed.,
665.)
In United States vs. Lehigh Valley R. Co. 9220 U.S., 257; 55
Law. ed., 458, 464), the Supreme Court of the United States
disregarded the artificial personality of the subsidiary coal
company in order to avoid that the parent corporation, the
Lehigh Valley R. Co., should be able, through the fiction of
that personality, to evade the prohibition of the Hepburn Act
against the transportation by railroad companies of the
articles and commodities described therein.
Chief Justice White, speaking for the court, said:
. . . Coming to discharge this duty it follows, in
view of the express prohibitions of the
commodities clause, it must be held that while the
right of a railroad company as a stockholder to use
its stock ownership for the purpose of a bona
fide separate administration of the affairs of a
corporation in which it has a stock interest may not
be denied, the use of such stock ownership in
substance for the purpose of destroying the entity
of a producing, etc., corporation, and commingling
its affairs in administration with the affairs of the
railroad company, so as to make the two
corporations virtually one, brings the railroad
company so voluntarily acting as to such
producing, etc., corporation within the prohibitions
of the commodities clause. In other words, that by
operation and effect of the commodities clause
there is duty cast upon a railroad company
proposing to carry in interstate commerce the
product of a producing, etc., corporation in which it
has a stock interest, not to abuse such power so
as virtually to do by indirection that which the
commodities clause prohibits, — a duty which
plainly would be violated by the unnecessary
commingling of the affairs of the producing
company with its own, so as to cause them to be
one and inseparable.
Corrobarative authorities can be cited in support of the same
proposition, which we deem unnecessary to mention here.
From the facts hereinabove stated, as established by a
preponderance of the evidence , particularly those narrated
in paragraph (a), (b), (c), (d), (e),(f), (h), (i), and (j) after the
agreed statement of facts, we find that, in so far as the sales
involved herein are concerned, Koppel (Philippines), Inc.,
and Koppel Industrial Car and Equipment company are to all
intents and purposes one and the same; or, to use another
mode of expression, that, as regards those transactions, the
former corporation is a mere branch, subsidiary or agency of
the latter. To our mind, this is conclusively borne out by the
fact, among others, that the amount of he so-called "share in
the profits" of Koppel (Philippines), Inc., was ultimately left to
the sole, unbridled control of Koppel Industrial Car and
Equipment Company. If, in their relations with each other,
Koppel (Philippines), Inc., was considered and intended to
function as a bona fide separate corporation, we can not
conceive how this arrangement could have been adopted,
for if there was any factor in its business as to which it would
in that case naturally have been opposed to being thus
controlled, it must have been precisely the amount
of profit which it could endeavor and hope to earn. No group
of businessmen could be expected to organize a mercantile
corporation — the ultimate end of which could only be profit
— if the amount of that profit were to be subjected to such a
unilateral control of another corporation, unless indeed the
former has previously been designed by the incorporators to
serve as a mere subsidiary, branch or agency of the latter.
Evidently, Koppel Industrial Car and Equipment Company
made us of its ownership of the overwhelming majority —
99.5% — of the capital stock of the local corporation to
control the operations of the latter to such an extent that it
had the final say even as to how much should be allotted to
said local entity in the so-called sharing in the profits. We
can not overlook the fact that in the practical working of
corporate organizations of the class to which these two
entities belong, the holder or holders of the controlling part of
the capital stock of the corporation, particularly where the
control is determined by the virtual ownership of the totality
of the shares, dominate not only the selection of the Board of
Directors but, more often than not, also the action of that
Board. Applying this to the instant case, we can not conceive
how the Philippine corporation could effectively go against
the policies, decisions, and desires of the American
corporation with regards to the scheme which was devised
through the instrumentality of the contract Exhibit H, as well
as all the other details of the system which was adopted in
order to avoid paying the 1½ per cent merchants sales tax.
Neither can we conceive how the Philippine corporation
could avoid following the directions of the American
corporation held 99.5 per cent of the capital stock of the
Philippine corporation. In the present instance, we note that
Koppel (Philippines), Inc., was represented in the Philippines
by its "resident Vice-President." This fact necessarily leads
to the inference that the corporation had at least a Vice-
President, and presumably also a President, who were not
resident in the Philippines but in America, where the parent
corporation is domiciled. If Koppel (Philippines), Inc., had
been intended to operate as a regular domestic corporation
in the Philippines, where it was formed, the record and the
evidence do not disclose any reason why all its officers
should not reside and perform their functions in the
Philippines.
Other facts appearing from the evidence, and presently to be
stated, strengthen our conclusion, because they can only be
explained if the local entity is considered as a mere
subsidiary, branch or agency of the parent organization.
Plaintiff charged the parent corporation no more than actual
cost — without profit whatsoever — for merchandise
allegedly of its own to complete deficiencies of shipments
made by said parent corporation (t.s.n., pp. 53, 54) — a fact
which could not conceivably have been the case if plaintiff
had acted in such transactions as an entirely independent
entity doing business — for profit, of course — with the
American concern. There has been no attempt even to
explain, if the latter situation really obtained, why these two
corporations should have thus departed from the ordinary
course of business. Plaintiff was charged by the American
corporation with the cost even of the latter's cable quotations
— from ought that appears from the evidence, this can only
be comprehended by considering plaintiff as such a
subsidiary, branch or agency of the parent entity, in which
case it would be perfectly understandable that for convenient
accounting purposes and the easy determination of the
profits or losses of the parent corporation's Philippines
should be charged against the Philippine office and set off
against its receipts, thus separating the accounts of said
branch from those which the central organization might have
in other countries. The reference to plaintiff by local banks,
under a standing instruction of the parent corporation, of
unpaid drafts drawn on Philippine customers by said parent
corporation, whenever said customers dishonored the drafts,
and the fact that the American corporation had previously
advised said banks that plaintiff in those cases was "fully
empowered to instruct (the banks) with regard to the
disposition of the drafts and documents" (t.s.n., p. 50), in the
absence of any other satisfactory explanation naturally give
rise to the inference that plaintiff was a subsidiary, branch or
agency of the American concern, rather than an independent
corporation acting as a broker. For, without such positive
explanation, this delegation of power is indicative of the
relations between central and branch offices of the same
business enterprise, with the latter acting under instructions
already given by the former. Far from disclosing a real
separation between the two entities, particularly in regard to
the transactions in question, the evidence reveals such
commongling and interlacing of their activities as to render
even incomprehensible certain accounting operations
between them, except upon the basis that the Philippine
corporation was to all intents and purposes a mere
subsidiary, branch, or agency of the American parent entity.
Only upon this basis can it be comprehended why it seems
not to matter at all how much profit would be allocated to
plaintiff, or even that no profit at all be so allocated to it, at
any given time or after any given period.
As already stated above, under the evidence the sales in the
Philippines of the railway materials, machinery and supplies
imported here by Koppel Industrial Car and Equipment
Company could have been as conviniently and efficiently
transacted and handled — if not more so — had said
corporation merely established a branch or agency in the
Philippines and obtained license to do business locally; and
if it had done so and said sales had been effected by such
branch or agency, there seems to be no dispute that the 1½
per cent merchants' sales tax then in force would have been
collectible. So far as we can discover, there would be only
one, but very important, difference between the two schemes
— a difference in tax liability on the ground that the sales
were made through another and distinct corporation, as
alleged broker, when we have seen that this latter
corporation is virtually owned by the former, or that they
practically one and the same, is to sanction a circumvention
of our tax laws, and permit a tax evasion of no mean
proportions and the consequent commission of a grave
injustice to the Government. Not only this; it would allow the
taxpayer to do by indirection what the tax laws prohibited to
be done directly (non-payment of legitimate taxes),
paraphrasing the United States Supreme Court in United
States vs. Lehigh Valley R. Co., supra.
The act of one corporation crediting or debiting the other for
certain items, expenses or even merchandise sold or
disposed of, is perfectly compatible with the idea of the
domestic entity being or acting as a mere branch, agency or
subsidiary of the parent organization. Such operations were
called for any way by the exigencies or convenience of the
entire business. Indeed, accounting operation such as these
are invitable, and have to be effected in the ordinary course
of business enterprise extends its trade to another land
through a branch office, or through another scheme
amounting to the same thing.
If plaintiff were to act as broker in the Philippines for any
other corporation, entity or person, distinct from Koppel
Industrial Car and Equipment company, an entirely different
question will arise, which, however, we are not called upon,
nor in a position, to decide.
As stated above, Exhibit H contains to the following
paragraph:
It is clearly understood that the intent of this
contract is that the broker shall perform only the
functions of a broker as set forth above, and shall
not take possession of any of the materials or
equipment applying to said orders or perform any
acts or duties outside the scope of a broker; and in
no sense shall this contract be construed as
granting to the broker the power to represent the
principal as its agent or to make commitments on
its behalf.
The foregoing paragraph, construed in the light of other facts
noted elsewhere in this decision, betrays, we think a
deliberate intent, through the medium of a scheme devised
with great care, to avoid the payment of precisely the 1½ per
cent merchants' sales tax in force in the Philippines before,
at the time of, and after, the making of the said contract
Exhibit H. If this were to be allowed, the payment of a tax,
which directly could not have been avoided, could be
evaded by indirection, consideration being had of the
aforementioned peculiar relations between the said
American and local corporations. Such evasion, involving as
it would, a violation of the former Internal Revenue Law,
would even fall within the penal sanction of section 2741 of
the Revised Administrative Code. Which only goes to show
the illegality of the whole scheme. We are not here
concerned with the impossibility of collecting the merchants'
sales tax, as a mere incidental consequence of transactions
legal in themselves and innocent in their purpose. We are
dealing with a scheme the primary, not to say the sole,
object of which the evasion of the payment of such tax. It is
this aim of the scheme that makes it illegal.
We have said above that the contracts of sale involved
herein were all perfected in the Philippines. From the facts
stipulated in paragraph IV of the agreed statement of facts, it
clearly appears that the Philippine purchasers had to wait for
Koppel Industrial Car and Equipment Company to
communicate its cost prices to Koppel (Philippines), Inc.,
were perfected in the Philippines. In those cases where no
such price quotations from the American corporation were
needed, of course, the sales effected in those cases
described in paragraph V of the agreed statement of facts
were, as expressed therein, transacted "in substantially the
same manner as outlined in paragraph VI." Even the single
transaction described in paragraph VI of the agreed
statement of facts was also perfected in the Philippines,
because the contracting parties were here and the consent
of each was given here. While it is true that when the
contract was thus perfected in the Philippines the pair of
Atlas-Diesel Marine Engines were in Sweden and the
agreement was to deliver them C.I.F. Hongkong, the contract
of sale being consensual — perfected by mere consent —
(Civil Code, article 1445; 10 Manresa, 4th ed., p. 11), the
location of the property and the place of delivery did not
matter in the question of where the agreement was
perfected.
In said paragraph VI, we read the following, as indicating
where the contract was perfected, considering beforehand
that one party, Koppel (Philippines),Inc., which in
contemplation of law, as to that transaction, was the same
Koppel Industrial Car Equipment Co., was in the Philippines:
. . . on April 1, 1930, a new local buyer Mr. Cesar
Barrios, of Iloilo, Philippines, was found and the
same engines were sold to him for $21,000
(P42,000) C.I.F. Hongkong . . . (Emphasis
supplied.)
Under the revenue law in force when the sales in question
took place, the merchants' sales tax attached upon the
happening of the respective sales of the "commodities,
goods, wares, and merchandise" involved, and we are
clearly of opinion that such "sales" took place upon the
perfection of the corresponding contracts. If such perfection
took place in the Philippines, the merchants' sales tax then in
force here attached to the transactions.
Even if we should consider that the Philippine buyers in the
cases covered by paragraph IV and V of the agreed
statement of facts, contracted with Koppel Industrial Car and
Equipment company, we will arrive at the same final result. It
can not be denied in that case that said American
corporation contracted through Koppel (Philippines), Inc.,
which was in the Philippines. The real transaction in each
case of sale, in final effect, began with an offer of sale from
the seller, said American corporation, through its agent, the
local corporation, of the railway materials, machinery, and
supplies at the prices quoted, and perfected or completed by
the acceptance of that offer by the local buyers when the
latter, accepting those prices, placed their orders. The offer
could not correctly be said to have been made by the local
buyers when they asked for price quotations, for they could
not rationally be taken to have bound themselves to
buy before knowing the prices. And even if we should take
into consideration the fact that the american corporation
contracted, at least partly, through correspondence,
according to article 54 of the Code of Commerce, the
respective contracts were completed from the time of the
acceptance by the local buyers, which happened in the
Philippines.
Contracts executed through correspondence shall
be completed from the time an answer is
made accepting the proposition or the conditions
by which the latter may be modified." (Code of
Commerce, article 54; emphasis supplied.)
A contract is as a rule considered as entered into
at the place where the place it is performed. So
where delivery is regarded as made at the place of
delivery." (13 C. J., 580-81, section 581.)
(In the consensual contract of sale delivery is not
needed for its perfection.)
II. Appellant's second assignment of error can be summarily
disposed of. It is clear that the ruling of the Secretary of
Finance, Exhibit M, was not binding upon the trial court,
much less upon this tribunal, since the duty and power of
interpreting the laws is primarily a function of the judiciary.
(Ortua vs. Singson Encarnacion, 59 Phil., 440, 444.) Plaintiff
cannot be excused from abiding by this legal principle, nor
can it properly be heard to say that it relied on the
Secretary's ruling and that, therefore, the courts should not
now apply an interpretation at variance therewith. The rule
of stare decisis is undoubtedly entitled to more respect in the
construction of statutes than the interpretations given by
officers of the administrative branches of the government,
even those entrusted with the administration of particular
laws. But this court, in Philippine Trust Company and Smith,
Bell and Co. vs. Mitchell(59 Phil., 30, 36), said:
G.R. No. 195872 March 12, 2014
FORTUNE MEDICARE, INC., Petitioner,
vs.
DAVID ROBERT U. AMORIN, Respondent.
DECISION
REYES, J.:
This is a petition for review on certiorari1 under Rule 45 of
the Rules of Court, which challenges the Decision2 dated
September 27, 2010 and Resolution3 dated February 24,
2011 of the Court of Appeals (CA) in CA-G.R. CV No. 87255.
The Facts
David Robert U. Amorin (Amorin) was a cardholder/member
of Fortune Medicare, Inc. (Fortune Care), a corporation
engaged in providing health maintenance services to its
members. The terms of Amorin's medical coverage were
provided in a Corporate Health Program Contract4 (Health
Care Contract) which was executed on January 6, 2000 by
Fortune Care and the House of Representatives, where
Amorin was a permanent employee.
While on vacation in Honolulu, Hawaii, United States of
America (U.S.A.) in May 1999, Amorin underwent an
emergency surgery, specifically appendectomy, at the St.
Francis Medical Center, causing him to incur professional
and hospitalization expenses of US$7,242.35 and
US$1,777.79, respectively. He attempted to recover from
Fortune Care the full amount thereof upon his return to
Manila, but the company merely approved a reimbursement
of ₱12,151.36, an amount that was based on the average
cost of appendectomy, net of medicare deduction, if the
procedure were performed in an accredited hospital in Metro
Manila.5 Amorin received under protest the approved
amount, but asked for its adjustment to cover the total
amount of professional fees which he had paid, and eighty
percent (80%) of the approved standard charges based on
"American standard", considering that the emergency
procedure occurred in the U.S.A. To support his claim,
Amorin cited Section 3, Article V on Benefits and Coverages
of the Health Care Contract, to wit:
. . . The rule of stare decisis is entitled to respect.
Stability in the law, particularly in the business
field, is desirable. But idolatrous reverence for
precedent, simply as precedent, no longer rules.
More important than anything else is that court
should be right. . . .
III. In the view we take of the case, and after the disposition
made above of the first assignment of error, it becomes
unnecessary to make any specific ruling on the third, fourth,
fifth, sixth, and seventh assignments of error, all of which are
necessarily disposed of adversely to appellant's contention.
Wherefore, he judgment appealed from is affirmed, with
costs of both instances against appellant. So ordered.
A. EMERGENCY CARE IN ACCREDITED
HOSPITAL. Whether as an in-patient or out-
patient, the member shall be entitled to full
coverage under the benefits provisions of the
Contract at any FortuneCare accredited hospitals
subject only to the pertinent provision of Article VII
(Exclusions/Limitations) hereof. For emergency
care attended by non affiliated physician (MSU),
the member shall be reimbursed 80% of the
professional fee which should have been paid, had
the member been treated by an affiliated
physician. The availment of emergency care from
an unaffiliated physician shall not invalidate or
diminish any claim if it shall be shown to have
been reasonably impossible to obtain such
emergency care from an affiliated physician.
B. EMERGENCY CARE IN NON-ACCREDITED
HOSPITAL
1. Whether as an in-patient or out-patient, FortuneCare shall
reimburse the total hospitalization cost including the
professional fee (based on the total approved charges) to a
member who receives emergency care in a non-accredited
hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the
emergency confinement occurs in a foreign territory, Fortune
Care will be obligated to reimburse or pay eighty (80%)
percent of the approved standard charges which shall cover
the hospitalization costs and professional fees. x x x6
Still, Fortune Care denied Amorin’s request, prompting the
latter to file a complaint7 for breach of contract with damages
with the Regional Trial Court (RTC) of Makati City.
For its part, Fortune Care argued that the Health Care
Contract did not cover hospitalization costs and professional
fees incurred in foreign countries, as the contract’s operation
was confined to Philippine territory.8 Further, it argued that its
liability to Amorin was extinguished upon the latter’s
acceptance from the company of the amount of ₱12,151.36.
The RTC Ruling
On May 8, 2006, the RTC of Makati, Branch 66 rendered its
Decision9 dismissing Amorin’s complaint. Citing Section 3,
Article V of the Health Care Contract, the RTC explained:
Taking the contract as a whole, the Court is convinced that
the parties intended to use the Philippine standard as basis.
Section 3 of the Corporate Health Care Program Contract
provides that:
xxxx
On the basis of the clause providing for reimbursement
equivalent to 80% of the professional fee which should have
been paid, had the member been treated by an affiliated
physician, the Court concludes that the basis for
reimbursement shall be Philippine rates. That provision,
taken with Article V of the health program contract, which
identifies affiliated hospitals as only those accredited clinics,
hospitals and medical centers located "nationwide" only point
to the Philippine standard as basis for reimbursement.
The clause providing for reimbursement in case of
emergency operation in a foreign territory equivalent to 80%
of the approved standard charges which shall cover
hospitalization costs and professional fees, can only be
reasonably construed in connection with the preceding
clause on professional fees to give meaning to a somewhat
vague clause. A particular clause should not be studied as a
detached and isolated expression, but the whole and every
part of the contract must be considered in fixing the meaning
of its parts.10
In the absence of evidence to the contrary, the trial court
considered the amount of ₱12,151.36 already paid by
Fortune Care to Amorin as equivalent to 80% of the
hospitalization and professional fees payable to the latter
had he been treated in an affiliated hospital.11
Dissatisfied, Amorin appealed the RTC decision to the CA.
The CA Ruling
On September 27, 2010, the CA rendered its
Decision12 granting the appeal. Thus, the dispositive portion
of its decision reads:
WHEREFORE, all the foregoing premises considered, the
instant appeal is hereby GRANTED. The May 8, 2006
assailed Decision of the Regional Trial Court (RTC) of
Makati City, Branch 66 is hereby REVERSED and SET
ASIDE, and a new one entered ordering Fortune Medicare,
Inc. to reimburse [Amorin] 80% of the total amount of the
actual hospitalization expenses of $7,242.35 and
professional fee of $1,777.79 paid by him to St. Francis
Medical Center pursuant to Section 3, Article V of the
Corporate Health Care Program Contract, or their peso
equivalent at the time the amounts became due, less the
[P]12,151.36 already paid by Fortunecare.
SO ORDERED.13
In so ruling, the appellate court pointed out that, first, health
care agreements such as the subject Health Care Contract,
being like insurance contracts, must be liberally construed in
favor of the subscriber. In case its provisions are doubtful or
reasonably susceptible of two interpretations, the
construction conferring coverage is to be adopted and
exclusionary clauses of doubtful import should be strictly
construed against the provider.14 Second, the CA explained
that there was nothing under Article V of the Health Care
Contract which provided that the Philippine standard should
be used even in the event of an emergency confinement in a
foreign territory.15
Fortune Care’s motion for reconsideration was denied in a
Resolution16 dated February 24, 2011. Hence, the filing of
the present petition for review on certiorari.
The Present Petition
Fortune Care cites the following grounds to support its
petition:
I. The CA gravely erred in concluding that the
phrase "approved standard charges" is subject to
interpretation, and that it did not automatically
mean "Philippine Standard"; and
II. The CA gravely erred in denying Fortune Care’s
motion for reconsideration, which in effect affirmed
its decision that the American Standard Cost shall
be applied in the payment of medical and
hospitalization expenses and professional fees
incurred by the respondent.17
The Court’s Ruling
The petition is bereft of merit.
The Court finds no cogent reason to disturb the CA’s finding
that Fortune Care’s liability to Amorin under the subject
Health Care Contract should be based on the expenses for
hospital and professional fees which he actually incurred,
and should not be limited by the amount that he would have
incurred had his emergency treatment been performed in an
accredited hospital in the Philippines.
We emphasize that for purposes of determining the liability
of a health care provider to its members, jurisprudence holds
that a health care agreement is in the nature of non-life
insurance, which is primarily a contract of indemnity. Once
the member incurs hospital, medical or any other expense
arising from sickness, injury or other stipulated contingent,
the health care provider must pay for the same to the extent
agreed upon under the contract.18
To aid in the interpretation of health care agreements, the
Court laid down the following guidelines in Philamcare
Health Systems v. CA19:
When the terms of insurance contract contain limitations on
liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation.
Being a contract of adhesion, the terms of an insurance
contract are to be construed strictly against the party which
prepared the contract – the insurer. By reason of the
exclusive control of the insurance company over the terms
and phraseology of the insurance contract, ambiguity must
be strictly interpreted against the insurer and liberally in favor
of the insured, especially to avoid forfeiture. This is equally
applicable to Health Care Agreements. The phraseology
used in medical or hospital service contracts, such as the
one at bar, must be liberally construed in favor of the
subscriber, and if doubtful or reasonably susceptible of two
interpretations the construction conferring coverage is to be
adopted, and exclusionary clauses of doubtful import should
be strictly construed against the provider.20 (Citations omitted
and emphasis ours)
Consistent with the foregoing, we reiterated in Blue Cross
Health Care, Inc. v. Spouses Olivares21:
In Philamcare Health Systems, Inc. v. CA, we ruled that a
health care agreement is in the nature of a non-life
insurance. It is an established rule in insurance contracts
that when their terms contain limitations on liability, they
should be construed strictly against the insurer. These are
contracts of adhesion the terms of which must be interpreted
and enforced stringently against the insurer which prepared
the contract. This doctrine is equally applicable to health
care agreements.
xxxx
x x x [L]imitations of liability on the part of the insurer or
health care provider must be construed in such a way as to
preclude it from evading its obligations. Accordingly, they
should be scrutinized by the courts with "extreme jealousy"
and "care" and with a "jaundiced eye." x x x.22 (Citations
omitted and emphasis supplied)
In the instant case, the extent of Fortune Care’s liability to
Amorin under the attendant circumstances was governed by
Section 3(B), Article V of the subject Health Care Contract,
considering that the appendectomy which the member had
to undergo qualified as an emergency care, but the
treatment was performed at St. Francis Medical Center in
Honolulu, Hawaii, U.S.A., a non-accredited hospital. We
restate the pertinent portions of Section 3(B):
B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL
1. Whether as an in-patient or out-patient, FortuneCare shall
reimburse the total hospitalization cost including the
professional fee (based on the total approved charges) to a
member who receives emergency care in a non-accredited
hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the
emergency confinement occurs in foreign territory, Fortune
Care will be obligated to reimburse or pay eighty (80%)
percent of the approved standard charges which shall cover
the hospitalization costs and professional fees. x x
x23 (Emphasis supplied)
The point of dispute now concerns the proper interpretation
of the phrase "approved standard charges", which shall be
the base for the allowable 80% benefit. The trial court ruled
that the phrase should be interpreted in light of the
provisions of Section 3(A), i.e., to the extent that may be
allowed for treatments performed by accredited physicians in
accredited hospitals. As the appellate court however held,
this must be interpreted in its literal sense, guided by the rule
that any ambiguity shall be strictly construed against Fortune
Care, and liberally in favor of Amorin.
The Court agrees with the CA. As may be gleaned from the
Health Care Contract, the parties thereto contemplated the
possibility of emergency care in a foreign country. As the
contract recognized Fortune Care’s liability for emergency
treatments even in foreign territories, it expressly limited its
liability only insofar as the percentage of hospitalization and
professional fees that must be paid or reimbursed was
concerned, pegged at a mere 80% of the approved standard
charges.
The word "standard" as used in the cited stipulation was
vague and ambiguous, as it could be susceptible of different
meanings. Plainly, the term "standard charges" could be
read as referring to the "hospitalization costs and
professional fees" which were specifically cited as
compensable even when incurred in a foreign country.
Contrary to Fortune Care’s argument, from nowhere in the
Health Care Contract could it be reasonably deduced that
these "standard charges" referred to the "Philippine
standard", or that cost which would have been incurred if the
medical services were performed in an accredited hospital
situated in the Philippines. The RTC ruling that the use of the
"Philippine standard" could be inferred from the provisions of
Section 3(A), which covered emergency care in an
accredited hospital, was misplaced. Evidently, the parties to
the Health Care Contract made a clear distinction between
emergency care in an accredited hospital, and that obtained
from a non-accredited hospital.1âwphi1 The limitation on
payment based on "Philippine standard" for services of
accredited physicians was expressly made applicable only in
the case of an emergency care in an accredited hospital.
The proper interpretation of the phrase "standard charges"
could instead be correlated with and reasonably inferred
from the other provisions of Section 3(B), considering that
Amorin’s case fell under the second case, i.e., emergency
care in a non-accredited hospital. Rather than a
determination of Philippine or American standards, the first
part of the provision speaks of the full reimbursement of "the
total hospitalization cost including the professional fee
(based on the total approved charges) to a member who
receives emergency care in a non-accredited hospital" within
the Philippines. Thus, for emergency care in non-accredited
hospitals, this cited clause declared the standard in the
determination of the amount to be paid, without any
reference to and regardless of the amounts that would have
been payable if the treatment was done by an affiliated
physician or in an affiliated hospital. For treatments in foreign
territories, the only qualification was only as to the
percentage, or 80% of that payable for treatments performed
in non-accredited hospital.
All told, in the absence of any qualifying word that clearly
limited Fortune Care's liability to costs that are applicable in
the Philippines, the amount payable by Fortune Care should
not be limited to the cost of treatment in the Philippines, as to
do so would result in the clear disadvantage of its member.
If, as Fortune Care argued, the premium and other charges
in the Health Care Contract were merely computed on
assumption and risk under Philippine cost and, that the
American cost standard or any foreign country's cost was
never considered, such limitations should have been
distinctly specified and clearly reflected in the extent of
coverage which the company voluntarily assumed. This was
what Fortune Care found appropriate when in its new health
care agreement with the House of Representatives,
particularly in their 2006 agreement, the provision on
emergency care in non-accredited hospitals was modified to
read as follows:
However, if the emergency confinement occurs in a foreign
territory, Fortunecare will be obligated to reimburse or pay
one hundred (100%) percent under approved Philippine
Standard covered charges for hospitalization costs and
professional fees but not to exceed maximum allowable
coverage, payable in pesos at prevailing currency exchange
rate at the time of availment in said territory where he/she is
confined. x x x24
Settled is the rule that ambiguities in a contract are
interpreted against the party that caused the ambiguity. "Any
ambiguity in a contract whose terms are susceptible of
different interpretations must be read against the party who
drafted it."25
WHEREFORE, the petition is DENIED. The Decision dated
September 27, 2010 and Resolution dated February 24,
2011 of the Court of Appeals in CA-G.R. CV No. 87255 are
AFFIRMED.
SO ORDERED.