Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-11176 June 29, 1959

THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
MANILA LODGE NO. 761 OF THE BENEVOLENT & PROTECTIVE ORDER OF ELKS and THE COURT OF TAX
APPEALS, respondents.

Office of the Solicitor General Ambrosio Padilla and Solicitor Frine C. Zaballero for petitioner.
Manuel O. Chan for respondent Lodge.

CONCEPCION, J.:

This is an appeal taken by the Collector of Internal Revenue from a decision of the Court of Tax Appeals holding that the
Manila Lodge No. 761 of the Benevolent & Protective Order of Elks "is not liable for privilege taxes on its sale by retail of
liquor and tobacco exclusively to its members and their guests," and reversing and setting aside a decision of said
appellant to the contrary, dated November 19, 1953 without special pronouncement as to costs.

The uncontested facts are set forth in the decision of said Court, from which we quote:

This is an appeal from two decisions of the respondent Collector of Internal Revenue assessing and demanding
from the petitioner herein the sums of P1,203.50 and P332.00, respectively representing fixed taxes as retail
dealer in liquor, fermented liquor, and tobacco, allegedly due from the petitioner for the period from the 4th quarter
of 1946 to 1953 and the period from 1954-1955, pursuant to subsections (i), (k) and (n) of section 193 of the Tax
Code, in relation to 178 of the same Code.

The petitioner, Manila Lodge No. 761 is admittedly a fraternal, civic, non-stock, non-profit organization duly
incorporated under Philippine laws. It owns and operates a clubhouse located at Dewey Boulevard, Manila,
wherein it sells at retail, liquor, fermented liquor, cigar and cigarettes only to its members and their guests. B.I.R.
agents discovered that the Manila Elks Club had not paid for the period in question the privilege tax for retail
liquor dealer (B-4), retail dealer in fermented liquor (B-7), and retail tobacco dealer (B-9-a) prescribed in section
193 of the Tax Code.

On November 19, 1953, the Collector of Internal Revenue assessed against and demanded from the petitioner
the payment of the sum of P1,203.50 representing fixed taxes, as retail dealer, for the period from its 4th quarter
of 1946 to 1953, exclusive of the suggested compromise penalty of P80.00. The petitioner, claiming that it was
exempted from the payment of the privilege taxes in question, requested that the said assessment be reviewed by
the Conference Staff of the Bureau of Internal Revenue. The Conference Staff, after due hearing, upheld and
reiterated the assessment made by the respondent Collector of Internal Revenue. Forthwith, the petitioner
appealed to this Court on June 1, 1955.

During the pendency of the original petition for review in the above-entitled case, respondent issued another
assessment covering fixed taxes for the years 1954 to 1955 in the amount of P332.00, exclusive of the suggested
compromise penalty of P50.00. Consequently, petitioner with leave of Court filed a supplemental petition for
review which included the latter assessment.

Petitioner bases its claim for exemption from the payment of the privilege taxes in question on the grounds that it
is not engaged in the business of selling at retail liquor, fermented liquor, and tobacco because the sale of these
aforementioned specific goods is made only to members of the club and their guests' on a very limited scale in
pursuance only of its general purpose as a fraternal social club, to provide comfort, recreation, and convenience
to such members, and merely to provide enough margin to cover operational expenses. (Petitioner's Memo p. 3).

Respondent, on the other hand, maintains that persons selling articles subject to specific tax, such as cigars,
tobacco, liquor and the like, are subject to the fixed taxes imposed by section 193 of the Tax Code, irrespective of
whether or not they made profit, and whether or not they are civic or fraternal clubs selling only to their members
and their guests. This contention is based on a ruling promulgated by the Bureau of Internal Revenue made in
1921.

Petitioner herein maintains that:

1. The respondent Court of Tax Appeals erred in reversing the decision of the petitioner-appellant which held the
respondent club liable for fixed taxes.

2. The respondent Court of Tax Appeals erred in holding that before respondent club's liability for the privilege
taxes imposed by section 193 of the Tax Code attaches it is necessary that it be engaged in the "business" of
selling liquor and tobacco.

3. The respondent Court of Tax of Appeals erred in holding that a fraternal, civic, non-stock, non-profit
organization like the respondent club selling at retail liquor and tobacco only to its members and their guests with
just enough margin to cover operational expenses should not be held liable for the fixed taxes incident to the
business of selling at retail, liquor and tobacco.
 4. The respondent Court of Tax Appeals erred in holding that the Administrative construction of the Bureau of
Internal Revenue on the matter in question is outside the ambit of, and is inconsistent with, the Revised
Administrative Code and Tax Code.

This appeal is untenable. In the language of the Court of Tax Appeals:

The bone of contention between the two parties herein . . ., lies in the proper interpretation and application of the
pertinent provisions of the Tax Code, namely, subsections (i), (k) and (n) of section 193 in relation to section 178
of the Tax Code, which we quote hereunder:

Sec. 178. Payment of privilege taxes. — A privilege tax must be paid before any business or occupation
hereinafter specified can be lawfully begun or pursued. The tax on business is payable for every separate or
distinct establishment or place where the business subject to the tax is conducted; and one occupation or line of
business does not become exempt by being conducted with some other occupation or business for which such
tax has been paid.

The occupation tax must be paid by each individual engaged in a calling subject thereto; the tax on a business by
the person, firm, or company conducting the same. (Emphasis supplied.)

SEC. 193. Amount of tax on business. — Fixed taxes on business shall be collected as follows, the amount stated
being for the whole year when not otherwise specified:

(i) Retail liquor dealers, one hundred pesos.

(k) Retail dealers in fermented liquors, fifty pesos.

xxx xxx xxx

(n) Wholesale tobacco dealers, sixty pesos; retail tobacco dealers, sixteen pesos.

The aforequoted provisions of the Tax Code are clear and precise. The privilege taxes prescribed in section 193
of the Tax Code in relation to section 178 of the same, are to be imposed or classified therein for "business"
purposes. This evident intention of the law becomes more palpable when we take into consideration the facts that
the drafters of our Tax Code had grouped the aforequoted provisions of law under one general division of the Tax
Code headed as "Title V, Privilege Taxes on Business and occupation.

It is not therefore entirely correct to maintain as respondent does, that all person selling articles subject to specific
taxes, like liquor and tobacco, should likewise be subject to the fixed taxes imposed by section 193 of the Tax
Code. We believe, that in order that these persons should be subjected to the privilege taxes imposed by the
aforementioned section of the Tax Code, it is necessary that they be engaged in the "business" of selling liquor
and tobacco, otherwise the privilege taxes as a dealer of liquor and tobacco can not attach.

At this juncture a definition of the word "business" is in order and we have the following:.

The word "business" in its ordinary and common use is employed to designate human efforts which have for their
and living or reward; it is not commonly used as descriptive of charitable, religious, educational or social agencies.
(Ballantine's Law Dictionary, 1948 Ed. P. 179)

Business — "that which busies or engages time, attention or labor as a principal serious concern or interest; any
particular occupation or employment habitually engaged in specially for livelihood or gain." (Vol. 1, 1949 Merriam-
Webster's New International Dictionary, 2nd Ed. p. 362.)

Other definitions of the term "business" as given by judicial pronouncement are found in Volume V, Words and
Phrases, page 999 as follows:

Business is a word of large signification, and denotes the employment or occupation in which a person is
engaged to produce a living. (Citing: Goddard v. Chaffee, 84 Mass (Allen) 395; 79 Am Dec. 769).

Business in common speech means habitual or regular occupation that a party is engaged in with a view to
winning a livelihood or some gain. (Citing: In re Lemont, 41 p. 2D, 497, 502)

An enterprise not conducted as a means of livelihood or for profit does not come within the ordinary meaning of
the terms, "business, trade or industry." (Citing City of Rochester vs. Rochester Girl's Home, 194 N.Y.S. 236,
237).

The term "business" as used in law imposing a license tax on business, trades, etc. ordinarily means business in
the trade or commercial sense only, carried on with a view to profit or livelihood. (Citing: Cuzner vs. California
Club 100 p. 868, 867, 155, Cal. 303, 20 L.R.A. N.S. 1095).

From the foregoing definitions, it is evident that the plain ordinary meaning of "business" is restricted to activities
or affairs where profit is the purpose, or livelihood is the motive. The term "business" being used without any
qualification in section 193 of the Tax Code in relation to section 178 of the same, should therefore be construed
in its plain and ordinary meaning, restricted to activities for profit or livelihood.

With these considerations in mind, we now come to the question of whether or not the Manila Elks Club is
engaged in the "business" of selling liquor and tobacco.
 Respondent, in paragraph 1 of his answer, admits that the petitioner herein, Manila Elks Club is a fraternal, civic,
non-stock, non-profit organization. It has been established without contradiction that the Manila Elks Club, in
pursuance of its purpose as a fraternal social club, sells on retail at its clubhouse on Dewey Boulevard, liquor,
cigars and cigarettes, on a very limited scale, only to its members and their guests, providing just enough margin
to cover operational expenses without intention to obtain profit. Such being the case then, the Manila Elks Club
cannot be considered as engaged in the "business" of selling liquor and tobacco.

Where the corporation handled no money except such as was necessary to cover operational expenses,
conducted no business for itself, and engaged in no transactions that contemplated a profit for itself — such
corporation is considered not organized for profit under the General Corporation Law. (Read V. Tidewater Coal
Exch., 116 A 898, 904, cited in Vol. 34 Words & Phrases, p. 220, defining "profits"; underscoring provided.).

The petitioner herein, Manila elks Club, not being engaged in the business of selling at retail liquor and tobacco,
cannot therefore be held liable for the privilege taxes required by section 193, subsections (1), (k) and (n). The
weight of American authorities enhances the strength of our findings that a fraternal, civic, non-stock, non-profit
organization, like the Elks Club, selling at retail liquor and tobacco only to its members and their guests in
pursuance with its general purpose as a fraternal social club with just enough margin to cover operational
expenses, should not be held liable for the fixed taxes incident to the business of selling at retail, liquor and
tobacco.

A bonafide social club, which disposes of liquors at its clubhouse to members and their guests at a fixed charge
as incident to the general purposes of the organizational is not required to take out a license by Rev. Laws No.
3777-3785, approved March 15, 1905, which provides for a license upon the business of disposing intoxicating
liquors; the term business in such statute meaning business in the trade or commercial sense. (State v. university
Club, 130 p. 468, 470; 35 Nev. 475; 44 L.R.A., N. S. 1026).

A social club, not organized for the purpose of evading the liquor laws, but which furnishes its members with
liquors and refreshments without profit to itself, is not a retail liquor dealer, within the statute imposing a license
tax on all persons dealing in, selling or disposing of intoxicating liquors by retail. (Barden v. Montan Club, 25 P.
1042, 10 Mont. 330, II L.R.A. 593).

Acts 1881, C. 149, authorizing taxation of liquors dealers, does not include a social club maintaining a library,
giving musical entertainments, and furnishing meals for its members, which keeps a small stock of liquor; the
members paying for its drink as it is taken, but no profit being made on such sales. (Tennessee Club of Memphis
v. Dwyer, 79 Tenn. (11 Lea) 452, 461, 47 Am. Rep. 298.).

A social club composed of members who have no proprietary interest in the assets which provides a reading
room, restaurant, bar room, library, billiard rooms and sitting rooms for its members, the expenses of which are
defrayed by annual dues from each member, and by payments made by the members for food and drinks, is not
engaged in the business of a retail liquor dealer, within section 11 of the Louisiana License Tax Laws. (La Ann.
585, 20 L.R.A. 185). Respondent however, insists that the petitioner should pay the privilege tax on the sale at
retail of liquor and tobacco because this has been allegedly the practice consistently followed by the Bureau of
Internal Revenue since 1921, and because section 1464 of the Revised Administrative Code under which said
ruling was then based had been reenacted by the legislature as section 193 of the National Internal Revenue
Code. Thus, respondent contends, that the policy of the Bureau of Internal Revenue has therefore gained
"approval by legislative reenactments."

The alleged administrative practice is founded upon the following ruling rendered in 1921.

Clubs selling exclusively to members thereof liquors and other products on which the specific tax is
imposed should pay the privilege tax corresponding to the business engaged in. The fact that such products are
sold at cost to the members of the club does not affect the club's liability to tax. (Ruling, Oct. 13, 1921, B.I.R.
105.02; Exh. 3, pp. 66-69. BIR records.)

We do not agree with the contention of the respondent. While there is admittedly a ruling on this point in 1921,
there is no showing that such has been a long-continued practice. Be that as it may, any such administrative
construction must be within the ambit of, and must be consistent with, the Revised Administrative Code and the
Tax Code. It is likewise the rule that where the statute is unambiguous, an administrative construction is
unwarranted (U.S. vs. Missouri P.R. Co. 278 U. S. 269, 73 L. Ed. 322) and no construction may be made to
restrict or enlarge the meaning of an Act. (Blatt vs. U.S.., 305 U.S. 267, 83 L. Ed. 167).

An examination of section 1464 of the Revised Administrative Code taken in connection with section 1453 of the
same, discloses the fact that aside from the change in rates of taxes to be paid and the arrangement of the
classification of business enumerated therein, section 193 of the present Tax Code is a verbatim copy of the
aforementioned provisions of the Revised Administrative Code. The policy or principle followed by the said code
regarding privileges taxes, i.e. that the privilege taxes are payable only by those persons or entities engaged in
the business enumerated in section 1464 of the said Code, has not suffered any change, and the same still
obtains under our present Tax Code. In the absence of a showing that the legislative body had been apprised of
the aforesaid ruling, what has gained legislative approval thru reenactment is, we believe, the policy behind the
above-mentioned provision of the Revised Administrative Code of taxing persons engaged in business and not
the alleged practice following the administrative ruling of 1921. We believe that no amount of trenchant adherence
to an established practice may justify its continued application where it is clear and manifest that the same is not
in consonance with the policy of the legislature as defined by law.

It is urged by appellant that emphasis should be placed not on the term "business", but on the phrases "retail liquor
dealers", in fermented liquors" and "retail tobacco dealers", appearing in section 193 of the National Internal Revenue
Code, which are defined in section 194 thereof as follows:
 SEC. 194. Words and phrases defined. — In applying the provisions of the preceding section, words and phrases
shall be taken in the sense and extension indicated below:

xxx xxx xxx

(i) "Retail liquor dealer" includes every person, except a retail vino dealer, who for himself or on commission sells
or offers for sale wine or distilled spirits (other than denatured alcohol) in quantities of five liters or less at any one
time and not for sale.

xxx xxx xxx

(k) "Retail dealer in fermented liquors" includes every person, except dealers in tuba, basi, and tapuy, who for
himself or on commission sells or offers for sale fermented liquors and quantities of five liters or less at any one
time and not for resale.

xxx xxx xxx

(o) "Tobacco dealer" comprehends every person who himself or on commission sells or offers for sale cigars,
cigarettes, or manufactured tobacco.

Undoubtedly, these definitions must be given all the weight due thereto, in the interpretation of section 193 of the Tax
Code. As used therein, the phrases above referred to are, however, part and parcel of the provisions contained, not only
in said section 193, but, also, in section 178 and other parts of the Tax Code, all of which must be given effect in their
entirety as a harmonious, coordinated and integrated unit, not as a mass of heterogeneous and unrelated if not
incongruous terms, clauses and sentences. In other words, the phrases in question should be construed in the light of the
context of the whole Tax Code, of which they are integral parts. And when this is done — when we consider that section
193 requires "retail liquor dealers", "retail dealers in fermented liquors" and "retail tobacco dealers" to pay the taxes on
business" therein specified; that said section 193 is entitled "Amount of tax on business", that said section 193 merely
implements the general provision in section 178, to the effect that "a privilege tax must be paid in before any business or
occupation hereinafter specified can be lawfully begun and pursued"; that the term "business" is used in said section 178,
six (6) times; and that the aforementioned sections 178, 193 and 194 are part of Title V of the Tax Code, entitled
"Privilege taxes on business and occupation" — it becomes crystal clear that the "retail liquor dealers", "retail dealers in
fermented liquors" and "retail tobacco dealers" alluded to in said section 193 are those engaged in "business", not
fraternal, civic, non-stock, non-profit organizations, like herein respondent, which sells wines, distilled spirits, fermented
liquors and tobacco, exclusively to its members and their guests, at such prices as are merely sufficient to cover
operational expenses.

Petitioner assails the applicability of the decisions relied upon by the Court of Tax Appeals, upon the ground that said
decisions refer to the authority to license, and, hence, to the exercise to the police power, not that of taxation which is
involved in the case at bar. However, the distinction made enhances — instead of detracting from — the weight of said
decisions as precedents, insofar as the issue herein is concerned. Indeed, the police power is, in general broader and
subject to less restrictions than the power to tax. It is not difficult to conceive the advisability, if not, necessity, of requiring
a license for some activities undertaken by so-called "clubs", owing to the possibility, if not probability, of use of said
name, appellation or denomination, in order to avoid or evade some laws or to camouflage certain ventures, pursuits or
enterprises which otherwise would clearly be illegal, immoral or contrary to public policy. Upon the other hand, a tax is a
burden and, as such, it will not be deemed imposed upon fraternal, civic, non-profit, non-stock organizations, unless the
intent to the contrary is manifest and patent.

Wherefore, the appealed decision of the Court of Tax Appeals is hereby affirmed, without special pronouncement as to
costs. It is so ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Endencia and Barrera, JJ., concur.

CASE DIGEST : US vs TURIBIO

G.R. No. L-5060 January 26, 1910 THE UNITED STATES, plaintiff-appellee, vs. LUIS TORIBIO, defendant-appellant.

Facts: Respondent Toribio is an owner of carabao, residing in the town of Carmen in the province of Bohol. The trial court
of Bohol found that the respondent slaughtered or caused to be slaughtered a carabao without a permit from the
municipal treasurer of the municipality wherein it was slaughtered, in violation of Sections 30 and 33 of Act No. 1147, an
Act regulating the registration, branding, and slaughter of Large Cattle. The act prohibits the slaughter of large cattle fit for
agricultural work or other draft purposes for human consumption.

The respondent counters by stating that what the Act is (1) prohibiting is the slaughter of large cattle in the municipal
slaughter house without a permit given by the municipal treasurer. Furthermore, he contends that the municipality of
Carmen has no slaughter house and that he slaughtered his carabao in his dwelling, (2) the act constitutes a taking of
property for public use in the exercise of the right of eminent domain without providing for the compensation of owners,
and it is an undue and unauthorized exercise of police power of the state for it deprives them of the enjoyment of their
private property.

Issue: Whether or not Act. No. 1147, regulating the registration, branding and slaughter of large cattle, is an undue and
unauthorized exercise of police power.

Held: It is a valid exercise of police power of the state.

Facts: The Supreme court Said sections 30 and 33 of the Act prohibit and penalize the slaughtering or causing to be
slaughtered for human consumption of large cattle at any place without the permit provided for in section 30
Where the language of a statute is fairly susceptible of two or more constructions, that construction should be adopted
which will most tend to give effect to the manifest intent of the lawmaker and promote the object for which the statute was
enacted, and a construction should be rejected which would tend to render abortive other provisions of the statute and to
defeat the object which the legislator sought to attain by its enactment

The Supreme Court also said that if they will follow the contention of Toribio it will defeat the purpose of the law.

The police power rests upon necessity and the right of self-protection and if ever the invasion of private property by police
regulation can be justified, The Supreme Court think that the reasonable restriction placed upon the use of carabaos by
the provision of the law under discussion must be held to be authorized as a reasonable and proper exercise of that
power.

The Supreme Court cited events that happen in the Philippines like an epidemic that wiped 70-100% of the population of
carabaos.. The Supreme Court also said that these animals are vested with public interest for they are fundamental use
for the production of crops. These reasons satisfy the requesites of a valid exercise of police power

The Supreme court finally said that article 1147 is not an exercise of the inherent power of eminent domain. The said law
does not constitute the taking of caraboes for public purpose; it just serve as a mere regulation for the consumption of
these private properties for the protection of general welfare and public interest.

SECOND DIVISION

G.R. No. L-38861 October 29, 1976

FEDERATION OF FREE FARMERS, JEREMIAS U. MONTEMAYOR, EDGARDO M. VIRIÑA, and

FAUSTINO F. BONIFACIO, JR., Petitioners, vs. HON. VICENTE G. ERICTA, as Presiding Judge of
the Court of First Instance of Quezon City, Branch XVIII, MANUEL E. MONDEJAR, JR.,
LUDOVICO VILLAMOR, VICTOR GERARDO BULATAO, FELICISIMO B. PATAYAN, GERARDO J.
ESGUERRA, CESAR C. MASCARIÑAS and FR. PIO M. EUGENIO, Respondents.

Faustino F. Bonifacio, Jr. in his own behalf and for other respondents.chanrobles virtual law library

Augusto T. Kalaw & Aurelio L. Caparas for respondents.

FERNANDO, J.:

It was the refusal of the then Court of First Instance Judge Vicente G. Ericta, now an Associate Justice of
the Court of Appeals, to dismiss an action for quo warranto and damages pending in his sala filed by
private respondents 1 that led to the institution of this certiorari and prohibition proceeding by the
Federation of Free Farmers and petitioners Jeremias U. Montemayor, Edgar M. Viriña, and Faustino F.
Bonifacio, Jr. 2 The jurisdiction of respondent Judge is assailed on the ground that the dispute between the
private parties dealt solely with alleged violations of the by-laws of a labor organization and is therefore
not cognizable by the regular courts. 3 A careful study of the pertinent facts of record yields the conclusion
that this issue of lack of power is decisive. For reasons to be set forth, this Court rules that the remedies
prayed for must be granted. There was lack of jurisdiction on the part of respondent
Judge.chanroblesvirtualawlibrarychanrobles virtual law library

On October 18, 1973, private respondents filed an action for Quo Warranto and Damages with Prayer for
Preliminary Injunction in the Quezon City Court of First Instance then presided by respondent Judge
against petitioners Montemayor, Viriña and Bonifacio. 4 The case arose from an intra-union dispute
between the President Jeremias U. Montemayor, petitioner of the Federation of Free Farmers, also a
petitioner, and another faction therein apparently under the leadership of respondent Manuel E. Mondejar,
Jr., plaintiff in such proceeding. 5 There was on October 20, 1973 a restraining order issued by respondent
Judge against petitioner Montemayor requiring him to desist "from calling a national convention which is
set on October 20, 1973, or on any other date." It was valid only up to November 20, 1973. 6 Two days
later, this petitioner filed a manifestation with the Court of First Instance of Quezon City informing the
latter that there was nothing to be restrained as the convention was adjourned earlier. 7 Then came on
October 30, 1973 a Motion to Dismiss filed by petitioners on the ground of lack of jurisdiction by the
respondent Judge as on the face of the suit filed, what was set forth were alleged "violations of the rights
and conditions of membership in a labor organization as well as alleged violations of internal labor
organization procedures." 8 It was not until March 28, 1974 that respondent Judge issued the challenged
order denying the motion to dismiss. The denial of the motion to dismiss referred to the claim for moral
damages, leading respondent Judge to assume that the Court of Industrial Relations could not be deemed
possessed of jurisdiction, respondent Judge citing the work of petitioner Jeremias U. Montemayor,
Agrarian and Social Legislation. 9 There was a motion for reconsideration, but it was denied. Hence this
petition.chanroblesvirtualawlibrarychanrobles virtual law library

As set forth at the outset, the petition is impressed with merit. Respondent Judge was devoid of
jurisdiction.chanroblesvirtualawlibrarychanrobles virtual law library

1. This excerpt from the recent decision of Lopez, Jr. v. Court of First Instance of Manila 10is relevant: "As
far back as Kapisanan ng mga Manggagawa v. Bugnay, decided in 1957, this Court, through Justice
Montemayor, explicitly declared that under this provision, 'questions involving the rights and conditions of
membership in a labor organization, fall within the jurisdiction of the CIR.' Phil. Land-Air-Sea Labor Union
v. Ortiz, decided a year later, is even more relevant. Again, this Court, speaking through the same jurist,
reiterated such a view. In this action for certiorari and prohibition seeking to annul the decision of the then
respondent Judge Montano A. Ortiz, it was shown that notwithstanding the fact that there was an
intramural dispute between a member and the officers of a labor union, the lower court denied a motion to
dismiss on the ground of lack of jurisdiction. The Supreme Court reversed on the authority of the above
Kapisanan ng mga Manggagawa decision. As succinctly put by Justice Montemayor: 'This same question
has already been submitted to and decided by this Court, for which reason, we do not deem it necessary
to discuss it at length.' He elaborated on the basis of this doctrine thus: 'One reason, in our opinion, why
cases involving the rights and conditions of membership in a labor union or organization are placed within
the exclusive jurisdiction of the Court of Industrial Relations is that said court is in a better position and is
more qualified than ordinary courts to determine said cases, dealing as it does with problems of
management and labor, the latter represented by labor unions, the activities of such labor organizations
and their members, certification elections to determine the labor unions as a bargaining agency to deal
and negotiate with the management, ... ' Then came a 1959 decision which is quite in point, Philippine
Association of Free Labor Unions v. Padilla. This was an appeal from an order of the Court of First Instance
of Camarines Norte dismissing plaintiffs' complaint precisely on the ground of lack of jurisdiction over the
subject matter of the action. What was sought in the case, among others, was the ousting of the
defendants from their respective positions as officers of the labor union. It needed only one paragraph for
Justice Labrador as ponente to dispose of the contention that the lower court and not the Court of
Industrial Relations had jurisdiction. Reference was made to the Industrial Peace Act and it was then
noted that 'the court vested with jurisdiction to take judicial cognizance of actions involving violations of
internal labor organization procedures is the Court of Industrial Relations, [therefore] the lower court
correctly dismissed the complaint presented by the plaintiffs.' " 11 The above decision was cited with
approval by Justice Antonio in the even more recent decision of Guevara v. Gopengco 12in these words:
"In Donato Lopez, Jr. v. The Court of First Instance of Manila, this Court, speaking through Justice Enrique
M. Fernando, sustained the right of the Court of Industrial Relations to take cognizance of a case involving
the presidency of a labor union, rather than that of the Court of First Instance of Manila." 13 chanrobles
virtual law library

2. Respondent Judge could not have been unaware of such a well-settled doctrine. He denied the motion
to dismiss, however, as there was a claim for damages in the quo warranto petition filed by private
respondents as plaintiffs. This is a point likewise discussed by Justice Antonio in Guevara. Thus: "Private
respondents' claim for damages does not necessarily mean that the case is strictly based on tort and,
therefore, cognizable by the court a quo. For it is inaccurate for private respondent to characterize the
dispute as one between the organization itself, and an outsider, as it is not denied that petitioner was
elected National President of the PAFLU at the convention of July 7, 1974. Whether or not such damages
are recoverable, and to what extent, would have still to depend on the final outcome of NLRC Case No.
LR-4271, or, in the resolution of the issue, whether or not the PAFLU Constitution and By-Laws were
violated, and which among the two set of officers elected, has the right to represent the labor union.
These are questions, the resolution of which has been conferred by law upon administrative bodies." 14 As
a matter of law, as far back as Associated Labor Union v. Gomez, 15 a 1967 decision, Justice Sanchez had
already set forth the controlling doctrine whenever the jurisdiction is exclusively conferred on an
administrative tribunal in the following explicit language: "Nor will Sugeco's averment below that it suffers
damages by reason of the strike, work to defeat the CIR's jurisdiction to hear the unfair labor practice
charge. Reason for this is that the right to damages 'would still have to depend on the evidence in the
unfair labor practice case' - in the CIR. To hold otherwise is to sanction split jurisdiction - which is
obnoxious to the orderly administration of justice." 16 Such a ruling was reaffirmed in the latter cases
of Progressive Labor Association v. Atlas Consolidated Mining Corporation; 17 Leoquinco v. Canada Dry
Bottling Co., 18 and Associated Labor Union v. Cruz. 19 The latest decision on the matter, Goodrich
Employees Association v. Flores, 20 was just promulgated early this
month.chanroblesvirtualawlibrarychanrobles virtual law library

3. It is to be made clear that our ruling extends only to the lack of jurisdiction on the part of respondent
Judge. Whatever remedy then is available to private respondents, if any, should be sought elsewhere.
Insofar as intra-union conflicts are concerned, the Court of Industrial Relations has now been replaced by
the Bureau of Labor Relations. 21 chanrobles virtual law library

WHEREFORE, the writ of certiorari is granted and the order of respondent Judge of March 28, 1974
denying the motion to dismiss filed by petitioners, as well as his order of June 10, 1974 denying the
motion for its reconsideration, are hereby nullified and set aside. The writ of prohibition prayed for is
likewise granted and the successor of respondent Judge Vicente G. Ericta is perpetually restrained from
acting on the complaint for quo warranto and damages except for the purpose of dismissing the same. No
costs.

Barredo, Antonio, Aquino and Concepcion Jr., JJ., concur

Manila Jockey Club v. Games and Amusement Board

Full text: http://www.lawphil.net/judjuris/juri1960/feb1960/gr_l-12727_1960.html

Facts:
The authorized racing days specifically designated and distributed in Section 4 of RA 309 the basic law on horse racing in
the Philippines amended by RA 983 are as follows: (1) Philippine Anti-TB Society for 12 Sundays, (2) PCSO - 6 Sundays
(3) White Cross - 4 Sundays (4) Grand Derby Race of PATS - 1 Sunday (5) Private Individuals and entities - 29 Sundays.
However, RA 1502 increased the sweepstakes draw and races of the PCSO from 6 to 12 Sundays, but without specifying
the days on which they are to be run. To accommodate these additional races, GAB resolved to reduce the number of
Sundays assigned to private individuals and entities by six.
Appellants protested that the said increase should be taken from the 12 Saturdays reserved to the President,
for charitable relief OR should be assigned to any day of the week besides Sunday, Saturday and Legal Holiday.

Issues:
(1) Whether or not the petitioner has a vested right to the unreserved Sundays.
(2) Whether or not the additional sweepstakes races must be inserted in club races as debated in the House of
Representatives in the voting of HB 5732/RA1502.

Held:
(1) No, the appellant has no vested right to the unreserved Sundays, or even to the 24 Saturdays (except holidays)
because their holding on races for these days are merely permissive, subject to the licensing and determination
by the GAB. When, therefore, RA 1502 was enacted increasing by 6 the sweepstakes draw and races but without
specifying the days for holding them, the GAB had no alternative except to make room for the additional races, as it did,
form among the only available racing days unreserved by any law - the Sundays on which the private individuals
and entities have been permitted to hold their races, subject to licensing and determination by GAB.
(2) No. There is nothing in Republic Act No. 1502, as it was finally enacted, which would indicate that such an
understanding on the part of these two members of the Lower House of Congress were received the sanction or
conformity of their colleagues, for the law is absolutely devoid of any such indication.
In the interpretation of a legal document, especially a statute, unlike in the interpretation of an ordinary written document,
it is not enough to obtain information to the intention or meaning of the author or authors, but also to see whether the
intention or meaning has been expressed in such a way as to give it legal effect and validity. In short, the purpose of the
inquiry, is not only to know what the author meant by the language he used, but also to see that the language used
sufficiently expresses that meaning.
The language of Republic Act No. 1502 in authorizing the increase, clearly speaks of regular sweepstakes draws and
races. If the intention of Congress were to authorize additional sweepstakes draws only which could, admittedly, be
inserted in the club races, the law would not have included regular races; and since regular sweepstakes races were
specifically authorized, and it would be confusing, inconvenient, if not impossible to mix these sweepstakes races with the
regular club races all on the same day (and it has never been done before), the conclusion seems inevitable that the
additional sweepstakes draws and races were intended to be held on a whole day, separate and apart from the club
races.
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US VS ANG TANG HO

n July 1919, the Philippine Legislature (during special session) passed and approved Act No. 2868 entitled An Act
Penalizing the Monopoly and Hoarding of Rice, Palay and Corn. The said act, under extraordinary circumstances, authorizes
the Governor General (GG) to issue the necessary Rules and Regulations in regulating the distribution of such products.
Pursuant to this Act, in August 1919, the GG issued Executive Order No. 53 which was published on August 20, 1919. The
said EO fixed the price at which rice should be sold. On the other hand, Ang Tang Ho, a rice dealer, sold a ganta of rice to
Pedro Trinidad at the price of eighty centavos. The said amount was way higher than that prescribed by the EO. The sale
was done on the 6thof August 1919. On August 8, 1919, he was charged for violation of the said EO. He was found guilty
as charged and was sentenced to 5 months imprisonment plus a P500.00 fine. He appealed the sentence countering that
there is an undue delegation of power to the Governor General.
ISSUE: Whether or not there is undue delegation to the Governor General.
HELD: First of, Ang Tang Ho’s conviction must be reversed because he committed the act prior to the publication of the
EO. Hence, he cannot be ex post facto charged of the crime. Further, one cannot be convicted of a violation of a law or of
an order issued pursuant to the law when both the law and the order fail to set up an ascertainable standard of guilt.
Anent the issue of undue delegation, the said Act wholly fails to provide definitely and clearly what the standard policy
should contain, so that it could be put in use as a uniform policy required to take the place of all others without the
determination of the insurance commissioner in respect to matters involving the exercise of a legislative discretion that could
not be delegated, and without which the act could not possibly be put in use. The law must be complete in all its terms and
provisions when it leaves the legislative branch of the government and nothing must be left to the judgment of the electors
or other appointee or delegate of the legislature, so that, in form and substance, it is a law in all its details in presenti, but
which may be left to take effect in future, if necessary, upon the ascertainment of any prescribed fact or event.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 170735 December 17, 2007

IMMACULADA L. GARCIA, petitioner,

vs.
SOCIAL SECURITY COMMISSION LEGAL AND COLLECTION, SOCIAL SECURITY SYSTEM, respondents.

DECISION

CHICO-NAZARIO, J.:
This is petition for review on Certiorari under Rule 45 of the Rules of Court is assailing the 2 June 2005 Decision1and 8
December 2005 Resolution2 both of the Court of Appeals in CA-G.R. SP No. 85923. the appellate court affirmed the ---
Order and --- Resolution both of the Social Security Commission (SSC) in SSC Case No. 10048, finding Immaculada L.
Garcia (Garcia), the sole surviving director of Impact Corporation, petitioner herein, liable for unremitted, albeit collected,
SSS contributions.

Petitioner Immaculada L. Garcia, Eduardo de Leon, Ricardo de Leon, Pacita Fernandez, and Consuelo Villanueva were
directors3 of Impact Corporation. The corporation was engaged in the business of manufacturing aluminum tube
containers and operated two factories. One was a "slug" foundry-factory located in Cuyapo, Nueva Ecija, while the other
was an Extrusion Plant in Cainta, Metro Manila, which processed the "slugs" into aluminum collapsible tubes and similar
containers for toothpaste and other related products.

Records show that around 1978, Impact Corporation started encountering financial problems. By 1980, labor unrest
besieged the corporation.

In March 1983, Impact Corporation filed with the Securities and Exchange Commission (SEC) a Petition for Suspension of
Payments,4 docketed as SEC Case No. 02423, in which it stated that:

[Impact Corporation] has been and still is engaged in the business of manufacturing aluminum tube containers x x
x.

xxxx

In brief, it is an on-going, viable, and profitable enterprise.

On 8 May 1985, the union of Impact Corporation filed a Notice of Strike with the Ministry of Labor which was followed by a
declaration of strike on 28 July 1985. Subsequently, the Ministry of Labor certified the labor dispute for compulsory
arbitration to the National Labor Relations Commission (NLRC) in an Order 5 dated 25 August 1985. The Ministry of Labor,
in the same Order, noted the inability of Impact Corporation to pay wages, 13th month pay, and SSS remittances due to
cash liquidity problems. A portion of the order reads:

On the claims of unpaid wages, unpaid 13th month pay and non-remittance of loan amortization and SSS
premiums, we are for directing the company to pay the same to the workers and to remit loan amortizations and
SSS premiums previously deducted from their wages to the Social Security System. Such claims were never
contested by the company both during the hearing below and in our office. In fact, such claims were admitted by
the company although it alleged cash liquidity as the main reason for such non-payment.

WHEREFORE, the dispute at Impact Corporation is hereby certified to the National Labor Relations Commission
for compulsory arbitration in accordance with Article 264 (g) of the Labor Code, as amended.

xxxx

The company is directed to pay all the entitled workers unpaid wages, unpaid 13th month pay and to remit to the
Social Security System loan amortizations and SSS premiums previously deducted from the wages of the
workers.6

On 3 July 1985, the Social Security System (SSS), through its Legal and Collection Division (LCD), filed a case before the
SSC for the collection of unremitted SSS premium contributions withheld by Impact Corporation from its employees. The
case which impleaded Impact Corporation as respondent was docketed as SSC Case No. 10048. 7

Impact Corporation was compulsorily covered by the SSS as an employer effective 15 July 1963 and was assigned
Employer I.D. No. 03-2745100-21.

In answer to the allegations raised in SSC Case No. 10048, Impact Corporation, through its then Vice President Ricardo
de Leon, explained in a letter dated 18 July 1985 that it had been confronted with strikes in 1984 and layoffs were effected
thereafter. It further argued that the P402,988.93 is erroneous. It explained among other things, that its operations had
been suspended and that it was waiting for the resolution on its Petition for Suspension of Payments by the SEC under
SEC Case No. 2423. Despite due notice, the corporation failed to appear at the hearings. The SSC ordered the
investigating team of the SSS to determine if it can still file its claim for unpaid premium contributions against the
corporation under the Petition for Suspension of Payments.

In the meantime, the Petition for Suspension of Payments was dismissed which was pending before the SEC in an
Order8 dated 12 December 1985. Impact Corporation resumed operations but only for its winding up and dissolution.9 Due
to Impact Corporation’s liability and cash flow problems, all of its assets, namely, its machineries, equipment, office
furniture and fixtures, were sold to scrap dealers to answer for its arrears in rentals.

On 1 December 1995, the SSS-LCD filed an amended Petition10 in SSC Case No. 10048 wherein the directors of Impact
Corporation were directly impleaded as respondents, namely: Eduardo de Leon, Ricardo de Leon, 11 Pacita Fernandez,
Consuelo Villanueva, and petitioner. The amounts sought to be collected totaled P453,845.78 and P10,856.85 for the
periods August 1980 to December 1984 and August 1981 to July 1984, respectively, and the penalties for late remittance
at the rate of 3% per month from the date the contributions fell due until fully paid pursuant to Section 22(a) of the Social
Security Law,12 as amended, in the amounts of P49,941.67 and P2,474,662.82.

Period Unremitted Penalties Total

Amount (3% Interest Per Month)
August 1980 to December 1984 P 453,845.78 P49, 941.67 503,787.45
August 1981 to July 1984 P 10,856.85 P2, 474, 662.82 2,485,519.67
Summonses were not served upon Eduardo de Leon, Pacita Fernandez, and Consuelo Villanueva, their whereabouts
unknown. They were all later determined to be deceased. On the other hand, due to failure to file his responsive pleading,
Ricardo de Leon was declared in default.

Petitioner filed with the SSC a Motion to Dismiss13 on grounds of prescription, lack of cause of action and cessation of
business, but the Motion was denied for lack of merit.14 In her Answer with Counterclaim 15 dated 20 May 1999, petitioner
averred that Impact Corporation had ceased operations in 1980. In her defense, she insisted that she was a mere director
without managerial functions, and she ceased to be such in 1982. Even as a stockholder and director of Impact
Corporation, petitioner contended that she cannot be made personally liable for the corporate obligations of Impact
Corporation since her liability extended only up to the extent of her unpaid subscription, of which she had none since her
subscription was already fully paid. The petitioner raised the same arguments in her Position Paper. 16

On 23 January 1998, Ricardo de Leon died following the death, too, of Pacita Fernandez died on 7 February 2000. In an
Order dated 11 April 2000, the SSC directed the System to check if Impact Corporation had leviable properties to which
the investigating team of respondent SSS manifested that the Impact Corporation had already been dissolved and its
assets disposed of.17

In a Resolution dated 28 May 2003, the Social Security Commission ruled in favor of SSS and declared petitioner liable to
pay the unremitted contributions and penalties, stating the following:

WHEREFORE, premises considered, this Commission finds, and so holds, that respondents Impact Corporation
and/or Immaculada L. Garcia, as director and responsible officer of the said corporation, is liable to pay the SSS
the amounts of P442,988.93, representing the unpaid SS contributions of their employees for the period August
1980 to December 1984, not inclusive, and P10,856.85, representing the balance of the unpaid SS contributions
in favor of Donato Campos, Jaime Mascarenas, Bonifacio Franco and Romeo Fullon for the period August 1980
to December 1984, not inclusive, as well as the 3% per month penalty imposed thereon for late payment in the
amounts of P3,194,548.63 and P78,441.33, respectively, computed as of April 30, 2003. This is without prejudice
to the right of the SSS to collect the penalties accruing after April 30, 2003 and to institute other appropriate
actions against the respondent corporation and/or its responsible officers.

Should the respondents pay their liability for unpaid SSS contributions within sixty (60) days from receipt of a copy
of this Resolution, the 3% per month penalty for late payment thereof shall be deemed condoned pursuant to SSC
Res. No. 397-S.97, as amended by SSC Res. Nos. 112-S.98 and 982-S.99, implementing the provision on
condonation of penalty under Section 30 of R.A. No. 8282.

In the event the respondents fail to pay their liabilities within the aforestated period, let a writ of execution be
issued, pursuant to Section 22 (c) [2] of the SS Law, as amended, for the satisfaction of their liabilities to the
SSS.18

Petitioner filed a Motion for Reconsideration19 of the afore-quoted Decision but it was denied for lack of merit in an
Order20 dated 4 August 2004, thus:

Nowhere in the questioned Resolution dated May 28, 2003 is it stated that the other directors of the defunct
Impact Corporation are absolved from their contribution and penalty liabilities to the SSS. It is certainly farthest
from the intention of the petitioner SSS or this Commission to pin the entire liability of Impact Corporation on
movant Immaculada L. Garcia, to the exclusion of the directors of the corporation namely: Eduardo de Leon,
Ricardo de Leon, Pacita Fernandez and Conzuelo Villanueva, who were all impleaded as parties-respondents in
this case.

The case record shows that there was failure of service of summonses upon respondents Eduardo de Leon,
Pacita Fernandez and Conzuelo Villanueva, who are all deceased, for the reason that their whereabouts are
unknown. Moreover, neither the legal heirs nor the estate of the defaulted respondent Ricardo de Leon were
substituted as parties-respondents in this case when he died on January 23, 1998. Needless to state, the
Commission did not acquire jurisdiction over the persons or estates of the other directors of Impact Corporation,
hence, it could not validly render any pronouncement as to their liabilities in this case.

Furthermore, the movant cannot raise in a motion for reconsideration the defense that she was no longer a
director of Impact Corporation in 1982, when she was allegedly eased out by the managing directors of Impact
Corporation as purportedly shown in the Deed of Sale and Assignment of Shares of Stock dated January 22,
1982. This defense was neither pleaded in her Motion to Dismiss dated January 17, 1996 nor in her Answer with
Counterclaim dated May 18, 1999 and is, thus, deemed waived pursuant to Section 1, Rule 9 of the 1997 Rules of
Civil Procedure, which has suppletory application to the Revised Rules of Procedure of the Commission.

Finally, this Commission has already ruled in the Order dated April 27, 1999 that since the original Petition was
filed by the SSS on July 3, 1985, and was merely amended on December 1, 1995 to implead the responsible
officers of Impact Corporation, without changing its causes of action, the same was instituted well within the 20-
year prescriptive period provided under Section 22 (b) of the SS Law, as amended, considering that the
contribution delinquency assessment covered the period August 1980 to December 1984.

In view thereof, the instant Motion for Reconsideration is hereby denied for lack of merit.

Petitioner elevated her case to the Court of Appeals via a Petition for Review. Respondent SSS filed its Comment dated
20 January 2005, and petitioner submitted her Reply thereto on 4 April 2005.

The Court of Appeals, applying Section 28(f) of the Social Security Law,21 again ruled against petitioner. It dismissed the
petitioner’s Petition in a Decision dated 2 June 2005, the dispositive portion of which reads:
 WHEREFORE, premises considered, the petition is DISMISSED for lack of merit. The assailed Resolution dated
28 May 2003 and the Order dated 4 August 2004 of the Social Security Commission are AFFIRMED in toto. 22

Aggrieved, petitioner filed a Motion for Reconsideration of the appellate court’s Decision but her Motion was denied in a
Resolution dated 8 December 2005.

Hence, the instant Petition in which petitioner insists that the Court of Appeals committed grave error in holding her solely
liable for the collected but unremitted SSS premium contributions and the consequent late penalty payments due thereon.
Petitioner anchors her Petition on the following arguments:

I. SECTION 28(F) OF THE SSS LAW PROVIDES THAT A MANAGING HEAD, DIRECTOR OR PARTNER IS
LIABLE ONLY FOR THE PENALTIES OF THE EMPLOYER CORPORATION AND NOT FOR UNPAID SSS
CONTRIBUTIONS OF THE EMPLOYER CORPORATION.

II. UNDER THE SSS LAW, IT IS THE MANAGING HEADS, DIRECTORS OR PARTNERS WHO SHALL BE
LIABLE TOGETHER WITH THE CORPORATION. IN THIS CASE, PETITIONER HAS CEASED TO BE A
STOCKHOLDER OF IMPACT CORPORATION IN 1982. EVEN WHILE SHE WAS A STOCKHOLDER, SHE
NEVER PARTICIPATED IN THE DAILY OPERATIONS OF IMPACT CORPORATION.

III. UNDER SECTION 31 OF THE CORPORATION CODE, ONLY DIRECTORS, TRUSTEES OR OFFICERS
WHO PARTICIPATE IN UNLAWFUL ACTS OR ARE GUILTY OF GROSS NEGLIGENCE AND BAD FAITH
SHALL BE PERSONALLY LIABLE. OTHERWISE, BEING A MERE STOCKHOLDER, SHE IS LIABLE ONLY TO
THE EXTENT OF HER SUBSCRIPTION.

IV. IMPACT CORPORATION SUFFERED IRREVERSIBLE ECONOMIC LOSSES, EVENTS WHICH WERE
NEITHER DESIRED NOR CAUSED BY ANY ACT OF THE PETITIONER. THUS, BY REASON OF
FORTUITOUS EVENTS, THE PETITIONER SHOULD BE ABSOLVED FROM LIABILITY.

V. RESPONDENT SOCIAL SECURITY SYSTEM FAILED MISERABLY IN EXERTING EFFORTS TO ACQUIRE

JURISDICTION OVER THE LEVIABLE ASSETS OF IMPACT CORPORATION, PERSON/S AND/OR ESTATE/S
OF THE OTHER DIRECTORS OR OFFICERS OF IMPACT CORPORATION.

VI. THE HONORABLE COMMISSION SERIOUSLY ERRED IN NOT RENDERING A JUDGMENT BY DEFAULT
AGAINST THE DIRECTORS UPON WHOM IT ACQUIRED JURISDICTION.

Based on the foregoing, petitioner prays that the Decision dated 2 June 2005 and the Resolution dated 8 December 2005
of the Court of Appeals be reversed and set aside, and a new one be rendered absolving her of any and all liabilities
under the Social Security Law.

In sum, the core issue to be resolved in this case is whether or not petitioner, as the only surviving director of Impact
Corporation, can be made solely liable for the corporate obligations of Impact Corporation pertaining to unremitted SSS
premium contributions and penalties therefore.

As a covered employer under the Social Security Law, it is the obligation of Impact Corporation under the provisions of
Sections 18, 19 and 22 thereof, as amended, to deduct from its duly covered employee’s monthly salaries their shares as
premium contributions and remit the same to the SSS, together with the employer’s shares of the contributions to the
petitioner, for and in their behalf.

From all indications, the corporation has already been dissolved. Respondents are now going after petitioner who is the
only surviving director of Impact Corporation.

A cursory review of the alleged grave errors of law committed by the Court of Appeals above reveals there seems to be
no dispute as to the assessed liability of Impact Corporation for the unremitted SSS premiums of its employees for the
period January 1980 to December 1984.

There is also no dispute as to the fact that the employees’ SSS premium contributions have been deducted from their
salaries by Impact Corporation.

Petitioner in assailing the Court of Appeals Decision, distinguishes the penalties from the unremitted or unpaid SSS
premium contributions. She points out that although the appellate court is of the opinion that the concerned officers of an
employer corporation are liable for the penalties for non-remittance of premiums, it still affirmed the SSC Resolution
holding petitioner liable for the unpaid SSS premium contributions in addition to the penalties.

Petitioner avers that under the aforesaid provision, the liability does not include liability for the unremitted SSS premium
contributions.

Petitioner’s argument is ridiculous. The interpretation petitioner would like us to adopt finds no support in law or in
jurisprudence. While the Court of Appeals Decision provided that Section 28(f) refers to the liabilities pertaining to penalty
for the non-remittance of SSS employee contributions, holding that it is distinct from the amount of the supposed SSS
remittances, petitioner mistakenly concluded that Section 28(f) is applicable only to penalties and not to the liability of the
employer for the unremitted premium contributions. Clearly, a simplistic interpretation of the law is untenable. It is a rule in
statutory construction that every part of the statute must be interpreted with reference to the context, i.e., that every part of
the statute must be considered together with the other parts, and kept subservient to the general intent of the whole
enactment.23 The liability imposed as contemplated under the foregoing Section 28(f) of the Social Security Law does not
preclude the liability for the unremitted amount. Relevant to Section 28(f) is Section 22 of the same law.
 SEC. 22. Remittance of Contributions. -- (a) The contributions imposed in the preceding Section shall be remitted
to the SSS within the first ten (10) days of each calendar month following the month for which they are applicable
or within such time as the Commission may prescribe. Every employer required to deduct and to remit such
contributions shall be liable for their payment and if any contribution is not paid to the SSS as herein prescribed,
he shall pay besides the contribution a penalty thereon of three percent (3%) per month from the date the
contribution falls due until paid. If deemed expedient and advisable by the Commission, the collection and
remittance of contributions shall be made quarterly or semi-annually in advance, the contributions payable by the
employees to be advanced by their respective employers: Provided, That upon separation of an employee, any
contribution so paid in advance but not due shall be credited or refunded to his employer.

Under Section 22(a), every employer is required to deduct and remit such contributions penalty refers to the 3% penalty
that automatically attaches to the delayed SSS premium contributions. The spirit, rather than the letter of a law determines
construction of a provision of law. It is a cardinal rule in statutory construction that in interpreting the meaning and scope
of a term used in the law, a careful review of the whole law involved, as well as the intendment of the law, must be
made.24 Nowhere in the provision or in the Decision can it be inferred that the persons liable are absolved from paying the
unremitted premium contributions.

Elementary is the rule that when laws or rules are clear, it is incumbent upon the judge to apply them regardless of
personal belief or predilections - when the law is unambiguous and unequivocal, application not interpretation thereof is
imperative.25 However, where the language of a statute is vague and ambiguous, an interpretation thereof is resorted to.
An interpretation thereof is necessary in instances where a literal interpretation would be either impossible or absurd or
would lead to an injustice. A law is deemed ambiguous when it is capable of being understood by reasonably well-
informed persons in either of two or more senses.26 The fact that a law admits of different interpretations is the best
evidence that it is vague and ambiguous.27 In the instant case, petitioner interprets Section 28(f) of the Social Security
Law as applicable only to penalties and not to the liability of the employer for the unremitted premium contributions.
Respondents present a more logical interpretation that is consistent with the provisions as a whole and with the legislative
intent behind the Social Security Law.

This Court cannot be made to accept an interpretation that would defeat the intent of the law and its legislators.28

Petitioner also challenges the finding of the Court of Appeals that under Section 28(f) of the Social Security Law, a mere
director or officer of an employer corporation, and not necessarily a "managing" director or officer, can be held liable for
the unpaid SSS premium contributions.

Section 28(f) of the Social Security Law provides the following:

(f) If the act or omission penalized by this Act be committed by an association, partnership, corporation or any
other institution, its managing head, directors or partners shall be liable to the penalties provided in this Act for the
offense.

This Court agrees in petitioner’s observation that the SSS did not even deny nor rebut the claim that petitioner was not the
"managing head" of Impact Corporation. However, the Court of Appeals rightly held that petitioner, as a director of Impact
Corporation, is among those officers covered by Section 28(f) of the Social Security Law.

Petitioner invokes the rule in statutory construction called ejusdem generic; that is, where general words follow an
enumeration of persons or things, by words of a particular and specific meaning, such general words are not to be
construed in their widest extent, but are to be held as applying only to persons or things of the same kind or class as
those specifically mentioned. According to petitioner, to be held liable under Section 28(f) of the Social Security Law, one
must be the "managing head," "managing director," or "managing partner." This Court though finds no need to resort to
statutory construction. Section 28(f) of the Social Security Law imposes penalty on:

(1) the managing head;

(2) directors; or

(3) partners, for offenses committed by a juridical person

The said provision does not qualify that the director or partner should likewise be a "managing director" or "managing
partner."29 The law is clear and unambiguous.

Petitioner nonetheless raises the defense that under Section 31 of the Corporation Code, only directors, trustees or
officers who participate in unlawful acts or are guilty of gross negligence and bad faith shall be personally liable, and that
being a mere stockholder, she is liable only to the extent of her subscription.

Section 31 of the Corporation Code, stipulating on the liability of directors, trustees, or officers, provides:

SEC. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or
assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing
the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such
directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons.

Basic is the rule that a corporation is invested by law with a personality separate and distinct from that of the persons
composing it as well as from that of any other legal entity to which it may be related. A corporation is a juridical entity with
legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it.
Following this, the general rule applied is that obligations incurred by the corporation, acting through its directors, officers
and employees, are its sole liabilities.30 A director, officer, and employee of a corporation are generally not held personally
liable for obligations incurred by the corporation.

Being a mere fiction of law, however, there are peculiar situations or valid grounds that can exist to warrant the disregard
of its independent being and the lifting of the corporate veil. This situation might arise when a corporation is used to evade
a just and due obligation or to justify a wrong, to shield or perpetrate fraud, to carry out other similar unjustifiable aims or
intentions, or as a subterfuge to commit injustice and so circumvent the law. 31 Thus, Section 31 of the Corporation Law
provides:

Taking a cue from the above provision, a corporate director, a trustee or an officer, may be held solidarily liable with the
corporation in the following instances:

1. When directors and trustees or, in appropriate cases, the officers of

a corporation--

(a) vote for or assent to patently unlawful acts of the corporation;

(b) act in bad faith or with gross negligence in directing the corporate affairs;

(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and
other persons.

2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof,
did not forthwith file with the corporate secretary his written objection thereto.

3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and
solidarily liable with the Corporation.

4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate
action. 32

The aforesaid provision states:

SEC. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or
assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing
the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such
directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons.

The situation of petitioner, as a director of Impact Corporation when said corporation failed to remit the SSS premium
contributions falls exactly under the fourth situation. Section 28(f) of the Social Security Law imposes a civil liability for any
act or omission pertaining to the violation of the Social Security Law, to wit:

(f) If the act or omission penalized by this Act be committed by an association, partnership, corporation or any
other institution, its managing head, directors or partners shall be liable to the penalties provided in this Act for the
offense.

In fact, criminal actions for violations of the Social Security Law are also provided under the Revised Penal Code. The
Social Security Law provides, in Section 28 thereof, to wit:

(h) Any employer who, after deducting the monthly contributions or loan amortizations from his employees’
compensation, fails to remit the said deductions to the SSS within thirty (30) days from the date they became due
shall be presumed to have misappropriated such contributions or loan amortizations and shall suffer the penalties
provided in Article Three hundred fifteen of the Revised Penal Code.

(i) Criminal action arising from a violation of the provisions of this Act may be commenced by the SSS or the
employee concerned either under this Act or in appropriate cases under the Revised Penal Code: x x x.

Respondents would like this Court to apply another exception to the rule that the persons comprising a corporation are not
personally liable for acts done in the performance of their duties.

The Court of Appeals in the appealed Decision stated:

Anent the unpaid SSS contributions of Impact Corporation’s employees, the officers of a corporation are liable in
behalf of a corporation, which no longer exists or has ceased operations. Although as a rule, the officers and
members of a corporation are not personally liable for acts done in performance of their duties, this rule admits of
exception, one of which is when the employer corporation is no longer existing and is unable to satisfy the
judgment in favor of the employee, the officers should be held liable for acting on behalf of the corporation.
Following the foregoing pronouncement, petitioner, as one of the directors of Impact Corporation, together with
the other directors of the defunct corporation, are liable for the unpaid SSS contributions of their employees. 33

On the other hand, the SSC, in its Resolution, presented this discussion:

Although as a rule, the officers and members of a corporation are not personally liable for acts done in the
performance of their duties, this rule admits of exceptions, one of which is when the employer corporation is no
 longer existing and is unable to satisfy the judgment in favor of the employee, the officers should be held liable for
acting on behalf of the corporation. x x x.34

The rationale cited by respondents in the two preceding paragraphs need not have been applied because the personal
liability for the unremitted SSS premium contributions and the late penalty thereof attaches to the petitioner as a director
of Impact Corporation during the period the amounts became due and demandable by virtue of a direct provision of law.

Petitioner’s defense that since Impact Corporation suffered irreversible economic losses, and by reason of fortuitous
events, she should be absolved from liability, is also untenable. The evidence adduced totally belies this claim. A
reference to the copy of the Petition for Suspension of Payments filed by Impact Corporation on 18 March 1983 before the
SEC contained an admission that:

"[I]t has been and still is engaged in business" and "has been and still is engaged in the business of
manufacturing aluminum tube containers" and "in brief, it is an on-going, viable, and profitable enterprise" which
has "sufficient assets" and "actual and potential income-generation capabilities."

The foregoing document negates petitioner’s assertion and supports the contention that during the period involved Impact
Corporation was still engaged in business and was an ongoing, viable, profitable enterprise. In fact, the latest SSS form
RIA submitted by Impact Corporation is dated 7 May 1984. The assessed SSS premium contributions and penalty are
obligations imposed upon Impact Corporation by law, and should have been remitted to the SSS within the first 10 days of
each calendar month following the month for which they are applicable or within such time as the SSC prescribes. 35

This Court also notes the evident failure on the part of SSS to issue a judgment in default against Ricardo de Leon, who
was the vice-president and officer of the corporation, upon his non-filing of a responsive pleading after summons was
served on him. As can be gleaned from Section 11 of the SSS Revised Rules of Procedure, the Commissioner is
mandated to render a decision either granting or denying the petition. Under the aforesaid provision, if respondent fails to
answer within the time prescribed, the Hearing Commissioner may, upon motion of petitioner, or motu proprio, declare
respondent in default and proceed to receive petitioner’s evidence ex parte and thereafter recommend to the Commission
either the granting or denial of the petition as the evidence may warrant. 36

On a final note, this Court sees it proper to quote verbatim respondents’ prefatory statement in their Comment:

The Social Security System is a government agency imbued with a salutary purpose to carry out the policy of the
State to establish, develop, promote and perfect a sound and viable tax exempt social security system suitable to
the needs of the people throughout the Philippines which shall promote social justice and provide meaningful
protection to members and their beneficiaries against the hazards of disability, sickness, maternity, old-age, death
and other contingencies resulting in loss of income or financial burden.

The soundness and viability of the funds of the SSS in turn depends on the contributions of its covered employee
and employer members, which it invests in order to deliver the basic social benefits and privileges to its members.
The entitlement to and amount of benefits and privileges of the covered members are contribution-based. Both
the soundness and viability of the funds of the SSS as well as the entitlement and amount of benefits and
privileges of its members are adversely affected to a great extent by the non-remittance of the much-needed
contributions.37

The sympathy of the law on social security is toward its beneficiaries. This Court will not turn a blind eye on the
perpetration of injustice. This Court cannot and will not allow itself to be made an instrument nor be privy to any attempt at
the perpetration of injustice.

Following the doctrine laid down in Laguna Transportation Co., Inc. v. Social Security System,38 this Court rules that
although a corporation once formed is conferred a juridical personality separate and distinct from the persons comprising
it, it is but a legal fiction introduced for purposes of convenience and to subserve the ends of justice. The concept cannot
be extended to a point beyond its reasons and policy, and when invoked in support of an end subversive of this policy, will
be disregarded by the courts.

WHEREFORE, pursuant to the foregoing, the Decision of the Court of Appeals dated 2 June 2005 in CA-G.R. SP No.
85923 is hereby AFFIRMED WITH FINALITY. Petitioner Immaculada L. Garcia, as sole surviving director of Impact
Corporation is hereby ORDERED to pay for the collected and unremitted SSS contributions of Impact Corporation. The
case is REMANDED to the SSS for computation of the exact amount and collection thereof.

SO ORDERED.

Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, Reyes, JJ., concur.

Pastor Endencia vs Saturnino David

93 Phil. 699 – Political Law – The Judiciary – Te Legislature – Separation of Powers
Statutory Construction – Who May Interpret Laws
Saturnino David, the then Collector of Internal Revenue, ordered the taxing of Justice Pastor Endencia’s
and Justice Fernando Jugo’s (and other judges’) salary pursuant to Sec. 13 of Republic Act No. 590 which
provides that
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 a diminution of his
compensation fixed by the Constitution or by law.
The judges however argued that under the case of Perfecto vs Meer, judges are exempt from taxation –
this is also in observance of the doctrine of separation of powers, i.e., the executive, to which the Internal
Revenue reports, is separate from the judiciary; that under the Constitution, the judiciary is independent
and the salaries of judges may not be diminished by the other branches of government; that taxing their
salaries is already a diminution of their benefits/salaries (see Section 9, Art. VIII, Constitution).
The Solicitor General, arguing in behalf of the CIR, states that the decision in Perfecto vs Meer was rendered
ineffective when Congress enacted Republic Act No. 590.
ISSUE: Whether or not Sec 13 of RA 590 is constitutional.
HELD: No. The said provision is a violation of the separation of powers. Only courts have the power to
interpret laws. Congress makes laws but courts interpret them. In Sec. 13, R.A. 590, Congress is already
encroaching upon the functions of the courts when it inserted the phrase: “payment of which [tax] is hereby
declared not to be a diminution of his compensation fixed by the Constitution or by law.”
Here, Congress is already saying that imposing taxes upon judges is not a diminution of their salary. 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.
The interpretation and application of the Constitution and of statutes is within the exclusive province and
jurisdiction of the judicial department, and that in enacting a law, the Legislature may not legally provide
therein that it be interpreted in such a way that it may not violate a Constitutional prohibition, thereby tying
the hands of the courts in their task of later interpreting said statute, especially when the interpretation
sought and provided in said statute runs counter to a previous interpretation already given in a case by the
highest court of the land.

US VS ANG TANG HO
43 Phil. 1 – Political Law – Delegation of Power – Administrative Bodies
In July 1919, the Philippine Legislature (during special session) passed and approved Act No. 2868
entitled An Act Penalizing the Monopoly and Hoarding of Rice, Palay and Corn. The said act, under
extraordinary circumstances, authorizes the Governor General (GG) to issue the necessary Rules and
Regulations in regulating the distribution of such products. Pursuant to this Act, in August 1919, the GG
issued Executive Order No. 53 which was published on August 20, 1919. The said EO fixed the price at
which rice should be sold. On the other hand, Ang Tang Ho, a rice dealer, sold a ganta of rice to Pedro
Trinidad at the price of eighty centavos. The said amount was way higher than that prescribed by the EO.
The sale was done on the 6th of August 1919. On August 8, 1919, he was charged for violation of the said
EO. He was found guilty as charged and was sentenced to 5 months imprisonment plus a P500.00 fine. He
appealed the sentence countering that there is an undue delegation of power to the Governor General.
ISSUE: Whether or not there is undue delegation to the Governor General.
HELD: First of, Ang Tang Ho’s conviction must be reversed because he committed the act prior to the
publication of the EO. Hence, he cannot be ex post facto charged of the crime. Further, one cannot be
convicted of a violation of a law or of an order issued pursuant to the law when both the law and the order
fail to set up an ascertainable standard of guilt.
Anent the issue of undue delegation, the said Act wholly fails to provide definitely and clearly what the
standard policy should contain, so that it could be put in use as a uniform policy required to take the place
of all others without the determination of the insurance commissioner in respect to matters involving the
exercise of a legislative discretion that could not be delegated, and without which the act could not possibly
be put in use. The law must be complete in all its terms and provisions when it leaves the legislative branch
of the government and nothing must be left to the judgment of the electors or other appointee or delegate
of the legislature, so that, in form and substance, it is a law in all its details in presenti, but which may be
left to take effect in future, if necessary, upon the ascertainment of any prescribed fact or event.

Ebarle v. Sucaldito,
G.R. No. L-33628. December 29, 1987

FACTS:
The petitioner, then provincial Governor of Zamboanga del Sur and a candidate for reelection in the local
elections of 1971, seeks injunctive relief in two separate petitions, to enjoin further proceedings of his criminal
cases, as well as I.S. Nos. 1-70, 2-71, 4-71, 5-71, 6-71, and 7-71 of the respondent Fiscal's office of the said
city, all in the nature of prosecutions for violation of certain provisions of the Anti-Graft and Corrupt Practices
Act and various provisions of the Revised Penal Code. Principally, the petitioner relies on the failure of the
respondents City Fiscal and the Anti-Graft League to comply with the provisions of Executive Order No. 264,
"OUTLINING THE PROCEDUE BY WHICH COMPLAINANTS CHARGING GOVERNMENT
OFFICIALS AND EMPLOYEES WITH COMMISSION OF IRREGULARITIES SHOULD BE
GUIDED," preliminary to their criminal recourses.

ISSUE:
Whether or not EO 264 is applicable in the case at bar.

HELD:
No. It is plain from the very wording of the Order that it has exclusive application to administrative, not
criminal complaints. The very title speaks of "COMMISSION OF IRREGULARITIES." There is no mention,
not even by implication, of criminal "offenses," that is to say, "crimes." While "crimes" amount to
"irregularities," the Executive Order could have very well referred to the more specific term had it intended to
make itself applicable thereto. Clearly, the Executive Order simply consolidates these existing rules and
streamlines the administrative apparatus in the matter of complaints against public officials. It is moreover
significant that the Executive Order in question makes specific reference to "erring officials or employees ...
removed or otherwise vindicated. If it were intended to apply to criminal prosecutions, it would have employed
such technical terms as "accused", "convicted," or "acquitted." While this is not necessarily a controlling
parameter for all cases, it is here material in construing the intent of the measure.

People v. Echaves
G.R. Nos. L-47757-61. January 28, 1980

FACTS:
On October 25, 1977 Fiscal Abundio R. Ello filed with the lower court separate information against sixteen
persons charging them with squatting as penalized by Presidential Decree No. 772. The information provides
that “sometime in the year 1974 continuously up to the present, the above-named accused, with stealth and
strategy, enter into, occupy and cultivate a portion of a grazing land physically occupied, possessed and claimed
by Atty. Vicente de la Serna, accused's entrance into the area has been and is still against the win of the
offended party; did then and there willfully, unlawfully, and feloniously squat and cultivate a portion of the said
grazing land; said cultivating has rendered a nuisance to and has deprived the pasture applicant from the full use
thereof for which the land applied for has been intended, that is preventing applicant's cattle from grazing the
whole area, thereby causing damage and prejudice to the said applicant-possessor-occupant, Atty. Vicente de la
Serna, Jr.”
Five of the information were raffled to Judge Vicente B. Echaves, Jr. who dismissed the five information on the
grounds (1) that it was alleged that the accused entered the land through "stealth and strategy", whereas under
the decree the entry should be effected "with the use of force, intimidation or threat, or taking advantage of the
absence or tolerance of the landowner", and (2) that under the rule of ejusdem generis the decree does not apply
to the cultivation of a grazing land.

ISSUE:
Whether or not by Presidential Decree No. 772 applies to agricultural lands.

HELD:
No. The court agrees to the lower court that the decree does not apply to pasture lands because its preamble
shows that it was intended to apply to squatting in urban communities or more particularly to illegal
constructions in squatter areas made by well-to-do individuals. The squating complained of involves pasture
lands in rural areas. It should be noted that squatting on public agricultural lands, like the grazing lands involved
in this case, is punished by Republic Act No. 947. The rule of ejusdem generis invoked by the trial court,
however, does not apply to this case. The decree is intended to apply only to urban communities, particularly to
illegal constructions. The rule of ejusdem generis is merely a tool of statutory construction which is resorted to
when the legislative intent is uncertain.

LAO CHONG VS HERNANDEZ

Lao Ichong is a Chinese businessman who entered the country to take advantage of business opportunities
herein abound (then) – particularly in the retail business. For some time he and his fellow Chinese
businessmen enjoyed a “monopoly” in the local market in Pasay. Until in June 1954 when Congress passed
the RA 1180 or the Retail Trade Nationalization Act the purpose of which is to reserve to Filipinos the right
to engage in the retail business. Ichong then petitioned for the nullification of the said Act on the ground that
it contravened several treaties concluded by the RP which, according to him, violates the equal protection
clause (pacta sund servanda). He said that as a Chinese businessman engaged in the business here in the
country who helps in the income generation of the country he should be given equal opportunity.
ISSUE: Whether or not a law may invalidate or supersede treaties or generally accepted principles.
HELD: Yes, a law may supersede a treaty or a generally accepted principle. In this case, there is no conflict
at all between the raised generally accepted principle and with RA 1180. The equal protection of the law
clause “does not demand absolute equality amongst residents; it merely requires that all persons shall be
treated alike, under like circumstances and conditions both as to privileges conferred and liabilities
enforced”; and, that the equal protection clause “is not infringed by legislation which applies only to those
persons falling within a specified class, if it applies alike to all persons within such class, and reasonable
grounds exist for making a distinction between those who fall within such class and those who do not.”
For the sake of argument, even if it would be assumed that a treaty would be in conflict with a statute then
the statute must be upheld because it represented an exercise of the police power which, being inherent
could not be bargained away or surrendered through the medium of a treaty. Hence, Ichong can no longer
assert his right to operate his market stalls in the Pasay city market.

City of Baguio v. Marcos

G.R. No. L-26100. February 28, 1969

FACTS:
On July 25, 1961, the Director of Lands in the Court of First Instance of Baguio instituted the reopening of the
cadastral proceedings under Republic Act 931. It is not disputed that the land here involved was amongst those
declared public lands by final decision rendered in that case on November 13, 1922. Respondent Belong Lutes
petitioned the cadastral court to reopen said Civil Reservation Case No. 1 as to the parcel of land he claims and
prayed that the land be registered in his name.
On December 18, 1961, private petitioners Francisco G. Joaquin, Sr., Francisco G. Joaquin, Jr., and Teresita J.
Buchholz registered opposition to the reopening. The petitioners questioned the cadastral court's jurisdiction over
the petition to reopen.

ISSUE:
Whether or not the reopening petition was filed outside the 40 year period preceding the approval of Republic
Act 931.

HELD:
Yes. The cadastral proceedings sought to be reopened were instituted on April 12, 1912. Final decision was
rendered on November 13, 1922. Lutes filed the petition to reopen on July 25, 1961. It will be noted that the title
of R.A. 931 authorizes "the filing in the proper court, under certain conditions, of certain claims of title to parcels
of land that have been declared public land, by virtue of judicial decisions rendered within the forty years next
preceding the approval of this Act." The body of the statute, however, in its Section 1, speaks of parcels of land
that "have been, or are about to be declared land of the public domain, by virtue of judicial proceedings instituted
within the forty years next preceding the approval of this Act." There thus appears to be a seeming inconsistency
between title and body.

It has been observed that "in modern practice the title is adopted by the Legislature, more thoroughly read than
the act itself.” R.A. 931 is a piece of remedial legislation and it should receive blessings of liberal construction.
The court says that lingual imperfections in the drafting of a statute should never be permitted to hamstring judicial
search for legislative intent, which can otherwise be discovered. Republic Act 931, claims of title that may be
filed thereunder embrace those parcels of land that have been declared public land "by virtue of judicial decisions
rendered within the forty years next preceding the approval of this Act." Therefore, by that statute, the July 25,
1961 petition of respondent Belong Lutes to reopen Civil Reservation Case No. 1, GLRO Record No. 211 of the
cadastral court of Baguio, the decision on which was rendered on November 13, 1922, comes within the 40-year
period.
People v. Purisima
G.R. No. L-42050, Nov. 20, 1978

FACTS:
These twenty-six (26) Petitions for Review were filed by the People of the Philippines charging the respective
accused with "illegal possession of deadly weapon" in violation of Presidential Decree No. 9. On a motion to
quash filed by the accused, the three Judges issued an Order quashing or dismissing the Informations, on
a common ground, viz, that the Information did not allege facts which constitute the offense penalized by
Presidential Decree No. 9 because it failed to state one essential element of the crime.

ISSUE:
Whether or not the Informations filed by the petitioners are sufficient in form and substance to constitute the
offense of “illegal possession of deadly weapon” penalized under PD No. 9.

HELD:
No. The Informations filed by petitioner are fatally defective. The two elements of the offense covered by P.D.
9(3) must be alleged in the Information in order that the latter may constitute a sufficiently valid charged. The
sufficiency of an Information is determined solely by the facts alleged therein. Where the facts are incomplete
and do not convey the elements of the crime, the quashing of the accusation is in order.

In the construction or interpretation of a legislative measure, the primary rule is to search for and determine the
intent and spirit of the law. Legislative intent is the controlling factor, for whatever is within the spirit of a statute
is within the statute, and this has to be so if strict adherence to the letter would result in absurdity, injustice and
contradictions. Because of the problem of determining what acts fall within the purview of P.D. 9, it becomes
necessary to inquire into the intent and spirit of the decree and this can be found among others in the preamble
or, “whereas" clauses.

It is a salutary principle in statutory construction that there exists a valid presumption that undesirable
consequences were never intended by a legislative measure, and that a construction of which the statute is fairly
susceptible is favored, which will avoid all objectionable, mischievous, indefensible, wrongful, evil, and injurious
consequences.
People v. Echaves
G.R. Nos. L-47757-61. January 28, 1980

FACTS:
On October 25, 1977 Fiscal Abundio R. Ello filed with the lower court separate information against sixteen
persons charging them with squatting as penalized by Presidential Decree No. 772. The information provides
that “sometime in the year 1974 continuously up to the present, the above-named accused, with stealth and
strategy, enter into, occupy and cultivate a portion of a grazing land physically occupied, possessed and claimed
by Atty. Vicente de la Serna, accused's entrance into the area has been and is still against the win of the
offended party; did then and there willfully, unlawfully, and feloniously squat and cultivate a portion of the said
grazing land; said cultivating has rendered a nuisance to and has deprived the pasture applicant from the full use
thereof for which the land applied for has been intended, that is preventing applicant's cattle from grazing the
whole area, thereby causing damage and prejudice to the said applicant-possessor-occupant, Atty. Vicente de la
Serna, Jr.”
Five of the information were raffled to Judge Vicente B. Echaves, Jr. who dismissed the five information on the
grounds (1) that it was alleged that the accused entered the land through "stealth and strategy", whereas under
the decree the entry should be effected "with the use of force, intimidation or threat, or taking advantage of the
absence or tolerance of the landowner", and (2) that under the rule of ejusdem generis the decree does not apply
to the cultivation of a grazing land.

ISSUE:
Whether or not by Presidential Decree No. 772 applies to agricultural lands.

HELD:
No. The court agrees to the lower court that the decree does not apply to pasture lands because its preamble
shows that it was intended to apply to squatting in urban communities or more particularly to illegal
constructions in squatter areas made by well-to-do individuals. The squating complained of involves pasture
lands in rural areas. It should be noted that squatting on public agricultural lands, like the grazing lands involved
in this case, is punished by Republic Act No. 947. The rule of ejusdem generis invoked by the trial court,
however, does not apply to this case. The decree is intended to apply only to urban communities, particularly to
illegal constructions. The rule of ejusdem generis is merely a tool of statutory construction which is resorted to
when the legislative intent is uncertain.
People v. Yabut
G.R. No. 39085. September 27, 1933.

FACTS:
On or about the 1st day of August, 1932, the accused Antonio Yabut, then a prisoner serving sentence in the
Bilibid Prison, wilfully, unlawfully, feloniously and treacherously, assault, beat and use personal violence upon
one Sabas Aseo, another prisoner also serving sentence in Bilibid, by then and there hitting the said Sabas Aseo
suddenly and unexpectedly from behind with a wooden club, without any just cause, thereby causing the death of
the latter. Yabut was a recidivist, he having previously been convicted twice of the crime of homicide and once
of serious physical injuries, by virtue of final sentences rendered by competent tribunals.

ISSUE:
Whether or not Art. 160 of the Revised Penal Code applies to the case at bar.

HELD:
Yes. Art. 160 of the Revised Penal Code, translated in English, provides that:

Commission of another crime during service of penalty imposed for another previous offense — Penalty. —
Besides the provisions of rule 5 of article 62, any person who shall commit a felony after having been convicted
by final judgment, before beginning to serve such sentence, or while serving the same, shall be punished by the
maximum period of the penalty prescribed by law for the new felony.

The appellant places much stress upon the word "another" appearing in the English translation of the headnote of
article 160 and would have us accept his deduction from the headnote that article 160 is applicable only when the
new crime which is committed by a person already serving sentence is different from the crime for which he is
serving sentence. The language is plain and unambiguous. There is not the slightest intimation in the text of article
160 that said article applies only in cases where the new offense is different in character from the former offense
for which the defendant is serving the penalty.

It is familiar law that when the text itself of a statute or a treaty is clear and unambiguous, there is neither necessity
nor propriety in resorting to the preamble or headings or epigraphs of a section of interpretation of the text,
especially where such epigraphs or headings of sections are mere catchwords or reference aids indicating the
general nature of the text that follows. A mere glance at the titles to the articles of the Revised Penal code will
reveal that they were not intended by the Legislature to be used as anything more than catchwords conveniently
suggesting in a general way the subject matter of each article. Being nothing more than a convenient index to the
contents of the articles of the Code, they cannot, in any event have the effect of modifying or limiting the
unambiguous words of the text.

.R. No. 141314 April 9, 2003

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ENERGY REGULATORY BOARD, petitioner,

vs.
MANILA ELECTRIC COMPANY, respondent.

x-----------------------------x

G.R. No. 141369 April 9, 2003

LAWYERS AGAINST MONOPOLY AND POVERTY (LAMP) consisting of CEFERINO PADUA, Chairman, G.
FULTON ACOSTA, GALILEO BRION, ANATALIA BUENAVENTURA, PEDRO CASTILLO, NAPOLEON
CORONADO, ROMEO ECHAUZ, FERNANDO GAITE, ALFREDO DE GUZMAN, ROGELIO KARAGDAG, JR.,
MA. LUZ ARZAGA-MENDOZA, ANSBERTO PAREDES, AQUILINO PIMENTEL III, MARIO REYES, EMMANUEL
SANTOS, RUDEGELIO TACORDA, members, and ROLANDO ARZAGA, Secretary-General, JUSTICE
ABRAHAM SARMIENTO, SENATOR AQUILINO PIMENTEL, JR. and COMMISSIONER BARTOLOME
FERNANDEZ, JR., Board of Consultants, and Lawyer GENARO LUALHATI, petitioners,
vs.
MANILA ELECTRIC COMPANY (MERALCO), respondent.

RESOLUTION

PUNO, J.:

The business and operations of a public utility are imbued with public interest. In a very real sense, a public utility is
engaged in public service-- providing basic commodities and services indispensable to the interest of the general
public. For this reason, a public utility submits to the regulation of government authorities and surrenders certain
business prerogatives, including the amount of rates that may be charged by it. It is the imperative duty of the State
to interpose its protective power whenever too much profits become the priority of public utilities.

For resolution is the Motion for Reconsideration filed by respondent Manila Electric Company (MERALCO) on
December 5, 2002 from the decision of this Court dated November 15, 2002 reducing MERALCO's rate adjustment
in the amount of P0.017 per kilowatthour (kwh) for its billing cycles beginning 1994 and further directing MERALCO
to credit the excess average amount of P0.167 per kwh to its customers starting with MERALCO's billing cycles
beginning February 1994.1

First, we leapfrog through the facts. On December 23, 1993, MERALCO filed with the Energy Regulatory Board
(ERB) an application for revised rates, with an average increase of P0.21 per kwh in its distribution charge. On
January 28, 1994 the ERB granted a provisional increase of P0.184 per kwh subject to the condition that in the
event the ERB determines that MERALCO is entitled to a lesser increase in rates, all excess amounts collected by
MERALCO shall be refunded to its customers or credited in their favor. The Commission on Audit (COA) conducted
an examination of the books of accounts and records of MERALCO and thereafter recommended, among others,
that: (1) income taxes paid by MERALCO should not be included as part of MERALCO's operating expenses and
(2) the "net average investment method" or the "number of months use method" should be applied in determining
the proportionate value of the properties used by MERALCO during the test year.
In its decision dated February 16, 1998, the ERB adopted the recommendations of the COA and authorized
MERALCO to adopt a rate adjustment of P0.017 per kilowatthour (kwh) for its billing cycles beginning 1994. The
ERB further directed MERALCO to credit the excess average amount of P0.167 per kwh to its customers starting
with MERALCO's billing cycles beginning February 1994. The said ruling of the ERB was affirmed by this Court in its
decision dated November 15, 2002.

In its Motion for Reconsideration, respondent MERALCO contends that: (1) the deduction of income tax from
revenues allowed for rate determination of public utilities is part of its constitutional right to property; (2) it correctly
used the "average investment method" or the "simple average" in computing the value of its properties entitled to a
return instead of the "net average investment method" or the "number of months use method"; and (3) the decision
of the ERB ordering the refund of P0.167 per kwh to its customers should not be given retroactive effect.2

The Republic of the Philippines through the ERB, now Energy Regulatory Commission (ERC), represented by the
Office of the Solicitor General, filed its Comment on March 7, 2003. Surprisingly, in its Comment, the ERC proffered
a divergent view from the Office of the Solicitor General. The ERC submits that income taxes are not operating
expenses but are reasonable costs that may be recoverable from the consuming public. While the ERC admits that
"there is still no categorical determination on whether income tax should indeed be deducted from revenues of a
public utility," it agrees with MERALCO that to disallow public utilities from recovering its income tax payments will
effectively lower the return on rate base enjoyed by a public utility to 8%. The ERC, however, agrees with this
Court's ruling that the use of the "net average investment method" or the "number of months use method" is not
unreasonable.3

The Office of the Solicitor General, under its solemn duty to protect the interests of the people, defended the thesis
that income tax payments by a public utility should not be recovered as costs from the consuming public. It
contended that: (1) the foreign jurisprudence cited by MERALCO in support of its position is not applicable in this
jurisdiction; (2) MERALCO was given a fair rate of return; (3) the COA and the ERB followed the National
Accounting and Auditing Manual which expressly disallows the treatment of income tax as operating expense; (4)
Executive Order No. 72 does not grant electric utilities the privilege of treating income tax as operating expense; (5)
the COA and the ERB have been consistent in not allowing income tax as part of operating expenses; (6) ERB
decisions allowing the application of a tax recovery clause are inapropos; (7) allowing MERALCO to treat income tax
as an operating expense would set a dangerous precedent; (8) assuming that the disallowance of income tax as
operating expense would discourage foreign investors and lenders, the government is not precluded from enacting
laws and instituting measures to lure them back; and (9) the findings and conclusions of the ERB carry great weight
and should be binding on the courts in the absence of grave abuse of discretion. The Solicitor General agrees with
the ERC that the "net average investment method" is a reasonable method for property valuation. Finally, the
Solicitor General argues that the ERB decision may be applied retroactively and the use of a test period to
determine the rate base and allowable rates to be collected by a public utility is an accepted practice.4

We shall discuss the main issues in seriatim.

MERALCO argues that deduction of all kinds of taxes, including income tax, from the gross revenues of a public
utility is firmly entrenched in American jurisprudence. It contends that the Public Service Act (Commonwealth Act
No. 146) was patterned after Act 2306 of the Philippine Commission, which, in turn, was borrowed from American
state public utility laws such as the New Jersey Public Utility Act. Hence, it maintains that American jurisprudence on
the inclusion of income taxes as a lawful charge to operating expenses should be controlling. It cites the rule on
statutory construction that a statute adopted from a foreign country will be presumed to be adopted with the
construction placed upon it by the courts of that country before its adoption.5

We are not persuaded. American decisions and authorities are not per se controlling in this jurisdiction. At best, they
are persuasive for no court holds a patent on correct decisions. Our laws must be construed in accordance with the
intention of our own lawmakers and such intent may be deduced from the language of each law and the context of
other local legislation related thereto. More importantly, they must be construed to serve our own public interest
which is the be-all and the end-all of all our laws. And it need not be stressed that our public interest is distinct and
different from others.

Rate regulation calls for a careful consideration of the totality of facts and circumstances material to each application
for an upward rate revision. Rate regulators should strain to strike a balance between the clashing interests of the
public utility and the consuming public and the balance must assure a reasonable rate of return to public utilities
without being unreasonable to the consuming public. What is reasonable or unreasonable depends on a calculus of
changing circumstances that ebb and flow with time. Yesterday cannot govern today, no more than today can
determine tomorrow.

Prescinding from these premises, we reject MERALCO's insistence that the non-inclusion of income tax payments
as a legitimate operating expense will deny public utilities a fair return of their investment. This stubborn stance is
belied by the report submitted by the COA on the audit conducted on MERALCO's books of accounts and the
findings of the ERB.6

Upon the instructions of the ERB, the COA conducted an audit of the operations of MERALCO covering the period
from February 1, 1994 to January 31, 1995, or the period immediately after the implementation of the provisional
rate increase.7 Hence, amounts culled by the COA from its examination of the books of MERALCO already included
the provisional rate increase of P0.184 granted by the ERB.
From the figures submitted by the COA, the ERB was able to determine that MERALCO derived excess
revenueduring the test year in the amount of P2,448,378,000.8 This means that during the test year, and after the
rates were increased by P0.184, MERALCO earned P2,448,378,000 or 8.15% more than the amount it should have
earned at a 12% rate of return on rate base. Accordingly, based on this amount of excess revenue, the ERB
determined that the provisional rate granted by it to MERALCO was P0.167 per kwh more than the amount
MERALCO ought to charge its customers to obtain the prescribed 12% rate of return on rate base. Thus, the ERB
correspondingly lowered the provisional increase by P0.167 per kwh and ordered MERALCO to increase its rates at
a reduced amount of P0.017 per kwh, computed as follows:9

At appraised value
Total Invested Capital Entitled P 30,059,614,00010
to Return
12% return thereon P 3,607,154,000
Add: Total Operating expenses P 38,260,420,00011
for Rate Determination

Purposes P 41,867,573,000

Computed Revenue
Actual Revenue P 44,315,951,000
Excess Revenue P 2,448,378,000
Percent of Excess Revenue to 8.15%
Invested Capital
Authorized Rate of Return 12.00%
Actual Rate of Return 20.15%
Total kwh sold 14,640,094,000
Ratio of Excess Revenue to
Total kwh Sold P 0.167

In fact, even if MERALCO's income tax liability would be included as an operating expense, MERALCO would still
enjoy excess revenue of P312,738,000.00 or 1.04% above the authorized rate of return of 12%. Based on its audit,
the COA determined that the provision for income tax liability of MERALCO amounted to P2,135,639,000.00.12Thus,
even if such amount of income tax liability would be included as operating expense, the amount of excess revenue
earned by MERALCO during the test year would be more than sufficient to cover the additional income tax
expense. Thus:

At appraised
value
Total Invested Capital Entitled to Return P 30,059,614,000
12% return thereon P 3,607,154,000
Add: Total Operating expenses for Rate P
Determination Purposes 40,396,059,00013
Computed Revenue P 44,003,213,000
Actual Revenue P 44,315,951,000
Excess Revenue P 312,738,000
Percent of Excess Revenue to Invested 1.04%
Capital
Authorized Rate of Return 12.00%
Actual Rate of Return 13.04%

It is crystal clear, therefore, that even if income tax is to be included as an operating expense and hence,
recoverable from the consuming public, MERALCO would still enjoy a rate of return that is above the authorized rate
of 12%. Public utilities cannot be allowed to overcharge at the expense of the public and worse, they cannot
complain that they are not overcharging enough.

Be that as it may, MERALCO contends that considering income tax payments of public utilities constitute one-third
of their net income, public utilities will effectively get, not the 12% rate of return on rate base allowed them, but only
about 8%.14 Again, we are not persuaded.

The foregoing argument assumes that the 12% return allowed to public utilities is equivalent to its taxable
incomewhich will be subject to income tax. The 12% rate of return is computed only for the purpose of fixing the
allowable rates to be charged by a public utility and is in no way determinative of the income subject to income tax
of the public utility. The computation of a corporation's income tax liability is an altogether different matter, with the
corporation's taxable income derived by taking into account the corporation's gross revenues less allowable
deductions.15
At any rate, even on the assumption that in the test year involved (February 1, 1994 to January 31, 1995),
MERALCO's computed revenue of P 41,867,573,000 or the amount that it is allowed to earn based on a 12% rate of
return is its taxable income, after payment of its income tax liability of P2,135,639,000.00, MERALCO would still
obtain an 11.38% rate of return or a return that is well within the 12% rate allowed to public utilities.16

MERALCO also contends that even the successor of the ERB or the ERC created under the Electric Power Industry
Reform Act of 2001 (EPIRA)17 "adheres to the principle that income tax is part of operating expense."18 To bolster its
argument, MERALCO cites Article 36 of the EPIRA which charges the ERC with the responsibility of unbundling the
rates of the National Power Corporation (NPC) and each distribution utility coming within the coverage of the
law.19 MERALCO alleges that pursuant to said provision, the ERC issued a set of Uniform Rate Filing Requirements
(UFR) containing guidelines to be followed with respect to rate unbundling applications to be filed. MERALCO
asserts that under the UFR, the enumeration of the expenses which are to be recovered through the rates, and
which are to be separated or allocated for the purpose of unbundling of these rates include income tax expenses.

Under Section 36 of the EPIRA, the NPC and every distribution facility covered by the law is mandated to unbundle,
segregate or itemize its rates according to the various sectors of the electric power industry identified in the law,
namely: generation, transmission, distribution and supply.20 The law further directs the ERC to regulate and facilitate
the unbundling of rates prescribed by Section 36. Thus, on October 30, 2001, the ERC issued guidelines prescribing
the uniform rate filing requirements to be followed by distribution facilities for the purposes of unbundling rates.21

A proper appreciation of the UFR shows that it simply specifies a uniform accounting system to be complied with by
a distribution facility when filing an application for revised rates under the EPIRA. As the EPIRA requires the
unbundling or segregation of rates according to the different sectors of the electric power industry, the UFR seeks to
facilitate this process by properly identifying the accounts or information required for proper evaluation by the ERB.
Thus, the introductory statements of the UFR provide:

These uniform rate filing requirements are intended to promote consistency and completeness in the rate
filings required by Republic Act No. 9136 (RA 9136), Section 36. To that end, the filing requirements only
specify minimum form and content. A rate application in all its aspects continues to be subject to subsequent
Commission review and deliberation.22

At the onset, it is clear that the UFR does not seek to determine which accounting method will be used by the ERC
for determination of rate base or the items of expenses that may be recovered by a public utility from its
customers.The UFR only seeks to prescribe a uniform system or format to standardize or facilitate the process of
unbundling of rates mandated by the EPIRA. At best, the UFR prescribes the set of raw data or figures to be
disclosed by a distribution facility that the ERC will need to determine the authorized rates that a distribution facility
may charge. The UFR does not, in any way, determine the manner by which the set of data or figures indicated in
the rate application will be evaluated by the ERC for rate determination purposes.

II

MERALCO also challenges the use of the "net average investment method" or the "number of months use method"
on the ground that MERALCO and the Public Service Commission (PSC) have been consistently applying the
"average investment method" or "simple average", which it alleged was also affirmed by this Court in the case
of MERALCO v. PSC23 and Republic v. Medina.24

It is true that in MERALCO v. PSC,25 the issue of the proper valuation method to be used in determining the value of
MERALCO's utility plants for rate fixing purposes was brought to fore. In the said case, MERALCO applied the
"average investment method" or "simple average" by obtaining the average value of the utility plants, using its
values at the beginning and at the end of the test year. In contrast, the General Auditing Office used the "appraisal
method" which fixes the value of the utility plants by ascertaining the cost of production per kilowatt and multiplying
the same by the total capacity of said plants, less the corresponding depreciation.26 In upholding the "average
investment method" used by MERALCO, this Court adopted the findings of the PSC for being "by and large,
supported by the records of the case."27 This Court did not make an independent assessment of the validity or
applicability of the average investment method but simply did not disturb the findings of the PSC for being supported
by substantial evidence. To conclude that the said decision "affirmed" the use of the "average investment method"
thereby implying that the said method is the only method to be applied in all instances, is a strained reading of the
decision.

In fact, in the case of Republic v. Medina,28 also cited by MERALCO to have affirmed the use of the "average
investment method", this Court ruled:

The decided weight of authority, however, is to the effect that property valuation is not to be solved by
formula but depends upon the particular circumstances and relevant facts affecting each utility as to what
constitutes a just rate base and what would be a fair return, just to both the utility and the public.29

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

A regulatory commission's field of inquiry, however, is not confined to the computation of the cost of service
or capital nor to a mere prognostication of the future behavior of the money and capital markets. It must also
balance investor and consumer expectations in such a way that broad requirements of public interest may
be meaningfully realized. It would hence appear in keeping with its public duty if a regulatory body is allowed
wide discretion in the choice of methods rationally related to the achievement of this end.30
Thus, the rule then as it is now, is that rate regulating authorities are not hidebound to use any single formula or
combination of formulas for property valuation purposes because the rate-making process involves the balancing of
investor and consumer interests which takes into account various factors that may be unique or peculiar to a
particular rate revision application.

We again stress the long established doctrine that findings of administrative or regulatory agencies on matters which
are within their technical area of expertise are generally accorded not only respect but at times even finality if such
findings and conclusions are supported by substantial evidence.31 Rate fixing calls for a technical examination and a
specialized review of specific details which the courts are ill-equipped to enter, hence, such matters are primarily
entrusted to the administrative or regulating authority.32

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

III

MERALCO also rants against the retroactive application of the rate adjustment ordered by the ERB and affirmed by
this Court. In its decision, the ERB, after authorizing MERALCO to adopt a rate adjustment in the amount of P0.017
per kwh, directed MERALCO to refund or credit to its customers' future consumption the excess average amount of
P0.167 per kwh from its billing cycles beginning February 199433 until its billing cycles beginning February 1998.34In
the decision appealed from, this Court likewise ordered that the refund in the average amount of P0.167 per kwh be
made to retroact from MERALCO's billing cycles beginning February 1994.

MERALCO contends that the refund cannot be given retroactive effect as the figures determined by the ERB only
apply to the test year or the period subject of the COA Audit, i.e., February 1, 1994 to January 31, 1995. It reasoned
that the amounts used to determine the proper rates to be charged by MERALCO would vary from year to year and
thus the computation of the excess average charge of P0.167 would hold true only for the test year. Thus,
MERALCO argues that if a refund of P0.167 would be uniformly applied to its billing cycles beginning 1994, with
respect to periods after January 31, 1995, there will be instances wherein its operating revenues would fall below
the 12% authorized rate of return. MERALCO therefore suggests that the dispositive portion be modified and order
that "the refund applicable to the periods after January 31, 1995 is to be computed on the basis of the excess
collection in proportion to the excess over the 12% return."35

The purpose of the audit procedures conducted in a rate application proceeding is to determine whether the rate
applied for will generate a reasonable return for the public utility, which, in accordance with settled laws and
jurisprudence, is 12% on rate base or the present value of the assets used in the operations of a public utility. For
audit purposes, however, there is a need to obtain a sample set of data-- usually derived from figures within a
designated period of time-- to determine the amount of returns obtained by a public utility during such period. In the
cases at bar, the COA conducted an audit for the test year beginning February 1, 1994 and ending January 31,
1995 or a 12-month period immediately after the order of the ERB granting a provisional increase in the amount of
P0.184 per kwh was issued. Thus, the ultimate issue resolved by the COA when it conducted its audit was whether
the provisional increase granted by the ERB generated an amount of return well within the rates authorized by law.
As stated earlier, based on the findings of the ERB, with the increase of P0.184 per kwh, MERALCO obtained a rate
of return which was 8.15% more than the authorized rate of return of 12%.36 Thus, a refund in the amount of P0.167
was determined and ordered by ERB.

The essence of the use of a "test year" for auditing purposes is to obtain a sample or representative set of figures to
enable the examining authority to arrive at a conclusion or finding based on the gathered data. The use of a "test
year" does not mean that the information and conclusions so derived would only be correct for that year and would
be incorrect on the succeeding years. The use of a "test year" assumes that within a reasonable period after such
test year, figures used to determine the amount of return would only vary slightly from the figures culled during the
test year such that the impact on the utility's rate of return would not be very significant. Thus, in the event that there
is a substantial change in circumstances significantly affecting the variable amounts that would determine the
reasonableness of a return, an event which would normally occur after a certain period of time has elapsed, the
public utility may subsequently apply for a rate revision.

We agree with the Solicitor General that following MERALCO's reasoning that the figures culled from a test year
would only be relevant during such year, there would be a need for public utilities to apply for a rate
adjustment every year and perform an audit examination on a public utility's books of accounts every year as the
amount of a utility's revenue may fall above or below the authorized rates at any given year. Needless to say, the
trajectory of MERALCO's arguments will lead to an absurdity.

From the time the order granting a provisional increase was issued by the ERB, nowhere in the records does it
appear that the subsequent refund of P0.167 per kwh ordered by the ERB was ever implemented or executed by
MERALCO.37 Accordingly, from January 28, 1994 MERALCO imposed on its customers a charge that is P0.167 in
excess of the proper amount. In fact, any application for rate adjustment that may have been applied for and/or
granted to MERALCO during the intervening period would have to be reckoned from rates increased by P0.184 per
kwh as these were the rates prevailing at the time any application for rate adjustment was made by MERALCO.

While we agree that the amounts used to determine the utility's rate of return would vary from year to year, we are
unable to subscribe to the view that the refund applicable to the periods after January 31, 1995 should be computed
on the basis of the excess collection in proportion to the excess over the 12% return. MERALCO's contention that
the refund for periods after January 31, 1995 should be computed on the basis of revenue of each year in excess of
the 12% authorized rate of return calls for a year-by-year computation of MERALCO's revenues and assets which
would be contrary to the essence of an audit examination of a public utility based on a test year. To grant
MERALCO's prayer would, in effect, allow MERALCO the benefit of a year-by-year adjustment of rates not normally
enjoyed by any other public utility required to adopt a subsequent rate modification. Indeed, had the ERB ordered
an increase in the provisional rates it previously granted, said increase in rates would apply retroactively and would
not have varied from year to year, depending on the variable amounts used to determine the authorized rates that
may be charged by MERALCO. We find no significant circumstance prevailing in the cases at bar that would justify
the application of a yearly adjustment as requested by MERALCO.

WHEREFORE, in view of the foregoing, the petitioner's Motion for Reconsideration is DENIED WITH FINALITY.

SO ORDERED.

Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

Panganiban, J., please see separate opinion.

Celestial Nickel Mining Corporation v Macro-asia (Environmental Law)

CELESTIAL NICKEL MINING CORPORATION v MACRO-ASIA
G.R. No. 169080
December 19, 2007

FACTS:

On September 24, 1973, the then Secretary of Agriculture and Natural Resources and Infanta Mineral and
Industrial Corporation (Infanta) entered into a Mining Lease Contract (V-1050) for a term of 25 years up
to September 23, 1998 for mining lode claims covering an area of 216 hectares at Sitio Linao, Ipilan,
Brooke's Point, Palawan.

Infanta's corporate name was changed to Cobertson Holdings Corporation on January 26, 1994 and
subsequently to its present name, Macroasia Corporation, on November 6, 1995.

Sometime in 1997, Celestial filed a Petition to Cancel the subject mining lease contracts and other mining
claims of Macroasia including those covered by Mining Lease Contract No. V-1050, before the Panel of
Arbitrators (POA) of the Mines and Geo-Sciences Bureau (MGB) of the DENR. The petition was docketed
as DENR Case No. 97-01.

Celestial is the assignee of 144 mining claims covering such areas contiguous to Infanta's (now Macroasia)
mining lode claims.

Celestial sought the cancellation of Macroasia's lease contracts on the following grounds: (1) the
nonpayment of Macroasia of required occupational fees and municipal taxes; (2) the non-filing of
Macroasia of Affidavits of Annual Work Obligations; (3) the failure of Macroasia to provide improvements
on subject mining claims; (4) the concentration of Macroasia on logging; (5) the encroachment, mining,
and extraction by Macroasia of nickel ore from Celestial's property; (6) the ability of Celestial to subject
the mining areas to commercial production; and (7) the willingness of Celestial to pay fees and back
taxes of Macroasia.

DECISION OF LOWER COURTS:

* POA: the POA found that Macroasia and Lebach not only automatically abandoned their areas/mining
claims but likewise had lost all their rights to the mining claims. The POA granted the petition of Celestial
to cancel the following Mining Lease Contracts * MAB: affirmed POA. The MAB found that Macroasia did
not comply with its work obligations from 1986 to 1991.

However, contrary to the findings of the POA, the MAB found that it was Blue Ridge that had prior and
preferential rights over the mining claims of Macroasia, and not Celestial. In case Blue Ridge defaults,
Celestial could exercise the secondary priority and preferential rights, and subsequently, in case Celestial
also defaults, other qualified applicants could file.

(motion for reconsideration) Macroasia, in its Motion for Reconsideration, reiterated that it did not
abandon its mining claims, and even if mining was not listed among its purposes in its amended Articles of
Incorporation, its mining activities were acts that were only ultra vires but were ratified as a secondary
purpose by its stockholders in subsequent amendments of its Articles of Incorporation.

(special motion for reconsideration) Macroasia averred that the power and authority to grant, cancel, and
revoke mineral agreements is exclusively lodged with the DENR Secretary. Macroasia further pointed out
that in arrogating upon itself such power, the POA whimsically and capriciously discarded the procedure on
conferment of mining rights laid down in Republic Act No. (RA) 7942, The Philippine Mining Act of 1995,
and DENR Administrative Order No. (AO) 96-40.

* MAB (on issue of jurisdiction): The MAB further held that the power to cancel or revoke a mineral
agreement was exclusively lodged with the DENR Secretary; that a petition for cancellation is not a mining
dispute under the exclusive jurisdiction of the POA pursuant to Sec. 77 of RA 7942; and that the POA
could only adjudicate claims or contests during the MPSA application and not when the claims and leases
were already granted and subsisting.

IRONIC DECISIONS OF THE CA

* CA (Celestial appeal): affirmed the November 26, 2004 MAB Resolution which declared Macroasia's
seven mining lease contracts as subsisting; rejected Blue Ridge's claim for preferential right over said
mining claims; and upheld the exclusive authority of the DENR Secretary to approve, cancel, and revoke
mineral agreements.

* CA (Blue Ridge's appeal): granted Blue Ridge's petition; reversed and set aside the November 26, 2004
and July 12, 2005 Resolutions of the MAB; and reinstated the October 24, 2000 Decision in MAB Case Nos.
056-97 and 057-97. The Special Tenth Division canceled Macroasia's lease contracts; granted Blue Ridge
prior and preferential rights; and treated the cancellation of a mining lease agreement as a mining dispute
within the exclusive jurisdiction of the POA under Sec. 77 of RA 7942, explaining that the power to resolve
mining disputes, which is the greater power, necessarily includes the lesser power to cancel mining
agreements.

ISSUE: who has authority and jurisdiction to cancel existing mineral agreements under RA 7942 in relation
to PD 463 and pertinent rules and regulations?

HELD: DENR Secretary, not the POA, has the jurisdiction to cancel existing mineral lease contracts or
mineral agreements based on the following reasons:

1. The power of the DENR Secretary to cancel mineral agreements emanates from his administrative
authority, supervision, management, and control over mineral resources under Chapter I, Title XIV of
Book IV of the Revised Administrative Code of 1987;

It is the DENR, through the Secretary, that a. manages, supervises, and regulates the use and
development of all mineral resources of the country; b. has exclusive jurisdiction over the management of
all lands of public domain, which covers mineral resources and deposits from said lands; c. has the power
to oversee, supervise, and police our natural resources which include mineral resources.

Derived from the broad and explicit powers of the DENR and its Secretary under the Administrative Code
of 1987 is the power to approve mineral agreements and necessarily to cancel or cause to cancel said
agreements.

2. RA 7942 confers to the DENR Secretary specific authority over mineral resources.

To enforce PD 463, the CMAO containing the rules and regulations implementing PD 463 was issued. Sec.
44 of the CMAO provides:

SEC. 44. Procedure for Cancellation.––Before any mining lease contract is cancelled for any cause
enumerated in Section 43 above, the mining lessee shall first be notified in writing of such cause or
causes, and shall be given an opportunity to be heard, and to show cause why the lease shall not be
cancelled.

If, upon investigation, the Secretary shall find the lessee to be in default, the former may warn the lessee,
suspend his operations or CANCEL THE LEASE CONTRACT (emphasis supplied).

Sec. 4 of EO 279 provided that the provisions of PD 463 and its implementing rules and regulations, not
inconsistent with the executive order, continue in force and effect.

When RA 7942 took effect on March 3, 1995, there was no provision on who could cancel mineral
agreements. However, since the aforequoted Sec. 44 of the CMAO implementing PD 463 was not repealed
by RA 7942 and DENR AO 96-40, not being contrary to any of the provisions in them, then it follows that
Sec. 44 serves as basis for the DENR Secretary's authority to cancel mineral agreements.

Historically, the DENR Secretary has the express power to approve mineral agreements or contracts and
the implied power to cancel said agreements.

3. Under RA 7942, the power of control and supervision of the DENR Secretary over the MGB to cancel
or recommend cancellation of mineral rights clearly demonstrates the authority of the DENR Secretary to
cancel or approve the cancellation of mineral agreements.

Sec. 7. Organization and Authority of the Bureau (MGB). e. To CANCEL OR TO RECOMMEND

CANCELLATION AFTER DUE PROCESS, MINING RIGHTS, mining applications and mining claims for non-
compliance with pertinent laws, rules and regulations.

It is explicit from the foregoing provision that the DENR Secretary has the authority to cancel mineral
agreements based on the recommendation of the MGB Director. As a matter of fact, the power to cancel
mining rights can even be delegated by the DENR Secretary to the MGB Director. Clearly, it is the
Secretary, not the POA, that has authority and jurisdiction over cancellation of existing mining contracts or
mineral agreements.

4. The DENR Secretary's power to cancel mining rights or agreements through the MGB can be
inferred from Sec. 230, Chapter XXIV of DENR AO 96-40 on cancellation, revocation, and termination of a
permit/mineral agreement/ FTAA.

As the MGB is under the supervision of the DENR Secretary, then the logical conclusion is that it is the
DENR Secretary who can cancel the mineral agreements and not the POA nor the MAB.
5. Celestial and Blue Ridge are not unaware of the stipulations in the Mining Lease Contract Nos. V-
1050 and MRD-52,[50] the cancellation of which they sought from the POA. It is clear from said lease
contracts that the parties are the Republic of the Philippines represented by the Secretary of Agriculture
and Natural Resources (now DENR Secretary) as lessor, and Infanta (Macroasia) as lessee. [which
declares that the lessor can order the lease cancelled)

RATIO: (1) RA 7942, The Philippine Mining Act of 1995 enacted on March 3, 1995, repealed the provisions
of PD 463 inconsistent with RA 7942. Unlike PD 463, where the application was filed with the Bureau of
Mines Director, the applications for mineral agreements are now required to be filed with the Regional
Director as provided by Sec. 29 of RA 7942. The proper filing gave the proponent the prior right to be
approved by the Secretary and thereafter to be submitted to the President. The President shall provide a
list to Congress of every approved mineral agreement within 30 days from its approval by the
Secretary. Again, RA 7942 is silent on who has authority to cancel the agreement.

Compared to PD 463 where disputes were decided by the Bureau of Mines Director whose decisions were
appealable to the DENR Secretary and then to the President, RA 7942 now provides for the creation of
quasi-judicial bodies (POA and MAB) that would have jurisdiction over conflicts arising from the
applications and mineral agreements. Secs. 77, 78, and 79 lay down the procedure, thus:

SEC. 77. Panel of Arbitrators.––There shall be a panel of arbitrators in the regional office of the
Department composed of three (3) members, two (2) of whom must be members of the Philippine Bar in
good standing and one [1] licensed mining engineer or a professional in a related field, and duly
designated by the Secretary as recommended by the Mines and Geosciences Bureau Director. Those
designated as members of the panel shall serve as such in addition to their work in the Department
without receiving any additional compensation. As much as practicable, said members shall come from
the different bureaus of the Department in the region. The presiding officer thereof shall be selected by
the drawing of lots. His tenure as presiding officer shall be on a yearly basis. The members of the panel
shall perform their duties and obligations in hearing and deciding cases until their designation is
withdrawn or revoked by the Secretary. Within thirty (30) working days, after the submission of the case
by the parties for decision, the panel shall have exclusive and original jurisdiction to hear and decide on
the following:

(a) DISPUTES INVOLVING RIGHTS TO MINING AREAS;

[NOTE: The phrase “disputes involving rights to mining areas” refers to any adverse claim, protest, or
opposition to an APPLICATION FOR MINERAL AGREEMENTS. The POA therefore has the jurisdiction to
resolve any adverse claim, protest, or opposition to a pending application for a mineral agreement filed
with the concerned Regional Office of the MGB.

Clearly, POA's jurisdiction over “disputes involving rights to mining areas” has nothing to do with the
cancellation of existing mineral agreements.]

(b) DISPUTES INVOLVING MINERAL AGREEMENTS OR PERMITS;

[A petition for the cancellation of an existing mineral agreement covering an area applied for by an
applicant based on the alleged violation of any of the terms thereof, is not a “dispute” involving a mineral
agreement under Sec. 77 (b) of RA 7942. It does not pertain to a violation by a party of the right of
another. The applicant is not a real party-in-interest as he does not have a material or substantial
interest in the mineral agreement but only a prospective or expectant right or interest in the mining
area. He has no legal right to such mining claim and hence no dispute can arise between the applicant
and the parties to the mineral agreement. The court rules therefore that a petition for cancellation of a
mineral agreement anchored on the breach thereof even if filed by an applicant to a mining claim, like
Celestial and Blue Ridge, falls within the jurisdiction of the DENR Secretary and not POA. Such petition is
excluded from the coverage of the POA's jurisdiction over disputes involving mineral agreements under
Sec. 77 (b) of RA 7942.]

(c) Disputes involving surface owners, occupants and claimholders/concessionaires; and

(d) Disputes pending before the Bureau and the Department at the date of the effectivity of this Act.

SEC. 78. Appellate Jurisdiction.—The decision or order of the panel of arbitrators may be appealed by the
party not satisfied thereto to the Mines Adjudication Board within fifteen (15) days from receipt thereof
which must decide the case within thirty (30) days from submission thereof for decision.

SEC. 79. Mines Adjudication Board.—The Mines Adjudication Board shall be composed of three (3)
members. The Secretary shall be the chairman with the Director of the Mines and Geosciences Bureau and
the Undersecretary for Operations of the Department as members thereof.

(2) SEC. 8. Authority of the Department.––The Department shall be the primary government agency
responsible for the conservation, management, development, and proper use of the States mineral
resources including those in reservations, watershed areas, and lands of the public domain. THE
SECRETARY SHALL HAVE THE AUTHORITY TO ENTER INTO MINERAL AGREEMENTS ON BEHALF OF THE
GOVERNMENT UPON THE RECOMMENDATION OF THE DIRECTOR, promulgate such rules and regulations
as may be necessary to implement the intent and provisions of this Act.

SEC. 29. Filing and approval of Mineral Agreements.––x x x.

The filing of a proposal for a mineral agreement shall give the proponent the prior right to areas covered
by the same. THE PROPOSED MINERAL AGREEMENT WILL BE APPROVED BY THE SECRETARY and copies
thereof shall be submitted to the President. Thereafter, the President shall provide a list to Congress of
every approved mineral agreement within thirty (30) days from its approval by the Secretary. (Emphasis
supplied.)

OBITER DICTA:
(1) a preferential right would at most be an inchoate right to be given priority in the grant of a mining
agreement. It has not yet been transformed into a legal and vested right unless approved by the MGB or
DENR Secretary. Even if Blue Ridge has a preferential right over the subject mining claims, it is still within
the competence and discretion of the DENR Secretary to grant mineral agreements to whomever he
deems best to pursue the mining claims over and above the preferential status given to Blue Ridge.
Besides, being simply a preferential right, it is ineffective to dissolve the pre-existing or subsisting mining
lease contracts of Macroasia.