Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 80194 March 21, 1989

EDGAR JARANTILLA, petitioner,

vs.
COURT OF APPEALS and JOSE KUAN SING, respondents.

Corazon Miraflores and Vicente P. Billena for petitioner.

Manuel S. Gemarino for private respondent.

REGALADO, J.:

The records show that private respondent Jose Kuan Sing was "side-swiped by a
vehicle in the evening of July 7, 1971 in lznart Street, Iloilo City" 1 The respondent Court of
Appeals concurred in the findings of the court a quo that the said vehicle which figured in the mishap, a
Volkswagen (Beetle type) car, was then driven by petitioner Edgar Jarantilla along said street toward the direction
of the provincial capitol, and that private respondent sustained physical injuries as a consequence. 2

Petitioner was accordingly charged before the then City Court of Iloilo for serious
physical injuries thru reckless imprudence in Criminal Case No. 47207
thereof. 3 Private respondent, as the complaining witness therein, did not reserve his right to institute a
separate civil action and he intervened in the prosecution of said criminal case through a private
prosecutor. 4 Petitioner was acquitted in said criminal case "on reasonable doubt".5

On October 30, 1974, private respondent filed a complaint against the petitioner in
the former Court of First Instance of Iloilo, Branch IV, 6 docketed therein as Civil Case No.
9976, and which civil action involved the same subject matter and act complained of in Criminal Case No.
47027. 7 In his answer filed therein, the petitioner alleged as special and affirmative defenses that the private
respondent had no cause of action and, additionally, that the latter's cause of action, if any, is barred by the
prior judgment in Criminal Case No. 47207 inasmuch as when said criminal case was instituted the civil
liability was also deemed instituted since therein plaintiff failed to reserve the civil aspect and actively
participated in the criminal case. 8

Thereafter, acting on a motion to dismiss of therein defendant, the trial court issued on April 3, 1975 an order of
denial, with the suggestion that "(t)o enrich our jurisprudence, it is suggested that the defendant brings
(sic) this ruling to the Supreme Court by certiorari or other appropriate remedy, to review the ruling of the
court". 9

On June 17, 1975, petitioner filed in this Court a petition for certiorari, prohibition and mandamus, which was
docketed as G.R. No. L-40992, 10 assailing the aforesaid order of the trial court. Said petition was dismissed for
lack of merit in the Court's resolution of July 23, 1975, and a motion for reconsideration thereof was denied for
the same reason in a resolution of October 28, 1975. 11

After trial, the court below rendered judgment on May 23, 1977 in favor of the herein
private respondent and ordering herein petitioner to pay the former the sum of P
6,920.00 for hospitalization, medicines and so forth, P2,000.00 for other actual
expenses, P25,000.00 for moral damages, P5,000.00 for attorney's fees, and
costs. 12

On July 29, 1987, the respondent Court of Appeals 13 affirmed the decision of the lower court
except as to the award for moral damages which it reduced from P25,000.00 to P18,000.00. A motion for
reconsideration was denied by respondent court on September 18, 1987. 14

The main issue for resolution by Us in the present recourse is whether the private respondent, who was the
complainant in the criminal action for physical injuries thru reckless imprudence and who participated in
the prosecution thereof without reserving the civil action arising from the act or omission complained of,
can file a separate action for civil liability arising from the same act or omission where the herein
petitioner was acquitted in the criminal action on reasonable doubt and no civil liability was adjudicated
or awarded in the judgment of acquittal.

Prefatorily, We note that petitioner raises a collateral issue by faulting the respondent
court for refusing to resolve an assignment of error in his appeal therein, said
respondent court holding that the main issue had been passed upon by this Court in
G.R. No. L-40992 hereinbefore mentioned. It is petitioner's position that the aforesaid
two resolutions of the Court in said case, the first dismissing the petition and the
second denying the motion for reconsideration, do not constitute the "law of the
case' which would control the subsequent proceedings in this controversy.

1. We incline favorably to petitioner's submission on this score.

The "doctrine of the law of the case" has no application at the aforesaid posture of
the proceedings when the two resolutions were handed down. While it may be true
that G.R. No. L-40992 may have involved some of the issues which were thereafter
submitted for resolution on the merits by the two lower courts, the proceedings
involved there was one for certiorari, prohibition and mandamus assailing an
interlocutory order of the court a quo, specifically, its order denying therein
defendants motion to dismiss. This Court, without rendering a specific opinion or
explanation as to the legal and factual bases on which its two resolutions were
predicated, simply dismissed the special civil action on that incident for lack of merit.
It may very well be that such resolution was premised on the fact that the Court, at
that stage and on the basis of the facts then presented, did not consider that the
denial order of the court a quo was tainted with grave abuse of discretion. 15 To repeat,
no rationale for such resolutions having been expounded on the merits of that action, no law of the case may be
said to have been laid down in G.R. No. L-40992 to justify the respondent court's refusal to consider petitioner's
claim that his former acquittal barred the separate action.

'Law of the case' has been defined as the opinion delivered on a former
appeal. More specifically, it means that whatever is once irrevocably
established, as the controlling legal rule of decision between the same
parties in the same case continues to be the law of the case, whether
correct on general principles or not, so long as the facts on which such
decision was predicated continue to be the facts of the case before the
court (21 C.J.S. 330). (Emphasis supplied). 16

It need not be stated that the Supreme Court being the court of last resort, is the final arbiter of
all legal questions properly brought before it and that its decision in any given case constitutes
the law of that particular case . . . (Emphasis supplied). 17
 It is a rule of general application that the decision of an appellate court
in a case is the law of the case on the points presented throughout all
the subsequent proceedings in the case in both the trial and the
appellate courts, and no question necessarily involved and decided on
that appeal will be considered on a second appeal or writ of error in the
same case, provided the facts and issues are substantially the same as
those on which the first question rested and, according to some
authorities, provided the decision is on the merits . . . 18

2. With the foregoing ancillary issue out of the way, We now consider the principal
plaint of petitioner.

Apropos to such resolution is the settled rule that the same act or omission (in this
case, the negligent sideswiping of private respondent) can create two kinds of
liability on the part of the offender, that is, civil liability ex delicto and civil liability ex
quasi delicto. Since the same negligence can give rise either to a delict or crime or to
a quasi-delict or tort, either of these two types of civil liability may be enforced
against the culprit, subject to the caveat under Article 2177 of the Civil Code that the
offended party cannot recover damages under both types of liability. 19

We also note the reminder of petitioner that in Roa vs. De la Cruz, et al., 20 it was held that where the offended
party elected to claim damages arising from the offense charged in the criminal case through her intervention as
a private prosecutor, the final judgment rendered therein constituted a bar to the subsequent civil action based
upon the same cause. It is meet, however, not to lose sight of the fact that the criminal action involved therein
was for serious oral defamation which, while within the contemplation of an independent civil action under Article
33 of the Civil Code, constitutes only a penal omen and cannot otherwise be considered as a quasi-delict
or culpa aquiliana under Articles 2176 and 2177 of the Civil Code. And while petitioner draws attention to the
supposed reiteration of the Roa doctrine in the later case of Azucena vs. Potenciano, et al., 21 this time involving
damage to property through negligence as to make out a case of quasi-delict under Articles 2176 and 2180 of the
Civil Code, such secondary reliance is misplaced since the therein plaintiff Azucena did not intervene in the
criminal action against defendant Potenciano. The citation of Roa in the later case of Azucena was, therefore,
clearly obiter and affords no comfort to petitioner.

These are aside from the fact that there have been doctrinal, and even
statutory, 22 changes on the matter of civil actions arising from criminal offenses and quasi-delicts. We will
reserve our discussion on the statutory aspects for another case and time and, for the nonce, We will consider
the doctrinal developments on this issue.

In the case under consideration, private respondent participated and intervened in

the prosecution of the criminal suit against petitioner. Under the present
jurisprudential milieu, where the trial court acquits the accused on reasonable doubt,
it could very well make a pronouncement on the civil liability of the accused 23 and the
complainant could file a petition for mandamus to compel the trial court to include such civil liability in the
judgment of acquittal. 24

Private respondent, as already stated, filed a separate civil action after such
acquittal. This is allowed under Article 29 of the Civil Code. We have ruled in the
relatively recent case of Lontoc vs. MD Transit & Taxi Co., Inc., et al. 25 that:

In view of the fact that the defendant-appellee de la Cruz was acquitted

on the ground that 'his guilt was not proven beyond reasonable
doubt' the plaintiff-appellant has the right to institute a separate civil
action to recover damages from the defendants-appellants (See
Mendoza vs. Arrieta, 91 SCRA 113). The well-settled doctrine is that a
 person, while not criminally liable may still be civilly liable. 'The
judgment of acquittal extinguishes the civil liability of the accused only
when it includes a declaration that the facts from which the civil liability
might arise did not exist'. (Padilla vs. Court of Appeals, 129 SCRA 558
cited in People vs. Rogelio Ligon y Tria, et al., G.R. No. 74041, July 29,
1987; Filomeno Urbano vs. Intermediate Appellate Court, G.R. No.
72964, January 7, 1988). The ruling is based on Article 29 of the Civil
Code which provides:

When the accused in a criminal prosecution is acquitted

on the ground that his guilt has not been proved beyond
reasonable doubt, a civil action for damages for the same
act or omission may be instituted. Such action requires
only a preponderance of evidence ... 26

Another consideration in favor of private respondent is the doctrine that the failure of
the court to make any pronouncement, favorable or unfavorable, as to the civil
liability of the accused amounts to a reservation of the right to have the civil liability
litigated and determined in a separate action. The rules nowhere provide that if the
court fails to determine the civil liability it becomes no longer enforceable. 27

Furthermore, in the present case the civil liability sought to be recovered through the
application of Article 29 is no longer that based on or arising from the criminal
offense. There is persuasive logic in the view that, under such circumstances, the
acquittal of the accused foreclosed the civil liability based on Article 100 of the
Revised Penal Code which presupposes the existence of criminal liability or requires
a conviction of the offense charged. Divested of its penal element by such acquittal,
the causative act or omission becomes in effect a quasi-delict, hence only a civil
action based thereon may be instituted or prosecuted thereafter, which action can be
proved by mere preponderance of evidence. 28 Complementary to such considerations, Article 29
enunciates the rule, as already stated, that a civil action for damages is not precluded by an acquittal on
reasonable doubt for the same criminal act or omission.

The allegations of the complaint filed by the private respondent supports and is
constitutive of a case for a quasi-delict committed by the petitioner, thus:

3. That in the evening of July 7, 197l at about 7:00

o'clock, the plaintiff crossed Iznart Street from his
restaurant situated at 220 lznart St., Iloilo City,
Philippines, on his way to a meeting of the Cantonese
Club at Aldeguer Street, Iloilo City and while he was
standing on the middle of the street as there were
vehicles coming from the Provincial Building towards
Plazoleta Gay, Iloilo City, he was bumped and
sideswiped by Volkswagen car with plate No. B-2508 W
which was on its way from Plazoleta Gay towards the
Provincial Capitol, Iloilo City, which car was being driven
by the defendant in a reckless and negligent manner, at
an excessive rate of speed and in violation of the
provisions of the Revised Motor Vehicle (sic) as
amended, in relation to the Land Transportation and
 Traffic Code as well as in violation of existing city
ordinances, and by reason of his inexcusable lack of
precaution and failure to act with due negligence and by
failing to take into consideration (sic) his degree of
intelligence, the atmospheric conditions of the place as
well as the width, traffic, visibility and other conditions of
lznart Street; 29

Since this action is based on a quasi-delict, the failure of the respondent to reserve his right to file a separate civil
case and his intervention in the criminal case did not bar him from filing such separate civil action for
damages. 30 The Court has also heretofore ruled in Elcano vs. Hill 31 that —

... a separate civil action lies against the offender in a criminal act
whether or not he is criminally prosecuted and found guilty or acquitted,
provided that the offended party is not allowed, if he is also actually
charged criminally, to recover damages on both scores; and would be
entitled in such eventuality only to the bigger award of the two,
assuming the awards made in the two cases vary. In other words, the
extinction of civil liability referred to in Par. (c) of Sec. 3 Rule 111,
refers exclusively to civil liability founded on Article 100 of the Revised
Penal Code; whereas the civil liability for the same act considered as a
quasi-delict only and not as a crime is not extinguished even by a
declaration in the criminal case that the criminal act charged has not
happened or has not been committed by the accused . . .

The aforecited case of Lontoc vs. MD Transit & Taxi Co., Inc., et al. involved virtually
the same factual situation. The Court, in arriving at the conclusion hereinbefore
quoted, expressly declared that the failure of the therein plaintiff to reserve his right
to file a separate civil case is not fatal; that his intervention in the criminal case did
not bar him from filing a separate civil action for damages, especially considering
that the accused therein was acquitted because his guilt was not proved beyond
reasonable doubt; that the two cases were anchored on two different causes of
action, the criminal case being on a violation of Article 365 of the Revised Penal
Code while the subsequent complaint for damages was based on a quasi-delict; and
that in the judgment in the criminal case the aspect of civil liability was not passed
upon and resolved. Consequently, said civil case may proceed as authorized by
Article 29 of the Civil Code.

Our initial adverse observation on a portion of the decision of respondent court

aside, We hold that on the issues decisive of this case it did not err in sustaining the
decision a quo.

WHEREFORE, the writ prayed for is hereby DENIED and the decision of the
respondent Court of Appeals is AFFIRMED, without costs.

SO ORDERED.
 FIRST DIVISION

G.R. No. 137980 June 20, 2000

TALA REALTY SERVICES CORP., petitioner,

vs.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, respondent.

YNARES-SANTIAGO, J.:

The instant Petition presents a classic example where the application of the principle of stare
decisis comes into play.

The facts may be summarized as follows:

Sometime in 1979, respondent Banco Filipino Savings and Mortgage Bank faced a legal problem
with respect to its branch site holdings. Republic Act No. 337, otherwise known as the General
Banking Act, provides that banks may only invest in real estate up to fifty percent (50%) of their
net worth. 1 This ceiling on real estate holdings posed a bar to respondent's plans for expansion
and to address the problem, its major stockholders agreed to set up an entity to which its existing
branch sites may be unloaded. The said entity would also acquire new branch sites for it, with all
such branch sites, including those unloaded, to be leased to respondent bank. It was thus that
petitioner was organized, its name TALA being an acronym of four (4) of the major stockholders
and directors of respondent, namely: Antonio Tiu, Tomas B. Aguirre, Nancy Lim Ty and Pedro B.
Aguirre.

On August 25, 1981, pursuant to the foregoing arrangement, respondent sold eleven (11) real
estate properties housing its branch sites to petitioner, including the Davao branch site subject of
the instant suit. Immediately following the sale, petitioner leased the same branch sites to
respondent. According to respondent, petitioner was merely holding out such properties for it for
a three percent (3%) per annum add-on to their carrying cost. Respondent further claims that it
was part of their agreement that the said properties would be returned to it at its pleasure at the
same transfer price.

At present, therefore, there stand pending cases filed by respondent against petitioner for
reconveyance of all such branch sites held by petitioner on the ground that the latter is a mere
trustee of respondent.

The present Petition, however, stems from an action for ejectment wherein the issue was which
of two (2) different contracts of lease presented by each party governs them. For its part,
petitioner presents an 11-year amended lease contract allegedly executed on August 25, 1981
before Notary Public Generoso Fulgencio. On the other hand, respondent presents a 20-year
lease contract executed on the same date, August 25, 1981, but before Notary Public Jose
Dimaisip.

The lease arrangement subject of this case also covered the other branch sites held by petitioner
in other locations, i.e., Malabon, Sta. Cruz, R. Hidalgo, Parañaque, Marikina, Malolos,
Cabanatuan, Lucena, Urdaneta, La Union, Iloilo and Cotabato. Aside from the present case,
therefore, other similar cases for ejectment have been filed where, ultimately, the question of
which among the two lease contracts is valid becomes an issue.

Under the terms of the eleven-year amended contract presented by petitioner, the lease expired
on August 31, 1992. Petitioner claims that thereafter, the lease was extended on a month-to-
month basis on the condition that whatever terms and conditions are agreed upon would retroact
to September 1, 1992. The parties' negotiations failed to yield any results, whereupon petitioner
informed respondent that the rental rates shall be those it submitted to the latter, which were
based on a study by the Asian Appraisal Co., Inc., retroactive to September 1, 1992. More
particularly, rates were as follows: Two Hundred Thousand Eight Hundred Forty Pesos
(P200,840.00) monthly with a rental escalation of ten percent (10%) per year, with four months
deposit, four months advance deposit, and a Five Hundred Thousand Peso (P500,000.00)
goodwill.

Respondent refused to comply with these terms. Instead, it continued to pay rent in the old
monthly rate until March 31, 1994, when it totally ceased paying any rent. This prompted
petitioner to demand from respondent, in a letter dated April 14, 1994, payment of its accrued
rentals. Petitioner also gave notice to respondent that at the end of the month, the month-to-
month lease over the premises would no longer be renewed. This was followed by a letter, dated
May 2, 1994, demanding that respondent pay its obligations under the lease and vacate the
premises.

On March 27, 1995, petitioner instituted a Complaint for Ejectment against respondent before the
Municipal Trial Court of Davao City, docketed as Civil Case No. 2109-95. On June 5, 1995,
respondent filed its Answer. After the submission of the parties' respective Position Papers, the
court a quo rendered its Decision on July 20, 1995, 2 dismissing the Complaint on the ground of
lack of jurisdiction, after finding that the real issue, i.e., which of the two contracts of lease was
controlling, was not capable of pecuniary estimation.

On appeal, the Regional Trial Court of Davao City affirmed the decision in toto on June 13,
1996. 3 With the denial of its Motion for Reconsideration, petitioner filed a Petition for Review with
the Court of Appeals, 4 docketed as CA-G.R. SP No. 48667.

On January 12, 1999, the Court of Appeals rendered its now questioned Decision, 5 holding that
both lower courts erred in refusing to exercise jurisdiction over the case when the issue of validity
of lease contract is intertwined with the issue of possession. However, it dismissed the Petition to
maintain judicial stability and consistency, it appearing that in other similar ejectment suits
brought before the Court of Appeals, the twenty-year lease contract presented by respondent
had been upheld. Petitioner's Motion for Reconsideration was granted in that respondent was
ordered to pay unpaid rentals to petitioner. 6 Subsequently, however, on Motion for
Reconsideration of respondent, the Court of Appeals reversed itself and revoked its order for
payment of back rentals. 7

Petitioner now seeks a reversal of the Decision of the Court of Appeals upon the following
grounds —

THE HONORABLE COURT OF APPEALS ERRED IN CONSIDERING THE RULING OF

THE COURT IN CA-G.R. NO. 39104 AS THE LAW OF THE CASE BETWEEN HEREIN
PARTIES.

II

THE HONORABLE COURT BELOW ERRED IN NOT EJECTING RESPONDENT FROM

THE LEASED PREMISES. 8

In its favor, respondent argues that "only decisions of the Supreme Court establish jurisprudence
or doctrines." And that is exactly what we are faced with at present.
On February 17, 2000, the Second Division of this Court, through Mr. Justice Sabino R. De Leon,
Jr., rendered a Decision in G.R. No. 129887 between the same parties, this time involving
respondent's Urdaneta, Pangasinan branch, finding the eleven-year lease contract presented by
petitioner as a forgery and consequently upholding the validity of the twenty-year lease contract.
Resolving this identical issue, the Decision states, to wit —

Second. Petitioner Tala Realty insists that its eleven (11)-year lease contract controls.
We agree with the MTC and the RTC, however, that the eleven (11)-year contract is a
forgery because (1) Teodoro O. Arcenas, then Executive Vice-President of private
respondent Banco Filipino, denied having signed the contract; (2) the records of the
notary public who notarized the said contract, Atty. Generoso S. Fulgencio, Jr., do not
include the said document; and (3) the said contract was never submitted to the Central
Bank as required by the latter's rules and regulations (Rollo, pp. 383-384.).

Clearly, the foregoing circumstances are badges of fraud and simulation that rightly make
any court suspicious and wary of imputing any legitimacy and validity to the said lease
contract.

Executive Vice-President Arcenas of private respondent Banco Filipino testified that he

was responsible for the daily operations of said bank. He denied having signed the
eleven (11)-year contract and reasoned that it was not in the interest of Banco Filipino to
do so (Rollo, p. 384). That fact was corroborated by Josefina C. Salvador, typist of Banco
Filipino's Legal Department, who allegedly witnessed the said contract and whose initials
allegedly appear in all the pages thereof. She disowned the said marginal initials (Id., p.
385).

The Executive Judge of the RTC supervises a notary public by requiring submission to
the Office of the Clerk of Court of his monthly notarial report with copies of acknowledged
documents thereto attached. Under this procedure and requirement of the Notarial Law,
failure to submit such notarial report and copies of acknowledged documents has dire
consequences including the possible revocation of the notary's notarial commission.

The fact that the notary public who notarized petitioner Tala Realty's alleged eleven (11)-
year lease contract did not retain a copy thereof for submission to the Office of the Clerk
of Court of the proper RTC militates against the use of said document as a basis to
uphold petitioner's claim. The said alleged eleven (11)-year lease contract was not
submitted to the Central Bank whose strict documentation rules must be complied with by
banks to ensure their continued good standing. On the contrary, what was submitted to
the Central Bank was the twenty (20)-year lease contract.

Granting arguendo that private respondent Banco Filipino deliberately omitted to submit
the eleven (11)-year contract to the Central Bank, we do not consider that fact as
violative of the res inter alios acta aliis non nocet (Section 28, Rule 130, Revised Rules of
Court provides, viz.: "Sec. 28. Admission by third party — The rights of a party cannot be
prejudiced by an act, declaration or omission of another, except as hereinafter provided.";
Compania General de Tabacos v. Ganson, 13 Phil. 472, 477 [1909]) rule in evidence.
Rather, it is an indication of said contract's inexistence.

It is not the eleven (11)-year lease contract but the twenty (20)-year lease contract which
is the real and genuine contract between petitioner Tala Realty and private respondent
Banco Filipino. Considering that the twenty (20)-year lease contract is still subsisting and
will expire in 2001 yet, Banco Filipino is entitled to the possession of the subject premises
for as long as it pays the agreed rental and does not violate the other terms and
conditions thereof (Art. 1673, New Civil Code).
In light of the foregoing recent Decision of this Court, we have no option but to uphold the twenty-
year lease contract over the eleven-year contract presented by petitioner. It is the better practice
that when a court has laid down a principle of law as applicable to a certain state of facts, it will
adhere to that principle and apply it to all future cases where the facts are substantially the same.
"Stare decisis et non quieta movere." 9

That the principle of stare decisis applies in the instant case, even though the subject property is
different, may be gleaned from the pronouncement in Negros Navigation Co., Inc. vs. Court of
Appeals, 10 to wit —

Petitioner criticizes the lower court's reliance on the Mecenas case, arguing that although
this case arose out of the same incident as that involved in Mecenas, the parties are
different and trial was conducted separately. Petitioner contends that the decision in this
case should be based on the allegations and defenses pleaded and evidence adduced in
it or, in short, on the record of this case.

The contention is without merit. What petitioner contends may be true with respect to the
merits of the individual claims against petitioner but not as to the cause of the sinking of
its ship on April 22, 1980 and its liability for such accident, of which there is only one
truth. Otherwise, one would be subscribing to the sophistry: truth on one side of the
Pyrenees, falsehood on the other!

Adherence to the Mecenas case is dictated by this Court's policy of maintaining stability
in jurisprudence in accordance with the legal maxim "stare decisis et non quieta movere"
(Follow past precedents and do not disturb what has been settled.) Where, as in this
case, the same questions relating to the same event have been put forward by parties
similarly situated as in a previous case litigated and decided by a competent court, the
rule of stare decisis is a bar to any attempt to relitigate the same issue (J.M. Tuason &
Corp. v. Mariano, 85 SCRA 644 [1978]). In Woulfe v. Associated Realties
Corporation (130 N.J. Eq. 519, 23 A. 2d 399, 401 [1942]), the Supreme Court of New
Jersey held that where substantially similar cases to the pending case were presented
and applicable principles declared in prior decisions, the court was bound by the principle
of stare decisis. Similarly, in State ex rel. Tollinger v. Gill (75 Ohio App., 62 N.E. 2d 760
[1944]), it was held that under the doctrine of stare decisis a ruling is final even as to
parties who are strangers to the original proceeding and not bound by the judgment
under the res judicata doctrine. The Philadelphia court expressed itself in this wise:
"Stare decisis simply declares that, for the sake of certainty, a conclusion reached in one
case should be applied to those which follow, if the facts are substantially the same, even
though the parties may be different" (Heisler v. Thomas Colliery Co., 274 Pa. 448, 452,
118A, 394, 395 [1922]. Manogahela Street Ry, Co. v. Philadelphia Co., 350 Pa. 603, 39
A. 2d 909, 916 [1944]; In re Burtt's Estate, 353 Pa. 217, 4 A. 2d 670, 677 [1945]). Thus,
in J. M. Tuason v. Mariano, supra, this Court relied on its rulings in other cases involving
different parties in sustaining the validity of a land title on the principle of "stare decisis et
non quieta movere." (emphasis, Ours)

Here, therefore, even if the property subject of the Decision of G.R. No. 129887 is located in
Urdaneta, Pangasinan while that in the instant case is located in Davao, we can very well apply
the conclusion in G.R. No. 129887 that it is the twenty-year lease contract which is controlling
inasmuch as not only are the parties the same, but more importantly, the issue regarding its
validity is one and the same and, hence, should no longer be relitigated.

Petitioner is even barred from questioning our adherence to the ruling in G.R. No. 129887 since it
categorically declared in its Petition that the same was "likewise filed so that any favorable ruling
in said petitions (referring to G.R. Nos. 129887 and 132051) may be extended or made to apply
in the instant case." 11 Petitioner cannot now complain that the ruling in G.R. No. 129887
regarding the validity of the twenty-year lease contract is not binding in this case simply because
the same is unfavorable to it.

Coming now to the issue of whether or not respondent should be ejected for non-payment of
rentals, we do not agree with the ruling in G.R. No. 129887 that since the unpaid rentals
demanded by petitioner were based on a new rate which it unilaterally imposed and to which
respondent did not agree, there lies no ground for ejectment. In such a case, there could still be
ground for ejectment based on non-payment of rentals. The recent case of T & C Development
Corporation vs. Court of Appeals 12 is instructional on this point. It was there cautioned that —

The trial court found that private respondent had failed to pay the monthly rental of
P1,800.00 from November 1992 to February 16, 1993, despite demands to pay and to
vacate the premises made by petitioner. Even if private respondent deposited the rents in
arrears in the bank, this fact cannot alter the legal situation of private respondent since
the account was opened in private respondent's name. Clearly, there was cause for the
ejectment of private respondent. Although the increase in monthly rentals from P700.00
to P1,800.00 was in excess of 20% allowed by B.P. Blg. 877, as amended by R.A. No.
6828, what private respondent could have done was to deposit the original rent of
P700.00 either with the judicial authorities or in a bank in the name of, and with notice to,
petitioner. As this Court held in Uy v. Court of Appeals (178 SCRA 671, 676 [1989]):

The records reveal that the new rentals demanded since 1979 (P150.00 per month)
exceed that allowed by law so refusal on the part of the lessor to accept was
justified. However, what the lessee should have done was to deposit in 1979 the previous
rent. This deposit in the Bank was made only in 1984 indicating a delay of more than four
years.

From the foregoing facts, it is clear that the lessor was correct in asking for the ejectment
of the delinquent lessee. Moreover, he should be granted not only the current rentals but
also all the rentals in arrears. This is so even if the lessor himself did not appeal because
as ruled by this Court, there have been instances when substantial justice demands the
giving of the proper reliefs." (Emphasis, ours).

While advance rentals appear to have been made to be applied for the payment of rentals due
from the eleventh year to the twentieth year of the lease, to wit —

3. That upon the signing and execution of this Contract, the LESSEE shall pay the
LESSOR ONE MILLION TWENTY THOUSAND PESOS ONLY (P1,020,000.00)
Philippine Currency representing advance rental to be applied on the monthly rental for
the period from the eleventh to the twentieth year, 1

the records show that such advance rental had already been applied for rent on the property for
the period of August, 1985 to November, 1989. 14

Thus, when respondent stopped paying any rent at all beginning April, 1994, it gave petitioner
good ground for instituting ejectment proceedings. 15 We reiterate the ruling in T & C Development
Corporation, supra, that if ever petitioner took exception to the unilateral or illegal increase in
rental rate, it should not have completely stopped paying rent but should have deposited the
original rent amount with the judicial authorities or in a bank in the name of, and with notice to,
petitioner. This circumstance, i.e., respondent's failure to pay the rent at the old rate, does not
appear in G.R. No. 129887. Thus, while we are bound by the findings of this Court's Second
Division in that case under the principle of stare decisis, the fact that respondent's failure to pay
any rentals beginning April 1994, which provided ground for its ejectment from the premises,
justifies our departure from the outcome of G.R. No. 129887. In this case, we uphold petitioner's
right to eject respondent from the leased premises.
WHEREFORE, for the reasons aforestated, the instant Petition is GRANTED. The Decision in
CA-G.R. SP No. 48667 is SET ASIDE insofar as it denies the prayer for ejectment of petitioner.

Judgment is rendered ordering respondent to vacate the subject premises and to restore
possession thereof to petitioner. Respondent is also ordered to pay rent in the amount of
P20,500.00 per month computed from April, 1994 until such time as it vacates the subject
property, with interest thereon at the legal rate.

No pronouncement as to costs.

SO ORDERED. 1âw phi 1.nêt

 SECOND DIVISION

G.R. No. 134284, December 1, 2000.

AYALA CORPORATION, petitioner.

vs.
ROSA-DIANA REALTY AND DEVELOPMENT CORPORATION, respondent.

DE LEON, J.:

Before us is a petition for review on certiorari seeking the reversal of a decision rendered by the
Court of Appeals in C.A. G.R. C.V. No. 4598 entitled "Ayala Corporation vs. Rosa-Diana Realty
and Development Corporation, ‘ dismissing Ayala Corporation’s petition for lack of merit.

The facts of the case are not in dispute:

Petitioner Ayala Corporation (herein-after referred to as Ayala) was the registration owner of a
parcel of land located in Alfaro Street, Salcedo Village, Makati City with an area of 840 square
meters, more or less and covered by Transfer Certificate of Title (TCT) No. 233435 of the
Register of Deeds of Rizal.

On April 20, 1976, Ayala sold the lot to Manuel Sy married to Vilma Po and Sy Ka Kieng married
to Rosa Chan. The Deed of Sale executed between Ayala and the buyers contained Special
conditions of sale and Deed Restrictions. Among the Special Conditions of Sale were.

a. The vendee shall build on the lot and submit the building plans to the vendor
before September 30, 1976 for the latter’s approval.
b. The construction of the building shall start on or before March 30, 1977 and
completed before 1979. Before such completion, neither no the title released
even if the purchase price shall have been fully paid.
c. There shall be no resale of the property.

The Deed Restrictions, on the other hand, contained the stipulation that the gross floor area of
the building to be constructed shall not be more than five (5) times the lot area and the total
height shall not exceed forty two (42) meters. The restrictions were to expire in the year 2025.

Manuel Sy and Sy Ka Kieng failed to construct the building in violation of the Special Conditions
of Sale. Notwithstanding the violation, Manuel Sy anf Sy Ka Kieng, in April 1989, were able to
sell the lot to respondent Rosa-Diana Realty and Development Corporation (hereinafter referred
to as Rosa-Diana) with Ayala’s approval. As a consideration for Ayala to release the Certificate of
title of the subject property, Rosa Diana, on July 27, 1989 executed an Undertaking, together
with the buildings plans for a condominium project, known as "The Peak", Ayala released title to
the lot, thereby enabling Rosa-Diana to register the deed of sale in its favor and obtain Certificate
of Title No. 165720 in its name. The title carried as encumbrances the special conditions of sale
and the deed restrictions. Rosa-Diana’s building plans as approved by Ayala were ‘subject to
strict compliance of cautionary notices appearing on the building plans and to the restrictions
encumbering the Lot regarding the use and occupancy of the same.’

Thereafter, Rosa-Diana submitted to the building official of Makati another set of building plans
for "The Peak" which Rosa-Diana submitted to Ayala for approval envisioned a 24-meter high,
seven (7) storey condominium project with a gross floor area of 3,968.56 square meters, the
building plans which Rosa-Diana submitted to the building official of Makati, contemplated a
91.65 meter high, 38 storey condominium building with a gross floor area of 23,305.09 square
meters.1 Needless to say, while the first set of building plans complied with the deed restrictions,
the latter set seceded the same.

During the construction of Rosa-Diana’s condominium project, Ayala filed an action with the
Regional Trial Court (RTC) of Makati, Branch 139 for specific performance, with application for a
writ of preliminary injunction/temporary restraining order against Rosa-Diana Realty seeking to
compel the latter to comply with the contractual obligations under the deed of restrictions
annotated on its title as well as with the building plans it submitted to the latter. In the alternative,
Ayala prayed for rescission of the sale of the subject lot to Rosa-Diana Realty.

The lower court denied Ayala’s prayer for injunctive relief, thus enabling Rosa-Diana to complete
the construction of the building. Undeterred, Ayala tried to cause the annotation of a notice of lis
pendens on Rosa-Diana’s title. The Register of Deeds of Makati, however, refused registration of
the notice of lis pendens on the ground that the case pending before the trial court, being an
action for specific performance and/or rescission, is an action in personal which does not involve
the title, use or possession of the property.2 The Land Registration Authority (LRA) reversed the
ruling of the Register of Deeds saying that an action for specific performance or recession may
be classified as a proceeding of any kind in court directly affecting title to the land or the use or
occupation thereof for which a notice of lis pendens may be held proper.3 The decision of the
LRA, however, was overturned by the Court of Appeals in C.A. G.R. S.P. No. 29157. In G.R. No.
112774, We affirmed the ruling of the CA on February 16, 1994 saying.

We agree with respondent court that the notice of lis pendens is not proper in this
instance. The case before the trial court is a personal action since the cause of
action thereof arises primarily from the alleged violation of the Deed of
Restriction.

In the meantime, Ayala completed its presentation of evidence before the trial court. Rosa-Diana
filed a Demurrer to Evidence averring that Ayala failed to establish its right to the relief sought in-
as much as (a) Ayala admittedly does not enforce the deed restrictions uniformly and strictly (b)
Ayala has lost its right/power to enforce the restrictions due to its own acts and omissions; and
(c) the deed restrictions are no longer valid and effective against lot buyers in Ayala’s controlled
subdivision.

The trial court sustained Rosa-Diana’s Demurrer to Evidence saying that Ayala was guilty of
abandonment and/or estoppel due to its failure to enforce the terms of deed of restrictions and
special conditions of sale against Manuel Sy and Sy Ka Kieng. The trial court noted that
notwithstanding the violation of the special conditions of sale, Manuel Sy and Sy Ka Kieng were
able to transfer the title to Rosa-Diana with the approval of Ayala. The trial court added that
Ayala’s failure to enforce the restrictions with respect to Trafalgar, Shellhouse, Eurovilla, LPL
Plaza, Parc Regent, LPL Mansion and Leronville, which are located within Salcedo Village,
shows that Ayala discriminated against those which it wants to have the obligation enforced. The
trial court then concluded that for Ayala to discriminatory choose which obligor would be made to
follow certain conditions and which should not, did not seem fair and legal.

The Court of Appeals affirmed the ruling of the trial court saying that the "appeal is seated by the
doctrine of the law of the case in C.A. G.R. S.P. No. 29157" where it was stated that

xxx Ayala is bared from enforcing the Deed of Restriction in question pursuant to the doctrine of
waiver and estoppel. Under the terms of the deed of sale, the vendee Sy Ka Kieng assumed
faithful compliance with the special conditions of sale and with the Salcedo Village Deed of
Restrictions. One of the conditions was that a building would be constructed within one year.
However, Sy Ka Kieng failed to construct the building as required under the Deed Sale. Ayala did
nothing to enforce the terms of the contract. In fact, it even agreed to the sale of the lot by Sy Ka
Kieng in favor of petitioner Realty in 1989 or thirteen (13) years later. We, therefore, see no
justifiable reason for Ayala to attempt to enforce the terms of the conditions of sale against the
petitioner.

xxx

The Court of Appeals also cited C.A. G.R. C.V. No. 46488 entitled, "Ayala Corporation vs. Ray
Burton Development Corporation’ which relied on C.A. G.R. S.P. No. 29157 in ruling that Ayala is
barred from enforcing the deed restrictions in dispute. Upon a motion for reconsideration filed by
herein petitioner, the Court of Appeals clarified that "the citation of the decision in Ayala
Corporation vs. Ray Burton Development Corporation, Ca G.R. C.V. No. 46488, February 27,
1996, was made not because said decision is res judicata to the case at bar but rather because it
is precedential under the doctrine of stare decisis."

Upon denial of said motion for reconsideration, Ayala filed the present appeal.

Ayala contends that the pronouncement of the Court of Appeals in C.A. G.R. S.P. No. 29157 that
it is estopped from enforcing the deed restrictions is merely obiter dicta inasmuch as the only
issue raised in the aforesaid case was the propriety of a lis pendens annotation on Rosa-Diana’s
certificate of title.

Ayala avers that Rosa-Diana presented no evidence whatsoever on Ayala’s supposed waiver or
estoppel in C.A. G.R. S.P. No. 29157. Ayala likewise pointed out that at the time C.A. G.R. S.P.
No. 29157 was on appeal, the issues of the validity and continued viability of the deed of
restrictions and their enforceability by Ayala were joined and then being tried before the trial
court.

Petitioner’s assignment of errors in the present appeal may essentially be summarized as

follows:

I. The Court of Appeals acted in manner not in accord with law and the applicable
decisions of the Supreme Court in holding that the doctrine of the law of the case,
or stare decisis, operated to dismiss Ayala’s appeal.
II. The Court of Appeals erred as a matter of law and departed from the accepted
and usual course of judicial proceedings when it failed to expressly pass upon the
specific errors assigned in Ayala’s appeal.

A discussion on the distinctions between law of the case, stare decisis and obiter dicta is in
order.

The doctrine of the law of the case has certain affinities with, but is clearly distinguishable from,
the doctrines of res judicata and stare decisis, principally on the ground that the rule of the law of
the case operates only in the particular case and only as a rule of policy and not as one of
law.4 At variance with the doctrine of stare decisis, the ruling adhered to in the particular case
under the doctrine of the law of the case need not be followed as a precedent in subsequent
litigation between other parties, neither by the appellate court which made the decision followed
on a subsequent appeal in the same case, nor by any other court. The ruling covered by the
doctrine of the law of the case is adhered to in the single case where it arises, but is not carried
into other cases as a precedent.5 On the other hand, under the doctrine of stare decisis, once a
point of law has been established by the court, that point of law will, generally, be followed by the
same court and by all courts of lower rank in subsequent cases where the same legal issue is
raised.6 Stare decisis proceeds from the first principle of justice that, absent powerful
countervailing considerations, like cases ought to be decided alike.7
The Court of Appeals, in ruling against petitioner Ayala Corporation stated that the appeal is
‘sealed’ by the doctrine of the law of the case, referring to G.R. No. 112774 entitled "Ayala
Corporation, petitioner vs. Courts of Appeals, et al., respondents". The Court of Appeals likewise
made reference to C.A. G.R. C.V. No. 46488 entitled, "Ayala Corporation vs. Ray Burton
Development Corporation, Inc." in ruling against petitioner saying that it is jurisprudentially under
the doctrine of stare decisis.

It must be pointed out that the only issue that was raised before the Court of Appeals in C.A.
G.R. S.P. No. 29157 was whether or not the annotation of lis pendens is proper. The Court of
Appeals, in its decision, in fact stated "the principal issue to be resolved is: whether or not an
action for specific performance, or in the alternative, rescission of deed of sale to enforce the
deed of restrictions governing the use of property, is a real or personal action, or one that affects
title thereto and its use or occupation thereof.8

In the aforesaid decision, the Court of Appeals even justified the cancellation of the notice of lis
pendens on the ground that Ayala had ample protection should it succeed in proving its
allegations regarding the violation of the deed of restrictions, without unduly curtailing the right of
the petitioner to fully enjoy its property in the meantime that there is as yet no decision by the trial
court.9

From the foregoing, it is clear that the Court of Appeals was aware that the issue as to whether
petitioner is estopped from enforcing the deed of restrictions has yet to be resolved by the trial
court. Though it did make a pronouncement that the petitioner is estopped from enforcing the
deed of restrictions, it also mentioned at the same time that this particular issue has yet to be
resolved by the trial court. Notably, upon appeal to this Court, We have affirmed the ruling of the
Court of Appeals only as regards the particular issue of the propriety of the cancellation of the
notice of lis pendens.

We see no reason then, how the law of the case or stare decisis can be held to be applicable in
the case at bench. If at all, the pronouncement made by the Court of Appeals that petitioner
Ayala is barred from enforcing the deed of restrictions can only be considered as obiter dicta. As
earlier mentioned the only issue before the Court of Appeals at the time was the propriety of the
annotation of the lis pendens. The additional pronouncement of the Court of Appeals that Ayala
is estopped from enforcing the deed of restrictions even as it recognized that this said issue is
being tried before the trial court was not necessary to dispose of the issue as to the propriety of
the annotation of the lis pendens. A dictum is an opinion of a judge which does not embody the
resolution or determination of the court, and made without argument, or full consideration of the
point, not the proffered deliberate opinion of the judge himself.10 It is not necessarily limited to
issues essential to the decision but may also include expressions of opinion which are not
necessary to support the decision reached by the court. Mere dicta are not binding under the
doctrine of stare decisis11.

While the Court of Appeals did not err in ruling that the present petition is not barred by C.A. G.R.
C.V. No. 46488 entitled "Ayala Corporation vs. Ray Burton Development Inc." under the doctrine
of res judicata, neither, however, can the latter case be cited as presidential under the doctrine
of stare decisis. It must be pointed out that at the time the assailed decision was rendered, C.A.
G.R. C.V. No. 46488 was on appeal with this Court. Significantly, in the decision. We have
rendered in Ayala Corporation vs. Ray Burton Development Corporation12 which became final
and executory on July 5, 1999 we have clearly stated that "An examination of the decision in the
said Rosa-Diana case reveals that the sole issue raised before the appellate court was the
propriety of the lis pendens annotation. However, the appellate court went beyond the sole issue
and made factual findings bereft of any basis in the record to inappropriately rule that AYALA is
in estoppel and has waived its right to enforce the subject restrictions. Such ruling was
immaterial to the annotation of the lis pendens. The finding of estoppel was thus improper and
made in excess of jurisdiction."
Coming now to the merits of the case, petitioner avers that the Court of Appeals departed from
the usual course of judicial proceedings when it failed to expressly pass upon the specific errors
assigned in its appeal. Petitioner reiterates its contention that law and evidence do not support
the trial court’s findings that Ayala has waived its right to enforce the deed of restrictions.

We find merit in the petition.

It is basic that findings of fact of the trial court and the Court of Appeals are conclusive upon the
Supreme Court when supported by substantial evidence.13 We are constrained, however, to
review the trial court'’ findings of fact, which the Court of Appeals chose not to pass upon, in as
much as there is ample evidence on record to show that certain facts were overlooked which
would affect the disposition of the case.

In its assailed decision of February 4, 1994, the trial court, ruled in favor of respondent Rosa-
Diana Realty on the ground that Ayala had not acted fairly when it did not institute an action
against the original vendees despite the latter’s violation of the Special Conditions of Sale but
chose instead to file an action against herein respondent Rosa-Diana. The trial court added that
although the 38-storey building of Rosa-Diana is beyond the total height restriction, it was not
violative of the National Building Code. According to the trial court the construction of the 38
storey building known as "The Peak" has not been shown to have been prohibited by law and
neither is it against public policy.

It bears emphasis that as complainant, Ayala had the prerogative to initiate an action against
violators of the deed restrictions. That Rosa-Diana had acted in bad faith is manifested by the
fact that it submitted two sets of building plans, one which was in conformity with the deed
restrictions submitted to Ayala and MACEA, and the other, which exceeded the height
requirement in the deed restrictions to the Makati building official for the purpose of procuring a
building permit from the latter. Moreover, the violation of the deed restrictions committed by
respondent can hardly be denominated as a minor violation. It should be pointed out that the
original building plan which was submitted to and approved by petitioner Ayala Corporation,
envisioned a twenty four (24) meter high, seven (7) storey condominium whereas the
respondent’s building plan which was submitted to and approved by the building official of Makati
is that of a thirty eight (38) storey, 91.65 meters high, building. At present, the Peak building of
respondent which actually stands at 133.65 meters with a total gross floor area of 23,305.09
square meters, seriously violates the dimensions indicated in the building plans submitted by
Rosa-Diana to petitioner Ayala for approval in as much as the Peak building exceeds the
approved height limit by about 109 meters and the allowable gross floor area under the
applicable deed restrictions by about 19,105 square meters. Clearly, there was a gross violation
of the deed restrictions and evident bad faith by the respondent.

It may not be amiss to mention that the deed restrictions were revised in a general membership
meeting of the association of lot owners in Makati Central Business District the Makati
Commercial Estate Association, Inc. (MACEA).

Whereby direct height restrictions were abolished in lieu of floor area limits. Respondent,
however, did not vote for the approval of this revision during the General Membership meeting,
which was held on July 11, 1990 at the Manila Polo Clud Pavilion, Makati, and Metro Manila.
Hence, respondent continues to be bound by the original deed restrictions applicable to Lot 7,
Block 1 and annotated on its title to said lot. In any event, assuming arguendo that respondent
voted for the approval of direct height restrictions in lieu of floor area limits, the total floor area of
its Peak building would still be violative of the floor area limits to the extent of about 9,865 square
meters of allowable floor area under the MACEA revised restrictions.

Respondent Rosa-Diana avers that there is nothing illegal or unlawful in the building plans which
it used in the construction of the Peak condominium ‘inasmuch as it bears the imprimatur of the
building official of Makati, who is tasked to determine whether building and construction plans are
in accordance with the law, notably, the National Building Code."

Respondent Rosa-Diana, however, misses the point inasmuch as it has freely consented to be
bound by the deed restrictions when it entered into a contract of sale with spouses Manuel Sy
and Sy Ka Kieng. While respondent claims that it was under the impression that Ayala was no
longer enforcing the deed restrictions, the Undertaking14 it executed belies this same claim. In
said Undertaking, respondent agreed to ‘construct and complete the construction of the house on
said lot as required under the special condition of sale." Respondent likewise bound itself to
abide and comply with x x x the condition of the rescission of the scale by Ayala Land, Inc. on the
grounds therein stated x x x.

Contractual obligations between parties have the force of law between them and absent any
allegation that the same are contrary to law, morals, good custom, public order or public policy,
they must be complied with in good faith. Hence, Article 1159 of the New Civil Code provides.

"Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith."

Respondent Rosa-Diana insists that the trial court had already ruled that the undertaking
executed by its Chairman and President cannot validly bind Rosa-Diana and hence, it should not
be held bound by the deed restrictions.

We agree with petitioner Ayala’s observation that respondent Rosa-Diana’s special and
affirmative defenses before the trial court never mentioned any allegation that its president and
chairman were not authorized to execute the Undertaking. It was inappropriate therefore for the
trial court to rule that in the absence of any authority or confirmation from the Board of Directors
of respondent Rosa-Diana, its Chairman and the President cannot validly enter into an
undertaking relative to the construction of the building on the lot within one year from July 27,
1989 and in accordance with the deed restrictions, Curiously, while the trial court stated that it
cannot be presumed that the Chairman and the President can validly bind respondent Rosa-
Diana to enter into the aforesaid Undertaking in the absence of any authority or confirmation from
the Board of Directors, the trial court held that the ordinary presumption of regularity of business
transactions is applicable as regards the Deed of Sale which was executed by Manuel Sy and Sy
Ka Kieng and respondent Rosa-Diana. In the light of the fact that respondent Rosa-Diana never
alleged in its Answer that its president and chairman were not authorized to execute the
Undertaking, the aforesaid ruling of the trial court is without factual and legal basis and
suppressing to say the least.

The fact alone that respondent Rosa-Diana conveniently prepared two sets of building plans –
with one set which fully conformed to the Deed Restrictions and another in gross violation of the
same – should have cautioned the trial court to conclude that respondent Rose-Diana was under
the erroneous impression that the Deed Restrictions were no longer enforceable and that it never
intended to be bound by the Undertaking signed by its President and Chairman. We reiterate that
contractual obligations have the force of law between parties and unless the same is contrary to
public policy morals and good customs, they must be complied by the parties in good faith.

Petitioners, in its Petition, prays that judgement be rendered:

a. ordering Rosa-Diana Realty and Development Corporation to comply with its

contractual obligations in the construction of the Peak by removing, or closing
down and prohibiting Rosa-Diana from using, selling, leasing or otherwise
disposing, of the portions of areas thereof constructed beyond or in excess of the
approved height, as shown by the building plans submitted to, and approved by,
Ayala, including any other portion of the building constructed not in accordance
with the said building plans, during the effectivity of the Deed Restrictions;
 b. Alternatively, in the event specific performance has become impossible;

1. ordering the cancellation and recession of the April 20, 1976 Deed of Sale by
Ayala in favor of the original vendees thereof as well as the subsequent Deed of
Sale executed by such original vendees in favor of Rosa-Diana, and ordering
Rosa-Diana to return Ayala Lot 7, Block 1 of Salcedo Village;
2. ordering the cancellation of Transfer Certificate of Title No. 165720 (in the name
of Rosa-Diana) and directing the office of the Register of Deeds of Makati to
issue a new title over the lot in the name of Ayala; and
3. Ordering Rosa-Diana to pay Ayala attorney’s fees in the amount of P500, 000.00,
exemplary damages in the amount of P5, 000,000.00 and the costs of suit.

It must be noted that during the trial respondent Rosa-Diana was able to complete the
construction of The Peak as a building with a height of thirty-eight (38) floors or 133.65 meters.
Having been completed for a number of years already, it would be reasonable to assume that it
is now fully tenanted. Consequently, the remedy of specific performance by respondent is no
longer feasible. However, neither can we grant petitioner’s prayer for the cancellation and
rescission of the April 20, 1976 Deed of Sale by petitioner Ayala in favor of respondent Rosa-
Diana inasmuch as the resale of the property by the original vendees, spouses Manuel Sy and
Ka Kieng to comply with their obligation to construct a building within one year from April 20,
1976, has effectively waived its right to rescind the sale of the subject lot to the original vendees.

Faced with the same question as to the proper remedy available to petitioner in the case of
"Ayala Corporation vs. Ray Burton Development Inc., ‘ a case which is on all fours with the case
at bench, we ruled therein that the party guilty of violating the deed restrictions may only be held
alternatively liable for substitute performance of its obligation, that is, for the payment of
damages. In the aforesaid case it was observed that the Consolidated and Revised Deed
Restrictions (CRDR) imposed development charges on constructions which exceed the
estimated Gross Limits permitted under the original Deed Restrictions but which are within the
limits of the CRDR’s. 1âwphi1.nêt

The pertinent portion of the Deed of Restrictions reads:

3. DEVELOPMENT CAHRGE For building construction within the Gross Floor Area limits defined
under Paragraphs C-2.1 to C-2.4 above, but which will result in a Gross Floor Area exceeding
certain standards defined in Paragraphs C-3.1-C below, the OWNER shall pay MACEA, prior to
the construction of any new building a DEVELOPMENT CHARGE as a contribution to a trust
fund to be administered by MACEA. This trust fund shall be used to improve facilities and utilities
in Makati Central District.

3.1 The amount of the development charge that shall be due from the OWNER shall be
computed as follows:

DEVELOPMENT

CAHRGE = A x (B-C-D)

Where:

A – is equal to the a Area Assessment which shall be set at Five Hundred Pesos (P500.00) until
December 31, 1990. Each January 1st thereafter, such amount shall increase by ten percent
(10%) over the immediately preceding year; provided that beginning 1995 and at the end of
every successive five-year period thereafter, the increase in the Area Assessment shall be
reviewed and adjusted by the VENDOR to correspond to the accumulated increase in the
construction cost index during the immediately preceding five years as based on the weighted
average of wholesale price and wage indices of the National Census and Statistics Office and
the Bureau of Labor Statistics.

B – Is equal to the Gross Floor Area of the completed or expanded building in square meters.

C – is equal to the estimated Gross Floor Area permitted under the original deed restrictions,
derived by multiplying the lot area by the effective original FAR shown below for each location.

We then ruled in the aforesaid case that the development; charges are a fair measure of
compensatory damages which therein respondent Ray Burton Development Inc. is liable to Ayala
Corporation. The dispositive portion of the decision in the said case, which is squarely applicable
to the case at bar, reads as, follows:

WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated
February 27, 1996, in CA G.R. C.V. No. 46488, and its Resolution dated October 7, 1996 are
hereby REVERSED and SET ASIDE, and in lieu thereof judgement is hereby rendered finding
that:

1. The Deed Restrictions are valid and petitioner AYALA is not estopped from
enforcing them against lot owners who have not yet adopted the Consolidated
and Revised Deed Restrictions.
2. Having admitted that the Consolidated and Revised Deed Restrictions are the
applicable Deed Restrictions to Ray Burton Development Corporation, RBDC
should be, and is bound by the same.
3. Considering that Ray Burton Development Corporation’s Trafalgar plaza exceeds
the floor area limits of the Deed Restrictions, RBDC is hereby ordered to pay
development charges as computed under the provisions of the consolidated and
Revised Deed Restrictions currently in force.
4. Ray Burton Development corporation is further ordered to pay AYALA exemplary
damages in the amount of P2, 500,000.00 attorney’s fees in the amount of
P250,000.00

SO ORDERED:

There is no reason why the same rule should not be followed in the case at bar, the remedies of
specific performance and/or rescission prayed for by petitioner no longer being feasible. In
accordance with the peculiar circumstances of the case at bar, the development charges would
certainly be a fair measure of compensatory damages to petitioner Ayala.

Exemplary damages in the sum of P2, 500,000.00 as prayed for by petitioner are also in order
inasmuch as respondent Rosa-Diana was in evident bad faith when it submitted a set of building
plans in conformity with the deed restrictions to petitioner Ayala for the sole purpose of obtaining
title to the property, but only to prepare and later on submit another set of buildings plans which
are in gross violation of the Deed Restrictions. Petitioner Ayala is likewise entitled to an award of
attorney’s fees in the sum of P250, 000.00.

WHEREFORE, the assailed Decision of the Court of Appeals dated December 4, 1997 and its
Resolution dated June 19, 1998, C.A. G.R. C.V. No. 4598, are REVERSED and SET ASIDE. In
lieu thereof, judgement is rendered.

a. orderings respondent Rosa-Diana Realty and Development Corporation to pay

development charges as computed under the provisions of the consolidated and
Revised Deed Restrictions currently in force; and
b. ordering respondent Rosa-Diana Realty and Development Corporation to pay
petitioner Ayala Corporation exemplary damages in the sum of P2,500,00.00,
attorney’s fees in the sum of P250,000.00 and the costs of the suit.
 SO ORDERED.

FIRST DIVISION

G.R. No. 177190 February 23, 2011

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
HON. ERNESTO P. PAGAYATAN, in his capacity as Presiding Judge of the Regional Trial
Court, Branch 46, San Jose, Occidental Mindoro; and JOSEFINA S. LUBRICA, in her
capacity as Assignee of Federico Suntay, Respondents.

DECISION

VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 seeks to annul the August 17, 2006
Decision1 and March 27, 2007 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No.
93206, which affirmed the Order dated March 4, 20053 of the Regional Trial Court (RTC), Branch
46 in San Jose, Occidental Mindoro, in Agrarian Case No. 1390 for the fixing of just
compensation, entitled Land Bank of the Philippines v. Josefina S. Lubrica, in her capacity as
assignee of Federico Suntay, and Hon. Teodoro A. Cidro, as Provincial Agrarian Reform
Adjudicator of San Jose, Occidental Mindoro. The RTC Order affirmed the Decision dated March
21, 20034 of the Provincial Agrarian Reform Adjudicator (PARAD) of San Jose, Occidental
Mindoro in Case No. DCN-0405-0022-02, entitled Josefina S. Lubrica, in her capacity as
Assignee of Federico Suntay v. Hon. Hernani A. Braganza, in his capacity as Secretary of the
Department of Agrarian Reform, and Land Bank of the Philippines.

The Facts

On October 21, 1972, the 3,682.0286-hectare Suntay Estate, consisting of irrigated/unirrigated

rice and corn lands covered by Transfer Certificate of Title No. T-31(1326) located in the
Barangays of Gen. Emilio Aguinaldo, Sta. Lucia, and San Nicolas in Sablayan, Occidental
Mindoro, was subjected to the operation of Presidential Decree No. 27, under its Operation Land
Transfer (OLT), with the farmer-beneficiaries declared as owners of the property. However, a
300-hectare portion of the land was subjected to the Comprehensive Agrarian Reform Program
(CARP) instead of the OLT. Thus, Certificates of Landownership Award were issued to the
farmer-beneficiaries in possession of the land.5 Such application of the CARP to the 300-hectare
land was later the subject of a case before the Department of Agrarian Reform Adjudicatory
Board (DARAB), which ruled that the subject land should have been the subject of OLT instead
of CARP. The landowner admitted before the PARAD that said case was pending with this Court
and docketed as G.R. No. 108920, entitled Federico Suntay v. Court of Appeals.

Meanwhile, the owner of the land remained unpaid for the property. Thus, Josefina S. Lubrica, in
her capacity as assignee of the owner of the property, Federico Suntay, filed a Petition for
Summary Determination of Just Compensation with the PARAD, docketed as Case No. DCN-
0405-0022-2002. Thereafter, the PARAD issued its Decision dated March 21, 2003, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered:

1. Fixing the preliminary just compensation for 431.1407 hectare property at P166,150.00
per hectare or a total of P71,634,027.30.

2. Directing the Land Bank of the Philippines to immediately pay the aforestated amount
to the Petitioner;

3. Directing the DAR to immediately comply with all applicable requirements so that the
subject property may be formally distributed and turned over to the farmer beneficiaries
thereof, in accordance with the Decision of the DARAB Central in DARAB Case No.
2846.

No cost.

SO ORDERED.6

Petitioner Land Bank of the Philippines (LBP) filed a Motion for Reconsideration dated April 10,
2003 of the above decision, but the PARAD denied the motion in an Order dated December 15,
2003.7

The LBP then filed a Petition dated March 4, 2004 with the RTC docketed as Agrarian Case No.
1390, appealing the PARAD Decision. In the Petition, the LBP argued that because G.R. No.
108920 was pending with this Court in relation to the 300-hectare land subject of the instant
case, the Petition for Summary Determination of Just Compensation filed before the PARAD was
premature. The LBP argued further that the PARAD could only make an award of up to PhP 5
million only. The PARAD, therefore, could not award an amount of PhP 71,634,027.30. The LBP
also contended that it could not satisfy the demand for payment of Lubrica, considering that the
documents necessary for it to undertake a preliminary valuation of the property were still with the
Department of Agrarian Reform (DAR).

By way of answer, Lubrica filed a Motion to Deposit the Preliminary Valuation under Section
16(e) of Republic Act No. (RA) 6657 and Ad Cautelam Answer dated June 18, 2004.8 In the said
motion, Lubrica claimed that since the DAR already took possession of the disputed property, the
LBP is duty-bound to deposit the compensation determined by the PARAD in a bank accessible
to the landowner.

In an Order dated March 4, 2005, the RTC resolved Lubrica’s motion, as follows:

The foregoing considered and as prayed for by the respondent-movant The Land Compensation
Department, Land Bank of the Philipines, is hereby directed to deposit the preliminary
compensation as determined by the PARAD, in case and bonds in the total amount of Php
71,634,027.30, with the Land Bank of the Philippines, Manila, within seven (7) days from receipt
of this order, and to notify this Court of compliance within such period.9

Thus, the LBP filed an Omnibus Motion dated March 17, 2005 praying for the reconsideration of
the above order, the admission of an amended petition impleading the DAR, and the issuance of
summons to the new defendants. In the Omnibus Motion, the LBP contended:

In this AMENDED PETITION, Land Bank impleaded the DAR as respondent because DAR is the
lead agency of the government in the implementation of the agrarian reform. It is the one which is
responsible in identifying the lands to be covered by agrarian reform program, placing/identifying
the farmer beneficiaries, parcellary mapping of the land, and determining the land value covered
by PD 27/EO 228. The documents DAR prepares is placed in a folder called "claim folder" which
it forwards to Land Bank for processing and payment.
21. At present there is no claim folder prepared and submitted by DAR to Land Bank, and
therefore Land Bank has no claim folder to process and no basis to pay the landowner.10

In an Order dated December 8, 2005,11 the RTC denied the Omnibus Motion finding no
reversible error in its Order dated March 4, 2005 and denying the motion to amend the petition
for being unnecessary towards land valuation.

Thus, the LBP appealed the RTC Orders dated March 4, 2005 and December 8, 2005 to the CA
through a Petition for Certiorari dated February 13, 2006. The LBP argued that without the claim
folder from the DAR, it could not preliminarily determine the valuation of the covered lands and
process the compensation claims. Moreover, it said that the amount to be deposited under Sec.
16 of RA 6657, or the Agrarian Reform Law of 1988, is the offered purchase price of DAR for the
land contained in the notice of acquisition and not the price determined in an administrative
proceeding before the PARAD.

Afterwards, on August 17, 2006, the CA issued the assailed decision, the dispositive portion of
which reads:

WHEREFORE, premises considered, the petition is hereby DENIED DUE COURSE, and
subsequently DISMISSED for lack of merit.

SO ORDERED.12

The LBP moved for reconsideration of the CA Decision, but the CA did not reconsider it, as
stated in its Resolution dated March 27, 2007.

Hence, the LBP filed this petition.

The Issue

What is the proper amount to be deposited under Section 16 of Republic Act No. 6657? Is it the
PARAD/DARAB determined valuation or the preliminary valuation as determined by the
DAR/LBP?13

The Ruling of the Court

The petition is meritorious.

Private respondent Lubrica argues that, under the doctrines of res judicata and stare decisis, the
instant case must be dismissed in light of the decision of this Court in Lubrica v. Land Bank of the
Philippines,14 the dispositive portion of which reads:

WHEREFORE, premises considered, the petition is GRANTED. The assailed Amended Decision
dated October 27, 2005 of the Court of Appeals in CA-G.R. SP No. 77530 is REVERSED and
SET ASIDE. The Decision dated May 26, 2004 of the Court of Appeals affirming (a) the March
31, 2003 Order of the Special Agrarian Court ordering the respondent Land Bank of the
Philippines to deposit the just compensation provisionally determined by the PARAD; (b) the May
26, 2003 Resolution denying respondent’s Motion for Reconsideration; and (c) the May 27, 2003
Order directing Teresita V. Tengco, respondent’s Land Compensation Department Manager to
comply with the March 31, 2003 Order, is REINSTATED. The Regional Trial Court of San Jose,
Occidental Mindoro, Branch 46, acting as Special Agrarian Court is ORDERED to proceed with
dispatch in the trial of Agrarian Case Nos. R-1339 and R-1340, and to compute the final
valuation of the subject properties based on the aforementioned formula.

SO ORDERED. (Emphasis supplied.)

The principles of res judicata and stare decisis do not apply to the case at bar.

In Lanuza v. Court of Appeals,15 the Court discussed the principle of res judicata, to wit:

Res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing or matter
settled by judgment. The doctrine of res judicata provides that a final judgment, on the merits
rendered by a court of competent jurisdiction is conclusive as to the rights of the parties and their
privies and constitutes an absolute bar to subsequent actions involving the same claim, demand,
or cause of action. The elements of res judicata are (a) identity of parties or at least such as
representing the same interest in both actions; (b) identity of rights asserted and relief prayed for,
the relief being founded on the same facts; and (c) the identity in the two (2) particulars is such
that any judgment which may be rendered in the other action will, regardless of which party is
successful, amount to res judicata in the action under consideration. (Emphasis supplied.)

In Lubrica, the issue was as follows:

Petitioners insist that the determination of just compensation should be based on the value of the
expropriated properties at the time of payment. Respondent LBP, on the other hand, claims that
the value of the realties should be computed as of October 21, 1972 when P.D. No. 27 took
effect.16

While the Court directed that the valuation made by the PARAD be the amount to be deposited in
favor of the landowner, it was done only because the PARAD’s valuation was based on the time
the payment was made.

The issue before Us is whether the RTC acted properly in ordering the deposit or payment to the
landowner of the preliminary valuation of the land made by the PARAD. This is considering that
Sec. 16(e) of RA 6657 clearly requires the initial valuation made by the DAR and LBP be
deposited or paid to the landowner before taking possession of the latter’s property, not the
preliminary valuation made by the PARAD.

Evidently, the second element of res judicata is not present. The relief prayed for in Lubrica is
that the amount for deposit in favor of the landowner be determined on the basis of the time of
payment and not of the time of taking. But here, the prayer of the LBP is for the deposit of the
valuation of the LBP and DAR and not that of the PARAD. These are two distinct and separate
issues. Res judicata, therefore, cannot apply.

We cannot apply the principle of stare decisis to the instant case, too. The Court explained the
principle in Ting v. Velez-Ting:17

The principle of stare decisis enjoins adherence by lower courts to doctrinal rules established by
this Court in its final decisions. It is based on the principle that once a question of law has been
examined and decided, it should be deemed settled and closed to further argument. Basically, it
is a bar to any attempt to relitigate the same issues, necessary for two simple reasons: economy
and stability. In our jurisdiction, the principle is entrenched in Article 8 of the Civil Code.
(Emphasis supplied.)

To reiterate, Lubrica and the instant case have different issues. Hence, stare decisis is also
inapplicable here.

The LBP posits that under Sec. 16(e) of RA 6657, and as espoused in Land Bank of the
Philippines v. Court of Appeals,18 it is the purchase price offered by the DAR in its notice of
acquisition of the land that must be deposited in an accessible bank in the name of the
landowner before taking possession of the land, not the valuation of the PARAD.
The Court agrees with the LBP. The RTC erred when it ruled:

Under Section 16 (e) the payment of the provisional compensation determined by the PARAD in
the summary administrative proceedings under Section 16 (d) should precede the taking of the
land. In the present case, the taking of the property even preceded the mere determination of a
provisional compensation by more than 30 years.19

Sec. 16 of RA 6657 contains the procedure for the acquisition of private lands, viz:

SEC. 16. Procedure for Acquisition of Private Lands.¾For purposes of acquisition of private
lands, the following procedures shall be followed:

(a) After having identified the land, the landowners and the beneficiaries, the DAR shall
send its notice to acquire the land to the owners thereof, by personal delivery or
registered mail, and post the same in a conspicuous place in the municipal building and
barangay hall of the place where the property is located. Said notice shall contain the
offer of the DAR to pay a corresponding value in accordance with the valuation set forth
in Sections 17, 18, and other pertinent provisions hereof.

(b) Within thirty (30) days from the date of receipt of written notice by personal delivery or
registered mail, the landowner, his administrator or representative shall inform the DAR
of his acceptance or rejection of the offer.

(c) If the landowner accepts the offer of the DAR, the LBP shall pay the landowner the
purchase price of the land within thirty (30) days after he executes and delivers a deed of
transfer in favor of the Government and surrenders the Certificate of Title and other
muniments of title.

(d) In case of rejection or failure to reply, the DAR shall conduct summary administrative
proceedings to determine the compensation of the land by requiring the landowner, the
LBP and other interested parties to submit evidence as to the just compensation for the
land, within fifteen (15) days from the receipt of the notice. After the expiration of the
above period, the matter is deemed submitted for decision. The DAR shall decide the
case within thirty (30) days after it is submitted for decision.

(e) Upon receipt by the landowner of the corresponding payment or in case of rejection or
no response from the landowner, upon the deposit with an accessible bank designated
by the DAR of the compensation in cash or LBP bonds in accordance with this Act, the
DAR shall take immediate possession of the land and shall request the proper Register
of Deeds to issue a Transfer Certificate of Title (TCT) in the name of the Republic of the
Philippines. The DAR shall thereafter proceed with the redistribution of the land to the
qualified beneficiaries.

(f) Any party who disagrees with the decision may bring the matter to the court of proper
jurisdiction for final determination of just compensation. (Emphasis supplied.)

Conspicuously, there is no mention of the PARAD in the foregoing Sec. 16(e) when it speaks of
"the deposit with an accessible bank designated by the DAR of the compensation in cash or LBP
bonds in accordance with this Act." Moreover, it is only after the DAR has made its final
determination of the initial valuation of the land that the landowner may resort to the judicial
determination of the just compensation for the land. Clearly, therefore, it is the initial valuation
made by the DAR and LBP that is contained in the letter-offer to the landowner under Sec. 16(a),
said valuation of which must be deposited and released to the landowner prior to taking
possession of the property.
This too was the Court’s interpretation of the above provision in Land Bank of the Philippines v.
Heir of Trinidad S. Vda. De Arieta:20

It was thus erroneous for the CA to conclude that the provisional compensation required to be
deposited as provided in Section 16 (e) is the sum determined by the DARAB/PARAD/RARAD in
a summary administrative proceeding merely because the word "deposit" appeared for the first
time in the sub-paragraph immediately succeeding that sub-paragraph where the administrative
proceeding is mentioned (sub-paragraph d). On the contrary, sub-paragraph (e) should be
related to sub-paragraphs (a), (b) and (c) considering that the taking of possession by the State
of the private agricultural land placed under the CARP is the next step after the DAR/LBP has
complied with notice requirements which include the offer of just compensation based on the
initial valuation by LBP. To construe sub-paragraph (e) as the appellate court did would hamper
the land redistribution process because the government still has to wait for the termination of the
summary administrative proceeding before it can take possession of the lands. Contrary to the
CA’s view, the deposit of provisional compensation is made even before the summary
administrative proceeding commences, or at least simultaneously with it, once the landowner
rejects the initial valuation ("offer") by the LBP. Such deposit results from his rejection of the DAR
offer (based on the LBP’s initial valuation). Both the conduct of summary administrative
proceeding and deposit of provisional compensation follow as a consequence of the landowner’s
rejection under both the compulsory acquisition and VOS. This explains why the words "rejection
or failure to reply" and "rejection or no response from the landowner" are found in sub-
paragraphs (d) and (e). Such "rejection"/"no response from the landowner" could not possibly
refer to the award of just compensation in the summary administrative proceeding considering
that the succeeding sub-paragraph (f) states that the landowner who disagrees with the same is
granted the right to petition in court for final determination of just compensation. As it is, the CA’s
interpretation would have loosely interchanged the terms "rejected the offer" and "disagrees with
the decision", which is far from what the entire provision plainly conveys.

xxxx

Under the law, the LBP is charged with the initial responsibility of determining the value of lands
placed under land reform and the compensation to be paid for their taking. Once an expropriation
proceeding or the acquisition of private agricultural lands is commenced by the DAR, the
indispensable role of LBP begins. EO No. 405, issued on June 14, 1990, provides that the DAR
is required to make use of the determination of the land valuation and compensation by the LBP
as the latter is primarily responsible for the determination of the land valuation and
compensation. In fact, the LBP can disagree with the decision of the DAR in the determination of
just compensation, and bring the matter to the RTC designated as [Special Agrarian Court] for
final determination of just compensation.

The amount of "offer" which the DAR gives to the landowner as compensation for his land, as
mentioned in Section 16 (b) and (c), is based on the initial valuation by the LBP. This then is the
amount which may be accepted or rejected by the landowner under the procedure established in
Section 16. Perforce, such initial valuation by the LBP also becomes the basis of the deposit of
provisional compensation pending final determination of just compensation, in accordance with
sub-paragraph (e). (Emphasis supplied.)

It is clear from Sec. 16 of RA 6657 that it is the initial valuation made by the DAR and the LBP
that must be released to the landowner in order for DAR to take possession of the property.
Otherwise stated, Sec. 16 of RA 6657 does not authorize the release of the PARAD’s
determination of just compensation for the land which has not yet become final and executory.

Moreover, it bears pointing out that, pursuant to DAR Administrative Order No. 02, Series of
1996, entitled Revised Rules and Procedures Governing the Acquisition of Agricultural Lands
subject of Voluntary Offer to Sell and Compulsory Acquisition pursuant to Republic Act No. 6657,
the DAR Municipal Office (DARMO) first prepares a claim folder (CF) containing the necessary
documents for the valuation of the land. The DARMO then forwards this claim folder to the DAR
Provincial Office (DARPO) which, in turn, has the following duties: "Receives claim folder and
forwards to the DAR-LBP Pre-Processing Unit (PPU) for review/evaluation of documents.
Gathers lacking documents, if any."21 The DAR-LBP PPU then forwards the CF to the LBP-Land
Valuation and Landowner’s Compensation Office (LVLCO) which "receives and evaluates the CF
for completeness, consistency and document sufficiency. Gathers additional valuation
documents."22 Thereafter, the LBP-LVLCO "determines land valuation based on valuation inputs"
and "prepares and sends Memo of Valuation, Claim Folder Profile and Valuation Summary
(MOV-CFPVS)" to the DARPO.23 The DARPO then "sends Notice of Valuation and Acquisition to
LO [landowner] by personal delivery with proof of service or by registered mail with return card,
attaching copy of MOV-CFPVS and inviting LO’s attention to the submission of documents
required for payment of claim."24

Notably, DAR failed to prepare the claim folder which is necessary for the LBP to make a
valuation of the land to be expropriated. The proper remedy would have been to ask the DAR
and LBP to determine such initial valuation and to have the amount deposited to his account, in
accordance with Sec. 16 of RA 6657. Nevertheless, it was erroneous for private respondent to
have filed a Petition for Determination of Just Compensation with PARAD when the remedy that
she was seeking was for the deposit of the initial valuation that the DAR and LBP should have
made.

Contrary to the CA’s ruling, the RTC’s failure to distinguish between the initial valuation that is
contemplated in Sec. 16 of RA 6657 and the just compensation subject of judicial determination
is a gross and patent error that can be considered as grave abuse of discretion. Gross abuse of
discretion is defined, as follows:

A special civil action for certiorari, under Rule 65, is an independent action based on the specific
grounds therein provided and will lie only if there is no appeal or any other plain, speedy, and
adequate remedy in the ordinary course of law. A petition for certiorari will prosper only if grave
abuse of discretion is alleged and proved to exist. "Grave abuse of discretion," under Rule 65,
has a specific meaning. It is the arbitrary or despotic exercise of power due to passion, prejudice
or personal hostility; or the whimsical, arbitrary, or capricious exercise of power that amounts to
an evasion or refusal to perform a positive duty enjoined by law or to act at all in contemplation of
law. For an act to be struck down as having been done with grave abuse of discretion, the abuse
of discretion must be patent and gross.25 x x x (Emphasis supplied.)

It should also be pointed out that in the related Land Bank of the Philippines v. Pagayatan,26 the
Court had found the presiding judge of the RTC, Branch 16 in San Jose, Occidental Mindoro,
herein respondent Judge Ernesto P. Pagayatan, guilty of Gross Ignorance of the Law or
Procedure and Gross Misconduct for holding Teresita V. Tengco, Acting Chief of the Land
Compensation Department of the LBP, and Leticia Lourdes A. Camara, Chief of the Land
Compensation Department of the LBP, guilty of indirect contempt for allegedly disobeying the
very same Order dated March 4, 2005 of the RTC. In that case, Court ruled:

The partiality of respondent was highlighted when, out of his selective invocation of judicial
courtesy, he refused to resolve Leticia and Teresita’s February 14, 2007 Urgent Manifestation of
Compliance and Motion and other pending incidents in view of the pendency before the appellate
court of the LBP’s Omnibus Motion praying for, among other things, the quashal of the warrant of
arrest, whereas he had earlier found Leticia and Teresita guilty of contempt despite the pendency
before the appellate court of LBP’s motion for reconsideration of the dismissal of the petition in
CA-G.R. SP No. 93206.

Evidently, the RTC had already acted with partiality in deciding the case and with grave abuse of
discretion.
Moreover, in order to give life and breath to Sec. 16 of RA 6657, as well as DAR Administrative
Order No. 02, Series of 1996, the Court is constrained to direct the DAR and the LBP to make
the initial valuation of the subject land as of the time of its taking and to deposit the valuation in
the name of the landowner or his estate, in accordance with RA 6657 and the pertinent decisions
of this Court on the matter.1avv phi 1

The length of time that has elapsed that the landowner has not received any compensation for
the land cannot justify the release of the PARAD valuation to the landowner. Sec. 16 of RA 6657
only allows the release of the initial valuation of the DAR and the LBP to the landowner prior to
the determination by the courts of the final just compensation due. Besides, it must be stressed
that it was only sometime in 2003 that the assignee of the landowner filed a petition for
determination of just compensation with the PARAD. Clearly, the landowner slept on his right to
demand payment of the initial valuation of the land. Nevertheless, such lapse of time demands
that the DAR and the LBP act with dispatch in determining such initial valuation and to deposit it
in favor of the landowner at the soonest possible time.

WHEREFORE, the petition is GRANTED. The CA’s August 17, 2006 Decision and March 27,
2007 Resolution in CA-G.R. SP No. 93206 are hereby REVERSED and SET ASIDE. The DAR
and the LBP are hereby given three (3) months from receipt of notice that this Decision has
become final and executory, within which to determine the initial valuation of the subject lot and
to deposit its initial value to the account of private respondent Lubrica.

The PARAD Decision dated March 21, 2003 in Case No. DCN-0405-0022-02 is hereby
ANNULLED and SET ASIDE. The RTC Order dated March 4, 2005 in Agrarian Case No. 1390 is
also ANNULLED and SET ASIDE.

No costs.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

ANTONIO EDUARDO B. NACHURA* MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

FIRST DIVISION
G.R. No. 186289 June 29, 2010

ORIENTAL SHIPMANAGEMENT CO., INC., Petitioner,

vs.
ROMY B. BASTOL, Respondent.

DECISION

VELASCO, JR., J.:

The Case

In a Petition for Review1 on Certiorari under Rule 45 of the Rules of Court, petitioner Oriental
Shipmanagement Co., Inc. (OSCI) assails the Decision2 dated August 12, 2008 and the
Resolutions dated January 7, 20093 and February 6, 20094 of the Court of Appeals (CA) in CA-
G.R. SP No. 100090, which annulled and set aside the July 31, 2006 Decision5 and May 30,
2007 Resolution of the National Labor Relations Commission (NLRC), and reinstated the
January 28, 1999 Decision6 of the Labor Arbiter.

The Facts

OSCI is a domestic manning agency engaged in the recruitment and placement of Filipino
seafarers abroad. Paterco Shipping Ltd. (PSL) is a foreign shipping company which owned and
operated the vessel MV Felicita and a client of OSCI. Protection & Indemnity Club (PIC) was the
insurer of PSL covering contingencies like illness claims and benefits of seamen. Pandiman
Philippines, Inc. (PPI) is the local representative of PIC.

As agent of PSL, OSCI hired Romy B. Bastol (Bastol) as bosun on November 29, 1995
evidenced by a Contract of Employment.7 On December 5, 1995, Bastol was deployed on board
the vessel MV Felicita.

The genesis of the instant case emerged when, on February 17, 1997, while on board the vessel,
Bastol suffered chest pains and cold clammy perspiration. He was hospitalized in Algiers and
found to be suffering from anterior myocardial infarction.8 In short, he had a heart attack. He was
subsequently repatriated due to his illness on March 7, 1997.

Upon arrival here in the Philippines, on March 8, 1997, he was referred to the Jose L. Gutierrez
Clinic in Malate, Manila for a follow-up examination where Dr. Achilles J. Peralta examined and
found him to be suffering from "T/C Ischemic Heart Disease. Ant. Myocardial Infection." Dr.
Peralta issued a Medical Report9 certifying that he was "Unfit for Sea Duty." In a follow-up
medical examination on April 1, 1997, Dr. Peralta still found Bastol "Unfit for Sea Duty."10

Thus, PPI referred Bastol for medical treatment to the Metropolitan Hospital under the care of
company-designated physician Dr. Robert D. Lim, a Diplomate in Rehabilitation Medicine. On
April 10, 1997, Bastol was confined and treated at said hospital until May 7, 1997. Dr. Lim
certified that Bastol had "Coronary artery dse; S/P Ant. wall MP; Hypercholesterolemia;
Hyperglycemia."11 Thereafter, Bastol had regular laboratory and medical examinations with the
company-designated physician.

Unsatisfied with the treatment by Dr. Lim and seeking a second opinion, he went to Dr. Efren R.
Vicaldo, a Cardiologist and Congenital Heart Disease Specialist of the Philippine Heart Center,
who diagnosed him to be suffering from "Coronary Artery Disease and Extensive
Anteriorseptalmia" with the corresponding remarks: "For Disability, Impediment Grade 1
(120%)."12
Feeling abandoned and aggrieved with OSCI and PSL, Bastol, through counsel, sent a
November 27, 1997 letter on December 2, 1997 to Capt. Rosendo C. Herrera, the President of
OSCI, for a possible settlement of his claim for disability benefits.13 He attached the Medical
Certificate issued by Dr. Vicaldo. His letter did not merit a response from OSCI.

Thus, Bastol was compelled to file a Complaint14 before the Labor Arbiter on May 8, 1988 for: (a)
medical disability benefit (Grade 1) of USD 60,000; (b) illness allowance until he is deemed fit to
work again; (c) medical benefits for the treatment of his ailment; (d) moral damages of PhP
100,000; and (e) attorney’s fee of 10% of the total monetary award.

OSCI countered that Bastol is not entitled to his indemnity claims, among others, for disability
benefits on account of non-compliance with the requirements of the 1994 revised Standard
Employment Contract (SEC) by failing to properly submit himself for treatment and examination
by the company-designated physician who is the only one authorized to set the degree of
disability, i.e., disability grade. Submitting documentary evidence, OSCI maintained that Bastol
submitted to the examination and treatment by the company-designated physician only on April
25, 1997,15 May 23, 1997,16 September 16, 1997,17 and October 28, 1997,18 but he voluntarily
discontinued said treatment and did not show up for the follow-up examination on December 2,
1997. Thus, the company-designated physician was not given ample opportunity to properly treat
Bastol’s ailment and did not have sufficient chance to assess and determine his disability grade,
if any.

On January 28, 1999, Labor Arbiter Mayor, Jr. rendered a Decision based on the parties’
respective position papers19 and the documentary evidence presented in NLRC NCR OFW Case
No. 98-05-0801, the decretal portion reading:

WHEREFORE, in view of all the foregoing, respondents Oriental Shipmanagement Co., Inc. and
Paterco Shipping Ltd. are hereby ordered to jointly and severally pay complainant the sum of
US$60,000.00 or its peso equivalent at the time of payment plus the sum equivalent to ten (10%)
percent of the award or in the amount of US$6,000.00 as and by way of attorney’s fee.

SO ORDERED.20

The Labor Arbiter saw no need to conduct formal hearings. He found that Bastol was healthy
when deployed in December 1995 but subsequently contracted or suffered heart ailment during
his period of employment with OSCI and PSL. He also found that Bastol did not show any
appreciable improvement despite treatment by the company-designated physician, thus ruling
that the fact that Dr. Lim had not issued a certification as to Bastol’s condition did not negate his
claim for disability indemnity, as the determination of the degree thereof by Dr. Vicaldo of the
Philippine Heart Center sufficed.

OSCI immediately assailed the above Labor Arbiter decision before the NLRC.21 Subsequently,
on July 30, 1999, the NLRC issued a Resolution22 in NLRC NCR CA No. 019238-99, vacating
and setting aside the January 28, 1999 Decision of the Labor Arbiter and remanding the case
back to the Labor Arbiter for further proceedings, the dispositive portion ordering, thus:

WHEREFORE, for the reasons [above discussed], the decision appealed from is hereby vacated
and set aside and the records of this case Remanded to the Labor Arbiter of origin for conduct of
further approximate proceedings and to terminate the same with dispatch.

SO ORDERED.23

In remanding the case back to the Labor Arbiter, the NLRC ruled that Bastol should have
presented himself before the Labor Arbiter for the latter to properly assess his condition, and that
Dr. Lim and Dr. Vicaldo should be presented to determine with certainty the status of Bastol’s
heart ailment.
This prompted both parties to file their respective motions for reconsideration which were
rejected by the NLRC through its Resolution24 of October 29, 1999. With the remand, Labor
Arbiter Mayor, Jr. proceeded to hear the case. However, upon OSCI’s motion for inhibition, Labor
Arbiter Mayor, Jr. inhibited himself, and the case was re-raffled to Labor Arbiter Joel S. Lustria.

Subsequently, on May 10, 2001, the case was deemed submitted for decision. Thereafter, on
July 25, 2001, OSCI filed before the Labor Arbiter a Motion to Dismiss for failure to prosecute for
an unreasonable length of time and insufficiency of evidence. OSCI argued that through the July
30, 1999 Resolution, the NLRC found that Bastol failed to prove his causes of action, and despite
numerous hearings conducted before the Labor Arbiter after the remand of the case, Bastol still
failed to present further evidence.

On October 26, 2001, however, Bastol filed a Manifestation/ Compliance25 submitting the
following documents: (1) Affidavit26 of Dr. Vicaldo executed on May 10, 2001; (2) Conforme27 for
disability benefit settlement in the amount of USD 25,000; (3) Special Power of Attorney
(SPA)28 executed by Bastol in favor of Martin Jarmin, Jr. of OSCI; (4) Medical Disability
Grading29 of Bastol issued by Dr. Lim, the company-designated physician, on June 26, 1997; and
(5) Assessment and disability grading determined by Dr. H.R. Varwig,30 company-designated
physician of PPI.

Bastol’s manifestation and the documents he presented showed that prior to filing the instant
case on May 8, 1998, Bastol, assisted by counsel, entered into a settlement with PPI through
Mrs. Corazon C. Tabuena in the amount of USD 25,000 as disability indemnity. Said settlement
was based on the suggested disability grading of Grade 50–60% issued by the company-
designated physician Dr. Lim on June 26, 1997 and that of Dr. H. R. Varwig, company-
designated physician of PPI, embodied in a letter dated August 7, 1997 sent to PPI with the
assessment of Bastol’s disability at Grade 6 according to the Department of Labor and
Employment (DOLE) and the Philippine Overseas Employment Administration (POEA) Schedule
of Disability or Impediment. Bastol, assisted by counsel, signed the settlement conforme with PPI
on January 22, 1998. The settlement, however, did not materialize due to the cancellation of the
coverage by PIC of PSL’s vessel M/V Felicita.

Even after Bastol already filed the instant case on May 8, 1998, Jarmin, Jr. of OSCI instructed
him to execute a SPA to authorize them to represent him (Bastol) in the auction sale of SPL’s
vessel M/V Felicita. Forthwith, Bastol executed an SPA in favor of Jarmin, Jr. on August 12,
1998. Unfortunately, Bastol was later informed by Jarmin, Jr. that the amount they recovered
from the auction sale of PSL’s vessel was not enough to cover his disability claim. Thus, with the
collapse of the settlement agreement, Bastol was left with no option than to pursue the instant
action. And in support of his medical finding of Grade 1 (120%) disability, Dr. Vicaldo executed
an Affidavit on May 10, 2001.

OSCI vehemently objected31 to Bastol’s Manifestation/Compliance and the documentary

evidence appended thereto.

The Ruling of Labor Arbiter Lustria in

Case No. NLRC NRC OFW Case No. 95-05-0501

On January 31, 2003, Labor Arbiter Lustria rendered a Decision32 similar to that of Labor Arbiter
Mayor, Jr. The dispositive portion reads:

WHEREFORE, in view of all the foregoing, let a judgment be, as it is hereby rendered, ordering
respondents Oriental Shipmanagement Co., Inc. and Paterco Shipping, Ltd., to jointly and
severally pay complainant Romy Bastol, the sum of US$60,000.00 or its peso equivalent
prevailing at the time of payment plus the sum equivalent to ten (10%) percent of the award, or in
the amount of US$6,000.00 or its peso equivalent prevailing at the time of payment, as and by
way of attorney’s fee.
SO ORDERED.33

Labor Arbiter Lustria found that Bastol indeed suffered from a heart ailment for which he is
pursuing disability indemnity which was duly proved by the concurring diagnosis of Dr. Peralta,
Dr. Lim, Dr. Varwig and Dr. Vicaldo. He found that the settlement agreement with PPI was
pursuant to the medical findings and assessments of both company-designated physicians, Dr.
Lim and Dr. Varwig. Thus, the reiteration of the award of Labor Arbiter Mayor, Jr.

Aggrieved, OSCI promptly filed its Memorandum of Appeal34 before the NLRC.

The Ruling of the NLRC in NLR NCR CA No. 019238-99

(NLRC NCR OCW No. 98-05-0501)

On July 31, 2006, the NLRC First Division rendered its Decision reversing and setting aside
Labor Arbiter Lustria’s January 31, 2003 Decision and dismissed the instant case,
the fallo reading:

WHEREFORE, the appeal is GRANTED. The Decision of Labor Arbiter Joel S. Lustria dated
January 31, 2003 is hereby REVERSED AND SET ASIDE and a new one entered dismissing the
complaint.

SO ORDERED.35

In dismissing the case, the NLRC held that the sworn affidavit of Dr. Vicaldo and the
manifestations of Bastol could not substitute for their presence and testimony, and that of Dr.
Lim. It ruled that since not one clarificatory hearing was conducted, the sworn affidavit of Dr.
Vicaldo is reduced to mere hearsay sans a cross-examination by OSCI. Moreover, it noted that
the reliance by the LA on the certificates of Dr. Lim and Dr. Varwig is misplaced, for the disability
ratings indicated therein do not appear to be final for they were merely suggested ones. Besides,
it pointed out that the records show that Bastol was still under treatment and being re-evaluated
by Dr. Lim when the purported certificate was issued by Dr. Lim on June 26, 1997. It concluded
that the purpose for which the case was remanded had not been served and the true state of
Bastol’s health not adequately established. In fine, it ruled that even if Bastol’s disability has been
determined with certainty, still it will not serve to indemnify Bastol for his violation of the SEC
when he prematurely sought the medical help of Dr. Vicaldo, emphasizing that the 1994 revised
SEC is clear in that it is only the company-designated physician who could declare the fitness of
the seafarer to work; or establish the degree of his disability.

Undaunted, Bastol went to the CA questioning the reversal of Labor Arbiter Lustria’s Decision via
a Petition36 for Certiorari under Rule 65 of the Rules of Court, which was docketed as CA-G.R.
SP No. 100090.

The Ruling of the Court of Appeals

On August 12, 2008, the appellate court rendered the assailed Decision reversing the July 31,
2006 Decision and May 30, 2007 Resolution of the NLRC, and reinstated the January 28, 1999
Decision of Labor Arbiter Mayor, Jr. The decretal portion reads:

WHEREFORE, the premises considered, the petition is GRANTED. The Assailed Decision and
Resolution of the NLRC, First Division dated July 31, 2006 and May 30, 2007, respectively are
hereby ANNULLED and SET ASIDE for having been issued with grave abuse of discretion and
the January 28, 1999 Decision of the Labor Arbiter, REINSTATED.

SO ORDERED.37
In reinstating the Labor Arbiter’s January 28, 1999 Decision, the appellate court ruled, first, that
the NLRC gravely abused its discretion in remanding the case back to the Labor Arbiter on the
mistaken notion that the determination of Bastol’s health ailment and entitlement to disability
benefits under the 1994 revised SEC cannot be ascertained without conducting a formal trial. It
ratiocinated that Art. 221 of the Labor Code as amended by Sec. 11 of Republic Act No. (RA)
6715 in relation to Sec. 4, Rule V of the NLRC Rules of Procedure then prevailing granted the
Labor Arbiter discretion to determine the necessity for a formal hearing or investigation. In the
instant case, the CA found that the Labor Arbiter acted properly and ruled appropriately on the
evidence on record without need for formal hearings. Thus, the NLRC gravely abused its
discretion when it dismissed the instant case.

Second, relying on and applying the principles enunciated in Remigio v. National Labor Relations
Commission38 together with the application of Sec. 20 in relation to Secs. 30 and 30-A of the
SEC, the appellate court appreciated and found total and permanent disability of Bastol,
considering the undisputed fact that he could not pursue his usual work as a seaman for a period
of more than 120 days. Moreover, it noted that no less than four doctors—Dr. Peralta, Dr. Lim,
Dr. Varwig and Dr. Vicaldo—found Bastol to be suffering from a heart ailment which prevented
him from being employed at his usual job as a seafarer or seaman.

Third, the CA viewed no violation of Sec. 20, B, 3 of the SEC, for said proviso in its third
paragraph does not prohibit a second medical opinion, but, in fact, provides for the seafarer the
right to seek a second opinion and even a third opinion in cases where the seafarer’s doctor
disagrees with the assessment of the company-designated doctor. Thus, the CA ruled that the
NLRC gravely erred in construing the proviso that it is only the company-designated physician
who could declare the fitness of the seafarer to work or establish the degree of his disability. In
fine, the CA pointed out that the SEC does not serve to be a limitation but is a guarantee of
protection to overseas contract workers and must, therefore, be construed and applied fairly,
reasonably and liberally in favor of and for the benefit of seamen and their dependents.

OSCI moved for reconsideration39 of the above assailed CA Decision but the appellate court
denied the same through the first assailed January 7, 2009 Resolution. While affirming its
Decision, the CA held in its Resolution:

Finding no cogent or justifiable reason to set aside the Decision of this Court dated August 12,
2008 dismissing the instant petition, the motion for reconsideration filed by the petitioners
is hereby not given due course.

WHEREFORE, the aforementioned decision is hereby AFFIRMED and REITERATED.

SO ORDERED.40

OSCI then filed a Motion for Clarification41 considering that Bastol, the petitioner in CA-G.R. SP
No. 100090, did not file a motion for reconsideration of the assailed Decision which did not
dismiss Bastol’s petition, but instead annulled the NLRC dismissal of the instant case and
reinstated the January 28, 1999 Labor Arbiter Decision.

On February 6, 2009, the CA issued the second assailed Resolution rectifying the first assailed
Resolution of January 7, 2009.

Thus, the instant appeal before us.

The Issues

OSCI raises the following issues for our consideration:

 a. Whether or not it is contrary to the principles of res judicata for the Court of Appeals to
have ordered the reinstatement of Labor Arbiter Mayor’s Decision dated 28 January 1999
which was already vacated and set aside by the NLRC’s Resolution dated 30 July 1999
which in turn has become final and executory without respondent questioning the same.

b. Whether or not it is contrary to the legal principles of the "law of the case" for the Court
of Appeals to have disregarded the findings of the NLRC in the latter’s Resolution dated
30 July 1999 which by law is already final and executory.

c. Whether or not it was grave and reversible error on the part of the Court of Appeals to
have sanctioned Labor Arbiter Lustria’s departure from accepted procedure in admitting
into evidence the gravely belated submissions of respondent without any justifiable
reason being advanced for said belated filing.

d. Whether or not the Court of Appeals erred in recognizing in favor of respondent a

declaration of disability grade 1 by an alleged doctor who is not the company-designated
physician and whose competence was not established.

e. Whether or not the lack of a proper verification of the Position Paper and/or
Manifestation/Compliance filed by respondent before Labor Arbiter Lustria rendered said
pleadings without legal effect as an unsigned pleading provided by Sec. 4 in relation to
Sec. 3, both of Rule 7.

f. Whether or not respondent’s complaint for disability filed with the Labor Arbiter should
have been dismissed for failure to be supported by a certification of non-forum shopping
as required under Sec. 5, Rule 7 of the Rules of Court in relation to Sec. 3, rule 1 of the
NLRC Rules of Procedure.42

The foregoing issues can be summarized into three: first, on procedural grounds, whether the
Complaint filed before the Labor Arbiter ought to be dismissed for lack of certification against
forum shopping as required by the Rules and whether the verification by counsel is sufficient for
Bastol’s Position Paper and Manifestation/Compliance; second, whether the July 30, 1999 NLRC
Decision constitutes res judicata and serves as the "law of the case"; and third, whether the
belated submissions are allowed by the Rules, and the Affidavit of Dr. Vicaldo sufficient.

In the meantime, pending resolution of the instant case, Romy B. Bastol died on December 13,
2009 from his undisputed ailment of acute myocardial infarction.43

The Court’s Ruling

We deny the appeal for lack of merit.

Procedural Issues

In its bid to overturn the assailed Decision and Resolutions, OSCI foisted several procedural
issues all based on the Rules of Court, the application of which it anchors on Sec. 3, Rule I of the
NLRC Rules of Procedure then prevailing, which pertinently provided:

Section 3. Suppletory application of Rules of Court and jurisprudence. — In the absence of any
applicable provision in these Rules, and in order to effectuate the objectives of the Labor Code,
the pertinent provisions of the Revised Rules of Court of the Philippines and prevailing
jurisprudence may, in the interest of expeditious dispensation of labor justice and whenever
practicable and convenient, be applied by analogy or in a suppletory character and effect.44
OSCI argues that the Complaint of Bastol ought to have been dismissed at the outset, i.e., before
the labor arbiter level, since it is an initiatory pleading which lacked the mandatorily required
certification of non-forum shopping under Sec. 5,45 Rule 7 of the Rules of Court.

In the same vein, OSCI contends that Bastol’s Position Paper and Manifestation/Compliance
ought to have been considered as unsigned pleadings which produce no legal effect under Sec.
3,46 Rule 7 of the Rules of Court for violation of Sec. 4,47 Rule 7, requiring verification to be made
upon personal knowledge or based on authentic records, because said pleadings were verified
only by counsel, which verification is clearly not based on personal knowledge or based on
authentic records.

Pro-forma Complaint Forms Used in the RAB

The foregoing arguments are untenable. For the expeditious and inexpensive filing of complaints
by employees, the Regional Arbitration Branch (RAB) of the NLRC provides pro-forma complaint
forms. This is to facilitate the exercise and protection of employees’ rights by the convenient
assertion of their claims against employers untrammeled by procedural rules and complexities.
To comply with the certification against forum shopping requirement, a simple question embodied
in the Complaint form answerable by "yes" or "no" suffices. Employee-complainants are not even
required to have a counsel before they can file their complaint. An officer of the RAB, duly
authorized to administer oaths, is readily available to facilitate the execution of the required
subscription or jurat of the complaint.

This can be seen in the case at bar. Bastol, assisted by counsel, filled out the Complaint form,
line No. 11 of which is a question on anti-forum shopping which he answered by underlining the
word "No."48 It is thus clear that the strict application of Sec. 4, Rule 7 of the Rules of Court does
not apply to labor complaints filed before the NLRC RAB.

Verification by Counsel Sufficient

Anent the issue of verification, we have scrutinized both the Position Paper and the
Manifestation/Compliance filed by Bastol and we fail to see any violation thereof. First, there is
no law or rule requiring verification for the Manifestation/Compliance. Second, the counsel’s
verification in Bastol’s Position Paper substantially complies with the rule on verification. The
second paragraph of Sec. 4, Rule 7 of the Rules of Court provides: "A pleading is verified by an
affidavit that the affiant has read the pleading and that the allegations therein are true and correct
of his personal knowledge or based on authentic records."

On the other hand, the actual verification of counsel in Bastol’s Position Paper states: "That I am
the counsel of record for the complainant in the above-entitled case; that I caused the
preparation of the foregoing Position Paper; that I have read and understood the contents
thereof; and that I confirm that all the allegations therein contained are true and correct based on
recorded evidence."49 Appended to the position paper were Bastol’s contract of employment,
counsel’s letter to OSCI, and various medical certifications issued by several doctors with similar
findings and diagnosis of Bastol’s heart ailment. Evidently, the verification is proper as based on,
and evidenced, by the appended documents, which were not disputed save the contents of the
medical certificate issued by Dr. Vicaldo.

First Substantive Issue: Res Judicata and "Law of the Case"

OSCI strongly argues that the July 30, 1999 NLRC Decision remanding the case has become
final and executory, thus the applicability of the doctrine of res judicata and the principle of the
"law of the case" thereto. There being res judicata between the parties, the NLRC’s setting aside
of the January 28, 1999 Decision of Labor Arbiter Mayor, Jr. has become final. Thus, OSCI
maintains that the CA gravely erred in reinstating the January 28, 1999 Decision of Labor Arbiter
Mayor, Jr.
And relying on the Court’s pronouncement in Cucueco v. Court of Appeals50 on the principle of
the "law of the case," OSCI asserts that the ruling of the July 30, 1999 NLRC Decision,
remanding the case to the Labor Arbiter for clarificatory hearings requiring the personal
appearance of Bastol and the testimonies of Dr. Lim and Dr. Vicaldo, may no longer be disturbed
and must be complied with. Thus, it argues that the non-compliance thereof and the belated
submission of an alleged affidavit by Dr. Vicaldo are clear contraventions of the prevailing "law of
the case" as embodied in the final and executory July 30, 1999 NLRC Decision.

The foregoing arguments of OSCI are tenuous at best.

Doctrine of res judicata inapplicable

We agree with OSCI that the CA committed double faux pas by (1) ruling on the remand of the
case by the NLRC to the Labor Arbiter which was not the subject of Bastol’s appeal before it; and
(2) reinstating the January 28, 1999 Decision of Labor Arbiter Mayor, Jr. which had earlier been
set aside and was not the object of OSCI’s appeal to the NLRC. But these lapses do not
adversely affect the CA’s determination of the propriety of the disability indemnity awarded to
Bastol, as will be discussed here.

Suffice it to say that the July 30, 1999 NLRC Decision cannot and does not constitute res
judicata to the instant case. In Estate of the Late Encarnacion Vda. de Panlilio v.
Dizon,51 extensively quoting from the earlier case of Vda. de Cruzo v. Carriaga, Jr.,52 we
explained the nature of res judicata, as now embodied in Sec. 47, Rule 39 of the Rules of Court,
in its two concepts of "bar by former judgment" and "conclusiveness of judgment." These
concepts of the doctrine of res judicata are applicable to second actions involving substantially
the same parties, the same subject matter, and cause or causes of action.53 In the instant case,
there is no second action to speak of, involving as it is the very same action albeit the NLRC
remanded it to the Labor Arbiter for further proceedings.

Principle of "Law of the Case" inapplicable

"Law of the case" has been defined as the opinion delivered on a former appeal—it is a term
applied to an established rule that when an appellate court passes on a question and remands
the case to the lower court for further proceedings, the question there settled becomes the law of
the case upon subsequent appeal.54

OSCI’s application of the law of the case principle to the instant case, as regards the remand of
the case to the Labor Arbiter for clarificatory hearings, is misplaced. The only matter settled in
the July 30, 1999 NLRC Decision, which can be regarded as law of the case, was the undisputed
fact that Bastol was suffering from a heart ailment. As it is, the issue on the degree of disability of
Bastol’s heart ailment and his entitlement to disability indemnity, as viewed by the NLRC through
said decision, has yet to be resolved. Precisely, the NLRC remanded the case to Labor Arbiter
Mayor, Jr. "for conduct of further approximate proceedings and to terminate the same with
dispatch."55

Second Substantive Issue: Sufficiency of Sworn Affidavit

And the primordial reason why the argument of OSCI for the mandatory conduct of clarificatory
hearings requiring the personal appearance of Bastol and the testimonies of Dr. Lim and Dr.
Vicaldo is erroneous is that the law and the rules do not require such mandatory clarificatory
hearings.

Labor Arbiter Has Discretion on the Propriety of Conducting Clarificatory Hearings

While it can be argued that the NLRC through its July 30, 1999 Decision skewed to have
clarificatory hearings for the presentation of evidence, it cannot be gainsaid that with the remand
of the case, the Labor Arbiter must proceed in accordance to the Rules governing proceedings
before him provided under the prevailing Rules of Procedure of the NLRC.56

We fully agree with Bastol’s arguments that the NLRC, while having appellate jurisdiction over
decisions and resolutions of the Labor Arbiter, may not dictate to the latter how to conduct the
labor case before him. Sec. 9 of Rule V of the then prevailing NLRC Rules of Procedure, issued
on December 10, 1999, provided for the nature of proceedings before the Labor Arbiter, thus:

Section 9. Nature of Proceedings. — The proceedings before a Labor Arbiter shall be non-
litigious in nature. Subject to the requirements of due process, the technicalities of law and
procedure and the rules obtaining in the courts of law shall not strictly apply thereto. The
Labor Arbiter may avail himself of all reasonable means to ascertain the facts of the controversy
speedily, including ocular inspection and examination of well-informed persons. (Emphasis
supplied.)

And the Labor Arbiter is given full discretion to determine, motu proprio, on whether to conduct
hearings or not. Secs. 3 and 4 of Rule V of the then prevailing NLRC Rules of Procedure also
pertinently provided:

Section 3. Submission of Position Papers/Memorandum. — x x x

These verified position papers shall cover those claims and causes of action raised in the
complaint excluding those that may have been amicably settled, and shall be accompanied by all
supporting documents including the affidavits of their respective witnesses which shall
take the place of the latter’s direct testimony. x x x

Section 4. Determination of Necessity of Hearing. — Immediately after the submission by the

parties of their position papers/memorandum, the Labor Arbiter shall motu proprio determine
whether there is a need for a formal trial or hearing. At this stage, he may, at his discretion
and for the purpose of making such determination, ask clarificatory questions to further elicit facts
or information, including but not limited to the subpoena of relevant documentary evidence, if any
from any party or witness. (Emphasis supplied.)

The foregoing provisos manifestly show the non-litigious and the summary nature of the
proceedings before the Labor Arbiter, who is given full discretion whether to conduct a hearing or
not and to decide the case before him through position papers. In Iriga Telephone Co, Inc. v.
National Labor Relations Commission,57 the Court discussed the reason why it is discretionary on
the part of the Labor Arbiter, who, motu proprio, determines whether to hold a hearing or not.
Consequently, a hearing cannot be demanded by either party as a matter of right. The parties
are required to file their corresponding position papers and all the documentary evidence and
affidavits to prove their cause of action and defenses. The rationale behind this is to avoid delay
and curtail the pernicious practice of withholding of evidence. In Pepsi Cola Products Philippines,
Inc. v. Santos,58 the Court reiterated the Labor Arbiter’s discretion not to conduct formal or
clarificatory hearings which is not violative of due process, thus:

The holding of a formal hearing or trial is discretionary with the Labor Arbiter and is something
that the parties cannot demand as a matter of right. The requirements of due process are
satisfied when the parties are given the opportunity to submit position papers wherein they are
supposed to attach all the documents that would prove their claim in case it be decided that no
hearing should be conducted or was necessary.59

In sum, it can be properly said that the proceedings before the Labor Arbiter are non-litigious in
nature and the technicalities of law and procedure, and the rules obtaining in the courts of law
are not applicable. Thus, the rules allow the admission of affidavits by the Labor Arbiter as
evidence despite the fact that the affiants were not presented for cross-examination by the
counsel for the adverse party. To require otherwise would be to negate the rationale and purpose
of the summary nature of the administrative proceedings and to make mandatory the application
of the technical rules of evidence. What the other party should do is to present counter-affidavits
instead of merely objecting on the ground that the affidavits are hearsay.

The Court, however, has recognized specific instances of the impracticality for the Labor Arbiter
to follow the position paper method of disposing cases; thus, formal or clarificatory hearings must
be had in cases of termination of employment: such as, when claims are not properly ventilated
for lack of proper determination whether complainant employee was a rank-and-file or a
managerial employee,60 that the Labor Arbiter cannot rely solely on the parties’ bare allegations
when the affidavits submitted presented conflicting factual issues,61 and considering the dearth of
evidence presented by complainants the Labor Arbiter should have set the case for hearing.62

In the instant case, we find substantial evidence to support the decision of Labor Arbiter Lustria.
Substantial evidence is such amount of evidence which a reasonable mind might accept as
adequate to support a conclusion, even if other equally reasonable minds might conceivably
opine otherwise.63

Late submission of documentary evidence admissible

OSCI asserts that Labor Arbiter Lustria gravely abused his discretion in admitting as evidence
the belated submissions of Bastol through his Manifestation/Compliance filed on October 26,
2001 or five months after the instant case was deemed submitted for decision on May 10, 2001.
It considers suspicious the submission of the Affidavit of Dr. Vicaldo, as Bastol never provided
any explanation for such late submission and much less did the Labor Arbiter require Bastol for
such explanation. OSCI also rues said admission when Labor Arbiter Lustria did not act on its
Motion to Dismiss filed on July 25, 2001 on the ground of Bastol’s failure to present additional
evidence. Neither did Labor Arbiter Lustria give it an opportunity to submit contrary evidence by
setting, at the very least, another hearing. Thus, OSCI concludes that Labor Arbiter Lustria acted
wantonly, whimsically and capriciously to its grave prejudice by admitting and using the late
submission of Bastol as basis for his decision, and the CA, in turn, gravely erred in sanctioning
the Labor Arbiter by granting Bastol’s petition for certiorari.

We cannot agree.

The nature of the proceedings before the Labor Arbiter is not only non-litigious and summary, but
the Labor Arbiter is also given great leeway to resolve the case; thus, he may "avail himself of all
reasonable means to ascertain the facts of the controversy."64 The belated submission of
additional documentary evidence by Bastol after the case was already submitted for decision did
not make the proceedings before the Labor Arbiter improper. The basic reason is that technical
rules of procedure are not binding in labor cases.

In Dacut v. Court of Appeals, we held that the fact that the Labor Arbiter admitted the company’s
reply after the case had been submitted for decision did not make the proceedings before him
irregular.65 In Sasan, Sr. v. National Labor Relations Commission, we also held that the
submission of additional evidence on appeal before the NLRC is not prohibited by its New Rules
of Procedure; after all, rules of evidence prevailing in courts of law or equity are not controlling in
labor cases.66 Indeed, technical rules of evidence do not apply if the decision to grant the petition
proceeds from an examination of its sufficiency as well as a careful look into the arguments
contained in position papers and other documents.67

And neither can OSCI rely on lack of due process. The essence of due process lies simply in an
opportunity to be heard, and not that an actual hearing should always and indispensably he
held.68 Considering that OSCI indeed contested the late submission of Bastol by filing its most
vehement objection thereto on November 27, 2001, it cannot complain of not being accorded the
opportunity to be heard and much less can it demand for the setting of an actual hearing. What
OSCI could have and ought to have done was to present its own counter-affidavits. But it did not.
Documentary evidence submitted substantially proves Bastol’s claim for disability
indemnity

On the related issue of the certification of a medical doctor other than the company-designated
physician, OSCI adamantly maintains that pursuant to Sec. 20 (B) of the 1996 SEC it is only the
company-designated physician who is allowed to fix or determine the degree of disability. Thus,
according to OSCI, the Labor Arbiter and the CA gravely erred in sanctioning the Grade 1
disability impediment based on a certification issued by a medical doctor who is not the
company-designated physician.

We do not agree.

The Contract of Employment of Bastol and PSL, through its agent OSCI, stipulated thus:

1. That the Employee shall be employed on board under the following terms and
conditions:

1.1 Duration of Contract: 9+3 months upon mutual consent of the crew &
owners/agent

1.2 Position Bosun

1.3 Basic Monthly Salary US$500.00

1.4 Hours of Work 48 hours a week

1.5 Overtime F.O.T. – 30% of basic wage

1.6 Vacation Leave with Pay One month basic wage per one year service or pro-
rata

2. The terms and conditions of the revised Employment Contract for seafarers
governing the employment of all Filipino seafarers approved by the POEA/Dole on
July 14, 1989 under Memorandum Circular No. 41 series of 1989 amending
circulars relative thereto shall be strictly and faithfully observed.69 (Emphasis
supplied.)

The parties having mutually agreed to the application of the 1994 revised SEC under
Memorandum Circular No. 41, Series of 1989,70 approved by the DOLE and the POEA on July
14, 1989, it is the law between them.

The pertinent provisos of the 1994 revised SEC provided:

PART II
TERMS OF SERVICE

SECTION A. HOURS OF WORK

xxxx

SECTION C. COMPENSATION AND BENEFITS

xxxx
4. The liabilities of the employer when the seaman suffers injury or illness during the term of his
contract are as follows:

a. The employer shall continue to pay the seaman his basic wages during the
time he is on board the vessel;

b. If the injury or illness requires medical and/or dental treatment in a foreign port,
the employer shall be liable for the full cost of such medical, dental, surgical and
hospital treatment as well as board and lodging until the seaman is declared fit to
work or to be repatriated.

However, if after repatriation, the seaman still required medical attention arising
from said injury or illness, he shall be so provided at cost to the employer until
such time he is declared fit or the degree of his disability has been established by
the company-designated physician.

c. The employer shall pay the seaman his basic wages from the time he leaves
the vessel for medical treatment. After discharge from the vessel, the seaman is
entitled to one hundred percent (100%) of his basic wages until he is declared fit
to work or the degree of permanent disability has been assessed by the
company-designated physician, but in no case shall this period exceed one
hundred twenty days. For the purpose, the seaman shall submit himself to a
post employment medical examination by the company-designated physician
within three working days upon his return except when he is physically
incapacitated to do so, in which case a written notice to the agency within the
same period is deemed as compliance. Failure of the seaman to comply with
the mandatory reporting requirement shall result in his forfeiture of the
right to claim the above benefits. (Emphasis supplied.)

The foregoing provisos were substantially retained in the 1996 SEC with slight changes in Sec.
C, 4, c. which was placed under Sec. 20, B, 3, expressed as follows:

3. Upon sign-off from the vessel for medical treatment, the seafarer is entitled to sickness
allowance equivalent to his basic wage until he is declared fit to work or the degree of
permanent disability has been assessed by the company-designated physician, but in no
case shall this period exceed one hundred twenty (120) days.

For this purpose, the seafarer shall submit himself to a post-employment medical examination by
a company-designated physician within three working days upon his return except when he is
physically incapacitated to do so, in which case, a written notice to the agency within the same
period is deemed as compliance. Failure of the seafarer to comply with the mandatory
reporting requirement shall result in his forfeiture of the right to claim the above benefits.
(Emphasis supplied.)

Applying the foregoing provisos in the instant case, it is thus clear—in either the revised 1994
and the 1996 SEC—that Bastol, suffering from a heart ailment and repatriated on March 7, 1997,
must comply with two requirements: first, to submit himself to a post-employment medical
examination by a company-designated physician within three working days from his
repatriation; second, he must allow himself to be treated until he is either declared fit to work or
be assessed the degree of permanent disability by the company-designated physician. Most
importantly, the mandatory compliance of the second requirement is qualified by the limitation or
condition that in no case shall this period exceed one hundred twenty (120) days. The 120-
day limitation refers to the period of medical attention or treatment by the company-designated
physician, who must either declare the seafarer fit to work or assess the degree of permanent
disability.
The undisputed facts clearly show Bastol complying with the two mandatory requirements. In
fact, OSCI did not dispute that Bastol was referred to the Jose L. Gutierrez Clinic for follow-up
examination and treatment with attending company-designated physician Dr. Peralta, who found
him unfit for sea duty on March 8 and April 1, 1997. That Bastol submitted himself to the
treatment and medical evaluation of company-designated physicians Dr. Peralta and Dr. Lim is
undisputed. The facts further show that after Dr. Peralta found Bastol unfit for sea duty, PPI—the
local representative of PIC, the insurer of PSL—referred him (Bastol) to further medical treatment
at the Metropolitan Hospital under company-designated physician Dr. Lim. Bastol was confined
therein for almost a month, i.e., from April 10, 1997 until May 7, 1997.

Dr. Lim found Bastol to be suffering from a heart ailment certifying that he had "Coronary artery
dse; S/P Ant. wall MP; Hypercholesterolemia; Hyperglycemia." Dr. Lim regularly updated PPI on
the medical status of Bastol as shown by his letters to PPI addressed to Ms. Charry Domaycos,
Claims Executive, Crew Claims Division, on April 23, May 24, September 16 and October 28,
1997.

That Bastol suffered from a heart ailment is not disputed. In fact, as noted by the CA, no less that
four medical doctors had similar diagnosis of Bastol’s heart ailment, viz: Dr. Peralta of the Jose L.
Gutierrez Clinic, Dr. Lim of the Metropolitan Hospital, PPI company-designated physician Dr.
Varwig, and Dr. Vicaldo of the Philippine Heart Center. And that is not to count the medical
findings of Docteur Bentadj from the Centre Hospitalo-Universitaire D’Oran in Algiers as
embodied in his Rapport Medical71 issued on February 26, 1997.

In all, after his repatriation on March 7, 1997, Bastol went to see Dr. Peralta on March 8, 1997,
and until the last examination by Dr. Lim on October 28, 1997, he had been treated by these
company-designated doctors for a period spanning around seven months and 20 days or for
approximately 230 days. Clearly then, the maximum period of 120 days stipulated in the SEC for
medical treatment and the declaration or assessment by the company-designated physician of
either being fit to work or the degree of permanent disability had already lapsed. Thus, by law, if
Bastol’s condition was with the lapse of the 120 days of post-employment medical examination
and treatment, which actually lasted as the records show for at least over eight months and for
over a year by the time the complaint was filed, without his being employed at his usual job, then
it was certainly total permanent disability.

It has been held that disability is intimately related to one’s earning capacity.72 It should be
understood less on its medical significance but more on the loss of earning capacity.73 Total
disability does not mean absolute helplessness.74 In disability compensation, it is not the injury
which is compensated, but rather the incapacity to work resulting in the impairment of one’s
earning capacity.75 Thus, permanent disability is the inability of a worker to perform his job for
more than 120 days, regardless of whether or not he loses the use of any part of his
body.76 This is the case of Bastol, aptly held by the CA.

In Wallem Maritime Services, Inc. v. National Labor Relations Commission,77 we cited the
consistent application of the definition of permanent disability under Sec. 2 (b), Rule VII of the
Implementing Rules of Book V of the Labor Code as amended by PD 626, which provides:

(b) A disability is total and permanent if as a result of the injury or sickness the employee is
unable to perform any gainful occupation for a continuous period exceeding 120 days, except as
otherwise provided for in Rule X of these Rules.78

We likewise noted in Wallem Maritime Services, Inc.79 that:

The foregoing concept of permanent disability has been consistently employed by the Court in
subsequent cases involving seafarers, such as in Crystal Shipping, Inc. v. Natividad,80 in which it
was reiterated that permanent disability means the inability of a worker to perform his job
for more than 120 days. Also in Philimare, Inc. v. Suganob,81 notwithstanding the opinion of the
company-designated physician that the seafarer therein was fit to work provided he regularly
took his medication, the Court held that the latter suffered permanent disability in view of
evidence that he had been unable to work as chief cook for more than 7 months. Similarly,
in Micronesia Resources v. Cantomayor82 and United Philippine Lines, Inc. and/or Holland
America Line, Inc. v. Beseril,83 the Court declared the seafarers therein to have suffered from
a permanent disability after taking evidence into account that they had remained under
treatment for more than 120 days, and were unable to work for the same period.

Moreover, we explained in Wallem Maritime Services, Inc. that the lapse of the 120-day
threshold period is not the benchmark for considering a permanent disability due to injury or
illness, "rather, the true test of whether respondent suffered form a permanent disability is
whether there is evidence that he was unable to perform his customary work as messman for
more than 120 days."84 1avv ph!1

Applying the foregoing considerations, it is clear that Bastol was not only under the treatment of
company-designated physicians for over seven months, but it is likewise undisputed that he had
not been employed as bosun for said time. Note again upon his repatriation on March 7, 1997,
Bastol was treated by company-designated physician Dr. Peralta who found him unfit for sea
duty on March 8 and April 1, 1997. Thereafter, he was confined at the Metropolitan Hospital
under company-designated physician Dr. Lim for almost a month, i.e., from April 10, 1997 until
May 7, 1997. After confinement, Dr. Lim treated him until October 28, 1997. In all these seven
months and 20 days of treatment, Bastol was not employed at his usual job as bosun. In fact, the
Court notes that Bastol was never able to work as bosun thereafter on account of his poor health.

Thus, the declaration by Dr. Vicaldo of Bastol’s disability as Disabiltiy Impediment Grade 1
Degree (120%) constituting total permanent disability on November 28, 1997 or eight months
and 20 days (approximately 260 days) from March 8, 1997 when he submitted himself to
company-designated physician Dr. Peralta merely echoed what the law provides.

Thus, we can say that Bastol had the right to seek medical treatment other than the company-
designated physician after the lapse of the 120-day considering that said physician, within the
maximum 120-day period stipulated in the SEC neither declared him fit to work or gave the
assessment of the degree of his permanent disability which he is incumbent to do. Moreover, as
the CA aptly noted, Dr. Vicaldo’s diagnosis and assessment should be accorded greater weight
considering that he is a Cardiologist and Congenital Heart Disease Specialist of the Philippine
Heart Center. It is undisputed that Dr. Lim, the company-designated physician, is not a
cardiology expert being a Diplomate in Rehabilitation Medicine and who seemed to be not the
attending physician of Bastol in the Metropolitan Hospital as shown in his September 16, 1997
letter to PPI stating "his cardiologist opines that he has to continue taking his maintenance
medications."85

OSCI also erroneously contends that the illness of Bastol is not compensable under the SEC. It
has already been settled in Heirs of the Late R/O Reynaldo Aniban v. National Labor Relations
Commission86 that myocardial infarction as a disease or cause of death is compensable, such
being occupational. As the CA aptly noted, Bastol’s work as bosun caused, if not greatly
contributed, to his heart ailment, thus:

A job of a bosun, as the position of petitioner, is not exactly a walk in the park. A bosun manages
actual deck work schedules and assignments directed by the Chief Officer and emergency duties
as indicated in the Station Bill. He attends to maintenance and upkeep of all deck equipment,
cargo, riggings, safety equipment and helps in maintaining discipline of the deck hands. He
assists in ships emergency drills and in any event of emergency and performs other duties and
responsibilities as instructed or as necessary. He reports directly to the Chief Officer. What
makes the job more difficult, aside from exposure to fluctuating temperatures caused by variant
weather changes, the job obviously entails laborious manual tasks conducted in a moving ship,
which makes for increased work-related stress. All these factors may have exacerbated
petitioner’s heart condition. Prolonged and continued exposure to the same could probably risk
petitioner [Bastol] to another attack.87

We are not blind to the needs of our seafarers who, when getting sick in the line of duty, are
given the run around by unscrupulous employers and manning agencies. The instant case has
spanned a dozen years with the disability indemnity benefit not granted. Alas, the sad reality is
that Romy B. Bastol succumbed to his illness and died on December 13, 2009 of
acute myocardial infarction and cannot now enjoy the fruits of his long protracted struggle for
what is right and what has accrued to him.

WHEREFORE, premises considered, we DENY the instant petition for lack of merit. The
Decision dated August 12, 2008 and the Resolutions dated January 7, 2007 and February 6,
2009 of the Court of Appeals in CA-G.R. SP No. 100090 are
hereby AFFIRMED with MODIFICATION in that what is REINSTATED therein is the January
31, 2003 Decision of Labor Arbiter.

Costs against petitioner.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice

WE CONCUR:
 SECOND DIVISION

G.R. No. 174160 April 20, 2010

HACIENDA BIGAA, INC., Petitioner,

vs.
EPIFANIO V. CHAVEZ (deceased), substituted by SANTIAGO V. CHAVEZ, Respondent.

DECISION

BRION, J.:

This petition for review on certiorari1 challenges the Court of Appeals (CA) decision of May 31,
20012 and resolution of August 2, 20063 in CA-G.R. SP No. 46176, affirming in toto the
judgments of both the Municipal Trial Court (MTC) of Calatagan and the Regional Trial Court
(RTC) of Batangas dismissing the complaint for forcible entry in Civil Case No. 129.

THE FACTS

We summarize below the factual antecedents of the present case based on the records before
us.

On June 5, 1996, petitioner Hacienda Bigaa, Inc. (Hacienda Bigaa) filed with the Municipal Trial
Court (MTC) of Calatagan, Batangas a complaint4 for ejectment (forcible entry) and damages
with application for writ of preliminary injunction against respondent Epifanio V. Chavez
(Chavez), docketed as Civil Case No. 129. The complaint alleged that Chavez, by force, strategy
and/or stealth, entered on April 29, 1996 the premises of Hacienda Bigaa's properties covered by
Transfer Certificate of Title (TCT) Nos. 44695 and 56120 by cutting through a section of the
barbed wire fence surrounding the properties and destroying the lock of one of its gates,
subsequently building a house on the property, and occupying the lots without the prior consent
and against the will of Hacienda Bigaa.

The records show that the lots were originally covered by TCT No. 722 owned by
Ayala y Cia5 and/or Alfonso, Jacobo and Enrique Zobel, with an area of 9,652.583 hectares,
known as Hacienda Calatagan. Ayala and/or the Zobels expanded TCT No. 722 to cover an
additional 2,000 hectares of land consisting, among others, of beach, foreshore and bay areas,
and navigable waters (excess areas), making it appear that these excess areas are part of
Hacienda Calatagan's TCT No. 722. The Ayalas and/or the Zobels later ordered the subdivision
of the hacienda, including these excess areas, and sold the subdivided lots to third parties.6

Among the buyers or transferees of the expanded and subdivided areas was Hacienda Bigaa
which caused the issuance of titles – TCT Nos. 44695 and 56120 – under its name covering the
purchased subdivided areas. Thus, in his answer before the MTC of Calatagan, then defendant
(now respondent) Epifanio V. Chavez alleged that then plaintiff (now petitioner) Hacienda Bigaa
is the successor-in-interest of Ayala y Cia, Hacienda Calatagan, Alfonso Zobel, Jacobo Zobel
and Enrique Zobel – the original titular owners of TCT No. 722.

Portions of the same lands – foreshore lands – were leased out by the Republic, through the
Bureau of Fisheries, to qualified applicants in whose favor fishpond permits were issued. The
government-issued fishpond permits pertaining to lands covered by titles derived from TCT No.
722 of Ayala y Cia and/or the Zobels, gave rise to ownership and/or possessory disputes
between the owners of Hacienda Calatagan and their privies and/or successors-in-interest, on
the one hand, and the Republic or its lessees or fishpond permittees, on the other.
Suits were filed in various courts in Batangas for the recovery of the areas in excess of the area
originally covered by TCT No. 722, which suits ultimately reached the Supreme Court. In the
Court's 1965 decisions in Dizon v. Rodriguez7 (for quieting of title) and Republic v. Ayala y Cia
and/or Hacienda Calatagan, et al.8 (for annulment of titles), the excess areas of TCT No. 722
were categorically declared as unregisterable lands of the public domain such that any title
covering these excess areas are necessarily null and void. In these cases, the Ayalas and the
Zobels were found to be mere usurpers of public domain areas, and all subdivision titles issued
to them or their privies and covering these areas were invalidated; the wrongfully registered
public domain areas reverted to the Republic. In Dizon, the Court declared as void the Zobels'
TCT No. 2739 and its derivative titles covering subdivision Lots 1 and 49 – areas sold to the
Dizons – as areas in excess of TCT No. 722 and are properly part of the public domain. In Ayala
y Cia, the Court invalidated TCT No. 9550 and "all other subdivision titles" issued in favor of
Ayala y Cia and/or the Zobels of Hacienda Calatagan over the areas outside its private land
covered by TCT No. 722. These areas, including the lots covered by TCT No. 9550, reverted to
public dominion.9

The pronouncement in the above cases led to the Court's 1988 decision in Republic v. De los
Angeles,10 a case covering the same excess areas under a reinvindicatory claim of the Republic
aimed at recovering lands usurped by the Ayalas and the Zobels and at placing the Republic’s
lessees and fishpond permittees in possession. The Court effectively held that as owner of the
excess lands, the Republic has the right to place its lessees and fishpond permittees – among
them Zoila de Chavez, predecessor-in-interest of Chavez – in possession. The Court invalidated
TCT Nos. 3699 and 9262 for being among the "other subdivision titles" declared void and
ordered reverted to public dominion.

To return to the forcible entry case, then defendant (now respondent) Chavez alleged in his
answer before the MTC of Calatagan that his mother, Zoila de Chavez (who died intestate on
September 14, 1979) was a fishpond permittee/lessee under Fishpond Permit Nos. F-4572-0 and
F-24735 issued by the Bureau of Fisheries on April 21, 1959 and June 3, 1966, respectively; that
the areas covered by the permits are the same parcels of land which he presently occupies as
Zoila's successor-in-interest and which Hacienda Bigaa also claims.

Chavez likewise asserted that Hacienda Bigaa is the successor-in-interest of Ayala y Cia,
Hacienda Calatagan, Alfonso Zobel, Jacobo Zobel and Enrique Zobel who owned land with an
area of 9,652.583 hectares, covered by TCT No. 722 in the Registry of Deeds of Batangas; that
Ayala y Cia, the Zobels, or Hacienda Calatagan, illegally expanded the original area of TCT No.
722 by 2,000 hectares; that suits were filed to recover the expanded area; that these suits
reached the Supreme Court which declared that these excess areas are part of the public
domain and ordered their reversion to the Republic; that the Supreme Court likewise declared
certain TCTs covering the subdivision lots outside the area of TCT No. 722 and issued to
transferees as null and void; therefore, Hacienda Bigaa's titles – TCT Nos. 44695 and 56120 –
carry no probative value as they are of dubious origins and have been nullified by the Supreme
Court.11

Chavez further argued that the suit is barred by prior judgment in two prior cases – (1) Civil Case
No. 78, a suit for unlawful detainer filed by the Zobels against Chavez’s predecessor-in-interest,
Zoila de Chavez, before the then Justice of the Peace Court (now Municipal Trial Court) of
Calatagan, Batangas; and (2) Civil Case No. 653, a case of accion reinvindicatoria with prayer
for preliminary mandatory injunction filed by the Republic, Zoila de Chavez, and other lessees or
fishpond permittees of the Republic, against Enrique Zobel (Hacienda Bigaa's predecessor-in-
interest) before the then Court of First Instance of Batangas. This case reached this Court as
G.R. No. L-30240 entitled "Republic of the Philippines v. De los Angeles, Enrique Zobel, et
al."12 and was decided in 1988. Chavez asserts that the subject matter and the issues involved in
these cases are squarely similar and/or identical to the subject matter and issues involved in the
present forcible entry suit; the rulings in these two cases, therefore constitute res judicata with
respect to the present case.
The MTC held a preliminary conference where the parties stipulated and identified the issues in
the forcible entry case, viz: (1) who between the parties has a better right of possession over
the premises in question; (2) whether there is res judicata; and (3) whether the parties are
entitled to damages.13 These are essentially the same basic issues that are before us in the
present petition.

The MTC, the RTC and the CA’s Decision

The MTC rendered a decision14 dismissing Hacienda Bigaa's complaint, holding that the disputed
lots form part of the areas illegally expanded and made to appear to be covered by TCT No. 722
of Hacienda Bigaa's predecessors-in-interest (Ayala y Cia and/or the Zobels of Hacienda
Calatagan); hence, the Hacienda's title are null and void. In so ruling, the MTC applied this
Court's pronouncements in the antecedent cases of Dizon v. Rodriguez,15 Republic v. Ayala y
Cia and/or Hacienda Calatagan, Zobel, et al.,16 and Republic v. De los Angeles.17

The MTC added that since Hacienda Bigaa did not present proof to counter Chavez's claim that
the disputed lots form part of the illegally expanded areas of Hacienda Calatagan, these lots are
deemed to be the same lots litigated in the previous cases. The MTC also found prior possession
in favor of Chavez, as revealed by the antecedent cases – particularly, De los Angeles where
Chavez’s mother, Zoila de Chavez, had been ousted by the Zobels from the fishpond lots she
occupied. The MTC reasoned out that Zoila could not have been ousted from the premises had
she not been in prior possession. Since Epifanio succeeded Zoila in the possession of the
property, he inherited the latter’s prior possession and cannot now be ousted by Hacienda Bigaa.

The MTC likewise rejected Hacienda Bigaa's contention that the subdivision titles covering the
disputed lots – TCT Nos. 44695 and 56120 which were not specifically canceled by the previous
decisions of the Court – should be given probative value. The MTC ruled that the subsequent
issuance of a certificate of title in favor of the plaintiff does not vest title on it as the lands belong
to the public domain and cannot be registered.18 The MTC stressed that the titles of Hacienda
Bigaa were among the "other subdivision titles" declared void in the case of Ayala y Cia as areas
not legitimately covered by TCT No. 722 and which are therefore part of the public domain. As
ordered in the three antecedent cases of Dizon,19 Ayala y Cia,20 and De los Angeles,21 they
should revert to the Republic. The MTC opined that Hacienda Bigaa has the burden of proving
that the subject lots are not part of the illegally expanded areas; Hacienda Bigaa failed to
discharge this duty when it did not present proof to controvert Chavez's allegation that the lots
covered by Hacienda’s TCTs are among the lots litigated in the cited cases. The MTC reiterated
the following ruling of the Court in Republic v. De los Angeles:

x x x [F]or almost 23 years now execution of the 1965 final judgment in G.R. No. L-20950,
ordering the cancellation of the subdivision titles covering the expanded areas outside the private
lands of Hacienda Calatagan, is being frustrated by respondent Zobel, the Ayala and/or
Hacienda Calatagan. As a consequence, the mass usurpation of lands of public domain
consisting of portions of the territorial sea, the foreshore, beach and navigable water bordering
the Balayan Bay, Pagaspas Bay and the China Sea, still remain unabated. The efforts of Ayala
and Zobel to prevent execution of said final judgment are evident from the heretofore-mentioned
technical maneuvers they have resorted to.

Clearly, the burden of proof lies on respondent Zobel and other transferees to show that his
subdivision titles are not among the unlawful expanded subdivision titles declared null and void
by the said 1965 judgment. Respondent Zobel not only did not controvert the Republic's
assertion that his titles are embraced within the phrase "other subdivision titles" ordered
canceled but failed to show that the subdivision titles in his name cover lands within the
original area covered by Ayala's TCT No. 722 (derived from OCT No. 20) and not part of
the beach, foreshore and territorial sea belonging and ordered reverted to public
dominion in the aforesaid 1965 judgment.22 x x x (Emphasis supplied.)
Based on the above disquisition and taking into account the consistent efforts of Hacienda
Bigaa's predecessors-in-interest in "thwarting the execution" of the Court's decision in the
antecedent cases, the MTC declared that the Chavezes, as the Republic’s lessees/permittees,
should have been in possession long ago. The MTC held:

Thus, the court holds that the land now in litigation forms part of the public dominion which
properly belongs to the State. Suffice it to say that when the defendant [Epifanio V. Chavez]
entered and occupied the same on April 29, 1996, it was in representation of the State
being the successor-in-interest of Zoila de Chavez, a government fishpond permittee
and/or lessee. It should be recounted that Zoila de Chavez was in actual physical possession of
the land until she was ousted by Enrique Zobel by bulldozing and flattening the area.

The recovery of this public land in favor of the State is long overdue. Zoila de Chavez or her
successor-in-interest should have been in actual and adequate possession and
occupation thereof long time ago by virtue of the Supreme Court decisions anent the
matter in 1965 which were reiterated in 1988 had not the plaintiff and its predecessors-in-
interest succeeded in defeating the enforcement of the said decisions. To allow the plaintiff
to retain possession of these usurped public lands by ousting the government's fishpond
permittees and/or lessees such as the defendant is to further frustrate the decisions of the
Supreme Court on the matter. (Emphasis supplied.)

The MTC finally ruled that the elements of res judicata are present. The forcible entry case
before it shared an identity of parties with Civil Case No. 78 for unlawful detainer and Civil
Case No. 653 (the Delos Angeles case) of accion reinvindicatoria because all of these cases
involve the predecessors-in-interest of the present parties. In Civil Case No. 78, the plaintiff was
Enrique Zobel, predecessor of Hacienda Bigaa, and the defendant was Zoila de Chavez, mother
and predecessor of Epifanio V. Chavez. In Civil Case No. 653 which reached and was decided
by this Court in 1988 as Republic vs. De los Angeles, Zoila de Chavez was one of the plaintiffs
and Enrique Zobel was one of the defendants.23 The MTC also found identity of subject
matter because the forcible entry case shared with the previous cases the same subject matter,
i.e., the same lands adjudged by the Supreme Court as part of the public domain usurped by the
Zobels, et al. through their illegally expanded titles.24 As to identity of causes of action, the
MTC held that although the previous cases were for unlawful detainer and accion
reinvindicatoria while the case before it was for forcible entry, an identity of issues
existed because all these cases involved conflicting claims of ownership, occupation and
possession of the property which have long been settled by the Supreme Court. It recognized
that under the concept of conclusiveness of judgment, res judicata merely requires an identity of
issue, not an absolute identity of causes of action.25

On October 1, 1996, Hacienda Bigaa appealed the MTC's decision to the Regional Trial Court
(RTC) of Batangas26 which affirmed in toto the appealed decision.

On February 16, 1998, Hacienda Bigaa filed its petition for review27 with the Court of Appeals
(CA), docketed as CA-G.R. SP No. 46716. The CA in its decision of June 1, 2001 dismissed the
petition for review, totally affirming the RTC and MTC decisions.28 Hacienda Bigaa timely filed a
motion for reconsideration. However, while the motion was pending, Associate Justice Salvador
J. Valdez, Jr., the ponente of the decision sought to be reconsidered, retired from the Judiciary.
As a result, the motion "slipped into hibernation" for five years.29

The CA, on August 2, 2006, this time through Associate Justice Juan Q. Enriquez, Jr., rendered
its resolution on the motion for reconsideration.30 It denied reconsideration on the reasoning that
the grounds and arguments raised were mere iterations of those already raised in the petition for
review.

THE PETITION
Hacienda Bigaa is now before us via a petition for review under Rule 45 of the Rules of Court to
assail the CA ruling. Among other things, it argues that the CA's Resolution is patently erroneous
because the grounds and arguments raised in its motion for reconsideration were not mere
reiterations; it claims, as one of the grounds in its motion for reconsideration, that the "final
determination of the scope and extent" of the area allegedly in excess of that covered by TCT
No. 722 of Ayala y Cia – was made only after the petition for review was filed on February 16,
1998.

In its petition, Hacienda Bigaa raises the following issues of law:

I. WHETHER THE REGISTERED OWNER OF LAND IN POSSESSION OF A

TORRENS CERTIFICATE OF TITLE MUST ENJOY THE OWNERSHIP AND
POSSESSION, AMONG OTHERS, OF THE LAND COVERED THEREBY, WHERE THE
SAID TITLE HAS NOT BEEN DECLARED NULL AND VOID, SUCH THAT THE TITLE
MUST BE GIVEN PROBATIVE VALUE.

II. WHETHER IT IS PETITIONER HACIENDA BIGAA OR ZOILA DE CHAVEZ (OR HER

SUCCESSOR, RESPONDENT EPIFANIO V. CHAVEZ) WHO HAS A BETTER RIGHT
OF POSSESSION OVER THE SUBJECT LOTS.

THE COURT'S RULING

We find the petition unmeritorious.

We note at the outset that the objection on the delineation of the scope and extent of the excess
areas of TCT No. 722 came too late in the day; it is an issue that the Hacienda admits to have
raised for the first time when it sought reconsideration of the CA decision. We significantly note,
too, that this issue involves a question of fact whose determination is improper in a Rule 45
proceeding before this Court.

Thus, to our mind, the only real questions appropriate for resolution at this stage of the case are:
(1) Do the TCTs of Hacienda Bigaa have probative value in determining the issues of ownership
and possession of the disputed lots? (2) Is Chavez – as successor-in-interest of government
lessee or fishpond permittee Zoila de Chavez – entitled to possession of these lots? In these
lights, the resolution of this case hinges on the question of better title – who, between the
petitioner and the respondent, has the better right of possession of the disputed lots.

Are these issues misplaced in a forcible entry case?

To answer this, we hark back to the origins of the present case – a complaint for forcible
entry that the MTC of Calatagan, Batangas dismissed. Both the RTC and the CA subsequently
affirmed this dismissal. As a forcible entry suit, the threshold question presented is: was the prior
possession of the then plaintiff (now petitioner) Hacienda Bigaa over the disputed lots sufficiently
established to give it cause for the ejectment of then defendant (now respondent) Epifanio
Chavez?

We recall in this regard that the MTC issued a pre-trial order identifying the issues of (1) who has
the better right of possession; and (2) res judicata.31 On the issue of possession, the MTC found
the need to determine the question of title or ownership in passing upon the question of
possession after Chavez raised the issue of ownership at that level. As a general rule in forcible
entry cases, ownership or title is inconsequential; the primordial issue is possession de facto and
not possession de jure. The court, however, may tackle the issue of ownership or title, if raised, if
this issue is indispensable in resolving the issue of possession.32 Since Chavez raised the
question of ownership or title in his answer, the issue of ownership became a material
consideration in the lower court's inquiry into the character, nature and extent of the parties’
claimed possession.
The MTC tackled the issue of prior possession by taking judicial notice of our factual
determination in De los Angeles that Zobel of Hacienda Calatagan – Hacienda Bigaa's
predecessor-in-interest – had ousted Zoila de Chavez – Chavez's predecessor-in-interest – from
the lots she occupied as a holder of government-issued fishpond permits. The MTC in this regard
held –

[T]he court holds that the land now in litigation forms part of the public dominion which properly
belongs to the State. Suffice it to say that when [respondent Chavez] entered and occupied the
[premises] on April 29, 1996, it was in representation of the State being the successor-in-
interest of Zoila de Chavez, a government fishpond permittee and/or lessee. It should be
recounted that Zoila de Chavez was in actual physical possession of the land until she was
ousted by Enrique Zobel by bulldozing and flattening the area. (Emphasis supplied.)

Zoila de Chavez's ouster from the premises became the basis of the MTC’s conclusion that she
had prior possession as she could not have been ousted from the premises had she not been in
prior possession. This point was reiterated in the present petition by Chavez who died pending
the resolution of this case and has been substituted by his brother, Santiago V. Chavez.33 The
respondent’s comment before us states:34

Of note, as hereafter shown, [in the case of Republic vs. De los Angeles, G.R. No. L-30240,
March 25, 1988], the Supreme Court explicitly recognized the priority of possession of the
respondent [Chavez] over the subject lots:

[Respondent therein] Zobel had ousted Zoila de Chavez, a government fishpond

permittee, from a portion of subject fishpond lot described as Lot 33 of Plan Swo-30999
(also known as Lots 55 and 56 of subdivision TCT No. 3699) by bulldozing the same, and
[threatening] to eject fishpond permittees Zoila de Chavez, Guillermo Mercado, Deogracias
Mercado, and Rosendo Ibañez from their respective fishpond lots described as Lots 4, 5, 6, and
7, and Lots 55 and 56, of Plan Swo-30999, embraced in the void subdivision titles TCT No. 6399
and TCT No. 9262 claimed by said respondent. Thus, on August 2, 1967, the Republic filed an
Amended Complaint captioned "Accion Reinvindicatoria with Preliminary Injunction" against
respondent Zobel and the Register of Deeds of Batangas, docketed as Civil Case No. 653, for
cancellation of Zobel's void subdivision titles TCT No. 3699 and TCT No. 9262 and the
reconveyance of the same to the government; to place aforenamed fishpond permittees in
peaceful and adequate possession thereof; to require respondent Zobel to pay back rentals to
the Republic, and to enjoin said respondent from usurping and exercising further acts of
dominion and ownership over the subject land of public domain.35 (Emphasis supplied.)

This argument on the direct issue of prior possession is separate from the issue of ownership
that Chavez raised as an issue determinative of possession. The issue of ownership shifts our
determination to who, between the parties, has title and the concomitant right of possession to
the disputed lots.

The issue of possession, as it relates with the ownership of the disputed property, has been
conclusively resolved in the antecedent cases.

As framed above, the case before us inevitably brings to memory the antecedent decided cases
touching on the ownership of the vast tract of land in Calatagan, Batangas, covered by Transfer
Certificate of Title (TCT) No. 722 in the name/s of Ayala y Cia, Alfonso Zobel, Jacobo Zobel
and Enrique Zobel and/or Hacienda Calatagan – the predecessors-in-interest of petitioner
Hacienda Bigaa. We ruled in the antecedent cases of Dizon,36 Ayala y Cia,37 and De los
Angeles,38 that: (1) all expanded subdivision titles issued in the name of Ayala y Cia, the Zobels
and/or Hacienda Calatagan covering areas beyond the true extent of TCT No. 722 are null and
void because they cover areas belonging to the public domain; (2) Ayala y Cia and the Zobels of
Hacienda Calatagan are mere usurpers of these public domain areas; and that (3) these areas
must revert to the Republic. Significantly, we declared in De los Angeles that the Republic, as the
rightful owner of the expanded areas – portions of the public domain – has the right to place its
lessees and permittees (among them Zoila de Chavez) in possession of the fishpond lots whose
ownership and possession were in issue in the case.

These antecedent cases lay to rest the issues of ownership and of possession as an attribute
thereof, which we both ruled to be in favor of the Republic and its lessees or permittees.

The present case is a stark repetition of scenarios in these cases. The protagonists remain
virtually the same – with petitioner Hacienda Bigaa taking the place of its predecessors-in-
interest Ayala y Cia and/or the Zobels of Hacienda Calatagan, and respondent Epifanio V.
Chavez taking the place of his predecessor-in-interest Zoila de Chavez whose possession was
under bona fide authority from the Republic. Considering that in this case the disputed lots are
among those litigated in the antecedent cases and the issues of ownership and possession are
again in issue, the principle of res judicata inevitably must be considered and applied, if
warranted.

The doctrine of res judicata is set forth in Section 47 of Rule 39 of the Rules of Court, which in its
relevant part reads:

Sec. 47. Effect of judgments or final orders. — The effect of a judgment or final order rendered
by a court of the Philippines, having jurisdiction to pronounce the judgment or final order, may be
as follows:

xxxx

(b) In other cases, the judgment or final order is, with respect to the matter directly
adjudged or as to any other matter that could have been raised in relation thereto,
conclusive between the parties and their successors in interest by title subsequent to the
commencement of the action or special proceeding, litigating for the same thing and
under the same title and in the same capacity; and

(c) In any other litigation between the same parties or their successors in interest, that
only is deemed to have been adjudged in a former judgment or final order which appears
upon its face to have been so adjudged, or which was actually and necessarily included
therein or necessary thereto.

This provision comprehends two distinct concepts of res judicata: (1) bar by former judgment and
(2) conclusiveness of judgment. Under the first concept, res judicata absolutely bars any
subsequent action when the following requisites concur: (a) the former judgment or order was
final; (b) it adjudged the pertinent issue or issues on their merits; (c) it was rendered by a court
that had jurisdiction over the subject matter and the parties; and (d) between the first and the
second actions, there was identity of parties, of subject matter, and of causes of action.39

Where no identity of causes of action but only identity of issues exists, res judicata comes under
the second concept – i.e., under conclusiveness of judgment. Under this concept, the rule bars
the re-litigation of particular facts or issues involving the same parties even if raised under
different claims or causes of action.40 Conclusiveness of judgment finds application when a fact
or question has been squarely put in issue, judicially passed upon, and adjudged in a former suit
by a court of competent jurisdiction. The fact or question settled by final judgment or order binds
the parties to that action (and persons in privity with them or their successors-in-interest), and
continues to bind them while the judgment or order remains standing and unreversed by proper
authority on a timely motion or petition; the conclusively settled fact or question furthermore
cannot again be litigated in any future or other action between the same parties or their privies
and successors-in-interest, in the same or in any other court of concurrent jurisdiction, either for
the same or for a different cause of action. Thus, only the identities of parties and issues are
required for the operation of the principle of conclusiveness of judgment.41
While conclusiveness of judgment does not have the same barring effect as that of a bar by
former judgment that proscribes subsequent actions, the former nonetheless estops the parties
from raising in a later case the issues or points that were raised and controverted, and were
determinative of the ruling in the earlier case.42 In other words, the dictum laid down in the earlier
final judgment or order becomes conclusive and continues to be binding between the same
parties, their privies and successors-in-interest, as long as the facts on which that judgment was
predicated continue to be the facts of the case or incident before the court in a later case; the
binding effect and enforceability of that earlier dictum can no longer be re-litigated in a later case
since the issue has already been resolved and finally laid to rest in the earlier case.43

a. Identity of Parties

As already stated above, the parties to the present case are virtually the same as those in the
antecedent cases. Specifically in De los Angeles, the parties were Enrique Zobel, the
predecessor-in-interest of petitioner Hacienda Bigaa, and Zoila de Chavez, the mother and
predecessor-in-interest of Chavez.

b. Identity of Subject Matter

Hacienda Bigaa and Chavez are litigating the same properties subject of the antecedent cases
inasmuch as they claim better right of possession to parcels of land covered by subdivision titles
derived from Hacienda Calatagan's TCT No. 722 and by government-issued fishpond permits.
Specifically in De los Angeles, the Zobels and Zoila de Chavez litigated the disputed lots covered
by subdivision titles in Zobel’s name and by fishpond permits the Republic issued in favor of de
Chavez.

In ruling that the subject lots are the same lots litigated in the previously decided cases, the
courts below based their findings on De los Angeles that in turn was guided by our rulings
in Dizon and Ayala y Cia. For emphasis, we reiterate our ruling in De los Angeles: all areas the
Ayalas and/or the Zobels made to appear to be covered by TCT No. 722 are owned by the
Republic because they form part of the public domain; specifically, portions of the navigable
water or of the foreshores of the bay converted into fishponds are parts of the public domain that
cannot be sold by the Ayalas and/or the Zobels to third parties.

In his answer before the MTC, Chavez asserted that the areas covered by the fishpond permits
of Zoila de Chavez are the same parcels of land that he now occupies as Zoila's successor-in-
interest. Given the rulings in the antecedent cases that Chavez invoked, Hacienda Bigaa never
bothered to object to or to rebut this allegation to show that the presently disputed lots are not
part of the expanded areas that, apart from the specifically described titles, Ayala y Cia described
as "other subdivision titles" covering unregisterable lands of the public domain that must revert to
the Republic.44 Hacienda Bigaa should have objected as we held in De los Angeles that the onus
is on Ayala and the Zobels – Hacienda Bigaa’s predecessors-in-interest – to show that their titles
do not cover the expanded areas whose titles were declared null and void.45 We find no cogent
reason to depart from our past rulings in the antecedent cases, and from the ruling of the courts
below in this case that the lots claimed by Hacienda Bigaa are the same lots covered by our
rulings in the antecedent cases.

c. Identity of Issues

This case and the antecedent cases all involve the issue of ownership or better right of
possession. In Ayala y Cia, we affirmed an RTC decision that decreed:

WHEREFORE, judgment is hereby rendered as follows:

(a) Declaring as null and void Transfer Certificate of Title No. T-9550 (or Exhibit "24") of the
Register of Deeds of the Province of Batangas and other subdivision titles issued in favor of
Ayala y Cia and;or Hacienda de Calatagan over the areas outside its private land covered by
TCT No. 722, which, including the lots in T-9550 (lots 360, 362, 363 and 182) are
hereby reverted to public dominion.46 (Emphasis supplied, italics in the original.)

Consequently, lots and their titles derived from the Ayala’s and the Zobels’ TCT No. 722 not
shown to be within the original coverage of this title are conclusively public domain areas and
their titles will be struck down as nullities.

Thus, De los Angeles47 effectively annulled the subdivision titles disputed in the case for being
among the "other subdivision titles" declared void for covering public domain areas, and ordered
their reversion to the Republic. De los Angeles recognized, too, the right of the Republic's
lessees and public fishpond permittees (among them Zoila de Chavez, mother and
predecessor-in-interest of Chavez) to possess the fishpond lots in question because they
derive their right of possession from the Republic – the rightful owner of these lots.

We reject, based on these discussions, Hacienda Bigaa's position that there could be no res
judicata in this case because the present suit is for forcible entry while the antecedent cases
adverted were based on different causes of action – i.e., quieting of title, annulment of titles
and accion reinvindicatoria. For, res judicata, under the concept of conclusiveness of judgment,
operates even if no absolute identity of causes of action exists. Res judicata, in its
conclusiveness of judgment concept, merely requires identity of issues. We thus agree with the
uniform view of the lower courts – the MTC, RTC and the CA – on the application of res
judicata to the present case.

Hacienda Bigaa's Titles Carry No Probative Value

Hacienda Bigaa contends that the rulings in the antecedent cases on the nullity of its subdivision
titles should not apply to the present case because the titles – TCT Nos. 44695 and 56120 –
have not been specifically declared void by court order and must be given probative value. It
likewise posits that Chavez failed to introduce evidence before the MTC that the land subject
matter of the suit is the same land covered by the decision of the Supreme Court in the
antecedent cases.

We reject this contention in light of our holding in the Ayala y Cia and De los Angeles cases that
apart from those expressly litigated and annulled, all "other subdivision titles" over the excess
areas of Hacienda Calatagan must be nullified for covering unregisterable lands of the public
domain that must revert to the Republic.48 To reiterate, lots and their titles derived from the
Ayala’s and the Zobels’ TCT No. 722 not shown to be within the original coverage of this title are
conclusively public domain areas and their titles will be struck down as nullities. What could have
saved Hacienda Bigaa, as successor-in-interest of the Ayalas and the Zobels, is competent
evidence that the subdivision titles in its possession do not fall within the excess areas of TCT
No. 722 that are null and void because they are lands of the public domain. Hacienda Bigaa
however failed to discharge this burden.

Therefore, the Court of Appeals, citing Ayala y Cia and De los Angeles, correctly held that –

x x x [S]uffice it to state that as heretofore shown, the Supreme Court took cognizance of the fact
that Zoila de Chavez's fishpond permit is within the land covered by the cited decision.
Moreover, the Supreme Court has shifted the burden of proof in this regard to Zobel or Ayala y
Cia when it declared that, "Clearly, the burden of proof lies on respondent Zobel and other
transferees to show that his subdivision titles are not among the unlawful expanded
subdivision titles declared null and void by the said 1965 judgment."49 (Emphasis supplied.)

In any event, Hacienda Bigaa can never have a better right of possession over the subject lots
above that of the Republic because the lots pertain to the public domain. All lands of the public
domain are owned by the State – the Republic. Thus, all attributes of ownership, including the
right to possess and use these lands, accrue to the Republic. Granting Hacienda Bigaa the right
to possess the subject premises would be equivalent to "condoning an illegal act" by allowing it
to perpetuate an "affront and an offense against the State" – i.e., occupying and claiming as its
own lands of public dominion that are not susceptible of private ownership and
appropriation.50 Hacienda Bigaa – like its predecessors-in-interests, the Ayalas and the Zobels –
is a mere usurper in these public lands. The registration in Hacienda Bigaa's name of the
disputed lots does not give it a better right than what it had prior to the registration;51 the issuance
of the titles in its favor does not redeem it from the status of a usurper. We so held in Ayala y
Cia and we reiterated this elementary principle of law in De los Angeles.52 The registration of
lands of the public domain under the Torrens system, by itself, cannot convert public lands into
private lands.53
1avvphi1

As our last word, we find it particularly relevant to state here that we issued on October 6, 2008 a
Resolution in relation with the execution of our decision in the antecedent cases of Ayala y Cia
and De los Angeles.54 In this Resolution, we emphasized that the decision we consistently
affirmed ordered the following: (1) the nullification of all subdivision titles that were issued in
favor of Ayala y Cia and/or Hacienda Calatagan (and their successors-in-interest) over the
areas outside its private land covered by TCT No. 722; and (2) the declaration that all
lands or areas covered by these nullified titles are reverted to the public domain. This
should write finis to Hacienda Bigaa’s claim that its titles are beyond the reach of our decision in
the antecedent cases.

In sum, we find no reversible errors of law in the appealed decision of the Court of Appeals.

WHEREFORE, we DENY the present petition and AFFIRM the Court of Appeals’ decision of May
31, 2001 and resolution of August 2, 2006. We accordingly DISMISS WITH FINALITY the
complaint for forcible entry in Civil Case No. 129 before the Municipal Trial Court of Calatagan.

SO ORDERED.
 SECOND DIVISION

G.R. No. 149624 September 29, 2010

SPOUSES CONRADO ANTONIO and AVELYN ANTONIO, Petitioners,

vs.
JULITA SAYMAN VDA. DE MONJE, substituted by her heirs, namely: ANGELINA MONJE-
VILLAMOR, LUZVISMINDA MONJE-CORTEL, MARRIETA MONJE-ORTICO, LEOPOLDO
MONJE, CONCEPCION SAYMAN-MONJE, and ROLINDA MONJE-CALO, Respondents.

DECISION

PERALTA, J.:

Assailed in the present petition are the Decision1 and Resolution2 of the Court of Appeals (CA)
dated May 4, 2001 and August 3, 2001, respectively.

The facts of the case, as summarized by the CA, are as follows:

Spouses Catalino Manguiob and Andrea Pansaon were the original owners of the subject parcel
of coconut land, consisting of 15,903 square meters, particularly known as Lot No. 1 covered by
Original Certificate of Title No. 1020 of the Register of Deeds of Davao.

On 02 September 1962, Andrea Pansaon who survived her husband Catalino Manguiob,
together with some other heirs, sold to Macedonio Monje Seven Thousand Five Hundred (7,500)
square meters only of the aforesaid property. The said deed of absolute sale was duly notarized
by Notary Public Ricardo Reyes and entered in his notarial book as Doc. No. 48; page 10; Book
No. 5; Series of 1962.

Macedonio Monje immediately took possession thereof and constructed a house worth
₱30,000.00.

On 16 January 1967, the heirs of spouses Catalino Manguiob and Andrea Pansaon who also
died, sold the subject property which was already sold to Macedonio Monje in 1962, in favor of
Nicanor Manguiob and Carolina V. Manguiob.

Immediately thereafter, spouses Nicanor Manguiob and Carolina V. Manguiob had executed an
absolute deed of sale in favor of the former’s sister-in-law, Avelyn B. Antonio, the entire Lot No.
[1] consisting of 15,903 square meters. The sale was entered in the notarial book of Notary
Public Juanito T. Hernandez as Doc. No. 645; Page 31; Book 5, Series of 1967.

Macedonio Monje knew it only on 11 August 1967 when he received a letter from Avelyn B.
Antonio, informing him that she is now the registered owner of the subject property under a new
Transfer Certificate of Title No. TCT No. T-9643.

Aggrieved, Macedonio Monje filed on 12 October 1967 before the CFI of Baganga, Davao
Oriental, a complaint for the annulment of the deed of sale between the heirs of Catalino
Manguiob and Carolina Balanay/Nicanor Manguiob, as well as the subsequent deed of absolute
sale by the latter in favor [of] Avelyn Antonio and the cancellation of TCT No. T-9643, docketed
as Civil Case No. 007-125.

On 27 August 1981, the aforesaid court rendered a decision the decretal portion thereof reads as
follows:
WHEREFORE, judgment is hereby rendered, declaring the 2nd and 3rd deeds of sale of the
property in question null and void and transfer certificate of title No. 9643 likewise null and void;
ordering the defendants jointly and solidarily to pay the plaintiff moral damages of ₱30,000.00
and actual damages of ₱20,000.00, with legal interest until the amount is fully paid; and to pay
the costs.

Let a copy of this decision be served on the Register of Deeds at Mati, Davao Oriental, for
appropriate action.

SO ORDERED.

Plaintiff-appellants, Spouses Antonio appealed the above-mentioned decision all the way to the
Supreme Court. On 07 December 1992, the Supreme Court in G.R. No. 69696, rendered a
decision, the pertinent portion of which states as follows:

We find that while the principle of res judicata is better disregarded if its application would involve
the sacrifice of justice to technicality; to so disregard it now and reopen the case would further
delay its disposition. However, the lower court should take note of its erroneous order to deliver
to Monje an area larger than what he bought from the heirs of Manguiob and claimed in the
action he had filed, in the eventual execution of its decision. In the same way that the power of
the court in the execution of its judgment extends only over properties belonging to the judgment
debtor, the court below may not, in the execution of its decision of August 27, 1981, deliver to
Monje the entire area covered by TCT No. T-9643 as it is more than double that of the property
he had bought. (pp. 15-16, rollo).

Prescinding from the decision of the Supreme Court, plaintiff-appellants [herein petitioners] filed
a case for a sum of money, accounting of the proceeds of the copra, damages and attorney’s
fees against herein defendant-appellees, docketed as Civil Case No. 506 before the Regional
Trial Court of Baganga, Davao Oriental, Branch 7.

In the aforesaid complaint, plaintiffs-appellants alleged, among others that:

8. That the late Macedonio Monje has been in possession of this 15,903 square meters coconut
land covered by TCT No. T-9643 since 1967 which possession and enjoyment thereof has been
continued by the herein defendants when Monje died;

9. That as earlier pointed out, Monje is only entitled to 7,500 square meters of this subject
property, hence, plaintiffs were deprived of the possession and proceeds of the copra of their
property consisting of 8,403 square meters since 1967 (the year plaintiffs became the owner of
this property) continuously up to the present.

10. That the possession by Macedonio Monje and the defendants of the whole 15,903 square
meters of the aforesaid land and their appropriation of the proceeds of the copra was made in
bad faith for they know very well that they are only entitled to 7,500 square meters portion of the
land which is the only area they bought from the heirs of Catalino Manguiob. (Please refer to
Annex 'B')

xxxx

12. That since 1967 up to the present or a period of 27 years, Monje and the defendants
appropriated unto themselves the proceeds of the copra of the land belonging to the plaintiffs
(8,403 square meters area) in the estimated net amount of ₱420,714.00);

xxxx
Defendants-appellees [herein respondents], instead of filing an answer to the aforesaid complaint
had opted to file a motion to dismiss on the grounds of res judicata and violation of Supreme
Court Circular No. 04-94 on non-forum shopping. x x x3

On December 16, 1994, the Regional Trial Court (RTC) issued an Order dismissing herein
petitioners' complaint on the ground of res judicata.4

Aggrieved by the Order of the RTC, petitioners filed an appeal with the CA. Despite due notice,
respondents failed to file their appellees' brief. Consequently, the CA deemed the case submitted
for decision without the said brief.

On May 4, 2001, the CA rendered its presently assailed Decision affirming the judgment of the
RTC and dismissing the appeal of herein petitioners. 1avv phi 1

Petitioners filed a Motion for Reconsideration, but the same was dismissed by the CA in its
Resolution dated August 3, 2001.

Hence, the instant petition raising the lone issue of whether or not the CA erred in applying the
principle of res judicata with respect to Civil Case No. 007-125 and Civil Case No. 506.5

At the outset, the Court notes that respondents failed to file their comment on the present
petition. As borne by the records, several Court resolutions addressed to the respondents were
returned either unserved or unheeded. Thus, the Court dispensed with the filing of respondents'
comment.

Going to the merits of the case, res judicata is defined as "a matter adjudged; a thing judicially
acted upon or decided; a thing or matter settled by judgment."6 According to the doctrine of res
judicata, an existing final judgment or decree rendered on the merits, and without fraud or
collusion, by a court of competent jurisdiction, upon any matter within its jurisdiction, is
conclusive of the rights of the parties or their privies, in all other actions or suits in the same or
any other judicial tribunal of concurrent jurisdiction on the points and matters in issue in the first
suit.7 To state simply, a final judgment or decree on the merits by a court of competent
jurisdiction is conclusive of the rights of the parties or their privies in all later suits on all points
and matters determined in the former suit.8

The principle of res judicata is applicable by way of (1) "bar by prior judgment" and (2)
"conclusiveness of judgment." This Court had occasion to explain the difference between these
two aspects of res judicata as follows:

There is "bar by prior judgment" when, as between the first case where the judgment was
rendered and the second case that is sought to be barred, there is identity of parties, subject
matter, and causes of action. In this instance, the judgment in the first case constitutes an
absolute bar to the second action. Otherwise put, the judgment or decree of the court of
competent jurisdiction on the merits concludes the litigation between the parties, as well as their
privies, and constitutes a bar to a new action or suit involving the same cause of action before
the same or other tribunal.

But where there is identity of parties in the first and second cases, but no identity of causes of
action, the first judgment is conclusive only as to those matters actually and directly controverted
and determined and not as to matters merely involved therein. This is the concept of res judicata
known as "conclusiveness of judgment." Stated differently, any right, fact or matter in issue
directly adjudicated or necessarily involved in the determination of an action before a
competent court in which judgment is rendered on the merits is conclusively settled by
the judgment therein and cannot again be litigated between the parties and their privies
whether or not the claim, demand, purpose, or subject matter of the two actions is the
same.9
Stated differently, conclusiveness of judgment finds application when a fact or question has
been squarely put in issue, judicially passed upon, and adjudged in a former suit by a
court of competent jurisdiction.10 The fact or question settled by final judgment or order binds
the parties to that action (and persons in privity with them or their successors-in-interest), and
continues to bind them while the judgment or order remains standing and unreversed by proper
authority on a timely motion or petition; the conclusively-settled fact or question cannot again be
litigated in any future or other action between the same parties or their privies and successors-in-
interest, in the same or in any other court of concurrent jurisdiction, either for the same or for a
different cause of action.11 Thus, only the identities of parties and issues are required for the
operation of the principle of conclusiveness of judgment.12

In the present case, there is no question that there is identity of parties in Civil Case No. 007-125
and Civil Case No. 506.

However, as to identity of issues, a perusal of the records and other pleadings would show that
the issue raised in Civil Case No. 007-125 is whether the sale to petitioners of the 7,500 square
meter portion of Lot No. 1 being contested by respondents is valid. On the other hand, in Civil
Case No. 506, the issues are whether petitioners were deprived of possession of the remaining
8,403 square meter portion of Lot No. 1 which was validly sold to them and whether they are
entitled to an accounting of the proceeds of the copra harvested from their property which was
supposedly appropriated by respondents. The Court finds that there is no identity of issues as
the issue raised in Civil Case No. 007-125 is different from, and does not overlap with, the issue
raised in Civil Case No. 506.

Respondents insist in their Motion to Dismiss filed with the RTC that the cause of action in Civil
Case No. 506 is barred by the prior judgment rendered in Civil Case No. 007-125.

The Court agrees, however, with the CA that the causes of action in these cases are not
identical.

The Court has previously employed various tests in determining whether or not there is identity of
causes of action as to warrant the application of the principle of res judicata. One test of identity
is the "absence of inconsistency test" where it is determined whether the judgment sought will be
inconsistent with the prior judgment.13 If no inconsistency is shown, the prior judgment shall not
constitute a bar to subsequent actions.14 In the instant case, the reliefs prayed for in Civil Case
No. 506 are the payment of a sum representing the proceeds of the copra supposedly harvested
from petitioners' property and purportedly misappropriated by respondents. Petitioners also pray
for the award of moral and exemplary damages, as well as attorney's fees and litigation
expenses. In the event that a judgment is rendered in favor of herein petitioners, who are the
complainants in Civil Case No. 506, the Court finds no possible inconsistency in the judgment
sought in Civil Case No. 506 with the judgment rendered in Civil Case No. 007-125.

The more common approach in ascertaining identity of causes of action is the "same evidence
test," whereby the following question serves as a sufficient criterion: "would the same evidence
support and establish both the present and former causes of action?" If the answer is in the
affirmative, then the prior judgment is a bar to the subsequent action; conversely, it is not.15 In the
instant case, it is unmistakable that the pieces of evidence that would back up the cause of
action in Civil Case No. 007-125 are different from the set of evidence that would prove the
cause of action in Civil Case No. 506.

Aside from the "absence of inconsistency test" and "same evidence test," we have also ruled that
a previous judgment operates as a bar to a subsequent one when it had "touched on [a] matter
already decided," or if the parties are in effect "litigating for the same thing."16 A reading of the
decisions of the lower and appellate courts in Civil Case No. 007-125 would show that there were
neither discussions nor disposition of the issues raised in Civil Case No. 506.
The Court, nevertheless, does not agree with the conclusion of the RTC and the CA that Civil
Case No. 007-125 and Civil Case No. 506 involve the same subject matter.

The final and executory judgment in Civil Case No. 007-125 cannot bar the filing of Civil Case
No. 506, since these cases involve entirely different subject matters. The bone of contention in
Civil Case No. 007-125 is confined to the 7,500 square meter portion of Lot No. 1 bought by the
predecessor-in-interest of respondents, while the subject matter in Civil Case No. 506 is the
remaining 8,403 square meter parcel of the same lot. Since there is no identity of subject matter
between the two cases, it is but logical to conclude that there is likewise no identity of causes of
action.17

Both the questioned rulings of the RTC and the CA may have arisen from an apparent confusion
that the whole of Lot No. 1, consisting of 15,903 square meters, is owned by respondents. It is
clear, however, from the December 7, 1992 ruling of this Court in G.R. No. 6969618 that
respondents' predecessor-in-interest acquired only a 7,500 square meter portion of Lot No. 1 and
not the entirety thereof and that the remaining 8,403 square meters are still owned by petitioners.

In sum, the Court finds that there is no res judicata in the present case.

Lastly, petitioners' claims for accounting and recovery of the proceeds of the sale of copra, as
well as for damages, do not take the nature of a compulsory counterclaim that should have been
barred if not set up in the action. These claims do not arise out of, or are necessarily connected
with, the transaction or occurrence constituting the subject matter of the respondents' claim.
Thus, petitioners' claims may be filed in a separate action, which they did.

WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated
May 4, 2001 and its Resolution dated August 3, 2001 in CA-G.R. CV No. 49356
are REVERSED and SET ASIDE. The case is REMANDED for appropriate proceedings to the
court of origin, Regional Trial Court, Branch 7, of Baganga, Davao Oriental, which
is DIRECTED to decide on the merits WITH REASONABLE DISPATCH.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:
 SECOND DIVISION

G.R. No. 182720 March 2, 2010

G.G. SPORTSWEAR MFG. CORP., Petitioner,

vs.
WORLD CLASS PROPERTIES, INC., Respondent.

DECISION

BRION, J.:

Through its petition for review on certiorari, the petitioner G.G. Sportswear Mfg. Corp. (GG
Sportswear) seeks to reverse the December 19, 2007 decision1 and the January 2, 2008
resolution2 of the Court of Appeals (CA) denying: (1) the rescission of its Reservation Agreement
with the respondent, World Class Properties, Inc. (World Class) and (2) a refund of the payments
made pursuant to this Agreement.

The facts, as culled from the records, are briefly summarized below.

World Class is the owner/developer of Global Business Tower (now Antel Global Corporate
Center), an office condominium project located on Julia Vargas Avenue and Jade Drive, Ortigas
Center, Pasig City slated for completion on December 15, 1998.

GG Sportswear, a domestic corporation, offered to purchase the 38th floor penthouse unit and
16 parking slots for 32 cars in World Class's condominium project for the discounted, pre-selling
price of ₱89,624,272.82. After GG Sportswear paid the ₱500,000.00 reservation fee, the parties,
on May 15, 1996, signed a Reservation Agreement (Agreement)3 that provides for the schedule
of payments, including the stipulated monthly installments on the down payment and the balance
on the purchase price, as follows:4

Item Amount to be paid Monthly Installment Duration

20% Down Payment ₱ 17,924,854.56 ₱ 1,742,485.45 May 1996 to Feb 1997
less: 500,000.00
(Reservation Fee)
₱ 17,424,854.56
60% Payment 53,774,563.69 1,792,485.45 Mar 1997 to Aug 1999
20% Final Payment 17,924,854.56 Upon turn-over
TOTAL PRICE ₱ 89,624,272.82

Based on the Agreement, the contract to sell pertaining to the entire 38th floor Penthouse unit
and the parking slots would be executed upon the payment of thirty percent (30%) of the total
purchase price.5 It also stipulated that all its provisions would be deemed incorporated in the
contract to sell and other documents to be executed by the parties thereafter. The Agreement
also specified that the failure of the buyer to pay any of the installments on the stipulated date
would give the developer the right either to: (1) charge 3% interest per month on all unpaid
receivables, or (2) rescind and cancel the Agreement without the need of any court action and,
upon cancellation, automatically forfeit the reservation fee and other payments made by the
buyer.6
From May to December 1996, GG Sportswear timely paid the installments due; the eight
monthly installment payments amounted to a total of ₱19,717,339.50, or 21% of the total
contract price.

In a letter dated January 30, 1997,7 GG Sportswear requested the return of the outstanding
postdated checks it previously delivered to World Class because it (GG Sportswear) intended to
replace these old checks with new ones from the corporation’s new bank. World Class acceded,
but suggested the execution of a new Reservation Agreement to reflect the arrangement
involving the replacement checks, with the retention of the other terms and conditions of the old
Agreement.8 GG Sportswear did not object to the execution of a new Reservation Agreement,
but requested that World Class defer the deposit of the replacement checks for 90 days.9 World
Class denied this request, contending that a deferment would delay the subsequent monthly
installment payments.10 It likewise demanded that GG Sportswear immediately pay its overdue
January 1997 installment to avoid the penalties11 provided in the Agreement.12

On March 5, 1997, GG Sportswear delivered the replacement checks and paid the January
1997 installment payment which had been delayed by two months. World Class in turn
issued a second Reservation Agreement, which it transmitted to GG Sportswear for the latter’s
conformity. World Class also sent GG Sportswear a provisional Contract to Sell,13 which stated
that the condominium project would be ready for turnover to the buyer not later than December
15, 1998.

GG Sportswear did not sign the second Reservation Agreement. Instead, it sent a letter14 to
World Class, requesting that its check dated April 24, 1997 be deposited on May 15, 1997
because it was experiencing financial difficulties. When World Class rejected GG Sportswear’s
request, GG Sportswear sent another letter informing World Class that the second Reservation
Agreement was incomplete because it did not expressly provide the time of completion of
the condominium unit.15 World Class countered that the provisional Contract to Sell it
previously submitted to GG Sportswear expressly provided for the completion date (December
15, 1998) and insisted that GG Sportswear pay its overdue account.16

On June 10, 1997, GG Sportswear filed a Complaint17 with the Housing and Land Use
Regulatory Board (HLURB) claiming a refund of the installment payments made to World Class
because it was dissatisfied with the completion date found in the Contract to Sell.

In its Answer,18 World Class countered that: (1) it is not guilty of breach of contract since it is the
petitioner that committed a breach; (2) the complaint is an afterthought since GG Sportswear is
suffering from financial difficulties; (3) the petitioner’s dissatisfaction with the expected date of
completion of the unit as indicated in the proposed Contract to Sell is not a valid and sufficient
ground for refund; (4) a refund is justified only in cases where the owner/developer fails to
develop the project within the specified period of time under Presidential Decree (P.D.) No.
957,19 which period has not yet arrived; and (5) the petitioner was already in default when it filed
the complaint and therefore came to court with unclean hands.

On September 12, 2005, HLURB Arbiter Atty. Dunstan T. San Vicente (Arbiter) rendered a
decision20 rescinding the Agreement, after finding that World Class violated Sections 4 and 5 of
P.D. No. 957 by entering into the Agreement without the required Certificate of Registration and
License to Sell (CR/LS).21 He also implied that a refund is proper in this case under Article 1416
of the Civil Code. As a consequence, he ordered World Class to refund the amount of
₱19,717,339.50 paid by GG Sportswear with 6% legal interest thereon, and to pay 10% of the
principal amount as attorney’s fees. He likewise found World Class administratively liable and
ordered it to pay a fine of ₱10,000.00.

World Class appealed to the HLURB Board of Commissioners (Board). On January 31, 2006, the
Board modified the Arbiter’s decision by ruling that the Agreement could no longer be rescinded
for lack of a CR/LS because World Class had already been issued a License to Sell on August 1,
1996, or before the complaint was filed.22 Notwithstanding this pronouncement, the Board still
awarded a refund in GG Sportswear’s favor. The Board reasoned that World Class had only until
August 1998 to complete the project under its first License to Sell. However, World Class, by its
own actions, impliedly admitted that it would be incapable of completing its project by this
time; it repackaged the project and had applied for and been issued a new License to Sell, which
granted World Class until December 1999 to complete the project.23 In essence, the Board
equated World Class’s "incapability" to finish the project within the time specified in its first
License to Sell with a developer’s "failure to develop" a condominium project – an omission
sanctioned under P.D. No. 957 and entitled a buyer to a refund of all payments made.24

In its decision25 of September 11, 2006, the Office of the President (OP) denied World Class’s
appeal by quoting extensively from the Arbiter’s decision. The OP subsequently denied World
Class’s motion for reconsideration in its November 13, 2006 order.26

In its petition for review27 before the CA, World Class essentially argued that the OP committed a
grave abuse of discretion when it upheld the Board’s ruling that GG Sportswear was entitled to a
refund.

The CA, in its decision28 of December 19, 2007, reversed the OP decision and denied GG
Sportswear’s prayers for rescission of the Agreement and refund of the payments made. It
explained that the OP should have given weight to the Board’s modified finding that "the absence
of the certificate of registration and license to sell no longer existed at the time of the filing of the
complaint and could no longer be used as basis to demand rescission." Since GG Sportswear
never appealed this finding, it had already attained finality and must bind the OP.

On the awarded refund, the CA held that the OP erroneously based GG Sportswear’s right to
recovery of payments on Article 1416 of the Civil Code (as what the Arbiter’s
decision29 suggested), which entitles a plaintiff to recover the amounts paid under a contract that
violates mandatory or prohibitory laws. Since World Class already had a CR/LS when GG
Sportswear filed its complaint, GG Sportswear could no longer demand rescission and refund
under Sections 4 and 5 of P.D. No. 957.

The appellate court also found no merit in GG Sportswear’s argument that it was entitled to
rescind the Agreement and demand a refund because World Class failed to provide a Contract to
Sell for the subject units. Under the Agreement, the Contract to Sell would be executed only
upon payment of thirty (30%) of the total value of the sale; since GG Sportswear had only paid
21% of the total contract price, it could not demand the execution of the Contract to Sell. The CA
likewise denied GG Sportswear’s motion for reconsideration.30

Hence, GG Sportswear filed with this Court the present petition for review on certiorari,31 claiming
that the CA erred when: (1) it relied heavily on the Board’s finding that the Agreement could no
longer be rescinded because the CR/LS had already been issued at the time the complaint was
filed, which was a mere obiter dictum; and (2) it held that GG Sportswear was not entitled to the
execution of a Contract to Sell because it had not yet paid 30% of the total value of the sale.

THE RULING OF THE COURT

We find the petition devoid of merit.

The Board ruling that the Agreement could not be rescinded based on lack of a CR/LS had
already attained finality.

We explained the concept of an obiter dictum in Villanueva v. Court of Appeals32 by saying:

It has been held that an adjudication on any point within the issues presented by the case cannot
be considered as obiter dictum, and this rule applies to all pertinent questions, although only
incidentally involved, which are presented and decided in the regular course of the consideration
of the case, and led up to the final conclusion, and to any statement as to matter on which the
decision is predicated. Accordingly, a point expressly decided does not lose its value as a
precedent because the disposition of the case is, or might have been, made on some other
ground, or even though, by reason of other points in the case, the result reached might have
been the same if the court had held, on the particular point, otherwise than it did. A decision
which the case could have turned on is not regarded as obiter dictum merely because, owing to
the disposal of the contention, it was necessary to consider another question, nor can an
additional reason in a decision, brought forward after the case has been disposed of on one
ground, be regarded as dicta. So, also, where a case presents two (2) or more points, any one of
which is sufficient to determine the ultimate issue, but the court actually decides all such points,
the case as an authoritative precedent as to every point decided, and none of such points can be
regarded as having the status of a dictum, and one point should not be denied authority merely
because another point was more dwelt on and more fully argued and considered, nor does a
decision on one proposition make statements of the court regarding other
propositions dicta.33 [emphasis supplied.]

The Board’s pronouncement in its January 31, 2006 decision – that the Agreement could no
longer be rescinded because the CR/LS had already been issued at the time the complaint was
filed – cannot be considered a mere obiter dictum because it touched upon a matter squarely
raised by World Class in its petition for review, specifically, the issue of whether GG Sportswear
was entitled to a refund on the ground that it did not have a CR/LS at the time the parties entered
into the Agreement.

With this ruling, the Board reversed the Arbiter’s ruling on this particular issue, expressly stating
that "the absence of the certificate of registration and license to sell no longer existed at the time
of the filing of the complaint and could no longer be used as basis to demand rescission." This
ruling became final when GG Sportswear chose not to file an appeal with the OP. Thus, even if
the Board ultimately awarded a refund to GG Sportswear based entirely on another ground, the
Board’s ruling on the non-rescissible character of the Agreement is binding on the parties.

Consequently, the OP had no jurisdiction to revert to the Arbiter’s earlier declaration that the
Agreement was void due to World Class’s lack of a CR/LS, a finding that clearly contradicted the
Board’s final and executory ruling.

There was no breach on the part of World Class to justify the rescission and refund.

GG Sportswear likewise has no legal basis to demand either the rescission of the Agreement or
the refund of payments it made to World Class under the Agreement.

Unless the parties stipulated it, rescission is allowed only when the breach of the contract is
substantial and fundamental to the fulfillment of the obligation.34 Whether the breach is slight or
substantial is largely determined by the attendant circumstances.35

GG Sportswear anchors its claim for rescission on two grounds: (a) its dissatisfaction with the
completion date; and (b) the lack of a Contract to Sell. As to the first ground, World Class makes
much of the fact that the completion date is not indicated in the Agreement, maintaining that this
lack of detail renders the Agreement void on the ground that the intention of the parties cannot
be ascertained. We disagree with this contention.

In the first place, GG Sportswear cannot claim that it did not know the time-frame for the project’s
completion when it entered into the Agreement with World Class. As World Class points out, it is
absurd and unbelievable that Mr. Gidwani, the president of GG Sportswear and an experienced
businessman, did not have an idea of the expected completion date of the condominium project
before he bought the condominium units for ₱89,624,272.82. Even assuming that GG
Sportswear was not aware of the exact completion date, we note that GG Sportswear signed the
Agreement despite the Agreement’s omission to expressly state a specific completion date. This
directly implies that a specific completion date was not a material consideration for GG
Sportswear when it executed the Agreement. Thus, even if we believe GG Sportswear’s
contention that it was dissatisfied with the completion date subsequently indicated in the
provisional Contract to Sell, we cannot consider this dissatisfaction a breach so substantial as to
render the Agreement rescissible. The grant, too, to World Class of a first License to Sell up to
August 1998 and a second License to Sell up to December 1999, to our mind, served as a clear
notice of when the project was to be completed. As we discussed above, the initial lack of a
License to Sell is not a basis to cancel the Agreement and has in fact effectively been cured even
if it may be considered an initial defect.

Moreover, the provisional Contract to Sell that accompanied the second Reservation Agreement
explicitly provided that the condominium project would be ready for turnover no later than
December 15, 1998, a clear expression of the project’s completion date. While GG Sportswear
claims dissatisfaction with this completion date, it never alleged that the given December 15,
1998 completion date violates the completion date previously agreed upon by the parties. In fact,
nowhere does GG Sportswear allege that the parties ever agreed upon an earlier completion
date. We therefore find no reason for GG Sportswear to be dissatisfied with the indicated
completion date. Even if it had been unhappy with the completion date, this ground, standing
alone, is not sufficient basis to rescind the Agreement; unhappiness is a state of mind, not a
defect available in law as a basis to rescind a contract.

As a last point on this topic, we cannot help but view with suspicion GG Sportswear’s decision to
question the second Reservation Agreement’s lack of an express completion date as this
question only came up after World Class had rejected GG Sportswear’s request to defer the
deposit of its check in light of the financial difficulties it was then encountering. Also by this time,
GG Sportswear had already defaulted on its monthly installment payments to World Class. Under
these circumstances, we are more inclined to believe World Class’s contention that GG
Sportswear’s complaint was simply an attempt to evade its obligations to World Class under the
Agreement. This is a ploy we cannot accept.

On the second ground, we note that the Agreement expressly provides that GG Sportswear shall
be entitled to a Contract to Sell only upon its payment of at least 30% of the total contract
price.36 Since GG Sportswear had only paid 21% of the total contract price, World Class’s
obligation to execute a Contract to Sell had not yet arisen. Accordingly, GG Sportswear had no
basis to claim that World Class breached this obligation.

Even if we apply Article 1191 of the Civil Code, which provides:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him. x x x x.

no reason still exists to rescind the contract. Under the Agreement, World Class’s obligation was
to finish the project and turn over the purchased units to GG Sportswear on or before the
completion date. Notably, at the time GG Sportswear filed its complaint on June 10, 1997, the
agreed completion date of December 15, 1998, or even August 1998, the date appearing on
World Class’s first License to Sell, was still a long way out. In other words, when GG Sportswear
filed its complaint, World Class had not yet breached its obligation, and rescission under this
provision of the Civil Code was premature.

Rescission of contracts of sale of commercial condominium units on installment is governed by

P.D. No. 957.

Neither can GG Sportswear find recourse through P.D. No. 957, or the "Subdivision and
Condominium Buyers’ Protective Decree." This law covers all sales and purchases of subdivision
or condominium units, and provides that the buyer’s installment payments shall not be forfeited in
favor of the developer or owner if the latter fails to develop the subdivision or condominium
project. Section 23 of P.D. No. 957 provides:

Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a

subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in
favor of the owner or developer when the buyer, after due notice to the owner or
developer, desists from further payment due to the failure of the owner or developer to
develop the subdivision or condominium project according to the approved plans and within the
time limit for complying with the same. Such buyer may, at his option, be reimbursed the total
amount paid including amortization interests but excluding delinquency interests, with interest
thereon at the legal rate. [Emphasis supplied.]

Upon the developer’s failure to develop, the buyer may choose either: (1) to continue with the
contract but suspend payments until the developer complies with its obligation to finish the
project; or (2) to cancel the contract and demand a refund of all payments made, excluding
delinquency interests. Notably, a buyer’s cause of action against a developer for failure to
develop ripens only when the developer fails to complete the project on the lapse of the
completion period stated on the sale contract or the developer’s License to Sell.

To recall, the completion date of the Antel Global Corporate Center was either in August 1998
(based on World Class's first License to Sell), on December 15, 1998 (based on the provisional
Contract to Sell), or on December 1999 (based on World Class’s second License to Sell). At the
time GG Sportswear filed its complaint against World Class on June 10, 1997, the Antel Global
Corporate Center was still in the course of development37 and none of these projected
completion dates had arrived. Hence, any complaint for refund was premature.

Significantly, World Class completed the project in August 1999, or within the time period granted
by the HLURB for the completion of the condominium project under the second License to Sell.
This completion, undertaken while the case was pending before the Arbiter, rendered the issue
of World Class’s failure to develop the condominium project moot and academic. 1avvphi1

As a side note, we observe that GG Sportswear, not World Class, substantially breached its
obligations under the Agreement when it was remiss in the timely payment of its obligations,
such that its January 1997 installment was paid only in March 1997, or two months after due
date. GG Sportswear did not pay the succeeding installment dated April 1997 (presumably for
February 1997) until it had filed its complaint in June 1997. A substantial breach of a reciprocal
obligation, like failure to pay the price in the manner prescribed by the contract, entitles the
injured party to rescind the obligation.38 Under this contractual term, it was World Class, not GG
Sportswear, which had the ground to demand the rescission of the Agreement, as well as the
prerogative to secure the forfeiture of all the payments already made by GG Sportswear.
However, whether the Agreement between World Class and Sportswear should now be
rescinded is a question we do not decide, as this is not a matter before us.

The lack of a Certificate of Registration/License to Sell merely subjects the developer to

administrative sanctions.

On a final note, we choose to reiterate, for the benefit of the HLURB, our ruling in Co Chien v.
Sta. Lucia Realty & Development, Inc.,39 that the requirements of Sections 4 and 5 of P.D. No.
957 are intended merely for administrative convenience in order to allow for a more effective
regulation of the industry and do not go into the validity of the contract such that the absence
thereof would automatically render the contract null and void. We said:

A review of the relevant provisions of P.D. 957 reveals that while the law penalizes the selling of
subdivision lots and condominium units without prior issuance of a Certificate of Registration and
License to Sell by the HLURB, it does not provide that the absence thereof will automatically
render a contract, otherwise validly entered, void. The penalty imposed by the decree is the
general penalty provided for the violation of any of its provisions. It is well-settled in this
jurisdiction that the clear language of the law shall prevail. This principle particularly enjoins strict
compliance with provisions of law which are penal in nature, or when a penalty is provided for the
violation thereof. With regard to P.D. 957, nothing therein provides for the nullification of a
contract to sell in the event that the seller, at the time the contract was entered into, did not
possess a certificate of registration and license to sell. Absent any specific sanction pertaining to
the violation of the questioned provisions (Sections 4 and 5), the general penalties provided in
the law shall be applied. The general penalties for the violation of any provisions in P.D. 957 are
provided for in Sections 38 and 39. As can clearly be seen in the cited provisions, the same do
not include the nullification of contracts that are otherwise validly entered.

xxxx

The lack of certificate and registration, without more, while penalized under the law, is not in and
of itself sufficient to render a contract void.40 (Emphasis supplied.)

We see no reason to depart from this ruling, and so hold that the Arbiter erred in declaring the
Agreement void due to the absence of a CR/LS at the time the Agreement was executed.

WHEREFORE, we DENY the present petition for review on certiorari and AFFIRM the assailed
CA Decision and Resolution dated December 19, 2007 and January 2, 2008, respectively.
Accordingly, the complaint of G.G. Sportswear Mfg. Corp. is DISMISSED. Costs against
petitioner G.G. Sportswear Mfg. Corp.

SO ORDERED.

ARTURO D. BRION
Associate Justice

WE CONCUR:
 SECOND DIVISION

G.R. No. 171092 March 15, 2010

EDNA DIAGO LHUILLIER, Petitioner,

vs.
BRITISH AIRWAYS, Respondent.

DECISION

DEL CASTILLO, J.:

Jurisdictio est potestas de publico introducta cum necessitate juris dicendi. Jurisdiction is a
power introduced for the public good, on account of the necessity of dispensing justice.1

Factual Antecedents

On April 28, 2005, petitioner Edna Diago Lhuillier filed a Complaint2 for damages against
respondent British Airways before the Regional Trial Court (RTC) of Makati City. She alleged that
on February 28, 2005, she took respondent’s flight 548 from London, United Kingdom to Rome,
Italy. Once on board, she allegedly requested Julian Halliday (Halliday), one of the respondent’s
flight attendants, to assist her in placing her hand-carried luggage in the overhead bin. However,
Halliday allegedly refused to help and assist her, and even sarcastically remarked that "If I were
to help all 300 passengers in this flight, I would have a broken back!"

Petitioner further alleged that when the plane was about to land in Rome, Italy, another flight
attendant, Nickolas Kerrigan (Kerrigan), singled her out from among all the passengers in the
business class section to lecture on plane safety. Allegedly, Kerrigan made her appear to the
other passengers to be ignorant, uneducated, stupid, and in need of lecturing on the safety rules
and regulations of the plane. Affronted, petitioner assured Kerrigan that she knew the plane’s
safety regulations being a frequent traveler. Thereupon, Kerrigan allegedly thrust his face a mere
few centimeters away from that of the petitioner and menacingly told her that "We don’t like your
attitude."

Upon arrival in Rome, petitioner complained to respondent’s ground manager and demanded an
apology. However, the latter declared that the flight stewards were "only doing their job."

Thus, petitioner filed the complaint for damages, praying that respondent be ordered to pay ₱5
million as moral damages, ₱2 million as nominal damages, ₱1 million as exemplary damages,
₱300,000.00 as attorney’s fees, ₱200,000.00 as litigation expenses, and cost of the suit.

On May 16, 2005, summons, together with a copy of the complaint, was served on the
respondent through Violeta Echevarria, General Manager of Euro-Philippine Airline Services,
Inc.3

On May 30, 2005, respondent, by way of special appearance through counsel, filed a Motion to
Dismiss4 on grounds of lack of jurisdiction over the case and over the person of the respondent.
Respondent alleged that only the courts of London, United Kingdom or Rome, Italy, have
jurisdiction over the complaint for damages pursuant to the Warsaw Convention,5 Article 28(1) of
which provides:

An action for damages must be brought at the option of the plaintiff, either before the court of
domicile of the carrier or his principal place of business, or where he has a place of business
through which the contract has been made, or before the court of the place of destination.
Thus, since a) respondent is domiciled in London; b) respondent’s principal place of business is
in London; c) petitioner bought her ticket in Italy (through Jeepney Travel S.A.S, in Rome);6 and
d) Rome, Italy is petitioner’s place of destination, then it follows that the complaint should only be
filed in the proper courts of London, United Kingdom or Rome, Italy.

Likewise, it was alleged that the case must be dismissed for lack of jurisdiction over the person of
the respondent because the summons was erroneously served on Euro-Philippine Airline
Services, Inc. which is not its resident agent in the Philippines.

On June 3, 2005, the trial court issued an Order requiring herein petitioner to file her
Comment/Opposition on the Motion to Dismiss within 10 days from notice thereof, and for
respondent to file a Reply thereon.7 Instead of filing a Comment/Opposition, petitioner filed on
June 27, 2005, an Urgent Ex-Parte Motion to Admit Formal Amendment to the Complaint and
Issuance of Alias Summons.8 Petitioner alleged that upon verification with the Securities and
Exchange Commission, she found out that the resident agent of respondent in the Philippines is
Alonzo Q. Ancheta. Subsequently, on September 9, 2005, petitioner filed a Motion to Resolve
Pending Incident and Opposition to Motion to Dismiss.9

Ruling of the Regional Trial Court

On October 14, 2005, the RTC of Makati City, Branch 132, issued an Order10 granting
respondent’s Motion to Dismiss. It ruled that:

The Court sympathizes with the alleged ill-treatment suffered by the plaintiff. However, our
Courts have to apply the principles of international law, and are bound by treaty stipulations
entered into by the Philippines which form part of the law of the land. One of this is the Warsaw
Convention. Being a signatory thereto, the Philippines adheres to its stipulations and is bound by
its provisions including the place where actions involving damages to plaintiff is to be instituted,
as provided for under Article 28(1) thereof. The Court finds no justifiable reason to deviate from
the indicated limitations as it will only run counter to the provisions of the Warsaw Convention.
Said adherence is in consonance with the comity of nations and deviation from it can only be
effected through proper denunciation as enunciated in the Santos case (ibid). Since the
Philippines is not the place of domicile of the defendant nor is it the principal place of business,
our courts are thus divested of jurisdiction over cases for damages. Neither was plaintiff’s ticket
issued in this country nor was her destination Manila but Rome in Italy. It bears stressing
however, that referral to the court of proper jurisdiction does not constitute constructive denial of
plaintiff’s right to have access to our courts since the Warsaw Convention itself provided for
jurisdiction over cases arising from international transportation. Said treaty stipulations must be
complied with in good faith following the time honored principle of pacta sunt servanda.

The resolution of the propriety of service of summons is rendered moot by the Court’s want of
jurisdiction over the instant case.

WHEREFORE, premises considered, the present Motion to Dismiss is hereby GRANTED and
this case is hereby ordered DISMISSED.

Petitioner filed a Motion for Reconsideration but the motion was denied in an Order11 dated
January 4, 2006.

Petitioner now comes directly before us on a Petition for Review on Certiorari on pure questions
of law, raising the following issues:

Issues

I. WHETHER X X X PHILIPPINE COURTs HAVE JURISDICTION OVER A TORTIOUS

CONDUCT COMMITTED AGAINST A FILIPINO CITIZEN AND RESIDENT BY AIRLINE
PERSONNEL OF A FOREIGN CARRIER TRAVELLING BEYOND THE TERRITORIAL LIMIT
OF ANY FOREIGN COUNTRY; AND THUS IS OUTSIDE THE AMBIT OF THE WARSAW
CONVENTION.

II. WHETHER x x x RESPONDENT AIR CARRIER OF PASSENGERS, IN FILING ITS MOTION

TO DISMISS BASED ON LACK OF JURISDICTION OVER THE SUBJECT MATTER OF THE
CASE AND OVER ITS PERSON MAY BE DEEMED AS HAVING IN FACT AND IN LAW
SUBMITTED ITSELF TO THE JURISDICTION OF THE LOWER COURT, ESPECIALLY SO,
WHEN THE VERY LAWYER ARGUING FOR IT IS HIMSELF THE RESIDENT AGENT OF THE
CARRIER.

Petitioner’s Arguments

Petitioner argues that her cause of action arose not from the contract of carriage, but from the
tortious conduct committed by airline personnel of respondent in violation of the provisions of the
Civil Code on Human Relations. Since her cause of action was not predicated on the contract of
carriage, petitioner asserts that she has the option to pursue this case in this jurisdiction pursuant
to Philippine laws.

Respondent’s Arguments

In contrast, respondent maintains that petitioner’s claim for damages fell within the ambit of
Article 28(1) of the Warsaw Convention. As such, the same can only be filed before the courts of
London, United Kingdom or Rome, Italy.

Our Ruling

The petition is without merit.

The Warsaw Convention has the force and effect of law in this country.

It is settled that the Warsaw Convention has the force and effect of law in this country. In Santos
III v. Northwest Orient Airlines,12 we held that:

The Republic of the Philippines is a party to the Convention for the Unification of Certain Rules
Relating to International Transportation by Air, otherwise known as the Warsaw Convention. It
took effect on February 13, 1933. The Convention was concurred in by the Senate, through its
Resolution No. 19, on May 16, 1950. The Philippine instrument of accession was signed by
President Elpidio Quirino on October 13, 1950, and was deposited with the Polish government on
November 9, 1950. The Convention became applicable to the Philippines on February 9, 1951.
On September 23, 1955, President Ramon Magsaysay issued Proclamation No. 201, declaring
our formal adherence thereto, "to the end that the same and every article and clause thereof may
be observed and fulfilled in good faith by the Republic of the Philippines and the citizens thereof."

The Convention is thus a treaty commitment voluntarily assumed by the Philippine government
and, as such, has the force and effect of law in this country.13

The Warsaw Convention applies because the air travel, where the alleged tortious conduct
occurred, was between the United Kingdom and Italy, which are both signatories to the Warsaw
Convention.

Article 1 of the Warsaw Convention provides:

 1. This Convention applies to all international carriage of persons, luggage or goods
performed by aircraft for reward. It applies equally to gratuitous carriage by aircraft
performed by an air transport undertaking.

2. For the purposes of this Convention the expression "international carriage" means any
carriage in which, according to the contract made by the parties, the place of departure
and the place of destination, whether or not there be a break in the carriage or a
transhipment, are situated either within the territories of two High Contracting Parties, or
within the territory of a single High Contracting Party, if there is an agreed stopping place
within a territory subject to the sovereignty, suzerainty, mandate or authority of another
Power, even though that Power is not a party to this Convention. A carriage without such
an agreed stopping place between territories subject to the sovereignty, suzerainty,
mandate or authority of the same High Contracting Party is not deemed to be
international for the purposes of this Convention. (Emphasis supplied)

Thus, when the place of departure and the place of destination in a contract of carriage are
situated within the territories of two High Contracting Parties, said carriage is deemed an
"international carriage". The High Contracting Parties referred to herein were the signatories to
the Warsaw Convention and those which subsequently adhered to it.14

In the case at bench, petitioner’s place of departure was London, United Kingdom while her
place of destination was Rome, Italy.15 Both the United Kingdom16 and Italy17 signed and ratified
the Warsaw Convention. As such, the transport of the petitioner is deemed to be an "international
carriage" within the contemplation of the Warsaw Convention.

Since the Warsaw Convention applies in the instant case, then the jurisdiction over the subject
matter of the action is governed by the provisions of the Warsaw Convention.

Under Article 28(1) of the Warsaw Convention, the plaintiff may bring the action for damages
before –

1. the court where the carrier is domiciled;

2. the court where the carrier has its principal place of business;

3. the court where the carrier has an establishment by which the contract has been
made; or

4. the court of the place of destination.

In this case, it is not disputed that respondent is a British corporation domiciled in London, United
Kingdom with London as its principal place of business. Hence, under the first and second
jurisdictional rules, the petitioner may bring her case before the courts of London in the United
Kingdom. In the passenger ticket and baggage check presented by both the petitioner and
respondent, it appears that the ticket was issued in Rome, Italy. Consequently, under the third
jurisdictional rule, the petitioner has the option to bring her case before the courts of Rome in
Italy. Finally, both the petitioner and respondent aver that the place of destination is Rome, Italy,
which is properly designated given the routing presented in the said passenger ticket and
baggage check. Accordingly, petitioner may bring her action before the courts of Rome, Italy. We
thus find that the RTC of Makati correctly ruled that it does not have jurisdiction over the case
filed by the petitioner.

Santos III v. Northwest Orient Airlines18 applies in this case.

Petitioner contends that Santos III v. Northwest Orient Airlines19 cited by the trial court is
inapplicable to the present controversy since the facts thereof are not similar with the instant
case.

We are not persuaded.

In Santos III v. Northwest Orient Airlines,20 Augusto Santos III, a resident of the Philippines,
purchased a ticket from Northwest Orient Airlines in San Francisco, for transport between San
Francisco and Manila via Tokyo and back to San Francisco. He was wait-listed in the Tokyo to
Manila segment of his ticket, despite his prior reservation. Contending that Northwest Orient
Airlines acted in bad faith and discriminated against him when it canceled his confirmed
reservation and gave his seat to someone who had no better right to it, Augusto Santos III sued
the carrier for damages before the RTC. Northwest Orient Airlines moved to dismiss the
complaint on ground of lack of jurisdiction citing Article 28(1) of the Warsaw Convention. The trial
court granted the motion which ruling was affirmed by the Court of Appeals. When the case was
brought before us, we denied the petition holding that under Article 28(1) of the Warsaw
Convention, Augusto Santos III must prosecute his claim in the United States, that place being
the (1) domicile of the Northwest Orient Airlines; (2) principal office of the carrier; (3) place where
contract had been made (San Francisco); and (4) place of destination (San Francisco).21

We further held that Article 28(1) of the Warsaw Convention is jurisdictional in character. Thus:

A number of reasons tends to support the characterization of Article 28(1) as a jurisdiction and
not a venue provision. First, the wording of Article 32, which indicates the places where the
action for damages "must" be brought, underscores the mandatory nature of Article 28(1).
Second, this characterization is consistent with one of the objectives of the Convention, which is
to "regulate in a uniform manner the conditions of international transportation by air." Third, the
Convention does not contain any provision prescribing rules of jurisdiction other than Article
28(1), which means that the phrase "rules as to jurisdiction" used in Article 32 must refer only to
Article 28(1). In fact, the last sentence of Article 32 specifically deals with the exclusive
enumeration in Article 28(1) as "jurisdictions," which, as such, cannot be left to the will of the
parties regardless of the time when the damage occurred.

xxxx

In other words, where the matter is governed by the Warsaw Convention, jurisdiction takes on a
dual concept. Jurisdiction in the international sense must be established in accordance with
Article 28(1) of the Warsaw Convention, following which the jurisdiction of a particular court must
be established pursuant to the applicable domestic law. Only after the question of which court
has jurisdiction is determined will the issue of venue be taken up. This second question shall be
governed by the law of the court to which the case is submitted.22

Contrary to the contention of petitioner, Santos III v. Northwest Orient Airlines23 is analogous to
the instant case because (1) the domicile of respondent is London, United Kingdom;24 (2) the
principal office of respondent airline is likewise in London, United Kingdom;25 (3) the ticket was
purchased in Rome, Italy;26 and (4) the place of destination is Rome, Italy.27 In addition, petitioner
based her complaint on Article 217628 of the Civil Code on quasi-delict and Articles 1929 and
2130 of the Civil Code on Human Relations. In Santos III v. Northwest Orient Airlines,31 Augusto
Santos III similarly posited that Article 28 (1) of the Warsaw Convention did not apply if the action
is based on tort. Hence, contrary to the contention of the petitioner, the factual setting of Santos
III v. Northwest Orient Airlines32 and the instant case are parallel on the material points.

Tortious conduct as ground for the petitioner’s complaint is within the purview of the Warsaw
Convention.
Petitioner contends that in Santos III v. Northwest Orient Airlines,33 the cause of action was
based on a breach of contract while her cause of action arose from the tortious conduct of the
airline personnel and violation of the Civil Code provisions on Human Relations.34 In addition, she
claims that our pronouncement in Santos III v. Northwest Orient Airlines35 that "the allegation of
willful misconduct resulting in a tort is insufficient to exclude the case from the comprehension of
the Warsaw Convention," is more of an obiter dictum rather than the ratio decidendi.36 She
maintains that the fact that said acts occurred aboard a plane is merely incidental, if not
irrelevant.37

We disagree with the position taken by the petitioner. Black defines obiter dictum as "an opinion
entirely unnecessary for the decision of the case" and thus "are not binding as precedent."38 In
Santos III v. Northwest Orient Airlines,39 Augusto Santos III categorically put in issue the
applicability of Article 28(1) of the Warsaw Convention if the action is based on tort.

In the said case, we held that the allegation of willful misconduct resulting in a tort is insufficient
to exclude the case from the realm of the Warsaw Convention. In fact, our ruling that a cause of
action based on tort did not bring the case outside the sphere of the Warsaw Convention was our
ratio decidendi in disposing of the specific issue presented by Augusto Santos III. Clearly, the
contention of the herein petitioner that the said ruling is an obiter dictum is without basis.

Relevant to this particular issue is the case of Carey v. United Airlines,40 where the passenger
filed an action against the airline arising from an incident involving the former and the airline’s
flight attendant during an international flight resulting to a heated exchange which included
insults and profanity. The United States Court of Appeals (9th Circuit) held that the "passenger's
action against the airline carrier arising from alleged confrontational incident between passenger
and flight attendant on international flight was governed exclusively by the Warsaw Convention,
even though the incident allegedly involved intentional misconduct by the flight attendant."41

In Bloom v. Alaska Airlines,42 the passenger brought nine causes of action against the airline in
the state court, arising from a confrontation with the flight attendant during an international flight
to Mexico. The United States Court of Appeals (9th Circuit) held that the "Warsaw Convention
governs actions arising from international air travel and provides the exclusive remedy for
conduct which falls within its provisions." It further held that the said Convention "created no
exception for an injury suffered as a result of intentional conduct" 43 which in that case involved a
claim for intentional infliction of emotional distress.

It is thus settled that allegations of tortious conduct committed against an airline passenger
during the course of the international carriage do not bring the case outside the ambit of the
Warsaw Convention.

Respondent, in seeking remedies from the trial court through special appearance of counsel, is
not deemed to have voluntarily submitted itself to the jurisdiction of the trial court.

Petitioner argues that respondent has effectively submitted itself to the jurisdiction of the trial
court when the latter stated in its Comment/Opposition to the Motion for Reconsideration that
"Defendant [is at a loss] x x x how the plaintiff arrived at her erroneous impression that it is/was
Euro-Philippines Airlines Services, Inc. that has been making a special appearance since x x x
British Airways x x x has been clearly specifying in all the pleadings that it has filed with this
Honorable Court that it is the one making a special appearance."44

In refuting the contention of petitioner, respondent cited La Naval Drug Corporation v. Court of
Appeals45 where we held that even if a party "challenges the jurisdiction of the court over his
person, as by reason of absence or defective service of summons, and he also invokes other
grounds for the dismissal of the action under Rule 16, he is not deemed to be in estoppel or to
have waived his objection to the jurisdiction over his person."46
This issue has been squarely passed upon in the recent case of Garcia v.
Sandiganbayan,47 where we reiterated our ruling in La Naval Drug Corporation v. Court of
Appeals48 and elucidated thus:

Special Appearance to Question a Court’s Jurisdiction Is Not

Voluntary Appearance

The second sentence of Sec. 20, Rule 14 of the Revised Rules of Civil Procedure clearly
provides:

Sec. 20. Voluntary appearance. – The defendant’s voluntary appearance in the action shall be
equivalent to service of summons. The inclusion in a motion to dismiss of other grounds aside
from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary
appearance.

Thus, a defendant who files a motion to dismiss, assailing the jurisdiction of the court over his
person, together with other grounds raised therein, is not deemed to have appeared voluntarily
before the court. What the rule on voluntary appearance – the first sentence of the above-quoted
rule – means is that the voluntary appearance of the defendant in court is without qualification, in
which case he is deemed to have waived his defense of lack of jurisdiction over his person due
to improper service of summons.

The pleadings filed by petitioner in the subject forfeiture cases, however, do not show that she
voluntarily appeared without qualification. Petitioner filed the following pleadings in Forfeiture I:
(a) motion to dismiss; (b) motion for reconsideration and/or to admit answer; (c) second motion
for reconsideration; (d) motion to consolidate forfeiture case with plunder case; and (e) motion to
dismiss and/or to quash Forfeiture I. And in Forfeiture II: (a) motion to dismiss and/or to quash
Forfeiture II; and (b) motion for partial reconsideration.

The foregoing pleadings, particularly the motions to dismiss, were filed by petitioner solely for
special appearance with the purpose of challenging the jurisdiction of the SB over her person
and that of her three children. Petitioner asserts therein that SB did not acquire jurisdiction over
her person and of her three children for lack of valid service of summons through improvident
substituted service of summons in both Forfeiture I and Forfeiture II. This stance the petitioner
never abandoned when she filed her motions for reconsideration, even with a prayer to admit
their attached Answer Ex Abundante Ad Cautelam dated January 22, 2005 setting forth
affirmative defenses with a claim for damages. And the other subsequent pleadings, likewise, did
not abandon her stance and defense of lack of jurisdiction due to improper substituted services
of summons in the forfeiture cases. Evidently, from the foregoing Sec. 20, Rule 14 of the 1997
Revised Rules on Civil Procedure, petitioner and her sons did not voluntarily appear before the
SB constitutive of or equivalent to service of summons.

Moreover, the leading La Naval Drug Corp. v. Court of Appeals applies to the instant case. Said
case elucidates the current view in our jurisdiction that a special appearance before the court––
challenging its jurisdiction over the person through a motion to dismiss even if the movant
invokes other grounds––is not tantamount to estoppel or a waiver by the movant of his objection
to jurisdiction over his person; and such is not constitutive of a voluntary submission to the
jurisdiction of the court.
1avv phi1

Thus, it cannot be said that petitioner and her three children voluntarily appeared before the SB
to cure the defective substituted services of summons. They are, therefore, not estopped from
questioning the jurisdiction of the SB over their persons nor are they deemed to have waived
such defense of lack of jurisdiction. Consequently, there being no valid substituted services of
summons made, the SB did not acquire jurisdiction over the persons of petitioner and her
children. And perforce, the proceedings in the subject forfeiture cases, insofar as petitioner and
her three children are concerned, are null and void for lack of jurisdiction. (Emphasis supplied)

In this case, the special appearance of the counsel of respondent in filing the Motion to Dismiss
and other pleadings before the trial court cannot be deemed to be voluntary submission to the
jurisdiction of the said trial court. We hence disagree with the contention of the petitioner and rule
that there was no voluntary appearance before the trial court that could constitute estoppel or a
waiver of respondent’s objection to jurisdiction over its person.

WHEREFORE, the petition is DENIED. The October 14, 2005 Order of the Regional Trial Court
of Makati City, Branch 132, dismissing the complaint for lack of jurisdiction, is AFFIRMED.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice
 SECOND DIVISION

G.R. No. L-33628 December 29, 1987

BIENVENIDO A. EBARLE, SANTIAGO EISMA, MIRUFO CELERIAN, JOSE SAYSON, CESAR

TABILIRAN, and MAXIMO ADLAWAN, petitioners,
vs.
HON. JUDGE MELQUIADES B. SUCALDITO, RUFINO LABANG, MENELEO MESINA,
ARTURO GUILLERMO, IN THEIR RESPECTIVE CAPACITIES AS JUDGE OF THE COURT
OF FIRST INSTANCE OF ZAMBOANGA DEL SUR, CITY FISCAL OF PAGADIAN CITY AND
STATE PROSECUTOR, and ANTI-GRAFT LEAGUE OF THE PHILIPPINES,
INC., respondents.

No. L-34162 December 29, 1987

BIENVENIDO A. EBARLE, petitioner,

vs.
HON. JUDGE ASAALI S. ISNANI, RUFINO LABANG, ALBERTO S. LIM, JR., JESUS
ACEBES, IN THEIR RESPECTIVE CAPACITIES AS JUDGE OF THE COURT OF FIRST
INSTANCE OF ZAMBOANGA DEL SUR, CITY FISCAL OF PAGADIAN CITY AND STATE
PROSECUTORS, ANTI-GRAFT LEAGUE OF THE PHILIPPINES, INC., and ARTEMIO
ROMANILLOS, respondents.

SARMIENTO, J.:

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 in Criminal Cases Nos. CCC XVI-4-ZDS, CCC XVI-6-ZDS, and CCC XVI-8-ZDS of
the then Circuit Criminal Court sitting in Pagadian City, 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
(Republic Act No. 3019) and various provisions of the Revised Penal Code, commenced by the
respondent Anti-Graft League of the Philippines, Inc.

On June 16, 1971 and October 8, 1971, respectively, we issued temporary restraining orders
directing the respondents (in both petitions) to desist from further proceedings in the cases in
question until further orders from the Court. At the same time, we gave due course to the
petitions and accordingly, required the respondents to answer.

The petitions raise pure question of law. The facts are hence, undisputed.

On September 26, 1970, the private respondent Anti-Graft League of the Philippines, Inc., filed a
complaint with the respondent City Fiscal, docketed as Criminal Case No. 1-70 thereof, for
violation of the provisions of the Anti-Graft Law as well as Article 171 of the Revised Penal Code,
as follows:

xxx xxx xxx

SPECIFICATION NO. I —

That on or about October 10, 1969, above-named respondents, conspiring and

confabulating together, allegedly conducted a bidding for the supply of gravel and
sand for the Province of Zamboanga del Sur: that it was made to appear that
 Tabiliran Trucking Company won the bidding; that, thereafter, the award and
contract pursuant to the said simulated bidding were effected and executed in
favor of Tabiliran Trucking Company; that, in truth and in fact, the said bidding
was really simulated and the papers on the same were falsified to favor Tabiliran
Trucking Company, represented by the private secretary of respondent
Bienvenido Ebarle, formerly confidential secretary of the latter; that said awardee
was given wholly unwarranted advantage and preference by means of manifest
partiality; that respondent officials are hereby also charged with interest for
personal gain for approving said award which was manifestly irregular and
grossly unlawful because the same was facilitated and committed by means of
falsification of official documents.

SPECIFICATION NO. II

That after the aforecited award and contract, Tabiliran Trucking Company,
represented by respondent Cesar Tabiliran, attempted to collect advances under
his trucking contract in the under his trucking contract in the amount of P4,823.95
under PTA No. 3654; that the same was not passed in audit by the Provincial
Auditor in view of the then subsisting contract with Tecson Trucking Company;
which was to expire on November 2, 1969; that nevertheless the said amount
was paid and it was made to appear that it was collected by Tecson Trucking
Company, although there was nothing due from tile latter and the voucher was
never indorsed or signed by the operator of Tecson Trucking; and that in
facilitating and consummating the aforecited collection, respondent officials,
hereinabove cited, conspired and connived to the great prejudice and damage of
the Provincial Government of Zamboanga del Sur. 1

xxx xxx xxx

On the same date, the private respondent commenced Criminal Case No. 2-71 of the respondent
City Fiscal, another proceeding for violation of Republic Act No. 3019 as well as Article 171 of the
Revised Penal Code. The complaint reads as follows:

xxx xxx xxx

That on or about April 8, 1970, a bidding was held for the construction of the right
wing portion of the Capitol Building of the Province of Zamboanga del Sur, by the
Bidding Committee composed of respondents cited hereinabove; that the said
building was maliciously manipulated so as to give wholly unwarranted
advantage and preference in favor of the, supposed winning bidder, Codeniera
Construction, allegedly owned and managed by Wenceslao Codeniera, brother-
in-law of the wife of respondent Bienvenido Ebarle; that respondent official is
interested for personal gain because he is responsible for the approval of the
manifestly irregular and unlawful award and contract aforecited; and that,
furthermore, respondent, being a Member of the Bidding Committee, also
violated Article 171 of the Revised Penal Code, by making it appear in the very
abstract of bids that another interested bidder, was not interested in the bidding,
when in truth and in fact, it was not so. 2

xxx xxx xxx

On January 26, 1971, the private respondent instituted I.S. No. 4-71 of the respondent Fiscal, a
prosecution for violation of Articles 182, 183, and 318 of the Revised Penal Code, as follows:

xxx xxx xxx

 That on or about April 4, 1967, in Pagadian City, said respondent testified falsely
under oath in Cadastral Case No. N-17, LRC CAD REC. NO. N-468, for
registration of title to Lot No. 2545 in particular;

That respondent BIENVENIDO EBARLE testified falsely under oath during the
hearing and reception of evidence that he acquired said lot by purchase from a
certain Brigido Sanchez and that he is the owner, when in truth and in fact Lot
2545 had been previously acquired and is owned by the provincial Government
of Zamboanga del Sur, where the provincial jail building is now located.

2. That aforesaid deceit, false testimony and untruthful statement of respondent

in said Cadastral case were made knowingly to the great damage and prejudice
of the Provincial Government of Zamboanga del Sur in violation of aforecited
provisions of the Revised Penal Code. 3

On February 10, 1971, finally, the private respondent filed a complaint, docketed as I.S. No. 5-71
of the respondent Fiscal, an action for violation of Republic Act No. 3019 and Articles 171 and
213 of the Revised Penal Code, as follows:

xxx xxx xxx

We hereby respectfully charge the above-named respondents for violation of

Sec. 3, R.A. No. 3019, otherwise known as the Anti-Graft and Corrupt Practices
Act, Articles 171 and 213, Revised Penal Code and the rules and regulations of
public bidding, committed as follows:

1. That on June 16, 1970, without publication, respondents

conducted the so-called "bidding" for the supply of gravel and
sand for the province of Zamboanga del Sur; that said
respondents, without any valid or legal ground, did not include or
even open the bid of one Jesus Teoson that was seasonably
submitted, despite the fact that he is a registered duly qualified
operator of "Teoson Trucking Service," and notwithstanding his
compliance with all the rules and requirements on public bidding;
that, instead, aforecited respondents illegally and irregularly
awarded said contract to Cesar Tabiliran, an associate of
respondent Governor Bienvenido Ebarle; and

2. That in truth and in fact, aforesaid "bidding" was really

simulated and papers were falsified or otherwise "doctored" to
favor respondent Cesar Tabiliran thereby giving him wholly
unwarranted advantage, preference and benefits by means of
manifest partiality; and that there is a statutory presumption of
interest for personal gain because the transaction and award
were manifestly irregular and contrary to applicable law, rules and
regulations.4

xxx xxx xxx

The petitioner initially moved to dismiss the aforesaid preliminary investigations, but the same
having been denied, he went to the respondent Court of First Instance of Zamboanga del Sur,
the Honorable Melquiades Sucaldito presiding, on prohibition and mandamus (Special Case No.
1000) praying at the same time, for a writ of preliminary injunction to enjoin further proceedings
therein. The court granted preliminary injunctive relief (restraining order) for which the Anti-Graft
League filed a motion to have the restraining order lifted and to have the petition itself dismissed.
On May 14, 1971, the respondent, Judge Sucaldito, handed down the first of the two challenged
orders, granting Anti-Graft League's motion and dismissing Special Case No. 1000.

On June 11, 1971, the petitioner came to this Court on certiorari with prayer for a temporary
restraining order (G.R. No. 33628). As we said, we issued a temporary restraining order on June
16, 1971.

Meanwhile, and in what would begin yet another series of criminal prosecutions, the private
respondent, on April 26, 1971, filed three complaints, subsequently docketed as Criminal Cases
Nos. CCC XVI-4-ZDS, CCC XVI-6-ZDS, and CCC XVI-8-ZDS of the Circuit Criminal Court of
Pagadian City for violation of various provisions of the Anti-Graft Law as well as Article 171(4) of
the Revised Penal Code, as follows:

xxx xxx xxx

That on or about December 18, 1969, in Pagadian City, and within the jurisdiction
of this Honorable Court, BIENVENIDO A. EBARLE, Provincial Governor of
Zamboanga del Sur, did then and there unlawfully and feloniously extended and
gave ELIZABETH EBARLE MONTESCLAROS, daughter of his brother, his
relative by consanguinity within the third degree, and appointment as Private
Secretary in the Office of the Provincial Governor of Zamboanga del Sur,
although he well know that the latter is related with him within the third degree by
consanguinity.

CONTRARY TO LAW. 5

xxx xxx xxx

xxx xxx xxx

That on or about December 18, 1969, in Pagadian City, and within the jurisdiction
of this Honorable Court, BIENVENIDO A. EBARLE, then and there unlawfully and
feloniously made untruthful statements in a narration of facts by accomplishing
and issuing a certificate, to wit: ,

c. That the provisions of law and rules on promotion, seniority and nepotism have
been observed.

required by law in such cases, in support of the appointment he extended to

ELIZABETH EBARLE-MONTESCLAROS as Private Secretary in the Office of the
Provincial Governor of Zamboanga del Sur, although he well know that the latter
is related with him within the third degree of consanguinity.

CONTRARY TO LAW.6

xxx xxx xxx

xxx xxx xxx

That on or about December 18, 1969, in Pagadian City, and within the jurisdiction
of this Honorable Court, BIENVENIDO A. EBARLE, then and there unlawfully and
feloniously made untruthful statements in a narration of facts by accomplishing
and issuing a certificate, to wit:
 c. That the provisions of law and rules on promotion, seniority and nepotism have
been observed.

required by law in such cases, in support of the appointment he extended to

TERESITO MONTESCLAROS, husband of his niece Elizabeth Ebarle, as Motor
Pool Dispatcher, Office of the Provincial Engineer of Zamboanga del Sur,
although he well knew that the latter is related with him within the third degree
affinity.

CONTRARY TO LAW. 7

xxx xxx xxx

Subsequently, on August 23, 1971, the private respondent brought I.S. No. 6-71 of the
respondent Pagadian City Fiscal against the petitioner, still another proceeding for violation of
Republic Act No. 3019 and Article 171 (4) of the Revised Penal Code, thus:

xxx xxx xxx

First Count.

That on or about December 1, 1969, in Pagadian City, BIENVENIDO A.

EBARLE, Provincial Governor of Zamboanga del Sur, did then and there
unlawfully and feloniously extended and gave MARIO EBARLE, son of his
brother, his relative by consanguinity within the third degree, an appointment as
SECURITY GUARD in the Office of the Provincial Engineer of Zamboanga del
Sur although he well knew that the latter is related with him in the third degree by
consanguinity and is not qualified under the Civil Service Law.

Second Count.

That in January, 1970, at Pagadian City, Gov. BIENVENIDO A. EBARLE

replaced JOHNNY ABABON who was then the incumbent Motor Pool Dispatcher
in the Office of the Provincial Engineer of Zamboanga del Sur with his nephew-in-
law TERESITO MONTESCLAROS relative by affinity within the third Civil degree,
in violation of the Civil Service Law, this knowingly causing undue injury in the
discharge of his administrative function through manifest partiality against said
complaining employee.

Third Count:

That on or about December 18, 1969, in Pagadian City, BIENVENIDO A.

EBARLE, Provincial Governor of Zamboanga del Sur, did then and there
unlawfully and feloniously extended and gave ELIZABETH EBARLE
MONTESCLAROS, daughter of his brother, his relative by consanguinity within
the third degree, an appointment as Private Secretary in the Office of the
Provincial Governor of Zamboanga del Sur, although he well know that the latter
is related with him within the third degree of consanguinity, and said appointment
is in violation of the Civil Service Law.

Fourth Count.

That on or about January 22, 1970, in Pagadian City, BIENVENIDO A. EBARLE,

Provincial Governor of Zamboanga del Sur, did then and there unlawfully and
feloniously extended and gave ZACARIAS UGSOD, JR., son of the younger
sister of Governor Ebarle, his relative by consanguinity within the third degree, an
appointment as Architectural Draftsman in the Office of the Provincial Engineer of
Zamboanga del Sur although he well know that the latter is related with him in the
third degree of consanguinity.

Fifth Count.

That on February 5, 1970, at Pagadian City, BIENVENIDO A. EBARLE,

Provincial Governor of Zamboanga del Sur, did then and there unlawfully and
feloniously extended and gave TERESITO MONTESCLAROS, husband of his
niece ELIZABETH EBARLE, his relative by affinity within the third degree, an
appointment as Motor Pool Dispatcher, Office of the Provincial Engineer of
Zamboanga del Sur, although he wen knew then that the latter was not qualified
to such appointment as it was in violation of the Civil Service Law, thereby
knowingly granting and giving unwarranted advantage and preference in the
discharge of his administrative function through manifest partiality.

II. SPECIFICATION FOR VIOLATION OF SECTION 4 (b), R.A. 3019

That on August 19, 1967, respondent BIENVENIDO A. EBARLE, Governor of

Zamboanga del Sur, taking advantage of his position caused, persuaded,
induced, or influence the Presiding Judge to perform irregular and felonious act in
violation of applicable law or constituting an offense into awarding and decreeing
Lot 2645 of the Pagadian Public Lands subdivision to him who, according to the
records of the case, failed to establish his rights of ownership pursuant to the
provisions of the Land Registration law and the Public Land Act, it appearing that
the Provincial Government of Zamboanga del Sur as and is a claimant and in
adverse possession of Lot 2545 whereon the Provincial Jail Building thereon still
stands.

III. SPECIFICATION FOR VIOLATION OF ARTICLE 171 (4), REVISED PENAL

CODE

First Count.

That on or about December 18, 1969, in Pagadian City, BIENVENIDO A.

EBARLE, then and there unlawfully and feloniously made untruthful statement in
a narration of facts by accomplishing and issuing a certificate, to wit:

c. That the provisions of law and rules on promotion, seniority and nepotism have
been observed.

required by law in such cases, in support of the appointment he extended to

TERESITO MONTESCLAROS, husband of his niece ELIZABETH EBARLE, as
Motor Pool Dispatcher, Office of the Provincial Engineer of Zamboanga del Sur,
although he wen knew that the latter is related with him within the third degree of
affinity and is in violation of the Civil Service Law.

Second Count.

That on or about December 18, 1969, in Pagadian City, BIENVENIDO A.

EBARLE, then and there unlawfully and feloniously made untruthful statements a
certificate, to wit:
 c. That the provisions of the law and rules on promotion, seniority and nepotism
have been observed.

required by law in such cases, in support of the appointment he extended to

ELIZABETH EBARLE-MONTESCLAROS as Private Secretary in the Office of the
Provincial Governor of Zamboanga del Sur, although he well knew that the latter
is related with him within the third degree of consanguinity, and is in violation of
the Civil Service Law. CONTRARY to aforecited laws. 8

xxx xxx xxx

On September 21, 1971, the private respondent instituted I.S. No. 7-71 of the said City Fiscal,
again charging the petitioner with further violations of Republic Act No. 3019 thus:

xxx xxx xxx

First Count.

That on or about December 2, 1969, in Pagadian City, BIENVENIDO EBARLE,

Provincial Governor of Zamboanga del Sur, did then and there unlawfully and
feloniously extend and give unwarranted benefits and privileges BONINDA
EBARLE, wife of his brother Bertuldo Ebarle, the former being his relative by
affinity within the second civil degree, an appointment as LABORATORY
TECHNICIAN in Pagadian City, although he well knew that the latter is related to
him in the second degree by affinity and is not qualified under the Civil Service
Law.

Second Count.

That on or about January 1, 1970, at Pagadian City, BIENVENIDO EBARLE,

Provincial Governor of Zamboanga del Sur, did then and there unlawfully and
feloniously extend and give unwarranted benefits and privileges JESUS
EBARLE, nephew of said respondent, an appointment as DRIVER of the
Provincial Engineer's Office, Pagadian City, although he well knew that Jesus
Ebarle is related to him within the third civil degree by consanguinity and is not
qualified under the Civil Service Law.

Third Count.

That on or about November 1, 1969, at Pagadian City, BIENVENIDO EBARLE,

Provincial Governor of Zamboanga del Sur, did then and there unlawfully and
feloniously extend and give unwarranted benefits and privileges PHENINA
CODINERA, sister-in-law of said respondent, an appointment as CONFIDENTIAL
ASSISTANT in the Office of the Provincial Governor, Pagadian City, although he
well knew that Phenina Codinera is related to him in the second civil degree of
consanguinity and is not qualified under the Civil Service Law.

ALL CONTRARY TO AFORECITED LAW.

Please give due course to the above complaint and please set the case for
immediate preliminary investigation pursuant to the First Indorsement dated
August 27, 1971 of the Secretary of Justice, and in the paramount interest of
good government. 9

xxx xxx xxx

The petitioner thereafter went to the respondent Court of First Instance of Zamboanga del Sur,
the Honorable Asaali Isnani presiding, on a special civil action (Special Civil Case No. 1048) for
prohibition and certiorari with preliminary injunction. The respondent Court issued a restraining
order. The respondent Anti-Graft League moved to have the same lifted and the case itself
dismissed.

On September 27, 1971, Judge Isnani issued an order, dismissing the case.

On October 6, 1971, the petitioner instituted G.R. No. 34162 of this Court, a special civil action
for certiorari with preliminary injunction. As earlier noted, we on October 8, 1971, stayed the
implementation of dismissal order.

Subsequently, we consolidated both petitions and considered the same submitted for decision.

Principally, the petitioner relies (in both petitions) 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," 10 preliminary to
their criminal recourses. At the same time, he assails the standing of the respondent Anti-Graft League to commence the series of
prosecutions below (G.R. No. 33628). He likewise contends that the respondent Fiscal (in G.R. No. 34162), in giving due course to the
complaints notwithstanding the restraining order we had issued (in G.R. No. 33628), which he claims applies as well thereto, committed
a grave abuse of discretion.

He likewise submits that the prosecutions in question are politically motivated, initiated by his
rivals, he being, as we said, a candidate for reelection as Governor of Zamboanga del Sur.

We dismiss these petitions.

The petitioner's reliance upon the provisions of Executive Order No. 264 has no merit. We
reproduce the Order in toto:

MALACAÑANG

RESIDENCE OF THE PRESIDENT

OF THE PHILIPPINES

MANILA

BY THE PRESIDENT OF THE PHILIPPINES

EXECUTIVE ORDER NO. 264

OUTLINING THE PROCEDURE BY WHICH COMPLAINANTS CHARGING

GOVERNMENT OFFICIALS AND EMPLOYEES WITH COMMISSION OF
IRREGULARITIES SHOULD BE GUIDED.

WHEREAS, it is necessary that the general public be duly informed or reminded

of the procedure provided by law and regulations by which complaints against
public officials and employees should be presented and prosecuted.

WHEREAS, actions on complaints are at times delayed because of the failure to

observe the form.91 requisites therefor, to indicate with sufficient clearness and
particularity the charges or offenses being aired or denounced, and to file the
complaint with the proper office or authority;
WHEREAS, without in any way curtailing the constitutional guarantee of freedom
of expression, the Administration believes that many complaints or grievances
could be resolved at the lower levels of government if only the provisions of law
and regulations on the matter are duly observed by the parties concerned; and

WHEREAS, while all sorts of officials misconduct should be eliminated and

punished, it is equally compelling that public officials and employees be given
opportunity afforded them by the constitution and law to defend themselves in
accordance with the procedure prescribed by law and regulations;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines,

by virtue of the powers vested in me by law, do hereby order:

1. Complaints against public officials and employees shall be in writing,

subscribed and sworn to by the complainants, describing in sufficient detail and
particularity the acts or conduct complained of, instead of generalizations.

2. Complaints against presidential appointees shag be filed with the Office of the
President or the Department Head having direct supervision or control over the
official involved.

3. Those against subordinate officials and employees shall be lodged with the
proper department or agency head.

4. Those against elective local officials shall be filed with the Office of the
President in case of provincial and city officials, with the provincial governor or
board secretary in case of municipal officials, and with the municipal or city mayor
or secretary in case of barrio officials.

5. Those against members of police forces shall be filed with the corresponding
local board of investigators headed by the city or municipal treasurer, except in
the case of those appointed by the President which should be filed with the Office
of the President.

6. Complaints against public officials and employees shall be promptly acted

upon and disposed of by the officials or authorities concerned in accordance with
pertinent laws and regulations so that the erring officials or employees can be
soonest removed or otherwise disciplined and the innocent, exonerated or
vindicated in like manner, and to the end also that other remedies, including court
action, may be pursued forthwith by the interested parties after administrative
remedies shall have been exhausted.

Done in the City of Manila, this 6th day of October, in the year of Our Lord,
nineteen hundred and seventy.

(Sgd.)
FERDINAND E.
MARCOS

Pre
side
nt
of
the
Phil
 ippi
nes

By the President:

(Sgd.)
ALEJANDRO
MELCHOR

Exe
cuti
ve
Sec
reta
ry 1
1

It is plain from the very wording of the Order that it has exclusive application to administrative, not criminal complaints. The Order itself
shows why.

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.

The first perambulatory clause states the necessity for informing the public "of the procedure
provided by law and regulations by which complaints against public officials and employees
should be presented and prosecuted. 12 To our mind, the "procedure provided by law and regulations" referred to
pertains to existing procedural rules with respect to the presentation of administrative charges against erring government officials. And
in fact, the aforequoted paragraphs are but restatements thereof. That presidential appointees are subject to the disciplinary jurisdiction
of the President, for instance, is a reecho of the long-standing doctrine that the President exercises the power of control over his
appointees. 13 Paragraph 3, on the other hand, regarding subordinate officials, is a mere reiteration of Section 33 of Republic Act No.
2260, the Civil Service Act (of 1959) then in force, placing jurisdiction upon "the proper Head of Department, the chief of a bureau or
office" 14 to investigate and decide on matters involving disciplinary action.

Paragraph 4, which refers to complaints filed against elective local officials, reiterates, on the
other hand, the Decentralization Act of 1967, providing that "charges against any elective
provincial and city officials shall be preferred before the President of the Philippines; against any
elective municipal official before the provincial governor or the secretary of the provincial board
concerned; and against any elective barrio official before the municipal or secretary
concerned. 15

Paragraph 5, meanwhile, is a reproduction of the provisions of the Police Act of 1966, vesting
upon a "Board of Investigators" 16 the jurisdiction to try and decide complaints against members of the Philippine police.

Clearly, the Executive Order simply consolidates these existing rules and streamlines the
administrative apparatus in the matter of complaints against public officials. Furthermore, the fact
is that there is no reference therein to judicial or prejudicial (like a preliminary investigation
conducted by the fiscal) recourse, not because it makes such a resort a secondary measure, but
because it does not intend to serve as a condition precedent to, much less supplant, such a court
resort.

To be sure, there is mention therein of "court action[s] [being] pursued forthwith by the interested
parties, " 17 but that does not, so we hold, cover proceedings such as criminal actions, which do not require a prior administrative
course of action. It will indeed be noted that the term is closely shadowed by the qualification, "after administrative remedies shall have
been exhausted," 18 which suggests civil suits subject to previous administrative action.

It is moreover significant that the Executive Order in question makes specific reference to "erring
officials or employees ... removed or otherwise vindicated. 19 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.

What is even more compelling is the Constitutional implications if the petitioner's arguments were
accepted. For Executive Order No. 264 was promulgated under the 1935 Constitution in which
legislative power was vested exclusively in Congress. The regime of Presidential lawmaking was
to usher in yet some seven years later. If we were to consider the Executive Order law, we would
be forced to say that it is an amendment to Republic Act No. 5180, the law on preliminary
investigations then in effect, a situation that would give rise to a Constitutional anomaly. We
cannot accordingly countenace such a view.

The challenge the petitioner presents against the personality of the Anti-Graft League of the
Philippines to bring suit is equally without merit. That the Anti-Graft League is not an "offended
party" within the meaning of Section 2, Rule 110, of the Rules of Court (now Section 3 of the
1985 Rules on Criminal Procedure), cannot abate the complaints in question.

A complaint for purposes of preliminary investigation by the fiscal need not be filed by the
"offended party." The rule has been that, unless the offense subject thereof is one that cannot be
prosecuted de oficio, the same may be filed, for preliminary investigation purposes, by any
competent person. 20 The "complaint" referred to in the Rule 110 contemplates one filed in court,
not with the fiscal, In that case, the proceeding must be started by the aggrieved party himself. 21

For as a general rule, a criminal action is commenced by complaint or information, both of which
are filed in court. In case of a complaint, it must be filed by the offended party; with respect to an
information, it is the fiscal who files it. But a "complaint" filed with the fiscal prior to a judicial
action may be filed by any person.

The next question is whether or not the temporary restraining order we issued in G.R. No. 33628
embraced as well the complaint subject of G.R. No. 34162.

It is noteworthy that the charges levelled against the petitioner — whether in G.R. No. 33628 or
34162 — refer invariably to violations of the Anti-Graft Law or the Revised Penal Code. That
does not, however, make such charges Identical to one another.

The complaints involved in G.R. No. 34162 are, in general, nepotism under Sections 3(c) and (j)
of Republic Act No. 3019; exerting influence upon the presiding Judge of the Court of First
Instance of Zamboanga del Sur to award a certain parcel of land in his favor, over which the
provincial government itself lays claims, contrary to the provisions of Section 4(b) of Republic Act
No. 3019; and making untruthful statements in the certificates of appointment of certain
employees in his office. On the other hand, the complaints subject matter of G.R. No. 33628
involve charges of simulating bids for the supply of gravel and sand for certain public works
projects, in breach of Section 3 of the Anti-Graft statute; manipulating bids with respect to the
construction of the capitol building; testifying falsely in connection with Cadastral Case No. N-17,
LRC Cad. Rec. N-468, in which the petitioner alleged that he was the owner of a piece of land, in
violation of Articles 182, 183, and 318 of the Revised Penal Code; and simulating bids for the
supply of gravel and sand in connection with another public works project.

It is clear that the twin sets of complaints are characterized by major differences. When,
therefore, we restrained further proceedings in I.S. Nos. 1-71, 2-71, and 4-71, subject of G.R. No.
33628. we did not consequently stay the proceedings in CCC-XVI-4-ZDS, CCC XVI-6-ZDS, CCC
XVI-8-ZDS, and I.S. Nos. 6-71 and 7-71, the same proceedings we did restrain in G.R. No.
34162.

This brings us to the last issue: whether or not the complaints in question are tainted with a
political color.
It is not our business to resolve complaints the disposition of which belongs to another agency, in
this case, the respondent Fiscal. But more than that, and as a general rule, injunction does not lie
to enjoin criminal prosecutions. 22 The rule is subject to exceptions, to wit: (1) for the orderly
administration of justice; (2) to prevent the use of the strong arm of the law in an oppressive and
vindictive manner; (3) to avoid multiplicity of actions; (4) to afford adequate protection to
constitutional rights; and (5) because the statute relied on is constitutionally infirm or otherwise
void. 23 We cannot perceive any of the exceptions applicable here. The petitioner cries foul, in a
manner of speaking, with respect to the deluge of complaints commenced by the private
respondent below, but whether or not they were filed for harassment purposes is a question we
are not in a position to decide. The proper venue, we believe, for the petitioner's complaint is
precisely in the preliminary investigations he wishes blocked here.

WHEREFORE, the petitions are DISMISSED. The temporary restraining orders are LIFTED and
SET ASIDE. Costs against the petitioners.

It is so ORDERED.
 FIRST DIVISION

G.R. No. L-52306 October 12, 1981

ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.
COURT OF TAX APPEALS and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.

MELENCIO-HERRERA, J.:

This is a Petition for Review on certiorari of the Decision of the Court of Tax Appeals in C.T.A.
Case No. 2809, dated November 29, 1979, which affirmed the assessment by the Commissioner
of Internal Revenue, dated April 16, 1971, of a deficiency withholding income tax against
petitioner, ABS-CBN Broadcasting Corporation, for the years 1965, 1966, 1967 and 1968 in the
respective amounts of P75,895.24, P99,239.18, P128,502.00 and P222, 260.64, or a total of
P525,897.06.

During the period pertinent to this case, petitioner corporation was engaged in the business of
telecasting local as well as foreign films acquired from foreign corporations not engaged in trade
or business within the Philippines. for which petitioner paid rentals after withholding income tax of
30%of one-half of the film rentals.

In so far as the income tax on non-resident corporations is concerned, section 24 (b) of the
National Internal Revenue Code, as amended by Republic Act No. 2343 dated June 20, 1959,
used to provide:

(b) Tax on foreign corporations.—(1) Non-resident corporations.— There shall be

levied, collected, and paid for each taxable year, in lieu of the tax imposed by the
preceding paragraph, upon the amount received by every foreign corporation not
engaged in trade or business within the Philippines, from an sources within the
Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities,
compensations, remunerations, emoluments, or other fixed or determinable
annual or periodical gains, profits, and income, a tax equal to thirty per centum of
such amount. (Emphasis supplied)

On April 12, 1961, in implementation of the aforequoted provision, the Commissioner of Internal
Revenue issued General Circular No. V-334 reading thus:

In connection with Section 24 (b) of Tax Code, the amendment introduced by

Republic Act No. 2343, under which an income tax equal to 30% is levied upon
the amount received by every foreign corporation not engaged in trade or
business within the Philippines from all sources within this country as interest,
dividends, rents, salaries, wages, premiums, annuities, compensations,
remunerations, emoluments, or other fixed or determinable annual or periodical
gains, profits, and income, it has been determined that the tax is still imposed on
income derived from capital, or labor, or both combined, in accordance with the
basic principle of income taxation (Sec. 39, Income Tax Regulations), and that a
mere return of capital or investment is not income (Par. 5,06, 1 Mertens Law of
Federal 'Taxation). Since according to the findings of the Special Team who
inquired into business of the non-resident foreign film distributors, the distribution
or exhibition right on a film is invariably acquired for a consideration, either for a
lump sum or a percentage of the film rentals, whether from a parent company or
 an independent outside producer, apart of the receipts of a non-resident foreign
film distributor derived from said film represents, therefore, a return of investment.

xxx xxx xxx

4. The local distributor should withhold 30% of one-half of the film rentals paid to
the non-resident foreign film distributor and pay the same to this office in
accordance with law unless the non- resident foreign film distributor makes a prior
settlement of its income tax liability. (Emphasis ours).

Pursuant to the foregoing, petitioner dutifully withheld and turned over to the Bureau of Internal
Revenue the amount of 30% of one-half of the film rentals paid by it to foreign corporations not
engaged in trade or business within the Philippines. The last year that petitioner withheld taxes
pursuant to the foregoing Circular was in 1968.

On June 27, 1968, Republic Act No. 5431 amended Section 24 (b) of the Tax Code increasing
the tax rate from 30 % to 35 % and revising the tax basis from "such amount" referring to rents,
etc. to "gross income," as follows:

(b) Tax on foreign corporations.—(1) Non-resident corporations.—A foreign

corporation not engaged in trade or business in the Philippines including a foreign
life insurance company not engaged in the life insurance business in the
Philippines shall pay a tax equal to thirty-five per cent of the gross income
received during each taxable year from all sources within the Philippines, as
interests, dividends, rents, royalties, salaries, wages, premiums, annuities,
compensations, remunerations for technical services or otherwise, emoluments
or other fixed or determinable annual, periodical or casual gains, profits, and
income, and capital gains, Provided however, That premiums shah not include
reinsurance premiums. (Emphasis supplied)

On February 8, 1971, the Commissioner of Internal Revenue issued Revenue Memorandum

Circular No. 4-71, revoking General Circular No. V-334, and holding that the latter was
"erroneous for lack of legal basis," because "the tax therein prescribed should be based on gross
income without deduction whatever," thus:

After a restudy and analysis of Section 24 (b) of the National Internal Revenue
Code, as amended by Republic Act No. 5431, and guided by the interpretation
given by tax authorities to a similar provision in the Internal Revenue Code of the
United States, on which the aforementioned provision of our Tax Code was
patterned, this Office has come to the conclusion that the tax therein
prescribed should be based on gross income without t deduction whatever.
Consequently, the ruling in General Circular No. V-334, dated April 12, 1961,
allowing the deduction of the proportionate cost of production or exhibition of
motion picture films from the rental income of non- resident foreign corporations,
is erroneous for lack of legal basis.

In view thereof, General Circular No. V-334, dated April 12, 1961, is hereby
revoked and henceforth, local films distributors and exhibitors shall deduct and
withhold 35% of the entire amount payable by them to non-resident foreign
corporations, as film rental or royalty, or whatever such payment may be
denominated, without any deduction whatever, pursuant to Section 24 (b), and
pay the withheld taxes in accordance with Section 54 of the Tax Code, as
amended.

All rulings inconsistent with this Circular is likewise revoked. (Emphasis ours)
On the basis of this new Circular, respondent Commissioner of Internal Revenue issued against
petitioner a letter of assessment and demand dated April 15, 1971, but allegedly released by it
and received by petitioner on April 12, 1971, requiring them to pay deficiency withholding income
tax on the remitted film rentals for the years 1965 through 1968 and film royalty as of the end of
1968 in the total amount of P525,897.06 computed as follows:

1965

Total amount remitted P 511,059.48

Withholding tax due 153,318.00

thereon

Less: Amount already 89,000.00

assessed

Balance P64,318.00

Add: 1/2% mo. int. fr. 4- 11,577.24

16-66 to 4-16-69

Total amount due & P 75,895.24

collectible

1966

Total amount remitted P373,492.24

Withholding tax due 112,048.00

thereon

Less: Amount already 27,947.00

assessed

Balance 84,101.00

Add: 11/2%mo. int. fr. 4- 15,138.18

16-67 to 4-116-70

Total amount due & P99,239.18

collectible

1967

Total amount remitted P601,160.65

Withholding tax 180,348.00

due thereon

Less: Amount 71,448.00

already assessed

Balance 108,900.00
 Add: 1/2% mo. int. 19,602.00
fr. 4-16-68 to 4-16-
71

Total amount due P128,502.00

& collectible

1968

Total amount remitted P881,816.92

Withholding tax due 291,283.00

thereon

Less: Amount already 92,886.00

assessed

Balance P198,447.00

Add: 1/2% mo. int. fr. 23,813.64

4-16-69 to 4-29-71

Total amount due & P222,260.44 1

collectible

On May 5, 1971, petitioner requested for a reconsideration and withdrawal of the assessment.
However, without acting thereon, respondent, on April 6, 1976, issued a warrant of distraint and
levy over petitioner's personal as well as real properties. The petitioner then filed its Petition for
Review with the Court of Tax Appeals whose Decision, dated November 29, 1979, is, in turn, the
subject of this review. The Tax Court held:

For the reasons given, the Court finds the assessment issued by respondent on
April 16, 1971 against petitioner in the amounts of P75,895.24, P 99,239.18,
P128,502.00 and P222,260.64 or a total of P525,897.06 as deficiency
withholding income tax for the years 1965, 1966, 1967 and 1968, respectively, in
accordance with law. As prayed for, the petition for review filed in this case is
dismissed, and petitioner ABS-CBN Broadcasting Corporation is hereby ordered
to pay the sum of P525,897.06 to respondent Commissioner of Internal Revenue
as deficiency withholding income tax for the taxable years 1965 thru 1968, plus
the surcharge and interest which have accrued thereon incident to delinquency
pursuant to Section 51 (e) of the National Internal Revenue Code, as amended.

WHEREFORE, the decision appealed from is hereby affirmed at petitioner's cost.

SO ORDERED. 2

The issues raised are two-fold:

I. Whether or not respondent can apply General Circular No. 4-71 retroactively
and issue a deficiency assessment against petitioner in the amount of P
525,897.06 as deficiency withholding income tax for the years 1965, 1966, 1967
and 1968.

II. Whether or not the right of the Commissioner of Internal Revenue to assess
the deficiency withholding income tax for the year 196,5 has prescribed. 3
Upon the facts and circumstances of the case, review is warranted.

In point is Sec. 338-A (now Sec. 327) of the Tax Code. As inserted by Republic Act No. 6110 on
August 9, 1969, it provides:

Sec. 338-A. Non-retroactivity of rulings. — Any revocation, modification, or

reversal of and of the rules and regulations promulgated in accordance with the
preceding section or any of the rulings or circulars promulgated by the
Commissioner of Internal Revenue shall not be given retroactive application if the
relocation, modification, or reversal will be prejudicial to the taxpayers, except in
the following cases: (a) where the taxpayer deliberately mis-states or omits
material facts from his return or any document required of him by the Bureau of
Internal Revenue: (b) where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on which the ruling is
based; or (c) where the taxpayer acted in bad faith. (italics for emphasis)

It is clear from the foregoing that rulings or circulars promulgated by the Commissioner of Internal
Revenue have no retroactive application where to so apply them would be prejudicial to
taxpayers. The prejudice to petitioner of the retroactive application of Memorandum Circular No.
4-71 is beyond question. It was issued only in 1971, or three years after 1968, the last year that
petitioner had withheld taxes under General Circular No. V-334. The assessment and demand on
petitioner to pay deficiency withholding income tax was also made three years after 1968 for a
period of time commencing in 1965. Petitioner was no longer in a position to withhold taxes due
from foreign corporations because it had already remitted all film rentals and no longer had any
control over them when the new Circular was issued. And in so far as the enumerated exceptions
are concerned, admittedly, petitioner does not fall under any of them.

Respondent claims, however, that the provision on non-retroactivity is inapplicable in the present
case in that General Circular No. V-334 is a nullity because in effect, it changed the law on the
matter. The Court of Tax Appeals sustained this position holding that: "Deductions are wholly
and exclusively within the power of Congress or the law-making body to grant, condition or deny;
and where the statute imposes a tax equal to a specified rate or percentage of the gross or entire
amount received by the taxpayer, the authority of some administrative officials to modify or
change, much less reduce, the basis or measure of the tax should not be read into
law." 4 Therefore, the Tax Court concluded, petitioner did not acquire any vested right thereunder
as the same was a nullity.

The rationale behind General Circular No. V-334 was clearly stated therein, however: "It ha(d)
been determined that the tax is still imposed on income derived from capital, or labor, or both
combined, in accordance with the basic principle of income taxation ...and that a mere return of
capital or investment is not income ... ." "A part of the receipts of a non-resident foreign film
distributor derived from said film represents, therefore, a return of investment." The Circular thus
fixed the return of capital at 50% to simplify the administrative chore of determining the portion of
the rentals covering the return of capital." 5

Were the "gross income" base clear from Sec. 24 (b), perhaps, the ratiocination of the Tax Court
could be upheld. It should be noted, however, that said Section was not too plain and simple to
understand. The fact that the issuance of the General Circular in question was rendered
necessary leads to no other conclusion than that it was not easy of comprehension and could be
subjected to different interpretations.

In fact, Republic Act No. 2343, dated June 20, 1959, supra, which was the basis of General
Circular No. V-334, was just one in a series of enactments regarding Sec. 24 (b) of the Tax
Code. Republic Act No. 3825 came next on June 22, 1963 without changing the basis but merely
adding a proviso (in bold letters).
 (b) Tax on foreign corporation.—(1) Non-resident corporations. — There shall be
levied, collected and paid for each taxable year, in lieu of the tax imposed by the
preceding paragraph, upon the amount received by every foreign corporation not
engaged in trade or business within the Philippines, from all sources within the
Philippines, as interest, dividends, rents, salaries, wages, premiums annuities,
compensations, remunerations, emoluments, or other fixed or determinable
annual or periodical gains, profits, and income, a tax equal to thirty per centum of
such amount: PROVIDED, HOWEVER, THAT PREMIUMS SHALL NOT
INCLUDE REINSURANCE PREMIUMS. (double emphasis ours).

Republic Act No. 3841, dated likewise on June 22, 1963, followed after, omitting the proviso and
inserting some words (also in bold letters).

(b) Tax on foreign corporations.—(1) Non-resident corporations.—There shall be

levied, collected and paid for each taxable year, in lieu of the tax imposed by the
preceding paragraph, upon the amount received by every foreign corporation not
engaged in trade or business within the Philippines, from all sources within the
Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities,
compensations, remunerations, emoluments, or other fixed or determinable
annual or periodical OR CASUAL gains, profits and income, AND CAPITAL
GAINS, a tax equal to thirty per centum of such amount. 6 (double emphasis
supplied)

The principle of legislative approval of administrative interpretation by re-enactment clearly

obtains in this case. It provides that "the re-enactment of a statute substantially unchanged is
persuasive indication of the adoption by Congress of a prior executive construction. 7 Note should
be taken of the fact that this case involves not a mere opinion of the Commissioner or ruling
rendered on a mere query, but a Circular formally issued to "all internal revenue officials" by the
then Commissioner of Internal Revenue.

It was only on June 27, 1968 under Republic Act No. 5431, supra, which became the basis of
Revenue Memorandum Circular No. 4-71, that Sec. 24 (b) was amended to refer specifically to
35% of the "gross income."

This Court is not unaware of the well-entrenched principle that the Government is never
estopped from collecting taxes because of mistakes or errors on the part of its
agents. 8 In fact, utmost caution should be taken in this regard. 9 But, like other principles of law,
this also admits of exceptions in the interest of justice and fairplay. The insertion of Sec. 338-A
into the National Internal Revenue Code, as held in the case of Tuason, Jr. vs. Lingad, 10 is
indicative of legislative intention to support the principle of good faith. In fact, in the United
States, from where Sec. 24 (b) was patterned, it has been held that the Commissioner of
Collector is precluded from adopting a position inconsistent with one previously taken where
injustice would result therefrom, 11 or where there has been a misrepresentation to the taxpayer. 12

We have also noted that in its Decision, the Court of Tax Appeals further required the petitioner
to pay interest and surcharge as provided for in Sec. 51 (e) of the Tax Code in addition to the
deficiency withholding tax of P 525,897.06. This additional requirement is much less called for
because the petitioner relied in good faith and religiously complied with no less than a Circular
issued "to all internal revenue officials" by the highest official of the Bureau of Internal Revenue
and approved by the then Secretary of Finance. 13

With the foregoing conclusions arrived at, resolution of the issue of prescription becomes
unnecessary.

WHEREFORE, the judgment of the Court of Tax Appeals is hereby reversed, and the questioned
assessment set aside. No costs.
SO ORDERED.
 THIRD DIVISION

G.R. No. 152609 June 29, 2005

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH), Respondent.

DECISION

PANGANIBAN, J.:

As a general rule, the value-added tax (VAT) system uses the destination principle. However, our
VAT law itself provides for a clear exception, under which the supply of service shall be zero-
rated when the following requirements are met: (1) the service is performed in the Philippines; (2)
the service falls under any of the categories provided in Section 102(b) of the Tax Code; and (3)
it is paid for in acceptable foreign currency that is accounted for in accordance with the
regulations of the Bangko Sentral ng Pilipinas. Since respondent’s services meet these
requirements, they are zero-rated. Petitioner’s Revenue Regulations that alter or revoke the
above requirements are ultra vires and invalid.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the February
28, 2002 Decision2 of the Court of Appeals (CA) in CA-GR SP No. 62727. The assailed Decision
disposed as follows:

"WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of merit. The
assailed decision of the Court of Tax Appeals (CTA) is AFFIRMED in toto."3

The Facts

Quoting the CTA, the CA narrated the undisputed facts as follows:

"[Respondent] is a Philippine branch of American Express International, Inc., a corporation duly

organized and existing under and by virtue of the laws of the State of Delaware, U.S.A., with
office in the Philippines at the Ground Floor, ACE Building, corner Rada and de la Rosa Streets,
Legaspi Village, Makati City. It is a servicing unit of American Express International, Inc. -
Hongkong Branch (Amex-HK) and is engaged primarily to facilitate the collections of Amex-HK
receivables from card members situated in the Philippines and payment to service
establishments in the Philippines.

"Amex Philippines registered itself with the Bureau of Internal Revenue (BIR), Revenue District
Office No. 47 (East Makati) as a value-added tax (VAT) taxpayer effective March 1988 and was
issued VAT Registration Certificate No. 088445 bearing VAT Registration No. 32A-3-004868. For
the period January 1, 1997 to December 31, 1997, [respondent] filed with the BIR its quarterly
VAT returns as follows:

Exhibit Period Covered Date Filed

D 1997 1st Qtr. April 18, 1997
F 2nd Qtr. July 21, 1997
G 3rd Qtr. October 2, 1997
 H 4th Qtr. January 20, 1998

"On March 23, 1999, however, [respondent] amended the aforesaid returns and declared the
following:

Exh 1997 Taxable Sales Output Zero-rated Domestic Input

VAT Sales Purchases VAT
I 1st qtr ₱59,597.20 ₱5,959.72 ₱17,513,801.11 ₱6,778,182.30 ₱677,818.23
J 2nd qtr 67,517.20 6,751.72 17,937,361.51 9,333,242.90 933,324.29
K 3rd qtr 51,936.60 5,193.66 19,627,245.36 8,438,357.00 843,835.70
L 4th qtr 67,994.30 6,799.43 25,231,225.22 13,080,822.10 1,308,082.21

Total ₱247,045.30 ₱24,704.53 ₱80,309,633.20 ₱37,630,604.30 ₱3,763,060.43

"On April 13, 1999, [respondent] filed with the BIR a letter-request for the refund of its 1997
excess input taxes in the amount of ₱3,751,067.04, which amount was arrived at after deducting
from its total input VAT paid of ₱3,763,060.43 its applied output VAT liabilities only for the third
and fourth quarters of 1997 amounting to ₱5,193.66 and ₱6,799.43, respectively. [Respondent]
cites as basis therefor, Section 110 (B) of the 1997 Tax Code, to state:

‘Section 110. Tax Credits. -

xxxxxxxxx

‘(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the
input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding quarter or quarters. Any input tax
attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person
may at his option be refunded or credited against other internal revenue taxes, subject to the
provisions of Section 112.’

"There being no immediate action on the part of the [petitioner], [respondent’s] petition was filed
on April 15, 1999.

"In support of its Petition for Review, the following arguments were raised by [respondent]:

A. Export sales by a VAT-registered person, the consideration for which is paid for in acceptable
foreign currency inwardly remitted to the Philippines and accounted for in accordance with
existing regulations of the Bangko Sentral ng Pilipinas, are subject to [VAT] at zero percent (0%).
According to [respondent], being a VAT-registered entity, it is subject to the VAT imposed under
Title IV of the Tax Code, to wit:

‘Section 102.(sic) Value-added tax on sale of services.- (a) Rate and base of tax. - There
shall be levied, assessed and collected, a value-added tax equivalent to 10% percent of gross
receipts derived by any person engaged in the sale of services. The phrase "sale of services"
means the performance of all kinds of services for others for a fee, remuneration or
consideration, including those performed or rendered by construction and service contractors:
stock, real estate, commercial, customs and immigration brokers; lessors of personal property;
lessors or distributors of cinematographic films; persons engaged in milling, processing,
manufacturing or repacking goods for others; and similar services regardless of whether o[r] not
the performance thereof calls for the exercise or use of the physical or mental
faculties: Provided That the following services performed in the Philippines by VAT-registered
persons shall be subject to 0%:

(1) x x x

(2) Services other than those mentioned in the preceding subparagraph, the
consideration is paid for in acceptable foreign currency which is remitted inwardly to the
Philippines and accounted for in accordance with the rules and regulations of the BSP. x
x x.’

In addition, [respondent] relied on VAT Ruling No. 080-89, dated April 3, 1989, the pertinent
portion of which reads as follows:

‘In Reply, please be informed that, as a VAT registered entity whose service is paid for in
acceptable foreign currency which is remitted inwardly to the Philippines and accounted for in
accordance with the rules and regulations of the Central [B]ank of the Philippines, your service
income is automatically zero rated effective January 1, 1998. [Section 102(a)(2) of the Tax Code
as amended].4 For this, there is no need to file an application for zero-rate.’

B. Input taxes on domestic purchases of taxable goods and services related to zero-rated
revenues are available as tax refund in accordance with Section 106 (now Section 112) of the
[Tax Code] and Section 8(a) of [Revenue] Regulations [(RR)] No. 5-87, to state:

‘Section 106. Refunds or tax credits of input tax. -

(A) Zero-rated or effectively Zero-rated Sales. - Any VAT-registered person, except those
covered by paragraph (a) above, whose sales are zero-rated or are effectively zero-rated, may,
within two (2) years after the close of the taxable quarter when such sales were made, apply for
the issuance of tax credit certificate or refund of the input taxes due or attributable to such sales,
to the extent that such input tax has not been applied against output tax. x x x. [Section 106(a) of
the Tax Code]’5

‘Section 8. Zero-rating. - (a) In general. - A zero-rated sale is a taxable transaction for value-
added tax purposes. A sale by a VAT-registered person of goods and/or services taxed at zero
rate shall not result in any output tax. The input tax on his purchases of goods or services related
to such zero-rated sale shall be available as tax credit or refundable in accordance with Section
16 of these Regulations. x x x.’ [Section 8(a), [RR] 5-87].’6

"[Petitioner], in his Answer filed on May 6, 1999, claimed by way of Special and Affirmative
Defenses that:

7. The claim for refund is subject to investigation by the Bureau of Internal Revenue;

8. Taxes paid and collected are presumed to have been made in accordance with laws and
regulations, hence, not refundable. Claims for tax refund are construed strictly against the
claimant as they partake of the nature of tax exemption from tax and it is incumbent upon the
[respondent] to prove that it is entitled thereto under the law and he who claims exemption must
be able to justify his claim by the clearest grant of organic or statu[t]e law. An exemption from the
common burden [cannot] be permitted to exist upon vague implications;

9. Moreover, [respondent] must prove that it has complied with the governing rules with reference
to tax recovery or refund, which are found in Sections 204(c) and 229 of the Tax Code, as
amended, which are quoted as follows:
‘Section 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes.
- The Commissioner may - x x x.

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority,
refund the value of internal revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps that have been rendered
unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or
penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for
credit or refund within two (2) years after payment of the tax or penalty: Provided, however, That
a return filed with an overpayment shall be considered a written claim for credit or refund.’

‘Section 229. Recovery of tax erroneously or illegally collected.- No suit or proceeding shall
be maintained in any court for the recovery of any national internal revenue tax hereafter alleged
to have been erroneously or illegally assessed or collected, or of any penalty claimed to have
been collected without authority, or of any sum alleged to have been excessively or in any
manner wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty
or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be begun (sic) after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that may
arise after payment: Provided, however, That the Commissioner may, even without written claim
therefor, refund or credit any tax, where on the face of the return upon which payment was made,
such payment appears clearly to have been erroneously paid.’

"From the foregoing, the [CTA], through the Presiding Judge Ernesto D. Acosta rendered a
decision7 in favor of the herein respondent holding that its services are subject to zero-rate
pursuant to Section 108(b) of the Tax Reform Act of 1997 and Section 4.102-2 (b)(2) of Revenue
Regulations 5-96, the decretal portion of which reads as follows:

‘WHEREFORE, in view of all the foregoing, this Court finds the [petition] meritorious and in
accordance with law. Accordingly, [petitioner] is hereby ORDERED to REFUND to [respondent]
the amount of ₱3,352,406.59 representing the latter’s excess input VAT paid for the year 1997.’"8

Ruling of the Court of Appeals

In affirming the CTA, the CA held that respondent’s services fell under the first type enumerated
in Section 4.102-2(b)(2) of RR 7-95, as amended by RR 5-96. More particularly, its "services
were not of the same class or of the same nature as project studies, information, or engineering
and architectural designs" for non-resident foreign clients; rather, they were "services other than
the processing, manufacturing or repacking of goods for persons doing business outside the
Philippines." The consideration in both types of service, however, was paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas.

Furthermore, the CA reasoned that reliance on VAT Ruling No. 040-98 was unwarranted. By
requiring that respondent’s services be consumed abroad in order to be zero-rated, petitioner
went beyond the sphere of interpretation and into that of legislation. Even granting that it is valid,
the ruling cannot be given retroactive effect, for it will be harsh and oppressive to respondent,
which has already relied upon VAT Ruling No. 080-89 for zero rating.

Hence, this Petition.9

The Issue

Petitioner raises this sole issue for our consideration:

"Whether or not the Court of Appeals committed reversible error in holding that respondent is
entitled to the refund of the amount of ₱3,352,406.59 allegedly representing excess input VAT for
the year 1997."10

The Court’s Ruling

The Petition is unmeritorious.

Sole Issue:

Entitlement to Tax Refund

Section 102 of the Tax Code11 provides:

"Sec. 102. Value-added tax on sale of services and use or lease of properties. -- (a) Rate and
base of tax. -- There shall be levied, assessed and collected, a value-added tax equivalent to ten
percent (10%) of gross receipts derived from the sale or exchange of services x x x.

"The phrase 'sale or exchange of services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or
rendered by x x x persons engaged in milling, processing, manufacturing or repacking goods for
others; x x x services of banks, non-bank financial intermediaries and finance companies; x x x
and similar services regardless of whether or not the performance thereof calls for the exercise
or use of the physical or mental faculties. The phrase 'sale or exchange of services' shall likewise
include:

xxxxxxxxx

‘(3) The supply of x x x commercial knowledge or information;

‘(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means
of enabling the application or enjoyment of x x x any such knowledge or information as is
mentioned in subparagraph (3);

xxxxxxxxx

‘(6) The supply of technical advice, assistance or services rendered in connection with technical
management or administration of any x x x commercial undertaking, venture, project or scheme;

xxxxxxxxx

"The term 'gross receipts’ means the total amount of money or its equivalent representing the
contract price, compensation, service fee, rental or royalty, including the amount charged for
materials supplied with the services and deposits and advanced payments actually or
constructively received during the taxable quarter for the services performed or to be performed
for another person, excluding value-added tax.

"(b) Transactions subject to zero percent (0%) rate. -- The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate[:]

‘(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP);
‘(2) Services other than those mentioned in the preceding subparagraph, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the [BSP];’"

xxxxxxxxx

Zero Rating of "Other" Services

The law is very clear. Under the last paragraph quoted above, services performed by VAT-
registered persons in the Philippines (other than the processing, manufacturing or repacking of
goods for persons doing business outside the Philippines), when paid in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the BSP, are zero-
rated.

Respondent is a VAT-registered person that facilitates the collection and payment of receivables
belonging to its non-resident foreign client, for which it gets paid in acceptable foreign currency
inwardly remitted and accounted for in conformity with BSP rules and regulations. Certainly, the
service it renders in the Philippines is not in the same category as "processing, manufacturing or
repacking of goods" and should, therefore, be zero-rated. In reply to a query of respondent, the
BIR opined in VAT Ruling No. 080-89 that the income respondent earned from its parent
company’s regional operating centers (ROCs) was automatically zero-rated effective January 1,
1988.12

Service has been defined as "the art of doing something useful for a person or company for a
fee"13 or "useful labor or work rendered or to be rendered by one person to another."14 For
facilitating in the Philippines the collection and payment of receivables belonging to its Hong
Kong-based foreign client, and getting paid for it in duly accounted acceptable foreign currency,
respondent renders service falling under the category of zero rating. Pursuant to the Tax Code, a
VAT of zero percent should, therefore, be levied upon the supply of that service.15

The Credit Card System and Its Components

For sure, the ancillary business of facilitating the said collection is different from
the main business of issuing credit cards.16 Under the credit card system, the credit card
company extends credit accommodations to its card holders for the purchase of goods and
services from its member establishments, to be reimbursed by them later on upon proper billing.
Given the complexities of present-day business transactions, the components of this system can
certainly function as separate billable services.

Under RA 8484,17 the credit card that is issued by banks18 in general, or by non-banks in
particular, refers to "any card x x x or other credit device existing for the purpose of obtaining x x
x goods x x x or services x x x on credit;"19 and is being used "usually on a revolving
basis."20 This means that the consumer-credit arrangement that exists between the issuer and
the holder of the credit card enables the latter to procure goods or services "on a continuing
basis as long as the outstanding balance does not exceed a specified limit."21 The card holder is,
therefore, given "the power to obtain present control of goods or service on a promise to pay for
them in the future."22

Business establishments may extend credit sales through the use of the credit card facilities of a
non-bank credit card company to avoid the risk of uncollectible accounts from their customers.
Under this system, the establishments do not deposit in their bank accounts the credit card
drafts23 that arise from the credit sales. Instead, they merely record their receivables from the
credit card company and periodically send the drafts evidencing those receivables to the latter.

The credit card company, in turn, sends checks as payment to these business establishments,
but it does not redeem the drafts at full price. The agreement between them usually provides for
discounts to be taken by the company upon its redemption of the drafts.24 At the end of each
month, it then bills its credit card holders for their respective drafts redeemed during the previous
month. If the holders fail to pay the amounts owed, the company sustains the loss.25

In the present case, respondent’s role in the consumer credit26 process described above primarily
consists of gathering the bills and credit card drafts of different service establishments located in
the Philippines and forwarding them to the ROCs outside the country. Servicing the bill is not the
same as billing. For the former type of service alone, respondent already gets paid.

The parent company -- to which the ROCs and respondent belong -- takes charge not only of
redeeming the drafts from the ROCs and sending the checks to the service establishments, but
also of billing the credit card holders for their respective drafts that it has redeemed. While it
usually imposes finance charges27 upon the holders, none may be exacted by respondent upon
either the ROCs or the card holders.

Branch and Home Office

By designation alone, respondent and the ROCs are operated as branches. This means that
each of them is a unit, "an offshoot, lateral extension, or division"28 located at some distance from
the home office29 of the parent company; carrying separate inventories; incurring their own
expenses; and generating their respective incomes. Each may conduct sales operations in any
locality as an extension of the principal office.30

The extent of accounting activity at any of these branches depends upon company policy,31 but
the financial reports of the entire business enterprise -- the credit card company to which they all
belong -- must always show its financial position, results of operation, and changes in its financial
position as a single unit.32 Reciprocal accounts are reconciled or eliminated, because they lose
all significance when the branches and home office are viewed as a single entity.33 In like
manner, intra-company profits or losses must be offset against each other for accounting
purposes.

Contrary to petitioner’s assertion,34 respondent can sell its services to another branch of the
same parent company.35 In fact, the business concept of a transfer price allows goods and
services to be sold between and among intra-company units at cost or above cost.36 A branch
may be operated as a revenue center, cost center, profit center or investment center, depending
upon the policies and accounting system of its parent company.37 Furthermore, the latter may
choose not to make any sale itself, but merely to function as a control center, where most or all of
its expenses are allocated to any of its branches.38

Gratia argumenti that the sending of drafts and bills by service establishments to respondent is
equivalent to the act of sending them directly to its parent company abroad, and that the parent
company’s subsequent redemption of these drafts and billings of credit card holders is also
attributable to respondent, then with greater reason should the service rendered by respondent
be zero-rated under our VAT system. The service partakes of the nature of export sales as
applied to goods,39 especially when rendered in the Philippines by a VAT-registered person40 that
gets paid in acceptable foreign currency accounted for in accordance with BSP rules and
regulations.

VAT Requirements for the Supply of Service

The VAT is a tax on consumption41 "expressed as a percentage of the value added to goods or
services"42 purchased by the producer or taxpayer.43 As an indirect tax44 on services,45 its main
object is the transaction46 itself or, more concretely, the performance of all kinds of
services47 conducted in the course of trade or business in the Philippines.48 These services must
be regularly conducted in this country; undertaken in "pursuit of a commercial or an economic
activity;"49 for a valuable consideration; and not exempt under the Tax Code, other special laws,
or any international agreement.50

Without doubt, the transactions respondent entered into with its Hong Kong-based client meet all
these requirements.

First, respondent regularly renders in the Philippines the service of facilitating the
collection and payment of receivables belonging to a foreign company that is a clearly
separate and distinct entity.

Second, such service is commercial in nature; carried on over a sustained period of time;
on a significant scale; with a reasonable degree of frequency; and not at random,
fortuitous or attenuated.

Third, for this service, respondent definitely receives consideration in foreign currency
that is accounted for in conformity with law.

Finally, respondent is not an entity exempt under any of our laws or international
agreements.

Services Subject to Zero VAT

As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional
reach of the tax.51 Goods and services are taxed only in the country where they are consumed.
Thus, exports are zero-rated, while imports are taxed.

Confusion in zero rating arises because petitioner equates the performance of a particular type of
service with the consumption of its output abroad. In the present case, the facilitation of the
collection of receivables is different from the utilization or consumption of the outcome of such
service. While the facilitation is done in the Philippines, the consumption is not. Respondent
renders assistance to its foreign clients -- the ROCs outside the country -- by receiving the bills of
service establishments located here in the country and forwarding them to the ROCs abroad.
The consumption contemplated by law, contrary to petitioner’s administrative
interpretation,52 does not imply that the service be done abroad in order to be zero-rated.

Consumption is "the use of a thing in a way that thereby exhausts it."53 Applied to services, the
term means the performance or "successful completion of a contractual duty, usually resulting in
the performer’s release from any past or future liability x x x."54 The services rendered by
respondent are performed or successfully completed upon its sending to its foreign client the
drafts and bills it has gathered from service establishments here. Its services, having been
performed in the Philippines, are therefore also consumed in the Philippines.

Unlike goods, services cannot be physically used in or bound for a specific place when their
destination is determined. Instead, there can only be a "predetermined end of a course"55 when
determining the service "location or position x x x for legal purposes."56 Respondent’s facilitation
service has no physical existence, yet takes place upon rendition, and therefore upon
consumption, in the Philippines. Under the destination principle, as petitioner asserts, such
service is subject to VAT at the rate of 10 percent.

Respondent’s Services Exempt from the Destination Principle

However, the law clearly provides for an exception to the destination principle; that is, for a zero
percent VAT rate for services that are performed in the Philippines, "paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the
[BSP]."57 Thus, for the supply of service to be zero-rated as an exception, the law merely requires
that first, the service be performed in the Philippines; second, the service fall under any of the
categories in Section 102(b) of the Tax Code; and, third, it be paid in acceptable foreign currency
accounted for in accordance with BSP rules and regulations.

Indeed, these three requirements for exemption from the destination principle are met by
respondent. Its facilitation service is performed in the Philippines. It falls under the second
category found in Section 102(b) of the Tax Code, because it is a service other than "processing,
manufacturing or repacking of goods" as mentioned in the provision. Undisputed is the fact that
such service meets the statutory condition that it be paid in acceptable foreign currency duly
accounted for in accordance with BSP rules. Thus, it should be zero-rated.

Performance of Service versus Product Arising from Performance

Again, contrary to petitioner’s stand, for the cost of respondent’s service to be zero-rated, it need
not be tacked in as part of the cost of goods exported.58 The law neither imposes such
requirement nor associates services with exported goods. It simply states that
the services performed by VAT-registered persons in the Philippines -- services other than the
processing, manufacturing or repacking of goods for persons doing business outside this country
-- if paid in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the BSP, are zero-rated. The service rendered by respondent is clearly different
from the product that arises from the rendition of such service. The activity that creates the
income must not be confused with the main business in the course of which that income is
realized.59

Tax Situs of a Zero-Rated Service

The law neither makes a qualification nor adds a condition in determining the tax situs of a zero-
rated service. Under this criterion, the place where the service is rendered determines the
jurisdiction60 to impose the VAT.61 Performed in the Philippines, such service is necessarily
subject to its jurisdiction,62 for the State necessarily has to have "a substantial connection"63 to it,
in order to enforce a zero rate.64 The place of payment is immaterial;65 much less is the place
where the output of the service will be further or ultimately used.

Statutory Construction or Interpretation Unnecessary

As mentioned at the outset, Section 102(b)(2) of the Tax Code is very clear. Therefore, no
statutory construction or interpretation is needed. Neither can conditions or limitations be
introduced where none is provided for. Rewriting the law is a forbidden ground that only
Congress may tread upon.

The Court may not construe a statute that is free from doubt.66 "[W]here the law speaks in clear
and categorical language, there is no room for interpretation. There is only room for
application."67 The Court has no choice but to "see to it that its mandate is obeyed."68

No Qualifications Under RR 5-87

In implementing the VAT provisions of the Tax Code, RR 5-87 provides for the zero rating of
services other than the processing, manufacturing or repacking of goods -- in general and
without qualifications -- when paid for by the person to whom such services are rendered in
acceptable foreign currency inwardly remitted and duly accounted for in accordance with the
BSP (then Central Bank) regulations. Section 8 of RR 5-87 states:

"SECTION 8. Zero-rating. -- (a) In general. -- A zero-rated sale is a taxable transaction for value-
added tax purposes. A sale by a VAT-registered person of goods and/or services taxed at zero
rate shall not result in any output tax. The input tax on his purchases of goods or services related
to such zero-rated sale shall be available as tax credit or refundable in accordance with Section
16 of these Regulations.

xxxxxxxxx

" (c) Zero-rated sales of services. -- The following services rendered by VAT-registered persons
are zero-rated:

‘(1) Services in connection with the processing, manufacturing or repacking of goods for persons
doing business outside the Philippines, where such goods are actually shipped out of the
Philippines to said persons or their assignees and the services are paid for in acceptable foreign
currency inwardly remitted and duly accounted for under the regulations of the Central Bank of
the Philippines.

xxxxxxxxx

‘(3) Services performed in the Philippines other than those mentioned in subparagraph (1) above
which are paid for by the person or entity to whom the service is rendered in acceptable foreign
currency inwardly remitted and duly accounted for in accordance with Central Bank regulations.
Where the contract involves payment in both foreign and local currency, only the service
corresponding to that paid in foreign currency shall enjoy zero-rating. The portion paid for in local
currency shall be subject to VAT at the rate of 10%.’"

RR 7-95 Broad Enough

RR 7-95, otherwise known as the "Consolidated VAT Regulations,"69 reiterates the above-quoted
provision and further presents as examples only the services performed in the Philippines by
VAT-registered hotels and other service establishments. Again, the condition remains that these
services must be paid in acceptable foreign currency inwardly remitted and accounted for in
accordance with the rules and regulations of the BSP. The term "other service establishments" is
obviously broad enough to cover respondent’s facilitation service. Section 4.102-2 of RR 7-95
provides thus:

"SECTION 4.102-2. Zero-Rating. -- (a) In general. -- A zero-rated sale by a VAT registered

person, which is a taxable transaction for VAT purposes, shall not result in any output tax.
However, the input tax on his purchases of goods, properties or services related to such zero-
rated sale shall be available as tax credit or refund in accordance with these regulations.

"(b) Transaction subject to zero-rate. -- The following services performed in the Philippines by
VAT-registered persons shall be subject to 0%:

‘(1) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, where the services are
paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the BSP;

‘(2) Services other than those mentioned in the preceding subparagraph, e.g. those
rendered by hotels and other service establishments, the consideration for which is paid
for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the BSP;’"

xxxxxxxxx

Meaning of "as well as" in RR 5-96

Section 4.102-2(b)(2) of RR 7-95 was subsequently amended by RR 5-96 to read as follows:

"Section 4.102-2(b)(2) -- ‘Services other than processing, manufacturing or repacking for other
persons doing business outside the Philippines for goods which are subsequently exported, as
well as services by a resident to a non-resident foreign client such as project studies, information
services, engineering and architectural designs and other similar services, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the BSP.’"

Aside from the already scopious coverage of services in Section 4.102-2(b)(2) of RR 7-95, the
amendment introduced by RR 5-96 further enumerates specific services entitled to zero rating.
Although superfluous, these sample services are meant to be merely illustrative. In this provision,
the use of the term "as well as" is not restrictive. As a prepositional phrase with an adverbial
relation to some other word, it simply means "in addition to, besides, also or too."70

Neither the law nor any of the implementing revenue regulations aforequoted categorically
defines or limits the services that may be sold or exchanged for a fee, remuneration or
consideration. Rather, both merely enumerate the items of service that fall under the term "sale
or exchange of services."71

Ejusdem Generis
Inapplicable

The canon of statutory construction known as ejusdem generis or "of the same kind or specie"
does not apply to Section 4.102-2(b)(2) of RR 7-95 as amended by RR 5-96.

First, although the regulatory provision contains an enumeration of particular or specific

words, followed by the general phrase "and other similar services," such words do not
constitute a readily discernible class and are patently not of the same kind.72 Project
studies involve investments or marketing; information services focus on data technology;
engineering and architectural designs require creativity. Aside from calling for the
exercise or use of mental faculties or perhaps producing written technical outputs, no
common denominator to the exclusion of all others characterizes these three services.
Nothing sets them apart from other and similar general services that may involve
advertising, computers, consultancy, health care, management, messengerial work -- to
name only a few.

Second, there is the regulatory intent to give the general phrase "and other similar
services" a broader meaning.73 Clearly, the preceding phrase "as well as" is not meant to
limit the effect of "and other similar services."

Third, and most important, the statutory provision upon which this regulation is based is
by itself not restrictive. The scope of the word "services" in Section 102(b)(2) of the Tax
Code is broad; it is not susceptible of narrow interpretation.74 1avvphi1.zw+

VAT Ruling Nos. 040-98 and 080-89

VAT Ruling No. 040-98 relied upon by petitioner is a less general interpretation at the
administrative level,75 rendered by the BIR commissioner upon request of a taxpayer to clarify
certain provisions of the VAT law. As correctly held by the CA, when this ruling states that the
service must be "destined for consumption outside of the Philippines"76 in order to qualify for zero
rating, it contravenes both the law and the regulations issued pursuant to it.77 This portion of VAT
Ruling No. 040-98 is clearly ultra vires and invalid.78

Although "[i]t is widely accepted that the interpretation placed upon a statute by the executive
officers, whose duty is to enforce it, is entitled to great respect by the courts,"79 this interpretation
is not conclusive and will have to be "ignored if judicially found to be erroneous"80 and "clearly
absurd x x x or improper."81 An administrative issuance that overrides the law it merely seeks to
interpret, instead of remaining consistent and in harmony with it, will not be countenanced by this
Court.82

In the present case, respondent has relied upon VAT Ruling No. 080-89, which clearly
recognizes its zero rating. Changing this status will certainly deprive respondent of a refund of
the substantial amount of excess input taxes to which it is entitled.

Again, assuming arguendo that VAT Ruling No. 040-98 revoked VAT Ruling No. 080-89, such
revocation could not be given retroactive effect if the application of the latter ruling would only be
prejudicial to respondent.83 Section 246 of the Tax Code categorically declares that "[a]ny
revocation x x x of x x x any of the rulings x x x promulgated by the Commissioner shall not be
given retroactive application if the revocation x x x will be prejudicial to the taxpayers."84

It is also basic in law that "no x x x rule x x x shall be given retrospective effect85 unless explicitly
stated."86 No indication of such retroactive application to respondent does the Court find in VAT
Ruling No. 040-98. Neither do the exceptions enumerated in Section 24687 of the Tax Code
apply.

Though vested with the power to interpret the provisions of the Tax Code88 and not bound by
predecessors’ acts or rulings, the BIR commissioner may render a different construction to a
statute89 only if the new interpretation is in congruence with the law. Otherwise, no amount of
interpretation can ever revoke, repeal or modify what the law says.

"Consumed Abroad" Not Required by Legislature

Interpellations on the subject in the halls of the Senate also reveal a clear intent on the part of the
legislators not to impose the condition of being "consumed abroad" in order
for services performed in the Philippines by a VAT-registered person to be zero-rated. We quote
the relevant portions of the proceedings:

"Senator Maceda: Going back to Section 102 just for the moment. Will the Gentleman kindly
explain to me - I am referring to the lower part of the first paragraph with the ‘Provided’. Section
102. ‘Provided that the following services performed in the Philippines by VAT registered persons
shall be subject to zero percent.’ There are three here. What is the difference between the three
here which is subject to zero percent and Section 103 which is exempt transactions, to being
with?

"Senator Herrera: Mr. President, in the case of processing and manufacturing or repacking
goods for persons doing business outside the Philippines which are subsequently exported, and
where the services are paid for in acceptable foreign currencies inwardly remitted, this is
considered as subject to 0%. But if these conditions are not complied with, they are subject to the
VAT.

"In the case of No. 2, again, as the Gentleman pointed out, these three are zero-rated and the
other one that he indicated are exempted from the very beginning. These three enumerations
under Section 102 are zero-rated provided that these conditions indicated in these three
paragraphs are also complied with. If they are not complied with, then they are not entitled to the
zero ratings. Just like in the export of minerals, if these are not exported, then they cannot qualify
under this provision of zero rating.

"Senator Maceda: Mr. President, just one small item so we can leave this. Under the proviso, it
is required that the following services be performed in the Philippines.
"Under No. 2, services other than those mentioned above includes, let us say, manufacturing
computers and computer chips or repacking goods for persons doing business outside the
Philippines. Meaning to say, we ship the goods to them in Chicago or Washington and they send
the payment inwardly to the Philippines in foreign currency, and that is, of course, zero-rated.
lawphil.net

"Now, when we say ‘services other than those mentioned in the preceding subsection[,’] may I
have some examples of these?

"Senator Herrera: Which portion is the Gentleman referring to?

"Senator Maceda: I am referring to the second paragraph, in the same Section 102. The first
paragraph is when one manufactures or packages something here and he sends it abroad and
they pay him, that is covered. That is clear to me. The second paragraph says ‘Services other
than those mentioned in the preceding subparagraph, the consideration of which is paid for in
acceptable foreign currency…’

"One example I could immediately think of -- I do not know why this comes to my mind tonight --
is for tourism or escort services. For example, the services of the tour operator or tour escort --
just a good name for all kinds of activities -- is made here at the Midtown Ramada Hotel or at the
Philippine Plaza, but the payment is made from outside and remitted into the country.

"Senator Herrera: What is important here is that these services are paid in acceptable foreign
currency remitted inwardly to the Philippines.

"Senator Maceda: Yes, Mr. President. Like those Japanese tours which include $50 for the
services of a woman or a tourist guide, it is zero-rated when it is remitted here.

"Senator Herrera: I guess it can be interpreted that way, although this tourist guide should also
be considered as among the professionals. If they earn more than ₱200,000, they should be
covered.

xxxxxxxxx

Senator Maceda: So, the services by Filipino citizens outside the Philippines are subject to VAT,
and I am talking of all services. Do big contractual engineers in Saudi Arabia pay VAT?

"Senator Herrera: This provision applies to a VAT-registered person. When he performs

services in the Philippines, that is zero-rated.

"Senator Maceda: That is right."90

Legislative Approval By Reenactment

Finally, upon the enactment of RA 8424, which substantially carries over the particular provisions
on zero rating of services under Section 102(b) of the Tax Code, the principle of legislative
approval of administrative interpretation by reenactment clearly obtains. This principle means
that "the reenactment of a statute substantially unchanged is persuasive indication of the
adoption by Congress of a prior executive construction."91

The legislature is presumed to have reenacted the law with full knowledge of the contents of the
revenue regulations then in force regarding the VAT, and to have approved or confirmed them
because they would carry out the legislative purpose. The particular provisions of the regulations
we have mentioned earlier are, therefore, re-enforced. "When a statute is susceptible of the
meaning placed upon it by a ruling of the government agency charged with its enforcement and
the [l]egislature thereafter [reenacts] the provisions [without] substantial change, such action is to
some extent confirmatory that the ruling carries out the legislative purpose."92

In sum, having resolved that transactions of respondent are zero-rated, the Court upholds the
former’s entitlement to the refund as determined by the appellate court. Moreover, there is no
conflict between the decisions of the CTA and CA. This Court respects the findings and
conclusions of a specialized court like the CTA "which, by the nature of its functions, is dedicated
exclusively to the study and consideration of tax cases and has necessarily developed an
expertise on the subject."93

Furthermore, under a zero-rating scheme, the sale or exchange of a particular service is

completely freed from the VAT, because the seller is entitled to recover, by way of a refund or as
an input tax credit, the tax that is included in the cost of purchases attributable to the sale or
exchange.94 "[T]he tax paid or withheld is not deducted from the tax base."95 Having been applied
for within the reglementary period,96 respondent’s refund is in order.

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision AFFIRMED. No
pronouncement as to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 106719 September 21, 1993

DRA. BRIGIDA S. BUENASEDA, Lt. Col. ISABELO BANEZ, JR., ENGR. CONRADO REY
MATIAS, Ms. CORA S. SOLIS and Ms. ENYA N. LOPEZ, petitioners,
vs.
SECRETARY JUAN FLAVIER, Ombudsman CONRADO M. VASQUEZ, and NCMH NURSES
ASSOCIATION, represented by RAOULITO GAYUTIN, respondents.

Renato J. Dilag and Benjamin C. Santos for petitioners.

Danilo C. Cunanan for respondent Ombudsman.

Crispin T. Reyes and Florencio T. Domingo for private respondent.

QUIASON, J.:

This is a Petition for Certiorari, Prohibition and Mandamus, with Prayer for Preliminary Injunction
or Temporary Restraining Order, under Rule 65 of the Revised Rules of Court.

Principally, the petition seeks to nullify the Order of the Ombudsman dated January 7, 1992,
directing the preventive suspension of petitioners,
Dr. Brigida S. Buenaseda, Chief of Hospital III; Isabelo C. Banez, Jr., Administrative Officer III;
Conrado Rey Matias, Technical Assistant to the Chief of Hospital; Cora C. Solis, Accountant III;
and Enya N. Lopez, Supply Officer III, all of the National Center for Mental Health. The petition
also asks for an order directing the Ombudsman to disqualify Director Raul Arnaw and
Investigator Amy de Villa-Rosero, of the Office of the Ombudsman, from participation in the
preliminary investigation of the charges against petitioner (Rollo, pp. 2-17; Annexes to
Petition, Rollo, pp. 19-21).

The questioned order was issued in connection with the administrative complaint filed with the
Ombudsman (OBM-ADM-0-91-0151) by the private respondents against the petitioners for
violation of the Anti-Graft and Corrupt Practices Act.

According to the petition, the said order was issued upon the recommendation of Director Raul
Arnaw and Investigator Amy de Villa-Rosero, without affording petitioners the opportunity to
controvert the charges filed against them. Petitioners had sought to disqualify Director Arnaw and
Investigator Villa-Rosero for manifest partiality and bias (Rollo, pp. 4-15).

On September 10, 1992, this Court required respondents' Comment on the petition.

On September 14 and September 22, 1992, petitioners filed a "Supplemental Petition (Rollo, pp.
124-130); Annexes to Supplemental Petition; Rollo pp. 140-163) and an "Urgent Supplemental
Manifestation" (Rollo,
pp. 164-172; Annexes to Urgent Supplemental Manifestation; Rollo, pp. 173-176), respectively,
averring developments that transpired after the filing of the petition and stressing the urgency for
the issuance of the writ of preliminary injunction or temporary restraining order.

On September 22, 1992, this Court ". . . Resolved to REQUIRE the respondents to MAINTAIN in
the meantime, the STATUS QUO pending filing of comments by said respondents on the original
supplemental manifestation" (Rollo, p. 177).

On September 29, 1992, petitioners filed a motion to direct respondent Secretary of Health to
comply with the Resolution dated September 22, 1992 (Rollo, pp. 182-192, Annexes, pp. 192-
203). In a Resolution dated October 1, 1992, this Court required respondent Secretary of Health
to comment on the said motion.

On September 29, 1992, in a pleading entitled "Omnibus Submission," respondent NCMH

Nurses Association submitted its Comment to the Petition, Supplemental Petition and Urgent
Supplemental Manifestation. Included in said pleadings were the motions to hold the lawyers of
petitioners in contempt and to disbar them (Rollo, pp. 210-267). Attached to the "Omnibus
Submission" as annexes were the orders and pleadings filed in Administrative Case No. OBM-
ADM-0-91-1051 against petitioners (Rollo, pp. 268-480).

The Motion for Disbarment charges the lawyers of petitioners with:

(1) unlawfully advising or otherwise causing or inducing their clients — petitioners Buenaseda, et
al., to openly defy, ignore, disregard, disobey or otherwise violate, maliciously evade their
preventive suspension by Order of July 7, 1992 of the Ombudsman . . ."; (2) "unlawfully
interfering with and obstructing the implementation of the said order (Omnibus Submission, pp.
50-52; Rollo, pp. 259-260); and (3) violation of the Canons of the Code of Professional
Responsibility and of unprofessional and unethical conduct "by foisting blatant lies, malicious
falsehood and outrageous deception" and by committing subornation of perjury, falsification and
fabrication in their pleadings (Omnibus Submission, pp. 52-54; Rollo, pp. 261-263).

On November 11, 1992, petitioners filed a "Manifestation and Supplement to 'Motion to Direct
Respondent Secretary of Health to Comply with 22 September 1992 Resolution'" (Manifestation
attached to Rollo without pagination between pp. 613 and 614 thereof).

On November 13, 1992, the Solicitor General submitted its Comment dated November 10, 1992,
alleging that: (a) "despite the issuance of the September 22, 1992 Resolution directing
respondents to maintain the status quo, respondent Secretary refuses to hold in abeyance the
implementation of petitioners' preventive suspension; (b) the clear intent and spirit of the
Resolution dated September 22, 1992 is to hold in abeyance the implementation of petitioners'
preventive suspension, the status quo obtaining the time of the filing of the instant petition; (c)
respondent Secretary's acts in refusing to hold in abeyance implementation of petitioners'
preventive suspension and in tolerating and approving the acts of Dr. Abueva, the OIC appointed
to replace petitioner Buenaseda, are in violation of the Resolution dated September 22, 1992;
and
(d) therefore, respondent Secretary should be directed to comply with the Resolution dated
September 22, 1992 immediately, by restoring the status quo ante contemplated by the aforesaid
resolution" (Comment attached to Rollo without paginations between pp. 613-614 thereof).

In the Resolution dated November 25, 1992, this Court required respondent Secretary to comply
with the aforestated status quo order, stating inter alia, that:

It appearing that the status quo ante litem motam, or the last peaceable
uncontested status which preceded the present controversy was the situation
obtaining at the time of the filing of the petition at bar on September 7, 1992
wherein petitioners were then actually occupying their respective positions, the
Court hereby ORDERS that petitioners be allowed to perform the duties of their
respective positions and to receive such salaries and benefits as they may be
 lawfully entitled to, and that respondents and/or any and all persons acting under
their authority desist and refrain from performing any act in violation of the
aforementioned Resolution of September 22, 1992 until further orders from the
Court (Attached to Rollo after p. 615 thereof).

On December 9, 1992, the Solicitor General, commenting on the Petition, Supplemental Petition
and Supplemental Manifestation, stated that (a) "The authority of the Ombudsman is only to
recommend suspension and he has no direct power to suspend;" and (b) "Assuming the
Ombudsman has the power to directly suspend a government official or employee, there are
conditions required by law for the exercise of such powers; [and] said conditions have not been
met in the instant case" (Attached to Rollo without pagination).

In the pleading filed on January 25, 1993, petitioners adopted the position of the Solicitor General
that the Ombudsman can only suspend government officials or employees connected with his
office. Petitioners also refuted private respondents' motion to disbar petitioners' counsel and to
cite them for contempt (Attached to Rollo without pagination).

The crucial issue to resolve is whether the Ombudsman has the power to suspend government
officials and employees working in offices other than the Office of the Ombudsman, pending the
investigation of the administrative complaints filed against said officials and employees.

In upholding the power of the Ombudsman to preventively suspend petitioners, respondents

(Urgent Motion to Lift Status Quo, etc, dated January 11, 1993, pp. 10-11), invoke Section 24 of
R.A. No. 6770, which provides:

Sec. 24. Preventive Suspension. — The Ombudsman or his Deputy may

preventively suspend any officer or employee under his authority pending an
investigation, if in his judgment the evidence of guilt is strong, and (a) the charge
against such officer or employee involves dishonesty, oppression or grave
misconduct or neglect in the performance of duty; (b) the charge would warrant
removal from the service; or (c) the respondent's continued stay in office may
prejudice the case filed against him.

The preventive suspension shall continue until the case is terminated by the
Office of Ombudsman but not more than six months, without pay, except when
the delay in the disposition of the case by the Office of the Ombudsman is due to
the fault, negligence or petition of the respondent, in which case the period of
such delay shall not be counted in computing the period of suspension herein
provided.

Respondents argue that the power of preventive suspension given the Ombudsman under
Section 24 of R.A. No. 6770 was contemplated by Section 13 (8) of Article XI of the 1987
Constitution, which provides that the Ombudsman shall exercise such other power or perform
such functions or duties as may be provided by law."

On the other hand, the Solicitor General and the petitioners claim that under the 1987
Constitution, the Ombudsman can only recommend to the heads of the departments and other
agencies the preventive suspension of officials and employees facing administrative investigation
conducted by his office. Hence, he cannot order the preventive suspension himself.

They invoke Section 13(3) of the 1987 Constitution which provides that the Office of the
Ombudsman shall have inter alia the power, function, and duty to:

Direct the officer concerned to take appropriate action against a public official or
employee at fault, and recommend his removal, suspension, demotion, fine,
censure or prosecution, and ensure compliance therewith.
The Solicitor General argues that under said provision of the Constitutions, the Ombudsman has
three distinct powers, namely: (1) direct the officer concerned to take appropriate action against
public officials or employees at fault; (2) recommend their removal, suspension, demotion fine,
censure, or prosecution; and (3) compel compliance with the recommendation (Comment dated
December 3, 1992, pp. 9-10).

The line of argument of the Solicitor General is a siren call that can easily mislead, unless one
bears in mind that what the Ombudsman imposed on petitioners was not a punitive but only a
preventive suspension.

When the constitution vested on the Ombudsman the power "to recommend the suspension" of a
public official or employees (Sec. 13 [3]), it referred to "suspension," as a punitive measure. All
the words associated with the word "suspension" in said provision referred to penalties in
administrative cases, e.g. removal, demotion, fine, censure. Under the rule of Noscitor a sociis,
the word "suspension" should be given the same sense as the other words with which it is
associated. Where a particular word is equally susceptible of various meanings, its correct
construction may be made specific by considering the company of terms in which it is found or
with which it is associated (Co Kim Chan v. Valdez Tan Keh, 75 Phil. 371 [1945]; Caltex (Phils.)
Inc. v. Palomar, 18 SCRA 247 [1966]).

Section 24 of R.A. No. 6770, which grants the Ombudsman the power to preventively suspend
public officials and employees facing administrative charges before him, is a procedural, not a
penal statute. The preventive suspension is imposed after compliance with the requisites therein
set forth, as an aid in the investigation of the administrative charges.

Under the Constitution, the Ombudsman is expressly authorized to recommend to the

appropriate official the discipline or prosecution of erring public officials or employees. In order to
make an intelligent determination whether to recommend such actions, the Ombudsman has to
conduct an investigation. In turn, in order for him to conduct such investigation in an expeditious
and efficient manner, he may need to suspend the respondent.

The need for the preventive suspension may arise from several causes, among them, the danger
of tampering or destruction of evidence in the possession of respondent; the intimidation of
witnesses, etc. The Ombudsman should be given the discretion to decide when the persons
facing administrative charges should be preventively suspended.

Penal statutes are strictly construed while procedural statutes are liberally construed (Crawford,
Statutory Construction, Interpretation of Laws, pp. 460-461; Lacson v. Romero, 92 Phil. 456
[1953]). The test in determining if a statute is penal is whether a penalty is imposed for the
punishment of a wrong to the public or for the redress of an injury to an individual (59 Corpuz
Juris, Sec. 658; Crawford, Statutory Construction, pp. 496-497). A Code prescribing the
procedure in criminal cases is not a penal statute and is to be interpreted liberally (People v.
Adler, 140 N.Y. 331; 35 N.E. 644).

The purpose of R.A. No. 6770 is to give the Ombudsman such powers as he may need to
perform efficiently the task committed to him by the Constitution. Such being the case, said
statute, particularly its provisions dealing with procedure, should be given such interpretation that
will effectuate the purposes and objectives of the Constitution. Any interpretation that will hamper
the work of the Ombudsman should be avoided.

A statute granting powers to an agency created by the Constitution should be liberally construed
for the advancement of the purposes and objectives for which it was created (Cf. Department of
Public Utilities v. Arkansas Louisiana Gas. Co., 200 Ark. 983, 142 S.W. (2d) 213 [1940]; Wallace
v. Feehan, 206 Ind. 522, 190 N.E., 438 [1934]).
In Nera v. Garcia, 106 Phil. 1031 [1960], this Court, holding that a preventive suspension is not a
penalty, said:

Suspension is a preliminary step in an administrative investigation. If after such

investigation, the charges are established and the person investigated is found
guilty of acts warranting his removal, then he is removed or dismissed. This is the
penalty.

To support his theory that the Ombudsman can only preventively suspend respondents in
administrative cases who are employed in his office, the Solicitor General leans heavily on the
phrase "suspend any officer or employee under his authority" in Section 24 of R.A. No. 6770.

The origin of the phrase can be traced to Section 694 of the Revised Administrative Code, which
dealt with preventive suspension and which authorized the chief of a bureau or office to "suspend
any subordinate or employee in his bureau or under his authority pending an investigation . . . ."

Section 34 of the Civil Service Act of 1959 (R.A. No. 2266), which superseded Section 694 of the
Revised Administrative Code also authorized the chief of a bureau or office to "suspend any
subordinate officer or employees, in his bureau or under his authority."

However, when the power to discipline government officials and employees was extended to the
Civil Service Commission by the Civil Service Law of 1975 (P.D. No. 805), concurrently with the
President, the Department Secretaries and the heads of bureaus and offices, the phrase
"subordinate officer and employee in his bureau" was deleted, appropriately leaving the phrase
"under his authority." Therefore, Section 41 of said law only mentions that the proper disciplining
authority may preventively suspend "any subordinate officer or employee under his authority
pending an investigation . . ." (Sec. 41).

The Administrative Code of 1987 also empowered the proper disciplining authority to
"preventively suspend any subordinate officer or employee under his authority pending an
investigation" (Sec. 51).

The Ombudsman Law advisedly deleted the words "subordinate" and "in his bureau," leaving the
phrase to read "suspend any officer or employee under his authority pending an investigation . . .
." The conclusion that can be deduced from the deletion of the word "subordinate" before and the
words "in his bureau" after "officer or employee" is that the Congress intended to empower the
Ombudsman to preventively suspend all officials and employees under investigation by his office,
irrespective of whether they are employed "in his office" or in other offices of the government.
The moment a criminal or administrative complaint is filed with the Ombudsman, the respondent
therein is deemed to be "in his authority" and he can proceed to determine whether said
respondent should be placed under preventive suspension.

In their petition, petitioners also claim that the Ombudsman committed grave abuse of discretion
amounting to lack of jurisdiction when he issued the suspension order without affording
petitioners the opportunity to confront the charges against them during the preliminary
conference and even after petitioners had asked for the disqualification of Director Arnaw and
Atty. Villa-Rosero (Rollo, pp. 6-13). Joining petitioners, the Solicitor General contends that
assuming arguendo that the Ombudsman has the power to preventively suspend erring public
officials and employees who are working in other departments and offices, the questioned order
remains null and void for his failure to comply with the requisites in Section 24 of the
Ombudsman Law (Comment dated December 3, 1992, pp. 11-19).

Being a mere order for preventive suspension, the questioned order of the Ombudsman was
validly issued even without a full-blown hearing and the formal presentation of evidence by the
parties. In Nera, supra, petitioner therein also claimed that the Secretary of Health could not
preventively suspend him before he could file his answer to the administrative complaint. The
contention of petitioners herein can be dismissed perfunctorily by holding that the suspension
meted out was merely preventive and therefore, as held in Nera, there was "nothing improper in
suspending an officer pending his investigation and before tho charges against him are heard . . .
(Nera v. Garcia., supra).

There is no question that under Section 24 of R.A. No. 6770, the Ombudsman cannot order the
preventive suspension of a respondent unless the evidence of guilt is strong and (1) the charts
against such officer or employee involves dishonesty, oppression or grave misconduct or neglect
in the performance of duty; (2) the charge would warrant removal from the service; or (3) the
respondent's continued stay in office may prejudice the case filed against him.

The same conditions for the exercise of the power to preventively suspend officials or employees
under investigation were found in Section 34 of R.A. No. 2260.

The import of the Nera decision is that the disciplining authority is given the discretion to decide
when the evidence of guilt is strong. This fact is bolstered by Section 24 of R.A. No. 6770, which
expressly left such determination of guilt to the "judgment" of the Ombudsman on the basis of the
administrative complaint. In the case at bench, the Ombudsman issued the order of preventive
suspension only after: (a) petitioners had filed their answer to the administrative complaint and
the "Motion for the Preventive Suspension" of petitioners, which incorporated the charges in the
criminal complaint against them (Annex 3, Omnibus Submission, Rollo, pp. 288-289; Annex
4, Rollo,
pp. 290-296); (b) private respondent had filed a reply to the answer of petitioners, specifying 23
cases of harassment by petitioners of the members of the private respondent (Annex 6, Omnibus
Submission, Rollo, pp. 309-333); and (c) a preliminary conference wherein the complainant and
the respondents in the administrative case agreed to submit their list of witnesses and
documentary evidence.

Petitioners herein submitted on November 7, 1991 their list of exhibits (Annex 8 of Omnibus
Submission, Rollo, pp. 336-337) while private respondents submitted their list of exhibits (Annex
9 of Omnibus Submission, Rollo, pp. 338-348).

Under these circumstances, it can not be said that Director Raul Arnaw and Investigator Amy de
Villa-Rosero acted with manifest partiality and bias in recommending the suspension of
petitioners. Neither can it be said that the Ombudsman had acted with grave abuse of discretion
in acting favorably on their recommendation.

The Motion for Contempt, which charges the lawyers of petitioners with unlawfully causing or
otherwise inducing their clients to openly defy and disobey the preventive suspension as ordered
by the Ombudsman and the Secretary of Health can not prosper (Rollo, pp. 259-261). The
Motion should be filed, as in fact such a motion was filed, with the Ombudsman. At any rate, we
find that the acts alleged to constitute indirect contempt were legitimate measures taken by said
lawyers to question the validity and propriety of the preventive suspension of their clients.

On the other hand, we take cognizance of the intemperate language used by counsel for private
respondents hurled against petitioners and their counsel (Consolidated: (1) Comment on Private
Respondent" "Urgent Motions, etc.;
(2) Adoption of OSG's Comment; and (3) Reply to Private Respondent's Comment and
Supplemental Comment, pp. 4-5).

A lawyer should not be carried away in espousing his client's cause. The language of a lawyer,
both oral or written, must be respectful and restrained in keeping with the dignity of the legal
profession and with his behavioral attitude toward his brethren in the profession (Lubiano v.
Gordolla, 115 SCRA 459 [1982]). The use of abusive language by counsel against the opposing
counsel constitutes at the same time a disrespect to the dignity of the court of justice. Besides,
the use of impassioned language in pleadings, more often than not, creates more heat than light.
The Motion for Disbarment (Rollo, p. 261) has no place in the instant special civil action, which is
confined to questions of jurisdiction or abuse of discretion for the purpose of relieving persons
from the arbitrary acts of judges and quasi-judicial officers. There is a set of procedure for the
discipline of members of the bar separate and apart from the present special civil action.

WHEREFORE, the petition is DISMISSED and the Status quo ordered to be maintained in the
Resolution dated September 22, 1992 is LIFTED and SET ASIDE.

SO ORDERED.
 SECOND DIVISION

G.R. No. 137677 May 31, 2000

ADALIA B. FRANCISCO, petitioner,

vs.
ZENAIDA F. BOISER, respondent.

MENDOZA, J.:

This is a petition for review of the decision of the Court of Appeals in CA-G.R. CV No. 55518
which affirmed in toto the decision of the Regional Trial Court, Branch 122, Caloocan City,
dismissing petitioner's complaint for redemption of property against respondent.

The facts are as follows:

Petitioner Adalia B. Francisco and three of her sisters, Ester, Elizabeth and Adeluisa, were co-
owners of four parcels of registered lands1 on which stands the Ten Commandments Building at
689 Rizal Avenue Extension, Caloocan City. On August 6, 1979, they sold 1/5 of their undivided
share in the subject parcels of land to their mother, Adela Blas, for P10,000.00, thus making the
latter a co-owner of said real property to the extent of the share sold.

On August 8, 1986, without the knowledge of the other co-owners, Adela Blas sold her 1/5 share
for P10,000.00 to respondent Zenaida Boiser who is another sister of petitioner.

On August 5, 1992, petitioner received summons, with a copy of the complaint in Civil Case No.
15510, filed by respondent demanding her share in the rentals being collected by petitioner from
the tenants of the building. Petitioner then informed respondent that she was exercising her right
of redemption as a co-owner of the subject property. On August 12, 1992, she deposited the
amount of P10,000.00 as redemption price with the Clerk of Court. This move to redeem the
property was interposed as a permissive counterclaim in Civil Case No. 15510. However, said
case was dismissed after respondent was declared non-suited with the result that petitioner's
counterclaim was likewise dismissed.

On September 14, 1995, petitioner instituted Civil Case No. C-17055 before the Regional Trial
Court in Caloocan City. She alleged that the 30-day period for redemption under Art. 1623 of the
Civil Code had not begun to run against her since the vendor, Adela Blas, never informed her
and the other owners about the sale to respondent. She learned about the sale only on August 5,
1992, after she received the summons in Civil Case No. 15510, together with the complaint.

Respondent, on the other hand, contended that petitioner knew about the sale as early as May
30, 1992, because, on that date, she wrote petitioner a letter2 informing the latter about the sale,
with a demand that the rentals corresponding to her 1/5 share of the subject property be remitted
to her. Said letter was sent with a copy of the Deed of Sale 3 between respondent and Adela Blas.
On the same date, letters4 were likewise sent by respondent to the tenants of the building,
namely, Seiko Service Center and Glitters Corporation, informing them of the sale and
requesting that, thenceforth, they pay 1/5 of the monthly rentals to respondent. That petitioner
received these letters is proved by the fact that on June 8, 1992, she wrote5 the building's tenants
advising them to disregard respondent's request and continue paying full rentals directly to her.

On August 19, 1996, the trial court dismissed petitioner's complaint for legal redemption. It ruled
that Art. 1623 does not prescribe any particular form of notifying co-owners about a sale of
property owned in common to enable them to exercise their right of legal redemption.6 While no
written notice was given by the vendor, Adela Blas, to petitioner or the other owners, petitioner
herself admitted that she had received respondent's letter of May 30, 1992 and was in fact
furnished a copy of the deed evidencing such sale.7 The trial court considered the letter sent by
respondent to petitioner with a copy of the deed of sale as substantial compliance with the
required written notice under Art. 1623 of the New Civil Code.8 Consequently, the 30-day period
of redemption should be counted not from August 5, 1992, when petitioner received summons in
Civil Case No. 15510, but at the latest, from June 8, 1992, the date petitioner wrote the tenants
of the building advising them to continue paying rentals in full to her. Petitioner failed to redeem
the property within that period.

Petitioner brought the matter to the Court of Appeals, which, on October 26, 1998, affirmed the
decision of the Regional Trial Court. She moved for reconsideration, but her motion was denied
by the appellate court on February 16, 1999. Hence, this petition.

The sole issue presented in this appeal is whether the letter of May 30, 1992 sent by respondent
to petitioner notifying her of the sale on August 8, 1986 of Adela Blas' 1/5 share of the property to
respondent, containing a copy of the deed evidencing such sale, can be considered sufficient as
compliance with the notice requirement of Art. 1623 for the purpose of legal redemption. The trial
court and the Court of Appeals relied on the ruling in Distrito v. Court of
Appeals9 that Art. 1623 does not prescribe any particular form of written notice, nor any distinctive
method for notifying the redemptioner. They also invoked the rulings in De Conejero v. Court of
Appeals 10 and Badillo v. Ferrer 11 that furnishing the redemptioner with a copy of the deed of sale
is equivalent to giving him the written notice required by law.

On the other hand, petitioner points out that the cited cases are not relevant because the present
case does not concern the particular form in which notice must be given. Rather, the issue here
is whether a notice sent by the vendee may be given in lieu of that required to be given by the
vendor or prospective vendor. 12

Art. 1623 of the Civil Code provides:

The right of legal pre-emption or redemption shall not be exercised except within
thirty days from the notice in writing by the prospective vendor, or by the vendor,
as the case maybe. The deed of sale shall not be recorded in the Registry of
Property, unless accompanied by an affidavit of the vendor that he has given
written notice thereof to all possible redemptioners.

The right of redemption of co-owners excludes that of adjoining owners.

In ruling that the notice given by the vendee was sufficient, the appellate court cited the case
of Etcuban v. Court of Appeals 1 in which it was held:

Petitioner contends that vendors (his co-heirs) should be the ones to give him
written notice and not the vendees (defendants or private respondent herein)
citing the case of Butte vs. Manuel Uy & Sons. Inc., 4 SCRA 526. Such
contention is of no moment. While it is true that written notice is required by the
law (Art. 1623), it is equally true that, the same "Art. 1623 does not prescribe any
particular form of notice, nor any distinctive method for notifying the
redemptioner." So long, therefore, as the latter is informed in writing of the sale
and the particulars thereof, the 30 days for redemption start running, and the
redemptioner has no real cause to complain. (De Conejero et al v. Court of
Appeals, et al., 16 SCRA 775). In the Conejero case, we ruled that the furnishing
of a copy of the disputed deed of sale to the redemptioner was equivalent to the
giving of written notice required by law in "a more authentic manner than any
other writing could have done," and that We cannot adopt a stand of having to
 sacrifice substance to technicality. More so in the case at bar, where the vendors
or co-owners of petitioner stated under oath in the deeds of sale that notice of
sale had been given to prospective redemptioners in accordance with Art. 16232
of the Civil Code. "A sworn statement or clause in a deed of sale to the effect that
a written notice of sale was given to possible redemptioners or co-owners might
be used to determine whether an offer to redeem was made on or out of time, or
whether there was substantial compliance with the requirement of said Art.
1623." 14

In Etcuban, notice to the co-owners of the sale of the share of one of them was given by the
vendees through their counterclaim in the action for legal redemption. Despite the apparent
meaning of Art. 1623, it was held in that case that it was "of no moment" that the notice of sale
was given not by the vendor but by the vendees. "So long as the [co-owner] is informed in writing
of the sale and the particulars thereof, the 30 days for redemption stair running, and the
redemptioner has no cause to complain," so it was held. The contrary doctrine of Butte v. Manuel
Uy and Sons, Inc. 15 was thus overruled sub silencio.

However, in the later case of Salatandol v. Retes, 16 decided a year after the Etcuban case, the
Court expressly affirmed the ruling in Butte that the notice required by Art. 1623 must be given by
the vendor. In Salatandol, the notice given to the redemptioner by the Register of Deeds of the
province where the subject land was situated was held to be insuffucient. Resolving the issue of
whether such notice was equivalent to the notice from the vendor required under Art. 1623, this
Court stated:

The appeal is impressed with merit. In Butte vs. Manuel Uy and Sons, Inc., the
Court ruled that Art. 1623 of the Civil Code clearly and expressly prescribes that
the thirty (30) days for making the pre-emption or redemption are to be counted
from notice in writing by the vendor. The Court said:

. . . The test of Article 1623 clearly and expressly prescribes that the thirty days
for making the redemption are to be counted from notice in writing by the vendor.
Under the old law (Civil Code of 1889, Art. 1524), it was immaterial who gave the
notice; so long as the redeeming co-owner learned of the alienation in favor of
the stranger, the redemption period began to run. It is thus apparent that the
Philippine legislature in Article 1623 deliberately selected a particular method of
giving notice, and that method must be deemed exclusive (39 Am. Jur., 237;
Payne vs. State, 12 S.W. (2d) (528). As ruled in Wampher vs. Lecompte, 150 Atl.
458 (aff'd. in 75 Law Ed. [U.S.] 275) —

Why these provisions were inserted in the statute we are not

informed, but we may assume until the contrary is shown, that a
state of facts in respect thereto existed, which warranted the
legislature in so legislating.

The reasons for requiring that the notice should be given by the seller, and not by
the buyer, are easily divined. The seller of an undivided interest is in the best
position to know who are his co-owners that under the law must be notified of the
sale. Also, the notice by the seller removes all doubts as to fact of the sale, its
perfection, and its validity, the notice being a reaffirmation thereof; so that that
party notified need not entertain doubt that the seller may still contest the
alienation. This assurance would not exist if the notice should be given by the
buyer.

In the case at bar, the plaintiffs have not been furnished any written notice of sale
or a copy thereof by Eufemia Omole, the vendor. Said plaintiffs' right to exercise
the legal right of preemption or redemption, given to a co-owner when any one of
 the other co-owners sells his share in the thing owned in common to a third
person, as provided for in Article 1623 of the Civil Code, has not yet accrued.

There was thus a return to the doctrine laid down in Butte. That ruling is sound. In the first place,
reversion to the ruling in Butte is proper. Art. 1623 of the Civil Code is clear in requiring that the
written notification should come from the vendor or prospective vendor, not from any other
person. There is, therefore, no room for construction. Indeed, the principal difference between
Art. 1524 of the former Civil Code and Art. 1623 of the present one is that the former did not
specify who must give the notice, whereas the present one expressly says the notice must be
given by the vendor. Effect must be given to this change in statutory language.

In the second place, it makes sense to require that the notice required in Art. 1623 be given by
the vendor and by nobody else. As explained by this Court through Justice J.B.L. Reyes in Butte,
the vendor of an undivided interest is in the best position to know who are his co-owners who
under the law must be notified of the sale. It is likewise the notification from the seller, not from
anyone else, which can remove all doubts as to the fact of the sale, its perfection, and its validity,
for in a contract of sale, the seller is in the best position to confirm whether consent to the
essential obligation of selling the property and transferring ownership thereof to the vendee has
been given.

Now, it is clear that by not immediately notifying the co-owner, a vendor can delay or even
effectively prevent the meaningful exercise of the right of redemption. In the present case, for
instance, the sale took place in 1986, but it was kept secret until 1992 when vendee (herein
respondent) needed to notify petitioner about the sale to demand 1/5 rentals from the property
sold. Compared to serious prejudice to petitioner's right of legal redemption, the only adverse
effect to vendor Adela Blas and respondent-vendee is that the sale could not be registered. It is
non-binding, only insofar as third persons are concerned. 17 It is, therefore, unjust when the
subject sale has already been established before both lower courts and now, before this Court, to
further delay petitioner's exercise of her right of legal redemption by requiring that notice be given
by the vendor before petitioner can exercise her right. For this reason, we rule that the receipt by
petitioner of summons in Civil Case No. 15510 on August 5, 1992 constitutes actual knowledge
on the basis of which petitioner may now exercise her right of redemption within 30 days from
finality of this decision.

Our ruling is not without precedent. In Alonzo v. Intermediate Appellate Court, 18 we dispensed
with the need for written notification considering that the redemptioners lived on the same lot on
which the purchaser lived and were thus deemed to have actual knowledge of the sales. We
stated that the 30-day period of redemption started, not from the date of the sales in 1963 and
1964, but sometime between those years and 1976, when the first complaint for redemption was
actually filed. For 13 years, however, none of the co-heirs moved to redeem the property. We
thus ruled that the right of redemption had already been extinguished because the period for its
exercise had already expired.

In the present case, as previously discussed, receipt by petitioner of summons in Civil Case No.
15510 on August 5, 1992 amounted to actual knowledge of the sale from which the 30-day
period of redemption commenced to run. Petitioner had until September 4, 1992 within which to
exercise her right of legal redemption, but on August 12, 1992 she deposited the P10,000.00
redemption price. As petitioner's exercise of said right was timely, the same should be given
effect.

WHEREFORE, in view of the foregoing, the petition is GRANTED and the decision of the Court
of Appeals is REVERSED and the Regional Trial Court, Branch 122, Caloocan City is ordered to
effect petitioner's exercise of her right of legal redemption in Civil Case No. C-17055.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 183505 February 26, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
SM PRIME HOLDINGS, INC. and FIRST ASIA REALTY DEVELOPMENT
CORPORATION, Respondents.

DECISION

DEL CASTILLO, J.:

When the intent of the law is not apparent as worded, or when the application of the law would
lead to absurdity or injustice, legislative history is all important. In such cases, courts may take
judicial notice of the origin and history of the law,1 the deliberations during the enactment,2 as
well as prior laws on the same subject matter3 to ascertain the true intent or spirit of the law.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court, in relation to Republic
Act (RA) No. 9282,4 seeks to set aside the April 30, 2008 Decision5 and the June 24, 2008
Resolution6 of the Court of Tax Appeals (CTA).

Factual Antecedents

Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development
Corporation (First Asia) are domestic corporations duly organized and existing under the laws of
the Republic of the Philippines. Both are engaged in the business of operating cinema houses,
among others.7

CTA Case No. 7079

On September 26, 2003, the Bureau of Internal Revenue (BIR) sent SM Prime a Preliminary
Assessment Notice (PAN) for value added tax (VAT) deficiency on cinema ticket sales in the
amount of ₱119,276,047.40 for taxable year 2000.8 In response, SM Prime filed a letter-protest
dated December 15, 2003.9

On December 12, 2003, the BIR sent SM Prime a Formal Letter of Demand for the alleged VAT
deficiency, which the latter protested in a letter dated January 14, 2004.10

On September 6, 2004, the BIR denied the protest filed by SM Prime and ordered it to pay the
VAT deficiency for taxable year 2000 in the amount of ₱124,035,874.12.11

On October 15, 2004, SM Prime filed a Petition for Review before the CTA docketed as CTA
Case No. 7079.12

CTA Case No. 7085

On May 15, 2002, the BIR sent First Asia a PAN for VAT deficiency on

cinema ticket sales for taxable year 1999 in the total amount of ₱35,823,680.93.13 First Asia
protested the PAN in a letter dated July 9, 2002.14
Subsequently, the BIR issued a Formal Letter of Demand for the alleged VAT deficiency which
was protested by First Asia in a letter dated December 12, 2002.15

On September 6, 2004, the BIR rendered a Decision denying the protest and ordering First Asia
to pay the amount of ₱35,823,680.93 for VAT deficiency for taxable year 1999.16

Accordingly, on October 20, 2004, First Asia filed a Petition for Review before the CTA, docketed
as CTA Case No. 7085.17

CTA Case No. 7111

On April 16, 2004, the BIR sent a PAN to First Asia for VAT deficiency on cinema ticket sales for
taxable year 2000 in the amount of ₱35,840,895.78. First Asia protested the PAN through a letter
dated April 22, 2004.18

Thereafter, the BIR issued a Formal Letter of Demand for alleged VAT deficiency.19 First Asia
protested the same in a letter dated July 9, 2004.20

On October 5, 2004, the BIR denied the protest and ordered First Asia to pay the VAT deficiency
in the amount of ₱35,840,895.78 for taxable year 2000.21

This prompted First Asia to file a Petition for Review before the CTA on December 16, 2004. The
case was docketed as CTA Case No. 7111.22

CTA Case No. 7272

Re: Assessment Notice No. 008-02

A PAN for VAT deficiency on cinema ticket sales for the taxable year 2002 in the total amount of
₱32,802,912.21 was issued against First Asia by the BIR. In response, First Asia filed a protest-
letter dated November 11, 2004. The BIR then sent a Formal Letter of Demand, which was
protested by First Asia on December 14, 2004.23

Re: Assessment Notice No. 003-03

A PAN for VAT deficiency on cinema ticket sales in the total amount of ₱28,196,376.46 for the
taxable year 2003 was issued by the BIR against First Asia. In a letter dated September 23,
2004, First Asia protested the PAN. A Formal Letter of Demand was thereafter issued by the BIR
to First Asia, which the latter protested through a letter dated November 11, 2004. 24

On May 11, 2005, the BIR rendered a Decision denying the protests. It ordered First Asia to pay
the amounts of ₱33,610,202.91 and ₱28,590,826.50 for VAT deficiency for taxable years 2002
and 2003, respectively.25

Thus, on June 22, 2005, First Asia filed a Petition for Review before the CTA, docketed as CTA
Case No. 7272.26

Consolidated Petitions

The Commissioner of Internal Revenue (CIR) filed his Answers to the Petitions filed by SM Prime
and First Asia.27

On July 1, 2005, SM Prime filed a Motion to Consolidate CTA Case Nos. 7085, 7111 and 7272
with CTA Case No. 7079 on the grounds that the issues raised therein are identical and that SM
Prime is a majority shareholder of First Asia. The motion was granted.28
Upon submission of the parties’ respective memoranda, the consolidated cases were submitted
for decision on the sole issue of whether gross receipts derived from admission tickets by
cinema/theater operators or proprietors are subject to VAT.29

Ruling of the CTA First Division

On September 22, 2006, the First Division of the CTA rendered a Decision granting the Petition
for Review. Resorting to the language used and the legislative history of the law, it ruled that the
activity of showing cinematographic films is not a service covered by VAT under the National
Internal Revenue Code (NIRC) of 1997, as amended, but an activity subject to amusement tax
under RA 7160, otherwise known as the Local Government Code (LGC) of 1991. Citing House
Joint Resolution No. 13, entitled "Joint Resolution Expressing the True Intent of Congress with
Respect to the Prevailing Tax Regime in the Theater and Local Film Industry Consistent with the
State’s Policy to Have a Viable, Sustainable and Competitive Theater and Film Industry as One
of its Partners in National Development,"30 the CTA First Division held that the House of
Representatives resolved that there should only be one business tax applicable to theaters and
movie houses, which is the 30% amusement tax imposed by cities and provinces under the LGC
of 1991. Further, it held that consistent with the State’s policy to have a viable, sustainable and
competitive theater and film industry, the national government should be precluded from
imposing its own business tax in addition to that already imposed and collected by local
government units. The CTA First Division likewise found that Revenue Memorandum Circular
(RMC) No. 28-2001, which imposes VAT on gross receipts from admission to cinema houses,
cannot be given force and effect because it failed to comply with the procedural due process for
tax issuances under RMC No. 20-86.31 Thus, it disposed of the case as follows:

IN VIEW OF ALL THE FOREGOING, this Court hereby GRANTS the Petitions for Review.
Respondent’s Decisions denying petitioners’ protests against deficiency value-added taxes are
hereby REVERSED. Accordingly, Assessment Notices Nos. VT-00-000098, VT-99-000057, VT-
00-000122, 003-03 and 008-02 are ORDERED cancelled and set aside.

SO ORDERED.32

Aggrieved, the CIR moved for reconsideration which was denied by the First Division in its
Resolution dated December 14, 2006.33

Ruling of the CTA En Banc

Thus, the CIR appealed to the CTA En Banc.34 The case was docketed as CTA EB No.
244.35 The CTA En Banc however denied36 the Petition for Review and dismissed37 as well
petitioner’s Motion for Reconsideration.

The CTA En Banc held that Section 108 of the NIRC actually sets forth an exhaustive
enumeration of what services are intended to be subject to VAT. And since the showing or
exhibition of motion pictures, films or movies by cinema operators or proprietors is not among the
enumerated activities contemplated in the phrase "sale or exchange of services," then gross
receipts derived by cinema/ theater operators or proprietors from admission tickets in showing
motion pictures, film or movie are not subject to VAT. It reiterated that the exhibition or showing
of motion pictures, films, or movies is instead subject to amusement tax under the LGC of 1991.
As regards the validity of RMC No. 28-2001, the CTA En Banc agreed with its First Division that
the same cannot be given force and effect for failure to comply with RMC No. 20-86.

Issue

Hence, the present recourse, where petitioner alleges that the CTA En Banc seriously erred:
(1) In not finding/holding that the gross receipts derived by operators/proprietors of cinema
houses from admission tickets [are] subject to the 10% VAT because:

(a) THE EXHIBITION OF MOVIES BY CINEMA OPERATORS/PROPRIETORS

TO THE PAYING PUBLIC IS A SALE OF SERVICE;

(b) UNLESS EXEMPTED BY LAW, ALL SALES OF SERVICES ARE

EXPRESSLY SUBJECT TO VAT UNDER SECTION 108 OF THE NIRC OF
1997;

(c) SECTION 108 OF THE NIRC OF 1997 IS A CLEAR PROVISION OF LAW

AND THE APPLICATION OF RULES OF STATUTORY CONSTRUCTION AND
EXTRINSIC AIDS IS UNWARRANTED;

(d) GRANTING WITHOUT CONCEDING THAT RULES OF CONSTRUCTION

ARE APPLICABLE HEREIN, STILL THE HONORABLE COURT
ERRONEOUSLY APPLIED THE SAME AND PROMULGATED DANGEROUS
PRECEDENTS;

(e) THERE IS NO VALID, EXISTING PROVISION OF LAW EXEMPTING

RESPONDENTS’ SERVICES FROM THE VAT IMPOSED UNDER SECTION
108 OF THE NIRC OF 1997;

(f) QUESTIONS ON THE WISDOM OF THE LAW ARE NOT PROPER ISSUES
TO BE TRIED BY THE HONORABLE COURT; and

(g) RESPONDENTS WERE TAXED BASED ON THE PROVISION OF SECTION

108 OF THE NIRC.

(2) In ruling that the enumeration in Section 108 of the NIRC of 1997 is exhaustive in coverage;

(3) In misconstruing the NIRC of 1997 to conclude that the showing of motion pictures is merely
subject to the amusement tax imposed by the Local Government Code; and

(4) In invalidating Revenue Memorandum Circular (RMC) No. 28-2001.38

Simply put, the issue in this case is whether the gross receipts derived by operators or
proprietors of cinema/theater houses from admission tickets are subject to VAT.

Petitioner’s Arguments

Petitioner argues that the enumeration of services subject to VAT in Section 108 of the NIRC is
not exhaustive because it covers all sales of services unless exempted by law. He claims that the
CTA erred in applying the rules on statutory construction and in using extrinsic aids in
interpreting Section 108 because the provision is clear and unambiguous. Thus, he maintains
that the exhibition of movies by cinema operators or proprietors to the paying public, being a sale
of service, is subject to VAT.

Respondents’ Arguments

Respondents, on the other hand, argue that a plain reading of Section 108 of the NIRC of 1997
shows that the gross receipts of proprietors or operators of cinemas/theaters derived from public
admission are not among the services subject to VAT. Respondents insist that gross receipts
from cinema/theater admission tickets were never intended to be subject to any tax imposed by
the national government. According to them, the absence of gross receipts from cinema/theater
admission tickets from the list of services which are subject to the national amusement tax under
Section 125 of the NIRC of 1997 reinforces this legislative intent. Respondents also highlight the
fact that RMC No. 28-2001 on which the deficiency assessments were based is an unpublished
administrative ruling.

Our Ruling

The petition is bereft of merit.

The enumeration of services subject to VAT under Section 108 of the NIRC is not exhaustive

Section 108 of the NIRC of the 1997 reads:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —

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

The phrase "sale or exchange of services" means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of property, whether personal or real; warehousing services; lessors
or distributors of cinematographic films; persons engaged in milling, processing, manufacturing
or repacking goods for others; proprietors, operators or keepers of hotels, motels, rest houses,
pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes
and other eating places, including clubs and caterers; dealers in securities; lending investors;
transportation contractors on their transport of goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common carriers by land, air and water relative to
their transport of goods or cargoes; services of franchise grantees of telephone and telegraph,
radio and television broadcasting and all other franchise grantees except those under Section
119 of this Code; services of banks, non-bank financial intermediaries and finance companies;
and non-life insurance companies (except their crop insurances), including surety, fidelity,
indemnity and bonding companies; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental faculties. The phrase
"sale or exchange of services" shall likewise include:

(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model,
plan, secret formula or process, goodwill, trademark, trade brand or other like property or right;

xxxx

(7) The lease of motion picture films, films, tapes and discs; and

(8) The lease or the use of or the right to use radio, television, satellite transmission and cable
television time.

x x x x (Emphasis supplied)

A cursory reading of the foregoing provision clearly shows that the enumeration of the "sale or
exchange of services" subject to VAT is not exhaustive. The words, "including," "similar
services," and "shall likewise include," indicate that the enumeration is by way of example only.39
Among those included in the enumeration is the "lease of motion picture films, films, tapes and
discs." This, however, is not the same as the showing or exhibition of motion pictures or films. As
pointed out by the CTA En Banc:

"Exhibition" in Black’s Law Dictionary is defined as "To show or display. x x x To produce

anything in public so that it may be taken into possession" (6th ed., p. 573). While the word
"lease" is defined as "a contract by which one owning such property grants to another the right to
possess, use and enjoy it on specified period of time in exchange for periodic payment of a
stipulated price, referred to as rent (Black’s Law Dictionary, 6th ed., p. 889). x x x40

Since the activity of showing motion pictures, films or movies by cinema/ theater operators or
proprietors is not included in the enumeration, it is incumbent upon the court to the determine
whether such activity falls under the phrase "similar services." The intent of the legislature must
therefore be ascertained.

The legislature never intended operators

or proprietors of cinema/theater houses to be covered by VAT

Under the NIRC of 1939,41 the national government imposed amusement tax on proprietors,
lessees, or operators of theaters, cinematographs, concert halls, circuses, boxing exhibitions,
and other places of amusement, including cockpits, race tracks, and cabaret.42 In the case of
theaters or cinematographs, the taxes were first deducted, withheld, and paid by the proprietors,
lessees, or operators of such theaters or cinematographs before the gross receipts were divided
between the proprietors, lessees, or operators of the theaters or cinematographs and the
distributors of the cinematographic films. Section 1143 of the Local Tax Code,44 however,
amended this provision by transferring the power to impose amusement tax45 on admission from
theaters, cinematographs, concert halls, circuses and other places of amusements exclusively to
the local government. Thus, when the NIRC of 197746 was enacted, the national government
imposed amusement tax only on proprietors, lessees or operators of cabarets, day and night
clubs, Jai-Alai and race tracks.47

On January 1, 1988, the VAT Law48 was promulgated. It amended certain provisions of the NIRC
of 1977 by imposing a multi-stage VAT to replace the tax on original and subsequent sales tax
and percentage tax on certain services. It imposed VAT on sales of services under Section 102
thereof, which provides:

SECTION 102. Value-added tax on sale of services. — (a) Rate and base of tax. — There shall
be levied, assessed and collected, a value-added tax equivalent to 10% percent of gross receipts
derived by any person engaged in the sale of services. The phrase "sale of services" means the
performance of all kinds of services for others for a fee, remuneration or consideration, including
those performed or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of personal property; lessors or
distributors of cinematographic films; persons engaged in milling, processing, manufacturing or
repacking goods for others; and similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties: Provided That the
following services performed in the Philippines by VAT-registered persons shall be subject to 0%:

(1) Processing manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, x x x

xxxx

"Gross receipts" means the total amount of money or its equivalent representing
the contract price, compensation or service fee, including the amount charged for
materials supplied with the services and deposits or advance payments actually
 or constructively received during the taxable quarter for the service performed or
to be performed for another person, excluding value-added tax.

(b) Determination of the tax. — (1) Tax billed as a separate item in the invoice. —
If the tax is billed as a separate item in the invoice, the tax shall be based on the
gross receipts, excluding the tax.

(2) Tax not billed separately or is billed erroneously in the invoice. — If the tax is not
billed separately or is billed erroneously in the invoice, the tax shall be determined by
multiplying the gross receipts (including the amount intended to cover the tax or the tax
billed erroneously) by 1/11. (Emphasis supplied)

Persons subject to amusement tax under the NIRC of 1977, as amended, however, were
exempted from the coverage of VAT.49

On February 19, 1988, then Commissioner Bienvenido A. Tan, Jr. issued RMC 8-88, which
clarified that the power to impose amusement tax on gross receipts derived from admission
tickets was exclusive with the local government units and that only the gross receipts of
amusement places derived from sources other than from admission tickets were subject to
amusement tax under the NIRC of 1977, as amended. Pertinent portions of RMC 8-88 read:

Under the Local Tax Code (P.D. 231, as amended), the jurisdiction to levy amusement tax on
gross receipts arising from admission to places of amusement has been transferred to the local
governments to the exclusion of the national government.

xxxx

Since the promulgation of the Local Tax Code which took effect on June 28, 1973 none of the
amendatory laws which amended the National Internal Revenue Code, including the value added
tax law under Executive Order No. 273, has amended the provisions of Section 11 of the Local
Tax Code. Accordingly, the sole jurisdiction for collection of amusement tax on admission
receipts in places of amusement rests exclusively on the local government, to the exclusion of
the national government. Since the Bureau of Internal Revenue is an agency of the national
government, then it follows that it has no legal mandate to levy amusement tax on admission
receipts in the said places of amusement.

Considering the foregoing legal background, the provisions under Section 123 of the National
Internal Revenue Code as renumbered by Executive Order No. 273 (Sec. 228, old NIRC)
pertaining to amusement taxes on places of amusement shall be implemented in accordance
with BIR RULING, dated December 4, 1973 and BIR RULING NO. 231-86 dated November 5,
1986 to wit:

"x x x Accordingly, only the gross receipts of the amusement places derived from sources
other than from admission tickets shall be subject to x x x amusement tax prescribed
under Section 228 of the Tax Code, as amended (now Section 123, NIRC, as amended by
E.O. 273). The tax on gross receipts derived from admission tickets shall be levied and
collected by the city government pursuant to Section 23 of Presidential Decree No. 231, as
amended x x x" or by the provincial government, pursuant to Section 11 of P.D. 231,
otherwise known as the Local Tax Code. (Emphasis supplied)

On October 10, 1991, the LGC of 1991 was passed into law. The local government retained the
power to impose amusement tax on proprietors, lessees, or operators of theaters, cinemas,
concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more than
thirty percent (30%) of the gross receipts from admission fees under Section 140 thereof.50 In the
case of theaters or cinemas, the tax shall first be deducted and withheld by their proprietors,
lessees, or operators and paid to the local government before the gross receipts are divided
between said proprietors, lessees, or operators and the distributors of the cinematographic films.
However, the provision in the Local Tax Code expressly excluding the national government from
collecting tax from the proprietors, lessees, or operators of theaters, cinematographs, concert
halls, circuses and other places of amusements was no longer included.

In 1994, RA 7716 restructured the VAT system by widening its tax base and enhancing its
administration. Three years later, RA 7716 was amended by RA 8241. Shortly thereafter, the
NIRC of 199751 was signed into law. Several amendments52 were made to expand the coverage
of VAT. However, none pertain to cinema/theater operators or proprietors. At present, only
lessors or distributors of cinematographic films are subject to VAT. While persons subject to
amusement tax53 under the NIRC of 1997 are exempt from the coverage of VAT.54

Based on the foregoing, the following facts can be established:

(1) Historically, the activity of showing motion pictures, films or movies by cinema/theater
operators or proprietors has always been considered as a form of entertainment subject
to amusement tax.

(2) Prior to the Local Tax Code, all forms of amusement tax were imposed by the national
government.

(3) When the Local Tax Code was enacted, amusement tax on admission tickets from
theaters, cinematographs, concert halls, circuses and other places of amusements were
transferred to the local government.

(4) Under the NIRC of 1977, the national government imposed amusement tax only on
proprietors, lessees or operators of cabarets, day and night clubs, Jai-Alai and race
tracks.

(5) The VAT law was enacted to replace the tax on original and subsequent sales tax and
percentage tax on certain services.

(6) When the VAT law was implemented, it exempted persons subject to amusement tax
under the NIRC from the coverage of VAT. 1auuphil

(7) When the Local Tax Code was repealed by the LGC of 1991, the local government
continued to impose amusement tax on admission tickets from theaters, cinematographs,
concert halls, circuses and other places of amusements.

(8) Amendments to the VAT law have been consistent in exempting persons subject to
amusement tax under the NIRC from the coverage of VAT.

(9) Only lessors or distributors of cinematographic films are included in the coverage of
VAT.

These reveal the legislative intent not to impose VAT on persons already covered by the
amusement tax. This holds true even in the case of cinema/theater operators taxed under the
LGC of 1991 precisely because the VAT law was intended to replace the percentage tax on
certain services. The mere fact that they are taxed by the local government unit and not by the
national government is immaterial. The Local Tax Code, in transferring the power to tax gross
receipts derived by cinema/theater operators or proprietor from admission tickets to the local
government, did not intend to treat cinema/theater houses as a separate class. No distinction
must, therefore, be made between the places of amusement taxed by the national government
and those taxed by the local government.
To hold otherwise would impose an unreasonable burden on cinema/theater houses operators or
proprietors, who would be paying an additional 10%55 VAT on top of the 30% amusement tax
imposed by Section 140 of the LGC of 1991, or a total of 40% tax. Such imposition would result
in injustice, as persons taxed under the NIRC of 1997 would be in a better position than those
taxed under the LGC of 1991. We need not belabor that a literal application of a law must be
rejected if it will operate unjustly or lead to absurd results.56 Thus, we are convinced that the
legislature never intended to include cinema/theater operators or proprietors in the coverage of
VAT.

On this point, it is apropos to quote the case of Roxas v. Court of Tax Appeals,57 to wit:

The power of taxation is sometimes called also the power to destroy. Therefore, it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden
egg." And, in order to maintain the general public's trust and confidence in the Government this
power must be used justly and not treacherously.

The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of
VAT

Petitioner, in issuing the assessment notices for deficiency VAT against respondents,
ratiocinated that:

Basically, it was acknowledged that a cinema/theater operator was then subject to amusement
tax under Section 260 of Commonwealth Act No. 466, otherwise known as the National Internal
Revenue Code of 1939, computed on the amount paid for admission. With the enactment of the
Local Tax Code under Presidential Decree (PD) No. 231, dated June 28, 1973, the power of
imposing taxes on gross receipts from admission of persons to cinema/theater and other places
of amusement had, thereafter, been transferred to the provincial government, to the exclusion of
the national or municipal government (Sections 11 & 13, Local Tax Code). However, the said
provision containing the exclusive power of the provincial government to impose amusement tax,
had also been repealed and/or deleted by Republic Act (RA) No. 7160, otherwise known as the
Local Government Code of 1991, enacted into law on October 10, 1991. Accordingly, the
enactment of RA No. 7160, thus, eliminating the statutory prohibition on the national government
to impose business tax on gross receipts from admission of persons to places of amusement, led
the way to the valid imposition of the VAT pursuant to Section 102 (now Section 108) of the old
Tax Code, as amended by the Expanded VAT Law (RA No. 7716) and which was implemented
beginning January 1, 1996.58 (Emphasis supplied)

We disagree.

The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of
VAT on the gross receipts of cinema/theater operators or proprietors derived from admission
tickets. The removal of the prohibition under the Local Tax Code did not grant nor restore to the
national government the power to impose amusement tax on cinema/theater operators or
proprietors. Neither did it expand the coverage of VAT. Since the imposition of a tax is a burden
on the taxpayer, it cannot be presumed nor can it be extended by implication. A law will not be
construed as imposing a tax unless it does so clearly, expressly, and unambiguously.59 As it is,
the power to impose amusement tax on cinema/theater operators or proprietors remains with the
local government.

Revenue Memorandum Circular No. 28-2001 is invalid

Considering that there is no provision of law imposing VAT on the gross receipts of
cinema/theater operators or proprietors derived from admission tickets, RMC No. 28-2001 which
imposes VAT on the gross receipts from admission to cinema houses must be struck down. We
cannot overemphasize that RMCs must not override, supplant, or modify the law, but must
remain consistent and in harmony with, the law they seek to apply and implement.60

In view of the foregoing, there is no need to discuss whether RMC No. 28-2001 complied with the
procedural due process for tax issuances as prescribed under RMC No. 20-86.

Rule on tax exemption does not apply

Moreover, contrary to the view of petitioner, respondents need not prove their entitlement to an
exemption from the coverage of VAT. The rule that tax exemptions should be construed strictly
against the taxpayer presupposes that the taxpayer is clearly subject to the tax being levied
against him.61 The reason is obvious: it is both illogical and impractical to determine who are
exempted without first determining who are covered by the provision.62 Thus, unless a statute
imposes a tax clearly, expressly and unambiguously, what applies is the equally well-settled rule
that the imposition of a tax cannot be presumed.63 In fact, in case of doubt, tax laws must be
construed strictly against the government and in favor of the taxpayer.64

WHEREFORE, the Petition is hereby DENIED. The assailed April 30, 2008 Decision of the Court
of Tax Appeals En Banc holding that gross receipts derived by respondents from admission
tickets in showing motion pictures, films or movies are not subject to value-added tax under
Section 108 of the National Internal Revenue Code of 1997, as amended, and its June 24, 2008
Resolution denying the motion for reconsideration are AFFIRMED.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice