REMEDIAL STATUTES

G.R. No. 77154 June 30, 1987 JESUS DEL ROSARIO, petitioner, vs. HON. JAIME HAMOY, Presiding Judge, RTC, Branch XV, Region IX, Zamboanga City, and WILEADO DE LEON, DOMINGO DE LEON, CRISTINO DE LEON, HENCIANO DE LEON, MARCIANO AIZON, and EPIFANIA DE LEON, respondents.

SARMIENTO, J.: For want of a one-peso documentary stamp in a special power of attorney for pre-trial purposes, in lieu of the personal appearance of the plaintiff, the petitioner in this case, the respondent Judge declared him non-suited and dismissed the complaint "for failure of the plaintiff to appear for pretrial conference. 1 We do not agree. The respondent Judge manifestly erred. He acted with indecent haste. He could have easily required the counsel for the plaintiff to buy the required one-peso documentary stamp outside the court room and affix the same to the special power of attorney and that respite would not have taken ten minutes. Had he been less technical and more sensible, the present proceedings and the consequent waste of time of this Court and of his own would have been avoided. The respondent trial Judge had three chances to rectify his grave error but he missed all of them. He was adamant. By such rigidity he denied the petitioner substantial justice. (1) He procrastinated when the plaintiff and his counsel immediately after the hearing on the same morning of July 25, 1986, made oral representations with him inside his chamber for the reconsideration of his order declaring the plaintiff non-suited and dismissing the complaint. The plaintiff, through his counsel, explained that he was actually inside the court room while his lawyer and the defendants' counsel, were arguing, but he (plaintiff) was too timorous to interrupt the proceedings and make known his presence to his counsel or to the court. Despite the immediacy of the representations and the plausibility of this explanation considering the plaintiff's nescience, being merely an agricultural tenant and can hardly write his name, the respondent Judge still required him to file a written motion and set it for hearing "in accordance with the Rules of Court." (2) Complying, the plaintiff's counsel forthwith filed the written motion, 2 duly supported by an Affidavit of Merit of the plaintiff, on the same day, July 25, 1986, and set it for hearing as ordered by the respondent Judge. This motion for reconsideration was denied "for lack of merit" on August 29, 1986. 3 The order of denial states in part: xxx xxx xxx
A judicious appraisal of the facts alleged in the motion for reconsideration and in the accompanying affidavit of merit fail to convince the Court to reconsider the Order. As admitted by the plaintiff, he was inside the Court room when the case was caned for pretrial conference and when his counsel, Atty. Alejandro Saavedra and defendants' counsel

Atty. Navarro Belar Navarro were arguing about the insufficiency of the special power of attorney, but he never made known his presence to the Court or to his counsel or to the defendants. He approached his counsel and presented himself to him when they were already outside the Courtroom and after the case was already dismissed. To the mind of the Court, the foregoing circumstances detailed by the plaintiff do not constitute excusable negligence or mistake. 4

xxx xxx xxx (3) Undaunted, seven days later, on September 5, 1986, the petitioner filed a second motion for reconsideration 5verified by his counsel, setting it for hearing on September 19, 1986, which was promptly denied on the same day of the hearing. And, on October 7, 1986, as a coup de grace, an over-kill to be sure, the respondent Judge issued a court order which reads: xxx xxx xxx The Court having denied the second motion for reconsideration for not being allowed by Section 4 of the Interim Rules as per Order entered on September 19, 1986, the case at bar is therefore considered closed and terminated.
SO ORDERED.
6

xxx xxx xxx The respondent Judge lost sight of the fact that even the Rules of Court themselves, fortified by jurisprudence, mandate a liberal construction of the rules and the pleadings in order to effect substantial justice. 7 After an, "[O]verriding all the foregoing technical considerations is the trend of the rulings of this Court to afford every party-litigant the amplest opportunity for the proper and just determination of his cause, freed from the constraints of technicalities. 8 In a recent case 9 where the trial court, as in this instance, declared the petitioner non-suited for failure to appear at the pre-trial conference, and consequently dismissed the complaint, this Court reiterated the doctrine of liberality in the construction of the rules of procedure to be followed by all courts.
While it is true under Section 1, Rule 20 of the Rules of Court, it is mandatory for the parties and their counsel to appear at the pretrial to consider inter-alia "the possibility of an amicable settlement, the simplification of the issues, the possibility of obtaining stipulations or admission of facts, totally or partially, and such other matters as may aid in the prompt disposition of the action," and that a party who fails to appear at the pretrial may be non-suited or considered as in default, this rule was by no means intended as an implacable bludgeon but as a tool to assist the trial courts in the orderly and expeditious conduct of trials. Time and again WE have emphasized that the rule should be liberally construed in order to promote their object and assist the parties in obtaining not only speedy, but more importantly, just and inexpensive determination of every action and proceeding. 10

Practically on all fours with this case is Gabucan vs. Hon. Judge Luis D. Manta, et al., 11 in which the petition for the probate of a notarial will was dismissed on the sole ground that the will did not bear a thirty-centavo documentary stamp, and, hence, according to the respondent Judge, it was not admissible in evidence, citing section 238 of the Tax Code, now section 250 of the 1977 Tax Code, which reads: xxx xxx xxx SEC. 238. Effect of failure to stamp taxable document. An instrument, document, or paper which is required by law to be stamped and which has been signed, issued, accepted, or transferred without being duly stamped, shall not be recorded, nor shall

it or any copy thereof or any record of transfer of the same be admitted or used in evidence in any court until the requisite stamp or stamps shall have been affixed
thereto and cancelled.

No notary public or other officer authorized to administer oaths shall add his jurat or acknowledgment to any document subject to documentary stamp tax unless the proper documentary stamps are affixed thereto and cancelled. 12

In reversing the interpretation of the provisions of sections 238 and 250 of the old Tax Codes above copied which are Identical to those of section 214 of the National Internal Code of 1986, as amended, the law now obtaining, this Court held: xxx xxx xxx What the probate court should have done was to require the petitioner or proponent to affix the requisite thirty-centavo documentary stamp to the notarial acknowledgment of the will which is the taxable portion of that document. That procedure may be implied from the provision of section 238 that the nonadmissibility of the document, which does not bear the requisite documentary stamp, subsists only "until the requisite stamp or stamps shall have been affixed thereto and cancelled."
Thus, it was held that the documentary stamp may be affixed at the time the taxable document is presented in evidence (Del Castillo vs. Madrilena, 49 Phil. 749). If the promissory note does not bear a documentary stamp, the court should have allowed plaintiff's tender of a stamp of supply the deficiency. (Rodriguez vs. Martinez, 5 Phil. 67, 71. Note the holding in Azarraga vs. Rodriguez, 9 Phil. 637, that the lack of the documentary stamp on a document does not invalidate such document. See Cia. General de Tabacos vs. Jeanjaquet, 12 Phil. 195, 201-2 and Delgado and Figueroa vs. Amenabar, 16 Phil. 403, 405-6.) 13

This is as it should be because the quality of justice is not strained. WHEREFORE, the orders of the trial court complained of the first dated July 25, 1986 declaring the petitioner non-suited and dismissing his complaint, and those dated August 29, 1986 and October 7, 1986, denying the petitioner's motions for reconsideration are hereby ANNULLED and SET ASIDE. Civil Case No. 3331 is hereby remanded to the respondent trial court for further proceedings. No costs.

Let a copy of this Decision be attached to the personal record of the respondent judge. SO ORDERED.

G.R. No. L-69560 June 30, 1988 THE INTERNATIONAL CORPORATE BANK INC., petitioner, vs. THE IMMEDIATE APPELLATE COURT, HON. ZOILO AGUINALDO, as presiding Judge of the Regional Trial Court of Makati, Branch 143, NATIVIDAD M. FAJARDO, and SILVINO R. PASTRANA, as Deputy and Special Sheriff, respondents.

PARAS, J.: This is a petition for review on certiorari of the Decision of the Court of Appeals dated October 31, 1984 in AC-G.R. SP No. 02912 entitled "THE INTERNATIONAL CORPORATE BANK, INC. v. Hon. ZOILO AGUINALDO, et al.," dismissing petitioner's petition for certiorari against the Regional Trial Court of Makati (Branch 143) for lack of merit, and of its Resolution dated January 7, 1985, denying petitioner's motion for reconsideration of the aforementioned Decision. Petitioner also prays that upon filing of the petition, a restraining order be issued ex-parte, enjoining respondents or any person acting in their behalf, from enforcing or in any manner implementing the Order of the respondent trial court dated February 13 and March 9, 1984, and January 10 and January 11, 1985. The facts of this case, as found by the trial court and subsequently adopted by the Court of Appeals, are as follows: In the early part of 1980, private respondent secured from petitioner's predecessors-in-interest, the then Investment and Underwriting Corp. of the Philippines and Atrium Capital Corp., a loan in the amount of P50,000,000.00. To secure this loan, private respondent mortgaged her real properties in Quiapo, Manila and in San Rafael, Bulacan, which she claimed have a total market value of P110,000,000.00. Of this loan, only the amount of P20,000,000.00 was approved for release. The same amount was applied to pay her other obligations to petitioner, bank charges and fees. Thus, private respondent's claim that she did not receive anything from the approved loan. On September 11, 1980, private respondent made a money market placement with ATRIUM in the amount of P1,046,253.77 at 17% interest per annum for a period of 32 days or until October 13, 1980, its maturity date. Meanwhile, private respondent allegedly failed to pay her mortgaged indebtedness to the bank so that the latter refused to pay the proceeds of the money market placement on maturity but applied the amount instead to the deficiency in the proceeds of the auction sale of the mortgaged properties. With Atrium being the only bidder, said properties were sold in its favor for only P20,000,000.00. Petitioner claims that after deducting this amount, private respondent is still indebted in the amount of P6.81 million. On November 17, 1982, private respondent filed a complaint with the trial court against petitioner for annulment of the sheriff's sale of the mortgaged properties, for the release to her of the balance of her loan from petitioner in the amount of P30,000,000,00, and for recovery of P1,062,063.83 representing the proceeds of her money market investment and for damages. She alleges in her complaint, which was subsequently amended, that the mortgage is not yet due and demandable and accordingly the foreclosure was illegal; that per her loan agreement with petitioner she is entitled to

the release to her of the balance of the loan in the amount of P30,000,000.00; that petitioner refused to pay her the proceeds of her money market placement notwithstanding the fact that it has long become due and payable; and that she suffered damages as a consequence of petitioner's illegal acts. In its answer, petitioner denies private respondent's allegations and asserts among others, that it has the right to apply or set off private respondent's money market claim of P1,062,063.83. Petitioner thus interposes counterclaims for the recovery of P5,763,741.23, representing the balance of its deficiency claim after deducting the proceeds of the money market placement, and for damages. The trial court subsequently dismissed private respondent's cause of action concerning the annulment of the foreclosure sale, for lack of jurisdiction, but left the other causes of action to be resolved after trial. Private respondent then filed separate complaints in Manila and in Bulacan for annulment of the foreclosure sale of the properties in Manila and in Bulacan, respectively. On December 15, 1983, private respondent filed a motion to order petitioner to release in her favor the sum of P1,062,063.83, representing the proceeds of the money market placement, at the time when she had already given her direct testimony on the merits of the case and was being crossexamined by counsel. On December 24, 1983, petitioner filed an opposition thereto, claiming that the proceeds of the money market investment had already been applied to partly satisfy its deficiency claim, and that to grant the motion would be to render judgment in her favor without trial and make the proceedings moot and academic. However, at the hearing on February 9, 1984, counsel for petitioner and private respondent jointly manifested that they were submitting for resolution said motion as well as the opposition thereto on the basis of the pleadings and of the evidence which private respondent had already presented. On February 13, 1984, respondent judge issued an order granting the motion, as follows: IN VIEW OF THE FOREGOING, the defendant International Corporate Bank is hereby ordered to deliver to the plaintiff Natividad M. Pajardo the amount of P1,062,063.83 covered by the repurchase agreement with Serial No. AOY-14822 (Exhibit "A'), this amount represented the principal of P1,046,253.77 which the plaintiff held including its interest as of October 13, 1980, conditioned upon the plaintiff filing a bond amount to P1,062,063.83 to answer for all damages which the said defendant bank may suffer in the event that the Court should finally decide that the plaintiff was not entitled to the said amount. Petitioner filed a motion for reconsideration to the aforesaid order, asserting among other things that said motion is not verified, and therefore a mere scrap of paper. Private respondent however manifested that since she testified in open court and was cross-examined by counsel for petitioner on the motion for release of the proceeds of the money market placement, the defect had already been cured. On March 9, 1984, the respondent judge issued an order denying petitioner's motion for reconsideration. (CA Decision, Rollo, pp. 109-111). On March 13, 1984, petitioner filed a special civil action for certiorari and prohibition with preliminary injunction with the Court of Appeals, (a) for the setting aside and annulment of the Orders dated February 13, 1984 and March 9,1984, issued by the respondent trial court, and (b) for an order commanding or directing the respondent trial judge to desist from enforcing and/or implementing and/or executing the aforesaid Orders. The temporary restraining order prayed for

was issued by respondent Court of Appeals on March 22, 1984. (Please see CA Decision, Rollo, p. 114, last paragraph). In a decision rendered on October 31, 1984 (Rollo, pp. 109-14), the Court of Appeals dismissed said petition finding(a) that while the Motion for the release of the proceeds of the money market investment in favor of private respondent was not verified by her, that defect was cured when she testified under oath to substantiate her allegations therein: (b) that, petitioner cannot validly claim it was denied due process for the reason that it was given ample time to be heard, as it was in fact heard when it filed an Opposition to the motion and a motion for reconsideration; (c) that the circumstances of this case prevent legal compensation from taking place because the question of whether private respondent is indebted to petitioner in the amount of 6.81 million representing the deficiency balance after the foreclosure of the mortgage executed to secure the loan extended to her, is vigorously disputed; (d) that the release of the proceeds of the money market investment for private respondent will not make the causes of action of the case pending before the trial court moot and academic nor will it cause irreparable damage to petitioner, private respondent having filed her bond in the amount of P1,062,063.83 to answer for all damages which the former may suffer in the event that the court should finally decide that private respondent is not entitled to the return of said amount (CA Decision, Rello, pp. 112-114). The dispositive portion of the aforementioned Decision reads: ... We hold that the respondent court cannot be successfully charged with grave abuse of discretion amounting to lack of jurisdiction when it issued its Orders of February 13, 1984 and March 9, 1984, based as they are on a correct appreciation of the import of the parties' evidence and the applicable law. IN VIEW WHEREOF, the petition is dismissed for lack of merit and the temporary restraining order issued by this Court on March 22, 1984 is lifted. (Ibid., p. 114). Petitioner moved for the reconsideration of the above decision (Annex "S", Rollo, pp. 116-124), but for the reason that the same failed to raise any issue that had not been considered and passed upon by the respondent Court of Appeals, it was denied in a Resolution dated January 7, 1985 (CA Resolution, Rollo, p. 126). Having been affirmed by the Court of Appeals, the trial court issued a Writ of Execution to implement its Order of February 13, 1984 (Annex "BB", Rollo, p. 188) and by virtue thereof, a levy was made on petitioner's personal property consisting of 20 motor vehicles (Annex "U", Rollo, p. 127). On January 9, 1985, herein private respondent (then plaintiff) filed in the trial court an exparte motion praying that the four branches of the petitioner such as: Baclaran Branch, Paranaque, Metro Manila; Ylaya Branch, Divisoria, Metro Manila; Cubao Branch, Quezon City and Binondo Branch, Sta. Cruz, Manila, be ordered to pay the amount of P250,000.00 each, and the main office of the petitioner bank at Paseo de Roxas, Makati, Metro Manila, be ordered to pay the amount of P62,063.83 in order to answer for the claim of private respondent amounting to P1,062,063.83. Thereupon, on January 10, 1985, the trial court issued an Order (Annex "V", Rollo, p. 129) granting the above-mentioned prayers.

Acting on the ex-parte motion by the plaintiff (now private respondent), the trial court, on January 11, 1984, ordered the President of defendant International Corporate Bank (now petitioner) and all its employees and officials concemed to deliver to the sheriff the 20 motor vehicles levied by virtue of the Writ of Execution dated December 12, 1984 (Annex "W", Rollo, p. 131). The petitioner having failed to comply with the above-cited Order, the respondent trial court issued two (2) more Orders: the January 16, 1985 (Annex "CC," Rollo, p. 190) and January 21, 1985 Orders (Annex "DD", Rollo, p. 191), directing several employees mentioned therein to show cause wily they should not be cited in contempt. Hence, this petition for review on certiorari with prayer for a restraining order and for a writ of preliminary injunction. Three days after this petition was filed, or specifically on January 18, 1985, petitioner filed an urgent motion reiterating its prayer for the issuance of an ex-parte restraining order (Rollo, p. 132). Simultaneous with the filing of the present petition, petitioner, as defendant, filed with the trial court an ex-partemotion to suspend the implementation of any and all orders and writs issued pursuant to Civil Case No. 884 (Annex "A", Rollo, p. 135). This Court's resolution dated January 21, 1985, without giving due course to the petition, resolved (a) to require the respondents to comment: (b) to issue, effective immediately and until further orders from this Court, a Temporary Restraining Order enjoining the respondents from enforcing or in any manner implementing the questioned Orders dated February 13, 1984, March 9, 1984, January 10, 1985 and January 11 and 16, 1985, issued in Civil Case No. 884. The corresponding writ was issued on the same day (Rollo, pp. 139-140). As required, the Comment of private respondent was filed on January 28, 1985 (Rollo, pp. 141150). Thereafter, petitioner moved for leave to file a supplemental petition on the ground that after it had filed this present petition, petitioner discovered that the bond filed with, and approved by, the respondent lower court showed numerous material erasures, alterations and/or additions (Rollo, p. 151), which the issuing insurance company certified as having been done without its authority or consent (Annex "Z", Rollo, p. 178). The Supplemental Petition was actually filed on February 1, 1985 (Rollo, pp. 154-171). It pointed out the erasures, alterations and/or additions in the bond as follows: a. below "Civil Case No. 884" after the words, "Plaintiff's Bond," the phrase "For Levying of Attachment" was erased or deleted; b. in lines 2 and 3 after the word "order," the phrase "approving plaintiff's motion dated Dec. 15, 1983, was inserted or added; c. in line 3, the phrases "Of attachment" and "ordered that a writ of attachment issue' were erased or deleted;

d also in line 3 after the words "the court has" the phrase "approved the Motion was likewise inserted or added; e. in line 9, the phrase "and of the levying of said attachment" was also erased or deleted; f. in line 13, the word "attachment" was likewise erased or deleted; g. also in line 13 after the deletion of word "attachment" the phrase "release of the P1,062,063.83 to the plaintiff was similarly inserted or added." Petitioner contended therein that in view of the foregoing facts, the genuineness, due execution and authenticity as well as the validity and enforceability of the bond (Rello, p. 174) is now placed in issue and consequently, the bond may successfully be repudiated as falsified and, therefore, without any force and effect and the bonding company may thereby insist that it has been released from any hability thereunder. Also, petitioner pointed as error the respondent trial court's motu proprio transferring Civil Case No. 884 to the Manila Branch of the same Court arguing that improper venue, as a ground for, and unless raised in, a Motion to Dismiss, may be waived by the parties and the court may not pre-empt the right of the parties to agree between or among themselves as to the venue of their choice in litigating their justiciable controversy (Supplemental Petition, Rollo, p. 160). On being required to comment thereon, (Rollo, p. 192) private respondent countered (Rollo, pp. 193-198) that bond forms are ready-prepared forms and the bonding company used the form for "Levying of Attachment" because the company has no ready-prepared form for the kind of bond called for or required in Civil Case 884. Whatever deletions or additions appear on the bond were made by the Afisco Insurance Corporation itself for the purpose of accomplishing what was required or intended. Nonetheless, on May 7, 1985, private respondent filed "Plaintiffs Bond" in the respondent trial court in the amount of P1,062,063.83 a xerox copy of which was furnished this Court (Rollo, p. 219), and noted in the Court's Resolution dated May 29,1985 (Rollo, p. 225). On March 11, 1985, petitioner was required to file a Consolidated Reply (Rollo, p. 199) which was filed on April 10, 1985 (Rollo, p. 201). Thereafter, a Rejoinder (Rollo, p. 238) was filed by private respondent on September 18, 1985 after Atty. Advincula, counsel for private respondents was required by this Court to show cause why he should not be disciplinarily dealt with or held in contempt for his failure to comply on time (Rollo, p. 226) and on August 19, 1985 said lawyer was finally admonished (Rollo, p. 229) for his failure to promptly apprise the Court of his alleged non-receipt of copy of petitioner's reply, which alleged non-receipt was vehemently denied by petitioner in its Counter Manifestation (Rollo, p. 230) filed on August 5, 1985. Finally, on October 7, 1985, this petition was given due course and both parties were required to submit simultaneous memoranda (Rollo, p. 249) but before the same were filed, petitioner moved for leave to file sur-rejoinder (Rollo, p. 250), the sur-rejoinder was filed on October 14,1985 (Rollo, pp. 252-254).

Petitioner's memorandum was filed on December 28, 1985 (Rollo, pp. 264-292) while that of private respondent was submitted on January 10, 1986 (Rollo, pp. 295-304). Petitioner again moved for leave to file a Reply Memorandum (Rollo, p. 307) which, despite permission from this Court, was not filed and on August 22, 1986, private respondent prayed for early resolution of the petition (Rollo, p. 311). In a resolution dated October 13, 1986 (Rollo, p. 314) this case was transferred to the Second Division of this Court, the same being assigned to a member of that Division. The crucial issue to be resolved in this case is whether or not there can be legal compensation in the case at bar. Petitioner contends that after foreclosing the mortgage, there is still due from private respondent as deficiency the amount of P6.81 million against which it has the right to apply or set off private respondent's money market claim of P1,062,063.83. The argument is without merit. As correctly pointed out by the respondent Court of Appeals Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (Art. 1278, Civil Code). "When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effect by operation of law, even without the consent or knowledge of the debtors." (Art. 1290, Civil Code). Article 1279 of the Civil Code requires among others, that in order that legal compensation shall take place, "the two debts be due" and "they be liquidated and demandable." Compensation is not proper where the claim of the person asserting the set-off against the other is not clear nor liquidated; compensation cannot extend to unliquidated, disputed claim arising from breach of contract. (Compaia General de Tabacos vs. French and Unson, 39 Phil. 34; Lorenzo & Martinez vs. Herrero, 17 Phil. 29). There can be no doubt that petitioner is indebted to private respondent in the amount of P1,062,063.83 representing the proceeds of her money market investment. This is admitted. But whether private respondent is indebted to petitioner in the amount of P6.81 million representing the deficiency balance after the foreclosure of the mortgage executed to secure the loan extended to her, is vigorously disputed. This circumstance prevents legal compensation from taking place. (CA Decision, Rollo, pp. 112-113). It must be noted that Civil Case No. 83-19717 is still pending consideration at the RTC Manila, for annulment of Sheriffs sale on extra-judicial foreclosure of private respondent's property from which the alleged deficiency arose. (Annex "AA", Rollo, pp. 181-189). Therefore, the validity of the extrajudicial foreclosure sale and petitioner's claim for deficiency are still in question, so much so that it is evident, that the requirement of Article 1279 that the debts must be liquidated and demandable has not yet been met. For this reason, legal compensation cannot take place under Article 1290 of the Civil Code.

Petitioner now assails the motion of the plaintiff (now private respondent) filed in the trial court for the release of the proceeds of the money market investment, arguing that it is deficient in form, the same being unverified (petitioner's Memorandum, Rollo, p. 266). On this score, it has been held that "as enjoined by the Rules of Court and the controlling jurisprudence, a liberal construction of the rules and the pleadings is the controlling principle to effect substantial justice." (Maturan v. Araula, 111 SCRA 615 [1982]). Finally, the filing of insufficient or defective bond does not dissolve absolutely and unconditionally the injunction issued. Whatever defect the bond possessed was cured when private respondent filed another bond in the trial court. PREMISES CONSIDERED, the questioned Decision and Resolution of the respondent Court of Appeals are hereby AFFIRMED. SO ORDERED.

G.R. No. L-56590 May 29, 1981 PERLA COMPAIA DE SEGUROS, INC., petitioner, vs. HON. ALFREDO B. CONCEPCION as Presiding Judge of the Court of First Instance of Cavite, Branch IV-Tagaytay City and MIGUEL ILAGAN, respondents.

TEEHANKEE, J: The Court hereby sets aside the questioned orders of respondent judge disapproving herein petitioner's appeal bond in Civil Case No. TG-438 of the Court of First Instance of Cavite, Branch IV, Tagaytay City, upon the ground that said bond "is void and unenforceable for lack of a principal debtor or obligation," and peremptorily declaring his judgment under appeal as having become final and executory and ordering execution thereof. A mere technical defect or imperfection in the filing of an appeal bond does not render the decision subject of the appeal immediately final. and executory, for where said bond is in substantial conformity with the provisions of the law such that its legal effect accomplishes the objective of insuring to the appellee the payment of the costs of appeal, the appeal should be given due course. In an action for the enforcement of a commercial vehicle comprehensive insurance policy with damages, judgment was rendered by respondent judge sentencing petitioner as defendant to pay respondent-plaintiff Ilagan "the total sum of P18,773.58 minus the sum of P500.00 representing the deductible franchise, plus attorney's fees in the amount of P5,600.00 or the total sum of P23,873.58, with interest thereon at the rate of 36% per annum from February 21, 1978 until said amount shall have been fully satisfied; and to pay the costs." From said judgment, petitioner-defendant timely filed a notice of appeal, appeal bond and a record on appeal. But the herein private respondent, the prevailing party in the lower court, filed therein a motion to dismiss the appeal and for the issuance of a writ of execution, impugning the validity of petitioner's appeal bond as having no principal debtor and therefore void. Despite opposition, respondent judge upheld respondent's contention and denied due course to the appeal and further directed the issuance of the corresponding writ of execution of judgment, in his questioned Order of January 28, 1981, as follows:
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No issue exists regarding the seasonable filing of the notice, bond and record of appeal. the issue centers on the efficacy of the appeal bond executed by Rodrigo Y. Arandia and Porfirio B. Yabut, both lawyers, as sureties whereby they 'jointly and severally bind (themselves) in favor of Miguel Ilagan, ... for the payment of cost ... As correctly pointed out by the plaintiff the disputed appeal bond is void and unenforceable for lack of a principal debtor or obligation. Indeed, while the sureties bound t herself to pay, jointly and severally, 'such an undertaking presupposes that the obligation is enforceable against someone else besides the sureties and the latter could always claim that it was never ( their) intention to the sole person obligated thereby. (Manila Railroad Co., et al. vs. Alvendia, 17 SCRA 154,156.)

It therefore, follows that the judgment rendered in this case had become final and executory, because the defendant had not filed any appeal bond in due time. Reconsideration was denied in respondent judge's Order of March 27, 1981. Hence, this petition for certiorari which we find to be meritorious Section 5 of Rule 41 of the Rules of Court. reads
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Section 5. Appeal Bond. The appeal bond shall answer for the payment of costs. It shall he in the amount of one hundred and twenty pesos (P120) unless the court shall fix a different amount. If the appeal bond is not in cash, it must be approved by the court before the transmittal of the record on appeal to the appellate court. The last sentence of the abovequoted section presupposes that before elevating the record on appeal to the appellate count, the trial court has the duty to pass upon the sufficiency of the appeal bond, and it is called upon to require the party-appellant within a period of time to fully comply with the requirements as to said appeal bond in case of some defect in its execution, in the same manner it requires correction or amplification of a deficient record on appeal. Thus, it behooves the trial court upon opposition to the effectivity of an appeal bond to examine it, to declare it lacking of the requirements if ii be so, and then to require and allow the appellant to complete or amend it in accordance with instructions within a reasonable period, so as to perfect the appeal. 1 Indeed, as in the filing of records on appeal, 2 the Court has invariably taken a liberal attitude in favor of the appellant when it comes to the filing of appeal bonds in relation to perfection of appeals. 3 Thus, it has been held that an appeal bond is sufficient when it is in substantial conformity with the provisions of the law as long as the legal effect is to insure to the appellee the payment of all costs required by law. 4 In Javier Cruz vs. Enriquez, 5 which is similar to the case at bar, the respondent judge therein ordered the disapproval of the appeal bond after discovering that the same consisted merely in the signatures of two lawyers. The Court ruled therein as follows:
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This provision of law 6 does not prescribe a special form for appeal bond. It only requires that the same be for the amount of sixty pesos, (at that time) conditioned for the payment of costs which the appellate court may award against the appellant.' The bond in question complies substantially with the provision of law, and we see no reason why the respondent judge found it defective. When he approved the record on appeal, there has been an implied approval of the original bond, and we find no reason either why after such approval, he had to disapprove said bond and dismiss the appeal on the allegation that the new bond was filed out of time. Furthermore, granting that the first bond was really defective, justice demands that herein petitioners, as appellants in that case, be given an opportunity to cure its defect by filing, as they did another bond. In dismissing the appeal the respondent judge has entirely overlooked the fact that the second bond was not a new one but merely a correction of the original supposedly defective bond. ...

Respondent Laserna vigorously contends that under the inherent powers of the court to amend and control its process and orders so as to make them conformable to law

and justice, the dismissal of the appeal on the ground that the first bond was defective and the second one was filed out of time, should be sustained; but under the facts obtaining in the case, this contention is evidently untenable for the original bond, in our opinion, is not defective, and even granting that it were, petitioners herein were diligent in curing the supposed defect by filing a new bond in order to protect their right to appeal. Certainly, the respondent judge should not have been strictly technical in the application of the rules, for in so doing he has deprived herein petitioners of their right to appeal, or at least to perfect it within the time allowed by law. There is no question in the instant case, as acknowledged in the challenged order, that the record on appeal, notice of appeal and the appeal bond were filed on time. However, as in the above cited case of Cruz, the appeal bond in question was executed by petitioner's lawyers, Attys. Rodrigo Y. Arandia and Porfirio B. Yabut, both lawyers of the law firm representing herein petitioner as defendant in the main case, as well as in the case at t bar, whereby they did "hereby jointly and severally bind ourselves in favor of Miguel Ilagan, in the amount of One Hundred Twenty Pesos (P120.00) conditioned for the payment of costs which the appellate court may award against appellants." Clearly enough. this undertaking, albeit not signed by herein petitioner as partyappellant, effectively insures to the appellee the payment of costs and is, therefore, in substantial compliance with the requirement of the cited Rule, for they certainly are estopped from denying principal liability under the said bond, as baselessly feared by respondent judge in his Order. One additional observation. The authority cited by respondent judge in the questioned order, Manila Railroad Company (MRC) vs. Alvendia 7 wherein the appeal bond was held void and unenforceable for lack of a principal debtor or obligation since the MRC as co-appellant of the Manila Port Service was not a sigtatory to the bond, has been superseded by the decision of the is same court in the later case of Manila Railroad Company vs. Alvendia 8where we held that the Manila Port Service must be deemed part of the Manila Railroad Company and not a separate entity in a suit against the MRC based on arrastre operations undertaken by it through its "agents and subsidiary," the Manila Port Service. Similarly, in this case the lawyers as agents and attorneys of petitioners properly executed the appeal bond in their own name but for the benefit and on behalf of petitioner as their client who has in turn ratified as principal the execution of said appeal bond with the very prosecution of this action, as evidenced by the verification of the petition at bar by petitioner's vicepresident. 9 ACCORDINGLY, judgment is hereby rendered setting aside respondent judge's orders of January 28, 1981 and March 27, 1981 and ordering respondent judge to give due course to the appeal and to transmit the records to the Court of Appeals for proper proceedings and determination of the appeal on the merits. With costs against private respondent. SO ORDERED.

PENAL STATUTES
G.R. No. 146943 October 4, 2002 SARIO MALINIAS, petitioner, vs. THE COMMISSION ON ELECTIONS, TEOFILO CORPUZ, ANACLETO TANGILAG and VICTOR DOMINGUEZ,respondents. DECISION CARPIO, J.: The Case Before us is a petition for review on certiorari1 of the Resolutions of the Commission on Elections ("COMELEC" for brevity) en banc2 dated June 10, 1999 and October 26, 2000. The assailed Resolutions dismissed the complaint3filed by petitioner Sario Malinias ("Malinias" for brevity) and Roy S. Pilando ("Pilando" for brevity) for insufficiency of evidence to establish probable cause for violation of Section 25 of Republic Act No. 66464 and Sections 232 and 261 (i) of Batas Pambansa Blg. 881.5 The Facts Petitioner Malinias was a candidate for governor whereas Pilando was a candidate for congressional representative of Mountain Province in the May 11, 1998 elections.6 The Provincial Board of Canvassers held the canvassing of election returns at the second floor of the Provincial Capitol Building in Bontoc, Mountain Province from May 11, 1998 to May 15, 1998.7 On July 31, 1998, Malinias and Pilando filed a complaint with the COMELEC's Law Department for violation of Section 25 of R.A. No. 6646, and Sections 232 and 261 (i) of B.P. Blg. 881, against Victor Dominguez, Teofilo Corpuz, Anacleto Tangilag, Thomas Bayugan, Jose Bagwan who was then Provincial Election Supervisor, and the members of the Provincial Board of Canvassers. Victor Dominguez ("Dominguez" for brevity) was then the incumbent Congressman of Poblacion, Sabangan, Mountain Province. Teofilo Corpuz ("Corpuz" for brevity) was then the Provincial Director of the Philippine National Police in Mountain Province while Anacleto Tangilag ("Tangilag" for brevity) was then the Chief of Police of the Municipality of Bontoc, Mountain Province. Malinias and Pilando alleged that on May 15, 1998 a police checkpoint at Nacagang, Sabangan, Mountain Province blocked their supporters who were on their way to Bontoc, and prevented them from proceeding to the Provincial Capitol Building. Malinias and Pilando further alleged that policemen, upon orders of private respondents, prevented their supporters, who nevertheless eventually reached the Provincial Capitol Building, from entering the capitol grounds. In their complaint, Malinias and Pilando requested the COMELEC and its Law Department to investigate and prosecute private respondents for the following alleged unlawful acts.

"3. That on May 15, 1998 at the site of the canvassing of election returns for congressional and provincial returns located at the second floor of the Provincial Capitol Building the public and particularly the designated representatives/watchers of both affiants were prevented from attending the canvassing. xxx 4. That the aforementioned "Mass-affidavits" support our allegations in this affidavit-complaint that we and our supporters were prevented from attending the provincial canvassing because of the illegal checkpoint/blockade set-up by policemen in Nakagang, Tambingan, Sabangan, Mt. Province and as an evidence to these allegations, Certification of the Police Station is hereto attached as Annex "D" and affidavits of supporters hereto attached as Annex "E", both made an integral part of this affidavit-complaint; and that said "mass-affidavits" show that the Provincial canvassing were not made public or (sic) candidates and their representatives/watchers prevented because of barricade, closure of canvassing rooms, blockade by armed policemen that coerce or threaten the people, the candidates or their representatives from attending the canvassing;8 In support of the complaint, several supporters of Malinias and Pilando executed so-called "mass affidavits" uniformly asserting that private respondents, among others, (1) prevented them from attending the provincial canvassing, (2) padlocked the canvassing area, and (3) threatened the people who wanted to enter the canvassing room. They likewise alleged that the Provincial Board of Canvassers never allowed the canvassing to be made public and consented to the exclusion of the public or representatives of other candidates except those of Dominguez.9 Consequently, the COMELEC's Law Department conducted a preliminary investigation during which only Corpuz and Tangilag submitted their joint Counter-Affidavit. In their Counter-Affidavit, Corpuz and Tangilag admitted ordering the setting up of a checkpoint at Nacagang, Sabangan, Mountain Province and securing the vicinity of the Provincial Capitol Building, to wit: "3. We admit having ordered the setting up of check points in Nakagang, Tambingan, Sabangan, Mountain Province; as in fact, this is not the only checkpoint set up in the province. There are other checkpoints established in other parts of the province, to enforce the COMELEC gun ban and other pertinent rules issued by the Commission on Election during the election period. 4. Policemen were posted within the vicinity of the capitol grounds in response to earlier information that some groups were out to disrupt the canvass proceedings which were being conducted in the second floor of the Provincial Capitol Building. This is not remote considering that this had happened in the past elections. In fact, during the canvass proceeding on May 15, 1998 a large group of individuals identified with no less than affiants-complainants Roy S. Pilando and Sario Malinias was conducting a rally just in front of the capitol, shouting invectives at certain candidates and their leaders. This group likewise were holding placards and posted some in front of the capitol building. x x x"10 After the investigation, in a study dated May 26, 1999, the COMELEC's Law Department recommended to the COMELEC en banc the dismissal of the complaint for lack of probable cause.11

In a Resolution dated June 10, 1999, the COMELEC en banc dismissed the complaint of Malinias and Pilando for insufficiency of evidence to establish probable cause against private respondents. On October 26, 2000, the COMELEC dismissed Malinias' Motion for Reconsideration. Hence, Malinias filed the instant petition. The Comelec's Ruling In dismissing the complaint against private respondents, the COMELEC ruled as follows: "As appearing in the Minutes of Provincial Canvass, complainant Roy Pilando was present during the May 15, 1998 Provincial Canvass. He even participated actively in a discussion with the members of the Board and the counsel of Congressman Dominguez. The minutes also disclosed that the lawyers of LAMMP, the watchers, supporters of other candidates and representatives of the Integrated Bar of the Philippines were present at one time or another during the canvass proceedings. The minutes does not indicate any charges of irregularities inside and within the vicinity of the canvassing room. Pursuant to Comelec Res. No. 2968 promulgated on January 7, 1998, checkpoints were established in the entire country to effectively implement the firearms ban during the election period from January 11, 1998 to June 10, 1998. In Mountain Province, there were fourteen (14) checkpoints established by the Philippine National Police way before the start of the campaign period for the May 11, 1998 elections including the subject checkpoint at Nacagang, Tambingan, Sabangan, Mountain Province. Thus, the checkpoint at Sabangan, Mountain Province was not established as alleged only upon request of Congressman Dominguez on May 15, 1998 but way before the commencement of the campaign period. Granting arguendo that the Congressman did make a request for a checkpoint at Sitio Nacagang, it would be a mere surplusage as the same was already existing. Furthermore, an alleged text of a radio message requesting advice from the PNP Provincial Director at Bontoc, Mt. Province was attached to complainants' affidavit-complaint. However, said person by the name of Mr. Palicos was never presented to affirm the truth of the contents and the signature appearing therein."12 Finding that Malinias failed to adduce new evidence, the COMELEC dismissed Malinias' Motion for Reconsideration.13 The Court's Ruling The sole issue for resolution is whether the COMELEC gravely abused its discretion in dismissing Malinias and Pilando's complaint for insufficiency of evidence to establish probable cause for alleged violation of Section 25 of R.A. No. 6646 and Sections 232 and 261 (i) of B.P. 881. We rule that the COMELEC did not commit grave abuse of discretion. For this Court to issue the extraordinary writ of certiorari, the tribunal or administrative body must have issued the assailed decision, order or resolution in a capricious and despotic manner. "There is grave abuse of discretion justifying the issuance of the writ of certiorari when there is a capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction; where the power is exercised in an arbitrary or despotic manner by reason of passion, prejudice, or personal

hostility, amounting to an evasion of positive duty or to a virtual refusal to perform the duty enjoined, or to act at all in contemplation of law."14 Such is not the situation in the instant case. The COMELEC dismissed properly the complaint of Malinias and Pilando for insufficient evidence, and committed no grave abuse of discretion amounting to lack or excess of jurisdiction. First, Malinias charged private respondents with alleged violation of Section 25 of Republic Act No. 6646, quoted, as follows: "Sec. 25. Right to be Present and to Counsel During the Canvass. Any registered political party, coalition of parties, through their representatives, and any candidate has the right to be present and to counsel during the canvass of the election returns; Provided, That only one counsel may argue for each political party or candidate. They shall have the right to examine the returns being canvassed without touching them, make their observations thereon, and file their challenge in accordance with the rules and regulations of the Commission. No dilatory action shall be allowed by the board of canvassers." In the present case, Malinias miserably failed to substantiate his claim that private respondents denied him his right to be present during the canvassing. There was even no showing that Malinias was within the vicinity of the Provincial Capitol Building or that private respondents prevented him from entering the canvassing room. As found by the COMELEC and admitted by Malinias, Pilando was present and even participated actively in the canvassing.15 Malinias failed to show that his rights as a gubernatorial candidate were prejudiced by the alleged failure of his supporters to attend the canvassing. Malinias claimed that even though Pilando was present during the canvassing, the latter was only able to enter the room after eluding the policemen and passing through the rear entrance of the Provincial Capitol Building.16 This allegation, however, is not supported by any clear and convincing evidence. Pilando himself, who was purportedly prevented by policemen from entering the canvassing room, failed to attest to the veracity of this statement rendering the same self-serving and baseless. In an analogous case where a political candidate's watcher failed to attend the canvass proceedings, this Court held: "Another matter which militates against the cause of petitioner is that he has not shown that he suffered prejudice because of the failure of his watcher to attend the canvassing. Had the watcher been present, what substantive issues would he have raised? Petitioner does not disclose. Could it be that even if the watcher was present, the result of the canvassing would have been the same?" There is therefore no merit in petitioner's claim that respondent Commission on Elections gravely abused its discretion in issuing its questioned decision. And, as emphatically stated in Sidro v. Comelec, 102 SCRA 853, this Court has invariably followed the principle that "in the absence of any jurisdictional infirmity or an error of law of the utmost gravity, the conclusion reached by the respondent Commission on a matter that falls within its competence is entitled to the utmost respect, xxx." There is justification in this case to reiterate this principle."17 Assuming that Pilando in fact entered the canvassing room only after successfully evading the policemen surrounding the Provincial Capitol grounds, Pilando could have easily complained of this alleged unlawful act during the canvass proceedings. He could have immediately reported the

matter to the Provincial Board of Canvassers as a violation of Section 25 of R.A. No. 6646. However, Pilando opted simply to raise questions on alleged irregularities in the municipal canvassing. 18 While he had the opportunity to protest the alleged intimidation committed by policemen against his person, it is quite surprising that he never mentioned anything about it to the Provincial Board of Canvassers. Surprisingly, the COMELEC and private respondents apparently overlooked that R.A. No. 6646 does not punish a violation of Section 25 of the law as a criminal election offense. Section 25 merely highlights one of the recognized rights of a political party or candidate during elections, aimed at providing an effective safeguard against fraud or irregularities in the canvassing of election returns. Section 2719 of R.A. No. 6646, which specifies the election offenses punishable under this law, does not include Section 25. Malinias further claims that, in violation of this right, his supporters were blocked by a checkpoint set-up at Nacagang, Sabangan, Mountain Province. This allegation is devoid of any basis to merit a reversal of the COMELEC's ruling. Malinias' supporters who were purportedly blocked by the checkpoint did not confirm or corroborate this allegation of Malinias. Moreover, the police established checkpoints in the entire country to implement the firearms ban during the election period. Clearly, this is in consonance with the constitutionally ordained power of the COMELEC to deputize government agencies and instrumentalities of the Government for the exclusive purpose of ensuring free, orderly, honest, peaceful and credible elections.20 Second, Malinias maintains that Corpuz and Tangilag entered the canvassing room in blatant violation of Section 232 of B.P. Blg. 881. His sole basis for this allegation is the affidavit of his supporters who expressly stated that they saw Dominguez and Corpuz (only) enter the canvassing room.21 Malinias likewise contends that "Corpuz and Tangilag impliedly admitted that they were inside or at least within the fifty (50) meter radius of the canvassing room as they were able to mention the names of the persons who were inside the canvassing room in their CounterAffidavit."22 The provision of law which Corpuz and Tangilag allegedly violated is quoted as follows: "Sec. 232. Persons not allowed inside the canvassing room. It shall be unlawful for any officer or member of the Armed Forces of the Philippines, including the Philippine Constabulary, or the Integrated National Police or any peace officer or any armed or unarmed persons belonging to an extra-legal police agency, special forces, reaction forces, strike forces, home defense forces, barangay self-defense units, barangay tanod, or of any member of the security or police organizations or government ministries, commissions, councils, bureaus, offices, instrumentalities, or government-owned or controlled corporation or their subsidiaries or of any member of a privately owned or operated security, investigative, protective or intelligence agency performing identical or similar functions to enter the room where the canvassing of the election returns are held by the board of canvassers and within a radius of fifty meters from such room: Provided, however, That the board of canvassers by a majority vote, if it deems necessary, may make a call in writing for the detail of policemen or any peace officers for their protection or for the protection of the election documents and paraphernalia in the possession of the board, or for the maintenance of peace and order, in which case said policemen or peace officers, who shall be in proper uniform, shall stay outside the room within a radius of thirty meters near enough to be easily called by the board of canvassers at any time."

Again, the COMELEC and private respondents overlooked that Section 232 of B.P. Blg. 881 is not one of the election offenses explicitly enumerated in Sections 261 and 262 of B.P. Blg. 881. While Section 232 categorically states that it is unlawful for the persons referred therein to enter the canvassing room, this act is not one of the election offenses criminally punishable under Sections 261 and 262 of B.P. Blg. 881. Thus, the act involved in Section 232 of B.P. Blg. 881 is not punishable as a criminal election offense. Section 264 of B.P. Blg. 881 provides that the penalty for an election offense under Sections 261 and 262 is imprisonment of not less than one year but not more than six years. Under the rule of statutory construction of expressio unius est exclusio alterius, there is no ground to order the COMELEC to prosecute private respondents for alleged violation of Section 232 of B.P. Blg. 881 precisely because this is a non-criminal act. "It is a settled rule of statutory construction that the express mention of one person, thing, or consequence implies the exclusion of all others. The rule is expressed in the familiar maxim, expressio unius est exclusio alterius. The rule of expressio unius est exclusio alterius is formulated in a number of ways. One variation of the rule is the principle that what is expressed puts an end to that which is implied. Expressium facit cessare tacitum. Thus, where a statute, by its terms, is expressly limited to certain matters, it may not, by interpretation or construction, be extended to other matters. xxx The rule of expressio unius est exclusio alterius and its variations are canons of restrictive interpretation. They are based on the rules of logic and the natural workings of the human mind. They are predicated upon one's own voluntary act and not upon that of others. They proceed from the premise that the legislature would not have made specified enumeration in a statute had the intention been not to restrict its meaning and confine its terms to those expressly mentioned."23 Also, since private respondents are being charged with a criminal offense, a strict interpretation in favor of private respondents is required in determining whether the acts mentioned in Section 232 are criminally punishable under Sections 26124 and 26225 of B.P. Blg. 881. Since Sections 261 and 262, which lists the election offenses punishable as crimes, do not include Section 232, a strict interpretation means that private respondents cannot be held criminally liable for violation of Section 232. This is not to say that a violation of Section 232 of B.P. Blg. 881 is without any sanction. Though not a criminal election offense, a violation of Section 232 certainly warrants, after proper hearing, the imposition of administrative penalties. Under Section 2, Article IX-C of the Constitution, the COMELEC may recommend to the President the imposition of disciplinary action on any officer or employee the COMELEC has deputized for violation of its directive, order or decision.26 Also, under the Revised Administrative Code,27 the COMELEC may recommend to the proper authority the suspension or removal of any government official or employee found guilty of violation of election laws or failure to comply with COMELEC orders or rulings. In addition, a careful examination of the evidence presented by Malinias shows that the same are insufficient to justify a finding of grave abuse of discretion on the part of the COMELEC. Obviously, the evidence relied upon by Malinias to support his charges consisted mainly of affidavits prepared by his own supporters. The affidavits of Malinias' own supporters, being self-serving, cannot be

accepted at face value under the circumstances. As this Court has often stated, "reliance should not be placed on mere affidavits."28 Besides, if Corpuz really entered the canvassing room, then why did Pilando and the representatives of other candidates, who were inside the room, fail to question this alleged wrongful act during the canvassing? Malinias' contention that Corpuz and Tangilag impliedly admitted they were inside the canvassing room because they mentioned the names of the persons present during the canvassing deserves scant consideration as the same is not supported by any evidence. Finally, Malinias asserts that private respondents should be held liable for allegedly violating Section 261 (i) of B. P. Blg. 881 because the latter engaged in partisan political activity. This provision states: "Sec. 261 (i) Intervention of public officers and employees. Any officer or employee in the civil service, except those holding political offices; any officer, employee, or member of the Armed Forces of the Philippines, or any police force, special forces, home defense forces, barangay self-defense units and all other para-military units that now exist or which may hereafter be organized who, directly or indirectly, intervenes in any election campaign or engages in any partisan political activity, except to vote or to preserve public order, if he is a peace officer." Section 79, Article X of B.P. Blg. 881 defines the term "partisan political activity" as an act designed to promote the election or defeat of a particular candidate or candidates to a public office."29 Malinias asserts that, in setting up a checkpoint at Nacagang, Tambingan, Sabangan, Mountain Province and in closing the canvassing room, Corpuz and Tangilag unduly interfered with his right to be present and to counsel during the canvassing. This interference allegedly favored the other candidate. While Corpuz and Tangilag admitted ordering the setting up of the checkpoint, they did so to enforce the COMELEC's firearms ban, pursuant to COMELEC Resolution No. 2968, among others.30 There was no clear indication that these police officers, in ordering the setting up of checkpoint, intended to favor the other candidates. Neither was there proof to show that Corpuz and Tangilag unreasonably exceeded their authority in implementing the COMELEC rules. Further, there is no basis to rule that private respondents arbitrarily deprived Malinias of his right to be present and to counsel during the canvassing. The act of Corpuz and Tangilag in setting up the checkpoint was plainly in accordance with their avowed duty to maintain effectively peace and order within the vicinity of the canvassing site. Thus, the act is untainted with any color of political activity. There was also no showing that the alleged closure of the provincial capitol grounds favored the election of the other candidates. In summary, we find that there is no proof that the COMELEC issued the assailed resolutions with grave abuse of discretion. We add that this Court has limited power to review findings of fact made by the COMELEC pursuant to its constitutional authority to investigate and prosecute actions for election offenses.31 Thus, where there is no proof of grave abuse of discretion, arbitrariness, fraud or error of law, this Court may not review the factual findings of the COMELEC, nor substitute its own findings on the sufficiency of evidence.32 WHEREFORE, the instant Petition is DISMISSED. The assailed Resolutions of public respondent COMELEC are AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 165276

November 25, 2009

JUDGE ADORACION G. ANGELES, Petitioner, vs. HON. MANUEL B. GAITE, Acting Deputy Executive Secretary for Legal Affairs; HON. WALDO Q. FLORES, Senior Deputy Executive Secretary, Office of the President; Former DOJ SECRETARY HERNANDO B. PEREZ (now substituted by the Incumbent DOJ Secretary RAUL GONZALES); Former PROV. PROS. AMANDO C. VICENTE (now substituted by the Incumbent PROV. PROS. ALFREDO L. GERONIMO); PROS. BENJAMIN R. CARAIG, Malolos, Bulacan; and MICHAEL T. VISTAN, Respondents. DECISION PERALTA, J.: Before this Court is a Petition for Review,1 under Rule 43 of the 1997 Rules of Civil Procedure, assailing the February 13, 2004 Decision2 and September 16, 2004 Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 76019. The facts of the case, as alleged by petitioner and likewise adopted by the CA, are as follows: Petitioner [Judge Adoracion G. Angeles] was the foster mother of her fourteen (14) year-old grandniece Maria Mercedes Vistan who, in April 1990 was entrusted to the care of the former by the girls grandmother and petitioners sister Leonila Angeles Vda. de Vistan when the child was orphaned at the tender age of four. Petitioner provided the child with love and care, catered to her needs, sent her to a good school and attended to her general well-being for nine (9) memorable and happy years. The child also reciprocated the affections of her foster mother and wrote the latter letters. Petitioners love for the child extended to her siblings, particularly her half-brother respondent Michael Vistan, a former drug-addict, and the latters family who were regular beneficiaries of the undersigneds generosity. Michael would frequently run to the undersigned for his variety of needs ranging from day to day subsistence to the medical and hospital expenses of his children. In the evening of 11 April 1999, Michael Vistan had a falling out with petitioner for his failure to do a very important errand for which he was severely reprimanded over the phone. He was told that from then on, no assistance of any kind would be extended to him and that he was no longer welcome at petitioners residence. Feeling thwarted, he, in conspiracy with his co-horts (sic), retaliated on 12 April 1999 by inducing his half-sister, Maria Mercedes, to leave petitioners custody. Michael used to have free access to the undersigneds house and he took the girl away while petitioner was at her office. In the evening of that day, 12 April 1999, petitioner, accompanied by her friend Ines Francisco, sought Michael Vistan in his residence in Sta. Cruz, Guiguinto, Bulacan to confront him about the whereabouts of his half-sister. He disclosed that he brought the girl to the residence of her maternal relatives in Sta. Monica, Hagonoy, Bulacan. Petitioner then reported the matter and requested for the assistance of the 303rd Criminal Investigation and Detective Group Field Office in Malolos,

Bulacan to locate the girl. Consequently, PO3 Paquito M. Guillermo and Ruben Fred Ramirez accompanied petitioner and her friend to Hagonoy, Bulacan where they coordinated with police officers from the said place. The group failed to find the girl. Instead, they were given the runaround as the spouses Ruben and Lourdes Tolentino and spouses Gabriel and Olympia Nazareno misled them with the false information that Maria Mercedes was already brought by their brother Carmelito Guevarra and the latters wife Camilia to Casiguran, Quezon Province. On 13 April 1999, petitioner filed a complaint for Kidnapping under Article 271 of the Revised Penal Code (Inducing a Minor to Abandon His Home) against Michael Vistan, the Tolentino spouses, the Nazareno spouses and Guevarra spouses, all maternal relatives of Maria Mercedes Vistan. Warrants of arrest were subsequently issued against them and to evade the long arm of the law, Michael Vistan went into hiding. He dragged along with him his half-sister Maria Mercedes. From 12 April 1999 to 16 April 1999, Michael Vistan, with his little sister in tow, shuttled back and forth from Guiguinto to Hagonoy, Bulacan as well as in Manila and Quezon City, living the life of a fugitive from justice. He eventually brought the girl to ABS-CBN in Quezon City where he made her recite a concocted tale of child abuse against herein petitioner hoping that this would compel the latter to withdraw the kidnapping charge which she earlier filed. In the early morning of 16 April 1999, Michael Vistan brought Maria Mercedes to the DSWD after he felt himself cornered by the police dragnet laid for him. Prompted by his overwhelming desire to retaliate against petitioner and get himself off the hook from the kidnapping charge, Michael Vistan had deliberately, maliciously, selfishly and insensitively caused undue physical, emotional and psychological sufferings to Maria Mercedes Vistan, all of which were greatly prejudicial to her well-being and development. Thus, on 1 December 1999, petitioner filed a complaint against Michael Vistan before the Office of the Provincial Prosecutor in Malolos, Bulacan for five counts of Violation of Section 10 (a), Article VI of RA 7610, otherwise known as the Child Abuse Act, and for four counts of Violation of Sec. 1 (e) of PD 1829. She likewise filed a complaint for Libel against Maria Cristina Vistan, aunt of Michael and Maria Mercedes. In a Resolution dated March 3, 2000, Investigating Prosecutor Benjamin R. Caraig recommended upheld (sic) the charge of Violation of RA 7160 but recommended that only one Information be filed against Michael Vistan. The charge of Violation of PD 1829 was dismissed. Nonetheless, the Resolution to uphold the petitioners complaint against Maria Cristina Vistan must (sic) remained. However, Provincial Prosecutor Amando C. Vicente denied the recommendation of the Investigating Prosecutor that Michael Vistan be indicted for Violation RA 7610. He also approved the recommendation for the dismissal of the charge for Violation of PD 1829. On 14 April 2000, petitioner filed a Motion for Partial Reconsideration. This was denied in a Resolution dated 28 April 2000. Petitioner then filed a Petition for Review before the Department of Justice on 18 May 2000. She also filed a Supplement thereto on 19 May 2000.

In a Resolution dated 5 April 2001, Undersecretary Manuel A.J. Teehankee, acting for the Secretary of Justice, denied the petition for review. The undersigneds Motion for Reconsideration filed on 25 April 2001 was likewise denied by then DOJ Secretary Hernando B. Perez in a Resolution dated 15 October 2001. On 26 November 2001, the undersigned filed a Petition for Review before the Office of President. The petition was dismissed and the motion for reconsideration was denied before said forum anchored on Memorandum Circular No. 58 which bars an appeal or a petition for review of decisions/orders/resolutions of the Secretary of Justice except those involving offenses punishable by reclusion perpetua or death.4 On March 18, 2003, petitioner filed a petition for review5 before the CA assailing the Order of the Office of President. Petitioner argued that the Office of the President erred in not addressing the merits of her petition by relying on Memorandum Circular No. 58, series of 1993. Petitioner assailed the constitutionality of the memorandum circular, specifically arguing that Memorandum Circular No. 58 is an invalid regulation because it diminishes the power of control of the President and bestows upon the Secretary of Justice, a subordinate officer, almost unfettered power.6 Moreover, petitioner contended that the Department of Justice (DOJ) erred in dismissing the complaint against respondent Michael Vistan for violations of Presidential Decree No. 18297 (PD No. 1829) and for violation of Republic Act No. 76108 (RA No. 7610).9 On February 13, 2004, the CA rendered a Decision, dismissing the petition, the dispositive portion of which reads: WHEREFORE, premises considered, the instant petition is hereby DISMISSED for lack of merit.10 The CA affirmed the position of the Solicitor General (OSG) to apply the doctrine of qualified political agency, to wit: When the President herself did not revoke the order issued by respondent Acting Deputy Executive Secretary for Legal Affairs nor saw the necessity to exempt petitioners case from the application of Memorandum Circular No. 58, the act of the latter is deemed to be an act of the President herself. 11 Moreover, the CA ruled that the facts of the case as portrayed by petitioner do not warrant the filing of a separate Information for violation of Section 1(e) of PD No. 1829.12 Lastly, the CA ruled that the DOJ did not err when it dismissed the complaint for violation for RA No. 7610 as the same was not attended by grave abuse of discretion. Petitioner filed a Motion for Reconsideration,13 which was, however, denied by the CA in a Resolution dated September 16, 2004. Hence, herein petition, with petitioner raising the following assignment of errors, to wit: 1. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE RELIANCE OF THE OFFICE OF THE PRESIDENT IN THE PROVISIONS OF MEMORANDUM CIRCULAR NO. 58. 2. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DISMISSAL BY THE DOJ SECRETARY OF THE COMPLAINT OF VIOLATION OF SECTION 1(E). P.D. 1829 (OBSTRUCTION OF JUSTICE) AGAINST PRIVATE RESPONDENT MICHAEL VISTAN.

3. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DISMISSAL OF THE COMPLAINT OF VIOLATION OF R.A. 7610 (CHILD ABUSE) AGAINST PRIVATE RESPONDENT MICHAEL VISTAN.14 The petition is without merit. Petitioner's arguments have no leg to stand on. They are mere suppositions without any basis in law. Petitioner argues in the main that Memorandum Circular No. 58 is an invalid regulation, because it diminishes the power of control of the President and bestows upon the Secretary of Justice, a subordinate officer, almost unfettered power.15 This argument is absurd. The President's act of delegating authority to the Secretary of Justice by virtue of said Memorandum Circular is well within the purview of the doctrine of qualified political agency, long been established in our jurisdiction. Under this doctrine, which primarily recognizes the establishment of a single executive, "all executive and administrative organizations are adjuncts of the Executive Department; the heads of the various executive departments are assistants and agents of the Chief Executive; and, except in cases where the Chief Executive is required by the Constitution or law to act in person or the exigencies of the situation demand that he act personally, the multifarious executive and administrative functions of the Chief Executive are performed by and through the executive departments, and the acts of the secretaries of such departments, performed and promulgated in the regular course of business, are, unless disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief Executive."16 The CA cannot be deemed to have committed any error in upholding the Office of the President's reliance on the Memorandum Circular as it merely interpreted and applied the law as it should be. As early as 1939, in Villena v. Secretary of Interior,17 this Court has recognized and adopted from American jurisprudence this doctrine of qualified political agency, to wit: x x x With reference to the Executive Department of the government, there is one purpose which is crystal-clear and is readily visible without the projection of judicial searchlight, and that is, the establishment of a single, not plural, Executive. The first section of Article VII of the Constitution, dealing with the Executive Department, begins with the enunciation of the principle that "The executive power shall be vested in a President of the Philippines." This means that the President of the Philippines is the Executive of the Government of the Philippines, and no other. The heads of the executive departments occupy political positions and hold office in an advisory capacity, and, in the language of Thomas Jefferson, "should be of the President's bosom confidence" (7 Writings, Ford ed., 498), and, in the language of Attorney-General Cushing (7 Op., Attorney-General, 453), "are subject to the direction of the President." Without minimizing the importance of the heads of the various departments, their personality is in reality but the projection of that of the President. Stated otherwise, and as forcibly characterized by Chief Justice Taft of the Supreme Court of the United States, "each head of a department is, and must be, the President's alter ego in the matters of that department where the President is required by law to exercise authority" (Myers v. United States, 47 Sup. Ct. Rep., 21 at 30; 272 U.S., 52 at 133; 71 Law. ed., 160).18 Memorandum Circular No. 58,19 promulgated by the Office of the President on June 30, 1993 reads: In the interest of the speedy administration of justice, the guidelines enunciated in Memorandum Circular No. 1266 (4 November 1983) on the review by the Office of the President of

resolutions/orders/decisions issued by the Secretary of Justice concerning preliminary investigations of criminal cases are reiterated and clarified. No appeal from or petition for review of decisions/orders/resolutions of the Secretary of Justice on preliminary investigations of criminal cases shall be entertained by the Office of the President, except those involving offenses punishable by reclusion perpetua to death x x x. Henceforth, if an appeal or petition for review does not clearly fall within the jurisdiction of the Office of the President, as set forth in the immediately preceding paragraph, it shall be dismissed outright x x x. It is quite evident from the foregoing that the President himself set the limits of his power to review decisions/orders/resolutions of the Secretary of Justice in order to expedite the disposition of cases. Petitioner's argument that the Memorandum Circular unduly expands the power of the Secretary of Justice to the extent of rendering even the Chief Executive helpless to rectify whatever errors or abuses the former may commit in the exercise of his discretion20 is purely speculative to say the least. Petitioner cannot second- guess the President's power and the President's own judgment to delegate whatever it is he deems necessary to delegate in order to achieve proper and speedy administration of justice, especially that such delegation is upon a cabinet secretary his own alter ego. Nonetheless, the power of the President to delegate is not without limits. No less than the Constitution provides for restrictions. Justice Jose P. Laurel, in his ponencia in Villena, makes this clear: x x x Withal, at first blush, the argument of ratification may seem plausible under the circumstances, it should be observed that there are certain prerogative acts which, by their very nature, cannot be validated by subsequent approval or ratification by the President. There are certain constitutional powers and prerogatives of the Chief Executive of the Nation which must be exercised by him in person and no amount of approval or ratification will validate the exercise of any of those powers by any other person. Such, for instance, is his power to suspend the writ of habeas corpus and proclaim martial law (par. 3, sec. 11, Art. VII) and the exercise by him of the benign prerogative of mercy (par. 6, sec. 11, idem).21 These restrictions hold true to this day as they remain embodied in our fundamental law. There are certain presidential powers which arise out of exceptional circumstances, and if exercised, would involve the suspension of fundamental freedoms, or at least call for the supersedence of executive prerogatives over those exercised by co-equal branches of government.22 The declaration of martial law, the suspension of the writ of habeas corpus, and the exercise of the pardoning power, notwithstanding the judicial determination of guilt of the accused, all fall within this special class that demands the exclusive exercise by the President of the constitutionally vested power.23 The list is by no means exclusive, but there must be a showing that the executive power in question is of similar gravitasand exceptional import.24 In the case at bar, the power of the President to review the Decision of the Secretary of Justice dealing with the preliminary investigation of cases cannot be considered as falling within the same exceptional class which cannot be delegated. Besides, the President has not fully abdicated his power of control as Memorandum Circular No. 58 allows an appeal if the imposable penalty is reclusion perpetua or higher. Certainly, it would be unreasonable to impose upon the President

the task of reviewing all preliminary investigations decided by the Secretary of Justice. To do so will unduly hamper the other important duties of the President by having to scrutinize each and every decision of the Secretary of Justice notwithstanding the latters expertise in said matter. In Constantino, Jr. v. Cuisia,25 this Court discussed the predicament of imposing upon the President duties which ordinarily should be delegated to a cabinet member, to wit: The evident exigency of having the Secretary of Finance implement the decision of the President to execute the debt-relief contracts is made manifest by the fact that the process of establishing and executing a strategy for managing the governments debt is deep within the realm of the expertise of the Department of Finance, primed as it is to raise the required amount of funding, achieve its risk and cost objectives, and meet any other sovereign debt management goals. If, as petitioners would have it, the President were to personally exercise every aspect of the foreign borrowing power, he/she would have to pause from running the country long enough to focus on a welter of time-consuming detailed activitiesthe propriety of incurring/guaranteeing loans, studying and choosing among the many methods that may be taken toward this end, meeting countless times with creditor representatives to negotiate, obtaining the concurrence of the Monetary Board, explaining and defending the negotiated deal to the public, and more often than not, flying to the agreed place of execution to sign the documents. This sort of constitutional interpretation would negate the very existence of cabinet positions and the respective expertise which the holders thereof are accorded and would unduly hamper the Presidents effectivity in running the government.26 Based on the foregoing considerations, this Court cannot subscribe to petitioners position asking this Court to allow her to appeal to the Office of the President, notwithstanding that the crimes for which she charges respondent are not punishable by reclusion perpetua to death. It must be remembered that under the Administrative Code of 1987 (EO No. 292), the Department of Justice, under the leadership of the Secretary of Justice, is the governments principal law agency. As such, the Department serves as the governments prosecution arm and administers the governments criminal justice system by investigating crimes, prosecuting offenders and overseeing the correctional system, which are deep within the realm of its expertise.27 These are known functions of the Department of Justice, which is under the executive branch and, thus, within the Chief Executive's power of control. Petitioners contention that Memorandum Circular No. 58 violates both the Constitution and Section 1, Chapter 1, Book III of EO No. 292, for depriving the President of his power of control over the executive departments deserves scant consideration. In the first place, Memorandum Circular No. 58 was promulgated by the Office of the President and it is settled that the acts of the secretaries of such departments, performed and promulgated in the regular course of business are, unless disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief Executive.28 Memorandum Circular No. 58 has not been reprobated by the President; therefore, it goes without saying that the said Memorandum Circular has the approval of the President. Anent the second ground raised by petitioner, the same is without merit. Petitioner argues that the evasion of arrest constitutes a violation of Section 1(e) of PD No. 1829, the same is quoted hereunder as follows:

(e) Delaying the prosecution of criminal case by obstructing the service of processes or court orders or disturbing proceedings in the fiscals' offices in Tanodbayan, or in the courts. x x x Specifically, petitioner contends that respondent's act of going underground obstructed the service of a court process, particularly the warrant of arrest.29 This Court does not agree. There is no jurisprudence that would support the stance taken by petitioner. Notwithstanding petitioner's vehement objection in the manner the CA had disposed of the said issue, this Court agrees with the same. The CA ruled that the position taken by petitioner was contrary to the spirit of the law on "obstruction of justice," in the wise: x x x It is a surprise to hear from petitioner who is a member of the bench to argue that unserved warrants are tantamount to another violation of the law re: "obstruction of justice." Petitioner is like saying that every accused in a criminal case is committing another offense of "obstruction of justice" if and when the warrant of arrest issued for the former offense/ charge is unserved during its life or returned unserved after its life and that the accused should be charged therewith re: "obstruction of justice." What if the warrant of arrest for the latter charge ("obstruction of justice") is again unserved during its life or returned unserved? To follow the line of thinking of petitioner, another or a second charge of "obstruction of justice" should be filed against the accused. And if the warrant of arrest issued on this second charge is not served, again, a third charge of "obstruction of justice" is warranted or should be filed against the accused. Thus, petitioner is effectively saying that the number of charges for "obstruction of justice" is counting and/or countless, unless and until the accused is either arrested or voluntarily surrendered. We, therefore, find the position taken by petitioner as contrary to the intent and spirit of the law on "obstruction of justice." x x x30 As correctly observed by the CA, the facts of the case, as portrayed by petitioner, do not warrant the filing of a separate information for violation of Section 1(e) of PD No. 1829. This Court agrees with the CA that based on the evidence presented by petitioner, the failure on the part of the arresting officer/s to arrest the person of the accused makes the latter a fugitive from justice and is not equivalent to a commission of another offense of obstruction of justice.31 Petitioner, however, vehemently argues that the law does not explicitly provide that it is applicable only to another person and not to the offender himself.32 Petitioner thus contends that where the "law does not distinguish, we should not distinguish."33 Again, this Court does not agree. Petitioner conveniently forgets that it is a basic rule of statutory construction that penal statutes are to be liberally construed in favor of the accused.34 Courts must not bring cases within the provision of a law which are not clearly embraced by it. No act can be pronounced criminal which is not clearly made so by statute; so, too, no person who is not clearly within the terms of a statute can be brought within them.35 Any reasonable doubt must be resolved in favor of the accused.36 Indeed, if the law is not explicit that it is applicable only to another person and not the offender himself, this Court must resolve the same in favor of the accused. In any case, this Court agrees with the discussion of the CA, however sarcastic it may be, is nevertheless correct given the circumstances of the case at bar.

Lastly, petitioner argues that the CA erred in upholding the dismissal of the complaint against respondent for violation of Section 10 (a), Article VI, of RA No. 7610. Said Section reads: Any person who shall commit any other act of child abuse, cruelty or exploitation or responsible for other conditions prejudicial to the child's development, including those covered by Article 59 of PD No. 603, as amended, but not covered by the Revised Penal Code, as amended, shall suffer the penalty of prision mayor in its minimum period. On this note, the Provincial Prosecutor in disapproving the recommendation of the Investigating Prosecutor to file the information for violation of Section 10(a), Article VI, of RA No. 7610, gave the following reasons: APPROVED for: (1) x x x (2) x x x The recommendation to file an information for viol. of Sec. 10 (a) RA # 7610 vs. M. Vistan is hereby denied. The affidavit of Ma. Mercedes Vistan, the minor involved, is to the effect that she found happiness and peace of mind away from the complainant and in the company of her relatives, including her brother, respondent Michael Vistan. How can her joining the brother be prejudicial to her with such statement?37 Said finding was affirmed by the Secretary of Justice. This Court is guided by First Women's Credit Corporation and Shig Katamaya v. Hon. Hernando B. Perez et. al,38where this Court emphasized the executive nature of preliminary investigations, to wit: x x x the determination of probable cause for the filing of an information in court is an executive function, one that properly pertains at the first instance to the public prosecutor and, ultimately, to the Secretary of Justice. For this reason, the Court considers it sound judicial policy to refrain from interfering in the conduct of preliminary investigations and to leave the Department of Justice ample latitude of discretion in the determination of what constitutes sufficient evidence to establish probable cause for the prosecution of supposed offenders. Consistent with this policy, courts do not reverse the Secretary of Justices findings and conclusions on the matter of probable cause except in clear cases of grave abuse of discretion. Thus, petitioners will prevail only if they can show that the CA erred in not holding that public respondents resolutions were tainted with grave abuse of discretion.39
1avv phi1

Were the acts of the Provincial Prosecutor or the Secretary of Justice tainted with grave abuse of discretion? By grave abuse of discretion is meant such capricious and whimsical exercise of judgment which is equivalent to an excess or lack of jurisdiction. The abuse of discretion must be so patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or to act not at all in contemplation of law, as where the power is exercised in an arbitrary and despotic manner by reason of passion or hostility.40 Based on the foregoing, this Court finds that the provincial prosecutor and the Secretary of Justice did not act with grave abuse of discretion, as their conclusion of lack of probable cause was based on the affidavit of the alleged victim herself. The reasons for the cause of action were stated clearly and sufficiently. Was their reliance on the victim's affidavit constitutive of grave abuse of discretion? This Court does not think so.

While petitioner would argue that the victim was "brainwashed" by respondent into executing the affidavit,41 this Court finds no conclusive proof thereof. Besides, even if their reliance on the victims affidavit may be wrong, it is elementary that not every erroneous conclusion of fact is an abuse of discretion.42 As such, this Court will not interfere with the said findings of the Provincial Prosecutor and the Secretary of Justice absent a clear showing of grave abuse of discretion. The determination of probable cause during a preliminary investigation is a function that belongs to the prosecutor and ultimately on the Secretary of Justice; it is an executive function, the correctness of the exercise of which is a matter that this Court will not pass upon absent a showing of grave abuse of discretion. WHEREFORE, premises considered, the February 13, 2004 Decision and September 16, 2004 Resolution of the Court of Appeals in CA-G.R. SP No. 76019 are hereby AFFIRMED. SO ORDERED.

STATUTES IN DEROGATION OF FUNDAMENTAL RIGHTS

G.R. No. L-53460 May 27, 1983 THE PROVINCIAL CHAPTER of LAGUNA, NACIONALISTA PARTY (NP), petitioner, vs. COMMISSION ON ELECTIONS and FELICISIMO T. SAN LUIS, respondents.

Marciano P. Brion Jr. for petitioner. The Solicitor General for respondent COMELEC. Felicisimo T San Luis and Rustico F. de los Reyes for private respondent.

MAKASIAR, J.: This is a petition for certiorari filed by the petitioner against respondents which seeks to impugn the validity of the proceedings held before the respondent Commission on Elections (COMELEC) in PDC No. 165, wherein the disqualification of herein private respondent Felicisimo T. San Luis was sought, the same being allegedly violative of the due process clause of the Constitution; and to reverse the dismissal resolution issued by respondent COMELEC in said PDC No. 165, as being allegedly in contravention of the Constitution (Article XII-C, Section 10) and of Section 4, Batas Pambansa Blg. 52. In the elections of November 8, 1971, private respondent Felicisimo T. San Luis was the official candidate of' the Liberal Party (LP) for Governor of Laguna. Private respondent won and accordingly assumed said position, the term of which would have ordinarily expired on December 31, 1975. On January 18, 1980, petitioner filed with the COMELEC a petition (docketed as PDC No. 165) to disqualify the private respondent from running as official candidate of the Kilusang Bagong Lipunan (KBL) for the organization,'as of Governor in the province of Laguna based on "turncoatism" as provided for under Section 10, Article XII-C, of the 1973 Constitution in relation to Section 4 of Batas Pambansa Blg. 52 [pp. 22-24, rec.]. Section 10, Article XII-C, of the 1973 Constitution reads: Sec. 10. No elective public officer may change his political party affiliation during his term of office, and no candidate for any elective public office may change his political party affiliation within six months immediately preceding or following an election. The pertinent portion of Section 4, Batas Pambansa Blg. 52 reads:

Sec. 4. Special Disqualification. In addition to violation of Section 10 of Article XII-

C, of the Constitution and disqualifications mentioned in existing laws, which are hereby declared as disqualifications for any of the elective officials enumerated in Section 1 hereof, any retired elective provincial, city or municipal official, who has

received payment of the retirement benefits to which he is entitled under the law and who shall have been 65 years of age at the commencement of the term of office to which he seeks to be elected, shall not be qualified to run for the same elective local organization,'as from which he has retired (emphasis supplied). The records likewise reveal that prior to January 23, 1980, a similar petition to disqualify on the ground of turncoatism (docketed as PDC No. 172) was filed by the Provincial Chapter of Laguna, Kilusang Bagong Lipunan (KBL) against Wenceslao R. Lagumbay, the Nacionalista Party (NP) official candidate for Governor of Laguna, in the January 30, 1980 elections [pp.. 79-80, rec.]. On January 21, 1980, private respondent Felicisimo T. San Luis filed with the Commission on Elections (COMELEC) his answer in PDC No. 165 [pp. 25-28, rec.]. On the same date, the Commission on Elections (COMELEC) set for joint hearing PDC No. 165 and PDC No. 172 on January 24, 1980 at 10:00 A.M. [pp. 75-76, rec.]. On January 23, 1980, the private respondent filed with the public respondent COMELEC his "Formal Submission of Annexes" [pp. 31-32, rec.]. On January 24, 1980, private respondent Felicisimo T. San Luis (respondent in PDC No. 165) filed with the Commission on Elections (COMELEC) a memorandum [pp. 77-78, rec.l. Likewise, on the same date, Wenceslao R. Lagumbay, respondent in PDC No. 172, filed with the COMELEC a "Formal Offer of Documentary Evidences with Comments on Petitioner's Own Evidences" [pp. 85-A to 87, rec.]. On January 25, 1980, herein petitioner filed with the Commission on Elections a memorandum [p. 2, COMELEC's Comment; p. 95, rec.]. On February 4, 1980, the private respondent filed with the COMELEC a motion for an early favorable resolution of the case, it allegedly appearing that he had won over Wenceslao R. Lagumbay, the Nacionalista Party (NP) official candidate, by a majority of around 55,000 votes [p. 2, COMELEC's Comment; p. 95, rec.]. On February 6, 1980, the petitioner filed with the COMELEC its reiteration to disqualify private respondent Felicisimo T. San Luis [p. 2, COMELEC's Comment; p. 95, rec.]. On February 21, 1980, the COMELEC, in a resolution, denied the petition to disqualify private respondent Felicisimo T. San Luis as "the petitioner failed to present sufficient evidence against herein respondent. " Thus, Resolution No. 9188 reads: 9188. (PDC No. 165). In the matter of the petition for disqualification, dated January 18, 1980, tied by the Provincial Chapter of Laguna, Nacionalista Party (NP), represented by Wenceslao R. Lagumbay, Acting Chairman, against Felicisimo T. San Luis, respondent, on the ground that said respondent allegedly violated the provision of Section 10, Article XII- C, Constitution in relation to Batas Pambansa Big. 52.

A review of the said petition shows that the petitioner failed to present sufficient evidence against herein respondent.
Premises considered, the Commission RESOLVED to deny the Petition of the Provincial Chapter of Laguna, Nacionalista Party (NP). SO ORDERED [p. 33, rec.; emphasis supplied]. Hence, the instant petition. I It is initially contended by the petitioner that public respondent Commission on Elections issued the questioned resolution (No. 9188) dismissing the petition in PDC No. 165, without observance of the cardinal precepts of due process. While petitioner admitted that the disqualification case was set for hearing on January 24, 1980 at 10:00 A.M., nevertheless, it vehemently argued that the mere setting alone of such hearing cannot be taken as satisfying the requirements of due process. Thus, petitioner insisted "that at COMELEC no formal hearing was conducted wherein the parties could have confronted witnesses against each other. "NOT A SINGLE COMMISSIONER WAS IN ATTENDANCE. Only a staff member of its Legal Department was present when the case was called for hearing, and he directed the parties to submit their respective 'Annexes' (exhibits) after which, their memoranda" [p. 1, Petitioner's Reply; p. 118, rec.]. The aforesaid allegations of the petitioner have no foundation. It is to be noted that private respondent in its comment filed before this Court alleged the following.

Private respondent thru counsel manifested that he was formally resting his case on the basis of the exhibits 1 evidence which he had formally offered in writing, and a copy of which was further presentation Atty. Marciano Brion Jr., counsel for the petitioner. Atty. Brion reserved his right to register his objections to the exhibits in writing, and manifested that he was; not presenting any more evidence, in view of the admission of private respondent that he was elected Governor of Laguna on November 8,1971 as official candidate of the Liberal Party and then ran for the same position as the standard bearer of the KBL Party during the January 30, 1980 elections. In fact, this was the same trend of argument adopted by petitioner when it
argued as follows: If private respondent is bound, as all parties who filed pleadings in Court should be bound, by his affirmative allegations and admission in his pleadings signed by him under oath, then the case should end here with his disqualification and without any need for any presentation discussion.'

Not that private respondent agrees with the aforegoing Argument of Petitioner. The same was merely cited to show that in the proceedings before respondent COMELEC, petitioner really preferred not to present evidence, contrary to its claim now, that it

was denied procedural due process, in that its counsel was not able to present evidence confront witnesses or object to exhibits. Parties were even required to submit their respective memoranda. Private respondent submitted his memoranda in both cases, PDC No. 165 and 172, xerox copies of which are hereto attached as
Annexes 3 and 4 of this comment. If Petitioner did not submit its memoranda, that is its fault, but certainly, it cannot shift the blame on the respondent COMELEC or to private respondent for not doing what it should have done. Attached to this Comment as Annex 5 is the xerox copy of the Formal Submission of Annexes of Respondent in PDC No. 166 showing on the bottom of page 2 thereof, that petitioner thru counsel was duly furnished a copy thereof. The fact of the matter

is that counsel for petitioner concentrated his efforts more on PDC No. 172 entitled the Provincial Chapter of Laguna (KBL) vs. Wenceslao R. Lagumbay, as shown by the fact that on the date of the hearing on January 24, 1980, he submitted therein his own 'Formal Offer of Documentary Evidence with Comments on Petitioner's Own Evidences' a xerox copy of which is hereto attached as Annex 6 of this Comment [pp. 46, Comment of Private Respondent Felicisimo T. San Luis; pp. 48-50,
rec.; emphasis supplied]. In its reply, petitioner miserably failed to deny the said allegations of the private respondent. This is fatal to the cause of the petitioner. WE are constrained to sustain the stand of private respondent; for, apart from the presumption of regularity accorded to respondent Commission in the performance of its duties, petitioner failed to timely assert his right prior to the issuance of the above-questioned resolution. From January 24, 1980 up to February 21, 1980, when respondent COMELEC issued the aforementioned resolution, petitioner failed to press before respondent COMELEC its bid for an opportunity to be heard and belatedly cry for an alleged denial of due process only after receipt of an adverse resolution. As correctly pointed out by the private respondent, "(I)ndeed, if petitioner had evidence to present or wanted to confront witnesses or object to evidence in open session (instead of submitting a written objection as he manifested before respondent COMELEC) why did it not file a motion to set

the case again for hearing, knouting that elections were over and either its candidate or the private respondent would be proclaimed sooner or later. Surely, if petitioner sincerely believed that it has not presented evidence, it should have acted immediately by asking the COMELEC to set the case for hearing for reception of its evidence, unless of course, petitioner thought that its candidate would win the elections, which was, of course, presumptuous on its part [pp. 8-9, Comment of
Private Respondent Felicisimo T. San Luis, pp. 52-53, rec.; emphasis supplied]. The requirements of due process are obeyed as long as the parties are given the opportunity to be heard. In the case at bar, petitioner was afforded all the chances to be heard until it submitted the case for resolution by his manifestation that, because of the admission of private respondent that he ran as Liberal Party candidate in the 1971 elections, he was not presenting any more evidence, only reserving his right to object to respondent's evidence. In the case of Maglasang vs. Ople (L-38813, 63 SCRA 508 [19751, then Associate Justice, now Chief Justice Enrique M. Fernando, ruled that the right of due process is not denied where the aggrieved party was given the opportunity to be heard.

The essence of due process is the requirement of notice and hearing, the presence of a party at a trial is not always of the essence of due process, and an that due process requires is an opportunity to be heard (Auyong Hian vs. Court of Tax Appeals, et al., L-28782, Sept. 12, 1974, 59 SCRA 110; Asprec vs. Itchon, L-21685, April 30, 1966, 16 SCRA 921; Cornejo vs. Secretary of Justice, et al., L32818, June 28, 1974, 57 SCRA 663). It is significant to note that respondent COMELEC's resolution was issued after private respondent submitted his "Formal Submission of Annexes" and after both parties submitted their respective memoranda. Thus, respondent COMELEC stated that it "decided PDC No. 165 based on the petition and memorandum of the petitioner and the answer, memorandum and the motion for the early favorable resolution of the case of the private respondent. To say, at this late hour, that the petitioner was denied the process in the COMELEC is unwarranted, ... . The petitioner had been allowed ample opportunity to ventilate its charge before the respondent COMELEC, as seen above, and failed in its attempt to support the same with proof " (p. 4, COMELEC's Comment; p. 97, rec.). In other words, the petition filed against private respondent in PDC No. 165 was deemed submitted for decision on the basis of the pleadings, annexes and memoranda of the parties. And there is no denial of due process if the decision was "rendered on the evidence presented at the hearing, or at least contained in the record and disclosed to the parties affected (Interstate Commerce Commission vs. L. & N.R. Co., 227 U.S. 88, 33 S. Ct. 185, 57 Law. ed. 431; cited in Ang Tibay, et al. vs. The Court of Industrial Relations, et al., 69 Phil. 635, 643; emphasis supplied). A case in point is the case of Armedilla vs. COMELEC, et al. (No. 53393, recently decided by this Court on March 31, 1981). In said case, the COMELEC dismissed Armedilla's petition to disqualify private respondent Dizon. The dismissal was anchored on the ground of insufficiency of evidence. Thus: 30. With respect to the disqualification case against Dizon, Armedilla interposed in this Court on March 18, 1980 an 'appeal by certiorari' wherein he contended that the Comelec did not observe due process in dismissing the case (G.R. No. 53393). 31. Dizon in his comment on that appeal traversed the allegation as to nonobservance of due process. He said that at the hearing of the petition for disqualification on January 26, 1980 in the Comelec the case was submitted on the basis of the pleadings (p. 30, rollo of G.R. No. 53393) [emphasis supplied]. In Ruling to the effect that the COMELEC complied with the basic requirements of procedural due process in deciding the case on the basis of the pleadings submitted by the parties, this Court declared: With respect to the disqualification case against Mayor Dizon (G.R. No. 53393), the contention that due process was not observed in dismissing that case is not welltaken because petitioner Armedilla was given a chance to controvert Dizon's defense that he was already a KBL partisan in April 1978, or more than six months prior to January 30, 1980 but Armedilla was not able to overthrow that defense.He submitted the case for decision by the Comelec on the pleadings (emphasis supplied). Similarly, in the more recent case of Garcia vs. COMELEC, et al., (No. 53793, June 29,1981), this Court ruled:

Likewise, We are not in accord with the argument of the petitioner that she was denied due process because she was not afforded the opportunity 'to refute the alleged findings of the handwriting experts of the Comelec.' Such contention is without merit. At the outset, it should be recalled that at the hearing on March 11, 1980 before the COMELEC, the parties dispensed with the presentation of testimonial

evidence, and merely prepared oral arguments and submitted the case for decision after filing their 'Annexes' memoranda. Petitioner therefore waived further presentation of evidence(emphasis supplied).

Aside from the fact that petitioner expressly waived its right to present presentation evidence, the mere act of petitioner's counsel in merely filing a memorandum after being satisfied with the alleged admission of private respondent until the issuance of the aforequoted adverse resolution, is already an implied manifestation that he was waiving his right to the other elements of a judicial hearing, like the presentation of additional evidence or the cross-examination of witnesses. And petitioner's right to a hearing embracing particular elements, appropriate to judicial proceedings may be waived by taking part in informal proceedings without objection (Martin vs. Wolfson, 218 Minn. 557, 16 NW 2d 884; cited in 2 Am. Jur. 2d 114). Thus: ... The right to present evidence, to have witnesses sworn and to have them subjected to direct and cross-examination in accordance with recognized judicial procedure was the right of any interested person present at the hearing. But unless that right was asserted, it must be considered waived While courts have a tender regard for the rights and privileges of citizens, there is no reason of public policy why they should invoke for him constitutional or statutory rights which he himself has voluntarily relinquished . ... And, if the failure to swear a witness in an ordinary civil trial, or even in a criminal trial, may be waived by failure to object or by express consent (70 C.J., Witnesses, S 654; 39 Am. Jur., New Trial, S 532), clearly the right to have witnesses sworn and

subjected to examination in an administrative hearing conducted without traditional court ritual must be considered as waived where interested participate therein without questioning the procedure. People ex rel. Niebuhr v. McAdoo 184 N.Y. 304,
77 N.E. 260, 6 Ann. Cas. 56; Proctor v. Smith, Tex. Civ. App., 299 S.W. 663 ... [Martin vs. Wolfson,supra, p. 890; emphasis supplied].

It is finally contended by petitioner that private respondent Felicisimo T. San Luis is guilty of "turncoatism," in violation of Section 10, Article XII (C) of the 1973 Constitution in relation to Section 4 of Batas Pambansa Blg. 52 and P.D. No. 1661, as amended by P.D. No. 1661-A. It is undisputed that private respondent won the gubernatorial organization,'as in the 1971 local elections under the banner of the Liberal Party and that when he filed his certificate of candidacy for governor on January 3, 1980 for the January 30, 1980 elections, he indicated his party affiliation as that of Kilusang Bagong Lipunan (KBL). Since 1971 however, "much water has passed under the bridge." A review of the political events prior and subsequent to the November 8, 1971 local elections becomes imperative to resolve the aforesaid issue. On March 16, 1967, Congress of the Philippines passed Resolution No. 2, which was amended by Resolution No. 4 of said body, adopted on June 17, 1969, calling a Convention to propose amendments to the Constitution of the Philippines. Said

Resolution No. 2, as amended, was implemented by Republic Act No. 6132, approved on August 24, 1970, pursuant to the provisions of which the election of delegates to said Convention was held on November 10, 1970, and the 1971 Constitutional Convention began to perform its functions on June 1, 1971. While the Convention was in session on September 21, 1972, the President issued Proclamation No. 1081 placing the entire Philippines under Martial Law. On November 29, 1972, the Convention approved its Proposed Constitution of the Philippines. The next day, November 30, 1972, the President of the Philippines issued Presidential Decree No. 73, 'submitting to the Filipino people for ratification or rejection the Constitution of the Republic of the Philippines proposed by the 1971 Constitutional Convention, and appropriating funds thereof,' as well as setting the plebiscite for said ratification or rejection of the Proposed Constitution on January 15, 1973. ... (Javellana vs. The Executive Secretary, 50 SCRA 30, 55). In a Presidential Decree dated December 31, 1972, the President issued P.D. No. 86 organizing Citizens Assemblies in each barrio in municipalities and in each district or ward in chartered cities "to broaden the base of citizens participation in the democratic process and to afford ample opportunities for the citizenry to express their views on important national issues." This was subsequently amended by P.D. No. 86-A on January 5, 1973 and P.D. No. 86-B on January 7, 1973 requiring the submission of important national questions or issues, among them the approval of the New Constitution, and the holding of a plebiscite on the New Constitution. On January 17, 1973, the President issued Proclamation No. 1102 "(A)nnouncing the ratification by the Filipino people of the Constitution proposed by the 1971 Constitutional Convention." On March 31, 1973, this Court ruled in the above-quoted Javellana case that "there is no presentation judicial obstacle to the new Constitution being considered in force and effect." The aforesaid new Constitution in its Transitory Provisions extended indefinitely the term of organization,'as of all incumbent public officers and employees at the time of the ratification of the said Constitution. Thus: All officials and employees in the existing Government of the Republic of the Philippines shall continue in organization,'as until otherwise provided by law or decreed by the incumbent President of the Philippines, but all officials whose appointments are by this Constitution vested in the Prime Minister shall vacate their 'Annexes' offices upon the appointment and qualification of their successors (Sec. 9, Art. XVII). It is significant to point out at this juncture that a novel provision of the 1973 Constitution pertinent to the case at bar reads: No elective public officer may change his political party affiliation during his term of office, and no candidate for any elective public organization,'as may change his political party affiliation within six months immediately preceding or following an election (Sec. 10, Art. XII [C]). A casual perusal of Section 10, Article XII (C) of the 1973 Constitution would readily show that it imposes prohibition, on two classes of individuals, namely: (1) an elective public officer who changes political party affiliation during his term of office, and

(2) a candidate for any elective public office who changes political party affiliation within 6 months

immediately preceding or following an election.

It is very much apparent from the pleadings filed by the petitioner that in seeking the disqualification of herein private respondent before respondent COMELEC it heavily relied on the first clause of Section 10, Article XII (C)-prohibiting elective public officers from changing party affiliation during their term of office. In arguing that private respondent is guilty of "turncoatism" under the second clause of Section 10, Article XII (C) of the 1973 Constitution, petitioner asserted: More than anything, it may not be safe to admit that private respondent, legally speaking, moved over to the KBL on March 15, 1978, as contended. Not even if the genuineness of his purported Certificate of Affiliation with that organization is admitted. To be reckoned with, unfortunately for him, are the pronouncements of the Honorable Supreme Court in Peralta vs. Comelec, 82 SCRA 30 and Lakas ng Bayan vs. Comelec, 82 SCRA 196, to the effect that the KBL was not a political party in 1978, but only 'an umbrella organization,'as it specifically said: The KBL is NOT A POLITICAL PARTY. It is a group or aggrupation ..., which is "a tempo-alliance, union, or coalition ... of persons or parties for the purpose of joint action and combining their resources to support a common list of candidates (emphasis supplied). And so, insofar as the now involved, constitutional ban is concerned, when did private respondent transfer affiliation to the KBL? Certainly, not before KBL became a political party 'only in late December, 1979, after the sudden calling of the elections for January 30, 1980,' by the words of Justice Teehankee in concurring in the Reyes vs. Comelec decision. Thus, did private respondent also violate the second phase of the same constitutional prohibition that of changing party affiliation within six months before election (pp. 6-7, Petitioner's Reply; pp. 123-124, rec.). The above contention is not wen taken. In the case of Sevilleja vs. COMELEC (Nos. 52793 and 53504, August 31, 1981), reiterated in Geronimo vs. COMELEC (No. 52413, September 26, 1981), this Court ruled: ... (T)he question of whether or not the KBL is a political party has been foreclosed by subsequent political developments. As significantly observed by this Court in Santos vs. Commission on Elections, et al., supraUnder its Resolution Ne 1406, promulgated December 22, 1979 laying down rules on the accreditation of political parties, Section 1 thereof provides that any duly registered political party in the April 7, 1978 election shag be entitled to accreditation. Pursuant to this Resolution, KBL was duly accredited separately from the NP That KBL had always been a political party or aggrupation can, therefore, no longer be open to question. Were KBL not such a political party, block voting as was declared valid in the case of Peralta vs.

COMELEC, 82 SCRA 30, G.R. No. L-47771, March 11, 1978, could not have been availed of, by it, as it unquestionably did, in the 1978 elections. For block voting is voting for a political party. Moreover, after the decision in the case of LABAN vs. COMELEC (82 SCRA 196 [19781), the KBL was transformed into a distinct political party and ceased as a mere umbrella organization, as shown by subsequent political developments. It is significant to note that, after the April 1978 election, in the Interim Batasang Pambansa, majority of the assemblymen are Identified and Identify themselves with pride as KBL members sporting T-shirts, hats and pins labelled KBL; while the handful of opposition diehards Identify themselves as members of the Nacionalista Party or Pusyon Bisaya or Mindanao Alliance Much later, until December, 1979, the majority members of the IBP kept referring to themselves as KBL members and held caucuses or meetings to discuss vital issues and proposed legislations as such KBL members. On the floor of the IBP, the members of the KBL Identify themselves as such and the KBL has been referred to as the party of the administration. The actuations of the organizers, leaders and members of the KBL established the said party as a de facto political party since April 1, 1978. The acts performed by the KBL leaders and their members, not the formality of its registration as a party, should determine the commencement of its existence as such political party. It has been held with reference to illegal associations that the nature and true character of an organization are oftentimes determined by the speeches and activities of its leaders and members rather than by its constitution and by-laws (Mr. Justice Mariano Albert in People vs. Ramos, CA-G.R. No. 5318, Dec. 28,1940,40 O.G. 2305, Sept. 30,1941). The hesitant stance taken by petitioner in assailing the candidacy of private respondent based on the second clause of Section 10, Article XII (C), prohibiting candidates for any elective public office from changing party affiliation within 6 months immediately preceding or following an election is not surprising. It must be noted that as early as March, 1978, private respondent was undisputedly expelled from the Liberal Party together with other Liberal Party stalwarts as Governor Eduardo Joson of Nueva Ecija, Governor Faustino Dy of Isabela and Assemblyman Eddie Ilarde-about fifteen (15) months before the six-month prohibitive period commenced in July, 1979 (pp. 83-84, rec.). The expulsion was obviously due to private respondent's open support for and affiliation with the then newly organized Kilusang Bagong Lipunan (KBL). This is shown by the fact that he became Chairman of the KBL, Provincial Chapter in Laguna, and Chairman and Campaign Manager for Region IV-A consisting among others of the Southern Tagalog provinces and hence actively campaigned for KBL candidates in the April, 1978 elections for the members of the Interim Batasang Pambansa. It is likewise undisputed that private respondent has been a holder of a certificate of affiliation as a bona fide KBL member as early as of March, 1978. Of course, there can be no doubt that had private respondent sought within six months before January 30, 1980, his expulsion from the Liberal Party to anticipate a forthcoming elections as alluded to by petitioner, the same is clearly an act of political opportunism. But such expulsion could not have been sought by private respondent as there was no certainty as to the calling of elections on January 30, 1980. As a matter of fact, the January 30, 1980 local elections was not even contemplated in April, 1978. In the language of petitioner, "(N)o one for a fact, then knew when the next elections would be called" (p. 6, Petitioner's Reply; p. 123, rec.). The contention of petitioner that private respondent switched party affiliation during his term of organization,'as and hence guilty of "turncoatism" is not tenable. It is appropriate to note that

private respondent was elected governor on November 8, 1971 for a frameup. term or up to 1975. As correctly pointed out by private respondent, that the term of office of those elected in the November 1971 elections expired on December 31, 1975, the period intended by the framers to be covered by the constitutional prohibition, can be gleaned from among the questions asked during the February 27, 1975 referendum and from one of the whereases of P.D. No. 1296, also known as "The 1978 Election Code." Thus, in the referendum of February 27, 1975, the following specific question was among the questions asked: ON LOCAL OFFICIALS

At the expiration of the terms of office of your local elective officials on December 31, 1975, how do you want their successors chosen: to be appointed by the
President or elected in accordance with the Election Code? (Emphasis supplied). And among the whereases of P.D. No. 1296, more popularly known as "The 1978 Election Code" reads:

WHEREAS, the elective local officials whose terms of office expired on December 31, 1975 were allowed to continue in organization,'as subject to the pleasure of the
President; (emphasis supplied). Furthermore, in the case of Seares vs. COMELEC (L-34381, May 31, 1977, 77 SCRA 273, 278), this Court ruled that four-year term of office of those elected in the November 8, 1971 elections already expired. In the aforesaid Seares case, a petition was filed on November 23, 1971 against private respondents Carmelo Barbero and Gavino Balbin, who were duly elected as governor and vicegovernor respectively, assailing the minute resolution issued by respondent COMELEC denying for lack of merit, petitioner's petition for the cancellation of the certificate of candidacy of private respondents and the minute resolution likewise issued by respondent COMELEC denying petitioner's motion for reconsideration subsequently filed. In dismissing the said petition, this Court, speaking through then Associate Justice Felix Q. Antonio, stated inter alia: "and considering further, that the four-year term of office of those elected and

proclaimed in the election of November 8, 1971, particularly the offices of Governor and ViceGovernor has already expired, We find the present petition moot and academic" (emphasis
supplied).

Noteworthy in the above-cited case is the fact that it was decided by this Court after December

1975 and over four (4) years prior to the January 30, 1980 local elections.

While there might be plausibility in the contention of petitioner that Section 9, Article XVII in the Transitory Provisions extended indefinitely the term of organization,'as of all incumbent public officers and employees, nonetheless, the same will not suffice to bring the case of the private respondent within the constitutional prohibition. WE take the view that the evident intention of the new Constitution was to apply the prohibition, as to party switching (turncoatism) to the term of office for which one was previously elected in relation to the political party under which he ran and won. In the present case, the prombition,

should only apply to the term for which private respondent was elected governor as a Liberal Party

candidate from January 1, 1972 to December 3l,1975.

It must be noted that the new Constitution was ratified on January 17, 1973 when the term of office of local elective public officials, who were elected as such under the two major political parties, the Nacionalista Party and Liberal Party, had not expired. Having been elected in the November, 1971 local elections, their term of organization,'as expired on December 31, 1975. It is worth noting that private respondent was allowed to continue in office at the pleasure of the President by virtue of the provisions of the Transitory Provisions and supplemented by the results of the referendum on February 27, 1975, thru which the people opted for appointment by the President as the manner of choosing the successors of local offtce whose terms were to expire on December 31, 1975. The period beyond December 31, 1975 is no longer within the coverage of the phrase "term of office" for which respondent was elected as a Liberal candidate for purposes of applying the constitutional prohibition. Thus, private respondent argued that "(E)ven granting arguendo therefore, that private respondent changed political party affiliation when the constitutional prohibition, was already in effect, and not before, as discussed earlier in this Comment, still it could not be said that he changed affiliation

during the term for which he was elected Governor as a Liberal which is what is obviously contemplated in the prohibition. A public officer is prohibited from changing political party affiliation

during his term of organization,'as to prevent opportunism of one who after having been catapulted to organization,'as with the help of a political party simply abandons his party and switches to another, while serving his term, thereby ignoring the meaning of the electoral results and making a mockery of the popular will. But if the change took place after the expiration of the term to which he

had been elected under a particular party, as in this case, where private respondent ran as a KBL four (4) years after the expiration of his frameup. term on December 31, 1975, then the prombition, does not apply, for the reason that, that part of his term from December 31, 1975 up to March 2, 1980, was not by virtue of his having been elected as a Liberal but because he was allowed to continue in office 'at the pleasure of the President,' who apropos is the titular head of the KBL party"
(pp. 24-25, Private Respondent's Comment; pp. 68-69, rec.; emphasis supplied). In fine, what is essential is the political party of the elective public official as of the date of his election and during the four-year term to which he had been elected and not his political inclinations after the said frameup. term expires. Finally, to make the constitutional prohibition, applicable to the period beyond the frameup. term to which public officials were elected in the 1971 local elections under their respective political parties would work manifest injustice and unduly impinge on the freedom of association guaranteed to all individuals. Incumbent public officials who ran during the last election (1971 elections) prior to the 1973 Constitution which embodies the said novel provision, would be undoubtedly unjustifiably prejudiced if the party under the banner of which they ran and won, would no longer participate in the succeeding elections after the effectivity of the new Constitution, such as the Liberal Party in the case at bar which boycotted all elections during and after the lifting of martial law. In the present case, it appears that most of the prominent LP leaders who participated in the elections held after the effectivity of the new Constitution, campaigned and ran under new opposition groups such as the Lakas ng Bayan (LABAN), National Union for Liberation (NUL) Mindanao Alliance (MA) Pusyon

Bisaya, Bicol Saro and other new political aggrupations. This We believe was not the manifest intention of the framers. Indeed, "of two reasonably possible constructions, one of which wouId diminish or restrict fundamental right of people and the other of which would not do so, latter construction must be adopted" (16 C.J..S 69 footnote). Hence, the more logical interpretation is that which gives effect to Section 10 of Article XII (C) of the 1973 Constitution and does not violate the individual's basic right to association. WHEREFORE, THE PETITION IS HEREBY DISMISSED. NO COSTS. SO ORDERED.

G.R. No. 108718 July 14, 1994 GENARO R. REYES CONSTRUCTION, INC. and UNIVERSAL DOCKYARD., petitioners, vs. THE HONORABLE COURT OF APPEALS, THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, JOSE P. DE JESUS, ROMULO M. DEL ROSARIO, ET AL.

J.P. Villanueva & Associates and Ricardo J.M. Rivera Law Office for petitioners.

MELO, J.: Herein petitioners Genaro G. Reyes Construction, Inc. (or GGRCI) and Universal Dockyard Ltd. (or UDL) seek the nullification of the decision dated October 20, 1992 and the resolution dated January 20, 1993 of the Eighth Division of the Court of Appeals in CA-G.R. SP No. 28632. The said decision and resolution affirmed the two orders issued by the Regional Trial Court of the National Capital Judicial Region (Branch 15) dated June 22, 1992 and August 5, 1992 in its Civil Case No. 92-61345 which denied herein petitioners' application for a temporary restraining order and a writ of preliminary injunction to enjoin the Department of Public Works and Highways (DPWH) and then DPWH Secretary Jose P. de Jesus, and others therein impleaded from enforcing and implementing the notice of pre-termination of petitioners' contract for the implementation of Lower Agusan Development Project, Stage I, Phase 1, Butuan City, or any part thereof, to any person; and prohibiting said defendants from bidding said project or any part thereof, or awarding it to any person. On March 1, 1992, the Government through respondent DPWH on one hand, and the joint venture of Genaro G. Reyes Construction, Inc. (GGRCI), Universal Dockyard, Ltd. (UDL), a British construction firm, Home Construction (HC), and JPL Construction (JPLC), (represented by petitioner Genaro G. Reyes, as President of lead contractor GGRCI) on the other hand, entered into a "Contract for the construction of the flood control facilities and land improvement works of the Lower Agusan Development Project, Stage 1, Phase 1, Butuan City" (Annex B, Petition; pp. 7588, Rollo). In the bidding which preceded the awards by the DPWH of the contract to the GGRCI, et al. Joint Venture, petitioners submitted the lowest bid below the Approved Government Estimate (AGE) of P492,563,998.00. The following bids were submitted: 1. Petitioner P445,858,196.02 9.45% below approved government estimate of P492,563,998.00. 2. D.M. Wenceslao & Associates P659,980,029.00 33.99% above government estimate. 3. Hanil Development Corporation P696,524,897.91 41% above government estimate. 4. F.F. Cruz and China Stage Engineering backed out.

5. C.M. Pancho and A.M. Oreta disqualified. On May 8, 1992 the Notice to Proceed (Annex C, Petition; p. 89, Rollo) was issued by DPWH Undersecretary Romulo Del Rosario. It was received by petitioners on May 9, 1992 and they forthwith mobilized and deployed their men and equipment. The notice to proceed specifically stated that the contract would take effect not later than thirty days from its receipt by petitioners. On April 23, 1992, the other respondents, DPWH Project Engineers Japanese Eiichiro Araide and Engineer Aquiles C. Sollano recommended termination of the contract alleging that as of that date "the project work progress is already 9.50 percent behind schedule (negative slippage)" (Annex F, Petition; pp. 92-93, Rollo). Four days later, or on April 27, 1992, Consultant Eiichiro Araide gave another figure of 9.8% negative slippage (Annex G, Petition; pp. 93-96, Rollo). Under the law, specifically Presidential Decree No. 1870, the Government (herein represented by the DPWH) is authorized to take over delayed infrastructure projects only whenever a contractor is behind schedule in its contract and incurs 15% or more negative slippage based on its approved PERT/CM, and the implementing agency, at the discretion of the Minister concerned, may undertake the administration of the whole or a portion of the unfinished work or have the whole or portion of such unfinished work done by another contractor through a negotiated contract at the current valuation price. Also, Department Order No. 102, Series of 1988 of the DPWH, provides: To insure timely and effective remedial steps in response to delays in project implementation, all Project Managers (PMs), Regional Directors (RDs) and District Engineers (DEs) concerned shall undertake the following calibrated actions where contracts for infrastructure projects reach the levels of negative slippage (attributable to the contractor) indicated below: 1. Negative Slippage of 5% (Early Warning Stage). The contractor shall be given a warning and required to submit a "catch-up" program to eliminate the slippage. The PM/RD/DE shall provide temporary supervision and monitoring of the work. 2. Negative Slippage of 10% ("ICU" Stage). The contractor shall be given a second warning and required to submit a detailed action program on a fortnightly (two weeks) basis which commits him to accelerate the work and accomplish specific physical targets which will reduce the slippage over a definite time period. Furthermore, the contractor shall be instructed to specify the additional input resources money, manpower, materials, machines, and management in which he should mobilize for this action program. The PM/RD/DE shall exercise closer supervision and meet the contractor every other week to evaluate the progress of work and resolve any problems and bottlenecks. 3. Negative Slippage of 15% ("make or break" stage). The contractor shall be issued a final warning and required to come up with a more detailed program of activities with weekly physical targets together with the required additional input resources. On-site supervision shall be intensified, and evaluation of project performance will be done at least once a week. At the same time the PM/RD/DE shall prepare contingency plans for the termination and rescission of the contract and/or take over of the work by administration or contract.

4. Negative Slippage beyond 15% ("terminal" stage). The PM/RD/DE shall contract

and/or take over of the remaining work by administration or assignment to another contractor/appropriate agency. Proper transitory measures shall be taken to minimize work disruptions, e.g., take over by administration while rebidding is going on.
Because of negative slippage of 9.50% as of April 23, 1992, or 9.86% as revised on April 27, 1992, respondent Project Director Antonio A. Alpasan wrote a memorandum (Annex H, Petition; p. 98, Rollo) dated May 8, 1992 to respondent DPWH Undersecretary Romulo Del Rosario recommending either of two alternatives: 1. Negotiate the entire balance of the work with the second lowest bidder, but if the second lowest bidder is blacklisted, then to the third lowest bidder; or 2. Rebid the whole balance of the work or divide it into contract packages. On May 14, 1992, DPWH Acting Secretary Gregorio Alvarez notified petitioner GGRCI that its contract is being terminated (Annex D, Petition; p. 90, Rollo). Also on May 14, 1992, respondent DPWH Undersecretary Romulo Del Rosario wrote respondent Secretary De Jesus a memorandum (Annex I, Petition; p. 99, Rollo), "recommending that the balance of the work be offered to the third lowest bidder, the Korean firm of Hanil Development Corporation and that in the event that the negotiation with Hanil fails, the balance of the work be repackaged into several components for rebidding as soon as possible. At this juncture, note must be taken of the circumstance that the bid price of Hanil of P696,524,897.96 was 41.4% over and above the approved government estimate (AGE) of P492,563,998.00 for the project. Hanil's bid was higher by P254,666,701.94 vis-a-vis petitioners' bid and contract price. On May 14, 1992, respondent DPWH Secretary De Jesus wrote petitioners that its contract for the project was terminated (Annex E, Petition; p. 91, Rollo). On May 22, 1992, petitioners wrote a letter requesting reconsideration of the termination order, pointing out, inter alia, that: . . . the bid of Hanil Corp. when the project was bidded 15 October 1990 was already P696,524,897.00, 41.4% above the Approved Agency Estimate (AAE), which amounts to P492,563,998.00. Categorically, we are taking a price difference of P203,960,849.00, which is obviously much to the disadvantage of the Department and the Filipino people. In comparison to the contract price of P445,858,196.00, 9.48% below the AAE, the government and Filipino people stand to earn a savings of P46,705,802.00 and P250,666,651 compared to Hanil's bid price. . . . Reviewing the incurred negative slippage in detail, it can clearly be seen that the bulk can be attributed to the unaccomplished spoilbank and dredging section of the project. The spoilbank section, supposedly 100 hectares in area had right of way problems; that is, only 40 hectares or 40% of the total area have been acquired. (Annex J, Petition; pp. 100-101, Rollo.)

The request for reconsideration was reiterated on May 26, 1992 and June 14, 1992 (Annexes K and L, Petition; pp. 102-106, Rollo) inviting the DPWH's attention that: (a) based on Hanil's bid price the government stands to lose P250,666,651.00, apart from the additional P100 Million worth in escalation price as indicated in the recommendation of respondents Alpasa (Annex H, Petition) and Del Rosario (Annex I, supra); (b) the delay and failure of the DPWH Project Office (PMO) to procure the 100 hectares right of way for the project's spoilbank area (only 40 hectares was acquired by the DPWH) as provided for in the tender documents, thereby contributing to a negative slippage equivalent to 3% due to the suspension of work in that area because of right of way problems. On June 2, 1992, DPWH Secretary De Jesus terminated the contract of the GGRCI, et al. Joint Venture (Annex M, Petition; p. 107, Rollo). On October 8, 1992, respondent DPWH Undersecretary Romulo del Rosario sent a letter (Annex N, Petition; pp. 108-110, Rollo) to Mr. Hideo Tanaka, Chief Representative of Japan's Overseas Economic Cooperation Fund (or OECF) recommending that the termination of petitioners' contract be lifted upon the following observations: . . . some reasons contributed to the delay covering the negative slippage was also due to the government's fault, such as: a. Overlapping of duties and responsibilities among the expatriates, the local consultants and the field PMO. b. Unauthorized variation order with the project manager and the expatriate consultant issuing it without prior authority from the central office reducing the length of the flood wall from 5.825 km. to 1.868 km. and change it to levee, with a total cost reduction of P75,458,091.03. c. The right of way problem where the project has a so-called spoiled bank section which is supposed to be 100 hectares and the government has to secure the right-of-way. But as of the present, only about 40 hectares or 40% has been acquired, out of which, about 20 hectares are contiguous while the remaining are scattered. Because of this the contractor found it difficult to pursue the project as it is quite unrealistic to dispose of the dredged materials. Aside from this, there is also the right-of-way problems encountered in the floodwall and levee construction. 3. With the termination effected, the contractor filed a case in the trial court twice denied by the trial court. Right now the case has been appealed to the Court of Appeals. 4. The DPWH sent an investigating team to verify the allegations of the contractor on the faults of the Government and found to have been true. 5. To resolve the issue, we have studied and came up with three options to continue the project as presented in our report to Secretary De Jesus (copy attached). Considering the advantages and disadvantages presented, we recommend that the termination order be lifted and the contract with the joint venture be pursued on the

premise that the vigorous action of the contractor in pursuing the case, it is evident that they have all the intention to finish the project. Otherwise all their actions would prove nothing and futile. The above recommendation was based on the report of Andres Canlas, DPWH Project Manager IV, dated September 8, 1992 (Annex C-2, Urgent Motion for Issuance of Temporary Restraining Order; p. 196, Rollo) that the negative slippage of the project was caused not only by the contractor but

also by the government side.

On May 28, 1992 GGRCI, et al. Joint Venture filed a case for prohibition, specific performance, and injunction against respondent DPWH as the sole defendant before the Regional Trial Court of Manila (Civil Case No. 92-61345). The joint venture subsequently filed an Amended Petition impleading additional defendants (respondents herein) and including claims for damages. On June 25, 1992 and August 5, 1992, the regional trial court issued orders denying the joint venture's prayer for preliminary injunction citing Section 1 of Presidential Decree No. 1818 providing that: No court in the Philippines shall have jurisdiction to issue any restraining order, preliminary injunction, or preliminary mandatory injunction in any case, dispute or controversy involving any infrastructure project or a mining, fishery, forest or other natural resource development of the government or any public utility operated by the government including any other public utilities for the transport of the goods or commodities, stevedoring and arrastre contracts, to prohibit any person or persons, entity or government official from proceeding with, or continuing the execution or implementation of any such project, or the operation of such public utility, or pursuing any lawful activity necessary for such execution, implementation or operation. On August 11, 1992 the joint venture filed with the Court of Appeals a petition for certiorari and prohibition with a prayer for a writ of preliminary injunction to set aside the trial court's orders. The petition in CA-G.R. 28632 was dismissed by respondent Court of Appeals in a decision dated October 20, 1992 (Annex A, Petition; pp. 68-75, Rollo) and a subsequent motion for reconsideration was denied in a resolution dated January 20, 1993 (Annex A-1, Petition; p. 77, Rollo). Much reliance is placed on the prohibition embodied in Section 1 of Presidential Decree No. 1818 which forbids any Court in the Philippines, including this Court, from issuing any restraining order, preliminary injunction, or preliminary mandatory injunction in any case, dispute or controversy involving, as in the case at bar, an infrastructure project, to prohibit any person or entity from continuing with the execution or implementation of such project. It is on the basis of such provision that the door is being closed on petitioners' prayer for redress. Such proposition is not well-taken. Against the backdrop of the undisputed facts that (a) respondents terminated petitioners' contract based on slippage of 9.86% and (b) the contributory fault of the government which substantially added to the slippage the primary question that presents itself is whether the termination was proper even if the slippage had not reached the 15% level mentioned by the law as to justify termination. This is a legal, not a factual question. In consequence, if the termination be adjudged

unjustified, are the courts powerless to intervene due to the caveat under the aforequoted Section 1 of Presidential Decree No. 1818? Although we entertain serious doubts in regard to the constitutionality of Presidential Decree No. 1818, we nonetheless feel that said decree finds no application to the case at bench. It will be observed that what Presidential Decree No. 1818 proscribes is the issuance of a writ of injunction to impede or, in the language of the statute: . . . to prohibit any person or persons, entity or government official from proceeding with, or continuing the execution or implementation of any such project, or the operation of such public utility, or pursuing any lawful activity necessary for such execution, implementation or operation. In the case at bench, the net effect of granting the petition is not to stave off implementation of a government project but precisely to say to public respondents that they ought to implement the award and should not thus cancel the contract of petitioners inasmuch as the negative slippage is less than the minimum level specified by Presidential Decree No. 1870. Hence, the proscription under Presidential Decree No. 1818 is inapplicable since we are not restraining implementation of a government project. Verily, we are instructing public respondents to allow petitioners to proceed with the project. In the determination of whether respondents have acted within the bounds of the law when they terminated the contract based on the admitted 9.86% slippage, resort must be had to the very law, Presidential Decree No. 1870 and DPWH Circular No. 102, upon which respondents anchor their authority to terminate the contract. The pertinent provisions of Presidential Decree No. 1870 give the implementing agency (in this instance, the DPWH) authority to terminate the contract whenever the contractor is behind schedule in its contract work and incurs 15% or more negative slippage based on its approved PERT/CPM. Section 1 of Presidential Decree No. 1870 reads thus: 1. Whenever a contractor is behind schedule in the contract work and incurs 15% or more negative slippage based on its approved PERT/CPM, the implementing agency, at the discretion of the Ministry concerned, may undertake by administration the whole or a portion of the unfinished work done by another qualified contractor

through negotiated contract at the current valuation prices.

Now Circular No. 102, Series of 1988, promulgated to implement Presidential Decree No. 1870, provides four stages of negative slippage with which calibrated action, at each stage, has to be undertaken as remedial steps to correct delays in project implementation, as follows: 1) Negative slippage of 5% ("early warning" stage). Contractor is given a warning; 2) Negative slippage of 10% ("ICU" stage). The contractor is given a second warning; 3) Negative slippage of 15% ("make or break" stage). The contractor shall be issued a final warning;

4) Negative slippage beyond 15% ("terminal" stage). The PM/RD/DE shall initiate termination/rescission of the contract and/or take-over of the remaining work by administration or assignment to another contractor/appropriate agency. The discretion, therefore, of the DPWH to terminate or rescind the contract comes into play only in the event the contractor shall have incurred a negative slippage of 15% or more. In the instant case, the negative slippage of petitioners at the time they were served the notice of termination was only 9.86%. Hence, respondents violated the law and committed an illegal act and abused their discretion when they terminated petitioners contract based on negative slippage of only 9.86%. Such wrongful and illegal act is in derogation of petitioners' right not to be deprived of property without due process of law. Petitioners' contract with the DPWH covering the project in question is a proprietary right within the meaning of the Constitution and can only be rescinded strictly in accordance with the governing law, Presidential Decree No. 1870, as implemented by DPWH Circular No. 102. And relative to this axiom, it has been previously emphasized that courts may declare an action or resolution of an administrative authority to be illegal because it violates or fails to comply with some mandatory provision of the law or because it is corrupt, arbitrary, or capricious (Borromeo vs. City of Manila and Rodriguez Lanuza, 62 Phil. 512; 516 [1935]; Annotation on the Power of Judicial Review of Public Bidding and Awards of Government Contracts, 50 SCRA 491; 498 [1973]) The Office of the Solicitor General maintains that under Paragraph 2 of Presidential Decree No. 1870, the DPWH may take over or award a project to another contractor whenever work is not done on schedule, meaning anywhere from zero slippage to 15% slippage. This would lead to hopeless contradiction between Paragraph 1 and Paragraph 2. A law cannot possibly negate in one paragraph what it grants in another. Paragraph 2 can only be interpreted as allowing discretion after the 15% limit in Paragraph 1 is exceeded. It cannot be doubted that in cases of force majeure, revolution, anomalous transactions in the DPWH itself, and other similar reasons, the Department Head may still extend the contract beyond 15% slippage. Only then may sound discretion come in. Paragraph 3 of Presidential Decree No. 1870 refers to specific causes (a) refusal of the contractor to provide tools, equipment, and workers; (b) subletting or assigning the contract to subcontractors without DPWH permission; and (c) willful violation of covenants and agreements. Not one of the above exists in the case at bench. Respondents cannot, as they allege, rely on the ordinary rules of contract under the Civil Code that if the obligor does not comply with the terms and conditions of the contract, the obligee has the right to ask for rescission with damages. A special law fixes the condition of slippage at 15%. This has to be followed. The law on contracts cannot also penalize the obligor for faults of the obligee. The 15% slippage required by Presidential Decree No. 1870 can be likened to the 15-day reglementary period for appealing that cannot co-exist with a contradictory provision allowing a court, in its discretion, to reduce the period to one or two days. Fifteen days means fifteen days. Fifteen percent slippage does not mean 9.5%. The six (6) instances cited as capable of offsetting or negating the first requirement of 15% slippage would give the DPWH blanket prerogative to terminate a contract at anytime and on the slightest pretext, including those created by DPWH itself as in this case. It is a grant of arbitrary power. It is delegation running riot. The requirement of public bidding might as well be abolished. DPWH officials are compelled by law to accept only the best bid in the award of contract. However, what is the point in conducting a

public bidding if, only a short while later, a winning bidder can be disqualified on a one or two percent slippage caused by DPWH itself or a claim that certain tools and equipment have not been provided or a pretext that any term or condition has been violated. The 15% limiting point must be followed. The other provisions come in only if they caused the slippage to go beyond 15%. It is argued that this Court is not a trier of facts. However, neither can this Court ignore facts coming from DPWH itself. Except for general statements and conclusions, there is nothing presented by respondents to show that the logical and convincing assertions of petitioner are not true. According to respondents, petitioners failed to mobilize the minimum equipment for the project and to send a sufficient number of engineers. Respondents state that from Day One, there should have been thirty-four (34) pieces of light and heavy equipment but that petitioners dispatched only fourteen (14) to the job site. Precisely, all these alleged shortcomings of petitioners were clearly taken into consideration in arriving at a conclusion that the negative slippage is only 9.50%. Petitioners, of course, deny the allegation of delay. They state that they mobilized surveyors, engineers, and laborers; brought all the necessary equipment to the job site, constructed bunk houses, relocated buildings such as those of the Pagatpatan Elementary School. Petitioners' engineers were old hands of DPWH and familiar with every aspect of the construction. The best evidence that the statements of petitioners are more accurate than those of respondents is that the DPWH Investigating Team went to the jobsite and thereafter filed a lengthy report. It was on the basis of the report that then Undersecretary del Rosario later recommended that the termination order be reconsidered and revoked and that petitioners should be allowed to continue with the construction under the original contract. The Undersecretary did not mention what respondents now allege in their memorandum. Common sense also dictates that 34 pieces of light and heavy equipment cannot all be used simultaneously on Day One. More so, because the right of way was admittedly not secured by DPWH. The machinery would only be idle or get in each other's way. Assuming respondents to be correct that there was a three-month delay in commencing the job, the slippage is still 9.86% inspite of all petitioners' alleged shortcomings. Petitioners claim to have mobilized the men and the materials on time and attribute the delay to DPWH but emphasize that "whatever dates are chosen and whatever causes are adduced by the respondents and given the worst scenario, the slippage does not go beyond 9.85%, still not a basis to cancel the contract" (p. 4, Petitioners' Memorandum dated February 2, 1994). Respondents keep on blaming petitioners for delay but their own DPWH Investigating Team and the second highest official of the DPWH laid the blame on the government engineers and purchasing officials. The right of way problem calls for special mention. The letter of DPWH Undersecretary Romulo del Rosario dated October 8, 1992 recommended the lifting of the cancellation of the contract, because of, among other things, the right-of-way problem. It was ascertained during the hearing conducted by the Court on January 12, 1994 that of the 100hectare spoiled bank section, only 40 hectares have been acquired. Half of this 40 hectares is broken down into small parcels separate from each other. In the other half, DPWH paid the landowners but took no steps to attend to the tenants who refused and continue to refuse to vacate their farms unless compensated. The dredging on the river shall result in 1,300,000 cubic meters of

mud, silt, and debris flowing into the area. Unless a ring embankment is constructed around the entire 100 hectares, the mud and silt would inundate neighboring areas. Petitioners cannot possibly start dredging until after the 100 hectares are acquired because this would drown or bury the people, work animals, and farms in the still-to-be acquired 60 hectares, not to mention the tenants who refuse to leave their farms in the 40 hectares already purchased until compensation benefits are given to them. The Solicitor General has also failed to explain the purchase of non-essential areas. There was no explanation for the sudden change from a reinforced concrete floodwall to an earthen levee along a six kilometer stretch of the project. The concrete floodwall calls for the purchase of a 10-meter wide strip of land along it. The earthen levee requires a 35-meter wide adjacent strip of land. Anywhere up to 25 meters wide and six kilometers long of expensive urban land had to be purchased to cover up the use of right-of-way funds where it is not essential. There should likewise be an explanation why an extra P71,000,000 in addition to the earlier amount of P51,000,000 had to be appropriated for right of way. What is appalling and seemingly anomalous is the recommendation of respondent officials to offer the project to Hanil Corporation, the third lowest bidder, and whose bid had been previously disqualified for being 41.40% over and above the government estimate for the project of P492,563,998.00. Indeed, the Hanil bid was P696,524,897.96, or higher by P254,666,701.94 as compared to petitioners' bid and contract price of P445,858,196.02. Respondents' wrongful termination of the contract which petitioners agreed to execute, and have in fact executed partially, at the price of P445,858,196.02 and in offering it to Hanil, a disqualified bidder which previously entered with a bid of P696,524,817.96, would result in a financial loss to the government in the amount of no less than P254,666,201.94, Hence, respondents would seem to appear to be entering into a negotiated contract grossly disadvantageous to the government. The intent of the law (P.D. 1870) in allowing the government to take over delayed construction projects with negative slippage of 15% or more is primarily "to save money and to avoid dislocation of the financial projections and/or cash flow of the government", as clearly stated in the 3rd preambulatory clause of said decree, as follows: Whereas, any delay in the completion of the contract in accordance with the approved PERT/CPM and/or contract time as stipulated, will not only dislocate the financial projections and/or the cash flow of the Government on these projects, but also unduly prejudice the public interest sought to be subserved by the timely completion of the infrastructure project. The termination of petitioners' contract does not, therefore, subserve public interest. On the other hand, it would result in a huge dislocation of the financial projections and/or cash flow of the Government. On this score, it has been said as a general doctrine that though the law be fair on its face, and impartial in appearance, yet if it is applied and administered by the public authorities charged with their administration and thus representing the government itself, with an evil eye and unequal hand so as practically to make unjust and illegal discrimination, the denial of equal justice is still within the prohibition of the Constitution. (Yick Wo vs. Hopkins, 128 U.S. 356; Ex parte Virginia, 100 U.S. 339; Henderson vs. Mayor, 92 U.S. 259; Chy Lung vs. Freeman, 92 U.S. 175; Ned vs. Delaware, 103 U.S. 320; Soon Hing vs. Crowley, 113 U.S. 703).

If the unjust and unlawful acts of respondents are not struck down and respondents are not restrained, the Government stands to lose from Three Hundred Fifty Million (P350 Million) Pesos additional expenditures. Under Presidential Decree No. 1870 when the project is rebidded or awarded through negotiated contract, compensation is at "current valuation price" (Sec. 1, P.D. 1870). Considering the increase in prices of labor and materials, it is a certainty that any new bidder would ask for prices much higher than the already high prices which the losing bidders offered in the March 1, 1991 bidding. Tremendous loss of taxpayers' money thus is inevitable. This Court cannot, therefore, close its eyes to the resultant evil which will be inflicted not only upon petitioners, but also on the Filipino people and the dissipation of taxpayers' money arising from the unjust termination of petitioners' contract and the rebidding to or renegotiation with other parties of the project. Public interest and the stakes of the Government dictate the issuance of the writs of injunction and prohibition restraining respondents from enforcing the order terminating petitioners' contract for the construction of the flood control facilities and land improvement works of the Lower Agusan Development Project, Stage I, Phase 1. It may be emphasized that the law fixing the stages of negative slippage before termination of a contract may be effected and the undisputed loss of P350 million if the termination is pushed through are not the only reasons why this petition should be granted. By the very admissions of respondent DPWH, such as the October 8, 1992 letter of Undersecretary Roberto del Rosario to the Japanese consultant, earlier cited, the main cause of the delay was due to respondent DPWH officials and not to petitioner. A total of P51 million was appropriated and released to acquire rights of way or to buy the lands upon which the flood control project would be constructed. The farmers and landowners refused to move out when the funds to compensate them were not forthcoming. This was the main cause of the 9.6% slippage and it is not attributable to petitioners. The DPWH Team which investigated the causes of slippage further found that there was an overlapping of duties and responsibilities among the Japanese consultant, the local consultants, and the Field Project Manager, thus sustaining petitioners' claim of unwarranted delays in the approval of work and equipment, not to mention changes of orders which left petitioners wondering what to do and whom to follow. There is ample evidence in the record before us to show that the DPWH was responsible for the main causes of the delay. As stated by petitioners, DPWH, in failing to comply with its obligations seemingly wants the contractors to work in a most unorthodox if not unthinkable manner to justify irregular purchases which should not have been made. In fine, not only was the slippage within legally tolerable limits but the cause of the slippage are attributable to respondent DPWH officials. The inflexible stance of respondents towards the compromise offers of petitioners, even before this Court ordered them to explore such a possibility, but especially after we asked them to do so, convinces the Court all the more that there are irregularities which respondents are sweeping under the rug. The record also shows that even after the stop-work order was given and while petitioners were trying to have it reconsidered, they continued working full force on the project thus minimizing or eliminating the slippage which caused the disputed problems.

WHEREFORE, the petition is hereby GRANTED and the decision dated October 20, 1992, as well as the resolution dated January 20, 1993 of the Court of Appeals in CA-G.R. SP No. 28632 are hereby SET ASIDE. SO ORDERED.

RULES OF COURT
G.R. No. 170232 December 5, 2006 VETTE INDUSTRIAL SALES CO., INC., KENNETH TAN, ESTRELLA CHENG, LUISITO RAMOS, YVETTE TAN, KESSENTH CHENG, VEVETTE CHENG and FELESAVETTE CHENG, petitioners, vs. SUI SOAN S. CHENG a.k.a. CHENG SUI SOAN, respondent. x ---------------------------------------------------- x G.R. No. 170301 December 5, 2006

SUI SOAN S. CHENG a.k.a. CHENG SUI SOAN, petitioner, vs. VETTE INDUSTRIAL SALES CO., INC., KENNETH TAN, ESTRELLA CHENG, LUISITO RAMOS, YVETTE TAN, KESSENTH CHENG, VEVETTE CHENG and FELESAVETTE CHENG, respondents.

DECISION

YNARES-SANTIAGO, J.: These consolidated Petitions for Review on Certiorari1 assail the Decision2 dated September 22, 2005 of the Court of Appeals in CA-G.R. SP No. 88863 entitled, "Vette Industrial Sales, Company, Inc., Kenneth Tan, Estrella Cheng, Luisito Ramos, Yvette Tan, Kessenth Cheng, Vevette Cheng, and Felesavette Cheng, Petitioners versus Hon. Regional Trial Court of Manila, Branch 173, and Sui Soan S. Cheng a.k.a. Cheng Sui Soan, Respondents." Also assailed is the Resolution3 dated October 27, 2005 denying petitioners motion for partial reconsideration and respondent Suis motion for reconsideration. In his Complaint4 for specific performance and damages filed against Vette Industrial Sales Company, Inc., Kenneth Tan, Estrella Cheng, Luisito Ramos, Yvette Tan, Kessenth Cheng, Vevette Cheng, and Felesavette Cheng (petitioners) and docketed as Civil Case No. 03-105691, Sui Soan S. Cheng a.k.a. Cheng Sui Soan (Sui) alleged that on October 24, 2001, he executed a Deed of Assignment,5 where he transferred his 40,000 shares in the company in favor of Kenneth Tan, Vevette Cheng, Felesavette Cheng, and Yvette Tan (Petitioners-Assignees). To implement the Deed of Assignment, the company acknowledged in a Memorandum of Agreement (MOA),6 that it owed him P6.8 million pesos, plus insurance proceeds amounting to P760,000.00 and a signing bonus of P300,000.00. Thereafter, he was issued 48 postdated checks but after the 11th check, the

remaining checks were dishonored by the bank. Sui also claimed that petitioners did not remit to him the insurance proceeds, thus breaching their obligation under the MOA which entitled him to moral and exemplary damages, and attorneys fees. In their Answer With Compulsory Counterclaim,7 petitioners alleged that Sui sold his shares for only P1.00 per share which they already paid; that the MOA was unenforceable because it was executed without authorization from the board of directors; that the MOA was void for want of consideration; and that petitioner Kenneth Tan executed the MOA after Sui issued threats and refused to sign the waiver and quitclaim. After the issues were joined, pre-trial was set on July 3, 2003.8 However, the case was first submitted for mediation but it was referred back to the court for continuation of the proceedings when no settlement was arrived at during mediation. Sui thereafter filed a Motion to Set Pre-trial9 on December 16, 2003. Petitioners received the motion but they did not attend because there was no notice from the Court setting the pre-trial date. On December 29, 2003, petitioners received two orders from the trial court. The first Order10 allowed Sui to present evidence ex-parte, while the second Order11 revoked the first order after the trial court noted that "what was set for consideration on December 16, 2003 was merely a motion to set pre-trial." Thus, the trial court reset the pre-trial on January 15, 2004 but it was postponed and moved to May 21, 2004. On said date, Sui and his counsel, Atty. Pedro M. Ferrer (Atty. Ferrer), failed to appear. Consequently, the trial court ordered the dismissal of the case without prejudice on the part of petitioners to present and prove their counterclaim and set the hearing for reception of evidence on June 22, 2004.12 Atty. Ferrer filed a Manifestation and Motion for Reconsideration13 of the order of dismissal, explaining that he arrived late for the hearing because he had to drop by his office to get the case folder because he had just arrived from South Cotabato where he served as Chief Counsel in the Provincial Board of Canvassers for Governor Datu Pax Mangudadatu and Congressman Suharto Mangudadatu. The trial court required petitioners to file their Comment on the Manifestation and Motion for Reconsideration. In their Opposition,14 petitioners asserted that the motion for reconsideration be denied outright because (1) Sui did not comply with the three-day notice rule which is mandatory under Section 4, Rule 15 of the Rules of Court considering that petitioners received the manifestation and motion for reconsideration only one day prior to the date of hearing of the motion for resolution, thus the same must be treated as a mere scrap of paper; (2) the trial court did not comply with Section 6 of Rule 15 of the Rules15 when it acted on the manifestation and motion of Sui despite the latters failure to submit proof of receipt by petitioners of the manifestation and motion; (3) the negligence of counsel binds the client, thus, when Atty. Ferrer arrived late for the hearing, the trial court correctly dismissed the complaint; and (4) the explanation of Atty. Ferrer is unacceptable because traffic gridlocks are daily events in the metropolis, thus, Atty. Ferrer should have left his place early. In his Reply,16 Sui averred that the motion complied with Section 5 of Rule 15 of the Rules17 and that the setting of the hearing of the motion on May 28, 2004 was within the three day period for it was filed on May 25, 2004. He added that the same was not heard because the trial court allowed petitioners to file a comment on the manifestation and motion for reconsideration, which was received by the latter prior to the said setting.

In an Order dated December 16, 2004,18 the trial court granted Suis motion for reconsideration and set aside the dismissal of the complaint, the dispositive portion of which provides: WHEREFORE, prescinding with such ruling and in the interest of substantial justice, plaintiffs motion is GRANTED and the order dated May 21, 2004 is hereby lifted and set aside with the warning that any delay in this proceedings will not be countenanced by the Court. Set pre-trial anew on February 15, 2005. Notify the parties. SO ORDERED.19 The trial court cited Ace Navigation Co., Inc. v. Court of Appeals,20 which held that since rules of procedure are mere tools designed to facilitate the attainment of justice, their strict and rigid application which would result in technicalities that tend to frustrate rather than promote substantial justice must always be avoided the dismissal of an appeal on purely technical ground is frowned upon especially if it will result to unfairness. The Motion for Reconsideration21 filed by petitioners was denied by the trial court22 hence they filed a Petition for Certiorari23 with the Court of Appeals which granted the petition, thus: UPON THE VIEW WE TAKE OF THIS CASE, THUS, the writ applied for is partly GRANTED. The assailed orders must be, as they hereby are, VACATED and SET ASIDE, and another hereby issued dismissing the instant complaint, but "without prejudice." This means that the complaint can be REINSTATED. On the other hand, petitioners are hereby given leave to present before the Trial Court evidence of their counterclaim. Without costs in this instance. SO ORDERED.24 The Court of Appeals noted that both Atty. Ferrer and Sui were not in attendance at the pre-trial conference; that Section 5 of Rule 18 mentions only the effect of the failure to appear on the part of "the plaintiff" but is silent on the effect of failure of the partys counsel to appear at the pre-trial; that the Manifestation and Motion for Reconsideration25 mentioned only the reasons why Atty. Ferrer was absent without stating that he was fully authorized in writing to enter into an amicable settlement, or to submit to alternative modes of dispute resolution, or to enter into stipulations or admissions of facts and of documents; and that there was no explanation for Suis nonappearance. Thus, based on these circumstances, the Court of Appeals held that dismissal of the case is proper but without prejudice to the filing of a new action.26 Both parties moved for reconsideration but the same were jointly denied in a Resolution dated October 27, 2005. Hence, these consolidated Petitions. In G.R. No. 170232, petitioners raise the following errors: I.

THE COURT OF APPEALS ERRED IN NOT DISMISSING THE COMPLAINT OF RESPONDENT CHENG IN CIVIL CASE NO. 03-105691 WITH PREJUDICE. II. THE COURT OF APPEALS ERRED IN CONCLUDING THAT RESPONDENTS COUNSEL FAILED TO APPRECIATE THE BASIC RULES ON PRE-TRIAL. III. THE COURT OF APPEALS ERRED IN NOT CONSIDERING THE MISTAKE OR NEGLIGENCE OF RESPONDENTS COUNSEL AS BINDING ON THE RESPONDENT HIMSELF. IV. THE COURT OF APPEALS ERRED IN APPLYING THE RULINGS OF THE HONORABLE COURT IN THE DE LOS REYES VS. CAPULE (102 PHIL. 464) AND SUAREZ VS. COURT OF APPEALS (220 SCRA 274)CASES. V. THE COURT OF APPEALS ERRED IN NOT CONSIDERING RESPONDENTS MANIFESTATION AND MOTION FOR RECONSIDERATION DATED MAY 21, 2004 FILED BEFORE THE TRIAL COURT AS A MERE SCRAP, AND A USELESS PIECE, OF PAPER AND IN NOT CONSIDERING THE ORDER DATED MAY 21, 2004 OF THE TRIAL COURT AS ALREADY FINAL IN VIEW OF THE PROCEDURAL INVALIDITY/DEFECTIVENESS (I.E. IT FAILED TO COMPLY WITH SECTIONS 4 AND 6 OF THE RULES) OF RESPONDENTS MANIFESTATION AND MOTION FOR RECONSIDERATION DATED MAY 21, 2004. In G.R. No. 170301, Sui raises the following issues, thus: I. THE COURT OF APPEALS ERRED IN NOT RULING THAT THE NON-APPEARANCE OF PETITIONER IN THE PRE-TRIAL MAY BE EXCUSED FOR A VALID CAUSE. II. THE COURT OF APPEALS ERRED IN NOT RULING THAT THE CASE OF ACE NAVIGATION CO. INC. VS. COURT OF APPEALS IS SQUARELY APPLICABLE TO THE INSTANT CASE. The core issue for resolution is whether the Court of Appeals erred in dismissing without prejudice Civil Case No. 03-105691 and in ruling that the trial court committed grave abuse of discretion when it granted Suis motion for reconsideration to set aside the order of dismissal of the complaint. The judge has the discretion whether or not to declare a party non-suited.27 It is, likewise, settled that the determination of whether or not an order of dismissal issued under such conditions should be maintained or reconsidered rests upon the sound discretion of the trial judge.28 The next question to be resolved is whether there was grave abuse of discretion of the trial judge. We hold that there was none. The case of Estate of Salud Jimenez v. Philippine Export Processing Zone29 discussed the propriety of filing a Petition for Certiorari under Section 1 of Rule 65 of the Rules of Court, thus:

A petition for certiorari is the proper remedy when any tribunal, board, or officer exercising judicial or quasi-judicial functions has acted without or in excess of its jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction and there is no appeal, nor any plain, speedy, and adequate remedy at law. Grave abuse of discretion is defined as the capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. An error of judgment committed in the exercise of its legitimate jurisdiction is not the same as "grave abuse of discretion." An abuse of discretion is not sufficient by itself to justify the issuance of a writ of certiorari. The abuse must be grave and patent, and it must be shown that the discretion was exercised arbitrarily and despotically. As a general rule, a petition for certiorari will not lie if an appeal is the proper remedy thereto such as when an error of judgment as well as of procedure are involved. As long as a court acts within its jurisdiction and does not gravely abuse its discretion in the exercise thereof, any supposed error committed by it will amount to nothing more than an error of judgment reviewable by a timely appeal and not assailable by a special civil action of certiorari. However, in certain exceptional cases, where the rigid application of such rule will result in a manifest failure or miscarriage of justice, the provisions of the Rules of Court which are technical rules may be relaxed. Certiorari has been deemed to be justified, for instance, in order to prevent irreparable damage and injury to a party where the trial judge has capriciously and whimsically exercised his judgment, or where there may be danger of clear failure of justice, or where an ordinary appeal would simply be inadequate to relieve a party from the injurious effects of the judgment complained of.30 (Emphasis supplied) Lack of jurisdiction and excess of jurisdiction are distinguished thus: the respondent acts without jurisdiction if he does not have the legal power to determine the case; where the respondent, being clothed with the power to determine the case, oversteps his authority as determined by law, he is performing a function in excess of his jurisdiction.31 Thus, we now discuss whether the trial court granted the motion for reconsideration of Sui and reinstated the complaint without basis in law. Citing the case of Ace Navigation Co., Inc. v. Court of Appeals,32 the trial court held that rules of procedures are mere tools designed to facilitate the attainment of justice and must be relaxed if its strict and rigid application would frustrate rather than promote substantial justice. Thus, it lifted and set aside its order of dismissal in the interest of substantial justice, which is the legal basis for the trial court to grant the motion for reconsideration of Sui. We have repeatedly warned against the injudicious and often impetuous issuance of default orders.33 While it is desirable that the Rules of Court be faithfully observed, courts should not be so strict about procedural lapses that do not really impair the proper administration of justice. If the rules are intended to ensure the proper and orderly conduct of litigation, it is because of the higher objective they seek which is the attainment of justice and the protection of substantive rights of the parties. Thus, the relaxation of procedural rules, or saving a particular case from the operation of technicalities when substantial justice requires it, as in the instant case, should no longer be subject to cavil.34 When the Court of Appeals held that the case is dismissible because Sui did not attend the pre-trial conference, it failed to consider the explanation of Atty. Ferrer that Sui executed a "Special Power of Attorney" in his behalf and that he was not absent on the scheduled pre-trial but was only late. Under Section 4 of Rule 18 of the Rules,35 the non-appearance of a party at the pre-trial may be excused when there is a valid cause shown or when a representative shall appear in his behalf, and is fully authorized in writing to enter into an amicable settlement, to submit to alternative modes of

dispute resolution, and to enter into stipulations or admissions of facts and of documents. Although Sui was absent during the pre-trial, Atty. Ferrer alleged that he was fully authorized to represent Sui. Moreover, it is not entirely accurate to state that Atty. Ferrer was absent during the pre-trial because he was only late, the reasons for which he explained in his Manifestation and Motion for Reconsideration. The circumstances attendant in the instant case compel this Court to relax the rules of procedure in the interest of substantial justice. Petitioners claim that the motion for reconsideration of Sui was procedurally defective because it was not served three days before the date of the hearing and no proof of service was given to the court, in violation of Sections 4 and 6 of Rule 15. Petitioners also aver that they received the Manifestation and Motion for Reconsideration of Sui on May 27, 2004 but the hearing was scheduled on May 28, 2004. Thus, it is nothing but a scrap of paper because it violated the three-day notice rule. We are not persuaded. In the instant case, we find that the purpose of a notice of hearing had been served. In Vlason Enterprises Corporation v. Court of Appeals,36 we enumerated the exceptions to the rule on notice of hearing, to wit: The Court has consistently held that a motion which does not meet the requirements of Sections 4 and 5 of Rule 15 of the Rules of Court is considered a worthless piece of paper, which the clerk of court has no right to receive and the trial court has no authority to act upon. Service of a copy of a motion containing a notice of the time and the place of hearing of that motion is a mandatory requirement, and the failure of movants to comply with these requirements renders their motions fatally defective. However, there are exceptions to the strict application of this rule. These exceptions are as follows: "x x x Liberal construction of this rule has been allowed by this Court in cases (1) where a rigid application will result in a manifest failure or miscarriage of justice; especially if a party successfully shows that the alleged defect in the questioned final and executory judgment is not apparent on its face or from the recitals contained therein; (2) where the interest of substantial justice will be served; (3) where the resolution of the motion is addressed solely to the sound and judicious discretion of the court; and (4) where the injustice to the adverse party is not commensurate [to] the degree of his thoughtlessness in not complying with the procedure prescribed." The present case falls under the first exception. Petitioner was not informed of any cause of action or claim against it. All of a sudden, the vessels which petitioner used in its salvaging business were levied upon and sold in execution to satisfy a supposed judgment against it. To allow this to happen simply because of a lapse in fulfilling the notice requirement which, as already said, was satisfactorily explained would be a manifest failure or miscarriage of justice. A notice of hearing is conceptualized as an integral component of procedural due process intended to afford the adverse parties a chance to be heard before a motion is resolved by the court. Through such notice, the adverse party is permitted time to study and answer the arguments in the motion.

Circumstances in the case at bar show that private respondent was not denied procedural due process, and that the very purpose of a notice of hearing had been served. On the day of the hearing, Atty. Desierto did not object to the said Motion for lack of notice to him; in fact, he was furnished in open court with a copy of the motion and was granted by the trial court thirty days to file his opposition to it. These circumstances clearly justify a departure from the literal application of the notice of hearing rule. In other cases, after the trial court learns that a motion lacks such notice, the prompt resetting of the hearing with due notice to all the parties is held to have cured the defect. Verily, the notice requirement is not a ritual to be followed blindly. Procedural due process is not based solely on a mechanistic and literal application that renders any deviation inexorably fatal. Instead, procedural rules are liberally construed to promote their objective and to assist in obtaining a just, speedy and inexpensive determination of any action and proceeding. For the foregoing reasons, we believe that Respondent Court committed reversible error in holding that the Motion for Reconsideration was a mere scrap of paper.37 (Emphasis supplied) When the trial court received Suis Manifestation and Motion for Reconsideration, it did not immediately resolve the motion. Instead, it allowed petitioners to file their comment and also leave to file a rejoinder if Sui files a reply.38These circumstances justify a departure from the literal application of the rule because petitioners were given the opportunity to study and answer the arguments in the motion. Petitioners claim that Sui failed to attach proof of service in violation of Section 6, Rule 15 of the Rule, must fail. In Republic of the Philippines v. Court of Appeals,39 we held, thus: Nonetheless, considering the question raised in the appeal of the government and the amount involved in this case, we think the Court of Appeals should have considered the subsequent service of the motion for reconsideration to be a substantial compliance with the requirement in Rule 15, 6. In De Rapisura v. Nicolas, the movant also failed to attach to his motion for reconsideration proof of service of a copy thereof to the other party. Nonetheless, this Court held the failure not fatal as the adverse party had actually received a copy of the motion and was in fact present in court when the motion was heard. It was held that the demands of substantial justice were satisfied by the actual receipt of said motion under those conditions.40 Petitioners admitted that they received a copy of Suis Manifestation and Motion for Reconsideration. In fact, they had the opportunity to oppose the same. Under these circumstances, we find that the demands of substantial justice and due process were satisfied. It is the policy of the Court to afford party-litigants the amplest opportunity to enable them to have their cases justly determined, free from the constraints of technicalities.41 It should be remembered that rules of procedure are but tools designed to facilitate the attainment of justice, such that when rigid application of the rules tend to frustrate rather than promote substantial justice, this Court is empowered to suspend their operation.42 WHEREFORE, in view of the foregoing, the Decision dated September 22, 2005 and the Resolution dated October 27, 2005 of the Court of Appeals in CA-G.R. SP No. 88863 is REVERSED and SET ASIDE. The Order of the Regional Trial Court in Civil Case No. 03-105691, lifting its previous order of dismissal is REINSTATED and AFFIRMED.

SO ORDERED.

G.R. No. 177931

December 8, 2008

PHILIPPINE NATIONAL BANK, petitioner, vs. DEANG MARKETING CORPORATION and BERLITA DEANG, respondents. DECISION CARPIO MORALES, J.: The Philippine National Bank (petitioner) assails the February 26, 2007 Decision1 and the May 16, 2007 Resolution2 of the Court of Appeals, which set aside the Orders of May 16, 2006 and August 9, 2006 of the Regional Trial Court (RTC) of Angeles City, Branch 57, and consequently declared petitioner in default. Respondents Deang Marketing Corporation and Berlita Deang filed before the RTC of Angeles City a Complaint3against petitioner, docketed as Civil Case No. 12686, for reformation of contract and specific performance, claiming that a dacion en pago arrangement in the February 21, 2005 Consolidation and Restructuring Agreement4 forged by them transformed respondents' outstanding loan obligations into a 7-year term loan ofP36,483,699.45. Summons was served on petitioner on April 20, 2006.5 On May 15, 2006, respondents filed a Motion to Declare Defendant[-herein petitioner] in Default,6 which they set for hearing on May 24, 2006. On even date, the trial court received petitioner's Motion for Extension of Time [30 days up to June 11, 2006] to File Answer 7 dated May 5, 2006. The following day, May 16, 2006 or eight days prior to the slated hearing of respondents' Motion to Declare [Petitioner] in Default, the trial court issued an Order denying said motion and granting petitioner's Motion for Extension of Time to File Answer. To the trial court's Order respondents filed a Motion for Reconsideration. In the meantime, petitioner filed its Answer to the Complaint on May 25, 2006. The trial court, by Order of August 9, 2006,8 denied respondents' Motion for Reconsideration of its May 16, 2006 Order denying their Motion to Declare petitioner in default and granting the latter's Motion for Extension. Respondents subsequently assailed the trial court's Orders of May 16, 2006 and August 9, 2006 via certiorari to the Court of Appeals which, by the challenged Decision of February 26, 2007, annulled the trial court's orders, disposing as follows: WHEREFORE, premises considered, the petition is GRANTED. The Orders dated May 16, 2006 and August 9, 2006 issued by the Hon. Omar T. Viola are hereby ANNULLED and SET ASIDE. Accordingly, private respondent is declared IN DEFAULT and the Answer filed by private respondent is ordered EXPUNGEDfrom the records of the case. The case is REMANDED to the Regional Trial Court, Branch 57, Angeles City,for further proceedings.

SO ORDERED.9 (Emphasis in the original, underscoring supplied) Petitioner's Motion for Reconsideration having been denied by Resolution of May 16, 2007, it filed the present Petition for Review (with Prayer for the Issuance of Temporary Restraining Order/Preliminary Injunction) which ascribes error to the Court of Appeals in: . . . DECLARING PNB IN DEFAULT AND ORDERING THAT THE ANSWER FILED IN THE RTC BE EXPUNGED FROM THE RECORDS OF THE CASE [AND] . . . ANNULLING AND SETTING ASIDE THE ORDERS DATED MAY 16, 2006 AND AUGUST 9, 2006 OF THE RTC.10 The petition fails. Petitioner's Motion for Extension of Time to File Answer was laden with glaring lapses. Petitioner had, following the reglementary 15-day period after service of summons (unless a different period is fixed by the court),11 until May 5, 2006 within which to file an Answer or appropriate pleading. It filed the Motion for Extension, however, via a private courier on May 14, 2006, which was received by the trial court on May 15, 2006 or ten days late. It is a basic rule of remedial law that a motion for extension of time to file a pleading must be filed before the expiration of the period sought to be extended.12 The court's discretion to grant a motion for extension is conditioned upon such motion's timeliness, the passing of which renders the court powerless to entertain or grant it.13 Since the motion for extension was filed after the lapse of the prescribed period, there was no more period to extend. Petitioner was not candid enough to aver in the Motion for Extension that the period had lapsed, as it still toyed with the idea that it could get away with it. The allegations therein were crafted as if the said motion was timely filed. Notably, the May 16, 2006 Order expressed no inkling that the motion was filed out of time. The trial court either was deceived by or it casually disregarded the apparent falsity foisted by petitioner. Lest this Court be similarly deceived, it is imperative to carefully examine the facts. By petitioner's allegation in its Motion for Extension, it received the summons on April 24, 2006. This is belied by the Process Server's Return, which indicates that petitioner received the summons on April 20, 2006. Petitioner's counsel was to later clarify that it was only on April 24, 2006 that she received copies of the summons and complaint which were faxed from petitioner's main office. In requesting for a 30-day extension or until June 11, 2006 to file answer, petitioner apparently reckoned the date from which the extension would start on May 12, 2006, which was not the last day of the 15-day period sought to be extended, it being May 5, 2006. By computation, petitioner actually sought more than 30 days, contrary to the period of extension it purportedly requested. The counting of the period was erroneous, even if one uses the material dates alleged by petitioner.14 Petitioner clearly disregarded elementary rules15 and jurisprudence16 on the matter. The flaws in petitioner's moves/representations reinforce respondents' claim that the Motion for Extension was "cunningly" dated May 5, 2006 (the last day to file a responsive pleading) to make it appear that it was timely filed, although it was transmitted only on May 14, 2006. Petitioner's

allegation that the Motion it filed was the one actually prepared and signed on May 5, 200617 contradicts its earlier claim in its Opposition to the Motion to Declare [It] in Default that "[s]hort of time in coming up with [herein petitioner's] Answer on April 28, 2006," its counsel caused to be prepared a Motion for Extension of Time to File Answer which was, however, misplaced, and upon discovery thereof "another motion for extension was immediately caused to be prepared and filed."18 More. Petitioner served and filed the Motion for Extension through a private courier, LBC, a mode not recognized by the rules.19 Explanation for availing such mode was not stated in the Motion.20 The mode was, nonetheless, clearly unjustifiable, considering that (a) petitioner's handling counsel was based in nearby San Fernando; (b) postal registry service is, for lack of explanation to the contrary, available in Pampanga;21 (c) urgency is out of the equation because the official date of filing done via private messengerial service is the date of actual receipt of the court,22 and had the motion been personally filed the following day (May 15, 2006), it would have reached the court earlier. It thus shows that the mode was utilized to obscure any indication that the motion was filed out of time. In denying respondents' Motion for Reconsideration of its grant of petitioner's Motion for Extension, the trial court ruled that it was inclined to reconsider or lift an order of default.23 By such ruling, the trial court preempted the dictates of orderly procedure by unduly anticipating and signifying a slant toward the remedies and arguments yet to be availed of and raised by petitioner. Petitioner can not harp on Indiana Aerospace University v. Comm. on Higher Educ.24 which it cites. In that case, the Answer had already been filed- albeit after the 15-day period, but before the defendants were declared in default. In the present case, had the hearing on the Motion to Declare Petitioner in Default pushed through on May 24, 2006, the trial court would have readily noticed that no Answer had yet been filed on said date, the Answer having been filed, as earlier stated, only on May 25, 2006. Neither can petitioner harp on Sps. Ampeloquio, Sr. v. Court of Appeals,25 for the Court therein held that it is within the discretion of the trial court to permit the filing of an answer even beyond the reglementary period,provided that there is justification for the belated action and there is no showing that the defendant intended to delay the case. Thus, in that case, the therein defendantrespondent deferred the submission of a prepared Answer as it awaited the trial court's resolution on its motion to dismiss, which resolution had, it turned out, been priorly issued, a copy of which was, however, mistakenly addressed to another counsel. In the present case, no satisfactory reason was adduced to justify the tardiness of the Answer and no compelling reason was given to justify its admission. The intention to delay was rather obvious. It is not amiss to mention at this juncture that the Court's attention has been drawn to the fact that petitioner'scounsel even notarized the Verification of respondents' Complaint as well as the Corporate Secretary's Certificate as early as April 10, 2006. By such act, which is irregular, to say the least, petitioner's counsel was even made aware in advance of the impending filing of the case against her client-herein petitioner. Moreover, petitioner's handling counsel belongs to its Legal Department which monitors its pending cases and oversees a network of lawyers. On petitioner's counsel's belated and trite allegation of heavy volume of work which called for the filing of the Motion for Extension, nowhere is it therein claimed that there was heavy volume of

work in other equally important cases.26 With the implication that petitioner had been all the while preparing an Answer, it defies comprehension how petitioner still attributes the delay to "inadvertence," "honest oversight" and "simple remission" in its having allegedly misplaced the Motion for Extension.27 The Court thus finds petitioner's negligence inexcusable, as the circumstances behind and the reasons for the delay are detestable. Rules of procedure, especially those prescribing the time within which certain acts must be done, have often been held as absolutely indispensable to the prevention of needless delays and to the orderly and speedy discharge of business. The bare invocation of "the interest of substantial justice" is not a magic wand that will automatically compel this Court to suspend procedural rules.28 Under Rule 1, Section 6 of the 1997 Rules of Civil Procedure, liberal construction of the rules is the controlling principle to effect substantial justice. Thus, litigations should, as much as possible, be decided on their merits and not on technicalities. This does not mean, however, that procedural rules are to be ignored or disdained at will to suit the convenience of a party. Procedural law has its own rationale in the orderly administration of justice, namely, to ensure the effective enforcement of substantive rights by providing for a system that obviates arbitrariness, caprice, despotism, or whimsicality in the settlement of disputes. Hence, it is a mistake to suppose that substantive law and procedural law are contradictory to each other, or as often suggested, that enforcement of procedural rules should never be permitted if it would result in prejudice to the substantive rights of the litigants. Litigation is not a game of technicalities, but every case must be prosecuted in accordance with the prescribed procedure so that issues may be properly presented and justly resolved. Hence, rules of procedure must be faithfully followed except only when for persuasive reasons, they may be relaxed to relieve a litigant of an injustice not commensurate with his failure to comply with the prescribed procedure.Concomitant to a liberal application of the rules of procedure should be an effort on the part of the party invoking liberality to explain his failure to abide by the rules.29 (Underscoring supplied) Given the foregoing circumstances, Justice Presbitero Velasco, Jr., in his Dissenting Opinion, still finds "exceptional circumstances" that warrant this Court to suspend its rules and accord liberality to petitioner, citing Section 11, Rule 11 of the Rules of Court, which reads: Upon motion and on such terms as may be just, the court may extend the time to plead provided in these Rules. The court may also, upon like terms, allow an answer or other pleading to be filed after the time fixed by these Rules. (Emphasis and underscoring supplied) From the foregoing discussion, it is unimaginable how "such terms as may be just" may be applied in petitioner's favor. Under the stated premises, to grant the petition along the lines of liberality is to countenance the context of fibs and flaws. Obviously grasping straws in its final pitch to win the court's leniency, petitioner employed a ploy to conceal not just the lapse of time but also the serious lapses of non-compliance with basic rules. The scheme insults the intelligence of the Court. While the Court frowns upon default judgments, it does not condone gross transgressions of the rules and perceptible vestiges of bad faith.

Good faith is central to the concept of "excusable neglect" justifying failure to answer.30 An attempt to cover up the procedural lapses and obscure the technical imperfections negates good faith on the part of the party imploring the accommodating arm of the court. In his Dissenting Opinion, Justice Velasco proffers that the complaint centers on the interpretation of a contract which can only be determined if the parties are heard in the course of trial. There is no arguing that all complaints of whatever nature can only be determined if the parties are heard. There is, however, a standing rule set in place for a declaration of default, in cases where there is no justification for the belated action, and there is showing that the defendant intended to delay the case. In this case, the party lackadaisically squandered its opportunity to file a responsive pleading and, worse, made deceptive moves in an obvious attempt to redeem itself. The Court is duty-bound to observe its rules and procedures and uphold the noble purpose behind their issuance. Rules are laid down for the benefit of all and should not be made dependent upon a suitor's sweet time and own bidding.31 In preliminarily assessing the merits of the case, the Court is merely tasked to consider whether the reception of defendant's evidence would serve a practical purpose, considering that respondents had, during the pendency of the case, concluded the ex-parte presentation of evidence.32 Accordingly, after carefully reviewing petitioner's Answer and Pre-Trial Brief, the Court finds that to re-open the presentation of evidence just to ventilate the defense of mere denial - that there exists no dacion en pago -and to present the written agreement, the existence of which is already admitted by respondents, would serve no practical purpose. If petitioner is confident that the complaint lacks merit, then it need not worry because once the defendant is declared in default, the plaintiff is not automatically entitled to the relief prayed for. Favorable relief can be granted only after it has been ascertained that it is warranted by the evidence offered and the facts proven by the presenting party.33 In any event, petitioner, even if declared in default, is not deprived of his right to appeal the decision of the trial court.34 To emphasize, the case does not involve any outright deprivation of life, liberty or property. Contrary to what is being depicted, intimated or romanticized, petitioner does not stand to lose P36,483,699.45 regardless of the characterization of the commercial transaction entered into by the parties. The amount is secured by mortgages over prime real properties, which is precisely the subject of the alleged dacion en pago. WHEREFORE, the petition is DENIED. SO ORDERED.

REVENUE/ TAX LAWS

G.R. No. L-25602 February 18, 1970 REPUBLIC FLOUR MILLS, INC., petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.

Agrava and Agrava for petitioner. Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and Special Attorney Virgilio G. Saldajena for respondents.

REYES, J.B.L., J.: Appeal by the Republic Flour Mills from the decision of the Court of Tax Appeals (in CTA Case No. 1151) on the sole question of whether or not in computing the manufacturer's sales tax due on the flour it manufactured and sold in 1959, wherein wheat grains imported tax-free in 1958 were utilized, the cost of said wheat grains is deductible. As stipulated by the parties and found by the court below, the facts of this case are briefly as follows: In 1957, the Republic Flour Mills, Inc., a domestic corporation engaged in the business of manufacturing flour, was granted tax-exemption privileges as a new and necessary industry pursuant to Republic Act 901,1 commencing on 28 January 1957 to continue as a diminishing exemption until 31 December 1962.2 In 1958, the corporation imported a quantity of wheat grains, part of which it was not able to mill and use in the business that year, so that by 1 January 1959 the corporation carried a surplus of P1,486,616.41 worth of wheat grains from the previous year's importation. These surplus grains were finally utilized and manufactured into flour and sold in 1959. For the year 1959, the corporation paid manufacturer's sales tax on its produce in the sum of P37,275.55, in the computation of which the cost of the wheat left over from the 1968 importation was treated as a deductible item from the gross sales in 1959. On 28 March 1961, the Commissioner of Internal Revenue assessed the corporation of deficiency tax for 1959 in the total sum of P23,170.17. The corporation requested a reinvestigation of the assessment, and when it was denied filed a petition for review in the Court of Tax Appeals (CTA Case No. 1151) to contest the assessment of advance sales tax on the wheat grains imported taxfree in 1958 and the disallowance of the deduction of the cost of said wheat grains from its gross sales of flour in 1959.

Respondent Commissioner of Internal Revenue defended and maintained the assessment, on the ground that by 1959 the raw materials used by petitioner in its tax-exempt industry were already subject to payment of 10% tax thereon. During the hearing, the parties entered into a Partial Stipulation of Facts, the pertinent provisions of which are the following: 12. That the legal issue is whether or not the cost of raw materials imported tax-free in the year 1958 which raw materials were utilized in the year 1959 for the manufacture of flour sold in 1959, is deductible from the gross sales in the year 1959; 13. If the legal question before this Honorable Court should be resolved in the affirmative, Petitioner's tax liability shall be P3,288.16 computed as follows: Net sales P21,011,818.17 Deduct: Cost of raw materials used for flour (including tax-free raw materials) 15,310,806.74 Taxable gross sales 5,701,011.43 7% tax thereon 339,070.80 10% of said tax P39,907.08 Less: Amount of Tax paid 37,276.55 Deficiency sales tax P2,630.53 Plus 25% surcharge 657.63 TOTAL AMOUNT PAYABLE P3,288.16 14. On the other hand, if the question is resolved in the negative, petitioner's tax liability shall be P24,587.98 computed as follows: Net sales P21,011,818.17 Deduct: Cost of raw materials used for flour P15,310.806.74 Less: Cost of tax-free raw materials 2,434,264.24 12,876,542.50 Taxable gross sales P8,135,275.67 7% tax thereon 569,469.30 10% of said tax 56,946.93 Less amount paid 37,276.55 Deficiency sales tax due P19,670.38 Plus 25% surcharge 4,917.60 TOTAL AMOUNT DUE & COLLECTIBLE P 24,587.98

On 12 December 1965, the Court of Tax Appeals sustained the correctness of the disputed assessment, and petitioner corporation was ordered to pay the sum of P24,587.98 as deficiency sales tax and surcharge. Hence the filing by petitioner of the present appeal, on the same legal issue litigated by the parties in the court below. It may be observed from the stipulated facts quoted above that the issue in this case has nothing to do with the enforcement or exercise of the tax-exemption privileges granted to the petitioner. The point in controversy is only whether or not the cost of the tax-free wheat grains used in the manufacture of flour, which is also tax-exempt, is a deductible item for purposes of computing the percentage tax (10%) admittedly due on the said manufactured product in 1959. Disputing the assessment of deficiency tax by the respondent Commissioner of Internal Revenue, herein petitioner insists that the cost of imported tax-free wheat grains is a deductible item from its gross sales of the flour, pursuant to Section 186-A of the Internal Revenue Code, which reads: SEC. 186-A. Whenever a tax free product is utilized in the manufacture or production of any article, in the determination of the value of such finished article, the value of such tax free product shall be deducted. Respondent Commissioner refutes this contention, saying that, as defined by the Internal Revenue Office, the term "tax-free product" mentioned in the above-quoted Section 186-A refers to raw materials purchased from tax-exempt industries,3 whereas the wheat grains involved in the case, although used by a tax-exempt industry, were not acquired from one enjoying tax-exemption privilege under our laws. In the resolution of the lone issue in this case, it is worthwhile to mention that prior to 22 June 1957 the prevailing rule on the matter was to allow the cost of raw materials used in the manufacture of another article to be deducted from gross sales, whenever such raw materials had been subjected to sales tax. The reason therefor, as expressed by this Court, was to preclude a second assessment of the percentage tax on the raw materials.4 This ruling finds basis in Section 186 of the Tax Code which reads: SEC. 186. Percentage tax on sales of other articles. There shall be levied, assessed and collected once only on every original sale, barter, exchange, and similar transaction either for nominal or valuable considerations, intended to transfer ownership of, or title to, the articles not enumerated in sections one hundred and eighty-four and one hundred and eighty-five a tax equivalent to seven per centum of the gross selling price or gross value in money of the articles so sold, bartered, exchanged or transferred, such tax to be paid by the manufacturer or producer: Provided, That where the articles subject to tax under this section are manufactured out of materials likewise subject to tax under this section and section one hundred and eighty-nine, the total cost of such materials, as duly established, shall be deductible from the gross selling price or gross value in money of such manufactured articles. xxx xxx xxx (Emphasis supplied)

With the establishment of tax-exempt industries in the mid-50s, enforcement of the foregoing provision must have created a peculiar problem, so much so that On 22 June 1957 the legislature enacted Republic Act 2025, which inserted 186-A in the Tax Code, expressly constituting the value of tax-free products to be a deductible item from the gross sales of the finished goods manufactured out of the same. Cast against this background, We agree with the petitioner that there is actually no cause here calling for an administrative definition or interpretation of Section 186-A. For no reason exists to read into the provision a qualification that is not there, nor to give to the phrase "tax-free product" a meaning other than what it ordinarily and commonly conveys a material or article exempted from payment of tax. The respondent Commissioner himself could supply no plausible reason for excluding tax-free imported raw materials from the coverage of the term "tax-free" product other than the lame argument that wheat grains are not a "product" because they are not made out of another article (V. B.I.R. Circular No. V-252, 15 July 1957). The Commissioner's stand, upheld by the Tax Court, runs contrary to the legal definition of the term "product" which covers "anything that is produced, whether as the result of generation, growth, labor or thought" (Molina vs. Rafferty, 38 Phil. 171; 50 C.J.S., pages 631632). If, as held in the case cited, fish were agricultural product, no reason is seen why wheat grains should not equally be products of agriculture. Indeed, if the Commissioner's definition were correct, it would be logical to expect that Section 186-A of the Tax Code (ante) instead of referring to "a tax free product" utilized in the manufacture of other articles, would have proclaimed the deductibility of the value of "products of a tax exempt industry ... utilized in the manufacture or production of any article." Further, it must not be overlooked that the exemption granted to the petitioner covered not only the sales tax of the manufactured product but also the sales tax "on raw materials and supplies to be used exclusively in the manufacture of such (exempt) products" (Brief for Appellee, page 1). To bar the deductibility of the value of such raw materials is to tear away the tax exemption from sales tax on said materials. Indeed, if, as is conceded, these wheat grains were allowed to enter in 1958 as exempt from paying advance sales tax, no reason exists why the value of this same material should be subjected to tax just because they were milled in 1959 and not in the year of importation. That petitioner's manufactured flour would be subject in 1959 to only a part of the normal sales tax, pursuant to Republic Act 901, would not alter the principles herein established. It is true that in the construction of tax statutes tax exemptions (and deductions are of this nature) are not favored in the law, and are construed strictissimi juris against the taxpayer.5 However, it is equally a recognized principle that where the provision of the law is clear and unambiguous, so that there is no occasion for the court's seeking the legislative intent, the law must be taken as it is, devoid of judicial addition or subtraction.6 In this case, we find the provision of Section 186-A "whenever a tax free product is utilized, etc." all encompassing to comprehend tax-free raw materials, even if imported. Where the law provided no qualification for the granting of the privilege, the court is not at liberty to supply any. WHEREFORE, and for the foregoing considerations, the decision appealed from is reversed and set aside, and, in accordance with the stipulation of the parties, petitioner is hereby ordered to pay to

respondent Commissioner the sum of P3,288.16 as deficiency tax, with legal interest thereon from the date the tax became due.7 No costs.

G.R. No. L-40858 September 15, 1987 SPOUSES FEDERICO SERFINO and LORNA BACHAR, petitioners, vs. THE COURT OF APPEALS and LOPEZ SUGAR CENTRAL MILL CO., INC., respondents. No. L-40751 September 15, 1987 PHILIPPINE NATIONAL BANK, petitioner, vs. THE HONORABLE COURT OF APPEALS, LOPEZ SUGAR CENTRAL MILL COMPANY, INC., SPOUSES FEDERICO SERFINO and LORNA BACHAR, respondents.

PARAS, J.: Before Us are two (2) Petitions for certiorari to review the decision 1 of the Court of Appeals als in CA-G.R. No. 37748-R, consolidated for Our disposition since they arose from the same factual background. The records of the case show that on August 25, 1937, a parcel of land consisting of 21.1676 hectares situated in the Municipality of Sagay, Province of Negros Occidental, was patented in the name of Pacifico Casamayor, under Homestead Patent No. 44139. Upon registration of said patent in the office of the Register of Deeds of Negros Occidental, OCT No. 1839 was issued by said office in the name of Pacifico Casamayor. On December 14, 1945, the latter sold said land in favor of Nemesia D. Baltazar. Apparently, OCT No. 1839 was lost during the war and upon petition of Nemesia Baltazar, the Court of First Instance of Negros Occidental ordered 2 the reconstitution thereof. Pursuant thereto, OCT No. 14-R (1839) was issued on January 18, 1946 in the name of Pacifico Casamayor. On that same day, TCT No. 57-N was issued in the name of Nemesia Baltazar but after the cancellation of OCT No. 14-R (1839). On August 25, 1951, Nemesia Baltazar, sold said property to Lopez Sugar Central Mill Co., Inc. (Lopez Sugar Central, for brevity). The latter, however did not present the documents for registration until December 17, 1964 to the Office of the Registry of Deeds. Said office refused registration upon its discovery that the same property was covered by another certificate of title, TCT No. 38985, in the name of Federico Serfino. An inquiry into this discrepancy reveals that the Provincial Treasurer of Negros Occidental on October 30, 1956 had conducted a public auction sale of this property for tax delinquency for the period starting the year 1950. Notice of this public auction sale was sent to Pacifico Casamayor but none to Nemesia Baltazar and Lopez Sugar Million There being no public bidders on the scheduled date of sale, the Provincial Treasurer of Negros Occidental issued a Certification of Sale of Delinquent Real Property over the disputed land to the Province of Negros Occidental. On May 14, 1964, upon payment of the amount of P1,838.49 by Federico Serfino, a Certificate of Repurchase of Real Property was issued and executed by the Provincial Treasurer in favor of Federico Serfino, for and in behalf of Pacifico Casamayor.

On May 28, 1964, Serfino filed a petition with the Court of First Instance of Negros Occidental for the Reconstitution of OCT No. 1839 in the name of Pacifico Casamayor, upon the allegation that said title was lost. After due publication and hearing, said OCT was ordered reconstituted and thus OCT No. RP-1304 (1839) was issued by the Registry of Deeds in the name of Casamayor. On October 30, 1964, Serfino petitioned the court for confirmation of his title to the land as purchaser in the auction sale. On October 31, 1964, court granted the petition and on November 2, 1964, OCT No. RP-1304 (1839) was cancelled and TCT No. 38985 was issued in the name of Federico Serfino, married to Lorna Bachar. On November 19, 1964, the spouses Serfinos mortgaged the land to the Philippine National Bank (PNB) to secure a loan in the amount of P5,000.00. Said mortgage in favor of PNB was inscribed in TCT No. 38985. Hence, this was the situation of the land when the Office of the Register of Deeds refused registration of the property in question requested by the Lopez Sugar Central. The lower court in its Order, dated January 16, 1965 in the Petition of the Office of the Register of Deeds seeking the cancellation of either TCT No. 57-N (in the name of Nemesia Baltazar) or TCT No. 38985 (in the name of Lopez Sugar Central), ordered Lopez Sugar Central and spouses Serfino to take the necessary steps towards the clearing of their respective titles before a court of general jurisdiction. Pursuant thereto, Lopez Sugar Central, on May 5, 1965, instituted an action for 1) annulment of OCT No. RP-1304 (1839), of TCT No. 38985 and of the mortgage executed by the Serfinos in favor of PNB, 2) for the registration of the Deed of Sale, 3) for the issuance of a TCT in its name and 4) for recovery of possession of the disputed land from the Serfinos. On February 4, 1966, the lower court rendered its decision, 3 the dispositive portion reading as follows: WHEREFORE, and considering the conclusions and opinion set forth above, judgment is hereby rendered as follows: 1. The Register of Deeds of Negros Occidental is hereby ordered to cancel Transfer Certificate of Title No. 38985; 2. The same Register of Deeds is ordered to register the deed of sale executed by Nemesia D. Baltazar on August 25, 1951, and after cancelling Transfer Certificate of Title No. 57-N and other titles issued prior thereto, to issue a new transfer certificate of title in the name of Lopez Sugar Central Mill Co., Inc., upon previous payments of the legal fees; 3. The Lopez Sugar Central Mill Co., Inc., shall pay the Philippine National Bank, Bacolod Branch, the sum of P5,261.11 secured by a real estate mortgaged registered and annotated on Transfer Certificate of Title 38985 which shall be carried over in the new transfer certificate of title to be issued to the Lopez Sugar Central Mill Co., Inc. with the right of recourse to the Assurance Fund; and 4. The defendant, Federico Serfino, is hereby ordered to vacate the land in question and to deliver the possession thereof to the plaintiff; 5. The plaintiff is exempt from reimbursing the defendant, Federico Serfino, for the sum of P602.94 which the latter paid for the repurchase of the land in question for

the reason that the former is already burdened with the payment of the mortgage indebtedness with the Philippine National Bank in the amount of P5,261.11; and 6. The Court makes no award for damages and costs. SO ORDERED. (Rollo L-40751, pp. 117 & 118, Joint Record on Appeal, Annex "D", p. 50) Both parties appealed from this decision of the trial court. Ruling on the assignment of errors, the appellate court affirmed the judgment of the trial court with modification in its decision, the pertinent portion reading as follows: Plaintiff contends that the mortgage executed by the Serfinos in favor of PNB is null and void, because the property conveyed in mortgage did not belong to them. The contention is meritorious. That the mortgagor should be the absolute owner of the property mortgaged is an essential requisite for the validity of a contract of mortgage (Art. 2085, Civil Code); and a mortgage constituted by one not the owner of the property mortgaged is null and void, the registration of the mortgage notwithstanding (Parqui vs. PNB, 96 Phil. 157). Thus, the mortgage lien of PNB in the contract executed in its favor by the Serfinos did not attach to the property in question. The argument advanced by appellee PNB that it is a mortgagee in good faith deserves scant consideration. Note that when the mortgage was constituted, the disputed land was covered by a valid and existing title, TCT No. 57-N, in the name of Nemesis D. Baltazar. Indeed, the whole world, including appellee PNB, is charged with notice thereof. Consequently, that portion of the trial court's decision declaring plaintiff liable to the PNB for payment of the sum of P5,261.11 should beset aside. As to the plaintiff's claim for damages against the Serfinos, We find the same devoid of merit. Whatever injury plaintiff may have suffered was occasioned by the faulty and defective indexing and filing system in the office of the Register of Deeds of Negros Occidental, and not by any intentional Act on the part of the Serfino Spouses. Anyway, the evidence fails to show that they deliberately intended to cause damage to plaintiff. However, equity dictates that plaintiff should reimburse the Serfino spouses of the sum of P1,839.49, representing the unpaid taxes and penalties paid by the latter when they repurchased the property from the province of Negros Occidental. WHEREFORE, with the modifications above indicated, the judgment appealed from is hereby affirmed. No costs. SO ORDERED. (Decision, Annex "A", pp. 40-42, Rollo-L40751) From the aforesaid ruling, the spouses Serfino and the Philippine National Bank appealed to Us by way of certiorari. Petitioners, spouses Serfinos 4 assign the following errors:

I. The Purchase by plaintiff-appellant corporation (Lopez Sugar Central) of the lot in question was null and void from the beginning. II. Petitioners are proper parties to challenge the legality of the sale of the land in question to private respondent. III. Notice to Nemesia Baltazar of the Tax Sale of the land in question was not essential to the validity of the sale. IV. The legality of the auction sale of the property in question was not in issue before the court a quo. Petitioner Philippine National Bank 5 submits the following. ASSIGNMENT OF ERRORS I. The Court of Appeals erred in holding that the auction sale of the disputed property was null and void. II. The Court of Appeals erred in not holding that petitioner is a mortgagee in good faith. Petitioners spouses Serfinos maintain that sale of a land covered by homestead to be valid must have the following requisites: 1) consent of the grantee 2) approval of the Secretary of Agriculture and Natural Resources 3) sale is solely for educational, religious, or charitable purposes or for a right of way (Sec. 121, CA No. 141 ). Petitioner spouses Serfinos in support of their first assignment of error cited Sec. 121, CA No. 141 reading as follows: SEC. 121. Except with the consent of the grantee and the approval of the Secretary of Agriculture and Commerce, and solely for commercial, industrial, educational, religious or charitable purposes or for a right of way, no corporation, association, or partnership may acquire or have any right, title, interest, or property right whatsoever to any land granted under the free patent, homestead or individual sale provisions of this Act or to any permanent improvement on such land. They argue that since private respondent is a corporation, it is barred from owning land granted under the free patent if the aforementioned requisites are not present. Such Pacifico Casamayor who obtained a Homestead Patent and later an original certificate of title in his name. Later it was this original grantee who sold the land in question to Nemesia Baltazar on December 14, 1945 or more than eight (8) years after he obtained his homestead patent on August 25, 1937. On these facts, We now apply Sec. 118 of Commonwealth Act No. 141 which prohibits the alienation of homestead lots to private individual within five (5) years from the date of the issuance of the patent and not Sec. 121 which governs sale to corporation. Since the grant was more than five (5) years before, the transfer to Nemesia Baltazar was valid and legal. Nemesia Baltazar who became the titled or registered owner as evidenced by TCT No. 57-N, could exercise acts of ownership over the land such as disposing of it to private respondent by a deed of sale.

The assailed decision of the appellate court declares that the prescribed procedure in auction sales of property for tax delinquency being in derogation of property rights should be followed punctiliously. Strict adherence to the statutes governing tax sales is imperative not only for the protection of the tax payers, but also to allay any possible suspicion of collusion between the buyer and the public officials called upon to enforce such laws. Notice of sale to the delinquent land owners and to the public in general is an essential and indispensable requirement of law, the nonfulfillment of which initiates the sale. We give our stamp of approval on the aforementioned ruling of the respondent court. In the case at bar, there is no evidence that Nemesia Baltazar, who had obtained a transfer certificate of title in her name on January 18, 1946, was notified of the auction sale which was scheduled on October 30, 1956. Neither was she furnished as the owner of the delinquent real property with the certificate of sale as prescribed by Sec. 37 of Commonwealth Act No. 470. These infirmities are fatal. Worth mentioning also is the fact that Lopez Sugar Central was not entirely negligent in its payment of land taxes. The record shows that taxes were paid for the years 1950 to 1953 and a receipt therefor was obtained in its name. The sale therefore by the Province of Negros Occidental of the land in dispute to the spouses Serfinos was void since the Province of Negros Occidental was not the real owner of the property thus sold. In turn, the spouses Serfinos title which has been derived from that of the Province of Negros Occidental is likewise void. A purchaser of real estate at the tax sale obtains only such title as that held by the taxpayer, the principle of caveat emptor applies. Where land is sold for delinquency taxes under the provisions of the Provincial Assessment Law, rights of registered but undeclared owners of the land are not affected by the proceedings and the sale conveys only such interest as the person who has declared the property for taxation has therein. We now come to the arguments of petitioner Philippine National Bank. The appellate court in modifying the trial court's decision nullified the mortgage in favor of Philippine National Bank and exempted Lopez Sugar Central from the payment to PNB of the amount of the mortgage loan. Petitioner Philippine National Bank now questions this maintaining that it is a mortgagee in good faith and as such is entitled to the protection of the law. We find merit in petitioner's contention. The findings of fact by the trial court which were undisputed by the contending parties show that after TCT No. 38985 had been issued in the name of Federico Serfino, he declared the property in his name for the year 1965 under T.D. No. 9382, continuously paid the taxes and introduced improvements thereon in the nature of feeder roads and sugar cane plants. It was under these circumstances that PNB extended a loan to Serfino, secured by the land in question on the strength of TCT No. 38985 in the name of the Serfinos and after a spot investigation by one of the bank inspectors who made a report of his investigation. After the execution of a real estate mortgage in favor of the Philippine National Bank duly annotated on the title of the Serfinos TCT No. 38985, the bank actually loaned Serfino the amount of P5,000.00 which amounted to P5,261.11 as of August 17, 1965. Petitioner Philippine National Bank relied on TCT No. 38985, the genuineness of which is not in issue as it was really issued by the Register of Deeds of Negros Occidental. Philippine National Bank had every right to rely on TCT No. 38985 as it was a sufficient evidence of ownership of the mortgagor. The Philippine National Bank at that time had no way of knowing of the existence of another genuine title covering the same land in question. The fact that the public auction sale of the disputed property was not valid (for lack of notice of the auction sale to the actual owner) can not in any way be attributed to the mortgagee's (PNB's) fault. The fact remains that in spite of the lack of notice to the actual registered owner at that time (who was Nemesia Baltazar) the Register of Deeds issued a TCT in the name of Federico Serfino married to Lorna Bachar which title was relied upon by petitioner Philippine National Bank. The Register of

Deeds disowned liability and negligence or connivance claiming that existence of TCT No. 57-N in the name of Nemesia Baltazar was not found in the records of the Register of Deeds for the reason that it did not exist in the index card as the land was not designated by cadastral lot number. Thus the discrepancy was due to the faulty system of indexing the parcels of land. Be it noted that the inability of the Register of Deeds to notify the actual owner or Lopez Sugar Central of the scheduled public auction sale was partly due to the failure of Lopez Sugar Central to declare the land in its name for a number of years and to pay the complete taxes thereon. Petitioner Philippine National Bank is therefore entitled to the payment of the mortgage loan as ruled by the trial court and exempted from the payment of costs. WHEREFORE, premises considered, with the slight modification that the PNB mortgage credit must be paid by Lopez Sugar Central, the assailed decision is hereby AFFIRMED. SO ORDERED.

G.R. No. L-46306 February 27, 1979 PEOPLE OF THE PHILIPPINES, petitioner, vs. HON. MARIANO C. CASTAEDA, JR., as Judge of the Court of First Instance of Pampanga, Branch III, and BENJAMIN F. MANALOTO, respondents.

Fiscal Regidor Y Aglipay and Special Counsel Vicente Macalino for petitioner. Moises Sevilla Ocampo for private petitioner. Cicero J. Punzalan for respondent.

SANTOS, J.: On the basis of the complaint 1 of his wife, Victoria M. Manaloto, herein private respondent Benjamin Manaloto was charged before the Court of First Instance of Pampanga, presided by respondent Judge, Hon. Mariano C. Castaneda Jr., with the crime of Falsification of Public Document committed, according to the Information, as follows:
That on or about the 19th day of May, 1975, in the Municipality of San Fernando, province of Pampanga, Philippines, and within the jurisdiction of this Honorable Court, the above-named a BENJAMIN F. MANALOTO, with deliberate intent to commit falsification, did then and there willfully, unlawfully and feloniously counterfeit, imitate and forge the signature of his spouse Victoria M. Manaloto in a deed of sale executed by said accused wherein he sold a house and lot belonging to the conjugal partnership of said spouse in favor of Ponciano Lacsamana under Doc. No. 1957, Page No. 72, Book No. LVII, Series of 1975, notarized by Notary Public Abraham Pa. Gorospe, thereby making it appear that his spouse Victoria M. Manaloto gave her marital consent to said sale when in fact and in truth she did not. 2

At the trial, the prosecution called the complaint-wife to the witness stand but the defense moved to disqualify her as a witness, invoking Sec. 20, Rule 130 of the Revised Rules Of Court which provides: SEC. 20. Disqualification by reason of interest or relationship The following persons cannot testify as to matters in which they are interested, directly or indirectly as herein enumerated. xxx xxx xxx (b) A husband can not be examined for or at his wife without her consent; nor a wife for or against her husband without his consent, except in a civil case by one against the other or in a criminal case for a crime committed by one against the other. The prosecution opposed said motion to disquality on the ground that the case falls under the exception to the rule, contending that it is a "criminal case for a crime committed by one against the other." Notwithstanding such opposition, respondent Judge granted the motion, disqualifying

Victoria Manaloto from testifying for or against her husband, in an order dated March 31, 1977. A motion for reconsideration petition was filed but was denied by respondent Judge in an order dated May 19, 1977. Hence, this petition for certiorari file by the office of the Provincial Fiscal, on behalf of the People of the Philippines, seeking set aside the aforesaid order of the respondent Judge and praying that a preliminary injunction or a ternporary restraining order be issued by this Court enjoining said judge from further proceeding with the trial of aforesaid Criminal Case No. 1011. On June 20, 1977, this Court resolved (a) to issue a temporary restraining order, and (b) to require the Solicitor General to appear as counsel for the petitioner. 3 The Office of the Solicitor General filed its Notice of Appearance on June 27, 1977, 4 and its Memorandum in support of the Petition on August 30, 1977. 5 The respondents filed their Memorandum on September 5, 1977. 6 Whereupon, the case was considered submitted for decision. 7 From the foregoing factual and procedural antecedents emerges the sole issues determinative of the instant petition, to wit: Whether or not the criminal case for Falsification of Public Document filed against herein private respondent Benjamin F. Manaloto who allegedly forged the signature of his wife, Victoria M. Manaloto, in a deed of sale, thereby making it appear that the latter gave her marital consent to the sale of a house and lot belonging to their conjugal partnership when in fact and in truth she did not may be considered as a criminal case for a crime committed by a husband against his wife and, therefore, an exception to the rule on marital disqualification. We sustain petitioner's stand that the case is an exception to the marital disqualification rule, as a criminal case for a crime committed by the accused-husband against the witness-wife. 1. The act complained of as constituting the crime of Falsification of Public Document is the forgery by the accused of his wife's signature in a deed of sale, thereby making it appear therein that said wife consented to the sale of a house and lot belonging to their conjugal partnership when in fact and in truth she did not. It must be noted that had the sale of the said house and lot, and the signing of the wife's name by her husband in the deed of sale, been made with the consent of the wife, no crime could have been charged against said husband Clearly, therefore, it is the husband's breach of his wife's confidence which gave rise to the offense charged. And it is this same breach of trust which prompted the wife to make the necessary complaint with the Office of the Provincial Fiscal which, accordingly, filed the aforesaid criminal case with the Court of First Instance of Pampanga. To rule, therefore, that such criminal case is not one for a crime committed by one spouse against the other is to advance a conclusion which completely disregards the factual antecedents of the instant case. 2. This is not the first time that the issue of whether a specific offense may be classified as a crime committed by one spouse against the other is presented to this Court for resolution. Thus, in the case of Ordoo v. Daquigan, 8this Court, through Mr. Justice Ramon C. Aquino, set up the criterion to be followed in resolving the issue, stating that: We think that the correct rule, which may be adopted in this jurisdiction, is that laid down in Cargill v. State, 35 ALR, 133, 220, Pac 64,26 OkL 314, wherein the court said: The rule that the injury must amount to a physical wrong upon the is too narrow; and the rule that any offense remotely or indirectly affecting domestic within the exception is too broad. The better rule is that, WHEN AN OFFENSE DIRECTLY

ATTACKS, OR DIRECTLY AND VITALLY IMPAIRS, THE CONJUGAL RELATION, IT COMES WITHIN THE EXCEPTION to the statute that one shall not be a witness against the other except in a criminal prosecution for a crime committed (by) one against the other. Applying the foregoing criterion in said case of Ordoo v. Daquigan this Court held that the rape committed by the husband of the witness-wife against their daughter was a crime committed by the husband against his wife. Although the victim of the crime committed by the accused in that can was not his wife but their daughter, this Court, nevertheless, applied the exception for the reason that said criminal act "Positively undermine(d) the connubial relationship. 9 With more reason must the exception apply to the instant case where the victim of the crime and the person who stands to be directly prejudiced by the falsification is not a third person but the wife herself. And it is undeniable that the act comp of had the effect of directly and vitally impairing the conjugal relation. This is apparent not only in the act Of the wife in personally lodging her complaint with the Office of the Provincial Fiscal, but also in her insistent efforts 10 in connection with the instant petition, which seeks to set aside the order disqualified her from testifying against her husband. Taken collectively, the actuations of the witness-wife underacore the fact that the martial and domestic relations between her and the accused-husband have become so strained that there is no more harmony to be preserved said nor peace and tranquility which may be disturbed. In such a case, as We have occasion to point out in previous decisions, "identity of interests disappears and the consequent danger of perjury based on that Identity is nonexistent. Likewise, in such a situation, the security and confidence of private life which the law aims at protecting will be nothing but Ideals which, through their absence, merely leave a void in the unhappy home. 11 Thus, there is no reason to apply the martial disqualification rule. 3. Finally, overriding considerations of public policy demand that the wife should not be disqualified from testifying against her husband in the instant case. For, as aptly observed by the Solicitor General," (t)o espouse the contrary view would spawn the dangerous precedent of a husband committing as many falsifications against his wife as he could conjure, seeking shelter in the antimarital privilege as a license to injure and prejudice her in secret all with unabashed and complete impunity. IN VIEW OF ALL THE FOREGOING, the order of the lower court dated March 31, 1977, disqualifying Victoria Manaloto from testifying for or against her husband, Benjamin Manaloto, in Criminal Case No. 1011, as well as the order dated May 19, 1977, denying the motion for reconsideration are hereby SET ASIDE. The temporary restraining order issued by this Court is hereby lifted and the respondent Judge is hereby ordered to proceed with the trial of the case, allowing Victoria Manaloto to testify against her husband. SO ORDERED.

G.R. No. 108576 January 20, 1999 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE COURT OF APPEALS, COURT OF TAX APPEALS and A. SORIANO CORP., respondents.

MARTINEZ, J.: Petitioner Commissioner of Internal Revenue (CIR) seeks the reversal of the decision of the Court of 1 2 Appeals (CA) which affirmed the ruling of the Court of Tax Appeals (CTA) that private respondent A. Soriano Corporation's (hereinafter ANSCOR) redemption and exchange of the stocks of its foreign stockholders cannot be considered as "essentially equivalent to a distribution of taxable dividends" 3 under, Section 83(b) of the 1939 Internal Revenue Act. The undisputed facts are as follows: Sometime in the 1930s, Don Andres Soriano, a citizen and resident of the United States, formed the corporation "A. Soriano Y Cia", predecessor of ANSCOR, with a P1,000,000.00 capitalization divided into 10,000 common shares at a par value of P100/share. ANSCOR is wholly owned and controlled 4 by the family of Don Andres, who are all non-resident aliens. In 1937, Don Andres subscribed to 4,963 shares of the 5,000 shares originally issued.
5

On September 12, 1945, ANSCOR's authorized capital stock was increased to P2,500,000.00 divided into 25,000 common shares with the same par value of the additional 15,000 shares, only 10,000 was issued which were all subscribed by Don Andres, after the other stockholders waived in favor of 6 the former their pre-emptive rights to subscribe to the new issues. This increased his subscription to 14,963 common shares.
7

A month later,

Don Andres transferred 1,250 shares each to his two

9

sons, Jose and Andres, Jr., as their initial investments in ANSCOR.

Both sons are foreigners.

10

By 1947, ANSCOR declared stock dividends. Other stock dividend declarations were made between 11 1949 and December 20, 1963. On December 30, 1964 Don Andres died. As of that date, the records revealed that he has a total shareholdings of 185,154 shares 50,495 of which are original issues and the balance of 134.659 shares as stock dividend 13 14 declarations. Correspondingly, one-half of that shareholdings or 92,577 shares were transferred to his wife, Doa Carmen Soriano, as her conjugal share. The other half formed part of 15 his estate. A day after Don Andres died, ANSCOR increased its capital stock to P20M increased it to P30M.
17 16 12

and in 1966 further

In the same year (December 1966), stock dividends worth 46,290 and
18

46,287 shares were respectively received by the Don Andres estate shares each.
20

and Doa Carmen from

19

ANSCOR. Hence, increasing their accumulated shareholdings to 138,867 and 138,864

common

On December 28, 1967, Doa Carmen requested a ruling from the United States Internal Revenue Service (IRS), inquiring if an exchange of common with preferred shares may be considered as a tax 21 22 avoidance scheme under Section 367 of the 1954 U.S. Revenue Act. By January 2, 1968, ANSCOR reclassified its existing 300,000 common shares into 150,000 common and 150,000 23 preferred shares. In a letter-reply dated February 1968, the IRS opined that the exchange is only a recapitalization 24 scheme and not tax avoidance. Consequently, 25 on March 31, 1968 Doa Carmen exchanged her whole 138,864 common shares for 138,860 of the newly reclassified preferred shares. The estate of Don Andres in turn, exchanged 11,140 of its common shares, for the remaining 11,140 preferred 26 shares, thus reducing its (the estate) common shares to 127,727. On June 30, 1968, pursuant to a Board Resolution, ANSCOR redeemed 28,000 common shares from the Don Andres' estate. By November 1968, the Board further increased ANSCOR's capital stock to 27 P75M divided into 150,000 preferred shares and 600,000 common shares. About a year later, ANSCOR again redeemed 80,000 common shares from the Don Andres' estate, further reducing the latter's common shareholdings to 19,727. As stated in the Board Resolutions, ANSCOR's business purpose for both redemptions of stocks is to partially retire said stocks as treasury shares in order to reduce the company's foreign exchange remittances in case cash dividends are 29 declared. In 1973, after examining ANSCOR's books of account and records, Revenue examiners issued a report proposing that ANSCOR be assessed for deficiency withholding tax-at-source, pursuant to 30 Sections 53 and 54 of the 1939 Revenue Code, for the year 1968 and the second quarter of 1969 based on the transactions of exchange 31 and redemption of stocks. The Bureau of Internal Revenue (BIR) made the corresponding assessments despite the claim of ANSCOR that it availed of the tax amnesty under Presidential Decree (P.D.) 23 32 which were amended by P.D.'s 67 and 157. 33 However, petitioner ruled that the invoked decrees do not cover Sections 53 and 54 in relation to Article 83(b) of the 1939 Revenue 34 Act under which ANSCOR was assessed. ANSCOR's subsequent protest on the assessments was denied in 1983 by petitioner.
35 31 28

Subsequently, ANSCOR filed a petition for review with the CTA assailing the tax assessments on the redemptions and exchange of stocks. In its decision, the Tax Court reversed petitioner's ruling, after finding sufficient evidence to overcome the prima facie correctness of the questioned 36 assessments. In a petition for review the CA as mentioned, affirmed the ruling of the CTA.
37

Hence, this petition.

The bone of contention is the interpretation and application of Section 83(b) of the 1939 Revenue 38 Act which provides: Sec. 83. Distribution of dividends or assets by corporations. (b) Stock dividends A stock dividend representing the transfer of surplus to capital account shall not be subject to tax. However, if a corporation cancels or redeems stock issued as a dividend at such time and in such manner as to make the

distribution and cancellation or redemption, in whole or in part, essentially equivalent to the distribution of a taxable dividend, the amount so distributed in redemption or cancellation of the stock shall be considered as taxable income to the extent it represents a distribution of earnings or profits accumulated after March first, nineteen hundred and thirteen. (Emphasis supplied) Specifically, the issue is whether ANSCOR's redemption of stocks from its stockholder as well as the exchange of common with preferred shares can be considered as "essentially equivalent to the distribution of taxable dividend" making the proceeds thereof taxable under the provisions of the above-quoted law. Petitioner contends that the exchange transaction a tantamount to "cancellation" under Section 83(b) making the proceeds thereof taxable. It also argues that the Section applies to stock dividends which is the bulk of stocks that ANSCOR redeemed. Further, petitioner claims that under the "net effect test," the estate of Don Andres gained from the redemption. Accordingly, it was the duty of ANSCOR to withhold the tax-at-source arising from the two transactions, pursuant to Section 53 and 39 54 of the 1939 Revenue Act. ANSCOR, however, avers that it has no duty to withhold any tax either from the Don Andres estate or from Doa Carmen based on the two transactions, because the same were done for legitimate business purposes which are (a) to reduce its foreign exchange remittances in the event the 40 company would declare cash dividends, and to (b) subsequently "filipinized" ownership of ANSCOR, as allegedly, envisioned by Don Andres. P.D. 67.
41

It likewise invoked the amnesty provisions of

We must emphasize that the application of Sec. 83(b) depends on the special factual circumstances 42 of each case. The findings of facts of a special court (CTA) exercising particular expertise on the subject of tax, generally binds this Court,
43

considering that it is substantially similar to the findings

44

of the CA which is the final arbiter of questions of facts. The issue in this case does not only deal with facts but whether the law applies to a particular set of facts. Moreover, this Court is not 45 necessarily bound by the lower courts' conclusions of law drawn from such facts. AMNESTY: We will deal first with the issue of tax amnesty. Section 1 of P.D. 67
46

provides:

1. In all cases of voluntary disclosures of previously untaxed income and/or wealth such as earnings, receipts, gifts, bequests or any other acquisitions from any source whatsoever which are taxable under the National Internal Revenue Code, as amended, realized here or abroad by any taxpayer, natural or judicial; the collection of all internal revenue taxes including the increments or penalties or account of nonpayment as well as all civil, criminal or administrative liabilities arising from or incident to such disclosures under the National Internal Revenue Code, the Revised Penal Code, the Anti-Graft and Corrupt Practices Act, the Revised Administrative Code, the Civil Service laws and regulations, laws and regulations on Immigration and Deportation, or any other applicable law or proclamation, are hereby condoned and, in lieu thereof, a tax of ten (10%) per centum on such previously untaxed

income or wealth, is hereby imposed, subject to the following conditions: (conditions omitted) [Emphasis supplied]. The decree condones "the collection of all internal revenue taxes including the increments or penalties or account of non-payment as well as all civil, criminal or administrative liable arising from or incident to" (voluntary) disclosures under the NIRC of previously untaxed income and/or wealth "realized here or abroad by any taxpayer, natural or juridical." May the withholding agent, in such capacity, be deemed a taxpayer for it to avail of the amnesty? 47 An income taxpayer covers all persons who derive taxable income. ANSCOR was assessed by petitioner for deficiency withholding tax under Section 53 and 54 of the 1939 Code. As such, it is being held liable in its capacity as a withholding agent and not its personality as a taxpayer. In the operation of the withholding tax system, the withholding agent is the payor, a separate entity 48 acting no more than an agent of the government for the collection of the tax in order to ensure its payments;
49

the payer is the taxpayer he is the person subject to tax impose by law;
51

50

and

the payee is the taxing authority. In other words, the withholding agent is merely a tax collector, not a taxpayer. Under the withholding system, however, the agent-payor becomes a payee by fiction of law. His (agent) liability is direct and independent from the taxpayer, 52 because the income tax is still impose on and due from the latter. The agent is not liable for the tax as no wealth flowed into him he earned no income. The Tax Code only makes the agent personally liable for 53 the tax arising from the breach of its legal duty to withhold as distinguish from its duty to pay tax since:
the government's cause of action against the withholding is not for the collection of income tax, but for the enforcement of the withholding provision of Section 53 of the Tax Code, compliance with which is imposed on the withholding agent and not upon the taxpayer.
54

Not being a taxpayer, a withholding agent, like ANSCOR in this transaction is not protected by the amnesty under the decree. Codal provisions on withholding tax are mandatory and must be complied with by the withholding 55 agent. The taxpayer should not answer for the non-performance by the withholding agent of its legal duty to withhold unless there is collusion or bad faith. The former could not be deemed to have evaded the tax had the withholding agent performed its duty. This could be the situation for which the amnesty decree was intended. Thus, to curtail tax evasion and give tax evaders a chance to 56 reform, it was deemed administratively feasible to grant tax amnesty in certain instances. In addition, a "tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by a statute, the term of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority. 57 The rule on strictissimi 58 juris equally applies. So that, any doubt in the application of an amnesty law/decree should be resolved in favor of the taxing authority. Furthermore, ANSCOR's claim of amnesty cannot prosper. The implementing rules of P.D. 370 which expanded amnesty on previously untaxed income under P.D. 23 is very explicit, to wit:

Sec. 4. Cases not covered by amnesty. The following cases are not covered by the amnesty subject of these regulations: xxx xxx xxx
(2) Tax liabilities with or without assessments, on withholding tax at source provided under Section 53 and 54 of the National Internal Revenue Code, as amended; 59

ANSCOR was assessed under Sections 53 and 54 of the 1939 Tax Code. Thus, by specific provision of law, it is not covered by the amnesty. TAX ON STOCK DIVIDENDS General Rule Sec. 83(b) of the 1939 NIRC was taken from the Section 115(g)(1) of the U.S. Revenue Code of 1928. It laid down the general rule known as the proportionate test wherein stock dividends 62 once issued form part of the capital and, thus, subject to income tax. Specifically, the general rule states that: A stock dividend representing the transfer of surplus to capital account shall not be subject to tax. Having been derived from a foreign law, resort to the jurisprudence of its origin may shed light. Under the US Revenue Code, this provision originally referred to "stock dividends" only, without any exception. Stock dividends, strictly speaking, represent capital and do not constitute income to its 63 64 recipient. So that the mere issuance thereof is not yet subject to income tax as they are nothing but an "enrichment through increase in value of capital 65 investment." As capital, the stock dividends postpone the realization of profits because the "fund represented by the new stock has been transferred from surplus to capital and no longer available 66 for actual distribution." Income in tax law is "an amount of money coming to a person within a specified time, whether as payment for services, interest, or profit from investment." cash or its equivalent. combined
70 71
68

60

61

67

It means

It is gain derived and severed from capital,

69

from labor or from both

so that to tax a stock dividend would be to tax a capital increase rather than the

income. In a loose sense, stock dividends issued by the corporation, are considered unrealized gain, and cannot be subjected to income tax until that gain has been realized. Before the realization, 72 stock dividends are nothing but a representation of an interest in the corporate properties. As capital, it is not yet subject to income tax. It should be noted that capital and income are different. 73 Capital is wealth or fund; whereas income is profit or gain or the flow of wealth. The determining factor for the imposition of income tax is whether any gain or profit was derived from a 74 transaction. The Exception However, if a corporation cancels or redeems stock issued as a dividend at such time and in such manner as to make the distribution and cancellation or redemption, in

whole or in part, essentially equivalent to the distribution of a taxable dividend, the amount so distributed in redemption or cancellation of the stock shall be considered as taxable income to the extent it represents a distribution of earnings or profits accumulated after March first, nineteen hundred and thirteen. (Emphasis supplied). In a response to the ruling of the American Supreme Court in the case of Eisner v. Macomber 75 (that pro ratastock dividends are not taxable income), the exempting clause above quoted was added because provision corporation found a loophole in the original provision. They resorted to devious means to circumvent the law and evade the tax. Corporate earnings would be distributed under the guise of its initial capitalization by declaring the stock dividends previously issued and later redeem said dividends by paying cash to the stockholder. This process of issuanceredemption amounts to a distribution of taxable cash dividends which was lust delayed so as to escape the tax. It becomes a convenient technical strategy to avoid the effects of taxation. Thus, to plug the loophole the exempting clause was added. It provides that the redemption or cancellation of stock dividends, depending on the "time" and "manner" it was made, is essentially equivalent to a distribution of taxable dividends," making the proceeds thereof "taxable income" "to the extent it represents profits". The exception was designed to prevent the issuance and cancellation or redemption of stock dividends, which is fundamentally not taxable, from being made 76 use of as a device for the actual distribution of cash dividends, which is taxable. Thus,
the provision had the obvious purpose of preventing a corporation from avoiding dividend tax treatment by distributing earnings to its shareholders in two transactions a pro rata stock dividend followed by a pro rataredemption that would have the same economic consequences as a simple dividend.
77

Although redemption and cancellation are generally considered capital transactions, as such. they are not subject to tax. However, it does not necessarily mean that a shareholder may 78 not realize a taxable gain from such transactions. Simply put, depending on the circumstances, the proceeds of redemption of stock dividends are essentially distribution of cash dividends, which when paid becomes the absolute property of the stockholder. Thereafter, the latter becomes the exclusive owner thereof and can exercise the freedom of 79 choice. Having realized gain from that redemption, the income earner cannot escape income tax.
80

As qualified by the phrase "such time and in such manner," the exception was not intended to characterize as taxable dividend every distribution of earnings arising from the redemption of stock 81 dividend. So that, whether the amount distributed in the redemption should be treated as the equivalent of a "taxable dividend" is a question of fact,
83 82

which is determinable on "the basis of the

particular facts of the transaction in question. No decisive test can be used to determine the application of the exemption under Section 83(b). The use of the words "such manner" and "essentially equivalent" negative any idea that a weighted formula can resolve a crucial issue 84 Should the distribution be treated as taxable dividend. On this aspect, American courts developed certain recognized criteria, which includes the following:
85

1) the presence or absence of real business purpose,

2) the amount of earnings and profits available for the declaration of a regular dividends and the corporation's past record with respect to the declaration of dividends, 3) the effect of the distribution, as compared with the declaration of regular dividend,
4) the lapse of time between issuance and redemption,
87 86

5) the presence of a substantial surplus and a generous supply of cash which invites suspicion as does a meager policy in relation both to current earnings and accumulated surplus,
88

REDEMPTION AND CANCELLATION For the exempting clause of Section, 83(b) to apply, it is indispensable that: (a) there is redemption or cancellation; (b) the transaction involves stock dividends and (c) the "time and manner" of the transaction makes it "essentially equivalent to a distribution of taxable dividends." Of these, the most important is the third. Redemption is repurchase, a reacquisition of stock by a corporation which issued the stock in exchange for property, whether or not the acquired stock is cancelled, retired or held in the 90 treasury. Essentially, the corporation gets back some of its stock, distributes cash or property to the shareholder in payment for the stock, and continues in business as before. The redemption of stock dividends previously issued is used as a veil for the constructive distribution of cash dividends. In the instant case, there is no dispute that ANSCOR redeemed shares of stocks from a stockholder (Don Andres) twice (28,000 and 80,000 common shares). But where did the shares redeemed come from? If its source is the original capital subscriptions upon establishment of the corporation or from initial capital investment in an existing enterprise, its redemption to the concurrent value of acquisition may not invite the application of Sec. 83(b) under the 1939 Tax Code, as it is not income but a mere return of capital. On the contrary, if the redeemed shares are from stock dividend declarations other than as initial capital investment, the proceeds of the redemption is additional wealth, for it is not merely a return of capital but a gain thereon. It is not the stock dividends but the proceeds of its redemption that may be deemed as taxable dividends. Here, it is undisputed that at the time of the last redemption, the original common shares 91 owned by the estate were only 25,247.5 This means that from the total of 108,000 shares redeemed from the estate, the balance of 82,752.5 (108,000 less 25,247.5) must have come from stock dividends. Besides, in the absence of evidence to the contrary, the Tax Code presumes that 92 every distribution of corporate property, in whole or in part, is made out of corporate profits such as stock dividends. The capital cannot be distributed in the form of redemption of stock dividends without violating the trust fund doctrine wherein the capital stock, property and other assets of 93 the corporation are regarded as equity in trust for the payment of the corporate creditors. Once capital, it is always capital. creditors.
95 94 89

That doctrine was intended for the protection of corporate

With respect to the third requisite, ANSCOR redeemed stock dividends issued just 2 to 3 years earlier. The time alone that lapsed from the issuance to the redemption is not a sufficient indicator to determine taxability. It is a must to consider the factual circumstances as to the manner of both the issuance and the redemption. The "time" element is a factor to show a device to evade tax and the scheme of cancelling or redeeming the same shares is a method usually adopted to accomplish 96 the end sought. Was this transaction used as a "continuing plan," "device" or "artifice" to evade payment of tax? It is necessary to determine the "net effect" of the transaction between the 97 shareholder-income taxpayer and the acquiring (redeeming) corporation. The "net effect" test is not evidence or testimony to be considered; it is rather an inference to be drawn or a conclusion to 98 be reached. It is also important to know whether the issuance of stock dividends was dictated by legitimate business reasons, the presence of which might negate a tax evasion plan.
99

The issuance of stock dividends and its subsequent redemption must be separate, distinct, and not 100 related, for the redemption to be considered a legitimate tax scheme. Redemption cannot be used as a cloak to distribute corporate earnings. Otherwise, the apparent intention to avoid tax becomes doubtful as the intention to evade becomes manifest. It has been ruled that:
[A]n operation with no business or corporate purpose is a mere devise which put on the form of a corporate reorganization as a disguise for concealing its real character, and the sole object and accomplishment of which was the consummation of a preconceived plan, not to reorganize a business or any part of a business, but to transfer a parcel of corporate shares to a stockholder.
102 101

Depending on each case, the exempting provision of Sec. 83(b) of the 1939 Code may not be 103 applicable if the redeemed shares were issued with bona fide business purpose, which is judged after each and every step of the transaction have been considered and the whole transaction does not amount to a tax evasion scheme. ANSCOR invoked two reasons to justify the redemptions (1) the alleged "filipinization" program and (2) the reduction of foreign exchange remittances in case cash dividends are declared. The Court is not concerned with the wisdom of these purposes but on their relevance to the whole transaction which can be inferred from the outcome thereof. Again, it is the "net effect rather than 104 the motives and plans of the taxpayer or his corporation" that is the fundamental guide in administering Sec. 83(b). This tax provision is aimed at the result. It also applies even if at the time of the issuance of the stock dividend, there was no intention to redeem it as a means of 106 distributing profit or avoiding tax on dividends. The existence of legitimate business purposes in support of the redemption of stock dividends is immaterial in income taxation. It has no relevance in 107 determining "dividend equivalence". Such purposes may be material only upon the issuance of the stock dividends. The test of taxability under the exempting clause, when it provides "such time and manner" as would make the redemption "essentially equivalent to the distribution of a taxable dividend", is whether the redemption resulted into a flow of wealth. If no wealth is realized from the redemption, there may not be a dividend equivalence treatment. In the metaphor of Eisner v. Macomber, income is not deemed "realize" until the fruit has fallen or been plucked from the tree. The three elements in the imposition of income tax are: (1) there must be gain or and profit, (2) 108 that the gain or profit is realized or received, actually or constructively, and (3) it is not exempted by law or treaty from income tax. Any business purpose as to why or how the income was
105

earned by the taxpayer is not a requirement. Income tax is assessed on income received from any property, activity or service that produces the income because the Tax Code stands as an indifferent neutral party on the matter of where income comes 109 from. As stated above, the test of taxability under the exempting clause of Section 83(b) is, whether income was realized through the redemption of stock dividends. The redemption converts into money the stock dividends which become a realized profit or gain and consequently, the 110 stockholder's separate property. Profits derived from the capital invested cannot escape income tax. As realized income, the proceeds of the redeemed stock dividends can be reached by income taxation regardless of the existence of any business purpose for the redemption. Otherwise, to rule that the said proceeds are exempt from income tax when the redemption is supported by legitimate business reasons would defeat the very purpose of imposing tax on income. Such argument would open the door for income earners not to pay tax so long as the person from whom the income was derived has legitimate business reasons. In other words, the payment of tax under the exempting clause of Section 83(b) would be made to depend not on the income of the taxpayer, but on the business purposes of a third party (the corporation herein) from whom the income was earned. This is absurd, illogical and impractical considering that the Bureau of Internal Revenue (BIR) would be pestered with instances in determining the legitimacy of business reasons that every income earner may interposed. It is not administratively feasible and cannot therefore be allowed. The ruling in the American cases cited and relied upon by ANSCOR that "the redeemed shares are 111 the equivalent of dividend only if the shares were not issued for genuine business purposes", or the "redeemed shares have been issued by a corporation bona fide" bears no relevance in determining the non-taxability of the proceeds of redemption ANSCOR, relying heavily and applying said cases, argued that so long as the redemption is supported by valid corporate purposes the 113 114 proceeds are not subject to tax. The adoption by the courts below of such argument is misleading if not misplaced. A review of the cited American cases shows that the presence or absence of "genuine business purposes" may be material with respect to the issuance or declaration of stock dividends but not on its subsequent redemption. The issuance and the redemption of stocks are two different transactions. Although the existence of legitimate corporate purposes may justify a 115 corporation's acquisition of its own shares under Section 41 of the Corporation Code, such purposes cannot excuse the stockholder from the effects of taxation arising from the redemption. If the issuance of stock dividends is part of a tax evasion plan and thus, without legitimate business reasons, the redemption becomes suspicious which exempting clause. The substance of the whole 116 transaction, not its form, usually controls the tax consequences. The two purposes invoked by ANSCOR, under the facts of this case are no excuse for its tax liability. First, the alleged "filipinization" plan cannot be considered legitimate as it was not implemented until the BIR started making assessments on the proceeds of the redemption. Such corporate plan was not stated in nor supported by any Board Resolution but a mere afterthought interposed by the counsel of ANSCOR. Being a separate entity, the corporation can act only through its Board of 117 Directors. The Board Resolutions authorizing the redemptions state only one purpose reduction of foreign exchange remittances in case cash dividends are declared. Not even this purpose can be given credence. Records show that despite the existence of enormous corporate profits no cash dividend was ever declared by ANSCOR from 1945 until the BIR started making assessments in the early 1970's. Although a corporation under certain exceptions, has the prerogative when to issue dividends, yet when no cash dividends was issued for about three
112

decades, this circumstance negates the legitimacy of ANSCOR's alleged purposes. Moreover, to issue stock dividends is to increase the shareholdings of ANSCOR's foreign stockholders contrary to its "filipinization" plan. This would also increase rather than reduce their need for foreign exchange remittances in case of cash dividend declaration, considering that ANSCOR is a family corporation where the majority shares at the time of redemptions were held by Don Andres' foreign heirs. Secondly, assuming arguendo, that those business purposes are legitimate, the same cannot be a valid excuse for the imposition of tax. Otherwise, the taxpayer's liability to pay income tax would be made to depend upon a third person who did not earn the income being taxed. Furthermore, even if the said purposes support the redemption and justify the issuance of stock dividends, the same has no bearing whatsoever on the imposition of the tax herein assessed because the proceeds of the redemption are deemed taxable dividends since it was shown that income was generated therefrom. Thirdly, ANSCOR argued that to treat as "taxable dividend" the proceeds of the redeemed stock dividends would be to impose on such stock an undisclosed lien and would be extremely unfair to 118 intervening purchase, i.e. those who buys the stock dividends after their issuance. Such argument, however, bears no relevance in this case as no intervening buyer is involved. And even if there is an intervening buyer, it is necessary to look into the factual milieu of the case if income was realized from the transaction. Again, we reiterate that the dividend equivalence test depends on 119 such "time and manner" of the transaction and its net effect. The undisclosed lien may be unfair to a subsequent stock buyer who has no capital interest in the company. But the unfairness may not be true to an original subscriber like Don Andres, who holds stock dividends as gains from his investments. The subsequent buyer who buys stock dividends is investing capital. It just so happen that what he bought is stock dividends. The effect of its (stock dividends) redemption from that subsequent buyer is merely to return his capital subscription, which is income if redeemed from the original subscriber. After considering the manner and the circumstances by which the issuance and redemption of stock dividends were made, there is no other conclusion but that the proceeds thereof are essentially considered equivalent to a distribution of taxable dividends. As "taxable dividend" under Section 83(b), it is part of the "entire income" subject to tax under Section 22 in relation to Section 120 21 of the 1939 Code. Moreover, under Section 29(a) of said Code, dividends are included in "gross income". As income, it is subject to income tax which is required to be withheld at source. The 1997 Tax Code may have altered the situation but it does not change this disposition. EXCHANGE OF COMMON WITH PREFERRED SHARES
121 122 123

Exchange is an act of taking or giving one thing for another involving reciprocal transfer and is generally considered as a taxable transaction. The exchange of common stocks with preferred stocks, or preferred for common or a combination of either for both, may not produce a recognized gain or loss, so long as the provisions of Section 83(b) is not applicable. This is true in a trade between two (2) persons as well as a trade between a stockholder and a corporation. In general, this trade must be parts of merger, transfer to controlled corporation, corporate acquisitions or corporate reorganizations. No taxable gain or loss may be recognized on exchange of property, 124 stock or securities related to reorganizations. Both the Tax Court and the Court of Appeals found that ANSCOR reclassified its shares into common and preferred, and that parts of the common shares of the Don Andres estate and all of Doa

Carmen's shares were exchanged for the whole 150.000 preferred shares. Thereafter, both the Don Andres estate and Doa Carmen remained as corporate subscribers except that their subscriptions now include preferred shares. There was no change in their proportional interest after the exchange. There was no cash flow. Both stocks had the same par value. Under the facts herein, any difference in their market value would be immaterial at the time of exchange because no income is yet realized it was a mere corporate paper transaction. It would have been different, if the exchange 125 transaction resulted into a flow of wealth, in which case income tax may be imposed. Reclassification of shares does not always bring any substantial alteration in the subscriber's proportional interest. But the exchange is different there would be a shifting of the balance of stock features, like priority in dividend declarations or absence of voting rights. Yet neither the reclassification nor exchange per se, yields realize income for tax purposes. A common stock represents the residual ownership interest in the corporation. It is a basic class of stock ordinarily and usually issued without extraordinary rights or privileges and entitles the shareholder to apro 126 rata division of profits. Preferred stocks are those which entitle the shareholder to some priority on dividends and asset distribution.
127

Both shares are part of the corporation's capital stock. Both stockholders are no different from ordinary investors who take on the same investment risks. Preferred and common shareholders participate in the same venture, willing to share in the profits and losses of the 128 enterprise. Moreover, under the doctrine of equality of shares all stocks issued by the corporation are presumed equal with the same privileges and liabilities, provided that the Articles of 129 Incorporation is silent on such differences. In this case, the exchange of shares, without more, produces no realized income to the subscriber. There is only a modification of the subscriber's rights and privileges which is not a flow of wealth for tax purposes. The issue of taxable dividend may arise only once a subscriber disposes of his 130 entire interest and not when there is still maintenance of proprietary interest. WHEREFORE, premises considered, the decision of the Court of Appeals is MODIFIED in that ANSCOR's redemption of 82,752.5 stock dividends is herein considered as essentially equivalent to a distribution of taxable dividends for which it is LIABLE for the withholding tax-at-source. The decision is AFFIRMED in all other respects. SO ORDERED.

LABOR LAWS
G.R. No. L-48605 December 14, 1981 DOMNA N. VILLAVERT, petitioner, vs. EMPLOYEES' COMPENSATION COMMISSION & GOVERNMENT SERVICE INSURANCE SYSTEM (Philippine Constabulary), respondents.

FERNANDEZ, J.: This is a petition to review the decision of the Employees' Compensation Commission in ECC Case No. 0692, entitled "Domna N. Villavert, appellant versus Government Service Insurance System (Philippine Constabulary), respondents," affirming the decision of the Government Service Insurance System denying the claim for death benefits. 1 The petitioner, Domna N. Villavert, is the mother of the late, Marcelino N. Villavert who died of acute hemorrhagic pancreatitis on December 12, 1975 employed as a Code Verifier in the Philippine Constabulary. She filed a claim for income benefits for the death of her son under P.D. No. 626 as amended with the Government Service Insurance System on March 18, 1976. The said claim was denied by the Government Service Insurance System on the ground that acute hemorrhagic pancreatitis is not an occupational disease and that the petitioner had failed to show that there was a causal connection between the fatal ailment of Marcelino N. Villavert and the nature of his employment. The petitioner appealed to the Employees' Compensation Commission which affirmed on May 31, 1978 the decision of the respondent, Government Service Insurance System, denying the claim. The record shows that in addition to his duties as Code Verifier, Marcelino N. Villavert also performed the duties of a computer operator and clerk typist. In the morning of December 11, 1975, Marcelino reported as usual to the Constabulary Computer Center at Camp Crame, Quezon City. He performed his duties not only as code verifier but also handled administrative functions, computer operation and typing jobs due to shortage of civilian personnel. Although he was complaining of chest pain and headache late in the afternoon of December 11, 1975, after a whole day of strenuous activities, Marcelino was still required to render overtime service until late in the evening of the same day, typing voluminous classified communications, computing allowances and preparing checks for the salary of Philippine Constabulary and Integrated National Police personnel throughout the country for distribution on or before December 15, 1975. He went home late at night and due to fatigue, he went to bed as soon as he arrived without taking his meal. Shortly thereafter, Marcelino was noticed by his mother, the herein petitioner, gasping for breath, perspiring profusely, and mumbling incoherent words. The petitioner tried to wake him up and after all efforts to bring him to his senses proved futile, she rushed Marcelino to the UE Ramon Magsaysay Memorial Hospital where he was pronounced dead at 5:30 o'clock in the morning of December 12, 1975 without regaining consciousness. The case of death was acute hemorrhagic pancreatitis.

To support the claim that Marcelino N. Villavert died of acute hemorrhagic pancreatitis as a result of his duties as a code verifier, computer operator and typist of the Philippine Constabulary, the petitioner submitted the following certification of Lt. Colonel Felino C. Pacheco Jr., commanding officer, of the Philippine Constabulary, which reads: THIS IS TO CERTIFY that MARCELINO N. VILLAVERT, a regular employee of the Constabulary Computer Center, had been performing the following duty assignments in this office in addition to his appointment as Coder Verifier before his death; a. Computer Operator As computer operator he was subject to excessive heat and cold; b. Clerk TypistAs typist he was responsible for typing important communications not only for the office of the Constabulary Computer Center but also for other posts, including engagement speeches of the Chief of Constabulary and other ranking officers of the Command; c. Due to the shortage of qualified civilian personnel to handle the task, he was given excessive work responsibilities in the office which could have aggravated his ailment. d. That more often he took his meals irregularly late in view of the nature of his work especially during the preparation of checks for the salary of the Philippine Constabulary and the National Integrated Police personnel throughout the country; e. He used to perform rotation duties, thereby leaving him in sufficient time to consult the Constabulary Medical Dispensary for routine physical check up about his health. f. That subject employee never drinks alcoholic liquor, neither smokes nor engages on immoral habits during his lifetime. g. That he died in line of duty after retiring from his night shift.
This certification is being issued in behalf of legal heirs in order to justify their claim for payment of benefits from the Employees' Compensation to reciprocate the services rendered by the late Marcelino N. Villavert, a loyal and dedicated public servant. 2

The foregoing certification of Lt. Col. Felino C. Pacheco, Jr. was corroborated by the affidavit of Rustico P. Valenzuela, Chief Clerk of the Constabulary Computer Center, which reads: I, RUSTICO P. VALENZUELA, Master Sergeant, Philippine Constabulary, Filipino of legal age, married and presently Chief Clerk of the Constabulary Computer Center, Camp Crame, Quezon City after having been duly sworn to in accordance to law hereby depose and say: a. That as Chief Clerk I am responsible to my Commanding Officer about the accounting, detail, duties, etc. of all military and civilian personnel in the office and therefore the duties of the late Marcelino N. Villavert are personally known to me prior to his death;

b. That the late Marcelino N. Villavert although was appointed as Coder Verifier, still he was instructed to perform extra additional workload due to shortage of qualified civilian personnel to handle administrative function, he being a graduate of the Computer Operator and an expert typist which is seldom found among the qualities of civilian personnel assigned in the Constabulary Computer Center; c. That the late Marcelino N. Villavert was complaining of chest pain and headache prior to his death but because of an urgent call to the service, although it necessitated his rest; he was obliged to go on strenuous duty on the night of December 11, 1975, typing voluminous classified communications, compute allowances and prepare checks for the salary of Philippine Constabulary and Integrated National Police personnel throughout the country for distribution on or before December 15, 1975, scheduled payday, thereby aggravating his ailment due to excessive work, disposed to heat and cold, operating computer machine and over fatigue that caused his sudden death; d. That the late Marcelino N. Villavert before his death have insufficient time to consult the Medical Dispensary for routine physical check-up due to the rotation of his duties and therefore no record of his physical examination could be found in this Headquarters; e. That the death of late Marcelino N. Villavert was service connected in view of the fact that he died while in the performance of his official duties. Affiant further sayeth none. IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of August 1977 at Quezon City. (SGD) RUSTICO P. VALENZUEL Affiant SUBSCRIBED AND SWORN to before me this 22nd day of August 1977 at Quezon City, Metro Manila. Affiant exhibited his Residence Certificate No. A-1183510 issued at Taguig, Metro Manila on January 10, 1977. (SGD) ENRIQUE C VILLANUEVA JR
1Lt. PC Administrative Officer
3

The Government Service Insurance System and the Employees' Compensation Commission denied the claim for compensation on the ground that the petitioner did not present evidence that the illness of Marcelino N. Villavert, acute hemorrhagic pancreatitis, was caused or aggravated by the nature of his duties as employee of the Philippine Constabulary. The Employees' Compensation Commission, citing a book on medicine, said:
In medical science, acute hemorrhagic pancreatitis is "acute inflammation with hemorrhagic necrosis of the pancreas." It occurs most commonly in association with alcoholism. The onset of the symptoms often occurs during or shortly after bouts of

alcoholic intoxication. It also occurs in association with biliary tract disease. Occasionally, it occurs as a complication of peptic ulcer, mumps, viral hepatitis or following the use of drugs such as glucocorticoids, or chlorothiazide. It is sometimes associated with metabolic disorders such as hyperpidemia and hyperparathyroidism. It may also be associated with a genetic type of pancreatitis with onset in childhood. Trauma is a relatively frequent cause of pancreatitis; it may result from a severe blow to the abdomen, a penetrating injury from a bullet or knife wound, inadvertent trauma from surgical procedures in the upper abdomen or rarely, electric shock. Approximately 20% of the patients have no apparent underlying or predisposing cause. (Principles of Internal Medicine by Harrison, 7th Edition, pp. 157) 4

However, the Medico Legal Officer of the National Bureau of Investigation stated that the exact cause of acute hemorrhagic pancreatitis is still unknown despite extensive researches in this field, although most research data are agreed that physical and mental stresses are strong causal factors in the development of the disease. 5 From the foregoing facts of record, it is clear that Marcelino N. Villavert died of acute hemorrhagic pancreatitis which was directly caused or at least aggravated by the duties he performed as coder verifier, computer operator and clerk typist of the Philippine Constabulary. There is no evidence at all that Marcelino N. Villavert had a "bout of alcoholic intoxication" shortly before he died. Neither is there a showing that he used drugs. It should be noted that Article 4 of the Labor Code of the Philippines, as amended, provides that "All doubts in the implementation and interpretation of this Code, including its implementing rules and regulations shall be resolved in favor of labor." WHEREFORE, the decision of the Employees' Compensation Commission sought to be reviewed is set aside and judgment is hereby rendered ordering the Government Service Insurance System to pay the petitioner death benefits in the amount of SIX THOUSAND PESOS (P6,000.00). SO ORDERED.

G.R. No. 71813

July 20, 1987

ROSALINA PEREZ ABELLA/HDA. DANAO-RAMONA, petitioners, vs. THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION, ROMEO QUITCO and RICARDO DIONELE, SR., respondents. PARAS, J.: This is a petition for review on certiorari of the April 8, 1985 Resolution of the Ministry of Labor and Employment affirming the July 16, 1982 Decision of the Labor Arbiter, which ruled in favor of granting separation pay to private respondents. On June 27, 1960, herein petitioner Rosalina Perez Abella leased a farm land in Monteverde, Negros Occidental, known as Hacienda Danao-Ramona, for a period of ten (10) years, renewable, at her option, for another ten (10) years (Rollo, pp. 16-20). On August 13, 1970, she opted to extend the lease contract for another ten (10) years (Ibid, pp. 2627). During the existence of the lease, she employed the herein private respondents. Private respondent Ricardo Dionele, Sr. has been a regular farm worker since 1949 and he was promoted to Cabo in 1963. On the other hand, private respondent Romeo Quitco started as a regular employee in 1968 and was promoted to Cabo in November of the same year. Upon the expiration of her leasehold rights, petitioner dismissed private respondents and turned over the hacienda to the owners thereof on October 5, 1981, who continued the management, cultivation and operation of the farm (Rollo, pp. 33; 89). On November 20, 1981, private respondents filed a complaint against the petitioner at the Ministry of Labor and Employment, Bacolod City District Office, for overtime pay, illegal dismissal and reinstatement with backwages. After the parties had presented their respective evidence, Labor Arbiter Manuel M. Lucas, Jr., in a Decision dated July 16, 1982 (Ibid, pp. 29-31), ruled that the dismissal is warranted by the cessation of business, but granted the private respondents separation pay. Pertinent portion of the dispositive portion of the Decision reads: In the instant case, the respondent closed its business operation not by reason of business reverses or losses. Accordingly, the award of termination pay in complainants' favor is warranted. WHEREFORE, the respondent is hereby ordered to pay the complainants separation pay at the rate of half-month salary for every year of service, a fraction of six (6) months being considered one (1) year. (Rollo pp. 29-30) On appeal on August 11, 1982, the National Labor Relations Commission, in a Resolution dated April 8, 1985 (Ibid, pp. 3940), affirmed the decision and dismissed the appeal for lack of merit. On May 22, 1985, petitioner filed a Motion for Reconsideration (Ibid, pp. 41-45), but the same was denied in a Resolution dated June 10, 1985 (Ibid, p. 46). Hence, the present petition (Ibid, pp. 3-8).

The First Division of this Court, in a Resolution dated September 16, 1985, resolved to require the respondents to comment (Ibid, p. 58). In compliance therewith, private respondents filed their Comment on October 23, 1985 (Ibid, pp. 53-55); and the Solicitor General on December 17, 1985 (Ibid, pp. 71-73-B). On February 19, 1986, petitioner filed her Consolidated Reply to the Comments of private and public respondents (Ibid, pp. 80-81). The First Division of this Court, in a Resolution dated March 31, 1986, resolved to give due course to the petition; and to require the parties to submit simultaneous memoranda (Ibid., p. 83). In compliance therewith, the Solicitor General filed his Memorandum on June 18, 1986 (Ibid, pp. 8994); and petitioner on July 23, 1986 (Ibid, pp. 96-194). The petition is devoid of merit. The sole issue in this case is WHETHER OR NOT PRIVATE RESPONDENTS ARE ENTITLED TO SEPARATION PAY. Petitioner claims that since her lease agreement had already expired, she is not liable for payment of separation pay. Neither could she reinstate the complainants in the farm as this is a complete cessation or closure of a business operation, a just cause for employment termination under Article 272 of the Labor Code. On the other hand, the legal basis of the Labor Arbiter in granting separation pay to the private respondents is Batas Pambansa Blg. 130, amending the Labor Code, Section 15 of which, specifically provides: Sec 15 Articles 285 and 284 of the Labor Code are hereby amended to read as follows: xxx xxx xxx

Art. 284. Closure of establishment and reduction of personnel. The employer may also terminate the employment of any employee due to the installation of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of the establisment or undertaking unless the closing is for the purpose of circumventing the provisions of this title, by serving a written notice on the workers and the Ministry of Labor and Employment at least one (1) month before the intended date thereof. In case of termination due to the installation of labor-saving devices or redundancy, the worker affected thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and in cases of closure or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year.
1avvphi 1

There is no question that Article 284 of the Labor Code as amended by BP 130 is the law applicable in this case.

Article 272 of the same Code invoked by the petitioner pertains to the just causes of termination. The Labor Arbiter does not argue the justification of the termination of employment but applied Article 284 as amended, which provides for the rights of the employees under the circumstances of termination. Petitioner then contends that the aforequoted provision violates the constitutional guarantee against impairment of obligations and contracts, because when she leased Hacienda Danao-Ramona on June 27, 1960, neither she nor the lessor contemplated the creation of the obligation to pay separation pay to workers at the end of the lease. Such contention is untenable. This issue has been laid to rest in the case of Anucension v. National Labor Union (80 SCRA 368-369 [1977]) where the Supreme Court ruled: It should not be overlooked, however, that the prohibition to impair the obligation of contracts is not absolute and unqualified. The prohibition is general, affording a broad outline and requiring construction to fill in the details. The prohibition is not to read with literal exactness like a mathematical formula for it prohibits unreasonable impairment only. In spite of the constitutional prohibition the State continues to possess authority to safeguard the vital interests of its people. Legislation appropriate to safeguard said interest may modify or abrogate contracts already in effect. For not only are existing laws read into contracts in order to fix the obligations as between the parties but the reservation of essential attributes of sovereign power is also read into contracts as a postulate of the legal order. All contracts made with reference to any matter that is subject to regulation under the police power must be understood as made in reference to the possible exercise of that power. Otherwise, important and valuable reforms may be precluded by the simple device of entering into contracts for the purpose of doing that which otherwise maybe prohibited. ... In order to determine whether legislation unconstitutionally impairs contract of obligations, no unchanging yardstick, applicable at all times and under all circumstances, by which the validity of each statute may be measured or determined, has been fashioned, but every case must be determined upon its own circumstances. Legislation impairing the obligation of contracts can be sustained when it is enacted for the promotion of the general good of the people, and when the means adopted must be legitimate, i.e. within the scope of the reserved power of the state construed in harmony with the constitutional limitation of that power. (Citing Basa vs. Federacion Obrera de la Industria Tabaquera y Otros Trabajadores de Filipinas [FOITAF] [L-27113], November 19, 1974; 61 SCRA 93,102-113]). The purpose of Article 284 as amended is obvious-the protection of the workers whose employment is terminated because of the closure of establishment and reduction of personnel. Without said law, employees like private respondents in the case at bar will lose the benefits to which they are entitled for the thirty three years of service in the case of Dionele and fourteen years in the case of Quitco. Although they were absorbed by the new management of the hacienda, in the absence of any showing that the latter has assumed the responsibilities of the former employer, they will be considered as new employees and the years of service behind them would amount to nothing. Moreover, to come under the constitutional prohibition, the law must effect a change in the rights of the parties with reference to each other and not with reference to non-parties.

As correctly observed by the Solicitor General, Article 284 as amended refers to employment benefits to farm hands who were not parties to petitioner's lease contract with the owner of Hacienda Danao-Ramona. That contract cannot have the effect of annulling subsequent legislation designed to protect the interest of the working class. In any event, it is well-settled that in the implementation and interpretation of the provisions of the Labor Code and its implementing regulations, the workingman's welfare should be the primordial and paramount consideration. (Volshel Labor Union v. Bureau of Labor Relations, 137 SCRA 43 [1985]). It is the kind of interpretation which gives meaning and substance to the liberal and compassionate spirit of the law as provided for in Article 4 of the New Labor Code which states that "all doubts in the implementation and interpretation of the provisions of this Code including its implementing rules and regulations shall be resolved in favor of labor." The policy is to extend the applicability of the decree to a greater number of employees who can avail of the benefits under the law, which is in consonance with the avowed policy of the State to give maximum aid and protection to labor. (Sarmiento v. Employees Compensation Commission, 144 SCRA 422 [1986] citing Cristobal v. Employees Compensation Commission, 103 SCRA 329; Acosta v. Employees Compensation Commission, 109 SCRA 209). PREMISES CONSIDERED, the instant petition is hereby DISMISSED and the July 16, 1982 Decision of the Labor Arbiter and the April 8, 1985 Resolution of the Ministry of Labor and Employment are hereby AFFIRMED. SO ORDERED.

SOCIAL SECURITY LAWS

G.R. No. 85024 January 23, 1991 DOMINGO VICENTE, petitioner, vs. EMPLOYEES' COMPENSATION COMMISSION, respondent.

Olandesca Law Offices for petitioner.

SARMIENTO, J.:p Central to this petition for certiorari which assails the decision 1 dated August 24, 1988 of the Employees' Compensation Commission (ECC) in ECC Case No. 3764, affirming the decision of the Government Service Insurance System (GSIS), is the question on whether the petitioner suffers from permanent total disability as he claims, or from permanent partial disability as held by the respondent Commission. The undisputed facts of the case are as follows: The petitioner, Domingo Vicente, was formerly employed as a nursing attendant at the Veterans Memorial Medical Center in Quezon City. On August 5, 1981, at the age of forty-five, and after having rendered more than twenty-five years of government service, he applied for optional retirement (effective August 16, 1981) under the provisions of Section 12(c) of Republic Act No. 1616, giving as reason therefor his inability to continue working as a result of his physical disability. 2 The petitioner likewise filed with the Government Service Insurance System (GSIS) an application for "income benefits claim for payment" under Presidential Decree (PD) No. 626, as amended. Both applications were accompanied by the necessary supporting papers, among them being a "Physician's Certification" issued by the petitioner's attending doctor at the Veterans Memorial Medical Center, Dr. Avelino A. Lopez, M.D., F.P.C.S., ** F.I.C.S. *** (Section Chief, General, Thoracic & Peripheral Surgery, Surgical Department, Veterans Medical Center, Hilaga Avenue, Quezon City), who had diagnosed the petitioner as suffering from: Osteoarthritis, multiple; Hypertensive Cardiovascular Disease; Cardiomegaly; and Left Ventricular Hypertrophy; and classified him as being under "permanent total disability."
3

The petitioner's application for income benefits claim payment was granted but only for permanent partial disability (PPD) compensation or for a period of nineteen months starting from August 16, 1981 up to March 1983. 4

On March 14, 1983, the petitioner requested the General Manager of the GSIS to reconsider the award given him and prayed that the same be extended beyond nineteen months invoking the findings of his attending physician, as indicated in the latter's Certification. 5 As a consequence of his motion for reconsideration, and on the basis of the "Summary of Findings and Recommendation" 6 of the Medical Services Center of the GSIS, the petitioner was granted the equivalent of an additional four (4) months benefits. 7 Still unsatisfied, the petitioner again sent a letter to the GSIS Disability Compensation Department Manager on November 6, 1986, insisting that he (petitioner) should be compensated no less than for "permanent total disability." On June 30, 1987, the said manager informed the petitioner that his request had been denied. Undaunted, the petitioner sought reconsideration and as a result of which, on September 10, 1987, his case was elevated to the respondent Employees Compensation Commission (ECC). Later, or on October 1, 1987, the petitioner notified the respondent Commission that he was confined at the Veterans Memorial Medical Center for "CVA probably thrombosis of the left middle cerebral artery."8 There was nothing he could do but wait and hope. Finally, on August 24, 1988, the respondent rendered a decision affirming the ruling of the GSIS Employees' Disability Compensation and dismissed the petitioner's appeal. Hence this recourse. Before us, the petitioner maintains that his disability is "permanent total" and not "permanent partial" as classified by the respondent Commission. In support of his position, the petitioner points to the clinical evaluation and certification earlier adverted to issued by his attending physicians at the Veterans Memorial Medical Center. He likewise contends that contrary to the respondent's ruling, his subsequent confinement in the hospital from August 31, 1987 to September 6, 1987, when he was found suffering from "CVA probably thrombosis," was a direct result of his other ailments as previously diagnosed (before his retirement) by his attending physician and the Personnel Physician of the Center, Dr. Salud C. Palattao. On the other hand, the respondent Commission argues that the petitioner only suffers from "permanent partial disability" and not from "permanent total disability." The findings of the petitioner's attending physician is not binding on the GSIS, nor on the Commission, as the proper evaluation of an employee's degree of disability exclusively belongs to the GSIS medical experts who have specialized on the subject. The petition is impressed with merit. Employee's disability under the Labor Code is classified into three distinct categories: (a) temporary total disability;9 (b) permanent total disability; 10 and (c) permanent partial disability. 11 Likewise, in Section 2, Rule VII of the Amended Rules on Employees Compensation, it is provided that: Sec. 2. Disability(a) A total disability is temporary if as a result of the injury or sickness the employee is unable to perform any gainful occupation for a continuous period not exceeding 120 days, except as otherwise provided in Rule X of these Rules. (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.

(c) A disability is partial permanent if as a result of the injury or sickness the employee suffers a permanent partial loss of the use of any part of his body. Here, there is no question that the petitioner is not under "temporary total disability" as defined by law. The respondent Commission's decision classifying the petitioner's disability as "permanent partial" attests, albeit indirectly, to this fact. Our focus therefore, as stated earlier, is only in resolving out whether the petitioner suffers from "permanent total disability" as he claims, or from "permanent partial disability" as the respondent Commission would have us believe. On the subject of "permanent total disability," the Court has stated, on several occasions, that:
Other authoritative comments on the coverage of the term "permanent total disability" as used in the Workmen's Compensation Act, are (a) Comments and Annotations on the Workmen's Compensation Act by Severo M. Pucan and Cornelio R. Besinga, that "total disability does not mean a state of absolute helplessness, but means disablement of the employee to earn wages in the same kind of work, or a work of similar nature, that he was trained for, or accustomed to perform, or any kind of work which a person of his mentality and attainment could do;" (b) Philippine Labor and Social Legislation by Justice Ruperto Martin, that "permanent total disability means disablement of an employee to earn wages in the same kind of work, or work of a similar nature that he was trained for, or accustomed to perform, or any other kind of work which a person of his mentality and attainment could do . . .;" and (c) Labor Standards and Welfare Legislation by Perfecto Fernandez and Camilo Quiason that "permanent total disability means an incapacity to perform gainful work which is expected to be permanent. This status does not require a condition of complete helplessness. Nor is it affected by the performance of occasional odd jobs" (cited in Marcelino vs. Seven-up Bottling Co. of the Philippines, 47 SCRA 343). 12

It may therefore be inferred from the Court's pronouncements that while "permanent total disability" invariably results in an employee's loss of work or inability to perform his usual work, "permanent partial disability," on the other hand, occurs when an employee loses the use of any particular anatomical part of his body which disables him to continue with his former work. Stated otherwise, the test of whether or not an employee suffers from "permanent total disability" is a showing of the capacity of the employee to continue performing his work notwithstanding the disability he incurred. Thus, if by reason of the injury or sickness he sustained, the employee is unable to perform his customary job for more than 120 days and he does not come within the coverage of Rule X of the Amended Rules on Employees Compensability (which, in a more detailed manner, describes what constitutes temporary total disability), then the said employee undoubtedly suffers from "permanent total disability" regardless of whether or not he loses the use of any part of his body. In the case at bar, the petitioner's permanent total disability is established beyond doubt by several factors and circumstances. Noteworthy is the fact that from all available indications, it appears that the petitioner's application for optional retirement on the basis of his ailments had been approved. The decision of the respondent Commission even admits that the petitioner "retired from government service at the age of 45." 13 Considering that the petitioner was only 45 years old when he retired and still entitled, under good behavior, to 20 more years in service, the approval of his optional retirement application proves that he was no longer fit to continue in his employment. 14 For optional retirement is allowed only upon proof that the employee-applicant is already physically incapacitated to render sound and efficient service. 15

Further, the appropriate physicians of the petitioner's employer, the Veterans Memorial Medical Center, categorically certified that the petitioner was classified under permanent total disability. On this score, "the doctor's certification as to the nature of the claimant's disability may be given credence as he normally would not make a false certification." 16 And, "[N]o physician in his right mind and who is aware of the far-reaching and serious effect that his statements would cause on a money claim filed with a government agency, would issue certifications indiscriminately without even minding his own interests and protection." 17 The fact that the petitioner was granted benefits amounting to the equivalent of twenty-three months shows that the petitioner was unable to perform any gainful occupation for a continuous period exceeding 120 days. This kind of disability is precisely covered by Section 2(b), Rule VII of the Amended Rules on Employees' Compensability which we again quote, to wit: Sec. 2. Disability(a) . . . (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 those Rules. xxx xxx xxx There being no showing, as we mentioned earlier, that the petitioner's disability is "temporary total" as defined by the law, the inescapable conclusion is that he suffers from permanent total disability. The court takes this occasion to stress once more its abiding concern for the welfare of government workers, especially the humble rank and file, whose patience, industry, and dedication to duty have often gone unheralded, but who, in spite of very little recognition, plod on dutifully to perform their appointed tasks. It is for this reason that the sympathy of the law on social security is toward its beneficiaries, and the law, by its own terms, 18 requires a construction of utmost liberality in their favor. It is likewise for this reason that the Court disposes of this case and ends a workingman's struggle for his just dues. WHEREFORE, the decision of the respondent Employees' Compensation Commission is SET ASIDE and another one is hereby ENTERED declaring the petitioner to be suffering from permanent total disability. Respondent Employees' Compensation Commission is accordingly ORDERED to award the petitioner the benefits corresponding to his permanent total disability. SO ORDERED.

ELECTION LAWS
G.R. No. 110170 February 21, 1994 ROLETO A. PAHILAN, petitioner, vs. RUDY A. TABALBA, COMMISSION ON ELECTIONS, and HONORABLE JUDGE SINFOROSO V. TABAMO, JR., BRANCH 28, MAMBAJAO, CAMIGUIN, respondents.

Pimentel, Apostol, Layosa & Sibayan Law Office for petitioner. Marciano Ll. Aparte, Jr. for Rudy A. Tabalba.

REGALADO, J.: This original action for certiorari impugns the Order 1 of respondent Commission on Elections, dated January 19, 1993, dismissing the appeal filed by petitioner Roleto A. Pahilan for the latter's failure to file a notice of appeal with the Regional Trial Court of Mumbajao, Camiguin, and, necessarily on the same rationale, the Resolution 2promulgated by said respondent on May 6, 1993 denying petitioner's motion for reconsideration. Petitioner Pahilan and private respondent Tabalba were candidates for Mayor of Guinsiliban, Camiguin during the local elections held on May 11, 1992. On May 13, 1992, the Municipal Board of Canvassers proclaimed Tabalba as the duly elected Mayor of Guinsilban, the latter having garnered 1,087 votes as against 806 votes for Pahilan. Thereafter, Pahilan filed an election protest 3 which he sent by registered mail on May 23, 1992, addressed to the Clerk of Court of the Regional Trial Court of Mambajao, Camiguin, attaching thereto P200.00 in cash as payment for docket fees. In a letter 4 dated May 28, 1992, the OIC-Clerk of Court of the Regional Trial Court of Mambajao, Camiguin, Branch 28, informed Pahilan that the correct fees that where supposed to be paid amounted to P620.00, and that, accordingly, the petition would not be entered in the court docket and summons would not be issued pending payment of the balance of P420.00. On June 16, 1992, upon receipt of the latter, Pahilan paid the required balance in the total amount P470.00. 5 Subsequently, on June 22, 1992, Tabalba filed his answer with Counterclaim, 6 alleging as one of his affirmative defenses lack of jurisdiction on the part of the trial court to entertain the election protest for having been filed beyond the ten-day period provided by law. On August 17, 1992, Pahilan filed a Motion for Inhibition, dated August 14, 1992, because of alleged serious and grave doubts that the presiding judge could impartially hear and decide his election protest with the cold neutrality of an impartial judge, as the latter allegedly belongs to and had supported a political group adverse to the candidacy of petitioner.

On August 18, 1992, the trial court proceeded with the pre-trial conference, heard the defense on the allegation of lack of jurisdiction for non-payment of docket fees, and thereafter ordered the parties to submit their respective memoranda. Tabalba filed his Memorandum in Support of Affirmative Defense of Lack of Jurisdiction, 7 dated September 4, 1992. Under date of September 22, 1992, Pahilan filed a Memorandum 8 as well as a Motion to Resolve Motion for Inhibition Prior to Resolution of Affirmative Defenses. 9 On October 2, 1992, the trial court issued an Order 10 denying the motion for inhibition and dismissing the election protest for "non-payment on time of the required fees for filing an initiatory pleading." Pahilan's counsel received a copy of said order on October 12, 1992 in Cagayan de Oro City. On October 17, 1992 and within the 5-day period to appeal, Pahilan filed a verified appeal brief respondent Commission on Elections, with copies duly served on the Regional Trial Court of Mambajao, Camiguin and the counsel for herein private respondent.
11

in

On December 12, 1992, the Comelec Contests Adjudication Department directed the Clerk of Court, Regional Trial Court, Camiguin, Branch 28, to immediately transmit the complete records of EP case No. 3(92) which was being appealed by herein petitioner. 12 Thereafter, in a letter 13 dated January 7, 1993, the said Clerk of Court informed respondent Commission that "to this very late date, this office has not received any notice of appeal from the aggrieved party." As a consequence, respondent Commission, in an Order dated January 19, 1993, dismissed Pahilan's verified appeal for failure to appeal within the prescribed period. Pahilan filed a motion for reconsideration 14 of the order dismissing his appeal. Both parties were required by respondent Commission to file their respective memoranda. Finally, on May 6, 1993, respondent Commission issued its aforestated resolution denying Pahilan's motion for reconsideration. Hence, this petition on the bases of the following assigned errors: 1. Whether or not respondent Commission validly dismissed the verified "Appeal" of petitioner which contains all the elements of a "notice of appeal" and more expressive of the intent to elevate the case for review by said appellate body, and furnishing copies thereof to the respondent trial judge and counsel for the adverse party, aside from the incomplete payment of the appeal fee; and 2. Whether or not the respondent trial judge validly dismissed the petition of protest of petitioner for non-payment on time of the required fee. We find cogency and merit in the petition. The bone of contention in this petition is the alleged erroneous dismissal of petitioner's appeal by respondent Commission because of the failure of petitioner to file a notice of appeal before the Regional Trial Court of Mambajao, Camiguin which, in turn, dismissed the election protest of petitioner for non-payment of docket fees.

The COMELEC RULES OF PROCEDURE provide for the manner in which appeals from decisions of courts in election contests shall be made, to wit: RULE 22 Appeals from Decisions of Courts in Election Protest Cases Sec. 1. Caption and title of appealed cases. In all election contests involving the elections, returns, and qualifications of municipal or barangay officials, the party interposing the appeal shall be called the "Appellant" and the adverse party the "Appellee", but the title of the case shall remain as it was in the court of origin. xxx xxx xxx Sec. 3. Notice of Appeal. Within five (5) days after promulgation of the decision of the court, the aggrieved party may file with said court a notice of appeal, and serve a copy thereof upon the attorney of record of the adverse party. Sec. 4. Immediate transmittal of records of the case. The Clerk of the court concerned shall, within fifteen (15) days from the filing of the notice of appeal, transmit to the Electoral Contests Adjudication Department the complete records of the case, together with all the evidence, including the original and three(3) copies of the transcript of stenographic notes of the proceedings. Sec. 5. Filing of briefs. The Clerk of Court concerned, upon receipt of the complete records of the case, shall notify the appellant or his counsel to file with the Electoral Contests Adjudication Department within thirty (30) days from receipt of such notice, ten (10) legible copies of his brief with proof of service thereof upon the appellee. Within thirty (30) days from receipt of the brief of the appellant, the appellee shall file ten (10) legible copies of his brief with proof of service thereof upon the appellant. xxx xxx xxx Sec. 9. Grounds for dismissal of appeal. The appeal may be dismissed upon motion of either party or at the instance of the Commission on any of the following grounds: (a) Failure of the appellant to pay the appeal fee; (b) Failure of the appellant to file copies of his brief within the time provided by these rules; (c) Want of specific assignment of errors in the appellant's brief; and (d) Failure to file notice of appeal within the prescribed period. In the case at bar, petitioner received a copy of the trial court's order dismissing his election protest on October 12, 1992. As earlier stated, herein petitioner, instead of filing a notice of appeal as

required by the rules, filed with respondent Commission a verified appeal brief within the five-day reglementary period by registered mail under Registry Receipt No. 43093, dated October 17, 1992. It will be noted, however, that on even date, petitioner likewise sent by registered mail copies of his appeal brief to the Regional Trial Court of Mambajao, Camiguin, under Registry Receipt No. 43091, and to the counsel of herein private respondent, under Registry Receipt No. 43092. 15 The question now posed by the foregoing factual situation is whether the notice of appeal can be validly substituted by an appeal brief. We firmly believe and so hold, under the considerations hereinunder discussed, that the same may be allowed. First, in cases where a record on appeal is required under the Rules of Court, it has been consistently held that the filing or presentation and approval of the record on appeal on time necessarily implies or involves the filing of the notice of appeal, 16 because the act of taking or perfecting an appeal is more expressive of the intention to appeal than the filing of a mere notice to do so. 17 If the courts can deign to be indulgent and lenient in the interpretation of the rules respecting ordinary civil actions involving private parties representing private interests, with more reason should the rules involving election cases, which are undoubtedly impressed with public interest, be construed with the same or even greater forbearance and liberality. It has been frequently decided, it may be stated as a general rule recognized by all courts, that statutes providing for election contests are to be liberally construed to the end that the will of the people in the choice of public officers may not be defeated by mere technical objections. An election contest, unlike an ordinary action, is imbued with public interest since it involves not only the adjudication of the private interests of rival candidates but also the paramount need of dispelling the uncertainty which beclouds the real choice of the electorate with respect to who shall discharge the prerogatives of the office within their gift. Moreover, it is neither fair nor just to keep in office for an uncertain period one whose right to it is under suspicion. It is imperative that his claim be immediately cleared not only for the benefit of the winner but for the sake of public interest, which can only be achieved by brushing aside technicalities of procedure with protract and delay the trial of an ordinary action. 18 For this reason, broad perspectives of public policy impose upon courts the imperative duty to ascertain by all means within their command who is the real candidate elected in as expeditious a manner as possible, without being fettered by technicalities and procedural barriers to the end that the will of the people may not be frustrated.19 It is true that perfection of an appeal in the manner and within the period laid down by law is not only mandatory but also jurisdictional, and that the failure to perfect an appeal as required by the rules has the effect of defeating the right of appeal of a party and precluding the appellate court from acquiring jurisdiction over the case. 20Nevertheless, in some instances, this Court has disregarded such unintended lapses so as to give due course to appeals on the basis of strong and compelling reasons, such as serving the ends of justice and preventing a grave miscarriage thereof in the exercise of our equity jurisdiction. 21 It is our considered opinion that public interest is of far greater importance than the justifications of substantial justice and equity in seeking an exception to the general rule. Hence, election cases, by

their very nature, should and ought to merit a similar exemption from a strict application of technical rules of procedure. Second, it has been shown and it is not even denied that the Regional Trial Court of Camiguin, as well as the counsel for private respondent, was furnished copies of the appeal brief which were sent by registered mail on October 17, 1992, within the reglementary period to appeal. This fact was never refuted by the Solicitor General in his Comment. Concomitantly, although the Clerk of Court claimed that he had not received any notice of appeal from herein petitioner, it would be safe to assume, under the circumstances, that the appeal brief duly directed mailed was received in the regular course of the mail 22 and was, therefore, deemed filed with the trial court as of the date of mailing. Third, applying suppletorily the provisions of the Rules of Court, 23 particularly Section 4, Rule 41 thereof, the requirement is that a notice of appeal shall specify the parties to the appeal; shall designate the judgment or order, or part thereof, appealed from; and shall specify the court to which the appeal is taken. A perusal of herein petitioner's appeal brief will disclose the following information: that the parties to the case are Roleto A. Pahilan as protestant-appellant and Rudy A Tabalba as protestee-appellee; that appellant therein is appealing from the order of the Regional Trial Court of Mambajao, Camiguin, dismissing the petition for election contest in Election Case No. 3(92); and that the appeal is being made pursuant to Section 22 of Republic Act No. 7166, that is, before the Commission on Elections. Accordingly, there is no gainsaying the fact that the particulars which ought to be reflected in the notice of appeal have been specifically and categorically spelled out in the appeal brief of petitioner. Perforce, and in light of the foregoing disquisitions, we find and so hold that petitioner is entitled to the relief prayed for. We now proceed to resolve the issue anent the dismissal of petitioner's election protest by the Regional Trial Court for non-payment, or more accurately the incomplete payment, of docket fees. Ordinarily, with the reversal of the respondent Commission's questioned order, this case should be remanded to said court for adjudication on the merits. Considering, however, the exigencies of time appurtenant to the disposition of election cases, and considering further that the issue has at any rate been squarely raised in this petition, it is now incumbent upon this Court to act on the propriety of the trial court's order dismissing the election protest for failure of petitioner to pay the correct amount of docket fees. In dismissing petitioner's action, the trial court relied on the rulings enunciated in the cases of Malimit vs. Degamo24 (an action for quo warranto), Magaspi, et al. vs. Ramolete, et al. 25 (a suit for recovery of possession and ownership of land), Lee vs. Republic 26 (a petition for declaration of intention to become a Filipino citizen),Manchester Development Corporation vs. Court of Appeals, et al. 27 (an action for a sum of money and damages),Sun Insurance Office, Ltd., (SIOL) et al. vs. Asuncion. 28 (a suit for a sum of money and damages), and Tacay, et al. vs. Regional Trial Court of Tagum, Davao del Norte, etc., et al. 29 (an action for damages). It bears emphasis that the foregoing cases, except for Malimit vs. Degamo, are ordinary civil actions. This fact alone would have sufficed for a declaration that there was no basis for the dismissal of petitioner's protest for the simple reason that an election contest is not an ordinary civil action. Consequently the rules governing ordinary civil actions are not necessarily binding on special actions like an election contest wherein public interest will be adversely affected.

The case of Malimit vs. Degamo, on its part, is not on all fours with the present case. In that case, the petition forquo warranto was mailed to the clerk of Court on December 14, 1959 and was received by the latter on December 17, 1959. The docket fee was deemed paid only on January 5, 1960, because the petitioner therein failed to prove his allegation that a postal money order for the docket fee was attached to his petition. Hence, the petition for quo warranto was correctly dismissed. In the case at bar, it cannot be gainsaid that the sum of P200.00 was attached to the petition mailed to the Regional Trial Court of Camiguin and this fact was even acknowledged by the Clerk of Court thereof when he requested herein petitioner to pay the balance of the correct docket fee. In Malimit, there was no docket fee paid at all at the time of mailing; in the present case, the docket fee was paid except that the amount given was not correct. Considering the fact that there was an honest effort on the part of herein petitioner to pay the full amount of docket fees, we are not inclined to insist on a stringent application of the rules. Furthermore, there are strong and compelling reasons to rule that the doctrine we have established in Manchesterand cases subsequent thereto cannot be made to apply to election cases. As we have earlier stated, the cases cited are ordinary civil actions whereas election cases are not. The rules which apply to ordinary civil actions may not necessarily serve the purpose of election cases, especially if we consider the fact that election laws are to be accorded utmost liberality in their interpretation and application, bearing in mind always that the will of the people must be upheld. Ordinary civil actions would generally involve private interests while all elections cases are, at all times, invested with public interest which cannot be defeated by mere procedural or technical infirmities. Again, the Court in Manchester made its ruling in view of its finding that there existed the unethical practice of lawyers and parties of filing an original complaint without specifying in the prayer the amount of damages which, however, is stated in the body of the complaint. This stratagem is clearly intended for no other purpose than to evade the payment of the correct filing fees by misleading the docket clerk in the assessment thereof. Thus, the court therein held that jurisdiction shall be acquired only upon payment of the prescribed docket fee. That ruling was later relaxed in the case of Sun Insurance which allowed the subsequent payment of the correct docket fees provided it is made within the reglementary period or before prescription has set in. The reason given was that there was no intent on the part of the petitioners therein to defraud the government, unlike the plaintiff in the case of Manchester. In Tacay, et al. vs. Tagum, et al., it was stated that this Court, inspired by the doctrine laid down in Manchester,issued Circular No. 7 on March 24, 1988, which was aimed at the practice of certain parties who omit from the prayer of their complaints any specification of the amount of damages, the omission being clearly intended for no other purpose than to evade the payment of the correct filing fees by deluding the docket clerk in his assessment of the same. In all these cases, the rule was applied for failure of the plaintiff to include in the prayer of the complaint the total amount of damages sought against the defendant. The reason for this, according to the Tacaycase, is because the amount of damages will help determine two things: first, the jurisdiction of the court; and, second, the amount of docket fees to be paid. In the case now before us, and in election cases in general, it is not the amount of damages, if any, that is sought to be recovered which vests in the courts the jurisdiction to try the same. Rather, it is

the nature of the action which is determinative of jurisdiction. Thus, regardless of the amount of damages claimed, the action will still have to be filed with the Regional Trial Court. In such a case, the evil sought to be avoided in Manchester and like cases will never arise. Peremptorily, there will be no occasion to apply the rulings in the cases mentioned. In addition, the filing fee to be paid in an election case is a fixed amount of P300.00. There will consequently be no opportunity for a situation to arise wherein an election contest will have to be dismissed for failure to state the exact amount of damages and thus evince an intent to deprive the Government of the docket fees due. Finally, in Manchester, there was a deliberate attempt on the part of the plaintiffs therein to evade payment of the correct docket fees. In the case of petitioner, he already explained, and this we find acceptable and justified, that "since the schedule of the new rates of court fees was not then available and the filing of the petition for election contests was done thru the mails, the old rates readily came to mind, and this was the reason why only two hundred pesos was remitted at the same time with the petition." 30 To summarize, the evil sought to be avoided in Manchester and similar cases can never obtain in election cases since (1) the filing fee in an election cases is fixed and not dependent on the amount of damages sought to be recovered, if any; and (2) a claim for damages in an election case is merely ancillary to the main cause of action and is not even determinative of the court's jurisdiction which is governed by the nature of the election filed. WHEREFORE, the Order of the Commission on Elections dated January 19, 1993, as well as its Resolution promulgated on May 6, 1993, both in EAC No. 24-92; and the Order of the Regional Trial court of Mambajao, Camiguin, dated October 2, 1992, in Election Case No. 3(92) are hereby REVERSED and SET ASIDE, and the records of this case are hereby ordered REMANDED to the court a quo for the expeditious continuation of the proceedings in and the adjudication of the election protest pending therein as early as practicable. SO ORDERED.

G.R. No. 133676 April 14, 1999 TUPAY T. LOONG, petitioner, vs. COMMISSION ON ELECTIONS and ABDUSAKUR TAN, respondents. YUSOP JIKIRI, intervenor.

PUNO, JIn a bid to, improve our elections, Congress enacted R.A. No. 8436 on December 22, 1997 prescribing the adoption of an automated election system. The new system was used in the May 11, 1998 regular elections held in the Autonomous Region in Muslim Mindanao (ARMM) which includes the Province of Sulu. Atty. Jose Tolentino, Jr. headed the COMELEC Task Force to have administrative oversight of the elections in Sulu. The voting in Sulu was relatively peaceful and orderly. 1 The problem started during the automated counting of votes for the local officials of Sulu at the Sulu at the Sulu State College. At about 6 a.m. of May 12, 1998, some election inspectors and watchers informed Atty. Tolentino, Jr. of discrepancies between the election returns and the votes cast for the mayoralty candidates in the municipality of Pata. Some ballots picked at random by Atty. Tolentino, Jr. confirmed that votes in favor of a mayoralty candidate were not reflected in the printed election returns. He suspended the automated counting of ballots in Pata and immediately communicated the problem to the technical experts of COMELEC and the suppliers of the automated machine. After the consultations, the experts told him that the problem was caused by misalignment of the ovals opposite the names of candidates in the local ballots. They found nothing wrong with the automated machines. The error was in the printing of the local ballots, as a consequence of which, the automated machines failed to read them correctly. 2 At 12:30 p.m. of the same day, Atty. Tolentino, Jr. called for an emergency meeting of the local candidates and the military-police officials overseeing the Sulu elections. Those who attended were the various candidates for governor, namely, petitioner Tupay Loong, private respondent Abdusakar Tan, intervenor Yusop Jikiri and Kimar Tulawie. Also in attendance were Brig. Gen. Edgardo Espinosa, AFP, Marine forces, Southern Philippines, Brig. Gen. Percival Subala, AFP, 3rd Marine Brigade, Supt. Charlemagne Alejandrino, Provincial Director, Sulu, PNP Command and congressional candidate Bensandi Tulawie. 3 The meeting discussed how the ballots in Pata should be counted in light of the misaligned ovals. There was lack of agreement. Those who recommended a shift to manual count were Brig. Generals Espinosa and Subala, PNP Director Alejandro, gubernational candidates Tan and Tulawie and congressional candidate Bensandi Tulawie. Those who insisted on an automated count were gubernational candidates Loong and Jikiri. In view of their differences in opinion, Atty. Tolentino, Jr. requested the parties to submit their written position papers. 4 Reports that the automated counting of ballots in other municipalities in Sulu was not working well were received by the COMELEC Task Force. Local ballots in five (5) municipalities were rejected by the automated machines. These municipalities were Talipao, Siasi, Tudanan, Tapul and Jolo. The ballots were rejected because they had the wrong sequence code. 5

Private respondent Tan and Atty. Tolentino, Jr. sent separate commucations to the COMELEC en banc in Manila. Still, on May 12, 1998, Tan requested for the suspension of the automated counting of ballots throughout the Sulu province. 6 On the same day, COMELEC issued Minute Resolution No. 98-1747 ordering a manual count but only in the municipality of Pata. The resolution reads: 7 xxx xxx xxx In the matter of the Petition dated May 12, 1998 of Abdusakur Tan, Governor, Sulu, to suspend or stop counting of ballots through automation (sic) machines for the following grounds, quoted to wit: 1. The Election Returns for the Municipality of Pata, Province of SuluDistrict II do not reflect or reveal the mandate of the voters: DISCUSSIONS That the watchers called the attention of our political leaders and candidates regarding their discovery that the election returns generated after the last ballots for a precinct is scanned revealed that some candidates obtained zero votes, among others the Provincial Board Members, Mayor, Vice-Mayor, and the councilors for the LAKAS-NUCD-UMDP; That the top ballot, however, reveals that the ballots contained votes for Anton Burahan, candidate for Municipal Mayor while the Election Return shows zero vote; That further review of the Election Return reveals that John Masillam, candidate for Mayor under the LAKAS-NUCD-UMDP-MNLF obtains (sic) 100% votes of the total number of voters who actually voted; The foregoing discrepancies were likewise noted and confirmed by the chairmen, poll clerks and members of the Board of Election Inspectors (BEI) such as Rena Jawan, Amkanta Hajirul, Dulba Kadil, Teddy Mirajuli, Rainer Talcon, Mike Jupakal, Armina Akmad, Romulo Roldan and Lerma Amrawali to mention some; The Pata incident can be confirmed by no less than Atty. Jose Tolentino, Head, task Force Sulu, whose attention was called regarding the discrepancies; The foregoing is a clear evidence that the automated machine (scanner) cannot be relied upon as to truly reflect the contents of the ballots. If such happened in the Municipality of Pata, it is very possible that the same is happening in the counting of votes in the other municipalities of this province. If this will not be suspended or stopped, the use of automated machines will serve as a vehicle to frustrate the will of the sovereign people of Sulu;

Wherefore, the foregoing premises considered and in the interest of an honest and orderly election, it is respectfully prayed of this Honorable Commission that an Order be issued immediately suspending or stopping the use of the automated machine (scanner) in the counting of votes for all the eighteen (18) municipalities in the Province of Sulu and in lieu thereof, to avoid delay, counting be done through the usual way known tested by us. While the commission does not agree with the conclusions stated in the petition, and the failure of the machine to read votes may have been occasioned by other factors, a matter that requires immediate investigation, but in the public interest, the Commission, RESOLVED to grant the Petition dated May 12, 1998 and to Order that the counting of votes shall be done manually in the Municipality of PATA, the only place in Sulu where the automated machine failed to read the ballots, subject to notice to all parties concerned. Before midnight of May 12, 1998, Atty. Tolentino, Jr. was able to send to the COMELEC en banc his report and recommendation, urging the use of the manual count in the entire Province of Sulu, viz: 8 The undersigned stopped the counting in the municipality of Pata since he discovered that votes for a candidate for mayor was credited in favor of the other candidate. Verification with the Sulu Technical Staff, including Pat Squires of ES & S, reveals that the cause of the errors is the way the ballot was printed. Aside from misalignment of the ovals and use of codes assigned to another municipality (which caused the rejection of all local ballots in one precinct in Talipao), error messages appeared on the screen although the actual condition of the ballots would have shown a different message. Because of these, the undersigned directed that counting for all ballots in Sulu be stopped to enable the Commission to determine the problem and rectify the same. It is submitted that stopping the counting is more in consonance with the Commission's mandate than proceeding with an automated but inaccurate count.
1wphi1.nt

In view of the error discovered in Pata and the undersigned's order to suspend that counting, the following documents were submitted to him. 1. Unsigned letter dated May 12, 1998 submitted by Congressman Tulawie for manual counting and canvassing; 2. Petition of Governor Sakur Tan for manual counting; 3. Position paper of Tupay Loong, Benjamin Loong, and Asani Tamang for automated count; 4. MNLF Position for automated count; and

5. Recommendation of General E.V. Espinosa, General PM Subala, and PD CS Alejandrino for manual count; Additional marines have been deployed at the SSC. The undersigned is not sure if it is merely intended to tame a disorderly crowd, inside and outside SSC, or a show of force. It is submitted that since an error was discovered in a machine which is supposed to have an error rate of 1: 1,000,000, not a few people would believe that this error in Pata would extend to the other municipalities. Whether or not this true, it would be more prudent to stay away from a lifeless thing that has sown tension and anxiety among and between the voters of Sulu. Respectfully submitted: 12 May 1998 (Sgd.) JOSE M. TOLENTINO, JR. The next day, May 13, 1998, COMELEC issued Resolution No. 98-1750 approving, Atty. Tolentino, Jr.'s recommendation and the manner of its implementation as suggested by Executive Director Resurrection Z. Borra. The Resolution reads: 9 In the matter of the Memorandum dated 13 May 1998 of Executive Director Resurrection Z. Borra, pertinent portion of which is quoted as follows: In connection with Min. Res. No. 98-1747 promulgated May 12, 1998 which resolved to order that the counting of votes shall be done manually in the municipality of Pata, the only place in Sulu where the automated counting machine failed to read the ballots, subject to notice to all parties concerned, please find the following: 1. Handwritten Memo of Director Jose M. Tolentino, Jr., Task Force Head, Sulu, addressed to the Executive Director on the subject counting and canvassing in the municipality of Pata due to the errors of the counting of votes by the machine brought about by the error in the printing of the ballot, causing misalignment of ovals and use of codes assigned to another municipality. He recommended to revert to the manual counting of votes in the whole of Sulu. He attached the stand of Congressman Tulawie, Governor Sakur Tan and recommendation of Brigadier General Edgardo Espinosa, General Percival Subla, P/Supt. Charlemagne Alejandrino for manual counting. The position paper of former Governor Tupay Loong, Mr. Benjamin Loong and Mr. Asani S. Tammang, who are candidates for Governor and Congressman of 1st and 2nd Districts respectively, who wanted the continuation of the automated counting.

While the forces of AFP are ready to provide arm (sic) security to our Comelec officials, BEIs and other deputies, the political tensions and imminent violence and bloodshed may not be prevented, as per report received, the MNLF forces are readying their forces to surround the venue for automated counting and canvassing in Sulu in order that the automation process will continue. Director Borra recommends, that while he supports Minute Resolution No. 98-1747, implementation thereof shall be done as follows: 1. That all the counting machines from Jolo, Sulu be transported back by C130 to Manila and be located at the available space at PICC for purposes of both automated and manual operations. This approach will keep the COMELEC officials away from violence and bloodshed between the two camps who are determined to slug each other as above mentioned in Jolo, Sulu. Only authorized political party and candidate watchers will be allowed in PICC with proper security, both inside and outside the perimeters of the venue at PICC. 2. With this process, there will be an objective analysis and supervision of the automated and manual operations by both the MIS and Technical Expert of the ES & S away from the thundering mortars and the sounds of sophisticated heavy weapons from both sides of the warring factions. 3. Lastly, it will be directly under the close supervision and control of Commission on Elections En Banc. RESOLVED: 1. To transport all counting machines from Jolo, Sulu by C130 to Manila for purposes of both automated and manual operations, with notice to all parties concerned; 2. To authorize the official travel of the board of canvassers concerned for the conduct of the automated and manual operations of the counting of votes at PICC under the close supervision and control of the Commission En Banc. For this purpose, to make available a designated space at the PICC; 3. To authorize the presence of only the duly authorized representative of the political parties concerned and the candidates watchers both outside and inside the perimeters of the venue at PICC. Atty. Tolentino, Jr. furnished the parties with copies of Minute Resolution No. 98-1750 and called for another meeting the next day, May 14, 1998, to discuss the implementation of the resolution. 10 The meeting was attended by the parties, by Lt. Gen. Joselin Nazareno, then Chief of the AFP Southern Command, the NAMFREL, media, and the public. Especially discussed was the manner of

transporting the ballots and the counting machines to the PICC in Manila. They agreed allow each political party to have at least one (1) escort/watcher for municipality to acompany the flight. Two C130s were used for purpose. 11 On May 15, 1998, the COMELEC en banc issued Minute Resolution No. 98-1796 laying down the rules for the manual count, viz: 12 In the matter of the Memorandum dated 15 May 1998 of Executive Director Resurrection Z. Borra, quoted to wit: In the implementation of COMELEC Min. Resolution No. 98-1750 promulgated 13 May 1998 in the manual counting of votes of Pata, Sulu, and in view of the arrival of the counting machines, ballot boxes, documents and other election paraphernalia for the whole province of Sulu now stored in PICC, as well as the arrival of the Municipal Board of Canvassers of said Municipality in Sulu, and after conference with some members of the Senior Staff and Technical Committee of this Commission, the following are hereby respectfully recommended: 1. Manual counting of the local ballots of the automated election system in Pata, Sulu; 2. Automated counting of the national ballots considering that there are no questions raised on the National Elective Officials as pre-printed in the marksensed ballots; 3. The creation of the following Special Boards of Inspectors under the supervision of Atty. Jose M. Tolentino, Jr., Task Force Head, Sulu, namely: a) Atty. Mamasapunod M. Aguam Ms. Gloria Fernandez Ms. Esperanza Nicolas b) Director Ester L. Villaflor-Roxas Ms. Celia Romero Ms. Rebecca Macaraya c) Atty. Zenaida S. Soriano Ms. Jocelyn Guiang Ma. Jacelyn Tan

d) Atty. Erlinda C. Echavia Ms. Theresa A. Torralba Ms. Ma. Carmen Llamas e) Director Estrella P. de Mesa Ms. Teresita Velasco Ms. Nelly Jaena 4. Additional Special Board of Inspectors may be created when necessary. 5. The Provincial Board of Canvassers which by standing Resolution is headed by the Task Force Sulu Head shall consolidate the manual and automated results as submitted by the Municipal Boards of Canvassers of the whole province with two members composed of Directors Estrella P. de Mesa and Ester L. Villaflor-Roxas; 6. The political parties and the candidates in Sulu as well as the Party-List Candidates are authorized to appoint their own watchers upon approval of the Commission', RESOLVED to approve the foregoing recommendations in the implementation of Min. Resolution No. 98-1750 promulgated on 13 May 1998 providing for the manual counting of votes in the municipality of Pata, Sulu. RESOLVED, moreover, considering the recommendation of Comm. Manolo B. Gorospe, Commissioner-In-Charge, ARMM, to conduct a parallel manual counting on all 18 municipalities of Sulu as a final guidance of the reliability of the counting machine which will serve as basis for the proclamation of the winning candidates and for future reference on the use of the automated counting machine. On May 18, 1998, petitioner filed his objection to Minute Resolution No. 98-1796, viz:
13

1. The minute resolution under agenda No. 98-1796 violates the provisions of Republic Act No. 8436 providing for an automated counting of the ballots in the Autonomous Region in Muslim Mindanao. The automated counting is mandatory and could not be substituted by a manual counting. Where the machines are allegedly defective, the only remedy provided for by law is to replace the machine. Manual counting is prohibited by law;

2. There are strong indications that in the municipality of Pata the ballots of the said municipality were rejected by the counting machine because the ballots were tampered and/or the texture of the ballots fed to the counting machine are not the official ballots of the Comelec; 3. The automated counting machines of the Comelec have been designed in such a way that only genuine official ballots could be read and counted by the machine; 4. The counting machines in the other municipalities are in order. In fact, the automated counting has already started. The automated counting in the municipalities of Lugus and Panglima Tahil has been completed. There is no legal basis for the "parallel manual counting" ordained in the disputed minute resolution. Nonetheless, COMELEC started the manual count on the same date, May 18, 1998. On May 25, 1998, petitioner filed with this Court a petition for certiorari and prohibition under Rule 65 of the Rules of Court. He contended that: (a) COMELEC issued Minute Resolution Nos. 98-1747, 98-1750, and 98-1798 without prior notice and hearing to him; (b) the order for manual counting violated R.A. No. 8436; (c) manual counting gave "opportunity to the following election cheatings," namely: (a) The counting by human hands of the tampered, fake and counterfeit ballots which the counting machines have been programmed to reject (Section 7, 8 & 9 of Rep. Act 8436). (b) The opportunity to substitute the ballots all stored at the PICC. In fact, no less than the head of the COMELEC Task Force of Sulu, Atty. Jose M. Tolentino, Jr. who recommended to the COMELEC the anomalous manual counting, had approached the watchers of petitioners to allow the retrival of the ballots, saying "tayo, tayo lang mga watchers, pag-usapan natin," clearly indicating overtures of possible bribery of the watchers of petitioner (ANNEX E). (c) With the creation by the COMELEC of only 22 Boards of Election Inspectors to manually count the 1,194 precincts, the manipulators are given sufficient time to change and tamper the ballots to be manually counted. (d) There is the opportunity of delaying the proclamation of the winning candidates through the usually dilatory moves in a pre-proclamation controversy because the returns and certificates of canvass are already human (sic) made. In the automated counting there is no room for any dilatory pre-proclamation controversy because the returns and the MBC and PBC certificates of canvass are machine made and immediate proclamation is ordained thereafter. Petitioner then prayed: WHEREFORE, it is most especially prayed of the Honorable Court that: 1. upon filing of this petition, a temporary restraining order be issued enjoining the COMELEC from conducting a manual counting of the ballots of the 1,194 precincts of

the 18 municipalities of the Province of Sulu but instead proceed with the automated counting of the ballots, [preparation of the election returns and MBC, PBC certificates of canvass and proclaim the winning candidates on the basis of the automated counting and consolidation of results; 2. this petition be given due course and the respondents be required to answer; 3. after due hearing, the questioned COMELEC En Banc Minute Resolutions of May 12, 13, 15, and 17, 1998 be all declared null and void ab initio for having been issued without jurisdiction and/or with grave abuse of discretion amounting to lack of jurisdiction and for being in violation of due process of law; 4. the winning candidates of the Province of Sulu be proclaimed on the basis of the results of the automated counting, automated election returns, automated MBC and PBC certificates of canvass; xxx xxx xxx On June 8, 1998, private respondents Tan was proclaimed governor-elect of Sulu on the basis of the manual count. 14 Private respondents garnered 43,573 votes. Petitioner was third with 35,452 votes or a difference of 8,121 votes. On June 23, 1998, this Court required the respondents to file their Comment to the petition and directed the parties "to maintain the status quo prevailing at the time of the filing of the petition." 15 The vice-governor elect was allowed to temporarily discharge the powers and functions of governor. On August 20, 1998, Yusop Jikiri, the LAKAS-NUCD-UMDP-MNLF candidate for governor filed a motion for intervention and a Memorandum in Intervention. 16 The result of the manual count showed he received 38,993 votes and placed second. Similarly, he alleged denial of due process, lack of factual basis of the COMELEC resolutions and illegality of manual count in light of R.A. No. 8436. The Court noted his intervention. 17 A similar petition for intervention filed by Abdulwahid Sahidulla, a candidate for vice-governor, on October 7, 1998 was denied as it was filed too late. In due time, the parties filed their respective Comments. On September 25, 1998, the Court heard the parties in oral argument 18 which was followed by the submission of their written memoranda. The issues for resolution are the following: 1. Whether or not a petition for certiorari and prohibition under Rule 65 of the Rules of Court is the appropriate remedy to invalidate the disputed COMELEC resolutions. 2. Assuming the appropriateness of the remedy, whether or not COMELEC committed grave abuse of discretion amounting to lack of jurisdiction in ordering a manual count. 2.a. Is there a legal basis for the manual count?

2.b. Are its factual bases reasonable? 2.c. Were the petitioner and the intervenor denied due process by the COMELEC when it ordered a manual count? 3. Assuming the manual count is illegal and that its result is unreliable, whether or not it is proper to call for a special election for the position of governor of Sulu. We shall resolve the issues in seriatim.

First. We hold that certiorari is the proper remedy of the petitioner. Section 7, Article IX (A) of the

1987 Constitution states that "unless provided by this Constitution or by law, any decision, order or ruling of each Commission may be brought to the Supreme Court on certiorari by the aggrieved party within thirty days from receipt of a copy thereof." We have interpreted this provision to mean final orders, rulings and decisions of the powers. 19 Contrariwise, administrative orders of the COMELEC are not, as a general rule, fit subjects of a petition for certiorari. The main issue in the case at bar is whether the COMELEC gravely abused its discretion when it ordered a manual count of the 1998 Sulu local elections. A resolution of the issue will involve an interpretation of R.A. No. 8436 on automated election in relation to the broad power of the COMELEC under Section 2(1), Article IX(C) of the Constitution "to enforce and administer all laws and regulations relative to the conduct of an election . . .." The issue is not only legal but one of first impression and undoubtedly suffered with significance to the entire nation. It is adjudicatory of the right of the petitioner, the private respondents and the intervenor to the position of governor of Sulu. These are enough considerations to call for an exercise of the certiorari jurisdiction of this Court.

Second. The big issue, one of first impression, is whether the COMELEC committed grave abuse of

discretion amounting to lack of jurisdiction when it ordered a manual count in light of R.A. No. 8436. The post election realities on ground will show that the order for a manual count cannot be characterized as arbitrary, capricious or whimsical. a. It is well established that the automated machines failed to read correctly the ballots in the municipality of Pata. A mayoralty candidate, Mr. Anton Burahan, obtained zero votes despite the representations of the Chairman of the Board of Election Inspectors and others that they voted for him. Another candidate garnered 100% of the votes. b. It is likewise conceded that the automated machines rejected and would not count the local ballots in the municipalities of Pata, Talipao, Siasi, Indanan, Tapal and Jolo. c. These flaws in the automated counting of local ballots in the municipalities of Pata, Talipao, Siasi, Indanan, Tapal and Jolo were carefully analyzed by the technical experts of COMELEC and the supplier of the automated machines. All of them found nothing wrong the automated machines. They traced the problem to the printing of local ballots by he National Printing Office. In the case of the of the municipality of Pata, it was discovered that the ovals of the local

ballots were misaligned and could not be read correctly by the automated machines. In the case of the municipalities of Talipao, Siasi, Indanan, Tapal and Jolo, it turned out that the local ballots contained the wrong sequence code. Each municipality was assigned a sequence code as a security measure. Ballots with the wrong sequence code were programmed to be rejected by the automated machines. It is plain that to continue with the automated count in these five (5) municipalities would result in a grossly erroneous count. It cannot also be gainsaid that the count in these five (5) municipalities will affect the local elections in Sulu. There was no need for more sampling of locals ballots in these municipalities as they suffered from the same defects. All local ballots in Pata with misaligned ovals will be erroneously read by the automated machines. Similarly, all local ballots in Talipao, Siasi, Indanan, Tapal and Jolo with wrong sequence codes are certain to be rejected by the automated machines. There is no showing in the records that the local ballots in these five (5) municipalities are dissimilar which could justify the call for their greater sampling.

Third. These failures of automated counting created post election tension in Sulu, a province with a

history of violent elections. COMELEC had to act desively in view of the fast deteriorating peace and order situation caused by the delay in the counting of votes. The evidence of this fragile peace and order cannot be downgraded. In his handwritten report to the COMELEC dated May 12, 1998, Atty. Tolentino, Jr. stated: xxx xxx xxx Additional marines have been deployed at the SSC. The undersigned is not sure if it is merely intended to tame a disorderly crowd inside and outside SSC, or a show of force. It is submitted that since an error was discovered in a machine which is supposed to have an error rate of 1:1,000,000, not a few people would believe that this error in Pata would extend to the other municipalities. Whether or not this is true, it would be more prudent to stay away from a lifeless thing that has shown tension and anxiety among and between the voters of Sulu. Executive Director Resurreccion Z. Borra, Task Force Head, ARMM in his May 13, 1998 Memorandum to the COMELEC likewise stated: xxx xxx xxx While the forces of AFP are ready to provide arm (sic) security to our COMELEC officials, BEI's and other deputies, the political tensions and imminent violence and bloodshed may not be prevented, as per report received, the MNLF forces are readying their forces to surround the venue for automated counting and canvassing in Sulu in order that automation process will continue. Last but not the least, the military and the police authorities unanimously recommended manual counting to preserve peace and order. Brig. Gen. Edgardo V. Espinosa, Commanding General, Marine Forces Southern Philippines, Brig. Gen. Percival M. Subala, Commanding General, 3rd Marine Brigade, and Supt. Charlemagne S. Alejandrino, Provincial Director, Sulu

PNP Command explained that it". . . will not only serve the interest of majority of the political parties involved in the electoral process but also serve the interest of the military and police forces in maintaining peace and order throughout the province of Sulu." An automated count of the local votes in Sulu would have resulted in a wrong count, a travesty of the sovereignty of the electorate. Its aftermath could have been a bloodbath. COMELEC avoided this imminent probality by ordering a manual count of the votes. It would be the height of irony if the Court condemns COMELEC for aborting violence in the Sulu elections.

Fourth. We also find that petitioner Loong and intervenor Jikiri were not denied process. The

Tolentino memorandum clearly shows that they were given every opportunity to oppose the manual in count of the local ballots in Sulu. They were orally heard. They later submitted written position papers. Their representatives escorted the transfer of the ballots and the automated machines from Sulu to Manila. Their watchers observed the manual count from beginning to end. We quote the Tolentino memorandum, viz: xxx xxx xxx On or about 6:00 a.m. of May 12, 1998, while automated counting of all the ballots for the province of Sulu was being conducted at the counting center located at the Sulu State College, the COMELEC Sulu Task Force Head (TF Head) proceeded to the room where the counting machine assigned to the municipality of Pata was installed to verify the cause of the commotion therein. During the interview conducted by the TF Head, the members of the Board of Election Inspectors (BEI) and watchers present in said room stated that the counting machine assigned to the municipality of Pata did not reflect the true results of the voting thereat. The members of the BEI complained that their votes were not reflected in the printout of the election returns since per election returns of their precincts, the candidate they voted for obtained "zero". After verifying the printout of some election returns as against the official ballots, the TF Head discovered that votes cast in favor of a mayoralty candidate were credited in favor of his opponent. In his attempt to remedy the situation, the TF Head suspended the counting of all ballots for said municipality to enable COMELEC field technicians to determine the cause of the technical error, rectify the same, and thereafter proceed with automated counting. In the meantime, the counting of the ballots for the other municipalities proceeded under the automated system. Technical experts of the supplier based in Manila were informed of the problem and after numerous consultations through long distance calls, the technical experts concluded that the cause of the error was in the manner the ballots for local positions were printed by the National Printing Office (NPO), namely, that the ovals opposite the names of the candidates were not properly aligned. As regards the ballots for national positions, no error was found. Since the problem was not machine-related, it was obvious that the use of counting machines from other municipalities to count the ballots of the municipality of Pata would still result in the same erroneous count. Thus, it was found necessary to

determine the extent of the error in the ballot printing process before proceeding with the automated counting. To avoid a situation where proceeding with automation will result in an erroneous count, the TF Head, on or about 11:45 a.m. ordered the suspension of the counting of all ballots in the province to enable him to call a meeting with the heads of the political parties which fielded candidates in the province, inform them of the technical error, and find solutions to the problem. On or about 12:30 p.m., the TF Head presided over a conference at Camp General Bautista (3rd Marine Brigade) to discuss the process by which the will of the electorate could be determined. Present during the meeting were: 1. Brig. Gen. Edgardo Espinoza Marine Forces, Southern Philippines. 2. Brig. Gen. Percival Subala 3rd Marine Brigade 3. Provincial Dir. Charlemagne Alejandrino Sulu PNP Command 4. Gubernatorial Candidate Tupay Loong LAKAS-NUCD Loong Wing 5. Gubernatorial Candidate Abdusakur Tan LAKAS-NUCD Tan Wing 6. Gubernatorial Candidate Yusop Jikiri LAKAS-NUCD Tan Wing 7. Gubernatorial Candidate Kimar Tulawie LAMMP 8. Congressional Candidate Bensaudi Tulawie LAMMP During said meeting, all of the above parties verbally advanced their respective positions. Those in favor of a manual count were: 1. Brig. Gen. Edgardo Espinoza

2. Brig. Gen. Percival Subala 3. Provincial Dir. Charlemagne Alejandrino 4. Gubernatorial Candidate Abdusakur Tan 5. Gubernatorial Candidate Kimar Tulawie 6. Congressional Candidate Bensaudi Tulawie and those in favor of an automated count were: 1. Gubernatorial Candidate Tupay Loong 2. Gubernatorial Candidate Yusop Jikiri Said parties were then requested by the TF Head to submit their respective position papers so that the same map be forwarded to the Commission en banc, together with the recommendations of the TF Head. The TF Head returned to the counting center at the Sulu State College and called his technical staff to determine the extent of the technical error and to enable him to submit the appropriate recommendation to the Commission en banc. Upon consultation with the technical staff, it was discovered that in the Municipality of Talipao, some of the local ballots were rejected by the machine. Verification showed that while the ballots were genuine, ballot paper bearing a wrong "sequence code" was used by the NPO during the printing process. Briefly, the following is the manner by which a "sequence code" determined genuineness of a ballot. A municipality is assigned a specific (except for Jolo, which assigned two (2) machines, and sharing of one (1) machine by two (2) municipalities, namely, H.P. Tahil and Maimbung, Apandami and K. Caluang, Pata and Tongkil and Panamao and Lugus). A machine is then assigned a specific "sequence code" as one of the security features to detect whether the ballots passing through it are genuine. Since a counting machine is programmed to read the specific "sequence code" assigned to it, ballots which bear a "sequence code" assigned to another machine/municipality, even if said ballots were genuine will be rejected by the machine. Other municipalities, such as Siasi, Indanan, Tapul and Jolo also had the same problem of rejected ballots. However, since the operators were not aware that one of the reasons for rejection of ballots is the use of wrong "sequence code", they failed to determine whether the cause for rejection of ballots for said municipalities was the same as that for the municipality of Talipao. In the case of "misaligned ovals", the counting machine will not reject the ballot because all the security features, such as "sequence code", are present in the ballot, however, since the oval is misaligned or not placed in its proper position, the

machine will credit the shaded oval for the position where the machine is programmed to "read" the oval. Thus, instead of rejecting the ballot, the machine will credit the votes of a candidate in favor of his opponent, or in the adjacent space where the oval should be properly placed. It could not be determined if the other municipalities also had the same technical error in their official ballots since the "misaligned ovals" were discovered only after members of the Board of Election Inspectors of the Municipality of Pata complained that their votes were not reflected in the printout of the election results. As the extent or coverage of the technical errors could not be determined, the TF Head, upon consultation with his technical staff, was of the belief that it would be more prudent to count the ballots manually than to proceed with an automated system which will result in an erroneous count. The TF Head thus ordered the indefinite suspension of counting of ballots until such time as the Commission shall have resolved the petition/position papers to be submitted by the parties. The TF Head and his staff returned to Camp General Bautista to await the submission of the position papers of the parties concerned. Upon receipt of the position papers of the parties, the TF Head faxed the same in the evening of May 12, 1998, together with his handwritten recommendation to proceed with a manual count. Attached are copies of the recommendations of the TF Head (Annex "1"), and the position papers of the Philippine Marines and Philippine National Police (Annex "2"), LAKAS-NUCD Tan Wing Annex (Annex "3"), Lakas-NUCD Loong Wing (Annex "4"), LAKAS-NUCD-MNLF Wing (Annex "5") and LAMMP (Annex "6"). Said recommendations and position papers were the bases for the promulgation of COMELEC Minute Resolution No. 98-1750 dated May 13, 1998 (Annex "7"), directing, among other things, that the ballots and counting machines be transported by C130 to Manila for both automated and manual operations. Minute Resolution No. 98-1750 was received by the TF Head through fax on or about 5:30 in the evening of May 13, 1998. Copies were then served through personal delivery to the heads of the political parties, with notice to them that another conference will be conducted at the 3rd Marine Brigade on May 14, 1998 at 9:00 o'clock in the morning, this time, with Lt. General Joselin Nazareno, then AFP Commander, Southern Command. Attached is a copy of said notice (Annex "8") bearing the signatures of candidates Tan (Annex "8-A") and Loong (Annex "8-B") and the representatives of candidates Tulawie (Annex "8-C") and Jikiri (Annex "8D"). On May 14, 1998, the TF Head presided over said conference in the presence of the heads of the political parties of Sulu, together with their counsel, including Lt. Gen. Nazareno, Brig. Gen. Subala, representatives of the NAMFREL, media and the public. After hearing the sides of all parties concerned, including that of NAMFREL, the procedure by which the ballots and counting machines were to be transported to Manila was finalized, with each political party authorized to send at least one (1) escort/watcher for every municipality to accompany the ballot boxes and counting machines from the counting center at the Sulu State College to the Sulu Airport to

the PICC, where the COMELEC was then conducting its Senatariol Canvass. There being four parties, a total of seventy-two (72) escorts/watchers accompanied the ballots and counting machines. Two C130s left Sulu on May 15, 1998 to transport all the ballot boxes and counting machines, accompanied by all the authorized escorts. Said ballots boxes reached the PICC on the same day, with all escorts/watchers allowed to station themselves at the ballot box storage area. On May 17, 1998, another C130 left Sulu to ferry the members of the board of canvassers.

Fifth. The evidence is clear that the integrity of the local ballots was safeguarded when they were
transferred from Sulu to Manila and when they were manually counted. A shown by the Tolentino memorandum, representatives of the political parties escorted the transfer of ballots from Sulu to PICC. Indeed, in his May 14, 1992 letter to Atty. Tolentino, Jr., petitioner Tupay Loong himself submitted the names of his representative who would company the ballot boxes and other election paraphernalia,viz: 20 Dear Atty. Tolentino: Submitted herewith are the names of escort(s) to accompany the ballot boxes and other election pharaphernalia to be transported to COMELEC, Manila, to wit: 1. Jolo Joseph Lu 2. Patikul Fathie B. Loong 3. Indanan Dixon Jadi 4. Siasi Jamal Ismael 5. K. Kaluang Enjimar Abam 6. Pata Marvin Hassan 7. Parang Siyang Loong 8. Pangutaran Hji. Nasser Loong 9. Marunggas Taib Mangkabong 10. Luuk Jun Arbison 11. Pandami Orkan Osman 12. Tongkil Usman Sahidulla 13. Tapul Alphawanis Tupay

14. Lugus Patta Alih 15. Maimbong Mike Bangahan 16. P. Estino Yasir Ibba 17. Panamso Hamba Loong 18. Talipao Ismael Sali Hoping for your kind and (sic) consideration for approval on this matter. Thank you. Very truly yours, (Sgd.) Tupay T. Loong (sgd.) Asani S. Tamma ng The ballot boxes were consistently under the watchful eyes of the parties representatives. They were placed in an open space at the PICC. The watchers stationed themselves some five (5) meters away form the ballot boxes. They watched 24 hours a day and slept at the PICC. 21 The parties' watchers again accompanied the transfer of the ballot boxes from PICC to the public schools of Pasay City where the ballots were counted. After the counting, they once more escorted the return of the ballot boxes to PICC. 22 In fine, petitioner's charge that the ballots could have been tampered with before the manual counting is totally unfounded.

Sixth. The evidence also reveals that the result of the manual count is reliable.
It bears stressing that the ballots used in the case at bar were specially made to suit an automated election. The ballots were uncomplicated. They had fairly large ovals opposite the names of candidates. A voter needed only to check the oval opposite the name of his candidate. When the COMELEC ordered a manual count of the votes, it issued special rules as the counting involved a different kind of ballot, albeit, more simple ballots. The Omnibus Election Code rules on appreciation

of ballots cannot apply for they only apply to elections where the names of candidates are handwritten in the ballots. The rules were spelled out in Minute Resolution 98-1798, viz: 23 In the matter of the Memorandum dated 17 May 1998 of Executive Director Resurreccion Z. Borra, reprocedure of the counting of votes for Sulu for the convening of the Board of Election Inspectors, the Municipal Board of Canvassers and the Provincial Board on May 18, 1998 at 9:00 a.m. at the Philippine International Convention Center (PICC). RESOLVED to approve the following procedure for the counting of votes for Sulu at the PICC: I. Common Provisions: 1. Open the ballot box, retrieve the Minutes of Voting and the uncounted ballots or the envelope containing the counted ballots as the case may be; 2. Segregate the national ballots from the local ballots; 3. Count the number of pieces of both the national and local ballots and compare the same with the number of votes who actually voted as stated in the Minutes of Voting: If there is no Minutes of Voting, refer to the Voting Records at the back of the VRRs to determine the number of voters who actually voted. If there are more ballots than the number of voters who actually voted, the poll clerk shall draw out as many local and national ballots as may be equal to the excess and place them in the envelope for excess ballots. II. Counting of Votes A. National Ballots: 1. If the national ballots have already been counted, return the same inside the envelope for counted ballots, reseal and place the envelope inside the ballot box; 2. If the national ballots have not yet been counted, place them inside an envelope and give the envelope through a liaison officer to the machine operator

concerned for counting and printing of the election returns; 3. The machine operator shall affix his signature and thumbmark thereon, and return the same to the members of the BEI concerned for their signatures and thumbmarks; 4. The said returns shall then be placed in corresponding envelopes for distribution; B. Local Ballots: 1. Group the local ballots in piles of fifty (50); 2. The Chairman shall read the votes while the poll clerk and the third member shall simultaneously accomplish the election returns and the tally board respectively. If the voters shaded more ovals than the number of positions to be voted for, no vote shall be counted in favor of any candidate. 3. After all the local ballots shall have been manually counted, the same shall be given to the machine operator concerned for counting by the scanning machine. The machine operator shall then save the results in a diskette and print out the election returns for COMELEC reference. 4. The BEI shall accomplish the certification portion of the election returns and announce the results; 5. Place the election returns in their respective envelopes and distribute them accordingly; 6. Return all pertinent election documents and paraphernalia inside the ballot box. III. Consolidation of Results A. National Ballots 1. The results of the counting for the national ballots for each municipality shall be consolidated by using the ERs of the automated election system;

2. After the consolidation, the Machine Operator shall print the certificate of canvass by municipality and statement of votes by precinct; 3. To consolidate the provincial results, the MO shall load all the diskettes used in the scanner to the ERs; 4. The MO shall print the provincial certificate of canvass and the SOV by municipality; 5. In case there is system failure in the counting and/or consolidation of the results, the POBC/MOBC shall revert to manual consolidation. B. Local Ballots 1. The consolidation of votes shall be done manually by the Provincial/Municipal Board of Canvassers; 2. The proclamation of winning candidates shall be based manual consolidation. RESOLVED, moreover that the pertinent provisions of COMELEC Resolution Nos. 2971 and 3030 shall apply. Let the Executive Director implement this resolution. As aforestated, five (5) Special Boards were initially created under Atty. Tolentino, Jr. to undertake the manual counting, 24 viz: a) Atty. Mamasapunod M. Aguam Ms. G1oria Fernandez Ms. Esperanza Nicolas b) Director Ester L. Villaflor-Roxas Ms. Celia Romero Ms. Rebecca Macaraya c) Atty. Zenaida S. Soriano Ms. Jocelyn Guiang Ma. Jocelyn Tan d) Atty. Erlinda C. Echavia

Ms. Teresa A. Torralba Ms. Ma. Carmen Llamas e) Director Estrella P. de Mesa Ms. Teresita Velasco Ms. Nelly Jaena Later, the COMELEC utilized the services of 600 public school teachers from Pasay City to do the manual counting. Five (5) elementary schools served as the venues of the counting, viz: 25 1. Gotamco Elementary School, Gotamco Street, Pasay City for the municipalities of Indanan, Pangutaran, Panglima Tahil, Maimbung; 2. Zamora Elementary School, Zamora Street, Pasay City for the municipalities of Jolo, Talipao, Panglima Estino, and Tapul; 3. Epifanio Elementary School, Tramo Street, Pasay City for the municipalities of Parang, Lugus, Panamao; 4. Burgos Elementary School, Burgos Street, Pasay City for the municipalities of Luuk and Tongkil; 5. Palma Elementary School for the municipalities of Siasi and Kalingalang Caluang. From beginning to end, the manual counting was done with the watchers of the parties concerned in attendance. Thereafter, the certificates of canvass were prepared and signed by the City/Municipal Board of Canvassers composed of the Chairman, Vice-Chairman, and Secretary. They were also signed by the parties' watchers. 26 The correctness of the manual count cannot therefore be doubted. There was no need for an expert to count the votes. The naked eye could see the checkmarks opposite the big ovals. Indeed, nobody complained that the votes could not be read and counted. The COMELEC representatives had no difficulty counting the votes. The 600 public school teachers of Pasay City had no difficulty. The watchers of the parties had no difficulty. Petitioner did not object to the rules on manual count on the ground that the ballots cannot be manually counted. Indeed, in his original Petition, petitioner did not complain that the local ballots could not be counted by a layman. Neither did the intervenor complain in his petition for intervention. The allegation that it will take a trained eye to read the ballots is more imagined than real. This is not all. As private respondent Tan alleged, the manual count could not have been manipulated in his favor because the results shows that most of his political opponents won. Thus,

"the official results show that the two congressional seats in Sulu were won by Congressman Hussin Amin of the LAKAS-MNLF Wing for the 1st District and Congressman Asani Tammang of the LAKASLoong Wing for the 2nd District. In the provincial level, of the eight (8) seats for the Sangguniang Panlalawigan, two (2) were won by the camp of respondent Tan; three (3) by the camp of petitioner Loong; two (2) by the MNLF; and one (1) by LAMMP. In the mayoral race, seven (7) out of eighteen (18) victorious municipal mayors were identified with respondent Tan; four (4) with petitioner Loong; three (3) with the MNLF; two (2) with LAMMP and one (1) with REPORMA. 27 There is logic to private respondent Tan's contention that if the manual count was tampered, his candidates would not have miserably lost.
1wphi1.nt

Seventh. We further hold that petitioner cannot insist on automated counting under R.A. No. 8436

after the machines misread or rejected the local ballots in five (5) municipalities in Sulu. Section 9 of R.A. No. 8436 provides: Sec. 9. Systems Breakdown in the Counting Center. In the event of a systems breakdown of all assigned machines in the counting center, the Commission shall use any available machine or any component thereof from another city/municipality upon approval of the Commission En Banc or any of its divisions. The transfer of such machines or any component thereof shall be undertaken in the presence of representatives of political parties and citizens' arm of the Commission who shall be notified by the election officer of such transfer. There is a systems breakdown in the counting center when the machine fails to read the ballots or fails to store/save results or fails to print the results after it has read the ballots; or when the computer fails to consolidate election results/reports or fails to print election results-reports after consolidation. As the facts show, it was inutile for the COMELEC to use other machines to count the local votes in Sulu. The errors in counting were due to the misprinting of ovals and the use of wrong sequence codes in the local ballots. The errors were not machine-related. Needless to state, to grant petitioner's prayer to continue the machine count of the local ballots will certainly result in an erroneous count and subvert the will of the electorate.

Eighth. In enacting R.A. No. 8436, Congress obviously failed to provide a remedy where the error in
counting is not machine-related for human foresight is not all-seeing. We hold, however, that the vacuum in the law cannot prevent the COMELEC from levitating above the problem. Section 2(1) of Article IX(C) of the Constitution gives the COMELEC the broad power "to enforce and administer all laws and regulations relative to the conduct of an election, plebiscite, initiative, referendum and recall." Undoubtedly, the text and intent of this provision is to give COMELEC all the necessary and incidental powers for it to achieve the objective of holding free, orderly, honest, peaceful, and credible elections. Congruent to this intent, this Court has not been niggardly in defining the parameters of powers of COMELEC in the conduct of our elections. Thus, we held in Sumulong v. COMELEC: 28

Politics is a practical matter, and political questions must be dealt with realistically not from the standpoint of pure theory. The Commission on Elections, because of its fact-finding facilities, its contacts with political strategists, and its knowledge derived from actual experience in dealing with political controversies, is in a peculiarly advantageous position to decide complex political questions . . .. There are no ready

made formulas for solving public problems. Time and experience are necessary to evolve patterns that will serve the ends of good government. In the matter of the administration of laws relative to the conduct of election, . . . we must not by any excessive zeal take away from the Commission on Elections the initiative which by constitutional and legal mandates properly belongs to it. In the case at bar, the COMELEC order for a manual count was not reasonable. It was the only way to count the decisive local votes in the six (6) municipalities of Pata, Talipao, Siasi, Tudanan, Tapul and Jolo. The bottom line is that by means of the manual count, the will of the voters of Sulu was honestly determined. We cannot kick away the will of the people by giving a literal interpretation to R.A. 8436. R.A. 8436 did not prohibit manual counting when machine count does not work. Counting is part and parcel of the conduct of an election which is under the control and supervision of the COMELEC. It ought to be self-evident that the Constitution did not envision a COMELEC that cannot count the result of an election.

Ninth. Our elections are not conducted under laboratory conditions. In running for public offices,

candidates do not follow the rules of Emily Post. Too often, COMELEC has to make snap judgments to meet unforeseen circumstances that threaten to subvert the will of our voters. In the process, the actions of COMELEC may not be impeccable, indeed, may even be debatable. We cannot, however, engage in a swivel chair criticism of these actions often taken under very difficult circumstances. Even more, we cannot order a special election unless demanded by exceptional circumstances. Thus, the plea for this Court to call a special election for the governorship of Sulu is completely offline. The plea can only be grounded on failure of election. Section 6 of the Omnibus Election Code tells us when there is a failure of election, viz: Sec. 6. Failure of election. If, on account of force majeure, terrorism, fraud, or other analogous causes, the election in any polling place has not been held on the date fixed, or had been suspended before the hour fixed by law for the closing of the voting, or after the voting and during the preparation and the transmission of the election returns or in the custody or canvass thereof, such election results in a failure to elect, and in any of such cases the failure or suspension of election would affect the result of the election, the Commission shall on the basis of a verified petition by any interested party and after due notice and hearing, call for the holding or continuation of the election, not held, suspended or which resulted in a failure to elect but not later than thirty days after the cessation of the cause of such postponement or suspension of the election or failure to elect. To begin with, the plea for a special election must be addressed to the COMELEC and not to this Court. Section 6 of the Omnibus Election Code should be read in relation to Section 4 of R.A. No. 7166 which provides: Sec. 4. Postponement, Failure of Election and Special Elections. The postponement, declaration of failure of elections and the calling of special elections as provided in Sections 5, 6, and 7 of the Omnibus Election Code shall be decided by the Commission en banc by a majority vote of its members. The causes for the declaration of a failure of election may occur before or after casting of votes or on the day of the election. The grounds for failure of election force majeure, terrorism, fraud or other analogous causes clearly involve questions of fact. It is for this reason that they can only be

determined by the COMELEC en bancafter due notice and hearing to the parties. In the case at bar, petitioner never asked the COMELEC en banc to call for a special election in Sulu. Even his original petition with this Court, petitioner did not pray for a special election. His plea for a special election is a mere afterthought. Too late in the day and too unprocedural. Worse, the grounds for failure of election are inexistent. The records show that the voters of Sulu were able to cast their votes freely and fairly. Their votes were counted correctly, albeit manually. The people have spoken. Their sovereign will has to be obeyed. There is another reason why a special election cannot be ordered by this Court. To hold a special election only for the position of Governor will be discriminatory and will violate the right of private respondent to equal protection of the law. The records show that all elected officials in Sulu have been proclaimed and are now discharging their powers and duties. Thus, two (2) congressmen, a vice-governor, eight (8) members of the Sangguniang Panlalawigan and eighteen (18) mayors, numerous vice-mayors and municipal councilors are now serving in their official capacities. These officials were proclaimed on the basis of the same manually counted votes of Sulu. If manual counting is illegal, their assumption of office cannot also be countenanced. Private respondent's election cannot be singled out as invalid for alikes cannot be treated unalikes.

A final word. Our decision merely reinforces our collective efforts to endow COMELEC with enough
power to hold free, honest, orderly and credible elections. A quick flashback of its history is necessary lest our efforts be lost in the labyrinth of time.

The COMELEC was organized under Commonwealth Act No. 607 enacted on August 22, 1940. The power to enforce our election laws was originally vested in the President and exercised through the Department of Interior. According to Dean Sinco, 29 the view ultimately that an independent body could better protect the right of suffrage of our people. Hence, the enforcement of our election laws, while an executive power, was transferred to the COMELEC. From a statutory creation, the COMELEC was transformed to a constitutional body by virtue of the 1940 amendments to the 1935 Constitution which took effect on December 2, 1940. COMELEC was generously granted the power to "have exclusive charge of the enforcement and administration of all laws relative to the conduct of elections . . .. 30 Then came the 1973 Constitution. It further broadened the powers of COMELEC by making it the sole judge of all election contests relating to the election, returns and qualifications of members of the national legislature and elective provincial and city officials. 31 In fine, the COMELEC was given judicial power aside from its traditional administrative and executive functions. The 1987 Constitution quickened this trend of strengthening the COMELEC. Today, COMELEC enforces and administers all laws and regulations relative to the conduct of elections, plebiscites, initiatives, referenda and recalls. Election contests involving regional, provincial and city elective officials are under its exclusive original jurisdiction. All contests involving elective municipal and barangay officials are under its appellate jurisdiction. 32 Our decisions have been in cadence with the movement towards empowering the COMELEC in order that it can more effectively perform its duty of safeguarding the sanctity of our elections. In Cauton vs. COMELEC, 33 we laid down this liberal approach, viz: xxx xxx xxx

The purpose of the Revised Election Code is to protect the integrity of elections and to suppress all evils that may violate its purity and defeat the will of the voters. The purity of the elections is one of the most fundamental requisites of popular government. The Commission on Elections, by constitutional mandate, must do everything in its power to secure a fair and honest canvass of the votes cast in the elections. In the performance of its duties, the Commission must be given a considerable latitude in adopting means and methods that will insure the accomplishment of the great objective for which it was created to promote free, orderly, and honest elections. The choice of means taken by the Commission on Elections, unless they are clearly illegal or constitute grave abuse of discretion, should not be interfered with. In Pacis vs. COMELEC, 34 we reiterated the guiding principle that "clean elections control the appropriateness of the remedy." The dissent, for all its depth, is out of step with this movement. It condemns COMELEC for exercising its discretion to resort to manual count when this was its only viable alternative. It would set aside the results of the manual count even when the results are free from fraud and irregularity. Worse, it would set aside the judgment of the people electing the private respondent as Governor. Upholding the sovereignty of the people is what democracy is all about. When the sovereignty of the people expressed thru the ballot is at stake, it is not enough for this Court to make a statement but it should do everything have that sovereignty obeyed by all. Well done is always better than well said. IN VIEW WHEREOF, the petition of Tupay Loong and the petition in intervention of Yusop Jikiri are dismissed, there being no showing that public respondent gravely abused its discretion in issuing Minute Resolution Nos. 98-1748, 98-1750, 98-1796 and 98-1798. Our status quo order of June 23, 1998 is lifted. No costs. SO ORDERED.

CORPORATION LAWS
G.R. No. L-34382 July 20, 1983 THE HOME INSURANCE COMPANY, petitioner, vs. EASTERN SHIPPING LINES and/or ANGEL JOSE TRANSPORTATION, INC. and HON. A. MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, Branch XVII, respondents. G.R. No. L-34383 July 20, 1983 THE HOME INSURANCE COMPANY, petitioner, vs. N. V. NEDLLOYD LIJNEN; COLUMBIAN PHILIPPINES, INC., and/or GUACODS, INC., and HON. A. MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, Branch XVII, respondents.

No. L-34382. Zapa Law Office for petitioner. Bito, Misa & Lozada Law Office for respondents. No. L-34383. Zapa Law Office for petitioner. Ross, Salcedo, Del Rosario, Bito & Misa Law office for respondents.

GUTIERREZ, JR., J.: Questioned in these consolidated petitions for review on certiorari are the decisions of the Court of First Instance of Manila, Branch XVII, dismissing the complaints in Civil Case No. 71923 and in Civil Case No. 71694, on the ground that plaintiff therein, now appellant, had failed to prove its capacity to sue. There is no dispute over the facts of these cases for recovery of maritime damages. In L-34382, the facts are found in the decision of the respondent court which stated: On or about January 13, 1967, S. Kajita & Co., on behalf of Atlas Consolidated Mining & Development Corporation, shipped on board the SS "Eastern Jupiter' from Osaka, Japan, 2,361 coils of "Black Hot Rolled Copper Wire Rods." The said VESSEL is owned and operated by defendant Eastern Shipping Lines (CARRIER). The shipment was covered by Bill of Lading No. O-MA-9, with arrival notice to Phelps

Dodge Copper Products Corporation of the Philippines (CONSIGNEE) at Manila. The shipment was insured with plaintiff against all risks in the amount of P1,580,105.06 under its Insurance Policy No. AS-73633. xxx xxx xxx The coils discharged from the VESSEL numbered 2,361, of which 53 were in bad order. What the CONSIGNEE ultimately received at its warehouse was the same number of 2,361 coils with 73 coils loose and partly cut, and 28 coils entangled, partly cut, and which had to be considered as scrap. Upon weighing at CONSIGNEE's warehouse, the 2,361 coils were found to weight 263,940.85 kilos as against its invoiced weight of 264,534.00 kilos or a net loss/shortage of 593.15 kilos, according to Exhibit "A", or 1,209,56 lbs., according to the claims presented by the consignee against the plaintiff (Exhibit "D-1"), the CARRIER (Exhibit "J-1"), and the TRANSPORTATION COMPANY (Exhibit "K- l"). For the loss/damage suffered by the cargo, plaintiff paid the consignee under its insurance policy the amount of P3,260.44, by virtue of which plaintiff became subrogated to the rights and actions of the CONSIGNEE. Plaintiff made demands for payment against the CARRIER and the TRANSPORTATION COMPANY for reimbursement of the aforesaid amount but each refused to pay the same. ... The facts of L-34383 are found in the decision of the lower court as follows: On or about December 22, 1966, the Hansa Transport Kontor shipped from Bremen, Germany, 30 packages of Service Parts of Farm Equipment and Implements on board the VESSEL, SS "NEDER RIJN" owned by the defendant, N. V. Nedlloyd Lijnen, and represented in the Philippines by its local agent, the defendant Columbian Philippines, Inc. (CARRIER). The shipment was covered by Bill of Lading No. 22 for transportation to, and delivery at, Manila, in favor of the consignee, international Harvester Macleod, Inc. (CONSIGNEE). The shipment was insured with plaintiff company under its Cargo Policy No. AS-73735 "with average terms" for P98,567.79. xxx xxx xxx The packages discharged from the VESSEL numbered 29, of which seven packages were found to be in bad order. What the CONSIGNEE ultimately received at its warehouse was the same number of 29 packages with 9 packages in bad order. Out of these 9 packages, 1 package was accepted by the CONSIGNEE in good order due to the negligible damages sustained. Upon inspection at the consignee's warehouse, the contents of 3 out of the 8 cases were also found to be complete and intact, leaving 5 cases in bad order. The contents of these 5 packages showed several items missing in the total amount of $131.14; while the contents of the undelivered 1 package were valued at $394.66, or a total of $525.80 or P2,426.98. For the short-delivery of 1 package and the missing items in 5 other packages, plaintiff paid the CONSIGNEE under its Insurance Cargo Policy the amount of P2,426.98, by virtue of which plaintiff became subrogated to the rights and actions of the CONSIGNEE. Demands were made on defendants CARRIER and CONSIGNEE for reimbursement thereof but they failed and refused to pay the same.

In both cases, the petitioner-appellant made the following averment regarding its capacity to sue: The plaintiff is a foreign insurance company duly authorized to do business in the Philippines through its agent, Mr. VICTOR H. BELLO, of legal age and with office address at Oledan Building, Ayala Avenue, Makati, Rizal. In L-34382, the respondent-appellee Eastern Shipping Lines, Inc., filed its answer and alleged that it: Denies the allegations of Paragraph I which refer to plaintiff's capacity to sue for lack of knowledge or information sufficient to form a belief as to the truth thereof. Respondent-appellee, Angel Jose Transportation, Inc., in turn filed its answer admitting the allegations of the complaint, regarding the capacity of plaintiff-appellant. The pertinent paragraph of this answer reads as follows: Angel Jose Admits the jurisdictional averments in paragraphs 1, 2, and 3 of the heading Parties. In L-34383, the respondents-appellees N. V. Nedlloyd Lijhen, Columbian Philippines, Inc. and Guacods, Inc., filed their answers. They denied the petitioner-appellant's capacity to sue for lack of knowledge or information sufficient to form a belief as to the truth thereof. As earlier stated, the respondent court dismissed the complaints in the two cases on the same ground, that the plaintiff failed to prove its capacity to sue. The court reasoned as follows: In the opinion of the Court, if plaintiff had the capacity to sue, the Court should hold that a) defendant Eastern Shipping Lines should pay plaintiff the sum of P1,630.22 with interest at the legal rate from January 5, 1968, the date of the institution of the Complaint, until fully paid; b) defendant Angel Jose Transportation, Inc. should pay plaintiff the sum of P1,630.22 also with interest at the legal rate from January 5, 1968 until fully paid; c) the counterclaim of defendant Angel Jose transportation, Inc. should be ordered dismissed; and d) each defendant to pay one-half of the costs. The Court is of the opinion that Section 68 of the Corporation Law reflects a policy designed to protect the public interest. Hence, although defendants have not raised the question of plaintiff's compliance with that provision of law, the Court has resolved to take the matter into account. A suing foreign corporation, like plaintiff, has to plead affirmatively and prove either that the transaction upon which it bases its complaint is an isolated one, or that it is licensed to transact business in this country, failing which, it will be deemed that it has no valid cause of action (Atlantic Mutual Ins. Co. vs. Cebu Stevedoring Co., Inc., 17 SCRA 1037). In view of the number of cases filed by plaintiff before this Court, of which judicial cognizance can be taken, and under the ruling in Far East International Import and Export Corporation vs. Hankai Koayo Co., 6 SCRA 725, it has to be held that plaintiff is doing business in the Philippines. Consequently, it must have a license under Section 68 of the Corporation Law before it can be allowed to sue.

The situation of plaintiff under said Section 68 has been described as follows in Civil Case No. 71923 of this Court, entitled 'Home Insurance Co. vs. N. V. Nedlloyd Lijnen, of which judicial cognizance can also be taken: Exhibit "R",presented by plaintiff is a certified copy of a license, dated July 1, 1967, issued by the Office of the Insurance Commissioner authorizing plaintiff to transact insurance business in this country. By virtue of Section 176 of the Insurance Law, it has to be presumed that a license to transact business under Section 68 of the Corporation Law had previously been issued to plaintiff. No copy thereof, however, was submitted for a reason unknown. The date of that license must not have been much anterior to July 1, 1967. The preponderance of the evidence would therefore call for the finding that the insurance contract involved in this case, which was executed at Makati, Rizal, on February 8, 1967, was contracted before plaintiff was licensed to transact business in the Philippines. This Court views Section 68 of the Corporation Law as reflective of a basic public policy. Hence, it is of the opinion that, in the eyes of Philippine law, the insurance contract involved in this case must be held void under the provisions of Article 1409 (1) of the Civil Code, and could not be validated by subsequent procurement of the license. That view of the Court finds support in the following citation: According to many authorities, a constitutional or statutory prohibition against a foreign corporation doing business in the state, unless such corporation has complied with conditions prescribed, is effective to make the contracts of such corporation void, or at least unenforceable, and prevents the maintenance by the corporation of any action on such contracts. Although the usual construction is to the contrary, and to the effect that only the remedy for enforcement is affected thereby, a statute prohibiting a non-complying corporation from suing in the state courts on any contract has been held by some courts to render the contract void and unenforceable by the corporation, even after its has complied with the statute." (36 Am. Jur. 2d 299-300). xxx xxx xxx The said Civil Case No. 71923 was dismissed by this Court. As the insurance contract involved herein was executed on January 20, 1967, the instant case should also be dismissed. We resolved to consolidate the two cases when we gave due course to the petition. The petitioner raised the following assignments of errors:

First Assignment of Error THE HONORABLE TRIAL COURT ERRED IN CONSIDERING AS AN ISSUE THE LEGAL EXISTENCE OR CAPACITY OF PLAINTIFF-APPELLANT. Second Assignment of Error THE HONORABLE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT ON THE FINDING THAT PLAINTIFF-APPELLANT HAS NO CAPACITY TO SUE. On the basis of factual and equitable considerations, there is no question that the private respondents should pay the obligations found by the trial court as owing to the petitioner. Only the question of validity of the contracts in relation to lack of capacity to sue stands in the way of the petitioner being given the affirmative relief it seeks. Whether or not the petitioner was engaged in single acts or solitary transactions and not engaged in business is likewise not in issue. The petitioner was engaged in business without a license. The private respondents' obligation to pay under the terms of the contracts has been proved. When the complaints in these two cases were filed, the petitioner had already secured the necessary license to conduct its insurance business in the Philippines. It could already filed suits. Petitioner was, therefore, telling the truth when it averred in its complaints that it was a foreign insurance company duly authorized to do business in the Philippines through its agent Mr. Victor H. Bello. However, when the insurance contracts which formed the basis of these cases were executed, the petitioner had not yet secured the necessary licenses and authority. The lower court, therefore, declared that pursuant to the basic public policy reflected in the Corporation Law, the insurance contracts executed before a license was secured must be held null and void. The court ruled that the contracts could not be validated by the subsequent procurement of the license. The applicable provisions of the old Corporation Law, Act 1459, as amended are: Sec. 68. No foreign corporation or corporations formed, organized, or existing under any laws other than those of the Philippine Islands shall be permitted to transact business in the Philippine Islands until after it shall have obtained a license for that purpose from the chief of the Mercantile Register of the Bureau of Commerce and Industry, (Now Securities and Exchange Commission. See RA 5455) upon order of the Secretary of Finance (Now Monetary Board) in case of banks, savings, and loan banks, trust corporations, and banking institutions of all kinds, and upon order of the Secretary of Commerce and Communications (Now Secretary of Trade. See 5455, section 4 for other requirements) in case of all other foreign corporations. ... xxx xxx xxx Sec. 69. No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippine Islands shall be permitted to transact business in the Philippine Islands or maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in the section immediately preceding. Any officer, director, or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shag be punished by imprisonment for not less than six

months nor more than two years or by a fine of not less than two hundred pesos nor more than one thousand pesos, or by both such imprisonment and fine, in the discretion of the court. As early as 1924, this Court ruled in the leading case of Marshall Wells Co. v. Henry W. Elser & Co. (46 Phil. 70) that the object of Sections 68 and 69 of the Corporation Law was to subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts. The Marshall Wells Co. decision referred to a litigation over an isolated act for the unpaid balance on a bill of goods but the philosophy behind the law applies to the factual circumstances of these cases. The Court stated: xxx xxx xxx Defendant isolates a portion of one sentence of section 69 of the Corporation Law and asks the court to give it a literal meaning Counsel would have the law read thus: "No foreign corporation shall be permitted to maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in section 68 of the law." Plaintiff, on the contrary, desires for the court to consider the particular point under discussion with reference to all the law, and thereafter to give the law a common sense interpretation. The object of the statute was to subject the foreign corporation doing business in the Philippines to the jurisdiction of its courts. The object of the statute was not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it amenable to suit in the local courts. The implication of the law is that it was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated order for business from the Philippines, from securing redress in the Philippine courts, and thus, in effect, to permit persons to avoid their contracts made with such foreign corporations. The effect of the statute preventing foreign corporations from doing business and from bringing actions in the local courts, except on compliance with elaborate requirements, must not be unduly extended or improperly applied. It should not be construed to extend beyond the plain meaning of its terms, considered in connection with its object, and in connection with the spirit of the entire law. (State vs. American Book Co. [1904], 69 Kan, 1; American De Forest Wireless Telegraph Co. vs. Superior Court of City & Country of San Francisco and Hebbard [1908], 153 Cal., 533; 5 Thompson on Corporations, 2d ed., chap. 184.) Confronted with the option of giving to the Corporation Law a harsh interpretation, which would disastrously embarrass trade, or of giving to the law a reasonable interpretation, which would markedly help in the development of trade; confronted with the option of barring from the courts foreign litigants with good causes of action or of assuming jurisdiction of their cases; confronted with the option of construing the law to mean that any corporation in the United States, which might want to sell to a person in the Philippines must send some representative to the Islands before the sale, and go through the complicated formulae provided by the Corporation Law with regard to the obtaining of the license, before the sale was made, in order to avoid being swindled by Philippine citizens, or of construing the law to mean that no foreign corporation doing business in the Philippines can maintain any suit until it

shall possess the necessary license;-confronted with these options, can anyone doubt what our decision will be? The law simply means that no foreign corporation shall be permitted "to transact business in the Philippine Islands," as this phrase is known in corporation law, unless it shall have the license required by law, and, until it complies with the law, shall not be permitted to maintain any suit in the local courts. A contrary holding would bring the law to the verge of unconstitutionality, a result which should be and can be easily avoided. (Sioux Remedy Co. vs. Cope and Cope, supra;Perkins, Philippine Business Law, p. 264.) To repeat, the objective of the law was to subject the foreign corporation to the jurisdiction of our courts. The Corporation Law must be given a reasonable, not an unduly harsh, interpretation which does not hamper the development of trade relations and which fosters friendly commercial intercourse among countries. The objectives enunciated in the 1924 decision are even more relevant today when we view commercial relations in terms of a world economy, when the tendency is to re-examine the political boundaries separating one nation from another insofar as they define business requirements or restrict marketing conditions. We distinguish between the denial of a right to take remedial action and the penal sanction for nonregistration. Insofar as transacting business without a license is concerned, Section 69 of the Corporation Law imposed a penal sanction-imprisonment for not less than six months nor more than two years or payment of a fine not less than P200.00 nor more than P1,000.00 or both in the discretion of the court. There is a penalty for transacting business without registration. And insofar as litigation is concerned, the foreign corporation or its assignee may not maintain any suit for the recovery of any debt, claim, or demand whatever. The Corporation Law is silent on whether or not the contract executed by a foreign corporation with no capacity to sue is null and void ab initio. We are not unaware of the conflicting schools of thought both here and abroad which are divided on whether such contracts are void or merely voidable. Professor Sulpicio Guevarra in his book Corporation Law (Philippine Jurisprudence Series, U.P. Law Center, pp. 233-234) cites an Illinois decision which holds the contracts void and a Michigan statute and decision declaring them merely voidable: xxx xxx xxx Where a contract which is entered into by a foreign corporation without complying with the local requirements of doing business is rendered void either by the express terms of a statute or by statutory construction, a subsequent compliance with the statute by the corporation will not enable it to maintain an action on the contract. (Perkins Mfg. Co. v. Clinton Const. Co., 295 P. 1 [1930]. See also Diamond Glue Co. v. U.S. Glue Co., supra see note 18.) But where the statute merely prohibits the maintenance of a suit on such contract (without expressly declaring the contract "void"), it was held that a failure to comply with the statute rendered the contract voidable and not void, and compliance at any time before suit was sufficient. (Perkins Mfg. Co. v. Clinton Const. Co., supra.) Notwithstanding the above

decision, the Illinois statute provides, among other things that a foreign corporation that fails to comply with the conditions of doing business in that state cannot maintain a suit or action, etc. The court said: 'The contract upon which this suit was brought, having been entered into in this state when appellant was not permitted to transact business in this state, is in violation of the plain provisions of the statute, and is therefore null and void, and no action can be maintained thereon at any time, even if the corporation shall, at some time after the making of the contract, qualify itself to transact business in this state by a compliance with our laws in reference to foreign corporations that desire to engage in business here. (United Lead Co. v. J.M. Ready Elevator Mfg. Co., 222 Ill. 199, 73 N.N. 567 [1906].) A Michigan statute provides: "No foreign corporation subject to the provisions of this Act, shall maintain any action in this state upon any contract made by it in this state after the taking effect of this Act, until it shall have fully complied with the requirement of this Act, and procured a certificate to that effect from the Secretary of State," It was held that the above statute does not render contracts of a foreign corporation that fails to comply with the statute void, but they may be enforced only after compliance therewith. (Hastings Industrial Co. v. Moral, 143 Mich. 679,107 N.E. 706 [1906]; Kuennan v. U.S. Fidelity & G. Co., Mich. 122; 123 N.W. 799 [1909]; Despres, Bridges & Noel v. Zierleyn, 163 Mich. 399, 128 N.W. 769 [1910]). It has also been held that where the law provided that a corporation which has not complied with the statutory requirements "shall not maintain an action until such compliance". "At the commencement of this action the plaintiff had not filed the certified copy with the country clerk of Madera County, but it did file with the officer several months before the defendant filed his amended answer, setting up this defense, as that at the time this defense was pleaded by the defendant the plaintiff had complied with the statute. The defense pleaded by the defendant was therefore unavailable to him to prevent the plaintiff from thereafter maintaining the action. Section 299 does not declare that the plaintiff shall not commence an action in any county unless it has filed a certified copy in the office of the county clerk, but merely declares that it shall not maintain an action until it has filled it. To maintain an action is not the same as to commence an action, but implies that the action has already been commenced." (See also Kendrick & Roberts Inc. v. Warren Bros. Co., 110 Md. 47, 72 A. 461 [1909]). In another case, the court said: "The very fact that the prohibition against maintaining an action in the courts of the state was inserted in the statute ought to be conclusive proof that the legislature did not intend or understand that contracts made without compliance with the law were void. The statute does not fix any time within which foreign corporations shall comply with the Act. If such contracts were void, no suits could be prosecuted on them in any court. ... The primary purpose of our statute is to compel a foreign corporation desiring to do business within the state to submit itself to the jurisdiction of the courts of this state. The statute was not intended to exclude foreign corporations from the state. It does not, in terms, render invalid contracts made in this state by non-complying corporations. The better reason, the wiser and fairer policy, and the greater weight lie with those decisions which hold that where, as here, there is a prohibition with a penalty, with no express or implied declarations respecting the validity of enforceability of contracts made by

qualified foreign corporations, the contracts ... are enforceable ... upon compliance with the law." (Peter & Burghard Stone Co. v. Carper, 172 N.E. 319 [1930].) Our jurisprudence leans towards the later view. Apart from the objectives earlier cited from Marshall Wells Co. v. Henry W. Elser & Co (supra), it has long been the rule that a foreign corporation actually doing business in the Philippines without license to do so may be sued in our courts. The defendant American corporation in General Corporation of the Philippines v. Union Insurance Society of Canton Ltd et al. (87 Phil. 313) entered into insurance contracts without the necessary license or authority. When summons was served on the agent, the defendant had not yet been registered and authorized to do business. The registration and authority came a little less than two months later. This Court ruled: Counsel for appellant contends that at the time of the service of summons, the appellant had not yet been authorized to do business. But, as already stated, section 14, Rule 7 of the Rules of Court makes no distinction as to corporations with or without authority to do business in the Philippines. The test is whether a foreign corporation was actually doing business here. Otherwise, a foreign corporation illegally doing business here because of its refusal or neglect to obtain the corresponding license and authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the local courts. It would indeed be anomalous and quite prejudicial, even disastrous, to the citizens in this jurisdiction who in all good faith and in the regular course of business accept and pay for shipments of goods from America, relying for their protection on duly executed foreign marine insurance policies made payable in Manila and duly endorsed and delivered to them, that when they go to court to enforce said policies, the insurer who all along has been engaging in this business of issuing similar marine policies, serenely pleads immunity to local jurisdiction because of its refusal or neglect to obtain the corresponding license to do business here thereby compelling the consignees or purchasers of the goods insured to go to America and sue in its courts for redress. There is no question that the contracts are enforceable. The requirement of registration affects only the remedy. Significantly, Batas Pambansa Blg. 68, the Corporation Code of the Philippines has corrected the ambiguity caused by the wording of Section 69 of the old Corporation Law. Section 133 of the present Corporation Code provides: SEC. 133. Doing business without a license.-No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shag be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency in the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. The old Section 69 has been reworded in terms of non-access to courts and administrative agencies in order to maintain or intervene in any action or proceeding.

The prohibition against doing business without first securing a license is now given penal sanction which is also applicable to other violations of the Corporation Code under the general provisions of Section 144 of the Code. It is, therefore, not necessary to declare the contract nun and void even as against the erring foreign corporation. The penal sanction for the violation and the denial of access to our courts and administrative bodies are sufficient from the viewpoint of legislative policy. Our ruling that the lack of capacity at the time of the execution of the contracts was cured by the subsequent registration is also strengthened by the procedural aspects of these cases. The petitioner averred in its complaints that it is a foreign insurance company, that it is authorized to do business in the Philippines, that its agent is Mr. Victor H. Bello, and that its office address is the Oledan Building at Ayala Avenue, Makati. These are all the averments required by Section 4, Rule 8 of the Rules of Court. The petitioner sufficiently alleged its capacity to sue. The private respondents countered either with an admission of the plaintiff's jurisdictional averments or with a general denial based on lack of knowledge or information sufficient to form a belief as to the truth of the averments. We find the general denials inadequate to attack the foreign corporations lack of capacity to sue in the light of its positive averment that it is authorized to do so. Section 4, Rule 8 requires that "a party desiring to raise an issue as to the legal existence of any party or the capacity of any party to sue or be sued in a representative capacity shall do so by specific denial, which shag include such supporting particulars as are particularly within the pleader's knowledge. At the very least, the private respondents should have stated particulars in their answers upon which a specific denial of the petitioner's capacity to sue could have been based or which could have supported its denial for lack of knowledge. And yet, even if the plaintiff's lack of capacity to sue was not properly raised as an issue by the answers, the petitioner introduced documentary evidence that it had the authority to engage in the insurance business at the time it filed the complaints. WHEREFORE, the petitions are hereby granted. The decisions of the respondent court are reversed and set aside. In L-34382, respondent Eastern Shipping Lines is ordered to pay the petitioner the sum of P1,630.22 with interest at the legal rate from January 5, 1968 until fully paid and respondent Angel Jose Transportation Inc. is ordered to pay the petitioner the sum of P1,630.22 also with interest at the legal rate from January 5, 1968 until fully paid. Each respondent shall pay one-half of the costs. The counterclaim of Angel Jose Transportation Inc. is dismissed. In L-34383, respondent N. V. Nedlloyd Lijnen, or its agent Columbian Phil. Inc. is ordered to pay the petitioner the sum of P2,426.98 with interest at the legal rate from February 1, 1968 until fully paid, the sum of P500.00 attorney's fees, and costs, The complaint against Guacods, Inc. is dismissed. SO ORDERED.

INSURANCE LAWS
G.R. No. L-16215 June 29, 1963 SIMEON DEL ROSARIO, plaintiff-appellee, vs. THE EQUITABLE INSURANCE AND CASUALTY CO., INC., defendant-appellant.

Vicente J. Francisco and Jose R. Francisco for plaintiff-appellee. K. V. Faylona for defendant-appellant.
PAREDES, J.: On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued Personal Accident Policy No. 7136 on the life of Francisco del Rosario, alias Paquito Bolero, son of herein plaintiff-appellee, binding itself to pay the sum of P1,000.00 to P3,000.00, as indemnity for the death of the insured. The pertinent provisions of the Policy, recite:

Part I. Indemnity For Death

If the insured sustains any bodily injury which is effected solely through violent, external, visible and accidental means, and which shall result, independently of all other causes and within sixty (60) days from the occurrence thereof, in the Death of the Insured, the Company shall pay the amount set opposite such injury: Section 1. Injury sustained other than those specified below unless excepted hereinafter. . . . . . . .

P1,000.00

Section 2. Injury sustained by the wrecking or disablement of a railroad passenger car or street railway car in or on which the Insured is travelling as a farepaying passenger. . . . . . . . P1,500.00 Section 3. Injury sustained by the burning of a church, theatre, public library or municipal administration building while the Insured is therein at the commencement of the fire. . . . . . . . Section 4. Injury sustained by the wrecking or disablement of a regular passenger elevator car in which the Insured is being conveyed as a passenger (Elevator in mines excluded) P2,500.00 Section 5. Injury sustained by a stroke of lightning or by a cyclone. . . . . . . . P3,000.00 xxx xxx xxx

P2,000.00

Part VI. Exceptions

This policy shall not cover disappearance of the Insured nor shall it cover Death, Disability, Hospital fees, or Loss of Time, caused to the insured: . . . (h) By drowning except as a consequence of the wrecking or disablement in the Philippine waters of a passenger steam or motor vessel in which the Insured is travelling as a farepaying passenger; . . . . A rider to the Policy contained the following: IV. DROWNING It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the policy is hereby waived by the company, and to form a part of the provision covered by the policy. On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while on board the motor launch "ISLAMA" together with 33 others, including his beneficiary in the Policy, Remedios Jayme, were forced to jump off said launch on account of fire which broke out on said vessel, resulting in the death of drowning, of the insured and beneficiary in the waters of Jolo.
1wph1.t

On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, filed a claim for payment with defendant company, and on September 13, 1957, defendant company paid to him (plaintiff) the sum of P1,000.00, pursuant to Section 1 of Part I of the policy. The receipt signed by plaintiff reads RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC., the sum of PESOS ONE THOUSAND (P1,000.00) Philippine Currency, being settlement in full for all claims and demands against said Company as a result of an accident which occurred on February 26, 1957, insured under out ACCIDENT Policy No. 7136, causing the death of the Assured. In view of the foregoing, this policy is hereby surrendered and CANCELLED.

LOSS COMPUTATION
Amount of Insurance P1,000.00 __________ vvvvv

On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote defendant company acknowledging receipt by his client (plaintiff herein), of the P1,000.00, but informing said company that said amount was not the correct one. Atty. Francisco claimed The amount payable under the policy, I believe should be P1,500.00 under the provision of Section 2, part 1 of the policy, based on the rule of pari materia as the death of the insured occurred under the circumstances similar to that provided under the aforecited section.

Defendant company, upon receipt of the letter, referred the matter to the Insurance Commissioner, who rendered an opinion that the liability of the company was only P1,000.00, pursuant to Section 1, Part I of the Provisions of the policy (Exh. F, or 3). Because of the above opinion, defendant insurance company refused to pay more than P1,000.00. In the meantime, Atty. Vicente Francisco, in a subsequent letter to the insurance company, asked for P3,000.00 which the Company refused, to pay. Hence, a complaint for the recovery of the balance of P2,000.00 more was instituted with the Court of First Instance of Rizal (Pasay City, Branch VII), praying for it further sum of P10,000.00 as attorney's fees, expenses of litigation and costs. Defendant Insurance Company presented a Motion to Dismiss, alleging that the demand or claim is set forth in the complaint had already been released, plaintiff having received the full amount due as appearing in policy and as per opinion of the Insurance Commissioner. An opposition to the motion to dismiss, was presented by plaintiff, and other pleadings were subsequently file by the parties. On December 28, 1957, the trial court deferred action on the motion to dismiss until termination of the trial of the case, it appearing that the ground thereof was not indubitable. In the Answer to the complaint, defendant company practically admitted all the allegations therein, denying only those which stated that under the policy its liability was P3,000.00. On September 1, 1958, the trial court promulgated an Amended Decision, the pertinent portions of which read xxx xxx xxx

Since the contemporaneous and subsequent acts of the parties show that it was not their intention that the payment of P1,000.00 to the plaintiff and the signing of the loss receipt exhibit "1" would be considered as releasing the defendant completely from its liability on the policy in question, said intention of the parties should prevail over the contents of the loss receipt "1" (Articles 1370 and 1371, New Civil Code). ". . . . Under the terms of this policy, defendant company agreed to pay P1,000.00 to P3,000.00 as indemnity for the death of the insured. The insured died of drowning. Death by drowning is covered by the policy the pertinent provisions of which reads as follows: xxx xxx xxx

"Part I of the policy fixes specific amounts as indemnities in case of death resulting from "bodily injury which is effected solely thru violence, external, visible and accidental means" but, Part I of the Policy is not applicable in case of death by drowning because death by drowning is not one resulting from "bodily injury which is affected solely thru violent, external, visible and accidental means" as "Bodily Injury" means a cut, a bruise, or a wound and drowning is death due to suffocation and not to any cut, bruise or wound." xxx xxx xxx

Besides, on the face of the policy Exhibit "A" itself, death by drowning is a ground for recovery apart from the bodily injury because death by bodily injury is covered by Part I of the policy while death by drowning is covered by Part VI thereof. But while the policy mentions specific amounts that may be recovered for death for bodily injury, yet, there is not specific amount mentioned in the policy for death thru drowning although the latter is,

under Part VI of the policy, a ground for recovery thereunder. Since the defendant has bound itself to pay P1000.00 to P3,000.00 as indemnity for the death of the insured but the policy does not positively state any definite amount that may be recovered in case of death by drowning, there is an ambiguity in this respect in the policy, which ambiguity must be interpreted in favor of the insured and strictly against the insurer so as to allow greater indemnity. xxx xxx xxx

. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already paid the amount of P1,000.00 to the plaintiff so that there still remains a balance of P2,000.00 of the amount to which plaintiff is entitled to recover under the policy Exhibit "A". The plaintiff asks for an award of P10,000.00 as attorney's fees and expenses of litigation. However, since it is evident that the defendant had not acted in bad faith in refusing to pay plaintiff's claim, the Court cannot award plaintiff's claim for attorney's fees and expenses of litigation. IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside its decision dated July 21, 1958 and hereby renders judgment, ordering the defendant to pay plaintiff the sum of Two Thousand (P2,000.00) Pesos and to pay the costs. The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in a Resolution dated September 29, 1959, elevated the case to this Court, stating that the genuine issue is purely legal in nature. All the parties agree that indemnity has to be paid. The conflict centers on how much should the indemnity be. We believe that under the proven facts and circumstances, the findings and conclusions of the trial court, are well taken, for they are supported by the generally accepted principles or rulings on insurance, which enunciate that where there is an ambiguity with respect to the terms and conditions of the policy, the same will be resolved against the one responsible thereof. It should be recalled in this connection, that generally, the insured, has little, if any, participation in the preparation of the policy, together with the drafting of its terms and Conditions. The interpretation of obscure stipulations in a contract should not favor the party who cause the obscurity (Art. 1377, N.C.C.), which, in the case at bar, is the insurance company. . . . . And so it has been generally held that the "terms in an insurance policy, which are ambiguous, equivocal or uncertain . . . are to be construed strictly against, the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved," (29 Am. Jur. 181) and the reason for this rule is that the "insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by expert and legal advisers employed by, and acting exclusively in the interest of, the insurance company" (44 C.J.S. 1174). Calanoc v. Court of Appeals, et al., G.R. No. L8151, Dec. 16, 1955. . . . . Where two interpretations, equally fair, of languages used in an insurance policy may be made, that which allows the greater indemnity will prevail. (L'Engel v. Scotish Union & Nat. F. Ins. Co., 48 Fla. 82, 37 So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas. 749).

At any event, the policy under consideration, covers death or disability by accidental means, and the appellant insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for death of the insured. In view of the conclusions reached, it would seem unnecessary to discuss the other issues raised in the appeal. The judgment appealed from is hereby affirmed. Without costs.

G.R. No. L-24833

September 23, 1968

FIELDMEN'S INSURANCE CO., INC., petitioner, vs. MERCEDES VARGAS VDA. DE SONGCO, ET AL. and COURT OF APPEALS, respondents.

Jose S. Suarez for petitioner. Eligio G. Lagman for respondents.

FERNANDO, J.: An insurance firm, petitioner Fieldmen's Insurance Co., Inc., was not allowed to escape liability under a common carrier insurance policy on the pretext that what was insured, not once but twice, was a private vehicle and not a common carrier, the policy being issued upon the insistence of its agent who discounted fears of the insured that his privately owned vehicle might not fall within its terms, the insured moreover being "a man of scant education," finishing only the first grade. So it was held in a decision of the lower court thereafter affirmed by respondent Court of Appeals. Petitioner in seeking the review of the above decision of respondent Court of Appeals cannot be so sanguine as to entertain the belief that a different outcome could be expected. To be more explicit, we sustain the Court of Appeals. The facts as found by respondent Court of Appeals, binding upon us, follow: "This is a peculiar case. Federico Songco of Floridablanca, Pampanga, a man of scant education being only a first grader ..., owned a private jeepney with Plate No. 41-289 for the year 1960. On September 15, 1960, as such private vehicle owner, he was induced by Fieldmen's Insurance Company Pampanga agent Benjamin Sambat to apply for a Common Carrier's Liability Insurance Policy covering his motor vehicle ... Upon paying an annual premium of P16.50, defendant Fieldmen's Insurance Company, Inc. issued on September 19, 1960, Common Carriers Accident Insurance Policy No. 45HO- 4254 ... the duration of which will be for one (1) year, effective September 15, 1960 to September 15, 1961. On September 22, 1961, the defendant company, upon payment of the corresponding premium, renewed the policy by extending the coverage from October 15, 1961 to October 15, 1962. This time Federico Songco's private jeepney carried Plate No. J-68136-Pampanga1961. ... On October 29, 1961, during the effectivity of the renewed policy, the insured vehicle while being driven by Rodolfo Songco, a duly licensed driver and son of Federico (the vehicle owner) collided with a car in the municipality of Calumpit, province of Bulacan, as a result of which mishap Federico Songco (father) and Rodolfo Songco (son) died, Carlos Songco (another son), the latter's wife, Angelita Songco, and a family friend by the name of Jose Manuel sustained physical injuries of varying degree." 1 It was further shown according to the decision of respondent Court of Appeals: "Amor Songco, 42-year-old son of deceased Federico Songco, testifying as witness, declared that when insurance agent Benjamin Sambat was inducing his father to insure his vehicle, he butted in saying: 'That cannot be, Mr. Sambat, because our vehicle is an "owner" private vehicle and not for passengers,' to which agent Sambat replied: 'whether our vehicle was an "owner" type or for passengers it could be insured because their company is not owned by the Government and the Government has nothing to do with their company. So they could do what they please whenever they believe a vehicle is insurable' ... In spite of the fact that the present case was filed and tried in

the CFI of Pampanga, the defendant company did not even care to rebut Amor Songco's testimony by calling on the witness-stand agent Benjamin Sambat, its Pampanga Field Representative." 2 The plaintiffs in the lower court, likewise respondents here, were the surviving widow and children of the deceased Federico Songco as well as the injured passenger Jose Manuel. On the above facts they prevailed, as had been mentioned, in the lower court and in the respondent Court of Appeals.
1awphl.nt

The basis for the favorable judgment is the doctrine announced in Qua Chee Gan v. Law Union and Rock Insurance Co., Ltd., 3 with Justice J. B. L. Reyes speaking for the Court. It is now

beyond question that where inequitable conduct is shown by an insurance firm, it is "estopped from enforcing forfeitures in its favor, in order to forestall fraud or imposition on the insured." 4 As much, if not much more so than the Qua Chee Gan decision, this is a case where the doctrine of estoppel undeniably calls for application. After petitioner Fieldmen's Insurance Co., Inc. had led the insured Federico Songco to believe that he could qualify under the common carrier liability insurance policy, and to enter into contract of insurance paying the premiums due, it could not, thereafter, in any litigation arising out of such representation, be permitted to change its stand to the detriment of the heirs of the insured. As estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will befall the innocent party due to its injurious reliance, the failure to apply it in this case would result in a gross travesty of justice. That is all that needs be said insofar as the first alleged error of respondent Court of Appeals is concerned, petitioner being adamant in its far-from-reasonable plea that estoppel could not be invoked by the heirs of the insured as a bar to the alleged breach of warranty and condition in the policy. lt would now rely on the fact that the insured owned a private vehicle, not a common carrier, something which it knew all along when not once but twice its agent, no doubt without any objection in its part, exerted the utmost pressure on the insured, a man of scant education, to enter into such a contract. Nor is there any merit to the second alleged error of respondent Court that no legal liability was incurred under the policy by petitioner. Why liability under the terms of the policy 5 was inescapable was set forth in the decision of respondent Court of Appeals. Thus: "Since some of the conditions contained in the policy issued by the defendant-appellant were impossible to comply with under the existing conditions at the time and 'inconsistent with the known facts,' the insurer 'is estopped from asserting breach of such conditions.' From this jurisprudence, we find no valid reason to deviate and consequently hold that the decision appealed from should be affirmed. The injured parties, to wit, Carlos Songco, Angelito Songco and Jose Manuel, for whose hospital and medical expenses the defendant company was being made liable, were passengers of the jeepney at the time of the occurrence, and Rodolfo Songco, for whose burial expenses the defendant company was also being made liable was the driver of the vehicle in question. Except for the fact, that they were not fare paying passengers, their status as beneficiaries under the policy is recognized therein." 6 Even if it be assumed that there was an ambiguity, an excerpt from the Qua Chee Gan decision would reveal anew the weakness of petitioner's contention. Thus: "Moreover, taking into account the well known rule that ambiguities or obscurities must be strictly interpreted against the party that caused them, the 'memo of warranty' invoked by appellant bars the latter from questioning the existence of the appliances called for in the insured premises, since its initial expression, 'the undernoted appliances for the extinction of fire being kept on the premises insured

hereby, ... it is hereby warranted ...,' admits of interpretation as an admission of the existence of
such appliances which appellant cannot now contradict, should the parol evidence rule apply." 7 To the same effect is the following citation from the same leading case: "This rigid application of the rule on ambiguities has become necessary in view of current business practices. The courts cannot ignore that nowadays monopolies, cartels and concentration of capital, endowed with overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared 'agreements' that the weaker party may not change one whit, his participation in the 'agreement' being reduced to the alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats d'adhesion), in contrast to those entered into by parties bargaining on an equal footing, such contracts (of which policies of insurance and international bills of lading are prime examples) obviously call for greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker party from abuses and imposition, and prevent their becoming traps for the unwary (New Civil Code. Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942)." 8 The last error assigned which would find fault with the decision of respondent Court of Appeals insofar as it affirmed the lower court award for exemplary damages as well as attorney's fees is, on its face, of no persuasive force at all. The conclusion that inescapably emerges from the above is the correctness of the decision of respondent Court of Appeals sought to be reviewed. For, to borrow once again from the language of the Qua Chee Gan opinion: "The contract of insurance is one of perfect good faith (uberima fides) not for the insured alone,but equally so for the insurer; in fact, it is more so for the latter, since its dominant bargaining position carries with it stricter responsibility." 9 This is merely to stress that while the morality of the business world is not the morality of institutions of rectitude like the pulpit and the academe, it cannot descend so low as to be another name for guile or deception. Moreover, should it happen thus, no court of justice should allow itself to lend its approval and support.
1awphl.nt

We have no choice but to recognize the monetary responsibility of petitioner Fieldmen's Insurance Co., Inc. It did not succeed in its persistent effort to avoid complying with its obligation in the lower court and the Court of Appeals. Much less should it find any receptivity from us for its unwarranted and unjustified plea to escape from its liability. WHEREFORE, the decision of respondent Court of Appeals of July 20, 1965, is affirmed in its entirety. Costs against petitioner Fieldmen's Insurance Co., Inc.

ADMINISTRATIVE LAWS
G.R. No. 84811 August 29, 1989 SOLID HOMES, INC., petitioner, vs. TERESITA PAYAWAL and COURT OF APPEALS, respondents.

CRUZ, J.: We are asked to reverse a decision of the Court of Appeals sustaining the jurisdiction of the Regional Trial Court of Quezon City over a complaint filed by a buyer, the herein private respondent, against the petitioner, for delivery of title to a subdivision lot. The position of the petitioner, the defendant in that action, is that the decision of the trial court is null and void ab initio because the case should have been heard and decided by what is now called the Housing and Land Use Regulatory Board. The complaint was filed on August 31, 1982, by Teresita Payawal against Solid Homes, Inc. before the Regional Trial Court of Quezon City and docketed as Civil Case No. Q-36119. The plaintiff alleged that the defendant contracted to sell to her a subdivision lot in Marikina on June 9, 1975, for the agreed price of P 28,080.00, and that by September 10, 1981, she had already paid the defendant the total amount of P 38,949.87 in monthly installments and interests. Solid Homes subsequently executed a deed of sale over the land but failed to deliver the corresponding certificate of title despite her repeated demands because, as it appeared later, the defendant had mortgaged the property in bad faith to a financing company. The plaintiff asked for delivery of the title to the lot or, alternatively, the return of all the amounts paid by her plus interest. She also claimed moral and exemplary damages, attorney's fees and the costs of the suit. Solid Homes moved to dismiss the complaint on the ground that the court had no jurisdiction, this being vested in the National Housing Authority under PD No. 957. The motion was denied. The defendant repleaded the objection in its answer, citing Section 3 of the said decree providing that "the National Housing Authority shall have exclusive jurisdiction to regulate the real estate trade and business in accordance with the provisions of this Decree." After trial, judgment was rendered in favor of the plaintiff and the defendant was ordered to deliver to her the title to the land or, failing this, to refund to her the sum of P 38,949.87 plus interest from 1975 and until the full amount was paid. She was also awarded P 5,000.00 moral damages, P 5,000.00 exemplary damages, P 10,000.00 attorney's fees, and the costs of the suit. 1 Solid Homes appealed but the decision was affirmed by the respondent court, 2 which also berated the appellant for its obvious efforts to evade a legitimate obligation, including its dilatory tactics during the trial. The petitioner was also reproved for its "gall" in collecting the further amount of P 1,238.47 from the plaintiff purportedly for realty taxes and registration expenses despite its inability to deliver the title to the land. In holding that the trial court had jurisdiction, the respondent court referred to Section 41 of PD No. 957 itself providing that:

SEC. 41. Other remedies.-The rights and remedies provided in this Decree shall be in addition to any and all other rights and remedies that may be available under existing laws. and declared that "its clear and unambiguous tenor undermine(d) the (petitioner's) pretension that the court a quowas bereft of jurisdiction." The decision also dismissed the contrary opinion of the Secretary of Justice as impinging on the authority of the courts of justice. While we are disturbed by the findings of fact of the trial court and the respondent court on the dubious conduct of the petitioner, we nevertheless must sustain it on the jurisdictional issue. The applicable law is PD No. 957, as amended by PD No. 1344, entitled "Empowering the National Housing Authority to Issue Writs of Execution in the Enforcement of Its Decisions Under Presidential Decree No. 957." Section 1 of the latter decree provides as follows: SECTION 1. In the exercise of its function to regulate the real estate trade and business and in addition to its powers provided for in Presidential Decree No. 957, the National Housing Authority shall have exclusive jurisdiction to hear and decide cases of the following nature: A. Unsound real estate business practices; B. Claims involving refund and any other claims filed by subdivision lot or condominium unit buyer against the project owner, developer, dealer, broker or salesman; and C. Cases involving specific performance of contractuala statutory obligations filed by buyers of subdivision lot or condominium unit against the owner, developer, dealer, broker or salesman. (Emphasis supplied.) The language of this section, especially the italicized portions, leaves no room for doubt that "exclusive jurisdiction" over the case between the petitioner and the private respondent is vested not in the Regional Trial Court but in the National Housing Authority. 3 The private respondent contends that the applicable law is BP No. 129, which confers on regional trial courts jurisdiction to hear and decide cases mentioned in its Section 19, reading in part as follows: SEC. 19. Jurisdiction in civil cases.-Regional Trial Courts shall exercise exclusive original jurisdiction: (1) In all civil actions in which the subject of the litigation is incapable of pecuniary estimation; (2) In all civil actions which involve the title to, or possession of, real property, or any interest therein, except actions for forcible entry into and unlawful detainer of lands or buildings, original jurisdiction over which is conferred upon Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts; xxx xxx xxx

(8) In all other cases in which the demand, exclusive of interest and cost or the value of the property in controversy, amounts to more than twenty thousand pesos (P 20,000.00). It stresses, additionally, that BP No. 129 should control as the later enactment, having been promulgated in 1981, after PD No. 957 was issued in 1975 and PD No. 1344 in 1978. This construction must yield to the familiar canon that in case of conflict between a general law and a special law, the latter must prevail regardless of the dates of their enactment. Thus, it has been held thatThe fact that one law is special and the other general creates a presumption that the special act is to be considered as remaining an exception of the general act, one as a general law of the land and the other as the law of the particular case. 4

xxx xxx xxx

The circumstance that the special law is passed before or after the general act does not change the principle. Where the special law is later, it will be regarded as an exception to, or a qualification of, the prior general act; and where the general act is later, the special statute will be construed as remaining an exception to its terms, unless repealed expressly or by necessary implication. 5

It is obvious that the general law in this case is BP No. 129 and PD No. 1344 the special law. The argument that the trial court could also assume jurisdiction because of Section 41 of PD No. 957, earlier quoted, is also unacceptable. We do not read that provision as vesting concurrent jurisdiction on the Regional Trial Court and the Board over the complaint mentioned in PD No. 1344 if only because grants of power are not to be lightly inferred or merely implied. The only purpose of this section, as we see it, is to reserve. to the aggrieved party such other remedies as may be provided by existing law, like a prosecution for the act complained of under the Revised Penal Code. 6 On the competence of the Board to award damages, we find that this is part of the exclusive power conferred upon it by PD No. 1344 to hear and decide "claims involving refund and any other claims filed by subdivision lot or condominium unit buyers against the project owner, developer, dealer, broker or salesman." It was therefore erroneous for the respondent to brush aside the welltaken opinion of the Secretary of Justice thatSuch claim for damages which the subdivision/condominium buyer may have against the owner, developer, dealer or salesman, being a necessary consequence of an adjudication of liability for non-performance of contractual or statutory obligation, may be deemed necessarily included in the phrase "claims involving refund and any other claims" used in the aforequoted subparagraph C of Section 1 of PD No. 1344. The phrase "any other claims" is, we believe, sufficiently broad to include any and all claims which are incidental to or a necessary consequence of the claims/cases specifically included in the grant of jurisdiction to the National Housing Authority under the subject provisions.

The same may be said with respect to claims for attorney's fees which are recoverable either by agreement of the parties or pursuant to Art. 2208 of the Civil Code (1) when exemplary damages are awarded and (2) where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff 's plainly valid, just and demandable claim. xxx xxx xxx
Besides, a strict construction of the subject provisions of PD No. 1344 which would deny

the HSRC the authority to adjudicate claims for damages and for damages and for attorney's fees would result in multiplicity of suits in that the subdivision condominium buyer who wins a case in the HSRC and who is thereby deemed entitled to claim damages and attorney's fees would be forced to litigate in the regular courts for the purpose, a situation which is obviously not in the contemplation of the law . (Emphasis
supplied.) 7

As a result of the growing complexity of the modern society, it has become necessary to create more and more administrative bodies to help in the regulation of its ramified activities. Specialized in the particular fields assigned to them, they can deal with the problems thereof with more expertise and dispatch than can be expected from the legislature or the courts of justice. This is the reason for the increasing vesture of quasi-legislative and quasi-judicial powers in what is now not unreasonably called the fourth department of the government. Statutes conferring powers on their administrative agencies must be liberally construed to enable them to discharge their assigned duties in accordance with the legislative purpose. 8 Following this policy in Antipolo Realty Corporation v. National Housing Authority, 9 the Court sustained the competence of the respondent administrative body, in the exercise of the exclusive jurisdiction vested in it by PD No. 957 and PD No. 1344, to determine the rights of the parties under a contract to sell a subdivision lot. It remains to state that, contrary to the contention of the petitioner, the case of Tropical Homes v. National Housing Authority 10 is not in point. We upheld in that case the constitutionality of the procedure for appeal provided for in PD No. 1344, but we did not rule there that the National Housing Authority and not the Regional Trial Court had exclusive jurisdiction over the cases enumerated in Section I of the said decree. That is what we are doing now. It is settled that any decision rendered without jurisdiction is a total nullity and may be struck down at any time, even on appeal before this Court. 11 The only exception is where the party raising the issue is barred by estoppel,12 which does not appear in the case before us. On the contrary, the issue was raised as early as in the motion to dismiss filed in the trial court by the petitioner, which continued to plead it in its answer and, later, on appeal to the respondent court. We have no choice, therefore, notwithstanding the delay this decision will entail, to nullify the proceedings in the trial court for lack of jurisdiction. WHEREFORE, the challenged decision of the respondent court is REVERSED and the decision of the Regional Trial Court of Quezon City in Civil Case No. Q-36119 is SET ASIDE, without prejudice to the filing of the appropriate complaint before the Housing and Land Use Regulatory Board. No costs. SO ORDERED.

RETIREMENT AND PENSION LAWS

A.M. No. 2076-RET. July 13, 1990 RE: APPLICATION FOR RETIREMENT BENEFITS OF FORMER JUDGE GREGORIO G. PINEDA, COURT OF FIRST INSTANCE, BRANCH XXI, PASIG, METRO MANILA. vs. RE: APPLICATION FOR GRATUITY BENEFITS UNDER RA 1616, AS AMENDED BY RA 4968, OF JUDGE NICOLAS A. GEROCHI, JR., RTC, BRANCH 139, MAKATI, METRO MANILA. A.M. No. 5698-RET. July 13, 1990 RE: APPLICATION FOR GRATUITY BENEFITS UNDER RA. 1616, AS AMENDED BY RA 4968, OF JUDGE CLEMENTE D. PAREDES, RTC, BRANCH VII, MALOLOS, BULACAN. A.M. No. 5717-RET. July 13, 1990 RE: APPLICATION FOR RETIREMENT BENEFITS OF FORMER JUDGE JUAN B. MONTECILLO, RTC, BRANCH 27, NAGA CITY, EFFECTIVE UPON APPROVAL UNDER RA 910, AS AMENDED BY RA. 5095 AND P.D. 1438. A.M. No. 5794-RET. July 13, 1990 RE: APPLICATION FOR GRATUITY BENEFITS OF JUDGE PATERNO MONTESCLAROS, MTC, BRANCH III, CEBU CITY. A.M. No. 6789-RET. July 13, 1990 RE: APPLICATION FOR RETIREMENT BENEFITS OF JUDGE AVELINO Q. DE LARA, RTC, BRANCH XIII, BASCO, BATANES.

PER CURIAM: These are petitions or motions for reconsideration filed by retired Judges asking that they be granted gratuity and/or retirement benefits under Republic Act No. 910, as amended, in addition to, or in lieu of, the benefits under Republic Act No. 1616 or Presidential Decree No. 1146. The petitioners/movants want to take advantage of the precedents in Administrative Matter No. 5460-Ret., Re: Application for Gratuity Benefits of Associate Justice Efren I. Plana, March 24, 1988 and this Court's May 15, 1989 decision in Administrative Matter No. 6484-Ret. Re: Application for Retirement under Rep. Act No. 910 of Associate Justice Ramon B. Britanico of the Intermediate Appellate Court.

Judge Gregorio Pineda of the former Court of First Instance, Pasig, in Adm. Matter No. 2076-Ret., was granted retirement benefits effective January 17,1983 when he resigned pursuant to the judiciary reorganization under Batas Pambansa Blg. 129 and was not reappointed. He was 59 years, 3 months and 5 days old with 19 years, 11 months and 21 days of government service when he resigned. As he was short by 9 months to complete the optional retirement age of 60, and short by 9 days to complete the 20 years required length of government service, he claims that his accumulated vacation leave of 395-1/2 days and sick leave of 122-1/2 days can cover the deficiency of a total of 279 days to meet the retirement age of 60. Judge Paterno A. Montesclaros of the Municipal Trial Court, Cebu City in Administrative Matter No. 5794-Ret., was granted gratuity retirement benefits under Rep. Act No. 1616 effective February 4, 1987 but desires a conversion of the benefits to those under Rep. Act No. 910. The Court denied the request on November 12, 1987. He now moves for a reconsideration of that denial. Judge Montesclaros wants the Britanico ruling applied to his case. The resignation of Justice Britanico was placed in the same category as justices or judges who, after having rendered at least 20 years of service in the judiciary or in any other branch of the government, or in both, have to "resign by reason of their incapacity to discharge the duties of their office." In his case, Justice Britanico's service in the judiciary was terminated on July 31, 1986 through his courtesy resignation tendered before President Corazon C. Aquino pursuant to Proclamation No. 1 dated February 25, 1986. At the time of his resignation, Justice Britanico was 59 years, 8 months and 19 days old with more than 36 years of government service. Judge Montesclaros now claims that his case falls under the same class as Justice Britanico. He was 56 years, 10 months and 19 days old with 20 years, 6 months and 19 days of government service. Judge Avelino Q. de Lara of the Regional Trial Court (RTC), Batanes, in Administrative Matter No. 6789-Ret., requests a conversion of the benefits granted to him under Rep. Act No. 1616 to those under Rep. Act 910 in view of the Britanico ruling. He resigned pursuant to Proclamation No.1 of President Aquino. His service in the judiciary was terminated and retirement benefits were granted effective January 31, 1987. He was 66 years, 2 months and 21 days old with 31 years and 4 months of government service. However, he had only 4 years and 4 days of service continuously rendered in the judiciary. Judge Juan B. Montecillo of the RTC, Branch 27, Naga City, in Administrative Matter No. 5717-Ret., was at first granted disability retirement benefits under Presidential Decree No. 1146, effective January 17, 1983 when he tendered his courtesy resignation before former President Ferdinand Marcos pursuant to Batas Pambansa Blg. 129. (Resolution dated May 28, 1987, Adm. Matter No. 526-Ret.) However, he was reappointed on December 26, 1985 as RTC Judge. Pursuant to Proclamation No. 1 of President Aquino, he again tendered his courtesy resignation on January 30, 1987. In a resolution of this Court on April 2, 1987 in Adm. Matter No. 5717-Ret., when his application for disability/retirement benefits, was not yet ruled upon, he was allowed to retire under Pres. Decree No. 1146, instead of Rep. Act No. 910 effective February 1, 1987. Hence, at the time of his second application for retirement benefits, he was 61 years, 7 months and 8 days old, with 26 years, 8 months and 17 days of government service but

the last 5 years of which were not continuously rendered. He now requests that he be allowed to retire under Rep. Act No. 910. Judge Clements D. Paredes of the RTC, Malolos, Bulacan, in Administrative Matter No. 5698-Ret., was granted gratuity benefits effective February 1, 1987, under Rep. Act No. 1616 as approved in a Court resolution dated October 27, 1988. The Court dismissed the administrative cases against him (Adm. Matter Nos. R-148-RTJ and R-334-RTJ) on April 29, 1987 and September 13, 1988 and then granted the benefits under Rep. Act No. 1616. Paredes resigned as judge of the RTC, Branch 7, Malolos, Bulacan pursuant to Proclamation No. 1 of President Aquino. He was 54 years, 2 months and 8 days old at the time of his retirement with 27 years, 5 months and 22 days of government service. He now prays for the conversion of the approved application for gratuity benefits under Rep. Act No. 1616 to benefits available under Rep. Act No. 910. Judge Nicolas A. Gerochi of the RTC, Makati in Administrative Matter No. 5621 Ret., appeals to us for the conversion of his approved application for gratuity benefits under Rep. Act No. 1616 to retirement benefits under Rep. Act No. 910. He wants to fall under the Britanico ruling. Gerochi resigned pursuant to Proclamation No. 1 of President Aquino effective November 4, 1986. His application for gratuity benefits was approved only after the resolution by this Court of the administrative case filed against him together with other judges for erroneous imposition of penalties. (Adm. Matter No. 226, January 20, 1987) At the time of his resignation, Gerochi was 55 years, 7 months and 2 days old with 29 years, 4 months and 24 days of government service, the last 11 years and 19 days of which were continuously rendered in the judiciary. Section 1, paragraph (c) of Republic Act No. 1616 gives the following benefits to a retiring judge or justice: c) Retirement is likewise allowed to a member, regardless of age, who has rendered at least twenty years of service. The benefit shall, in addition to the return of his personal contributions plus interest, be only a gratuity equivalent to one month salary for every year of service, based on the highest rate received, not to exceed twenty four months. This gratuity is payable by the employer or office concerned which is hereby authorized to provide the necessary appropriation or pay the same from savings in its appropriations. Meanwhile, Pres. Decree No. 1146 (the Revised Government Service Insurance Act of 1977), under the provisions of which one of the petitioners herein, Judge Montecillo, was allowed to receive retirement benefits after his second resignation from government service, provides that an old-age pension shall be paid to a member who has at least fifteen (15) years of service, is at least sixty (60) years of age, and is separated from the service. (Section 11, Pres. Decree No. 1146) Section 12 (a) states that: Old Age Pension.(a) A member entitled to old-age pension shall receive the basic monthly pension for life but in no case a period less than five years; Provided,That, the member shall have the option to convert the basic monthly salary pensions for the first five years into a lump sum as defined in this Act; . . .

The basic monthly pension is equal to a certain percentage, i.e. 37-1/2% of the revalued average monthly compensation, plus 2-1/2% of the revalued average monthly compensation for each year of service in excess of fifteen years, but the basic monthly pension shag not exceed 90% of the average monthly compensation. (Section 9, Pres. Decree No. 1146) The petitioners-judges now want to be entitled to retirement benefits under Rep. Act No. 910, where each of them would receive: (a) a lump sum of five [5] years gratuity computed on the basis of the highest monthly salary plus the highest monthly aggregate of transportation, living and representation allowances he was receiving on the date of his retirement; and (b) thereafter upon survival after the expiration of the five-year period, to a further lifetime annuity payable monthly equivalent to the amount of the monthly salary he was receiving on the date of his retirement. (Section 3, Rep. Act No. 910) Indeed, petitioners would receive higher benefits should their retirement be governed by Rep. Act No. 910, as amended. However, a close scrutiny into the service record as well as the conduct of each of the judges is necessary to determine whether or not the benefits under Rep. Act No. 910, as amended shall be extended to them in lieu of those approved under Rep. Act No. 1616 or Pres. Decree No. 1146. The rule is that retirement laws are construed liberally in favor of the retiring employee. However, when in the interest of liberal construction the Court allows seeming exceptions to fixed rules for certain retired Judges or Justices, there are ample reasons behind each grant of an exception. The crediting of accumulated leaves to make up for lack of required age or length of service is not done indiscriminately. It is always on a case to case basis. In some instances, the lacking elementsuch as the time to reach an age limit or comply with length of service is de minimis. It could be that the amount of accumulated leave credits is tremendous in comparison to the lacking period of time. More important, there must be present an essential factor before an application under the Plana orBritanico rulings may be granted. The Court allows a making up or compensating for lack of required age or service only if satisfied that the career of the retiree was marked by competence, integrity, and dedication to the public service; it was only a bowing to policy considerations and an acceptance of the realities of political will which brought him or her to premature retirement. Where a Judge resigns to avoid the messy embarrassments of an investigation of poor performance or alleged anomalies or while never having been disciplined for want of civic-minded witnesses, his record is nonetheless marred by notoriety or scandal, or where a superior court was constrained to move fast in order to reverse or undo his rash orders and suspicious indiscretions, obviously neither the Plana nor Britanico rulings will apply. There are other instances when a Judge must content himself with the retirement benefits under less generous legislation. For those who were retired pursuant to the 1983 reorganization, similar considerations are taken into account. It should be noted that the reorganization of the judiciary in 1983 was declared valid by this Court inDe La Llana v. Alba (112 SCRA 294 [1982]). The non-reappointment of

certain Judges as a result of the reorganization was the result of careful deliberation. Executive Order No. 611 created a Presidential Committee on Judicial Reorganization. A committee to screen the records of Judges to be appointed or reappointed was constituted. The Court in De La Llana na stated: They ignore the categorical language of this provision: "The Supreme Court shall submit to the President, within thirty (30) days from the date of the effectivity of this act, a staffing pattern for all courts constituted pursuant to this Act which shall be the basis of the implementing order to be issued by the President in accordance, with the immediately succeeding section. (Batas Pambansa Blg. 129, Section 43) . . . In the meanwhile, the existing inferior courts affected continue functioning as before, "until the completion of the reorganization provided in this Act as declared by the President. Upon such declaration, the said courts shall be deemed automatically abolished and the incumbents thereof shall cease to hold office." (Batas Pambansa Blg. 129, Section 44) There is no ambiguity. The incumbents of the courts thus automatically abolished "shall cease to hold office." No fear need be entertained by incumbents whose length of service, quality of performance, and clean record justify their being named anew, (This Court is ready with such a list to be furnished the President) in legal contemplation without any interruption in the continuity of their service. (In the language of par. XI of the Proposed Guidelines for Judicial Reorganization: "The services of those not separated shall be deemed uninterrupted. In such cases, efficiency, integrity, length of service and other relevant factors shall be considered.") It is equally reasonable to assume that from the ranks of lawyers, either in the government service, private practice, or law professors will come the new appointees. . . (id. at pp. 335-337) The Court explained in the decision's footnotes that it "is ready with such a list (of Judges recommended for re-appointment) to be furnished the President." (Footnote No. 97 at p. 336). It also added the relevant factors to be considered. If the Court did not include a Judge in its list or if the President did not appoint a Judge included in the list of the Court, it is an indication that the relevant factors were considered and the Judge was found wanting. The Court has carefully gone over the history of the petitioners/movants in these cases. On the basis of one or more of the reasons given above, it finds them not-entitled to unqualifiedly avail of the privileges given under the Plana and Britanico rulings. WHEREFORE, the applications of the petitioners for retirement benefits under Republic Act No. 910 are hereby DENIED. SO ORDERED.

G.R. No. L-37867 February 22, 1982 BOARD OF ADMINISTRATORS, PHILIPPINES VETERANS ADMINISTRATION, petitioner, vs. HON. JOSE G. BAUTISTA, in his capacity as Presiding Judge of the CFI Manila, Branch III, and CALIXTO V. GASILAO, respondents.

GUERRERO, J.: This is a petition to review on certiorari the decision of respondent Court of First Instance of Manila, Branch III, rendered on October 25, 1973 in Civil Case No. 90450 for mandamus filed by Calixto V. Gasilao against the Board of Administrators of the Philippine Veterans Administration. The facts as found by the Court a quo to have been established by the pleadings find by the parties are stated in the decision under review from which We quote the following: Calixto V. Gasilao, pauper litigant and petitioner in the above-entitled case, was a veteran in good standing during World War II. On October 19, 1955, he filed a claim for disability pension under Section 9, Republic Act No. 65. The claim was disapproved by the Philippine Veterans Board (now Board of Administrators, Philippine Veterans Administration). Meanwhile, Republic Act 65 was amended by Republic Act 1362 on June 22, 1955 by including as part of the benefit of P50.00, P10.00 a month for each of the unmarried minor children below 18 of the veteran Republic Act No. 1362 was implemented by the respondents only on July 1, 1955. On June 18, 1957, Section 9 of Republic Act No. 65 was further amended by Republic Act 1920 increasing the life pension of the veteran to P100.00 a month and maintaining the P10.00 a month each for the unmarried minor children below 18. Fortunately, on August 8, 1968, the claim of the petitioner which was disapproved in December, 1955 was reconsidered and his claim was finally approved at the rate of P100.00 a month, life pension, and the additional Pl0.00 for each of his ten unmarried minor children below 18. In view of the approval of the claim of petitioner, he requested respondents that his claim be made retroactive as of the date when his original application was flied or disapproved in 1955. Respondents did not act on his request. On June 22, 1969, Section 9 of Republic Act No. 65 was amended by Republic Act No. 5753 which increased the life pension of the veteran to P200.00 a month and granted besides P30.00 a month for the wife and P30.00 a month each for his unmarried minor children below 18. In view of the new law, respondents increased the monthly pension of petitioner to P125.00 effective January 15, 1971 due to insufficient funds to cover full implementation. His wife was given a monthly pension of P7.50 until January 1, 1972 when Republic Act 5753 was fully implemented.

Petitioner now claims that he was deprived of his right to the pension from October 19, 1955 to June 21, 1957 at the rate of P50.00 per month plus P10.00 a month each for his six (6) unmarried minor children below 18. lie also alleges that from June 22, 1957 to August 7, 1968 he is entitled to the difference of P100.00 per month plus P10.00 a month each for his seven (7) unmarried nor children below 18. Again, petitioner asserts the difference of P100.00 per month, plus P30.00 a month for his wife and the difference of P20.00 a month each for his four (4) unmarried minor children below 18 from June 22, 1969 up to January 14, 1971 and finally, the difference of P75.00 per month plus P30.00 a month for his wife and the difference of P20.00 a month for his three (3) unmarried minor children below 18 from January 15, 1971 to December 31, 1971. 1

According to the records, the parties, through their respective counsels, filed on September 24, 1973 the following stipulation of facts in the lower Court: STIPULATION OF FACTS COME NOW the parties thru their respective counsel, and unto this Honorable Court, respectfully state that they agree on the following facts which may be considered as proved without the need of the introduction of any evidence thereon, to wit: 1. Petitioner was a veteran in good standing during the last World War that took active participation in the liberation drive against the enemy, and due to his military service, he was rendered disabled. 2. The Philippine Veterans Administration, formerly the Philippine Veterans Board, (now Philippine Veterans Affairs Office) is an agency of the Government charged with the administration of different laws giving various benefits in favor of veterans and their orphans/or widows and parents; that it has the power to adopt rules and regulations to implement said laws and to pass upon the merits and qualifications of persons applying for rights and privileges extended by this Act pursuant to such rules and regulations as it may adopt to insure the speedy and honest fulfillment of its aims and purposes. 3. On July 23, 1955, petitioner filed a claim (Claim No. Dis-12336) for disability pension under Section 9 of RA 65, with the Philippine Veterans Board (later succeeded by the Philippine Veterans Administration, now Philippine Veterans Affairs Office), alleging that he was suffering from PTB, which he incurred in line of duty. 4. Due to petitioner's failure to complete his supporting papers and submit evidence to establish his service connected illness, his claim was disapproved by the Board of the defunct Philippine Veterans Board on December 18, 1955. 5. On August 8, 1968, petitioner was able to complete his supporting papers and, after due investigation and processing, the Board of Administrators found out that his disability was 100% thus he was awarded the full benefits of section 9 of RA 65, and was therefore given a pension of P100.00 a month and with an additional P 10.00 a month for each of his unmarried minor children pursuant to RA 1920, amending section 9 of RA 65.

6. RA 5753 was approved on June 22, 1969, providing for an increase in the basic pension to P200.00 a month and the additional pension, to P30.00 a month for the wife and each of the unmarried minor children. Petitioner's monthly pension was, however, increased only on January 15, 1971, and by 25% of the increases provided by law, due to the fact that it was only on said date that funds were released for the purpose, and the amount so released was only sufficient to pay only 25% of the increase. 7. On January 15, 1972, more funds were released to implement fully RA 5753 and snow payment in full of the benefits thereunder from said date.
WHEREFORE, it is respectfully prayed that a decision be rendered in accordance with the foregoing stipulation of facts. It is likewise prayed that the parties be granted a period of (15) days within which to file their memoranda. 2

Upon consideration of the foregoing and the Memoranda filed by the parties, the lower Court rendered judgment against therein respondent Board of Administrators, the dispositive portion of which reads as follows: WHEREFORE, premises considered, judgment is hereby rendered for petitioner and the respondents are ordered to make petitioner's pension effective as of December 18, 1955 at the rate of P50.00 per month; and the rate increased to P100.00 per month plus P10.00 per month each for his ten unmarried minor children below 18 years of age from June 22, 1957 up to August 7..1968; to pay the difference of P100.00 per month plus P30.00 per month and P20.00 per month each for his ten unmarried children below 18 years of age from June 22, 1969 up to January 15, 1971, the difference of P75.00 per month plus P22.50 per month for his wife and P20.00 per month each for his unmarried nor children then below 18 years of age from January 16, 1971 up to December 31, 1971. SO ORDERED.
Manila, October 25, 1973. 3

In its Petition before this Court, the Board of Administrators of the Philippine Veterans Administration, through the Office of the Solicitor General, challenges the abovementioned decision of the Court a quo on the following grounds: 1. The lower Court erred in ordering the petitioners to retroact the effectivity of their award to respondent Calixto V. Gasilao of full benefits under section 9 of RA 65 to December 18, 1955, the date when his application was disapproved due to dis failure to complete his supporting papers and submit evidence to establish his service connected illness, and not August 8, 1968, the date when he was able to complete his papers and allow processing and approval of his application. 2. The lower Court erred in ordering payment of claims which had prescribed.
3. The lower Court erred in allowing payment of claims under a law for which no funds had been released. 4

The question raised under the first assigned error is: When should private respondent Gasilao's pension benefits start The lower Court, quoting excerpts from Our decision in Begosa vs. Chairman Philippine Veterans Administration, 5ruled that Gasilao's pension benefits should retroact to the date of the disapproval of his claim on December 18, 1955, and not commence from the approval thereon on August 8, 1968 as contended by the Board of Administrators. Petitioner maintains the stand that the facts of the Begosa case are not similar to those of the case at bar to warrant an application of the ruling therein on the retroactivity of a pension award to the date of prior disapproval of the claim. In the Begosa case, the Supreme Court speaking thru then Associate Justice, now Chief Justice Fernando, affirmed the decision of the lower Court, and ruled in part as follows:
From the facts just set out, it will be noted that plaintiff filed his said claim for disability pension as far back as March 4, 1955; that it was erroneously disapproved on June 21, 1955, because his dishonorable discharge from the Army was not a good or proper ground for the said disapproval and that on reconsideration asked for by him on November 1, 1957, which he continued to follow up, the Board of Administrators, Philippine Veterans Administration, composed of herein defendants, which took over the duties of the Philippine Veterans Board, finally approved his claim on September 2, 1964, at the rate of P30.00 a month. 6 Had it not been for the said error, it appears that there was no good ground to deny the said claim, so that the latter was valid and meritorious even as of the date of its filing on March 4, 1955, hence to make the same effective only as of the date of its approval on September 2, 1964 according to defendant's stand would be greatly unfair and prejudicial to plaintiff. 7

In other words, the favorable award which claimant Begosa finally obtained on September 2, 1964 was made to retroact to the date of prior disapproval of the claim on June 2, 1955 for the reason that such disapproval was erroneously made. In the instant case, on the other hand, the herein claim of respondent Gasilao was denied on December 18, 1955 because of his "failure to complete his supporting papers and submit evidence to establish his service-connected illness" (Stipulation of Facts, Par. 4, ante). Nonetheless, the Stipulation of Facts admitted in par. 1 that "Petitioner was a veteran in good standing during the last World War that took active participation in the liberation drive against the enemy, and due to his military service, he was rendered disabled." From this admission in par. 1, it can reasonably be deduced that the action on the claim of Gasilao was merely suspended by the Philippine Veterans Administration pending the completion of the required supporting papers and evidence to establish his service-connected illness. Hence, Our ruling in the Begosa case making retroactive the award in favor of the veteran still holds. Republic Act No. 65 otherwise known as the Veterans' Bill of Rights, as amended, does not explicitly provide for the effectivity of pension awards. However, petitioner seeks to remedy this legislative deficiency by citing Section 15 of the law which in part reads as follows: Sec. 15. Any person who desires to take advantage of the rights and privileges provided for in this Act should file his application with the Board ...

Petitioner contends that since the foregoing section impliedly requires that the application filed should first be approved by the Board of Administrators before the claimant could receive his pension, therefore, an award of pension benefits should commence form the date of he approval of the application. This stand of the petitioner does not appear to be in consonance with the spirit and intent of the law, considering that Republic Act 65 is a veteran pension law which must be accorded a liberal construction and interpretation in order to favor those entitled to the rights, privileges and benefits granted thereunder, among which are the right to resume old positions in the government, educational benefits, the privilege to take promotional examinations, a life pension for the incapacitated, pensions for widow and children, hospitalization and medical care benefits. As it is generally known, the purpose of Congress in granting veteran pensions is to compensate, as far as may be, a class of men who suffered in the service for the hardships they endured and the dangers they encountered,8 and more particularly, those who have become incapacitated for work owing to sickness, disease or injuries sustained while in line of duty. 9 A veteran pension law is, therefore, a governmental expression of gratitude to and recognition of those who rendered service for the country, especially during times of war or revolution, by extending to them regular monetary aid. For this reason, it is the general rule that a liberal construction is given to pension statutes in favor of those entitled to pension. Courts tend to favor the pensioner, but such constructional preference is to be considered with other guides to interpretation, and a construction of pension laws must depend on its own particular language. 10 Significantly, the original text of RA 65 provided that: Sec. 6. It also shall be the duty of the Board (then the Philippine Veterans Board) to pass upon the merits and qualifications of persons applying for the rights and/or privileges extended by this Act, pursuant to such rules as it may adopt to insure the speedy and honest fulfillment of its aims and purposes. (Emphasis supplied.) The foregoing provision clearly makes it incumbent upon the implementing Board to carry out the provisions of the statute in the most expeditious way possible and without unnecessary delay. In the Begosa case, it took nine years (from June 2, 1955 to September 2, 1964) before the claimant finally obtained his pension grant, whereas in the instant case, it took about twelve years (from December, 1955 to August 8, 1968) for respondent Gasilao to receive his pension claim. To Our mind, it would be more in consonance with the spirit and intentment of the law that the benefits therein granted be received and enjoyed at the earliest possible time by according retroactive effect to the grant of the pension award as We have done in the Begosa case. On the other hand, if the pension awards are made effective only upon approval of the corresponding application which would be dependent on the discretion of the Board of Administrators which as noted above had been abused through inaction extending to nine years, even to twelve years, the noble and humanitarian purposes for which the law had enacted could easily be thwarted or defeated. On the issue of prescription, petitioner cites Article 1144 of the Civil Code which provides: Art. 1144. The following actions must be brought within ten years from the time the right of action accrues:

(1) Upon a written contract; (2) Upon an obligation created by law; and (3) Upon a judgment. Petitioner now contends that since the action was filed in the lower Court on April 13, 1973 seeking the payment of alleged claims which have accrued more than ten (10) years prior to said date, the same should have been disallowed as to the prescribed claims. The obligation of the government to pay pension was created by law (Sec. 9, R.A. 65). Hence, the ten-year prescriptive period should be counted from the date of passage of the law which is September 25, 1946, the reason being that it is only from said date that private respondent could have filed his application. Taking September 25, 1946 as the point of reference, the actual filing of Gasilao's application on July 23, 1955 was clearly made within and effectively interrupted the prescriptive period. It is not the date of the commencement of the action in the lower Court which should be reckoned with, for it was not on said date that Gasilao first sought to claim his pension benefits, but on July 23, 1955 when he filed his application with the defunct Philippine Veterans Board. As We had the occasion to state in the case of Vda. de Nator vs. C.I.R., 11 "the basis of prescription is the unwarranted failure to bring the matter to the attention of those who are by law authorized to take cognizance thereof." The Stipulation of Facts do not show and neither do the records indicate when Gasilao attempted to reinstate his claim after the same was disapproved on December 18, 1955. What is evident is that he did take steps to reinstate his claim because on August 8, 1968, herein petitioner finally approved his application. We find it more logical to presume that upon being properly notified of the disapproval of his application and the reasons therefor, Gasilao, being the interested party that he was proceeded to work for the completion of the requirements of the Board, as in fact he was successful in meeting such requirements. There is nothing in the record to show intentional abandonment of the claim to as to make the prescriptive period continue to run again. The third ground relied upon in support of this Petition involves the issue as to whether or not the payment of increased pension provided in the amendatory Act, R.A. 5753, could be ordered, even where there was no actual release of funds for the purpose, although the law itself expressly provided for an appropriation. In the case ofBoard of Adminitrators, Philippine Veterans Administration vs. Hon. Agcoili, et al., 12 penned by Chief Justice Fred Ruiz Castro, the same issue was treated in this wise: ... The inability of the petitioner to pay Abrera the differential of P60.00 in monthly pension is attributed by it, in its own words, "to the failure of Congress to appropriate the necessary funds to cover all claims for benefits, pensions and allowances." And the petitioner states that it has "no alternative but to suspend (full implementation of said laws until such time, as sufficient funds have been appropriated by Congress" to cover the total amount of all approved claims. We find the explanation of the petitioner satisfactory, but we nevertheless hold that as a matter of law Abrera is entitled to a monthly pension of P120.00 from January 1, 1972 when Republic Act 5753 was implemented up to the present, if his physical disability rating has continued and continues to be 60%. Payment to him of what is due him from January 1, 1972 must however remain subject to the availability of

Government funds duly set aside for the purpose and subject further periodic rerating of his physical disability.
But even if we have thus defined the precise terms, nature and scope of the entitlement of the respondentAbrera, for the guidance of petitioner, we nevertheless refrain from ordering the petitioner to pay the amount of P120.00 per month from January 1, 1972 that is due to the respondent by virtue of the mandate of section 9 of Republic Act 65, as amended by Republic Act 5753, because the Government has thus far not provided the necessary funds to pay all valid claims duly approved under the authority of said
statute.
13

(Emphasis supplied.)

ACCORDINGLY, the judgment of the Court a quo is hereby modified to read as follows: WHEREFORE, premises considered, the Board of Administrators of the Philippine Veterans Administration (now the Philippine Veterans Affairs Office) is hereby ordered to make Gasilao's pension effective December 18, 1955 at the rate of P5000 per month plus P10.00 per month for each of his then unmarried minor children below 18, and the former amount increased to P100.00 from June 22, 1957 to August 7, 1968. The differentials in pension to which said Gasilao, his wife and his unmarried minor children below 18 are entitled for the period from June 22, 1969 to January 14, 1972 by virtue of Republic Act No. 5753 are hereby declared subject to the availability of Government funds appropriated for the purpose. SO ORDERED.

G.R. No. 96422 February 28, 1994 FRANCISCO S. TANTUICO, JR., petitioner, vs. HON. EUFEMIO DOMINGO, in his capacity as Chairman of the Commission on Audit, ESTELITO SALVADOR, MARGARITO SILOT, VALENTINA EUSTAQUIO, ANICIA CHICO and GERMINIA PASCO,respondents.

Kenny H. Tantuico for petitioner. The Solicitor General for respondents.

QUIASON, J.: This is a petition for certiorari, prohibition and mandamus, with prayer for temporary restraining order or preliminary injunction, under Rule 65 of the Revised Rules of Court. The petition mainly questions the withholding of one-half of petitioner's retirement benefits. I On January 26, 1980, petitioner was appointed Chairman of the Commission on Audit (COA) to serve a term of seven years expiring on January 26, 1987. Petitioner had discharged the functions of Chairman of the COA in an acting capacity since 1975. On December 31, 1985, petitioner applied for clearance from all money, property and other accountabilities in preparation for his retirement. He obtained the clearance applied for, which covered the period from 1976 to December 31, 1985. The clearance had all the required signatures and bore a certification that petitioner was "cleared from money, property and/or other accountabilities by this Commission" (Rollo, p. 44). After the EDSA Revolution, petitioner submitted his courtesy resignation to President Corazon C. Aquino. He relinquished his office to the newly appointed Chairman, now Executive Secretary Teofisto Guingona, Jr. on March 10, 1986. That same day, he applied for retirement effective immediately. Petitioner sought a second clearance to cover the period from January 1, 1986 to March 9, 1986. All the signatures necessary to complete the second clearance, except that of Chairman Guingona, were obtained. The second clearance embodies a certificate that petitioner was "cleared from money, property and/or accountability by this Commission" (Rollo, p. 49). Chairman Guingona, however, failed to take any action thereon. Chairman Guingona was replaced by respondent Chairman. A year later, respondent Chairman issued COA Office Order No. 87-10182 (Rollo, p. 50), which created a committee to inventory all equipment acquired during the tenure of his two predecessors.

On May 7, 1987, respondent Chairman indorsed petitioner's retirement application to the Government Service Insurance System (GSIS), certifying, among other matters, that petitioner was cleared of money and property accountability (Rollo, p. 52). The application was returned to the COA pursuant to R.A. No. 1568, which vests in the COA the final approval thereof. On September 25, 1987, the inventory committee finally submitted its report, recommending petitioner's clearance from property accountability inasmuch as there was no showing that he personally gained from the missing property or was primarily liable for the loss thereof (Rollo, pp. 53-58). Not satisfied with the report, respondent Chairman issued a Memorandum directing the inventory committee to explain why no action should be filed against its members for failure to complete a physical inventory and verification of all equipment; for exceeding their authority in recommending clearances for petitioner and Chairman Guingona; and for recommending petitioner's clearance in total disregard of Section 102 of P.D. No. 1445 (Government Auditing Code of the Philippines). The members of the committee were subsequently administratively charged. On January 2, 1988, respondent Chairman created a special audit team for the purpose of conducting a financial and compliance audit of the COA transactions and accounts during the tenure of petitioner from 1976 to 1984 (COA Office Order 88-10677; Rollo, pp. 66-67). On February 28, 1989, the special audit team submitted its report stating: (i) that the audit consisted of selective review of post-audit transactions in the head offices and the State Accounting and Auditing Center; (ii) that the audit disclosed a number of deficiencies which adversely affected the financial condition and operation of the COA, such as violations of executive orders, presidential decrees and related rules and regulations; and (iii) that there were some constraints in the audit, such as the unavailability of records and documents, and personnel movements and turnover. While the report did not make any recommendation, it instead mentioned several officials and employees, including petitioner, who may be responsible or accountable for the questioned transactions (Rollo, pp. 73, 147-151). Respondent Chairman rendered a Decision dated November 20, 1989, in the administrative case filed against the principal members of the first inventory committee. He found them guilty as charged and issued them a reprimand. The other members were meted a stern warning, except for one who was exonerated for not taking part in the preparation of the inventory report. In a letter dated December 21, 1989, a copy of which was received by petitioner on December 27, 1989, respondent Chairman informed petitioner of the approval of his application for retirement under R.A. No. 1568, effective as of March 9, 1986 (Rollo, pp. 68-69). However, respondent Chairman added: . . . In view, however, of the audit findings and inventory report adverted to above, payment of only one-half () of the money value of the benefits due you by reason of such retirement will be allowed, subject to the availability of funds and the usual accounting and auditing rules. Payment of the balance of said retirement benefits shall be subject to the final results of the audit concerning your fiscal responsibility and/or accountability as former Chairman of this Commission. In a letter dated January 22, 1990, petitioner requested full payment of his retirement benefits.

Petitioner was furnished a copy of the report of the special audit team in the letter dated December 21, 1989 of respondent Chairman on January 29, 1990, nearly a year after its completion. Attached to a copy of the report was a letter dated November 14, 1989 from respondent Chairman, who required petitioner to submit his comment within 30 days (Rollo, p. 153). Petitioner submitted a letter-complaint, wherein he cited certain defects in the manner the audit was conducted. He further claimed that the re-audit was not authorized by law since it covered closed and settled accounts. Upon petitioner's request, he was furnished a set of documents which he needed to prepare his comment. He was likewise given another 30-days to submit it. A series of correspondence between petitioner and respondent Chairman ensued. On September 10, 1990, petitioner requested a copy of the working papers on which the audit report was based. This was denied by respondent Chairman, who claimed that under the State Audit Manual, access to the working paper was restricted. Petitioner's reconsideration was likewise denied and he was given a non-extendible period of five days to submit his comment. Instead of submitting his comment, petitioner sought several clarifications and specification, and requested for 90 days within which to submit his comment, considering that the report covered a ten-year period of post-audited transactions. Ignoring petitioner's request, respondent Chairman demanded an accounting of funds and a turn over of the assets of the Fiscal Administration Foundation, Inc. within 30 days. II Petitioner then filed the instant petition. As prayed for by petitioner, this Court issued a temporary restraining order on January 17, 1991. Petitioner argues that notwithstanding the two clearances previously issued, and respondent Chairman's certification that petitioner had been cleared of money and property accountability, respondent Chairman still refuses to release the remaining half of his retirement benefits a purely ministerial act. Petitioner was already issued an initial clearance during his tenure, effective December 31, 1985 (Rollo, p. 44). All the required signatures were present "is cleared from money, property and/or accountabilities by this commission" with the following notation: No property accountability under the Chairman's name as the person. Final clearance as COA Chairman subject to the completion of ongoing reconciliation of Accounting & P(roperty) records and to complete turnover of COA property assigned to him as agency head. xxx xxx xxx The responsibility of the Chairman for the disbursement and collection accounts of this Commission for CYs Sept. '75 to Aug. '85, were completely post-audited, however as of Dec. 31, 1985, the suspensions and disallowances in the amounts of

P36,196,962.11 and P28,762.36 respectively are still in the process of settlement (Rollo, pp. 44-45). Petitioner also applied for a second clearance to cover the period from January 1 to March 9, 1986, which application had been signed by all the officials, except the Chairman (Rollo, p. 49). Whatever infirmities or limitations existed in said clearances were cured after respondent Chairman favorably indorsed petitioner's application for retirement to the Government Service Insurance System and recommended its approval to take effect on March 10, 1986. In said endorsement, respondent Chairman made it clear that there were no pending administrative and criminal cases against petitioner (Rollo, p. 52). Regardless of petitioner's monetary liability to the government that may be discovered from the audit concerning his fiscal responsibility as former COA Chairman, respondent Chairman cannot withhold the benefits due petitioner under the retirement laws. In Romana Cruz v. Hon. Francisco Tantuico, 166 SCRA 670 (1988), the National Treasurer withheld the retirement benefits of an employee because of his finding that she negligently allowed the anomalous encashment of falsified treasury warrants. In said case, where petitioner herein was one of the respondents, we found that the employee had been cleared by the National Treasurer from all money and property responsibility, and held that the retirement pay accruing to a public officer may not be withheld and applied to his indebtedness to the government. In Tantuico, we cited Justice Laurel's essay on the rationale for the benign ruling in favor of the retired employees, thus: . . . Pension in this case is a bounty flowing from the graciousness of the Government intended to reward past services and, at the same time, to provide the pensioner with the means with which to support himself and his family. Unless otherwise clearly provided, the pension should inure wholly to the benefit of the pensioner. It is true that the withholding and application of the amount involved was had under Section 624 of the Administrative Code and not by any judicial process, but if the gratuity could not be attached or levied upon execution in view of the prohibition of Section 3 of Act No. 4051, the appropriation thereof by administrative action, if allowed, would lead to the same prohibited result and enable the respondent to do indirectly what they can not do directly under Section 3 of the Act No. 4051. Act No. 4051 is a later statute having been approved on February 21, 1933, whereas the Administrative Code of 1917 which embodies Section 624 relied upon by the respondents was approved on March 10 of that year. Considering Section 3 of Act No. 4051 as an exception to the general authority granted in Section 624 of the Administrative Code, antagonism between the two provisions is avoided (Hunt v. Hernandez, 64 Phil. 753 [1937]). Under Section 4 of R.A. No. 1568 (An Act to Provide Life Pension to the Auditor General and the Chairman or Any Member of the Commission of Elections), the benefits granted by said law to the Auditor General and the Chairman and Members of the Commission on Elections shall not be subject to garnishment, levy or execution. Likewise, under Section 33 of P.D. No. 1146, as amended (The

Revised Government Service Insurance Act of 1977), the benefits granted thereunder "shall not be subject, among others, to attachment, garnishment, levy or other processes." Well-settled is the rule that retirement laws are liberally interpreted in favor of the retiree because the intention is to provide for the retiree's sustenance and comfort, when he is no longer capable of earning his livelihood (Profeta vs. Drilon, 216 SCRA 777 [1992]). Petitioner also wants us to enjoin the re-audit of his fiscal responsibility or accountability, invoking the following grounds: 1. The re-audit involved settled and closed accounts which under Section 52 of the Audit Code can no longer be re-opened and reviewed; 2. The re-audit was initiated by respondent Chairman alone, and not by the Commission as a collegial body; 3. The report of the special audit team that recommended the re-audit is faulty as the team members themselves admitted several constraints in conducting the reaudit, e.g. unavailability of the documents, frequent turn-over and movement of personnel, etc.; 4. The re-audit covered transactions done even after petitioner's retirement; 5. He was not given prior notice of the re-audit; 6. He was not given access to the working papers; and 7. Respondents were barred by res judicata from proceeding with the re-audit (Rollo, pp. 19-40). The petition must fail insofar as it seeks to abort the completion of the re-audit. While at the beginning petitioner raised objections to the manner the audit was conducted and the authority of respondents to re-open the same, he subsequently cooperated with the examination of his accounts and transactions as a COA official. With respect to the legal objections raised by petitioner to the partial findings of the respondents with respect to his accountability, such findings are still tentative. As petitioner has requested, he is entitled to a reasonable time within which to submit his comment thereon. But in order to prepare his comment, petitioner should be given access to the working papers used by the special audit team. The audit report covered a period of ten years (1976-1985) and involved numerous transactions. It would be unfair to expect petitioner to comment on the COA's findings of the report without giving him a chance to verify how those findings were arrived at. It has been seven years since petitioner's retirement. Since then he was only paid half of his retirement benefits, with the other half being withheld despite the issuance of two clearances and the approval of his retirement application. As of the filing of this petition on December 21, 1990, no criminal or administrative charge had been filed against petitioner in connection with his position as former Acting Chairman and Chairman of the COA.

WHEREFORE, the petition is GRANTED insofar as it seeks to compel respondent Chairman of the COA to pay petitioner's retirement benefits in full and his monthly pensions beginning in March 1991. The petition is DENIED insofar as it seeks to nullify COA Office Order No. 88-10677 and the audit report dated February 28, 1989 but petitioner should be given full access to the working papers to enable him to prepare his comment to any adverse findings in said report. The temporary restraining order is LIFTED. SO ORDERED.

NATURALIZATION LAWS
G.R. No. L-14214 May 25, 1960 RICHARD VELASCO, petitioner-appellant, vs. REPUBLIC OF THE PHILIPPINES, oppositor-appellee.

Salonga, Ordoez, Gonzales and Associates for appellant. First Assistant Solicitor General Guillermo E. Torres and Solicitor Eriberto D. Ignacio for appellee.
BAUTISTA ANGELO, J.: This is a petition for naturalization filed before the Court of First Instance of Manila which, after trial, was denied for failure of petitioner to meet the requirements of the law. Petitioner has appealed. Petitioner was born in the Philippines on May 12, 1932 of spouses Peter Velasco and Miguela Tiu who became naturalized citizens in 1956. He alleges that since his birth in Manila on May 12, 1932 he continuously resided in the Philippines, particularly at 1441 Magdalena St., Manila; that he finished his elementary education at the Francisco Balagtas Elementary School, and his high school at the Arellano University; that he pursued his collegiate studies at the University of the East where he graduated in dentistry in 1954; that he is a citizen of the Republic of China in Formosa; that he has not followed the citizenship of his father when the latter became naturalized as he was then already 23 years old; that he is single, although he is engaged to be married to a Filipino girl by the name of Noemi Eugenio; that he is at present employed at the Wilson Drug Store since February, 1957 with a monthly salary of P150.00; that previously he worked as a salesman of his father with a salary of P2,400.00 per annum, even if his father was only an agent of Elizalde and Co.; that he knows how to speak and write English and Tagalog; he is a Catholic by faith; and he has never been convicted of any crime involving moral turpitude; that he does not believe in polygamy or in anarchy or the use of violence for the predominance of men's ideas; that he does not own any real property although he allegedly has cash savings amounting to P3,500.00 at the Republic Savings Bank, P1,000.00 worth of shares of stocks of the Far Eastern University, P2,000.00 shares of stock of the Marinduque Iron Mines, and P1,000.00 in cash; that he is not suffering from any contagious disease; that he has mingled socially with the Filipinos; that he has shown a desire to embrace the customs and traditions of the Filipinos; and that he desires to become a Filipino citizen because he considered the Philippines as his country and the Filipinos as his countrymen. His qualifications as to moral character were attested by Santiago Mariano, a sergeant of the Manila Police Department, and Mrs. Paz J. Eugenio, a housekeeper, who admitted that she is the prospective mother-in-law of petitioner. The trial court found that there are three names mentioned in the petition and in the documentary evidence submitted in support thereof, namely, Richard Velasco, Richard C. Velasco, and Richard Chua Velasco, and that while petitioner states in his petition that his full name is Richard Velasco, the signature thereon is Richard C. Velasco. Again, the court found that the joint affidavit of said witnesses states that the affiants personally know and are acquainted with Richard Velasco while the documentary evidence shows that his name is Richard Chua Velasco. On the other hand, petitioner

testified that he has no alias nor other names and has always been knows as Richard Velasco. No evidence was submitted to prove that they are one and the same person. The trial court likewise found that Mrs. Paz J. Eugenio, a character witness, is the prospective mother-in-law of petitioner, and such as her testimony is biased. It also found that she and her companion witness Santiago Mariano were also the character witnesses of brother of petitioner in his petition for naturalization, a circumstance which in its opinion indicates that petitioner has a limited circle of Filipino friends. The court finally found that the present income of petitioner is only P150.00 a month which, considering the present high cost of living and the low purchasing power of our peso, is neither lucrative now substantial to meet the requirement of the law. Because of the above facts and circumstances, the trial court declared petitioner not qualified to become a Filipino citizen. We agree to the foregoing finding. Indeed, it appears from the evidence that petitioner was employed at the Wilson Drug Store only on February, 1957 with a salary of P150.00 a month, or barely a month before he filed the instant petition, and that said store is partly owned by his mother who has one-fifth capital investment therein. This leads one to believe that petitioner's employment, even if true, is but a convenient arrangement planned out by him and his family in order to show a token compliance with the requirement of the law that to become a Filipino citizen one must a lucrative income or occupation. Considering that "naturalization laws should be rigidly enforced and strictly construed in favor of the government and against the applicant" (Co Quing y Reyes vs. Republic, 104 Phil., 889), we are constrained to hold that the trial court did not err in denying the petition for naturalization. Wherefore, the decision appealed from is affirmed, with costs against appellant.

G.R. No. L-26386

September 30, 1969

PROVIDENCE WASHINGTON INSURANCE CO., plaintiff-appellant, vs. REPUBLIC OF THE PHILIPPINES and BUREAU OF CUSTOMS, defendants-appellees.

Quasha, Asperilla, Blanco, Zafra and Tayag for plaintiff-appellant. Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio G. Ibarra, Trial Attorney Herminio Z. Florendo and Felipe T. Cuison for defendants-appellees.

FERNANDO, J.: Providence Washington Insurance Co. filed, on October 21, 1966, its brief as appellant against an order of the lower court dismissing its suit for the non-delivery of thirty cases of steel files, which cargo was insured by it against loss and damage, naming as defendants the Republic of the Philippines and the Bureau of Customs as the operator of the arrastre service, thus rendering unavoidable the invocation of the well-settled doctrine of non-suability of the government. Less than two months later, on December 17, 1966, our decision in Mobil Philippines Exploration, Inc. v. Customs Arrastre Service was promulgated. 1 We there explicitly held: "The Bureau of Customs, acting as part of the machinery of the national government in the operation of the arrastre service, pursuant to express legislative mandate and as a necessary incident of its prime governmental function, is immune from suit, there being no statute to the contrary." As of this date, thirty-six subsequent cases, certainly a figure far from unimpressive, have been similarly decided expressly reaffirming the above ruling of governmental immunity from suit without its consent. 2 The futility of this appeal is quite apparent. We affirm the lower court order of dismissal. The doctrine of non-suability thus holds undisputed sway. Its primacy appears to be undeniable. For a suit of this character to prosper, there must be a showing of consent either in express terms or by implication through the use of statutory language too plain to be misinterpreted. Its absence being obvious, the lower court acted correctly. Nor did the Mobil decision blaze a new trail. So it has been from the time the Constitution took effect in 1935.Bull v. Yatco, a 1939 decision during the Commonwealth, spoke to that effect. 3 Adherence to such a view is reflected in the various cases decided after independence before the Mobil Exploration case. 4 The classic formulation of Holmes of this doctrine of nonsuability thus bears restatement: "A sovereign is exempt from suit, not because of any formal conception or obsolete theory, but on the logical and practical round that there can be no legal right as against the authority that makes the law on which the right depends." 5 This is not to deny that while indeed logical and far from impractical the doctrine does give rise to problems considering how widely immersed in matters hitherto deemed outside its sphere the government is at present. Nor is it likely considering its expanding role, demanded by the times and warranted by the Constitution, that a halt would be called to many of its activities, at times unavoidably adversely affecting private rights. Nonetheless, a continued adherence to the doctrine of non-suability is not to be deplored for as against the inconvenience that may be caused private

parties, the loss of governmental efficiency and the obstacle to the performance of its multifarious functions are far greater if such a fundamental principle were abandoned and the availability of judicial remedy were not thus restricted. With the well known propensity on the part of our people to go to court, at the least provocation, the loss of time and energy required to defend against law suits, in the absence of such a basic principle that constitutes such an effective obstacle could very well be imagined.
1awphl.nt

At any rate, in case of a money claim arising from contract, express or implied, which could serve as a basis for civil action between private, parties, such a consent has been given by a statute enacted by the Philippine legislature, even before the Constitution took effect and still applicable at present. 6 The procedure provided for in such a statute 7 was made more expeditious by a Commonwealth Act, enabling the party or entity, who feels aggrieved by the final decision of the Auditor General required to decide the claim within sixty days, having the right to go to this Court for final adjudication. 8 It is worthy of note likewise that in the pursuit of its activities affecting business, the government has increasingly relied on private corporations possessing the power to sue and be sued. 9 Thus the doctrine of non-suability of the government without its consent, as it has operated in practice, hardly lends itself to the charge that it could be the fruitful parent of injustice, considering the vast and ever-widening scope of state activities at present being undertaken. Whatever difficulties for private claimants may still exist, is, from an objective appraisal of all factors, minimal. In the balancing of interests, so unavoidable in the determination of what. principles must prevail if government is to satisfy the public weal, the verdict must be, as it has been these so many years, for its continuing recognition as a fundamental postulate of constitutional law. WHEREFORE, the order of dismissal of the lower court of May 23, 1966 is affirmed. With costs against plaintiff-appellant.